Enel S.p.A. Annual Report 2018

Plain-text annual report

8 1 0 2 _ t r o p e R l a u n n A enel.com Annual Report 2018 Annual Report 2018 Annual Report 2018Contents Report on operations 7 Reports 449 > Enel organizational model | 8 > Corporate boards and powers | 10 > Letter to shareholders and other stakeholders | 13 > Summary of results | 18 > Overview of the Group’s operations, performance and financial position | 30 > Results by business area | 44 > Performance and financial position of Enel SpA | 87 > Significant events in 2018 | 93 > Reference scenario | 106 > Main risks and uncertainties | 146 > Outlook | 151 > Other information | 153 > Sustainability and the fight against climate change | 157 > Related parties | 182 > Reconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures | 183 > Report of the Board of Statutory Auditors to the Shareholders’ Meeting of Enel SpA | 450 > Report of the independent Audit Firm on the 2018 financial statements of Enel SpA | 464 > Report of the independent Audit Firm on the 2018 consolidated financial statements of the Enel Group | 472 > Summary of the resolutions of the Ordinary Shareholders’ Meeting | 482 Attachments 485 > Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2018 | 486 Corporate Governance 545 > Report on corporate governance and ownership structure | 546 Consolidated financial statements 185 > Financial statements | 186 > Notes to the consolidated financial statements | 193 > Declaration of the Chief Executive Officer and the officer responsible for the preparation of the corporate financial reports | 362 Financial statements of Enel SpA 365 > Financial statements | 366 > Notes to the separate financial statements | 373 > Declaration of the Chief Executive Officer and the officer responsible for the preparation of the corporate financial reports | 446 Enel is Open Power VALUES ovation n In R e s p o n sibility W o r k f o r t h e i n t e g r a t i o n o f a l l , r e c o g n i z i n g a n d l e v e r a g i n g i n d A d o p t a n d p r o m o t e s a f e b e h a v i o r a n d m o v e W o r k f o c u s i n g o n s a t i s f y i n g c u s t o m e r s R e c o g n i z e m e r i t i n c o - w o r k e r s P r o p o s e n e w s o l u t i o n Q u i c k l y s h i f t p r i o r i t i e s i f t h e c o n t e s t F o l l o w t h r o u g h w i t h c o m m i t m M a k e d e c i s i o n s i n d a i l y S h a r e i n f o r m a t i o n , P R I N C I P c h a n g e s a c t i v i t i e s e n t s , p u r s u i n g b e i n g w i l l i n g L E S O F a n d / o r i v i d u a p r o - a c t c o - w o l i d i v e v e l y r k e r s r t s i o t i y m a n d d o n o t a n d g i v e g i v e u p f e e d b a c k , ( p G w h e n a c t i n g c u l t r o v u e r e , c o t h a t f a e f f c e c e c d t i g n e d n d e i t i o a n d t a k e t o c o l l a a c t i v i t i e s r e s p o b o r C O N D U C T w i t a n t e s i b h a e t d n d e y i l i t r e s t e o r p u l t s m i n e n f o r t h t e b y a i a o t i t o h n e m a n i m p r o v e w i t h v n e l y r , a s f a e r g o m i n g a n d o n , b s t d d r i s a a h e a l t t a h c e i r l e s p b i d l y i l i t i e h , s f o r e x c p a s s i o n c o n t ri b u ti o n o f o t h e r s a f e t y e ll e n c e s , p e r s o n a n d w a li t y e ll- b e t c .) e i n g c o o r n t r i b f a i l u r e u t i o n 4 Annual Report 2018 O p e n P c h o w alle e r t o n g e V I S I O N s f a s o l v c i n e g t h o e u r g r e w a o t r l d e s t T r u s t y g o l o n h c e t w e n o t y g r e n e f o d l r o w e h n t e p O y erg n e l p o e p r o f y g r e n e g n i g a n a m f s o y a w w e artn w p s hip ers P r o a ctivity N SIO MIS p to n O pen up to new uses of e O n u pe Open up to ne c c e s s to electricity for m ore people n a e p O Enel is Open Power VALUES O p c h e n P alle n o w e r t o g e V I S I O N s f a s o l v e c i n g t h o e u r g r e w a o t r l d e s t T r u s t y g o l o n h c e t e l w e n o t y g r e n e f o d l r o w e h n t e p O p o e p r o f y g r e n e g n i g a n a m s o y a erg w w n p to n n u pe O hip ers artn w p y e s f N SIO MIS O pen up to new uses of e c c e s s to electricity for m ore people Open up to ne P r o a ctivity n a e p O 5 ovation n In W o r k f o r t h e A d o p t a n d p r o m o t e s a f e b e h a v i o r i n t e g r a t i o n o f a l l , r e c o g n i z i n g a n d l e v e r a g i n g W o r k f o c u s i n g o n s a t i s f y i n g c u s t o m e r s F o l l o w t h r o u g h w i t h c o m m i t Q u i c k l y s h i f t p r i o r i t i e s i f t h e c o n t e s t m e n t s , a n d m o v e c h a n g e s a n d / o r i n d i v i d u a p r o - a c t c o - w o l i d i v e v e l y r k e r s r t o s i y m a n d d o n o t a n d g i v e g i v e u p f e e d b a c k R e c o g n i z e m e r i t i n c o - w o r k e r s P r o p o s e n e w s o l u t i o n M a k e d e c i s i o n s i n d a i l y S h a r e i n f o r m a t i o n , P R I N C I P L E S O F b e i n g a c t i v i t i e s p u r s u i n g w i l l i n g a n d t a k e t o c o l l a a c t i v i t i e s r e s p o b o r C O N D a c t i n g w h e n f a e f f c e t h a t c c e d t i a n i m w i t h e l y , ( p G t i a n w i t t e h a U C T s i b i l i t c u l t r o v u e e t d n d r e s t e o e y r e , o g n e d c p u l t s r m i n e n f o r t h v n n e n d e r , a i t i o s f b y a i t e m a o t i t o h m i n g a n d f o r p a s c o n t ri b s i o n u ti o n p r o v e a e r g o o n , b s t d d r i s a a h e a l t t a h c e i r l e s p b i d l y i l i t i e h , s c o o r n t r i b f a i l u r e u t i o n e x c e ll e n c e a f e t y s , p e r s o n a n d a li t y w e ll- b e t c .) e i n g o f o t h e r s R e s p o n sibility Report on operations 6 Annual Report 201801 Report on operations 7 Report on operationsEnel organizational model The Enel Group structure is organized into a matrix that com- America, Africa, Asia and Oceania), which are respon- prises: sible for managing relationships with institutional bodies > Business Lines (Global Thermal Generation, Global Trad- and regulatory authorities, as well as selling electricity ing, Global Infrastructure and Networks, Enel Green and gas, in each of the countries in which the Group op- Power, Enel X), which are responsible for managing and erates, while also providing staff and other service sup- developing assets, optimizing their performance and the port to the Business Lines. return on capital employed in the various geographical The following functions provide support to Enel’s business areas in which the Group operates. The Business Lines operations: are also responsible for improving the efficiency of the > Global service functions (Global Procurement and Global processes they manage and sharing best practices at Digital Solutions), which are responsible for managing in- the global level. The Group will benefit from a central- formation and communication technology activities and ized industrial vision of projects in the various Business procurement at the Group level; Lines. Each project will be assessed not only on the ba- > Holding company functions (Administration, Finance and sis of its financial return but also in relation to the best Control, People and Organization, Communications, Le- technologies available at the Group level; gal and Corporate Affairs, Audit and Innovability), which > Regions and Countries (Italy, Iberia, South America, Eu- are responsible for managing governance processes at rope and Euro-Mediterranean Affairs, North and Central the Group level. 8 Annual Report 2018 F i n a n c e a n d C o n t r o l r m a n G r i e c o C h a i P. o m p a n y g c H o l d i n i o n s f u n c t i o n , r t s t a o li A d m i n i A . D e P a o m m u n i C R . D e i o n s c a t a m b r o g i o t y a b i l i a r r o n v I n E . C i o Chief Executive Officer F. Starace People and Organization F. Di Carlo Legal and Corporate Affairs G. Fazio Audit S. Fiori G l o b a l P ro curement S. Bernabei G l o b a l Business Lines Global Digital Solutions C. Bozzoli G l o bal Infrastructure and Networks | L. Gallo Global Thermal Generation | E. Viale Global Trading | C. M Enel Green P ach etti o w er | A. C a E n el X | F. V e m m is e c r a n t u ri n i i r a a r c e r i e s d C o u n t n s a n g i o e R i a m b u r e o z a i g z s c e c h e r G á l v e z It a l y | C . T Ib eria | J. D . B South A m eric a | M . B diterranea n A ffa ir s | S . M o r erica | A. C a m nia | A. Ca m o-M m i s m is e e c m l A a r t n e C d n a a e c O d n a r u E d n a e p o r u E h t r o N a i s A , a c i r f A Report on operations 9 Corporate boards and powers Romina Guglielmetti Auditor Roberto Mazzei Auditor Alfredo Antoniozzi Alberto Bianchi Director Director Chief Executive Officer The Chief Executive Officer is vested by the bylaws with the powers to represent the company and to sign on its behalf, and in addition is vested by a Board resolution of May 5, 2017 with all powers for managing the company, with the exception of those that are otherwise assigned by law or the bylaws or that the aforesaid resolution reserves for the Board of Directors. Cesare C Director alari F r C a n h i a n d e c f e E s G x e e c n c o e u r a l t i v S e t M a O r a n a f fi a c c g e e e r r C h a i r m a n P a t r i z i a G r i e c o Paola Girdinio Director a c n Board of Statutory Auditors Board of Directors The Board is vested by the bylaws with the broadest powers for the ordinary and extraordinary management of the company, and specifically has the power to carry out all the actions it deems advisable to implement and attain the corporate purpose. Silvia Alessandra Fappani Board Secretary Audit Firm EY SpA e r a r t o P D ir e c t o r e A l b Chairman of the Board of Directors The Chairman is vested by the bylaws with the powers to represent the company and to sign on its behalf, presides over Shareholders’ Angelo Taraborrelli Anna Chiara Svelto Director Director Meetings, convenes and presides over the Board of Directors, and ascertains that the Board’s resolutions are carried out. Pursuant to a Board resolution of May 5, 2017, the Chairman has been vested with a number of additional non-executive powers. u e r g i o D air m a h C S ela Barbiero Alternate auditor Mich o n o T o s n o f l r o t i d u a e t a n r e t l A A F r A a l t e n r c n o a t e T u a u t i d n i t o r o 10 Annual Report 2018 ela Barbiero Alternate auditor Mich o n o T o s n o f l A r o t i d u a e t a n r e t l A F r A a l t n e r c n o a t e T u a u t i d n i t o r o Romina Guglielmetti Roberto Mazzei Auditor Auditor Alfredo Antoniozzi Director Alberto Bianchi Director a c n u e r g i o D air m a h C S Chief Executive Officer The Chief Executive Officer is vested by the bylaws with the powers to represent the company and to sign on its behalf, and in addition is vested by a Board resolution of May 5, 2017 with all powers for managing the company, with the exception of those that are otherwise assigned by law or the bylaws or that the aforesaid resolution reserves for the Board of Directors. Cesare C Director alari F r C a Board of Statutory Auditors Board of Directors The Board is vested by the bylaws with the broadest powers for the ordinary and extraordinary management of the company, and specifically has the power to carry out all the actions it deems advisable to implement and attain the corporate purpose. E s G x e e c n c o e u r a l t i S v e t M a O r a n a f fi a c c g e e e r r a h i n n d e c f e Silvia Alessandra Fappani Board Secretary Audit Firm i r m a n Paola Girdinio Director C h a P a t r i z i a G r i e c o EY SpA e r a r t o P c t o r D ir e e A l b Chairman of the Board of Directors The Chairman is vested by the bylaws with the powers to represent the company and to sign on its behalf, presides over Shareholders’ Angelo Taraborrelli Director Anna Chiara Svelto Director Meetings, convenes and presides over the Board of Directors, and ascertains that the Board’s resolutions are carried out. Pursuant to a Board resolution of May 5, 2017, the Chairman has been vested with a number of additional non-executive powers. Report on operations 11 Letter to shareholders and other stakeholders Dear shareholders and stakeholders, the year 2018 was another year of impressive performance: we achieved all the goals we set ourselves. Today, we are a company characterized by greater sustainability, efficiency, profitability and lower risk: all key factors in continuing to attract and remunerate our investors appropriately and create lasting value for all stakeholders. Among private operators in this industry, we remain leaders in the main areas of the energy transition: 73 million end users, 43 GW of installed renewables capacity, 70 million retail customers (electricity and gas) and 6.2 GW in active demand management. Enel operates globally along the entire value chain. This strategic approach and operational capacity are key levers that, once again in 2018, enabled the Group to seize opportunities and tackle new challenges in a context of increasing volatility and complexity. The Group’s effective strategic positioning was also reflected in the performance of the Enel stock, which outper- formed the FTSE-MIB index and matched that of the EuroSTOXX Utilities index. This enabled us to close 2018 as the largest utility by capitalization in Europe. The macroeconomic environment In 2018 the world economy expanded by around 3%, in line with the pace registered in 2017. The United States and China continued to play a leading role, while growth in the euro area was more moderate. The normalization of monetary policies in the advanced countries generated considerable pressures on emerging markets. Geopolitical uncertainty has characterized the external environment, slowing trade and investment decisions. The European Central Bank announced that it would end its extraordinary asset purchase program (quantitative eas- ing) after December 2018, but it continued to maintain an accommodative stance. The euro-area economies moved at different speeds. Italy was impacted by political uncertainty and discussions with the European Union about the expansionary budget package, with the country entering a technical recession in the 2nd Half of 2018 (2018 GDP grew by 0.75% overall). Despite an unstable political situation, Spain continued to record rapid growth (2018 GDP rose by 2.5%), driven by strong domestic demand. The United States saw growth accelerate sharply (2018 GDP expanded by 2.9%), with unemployment at a historic low and general inflation above the target of the central bank (the CPI rose by 2.4%). In Latin America, the deterioration in the global macroeconomic situation has shone a light on the structural weaknesses of some countries (Argentina in par- ticular), while other economies (Chile, Colombia, Peru) have displayed considerable resilience. More specifically, Argen- tina experienced a severe recession (2018 GDP contracted by 2.6%), exacerbated by exceptional events, such as drought and a stringent fiscal and monetary austerity plan. In Brazil, the uncertainty about the outcome of the elections and the delay in implementing the necessary structural reforms slowed the economic recovery (2018 GDP grew by 1.1%). In general, in almost all countries of interest to the Group (the only exception being Argentina and, partly, Mexico) in- flation has remained low, which helps foster domestic consumption while ensuring compliance with fiscal constraints. The first nine months of the year saw oil prices rise steadily, with Brent increasing to $86 a barrel, while in the 4th Quarter prices plunged to $54 a barrel, reflecting the signs of a slowdown in global growth. The European gas market also experienced periods of high volatility. The early months of 2018 were marked by strong demand, and unusual price tensions were recorded during the summer. Starting in October, the situation reversed, driven by the sudden drop in the price of oil, the large flow of LNG bound for Europe and less buoyant demand. Report on operations 13 The dynamics of the coal market in Europe were characterized by the fuel’s competitiveness with gas, which was a source of volatility. In the Pacific, China was again the main market mover, pushing the price of coal 20 percentage points higher than the previous year. Europe experienced a strong recovery in CO2 prices, which rose to €25/ton at the end of the year, mainly due to the launch of the Market Stability Reserve, which is designed to absorb excess allowances in order to revive the CO2 market. The positive trend in electricity demand in the countries in which the Enel Group operates, which began in 2017, con- tinued last year. The increase in electricity consumption traveled at two different speeds: barely positive but steady growth in Europe (about 1%) and more rapid expansion in Latin America (about 3%). After the broad decline that characterized the last few years, 2018 saw an increase in energy prices in most of the countries in which the Group is present, partly reflecting the average annual increase in the prices of the fossil fuels still used to varying degrees in the electricity supply chain. Performance In a context characterized by the depreciation of currencies in South America and the normalization of market conditions for conventional generation after a very favorable 2017, the Enel Group was able to achieve all the financial targets set for 2018. In particular, the Group closed the year with ordinary EBITDA of €16.2 billion, an increase on the €15.6 billion posted the previous year and in line with the guidance provided to investors. Ordinary net income, which is used to calculate the dividend, reached €4.1 billion, an increase of 9% compared with the previous year. The 2018 dividend amounts to €0.28 per share, an increase of 18% compared with the €0.237 distributed the previous year and in line with the minimum dividend guaranteed to shareholders. Consistent with the interim dividend policy already ap- plied last year, an interim dividend of €0.14 per share was distributed in January 2019. The ratio of FFO to net debt, an indicator of financial soundness, reached 27%, better than the target set and in line with the value at the close of 2017. Net debt amounted to €41.1 billion and is at the lower end of the range announced to investors (between €41 billion and €42 billion). The figure increased compared with the previous year following extraordinary transactions carried out in the period and investments in growth (equal to about €8.5 billion, in line with 2017). Key developments With regard to industrial growth, the expansion of renewable generation continued in 2018, with more than 3 GW of new additional capacity. Thanks to this growth, for the first time in the Group’s history zero-emission technolo- gies contributed more than 50% of annual output, supporting the goal of reducing CO2 emissions (down 11% com- pared with 2017). The digitalization effort also continued, with the Group increasing the number of new smart meters by 1.2 million, thus reaching a total of almost 44 million smart meters installed globally (15% of which are second generation de- vices). These activities are in line with the goal of developing high quality, reliable and resilient infrastructures and making cities more sustainable, consistent with Sustainable Development Goals (SDG) 9 and 11.1 Our electric mobility strategy was supported by the acceleration of the public charging infrastructure installation plan in Italy and the launch of two similar projects in Spain and Romania. This effort helped us exceed the annual target, enabling us to close 2018 with a total of 49,000 public and private recharging points installed. The Group also demonstrated that it can seize the opportunities generated by the growing need for flexible re- sources for electrical systems, reaching 6.2 GW of active demand management and achieving 70 MW of battery storage for both industrial customers and grid stabilization services. Among extraordinary transactions, the acquisition of Eletropaulo, renamed Enel Distribuição São Paulo in Decem- 1 SDG 9 - Industry, Innovation and Infrastructure and SDG 11 - Sustainable Cities and Communities. 14 Annual Report 2018 ber, boosted the Group’s end users to 73 million, up 11% compared with 2017. In Mexico the sale of a majority stake of 1.7 GW 2 of renewables capacity was finalized, while retaining responsibility for plant operation, in accordance with the Build, Sell and Operate (BSO) business model. In addition, in Italy the sale to F2i of 50% of the EF Solare Italia joint venture was completed for €214 million, while the Finale Emilia biomass plant was sold for €59 million to F2i SGR. This latter operation forms part of an agreement between the Enel Group and F2i SGR for the sale of the entire biomass portfolio in Italy. Finally, in Spain Enel Green Power signed an agreement for the acquisition of five wind plants in Galicia and Catalonia with a total capacity of some 132 MW. From a financial point of view, 2018 was an exciting year, characterized by major achievements: from the issue of the second green bond, to receipt of the Yankee Bond Award 2017, the multi-tranche issue of euro-denominated subordinated non-convertible hybrid bonds and the launch of a $4 billion bond issue on the US market. These results were achieved also thanks to the continued rationalization of our organizational structure, which included the corporate reorganization in Chile, the merger of Enel Green Power Latin America SA into Enel Chile and the increase in Enel’s interests in Enel Américas. Strategy and forecasts for 2019-2021 In recent years we have witnessed profound structural changes in many industrial sectors, leading to the emer- gence of new markets and opportunities, but also to the need to renew consolidated business models and re- think the methods of use of the resources available to us. The energy sector is also experiencing a constant and inexorable evolution: the competitiveness of renewable energy sources and the digitalization of assets, together with growing consumer awareness of sustainability and respect for the environment, are opening up electricity to new uses, allowing the decarbonization of the economy. To meet these challenges, in November 2018 Enel presented its 2019-2021 Strategic Plan, which takes up and strengthens the lines of development set out in recent years. The path of growth outlined in the Plan shows a constant acceleration, with Group target for ordinary EBITDA of €19.4 billion in 2021, compared with €16.2 billion in 2018 (+20%). Over the next three years, the Group envisages total gross investment of around €27.5 billion, up 12% com- pared with the previous plan. Out of a total of about €16.5 billion in growth investment, some €10.6 billion will be dedicated to renewables, once again the driver of the Group’s growth. It will be directed not only at markets where Enel has an integrated presence, such as Italy, Spain, Chile, Brazil, Colombia and Peru, but also at other markets such as North and Central America, Africa, Asia and Oceania, thus taking on an increasingly clear global dimension. This growth is in line with Enel’s commitment to combating climate change from a perspective that, in addition to risk management, also seeks to identify new development opportunities. In this regard, this year’s Report contains a section dedicated to implementing the recommendations of the Task force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board. Investments in grids will amount to around €11.1 billion, with the main objective of completing the integration of recently acquired assets, in particular Eletropaulo in Brazil, as well as promoting, especially through digitaliza- tion, the efficiency of grids and enhancing service quality in all countries in which the Group is present. The Group also remains focused on achieving operational efficiencies of €1.2 billion over the next three years, and the digitalization of all business sectors will be the main enabler of cost reduction. Another pillar of future value creation is represented by the simplification of the corporate structure through the reduction of non-controlling interests and the rotation of assets, with a view to improving the overall return on capital employed and increasing the Group’s economic interest. Enel’s strategy is explicitly sustainable, with an approach aimed at creating shared value with the people and 2 An additional 0.1 GW will be transferred in 2019, as provided for in the agreement with the counterparty. 15 Report on operations communities with which the Group interacts, seeking to produce positive effects for the environment, society and the economy in the long term. This is the motivation behind Enel’s support for the initiatives undertaken by the countries in which it operates, aimed at achieving the objectives established in the Paris Agreement. The commitment to the SDGs was strengthened by setting targets through 2030, strengthening the objective of reducing specific CO2 emissions to 0.23 kg/kWheq (SDG 13) and increasing the level of interaction between the Group and local communities, fostering their access to education (SDG 4), energy (SDG 7) and employment as well as sustainable and inclusive economic growth (SDG 8).3 Specific targets were introduced for SDG 9 and SDG 11: the Group expects to install about 47 million smart me- ters and 455 thousand charging points for electric mobility and to invest €5.4 billion in digitalization in 2019-2021. The sustainability and the global dimension of the integrated business model over the entire value chain are at the root of the Strategic Plan’s resilience and the demonstrated robustness of operating performance. In light of this awareness, the dividend policy based on a 70% pay-out of the Group’s ordinary net income has been confirmed until 2021, with the establishment, for the first time, of a minimum dividend per share for the entire 2019-2021 period. For 2019, Enel therefore expects to distribute the greater of: a) a dividend per share based on the 70% pay-out indicated previously; and b) a minimum dividend per share of €0.32. Patrizia Grieco Chairman of the Board of Directors Francesco Starace Chief Executive Officer and General Manager 3 SDG 13 - Climate Action, SDG 4 - Quality Education, SDG 7 - Affordable and Clean Energy and SDG 8 - Decent Work and Economic Growth. 16 Annual Report 201817 Report on operationsSummary of results Abroad | 257.7 Abroad | 6.4 Abroad | 191.1 Abroad | 197.1 (MILLIONS OF EURO) | 8,152 Iberia | 1,433 Europe and Eu r o - M e d i t e r r a n e a n A f 3 9 0 | f a i r s Africa, Asia an d O c e a n i a | 1 4 2 Electricity transported (TWh) | 485.4 Italy | 227.7 Gas sales (billions of m3) | 11.2 Italy | 4.8 Electricity sales (TWh) | 295.4 Italy | 104.3 Total net generation (TWh) | 250.3 Italy | 53.2 CAPITAL EXPENDITURE BY COUNTRY/REGION Italy | 2,479 South America | 2,246 North and Central America | 1,373 Other, eliminations and adjustments | 89 18 Annual Report 2018 e u r o a n d % ch a n ge on 2017) | ( m illi o n s o f 8 1 0 r 2 e f o c n e rf o r m a P r e s o u r c e | 2 5 0 .3 (TWh) i o n b y t a r e n e t g e o t a l n T 9 9 . 0 (TWh) | r e s o u r c e s b l e a w R e % n e 3 9 b l e e w a n y r e n b 72 (+1.4%) ue even R 5,6 7 argin g m tin %) ra e p 4.5 s o 1 (+ 5 s o r G 3 , 6 1 e m o c n i ) % 1 1. + ( 0 0 9 , 9 g n i t a r e p O ) % 2 . 9 1 + ( e m o c n i 0 5 t e N 3 , 6 al o C % 6 2 r a cle u N % 0 1 e l c y c d e n i b m o C s a g d n a % 5 1 e n i b r u t d n a s l i a O g % 0 1 Total net ge n eratio ydroelectric 7% 6 H d Win % 2 2 l a m r e h t o e G % 6 r a l o s s s a m d n a % 5 o i B t a l y I e r i a I b E m p l o y e e s b y b u s i n e s s a r e a 6 9 , 2 7 2 2 8 , 1 3 4 3 6 9 , 7 8 5 0 , 8 2 a ri c n A ff a ir s h A m e a e n a e ric m t u o S d it e rr a n e d C n tr al A A fric a, A sia a n d O c e a nia O th er d E n e a u r o - M e o rt h a N p u r o E 3 2 4 8 5 , 6 2 , 2 2 4 1 2,3 6 0 Summary of results Electricity transported (TWh) | 485.4 Italy | 227.7 Gas sales (billions of m3) | 11.2 Italy | 4.8 Electricity sales (TWh) | 295.4 Italy | 104.3 Total net generation (TWh) | 250.3 Italy | 53.2 Abroad | 257.7 Abroad | 6.4 Abroad | 191.1 Abroad | 197.1 CAPITAL EXPENDITURE BY COUNTRY/REGION (MILLIONS OF EURO) | 8,152 Italy | 2,479 South America | 2,246 North and Central America | 1,373 Other, eliminations and adjustments | 89 Iberia | 1,433 Europe and Eu r o - M e d i t e r r a n e a n A f 3 9 0 | f a i r s Africa, Asia an d O c e a n i a | 1 4 2 e u r o a n d % ch a n ge on 2017) | ( m illi o n s o f 8 1 0 r 2 e f o c n e rf o r m a P r e s o u r c e | 2 5 0 .3 (TWh) i o n b y t a r e n e t g e o t a l n T 9 9 . 0 (TWh) | r e s o u r c e b l e e w a n y r e s b l e a w R e % e n 3 9 n b Total net ge n eratio ydroelectric H 7% 6 d Win % 2 2 l a m r e h t o e G % 6 r a l o s s s a m o i B d n a % 5 I a t a l y e r i a I b ri c h A m e n A ff a ir s a e e ric n m n tr al A a S t u o d it e rr a d C u r o - M e o rt h a N n e A fric a, A sia a n d O c e a nia O th er 72 (+1.4%) ue even 5,6 7 R argin g m tin %) ra 4.5 e p 1 (+ s o s 5 o 3 r , G 6 1 e m o c n i g n i t a r e p O ) % 1 1. + ( 0 0 9 , 9 ) % 2 . 9 1 + ( e m o c n i 0 5 3 , 6 t e N al % o C 6 2 r a cle % u N 0 1 e l c y c d e n i b m o C s a g d n a e n i % 5 1 b r u t d n a s a g l i O % 0 1 E m p l o y e e s b y b u s i n e s s a r e a 6 9 , 2 7 2 2 8 , 1 3 4 3 6 9 , 7 8 5 0 , 8 2 4 8 5 , 6 2 , 2 d E n e a p u r o 2 E 3 2 4 1 2,3 6 0 Report on operations 19 Performance data Revenue Revenue for 2018 amounted to €75,672 million, an in- millions of euro 2018 2017 75,672 +1.4% 74,639 crease of €1,033 million (+1.4%) compared with 2017. The rise is mainly due to an increase in revenue from the Enel Green Power Business Line in Italy, Spain and South America, an increase in sales on the free market in Italy and changes in the scope of consolidation, in particular the acquisition of Enel Distribuição São Paulo, as well as the capital gain and fair value remeasurement from the partial disposal with loss of control of eight companies in the Enel Green Power Business Line in Mexico (€190 million). These effects were partially offset by unfavorable ex- change rate developments, mainly in South America. Revenue in 2018 included the gain on the disposal of EF Solare Italia (€65 million) and the indemnity connected with the sale in 2009 of Enel Rete Gas (€128 million), which do not form part of ordinary revenue. In 2017, this item mainly included the gain on the sale of the Chilean company Electrogas (€143 million). Millions of euro Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Total 2018 38,398 19,492 14,742 2,361 1,438 101 (860) 75,672 2017 38,781 19,994 13,154 2,411 1,187 96 (984) 74,639 Change (383) (502) 1,588 (50) 251 5 124 1,033 -1.0% -2.5% 12.1% -2.1% 21.1% 5.2% 12.6% 1.4% 20 Annual Report 201816,351 15,653 +4.5% Gross operating margin The gross operating margin for 2018 amounted to millions of euro €16,351 million, increasing by €698 million (+4.5%) com- pared with 2017 despite unfavorable exchange rate de- velopments (€543 million). The increase in the operating margin is mainly attributable to the Enel Green Power 2018 Business Line in Italy, Spain and South America and the free market in Italy, plus the effect of the acquisition of 2017 Enel Distribuição São Paulo and the capitalization of cus- tomer acquisition costs in the amount of €220 million in accordance with the provisions of the new accounting standard IFRS 15. The gross operating margin also increased due to the gains and the remeasurement at fair value, following par- tial disposal with loss of control, of eight Mexican project companies (€190 million) and the following items not con- sidered in the determination of the ordinary gross operat- ing margin: > the capital gain on the sale of EF Solare Italia (€65 mil- lion); > the indemnity received by e-distribuzione in connection with the 2009 sale of Enel Rete Gas (€128 million). These increases are partly offset by the effect of the gain recorded in the previous year on the sale of the Chilean company Electrogas (€143 million), net of the loss recog- nized in South America following the abandonment of hy- droelectric projects in Chile and Colombia in the amount of €45 million. The following table shows the performance of the gross operating margin by geographical area: Millions of euro Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other Total 2018 7,304 3,558 4,370 516 708 54 (159) 16,351 2017 Change 6,863 3,573 4,204 543 759 57 (346) 15,653 441 (15) 166 (27) (51) (3) 187 698 6.4% -0.4% 3.9% -5.0% -6.7% -5.3% 54.0% 4.5% 21 Report on operations The ordinary gross operating margin amounted to > the capital gain on the sale of EF Solare Italia of €65 €16,158 million, an increase of €603 million compared million. with 2017 (+3.9%). Items in 2018 that are not included As noted above, the items excluded from the ordinary in the ordinary gross operating margin amounted to €193 gross operating margin in 2017 were the gain of €143 mil- million. They included: lion on the sale of Electrogas and the loss recognized fol- > the indemnity received in connection with the 2009 sale lowing the abandonment of hydroelectric projects in Chile of Enel Rete Gas (€128 million); and Colombia in the amount of €45 million. Millions of euro Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other Total 2018 7,111 3,558 4,370 516 708 54 (159) 16,158 2017 Change 6,863 3,573 4,106 543 759 57 (346) 15,555 248 (15) 264 (27) (51) (3) 187 603 3.6% -0.4% 6.4% -5.0% -6.7% -5.3% 54.0% 3.9% Operating income Operating income in 2018 amounted to €9,900 million, millions of euro 2018 2017 9,900 9,792 +1.1% an increase of €108 million compared with 2017 (€9,792 million) despite an increase of €590 million in depreciation, amortization and impairment. That rise is attributable to the capitalization of customer acquisition costs, which in- creased amortization by €166 million, the acquisition of Enel Distribuição São Paulo (€93 million) and the effect of the increase in impairment recognized in 2018 compared with 2017. In this regard, please note: > the writedown of two generation units at the Spanish generation plant at Alcúdia (€82 million); > the writedown of the LNG regasification plant of Nuove Energie (€24 million); > the impairment of a number of conventional (€23 million) and renewable (€94 million) generation plants in Italy; > an increase in impairment on certain trade receivables (€186 million), mainly in Italy. These increases were partly offset by unfavorable ex- change rate developments in South America, as well as by the reversal of the impairment of the EGP Hellas CGU (€117 million) and the impairment recognized the previous year on geothermal development activities in Germany through the subsidiary Erdwärme Oberland GmbH (€42 million). 22 Annual Report 2018 Millions of euro Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other Total 2018 4,498 1,724 2,976 420 454 10 (182) 9,900 2017 4,470 1,842 2,970 306 553 15 (364) 9,792 Change 28 (118) 6 114 (99) (5) 182 108 0.6% -6.4% 0.2% 37.3% -17.9% -33.3% 50.0% 1.1% Ordinary operating income, which does not include the biomass and solar operations in Italy, net of the reversal items discussed above with reference to the ordinary gross of the impairment on the EGP Hellas CGU), amounted to operating margin and does not consider the effects of the €9,793 million, an increase of €57 million (+0.6%) com- impairment mentioned earlier (Alcúdia, Nuove Energie and pared with 2017. Millions of euro Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other Total 2018 4,426 1,806 2,976 303 454 10 (182) 9,793 2017 4,470 1,842 2,872 348 553 15 (364) 9,736 Change (44) (36) 104 (45) (99) (5) 182 57 -1.0% -2.0% 3.6% -12.9% -17.9% -33.3% 50.0% 0.6% 23 Report on operationsNet income Net income attributable to shareholders of the Parent millions of euro Net income per share attributable to shareholders of the Parent Company (euro) 0.47 Net income per share attributable to shareholders of the Parent Company (euro) 0.37 2018 4,789 1,561 6,350 2017 3,779 1,550 5,329 Non-controlling interests Parent Company Company amounted to €4,789 million in 2018, compared with €3,779 million the previous year. More specifically, the increase in operating income was further improved by: > the value adjustment of both the financial receivable (€320 million) relating to the partial sale of Slovenské ele- ktrárne and the investment, measured at equity, in Slo- vak Power Holding (€362 million); > the decrease in the tax burden, mainly due to the recog- nition of deferred tax assets on prior-year losses at Enel Distribuição Goiás (€274 million) and at Enel Green Power SpA (€85 million in respect of 3Sun following its merger with Enel Green Power SpA during the year). These effects are partly mitigated by: > the writedown of the assets of a number of equity invest- ments measured at equity in Greece, associated with the resizing of a wind farm development project in the Cy- clades; > the gain in 2017 on the disposal of Bayan Resources (€52 million) and the revaluation in 2017 of the investment in Slovak Power Holding (€28 million); > a decrease in taxes in the United States and Argentina following the release of deferred taxes following the US tax reform and the deferred tax assets recognized on prior-year losses by Edesur. Ordinary net income attributable to shareholders of the Parent Company in 2018 amounted to €4,060 million, an increase of €351 million compared with 2017 (€3,709 mil- lion). The following table provides a reconciliation of net in- come and ordinary net income attributable to shareholders of the Parent Company, reporting the non-ordinary items and their respective impacts on net income, excluding the associated tax effects and non-controlling interests. Millions of euro Net income attributable to shareholders of the Parent Company Indemnity for the disposal of e-distribuzione’s investment in Enel Rete Gas Writeback of assets of Slovenské elektrárne Writedown of Alcúdia plant (Spain) Reversal of impairment on the EGP Hellas CGU and impairment of wind projects (Cyclades) Gain on disposal of EF Solare Italia Writedown of the Nuove Energie CGU Net writedown of biomass and solar plants in Italy Ordinary net income attributable to shareholders of the Parent Company (1) (1) Taking account of tax effect and non-controlling interests. 24 2018 4,789 (128) (646) 43 (39) (64) 20 85 4,060 Annual Report 2018Millions of euro Net income attributable to shareholders of the Parent Company Gain on disposal of Bayan Resources Impairment of Erdwärme geothermal assets Abandonment of hydroelectric projects in Chile and Colombia Gain on disposal of Electrogas Revaluation of investment in Slovak Power Holding Ordinary net income attributable to shareholders of the Parent Company (1) (1) Taking account of tax effect and non-controlling interests. Financial data Net capital employed Net capital employed, including net assets held for sale millions of euro 2017 3,779 (52) 36 11 (37) (28) 3,709 Group shareholders’ equity per share (euro) 3.12 Group shareholders’ equity per share (euro) 3.42 -0.7% 2018 41,089 47,852 88,941 2017 37,410 52,161 89,571 Total shareholders’ equity Net financial debt of €281 million, amounted to €88,941 million at December 31, 2018 and was financed by equity attributable to share- holders of the Parent Company and non-controlling inter- ests of €47,852 million and net financial debt of €41,089 million. At December 31, 2018, the debt/equity ratio came to 0.86 (0.72 at December 31, 2017). The percentage increase in leverage is attributable to the reduction of €3,704 million in the Group’s consolidate eq- uity following the retrospective application of IFRS 9 and IFRS 15 and to the increase in net financial debt. Net financial debt amounted to €41,089 million, an increase of €3,679 million compared with December 31, 2017. The in- crease is mainly attributable to the acquisition of Enel Distri- buição São Paulo, the public tender offer for all of the shares of the subsidiary Enel Generación Chile held by non-controlling interests, investments in the period and adverse exchange rate developments. 25 Report on operationsCash flows from operations Cash flows from operations amounted to €11,075 million millions of euro in 2018, an increase of €950 million on the previous year owing to the increase in the gross operating margin and net current assets. Capital expenditure 2018 2017 11,075 10,125 Capital expenditure amounted to €8,152 million in 2018 (of millions of euro which €6,530 million in respect of property, plant and equip- ment), an increase of €22 million on 2017, with a concentra- tion on renewables plants in Spain, South Africa and India as well as greater work on grids operated on a concession ba- sis in Italy and Brazil. In the latter case, part of the increase is attributable to Enel Distribuição São Paulo following its acquisition in June 2018. These increases were partly offset by adverse exchange rate developments, mainly in South America, and a reduction in capital expenditure on renew- ables plants in Brazil as most of the plants entered service during the year. 2018 2017 8,152 8,130 +9.4% +0.3% Millions of euro Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Total 2018 2,479 (1) 1,433 2,246 390 1,373 (2) 142 89 8,152 2017 1,812 1,105 3,002 307 (3) 1,802 (4) 30 72 8,130 Change 667 328 (756) 83 (429) 112 17 22 36.8% 29.7% -25.2% 27.0% -23.8% - 23.6% 0.3% (1) Does not include €3 million regarding units classified as “held for sale”. (2) Does not include €375 million regarding units classified as “held for sale”. (3) Does not include €44 million regarding units classified as “held for sale”. (4) Does not include €325 million regarding units classified as “held for sale”. . 26 Annual Report 2018(% SUL TOTALE CONSIGLIERI) Operations Net electricity generated by Enel (TWh) Electricity transported on the Enel distribution network (TWh) (1) Electricity sold by Enel (TWh) Gas sales to end users (billions of m3) Italy Abroad Total Italy Abroad Total 2018 197.1 257.7 191.1 6.4 53.2 227.7 104.3 4.8 250.3 485.4 295.4 11.2 53.5 228.5 103.2 4.8 2017 196.4 232.2 181.6 6.9 249.9 460.7 284.8 11.7 Employees at period-end (no.) 30,285 38,987 69,272 31,114 31,786 62,900 (1) The figure for 2017 reflects a more accurate measurement of amounts transported. Net electricity generated by Enel in 2018 increased by 0.4 TWh on 2017 (+0.2%), due to the increase in genera- tion abroad (+0.7 TWh), partly offset by a decline in output in Italy (-0.3 TWh). More specifically, the increase in vol- umes generated abroad primarily reflects greater renew- ables generation: NET ELECTRICITY GENERATION BY RESOURCE (2018) Renewables 39% > +6.0 TWh from the increase in hydroelectric generation Coal in Spain and South America; > +4.0 TWh from the increase in wind generation in South America and North and Central America. These developments were partly offset by a decline in out- put from conventional sources, in particular the decrease in gas-fired generation. In Italy, the increase in hydroelectric generation (+4.0 TWh) was offset by the contraction in generation from coal and gas. Finally, 39% of the net electricity generated by Enel in 2018 came from renewable resources. Electricity transported on the Enel distribution net- work amounted to 485.4 TWh in 2018, an increase of 24.7 TWh (+5.4%), essentially reflecting the acquisition of Enel Distribuição São Paulo. Electricity sold by Enel in 2018 amounted to 295.4 TWh, an increase of 10.6 TWh (+3.7%) on the previous year, mainly reflecting an increase in amounts sold on foreign markets (+9.5 TWh). The increase in sales in South Ameri- ca (+16.4 TWh) was only partly offset by a decline in sales in Spain (-6.9 TWh). Sales on the domestic market also increased, by 1.1 TWh. Oil and gas turbine Nuclear Combined cycle and gas ELECTRICITY SOLD BY REGION (2018) Italy Iberia South America Other countries 26% 10% 10% 15% 35% 30% 31% 4% 27 Report on operationsAt December 31, 2018, Enel Group employees numbered of Enel Distribuição São Paulo in Brazil, the acquisition in 69,272 (an increase of 6,372 on the end of 2017). The rise August of Empresa de Alumbrado Eléctrico de Ceuta and reflects the net balance of new hires and terminations Empresa de Alumbrado Eléctrico de Ceuta Distribución (-1,332) and the change in the scope of consolidation (a in Spain and the sale in December of Enel Green Power total of +7,704), which reflected the acquisition in June Uruguay. No. Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Other Total at Dec. 31, 2018 at Dec. 31, 2017 28,134 9,763 20,858 5,684 2,232 241 2,360 69,272 28,684 9,711 13,903 5,733 2,050 198 2,621 62,900 28 Annual Report 2018Environmental, social and governance indicators Emission free production (% of total) Total specific emissions of CO2 from net production (kgCO2/kWheq) (1) Average thermal generation yield (%) (2) Specific emissions of SO2 (g/kWheq) (1) Specific emissions of NOx (g/kWheq) (1) Specific emissions of dust (g/kWheq) (1) ISO 14001-certified net efficient capacity (% of total) Enel injury frequency rate (3) Serious and fatal injuries at Enel (no.) (4) Serious and fatal injuries at contractors (no.) (4) Verified violations of the Code of Ethics (no.) (5) 2018 49.1 2017 43.3 Change 5.8 13.4% 0.369 0.411 (0.042) 40.1 0.75 0.72 0.17 99 40.7 0.84 0.79 0.27 99 (0.6) (0.09) (0.07) (0.10) - 0.943 1.199 (0.256) 7 17 30 6 20 31 1 (3) (1) -10.2% -1.5% -10.7% -8.9% -37.0% - -21.4% 16.7% -15.0% -3.2% (1) Specific emissions are calculated as total emissions from simple thermal generation and co-generation of electricity and heat as a ratio of total renewables generation, nuclear generation, simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent). (2) Percentages calculated using a new method that does not include oil and gas plants in Italy that are in the process of decommissioning or are marginal among thermal plants. The figures also do not consider consumption and generation for co-generation at Russian thermal plants. The average generation yield is calculated on the basis of the number of plants and weighted by output. (3) The indicator is calculated as the ratio between the total number of injuries and the number of hours worked, in millions. (4) Serious injury: injuries with an initial prognosis, as reported on the medical certificate issued, of greater than 30 days, or with a confidential prognosis until the actual prognosis is released, or with an unknown prognosis that, based on an initial assessment by the company concerned, is expected to exceed 30 days. Once the official prognosis is released, the related injury is considered serious only if said prognosis exceeds 30 days. Should a confidential prognosis never be released or an unknown prognosis remain unknown, within 30 days of the event, the injury is to be deemed serious. (5) The analysis of reports received in 2017 was completed in 2018. For that reason, the number of verified violations for 2017 was restated from 27 to 31. The Enel Group has an environmental management system The average thermal generation yield was virtually un- that covers nearly all of its operations (generation plants, grids, changed compared with 2017. services, properties, sales, etc.). Preparatory activities for the certification of new plants and installations have begun. Injury frequency rate for employees of the Enel Group was In line with the goal of decarbonization by 2050, the new equal to 0.943 (down 21% on 2017). In 2018 there was 1 fa- installed renewables capacity amounted to about 2.7 GW, tal accident and 6 serious accidents involving Enel person- mainly attributable to wind plants in the United States and nel and 7 fatal accidents4 and 10 serious accidents involving solar plants in Mexico. Emission free production in 2018 the employees of contractors working for Enel. amounted to around 49% of total generation, an increase compared with 2017 that was due to greater generation Reports of violations of the Code of Ethics numbered 144 from hydroelectric sources thanks to an increase in water last year. Following analysis, 30 have been classified as vio- availability. Specific CO2 emissions declined by 10% from the previous year, going from 0.411 to 0.369 kg/kWheq, re- flecting a reduction in absolute emissions as a result of a lations to date. decline in thermal generation. The values for other specific atmospheric emissions de- creased compared with 2017 by about 11% for SO2 and 9% for NOx, as well as dust (-37% on 2017) thanks to efficiency enhancement works at the Reftinskaya plant in Russia. 4 Considering activities managed in all of the areas in which the Group operates, which include a number of companies accounted for using the equity method or for which the Build, Sell and Operate approach has been adopted, the total number of fatal injuries was 8. 29 Report on operationsOverview of the Group’s operations, performance and financial position Definition of performance indicators In order to present the results of the Group and the Parent or disposals of entities (e.g. capital gains and losses), with Company and analyze its financial structure, Enel has pre- the exception of those in the renewables development seg- pared separate reclassified schedules that differ from those ment, in line with the new “Build, Sell and Operate” busi- envisaged under the IFRS-EU adopted by the Group and by ness model launched in the 4th Quarter of 2016, in which Enel SpA and presented in the consolidated and separate the income from the disposal of projects in that sector is the financial statements. These reclassified schedules contain result of an ordinary activity for the Group. different performance indicators from those obtained di- rectly from the consolidated and separate financial state- Ordinary operating income: this is calculated by correcting ments, which management feels are useful in monitoring “Operating income” for the effects of the non-recurring the performance of the Group and the Parent Company and transactions referred to with regard to the gross operating representative of the financial performance of the business. margin, as well as significant impairment losses on assets As regards those indicators, on December 3, 2015, CONSOB following impairment testing or classification under “Assets issued Communication 92543/2015, which gives force to held for sale”. the Guidelines issued on October 5, 2015 by the European Securities and Markets Authority (ESMA) concerning the Group ordinary net income: this is defined as “Group net presentation of alternative performance measures in regu- income” generated by Enel’s core business and is equal to lated information disclosed or prospectuses published as “Group net income” less all items connected with the ex- from July 3, 2016. These Guidelines, which update the previ- traordinary items referred to in the comments on “Ordinary ous CESR Recommendation (CESR/05-178b), are intended gross operating margin (EBITDA)”, significant impairment to promote the usefulness and transparency of alternative losses or writebacks on assets (including equity invest- performance indicators included in regulated information or ments and financial assets) recognized following impair- prospectuses within the scope of application of Directive ment testing and any associated tax effects or non-control- 2003/71/EC in order to improve their comparability, reliabil- ling interests. ity and comprehensibility. Accordingly, in line with the regulations cited above, the cri- Gross global value added from continuing operations: this teria used to construct these indicators are as follows. is defined as value created for stakeholders and is equal to “Revenue”, including “Net income/(expense) from com- Gross operating margin: an operating performance indica- modity management” net of external costs defined as the tor, calculated as “Operating income” plus “Depreciation, algebraic sum of “Cost of fuels”, “Cost of electricity pur- amortization and impairment losses”. chases”, “Costs of materials”, “Capitalized costs of inter- Ordinary gross operating margin: an indicator calculated by “Provisions for risks and charges”, and “Costs for services, eliminating from the gross operating margin all items con- rentals and leases”, net of “Costs for fixed water diversion nected with non-recurring transactions such as acquisitions fees” and “Costs for public land usage fees”. nal projects”, “Other costs”, net of “Taxes and duties” and 30 Annual Report 2018Net non-current assets: calculated as the difference be- “Net non-current assets” and “Net current assets”, “Provi- tween “Non-current assets” and “Non-current liabilities” sions for risks and charges”, “Deferred tax liabilities” and with the exception of: > “Deferred tax assets”; “Deferred tax assets”, as well as “Net assets held for sale”. > “Securities” and “Other financial receivables” included in Net financial debt: a financial structure indicator, calculated as: “Other non-current financial assets”; > “Long-term borrowings” and “Short-term borrowings > “Long-term borrowings”; > “Employee benefits”; and the current portion of long-term borrowings”, taking account of “Short-term financial payables” included in > “Provisions for risks and charges (non-current portion)”; “Other current liabilities”; > “Deferred tax liabilities”. > net of “Cash and cash equivalents”; > net of the “Current portion of long-term financial receiv- Net current assets: calculated as the difference between ables”, “Factoring receivables”, “Cash collateral” and “Current assets” and “Current liabilities” with the excep- “Other financial receivables” included in “Other current tion of: financial assets”; > “Long-term financial receivables (short-term portion)”, > net of “Securities” and “Other financial receivables” in- “Factoring receivables”, “Securities, “Cash collateral” cluded in “Other non-current financial assets”. and “Other financial receivables” included in “Other cur- More generally, the net financial debt of the Enel Group rent financial assets”; > “Cash and cash equivalents”; is calculated in conformity with paragraph 127 of Rec- ommendation CESR/05-054b implementing Regulation > “Short-term borrowings” and the “Current portion of 2004/809/EC and in line with the CONSOB instructions long-term borrowings”; of July 26, 2007, net of financial receivables and long-term > “Provisions for risks and charges (current portion)”; securities. > “Other financial payables” included in “Other current li- abilities”. Net assets held for sale: calculated as the algebraic sum of “Assets held for sale” and “Liabilities held for sale”. Net capital employed: calculated as the algebraic sum of Main changes in the scope of consolidation In the two periods under review, the scope of consolidation changed as a result of a number of transactions. For more information, please see note 6 in the notes to the consolidated financial statements. 31 Report on operationsGroup performance Millions of euro Revenue Costs Net income/(expense) from commodity contracts measured at fair value Gross operating margin Depreciation, amortization and impairment losses Operating income Financial income Financial expense 2018 75,672 59,804 483 2017 74,639 59,564 578 16,351 15,653 6,451 9,900 4,361 6,409 5,861 9,792 3,982 6,674 Total net financial income/(expense) (2,048) (2,692) Share of income/(losses) of equity investments accounted for using the equity method Income before taxes Income taxes Income from continuing operations Income from discontinued operations Net income (attributable to the Group and minority interests) Interest held by the Group Minority interest Revenue Millions of euro Sale of electricity Transport of electricity Fees from network operators Transfers from institutional market operators Sale of gas Transport of gas Sale of fuel Connection fees to electricity and gas networks Construction contracts Gains on the disposal of subsidiaries, associates, joint ventures, joint operations and non-current assets held for sale Gains on the disposal of property, plant and equipment and intangible assets 349 8,201 1,851 6,350 - 6,350 4,789 1,561 111 7,211 1,882 5,329 - 5,329 3,779 1,550 2018 43,110 10,101 1,012 1,711 4,401 576 8,556 714 735 287 61 9,973 900 1,635 3,964 570 8,340 800 674 159 43 Other revenue and income Total 4,408 75,672 4,148 74,639 Change 1,033 240 (95) 698 590 108 379 (265) 644 238 990 (31) 1,021 - 1,021 1,010 11 1.4% 0.4% -16.4% 4.5% 10.1% 1.1% 9.5% -4.0% 23.9% - 13.7% -1.6% 19.2% - 19.2% 26.7% 0.7% -0.7% 1.3% 12.4% 4.6% 11.0% 1.1% 2.6% -10.8% 9.1% 80.5% 41.9% 6.3% 1.4% 128 112 76 437 6 216 (86) 61 128 18 260 1,033 2017 Change 43,433 (323) In 2018, revenue from the sale of electricity amounted to > a reduction of €543 million in revenue from wholesale €43,110 million, a decrease of €323 million compared with electricity sales, mainly due to the reduction in volumes the previous year (-0.7%). The decrease can principally be traded in Italy; attributed to the following factors: > a decrease of €858 million in revenue from electricity trad- > a €1,078 million increase in revenue from end-user mar- ing due to the reduction in volumes traded on the Italian kets, mainly due to the change in the scope of consolida- market. tion following the addition of Enel Distribuição São Paulo in June 2018; 32 Annual Report 2018 Revenue from the transport of electricity came to €10,101 Revenue from construction contracts in 2018 amounted million in 2018, an increase of €128 million compared with to €735 million, an increase of €61 million due mainly to the 2017. This increase was mainly concentrated in Brazil due to change in the scope of consolidation with the acquisition of the acquisition of Enel Distribuição São Paulo (€143 million). Enel Distribuição São Paulo, which was partially offset by the reduction of work carried out by the other distribution Fees from network operators amounted to €1,012 million companies in Brazil. in 2018, up €112 million compared with the previous year. This change reflects the increase in revenue in Italy, mainly The item relating to gains on the disposal of entities related to dispatching services and to unit margins essen- came to €287 million in 2018, an increase of €128 million tial to system security. (+80.5%) compared with 2017, and mainly includes: > the gain on the sale of eight companies involved in Revenue from transfers from institutional market opera- “Project Kino” in Mexico at the end of September 2018 tors in 2018 amounted to €1,711 million and increased by and the re-measurement at fair value of the Group’s re- €76 million. This increase in transfers was mainly due to the maining 20% stake in the companies (€190 million); greater costs of liquid fuels seen in the Spanish extra-pen- > the gain on the sale of EF Solare Italia (€65 million); insular area for which the Group is entitled to reimburse- > the gain on the sale of a number of companies in the Enel ment. Green Power Business Line in Uruguay (€18 million). In 2017, on the other hand, this item mainly included the Revenue from the sale of gas for 2018, which totaled gain of €143 million from the sale of the investment in the €4,401 million, increased by €437 million (+11.0%) over the Chilean company Electrogas. previous year. This change was essentially due to the in- crease in revenue recognized in Iberia, in Chile and in Italy, Gains on the disposal of property, plant and equipment mainly determined by rising average prices compared with and intangible assets in 2018 amounted to €61 million the previous year. (€43 million in 2017) and refer to ordinary disposals for the Revenue from the sale of fuel, amounting to €8,556 mil- period. lion, increased by €216 million, mainly as a result of the Other revenue and income came to €4,408 million in 2018 increase in natural gas sales within Enel Global Trading. (€4,148 million for the previous year), an increase of €260 million (+6.3%) compared with 2017. Revenue from connection fees to electricity and gas net- The change compared with 2017 is mainly due to: works in 2018 amounted to €714 million, a decrease of €86 > an increase in revenue from the recognition of the income million due to a decline in the number of connections and connected with the agreement of e-distribuzione for the the application of IFRS 15, which led to the deferred rec- sale of Enel Rete Gas in 2009 (€128 million); ognition over time of connection fees that had previously > greater revenue due to the increase in sales volumes of been recognized entirely through profit or loss at the time value-added services. of activation of the user. 33 Report on operationsCosts Millions of euro Electricity purchases Consumption of fuel for electricity generation Fuel for trading and gas for sales to end users Materials Personnel costs Services, leases and rentals (1) Other operating expenses Capitalized costs Total 2018 19,584 4,922 11,463 2,375 4,581 16,254 2,889 (2,264) 59,804 2017 Change 20,011 5,342 10,906 1,880 4,504 15,882 2,886 (1,847) 59,564 (427) (420) 557 495 77 372 3 (417) 240 -2.1% -7.9% 5.1% 26.3% 1.7% 2.3% 0.1% -22.6% 0.4% (1) Of which, costs for fixed water diversion fees in the amount of €167 million in 2018 (€169 million in 2017) and costs for public land usage fees in the amount of €24 million in 2018 (€24 million in 2017). Costs for electricity purchases decreased by €427 mil- for environmental certificates (€179 million) for power lion in 2018 compared with 2017, a reduction of 2.1%. generation in Italy and the sales companies in Romania. This decrease is attributable to the reduction in purchases made through bilateral agreements (€236 million), mainly Personnel costs for 2018 totaled €4,581 million, an in- relating to the reduction in volumes traded by Enel Global crease of €77 million (+1.7%) compared with 2017. This Trading, associated with a reduction in purchases both change is essentially the result of: on other local and foreign markets in the amount of €106 > higher costs associated with changes in the scope of million and on the electricity exchanges in the amount of consolidation, mainly due to the acquisitions of Enel €85 million, mainly in Iberia. These effects were partially Distribuição São Paulo in 2018 (€151 million) and Enel offset by the increase in electricity purchases in South X North America (formerly EnerNOC) in the 2nd Half of America following the consolidation of Enel Distribuição 2017 (€56 million); São Paulo. > a decrease in costs for Enel Distribuição Goiás in the amount of €63 million following the efficiency mea- Costs for the consumption of fuel for electricity gen- sures implemented during the 1st Half of 2017; eration relating to 2018 amounted to €4,922 million, a > a reduction in costs in Argentina following the devalu- decrease of €420 million (7.9%) compared with the pre- ation of the local currency due to hyperinflation (€93 vious year. This change was mainly due to lower ther- million); moelectric production, especially in Chile and Italy, and > an increase in costs incurred for early-retirement incen- partly due to the weakening of South American curren- tives in the amount of €62 million, mainly in Italy and cies against the euro. Spain. Costs for the purchase of fuel for trading and gas for At December 31, 2018, the Enel Group’s workforce totaled sales to end users came to €11,463 million, up €557 69,272 employees, 38,987 of whom employed abroad. million over 2017. This change reflects the greater quanti- The Group’s workforce increased by 6,372 in 2018. The ties purchased and traded at increasing average prices, negative balance between new hires and terminations for particularly in Italy and Spain. the period (1,332), mainly due to the early-retirement in- centives noted above (about 35% of terminations were in Costs for materials came to €2,375 million in 2018, an in- Italy), was more than offset by changes in the scope of crease of €495 million compared with the previous year, consolidation (7,704) due to acquisitions made in 2018, mainly due to the increase in purchases for materials and and in particular of Enel Distribuição São Paulo, Empresa equipment for infrastructure and networks, mainly in Italy de Alumbrado Eléctrico de Ceuta, and Empresa de Alum- and Spain (€261 million), as well as an increase in costs brado Eléctrico de Ceuta Distribución. 34 Annual Report 2018 The change compared with December 31, 2018 breaks use of hydroelectric generation, which was only partial- down as follows: ly offset by the increase in taxes on real estate in the Balance at December 31, 2017 Hirings Terminations Change in scope of consolidation Balance at December 31, 2018 62,900 3,414 (4,746) 7,704 69,272 Costs for services, leases and rentals totaled €16,254 million in 2018, up €372 million over 2017. The change was essentially due to: > an increase in costs for services connected with the changes in the scope of consolidation, mainly attribut- able to the acquisition of Enel Distribuição São Paulo (€389 million); > greater variable costs for value-added services provided, particularly in the United States (€98 million) due to the consolidation, starting in August 2017, of Enel X North America (formerly EnerNOC); > an increase in hydroelectric lease fees incurred in Spain following the increased use of hydroelectric production during the year (€52 million); > an increase in charges for access to the power trans- mission grid in the amount of €160 million, especially in Spain for the reversal, last year, of the charges set aside in the years 2011-2016 in relation to the payments made by the generation companies for self-consumption; > a reduction of €220 million in customer acquisition costs, which were capitalized following the application of the new IFRS 15; > a decrease in costs for maintenance and repairs (€115 million). Other operating expenses in 2018 came to €2,889 mil- lion, an increase of €3 million compared with 2017, which essentially reflects: > higher charges, mainly for the “bono social” in Spain in the amount of €229 million, after the issue of a favorable ruling in 2017 that led to the reversal of costs incurred in 2015, 2016 and 2017; > an increase in indemnities paid to customers and suppli- ers in the amount of €22 million; > lower environmental compliance costs in the amount of €112 million, mainly in Italy and Spain; > lower charges for taxes and duties in the amount of €71 million, essentially related to lower taxes on thermal gen- eration in Spain (€109 million), due in part to the greater amount of €25 million, particularly in Italy; > a decrease of €89 million in costs related to the im- provement of service quality, which decreased espe- cially sharply in Argentina, only partially offset by an increase in fines recognized in relation to distribution in Italy; > a decrease of costs in South America, reflecting the ef- fect of the recognition in 2017 of capital losses of €45 million following the abandonment of hydroelectric proj- ects in Chile and Colombia. In 2018, capitalized costs amounted to €2,264 million, an increase of €417 million compared with the previous year, in correspondence with the increase in investments made in particular in distribution and generation in Italy, as well as in the construction of renewable energy plants in Mexico. Net income/(expense) from commodity contracts measured at fair value showed net income of €483 mil- lion in 2018 (€578 million for the previous year). In particular, net income for 2018 is attributable to net income from the management of cash flow hedge derivatives, in the amount of €25 million (net income of €246 million in 2017), and of derivatives at fair value through profit or loss, in the amount of €458 million (net income of €332 million in 2017). Depreciation, amortization and impairment losses in 2018 amounted to €6,451 million, an increase of €590 mil- lion. This increase was mainly due to the following: > a €270 million increase in amortization due to the acquisi- tion of Enel Distribuição São Paulo (€93 million) and the application, starting in 2018, of IFRS 15, which entailed the capitalization of customer acquisition costs (€166 million); > greater impairment of property, plant and equipment and intangible assets (€194 million), in particular as a result of the impairment of biomass and solar assets in Italy (€91 million), of the assets of Nuove Energie (€24 million), of the Augusta and Bastardo power plants (€23 million), and of the Alcúdia power plant in Spain (€82 million). These increases were partially offset by the partial reversal of the impairment of the EGP Hellas CGU (€117 million) and the impairment of geothermal assets, recognized in 2017, on Erdwärme (€42 million); > an increase in the impairment of trade and other assets net of reversals (€186 million), especially in Italy. 35 Report on operationsOperating income amounted to €9,900 million in 2018, The share of income/(losses) of equity investments an increase of €108 million. accounted for using the equity method for 2018 showed net income of €349 million, while in 2017 net in- Net financial expense amounted to €2,048 million, down come was €111 million. The change of €238 million was €644 million in 2018, mainly due to: essentially due to the writeback of the value of the 50% > a €320 million increase in financial income related to the stake in Slovak Power Holding (€362 million), which had adjustment in the value of the financial receivable arising been written down multiple times in previous years. The as a result of the sale of the 50% stake in Slovak Power writeback was due to changes in the reference parame- Holding as a result of updating the pricing formula in- ters used to determine the pricing formula included in the cluded in the agreements with Energetický a Pr˚umyslový agreements with EPH. This writeback was only partially Holding (“EPH”); offset by the pro-rated performance of associates and > the recognition of net financial income of €168 million for joint ventures, the impairment of certain assets related to the Argentine companies following the application of IAS the Greek project companies involved in the development 29 related to accounting for hyperinflationary economies of wind farms in the Cyclades (€49 million) and biomass (see note 2 of the consolidated financial statements for development projects in Italy (€12 million). the year ended December 31, 2018, for more informa- tion); Income taxes in 2018 amounted to €1,851 million, for a > greater net gains on financial derivative instruments tax rate of 22.6%, while income taxes for 2017 came to (hedging both interest rates and exchange rates) in the €1,882 million with a tax rate of 26.1%. The reduction in amount of €1,616 million, which was almost entirely off- income taxes was mainly attributable to the following fac- set by an increase in net exchange rate losses as a result tors: of fluctuations in exchange rates in the amount of €1,500 > the recognition of deferred tax assets on prior-year loss- million; es by Enel Distribuição Goiás (€274 million) and by Enel > a decrease in the financial expense recognized by Enel Green Power SpA (€85 million in respect of 3Sun, which Finance International of €108 million due to the early re- was merged into Enel Green Power in 2018); demption of bonds in 2019 under the “make-whole call > the reduction in deferred tax liabilities (€61 million) fol- option” allowed for under the original financing agree- lowing the tax reform in Colombia, which led to a reduc- ment; tion in progressive tax rates from 33% to 30%. > a reduction in charges related to medium and long-term revolving credit lines in the amount of €52 million, above all for Enel SpA and Enel Finance International; > the recognition by Enel SpA of financial income in the amount of €54 million related to rebates of direct taxes. These effects were only partially offset by: > a €89 million decrease in capitalized interest, mainly for Enel Green Power Brazil and Enel Green Power Chile; > a €62 million increase in charges for the assignment of receivables, mainly attributable to Enel Energia (€23 mil- lion), the Enel Américas Group (€21 million), and Servizio Elettrico Nazionale (€14 million); > a decrease in income from equity investments due to the effect of the recognition in 2017 of the gain on the sale of the investment in Bayan Resources (€52 million). 36 Annual Report 2018Analysis of the Group’s financial position Millions of euro Net non-current assets: - property, plant and equipment and intangible assets - goodwill - equity investments accounted for using the equity method - other net non-current assets/(liabilities) Total net non-current assets Net current assets: - trade receivables - inventories - net receivables due from institutional market operators - other net current assets/(liabilities) - trade payables Total net current assets Gross capital employed Sundry provisions: - employee benefits - provisions for risks and charges and net deferred taxes Total sundry provisions Net assets held for sale Net capital employed Total shareholders’ equity Net financial debt at Dec. 31, 2018 at Dec. 31, 2017 Change 95,780 14,273 2,099 (5,696) 91,738 13,746 1,598 4,042 527 501 (1,677) (4,019) 4.4% 3.8% 31.4% - 106,456 105,405 1,051 1.0% 13,587 2,818 (3,200) (7,589) (13,387) (7,771) 98,685 (3,187) (6,838) (10,025) 281 88,941 47,852 41,089 14,529 2,722 (3,912) (6,311) (942) 96 712 -6.5% 3.5% 18.2% (1,278) -20.3% (12,671) (716) -5.7% (5,643) 99,762 (2,128) -37.7% (1,077) -1.1% (2,407) (8,025) (10,432) 241 89,571 52,161 37,410 (780) 1,187 407 40 (630) (4,309) 3,679 -32.4% 14.8% 3.9% 16.6% -0.7% -8.3% 9.8% Property, plant and equipment and intangible assets 2018, of Enel Green Power Uruguay and the related special amounted to €95,780 million as at December 31, 2018 (in- purpose vehicle, Estrellada. cluding investment property), an increase of €4,042 million. Other changes, totaling €1,465 million, mainly include the This increase originated essentially from capital expenditure effects of applying IAS 29 to the opening balance of prop- for the period (€7,881 million), the change in the scope of erty and machinery at January 1, 2018, and the cumulative consolidation (€2,603 million), mainly attributable to the effects of hyperinflation as at December 31, 2018, which acquisition of the Brazilian distribution company Enel Distri- were not present in 2017. buição São Paulo, of Parques Eólicos Gestinver, a company operating in the production of wind energy, and of Empresa Goodwill amounted to €14,273 million, an increase of €527 de Alumbrado Eléctrico de Ceuta, a company operating in million from December 31, 2017. This change was mainly the distribution and sale of electricity in the autonomous city due to the change in the scope of consolidation (a positive of Ceuta, in North Africa. These effects were partially offset €489 million) connected with the acquisition of the Brazilian by unfavorable developments in exchange rates, mainly in distribution company Enel Distribuição São Paulo, as well South America, by the depreciation, amortization and im- as the acquisition of Empresa de Alumbrado Eléctrico de pairment losses recognized during the year in the amount of Ceuta. These effects were partially offset by the reclassifi- €5,344 million, by the reclassification to assets held for sale cation to assets held for the sale of goodwill relating to three following the application of IFRS 5, in the amount of €505 solar plants in Brazil, which, following the decisions made million, mainly reflecting the carrying amount of three solar by management, meet the requirements of IFRS 5 for clas- plants in Brazil, as well as to the sales, on December 14, sification as such (€23 million). 37 Report on operations Equity investments accounted for using the equity method The balance of the net current assets was a net liability of amounted to €2,099 million, an increase of €501 million €7,771 million at December 31, 2018, an increase of €2,128 from December 31, 2017. million compared with December 31, 2017. This change is This increase was mainly the result of: due to the following factors: > the share of net income attributable to shareholders of > a decrease in trade receivables, in the amount of €942 the Parent Company, net of dividends paid and the ad- million, mainly attributable to a reduction in receivables justment of the investment in Slovak Power Holding fol- for the sale and transport of energy and for the sale of lowing the adjustment of the pricing formula defined in gas, as well as an increase in the assignment of receiv- the sale agreement with EPH; ables; > changes in the scope of consolidation related to: > an increase in inventories, in the amount of €96 million, - - the acquisition of Ufinet International (€150 million); and mainly due to the increase in materials and equipment the partial sale, with loss of control, of the Mexican re- used for the operation, maintenance and construction of newables companies (the “Project Kino” companies), power generation plants and distribution networks, as which resulted in the valuation at equity of the remain- well as the increase in gas inventories; ing interests held by the Group. > an increase in net receivables due from institutional mar- This increase was partially offset by the sale of the joint ket operators in the amount of €712 million, mainly in venture EF Solare Italia on December 27, 2018. Italy and related to the rate components of the Italian electrical system to cover system charges, as well as the The balance of other net non-current assets/(liabilities) as at effects of the consolidation, in South America, of Enel December 31, 2018 showed a net liability of €5,696 million, Distribuição São Paulo and the increase in system charg- up €4,019 million from December 31, 2017 (€1,677 million). es in Argentina, associated with rate increases; This change is due primarily to the following: > a decrease of €1,278 million in other current assets net > the recognition of €6,306 million in liabilities deriving of associated liabilities. This change is due to the follow- from contracts for connection to the electricity grid fol- ing factors: lowing the application of IFRS 15; - an increase of €1,446 million in other net current liabili- > the increase in payables due to tax partnerships rec- ties, mainly due to: the acquisition of Enel Distribuição ognized by the renewable-energy companies in North São Paulo; the increase in payables for dividends to America in the amount of €325 million as a result of the be disbursed in view of the Group’s dividend policy, start of operations at the Diamond Vista, HillTopper and which calls for the payment of an interim dividend in Rattlesnake plants; 2018 greater than that of 2017; and the recognition > the increase in service concession arrangements in the of payables for the additional increase in the interest amount of €939 million, mainly due to the acquisition of (2.43%) in Enel Américas by Enel SpA; Enel Distribuição São Paulo (€855 million); - a €369 million increase in net income tax receivables, > the increase in assets deriving from contracts with cus- which is essentially attributable to the reduction in tomers in the amount of €346 million, mainly relating to taxes payable mainly due to offsetting with payments assets under construction under public-to-private service on account during the previous year; concession arrangements recognized in accordance with - a €282 million decrease in net current financial assets, IFRIC 12 in Brazil. It should be noted that the value as at essentially attributable to the negative change in the December 31, 2018, includes capital expenditure for the fair value of derivative instruments, mainly related to period in the amount of €271 million; cash flow hedging on exchange rates and commodity > an increase of €208 million in other non-current receiv- prices; ables as a result of the consolidation of Enel Distribuição > an increase in trade payables, in the amount of €716 mil- São Paulo, as well as of non-current assets for contin- lion, which was particularly concentrated in Italy, South gent consideration recognized in North America (€91 mil- America and North America. lion) in relation to projects in progress; > a reduction of €445 million in liabilities, mainly attribut- Sundry provisions amounted to €10,025 million, a de- able to the release to profit or loss of fees received from crease of €407 million compared with the previous year. customers for the amounts related to the period. This change was primarily due to the following factors: 38 Annual Report 2018 > a €780 million increase in employee benefits, mainly due mainly refer to the carrying amount of three solar plants in to changes in the scope of consolidation; a €463 million Brazil, which, following decisions taken by management, increase in provisions for risks and charges, mainly re- meet the requirements of IFRS 5 for classification in this lated to the decommissioning provision and the provision aggregate. for litigation. The increase in the latter item is mainly due The change for the period essentially concerns the sale of to the change in the scope of consolidation with the ac- an 80% stake in eight Mexican project companies (“Project quisition of Enel Distribuição São Paulo and provisions Kino”) classified as held for sale as of December 31, 2017, made for disputes with employees, which were partly and now accounted for using the equity method, and the offset by releases and uses, especially in Iberia and in reclassification of the project companies relating to the Kaf- Italy and South America; ireas wind farm as they are no longer available for sale as > a decrease in net deferred tax liabilities in the amount the conditions for the sale were no longer met. of €1,648 million, mainly relating to the recognition of deferred tax assets on the deferral of connections fees in Net capital employed came to €88,941 million as at De- Italy due to the application of the new IFRS 15 and to the cember 31, 2018, and was funded by €47,852 million in changes in the scope of consolidation due to the acquisi- shareholders’ equity attributable to shareholders of the tion of Enel Distribuição São Paulo. Parent Company and non-controlling interests and €41,089 million in net financial debt. With regard to the latter figure, Net assets held for sale amounted to €281 million at De- the debt-to-equity ratio as at December 31, 2018 was 0.86 cember 31, 2018 (€241 million at December 31, 2017), and (compared with 0.72 as at December 31, 2017). 39 Report on operationsAnalysis of the financial structure Net financial debt The following table shows the composition of and changes in net financial debt: Millions of euro Long-term debt: - bank borrowings - bonds - other borrowings Long-term debt Long-term financial receivables and securities Net long-term debt Short-term debt: Bank borrowings: - short-term portion of long-term bank borrowings - other short-term bank debt Short-term bank debt Bonds (short-term portion) Other loans (short-term portion) Commercial paper Cash collateral and other financing on derivatives Other short-term financial payables (1) Other short-term debt Long-term financial receivables (short-term portion) Factoring receivables Financial receivables - cash collateral Other short-term financial receivables Cash and cash equivalents with banks and short-term securities at Dec. 31, 2018 at Dec. 31, 2017 Change 8,819 38,633 1,531 48,983 (3,272) 45,711 1,830 512 2,342 1,341 196 2,393 301 438 4,669 (1,522) - (2,559) (859) (6,693) 8,310 32,285 1,844 42,439 (2,444) 39,995 1,346 249 1,595 5,429 225 889 449 307 7,299 (1,094) (42) (2,664) (589) (7,090) 509 6,348 (313) 6,544 (828) 5,716 484 263 747 (4,088) (29) 1,504 (148) 131 (2,630) (428) 42 105 (270) 397 (154) 6.1% 19.7% -17.0% 15.4% -33.9% 14.3% 36.0% - 46.8% -75.3% -12.9% - -33.0% 42.7% -36.0% -39.1% - -3.9% 45.8% 5.6% -1.3% 78.8% 9.8% Cash and cash equivalents and short-term financial receivables (11,633) (11,479) Net short-term debt NET FINANCIAL DEBT Net financial debt of “Assets held for sale” (4,622) 41,089 362 (1) Includes current financial payables that are included in “Other current financial liabilities”. (2,585) 37,410 (2,037) 3,679 1,364 (1,002) -73.5% Net financial debt was equal to €41,089 million at Decem- and Enel X Mobility and drawings on bank financing ber 31, 2018, an increase of €3,679 million over December by the South American companies, the effect of which 31, 2017. was partially offset by the reclassification of the short- Specifically, net long-term debt increased by €5,716 million, term portion of amounts falling due within 12 months the combined effect of the increase in long-term financial and by the positive exchange differences during the year receivables of €828 million and the increase in gross long- amounting to €81 million (which also includes the ex- term debt in the amount of €6,544 million. change differences in respect of the short-term portion With regard to the latter aggregate: of borrowings); > bank borrowings amounted to €8,819 million, an increase > bonds amounted to €38,633 million, an increase of of €509 million mainly due to new soft lending by the Eu- €6,348 million compared with the end of 2017, mainly ropean Investment Bank to Endesa SA, e-distribuzione due to: 40 Annual Report 2018 - new issues of bonds in 2018, including: to maturity within 12 months for a total of €1,341 million. - €1,250 million in respect of a fixed-rate green bond The balance of cash collateral paid to counterparties on maturing in 2026, issued by Enel Finance Interna- over-the-counter interest-rate, exchange rate and commod- tional in January 2018; ity contracts came to €2,559 million, while the value of - €1,250 million in respect of two fixed-rate hybrid cash collateral received from said counterparties came to bonds, with call dates in 2023 and 2026, issued by €301 million. Enel SpA in May 2018; - $4,000 million (equivalent to €3,492 million) in re- Cash and cash equivalents and short-term financial receiv- spect of a multi-tranche bond with maturities in ables came to €11,633 million, an increase of €154 million 2023, 2025 and 2029, issued by Enel Finance Inter- compared with the end of 2017, mainly due to the increase national in September 2018; in the short-term portion of long-term financial receivables - €1,875 million in respect of local issues by South and other short-term financial receivables in the amount American companies, including a fixed-rate bond of of €428 million and €270 million, respectively, the effect $1,000 million (equivalent to €873 million) maturing of which was only partially offset by the decrease in cash in 2028, issued by Enel Chile in June 2018; held at banks and short-term securities in the amount of - negative exchange differences during the year of €447 €397 million and cash collateral paid to counterparties in million (which also includes the exchange differences the amount of €105 million. in respect of the short-term portion of bonds); - the repurchase by Enel SpA of a hybrid bond in euros The main transactions in 2018 included the following: in the amount of €732 million; > the receipt, on June 19, 2018, of financing of approxi- - reclassifications of the short-term portion of bonds mately $34 million (equivalent to €30 million) granted by maturing in the next 12 months, including a bond in the International Financial Corporation and the European pounds sterling issued by Enel SpA maturing in June Investment Bank to Ngonye Power Company Limited for 2019 in the amount of €614 million, a bond in euros the construction of a solar plant in Zambia; at December issued by Enel Finance International in the amount of 31, 2018, this financing was not used; €125 million maturing in November 2019, and local- > a 15 billion South African rand (equivalent to €913 mil- currency bonds issued by South American companies lion) financing agreement, signed on July 31, 2018, with in the amount of €395 million. Nedbank Limited and ABSA and granted to Enel Green Power RSA for the construction of new wind farms in Net short-term debt shows a creditor position of €4,622 South Africa; at December 31, 2018, €149 million of this million at December 31, 2018, an increase of €2,037 million line of credit was used; compared with December 31, 2017, due to the €2,630 mil- > the following redemptions of bonds: lion decrease in other borrowings, which was only partially - €3,000 million in respect of two retail bonds, one offset by the increase of €747 million in short-term bank fixed-rate and one floating-rate, issued by Enel SpA, borrowings. which matured in February 2018; - €591 million in respect of a fixed-rate bond issued by Other short-term debt amounted to €4,669 million, includ- Enel SpA, which matured in June 2018; ing the commercial paper issued by Enel Finance Interna- - €544 million in respect of a fixed-rate bond issued by tional, International Endesa BV and South American com- Enel Finance International, which matured in October panies for a total of €2,393 million and the bonds coming 2018. 41 Report on operationsCash flows Millions of euro Cash and cash equivalents at the start of the year (1) Cash flows from operating activities Cash flows from investing/disinvesting activities Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at year end (2) 2018 7,121 11,075 (9,661) (1,636) (185) 6,714 2017 8,326 10,125 (9,294) (1,646) (390) 7,121 Change (1,205) 950 (367) 10 (205) (407) (1) Of which, cash and cash equivalents in the amount of €7,021 million at January 1, 2018 (€8,290 million at January 1, 2017), short-term securities in the amount of €69 million at January 1, 2018 (€36 million at January 1, 2017), and cash and cash equivalents of assets held for sale in the amount of €31 mil- lion at January 1, 2018. (2) Of which, cash and cash equivalents in the amount of €6,630 million at December 31, 2018 (€7,021 million at December 31, 2017), short-term securities in the amount of €63 million at December 31, 2018 (€69 million at December 31, 2017), and cash and cash equivalents of assets held for sale in the amount of €21 million at December 31, 2018 (€31 million at December 31, 2017). Cash flows from operating activities for 2018 came to > the sale of Enel Green Power Uruguay, owner of the a net inflow of €11,075 million, an increase of €950 mil- Melowind wind farm; lion compared with the previous year, mainly due to an in- > the sale of Enel Green Power Finale Emilia to F2i. crease in gross operating margin and net current assets. The same aggregate in 2017 came to €900 million and in- cluded the sale of the Caney River and Rocky Ridge wind Cash flows from investing/disinvesting activities for farms in North America. 2018 absorbed liquidity for €9,661 million, compared with Liquidity absorbed by other investing/disinvesting activi- a net outflow of €9,294 million in 2017. ties in 2018 amounted to €83 million, essentially regarding: In particular, capital expenditure and investments in prop- > the acquisition of a 21% stake in Zacapa Topco Sàrl, a erty, plant and equipment and in intangible assets and special purpose vehicle to which 100% of Ufinet Interna- non-current assets deriving from contracts with customers tional was transferred (€150 million); amounted to €8,530 million in 2018 and increased by €31 > the capital contribution in favor of OpEn Fiber; million compared with the previous year, mainly due to the > the sale to F2i SGR of a 50% stake in the joint venture EF increase in capital expenditure for the electricity distribu- Solare Italia (€214 million). tion network in Italy, which was only partially offset by a decrease in expenditure in the renewable energy sector in Cash flows from financing activities for 2018 absorbed South America and in North and Central America. liquidity of €1,636 million, compared with a net outflow of Investments in companies or business units, expressed €1,646 million in 2017. Cash flows for 2018 were essen- net of the cash and cash equivalents acquired, amounted tially related to the €3,210 million increase in net financial to €1,472 million and refer mainly to the acquisition of the debt (as the net balance between repayments and new Brazilian electricity distribution company Enel Distribuição financing) and the payment of dividends in the amount of São Paulo, of the Spanish electricity distribution company €3,444 million. Empresa de Alumbrado Eléctrico de Ceuta in North Africa, To these effects we can also add the greater outflows and of two wind farms in Spain. relating to transactions in non-controlling interests in the Disposals of companies or business units, expressed net amount of €1,402 million related essentially to the tender of the cash and cash equivalents sold, totaled €424 million offer issued by Enel Chile on all the shares of the subsid- and mainly included: iary Enel Generación Chile held by minority shareholders. > the early, lump-sum payment of the indemnity related to the sale of e-distribuzione’s investment in Enel Rete Gas; Accordingly, in 2018 cash flows generated by operating > the sale of an 80% stake in the Mexican companies in- activities in the amount of €11,075 million were sufficient cluded in “Project Kino”; to meet only part of the funding needs for financing ac- 42 Annual Report 2018tivities in the amount of €1,636 million and for investing million at the end of 2017. This change also reflects the ef- activities in the amount of €9,661 million. The difference fects related to the downward trend in the exchange rates is reflected in a decrease of €407 million in cash and cash of the various local currencies with respect to the euro in equivalents at December 31, 2018, compared with €1,205 the amount of €185 million. 43 Report on operationsResults by business area The representation of performance by business area pre- account was taken of the possibilities for the simplification sented here is based on the approach used by manage- of disclosures associated with the materiality thresholds ment in monitoring Group performance for the two periods also established under IFRS 8 and, therefore: under review, taking account of the operational model ad- > “Thermal Generation” and “Trading & Upstream” are opted by the Group as described above. presented together given the considerable interaction Taking account of the provisions of IFRS 8 regarding the and interdependence between them; management approach, the new “Enel X” Business Line > the item “Other, eliminations and adjustments” includes modified the structure of reporting, as well as the repre- not only the effects from the elimination of interseg- sentation and analysis of Group performance and financial ment transactions, but also the figures for the Parent position, as from March 31, 2018. More specifically, per- Company, Enel SpA. formance by business area reported in this Annual Report The following chart outlines these organizational arrange- was determined by designating the Regions and Countries ments. perspective as the primary reporting segment. In addition, Global Business Lines Local businesses Infrastructure & Networks Thermal Generation Trading & Upstream Enel Green Power Enel X End-user markets Services Holding Regions & Countries Italy Iberia Iberia Europa and Euro- Mediterranean Affairs Africa, Asia and Oceania North and Central America South America The new organization, which continues to be based on a the various Business Lines by geographical area, function- matrix of Business Lines, now calls for the integration of ally including the “Large Hydro” businesses, which for- the various companies of the Enel Green Power Group in mally remain under the thermal power generation compa- 44 Annual Report 2018Global Business Lines Local businesses Infrastructure Thermal & Networks Generation Trading & Upstream Enel Green Enel X Power End-user markets Services Holding Regions & Countries Italy Iberia Iberia Europa and Euro- Mediterranean Affairs Africa, Asia and Oceania North and Central America South America nies, and a new configuration for the geographical areas structure is divided as follows: Thermal Generation, Trad- (i.e. Italy, Iberia, Europe and Euro-Mediterranean Affairs, ing, Infrastructure and Networks, Enel Green Power, Enel South America, North and Central America, Africa, Asia and X, Retail, Services and Holding. Oceania, Central/Holding). In addition, the new business Results by business area for 2018 and 2017 Results for 2018 (1) Millions of euro Italy Iberia Europe and Euro- Mediterranean Affairs South America North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Total Revenue from third parties 37,411 19,413 14,687 2,349 1,438 100 274 75,672 Revenue from transactions with other segments 987 79 55 12 - 1 (1,134) - Total revenue 38,398 19,492 14,742 2,361 1,438 101 (860) 75,672 Net income/(expense) from commodity contracts measured at fair value 410 64 2 Gross operating margin 7,304 3,558 4,370 Depreciation, amortization, and impairment losses 2,806 1,834 1,394 Operating income 4,498 1,724 2,976 Capital expenditure 2,479 (2) 1,433 2,246 (1) 516 96 420 390 8 708 254 454 - 54 44 10 1,373 (3) 142 - 483 (159) 16,351 23 (182) 89 6,451 9,900 8,152 (1) Segment revenue include both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the year. (2) Does not include €3 million regarding units classified as “held for sale”. (3) Does not include €375 million regarding units classified as “held for sale”. Results for 2017 (1) Millions of euro Italy Iberia Europe and Euro- Mediterranean Affairs North and Central America South America Other, eliminations and adjustments Africa, Asia and Oceania Total Revenue from third parties 37,900 19,940 13,126 2,374 1,185 Revenue from transactions with other segments 881 54 28 37 2 Total revenue 38,781 19,994 13,154 2,411 1,187 Net income/(expense) from commodity contracts measured at fair value 537 13 26 - 2 Gross operating margin 6,863 3,573 4,204 543 759 Depreciation, amortization and impairment losses 2,393 1,731 Operating income 4,470 1,842 Capital expenditure 1,812 1,105 1,234 2,970 3,002 237 306 206 553 307 (2) 1,802 (3) 96 - 96 - 57 42 15 30 18 74,639 (1,002) - (984) 74,639 - 578 (346) 15,653 18 5,861 (364) 9,792 72 8,130 (1) Segment revenue include both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the year. (2) Does not include €44 million regarding units classified as “held for sale”. (3) Does not include €325 million regarding units classified as “held for sale”. 45 Report on operationsIn addition to the foregoing, the Group monitors gross operating margin for the two periods under review, performance at the Global Business Line level, classifying offering visibility of performance not only from a Region/ results by Business Line. The following table presents the Country perspective but also by Business Line. Gross operating margin Local businesses Millions of euro End-user markets Services Thermal Generation and Trading Infrastructure and Networks Enel Green Power Enel X Other Total 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2,233 2,007 676 467 226 209 119 80 96 38 23 42 (217) 3,679 3,467 212 (358) 1,965 2,086 (121) (104) (87) (17) (14) 124 - - - - - - - - - - - - - - 12 12 (42) (42) - - - - - - - - - - - - - - - - 8 8 - - - - - - - - - - - - - - - 54 54 - - - (8) (8) - - - - - - - - (1) (42) (61) (1) (39) (47) - - - 1 1 - - - - - - - - - - - - (11) - - - 5 2 3 - - - - - - - - - - - - 22 425 469 142 7 51 239 783 687 116 119 281 43 145 128 - - 233 269 - 2 233 267 - - (6) (6) - - - - - - - - - - - - - - - - - - - (3) - - - (4) (1) (3) - - - - - - - - - - - (218) 1,921 1,687 26 (112) (157) 8 17 - (36) (2) (34) - - (6) (6) - - - - - - - 157 915 247 406 196 - 152 152 - - - - - - - - - - - - 140 644 237 461 205 - 166 166 - - - - - - - - - - - - 234 17 271 10 (55) (9) - (14) (14) - - - - - - - - - - - - 8 319 2,921 2,440 481 85 52 33 1,117 1,963 (846) 7,697 7,378 (11) (26) (15) (11) (20) (28) Italy Iberia South America Argentina Brazil Chile Colombia Peru Other countries Europe and Euro- Mediterranean Affairs Romania Russia Slovakia Other countries North and Central America United States and Canada Mexico Panama Other countries Africa, Asia and Oceania South Africa India Other countries Other Total 46 Global Business Lines 1,220 1,054 361 199 2,028 1,917 46 395 877 544 156 10 115 62 (1) - 54 398 140 113 60 58 54 9 (5) 32 284 888 557 147 9 145 104 - - 41 400 98 101 152 57 53 8 (4) 166 162 111 14 111 (11) (13) 9 1 (30) (42) (1) - 13 (2) 42 12 (92) 1 1 1 (1) 191 561 31 51 56 19 37 - - - - 3 3 - - - 3 3 - - - - - (4) (4) (16) 124 - - - - - - - - - - - - - - - - - - - - - - - - - 31 51 56 19 37 - - - - 3 3 - - - 3 3 - - - - - (4) (4) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,304 6,863 3,558 3,573 4,370 4,204 344 287 1,275 1,008 1,206 1,359 1,038 1,061 497 10 516 230 232 - 54 395 140 113 60 54 50 9 (5) 480 9 543 232 270 - 41 408 98 101 152 57 53 8 (4) 441 (15) 166 57 267 (153) (23) 17 1 (27) (2) (38) - 13 (13) 42 12 (92) (3) (3) 1 (1) 187 698 115 (76) 4,608 4,047 (16) 124 (201) (201) (227) (227) 26 26 (159) (346) 16,351 15,653 711 751 (40) 708 759 (51) Annual Report 2018Local businesses Global Business Lines Thermal Generation Millions of euro End-user markets Services and Trading Infrastructure and Networks Enel Green Power Enel X Other Total 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2018 2017 Change 2,233 2,007 676 467 226 209 (217) 3,679 3,467 212 (358) 1,965 2,086 (121) South America (104) (87) (17) (218) 1,921 1,687 Other countries Europe and Euro- Mediterranean 12 12 (42) (42) Italy Iberia Argentina Brazil Chile Colombia Peru Affairs Romania Russia Slovakia Other countries North and Central America United States and Canada Mexico Panama Other countries Africa, Asia and Oceania South Africa Other countries India Other Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8 8 - - - - - - - - 119 80 (1) (42) (61) 96 38 (1) (39) (47) 1 1 - - - - - - - - - - - - - - - - - - 5 2 3 - - - - - - - - - - - - 54 54 (8) (8) - - - - - - - - - - - - - - - - - - (14) 124 145 128 233 269 233 267 22 425 469 142 7 51 - - - - - - - - - - - (6) (6) 239 783 687 116 119 281 43 2 - - - - - - - - - - - - 23 42 (3) (4) (1) (3) - - - - - - - - - - - - - - - 26 (112) (157) 8 17 - (36) (2) (34) (6) (6) - - - - - - - - - 157 915 247 406 196 140 644 237 461 205 152 152 166 166 - - - - - - - - - - - - - - - - - - - - - - - - - - 234 17 271 10 (55) (9) - (14) (14) - - - - - - - - - - - - 8 319 2,921 2,440 481 85 52 33 1,117 1,963 (846) 7,697 7,378 (11) (11) (26) (15) (11) (20) (28) 1,220 1,054 361 199 2,028 1,917 46 395 877 544 156 10 115 62 (1) - 54 32 284 888 557 147 9 145 104 - - 41 166 162 111 14 111 (11) (13) 9 1 (30) (42) (1) - 13 711 751 (40) 398 140 113 60 58 54 9 (5) 400 98 101 152 57 53 8 (4) 115 (76) 4,608 4,047 (2) 42 12 (92) 1 1 1 (1) 191 561 31 51 56 - - 19 37 - - 3 3 - - - 3 3 - - - (4) (4) - - (16) 124 - - - - - - - - - - - - - - - - - - - - - - - - - 31 51 56 - - 19 37 - - 3 3 - - - 3 3 - - - (4) (4) - - (16) 124 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7,304 6,863 3,558 3,573 4,370 4,204 344 287 1,275 1,008 1,206 1,359 1,038 1,061 497 10 516 230 232 - 54 480 9 543 232 270 - 41 441 (15) 166 57 267 (153) (23) 17 1 (27) (2) (38) - 13 708 759 (51) 395 140 113 60 54 50 9 (5) 408 98 101 152 57 53 8 (4) (201) (201) (227) (227) 26 26 (159) (346) 16,351 15,653 (13) 42 12 (92) (3) (3) 1 (1) 187 698 47 Report on operationsItaly NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 27,624 Thermal plants1 13,613 Hydroelectric plants 12,411 Geothermal plants 762 Wind farms 772 Other 66 2017 | 27,652 13,613 12,425 761 772 81 (1) 741 MW of which unavailable due t o l o n g - t e r m t e c h n i c a l 2 0 1 7 a n d 2 0 1 8 . i s s u e s a t D e c e m b e r 3 1 , ELECTRICITY DISTRIBUTION AND TRANSPORT NETWORKS (km) 2018 | 1,153,323 High-voltage lines at year end Low-voltage lines at year end 798,426 13 Medium-volta g e l i n e s a t y e a r e n d 354,884 48 Annual Report 2018 A V E R A G E N U M B E R O F C U S T O M E R S 2 5 , 6 0 2 , 0 9 6 t o c o n s u m e r t o b u s i n e s s | 2 0 1 8 F R E E M A R K E T B u s i n e s s 6 , 5 3 9 , 0 1 0 B u s i n e s s 1 , 6 6 6 , 2 6 1 3 9 , 0 6 1 S a f e g u a r d - m a r k e t c u s t o m e r s R E G U L A T E D M A R K E T E n h a n c e d - p r o t e c t i o n - m a r k e t c u s t o m ers 1 7 , 3 5 7 , 7 6 4 | 2 0 1 8 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P e n u 8 9 e v 8 , 3 e u R e 3 n al G T h e r m a n d Tr a din e v e R t u r e a n d 7 , 6 7 2 s c k r r u t s t w o I n a f r N e r g i n c r k r u t s t w o g m a I n n a e f r N t u r e a n d 3 , 6 7 9 s n 4 4 n e e r a ti o 9 , 0 g 1 a n t i n e r a ti o 2 g 2 r e p s s o G r o al G e din T h er m a n d Tra d i t u r e t s r u c t u r e d N e t w o r k s I n n a n f r a 5 1 , 6 8 e s n o t o e d r u g n e p n e ra tio g x e p it a l e a C T h er m al G a n d Tra din 1 7 2 e fi h (2 ) T 2017 | 26,420,058 2 018 | 8,244,332 2017 | 7,552,217 5,938,899 1,580,305 33,013 2017 | 18,867,841 E n e l G r e e n P o w e r 2 , 0 8 4 End-user markets 16,367 Enel X 247 E n e l G r e e n P o w e r 1 , 2 2 0 End-user markets 2,233 Enel X 31 Gross operating margin 7,304 Services 1,388 Capital expenditure 2,4792 Eliminations and adjustm (8,404) ents Services 119 E n e l G r e en P o w e r 2522 markets 248 End-user Enel X 54 Services 68 i n c l u d e € 3 m i l l i o n regarding units classified as “held for sale”. NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 27,624 Italy Thermal plants1 13,613 Hydroelectric plants 12,411 Geothermal plants 762 Wind farms 772 Other 66 2017 | 27,652 13,613 12,425 761 772 81 (1) 741 MW of which unavailable due t o l o n g - t e r m t e c h n i c a l 2 0 1 7 a n d 2 0 1 8 . i s s u e s a t D e c e m b e r 3 1 , ELECTRICITY DISTRIBUTION AND TRANSPORT NETWORKS (km) 2018 | 1,153,323 High-voltage lines at year end 13 Low-voltage lines at year end 798,426 Medium-volta g e l i n e s a t y e a r e n d 354,884 A V E R A G E N U M B E R O F C U S T O M E R S 2 5 , 6 0 2 , 0 9 6 | t o c o n s u m e r 2 0 1 8 F R E E M A R K E T B u s i n e s s 6 , 5 3 9 , 0 1 0 B u s i n e s s 1 , 6 6 6 , 2 6 1 S a f e g u a r d - m a r k e t c u s t o m e r s t o b u s i n e s s 3 9 , 0 6 1 R E G U L A T E D M A R K E T E n h a n c e d - p r o t e c t i o n - m a r k e t c u s t o m ers 1 7 , 3 5 7 , 7 6 4 | 2 0 1 8 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P e n u 8 9 v e 8 , 3 R e 3 v e R e r a ti o 9 , 0 g 1 e u n n e e al G T h e r m a n d Tr a din G r o c k r r u t s t w o I n a f r N e n 4 4 g m a I n n f r N t i n e r a ti o 2 g 2 a n r e din e p s s o al G T h er m a n d Tra 2017 | 26,420,058 2 018 | 8,244,332 2017 | 7,552,217 5,938,899 1,580,305 33,013 2017 | 18,867,841 Gross operating margin 7,304 Capital expenditure 2,4792 Services 1,388 Eliminations and adjustm (8,404) ents Services 119 G r e e n E n e l P o w e r 2 , 0 8 4 End-user markets 16,367 Enel X 247 t u r e a n d 7 , 6 7 2 s r g i n c r k r u t s t w o a e t u r e a n d 3 , 6 7 9 s G r e e n E n e l P o w e r 1 , 2 2 0 End-user markets 2,233 Enel X 31 d i t u r e I n n f r a t a s r u c t u r e d N e t w o r k s n 1 , 6 5 8 s n o t e o e d r u g a C n e p x p it a l e e ra tio T h er m al G g a n d Tra din 1 7 2 e n e fi h (2 ) T E n e l G r e en P o w e r 2522 markets 248 End-user Enel X 54 Services 68 i n c l u d e € 3 m i l l i o n regarding units classified as “held for sale”. Report on operations 49 Operations Net electricity generation Millions of kWh Thermal Hydroelectric Geothermal Wind Other sources 2018 27,757 18,395 5,667 1,289 124 2017 Change 32,421 (4,664) -14.4% 14,025 4,370 31.2% 5,758 1,188 126 (91) 101 (2) -1.6% 8.5% -1.6% -0.5% Total net generation 53,232 53,518 (286) In 2018, net electricity generation totaled 53,232 million panied by an increase in wind generation of 101 million kWh, a decline of 0.5%, or 286 million kWh, from 2017. kWh. These factors resulted in a decrease thermal genera- The increase in hydroelectric generation (of 4,370 million tion (of 4,664 million kWh) and a decrease in geothermal kWh) was essentially attributable to the improvement of generation of 91 million kWh. water availability compared with the previous year, accom- Contribution to gross thermal generation Millions of kWh Fuel oil Natural gas Coal Other fuels Total 2018 2017 Change - - 10 - (10) - 7,097 22,534 555 23.5% 74.7% 1.8% 8,396 23.9% (1,299) -15.5% 26,139 74.5% (3,605) -13.8% 534 1.6% 21 3.9% 30,186 100.0% 35,079 100.0% (4,893) -13.9% Gross thermal generation for 2018 amounted to 30,186 mil- was due to the reduced competitiveness of coal and gas, lion kWh, a reduction of 4,893 million kWh (-13.9%) compared as well as to the increase in hydroelectric production, which with 2017. The decrease involving the entire mix of fuels used made the use of thermal generation less advantageous. Net efficient generation capacity MW Thermal plants (1) Hydroelectric plants Geothermal plants Wind farms Other at Dec. 31, 2018 at Dec. 31, 2017 Change 13,613 12,411 762 772 66 13,613 12,425 761 772 81 - (14) 1 - (15) (28) - -0.1% - - -18.5% -0.1% Total net efficient capacity 27,624 27,652 (1) 741 MW of which unavailable due to long-term technical issues at December 31, 2017 and 2018. 50 Annual Report 2018Net efficient capacity in 2018 came to 27,624 MW, a de- mainly reflects the transfer of the Tirso 1 and Tirso 2 hy- crease of 28 MW from the previous year. The change droelectric plants to the Region of Sardinia. Electricity distribution and transport networks High-voltage lines at year end (km) Medium-voltage lines at year end (km) Low-voltage lines at year end (km) 2018 13 2017 13 354,884 353,808 798,426 795,397 Total electricity distribution network (km) 1,153,323 1,149,218 Electricity transported on Enel’s distribution network (millions of kWh) (1) 227,660 228,461 (1) The figure for 2017 reflects a more accurate measurement of amounts transported. Change - 1,076 3,029 4,105 (801) - 0.3% 0.4% 0.4% -0.4% Electricity transported on the Enel network in Italy for 2018 decreased by 801 million kWh (-0.4%), going from 228,461 million kWh in 2017 to 227,660 million kWh in 2018. Electricity sales Millions of kWh Free market: - business to consumer - business to business - safeguard-market customers Total free market Regulated market: - enhanced-protection-market customers TOTAL 2018 2017 Change 13,331 49,141 2,028 64,500 12,475 44,735 2,052 59,262 856 4,406 (24) 5,238 39,818 104,318 43,958 (4,140) 103,220 1,098 6.9% 9.8% -1.2% 8.8% -9.4% 1.1% Energy sold in 2018 came to 104,318 million kWh for the free market, with a particular emphasis on business an overall increase of 1,098 million kWh compared with customers, as a result of the commercial strategy imple- the prior year. This trend reflects the increase in sales on mented. Average number of customers Free market: - business to consumer - business to business - safeguard-market customers Total free market Regulated market: 2018 2017 Change 6,539,010 5,938,899 600,111 1,666,261 1,580,305 85,956 39,061 33,013 6,048 8,244,332 7,552,217 692,115 - enhanced-protection-market customers 17,357,764 18,867,841 (1,510,077) TOTAL 25,602,096 26,420,058 (817,962) 10.1% 5.4% 18.3% 9.2% -8.0% -3.1% 51 Report on operationsNatural gas sales Millions of m3 Business to consumer Business to business Total 2018 2,947 1,814 4,761 2017 2,910 1,901 4,811 Change 37 (87) (50) 1.3% -4.6% -1.0% Gas sales in 2018 came to 4,761 million cubic meters, a decrease of 50 million cubic meters compared with the previous year, essentially attributable to sales to business customers. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2018 38,398 7,304 4,498 2,479 (1) 2017 38,781 6,863 4,470 1,812 Change (383) 441 28 667 -1.0% 6.4% 0.6% 36.8% (1) The figure does not include €3 million regarding units classified as “held for sale”. The following tables break down performance by type of business in 2018. Revenue Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Eliminations and adjustments Total 2017 Change 19,919 (875) 2018 19,044 7,672 2,084 7,584 1,822 16,367 16,256 247 1,388 (8,404) 38,398 - 1,314 (8,114) 38,781 -4.4% 1.2% 14.4% 0.7% - 5.6% -3.6% -1.0% 88 262 111 247 74 (290) (383) Revenue in 2018 amounted to €38,398 million, a decrease spite a background of increasing prices; of €383 million compared with 2017 (-1.0%), the result of - a €333 million decline in revenue from the sale of the following main factors: electricity essentially related to the lower quantities > a €875 million decline (-4.4%) in revenue from Thermal generated. More specifically, the change is mainly Generation and Trading compared with 2017. This re- attributable to the decrease in revenue from the sale duction is mainly attributable to: of electricity under bilateral agreements with other - a €863 million decline in revenue from trading on national resellers (€952 million), only partially offset international energy markets due, essentially, to a by the increase in revenue from sales on the Power reduction in quantities handled (-42.5 TWh) in propri- Exchange (€188 million) and increased sales on end- etary trading conducted on the European electricity user markets in Italy; exchanges (particularly in France and Germany) de- 52 Annual Report 2018 - a €353 million increase in revenue from the sale of fu- (in the amount of €196 million) due to lower volumes els, mainly gas, on domestic and international whole- purchased and the reduction in the unit contribution sale markets; compared with 2017; - a €103 million increase in revenue related to fees rec- - a reduction in revenue from the sale of electricity me- ognized by the Regulatory Authority for Energy, Net- ters to other companies of the Group (€60 million); works and Environment (ARERA) in transactions on > an increase in revenue from generation by the Enel the Power Exchange, mainly attributable to the reim- Green Power Business Line of €262 million (+14.4%) bursement of costs of essential plants; due to higher average sales prices and greater quantities - a €26 million increase in revenue from the sale of CO2 emission rights as a result of rising prices of allow- ances; produced; > an increase of €111 million (+0.7%) in revenue from End-user markets for electricity, essentially reflecting: > an increase of €88 million (+1.2%) in revenue from Infra- - an increase of €765 million in revenue on the free structure and Networks operations, largely reflecting: energy market related to the increase in quantities - recognition of a gain of €146 million, pursuant to sold (+5.2 TWh), mainly to business customers; ARERA Resolution 50/2018/R/eel, related to the reim- - a €52 million increase in revenue from the sale of bursement by the Energy and Environmental Services natural gas to end users related to an increase in av- Fund for the system charges paid and not collected; erage prices; - recognition of the payment of €128 million related to - a decrease of €318 million in revenue on the regulated the agreement e-distribuzione reached with F2i and electricity market, following a decrease in rate reve- 2i Rete Gas; nue connected to the decrease in quantities sold (-4.1 - an increase of €92 million in connection fees; TWh) and in number of customers, as well as to the - an increase of €60 million in revenue related to ARE- reduction in revenue recognized for sales services; RA amendment 654/2015 (the “regulatory lag”), - a decrease of €205 million in connection fees due which was offset by a decline in rate revenue (€27 to application of the new IFRS 15, which led to the million) following the reduction in distribution and me- recognition only of fees attributable to the seller; tering rates and the negative effect of prior-year items - a reduction in revenue (€198 million) related to the (€72 million) related to the publication of the rates for sale of Enel Sole and Enel.si to the new Business the years 2016 and 2017, as well as to the equalization Line dedicated to developing value-added services; of network losses; > a €247 million increase in revenue for value-added ser- - the decrease in contributions from the Energy and vices, essentially due to the aforementioned change in Environmental Services Fund for white certificates the consolidation of the new Enel X Business Line. Gross operating margin Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Total 2018 22 3,679 1,220 2,233 31 119 2017 239 3,467 1,054 2,007 - 96 7,304 6,863 Change (217) -90.8% 212 166 226 31 23 441 6.1% 15.7% 11.3% - 24.0% 6.4% The gross operating margin amounted to €7,304 million in thermal power generation and to the increase in costs for 2018, an increase of €441 million (+6.4%) compared with gas purchases following an increase in average prices; 2017. This change was essentially due to the following factors: > an increase of €212 million in the margin from Infrastruc- > a decrease of €217 million in the margin on Thermal Gen- ture and Networks operations (+6.1%), largely due to: eration and Trading due essentially to the reduction in - recognition of a gain of €146 million, pursuant to 53 Report on operationsARERA Resolution 50/2018/R/eel, related to the re- Green Power Business Line of €166 million due to the imbursement by the Energy and Environmental Ser- greater quantities produced and sold at higher average vices Fund for system charges paid and not collected; prices than for the previous year; - recognition of the payment of €128 million related > an increase of €226 million in the margin from End-user to the agreement e-distribuzione reached with F2i markets (+11.3%), mainly attributable to: and 2i Rete Gas as mentioned above in relation to - an increase of €282 million in the margin on the free revenue; electricity and gas market, mainly related to the re- - a decrease of €11 million in the margin on electricity duction in costs for agencies and telesellers due to transport, primarily reflecting the reduction in rates application of IFRS 15, which provides for their capital- and the negative effect of past items as noted earlier ization when the customer base is increased; in relation to revenue; - a decrease of €20 million in the margin on the regu- - a decline of €27 million in the margin on white cer- lated electricity market, essentially attributable to a tificates; decrease in quantities sold, as well as to a decrease in - an increase in operating costs related mainly to the revenue recognized for sales services; purchase of materials to be used for implementa- - a reduction of €41 million in margin due to the afore- tion of the Resilience project connected with the im- mentioned change in the scope of consolidation; provement or maintenance of service quality; > an increase of €31 million in the margin for value-added > an increase in the margin on generation by the Enel services of the Enel X Business Line. Operating income Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Total 2018 (247) 2,508 828 1,379 (9) 39 2017 - 2,319 745 1,361 - 45 4,498 4,470 Change (247) 189 83 18 (9) (6) 28 - 8.2% 11.1% 1.3% - -13.3% 0.6% Operating income came to €4,498 million, an increase These effects were partially offset by a reduction in de- of €28 million, including an increase of €413 million in de- preciation, mainly at e-distribuzione (€94 million) follow- preciation, amortization and impairment losses, compared ing a study of the operating performance of distribution with the €4,470 million recognized in 2017. plants, supported by technical advisors, following which The increase in depreciation, amortization and impairment it was considered reasonable to extend the economic- losses refers largely to: technical life of certain components of distribution plants > an increase in amortization and depreciation from the compared with forecasts made in previous years. application of IFRS 15 in consideration of the capitaliza- tion of contract costs (€103 million); > the impairment losses on the LNG regasification plant of Nuove Energie (€24 million), the Bastardo thermo- electric plant (€20 million), and the CIS Interporto Cam- pano solar plant (€55 million); > the impairment loss on intangible assets related to the termination of the Bioenergy Casei Gerola project; > the impairment of trade receivables, mainly on end- user markets. 54 Annual Report 2018Capital expenditure Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Total 2018 172 1,685 252 (1) 248 54 68 2017 115 1,275 227 139 - 56 2,479 1,812 Change 57 410 25 109 54 12 667 49.6% 32.2% 11.0% 78.4% - 21.4% 36.8% (1) The figure does not include €3 million regarding units classified as “held for sale”. Capital expenditure in 2018 amounted to €2,479 million, and teleseller costs as contract costs; up €667 million compared with the previous year. More > an increase of €57 million in capital expenditure in specifically, the change is attributable to: Thermal Generation and Trading; > an increase of €410 million in capital expenditure in Infra- > an increase of €25 million in capital expenditure in the structure and Networks related mainly to the replace- Enel Green Power Business Line, mainly related to so- ment of electronic meters for the Open Meter plan; lar plants; > an increase of €109 million in capital expenditure in End- > an increase of €54 million in capital expenditure for the user markets as a result of the capitalization of agency Enel X Business Line. 55 Report on operationsIberia NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 22,717 Thermal plants 12,874 2017 | 22,732 E L E C T R I C I T Y D I S T R I B U T I O N A N D T R A N S PORT NETWORKS (km) 3 1 9 , 6 1 3 t a g e l i n e s a t y e a r e n d i n e s a t y e a r e n d t a g e l | 2 0 1 8 H i g h - v o l 1 9 , 6 2 5 L o w - v o l 1 8 1 , 4 5 7 Medium-voltage lines at year end 118,531 13,030 3,318 4,752 1,618 14 Nuclear plants 3,318 Hydroelectric plants 4,761 Wind farms 1,750 Other 14 56 Annual Report 2018 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P Gross operating margin 3,558 Capital expenditure 1,433 Services 514 Eliminations and adjustm (5,895) ents Services 80 e u 2 n 9 e v 9 , 4 e u R e 1 n al G T h e r m a n d Tr a din e v e R n 9 n e e r a ti o 1 g 6 , 3 G r o a n r e din e p s s o al G T h er m a n d Tra t u r e k t w o r c r u t s a d N e I n f r n a s 2 , 6 7 1 r g i n g m a I n f r n a r u s a d N e 5 t 6 1 , 9 t i n n 5 e r a ti o g 4 2 n e p x p it a l e a C g T h e r m n G e a n n d i n al e r a ti o d Tr a 5 3 4 c t u r e t w o r k s d i t u r e t s r u c t u r e d N e t w o r k s a I n f a r n 6 8 6 E n e l G r e e n P o w e r 7 1 6 End-user markets 14,920 Enel X 247 E n e l G r e e n P o w e r 3 6 1 End-user markets 676 Enel X 51 E n e l G r een P o w e r 246 End-user markets 107 Enel X 39 Services 28 NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 22,717 2017 | 22,732 Iberia Thermal plants 12,874 Nuclear plants 3,318 Hydroelectric plants 4,761 Wind farms 1,750 Other 14 13,030 3,318 4,752 1,618 14 E L E C T R I C I T Y D I S T R I B U T I O N A N D T R A N S PORT NETWORKS (km) 3 1 9 , 6 1 3 t a g e l i n e s a t y e a r e n d i n e s a t y e a r e n d t a g e l | 2 0 1 8 H i g h - v o l 1 9 , 6 2 5 L o w - v o l 1 8 1 , 4 5 7 Medium-voltage lines at year end 118,531 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P e u 2 n 9 v e 9 , 4 R e 1 Gross operating margin 3,558 Capital expenditure 1,433 Services 514 Eliminations and adjustm (5,895) ents Services 80 E n e l G r e e n P o w e r 7 1 6 End-user markets 14,920 Enel X 247 t u r e c k t w o r s 2 , 6 7 1 E n e l G r e e n P o w e r 3 6 1 End-user markets 676 Enel X 51 t u r e c t w o r k s v e R e r a ti o 1 g 6 , 3 e u n n e e al G T h e r m a n d Tr a din G r o a r u t s d N e I n f r n a n 9 t i n e r a ti o 2 g 4 a r n e din e p s s o al G T h er m a n d Tra r g i n g m a r u t s f r I n d N e n 5 6 1 , 9 n 5 a a d i t u r e n e I n a f a r n 6 g 8 6 t s r u c t u r e d N e t w o r k s a C p x p it a l e al n T h e r m e r a ti o d i n n d Tr a e G a n 5 3 4 E n e l G r een P o w e r 246 End-user markets 107 Enel X 39 Services 28 Report on operations 57 Operations Net electricity generation Millions of kWh Thermal Nuclear Hydroelectric Wind Other sources 2018 37,954 24,067 8,459 3,688 25 2017 Change 43,754 (5,800) -13.3% 26,448 (2,381) -9.0% 5,038 3,351 27 3,421 67.9% 337 (2) 10.1% -7.4% -5.6% Total net generation 74,193 78,618 (4,425) In 2018, net electricity generation totaled 74,193 million production, which was partly offset by the increase in hy- kWh, a reduction of 4,425 million kWh from 2017. This droelectric and wind production, and in the reduction in decrease is reflected in the lower thermal and nuclear demand for electricity. Contribution to gross thermal generation Millions of kWh Fuel oil Natural gas Coal Nuclear fuel Other fuels Total 2018 2017 Change 5,770 6,907 8.9% 10.6% 6,319 9,750 8.6% (549) -8.7% 13.2% (2,843) -29.2% 23,340 35.9% 26,156 35.5% (2,816) -10.8% 25,031 38.5% 27,542 37.4% (2,511) -9.1% 3,947 6.1% 3,865 5.3% 82 2.1% 64,995 100.0% 73,632 100.0% (8,637) -11.7% Gross thermal generation in 2018 totaled 64,995 million decrease across all types of fuels, especially in natural gas kWh, a decrease of 8,637 million kWh compared with the and coal. previous year. With regard to the mix used, there was a Net efficient generation capacity MW Thermal plants Nuclear plants Hydroelectric plants Wind farms Other at Dec. 31, 2018 at Dec. 31, 2017 Change 12,874 13,030 (156) -1.2% 3,318 4,761 1,750 14 3,318 4,752 1,618 14 - 9 132 - (15) - 0.2% 8.2% - -0.1% Total net efficient capacity 22,717 22,732 Net efficient capacity in 2018 amounted to 22,717 MW, tilla and Alcúdia, which was largely offset by an increase in a decrease of 15 MW compared with the previous year, installed capacity in wind farms following the acquisition of mainly due to the disposal of the combined-cycle and coal/ Parques Eólicos Gestinver. fuel-oil plants (or parts of those plants) at Teruel, Compos- 58 Annual Report 2018 Electricity distribution and transport networks High-voltage lines at year end (km) Medium-voltage lines at year end (km) Low-voltage lines at year end (km) Total electricity distribution network (km) Electricity transported on Enel’s distribution network (millions of kWh) (1) (1) The figure for 2017 reflects a more accurate measurement of amounts transported. 2018 19,625 118,531 181,457 319,613 124,714 2017 19,560 117,886 180,336 317,782 126,360 Change 65 645 1,121 1,831 (1,646) 0.3% 0.5% 0.6% 0.6% -1.3% Electricity transported in 2018 totaled 124,714 million kWh, a decrease of 1,646 million kWh, which is essentially in line with the trend in demand. Electricity sales Millions of kWh Free market Regulated market Total electricity sold by Enel 2018 76,772 12,867 89,639 2017 83,036 13,477 96,513 Change (6,264) (610) (6,874) -7.5% -4.5% -7.7% Electricity sales to end users in 2018 totaled 89,639 million kWh, a decrease of 6,874 million kWh compared with 2017. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure 2018 19,492 3,558 1,724 1,433 The following tables break down performance by type of business in 2018. 2017 19,994 3,573 1,842 1,105 2017 6,233 2,786 497 2018 6,319 2,671 716 14,920 15,798 247 514 (5,895) 19,492 - 475 (5,795) 19,994 Change (502) (15) (118) 328 -2.5% -0.4% -6.4% 29.7% Change 86 (115) 219 (878) 247 39 (100) (502) 1.4% -4.1% 44.1% -5.6% - 8.2% 1.7% -2.5% Revenue Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Eliminations and adjustments Total Revenue in 2018 decreased by €502 million due to: market (-€123 million) and on the free market (-€747 mil- > a decrease of €878 million in revenue on End-user mar- lion), as well as to a reduction in sales of value-added kets due to lower volumes sold both on the regulated services of €235 million, which were transferred to the 59 Report on operationsnew Enel X Business Line. These reductions were partly the Enel Green Power Business Line, connected with offset by an increase of €229 million in revenue from gas greater quantities sold, which were consistent with the commodity sales, which is reflected in the increase in increase in production from hydroelectric sources, due quantities sold; above all to greater water availability compared with 2017, > an increase of €86 million in revenue from Thermal Gen- as well as to changes in the scope of consolidation due eration and Trading, mainly related to the increase in to the acquisitions of Parques Eólicos Gestinver and oth- gas sales, largely to the electricity distribution companies er smaller wind power companies. Here, too, a portion of in the country and which are therefore also reflected in this revenue was from electricity marketing companies eliminations. Accompanying these effects were an in- and is therefore reflected in eliminations; crease in reimbursements for costs incurred in the gen- > a decrease of €115 million in revenue from Infrastruc- eration of electricity in the extra-peninsular area and the ture and Networks operations, essentially due to lower capital gain generated by the contribution in kind to the fees for connections to the grid as a result of the applica- capital increase of Front Marítim del Besòs SL. The re- tion of IFRS 15; duction in revenue from the sale of electricity partially > an increase of €247 million in the revenue of Enel X, offset these positive effects; mainly related to sales of value-added services, which in > an increase of €219 million in revenue from generation by 2017 were the prerogative of marketing companies. Gross operating margin Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Total 2018 425 1,965 361 676 51 80 2017 783 2,086 199 467 - 38 3,558 3,573 Change -45.7% -5.8% 81.4% 44.8% - - -0.4% (358) (121) 162 209 51 42 (15) The gross operating margin amounted to €3,558 million, > a decrease of €358 million in gross operating margin a decrease of €15 million compared with 2017, reflecting: recognized in Thermal Generation and Trading, which > a decrease in the margin on Infrastructure and Net- reflected the effect of the reimbursement of costs for works operations, in the amount of €121 million, which the “bono social” in 2017 (€222 million) and an increase was affected by the aforementioned decrease in rev- in costs for the provisioning of fuel; enue for connections accompanied by a slight increase > an increase of €162 million in the margin on generation in costs for services and materials; by the Enel Green Power Business Line, where the > an increase of €209 million in gross operating margin higher revenue mentioned above was partially offset by on End-user markets, essentially due to the significant the increase in operating costs, particularly for water di- decrease in the costs for provisioning and transport of version fees and charges for access to the transmission energy, which more than compensated for the sharp re- network (in line with the greater quantities produced); duction in revenue, to which we can add a reduction in > an increase of €51 million in revenue from value-added costs for trading fees negotiated following the applica- services related to the new Enel X Business Line. tion of IFRS 15 (€70 million) and costs for value-added services attributed to the Enel X Business Line starting from 2018; 60 Annual Report 2018 Operating income Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Total 2018 (274) 1,220 208 494 37 39 2017 191 1,367 12 286 - (14) Change (465) (147) 196 208 37 53 - -10.8% - 72.7% - - 1,724 1,842 (118) -6.4% Operating income in 2018, including depreciation, amortiza- fects mentioned above, to the impairment of certain assets tion and impairment losses in the amount of €1,834 million at the Alcúdia power plant (€82 million), and an increase in (€1,731 million in 2017), came to €1,724 million, a decrease depreciation and amortization, particularly for contract costs of €118 million compared with 2017 due, in addition to the ef- in application of IFRS 15 (€54 million). Capital expenditure Millions of euro Thermal Generation and Trading Infrastructure and Networks Enel Green Power End-user markets Enel X Services Total 2018 345 668 246 107 39 28 2017 295 657 65 55 - 33 1,433 1,105 Change 16.9% 1.7% - 94.5% - -15.2% 29.7% 50 11 181 52 39 (5) 328 Capital expenditure came to €1,433 million, up €328 mil- on the line and replacement of the metering devices and lion year on year. More specifically, capital expenditure the capitalization of contract costs (€70 million) in end- in 2018 mainly concerned the construction of new wind user markets. Greater capital expenditure by the Thermal farms and photovoltaic plants following the awarding of Generation and Trading Business Line included the nuclear projects in 2017. In addition, there was work on the dis- plants at Ascó, Vandellòs and Almaraz. tribution network for substations and transformers, work 61 Report on operationsSouth America NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 20,997 Thermal plants 7,734 Hydroelectric plants 10,031 Wind farms 1,616 Other 1,616 2017 | 20,544 7,733 9,980 1,392 1,429 ELECTRICITY DISTRIBUTION AND TRANSPORT NETWORKS (km) 2018 | 624,653 High-voltage lines at year end Low-voltage lines at year end 223,326 20,112 Medium-volta g e l i n e s a t y e a r e n d 381,214 62 Annual Report 2018 O F W H I C H i n a 2 0 1 8 A r g e n t 4 , 4 1 9 l B r a z i 3 , 2 5 0 l e C h i 7 , 4 4 8 C o l o m b i a 3 , 5 8 3 P e r u 2 , 2 9 7 O t h e r – c o u n t r i e s 2017 4,419 2,975 7,475 3,467 2,158 50 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P e u 2 n 4 e v 4 , 7 R e 1 n e v e R u e e a n tin 3 2 A r g 1,3 z il 9 a B r 6 , 5 2 t i n a r e p r g i n g m a z il 7 5 B r 1 , 2 a x n e p d i t u r e z il 6 a 3 B r 9 a C p it a l e a n ti n A r g e 8 2 1 G r o s s o a n tin e A r g 3 4 4 Gross operating margin 4,370 Capital expenditure 2,246 11 Other countries l e C h i 3 , 2 5 5 Colombia 2,261 Peru 1,300 l e C h i 1 , 2 0 6 Colombia 1,038 Peru 497 10 Other countries C h i l e 4 8 3 Colombia 397 Peru 211 South America NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 20,997 Thermal plants 7,734 Hydroelectric plants 10,031 Wind farms 1,616 Other 1,616 2017 | 20,544 7,733 9,980 1,392 1,429 ELECTRICITY DISTRIBUTION AND TRANSPORT NETWORKS (km) 2018 | 624,653 High-voltage lines at year end 20,112 Low-voltage lines at year end 223,326 Medium-volta g e l i n e s a t y e a r e n d 381,214 2017 4,419 2,975 7,475 3,467 2,158 50 O F W H I C H 2 0 1 8 A r g e n t 4 , 4 1 9 i n a l B r a z i 3 , 2 5 0 l e C h i 7 , 4 4 8 C o l o m b i a 3 , 5 8 3 P e r u 2 , 2 9 7 O t h e r – c o u n t r i e s e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P Gross operating margin 4,370 Capital expenditure 2,246 11 Other countries e u 2 n 4 v e 4 , 7 e u R e 1 n z il a B r 9 6 , 5 2 l e C h i 3 , 2 5 5 Colombia 2,261 Peru 1,300 e v e R e A r g 1,3 a n tin 3 2 G r o t i n a r e p s s o a n tin e A r g 3 4 4 r g i n z il 7 5 g m a a B r 1 , 2 l e C h i 1 , 2 0 6 Colombia 1,038 Peru 497 10 Other countries d i t u r e z il 6 B r 9 3 a n e a C p a x p it a l e n ti n e A r g 8 2 1 C h i l e 4 8 3 Colombia 397 Peru 211 Report on operations 63 Operations Net electricity generation Millions of kWh Thermal Hydroelectric Wind Other sources Total net generation - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru - of which other countries 2018 22,441 36,135 6,138 3,183 67,897 13,949 9,840 20,885 14,054 8,999 170 2017 Change 25,727 (3,286) -12.8% 33,597 3,661 1,642 64,627 14,825 7,161 20,231 14,766 7,493 151 2,538 2,477 1,541 3,270 (876) 2,679 654 (712) 7.6% 67.7% 93.8% 5.1% -5.9% 37.4% 3.2% -4.8% 1,506 20.1% 19 12.6% Net generation in 2018 totaled 67,897 million kWh, an and the start of operations of various plants in Brazil in increase of 3,270 million kWh compared with 2017. This early 2018; increase is mainly attributable to: > increased solar production in Brazil, Chile and Peru, > increased wind power production in Brazil and Peru, due which also reflects the increase in net efficient capacity. mainly to the start of operations of new plants; The reduction in thermal power generation, which was > increased hydroelectric production, particularly concen- particularly evident in Chile, Argentina and Brazil due to the trated in Chile, Brazil and Argentina as a result of the unavailability of the plants in Tarapacá (Chile), Costanera more favorable water availability that characterized these (Argentina), and Fortaleza (Brazil), was partially offset by countries during the period under review and the acquisi- an increase in production in Peru. tion, at the end of 2017, of the Volta Grande plant in Brazil Contribution to gross thermal generation Millions of kWh Fuel oil Natural gas Coal Other fuels Total 2018 2017 Change 316 1.4% 723 2.7% (407) -56.3% 19,656 83.9% 21,669 81.2% (2,013) -9.3% 2,986 12.7% 468 2.0% 3,134 1,144 11.8% (148) -4.7% 4.3% (676) -59.1% 23,426 100.0% 26,670 100.0% (3,244) -12.2% Gross thermal generation in 2018 totaled 23,426 million use of traditional fuels, particularly in Argentina, Brazil, kWh, a decrease of 3,244 million kWh compared with the and Chile. previous year. This was essentially due to the decreased 64 Annual Report 2018 Net efficient generation capacity MW Thermal plants Hydroelectric plants Wind farms Other Total net efficient capacity - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru - of which other countries at Dec. 31, 2018 at Dec. 31, 2017 Change 7,734 10,031 1,616 1,616 20,997 4,419 3,250 7,448 3,583 2,297 - 7,773 9,980 1,362 1,429 20,544 4,419 2,975 7,475 3,467 2,158 50 (39) 51 254 187 453 - 275 (27) 116 139 (50) -0.5% 0.5% 18.6% 13.1% 2.2% - 9.2% -0.4% 3.3% 6.4% - Net efficient generation capacity in 2018 came to 20,997 Power São Abraão Eólica SA (28 MW), of the photovoltaic MW, an increase of 453 MW compared with the previous solar park Enel Green Power Horizonte MP Solar SA (103 year, essentially due to the greater installed capacity as a MW), in Peru of the Wayra I wind farm (132 MW) and in result of capital expenditure by the Group. Colombia of the El Paso photovoltaic solar plant (86 MW). The increase in generation capacity depends mainly on the The 50 MW decrease in other countries was due to the start of operations in Brazil of the Enel Green Power wind sale in December of Enel Green Power Uruguay SA, which farms Boa Vista Eólica SA (30 MW), Enel Green Power held the Melowind wind farm through the subsidiary Es- Morro do Chapéu Eólica SA (114 MW), and Enel Green trellada SA. Electricity distribution and transport networks High-voltage lines at year end (km) Medium-voltage lines at year end (km) Low-voltage lines at year end (km) 2018 2017 Change 20,112 18,308 1,804 381,214 350,376 30,839 9.9% 8.8% 223,326 197,326 25,999 13.2% Total electricity distribution network (km) 624,653 566,010 58,643 Electricity transported on Enel’s distribution network (millions of kWh) (1) 117,412 90,655 26,757 - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 17,548 61,310 16,485 14,024 8,045 17,737 (189) 34,876 26,434 75.8% 16,318 13,790 7,934 167 234 111 1.0% 1.7% 1.4% 10.4% 29.5% -1.1% (1) The figure for 2017 reflects a more accurate measurement of amounts transported. Energy transported in 2018 amounted to 117,412 million sition of Enel Distribuição São Paulo, a Brazilian electricity kWh, an increase of 26,757 million kWh compared with distribution company. 2017, concentrated mainly in Brazil as a result of the acqui- 65 Report on operations Electricity sales Millions of kWh Electricity sold by Enel - of which Argentina - of which Brazil - of which Chile - of which Colombia - of which Peru 2018 91,075 14,515 48,061 12,808 8,884 6,807 2017 Change 74,672 16,403 14,877 (362) 22.0% -2.4% 30,497 17,564 57.6% 13,232 9,389 6,677 (424) (505) 130 -3.2% -5.4% 1.9% Electricity sales in 2018 totaled 91,075 million kWh, in- to the growth in sales in Brazil following the acquisition creasing by 16,403 million kWh compared with the previ- of Enel Distribuição São Paulo, which was partly offset by ous year. Similarly to the above, this increase is attributable reductions in other countries. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure The following tables show a breakdown of performance by country in 2018. Revenue Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2018 2017 Change 14,742 13,154 1,588 12.1% 4,370 2,976 2,246 4,204 2,970 3,002 166 6 3.9% 0.2% (756) -25.2% 2018 1,323 6,592 3,255 2,261 1,300 11 2017 1,393 4,763 3,667 2,116 1,202 13 Change (70) -5.0% 1,829 38.4% (412) 145 98 (2) -11.2% 6.9% 8.2% -15.4% 14,742 13,154 1,588 12.1% Revenue in 2018 posted an increase of €1,588 million. The droelectric plant since September 28, 2017 (€61 million). rise was primarily attributable to: Compared with the previous year, this increase was par- > an increase of €1,829 million in revenue in Brazil, of which tially offset by the reduction in revenue from sales and €2,076 million due to the acquisition, on June 7, 2018, services of Enel Distribuição Rio (€193 million), Enel Dis- of Enel Distribuição São Paulo as well as an increase in tribuição Goiás (€58 million), Enel Geração Fortaleza (€51 revenue recognized by Enel Green Power Projetos I, the million), and Enel Distribuição Ceará (€55 million), and by holder of a thirty-year contract for the Volta Grande hy- adverse exchange rate developments (€728 million); 66 Annual Report 2018 > a decrease of €70 million in revenue in Argentina, essen- > a decrease of €412 million in revenue in Chile, essentially tially due to the highly negative exchange rate effect deriv- due to the reduction in sales to end users as a result of the ing from the depreciation of the Argentine peso against shift of customers from the regulated market to the free the euro (€746 million), which was largely offset by revalu- market (€150 million), the capital gain recognized in the 1st ation due to hyperinflation (IAS 29) and by the distribu- Quarter of 2017 on the sale of Electrogas (€143 million), tion rate increases as a result of the application of ENRE and adverse exchange rate developments (€94 million); Resolution 64; > an increase of €98 million in revenue in Peru, mainly due > an increase of €145 million in revenue in Colombia, mainly to greater electricity sales as a result of the increase in due to the increase in rates, which was partly offset by demand, which was only partly offset by adverse ex- adverse exchange rate developments (€97 million); change rate developments (€64 million). Gross operating margin Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2018 344 1,275 1,206 1,038 497 10 2017 287 1,008 1,359 1,061 480 9 4,370 4,204 Change 19.9% 26.5% -11.3% -2.2% 3.5% 11.1% 3.9% 57 267 (153) (23) 17 1 166 The gross operating margin amounted to €4,370 million, > a decrease of €23 million in the margin in Colombia, es- an increase of €166 million (+3.9%) compared with 2017, re- sentially attributable to the increase in costs for energy flecting: purchases and adverse exchange rate developments; > an increase of €267 million in the margin in Brazil, essen- > an increase of €17 million in the gross operating margin in tially due to the performance in renewables (€95 million, Peru, mainly due to the increase in revenue from renew- of which €51 million attributable to Enel Green Power Pro- able resources due to the greater production of energy jetos I, consolidated beginning in November 2017), the ac- from solar and wind, which was partly offset by higher quisition of Enel Distribuição São Paulo (€206 million), and provisioning costs; the increased margin of Enel Distribuição Goiás (€88 mil- > an increase of €57 million in the gross operating margin lion). These effects were only partially offset by the reduc- in Argentina, due to the decrease in personnel costs and tion in margins at Enel Geração Fortaleza (€97 million), due a reduction in costs for fines following improvements in to greater provisioning costs and Enel Distribuição Ceará service quality. These increases were partially offset by (€52 million), due to a decrease in revenue from the sale adverse exchange rate developments resulting from the of electricity, as well as adverse exchange rate develop- depreciation of the Argentine peso against the euro. ments in the amount of €174 million; > a decrease of €153 million in the gross operating margin in Chile, which was mainly affected by adverse exchange rate developments (€32 million) and the effect of extraordinary items in 2017, notably the capital gain noted earlier, net of capital losses of €36 million on the abandonment of hy- droelectric projects (primarily Neltume and Choshuenco); 67 Report on operationsOperating income Millions of euro Argentina Brazil Chile Colombia Peru Other countries Total 2018 210 679 879 851 350 7 2017 231 483 1,027 890 333 6 2,976 2,970 Change -9.1% 40.6% -14.4% -4.4% 5.1% 16.7% 0.2% (21) 196 (148) (39) 17 1 6 Operating income in 2018 totaled €2,976 million, includ- es of €160 million reflects the greater depreciation of wind ing €1,394 million in depreciation, amortization and impair- farms and photovoltaic plants operating in Brazil, Peru and ment losses (€1,234 million in 2017), an increase of €6 Colombia, and changes in the scope of consolidation due million over the previous year. More specifically, the in- to the consolidation, starting in June 2018, of Enel Distri- crease in depreciation, amortization and impairment loss- buição São Paulo. Capital expenditure Millions of euro Argentina Brazil Chile Colombia Peru Total 2018 218 936 483 397 211 2017 259 1,475 543 309 416 2,246 3,002 Change -15.8% -36.5% -11.0% 28.5% -49.3% -25.2% (41) (539) (60) 88 (205) (756) Capital expenditure came to €2,246 million, down €756 above all, to the newly acquired Enel Distribuição São Pau- million year on year. Capital expenditure in 2018 refers pri- lo. The decrease compared with 2017 is attributable to the marily to work on the distribution networks in Colombia, completion of a number of wind farms and solar plants in Argentina, Peru and Brazil, the latter of which attributable, Brazil and Peru. 68 Annual Report 201869 Report on operationsO F W H I C H 2 0 1 8 R u s s i a 8 , 8 7 8 O t h e r 8 8 3 c o u n t r i e s 2017 8,878 883 Europe and Euro-Mediterranean Affairs NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 9,761 Thermal plants 8,878 Hydroelectric plants 19 Wind farms 741 Other 123 2017 | 9,761 8,878 19 741 123 ELECTRICITY DISTRIBUTION AND TRANSPORT NETWORKS (km) 2018 | 128,508 High-voltage lines at year end Low-voltage lines at year end 86,935 6,511 Medium-volta g e l i n e s a t y e a r e n d 35,062 70 Annual Report 2018 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P e u n 1 R e v 2 , 3 6 e e n u m a nia 1 8 o R 1,2 e v e R Gross operating margin 516 Capital expenditure 390 R u s s i a 9 9 7 Other countries 83 r g i n g m a t i n a r e p R u s s i a 2 3 2 Other countries 54 d i t u r e n e p x R u s s i a 8 6 Other countries 122 G r o s s o o R m 2 3 0 a nia a C p it a l e n ia a 2 R o m 1 8 Europe and Euro-Mediterranean NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 9,761 Affairs Thermal plants 8,878 Hydroelectric plants 19 Wind farms 741 Other 123 2017 | 9,761 8,878 19 741 123 O F W H I C H 2 0 1 8 R u s s i a 8 , 8 7 8 O t h e r 8 8 3 c o u n t r i e s e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P ELECTRICITY DISTRIBUTION AND TRANSPORT NETWORKS (km) 2018 | 128,508 High-voltage lines at year end 6,511 Low-voltage lines at year end 86,935 Medium-volta g e l i n e s a t y e a r e n d 35,062 e u 1 n e 6 e e v 2 , 3 u a nia 1 8 m 1,2 R e R n o v e R G r o 2017 8,878 883 Gross operating margin 516 R u s s i a 9 9 7 Other countries 83 Capital expenditure 390 r g i n g m a R u s s i a 2 3 2 t i n a r e p s s o Other countries 54 a nia m 2 3 0 o R a C d i t u r e n e p x p it a l e n ia a 2 R o m 1 8 R u s s i a 8 6 Other countries 122 Report on operations 71 Operations Net electricity generation Millions of kWh Thermal Hydroelectric Wind Other sources Total net generation - of which Russia - of which other countries 2018 39,181 32 1,700 163 41,076 39,182 1,894 2017 39,830 22 1,814 173 41,839 39,830 2,009 Change (649) 10 (114) (10) (763) (648) (115) -1.6% 45.5% -6.3% -5.8% -1.8% -1.6% -5.7% In 2018, net electricity generation amounted to 41,076 This change was mainly due to a decrease in generation million kWh, a decrease of 763 million kWh on the same in Russia. period of 2017. Contribution to gross thermal generation Millions of kWh Natural gas Coal Total 2018 21,712 19,592 41,304 52.6% 47.4% 100.0% 2017 Change 22,384 19,647 42,031 53.3% 46.7% 100.0% (672) (55) (727) -3.0% -0.3% -1.7% Gross thermal generation for 2018 posted a decrease of production in Russia and shows a reduced use of com- 727 million kWh to settle at 41,304 million kWh. The de- bined-cycle, coal and gas generation. crease for the period reflects the aforementioned drop in Net efficient generation capacity MW Thermal plants Hydroelectric plants Wind farms Other Total net efficient capacity - of which Russia - of which other countries at Dec. 31, 2018 at Dec. 31, 2017 Change 8,878 19 741 123 9,761 8,878 883 8,878 19 741 123 9,761 8,878 883 - - - - - - - - - - - - - - The net efficient capacity of 2018 was equal to 9,761 MW and was in line with that of the previous year. 72 Annual Report 2018 Electricity distribution and transport networks High-voltage lines at year end (km) Medium-voltage lines at year end (km) Low-voltage lines at year end (km) 2018 6,511 35,062 86,935 2017 6,505 35,016 86,027 Total electricity distribution network (km) (1) 128,508 127,548 Electricity transported on Enel’s distribution network (millions of kWh) 15,640 15,206 (1) The figure for 2017 reflects a more accurate measurement of amounts transported. Change 5 46 909 960 434 0.1% 0.1% 1.1% 0.8% 2.9% Electricity transport, which was concentrated entirely in 2018. The increase derives mainly from the trend in de- Romania, posted an increase of 434 million kWh (+2.9%), mand in the Romanian market, and in particular in the re- going from 15,206 million kWh to 15,640 million kWh in gions served by Enel. Electricity sales Millions of kWh Free market Regulated market 2018 7,519 2,881 2017 6,318 4,029 Change 1,201 19.0% (1,148) -28.5% Total electricity sold by Enel 10,400 10,347 53 0.5% Electricity sales in 2018 increased by 53 million kWh, go- increase was due to greater electricity sales in Romania ing from 10,347 million kWh to 10,400 million kWh. This due to the gradual liberalization of the market. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure (1) Does not include €44 million regarding units classified as “held for sale”. 2018 2,361 516 420 390 2017 2,411 543 306 307 (1) Change (50) (27) 114 83 -2.1% -5.0% 37.3% 27.0% 73 Report on operations The following tables shows a breakdown of performance by country in 2018. Revenue Millions of euro Romania Russia Other countries Total 2018 1,281 997 83 2,361 2017 1,180 1,135 96 2,411 Change 101 (138) (13) (50) 8.6% -12.2% -13.5% -2.1% Revenue for 2018 amounted to €2,361 million, a decrease > an increase of €101 million in revenue in Romania, es- of €50 million (-2.1%) from the previous year. The perfor- sentially connected to the greater volumes transported mance was related to the following factors: and sold, which more than offset the reduction in elec- > a decrease of €138 million in revenue in Russia related tricity distribution rates and the negative impact of the mainly to the weakening of the ruble against the euro application of IFRS 15. Revenue for new connections to (€123 million) and the decrease in unit prices and in the grid are deferred over the duration of the contract; output; > a decrease of €13 million in revenue in other countries. Gross operating margin Millions of euro Romania Russia Other countries Total 2018 2017 Change 230 232 54 516 232 270 41 543 (2) (38) 13 (27) -0.9% -14.1% 31.7% -5.0% The gross operating margin amounted to €516 million, a reflects the impact of IFRS 15 as discussed above, which decrease of €27 million compared with 2017. This perfor- was only partially offset by a decrease in customer acqui- mance was mainly due to: sition costs, which, with application of the new standard, > a decrease of €38 million in the operating margin in Rus- are now capitalized under intangible assets. This factor sia due to adverse exchange rate developments and the was accompanied by a decline in the margin for environ- decrease in the generation margin; mental certificates. > a reduction of €2 million in the margin in Romania, which Operating income Millions of euro Romania Russia Other countries Total 2018 2017 Change 95 169 156 420 114 210 (18) 306 (19) (41) 174 114 -16.7% -19.5% - 37.3% Operating income amounted to €420 million in 2018, an ing to property, plant and equipment and intangible assets increase of €114 million. This increase, in addition to being in Greece in the amount of €117 million and of the impair- influenced by the changes described above, was signifi- ment losses recognized in 2017 on geothermal assets in cantly affected by the reversal of impairment losses relat- Germany (€42 million). 74 Annual Report 2018Capital expenditure Millions of euro Romania Russia Other countries Total 2018 182 86 122 390 2017 134 109 64 307 (1) Change 48 (23) 58 83 35.8% -21.1% 90.6% 27.0% (1) Does not include €44 million regarding units classified as “held for sale”. Capital expenditure came to €390 million, an increase utable to electricity distribution grids. These factors were of €83 million compared with the previous year. The rise only partially offset by a decline in investment in Russia mainly reflected the investments in wind farms in Greece and Germany. and an increase in investment in Romania, primarily attrib- 75 Report on operationsNorth and Central America NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 3,827 Hydroelectric plants 623 Wind farms 2,940 Other 264 2017 | 3,533 623 2,566 344 76 Annual Report 2018 t e d S t a t e s a n d C a n a d a O F W H I C H 2 0 1 8 U n i 2 , 9 2 1 M e x i c o 2 9 9 P a n a m a 3 6 2 O t h e r 2 4 5 c o u n t r i e s 2017 2,092 843 354 244 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P Gross operating margin 708 Capital expenditure 1 3731 e u n 6 R U e v 1 , 4 3 e u e n nit e 9 0 3 e v e R d S t a t e a d a n a d C n s a a r e p d S t a t e G r o s s o U nit e 3 9 5 M e x i c o 2 9 7 r g i n g m a t i n d C n s a a d a n a M e x i c o 1 4 0 d i t u r e n e p x d C a n s a M e x i c o 2 0 6 1 a d a n a C p it a l e d S t a t e U nit e 1,1 4 5 € e d c l u o t i n s n e o (1 ) D Panama 151 Panama 113 Panama 7 6 Other countries i o n r e g a r d i ng units classified as “held for sale”. l l 3 7 5 m i 87 Other countries Other countries 60 North and Central America NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 3,827 Hydroelectric plants 623 Wind farms 2,940 Other 264 2017 | 3,533 623 2,566 344 O F W H I C H 2 0 1 8 t e d S t a t e s a n d C a n a d a U n i 2 , 9 2 1 M e x i c o 2 9 9 P a n a m a 3 6 2 c o u n t r i e s O t h e r 2 4 5 2017 2,092 843 354 244 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P Gross operating margin 708 Capital expenditure 1 3731 R U e v e R e u 6 n e 3 e e v 1 , 4 u n d S t a t e nit e 9 0 3 a d a n a d C n s a g m a d C a n t i n s a a r e p d S t a t e G r o s s o nit e 3 9 5 U M e x i c o 2 9 7 r g i n a d a n M e x i c o 1 4 0 Panama 151 Panama 113 87 Other countries Other countries 60 a C p x p it a l e nit e 1,1 5 U 4 d S t a t e d i t u r e a d a d C a n n n e s a € e d c l u o t i n s n e o (1 ) D M e x i c o 2 0 6 1 Panama 7 6 Other countries i o n r e g a r d i ng units classified as “held for sale”. l l 3 7 5 m i Report on operations 77 Operations Net electricity generation Millions of kWh Hydroelectric Wind Other sources Total net generation - of which United States and Canada - of which Mexico - of which Panama - of which other countries 2018 2,871 8,413 1,149 12,433 7,133 2,619 1,808 873 2017 2,681 6,920 192 9,793 5,313 2,025 1,528 927 Change 190 7.1% 1,493 21.6% 957 2,640 1,820 594 280 (54) - 27.0% 34.3% 29.3% 18.3% -5.8% In 2018, net electricity generation totaled 12,433 million due to the start of operations of the Villanueva and Don kWh, an increase of 2,640 million kWh from 2017. This José plants, which was partially offset by the lower quanti- increase is attributable to the increase in generation in ties produced by wind power (253 million kWh), following the United States and Canada (1,820 million kWh) mainly the sale of eight wind farms (“Project Kino”), and greater related to wind power (1,753 million kWh) following the quantities produced by hydroelectric (260 million kWh) and start of operations of the Rock Creek, Thunder Ranch and solar plants (20 million kWh) in Panama. These increases Red Dirt wind farms at the end of 2017. This was accom- were partly offset by the lower quantities produced from panied by an increase in quantities produced in Mexico hydroelectric sources in Guatemala (40 million kWh) and (594 million kWh), predominantly solar (838 million kWh), Costa Rica (14 million kWh). Net efficient generation capacity MW Hydroelectric plants Wind farms Other Total net efficient capacity - of which United States and Canada - of which Mexico - of which Panama - of which other countries at Dec. 31, 2018 at Dec. 31, 2017 Change 623 2,940 264 3,827 2,921 299 362 245 623 2,566 344 3,533 2,092 843 354 244 - 374 (80) 294 829 - 14.6% - 8.3% 39.6% (544) -64.5% 8 1 2.3% 0.4% Net efficient capacity for 2018 came to 3,827 MW, an in- to the new HillTopper, Rattlesnake Creek, Diamond Vista, crease of 294 MW compared with the previous year, mainly and High Lonesome plants, partially offset by the decrease due to the increase in net efficient power for wind farms in net installed capacity in Mexico following the sale of the in the United States and Canada (802 million MW) related eight wind and solar plants there. 78 Annual Report 2018 Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure (1) Does not include €375 million regarding units classified as “held for sale”. (2) Does not include €325 million regarding units classified as “held for sale”. The table below shows performance by geographical area in 2018. Revenue Millions of euro United States and Canada Mexico Panama Other countries Total 2018 1,438 708 454 2017 1,187 759 553 Change 251 (51) (99) 21.1% -6.7% -17.9% 1,373 (1) 1,802 (2) (429) -23.8% 2018 2017 Change 903 297 151 87 716 142 149 180 1,438 1,187 187 155 2 (93) 251 26.1% - 1.3% -51.7% 21.1% Revenue for 2018 came to €1,438 million, up €251 million for services provided to the eight Mexican project compa- (21.1%) year on year. The performance was related to the nies, which were partially sold with loss of control on Sep- following factors: tember 30, 2018 (€82 million), and an increase in revenue > an increase of €187 million in revenue in the United States from the sale of green certificates (€8 million); and Canada, essentially due to greater revenue earned by > an increase of €2 million in revenue in Panama, mainly the Enel X Business Line, in particular by Enel X North due to the greater quantities produced by hydroelectric America (formerly EnerNOC) (€181 million) and eMotor- sources as described in relation to operations; Werks (€5 million); > a decrease of €93 million in revenue in other countries, > an increase of €155 million in revenue in Mexico, mainly mainly due to the indemnities for losses recognized due to the increase in revenue from electricity sales (€61 in 2017 related to the Chucas wind farm in Costa Rica, million) related to the greater quantities produced by solar which were granted to the Group by the Instituto Costar- sources, as described in relation to operations, to revenue ricense de Electricidad (ICE). Gross operating margin Millions of euro United States and Canada Mexico Panama Other countries Total 2018 2017 Change 395 140 113 60 708 408 98 101 152 759 (13) 42 12 (92) (51) -3.2% 42.9% 11.9% -60.5% -6.7% 79 Report on operationsThe gross operating margin amounted to €708 million, > an increase of €12 million in the margin achieved in down €51 million (-6.7%) compared with 2017. The de- Panama, attributable to the greater quantities produced crease is attributable to the following factors: and to a reduction in electricity provisioning costs; > a decrease of €13 million in the margin achieved in the > a reduction in the margin posted in other countries, es- United States and Canada due to an increase in person- sentially due to the decline in revenue recognized by nel and operating costs; PH Chucas in reflection of the indemnities received in > an increase of €42 million in the margin in Mexico, 2017. which benefited from the increase in volumes pro- duced as described above, which was partially offset by higher operating costs; Operating income Millions of euro United States and Canada Mexico Panama Other countries Total 2018 233 94 98 29 454 2017 293 52 87 121 553 Change (60) 42 11 (92) (99) -20.5% 80.8% 12.6% -76.0% -17.9% Operating income in 2018 amounted to €454 million, a losses, mainly reflecting greater depreciation relating to decrease of €99 million, taking account of an increase of the start of operations of new plants in the United States. €48 million in depreciation, amortization and impairment Capital expenditure Millions of euro United States and Canada Mexico Panama Other countries Total 2018 1,154 206 (1) 7 6 2017 1,305 454 (2) 10 33 1,373 1,802 Change (151) (248) (3) (27) (429) -11.6% -54.6% -30.0% -81.8% -23.8% (1) Does not include €375 million regarding units classified as “held for sale”. (2) Does not include €325 million regarding units classified as “held for sale”. Capital expenditure came to €1,373 million in 2018, and High Lonesome (€81 million) wind farms in the United down €429 million year on year. Capital expenditure in States and to the Dolores (€69 million) and Parque Amistad 2018 mainly refers to the HillTopper (€229 million), Rattle- (€90 million) wind farms and the Magdalena photovoltaic snake Creek (€332 million), Diamond Vista (€320 million) plant (€38 million) in Mexico. 80 Annual Report 201881 Report on operationsAfrica, Asia and Oceania NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 694 Wind farms 371 Other 323 2017 | 694 371 323 82 Annual Report 2018 O F W H I C H 2 0 1 8 S o u t h A f 5 2 2 i c a r I n d i a 1 7 2 2017 522 172 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P G ro s s operating m a rgin 54 Capital expenditure 142 e u n e 1 e v 0 u e 1 n a o u t h A fric 8 3 R e S v e R I n d i a 1 5 r g i n g m a I n d i a 9 t i n a r e p G r o s s o S 5 0 a o u t h A fric a C p x e a p it a l e u t h A fri c o S 4 1 0 Other countries 3 Other countries (5) d i t u r e n I n d i a 2 7 Other countries 11 Africa, Asia and Oceania NET EFFICIENT GENERATION CAPACITY (MW) 2018 | 694 Wind farms 371 Other 323 2017 | 694 371 323 O F W H I C H 2 0 1 8 S o u t h A f 5 2 2 r i c a I n d i a 1 7 2 2017 522 172 e u r o ) ( m i l l i o n s o f 0 1 8 e i n 2 c n r m a e r f o P G ro s s operating m a rgin 54 Capital expenditure 142 e u n e 1 e v 0 u e 1 n a o u t h A fric 8 3 R e S v e R G r o r e p s s o o u t h A fric S 5 0 I n d i a 1 5 r g i n g m a I n d i a 9 t i n a a Other countries 3 Other countries (5) a C p x p it a l e u t h A fri c o S 4 1 0 d i t u r e n e a I n d i a 2 7 Other countries 11 Report on operations 83 Operations Net electricity generation Millions of kWh Wind Other sources Total net generation - of which South Africa - of which India 2018 933 574 1,507 1,192 315 2017 892 589 1,481 1,156 325 Change 41 (15) 26 36 (10) 4.6% -2.5% 1.8% 3.1% -3.1% Net generation in 2018 totaled 1,507 million kWh for an plant, which went into operation in February 2017. Com- increase of 26 million kWh compared with 2017. This in- pared with the previous year, adverse weather conditions crease is mainly attributable to the greater production of resulted in a decrease in solar generation in South Africa wind energy (41 million kWh), particularly in South Africa (15 million kWh) and wind generation in India (10 million (51 million kWh) and mainly attributable to the Gibson Bay kWh). Net efficient generation capacity MW Wind farms Other Total net efficient capacity - of which South Africa - of which India at Dec. 31, 2018 at Dec. 31, 2017 Change 371 323 694 522 172 371 323 694 522 172 - - - - - - - - - - Net efficient capacity in 2018 came to 694 MW, in line with the previous year. Performance Millions of euro Revenue Gross operating margin Operating income Capital expenditure The tables below show financial performance by geographical area in 2018. 2018 101 54 10 142 2017 Change 96 57 15 30 5 (3) (5) 112 5.2% -5.3% -33.3% - 84 Annual Report 2018 Revenue Millions of euro South Africa India Other countries Total 2018 2017 Change 83 15 3 101 80 16 - 96 3 (1) 3 5 3.8% -6.3% - 5.2% Revenue for 2018 came to €101 million, up €5 million year duction and sale of electricity by the Pulida and Gibson Bay on year. This increase was mainly due to the increased pro- plants in South Africa. Gross operating margin Millions of euro South Africa India Other countries Total 2018 2017 Change 50 9 (5) 54 53 8 (4) 57 (3) 1 (1) (3) -5.7% 12.5% -25.0% -5.3% The gross operating margin amounted to €54 million in flects the greater costs recognized in South Africa, Austra- 2018, down €3 million compared with 2017. The change re- lia and Morocco. Operating income Millions of euro South Africa India Other countries Total 2018 2017 Change 13 4 (7) 10 18 - (3) 15 (5) 4 (4) (5) -27.8% - - -33.3% Operating income totaled €10 million in 2018, a decline of €5 million taking account of an increase of €2 million in depreciation, amortization and impairment losses. Capital expenditure Millions of euro South Africa India Other countries Total 2018 104 27 11 142 2017 Change 27 3 - 30 77 24 11 112 - - - - Capital expenditure came to €142 million in 2018, up photovoltaic plants in South Africa (Round 4), India (Coral) €112 million year on year. Investments mainly concerned and Zambia (Scaling Solar). 85 Report on operationsOther, eliminations and adjustments Performance Millions of euro Revenue (net of eliminations) Gross operating margin Operating income Capital expenditure 2018 704 (159) (182) 89 2017 389 (346) (364) 72 Change 315 187 182 17 81.0% 54.0% 50.0% 23.6% Revenue net of eliminations for 2018 amounted to €704 The operating loss for 2018 was €182 million, an im- million, an increase of €315 million from the previous year. provement of €182 million compared with the previous The change is essentially attributable to: year, taking account of an increase of €5 million in de- > the capital gain of €150 million recognized by Enel Green preciation, amortization, and impairment, in line with the Power SpA following the partial sale, with loss of control, change in the margin. of eight special purpose vehicles (SPVs), owners of the same number of plants in operation and under construc- tion in Mexico (“Project Kino”), as well as the income recognized following that sale due to the remeasure- Capital expenditure ment at fair value of the remaining 20% owned by the Capital expenditure for 2018 came to €89 million, an Group (€40 million); increase of €17 million compared with 2017, and mainly > the capital gain of €18 million on the sale by Enel Green concerned the new Enel X Business Line and investments Power SpA of 100% of the subsidiary Enel Green Power in software by Enel SpA. Uruguay; > the inclusion in the Central area of the Global functions of certain companies in the Italy area. The gross operating margin for 2018, a negative €159 million, represents an improvement of €187 million com- pared with the previous year. This trend was positively affected by the capital gains and remeasurement at fair value noted earlier. In the absence of these factors, the performance of this margin would have worsened by €21 million. 86 Annual Report 2018Performance and financial position of Enel SpA Performance The following table summarizes the performance of Enel SpA in 2018 and 2017: Millions of euro Revenue Revenue from sales and services Other revenue and income Total Costs Consumables Services, leases and rentals Personnel costs Other operating expenses Total Gross operating margin Depreciation, amortization and impairment losses Operating income Net financial income/(expense) and income from equity investments Income from equity investments Financial income Financial expense Total Income before taxes Income taxes NET INCOME FOR THE YEAR 2018 2017 Change 38 15 53 1 127 109 39 276 (223) (331) 108 3,567 1,946 2,349 3,164 3,272 (184) 3,456 120 13 133 1 165 174 20 360 (227) 15 (242) 3,033 3,093 3,774 2,352 2,110 (160) 2,270 (82) 2 (80) - (38) (65) 19 (84) 4 (346) 350 534 (1,147) (1,425) 812 1,162 (24) 1,186 Revenue from sales and services amounted to €38 mil- Thermal Generation Srl, and Enel Italia Srl, and negative ad- lion (€120 million in 2017) and essentially regards services justments related to previous years. provided to subsidiaries as part of Enel SpA’s management Other revenue and income amounted to €15 million, up and coordination functions and the rebilling of costs incurred €2 million compared with the previous year. In both years, by Enel SpA but pertaining to the subsidiaries. the item is essentially composed of the rebilling of costs for The overall decrease, of €82 million, was essentially due to the personnel of Enel SpA seconded to other Group com- the reduction in revenue deriving from the provision of tech- panies. nical and management services following both the reorgani- zation of the global units at the beginning of 2018, within the Costs for consumables amounted to €1 million in 2018, scope of which the Global Business Lines Infrastructure & unchanged on the previous year. Networks and Thermal Generation, as well as Global Service Procurement, were transferred to the wholly owned subsid- Costs for services, leases and rentals amounted to €127 iaries Enel Global Infrastructure & Networks Srl, Enel Global million in 2018 (€165 million at December 31, 2017), of 87 Report on operations which charges from third parties in the amount of €54 mil- Accordingly, operating income of €108 million improved lion and from Group companies in the amount of €73 mil- by €350 million compared with 2017. lion. The former mainly regarded communication services, Income from equity investments amounted to €3,567 technical and professional services as well as strategic, million (€3,033 million in 2017) and regards dividends and management and corporate organization consulting and IT interim dividends approved in 2018 by subsidiaries and as- services. Those in respect of services provided by Group sociates in the amount of €3,557 million and by other enti- companies regard IT and administrative services and pur- ties in the amount of €10 million. This is an increase of €534 chasing, as well as rentals and personnel training received million over the previous year. from Enel Italia, and costs for the personnel of a number of Group companies seconded to Enel SpA. Net financial expense amounted to €403 million and es- sentially reflects interest expense on financial debt (€666 Personnel costs came to €109 million in 2018, a decrease million), offset by interest and other income on current and of €65 million compared with the previous year. This change non-current financial assets (€288 million). is mainly attributable to the transfers described above, The decrease in net financial expense on the previous which led to a consequent reduction in salaries and wages year, equal to €278 million, was essentially the result of and related social security costs. lower interest expense on financial payables (€194 million), which benefited from favorable interest rate developments, Other operating expenses amounted to €39 million in and the increase in other financial income on guarantees 2018, an increase of €19 million compared with 2017, main- pledged in favor of Group companies (€78 million). ly due to allocations to provisions for risks and charges in the amount of €15 million. Income taxes showed a tax receivable of €184 million, mainly due to the reduction in taxable income for IRES In the light of the above, the gross operating margin purposes compared with statutory taxable income as a re- was a negative €223 million, an improvement of €4 million sult of the exclusion of 95% of dividends received from compared with the previous year, mainly attributable to the subsidiaries and the deductibility of Enel SpA interest ex- combined effect of the reduction in revenue and in person- pense for the Group’s consolidated taxation mechanism in nel costs and costs for services, leases and rentals. accordance with corporate income tax law (Article 96 of the Depreciation, amortization and impairment losses Compared with the previous year (a tax receivable of €160 amounted to €331 million in 2018, an increase of €346 mil- million), the increase of €24 million was mainly due to non- Uniform Income Tax Code). lion compared with 2017, due essentially to the writeback recurring items. of the equity investment held in Enel Produzione SpA (€403 million), which was partially offset by the impairment losses Net income for the year totaled €3,456 million, compared on the investments in Enel Investment Holding BV (€15 mil- with €2,270 million the previous year. lion) and Enel Russia PJSC (€40 million). 88 Annual Report 2018Analysis of the financial position Millions of euro Net non-current assets: - property, plant and equipment and intangible assets - equity investments - net other non-current assets/(liabilities) Total Net current assets: - trade receivables - net other current assets/(liabilities) - trade payables Total Gross capital employed Sundry provisions: - employee benefits - provisions for risks and charges and net deferred taxes Total Net capital employed Shareholders’ equity NET FINANCIAL DEBT at Dec. 31, 2018 at Dec. 31, 2017 Change 56 45,715 (472) 45,299 191 (1,853) (82) (1,744) 43,555 (231) 109 (122) 43,433 27,943 15,490 41 42,811 (667) 42,185 237 (1,612) (137) (1,512) 40,673 (273) 87 (186) 40,487 27,236 13,251 15 2,904 195 3,114 (46) (241) 55 (232) 2,882 42 22 64 2,946 707 2,239 Net non-current assets amounted to €45,299, an increase > an increase of €195 million in net other non-current as- of €3,114 million. This was attributable to: sets/(liabilities), which at December 31, 2018 showed a > an increase of €2,904 million in the value of equity invest- net liability of €472 million (net other non-current liabili- ments, which were essentially affected by the following ties of €667 million at December 31, 2017). The change transactions: the recapitalization of the subsidiaries e-dis- is essentially attributable to the decrease in the value tribuzione SpA (€2,275 million) and Enel X Srl (€518 mil- of non-current derivative liabilities (€875 million), which lion); the payment on capital account to the joint venture was partially offset by the decrease in the value of non- OpEn Fiber SpA (€125 million); the acquisition of the in- current derivative assets (€662 million); vestments held by Enel Investment Holding BV, a wholly > the €15 million change in property, plant and equipment owned Dutch subsidiary, in the Russian companies Enel and intangible assets resulting from capital expenditure Russia PSJC and RusEnergoSbyt LLC, and in the Roma- (totaling €34 million), depreciation and amortization (€17 nian companies Enel Romania SA, E-Distribuţie Banat SA, million) for the year, and the transfer of intangible assets E-Distribuţie Dobrogea SA, E-Distribuţie Muntenia SA, to Enel Global Infrastructure & Networks Srl, Enel Global Enel Energie SA, and Enel Energie Muntenia SA, as well Thermal Generation Srl, and Enel Italia Srl (€2 million). as in the Dutch company Enel Insurance NV for a total value of €2,922 million; the reduction in the value of the Net current assets came to a negative €1,744 million, an equity investment in Enel Investment Holding BV (€4,002 increase of €232 million on December 31, 2017. The change million) following the reduction of its share capital (€1,592 is attributable to: million) and the distribution of the share premium reserve > an increase of €241 million in net other current liabilities, (€2,410 million). The adjustments to the value of the in- mainly reflecting the liability to shareholders for the in- vestments held in Enel Produzione SpA, Enel Investment terim dividend on 2018 earnings approved by the Board Holding BV and Enel Russia PJSC also had an effect; of Directors of Enel SpA on November 6, 2018, and to be 89 Report on operations paid as from January 23, 2019 (equal to €1,432 million in Shareholders’ equity came to €27,943 million at Decem- 2018 and €1,068 million in 2017); ber 31, 2018, an increase of €707 million on the previous > a decrease of €46 million in trade receivables, mainly in year. More specifically, the change is attributable to the respect of Group companies for management and coor- recognition of net income for 2018 (€3,478 million), the dis- dination services from Enel SpA; tribution of the balance of the dividend for 2017 (totaling > a decrease of €55 million in trade payables. €1,342 million), and the interim dividend for 2018 (totaling Net capital employed came to €43,433 million as at De- €1,423 million). cember 31, 2018, and was funded by €27,943 million in Net financial debt amounted to €15,490 million at the end shareholders’ equity and €15,490 million in net financial of the year, with a debt/equity ratio of 55.4% (48.7% at the debt. end of 2017). 90 Annual Report 2018Analysis of the financial structure The following table shows the composition of and changes in net financial debt: Millions of euro Long-term debt: - bank borrowings - bonds - debt assumed and loans from subsidiaries Long-term debt - financial receivables due from others Net long-term debt Short-term debt/(liquidity): - short-term portion of long-term borrowings - short-term bank borrowings - cash collateral received Short-term debt - short-term portion of long-term financial receivables - short-term portion of loans assumed/granted - other short-term financial receivables - cash collateral paid - net short-term financial position with Group companies - cash and cash equivalents and short-term securities Net short-term debt/(liquidity) NET FINANCIAL DEBT at Dec. 31, 2018 at Dec. 31, 2017 Change 1,048 8,208 4,141 13,397 (128) 13,269 806 45 240 1,091 (1) - (12) (1,253) 4,403 (2,007) 2,221 15,490 1,039 8,541 1,200 10,780 (6) 10,774 3,654 245 256 4,155 (1) (27) 1 (2,074) 2,912 (2,489) 2,477 13,251 9 (333) 2,941 2,617 (122) 2,495 (2,848) (200) (16) (3,064) - 27 (13) 821 1,491 482 (256) 2,239 Net financial debt at December 31, 2018, amounted the subsidiary Enel Holding Chile Srl in the amount of to €15,490 million, an increase of €2,239 million, the re- €691 million; sult of an increase in the net long-term debtor position of > the decrease of €2,848 million in the short-term portion €2,495 million, partly offset by a decrease of €256 million of long-term loans due to redemptions of bonds matur- in net short-term financial debt. ing during the year, partially offset by new issues that matured; The main transactions in 2018 impacting financial debt can > a decrease of €200 million in short-term bank borrow- be summarized as follows: ings; > a net decrease of €333 million in bonds due to imple- > a decrease in cash collateral paid to banks in the amount mentation of the bond portfolio restructuring program, of €821 million; by way of the renegotiation and concomitant new issue > an increase of €1,491 million in the net debtor position of hybrid bonds in May; with Group companies on the intercompany current ac- > the increase, compared with the amount recognized at count. December 31, 2017, of long-term loans from subsidiar- ies, in particular the loan agreements between Enel SpA Cash and cash equivalents amounted to €2,007 million, and Enel Finance International NV signed in June and a decrease of €482 million compared with December 31, December for a total of €2,250 million, as well as the 2017, reflecting normal operations related to the central- loan from the same company following the merger of ized treasury functions performed by the Parent Company. 91 Report on operations Cash flows Millions of euro Cash and cash equivalents at the start of the year Cash flows from operating activities Cash flows from investing/disinvesting activities Cash flows from financing activities Cash and cash equivalents at year end 2018 2,489 3,449 (2,587) (1,344) 2,007 2017 3,038 2,465 (48) (2,966) 2,489 Change (549) 984 (2,539) 1,622 (482) Cash flows from financing activities came to a negative the recapitalization of the subsidiaries e-distribuzione SpA €1,344 million (€2,966 million in 2017). They reflected the and Enel X Srl. repayment of bonds and the payment of dividends for 2017 (€2,410 million). The cash requirements generated by financing and invest- ing activities were funded by cash flows generated by op- Cash flows from investing activities were a negative erating activities (a positive €3,449 million, compared with €2,587 million (€48 million in 2017), and were essentially €2,465 million in 2017), essentially reflecting dividends re- generated by the net effect of the operation involving Enel ceived from subsidiaries (€3,510 million) and the use of SpA’s acquisition of the investments held by Enel Invest- cash and cash equivalents, which at December 31, 2018 ment Holding BV, a wholly owned Dutch subsidiary, in the consequently amounted to €2,007 million (€2,489 million Romanian companies, in Enel Russia and RusEnergoSbyt at the start of the year). and in the Dutch company Enel Insurance NV, as well as 92 Annual Report 2018 Significant events in 2018 Issue of new green bond in Europe for €1,250 million Enel has been included in four of ECPI’s indices: > ECPI Global Renewable Energy Equity Index, which se- lects the 40 highest ESG-rated companies active in the production or trading of energy from renewable sources; > ECPI Global Climate Change Equity Index, which offers On January 9, 2018, Enel Finance International success- investors exposure to companies that are best placed to fully placed its second green bond on the European mar- seize the opportunities presented by the challenge of cli- ket. It is reserved for institutional investors and is backed mate change; by a guarantee issued by Enel. > ECPI Euro ESG Equity Index, which is composed of the The issue amounts to a total of €1,250 million and pro- 320 companies with the largest market capitalization in vides for repayment in a single instalment at maturity on the Eurozone market that meet ECPI ESG criteria; September 16, 2026 and the payment of a fixed-rate cou- > ECPI World ESG Equity Index, a broad benchmark rep- pon equal to 1.125%, payable annually in arrears in the resentative of developed market companies that meet month of September as from September 2018. The issue ECPI ESG criteria. price was set at 99.184% and the effective yield at matu- The ECPI Index series provides an essential tool to analyze rity is equal to 1.225%. companies’ risk and performance regarding their ESG-relat- The transaction has received orders amounting to ap- ed activities and to assess the performance of sustainabil- proximately €3 billion, with the significant participation of ity-driven asset managers. The socially responsible criteria Socially Responsible Investors (“SRI”), enabling the Enel used to select the indices’ constituents enable investors to Group to continue to diversify its investor base. The net express their interest in sustainability issues and to move financial resources raised by the issue – carried out under them up the corporate agenda. the “€35,000,000,000 Euro Medium-Term Notes Pro- gram” – will be used to finance and/or refinance, in whole or in part, the eligible green projects of the Enel Group identified and/or to be identified in accordance with the “Green Bond Principles” published by the International Capital Market Association (ICMA). Memorandum of understanding with PwC Enel confirmed in ECPI sustainability indices On January 23, 2018, Enel was confirmed for the tenth time in the ECPI Sustainability Index series, which assess companies on the basis of their environmental, social and governance (ESG) performance. Enel’s inclusion in the in- dex was recognition of its clear long-term strategic view, sound operational management practices and positive work in tackling social and environmental needs. Enel’s Spanish subsidiary Endesa has also been included in ECPI indices. On January 25, 2018, Enel X and PwC signed a memoran- dum of understanding for the development of corporate electric mobility with a program of testing and experimen- tal projects. The agreement has a term of about three years and provides for a preliminary phase of studies and analysis, followed by the implementation of pilot projects in the field. The objective is to foster the sustainable development of the transport sector, in particular the business sector, ex- ploiting the potential offered by electric mobility in terms of reducing atmospheric pollution and fleet management costs. The test will be carried out with the PwC fleet with the aim of overturning the idea that electric vehicles 93 Report on operationscan only be used by private individuals and in urban ar- eas. PwC will also provide Enel X with its expertise in the field of electric mobility and fleet management for the development of innovative solutions in managing cor- porate fleets. In fact, e-cars could easily become part of the corporate world, given that almost half of company vehicles travel less than 100 kilometers a day, well below the average range of electric models on the market. The agreement between Enel X and PwC will therefore en- able them to share their respective know-how and spread the culture of electric cars in corporate fleets among the companies in the PwC network in Italy. Agreement to supply ower in Nevada Partnership agreement in Canada On February 7, 2018, Enel Green Power North America (“EGPNA”) signed a partnership agreement with Alberta In- vestment Management Corporation under which the Group will sell 49% of the shares in the 115 MW Riverview Wind and the 30.6 MW Phase 2 of Castle Rock Ridge wind farms, both to be built in Alberta, Canada. The total price for the transaction, which will be paid upon closing of the deal, will be determined at commercial operation of the wind farms, which is expected by the end of 2019. Following the closing of the transaction, EGPNA will manage, operate and main- tain both wind farms while retaining a 51% majority owner- ship of the interest in the projects. Riverview Wind and Phase 2 of Castle Rock Ridge, which On January 25, 2018, Enel Green Power North America is an expansion of EGPNA’s existing 76.2 MW Castle Rock (“EGPNA”) signed a Power Purchase Agreement (PPA) Ridge wind farm, are both located in Pincher Creek, Alberta. with Wynn Las Vegas whereby the resort, located on the The overall investment in the construction of the two wind world-famous Las Vegas Strip, will buy the energy pro- farms, which are due to enter into service by the end of duced by EGPNA’s new 27 MW Wynn Solar Facility at 2019, amounts to about $170 million. Once operational, the Stillwater. two facilities are expected to generate around 555 GWh per The investment in the construction of the new, 160-acre year, more than doubling the Group’s capacity in Canada, solar PV facility amounts to approximately $40 million, in which currently stands at more than 103 MW. line with the investment outlined in Enel’s current Stra- The two wind farms will supply their power and renew- tegic Plan. The total output that will be produced by the able energy credits to the Alberta Electric System Operator photovoltaic plant and sold under the PPA with the Las (“AESO”) under two 20-year Renewable Energy Support Vegas resort is expected to amount to over 43,900 MWh Agreements that were awarded to Enel in December 2017 annually. in the first tender under the province’s Renewable Electric- ity Program. Agreement for acquisition of Parques Eólicos Gestinver On February 2, 2018, Enel Green Power España (“EGPE”) Contract to supply demand response services in Japan signed an agreement to purchase 100% of Parques Eóli- On February 8, 2018, Enel X, acting through its US demand cos Gestinver, a company that owns five wind plants in response services company EnerNOC, was awarded the Galicia and Catalonia with a total capacity of about 132 delivery of 165 MW of demand response resources in Ja- MW, from the Spanish companies Elawan Energy and pan following the completion of a tender for balancing re- Genera Avante for a total price of €178 million. serves launched by a group of Japanese utilities. Following the acquisition of Parques Eólicos Gestinver, As a result of this award, which confirms Enel as the larg- the installed capacity of EGPE in Spain will exceed 1,806 est independent demand response aggregator in Japan, MW, of which 1,749 MW of wind power (about 8% of to- the Group will nearly triple its virtual power plant in the tal installed wind capacity in Spain), 43 MW of mini-hydro Japanese market, reaching approximately 165 MW from and 14 MW from other renewable resources. the current 60 MW, equivalent to a market share of 17%, as from July 2018. 94 Annual Report 2018Memorandum of understanding for sustainable mobility in the tourist industry in Italy e-distribuzione wins tender of Ministry for Economic Development for the construction of smart grids On February 15, 2018, Enel and the Ministry for Cultural e-distribuzione has won a national call for tenders for elec- Heritage signed a memorandum of understanding for the tricity infrastructure for the construction of smart grids for promotion and development of the use of electricity for sus- the distribution of electricity in the less developed regions, tainable mobility in the tourism sector. for which the Ministry for Economic Development has al- The memorandum is a strategic lever for increasing public located €80 million to the National Operational Program awareness of the benefits of electric mobility. It will also (NOP) on “Enterprises and Competitiveness” 2014-2020. permit the creation of an institutional framework for subse- The tender calls for the construction, upgrading, efficien- quent commercial agreements with trade associations for cy enhancement and strengthening of electricity distri- the installation of electric charging infrastructure at tourist bution infrastructure, or smart grids, in order to directly facilities and the launch of projects in the main tourist cities. increase the share of electricity demand met by distrib- Enel, through Enel X, the Group company dedicated to uted generation from renewables. To reach this goal, e- the development of innovative products and services, will distribuzione was awarded all of the resources currently collaborate with trade associations and tourism industry allocated by the Ministry for Economic Development to bodies to install electric charging stations at tourist ac- finance the initiative, with 21 projects admitted for fund- commodations using tailored commercial solutions and ing (grants for 100% of costs) totaling €80 million, with on research and design for replicable solutions to be ex- two projects worth €7 million in Basilicata, seven projects tended to other areas of the Italian peninsula. worth €29 million in Campania and 12 projects worth €44 Enel will also experiment with electric mobility systems million in Sicily. in metropolitan areas and in the main tourist cities, includ- ing arrangements in partnership with other operators in the industry. Construction of new wind farm in the United States Entry into service of largest photovoltaic plant in Peru On March 21, 2018, Enel, acting through the Peruvian re- newable energy subsidiary Enel Green Power Peru, began operations at the 180 MW Rubí photovoltaic plant, Peru’s Enel, acting through its US renewable energy company Enel largest solar plant and Enel’s first solar facility in the country. Green Power North America, has started construction of Dia- Enel invested about $170 million in the construction of mond Vista wind farm, which will have an installed capacity Rubí, as part of the investments outlined in the compa- of around 300 MW and will be located in Marion and Dickin- ny’s current Strategic Plan. The project, which is located son Counties, in Kansas. Once completed, Diamond Vista will in Peru’s Mariscal Nieto province, was financed in part further secure Enel’s position as the largest wind operator in through Enel Group’s own resources and in part by the the state with some 1,400 MW of operational wind capacity. European Investment Bank. The power will be sold under The planned investment in the construction of Diamond a 20-year Power Purchase Agreement signed with Peru’s Vista amounts to about $400 million and is part of the in- Ministry of Energy and Mines. Once fully operational, vestment outlined in the Enel Group’s current Strategic Plan. Rubí will be able to generate around 440 GWh per year, The plant is being financed with the Group’s own resources which will be delivered to the Peru’s National Intercon- and will be able to generate around 1,300 GWh annually. nected Electricity System (SEIN). 95 Report on operationsEnel: successful outcome of corporate reorganization in Chile On March 26, 2018, Enel successfully completed the pub- lic tender offer (the “Offer”) launched by Enel Chile for all of the shares of the subsidiary Enel Generación Chile held by the non-controlling shareholders of the latter. The ef- fectiveness of the Offer was subject to the acquisition of a total number of shares that would enable Enel Chile to increase its holding in Enel Generación Chile to more than 75% of share capital from the previous 60%. The Offer was accepted by holders of shares equal to about 33.6% of the share capital of Enel Generación Chile, thereby en- abling Enel Chile to increase its interest in Enel Gener- ación Chile to 93.55% of the share capital. The operation was part of the simplification of the Group, one of the five key pillars of the Strategic Plan. Enel intends to continue reducing the number of operating companies in South America, with the goal of reaching fewer than 30 operat- ing companies in the region by 2020, compared with the 53 present in the area at the end of 2017. On March 25, 2018, the date of publication of the notice of the outcome of the Offer (aviso de resultado), the ac- ceptance of the Offer of Enel Chile by the non-control- ling shareholders of Enel Generación Chile who partici- pated took effect. Following the reorganization described Renewables tender won in India On April 6, 2018, Enel, acting through its Indian renew- ables subsidiary BLP Energy Private Limited, won the first ever renewable energy tender in India, acquiring the right to sign a 25-year energy supply contract for a 285 MW wind farm in the state of Gujarat. The project was awarded under a 2 GW national wind power tender orga- nized by the government company Solar Energy Corpora- tion of India (“SECI”). Enel will be investing more than $290 million in the con- struction of this wind farm, which will be supported by a contract for the sale of specified volumes of power over a 25-year period to SECI. The plant, which is scheduled to start operations in the 2nd Half of 2019, will be able to generate more than 1,000 GWh of renewable energy ev- ery year, making a significant contribution to both India’s need for new generation capacity and achieving the coun- try’s environmental goals. The current Indian government has set a target of installing 100 GW of solar capacity and 60 GW of wind capacity by 2022, increasing the current capacity by 20 GW of solar and 33 GW of wind. Public tender offer for Eletropaulo above, Enel’s direct and indirect interest in Enel Chile is On April 17, 2018, Enel announced that Enel Brasil Inves- equal to about 62% of the share capital of the latter, com- timentos Sudeste SA (“Enel Sudeste”), a company fully pared with 60.6% previously held. owned by Enel’s Brazilian subsidiary Enel Brasil SA (“Enel Merger of Enel Green Power Latin America SA in Enel Chile Brasil”), had launched a voluntary tender offer (the “Of- fer”) for the acquisition of the entire share capital of the Brazilian power distribution company Eletropaulo Metro- politana Eletricidade de São Paulo SA (“Eletropaulo”), for a price per share of 28.0 Brazilian reais, subject to the acquisition of a total number of shares representing more On April 2, 2018, the merger of the renewable company than 50% of the company’s share capital. Enel Green Power Latin America SA into Enel Chile and the capital increase of the latter serving the merger took effect. On the same date, the shareholders of Enel Chile who had exercised their right of withdrawal in response to the merger were paid the value of their shares. On May 31, 2018, Enel Sudeste announced that it had im- proved the terms and conditions of the Offer, increasing the Offer price to 45.22 Brazilian reais per share. On June 5, 2018, Enel Sudeste received confirmation from the Brazilian authorities of the tendering of 122,799,289 shares, equal to 73.38% of the company’s share capital, the price of which was paid on June 7, 2018. On July 16, 2018, Enel announced that Enel Sudeste, an Enel subsidiary, had received confirmation that between June 5 and July 4, 2018, as required under Brazilian stock 96 Annual Report 2018exchange regulations, the shareholders of Eletropaulo 24, 2031, and a further 75 basis points as from November had sold an additional 33,359,292 shares of the company, 24, 2046. The fixed coupon is payable each year in arrears equal to 19.9% of the share capital, at the same price of in the month of November, as from November 24, 2018. 45.22 Brazilian reais per share provided for in the tender The issue price has been set at 99.108% and the effective offer launched by Enel Sudeste to acquire the entire share yield at the first early redemption date is equal to 3.500%. capital of the company. The overall interest held by Enel The transaction was completed on May 24, 2018. Sudeste thus increased to 93.31% of Eletropaulo’s share In addition, other transactions were carried out in May capital from the previous 73.38%. Taking account of 2018: treasury shares already held by the company, that stake > a non-binding voluntary exchange offer was launched from rises to 95.05% and in September 2018 rose further to May 14, 2018 to May 18, 2018, with which Enel acquired 95.88% as a result of Enel Sudeste’s subscription of the €250.019 million of the hybrid bond of €1,000 million is- Eletropaulo capital increase. sued by Enel in January 2014 and maturing January 15, The overall investment of Enel Sudeste to acquire the 2075. The consideration for the purchase consisted of: holding totals about €1,541 million. - an increase of €250.019 million in the value of the Restructuring of hybrid bond portfolio On May 15, 2018, Enel successfully launched a non-con- vertible multitranche bond for institutional investors on the European market in the form of subordinated hybrid securities with an average maturity of about seven years, denominated in euros and amounting to €1.250 billion. The operation received orders in excess of €3 billion. The operation was undertaken in execution of the Enel Board resolution of May 9, 2018, which authorized Enel to issue, by December 31, 2019, one or more non-convert- ible subordinated hybrid bonds in the maximum amount of €3.5 billion. The issue was structured in the following tranches: > €500 million, maturing on November 24, 2078 with an an- nual fixed coupon of 2.500% until the first early redemp- tion date of November 24, 2023. As from that date and until maturity, the rate will be equal to the Euro Mid Swap rate plus a spread of 209.6 basis points, increased by an additional spread of 25 basis points as from November 24, 2028, and a further 75 basis points as from November 24, 2043. The fixed coupon is payable each year in arrears in the month of November as from November 24, 2018. The issue price has been set at 99.375% and the effective yield at the first early redemption date is equal to 2.625%; > €750 million, maturing on November 24, 2081 with an an- nual fixed coupon of 3.375%, until the first early redemp- tion date of November 24, 2026. As from that date and until maturity, the rate will be equal to the Euro Mid Swap rate plus a spread of 258 basis points, increased by an additional spread of 25 basis points as from November tranche described above maturing on November 24, 2078, which increases from €500 million to €750.019 million; - a cash payment totaling €20,909,088.97; > a non-binding voluntary tender offer launched from May 14, 2018 to May 18, 2018, with which Enel acquired, in cash, €731.744 million of the hybrid bond of €1,250 mil- lion issued by Enel in September 2013 and maturing on January 10, 2074. The above transactions are consistent with the Group fi- nance strategy outlined in the 2018-2020 Strategic Plan. Enel closes acquisition of 21% of Ufinet International On July 3, 2018, Enel, acting through Enel X International, wholly owned by Enel X, the Enel Group’s advanced en- ergy solutions company, finalized the acquisition from a holding company controlled by Sixth Cinven Fund (which is operated by the international private equity firm Cinven), for €150 million, of about 21% of the share capital of a vehicle company (“NewCo”) to which 100% of Ufinet In- ternational was transferred. The latter is a leading whole- sale operator of fiber-optic networks in Latin America. In turn, Sixth Cinven Fund owns around 79% of NewCo’s share capital. Enel X International and Sixth Civen Fund have joint con- trol of Ufinet International, each exercising 50% of voting rights in the shareholders’ meeting of NewCo. Under the agreements between the parties, with the closing of the transaction, Enel X International has a call option to ac- quire Sixth Cinven Fund’s stake between December 31, 97 Report on operations2020 and December 31, 2021 for an additional investment of between €1,320 million and €2,100 million depending upon developments in various performance indicators. Should Enel X International not exercise its call option by December 31, 2021, its joint control over NewCo will lapse. In this case, Sixth Cinven Fund would then have the right to sell its stake with a “drag along” right over Enel X International’s stake, while the latter would have the right to exercise a “tag along” right if Sixth Cinven Fund reduces its holding in NewCo to below 50%. On the grounds of its size, business model and geograph- ic footprint, Ufinet International represents a significant opportunity for the Enel Group to accelerate growth in Latin America in the ultra-broadband sector, which is part of the business objectives of Enel X as envisaged in Enel Group’s 2018-2020 Strategic Plan. Through this transac- tion, the Group has immediately positioned itself in the Latin American value-added services market, accelerat- ing its development through skills and technologies al- ready consolidated by Ufinet International and gaining ac- cess to a vast customer base in a region with high growth and urbanization rates. Merger of Enel Holding Chile and Hydromac Energy into Enel Enel Green Power agrees loan of €950 million for 700 MW of new wind plants in South Africa On August 1, 2018, Enel Green Power RSA (“EGP RSA”), the Enel Group’s South African renewables subsidiary, signed with senior lenders Nedbank Limited and Absa all project financing agreements for up to €950 million, namely up to 80% of the overall investment of around €1.2 billion in a portfolio of five new wind projects with a total of about 700 MW of capacity. The five facilities - Nxuba, Oyster Bay, Garob, Karusa and Soetwater - have a capacity of around 140 MW each. The Enel Group is contributing around €230 million of capital for the con- struction of the five wind farms. Following the signing of the agreements, termed the “financial close”, construc- tion of the first project, Nxuba, is expected to start by the end of 2018. Following the start of construction of Nxuba, construction of Oyster Bay and Garob is expected to start by the 1st Half of 2019 and construction of Soetwater as well as Karusa is expected to start in the 2nd Half of the same year. Nxuba is expected to begin operations in the 2nd Half of 2020, Oyster Bay in the 1st Half of 2021 and Garob, Soetwater and Karusa in the 2nd Half of 2021. All On July 16, 2018, Enel announced that the plan for the five new wind farms are due to enter service by 2021. merger into Enel of Enel Holding Chile Srl (“Enel Holding Chile”), a company wholly owned directly by Enel, and Hydromac Energy Srl (“Hydromac Energy”), a company wholly owned by Enel through Enel Holding Chile, which was approved by the administrative bodies of those com- panies, had been filed with the Company Register of Rome. The transaction is part of the Group’s effort to simplify its corporate structure, one of the key pillars of Enel’s 2018- 2020 Strategic Plan. Specifically, the transaction will al- low for the consolidation into Enel of the Group’s 61.93% interest in Enel Chile SA, of which 43.03% is currently held directly by Enel itself, while 18.88% is indirectly held through Hydromac Energy and 0.02% through Enel Hold- ing Chile. On September 20, 2018, the Enel Board of Directors ap- proved the merger of the wholly owned subsidiaries Enel Holding Chile Srl and Hydromac Energy Srl into Enel. Enel starts construction of Ngonye solar plant, its first facility in Zambia On August 22, 2018, the Enel Group’s global renewable energy Business Line Enel Green Power (“EGP”) started construction on the 34 MW Ngonye photovoltaic plant. This facility is part of the World Bank Group’s Scaling Solar program carried out by Zambia’s Industrial Devel- opment Corporation (IDC), which in June 2016 awarded Enel the right to develop, finance, construct, own and op- erate the plant. Enel will be investing around $40 million in the construc- tion of Ngonye, which is expected to be completed in the 1st Quarter of 2019. The Ngonye solar plant, which will be owned by a special purpose vehicle 80% held by 98 Annual Report 2018EGP and 20% by IDC, is supported by a 25-year Power Stop Date,5 and, in either case, only once the additional Purchase Agreement signed with Zambia’s state owned condition above is satisfied. utility ZESCO. Once fully up and running, the facility is On the basis of the current work program and in line with expected to produce around 70 GWh per year, avoiding the amendments to the Contract, the put and call options the annual emission of over 45 thousand metric tons of are expected to become exercisable by the 1st Half of CO2 into the atmosphere. Updating of contract terms for disposal of investment in Slovenské elektrárne On September 4, 2018, Enel Produzione SpA, a wholly owned subsidiary of Enel SpA, and the Czech company Energetický a Pr˚umyslový Holding AS (“EPH”) signed an agreement that modifies certain terms and conditions of the contract (the “Contract”) signed on December 18, 2015 regarding the sale of the stake held by Enel Produzi- one in Slovenské elektrárne a.s. (“Slovenské elektrárne”), in line with the Term Sheet signed by the parties in May 2017. The agreement came into force once the condi- tions envisaged in the terms of the subordinated loan de- scribed below were met. As a result of the amendments agreed between Enel Pro- duzione and EPH in the above agreement, the Contract also governs relations between the parties with regard to the financial support they have to provide to Slovenské elektrárne for the completion of units 3 and 4 of the Mo- chovce nuclear power plant. Specifically, the Term Sheet provides for Enel Produzione to grant, directly or through another company of the Enel Group, a subordinated loan to the HoldCo, which is in turn expected to make it avail- able to Slovenské elektrárne, for a total of up to €700 million falling due in January 2027. Moreover, the Con- tract – which provides for the sale by Enel Produzione to EP Slovakia of its remaining 50% stake in the HoldCo through the exercise of put or call options by the respec- tive parties – has been updated to include also the ad- vance repayment of the Loan (or its final maturity date) as an additional condition for the exercise of the respective options. This update means that the exercise date of the options can take place at the earlier of a) 12 months after obtaining the Trial Operation Permit for unit 4 of the Mo- chovce nuclear power plant; or b) upon reaching the Long 2021. In addition, the Long Stop Date, initially set as of June 30, 2022, has been postponed by 12 months be- yond the original deadline. Finally, the Contract now provides for the existing mecha- nism for adjusting the total price of the two phases of the transaction, which will be applied upon the close of the second phase based on various criteria, to be com- plemented by an additional mechanism that ensures the offsetting of any amount due from Enel Produzione to EP Slovakia with any amount due from EPH or EP Slovakia to Enel Group companies in respect of principal and/or interest of the Loan if EPH or EP Slovakia take it over from Enel Group on the closing date of the second phase. Enel Green Power wins contract for 34 MW of new solar capacity in renewables tender in Australia On September 11, 2018, the Enel Group, acting through its renewable energy subsidiary Enel Green Power Aus- tralia (Pty) Ltd (“Enel Green Power Australia”), was awarded a 15-year agreement with the Australian state of Victoria for the production of electricity and green cer- tificates by the 34 MW Cohuna Solar Farm. The agree- ment was awarded through a renewable energy reverse auction launched last year by the state of Victoria. Enel is expected to invest around $42 million in the solar facility, whose construction is set to begin in the 1st Half of 2019. The plant is due to enter commercial operation by the end of 2019 and will be backed by a 15-year support agree- ment with the state of Victoria. The tender held by the state of Victoria was launched in November 2017 for 650 MW of renewable capacity, of which 100 MW was ear- marked for solar. The tender is part of Victoria’s Renew- able Energy Target (VRET) to source 25% of its electricity production from renewables by 2020 and 40% by 2025. 5 The date as of which Enel Produzione and EP Slovakia can exercise their put and call options respectively, regardless the completion of units 3 and 4 of Mochovce nuclear power plant. 99 Report on operationsEnel Finance International issues $4 billion bond on US market On September 12, 2018, Enel Finance International NV (“EFI”), an Enel SpA (“Enel”) finance subsidiary serving the Enel Group, placed a multi-tranche bond for institutional in- vestors on the US and international markets totaling $4 bil- lion, the equivalent of about €3.5 billion. The issue, which is guaranteed by Enel, was oversubscribed by about 3 times, with total orders of some $11 billion. The bond issue is part of the Enel Group’s strategy to raise financing and refinance its maturing consolidated debt. The strong investor demand for Enel’s third Yankee Bond issued since 2017 once again confirms the financial markets’ appreciation for Enel’s solid fundamentals, performance and financial structure. The transaction is structured in the following tranches: > $1,250 million at 4.250% fixed rate maturing in 2023; > $1,500 million at 4.625% fixed rate maturing in 2025; > $1,250 million at 4.875% fixed rate maturing in 2029. In view of their characteristics, the above tranches have been assigned a provisional rating of BBB+ by Standard & Poor’s, Baa2 by Moody’s and BBB+ by Fitch. Enel’s rating is BBB+ (stable) for Standard & Poor’s, Baa2 (stable) for Moody’s and BBB+ (stable) for Fitch. Seizure of Brindisi plant On September 28, 2017, Enel Produzione was notified of the decision issued by the investigating magistrate of Lecce ordering the seizure of the thermoelectric power plant of Brindisi-Cerano. The measure is part of a criminal investigation initiated by the Public Prosecutor’s Office of the Court of Lecce con- cerning the use of fly ash, i.e. that produced by the combus- tion of coal and captured by the smoke abatement systems of the plant, in the cement industry. The investigation also involves Cementir, a cement company to which the ash was sent for cement production, and ILVA, which provided Ce- mentir with other residues for cement production. Within the scope of the enquiry, a number of executives/ employees of the company are being investigated for illegal waste disposal and unauthorized blending of waste. In order to enable plant operations to continue, the seizure order authorized the Brindisi power station to continue 100 generation for 60 days (subsequently extended until Feb- ruary 24, 2018), subject to certain technical requirements intended, according to the accusations, to remove the al- leged ash management deficiencies. Enel Produzione has been charged under the provisions of Legislative Decree 231/2001 with the same offenses of which the company’s executives/employees are accused. Following the charges, as provided for by law, the investigating magistrate of Lec- ce also ordered the seizure of approximately €523 million, equivalent to the profit that the Lecce Public Prosecutor conducting the investigation alleges was generated through the illegal handling of the ash. The seizure order appointed two custodians in order to moni- tor compliance with the technical measures mentioned earlier. Enel Produzione has informed the investigating magistrate that the plant is operated in accordance with industry regula- tions and the highest international technology standards, as well as with a cycle for the production and reuse of residues that is identical to that adopted in the most efficient power plants in Europe and the world, in compliance with the most modern environmental requirements intended to promote a circular economy. Analyses of the ash prior to seizure and those conducted afterwards have consistently confirmed the non-hazardous nature of the material and therefore the legitimacy of the manner in which they have been handled. Enel Produzione, although not agreeing with the allegations, has nevertheless expressed its full willingness, in agree- ment with the investigating magistrate and the custodians, to rapidly implement technical solutions for the execution of the requirements imposed with the seizure order that take account of the operational and logistical complexities asso- ciated with their implementation and the associated risks to the national electricity system. In this regard, with the request for an extension of the use of the power station on November 15, 2017, Enel Produzi- one asked for authorization to test a management approach that would separate the ash by operational stage, thereby enabling the implementation of the provisions of the order. Subsequently, following the testing, the company obtained an extension of another 90 days until February 24, 2018. In the meantime, the Public Prosecutor, in view of the need to proceed with evidence gathering with a technical enquiry into the facts of the case, asked the investigating magistrate to move ahead with this stage. At the hearing of February 2, 2018, the magistrate assigned the engagement to the tech- nical experts, giving them 150 days as from February 13, 2018, to file their report. In the meantime, following the petition filed by Enel Produzi- Annual Report 2018one on April 19, 2018 and taking account of the need to en- Spain. The overall investment in the construction of the sure the continued operation of the plant, the investigating facility amounts to about €59 million. The Totana facility, magistrate authorized the company to use the management located in the region of Murcia, is scheduled to start op- approach referred to earlier, which separates the ash by op- eration in the 3rd Quarter of 2019. Once fully operational, erational stage, thereby implementing the requirements of the photovoltaic facility, composed of 248,000 photovol- the seizure order. Following that authorization and pending taic modules, will be able to generate around 150 GWh completion of the evidentiary phase, the investigating magis- per year, avoiding the annual emission of around 105 trate subsequently issued, at the request of Enel Produzione, a new 90-day temporary authorization as from May 24, 2018. thousand metric tons of CO2 into the atmosphere. Totana is the first of the seven solar projects, with a total capac- On July 16, 2018, the experts appointed by the investigat- ity of 339 MW, that were awarded to Enel Green Power ing magistrate filed their preliminary technical report, the España in the Spanish government’s third renewables findings of which confirm the validity of Enel Produzione’s tender held in July 2017. classification of the ash as “non-hazardous waste” and its suitability for use in second manufacturing processes, such as the production of cement. On July 19, 2018, Enel Produzione therefore filed a petition with the Court to lift the seizure of the plant and the funds. On July 23, 2018, Enel Produzione also filed a request for a further extension of 90 days as from August 22, 2018, for the operation of the plant. On August 1, 2018, the Lecce Public Prosecutor lifted its sei- zure of the plant, with the termination of the judicial custody/ administration of the facility and the restitution of the €523 Enel closes sale of a majority stake in 1.8 GW of renewables capacity in Mexico while continuing to operate the plants million to Enel Produzione. However, the preliminary inves- On September 28, 2018, Enel SpA (“Enel”), acting through tigation is continuing against both the accused individuals its renewables subsidiary Enel Green Power SpA (“EGP”), and the company pursuant to Legislative Decree 231/2001. closed the deal with the Caisse de dépôt et placement du On October 10, 2018, the Definitive Technical Report was Québec (“CDPQ”), a long-term institutional investor, and filed, with supplemental information concerning part of the the investment vehicle of the leading Mexican pension analytical findings which were not yet available in July when funds CKD Infraestructura México SA de Cv (“CKD IM”) for the preliminary report was filed. the sale of 80% of the share capital of eight special purpose On December 6, 2018, the investigating magistrate of the vehicles (“SPVs”), which own eight plants in operation and Court of Lecce, at the request of the Public Prosecutor, under construction in Mexico with a total capacity of 1.8 scheduled a hearing for January 22, 2019, to receive tes- GW. Following the closing of the deal, EGP and CDPQ own timony from the experts on the report. The investigating a 20% and a 40.8% stake respectively in the SPVs through magistrate then postponed the hearing until April 15, 2019. a newly-formed holding company (“Kino Holding”), while Enel Green Power España starts construction of its largest solar farm in Spain Endesa’s renewable company Enel Green Power España (“EGPE”) began construction of the 84.7 MW Totana photovoltaic facility, the company’s largest solar plant in CKD IM owns a 39.2% stake in the same SPVs, through newly-formed sub-holdings (“Mini HoldCos”). EGP will continue to operate the plants owned by the SPVs and will complete those still under construction through two newly- formed subsidiaries. In addition, starting from January 1, 2020, EGP may contribute or transfer additional projects, increasing its indirect interest in the SPVs and becoming majority shareholder. The enterprise value of 100% of the SPVs is equal to about $2.6 billion, with an equity value of about $0.3 billion, proj- ect financing of about $0.8 billion and related-party loans totaling $1.5 billion. As a result of the transaction, CDPQ and CKD IM paid $1.4 billion, of which about $0.2 billion for 101 Report on operationsthe majority interest in the SPVs and around $1.2 billion for related-party loans to the SPVs. The price paid is subject to adjustments typical of this type of transaction, primarily based on variations in the net working capital of the SPVs. The transaction was carried out using the Build, Sell and Op- erate (“BSO”) model, in line with the Group’s Strategic Plan. Enel Green Power España begins construction of three wind farms in Spain Fortaleza - Brazil Petroleo Brasileiro SA - Petrobras, as gas supplier for the Fortaleza plant (Central Geradora Termélectrica Fortaleza “CGTF”) in Brazil, announced its intention to terminate the contract between the parties on the grounds that the agree- ment was allegedly imbalanced financially in consideration of current market conditions. The contract was signed in 2003 as part of the “Priority Thermal Generation Program” established by the Brazilian government in order to increase thermoelectric generation and the security of supply in the On October 9, 2018, Enel Green Power España (“EGPE”) began construction of three wind farms with a total ca- pacity of 128 MW in the municipalities of Muniesa and Alacón, in the region of Aragon’s Teruel province. The three projects are the 46.8 MW Muniesa, the 41.4 MW Farlán and the 39.9 MW San Pedro de Alacón wind farms. The new facilities will involve a total investment of about €130 million. The three facilities are expected to begin operation by the end of 2019. Once fully operational, the wind farms will be able to generate 412 GWh annually, avoiding the emission of over 270 thousand metric tons country. The program established that the Brazilian govern- of CO2 into the atmosphere. ment would act as the guarantor of the supply of gas at regulated prices defined by the Brazil’s Ministry of Finance, Mines and Energy. In order to guarantee the security of electricity supply in Brazil, CGTF initiated legal action in the ordinary courts against Petrobras with a request for precautionary pro- tection, obtaining, at the end of 2017, a Court injunction suspending the termination of the contract, which was de- clared still in force. Subsequently, on February 27, 2018, the Court decided to extinguish the action initiated by CGTF before the ordinary courts and, consequently, to revoke the precautionary mea- sure that had permitted the supply of gas. CGTF filed ap- peals against these latest decisions on both a precautionary and ordinary basis, obtaining a second favorable ruling that enabled the plant to operate for some time but which was subsequently revoked. CGTF has challenged this decision, confident that the courts will recognize Petrobras’ obligation to perform the contract. At the end of January 2018, CGTF received an arbitration request from Petrobras in relation to the disputes described above and this procedure is in the preliminary stages. Subsequently, a precautionary measure was obtained in favor of CGTF, ordering the suspension of the payment of certain amounts by CGTF to Enel Distribuiçao Ceará (the purchaser of the electricity). On October 25, 2018, another precautionary measure was obtained in favor of CGTF, ordering the restoration of Petro- bras’ obligation to supply gas. 102 Enel prepares to increase its stake in Enel Américas by a maximum of 5% On October 16, 2018, Enel announced that it had entered into two “Share Swap Transactions” with a financial in- stitution to increase its equity stake in its listed Chilean subsidiary Enel Américas SA (“Enel Américas”). Based on these Share Swap Transactions, Enel may acquire, on dates that are expected to occur no later than the 4th Quarter of 2019: (i) up to 1,895,936,970 shares of Enel Américas’ common stock, and (ii) up to 19,533,894 of Enel Américas’ American Depositary Shares (“ADSs”), each representing 50 shares of Enel Américas’ common stock. All of the above shares total up to 5.0% of Enel Américas’ entire capital. The number of shares of Enel Américas’ common stock and Enel Américas’ ADSs actually acquired by Enel pur- suant to the Share Swap Transactions will depend on the ability of the financial institution acting as the counter- party to establish its hedge positions as part of the trans- actions. The increase in Enel’s interest in Enel Américas is in line with Enel Group’s 2018-2020 Strategic Plan announced to Annual Report 2018the markets, which remains focused on reducing minority sphere. Of São Gonçalo’s 475 MW of installed capacity, shareholders in the Group companies operating in South 388 MW were awarded to the Enel Group in Brazil’s A-4 America. At December 31, 2018, the additional stake of public tender in December 2017 and are supported by 20- the Group in Enel Américas amounted to 2.43%. year power supply contracts with a pool of distribution Disposal of Enel Finale Emilia On October 18, 2018 Enel Green Power finalized the sale of the biomass generation plant at Finale Emilia for a price of €59 million. The sale is part of an agreement between the Enel Group and F2i SGR for the sale of the entire portfolio of bio- mass generation plants in Italy with a total net installed capacity of about 108 MW. More specifically, the agree- ment involves the plants in operation at Mercure and Finale Emilia, located respectively in Calabria and Emilia Romagna, 50% of PowerCrop – the Enel Maccaferri joint venture – which owns the plants under construction of Russi and Macchiareddu, located respectively in Emilia Romagna and Sardinia, and the project for the construc- tion of the plant at Casei Gerola, in Lombardy, which is currently waiting for authorization. The transaction, which is part of the Group’s strategy for the active management and turnover of assets, provided for a price for the sale of the entire portfolio of plants of about €335 million. companies operating in the country’s regulated market. The remaining 87 MW will generate power for the free market. Enel Green Power España starts construction of 127 MW of new solar capacity in Spain On October 23, 2018, Enel Green Power España (“EGPE”) started construction of three solar plants with an overall capacity of around 127 MW in the municipality of Logrosán. The three photovoltaic plants of Baylio, De- hesa de los Guadalupes and Furatena will involve a total investment of about €100 million and will each have an installed capacity of over 42 MW. The three solar plants, which will be composed of around 372,000 photovoltaic modules, are slated to enter into service by the end of 2019. Construction will adopt Enel Green Power’s “Sus- tainable Construction Site” approach. Enel Green Power begins construction of a 475 MW photovoltaic plant in Brazil Enel signs strategic cooperation agreement with Russian railways On October 24, 2018, Enel SpA, acting through RusEn- ergoSbyt, the Russian joint venture between Enel and On October 22, 2018, Enel Green Power Brasil Participa- ESN, signed an agreement for strategic cooperation and ções Ltda (“EGPB”) started construction of the 475 MW partnership expansion with the Russian Railways, which São Gonçalo solar park at São Gonçalo do Gurguéia, in also includes an extension of the 2008 electricity supply Brazil’s northeastern state of Piauí. São Gonçalo, which contract between the two companies. is expected to start operations in 2020, is the largest photovoltaic facility currently under construction in South America. The Enel Group will be investing around 1.4 bil- lion Brazilian reais, equivalent to about €390 million, in the construction of the São Gonçalo photovoltaic plant. Once fully up and running, the plant will be able to gener- ate over 1,200 GWh per year while avoiding the emission of over 600 thousand metric tons of CO2 into the atmo- 103 Report on operationsEnel Green Power and Nareva sign loan agreements to start construction of the 180 MW Midelt wind farm in Morocco Enel Green Power España starts construction of three new photovoltaic plants in the Estremadura region in Spain On November 5, 2018, the Moroccan utility ONEE (Office On November 28, 2018, Enel Green Power España National de l’Electricité et de l’Eau Potable), the Moroc- (“EGPE”), Endesa’s renewable energy division, began can Agency for Sustainable Energy (MASEN) and Midelt construction of three solar plants with an overall capac- Wind Farm SA, a vehicle company owned by ONEE and ity of around 127 MW in the municipalities of Casas de a consortium formed by Enel Green Power (“EGP”) and Don Pedro and Talarrubias, representing the company’s Nareva, the leading Moroccan independent power pro- first solar parks in the province of Badajoz, in the Spanish ducer, signed the financial close to start construction of region of Extremadura. The three photovoltaic facilities the first of the wind farms included in the 850 MW Pro- of Navalvillar, Valdecaballero and Castilblanco will have jet Eolien Intégré, which will be built in Midelt. The new an installed capacity of more than 42 MW each and will wind farm, with a capacity of 180 MW, is expected to involve an overall investment of about €100 million. The be completed in 24 months. The 850 MW Projet Eolien three solar parks are slated to enter service by the end of Intégré was awarded to the consortium formed by EGP 2019. Once fully operational, these solar facilities, which and Nareva, following an international tender. The total are composed of more than 372,000 photovoltaic mod- investment in the Midelt wind farm amounts to 2.5 billion ules, will be able to generate approximately 250 GWh a Moroccan dirhams, equivalent to about €230 million, and year, avoiding the emission of over 165 thousand metric is financed through equity investments from sharehold- ers and debt financing from ONEE. Enel and Sapienza join forces for “Smart Solar House”, the smart sustainable house for the future On November 15, 2018, the Smart Solar House, a prototype house of the future, developed by the Enel Group in col- laboration with a team of about 50 students and PhD stu- dents from Rome’s Sapienza University, was presented in Dubai, for the “Solar Decathlon Middle East 2018” interna- tional architecture competition. This smart and sustainable house design, powered only by solar energy, uses the most advanced technological systems, including the Internet of Things (IoT), home automation and Enel’s infrastructure for charging electric vehicles, and is made entirely of wood and other materials with low environmental impact. tons of CO2 into the atmosphere. The building phase of the three projects will adopt Enel Green Power’s “Sus- tainable Construction Site” approach, including the use of renewable energy to meet the energy needs of con- struction works through a 20 kW photovoltaic system powering the three sites, in addition to initiatives aimed at involving the local population in this phase. Enel Green Power starts construction of a new 244 MW wind farm in Mexico On December 11, 2018, the Enel Group, through its renew- able subsidiary Enel Green Power México (“EGPM”), be- gan construction of the 244 MW Dolores wind farm in the municipality of China, its first project in the state of Nuevo León. The overall investment in the construction of the facil- ity amounts to about $280 million, as part of the investment outlined in Enel’s Strategic Plan. The Dolores wind farm is scheduled to start operation in the 1st Half of 2020. 104 Annual Report 2018Enel Green Power starts operations at HillTopper, its first wind farm in Illinois, USA On December 12, 2018, Enel, through its US renew- ables company Enel Green Power North America Inc. (“EGPNA”), began operations at the 185 MW HillTopper wind farm, its first wind facility in the US state of Illinois. The construction of HillTopper required an investment of about $325 million. Enel Green Power exits Uruguay with the sale of 50 MW of wind capacity for $120 million Endesa industrial relations After a series of meetings of the Comisión Negociadora del V Convenio Colectivo de Endesa (Comisión Nego- ciadora) which began in October 2017 and continued throughout 2018, in view of the impossibility of reach- ing an agreement, Endesa notified the workers and their union representatives that, with effect from January 1, 2019, the 4th Collective Bargaining Agreement must be considered terminated in the same way as the “frame- work guarantee contract” and the “agreement on the voluntary suspension or resolution of employment con- tracts in the period 2013-2018”, applying from that date the provisions of general labor law, as well as the legal criteria established in the matter. Despite the resumption of negotiations within the Comis- ión Negociadora in February 2019, the interpretative dif- ferences between Endesa and the trade union represen- tatives regarding the effects of the resolution of the 4th On December 14, 2018, Enel Green Power SpA closed Collective Bargaining Agreement with regard, in particu- the sale to the power company Atlantica Yield of its wholly lar, to the social benefits granted to retired personnel led owned subsidiary Enel Green Power Uruguay SA (“EGP to the initiation of a suit by the unions having representa- Uruguay”), which through its project company Estrellada tion in the company. At December 31, 2018, the case SA owns the 50 MW Melowind wind farm located at Cer- was still pending in the Court of first instance. ro Largo, around 320 km from Montevideo. Enel Green Power has sold its Uruguay subsidiary for around $120 mil- lion, equal to the company’s enterprise value. Funac Enel Green Power sells F2i 50% of the EF Solare Italia joint venture With Law 20416 of February 5, 2019, the state of Goiás reduced from April 25, 2015 to April 24, 2012 the period of validity of the tax relief that allowed Enel Distribuição Goiás to offset ICMS (VAT) against the tax credit for Enel Distribuição Goiás investments to develop and maintain its grid. On December 21, 2018, Enel SpA, acting through its On February 25, 2019, Enel Distribuição Goiás appealed subsidiary Enel Green Power SpA (“EGP”) sold its 50% against the provisions of the law on a precautionary ba- stake in the joint venture EF Solare Italia SpA (“EFSI”), held through EGP’s fully-owned company Marte Srl, for sis (writ of mandamus) before the Court of the state of Goiás, which denied the appeal on February 26, 2019. €214 million to its existing partner in the venture, F2i SGR Enel Distribuição Goiás will appeal this ruling. SpA (“F2i”). In line with the sale agreement, EFSI, which manages and acquires operating solar plants in Italy, has an enterprise value of about €1.3 billion, of which around €430 million of equity and some €900 million of third- party debt. 105 Report on operationsReference scenario Enel and the financial markets Gross operating margin per share (euro) Operating income per share (euro) Group net earnings per share (euro) Group net ordinary earnings per share (euro) Dividend per share (1) (euro) Group shareholders’ equity per share (euro) Share price - 12-month high (euro) Share price - 12-month low (euro) Average share price in December (euro) Market capitalization (2) (millions of euro) No. of shares outstanding at December 31 (millions) (1) Dividend resolved by the Shareholders’ Meeting of May 16, 2019. (2) Calculated on average share price in December. Enel stock weighting in: - FTSE-MIB index - Bloomberg World Electric index Rating: Standard & Poor’s Outlook Medium/long-term Short-term Outlook Medium/long-term Short-term Outlook Medium/long-term Short-term Moody’s Fitch (1) Figures updated to February 15, 2019. 2018 1.61 0.97 0.47 0.40 0.28 3.12 5.39 4.24 4.94 50,254 10,167 2017 1.54 0.96 0.37 0.36 0.237 3.42 5.58 3.84 5.39 54,761 10,167 Current (1) at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2016 13.04% 3.71% 13.86% 3.78% 11.68% 3.92% 11.41% 3.26% Stable BBB+ A-2 Stable Baa2 - Stable A- F2 Stable BBB+ A-2 Stable Baa2 - Stable BBB+ F2 Stable BBB+ A-2 Stable Baa2 P2 Stable BBB+ F2 Stable BBB A-2 Stable Baa2 P2 Stable BBB+ F2 In 2018, the world economy grew by around 3%, in line with pressures on emerging markets (especially those that are the pace registered in 2017. The United States and China structurally weaker). Geopolitical uncertainty (mainly deriv- continue to pull the global locomotive, helped by the effects ing from the tariff war) is persistently affecting the external of expansionary fiscal policies, while the euro area grew at enivironment. In Europe, Brexit negotiations continue with- a slower rate. out significant progress, with the British parliament again The normalization of monetary policies in the advanced coun- postponing the preliminary agreement reached between tries (especially in the United States) has generated strong the Prime Minister, Theresa May, and the European Union. 106 Annual Report 2018 Strains continue between Italy and the European Union The number of Environmental, Social and Governance over the country’s fiscal policy and its consistency with (ESG) investors is increasing steadily and at December forecasts for economic growth. More specifically, growth 31, 2018 they represent about 10.5% of the share capital in Italy in 2018 is estimated at 0.9%, down from the 1.6% (against 8.6% at December 31, 2017). posted in 2017. The increase in ESG investors in Enel’s stock reflects the greater attention being paid by the financial market to the In this economic environment, the main European equity non-financial elements that contribute to the creation of indices closed 2018 with losses. Spain’s Ibex35 posted long-term sustainable value. a loss of 15%, while France’s CAC40 fell 12% and Ger- The energy transition now under way, with the trends in many’s DAX30 declined by 18%. The FTSE Italy All Share urbanization, the electrification of demand and decarbon- registered a loss of 17%. ization, is impacting the entire electricity value chain in dif- ferent ways and with different speeds. The euro-area utilities segment closed the year with a Thanks to its business and positioning, Enel maximises op- small decline of 1%. portunites created by that transition for creating sustain- able value over the long term, taking the lead in this area As regards Enel shares, 2018 ended with the stock price at with its strategy. €5.044, down 1.7% on the previous year, moderatly under- Enel’s leadership in the ESG field is strengthened by the performing the sector index for the euro area. close link between stategy and a focus on human capital, which fosters the economic and social growth of the local On January 24, 2018, Enel paid an interim dividend of communities with whom Enel interacts. €0.105 per share from 2017 profits and on July 25, 2018, it paid the balance of the dividend for that year in the amount For further information we invite you to visit the Investor Re- of €0.132. Total dividends distributed in 2018 amounted to lations section of our corporate website (http://www.enel. €0.237 per share, about 32% higher than the €0.18 per com/en/investors) and download the Enel Investor Relations share distributed in 2017. app, which provides financial data, presentations, real-time With regard to 2018, on January 23, 2019 an interim divi- updates of the share price, information on corporate bodies dend of €0.14 was paid, while the balance of the dividend and the rules of Shareholders’ Meetings, as well as periodic is scheduled for payment on July 24, 2019. updates on corporate governance issues. At December 31, 2018, the Ministry for the Economy and We have also created contact centers for private investors Finance held 23.6% of Enel, while institutional investors (which can be reached by phone at +39-0683054000 or held 57.6% (compared with 57.5% at December 31, 2017) by e-mail at azionisti.retail@enel.com) and for institutional and individual investors held the remaining 18.8% (com- investors (phone: +39-0683051; pared with 18.9% at December 31, 2017). e-mail: investor.relations@enel.com). 107 Report on operationsPerformance of Enel share price and the Bloomberg World Electric, Euro STOXX Utilities and FTSE Italy All Share indices from January 1, 2018 to January 31, 2019 € 6.0 € 5.5 € 5.0 € 4.5 € 4.0 € 3.5 € 3.0 Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Enel Bloomberg World Electric Euro STOXX Utilities FTSE Italy All Share Source: Bloomberg. 108 Annual Report 2018Consumer price indices (CPI) % Italy Spain Russia Romania Slovakia India South Africa Argentina Brazil Chile Colombia Mexico Peru United States Canada Exchange rates Euro/US dollar Euro/British pound Euro/Swiss franc US dollar/Japanese yen US dollar/Canadian dollar US dollar/Australian dollar US dollar/Russian ruble US dollar/Argentine peso US dollar/Brazilian real US dollar/Chilean peso US dollar/Colombian peso US dollar/Peruvian nuevo sol US dollar/Mexican peso US dollar/Turkish lira US dollar/Indian rupee US dollar/South African rand 2018 2017 Change 1.1 1.7 2.9 4.6 1.9 4.0 4.6 33.8 3.7 2.7 3.2 4.9 1.3 2.4 2.3 2018 1.181 0.88 1.15 110.44 1.30 1.34 62.80 28.11 3.66 642.04 2,958.13 3.29 19.23 4.84 68.40 13.25 1.2 2.0 3.7 1.3 1.1 3.3 5.3 25.7 3.5 2.2 4.3 6.0 2.8 2.1 1.6 2017 1.1297 0.88 1.11 112.15 1.30 1.30 58.32 16.56 3.19 648.70 2,951.36 3.26 18.92 3.65 65.11 13.31 (0.1) (0.3) (0.8) 3.3 0.8 0.7 (0.7) 8.1 0.2 0.5 (1.1) (1.1) (1.5) 0.3 0.7 Change 4.36% 0.97% 3.73% -1.55% -0.13% 2.59% 7.13% 41.11% 12.68% -1.04% 0.23% 0.78% 1.64% 24.63% 4.81% -0.45% 109 Report on operationsEconomic and energy conditions in 2018 Economic developments In 2018 the world economy grew by around 3%,6 in line point, bringing it to a range between 2.25% and 2.5%. with the pace of 2017. The United States and China con- The euro area expanded by 1.8%, but showed signs of tinue to drive the world locomotive, boosted by the ef- slowing down, as indicators of real activity and confidence fects of expansionary fiscal policies, while euro-area declined (Purchasing Manager Index and the EC’s Eco- growth moved at a slower rate. The normalization of mon- nomic Sentiment Indicator). Consumer prices increased etary policy in the advanced countries (especially in the by 1.7%, boosted by developments in energy prices; core United States) is imposing strong pressures on emerging inflation (the main reference for monetary policy decisions) markets (especially the structurally weaker economies). was still modest at 1%, although it is rising. The labor mar- Geopolitical uncertainty was a persistent feature of the ket is improving: in the first eleven months of the year, the external environment. Protectionist policies, although unemployment rate was 8.2% (down compared with the they represent a threat to global growth, as underscored previous year) and real wages rose compared with 2017. repeatedly by major institutions such as the International The European Central Bank (ECB) announced that its pro- Monetary Fund (IMF), are increasingly being seen as an gram of extraordinary asset purchases (quantitative eas- option for reviving national economies. However, despite ing) would end at the end of 2018, but the central bank said the trade war waged by the United States, in 2018 Chi- it would continue to reinvest the principal amounts gen- na will post its largest trade surplus with Washington in erated by redemptions of maturing securities in order to over a decade, expanding by 17% compared with 2017. In ensure favorable liquidity conditions. Interest rates should Europe, Brexit negotiations continue without significant remain unchanged at least until the summer of 2019. progress, with the the British parliament again postponing approval of the preliminary agreement reached between In 2018, the Italian economy grew by 0.9% year on year. the Prime Minister, Theresa May, and the European The annual unemployment rate was 10.6% and real wages Union, while the threat of an infringement procedure and rose, while inflation was 1.1%, with prices accelerating the the strains between Italy and the European Union over most in the 2nd Half of the year. The coming months will the country’s fiscal policy strategies seem to have abated be particularly important to understand the impact of the for the moment. fiscal strategy and economic policies on reviving the coun- try’s economic productivity. The United States entered the ninth year of its expansion. In 2018 the economy grew by 2.2%, buoyed by the re- Spain continued to expand faster than the euro-area av- cent tax reform approved by the Trump administration. erage (2.5% in 2018), sustained above all by especially The labor market is solid, with the unemployment rate strong growth in private consumption (2.3%) and invest- having fallen continuously since 2009 to its current 3.9%, ment (5.8%). The improvement in labor market conditions about 40 basis points lower than the structural rate. The (the unemployment rate is now 15.4%, compared with strengthening of the economy beyond its potential has around 26% in 2013) and low inflation (1.7% on average sustained inflation. On average, consumer prices since since the beginning of the year) contributed to expanding the beginning of the year have grown by 2.4%, a rate now the purchasing power of households, improving their con- above the 2% target set by the Federal Reserve (Fed). In fidence in the outlook. order to avoid excessive overheating, the US central bank continued the process of normalizing monetary policy, re- Russia grew by 2.3% in 2018. The low level of inflation (as peatedly raising the benchmark rate (the Fed Funds rate well as boosting real income) made it possible to lower target); the last increase in December was a quarter of a the cost of credit and consequently increase the volume of 6 Source: Oxford Economics. 110 Annual Report 2018lending, fueling private consumption. In the final part of the the demand side, the low level of inflation (2.7% on average year, due to a slowdown in demand and a slight uptick in in- since the beginning of the year) helped increase household flationary pressure, the central bank intervened to increase purchasing power, while the improvement in confidence the official interest rate (+0.25%) on a purely precautionary buoyed investment (6.1%). These economic developments basis. prompted the central bank to raise its reference rate by 25 basis points, bringing it to 2.75% in October. Romania continues to expand at a rapid pace (4.2%), main- Colombia posted growth of 2.5%, thanks to the contri- ly thanks to the growth in consumption. Owing to the pres- bution of private consumption and investment. Inflation sure of strong domestic demand, inflation is still very high (3.2% on average since the beginning of the year) is stable (4.6%), exceeding the central bank target range of 1.0%- around the central bank’s average target (3%). The mon- 2.5%. The monetary policy reference rate was raised by etary policy reference rate was held at 4.25%, thereby 75 basis points from the beginning of the year (currently leaving the liquidity conditions unchanged. The program at 2.5%) in an attempt to prevent the economy from over- announced by the Colombian central bank to increase its heating excessively. foreign reserves denominated in US dollars does not ap- pear to have had any impact on the markets. In Latin America, the deterioration in the global macroeco- In Peru, accommodative monetary conditions (the interest nomic situation has shone a light on the structural weak- rate was reduced by 150 basis points compared with the nesses of some countries (i.e. Argentina and Brazil), while 1st Quarter of 2017 and has been unchanged at 2.75% for other economies (Chile, Colombia, Peru) have displayed months) and the implementation of a countercyclical fiscal considerable resilience. In general, in almost all countries policy (government spending was increased by 3% com- of interest to the Group (the only exception is Argentina pared with the 1st Half of 2017) have enabled the economy and, partly, Mexico) inflation has remained low, which to recover strongly, growing by 3.7%. Inflationary pressure helps foster domestic consumption while ensuring compli- was slight at 1.3%. From the point of view of the public ance with fiscal constraints. finances, the low level of debt (the debt/GDP ratio is about In Argentina, the robust expansion of the 1st Quarter 26%) gives the country room to prolong the fiscal stimulus, (3.6% year on year) was followed by an equally strong although the government has set ambitious deficit reduc- contraction, with an overall decrease of 2.6%. On the de- tion targets for the coming years. mand side, high inflation (about 33.8%) compressed real Mexico grew by around 2.1% compared with 2017. Con- household income, while gloomy expectations dampened sumption continues to drive expansion, although inflation enthusiasm for new investments. remained high (4.9% on average since the beginning of The crisis of confidence contributed to the depreciation of the year). The victory of Andres Manuel Lopez Obrador in the currency, pushing inflation well beyond the target level the parliamentary elections last July, and the signing of a and forcing the central bank to raise its benchmark interest new trade agreement reached with the United States and rate during the year. Canada (USMCA) have reduced the climate of uncertainty In an attempt to reassure the markets and to meet its fund- that impacted the economic context in the first part of the ing needs, the government reached an agreement with year. This could boost expectations for the economy and the International Monetary Fund (IMF) for an aid plan of investment. over $55 billion, subject to eliminating the primary deficit by 2019 and achieving a primary surplus of 1% of GDP in 2020. The Brazilian economy grew by 1.3% in 2018 compared with 2017, sustained by investment, which represented the main component with an expansion of 4.4%, and an increase in private consumption (favored by modest infla- tion of 3.7% from the beginning of 2018) and exports, both of which outperformed expectations. Chile continued to expand (4.0% in 2018 compared with 2017), driven by private consumption and investment. On 111 Report on operationsThe following table shows the GDP growth rates in the main countries in which Enel operates. Annual real GDP growth % Italy Spain Portugal Greece Argentina Romania Russia Brazil Chile Colombia Mexico Peru Canada United States South Africa 2018 2017 0.9 2.5 2.1 2.2 -2.6 4.2 2.3 1.3 4.0 2.5 2.1 3.7 2.1 2.9 0.7 1.6 3.0 2.8 1.4 2.9 6.8 1.5 1.1 1.6 1.8 2.3 2.5 3.0 2.2 1.3 Source: National statistical institutes and Enel based on data from ISTAT, INE, EUROSTAT, IMF, OECD and Global Insight. 112 Annual Report 2018International commodity prices During 2018 the oil market was characterized by two dis- during the summer were generated by two main factors: tinct phases. The first nine months of the year saw a con- 1) robust demand for injected storage to restore inventory tinuous and generalized rise in prices, with Brent increas- levels; and 2) strong demand in Asia, which diverted flows ing to $86 a barrel in early October, a level not seen since of LNG to the Far East. the end of 2014. By contrast, the 4th Quarter saw prices From October the situation was completely reversed. The plunge 40% to $54 a barrel towards the end of the year. sudden drop in the price of oil and the large flow of LNG From the point of view of the fundamentals, the trend in bound for Europe (in November imports reached 8 bil- the first three quarters of 2018 was driven by several fac- lion cubic meters, a level not seen since 2011), together tors: 1) growing world demand, accompanied by deeper- with less than buoyant demand, contributed to a slow and than-expected cuts in production, which at the end of steady decline in prices. March drove OECD inventories below the average of the last five years; 2) concerns about the sharp drop in Iranian Develpments in the coal market in 2018 reflected the spe- output after the US administration withdrew from the nu- cific characteristics of the two main basins, the Atlantic clear agreement; and 3) the continuous decline in output and the Pacific. in Venezuela; and 4) outside of OPEC, the cuts imposed In Europe, the competition between gas and coal for use by the Canadian province of Alberta. in electricity generation was the main source of volatility During the 4th Quarter of the year, despite the production that affected the European market. The sharp rise in gas difficulties within the OPEC countries, the now unstop- pable growth of American shale oil and worrying signals prices during the 1st Quarter and the sudden rise in CO2 prices not accompanied by an equally strong rise in coal of a slowdown in global growth, with obvious negative prices made coal plants more competitive than CCGTs, repercussions for oil demand (in October OECD inven- leading to a rise in demand in Europe. The weak perfor- tories returned above the average of the last five years) mance of prices during the 4th Quarter was mainly due to contributed to the sharp fall in prices. The production cuts the fall in demand and the low levels of the Rhine (owing announced by the OPEC countries and Russia during their to the severe drought in the previous summer in Northern last meeting in Vienna appear insufficient to stabilize the Europe) which limited coal traffic. market for the moment. In the Pacific, China was again the main market mover. While during the 1st Half of the year Chinese demand was The European gas market also experienced periods of sustained by cold winter temperatures and an expecially considerable volatility during the year. While the early hot summer, in the final part of the year the strains on months of 2018 were characterized by strong demand, market fundamentals eased, with a consequent drop in sustained by especially harsh temperatures, which sharp- prices as the Chinese authorities again intervened to curb ly depleted stocks and pushed them below their average volumes of imported coal. level of recent years, the unusual price tensions registered 113 Report on operationsElectricity markets Electricity demand Developments in electricity demand GWh Italy Spain Romania Russia (1) Argentina Brazil (2) Chile (2) (3) Colombia (1) Europe/Urals. (2) Figure for the SIC - Sistema Interconectado Central. (3) Gross of grid losses. Source: Enel based on TSO figures. 2018 321,910 253,495 62,044 805,916 137,262 583,025 76,175 69,176 2017 320,548 252,506 60,816 795,690 136,730 574,526 74,140 66,861 Change 0.4% 0.4% 2.0% 1.3% 0.4% 1.5% 2.7% 3.5% The positive trend in electricity demand in the countries (both 0.4%), mainly due to weather developments and a in which the Enel Group operates, which began in 2017, slowdown in economic growth in the last part of the year. continued last year. The increase in electricity consumption Russia and Romania registered the largest gains in 2018, again differed by country, with slower growth in mature expanding by 1.3% and 2% respectively. economies such as Italy and Spain and faster expansion in By contrast, in the main South American countries electric- South America. ity demand grew by an average of almost 3%. More spe- In Europe, temperatures outside seasonal averages caused cifically: Argentina posted growth of 0.4%, Brazil expanded demand to expand by an average of 1% compared with by 1.5%, Chile by 2.7% and Colombia by 3.5%. the previous year. Italy and Spain posted smaller increases Italy Electricity generation and demand in Italy Millions of kWh Net electricity generation: - thermal - hydroelectric - wind - geothermal - photovoltaic Total net electricity generation Net electricity imports Electricity delivered to the network Consumption for pumping Electricity demand 2018 2017 Change l 185,046 49,275 17,318 5,708 22,887 280,234 43,909 324,143 (2,233) 321,910 200,305 37,557 17,565 5,821 24,017 285,265 37,761 323,026 (2,478) 320,548 (15,259) 11,718 (247) (113) (1,130) (5,031) 6,148 1,117 245 1,362 -7.6% 31.2% -1.4% -1.9% -4.7% -1.8% 16.3% 0.3% -9.9% 0.4% Source: Terna - Rete Elettrica Nazionale (monthly report - December 2018). 114 Annual Report 2018 In 2018 electricity demand in Italy increased by 0.4% com- Net electricity generation decreased by 1.8% in 2018 pared with 2017, reaching 321,910 million kWh. Of total (-5,031 million kWh), reaching 280,234 million kWh. More electricity demand, 86.4% was met by net domestic elec- specifically, greater hydroelectric generation (+11,718 mil- tricity generation for consumption (88.2% in 2017) with lion kWh) was more than offset by lower thermal genera- the remaining 13.6% being met by net electricity imports tion (a decrease of 15,259 million kWh) and the contraction (11.8% in 2017). in photovoltaic generation (-1,130 million kWh). In 2018, net electricity imports increased by 6,148 million kWh, essentially reflecting the increase in demand in the national market. Spain Electricity generation and demand in the peninsular market Millions of kWh Net electricity generation Consumption for pumping Net electricity imports (1) Electricity demand 2018 246,827 (3,201) 9,869 253,495 2017 248,124 (3,608) 7,990 252,506 Change (1,297) 407 1,879 989 0.5% 11.3% 23.5% 0.4% (1) Includes the balance of trade with the extra-peninsular system. Source: Red Eléctrica de España (Series estadísticas nacionales - Balance eléctrico - December 2018 report). Volumes for 2017 are updated to February 28, 2018. Electricity demand in the peninsular market in 2018 increased the previous year. This growth essentially reflected devel- by 0.4% compared with 2017 reaching 253,495 million kWh. opments in demand. Demand was only partially met by net domestic generation. Net electricity imports in 2018 increased compared with lion kWh to 246,827 million kWh. Net electricity generation in 2018 decreased by 1,297 mil- Electricity generation and demand in the extra-peninsular market Millions of kWh Net electricity generation Net electricity imports Electricity demand 2018 14,079 1,233 15,312 2017 14,181 1,179 15,361 Change (102) 54 (49) -0.7% 4.6% -0.3% Source: Red Eléctrica de España (Series estadísticas nacionales - Balance eléctrico - December 2018 report). Volumes for 2017 are updated to February 28, 2018. Electricity demand in the extra-peninsular market in 2018 ports, all from the peninsular system. The latter totaled decreased by 0.3% compared with 2017, reaching 15,312 1,233 million kWh in 2019. million kWh. Of total electricity demand, 92.0% was met Net electricity generation in 2018 fell by 0.7% or 102 million by net electricity generation in the extra-peninsular area, kWh as a result of lower demand for electricity in the extra- with the remaining 8.0% being met by net electricity im- peninsular market. 115 Report on operations Electricity prices Electricity prices Average baseload price 2018 (€/MWh) Change in average baseload price Average peakload price 2018 (€/MWh) Change in average peakload price Italy Spain Russia Brazil Chile Colombia Price developments in the main markets Eurocents/kWh Final market (residential) (1) Italy France Portugal Romania Spain Final market (industrial) (2) Italy France Portugal Romania Spain 61.3 57.3 15.8 61.7 54.9 32.0 13.6% 9.7% -8.2% -26.8% 4.6% 2.4% 68.0 61.5 18.1 68.6 104.2 41.8 2018 0.2067 0.1754 0.2246 0.1333 0.2383 0.0775 0.0686 0.1004 0.0794 0.0880 2017 0.2106 0.1723 0.2257 0.1244 0.2237 0.0943 0.0614 0.1006 0.0751 0.0870 10.1% 7.8% -9.2% -44.6% 0.9% -14.1% Change -1.9% 1.8% -0.5% 7.2% 6.5% -17.8% 11.7% -0.2% 5.7% 1.1% (1) Annual price net of taxes - annual consumption of between 2,500 kWh and 5,000 kWh. (2) Annual price net of taxes - annual consumption of between 70,000 MWh and 150,000 MWh. Source: Eurostat. Electricity price developments in Italy Power Exchange - PUN IPEX (€/MWh) Residential user with annual consumption of more than 1,800 kWh (€/kWh): price net of taxes 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2018 2017 54.3 53.4 68.9 68.6 57.4 44.9 51.6 61.8 0.2 0.2 0.2 0.2 0.1 0.1 0.2 0.1 Source: EMO (Energy Markets Operator) and ARERA (Regulatory Authority for Energy, Networks and Environment). In 2018, in Italy the uniform national sales price (PUN) re- driven by tensions in the fundamentals, and to a strong and turned to its 2013 levels, increasing by 13.6% compared constant increase in the price of CO2. with 2017, thanks to the increase in the price of PSV gas, 116 Annual Report 2018 Natural gas markets Natural gas demand Millions of m3 Italy Spain 2018 71,514 30,062 2017 73,973 30,180 Change (2,459) (118) -3.3% -0.4% Last year experienced a sharp decline in demand for natural gas in Italy (-3.3%), while in Spain demand was virtually un- changed on 2017 (-0.4%). Italy Gas demand in Italy Millions of m3 Distribution networks Industry Thermal generation Other (1) Total 2018 32,355 14,266 23,361 1,532 71,514 2017 32,630 14,365 25,442 1,536 73,973 Change -0.8% -0.7% -8.2% -0.3% -3.3% (275) (99) (2,081) (4) (2,459) (1) Includes other consumption and losses. Source: Enel based on data from the Ministry for Economic Development and Snam Rete Gas. In 2018, natural gas demand in Italy totaled 71,514 billion in renewables generation, while mild temperatures in No- cubic meters, a decrease of 3.3% on the previous year. vember and December caused residential demand to fall All segments saw demand decrease in 2018: thermal gen- by 1%. eration was the hardest hit (-8.2%) owing to an increase Price developments 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2018 2017 Average residential user with annual consumption of between 481 and 1,560 m3 (€/Sm3): price net of taxes 0.47 0.43 0.48 0.52 0.45 0.44 0.42 0.44 Source: ARERA (Regulatory Authority for Energy, Networks and Environment). The annual average sales price of natural gas in Italy increased by 8.6% in 2018. 117 Report on operationsRegulatory and rate issues The European regulatory framework Regulation of greenhouse gas emissions “Clean Energy for all Europeans” legislative package In February 2018 the European Parliament and the Council On November 30, 2016, the European Commission issued formally approved the reform of the EU’s ETS Directive for the “Clean Energy for all Europeans” package of measures the period from 2020 to 2030. The new directive entered for proposed legislation on European climate and energy into force on April 8, 2018. To achieve the objective of an policy. overall reduction in greenhouse gas emissions of 40% by In particular, the package includes the following regula- 2030 compared with 1990, the sectors affected by the EU tions and directives, some of which are revised versions, Emissions Trading Scheme (EU ETS) will have to reduce others newly issued: the Electricity Market Regulation, the their emissions by 43% compared with their 2005 levels. ACER Regulation, the Risk Preparedness Regulation, the The new ETS Directive provides for a set of interrelated Energy Union Governance Regulation, the Electricity Mar- measures to make this possible. To accelerate the pace of ket Directive, the Renewable Energy Directive, the Energy emissions reductions, starting from 2021, the total quan- Efficiency Directive and the Energy Performance of Build- tity of emissions permits will decrease at an annual rate of ings Directive. 2.2%, compared with the current rate of 1.74%. The Mar- ket Stability Reserve (MSR) – the mechanism established by the European Union to reduce the surplus of emissions permits on the market and improve the ETS’s resilience to future shocks – has been strengthened substantially. Be- Revision of the Electricity Market Directive and the Electricity Market Regulation tween 2019 and 2023, the amount of allowances set aside On December 19, 2018, the European Parliament and the in the reserve will double to 24% of the allowances in circu- European Council reached a political agreement on two of lation, while starting from 2024 the normal feeding rate of the main dossiers of the “Clean Energy for all Europeans” 12% will be restored. As a long-term measure to improve legislative proposal issued on November 30, 2016 by the the functioning of the ETS, unless otherwise decided in the European Commission, namely the Electricity Market Di- first review of the MSR scheduled for 2021, from 2023 the rective and the Electricity Market Regulation. number of allowances in the reserve will be limited to the The agreement reached by European legislators marks an auction volume of the previous year. Allowances held above important step in bringing the regulatory frameworks of this amount will no longer be valid. The provisions of the the EU and of the member states up to date with the aim new EU ETS Directive will be reviewed in the context of of efficiently integrating renewable energy and new tech- each global stocktake agreed under the Paris Agreement, in nologies in the electricity system, harmonizing the func- which the efforts and ambition of each participating member tioning of the markets, sending efficient signals for invest- state will be quantified in aggregate: the first global stock- ment and placing the consumer at the center. taking will take place in 2023. Although the definitive texts of the new directive and regu- lation have not yet been completed, these are the main On May 30, 2018 Regulation 2018/842/EU was published. It firm points of the political agreement reached by the Euro- concerns the annual greenhouse gas emission reductions by pean institutions: member states from 2021 to 2030 for sectors not covered > at the discretion of the member states, maintaining forms by the ETS, namely agriculture, transport, construction and of electricity price regulation for the protection of vulner- waste treatment, which together account for around 60% of able and non-vulnerable customers; the Union’s greenhouse gas emissions. The European non- > introduction of the option for customers to ask their seller EU ETS emission reduction target of 30% compared with 2005 has been incorporated into binding national targets. (provided they serve more than 200,000 customers) for a dynamic electricity price contract, i.e. one in which the 118 Annual Report 2018electricity component follows the wholesale cost of elec- tricity; > reduction in the time to switch suppliers from the current 21 days to 24 hours by 2026; > introduction of new actors, such as independent aggrega- tors, self-consumption and local energy communities, into the member states’ legal systems; > substantial confirmation of the expectations concerning distribution system operators (DSOs), with national regu- lators being required to offer them incentives to use new efficient solutions in grid operation (e.g. flexibility); > prohibition on grid operators (TSOs and DSOs) installing and managing storage facilities, except in cases of market failure and in the case of technologies fully integrated into the grid; in both cases, however, the national regulator’s specific approval is required; > maintaining dispatching priority for small-scale renew- ables plants (less than 400 kW) only, safeguarding exist- ing plants that enjoy this priority; members states may withdraw this benefit if the markets are fully accessible to renewables, the penetration of renewables is on the path to reaching the targets or exceeds 50% of final electricity consumption; > possible derogations from balance responsibility only for small-scale renewables plants (less than 400 kW) or inno- vative technologies, safeguarding existing plants or incen- tivizing them to assume such responsibility; Directive 2018/2001/EU on the promotion of the use of energy from renewable sources (Renewable Energy Directive) On December 21, 2018, the new directive of the European Parliament and of the Council of December 11, 2018 on the promotion of the use of energy from renewable sourc- es was published in the Official Journal of the European Union. The main objective of Directive 2018/2001, which repeals Directive 2009/28, is to accelerate the transition towards the development of renewables. To achieve this, the direc- tive establishes a new binding EU target of a share of a least 32% of renewables in the EU’s gross final consump- tion by 2030, including a clause for assessing whether to increase the target by 2023. Furthermore, the directive: > establishes new rules for designing mechanisms to sup- port renewable energy to provide certainty to investors by avoiding retroactive changes; > allows members states to introduce auctions limited to specific technologies. In any case, member states must provide a schedule of future auctions for at least the fol- lowing five years, indicating the timing, volumes and bud- get; > provides effective simplification and streamlining of ad- ministrative procedures, including for repowering existing > definition of a European framework for introducing capac- plants; ity remuneration mechanisms: need for analysis of the ad- equacy of European and national mechanisms, strategic reserves as the preferable option, plans for reforming the electricity market to eliminate the causes of market fail- ure and regulatory barriers, phase-out clauses for mecha- nisms if there are no longer any adequacy problems, emis- sion limits for participation of new and existing plants. While the regulation will be directly applicable once the definitive text is published in the Official Journal of the Eu- ropean Union, the Directive must be transposed through specific legislative acts of the member states within two years of its entry into forth. > draws attention to the elimination of regulatory barriers that block the wider use of corporate Power Purchase Agreement (PPAs); > establishes a clear and stable regulatory framework for self-consumption; > raises the ambition gap for the transport and heating/cool- ing sectors; and > improves bioenergy sustainability. The directive sets the renewable energy target for the transport sector for 2030 at 14% and is placed on fuel sup- pliers. Electric mobility is encouraged through to a multipli- er of 4 for renewable electricity used in road transport. The directive envisages a sub-target of 3.5% for “advanced biofuels” by 2030, while first-generation biofuels will be limited to a maximum of 7% for the entire EU, with further limits by member state if below 7%. The counting of bio- fuels at high risk of indirect land-use changes (ILUC) will be frozen at 2019 levels and gradually eliminated between 2023 and 2030. 119 Report on operationsDirective 2018/2002/EU on energy efficiency (Energy Efficiency Directive) The new directive of the European Parliament and of the Directive 2018/844/EU on the energy performance of buildings (Energy Performance of Buildings Directive) Council of December 11, 2018 on energy efficiency was On June 9, 2018, Directive 2018/844/EU on the energy published in the Official Journal of the European Union on performance of buildings, which amends the previous di- December 21, 2018. The directive establishes a new EU en- rective governing this issue and part of the directive on ergy efficiency target for 2030 of at least 32.5% compared energy efficiency, came into force. The new directive pro- with the reference scenario and includes a provision for re- vides for each EU member state to establish a long-term vising it upwards by 2023. It also requires member states strategy to support the renovation of the national stock of to achieve end-use energy savings for the 2021-2030 period residential and non-residential buildings, both public and of 0.8% per year, to be met by through obligation schemes private, in order to obtain a decarbonized and energy ef- on operators or through alternative measures. The provi- ficient building stock by 2050. In the long-term renovation sions of the directive must be transposed by the member strategy, each country will have to establish a roadmap states by June 25, 2020. with indicative interim milestones for 2030, 2040 and Regulation 2018/1999/EU on the governance of the Energy Union and climate action (Energy Union Governance Regulation) 2050, and measurable progress metrics and indicators. The directive also promotes electric mobility, setting re- quirements for the installation in buildings of recharging points and ducting infrastructure, namely conduits for electric cables. In particular, non-residential buildings with more than 10 parking spaces, whether new or undergoing major renovation, shall be equipped with at least one re- Alongside with the Renewable Energy Directive and the charging point for electric vehicles and must be prepared Energy Efficiency Directive, the EU published in its Of- for the subsequent installation of recharging points with ficial Journal the new Regulation 2018/1999/EU on the the installation of appropriate ducting infrastructure for at governance of the Energy Union and climate change. This least one parking space in five. By January 1, 2025, the regulation sets out the governance mechanism to achieve member states will also have to set additional require- the EU targets for greenhouse gas emissions, in line with ments for the installation of a minimum number of re- the Paris Agreements, and energy and climate policy tar- charging points for all non-residential buildings with more gets for 2030. It aims to ensure greater regulatory cer- than 20 parking spaces. Residential buildings with more tainty and investor certainty. The governance mechanism than 10 parking spaces, whether new or undergoing ma- is based on the long-term objectives of the European jor renovation, shall install ducting infrastructure for each Commission and the member states with a perspective parking space to enable the installation at a later stage of of at least 30 years, the integrated national energy and recharging points for electric vehicles. climate plans that cover ten-year periods starting with 2021-2030, the corresponding member states’ integrated national energy and climate progress reports and the in- tegrated monitoring arrangements by the European Com- mission. The governance mechanism ensures effective opportunities for the public to participate in the prepara- tion of the national plans and the long-term strategies. It provides for a structured process between the Com- mission and the member states for the purpose of final- ization and subsequent implementation of the integrated national energy and climate plans and the corresponding Commission action. The “Clean Mobility” legislative package In 2018 the European Commission completed its “Clean Mobility” package, which was begun in 2017. The package is organized into three parts, the first two of which were published in 2017 and the third in May 2018. It contains a series of legislative proposals and other measures to make traffic safer, reduce CO2 emissions and air pollution, pro- mote the development of zero- and low-emission vehicles and create a production chain for batteries in Europe. The main measures adopted in the first part are designed 120 Annual Report 2018to encourage the adoption of charging for road use based on distance driven (tolls) to best reflect actual use, emis- sions and pollution produced by vehicles. More specifically, The Italian regulatory framework the proposal calls for internalizing the external costs deriv- The current structure of the Italian electricity market is the ing from noise and air pollution into tolls in addition to in- result of the liberalization process begun in 1992 with Di- centives for zero-emission vehicles. rective 1992/96/EC, transposed into law with Legislative The second part of the package includes three primary Decree 79/1999. This decree provided for: the liberalization measures. The first sets CO2 emissions standards for new cars and vans as at 2025 and 2030. The second, a proposed of electricity generation and sale; reserving transmission and ancillary services to an independent network opera- review of the Clean Vehicles Directive (Directive 2009/33/ tor; the granting of concessions for distribution to Enel and EC), provides a clear definition of “clean vehicle” (based other companies run by local governments; the unbundling on combined pollution and CO2 emission thresholds) and aims to promote clean mobility solutions in public procure- of network services from other activities. The introduction of Directives 2003/54/EC and 2009/72/ ment tenders using a system of procurement targets for EC (transposed with Law 125/2007 and Legislative De- the member states, thereby providing a solid boost to the cree 93/2011, respectively) in Italy lent further impetus to demand for and to the further deployment of clean mobility the process, particularly through the complete opening of solutions. the retail market and the confirmation of the total inde- Finally, two main initiatives have emerged with the third pendence of the national transmission network operator and final part of the package. The first sets CO2 emissions standard for new heavy vehicles as at 2025 and 2030 and (already provided for in the decree of the Prime Minister of May 11, 2004) by separating its ownership from that of provides for a review of the regulation to be conducted in other electricity operators. 2022, which will extend the scope of application of the The process of liberalizing the natural gas market began standards to other categories of heavy vehicles, including with Directive 1998/30/EC, transposed in Italy through buses. The second initiative provides for an action plan for Legislative Decree 164/2000, calling for the liberalization batteries in order to ensure access to a sustainable sup- of the import, production and sale of gas and the sepa- ply of raw materials through the use of European resourc- ration of network infrastructure management from other es (including those from recycling) and appropriate trade activities through the establishment of distinct compa- agreements with other countries, to support the growth of nies. As regards the model for unbundling transport from European battery production and to accelerate the creation other non-network activities, with Resolution 515/2013/R/ of the enabling regulatory framework (e.g. rapid adoption gas, the Authority for Electricity, Gas and Water System of market design legislation, CO2 standards for vehicles). Starting with the presentation of the first package in 2017, (AEEGSI, since 2018 it has become the Regulatory Author- ity for Energy, Networks and the Environment - ARERA) the European Parliament and European Council have mandated the transition to ownership unbundling pursuant worked on a number of dossiers to arrive at a common to Directive 2009/73/EC. position on the Commission’s proposals. On December 17, With the decree of November 10, 2017, the Ministers of the 2018 a political agreement was reached on the dossier for Environment and of Economic Development adopted the the CO2 emission standards for new cars and light com- mercial vehicles. The final agreement calls for cutting CO2 emissions for new cars by 15% by 2025 from the 2021 lev- 2017 National Energy Strategy. The document, in line with the European Energy Union Plan and the Energy Roadmap 2050, establishes the development targets for the energy el of 37.5% for new cars, and a 31% reduction for new vans sector by 2030 in terms of competitiveness, sustainabil- by 2030. It also envisages an incentive mechanism to ac- ity, the environment and procurement security. In light of celerate the transition for zero- and low-emission vehicles. the agreements reached at European level regarding the In 2019, trilogue meetings between the European Parlia- Clean Energy Package, the national targets may also be ment, European Council and European Commission will be revised. The new targets will be proposed to the European held to prepare the final text of the other legislative actions Commission through the integrated national energy and contained in the three packages that had not been finalized climate plan, which will be finalized in 2019. in 2018. 121 Report on operationsWholesale electricity generation and market Electricity Wholesale electricity generation and market Electricity generation was completely liberalized in 1999 Produzione plants: Brindisi Sud, for 2018 and for the 2019- 2020 period, Sulcis for the 2019-2020 period, and Assemini and Portoferraio for the 2019-2020 period. Enel Produzione’s Porto Empedocle plant has instead been included in the multi-year cost reimbursement system un- til 2025. The remaining capacity is subject to alternative contracts as essential plants. with Legislative Decree 79/1999 and can be performed by In addition, to cut natural gas consumption in the thermo- anyone possessing a specific permit. electric sector in gas emergency situations and to ensure The electricity generated can be sold wholesale on the secure supplies of electricity, Article 38-bis of Decree organized spot market (IPEX), managed by the Energy Law 83/2012 authorized MED to identify plants that can Markets Operator (GME), and through organized and over- be powered by fuel oil and fuels other than gas, thereby the-counter platforms for trading forward contracts. The ensuring their availability to be called into service as a mat- organized platform includes the Forward Electricity Market ter of urgency. These plants, deemed “units essential for (MTE), managed by the GME, in which forward electric- the security of the gas system”, in exchange for the ser- ity contracts with physical delivery are traded. Trading can vice provided, receive a cost reimbursement fee based on also be conducted in derivatives with electricity as their the regulations set by ARERA. The MED made recourse to underlying. The organized market for such transactions these units for gas years 2012-2013 and 2013-2014. How- is the forward market (IDEX), operated by Borsa Italiana, ever, with Resolution 113/2018/R/eel, ARERA rejected the while financial derivatives can also be negotiated on OTC request for reimbursement for the 2013-2014 gas year sub- platforms. mitted by Enel Produzione in 2016 and set out the new cri- Generators may also sell electricity to companies engaged teria for determining the cost reimbursement fee for that in energy trading and to wholesalers that buy electricity for gas year. Enel Produzione then requested reimbursement resale at retail. under the new rules and also filed an appeal against the In addition, for the purposes of the provision of dispatching resolution with the Regional Administrative Court of Milan. services, which is the efficient management of the flow of electricity on the grid to ensure that deliveries and with- Since the launch of the market in 2004, the regulations drawals are balanced, electricity generated may be sold on have provided for a form of administered compensation a dedicated market, the Ancillary Services Market (MSD), for generation capacity. In particular, plants that make their where Terna procures the required resources from genera- capacity available for certain periods of the year identified tors. Dispatching services are usually procured on the spot in advance by the grid operator to ensure the secure opera- market, but Terna has the right to procure services on the tion of the national electricity system receive a special fee. forward market, subject to ARERA’s prior approval. In August 2011, ARERA published Resolution ARG/elt ARERA and the Ministry for Economic Development 98/11, which establishes the criteria for introducing a (MED) are responsible for regulating the electricity market. market mechanism for compensating generation capacity (capacity market), replacing the current administered re- With regard to dispatching services, ARERA has adopted a imbursement. This mechanism involves holding auctions number of measures regulating plants essential to the se- through which Terna will purchase from generators the curity of the electricity system. These plants are deemed capacity required to ensure that the electricity system is essential based on their geographical location, their techni- adequately supplied in the coming years. cal features and their importance to the solution of certain With a decree of the Minister for Economic Development critical grid issues by Terna. In exchange for being required of June 30, 2014, the capacity market operational mecha- to have electricity available and providing binding offers, nism previously issued for consultation by the Authority for these plants receive special remuneration determined by Electricity, Gas and Water System was approved. ARERA. The mechanism is based on the allotment, by auction, of As for the cost reimbursement scheme for essential gen- option contracts (reliability options) that provide for pay- eration units, ARERA has approved the following Enel ment of a premium, established in the auction with the 122 Annual Report 2018 setting of a marginal price, against which a generator un- Through Resolution 314/2017/R/eel, ARERA also provided dertakes to return any positive difference between the that, with regard to the commitments made by Enel Pro- price formed on the spot electricity and ancillary services duzione as part of the proceedings, any amounts exceed- market and a benchmark price set ex ante in the option ing the caps for the plant for the 2017-2019 period will be contract. transferred to Terna. The rules approved provide for a cap of the premium to With Resolution 319/2018/R/eel, ARERA changed the pa- be paid for existing capacity and for newly constructed rameters involved in the determination of the variable cost capacity. recognized for the generation units of the Brindisi Sud plant for the remainder of 2018. On February 7, 2018 the European Commission announced Resolutions 314/2017/R/eel and 928/2017/R/eel, which that Italy’s capacity market is compliant with the guidelines approved the admission of the Brindisi plant to the cost on state aid for environmental protection and energy, how- reimbursement system for years 2017 and 2018, was chal- ever it proposed some adjustments, which were subse- lenged by another operator before the Regional Adminis- quently made with Resolution 261/2018/R/eel. In addition trative Court of Milan (Enel Produzione intervened in the to adjusting its rules to the commitments made by Italy to case to defend the legality of these resolutions). The hear- the European Commission, in that resolution ARERA made ing was held on October 10, 2018 and the Court has yet to further changes based on previous consultations. issue its decision. The MED has yet to adopt the decree approving the scheme. With Resolution 422/2018/R/eel, ARERA approved the scheme proposed by Terna under Resolution 300/2017/R/ Within the context of its power to procure dispatching eel to allow aggregate virtual mixed units (AVMU, com- services on the forward market as provided by Resolu- posed of generation units that do not require approval and tion 111/2006, ARERA, with Resolution 326/2016/R/eel, consumption units) to participate in the dispatching market. charged Terna with conducting the competitive tender for assigning contracts for the supply of replacement tertiary reserves in Sardinia for the period from July 1, 2016 to De- cember 31, 2018. The contracts awarded by Terna estab- lish a requirement to supply the Ancillary Services Market Gas Wholesale market The extraction, import (from EU countries) and export of (MSD) at the variable cost paid to the plant for a premium natural gas have been liberalized. established in the competitive tender. Following the ten- According to the provisions of Legislative Decree 130/2010, der, all of the capacity was contracted with Enel’s Sulcis operators are permitted to hold market shares of up to 55% plant. of domestic consumption. The spot trading platform (the “Gas Exchange”) began Following ARERA’s Resolution 342/2016/E/eel, on October operation in 2010 and ARERA established the balancing 6, 2016 the Competition Authority began an enquiry involv- market in 2011. The forward market later completed the ing Enel SpA and Enel Produzione SpA to determine the structure of the Italian wholesale market, joining the Gas existence of a possible abuse of a dominant position in the Exchange. MSD of the Brindisi Sud plant, which concluded in May As for the balancing market, ARERA, implementing Com- 2017 with the acceptance of the commitments proposed mission Regulation 2014/312/EU, redefined, starting from by Enel SpA and Enel Produzione without the imposition of 2016, the rules for its functioning, in order to boost the sanctions. More specifically, the commitments consist of availability of flexible resources to balance the system and the introduction, for the years 2017-2019, of a cap on total improve the set of information for users. annual revenue that can be generated by the Brindisi Sud In 2017 the Ministry for Economic Development (MED) in- plant, net of variable costs paid under current regulations. dicated that, starting from 2018, the figure of market maker The cap will also apply in the event the plant is included would be introduced in markets organized by the Energy under the cost reimbursement system pursuant to Resolu- Markets Operator (GME). In 2018 Enel Global Trading SpA tion 111/2006. was added to the list of operators that act as market makers. 123 Report on operationsTransportation, storage and regasification Transport, storage and regasification (of LNG) are subject to regulation by ARERA, which sets the rate criteria for engag- ing in these activities at the start of each regulatory period. Storage is carried out under a concession issued by the MED to applicants that satisfy the requirements of Legisla- tive Decree 164/2000. Each year, the MED issues a decree establishing the criteria for allocating capacity through an auction mechanism. LNG activities are subject to the grant of a special minis- terial permit to ensure third-party access (TPA). The MED may grant an exemption from the TPA rules. As for regasifi- cation, in 2017 ARERA envisaged replacing the rate-based method for allocating capacity with a system of auctions starting in 2018. Transport activities, defined by regulatory criteria for rate periods, continue to be subject to fees updated annually by ARERA. In 2017 it extended, with a few corrective mea- sures, the rate criteria for 2014-2017 to 2018-2019, which were challenged by Enel Trade consistent with previous dis- putes, still pending, regarding the 2010-2013 and 2014-2017 periods. In particular, with regard to the gas transport rates for the 2010-2013 period, with ruling 1840 of March 23, 2018, the Council of State found that Resolution 550/2016/R/gas, with which ARERA recalculated the rates for that regula- tory period, was compliant with the rulings of the Regional Administrative Court and the Council of State in the asso- ciated judgment on the merits. Enel Trade, exercising the option recognized by the Council of State, appealed the aforementioned resolution before the Milan Regional Ad- ministrative Court, claiming that it was illegitimate for rea- sons other than violation of the ruling. Distribution Electricity Distribution and metering e-distribuzione provides distribution and metering services under a 30-year concession set to expire in 2030. The general criteria for the regulation of distribution rates are set by ARERA at the start of each regulatory period based on covering the cost of providing the services, in- cluding operating costs, depreciation and providing an ap- propriate net return on capital. 124 The rate component covering operating costs, established at the start of the regulatory period based on the most re- cent final costs available, is updated annually using a price- cap mechanism, taking account of the inflation rate and an annual rate of reduction of unit costs (called the X-factor), to restore any efficiency gains achieved by operators in previous regulatory periods. The return-on-capital and de- preciation components are instead updated each year to take account of new investments, depreciation incorpo- rated in rates and the revaluation of existing assets using the deflator for gross fixed capital formation. Based on the recognized costs, each year ARERA autho- rizes for each distributor a level of annual revenue (“permit- ted revenue”) by setting reference rates that are different for each company. This revenue is not dependent upon vol- umes distributed owing to the equalization mechanisms, managed by the Energy and Environmental Services Fund, which compensates operators for any differences between permitted revenue and actual revenue received from invoicing sellers, based on the mandatory rates set by ARERA at national level. The rate for the fifth regulatory period (2016-2023) is cov- ered by ARERA Resolution 654/2015/R/eel. This period lasts eight years and is divided into two sub-periods of four years each (NPR1 for 2016-2019 and NPR2 for 2020-2023). The regulatory framework for NPR1 is basically a continua- tion of the past, although with some new features, includ- ing shortening the “regulatory lag” from two years to one for the period before remuneration for new investments is recognized and lengthening by five years the useful life of medium- and low- voltage lines that have entered into service since 2008. For the NPR2 period instead, ARERA proposed an eventual transition to rate regulation based on the no longer distinct recognition of operating costs and investment (the Totex method). ARERA has not yet established the schedule and manner of implementation for this new method. The criteria for setting WACC for electricity and gas infra- structure services were set by ARERA with Resolution 583/2015/R/com for the 2016-2021 period, with an update at the end of 2018 to take account of economic trends. The real pre-tax WACC for electricity distribution for the 2016-2018 period was 5.6%. This amount was updated to 5.9% for 2019-2021 by Resolution 639/2018/R/com. As for distribution and metering rates, in 2018 ARERA ap- proved both the definitive reference rates for 2017, calcu- lated by taking into account the actual balance sheet data Annual Report 2018for 2016 (Resolutions 150/2018/R/eel and 174/2018/R/eel), 72 hours the time limit beyond which automatic compen- and the provisional reference rates for 2018 on the basis of sation to users of power grids for prolonged interruptions the preliminary balance sheet data for 2017 (Resolutions shall be borne entirely by the grid operators. 175/2018/R/eel and 176/2018/R/eel). The definitive refer- Finally, with Resolution 668/2018/R/eel, ARERA estab- ence rates for 2018 are expected to be published by Feb- lished an incentive mechanism for measures to increase ruary 28, 2019 on the basis of actual balance sheet data resilience, which will apply starting from the next 2019- communicated to ARERA at the end of 2017. 2021 Resilience Plan to 2024, for “high-risk” measures (“eligible” measures). The “eligible” measures whose ben- With regard to second generation smart metering sys- efits exceed the costs can receive rewards or be subject tems, with Resolution 222/2017/R/eel, ARERA approved e- to penalties, while “eligible” measures that have benefits distribuzione’s plan for placing the meters in service during that are less than the costs will only be subject to penal- the 2017-2031 period and established the standard cost ties. There is, however, the possibility to fully eliminate the based on which the efficiency incentives will be calculated. effects of the penalties if in the span of the three-year plan Resolution 646/2016/R/eel guarantees that the metering period measures are carried out that involve at least 90% service rates for end users will remain unchanged. of the customers that can take advantage of “eligible” On December 31, 2018 the monitoring of the performance measures. ARERA also – following future consultations – of communication between meters and user devices will introduce regulatory mechanisms that offer incentives (“Chain 2”) required by ARERA was completed. ARERA for quickly restoring the normal operation of the distribu- will conclude by March 31, 2019 the assessments of any tion network following exceptional weather events. technological solutions for the incremental features of the 2.1 version of meters. With Resolution 377/2015/R/eel, ARERA completed the ARERA also issued specific measures to establish the reg- regulatory framework governing losses on the distribution ulatory framework to accompany the various implementa- grid, providing for new conventional loss percentages for tion phases of the plan with reference, for example, to re- deliveries to and withdrawals from the grid to be applied quired disclosures to end users, making the metering data starting in 2016. With Resolution 677/2018/R/eel, ARERA available to the Integrated Information System (IIS) and to confirmed the percentages for 2019 and at the same time transport users, and to the transition to hourly delivery for initiated the process to complete the regulatory frame- the purposes of settlement of services provided using the work governing losses, particularly regarding the equaliza- new meters. tion mechanism for distributors. As regards service quality, ARERA, with Resolution With Resolution 268/2015/R/eel, ARERA established the 646/2015/R/eel as amended, established output-based Model Grid Code for transport services, which governs regulation for electricity distribution and metering ser- the relationship between sellers and distributors concern- vices, including the principles for regulation for 2016-2023 ing the guarantees given by sellers to distributors, the (TIQE 2016-2023) and authorized the start of trials to test payment terms for the transport service and the terms some of the advanced management functions for the dis- of payment of the system costs and other components tribution grid. by distributors to the Energy and Environmental Services With regard to increasing the resilience of the electricity Fund and the Energy Services Operator (GSE). The resolu- transmission and distribution networks, with Resolution tion also provided for the elimination starting from 2016 31/2018/R/eel, ARERA updated the TIQE, ordering the dis- of the uncollectible portions of turnover withheld by dis- tribution companies to prepare their resilience plans with a tributors as a result of the strengthening of the system of horizon of at least three years and to integrate these plans guarantees. into a specific section of their development plans. All the As regards the calculation of the transport service guar- measures identified by the distribution companies must be antees, a number of different administrative court deci- aimed at containing the risk of disruption associated with sions handed down between May 2016 and November the main critical factors that may impact their networks. 2017 voided ARERA’s provisions requiring the inclusion of This provision supplements the measures already intro- guarantees to cover system charges if not paid by end us- duced with Resolution 127/2017/R/eel, which extended to ers in transport contracts between distributors and sellers. 125 Report on operationse-distribuzione decided to challenge the last ruling by the closed distribution systems and basic generation and con- Council of State (Section VI, ruling 5620/2017) before the sumption systems), Resolution 276/2017/R/eel updated the Court of Cassation, where the proceeding is pending. relative codes, adopting the provisions of Article 6(9) of De- In accordance with these decisions, Resolution 109/2017/R/ cree Law 244/2016 concerning general system charges. The eel established a temporary regime involving a 4.9% re- subsequent Resolution 894/2017/R/eel updated the defini- duction in the amount of guarantees for system charges tion of consumption unit and postponed until June 30, 2018 to take account in advance of the average arrears of end the deadline for “hidden end users” to declare themselves. customers (conservatively set at equal to the unpaid ra- In addition, ARERA is continuing its work to rationalize the tio recognized by the Central-South Regions, where the regulatory framework in the context of the recognition of levels of arrears are higher than average). This resolution cases of private networks. With Resolution 530/2018/R/ was appealed by a number of operators and the related eel and the subsequent Resolutions 613/2018/R/eel and proceeding is currently pending before the Milan Regional 680/2018/R/eel, ARERA established the new internal user Administrative Court. network (IUN) and other closed distribution systems (OCDS) ARERA also issued Resolution 50/2018/R/eel, which intro- registers for monitoring “hidden end users”, whose publica- duces a reimbursement mechanism for non-recoverable tion is expected by July 1, 2019. receivables of distribution companies in respect of the With Resolution 628/2018/R/eel, ARERA opened a consulta- general system charges paid to the Energy and Environ- tion concerning the regulation of the exchange of data be- mental Services Fund and the Energy Services Operator tween Terna, distributors and significant grid users - SGU (i.e. (GSE) but not collected by defaulting sellers whose trans- generators, closed distribution systems and high-voltage or port contract has been terminated. The provision permits closed distribution system customers, or customers con- the recognition of receivables accrued as from January nected to distribution grids that provide flexibility services). 2016. This resolution was also challenged by a number of The first phase of the consultation will be completed by operators and a consumer association, and the related pro- March 14, 2019. ceeding is pending before the Milan Regional Administra- tive Court. At present, the Court has issued a decision only with regard to the latter challenge, which was denied. Energy efficiency - White certificates The Energy Efficiency Certificates (EEC or white certificates) Given the rise in breaches by sellers with regard to their failure mechanism is regulated by the MED along with the Minis- to provide adequate guarantees, with Resolution 655/2018/R/ try for the Environment. ARERA is required to establish the eel ARERA intervened urgently to amend the Model Grid criteria and the method for covering distributors’ costs for Code to allow the termination of contracts for transport ser- electricity and gas as entities obliged to satisfy the obligation vices for failure to provide guarantees as to level of revenue. to purchase EECs. Such coverage is guaranteed through the payment of a rate subsidy, the amount of which in €/EEC is As regards the procedures and financial terms for the connec- set annually by ARERA. tion of generation plants to distribution grids, ARERA, with The Interministerial Decree of January 11, 2017 set the new Resolution 581/2017/R/eel, updated the Integrated Grid Con- energy efficiency targets for 2017-2020 and the new guide- nection Code (TICA) in order to implement the simplification lines for the functioning of the mechanism. The Ministerial De- measures provided for in the Ministerial Decree of March cree of May 10, 2018 amended and updated the Interministe- 16, 2017 for the connection and operation of micro-gener- rial Decree, introducing, among other things, a cap of €250/ ation plants powered by renewables. In addition, following EEC on the rate subsidy for obliged entities. the close of the preliminary inquiry provided for by Resolu- tion 412/2015/E/eel, ARERA with Resolution 564/2018/R/eel ARERA Decision 4 of June 22, 2018 set the amount of the further updated the TICA, introducing new rules governing definitive rate subsidy for 2017 at €311.45/EEC. payments for testing conducted by distributors of network With Resolution 487/2018/R/efr, ARERA updated the rules es- plants constructed by generators, recognizing the activities tablishing the rate subsidy under the Decree of May 10, 2018. carried out during the testing by the companies and also pro- Enel filed an appeal with the Regional Administrative Court viding that the estimated payment for testing be adjusted challenging the measures and the corrective decree of May 10, according to the actual activities performed. 2018, disputing the provisions that could jeopardize the recov- As for the regulatory framework for private grids (specifically, ery of the costs incurred in satisfying the efficiency obligations. 126 Annual Report 2018Reform of electricity rates With Resolution 782/2016/R/eel, ARERA fully eliminated, with effect from January 1, 2017, the progressivity of the dis- tribution rate for domestic customers. The resolution provides for the first steps to be taken in 2017 to reduce the effect of progressivity on general system charges. The system charges reform that was expected to be completed by January 1, 2018, with complete elimination of the progressive structure, was extended by ARERA with Resolutions 867/2017/R/eel and 626/2018/R/eel to Decem- ber 31, 2019. With Resolution 922/2017/R/eel, ARERA implemented, start- ing from January 1, 2018, the reform of the structure of the general system costs for non-residential customers provided by Law 21 of February 25, 2016. As part of the reform of the general system costs for non- residential customers, ARERA, with Resolution 921/2017/R/ eel, established the implementing provisions for the grant of concessions for energy-intensive companies, as provided by the MED Decree of December 21, 2017, with effect as of January 1, 2018. Sales Electricity As provided for by Directive 2003/54/EC, starting from ed as of January 1, 2019 the levels of RCV payments, which represent the reference price of the free market sellers. The RCV levels for 2018 were set by Resolution 633/2016/R/eel. Free-market operators are awarded contracts to provide safeguard services on a geographical basis through two- year auctions. For the 2017-2018 period, following the procedure governed by Resolution 538/2016/R/eel, Enel Energia was awarded the areas corresponding to the re- gions of Liguria, Piedmont, Valle d’Aosta, Trentino-Alto Adige, Lombardy, Lazio, Puglia, Molise and Basilicata. For the 2019-2020 period, following the procedure governed by Resolution 485/2018/R/eel, Enel Energia was awarded the areas corresponding to the regions of Calabria and Sic- ily. The financial terms applied to end users were defined on the basis of the provision of the applicable primary and secondary legislation. The annual competition law (Law 124/2017) was approved on August 4, 2017 and was modified by the Decree Law of July 25, 2018; it provided that the electricity and gas sectors of the price protection market would be eliminated as of July 1, 2020. The law gives MED, in consultation with ARERA and the AGCM, the task of establishing the procedures for phasing out the market, ensuring that con- sumers are kept informed and that there is a range of sup- July 1, 2007 all end users may freely choose their electric- pliers. ity supplier on the free market or participate in regulated markets. Law 125/2007 identified these regulated mar- kets as the “enhanced-protection” market (for residential customers and small businesses with low-voltage con- nections) and the “safeguard services” market (for larger customers not eligible for enhanced-protection services). Enhanced-protection service is provided by sellers con- nected with distributors. Prices are set by ARERA and are updated periodically based on criteria designed to ensure that the operators’ costs are covered. ARERA updates the component for covering the opera- tors’ costs in the enhanced-protection market (RCV) annu- ally so as to ensure that their operating costs, delinquency charges and amortization and depreciation are covered and that they receive a fair return on capital. Resolutions 927/2017/R/eel and 706/2018/R/eel established rates for 2018 and 2019. With Resolution 706/2018/R/eel, ARERA also updat- The law also provides for the creation within the MED of a list of electricity sellers that are authorized to sell electric- ity on the retail market, having met certain technical, finan- cial and reputational requirements proposed by ARERA. ARERA, in accordance with the law above, issued Reso- lution 555/2017/R/com, requiring all sellers to include in their portfolios offers at free market prices with conditions equivalent to those of the protected market (PLACET of- fers), targeted at households and small businesses start- ing in early 2018. This was done to make it easier for end users to understand and compare offers and participate in the free market. In addition, to improve understanding of the free market, on July 1, 2018 the offers portal (es- tablished by Resolution 51/2018/R/com, as provided by Law 124/2017) became operational. Sellers are required to make available through the portal all offers targeted at households and small businesses, to ensure that they can be compared transparently with other sellers’ offers. 127 Report on operationsIn 2016, ARERA lent significant impetus to the develop- However, sales companies must also offer a safeguard ment and implementation of the Integrated Information service to their customers (only for residential customers System (IIS). This system was established under Law pursuant to Decree Law 69 of June 21, 2013), together 129/2010 and is designed to manage the flow of informa- with their own commercial offers, at the regulated prices tion between gas and electricity market operators, based established by ARERA. upon a central database of withdrawal points. If there is no company supplying this service, the conti- Through a number of measures ARERA governs various nuity of supply for small customers not in arrears on bill services, gradually centralizing the management of the payments (residential and other uses with an annual con- commercial processes for contract transfer and switch- sumption of less than 50,000 standard cubic meters) and ing, of the indemnification system and of metering data for users involved in providing public services shall be en- for both sectors (electricity and gas) and, for the electricity sured by the supplier of last resort. If the customer is in sector only, the aggregation of metering at hourly with- arrears with bill payments or it is not possible for the sup- drawal points for the purposes of monthly settlement. plier of last resort to provide service, supply continuity is Thanks to the development work carried out, the IIS is ensured by the default distribution supplier selected, like increasingly operating as a central hub for the exchange of the supplier of last resort, through voluntary tenders for information among all system operators and for this rea- geographically-based contracts. son Ministerial Decree 94 of May 13, 2016 designated the IIS as the mechanism for managing the process of billing With Resolution 465/2016/R/gas, ARERA updated the TV license fees through electricity bills. To cover the costs rules governing public tenders for the award of last-resort of managing this process, ARERA Resolution 291/2017/R/ services for October 1, 2016 - September 30, 2018. Fol- eel established the distribution criteria to be used by the lowing the competitive procedures, Enel Energia was Italian Revenue Agency in calculating and paying sellers in designated as supplier of last resort for 7 of the 8 areas the 2017-2018 period the lump-sum grant under the de- involved in the auction (Valle d’Aosta, Piedmont and Ligu- cree for the years 2016 and 2017 only. ria; Lombardy; Trentino-Alto Adige and Veneto; Tuscany, In application of Law 205/2017 (the “Maxi Adjustments Umbria and Marche; Abruzzo, Molise, Basilicata and Pug- Act”, which introduced a two-year period of limitations for lia; Lazio and Campania; Sicily and Calabria) and as default electricity, gas and water supply contracts), ARERA issued supplier in 3 areas out of 8 (Abruzzo, Molise, Basilicata and Resolution 264/2018/R/com establishing for the electricity Puglia; Lazio and Campania; Sicily and Calabria). sector that, in cases of adjustments deriving from multi- With Resolution 407/2018/R/gas, ARERA updated the year corrections by distributors for which the end user rules governing public tenders for the award of last-resort had protested the amount invoiced, the seller may ask the services for October 1, 2018 - September 30, 2019. Fol- distributor to recalculate the amounts relating to transport, lowing the competitive procedures, Enel Energia was with the consequent restitution of amounts previously paid designated as supplier of last resort for 4 of the 9 areas by offsetting them against other amounts owed. involved in the auction (Abruzzo, Molise, Basilicata and Puglia, Lazio, Campania, Sicily and Calabria) and as default With regard to the proceedings initiated on May 11, 2017 distribution supplier in 2 out of 9 areas (Lombardy, Trenti- by the AGCM against Enel SpA, Enel Energia SpA and Ser- no-Alto Adige and Veneto). vizio Elettrico Nazionale SpA for alleged abuse of domi- nant position on the retail electricity market for residential Starting from October 1, 2013, the reform of the finan- and non-residential end users connected to the low volt- cial terms and conditions applied to safeguard customers age grid, please refer to the chapter “Contingent assets entered into force. In this situation, ARERA modified the and liabilities” in the notes to the financial statements. procedures for determining the raw material component, Gas Legislative Decree 164/2000 established that, as from indexing it fully to spot market prices, introduced compo- nents to ensure a gradual transition (including one spe- cifically for the renegotiation of long-term contracts) and increased the component covering retail sales costs to en- January 1, 2003, all customers may freely choose their hance cost-reflectivity. natural gas supplier on the free market. With regard to the raw material (gas) cost component, 128 Annual Report 2018on January 24, 2014, the Regional Administrative Court in service; the deadlines for compliance vary based on the of Lombardy, in the course of an action brought by Enel number of end users. Energia and Enel Trade, voided the resolutions by which In order to enable the application of Law 205/2017 (the ARERA changed the formula for determining (and thereby “Maxi Adjustments Act”), which introduced a two-year reducing) the QVD component for the 2010-2011 and 2011- period of limitations on supply contracts, ARERA Resolu- 2012 gas years. In 2014, ARERA filed an appeal with the tion 683/2018/R/com extended to the gas sector, starting Council of State. In 2016, the Council of State denied the from January 1, 2019, the regulations already in force in the appeal, granting the appeal of Enel Energia and Enel Trade, electricity sector under Resolution 264/2018/R/com. finding the measures were in conflict with the statutorily established principle of the necessary “correspondence between recognized costs and actual costs”. Resolution Renewable energy 737/2017/R/gas, in accordance with the Council of State’s decision, recalculated the value of the raw material for the October 2010 - September 2012 period. With Resolution 32/2019/R/gas, ARERA established the rules governing the manner of handling the amounts owed to operators. With regard to the definition of the component covering natural gas supply rates, ARERA also confirmed, until Sep- tember 30, 2019, the current procedures, with full index- ing to the spot prices reported on the Dutch Title Transfer Facility (TTF), pending the development of greater liquidity in the Italian wholesale markets. The regulatory framework for supporting renewable energy technologies in Italy envisages a range of remuneration systems. Incentives for technologies other than photovolta- ic are awarded through competitive procedures established with Legislative Decree 28/2011, transposing Directive 2009/28/EC, and the associated implementing ministerial decrees of July 6, 2012 and June 23, 2016. The decrees en- visage the use of Dutch auctions and feed-in tariffs, based on the installed capacity and technology. Specifically: > dutch auctions for plants with capacity of over 5 MW; > registries for plants with capacity of less than 5 MW; New regulations for gas settlement were introduced in 2017, providing for the recovery of a share of the costs as- > direct access for wind plants with capacity of less than 60 kW, biomass plants of less than 200 kW and hydro- sociated with grid loss for the previous period (2013-2017) electric plants of less than 250 kW. and all of the costs for the transition period (2018-2019). With Resolution 548/2018/R/gas, ARERA approved the provisions for the almost complete disbursement, by 2018, The above incentive mechanisms will terminate when the indicative cumulative annual cost of the incentives reaches €5.8 billion. At November 30, 2018, the indicative cumula- of the amounts relating to the results of the first adjustment tive annual cost was about €4.7 billion. session (for 2013-2016) due to operators with a credit. A number of operators challenged ARERA’s resolutions and consultations on the adjustment sessions for previous periods and the transition period (2013-2019) before the Lombardy Regional Administrative Court, asking that they be suspended and ultimately annulled. Enel Global Trad- ing has intervened in support of ARERA’s regulation. The With regard to solar generation, the incentive system pro- vided for the application of a number of Energy Accounts, of which Accounts I, II, III and IV (from September 19, 2005 to August 26, 2012) were based on a feed-in premium (a rate premium over the hourly zonal price), while Energy Ac- count V (from August 27, 2012) was based on a feed-in tariff (comprehensive price) and was terminated once a cost of Court denied the requests for suspension and has yet to €6.7 billion was reached on July 6, 2013. set a date for a hearing on the applications for annulment. As from January 1, 2020, under the provisions of Reso- lution 72/2018/R/gas, the new regulations for gas settle- ment will enter into force, providing for the socialization of network losses that are directly sourced by Snam Rete Gas and allocated in the rate. With regard to metering, Resolution 669/2018/R/gas raised to 85% the requirement for distributors with more than 50,000 end users to place G4-G6 class smart meters In March 2018, the new draft decree on all renewables from mature technology was issued; MED still has to notify it to the European Commission for approval in accordance with the state aid guidelines. Under the decree, the develop- ment of renewable resources will be supported through Dutch auctions and registries (for plants of less than 1 MW), assigned through two-way contracts for differences. 129 Report on operationsARERA Resolution 558/2018 - Remuneration of renewable energy plants for non-interconnected minor island Energy Efficiency Law 18/2014 of October 15, 2014 containing urgent mea- sures for growth, competition and efficiency created a Na- tional Energy Efficiency Fund to help achieve energy effi- The February 14, 2017 decree of the MED gave instructions ciency objectives. for gradually covering the electricity needs of the non-inter- Order ETU/257/2018 of March 16, 2018 set Endesa’s contri- connected minor islands with renewable energy. The decree bution to the National Energy Efficiency Fund at €29 million, envisages remuneration for energy generated from renew- corresponding to the energy savings obligations for 2018. able resources related to the cost of the fuel avoided and the In December the Ministry for Ecological Transition initiated launch of pilot projects to integrate renewable resources in the process of drafting the law that sets Endesa’s contribu- the electricity systems of those islands. tion to the National Energy Efficiency Fund for 2019, setting it at €28 million. Iberia Spain Electricity rates On December 22, 2018, Order TEC/1366/2018 was pub- lished, establishing the electricity access rates for 2019, Social Discount (“bono social”) On April 9, 2018 Order ETU/381/2018 was published. It modi- fies the forms used to apply for the “bono social”, which were established with Order ETU/943/2017 of October 6, 2017. Order ETU/381/2018 extends until October 8, 2018 the tem- porary deadline for accrediting electricity users qualified as vulnerable under Royal Decree 897/2017 who are already leaving them unchanged from the existing rates as it did the beneficiaries of the “bono social”. year before. This order suspended the incentives available under Order ITC/3127/2011 until the capacity mechanisms for adapting to European law and therefore to the energy Order TEC/1226/2018 was published on November 21, 2018 in the Official State Gazette (BOE), laying out the percentage contributions for funding the 2018 “bono social”; Endesa’s transition process are reviewed. share is 37.15%. Natural gas rates Order ETU/1283/2017 of December 22, 2018 confirmed the natural gas access rates for 2018, unchanged from the previ- ous year. It also raised the final rates of last resort (TURs) by 5% owing to the increase in the price of raw materials. On June 30, 2018, the TURs for the 3rd Quarter of 2018 were published, increasing by 3.4%. For the 4th Quarter of 2018, the TURs were raised by a further 7.4% compared with the previous period, as a result of the increase in raw material costs. On December 22, 2018, Order TEC/1367/2018 was published, establishing the natural gas access rates for 2019, leaving Public consultation of the National Commission on Markets and Competition (CNMC) on the rate of return for regulated activities On July 27, 2018 the Spanish National Commission on Mar- kets and Competition (CNMC) opened a public consulta- tion on the method for calculating the rate of return for the 2020-2025 period for distribution and transmission activi- ties and for the extra-peninsular electricity system and re- newables system. Subsequently, CNMC issued a report on October 30, 2018 in which it proposed a return of 5.58% for distribution, transmission and extra-peninsular systems, them unchanged from the existing rates. Instead, on Decem- and 7.09% for renewables. ber 26 the final TURs as of January 1, 2019 were published, lower on average by about 4% compared with the previous period because of the decline in the cost of raw materials. Based on this report, on December 28 the Ministry for Eco- logical Transition presented a draft law containing these rates of return for the 2020-2025 period. However, for renewable installations benefitting from incentives prior to Royal De- cree Law 9/2013, the return cannot be revised during the 2020-2031 period, but rather the current rate of 7.389% will apply, while they can deduct indemnities awarded in arbitra- 130 Annual Report 2018tion already concluded. The installations, however, can opt raised to €15 million, of which €7 million to Endesa. The out of this regime and adopt the general scheme. Royal Decree establishes that this method be used for any Following the presentation of the draft law, the government deficit that arises in the future. approved Royal Decree Law 1/2019, laying out in detail the determination of the rate of return. Law 6/2018 of July 3, 2018 on the State budget Royal Decree Law 15/2018 of October 5, 2018, containing urgent measures on energy transition and consumer protection Law 6/2018 concerning the 2018 State budget was pub- On October 5, 2018, the Council of Ministers approved lished on July 4, 2018. Among other things, for 2018 the Royal Decree Law 15/2018, establishing a set of measures budget law contemplates allocating the surplus revenue of to accelerate decarbonization, giving momentum to renew- the electricity system to paying indemnities for resolving ables, e-mobility and energy efficiency and ensuring greater disputes in the sector. At the same time this surplus can protection for consumers. be allocated for an unspecified period of time to pay down The first block contains measures for protecting vulner- the debt of the electricity sector or, alternatively, it can be able consumers, in particular it expands the pool of those used towards paying the system’s regular liquidation items. eligible for the “bono social”, including single-parent house- In addition, this law contains a provision whereby there is holds or those with a large number of dependents who are no longer need for a decision on the compatibility of invest- below certain income thresholds. In addition, it broadens ments in extra-peninsular installations with EU or national the number of cases in which service cannot be suspended legislation, provided that the installations are necessary to for delinquent payments, with means of funding analogous ensure an efficient supply. to those for the “bono social”. Furthermore, it introduces a Order TEC/1158/2018 of October 29, 2018, assigning the additional remuneration scheme to certain installations in the extra-peninsular systems In accordance with Law 6/2018 and given the need for capac- ity in each extra-peninsular system identified by the System Operator (REE) in its reports, Order TEC/1158/2018 of Octo- ber 29, 2018 was published, assigning an additional remuner- ation scheme to certain installations in Gran Canaria, Tenerife and Menorca, based on the investment that must be made in compliance with applicable environmental regulations. Royal Decree 1048/2018 of August 24, 2018, on the electricity system deficit for 2013 On September 1, 2018, Royal Decree 1048/2018 was pub- lished, changing the method for calculating the interest to be paid on the financing for the 2013 rate deficit, such that this interest is calculated starting from when the cor- responding payments are made, and not just starting from January 1 of the following year. The total amount to the paid to the agents that financed the 2013 rate deficit has been “thermal” “bono social” for heating costs, which will be funded through the State budget. This Royal Decree Law calls for a national strategy to battle energy poverty to be approved within six months. On De- cember 19 the Ministry opened a public consultation on this issue. The second block of measures aims to give consumers more options, for example by increasing the flexibility on choosing contracted capacity. A third block of measures seeks to boost self-consump- tion, simplifying access to it and making collective self- consumption possible, and eliminating the application of the rates on self-consumption generated by renewables, cogeneration or waste. Measures were also introduced to simplify the bureaucracy, especially for small installations. The fourth block of measures aims to increase the penetra- tion of renewables and e-mobility. They extend until March 31, 2020 the licenses for entry into service of renewable capacity awarded before Law 24/2013, which would have otherwise expired on December 31, 2018. With regard to e-mobility, it eliminates the gestor de carga, or e-mobility manager, to make it easier to develop e-mobility services. Finally, the Royal Decree Law contains fiscal measures, which, for example, suspend the tax on the value of pro- duction for electricity for the 4th Quarter of 2018 and 1st Quarter of 2019, and it eliminates the special tax on hydro- 131 Report on operations carbons for electricity generation. To ensure in all cases laid down in EU law, specifically the Third Energy Pack- that the system is sustainable, the higher revenue from age of 2009. the CO2 emission rights auctions will be used, as will the accumulated surpluses of the electricity system. Under the Royal Decree Law, the CNMC is responsible for approving the structure, method and concrete values Royal Decree Law 15/2018 was ratified on October 18, of the rates for accessing the electricity and natural gas 2018 by the Congress of the Deputies. transmission and distribution grids and LNG facilities, and Order TEC/1380/2018 of December 20, 2018, establishing the basis for granting aid to renewable installations On December 25, 2018, Order TEC/1380/2018 was pub- lished, establishing the basis for granting aid for investment in extra-peninsular wind and photovoltaic plants, co-funded by the European Regional Development Fund (ERDF). On December 27, 2018, the Spanish Institute for Energy Diversification and Saving (IDAE) approved a resolution to hold auctions to grant aid for investment in wind plants in the Canary Islands with a budget of €80 million for a maximum capacity of 217 MW. Royal Decree Law 20/2018 of December 7, 2018, containing urgent measures for financial competitiveness in industrial and commercial sectors in Spain the rates of return for grid operators and electricity and gas system operators, up to the maximum limits set by the government. As for distribution and transmission, the maximum lim- its set by the government refer to the average rates of returns on 10-year government bonds over the last 24 months, plus a spread. Instead, regarding extra-penin- sular generation, the regulated rate of return will be set directly by the government, still based on the return on 10-year government bonds. The Ministry for Ecological Transition will also approve a series of energy policy guidelines that the CNMC must follow, regarding matters such as energy supply security, the economic and financial sustainability of the system, the battle against climate change, the management of demand and rational energy use. The Ministry will have one month to approve CNMC’s circulars and can seek the assistance of a cooperation committee to resolve any dif- ferences. The CNMC’s new functions will take effect starting Janu- ary 1, 2020. This Royal Decree Law, published on December 8, 2018 in the Official State Gazette (BOE), seeks to stimulate Renewables competition in the industrial sector through actions that include reducing the cost of energy. Specifically, the Roy- al Decree Law introduces closed distribution systems, which already exist under EU law, and announces that a statute will be drawn up for energy-intensive industrial customers that takes into account their special needs. This law also calls for extending by two years the life of certain high-efficiency cogeneration plants. In the 2017 renewable energy auctions, Enel Green Power España was awarded 540 MW of wind energy and 338 MW of photovoltaic power. The auction rules established dates before which the possible projects had to be speci- fied, indicating 50% more than the capacity allocated, through which the capacity would be developed. These dates were February 4 and April 13, 2018, respectively. Enel Green Power identified the projects by these dead- Urgent measures to bring the powers of the Spanish National Commission on Markets and Competition (CNMC) in line with EU law Royal Decree Law 1/2019 was published on January 12, 2019, with the purpose of bringing the powers of the na- tional regulator (CNMC) into line with the prerogatives lines. After conducting a public consultation in 2017 on new regulations for access and connection to networks, at the end of the 1st Half of 2018, the government started the procedures for the approval of the regulation. Since the beginning of June, after the no-confidence vote of the People’s Party, Spain has a new government. Dur- ing June, the new government focused mainly on orga- nization without taking any action relevant to the renew- ables business in Spain. 132 Annual Report 2018At the start of October, the Spanish government published plan that ensures the supply of electricity throughout the a Royal Decree Law setting out a variety of measures for country. The main points of the decree concern: the electricity sector, including: protection for the most > the development of centralized electricity systems, in- vulnerable consumers; measures for the financial stability cluding the modernization of thermal, hydroelectric and of the electricity system; measures to facilitate self-con- nuclear power generation on the basis of the demand sumption of electricity; measures for installing charging created through socio-economic development; stations and for renewable. > the development of distributed generation including re- Specifically, regarding renewables, the Royal Decree Law newable sources, mainly in distant and isolated regions; contains measures to extend the period of validity of ac- > the digitalization and the introduction of smart systems cess licenses and grid connections of some projects from for grid management. past auctions. It also includes measures to stop specu- The draft decree concerning incentive schemes for modern- lation with grid connection points for new-generation re- izing and modifying the capacity market rules was complet- newables. It also includes measures to facilitate demand ed on December 14, 2018, agreed between the ministries for new connection points for renewables at substations and approved by the Deputy Prime Minister for Energy. The that have no difficulties with expansion. Finally, it also ex- signature of the Prime Minister and the official publication empts generators from paying the rate on the value of are expected to occur at the end of January 2019. production under Law 15/2012 (7%). The extension ap- The implementing decrees for holding the capacity market plies to the three final months of 2018 and the first three auctions were adopted by the Market Committee and will months of 2019. enter into force as of the date of issue of the decree. In the 2nd Half of 2018, the government began the pro- The first auction, for projects intended to enter into service cess of reviewing the reasonable rate of return for renew- in 2022-2024, is scheduled to be held by March 1, 2019, ables for 2020-2025. CNMC presented its proposal and, before the long-term capacity auction (KOM 2022-24). based on it, the government began to draw up a prelimi- The main conditions of the auction are: nary draft law, which should become law in 2019. > definition of maximum volumes (2.4 GW for 2022, 3.2 Furthermore, in the 2nd Half of 2018, the government GW from 2023 onward) and approval of the CAPEX ceil- worked on drafting the Integrated National Energy and Cli- ings based on the types of modernization projects by the mate Plan. However, on December 31, 2018 the draft had government (based on installed capacity and type of fuel); not yet been submitted to the European Commission. The > selection of projects on the basis of the minimum lev- government has, in various public acts, stated parts of its elized cost of energy (LCOE); the pre-qualification and target for the penetration of renewables in Spain by 2030 localization requirements apply 100%; with respect to the total percentages for Europe. > conditions for capacity-supply contracts (DPMs): payment In addition, the government is working on a number of guaranteed for 16 years with prices such to ensure the proposals on energy transition, but nothing had been for- repayment of CAPEX and OPEX costs with a fixed return malized as of the end of 2018. (base WACC = 14%) linked to long-term government se- Europe and Euro- Mediterranean Affairs Russia Electricity and capacity market On May 18, 2018, the presidential decree concerning the achievement of the national economic development targets by 2024 was published. The decree calls for the government to approve by October 1, 2018 an infrastructure development curities (base return of 8.5%). For the first 12 months that a plant enters into service, only repayment of OPEX is envisaged. The return will be revised after the first auction based on analysis of the impact of the final rates. In addition to incentives for modernizing plants, changes were made to the normal procedures for capacity market auctions: > selection of 6-year projects. A tender for capacity for the 2022, 2023 and 2024 will be held by May 1, 2019 and a tender for capacity for year 2025 by November 15, 2019; > indexing of the parameters of the demand curve set in 2017 based on the CPI (2017, 2018) + 15% for 2022 and 2023; CPI (2017, 2018) + 20% for 2024 and 2025; starting 2020 only annual indexing based on the CPI. 133 Report on operationsSmart metering On December 27, 2018, Federal Law 522-FZ was published regarding smart meters. The law requires that smart meters be installed starting June 1, 2020 in public building by “guar- anteed” suppliers and for other consumers by distribution system operators (DSOs). According to the law, the costs of replacing obsolete meters will be included in the rates charged by the guaranteed suppliers and by the DSOs. Romania Supplier of last resort Beginning on July 1, 2018, Enel Energia and Enel Energie Muntenia have been appointed obligated suppliers for Enel distribution areas. Enel Energie Muntenia was appointed by regulator ANRE as an alternative supplier for the other were raised by 1% on average nationally, in nominal terms. The main differences compared with the rules for the pre- ceding period are: > the rate of return of the regulatory asset base (RAB) was lowered from 7.7% to 5.66% (6.66% for new invest- ments); > assets no longer in use or shared with other business activities beyond that of distribution have been reduced by the starting RAB; > personnel and security costs are taken out of the incen- tive mechanism for operating costs, and therefore are treated as a clearing entry; > it sets a ceiling of 5% on the efficiencies achievable by distributors, net of the personnel costs above; > all costs are adjusted annually and not at the end of the regulatory period. five distribution areas. New maximum prices have been ap- Renewables proved for universal service, with an average increase of 3% at the national level compared with the prices valid for the 1st Half of the year. Smart metering In June 2018, amendments to the Energy Act were intro- duced. By January 1, 2024, smart meters will be installed for prosumers and customers with consumption levels above a threshold to be set by ANRE. In October 2018 ANRE pub- lished the method for the full roll-out through 2028, enabling distributors to draw up detailed investment plans. The criteria for the approval of the roll-out plans are based on the results of the smart metering pilot projects conducted in 2014-2016 and on the investments made in 2017-2018, as well as the ratio between the economic value of the smart metering projects and the total annual investment plan of the distributors. ANRE will publish the calendar for the roll- out for each distributor and will modify it annually. By April 30 of each year, it will also publish a report on the status of the smart metering implementation as at December 31 of the preceding year. Distribution rates - 4th regulatory period In September 2018, ANRE published the method for calculat- ing the distribution rates for the 4th regulatory period (2019- 2023). During the first year of the period, the distribution rates In June, Parliament approved GEO 24/2017, which amends the regulations governing renewable resources. The main changes include: > the value of green certificates financed by end users in- creases from €11.1/MWh to €12.5/MWh from 2022 and can subsequently be further amended by the regulatory authority; > green certificates contracted on the spot market for the same price will be transferred by sellers on a prorated basis in accordance with demand; > without prejudice to bilateral green certificate transfer contracts concluded before April 2017, at least 50% of green certificates must be purchased by the obligated parties on the anonymous spot market; > generators with plants of up to 3 MW can only conclude bilateral contracts for the sale of power and/or green cer- tificates with final sellers; > generators will be able to aggregate their output in order to participate in the electricity market; > renewable energy stored in battery systems will be eli- gible for green certificates. Under the same legislation, renewables generators with an installed capacity of up to 27 kW are entitled to offset electric- ity generated with that purchased from their supplier. The sale price shall be equal to the weighted average of the spot pric- es for the previous year, i.e. to RON 22.7 bani/kWh for 2018. Generators are exempt from taxation of the power generated. Government Emergency Order 114 of December 28, 2018 introduced: 134 Annual Report 2018 > an increase in the annual tax on energy companies, rais- ing it from 0.1% to 2% of the previous year’s revenue; > the mandatory sale of a portion of the electricity gener- ated on the regulated market for households. In addition, a change in the national tax regulations requires that wind towers be considered buildings and as such are subject to a tax of up to 1.3% of their value starting in 2019. United Kingdom Capacity market Bulgaria Last May 2018 an amendment to the renewables regulations was approved. Starting from January 1, 2019, the change provides for the replacement of the current feed-in tariff for plants larger than 4 MW with a feed-in premium financed through the sale of electricity on the Independent Bulgarian Exchange (IBEX) spot market, supplemented by the Security of the Energy System Fund. Turkey On November 15, 2018, the General Court of the European The regulator postponed the start of the pre-qualification Union annulled the European Commission’s decision of July phase for the wind auctions for volumes of 2 GW (Turkish 23, 2014 that authorized the aid scheme for the electricity ca- Electricity Transmission Company - TEIAS bids) to April 2020. pacity market in the United Kingdom. According to the Court, The government cancelled the YEKA (Renewable Re- the Commission should have had doubts as to the compat- source Area) auction for 1,200 MW of offshore wind ibility of the UK’s measure with EU rules and, therefore, it power scheduled for October 23, 2018. should have initiated the formal investigation procedure in or- The government cancelled the YEKA-2 auction for 1 GW der to allow interested parties to submit their observations. of photovoltaic power scheduled for January 31, 2019. As a result of the annulment, the European Commission On November 7, 2018 the government announced the plans to initiate the investigation required by the Court and next YEKA auction for 1 GW of wind power, scheduled must carry out a new assessment of the English measure for March 7, 2019. in light of any observations that may be proposed by inter- The government introduced a regulation that allows house- ested operators. Greece holds to install systems for generating electricity from re- newables with installed capacity of up to 10 kW without the need for a generation license. In addition, they can sell excess electricity produced to the supplier of last resort. From January 1, 2017 new renewables capacity must par- ticipate in public auctions to access the support mechanism based on a “feed-in premium” system. The first two auc- Germany tions held in 2018 (July and December) are part of the plan On June 8, 2018 the Parliament approved an amendment to to develop additional wind and photovoltaic capacity for a the renewables regulations (EEG 2014), which requires until total of 2.6 GW between 2018 and 2020. The total capacity June 1, 2020 local communities as well to participate in re- awarded in 2018 was 331 MW of wind capacity and 169 MW newables auctions with authorized facilities only (BImSchG). of photovoltaic capacity. The Germany energy law (Energie-Sammelgesetz) was In October 2018 the Ministry of Environment, Energy and published on December 17, 2018, modifying various regula- Climate Change opened a public consultation on the nation- tions in the energy sector. Among the changes were the al energy and climate plan (NECP) in which, among other introduction of additional renewable auctions for the 2019- things, the Greek government indicates its commitment 2021 period for volumes totaling 8 GW (4 GW for wind and having at least 30% of national energy consumed from re- 4 GW for photovoltaic). newable resources and at least 55% of electricity produced from renewables. Law 4513/2018 promotes the creation of so-called “energy communities” for the production, distribution and supply of energy locally. It contains specials provisions for, among other things, the development of self-consumption, energy storage and charging stations for electric vehicles. South America The Group operates in South America in Argentina, Brazil, Chile, Colombia and Peru. Each country has its own regulatory framework, the main features of which are described below 135 Report on operationsfor the various business activities. Under the regulations es- Eléctrico Mayorista) limited increases in the Valor Agrega- tablished by the competent authorities (regulatory authorities do de Distribución (VAD), the distribution rate, with spe- and ministries) in the various countries, operators are free to cific instructions to ENRE. The new value for this rate make their own decisions concerning investment in genera- component took effect on February 1, 2017 but invoicing tion. Only in Argentina, following the change in energy policy of the amount is initially limited to a maximum of 42% of in recent years, is there a regulatory framework that envisages the total. Invoicing of the full amount was only possible as greater public control of investments and a model for remuner- from February 1, 2018. ating activities that is evolving towards a remuneration model The rules also establish that ENRE shall pay Edesur and based on average cost. In Brazil plans for new generation ca- Edenor the portion already accrued and not invoiced be- pacity are imposed by ministerial order, and this capacity is tween February 1, 2017 and February 1, 2018 in 48 install- developed through auctions open to every representative. ments as from February 1, 2018, which will be incorpo- All of the countries have a centralized dispatching system rated in the value of the VAD to be invoiced subsequently. with a system marginal price. Usually, the merit order is cre- The new rules also provide for updating the rates of distri- ated based on variable production costs that are measured bution companies on the basis of inflation and criteria for periodically, with the exception of Colombia, where the merit service quality and regulation of supply. order is based on the bids of market operators. Currently in Argentina and Peru, regulatory measures are in place governing the formulation of the spot market price. In Argentina, regulators are working to ensure greater sustain- ability in the electricity market, increase the efficiency of that market and implement a sweeping rate revision to enable operators to meet their cash needs and resume mainte- nance of power stations and networks. Long-term auction mechanisms are widely used for whole- New regulations on natural gas generation On March 7, 2018, with Decree (PEN) 187/2018, the govern- ment published the new organizational chart for the Ministry of Mining and Energy. As a result of Ministerial Resolution 64/2018, the functions of the Secretariat for Electric Energy were transferred to the new Undersecretariat for Electric En- sale energy and/or capacity sales. These systems guarantee ergy (SSEE). continuity of supply and offer greater stability to generation companies, with the expectation that this encourages new Resolution 46 was published on August 1, 2018 and it re- duced the average price of gas to be used for electricity gen- investments. Long-term sales contracts are used in Chile, eration from $5.20 to $4.20 per MMBtu. Brazil, Peru and Colombia. In Brazil, the price at which elec- tricity is sold is based on the average long-term auction pric- In addition, it makes the SSEE responsible for launching a tender to estimate the gas to be allocated to generation at es for new and existing energy. In Colombia, the price is set the maximum price established. by auction between the operators, which usually enter into medium-term contracts (up to four years). Finally, a regula- tory framework recently introduced in Chile and Peru allows distribution companies to sign long-term contracts to sell electricity on regulated end-user markets. Chile, Peru and Brazil have also approved legislation to encour- age the use of unconventional renewable resources, which For this reason, the SSEE instructed CAMMESA, the whole- sale electricity market operator, to purchase natural gas un- der revocable and non-revocable conditions through the elec- tronic gas market (MEGSA) to supply thermal generation. Finally, the tender was held to award revocable contracts for the September-December 2018 period. The average price bid was $3.69 per MMBtu, about 13% lower than the price set sets out the objectives for the contribution of renewable re- by Ministerial Resolution 46. sources to the energy mix and governs their generation. Argentina Rate revision and other regulatory developments in 2018 On November 7, 2018, Resolution 2018-70-APN-SGE was published in the Official Journal. It enables generators, co- generators and self-generators in the Mercado Eléctrico May- orista to autonomously procure fuel to generate electricity. Initially the rules applied to natural gas and allowed genera- tors to obtain an additional margin by using the fuel in the case in which the purchase price for gas was lower than that Under the new rate system, provided for under Resolu- set by CAMMESA. tion 64/2017, the wholesale electricity market (Mercado This resolution also contains a grant for the variable cost of 136 Annual Report 2018production (CVP) based on recognized rates. CAMMESA is consumption level of each customer as from 2018. Initially, therefore responsible for continuing to supply fuel to gen- the new rate applies to consumers with low-voltage connec- erators that do not purchase their own. tions (127, 220, 380 or 440 V, group B) and new customers. In December 2018 the authorities authorized the export of As from January 2020, it will be an option for any consumer, natural gas, establishing a new export licensing procedure. with the exception of those who already benefit from certain The surplus is the result of the increased availability of natu- preferential rates. ral gas from the Vaca Muerta gas field. The above regulation establishes the following concerning The exports authorized have been sent to Chile and Bra- the application of the white rate: zil for a total volume of 479,250,000 cubic meters, under > it shall apply starting from January 2018 for customers revocable terms: until 2020 to Chile and up to 600 MW of who consume more than 500 kWh/month and for new electricity production to Brazil. connections; Renewables In September 2018, the Undersecretariat for Renewable En- ergy presented the third cycle (Ronda 3) of the RenovAr pro- gram, known as MiniRen, the main characteristic of which is the use of the capacity available in the medium-voltage grid and the promotion of regional development in the country. The RenovAr MiniRen program offers 400 MW of capacity for the entire country, to be connected to the 13.2 kV, 33 kV and 66 kV medium-voltage grids. The maximum capacity allowed for the project is 10 MW, while the minimum is 0.5 MW. As for the contractual portion, the winning projects will sign a Power Purchase Agreement with wholesale market operator CAMMESA, in the same way as the previous cycles, and a contract with trust fund FODOR to guarantee three months of invoicing for contracted projects. > it shall apply starting from January 2019 for customers who consume more than 250 kWh/month; > it shall apply to all customers after 2020; > applying this rate option, the cost of electricity is calculated by dividing the day into peak, intermediate and low con- sumption hours, and applying the rates approved by AN- EEL following the periodic revisions with distributors; > economically disadvantaged customers and public illumi- nation projects cannot opt for the white rate; > the cost of the meters is borne by the distributors, expect for those that have special additional features; > any adjustments of technical installations to connect them to the electrical grid must be borne by the customer/owner. Date of the rate revision for Enel Distribuição Goiás changed from October 2017 to October 2018 The Ronda 3 program was initiated in October with the pub- ANEEL approved Enel’s request to change the date of the lication of the specifications and will continue from March rate revision for 2018 for Enel Distribuição Goiás following a 2019 with the presentation of the bids, the qualification pro- public hearing. The decision was made for the rate revision cess, the awarding and the signature of contracts that will to take place in October 2018 and subsequently every five conclude in July 2019. A total of 82 out of 88 projects were signed for 1,969.1 MW for the second cycle (Ronda 2). Brazil White rate On September 12, 2016, the regulator ANEEL approved Regulation 733/2016 establishing the conditions for ap- plying the new hourly rates for low-voltage power, the so- called “white rate”. The white rate is a new hourly rate option that changes de- pending on the time of day and differs on the basis of the years. The new reference date for investments to be incor- porated in the rate was moved to April 30, 2018. Rate revision for Enel Distribuição Rio On March 13, 2018, ANEEL approved the fourth provision- al rate revision for Enel Distribuição Rio, with effect from March 15, 2018, following the assessments and evidence presented during public hearing 078/2017. This means an average increase of 21.04% for consumers given that rates have risen by 19.94% for high-voltage cus- tomers and by 21.46% for low-voltage customers. In addi- tion, the T-component of the X-factor was set at 0.00% and technical losses at 9.1%. 137 Report on operationsRate revision for Enel Distribuição Ceará SA Public charging stations must be compatible with all con- nection standards to enable communication, monitoring and remote control. On April 17, 2018, ANEEL approved the provisional rate revi- sion for Enel Distribuição Ceará with effect from April 22, 2018. This means an average increase of 4.96% for consumers Electric vehicle recharging stations must comply with the rules and standards set by the distributors, as well as those established by the competent official bodies, including AN- given that rates have risen by 7.96% for high-voltage custom- EEL regulations. ers and by 3.8% for low-voltage customers. Rate revision for Enel Distribuição Goiás SA On October 16, 2018, ANEEL approved the provisional rate Electric vehicles are prohibited from delivering electricity to the grid and, as a result, participate in the electricity re- muneration system (Resolution 482). Public hearing 60/2018 revision for Enel Distribuição Goiás with effect from October ANEEL decided to open a public hearing to gather further 22, 2018. comments and information to enable it to complete the regu- This means an average increase of 18.54% for consumers lation for monitoring the measurement, extraction and pro- given that rates have risen by 26.52% for high-voltage cus- cessing of data from low-voltage meters. The final date for tomers and by 15.31% for low-voltage customers. receiving comments and information was February 18, 2019. Rate revision for Enel Distribuição São Paulo (formerly Eletropaulo) Public hearing 46/2018 The first phase of public hearing 46/2018 was held be- On July 4, 2018, ANEEL approved the provisional rate revi- tween October 4 and December 3, 2018 with the purpose sion for Enel Distribuicão São Paulo with effect from Octo- of gathering further comments and information to enable ber 22, 2018. it to complete and revise the regulations on the continuity This results in an average rate increase of 16.4% com- of electricity supplies and to encourage improvement in posed of an economic adjustment of 10.5% and a financial service quality by addressing the following points: adjustment of 5.9%. > formulation of indemnities to be paid to customers for This means an average increase of 15.8% for consumers service interruption; given that rates have risen by 17.7% for high-voltage cus- > rate revision; tomers and by 15.1% for low-voltage customers. > structuring of service continuity indicators. Electric vehicle charging The second phase of the public hearing will be conducted in the 1st Half of 2019. With Resolution 819 of 2018, ANEEL set rules for the re- charging of electric vehicles. Decree 9642 of December 27, 2018 Distribution companies can autonomously install public ANEEL prohibited the application of a cumulative discount charging stations for electric vehicles in their concession rate, instead requiring that the most advantageous rate for areas, classifying them in the most appropriate rate cate- the consumer be charged. gories (group rates for high- and medium-voltage consum- ers or group B3 rates for low-voltage consumers). Operating charging stations can generate revenue that de- Renewables rive from setting freely negotiated prices under the terms ANEEL conducts different auctions for each kind of technol- and conditions specified for the performance of ancillary ogy, taking into account the development and investment activities provided for by Resolution 581/2013. plan prepared by the Energy Research Company (EPE), Customers intending to install private charging stations which is responsible for their planning, in order to reach the must notify the distributor in advance to allow it to make objective capacity targets for non-conventional renewable any necessary adjustments to the utility connections. energy plants. 138 Annual Report 2018Chile Electricity distribution 2018 Regulatory Plan With Exempt Resolution 20 of January 12, 2018, in accor- Development plan for the electricity transmission grid - 2018 In the course of the annual transmission planning for 2018, CNE invited all interested parties to take part in the phase for presenting proposals for projects to expand transmis- dance with the provisions of Article 72-19 of the law on sion, which will last until April 30, 2018, in accordance with general electricity services, regulator CNE published its the provisions of Article 91 of the electricity law. The invita- annual work program for the preparation and development tion states that proposals can be submitted up to April 30, of the technical resolutions corresponding to 2018. The 2018. Once the phases of the process were completed, on document sets out the general guidelines and program- November 14, 2018, CNE published a preliminary technical ming priorities for CNE’s 2018 regulatory work plan and report that contains the annual expansion plan for transmis- the suspended regulatory procedures from the 2017 plan, sion corresponding to the year 2018. which will continue to be developed in 2018. 2019 Regulatory Plan With Exempt Resolution 790 of December 10, 2018, in ac- 2018-2022 Energy Plan With its publication in the Official Journal of April 10, 2018, cordance with the provisions of Article 72-19 of the law the Energy Ministry approved the long-term energy plan on general electricity services, regulator CNE published its for the 2018-2020 period. This corresponds to the first en- annual work program for the preparation and development ergy planning process under the provisions of Law 20936. of the technical resolutions corresponding to 2019. The This plan, which is non-binding, must be updated every five document sets out the general guidelines and program- years, in accordance with Article 83 of the electricity law. ming priorities for CNE’s 2019 regulatory work plan and the suspended regulatory procedures from the 2018 plan, which will continue to be developed in 2019. Rules published in 2018 Law 21076/2018 - Requirements concerning the removal and replacement of meters On February 27, 2018, Law 21076 was published in the Of- The following rules were published in 2018 in the Chilean ficial Journal, modifying the electricity law to require distribu- electricity sector: tors to pay for the removal and replacement of meters in the > rules for the group of experts: on January 5, 2018, the Ener- event they become unusable for reasons of force majeure. gy Ministry published new rules for the group of experts in The sole article of the law states that meters are part of the the Official Journal. The scope of these rules is to establish distribution network and that ownership will be modified to the provisions for the operation, financing and powers of the extent that the meters are modified based on the re- the group of experts, as well as the procedures necessary quirements of the electricity grid. for its proper functioning; > rules for the electricity coordinator: on April 3, 2018, the En- ergy Ministry approved the rules for the independent co- ordinator of the national electricity system. The purpose of Determination of the transmission rates for the 2020-2023 period these rules is to establish the provisions for the organization, As part of the process for setting the transmission rates composition and functioning of the independent coordinator for the 2020-2023 period, the transmission services quali- of the national electricity system, as well as the necessary fication processes, the determination of the useful life of procedures for the proper performance of its functions; transmission plants and the establishment of technical and > rules for the security of ancillary services and the storage administrative databases for analyzing enhancements for and distribution of electricity: on June 12, 2018, the Minis- transmission plants are all currently under way. try of Energy approved the security standards for plants for For the purposes of the qualification process for transmis- generation, transport, provision of ancillary services, stor- sion services for the 2020-2023 period, CNE issued Exempt age systems and distribution of electricity. Resolution 771 of December 29, 2017 containing the pre- 139 Report on operationsliminary technical report in which it identifies transmission ing. The formalization of the definitive databases is subject plants by segment (national, zonal and dedicated). Interested to the completion of the qualification process for the plants parties (duly listed in the register of citizen participants) sub- indicated above. mitted comments on this report in early January 2018. Sub- sequently, CNE issued the final technical report with Exempt Resolution 123 of February 13, 2018. Upon completion of Peru the phases indicated in the regulations, interested parties will present their objections before the group of experts in a Regulatory changes in 2018 public hearing. During this process, the group of experts requested addi- tional information from CNE within the framework of analyz- ing and studying the discrepancies presented. As a result of Supreme Decree 005-2018-EM modified Supreme Decree 026-2016-EM to make clearer certain aspects relating to participation in the wholesale market (MME), guarantees to be pledged, cases of non-compliance, withdrawal or exclu- this request, CNE found inconsistencies in the application of sion of participants from the MME. the method for qualifying structures, for which it began an administrative procedure to invalidate that process. On Sep- tember 4, 2018, CNE published Resolution 613, with which it invalidated the phases already carried out, rejecting the pre- Supreme Decree 017-2018-EM established a rationing sys- tem in emergency situations involving the procurement of natural gas; an emergency is defined as the total or partial lack of natural gas on the domestic market and is officially liminary technical report published. Therefore, on October 5, declared by the Ministry of Energy and Mining. 2018, CNE published a new preliminary technical report with Resolution 673, which incorporated the observations of the registered interested parties. Subsequently, with Resolution 761 of November 21, 2018, CNE issued the final technical re- port on the qualification of transmission systems structures Supreme Decree 022-2018-EM (amended by Supreme Decree 026-2018-EM) modified the rules governing the tender for electricity procurement approved by Supreme Decree 052-2007-EM in order to establish how to evaluate proposed modifications to the contracts resulting from any for the 2020-2023 period. Upon completion of the phases of bids made in public auctions. the process, the interested parties submitted their observa- tions to the group of experts. With Resolution 212 of March 15, 2018, CNE issued a prelimi- nary report on the process for determining the useful life of transmission installations. Interested parties (duly listed in the register of citizen participants) submitted their observations and participated in the gap analysis process with the group of experts. On June 5, 2018, CNE approved the final techni- Unregulated customers market: rate revisions In Peru, distribution rates (Valor Agregado de Distribución - VAD) are set every four years. However, the most recent period lasted five years since a year was needed to imple- ment the reforms approved in 2015 with Legislative De- cal report that established the useful life with Resolution 412. cree 1221. Finally, in order to establish the technical and administrative databases for analyzing enhancements for transmission plant, CNE published preliminary technical and administrative data with Resolution 769 of December 29, 2017. More generally, In 2018, the process for setting the VAD for Enel Distri- bución Perú for the 2018-2022 period was completed. In general, once rates are set, the annual revenue received from the company prior to the start of the process, which this document sets out the process for defining transmission corresponded to 2013-2107, is maintained. rates and lays down the rule that has to be applied identifying two areas: one national and one for zonal plants and dedicat- ed structures. In accordance with the law, interested parties (duly listed in the register of citizen participants) submitted their requests and observations concerning the drafting of the document in early January 2018. Subsequently, CNE is- sued Resolution 124 of February 13, 2018 containing its final technical report. Upon completion of the phases indicated in the regulations, the interested parties presented additional observations to the group of experts through a public hear- Colombia Regulatory changes in 2018 In February, Resolution CREG 030 of 2018 was issued, which set out a simplified authorization process for small-scale self- producers (up to 1 MW), large-scale self-producers (up to 5 MW) and distributed generators (defined as 0.1 MW) that use non-conventional renewable energy sources (FNCER). 140 Annual Report 2018March 2018 saw the issue of Ministry of Mining and En- ergy Decree 0570 of 2018, on the basis of which the long- North and Central America term public policy guidelines for the use of energy were decided. The objectives of the decree are: to strengthen United States the resilience of the generation matrix through risk diver- sification, to promote competition and efficiency in price Federal level formation through new and existing projects, to mitigate In June 2018, an Energy Department memo describing the effects of climate variability through the use of the federal actions in the US electricity markets was leaked to available renewable resources, to strengthen national en- the media. The memo sought to justify non-specified fed- ergy security, to reduce greenhouse gas emissions, in ac- eral actions to ensure financial stability for coal and nuclear cordance with COP21 commitments. power plants for a two-year period with the goal of imped- Carrying forward from this decree, the Ministry of Min- ing the retirement of plants that, according to the memo’s ing and Energy issued Resolutions 40791 and 40795 of authors, could be necessary for national security reasons. August 2018, finalizing the regulatory cycle of public poli- If these actions are carried out, the delayed closures of the cies that will make it possible to strengthen, integrate and coal and nuclear plants could cut into the market for new diversify the country’s energy matrix, achieving a historic renewable power projects in some areas. result like that for its first long-term electricity tender. Through Resolutions 41307 and 41314 of 2018, the Minis- In 2018, the Trump Administration enacted the Afford- try of Mining and Energy officially kicked off its first long- able Clean Energy (ACE) rule to replace the Obama era’s term electricity auction, which will conclude in the first few Clean Power Plan (CPP), a complete program for regulating months of 2019 and is intended to diversify, integrate and greenhouse gas emissions by the energy sector. Rather strengthen the competitiveness of the energy matrix, mak- than base the emission reduction requirements on the sec- ing it more resilient to climate variability, contributing to tor as a whole, including new renewable energy technolo- cutting CO2 emissions and ensuring energy security. gies, the ACE would only require efficiency enhancements Unregulated customers market: rate revisions In February 2018, the Regulatory Commission published Resolution CREG 015 of 2018 which definitively sets out the distribution remuneration methodology for the new rate period. It determines the remuneration for the existing asset base on the basis of the presentation of investment plans, the remuneration of operating and maintenance costs, setting out goals for the reduction of losses and the improvement of service quality. at the single-plant level. State level In September 2018, California’s governor Jerry Brown signed a bill that would accelerate the state’s Renewable Portfolio Standard (RPS) requiring it to satisfy 60% of its electricity needs from renewable resources by 2030 and 100% from zero-carbon sources of electricity by 2045. Mexico Resolution CREG 085 was issued in July 2018 in response Renewables to comments submitted by distributors. It clarifies and cor- rect some provisions of Resolution CREG 15. The new dis- tribution rates for 2019 are expected to be approved using the new method. In September 2018, the Regulatory Commission published Resolution CREG 114 of 2018 which lays out the principles and general conditions to be satisfied so that distributors’ costs can be incorporated into the rate components that regulated market users must pay. The Energy Ministry published the requirements for the Energía Limpia certificates that companies must meet for the years 2018 through 2022, specifically: 5.0% for 2018; 5.8% for 2019; 7.4% for 2020; 10.9% for 2021; 13.9% for 2022. The Comisión Reguladora de Energía (CRE) and Comisión Federal de Electricidad (CFE) published the methodology for calculating the regulated rate and the rates for 2018. They will be revised each year. 141 Report on operationsIn the 1st Quarter of 2018, the latest Wholesale Market In the 1st Quarter of 2018, the risk aversion curve (storage Handbook was published, and powers were transferred in the Fortuna basin) was redefined, enabling a more ef- from the Secretariat of Energy to the CRE. One of the most ficient use of the lake’s water. important handbooks published is that for the Interconnec- tion and Connection of Power Plants and Load Centers, In the meantime, the minimum requirements for the me- which sets out the new method for calculating the financial ters to be used for large customers were also redefined. In guarantees for the different interconnection standards ap- contracting with a generation company to provide electric- plicable as from 2015. All new projects under development ity, large customers can opt to use the distributor’s me- will be governed by the new handbook. ter and avoid incurring the cost of buying a commercial In the 2nd Quarter, the market rules consultative commit- electric measurement system. This should speed up the tee was established. process of acquiring large-customer status and improve The Enel Group participated in three of the four committees: > Wholesale market; > Operating in the market; > Legacy contracts; > Grid development. competition between generators. In the 2nd Quarter of 2018, the government presented a draft law modifying Law 6 concerning the electricity sec- tor. The proposed modifications include the creation of a new figure in the electricity market to simplify the man- agement of the Electricity Transmission Company, which A number of working groups have been set up to review is responsible for electricity sale and metering. Enel and the market rules and offer proposals for improving them. other market actors actively participated in the consulta- tion stages. At the moment, the implementation of these During the same period, the National Electricity System changes has been postponed. Development Program (PRODESEN) for the years from 2018 through 2034 was published. In the 4th Quarter of 2018, the regulator approved new In the 4th Quarter of 2018, as a result of the reform of the public administration, the Secretariat of Energy must coordinate with the CRE to set the regulated rates for the services indicated in the Electricity Industry Law. Previously this was done solely by CRE. The regulated rate includes those for: transmission, distribution, SSB op- erations, CENACE operations, regulated connection ser- vices, electricity costs and associated costs (e.g. capacity remuneration - CEL). Panama Renewables Enel has begun a two-year term as representative of the 20 MW hydroelectric companies on the Operating Com- mittee. The primary function of this committee is to tackle issues relating to National Integrated System operations and is composed of representatives of each company electricity rate rules. Guatemala Renewables In the 3rd Quarter of 2018, the 5-year rate rules for dis- tributor Empresa Eléctrica de Guatemala were set. In the 4th Quarter, the new rules were approved for the coordination of the dispatching of electricity, the commer- cial metering system and the importation of electricity (NCC-10 and 14). Central American Regional Electricity Market (MER) The second plenary meeting between the institutions of the Central American Regional Electricity Market (Merca- do Eléctrico Regional - MER) was held in the 1st Quarter of 2018. Senior officials of MER meet to analyze the gov- operating in the electricity sector. Enel is an active par- ernance of that market. ticipant in the committee, submitting proposals on how to In 2018 MER’s Steering Committee launched a study on modify commercial practices, operating regulations, and how to integrate Mexico into the market. ways of scheduling system operations. As of December 31, 2018, the detailed complementary 142 Annual Report 2018process (PDC) will no longer apply and instead will be re- ed 30%). The latter is based upon a series of parameters fo- placed by the MER Regulation (RMER), which takes ef- cusing on the economic development of the country, includ- fect on January 1, 2019. ing local content and the creation of jobs for South Africans, Africa, Asia and Oceania especially non-whites. The winners are awarded 20-year power Purchase Agree- ments (PPAs) with Eskom, the national power utility. Eskom’s payments are guaranteed by the governments. South Africa South Africa approved a target of 17.8 GW of installed re- India newable capacity by 2030 based upon the long-term en- India is a federal republic composed of 29 states, each of ergy strategy set out in the 2010-2030 Integrated Resource which has specific responsibilities in various sectors as Plan (IRP). The primary tool to be used in achieving this tar- well as shared responsibility with the federal government get is the Renewable Energy Independent Power Producer in the electricity sector. Procurement Programme (REIPPPP), an auction system The Ministry of New and Renewable Energy (MNRE) launched in 2011 that seeks to install around 13 GW in new defines and implements policy for the development of renewable capacity between 2014 and 2020 (hydroelectric renewable energy at the national level. In addition to <40 MW, concentrated solar and photovoltaic, wind, bio- the Ministry, the power market is supervised at the fed- mass, biogas and landfill gas power). The first four rounds eral level by the Central Energy Regulatory Commission have already been held, with the award of more than 5,000 (CERC), which sets guidelines and standard rates, and by MW of capacity. In 2015 an additional round – called the the State Energy Regulatory Commissions (SERC), which Expedited Round, or Round 4.5 – was added and held for implement them at the state level. an additional 1,800 MW, which have not yet been assigned In 2015 the government headed by Prime Minister Nar- and which will probably be cancelled. endra Modi approved a target of 175 GW of renewables In August 2018, the 2018 Integrated Resource Plan (IRP) capacity by 2022, including 100 GW from solar, 60 GW was published for consultation. The IRP is the long-term from wind and about 15 GW from other technologies. This plan setting out the development strategy for the coun- ambitious target was further strengthened in October try’s electricity sector through 2030. In the new draft the 2016, when India ratified the Paris climate agreement in capacity targets for the development of wind and solar pho- tovoltaic power were raised to 19.4 GW of almost entirely 2015, committing itself to cut CO2 emissions by 33-35% (Intended Nationally Determined Contribution - INDC) wind (11.4 GW) and photovoltaic power (8 GW) compared from their 2005 levels and to ensure that 40% of its in- with the previous version of the IRP. This capacity is cu- stalled capacity will be generated from non-fossil sources mulative, including that already online or committed under by 2030. the REIPPPP. The new IRP also includes an allocation of The renewables sector is highly fragmented since each specific capacity (200 MW/year) for distributed generation state has its own regulatory scheme for developing new (1-10 MW). capacity. As a general rule, each state sets annual obliga- The public consultation process was concluded in Decem- tions, called Renewable Purchase Obligations (RPOs), for ber 2018. Given the importance of energy policy for the the share of electricity to be generated from renewable country, the timetable for the final promulgation of the IRP resources. The state distribution companies must meet (with possible modifications) will depend heavily on the na- the RPOs by buying or producing renewable energy or tional elections that will be held in May 2019. by purchasing Renewable Energy Certificates (RECs). The It is possible that in 2019 – following the promulgation of RPO has been set at the national level, to gradually rise to the IRP – a new auction, Round 5 of the REIPPPP, will be 21% of the sales of distributors by 2022. The states must held as originally scheduled. take part in the national RPO to the greatest possible ex- After a pre-qualification phase, which is concerned with tent in order to reach the national target for renewable technical and financial issues, qualified projects are chosen energy generation. based upon two criteria: the bid price (weighted 70%) and Renewable energy must be bought through auctions, in the economic development content of the project (weight- use since 2010 for solar power and 2017 for wind power 143 Report on operationsand overseen mainly by Solar Energy Corporation India 2015 with Law 58-2015, which introduced a net meter- (SECI). ing scheme for high-voltage photovoltaic solar and wind In general, the winners of the auctions are awarded 25- plants (subsequently extended to medium- and low-volt- year Power Purchase Agreements (PPAs) at fixed rates age) which offered private operators the opportunity to re- with SECI or the Power Trading Company (PTC), which sell to their excess electricity to the grid, but for no more will sell the electricity through Power Sales Agreements than 20% of their annual production. However, this option (PSAs) to state distribution companies (Discoms). was to have been implemented with appropriate legisla- Auctions are held frequently in India, even if some of them tion that has not yet been issued. in 2018 were cancelled due to failure to reach the capacity The new regulatory framework set out a “hybrid” market offered since the rate restrictions imposed on participants model in which, alongside a regulated market with the were too strict. In 2018 auctions were also held for float- Single Buyer (Office National de l’Electricité et de l’Eau ing photovoltaic plants, for offshore wind plants and for Potable - ONEE) and distributors, there is to be a free mar- hybrid wind/photovoltaic plants. ket in which IPPS can negotiate electricity sale contracts The PPAs can also be signed with private customers. with ONEE or directly with end users (owing to a lack of In 2018 it was established that solar and wind plants that implementing legislation, this option is for the moment enter into service by March 31, 2022 will be exempted only exercised with respect to high-voltage customers). from interstate transmission charges and losses for 25 The task of overseeing the implementation and proper years. functioning of the market is given to the Electricity Regu- The Electricity Act is currently being revised. Among the latory Authority (ANRE - Autorité Nationale de Régulation proposals put forth by the Ministry of Power are reducing de l’Electricité) by Law 48-2015 of 2016. While a Presi- the wheeling charge, requiring the states to comply with dent of ANRE was appointed in August 2018, it is not yet the national RPO, exempting renewable power plants currently operational. from the requirement to obtain a generation license and With regard to procurement, an auction system is used and unbundling distribution. to promote renewables. Specifically, in 2009 and in 2010 The regulations for ancillary services are also being re- two programs were launched: the Morocco Solar Pro- vised, with a proposal to hold auctions for the purchase gram and the Integrated Wind Energy Program, with the of such services. Morocco goal of developing 2 GW each of solar and wind capacity, managed respectively by the Moroccan Agency for Solar Energy (MASEN) and by ONEE. Both programs offer elec- tricity sale contracts with MASEN/ONEE having durations Morocco is a constitutional monarchy that is relatively of 25 years for solar and 20 years for wind. stable politically and whose economy is steadily growing. The Moroccan electricity sector is highly energy depen- dent. More than 90% of energy procurement is in the form of imports of coal, gas and oil. However, in the last few years Morocco has approved a series of regulations that seek to both reduce dependence on foreign markets The expected reform of the law on renewables is under way; a series of consultations have been held with the main stakeholders during the year. The reform should improve the regulatory framework for the access of IPPs to the medium-voltage grid and for the sale of electricity generated in excess of the needs of end users. The re- and expand the role of renewables. form should be completed in 2019. In 2009, the government adopted the new National En- ergy Strategy (NES), imposing national energy policy tar- gets through 2030. The development of renewables is a key component of this policy with the target of making up 42% of total installed capacity by 2020 and 52% by 2030. In order to achieve these ambitious goals, in 2010 In September 2018, King Mohammed VI requested an up- ward revision of the targets of renewables in the energy mix, higher than the current one of 52% by 2030. Australia the Moroccan government adopted Law 13-2009, which Australia is a federal constitutional monarchy composed in principle allows independent power producers (IPPs) to of six states and two territories. The electricity sector generate and export electricity. is regulated by a collection of federal and state policies, The regulatory framework was further completed in overseen by various actors. The primary regulators at the 144 Annual Report 2018central level are: the Council of Australian Governments The Australian regulatory framework is evolving rapidly, (COAG), made up of the federal and state energy minis- with the primary objective of maintaining the security of ters who guide the development of energy policies; the the electricity system in a country that is experiencing Australian Energy Regulator (AER), which is the econom- the progressive obsolescence of its coal-fired generation ic regulator; the Australian Energy Market Commission plants, which are slowly being replaced by gas-fired and (AEMC), which is the rule maker and is responsible for renewable energy plants. market development; the Australian Energy Market Op- At the end of 2017 the federal government introduced a erator (AEMO), which is the system and market opera- new policy for the NEM, addressing primarily the security tor; and the Clean Energy Regulator (CER), responsible and reliability of the electricity system, consumer prices for managing green certificates. Each state has its own and reducing emissions. Under the new policy, called the regulatory bodies. National Energy Guarantee (NEG), retailers are required to The electricity system is divided into two primary markets: buy an appropriate mix of resources to provide: the National Electricity Market (NEM), which covers the > a “reliability guarantee”, to ensure the right amount of eastern part of the country where almost 90% of the dispatchable energy; population resides, and the Wholesale Electricity Market > an “emissions guarantee”, to help reduce emissions in (WEM) in the west, which is much smaller. Both the NEM line with Australia’s international commitments (reduc- and the WEM, albeit in slightly different ways, operate as tion of emissions by 26-28% by 2030 compared with spot markets for electricity, facilitating exchange between 2005). generators and suppliers to end users (retailers) and to The NEG was almost finalized when, in August 2018, large industrial customers. an abrupt change in government caused it to be put on The country has a Renewable Energy Target (RET) hold. The part regarding the emissions guarantee was scheme that is operated in two parts: rejected, while that on the reliability guarantee is slowly > the Large-scale Renewable Energy Target (LRET), set in moving forward, in a manner still to be defined. At the 2015 at 33,000 GWh (around 23% of demand) of gener- end of 2018 the government launched a new program ation by 2020, to be maintained at this level until 2030. called Underwriting New Generation Investment (UNGI), The LRET creates a financial incentive for renewable which appears to promote generation from traditional fos- energy power plants, which can produce Large-scale sil sources provided that there are concessions for non- Generation Certificates (LGSs) to be sold to retailers. intermittent new generation sources or for extending the These retailers are required to buy them in an amount life of existing assets. equal to a certain percentage of the electricity sold to end users, currently around 20%; In 2019 federal elections will be held, the results of which > the Small-scale Renewable Energy Scheme creates a will heavily influence the future course of the country’s financial incentive for households or small business energy policy. customers to install small-scale renewable energy sys- tems (usually rooftop solar panels), for which they can receive Small-scale Technology Certificates (STCs). Re- tailers are also required to buy these STCs in specified amounts. The states have their own renewable energy policies and some – with more ambitious targets than the federal ones – have introduced in recent years programs in support of green energy. The state renewable energy targets are, for example: > Victoria: 25% of electricity from renewable sources by 2020 and 40% by 2025 (about 3.3 GW), to be achieved in part through auctions that began in 2017; > Queensland: 50% by 2030; > South Australia: 50% by 2025. 145 Report on operationsMain risks and uncertainties Due to the nature of its business, the Group is exposed pend essentially on variables that are outside the control to a variety of risks, notably financial risks, industrial and of management. More specifically, the Strategic Plan is environmental risks, strategic risk connected with the evo- based on assumptions about scenarios and the position- lution of markets and risks connected with sustainability ing of the business. The former include developments in and climate change. In order to mitigate its exposure to electricity, gas, fuel and raw materials prices, the evolution these risks, Enel conducts specific analysis, measure- of electricity and gas demand in the markets where the ment, monitoring and management activities, as described respective Groups operate, developments in macroeco- in this section. nomic variables, as well as the evolution of the regulatory See also the “Reference scenario” section for an analysis framework. of the factors that represent some of the underlying bases The 2019-2021 Strategic Plan, drawn up on the basis of for these risks. Strategic risks connected with developments in the market, competitive and regulatory environment these assumptions, includes the following estimates and forecasts for the years 2019, 2020, 2021 and average growth in 2019-2021. The achievement of the objectives is based on a set of assumptions on the occurrence of future events and actions that the Enel Group plans to undertake, including assumptions of a general and hypothetical nature relating to future events and actions that will not neces- sarily occur. Accordingly, the forecasts, being based on hypotheses about future events and actions undertaken, or still to be undertaken, by management, are character- ized by an inherent degree of subjectivity and uncertainty On November 20, 2018, the Enel Group presented its Stra- and, in particular, by the risk that forecast events and the tegic Plan for 2019-2021 to the financial community. It sets actions that could follow from those events may not occur out the strategic guidelines and the performance and finan- or may occur at different times and in different amounts cial objectives of the Group. The document used for the from those originally planned, while events and actions presentation, “Capital Markets Day - Strategic Plan 2019- that were unforeseeable at the time of preparation could 2021”, is available to the public on the Enel Group website instead occur. Therefore, divergences between final out- at www.enel.com in the Investor Relations section. comes and forecast values could be significant. The Enel Group Strategic Plan is implemented through a In addition, the markets and businesses in which the Group process that involves all the Business Lines and the Coun- operates are currently experiencing gradual and growing tries/Regions of the Enel Group, which prepare their action competition and change in their competitive, technologi- plans on the foundation of the strategic guidelines speci- cal and regulatory contexts, with the timing and pace of fied by the Parent Company. These plans are finally con- these developments varying from country to country. As a solidated in the Group’s Strategic Plan. result of these processes, the Group is exposed to increas- The preparation of the Enel Strategic Plan is based, inter ing competition. alia, on certain assumptions concerning future events that The business risks generated by the natural participation management expects will occur and actions that it intends of the Group in such markets have been addressed by to undertake at the time the Plan is prepared, as well as integrating along the value chain, with a greater drive for general assumptions about future events and manage- technological innovation, diversification and geographical ment actions that may not necessarily occur, as they de- expansion. More specifically, the initiatives taken have in- 146 Annual Report 2018creased the customer base in the free market, with the ficers of the companies involved, which are responsible aim of integrating downstream into final markets, optimiz- for policy setting and supervision of risk management, as ing the generation mix improving the competitiveness well as the definition and application of specific policies at of plants through cost leadership, seeking out new high- the Group and individual Region, Country and Global Busi- potential markets and developing renewable energy re- ness Line levels that establish the roles and responsibilities sources with appropriate investment plans in a variety of for risk management, monitoring and control processes, countries. ensuring compliance with the principle of organizational The Group often operates in regulated markets or regulated separation of units responsible for operations and those in regimes, and changes in the rules governing operations in charge of monitoring and managing risk. such markets and regimes, and the associated instructions The financial risk governance system also defines a system and requirements with which the Group must comply, can of operating limits at the Group and individual Region, Coun- impact our operations and performance. try and Global Business Line levels for each risk, which are In order to mitigate the risks that such factors can engen- monitored periodically by risk management units. For the der, Enel has forged closer relationships with local govern- Group, the system of limits constitutes a decision-making ment and regulatory bodies, adopting a transparent, collab- tool to achieve its objectives. orative and proactive approach in tackling and eliminating For further information on the management of financial sources of instability in regulatory arrangements. risks, please see note 44 “Risk management” of the An- Risks connected with CO2 emissions In addition to being one of the factors with the largest po- tential impact on Group operations, emissions of carbon dioxide (CO2) are also one of the greatest challenges facing the Group in safeguarding the environment. EU legislation governing the emissions trading scheme im- poses costs for the electricity industry. In order to mitigate the risk factors associated with CO2 regulations, the Group monitors the development and implementation of EU and Italian legislation, diversifies its generation mix towards the use of low-carbon technologies and resources, with a fo- cus on renewables and nuclear power, develops strategies to acquire allowances at competitive prices and, above all, enhances the environmental performance of its generation plants, increasing their energy efficiency. More information on this category of risk is available in the “Sustainability and the fight against climate change” section. Financial risks As part of its operations, Enel is exposed to a variety of fi- nancial risks that, if not appropriately mitigated, can directly impact our performance. These include market risks, credit risk and liquidity risk. The financial risk governance arrangements adopted by Enel establish specific internal committees, composed of top management and chaired by the Chief Executive Of- nual Report. Market risks The market risks to which the Group is exposed are con- nected to the fluctuation of commodity prices, exchange rates and interest rates. To maintain the exposure to market risk within operating limits, Enel also uses derivatives. Risks connected with commodity prices and supply continuity Enel operates in energy markets and for this reason is ex- posed to changes in the prices of fuel and electricity, which can have a significant impact on its results. To mitigate this exposure, the Group has developed a strat- egy of stabilizing margins by contracting for supplies of fuel and the delivery of electricity to end users or wholesalers in advance. Enel has also implemented a formal procedure that pro- vides for the measurement of the residual commodity risk, the specification of a ceiling for maximum acceptable risk and the implementation of a hedging strategy using deriva- tives on regulated markets and over-the-counter (OTC) mar- kets. In order to mitigate the risk of interruptions in fuel supplies, the Group has diversified fuel sources, using suppliers from different geographical areas. 147 Report on operationsExchange rate risk Credit risk In view of their geographical diversification, access to in- Commercial, commodity and financial transactions ex- ternational markets for the issuance of debt instruments pose the Group to credit risk, i.e. the possibility of a de- and transactions in commodities, Group companies are ex- terioration in the creditworthiness of counterparties that posed to the risk that changes in exchange rates between could have an adverse impact on the expected value of the currency of account and other currencies could gener- the creditor position and, for trade receivables only, in- ate unexpected changes in the performance and financial crease average collection times. aggregates in their respective financial statements. The exposure to credit risk is attributable to the following Given the current structure of Enel, the exposure to ex- types of operations: change rate risk is mainly linked to the US dollar and is at- > the sale and distribution of electricity and gas in free tributable to: and regulated markets and the supply of goods and ser- > cash flows in respect of the purchase or sale of fuel or vices (trade receivables); electricity; > trading activities that involve the physical exchange of > cash flows in respect of investments, dividends from for- assets or transactions in financial instruments (the com- eign subsidiaries or the purchase or sale of equity invest- modity portfolio); ments; > trading in derivatives, bank deposits and, more gener- > cash flows connected with commercial relationships; ally, financial instruments (the financial portfolio). > financial assets and liabilities. The Group’s consolidated financial statements are also exposed to the exchange rate risk deriving from the con- The policy for managing credit risk associated with commer- version into euros of the items relating to investments cial activities provides for a preliminary assessment of the in companies whose currency of account is not the euro creditworthiness of counterparties and the adoption of miti- (translation risk). gation instruments, such as obtaining collateral or unsecured The exchange rate risk management policy is based on sys- guarantees. tematically hedging the exposures to which the Group compa- In addition, the Group undertakes transactions to assign re- nies are exposed, with the exception of translation risk. ceivables without recourse, which results in the complete Appropriate operational processes ensure the definition derecognition of the corresponding assets involved in the as- and implementation of appropriate hedging strategies, signment. which typically employ financial derivatives obtained on Finally, with regard to financial and commodity transactions, OTC markets. Interest rate risk risk mitigation is pursued through the diversification of the portfolio (preferring counterparties with a high credit standing) and the adoption of specific standardized contractual frame- works that contain risk mitigation clauses (e.g. netting arrange- The Group is exposed to the risk that changes in the level ments) and possibly the exchange of cash collateral. of interest rates could produce unexpected changes in net financial expense or the value of financial assets and liabilities measured at fair value. Liquidity risk The exposure to interest rate risk derives mainly from the Liquidity risk is the risk that the Group, while solvent, would variability of the terms of financing, in the case of new not be able to discharge its obligations in a timely manner or debt, and from the variability of the cash flows in respect would only be able to do so on unfavorable terms owing to of interest on floating-rate debt. situations of tension or systemic crises (credit crunches, sov- The policy for managing interest rate risk seeks to con- ereign debt crises, etc.) or changes in the perception of Group taining financial expense and its volatility by optimizing riskiness by the market. the Group’s portfolio of financial liabilities and by obtain- Among the factors that define the risk perceived by the mar- ing financial derivatives on OTC markets. ket, the credit rating assigned to Enel by rating agencies plays a decisive role, since it influences its ability to access sources of financing and the related financial terms of that financing. A 148 Annual Report 2018deterioration in the credit rating could therefore restrict access sures as an option for reviving national economies. to the capital market and/or increase the cost of funding, with The normalization of monetary policy in the advanced consequent negative effects on the performance and financial countries (especially in the United States) has imposed situation of the Group. strong pressures on emerging markets (especially the In 2018, Enel’s ratings from the rating agencies did not change. structurally weaker economies): among these, Argentina Accordingly, at the end of the financial year, Enel’s rating was: has seen its risk increase (as reflected in the country’s (i) “BBB+” with a stable outlook for Standard & Poor’s; (ii) rating in the model on both the macroeconomic and socio- “BBB+” with a stable outlook for Fitch; and (iii) “Baa2” with a political levels), connected with a deterioration in econom- stable outlook for Moody’s. In February 2019 Fitch revised its ic conditions (e.g. the economy slipped into recession in rating for Enel upwards, from “BBB+” to “A-”. 2018) and domestic political uncertainty. In an attempt Enel’s liquidity risk management policies are designed to to reassure the markets and to meet its funding needs, maintain a level of liquidity sufficient to meet its obligations the government reached an agreement with the Interna- over a specified time horizon without having recourse to ad- tional Monetary Fund (IMF) for an aid plan of over $55 ditional sources of financing as well as to maintain a pruden- billion, subject to eliminating the primary deficit by 2019 tial liquidity buffer sufficient to meet unexpected obligations. and achieving a primary surplus of 1% of GDP in 2020. In addition, in order to ensure that the Group can discharge The main risk is tied to the possibility of continuing the its medium and long-term commitments, Enel pursues a recovery in the run-up to the national elections scheduled borrowing strategy that provides for a diversified structure for October 2019. of financing sources to which it can turn and a balanced ma- turity profile. Country risk By now, some 50% of the Enel Group’s total revenue is generated abroad. The substantial internationalization of the Group – which among other regions operates in South America, North America, Africa and Russia – requires Enel to consider and assess country risk, which consists of the macroeconomic, financial, regulatory, market, social and geopolitical risks whose manifestation could have an adverse impact on income or threaten corporate assets. Enel has therefore adopted a model for assessing country risk in the countries in which it operates. In order to miti- gate country risk, the model supports capital allocation and investment evaluation processes. In Europe, Brexit negotiations continue without significant progress, with the British parliament again postponing ap- proval of the preliminary agreement reached between the Prime Minister, Theresa May, and the European Union. Among the European economies of interest to the Group, Italy has seen its risk increase, as reflected in model’s pro- jections. The uncertainty surrounding the government’s fiscal policy, the strains with the European Union over the country’s budget targets and domestic political uncer- tainty have combined with contingent factors to slow the economy, which may enter recession in the 2nd Half of 2019. Risk connected with climate change In 2018 the world economy grew by around 3%, in line with the pace of 2017. The United States and China are driving the world expansion, while euro-area growth moved at a slower pace. However, initial signs of a slow- Physical risks connected with climate change down have emerged and political and economic risks per- The physical risks posed by climate change could be con- sist. The economic factors include issues connected with nected with individual events or long-term changes in cli- the sustainability of the public finances in the face of the mate models. Extreme meteorological events and natural need to make investments to boost productivity, with the disasters expose the Group to the risk of damage to in- lack of diversification of the South American economies, frastructure and other assets, with the consequent pos- which leaves them more exposed to short-term economic sibility of prolonged periods in which the assets involved fluctuations and with the spread of protectionist mea- would be unavailable. In addition, the Group is exposed 149 Report on operationsto the risk of impacts on the operation of its generation In addition, in order to mitigate the legal and regulatory assets linked to gradual climate changes (for example, air risks associated with climate change, the Group maintains temperature, rainfall and wind). Enel is present along the transparent and constructive relations with local and inter- entire value chain in the electricity industry (generation, national authorities and regulators. distribution and sale) and has a diversified portfolio of Additional details on this category of risk are available in the activities, both in terms of generation technologies and “Sustainability and the fight against climate change” section. the geographical areas and markets in which it operates, mitigating the risks connected with climate change and the associated financial repercussions. Moreover, the Group uses the most advanced prevention Risks related to cyber attacks and protection strategies, with the concomitant aim of re- The era of digitization and technological innovation means ducing the possible impacts on the communities and the that organizations are increasingly exposed to cybernetic areas surrounding the assets: constant monitoring and attacks, which are becoming increasingly numerous and weather forecasting in the areas where the most exposed sophisticated, partly reflecting the changes in the context assets are located. Furthermore, numerous actions have in which they occur. The organizational complexity of the been taken to increase the resilience of the assets most Group and the numerous environments it encompasses exposed to extreme weather or natural disasters. (data, people and the industrial world) expose our assets All of the areas of the Group undergo ISO 14001 certifi- to the risk of attacks. The Enel Group has adopted a model cation and potential sources of risk are monitored with for managing these risks based on a “systemic” vision ap- the implementation of internationally recognized Environ- plied to both the traditional information technology sector mental Management Systems (EMS) so that any critical and the industrial sector (operational technology), taking issues can be detected promptly. due consideration of the networking of smart “objects” Additional details on this category of risk are available in (Internet of Things). In particular, Enel has adopted a “Cy- the “Sustainability and the fight against climate change” ber Security Framework” to guide and manage cyber se- section. Transition risks connected with climate change curity activities, which provides for the involvement of the business areas, the implementation of legislative, regu- latory and legal requirements and recommendations, the use of the best available technologies, the preparation of ad hoc business processes and an informed workforce. The transition to a low-carbon energy model may generate The Framework bases strategic decisions and design ac- legislative/regulatory risks or political, legal, technological tivities on a “risk-based” approach and a design and de- and market risks associated with the fight against climate velopment model that defines the appropriate security change, with an impact in the short, medium and long term. measures throughout the life cycle of applications, pro- Issues such as increased reporting requirements for emis- cesses and services (cyber security by design). Enel has sions and other legal obligations, the use of low-emissions also created its own active Cyber Emergency Readiness energy sources and reducing the exposure to fossil fuels, Team (CERT), which is recognized and accredited by na- the uncertainty of market signals with potentially unforeseen tional and international communities, in order to direct an variations in market prices, rising commodity prices or the industrialized response to cyber threats and incidents. growing interest of stakeholders in climate issues are all risk factors connected with climate change to which Enel may be exposed and which could impact the financial performance of the company. The Group is involved in the continuous improvement of the environmental impact of its existing activities through its emission reduction targets, first and foremost the goal of “emission free production” by 2050. Enel adopts a strategy aimed at growth through development of low-carbon tech- nologies and services, in line with the COP21 objectives. 150 Annual Report 2018Outlook The Group’s 2019-2021 Strategic Plan presented in No- > Improved return on investment to support dividend vember 2018 focuses on the centrality of the integrated growth: we expect investments focused on higher yield business model, capable of seizing the opportunities ari- assets, efficiency and portfolio optimization will crea- sing from the energy transition. The growth in renewable te value amounting to a total of 400 basis points on a energy, the development and automation of the distribu- WACC of 6.2% in 2021, rising by more than one and a tion network, the opportunities for electrification and cu- half times compared with 2018. stomer focus are the guidelines of the Group’s strategy. > Shareholder remuneration: a 70% dividend calculated on More specifically, the Group’s 2019-2021 Strategic Plan the Group’s ordinary net income from 2019 onwards is focuses on the following issues. confirmed, with an annual compound average growth rate > Industrial growth: the Group plans to invest a total of (CAGR) in the dividend per share (DPS) of approximately €27.5 billion over the plan period, with the aim of ge- +12%. For the first time the minimum DPS will be exten- nerating a cumulative increase in ordinary EBITDA of ded to the next three years, with a CAGR of about +9%. €3.2 billion. The full range of investments in the three categories – asset development, customers and asset In 2019 we expect: management – will contribute to achieving this goal. > an acceleration of investments to contribute to indu- > Decarbonization opens the way to creating value, with strial growth in renewable energy projects, particularly renewables expected to generate a cumulative incre- in North America, with global investments increasing by ase in EBITDA of €1 billion between 2019 and 2021. more than 35% compared with 2018 and the continua- The focus of investments in markets where Enel has tion of investments in grids, especially in Italy and South an integrated presence and in mature economies will America; enable the Group to increase profitability and achieve > significant progress in operational efficiency, supported its decarbonization targets. In 2021, 62% of the energy by digitalization across all our businesses, with a cumu- generated by the Enel Group is expected to have zero lative efficiency target of €1.2 billion by 2021; emissions, compared with an estimated 48% in 2018. > greater customer focus on a global scale and an acce- > Operational efficiency: the objective of €1.2 billion of leration of Enel X’s activities in the electric mobility and cumulative benefits generated by efficiencies expected demand response businesses; by 2021, mainly due to the effect of digitalization, has > further progress in simplifying the Group and actively been confirmed. managing the portfolio, so as to optimize its overall risk > Simplification: Enel will continue to increase its in- and return profile. vestments in its subsidiaries, continuing their integra- tion within the Group and rationalizing our portfolio Enel Group’s strategy is also aimed at ensuring resilience, through asset rotation, with further optimization of the mitigation and adaptation to changes in the external en- overall return and risk profile. vironment and, in particular, to climate change, thanks to > Human capital: our commitment to achieving sustai- a business model and leadership position in line with the nable development goals (SDGs) has been exten- Paris Agreement (COP21). In this regard, the “Sustainabi- ded until 2030. A “shared value” approach towards lity and the fight against climate change” section includes communities and people integrated into the Group’s a review of the main risks and opportunities related to cli- core business processes; introduction of specific ad- mate change, the mitigation and adaptation actions imple- ditional targets for SDG 9 (Industrial Innovation and mented and the key objectives and metrics. Infrastructure) and 11 (Sustainable Cities and Com- The progress achieved in each of the key enabling factors munities). and key pillars of the Strategic Plan enables us to confirm 151 Report on operationsour performance and financial objectives for 2019. Further- performance and financial objectives on which the Group’s more, on the basis of the key elements set out above, the Strategic Plan 2019-2021 is based are summarized below. Financial targets Ordinary EBITDA (billions of euro) Net ordinary income (billions of euro) Pay-out ratio Implicit DPS (€/share) Minimum dividend per share (€) 2018 ~16.2 ~4.1 70% 0.28 0.28 2019 ~17.4 ~4.8 70% 0.33 0.32 2020 ~18.5 ~5.4 70% 0.37 0.34 2021 ~19.4 ~5.6 70% 0.39 0.36 CAGR (%) 2018-2021 ~+6% ~+11% - ~+12% ~+9% 152 Annual Report 2018Other information Non-EU subsidiaries At the date of approval by the Board of Directors of the into Enel Chile SA as from April 2, 2018); 18) Enel Green financial statements of Enel SpA for 2018 – March 21, 2019 Power North America Inc. (a US company belonging to – the Enel Group meets the “conditions for the listing of Enel Green Power); 19) Enel Green Power RSA (Pty) Ltd shares of companies with control of over companies estab- (a South African company belonging to Enel Green Pow- lished and regulated under the law of non-EU countries” er); 20) Enel Kansas LLC (a US company belonging to (hereinafter “non-EU subsidiaries”) established by CON- Enel Green Power); 21) Enel Perú SAC (a Peruvian com- SOB with Article 15 of the Markets Regulation (approved pany belonging to Enel Américas); 22) Enel Russia PJSC with Resolution 20249 of December 28, 2017). (a Russian company controlled directly by Enel SpA); 23) Specifically, we report that: Enel X North America Inc. (a US company belonging to > in application of the materiality criteria for the purposes Enel X); 24) Gas Atacama Chile SA (a Chilean company of consolidation provided for in Article 15, paragraph 2, of belonging to Enel Chile); and 25) Geotérmica del Norte the CONSOB Markets Regulation, 25 non-EU subsidiar- SA (a Chilean company belonging to Enel Chile); ies of the Enel Group have been identified to which the > the balance sheet and income statement of the above rules in question apply on the basis of the consolidated companies included in the reporting package used for accounts of the Enel Group at December 31, 2017. the purpose of preparing the 2018 consolidated financial They are: 1) Enel Distribuição Rio (a Brazilian company statements of the Enel Group will be made available to belonging to Enel Américas); 2) Enel Distribuição Goiás the public by Enel SpA (pursuant to Article 15, paragraph (a Brazilian company belonging to Enel Américas); 3) 1a) of the Markets Regulation) at least 15 days prior to Codensa SA ESP (a Colombian company belonging to the day scheduled for the Ordinary Shareholders’ Meet- Enel Américas); 4) Enel Distribuição Ceará SA (a Brazil- ing called to approve the 2018 financial statements of ian company belonging to Enel Américas); 5) Emgesa SA Enel SpA together with the summary statements show- ESP (a Colombian company belonging to Enel Américas); ing the essential data of the latest annual financial state- 6) Empresa Distribuidora Sur - Edesur SA (an Argentine ments of subsidiaries and associated companies (pursu- company belonging to Enel Américas); 7) Enel Américas ant to the applicable provisions of Article 77, paragraph SA (a Chilean company controlled directly by Enel SpA); 2-bis, of the CONSOB Issuers Regulation approved with 8) Enel Brasil SA (a Brazilian company belonging to Enel Resolution 11971 of May 14, 1999); Américas); 9) Enel Chile SA (a Chilean company controlled > the articles of association and composition and powers directly by Enel SpA); 10) Enel Distribución Chile SA (a of the control bodies from all the above subsidiaries have Chilean company belonging to Enel Chile); 11) Enel Distri- been obtained by Enel SpA and are available in updated bución Perú SAA (a Peruvian company belonging to Enel form to CONSOB where the latter should request such Américas); 12) Enel Generación Chile SA (a Chilean com- information for supervisory purposes (pursuant to Article pany belonging to Enel Chile); 13) Enel Generación Perú 15, paragraph 1b) of the Markets Regulation); SAA (a Peruvian company belonging to Enel Américas); > Enel SpA has verified that the above subsidiaries: 14) Enel Green Power Brasil Participações Ltda (a Brazil- - provide the auditor of the Parent Company, Enel SpA, ian company belonging to Enel Green Power); 15) Enel with information necessary to perform annual and inter- Green Power Chile Ltda (a Chilean company belonging im audits of Enel SpA (pursuant to Article 15, paragraph to Enel Green Power); 16) Enel Green Power del Sur SpA 1 (letter c-i)) of the Markets Regulation); (a Chilean company belonging to Enel Green Power); 17) - use an administrative and accounting system appropri- Enel Green Power Latin America SA (a company merged ate for regular reporting to the management and auditor 153 Report on operationsof the Parent Company, Enel SpA, of income statement, ant to Article 15, paragraph 1 (letter c-ii)) of the Markets balance sheet and financial data necessary for prepa- Regulation). ration of the consolidated financial statements (pursu- Approval of the financial statements The Shareholders’ Meeting called to approve the financial 120 days from the close of the financial year, permitted un- statements, as provided for by Article 9.2 of the bylaws of der Article 2364, paragraph 2, of the Italian Civil Code, is Enel SpA, shall be called within 180 days of the close of the justified by the fact that the company is required to prepare financial year. consolidated financial statements. The use of that time limit rather than the ordinary limit of Disclosures on financial instruments The disclosures on financial instruments required by Article ment”, note 33 “Derivatives and hedge accounting” and 2428, paragraph 2, 6-bis of the Civil Code are reported in note 34 “Fair value measurement” to the separate financial note 31 “Financial instruments”, note 32 “Risk manage- statements of Enel SpA. Transactions with related parties For more information on transactions with related parties, please see note 35 to the separate financial statements of Enel SpA. Own shares The company does not hold treasury shares nor did it engage in transactions involving own shares during the year. Atypical or unusual operations Pursuant to the CONSOB Notice of July 28, 2006, Enel did lating the transfer price or timing could give rise to doubts not carry out any atypical or unusual operations in 2018. concerning the propriety and/or completeness of disclosure, Such operations include transactions whose significance, conflicts of interest, preservation of company assets or pro- size, nature of the counterparties, object, method for calcu- tection of minority shareholders. Subsequent events Significant events following the close of the year are discussed in note 52 to the consolidated financial statements. 154 Annual Report 2018155 Report on operations156 Annual Report 201802 Sustainability and the fight against climate change 157 Report on operationsThe sustainable business model In an environment of constant and rapid change, exposing and which are a part of policies and standards of conduct the energy industry to new risks and offering new oppor- that are applicable throughout the Group. tunities, Enel’s model of sustainable business leverages It is a model that promotes sustainable development and the synergies among the various business areas and the is fully in line with the indications of the United Nations outside world in order to develop innovative solutions to Global Compact, of which Enel has been an active mem- reducing our environmental impact, to meeting the needs ber since 2004, reiterating the importance of increasing of local communities and to improving safety for both the integration of sustainability within the company’s stra- employees and suppliers. Understanding the context in tegic decision-making processes. Enel’s CEO has been which Enel operates and actively listening to everyone a member of the United Nations’ Global Compact Board with whom we work enable us to create sustainable long- since June 1, 2015. term value, blending economic and social growth. It is a A key aspect of this approach is the adoption of environ- strategic and operational approach founded on the “Open mental, social and governance (ESG) sustainability indica- Power” concept of openness, where sustainability and in- tors throughout the value chain, not only for assessments novation are an essential combination. of results achieved, but above all to drive decision-making Framing this are the principles of ethics, transparency, and develop a proactive stance, in line with the Sustain- anti-corruption, human rights and health and safety that able Development Goals (SDG) 2030 of the United Na- have always been a distinctive feature of Enel’s operations tions. Enel’s commitment to the United Nations’ Sustainable Development Goals Since 2015, Enel has been committed to helping reach the Sustainable Development Goals (SDGs) of the United Na- tions (UN). Through the SDGs, the United Nations called on companies to be creative and innovative in addressing the challenges of sustainable development, such as poverty, gender equality, clean water, clean energy and climate change. By way of our business strategies, Enel contributes to reaching all 17 SDGs, and we have renewed our commitment to reaching four goals by 2030 in particular:7 > SDG 7 - ensuring access to affordable, reliable, sustainable and modern energy, including the promotion of energy- efficiency services, the beneficiaries of which will include 10 million people by 2030. For the period 2015-2018, 6.2 million beneficiaries had been reached throughout the Group, 3.3 million of which in Africa, Asia and South America. > SDG 4 - supporting projects to ensure inclusive and equitable quality education for 2.5 million people by 2030. For the period 2015-2018, about 1 million beneficiaries had been reached. > SDG 8 - promoting sustained, inclusive and sustainable economic growth for 8 million people by 2030. For the period 2015-2018, around 1.8 million beneficiaries had been reached. > SDG 13 - taking targeted action to achieve decarbonization by 2050. As of December 2018, specific CO2 emissions totaled 0.369 kg/kWheq , and the new target is 0.23 kg CO2 /kWheq by 2030. The Group has also added commitments concerning the following two SDGs: > SDGs 9 and 11 - promoting the development of sustainable cities and of infrastructures that are reliable, sustaina- ble, resilient and of high quality by providing about 47 million customers with smart meters and 455,000 public and private electric vehicle recharging points by 2021 and investing €5.4 billion in digitalization for the period 2019-2021. 7 The number of beneficiaries takes into account the projects and other activities conducted in all areas in which the Group operates (including subsidiaries consolidated at equity, the Group’s foundations and non-profit organizations, and the companies under the Build, Sell & Operate, or “BSO”, mechanism). 158 Annual Report 2018Non-financial information is coming under increasing particular, the analysis of this category of stakeholder has scrutiny by investors and the financial markets, who are pointed to the following priorities: decarbonization of the now focusing on the ability of a company to make sustain- energy mix; new technologies, services and digitization; able long-term business plans that translate into concrete, environmental compliance and management; robust gov- measurable actions and better financial performance. ernance and transparent conduct; efficiency in operations. Socially responsible investment funds continued growing Based on the material analysis results, the issues to be in- in 2018. Enel has 169 Socially Responsible Investors - SRI cluded in the reports are defined and the specific targets (up from 160 in 2017), which hold about 10.5% of all Enel and objectives of the 2019-2021 Strategic Plan are set. shares in circulation (compared with 8.6% in 2017), equal Operations and projects regarding various functions and to 13.7% of the float (11.3% in 2017). In absolute value, Business Lines of the Group contribute towards achieving shares held by SRI investors increased by 21.2%. these targets and objectives as detailed in the 2019-2021 Priority analysis and definition of sustainability goals For several years now, Enel has conducted materiality analyses – based on the guidelines of the most widely adopted standards such as the Global Reporting Initiative (GRI) – in order to identify the Group’s intervention pri- orities, the issues to consider for disclosure and which stakeholder-engagement activities to strengthen. The aim is to map and assess the priority of the issues of interest to stakeholders, integrating them into the Group’s busi- ness strategy and priorities for action. Through this analysis, the main stakeholders of the Group are identified and assessed according to their importance to the company and to their priorities on the various is- sues approached in the numerous engagement activities. This information is then crosschecked with the assess- ments of the issues on which Enel intends to focus its efforts, with the respective priority value. By observing the two perspectives together, it is possible to identify the issues, which, due to their relevance and priority, are essential to Enel and our stakeholders. Conse- quently, it is possible to verify the degree of alignment or misalignment between external expectations and internal priorities. The materiality analysis, which is conducted with increas- ingly greater detail in terms both of issues and geographi- cal scope, makes it possible to identify the company and stakeholder priorities for the entire Group and for each country of operations. It is also possible to obtain results with a specific focus such as the matrix for the sole stake- holder category of “financial community”, which is useful for identifying issues to be discussed in the Annual Report in order to provide integrated reporting on performance. In Sustainability Plan. As part of its Strategic Plan, Enel has identified the most significant emerging risks: > cyber attacks (“cyber risk”): the era of digitization and technological innovation means that organizations are increasingly exposed to cybernetic attacks, which are becoming increasingly numerous and sophisticated, partly reflecting the changes in the context in which they occur. The Group is currently undertaking a major process of digitalization, which is expected to intensify in the coming years, thereby further increasing our ex- posure to this risk. The organizational complexity of the Group and the numerous environments it encompass- es (data, people and the industrial world) expose our assets to the risk of attacks, which are a serious threat not only to data, but also to service continuity, and to the automated systems at the power plants and on the distribution network. The Enel Group has adopted a model for managing these risks based on a “systemic” vision that applies both to the traditional information technology sector and to operational technology in the industrial sector, while taking into account the Internet of Things associated with the networking of smart “ob- jects”; > extreme weather and natural disaster: forecasts re- garding the frequency and intensity of these events point to a marked increase according to analyses within the scientific community, and this increases risk to the Group over the medium and long term. This risk is also noted as one of the emerging risks in the recommen- dations of the Task force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board. The growing emphasis on renewable technologies exposes power plants to greater vulnerability, for which there is a foreseeable increase in the impact of extreme events. The business impact of these phenomena is tied to the risk of damages to assets and infrastruc- 159 Report on operationstures and of the consequent extended unavailability cree and which since last year accompanies the Group’s of those assets. In order to mitigate these risks, the Sustainability Report. Furthermore, beginning with the Group has adopted the best strategies of prevention 2018 financial year, in accordance with the 2019 Budget and protection with the goal, in part, of reducing the Act, along with a description of the main risks associated potential impact on the communities and territories with the areas specified in the decree, the report now in- surrounding the assets. Therefore, constant weather cludes the related approaches to managing the risks. forecasting and other monitoring efforts are carried The reporting process involves collecting and calculating out in the areas in which the assets most exposed are specific key performance indicators of economic, envi- located. Numerous projects are also being carried out ronmental and social sustainability in accordance with to increase the resilience of those assets that are the the international reporting standard composed of the GRI most exposed to extreme weather or natural disaster. Standards and the supplementary Electric Utilities Sector All areas of the Group are subject to ISO 14001 certi- Disclosures, as well as with the principles of accountabil- fication, and internationally recognized environmental ity of the United Nations Global Compact. management systems (EMSs) are used to monitor the Projects, activities, performance and the other main re- potential sources of risk in order to detect any critical sults, including progress made towards the SDGs in line issues in a timely manner. with the indications of the “Business Reporting on the Management and reporting of non-financial information Enel undertakes to constantly manage and measure sus- tainability performance by using and developing mecha- nisms that allow for an integrated, standardized system of activities and information that are kept constantly up to date based on developments in the scope of operations and relevant standards, while promoting the sharing of best practices and experience. Beginning with the 2017 financial year, in implementation of EU (Directive 2014/97/EU) and national legislation (Leg- islative Decree 254/2016) that has introduced mandatory of non-financial information for large public-interest enti- ties, the Group has drafted a “Consolidated Non-Financial Statement” that covers the areas provided for in that de- SDGs: An Analysis of the Goals and Targets”, the guide- lines developed by the United Nations Global Compact in collaboration with the GRI, are presented in Enel’s Sustainability Report, the completeness and reliability of which are verified by an accredited external auditing firm, by the Control and Risk Committee and by the Corporate Governance & Sustainability Committee. The documents are approved by the Board of Directors of Enel SpA and presented in the Shareholders’ Meeting. Finally, the Group is included in the leading sustainabil- ity indexes, such as the Dow Jones Sustainability Index World, FTSE4Good, the Carbon Disclosure Project (CDP) Climate and the Carbon Disclosure Project (CDP) Water, the STOXX Global ESG Leaders, the Euronext Vigeo-Eiris, the OEKOM Prime Rating, the Thomson Reuters/S-Net- work ESG Best Practices Indices, the Thomson Reuters Diversity & Inclusion Index, the Equileap’s Top 200 rank- ing, and the ECPI. Values and pillars of corporate ethics A robust system of ethics underlies all activities of the the Zero-Tolerance-of-Corruption Plan, the Enel Global Enel Group. This system is embodied in a dynamic set of Compliance Program, the Compliance Model under Leg- rules constantly oriented towards incorporating national islative Decree 231/2001 and any other national compli- and international best practices that everyone who works ance models adopted by Group companies in accordance for and with Enel must respect and apply in their daily with local laws and regulations. activities. The system is based on specific compliance in- struments: the Code of Ethics, the Human Rights Policy, 160 Annual Report 2018Code of Ethics In 2002, Enel adopted a Code of Ethics, which expresses the company’s ethical responsibilities and commitments account of the cultural, social and economic diversity of the various countries in which the Group operates. Enel also requires that all associates and other investees and its main suppliers and partners adopt conduct that is in in conducting business, governing and standardizing cor- line with the general principles set out in the Code. porate conduct on the basis of standards aimed to ensure the maximum transparency and fairness with all stake- holders. The Code of Ethics is valid in Italy and abroad, taking due Any violations or suspected violations of Enel Compliance Programs can be reported, including in anonymous form, through a single Group-level platform (the “Ethics Point”). Other indices No. Confirmed violations of the Code of Ethics (1) 2018 30 2017 31 Change (1) -3.2% (1) In 2018, an analysis was performed of violations reported in 2017. As a result, the number of verified violations reported for 2017 was changed from 27 to 31. Compliance Model (Legislative Decree 231/2001) Legislative Decree 231/2001 introduced into Italian law a system of administrative (and de facto criminal) liability for companies for certain types of offenses committed by their directors, managers or employees on behalf of or to the benefit of the company. Enel was the first organiza- tion in Italy to adopt, back in 2002, this sort of compliance model that met the requirements of Legislative Decree 231/2001 (also known as “Model 231”). Enel Global Compliance Program (EGCP) Zero-Tolerance-of- Corruption Plan and the anti-bribery management system In compliance with the tenth principle of the Global Compact, according to which “businesses should work against corruption in all its forms, including extortion and bribery”, Enel is committed to combating corruption. For this reason, in 2006 we adopted the Zero-Tolerance-of- Corruption (ZTC) Plan as confirmation of the Group’s commitment, as described in both the Code of Ethics and the Model 231, to ensure propriety and transparency in conducting company business and operations and to safeguard our image and positioning, the work of our em- ployees, the expectations of shareholders and all of the The Enel Global Compliance Program for the Group’s Group’s stakeholders. Following receipt of the ISO 37001 foreign companies was approved by Enel in September anti-corruption certification by Enel SpA in 2017, which 2016. It is a governance mechanism aimed at strengthen- was confirmed in 2018, Enel is continuing to extend cer- ing the Group’s ethical and professional commitment to tification to the main Italian and international subsidiaries preventing the commission of crimes abroad that could of the Group. result in criminal liability for the company and do harm to our reputation. The types of crime covered by the Enel Global Compli- Human Rights Policy ance Program – which encompasses standards of con- In order to give effect to the United Nations Guiding Prin- duct and areas to be monitored for preventive purposes ciples on Business and Human Rights, in 2013 the Enel – are based on illicit conduct that is generally considered SpA Board of Directors approved the Human Rights Poli- such in most countries, such as corruption, crimes against cy, which was subsequently approved by all the subsidiar- the government, false accounting, money laundering, vio- ies of the Group. This policy sets out the commitments lations of regulations governing safety in the workplace, and responsibilities in respect of human rights on the part environmental crimes, etc. of the employees of Enel SpA and its subsidiaries, wheth- 161 Report on operationser they be directors or employees in any manner of those partners as part of its business relationships. Execution companies. Similarly, with this formal commitment, Enel of the action plans, which were prepared following due explicitly becomes a promoter of the observance of such diligence on the management system in 2017, began in rights on the part of contractors, suppliers and business 2018. Creating value for stakeholders Enel’s stakeholders are individuals, groups or institutions The economic value created and shared by Enel gives a whose contribution is needed to achieve our mission or good indication of how the Group has created wealth for who have a stake in its pursuit. the following stakeholders: shareholders, lenders, employ- ees and government. Millions of euro Revenue Income/(Expense) from commodity risk External costs Gross global value added from continuing operations Gross value added from discontinued operations 2018 75,672 483 53,881 22,274 - 22,274 2,765 2,493 4,582 3,168 9,266 2017 74,639 578 53,680 21,537 - 21,537 1,983 2,495 4,504 3,273 9,282 Gross global value added distributed to: Shareholders (1) Lenders Employees Government Enterprises (1) (1) In order to improve presentation, the comparative figures for 2017 have been adjusted to take account of dividends actually distributed. Previously those authorized but not yet paid had been included. Enel’s commitment to climate change disclosure Global trends such as decarbonization, electrification, ur- oping a business model that is aligned with the objectives of banization, and digitalization are redesigning the energy in- the Paris Agreement (COP21) to maintain the average global dustry in the direction of a new ecosystem that is gradually temperature increase well below 2 °C compared with pre- transforming the traditional model of the utility busi- industrial levels and to continue with efforts to limit this in- ness. crease to 1.5 °C within a strategy based on a long-term view It is therefore necessary to promote the fight against cli- translated into practical objectives. In addition to actions that mate change, one of the primary challenges we face as focus on the generation mix, Enel is active in digitalization, a society, by promoting a global low-carbon economy. As electric mobility, energy efficiency, and innovation. Within stated by the World Economic Forum in its 2019 Global Risk this landscape, Enel’s commitment to the circular economy, Report, climate change is now the leading risk to society and which unites innovation, competitiveness, and environmen- will have a direct impact on long-term business performance. tal sustainability, engages all areas of the Group in working Therefore, combating climate change and protecting the towards these objectives. environment are among the responsibilities of a ma- Furthermore, Enel is committed to promoting transpar- jor global player in the energy industry such as Enel as ency in climate disclosure as a way to demonstrate to its we seek to achieve the full decarbonization of electric- stakeholders that Enel’s ambition to tackle climate change ity generation by 2050, thereby helping to achieve the is rigorous and determined. Therefore, Enel has made a United Nations’ SDG 13. We are also committed to devel- public commitment to adopt the recommendations of 162 Annual Report 2018the Task force on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board, which in 2017 pub- lished specific recommendations on the voluntary reporting Climate-related responsibilities of the governance bodies of the financial impact of climate risks. Board of Directors - The Board of Directors of Enel SpA As a result, within the scope of implementing these guide- is responsible for analyzing and approving company strat- lines, Enel has updated the information concerning the egy, including the Group’s annual budget and Business management of climate-related issues. As such, this sec- Plan, which include the primary objectives and actions tion has been structured around the four areas recommend- that the company intends to pursue in order to guide the ed by the TCFD, which represent the fundamental compo- energy transition and deal with climate change. The Board nents of how organizations operate: of Directors also guides and evaluates the internal control > Governance - Description of the role of Enel’s system and risk management system (“SCIGR”), while also de- of corporate governance with regard to climate-related termining the level and nature of risk that is compatible issues and the role of management in assessing and with the strategic objectives of the company and of the managing such issues; Group. The ICRMS is the set of rules, procedures, and or- > Strategy - Overview of the main climate-related risks ganizational structures aimed at identifying, measuring, and opportunities over the short, medium and long term, monitoring and managing the main risks of the company as well as of the various physical and transition scenarios and its subsidiaries. These risks include those that could considered and the company’s strategy developed to have an impact on the organization’s sustainability over the mitigate and adapt to these risks and to maximize op- medium to long term, including climate-related risks. In portunities; 2018, the Board of Directors dealt with issues related to > Risks - Description of the process adopted by the Group climate change and sustainability, as reflected in company to identify, assess and manage climate-related risks and strategies and operations, during 8 of its 18 meetings held. opportunities (a section that is complementary to the The Board is supported mainly by two internal committees section on the main risks and uncertainties); with regard to climate-related issues: > Metrics and targets - The main climate-related metrics > Corporate Governance & Sustainability Committee - used by Enel, including greenhouse-gas emissions and This Committee is responsible for assisting the Board of operational and financial indicators, together with the Directors in evaluation and decision-making processes main targets set in order to promote a low-carbon busi- related to sustainability issues, including climate-related ness model. Governance Enel is playing a leading role in the energy transition and has adopted a business model that focuses on reducing the im- pact of climate change. Within this view, Enel is committed to promoting a sustainable energy model aimed at achiev- ing full decarbonization and digitalization while enhancing the electrification of energy demand in order to promote the growth of a low-carbon economy. Enel’s organizational model and corporate governance establishes specific roles and responsibilities for the main governance bodies within the organization, thereby ensuring that climate-related risks and opportunities are given due consideration in all relevant decision-making processes. issues connected with the company’s business, as well as the company’s interactions with stakeholders. The Committee examines the guidelines of the sustainability plan, including the climate-related targets of the plan, and also examines the general layout of the Sustainability Re- port and the Non-financial Report, including the approach to climate-related disclosures adopted for these docu- ments, and provides opinions to the Board of Directors. The majority of the Committee is composed of indepen- dent directors, and, in 2018, it comprised the company Chairman, who acted as chairman of the Committee, and two independent directors. In 2018, the Committee dealt with issues related to climate change and sustainability, as reflected in company strategies and operations, dur- ing 4 of its 6 meetings held; > Control and Risk Committee - This Committee supports the Board in carrying out its duties with regard to internal control and risk management. It also examines the con- solidated financial statements, the Sustainability Report, 163 Report on operationsand the Non-financial Report within the scope of their relevance to the internal control and risk management system (“SCIGR”), all of which include climate-related disclosures, and issues related opinions to the Board of Enel’s organizational model for managing climate-related issues Directors for the purposes of approval of these docu- ments. The Committee is composed of non-executive directors, the majority of which (including the chairman) are independent. In 2018, the Committee was made up of four independent directors. In 2018, the Committee dealt with issues related to climate change and sustain- ability, as reflected in company strategies and opera- tions, during 8 of its 13 meetings held. Again in 2018, the company organized a specific induc- tion program aimed at providing the directors with a suf- ficient understanding of the fields in which the Group operates, including climate-related issues and their im- pact on business strategy and company operations. Chairman - Within the role of guiding and coordinating the efforts of the Board of Directors, as well as overseeing im- plementation of the Board’s resolutions, the Chairman plays a proactive role in the approval and monitoring of business and sustainability strategies, of which growth by way of low-carbon technologies and services is one of the pillars. In 2018, the Chairman also led the Corporate Governance & Sustainability Committee. CEO and General Manager - This person is vested with broad powers of company management, with the exception of those powers reserved to the Board of Directors, and, in execution of these powers, has established a sustainable business model by defining strategies aimed at guiding the transition to a low-carbon energy model. This position re- ports to the Board of Directors regarding the execution of these powers, including business-related activities in line with Enel’s commitment to dealing with climate change. The CEO is also the appointed senior officer responsible for the ICRMS. Finally, the CEO represents Enel in various initia- tives related to climate change and hold important positions in institutions of global renown, such as the United Nations Enel has a management team in which climate-related responsibilities have been assigned to specific functions that help guide Enel’s leadership in the energy transition. Each area is responsible for managing the climate-related risks and opportunities of relevance to that area: > Holding company functions (i.e. Administration, Fi- nance & Control; Audit; Innovability; and Health, Safety, Environment & Quality) are responsible for analyzing the scenarios and for managing the strategy and finan- cial planning process aimed at promoting renewable energy, the decarbonization of the energy mix, asset digitalization, and the electrification of energy demand; > Global service functions (i.e. Procurement and Digi- tal Solutions) are responsible for implementing sus- tainability and climate change related criteria in supply chain management and fostering the development of digital solutions to support the implementation of tech- nologies enabling the fight against climate change; > Global Business Lines (i.e. Enel Green Power; Ther- mal Generation; Trading; Infrastructure & Networks; and Enel X) are responsible for developing activities re- lated to the promotion of renewable energy generation, the optimization of thermal capacity, the digitalization of the electric grid, and the development of enabling solutions in the energy transition and the fight against climate change (e.g. electric mobility, energy efficiency, efficient lighting and heating systems); > Regions and Countries (i.e. Italy, Iberia, Euro-Med- iterranean Affairs, South America, North and Central America, Africa, Asia and Oceania) are responsible for promoting decarbonization and guiding the energy transition towards a low-carbon business model within their areas of responsibility. The Europe & Euro-Med- iterranean Affairs function is responsible for defining the Group’s position on climate change, for low-carbon policies, and for the regulation of international carbon Global Compact, the United Nations Sustainable Energy For markets within Europe. All, and the multi-stakeholder platform of the European Com- mission regarding the Sustainable Development Goals. In addition, Enel has established the following two management committees chaired by the CEO, the re- sponsibilities of which include climate-related issues: > the Group Investments Committee: this Committee approves investments related to business develop- ment. The Committee is also responsible for ensuring 164 Annual Report 2018that all investments are fully in line with the Group’s managers within the Enel Green Power Global Business commitment to promoting a low-carbon business Line, or related to products and/or services for the en- model and achieving full decarbonization by 2050. The ergy transition within the Enel X Global Business Line; Committee is made up of the heads of Administration, > a long-term variable component that, beginning in Finance & Control; Innovability; Legal & Corporate Af- 2018, includes a climate-related target for the reduction fairs, and Procurement, as well as the regional heads and the heads of the various Business Lines; of CO2 emissions per kWheq for the Enel Group over the next three years, which accounts for 10% of total long- > the Group Risks Committee: the objective of this term variable remuneration. Committee is to ensure that the organizational struc- tures involved in managing operating risks are in line with business strategies and objectives, while engag- ing management in strategic decisions concerning risk policy, management and control. The incentive system related to climate change The company’s remuneration policy includes various mech- anisms aimed at making progress towards the energy tran- sition, and specifically: > a short-term variable component (or MBO) that may include objectives related to the specific function of each manager involved. This may, for example, include objec- tives tied to the development of renewable energy for Strategy Strategic planning, value creation, and climate change Enel is committed to adopt a strategy based on meeting the objectives of the Paris Agreement (COP21). By way of strategic planning and risk management integrated with sustainability and climate-related issues, the Enel Group has created sustainable value over the long term. Over the last four years (2015-2018), the Group has increased profitability while achieving objectives related to decarbon- ization, digitalization, and customer service. The Group’s Strategic and Business Plan 2019-2021 (the Plan) calls for continuing along this virtuous path based on a long-term Renewables CO2 Grid customers Retail free-market customers New businesses Simplification Cash generation Renewable capacity (% of total) CO2 emissions (kg/kWheq) Millions Millions Gross margin (billions of euro) Group earnings to total earnings (%) FFO - Gross investment (billions of euro) Remuneration of shareholders Dividend per share (€) (1) Guaranteed minimum dividend (floor). 2015 41% 0.409 61 17 - 64% 1.8 0.16 2018 46% 0.369 73 22 0.5 72% 2.5 0.28 2021 55% 0.345 75 36 0.9 71% 4.4 0.36 (1) 165 Report on operationsview and the achievement of a series of predetermined greenhouse gases (GHGs) developed by the Intergov- objectives. ernmental Panel on Climate Change (IPCC) in order to The Group’s commitment can also be seen in the objec- include the most extreme pathways of those that are tives pursued in relation to the United Nations’ Sustainable plausible: Development Goals (SDGs), specifically: inclusive and eq- > Representative Concentration Pathway 2.6 (RCP 2.6): uitable quality education (SDG 4); access to clean, afford- a climate-change scenario consistent with limiting global able energy (SDG 7); inclusive and sustainable economic warming to below 2 °C by 2100 (mean of +1 °C over the growth (SDG 8); industry, innovation, and infrastructure period 2081-2100 based on the IPCC Fifth Assessment (SDG 9); and sustainable cities and communities (SDG 11). Report); Enel is working to achieve the full decarbonization of elec- > Representative Concentration Pathway 8.5 (RCP 8.5): tricity generation by 2050, in line with the objectives of the a business-as-usual scenario that represents the most Paris Agreement and with the science-based targets, while pessimistic forecast of containing GHGs, resulting in a also helping to achieve the United Nations’ SDG 13. mean temperature increase of 3.7 °C over the period Our model of value creation is based on a long-term vision 2081-2100. that aims to take advantage of opportunities in the energy In order to study the effects of climate change and re- transition in three main areas: (i) the decarbonization of lated transition scenarios, the Group has entered into a our generation capacity (increase of about 11.6 GW in the collaboration with the International Centre for Theoretical Group’s renewables capacity8 and decrease of about 7 GW Physics (ICTP) concerning the geographical downscal- in thermal capacity by 2021 compared with 2018); (ii) infra- ing of global climate scenarios. Downscaling enables de- structure development (+10% of electricity distributed over tailed forecasts at a greater resolution so as to track the the distribution network in 2021 compared with 2018; 3.4 business impact of a series of relevant variables, such as million lamps by 2021; some 455,000 public and private temperature, rain levels, snow levels, solar radiation, and electric vehicle recharging points by 2021) and new cus- wind. This approach produces a model that integrates cli- tomer services (9.9 GW of demand response by 2021; 173 mate change with the other country-level variables, start- MW of distributed storage installed per year by 2021) at ing with the countries of greatest relevance to the Group the service of electrification and urbanization; and (iii) the and then extending out to global coverage. Integration digitalization of assets, customers, and human capital (€5.4 of the scenario analyses with climate-related variables billion in investment for the period 2019-2021). will result in an increasingly important tool supporting in- Climate-change reference scenarios formed strategy and operating decisions. The initial results of the scenario analysis and climate data have shown that significant, chronic changes will take place gradually over the coming decades. The Group develops financial and macroeconomic sce- Changes compared with historical trends will be gradual, narios over the short, medium and long term to support with limited effects in both scenarios until 2050, but with both business and strategic planning and the investment more extreme, chronic effects under RCP 8.5 from 2050 to evaluation process. This makes use of economic and 2100 compared with historical trends and RCP 2.6. Stud- statistical models progressively integrated with climate- ies of Europe and South America have pointed to a general related data by introducing projections related to physi- increase in temperature with a greater impact in southern cal and transition scenarios in order to have a broad and Europe and in Central and South America and of particular consistent view of the landscape both in countries in intensity by 2100. In these areas, rainfall levels could sig- which the Group has a presence and in those of potential nificantly decline after 2050 under RCP 8.5 forecasts, but interest. Forecasts of the main variables are constantly could increase in northern Europe (e.g. Scandinavia). Differ- compared against the most authoritative international ences in solar radiation patterns, on the other hand, could sources. be more significant beginning in 2100 in the regions most The Group has taken two physical scenarios represent- exposed to a significant reduction in rainfall, whereas wind ing two distinct, extreme pathways of concentrations of patterns could experience less homogeneous variations. 8 Includes managed capacity. 166 Annual Report 2018Regarding the transition scenario definition, the Group count the physical and transition scenarios and with the refers to the leading international sources, such as the In- support of the various components of long-term strategy ternational Energy Agency (WEO Sustainable Develop- assessment described in the section on risks (e.g. mate- ment Scenario; WEO Current Policies Scenario; ETP 2017 riality analysis, ESG risk analysis, competitive analyses, 2 °C Scenario 2DS; Beyond 2 °C Scenario B2DS), the Inter- etc.). The Group is working to gradually integrate the mod- national Renewable Energy Agency (Reference case, els of scenario analysis and strategic planning with climate Remap case), and Bloomberg New Energy Finance models in order to establish more accurate relationships (BNEF New Energy Outlook). This approach enables Enel between the climate scenarios themselves, the macroeco- to associate a series of assumptions and variables to the nomic landscape, the energy scenarios, and business fun- potential climate-related scenarios, including pathways to damentals. develop a scenario consistent with the Paris Agreement The information presented below is the result of a pre- (COP21). The transition scenario include variables such liminary impact analysis that, by assessing the potential as demand for energy and services or assumptions about long-term effects (beyond 2030) and analyzing the Group’s electrification, the use of electric vehicles, and the prices portfolio over the period of the Strategic Plan (2019-2021), of commodities and CO2. In order to reach this objective, a sharp reduction in emissions from power generation, high associates sensitivity analyses of operational and industrial phenomena related to physical and transition variables. renewable energy source penetration, and the use of ef- With regard to the risks and opportunities associated with fective policy mechanisms and measures with regard to physical variables, and taking the IPCC pathways as points carbon pricing are expected. Within this landscape, we are of reference, we analyzed the trends in the following vari- also expecting an increase in energy efficiency, and in the ables and associated operational and industrial phenomena electrification of industrial and residential consumption as with potential risks and opportunities: (i) change in mean well as in the transport industry. This transition towards temperatures and potential increase and/or decrease in en- lower carbon emissions and efficiency in the use of energy ergy demand; (ii) change in mean rainfall and snow levels could lead to a gradual uncoupling of economic growth and with a potential increase and/or decrease in hydroelectric the consumption of resources and, consequently, to lower generation; (iii) change in mean solar radiation and wind demand and lower prices for fossil fuels. with a potential increase and/or decrease in solar and wind Description of climate-related risks and opportunities generation. In addition to chronic trends, the frequency and impact of these events have been looked at in terms of extreme events potentially resulting in unexpected physical damage to assets. However, work to perfect these analy- The Group’s strategy and positioning ensure resilience and ses is ongoing. According to the scenarios used, signifi- adaptation as well as mitigation capabilities with respect to cant, chronic changes in the variables analyzed, even in the the evolution of the external context associated to climate event of increases, would have a material impact mainly change, thanks to a strategy, a business model, and a posi- over the long term. tion of leadership that are aligned with the Paris Agreement By integrating financial strategy with sustainability and in- (COP21) and which are centered around the axes of sustain- novation, the Group has already implemented a series of ability and flexible growth of utilities: actions aimed at mitigating potential risks and taking ad- > world leader among private-sector operators in terms of vantage of opportunities related to physical variables, such installed capacity in renewable energy (about 43 GW);9 as the digitalization plan aimed at, inter alia, implement- > world leader among private-sector operators of distribution ing systems and plans of preventive maintenance and, in networks in terms of customers served (some 73 million); particular, resilience plans for the infrastructures of the > world leader among private-sector operators in terms of electrical grid. Enel is also active throughout the electricity retail power and gas customers (about 70 million); value chain (i.e. generation, distribution and sales) and has > approximately 6 GW of demand response managed a diversified portfolio of assets, in terms of both genera- worldwide. tion technologies (with a marked increase in renewables, Risks and opportunities are described by taking into ac- especially wind and solar) and the markets and geographi- 9 Includes operated capacity. 167 Report on operationscal areas in which we operate, thereby minimizing climate- energy in order to move beyond the Paris Agreement with related risks and their overall financial impact. The Group benefits in terms of new revenue opportunities; also adopts the best strategies of prevention and protec- > use of low-carbon sources of energy as the main- tion in order to reduce the potential impact on the commu- stream segment of the energy mix in countries with nities and territories surrounding our assets. All areas of the opportunities to develop renewable resources and with Group are subject to ISO 14001 certification, and the poten- flexibility in their electricity and energy systems with posi- tial sources of risk are monitored by way of internationally tive impacts in terms of return on investment and new recognized environment management systems (EMSs). business opportunities; > increase in the level of competition and convergence As for the risks and opportunities associated with tran- of opportunities from diverse fields with opportunities sition variables, and based on the various scenarios men- to access new markets, services and/or partnerships or tioned above in combination with the various factors involved for the entry of new players into the energy industry; in the identification of risks (e.g. the competitive landscape, > regulatory changes with a view to integrating new the long-term outlook for the industry, materiality analyses, digital and renewable technologies and to driving in- etc.), we analyzed the trends in the following drivers and re- frastructure resilience with potential benefits in terms lated potential risks and opportunities: (i) prioritizing the phe- of introducing new mechanisms of remuneration tied to nomena of greatest relevance in terms of climate change; (ii) environmental performance and innovation. distinguishing between the short term (less than 3 years), medium term (3-5 years), and long term (beyond 5 years); Long-term risks and opportunities and strategic actions of and (iii) connecting these drivers to the TCFD recommenda- mitigation and adaptation: tions for the classification of risks and opportunities. > uncertainty and volatility in business drivers (e.g. mac- Short-term risks and opportunities and strategic actions of roeconomics, energy, climate, etc.) that are growing and mitigation and adaptation: persistent as new paradigms, with effects on price indi- > introduction of laws and regulations for getting through cators, on the cost of raw materials and technologies, on the transition and the Paris Agreement introducing stricter the value of assets, and on reputation; emission limits and/or altering the generation mix not driv- > gradual increase in the decentralization of the energy en by price signals; and electricity industries with a shift towards distrib- > increasing focus within the financial community on uted technologies and resources, which leads to new ESG issues with potential future benefits in terms of the business and investment opportunities with a focus on availability of capital, which is also tied to financial sustain- the customer and on the needs of infrastructures. ability, and of new products and markets (e.g. green or By integrating financial strategy with sustainability and inno- other sustainable bonds); vation, the Group has already implemented a series of ac- > technological maturity and full competitiveness of re- tions aimed at mitigating potential risks and taking advantage newable energy, both large-scale and small-scale, with of opportunities related to transition variables. Of particular positive effects on return on investment. note are the main actions concerning the energy and climate transition: Medium-term risks and opportunities and strategic actions > a decarbonization strategy for power generation, result- of mitigation and adaptation: ing in a reduction of thermal fossil fuels of over 6 GW from > use of more efficient means of transport from the point 2015 to 2018 and an increase of about 6 GW in renewable of view of climate change, particularly with regard to the sources to bring carbon-free power generation to 51% of development of electric vehicles and recharging infra- structures; the total and emissions to 0.36 kgCO2/kWheq. The Plan calls for a further reduction of 7 GW in thermal generation > development and/or expansion of (new) assets (e.g. by 2021 and the addition of 11 GW of renewable energy, storage) and/or low-carbon services (e.g. Energy-as-a- which would bring carbon-free generation to 62%;10 Service) in response to technological progress and shifts > financial strategy aimed at integrating ESG issues, in investment from the supply side to the demand side of leading to a sustainable approach to debt manage- 10 All figures related to the “decarbonization strategy” include managed capacity and related output. 168 Annual Report 2018ment, including by issuing green bonds – with Enel hav- ing issued three green bonds for a total of €3.5 billion – and collaboration with leading international de- velopment banks and financial institutions (e.g. the World Bank, the European Investment Bank (EIB), and other banks dedicated to regional development); > strategy to develop renewable energy, both on a large scale with the Enel Green Power Business Line with an IRR/WACC spread of around 150 bps and with the Enel X Business Line by developing distributed solutions for large and small customers; > strategy to develop electric mobility and new ser- vices with the Enel X Business Line, which, as of 2018, has about 3 MW of installed distributed storage and manages some 2.5 million lamps, 49,000 public and private electric vehicle recharging points, and more than 4 million property units connected to the fiber-optic net- work. The 2019-2021 Business Plan calls for bringing an- nual installed storage to 173 MW, lamps to 3.4 million, recharging points to 455,000, and property units con- nected to the fiber-optic network to 8.5 million; > strategy to develop renewable-energy PPAs with players in various industries, as well as a series of technology and other strategic partnerships sup- ported by innovation efforts that take advantage of a global network of innovation hubs created to devel- op technology startups of the greatest potential and to transform ideas into business solutions; > plan for the digitalization of assets, of customers, and of human capital, which reached around €1.5 billion in 2018. The plan calls for a total investment of €5.4 billion; > investment plan focused entirely on the transition to renewable energy and related networks and custom- ers. From 2015 to 2018, about €8 billion has been invest- ed annually, over 90% of which dedicated to low-carbon products, goods and/or services and, therefore, to the energy transition. The plan calls for maintaining this level of investment and of focus on climate change. Risk management The Group’s integrated risk management system In the performance of our operations, which encompass a diverse range of countries, markets and industry seg- ments, Enel is exposed to various types of risks over the short, medium and long term (e.g. commodity risk, finan- cial risks, and strategic risks, including in relation to climate change). In order to effectively deal with events that could lead to risks and opportunities, Enel has adopted an internal control and risk management system (“SCI- GR”). This system consists of the set of rules, procedures, and organizational entities aimed at identifying, measuring, monitoring and managing the main corporate risks within the Group. More specifically, the SCIGR seeks to safeguard company capital and ensure the efficiency and effective- ness of corporate processes, the reliability of information provided to the corporate bodies and to the market, and the compliance with laws, regulations, as well as with the corporate bylaws, and internal procedures. Given the importance of identifying, monitoring and man- aging the climate-related risks that could have an impact on achieving company objectives, the Board of Directors is committed to developing guidelines to ensure that decisions at all levels of the Group are consistent with risk appetite. To this end, the Board has established a Control and Risk Committee to provide support in making deci- sions concerning approval of the Business Plan and of financial reporting. This Committee also provides the Board of Directors with opinions concerning the system of internal controls and risk management guidelines so that the main risks of Enel SpA and its subsidiaries – including any risk that may affect the sustainability in a medium/long- term perspective – are properly identified, measured, man- aged and monitored. The Group also has specific internal committees composed of senior management that are re- sponsible for governing and overseeing risk management, monitoring and control. 169 Report on operationsIdentifying risks and opportunities Assessing risks and opportunities The identification of risks and opportunities within the Enel is committed to setting up and structuring periodical Group’s business and strategic planning process is de- monitoring and assessment processes of risks and op- signed to manage short-term (less than 3 years), the medi- portunities associated both with physical variables trends, um-term outlook (3-5 years), and the revision of long-term related to acute and chronic climate-related events, and ambitions (beyond 5 years). with transition scenarios related to changes in the socio- Medium- and long-term planning starts with a strategic as- economic landscape and in laws and regulations concern- sessment of the external landscape and climate-related is- ing the fight against climate change. sues, which involves the following activities: For the ex ante assessment of risk levels, a Plan risk analy- > macroeconomic, energy and climate scenario analy- sis, including exposure to climate-related factors, will be sis - a series of global and local analyses and forecasts presented each year to the Control and Risk Committee. to identify the main macroeconomic, climate and energy- With regard to ex post monitoring, the various risk factors, related drivers over the short, medium and long-term including the main climate-related variables that could have horizon; an impact on the Group’s objectives and operations, will be > competitive landscape analysis - a set of analyses to periodically evaluated and revised. These activities will be compare financial and operating performance as well undertaken starting from 2019, while at the operational lev- as environmental, social and governance (ESG) perfor- el there are already processes in place to monitor the risk mance of competitors and players of other sectors in of damage to assets and infrastructures caused by climate- order to monitor, guide and support the Group’s competi- related extreme events or natural disaster, as well as the tive advantage and leadership position; consequent risk of prolonged unavailability of such assets. > Industry view - an overview of the macro-trends affect- ing the business environment and impacting an assess- ment of the Group business through an extensive inter- nal and external collaborative approach; Managing risks and opportunities > strategic dialogue - an ongoing process of engaging the Consistently with the Strategic Plan, the Business Lines Board of Directors, management, and employees in the submit investment proposals for approval to the relevant definition of strategies. This process ensures that there Investments Committees, composed of Business Line is agreement as to the Group’s priorities; senior management. Moreover, the Group Investments > analysis of ESG risks - analysis to identify the potential Committee approves investments above a certain thresh- ESG risks to which the Group may be exposed, due to old or concerning particularly innovative projects. geographical distribution and operations; it is conducted The Investments Committee approval is based on a joint as- based on an analysis of external studies such as the sessment of both return and risk aspects. The risk assess- World Economic Forum’s Global Risk Report, studies by ment includes a quantitative analysis of economic, financial leading ESG investment analysts, and internal studies and operational risk factors and a qualitative analysis of all such as materiality analyses or due diligence concerning risk categories in order to determine the potential impact human rights; on the investment return and the appropriate mitigation > ESG landscape analysis and materiality assessment efforts. The units responsible for developing each project - Enel conducts ESG and materiality analyses using an identify the specific factors that could influence the expect- approach that takes account of the guidelines based on ed return on investment, including certain environmental numerous international standards (e.g. Global Reporting and climate-related risks (e.g. an increase in the frequency Initiative, UN Global Compact, SDG Compass, etc.) with of extreme environmental and climate-related events and the goal of identifying and assessing priorities for stake- changes in national laws and regulations regarding the fight holders and correlating them with the Group’s strategy. against climate change). The Group is committed to further developing the investment analysis framework to explicitly include an assessment of each project contribution to the improvement of the Group’s climate resilience. 170 Annual Report 2018Metrics and targets The following metrics and targets are used to measure and manage the risks and opportunities connected with climate change. Main climate change indicators Net renewable production (% of total) Emission free production (% of total) ISO 14001-certified net efficient capacity (% of total) Average thermal generation yield (%) (1) Specific emissions of CO2 from net production (kg CO2/kWheq) (2) Specific water requirement for total production (I/kWheq) (3) Drawings of water in water-stressed areas (%) (4) Generation with water consumption in water-stressed areas (%) (4) 2018 39.5 49.1 98.5 40.1 0.369 0.38 12 8 2017 32.7 43.3 99.0 40.7 0.411 0.44 9 8 Change l - - -0.01% - -10.2% -13.6% - - 6.8 5.8 (0.5) (0.6) (0.042) (0.06) 3 - Direct greenhouse gas emissions - Scope 1 (million/t) 94.80 105.51 (10.71) -10.2% Indirect greenhouse gas emissions - Scope 2 (million/teq) (5) Other indirect greenhouse gas emissions - Scope 3 (million/teq) (5) Total direct consumption of fuel (Mtoe) Reference price of CO2 (€) EBITDA from low-carbon products, services and technologies (billions of euro) (6) CAPEX for low-carbon products, services and technologies (billions of euro) (6) Ratio of capex for low-carbon products, services and technologies to total (%) (6) 1.09 6.78 37.0 13.0 14.5 7.5 89.0 1.19 7.14 41.3 5.3 13.4 7.6 88.9 (0.10) (0.36) (4.3) 7.7 1.1 (0.1) 0.1 -8.4% -5.1% -10.4% - 8.2% -1.3% - (1) Percentages calculated using new method that does not include oil and gas plants in Italy that are in the process of decommissioning or are marginal among thermal plants. The figures also do not consider consumption and generation for co-generation at Russian thermal plants. The average generation yield is calculated on the basis of the number of plants and weighted by output. (2) Specific emissions are calculated as total emissions from simple thermal generation and co-generation of electricity and heat as a ratio of total renewables generation, nuclear generation, simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent). (3) Following the adoption of the new GRI 303, from this year the value previously indicated as specific consumption is now indicated as specific require- ment. Requirement is the total quantity of water drawn, including the reuse of waste water, necessary for the operation of a generation plant. The specific requirement for total production is calculated as total water consumption by simple thermal generation and co-generation of electricity and heat and nuclear generation as a ratio of total simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent), renewable generation and nuclear generation. The value does not include water drawn for use in open-cycle cooling, which is then returned to the original water source. For 2018, the value of the water requirement changed as a result of a change in the accounting criteria adopted in the nuclear sector, where cooling water returned to the recipient body of water is no longer included, as already done for all plants that adopt an “open-cycle” cooling system. Under the recalculated system, in 2017, total water drawn for generation processes amounted to 112.2 million cubic meters. (4) The World Resources Institute (WRI) has defined “water-stressed area” as an area in which annual per capita water availability is less than 1,700 m3. (5) Scope 2 emissions: indirect CO2 emissions for 2018 due to the consumption of electricity for electricity distribution, transport of fuel, coal mining, facilities management and electricity purchased from the grid by hydroelectric plants are estimated as the product of electricity consumption and the respective weighted coefficients of specific emissions for the entire generation mix of the countries in which the Enel Group operates (Source: Enerdata - https:// www.enerdata.net/). Following a change in methodology, the figure for 2018 also includes electricity purchased from the grid for pumping at hydroelectric plants. The share of emissions connected with grid losses for electricity consumed has been included in Scope 3 emissions rather than Scope 2 as previ- ously. The figure for 2017 has been recalculated. Scope 3 emissions: indirect CO2 emissions for 2018 due to the marine transport of coal are estimated on the basis of the amount transported (equal to 69.5% of total coal used), considering Panamax ships with a tonnage of 67,600 tons travelling an average distance of 700 nautical miles over 22 days of steaming, using 35 tons of fuel oil per day, with an emissions coefficient of 3.2 kg of CO2 for each liter of oil burned, including three days for unloading with a consumption of 5 tons of fuel oil. Indirect emissions of CO2 from rail transport of coal are estimated on the basis of the amount transported (equal to 30.5% of coal used), considering trains with a tonnage of 1,100 tons travelling an average distance of 1,400 km with a consumption of 6.9 kWh/t for each 100 km of transport and the average emissions coefficient of Enel in the world. Indirect CO2 emissions from the transport of consumables, fuel oil, diesel, solid biomass, refuse-derived fuel (RDF) and waste are estimated on the basis of the amount of raw materials transported, considering trucks with a tonnage of 28 tons travelling an average distance (out and back) of 75 km, using 1 liter of diesel for each 3 km travelled with an emissions coefficient of 3 kg of CO2 for each liter of diesel burned. The figure is an approximate estimate of fugitive methane (CH4) emissions of the coal imported and used by the Enel Group for thermal generation. The figure does not include emissions from the transport of lignite. The figures for 2017 have been restated following the adoption of a new methodological approach. The share of emissions connected with grid losses for electricity consumed has been included in Scope 3 emissions rather than Scope 2 as previously. (6) “Low-carbon products, services and technologies” include the Business Lines of Enel Green Power, Infrastructure and Networks, Enel X and Sales (80%, excluding gas). 171 Report on operationsNet efficient generation capacity by primary energy source MW 2018 2017 Change Net efficient thermal capacity: - coal - CCGT (1) - fuel oil/gas (1) Total Net efficient nuclear capacity Net efficient renewable capacity: - hydroelectric - wind - geothermal - biomass and co-generation - other Total Total net efficient generation capacity (1) Figure recalculated on the basis of a reclassification of TG plants. Net efficient generation capacity by geographical area MW Italy Iberia South America Russia North and Central America Romania Greece Bulgaria India South Africa 15,828 17,244 10,027 43,099 3,318 27,844 8,190 804 42 2,322 39,203 85,620 2018 27,624 22,717 20,997 8,879 3,826 534 307 42 172 522 15,965 17,251 10,078 43,294 3,318 27,799 7,431 802 57 2,216 38,305 84,917 2017 27,652 22,732 20,544 8,879 3,533 534 307 42 172 522 (137) (7) (51) (195) - 45 759 2 (15) 106 898 703 (28) (15) 453 - 293 - - - - - -0.9% - -0.5% -0.5% - 0.2% 10.2% 0.2% -26.3% 4.8% 2.3% 0.8% -0.1% -0.1% 2.2% - 8.3% - - - - - Change Total net efficient generation capacity 85,620 84,917 703 0.8% Net electricity generation by primary energy source GWh Net thermal electricity generation: - coal - CCGT - fuel oil/gas Total Net nuclear electricity generation Net renewable generation: - hydroelectric - wind - geothermal - biomass and co-generation - other Total Total net electricity generation 172 2018 2017 Change 64,366 38,134 24,832 127,332 24,067 65,893 22,161 5,881 108 4,897 98,940 250,339 70,497 44,381 26,855 141,733 26,448 55,363 17,827 5,820 108 2,577 81,695 249,876 (6,131) (6,247) (2,023) (14,401) (2,381) 10,530 4,334 61 - 2,320 17,245 463 -8.7% -14.1% -7.5% -10.2% -9.0% 19.0% 24.3% 1.0% - 90.0% 21.1% 0.2% Annual Report 2018Net electricity generation by geographical area GWh Italy Iberia South America Russia North and Central America Romania Greece Bulgaria India South Africa Total net electricity generation 2018 53,232 74,193 67,897 39,182 12,433 1,227 577 91 315 1,192 250,339 2017 53,518 78,618 64,627 39,830 9,793 1,358 548 103 325 1,156 249,876 Change -0.5% -5.6% 5.1% -1.6% 27.0% -9.6% 5.3% -11.7% -3.1% 3.1% 0.2% (286) (4,425) 3,270 (648) 2,640 (131) 29 (12) (10) 36 463 In addition to the targets indicated in the “Strategy” section, the following additional targets are linked to the fight against climate changes. Targets Emission free production (% of total) (1) Specific emissions of CO2 from net production (kgCO2/kWheq) (2) Net efficient renewable generation capacity (GW) (3) Net efficient thermal and nuclear generation capacity (GW) Net renewable electricity production (TWh) (1) Net thermal and nuclear electricity production (TWh) 62 in 2021 <0.350 in 2020 (-25% compared with 2007) 0.23 in 2030 (-44% compared with 2015) 53.9 in 2021 39.5 in 2021 132 in 2021 124 in 2021 Specific water requirement for total production (l/kWheq) (4) -35% in 2030 (compared with 2015) (1) Includes managed capacity. (2) Specific emissions are calculated as total emissions from simple thermal generation and co-generation of electricity and heat as a ratio of total renewables generation, nuclear generation, simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent). (3) Includes managed capacity. (4) Following the adoption of the new GRI 303, from this year the value previously indicated as specific consumption is now indicated as specific requirement. Requirement is the total quantity of water drawn, including the reuse of waste water, necessary for the operation of a generation plant. The specific requirement from total output is calculated as total water consumption by simple thermal generation and co-generation of electricity and heat and nuclear generation as a ratio of total simple thermal generation and co-generation of electricity and heat (including the contribution of heat in MWh equivalent), renewable generation and nuclear generation. The value does not include water drawn for use in open-cycle cooling, which is then returned to the original water source. 173 Report on operationsIn 2018, Enel had an installed capacity of 85.6 GW, up about 0.7 GW compared with 2017 following the entry into service of new renewable plants. More specifically, the increase is plans to have reduced specific CO2 emissions to 0.23 kg/ kWheq. Absolute CO2 emissions showed a marked decrease compared with 2017 thanks to the significant reduction in attributable to new wind farms in the United States and so- the Group’s net thermal generation, in particular from coal lar plants in Mexico. The additional capacity installed in 2018 amounted to 2.7 GW, mainly in North, Central and South America. The difference between the overall increase in the Group’s capacity and the new renewable capacity is due to the fact that during the year some renewable plants left the and combined-cycle plants. In 2018, specific CO2 emissions (0.369 kg/kWheq) were 10% lower than the previous year (0.411 kg/kWheq). Specific atmospheric emissions of SO2 and NOX also declined by about 11% and 9% respectively. Dust fell steeply (-37%) compared with 2017, mainly due Group’s scope of consolidation as part of the BSO (Build, Sell to work to improve the dust abatement system in Russia, and Operate) process. and, secondarily, lower thermal generation from coal in Italy Generation in 2018 came to 250 TWh, unchanged compared and Spain. with 2017. However, overall generation showed a change in The objectives that Enel has set itself as part of the strategy the production mix, with a reduction in thermal generation to tackle climate change also include certain assumptions offset by greater output from renewable sources, mainly hydroelectric but also wind and solar. As a consequence, such as a reference price for CO2 of €18 in 2021 and enable us to forecast, inter alia: the electricity generated by Enel in 2018 from zero-emission > EBITDA from low-carbon products, services and technolo- sources amounted to about 49% of the total, a considerable gies11 of €17 billion in 2021; increase compared with 2017. > CAPEX for low-carbon products, services and technolo- With a view to reducing its environmental impact, the Group gies of €7.7 billion in 2021; has set itself the goal of achieving specific CO2 emissions of less than 0.35 kg/kWheq by 2020. This objective is in line with the target set for 2030, the year in which the Group > a ratio of CAPEX for low-carbon products, services and technologies to total capex of 90.1% in 2021. Environmental sustainability Enel has implemented specific policies aimed at protecting the environment and natural resources, at combatting cli- mate change, and at contributing to sustainable economic Responsible water resource management development. A key element of these policies are our inter- Water is an essential part of electricity generation, and Enel nationally recognized Environment Management Systems therefore believes that the availability of this resource is a (EMS). Within the scope of our nuclear technology activi- critical part of future energy scenarios. The Group has always ties, Enel is publicly committed to ensuring that our plants managed the water we use efficiently through ongoing moni- adopt a clear nuclear safety policy and that those facilities toring of all power plants located in areas threatened by wa- are operated based on standards that ensure absolute prior- ter scarcity. Enel employs the following levels of analysis: ity is given to safety and the protection of employees, the > the mapping of generation sites in areas at risk of water general public, and the environment. The policy in respect of scarcity, i.e. where the average availability of per capita nuclear safety is to encourage excellence in all plant activi- water resources is below the benchmark level set by the ties based on a strategy that seeks to go beyond mere com- FAO (the mapping is performed using the Global Water pliance with applicable laws and regulations and to ensure Tool of the World Business Council for Sustainable Devel- the adoption of management approaches that embody the opment); principles of continuous improvement and managing risk. > the identification of “critical” generation sites, i.e. those in water scarcity areas drawing on fresh water; 11 “Low-carbon products, services and technologies” include the Business Lines of Renewable Energy, Infrastructure and Networks, Enel X and Sales (80%, excluding gas). 174 Annual Report 2018 > more efficient management of water resources in order to maximize the use of waste water and sea water; Preserving biodiversity > the monitoring of meteorological and climate data for Preserving biodiversity is one of the strategic objectives of each site. Globally, Enel returns about 99% of the water used for open- cycle cooling to the original source. About 8% of the Enel Group’s total electricity output uses and/or consumes fresh water in water-stressed areas.12 In 2018 the total water re- quirement was 96.3 million cubic meters, some 14% less than in 2017, reflecting a decrease in thermal and nuclear generation compared with the previous year. Of the total water requirement, the total drawn from treat- Enel’s environmental policy. The Group promotes specific projects in the various areas in which we operate in order to help protect local species, their natural habitats, and the local ecosystems in general. These projects cover a vast range of areas, including: inventory and monitoring; pro- grams to protect specific species; methodological research and other studies; repopulation and reforestation; and the construction of infrastructure supports to promote the pres- ence and activities of various species (e.g. artificial nests along power distribution lines for birds or fish ladders at hy- ed waste water amounted to 4.7%, a decrease on the pre- droelectric plants). vious year. In line with Enel’s commitment to reduce our water requirement by 35% in 2030 compared with 2015, the specific requirement for 2018 was 0.38 l/kWheq, 14% less than in 2017. Enel’s collaboration with the International Union for the Con- servation of Nature (IUCN), a global authority on the pres- ervation of biodiversity, which began in 2017, continued in 2018 and we consolidated our efforts to assess the risks and opportunities connected with managing biodiversity. Innovation, digitalization and operating efficiency In order to foster new uses of electricity and new ways of tion, have promoted the development of new solutions for managing it, making it accessible to an ever larger number e-mobility, microgrids, energy efficiency and the industri- of people in a sustainable manner, Enel has made innova- al Internet of Things (IoT). During 2018, the hub network tion and digitalization key pillars of its strategy for growth in where startups have the opportunity to test their solutions a rapidly changing environment, establishing high standards with the support of Enel’s structures and know-how was of security, business continuity and operating efficiency. It expanded. There are now six Innovation Hubs (Silicon Val- is a path that involves both the traditional business and the ley, Tel Aviv, Madrid, Moscow, Santiago de Chile and Rio development of new approaches and technologies, lever- de Janiero) and three Innovation Hub & Labs (Catania, Pisa aging creativity, passion, ideas and technologies both in- and Milan). In 2018 the Innovation Hubs organized 28 boot- side and outside the company. Enel operates through an camps, scouting initiatives dedicated to specific technolo- Open Innovability model, in which solutions are not only in- gies of interest to the Group. novative but also guarantee the long-term sustainability of The online crowdsourcing platform “Openinnovability.com” Enel’s business and the communities in which it operates. has become a digital forum where dialogue is always open It represents a consensus-based ecosystem that makes it and ideas know no limitations. Project ideas are the pro- possible to face challenges by connecting all the areas of tagonists of the challenges launched on the site through the company with startups, industrial partners, small and calls for applications. In 2018, Enel organized 27 innovation medium-sized enterprises, research centers, universities and sustainability challenges. and crowdsourcing platforms. Enel has 91 innovation part- The process of change cannot be separated from the de- nership agreements, including eight global and cross-busi- velopment of specific activities regarding the culture of in- ness agreements that, in addition to Enel’s traditional lines novation and corporate entrepreneurship at a global level. of business such as renewables and conventional genera- The “Innovation School” continued its work with the aim 12 The World Resources Institute (WRI) defines “water-stressed area” as an area in which annual per capita water availability is less than 1,700 m3. 175 Report on operationsof providing Enel people involved in innovation activities gies addressed within these communities. In recent years, with skills and knowledge about innovative work methods. Enel has intensified the use of drones in the monitoring Some 100 Innovation Ambassadors from various depart- and maintenance of its assets, inspecting solar fields, wind ments and business areas in Italy, Brazil and Colombia have farms, dams and hydroelectric reservoirs, closed compo- been selected within Enel, with the goal of ensuring that nents in traditional plants and distribution lines with the aim innovation becomes part of our daily work through specific of increasing the efficiency of operational and maintenance work methods. The “my best failure” project is also con- processes and above all reduce workers’ exposure to risks. tinuing, seeking disseminate a no blame culture and en- Furthermore, storage systems, in addition to guaranteeing courage innovative experimentation. ongoing support for current business activities, pave the Furthermore, in 2018 the activities of the innovation com- way to new frontiers of sustainable business. Using stor- munities continued, involving different areas and skills age systems improves reliability and increases the quality within the company. Energy storage, blockchain, drones, of distribution as well as ensuring, together with traditional augmented and virtual reality, 3D printing, artificial intelli- generation, network balancing and the stability of system gence, wearables and robotics are the areas and technolo- loads at the national level. Workplace health and safety Enel considers employee health, safety and general well- contracts progress through numerous control processes. being to be its most valuable asset, one to be preserved In 2018, the qualification process was further strengthened both at work and at home. We are committed to developing and a new annex has been drawn up to the general con- and promoting a strong culture of safety throughout the tractual terms that clearly defines health, safety and envi- world in order to ensure a healthy work environment. Qual- ronment obligations that all suppliers must comply with. ity and safety must go hand in hand. All of us are respon- Furthermore, we have introduced a supplier evaluation pro- sible for our own health and safety and that of the people cess called “Safety Supplier Assessment”, which provides with whom we interact and, as provided for in the Enel for specific audits on safety issues to be undertaken at the “Stop Work Policy”, they are required to promptly report supplier’s premises if certain critical issues emerge. and halt any situation of risk or unsafe behavior. The con- stant commitment of us all, the integration of safety both in In 2018, a number of safety innovation projects continued our processes and in our training, the reporting and analy- and new projects were introduced to improve health and sis of near misses, rigor in the selection and management safety processes, beginning with employee training and of contractors, controls over quality, the sharing of experi- the implementation of prevention and protection mea- ence throughout the Group and benchmarking against the sures and on through the execution and analysis of cor- leading international players are all cornerstones of Enel’s rective actions. culture of safety. We developed and implemented a mobile device that en- In 2018, we brought the SHE365 project to full implementa- ables the user to detect the voltage on both low- and medi- tion with the aim of focusing on Safety, Health and Environ- um-voltage power lines at a safe distance, thereby avoiding ment (SHE) every day of the year. contact. We launched a global initiative to reduce road ac- The project is based on three main lines of action: cidents for drivers during work hours as well as employees > expanding contractor engagement; who use cars and motorbikes to commute. The project in- > strengthening the safety commitment chain; cludes dedicated apps for smartphones, driving simulators, > fostering bottom-up involvement in initiatives. preferential terms for the purchase of personal protective equipment and preferential motor insurance policies that Safety is tightly integrated into Enel’s tender process, and use black box technology. Lastly, new virtual reality scenar- we closely monitor our contractors’ performance both up- ios have been developed for operational training, both on stream with our qualification system and ongoing as the maintenance and safety issues. 176 Annual Report 2018Safety indicators No. Injury frequency rate - Enel (1) Serious and fatal injuries at Enel Serious injuries (2) Fatal injuries Total Serious and fatal injuries at contractors Serious injuries (2) Fatal injuries Total 2018 0.943 6 1 7 10 7 (3) 17 2017 1.199 Change (0.256) 4 2 6 9 11 20 2 (1) 1 1 (4) (3) -21% 50% -50% 17% 11% -36% -15% (1) This indicator is calculated as the ratio between the total number of injuries and hours worked in millions. (2) Injuries with an initial prognosis, as reported on the medical certificate issued, of greater than 30 days, or with a confidential prognosis until the actual prognosis is released, or with an unknown prognosis that, based on an initial assessment by the company/Business Line concerned, is expected to ex- ceed 30 days. Once the official prognosis is released, the related injury is considered serious only if said prognosis exceeds 30 days. Should a confidential prognosis never be released or an unknown prognosis remain unknown, within 30 days of the event, the injury is to be deemed serious. (3) Considering activities managed in all of the areas in which the Group operates, which include a number of companies accounted for using the equity method for which the Build, Sell and Operate approach has been adopted, the total number of fatal injuries was 8. Workplace accident statistics In 2018, the Lost Time Injury Frequency Rate (LTIFR13) for Enel Group employees was 0.19, a decrease from the pre- vious year’s 0.24. With regard to the employees of contractors, the LTIFR was 0.17, down from the 0.19 of 2017. In 2018, there was one fatal injury involving employees of the Enel Group and seven14 fatal injuries involving Enel Group contractors. Policy 106 “Classification, communication, analysis and re- porting of incidents” establishes the roles and procedures that ensure the timely reporting of accidents, analysis of their root causes, and definition and monitoring of improve- ment plans. The policy also details the procedures for dis- closing and analyzing all occurrences, for example near misses, that could have resulted in serious harm. In accor- dance with these policies, all serious and fatal injuries to Enel personnel and the personnel of Enel contractors and other significant, non-serious events were investigated by a team of experts. Actions for improvement emerging from this analysis are constantly monitored until their comple- tion, and steps have been taken for contractors found to be in breach of contract (e.g. contract termination, suspension of certification, etc.). Health The Enel Group has created a structured health manage- ment system based on preventive measures in order to de- velop a corporate culture centered on promoting physical, emotional and organizational well-being and on establishing work-life balance. To this end, the Group carries out local and global awareness campaigns to promote healthy life- styles, sponsors screening programs aimed at preventing illness, and ensures the delivery of medical services. Glob- al programs and initiatives are developed in accordance with the calendar of the World Health Organization and with local needs. Furthermore, we have developed a series of measures to support staff travelling abroad on business: a policy has been set up for the prevention of local diseases and emergency assistance in case of illness or accident, a smartphone application with travel information, a guideline on vaccinations and a new global insurance policy has been agreed. Development of the culture of safety: communication, training, information and sharing of experiences In 2018, we provided some 726 thousand hours of training, in addition to awareness-raising and training activities in or- 13 The Lost Time Injury Frequency Rate (LTIFR) is calculated by as the ratio between the number of injuries and the number of hours worked/200,000. 14 Considering activities managed in all of the areas in which the Group operates, which include a number of companies accounted for using the equity method for which the Build, Sell and Operate approach has been adopted, the total number of fatal injuries was 8. 177 Report on operationsder to increase the specific skills and knowledge of work- an important opportunity to balance company needs and ers throughout the Group. We also used possible scenarios employee aspirations. This system makes it possible to reproduced in virtual reality by the Group’s Business Lines encourage internal mobility, develop cross-sector skills, for the training of operations personnel. There were also integrate cultures and professional skills in the various various training activities on safe driving, as well as safety countries in which the Group operates. In 2018, we also leadership training for management. There were several launched globally a new information technology platform to communication campaigns concerning health and safety manage the selection process, both for internal and exter- during the year, focusing on areas of particular importance nal candidates. to the organization. In particular this year, global communi- The digitalization of the various business areas plays a key cation efforts focused on issues related to personal health role in our corporate strategy. Enel therefore launched a pro- and on the most common disorders, such as: hypertension, gram for the dissemination of digital skills in 2018, with the hepatitis, smoking, risk factors in cardiovascular diseases, aim of involving the entire company population by 2020 and skin cancer, etc. These communication campaigns were keeping this percentage constant in 2021. In particular, sev- based both on the publication of news on the company’s in- eral training programs were launched, including “Digital Pills”, tranet and on specific segments on Enel TV and Enel Radio. which are available on the company online platform, divided As part of the Group’s strategic objective to share experi- into 18 short videos with a total duration of one hour on the ences, Enel has organized and actively participated in ex- following issues: digital transformation, agile methodology, change of views with large European utilities on health and data, innovation methodologies and digital revolution. In the safety issues, with a view to creating a synergistic effort last year 35% of the population was involved in initiatives to towards improving the prevention of injuries and accidents. develop digital skills. Human resource management, development and motivation As at December 31, 2018, the total workforce of the Enel Group numbered 69,272 employees, 44% of whom work- ing in companies based in Italy. This is a net increase of about 6,400 employees during the year, due mainly to ac- quisitions in Brazil, Italy and Spain. Of the total of 3,414 new hires, 23% were in Italy while the remaining 77% were distributed across the various countries abroad. In a rapidly-changing global environment, there is the need for lean and agile organizational structures, with clear un- derstanding of goals and priorities, and in which corporate relationships are based on trust, rapid problem solving, flex- ibility and innovation. In line with this context, the selection and recruitment pro- cess plays a key role. In order to identify the most suit- able employee profiles, we have strengthened partnerships with universities, including organizing academic events to promote knowledge exchanges or university class sessions on specific topics. We have also enhanced the internal se- lection program, known as “Job Posting”, which represents The qualitative and quantitative performance-evaluation pro- cess in 2018 involved the Group’s workforce at various lev- els. The process in 2018 was strongly innovated in terms of rationale, mechanisms and frequency. It moved from an annual evaluation to a continuous process of discussion and dialogue and turned from a dual relationship (supervisor/em- ployee) to an all-round exchange of feedback (supervisor/em- ployee/colleagues/team members) so as to shift the focus on the organizational network, moving away from the hierarchi- cal model. As the company increasingly adopts an approach geared towards openness and the sharing of information, the feedback philosophy is in line with the Group’s vision. In 2018, the qualitative assessment, which focused on the four values of Enel detailed in the 10 Open Power principles in- volved 100% of the eligible workforce,15 of whom 99% were assessed. Quantitative appraisals, in turn, were conducted for employ- ees with variable remuneration plans, which involved the as- signment of targets and the assessment of those targets. In order to ensure merit is managed and leveraged appropri- ately, for some years now the Enel Group has also adopted a talent management process, which enables the effective governance of management positions, facilitating generation- 15 Eligible employees: employees who have an open-ended contract and were employed for at least three months in 2018. 178 Annual Report 2018al turnover by identifying young talents in development. The objective is to leverage differences in gender and age and to stimulate functional osmosis to foster the development of our employees and, consequently, the Group. The pool of developing talents is the primary source of new managers, who are nominated following an evaluation of aptitude and motivation designed to ensure a match between the level of responsibility to be assigned to the employee and the man- agement model that Enel considers necessary for today and tomorrow, in line with the Open Power approach. The corporate-climate survey plays an important role within the company as it enables the identification of areas of im- provement and the gathering of suggestions on working life issues and aspects. In 2018, the content of the survey was revised, with the preparation of 20 questions divided into three key domains: Well-being, Engagement and Safe- ty. More than 86% of Enel’s entire workforce16 participated, evaluating aspects such as courtesy, respect, cooperation, work-life balance, motivation, meritocracy and working re- lationships. The analysis of the information will allow us to Diversity and inclusion Enel’s commitment to promoting diversity and inclusion is a process that started in 2013 with the adoption of our policy on human rights, followed by our global “Diversity and Inclusion” policy, which was approved in 2015. Enel’s approach is based on the fundamental principles of non- discrimination, equal opportunities and human dignity in all its forms, inclusion and promoting work-life balance. The application of our policy has enabled us to develop global and local projects to promote diversity in terms of gender, age, nationality and disability, and to advance the culture of inclusion at all levels of the Group and in every situation that may be encountered in the workplace. The impact of this policy is being monitored on the basis of a detailed set of internal indicators associated with the various actions and contexts. More specifically, Enel has set the public objective of ensuring equal gender representation in the initial stages of the selection and recruiting process (about 50% by 2020). In 2018, in line with the established trajec- tory, women accounted for 39% of participants in selection draw up global and local action plans. processes. Responsible relations with our communities The energy sector is undergoing a profound transforma- Enel is committed to respecting the rights of communities tion and our emphasis towards social and environmental and to contributing to their economic and social develop- factors, together with an inclusive approach, allows us to ment, interacting every day with a multitude of stakehold- create long-term value for Enel and for the communities in ers. In 2018, Enel, with over 1,600 projects and about 7 which we operate. This model has been incorporated along million beneficiaries,17 made a concrete contribution to the the entire value chain: analyzing the needs of communities establishment of ecosystems in the countries in which it right from the development phases of new activities; tak- operates to guarantee access to electricity in rural areas ing account of social and environmental factors in the es- and address inadequate power supplies (SDG 7), promoted tablishment of sustainable worksites; managing assets and the economic and social development in the communities plants to make them sustainable development platforms (SDG 8) and supported quality education (SDG 4). to the benefit of the territories in which they are located. Contributing to this were also more than 700 partnerships Another development was the broadening of this approach with local organizations, social enterprises, universities, in the design, development and supply of energy services international associations and non-governmental organiza- and products, helping to build cities that are increasingly tions in the various countries. sustainable and deploying new technologies and circular economy approaches. 16 Eligible employees: employees who have an open-ended contract and were employed for at least three months in 2018. Eletropaulo was not involved as it was acquired during the year. 17 Beneficiaries are those for whom a project is implemented. Enel only considers direct beneficiaries in the current year. The number of beneficiaries includes the activities and projects carried out in all the areas in which the Group operates (including companies accounted for using the equity method, foundations and non-profit organizations and the companies involved in the Build, Sell and Operate process). 179 Report on operationsCustomer management Our constant focus on the customer and our commitment to implemented various agreements in 2018 with local authori- delivering high-quality products and services are important ties to facilitate payment of electricity bills by low-income cus- factors that distinguish Enel in the relationship with its cus- tomers, and to avoid disconnection and late payment charges. tomers in the various countries in which the Group operates. Likewise, in Italy for a number of years we have been offer- In 2018, the average number of power and gas customers ing a discount to residential customers experiencing financial came to about 68 million, an increase over 2017 mainly as a hardship and to those dependent on electrical lifesaving medi- result of the acquisition of Eletropaulo in Brazil. cal devices (the so-called “social bonus”). The quality of Enel’s services is closely linked to the reliability and efficiency of the transmission and distribution infrastruc- Enel has also established numerous processes to ensure tures, which must be able to handle the levels of demand. In customers receive a high level of service. In Italy, the com- coordination with the other entities that operate in various mercial quality of all our contact channels (customer service roles on the grid infrastructure, Enel implements constant calls, Enel Points and stores, utility bills, app, e-mail, social development and efficiency efforts aimed mainly at reducing media, account manager, fax) is ensured through systematic the number and duration of service interruptions. monitoring of the sales and management processes in order Enel’s leadership position has been gained thanks to the at- to ensure compliance with applicable laws and regulations tention we place on the customer in providing quality servic- and respect for the privacy, freedom and dignity of our cus- es: aspects that concern more than just the provision of elec- tomers. tricity and/or natural gas, extending, above all, to intangible aspects of our service that relate to the perception and sat- Enel also confirms its interest in digitalization, electronic in- isfaction of our customers. Through our products for both the voicing and new services. With Enel X, we offer innovative residential and business markets, the company confirmed its solutions to residential customers (technological solutions focus of the last few years, with dedicated offers with a lower for smart homes, home automation, solar and photovoltaic environmental impact and a concentration on the most vul- systems, boilers, maintenance services, lighting, etc.), gov- nerable segments of the population. In fact, all the countries ernment customers (public lighting, monitoring services for in which the Group operates provide forms of support (often smart cities, surveillance systems, etc.) and large customers linked to government initiatives) which assist these segments (demand response services, consulting and energy efficiency of the population in paying their electricity and gas bills, so as solutions). We also promote electric mobility through the de- to give everyone equal access to electricity. In Spain, Endesa velopment of public and private research infrastructures. Customers by geographical area Average No. Electricity: - Italy - South America (1) - Iberia - Romania 2018 2017 Change l 25,602,096 26,420,058 (817,962) 22,585,296 18,044,215 4,541,081 10,799,974 10,941,644 (141,670) 2,921,353 2,782,014 139,339 Total electricity customers 61,908,719 58,187,931 3,720,788 Natural gas: - Italy - Spain - Romania 4,103,790 4,003,484 100,306 1,589,630 1,550,424 35,012 2,421 39,206 32,591 Total natural gas customers 5,728,432 5,556,329 172,103 (1) The increase in customers is attributable to Brazil as a result of the acquisition of Eletropaulo in 2018. 180 -3.1% 25.2% -1.3% 5.0% 6.4% 2.5% 2.5% - 3.1% Annual Report 2018Sustainable supply chain Enel bases its procurement processes on pre-contractual Supplier management involves three essential stages, and contractual conduct centered around mutual good which integrate social, environmental and governance is- faith, transparency and collaboration. In addition to meeting sues in the evaluation process. These are: certain quality standards, the services of our vendors must > the qualification system; also go hand in hand with the adoption of best practices in > general terms and conditions of contract; terms of human rights and working conditions, workplace > vendor ratings. health and safety and environmental and ethical responsi- Enel’s global vendor-qualification system (with more than bility. 6,700 active qualifications as at December 31, 2018) en- Our procurement procedures are designed to guarantee ables us to accurately assess businesses that intend to service quality in full respect of the principles of economy, participate in tender processes and serves as a guarantee effectiveness, timeliness, fairness and transparency. for the company, while the vendor-rating system seeks to The procurement process plays a central role in value cre- monitor vendor services in terms of the quality, timeliness ation in its various forms (safety, savings, timeliness, qual- and sustainability of contract execution. ity, earnings, revenue, flexibility) as a result of ever-greater Furthermore, we continued working on those activities interaction and integration with the outside world and the that enable an ever-greater integration of environmental, different parts of the company organization. social and governance issues in the supply chain strategy, In 2018, we signed new agreements with a total of more creating shared value with vendors in a vision of a circular than 31,000 vendors. economy. 181 Report on operationsRelated parties As an operator in the field of generation, distribution, directly or indirectly controlled by the Italian State, the transport and sale of electricity and the sale of natural gas, Group’s controlling shareholder. Enel carries out transactions with a number of companies The table below summarizes the main types of transactions carried out with such counterparties. Related party Relationship Nature of main transactions Acquirente Unico - Single Buyer Fully controlled (indirectly) by the Ministry for the Economy and Finance Purchase of electricity for the enhanced- protection market Cassa Depositi e Prestiti Group Directly controlled by the Ministry for the Economy and Finance Sale of electricity on the Ancillary Services Market (Terna) Sale of electricity transport services (Eni Group) Purchase of transport, dispatching and metering services (Terna) Purchase of postal services (Poste Italiane) Purchase of fuels for generation plants and natural gas storage and distribution services (Eni Group) GSE - Energy Services Operator Fully controlled (directly) by the Ministry for the Economy and Finance Sale of subsidized electricity Payment of A3 component for renewable resource incentives GME - Energy Markets Operator Fully controlled (indirectly) by the Ministry for the Economy and Finance Sale of electricity on the Power Exchange (GME) Purchase of electricity on the Power Exchange for pumping and plant planning (GME) Leonardo Group Directly controlled by the Ministry for the Economy and Finance Purchase of IT services and supply of goods In addition, the Group conducts essentially commercial All transactions with related parties were carried out on transactions with associated companies or companies in normal market terms and conditions, which in some cas- which it holds minority interests. es are determined by the Regulatory Authority for Energy, Finally, Enel also maintains relationships with the pension Networks and Environment. funds FOPEN and FONDENEL, Fondazione Enel and Enel Cuore, an Enel non-profit company devoted to providing For more details on transactions with related parties, social and healthcare assistance. please see the discussion in note 49 to the consolidated financial statements. 182 Annual Report 2018Reconciliation of shareholders’ equity and net income of Enel SpA and the corresponding consolidated figures Pursuant to CONSOB Notice DEM/6064293 of July 28, results for the year and shareholders’ equity with the 2006, the following table provides a reconciliation of Group corresponding figures for the Parent Company. Millions of euro Income statement Shareholders’ equity Income statement Shareholders’ equity at Dec. 31, 2018 at Dec. 31, 2017 Financial statements - Enel SpA 3,456 27,943 2,270 27,236 Carrying amount and impairment adjustments of consolidated equity investments Shareholders’ equity and net income (calculated using harmonized accounting policies) of the consolidated companies and groups and those accounted for using the equity method, net of non-controlling interests Translation reserve Goodwill Intercompany dividends Elimination of unrealized intercompany profits, net of tax effects and other minor adjustments TOTAL SHAREHOLDERS OF THE PARENT COMPANY NON-CONTROLLING INTERESTS CONSOLIDATED FINANCIAL STATEMENTS (548) (78,109) 53 (76,076) 7,263 - (3) (4,836) (543) 4,789 1,561 6,350 73,975 (3,317) 14,273 5,875 - - - (4,471) (3,045) 31,720 16,132 47,852 52 3,779 1,550 5,329 73,608 (2,614) 13,745 - (1,104) 34,795 17,366 52,161 183 Report on operations 03 Consolidated financial statements Financial statements Consolidated income statement Millions of euro Notes 2018 2017 of which with related parties of which with related parties Revenue Revenue from sales and services Other revenue and income Costs Electricity, gas and fuel purchases Services and other materials Personnel Net impairment/(reversals) of trade receivables and other receivables Depreciation, amortization and other impairment losses Other operating expenses Capitalized costs Net income/(expense) from commodity contracts measured at fair value Operating income Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense 8.a 8.b [Subtotal] 9.a 9.b 9.c 9.d 9.e 9.f 9.g [Subtotal] 10 11 12 11 12 Net income/(expense) from hyperinflation 11, 12 13 14 14 14 14 14 Share of income/(losses) of equity investments accounted for using the equity method Income before taxes Income taxes Net income from continuing operations Net income from discontinued operations Net income for the year (shareholders of the Parent Company and non-controlling interests) Attributable to shareholders of the Parent Company Attributable to non-controlling interests Basic earnings/(loss) per share attributable to shareholders of the Parent Company (euro) Diluted earnings/(loss) per share attributable to shareholders of the Parent Company (euro) Basic earnings/(loss) per share from continuing operations attributable to shareholders of the Parent Company (euro) Diluted earnings/(loss) per share from continuing operations attributable to shareholders of the Parent Company (euro) 186 73,134 2,538 75,672 35,728 18,870 4,581 1,096 5,355 2,889 (2,264) 66,255 483 9,900 1,993 1,715 1,532 4,392 168 349 8,201 1,851 6,350 - 6,350 4,789 1,561 0.47 0.47 0.47 0.47 5,124 22 7,761 2,664 531 27 18 25 5,387 38 7,737 2,644 272 10 59 55 72,664 1,975 74,639 36,039 17,982 4,504 - 5,861 2,886 (1,847) 65,425 578 9,792 1,611 2,371 2,766 3,908 - 111 7,211 1,882 5,329 - 5,329 3,779 1,550 0.37 0.37 0.37 0.37 Annual Report 2018 Statement of consolidated comprehensive income Millions of euro Notes Net income for the year Other comprehensive income recyclable to profit or loss (net of taxes) Effective portion of change in the fair value of cash flow hedges Change in the fair value of hedging costs Share of the other comprehensive income of equity investments accounted for using the equity method Change in the fair value of financial assets at FVOCI Change in translation reserve Other comprehensive income not recyclable to profit or loss (net of taxes) Remeasurement of net liabilities/(assets) for employee benefits Change in the fair value of equity investments in other entities Total other comprehensive income/(loss) for the year 34 Total comprehensive income/(loss) for the year Attributable to: - shareholders of the Parent Company - non-controlling interests 2018 6,350 (552) 83 (57) (3) 2017 5,329 (204) 132 10 (129) (1,287) (2,519) (120) 12 (1,924) 4,426 3,667 759 74 - (2,636) 2,693 1,968 725 187 Consolidated financial statements at Dec. 31, 2018 at Dec. 31, 2017 of which with related parties of which with related parties 74,937 77 16,724 13,746 6,354 1,598 702 - 4,002 1,064 119,204 2,722 14,529 - 577 2,309 4,614 2,695 7,021 34,467 1,970 155,641 832 11 3 162 Consolidated balance sheet Millions of euro ASSETS Non-current assets Property, plant and equipment Investment property Intangible assets Goodwill Deferred tax assets Equity investments accounted for using the equity method Derivatives Non-current contract assets Other non-current financial assets Other non-current assets Notes 16 19 20 21 22 23 24 25 26 27 76,631 135 19,014 14,273 8,305 2,099 1,005 346 5,769 1,272 Current assets Inventories Trade receivables Current contract assets Tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents Assets classified as held for sale TOTAL ASSETS [Total] 128,849 28 29 25 24 30 31 32 [Total] 33 2,818 13,587 135 660 3,914 5,160 2,983 6,630 35,887 688 165,424 1,085 52 21 165 188 Annual Report 2018 Millions of euro Notes LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2018 at Dec. 31, 2017 of which with related parties of which with related parties Equity attributable to shareholders of the Parent Company Share capital Other reserves Retained earnings/(Loss carried forward) Non-controlling interests Total shareholders’ equity Non-current liabilities Long-term borrowings Employee benefits Provisions for risks and charges - non-current Deferred tax liabilities Derivatives Non-current contract liabilities Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Provisions for risks and charges - current Trade payables Income tax payable Derivatives Other current financial liabilities Other current liabilities Other current liabilities Liabilities included in disposal groups classified as held for sale Total liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY [Total] 34 35 36 37 22 24 25 38 35 35 37 39 24 25 40 42 [Total] 33 [Total] 76,817 10,167 1,700 19,853 31,720 16,132 47,852 10,167 3,348 21,280 34,795 17,366 52,161 48,983 804 42,439 893 3,187 5,181 8,650 2,609 6,306 1,901 3,616 3,367 1,312 2,407 4,821 8,348 2,998 - 2,003 63,016 1,894 7,000 1,210 86 89 36 89 13,387 2,924 12,671 2,365 333 4,343 1,095 788 12,107 40,348 407 117,572 165,424 35 25 69 284 2,260 - 954 12,462 38,735 1,729 103,480 155,641 9 37 189 Consolidated financial statements Statement of changes in consolidated shareholders’ equity (notes 4 and 34) Share capital and reserves attributable to shareholders of the Parent Company Millions of euro Share capital Share premium reserve Legal reserve Other reserves Reserve from translation of financial statements in currencies other than euro Reserves from measurement of cash flow hedge financial instruments Reserves from measurement of costs of hedging financial instruments Reserves from measurement of financial instruments at FVOCI At December 31, 2016 10,167 7,489 2,034 2,262 (1,005) (1,448) - Application of new accounting standards (IFRS 9) - - - - - At January 1, 2017 restated 10,167 7,489 2,034 2,262 (1,005) 480 (968) (480) (480) 106 - 106 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Distribution of dividends and interim dividends Transactions in non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) - net income/(loss) for the period At December 31, 2017 restated Application of new accounting standards (IFRS 9 and IFRS 15) Monetary revaluation (IAS 29) (1,609) (272) 132 (129) 3,779 1,968 725 2,693 (1,609) (272) 132 (129) (1,811) (825) (2,636) - - - - 3,779 3,779 1,550 5,329 10,167 7,489 2,034 2,262 (2,614) (1,240) (348) (23) (5) (646) (2,398) (1,163) 21,280 34,795 17,366 52,161 - - - - - - - - - - - - - - 3 - At January 1, 2018 restated 10,167 7,489 2,034 2,262 (2,614) (1,240) (348) (20) (5) (646) (2,398) (1,163) Distribution of dividends Monetary revaluation Transactions in non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) - net income/(loss) for the period - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (94) (14) (609) (491) (609) (491) - - - - - - 90 90 - - - - 27 9 9 - at December 31, 2018 10,167 7,489 2,034 2,262 (3,317) (1,745) (258) 16 (63) (714) (2,381) (1,623) 190 Reserve Reserve from from equity remeasurement investments of net liabilities/ Reserve from Reserve from Equity attributable to accounted for (assets) of disposal of equity acquisitions of Retained shareholders Total using the equity defined benefit interests without non-controlling earnings/(Loss of the Parent Non-controlling shareholders’ method plans loss of control interests carried forward) Company interests equity (12) (706) (2,398) (1,170) 19,484 34,803 17,772 52,575 (12) (706) (2,398) (1,170) 19,484 34,803 17,772 52,575 (1,983) (1,983) (1,052) (3,035) - 7 - - (6) (73) - 1 (73) - - - - 7 7 - - - - - - - - 60 60 - - - - - - - - - - - (5) (63) - - - - - - - - - - - - - - - 7 - - - - - - - - - - - - - - - - - - - - (3,707) 212 17,785 (2,765) 73 (3,704) 212 31,303 (2,765) 73 (576) 362 (4,280) 574 17,152 48,455 (1,137) (3,902) 143 216 17 (460) (443) (850) (1,293) (29) (115) 65 (50) (58) 4,789 3,667 759 4,426 (58) (63) (1,122) (802) (1,924) 4,789 19,853 4,789 31,720 1,561 6,350 16,132 47,852 Annual Report 2018 Share capital and reserves attributable to shareholders of the Parent Company Reserve from translation of financial Reserves from measurement Reserves from statements measurement of costs of measurement Reserves from Millions of euro Share in currencies of cash flow hedging of financial Share capital premium Legal Other other than hedge financial financial instruments at reserve reserve reserves euro instruments instruments FVOCI At December 31, 2016 10,167 7,489 2,034 2,262 (1,005) (1,448) At January 1, 2017 restated 10,167 7,489 2,034 2,262 (1,005) 480 (968) (480) (480) (1,609) (272) 132 (129) (1,609) (272) 132 (129) 10,167 7,489 2,034 2,262 (2,614) (1,240) (348) (23) Application of new accounting standards (IFRS 9) Distribution of dividends and interim dividends Transactions in non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) - net income/(loss) for the period At December 31, 2017 restated Application of new accounting standards (IFRS 9 and IFRS 15) Monetary revaluation (IAS 29) Distribution of dividends Monetary revaluation Transactions in non-controlling interests Change in scope of consolidation Comprehensive income for the period of which: - other comprehensive income/(loss) - net income/(loss) for the period - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (94) (14) (609) (491) (609) (491) - - - - - - - - - - - - - - - - - - - - - - 90 90 106 106 - - - - - - - - - 3 27 9 9 - At January 1, 2018 restated 10,167 7,489 2,034 2,262 (2,614) (1,240) (348) (20) at December 31, 2018 10,167 7,489 2,034 2,262 (3,317) (1,745) (258) 16 Reserve from equity investments accounted for using the equity method Reserve from remeasurement of net liabilities/ (assets) of defined benefit plans Reserve from disposal of equity interests without loss of control Reserve from acquisitions of non-controlling interests Retained earnings/(Loss carried forward) Equity attributable to shareholders of the Parent Company Non-controlling interests Total shareholders’ equity (12) - (12) - - - 7 7 - (5) - - (5) - - - - (58) (58) - (63) (706) (2,398) (1,170) 19,484 34,803 17,772 52,575 - (706) - - - 60 60 - - - - - - - (2,398) (1,170) 19,484 34,803 17,772 52,575 - - - - - - - 7 - - - - (1,983) (1,983) (1,052) (3,035) - - 7 - (6) (73) 1 (73) 3,779 1,968 725 2,693 - (1,811) (825) (2,636) 3,779 3,779 1,550 5,329 (646) (2,398) (1,163) 21,280 34,795 17,366 52,161 - - - - - - (646) (2,398) (1,163) - - - (5) (63) (63) - (714) - - - - 17 (460) - - - - - - - - (2,381) (1,623) (3,707) 212 17,785 (2,765) 73 - (3,704) 212 31,303 (2,765) 73 (576) 362 (4,280) 574 17,152 48,455 (1,137) (3,902) 143 216 (443) (850) (1,293) (29) (115) 65 (50) 4,789 3,667 759 4,426 - (1,122) (802) (1,924) 4,789 19,853 4,789 31,720 1,561 6,350 16,132 47,852 191 Consolidated financial statements Consolidated statement of cash flows Millions of euro Income before taxes for the year Adjustments for: Net impairment/(reversals) of trade receivables and other receivables Depreciation, amortization and other impairment losses Financial (income)/expense Net income of equity investments accounted for using the equity method Changes in net working capital: - inventories - trade receivables - trade payables - other contract assets/(liabilities) - other assets/(liabilities) Accruals to provisions Utilization of provisions Interest income and other financial income collected Interest expense and other financial expense paid Net (income)/expense from measurement of commodities Income taxes paid Capital (gains)/losses Cash flows from operating activities (A) Investments in property, plant and equipment Investments in intangible assets Investments in non-current contract assets Investments in entities (or business units) less cash and cash equivalents acquired Disposals of entities (or business units) less cash and cash equivalents sold (Increase)/Decrease in other investing activities Cash flows from investing/disinvesting activities (B) Financial debt (new long-term borrowing) Financial debt (repayments and other net changes) Transactions in non-controlling interests Dividends and interim dividends paid Cash flows from financing activities (C) Impact of exchange rate fluctuations on cash and cash equivalents (D) Increase/(Decrease) in cash and cash equivalents (A+B+C+D) Cash and cash equivalents at the start of the year (1) Cash and cash equivalents at year end (2) Notes 9.d 9.e 11, 12 13 28 29 39 25 8,201 1,096 5,355 2,048 (349) 153 (117) 426 734 750 (1,640) 449 (1,226) 11, 12 1,768 11, 12 (4,342) (71) 14 (1,721) 16 20 6 6 35 35 (286) 11,075 (6,908) (1,351) (271) (1,472) 424 (83) (9,661) 13,424 (10,214) (1,402) (3,444) (1,636) (185) (407) 7,121 6,714 2018 2017 of which with related parties of which with related parties 126 (556) 106 18 (25) 7,211 - 5,861 2,692 (111) (1,265) (112) (253) (1,530) 559 71 59 (55) 65 - 312 353 (1,149) 2,898 (4,747) 59 (1,579) (98) 10,125 (7,226) (1,273) - (900) 216 (111) (9,294) 12,284 (89) (10,579) (179) (478) (2,873) (1,646) (390) (1,205) 8,326 7,121 (1) Of which cash and cash equivalents equal to €7,021 million at January 1, 2018 (€8,290 million at January 1, 2017), short-term securities equal to €69 million at January 1, 2018 (€36 million at January 1, 2017) and cash and cash equivalents pertaining to “Assets held for sale” in the amount of €31 million at January 1, 2018. (2) Of which cash and cash equivalents equal to €6,630 million at December 31, 2018 (€7,021 million at December 31, 2017), short-term securities equal to €63 million at December 31, 2018 (€69 million at December 31, 2017) and cash and cash equivalents pertaining to “Assets held for sale” in the amount of €21 million at December 31, 2018 (€31 million at December 31, 2017). 192 Annual Report 2018 Notes to the financial statements 1 Form and content of the financial statements Enel SpA has its registered office in Viale Regina Margherita statement of changes in consolidated shareholders’ equity, 137, Rome, Italy, and since 1999 has been listed on the Milan the consolidated statement of cash flows and the related stock exchange. Enel is an energy multinational and is one notes. of the world’s leading integrated operators in the electricity The assets and liabilities reported in the consolidated bal- and gas industries, with a special focus on Europe and South ance sheet are classified on a “current/non-current” basis America. with separate reporting of assets held for sale and liabilities The consolidated financial statements for the period ended included in disposal groups held for sale. Current assets, December 31, 2017 comprise the financial statements of which include cash and cash equivalents, are assets that are Enel SpA, its subsidiaries and Group holdings in associates intended to be realized, sold or consumed during the normal and joint ventures, as well as the Group’s share of the as- operating cycle of the Group or in the 12 months following sets, liabilities, costs and revenue of joint operations (“the the balance sheet date; current liabilities are liabilities that Group”). A list of the subsidiaries, associates, joint opera- are expected to be settled during the normal operating cycle tions and joint ventures included in the scope of consolida- of the Group or within the 12 months following the close of tion is attached. the financial year. The consolidated financial statements were approved for The consolidated income statement is classified on the basis publication by the Board on March 21, 2019. of the nature of costs, with separate reporting of net income/ These financial statements have been audited by EY SpA. (loss) from continuing operations and net income/(loss) from Basis of presentation The consolidated financial statements for the year ended December 31, 2018 have been prepared in accordance with international accounting standards (International Accounting discontinued operations attributable to shareholders of the Parent Company and to non-controlling interests. The indirect method is used for the consolidated cash flow statement, with separate reporting of any cash flows by operating, investing and financing activities associated with Standards - IAS and International Financial Reporting Stan- discontinued operations. dards - IFRS) issued by the International Accounting Stan- dards Board (IASB), the interpretations of the IFRS Interpre- tations Committee (IFRIC) and the Standing Interpretations Committee (SIC), recognized in the European Union pursu- ant to Regulation 2002/1606/EC and in effect as of the close In particular, although the Group does not diverge from the provisions of IAS 7 in the classification of items: > cash flows from operating activities report cash flows from core operations, interest on loans granted and ob- tained and dividends received from joint ventures or as- of the year. All of these standards and interpretations are sociates; hereinafter referred to as the “IFRS-EU”. The financial statements have also been prepared in confor- mity with measures issued in implementation of Article 9, paragraph 3, of Legislative Decree 38 of February 28, 2005. The consolidated financial statements consist of the con- solidated income statement, the statement of consolidated comprehensive income, the consolidated balance sheet, the > investing/disinvesting activities comprise investments in property, plant and equipment and intangible assets and disposals of such assets and contract assets related to service concession arrangements. Include, also, the ef- fects of business combinations in which the Group ac- quires or loses control of companies, as well as other mi- nor investments; 193 Consolidated financial statements > cash flows from financing activities include cash flows generated by liability management transactions, dividends paid to non-controlling interests by the Parent Company or other consolidated companies and the effects of transac- tions in non-controlling interests that do not change the status of control of the companies involved; > a separate item is used to report the impact of exchange 2 Accounting policies and measurement criteria rates on cash and cash equivalents and their impact on profit or loss is eliminated in full in order to neutralize the Use of estimates and management judgment effect on cash flows from operating activities. For more information on cash flows as reported in the state- ment of cash flows, please see the note on “Cash flows” in the Report on operations. The income statement, the balance sheet and the state- ment of cash flows report transactions with related parties, the definition of which is given in the next section below. The consolidated financial statements have been prepared on a going concern basis using the cost method, with the exception of items measured at fair value in accordance with IFRS-EU, as explained in the measurement bases applied to each individual item, and of non-current assets and disposal groups classified as held for sale, which are measured at the lower of their carrying amount and fair value less costs to sell. The consolidated financial statements are presented in euro, the functional currency of the Parent Company Enel SpA. All figures are shown in millions of euro unless stated oth- erwise. The consolidated financial statements provide comparative information in respect of the previous period. Preparing the consolidated financial statements under IFRS- EU requires management to take decisions and make esti- mates and assumptions that may impact the value of rev- enue, costs, assets and liabilities and the related disclosures concerning the items involved as well as contingent assets and liabilities at the balance sheet date. The estimates and management’s judgments are based on previous experi- ence and other factors considered reasonable in the circum- stances. They are formulated when the carrying amount of assets and liabilities is not easily determined from other sources. The actual results may therefore differ from these estimates. The estimates and assumptions are periodically revised and the effects of any changes are reflected through profit or loss if they only involve that period. If the revision involves both the current and future periods, the change is recognized in the period in which the revision is made and in the related future periods. In order to enhance understanding of the financial state- ments, the following sections examine the main items af- fected by the use of estimates and the cases that reflect management judgments to a significant degree, underscor- ing the main assumptions used by management in measur- ing these items in compliance with the IFRS-EU. The critical element of such valuations is the use of assumptions and professional judgments concerning issues that are by their very nature uncertain. Changes in the conditions underlying the assumptions and judgments could have a substantial impact on future results. Use of estimates Revenue Revenue from supply of electricity and gas to end users is recognized at the time the electricity or gas is delivered and includes, in addition to amounts invoiced on the basis of pe- riodic (and pertaining to the year) meter readings or on the volumes notified by distributors and transporters, an esti- mate of the electricity and gas delivered during the period 194 Annual Report 2018but not yet invoiced that is equal to the difference between Estimation factors used in the calculation of the recoverable the amount of electricity and gas delivered to the distribu- amount are described more in detail in the paragraph “Im- tion network and that invoiced in the period, taking account pairment of non-financial assets”. Nevertheless, possible of any network losses. Revenue between the date of the changes in the estimation factors on which the calculation last meter reading and the year end is based on estimates of such values is performed could generate different recov- of the daily consumption of individual customers, primarily erable values. The analysis of each group of non-current as- determined on their historical information, adjusted to re- sets is unique and requires management to use estimates flect the climate factors or other matters that may affect the and assumptions considered prudent and reasonable in the estimated consumption. specific circumstances. Pensions and other post-employment benefits Some of the Group’s employees participate in pension plans Expected credit losses on financial assets At the end of each reporting date, the Group recognizes a loss allowance for expected credit losses on trade receiv- offering benefits based on their wage history and years of ables and other financial assets measured at amortized service. Certain employees are also eligible for other post- cost, debt instruments measured at fair value through other employment benefit schemes. comprehensive income, contract assets and all other assets The expenses and liabilities of such plans are calculated on in the scope. the basis of estimates carried out by consulting actuaries, Loss allowances for financial assets are based on assump- who use a combination of statistical and actuarial elements tions about risk of default and on the measurement of in their calculations, including statistical data on past years expected credit losses. Management uses judgement in and forecasts of future costs. Other components of the esti- making these assumptions and selecting the inputs for the mation that are considered include mortality and withdrawal impairment calculation, based on the Group’s past history, rates as well as assumptions concerning future develop- existing market conditions as well as forward looking esti- ments in discount rates, the rate of wage increases, the in- mates at the end of each reporting period. flation rate and trends in healthcare cost. The expected credit loss (ECL), determined considering These estimates can differ significantly from actual devel- probability of default (PD), loss given default (LGD), and opments owing to changes in economic and market condi- exposure at default (EAD), is the difference between all tions, increases or decreases in withdrawal rates and the contractual cash flows that are due in accordance with the lifespan of participants, as well as changes in the effective contract and all cash flows that are expected to be received cost of healthcare. (i.e., all shortfalls) discounted at the original effective inter- Such differences can have a substantial impact on the quan- est rate (EIR). tification of pension costs and other related expenses. In particular, for trade receivables, contract assets and lease Recoverability of non-financial assets The carrying amount of non-current assets is reviewed peri- receivables, including those with a significant financial com- ponent, the Group applies the simplified approach, deter- mining expected credit losses over a period corresponding odically and wherever circumstances or events suggest that to the entire life of the receivable, generally equal to 12 more frequent review is necessary. Goodwill is reviewed at months. least annually. Such assessments of the recoverable amount Based on the specific reference market and the regulatory of assets are carried out in accordance with the provisions context of the sector, as well as expectations of recovery af- of IAS 36, as described in greater detail in note 21 below. ter 90 days, for such receivables, the Enel Group mainly ap- In particular, the recoverable amount of non-current assets plies a default definition of 180 days past due to determine and goodwill is based on estimates and assumptions used expected credit losses, as this is considered an effective in order to define the measurement of cash flow and the dis- indication of a significant increase in credit risk. Accordingly, count rates applied. Where the value of non-current assets financial assets that are more than 90 days past due are is considered to be impaired, they are written down to the generally not considered to be in default, except for some recoverable amount, as estimated on the basis of the use specific regulated markets. of the asset and its future disposal, in accordance with the For trade receivables and contract assets the Group mainly Group’s most recent plans. applies a collective approach based on grouping the receiv- 195 Consolidated financial statementsables into specific clusters, taking into account the specific is no prevailing public interest for a different use of the wa- regulatory and business context. Only if the trade receiv- ter, incompatible with its use for hydroelectric generation, ables are deemed to be individually significant by manage- the competent public entity shall organize a public call for ment and there are specific information about any signifi- tender for the award for consideration of the concession for cant increase in credit risk, the Group applies an analytical a period ranging from 20 to a maximum of 30 years. approach. In order to ensure operational continuity, the law also gov- In case of individual assessment, PD is mainly obtained erns the methods of transfer ownership of the business unit from an external provider. necessary to operate the concession, including all legal rela- Conversely, for collective assessment, trade receivables are tionships relating to the concession, from the outgoing con- grouped based on shared credit risk characteristics and past cession holder to the new concession holder, in exchange due information, considering a specific definition of default. for payment of a price to be determined in negotiations between the departing concession holder and the grantor Based on each business and local regulatory framework as agency, taking due account of the following elements: well as differences in client portfolios also in terms of risks, > for intake and governing works, penstocks and outflow default and recovery rates, specific clusters are defined. channels, which under the consolidated law governing The contract assets are considered to have substantially the waters and electrical plants are to be relinquished free same risk characteristics as the trade receivables for the of charge (Article 25 of Royal Decree 1775 of Decem- same types of contracts. ber 11, 1933), the revalued cost less government capital grants, also revalued, received by the concession holder In order to measure the ECL for trade receivables on a col- for the construction of such works, depreciated for ordi- lective basis, as well as for contract assets, the Group con- nary wear and tear; siders the following assumptions related to ECL parameters: > for other property, plant and equipment, the market val- > PD, assumed as to be the average default rate, is cal- ue, meaning replacement value, reduced by estimated culated on a cluster basis and taking into consideration depreciation for ordinary wear and tear. minimum 24 month historical data; While acknowledging that the new regulations introduce > LGD is function of the default bucket’s recovery rates, important changes as to the transfer of ownership of the discounted at the EIR; and business unit with regard to the operation of the hydroelec- > EAD is estimated as the carrying exposure at the report- tric concession, the practical application of these principles ing date net of cash deposits, including invoices issued faces difficulties, given the uncertainties that do not permit but not expired and invoices to be issued. the formulation of a reliable estimate of the value that can Based on specific management evaluations, the forward- be recovered at the end of existing concessions (residual looking adjustment may be applied considering qualitative value). and quantitative information in order to reflect possible fu- Accordingly, management has decided it could not produce ture events and macroeconomic scenarios, which may af- a reasonable and reliable estimate of residual value. fect the risk of the portfolio or the financial instrument. The fact that the legislation requires the new concession For additional details on the key assumptions and inputs holder to make a payment to the departing concession hold- used please refer to note 43 “Financial instruments”. er prompted management to review the depreciation sched- Depreciable value of certain elements of Italian hydroelectric plants subsequent to enactment of Law 134/2012 Law 134 of August 7, 2012 containing “urgent measures ules for assets classified as to be relinquished free of charge prior to Law 134/2012 (until the year ended on December 31, 2011, given that the assets were to be relinquished free of charge, the depreciation period was equal to the closest date between the term of the concession and the end of for growth” (published in the Gazzetta Ufficiale of August the useful life of the individual asset), calculating deprecia- 11, 2012) introduced a sweeping overhaul of the rules gov- tion no longer over the term of the concession but, if longer, erning hydroelectric concessions. Among its various provi- over the economic and technical life of the individual assets. sions, the law establishes that five years before the expira- If additional information becomes available to enable the tion of a major hydroelectric water diversion concession and calculation of residual value, the carrying amounts of the as- in cases of lapse, relinquishment or revocation, where there sets involved will be adjusted prospectively. 196 Annual Report 2018the Group, about whether to classify them as contingent liabilities or liabilities. Provisions have been recognized to cover all significant li- abilities for cases in which legal counsel feels an adverse outcome is likely and a reasonable estimate of the amount of the loss can be made. Note 52 provides information on the most significant contingent liabilities of the Group. Obligations associated with generation plants, including decommissioning and site restoration Generation activities may entail obligations for the operator with regard to future interventions that will have to be per- formed following the end of the operating life of the plant. Such interventions may involve the decommissioning of plants and site restoration, or other obligations linked to the type of generation technology involved. The nature of such obligations may also have a major impact on the accounting treatment used for them. In the case of nuclear power plants, where the costs regard both decommissioning and the storage of waste fuel and other radioactive materials, the estimation of the future cost is a critical process, given that the costs will be incurred over a very long span of time, estimated at up to 100 years. The obligation, based on financial and engineering assump- tions, is calculated by discounting the expected future cash flows that the Group considers it will have to pay to meet the obligations it has assumed. The discount rate used to determine the present value of the liability is the pre-tax risk-free rate and is based on the economic parameters of the country in which the plant is located. That liability is quantified by management on the basis of the technology existing at the measurement date and is re- viewed each year, taking account of developments in stor- age, decommissioning and site restoration technology, as well as the ongoing evolution of the legislative framework governing health and environmental protection. Subsequently, the value of the obligation is adjusted to re- flect the passage of time and any changes in estimates. Determining the fair value of financial instruments The fair value of financial instruments is determined on the basis of prices directly observable in the market, where available, or, for unlisted financial instruments, using spe- cific valuation techniques (mainly based on present value) that maximize the use of observable market inputs. In rare circumstances were this is not possible, the inputs are esti- mated by management taking due account of the character- istics of the instruments being measured. In accordance with IFRS 13, the Group includes a measure- ment of credit risk, both of the counterparty (Credit Valua- tion Adjustment or CVA) and its own (Debit Valuation Ad- justment or DVA), in order to adjust the fair value of financial instruments for the corresponding amount of counterparty risk, using the method discussed in note 47. Changes in the assumptions made in estimating the input date could have an impact on the fair value recognized for those instruments. Recovery of deferred tax assets At December 31, 2018, the consolidated financial state- ments report deferred tax assets in respect of tax losses to be reversed in subsequent years and income components whose deductibility is deferred in an amount whose recov- ery is considered by management to be highly probable. The recoverability of such assets is subject to the achieve- ment of future profits sufficient to absorb such tax losses and to use the benefits of the other deferred tax assets. Significant management judgement is required to deter- mine the amount of deferred tax assets that can be recog- nized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies and the tax rates applicable at the date of reversal. However, where the Group should become aware that it is unable to recover all or part of recognized tax assets in future years, the consequent adjustment would be taken to the income statement in the year in which this circumstance arises. Litigation The Enel Group is involved in various civil, administrative and tax disputes connected with the normal pursuit of its activities that could give rise to significant liabilities. It is not always objectively possible to predict the outcome of these disputes. The assessment of the risks associated with this litigation is based on complex factors whose very nature re- quires recourse to management judgments, even when tak- ing account of the contribution of external advisors assisting 197 Consolidated financial statementsManagement judgments Identification of cash generating units (CGUs) In application of “IAS 36 - Impairment of assets”, the good- will recognized in the consolidated financial statements of the Group as a result of business combinations has been al- located to individual or groups of CGUs that will benefit from the combination. A CGU is the smallest group of assets that generates largely independent cash inflows. In identifying such CGUs, management took account of the specific nature of its assets and the business in which it is involved (geographical area, business area, regulatory frame- work, etc.), verifying that the cash flows of a given group of assets were closely independent and largely autonomous of those associated with other assets (or groups of assets). The assets of each CGU were also identified on the basis of the manner in which management manages and monitors those assets within the business model adopted. For a more extensive discussion, please see notes 5 and 6 below and the discussion in the section on “Results by business area” in the Report on operations. The CGUs identified by management to which the goodwill recognized in these consolidated financial statements has been allocated are indicated in the section on goodwill, to which the reader is invited to refer. The number and scope of the CGUs are updated systemati- cally to reflect the impact of new business combinations and reorganizations carried out by the Group, and to take account of external factors that could impact the ability of groups of assets to generate independent cash flows. Determination of the existence of control Under the provisions of IFRS 10, control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Power is defined as the current ability to direct the relevant activities of the investee based on existing substantive rights. The existence of control does not depend solely on own- ership of a majority shareholding, but rather it arises from substantive rights that each investor holds over the investee. Consequently, management must use its judgment in as- sessing whether specific situations determine substantive rights that give the Group the power to direct the relevant activities of the investee in order to affect its returns. For the purpose of assessing control, management analy- 198 ses all facts and circumstances including any agreements with other investors, rights arising from other contractual arrangements and potential voting rights (call options, war- rants, put options granted to non-controlling shareholders, etc.). These other facts and circumstances could be espe- cially significant in such assessment when the Group holds less than a majority of voting rights, or similar rights, in the investee. Following such analysis of the existence of control, which had already been done in previous years under the provi- sions of the then-applicable IAS 27, the Group consolidated certain companies (Emgesa and Codensa) on a line-by-line basis even though it did not hold more than half of the vot- ing rights. That approach was maintained in the assessment carried out in application of IFRS 10 on the basis of the re- quirements discussed above, as detailed in the attachment “Subsidiaries, associates and other significant equity invest- ments of the Enel Group at December 31, 2018” to these financial statements. The Group re-assesses whether or not it controls an invest- ee if facts and circumstances indicate that there are chang- es to one or more of the elements considered in verifying the existence of control. Finally, the assessment of the existence of control did not find any situations of de facto control. Determination of the existence of joint control and of the type of joint arrangement Under the provisions of IFRS 11, a joint arrangement is an agreement where two or more parties have joint control. Joint control exists when the decisions over the relevant activities require the unanimous consent of at least two par- ties of a joint arrangement. A joint arrangement can be configured as a joint venture or a joint operation. Joint ventures are joint arrangements whereby the parties that have joint control have rights to the net assets of the arrangement. Conversely, joint operations are joint arrangements whereby the parties that have joint control have rights to the assets and obligations for the li- abilities relating to the arrangement. In order to determine the existence of the joint control and the type of joint arrangement, management must apply judgment and assess its rights and obligations arising from the arrangement. For this purpose, the management con- siders the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances. Annual Report 2018Following that analysis, the Group has considered its interest in Asociación Nuclear Ascó-Vandellós II as a joint operation. The Group re-assesses whether or not it has joint control if facts and circumstances indicate that changes have oc- curred in one or more of the elements considered in verify- ing the existence of joint control and the type of the joint arrangement. Determination of the existence of significant influence over an associate Associated companies are those in which the Group exer- cises significant influence, i.e. the power to participate in the financial and operating policy decisions of the investee but not exercise control or joint control over those policies. In general, it is presumed that the Group has a significant influ- ence when it has an ownership interest of 20% or more. In order to determine the existence of significant influence, management must apply judgment and consider all facts and circumstances. The Group re-assesses whether or not it has significant in- fluence if facts and circumstances indicate that there are changes to one or more of the elements considered in veri- fying the existence of significant influence. Application of “IFRIC 12 - Service concession arrangements” to concessions “IFRIC 12 - Service concession arrangements” applies to “public-to-private” service concession arrangements, which can be defined as contracts under which the grantor trans- fers to a concession holder the right to deliver public servic- es that give access to the main public facilities for a specified period of time in return for managing the infrastructure used to deliver those public services. More specifically, IFRIC 12 applies to public-to-private ser- vice concession arrangements if the grantor: > controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and > controls – through ownership or otherwise – any signifi- cant residual interest in the infrastructure at the end of the term of the arrangement. In assessing the applicability of these provisions for the Group, management carefully analyzed existing conces- sions. On the basis of that analysis, the provisions of IFRIC 12 are applicable to some of the infrastructure of a number of com- panies that operate in Brazil. Revenue from contracts with customers (within the scope of IFRS 15) Identification of the contract The Group carefully analyses the contractual terms and con- ditions on a jurisdictional level in order to determine when a contract exists and the terms of that contract’s enforceabil- ity so as to apply IFRS 15 only to such contracts. Identification and satisfaction of performance obligations When a contract includes multiple promised goods or ser- vices, in order to assess if they should be accounted for separately or as a group, the Group considers both the in- dividual characteristics of goods/services and the nature of the promise within the context of the contract, also evaluat- ing all the facts and circumstances relating to the specific contract under the relevant legal and regulatory framework. To evaluate when a performance obligation is satisfied, the Group evaluates when the control of the goods or services is transferred to the customer, assessed primarily from the perspective of the customer. The Group first determines whether the performance obligation meets the criteria to recognize revenue over time. If control transfers over time, the Group selects an appropriate method to measure prog- ress towards complete satisfaction of the performance ob- ligation, also considering the nature of both the goods or services promised and the performance obligation. If none of the over-time criteria are met, the Group determines the point in time at which the customer obtains the control, considering whether the indicators of the transfer of control collectively indicate that the customer has obtained control. In particular, taking into consideration that IFRS 15 changes the main notions and principles of revenue recognition, the Group considers that the following main revenue streams require a specific assessment under the new accounting requirements: > an electricity/gas supply agreement signed with an end user includes a single performance obligation (sale and transport of the commodity) because the Group has eval- uated that the contract does not provide distinct goods/ services and the promise is satisfied by transferring the control over the commodity to the customer when it is delivered at the point of delivery. In order to determine the nature of the promise included in such contracts, the Group analyzes carefully the facts and circumstances ap- plicable to each contract and commodity. 199 Consolidated financial statementsHowever, the Group considers that the performance obli- > construction contracts typically include a performance gation provided for a repetitive service contract, as a sup- obligation satisfied over time; for these contracts, the ply or a transport contract of electricity/gas to end users, Group generally considers appropriate the use of an in- is typically satisfied over time (because the customer si- put method for measuring progress, except when spe- multaneously receives and consumes the benefits of the cific contract analysis suggest the use of an alternative commodity as it is delivered) as part of a series of distinct method. In such cases, the cost incurred method (cost- goods/services (i.e., each unit of commodity) that are sub- to-cost method) is considered to be the best method to stantially the same and have the same pattern of transfer represent the Group’s performance obligation satisfied at to the customer. In these cases, the Group applies an out- the reporting date. put method to recognize revenue in the amount to which it has a right to invoice the customer if that amount cor- Determination of the transaction price responds directly with the value to the customer of the The Group considers all relevant facts and circumstances performance completed to date; in determining whether a contract includes variable con- > the network connection fees received from customers sideration (i.e., consideration that may vary or depends for connecting them to the electricity/gas distribution net- upon the occurrence or non-occurrence of a future event). works require a specific Group assessment to take into In estimating variable consideration, the Group uses the consideration all terms and conditions of the connection method that better predicts the consideration to which arrangements that could vary from country to country it will be entitled, applying it consistently throughout the based on the local context, regulations and law. This as- contract and for similar contracts, also considering all avail- sessment is finalized to evaluate if the contract includes able information, and updating such estimates until the other distinct goods or services, as for example, the right uncertainly is resolved. The Group includes the estimated to obtain the ongoing access to the infrastructure in order variable consideration in the transaction price only to the to receive the commodity or, when the connection fee is extent that it is high probable that a significant reversal in a “non-refundable up-front fee” paid at or near contract the cumulative revenue recognized will not occur when the inception, a material right that gives rise to a performance uncertainty is resolved. obligation. In particular, in some countries in which the Group oper- Principal versus agent assessment ates, it assesses that the nature of the consideration re- The Group considers that it is an agent in some contracts ceived represents a “non-refundable up-front fee” whose in which it is not primarily responsible for fulfilling the payment provides a material right to the customer. In contract and therefore it does not control goods or ser- order to determine if the period over which to recognize vices before they are being transferred to customers. For this material right would be extended beyond the initial example, the Group acts as an agent in some contracts contractual period, the Group takes into consideration the for electricity/gas network connection services and other applicable legal and regulatory frameworks applicable to related activities depending on local legal and regulatory the contract and that affect the parties. In such cases, if framework. there is an implied assignment of the material right and an obligation from the initial customer to the new customer, Allocation of transaction price the Group recognizes the connection fee over a period be- For contracts that have more than one performance obli- yond the relationship with the initial customer, consider- gation (e.g., “bundled” sale contracts), the Group gener- ing the concession terms as the period during which the ally allocates the transaction price to each performance initial customer and any future customer can benefit from obligation in proportion to its stand-alone selling price. the ongoing access without paying an additional connec- The Group determines stand-alone selling prices consider- tion fee. As a consequence, the fee is recognized over ing all information and using observable prices when they the period for which the payment creates for the Group are available in the market or, if not, using an estimation an obligation to make the lower prices available to future method that maximizes the use of observable inputs and customers (i.e., the period during which the customer applying it consistently to similar arrangements. is expected to benefit from the ongoing access service If the Group evaluates that a contract includes an option without having to pay an “up-front fee” upon renewal); for additional goods or services (e.g., customer loyalty pro- 200 Annual Report 2018grams or renewal options) that represents a material right, it allocates the transaction price to this option since the option gives rise to an additional performance obligation. Hedge accounting Hedge accounting is applied to derivatives in order to reflect into the financial statements the effect of risk management Contract costs The Group only capitalizes the incremental costs that it in- curs to obtain a contract with a customer within the scope of IFRS 15 (directly attributable to an identified contract and paid only if the contract is obtained) if it expects to recover the costs, through reimbursements (direct recoverability) or the margin (indirect recoverability). The Group assesses recoverability of the incremental costs of obtaining a contract either on a contract-by-contract ba- sis, or for a group of contracts if those costs are associated with the group of contracts. The Group supports the recoverability of such costs on the basis of its experience with other similar transactions and evaluating various factors, including potential renewals, amendments and follow-on contracts with the same cus- tomer. The Group amortizes such costs over the average customer term. In order to determine this expected period of benefit from the contract, the Group considers its past experience (e.g., “churn rate”), the predictive evidence from similar con- tracts and available information about the market. Classification and measurement of financial assets At initial recognition, in order to classify financial assets as financial assets at amortized cost, at fair value through other strategies. Accordingly, at the inception of the transaction the Group documents the hedge relationship between hedging instru- ments and hedged items, as well as its risk management objectives and strategy. The Group also assesses, both at hedge inception and on an ongoing basis, whether hedging instruments are highly effective in offsetting changes in the fair values or cash flows of hedged items. On the basis of management’s judgement, the effective- ness assessment based on the existence of an economic re- lationship between the hedging instruments and the hedged items, the dominance of credit risk in the value changes and the hedge ratio, as well as the measurement of the ineffec- tiveness, is evaluated through a qualitative assessment or a quantitative computation, depending on the specific facts and circumstances and on the characteristics of the hedged items and the hedging instruments. For cash flow hedges of forecast transactions designated as hedged items, management assesses and documents that they are highly probable and present an exposure to changes in cash flows that affect profit or loss. For additional details on the key assumptions about effec- tiveness assessment and ineffectiveness measurement, please refer to note 46.1 “Derivatives designated as hedging instruments”. comprehensive income and at fair value through profit or Related parties loss, management assesses both the contractual cash flow characteristics of the instrument and the business model for managing financial assets in order to generate cash flows. For the purpose of evaluating the contractual cash flow characteristics of the instrument, management performs the SPPI test at an instrument level, in order to determine if it gives rise to cash flows that are solely payments of princi- pal and interest (SPPI) on the principal amount outstanding, performing specific assessment on the contractual clauses of the financial instruments, as well as quantitative analysis, if required. The business model determines whether cash flows will result from collecting contractual cash flows, selling the fi- nancial assets, or both. For more details, please see note 43 “Financial instru- ments”. Related parties are mainly parties that have the same control- ling entity as Enel SpA, companies that directly or indirectly through one or more intermediaries control, are controlled or are subject to the joint control of Enel SpA and in which the latter has a holding that enables it to exercise a significant in- fluence. Related parties also include entities operating post- employment benefit plans for employees of Enel SpA or its associates (specifically, the FOPEN and FONDENEL pension funds), as well as the members of the boards of statutory au- ditors, and their immediate family, and the key management personnel, and their immediate family, of Enel SpA and its subsidiaries. Key management personnel comprises man- agement personnel who have the power and direct or indi- rect responsibility for the planning, management and control of the activities of the company. They include directors. 201 Consolidated financial statementsSubsidiaries Subsidiaries are all entities over which the Group has con- trol. The Group controls an entity, regardless of the nature of the formal relationship between them, when it is exposed/ has rights to variable returns deriving from its involvement former subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities. Investment in joint arrangements and associates and has the ability, through the exercise of its power over A joint venture is an entity over which the Group exercises the investee, to affect its returns. joint control and has rights to the net assets of the arrange- The figures of the subsidiaries are consolidated on a full line- ment. Joint control is the sharing of control of an arrange- by-line basis as from the date control is acquired until such ment, whereby decisions about the relevant activities re- control ceases. Consolidation procedures quire unanimous consent of the parties sharing control. An associate is an entity over which the Group has signifi- cant influence. Significant influence is the power to partici- pate in the financial and operating policy decisions of the The financial statements of subsidiaries used to prepare investee without having control or joint control over the in- the consolidated financial statements were prepared at vestee. December 31, 2018 in accordance with the accounting The Group’s investments in its joint ventures and associates policies adopted by the Parent Company. are accounted for using the equity method. If a subsidiary uses different accounting policies from those Under the equity method, these investments are initially adopted in preparing the consolidated financial statements recognized at cost and any goodwill arising from the differ- for similar transactions and facts in similar circumstances, ence between the cost of the investment and the Group’s appropriate adjustments are made to ensure conformity share of the net fair value of the investee’s identifiable as- with Group accounting policies. sets and liabilities at the acquisition date is included in the Assets, liabilities, revenue and expenses of a subsidiary carrying amount of the investment. Goodwill is not individu- acquired or disposed of during the year are included in or ally tested for impairment. excluded from the consolidated financial statements, re- After the acquisition date, their carrying amount is adjusted spectively, from the date the Group gains control or until to recognize changes in the Group’s share of profit or loss of the date the Group ceases to control the subsidiary. the associate or joint venture. The OCI of such investees is Profit or loss and the other components of other compre- presented as specific items of the Group’s OCI. hensive income are attributed to the shareholders of the Distributions received from joint ventures and associates re- Parent Company and non-controlling interests, even if this duce the carrying amount of the investments. results in a loss for non-controlling interests. Profits and losses resulting from transactions between the All intercompany assets and liabilities, equity, income, ex- Group and the associates or joint ventures are eliminated to penses and cash flows relating to transactions between the extent of the interest in the associate or joint venture. entities of the Group are eliminated in full. The financial statements of the associates or joint ventures Changes in ownership interest in subsidiaries that do not are prepared for the same reporting period as the Group. result in loss of control are accounted for as equity trans- When necessary, adjustments are made to bring the ac- actions, with the carrying amounts of the controlling and counting policies in line with those of the Group. non-controlling interests adjusted to reflect changes in After application of the equity method, the Group deter- their interests in the subsidiary. Any difference between mines whether it is necessary to recognize an impairment the fair value of the consideration paid or received and the loss on its investment in an associate or joint venture. If there corresponding fraction of equity acquired or sold is recog- is such evidence, the Group calculates the amount of impair- nized in consolidated equity. ment as the difference between the recoverable amount of When the Group ceases to have control over a subsidiary, the associate or joint venture and its carrying amount. any interest retained in the entity is remeasured to its fair In the case of the Slovak Power Holding BV joint venture, value, recognized through profit or loss, at the date when any impairment losses are assessed by determining the control is lost. In addition, any amounts previously recog- recoverable value using the price formula specified in the nized in other comprehensive income in respect of the agreement to sell the 66% stake in Slovenské elektrárne 202 Annual Report 2018(SE) by Enel Produzione to EP Slovakia, which is based on monetary assets and liabilities in foreign currency measured various parameters, including the evolution of the net finan- at fair value are translated using the exchange rate at the cial position of SE, developments in energy prices in the Slo- date that value was determined. Any exchange rate differ- vakian market, the operating efficiency of SE as measured ences are recognized through profit or loss. on the basis of benchmarks defined in the contract and the In determining the spot exchange rate to use on initial rec- enterprise value of Mochovce units 3 and 4. This value is ognition of the related asset, expense or income (or part compared against the carrying amount of the investment, of it) on the derecognition of a non-monetary asset or non- which is measured on the basis of the results of that formula monetary liability relating to advance consideration, the date at the closing date for the transaction of July 28, 2017. of the transaction is the date on which the Group initially If the investment ceases to be an associate or a joint ven- recognizes the non-monetary asset or non-monetary liabil- ture, the Group recognizes any retained investment at its ity associated with the advance consideration. fair value, through profit or loss. Any amounts previously If there are multiple advance payments or receipts, the recognized in other comprehensive income in respect of Group determines the transaction date for each payment or the former associate or joint venture are accounted for as receipt of advance consideration. if the Group had directly disposed of the related assets or liabilities. If the Group’s ownership interest in an associate or a joint venture is reduced, but the Group continues to exercise a significant influence or joint control, the Group continues to apply the equity method and the share of the gain or loss that had previously been recognized in other comprehen- Translation of financial statements denominated in a foreign currency For the purposes of the consolidated financial statements, all profits/losses, assets and liabilities are stated in euro, which is the functional currency of the Parent Company, sive income relating to that reduction is accounted for as Enel SpA. if the Group had directly disposed of the related assets or liabilities. When a portion of an investment in an associate or joint ven- ture meets the criteria to be classified as held for sale, any retained portion of an investment in the associate or joint venture that has not been classified as held for sale is ac- counted for using the equity method until disposal of the portion classified as held for sale takes place. Joint operations are joint arrangements whereby the par- In order to prepare the consolidated financial statements, the financial statements of consolidated companies in func- tional currencies other than the presentation currency used in the consolidated financial statements are translated into euro by applying the relevant period-end exchange rate to the assets and liabilities, including goodwill and consolida- tion adjustments, and the average exchange rate for the period, which approximates the exchange rates prevailing at the date of the respective transactions, to the income ties that have joint control have rights to the assets and ob- statement items. ligations for the liabilities relating to the arrangement. For each joint operation, the Group recognized assets, liabilities, costs and revenue on the basis of the provisions of the ar- rangement rather than the participating interest held. Any resulting exchange rate gains or losses are recognized as a separate component of equity in a special reserve. The gains and losses are recognized proportionately in the in- come statement on the disposal (partial or total) of the sub- sidiary. Translation of foreign currency items Business combinations Transactions in currencies other than the functional currency Business combinations initiated before January 1, 2010 and are recognized at the exchange rate prevailing at the date of completed within that financial year are recognized on the the transaction. Monetary assets and liabilities denominated basis of IFRS 3 (2004). in a foreign currency other than the functional currency are Such business combinations were recognized using the pur- later translated using the period-end exchange rate. chase method, where the purchase cost is equal to the fair Non-monetary assets and liabilities denominated in foreign value at the date of the exchange of the assets acquired currency that are recognized at historical cost are translated and the liabilities incurred or assumed, plus costs directly using the exchange rate at the date of the transaction. Non- attributable to the acquisition. This cost was allocated by 203 Consolidated financial statementsrecognizing the assets, liabilities and identifiable contingent of the contingent consideration classified as an asset or a liabilities of the acquired company at their fair values. Any liability, or as a financial instrument within the scope of IFRS positive difference between the cost of the acquisition and 9, are recognized in profit or loss. If the contingent consid- the fair value of the net assets acquired attributable to the eration is not within the scope of IFRS 9, it is measured in shareholders of the Parent Company was recognized as accordance with the appropriate IFRS-EU. Contingent con- goodwill. Any negative difference was recognized in profit sideration that is classified as equity is not remeasured, and or loss. The value of non-controlling interests was deter- its subsequent settlement is accounted for within equity. mined in proportion to the interest held by minority share- If the fair values of the assets, liabilities and contingent li- holders in the net assets. In the case of business combi- abilities can only be calculated on a provisional basis, the nations achieved in stages, at the date of acquisition any business combination is recognized using such provisional adjustment to the fair value of the net assets acquired previ- values. Any adjustments resulting from the completion of ously was recognized in equity; the amount of goodwill was the measurement process are recognized within 12 months determined for each transaction separately based on the fair of the date of acquisition, restating comparative figures. values of the acquiree’s net assets at the date of each ex- change transaction. Fair value measurement Business combinations carried out as from January 1, 2010 are recognized on the basis of IFRS 3 (2008), which is re- For all fair value measurements and disclosures of fair value that are either required or permitted by international account- ferred to as IFRS 3 (Revised) hereafter. ing standards the Group applies IFRS 13. More specifically, business combinations are recognized us- ing the acquisition method, where the purchase cost (the consideration transferred) is equal to the fair value at the Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly trans- action, between market participants, at the measurement purchase date of the assets acquired and the liabilities in- date (i.e. an exit price). curred or assumed, as well as any equity instruments issued by the purchaser. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Costs directly attributable to the acquisition are recognized through profit or loss. The consideration transferred is allocated by recognizing the assets, liabilities and identifiable contingent liabilities of the The fair value measurement assumes that the transaction to sell an asset or transfer a liability takes place in the principal market, i.e. the market with the greatest volume and level of activity for the asset or liability. In the absence of a principal market, it is assumed that the transaction takes place in the most advantageous market to which the Group has access, i.e. the market that maximizes the amount that would be re- ceived to sell the asset or minimizes the amount that would acquired company at their fair values as at the acquisition be paid to transfer the liability. date. Any positive difference between the price paid, mea- sured at fair value as at the acquisition date, plus the value of any non-controlling interests, and the net value of the iden- tifiable assets and liabilities of the acquiree measured at fair value is recognized as goodwill. Any negative difference is recognized in profit or loss. The value of non-controlling interests is determined either The fair value of an asset or a liability is measured using the assumptions that market participants would use when pric- ing the asset or liability, assuming that market participants act in their economic best interest. Market participants are independent, knowledgeable sellers and buyers who are able to enter into a transaction for the asset or the liability and who are motivated but not forced or otherwise com- in proportion to the interest held by minority shareholders pelled to do so. in the net identifiable assets of the acquiree or at their fair When measuring fair value, the Group takes into account the value as at the acquisition date. In the case of business combinations achieved in stages, at the date of acquisition of control the previously held equity interest in the acquiree is remeasured at fair value and any positive or negative difference is recognized in profit or loss. Any contingent consideration is recognized at fair value at the acquisition date. Subsequent changes to the fair value characteristics of the asset or liability, in particular: > for a non-financial asset, a fair value measurement takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use; > for liabilities and own equity instruments, the fair value 204 Annual Report 2018reflects the effect of non-performance risk, i.e. the risk Subsequent costs are recognized as an increase in the car- that an entity will not fulfill an obligation, including among rying amount of the asset when it is probable that future others the credit risk of the Group itself; economic benefits associated with the cost incurred to re- > in the case of groups of financial assets and financial liabil- place a part of the asset will flow to the Group and the cost ities with offsetting positions in market risk or credit risk, of the item can be measured reliably. All other costs are rec- managed on the basis of an entity’s net exposure to such ognized in profit or loss as incurred. risks, it is permitted to measure fair value on a net basis. The cost of replacing part or all of an asset is recognized as In measuring the fair value of assets and liabilities, the Group an increase in the carrying amount of the asset and is de- uses valuation techniques that are appropriate in the circum- preciated over its useful life; the net carrying amount of the stances and for which sufficient data are available, maximiz- replaced unit is derecognized through profit or loss. ing the use of relevant observable inputs and minimizing the Property, plant and equipment, net of its residual value, is use of unobservable inputs. depreciated on a straight-line basis over its estimated useful Property, plant and equipment life, which is reviewed annually and, if appropriate, adjusted prospectively. Depreciation begins when the asset is avail- able for use. Property, plant and equipment is stated at cost, net of accu- The estimated useful life of the main items of property, plant mulated depreciation and accumulated impairment losses, and equipment is as follows: if any. Such cost includes expenses directly attributable to bringing the asset to the location and condition necessary for its intended use. Civil buildings 10-70 years Buildings and civil works incorporated in plants 10-100 years The cost is also increased by the present value of the es- timate of the costs of decommissioning and restoring the site on which the asset is located where there is a legal or constructive obligation to do so. The corresponding liability Hydroelectric power plants: - penstock - mechanical and electrical machinery is recognized under provisions for risks and charges. The - other fixed hydraulic works accounting treatment of changes in the estimate of these Thermal power plants: costs, the passage of time and the discount rate is discussed - boilers and auxiliary components under “Provisions for risks and charges”. Property, plant and equipment transferred from customers to connect them to the electricity distribution network and/ or to provide them with other related services is initially rec- ognized at its fair value as at the date on which control is obtained. Borrowing costs that are directly attributable to the acquisi- - gas turbine components - mechanical and electrical machinery - other fixed hydraulic works Nuclear power plants Geothermal power plants: - cooling towers tion, construction or production of a qualifying asset, i.e. an - turbines and generators asset that takes a substantial period of time to get ready for - turbine parts in contact with fluid 7-85 years 5-60 years 5-100 years 3-59 years 3-59 years 3-59 years 3-62 years 50 years 20-25 years 25-30 years 10-25 years its intended use or sale, are capitalized as part of the cost - mechanical and electrical machinery 20-40 years of the assets themselves. Borrowing costs associated with the purchase/construction of assets that do not meet such requirement are expensed in the period in which they are incurred. Wind power plants: - towers - turbines and generators 20-30 years 20-30 years Certain assets that were revalued at the IFRS-EU transition date or in previous periods are recognized at their fair value, - mechanical and electrical machinery 15-30 years Solar power plants: which is considered to be their deemed cost at the revalua- - mechanical and electrical machinery 20-30 years tion date. Public and artistic lighting: Where individual items of major components of property, - public lighting installations plant and equipment have different useful lives, the compo- - artistic lighting installations 10-20 years 20 years nents are recognized and depreciated separately. 205 Consolidated financial statementsTransport lines Transformer stations Distribution plants: - high-voltage lines - primary transformer stations - low-and medium-voltage lines Meters: 12-50 years 20-55 years 10-60 years 5-55 years 5-50 years tion above on the “Depreciable value of certain elements of Italian hydroelectric plants subsequent to enactment of Law 134/2012”, which you are invited to consult for more details. In accordance with Spanish laws 29/1985 and 46/1999, hy- droelectric power stations in Spanish territory operate under administrative concessions at the end of which the plants will be returned to the government in good operating condi- - electromechanical meters 3-34 years tion. The terms of the concessions extend up to 2067. - electricity balance measurement equipment 3-30 years - electronic meters 6-35 years The useful life of leasehold improvements is determined on the basis of the term of the lease or, if shorter, on the dura- tion of the benefits produced by the improvements them- selves. Land is not depreciated as it has an indefinite useful life. Assets recognized under property, plant and equipment are derecognized either upon their disposal (i.e., at the date the recipient obtains control) or when no future economic ben- efit is expected from their use or disposal. Any gain or loss, recognized through profit or loss, is calculated as the differ- ence between the net disposal proceeds, determined in ac- cordance with the transaction price requirements of IFRS 15, and the net carrying amount of the derecognized assets. Assets to be relinquished free of charge The Group’s plants include assets to be relinquished free of charge at the end of the concessions. These mainly regard major water diversion works and the public lands used for the operation of the thermal power plants. Within the Italian regulatory framework in force until 2011, if the concessions are not renewed, at those dates all intake and governing works, penstocks, outflow channels and other assets on public lands were to be relinquished free of charge to the State in good operating condition. Accordingly, depre- ciation on assets to be relinquished was calculated over the shorter of the term of the concession and the remaining use- ful life of the assets. In the wake of the legislative changes introduced with Law 134 of August 7, 2012, the assets previously classified as as- sets “to be relinquished free of charge” connected with the hydroelectric water diversion concessions are now consid- ered in the same manner as other categories of “property, plant and equipment” and are therefore depreciated over the economic and technical life of the asset (where this ex- ceeds the term of the concession), as discussed in the sec- A number of generation companies that operate in Argen- tina, Brazil and Mexico hold administrative concessions with similar conditions to those applied under the Spanish con- cession system. These concessions will expire by 2088. Infrastructure serving a concession As regards the distribution of electricity, the Group is a concession holder in Italy for this service. The concession, granted by the Ministry for Economic Development, was is- sued free of charge and terminates on December 31, 2030. If the concession is not renewed upon expiry, the grantor is required to pay an indemnity. The amount of the indemnity will be determined by agreement of the parties using appro- priate valuation methods, based on both the balance sheet value of the assets themselves and their profitability. In determining the indemnity, such profitability will be rep- resented by the present value of future cash flows. The in- frastructure serving the concessions is owned and available to the concession holder. It is recognized under “Property, plant and equipment” and is depreciated over the useful life of the assets. Enel also operates under administrative concessions for the distribution of electricity in other countries (including Spain and Romania). These concessions give the right to build and operate distribution networks for an indefinite period of time. Infrastructure within the scope of “IFRIC 12 - Service concession arrangements” Under a “public-to-private” service concession arrangement within the scope of “IFRIC 12 - Service concession arrange- ments” the operator acts as a service provider and, in accor- dance with the terms specified in the contract, it constructs/ upgrades infrastructure used to provide a public service and operates and maintains that infrastructure for the period of the concession. The Group, as operator, does not account for the infrastruc- ture within the scope of IFRIC 12 as property, plant and 206 Annual Report 2018equipment and it recognizes and measures revenue in accor- fair value of the leased asset and the present value of the dance with IFRS 15 for the services it performs. In particular, minimum lease payments due, including the payment re- when the Group provides construction or upgrade services, quired to exercise any purchase option. depending on the characteristics of the service concession The assets are depreciated on the basis of their useful life. arrangement, it recognizes: If it is not reasonably certain that the Group will acquire the > a financial asset, if the Group has an unconditional con- assets at the end of the lease, they are depreciated over the tractual right to receive cash or another financial asset shorter of the lease term and the useful life of the assets. from the grantor (or from a third party at the direction of Payment made under operating lease are recognized as a the grantor), that is the grantor has little discretion to avoid cost on a straight-line basis over the lease term. payment. In this case, the grantor contractually guaran- Although not formally designated as lease agreements, tees to pay to the operator specified or determinable certain types of contract can be considered as such if the amounts or the shortfall between the amounts received fulfilment of the arrangement is dependent on the use of a from the users of the public service and specified or de- specific asset (or assets) and if the arrangement conveys a terminable amounts (defined by the contract), and such right to use such assets. payments are not dependent on the usage of the infra- structure; and/or > an intangible asset, if the Group receives the right (a li- cense) to charge users of the public service provided. In such a case, the operator does not have an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service. If the Group (as operator) has a contractual right to receive Investment property Investment property consists of the Group’s real estate held to earn rentals and/or for capital appreciate rather than for use in the production or supply of goods and services. Investment property is measured at acquisition cost less any accumulated depreciation and any accumulated impair- an intangible asset (a right to charge users of public service), ment losses. borrowing costs are capitalized using the criteria specified in the paragraph “Property, plant and equipment”. However, for construction/upgrade services, both types of Investment property, excluding land, is depreciated on a straight-line basis over the useful life of the related assets. Impairment losses are determined on the basis of the crite- consideration are generally classified as a contract asset ria following described. during the construction/upgrade period. The breakdown of the fair value of investment property is For more details about such consideration, please see note detailed in note 47 “Assets measured at fair value”. 8 “Revenue”. Leases Investment property is derecognized either when it has been transferred (i.e., at the date the recipient obtains control) or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or The Group holds property, plant and equipment and intan- loss, recognized through profit or loss, is calculated as the gible assets for its various activities under lease contracts. difference between the net disposal proceeds, determined These contracts are analyzed on the basis of the circum- in accordance with the transaction price requirements of stances and indicators set out in IAS 17 in order to deter- IFRS 15, and the net book value of the derecognized assets. mine whether they constitute operating leases or finance Transfers are made to (or from) investment property only leases in the presence of an identified asset. when there is a change in use. A finance lease is defined as a lease that transfers substan- tially all the risks and rewards incidental to ownership of the related asset to the lessee. All leases that do not meet Intangible assets the definition of a finance lease are classified as operating Intangible assets are identifiable assets without physical leases. substance controlled by the entity and capable of generating On initial recognition assets held under finance leases are future economic benefits. They are measured at purchase recognized as property, plant and equipment and the related or internal development cost when it is probable that the liability is recognized under long-term borrowings. At incep- use of such assets will generate future economic benefits tion date finance leases are recognized at the lower of the and the related cost can be reliably determined. 207 Consolidated financial statementsThe cost includes any directly attributable expenses neces- sary to make the assets ready for their intended use. Internal development costs are recognized as an intangible asset when both the Group is reasonably assured of the technical feasibility of completing the intangible asset, that Development costs: - internally generated - acquired Industrial patents and intellectual property rights: it has intention and ability to complete the asset and use - internally generated or sell it and that the asset will generate future economic - acquired benefits. Research costs are recognized as expenses. Concessions, licenses, trademarks and similar rights: Intangible assets with a finite useful life are reported net of - internally generated accumulated amortization and any impairment losses. - acquired Amortization is calculated on a straight-line basis over the item’s estimated useful life, which is reassessed at least Intangible assets from service concession arrangements: annually; any changes in amortization policies are reflected - internally generated on a prospective basis. Amortization commences when the asset is ready for use. Consequently, intangible assets not - acquired Other: yet available for use are not amortized, but are tested for - internally generated impairment at least annually. - acquired The Group’s intangible assets have a definite useful life, with 2-26 years 3-26 years 3-10 years 2-50 years 20 years 1-40 years - 5 years 2-28 years 1-28 years the exception of a number of concessions and goodwill. The Group also presents capitalized costs to obtain a con- Intangible assets with indefinite useful life are not amor- tract with a customer within the scope of IFRS 15 in this tized, but are tested for impairment annually. item. The assessment of indefinite life is reviewed annually to de- The Group recognized such costs as an asset only if: termine whether the indefinite life continues to be support- > the costs are incremental, that is the Group would not able. If not, the change in useful life from indefinite to finite have incurred them if the contract had not been obtained; is accounted for as a change in accounting estimate. > the Group expects to recover them. Intangible assets are derecognized either at the time of their In particular, the Group generally capitalizes trade fees and disposal (at the date when the recipient obtains control) or commissions paid to agents for such contracts if the capital- when no future economic benefit is expected from their use ization criteria are met. or disposal. Any gain or loss, recognized through profit or Capitalized contract costs are amortized on a systematic ba- loss, is calculated as the difference between the net consid- sis, consistent with the pattern of the transfer of the goods eration received in the disposal, determined in accordance or services to which they relate, and are subject to an impair- with the provisions of IFRS 15 concerning the transaction ment assessment to recognize impairment losses in profit price, and the net book value of the derecognized assets. or loss to the extent that the carrying amount of the asset The estimated useful life of the main intangible assets, dis- recognized exceeds the recoverable amount. tinguishing between internally generated and acquired as- The Group amortizes the capitalized contract costs on a sets, is as follows: 208 straight-line basis over the expected period of benefit from the contract (i.e., the average term of the customer relation- ship); any changes in amortization policies are reflected on a prospective basis. The Group does not incur any costs to fulfil a contract that are eligible for capitalization. Goodwill Goodwill arises on the acquisition of subsidiaries and rep- resents the excess of the acquisition cost, of any non-con- trolling interest and of any previously held interest over the Annual Report 2018acquisition date fair value of the acquiree’s assets, liabilities If the reasons for a previously recognized impairment loss and identifiable contingent liabilities. After initial recogni- no longer obtain, the carrying amount of the asset is re- tion, goodwill is not amortized, but is tested for recover- stored through profit or loss, under “Depreciation, amorti- ability at least annually using the criteria described in the zation and impairment losses”, in an amount that shall not paragraph “Impairment of non-financial assets”. For the exceed the net carrying amount that the asset would have purpose of impairment testing, goodwill is allocated, from had if the impairment loss had not been recognized and the acquisition date, to each of the cash generating units depreciation or amortization had been performed. The origi- identified. nal value of goodwill is not restored even if in subsequent Goodwill relating to equity investments in associates and years the reasons for the impairment no longer obtain. joint ventures is included in their carrying amount. The recoverable amount of goodwill and intangible assets Impairment of non-financial assets with an indefinite useful life and intangible assets not yet available for use is tested for recoverability annually or more frequently if there is evidence suggesting that the At each reporting date, non-financial assets are reviewed to assets may be impaired. determine whether there is evidence of impairment. If such evidence exists, the recoverable amount of any involved as- set is estimated. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. In order to determine the recoverable amount of property, If certain specific identified assets owned by the Group are impacted by adverse economic or operating conditions that undermine their capacity to contribute to the generation of cash flows, they can be isolated from the rest of the assets of the CGU, undergo separate analysis of their recoverabil- plant and equipment, investment property, intangible assets ity and are impaired where necessary. and goodwill, the Group generally adopts the value-in-use criterion. The value in use is represented by the present value of the Inventories estimated future cash flows generated by the asset in ques- Inventories are measured at the lower of cost and net tion. Value in use is determined by discounting estimated fu- realizable value except for inventories involved in trading ture cash flows using a pre-tax discount rate that reflects the activities, which are measured at fair value with recogni- current market assessment of the time value of money and tion through profit or loss. Cost is determined on the basis the specific risks of the asset. of average weighted cost, which includes related ancillary The future cash flows used to determine value in use are charges. Net estimated realizable value is the estimated based on the most recent Business Plan, approved by the normal selling price net of estimated costs to sell or, where management, containing forecasts for volumes, revenue, applicable, replacement cost. operating costs and investments. For the portion of inventories held to discharge sales that These projections cover the next five years. Consequently, have already been made, the net realizable value is deter- cash flows related to subsequent periods are determined on mined on the basis of the amount established in the con- the basis of a long-term growth rate that does not exceed tract of sale. the average long-term growth rate for the particular sector Inventories include environmental certificates (green cer- and country. The recoverable amount of assets that do not generate inde- pendent cash flows is determined based on the cash-gener- ating unit to which the asset belongs. tificates, energy efficiency certificates and CO2 emissions allowances) that were not utilized for compliance in the re- porting period. As regards CO2 emissions allowances, in- ventories are allocated between the trading portfolio and If the carrying amount of an asset or of a cash generating the compliance portfolio, i.e. those used for compliance unit to which it is allocated is higher than its recoverable with greenhouse gas emissions requirements. Within the amount, an impairment loss is recognized in profit or loss under “Depreciation, amortization and impairment losses”. latter, CO2 emissions allowances are allocated to sub-port- folios on the basis of the compliance year to which they Impairment losses of cash generating units are firstly have been assigned. charged against the carrying amount of any goodwill attrib- Inventories also include nuclear fuel stocks, use of which is uted to it and then against the other assets, in proportion to determined on the basis of the electricity generated. their carrying amount. Materials and other consumables (including energy com- 209 Consolidated financial statementsmodities) held for use in production are not written down tive gains and losses upon derecognition (equity instru- if it is expected that the final product in which they will be ments); and incorporated will be sold at a price sufficient to enable re- > financial assets at fair value through profit or loss. covery of the cost incurred. Financial instruments Financial assets measured at amortized cost This category mainly includes trade receivables, other receiv- Financial instruments are any contract that gives rise to a ables and financial receivables. financial asset of one entity and a financial liability or equity Financial assets at amortized cost are held within a business instrument of another entity; they are recognized and mea- model whose objective is to hold financial assets in order to sured in accordance with IAS 32 and IFRS 9. collect contractual cash flows and whose contractual terms A financial asset or liability is recognized in the consolidated give rise, on specified dates, to cash flows that are solely pay- financial statements when, and only when, the Group be- ments of principal and interest on the principal amount out- comes party to the contractual provision of the instrument standing. (trade date). Such assets are initially recognized at fair value, adjusted for Trade receivables arising from contracts with customers, in any transaction costs, and subsequently measured at amor- the scope of IFRS 15, are initially measured at their trans- tized cost using the effective interest method; they are sub- action price (as defined in IFRS 15) if such receivables do ject to impairment. not contain a significant financing component or when the Gains and losses are recognized in profit or loss when the as- Group applies the practical expedient allowed by IFRS 15. set is derecognized, modified or impaired. Conversely, the Group initially measures financial assets other than receivables above-mentioned at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Financial assets are classified, at initial recognition, as fi- Financial assets at fair value through other comprehensive income (FVOCI) - debt instruments This category mainly includes listed debt securities not clas- nancial assets at amortized cost, at fair value through other sified as held for trading by the Group reinsurance company. comprehensive income and at fair value through profit or Financial assets at fair value through other comprehensive loss, on the basis of both Group’s business model and the income are assets held within a business model whose ob- contractual cash flow characteristics of the instrument. jective is achieved by both collecting contractual cash flows For this purposes, the assessment to determine wheth- and selling financial assets and whose contractual cash flows er the instrument gives rise to cash flows that are solely give rise, on specified dates, to cash flows that are solely pay- payments of principal and interest (SPPI) on the principal ments of principal and interest on the principal amount out- amount outstanding is referred to as the SPPI test and is standing. performed at an instrument level. Changes in fair value for these financial assets are recognized The Group’s business model for managing financial assets in other comprehensive income as well as loss allowances refers to how it manages its financial assets in order to gen- that do not reduce the carrying amount of the financial assets. erate cash flows. The business model determines whether When a financial asset is derecognized (e.g. at the time of cash flows will result from collecting contractual cash flows, sale), the cumulative gains and losses previously recognized selling the financial assets, or both. in equity (except impairment and foreign exchange gains and For purposes of subsequent measurement, financial assets losses to be recognized in profit or loss) are reversed to the are classified in four categories: income statement. > financial assets measured at amortized cost (debt instru- ments); > financial assets at fair value through other comprehen- sive income with recycling of cumulative gains and loss- es (debt instruments); Financial assets at fair value through other comprehensive income (FVOCI) - equity instruments This category includes mainly equity investments in un- > financial assets designated at fair value through other listed entities irrevocably designated as such upon initial comprehensive income with no recycling of cumula- recognition. 210 Annual Report 2018Gains and losses on these financial assets are never recy- In compliance with IFRS 9, as from January 1, 2018, the cled to profit or loss. The Group may transfer the cumulative Group adopted a new impairment model based on the gain or loss within equity. determination of expected credit losses (ECL) using a for- Equity instruments designated at fair value through other com- ward-looking approach. In essence, the model provides for: prehensive income are not subject to impairment assessment. > the application of a single framework for all financial as- Dividends on such investments are recognized in profit or sets; loss unless they clearly represents a recovery of a part of the > the recognition of expected credit losses on an ongoing cost of the investment. Financial assets at fair value through profit or loss This category mainly includes: securities, equity investments basis and the updating of the amount of such losses at the end of each reporting period, reflecting changes in the credit risk of the financial instrument; > the measurement of expected losses on the basis of reasonable information, obtainable without undue cost, in other entities, financial investment in fund held for trading about past events, current conditions and forecasts of and financial assets designated as at fair value through profit future conditions. or loss at initial recognition. For trade receivables, contract assets and lease receivables, Financial assets at fair value through profit or loss are: including those with a significant financial component, the > financial assets with cash flows that are not solely pay- Group adopts the simplified approach, determining expect- ments of principal and interest, irrespective of the busi- ed credit losses over a period corresponding to the entire ness model; life of the receivable, generally equal to 12 months. > financial assets held for trading because acquired or in- For all financial assets other than trade receivables, contract curred principally for the purpose of selling or repurchasing assets and lease receivables, the Group applies the gen- in the short term; eral approach under IFRS 9, based on the assessment of > debt instruments designated upon initial recognition, un- a significant increase in credit risk since initial recognition. der the option allowed by IFRS 9 (fair value option) if do- Under such approach, a loss allowance on financial assets ing so eliminates, or significantly reduces, an accounting is recognized at an amount equal to the lifetime expected mismatch; credit losses, if the credit risk on those financial assets has > derivatives, including separated embedded derivatives, increased significantly, since initial recognition, considering held for trading or not designated as effective hedging in- all reasonable and supportable information, including also struments. forward-looking inputs. Such financial assets are initially recognized at fair value with If at the reporting date the credit risk on financial assets subsequent gains and losses from changes in their fair value has not increased significantly since initial recognition, the recognized through profit or loss. Group measures the loss allowance for those financial as- This category include also listed equity investments which sets at an amount equal to 12-month expected credit loss- the Group had not irrevocably elected to classify at fair value es. through other comprehensive income. Dividends on listed For financial assets on which loss allowance equal to life- equity investments are also recognized as other income in time expected credit losses has been recognized in the the income statement when the right of payment has been previous reporting date, the Group measures the loss al- established. lowance at an amount equal to 12-month expected credit Financial assets that qualify as contingent consideration are losses when significant increase in credit risk condition is also measured at fair value through profit or loss. no longer met. Impairment of financial assets At the end of each reporting date, the Group recognizes a The Group recognizes in profit or loss, as impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting loss allowance for expected credit losses on trade receiv- date to the amount that is required to be recognized in ac- ables and other financial assets measured at amortized cordance with IFRS 9. cost, debt instruments measured at fair value through other The Group applies the low credit risk exemption, avoiding comprehensive income, contract assets and all other assets the recognition of loss allowances at an amount equal to in the scope. lifetime expected credit losses due to significant increase 211 Consolidated financial statementsin credit risk, to debt securities at fair value through other value through profit or loss, upon initial recognition. comprehensive income, whose counterparty has a strong Financial liabilities that qualify as contingent consideration financial capacity to meet its contractual cash flow obliga- are also measured at fair value through profit or loss. tions (e.g. investment grade). Cash and cash equivalents This category includes deposits that are available on demand Derecognition of financial assets and liabilities Financial assets are derecognized whenever one of the fol- or at very short term, as well as highly short-term liquid fi- lowing conditions is met: nancial investments that are readily convertible into a known > the contractual right to receive the cash flows associated amount of cash and which are subject to insignificant risk of with the asset expires; changes in value. > the Group has transferred substantially all the risks and re- In addition, for the purpose of the consolidated statement of wards associated with the asset, transferring its rights to cash flows, cash and cash equivalents do not include bank receive the cash flows of the asset or assuming a contrac- overdrafts at period-end. Financial liabilities at amortized cost This category mainly includes borrowings, trade payables, tual obligation to pay such cash flows to one or more ben- eficiaries under a contract that meets the requirements provided by IFRS 9 (the “pass through test”); > the Group has not transferred or retained substantially all finance leases and debt instruments. the risks and rewards associated with the asset but has Financial liabilities, other than derivatives, are recognized transferred control over the asset. when the Group becomes a party to the contractual clauses Financial liabilities are derecognized when they are extin- of the instrument and are initially measured at fair value ad- guished, i.e. when the contractual obligation has been dis- justed for directly attributable transaction costs. Financial li- charged, cancelled or expired. abilities are subsequently measured at amortized cost using When an existing financial liability is replaced by another the effective interest rate method. from the same lender on substantially different terms, or the Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recog- financial liabilities held for trading and financial liabilities des- nized in profit or loss. ignated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are Derivative financial instruments A derivative is a financial instrument or another contract: incurred for the purpose of repurchasing in the near term. > whose value changes in response to the changes in an This category also includes derivative financial instruments underlying variable such as an interest rate, commodity or entered into by the Group that are not designated as hedg- security price, foreign exchange rate, a price or rate index, ing instruments in hedge relationships as defined by IFRS 9. a receivable rating or other variable; Separated embedded derivatives are also classified as at fair > that requires no initial net investment, or one that is small- value through profit or loss unless they are designated as er than would be required for a contract with similar re- effective hedging instruments. sponse to changes in market factors; Gains or losses on liabilities at fair value through profit or loss > that is settled at a future date. are recognized in profit or loss. Derivative instruments are classified as financial assets or Financial liabilities designated upon initial recognition at fair liabilities depending on the positive or negative fair value and value through profit or loss are designated at the initial date they are classified as “held for trading” within “Other busi- of recognition, only if the criteria in IFRS 9 are satisfied. ness models” and measured at fair value through profit or In this case, the portion of the change in fair value attribut- loss, except for those designated as effective hedging instru- able to own credit risk is recognized in other comprehensive ments. income. For more details about hedge accounting, please refer to the The Group has not designated any financial liability as at fair note 46 “Derivatives and hedge accounting”. 212 Annual Report 2018All derivatives held for trading are classified as current assets or liabilities. Derivatives not held for trading purposes, but measured at fair value through profit or loss since they do not qualify for hedge accounting, and derivative designated as effective hedging instruments are classified as current or non-current on the basis of their maturity date and the Group intention to hold the financial instrument till maturity or not. Embedded derivatives An embedded derivative is a derivative included in a “com- bined” contract (the so-called “hybrid instrument”) that con- tains another non-derivative contract (the so-called host con- tract) and gives rise to some or all of the combined contract’s cash flows. The main Group contracts that may contain embedded de- rivatives are contracts to buy or sell non-financial items with clauses or options that affect the contract price, volume or maturity. A derivative embedded in a hybrid contract containing a financial asset host is not accounted for separately. The fi- nancial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss. Contracts that do not represent financial instruments to be measured at fair value are analyzed in order to identify any embedded derivatives, which are to be separated and measured at fair value. This analysis is performed when the Group becomes party to the contract or when the contract is renegotiated in a manner that significantly changes the original associated cash flows. Embedded derivatives are separated from the host contract and accounted for as derivatives when: > the host contract is not a financial instrument measured at fair value through profit or loss; > the economic risks and characteristics of the embedded derivative are not closely related to those of the host con- tract; > a separate contract with the same terms as the embed- ded derivative would meet the definition of a derivative. Embedded derivatives that are separated from the host con- tract are recognized in the consolidated financial statements at fair value with changes recognized in profit or loss (except when the embedded derivative is part of a designated hedg- ing relationship). Contracts to buy or sell non-financial items In general, contracts to buy or sell non-financial items that are entered into and continue to be held for receipt or de- livery in accordance with the Group’s normal expected pur- chase, sale or usage requirements are out of the scope of IFRS 9 and then recognized as executory contracts, accord- ing to the “own use exemption”. Such contracts are recognized as derivatives and, as a conse- quence, at fair value through profit or loss only if: > they can be settled net in cash; and > they are not entered into in accordance with the Group’s expected purchase, sale or usage requirements. A contract to buy or sell non-financial items is classified as “normal purchase or sale” if it is entered into: > for the purpose of the physical delivery; > in accordance with the entity’s expected purchase, sale or usage requirements. The Group analyses all contracts to buy or sell non-financial assets, with a specific focus on forward purchases and sales of electricity and energy commodities, in order to determine if they shall be classified and treated according to IFRS 9 or if they have been entered into for “own use”. Offsetting financial assets and liabilities The Group offsets financial assets and liabilities when: > there is a legally enforceable right to set off the recog- nized amounts, and > there is the intention of either to settle on a net basis, or to realize the asset and settle the liability simultaneously. Hyperinflation In a hyperinflationary economy, the Group adjusts non-mon- etary items, shareholders’ equity and items deriving from index-linked contracts up to the limit of recoverable value, using a price index that reflects changes in general purchas- ing power. The effects of initial application are recognized in equity net of tax effects. Conversely, during the hyperinflationary period (until it ceases), the result (gain or loss) of adjustments is rec- ognized in profit or loss and disclosed separately in financial income and expense. Starting from current year, this standard applies to the Group’s transactions in Argentina, whose economy has been declared hyperinflationary from July 1, 2018. Accord- ingly, and based on the application of IAS 29, the Group has 213 Consolidated financial statementsrecognized the effects arising from the adoption of this stan- dard from the beginning of the year (January 1, 2018). Termination benefits Employee benefits Liabilities for benefits due to employees for the early termi- nation of the employment relationship, both for a Group’s decision both for an employee’s decision to accept volun- Liabilities related to employee benefits paid upon or after tary redundancy in exchange for these benefits, are recog- ceasing employment in connection with defined benefit nized at the earlier of the following dates: plans or other long-term benefits accrued during the em- > when the entity can no longer withdraw its offer of ben- ployment period are determined separately for each plan, efits; and using actuarial assumptions to estimate the amount of the > when the entity recognizes a cost for a restructuring that future benefits that employees have accrued at the balance is within the scope of IAS 37 and involves the payment of sheet date (the projected unit credit method). More specifi- termination benefits. cally, the present value of the defined benefit obligation is The liabilities are measured on the basis of the nature of calculated by using a discount rate determined on the basis the employee benefits. More specifically, when the benefits of market yields at the end of the reporting period on high- represent an enhancement of other post-employment ben- quality corporate bonds. If there is no deep market for high- efits, the associated liability is measured in accordance with quality corporate bonds in the currency in which the bond is the rules governing that type of benefits. Otherwise, if the denominated, the corresponding yield of government securi- termination benefits due to employees are expected to be ties is used. settled wholly before twelve months after the end of the The liability is recognized on an accruals basis over the vest- annual reporting period, the entity measures the liability in ing period of the related rights. These appraisals are per- accordance with the requirements for short-term employee formed by independent actuaries. benefits; if they are not expected to be settled wholly before If the value of plan assets exceeds the present value of the twelve months after the end of the annual reporting period, related defined benefit obligation, the surplus (up to the limit the entity measures the liability in accordance with the re- of any cap) is recognized as an asset. quirements for other long-term employee benefits. As regards the liabilities/(assets) of defined benefit plans, the cumulative actuarial gains and losses from the actuarial mea- surement of the liabilities, the return on the plan assets (net Provisions for risks and charges of the associated interest income) and the effect of the asset Provisions are recognized where there is a legal or con- ceiling (net of the associated interest income) are recognized structive obligation as a result of a past event at the end of in other comprehensive income when they occur. For other the reporting period, the settlement of which is expected long-term benefits, the related actuarial gains and losses are to result in an outflow of resources whose amount can be recognized through profit or loss. reliably estimated. Where the impact is significant, the ac- In the event of a change being made to an existing defined cruals are determined by discounting expected future cash benefit plan or the introduction of a new plan, any past ser- flows using a pre-tax discount rate that reflects the current vice cost is recognized immediately in profit or loss. market assessment of the time value of money and, if ap- Employees are also enrolled in defined contribution plans un- plicable, the risks specific to the liability. der which the Group pays fixed contributions to a separate If the provision is discounted, the periodic adjustment of entity (a fund) and has no legal or constructive obligation to the present value for the time factor is recognized as a fi- pay further contributions if the fund does not hold sufficient nancial expense. assets to pay all employee benefits relating to employee ser- When the Group expects some or all of a provision to be re- vice in the current and prior periods. Such plans are usually imbursed, the reimbursement is recognized as a separate aimed to supplement pension benefits due to employees asset, but only when the reimbursement is virtually certain. post-employment. The related costs are recognized in in- Where the liability relates to decommissioning and/or site come statement on the basis of the amount of contributions restoration in respect of property, plant and equipment, the paid in the period. 214 initial recognition of the provision is made against the re- lated asset and the expense is then recognized in profit or loss through the depreciation of the asset involved. Annual Report 2018Where the liability regards the treatment and storage of carrying amount of the assets is fully recoverable. If this is nuclear waste and other radioactive materials, the provision not the case, a loss equal to the unrecoverable amount is is recognized against the related operating costs. recognized in the income statement. The Group could provide a warranty in connection with the Decreases in estimates are recognized up to the carrying sale of a product (whether a good or service) from con- amount of the assets. Any excess is recognized immedi- tracts with customers in the scope of IFRS 15, in accor- ately in the income statement. dance with the contract, the law or its customary business For more information on the estimation criteria adopted in practices. In this case, the Group assesses whether the determining provisions for dismantling and/or restoration of warranty provides the customer with assurance that the re- property, plant and equipment, especially those associated lated product will function as the parties intended because with nuclear power plants, please see the section on the it complies with agreed-upon specifications or whether the use of estimates. warranty provides the customer with a service in addition to the assurance that the product complies with agreed- upon specifications. Government grants After the assessment, if the Group establishes that an as- surance warranty is provided, it recognizes a separate war- ranty liability and corresponding expense when transferring the product to the customer, as additional costs of provid- ing goods or services, without attributing any of the trans- Government grants, including non-monetary grants at fair value, are recognized where there is reasonable assurance that they will be received and that the Group will comply with all conditions attaching to them as set by the govern- ment, government agencies and similar bodies whether lo- action price (and therefore revenue) to the warranty. The cal, national or international. liability is measured and presented as a provision. Otherwise, if the Group determines that a service warranty is provided, it accounts for the promised warranty as a per- formance obligation in accordance with IFRS 15, recogniz- ing the contract liability as revenue over the period the war- ranty service is provided and the costs associated as they are incurred. Finally, if the warranty includes both an assurance element and a service element and the Group cannot reasonably ac- count for them separately, then it accounts for both of the When loans are provided by governments at a below-mar- ket rate of interest, the benefit is regarded as a government grant. The loan is initially recognized and measured at fair value and the government grant is measured as the differ- ence between the initial carrying amount of the loan and the funds received. The loan is subsequently measured in accordance with the requirements for financial liabilities. Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group rec- ognizes as expenses the costs that the grants are intended warranties together as a single performance obligation. to compensate. In the case of contracts in which the unavoidable costs of meeting the obligations under the contract exceed the eco- nomic benefits expected to be received under it (onerous contracts), the Group recognizes a provision as the lower of Where the Group receives government grants in the form of a transfer of a non-monetary asset for the use of the Group, it accounts for both the grant and the asset at the fair value of the non-monetary asset received at the date the costs of fulfilling the obligation that exceed the economic of the transfer. benefits expected to be received under the contract and any compensation or penalty arising from failure to fulfil it. Changes in estimates of accruals to the provision are rec- ognized in the income statement in the period in which the changes occur, with the exception of those in respect of the costs of decommissioning, dismantling and/or resto- Grants related to long-lived assets, including non-monetary grants at fair value, i.e. those received to purchase, build or otherwise acquire non-current assets (for example, an item of property, plant and equipment or an intangible asset), are recognized on a deferred basis under other liabilities and are credited to profit or loss on a straight-line basis over the ration resulting from changes in the timetable and costs useful life of the asset. necessary to extinguish the obligation or from a change in the discount rate. These changes increase or decrease the value of the related assets and are taken to the income statement through depreciation. Where they increase the value of the assets, it is also determined whether the new Environmental certificates Some Group companies are affected by national regulations governing green certificates and energy efficiency certifi- 215 Consolidated financial statementscates (so-called white certificates), as well as the European The Group applies these classification criteria as envisaged “Emissions Trading System”. in IFRS 5 to an investment, or a portion of an investment, in Green certificates, which now only exist outside of Italy, ac- an associate or a joint venture. Any retained portion of an in- crued in proportion to electricity generated by renewable vestment in an associate or a joint venture that has not been energy plants and energy efficiency certificates accrued in classified as held for sale is accounted for using the equity proportion to energy savings achieved that have been certi- method until disposal of the portion that is classified as held fied by the competent authority are treated as non-mone- for sale takes place. tary government operating grants and are recognized at fair Non-current assets (or disposal groups) and liabilities of dis- value, under other revenue and income, with recognition of posal groups classified as held for sale are presented sepa- an asset under other non-financial assets, if the certificates rately from other assets and liabilities in the balance sheet. are not yet credited to the ownership account, or under in- The amounts presented for non-current assets or for the as- ventories, if the certificates have already been credited to sets and liabilities of disposal groups classified as held for that account. At the time the certificates are credited to the sale are not reclassified or re-presented for prior periods pre- ownership account, they are reclassified from other assets sented. to inventories. Immediately before the initial classification of non-current Revenue from the sale of such certificates are recognized un- assets (or disposal groups) as held for sale, the carrying der revenue, with a corresponding decrease in inventories. amounts of such assets (or disposal groups) are measured For the purposes of accounting for charges arising from reg- in accordance with the IFRS-EU applicable to the specific ulatory requirements concerning green certificates, energy assets or liabilities. Non-current assets (or disposal groups) efficiency certificates and CO2 emissions allowances, the Group uses the “net liability approach”. classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment Under this accounting policy, environmental certificates re- losses for any initial or subsequent writedown of the assets ceived free of charge and those self-produced as a result of (or disposal groups) to fair value less costs to sell and gains Group’s operations that will be used for compliance purpos- for their reversals are included in profit or loss from continu- es are recognized at nominal value (nil). In addition, charges ing operations. incurred for obtaining (in the market or in some other trans- Non-current assets are not depreciated (or amortized) while action for consideration) any missing certificates to fulfil they are classified as held for sale or while they are part of a compliance requirements for the reporting period are recog- disposal group classified as held for sale. nized through profit or loss on an accruals basis under other If the classification criteria are no longer met, the Group operating expenses, as they represent “system charges” ceases to classify non-current assets (or disposal group) as consequent upon compliance with a regulatory requirement. held for sale. In that case they are measured at the lower of: Non-current assets (or disposal groups) classified as held for sale and discontinued operations > the carrying amount before the asset (or disposal group) was classified as held for sale, adjusted for any deprecia- tion, amortization or revaluations that would have been recognized if the asset (or disposal group) had not been classified as held for sale; and Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction, rather than through continuing use. > the recoverable amount, which is equal to the greater of its fair value net of costs of disposal and its value in use, as calculated at the date of the subsequent decision not This classification criteria is applicable only when non-current to sell. assets (or disposal groups) are available in their present con- dition for immediate sale and the sale is highly probable. Any adjustment to the carrying amount of a non-current as- set that ceases to be classified as held for sale is included in If the Group is committed to a sale plan involving loss of con- profit or loss from continuing operations. trol of a subsidiary and the requirements provided for under IFRS 5 are met, all the assets and liabilities of that subsidiary A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, are classified as held for sale when the classification criteria and: are met, regardless of whether the Group will retain a non- > represents a separate major line of business or geographi- controlling interest in its former subsidiary after the sale. cal area of operations; 216 Annual Report 2018 > is part of a single coordinated plan to dispose of a separate - the practices and processes for establishing contracts major line of business or geographical area of operations; or with customers vary across legal jurisdictions, indus- > is a subsidiary acquired exclusively with a view to resale. tries and entities. In addition, they may vary within the The Group presents, in a separate line item of the income Group (for example, they may depend on the class of statement, a single amount comprising the total of: customer or the nature of the promised goods or ser- > the post-tax profit or loss of discontinued operations; and vices); > the post-tax gain or loss recognized on the measurement - the Group considers those practices and processes in to fair value less costs to sell or on the disposal of the determining whether and when an agreement with a assets or disposal groups constituting the discontinued customer creates enforceable rights and obligations. operation. If the criteria are not met, any consideration received The corresponding amount is re-presented in the income from the customer is generally recognized as an advance; statement for prior periods presented in the financial state- > identify the performance obligations in the contract (step 2). ments, so that the disclosures relate to all operations that The Group identifies all goods or services promised in the are discontinued by the end of the current reporting period. contract, separating them into performance obligations to If the Group ceases to classify a component as held for sale, account for separately if they are both: capable of being the results of the component previously presented in dis- distinct and distinct in the context of the contract. continued operations are reclassified and included in income As an exception, the Group accounts for a single perfor- from continuing operations for all periods presented. mance obligation a series of distinct goods or services Revenue The Group revenue mainly arises from contracts with cus- that are substantially the same and that have the same pattern of transfer to the customer over time. In assessing the existence and the nature of the perfor- mance obligations, the Group considers all contract’s fea- tomers in the scope of IFRS 15. The Group recognizes such tures as mentioned in step 1. revenue to depict the transfer of promised goods or services to the customers at an amount that reflects the consider- ation at which the Group expects to be entitled in exchange for those goods or services. The Group applies this core principle using a five-step model: > identify the contract with the customer (step 1). The Group applies IFRS 15 to contracts with customers in the scope of the standard when the contract is legally enforceable and all the following criteria are met: - the contract is approved and the parties are committed For each distinct good or service identified, the Group de- termines whether it acts as a principal or agent, respec- tively, if it controls or not the specified good or service that is promised to the customer before its control is trans- ferred to the customer. Some indicators of controls are (a) having primary responsibility to provide the goods or services, (b) assuming inventory risk and (c) having discre- tion to establish prices for the goods or services. When the Group acts as agent, it recognizes revenue on a net basis, corresponding to any fee or commission to which it to their obligations; expects to be entitled; - rights to goods or services and payment terms can be > determine the transaction price (step 3). identified; - - the contract has commercial substance; the consideration the Group expects to be entitled to is probable of collection. In order to assess such identification criteria, the Group considers all facts and circumstances, including the fol- lowing features: - a contract is an agreement between two or more par- ties that creates enforceable rights and obligations; - enforceability of the rights and obligations in a contract is a matter of law; The transaction price represents the amount of consid- eration to which the Group expects to be entitled in ex- change for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (e.g., some sale taxes and value-added taxes). The Group determines the transaction price at inception of the contract (using the legally enforceable contract terms and not taking into consideration the possibility of a con- tract being cancelled, renewed or modified) and updates it each reporting period for any changes in circumstances. When the Group determines the transaction price, it con- - contract can be written, oral or implied by the Group’s siders if the transaction price includes: customary business practices; - variable consideration, if the consideration to which the 217 Consolidated financial statements Group is entitled under the contract may vary or if the ability to direct the use of, and obtain substantially all of stated price in the contract is fixed but the Group is the remaining benefits from the goods or services or entitled to the consideration only upon the occurrence prevent others from doing so). or non-occurrence of a future event. The amount of es- As a first step, the Group determines if one of the over- timated variable consideration included in the transac- time criteria is met: tion price is constrained to the amount for which it is - the customer simultaneously receives and consumes highly probable that a significant reversal in the amount the benefits as the Group performs; of cumulative revenue recognized will not occur when - the Group’s performance creates or enhances an as- the uncertainty is resolved; set that the customer controls as the asset is created - non-cash consideration received from a customer that or enhanced; or is measured at fair value; - the Group’s performance does not create an asset - consideration payable to a customer that represents a re- with an alternative use to the Group, and the Group duction of the transaction price unless it is a payment for has an enforceable right to payment for performance distinct goods or services received from the customer; completed to date. - significant financing component that may exist if the For each performance obligation satisfied over time, timing of the payment does not match the timing of the Group recognizes revenue over time by measuring the transfer of goods or services to the customer. The progress toward the complete satisfaction of that per- Group does not consider the effects of a significant fi- formance obligation using: nancing component if it expects, at contract inception, - an output method, based on direct measurement of that the period between when it transfers a promised the value to the customer of goods or services trans- good or service to a customer and when the customer ferred to date, relative to the remaining goods or ser- pays for that good or service will be one year or less; vices promised under the contract; > allocate the transaction price (step 4). - an input method, based on the Group’s efforts or in- The Group allocates the transaction price at contract in- puts towards satisfying a performance obligation, rela- ception to each separate performance obligation to depict tive to the total expected inputs to the satisfaction of the amount of consideration to which the Group expects that performance obligation. to be entitled in exchange for transferring the promised The Group consistently applies a single method of mea- goods or services. suring progress from contract inception until full satis- When the contract includes a customer option to acquire faction and to similar performance obligations and in additional goods or services that represents a material similar circumstances. right (a material right exists if the customer is only able When the Group cannot reasonably measure the prog- to obtain the option by entering into the contract and the ress, it recognizes revenue only to the extent of the option provides the customer with the ability to obtain the costs incurred that are considered recoverable. additional goods or services at a price below stand-alone If the performance obligation is not satisfied over time, selling prices), the Group allocates the transaction price to the Group determines the point in time at which control this performance obligation (i.e. the option) and defers the of the goods or services passes to the customer, also relative revenue until those future goods or services are considering the following indicators: transferred or the option expires. - a present obligation to pay; The Group generally allocates the transaction price on the - physical possession; basis of the relative stand-alone selling price of each dis- tinct good or service promised in the contract (that is, the - - legal title; risks and rewards of ownership; and price at which the Group would sell that good or service - accepted the asset. separately to the customer); > recognize revenue (step 5). If the Group performs by transferring goods or services to The Group recognizes revenue when (or as) each perfor- a customer before the customer pays consideration or be- mance obligation is satisfied by transferring the prom- fore payment is due, it recognizes a contract asset relating ised good or service to the customer, which is when the to the right to consideration in exchange for goods or ser- customer obtains control of the good or service (i.e., the vices transferred to the customer. 218 Annual Report 2018 If a customer pays consideration before the Group trans- or as costs incurred to date as a percentage of the fers goods or services to the customer, the Group recog- estimated total costs of the transaction. When it is nizes a contract liability when the payment is made (or not possible to reliably determine the value of the the payment is due); the liability is recognized as revenue revenue, it is recognized only to the extent of the ex- when the Group performs under the contract. penses recognized that are recoverable; - under IFRS 15, it is recognized on basis of the progress With regard to the general criteria used for the revenue towards complete satisfaction of the performance recognition under the previous standards, please refer to obligation measured with an appropriate method that the notes to financial statements at December 31, 2017. best reflects this progress if the Group considers that More specifically, the criteria used under IFRS 15 and pre- the performance obligation is satisfied over time. The vious standards for the principal transactions are summa- cost-incurred method (cost-to-cost method) is con- rized as below: > revenue from the sale of goods: sidered appropriate for measuring progress, except when specific contract analysis suggests the use of - under previous standards, it is recognized when the an alternative method which better depicts satisfac- significant risks and rewards of ownership of the tion of the performance obligation; goods are transferred to the customer; > revenue from monetary and in-kind fees for connection - under IFRS 15, it is recognized at the point in time at to the electricity and gas distribution network: which the customer obtains the control of goods if - under previous standards, it is recognized in full upon the Group considers that the sale of goods is satisfied completion of connection activities if only the service at a point in time; connection is identified. If more than one separately > revenue from the sale and transport of electricity/gas: identifiable service is identified, the fair value of the - under previous standards, it is recognized when total consideration received or receivable is allocated these commodities are delivered to the customer to each service and the revenue related to the service (i.e., the end user) and referred to the quantities pro- performed in the period is recognized; in particular, if vided during the period, even if these have not yet any ongoing services are identified, the related reve- been invoiced, and is determined using estimates as nue is generally determined by the terms of the agree- well as periodic meter readings. Where applicable, ment with the customer or, when such an agreement this revenue is based on the rates and related restric- does not specify a period, over a period no longer than tions established by law or the Regulatory Authority the useful life of the transferred asset; for Energy, Networks and Environment (ARERA) and - under IFRS 15, it is recognized on basis of the sat- analogous foreign authorities during the applicable isfaction of the performance obligations included in period; the contract. The identification of distinct goods or - under IFRS 15, the revenue recognition is generally services requires a careful analysis of the terms and the same but the underlying assessment is different. conditions of the connection arrangements, which This is a consequence of the fact that such contracts could vary from country to country based on the local typically include a single performance obligation (i.e., context, regulations and law. In order to finalize this a series) satisfied over time for which the Group ap- assessment, the Group considers not only the char- plies an output method to recognize revenue in the acteristics of the goods/services themselves (i.e., the amount to which it has a right to invoice the customer good or service is capable of being distinct) but also if that amount corresponds directly with the value to the implied promises for which the customer has a the customer of the performance completed to date; valid expectation as it views those promises as part of > revenue from providing services: the negotiated exchange, that is goods/services that - under previous standards, it is recognized by refer- the customer expects to receive and for which has ence to the stage of completion of services at the paid (i.e., the promise to transfer the good or service end of the reporting period, that is when the services to the customer is separately identifiable from other are rendered. The stage of completion of the trans- promises in the contract). For more details about this action is determined based on service performed to topic, please refer to the section on management date as percentage of total services to be performed judgments; 219 Consolidated financial statements > revenue from construction contracts: value through profit or loss on interest rate and foreign - under previous standards, when the outcome can be exchange risk; estimated reliably and it is probable that the contract > income and expense from fair value hedge derivatives on will be profitable, it is recognized by reference to the interest rate risk; stage of completion of the contract activity at the end > income and expense from cash flow hedge derivatives on of the reporting period. Under this criteria, revenue interest rate and foreign exchange risks. and profit are attributed to the proportion of work com- pleted. When it is probable that total contract costs will ex- Other financial income and expense For all financial assets and liabilities measured at amortized ceed total contract revenue, the expected loss on the cost and interest-bearing financial assets classified as at fair construction contract is recognized as an expense im- value through other comprehensive income, interest income mediately, regardless of the stage of completion of the and expense is recorded using the effective interest rate contract. method. The effective interest rate is the rate that exactly When the outcome of a construction contract cannot discounts the estimated future cash payments or receipts be estimated reliably, the contract revenue is recog- over the expected life of the financial instrument or a shorter nized only in an amount equal to the contract costs in- period, where appropriate, to the net carrying amount of the curred that are likely to be recovered. financial asset or liability. The stage of completion of the contract in progress Interest income is recognized to the extent that it is probable is determined, using the cost-to-cost method, as a ra- that the economic benefits will flow to the Group and the tio between costs incurred for work performed to the amount can be reliably measured. measurement date and the estimated total contract Other financial income and expense include also changes in costs. In addition to initial amount of revenue agreed in the fair value of financial instruments other than derivatives. the contract, contract revenue includes any payments in respect of variations, claims and incentives, to the extent that it is probable that they will result in revenue Income taxes and they are capable of being reliably measured. The amount due from customers for contract work is Current income taxes Current income taxes for the period, which are recognized presented as an asset; the amount due to customers under “Income tax payable” net of payments on account, for contract work is presented as a liability; or under “Tax receivable” where there is a credit balance, - under IFRS 15, it is recognized over time if the Group are determined using an estimate of taxable income and in considers that the construction contract includes a per- conformity with the applicable regulations. formance obligation satisfied over time, by measuring In particular, such payables and receivables are determined progress toward the complete satisfaction of that per- using the tax rates and tax laws that are enacted or sub- formance obligation using an appropriate method that stantively enacted by the end of the reporting period in the better depicts this progress. The cost incurred method countries where taxable income has been generated. (cost-to-cost method) is considered appropriate for Current income taxes are recognized in profit or loss with measuring progress, except when specific contract the exception of current income taxes related to items rec- analysis suggests the use of an alternative method, ognized outside profit or loss that are recognized in equity. which better depicts the performance obligation. The amount due from customers for contract work is presented as a contract asset; the amount due to cus- Deferred tax Deferred tax liabilities and assets are calculated on the tem- tomers for contract work is presented as a contract li- porary differences between the carrying amounts of assets ability. Financial income and expense from derivatives Financial income and expense from derivatives includes: and liabilities in the financial statements and their corre- sponding values recognized for tax purposes on the basis of tax rates in effect on the date the temporary difference will reverse, which is determined on the basis of tax rates that are enacted or substantively enacted as at end of the > income and expense from derivatives measured at fair reporting period. 220 Annual Report 2018Deferred tax liabilities are recognized for all taxable tempo- > “IFRS 9 - Financial instruments”, issued, in its final version, rary differences, except when the deferred tax liability arises on 24 July 2014, including “Amendments to IFRS 9: Pre- from the initial recognition of goodwill or in respect of tax- payment features with negative compensation” issued in able temporary differences associated with investments in October 2017 and elected by the Group to be applied start- subsidiaries, associates and interests in joint arrangements, ing from January 1, 2018, which replaces the current “IAS when the Group can control the timing of the reversal of the 39 - Financial instruments: recognition and measurement” temporary differences and it is probable that the temporary and fully supersedes the previous version. differences will not reverse in the foreseeable future. > “IFRS 15 - Revenue from contracts with customers”, is- Deferred tax assets are recognized for all deductible tempo- sued in May 2014, including “Amendments to IFRS 15: ef- rary differences, the carry forward of unused tax credits and fective date of IFRS 15”, issued in September 2015, and any unused tax losses, when recovery is probable, i.e. when “Clarifications to IFRS 15: Revenue from contracts with an entity expects to have sufficient future taxable income to customers”, issued in April 2016, which provides amend- recover the asset. ments in the standard in order to propose some clarifica- The recoverability of deferred tax assets is reviewed at each tions with respect to practical expedients and some topics period-end. discussed by the Joint Transition Resource Group created Unrecognized deferred tax assets are re-assessed at each by IASB and FASB. The new standard has replaced “IAS reporting date and they are recognized to the extent that it 11 - Construction contracts”, “IAS 18 - Revenue”, “IFRIC 13 has become probable that future taxable profits will allow - Customer Loyalty programmes”, “IFRIC 15 - Agreements the deferred tax asset to be recovered. for the construction of real estate”, “IFRIC 18 - Transfers Deferred taxes are recognized in profit or loss, with the of assets from customers”, “SIC 31 - Revenue - Barter exception of those in respect of items recognized outside transactions involving advertising services” and it applies profit or loss that are recognized in equity. to all contracts with customers, except for some scope Deferred tax assets and deferred tax liabilities are offset exemptions (e.g., lease and insurance contracts, financial against current tax liabilities related to income taxes levied instruments, etc.). by the same taxation authority that arise at the time of rever- > “Amendments to IFRS 2: Classification and measurement sal if a legally enforceable right to set-off exists. of share-based payment transactions”, issued in June Dividends Dividends are recognized when the unconditional right to re- ceive payment is established. Dividends and interim dividends payable to a Company’s shareholders are recognized as changes in equity in the pe- 2016. The amendments: - clarify that the fair value of a cash-settled share-based payment at the measuring date (i.e. when granted, at the end of each reporting period and at the date of settlement) is measured taking into account market conditions (e.g. target share price) and non-vesting con- ditions, ignoring instead service and non-market perfor- riod in which they are approved by the Shareholders’ Meet- mance conditions; ing and the Board of Directors, respectively. 3 Recent accounting standards New accounting standards applied in 2018 The Group has applied the following standards, interpretations - clarify that share-based payment transactions with a net settlement feature for withholding tax obligations would be classified as equity-settled in its entirety (as- suming they would have been so classified without the net settlement feature); - provide requirements on the accounting for a modifica- tion to the terms and conditions of a share-based pay- ment that changes the classification of the transaction from cash-settled to equity-settled. The application of these amendments did not have a sig- nificant impact in the consolidated financial statements. > “Amendments to IFRS 4: Applying IFRS 9 - Financial in- struments with IFRS 4 - Insurance contracts”, issued in and amendments that took effect as from January 1, 2018: September 2016. The amendments: 221 Consolidated financial statements - permit insurers whose activities are predominantly con- nificant impact in the consolidated financial statements. nected with insurance to postpone the application of > “IAS 29 - Financial reporting in hyperinflationary econo- IFRS 9 until 2021 (the “temporary exemption”); and mies”, issued in July 1989; the standard essentially provides - permit insurers, until the future issue of the new ac- criteria for measurement, presentation and disclosure in counting standard for insurance contracts, to recognize the financial statements, including the consolidated finan- the volatility that should be caused by the application cial statements, of companies whose functional currency of IFRS 9 in other comprehensive income (OCI), rather is the currency of a hyperinflationary economy. Starting than profit or loss (the “overlay approach”). from January 1, 2018 the Group has applied the standard The Enel Group decided to not exercise the option for the to the financial statements of Argentine companies. temporary exemption for the application of IFRS 9 to the insurance sector. > “Amendments to IAS 40: Transfers of investment proper- Forthcoming accounting standards ty”, issued in December 2016; the amendments clarify that to transfer to, or from, investment properties there must Below is a list of accounting standards, amendments and interpretations that will be effective for the Group after De- be a change in use. This change must be supported by cember 31, 2018: evidence and a simply change in intention is not enough to support a transfer. The amendments expands the ex- amples of change in use to include assets under construc- tion and development and not only transfers of completed properties. The application of these amendments did not have an impact in the consolidated financial statements. > “IFRS 16 - Leases”, issued on January 2016, that replaces “IAS 17 - Leases”, “IFRIC 4 - Determining whether an ar- rangement contains a lease”, “SIC 15 - Operating leases - incentives” and “SIC 27 - Evaluating the substance of transactions involving the legal form of a lease”. With the European Regulation 2017/1986 issued on October 31, > “IFRIC 22 - Foreign currency transactions and advance 2017 it has been endorsed the “IFRS 16 - Leases”. consideration”, issued in December 2016; the interpreta- tion clarifies that, for the purpose of determining the ex- change rate to use on initial recognition of an asset, ex- pense or income (or part of it), the date of the transaction IFRS 16 sets out the principles for the recognition, mea- surement, presentation and disclosure of leases and re- quires lessees to account for all leases under a single on- balance sheet model similar to the accounting for finance is that on which the entity recognizes any non-monetary leases under IAS 17. asset or non-monetary liability arising from the payment or receipt of advance consideration. The application of these amendments did not have a significant impact in the con- solidated financial statements. > “Annual improvements to IFRSs 2014-2016 cycle”, issued in December 2016; the document contains formal modifi- cations and clarifications of existing standards. More spe- cifically, the following standards were amended: - “IFRS 1 - First-time adoption of international financial reporting standards”; the amendments delete short- term exemptions covering transition provisions of IFRS 7, IAS 19 and IFRS 10; - “IAS 28 - Investments in associates and joint ven- tures”; the amendments clarified that the option to measure investments in associates or joint ventures at fair value through profit or loss held by a venture capi- tal organization (or a mutual fund, unit trust and similar entities including investment-linked insurance) must be At the commencement date of a lease, a lessee will rec- ognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the un- derlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depre- ciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liabil- ity upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments result- ing from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurements of the lease liability as an adjustment to the right-of-use asset. Previously, the Group recognized operating lease expense on a straight-line basis over the term of the lease, and rec- ognized assets and liabilities only to the extent that there was a timing difference between actual lease payments elected at initial recognition separately for each associ- and the expense recognized. ate or joint venture. The application of the new provisions did not have a sig- Lessor accounting under IFRS 16 is substantially un- changed from today’s accounting under IAS 17. Lessors 222 Annual Report 2018 will continue to classify all leases using the same classifi- interest rate implicit in the lease cannot be readily cation principle as in IAS 17 and distinguish between two determined. For the transition, as permitted by the types of leases: operating and finance leases. standard, the Group has used the lessee’s incremen- The standard includes two recognition exemptions for les- tal borrowing rate (IBR) as of January 1, 2019. It is the sees: leases of “low-value” assets (e.g., personal comput- rate of interest that a lessee would have to pay to bor- ers) and short-term leases (i.e., leases with a term of 12 row over a similar term, and with a similar security, the months or less). IFRS 16 is effective for annual periods funds necessary to obtain an asset of a similar value beginning on or after January 1, 2019. to the right-of-use asset in a similar economic environ- The Group has not early adopted IFRS 16 in its consolidat- ment. It can be determined on a contract individual ed financial statements for the year ended December 31, level or on a portfolio basis. One of the most signifi- 2018. In any case, in order to assess the possible impact cant judgements the Enel Group in adopting IFRS 16 that the application of IFRS 16 will have on its financial was determining this incremental borrowing rate nec- statements in the period of initial application, the Group essary to calculate the present value of the lease pay- has set up a project team, which has reviewed all of the ments at the transition. The Enel Group approach to group’s lease arrangements in light of the new lease ac- determining this incremental borrowing rate is based counting rules in IFRS 16. In particular, the Group has iden- on the assessment of the risk-free rate, which con- tified a specific IT system tool in order to manage the new siders contractual cash flows, the lease term and the accounting requirement and has reviewed its accounting economic environment where the lease contract has process in order to be compliant to the new accounting been negotiated and any credit spread adjustment, in framework. order to calculate an IBR that is specific for the les- As a preliminary result of the project team, the Group has see. This rate has been adjusted where appropriate assessed the estimated impacts that initial application of for leased assets whose intrinsic value would mitigate IFRS 16 will have on its consolidated financial statements, the risk of default for the lessor. as described below. The Group elected to use the exemptions proposed The new accounting standard will impact substantially all by the standard on lease contracts for which the lease of the Group entities having a lease contracts. The main terms ends within 12 months as of the date of initial topics arisen are those represented by the lease of land application, and lease contracts for which the underly- and building, cars and other means of transportation and ing asset is of low value whose amount is estimated as other technical machinery. not material. For example, the Group has leases for cer- The complexity of the assessment of the lease contracts and photocopying machines) that are considered of low tain office equipment (i.e., personal computers, printing and their long-term expiration date has required consid- value. erable professional judgements in order to estimate the For the transition of the new accounting standard, the potential impacts of the new accounting standard. In par- Group elected to use the following practical expedients: ticular, the main assumptions used are: - to apply the standard to contracts that were previously - the identification of the non-lease component in the identified as leases applying IAS 17 and IFRIC 4; lease arrangements; - to use the modified retrospective approach, the Group - the evaluation of any renewable option included into recognized the cumulative effect of adopting IFRS 16 the lease arrangements identified, also considering the as an adjustment to the opening balance of retained probability of the exercise of any eventual termination earnings at January 1, 2019, with no restatement of option; comparative information; - the identification of any variable lease payments that - to measure the lease liability at the present value of the depend on an index or a rate to determine where those remaining lease payments, the discount rate was rep- changes impacts the future lease payments and also resented by the incremental borrowing rate of the Enel the amount of the right-of-use asset; Group entity’s lessee as of January 1, 2019; - the estimate of the discount rate to calculate the pres- - to mainly recognize a right-of-use asset at the date ent value of the lease payments. This is equal to the of initial application for an amount equal to the lease incremental borrowing rate of the lessee when the liability, adjusted by the amount of any prepaid or ac- 223 Consolidated financial statementscrued lease payments relating to that lease recog- The Group is assessing the potential impact of the future nized in the balance sheet immediately before the application of the new provisions. date of initial application; > “Amendments to IFRS 10 and IAS 28 - Sale or contribution - to rely on its assessment of whether right-of-use as- of assets between an investor and its associate or joint sets are recoverable at January 1, 2019 on the basis of venture”, issued in September 2014. The amendments the assessment of whether the leases are onerous in clarify the accounting treatment for sales or contribution accordance with IAS 37. of assets between an investor and its associates or joint Based on the information currently available, the Group ventures. They confirm that the accounting treatment de- has estimated that it will recognize additional lease liabili- pends on whether the assets sold or contributed to an as- ties of €1.4 billion as at January 1, 2019. sociate or joint venture constitute a “business” (as defined In particular, these additional lease liabilities mainly regard in IFRS 3). Where the assets constitute a business, the the right-of-use in respect of buildings and the ground investor will recognize the full gain or loss on the sale or lease of renewable energy plants. contribution of assets. If the assets do not meet the defi- A reconciliation between minimum lease payments dis- nition of a business, the gain or loss is recognized by the closed based on the requirements of IAS 17 and IFRS 16 investor only to the extent of unrelated investors’ interests impacts based on the information available as at at Janu- in the associate or joint venture. The IASB has deferred ary 1, 2019 is provided below: the effective date of these amendments indefinitely, but if Billions of euros Minimum lease payments for the lease contracts – IAS 17 Weighted average borrowing rate Discount impact Lease liability under IFRS 16 2.4 6.5% 1.0 1.4 > “IFRS 17 - Insurance contracts”, issued in May 2017, essentially sets out the principle for the recognition, measurement, presentation and disclosure of insurance contracts, including reinsurance contracts, an entity is- sues and reinsurance contracts an entity holds. IFRS 17 replaces the previous standard IFRS 4 for which com- panies were not required to account for insurance con- tracts in one specific way. Instead, insurance contracts were accounted for differently across jurisdictions and may even be accounted for differently within the same company. The new standard: - requires provision of updated information about the obligations, risks and performance of insurance con- tracts; - increases transparency in financial information report- ed by insurance companies, which will give investors and analysts more confidence in understanding the insurance industry; and - introduces consistent accounting for all insurance con- tracts based on a current measurement model. The standard will take effect, subject to endorsement, for annual periods beginning on or after January 1, 2021. the amendments are applied early, they must be applied prospectively. The Group is assessing the potential impact of the future application of the new provisions. > “Amendments to IAS 1 and IAS 8 - Definition of material”, issued in October 2018. The amendments clarify the defi- nition of “material” as follows: “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial in- formation about a specific reporting entity.” By including the concept of “obscuring information” in the new defi- nition, the amendments specifies that information is ob- scured if it is communicated in a way that would have a similar effect as omitting or misstating the information. In order to avoid situations in which information that is not capable of influencing the decisions of the primary users is required to be included in the financial statements, the amendments also introduce a new threshold in the defini- tion of material by replacing “could influence” with “could reasonably be expected to influence”. Lastly, the amend- ments clarify that an entity is required to consider primary users of the financial statements (i.e. existing and poten- tial investors, lenders and other creditors) when deciding what information to disclose. The amendments will take effect, subject to endorsement, for annual periods begin- ning on or after January 1, 2020, with earlier application permitted. The Group is assessing the potential impact of the future application of the new provisions. > “Amendments to IAS 19 - Plan amendment, curtailment or settlement”, issued in February 2018. 224 Annual Report 2018 The amendments require entities to use the updated ac- - a description of the reporting entity and its boundary; tuarial assumptions to determine current service cost and - definitions of an asset, a liability, equity, income and ex- net interest for the remainder of the annual reporting pe- penses and guidance supporting these definitions; riod after such an event. The amendments also clarify how - criteria for recognition and derecognition of assets and the requirements for accounting for a plan amendment, liabilities in financial statements; curtailment or settlement affect the asset ceiling require- - measurement bases and guidance on when to use them; ments. The amendments do not address the accounting - concepts and guidance on presentation and disclosure; for “significant market fluctuations” in the absence of a and plan amendment, curtailment or settlement. The amend- - concepts relating to capital and capital maintenance. ments apply to plan amendments, curtailments or settle- The Revised Conceptual Framework is accompanied by a ments that occur on or after January 1, 2019, with earlier Basis for Conclusions. The IASB has also issued a separate application permitted. The Group is assessing the potential accompanying document, “Amendments to References impact of the future application of the new provisions. to the Conceptual Framework in IFRS Standards”, which > “Amendments to IFRS 3 - Definition of a business”, issued sets out the amendments to affected standards in order to in October 2018. The amendments clarify that to be con- update references to the revised Conceptual Framework. sidered a business, an acquisition would have to include, The Revised Conceptual Framework will take effect for at a minimum, an input and a substantive process that to- annual reporting periods beginning on or after January 1, gether significantly contribute to the ability to create out- 2020, with earlier application permitted. The Group is as- puts. The new guidance provides a framework to evaluate sessing the potential impact of the future application of when an input and a substantive process are present. The the new provisions. definitions of a business and of outputs are now focused > “Amendments to IAS 28 - Long-term interests in asso- on goods and services provided to customers and the ref- ciates and joint ventures”, issued in October 2017; the erence to returns in the form of lower costs and other eco- amendments clarify that an entity must apply “IFRS 9 - nomic benefits is removed. Moreover, it is no longer nec- Financial instruments” to non-current interests in associ- essary to assess whether market participants are capable ates and joint ventures to which the equity method is not of replacing any missing inputs or processes and continu- applied. The amendments will take effect, subject to en- ing to produce outputs. The amendments also introduced dorsement, for annual periods beginning on or after Janu- an optional test that, if met, eliminates the need for further ary 1, 2019. The Group is assessing the potential impact of assessment (the concentration test). Under this optional the future application of the new provisions. test, an acquired set of activities and assets is not a busi- > “IFRIC 23 - Uncertainty over income tax treatments”, is- ness if substantially all of the fair value of the gross assets sued in June 2017; the interpretation clarifies how to ap- acquired is concentrated in a single identifiable asset (or ply the recognition and measurement requirements in IAS group of similar identifiable assets). 12 when there is uncertainty over income tax treatments. The amendments will take effect, subject to endorse- The uncertainty over income tax treatments may affect ment, for annual periods beginning on or after January 1, both current and deferred tax. The threshold for reflecting 2020, with earlier application permitted. The Group is as- the effects of uncertainty is whether it is probable that the sessing the potential impact of the future application of taxation authority will accept or not an uncertain tax treat- the new provisions. ment assuming that the taxation authority will examine > “Revised Conceptual Framework for Financial Reporting”, amounts it has a right to examine and have full knowledge issued in March 2018. The revised version includes com- of all related information. The interpretation also requires prehensive changes to the previous version of the Con- an entity to reassess any judgments and estimates made ceptual Framework issued in 2010. The Revised Concep- if a change in facts and circumstances might change an tual Framework includes some new concepts, provides entity’s conclusions about the acceptability of a tax treat- updated definitions and recognition criteria and clarifies ment or the entity’s estimate of the effect of uncertainty, some important concepts. In particular, it sets out: or both. The interpretation will take effect for annual peri- - the objective of general purpose financial reporting; ods beginning on or after January 1, 2019. The Group is - the qualitative characteristics of useful financial infor- assessing the potential impact of the future application of mation; the new provisions. 225 Consolidated financial statements > “Annual improvements to IFRSs 2015-2017 cycle”, issued exercise the option to use the simplification envisaged in the in December 2017; the document contains formal modi- standards for first-time adopters. fications and clarifications of existing standards. Each of The following discusses the main changes introduced by the amendments shall be applicable for annual reporting the new standards. For more details on their substance, see periods beginning on or after January 1, 2019, with ear- note 3 above: lier application permitted. More specifically, the following > “IFRS 9 - Financial instruments”, issued in its definitive ver- standards were amended: sion on July 24, 2014, replaces the existing “IAS 39 - Fi- - “IFRS 3 - Business combinations”; the amendments nancial instruments: Recognition and measurement” and clarify that when a joint operator obtains control of a supersedes all previous versions. The final version of IFRS business that is a joint operation, it shall remeasure 9 incorporates the results of the three phases of the proj- its previously held interest in the joint operation at fair ect to replace IAS 39 concerning classification and mea- value at the acquisition date; surement, impairment and hedge accounting. - “IFRS 11 - Joint arrangements”; the amendments clar- During 2017 the transition project for the three areas of ify that a party that participates in, but does not have application of the new standard was completed. Each proj- joint control of, a joint operation and obtains joint con- ect stream involved the following: trol of the joint operation that constitutes a business as - “Classification and measurement”: the procedures for defined in IFRS 3 is not required to remeasure previ- classifying financial instruments provided for in IAS 39 ously held interests in the joint operation; were assessed in comparison with those envisaged - “IAS 12 - Income taxes”; the amendments clarify that under IFRS 9 (i.e., SPPI test and business model). In an entity shall recognize the income tax consequences consideration of the fact that the 1st Quarter of 2018 of dividends (as defined in IFRS 9) when it recognizes a saw the endorsement of the amendments to “IFRS 9 liability to pay a dividend in profit or loss, other compre- - Prepayment features with negative compensation”, hensive income or equity according to where the entity issued by the IASB in October 2017 and applicable as originally recognized the transactions that generated from January 1, 2019, with the option of application as distributable profits; from January 1, 2018, the Group elected early and ret- - “IAS 23 - Borrowing costs”; the amendments clarify rospective application of the amendments. During the that an entity shall include borrowings made specifi- quarter, Enel analyzed the situations impacted by the cally for the purpose of obtaining a qualifying asset out- amendments, which: standing when the asset is ready for its intended use or a) introduce an exception for certain financial assets sale in the generic borrowings of the entity. that have contractual cash flows that are solely pay- The Group is assessing the potential impact of the future ments of principal and interest but do not pass the SPPI application of the provisions. 4 Effects of the application of new accounting standards Impact of the initial application of IFRS 9 and 15 With effect from January 1, 2018, the new standards IFRS 9 and IFRS 15 issued by the IASB took effect. First-time ret- rospective adoption led to the restatement of a number of balance sheet items at January 1, 2018, as Enel elected to 226 test only because of a prepayment option, permitting their measurement at fair value through profit or loss in certain circumstances specified by the standard; b) clarify that the requirements of IFRS 9 for the adjust- ment of the amortized cost of a financial liability in the event of a modification (or an exchange) that does not result in derecognition are consistent with the analo- gous provisions for the adjustment of a financial asset. Accordingly, the new cash flows shall be discounted at the original effective interest rate and the difference be- tween the pre-modification present value of the liability and the new value shall be recognized through profit or loss as at the date of the modification. In this regard, Enel, with reference to exchanges transacted in 2015 and 2016, applied the accounting treatment envisaged in international best practice, in compliance with IAS 39, and did not recognize any income or costs through Annual Report 2018profit or loss as at the date of the contractual modifi- hedged element affects profit or loss. In practice, the cations, but amortized them over the residual life of reserve in OCI that contains the fair value of hedging the modified financial liability at the effective interest instruments (“full” fair value) has been divided into rate recalculated as at the date of the exchange. As a two OCI reserves that report the “basis-free” fair val- result of the early application of these amendments, ue and the “basis spread element”, respectively. The the exchanges have been accounted for using the new following table summarizes the effects of that division: method with effect as from January 1, 2018, restating the opening balances, which involved an increase in Millions of euro Group shareholders’ equity of €97 million and a con- IFRS 9 at Jan. 1, 2018 comitant decrease in net financial debt of €129 million. Derivatives - “full” fair value - “Impairment”: an analysis of impaired financial assets Derivatives - “basis-free” fair value was conducted, with a focus on trade receivables rep- Derivatives - “basis spread element” (1,740) (1,392) (348) resenting the majority of the Group’s credit exposure. In particular, in application of the simplified approach envisaged in the standard, those receivables were At January 1, 2017, the reclassification of the OCI reserves reflecting the basis-free fair value and the basis spread ele- grouped into specific clusters, taking account of the ment amounted to €480 million. applicable legislative and regulatory environment, and the impairment model based on expected losses de- veloped by the Group for collective valuation was ap- plied. For trade receivables that management deemed significant on an individual basis and for which more detailed information on the significant increase in > “IFRS 15 - Revenue from contracts with customers”, is- sued in May 2014, including the “Amendments to IFRS 15: Effective date of IFRS 15”, issued in September 2015. The standard was applied retrospectively as from annual periods beginning on January 1, 2018, with the possibility of recognizing the cumulative impact in equity at January credit risk was available, an analytical approach was 1, 2018. adopted within the simplified model. The application of the new impairment model decreased Group share- holders’ equity at January 1, 2018 by €175 million. More specifically, the most significant situations in the Group consolidated financial statements that have been affected by the new provisions of IFRS 15 mainly regard: - “Hedge accounting”: specific activities were conduct- a) revenue from grid connection contracts that were previ- ed to implement the new hedge accounting model, both in terms of effectiveness tests and rebalancing hedge relationships and of analyzing the new strate- ously recognized in profit or loss at the time of connection but, as a result of IFRS 15, are now deferred on the basis of the nature of the performance obligation specified in gies applicable under IFRS 9. As regards hedging in- the contract with customers; struments, the most significant changes with respect to the hedge accounting model envisaged under IAS 39 regard the possibility of deferring the time value of an option, the forward component of a forward con- tract and currency basis spreads (so-called “hedging costs”) in other comprehensive income (OCI) until the b) the capitalization of costs of obtaining a contract, lim- ited to incremental sales commissions paid to agents. The effects on Group shareholders’ equity at January 1, 2018 of the deferral of connection fees and the capitalization of contract costs amounted to a negative €3,948 million and a positive €303 million, respectively. 227 Consolidated financial statementsThe following table reports changes in the consolidated bal- tion of IFRS 9 and IFRS 15, as well as other minor effects not ance sheet at January 1, 2018 associated with the applica- discussed above with regard to IFRS 15. Millions of euro ASSETS Non-current assets Property, plant and equipment Investment property Intangible assets Goodwill Deferred tax assets Equity investments accounted for using the equity method Derivatives Non-current contract assets Other non-current financial assets Other non-current assets Current assets Inventories Trade receivables Current contract assets Tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents Assets classified as held for sale TOTAL ASSETS (1) Of which €451 million from the capitalization of contract costs. (2) €1,066 million refers to the deferral of connection fees in Italy. at Dec. 31, 2017 IFRS 9 effect IFRS 15 effect at Jan. 1, 2018 74,937 77 16,724 13,746 6,354 1,598 702 - 4,002 1,064 [Total] 119,204 2,722 14,529 - 577 2,309 4,614 2,695 7,021 34,467 1,970 155,641 [Total] - - - - 69 - - - (19) - 50 - (207) - - - (11) (19) - (237) - (187) - - 193 (1) - 1,066 (2) - - 269 - - 74,937 77 16,917 13,746 7,489 1,598 702 269 3,983 1,064 1,528 120,782 - (11) 90 - - - (66) - 13 - 1,541 2,722 14,311 90 577 2,309 4,603 2,610 7,021 34,243 1,970 156,995 228 Annual Report 2018Millions of euro LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2017 IFRS 9 effect IFRS 15 effect at Jan. 1, 2018 Equity attributable to shareholders of the Parent Company Share capital Other reserves Retained earnings/(Loss carried forward) Non-controlling interests Total shareholders’ equity Non-current liabilities Long-term borrowings Employee benefits Provisions for risks and charges (non-current portion) Deferred tax liabilities Derivatives Non-current contract liabilities Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Provisions for risks and charges (current portion) Trade payables Income tax payable Derivatives Current contract liabilities Other current financial liabilities Other current liabilities [Total] [Total] [Total] 10,167 3,348 21,280 34,795 17,366 52,161 - (78) - (78) (20) (98) 42,439 (129) 2,407 4,821 8,348 2,998 - 2,003 63,016 1,894 7,000 1,210 12,671 284 2,260 - 954 12,462 38,735 - - 40 - - - (89) - - - - - - - - - - - - (3,626) - (3,626) (556) (1) (4,182) - - - (476) (2) - 6,210 (3) - 5,734 - - - (17) - - 384 - (378) (11) 10,167 (356) 21,280 31,091 16,790 47,881 42,310 2,407 4,821 7,912 2,998 6,210 2,003 68,661 1,894 7,000 1,210 12,654 284 2,260 384 954 12,084 38,724 - 1,729 5,723 1,541 109,114 156,995 Liabilities included in disposal groups classified as held for sale 1,729 Total liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 103,480 155,641 (89) (187) (1) Of which a positive impact of €24 million from the capitalization of contract costs and a negative impact of €580 million from the deferral of connection fees. (2) Of which a positive impact of €124 million from the capitalization of contract costs and a negative impact of €600 million from the deferral of connection fees in Spain and Romania. (3) Of which €6,194 million from the deferral of connection fees. 229 Consolidated financial statementsThe following table reports the impact on the balance sheet at December 31, 2018 and the income statement for 2018 if IFRS 15 had not been adopted. Millions of euro Revenue Revenue from sales and services Other revenue and income Costs Electricity, gas and fuel purchases Services and other materials Personnel [Subtotal] Net impairment/(reversal of impairment) of trade receivables and other receivables Depreciation, amortization and other impairment losses Other operating expenses Capitalized costs Net income/(expense) from commodity contracts measured at fair value [Subtotal] Operating income Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense Net income/(expense) from hyperinflation adjustments Share of income/(losses) of equity investments accounted for using the equity method Income before taxes Income taxes Net income from continuing operations Net income from discontinued operations Net income for the period (shareholders of the Parent Company and non-controlling interests) Attributable to shareholders of the Parent Company Attributable to non-controlling interests 2018 With IFRS 15 Without IFRS 15 Change 73,134 2,538 75,672 35,728 18,870 4,581 1,096 5,355 2,889 (2,264) 66,255 483 9,900 1,993 1,715 1,532 4,392 168 349 8,201 1,851 6,350 - 6,350 4,789 1,561 73,146 2,538 75,684 35,728 19,090 35,728 1,096 5,189 2,889 (2,264) 66,309 483 9,858 1,993 1,715 1,532 4,392 168 349 8,159 1,836 6,323 - 6,323 4,743 1,580 (12) - (12) - (220) - - 166 - - (54) - 42 - - - - - - 42 15 27 - 27 46 (19) 230 Annual Report 2018Millions of euro ASSETS Non-current assets Property, plant and equipment Investment property Intangible assets Goodwill Deferred tax assets Equity investments accounted for using the equity method Derivatives Non-current contract assets Other non-current financial assets Other non-current assets Current assets Inventories Trade receivables Current contract assets Tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents Assets classified as held for sale TOTAL ASSETS at Dec. 31, 2018 With IFRS 15 Without IFRS 15 Change 76,631 135 19,014 14,273 8,305 2,099 1,005 346 5,769 1,272 76,631 135 18,844 14,273 7,229 2,099 1,005 - 5,769 1,272 - - 170 - 1,076 - - 346 - - [Total] 128,849 127,257 1,592 2,818 13,587 135 660 3,914 5,160 2,983 6,630 35,887 688 165,424 2,818 13,598 - 660 3,914 5,160 3,094 6,630 35,874 688 163,819 [Total] - (11) 135 - - - (111) - 13 - 1,605 231 Consolidated financial statements- (3,626) 46 (3,580) (575) (4,155) - - - (451) - 6,306 (84) 5,771 - - - (17) - - 1,095 - (1,089) (11) - 5,760 1,605 Millions of euro at Dec 31, 2018 LIABILITIES AND SHAREHOLDERS’ EQUITY With IFRS 15 Without IFRS 15 Change Equity attributable to shareholders of the Parent Company Share capital Other reserves Retained earnings/(Loss carried forward) [Total] Non-controlling interests Total shareholders’ equity Non-current liabilities Long-term borrowings Employee benefits Provisions for risks and charges (non-current portion) 10,167 1,700 19,853 31,720 16,132 47,852 10,167 5,326 19,807 35,300 16,707 52,007 48,983 48,983 [Total] 76,817 3,187 5,181 8,650 2,609 6,306 1,901 3,616 3,367 1,312 13,387 333 4,343 1,095 788 12,107 40,348 407 117,572 165,424 3,187 5,181 9,101 2,609 - 1,985 71,046 3,616 3,367 1,312 13,404 333 4,343 - 788 13,196 40,359 407 111,812 163,819 Deferred tax liabilities Derivatives Non-current contract liabilities Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Provisions for risks and charges (current portion) Trade payables Income tax payable Derivatives Current contract liabilities Other current financial liabilities Other current liabilities [Total] Liabilities included in disposal groups classified as held for sale Total liabilities TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 232 Annual Report 2018Argentina - hyperinflationary economy: impact of the application of IAS 29 As from July 1, 2018, the Argentine economy has been con- sidered hyperinflationary based on the criteria established by In order to also take account of the impact of hyperinflation on the exchange rate of the local currency, the income state- ment balances expressed in the hyperinflationary currency have been translated into the Group’s presentation currency (euro) applying, in accordance with IAS 21, the closing ex- change rate rather than the average rate for the period in “IAS 29 - Financial reporting in hyperinflationary economies”. order to adjust these amounts to current values. This designation is determined following an assessment of a series of qualitative and quantitative circumstances, including the presence of a cumulative inflation rate of more than 100% over the previous three years. Based on the provisions of IAS 21, paragraph 42.b), it was not necessary to restate for solely comparative purposes the balance sheet and income statement figures for 2017 because the Group’s presentation currency is not that of a For the purposes of preparing the consolidated financial state- hyperinflationary economy. ments and in accordance with IAS 29, certain items of the bal- ance sheets of the investees in Argentina have been remea- sured by applying the general consumer price index to historical The cumulative changes in the general price indices at De- cember 31, 2017 and December 31, 2018 are shown in the data in order to reflect changes in the purchasing power of the following table: Argentine peso at the reporting date for those companies. Bearing in mind that the Enel Group acquired control of the Argentine companies on June 25, 2009, the remeasure- Periods ment of the non-monetary balance sheet figures was con- ducted by applying the inflation indices starting from that date. More specifically, the accounting effects of that re- measurement at first-time application of the standard and From July 1, 2009 to December 31, 2017 From January 1, 2018 to December 31, 2018 Cumulative change in general consumer price index 286.50% 47.83% subsequent remeasurements were recognized as follows: The initial application of IAS 29 generated a positive adjust- > the effect of the inflation adjustment until December 31, ment (net of tax effects) recognized in equity reserves in the 2017 of non-monetary assets and liabilities and equity consolidated financial statements at January 1, 2018 of €574 was recognized in equity reserves, net of the associated million, of which €212 million attributable to shareholders of tax effects; the Parent Company. In addition, during 2018, the applica- > the effect of the remeasurement of the same non-mon- tion of IAS 29 led to the recognition of net financial income etary items, the components of equity and the compo- (gross of tax) of €168 million. nents of the income statement recognized in 2018, which was carried out to take account of the change in 2018 in The following tables report the effects of IAS 29 on the open- the benchmark price index, was recognized in a specific ing balance sheet at January 1, 2018 and the cumulative hy- line of the income statement under financial income and perinflationary effects at December 31, 2018, as well as the expense. The associated tax effect was recognized in tax- impact of hyperinflation on the main income statement items es for the period. Millions of euro Total assets Total liabilities Shareholders’ equity for 2018, differentiating between that concerning the revalu- ation on the basis of the general consumer price index and that due to the application of the closing exchange rate rather than the average exchange rate for the period in accordance with the provisions of IAS 21 for hyperinflationary economies. Cumulative hyperinflation effect at Jan. 1, 2018 Hyperinflation effect for the period Exchange differences Cumulative hyperinflation effect at Dec. 31, 2018 763 189 574 357 97 260 (1) (355) (89) (266) 765 197 568 233 (1) The figure includes net income for 2018, equal to €44 million. Consolidated financial statementsMillions of euro Revenue Costs Operating income Net financial income/(expense) Net income/(expense) from hyperinflation Income before taxes Income taxes Net income for the year (shareholders of the Parent Company and non-controlling interests) Attributable to shareholders of the Parent Company Attributable to non-controlling interests IAS 29 effect IAS 21 effect Total effect 237 235 (1) 2 (18) 168 152 108 44 25 19 (338) (272) (2) (66) 3 - (63) (28) (35) (9) (26) (101) (37) (64) (15) 168 89 80 9 16 (7) (1) Includes impact on depreciation, amortization and impairment losses of €58 million. (2) Includes impact on depreciation, amortization and impairment losses of €(23) million. 5 6 Restatement of comparative disclosures Main changes in the scope of consolidation The figures presented in the comments and tables of the In the two periods under review, the scope of consolidation notes to the financial statements are consistent and com- changed as a result of a number of transactions. parable between 2017 and 2018. No restatements of the comparative disclosures were required, taking due account of the fact that the new standards discussed above (IFRS 15 2017 and IFRS 9) were introduced mainly with simplified retroac- tive application using a “cumulative catch-up adjustment” and that in the case of retroactive application of the sep- > Acquisition, on January 10, 2017, of 100% of Demand En- ergy Networks, a company headquartered in the United States specialized in software solutions and smart elec- aration of the forward component and the currency basis tricity storage systems; spreads relating to forward contracts we did not modify the consolidated financial statements as the impact was entirely > acquisition, on February 10, 2017, of 100% of Más En- ergía, a Mexican company operating in the renewable immaterial and merely involved a simple reclassification be- energy sector; tween equity reserves. 234 > acquisition, on February 14, 2017, and May 4, 2017, of 94.84% and 5.04% respectively (for a total of 99.88%) of Enel Distribuição Goiás (formerly CELG-D), an electric- ity distribution company operating in the Brazilian state of Goiás; > acquisition, on May 16, 2017, of 100% of Tynemouth En- ergy Storage, a British company operating in the electric- ity storage sector; > acquisition, on June 4, 2017, of 100% of Amec Foster Wheeler Power (now Enel Green Power Sannio), a company that owns two wind plants in the province of Avellino; > acquisition, on August 10, 2017, of 100% of the EnerNOC Annual Report 2018Group following the acceptance of the Enel Green Pow- pension funds, of 80% of eight special purpose vehicles er North America (“EGPNA”) offer to the previous share- that own eight plants in operation or under construction holders; in Mexico. Following the close of the transaction, Enel > acquisition, on October 25, 2017, of 100% of eMotor- Green Power SpA holds 20% of their share capital, mean- Werks, a US company operating in electric mobility man- ing that the companies are now accounted for using the agement systems; equity method. For more information on the financial im- > disposal, in December 2017, by Enel Green Power North pact of the disposal, please see note 6.5 of the consoli- America using a cash equity agreement, of 80% of the dated financial statements; Class A securities of the subsidiary EGPNA Rocky Caney > disposal, on October 18, 2018, by Enel Green Power SpA Wind. The total price in the transaction was $233 million, of the biomass generation plant of Finale Emilia. The total generating a capital gain of €4 million. price in the transaction was €59 million; 2018 > Disposal, on March 12, 2018, of 86.4% of Erdwärme Oberland GmbH, a company developing geothermal plants headquartered in Germany. The total transaction price was €0.9 million, with a realized capital gain of €1 million; > acquisition, on April 2, 2018, of 33.6% of the minority interests in Enel Generación Chile, enabling Enel Chile > disposal, on December 14, 2018, by Enel Green Power SpA of its wholly owned subsidiary Enel Green Power Uruguay SA, which in turn owns the vehicle Estrellada SA of the 50 MW Melowind wind farm at Cerro Largo. The total price in the transaction was $120 million. In addition to the above changes in the scope of consolida- tion, note the following transactions, which although they do not represent transactions involving the acquisition or loss of control, gave rise to a change in the interest held by the to increase its stake in Enel Generación Chile to 93.55%. Group in the investees: In addition, on that date the merger of the renewables company Enel Green Power Latin America SA into Enel Chile took effect; > acquisition, formalized on April 3, 2018, acting through Enel Green Power España, of 100% of Parques Eólicos Gestinver SLU and Parques Eólicos Gestinver Gestión SLU for €57 million, of which €15 million of existing debt assumed. See note 6.1 for more information; > acquisition, on June 7, 2018, by Enel Sudeste of control of the Brazilian distribution company Enel Distribuição São > a corporate reorganization in Chile with the “Elqui” op- eration, which involved the acquisition of non-controlling interests in Enel Generación Chile to achieve a direct holding of 93.55% through Enel Chile (the previous inter- est was 59.98%), a reduction of the interest held in Enel Green Power Chile, which went from 100% to 61.93% at the Group level, following the merger of Enel Green Power Latin America SA into Enel Chile, and an increase in the overall stake in Enel Chile from 60.62% to 61.93%. Subsequent sections discuss the transaction in greater Paulo (formerly Eletropaulo Metropolitana Eletricidade de detail; São Paulo SA) following initial participation of sharehold- ers. The tender for 100% of the shares ended on July 4, 2018. At September 30, 2018, the company was consoli- dated on the basis of a 95.88% holding by the Group in view of the circumstances detailed further later in these notes; > acquisition, on July 25, 2018, acting through the subsid- iary Endesa Red, of 94.6% of Empresa de Alumbrado Eléctrico de Ceuta SA, a company operating in the dis- tribution and sale of electricity in the autonomous city of Ceuta in North Africa. See note 6.3 for more information; > disposal, on September 28, 2018, to Caisse de Dépôt et Placement du Québec (“CDPQ”), a long-term institu- tional investor, and CKD Infraestructura México SA de Cv (“CKD IM”), the investment vehicle of leading Mexican > on July 3, 2018 Enel, acting through Enel X International, finalized the acquisition from a holding company con- trolled by Sixth Cinven Fund (a fund managed by the inter- national private equity firm Cinven) for an investment of €150 million of about 21% of a vehicle company (“Zacapa Topco Sàrl”), to which 100% of Ufinet International was transferred. Ufinet is a leading wholesale fiber optic net- work operator in South America. Sixth Cinven Fund in turn holds 79% of Zacapa Topco Sàrl; > on December 27, 2018, Enel Green Power SpA sold its 50% stake in the EF Solare Italia SpA (“EFSI”) joint ven- ture, held through Marte Srl, a wholly owned subsidiary of Enel Green Power, to the other partner of the joint venture, F2i SGR SpA (“F2i”), for €214 million. Under the 235 Consolidated financial statementsterms of the sales agreement, EFSI, which purchases > in December 2018, Enel SpA increased its stake in Enel and operates solar plants in operation in Italy, was as- Américas by 2.43% under the provisions of the two signed an enterprise value of about €1.3 billion, of which share swap contracts signed with a financial institution about €430 million in equity and around €900 million in in order to increase the stake in Enel Américas up to a debt. The sale produced a capital gain of €65 million; maximum of 5%. 6.1 Acquisition of Parques Eólicos Gestinver On April 3, 2018, Enel Green Power España (“EGPE”) com- pacity of about 132 MW. pleted the acquisition of 100% of Parques Eólicos Gestinver The acquisition involved a cash outlay of €57 million. SL, a company that owns five wind plants with a total ca- The following table reports the definitive fair values of the net assets acquired: Determination of goodwill Millions of euro Property, plant and equipment Intangible assets Deferred tax assets Trade receivables Other current assets Cash and cash equivalents Borrowings Deferred tax liabilities Other non-current liabilities Provisions for risks and charges Trade payables Other current liabilities Net assets acquired Cost of the acquisition (of which paid in cash) Goodwill Amounts recognized at April 3, 2018 139 34 8 5 2 11 (116) (9) (11) (2) (1) (3) 57 57 57 - Parques Eólicos Gestinver contributed €16 million in revenue and €6 million in operating income to results for 2018. 236 Annual Report 20186.2 Acquisition of Enel Distribuição São Paulo (formerly Eletropaulo Metropolitana Eletricidade de São Paulo SA) On June 4, 2018 Enel, acting through Enel Brasil Investi- holds 3,058,154 treasury shares. mentos Sudeste (“Enel Sudeste”), acquired control of the Enel Distribuição São Paulo was consolidated in the con- Brazilian distribution company Eletropaulo Metropolitana solidated financial statements at December 31, 2018 at Eletricidade de São Paulo SA, which following the acquisi- 95.88% as the final outcome of the tender was known as tion was renamed Enel Distribuição São Paulo. of that date. The acquisition of control came after a public tender offer The total cost of the acquisition of €1,541 million was paid launched on April 17 at a price of 45.22 Brazilian reais per entirely in cash. share. At June 4, 2018, that company’s shareholders had At December 31, 2018, the company had completed the tendered 73.38% of the share capital. On June 7, 2018 the allocation of the acquisition price, definitively determining shares were transferred. the fair value of the assets acquired and the liabilities as- sumed. Under Brazilian stock exchange rules, Enel Distribuição São The main adjustments with respect to the carrying amount Paulo shareholders could also accept the offer in the fol- are essentially attributable to the recognition of intangible lowing 30 days (until July 4, 2018). During that period, Enel assets (in particular relating to concession rights) and the Sudeste acquired an additional 33,359,292 shares of Enel related tax effects. Distribuição São Paulo, equal to 19.9% of the share capi- In view of the characteristics of the concession arrange- tal. The overall interest acquired by Enel Sudeste therefore ments under which it operates, the distribution activity rose to 93.31% of Enel Distribuição São Paulo, which in- performed by the company falls within the scope of ap- creases to 95.05% given that Enel Distribuição São Paulo plication of IFRIC 12: Determination of goodwill Millions of euro Net assets acquired before allocation (1) Adjustments from allocation of purchase price: - intangible assets - deferred tax liabilities - liabilities for risks and charges - other adjustments - non-controlling interests Net assets acquired after allocation Cost of the acquisition Goodwill (1) Net assets in proportion to Enel’s stake of 95.88%. 343 1,443 (490) (252) 71 (40) 1,075 1,541 466 237 Consolidated financial statementsIn particular, as part of the purchase price allocation process, intangible asset acquired as part of a business combination). and more specifically the identification and measurement of Amortization of that intangible asset will not begin until the the assets acquired, the current concession rights for the start of the concession period to which it refers. distribution of electricity as well as their renewal for a fur- Accordingly, the accounting situation at the acquisition date ther concession period were taken into account, applying after the final allocation of the price is as follows: the assumptions provided for by IAS 38 (recognition of an Accounts of Enel Distribuição São Paulo at the acquisition date Millions of euro Property, plant and equipment Investment property Intangible assets Deferred tax assets Other non-current assets Trade receivables Inventories Other current assets Cash and cash equivalents Borrowings Employee benefits Deferred tax liabilities Other non-current liabilities Provisions for risks and charges Trade payables Other current liabilities Non-controlling interests Net assets acquired Cost of the acquisition Goodwill Carrying amount before June 7, 2018 Adjustments for purchase price allocation Amounts recognized at June 7, 2018 14 10 968 611 932 828 66 179 226 (1,018) (725) (165) (123) (522) (377) (544) (17) 343 1,541 1,198 - - 1,443 93 - - (5) (10) - (7) - (490) - (252) - - (40) 732 - (732) 14 10 2,411 704 932 828 61 169 226 (1,025) (725) (655) (123) (774) (377) (544) (57) 1,075 1,541 466 Enel Distribuição São Paulo contributed €2,076 million in tailed a cash outflow of €1,541 million and the assumption revenue and €117 million in operating income to 2018 re- of net financial debt of €731 million. sults. The acquisition of Enel Distribuição São Paulo en- 238 Annual Report 20186.3 Acquisition of Empresa de Alumbrado Eléctrico de Ceuta On July 25, 2018, Endesa Red finalized the acquisition of provided for a cash outlay of €83 million. 94.6% of Empresa de Alumbrado Eléctrico de Ceuta SA, a The following table reports the definitive fair values of the net company operating in the distribution and sale of electricity in assets acquired: the autonomous city of Ceuta in North Africa. The acquisition Determination of goodwill Millions of euro Property, plant and equipment Investment property Intangible assets Trade receivables Other current assets Cash and cash equivalents Current portion of long-term financial receivables Deferred tax liabilities Other non-current liabilities Other employee benefits Trade payables Other current liabilities Non-controlling interests Net assets acquired Cost of the acquisition (of which paid in cash) Goodwill Amounts recognized at July 25, 2018 65 4 14 3 2 2 1 (5) (15) (1) (2) (3) (2) 63 84 83 21 Empresa de Alumbrado Eléctrico de Ceuta SA contributed €83 million, while at the time of the acquisition the company €17 million in revenue and €1 million in operating income held liquid assets and financial receivables of €3 million. to 2018 results. The acquisition entailed a cash outflow of 6.4 Other minor acquisitions Determination of goodwill Millions of euro Net assets acquired Cost of the acquisition (of which paid in cash) Goodwill EPM Eólica Dolores Energía Limpia de Puerto Libertad Minor acquisitions EGPE - 5 4 5 - 7 7 7 5 5 5 - For the other minor acquisitions the Group will identify the fair value of the assets acquired and the liabilities assumed within 12 months of the acquisition date. 239 Consolidated financial statements6.5 Disposal of stake in eight special purpose vehicles owning renewable generation plants in Mexico On September 28, 2018, acting through its subsidiary Enel The disposal involved a total price of €329 million, which net Green Power SpA (“EGP”), Enel finalized the disposal of of transaction costs of €13 million produced a transaction 80% of eight special purpose vehicles (“SPVs”) owning value of €316 million. plants in operation and under construction in Mexico with a The gain on the disposal amounted to €150 million. Further- total capacity of 1.8 GW. more, under the provisions of the relevant accounting stan- The Group continues to own 20% of the capital of the SPVs dards, the fair value of the non-controlling interest retained and EGP SpA will continue to operate the plants owned by was remeasured, with a gain of €40 million. the vehicle companies. Millions of euro Value of the transaction Net assets sold Transaction costs Reversal of OCI reserve Capital gain Remeasurement at fair value of non-controlling interest retained Total impact on profit or loss 329 (168) (13) 2 150 40 190 6.6 Corporate reorganization in Chile - “Elqui” operation As part of the Group’s strategic simplification plan, during Also on the same date, the shareholders of Enel Chile who the 1st Half of 2018 the reorganization of equity investments exercised their right of withdrawal as a result of that merger was begun with the aim of reducing the number of operat- were paid the value of their shares. ing companies in South America. At the level of the Enel Group, the combined effect of the To this end, on March 26, Enel successfully completed the two transactions led to a 1.31% increase in the Group’s in- tender offer launched by Enel Chile for all of the shares of the terest in Enel Chile, which rose from 60.62% to 61.93%. subsidiary Enel Generación Chile held by the non-controlling As the operation is a transaction in non-controlling interests shareholders of the latter, with which Enel Chile acquired and does not fall within the scope of application of IFRS 3, about 33.6% of the capital of Enel Generación Chile, thus the transaction resulted in a reduction in non-controlling in- increasing its stake in that company to 93.55%. terests, with a negative impact on the non-controlling inter- The transaction was finalized on April 2, 2018, with the price est reserve of €506 million against a total outlay of €1,406 settled 60% in cash and 40% in Enel Chile shares. million. On the same date, the merger of the renewables company Enel Green Power Latin America SA into Enel Chile and a capital increase at the latter to serve the merger took effect. 240 Annual Report 20187 Segment information The representation of performance and financial position by For more information on performance and financial develop- business area presented here is based on the approach used ments during the year, please see the dedicated section in by management in monitoring Group performance for the the Report on operations. two periods being compared. Segment information for 2018 and 2017 Results for 2018 (1) Millions of euro Italy Iberia Europe and Euro- Mediterranean Affairs South America North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Total Revenue from third parties 37,411 19,413 14,687 2,349 1,438 Revenue from transactions with other segments 987 79 55 Total revenue 38,398 19,492 14,742 Total costs 31,504 15,998 10,374 Net income/(expense) from commodity contracts measured at fair value Depreciation and amortization Impairment losses Reversals of impairment losses Operating income 410 64 2 1,684 1,261 401 134 1,767 1,058 (19) 4,498 Capital expenditure 2,479 (2) 12 2,361 1,844 (1) 193 51 - 1,438 738 8 245 9 - (251) 1,724 1,433 (1) (148) 2,976 2,246 420 390 454 1,373 (3) 100 1 101 47 - 40 4 - 10 142 274 75,672 (1,134) (860) (701) - 75,672 59,804 - 24 - (1) (182) 89 483 5,214 1,657 (420) 9,900 8,152 (1) Segment revenue includes both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. (2) Does not include €3 million regarding units classified as “held for sale”. (3) Does not include €375 million regarding units classified as “held for sale”. 241 Consolidated financial statementsResults for 2017 (1) Millions of euro Italy Iberia Europe and Euro- Mediterranean Affairs South America North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Total Revenue from third parties 37,900 19,940 13,126 2,374 1,185 Revenue from transactions with other segments 881 54 28 Total revenue 38,781 19,994 13,154 Total costs 32,455 16,434 8,976 37 2,411 1,868 2 1,187 430 Net income/(expense) from commodity contracts measured at fair value Depreciation and amortization 537 13 26 - 2 1,769 1,562 1,149 Impairment losses 626 461 134 Reversals of impairment losses Operating income Capital expenditure (2) 4,470 1,812 (292) 1,842 1,105 (49) 2,970 3,002 189 83 (35) 306 202 4 - 553 307 (2) 1,802 (3) 96 - 96 39 - 40 2 - 15 30 18 74,639 (1,002) (984) (638) - 20 1 (3) (364) 72 - 74,639 59,564 578 4,931 1,311 (381) 9,792 8,130 (1) Segment revenue includes both revenue from third parties and revenue flows between the segments. An analogous approach was taken for other income and costs for the period. (2) Does not include €44 million regarding units classified as “held for sale”. (3) Does not include €325 million regarding units classified as “held for sale”. Financial position by segment At December 31, 2018 Millions of euro Italy Iberia Europe and Euro- Mediterranean Affairs South America North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Property, plant and equipment 26,295 23,750 17,387 3,218 5,745 Intangible assets 1,822 15,857 13,932 Non-current and current contract assets Trade receivables Other 115 7,885 2,864 12 2,162 1,784 337 3,766 1,387 781 - 379 165 750 24 276 324 784 106 - 33 35 Operating assets 38,981 (1) 43,565 36,809 (2) 4,543 7,119 958 64 67 (7) (890) (201) (967) Total 77,243 33,315 481 13,611 6,358 131,008 Trade payables 7,385 2,658 3,074 Non-current and current contract liabilities Sundry provisions Other 4,204 2,504 5,550 2,797 3,537 2,578 12 2,956 2,867 391 405 90 236 802 4 56 915 90 - 22 84 Operating liabilities 19,643 11,570 8,909 (3) 1,122 1,777 196 (1,011) 13,389 (21) 516 704 188 7,401 9,681 12,934 43,405 (1) Of which €4 million regarding units classified as “held for sale”. (2) Of which €663 million regarding units classified as “held for sale”. (3) Of which €22 million regarding units classified as “held for sale”. 242 Annual Report 2018At December 31, 2017 Millions of euro Italy Iberia Europe and Euro- Mediterranean Affairs South America North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Property, plant and equipment 25,935 23,783 17,064 3,052 5,800 Intangible assets 1,358 15,662 11,857 Trade receivables Other 10,073 3,033 2,340 1,697 2,432 954 731 337 194 838 193 377 749 115 29 10 54 34 (856) (308) Total 76,437 30,595 14,548 5,957 Operating assets 40,399 (1) 43,482 32,307 4,314 (2) 7,208 (3) 903 (1,076) 127,537 Trade payables Sundry provisions Other 6,847 2,843 7,170 Operating liabilities 16,860 2,738 3,592 3,225 9,555 2,790 1,325 2,451 6,566 426 101 297 782 29 254 60 20 74 824 (4) 1,065 (5) 154 (837) 527 (244) (554) 12,806 8,437 13,227 34,470 (1) Of which €4 million regarding units classified as “held for sale”. (2) Of which €141 million regarding units classified as “held for sale”. (3) Of which €1,675 million regarding units classified as “held for sale”. (4) Of which €74 million regarding units classified as “held for sale”. (5) Of which €145 million regarding units classified as “held for sale”. The following table reconciles segment assets and liabilities and the consolidated figures. Millions of euro Total assets Equity investments accounted for using the equity method Other non-current financial assets Long-term tax receivables included in “Other non-current assets” Current financial assets Derivatives Cash and cash equivalents Deferred tax assets Tax receivables Financial and tax assets of “Assets held for sale” Segment assets Total liabilities Long-term borrowings Short-term borrowings Current portion of long-term borrowings Current financial liabilities Derivatives Deferred tax liabilities Income tax payable Other tax payables Financial and tax liabilities of “Liabilities held for sale” Segment liabilities at Dec. 31, 2018 at Dec. 31, 2017 165,424 155,641 2,099 5,769 231 5,160 4,919 6,630 8,305 1,282 21 1,598 4,002 260 4,614 3,011 7,021 6,354 1,094 150 131,008 127,537 117,572 48,983 3,616 3,367 788 6,952 8,650 333 1,093 385 103,480 42,439 1,894 7,000 954 5,258 8,348 284 1,323 1,510 43,405 34,470 243 Consolidated financial statementsRevenue 8.a Revenue from sales and services - €73,134 million Millions of euro Sale of electricity Transport of electricity Fees from network operators Transfers from institutional market operators Sale of gas Transport of gas Sale of fuel Connection fees to electricity and gas networks Construction contracts Sale of environmental certificates Sale of value-added services Other sales and services Total 2018 43,110 10,101 1,012 1,711 4,401 576 8,556 714 735 497 390 1,331 73,134 2017 43,433 9,973 900 1,635 3,964 570 8,340 800 674 566 42 1,767 72,664 Change -0.7% 1.3% 12.4% 4.6% 11.0% 1.1% 2.6% -10.8% 9.1% -12.2% - -24.7% 0.6% (323) 128 112 76 437 6 216 (86) 61 (69) 348 (436) 470 In 2018, revenue from the “Sale of electricity” came Revenue from the “Transport of electricity” came to to €43,110 million (€43,433 million for 2017), including €10,101 million in 2018, an increase of €128 million. This €32,497 million in revenue from electricity sales to end includes revenue for the transport of electricity to end us- users (€31,419 million for 2017), €8,276 million in revenue ers on the regulated market in the amount of €2,955 mil- from wholesale electricity sales (€8,819 million for 2017), lion (€3,042 million in 2017) and on the free market in the and €2,337 million in revenue from the trading of electricity amount of €2,280 million (€2,132 million in 2017), as well (€3,195 million for 2017). The reduction in revenue from the as revenue from the transport of electricity to other op- sale of electricity (€323 million) is attributable to: erators in the amount of €4,866 million (€4,799 million in > the reduction in revenue from trading (€858 million), es- 2017). This increase is mainly attributable to Enel Améri- sentially due to the contraction in volumes traded by Enel cas, following the acquisition of Enel Distribuição São Pau- Global Trading; lo, to Enel Energia in relation to the increase in volumes > the decrease in revenue from wholesale electricity sales sold, and to e-distribuzione in relation to rates and equaliza- (€543 million), mainly deriving from the reduction in vol- tion mechanisms. These effects were partially offset by the umes sold by Enel Global Trading and Enel Produzione, decrease in Italy due to lower revenue from transport on the which was partially offset by the increase in energy sales regulated market, in line with the reduction in quantities sold by Enel Green Power SpA and Enel Américas; and in the number of customers served. > the increase in revenue from electricity sales to end users (€1,078 million), related above all to the increase Revenue related to “Fees from network operators” came to in revenue from the sale of electricity on the regulated €1,012 million, up €112 million compared with the previous market (€931 million) mainly by Enel Américas due to year. The increase is mainly attributable to the increase in the change in the scope of consolidation following the fees for the remuneration of generation plants in Italy falling acquisition of Enel Distribuição São Paulo, as well as the within the scope of plants essential to the electrical system increase in revenue from the sale of electricity on the in order to ensure adequate standards of safe operations. free market (€166 million) mainly due to increased sales in Italy, Romania and South America, partially offset by In 2018, revenue related to “Transfers from institutional the reduction in sales of electricity in Iberia. market operators” came to €1,711 million, up €76 million compared with the previous year. This increase essentially 244 Annual Report 2018refers to the Spanish companies, in the amount of €104 Revenue from the “Sale of environmental certificates” million, in relation to the greater fees received for costs in- amounted to €497 million, a decrease of €69 million, mainly curred to ensure the generation of electricity in the extra- in Italy. peninsular area. This effect was partially offset by the reduc- tion in revenue from grants received for the generation of Revenue from the “Sale of value-added services” amount- renewable energy, by Enel Green Power SpA in the amount ed to €390 million, an increase of €348 million, mainly at- of €25 million, due to the expiration of incentives for certain tributable to Enel X North America in relation to value-added geothermal and hydroelectric plants. services, primarily demand-response services. Enel X North Revenue from the “Sale of gas” for 2018, which totaled mercial and industrial consumers who agree to balance their €4,401 million (€3,964 million in 2017), increased by €437 consumption based on the needs of the grid, renouncing million over the previous year. This increase was essentially their consumption at times of peak demand in exchange for America provides these services as an aggregator of com- affected by higher revenue in Iberia (€296 million), in Italy contractually defined remuneration. (€43 million), and in South America (€76 million) due to the increase in quantities sold within a context of rising average Revenue from “Other sales and services” amounted to prices compared with the previous year. €1,331 million, a decrease of €436 million. This change mainly refers to the reduction in other sales and services, Revenue from the “Sale of fuel” amounted to €8,556 mil- which was partially offset by an increase in revenue from lion, an increase of €216 million related mainly to the sale leased plant connected to the electricity business in South of gas. In 2018, this included the sale of natural gas, in the America and from the tax partnerships recognized in the amount of €8,509 million (€8,291 million in 2017) and €47 previous year (€352 million). Following substantial contrac- million for the sale of other fuels (€49 million in 2017). The tual changes, the tax partnerships relating to new projects increase mainly refers to natural gas sales by Enel Global are now recognized under “Other revenue” (see note 8.b). Trading. “Connection fees to electricity and gas networks” amount- most entirely to revenue from customer contracts, as de- ed to €714 million, a decrease of €86 million compared with fined by IFRS 15, and the associated performance obligation the previous year. This reduction mainly refers to the Endesa is mainly satisfied over time. Revenue for 2018, which totaled €73,134 million, refers al- Group (€112 million), Servizio Elettrico Nazionale (€107 mil- lion), and Enel Energia (€104 million), and was partially offset by an increase in revenue for e-distribuzione (€278 million). The decrease in this item was mainly due to application of IFRS 15, which, for the companies that sell electricity, re- sulted in the recognition of only those fees pertaining to the seller, assigning the classification of “agent” to the seller for the share of fees pertaining to the distributor. For the elec- tricity distribution companies, on the other hand, this led to the recognition, as at January 1, of the retroactive reclassifi- cation of connection fees and recognition of a liability deriv- ing from contracts with customers and a corresponding en- try in shareholders’ equity, and in 2018 the release to profit or loss of the portion of this liability pertaining to the period for the fees subject to reclassification and relating to new “over time” connections made in 2018 was recognized. Revenue from “Construction contracts” amounted to €735 million, an increase of €61 million, particularly in South America. 245 Consolidated financial statements The following table shows a breakdown of point-in-time and over-time revenue for the current year. Millions of euro 2018 Italy Iberia South America Europe and Euro- Mediterranean Affairs North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Total Over time Point in time Over time Point in time Over time Point in time Over time Point in time Over time Point in time Over time Point in time Over time Point in time Over time Point in time Revenue 35,153 828 18,228 1,037 14,140 298 1,247 1,030 651 396 14 81 25 6 69,458 3,676 The table below gives a breakdown of revenue from sales and services by geographical area. Millions of euro Italy Europe Iberia France Switzerland Germany Austria Slovenia Slovakia Romania Greece Bulgaria Belgium Czech Republic Hungary Russia Netherlands United Kingdom Other European countries Americas United States Canada Mexico Brazil Chile Peru Colombia Argentina Other South American countries Other Africa Asia Total 246 2018 27,492 18,368 1,006 1,039 2,297 155 27 - 1,214 62 9 320 113 399 989 2,139 1,685 113 466 23 520 6,518 3,169 1,275 2,242 1,265 14 82 133 73,134 2017 27,935 19,032 1,333 135 2,244 290 39 54 1,067 58 9 46 - 472 1,128 4,063 648 82 693 - 359 4,687 3,473 1,167 2,103 1,364 14 79 90 72,664 Annual Report 20188.b Other revenue and income - €2,538 million Millions of euro Operating grants Grants for environmental certificates Capital grants (electricity and gas business) Sundry reimbursements Gains on the disposal of subsidiaries, associates, joint ventures, joint operations and non-current assets held for sale Gains on the disposal of property, plant and equipment and intangible assets Service continuity bonuses Other revenue Total 2018 2017 Change l 20 664 22 353 287 61 44 1,087 2,538 40 878 21 361 159 43 66 407 1,975 (20) (214) 1 (8) 128 18 (22) 680 563 -50.0% -24.4% 4.8% -2.2% 80.5% 41.9% -33.3% - 28.5% “Grants for environmental certificates” amounted to €664 “Other revenue” amounted to €1,087 million (€407 million million, a decrease of €214 million compared with the previ- in 2017), an increase of €680 million from the previous year. ous year due essentially to the reduction in grants for ener- This increase is mainly attributable to: gy efficiency certificates, in the amount of €197 million, and > the increase in other revenue related to the electricity a reduction in grants for green certificates in the amount of business due to the recognition of gains in the amount €17 million. of €146 million relating to the reimbursement by the En- ergy and Environmental Services Fund (CSEA) of system “Sundry reimbursements” amounted to €353 million and charges paid and not collected pursuant to Regulatory concern reimbursements from customers and suppliers Authority for Energy, Networks and Environment (ARE- totaling €238 million (€165 million in 2017) and insurance RA) Resolution 50/2018/R/eel; indemnities in the amount of €115 million (€196 million in > the increase in gains due to the recognition of €128 mil- 2017). lion related to the agreement that e-distribuzione reached with F2i and 2i Rete Gas for the early lump-sum liquida- The item relating to gains on the disposal of companies tion connected with the sale of the equity investment in came to €287 million in 2018, an increase of €128 million Enel Rete Gas; compared with 2017, and mainly includes: > revenue from tax partnerships recognized on new proj- > the gain on the sale, with loss of control, of eight project ects completed in 2018 (€361 million), which were previ- companies in Mexico at the end of September 2018 and ously classified as revenue from “Other sales and ser- the associated remeasurement at fair value of the 20% vices”, following changes in the business model, which stake retained in the companies sold (€190 million); prompted the amendment of contractual language. > the gain on the sale of EF Solare Italia SpA (€65 million); > the gain on the sale of a number of companies of the The following table shows a breakdown of total revenue Enel Green Power Business Line in Uruguay (€18 million). from sales and services and of other revenue and income In 2017, on the other hand, this item mainly included the by business area based on the approach used by manage- gain of €143 million deriving from the sale of the invest- ment to monitor the Group’s performance during the two ment in the Chilean company Electrogas. years being compared. “Gains on the disposal of property, plant and equipment and intangible assets” in 2018 amounted to €61 million (€43 million in 2017) and refer to ordinary disposals for the period. 247 Consolidated financial statementsMillions of euro 2018 Europe and Euro- Mediterranean Affairs South America North and Central America Africa, Asia and Oceania Other, eliminations and adjustments Italy Iberia Revenue from sales and services 35,981 19,265 14,438 2,277 Other revenue and income 1,430 148 249 72 Total revenue 37,411 19,413 14,687 2,349 Revenue from sales and services 36,663 19,825 12,766 Other revenue and income 1,237 115 360 Total revenue 37,900 19,940 13,126 2017 2,264 110 2,374 1,047 391 1,438 1,044 141 1,185 95 5 100 93 3 96 31 243 274 9 9 18 Total 73,134 2,538 75,672 72,664 1,975 74,639 Costs 9.a Electricity, gas and fuel purchases - €35,728 million Millions of euro Electricity Gas Nuclear fuel Other fuels Total 2018 19,584 12,944 118 3,082 35,728 2017 20,011 12,654 137 3,237 36,039 Change -2.1% 2.3% -13.9% -4.8% -0.9% (427) 290 (19) (155) (311) Purchases of “Electricity” totaled €19,584 million in 2018, Purchases of “Gas” posted an increase of €290 million due decreasing by €427 million compared with 2017 (€20,011 to the increase in the prices of long-term and spot contracts million). These costs include purchases made by way of bilat- incurred by Italian companies. eral agreements on national and international markets in the Purchases of “Other fuels” decreased by €155 million to amount of €12,337 million (€12,573 million in 2017), electric- €3,082 million in 2018, due primarily to the decline in the ity purchases on the electricity exchanges in the amount of volume of electricity output by Enel Produzione. Further- €7,083 million (€7,168 million in 2017), and other purchases more, starting on January 1, 2018, the results of the cash made on local and international markets totaling €164 million flow hedge derivative contracts established to hedge the (€270 million on 2017). purchase prices of coal were recognized using the basis- The reduction in costs is attributable to the reduction in pur- adjustment approach as required by “IFRS 9 - Financial in- chases made through bilateral agreements (€236 million) struments”. As a result, these results (a positive €43 million) mainly relating to the reduction in volumes traded by Enel have not been classified as net income/(expense) from com- Global Trading, associated with a reduction in purchases both modity contracts measured at fair value, but have been rec- on other local and foreign markets in the amount of €106 ognized under fuel purchases, with an impact on the change million and on the electricity exchanges in the amount of €85 in inventories. million. These effects were partially offset by the increase in electricity purchases in South America following the consoli- dation of Enel Distribuição São Paulo. 248 Annual Report 20189.b Services and other materials - €18,870 million Millions of euro Transmission and transport Maintenance and repairs Telephone and postal costs Communication services IT services Leases and rentals Other services Other materials Total 2018 9,754 1,013 180 129 773 589 4,057 2,375 18,870 2017 9,840 1,128 199 127 627 525 3,656 1,880 17,982 Change -0.9% -10.2% -9.5% 1.6% 23.3% 12.2% 11.0% 26.3% 4.9% (86) (115) (19) 2 146 64 401 495 888 Costs for services and other materials amounted to ers in the amount of €220 million, which are capitalized in €18,870 million in 2018, an increase on 2017 of €888 mil- accordance with the new IFRS 15. lion. The reduction of €86 million in costs for transmission The increase in costs for other materials, on the other and transport and of €115 million in maintenance and re- hand, was concentrated in Italy and Spain for the purchase pairs was offset, above all, by the significant increase in of materials and equipment for work on infrastructure and costs for other services (€401 million) and other materials networks, as well as for the increase in costs for environ- (€495 million). mental certificates (€179 million) for generation in Italy and The increase in costs for other services was seen, in par- for the sales companies in Romania. ticular, in South and North America in relation to the con- Costs for IT services also increased, by €146 million, main- solidation of Enel Distribuição São Paulo in 2018 and of ly in Italy and Spain, as did costs for leases and rentals Enel X North America (formerly EnerNOC) starting from in relation to an increase in hydroelectric lease payments the 2nd Half of 2017. This increase was partially offset by incurred in Spain following a greater use of hydroelectric the reduction in costs related to the acquisition of custom- production (€52 million). 9.c Personnel - €4,581 million Millions of euro Wages and salaries Social security contributions Deferred compensation benefits Other post-employment and long-term benefits Early retirement incentives Other costs Total 2018 3,157 894 103 113 138 176 2017 3,152 895 104 139 76 138 4,581 4,504 Change 0.2% -0.1% -1.0% -18.7% 81.6% 27.5% 1.7% 5 (1) (1) (26) 62 38 77 Personnel costs amounted to €4,581 million in 2018, an in- (1,332 employees) due to early-retirement incentives, re- crease of €77 million. flecting changes in the scope of consolidation (7,704 em- The Group’s workforce increased by 6,372 employees de- ployees) essentially attributable to: spite the negative balance of new hires and terminations > the acquisition of Enel Distribuição São Paulo in Brazil in June; 249 Consolidated financial statements > the acquisition of the YouSave business unit in Italy in lion, up €62 million, mainly in Spain (€40 million), for the July; “Plan de Salida” incentive plan, and in Italy for terminations > the acquisition of Empresa de Alumbrado Eléctrico de pursuant to the provisions of Article 4 of Law 92/2012 (the Ceuta and Empresa de Alumbrado Eléctrico de Ceuta “Fornero Act”). Distribución in Spain in August; > the sale of Enel Green Power Uruguay in December. The table below shows the average number of employees by category, along with a comparison with the previous The increase in wages and salaries essentially reflects the year, as well as the actual numbers as of December 31, increase in the average workforce in 2018. 2018. Early retirement incentives in 2018 amounted to €138 mil- No. Senior managers Middle managers Office staff Blue collar Total Average number (1) Headcount (1) 2018 1,343 10,614 33,906 20,834 66,697 2017 1,308 10,073 32,558 18,956 62,895 Change at Dec. 31, 2018 35 541 1,348 1,878 3,802 1,346 10,985 34,710 22,231 69,272 (1) For companies consolidated proportionately, the headcount corresponds to Enel’s percentage share of the total. 9.d Net impairment/(reversals) of trade receivables and other receivables - €1,096 million Millions of euro Impairment of trade receivables Impairment of other receivables Total impairment of trade and other receivables Reversals of impairment on trade receivables Reversals of impairment on other receivables Total reversals of impairment on trade and other receivables TOTAL NET IMPAIRMENT/(REVERSALS) ON TRADE AND OTHER RECEIVABLES 2018 1,367 18 1,385 (281) (8) (289) 1,096 2017 Change - - - - - - - 1,367 18 1,385 (281) (8) (289) 1,096 - - - - - - - The aggregate, which totaled €1,096 million, includes im- comparative figures for 2017, recognized under “Depre- pairment losses and reversals of impairment losses on ciation, amortization and other impairment losses” in the trade and other receivables as a result of amendments of amount of €910 million, have not been reclassified, as IFRS IAS 1 as a consequence of the application of IFRS 9. The 9 was applied using the simplified approach. 250 Annual Report 20189.e Depreciation, amortization and other impairment losses - €5,355 million Millions of euro Property, plant and equipment Investment property Intangible assets Other impairment losses Other reversals of impairment losses Total 2018 4,132 7 1,075 272 (131) 5,355 2017 4,119 7 805 1,311 (381) 5,861 Change 0.3% - 33.5% -79.3% 65.6% -8.6% 13 - 270 (1,039) 250 (506) Depreciation, amortization and other impairment losses in in 2018, of IFRS 15, which resulted in a reduction in agency 2018 decreased by €506 million. and teleseller costs as they are capitalized when they result This change essentially reflects amendments of IAS 1 as in an increase in the customer base (€166 million). a consequence of the application of IFRS 9, under which The slight increase in depreciation of property, plant and impairment losses on trade and other receivables in 2018 equipment (€13 million) was affected by the decrese in were presented as a separate item. The comparative fig- depreciation recognized by e-distribuzione (€94 million) fol- ures for 2017, equal to €910 million, have not been reclas- lowing a study of the operating performance of distribution sified, as IFRS 9 was applied using the simplified approach plants, supported by technical advisors, following which it provided for in that standard. was considered reasonable to extend the economic-techni- These effects were partially offset by a €270 million in- cal lives of certain components of distribution plants com- crease in amortization due to the acquisition of Enel Distri- pared with forecasts made in previous years. buição São Paulo (€93 million) and the application, starting Millions of euro Impairment losses: - property, plant and equipment - investment property - intangible assets - goodwill - trade receivables - other assets Total impairment losses Reversals of impairment losses: - property, plant and equipment - investment property - intangible assets - trade receivables - other assets Total reversals of impairment losses TOTAL IMPAIRMENT AND RELATED REVERSALS 2018 2017 Change 235 3 31 3 - - 272 (86) - (45) - - (131) 141 65 10 7 - 1,204 25 1,311 (53) - (9) (310) (9) (381) 930 170 (7) 24 3 (1,204) (25) (1,039) (33) - (36) 310 9 250 (789) - -70.0% - - - - -79.3% 62.3% - - - - 65.6% -84.8% 251 Consolidated financial statementsImpairment losses decreased by €1,039 million on the previ- Alcúdia power plant in Spain (€82 million). These increases ous year. were partially offset by the reversal of impairment for the Hel- Of particular note was the greater impairment of property, las CGU (€117 million). plant and equipment (€194 million), in particular as a result In 2017, this aggregate included impairment losses on the geo- of the impairment of biomass and solar assets in Italy (€91 thermal assets of the German company Erdwärme (€42 mil- million), of the assets of Nuove Energie (€24 million), of the lion), which were recognized following unsuccessful explora- Augusta and Bastardo power plants (€23 million), and of the tion work. 9.f Other operating expenses - €2,889 million Millions of euro System charges - emissions allowances Charges for energy efficiency certificates Charges for purchases of green certificates Losses on disposal of property, plant and equipment and intangible assets Taxes and duties Other Total 2018 443 607 41 61 1,126 611 2,889 2017 392 776 35 105 1,197 381 2,886 Change 13.0% -21.8% 17.1% -41.9% -5.9% 60.4% 0.1% 51 (169) 6 (44) (71) 230 3 Other operating expenses, totaling €2,889 million, increased > lower charges for taxes and duties in the amount of €71 by €3 million. million, essentially related to lower taxes on thermal gen- This was due essentially to the following: eration in Spain (€109 million), due in part to the greater > higher charges in Spain, mainly for the “bono social”, in the use of hydroelectric generation, which was only partially amount of €229 million, as in 2017 a favorable judgment offset by the increase in taxes on real estate in the amount was issued that led to the reversal of costs incurred for of €25 million, particularly in Italy; 2015, 2016 and 2017; > a decrease of €89 million in costs related to the improve- > an increase in indemnities paid to customers and suppliers ment of service quality, which decreased mainly in Argen- in the amount of €22 million; tina and was only partially offset by the greater fines recog- > lower environmental compliance costs in the amount of nized in relation to distribution in Italy. €112 million, mainly in Italy and Spain; 9.g Capitalized costs - €(2,264) million Millions of euro Personnel Materials Other Total 2018 (836) (852) (576) 2017 (780) (618) (449) (2,264) (1,847) Change -7.2% -37.9% -28.3% -22.6% (56) (234) (127) (417) Capitalized costs consist of €836 million in personnel costs, million, respectively, for 2017). Capitalized costs mainly regard €852 million in materials costs, and €576 million in service the development and implementation of major investments, costs (compared with €780 million, €618 million, and €449 mainly in Enel Green Power and the distribution sector. 252 Annual Report 201810. Net income/(expense) from commodity contracts measured at fair value - €483 million Net income from the management of commodity risk amount- > net income on derivatives at fair value through profit or ed to €483 million in 2018 (compared with net income of €578 loss in the amount of €458 million (net income of €332 million in 2017), which may be broken down as follows: million in 2017). > net income on cash flow hedge derivatives in the amount For more information on derivatives, see note 46 “Deriva- of €25 million (net income of €246 million in 2017); tives and hedge accounting”. Millions of euro Income: - income from cash flow hedge derivatives - income from derivatives at fair value through profit or loss Total income Expense: - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss Total expense NET INCOME/(EXPENSE) FROM COMMODITY CONTRACTS MEASURED AT FAIR VALUE 2018 2017 Change 93 3,813 3,906 (68) (3,355) (3,423) 483 284 1,288 1,572 (38) (956) (994) 578 (191) 2,525 2,334 (30) (2,399) (2,429) -67.3% - - -78.9% - - (95) -16.4% 11. Financial income/(expense) from derivatives - €461 million Millions of euro Income: - income from cash flow hedge derivatives - income from derivatives at fair value through profit or loss - income from fair value hedge derivatives Total income Expense: - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss - expense on fair value hedge derivatives Total expense TOTAL FINANCIAL INCOME/(EXPENSE) FROM DERIVATIVES 2018 2017 Change 1,087 851 55 1,993 (376) (1,124) (32) (1,532) 728 847 36 1,611 (2,171) (552) (43) (2,766) 461 (1,155) 359 4 19 382 1,795 (572) 11 1,234 1,616 49.3% 0.5% 52.8% 23.7% 82.7% - 25.6% 44.6% - Net income from derivatives amounted to €461 million €1,443 million in 2017); for 2018 (compared with net expense of €1,155 million in > net expense on derivatives at fair value through profit 2017), which may be broken down as follows: or loss in the amount of €273 million (net income of > net income on cash flow hedge derivatives in the €295 million in 2017); amount of €711 million (compared with net expense of 253 Consolidated financial statements > net income on fair value hedge derivatives in the amount atives mainly refer to the hedging of exchange rate risk. For of €23 million (net expense of €7 million in 2017). more information on derivatives, see note 46 “Derivatives The net balances in 2018 on both hedging and trading deriv- and hedge accounting”. 12. Other financial income/(expense) - €(2,509) million Other financial income Millions of euro Interest income from financial assets (current and non- current): - interest income at effective rate on non-current securities and receivables - interest income at effective rate on short-term financial investments Total interest income at effective rate Financial income on non-current securities at fair value through profit or loss Exchange gains Income on equity investments Other income TOTAL FINANCIAL INCOME 2018 2017 Change 93 163 256 - 910 12 1,190 2,368 52 132 184 - 1,852 54 281 2,371 41 31 72 - (942) (42) 909 (3) 78.8% 23.5% 39.1% - -50.9% -77.8% - -0.1% Other financial income amounted to €2,368 million, a small - the adjustment in the value of the financial receivable decrease of €3 million compared with the previous year arising as a result of the sale of the 50% stake in Slo- due mainly to: vak Power Holding as a result of updating the pricing > a decrease in exchange gains in the amount of €942 formula included in the agreements with EPH, which million, reflecting the impact, above all, of trends in ex- resulted in a €134 million increase in financial income; change rates on net financial debt denominated in cur- - the recognition by Enel SpA of financial income in the rencies other than the euro. This change is mainly at- amount of €54 million related to reimbursements of tributable to Enel Finance International (-€1,052 million) direct taxes; and Enel SpA (-€209 million) and was partially offset by - an increase of €38 million in past-due interest rec- the Enel Américas Group (+€212 million) and Enel Green ognized, especially by e-distribuzione and the Enel Power Brazil (+€62 million); Américas Group; > a decrease of €42 million in income on equity invest- - an increase in interest and income accrued on financial ments, which totaled €12 million in 2018, due essentially assets in relation to the public service concession ar- to the gain, in 2017, on the sale of the investment in the rangements of the Brazilian companies in the amount Indonesian firm Bayan Resources (€52 million); of €30 million; > an increase of €909 million in other income, due mainly to: > an increase of €72 million in interest and other income - the recognition of financial income of €653 million for on financial assets essentially related to financial receiv- the Argentine companies following the application ables, particularly for Enel Finance International and the of IAS 29 related to accounting for hyperinflationary Enel Américas Group. economies, as explained in greater detail in note 2 to the consolidated financial statements for the year ended December 31, 2018; 254 Annual Report 2018Other financial expense Millions of euro Interest expense on financial debt (current and non- current): - interest on bank borrowings - interest expense on bonds - interest expense on other borrowings Total interest expense Exchange losses Accretion of post-employment and other employee benefits Accretion of other provisions Charges on equity investments Other expenses 2018 2017 Change 408 1,953 127 2,488 1,378 107 169 1 734 357 1,987 95 2,439 820 72 190 - 387 51 (34) 32 49 558 35 (21) 1 347 969 14.3% -1.7% 33.7% 2.0% 68.0% 48.6% -11.1% - 89.7% 24.8% TOTAL FINANCIAL EXPENSE 4,877 3,908 Other financial expense amounted to €4,877 million, a total - a decrease in financial expense recognized by Enel Fi- increase of €969 million compared with 2017. The change re- nance International in the amount of €108 million due flects the following factors in particular: to the early redemption in 2017 of bonds based on > an increase in exchange losses in the amount of €558 mil- the “make-whole call option” provided for under the lion, reflecting the impact, above all, of trends in exchange original financing agreement; rates on net financial debt denominated in currencies oth- - a reduction in charges related to medium- and long- er than the euro. This change is mainly attributable to the term revolving credit lines in the amount of €52 mil- Enel Américas Group (€269 million), Enel Green Power lion, above all for Enel SpA and Enel Finance Interna- Brazil (€115 million), and Enel SpA (€60 million); tional; > an increase of €347 million in other charges due mainly to > an increase of €49 million in interest expense on finan- the following factors: cial liabilities. This change was due to the increase in - the recognition of financial expenses of €485 million for interest expense on bank borrowings in the amount of the Argentine companies following the application of €51 million, particularly in South America, and on oth- IAS 29 related to recognitions during hyperinflationary er non-bank borrowings in the amount of €32 million, economies; mainly due to the increase in interest expense on tax - an €89 million decrease in capitalized interest mainly for partnerships (€21 million). These effects were partially Enel Green Power Brazil and Enel Green Power Chile; offset by the reduction in interest expense on bonds in - a €62 million increase in charges for the transfer and the amount of €34 million, essentially for Enel SpA and derecognition of receivables, mainly attributable to Enel Finance International; Enel Energia (€23 million), the Enel Américas Group > an increase of €35 million in costs for the accretion of (€21 million), and Servizio Elettrico Nazionale (€14 liabilities for employee benefits, essentially attributable million); to the Enel Américas Group (€38 million), mainly for the - a reduction in financial charges for the adjustment of acquisition of Enel Distribuição São Paulo; the fair value of the financial receivable arising following > a decrease of €21 million due to the accretion of other the sale of 50% of Slovak Power Holding, which led to provisions, mainly relating to the Enel Américas Group the reversal of the total value of the receivable subject (€28 million) due to the exchange rate effect and a de- to impairment in 2016 (€220 million). Specifically, €186 crease in the discounting of past fines being disputed in million in reversals was recognized in 2018, compared Argentina. with €34 million in 2017; 255 Consolidated financial statements13. Share of income/(losses) of equity investments accounted for using the equity method - €349 million Millions of euro Share of income of associates Share of losses of associates Total 2018 521 (172) 349 2017 225 (114) 111 Change - -50.9% - 296 (58) 238 The share of net income on equity investments accounted pro-rated recognition of the profits earned by associates for using the equity method increased by €238 million com- and joint ventures. These increases were only partially off- pared with the previous year. This change was essentially set by the impairment of certain assets of the Greek proj- due to the adjustment of the value of the 50% stake in ect companies involved in development of wind farms on Slovak Power Holding (€362 million), which had been writ- the Cyclades islands (€49 million) and of biomass develop- ten down multiple times in previous years. The increase ment projects in Italy (€12 million), as well as the effect of described above was due to the changes in the parameters the pro-rated recognition of losses for the year related to used to determine the pricing formula, as included in the associates and joint ventures. agreements with EPH, as well as to the net effect of the 14. Income taxes - €1,851 million Millions of euro Current taxes Adjustments for income taxes relating to prior years Total current taxes Deferred tax liabilities Deferred tax assets TOTAL 2018 2,014 (150) 1,864 92 (105) 1,851 2017 1,926 (59) 1,867 (169) 184 1,882 Change 4.6% - -0.2% - - -1.6% 88 (91) (3) 261 (289) (31) Income taxes for 2018 amounted to €1,851 million, com- ing the tax reform in Colombia, which led to a reduction pared with €1,882 million in 2017. in progressive tax rates from 33% to 30%. The €31 million reduction in taxes for 2018 compared with These decreases were partially offset by greater taxes the previous year was mainly due to the following factors: resulting from the improvement in pre-tax income, from > the recognition of greater deferred tax assets on past taxes recognized in Mexico following the sale of the “Proj- losses by Enel Distribuição Goiás as a result of the ef- ect Kino” companies, from the release of deferred taxes ficiency improvement measures implemented by the recognized in 2017 by Enel Green Power North America in Group subsequent to the acquisition (€274 million); response to tax reform (€170 million), and from the recogni- > a decrease in income taxes in Italy due to the recognition tion in 2017 of deferred tax assets in Argentina by Edesur of deferred tax assets (€85 million) for the past losses of (€60 million). 3Sun following the merger with Enel Green Power SpA; > the more favorable tax regime applicable to net income For more information on changes in deferred taxes, see deriving from extraordinary items compared with the note 22. previous year (€180 million); > a reduction in deferred tax liabilities (€61 million) follow- 256 Annual Report 2018The following table provides a reconciliation of the theoretical tax rate and the effective tax rate. Millions of euro Income before taxes Theoretical taxes Change in tax effect on impairment losses, capital gains and negative goodwill Recognition of deferred taxes on past losses in South America Recognition of deferred taxes on past losses in Italy Change in tax effect of “Project Kino” capital gains and other items in Mexico Impact on deferred taxation of changes in tax rates IRAP Other differences, effect of different tax rates abroad compared with the theoretical rate in Italy, and other minor items Total 24.0% 24.0% 2018 8,201 1,968 (180) (274) (86) 100 (61) 237 147 1,851 2017 7,211 1,731 (6) (60) - - (182) 231 168 1,882 15. Basic and diluted earnings per share Both metrics are calculated on the basis of the average num- shares, adjusted for the diluting effect of outstanding stock ber of ordinary shares in the period, equal to 10,166,679,946 options (none in both periods). Net income from continuing operations attributable to shareholders of the Parent Company (millions of euro) Net income from discontinued operations attributable to shareholders of the Parent Company (millions of euro) Net income attributable to shareholders of the Parent Company (millions of euro) Number of ordinary shares Dilutive effect of stock options Basic and diluted earnings per share (euro) Basic and diluted earnings from continuing operations per share (euro) Basic and diluted earnings from discontinued operations per share (euro) 2018 4,789 - 2017 3,779 - Change 1,010 26.7% - - 4,789 3,779 1,010 26.7% 10,166,679,946 10,166,679,946 - 0.47 0.47 - - 0.37 0.37 - - - 0.10 0.10 - - - 27.0% 27.0% - 257 Consolidated financial statements16. Property, plant and equipment - €76,631 million The breakdown of and changes in property, plant and equipment for 2018 are shown below: Buildings Plant and machinery Industrial and commercial equipment Other assets Leased assets Leasehold improvements and advances Assets under construction 9,425 5,182 4,243 451 166 (25) (3) - (169) (26) 9 63 (93) 373 9,919 5,303 4,616 154,013 91,671 62,342 3,114 2,469 (1,060) 107 (27) (3,753) (142) 76 1,345 (528) 1,601 158,257 94,314 63,943 491 340 151 25 1 1 - (4) (24) - - 8 - 7 503 345 158 1,321 1,022 299 67 29 (14) 3 (5) (89) 16 - - - 7 1,401 1,095 306 1,054 311 743 6 (2) (1) 14 (48) - - - - 2 (29) 1,077 363 714 429 282 147 15 23 (8) (31) - - - - 1 - - 411 264 147 6,363 6,363 2,838 (2,693) (321) 7 (7) (66) (105) 76 (271) 6,092 6,092 - - - - Total 173,745 98,808 74,937 6,530 - (1,433) 129 (53) (4,114) (235) 86 1,334 (550) 1,694 178,315 101,684 76,631 Millions of euro Cost Accumulated depreciation and impairment Balance at Dec. 31, 2017 Capital expenditure Assets entering service Exchange rate differences Change in scope of consolidation Disposals Depreciation Impairment losses Reversals of impairment losses Other changes Reclassifications from/to assets held for sale Total changes Cost Accumulated depreciation and impairment Balance at Dec. 31, 2018 Land 649 - 649 14 7 (13) 1 (2) - (1) 1 4 (5) 6 655 - 655 258 Annual Report 201816. Property, plant and equipment - €76,631 million The breakdown of and changes in property, plant and equipment for 2018 are shown below: Millions of euro Cost Accumulated depreciation and impairment Balance at Dec. 31, 2017 Capital expenditure Assets entering service Exchange rate differences Change in scope of consolidation Disposals Depreciation Impairment losses Other changes for sale Total changes Cost Reversals of impairment losses Reclassifications from/to assets held Accumulated depreciation and impairment Balance at Dec. 31, 2018 Land 649 - 649 14 (13) 7 1 (2) - (1) 1 4 (5) 6 655 - 655 9,425 5,182 4,243 451 166 (25) (3) - (169) (26) 9 63 (93) 373 9,919 5,303 4,616 154,013 91,671 62,342 3,114 2,469 (1,060) 107 (27) (3,753) (142) 76 1,345 (528) 1,601 158,257 94,314 63,943 491 340 151 25 (4) (24) 1 1 - - - 8 - 7 503 345 158 Buildings Plant and machinery equipment Industrial and commercial Other assets Leased assets Leasehold improvements Assets under construction and advances 1,321 1,022 299 67 29 (14) 3 (5) (89) - - 16 - 7 1,401 1,095 306 1,054 311 743 6 (2) (1) 14 - (48) - - 2 - (29) 1,077 363 714 429 282 147 15 23 - - (8) (31) - - 1 - - 411 264 147 6,363 - 6,363 2,838 (2,693) (321) 7 (7) - (66) - (105) 76 (271) 6,092 - 6,092 Total 173,745 98,808 74,937 6,530 - (1,433) 129 (53) (4,114) (235) 86 1,334 (550) 1,694 178,315 101,684 76,631 259 Consolidated financial statements“Plant and machinery” includes assets to be relinquished For more information on leased assets, see note 18 below. free of charge with a net carrying amount of €8,747 mil- lion (€8,702 million at December 31, 2017), largely regard- The types of capital expenditure made during 2018 are ing power plants in Iberia and South America amounting to summarized below. These expenditures, totaling €6,530 €4,390 million (€4,624 million at December 31, 2017), and million, decreased by €327 million from 2017, a decrease the electricity distribution network in South America totaling that was particularly concentrated in solar power plants. €3,806 million (€3,453 million at December 31, 2017). Millions of euro Power plants: - thermal - hydroelectric - geothermal - nuclear - alternative energy sources Total power plants Electricity distribution networks Land, buildings, and other assets and equipment TOTAL 2018 400 504 114 156 2,170 3,344 3,090 96 6,530 2017 577 450 224 127 2,819 4,197 2,627 33 6,857 Capital expenditure on power plants amounted to €3,344 offset by the sale, on December 14, 2018, of Enel Green million, a decrease of €853 million on the previous year, Power Uruguay and the related special-purpose vehicle essentially reflecting decreased investment in alterna- Estrellada. tive-energy plants in Brazil, Peru, Mexico and the United States. Capital expenditure on renewables plants mainly Reclassifications from/to assets held for sale mainly refer concerned wind farms, in the amount of €1,792 million, to the carrying value of three solar plants in Brazil (€620 and photovoltaic plants, in the amount of €375 million. million), which, following decisions taken by management, Capital expenditure on the electricity distribution network meet the requirements of IFRS 5 for classification in this amounted to €3,090 million, an increase of €463 million aggregate. These effects were partially offset by the re- compared with the previous year, and mainly concerned classification of the project companies relating to the Kaf- service-quality improvements and activities relating to the ireas wind farm as no longer available for sale as a result replacement of electronic meters for implementation of of no longer meeting the conditions for continuing with the the Open Meter plan in Italy. sale. The changes in the scope of consolidation for 2018 mainly Other changes include the effects of IAS 29 on property, concerned the acquisitions of Parques Eólicos Gestinver plant and equipment as at January 1, 2018, and the effects (€139 million), a company operating in the production of of hyperinflation as of December 31, 2018, for a total of wind energy, of Empresa de Alumbrado Eléctrico de Ceuta €1,130 million, as well as the effect of capitalizing interest (€65 million), a company operating in the distribution and on loans specifically dedicated to capital expenditure in the sale of electricity in the autonomous city of Ceuta in North amount of €77 million (€167 million in 2017), as detailed Africa, and of the Brazilian distribution company Enel Distri- below. buição São Paulo (€14 million). These effects were partially 260 Annual Report 2018Millions of euro Enel Green Power SpA PH Chucas SA Enel Green Power Brazil Enel Green Power North America Enel Green Power México Enel Green Power South Africa Enel Américas Group Enel Chile Group Endesa Group Enel Produzione Total 2018 Rate (%) 2017 Rate (%) Change 4 - 19 9 3 6 16 9 4 7 77 1.7% - 0.9% 0.5% 5.2% 6.3% 8.5% 7.7% 1.9% 4.8% 14 1 84 10 12 7 7 19 8 5 167 4.8% 6.1% 6.8% 1.3% 4.6% 7.8% 9.0% 5.2% 2.1% 4.8% (10) (1) (65) (1) (9) (1) 9 (10) (4) 2 (90) -71.4% - -77.4% -10.0% -75.0% -14.3% - -52.6% -50.0% 40.0% -53.9% At December 31, 2018, contractual commitments to purchase property, plant and equipment amounted to €583 million. 17. Infrastructure within the scope of “IFRIC 12 - Service concession arrangements” Service concession arrangements, which are recognized The following table summarizes the salient details of those in accordance with IFRIC 12, regard certain infrastructure concessions. serving concessions for electricity distribution in Brazil. Millions of euro Grantor Activity Country Concession period Concession period remaining Renewal option Amount recognized among contract assets at Dec. 31, 2018 Amount recognized among financial assets at Dec. 31, 2018 Amount recognized among intangible assets at Dec. 31, 2018 Enel Distribuição Rio Enel Distribuição Ceará Brazilian government Electricity distribution Brazilian government Electricity distribution Enel Green Power Mourão Brazilian government Power generation Enel Green Power Paranapanema Enel Distribuição Goiás Enel Green Power Volta Grande Enel Distribuição São Paulo Total Brazilian government Power generation Brazilian government Electricity distribution Brazilian government Power generation Brazilian government Electricity distribution Brazil 1997-2026 8 years Yes 108 761 672 Brazil 1998-2028 10 years Yes 36 425 648 Brazil 2016-2046 28 years No Brazil 2016-2046 28 years No - - Brazil 2015-2045 27 years No 106 6 31 29 - - 458 Brazil 2017-2047 29 years No - 320 - Brazil 1998-2028 10 years No 86 336 855 2,428 1,002 2,780 The value of the assets at the end of the concessions fair value. For more information, see note 47 “Assets classified under financial assets has been measured at measured at fair value”. 261 Consolidated financial statements18. Leases The Group, in the role of lessee, has entered into finance In Peru, leases concern agreements related to financing for lease agreements. They include certain assets which the the Ventanilla combined-cycle plant (with a duration of eight Group is using in Spain, Peru, Italy and Greece. In Spain, years remunerated at an annual rate of Libor + 1.75%), as the assets relate to a 25-year tolling agreement (18 years well as an agreement that financed construction of a new remaining) for which an analysis pursuant to IFRIC 4 identi- open-cycle system at the Santa Rosa plant (with a duration fied an embedded finance lease, under which Endesa has of nine years and annual interest of Libor + 1.75%). access to the generation capacity of a combined-cycle plant The other lease agreements regard wind plants that the for which the toller, Elecgas, has undertaken to transform Group uses in Italy (expiring in 2030-2031 and with a dis- gas into electricity in exchange for a toll at a rate of 9.62%. count rate of between 4.95% and 5.5%). The carrying amount of assets held under finance leases is reported in the following table. Millions of euro Property, plant and equipment Intangible assets Total 2018 714 - 714 2017 743 - 743 Change -3.9% - -3.9% (29) - (29) The following table reconciles total future minimum lease payments and the present value, broken down by maturity based on the contracts deemed to fall within the scope of IAS 17-IFRIC 4. Millions of euro Periods Within 1 year Between 1 and 5 years Beyond 5 years Total Financial expense Present value of minimum lease payments Future minimum payments Present value of future minimum payments Future minimum payments Present value of future minimum payments at Dec. 31, 2018 at Dec. 31, 2017 98 345 518 961 (306) 655 65 221 369 655 - 88 326 573 987 (293) 694 58 210 426 694 - The Group, in the role of lessee, has entered also into oper- Costs for operating leases are broken down in the follow- ating lease agreements regarding the use of certain assets ing table into minimum payments, contingent rents and for industrial purposes. The associated lease payments sublease payments. are expensed under “Services and other materials”. 262 Annual Report 2018Millions of euro Minimum lease payments Contingent rents Sublease payments Total The future minimum lease payments due by the Group under such leases break down by maturity as follows: Millions of euro Periods Within 1 year Beyond 1 year and within 5 years Beyond 5 years Total 19. Investment property - €135 million Investment property at December 31, 2018 came to €135 million, an increase of €58 million year on year. Millions of euro Cost Accumulated depreciation and impairment Balance at Dec. 31, 2017 Assets entering service Exchange rate differences Change in scope of consolidation Depreciation Impairment losses Other changes Total changes Cost Accumulated depreciation and impairment Balance at Dec. 31, 2018 2018 2,441 10 - 2,451 2018 230 657 1,554 2,441 2018 121 44 77 - - 12 (7) (3) 56 58 179 44 135 The Group’s investment property consists of properties in 2018 from a building for the Group’s own use to investment Italy, Spain and Chile, which are free of restrictions on the property, as well as to the acquisition of the Brazilian distri- realizability of the investment property or the remittance of bution company Enel Distribuição São Paulo. income and proceeds of disposal. In addition, the Group has no contractual obligations to purchase, construct or develop For more information on the valuation of investment prop- investment property or for repairs, maintenance or enhance- erty, see notes 47 “Assets measured at fair value” and 47.1 ments. “Fair value of other assets”. The change for the year was mainly due to the reclassifica- tion of the land at La Palma, the former offices of Gas y Elec- tricidad Generación SAU, the use of which was changed in 263 Consolidated financial statements20. Intangible assets - €19,014 million A breakdown of and changes in intangible assets for 2018 are shown below: Develop- ment costs Industrial patents and intellectual property rights Concessions, licenses, trademarks and similar rights Service concession arrangements Assets under development and advances Other Contract costs Total 31 22 9 4 16 (1) - (1) (5) - - 1 - 14 42 19 23 2,148 14,171 4,840 3,060 814 1,840 1,633 2,626 2,219 - 12,538 2,214 11 6 442 - 841 57 233 814 520 (384) (334) (175) 8 (15) 1,440 (1) (199) - 6 74 - 1,003 968 (29) 54 (13) (291) (243) - - (23) 39 (349) (131) - 566 (7) (26) - - - (8) - 6 52 171 985 2,352 15,246 6,899 3,294 308 97 129 (8) - (3) (181) - - 23 - 57 - - - 25,064 8,340 16,724 220 1,351 - - - - - (525) 2,462 (47) (166) (1,085) - - 451 - (31) 45 75 45 505 2,290 986 29,804 1,987 1,705 4,119 2,479 - 481 10,790 365 13,541 2,780 815 985 505 19,014 Millions of euro Cost Accumulated amortization and impairment Balance at Dec. 31, 2017 Investments Assets entering service Exchange rate differences Change in scope of consolidation Disposals Amortization Impairment losses Reversals of impairment losses Other changes Reclassifications from/to assets held for sale Total changes Cost Accumulated amortization and impairment Balance at Dec. 31, 2018 “Industrial patents and intellectual property rights” relate three and five years). mainly to costs incurred in purchasing software and open- “Concessions, licenses, trademarks and similar rights” in- ended software licenses. The most important applications clude the costs incurred for the acquisition of customers by relate to invoicing and customer management, the develop- the foreign electricity distribution and gas sales companies. ment of Internet portals and the management of company Amortization is calculated on a straight-line basis over the systems. Amortization is calculated on a straight-line basis term of the average period of the relationship with custom- over the asset’s residual useful life (on average between ers or of the concessions. 264 Annual Report 2018- - - - 5,678 5,673 1,457 1,839 1,522 1,667 614 548 The following table reports service concession arrangements that do not fall within the scope of IFRIC 12 and had a bal- ance as at December 31, 2018. Millions of euro Grantor Activity Country Concession period Concession period remaining Renewal option at Dec. 31, 2018 Initial fair value Endesa Distribución Eléctrica Electricity distribution - Spain Indefinite Indefinite Codensa Republic of Colombia Electricity distribution Colombia Indefinite Indefinite Enel Distribución Chile (formerly Chilectra) Republic of Chile Electricity distribution Chile Indefinite Indefinite Enel Distribución Perú (formerly Empresa de Distribución Eléctrica de Lima Norte) Enel Distribuţie Muntenia Republic of Peru Romanian Ministry for the Economy Electricity distribution Electricity distribution Peru Indefinite Indefinite Romania 2005-2054 35 years Yes 138 191 The item includes assets with an indefinite useful life in “Impairment losses” amounted to €31 million in 2018. For the amount of €9,271 million (€9,445 million at Decem- more information, see note 9.e. ber 31, 2017), essentially accounted for by concessions for distribution activities in Spain (€5,678 million), Colombia “Other changes” include the recognition as at January 1, (€1,457 million), Chile (€1,522 million), and Peru (€614 mil- 2018 of contract costs as well as the reclassification of lion), for which there is no statutory or currently predictable public-to-private service concession agreements (under expiration date. On the basis of the forecasts developed, development) to non-current assets deriving from con- cash flows for each CGU, with which the various conces- tracts with customers in Brazil in application of IFRS 15. sions are associated, are sufficient to recover the carrying amount. The change during the year is essentially attribut- “Reclassifications from/to assets held for sale” amounted able to changes in exchange rates. For more information to €45 million, and essentially refer to the reclassification on service concession arrangements, see note 26. of the project companies related to the Kafireas wind farm as no longer available for sale as they no longer met the Changes in the scope of consolidation for 2018 mainly con- conditions for continuing with the sale. cerned the acquisition of the Brazilian distribution company Enel Distribuição São Paulo (€2,411 million), reflecting the adjustments for the purchase price allocation and was only partially offset by disposals for the period. 265 Consolidated financial statements21. Goodwill - €14,273 million Goodwill amounted to €14,273 million, an increase of €527 million over the previous year. Millions of euro at Dec. 31, 2017 Change in scope of cons. Exchange rate diff. Impairment losses to assets held for sale Other changes at Dec. 31, 2018 Reclassifications from/ - - - - - - - - - - - - (3) (3) (23) - - - - - - - - - - - - - - - - - - - - - - - (5) 22 Cost 11,177 1,209 1,420 276 561 530 54 106 328 579 23 426 3 Cumulative impairment (2,392) Net carrying amount - - - - - - - - - (11) (3) (13) 8,785 1,209 1,420 276 561 530 54 95 328 579 20 413 3 (23) 17 16,692 (2,419) 14,273 Iberia (1) Chile Argentina Peru Colombia Brazil Central America Enel Green Power North America Enel X North America Market Italy (2) Enel Green Power Italy Romania (3) Tynemouth Energy Total Cost 11,156 1,209 276 561 530 945 56 106 292 579 23 426 3 Cumulative impairment Net carrying amount (2,392) - - - - - - (11) - - - (13) - 8,764 1,209 276 561 530 945 56 95 292 579 23 413 3 21 - - - - 466 2 - - - - - - 16,162 (2,416) 13,746 489 - - - - - 32 1 - 14 - - - - 47 (1) Includes Endesa and Enel Green Power España. (2) Includes Enel Energia. (3) Includes Enel Distribuţie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. Changes in the scope of consolidation refer to the acquisi- characteristics of their business, on the operational rules tion of the Brazilian distribution company Enel Distribuição and regulations of the markets in which Enel operates, on São Paulo (€466 million), which reflects the adjustments to the corporate organization, and on the level of reporting the purchase price allocation, as well as to the acquisition monitored by management. of Empresa de Alumbrado Eléctrico de Ceuta, a company operating in the distribution and sale of electricity in the The recoverable value of the goodwill recognized was es- autonomous city of Ceuta in North Africa. timated by calculating the value in use of the CGUs using Reclassifications from/to assets held for sale, which expected future cash flows and applying an appropriate amounted to €23 million, concern the goodwill associated discount rate, selected on the basis of market inputs such with the Brazil CGU allocated to the three wind farms in as risk-free rates, betas and market-risk premiums. Brazil which during the year qualified for such classification Cash flows were determined on the basis of the best in- discounted cash flow models, which involve estimating under IFRS 5. formation available at the time of the estimate, taking ac- count of the specific risks of each CGU, and drawn: Impairment losses amounted to €3 million, and refer to the > for the explicit period, from the 5-year Business Plan ap- adjustment of the sale price of the Finale Emilia biomass proved by the Board of Directors of the Parent Company power generation plant. on November 19, 2018, containing forecasts for volumes, revenue, operating costs, capital expenditure, industrial The criteria used to identify the cash generating units and commercial organization and developments in the (CGUs) were essentially based – in line with manage- main macroeconomic variables (inflation, nominal inter- ment’s strategic and operational vision – on the specific est rates and exchange rates) and commodity prices. The 266 Annual Report 201821. Goodwill - €14,273 million Goodwill amounted to €14,273 million, an increase of €527 million over the previous year. Change in scope Cumulative Net carrying impairment amount (2,392) 21 8,764 1,209 276 561 530 945 56 95 292 579 23 413 3 - - - - - - - - - - (11) (13) 466 2 - - - - - - - - - - Cost 11,156 1,209 276 561 530 945 56 106 292 579 23 426 3 - - - - - - - - - - 32 1 14 Iberia (1) Chile Argentina Peru Colombia Brazil Central America Enel Green Power North America Enel X North America Market Italy (2) Enel Green Power Italy Romania (3) Tynemouth Energy Total 16,162 (2,416) 13,746 489 47 (1) Includes Endesa and Enel Green Power España. (2) Includes Enel Energia. (3) Includes Enel Distribuţie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. Millions of euro at Dec. 31, 2017 of cons. Exchange rate diff. Impairment losses Reclassifications from/ to assets held for sale Other changes at Dec. 31, 2018 - - - - - - - - - - (3) - - (3) - - - - - (23) - - - - - - - (23) - - - - - - (5) - 22 - - - - 17 Cost 11,177 1,209 276 561 530 1,420 54 106 328 579 23 426 3 Cumulative impairment (2,392) - - - - - - (11) - - (3) (13) - Net carrying amount 8,785 1,209 276 561 530 1,420 54 95 328 579 20 413 3 16,692 (2,419) 14,273 explicit period of cash flows considered in impairment More specifically, the terminal value was calculated as a testing differs in accordance with the specific features perpetuity or annuity with a nominal growth rate equal to and business cycles of the various CGUs being tested. the long-term rate of growth in electricity and/or inflation These differences are generally associated with the (depending on the country and business involved) and in different average times needed to build and bring into any case no higher than the average long-term growth rate service the plant and other works that characterize the of the reference market. The value in use calculated as de- investments of the specific businesses that make up the scribed above was found to be greater than the amount CGU (conventional thermal generation, nuclear power, recognized on the balance sheet, with the exceptions dis- renewables, distribution, etc.); cussed below. > for subsequent years, from assumptions concerning In order to verify the robustness of the value in use of the long-term developments in the main variables that de- CGUs, sensitivity analyses were conducted for the main termine cash flows, the average residual useful life of drivers of the values, in particular WACC, the long-term assets or the duration of the concessions. growth rate and margins, the outcomes of which fully sup- ported that value. 267 Consolidated financial statementsAmount at Dec. 31, 2017 8,764 1,209 276 561 530 945 56 95 292 579 23 413 3 1.7% 2.9% 8.6% 3.4% 2.9% 4.0% 1.4% 2.3% 2.3% 0.7% 1.9% 2.4% n/a 6.9% 7.4% 18.7% 6.9% 9.3% 10.0% 8.2% 6.4% 10.3% 10.8% 7.3% 6.7% n/a 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years n/a Perpetuity/19 years Perpetuity/23 years Perpetuity/29 years Perpetuity/27 years Perpetuity/29 years Perpetuity/26 years 26 years 25 years 15 years 15 years Perpetuity/22 years Perpetuity/19 years n/a The table below reports the composition of the main good- rates applied and the time horizon over which the expected will values according to the company to which the cash- cash flows have been discounted. generating unit (CGU) belongs, along with the discount Millions of euro Amount Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) Iberia (4) Chile Argentina Peru Colombia Brazil Central America Enel Green Power North America Enel X North America Market Italy (5) Enel Green Power Italy Romania (6) Tynemouth Energy at Dec. 31, 2018 8,785 1,209 276 561 530 1,420 54 95 328 579 20 413 3 1.6% 2.6% 7.1% 3.4% 3.0% 4.0% 1.5% 2.3% 2.3% 0.7% 1.0% 2.4% n/a 6.9% 7.5% 5 years Perpetuity/24 years 5 years Perpetuity/25 years 20.1% 5 years Perpetuity 6.8% 9.3% 9.5% 9.0% 6.8% 10.3% 11.0% 6.7% 6.8% n/a 5 years Perpetuity/26 years 5 years Perpetuity/28 years 5 years Perpetuity/26 years 5 years 5 years 5 years 5 years 24 years 25 years Perpetuity 15 years 5 years Perpetuity/23 years 5 years Perpetuity/18 years n/a n/a (1) Perpetual growth rate for cash flows after the explicit forecast period. (2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC. (3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column. (4) Includes Endesa and Enel Green Power España. (5) Goodwill allocated to the Market Italy CGU. (6) Includes Enel Distribuţie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. At December 31, 2018, impairment tests conducted for the CGUs to which goodwill was allocated pointed to no impair- ment losses, similarly to 2017. 268 Annual Report 2018Millions of euro Amount Growth rate (1) discount rate (2) of cash flows Terminal value (3) Pre-tax WACC Explicit period Iberia (4) Chile Argentina Peru Colombia Brazil Central America Enel Green Power North America Enel X North America Market Italy (5) Enel Green Power Italy Romania (6) Tynemouth Energy at Dec. 31, 2018 8,785 1,209 1,420 276 561 530 54 95 328 579 20 413 3 1.6% 2.6% 7.1% 3.4% 3.0% 4.0% 1.5% 2.3% 2.3% 0.7% 1.0% 2.4% n/a 20.1% 5 years Perpetuity 6.9% 7.5% 6.8% 9.3% 9.5% 9.0% 6.8% 10.3% 11.0% 6.7% 6.8% n/a 5 years Perpetuity/24 years 5 years Perpetuity/25 years 5 years Perpetuity/26 years 5 years Perpetuity/28 years 5 years Perpetuity/26 years 5 years 5 years 5 years 5 years 24 years 25 years Perpetuity 15 years 5 years Perpetuity/23 years 5 years Perpetuity/18 years n/a n/a (1) Perpetual growth rate for cash flows after the explicit forecast period. (2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC. (3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column. (4) Includes Endesa and Enel Green Power España. (5) Goodwill allocated to the Market Italy CGU. (6) Includes Enel Distribuţie Muntenia, Enel Energie Muntenia and Enel Green Power Romania. At December 31, 2018, impairment tests conducted for the CGUs to which goodwill was allocated pointed to no impair- ment losses, similarly to 2017. Amount at Dec. 31, 2017 8,764 1,209 276 561 530 945 56 95 292 579 23 413 3 Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) 1.7% 2.9% 8.6% 3.4% 2.9% 4.0% 1.4% 2.3% 2.3% 0.7% 1.9% 2.4% n/a 6.9% 7.4% 18.7% 6.9% 9.3% 10.0% 8.2% 6.4% 10.3% 10.8% 7.3% 6.7% n/a 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years 5 years n/a Perpetuity/19 years Perpetuity/23 years Perpetuity/29 years Perpetuity/27 years Perpetuity/29 years Perpetuity/26 years 26 years 25 years 15 years 15 years Perpetuity/22 years Perpetuity/19 years n/a 269 Consolidated financial statements22. Deferred tax assets and liabilities - €8,305 million and €8,650 million The following table details changes in deferred tax assets as well as the amount of deferred tax assets offsettable, and liabilities by type of timing difference and calculated where permitted, against deferred tax liabilities. based on the tax rates established by applicable regulations, Millions of euro Deferred tax assets: - differences in the value of intangible assets, property, plant and equipment - accruals to provisions for risks and charges and impairment losses with deferred deductibility - tax loss carried forward - measurement of financial instruments - employee benefits - other items Total Deferred tax liabilities: - differences on non-current and financial assets - measurement of financial instruments - other items Total Non-offsettable deferred tax assets Non-offsettable deferred tax liabilities Excess net deferred tax liabilities after any offsetting Incr./(Decr.) taken to income statement Incr./(Decr.) taken to equity Change in scope of cons. Exchange differences Other changes Reclassifications of assets held for sale at Dec. 31, 2017 at Dec. 31, 2018 1,617 1,439 167 690 604 1,837 6,354 6,051 237 2,060 8,348 (83) 9 336 (9) (2) (150) 101 (132) 10 202 80 - - - 118 51 (3) 166 - 146 - 146 135 288 46 3 209 32 713 610 - 61 671 3 (40) (10) (1) (3) (9) (60) (200) (1) (29) (230) (3) 30 (31) - 10 1,026 1,032 295 11 (685) (379) - - - - - - - (1) (1) 14 14 1,669 1,726 508 801 869 2,732 8,305 6,638 403 1,609 8,650 4,581 3,116 1,810 At December 31, 2018, deferred tax assets, which are rec- Distribuição Goiás (€274 million) and Enel Green Power SpA ognized when their recoverability is reasonably certain, to- (€85 million) following the merger of 3Sun. taled €8,305 million (€6,354 million at December 31, 2017). This increase was only partially offset by the increase in Deferred tax assets increased by €1,951 million during the deferred tax assets on past losses in Argentina recognized year, essentially due to the change in the scope of consoli- in 2017 in light of the improved earnings forecasts for the dation and the purchase price allocation of Enel Distribuição companies in that country. São Paulo (€704 million) and application of the new IFRS It should also be noted that deferred tax assets (in the 15, which led to recognition of the tax component on ad- amount of €318 million) were not recorded in relation to justments made as at January 1, 2018, regarding certain prior tax losses in the amount of €1,218 million because, on balance sheet items, mainly for e-distribuzione (€1,066 the basis of current estimates of future taxable income, it is million). In addition, deferred tax assets increased due to not certain that such assets will be recovered. recognition of those resulting from the past losses of Enel 270 Annual Report 2018Millions of euro Deferred tax assets: - differences in the value of intangible assets, property, plant and equipment - accruals to provisions for risks and charges and impairment losses with deferred deductibility - tax loss carried forward - measurement of financial instruments - employee benefits - other items Total Deferred tax liabilities: - differences on non-current and financial assets - measurement of financial instruments - other items Total Non-offsettable deferred tax assets Non-offsettable deferred tax liabilities Excess net deferred tax liabilities after any offsetting 1,617 1,439 167 690 604 1,837 6,354 6,051 237 2,060 8,348 (83) 9 336 (9) (2) (150) 101 (132) 10 202 80 - - - - - 118 51 (3) 166 146 146 Incr./(Decr.) taken to income statement Incr./(Decr.) taken to equity Change in scope of cons. Exchange differences Other changes Reclassifications of assets held for sale at Dec. 31, 2017 at Dec. 31, 2018 135 288 46 3 209 32 713 610 - 61 671 3 (40) (10) (1) (3) (9) (60) (200) (1) (29) (230) (3) 30 (31) - 10 1,026 1,032 295 11 (685) (379) - - - - - (1) (1) 14 - - 14 1,669 1,726 508 801 869 2,732 8,305 6,638 403 1,609 8,650 4,581 3,116 1,810 Deferred tax liabilities amounted to €8,650 million at De- (€655 million), the effect of application of IAS 29 to the cember 31, 2018 (€8,348 million at December 31, 2017). Argentine companies (€189 million), and the tax effect as- They essentially include the determination of the tax ef- sociated mainly with initial application of IFRS 15 for the fects of the value adjustments to assets acquired as part of capitalization of customer acquisition costs for Enel Energia the final allocation of the cost of acquisitions made in the (€98 million) and Endesa Energia (€24 million). various years and the deferred taxation in respect of the dif- These increases were partially offset by the reversal, with ferences between depreciation charged for tax purposes, regard to distribution in Spain, of the deferred tax liabilities including accelerated depreciation, and depreciation based previously allocated for the postponement of recognition of on the estimated useful life of assets. revenue related to customer connections (-€557 million), as Deferred tax liabilities increased by a total of €302 million, required by IFRS 15, and the reduction of the tax rate from due in particular to the change in the scope of consolida- 33% to 30% in Colombia due to tax reform (€61 million). tion following the acquisition of Enel Distribuição São Paulo 271 Consolidated financial statements23. Equity investments accounted for using the equity method - €2,099 million Investments in joint arrangements and associated companies accounted for using the equity method are as follows: Millions of euro Joint arrangements Slovak Power Holding EGPNA Renewable Energy Partners OpEn Fiber Zacapa Topco Sàrl Project Kino companies Tejo Energia Produção e Distribuição de Energia Eléctrica Rocky Caney Holding Drift Sand Wind Project Front Marítim del Besòs Enel Green Power Bungala RusEnergoSbyt Energie Electrique de Tahaddart Transmisora Eléctrica de Quillota EF Solare Italia PowerCrop Centrales Hidroeléctricas de Aysén Associates Elica 2 Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas Newco Cogenerazione.Si Other Total % held Income effect Change in scope of cons. Reclassifications from/to Dividends assets held for sale Other changes at Dec. 31, 2017 at Dec. 31, 2018 50.0% 50.0% 50.0% 50.0% 20.0% 43.8% - 50.0% - 50.0% 49.5% 32.0% 50,0% 50.0% 50.0% 51.0% 30.0% 45.0% 33.5% 35.6% 20.0% 190 404 343 - - 73 39 32 - 13 36 30 12 163 12 6 49 29 13 12 - 142 1,598 362 36 (56) (5) (2) 7 2 4 - 1 34 2 1 (9) (12) 2 (49) - 2 1 - 28 349 - - - 150 82 - - - 37 - - - - (135) - (8) - - - - 8 - 134 - - - - - - - - - - - - - - - (8) (44) (5) (16) (5) (2) (6) (86) - - - - - - - - - - - - - - - - - - - - - 6 6 % held 50.0% 50.0% 50.0% 21.4% 20.0% 43.8% 20.0% 50.0% 61.4% 50.0% 49.5% 32.0% 50.0% 50.0% 50.0% 51.0% 30.0% 45.0% 33.5% 35.6% 20.0% (55) 19 107 2 (1) 2 - - - 9 - 26 (1) (3) - - - - - - - (7) 98 497 459 394 147 79 72 43 36 37 40 35 27 12 - - - - 29 10 11 8 163 2,099 Income effects include the profits and losses recognized The changes in the scope of consolidation refer mainly by the companies in proportion to the interest that the to the acquisition of the special-purpose vehicle Zacapa Enel Group holds and refers mainly to the adjustment of Topco Sàrl, which received 100% of the capital of Ufinet the value of the 50% stake in Slovak Power Holding (€362 International, the leading operator of fiber-optic networks million), which in previous years had been written down. in Latin America, to the measurement using the equity These effects were only partially offset by the impairment method of the Mexican renewable companies (the “Proj- of the Greek project companies involved in the develop- ect Kino” companies) for the remaining portion attributable ment of wind plants on the Cyclades islands (€49 million) to the Group following the sale of 80% of their share capi- and biomass development projects in Italy (€12 million). No tal. These effects were partially offset by the sale, on De- indications of impairment were found for the other equity cember 27, 2018, of the joint venture EF Solare Italia held investments. by Marte Srl for €214 million. 272 Annual Report 201823. Equity investments accounted for using the equity method - €2,099 million Investments in joint arrangements and associated companies accounted for using the equity method are as follows: Tejo Energia Produção e Distribuição de EGPNA Renewable Energy Partners Millions of euro Joint arrangements Slovak Power Holding OpEn Fiber Zacapa Topco Sàrl Project Kino companies Energia Eléctrica Rocky Caney Holding Drift Sand Wind Project Front Marítim del Besòs Enel Green Power Bungala RusEnergoSbyt Energie Electrique de Tahaddart Transmisora Eléctrica de Quillota Centrales Hidroeléctricas de Aysén EF Solare Italia PowerCrop Associates Elica 2 Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas Newco Cogenerazione.Si Other Total 50.0% 50.0% 50.0% 50.0% 20.0% 43.8% 50.0% - - 50.0% 49.5% 32.0% 50,0% 50.0% 50.0% 51.0% 30.0% 45.0% 33.5% 35.6% 20.0% 190 404 343 - - 73 39 32 - 13 36 30 12 163 12 6 49 29 13 12 - 142 1,598 362 36 (56) (5) (2) 7 2 4 - 1 2 1 - 2 1 - 34 (9) (12) 2 (49) 28 349 - - - - - - - - - - - - - - - - 150 82 37 (135) (8) 8 134 % held Income effect Change in scope of cons. Dividends Reclassifications from/to assets held for sale Other changes at Dec. 31, 2017 at Dec. 31, 2018 - - - - - (8) - - - - (44) (5) - (16) - - - - (5) (2) - (6) (86) - - - - - - - - - - - - - - - - - - - - - 6 6 (55) 19 107 2 (1) - 2 - - 26 9 - (1) (3) - - - - - - - (7) 98 497 459 394 147 79 72 43 36 37 40 35 27 12 - - - - 29 10 11 8 163 2,099 % held 50.0% 50.0% 50.0% 21.4% 20.0% 43.8% 20.0% 50.0% 61.4% 50.0% 49.5% 32.0% 50.0% 50.0% 50.0% 51.0% 30.0% 45.0% 33.5% 35.6% 20.0% Other changes mainly include the pro-rated changes in the It should also be noted that application of the equity meth- OCI reserves or other changes recognized directly in eq- od to the investment in RusEnergoSbyt incorporates im- uity. In particular, €55 million for Slovak Power Holding re- plicit goodwill of €27 million. fers to OCI changes on cash flow hedge derivatives, while €107 million for OpEn Fiber is attributable to an increase in reserves for future capital increases by shareholders (€125 million) and OCI reserves for cash flow hedge derivatives (-€18 million). 273 Consolidated financial statementsThe following table provides a summary of financial infor- Group not classified as held for sale in accordance with mation for each joint arrangement and associate of the IFRS 5. Millions of euro Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Shareholders’ equity at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Joint arrangements Slovak Power Holding OpEn Fiber Zacapa Topco Sàrl RusEnergoSbyt Tejo Energia Produção e Distribuição de Energia Eléctrica Energie Electrique de Tahaddart Associates Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 9,295 2,084 1,343 3 9,079 1,224 - 4 203 250 91 51 6 6 93 74 71 29 922 313 81 116 163 11 67 70 27 757 125 - 138 149 27 59 24 6 10,217 2,397 1,424 119 366 102 118 76 33 9,836 1,349 - 142 399 120 133 95 35 129 126 102 198 231 168 168 5,643 1,043 669 - 72 8 29 26 3 5,298 369 - - 10 25 23 2 981 565 65 112 9 24 21 2 981 281 - 127 16 43 34 1 6,624 1,608 734 112 17 53 47 5 6,279 3,593 3,557 650 - 127 26 68 57 3 789 690 7 85 65 29 28 699 - 15 94 65 38 32 274 Annual Report 2018Millions of euro Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total liabilities Shareholders’ equity at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Joint arrangements Slovak Power Holding OpEn Fiber Zacapa Topco Sàrl RusEnergoSbyt Tejo Energia Produção e Distribuição de Energia Eléctrica Energie Electrique de Tahaddart Associates Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 203 250 9,295 2,084 1,343 3 91 51 6 6 9,079 1,224 - 4 93 74 71 29 922 313 81 116 163 11 67 70 27 757 125 - 138 149 27 59 24 6 10,217 2,397 1,424 119 366 102 118 76 33 9,836 1,349 - 142 399 120 133 95 35 5,643 1,043 669 - 72 8 29 26 3 5,298 369 - - 981 565 65 112 981 281 - 127 6,624 1,608 734 112 6,279 3,593 3,557 650 - 127 789 690 7 699 - 15 129 126 102 198 231 168 168 10 25 23 2 9 24 21 2 16 43 34 1 17 53 47 5 26 68 57 3 85 65 29 28 94 65 38 32 275 Consolidated financial statementsMillions of euro Total revenue Income before taxes Net income from continuing operations at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Joint arrangements Slovak Power Holding 2,587 2,362 OpEn Fiber Zacapa Topco Sàrl 114 91 68 - RusEnergoSbyt 2,378 2,515 205 (162) (21) 88 Tejo Energia Produção e Distribuição de Energia Eléctrica Energie Electrique de Tahaddart Associates Tecnatom Suministradora Eléctrica de Cádiz Compañía Eólica Tierras Altas 24. Derivatives 234 267 30 35 97 10 12 56 57 5 11 7 - 6 4 141 (15) - 106 34 30 (9) 3 2 103 (127) (25) 70 21 5 - 6 3 104 (11) - 85 23 21 (9) 3 1 Millions of euro Non-current Current Derivative financial assets Derivative financial liabilities 1,005 2,609 702 2,998 3,914 4,343 2,309 2,260 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 For more information on derivatives classified as non-current financial assets, please see note 46 for hedging derivatives and trading derivatives. 276 Annual Report 201825. Current/Non-current contract assets/(liabilities) Millions of euro Non-current Current Contract assets Contract liabilities 346 6,306 - - 135 1,095 - - at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Non-current assets deriving from contracts with customers ers concern the recognition as at January 1, 2018, in ap- refer mainly to assets under development resulting from plication of IFRS 15 and taking account of the regulatory public-to-private service concession arrangements recog- obligations applicable in the various jurisdictions in which nized in accordance with IFRIC 12 and which have an ex- the Group operates, of the contract liabilities related to rev- piration of beyond 12 months (€336 million). These cases enue from contracts for connection to the electricity grid, arise when the concession holder has not yet obtained which had previously been recognized in profit or loss at the full right to recognize the asset from the grantor at the the moment of the connection. The figure at December 31, hypothetical conclusion of the concession arrangement in 2018 is mainly attributable to distribution in Italy (€3,613 that there remains a contractual obligation to ensure that million), Spain (€2,251 million), and Romania (€405 million). the asset becomes operational. It should also be noted that For more information, see note 2 to the consolidated finan- the figure at December 31, 2018 includes investments for cial statements. the period in the amount of €271 million, €80 million of which deriving from the acquisition of Enel Distribuição São Current liabilities deriving from contract with customers Paulo. include the contract liabilities related to revenue from con- nections to the electricity grid expiring within 12 months in Current assets deriving from contracts with customers the amount of €726 million recognized in Italy and Spain, mainly concern assets in respect of construction contracts as well as liabilities for construction work in progress (€326 (€109 million) that are still open, payment of which is sub- million). ject to satisfaction of a performance obligation. The comparative figures for 2017 have not been reclassi- fied, given that IFRS 15 has been adopted initially using the Non-current liabilities deriving from contracts with custom- simplified approach. 277 Consolidated financial statements26. Other non-current financial assets - €5,769 million Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Change Equity investments in other companies measured at fair value 63 58 Receivables and securities included in net financial debt (see note 26.1) Service concession arrangements Non-current prepaid financial expense Total 3,272 2,415 19 5,769 2,444 1,476 24 4,002 5 828 939 (5) 1,767 8.6% 33.9% 63.6% -20.8% 44.2% Total non-current financial assets increased by €1,767 mil- structures involved in concession arrangements, which lion in 2018 as compared with the previous year. In particu- have been recognized in accordance with IFRIC 12. lar, the change reflects an increase in receivables included in net financial debt, as discussed in note 26.1, and ser- Equity investments in other companies measured at fair vice concession arrangements, the €855 million increase value include, in accordance with IFRS 9, the balance of in which is mainly attributable to the consolidation of Enel equity investments in other companies previously mea- Distribuição São Paulo. Service concession arrangements sured at cost. The change is mainly due to the adjustments concern amounts paid to the licensing authorities for the detailed below: construction and/or improvement of public-service infra- Millions of euro % held % held at Dec. 31, 2018 at Dec. 31, 2017 Change Galsi Empresa Propietaria de la Red SA European Energy Exchange Athonet Srl Korea Line Corporation TAE Technologies Inc. Echelon Other Total 17.6% 11.1% 2.2% 16.0% 0.3% 1.2% - 14 17 8 7 2 1 - 14 63 17.6% 11.1% 2.2% - 0.3% 1.2% 7.1% 17 5 6 - 2 5 1 22 58 (3) 12 2 7 - (4) (1) (8) 5 278 Annual Report 201826.1 Other non-current financial assets included in net financial debt Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Change Securities at FVOCI 360 382 Financial receivables in respect of Spanish electrical system deficit Other financial receivables Total - 2,912 3,272 3 2,059 2,444 (22) (3) 853 828 -5.8% - 41.4% 33.9% Securities measured at FVOCI represent financial instru- the sale of the 50% stake in Slovak Power Holding fol- ments in which the Dutch insurance companies invest a lowing the update to the pricing formula included in the portion of their liquidity. agreements with EPH. The change for the year takes ac- count of a number of parameters, including the evolution Other financial receivables increased by €853 million in of Slovenské elektrárne’s net financial position, trends in 2018 compared with the previous year. The change mainly energy prices on the Slovakian market, the levels of oper- reflects the following factors: ating efficiency of Slovenské elektrárne based on bench- > an increase of €427 million in the financial receivable marks established in the agreement, and the enterprise held by Enel Finance International from the “Project value of Mochovce units 3 and 4. Kino” companies following their deconsolidation; These increases were only partially offset by the decrease > an adjustment in the fair value, in the amount of €320 in security deposits of €106 million. million, of the financial receivable arising as a result of 27. Other non-current assets - €1,272 million Millions of euro Receivables from institutional market operators Other receivables Total at Dec. 31, 2018 at Dec. 31, 2017 Change 200 1,072 1,272 200 864 1,064 - 208 208 - 24.1% 19.5% Receivables from institutional market operators came to monetary grants to be received in respect of green cer- €200 million at December 31, 2018, remaining essentially tificates totaling €50 million (€61 million at December 31, unchanged compared with the previous year. 2017). At December 31, 2018, other receivables mainly regarded of Enel Distribuição São Paulo and the contingent consid- tax receivables in the amount of €231 million (€261 million eration (€91 million) related to development of new proj- at December 31, 2017), security deposits in the amount ects (the High Lonesome, Outlaw and Road Runner wind of €307 million (€189 million at the end of 2017), and non- farms). The change for the year mainly reflects the consolidation 279 Consolidated financial statements28. Inventories - €2,818 million Millions of euro Raw materials, consumables and supplies: - fuel - materials, equipment and other inventories Total Environmental certificates: - CO2 emissions allowances - green certificates - white certificates Total Buildings available for sale Payments on account TOTAL at Dec. 31, 2018 at Dec. 31, 2017 Change 1,260 1,345 2,605 119 16 - 135 57 21 1,215 1,136 2,351 287 14 1 302 62 7 2,818 2,722 45 209 254 (168) 2 (1) (167) (5) 14 96 3.7% 18.4% 10.8% -58.5% 14.3% - -55.3% -8.1% - 3.5% Raw materials, consumables and supplies amounted to components, as well as an increase in natural gas invento- €2,605 million at December 31, 2018 (€2,351 million in ries. 2017), and consist of fuel inventories, particularly natural gas, to cover the requirements of the generation compa- Inventories of CO2 emissions allowances, on the other hand, decreased due to compliance by the Group and lower nies and trading activities, as well as materials and equip- allowances for trading purposes. ment for the operation, maintenance and construction of Buildings available for sale are related to the remaining plants and distribution networks. units from the Group’s real estate portfolio and are primar- During the year, the overall increase in inventories (€96 mil- ily civil buildings. lion) was mainly due to the increase in the latter of these 280 Annual Report 201829. Trade receivables - €13,587 million Millions of euro Customers: - sale and transport of electricity - distribution and sale of gas - other assets Total customer receivables Trade receivables due from associates and joint arrangements TOTAL at Dec. 31, 2018 at Dec. 31, 2017 Change 8,556 1,145 3,687 13,388 199 13,587 11,123 2,029 1,234 14,386 143 14,529 (2,567) (884) 2,453 (998) 56 (942) -23.1% -43.6% - -6.9% 39.2% -6.5% Trade receivables from customers are recognized net of receivables for the sale and transport of electricity and for allowances for doubtful accounts, which totaled €2,828 the sale of natural gas, to an increase in allowances, and to million at the end of the year, as compared with a balance the increased use of factoring. of €2,402 million at the end of the previous year. Specifi- For more information on trade receivables, see note 43 cally, the reduction for the period was mainly due to lower “Financial instruments”. 30. Other current financial assets - €5,160 million Millions of euro Current financial assets included in net financial debt Other Total at Dec. 31, 2018 at Dec. 31, 2017 Change 5,003 157 5,160 4,458 156 4,614 545 1 546 12.2% 0.6% 11.8% 30.1 Other current financial assets included in net financial debt - €5,003 million Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Change Short-term portion of long-term financial receivables 1,522 1,094 Receivables for factoring Securities at FVOCI Financial receivables and cash collateral Other Total - 72 2,559 850 5,003 42 69 2,664 589 4,458 428 (42) 3 (105) 261 545 39.1% - 4.3% -3.9% 44.3% 12.2% Other current financial assets included in net financial debt increased by €428 million due mainly to the increase in fi- totaled €5,003 million (€4,458 million at December 31, nancial receivables from the Spanish electricity system for 2017). the financing of the rate deficit, as well as to the consolida- The change is mainly attributable to the increase in the tion of Enel Distribuição São Paulo. short-term portion of long-term financial receivables, which The aggregate “Other” also increased, by €261 million, 281 Consolidated financial statementsdue to the increase in financial receivables recognized by Financial receivables and cash collateral, on the other hand, Enel Finance International from the Mexican companies decreased by €105 million following a reduction in cash col- of “Project Kino”, which are accounted for using the equity lateral paid to counterparties for transactions in over-the- method. counter derivatives on interest rates and exchange rates. 31. Other current assets - €2,983 million Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Change Receivables from institutional market operators Advances to suppliers Receivables due from employees Receivables due from others Sundry tax receivables Accrued operating income and prepaid expenses Revenue for construction contracts 745 299 30 1,139 622 148 - 853 217 20 872 517 150 66 Total 2,983 2,695 (108) -12.7% 82 10 267 105 (2) (66) 288 37.8% 50.0% 30.6% 20.3% -1.3% - 10.7% Receivables from institutional market operators include re- mainly attributable to the sale of the eight renewables com- ceivables in respect of the Italian system in the amount of panies in Mexico, as this item includes the receivable of Enel €526 million (€575 million at December 31, 2017) and the Green Power SpA from the institutional investor Caisse de Spanish system in the amount of €185 million (€260 million at dépôt et placement du Québec and from the investment ve- December 31, 2017). The reduction for the period mainly re- hicle CKD Infraestructura México SA de Cv. flects the collection of the 2017 social bonus reimbursement, The increase of €105 million in sundry tax receivables was relating to financial years 2014, 2015 and 2016 following a rul- due to greater VAT prepayments compared with the amount ing in favor of Endesa. Including the portion of receivables paid in 2017. classified as long-term in the amount of €200 million (€200 Revenue for construction contracts at December 31, 2018 (in million in 2017), receivables due from institutional market op- the amount of €135 million) has been reclassified to assets erators at December 31, 2018 totaled €945 million (€1,053 deriving from contracts with customers following application million at December 31, 2017), with payables of €4,117 mil- of the simplified approach allowed under IFRS 15. For this lion (€5,029 million at December 31, 2017). reason, the balances at December 31, 2017 (€66 million) have The €267 million increase in receivables due from others is not been reclassified. 282 Annual Report 201832. Cash and cash equivalents - €6,630 million Cash and cash equivalents, detailed in the table below, are lion essentially in respect of deposits pledged to secure not restricted by any encumbrances, apart from €52 mil- transactions carried out. Millions of euro Bank and post office deposits Cash and cash equivalents on hand Other investments of liquidity Total at Dec. 31, 2018 at Dec. 31, 2017 Change 5,531 328 771 6,630 6,487 343 191 7,021 (956) (15) 580 (391) -14.7% -4.4% - -5.6% 33. Assets and disposal groups classified as held for sale - €688 million and €407 million Changes in assets held for sale during 2018 may be broken down as follows: Millions of euro Property, plant and equipment Intangible assets Goodwill Deferred tax assets Investments accounted for using the equity method Non-current financial assets Other non-current assets Cash and cash equivalents Current financial assets Inventories, trade receivables, and other current assets Reclassification from/to current and non-current assets Disposals and change in scope of consolidation at Dec. 31, 2017 Other changes at Dec. 31, 2018 1,501 87 38 109 6 - 2 30 3 193 550 (45) 23 1 (6) - (2) 18 - 30 (1,884) (36) (38) (118) - - - (105) - (231) 444 (1) - 8 - - 1 78 (3) 35 611 5 23 - - - 1 21 - 27 Total 1,970 569 (2,412) 561 688 283 Consolidated financial statementsChanges in liabilities in 2018 were as follows: Millions of euro Long-term borrowings Employee benefits Provisions for risks and charges, non- current portion Deferred tax liabilities Non-current financial liabilities Other non-current liabilities Short-term borrowings Other current financial liabilities Provisions for risks and charges, current portion Trade payables and other current liabilities Total at Dec. 31, 2017 416 - - 113 - 58 980 2 - 160 1,729 Reclassification from/to current and non-current assets Disposals and change in scope of consolidation Other changes at Dec. 31, 2018 (282) (1,429) 1,394 - 2 (14) - (53) (685) 3 - 12 (1,017) - (1) (116) - - - - - (41) (1,587) - - 17 - - (11) (3) - (115) 1,282 99 - 1 - - 5 284 2 - 16 407 Assets and liabilities held for sale at December 31, 2018 an 80% stake in eight Mexican project companies (“Project amount to €688 million and €407 million respectively and Kino”) classified as held for sale as of December 31, 2017, mainly regard the carrying amount of three solar plants in and now accounted for using the equity method for the Brazil, which, following decisions by management, meet remaining share attributable to the Group, and the reclas- the requirements of IFRS 5 for classification as held for sification of the project companies relating to the Kafireas sale. wind farm as no longer available for sale as the conditions The change for the period essentially concerns the sale of for the sale were no longer met. 34. Shareholders’ equity - €47,852 million 34.1 Equity attributable to shareholders of the Parent Company - €31,720 million Share capital - €10,167 million At December 31, 2018, the share capital of Enel SpA – con- sidering that as at December 31, 2017, there were no ap- proved stock option plans (and thus no options exercised) – amounted to €10,166,679,946 fully subscribed and paid up, represented by the same number of ordinary shares with a par value of €1.00 each. At December 31, 2018, based on the shareholders register vestment” (represented by shares with voting rights, shares in securities lending arrangements and other long positions with cash settlement involving contracts for differences) of 4.827% as at September 5, 2018 for asset management purposes. As from that moment, BlackRock is exempt from the requirements to notify significant investments in Enel pursuant to Article 119-bis, paragraphs 7 and 8, of the Issu- ers’ Regulation approved with CONSOB Resolution 11971 of and the notices submitted to CONSOB and received by the May 14, 1999. company pursuant to Article 120 of Legislative Decree 58 of February 24, 1998, as well as other available information, Other reserves - €1,700 million shareholders with an interest of greater than 3% in the com- pany’s share capital were the Ministry for the Economy and Finance (with a 23.585% stake). In addition, BlackRock Inc. Share premium reserve - €7,489 million Pursuant to Article 2431 of the Italian Civil Code, the share reported that it held, through subsidiaries, an “aggregate in- premium reserve contains, in the case of the issue of shares 284 Annual Report 2018at a price above par, the difference between the issue price the incentivized tax rules in the countries in which those in- of the shares and their par value, including those resulting struments are held. from conversion from bonds. The reserve, which is a capital reserve, may not be distributed until the legal reserve has reached the threshold established under Article 2430 of the Italian Civil Code. Legal reserve - €2,034 million The legal reserve is formed of the part of net income that, Reserve from equity investments accounted for using the equity method - €(63) million The reserve reports the share of comprehensive income to be recognized directly in equity of companies accounted for using the equity method. The cumulative tax effect is equal pursuant to Article 2430 of the Italian Civil Code, cannot be to €22 million. distributed as dividends. Other reserves - €2,262 million These include €2,215 million related to the remaining portion of the value adjustments carried out when Enel was trans- Reserve from remeasurement of net liabilities/(assets) of defined benefit plans - €(714) million This reserve includes all actuarial gains and losses, net of tax formed from a public entity to a joint-stock company. effects. The change is mainly attributable to the decrease Pursuant to Article 47 of the Uniform Income Tax Code (Tes- in net actuarial losses recognized during the period, mainly to Unico Imposte sul Reddito, or “TUIR”), this amount does reflecting changes in the discount rate. The cumulative tax not constitute taxable income when distributed. effect is equal to €121 million. Reserve from translation of financial statements in currencies other than euro - €(3,317) million The decrease for the year, of €703 million, was mainly due to Reserve from disposal of equity interests without loss of control - €(2,381) million This item mainly reports: > the gain posted on the public offering of Enel Green Pow- the net strengthening of the functional currency against the er shares, net of expenses associated with the disposal foreign currencies used by subsidiaries. and the related taxation; Reserves from measurement of cash flow hedge financial instruments - €(1,745) million These include the net charges recognized in equity from the > the sale of minority interests recognized as a result of the Enersis (now Enel Américas and Enel Chile) capital increase; > the capital loss, net of expenses associated with the dis- posal and the related taxation, from the public offering of measurement of cash flow hedge derivatives. The cumula- 21.92% of Endesa; tive tax effect is equal to €513 million. > the income from the disposal of the minority interest Reserves from measurement of costs of hedging financial instruments - €(258) million As of January 1, 2018, in application of IFRS 9, these re- in Enel Green Power North America Renewable Energy Partners; > the effects of the merger into Enel Américas of Endesa Américas and Chilectra Américas; > the disposal to third parties of a minority interest without serves include the change in fair value of currency basis loss of control in Enel Green Power North America Re- points and forward points. newable Energy Partners. Reserves from measurement of financial instruments at FVOCI - €16 million These include net unrealized income from the measurement at fair value of financial assets. The increase of €36 million for the year is mainly attributable to the sale of the 7.1% stake in Echelon Corporation. The change for the period amounted to €17 million, and refers to the income deriving from the sale of minority in- terests in certain South African companies. Reserve from acquisitions of non- controlling interests - €(1,623) million This reserve mainly includes the surplus of acquisition pric- There is no cumulative tax effect on the reserve in view of es with respect to the carrying value of the equity acquired 285 Consolidated financial statementsfollowing the acquisition from third parties of further inter- on the provisions of the two share swap agreements with ests in companies already controlled in South America and a financial institution in order to increase the stake in Enel in Italy (Enel Green Power SpA). Américas to a maximum of 5%. The decrease for the period, of €460 million, mainly reflects to the effects of: > the “Elqui” transaction, which resulted in a consolidated increase in the total investment held in Enel Chile of 1.3%, the combined effect of the sale of 38% of Enel Green Power Chile, following the merger of Enel Green Power Latin Amer- ica SA into Enel Chile, and of the public tender for Enel Gen- eración Chile, which resulted in the purchase of an additional 33.6%; Retained earnings/(Loss carried forward) - €19,853 million This reserve reports earnings from previous years that have not been distributed or allocated to other reserves. The table below shows the changes in gains and losses recognized directly in other comprehensive income, includ- ing non-controlling interests, with specific reporting of the > the increase in the 2.43% interest in Enel Américas based related tax effects. at Dec. 31, 2017 Change Of which sharehold- ers of the Parent Company Of which non-con- trolling interests Gains/ (Losses) recognized in equity for the year Total Released to income statement at Dec. 31, 2018 Of which sharehold- ers of the Parent Company Of which non-con- trolling interests Of which sharehold- ers of the Parent Company Of which non-con- trolling interests Total Taxes Total (5,422) (2,597) (2,825) (1,287) - - (1,287) (609) (678) (6,709) (3,206) (3,503) (1,455) (1,230) (225) (101) (519) 68 (552) (491) (61) (2,007) (1,721) (286) (348) (348) - 83 (1) - (1) (3) (52) (54) (23) (23) 2 - (62) 12 (853) (664) (189) (172) - - - - - - - 83 90 (7) (265) (258) (7) (3) (3) - (4) (3) (1) 5 (57) (58) 1 (109) (112) - 12 12 - (11) (11) 3 - 52 (120) (63) (57) (973) (727) (246) (8,154) (4,916) (3,238) (1,530) (519) 125 (1,924) (1,122) (802) (10,078) (6,038) (4,040) Millions of euro Reserve from translation of financial statements in currencies other than euro Reserves from measurement of cash flow hedge financial instruments Reserves from measurement of costs of hedging financial instruments Reserves from measurement of financial assets at FVOCI Share of OCI of associates accounted for using the equity method Reserves from measurement of equity investments in other companies Reserve from remeasurement of net liabilities/ (assets) of defined benefit plans Total gains/ (losses) recognized in equity 286 Annual Report 201834.2 Dividends Net dividends paid in 2017 Dividends for 2016 Interim dividends for 2017 (1) Special dividends Total dividends paid in 2017 Net dividends paid in 2018 Dividends for 2017 Interim dividends for 2018 (2) Special dividends Total dividends paid in 2018 Amount distributed (millions of euro) Dividend per share (euro) 1,830 - - 1,830 2,410 - - 2,410 0.18 - - 0.18 - 0.24 - - 0.24 (1) Approved by the Board of Directors on November 8, 2017, and paid as from January 24, 2018 (interim dividend of €0.105 per share for a total of €1,068 million). (2) Approved by the Board of Directors on November 6, 2018, and paid as from January 23, 2019 (interim dividend of €0.14 per share for a total of €1,423 million). The dividend for 2018, equal to €0.28 per share, amounting tory return for shareholders and ensure access to external to a total of €2,847 million (of which €0.14 per share, for a sources of financing, in part by maintaining an adequate total of €1,423 million, already paid as an interim dividend rating. as from January 23, 2019), has been proposed to and re- In this context, the Group manages its capital structure solved by the Shareholders’ Meeting of May 16, 2019, at and adjusts that structure when changes in economic con- a single call. ditions so require. There were no substantive changes in Capital management The Group’s objectives for managing capital comprise safe- guarding the business as a going concern, creating value objectives, policies or processes in 2018. To this end, the Group constantly monitors developments in the level of its debt in relation to equity. The situation at December 31, 2018 and 2017 is summarized in the follow- for stakeholders and supporting the development of the ing table. Group. In particular, the Group seeks to maintain an ad- equate capitalization that enables it to achieve a satisfac- Millions of euro Non-current financial position Net current financial position Non-current financial receivables and long-term securities Net financial debt Equity attributable to shareholders of the Parent Company Non-controlling interests Shareholders’ equity Debt/equity ratio at Dec. 31, 2018 at Dec. 31, 2017 48,983 (4,622) (3,272) 41,089 31,720 16,132 47,852 0.86 42,439 (2,585) (2,444) 37,410 34,795 17,366 52,161 0.72 Change 6,544 (2,037) (828) 3,679 (3,075) (1,234) (4,309) - The percentage increase in the use of debt is attributable partly to the increase in net financial debt. to the reduction in the Group’s consolidated shareholders’ See note 41 for a breakdown of the individual items in the equity of €3,705 million mainly due to the retrospective table. application of IFRS 9 and IFRS 15 (for €3,074 million) and 287 Consolidated financial statements34.3 Non-controlling interests - €16,132 million The following table reports the composition of non-controlling interests by Region. Millions of euro Non-controlling interests Net income attributable to non-controlling interests Italy Iberia South America Europe and Euro-Mediterranean Affairs North and Central America Africa, Asia and Oceania Total at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 7 6,405 8,185 908 402 225 4 6,954 8,934 1,002 387 85 - 386 1,062 68 37 8 - 396 1,020 67 60 7 16,132 17,366 1,561 1,550 It should be noted that the decrease in the share attribut- of Endesa, and the change in the scope of consolidation able to non-controlling interests mainly refers to the effect associated with the “Elqui” transaction. of exchange rates, to the dividends in South America and 35. Borrowings Millions of euro Non-current Current Long-term borrowings Short-term borrowings Total at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 48,983 - 48,983 42,439 - 42,439 3,367 3,616 6,983 7,000 1,894 8,894 For more information on the nature of borrowings, see note 43 “Financial instruments”. 288 Annual Report 201836. Employee benefits - €3,187 million The Group provides its employees with a variety of ben- collective bargaining agreement prior to the changes in- efits, including deferred compensation benefits, additional troduced with the framework agreement noted earlier months’ pay for having reached age limits or eligibility for and (ii) for employees of the former Catalan companies old-age pension, loyalty bonuses for achievement of senior- (Fecsa/Enher/HidroEmpordà). Both are defined benefit ity milestones, supplemental retirement and healthcare plans and benefits are fully ensured, with the exception plans, residential electricity discounts and similar benefits. of the former plan for benefits in the event of the death More specifically: of a retired employee. Finally, the Brazilian companies > for Italy, the item “Pension benefits” regards estimated have also established defined benefit plans; accruals made to cover benefits due under the supple- > the item “Electricity discount” comprises benefits re- mental retirement schemes of retired executives and garding electricity supply associated with foreign com- the benefits due to personnel under law or contract at panies. For Italy, that benefit, which was granted until the time the employment relationship is terminated. the end of 2015 to retired employees only, was unilater- For the foreign companies, the item reports post-em- ally cancelled; ployment benefits, of which the most material regard > the item “Health insurance” reports benefits for current the pension benefit schemes of Endesa in Spain, which or retired employees covering medical expenses; break down into three types that differ on the basis of > “Other benefits” mainly regard the loyalty bonus, which employee seniority and company. In general, under the is adopted in various countries and for Italy is repre- framework agreement of October 25, 2000, employees sented by the estimated liability for the benefit entitling participate in a specific defined contribution pension employees covered by the electricity workers national plan and, in cases of disability or death of employees in collective bargaining agreement to a bonus for achieve- service, a defined benefit plan which is covered by ap- ment of seniority milestones (25th and 35th year of propriate insurance policies. In addition, Endesa has two service). It also includes other incentive plans, which other limited-enrollment plans (i) for current and retired provide for the award to certain company managers of a Endesa employees covered by the electricity industry monetary bonus subject to specified conditions. 289 Consolidated financial statementsThe following table reports changes in the defined benefit 2017, respectively, as well as a reconciliation of that obliga- obligation for post-employment and other long-term em- tion with the actuarial liability. ployee benefits at December 31, 2018, and December 31, Millions of euro 2018 2017 Pension benefits Electricity discount Health insurance Other benefits CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at the start of the year 2,413 Current service cost Interest expense Actuarial (gains)/losses arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes in financial assumptions Experience adjustments Past service cost (Gains)/Losses arising from settlements Exchange differences Employer contributions Employee contributions Benefits paid Other changes Liabilities classified as held for sale Actuarial obligation at year end (A) CHANGES IN PLAN ASSETS Fair value of plan assets at the start of the year Interest income Expected return on plan assets excluding amounts included in interest income Exchange differences Employer contributions Employee contributions Benefits paid Other payments Change in scope of consolidation Fair value of plan assets at year end (B) EFFECT OF ASSET CEILING Asset ceiling at the start of the year Interest income Change in asset ceiling Exchange differences Change in scope of consolidation Asset ceiling at year end (C) 16 247 (2) 213 21 (1) - (114) - 2 (370) 2,647 - 5,072 1,317 173 70 (82) 171 2 (370) - 1,879 3,160 64 4 (38) (6) - 24 739 4 14 - (10) 48 - - (1) - - (30) 3 - 767 - - - - 30 - (30) - - - - - - - - - 253 5 10 - 4 2 - - (9) - - (12) - - 253 - - - - 12 - (12) - - - - - - - - - 254 36 5 - (5) 7 7 - (6) - - (65) (2) - 231 - - - - 24 - (24) - - - - - - - - - Total 3,659 61 276 (2) 202 78 6 - (130) - 2 (477) 2,648 - 6,323 1,317 173 70 (82) 237 2 (436) - 1,879 3,160 64 4 (38) (6) - 24 Pension benefits Electricity discount Health insurance Other benefits 2,440 17 118 2 1 - - - 54 (35) 5 (124) (226) 161 2,413 1,272 83 53 (94) 142 1 (226) 1,317 - 86 54 4 16 (9) - 65 847 5 16 30 (138) (1) (22) 2 - 739 22 (22) - - - - - - - - - - - - - - - - - - - Total 3,802 74 152 (1) 89 (163) 5 - - 1 - (143) (339) 182 3,659 1,272 83 53 (94) 199 1 (283) - 86 1,317 54 4 16 (9) - 65 284 47 7 (1) 2 (5) (6) (79) 5 - 254 23 (23) - - - - - - - - - - - - - - - - - - 231 5 11 (2) 3 15 (12) (12) 14 253 12 (12) - - - - - - - - - - - - - - - - - - - Net liability in balance sheet (A-B+C) 1,936 767 253 231 3,187 1,161 739 253 254 2,407 290 Annual Report 2018 Millions of euro 2018 Pension benefits Electricity discount Health insurance Other benefits CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at the start of the year 2,413 Current service cost Interest expense Actuarial (gains)/losses arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes (Gains)/Losses arising from settlements in financial assumptions Experience adjustments Past service cost Exchange differences Employer contributions Employee contributions Benefits paid Other changes Liabilities classified as held for sale Actuarial obligation at year end (A) CHANGES IN PLAN ASSETS Fair value of plan assets at the start of the year Interest income Expected return on plan assets excluding amounts included in interest income Exchange differences Employer contributions Employee contributions Benefits paid Other payments Change in scope of consolidation Fair value of plan assets at year end (B) EFFECT OF ASSET CEILING Asset ceiling at the start of the year Interest income Change in asset ceiling Exchange differences Change in scope of consolidation Asset ceiling at year end (C) 16 247 (2) 213 21 (1) 2 - - - (370) 2,647 5,072 1,317 173 70 (82) 171 (370) 2 - 1,879 3,160 64 4 (38) (6) - 24 (114) (1) (9) (6) (130) Total 3,659 61 276 (2) 202 78 6 - - 2 - 1,317 173 70 (82) 237 2 - 1,879 3,160 64 4 (38) (6) - 24 254 36 5 - 7 7 (5) - - - - - - - - - - - - - - - - - - (65) (2) (477) 2,648 253 231 6,323 12 24 (12) (24) (436) 253 5 10 - 4 2 (12) - - - - - - - - - - - - - - - - - - - - 739 4 14 (10) 48 (30) 3 - 767 30 (30) - - - - - - - - - - - - - - - - - - - Pension benefits 2,440 17 118 2 54 (35) 5 - (124) - 1 (226) 161 - 2,413 1,272 83 53 (94) 142 1 (226) - 86 1,317 54 4 16 (9) - 65 2017 Electricity discount Health insurance Other benefits 847 5 16 - 30 (138) - - (1) - - (22) 2 - 739 - - - - 22 - (22) - - - - - - - - - 231 284 5 11 (2) 3 15 - - (12) - - (12) 14 - 253 - - - - 12 - (12) - - - - - - - - - 47 7 (1) 2 (5) - - (6) - - (79) 5 - 254 - - - - 23 - (23) - - - - - - - - - Net liability in balance sheet (A-B+C) 1,936 767 253 231 3,187 1,161 739 253 254 Total 3,802 74 152 (1) 89 (163) 5 - (143) - 1 (339) 182 - 3,659 1,272 83 53 (94) 199 1 (283) - 86 1,317 54 4 16 (9) - 65 2,407 291 Consolidated financial statements Millions of euro (Gains)/Losses charged to profit or loss Service cost and past service cost Net interest expense (Gains)/Losses arising from settlements Actuarial (gains)/losses on other long-term benefits Other changes Total Millions of euro Change in (gains)/losses in OCI Expected return on plan assets excluding amounts included in interest income Actuarial (gains)/losses on defined benefit plans Changes in asset ceiling excluding amounts included in interest income Other changes Total 2018 2017 39 107 - 28 (4) 170 40 73 - 39 (4) 148 2018 2017 (70) 282 (38) (2) 172 (53) (71) 16 9 (99) The change in cost recognized through profit or loss was The liability recognized in the balance sheet at the end of equal to €22 million. The impact on the income statement the year is reported net of the fair value of plan assets, is, therefore, greater than in 2017, due mainly to the effect amounting to €3,159 million at December 31, 2018. Those of interest on pension funds for Enel Distribuição São Paulo assets, which are entirely in Spain and Brazil, break down in Brazil. as follows. 2018 8% 65% 4% - - 23% 100% 2017 4% 37% 5% - - 54% 100% Investments quoted in active markets Equity instruments Fixed-income securities Investment property Other Unquoted investments Assets held by insurance undertakings Other Total 292 Annual Report 2018The main actuarial assumptions used to calculate the liabili- which are consistent with those used the previous year, are ties in respect of employee benefits and the plan assets, set out in the following table. Italy Iberia South America Other countries Italy Iberia South America Other countries Discount rate 0.25%- 1.50% 0.21%- 1.75% 2018 Inflation rate 1.50% 2.00% Rate of wage increases Rate of increase in healthcare costs Expected rate of return on plan assets 2.50% 2.00% 2.50% 3.20% - 1.75% 4.70%- 9.15% 3.00%- 4.00% 3.80%- 5.00% 7.12%- 8.00% 8.63%- 9.04% 1.50%- 8.77% 1.50%- 4.14% 3.00%- 4.20% - - 0.20%- 1.50% 1.50% 1.50%- 3.50% 2017 0.65% -1.67% 2.00% 2.00% 2.50% 3.20% - 1.65% 5.00%- 9.93% 3.00%- 4.25% 3.00%- 7.38% 3.00%- 8.00% 9.72%- 9.78% 1.50%- 7.18% 1.50%- 4.22% 3.00%- 4.22% - - The following table reports the outcome of a sensitivity of the year in the actuarial assumptions used in estimating analysis that demonstrates the effects on the defined ben- the obligation. efit obligation of changes reasonably possible at the end Millions of euro Pension benefits Electricity discount Health insurance Other benefits Pension benefits Electricity discount Health insurance Other benefits at Dec. 31, 2018 at Dec. 31, 2017 Decrease of 0.5% in discount rate Increase of 0.5% in discount rate Increase of 0.5% in inflation rate Decrease of 0.5% in inflation rate Increase of 0.5% in remuneration Increase of 0.5% in pensions currently being paid Increase of 1% in healthcare costs Increase of 1 year in life expectancy of active and retired employees 280 (243) (5) 32 10 11 - 155 63 (59) (59) 61 (2) (2) - 25 9 (12) (3) 3 (3) (3) 32 8 3 (9) (6) 2 1 (3) - (3) 155 (121) (20) 47 32 35 - 54 60 (55) (63) 61 (1) (1) - 25 15 4 (18) (10) (14) (9) 12 - - 28 147 1 1 (3) - (3) The sensitivity analysis used an approach that extrapolates The contributions expected to be paid into defined benefit the effect on the defined benefit obligation of reasonable plans in the subsequent year amount to €28 million. changes in an individual actuarial assumption, leaving the other assumptions unchanged. 293 Consolidated financial statementsThe following table reports expected benefit payments in the coming years for defined benefit plans. Millions of euro Within 1 year In 1-2 years In 2-5 years More than 5 years at Dec. 31, 2018 at Dec. 31, 2017 436 429 1,273 2,017 197 184 591 1,030 37. Provisions for risks and charges - €6,493 million Millions of euro Provision for litigation, risks and other charges: - nuclear decommissioning - retirement, removal and site restoration - litigation - environmental certificates - taxes and duties - other Total Provision for early retirement incentives TOTAL at Dec. 31, 2018 at Dec. 31, 2017 Non-current Current Non-current Current 552 986 1,315 - 409 742 4,004 1,177 5,181 - 71 191 27 23 603 915 397 1,312 538 814 861 - 300 778 3,291 1,530 4,821 - 64 70 29 23 637 823 387 1,210 294 Annual Report 2018Millions of euro Accruals Reversals Utilization at Dec. 31, 2017 Unwinding of interest Change in scope of consolidation Translation adjustment Other changes Reclas- sifications of assets held for sale at Dec. 31, 2018 Provision for litigation, risks and other charges: - nuclear decommissioning 538 - - - - retirement, removal and site restoration - litigation - environmental certificates - taxes and duties - other Total Provision for early retirement incentives TOTAL 878 931 29 323 1,415 4,114 1,917 6,031 21 (16) (30) 214 (184) (112) 27 32 (8) (18) (21) (36) 237 (112) (234) 531 (338) (433) 96 (3) (426) 627 (341) (859) 8 7 56 - 3 55 129 (4) 125 - 1 462 - 41 20 524 - 524 - 6 - 552 (8) (39) - 3 (63) (107) - (107) 206 178 - 84 27 (2) - - - - 501 (2) 1,057 1,506 27 432 1,345 4,919 (6) 495 - (2) 1,574 6,493 Nuclear decommissioning provision Non-nuclear plant retirement and site restoration provision At December 31, 2018, the provision reflected solely the The provision for non-nuclear plant retirement and site res- costs that will be incurred at the time of decommissioning toration represents the present value of the estimated cost of nuclear plants by Endesa, a Spanish public enterprise re- for the retirement and removal of non-nuclear plants where sponsible for such activities in accordance with Royal De- there is a legal or constructive obligation to do so. The provi- cree 1349/2003 and Law 24/2005. Quantification of the sion mainly regards the Endesa Group, Enel Produzione and costs is based on the standard contract between Endesa the companies in South America. and the electricity companies approved by the Ministry for the Economy in September 2001, which regulates the retirement and closing of nuclear power plants. The time horizon envisaged, three years, corresponds to the period from the termination of power generation to the transfer of plant management to Endesa (so-called post-operational costs) and takes into account, among the various assump- tions used to estimate the amount, the quantity of unused nuclear fuel expected at the date of closure of each of the Spanish nuclear plants on the basis of the provisions of the concession agreement. Litigation provision The litigation provision covers contingent liabilities in respect of pending litigation and other disputes. It includes an esti- mate of the potential liability relating to disputes that arose during the period, as well as revised estimates of the poten- tial costs associated with disputes initiated in prior periods. The balance for litigation mainly regards disputes concerning service quality and disputes with employees, end users or suppliers of the companies in Spain (€170 million), Italy (€182 million) and South America (€1,145 million). The increase compared with the previous year, equal to €575 million, mainly reflects the change in the scope of consolida- tion with the acquisition of Enel Distribuição São Paulo and provisions for disputes with employees, partly offset by re- versals and uses, primarily in Iberia, Italy and South America. 295 Consolidated financial statementsProvision for environmental certificates The provision for environmental certificates covers costs in respect of shortfalls in the environmental certificates need for compliance with national or supranational environmental protection requirements and mainly regards Enel Energia. Provision for charges in respect of taxes and duties The provision for charges in respect of taxes and duties re- ports the estimated liability deriving from tax disputes con- cerning direct and indirect taxes. The balance of the pro- vision also includes the provision for current and potential disputes concerning local property tax – whether the Im- posta Comunale sugli Immobili (“ICI”) or the new Imposta Municipale Unica (“IMU”) – in Italy. The Group has taken due account of the criteria introduced with circular 6/2012 of the Public Land Agency (which resolved interpretive is- sues concerning the valuation methods for movable assets considered relevant for property registry purposes, includ- ing certain assets typical to generation plants, such as tur- bines) in estimating the liability for such taxes, both for the purposes of quantifying the probable risk associated with pending litigation and generating a reasonable valuation of probable future charges on positions that have not yet been assessed by Land Agency offices and municipalities. The increase compared with the previous year, equal to €109 million, mainly reflects the change in the scope of consolidation with the acquisition of Enel Distribuição São Paulo, partly offset by reversals and uses, primarily in Spain and Italy. Other provisions Other provisions cover various risks and charges, mainly in connection with regulatory disputes and disputes with lo- cal authorities regarding various duties and fees or other charges. The decrease of €70 million for the year is mainly attrib- utable to the reversal of part of the provision allocated by e-distribuzione for the charges to be paid in relation to excep- tional weather events, to utilizations by Enel Global Trading of the provisions linked to the abandonment of the upstream gas projects in Algeria, to the reversal by Enel Energia of the rebranding provision following the transfer of points of sale from Servizio Elettrico Nazionale to Enel Energia due to the abolition of the regulated market by 2020, which was partly offset by the provision allocated by Servizio Elettrico Nazio- nale following penalty proceedings initiated by the antitrust authority and by the change in scope of consolidation fol- lowing the acquisition of Enel Distribuição São Paulo. Provision for early retirement incentives The provision for early retirement incentives includes the estimated charges related to binding agreements for the voluntary termination of employment contracts in response to organizational needs. The reduction of €343 million for the year reflects, among other factors, uses for incentive provisions established in Spain and Italy in previous years. In Italy, the latter is largely associated with the union-com- pany agreements signed in September 2013 and Decem- ber 2015, implementing, for a number of companies in Italy, the mechanism provided for under Article 4, paragraphs 1-7 ter, of Law 92/2012 (the Fornero Act). The latter agreement envisages the voluntary termination, in Italy, of about 6,100 employees in 2016-2020. In Spain, the provisions regard the expansion, in 2015, of the Acuerdo de Salida Voluntaria (ASV) introduced in Spain in 2014. The ASV mechanism was agreed in Spain in con- nection with Endesa’s restructuring and reorganization plan, which provides for the suspension of the employment con- tract with tacit annual renewal. With regard to that plan, on December 30, 2014, the company had signed an agreement with union representatives in which it undertook to not ex- ercise the option to request a return to work at subsequent annual renewal dates for the employees participating in the mechanism. 296 Annual Report 201838. Other non-current liabilities - €1,901 million Millions of euro Accrued operating expenses and deferred income Other items Total at Dec. 31, 2018 at Dec. 31, 2017 Change 484 1,417 1,901 929 1,074 2,003 (445) 343 (102) -47.9% 31.9% -5.1% The reduction of €445 million in accrued operating expens- The increase in other items mainly refers to payables due es and deferred income is mainly attributable to the reclas- to tax partnerships recognized by the renewable energy sification of deferred income for fees received from cus- companies in North America in the amount of €325 million tomers to liabilities deriving from contracts with customers as a result of the start of operations at the Diamond Vista, in application of IFRS 15. HillTopper, Rattlesnake Creek and Fenner plants. 39. Trade payables - €13,387 million The item amounted to €13,387 million (€12,671 million in More specifically, trade payables falling due in less than 12 2017) and includes payables in respect of electricity supplies, months amounted to €12,718 million (€11,965 million in 2017), fuel, materials, equipment associated with tenders, and other while those falling due in more than 12 months amounted to services. €669 million (€706 million in 2017). 40. Other current financial liabilities - €788 million Millions of euro Deferred financial liabilities Other items Total at Dec. 31, 2018 at Dec. 31, 2017 Change 654 134 788 857 97 954 (203) 37 (166) -23.7% 38.1% -17.4% The decrease in other current financial liabilities is attribut- The other items mainly refer to amounts due for accrued able to the €203 million decrease in deferred financial liabili- interest. ties as a result of a decrease in accrued liabilities on bonds. 297 Consolidated financial statements41. Net financial position and long-term financial receivables and securities - €41,089 million The following table shows the net financial position and long-term financial receivables and securities on the basis of the items on the consolidated balance sheet. Millions of euro Long-term borrowings Short-term borrowings Other current financial payables (1) Current portion of long-term borrowings Other non-current financial assets included in debt Other current financial assets included in debt Cash and cash equivalents Total Notes 43 43 43 26.1 30.1 32 at Dec. 31, 2018 at Dec. 31, 2017 48,983 3,616 28 3,367 (3,272) (5,003) (6,630) 41,089 42,439 1,894 - 7,000 (2,444) (4,458) (7,021) 37,410 Change 6,544 1,722 28 15.4% 90.9% - (3,633) -51.9% (828) (545) 391 3,679 -33.9% -12.2% 5.6% 9.8% (1) Includes current financial payables included under other current financial liabilities. 298 Annual Report 2018 Pursuant to CONSOB instructions of July 28, 2006, the fol- nancial debt as provided for in the presentation methods of lowing table reports the net financial position at December the Enel Group. 31, 2018, and December 31, 2017, reconciled with net fi- Millions of euro Cash and cash equivalents on hand Bank and post office deposits Other investments of liquidity Securities Liquidity Short-term financial receivables Factoring receivables Short-term portion of long-term financial receivables Current financial receivables Short-term bank debt Commercial paper Short-term portion of long-term bank debt Bonds issued (short-term portion) Other borrowings (short-term portion) Other short-term financial payables Total short-term financial debt Net short-term financial position Debt to banks and financing entities Bonds Other borrowings Long-term financial position NET FINANCIAL POSITION as per CONSOB instructions Long-term financial receivables and securities NET FINANCIAL DEBT at Dec. 31, 2018 at Dec. 31, 2017 Change 328 5,531 771 63 6,693 3,418 - 1,522 4,940 (512) (2,393) (1,830) (1,341) (196) (739) (7,011) 4,622 (8,819) (38,633) (1,531) (48,983) (44,361) 3,272 (41,089) 343 6,487 191 69 7,090 3,253 42 1,094 4,389 (249) (889) (1,346) (5,429) (225) (756) (8,894) 2,585 (8,310) (15) (956) 580 (6) (397) 165 (42) 428 551 (263) (1,504) (484) 4,088 29 17 1,883 2,037 (509) -4.4% -14.7% - -8.7% -5.6% 5.1% - 39.1% 12.6% - - -36.0% 75.3% 12.9% 2.2% 21.2% 78.8% -6.1% (32,285) (6,348) -19.7% (1,844) (42,439) (39,854) 2,444 313 17.0% (6,544) -15.4% (4,507) -11.3% 828 (37,410) (3,679) 33.9% -9.8% 299 Consolidated financial statements42. Other current liabilities - €12,107 million Millions of euro Payables due to customers Payables due to institutional market operators Payables due to employees Other tax payables Payables due to social security institutions Contingent considerations Payables for put options granted to minority shareholders Current accrued expenses and deferred income Payables for dividends Liabilities for construction contracts Other Total at Dec. 31, 2018 at Dec. 31, 2017 Change 1,773 3,945 472 1,093 212 109 - 459 1,913 - 2,131 12,107 1,824 4,765 422 1,323 218 56 1 302 1,541 364 1,646 12,462 (51) (820) 50 (230) (6) 53 (1) 157 372 (364) 485 (355) -2.8% -17.2% 11.8% -17.4% -2.8% 94.6% - 52.0% 24.1% - 29.5% -2.8% Payables due to customers include €936 million (€984 mil- whose fair value was determined on the basis of the terms lion at December 31, 2017) in security deposits related to and conditions of the contractual agreements between the amounts received from customers in Italy as part of elec- parties. tricity and gas supply contracts. Following the finalization The change in payables for dividends refers to the increase of the contract, deposits for electricity sales, the use of in the minimum dividend to be paid to shareholders, which which is not restricted in any way, are classified as current went from €0.21 to €0.28 per share. liabilities given that the company does not have an uncon- The increase in other payables mainly relates to the change ditional right to defer repayment beyond 12 months. in scope of consolidation following the acquisition of Enel Payables due to institutional market operators include Distribuição São Paulo. payables arising from the application of equalization Liabilities for construction contracts at December 31, 2018 mechanisms to electricity purchases on the Italian market (in the amount of €326 million) have been reclassified to amounting to €2,546 million (€3,042 million at December liabilities deriving from contracts with customers follow- 31, 2017) and on the Spanish market amounting to €1,131 ing application of the simplified approach allowed under million (€1,399 million at December 31, 2017), and on the IFRS 15. For this reason, the balances at December 31, South American market amounting to €268 million (€324 2017 (€364 million) have not been reclassified. For more in- million at December 31, 2017). formation, see note 25 of the consolidated financial state- Contingent consideration mainly regard a number of share- ments. holdings held primarily by the Group in North America 43. Financial instruments This note provides disclosures necessary for users to assess the significance of financial instruments for the company’s financial position and performance. 300 Annual Report 201843.1 Financial assets by category The following table reports the carrying amount for each showing hedging derivatives and derivatives measured at category of financial asset provided for under IFRS 9, bro- fair value through profit or loss separately. ken down into current and non-current financial assets, Millions of euro Non-current Current Notes at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Financial assets at amortized cost Financial assets at FVOCI Financial assets at fair value through profit or loss Derivative financial assets at FVTPL Other financial assets at FVTPL Financial assets designated upon initial recognition (fair value option) Total financial assets at fair value through profit or loss Derivative financial assets designated as hedging instruments Fair value hedge derivatives Cash flow hedge derivatives Total derivative financial assets designated as hedging instruments TOTAL 43.1.1 43.1.2 43.1.3 43.1.3 43.1.3 43.1.4 43.1.4 4,292 413 31 2,080 - 2,817 438 17 1,478 - 25,268 26,496 72 69 3,163 1,982 - - 16 - 2,111 1,495 3,163 1,998 25 949 974 7,790 23 662 685 5,435 4 747 751 - 327 327 29,254 28,890 For more information on fair value measurement, see note 47 “Assets measured at fair value”. 43.1.1 Financial assets measured at amortized cost The following table reports financial assets measured at amortized cost by nature, broken down into current and non- current financial assets. Millions of euro Non-current Current Notes at Dec. 31, 2018 at Dec. 31, 2017 Notes at Dec. 31, 2018 at Dec. 31, 2017 Cash and cash equivalents Trade receivables 29 Short-term portion of long-term financial receivables Receivables for factoring Cash collateral - 835 - - - - 557 - - - 32 29 30.1 30.1 30.1 Other financial receivables 26.1 2,912 2,059 30.1 Financial assets from service concession arrangements at amortized cost Other financial assets at amortized cost 26 26, 27 Total 345 200 4,292 - 30 201 30, 31 2,817 6,630 12,752 1,522 - 2,559 859 12 934 25,268 7,021 13,972 1,094 42 2,664 589 - 1,114 26,496 301 Consolidated financial statementsImpairment of financial assets at amortized cost Financial assets measured at amortized cost at December 31, 2018 amounted to €29,560 million (€29,313 million at De- cember 31, 2017) and are recognized net of allowances for expected credit losses, which totaled €3,083 million at the end of the year, compared with a balance of €2,402 million at the end of previous year. The Group mainly has the following types of financial assets measured at amortized cost subject to impairment testing: - lifetime ECL, for financial assets for which there has been a significant increase in credit risk or which are credit im- paired (i.e. defaulted based on past due information); > the simplified approach, for trade receivables, contract assets and lease receivables with or without a significant financing component, based on lifetime ECL without tracking changes in credit risk. For more information on assets deriving from contracts with customers, please see note 25 “Current/Non-current contract assets/(liabilities)”. > cash and cash equivalents; > trade receivables; > financial receivables; and > other financial assets. While cash and cash equivalents are also subject to the im- pairment requirements of IFRS 9, the identified impairment loss was immaterial. The expected credit loss (ECL), determined considering prob- ability of default (PD), loss given default (LGD), and exposure at default (EAD), is the difference between all contractual cash flows that are due in accordance with the contract and all cash flows that are expected to be received (i.e., all shortfalls) dis- counted at the original effective interest rate (EIR). For calculating ECL, the Group applies two different approach- es: > the general approach, for financial assets other than trade receivables, contract assets and lease receivables. This approach, based on an assessment of any significant in- crease in credit risk since initial recognition, is performed comparing the PD at origination with PD at the reporting date, at each reporting date. Then, based on the results of the assessment, a loss allowance is recognized based on 12-month ECL or life- time ECL (i.e. staging): - 12-month ECL, for financial assets for which there has not been a significant increase in credit risk since ini- Depending on the nature of the financial assets and the credit risk information available, the assessment of the increase in credit risk may be performed on: > an individual basis, if the receivables are individually sig- nificant and for all receivables which have been individu- ally identified for impairment based on reasonable and supportable information; > a collective basis, if no reasonable and supportable infor- mation is available without undue cost or effort to mea- sure expected credit losses on an individual instrument basis. When there is no reasonable expectation of recovering a fi- nancial asset in its entirety or a portion thereof, the gross car- rying amount of the financial asset shall be reduced. A write-off represents a derecognition event (e.g. the right to cash flows is legally or contractually extinguished, transferred or expired). To measure expected losses, the Group assesses trade re- ceivables and contract assets using the simplified approach both individually (e.g. for governments, authorities, financial counterparties, wholesalers, traders, large enterprises, etc.) and collectively (e.g. for retail customers). The following table reports expected credit losses on finan- cial assets measured at amortized cost on the basis of the general simplified approach. tial recognition; Millions of euro at Dec. 31, 2018 Allowance for expected losses Gross amount Total Gross amount at Dec. 31, 2017 Allowance for expected losses - Total 7,021 2,402 14,529 - - 6,448 1,315 2 2,828 229 24 6,630 13,587 7,852 1,491 7,021 16,931 6,448 1,315 3,083 29,560 31,715 2,402 29,313 Cash and cash equivalents Trade receivables Financial receivables Other financial assets at amortized cost Total 302 6,632 16,415 8,081 1,515 32,643 Annual Report 2018The following table reports changes in the allowance for expected credit losses on financial receivables. Millions of euro Opening balance at Jan. 1, 2017 - IAS 39 Provisions Uses Reversals to profit or loss Other changes Closing balance at Dec. 31, 2017 - IAS 39 Adjustment for IFRS 9 FTA Opening balance at Jan. 1, 2018 - IFRS 9 Provisions Uses Reversals to profit or loss (1) Other changes (2) Closing balance at Dec. 31, 2018 Allowance for 12-month expected losses Allowance for lifetime expected losses - - - - - - 7 7 - - (188) 268 87 - - - - - - 23 23 4 - (2) 117 142 (1) Includes €186 million from the reversal of the impairment loss on the financial receivable generated following the disposal of 50% of Slovak Power Holding. (2) Includes €186 million from the cumulative impairment losses at December 31, 2017 on the financial receivable generated following the disposal of 50% of Slovak Power Holding, previously recognized on the receivable account and reclassified in 2018 to the provision for expected losses. The following table reports changes in the allowance for expected credit losses on trade receivables: Millions of euro Opening balance at Jan. 1, 2017 - IAS 39 Provisions Uses Reversals to profit or loss Other changes Closing balance at Dec. 31, 2017 - IAS 39 Adjustment for IFRS 9 FTA Opening balance at Jan. 1, 2018 - IFRS 9 Provisions Uses Reversals to profit or loss Other changes Closing balance at Dec. 31, 2018 2,028 1,204 (601) (310) 81 2,402 207 2,609 1,367 (897) (281) 30 2,828 303 Consolidated financial statementsThe following table reports changes in the allowance for expected credit losses on other financial assets at amortized cost: Millions of euro Opening balance at Jan. 1, 2017 - IAS 39 Provisions Uses Reversals to profit or loss Other changes Closing balance at Dec. 31, 2017 - IAS 39 Adjustment for IFRS 9 FTA Opening balance at Jan. 1, 2018 - IFRS 9 Provisions Uses Reversals to profit or loss Other changes Closing balance at Dec. 31, 2018 Allowance for lifetime expected losses - - - - - - 15 15 3 - (3) 9 24 Note 44 “Risk management” provides additional information on the exposure to credit risk and expected losses. 43.1.2 Financial assets at fair value through other comprehensive income The following table shows financial assets at fair value through other comprehensive income by nature, broken down into current and non-current financial assets. Millions of euro Non-current Current Equity investments in other entities at FVOCI Securities Total Notes at Dec. 31, 2018 at Dec. 31, 2017 Notes at Dec. 31, 2018 at Dec. 31, 2017 26 26.1 53 360 413 56 382 438 30.1 - 72 72 - 69 69 Changes in financial assets at FVOCI Equity investments in other entities Millions of euro Closing balance at Dec. 31, 2017 - IAS 39 Adjustment for IFRS 9 FTA Opening balance at Jan. 1, 2018 - IFRS 9 Purchases Sales Changes in fair value through OCI Other changes Closing balance at Dec. 31, 2018 Non-current Current 4 (5) (1) 16 - 13 25 53 - - - - - - - - 304 Annual Report 2018Securities at FVOCI Millions of euro Closing balance at Dec. 31, 2017 - IAS 39 Adjustment for IFRS 9 FTA Opening balance at Jan. 1, 2018 - IFRS 9 Purchases Sales Changes in fair value through OCI Reclassifications Other changes Closing balance at Dec. 31, 2018 Non-current Current 382 - 382 93 (45) (3) (64) (3) 360 69 - 69 18 (9) - 64 (70) 72 43.1.3 Financial assets at fair value through profit or loss The following table shows financial assets at fair value through profit or loss by nature, broken down into current and non- current financial assets. Millions of euro Non-current Current Notes at Dec. 31, 2018 at Dec. 31, 2017 Notes at Dec. 31, 2018 at Dec. 31, 2017 Derivatives at FVTPL Equity investments in other entities at FVTPL Financial assets from service concession arrangements at FVTPL 46 26 26 Total 31 10 2,070 2,111 46 30 17 2 1,476 1,495 3,163 1,982 - - - 16 3,163 1,998 43.1.4 Derivative financial assets designated as hedging instruments For more information on derivative financial assets, please see note 46 “Derivatives and hedge accounting”. 305 Consolidated financial statements43.2 Financial liabilities by category The following table shows the carrying amount for each showing hedging derivatives and derivatives measured at category of financial liability provided for under IFRS 9, bro- fair value through profit or loss separately. ken down into current and non-current financial liabilities, Millions of euro Non-current Current Financial liabilities at amortized cost 43.2.1 49,824 43,408 27,567 29,355 Notes at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Financial liabilities at fair value through profit or loss Derivative financial liabilities at FVTPL 43.4 Total financial liabilities at fair value through profit or loss Derivative financial liabilities designated as hedging instruments Fair value hedge derivatives Cash flow hedge derivatives 43.4 43.4 Total derivative financial liabilities designated as hedging instruments TOTAL 34 34 - 2,575 2,575 52,433 21 21 7 2,970 2,977 46,406 3,135 3,135 - 1,208 1,208 31,910 1,980 1,980 6 274 280 31,615 For more information on fair value measurement, please see note 48 “Liabilities measured at fair value”. 43.2.1 Financial liabilities measured at amortized cost The following table shows financial liabilities at amortized cost by nature, broken down into current and non-current finan- cial liabilities. Millions of euro Long-term borrowings Short-term borrowings Trade payables Other financial liabilities Total Non-current Current Notes at Dec. 31, 2018 at Dec. 31, 2017 Notes at Dec. 31, 2018 at Dec. 31, 2017 43.3 48,983 42,439 39 38 - 669 172 - 706 263 49,824 43,408 43.3 43.3 39 42 3,367 3,616 12,718 7,866 27,567 7,000 1,894 11,965 8,496 29,355 306 Annual Report 201843.3 Borrowings 43.3.1 Long-term borrowings (including the portion falling due within 12 months) - €52,350 million The following table reports the carrying amount and fair value market data at the reporting date, including the credit spreads for each category of debt, including the portion falling due of Enel SpA. within 12 months. For listed debt instruments, the fair value is given by official prices, while for unlisted debt instruments, The table reports the situation of long-term borrowings and fair value is determined using valuation techniques appropriate repayment schedules at December 31, 2018, broken down by for each category of financial instrument and the associated type of borrowing and interest rate. Nominal value Carrying amount Current portion Portion due in more than 12 months Fair value Nominal value Carrying amount Current portion at Dec. 31, 2018 at Dec. 31, 2017 Portion due in more than 12 months Changes in carrying amount Fair value Millions of euro Bonds: - listed, fixed rate 23,811 23,099 - listed, floating rate 3,187 3,166 845 305 2,861 3,288 - unlisted, fixed rate 12,860 12,758 - 12,758 12,563 - unlisted, floating rate 951 951 191 760 932 2,942 8,532 1,055 2,926 8,458 1,055 684 2,242 3,201 - 66 8,458 9,257 989 1,051 22,254 25,944 25,862 25,275 4,679 20,596 29,561 (2,176) Total bonds 40,809 39,974 1,341 38,633 42,727 38,391 37,714 5,429 32,285 43,070 Bank borrowings: - fixed rate - floating rate - use of revolving credit lines 1,495 8,987 209 1,486 8,954 209 477 1,009 1,539 1,353 7,601 8,817 - 209 210 1,545 8,146 8 1,533 8,116 7 293 1,240 4,155 1,053 7,063 8,445 - 7 7 Total bank borrowings 10,691 10,649 1,830 8,819 10,566 9,699 9,656 1,346 8,310 12,607 Non-bank borrowings: - fixed rate - floating rate Total non-bank borrowings Total fixed-rate borrowings Total floating-rate borrowings TOTAL 1,569 1,549 197 178 164 32 1,385 1,585 1,884 1,865 146 182 223 204 198 27 1,667 2,149 177 231 (316) (26) 1,766 1,727 196 1,531 1,767 2,107 2,069 225 1,844 2,380 (342) 39,735 38,892 1,486 37,406 41,631 37,823 37,131 5,170 31,961 45,122 1,761 13,531 13,458 53,266 52,350 1,881 3,367 11,577 13,429 12,374 12,308 1,830 10,478 12,935 48,983 55,060 50,197 49,439 7,000 42,439 58,057 1,150 2,911 The balance for bonds is reported net of €898 million in re- reserved for employees 1994-2019”, which the Parent Com- spect of the unlisted floating-rate “Special series of bonds pany holds in portfolio. 307 240 4,300 (104) 2,260 (47) 838 202 993 Consolidated financial statementsThe table below reports long-term financial debt by currency and interest rate. Long-term financial debt by currency and interest rate Millions of euro Carrying amount Nominal value Carrying amount Nominal value Current average nominal interest rate Current effective interest rate at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies 23,388 18,541 4,750 1,543 2,074 403 700 404 247 - 300 24,025 18,720 4,794 1,543 2,114 403 710 404 247 - 306 25,925 13,521 4,786 1,618 1,201 687 465 385 245 233 373 26,449 13,658 4,835 1,618 1,230 688 475 385 245 233 381 2.8% 4.7% 6.1% 7.5% 8.3% 2.1% 6.1% 6.2% 8.1% - 3.3% 4.9% 6.2% 7.5% 8.4% 2.1% 6.1% 6.2% 8.1% - Total non-euro currencies TOTAL 28,962 52,350 29,241 53,266 23,514 49,439 23,748 50,197 Long-term financial debt denominated in currencies other Finance International as well as the increase in debt de- than the euro increased by €5,448 million. The change is nominated in the Brazilian real following the acquisition of largely attributable to new borrowing in US dollars by Enel Enel Distribuição São Paulo in Brazil. Change in the nominal value of long-term debt Millions of euro value Repayments Nominal Change in own bonds Change in scope of consolidation Exchange offer New financing Exchange differences at Dec. 31, 2017 Reclassification from/to assets/ (liabilities) held for sale Nominal value at Dec. 31, 2018 Bonds 38,391 (8,987) (38) Borrowings 11,806 (3,053) - Total financial debt 50,197 (12,040) (38) 771 170 941 - - - 9,809 3,615 13,424 447 (81) 366 416 40,809 - 12,457 416 53,266 Compared with December 31, 2017, the nominal value of More specifically, the main bonds maturing in 2018 included: long-term debt at December 31, 2018 increased by €3,069 > two retail bonds, one fixed-rate and one floating-rate million, the net effect of €13,424 million in new borrow- (€3,000 million) issued by Enel SpA, maturing in Febru- ings, €941 million from the change in the scope of consoli- ary 2018; dation, the reclassification to “Assets/(Liabilities) held for > a fixed-rate bond (€512 million) issued by Enel Finance sale” of €416 million and the impact of adverse exchange International, maturing in April 2018; rate developments in the amount of €366 million, only part- > a fixed-rate bond (€591 million) issued by Enel SpA, ma- ly offset by repayments of €12,040 million. The change in turing in June 2018; the scope of consolidation mainly reflects the increase in > a fixed-rate bond (€544 million) issued by Enel Finance debt following the acquisition of the Brazilian distribution International, maturing in October 2018; company Enel Distribuição São Paulo. > a fixed-rate bond (€311 million) issued by Enel Finance Repayments in 2018 concerned bonds in the amount of International, maturing in December 2018. €8,987 million and borrowings totaling €3,053 million. 308 Annual Report 2018In addition, in May 2018 Enel SpA repurchased €732 million > the equivalent of €102 million in respect of loans of Enel in hybrid bonds it had issued in September 2013. Green Power North America; > the equivalent of €2,020 million in respect of loans of The main repayments of borrowings in the year included companies in South America. the following: > €250 million in respect of subsidized loans of e-distribuz- The main new borrowing carried out in 2018 involved bonds ione and Enel Produzione; in the amount of €9,809 million and borrowings of €3,615 > €68 million in respect of bank borrowings of Endesa, of million. which €12 million in subsidized loans; > €133 million in respect of bank borrowings of Enel Green Power SpA, of which €51 million in subsidized loans; > the equivalent of €54 million in respect of bank borrow- ings of Enel Russia, of which €27 million in subsidized loans; 309 Consolidated financial statementsThe table below shows the main characteristics of financial transactions carried out in 2018. Bonds: Issuer/Borrower Issue/ Grant date Amount in millions of euro Currency Interest rate Interest rate type Maturity Enel Finance International 16.01.2018 1,250 Enel SpA 24.05.2018 Enel SpA 24.05.2018 Enel Chile 12.06.2018 Enel Distribuição São Paulo 13.09.2018 Enel Distribuição São Paulo 13.09.2018 Enel Distribuição São Paulo 13.09.2018 500 750 873 159 314 203 EUR EUR EUR USD 1.13% Fixed rate 16.09.2026 2.50% Fixed rate 24.11.2023 3.38% Fixed rate 24.11.2026 4.88% Fixed rate 12.06.2028 BRL 108.25% CDI Floating rate 13.09.2021 BRL 111% CDI Floating rate 13.09.2023 BRL CDI + 1.45% Floating rate 13.09.2025 Enel Finance International Enel Finance International Enel Finance International 14.09.2018 14.09.2018 1,091 USD 4.25% Fixed rate 14.09.2023 14.09.2018 1,309 USD 4.63% Fixed rate 14.09.2025 Total bonds Bank borrowings: Enel Chile 28.03.2018 Enel Chile 28.03.2018 Enel Chile 28.03.2018 1,091 7,540 83 93 93 USD 4.88% Fixed rate 14.06.2029 CLP TAB + 55 bps Floating rate 12.07.2019 CLP TAB + 55 bps Floating rate 12.07.2019 CLP TAB + 55 bps Floating rate 12.07.2019 e-distribuzione 03.05.2018 200 EUR Endesa 29.05.2018 500 EUR Enel Green Power RSA 31.07.2018 149 ZAR e-distribuzione 19.10.2018 200 EUR Enel X Mobility 20.11.2018 50 EUR Euribor 6M + 42.9 bps Euribor 6M + 21.7 bps CPI RRR + 300 bps Euribor 6M + 34.6 bps Euribor 6M + 33.9 bps Floating rate 03.05.2033 Floating rate 29.05.2030 Floating rate 31.12.2021 Floating rate 19.10.2033 Floating rate 20.11.2028 Total bank borrowings 1,368 The Group’s main long-term financial liabilities are gov- The main covenants regarding bond issues carried out erned by covenants that are commonly adopted in interna- within the framework of the Global/Euro Medium-Term tional business practice. These liabilities primarily regard Notes program of Enel and Enel Finance International NV the bond issues carried out within the framework of the (including the green bonds of Enel Finance International Global/Euro Medium-Term Notes program, issues of sub- NV guaranteed by Enel SpA, which are used to finance ordinated unconvertible hybrid bonds (so-called “hybrid the Group’s so-called eligible green projects) and those bonds”) and loans granted by banks and other financial regarding bonds issued by Enel Finance International NV institutions (including the European Investment Bank and on the US market guaranteed by Enel SpA can be sum- Cassa Depositi e Prestiti SpA). marized as follows: > negative pledge clauses under which the issuer and 310 Annual Report 2018the guarantor may not establish or maintain mortgages, exception of expressly permitted encumbrances; liens or other encumbrances on all or part of its assets or > disposals clauses, under which the borrower and, in revenue to secure certain financial liabilities, unless the some cases, the guarantor may not dispose of their as- same encumbrances are extended equally or pro rata to sets or operations, with the exception of expressly per- the bonds in question; mitted disposals; > pari passu clauses, under which the bonds and the as- > pari passu clauses, under which the payment undertak- sociated security constitute a direct, unconditional and ings of the borrower have the same seniority as its other unsecured obligation of the issuer and the guarantor and unsecured and unsubordinated payment obligations; are issued without preferential rights among them and > change of control clauses, under which the borrower have at least the same seniority as other present and fu- and, in some cases, the guarantor could be required to ture unsubordinated and unsecured bonds of the issuer renegotiate the terms and conditions of the financing or and the guarantor; make compulsory early repayment of the loans granted; > cross-default clauses, under which the occurrence of a > rating clauses, which provide for the borrower or the default event in respect of a specified financial liability guarantor to maintain their rating above a certain speci- (above a threshold level) of the issuer, the guarantor or, fied level; in some cases, “significant” subsidiaries constitutes a > cross-default clauses, under which the occurrence of a default in respect of the liabilities in question, which be- default event in respect of a specified financial liability come immediately repayable. (above a threshold level) of the issuer or, in some cases, the guarantor constitutes a default in respect of the liabil- The main covenants covering Enel’s hybrid bonds can be ities in question, which become immediately repayable. summarized as follows: In some cases the covenants are also binding for the sig- > subordination clauses, under which each hybrid bond is nificant companies or subsidiaries of the obligated parties. subordinate to all other bonds issued by the company All the financial borrowings considered specify “events of and has the same seniority with all other hybrid financial default” typical of international business practice, such as, instruments issued, being senior only to equity instru- for example, insolvency, bankruptcy proceedings or the en- ments; tity ceases trading. > prohibition on mergers with other companies, the sale In addition, the guarantees issued by Enel in the interest of or leasing of all or a substantial part of the company’s e-distribuzione SpA for certain loans to e-distribuzione SpA assets to another company, unless the latter succeeds in from Cassa Depositi e Prestiti SpA require that at the end all obligations of the issuer. of each six-month measurement period Enel’s net consoli- dated financial debt shall not exceed 4.5 times annual con- The main covenants envisaged in the loan contracts of solidated EBITDA. Enel and Enel Finance International NV and the other Group Finally, the debt of Enel Américas SA, Enel Chile SA and companies can be summarized as follows: the other South American subsidiaries (notably Enel Gen- > negative pledge clauses, under which the borrower and, eración Chile SA) contain covenants and events of default in some cases, the guarantor are subject to limitations on typical of international business practice, which had all the establishment of mortgages, liens or other encum- been complied with as at December 31, 2018. brances on all or part of their respective assets, with the 311 Consolidated financial statementsThe following table reports the impact on gross long-term debt of hedges established to mitigate exchange risk. Hedged long-term financial debt by currency Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Initial debt structure l Impact of hedge Debt structure after hedging Initial debt structure Initial debt structure l Impact of hedge Debt structure after hedging Carrying amount Nominal amount 25,925 13,521 4,786 1,618 1,201 687 465 385 245 233 373 23,514 49,439 26,449 13,658 4,835 1,618 1,230 688 475 385 245 233 381 23,748 50,197 % 52.7% 27.2% 9.6% 3.2% 2.5% 1.4% 0.9% 0.8% 0.5% 0.5% 0.7% 47.3% 100.0% 15,144 (10,577) (4,835) 29 977 (688) 100 (233) 83 - - - (15,144) 41,593 3,081 1,647 2,207 - - - 475 385 345 464 8,604 50,197 % 82.9% 6.1% - - - 3.3% 4.4% 0.9% 0.8% 0.7% 0.9% 17.1% 100.0% Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies Total non-euro currencies TOTAL Carrying amount Nominal amount 23,388 18,541 4,750 1,543 2,074 403 700 404 247 - 300 24,025 18,720 4,794 1,543 2,114 403 710 404 247 - 306 % 45.0% 35.1% 9.0% 2.9% 4.0% 0.8% 1.3% 0.8% 0.5% - 0.6% 18,901 (15,064) (4,794) - 1,207 (403) - - 73 - 80 42,926 3,656 - 1,543 3,321 - 710 404 320 - 386 % 80.6% 6.9% - 2.9% 6.2% - 1.3% 0.8% 0.6% - 0.7% 28,962 52,350 29,241 53,266 55.0% 100.0% (18,901) - 10,340 53,266 19.4% 100.0% The amount of floating-rate debt that is not hedged against the income statement (raising borrowing costs) in the interest rate risk is the main risk factor that could impact event of an increase in market interest rates. Millions of euro Floating rate Fixed rate Total 2018 2017 Pre-hedge % Post-hedge % Pre-hedge % Post hedge % 17,175 30.2% 12,983 22.8% 14,268 27.4% 11,358 21.8% 39,735 69.8% 43,927 77.2% 37,823 72.6% 40,733 78.2% 56,910 56,910 52,091 52,091 At December 31, 2018, 30.2% of financial debt was float- ment purposes but ineligible for hedge accounting, 77% of ing rate (27.4% at December 31, 2017). Taking account of net financial debt was hedged (78% hedged at December hedges of interest rates considered effective pursuant to 31, 2017). the IFRS-EU, 22.8% of net financial debt (21.8% at De- cember 31, 2017) was exposed to interest rate risk. Includ- These results are in line with the limits established in the ing interest rate derivatives treated as hedges for manage- risk management policy. 312 Annual Report 2018The following table reports the impact on gross long-term debt of hedges established to mitigate exchange risk. Hedged long-term financial debt by currency Millions of euro Euro US dollar Pound sterling Colombian peso Brazilian real Swiss franc Chilean peso/UF Peruvian sol Russian ruble Japanese yen Other currencies Total non-euro currencies TOTAL 23,388 18,541 4,750 1,543 2,074 403 700 404 247 - 300 24,025 18,720 4,794 1,543 2,114 403 710 404 247 - 306 % 45.0% 35.1% 9.0% 2.9% 4.0% 0.8% 1.3% 0.8% 0.5% - 0.6% 18,901 (15,064) (4,794) 1,207 (403) - - - - - 73 80 42,926 3,656 1,543 3,321 - - - 710 404 320 386 10,340 53,266 % 80.6% 6.9% - - - 2.9% 6.2% 1.3% 0.8% 0.6% 0.7% 19.4% 100.0% 28,962 52,350 29,241 53,266 55.0% 100.0% (18,901) at Dec. 31, 2018 at Dec. 31, 2017 Initial debt structure l Impact of hedge hedging Initial debt structure Initial debt structure l Impact of hedge Debt structure after Debt structure after hedging Carrying amount Nominal amount Carrying amount Nominal amount 25,925 13,521 4,786 1,618 1,201 687 465 385 245 233 373 23,514 49,439 26,449 13,658 4,835 1,618 1,230 688 475 385 245 233 381 23,748 50,197 % 52.7% 27.2% 9.6% 3.2% 2.5% 1.4% 0.9% 0.8% 0.5% 0.5% 0.7% 47.3% 100.0% 15,144 (10,577) (4,835) 29 977 (688) - - 100 (233) 83 41,593 3,081 - 1,647 2,207 - 475 385 345 - 464 % 82.9% 6.1% - 3.3% 4.4% - 0.9% 0.8% 0.7% - 0.9% (15,144) - 8,604 50,197 17.1% 100.0% 313 Consolidated financial statements43.3.2 Short-term borrowings - €3,616 million At December 31, 2018 short-term borrowings amounted to €3,616 million, an increase of €1,722 million on December 31, 2017. They break down as follows. Millions of euro Short-term bank borrowings Commercial paper Cash collateral on derivatives and other financing Other short-term borrowings (1) Short-term borrowings at Dec. 31, 2018 at Dec. 31, 2017 512 2,393 301 410 3,616 249 889 449 307 1,894 Change 263 1,504 (148) 103 1,722 (1) Does not include current financial debt included in other current financial liabilities. Short-term bank borrowings amounted to €512 million. > €6,000 million of Enel Finance International guaranteed Commercial paper amounted to €2,393 million, issued by by Enel SpA; Enel Finance International, International Endesa BV and a > €3,000 million of International Endesa BV; number of South American companies. > $400 million (equivalent to €349 million) of Enel Américas The main commercial paper programs include: and Enel Generación Chile. 43.4 Derivative financial liabilities For more information on derivative financial liabilities, please see note 46 “Derivatives and hedge accounting”. 43.5 Net gains and losses The following table shows net gains and losses by category of financial instruments, excluding derivatives: Millions of euro Financial assets at amortized cost Financial assets at FVOCI Equity investments at FVOCI Other financial assets at FVOCI (1) Total financial assets at FVOCI Financial assets at FVTPL Financial assets at FVTPL Financial assets designated upon initial recognition (fair value option) Total financial assets at FVTPL 10 4 14 385 - 385 Financial liabilities measured at amortized cost (3,545) Financial liabilities at FVTPL Financial liabilities held for trading Financial liabilities designated upon initial recognition (fair value option) Total financial liabilities at FVTPL - - - 2018 2017 Net gains/ (losses) (409) Of which impairment/reversal of impairment Net gains/ (losses) Of which impairment/reversal of impairment (1,101) (701) (870) - - - 188 - 188 - - - - - 82 82 - - - (1,054) 1 - 1 - - - - - - - - - - (1) The value of other assets at FVOCI for 2017 includes income from assets in respect of service concession arrangements that were classified as assets available for sale, while in 2018, following application of IFRS 9, those assets were mainly classified as assets at FVTPL. For more details on net gains and losses on derivatives, please see note 11 “Net financial income/(expense) from deriva- tives”. 314 Annual Report 201844. Risk management Financial risk management governance and objectives As part of its operations, the Enel Group is exposed to a variety of financial risks, notably market risks (including in- terest rate risk, exchange risk and commodity risk), credit risk and liquidity risk. As noted in the section “Main risks and uncertainties”, the Group’s governance arrangements for financial risks include internal committees and the establishment of spe- cific policies and operational limits. Enel’s primary objec- tive is to mitigate financial risks appropriately so that they do not give rise to unexpected changes in results. of translation risk (connected with consolidation of the accounts). This objective is achieved at the source of the risk, through the diversification of both the nature of the financial instruments and the sources of revenue, and by modifying the risk profile of specific exposures with derivatives entered into on OTC markets or with specific commercial agreements. The risk of fluctuations in commodity prices is generated by the volatility of those prices and existing structural cor- relations between them, which creates uncertainty about the margin on transactions in fuels and energy. Price de- velopments are observed and analyzed in order to develop the Group’s industrial, financial and commercial strategies Market risks and policies. Market risks are mainly composed of interest rate risk, exchange risk and commodity price risk. The sources of Enel’s exposure to market risks have not changed since the previous year. Interest rate risk is primarily generated by the use of finan- cial instruments. The main financial liabilities held by the Group include bonds, bank borrowings, other borrowings, commercial paper, derivatives, cash deposits received to secure commercial or derivatives transactions (guaran- tees received, cash collateral), liabilities for construction contracts and trade payables. The main financial assets held by the Group include financial receivables, factor- ing receivables, derivatives, cash deposits made to se- cure commercial or derivatives transactions (guarantees pledged, cash collateral), cash (and cash equivalents), re- ceivables for construction contracts and trade receivables. The main purpose of those financial instruments is to sup- port the operations of the Group. For more details, please see note 43 “Financial instruments” of the consolidated financial statements. Exchange risk is generated by transactions in fuels and power, industrial investments, dividends from investees, commercial transactions and the use of financial instru- ments. The consolidated financial statements of the Group are also exposed to translation risk. The Group’s policies for managing market risks provide for the mitigation of the effects on performance of changes in interest rates and exchange rates with the exclusion In order to contain the effects of such fluctuations and stabilize margins, in accordance with the Group’s policies and operational limits established with the risk gover- nance arrangements, Enel develops and plans strategies that impact the various stages of the industrial process associated with the production and sale of electricity and gas (such as advance sourcing and long-term commercial agreements) and risk mitigation plans and techniques for hedging risks with derivatives. As part of its governance of market risks, Enel regularly monitors the size of the OTC derivatives portfolio in rela- tion to the threshold values set by regulators for the ac- tivation of clearing obligations (EMIR - European Market Infrastructure Regulation 648/2012 of the European Parlia- ment and of the Council). During 2018, no overshoot of those threshold values was detected. Interest rate risk Interest rate risk primarily manifests itself as unexpected changes in charges on financial liabilities, if indexed to floating rates and/or exposed to the uncertainty of finan- cial terms and conditions in negotiating new debt instru- ments, or as an unexpected change in the value of finan- cial instruments measured at fair value (such as fixed-rate debt). The Enel Group mainly manages interest rate risk through the definition of an optimal financial structure, with the 315 Consolidated financial statementsdual goal of stabilizing borrowing costs and containing the Floating-to-floating interest rate swaps transform the in- cost of funds. This goal is pursued through the diversification dexing criteria for floating-rate financial liabilities. of the portfolio of financial liabilities by contract type, maturi- Some structured borrowings have multi-stage cash flows ty and interest rate, and modifying the risk profile of specific hedged by interest rate swaps that at the reporting date, exposures using OTC derivatives, mainly interest rate swaps and for a limited time, provide for the exchange of fixed- and interest rate options. The term of such derivatives does rate interest flows. not exceed the maturity of the underlying financial liability, so Interest rate options involve the exchange of interest dif- that any change in the fair value and/or expected cash flows ferences calculated on a notional principal amount once of such contracts is offset by a corresponding change in the certain thresholds (strike prices) are reached. These fair value and/or cash flows of the hedged position. thresholds specify the effective maximum rate (cap) or Proxy hedging techniques may be used in a number of re- the minimum rate (floor) to which the synthetic financial sidual circumstances, when the hedging instruments for the instrument will be indexed as a result of the hedge. Cer- risk factors are not available on the market or are not suffi- tain hedging strategies provide for the use of combina- ciently liquid. For the purpose of EMIR compliance, in order tions of options (collars) that establish the minimum and to test the actual effectiveness of the hedging techniques maximum rates at the same time. In this case, the strike adopted, the Group subjects its hedge portfolios to periodic prices are normally set so that no premium is paid on the statistical assessment. contract (zero cost collars). Such contracts are normally used when the fixed inter- Using interest rate swaps, the Enel Group agrees with the est rate that can be obtained in an interest rate swap is counterparty to periodically exchange floating-rate interest considered too high with respect to market expectations flows with fixed-rate flows, both calculated on the same no- for future interest rate developments. In addition, inter- tional principal amount. est rate options are also considered most appropriate in Floating-to-fixed interest rate swaps transform floating-rate periods of greater uncertainty about future interest rate financial liabilities into fixed-rate liabilities, thereby neutraliz- developments because they make it possible to benefit ing the exposure of cash flows to changes in interest rates. from any decrease in interest rates. Fixed-to-floating interest rate swaps transform fixed-rate fi- nancial liabilities into floating-rate liabilities, thereby neutral- The following table reports the notional amount of interest izing the exposure of their fair value to changes in interest rate derivatives at December 31, 2018 and December 31, rates. Millions of euro Floating-to-fixed interest rate swaps Fixed-to-floating interest rate swaps Fixed-to-fixed interest rate swaps Floating-to-floating interest rate swaps Interest rate options Total 2017 broken down by type of contract: Notional amount 2018 10,032 154 - 165 50 2017 11,166 884 - 165 50 10,401 12,265 For more details on interest rate derivatives, please see note 46 “Derivatives and hedge accounting”. 316 Annual Report 2018Interest rate risk sensitivity analysis Enel analyzes the sensitivity of its exposure by estimating the effects of a change in interest rates on the portfolio of financial instruments. More specifically, sensitivity analysis measures the poten- tial impact on profit or loss and on equity of market sce- narios that would cause a change in the fair value of deriva- tives or in the financial expense associated with unhedged These market scenarios are obtained by simulating parallel increases and decreases in the yield curve as at the report- ing date. There were no changes introduced in the methods and as- sumptions used in the sensitivity analysis compared with the previous year. With all other variables held constant, the Group’s profit before tax would be affected by a change in the level of interest rates as follows. gross debt. Millions of euro Change in financial expense on gross long-term floating-rate debt after hedging Change in fair value of derivatives classified as non-hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges 2018 Pre-tax impact on profit or loss Pre-tax impact on equity Basis points Increase Decrease Increase Decrease 25 25 25 25 23 6 - (1) (23) (6) - 1 - - 108 - - - (108) - Exchange risk Exchange risk mainly manifests itself as unexpected Cross currency interest rate swaps are used to transform a changes in the financial statement items associated with long-term financial liability denominated in currency other transactions denominated in a currency other than the cur- than the currency of account into an equivalent liability in rency of account. The Group’s exposure is connected with the currency of account. the purchase or sale of fuels and power, investments (cash Currency forwards are contracts in which the counterpar- flows for capitalized costs), dividends and the purchase or ties agree to exchange principal amounts denominated sale of equity investments, commercial transactions and in different currencies at a specified future date and ex- financial assets and liabilities. change rate (the strike). Such contracts may call for the In order to minimize the exposure to exchange risk, Enel actual exchange of the two principal amounts (deliverable implements diversified revenue and cost sources geo- forwards) or payment of the difference generated by dif- graphically, and uses indexing mechanisms in commercial ferences between the strike exchange rate and the prevail- contracts. Enel also uses various types of derivative, typi- ing exchange rate at maturity (non-deliverable forwards). In cally on the OTC market. the latter case, the strike rate and/or the spot rate may be The derivatives in the Group’s portfolio of financial instru- determined as averages of the rates observed in a given ments include cross currency interest rate swaps, currency period. forwards and currency swaps. The term of such contracts Currency swaps are contracts in which the counterparties does not exceed the maturity of the underlying instru- enter into two transactions of the opposite sign at different ment, so that any change in the fair value and/or expected future dates (normally one spot, the other forward) that cash flows of such instruments offsets the corresponding provide for the exchange of principal denominated in dif- change in the fair value and/or cash flows of the hedged ferent currencies. position. 317 Consolidated financial statementsThe following table reports the notional amount of transactions outstanding at December 31, 2018 and December 31, 2017, broken down by type of hedged item. Millions of euro Notional amount Cross currency interest rate swaps (CCIRSs) hedging debt denominated in currencies other than the euro Currency forwards hedging exchange risk on commodities Currency forwards hedging future cash flows in currencies other than the euro Currency swaps hedging commercial paper Currency forwards hedging loans Other currency forwards Total 2018 24,712 4,924 5,386 - - 1,584 36,606 2017 19,004 3,526 6,319 - - 300 29,149 More specifically, these include: count connected with the purchase of investment goods > CCIRSs with a notional amount of €24,712 million to hedge in the renewables and infrastructure and networks sectors the exchange risk on debt denominated in currencies other (new generation digital meters), on operating expenses for than the euro (€19,004 million at December 31, 2017); the supply of cloud services and on revenue from the sale > currency forwards with a total notional amount of €10,310 of renewable energy. million used to hedge the exchange risk associated with purchases and sales of natural gas, purchases of fuel and At December 31, 2018, 55% (47% at December 31, 2017) of expected cash flows in currencies other than the euro Group long-term debt was denominated in currencies other (€9,845 million at December 31, 2017); than the euro. > other currency forwards including OTC derivatives trans- Taking account of hedges of exchange risk, the percentage actions carried out to mitigate exchange risk on expected of debt not hedged against that risk amounted to 19% at De- cash flows in currencies other than the currency of ac- cember 31, 2018 (17% at December 31, 2017). Exchange risk sensitivity analysis The Group analyses the sensitivity of its exposure by esti- These scenarios are obtained by simulating the appreciation/ depreciation of the euro against all of the currencies com- mating the effects of a change in exchange rates on the port- pared with the value observed as at the reporting date. folio of financial instruments. More specifically, sensitivity There were no changes in the methods or assumptions used analysis measures the potential impact on profit or loss and in the sensitivity analysis compared with the previous year. equity of market scenarios that would cause a change in the With all other variables held constant, the profit before tax fair value of derivatives or in the financial expense associated would be affected by changes in exchange rates as follows. with unhedged gross medium/long-term debt. Millions of euro 2018 Pre-tax impact on profit or loss Pre-tax impact on equity Exchange rate Increase Decrease Increase Decrease Change in financial expense on gross long-term debt denominated in currencies other than the euro after hedging Change in fair value of derivatives classified as non- hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges 10% 10% 10% 10% - 493 - 8 - (600) - (9) - - - - (2,712) 3,311 - - 318 Annual Report 2018Commodity risk The risk of fluctuations in the price of commodities is struments for the specific risk factors generating the expo- mainly associated with the purchase and sale of electricity sure are not available on the market or are not sufficiently and fuels at variable prices (e.g. indexed bilateral contracts, liquid. In addition, Enel uses portfolio hedging techniques to transactions on the spot market, etc.). assess opportunities for netting intercompany exposures. The exposures on indexed contracts are quantified by The Group mainly uses plain vanilla derivatives for hedging breaking down the contracts that generate exposure into (more specifically, forwards, swaps, options on commodi- the underlying risk factors. ties, futures, contracts for differences). As regards electricity sold by the Group, Enel mainly uses Enel also engages in proprietary trading in order to main- fixed-price contracts in the form of bilateral physical con- tain a presence in the Group’s reference energy commodity tracts (PPAs) and financial contracts (e.g. contracts for markets. These operations consist in taking on exposures differences, VPP contracts, etc.) in which differences are paid to the counterparty if the market electricity price ex- in energy commodities (oil products, gas, coal, CO2 certifi- cates and electricity) using financial derivatives and physi- ceeds the strike price and to Enel in the opposite case. The cal contracts traded on regulated and OTC markets, opti- residual exposure in respect of the sale of energy on the mizing profits through transactions carried out on the basis spot market not hedged with such contracts is aggregated of expected market developments. by uniform risk factors that can be managed with hedging The following table reports the notional amount of out- transactions on the market. Proxy hedging techniques may standing transactions at December 31, 2018 and Decem- be used for the industrial portfolios when the hedging in- ber 31, 2017, broken down by type of instrument. Millions of euro Forward and futures contracts Swaps Options Embedded derivatives Total Notional amount 2017 24,824 4,584 422 - 29,830 2018 41,157 6,346 549 - 48,052 For more details, please see note 46 “Derivatives and hedge accounting”. Commodity risk sensitivity analysis The following table presents the results of the analysis of sensitivity to a reasonably possible change in the commodity prices underlying the valuation model used in the scenario at the same date, with all other variables held constant. The impact on pre-tax profit of shifts of +10% and -10% in the price curve for the main commodities that make up the fuel scenario and the basket of formulas used in the con- tracts is mainly attributable to the change in the price of gas and petroleum products and, to a lesser extent, of electricity and CO2. The impact on equity of the same shifts in the price curve is primarily due to changes in the price of electricity and, to a lesser extent, coal and CO2. Millions of euro 2018 Pre-tax impact on profit or loss Pre-tax impact on equity Commodity price Increase Decrease Increase Decrease Change in the fair value of trading derivatives on commodities Change in the fair value of derivatives on commodities designated as hedging instruments 10% 10% (114) - 101 - - 70 - (60) 319 Consolidated financial statementsCredit risk The Group’s commercial, commodity and financial opera- Global Business Lines and at the consolidated level – in tions expose it to credit risk, i.e. the possibility that a dete- measuring commercial credit exposures in order to prompt- rioration in the creditworthiness of a counterparty has an ly identify any deterioration in the quality of outstanding re- adverse impact on the expected value of the creditor posi- ceivables and any mitigation actions to be taken. tion or, for trade payables only, increase average collection The policy for managing credit risk associated with com- times. mercial activities provides for a preliminary assessment of Accordingly, the exposure to credit risk is attributable to the the creditworthiness of counterparties and the adoption of following types of operations: mitigation instruments, such as obtaining collateral or unse- > the sale and distribution of electricity and gas in free and cured guarantees. regulated markets and the supply of goods and services In addition, the Group undertakes transactions to assign re- (trade receivables); ceivables without recourse, which results in the complete > trading activities that involve the physical exchange of derecognition of the corresponding assets involved in the assets or transactions in financial instruments (the com- assignment, as the risks and rewards associated with them modity portfolio); have been transferred. > trading in derivatives, bank deposits and, more generally, Finally, with regard to financial and commodity transac- financial instruments (the financial portfolio). tions, risk mitigation is pursued with a uniform system In order to minimize credit risk, credit exposures are man- for assessing counterparties at the Group level, including aged at the Region/Country/Global Business Line level by implementation at the level of Regions/Countries/Global different units, thereby ensuring the necessary segregation Business Lines, as well as with the adoption of specific of risk management and control activities. Monitoring of standardized contractual frameworks that contain risk miti- the consolidated exposure is carried out by Enel SpA. gation clauses (e.g. netting arrangements) and possibly the In addition, at the Group level the policy provides for the exchange of cash collateral. use of uniform criteria – in all the main Regions/Countries/ at Dec. 31, 2018 Basis for recognition of expected loss allowance 12 m ECL Lifetime ECL Average loss rate (PD*LGD) 0.3% 44.2% Lifetime ECL 100.0% Gross carrying amount Expected loss allowance Net value 7,682 344 55 8,081 22 152 55 229 7,660 192 - 7,852 Financial receivables Millions of euro Staging Performing Underperforming Non-performing Total 320 Annual Report 2018Assets deriving from contracts with customers, trade receivables and other receivables: individual measurement Millions of euro Contract assets Trade receivables Trade receivables not past due Trade receivables past due: - 1-30 days - 31-60 days - 61-90 days - 91-120 days - 121-150 days - 151-180 days - more than 180 days (credit impaired) Total trade receivables Other receivables Other receivables not past due Other receivables past due: - 1-30 days - 31-60 days - 61-90 days - 91-120 days - 121-150 days - 151-180 days - more than 180 days (credit impaired) Total other receivables TOTAL at Dec. 31, 2018 Average loss rate (PD*LGD) Gross carrying amount Expected loss allowance - 37 0.9% 4,349 4.6% 13.0% 6.7% 15.6% 4.3% 20.3% 51.6% 1.1% - - - - - - - 368 77 60 45 46 79 1,088 6,112 999 83 - - - - - - - 37 17 10 4 7 2 16 561 654 11 - - - - - - - Net value 37 4,312 351 67 56 38 44 63 527 5,458 988 83 - - - - - - 1,082 7,231 11 665 1,071 6,566 321 Consolidated financial statementsAssets deriving from contracts with customers, trade receivables and other receivables: collective measurement at Dec. 31, 2018 Average loss rate (PD*LGD) Gross carrying amount Expected loss allowance 0.2% 445 2.3% 3,988 1.9% 12.0% 18.7% 24.8% 22.5% 29.3% 56.9% 3.3% - - - - - - - 2,289 209 139 125 111 92 3,350 10,303 393 40 - - - - - - 1 91 44 25 26 31 25 27 1,905 2,174 13 - - - - - - - Net value 444 3,897 2,245 184 113 94 86 65 1,445 8,129 380 40 - - - - - - 433 11,181 13 2,188 420 8,993 Millions of euro Contract assets Trade receivables Trade receivables not past due Trade receivables past due: - 1-30 days - 31-60 days - 61-90 days - 91-120 days - 121-150 days - 151-180 days - more than 180 days (credit impaired) Total trade receivables Other receivables Other receivables not past due Other receivables past due: - 1-30 days - 31-60 days - 61-90 days - 91-120 days - 121-150 days - 151-180 days - more than 180 days (credit impaired) Total other receivables TOTAL 322 Annual Report 2018Liquidity risk Liquidity risk manifests itself as uncertainty about the able committed credit lines and a portfolio of highly liquid Group’s ability to discharge its obligations associated with assets. financial liabilities that are settled by delivering cash or an- In the long term, liquidity risk is mitigated by maintaining a other financial asset. balanced maturity profile for our debt, access to a range of Enel manages liquidity risk by implementing measures to sources of funding on different markets, in different curren- ensure an appropriate level of liquid financial resources, cies and with diverse counterparties. minimizing the associated opportunity cost and maintain- The mitigation of liquidity risk enables the Group to main- ing a balanced debt structure in terms of its maturity profile tain a credit rating that ensures access to the capital market and funding sources. and limits the cost of funds, with a positive impact on its In the short term, liquidity risk is mitigated by maintaining performance and financial position. an appropriate level of unconditionally available resources, The Group holds the following undrawn lines of credit. including liquidity on hand and short-term deposits, avail- Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Committed credit lines Uncommitted credit lines Commercial paper Total Expiring within one year Expiring beyond one year Expiring within one year Expiring beyond one year 750 355 6,990 8,095 13,758 - - 13,758 245 360 7,464 8,069 13,761 1 - 13,762 Maturity analysis The table below summarizes the maturity profile of the Group’s long-term debt. Millions of euro Maturing in Bonds: - listed, fixed rate - listed, floating rate - unlisted, fixed rate - unlisted, floating rate Total bonds Bank borrowings: - fixed rate - floating rate - use of revolving credit lines Total bank borrowings Non-bank borrowings: - fixed rate - floating rate Total non-bank borrowings TOTAL Less than 3 months From 3 months to 1 year 2020 2021 2022 2023 Beyond 55 106 - 135 296 82 188 - 270 42 7 49 615 790 199 - 56 1,928 283 - 27 1,309 355 - 111 1,045 2,238 1,775 395 1,165 - 1,560 122 25 147 397 1,381 73 1,851 176 37 213 244 1,175 136 1,555 165 31 196 2,250 465 1,787 97 4,599 75 629 - 704 169 27 196 2,801 567 2,172 97 5,637 42 636 - 678 176 20 196 13,966 1,191 8,799 428 24,384 251 3,780 - 4,031 699 31 730 2,752 4,302 3,526 5,499 6,511 29,145 323 Consolidated financial statementsCommitments to purchase commodities In conducting its business, the Enel Group has entered into The following table reports the undiscounted cash flows contracts to purchase specified quantities of commodities associated with outstanding commitments at December at a certain future date for its own use, which qualify for the 31, 2018. own use exemption provided for under IAS 39. Millions of euro Commitments to purchase commodities: - electricity - fuels Total at Dec. 31, 2018 2015-2019 2020-2024 2025-2029 Beyond 109,638 43,668 153,306 27,358 26,536 53,894 20,282 10,969 31,251 19,892 4,398 24,290 42,106 1,765 43,871 45. Offsetting financial assets and financial liabilities At December 31, 2018, the Group did not hold offset positions in assets and liabilities, as it is not the Enel Group’s policy to settle financial assets and liabilities on a net basis. 46. Derivatives and hedge accounting The following tables show the notional amount and the fair on the basis of which cash flows are exchanged. This value of derivative financial assets and derivative financial amount can be expressed as a value or a quantity (for ex- liabilities eligible for hedge accounting or measured a FVT- ample tons, converted into euros by multiplying the notion- PL, classified on the basis of the type of hedge relationship al amount by the agreed price). Amounts denominated in and the hedged risk, broken down into current and non- currencies other than the euro are converted at the official current instruments. year end exchange rates provided by the World Markets Re- The notional amount of a derivative contract is the amount uters (WMR) Company. Millions of euro Non-current Current Notional Fair value Notional Fair value at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Fair value hedge derivatives: - on interest rates - on exchange rates Total Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Total Trading derivatives: - on interest rates - on exchange rates - on commodities Total TOTAL DERIVATIVE FINANCIAL ASSETS 324 12 171 183 404 8,318 1,126 9,848 50 197 261 508 827 - 827 780 3,644 367 4,791 394 134 177 705 6 19 25 12 675 262 949 2 4 25 31 23 - 23 5 594 63 662 3 5 9 17 15 66 81 427 4,689 1,428 6,544 - 4,057 20,553 24,610 - - - 127 1,130 1,975 3,232 - 4,442 12,909 17,351 1 3 4 1 252 494 747 - 51 3,112 3,163 - - - 1 45 281 327 - 80 1,902 1,982 10,539 6,323 1,005 702 31,235 20,583 3,914 2,309 Annual Report 2018Millions of euro Non-current Current Notional Fair value Notional Fair value at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Fair value hedge derivatives: - on interest rates - on exchange rates - on commodities Total Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Total Trading derivatives: - on interest rates - on exchange rates - on commodities Total TOTAL DERIVATIVE FINANCIAL LIABILITIES - - - - - 63 - 63 8,605 13,025 656 9,899 15,756 368 22,286 26,023 478 191 133 802 88 326 18 432 - - - - 605 1,803 167 2,575 17 3 14 34 - 7 - 7 556 2,375 39 2,970 9 10 2 21 - - - - 272 2,791 2,050 5,113 138 3,101 21,845 25,084 - 35 - 35 50 2,096 1,114 3,260 100 1,474 12,902 14,476 - - - - 1 348 859 1,208 66 33 3,036 3,135 - 6 - 6 1 114 159 274 65 38 1,877 1,980 23,088 26,518 2,609 2,998 30,197 17,771 4,343 2,260 46.1 Derivatives designated as hedging instruments Derivatives are initially recognized at fair value, on the > fair value hedge; or trade date of the contract and are subsequently remea- > cash flow hedge. sured at their fair value. The method of recognizing the For more details about the nature and the extent of risks resulting gain or loss depends on whether the derivative is arising from financial instruments to which the Group is ex- designated as a hedging instrument, and if so, the nature posed, please refer the note 44 “Risk management”. of the item being hedged. To be effective a hedging relationship shall meet all of the Hedge accounting is applied to derivatives entered into following criteria: in order to reduce risks such as interest rate risk, foreign > existence of an economic relationship between hedging exchange rate risk, commodity price risk and net invest- instrument and hedged item; ments in foreign operations when all the criteria provided > the effect of credit risk shall not dominate the value chang- by IFRS 9 are met. es resulting from the economic relationship; At the inception of the transaction, the Group docu- > the hedge ratio defined at initial designation shall be equal ments the relationship between hedging instruments to the one used for risk management purposes (i.e. same and hedged items, as well as its risk management objec- quantity of the hedged item that the entity actually hedges tives and strategy. The Group also documents its assess- and the quantity of the hedging instrument that the entity ment, both at hedge inception and on an ongoing basis, actually uses to hedge the quantity of the hedged item). of whether hedging instruments are highly effective in Based on the IFRS 9 requirements, the existence of an offsetting changes in fair values or cash flows of hedged economic relationship is evaluated by the Group through a items. qualitative assessment or a quantitative computation, de- For cash flow hedges of forecast transactions designated pending of the following circumstances: as hedged items, the Group assesses and documents > if the underlying risk of the hedging instrument and the that they are highly probable and present an exposure to hedged item is the same, the existence of an economic changes in cash flows that affect profit or loss. relationship will be provided through a qualitative analysis; Depending on the nature of the risks exposure, the Group > on the other hand, if the underling risk of the hedging in- designates derivatives as either: strument and the hedged item is not the same, the exis- 325 Consolidated financial statementstence of the economic relationship will be demonstrated > quantity or notional amount differences (i.e. the hedged through a quantitative method in addition to a qualitative item and hedging instrument are based on different quan- analysis of the nature of the economic relationship (i.e. lin- tities or notional amounts); ear regression). > other risks (i.e. changes in the fair value or cash flows of a derivative hedging instrument or hedged item relate to In order to demonstrate that the behavior of the hedging risks other than the specific risk being hedged); instrument is in line with those of the hedged item, differ- > credit risk (i.e. the counterparty credit risk differently im- ent scenarios will be analyzed. pact the fair value movements of the hedging instruments For hedging of commodity price risk, the existence of an and hedge items). economic relationship is deduced from a ranking matrix that defines, for each possible risk component, a set of all standard derivatives available in the market whose ranking Fair value hedges Fair value hedges are used to protect the Group against ex- is based on their effectiveness in hedging the considered posures to changes in the fair value of assets, liabilities or risk. firm commitment attributable to a particular risk that could In order to evaluate the credit risk effects, the Group con- affect profit or loss. siders the existence of risk mitigating measures (collateral, Changes in the fair value of derivatives that qualify and are mutual break-up clauses, netting agreements, etc.). designated as hedging instruments are recognized in the in- come statement, together with changes in the fair value of The Group has established a hedge ratio of 1:1 for all the the hedged item that are attributable to the hedged risk. hedging relationships (including commodity price risk hedg- If the hedge no longer meets the criteria for hedge account- ing) as the underlying risk of the hedging derivative is iden- ing, the adjustment to the carrying amount of a hedged item tical to the hedged risk, in order to minimize hedging inef- for which the effective interest rate method is used is amor- fectiveness. tized to profit or loss over the period to maturity. The hedge ineffectiveness will be evaluated through a qual- itative assessment or a quantitative computation, depend- ing on the following circumstances: Cash flow hedges Cash flow hedges are applied in order to hedge the Group > if the critical terms of the hedged item and hedging instru- exposure to changes in future cash flows that are attribut- ment match and there aren’t other sources of ineffective- able to a particular risk associated with a recognized asset ness, including the credit risk adjustment on the hedging or liability or a highly probable transaction that could affect derivative, the hedge relationship will be considered fully profit or loss. effective on the basis of a qualitative assessment; The effective portion of changes in the fair value of deriva- > if the critical terms of the hedged item and hedging in- tives that are designated and qualify as cash flow hedges is strument do not match or there is at least one source recognized in other comprehensive income. The gain or loss of ineffectiveness, the hedge ineffectiveness will be relating to the ineffective portion is recognized immediately quantified applying the “dollar offset” cumulative meth- in the income statement. od with hypothetical derivative. This method compares Amounts accumulated in equity are reclassified to profit changes in fair values of the hedging instrument and the or loss in the periods when the hedged item affects profit hypothetical derivative between the reporting date and or loss (for example, when the hedged forecast sale takes the inception date. place). If the hedged item results in the recognition of a non-financial The main causes of hedge ineffectiveness may be the fol- asset (i.e. property, plant and equipment or inventories, etc.) lowings: or a non-financial liability, or a hedged forecast transaction > basis differences (i.e. the fair value or cash flows of the for a non-financial asset or a non-financial liability becomes hedged item depend on a variable that is different from a firm commitment for which fair value hedge accounting the variable that causes the fair value or cash flows of the is applied, the amount accumulated in equity (i.e. cash flow hedging instrument to change); reserve) shall be removed and included in the initial value > timing differences (i.e. the hedged item and hedging in- (cost or other carrying amount) of the asset or the liability strument occur or are settled at different dates); hedged (i.e. “basis adjustment”). 326 Annual Report 2018When a hedging instrument expires or is sold, or when a > it represents a best proxy of the old derivative in terms hedge no longer meets the criteria for hedge accounting, of ranking; any cumulative gain or loss existing in equity at that time re- > it meets specific liquidity requirements. mains in equity and is recognized when the forecast trans- Satisfaction of these requirements is verified quarterly. action is ultimately recognized in the income statement. At the roll-over date, the hedging relationship is discontin- When a forecast transaction is no longer expected to occur, ued. Therefore, starting from that date, changes in the ef- the cumulative gain or loss that was reported in equity is fective fair value of the new derivative will be recognized in immediately transferred to the income statement. shareholders’ equity (the cash flow hedge reserve), while For hedging relationships using forward as hedging instru- changes in the fair value of the old derivative are recognized ment, where only the change in the value of the spot ele- through profit or loss. ment is designated as the hedging instrument, accounting for the forward element (profit or loss vs OCI) is defined The following tables show the notional amount and the fair case by case. This approach is actually applied by the Group value of hedging derivatives assets and liabilities, classified for hedging of foreign currency risk on renewables assets. on the basis of each type of hedge relationship and hedged Conversely, for hedging relationships using cross currency risk, broken down into current and non-current. interest rate swap as hedging instrument, the Group sep- arates foreign currency basis spread, in designating the The notional amount of a derivative contract is the amount hedging derivative, and present them in other comprehen- on the basis of which cash flows are exchanged. This sive income (OCI) as hedging costs. amount can be expressed as a value or a quantity (for ex- With specific regard to cash flow hedges of commodity risk, ample tons, converted into CU by multiplying the notional in order to improve their consistency with the risk manage- amount by the agreed price). Amounts denominated in ment strategy, the Enel Group applies a dynamic hedge ac- currencies other than CU are converted at the year end counting approach based on specific liquidity requirements exchange rates provided by the World Markets Reuters (the so-called liquidity-based approach). (WMR) Company. This approach requires the designation of hedges through the use of the most liquid derivatives available on the mar- For more information about the fair value measurement of ket and replacing them with others that are more effective derivative contracts, please see notes 47 “Assets measured in covering the risk in question. at fair value” and 48 “Liabilities measured at fair value”. Consistent with the risk management strategy, the liquidity- based approach allows the roll-over of a derivative by replac- ing it with a new derivative, not only in the event of expiry but also during the hedging relationship, if and only if the new derivative meets both of the following requirements: 327 Consolidated financial statements46.1.1 Hedge relationships by type of risk hedged Interest rate risk The following table shows the notional amount and the fair of transactions outstanding as at December 31, 2018 and value of the hedging instruments on the interest rate risk December 31, 2017, broken down by type of hedge. Millions of euro Hedging instrument Interest rate swaps Interest rate swaps Interest rate swaps Total Fair value Notional amount Fair value Notional amount Hedged item at Dec. 31, 2018 at Dec. 31, 2017 Fixed-rate borrowings Floating-rate borrowings Floating-rate financial receivables 6 12 22 812 (599) 7 (586) 9,581 (550) 10,799 142 9,735 - 72 (528) 11,683 The following table shows the notional amount and the fair value of hedging derivatives on interest rate risk as at Decem- ber 31, 2018 and December 31, 2017, broken down by type of hedge. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Fair value hedge derivatives: - interest rate swaps 27 827 7 23 - - - - Cash flow hedge derivatives: - interest rate swaps 831 907 Total interest rate derivatives 858 1,734 13 20 6 29 8,877 9,949 (606) (557) 8,877 9,949 (606) (557) The notional amount of derivatives classified as hedging in- > the early termination of interest rate swaps amounting struments at December 31, 2018, came to €9,735 million, to €938 million, of which €800 million in respect of the with a corresponding negative fair value of €586 million. tender offer for the hybrid bond issued by Enel SpA in 2013; Compared with December 31, 2017, the notional amount > the expiry of interest rate swaps amounting to €177 mil- decreased by €1,948 million, mainly reflecting: lion; > the early termination of pre-hedge interest rate swaps > new interest rate swaps amounting to €2,445 million. amounting to €1,250 million in respect of the issue of The value also reflects the reduction of €527 million in the the green bond; notional amount of amortizing interest rate swaps. > the early termination of pre-hedge interest rate swaps The deterioration in the fair value of €58 million mainly re- amounting to €1,500 million in respect of the US-dollar flects developments in the yield curve. denominated bond issue in September; 328 Annual Report 2018Cash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives on interest rate risk. Millions of euro Fair value at Dec 31, 2018 Cash flow hedge derivatives on interest rates: Distribution of expected cash flows 2019 2020 2021 2022 2023 Beyond - positive fair value - negative fair value 13 (606) 5 (84) 3 2 (122) (116) 1 (91) 1 (78) 3 (146) The following table shows the impact of reserves from cash flow hedge derivatives on interest rate risk on equity during the period, gross of tax effects. Millions of euro Opening balance at January 1, 2017 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2017 Opening balance at January 1, 2018 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2018 (768) 99 52 (617) (617) (77) 37 (657) Exchange risk The following table shows the notional amount and the fair transactions outstanding as at December 31, 2018 and De- value of the hedging instruments on the exchange risk of cember 31, 2017, broken down by type of hedged item. Millions of euro Fair value Notional amount Fair value Notional amount at Dec. 31, 2018 at Dec. 31, 2017 Hedging instrument Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Currency forwards Currency forwards Currency forwards Total Hedged asset Fixed-rate borrowings Floating-rate borrowings Future cash flows denominated in foreign currencies Future commodity purchases denominated in foreign currencies Future cash flows denominated in foreign currencies Purchases of investment goods and other (1,325) 21,114 (1,720) 17,616 95 1,021 (4) (71) 297 (29) 977 321 99 4,298 (130) 3,076 (30) 1,089 30 (1,202) 1,241 29,060 30 (9) (1,863) 552 183 22,725 329 Consolidated financial statementsCash flow hedges and fair value hedges include: > currency forwards with a notional amount of €1,241 mil- > CCIRSs with a notional amount of €21,114 million used lion and a positive fair value of €30 million in respect of to hedge the exchange risk on fixed-rate debt denomi- OTC transactions to mitigate the exchange risk on ex- nated in currencies other than the euro, with a negative pected cash flows in currencies other than the currency fair value of €1,325 million; of account connected with the purchase of investment > CCIRSs with a notional amount of €1,318 million used to goods in the renewables and infrastructure and networks hedge the exchange risk on floating-rate debt denomi- sectors (new generation digital meters), on operating ex- nated in currencies other than the euro, with a positive penses for the supply of cloud services and on revenue fair value of €24 million; from the sale of renewable energy. > currency forwards with a notional amount of €5,387 mil- lion used to hedge the exchange risk associated with The following table reports the notional amount and fair val- purchases of natural gas, purchases of fuel and expected ue of foreign exchange derivatives at December 31, 2018 cash flows in currencies other than the euro, with a posi- and December 31, 2017, broken down by type of hedge. tive fair value of €69 million; Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Fair value hedge derivatives: - currency forwards - CCIRSs Cash flow hedge derivatives: - currency forwards - CCIRSs Total foreign exchange derivatives - 237 - - 4,302 8,705 747 4,028 13,244 4,775 - 22 160 767 949 - - 32 607 - - 4 93 - - - (13) 2,326 3,060 (61) (142) 13,490 14,793 (2,090) (2,347) 639 15,816 17,950 (2,151) (2,502) The notional amount of CCIRSs at December 31, 2018 2018 amounted to €6,628 million (€3,807 million at Decem- amounted to €22,432 million (€18,914 million at Decem- ber 31, 2017), an increase of €2,821 million. The exposure to ber 31, 2017), an increase of €3,518 million. Cross currency exchange risk, especially that associated with the US dollar, interest rate swaps with a total value of €654 million ex- is mainly due to purchases of natural gas, purchase of fuel pired, while cross currency interest rate swaps with a value and cash flows in respect of investments. Changes in the of €148 were closed early. New derivatives amounted to notional amount are connected with normal developments €3,871 million, of which €3,492 million in respect of bond in operations. issues denominated in US dollars in September 2018. The value also reflects developments in the exchange rate of the Cash flow hedge derivatives euro against the main other currencies, which caused their The following table shows the cash flows expected in notional amount to increase by €358 million. coming years from cash flow hedge derivatives on ex- The notional value of currency forwards at December 31, change risk. Millions of euro Fair value Distribution of expected cash flows at Dec. 31, 2018 2019 2020 2021 2022 2023 Beyond Cash flow hedge derivatives on exchange rates: - positive fair value - negative fair value 926 380 (2,150) (237) 261 72 182 43 163 29 332 65 1,112 124 330 Annual Report 2018The following table shows the impact of reserves from cash flow hedge derivatives on exchange risk on equity during the period, gross of tax effects. Millions of euro Opening balance at January 1, 2017 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2017 Opening balance at January 1, 2018 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2018 (1,341) (211) (88) (1,640) (1,640) 181 65 (1,394) 331 Consolidated financial statementsCommodity risk Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Fair value hedge derivatives Derivatives on power: - swaps - forwards/futures - options Total derivatives on power Cash flow hedge derivatives Derivatives on power: - swaps - forwards/futures - options Total derivatives on power Derivatives on coal: - swaps - forwards/futures - options Total derivatives on coal Derivatives on gas and oil: - swaps - forwards/futures - options - - - - 1,249 293 - 1,542 10 - - 10 - - - - - 458 116 - 574 525 - - 525 45 723 1,036 - - Total derivatives on gas and oil 723 1,081 Derivatives on CO2: - swaps - forwards/futures - options Total derivatives on CO2 TOTAL DERIVATIVES ON COMMODITIES - 279 - 279 - 162 - 162 2,554 2,342 - - - - 139 20 - 159 74 - - 74 - 222 - 222 - 301 - 301 756 - - - - 39 11 - 50 84 - - 84 12 130 - 142 - 68 - 68 - - - - 512 159 - 671 619 - - 619 - 1,415 - 1,415 - 1 - 1 - - - - 238 545 - 783 18 - - 18 - 681 - 681 - - - - - - - - - - - - (227) (12) - (22) (102) - (239) (124) (94) - - (94) - (693) - (693) - - - - (1) - - (1) - (73) - (73) - - - - 344 2,706 1,482 (1,026) (198) The table reports the notional amount and fair value of de- tions in the price of natural gas, for both purchases and rivatives hedging the price risk on commodities at Decem- sales, carried out for oil commodities and gas products with ber 31, 2018 and at December 31, 2017, broken down by physical delivery (all-in-one hedges). type of hedge. The positive fair value of cash flow hedge Cash flow hedge derivatives on commodities included in derivatives on commodities regards derivatives on gas and liabilities regard derivatives on gas and oil commodities in oil commodities in the amount of €222 million, derivatives the amount of €693 million, derivatives on power in the on CO2 (€301 million), derivatives on power (€159 million) and, to a lesser extent, hedges of coal purchases request- ed by the generation companies in the amount of €74 mil- lion. The first category primarily regards hedges of fluctua- amount of €239 million and derivatives on coal (€94 mil- lion). 332 Annual Report 2018Cash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives on commodity risk. Millions of euro Fair value Distribution of expected cash flows at Dec. 31, 2018 2019 2020 2021 2022 2023 Beyond Cash flow hedge derivatives on commodities: - positive fair value - negative fair value 756 494 (1,026) (859) 178 (143) 4 (10) 5 (7) 6 (5) 69 (2) The following table shows the impact of reserves from cash flow hedge derivatives on commodity risk on equity during the period, gross of tax effects. Millions of euro Opening balance at January 1, 2017 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2017 Opening balance at January 1, 2018 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss Closing balance at December 31, 2018 345 409 (513) 241 241 (199) (129) (87) 333 Consolidated financial statements46.2 Derivatives at fair value through profit or loss The following table shows the notional amount and the fair value of derivatives at FVTPL as at December 31, 2018 and December 31, 2017. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Derivatives at FVTPL Derivatives on interest rates: - interest rate swaps - interest rate options Derivatives on exchange rates: - currency forwards - CCIRSs Derivatives on commodities Derivatives on power: - swaps - forwards/futures - options 50 - 4,092 162 1,070 6,260 15 394 - 4,576 - 776 3,439 7 2 - 54 1 167 814 28 Total derivatives on power 7,345 4,222 1,009 Derivatives on coal: - swaps - forwards/futures - options Total derivatives on coal Derivatives on gas and oil: - swaps - forwards/futures - options 201 - - 201 896 11,894 225 Total derivatives on gas and oil 13,015 Derivatives on CO2: - swaps - forwards/futures - options Total derivatives on CO2 Derivatives on other: - swaps - forwards/futures - options Total derivatives on other Embedded derivatives - 243 - 243 9 1 - 10 - 369 29 - 398 534 7,653 181 8,368 - 97 1 98 - - - - - 56 - - 56 215 1,640 147 2,002 - 68 - 68 2 - - 2 - 3 - 85 - 125 457 9 591 86 1 - 87 125 823 254 566 50 1,175 2,117 229 6,955 20 138 50 1,759 90 608 3,500 16 (79) (5) (18) (18) (28) (1,016) (11) 7,204 4,124 (1,055) (68) (6) (46) (2) (107) (522) (5) (634) 823 294 (48) (57) - - 4 - - - - - 823 298 (48) (57) 728 12,712 289 629 7,483 216 (186) (1,531) (165) (123) (732) (293) 1,202 13,729 8,328 (1,882) (1,148) - 30 1 31 - - - - - - 221 - 221 - 1 - 1 - - 79 1 80 90 - - 90 - - (65) - (65) - - - - - - (34) (1) (35) (5) - - (5) - TOTAL DERIVATIVES 25,118 18,056 3,194 1,999 25,886 14,957 (3,169) (2,001) At December 31, 2018 the notional amount of trading deriva- their notional value and the decline in the associated net fair tives on interest rates came to €666 million. The fair value of value of €18 million mainly reflected normal operations and a negative €81 million deteriorated by €10 million on the pre- developments in exchange rates. vious year, mainly due to developments in the yield curve. At December 31, 2018, the notional amount of derivatives At December 31, 2018, the notional amount of derivatives on commodities came to €42,792 million. The fair value on exchange rates was €7,546 million. The overall increase in of trading derivatives on commodities classified as assets 334 Annual Report 2018mainly reflects the market valuation of hedges of gas and for hedging purposes, did not meet the requirements for oil amounting to €2,002 million and derivatives on power hedge accounting. amounting to €1,009 million. The “Other” category includes hedges using weather de- The fair value of trading derivatives on commodities classified rivatives. In addition to commodity risk, the Group compa- as liabilities mainly regards hedges of gas and oil amount- nies are also exposed to changes in volumes associated with ing to €1,882 million and derivatives on power amounting to weather conditions (for example, temperature impacts the €1,055 million. consumption of gas and power). These values include transactions that, although established 47. Assets measured at fair value The Group determines fair value in accordance with IFRS > Level 2, where the fair value is determined on basis of 13 whenever such measurement is required by the inter- inputs other than quoted prices included within Level 1 national accounting standards as a recognition or measure- that are observable for the asset or liability, either directly ment criterion. (such as prices) or indirectly (derived from prices); Fair value is defined as the price that would be received to > Level 3, where the fair value is determined on the basis sell an asset or paid to transfer a liability, in an orderly trans- of unobservable inputs. action, between market participants, at the measurement This note also provides detailed disclosures concerning date (i.e. an exit price). the valuation techniques and inputs used to perform these The best proxy of fair value is market price, i.e. the current measurements. publically available price actually used on a liquid and active To that end: market. > recurring fair value measurements of assets or liabilities The fair value of assets and liabilities is classified in ac- are those required or permitted by the IFRSs in the bal- cordance with the three-level hierarchy described below, ance sheet at the close of each period; depending on the inputs and valuation techniques used in > non-recurring fair value measurements are those re- determining their fair value: quired or permitted by the IFRSs in the balance sheet in > Level 1, where the fair value is determined on the basis particular circumstances. of quoted prices (unadjusted) in active markets for identi- For general information or specific disclosures on the ac- cal assets or liabilities that the entity can access at the counting treatment of these circumstances, please see measurement date; note 2 “Accounting policies and measurement criteria”. 335 Consolidated financial statementsThe following table shows, for each class of assets mea- end of the reporting period and the level in the fair value sured at fair value on a recurring or non-recurring basis in hierarchy into which the fair value measurements of those the financial statements, the fair value measurement at the assets are classified. Millions of euro Non-current assets Current assets Equity investments in other entities at FVOCI Securities at FVOCI Securities at FVTPL Financial assets from service concession arrangements at FVTPL Loans and receivables measured at fair value Other investments of liquidity at fair value Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Fair value hedge derivatives: - on interest rates - on exchange rates Trading derivatives: - on interest rates - on exchange rates - on commodities Inventories measured at fair value Contingent consideration Notes 26 26.1, 30.1 26.1 26 26 32 46 46 46 46 46 46 46 46 28 27 Fair value Level 1 Level 2 Level 3 Fair value Level 1 Level 2 Level 3 53 2 12 360 10 2,070 359 - 12 675 262 6 19 2 4 25 37 91 360 - - - - - - 11 - - - - 9 37 - - - 2,070 - - 12 675 251 6 19 2 4 16 - 91 39 - 10 - 359 - - - - - - - - - - - - - 72 72 - - 92 84 1 252 494 1 3 - 51 - - 92 84 - - 171 - - - - - - - - - - 1 252 323 1 3 - 51 3,112 1,951 1,159 - - - - - - - - - - - - - - - - - - - 2 - - The fair value of “Equity investments in other entities at The fair value of derivative contracts is determined using FVOCI” is determined for listed companies on the basis of the official prices for instruments traded on regulated mar- the quoted price set on the closing date of the year, while kets. The fair value of instruments not listed on a regulated that for unlisted companies is based on a reliable valuation market is determined using valuation methods appropriate of the relevant assets and liabilities. for each type of financial instrument and market data as of the close of the period (such as interest rates, exchange “Financial assets from service concession arrangements at rates, volatility), discounting expected future cash flows on FVTPL” concern electricity distribution operations in Bra- the basis of the market yield curve and translating amounts zil, mainly by Enel Distribuição São Paulo, Enel Distribuição in currencies other than the euro using exchange rates pro- Rio, Enel Distribuição Ceará and Enel Green Power Volta vided by the World Markets Reuters (WMR) Company. For Grande and are accounted for in accordance with IFRIC contracts involving commodities, the measurement is con- 12. Fair value was estimated as the net replacement cost ducted using prices, where available, for the same instru- based on the most recent rate information available and on ments on both regulated and unregulated markets. the general price index for the Brazilian market. In accordance with the new international accounting stan- dards, in 2013 the Group included a measurement of credit The non-current portion of “Loans and receivables mea- risk, both of the counterparty (Credit Valuation Adjustment sured at fair value” includes (recognized in level 3) the fair or CVA) and its own (Debit Valuation Adjustment or DVA), in value of the receivable from the disposal of Slovak Power order to adjust the fair value of financial instruments for the Holding of €359 million at December 31, 2018. The fair val- corresponding amount of counterparty risk. More specifi- ue is determined on the basis of the price formula specified cally, the Group measures CVA/DVA using a Potential Fu- in the contract. ture Exposure valuation technique for the net exposure of 336 Annual Report 2018the position and subsequently allocating the adjustment to converted into euros at the year-end exchange rates provided the individual financial instruments that make up the overall by the World Markets Reuters (WMR) Company. portfolio. All of the inputs used in this technique are observ- The notional amounts of derivatives reported here do not able on the market. necessarily represent amounts exchanged between the par- The notional amount of a derivative contract is the amount ties and therefore are not a measure of the Group’s credit on which cash flows are exchanged. This amount can be risk exposure. For listed debt instruments, the fair value is expressed as a value or a quantity (for example tons, con- given by official prices. For unlisted instruments the fair value verted into euros by multiplying the notional amount by the is determined using appropriate valuation techniques for each agreed price). category of financial instrument and market data at the clos- Amounts denominated in currencies other than the euro are ing date of the year, including the credit spreads of Enel SpA. 47.1 Fair value of other assets For each class of assets not measured at fair value on a riod and the level in the fair value hierarchy into which the recurring basis but whose fair value must be reported, the fair value measurements of those assets are classified. following table reports the fair value at the end of the pe- Millions of euro Non-current assets Current assets Notes Fair value Level 1 Level 2 Level 3 Fair value Level 1 Level 2 Level 3 Loans and receivables 26, 30 Investment property Inventories 19 26 608 196 57 - 22 - 130 - - 478 174 57 1,385 - - - - - 1,254 131 - - - - The table reports the fair value of investment property and ods depending on the specific assets involved. inventories of real estate not used in the business in the “Loans and receivables” mainly regards e-distribuzione’s re- amount of €196 million and €57 million respectively. The ceivables for the elimination of the Electrical Workers Pension amounts were calculated with the assistance of appraisals Fund and for the reimbursement of charges connected with conducted by independent experts, who used different meth- the early retirement of electromechanical meters. 337 Consolidated financial statements48. Liabilities measured at fair value The following table reports for each class of liabilities mea- end of the reporting period and the level in the fair value sured at fair value on a recurring or non-recurring basis in hierarchy into which the fair value measurements are cat- the financial statements the fair value measurement at the egorized. Millions of euro Non-current liabilities Current liabilities Notes Fair value Level 1 Level 2 Level 3 Fair value Level 1 Level 2 Level 3 Cash flow hedge derivatives: - on interest rates - on exchange rates - on commodities Trading derivatives: - on interest rates - on exchange rates - on commodities 46 46 46 46 46 46 605 1,803 167 17 3 14 Contingent consideration 38, 42 117 - - 67 - - 7 - 605 1,803 100 17 3 7 117 - - - - - - - 1 348 859 66 33 - - 491 - - 1 348 368 66 33 3,036 1,653 1,383 109 - 109 - - - - - - - Contingent consideration regards the Enel X Business Line measurement uses certified historical data on the under- and Enel Green Power North America, whose fair value lying variables. For example, an HDD (“Heating Degree was determined on the basis of the contractual terms and Days”) derivative on a given measurement station indicat- conditions. ed in the derivative contract is measured at fair value by calculating the difference between the agreed strike and The fair value of derivatives on commodities classified as the historical average of the same variable observed at the level 3 regards the measurement of hedging derivatives on same station. weather indices (weather derivatives). For these contracts, 48.1 Fair value of other liabilities For each class of liabilities not measured at fair value in the riod and the level in the fair value hierarchy into which the balance sheet but whose fair value must be reported, the fair value measurements of those liabilities are classified. following table reports the fair value at the end of the pe- Notes Fair value Level 1 Level 2 Level 3 43.3.1 43.3.1 43.3.1 43.3.1 43.3.1 43.3.1 38,507 4,220 1,539 9,027 1,585 182 55,060 35,179 165 - - - - 35,344 3,328 4,055 1,539 9,027 1,585 182 19,716 - - - - - - - Millions of euro Bonds: - fixed rate - floating rate Bank borrowings: - fixed rate - floating rate Non-bank borrowings: - fixed rate - floating rate Total 338 Annual Report 201849. Related parties As an operator in the field of generation, distribution, trans- The table below summarizes the main types of transactions port and sale of electricity and the sale of natural gas, carried out with such counterparties. Enel carries out transactions with a number of companies directly or indirectly controlled by the Italian State, the Group’s controlling shareholder. Related party Relationship Nature of main transactions Acquirente Unico - Single Buyer Fully controlled (indirectly) by the Ministry for the Economy and Finance Purchase of electricity for the enhanced- protection market Cassa Depositi e Prestiti Group Directly controlled by the Ministry for the Economy and Finance GSE - Energy Services Operator Fully controlled (directly) by the Ministry for the Economy and Finance GME - Energy Markets Operator Fully controlled (indirectly) by the Ministry for the Economy and Finance Sale of electricity on the Ancillary Services Market (Terna) Sale of electricity transport services (Eni Group) Purchase of transport, dispatching and metering services (Terna) Purchase of postal services (Poste Italiane) Purchase of fuels for generation plants and natural gas storage and distribution services (Eni Group) Sale of subsidized electricity Payment of A3 component for renewable resource incentives Sale of electricity on the Power Exchange (GME) Purchase of electricity on the Power Exchange for pumping and plant planning (GME) Leonardo Group Directly controlled by the Ministry for the Economy and Finance Purchase of IT services and supply of goods In addition, the Group conducts essentially commercial providing social and healthcare assistance. transactions with associated companies or companies in All transactions with related parties were carried out on which it holds minority interests. normal market terms and conditions, which in some cases Finally, Enel also maintains relationships with the pension are determined by the Regulatory Authority for Energy, funds FOPEN and FONDENEL, as well as Fondazione Enel Networks and the Environment. and Enel Cuore, an Enel non-profit company devoted to 339 Consolidated financial statementsThe following tables summarize transactions with related standing at December 31, 2018 and December 31, 2017 parties, associated companies and joint arrangements out- and carried out during the period. Millions of euro Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total 2018 arrangements Overall total 2018 % of total Associates and joint Total in financial statements - - - - - - - - - - - - - 6 1 1,952 2,622 389 222 7 - - 3 - - 8 3 - - 163 - - - 3,228 3,234 1,136 - 6 - - 52 262 - - 2,299 4 1 16 Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total at Dec. 31, 2018 Associates and joint arrangements Overall total at Dec. 31, 2018 Total in financial statements % of total - - - - - - 120 - 8 - - - 871 160 - - - - - - - 2 - - - 250 - - 717 - 10 - - 804 983 7 11 - 89 354 135 29 20 - 146 - - - 833 - - - - - - - 36 - - - 6 - 19 - 14 - - 132 16 7 - - - - - - - - - - - - - - 5,185 16 1 7,598 2,517 272 1 24 804 2,866 893 164 - - 6 9 25 - 89 736 151 36 202 22 58 139 127 - 9 31 21 1 52 80 58 60 35 - - - - - - 5,387 38 59 7,737 2,644 272 10 55 2,924 21 165 52 86 804 69 25 35 89 736 151 36 192 1,085 73,134 2,538 1,715 35,728 18,870 2,889 483 4,392 13,587 5,160 2,983 3,914 1,901 48,983 13,387 12,107 1,095 4,343 3,367 7.4% 1.5% 3.4% 21.7% 14.0% 9.4% 2.1% 1.3% 8.0% 0.4% 5.5% 1.3% 4.5% 1.6% 0.6% 2.3% 0.8% 2.6% 21.8% Income statement Revenue from sales and services Other revenue and income Other financial income Purchases of electricity, gas and fuel Costs for services and other materials Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current contract liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 340 Annual Report 2018Revenue from sales and services 1,952 2,622 3,228 3,234 1,136 Income statement Other revenue and income Other financial income Purchases of electricity, gas and fuel materials Costs for services and other Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current contract liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments - - - - 6 - - - - - - - - - - - - - - - 871 - - - - - - - - - - - - - 52 262 120 8 160 2 250 6 1 4 1 16 2,299 717 10 - - - 804 983 7 11 - 89 354 135 29 389 7 - - - - 3 8 - - - - - - - - - - - 20 146 833 222 3 163 - - - - - - - - - - - - 36 6 19 14 132 16 7 - - - - - - - - - - - - - - - - - - - - - - Millions of euro Acquirente Unico GME Prestiti Group GSE Other personnel Cassa Depositi e Key management Total 2018 Associates and joint arrangements Overall total 2018 Total in financial statements % of total 5,185 16 1 7,598 2,517 272 1 24 202 22 58 139 127 - 9 31 5,387 38 59 7,737 2,644 272 10 55 73,134 2,538 1,715 35,728 18,870 2,889 483 4,392 7.4% 1.5% 3.4% 21.7% 14.0% 9.4% 2.1% 1.3% Acquirente Unico GME Prestiti Group GSE Other personnel Total at Dec. 31, 2018 Associates and joint arrangements Overall total at Dec. 31, 2018 Total in financial statements % of total Cassa Depositi e Key management 893 - 164 - 6 804 2,866 9 25 - 89 736 151 36 13,587 5,160 2,983 3,914 1,901 48,983 13,387 12,107 1,095 4,343 3,367 192 1,085 21 1 52 80 - 58 60 - 35 - - - - 21 165 52 86 804 2,924 69 25 35 89 736 151 36 8.0% 0.4% 5.5% 1.3% 4.5% 1.6% 21.8% 0.6% 2.3% 0.8% 2.6% 341 Consolidated financial statementsMillions of euro Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total 2017 arrangements Overall total 2017 % of total Associates and joint Total in financial statements Income statement Revenue from sales and services Other revenue and income Other financial income Purchases of electricity, gas and fuel Costs for services and other materials Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 1 - - - - - 5 - - 1 1.767 2.668 443 - - 2 - 89 3 - 4 115 - - - - - - - - - - - 3.345 2.458 1.636 - 4 - - 75 524 - - 2.340 3 32 - Acquirente Unico Cassa Depositi e Prestiti Group GME GSE Other Key management personnel Total at Dec. 31, 2017 Associates and joint arrangements Overall total at Dec. 31, 2017 Total in financial statements % of total - - - - - - 77 - - - - - 682 110 - - - - - - - - - 280 - - 526 - 24 - - 893 543 10 - 89 360 208 46 57 - 129 - - - 977 - - - - - - 34 - 1 - 6 - 11 - - - 108 23 6 - - - - - - - - - - - - - 4,968 5 - 7,443 2,535 531 32 1 893 2,323 694 154 - - 6 10 - 89 748 231 52 156 17 18 318 129 - (5) 24 138 3 8 11 30 - 42 27 9 - - - - 5,124 22 18 7,761 2,664 531 27 25 2,365 832 3 162 11 36 893 37 9 89 748 231 52 72,664 1,975 2,371 36,039 17,982 2,886 578 3,908 14,529 4,614 2,695 2,309 2,003 42,439 12,671 12,462 2,260 7,000 7.1% 1.1% 0.8% 21.5% 14.8% 18.4% 4.7% 0.6% 5.7% 0.1% 6.0% 0.5% 1.8% 2.1% 18.7% 0.3% 0.4% 1.3% In November 2010, the Board of Directors of Enel SpA ap- ed in implementation of the provisions of Article 2391-bis proved a procedure governing the approval and execution of the Italian Civil Code and the implementing regulations of transactions with related parties carried out by Enel SpA issued by CONSOB. In 2018, no transactions were carried directly or through subsidiaries. The procedure (available at out for which it was necessary to make the disclosures re- https://www.enel.com/investors/bylaws-rules-and-policies/ quired in the rules on transactions with related parties ad- transactions-with-related-parties) sets out rules designed opted with CONSOB Resolution 17221 of March 12, 2010, to ensure the transparency and procedural and substantive as amended with Resolution 17389 of June 23, 2010. propriety of transactions with related parties. It was adopt- 342 Annual Report 2018Revenue from sales and services 1.767 2.668 443 89 Income statement Other revenue and income Other financial income Purchases of electricity, gas and fuel materials Costs for services and other Other operating expenses Net income/(expense) from commodity risk management Other financial expense Millions of euro Balance sheet Trade receivables Other current financial assets Other current assets Derivative assets Other non-current liabilities Long-term borrowings Trade payables Other current liabilities Current derivative liabilities Current portion of long-term borrowings Other information Guarantees issued Guarantees received Commitments 3.345 2.458 1.636 75 524 2.340 115 1 - - - 4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - 280 2 - 3 32 - 526 24 - - - 893 543 10 - 89 360 208 46 - - - - - 5 1 - - - - - - - - - - 57 129 3 - 4 - - - 1 - - 6 - - - - 108 23 6 - - - - - - - - - - - - - - - - - - - - - 77 34 682 110 977 11 Millions of euro Acquirente Unico GME Prestiti Group GSE Other personnel Cassa Depositi e Key management Total 2017 Associates and joint arrangements Overall total 2017 Total in financial statements % of total 4,968 5 - 7,443 2,535 531 32 1 156 17 18 318 129 - (5) 24 5,124 22 18 7,761 2,664 531 27 25 72,664 1,975 2,371 36,039 17,982 2,886 578 3,908 7.1% 1.1% 0.8% 21.5% 14.8% 18.4% 4.7% 0.6% Acquirente Unico GME Prestiti Group GSE Other personnel Total at Dec. 31, 2017 Associates and joint arrangements Overall total at Dec. 31, 2017 Total in financial statements % of total Cassa Depositi e Key management 694 - 154 - 6 893 2,323 10 - 89 748 231 52 138 3 8 11 30 - 42 27 9 - - - - 14,529 4,614 2,695 2,309 2,003 42,439 12,671 12,462 2,260 7,000 832 3 162 11 36 893 2,365 37 9 89 748 231 52 5.7% 0.1% 6.0% 0.5% 1.8% 2.1% 18.7% 0.3% 0.4% 1.3% 343 Consolidated financial statements50. Government grants - Disclosure pursuant to Article 1, paragraphs 125-129, of Law 124/2017 Pursuant to Article 1, paragraphs 125-129, of Law 124/2017 €10,000 made by the same grantor/donor during 2018, as amended, the following provides information on grants even if made through multiple financial transactions. They received from Italian public agencies and bodies, as well are recognized on a cash basis. as donations by Enel SpA and the fully consolidated sub- Pursuant to the provisions of Article 3-quater of Decree sidiaries to companies, individuals and public and private Law 135 of December 14, 2018, ratified with Law 12 of entities. The disclosure comprises: (i) grants received from February 11, 2019, for grants received, please refer to the Italian public entities/State entities; and (ii) donations made information contained in the National Register of State Aid by Enel SpA and Group subsidiaries to public or private par- referred to in Article 52 of Law 234 of December 24, 2012. ties resident or established in Italy. As far as donations made are concerned, the material cas- The following disclosure includes payments in excess of es are listed below. Grants received in millions of euro Financial institution/Grantor Beneficiary Amount Notes Min. Education, Universities & Research (MIUR) e-distribuzione Instalment of grant received for Internet of Energy project, funded as part of the Artemis - Joint Undertaking tender 0.10 Grant received as part of Decree Law 74/2012 financing - Urgent measures for those affected by seismic events of May 20 and 29 2012 in Emilia Romagna 1.25 Ascoli P.R. Project - Balance of grant received under funding initiative - Tender 14 - Industry 2002 - Law 488/1992 0.09 Volturno 2 project - Balance of grant received under funding initiative - Tender 14 - Industry 2002 - Law 488/1992 0.44 R&D project co-financed by EU and national resources. Instalment of prefinancing transferred by Enel SpA, following assignment of financing contract to Enel X - Connect Project 0.09 R&D project co-financed by EU and national resources. Receipt of prefinancing - WinSic4AP Project 0.10 Intermediate instalment of grant received for O.M.E.G.A. Project financed within FIT Technology Innovation Programs under Law 46/1982 0.16 Interest subsidies on loans for investments in foreign enterprises held in part by SIMEST. Palo Viejo 2 Project (Guatemala), funded under Art. 4 of Law 100/1990 0.12 Interest subsidies on loans for investments in foreign enterprises held in part by SIMEST. Chucas Project (Costa Rica), funded under Art. 4 of Law 100/1990 0.63 Interest subsidies on loans for investments in foreign enterprises held in part by SIMEST. Talinay Project (Chile), funded under Art. 4 of Law 100/1990 0.57 3.55 Total Emilia-Romagna Region e-distribuzione Intesa Sanpaolo Enel Produzione SpA Intesa Sanpaolo Enel Produzione SpA Enel SpA Enel X Srl ECSEL JU-MIUR Enel X Srl Enel Green Power SpA Enel Green Power SpA Enel Green Power SpA Enel Green Power SpA Min. Economic Development (MiSE) SIMEST SpA SIMEST SpA SIMEST SpA 344 Annual Report 2018Donations made in millions of euro Donor Beneficiary Amount Notes e-distribuzione SpA Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office Donation of 10 Top Crash systems to support Highway Police operations 0.12 e-distribuzione SpA Fondazione Centro Studi 0.63 1st payment on account for 2017 donation e-distribuzione SpA Fondazione Centro Studi 1.07 2nd payment on account for 2017 donation e-distribuzione SpA Fondazione Centro Studi 1.70 Balance of 2017 donation e-distribuzione SpA Fondazione Centro Studi e-distribuzione SpA Enel Cuore e-distribuzione SpA Enel Cuore e-distribuzione SpA Enel Cuore e-distribuzione SpA Enel Cuore Enel Produzione SpA Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office Enel Produzione SpA Fondazione Centro Studi Enel Produzione SpA Enel Cuore Enel Produzione SpA Enel Cuore 1.59 50% of 2018 donation 0.04 Association dues 2018 0.63 20% of 2017 donation 2.52 80% balance of 2017 donation 0.65 20% of 2018 donation Donation of 1 Top Crash system to support Highway Police operations 0.01 0.03 50% of 2018 donation 0.04 Association dues 2018 0.01 20% of 2018 donation Enel Energia SpA Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office Donation of 1 Top Crash system to support Highway Police operations 0.01 Enel Energia SpA Fondazione Centro Studi 1.10 Balance of 2017 donation Enel Energia SpA Fondazione Centro Studi Enel Energia SpA Enel Energia SpA Enel Energia SpA Enel Energia SpA Enel Energia SpA Enel Cuore Enel Cuore Enel Cuore Enel Cuore Enel Cuore 0.80 50% of 2018 donation 0.04 Association dues 2018 0.41 20% of 2017 donation 1.64 80% balance of 2017 donation 0.06 Donation for Schools Project 0.32 20% of 2018 donation Enel Italia Srl Enel Italia Srl Enel Italia Srl Enel Italia Srl Enel Italia Srl Enel Italia Srl Enel Italia Srl Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office Donation of 2 Top Crash systems to support Highway Police operations 0.02 Enel Cuore Enel Cuore Enel Cuore Enel Cuore Fondazione Centro Studi Fondazione Centro Studi 0.04 Association dues 2018 0.01 20% of 2017 donation 0.04 80% balance of 2017 donation 0.02 20% of 2018 donation 0.03 Balance of 2017 donation 0.04 50% of 2018 donation Enel Green Power SpA Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office Enel Green Power SpA Ethiopian Catholic Church Social and Development Donation of 2 Top Crash systems to support Highway Police operations 0.03 Health Service Program in Saint Luke Catholic Hospital and College of Nursing and Midwifery: donation of hybrid photovoltaic system 0.45 Enel Green Power SpA Treasury of Roma Capitale-Cultural Heritage Superintendency Redevelopment of external areas of “Giardino Caffarelli” and “Giardino De Vico” plus restoration of three fountains 0.18 Enel Green Power SpA Fondazione Centro Studi 0.12 Balance of 2017 donation Enel Green Power SpA Enel Cuore Enel Green Power SpA Enel Cuore Enel Green Power SpA Enel Cuore 0.04 Association dues 2018 0.05 20% of 2017 donation 0.20 80% balance of 2017 donation Enel Green Power SpA Enel Green Power SpA Renewable Energy Solutions for the Mediterranean (RES4MED) Renewable Energy Solutions for the Mediterranean (RES4MED) 0.06 Association dues 2018 0.06 Association dues 2019 345 Consolidated financial statementsDonations made in millions of euro Donor Enel Green Power SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA Enel SpA 346 Beneficiary Amount Notes Shared Value Project Limited Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office ASHOKA Italia ONLUS European University Institute Fondazione Centro Studi Enel 0.02 Association dues 2018 0.02 Donation of 2 Top Crash systems to support Highway Police operations 0.06 Donation to promote sustainable growth 0.10 Donation to support research 0.10 Donation to support research and advanced training projects Enel Cuore LUISS 0.04 Association dues 2018 0.06 Donation to support study grants Fondazione Teatro del Maggio Musicale 0.40 Donation for cultural projects 2018 Fondazione MAXXI Fondazione Accademia Nazionale “Santa Cecilia” Elettrici senza frontiere Fondazione Teatro alla Scala OECD Enel X Srl 0.59 Donation for cultural projects 2018 0.50 Donation for cultural projects 2018 0.04 Donation for development energy 0.60 Donation for cultural projects 2018 0.08 Donation for 2018 0.09 R&D project co-financed by EU and national resources. Instalment transferred by Enel SpA, following assignment of financing contract to Enel X - Connect Project CharIN - Charging Interface Initiative e. V. 0.01 Association dues 2018 Fondazione Italia Giappone OME - Observatorie Méditerranéen de l’Energie Global Reporting Initiative WBCSD Open Innovation Corporation A.I.I.A.- Associazione Italiana ANIMA Mind the bridge EU40 ASBL Centre on regulation in Europe ASSONIME EUTC BRUEGEL Bettercoal International Integrated IETA - International Emissions Trading Association Valore D. CSR Europe Asbli Roma Start up Transparency International Italia FSG INC. The European House Ambrosetti The Trilateral Commission 0.02 Association dues 2018 0.06 Association dues 2018 0.01 Association dues 2018 0.06 Association dues 2018 0.04 Association dues 2018 0.01 Association dues 2018 0.01 Association dues 2018 0.12 Association dues 2018 0.02 Association dues 2018 0.04 Association dues 2018 0.04 Association dues 2018 0.01 Association dues 2018 0.05 Association dues 2018 0.07 Association dues 2018 0.01 Association dues 2018 0.02 Association dues 2018 0.02 Association dues 2018 0.02 Association dues 2018 0.01 Association dues 2018 0.02 Association dues 2018 0.06 Association dues 2018 0.07 Association dues 2018 0.03 Association dues 2018 ISPI - Istituto Studi di Politica Internazionale 0.04 Association dues 2018 Consiglio Cooperazione Economica CEPS - Centre for European Policy Studies CONSIUSA - Consiglio per le Relazioni fra Italia e Stati Uniti Centro Studi Americani Transparency International Italia CONSEL GSEP - Global Sustainable Electricity Partnership Human Foundation Open Innovation Corporation Foundation for the global compact Innovation Roundtable ApS KIC INNOENERGY IBERIA 0.03 Association dues 2018 0.01 Association dues 2018 0.01 Association dues 2018 0.02 Association dues 2018 0.02 Association dues 2018 0.02 Association dues 2018 0.10 Association dues 2018 0.03 Association dues 2018 0.03 Association dues 2018 0.05 Association dues 2018 0.01 Association dues 2018 0.04 Association dues 2018 EMF Trading - Ellen MacArthur Foundation 0.04 Association dues 2018 Annual Report 2018Enel SpA Enel SpA ICC ITALIA Business Europe Enel Global Trading SpA Enel Cuore Enel X Srl Enel Sole Srl Enel Cuore Enel Cuore 0.01 Association dues 2018 0.02 Association dues 2018 0.04 Association dues 2018 0.04 Association dues 2018 0.02 Balance donation 2016 18.92 Total 51. Contractual commitments and guarantees The commitments entered into by the Enel Group and the guarantees given to third parties are shown below: Millions of euro Guarantees given: - sureties and other guarantees granted to third parties Commitments to suppliers for: - electricity purchases - fuel purchases - various supplies - tenders - other Total TOTAL at Dec. 31, 2018 at Dec. 31, 2017 Change 10,310 8,171 2,139 109,638 43,668 3,122 3,133 3,270 162,831 173,141 79,163 42,302 3,119 3,334 2,912 130,830 139,001 30,475 1,366 3 (201) 358 32,001 34,140 For more details on the expiry of commitments and guarantees, please see the section “Commitments to purchase com- modities” in note 44. 347 Consolidated financial statements52. Contingent assets and liabilities The following reports the main contingent assets and li- Court of Appeal to order Enel SpA and Enel Produzione to abilities at December 31, 2017, which are not recognized in pay civil damages for harm caused by the emissions from the financial statements as they do not meet the require- the Porto Tolle power station. The amount of damages ments provided for in IAS 37. requested for economic and environmental losses was Porto Tolle thermal plant - Air pollution - Criminal proceedings against Enel directors and employees The Court of Adria, in a ruling issued on March 31, 2006, convicted former directors and employees of Enel for a number of incidents of air pollution caused by emissions from the Porto Tolle thermoelectric plant. The decision held the defendants and Enel (as a civilly liable party) joint- ly liable for the payment of damages for harm to multiple parties, both natural persons and public authorities. Dam- ages for a number of mainly private parties (individuals and environmental associations), were set at the amount of €367,000. The calculation of the amount of damages owed to certain public entities (Ministry for the Environ- ment, a number of public entities of Veneto and Emilia Ro- magna, including the area’s park agencies) was postponed to a later civil trial, although a “provisional award” of about €2.5 million was immediately due. An appeal was lodged against the ruling of the Court of Adria and on March 12, 2009, the Court of Appeal of Ven- ice partially reversed the lower court decision. It found that the former directors had not committed a crime and that there was no environmental damage and therefore ordered recovery of the provisional award already paid. The prose- cutors and the civil claimants lodged an appeal against the ruling with the Court of Cassation. In a ruling on January 11, 2011, the Court of Cassation granted the appeal, over- turning the decision of the Venice Court of Appeal, and referred the case to the civil section of the Venice Court of Appeal to rule as regards payment of damages and the about €100 million, which Enel contested. During 2013, an agreement was reached – with no admission of liability by Enel/Enel Produzione – with the public entities of Emilia Romagna to express social solidarity in line with the gen- eral sustainability policies of the Group. The suits with the Ministry and private parties (environmental associations and a number of resident individuals, who have received no payments from Enel during the proceedings) remain open. On July 10, 2014, the decision of the Venice Court of Appeal was filed ordering the defendants, jointly with Enel/Enel Produzione, to pay damages in the amount of €312,500, plus more than €55,000 in legal expenses. The Ministry’s request for calculation of the amount of dam- ages it claimed it was owed was deemed inadmissible, as grounds for barring such action arose in the course of the criminal proceedings. In the meantime the Court issued a general conviction with damages to be awarded in a sep- arate decision and ordered payment of legal costs. Enel lodged an appeal with the Court of Cassation in February 2015 of the ruling of the Venice Court of Appeal of July 10, 2014 and is currently waiting for the date of the hearing to be set. On September 25, 2018, the Court of Cassation upheld one of the grounds of the appeal, overturning the general ruling in favor of the Ministry for the Environment and referring the proceeding to the Venice Court of Appeal for it to rule on any damages. At present, the Ministry has not yet appealed the case to the Venice Court of Appeal. Brindisi Sud thermal generation plant - Criminal proceedings against Enel employees division of such damages among the accused. As regards A criminal proceeding was held before the Court of Brindi- amounts paid to a number of public entities in Veneto, Enel si concerning the Brindisi Sud thermal plant. A number of has already made payment under a settlement agreement employees of Enel Produzione – cited in 2013 as a liable reached in 2008. With a suit lodged in July 2011, the Min- party in civil litigation – have been accused of causing crim- istry for the Environment, the public entities of Emilia Ro- inal damage and dumping of hazardous substances with magna and the private actors who had already participated regard to the alleged contamination of land adjacent to the as injured parties in the criminal case asked the Venice plant with coal dust as a result of actions between 1999 348 Annual Report 2018and 2011. At the end of 2013, the accusations were ex- journed to February 28, 2019, in order to hear the testi- tended to cover 2012 and 2013. As part of the proceeding, mony of the witnesses called by the other defendants), as injured parties, including the Province and City of Brindisi, the court ruled that the offenses could not be dismissed have submitted claims for total damages of about €1.4 under the statute of limitations. billion. In its decision of October 26, 2016, the Court of Brindisi: (i) acquitted nine of the thirteen defendants (em- ployees/managers of Enel Produzione) for not having com- mitted the offense; (ii) ruled that it did not have to proceed as the offense was time-barred for two of the defendants; and (iii) convicted the remaining two defendants, sentenc- ing them with all the allowances provided for by law to nine months’ imprisonment. With regard to payment of dam- ages, the Court’s ruling also: (i) denied all claims of public parties and associations acting in the criminal proceeding to recover damages; and (ii) granted most of the claims filed by the private parties acting to recover damages, re- ferring the latter to the civil courts for quantification with- out granting a provisional award. The convicted employees and the civil defendant, Enel Produzione SpA, as well as by the employee for whom the expiry of period of limitations had been declared, appealed the conviction. On February 8, 2019, the Lecce Court of Appeal: (i) confirmed the trial court ruling regarding the criminal convictions of two Enel Produzione executives; (ii) denied the claims for damages of some private appellants; (iii) granted some claims for damages, which had been denied in the trial court, refer- ring the parties, like the others – whose claims had been granted by the trial court – to the civil courts for quantifica- tion, without granting a provisional award; (iv) confirmed for the rest the ruling of the Court of Brindisi except for extending litigation costs to the Province of Brindisi, which had not been awarded damages at either the trial court or on appeal. Criminal proceedings are also under way before the Courts of Reggio Calabria and Vibo Valentia against a number of employees of Enel Produzione for the offense of illegal waste disposal in connection with alleged viola- tions concerning the disposal of waste from the Brindisi plant. Enel Produzione has not been cited as a liable party for civil damages. The criminal proceedings before the Court of Reggio Cal- abria ended with the hearing of June 23, 2016. The court acquitted nearly all of the Enel defendants of the main charges because no crime was committed. Just one case was dismissed under the statute of limitations. Similarly, all of the remaining charges involving minor offenses were dismissed under the statute of limitations. The proceed- ings before the Court of Vibo Valentia are still pending and are currently in the testimony phase (they were again ad- Out-of-court disputes and litigation connected with the blackout of September 28, 2003 In the wake of the blackout that occurred on September 28, 2003, numerous claims were filed against Enel Dis- tribuzione (now e-distribuzione) for automatic and other in- demnities for losses. These claims gave rise to substantial litigation before justices of the peace, mainly in the regions of Calabria, Campania and Basilicata, with a total of some 120,000 proceedings. Charges in respect of such indemni- ties could be recovered in part under existing insurance policies. Most of the initial rulings by these judges found in favor of the plaintiffs, while appellate courts have nearly all found in favor of Enel Distribuzione. The Court of Cassation has also consistently ruled in favor of Enel Distribuzione. In addition, in view of the rulings in Enel’s favor by both the courts of appeal and the Court of Cassation, the flow of new claims has come to a halt. Beginning in 2012, a num- ber of actions for recovery were initiated, which continue, to obtain repayment of amounts paid by Enel in execution of the rulings in the courts of first instance. In May 2008, Enel served its insurance company (Cat- tolica) a summons to ascertain its right to reimbursement of amounts paid in settlement of unfavorable rulings. The case also involved a number of reinsurance companies in the proceedings, which have challenged Enel’s claim. In a ruling of October 21, 2013, the Court of Rome granted Enel’s petition, finding the insurance coverage to be valid and ordering Cattolica, and consequently the reinsurance companies, to hold Enel harmless in respect of amounts paid or to be paid to users and their legal counsel as well as, within the limits established by the policies, to pay de- fense costs. Subsequently, Cattolica appealed the ruling of the court of first instance of October 21, 2013, before the Rome Court of Appeal, asking that it be overturned. In a ruling published on October 9, 2018, the Rome Court of Appeal denied the appeal of Cattolica, thereby upholding the original ruling. On the basis of the ruling of October 21, 2013, in Octo- 349 Consolidated financial statementsber 2014, Enel filed suit against Cattolica with the Court of Rome to obtain a quantification and payment of the BEG litigation amounts due to Enel from Cattolica. At the hearing of Oc- tober 3, 2016, the court denied the counterparties’ petition for a suspension of the proceeding pending completion of the appeals process. In a ruling of July 12, 2017 the court decided on the basis of the preliminary briefs to adjourn the suit until November 25, 2019 for closing arguments. Enel Energia and Servizio Elettrico Nazionale antitrust proceeding On May 11, 2017, the Competition Authority announced the beginning of proceedings for alleged abuse of a dominant position under Article 102 of the Treaty on the Functioning of the European Union (TFEU) against Enel SpA (“Enel”), Enel Energia SpA (“EE”) and Servizio Elettrico Nazionale SpA (“SEN”), alleging, inter alia, that they had engaged in an exclusionary strategy, using a series of non-replicable commercial stratagems capable of hindering their non- integrated competitors to the benefit of the Group’s com- pany operating on the free market (EE). On December 20, 2018 the Competition Authority adopted its final ruling, subsequently notified to the parties on Janu- ary 8, 2019, with which it levied a fine on Enel SpA, SEN and Enel Energia of €93,084,790.50, for abuse of a domi- nant position in violation of Article 102 of the TFEU. The disputed conduct consisted in the adoption of an ex- clusionary strategy through the illegitimate use of the data on regulated market customers acquired as part of the pri- vacy consent mechanism for commercial purposes. With regard to other allegations made with the measure to initiate the proceeding, concerning the organization and performance of sales activities at physical locations (Enel Points and Enel Point Partner Shops) and winback policies, the Competition Authority reached the conclusion that the preliminary findings did not provide sufficient evidence of any abusive conduct on the part of Enel Group companies. SEN, EE and Enel appealed the ruling before the Lazio Re- gional Administrative Court on February 15 and 18, 2019 and March 5, 2019, respectively. Following an arbitration proceeding initiated by BEG SpA in Italy, Enelpower obtained a ruling in its favor in 2002, which was upheld by the Court of Cassation in 2010, which entirely rejected the complaint with regard to al- leged breach by Enelpower of an agreement concerning the construction of a hydroelectric power station in Alba- nia. Subsequently, BEG, acting through its subsidiary Al- bania BEG Ambient, filed suit against Enelpower and Enel SpA in Albania concerning the matter, obtaining a ruling from the District Court of Tirana, upheld by the Albanian Court of Cassation, ordering Enelpower and Enel to pay tortious damages of about €25 million for 2004 as well as an unspecified amount of tortious damages for subse- quent years. Following the ruling, Albania BEG Ambient demanded payment of more than €430 million from Enel. The European Court of Human Rights, with which Enelpower SpA and Enel SpA had filed an appeal for violation of the right to a fair trial and the rule of law by the Republic of Albania, rejected the petition as inadmissible. The ruling was purely procedural and did not address the substance of the suit. With a ruling of June 16, 2015, the first level was completed in the additional suit lodged by Enelpower SpA and Enel SpA with the Court of Rome asking the Court to ascertain the liability of BEG SpA for having evaded compliance with the arbitration ruling issued in Italy in favor of Enelpower SpA through the legal action taken by Albania BEG Ambient Shpk. With this action, Enelpower SpA and Enel SpA asked the Court to find BEG liable and order it to pay damages in the amount that the other could be required to pay to Alba- nia BEG Ambient Shpk in the event of the enforcement of the sentence issued by the Albanian courts. With the ruling, the Court of Rome found that BEG SpA did not have stand- ing to be sued, or alternatively, that the request was not ad- missible for lack of an interest for Enel SpA and Enelpower SpA to sue, as the Albanian ruling had not yet been declared enforceable in any court. The Court ordered the setting off of court costs. Enel SpA and Enelpower SpA appealed the ruling before the Rome Court of Appeal, asking that it be overturned in full. The next hearing, originally scheduled for November 14, 2018, was postponed until May 8, 2019. On November 5, 2016, Enel SpA and Enelpower SpA filed a petition with the Albanian Court of Cassation, asking for 350 Annual Report 2018the ruling issued by the District Court of Tirana on March Enelpower, the court revoked the previous ruling issued 24, 2009 to be voided. The proceeding is still pending. with no hearing of the parties against the companies freez- Proceedings undertaken by Albania BEG Ambient Shpk to obtain enforcement of the ruling of the District Court of Tirana of March 24, 2009 ing assets of around $600 million. In a unanimous decision of February 8, 2018, the Appellate Court of the state of New York upheld the appeal of Enel SpA and Enelpower SpA, rejecting the argument that the Court of New York had jurisdiction over the request for enforcement submit- ted by Albania BEG Ambient Shpk. On February 23, 2018, the Supreme Court of the state of New York denied the petition of ABA to obtain recognition of the ruling of the Albanian court in the state of New York. France The Netherlands In February 2012, Albania BEG Ambient filed suit against On June 2, 2014 Albania BEG Ambient Shpk obtained an Enel SpA and Enelpower SpA with the Tribunal de Grande order from the court in the Hague, based upon the pre- Instance in Paris in order to render the ruling of the Alba- liminary injunction, freezing up to €440 million held with a nian court enforceable in France. Enel SpA and Enelpower number of entities and the establishment of a lien on the SpA challenged the suit. shares of two subsidiaries of Enel SpA in that country. Enel Following the beginning of the case before the Tribunal de SpA and Enelpower SpA challenged that ruling and on July Grande Instance, again at the initiative of BEG Ambient, 1, 2014, the Dutch court, in granting the petition of Enel between 2012 and 2013 Enel France was served with two and Enelpower, provisionally determined the value of the “Saise Conservatoire de Créances” (orders for the precau- suit at €25 million and ordered the removal of the prelimi- tionary attachment of receivables) to conserve any receiv- nary injunction subject to the issue of a bank guarantee in ables of Enel SpA in respect of Enel France. the amount of €25 million by Enel and Enelpower. Enel and On January 29, 2018, the Tribunal de Grande Instance Enelpower have appealed this ruling. issued a ruling in favor of Enel and Enelpower, denying On July 3, 2014, Albania BEG Ambient Shpk petitioned for Albania BEG Ambient Shpk the recognition and enforce- a second precautionary freeze of assets with no hearing of ment of the Tirana court’s ruling in France for lack of the the parties. Following the hearing of August 28, 2014, the requirements under French law for the purposes of grant- Hague Court granted a precautionary freeze of €425 mil- ing exequatur. Among other issues, the Tribunal de Grande lion on September 18, 2014. Enel and Enelpower appealed Instance ruled that: (i) the Albanian ruling conflicted with that measure. an existing decision, in this case the arbitration ruling of In a ruling of February 9, 2016, the Hague Court of Appeal 2002 and that (ii) the fact that BEG sought to obtain in Al- upheld the appeals, ordering the revocation of the prelimi- bania what it was not able to obtain in the Italian arbitration nary injunctions subject to the pledging of a guarantee by proceeding, resubmitting the same claim through Albania Enel of €440 million and a counter-guarantee by Albania BEG Ambient Shpk, represented fraud. BEG Ambient Shpk of about €50 million (the estimated val- Albania BEG Ambient Shpk appealed the ruling and the briefs ue of the losses of Enel and Enelpower from the seizure of are being exchanged between the parties. The hearing be- assets and the pledge of bank guarantees). Enel’s guaran- fore the Paris Court of Appeal is scheduled for June 9, 2020. tee was issued on March 30, 2016. Albania BEG Ambient State of New York Shpk did not issue its counter-guarantee. On April 4, 2016, Albania BEG Ambient Shpk appealed the ruling of February 9, 2016 before the Court of Cassation in In March 2014, Albania BEG Ambient Shpk filed suit the Netherlands, which in a ruling of June 23, 2017, denied against Enel SpA and Enelpower SpA in New York to ren- the appeal of Albania BEG Ambient Shpk, definitively de- der the ruling of the Albanian court enforceable in the state ciding the revocation of the preliminary injunctions. of New York. At the end of July 2014, Albania BEG Ambient Shpk filed On April 22, 2014, in response to a motion filed by Enel and suit with the Court of Amsterdam to render the ruling of 351 Consolidated financial statementsthe Albanian court enforceable in the Netherlands. On forced in the Netherlands. The Court of Appeal found that June 29, 2016, the court filed its judgment, which: (i) ruled the Albanian decision was arbitrary and manifestly unrea- that the Albanian ruling meet the requirements for recogni- sonable and therefore contrary to Dutch public order. For tion and enforcement in the Netherlands; (ii) ordered Enel these reasons, the court did not consider it necessary to and Enelpower to pay €433,091,870.00 to Albania BEG analyze the additional arguments of Enel and Enelpower. Ambient Shpk, in addition to costs and ancillary charges of The proceeding before the Court of Appeal continues with €60,673.78; and (iii) denied Albania BEG Ambient Shpk’s regard to the subordinate question raised by Albania BEG request to declare the ruling provisionally enforceable. On Ambient Shpk in the appeal proceedings, with which it is July 14, 2016, Albania BEG Ambient Shpk filed an appeal asking the court to rule on the merits of the dispute in Al- for a precautionary seizure on the basis of the Court of bania and in particular the alleged non-contractual liability Amsterdam’s decision of June 29, 2016 in the amount of of Enel and Enelpower in the failure to build the plant in €440 million with a number of entities and the seizure of Albania. On October 9, 2018, Albania BEG Ambient Shpk the shares of three companies controlled by Enel SpA in filed a brief, to which Enel and Enelpower replied on De- the Netherlands. Enel appealed and in a ruling of August cember 6, 2018, arguing for the lack of jurisdiction of the 26, 2016, the Court of Amsterdam decided that the pre- Dutch courts and, in any case, contesting the merits in full, cautionary measures issued in 2014 and 2016 would be re- reiterating that the claim is entirely groundless. The case voked if Albania BEG Ambient Shpk did not provide a bank will be heard on April 8, 2019. guarantee of €7 million to Enel and Enelpower by October 21, 2016. Albania BEG Ambient Shpk did not provide the guarantee and, accordingly, the seizures of the assets of Ireland Enel and Enelpower in the Netherlands were revoked and no longer effective as from October 21, 2016. Albania BEG Ambient Shpk appealed the decision of August 26, 2016 but the proceeding was suspended under an agreement between the parties pending the ruling of the Dutch Court of Cassation in the proceeding over the precautionary measures (which was then issued on June 23, 2017). The appeal against the decision of August 26, 2016 therefore Albania BEG Ambient Shpk also filed suit in Ireland to ren- der the ruling of the Court of Tirana enforceable in this country. The High Court issued a ruling on March 8, 2016 upholding the defense of Enel and Enelpower, finding that the country had no jurisdiction. On March 31, 2017, Albania BEG Ambient Shpk filed an expedited appeal against the ruling of March 8, 2016 finding that Ireland had no jurisdic- tion. Enel and Enelpower responded to the appeal filing on remains suspended in the absence of a specific request by April 7, 2017. one of the parties. The suspension has had no impact on the fact that the seizures of assets in the Netherlands have not been in effect since October 2016. On June 29, 2016, Enel and Enelpower filed appeals against the ruling of the Court of Amsterdam issued on the same date. On September 27, 2016, Albania BEG Ambi- ent also appealed the court’s ruling of June 29, 2016, to request the reversal of its partial loss on the merits. On April 11, 2017, the Amsterdam Court of Appeal granted the request of Enel and Enelpower to join to two pending ap- peals. On January 29, 2018, oral arguments in the appellate pro- ceeding were held, following which the Court allowed In a ruling of February 26, 2018, the Irish court denied the appeal of Albania BEG Ambient Shpk. Enel and Enelpower have taken action to recover the costs awarded in the ruling. Luxembourg In Luxembourg, again at the initiative of Albania BEG Am- bient Shpk, J.P. Morgan Bank Luxembourg SA was also served with an order for the precautionary attachment of any receivables of Enel SpA. In parallel Albania BEG Ambi- ent Shpk filed a claim to obtain enforcement of the ruling of the Court of Tirana in that country. The proceeding is still under way and briefs are being exchanged between the Enel and Enelpower to place in evidence the decision with parties. No ruling has been issued. which the Tribunal de Grande Instance of Paris denied rec- ognition of the Albanian ruling in France. In a ruling of July 17, 2018, the Amsterdam Court of Appeal upheld the appeal advanced by Enel and Enelpower, ruling that the Albanian judgment cannot be recognized and en- 352 Annual Report 2018Violations of Legislative Decree 231/2001 On July 14, 2017, Enel Green Power SpA received notice of charges brought before the Court of Ancona for alleged violation of Legislative Decree 231/2001 concerning the administrative liability of legal persons. The proceeding was begun for the alleged commission by an agent of the company, in the company’s interest, of the offence of de- the European Union’s environmental policy. On April 13, 2018, Endesa Generación SA, acting as an interested third party, submitted comments contesting this interpretation, while on July 30, 2018, it was learned that Gas Natural had appealed the decision of the Commission. Furnas - Tractebel litigation - Brazil struction of a natural habitat in a protected area. The case In 1998 the Brazilian company CIEN (now Enel CIEN) has been joined with a separate proceeding involving the signed an agreement with Tractebel for the delivery of same agent and two other defendants for the same al- electricity from Argentina through its Argentina-Brazil in- leged offences. terconnection line. As a result of Argentine regulatory On 10 August 2018, a direct summons for judgment was changes introduced as a consequence of the economic cri- notified to e-distribuzione to appear before the Court of sis in 2002, CIEN was unable to make the electricity avail- Milan on May 23, 2019. In addition to e-distribuzione SpA, able to Tractebel. In October 2009, Tractebel sued CIEN, the proceeding involves one of its employees, as well as which submitted its defense. CIEN cited force majeure as a number of third-party companies and their representa- a result of the Argentine crisis as the main argument in its tives, concerning alleged violations of Legislative Decree defense. Out of court, Tractebel has indicated that it plans 231/2001 on the administrative liability of legal persons. to acquire 30% of the interconnection line involved in the The proceeding was initiated for the alleged commission dispute. In March 2014, the court had granted CIEN’s mo- of the crime of unauthorized handling of waste (Article 256 tion to suspend the proceedings in view of the existence of of the Uniform Environmental Code) and for the violation of other litigation pending between the parties. On February the provisions of the Code of Cultural Heritage (Legislative 14, 2019, CIEN received notice of an order reopening the Decree 42/2004) in relation to works to remove a power proceeding, with the beginning of expert witness opera- line. The examination of a number of witnesses called by tions. The amount involved in the dispute is estimated at the prosecutor is scheduled for a hearing on May 23, 2019. about 118 million Brazilian reais (about €28 million), plus Environmental incentives - Spain Following the Decision of the European Commission of November 27, 2017 on the issue of environmental incen- tives for thermal power plants, the European Commis- sion’s Directorate-General for Competition opened an investigation pursuant to Article 108, paragraph 2, of the Treaty on the Functioning of the European Union (TFEU) in order to assess whether the environmental incentive for coal power plants provided for in Order ITC/3860/2007 represents State aid compatible with the internal market. According to a literal interpretation of that Decision, the Commission reached the preliminary conclusion that the incentive in question would constitute State aid pursuant to Article 107, paragraph 1, of the TFEU, expressing doubts about the compatibility of the incentive with the internal market while recognizing that the incentives are in line with unspecified damages. For analogous reasons, in May 2010 Furnas also filed suit against CIEN for failure to deliver elec- tricity, requesting payment of about 520 million Brazilian reais (about €124 million), in addition to unspecified dam- ages. In alleging non-performance by CIEN, Furnas is also seeking to acquire ownership (in this case 70%) of the in- terconnection line. CIEN’s defense is similar to the earlier case. The claims put forth by Furnas were rejected by the trial court in August 2014. Furnas lodged an appeal against the latter decision, while CIEN also lodged a counter-ap- peal. On August 21, 2018, the Tribunal de Justiça denied the appeal of Furnas while granting CIEN’s petition. Cibran litigation - Brazil Companhia Brasileira de Antibióticos (“Cibran”) has filed six suits against Ampla Energia e Serviços SA (“Ampla”) to obtain damages for alleged losses incurred as a result of the interruption of electricity service by the Brazilian dis- tribution company between 1987 and 2002, in addition to 353 Consolidated financial statementsnon-pecuniary damages. The Court ordered a unified tech- of appeal, but Coperva filed a further appeal (Embargo de nical appraisal for those cases, the findings of which were Declaração), which was denied in a ruling of January 11, partly unfavorable to Ampla. The latter challenged the find- 2016. Coperva lodged an extraordinary appeal before the ings, asking for a new study, which led to the denial of part Superior Tribunal de Justiça on February 3, 2016, which of Cibran’s petitions. Cibran subsequently appealed the was granted on November 5, 2018 for the ruling issued in decision and the ruling was in favor of Ampla. the previous appeal (Embargo de Declaração). On Decem- The first suit, filed in 1999 and regarding the years from ber 3, 2018, Enel filed an appeal (Agravo Interno) against 1994 to 1999, was adjudicated in September 2014 when this ruling of the Superior Tribunal de Justiça. The proceed- the court of first instance issued a ruling against Ampla, levy- ings are currently pending. ing a fine of about 200,000 Brazilian reais (about €46,000) as well as other damages to be quantified at a later stage. Ampla appealed the ruling and the appeal was upheld by the Tribunal de Justiça. In response, on December 16, 2016, Cibran filed an appeal (recurso especial) before the Superior Tribunal de Justiça, and the proceeding is under way. With regard to the second case, filed in 2006 and regarding the years from 1987 to 2002, on June 1, 2015, the courts issued a ruling ordering Ampla to pay 80,000 Brazilian reais (about €19,000) in non-pecuniary damages as well as 96,465,103 Brazilian reais (about €23 million) in pecuniary damages, plus interest. On July 8, 2015 Ampla appealed the decision with the Tribunal de Justiça of Rio de Janeiro and the parties are awaiting a ruling. Decisions are still pending with regard to the remaining four suits. The value of all the disputes is estimated at about 464 million Brazilian reais (about €107 million). Coperva litigation - Brazil AGM litigation - Brazil In 1993, Enel Distribuição Goiás, the Association of Munici- palities of Goiás (AGM), the state of Goiás and the Bank of Goiás reached an agreement (convenio) for the payment of municipal debts to Enel Distribuição Goiás through the transfer of the portion of ICMS (VAT) that the state would have transferred to those governments. In 2001 the parties to the agreement were sued by the individual municipal governments to obtain a ruling that the agreement was invalid, a position then upheld by the Supreme Federal Court on the grounds of the non-participation of the local governments themselves in the agreement process. In September 2004, Enel Distribuição Goiás reached a settle- ment with 23 municipalities. Between 2007 and 2008, Enel Distribuição Goiás was again sued on numerous oc- casions (there are currently 90 pending suits) seeking the restitution of amounts paid under the agreement. Despite the ruling that the agreement was void, Enel Distribuição As part of the project to expand the grid in rural areas Goiás argues that the payment of the debts on the part of Brazil, in 1982 Companhia Energética do Ceará SA of the local governments is legitimate, as electricity was (“Coelce”), then owned by the Brazilian government and supplied in accordance with the supply contracts and, ac- now an Enel Group company, had entered into contracts cordingly, the claims for restitution of amounts paid should for the use of the grids of a number of cooperatives es- be denied. The total value of the suits is equal to about 1 tablished specifically to pursue the expansion project. The billion Brazilian reais (about €231 million). contracts provided for the payment of a monthly fee by It is important to note that as part of the privatization of Coelce, which was also required to maintain the networks. Enel Distribuição Goiás, a tax relief mechanism was in- Those contracts, between cooperatives established in troduced that allows Enel Distribuição Goiás to offset its special circumstances and the then public-sector compa- ICMS (VAT) liability with a tax credit in respect of invest- ny, do not specifically identify the grids governed by the ments by Enel Distribuição Goiás in the development and agreements, which has prompted a number of the coop- maintenance of its grid. eratives to sue Coelce asking for, among other things, a revision of the fees agreed in the contracts. These actions include the suit filed by Cooperativa de Eletrificação Ru- ral do V do Acarau Ltda (“Coperva”) with a value of about 218 million Brazilian reais (about €53 million). Coelce was granted rulings in its favor from the trial court and the court ANEEL litigation - Brazil In 2014, Enel Distribuição São Paulo initiated an action be- fore the federal courts seeking to void the administrative measure of ANEEL (the National Electricity Agency), which 354 Annual Report 2018in 2012 retroactively introduced a negative coefficient to be Another acción popular was brought by a number of fish applied in determining rates for the following regulatory pe- farming companies over the alleged impact that filling the riod (2011-2015). With this provision, the Authority ordered El Quimbo basin would have on fishing in the Betania basin the restitution of the value of some components of the downstream from El Quimbo. In February 2015, the Court network previously included in rates because they were ordered the precautionary suspension of filling operations considered non-existent and rejected Enel Distribuição until a number of specific requirements have been met. São Paulo’s request to include additional components in The precautionary suspension was subsequently modified rates. On September 9, 2014, the administrative measure to permit filling to proceed, which began on June 30, 2015. of ANEEL was suspended on a precautionary basis. The However, on July 17, 2015 Emgesa received a notice modi- first-instance proceeding is in its preliminary stages and fying the precautionary measure to prohibit generation ac- the value of the suit is 833 million Brazilian reais (about tivities until ANLA (the national environmental authority) €185 million). certifies that the company removed the biomass and for- Neoenergia arbitration - Brazil On June 18, 2018, Neoenergia brought an arbitration ac- tion against Enel Distribuição São Paulo before the Câmara de Arbitragem do Mercado (CAM) concerning the invest- ment agreement signed by the two companies on April 16, 2018. Neoenergia alleged unequal treatment of the participants in the procedure for the acquisition of Enel Distribuição São Paulo. On September 3, 2018, Neoener- gia modified its claim, abandoning its request for specific execution of the obligation contained in the contract. The current claim is a request for damages for losses caused by alleged non-performance of the investment agreement. The value of the dispute is currently undetermined. El Quimbo - Colombia est waste from the El Quimbo reservoir basin. Pending the ruling, as an energy emergency has been de- clared, the Ministry of Energy issued a decree authorizing Emgesa to begin generation. On December 16, 2015, the Constitutional Court ruled that the presidential Decree was unconstitutional and as from that date Emgesa suspended electricity generation. On December 24, 2015, the Ministerio de Minas y Energía and AUNAP (the authority for agriculture and fishing) filed a joint motion asking the criminal court to authorize gen- eration as a precautionary measure. On January 8, 2016, the court granted the precautionary measure requested by the Ministry and AUNAP, authorizing the temporary and immediate resumption of generation at El Quimbo. The precautionary measure granted by the court would remain in force until the Huila court issued a ruling on the sub- stance of the case, i.e. the revocation or upholding of the precautionary measure previously issued by the local ad- ministrative court. With a decision of February 22, 2016, the Huila court issued a ruling allowing generation to con- A number of legal actions (“acciones de grupo” and “ac- tinue for six months. The court ordered Emgesa to prepare ciones populares”) brought by residents and fishermen in a technical design that would ensure compliance with oxy- the affected area are pending with regard to the El Quimbo gen level requirements and to provide collateral of about project for the construction of a 400 MW hydroelectric 20,000,000,000 Colombian pesos (about €5.5 million). In a plant in the region of Huila (Colombia). More specifically, ruling of the Administrative Court of Huila of April 11, 2016 the first acción de grupo, currently in the preliminary stage, the temporary revocation of the precautionary injunction was brought by around 1,140 residents of the municipal- was upheld for a period of six months until October 16, ity of Garzón, who claim that the construction of the plant 2016, which was subsequently extended for a further six would reduce their business revenue by 30%. A second months as from February 2017. Following the deadline for action was brought, between August 2011 and December the suspension of the precautionary injunction in August 2012, by residents and businesses/associations of five mu- 2017, in the absence of contrary court rulings the El Quim- nicipalities of Huila claiming damages related to the clos- bo plant is continuing to generate electricity as the oxygen- ing of a bridge (Paso El Colegio). With regard to acciones ation system installed by Emgesa has so far demonstrated populares, or class action lawsuits, in 2008 a suit was filed that it can maintain the oxygen levels required by the court. by a number of residents of the area demanding, among The proceeding is currently stalled as the Court evaluates other things, that the environmental permit be suspended. a proposed settlement between the parties, submitted on 355 Consolidated financial statementsNovember 27, 2017, which has also been notified to the competent authorities. On January 24, 2018, the Court of Huila rejected the settlement agreement, a ruling that has been appealed by the parties. On March 22, 2018, ANLA and CAM jointly presented the SAPE (formerly Electrica) arbitration proceedings - Romania final report on the monitoring of water quality downstream On April 20, 2016 SAPE submitted a further request for of the dam of the El Quimbo hydroelectric plant. Both au- arbitration before the International Chamber of Commerce thorities confirmed the compliance of Emgesa with the in Paris in respect of Enel SpA and Enel Investment Hold- oxygen level requirements. On June 15, 2018, Emgesa ing BV concerning an alleged contractual breach for failure filed its final pleadings and is waiting for the court to issue to distribute dividends from E-Distribuţie Muntenia and its ruling. Nivel de Tensión Uno proceedings - Colombia This dispute involves an “acción de grupo” brought by Cen- tro Médico de la Sabana hospital and other parties against Codensa seeking restitution of allegedly excess rates. The action is based upon the alleged failure of Codensa to ap- ply a subsidized rate that they claim the users should have paid as Tensión Uno category users (voltage of less than 1 kV) and owners of infrastructure, as established in Reso- Enel Energie Muntenia. In September 2016 SAPE modi- fied its arbitration claims, suing Enel Energie Muntenia and E-Distribuţie Muntenia as well and revising its monetary claim to about €56 million. On May 22, 2017 SAPE again modified its claim, quantifying it in the amount of about €110 million plus interest. A hearing was held in the first week of October 2018 and the ruling of the arbitrators is pending. Gabčíkovo dispute - Slovakia lution 82/2002, as amended by Resolution 97/2008. The Slovenské elektrárne (“SE”) is involved in a number of suit is at a preliminary stage. The estimated value of the cases before the national courts concerning the 720 MW proceeding is about 337 billion Colombian pesos (about Gabčíkovo hydroelectric plant, which is administered by €96 million). Emgesa and Codensa arbitration proceedings - Colombia Vodohospodárska Výsatavba Štátny Podnik (“VV”) and whose operation and maintenance, as part of the privatiza- tion of SE in 2006, had been entrusted to SE for a period of 30 years under a management agreement (the VEG Op- erating Agreement). Immediately after the closing of the privatization, the Pub- lic Procurement Office (PPO) filed suit with the Court of On December 4, 2017, Enel Américas SA was notified by Bratislava seeking to void the VEG Operating Agreement the Grupo Energía de Bogotá (“GEB”) (which holds about on the basis of alleged violations of the regulations gov- 51.5% of Emgesa and Codensa) of the start of arbitration erning public tenders, qualifying the contract as a service proceedings before the Centro de Arbitraje y Conciliación contract and as such governed by those regulations. In No- de la Cámara de Comercio de Bogotá. vember 2011 the trial court ruled in favor of SE, whereupon GEB has filed a claim of about 63,619,000,000 Colombian the PPO immediately appealed the decision. pesos (about €18 million) for Codensa and 82,820,000,000 In parallel with the PPO action, VV also filed a number of Colombian pesos (about €23 million) for Emgesa. suits, asking in particular for the voidance of the VEG Op- On August 22, 2018, Enel Américas was informed that erating Agreement. GEB had abandoned its action. On October 8, 2018, GEB On December 12, 2014, VV withdrew unilaterally from the announced it was seeking a new arbitration proceeding VEG Operating Agreement, notifying its termination on against Enel Américas SA before the Arbitration Board of March 9, 2015, for breach of contract. On March 9, 2015, Bogotá, the content of which had not yet been disclosed. the decision of the appeals court overturned the ruling of the trial court and voided the contract as part of the ac- tion pursued by the PPO. SE lodged an extraordinary ap- 356 Annual Report 2018peal against that decision before the Supreme Court. At a hydroelectric plant and the sale of the power generated by hearing of June 29, 2016, the Supreme Court denied the the plant to ICE under a build, operate and transfer contract appeal. SE then appealed the ruling to the Constitutional (“BOT”). The agreement provides for Chucas to build and Court, which denied the appeal on January 18, 2017. operate the plant for 20 years, before transferring it to ICE. In addition, SE lodged a request for arbitration with the Under the BOT contract, the plant should have entered Vienna International Arbitral Centre (VIAC) under the VEG service on September 26, 2014. For a number of reasons, Indemnity Agreement. Under that accord, which had been including flooding, landslides and similar events, the proj- signed as part of the privatization between the National ect experienced cost overruns and delays, with a conse- Property Fund (now MH Manazment) of the Slovak Repub- quent delay in meeting the obligation to deliver electricity. lic and SE, the latter is entitled to an indemnity in the event In view of these developments, in 2012 and 2013 Chucas of the early termination of the VEG Operating Agreement submitted an administrative petition to ICE to recover the for reasons not attributable to SE. The arbitration court re- higher costs incurred and obtain a postponement of the jected the objection that it did not have jurisdiction and the entry into service of the plant. ICE denied the petition in arbitration proceeding continued to examine the merits of 2015 and in fact levied two fines of about $9 million (about the case, with a ruling on the amount involved being de- €7 million) for the delays in entering service. Following the ferred to any subsequent proceeding. On June 30, 2017, precautionary appeal of Chucas, payment of the fines was the arbitration court issued its ruling denying the request suspended. The plant entered service in December 2016. of SE. In addition, as ICE had rejected the administrative peti- In parallel with the arbitration proceeding launched by SE, tion, on May 27, 2015, under the provisions of the BOT both VV and MH Manazment filed two suits in the Slova- contract, Chucas initiated an arbitration proceeding before kian courts to void the VEG Indemnity Agreement owing to the Cámara Costarricense-Norteamericana de Comercio the alleged connection of the latter with the VEG Operat- (AMCHAM CICA) seeking reimbursement of the additional ing Agreement. These proceedings were joindered and, on costs incurred to build the plant and as a result of the de- September 27, 2017, a hearing was held before the Court lays in completing the project as well as voidance of the of Bratislava in which the judge denied the request of the fine levied by ICE. In a decision issued in December 2017, plaintiffs for procedural reasons. Both VV and MH Manaz- the arbitration board ruled in Chucas’ favor, granting recog- ment appealed that decisions and the proceedings are un- nition of the additional costs in the amount of about $113 der way. In addition, at the local level, SE was sued by million (about €91 million) and legal costs and ruling that VV for alleged unjustified enrichment (estimated at about the fines should not be paid. ICE appealed the arbitration €360 million plus interest) for the period from 2006 to ruling in the local courts. Chucas filed a brief as part of the 2015. SE filed counter-claims for all of the proceedings un- litigation and the proceeding is under way. der way. Finally, in another proceeding before the Court of Bratislava, VV asked for SE to return the fee for the transfer In addition, on October 3, 2015, in consideration of the from SE to VV of the technology assets of the Gabčíkovo violation of a number of contractual obligations (including plant as part of the privatization, with a value of about €43 failure to meet the deadline to complete the works) on the million plus interest. The parties exchanged briefs and at part of FCC Construcción América SA and FCC Construc- the last hearing on December 6, 2018, the court again ad- ción SA (FCC) – which had been engaged to build some journed the case without specifying a date. of the works for the hydroelectric plant – Chucas notified Precautionary administrative proceeding and Chucas arbitration the parties that it was terminating the contract for breach, enforcing the guarantees issued to it. However, the guar- antees have not yet been paid pending resolution of a precautionary proceeding initiated by FCC on October 27, 2015, at the International Court of Arbitration in Paris. In a filing of March 10, 2017, FCC requested a ruling that the PH Chucas SA (“Chucas”) is a special purpose entity es- contract had been terminated without cause and asked tablished by Enel Green Power Costa Rica SA after it won for damages of about $27 million (about €22 million). In a tender organized in 2007 by the Instituto Costarricense a brief filed in May 2017, Chucas, in addition to asking for de Electricidad (“ICE”) for the construction of a 50 MW the plaintiff’s claims to be denied, filed a counter-claim 357 Consolidated financial statementsto obtain confirmation of termination of contract for non- nian company to refinance itself with its Brazilian parent, performance, asking for damages of at least $38 million which for that purpose obtained loans from local banks. (about €30 million). On December 9, 2018, the ruling of the The tax authorities considered this financing to be the arbitrators was issued, declaring valid Chucas’ termination equivalent of the early extinguishment of the bond, with of the contract for breach. On December 4, 2018, Chucas the consequent loss of entitlement to the exemption from received payment of about $12 million (about €11 million) withholding tax. in execution of the arbitration ruling. In December 2005, Ampla carried out a spin-off that in- GasAtacama Chile - Chile On August 4, 2016, the Superintendencia de Electricidad y Combustibles (“SEC”) fined GasAtacama Chile $8.3 million for information provided by the latter to the CDEC- SING (Centro de Despacho Económico de Carga) between January 1, 2011 and October 29, 2015, relating to the Mini- mum Technical and Minimum Operating Time variables at the Atacama plant. GasAtacama Chile appealed this measure with the SEC, which denied the appeal on November 2, 2016. GasAta- cama Chile appealed this decision before the Santiago Court of Appeals and the proceeding is close to a ruling. In parallel, GasAtacama Chile also filed an appeal before the Constitutional Court, claiming that the legal provisions under which the SEC imposed the fine had been repealed at the time the penalty was issued. On July 17, 2018, the Constitutional Court rejected GasAtacama Chile’s appeal. In relation to this issue, some operators of the Sistema Interconectado del Norte Grande (SING), including Aes Gener SA, Eléctrica Angamos SA and Engie Energía Chile SA have initiated actions in order to obtain damages in an amount of about €58 million (the former) and about €141 million (the latter two). The disputes were joindered in part in a single proceeding and are currently pending. Tax litigation in Brazil Withholding tax - Ampla In 1998, Ampla Energia e Serviços SA (“Ampla”) financed the acquisition of Coelce with the issue of bonds in the amount of $350 million (“Fixed Rate Notes” – FRN) sub- scribed by its Panamanian subsidiary, which had been established to raise funds abroad. Under the special rules then in force, subject to maintaining the bond until 2008, the interest paid by Ampla to its subsidiary was not subject to withholding tax in Brazil. However, the financial crisis of 1998 forced the Panama- 358 volved the transfer of the residual FRN debt and the as- sociated rights and obligations to Ampla Investimentos e Serviços SA. On November 6, 2012, the Câmara Superior de Recursos Fiscais (the highest level of administrative courts) issued a ruling against Ampla, for which the company promptly asked that body for clarifications. On October 15, 2013, Ampla was notified of the denial of the request for clarifica- tion (Embargo de Declaração), thereby upholding the previ- ous adverse decision. The company provided security for the debt and on June 27, 2014 continued litigation before the ordinary courts (Tribunal de Justiça). In December 2017, the court appointed an expert to ex- amine the issue in greater detail in support of the future ruling. In September 2018, the expert submitted a report, requesting additional documentation. In December 2018, the company provided the additional documentation and is awaiting the court’s assessment of the arguments and documents presented. The amount involved in the dispute at December 31, 2018 was about €286 million. PIS - Eletropaulo In July 2000, Eletropaulo filed suit seeking a tax credit for PIS (Programa Integração Social) paid in application of regulations (Decree Laws 2.445/1988 and 2.449/1988) that were subsequently declared unconstitutional by the Supremo Tribunal Federal (STF). In May 2012, the Superior Tribunal de Justiça (STJ) issued a final ruling in favor of the company that recognized the right to the credit. In 2002, before the issue of that favorable final ruling, the company had offset its credit against other federal taxes. This behavior was contested by the federal tax authori- ties but the company, claiming it had acted correctly, chal- lenged in court the assessments issued by the federal tax authorities. Following defeat at the initial level of adjudica- tion, the company appealed. The amount involved in the dispute at December 31, 2018 was about €144 million. Annual Report 2018ICMS - Ampla, Coelce and Eletropaulo The states of Rio de Janeiro, Ceará and São Paulo issued a number of tax assessments against Ampla Energia e Ser- PIS - Eletropaulo In December 1995, the Brazilian government increased the rate of the federal PIS (Programa Integração Social) tax from 0.50% to 0.65% with the issue of a provisional mea- viços SA (for the years 1996-1999 and 2007-2017), Com- sure (Executive Provisional Order). panhia Energética do Ceará (2003, 2004 and 2006-2012) and Eletropaulo (2008-2017), challenging the deduction of ICMS (Imposto sobre Circulação de Mercadorias e Ser- viços) in relation to the purchase of certain non-current as- Subsequently, the provisional measure was re-issued five times before its definitive ratification into law in 1998. Un- der Brazilian legislation, an increase in the tax rate (or the establishment of a new tax) can only be ordered by law sets. The companies challenged the assessments, arguing and take effect 90 days after its publication. that they correctly deducted the tax and asserting that the assets, the purchase of which generated the ICMS, are intended for use in their electricity distribution activities. The companies are continuing to defend their actions at the various levels of adjudication. The amount involved in the disputes totaled approximately €92 million at December 31, 2018. Eletropaulo therefore filed suit arguing that an increase in the tax rate would only have been effective 90 days af- ter the last Provisional Order, claiming that the effects of the first four provisional measures should be considered void (since they were never ratified into law). This dispute ended in April 2008 with recognition of the validity of the increase in the PIS rate starting from the first provisional measure. Withholding tax - Endesa Brasil In May 2008, the Brazilian tax authorities filed a suit against Eletropaulo to request payment of taxes corresponding to On November 4, 2014, the Brazilian tax authorities issued an the rate increase from March 1996 to December 1998. assessment against Endesa Brasil SA (now Enel Brasil SA) Eletropaulo has fought the request at the various levels alleging the failure to apply withholding tax to payments of of adjudication, arguing that the time limit for the issue of allegedly higher dividends to non-resident recipients. the notice of assessment had lapsed. In particular, since More specifically, in 2009, Endesa Brasil, as a result of more than five years have passed since the taxable event the first-time application of the IFRS-IAS, had cancelled (December 1995, the date of the first provisional measure) goodwill, recognizing the effects in equity, on the basis of without issuing any formal instrument, the right of the tax the correct application of the accounting standards it had authorities to request the payment of additional taxes and adopted. The Brazilian tax authorities, however, asserted the authority to undertake legal action to obtain payment – during an audit – that the accounting treatment was in- has been challenged. correct and that the effects of the cancellation should have In 2017, following the unfavorable decisions issued in pre- been recognized through profit or loss. As a result, the cor- vious rulings, Eletropaulo filed an appeal in defense of its responding value (about €202 million) was reclassified as rights and its actions with the Superior Tribunal de Justiça a payment of income to non-residents and, therefore, sub- (STJ) and the Supremo Tribunal Federal (STF). The pro- ject to withholding tax of 15%. ceedings are still pending while the amounts subject to It should be noted that the accounting treatment adopted dispute have been covered by a bank guarantee. by the company was agreed with the external auditor and In this last regard, it should be noted that, while awaiting also confirmed by a specific legal opinion issued by a local the outcome of these proceedings, the Office of the Attor- firm specializing in corporate law. ney General of the Brazilian National Treasury Department The first two levels of the administrative courts ruled – in has submitted a request for the replacement of the bank July 2016 and September 2018 respectively – for the tax guarantee with a deposit in court. This request was denied authorities. The company will continue its defend its ac- in September 2017, with the Attorney General’s Office ap- tions and the appropriateness of the accounting treatment pealing that decision in February 2018. at the third level of jurisdiction. The total value of the case at December 31, 2018 was The overall amount involved in the dispute at December about €54 million. 31, 2018 was about €64 million. 359 Consolidated financial statementsTax litigation in Spain financial charges (about €22 million) and costs for decom- missioning nuclear power plants (about €5 million). Income tax - Enel Iberia, Endesa and subsidiaries In 2018, the Spanish tax authorities completed a general au- Income taxes - Enel Green Power España SL On June 7, 2017, the Spanish tax authorities issued a no- dit involving the companies of the Group participating in the tice of assessment to Enel Green Power España SL, con- Spanish tax consolidation mechanism. This audit, which be- testing the treatment of the merger of Enel Unión Fenosa gan in 2016, involved corporate income tax, value added tax Renovables SA (“EUFER”) into Enel Green Power España and withholding taxes (mainly for the years 2012 to 2014). SL in 2011 as a tax neutral transaction, asserting that the With reference to the main claims, the companies involved transaction had no valid economic reason. have challenged the related assessments at the first ad- On July 6, 2017, the company appealed the assessment at ministrative level (Tribunal Económico-Administrativo Cen- the first administrative level (Tribunal Económico-Adminis- tral - TEAC), defending the correctness of their actions. trativo Central - TEAC), defending the appropriateness of With regard to the disputes concerning corporate income the tax treatment applied to the merger. During the pro- tax, the issues for which an unfavorable outcome is consid- ceeding, the company will provide all the supporting docu- ered possible amounted to about €141 million at December mentation demonstrating the synergies achieved as a re- 31, 2018: (i) Enel Iberia is defending the appropriateness of sult of the merger in order to prove the existence of a valid the criterion adopted for determining the deductibility of economic reason for the transaction. capital losses deriving from stock sales (around €99 mil- The total value involved in the proceeding as at Decem- lion) and certain financial charges (around €15 million); (ii) ber 31, 2018 was about €90 million. This amount has been Endesa and its subsidiaries are defending the appropriate- secured with bank guarantees to obtain a suspension of ness of the criteria adopted for the deductibility of certain collection efforts. 53. Events after the reporting period Issue of new €1 billion green bond in Europe On January 14, 2019, Enel Finance International NV (“EFI”), an Enel Group finance company controlled by Enel SpA (“Enel”, rated BBB+ for S&P, Baa2 for Moody’s, and BBB+ for Fitch), successfully placed its third green bond on the European market, reserved for institutional investors and backed by a guarantee issued by Enel. The issue amounts to a total of €1,000 million and provides for repayment in a single instalment at maturity on July 21, 2025 and the payment of a fixed-rate coupon equal to 1.500%, payable annually in arrears in the month of July as from 2019. The issue price was set at 98.565% and the effective yield at maturity is equal to 1.736%. The settlement date for the issue was January 21, 2019. The green bond is expected to be listed on the Irish Stock Exchange, on the Luxembourg Stock Exchange and be ad- mitted to trading on the multilateral trading facility “Extra- MOT PRO” organized and operated by Borsa Italiana. It is also expected that the green bond will be assigned ratings in line with those of Enel. The transaction has received subscriptions amounting to more than €4.2 billion, with the significant participation of Socially Responsible Investors (“SRI”), enabling the Enel Group to continue to diversify its investor base. Agreement to sell 540 MW of renewables capacity in Brazil for €700 million On January 16, Enel SpA (“Enel”), acting through its re- newables subsidiary Enel Green Power Brasil Participa- ções Ltda (“EGP Brazil”), signed agreements with Chinese company CGN Energy International Holdings Co. Limited (“CGNEI”) for the sale of 100% of three renewable gen- eration plants totaling 540 MW. The overall price in the transaction, to be paid at closing, is equal to the assets’ 360 Annual Report 2018enterprise value and amounts to approximately 2.9 billion 2019 to approve a capital increase of up to $3.5 billion, to Brazilian reais, equivalent to around €700 million at current be fully subscribed in cash. The increase is expected to exchange rates. be carried out through the issue of new ordinary shares The three operating renewable assets being sold are the and American Depositary Shares (“ADSs”) to be offered in solar plants Nova Olinda (292 MW), located in the north- pre-emption to shareholders in proportion to the number eastern Brazilian state of Piauí, and Lapa (158 MW), situ- of shares/ADSs they hold. ated in the north-eastern Brazilian state of Bahia, as well as Through the capital increase Enel Américas, according to the 90 MW Cristalândia wind farm, also in Bahia. the proposal of its Board of Directors, will seek to enhance Enel Green Power España starts construction of 90 MW of new wind capacity in Spain Enel Green Power España has started construction of three wind farms with an overall capacity of around 90 MW located across the municipalities of Allueva, Fonfría, Mezquita de Jarque, Fuentes Calientes, Cañada Vellida and Rillo in the Spanish province of Teruel, in the region of Aragon. The total investment in the three facilities amounts to approximately €88 million. The three wind farms are slated to enter service by the end of 2019, and once completed they will generate over 295 GWh per year, while avoiding the annual emission of some 196 thousand metric tons of CO2 into the atmosphere. The expected capacity of the 7-turbine Allueva plant exceeds 25 MW, while that of the 4-turbine Sierra Pelarda wind farm, situated in Fonfría, is about 15 MW. The largest of the three facilities is the 14-turbine Sierra Costera I, which will boast a capacity of around 50 MW and is located across the municipalities of Mezquita de Jarque, Fuentes Calientes, Cañada Vellida and Rillo. Board of Directors of Enel Américas calls extraordinary shareholders’ meeting to approve capital increase of up to $3.5 billion On February 28, 2019, Enel SpA (“Enel”) announced that the Board of Directors of the Chilean subsidiary Enel Améri- cas SA (“Enel Américas”), of which Enel owns 51.8%, has called an extraordinary shareholders’ meeting for April 30, its financial position to pursue new opportunities for or- ganic and inorganic growth, both through minority buy- outs and M&As, optimizing cash flows and improving its debt level. Moreover, the capital increase will enable an in- crease in the free float and capitalization of Enel Américas. Enel Américas invests in electricity generation and distri- bution in Argentina, Brazil, Colombia and Peru. With an installed capacity of over 11 GW and more than 24 million customers, it is the largest private electricity company in South America. Amendment of regulatory framework for hydroelectric concessions The changes introduced with Decree Law 135 of Decem- ber 14, 2018, concerning simplification and development support (the “Simplification Act”), ratified into law in Feb- ruary 2019, included the amendment of certain aspects of the regulatory framework for hydroelectric concessions. The main changes concern: i) the extension for consider- ation of expired concessions (a situation regarding entities that do not belong to the Enel Group) until 2023, ii) the regulation of the reassignment of concessions upon their expiry; and iii) the mechanism for indemnifying the outgo- ing concessionaire for the transfer of the assets related to the hydroelectric concession. These rules establish a series of general principles, with implementing provisions to be enacted by the regions and the competent authorities in order to regulate in detail the renewal of concessions in compliance with the principles laid down in the Constitution. The Group is analyzing the possible consequences of the reform, which at present does not appear to produce a sig- nificant impact. The hydroelectric concessions currently held by the Group that fall within the scope of this measure will begin to ex- pire starting from 2029. 361 Consolidated financial statementsDeclaration of the Chief Executive Officer and the officer responsible for the preparation of the corporate financial reports 362 Annual Report 2018Declaration of the Chief Executive Officer and the officer responsible for the preparation of the consolidated financial report of the Enel Group at December 31, 2018, pursuant to the provisions of Article 154-bis, paragraph 5, of Legislative Decree 58 of February 24, 1998 and Article 81-ter of CONSOB Regulation no. 11971 of May 14, 1999 1. The undersigned Francesco Starace and Alberto De Paoli, in their respective capacities as Chief Executive Officer and officer responsible for the preparation of the financial reports of Enel SpA, hereby certify, taking account of the provi- sions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of February 24, 1998: a. the appropriateness with respect to the characteristics of the Enel Group and b. the effective adoption of the administrative and accounting procedures for the preparation of the consolidated financial statements of the Enel Group in the period between January 1, 2018 and December 31, 2018. 2. In this regard, we report that: a. the appropriateness of the administrative and accounting procedures used in the preparation of the consolidated financial statements of the Enel Group has been verified in an assessment of the internal control system for financial reporting. The assessment was carried out on the basis of the guidelines set out in the “Internal Controls - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO); b. the assessment of the internal control system for financial reporting did not identify any material issues. 3. In addition, we certify that the consolidated financial statements of the Enel Group at December 31, 2018: a. have been prepared in compliance with the international accounting standards recognized in the European Union pursuant to Regulation 2002/1606/EC of the European Parliament and of the Council of July 19, 2002; b. correspond to the information in the books and other accounting records; c. provide a true and fair representation of the performance and financial position of the issuer and the companies included in the scope of consolidation. 4. Finally, we certify that the Report on operations, included in the Annual Report 2018 and accompanied by the con- solidated financial statements of the Enel Group at December 31, 2018, contains a reliable analysis of operations and performance, as well as the situation of the issuer and the companies included in the scope of consolidation, together with a description of the main risks and uncertainties to which they are exposed. Rome, March 21, 2019 Francesco Starace Alberto De Paoli Chief Executive Officer of Enel SpA Officer responsible for the preparation of the financial reports of Enel SpA 363 Consolidated financial statements04 Financial statements of Enel SpA Financial statements Income statement Euro Notes Revenue Revenue from sales and services Other revenue and income Costs Purchases of consumables Services, leases and rentals Personnel Depreciation, amortization and impairment losses Other operating expenses Operating income Income from equity investments Financial income from derivatives Other financial income Financial expense from derivatives Other financial expense Income before taxes Income taxes NET INCOME FOR THE YEAR 2018 2017 of which with related parties of which with related parties 4.a 4.b 37,979,400 37,948,667 119,973,169 117,964,169 14,663,248 11,611,943 12,536,313 11,816,934 [Subtotal] 52,642,648 132,509,482 5.a 5.b 5.c 5.d 5.e 775,602 755,960 527,618 397,627 127,046,752 73,565,421 164,647,974 83,362,136 109,461,719 (330,561,950) 173,833,672 15,386,821 38,375,592 5,116,819 19,640,692 1,042,212 [Subtotal] (54,902,285) 107,544,933 374,036,777 (241,527,295) 6 7 8 7 8 3,566,532,771 3,556,152,376 3,032,755,082 3,032,046,630 1,626,147,028 436,713,046 2,682,999,217 1,639,718,234 319,791,543 215,238,109 409,494,784 157,113,888 1,580,719,721 1,033,303,779 2,901,726,027 835,546,371 767,625,196 84,563,946 872,053,419 71,712,486 [Subtotal] 3,164,126,425 3,271,671,358 9 (184,490,162) 3,456,161,520 2,351,469,637 2,109,942,342 (160,045,845) 2,269,988,187 366 Annual Report 2018Statement of comprehensive income Euro Notes Net income for the year Other comprehensive income recyclable to profit or loss (net of taxes) Effective portion of change in the fair value of cash flow hedges Change in the fair value of hedging costs 2018 2017 3,456,161,520 2,269,988,187 (6,800,397) (9,862,121) 17,324,068 48,053,432 Income/(Loss) recognized directly in equity recyclable to profit or loss 10,523,671 38,191,311 Other comprehensive income not recyclable to profit or loss (net of taxes) Change in the fair value of equity investments in other entities Remeasurement of employee benefit liabilities 11,342,491 - 72,245 (5,419,377) Income/(Loss) recognized directly in equity not recyclable to profit or loss 11,414,736 (5,419,377) Income/(Loss) recognized directly in equity 22 21,938,407 32,771,934 TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 3,478,099,927 2,302,760,121 367 Financial statements of Enel SpABalance sheet Euro ASSETS Notes at Dec. 31, 2018 at Dec. 31, 2017 of which with related parties of which with related parties Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Equity investments Derivatives Other non-current financial assets Other non-current assets Current assets Trade receivables Income tax receivables Derivatives Other current financial assets Other current assets Cash and cash equivalents 10 11 12 9,482,612 46,939,952 287,982,943 10,130,911 31,499,091 298,564,422 13 45,714,720,133 42,811,272,440 14 15 16 793,268,184 306,396,047 1,455,620,268 911,987,785 135,969,073 125,000,000 16,520,527 133,926,173 124,949,541 147,703,070 138,750,969 [Total] 47,122,289,070 44,771,310,729 190,738,941 189,168,814 236,901,820 228,047,369 165,402,633 29,133 265,116,255 91,538,429 13,908,972 111,187,134 98,089,135 1,859,556,945 536,107,527 4,350,254,731 2,185,263,224 268,390,867 74,420,100 451,717,926 435,163,901 17 18 14 19 20 21 2,006,698,099 [Total] 4,582,325,914 2,489,231,277 7,904,409,143 TOTAL ASSETS 51,704,614,984 52,675,719,872 368 Annual Report 2018Euro Notes LIABILITIES AND SHAREHOLDERS’ EQUITY at Dec. 31, 2018 at Dec. 31, 2017 of which with related parties of which with related parties Shareholders’ equity Share capital Other reserves Retained earnings/(Loss carried forward) Net income for the year (1) 10,166,679,946 11,464,338,885 4,279,339,236 2,032,826,328 Total shareholders’ equity 22 27,943,184,395 10,166,679,946 11,442,355,799 4,424,283,417 1,202,486,793 27,235,805,955 Non-current liabilities Long-term borrowings Employee benefits Provisions for risks and charges Deferred tax liabilities Derivatives Other non-current liabilities Current liabilities Short-term borrowings Current portion of long-term borrowings Trade payables Derivatives Other current financial liabilities Other current liabilities 23 24 25 12 14 26 13,397,135,493 4,140,976,595 10,780,028,411 1,200,000,000 231,247,089 45,167,912 132,741,154 273,380,648 43,060,382 168,341,991 1,395,260,905 19,846,698 2,270,128,975 28,238,268 11,554,982 9,303,012 11,486,594 9,283,268 [Subtotal] 15,213,107,535 13,546,427,001 23 23 27 14 28 30 5,000,917,516 4,715,485,231 5,397,181,835 4,896,380,309 805,454,249 3,653,698,811 82,378,904 43,230,644 136,749,208 73,724,909 354,554,531 53,004,689 175,573,958 13,057,571 275,922,893 31,397,597 465,099,793 28,593,746 2,029,094,961 317,248,312 2,065,183,311 428,216,349 Total liabilities 23,761,430,589 [Subtotal] 8,548,323,054 11,893,486,916 25,439,913,917 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 51,704,614,984 52,675,719,872 (1) For 2018, net income for the period of €3,456 million (€2,270 million in 2017) is reported net of the interim dividend of €1,423 million (€1,068 million in 2017). 369 Financial statements of Enel SpAStatement of changes in shareholders’ equity Share capital and reserves (note 22) Euro Share capital Share premium reserve Legal reserve Reserve pursuant to Law 292/1993 Other sundry reserves At January 1, 2016 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,244,757 (27,203,744) (376,254,402) 4,534,347,074 804,937,538 26,915,547,720 Application of new accounting standards - - - - - 117,706,432 (117,706,432) At January 1, 2017 restated 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,244,757 (27,203,744) (258,547,970) (117,706,432) 4,534,347,074 804,937,538 26,915,547,720 Reserve from Reserves from Reserves from measurement measurement Reserves from remeasurement of net employee of cash flow of costs of measurement of Retained earnings/ Total benefit plan hedge financial hedging financial financial assets at (Loss carried Net income for the shareholders’ liabilities/(assets) instruments instruments FVOCI forward) year equity Other changes Allocation of 2016 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2017 interim dividend (1) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 703 - - - - - - - At December 31, 2017 restated 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,245,460 (32,623,121) (268,410,091) (69,653,000) 4,424,283,417 1,202,486,793 27,235,805,955 Application of new accounting standards - - - - - 11,342,491 (5,429,221) 5,913,270 At January 1, 2018 restated 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,245,460 (32,623,121) (268,410,091) (69,653,000) 11,342,491 4,418,854,196 1,202,486,793 27,241,719,225 Other changes Allocation of 2017 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2018 interim dividend (2) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 44,679 - At December 31, 2018 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,290,139 (32,550,876) (275,210,488) (52,328,932) 11,342,491 4,279,339,236 2,032,826,328 27,943,184,395 (1) Approved by the Board of Directors on November 8, 2017 and paid as from January 24, 2018. (2) Approved by the Board of Directors on November 6, 2018 and paid as from January 23, 2019. 370 (5,419,377) (9,862,121) 48,053,432 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 703 - - - - - - - - (203,333,599) (711,667,596) (915,001,195) 93,269,942 (93,269,942) (1,067,501,394) (1,067,501,394) 32,771,934 2,269,988,187 2,269,988,187 (142,333,519) (1,199,668,234) (1,342,001,753) 2,818,559 (2,818,559) (1,423,335,192) (1,423,335,192) 10,640,595 3,456,161,520 3,456,161,520 - - - - - - - - - - - - - - - - - - - - - - - 72,245 (6,800,397) 17,324,068 Annual Report 2018Share capital and reserves (note 22) Euro Share capital reserve Legal reserve Law 292/1993 reserves Share premium Reserve pursuant to Other sundry Reserve from remeasurement of net employee benefit plan liabilities/(assets) Reserves from measurement of cash flow hedge financial instruments Reserves from measurement of costs of hedging financial instruments Reserves from measurement of financial assets at FVOCI Retained earnings/ (Loss carried forward) Net income for the year Total shareholders’ equity At January 1, 2016 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,244,757 (27,203,744) (376,254,402) - At January 1, 2017 restated 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,244,757 (27,203,744) (258,547,970) (117,706,432) - 117,706,432 (117,706,432) - - - - - - - - - - - - - - - - - - (5,419,377) (9,862,121) 48,053,432 - - - At December 31, 2017 restated 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,245,460 (32,623,121) (268,410,091) (69,653,000) - - - - - - - - - - - - Application of new accounting standards Other changes Allocation of 2016 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2017 interim dividend (1) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year Application of new accounting standards Other changes Allocation of 2017 net income: - distribution of dividends - legal reserve - retaining earnings Capital increase 2018 interim dividend (2) Comprehensive income for the year: - income/(loss) recognized directly in equity - net income for the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 703 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 44,679 72,245 (6,800,397) 17,324,068 - - - - - - - - - - 4,534,347,074 804,937,538 26,915,547,720 - - - 4,534,347,074 804,937,538 26,915,547,720 - - 703 (203,333,599) (711,667,596) (915,001,195) - - 93,269,942 (93,269,942) (1,067,501,394) (1,067,501,394) - 32,771,934 2,269,988,187 2,269,988,187 4,424,283,417 1,202,486,793 27,235,805,955 - - - (142,333,519) (1,199,668,234) (1,342,001,753) - - 2,818,559 (2,818,559) (1,423,335,192) (1,423,335,192) - 10,640,595 3,456,161,520 3,456,161,520 - - - - - - - - - - - - - - - - At January 1, 2018 restated 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,245,460 (32,623,121) (268,410,091) (69,653,000) 11,342,491 4,418,854,196 1,202,486,793 27,241,719,225 - - - 11,342,491 (5,429,221) - 5,913,270 At December 31, 2018 10,166,679,946 7,496,016,063 2,033,335,988 2,215,444,500 68,290,139 (32,550,876) (275,210,488) (52,328,932) 11,342,491 4,279,339,236 2,032,826,328 27,943,184,395 (1) Approved by the Board of Directors on November 8, 2017 and paid as from January 24, 2018. (2) Approved by the Board of Directors on November 6, 2018 and paid as from January 23, 2019. 371 Financial statements of Enel SpAStatement of cash flows Euro Notes Income before taxes Adjustments for: 2018 2017 of which with related parties of which with related parties 3,271,671,358 2,109,942,342 Amortization and impairment losses 5.d (330,561,950) 15,386,821 Exchange rate adjustments of foreign currency assets and liabilities Accruals to provisions 39,628,904 30,514,837 (231,638,389) 37,912,889 Dividends from subsidiaries, associates and other companies 6 (3,566,532,771) (3,556,152,376) (3,032,755,082) (3,032,046,630) Net financial (income)/expense 355,948,018 466,123,883 905,461,585 (889,403,744) (Gains)/Losses from disposals and other non-monetary items - - Cash flows from operating activities before changes in net current assets Increase/(Decrease) in provisions (199,331,604) (70,540,865) (195,689,834) (74,765,165) (Increase)/Decrease in trade receivables 17 46,077,886 38,878,555 18,144,344 19,768,270 (Increase)/Decrease in other financial and non-financial assets/liabilities 1,329,718,118 984,924,384 886,354,164 (1,526,661,213) Increase/(Decrease) in trade payables 27 (54,370,304) (30,494,265) (13,164,033) 5,636,596 Interest income and other financial income collected 802,804,925 422,320,744 1,134,440,570 325,498,532 Interest expense and other financial expense paid (1,381,667,689) (212,858,041) (1,823,403,773) (716,621,016) Dividends from subsidiaries, associates and other companies 6 3,510,078,770 3,499,698,376 2,976,903,441 2,976,194,989 Income taxes paid (consolidated taxation mechanism) Cash flows from operating activities (a) (533,543,154) 3,449,226,083 (443,549,585) 2,465,270,129 Investments in property, plant and equipment and intangible assets Investments in equity investments Disposals of equity investments Cash flows from investing/disinvesting activities (b) Financial debt (new long-term borrowing) Financial debt (repayments) Net change in long-term financial payables/(receivables) Net change in short-term financial payables/(receivables) Dividends paid Increase in capital and reserves Cash flows from financing activities (c) Increase/(Decrease) in cash and cash equivalents (a+b+c) Cash and cash equivalents at the start of the year Cash and cash equivalents at year end 10-11 (32,089,910) (29,716,867) (29,716,867) 13 13 23 23 22 22 21 21 (2,555,503,401) (2,544,488,283) (17,898,158) (17,898,158) - (2,587,593,311) - (47,615,025) 3,500,000,000 2,940,976,595 989,235,387 (4,426,410,410) (992,598,185) 2,735,706,549 2,815,976,594 (2,854,462,654) (26,612,508) (743,785,882) 1,516,803,548 1,721,306,401 1,511,596,115 (2,409,676,207) (1,829,783,012) - - (1,344,165,950) (2,966,302,063) (482,533,178) 2,489,231,277 2,006,698,099 (548,646,959) 3,037,878,236 2,489,231,277 372 Annual Report 2018Notes to the separate financial statements 1 Form and content of the financial statements Enel SpA is a corporation (società per azioni) that operates > carrying out their activity in an operating company other in the electricity and gas sector and has its registered office than Enel SpA; in Viale Regina Margherita 137, Rome, Italy. > provide technical services at a global level to Group com- In its capacity as holding company, Enel SpA sets the stra- panies with a uniform business, pursuing objectives of tegic objectives for the Group and its subsidiaries and co- effectiveness and operating efficiency as well as legal ordinates their activities. The activities that Enel SpA per- and accounting clarity; forms in respect of the other Group companies as part of > seize opportunities to develop their business in interna- its management and coordination function, including with tional markets. regard to the Company’s organizational structure, can be In this context, Enel SpA increasingly takes on the role of summarized as follows: industrial holding company, concentrating its activity: > Holding company functions, associated with the coor- nies; dination of governance processes at the Group level: > on the strategic direction of activities, remunerated ex- - Administration, Finance and Control; clusively through the dividends received from the sub- > on the management and coordination of Group compa- - People and Organization; - Communications; - Legal and Corporate Affairs; - Innovability; - Audit. sidiaries; > on institutional services provided by the holding compa- ny staff functions for the benefit of the subsidiaries (re- munerated through an “institutional services” contract). Within the Group, Enel SpA meets liquidity requirements On January 1, 2018 the Global Business Lines and the primarily through cash flows generated by ordinary opera- Global services function (hereinafter “Global Structures”), tions and the use of a range of sources of funds, while i.e. Global Infrastructure & Networks, Global Thermal Gen- managing any excess liquidity appropriately. eration and Global Procurement, previously allocated to As the Parent Company, Enel SpA has prepared the consoli- Enel SpA, were transferred to the wholly owned Italian dated financial statements of the Enel Group for the year subsidiaries Enel Global Infrastructure & Networks Srl, Enel ending December 31, 2018, which form an integral part of Global Thermal Generation Srl and Enel Italia Srl. this Annual Report pursuant to Article 154-ter, paragraph 1, The corporate reorganization of the Global Structures of the Consolidate Law on Financial Intermediation (Legis- equipped the Group with a uniform organizational and cor- lative Decree 58 of February 24, 1998). porate structure, within which each Global Structure will be On March 21, 2019, the Board authorized the publication of able to aim for maximum efficiency and a clearer focus of these financial statements at December 31, 2018. its activities, in accordance with the “Global Hub” model, These financial statements have undergone statutory au- namely organizational entities capable of: diting by EY SpA. 373 Financial statements of Enel SpABasis of presentation The separate financial statements for the year ended De- cember 31, 2018 have been prepared in accordance with international accounting standards (International Accounting Standards - IAS and International Financial Reporting Stan- dards - IFRS) issued by the International Accounting Stan- dards Board (IASB), the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC), recognized in the European Union pursuant to Regulation 2002/1606/EC and in effect as of the close of the year. All of these stan- dards and interpretations are hereinafter referred to as the “IFRS-EU”. The financial statements have also been prepared in confor- mity with measures issued in implementation of Article 9, paragraph 3, of Legislative Decree 38 of February 28, 2005. The financial statements consist of the income statement, plained in the measurement bases applied to each individual item in the consolidated financial statements. The financial statements are presented in euro, the func- tional currency of the Company, and the figures shown in the notes are reported in millions of euro unless stated oth- erwise. The financial statements provide comparative information in respect of the previous period. 2 Accounting policies and measurement criteria the statement of comprehensive income, the balance sheet, The accounting policies and measurement criteria are the the statement of changes in shareholders’ equity and the same, where applicable, as those adopted in the prepara- statement of cash flows and the related notes. tion of the consolidated financial statements, to which the The assets and liabilities reported in the balance sheet are reader should refer for more information, with the excep- classified on a “current/non-current” basis, with separate tion of those regarding equity investments in subsidiaries, reporting of assets held for sale and liabilities included in associated companies and joint ventures. disposal groups held for sale, if any. Current assets, which Subsidiaries are all entities over which Enel SpA has con- include cash and cash equivalents, are assets that are in- trol. The Company controls an entity when it is exposed to tended to be realized, sold or consumed during the normal or has rights to variable returns deriving from its involve- operating cycle of the Company or in the 12 months follow- ment and has the ability, through the exercise of its power ing the close of the financial year; current liabilities are liabili- over the investee, to affect its returns. Power is defined as ties that are expected to be settled during the normal operat- having the concrete ability to direct the significant activi- ing cycle of the Company or within the 12 months following ties of the entity by virtue of the existence of substantive the close of the financial year. rights. The income statement is classified on the basis of the na- Associates comprise those entities in which Enel SpA has ture of costs, with separate reporting of net income/(loss) a significant influence. Significant influence is the power to from continuing operations and net income/(loss) from any participate in the financial and operating policy decisions discontinued operations. of investees but not exercise control or joint control over The indirect method is used for the statement of cash flows, those entities. with separate reporting of any cash flows by operating, in- Joint ventures are entities over which Enel SpA exercises vesting and financing activities associated with discontinued joint control and has rights to the net assets of the entities. operations, if any. Joint control means sharing control of an arrangement, The income statement, the balance sheet and the state- which only exists when the decisions over the relevant ment of cash flows report transactions with related parties, activities require the unanimous consent of all the parties the definition of which is given in the section “Accounting that share control. policies and measurement criteria” for the consolidated fi- Equity investments in subsidiaries, associates and joint nancial statements. ventures are measured at cost. Cost is adjusted for any im- The financial statements have been prepared on a going pairment losses, which are reversed where the reasons for concern basis using the cost method, with the exception of their recognition no longer obtain. The carrying amount re- items measured at fair value in accordance with IFRS, as ex- sulting from the reversal may not exceed the original cost. 374 Annual Report 2018Where the loss pertaining to Enel SpA exceeds the carry- ing amount of the investment and the Company is obligat- ed to perform the legal or constructive obligations of the investee or in any event to cover its losses, the excess with respect to the carrying amount is recognized in liabilities in the provision for risks and charges. In the case of a disposal, without economic substance, of an investment to an entity under common control, any dif- ference between the consideration received and the carry- ing amount of the investment is recognized in equity. Dividends from equity investments are recognized in profit or loss when the shareholder’s right to receive them is es- tablished. Dividends and interim dividends payable to third parties are recognized as changes in equity at the date they are approved by the Shareholders’ Meeting and the Board of Directors, respectively. 3 Recent accounting standards For information on recent accounting standards, please refer to the corresponding section of the notes to the con- solidated financial statements. The application of IFRS 9 as from January 1, 2018 gave rise to a non-material decrease in shareholders’ equity net of the associated tax effects, mainly reflecting the adoption of the expected credit loss model. No significant situations were affected by the application of IFRS 15. With regard to accounting standards taking effect after December 31, 2018, in 2018 Enel completed the analysis of the Company’s lease contracts in the light of the new accounting rules provided for under “IFRS 16 - Leases”. The analysis found that the new standard will not have a Use of estimates and management judgments significant impact. The use of estimates and management judgements adopt- ed in preparing the separate financial statements are the same, where applicable, as those adopted in the prepara- tion of the consolidated financial statements, which read- ers are invited to consult, with the exception of the mea- surement of equity investments, which is discussed below. Recoverability of equity investments The Company assesses the presence of evidence of im- pairment of each equity investment at least once a year, consistent with its strategy for managing the legal entities within the Group. If such evidence is found, the assets involved undergo impairment testing. The processes and procedures for determining the recoverable value of each equity investment are based on assumptions that can be complex and whose nature requires management to use its judgment, especially as regards the identification of evidence of impairment, the forecasting of future profit- ability over the horizon of the Group Business Plan, the determination of the normalized cash flows underlying the estimation of terminal value and the determination of long- term growth rates and discount rates applied to forecasts of future cash flows. 375 Financial statements of Enel SpAInformation on the income statement Revenue 4.a Revenue from sales and services - €38 million Revenue from sales and services break down as follows. Millions of euro Revenue from sales and services Group companies Non-Group counterparties Total revenue from sales and services 2018 2017 Change 38 - 38 118 2 120 (80) (2) (82) Revenue from sales and services, in the amount of €38 transferred to the wholly owned subsidiaries Enel Global million, refers to services provided to subsidiaries within Infrastructure & Networks Srl, Enel Global Thermal Genera- the scope of the Company’s management and coordina- tion Srl and Enel Italia Srl. It also reflected negative adjust- tion functions and for the billing of costs of various nature ments related to 2017. incurred in relation to subsidiaries. Revenue from sales and services can be broken down by The overall decrease of €82 million compared with the pre- geographical area as follows: vious year was essentially due to the reduction in revenue > €34 million in Italy (€75 million in 2017); from the provision of technical and managerial services fol- > a negative €4 million in the European Union (€25 million lowing the reorganization that took place at the beginning of in 2017); 2018 for the Global Structures, as part of which the Global > €3 million in non-EU Europe (€7 million in 2017); Business Lines, previously included within Enel SpA, were > €5 million in other countries (€13 million in 2017). 4.b Other revenue and income - €15 million Other revenue and income, in the amount of €15 million in the year under review and the previous year. It increased 2018, is essentially related to seconded personnel in both by €2 million (€13 million in 2017). 376 Annual Report 2018Costs 5.a Purchases of consumables - €1 million Purchases of consumables amounted to €1 million, unchanged from the previous year. 5.b Services, leases and rentals - €127 million Costs for services, leases and rentals break down as follows. Millions of euro Services Leases and rentals Total services, leases and rentals 2018 116 11 127 2017 149 16 165 Change (33) (5) (38) Costs for services, totaling €116 million, include costs for partially offset by the increase in costs for other services. services provided by third parties in the amount of €53 mil- Costs for services provided by Group companies decreased lion (€79 million in 2017) and costs for services provided by by €7 million due to the reduction in costs for personal ser- Group companies in the amount of €63 million (€70 million vices and costs for other services, which were partially off- in 2017). More specifically, the €26 million decrease in costs set by the increase in costs for IT services. for services provided by third parties was mainly due both Costs for leases and rentals mainly concern costs for leasing to the decrease in costs incurred for strategic, management assets from the subsidiary Enel Italia Srl and decreased by and organizational consulting and to lower costs for advertis- €5 million compared with the previous year. ing, marketing, promotional and press materials, which were 5.c Personnel - €109 million Personnel costs break down as follows. Millions of euro Wages and salaries Social security costs Post-employment benefits Other long-term benefits Other costs and other incentive plans Total personnel costs Notes 24 24 25 2018 68 22 6 5 8 109 2017 108 34 9 20 3 174 Change (40) (12) (3) (15) 5 (65) Personnel costs came to €109 million for a decrease of transfers referred to earlier, with a consequent reduction in €65 million from 2017. The decline is mainly attributable wages and salaries and related social security costs, for a to the decrease in the average number of employees (399 total of €52 million, and in costs for long-term benefits of fewer than in the previous year), partly deriving from the €15 million. 377 Financial statements of Enel SpAThe table below shows the average number of employees by category, compared with the previous year, and the actual number of employees at December 31, 2018. No. Senior managers Middle managers Office staff Total Average number Headcount 2018 148 354 270 772 2017 239 565 367 1,171 Change at Dec. 31, 2018 (91) (211) (97) (399) 144 369 254 767 5.d Depreciation, amortization and impairment losses - €(331) million Millions of euro Depreciation Amortization Impairment losses Reversals of impairment losses Total depreciation, amortization and impairment losses 2018 2017 Change 4 13 55 (403) (331) 4 11 - - 15 - 2 55 (403) (346) Depreciation, amortization and impairment losses shows net Russia PSJC (€40 million) and Enel Investment Holding BV income of €331 million (€15 million in 2017 and a decrease of (€15 million). €346 million compared with the previous year. Reversals of impairment losses, in the amount of €403 mil- Depreciation and amortization (€17 million) includes depre- lion, include only the positive adjustment to the value of the ciation of €4 million and amortization of €13 million. It in- equity investment in Enel Produzione SpA following the re- creased by a total of €2 million on the previous year, mainly calculation of the value of the investment in Slovenské ele- reflecting the increase in the average stock of industrial pat- ktrárne. ents and intellectual property rights following investments during the year. For details on the criteria used to determine this impairment In 2018, impairment losses amounted to €55 million and re- loss, see note 13 below. fer to the adjustments of equity investments held in Enel 5.e Other operating expenses - €39 million Other operating expenses, totaling €39 million, increased essentially due to the joint effect of the recognition in by €19 million compared with the previous year due es- 2018 of the restoration of the value of the equity invest- sentially to provisions for risks and charges in the amount ment in Enel Produzione SpA (€403 million), offset in part of €15 million. by the adjustment of equity investments held in Enel Rus- Operating income, in the amount of €108 million, im- sia PJSC (€40 million) and Enel Investment Holding BV proved by €350 million compared with the previous year, (€15 million). 378 Annual Report 20186. Income from equity investments - €3,567 million Income from equity investments amounted to €3,567 mil- approved by subsidiaries and associates in the amount of lion in 2018, an increase of €534 million compared with the €3,557 million and by other investees in the amount of €10 previous year, and regards dividends and interim dividends million. Millions of euro Dividends from subsidiaries and associates Enel Produzione SpA e-distribuzione SpA Enel.Factor SpA Enel Italia Srl Enel Energia SpA Servizio Elettrico Nazionale SpA Enel Green Power SpA Enel Iberia Srl Enel Sole Srl Enel Américas SA Enel Chile SA Enel Global Infrastructure & Networks Srl Enel Investment Holding BV RusEnergoSbyt LLC CESI SpA Dividends from other companies Emittenti Titoli SpA Empresa Propietaria de la Red SA 2018 3,556 229 949 2 16 792 100 557 486 - 162 157 2 66 37 1 11 10 1 2017 3,032 - 1,448 3 23 679 80 50 677 15 25 31 - - - 1 1 - 1 Change 524 229 (499) (1) (7) 113 20 507 (191) (15) 137 126 2 66 37 - 10 10 - Total income from equity investments 3,567 3,033 534 379 Financial statements of Enel SpA7. Net financial income/(expense) from derivatives - €45 million This item breaks down as follows. Millions of euro Income from derivatives - on behalf of Group companies: - income from derivatives at fair value through profit or loss - on behalf of Enel SpA: - income from fair value hedge derivatives - income from cash flow hedge derivatives - income from derivatives at fair value through profit or loss Total income from derivatives Expense on derivatives - on behalf of Group companies: - expense on derivatives at fair value through profit or loss - on behalf of Enel SpA: - expense on fair value hedge derivatives - expense on cash flow hedge derivatives - expense on derivatives at fair value through profit or loss Total expense on derivatives TOTAL FINANCIAL INCOME/(EXPENSE) FROM DERIVATIVES 2018 1,420 1,420 206 18 166 22 1,626 1,414 1,414 167 18 121 28 1,581 45 2017 Change 2,533 2,533 150 32 108 10 2,683 2,523 2,523 379 30 341 8 2,902 (219) (1,113) (1,113) 56 (14) 58 12 (1,057) (1,109) (1,109) (212) (12) (220) 20 (1,321) 264 The net financial income from derivatives came to €45 were entered into on behalf of Enel SpA on both interest million (as compared with a net expense of €219 million rates and exchange rates. in 2017) and essentially represents the net gain on deriva- tives entered into on behalf of Enel SpA. For more details on derivatives, see note 31 “Financial The improvement of €264 million compared with the previ- instruments” and note 33 “Derivatives and hedge ac- ous year is essentially due to the decrease in net expense counting”. on cash flow hedge derivatives (€220 million), all of which 380 Annual Report 20188. Other net financial income/(expense) - €(448) million This item breaks down as follows. Millions of euro Other financial income Interest income Interest income on long-term financial assets Interest income on short-term financial assets Total Positive exchange rate differences Income on fair value hedges - post-hedge adjustment Other Total other financial income Other financial expense Interest expense Interest expense on bank borrowings Interest expense on bonds Interest expense on other borrowings Total Negative exchange rate differences Interest expense on defined benefit plans and other long- term employee benefits Other Total other financial expense TOTAL OTHER NET FINANCIAL INCOME/(EXPENSE) 2018 2017 Change 3 16 19 28 4 269 320 32 549 85 666 65 3 34 768 (448) 2 30 32 238 13 127 410 55 735 70 860 5 4 3 872 (462) 1 (14) (13) (210) (9) 142 (90) (23) (186) 15 (194) 60 (1) 31 (104) 14 Other net financial expense, in the amount of €448 mil- The decrease of €14 million in other net financial expense lion, essentially reflects interest expense on financial debt compared with 2017 was due mainly to the decrease in of €666 million, partly offset by interest income and fees interest expense on bonds in the amount of €186 million, and commissions on the intercompany current account of partially offset by the €210 million decrease in positive €202 million and interest income on the refund of income exchange rate differences on hedged loans in foreign cur- taxes (IRPEG and ILOR) for the years 1996 and 1997 in rencies, which were affected by the developments in the the amount of €54 million (see note 9 below for more exchange rate of the euro against the US dollar and the information). pound sterling. 9. Income taxes - €(184) million Millions of euro Current taxes Deferred tax income Deferred tax expense Total taxes 2018 (189) 4 1 (184) 2017 (162) 4 (2) (160) Change (27) - 3 (24) 381 Financial statements of Enel SpAIncome taxes for 2018 showed a creditor position of €184 €160 million), the increase of €24 million was essentially million, mainly as a result of the reduction in the tax base due to the reimbursement of income taxes (IRPEG and for the corporate income tax (IRES) compared with income ILOR) for 1996 and 1997, following two favorable rulings before taxes due to the exclusion of 95% of the dividends of the Court of Cassation, in the amount of €90 million, received from the subsidiaries and the deductibility of Enel partially offset by a smaller creditor tax position on current SpA’s interest expense for the Group in accordance with income (€65 million). corporate income tax law (Article 96 of the Uniform Income Tax Code). The following table reconciles the theoretical tax rate with Compared with the previous year (a creditor position of the effective tax rate. Millions of euro Income before taxes Theoretical corporate income taxes (IRES) Tax decreases: - dividends on equity investments, collected - dividends from equity investments, not collected - uses of provisions - prior-year writedowns - other Tax increases: - writedowns/(writebacks) for the year - accruals to provisions - prior-year expense - other Total current corporate income taxes (IRES) IRAP Difference on estimated income taxes from prior years Definitive withholdings on dividends from foreign shareholdings Total deferred tax items - of which impact of change in tax rate - of which changes for the year - of which difference of prior-year estimates % rate 24.0% -24.4% -0.4% -0.4% -3.0% -0.1% 0.4% 0.4% 0.2% 0.3% -3.0% -3.8% 0.7% 0.1% 2018 3,272 785 (799) (14) (14) (97) (2) 13 13 7 9 (99) - (111) 21 5 - 5 - TOTAL INCOME TAXES (184) -5.6% 2017 2,110 506 (678) (13) (16) - - - 12 2 23 (164) - - 2 2 - 4 (2) (160) % rate 24.0% -32.1% -0.6% -0.8% 0.6% 0.1% 1.1% -7.8% 0.1% 0.1% -7.6% 382 Annual Report 2018Information on the balance sheet Assets 10. Property, plant and equipment - €9 million Developments in property, plant and equipment for 2017 and 2018 are set out in the table below. Millions of euro Land Buildings Plant and machinery Industrial and commercial equipment Other assets Leasehold improvements Assets under construction and advances Cost Accumulated depreciation Balance at Dec. 31, 2016 Capital expenditure Depreciation Total changes Cost Accumulated depreciation Balance at Dec. 31, 2017 Capital expenditure Depreciation Total changes Cost Accumulated depreciation Balance at Dec. 31, 2018 1 - 1 - - - 1 - 1 - - - 1 - 1 3 (2) 1 - - - 3 (2) 1 - - - 3 (2) 1 3 (3) - - - - 3 (3) - - - - 3 (3) - 5 (5) - - - - 5 (5) - - - - 5 (5) - 20 (19) 1 4 (1) 3 24 40 (34) 6 1 (3) (2) 41 (20) (37) 4 2 (1) 1 26 (21) 5 4 - (3) (3) 41 (40) 1 - - - - - - - - - 1 - 1 1 - 1 Total 72 (63) 9 5 (4) 1 77 (67) 10 3 (4) (1) 80 (71) 9 Property, plant and equipment totaled €9 million, a de- the same period (€4 million). Capital expenditure for other crease of €1 million compared with the previous year, es- assets refer to hardware systems, while the capital expen- sentially attributable to the negative net balance between diture relating to assets under construction refer to engi- capital expenditure in 2018 (€3 million) and depreciation for neering works on office buildings. 383 Financial statements of Enel SpA11. Intangible assets - €47 million Intangible assets, all of which have a finite useful life, break down as follows. Millions of euro Balance at Dec. 31, 2016 Investments Assets entering service Amortization Total changes Balance at Dec. 31, 2017 Investments Changes Assets entering service Amortization Total changes Balance at Dec. 31, 2018 Industrial patents and intellectual property rights Other intangible assets under development 11 24 7 (11) 20 31 14 (2) - (13) (1) 30 7 - (7) - (7) - 17 - - - 17 17 Total 18 24 - (11) 13 31 31 (2) - (13) 16 47 Industrial patents and intellectual property rights, in the related to the evolution of software associated with exist- amount of €30 million at December 31, 2018, relate mainly ing systems and the development of new systems, while to costs incurred in purchasing software as well as related assets entering service refer mainly to the Evolution for evolutionary maintenance. Amortization is calculated on a Energy (E4E) project, which was undertaken at the global straight-line basis over the item’s residual useful life (three level to harmonize and integrate processes and systems to years on average). Compared with the previous year, the support the Global Business Lines and the Administration, aggregate decreased by €1 million due to the negative bal- Finance and Control, and Global Procurement functions, as ance of investments made in 2018 (€14 million), to amorti- well as other projects connected with the evolution of soft- zation recorded during the same period (€13 million), and to ware associated with existing systems. the transfer of intangible assets to Enel Global Infrastruc- Other intangible assets under development at December ture & Networks Srl, Enel Global Thermal Generation Srl, 31, 2018 amounted to €17 million, an increase of the same and Enel Italia Srl for a total of €2 million. amount due to investments during the period. Investments concerned information-technology projects 384 Annual Report 201812. Deferred tax assets and liabilities - €288 million and €133 million Changes in deferred tax assets and deferred tax liabilities, grouped by type of temporary difference, are shown below. Millions of euro Increase/(Decrease) taken to income statement at Dec. 31, 2017 Total Increase/(Decrease) taken to equity Other changes at Dec. 31, 2018 Deferred tax assets Nature of temporary differences: - provisions for risks and charges and impairment losses - derivatives - costs for capital increase - other items Total deferred tax assets Deferred tax liabilities Nature of temporary differences: - measurement of financial instruments - other items Total deferred tax liabilities Excess net deferred IRES tax assets after any offsetting Excess net deferred IRAP tax liabilities after any offsetting 5 230 2 62 299 163 5 168 162 (31) 1 - - (5) (4) - 1 1 - - (2) 2 - (36) - (36) - - - (7) (7) - - - Total 6 230 - 52 288 127 6 133 155 - Deferred tax assets totaled €288 million (€299 million at De- by €35 million (€168 million at December 31, 2017), essen- cember 31, 2017), a decrease of €11 million compared with tially due to the release of deferred tax liabilities related to the previous year, which was due mainly to the recognition IRAP on the fair value measurement of cash flow hedge in- of deferred tax assets on changes in provisions for risks and struments (€30 million), given that, over the next few years, charges and the transfer of deferred tax assets to the com- we do not expect to generate enough taxable income for panies involved in the transfer of the Global Structures as IRAP to absorb the temporary deductible differences. described above. The amount of deferred tax assets and liabilities was deter- Deferred tax liabilities came to €133 million and decreased mined by applying a rate of 24% for IRES. 13. Equity investments - €45,715 million The table below shows the changes during the year for ments held in subsidiaries, joint ventures, associates, and each investment, with the corresponding values at the be- other companies. ginning and end of the year, as well as the list of invest- 385 Financial statements of Enel SpAMillions of euro Original cost (Writedowns)/ Revaluations Other changes - IFRIC 11 & IFRS 2 Carrying amount % holding Capital grants and loss coverage Acquisitions/ (Disposals)/ (Liquidations)/ (Repayments) at Dec. 31, 2017 New cos./ Transfers (+/-)/ Spin-offs (+/-) Adjustments in value Mergers (+/-) Net change Original cost Revaluations IFRIC 11 & IFRS 2 (Writedowns)/ Other changes - Changes in 2018 Carrying amount % holding at Dec. 31, 2018 A) Subsidiaries Enel Produzione SpA e-distribuzione SpA Servizio Elettrico Nazionale SpA Enel Global Trading SpA Enel Green Power SpA Enel X Srl Enel Investment Holding BV Enelpower SpA Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel.Factor SpA Enel Italia Srl Enel Innovation Hubs Srl Enel Global Infrastructure & Networks Srl Enel Finance International NV Enel Holding Finance Srl Tynemouth Energy Storage Limited Enel Américas SA Enel Chile SA Enel Holding Chile Srl E-Distribuţie Banat SA E-Distribuţie Dobrogea SA E-Distribuţie Muntenia SA Enel Energie Muntenia SA Enel Energie SA Enel Romania SA Enel Russia PJSC Enel Insurance NV Vektör Enerji Üretim AŞ Enel Green Power Chile Ltda Total subsidiaries B) Joint ventures OpEn Fiber SpA RusEnergoSbyt LLC Total joint ventures C) Associates CESI SpA Total associates D) Other companies Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur Ltda Elcogas SA Emittenti Titoli SpA in liquidation Idrosicilia SpA 4,895 4,054 110 1,401 6,538 5 8,498 189 1 1,321 13,713 18 525 70 12 2,397 - 5 2,822 1,760 - - - - - - - - - - - (986) - - (208) - - (4,473) (159) - (8) - - (41) (54) - - - - - - - - - - - - - - - - - 4 2 - 1 2 - - - - - - - 3 - - - - - - - - - - - - - - - - - - 3,913 4,056 110 1,194 6,540 5 4,025 30 1 1,313 13,713 18 487 16 12 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 2,397 100.0 - 5 2,822 1,760 - - - - - - - - - - - - - 51.8 60.6 - - - - - - - - - - - - 2,275 - - - 518 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (4,001) - - - - - - - - - - - - - - 421 261 952 330 208 15 442 252 - - - - - - (71) - - - 10 - - - - - 10 (1,798) 1,798 (5) - - 71 - - - - - - - - - - 48,334 (5,929) 12 42,417 2,793 (1,120) 15 348 691 2,727 50,713 (5,581) 12 45,144 (18) 18 762 (71) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 403 2,275 (71) 518 (4,016) (1,798) 1,798 - - - - - - - - - - - - - - - - 10 (18) 18 10 (5) 762 421 261 952 330 208 15 402 252 125 41 166 12 (1) 11 4,895 6,329 110 1,401 6,467 523 4,497 189 11 1,321 13,713 - 543 70 22 599 1,798 2,822 2,522 - - - - 421 261 952 330 208 15 442 252 490 41 531 23 23 5 5 - - - - 10 (583) (208) (4,488) (159) (8) (41) (54) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 (5) 7 4 2 - 1 2 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,316 6,331 110 1,194 6,469 523 1,313 13,713 9 30 11 - 505 16 22 599 1,798 2,822 2,522 421 261 952 330 208 15 402 252 490 41 531 23 23 17 - - - - - - - - - 17 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 25.0 100.0 51.8 61.9 51.0 51.0 78.0 78.0 51.0 100.0 56.4 100.0 100.0 - - - - 50.0 49.5 42.7 11.1 11.1 4.3 - - 1.0 (40) (40) 403 (15) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 12 360 - - - - - - - - - (5) - - (5) - - - - - - - - - - - - - 365 - 365 23 23 5 - - - 1 - 6 50.0 - 42.7 11.1 11.1 - 4.3 10.0 1.0 125 - 125 - - - - - - - - - - 41 41 - - - - - - (1) - (1) - - - - - - - - - - - - 365 - 365 23 23 5 - - 5 1 - Total other companies 11 48,733 (5,934) 12 42,811 2,918 (1,080) 15 691 2,904 51,277 (5,574) 12 45,715 TOTAL EQUITY INVESTMENTS 386 Annual Report 2018Millions of euro Original cost Revaluations IFRS 2 Carrying amount Other changes (Writedowns)/ - IFRIC 11 & % holding Capital grants and loss coverage Acquisitions/ (Disposals)/ (Liquidations)/ (Repayments) at Dec. 31, 2017 New cos./ Transfers (+/-)/ Spin-offs (+/-) Adjustments in value Mergers (+/-) Net change Original cost Changes in 2018 (Writedowns)/ Revaluations Other changes - IFRIC 11 & IFRS 2 Carrying amount % holding at Dec. 31, 2018 A) Subsidiaries Enel Produzione SpA e-distribuzione SpA Servizio Elettrico Nazionale SpA Enel Global Trading SpA Enel Green Power SpA Enel X Srl BV Enel Investment Holding Enelpower SpA Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel.Factor SpA Enel Italia Srl Enel Innovation Hubs Srl Enel Global Infrastructure & Networks Srl Enel Finance International NV Enel Holding Finance Srl Tynemouth Energy Storage Limited Enel Américas SA Enel Chile SA Enel Holding Chile Srl E-Distribuţie Banat SA E-Distribuţie Dobrogea SA E-Distribuţie Muntenia SA Enel Energie Muntenia SA Enel Energie SA Enel Romania SA Enel Russia PJSC Enel Insurance NV Vektör Enerji Üretim AŞ Enel Green Power Chile Ltda Total subsidiaries B) Joint ventures OpEn Fiber SpA RusEnergoSbyt LLC Total joint ventures C) Associates CESI SpA Total associates D) Other companies Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur Ltda Elcogas SA Emittenti Titoli SpA in liquidation Idrosicilia SpA TOTAL EQUITY INVESTMENTS 4,895 4,054 110 1,401 6,538 8,498 189 1,321 13,713 18 525 70 12 2,397 2,822 1,760 5 1 - 5 - - - - - - - - - - - - 5 - - 5 1 - 365 365 23 23 (986) (208) (4,473) (159) (8) (41) (54) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (5) 2,275 518 (4,001) 4 2 - 1 2 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2,397 100.0 3,913 4,056 110 1,194 6,540 5 4,025 30 1 1,313 13,713 18 487 16 12 - 5 2,822 1,760 - - - - - - - - - - - - 5 - - - 1 - 6 365 365 23 23 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.8 60.6 - - - - - - - - - - - - - - 50.0 42.7 11.1 11.1 - 4.3 10.0 1.0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 125 125 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 421 261 952 330 208 15 442 252 41 41 (1) (1) (71) 10 10 (5) 71 (1,798) 1,798 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Total other companies 11 (5) 48,733 (5,934) 12 42,811 2,918 (1,080) 15 403 - - - - - (15) - - - - - - - - - - - - - - - - - - - (40) - - - - - - - - - - - - - - (18) 18 - - - - - - 762 (71) - - - - - - - - - - 403 2,275 - - (71) 518 (4,016) - 10 - - (18) 18 - 10 (1,798) 1,798 (5) - 762 - 421 261 952 330 208 15 402 252 - - 4,895 6,329 110 1,401 6,467 523 4,497 189 11 1,321 13,713 - 543 70 22 599 1,798 - 2,822 2,522 - 421 261 952 330 208 15 442 252 - - (583) - - (208) - - (4,488) (159) - (8) - - (41) (54) - - - - - - - - - - - - - (40) - - - 4 2 - 1 2 - - - - - - - 3 - - - - - - - - - - - - - - - - - - 4,316 6,331 110 1,194 6,469 523 9 30 11 1,313 13,713 - 505 16 22 599 1,798 - 2,822 2,522 - 421 261 952 330 208 15 402 252 - - 48,334 (5,929) 12 42,417 2,793 (1,120) 15 348 691 2,727 50,713 (5,581) 12 45,144 - - - - - 12 - - - - - 12 360 - - - - - - - - - - - - 125 41 166 - - 12 - - - (1) - 11 490 41 531 23 23 5 - - 5 - - 10 - - - - - 12 - - (5) - - 7 - - - - - - - - - - - - 490 41 531 23 23 17 - - - - - 17 691 2,904 51,277 (5,574) 12 45,715 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 100.0 100.0 100.0 25.0 100.0 - 51.8 61.9 - 51.0 51.0 78.0 78.0 51.0 100.0 56.4 100.0 100.0 - 50.0 49.5 42.7 11.1 11.1 - 4.3 - 1.0 387 Financial statements of Enel SpAThe table below reports changes in equity investments in 2018. Millions of euro Increases Transfer to Enel Global Infrastructure & Networks Srl of the “Global Infrastructure & Networks” Business Line Transfer of the “Global Thermal Generation” Business Line to Enel Global Thermal Generation Srl Recapitalization of e-distribuzione SpA Recapitalization of Enel X Srl Merger of Enel.Factor Srl into Enel Italia Srl Incorporation of Enel Holding Finance Srl with the transfer of 75% of the investment in Enel Finance International NV Capital contribution to OpEn Fiber SpA Acquisition of Enel Russia PSJC by Enel Investment Holding BV Acquisition of E-Distribuţie Banat SA by Enel Investment Holding BV Acquisition of E-Distribuţie Muntenia SA by Enel Investment Holding BV Acquisition of E-Distribuţie Dobrogea SA by Enel Investment Holding BV Acquisition of Enel Energie SA by Enel Investment Holding BV Acquisition of Enel Energie Muntenia SA by Enel Investment Holding BV Acquisition of Enel Romania SA by Enel Investment Holding BV Acquisition of RusEnergoSbyt LLC by Enel Investment Holding BV Acquisition of Enel Insurance NV by Enel Investment Holding BV Increase in the value of the investment in Enel Chile SA due to the merger of Enel Holding Chile Srl and Hydromac Energy Srl (holder of the investment) into Enel SpA Revaluation of the equity investment held in Empresa Propietaria de la Red SA Writeback of the equity investment in Enel Produzione SpA Total increases Decreases Transfer of the company Tynemouth Energy Storage Limited Partial spin-off of Enel Green Power SpA to Enel Holding Chile Srl Liquidation of Emittente Titoli SpA Merger of Enel.Factor Srl into Enel Italia Srl Incorporation of Enel Holding Finance Srl with the transfer of 75% of the investment in Enel Finance International NV Reduction in the value of the investment in Enel Investment Holding BV Writedown of the investment in Enel Investment Holding BV Writedown of the investment in Enel Russia PJSC Total decreases NET CHANGE 10 10 2,275 518 18 1,798 125 442 421 952 261 208 330 15 41 252 762 12 403 8,853 (5) (71) (1) (18) (1,798) (4,001) (15) (40) (5,949) 2,904 In 2018, the value of investments in subsidiaries, joint of the subsidiary Enel Global Infrastructure & Networks ventures, associated and other companies increased by Srl (formerly Enel M@p Srl) in the amount of €10 million €2,904 million as a result of: through the transfer of the “Global Infrastructure & Net- > the increase, on January 1, 2018, of the share capital > the increase, on January 1, 2018, of the share capital of works” Business Line; 388 Annual Report 2018the subsidiary Enel Global Thermal Generation Srl in the measured at cost, in the amount of €12 million; amount of €10 million through the transfer of the “Global > the adjustment of €15 million to the equity investment Thermal Generation” Business Line; held in Enel Investment Holding BV to take account of > the transfer of the entire investment in Tynemouth Ener- the change in performance and financial position follow- gy Storage Limited to the subsidiary Enel Global Thermal ing the aforementioned sale of equity investments; Generation Srl in the amount of €5 million as part of the > a writeback of €403 million in the value of the interest Business Line transfer described above; held in Enel Produzione SpA in order to take account of > the recapitalization, on March 8, 2018, of the subsidiary the adjustment in the value of the equity investment in e-distribuzione SpA by waiving a portion of the financial Slovenské elektrárne; receivable from this company on the intercompany cur- > the adjustment of €40 million to the equity investment rent account in the amount of €2,275 million, which was held in Enel Russia PJSC to take account of current per- allocated to a specific available equity reserve; formance and financial position. > the recapitalization, on March 30, 2018, of the subsidiary Enel X Srl by waiving a portion of the financial receivable Within the scope of “Project Elqui - Italian side”, on March from this company on the intercompany current account 30, 2018, the partial spin-off of Enel Green Power SpA was in the amount of €78 million; completed in favor of the newly incorporated Enel Holding > the recapitalization, on June 20, 2018, of the subsidiary Chile Srl, which led to an adjustment of €71 million in the Enel X Srl through a capital contribution in the amount of investment in Enel Green Power SpA and the acquisition of €290 million, which was allocated to a specific available the equity investment, for the same amount, for the entire equity reserve; share capital of the newly incorporated Enel Holding Chile > the recapitalization, on July 18, 2018, of the subsidiary Srl, the parent company of Hydromac Energy Srl, holder of Enel X Srl through a capital contribution in the amount of an equity investment in Enel Chile SA with a value of €762 €150 million for the purpose of supplementing the equity million. On December 12, 2018, the merger into Enel of of Enel X International Srl; Enel Holding Chile Srl and Hydromac Energy Srl was com- > the incorporation, on July 9, 2018, of Enel Holding Fi- pleted, resulting in an increase of €762 million in Enel’s nance Srl by transferring approximately 75% of the in- investment in Enel Chile SA. vestment in the Dutch company Enel Finance Interna- The transaction is part of the process of simplifying the tional NV, a wholly owned subsidiary of Enel SpA; Group’s structure, which is one of the underlying princi- > the acquisition of the equity investments held by Enel ples of Enel’s 2018-2020 Strategic Plan. The transaction Investment Holding BV, a wholly owned Dutch subsidiary enabled Enel to consolidate the Group’s 61.93% interest in of Enel SpA, in the Russian companies Enel Russia PJSC Enel Chile SA, previously held directly by Enel for a 43.03% and RusEnergoSbyt LLC, in the Romanian companies stake and indirectly through Hydromac Energy for 18.88% Enel Romania SA, E-Distribuţie Banat SA, E-Distribuţie and through Enel Holding Chile for 0.02%. Dobrogea SA, E-Distribuţie Muntenia SA, Enel Energie SA, and Enel Energie Muntenia SA, and in the Dutch It should also be noted that the merger of Enel.Factor SpA company Enel Insurance NV, for a total of €2,922 million; into the wholly owned subsidiary Enel Italia Srl was com- > the reduction in the value of the equity investment of pleted on July 1, 2018. This transaction did not result in Enel Investment Holding BV in the amount of €4,001 changes in the total value of the equity investments held million following the reduction of the share capital in by Enel SpA. the amount of €1,592 million and the distribution of the share premium reserve in the amount of €2,409 million; The following table shows the previous assumptions used > the capital contribution, on October 3, 2018, in favor of in determining the impairment loss on the investments OpEn Fiber, a joint venture with CDP Equity SpA, in the held in Enel Russia PJSC and Enel Investment Holding BV amount of €125 million, in order to support the invest- and the reversal of the impairment loss on Enel Produzione ments needed for execution of the company’s 2018-2027 SpA and Empresa Propietaria de la Red SA. Business Plan; > the increase in the fair value of the equity investment held in Empresa Propietaria de la Red SA, previously 389 Financial statements of Enel SpAMillions of euro Original cost Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) Original cost Growth rate (1) Pre-tax WACC discount rate (2) Explicit period of cash flows Terminal value (3) at Dec. 31, 2018 at Dec. 31, 2017 Enel Russia PJSC 442 1.8% 13.2% 5 years Perpetuity/28 years Enel Investment Holding BV 23 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Enel Produzione SpA 3,913 0.7% 8.9% 5 years Perpetuity 3,913 0.7% 8.9% 5 years Perpetuity Empresa Propietaria de la Red SA 5 - 8.7% 3 years 19 years n/a n/a n/a n/a n/a (1) Perpetual growth rate for cash flows after the explicit forecast period. (2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC. (3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column. The recoverable value of the equity investments recognized developments in the main macroeconomic variables (infla- through the impairment tests was estimated by calculating tion, nominal interest rates and exchange rates) and com- the equity value of the investments through an estimate modity prices. The explicit period of cash flows considered of their value in use using discounted cash flow models, in impairment testing for these equity investments differs which involve estimating expected future cash flows and in accordance with the specific features and business cy- applying an appropriate discount rate, selected on the basis cles of the various companies. The terminal value, on the of market inputs such as risk-free rates, betas and market other hand, was calculated as a perpetuity or annuity with a risk premiums. For the purpose of comparing the carrying nominal growth rate equal to the long-term rate of growth amount of the investments, the enterprise value resulting in electricity and/or inflation (depending on the country and from the estimation of future cash flows was converted business involved) and in any case no higher than the aver- into the equity value by subtracting the net financial posi- age long-term growth rate of the reference market. tion of the investee. Cash flows were determined on the basis of the best information available at the time of the The share certificates for Enel SpA’s investments in Italian estimate and drawn for the explicit period from the 2019- subsidiaries are held in custody at Monte dei Paschi di Siena. 2023 Business Plan approved by the Board of Directors of The following table reports the share capital and share- the Parent Company on November 19, 2018, containing holders’ equity of the investments in subsidiaries, joint forecasts for volumes, revenue, operating costs, capital ventures, associates and other companies at December expenditure, industrial and commercial organization and 31, 2018. 390 Annual Report 2018Registered office Currency Share capital Shareholders’ equity (millions of euro) Prior year income/(loss) (millions of euro) Carrying amount (millions of euro) % holding EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR USD 1,800,000,000 2,600,000,000 10,000,000 90,885,000 272,000,000 1,050,000 1,000,000 2,000,000 11,000,000 302,039 336,142,500 50,100,000 1,100,000 10,100,000 1,478,810,371 10,000 6,763,204,424 CLP 3,954,491,478,786 RON RON RON RON RON RON RUB EUR TRY USD EUR RUB 382,158,580 280,285,560 271,635,250 37,004,350 140,000,000 200,000 35,371,898,370 60,000 3,500,000 842,086,000 250,000,000 2,760,000 4,318 4,657 152 304 6,136 488 8 28 7 2,067 16,918 449 22 9 1,746 1,798 7,710 4,622 480 325 1,026 152 98 3 589 258 (8) 757 800 8 111 613 1,507 75 (73) 237 (23) 794 (2) (4) 801 956 15 1 (1) 99 - 1,017 478 18 18 16 3 (1) - 97 9 (8) 91 (97) 65 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 25.0 100.0 51.8 61.9 51.0 51.0 78.0 78.0 51.0 100.0 56.4 100.0 100.0 - 50.0 49.5 4,316 6,331 110 1,194 6,469 523 9 30 11 1,313 13,713 505 16 22 599 1,798 2,822 2,522 421 261 952 330 208 15 402 252 - - 490 41 7 42.7 23 Milan Moscow Milan EUR 8,550,000 A) Subsidiaries Enel Produzione SpA e-distribuzione SpA Servizio Elettrico Nazionale SpA Enel Global Trading SpA Enel Green Power SpA Enel X Srl Rome Rome Rome Rome Rome Rome Enel Investment Holding BV Amsterdam Enelpower SpA Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel Italia Srl Enel Innovation Hubs Srl Enel Global Infrastructure & Networks Srl Milan Rome Rome Madrid Rome Rome Rome Enel Finance International NV Amsterdam Enel Holding Finance Srl Enel Américas SA Enel Chile SA Rome Santiago Santiago E-Distribuţie Banat SA Timisoara E-Distribuţie Dobrogea SA Constanța E-Distribuţie Muntenia SA Bucharest Enel Energie Muntenia SA Bucharest Enel Energia SA Enel Romania SA Enel Russia PJSC Enel Insurance NV Bucharest Judetul Ilfov Ekaterinburg Amsterdam Vektör Enerji Üretim AŞ Istanbul Enel Green Power Chile Ltda Santiago B) Joint ventures OpEn Fiber SpA RusEnergoSbyt LLC C) Associates CESI SpA (1) D) Other companies Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur SA (1) Elcogas SA Idrosicilia SpA (1) Panama USD 58,500,000 118 Panama Buenos Aires Puertollano Milan USD 2,700,000 - ARS EUR EUR 14,012,000 809,690 22,520,000 (25) (111) 51 15 (1) (8) (2) 4 11.1 11.1 - 4.3 1.0 (1) The figures for share capital, shareholders’ equity and net income refer to the financial statements at December 31, 2017. 17 - - - - 391 Financial statements of Enel SpA With regard to the investments held in the companies Enel to an extent necessary to confirm the full recoverability Green Power SpA, e-distribuzione SpA, E-Distribuţie Banat of the value of the investments; SA, E-Distribuţie Dobrogea SA, E-Distribuţie Muntenia SA, > in the case of Enel Finance International NV, it is attribut- Enel Energie Muntenia SA, Enel Energie SA, Enel Romania able to the negative developments in the fair value of a SA, RusEnergoSbyt LLC, Enel Global Infrastructure & Net- number of items in shareholders’ equity. works Srl, Enel X Srl, Enel Global Trading SpA, OpEn Fiber SpA, and Enel Finance International NV, the carrying amount It should also be noted that these shareholdings have passed is deemed to be recoverable even if individually greater than their related impairment tests. shareholders’ equity at December 31, 2018, for each share- holding. This circumstance is not felt to represent an impair- Equity investments in other companies at December 31, ment loss in respect of the investment but rather a tempo- 2018 are all related to unlisted companies. During the transi- rary mismatch between the two amounts. More specifically: tion to IFRS 9, the option of measuring these financial as- sets at fair value thorugh other comprehensive income was > for the companies Enel Green Power SpA, e-distribuzi- applied. one SpA, E-Distribuţie Banat SA, E-Distribuţie Dobrogea For the investment in Empresa Propietaria de la Red, previ- SA, E-Distribuţie Muntenia SA, Enel Energie Muntenia ously measured at cost, the fair value was determined on SA, Enel Energie SA, Enel Romania SA, RusEnergoSbyt the basis of a reliable valuation of the significant balance LLC, Enel Global Infrastructure & Networks Srl, Enel X sheet items. Srl, Enel Global Trading SpA, and OpEn Fiber SpA, the In 2018, following the final liquidation report and the final negative difference between the carrying amount of the distribution plan, the liquidation procedure of the company investments and their shareholders’ equity represented Emittenti Titoli SpA was completed. a trigger event, following which the value was deter- The investment in Elcogas was completely written off in mined by means of an impairment test of the equity val- 2014 and since January 1, 2015, the company, in which Enel ue of the investments in consideration of their expected has a stake of 4.3%, has been in liquidation. The profit par- future cash flows. As a result of this test, a greater value ticipation loan of €6 million granted in 2014 has also been emerged that was not reflected in shareholders’ equity written down to take account of accumulated losses. Millions of euro Equity investments in unlisted companies measured at FVOCI Empresa Propietaria de la Red SA Red Centroamericana de Telecomunicaciones SA Compañía de Transmisión del Mercosur SA Elcogas SA Emittenti Titoli SpA in liquidation Idrosicilia SpA at Dec. 31, 2018 at Dec. 31, 2017 17 17 - - - - - 6 5 - - - 1 - 392 Annual Report 201814. Derivatives - €793 million, €92 million, €1,395 million, €355 million Millions of euro Non-current Current at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Derivative financial assets Derivative financial liabilities 793 1,395 1,456 2,270 92 355 111 176 For more details about the nature, recognition and classi- see notes 31 “Financial instruments” and 33 “Derivatives fication of derivative financial assets and liabilities, please and hedge accounting”. 15. Other non-current financial assets - €136 million The aggregate is composed of the following. Millions of euro Prepaid financial expense Other non-current financial assets included in debt Total Notes at Dec. 31, 2018 at Dec. 31, 2017 Change 15.1 8 128 136 10 6 16 (2) 122 120 Prepaid financial expense essentially refers to the remain- national, and Mediobanca following the closure of the exist- ing portion of the transaction costs on the €10 billion revolv- ing line. The item reports the non-current portion of those ing credit line, established on December 18, 2017, and with costs, and their reversal through profit or loss depends on a five-year duration, between Enel SpA, Enel Finance Inter- the type of fee involved and the maturity of the credit line. 15.1 Other non-current financial assets included in debt - €128 million Millions of euro Financial receivables Other financial receivables Total Notes 31.1.1 at Dec. 31, 2018 at Dec. 31, 2017 Change 125 3 128 - 6 6 125 (3) 122 Other non-current financial assets included in debt at De- carry out the investments provided for in the Business Plan cember 31, 2018, amounted to €128 million, an increase of in relation to the national project for the development of an €122 million compared with the previous year. ultra-broadband fiber-optic network. This change was essentially due to the disbursement of a Other financial receivables amounted to €3 million and are loan of €125 million to the joint venture OpEn Fiber SpA, entirely accounted for by loans to employees. They de- in order to provide the company with the funds needed to creased by €3 million compared with the previous year. 393 Financial statements of Enel SpA16. Other non-current assets - €134 million This item breaks down as follows. Millions of euro Tax receivables Receivable from subsidiaries for assumption of supplementary pension plan liabilities Total other non-current assets at Dec. 31, 2018 at Dec. 31, 2017 Change 9 125 134 9 139 148 - (14) (14) Tax receivables regard the tax credit in respect of the claim companies of their share of the supplementary pension for reimbursement for excess income tax paid as a result of plan. The terms of the agreement state that the Group not partially deducting IRAP in calculating taxable income for companies concerned have to reimburse the costs of extin- IRES purposes. These claims were submitted by Enel SpA guishing defined benefit obligations of the Parent Company, on its own behalf for 2003 and on its own behalf and as the which are recognized under employee benefits. consolidating company for 2004-2011. On the basis of actuarial forecasts made using current as- Receivable from subsidiaries for assumption of supplemen- ceivables from subsidiaries for assumption of supplemen- tary pension plan liabilities, in the amount of €125 million, tary pension plan liabilities came to €63 million (€76 million refers to receivables in respect of the assumption by Group at December 31, 2017). sumptions, the portion due beyond five years of these re- 17. Trade receivables - €191 million The item breaks down as follows. Millions of euro Trade receivables: - due from subsidiaries - due from non-Group customers Total at Dec. 31, 2018 at Dec. 31, 2017 Change 166 25 191 208 29 237 (42) (4) (46) Trade receivables, which totaled €191 million, consist of million is related both to the trend in revenue connected receivables due from subsidiaries (€166 million) and non- to these services and to the reorganization of the Global Group customers (€25 million). Structures, which led to a reduction in revenue from techni- Trade receivables due from subsidiaries primarily regard the cal services. management and coordination services and other activities Receivables from non-Group customers concern services performed by Enel SpA on behalf of Group companies. of various nature and totaled €25 million, which, compared Compared with December 31, 2017, the decrease of €42 with December 31, 2017, is a decrease of €4 million. 394 Annual Report 2018Trade receivables due from subsidiaries break down as follows: Millions of euro Subsidiaries Enel Iberia Srl Enel Produzione SpA e-distribuzione SpA Enel Green Power SpA Enel Américas SA Endesa SA Servizio Elettrico Nazionale SpA Enel Global Trading SpA Enel Energia SpA Enel Italia Srl Enel Green Power North America Inc. Enel X Srl Enel Russia PJSC Endesa Distribución Eléctrica SL Enel Global Thermal Generation Srl Endesa Generación SA Endesa Energía SA Enel Romania SA Enel Brasil SA Enel Distribución Perú SAA Enel Generación Perú SAA Unión Eléctrica de Canarias Generación SAU Other Total Trade receivables by geographical area are shown below. Millions of euro Italy EU Non-EU Europe Other Total at Dec. 31, 2018 at Dec. 31, 2017 Change 1 3 10 9 4 3 2 - 6 16 1 - 11 21 1 (2) 2 5 24 5 5 (1) 40 166 1 13 33 3 3 4 1 1 1 18 1 2 16 27 - 10 4 4 25 6 6 3 26 208 - (10) (23) 6 1 (1) 1 (1) 5 (2) - (2) (5) (6) - (12) (2) 1 (1) (1) (1) (4) 14 (42) at Dec. 31, 2018 at Dec. 31, 2017 Change 54 68 12 57 191 77 97 17 46 237 (23) (29) (5) 11 (46) 395 Financial statements of Enel SpA18. Income tax receivables - €165 million Income tax receivables at December 31, 2018 amounted ceivable with respect to the consolidated IRES return for to €165 million and essentially regard the Company’s IRES 2018 (€56 million). credit for estimated current taxes (€99 million) and the re- 19. Other current financial assets - €1,860 million This item can be broken down as follows. Millions of euro Other current financial assets included in net financial debt 19.1 Other sundry current financial assets Total 1,579 281 1,860 4,085 265 4,350 Notes at Dec. 31, 2018 at Dec. 31, 2017 Change (2,506) 16 (2,490) 19.1 Other current financial assets included in debt - €1,579 million Millions of euro Notes at Dec. 31, 2018 at Dec. 31, 2017 Change Financial receivables due from Group companies: - short-term financial receivables (intercompany current accounts) - current portion of receivables for assumption of loans Financial receivables due from others: - current portion of long-term financial receivables - other financial receivables 31.1.1 31.1.1 - cash collateral for margin agreements on OTC derivatives 31.1.1 Total 313 - 1 12 1,253 1,579 1,984 27 1 (1) 2,074 4,085 (1,671) (27) - 13 (821) (2,506) Other current financial assets included in debt, amounting Group companies on the intercompany current account to €1,579 million at December 31, 2018, refer to financial (€1,671 million). receivables due from Group companies (€313 million) and Financial receivables due from others decreased by €808 financial receivables due from others (€1,266 million). million, essentially attributable to the decrease in cash col- Financial receivables due from Group companies decreased lateral paid to counterparties for OTC derivatives on interest by €1,698 million compared with December 31, 2017, due rates and exchange rates. to the decline in short-term financial receivables due from 20. Other current assets - €268 million At December 31, 2018, the item broke down as follows. Millions of euro Tax receivables Other receivables due from Group companies Other receivables Total 396 at Dec. 31, 2018 at Dec. 31, 2017 Change 173 74 21 268 10 435 7 452 163 (361) 14 (184) Annual Report 2018Other current assets decreased by a total of €184 million as of participating in the Group VAT mechanism (€3 million). compared with December 31, 2017. The decrease of €361 million compared with December 31, Tax receivables amounted to €173 million, primarily includ- 2017, was essentially due to the lower VAT receivables in ing the remaining receivable for prepaid VAT for 2018 in the respect of participating in the Group VAT mechanism (€345 amount of €168 million and receivables with respect to million) and the reduction in intragroup receivables related prior-year income taxes of €4 million. to the Italian IRES tax consolidation (€28 million), partially Other receivables due from Group companies essentially offset by the increase in receivable from subsidiaries (€9 regard receivables for the interim dividend approved in million) and the increase in interim dividends (€4 million). 2018 by the subsidiaries Enel Chile SA and Enel Américas Other receivables, in the amount of €21 million at Decem- SA (€24 million and €33 million, respectively), which was ber 31, 2018, increased by €14 million compared with 2017 collected in January 2019, IRES receivables in respect of (€7 million), €8 million of which due to recognition of the the Group companies participating in the consolidated taxa- installment, relating to 2019, of the contribution to the Enel tion mechanism (€5 million), and VAT receivables in respect employee recreational association (Arca). 21. Cash and cash equivalents - €2,007 million Cash and cash equivalents break down as follows. Millions of euro Bank and post office deposits Cash and cash equivalents on hand Total at Dec. 31, 2018 at Dec. 31, 2017 2,007 - 2,007 2,489 - 2,489 Change (482) - (482) Cash and cash equivalents amounted to €2,007 million, 2017 as approved by the shareholders of Enel SpA on May a decrease of €482 million compared with December 31, 24, 2018, as well as normal operations connected with the 2017, mainly due to the impact of the redemption and is- central treasury function performed by the Parent Com- sue of a number of bonds, the payment of dividends during pany. Liabilities and equity 22. Shareholders’ equity - €27,943 million Shareholders’ equity amounted to €27,943 million, up lion), as approved by the shareholders on May 24, 2018, €707 million compared with December 31, 2017. The and the interim dividend for 2018 approved by the Board of change is mainly attributable to net income for the year Directors on November 6, 2018, and paid as from January (€3,478 million), the distribution of the dividend for 2017 in 23, 2019 (€0.14 per share, for a total of €1,423 million). the amount of €0.132 per share (for a total of €1,342 mil- Share capital - €10,167 million At December 31, 2018, the share capital of Enel SpA and the notices submitted to CONSOB and received by the amounted to €10,166,679,946 fully subscribed and paid Company pursuant to Article 120 of Legislative Decree 58 up, represented by that same number of ordinary shares of February 24, 1998, as well as other available informa- with a par value of €1.00 each. This figure for Enel SpA tion, the only shareholder with an interest of greater than share capital is therefore unchanged compared with the 3% in the Company’s share capital was the Ministry for the €10,166,679,946 of December 31, 2017. Economy and Finance (with a 23.585% stake). At December 31, 2018, based on the shareholders register 397 Financial statements of Enel SpAOther reserves - €11,464 million includes €29 million in respect of the stock option reserve and €20 million for other reserves. Share premium reserve - €7,496 million The share premium reserve as at December 31, 2018 is unchanged compared with the previous year. Legal reserve - €2,034 million The legal reserve, equal to 20.0% of share capital, is un- changed compared with the previous year. Reserve pursuant to Law 292/1993 - €2,215 million The reserve shows the remaining portion of the value ad- justments carried out when Enel was transformed from a Reserve from measurement of financial instruments - €(328) million At December 31, 2018, the item was represented by the reserve from measurement of cash flow hedge derivatives and costs of hedging with a negative value of €328 million (net of the positive tax effect of €103 million). Reserves from measurement of financial assets at FVOCI - €11 million At December 31, 2018, the reserves from measurement of financial assets at FVOCI amounted to €11 million due to the fair value measurement of Empresa Propietaria de public entity to a joint-stock company. la Red SA. In the case of a distribution of this reserve, the tax treat- ment for capital reserves as defined by Article 47 of the Uniform Income Tax Code shall apply. Other sundry reserves - €68 million Other reserves include €19 million related to the reserve for capital grants, which reflects 50% of the grants received from Italian public entities and EU bodies in application of related laws for new works (pursuant to Article 55 of Presi- dential Decree 917/1986), which is recognized in equity in order to take advantage of tax deferment benefits. It also Reserve from remeasurement of net employee benefit plan liabilities/(assets) - €(32) million At December 31, 2018, the employee benefit plan reserve amounted to €32 million (net of the positive tax effect of €8 million). The reserve includes actuarial gains and losses recognized directly in equity, as the corridor approach is no longer permitted under the new version of “IAS 19 - Em- ployee benefits”. 398 Annual Report 2018The table below provides a breakdown of changes in the the reserve from measurement of defined benefit plan li- reserve from measurement of financial instruments and abilities/assets in 2017 and 2018. Gross gains/ (losses) recognized in equity for the year Gross released to income statement Taxes Gross gains/ (losses) recognized in equity for the year Gross released to income statement Taxes at Jan. 1, 2017 at Dec. 31, 2017 at Dec. 31, 2018 (258) (249) 232 7 (268) 1 (45) 37 (275) (118) - 48 - (27) (7) - - - (403) (208) 232 - - 2 9 (70) - 17 11 (32) - - - - - - - (53) 11 (32) (370) 29 (45) 37 (349) Millions of euro Reserves from measurement of cash flow hedge financial instruments Reserves from measurement of costs of hedging financial instruments Reserves for financial assets at FVOCI Reserve from remeasurement of net employee benefit plan liabilities/(assets) Gains/(Losses) recognized directly in equity Retained earnings/(Loss carried forward) - €4,279 million For 2018, the item shows a decrease of €145 million, attrib- amount of €142 million for the distribution of dividends to utable to the resolution of the Shareholders’ Meeting of May shareholders and the allocation to retained earnings of part 24, 2018, which provided for the use of this reserve in the of the net income for 2017, equal to €3 million. Net income for the year - €2,033 million Net income for 2018, net of the interim dividend for 2018 of €0.14 per share (for a total of €1,423 million), amounted to €2,033 million. 399 Financial statements of Enel SpAThe table below shows the availability of shareholders’ equity for distribution. Millions of euro Share capital Capital reserves: - share premium reserve Income reserves: - legal reserve - reserve pursuant to Law 292/1993 - reserve from measurement of financial instruments - reserves for financial assets at FVOCI - reserve for capital grants - stock option reserve - reserve from remeasurement of employee benefit plan liabilities - other Retained earnings/(Loss carried forward) Total of which amount available for distribution at Dec. 31, 2018 Possible uses Amount available 10,167 7,496 2,034 2,215 (328) 11 19 29 (32) 20 4,279 25,910 ABC B ABC ABC ABC ABC ABC 7,496 2,215 19 29 (1) (2) 20 4,279 14,058 14,055 A: for capital increases. B: to cover losses. C: for distribution to shareholders. (1) Regards lapsed options. (2) Not distributable in the amount of €3 million regarding options granted by the Parent Company to employees of subsidiaries that have lapsed. There are no restrictions on the distribution of the reserves Enel’s goals in capital management are focused on the cre- pursuant to Article 2426, paragraph 1(5), of the Italian Civil ation of value for shareholders, safeguarding the interests of Code since there are no unamortized start-up and expansion stakeholders and ensuring business continuity, as well as on costs or research and development costs, or departures pur- maintaining sufficient capitalization to ensure cost-effective suant to Article 2423, paragraph 4, of the Civil Code. access to outside sources of financing, so as to adequately It should be noted that, in the three previous years, the avail- support growth in the Group’s business. able reserve denominated “Retained earnings/(Loss carried forward) has been used in the amount of €1,159 million for the distribution of dividends to shareholders. 400 Annual Report 201822.1 Dividends The table below shows the dividends paid by the Company in 2017 and 2018. Amount distributed (in millions of euro) Net dividend per share (in euro) Dividends paid in 2017 Dividends for 2016 Interim dividend for 2017 (1) Special dividends Total dividends paid in 2017 Dividends paid in 2018 Dividends for 2017 Interim dividend for 2018 (2) Special dividends Total dividends paid in 2018 1,830 - - 1,830 2,410 - - 2,410 0.18 - - 0.18 0.237 - - 0.237 (1) Approved by the Board of Directors on November 8, 2017, and paid as from January 24, 2018 (interim dividend per share of €0.105 for a total of €1,068 million). (2) Approved by the Board of Directors on November 6, 2018, and paid as from January 23, 2019 (interim dividend of €0.14 per share for a total of €1,423 million). The dividend for 2017, equal to €0.28 per share, amounting call. These financial statements do not reflect the effects to a total of €2,847 million (of which €0.14 per share, for a of the distribution of this dividend for 2018 to shareholders, total of €1,423 million already paid as an interim dividend as with the exception of liabilities due to shareholders for the from January 23, 2019), has been proposed to and resolved 2018 interim dividend approved by the Board of Directors by the Shareholders’ Meeting of May 16, 2019, at a single on November 6, 2018, and paid as from January 23, 2019. 22.2 Capital management The Company’s objectives for managing capital comprise In this context, the Company manages its capital structure safeguarding the business as a going concern, creating and adjusts that structure when changes in economic con- value for stakeholders and supporting the development of ditions so require. There were no substantive changes in the Group. In particular, the Group seeks to maintain an objectives, policies or processes in 2018. adequate capitalization that enables it to achieve a satisfac- To this end, the Company constantly monitors develop- tory return for shareholders and ensure access to external ments in the level of its debt in relation to equity. The situ- sources of financing, in part by maintaining an adequate ation at December 31, 2018 and 2017 is summarized in the rating. Millions of euro Non-current financial position Net current financial position Non-current financial receivables and long-term securities Net financial debt Shareholders’ equity Debt/equity ratio following table. at Dec. 31, 2018 at Dec. 31, 2017 (13,397) (2,221) 128 (15,490) 27,943 (0.55) (10,780) (2,477) 6 (13,251) 27,236 (0.49) Change (2,617) 256 122 (2,239) 707 (0.06) 401 Financial statements of Enel SpA23. Borrowings - €13,397 million, €806 million, €5,001 million Millions of euro Non-current Current at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Long-term borrowings Short-term borrowings 13,397 - 10,780 - 806 5,001 3,654 5,397 For more details about the nature, recognition and classification of borrowings, please see note 31 “Financial instruments”. 24. Employee benefits - €231 million The Company provides its employees with a variety ment benefits under defined benefit plans and other long- of benefits, including termination benefits, additional term benefits to which employees are entitled by law, months’ pay, indemnities in lieu of notice, loyalty bonuses by contract, or under other forms of employee incentive for achievement of seniority milestones, supplementary schemes. pension plans, supplementary healthcare plans, additional These obligations, in accordance with IAS 19, were deter- indemnity for FOPEN pension contributions, FOPEN pen- mined using the projected unit credit method. sion contributions in excess of deductible amount and per- The following table reports the change during the year in sonnel incentive plans. the defined benefit obligation, as well as a reconciliation of the defined benefit obligation with the obligation recog- The item includes accruals made to cover post-employ- nized at December 31, 2018, and December 31, 2017. Millions of euro 2018 2017 Pension benefits Health insurance Other benefits Total Pension benefits Health insurance Other benefits Total CHANGES IN ACTUARIAL OBLIGATION Actuarial obligation at January 1 200 45 Current service cost Interest expense Actuarial (gains)/losses arising from changes in demographic assumptions Actuarial (gains)/losses arising from changes in financial assumptions Experience adjustments Past service cost (Gains)/Losses arising from settlements Employer contributions Contributions from plan participants Payments for closures Other payments Other changes Actuarial obligation at December 31 - 3 - - - - - - - - (23) (6) 174 1 1 - - (1) - - - - - (2) (4) 40 402 273 222 40 28 6 - - - - - - - - - 7 4 - - (1) - - - - - (10) (7) 17 (35) (17) 231 - 3 - (1) 2 - - - - - (25) (1) 200 2 1 - - 6 - - - - - (2) (2) 45 24 20 - - - - - - - - - 286 22 4 - (1) 8 - - - - - (14) (41) (2) 28 (5) 273 Annual Report 2018Millions of euro (Gains)/Losses charged to profit or loss Service cost Interest expense (Gains)/Losses arising from settlements Total Millions of euro Change in (gains)/losses in OCI Actuarial (gains)/losses on defined benefit plans Other changes Total 2018 7 4 - 11 2018 - - - 2017 22 4 - 26 2017 7 - 7 The current service cost for employee benefits in 2018 The main actuarial assumptions used to calculate the liabili- amounted to €7 million, recognized under personnel costs ties arising from employee benefits, which are consistent (€22 million in 2017), while the interest expense from the with those used the previous year, are set out below. accretion of the liability amounted to €4 million, which is in line with 2017. Discount rate Rate of wage increases Rate of increase in healthcare costs 2018 0.25%-1.50% 1.50%-3.50% 2.50% 2017 0.20%-1.50% 1.50%-3.50% 2.50% The following table reports the outcome of a sensitivity at the end of the year in the actuarial assumptions used in analysis that demonstrates the effects on the liability for estimating the obligation. healthcare plans as a result of changes reasonably possible Millions of euro Healthcare plans: ASEM An increase of 0.5% in discount rate A decrease of 0.5% in discount rate An increase of 0.5% in inflation rate An increase of 0.5% in remuneration An increase of 0.5% in pensions currently being paid An increase of 1% in healthcare costs An increase of 1 year in life expectancy of active and retired employees (2) 2 (1) - - 5 38 25. Provisions for risks and charges - €45 million Provisions for risks and charges cover probable potential In determining the balance of the provision, we have taken liabilities that could arise from legal proceedings and other account of both the charges that are expected to result disputes, without considering the effects of rulings that are from court judgments and other dispute settlements for expected to be in the Company’s favor and those for which the year and an update of the estimates for positions aris- any charge cannot be quantified with reasonable certainty. ing in previous years. 403 Financial statements of Enel SpAThe following table shows changes in provisions for risks and charges. Taken to profit or loss Millions of euro Accruals Reversals Utilization at Dec. 31, 2017 Other changes Total at Dec. 31, 2018 of which current portion Provision for litigation, risks and other charges: - litigation - other Total Provision for early retirement incentives TOTAL 11 11 22 21 43 15 - 15 6 21 (5) - (5) - (5) (3) (5) (8) (5) (13) - - - (1) (1) 18 6 24 21 45 15 3 18 4 22 The increase in the provision for litigation, in the amount The decrease of €5 million in other provisions is due to of €7 million, reflects the allocation for the year of €15 utilizations for the year. million, partially offset by reversals to profit or loss and The provision for early retirement incentives, in the uses resulting from the settlement of a number of dis- amount of €21 million, is unchanged compared with the putes for a total of €8 million. previous year. This provision refers to labor disputes (€4 million) and other disputes of €14 million. 26. Other non-current liabilities - €12 million Other non-current liabilities amounted to €12 million (€12 ing part of IRAP in computing taxable income for IRES pur- million at December 31, 2017). They essentially regard the poses. The liability in respect of the subsidiaries is balanced debt towards Group companies that initially arose following by the recognition of non-current tax receivables (note 16). Enel SpA’s application (submitted in its capacity as the con- The amount of the liability at December 31, 2018 reflects solidating company) for reimbursement for 2004-2011 of the updating of the interest accrued on the residual receiv- the additional income taxes paid as a result of not deduct- able. 27. Trade payables - €82 million Millions of euro Trade payables: - due to third parties - due to Group companies Total at Dec. 31, 2018 at Dec. 31, 2017 Change 41 41 82 66 71 137 (25) (30) (55) Trade payables mainly include payables for the provision of at December 31, 2017) and payables due to Group compa- services and other activities performed in 2018, and com- nies of €41 million (€71 million at December 31, 2017). prise payables due to third parties of €41 million (€66 million 404 Annual Report 2018Trade payables due to subsidiaries at December 31, 2018 break down as follows. Millions of euro Subsidiaries Enel Produzione SpA e-distribuzione SpA Enel Ingegneria e Ricerca SpA Servizio Elettrico Nazionale SpA Enel Global Trading SpA Enel Green Power SpA Enel Italia Srl Enel Iberia Srl Enel Global Infrastructure & Networks Srl Enel X Srl Enel Innovation Hubs Srl Enel.Factor SpA Endesa SA Enel Russia PJSC Other Total at Dec. 31, 2018 at Dec. 31, 2017 Change 1 - - - 1 - 18 4 3 1 2 - 3 - 8 41 1 1 - - 1 1 35 21 - - - 2 3 - 6 71 - (1) - - - (1) (17) (17) 3 1 2 (2) - - 2 (30) Trade payables break down by geographical area as follows. at Dec. 31, 2018 at Dec. 31, 2017 Change Millions of euro Suppliers Italy EU Non-EU Europe Other Total 59 17 1 5 82 99 31 4 3 137 28. Other current financial liabilities - €276 million Other current financial liabilities mainly regard interest expense accrued on debt outstanding at year end. Millions of euro Deferred financial liabilities Other items Total Notes 31.2.1 31.2.1 at Dec. 31, 2018 at Dec. 31, 2017 259 17 276 450 15 465 (40) (14) (3) 2 (55) Change (191) 2 (189) 405 Financial statements of Enel SpAMore specifically, deferred financial liabilities consist of in- the following year, comprising both financial expense on terest expense accrued on financial debt, while the other hedge derivatives on commodity exchange rates and inter- items essentially include amounts due to Group companies est expense on intercompany current accounts. that accrued as of December 31, 2018, but to be settled in 29. Net financial position and long-term financial receivables and securities - €15,490 million The following table shows the net financial position and long-term financial receivables and securities on the basis of the items on the balance sheet. Millions of euro Long-term borrowings Short-term borrowings Current portion of long-term borrowings Non-current financial assets included in debt Current financial assets included in debt Cash and cash equivalents Total Notes at Dec. 31, 2018 at Dec. 31, 2017 23 23 23 15.1 19.1 21 13,397 5,001 806 128 1,579 2,007 15,490 10,780 5,397 3,654 6 4,085 2,489 13,251 Change 2,617 (396) (2,848) 122 (2,506) (482) 2,239 Pursuant to the CONSOB instructions of July 28, 2006, the ber 31, 2018, reconciled with net financial debt as reported following table reports the net financial position at Decem- in the Report on operations. Millions of euro Bank and post office deposits Liquidity Short-term portion of long-term financial receivables Current financial receivables Short-term bank debt Short-term portion of long-term bank debt Other short-term financial payables Short-term financial debt Net short-term financial position Long-term bank debt Bonds Other long-term debt Long-term borrowings Non-current financial position NET FINANCIAL POSITION as per CONSOB instructions Long-term financial receivables NET FINANCIAL DEBT 406 at Dec. 31, 2018 at Dec. 31, 2017 Change of which with related parties of which with related parties 2,007 2,007 1 1,579 (45) (806) (4,956) (5,807) (2,221) (1,048) (8,208) (4,141) (13,397) (13,397) (15,618) 128 (15,490) 2,489 2,489 1 4,085 (245) (3,654) (5,152) (9,051) (2,477) (1,039) (8,541) (1,200) (10,780) (10,780) (13,257) 6 (13,251) (482) (482) - 2,011 (2,506) (4,896) - 200 2,848 196 3,244 256 (9) 333 (2,941) (2,617) (2,617) (2,361) 122 (2,239) 313 (4,716) 125 Annual Report 201830. Other current liabilities - €2,029 million Other current liabilities mainly concern payables due to tax interim dividend for 2018 approved by the Enel SpA Board authorities and to the Group companies participating in the of Directors on November 6, 2018, and paid as from Janu- consolidated IRES taxation mechanism and the Group VAT ary 23, 2019 (€1,423 million in 2018 and €1,068 million in system, as well as the liability due to shareholders for the 2017). Millions of euro Tax payables Payables due to Group companies Payables due to employees, recreational/assistance associations Payables due to social security institutions Payables due to customers for security deposits and reimbursements Other Total at Dec. 31, 2018 at Dec. 31, 2017 245 317 18 7 2 1,440 2,029 502 428 27 12 2 1,094 2,065 Change (257) (111) (9) (5) - 346 (36) Tax payables amounted to €245 million and essentially re- respect of the IRES liability under the consolidated taxation gard amounts due to tax authorities for consolidated IRES mechanism (€175 million at December 31, 2017) and €173 (€240 million). The decrease compared with the previous million in respect of Group VAT (€252 million at December year amounted to €257 million, mainly due to the decrease 31, 2017). The decrease of €111 million reflects develop- in the debtor position with tax authorities for consolidated ments in the debtor positions noted above. IRES (€165 million). For the previous year, this item includ- The item “Other”, equal to €1,440 million, includes €1,423 ed the amount payable to tax authorities for Group VAT for million (€1,068 million at December 31, 2017) for the liabil- the 4th Quarter of 2017, in the amount of €90 million. ity due to shareholders for the interim dividend to be paid Payables due to Group companies amounted to €317 mil- as from January 23, 2019 (€0.14 per share for 2018 and lion. They essentially consist of €139 million in payables in €0.105 per share for 2017). 407 Financial statements of Enel SpA31. Financial instruments 31.1 Financial assets by category The following table shows the carrying amount for each cat- arately hedging derivatives and derivatives measured at fair egory of financial assets provided by IFRS 9, broken down value through profit or loss. into current and non-current financial assets, showing sep- Millions of euro Non-current Current Notes at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Financial assets at amortized cost Financial assets at FVOCI Equity investments in other companies Total financial assets at FVOCI Financial assets at FVTPL Derivative financial assets at FVTPL Financial assets designated at fair value upon initial recognition (fair value option) Total financial assets at FVTPL Derivative financial assets designated as hedging instruments Cash flow hedge derivatives Fair value hedge derivatives Total derivative financial assets designated as hedging instruments TOTAL 31.1.1 31.1.2 33 33 33 128 - 17 17 325 - 325 468 - 468 938 6 - - - 940 940 501 15 516 1,462 4,050 7,018 - - - 78 - 78 14 - 14 - - - 111 111 - - - 4,142 7,129 For more details on the recognition and classification of current and non-current derivative financial assets, please see note 33 “Derivatives and hedge accounting”. 31.1.1 Financial assets measured at amortized cost The following table shows financial assets measured at amortized cost by nature, broken down into current and non- current financial assets. Millions of euro Non-current Current Notes at Dec. 31, 2018 at Dec. 31, 2017 Cash and cash equivalents Trade receivables Financial receivables due from Group companies Receivables on intercompany current accounts Current portion of long-term financial receivables 19.1 Other financial receivables Total financial receivables due from Group companies Financial receivables due from others - - - - - - Financial receivables 15.1 125 Current portion of long-term financial receivables Cash collateral for margin agreements on OTC derivatives Other financial receivables Total financial receivables due from others Other receivables TOTAL 408 - - 3 128 - 128 - - - - - - - - - 6 6 - 6 Notes 21 17 19.1 19.1 at Dec. 31, 2018 at Dec. 31, 2017 2,007 191 313 - 209 522 - 1 1,253 18 1,272 58 4,050 2,489 237 1,984 27 153 2,164 - 1 2,074 - 2,075 53 7,018 Annual Report 2018The primary changes compared with 2017 regarded: crease in receivables on the intercompany current ac- > a decrease of €482 million in cash and cash equivalents, count held with Group companies (€1,671 million); essentially attributable to the redemption and repurchase > a total decrease of €681 million in financial receivables of a number of bonds, the payment of dividends for 2017 due from others, mainly as a result of a decrease in and the normal central treasury functions performed by cash collateral paid to counterparties for OTC derivatives Enel SpA; transactions on interest rates and exchange rates (€821 > a total decrease of €1,642 million in financial receivables million). due from Group companies, largely reflecting the de- Impairment of financial assets at amortized cost Financial assets measured at amortized cost at Decem- The expected credit loss (ECL), determined considering probability of default (PD), loss given default (LGD), and exposure at default (EAD), is the difference between all ber 31, 2018 amounted to €4,178 million (€7,024 million at contractual cash flows that are due in accordance with the December 31, 2017) and are recognized net of allowances contract and all cash flows that are expected to be received for expected credit losses, which totaled €12 million at De- (i.e., all shortfalls) discounted at the original effective inter- cember 31, 2018, compared with a balance of €5 million at est rate. the end of previous year. The assessment of the increase in credit risk may be per- The Company mainly has the following types of financial formed on: assets measured at amortized cost subject to impairment: > an individual basis, if the receivables have been individu- > cash and cash equivalents; > trade receivables; > financial receivables; > other receivables. ally identified for impairment based on available informa- tion; > a collective basis on other cases. No signficant expected loss was found in the impairment The following table shows the expected losses for each testing of cash and cash equivalents and other receivables. class of financial assets measured at amortized cost. Millions of euro at Dec. 31, 2018 at Jan. 1, 2018 Gross carrying amount Allowance for expected losses Cash and cash equivalents Trade receivables Financial receivables due from Group companies Financial receivables due from others Other receivables Total 2,007 196 523 1,406 58 4,190 - 5 1 6 - 12 Gross carrying amount Allowance for expected losses 2,489 237 2,164 2,086 53 7,029 - 5 1 6 - 12 Total 2,007 191 522 1,400 58 4,178 Total 2,489 232 2,163 2,080 53 7,017 409 Financial statements of Enel SpAFinancial receivables Millions of euro At Jan. 1, 2017 - IAS 39 Impairment losses Utilization Reversals Other Total at Dec. 31, 2017 - IAS 39 Application of IFRS 9 At Jan. 1, 2018 - IFRS 9 Impairment losses Utilization Reversals Other Total at Dec. 31, 2018 - IFRS 9 Trade receivables Millions of euro At Jan. 1, 2017 - IAS 39 Impairment losses Utilization Reversals Other Total at Dec. 31, 2017 - IAS 39 Application of IFRS 9 At Jan. 1, 2018 - IFRS 9 Impairment losses Utilization Reversals Other Total at Dec. 31, 2018 - IFRS 9 Allowance for expected losses Individual Collective Total 5 - - - 5 2 7 - - - - 7 - - - - - - - - - - - - 5 - - - 5 2 7 - - - - 7 Allowance for expected losses Individual Collective Total - - - - - - - - - - - - - - - - - 5 5 - - - - 5 - - - - - 5 5 - - - - 5 31.1.2 Financial assets at fair value through other comprehensive income (FVOCI) This category mainly includes equity investments in unlist- Equity investments in other companies, in the amount of ed companies irrevocably designated as such at the time €17 million, essentially concern the investment held by of initial recognition. Enel SpA in the company Empresa Propietaria de la Red At December 31, 2017, investments in other companies SA (€17 million). were recognized among financial assets available for sale At December 31, 2018, the fair value of the investment in accordance with IAS 39 and were measured at cost. was determined on the basis of a reliable valuation of the During the transition to IFRS 9, the option of measuring significant items of the balance sheet. these financial assets at fair value through other compre- hensive income was applied. 410 Annual Report 201831.2 Financial liabilities by category The following table shows the carrying amount for each ing separately hedging derivatives and derivatives mea- category of financial liabilities provided by IFRS 9, broken sured at fair value through profit or loss. down into current and non-current financial liabilities, show- Millions of euro Non-current Current Financial liabilities at amortized cost Financial liabilities at fair value through profit or loss Derivative liabilities at FVTPL Total Derivative liabilities designated as hedging instruments Cash flow hedge derivatives Total TOTAL Notes 31.2.1 33 33 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 13,397 10,780 6,165 9,653 324 324 1,071 1,071 14,792 943 943 1,327 1,327 13,050 134 134 221 221 6,520 176 176 - - 9,829 For more details on the recognition and classification of current and non-current derivative financial liabilities, please see note 33 “Derivatives and hedge accounting”. For more details about fair value measurement, please see note 34 “Fair value measurement”. 31.2.1 Financial liabilities measured at amortized cost The following table shows financial liabilities at amortized cost by nature, broken down into current and non-current finan- cial liabilities. Millions of euro Long-term borrowings Short-term borrowings Trade payables Other current financial liabilities Total Notes 23 Non-current Current at Dec. 31, 2018 at Dec. 31, 2017 Notes at Dec. 31, 2018 at Dec. 31, 2017 13,397 10,780 - - - - - - 23 27 28 806 5,001 82 276 3,654 5,397 137 465 13,397 10,780 6,165 9,653 411 Financial statements of Enel SpABorrowings Long-term borrowings (including the portion falling due within 12 months) - €14,203 million amounts and fair values of long-term borrowings at De- cember 31, 2018, including the portion falling due within 12 months, grouped by type of borrowing and type of interest Long-term borrowings, which refer to bonds, bank bor- rate. For listed debt instruments, the fair value is given by rowings and loans from Group companies, denominated official prices. For unlisted debt instruments, the fair value in euros and other currencies, including the portion falling is determined using valuation techniques appropriate for due within 12 months (equal to €806 million), amounted to each category of financial instrument and the associated €14,203 million at December 31, 2018. market data for the reporting date, including the credit The following table shows the nominal values, carrying spreads of the Group. Millions of euro Nominal value Carrying amount Current portion Portion due in more than 12 months Fair value Nominal value Carrying amount Current portion Portion due in more than 12 months Fair value Carrying amount at Dec. 31, 2018 at Dec. 31, 2017 Change Bonds: - fixed rate 7,904 7,813 - floating rate 1,201 1,201 Total 9,105 9,014 614 192 806 7,199 8,561 10,447 10,390 3,088 7,302 11,880 (2,577) 1,009 1,141 1,805 1,805 566 1,239 1,767 (604) 8,208 9,702 12,252 12,195 3,654 8,541 13,647 (3,181) Bank borrowings: - fixed rate - - - floating rate 1,048 1,048 Total 1,048 1,048 Loans from Group companies: - fixed rate 2,300 2,300 - floating rate 1,841 1,841 Total 4,141 4,141 - - - - - - - - - - 1,048 1,045 1,039 1,039 1,048 1,045 1,039 1,039 2,300 2,596 1,200 1,200 1,841 1,895 - - 4,141 4,491 1,200 1,200 - - - - - - - - 1,039 1,043 1,039 1,043 - 9 9 1,200 1,540 2,941 - - - 1,200 1,540 2,941 Total fixed-rate borrowings Total floating- rate borrowings 10,204 10,113 614 9,499 11,157 11,647 11,590 3,088 8,502 13,420 364 TOTAL 14,294 14,203 4,090 4,090 192 806 3,898 4,081 2,844 2,844 566 2,278 2,810 (595) 13,397 15,238 14,491 14,434 3,654 10,780 16,230 (231) The balance for bonds is reported net of €898 million in re- please see note 32 “Risk management”, while for more spect of the unlisted floating-rate “Special series of bonds about fair value measurement inputs, please see note 34 reserved for employees 1994-2019”, which Enel SpA holds “Fair value measurement”. in its portfolio. For more details about the maturity analysis of borrowings, and interest rate. The table below shows long-term borrowings by currency 412 Annual Report 2018Long-term borrowings by currency and interest rate Millions of euro Carrying amount Nominal value Current average nominal interest rate Current effective interest rate at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2018 Euro US dollar Pound sterling Total non-euro currencies TOTAL 10,939 1,218 2,277 3,495 14,434 10,665 1,277 2,261 3,538 14,203 10,725 1,289 2,280 3,569 14,294 The table below reports changes in the nominal value of long-term debt. 3.4% 7.9% 6.5% 3.6% 8.3% 6.7% Millions of euro Nominal value Repayments New borrowing Other Own bonds repurchased Exchange differences at Dec. 31, 2017 Bonds Bank borrowings Loans from Group companies Total 12,252 1,039 1,200 14,491 (4,388) 1,250 - - (4,388) - 2,250 3,500 - - 691 691 (38) - - (38) 29 9 - 38 Nominal value at Dec. 31, 2018 9,105 1,048 4,141 14,294 Compared with December 31, 2017, the nominal value of > the recognition of exchange losses of €38 million; long-term debt decreased by €197 million, reflecting: > the issue of two hybrid bonds in euros for a total of €1,250 > repayments of €4,388 million, including two retail bonds, million; one fixed-rate and one floating-rate, for a total of €3,000 > new intercompany financing granted by Enel Finance In- million maturing in February 2018, a fixed-rate loan in euros ternational for a total of €2,250 million; of €591 million due in June 2018, and the repurchase of a > an intercompany loan of €691 million acquired in Decem- hybrid bond in euros of €732 million done in May 2018; ber 2018 following the merger of Enel Holding Chile Srl. > the repurchase of €38 million in own unlisted floating-rate The table below reports the characteristics of the bank bor- bonds of the “Special series of bonds reserved for em- rowings obtained in 2018. ployees 1994-2019”; New borrowings Type of loan Bonds Hybrid bonds Hybrid bonds Total Counterparty Issue date Amount financed (millions of euro) Currency Interest rate (%) Type of interest rate Due date Enel SpA May 24, 2018 Enel SpA May 24, 2018 500 750 1,250 EUR EUR 2.5% 3.4% Fixed rate Nov. 24, 2023 Fixed rate Nov. 24, 2026 In 2018, the following borrowings were obtained: by covenants that are commonly adopted in international > the issue of a hybrid bond in euros in the amount of €500 business practice. These borrowings are mainly represent- million, with the first call date scheduled for November ed by the bond issues carried out within the framework 24, 2023; of the Global/Euro Medium-Term Notes program, issues > the issue of a hybrid bond in euros in the amount of €750 of subordinated unconvertible hybrid bonds, the Revolving million, with the first call date scheduled for November Facility Agreement agreed on December 18, 2017 by Enel 24, 2026. SpA and Enel Finance International NV with a pool of banks of up to €10 billion and the loans granted by UniCredit SpA. The main long-term borrowings of Enel SpA are governed The main covenants in respect of the bond issues in the 413 Financial statements of Enel SpA Global/ Euro Medium-Term Notes program of Enel SpA cumbrances; and Enel Finance International NV (including the green > disposals clauses, under which the borrower and, in bonds of Enel Finance International NV guaranteed by some cases, the subsidiaries of Enel may not dispose Enel SpA, which are used to finance the Group’s eligible of their assets or a significant portion of their assets or green projects) and those related to bonds issued by Enel operations, with the exception of expressly permitted Finance International NV on the American market can be disposals; summarized as follows: > pari passu clauses, under which the payment undertak- > negative pledge clauses under which the issuer and the ings of the borrower have the same seniority as its other guarantor may not establish or maintain (except under unsecured and unsubordinated payment obligations; statutory requirement) mortgages, liens or other encum- > change of control clauses, which are triggered in the brances on all or part of its assets or revenue, to secure event (i) control of Enel is acquired by one or more par- certain financial borrowings, unless the same restrictions ties other than the Italian State or (ii) Enel or any of its are extended equally or pro rata to the bonds in question; subsidiaries transfer a substantial portion of the Group’s > pari passu clauses, under which bonds and the associ- assets to parties outside the Group such that the finan- ated guarantees constitute a direct, unconditional and cial reliability of the Group is significantly compromised. unsecured obligation of the issuer and the guarantor, The occurrence of one of the two circumstances may do not grant preferential rights among them and have give rise to (a) the renegotiation of the terms and condi- at least the same seniority as other present and future tions of the financing or (b) compulsory early repayment unsubordinated and unsecured bonds of the issuer and of the financing by the borrower; the guarantor; > cross-default clauses, under which the occurrence of a > cross-default clauses, under which the occurrence of a default event in respect of a specified financial liability default event in respect of a specified financial liability (above a threshold level) of the borrower or significant (above a threshold level) of the issuer, the guarantor or subsidiaries constitutes a default in respect of the liabili- significant subsidiaries constitutes a default in respect ties in question, which may become immediately repay- of the liabilities in question, which may become imme- able. diately repayable. The main covenants covering the hybrid bonds of Enel SpA All the financial borrowings considered specify events of can be summarized as follows: default typical of international business practice, such as, > subordination clauses: each hybrid bond is subordinate for example, insolvency, bankruptcy proceedings or the en- to all other bonds of the issuer and has the same se- tity ceases trading. niority as other hybrid financial instruments issued and None of the covenants indicated above has been triggered greater seniority than equity instruments; to date. > prohibition on mergers with other companies, the sale Lastly, it should be noted that Enel SpA issued certain or leasing of all or a substantial part of the company’s guarantees in the interest of Enel Green Power and its sub- assets to another company, unless the latter succeeds in sidiaries in relation to the commitments undertaken within all obligations of the issuer. the context of the loan agreements. These guarantees and The main covenants for the Revolving Facility Agreement and the associated loan contracts include certain covenants the loan agreements between Enel SpA and UniCredit SpA and events of default, some borne by Enel SpA as the guar- are substantially similar and can be summarized as follows: antor, typical of international business practice. > negative pledge clauses, under which the borrower and, in some cases, significant subsidiaries may not establish mortgages, liens or other encumbrances on all or part of their respective assets to secure certain financial li- abilities, with the exception of expressly permitted en- 414 Annual Report 2018Debt structure after hedging The following table shows the effect of the hedges of foreign currency risk on the gross long-term debt structure (including portions maturing in the next 12 months). Millions of euro at Dec. 31, 2018 at Dec. 31, 2017 Initial debt structure Carrying amount Nominal value % Debt structure after hedging Hedged debt Initial debt structure Carrying amount Nominal value % Debt structure after hedging Hedged debt Euro US dollar Pound sterling 10,665 10,725 75.0% 3,569 14,294 10,939 10,961 75.6% 3,530 14,491 1,277 2,261 1,289 2,280 9.0% (1,289) 16.0% (2,280) - - 1,218 2,277 1,232 2,298 8.5% (1,232) 15.9% (2,298) - - Total 14,203 14,294 100.0% - 14,294 14,434 14,491 100.0% - 14,491 The following table shows the effect of the hedges of interest rate risk on the gross long-term debt outstanding at the reporting date. Gross long-term debt % Floating rate Fixed rate Total at Dec. 31, 2018 at Dec. 31, 2017 Before hedging After hedging Before hedging After hedging 18.1% 81.9% 100.0% 15.4% 84.6% 100.0% 19.6% 80.4% 100.0% 24.2% 75.8% 100.0% Short-term borrowings - €5,001 million The following table shows short-term borrowings at December 31, 2018, by nature. Millions of euro Loans from non-Group counterparties Bank borrowings Short-term bank borrowings (ordinary current account) Cash collateral for CSAs on OTC derivatives received Total Borrowings from Group counterparties Short-term borrowings from Group companies (on intercompany current account) Total TOTAL at Dec. 31, 2018 at Dec. 31, 2017 Change - 45 240 285 4,716 4,716 5,001 120 125 256 501 4,896 4,896 5,397 (120) (80) (16) (216) (180) (180) (396) Short-term borrowings amounted to €5,001 million (€5,397 > the €120 million decrease in liabilities to banks for short- million in 2017), down €396 million from the previous year, term loans received; mainly due to: > the €80 million decrease in bank borrowings; 415 Financial statements of Enel SpA > the €180 million decrease in short-term borrowings from It should be specified that the fair value of current bor- Group companies, attributable to the improvement in rowings equals their carrying amount as the impact of dis- the debtor position on the intercompany current account counting is not significant. held with subsidiaries. 31.2.2 Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss, bro- million) financial liabilities, refer solely to derivative financial ken down into non-current (€324 million) and current (€134 liabilities. 31.2.3 Net gains and losses The following table shows net gains and losses by category of financial instruments, excluding derivatives. Millions of euro Financial assets at amortized cost Financial assets at FVOCI Financial liabilities at amortized cost at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 Net gains/(losses) of which impairment/reversal of impairment 6 10 (639) 2 1 (546) 1 - - For more details on net gains and losses on derivatives, please see note 7 “Net financial income/(expense) from deriva- tives. 32. Risk management 32.1 Financial risk management objectives and policies As part of its operations, the Company is exposed to a vari- ness Line levels that establish the roles and responsibilities ety of financial risks, notably market risks (including interest for risk management, monitoring and control processes, rate risk and exchange risk), credit risk and liquidity risk. ensuring compliance with the principle of organizational separation of units responsible for operations and those in The financial risk governance arrangements adopted by charge of monitoring and managing risk. Enel establish specific internal committees, composed of The financial risk governance system also defines a system top management and chaired by the Chief Executive Of- of operating limits at the Group and individual Region, Coun- ficers of the companies involved, which are responsible try and Global Business Line levels for each risk, which are for policy setting and supervision of risk management, as monitored periodically by risk management units. For the well as the definition and application of specific policies at Group, the system of limits constitutes a decision-making the Group and individual Region, Country and Global Busi- tool to achieve its objectives. 32.2 Market risks Market risk is the risk that the value of financial and non- Interest rate risk and exchange risk are primarily gener- financial assets or liabilities and the associated expected ated by the presence of financial instruments. cash flows could change owing to changes in market The main financial liabilities held by the Company include prices. bonds, bank borrowings, other borrowings, derivatives, As part of its operations as an industrial holding company, cash collateral for derivatives transactions and trade pay- Enel SpA is exposed to different market risks, notably the ables. The main purpose of those financial instruments is risk of changes in interest rates and exchange rates. to finance the operations of the Company. 416 Annual Report 2018The main financial assets held by the Company include fi- expressed as a value or a quantity (for example tons, con- nancial receivables, derivatives, cash collateral for deriva- verted into euro by multiplying the notional amount by the tives transactions, cash and short-term deposits and trade agreed price). receivables. The notional amounts of derivatives reported here do not For more details, please see note 31 “Financial instru- represent amounts exchanged between the parties and ments”. therefore are not a measure of the Company’s credit risk The source of exposure to interest rate risk and exchange exposure. risk did not change with respect to the previous year. As the Parent Company, Enel SpA centralizes some trea- sury management functions and access to financial mar- kets with regard to financial derivatives contracts on inter- est rates and exchange rates. As part of this activity, Enel SpA acts as an intermediary for Group companies with the market, taking positions that, while they can be substantial, do not however represent an exposure to markets risks for Enel SpA. During 2018, no overshoots of the threshold values set by regulators for the activation of clearing obligations (EMIR - European Market Infrastructure Regulation 648/2012 of the European Parliament) were detected. The volume of transactions in financial derivatives outstand- ing at December 31, 2018 is reported below, with specifi- cation of the notional amount of each class of instrument. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk for the Company manifests itself as a change in the flows associated with interest payments on floating- rate financial liabilities, a change in financial terms and condi- tions in negotiating new debt instruments or as an adverse change in the value of financial assets/liabilities measured at fair value, which are typically fixed-rate debt instruments. Interest rate risk is managed with the dual goals of reducing the amount of debt exposed to interest rate fluctuations and containing the cost of funds, limiting the volatility of results. This goal is pursued through the strategic diversification of the portfolio of financial liabilities by contract type, maturity and interest rate, and modifying the risk profile of specific exposures using OTC derivatives, mainly interest rate swaps. The notional amount of a derivative contract is the amount on which cash flows are exchanged. This amount can be The notional amount of outstanding contracts is reported below: Millions of euro Notional amount at Dec. 31, 2018 at Dec. 31, 2017 Interest rate derivatives Interest rate swaps Interest rate collars Swaptions Total 10,901 - - 10,901 20,599 - - 20,599 The term of such contracts does not exceed the maturity of The notional amount of open interest rate swaps at the end the underlying financial liability, so that any change in the fair of the year was €10,901 million (€20,599 million at December value and/or cash flows of such contracts is offset by a cor- 31, 2017), of which €1,578 million (essentially unchanged on responding change in the fair value and/or cash flows of the December 31, 2017) in respect of hedges of the Company’s underlying position. share of debt, and €9,323 million (€19,271 million at Decem- Interest rate swaps normally provide for the periodic ex- ber 31, 2017) in respect of hedges of the debt of Group com- change of floating-rate interest flows for fixed-rate interest panies with the market intermediated in the same notional flows, both of which are calculated on the basis of the no- amount with those companies. The substantial decrease in tional principal amount. the latter is due to the novation of numerous interest rate swaps from Enel SpA to Enel Finance International NV. 417 Financial statements of Enel SpAFor more details on interest rate derivatives, please see note 33 “Derivatives and hedge accounting”. The amount of floating-rate debt that is not hedged against interest rate risk is the main risk factor that could impact the income statement (raising borrowing costs) in the event of an increase in market interest rates. At December 31, 2018, 18.1% of gross long-term financial debt was floating rate (19.6% at December 31, 2017). Taking account of hedges of interest rates considered effective pur- suant to the IAS 39, 84.3% of gross long-term financial debt was hedged at December 31, 2018 (75.8% at December 31, 2017). Including derivatives treated as hedges for manage- ment purposes but ineligible for hedge accounting, the ratio is essentially unchanged. Interest rate risk sensitivity analysis The Company analyses the sensitivity of its exposure by estimating the effects of a change in interest rates on the portfolio of financial instruments. More specifically, sensitivity analysis measures the poten- tial impact of market scenarios on equity, for the cash flow hedge component, and on profit or loss, for the fair value hedge component, for derivatives that are not eligible for hedge accounting and for the portion of gross long-term debt not hedged using derivative financial instruments. These scenarios are represented by parallel increases and decreases in the yield curve as at the reporting date. There were no changes in the methods and assumptions used in the sensitivity analysis compared with the previous year. With all other variables held constant, the Company’s prof- it before tax would be affected as follows. Millions of euro Change in financial expense on gross long- term floating-rate debt in foreign currency Change in fair value of derivatives classified as non-hedging instruments Change in fair value of derivatives designated as hedging instruments Cash flow hedges Fair value hedges Basis points 25 25 25 25 at Dec. 31, 2018 at Dec. 31, 2017 Pre-tax impact on profit or loss Pre-tax impact on equity Pre-tax impact on profit or loss Pre-tax impact on equity Increase Decrease Increase Decrease Increase Decrease Increase Decrease 5 6 - - (5) (6) - - - - 36 - - - (36) - 9 6 - (2) (9) (6) - 2 - - 11 - - - (11) - Exchange risk Exchange risk is the risk that the fair value or future cash ments”. In order to minimize exposure to changes in ex- flows of a financial instrument will fluctuate because of change rates, the Company normally uses a variety of OTC changes in exchange rates. derivatives such as currency forwards and cross currency interest rate swaps. The term of such contracts does not For Enel SpA, the main source of exchange risk is the pres- exceed the maturity of the underlying exposure. ence of monetary financial instruments denominated in a currency other than the euro, mainly bonds denominated in Currency forwards are contracts in which the counterpar- foreign currency. ties agree to exchange principal amounts denominated The exposure to exchange risk did not change with respect in different currencies at a specified future date and ex- to the previous year. change rate (the strike). Such contracts may call for the For more details, please see note 31 “Financial instru- actual exchange of the two amounts (deliverable forwards) 418 Annual Report 2018or payment of the difference between the strike exchange ferent currencies, these instruments differ from interest rate and the prevailing exchange rate at maturity (non-de- rate swaps in that they provide both for the periodic ex- liverable forwards). change of cash flows and the final exchange of principal. Cross currency interest rate swaps are used to transform a long-term fixed- or floating-rate liability in foreign cur- The following table reports the notional amount of transac- rency into an equivalent floating- or fixed-rate liability in tions outstanding at December 31, 2018 and December euros. In addition to having notionals denominated in dif- 31, 2017, broken down by type of hedged item. Millions of euro Notional amount at Dec. 31, 2018 at Dec. 31, 2017 Foreign exchange derivatives Currency forwards: - hedging exchange risk on commodities - hedging future cash flows - other currency forwards Cross currency interest rate swaps Total More specifically, these include: 6,980 5,349 825 806 5,264 12,244 5,410 3,664 1,190 556 15,527 20,937 > currency forward contracts with a total notional amount An analysis of the Group’s debt shows that 25% of gross of €5,349 million (€3,664 million at December 31, 2017), medium and long-term debt (24.4% at December 31, 2017) of which €2,675 million to hedge the exchange risk asso- is denominated in currencies other than the euro. ciated with purchases of energy commodities by Group Considering exchange rate hedges and the portion of debt companies, with matching transactions with the market; in foreign currency that is denominated in the currency of > currency forward contracts with a notional amount of account or the functional currency of the Company, the debt €825 million (€1,190 million at December 31, 2017), to is fully hedged using cross currency interest rate swaps. hedge the exchange risk associated with other expected cash flows in currencies other than the euro, of which €493 million in market transactions; Exchange risk sensitivity analysis The Company analyses the sensitivity of its exposure by > currency forward contracts with a notional amount of estimating the effects of a change in exchange rates on the €806 million (€556 million at December 31, 2017), of portfolio of financial instruments. which €403 million in market transactions to hedge the More specifically, sensitivity analysis measures the poten- exchange rate risk on investment spending and, to a less- tial impact of market scenarios on equity, for the cash flow er extent, operating expenditure; hedge component, and on profit or loss, for the fair value > cross currency interest rate swaps with a notional hedge component, for derivatives that are not eligible for amount of €5,264 million (€15,527 million at December hedge accounting and for the portion of gross long-term 31, 2017), to hedge the exchange risk on the debt of Enel debt not hedged using derivative financial instruments. SpA or other Group companies denominated in curren- These scenarios are represented by the appreciation/de- cies other than the euro. preciation of the euro against all of the foreign currencies compared with the value observed as at the reporting date. For more details, please see note 33 “Derivatives and There were no changes in the methods and assumptions hedge accounting”. used in the sensitivity analysis compared with the previ- ous year. 419 Financial statements of Enel SpAWith all other variables held constant, the profit before tax would be affected as follows. Millions of euro Change in financial expense on gross long-term floating- rate debt in foreign currency after hedging Change in fair value of derivatives classified as non-hedging instruments Change in fair value of derivatives designated as hedging instruments at Dec. 31, 2018 at Dec. 31, 2017 Pre-tax impact on profit or loss Pre-tax impact on equity Pre-tax impact on profit or loss Pre-tax impact on equity Exchange rate Appreciation of euro Depreciation of euro Appreciation of euro Depreciation of euro Appreciation of euro Depreciation of euro Appreciation of euro Depreciation of euro 10% - - 10% (14) 17 - - - - - 5 - - - (6) - - - - - - (431) - 525 - Cash flow hedges Fair value hedges 10% 10% - - - - (411) - 502 - 32.3 Credit risk Credit risk is represented by the possibility of a deteriora- considered solvent both by the market and on the basis tion in the creditworthiness of a counterparty in a financial of internal assessments, diversifying the exposure among transaction that could have an adverse impact on the credi- them. Credit exposures and associated credit risk are regu- tor position. The Company is exposed to credit risk from larly monitored by the departments responsible for moni- its financial activities, including transactions in derivatives toring risks under the policies and procedures outlined in (typically on financial or commodity underlyings), depos- the governance rules for managing the Group’s risks, which its with banks and financial institutions, foreign exchange are also designed to ensure prompt identification of pos- transactions and other financial instruments. sible mitigation actions to be taken. The sources of exposure to credit risk did not change with Within this general framework, Enel entered into margin respect to the previous year. agreements with the leading financial institutions with The Company’s management of credit risk is based on the which it operates that call for the exchange of cash col- selection of counterparties from among leading Italian and lateral, which significantly mitigates the exposure to coun- international financial institutions with high credit standing terparty risk. at Dec. 31, 2018 Basis for recognition of expected loss allowance 12 m ECL Lifetime ECL Average loss rate (PD*LGD) Gross carrying amount Expected loss allowance 0.36% 1,929 - - - - 1,929 7 - - 7 Net value 1,922 - - 1,922 Financial receivables Millions of euro Staging Performing Underperforming Non-performing Total 420 Annual Report 2018Trade receivables and other receivables: collective measurement Millions of euro at Dec. 31,2018 Average loss rate (PD*LGD) Gross carrying amount Expected loss allowance Net value Trade receivables Trade receivables not past due Trade receivables past due: - 1-30 days - 31-60 days - 61-90 days - 91-120 days - 121-150 days - 151-180 days - - - - - - - - more than 180 days (credit impaired) 2.55% Total trade receivables Other receivables Other receivables not past due Other receivables past due: - 1-30 days - 31-60 days - 61-90 days - 91-120 days - 121-150 days - 151-180 days - more than 180 days (credit impaired) Total other receivables TOTAL - - - - - - - - - - - - - - - - - - 196 196 - - - - - - - - - 196 - - - - - - - 5 5 - - - - - - - - - 5 - - - - - - - 191 191 - - - - - - - - - 191 421 Financial statements of Enel SpA32.4 Liquidity risk Liquidity risk is the risk that the Company will encounter a balanced debt maturity profile and diversifying funding difficulty in meeting obligations associated with financial sources in terms of instruments, markets/currencies and liabilities that are settled by delivering cash or another fi- counterparties. nancial asset. The objectives of liquidity risk management policies are: At December 31, 2018 Enel SpA had a total of about €2,007 > ensuring an appropriate level of liquidity for the Group, million in cash or cash equivalents (€2,489 million at De- minimizing the associated opportunity cost; cember 31, 2017), and committed lines of credit amount- > maintaining a balanced debt structure in terms of the ma- ing to €5,800 million (of which none had been drawn) ma- turity profile and funding sources. turing in more than one year (€5,800 million at December In the short term, liquidity risk is mitigated by maintaining 31, 2017). an appropriate level of unconditionally available resources, including cash and short-term deposits, available commit- ted credit lines and a portfolio of highly liquid assets. Maturity analysis The table below summarizes the maturity profile of the In the long term, liquidity risk is mitigated by maintaining Company’s long-term debt. Millions of euro Maturing in Less than 3 months Between 3 months and 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Bonds: - fixed rate - floating rate Total Bank borrowings - fixed rate - floating rate Total Loans from Group companies - fixed rate - floating rate Total TOTAL - 135 135 - - - - - - 614 56 670 - - - - - - 1,192 27 1,219 - 650 650 - 46 46 135 670 1,915 2,347 305 2,652 - 398 398 1,200 138 1,338 4,388 3,660 678 4,338 - - - 1,100 1,657 2,757 7,095 422 Annual Report 201832.5 Offsetting financial assets and financial liabilities The following table reports the net financial assets and and to guarantee transactions involving derivatives, Enel liabilities. More specifically, it shows that there are no SpA has entered into margin agreements with leading fi- netting arrangements for derivatives in the financial state- nancial institutions that call for the exchange of cash col- ments since the Company does not plan to set-off assets lateral, broken down as shown in the table. and liabilities. As envisaged by current market regulations Millions of euro at Dec. 31, 2018 (a) (b) (c)=(a)-(b) (d) (e)=(c)-(d) Correlated amounts not set off in the balance sheet (d)(i),(d)(ii) (d)(iii) Gross amounts of recognized financial assets/ (liabilities) set off in the balance sheet Net amounts of financial assets/ (liabilities) presented in the balance sheet Gross amounts of recognized financial assets/ (liabilities) Net portion of financial assets/ (liabilities) guaranteed with cash collateral Net amount of financial assets/ (liabilities) Financial instruments FINANCIAL ASSETS Derivative financial assets: - on interest rate risk - on exchange risk - other Total derivative financial assets TOTAL FINANCIAL ASSETS FINANCIAL LIABILITIES Derivative financial liabilities: - on interest rate risk - on exchange risk - other 304 570 11 885 885 (527) (1,223) - TOTAL FINANCIAL LIABILITIES (1,750) TOTAL NET FINANCIAL ASSETS/(LIABILITIES) (865) - - - - - - - - - - 304 570 11 885 885 (527) (1,223) - (1,750) (865) - - - - - - - - - - - (658) - (658) (658) 431 1,240 - 1,671 1,013 304 (88) 11 227 227 (96) 17 - (79) 148 423 Financial statements of Enel SpA33. Derivatives and hedge accounting The following tables report the notional amount and fair amount can be expressed as a value or a quantity (for ex- value of derivative financial assets and liabilities by type ample tons, converted into euros by multiplying the notion- of hedge relationship and hedged risk, broken down into al amount by the agreed price). Amounts denominated in current and non-current derivative financial assets and li- currencies other than the euro are converted at the official abilities. end-year exchange rates provided by the World Markets The notional amount of a derivative contract is the amount Reuters (WMR) Company. on the basis of which cash flows are exchanged. This Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Change at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Change Derivatives designated as hedging instruments Cash flow hedges: - on exchange risk Total cash flow hedges Fair value hedges: - on interest rate risk Total fair value hedges Derivatives at FVTPL: - on interest rate risk - on exchange risk - other Total derivatives at FVTPL TOTAL DERIVATIVE FINANCIAL ASSETS 1,751 1,751 2,327 2,327 - - 4,661 1,096 - 800 800 9,586 5,632 - 5,757 15,218 468 468 - - 304 21 - 325 501 501 15 15 405 535 - (33) (33) (15) (15) (101) (514) - 615 615 - - - 2,543 203 - - - - 50 2,419 - 940 (615) 2,746 2,469 7,508 18,345 793 1,456 (663) 3,361 2,469 14 14 - - - 67 11 78 92 - - - - 1 110 - 14 14 - - (1) (43) - 111 (33) 111 (19) Millions of euro Non-current Current Notional amount Fair value Notional amount Fair value at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Change at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Change 1,440 1,876 3,316 4,661 1,096 390 2,501 2,891 9,624 5,632 5,757 15,256 159 912 135 24 1,192 (280) 1,071 1,327 (256) - 615 615 - - - 302 22 324 408 535 (106) (513) 138 150 2,655 2,425 943 (619) 2,793 2,575 9,073 18,147 1,395 2,270 (875) 3,408 2,575 - 221 221 66 68 134 355 - - - - 221 221 66 - 110 (42) 176 (42) 176 179 Derivatives designated as hedging instruments Cash flow hedges: - on interest rate risk - on exchange risk Total cash flow hedges Derivatives at FVTPL: - on interest rate risk - on exchange risk Total derivatives at FVTPL TOTAL DERIVATIVE FINANCIAL LIABILITIES 424 Annual Report 201833.1 Hedge accounting Derivatives are initially recognized at fair value, on the trade > if the underlying risk of the hedging instrument and the hedged item is the same, the existence of an economic relationship will be provided through a qualitative analy- date of the contract and are subsequently remeasured at sis; their fair value. The method of recognizing the resulting > on the other hand, if the underling risk of the hedging in- gain or loss depends on whether the derivative is desig- nated as a hedging instrument, and if so, the nature of the item being hedged. Hedge accounting is applied to derivatives entered into in strument and the hedged item is not the same, the exis- tence of the economic relationship will be demonstrated through a quantitative method in addition to a qualitative analysis of the nature of the economic relationship (i.e. order to reduce risks such as interest rate risk, foreign ex- linear regression). change rate risk, commodity price risk and net investments in foreign operations when all the criteria provided by IFRS 9 are met. In order to demonstrate that the behavior of the hedging instrument is in line with those of the hedged item, differ- At the inception of the transaction, the Company docu- ent scenarios will be analyzed. ments the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy. The Company also documents its assess- ment, both at hedge inception and on an ongoing basis, of whether hedging instruments are highly effective in offset- For hedging of commodity price risk, the existence of an economic relationship is deduced from a ranking matrix that defines, for each possible risk component, a set of all standard derivatives available in the market whose ranking is based on their effectiveness in hedging the considered ting changes in fair values or cash flows of hedged items. risk. For cash flow hedges of forecast transactions designated as hedged items, the Company assesses and documents that they are highly probable and present an exposure to changes in cash flows that affect profit or loss. Depending on the nature of the risks exposure, the Com- pany designates derivatives as either: > fair value hedge; > cash flow hedge. In order to evaluate the credit risk effects, the Company considers the existence of risk mitigating measures (col- lateral, mutual break-up clauses, netting agreements, etc.). The Company has established a hedge ratio of 1:1 for all the hedging relationships (including commodity price risk hedging) as the underlying risk of the hedging derivative is identical to the hedged risk, in order to minimize hedging ineffectiveness. For more details about the nature and the extent of risks arising from financial instruments to which the Company The hedge ineffectiveness will be evaluated through a qual- itative assessment or a quantitative computation, depend- is exposed, please refer the note 32 “Risk management”. ing on the following circumstances: To be effective a hedging relationship shall meet all of the following criteria: > existence of an economic relationship between hedging instrument and hedged item; > the effect of credit risk shall not dominate the value changes resulting from the economic relationship; > if the critical terms of the hedged item and hedging in- strument match and there aren’t other sources of inef- fectiveness, including the credit risk adjustment on the hedging derivative, the hedge relationship will be con- sidered fully effective on the basis of a qualitative as- > the hedge ratio defined at initial designation shall be sessment; equal to the one used for risk management purposes (i.e. same quantity of the hedged item that the entity actually hedges and the quantity of the hedging instru- ment that the entity actually uses to hedge the quantity of the hedged item). Based on the IFRS 9 requirements, the existence of an eco- nomic relationship is evaluated by the Company through a > if the critical terms of the hedged item and hedging in- strument do not match or there is at least one source of ineffectiveness, the hedge ineffectiveness will be quantified applying the “dollar offset” cumulative meth- od with hypothetical derivative. This method compares changes in fair values of the hedging instrument and the hypothetical derivative between the reporting date and qualitative assessment or a quantitative computation, de- the inception date. pending of the following circumstances: 425 Financial statements of Enel SpAThe main causes of hedge ineffectiveness may be the fol- the cumulative gain or loss that was reported in equity is lowings: immediately transferred to the income statement. > basis differences (i.e. the fair value or cash flows of the For hedging relationships using forward as hedging instru- hedged item depend on a variable that is different from ment, where only the change in the value of the spot ele- the variable that causes the fair value or cash flows of ment is designated as the hedging instrument, accounting the hedging instrument to change); for the forward element (profit or loss vs OCI) is defined > timing differences (i.e. the hedged item and hedging in- case by case. This approach is actually applied by the Com- strument occur or are settled at different dates); pany for hedging of foreign currency risk on renewables > quantity or notional amount differences (i.e. the hedged assets. item and hedging instrument are based on different Conversely, for hedging relationships using cross currency quantities or notional amounts); interest rate swap as hedging instrument, the Company > other risks (i.e. changes in the fair value or cash flows of separates foreign currency basis spread, in designating the a derivative hedging instrument or hedged item relate to hedging derivative, and present them in other comprehen- risks other than the specific risk being hedged); sive income (OCI) as hedging costs. > credit risk (i.e. the counterparty credit risk differently With specific regard to cash flow hedges of commodity impact the fair value movements of the hedging instru- risk, in order to improve their consistency with the risk ments and hedged items). management strategy, the Company applies a dynamic Cash flow hedges Cash flow hedges are applied in order to hedge the Com- hedge accounting approach based on specific liquidity re- quirements (the so-called liquidity-based approach). This approach requires the designation of hedges through pany exposure to changes in future cash flows that are at- the use of the most liquid derivatives available on the mar- tributable to a particular risk associated with a recognized ket and replacing them with others that are more effective asset or liability or a highly probable transaction that could in covering the risk in question. affect profit or loss. Consistent with the risk management strategy, the liquid- The effective portion of changes in the fair value of deriva- ity-based approach allows the roll-over of a derivative by tives that are designated and qualify as cash flow hedges replacing it with a new derivative, not only in the event of is recognized in other comprehensive income. The gain or expiry but also during the hedging relationship, if and only loss relating to the ineffective portion is recognized imme- if the new derivative meets both of the following require- diately in the income statement. ments: Amounts accumulated in equity are reclassified to profit > it represents a best proxy of the old derivative in terms or loss in the periods when the hedged item affects profit of ranking; or loss (for example, when the hedged forecast sale takes > it meets specific liquidity requirements. place). Satisfaction of these requirements is verified quarterly. If the hedged item results in the recognition of a non-fi- At the roll-over date, the hedging relationship is discontin- nancial asset (i.e. property, plant and equipment or inven- ued. Therefore, starting from that date, changes in the ef- tories, etc.) or a non-financial liability, or a hedged forecast fective fair value of the new derivative will be recognized in transaction for a non-financial asset or a non-financial liabil- shareholders’ equity (the cash flow hedge reserve), while ity becomes a firm commitment for which fair value hedge changes in the fair value of the old derivative are recognized accounting is applied, the amount accumulated in equity through profit or loss. (i.e. cash flow reserve) shall be removed and included in the initial value (cost or other carrying amount) of the asset The Company currently uses these hedge relationships to or the liability hedged (i.e. “basis adjustment”). minimize the volatility of profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, The impact of hedging instruments on the accounts is as any cumulative gain or loss existing in equity at that time re- follows. mains in equity and is recognized when the forecast trans- action is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, 426 Annual Report 2018Millions of euro at December 31, 2018 Interest rate swap Cross currency interest rate swap at December 31, 2017 Interest rate swap Cross currency interest rate swap Notional amount Carrying amount Fair value used to measure the ineffective portion for the period 1,440 4,856 390 4,828 (159) (650) (135) (691) (159) (650) (135) (691) The impact of hedged items on the accounts is as follows: Fair value used to measure the ineffective portion for the period Cash flow hedge reserve Hedging costs reserve Fair value used to measure the ineffective portion for the period Cash flow hedge reserve Hedging costs reserve 2018 2017 159 649 1 809 (159) (596) (2) (757) - (53) 1 (52) 136 679 11 826 (135) (609) (12) (756) - (70) - (70) Millions of euro Floating-rate borrowings Fixed-rate borrowings in foreign currency Floating-rate borrowings in foreign currency Total The following table reports the impact of cash flow hedges on profit or loss and on OCI: Gross change in fair value recognized in profit or loss - Ineffective portion Gross change in fair value recognized in profit or loss Gross change in fair value recognized in equity Hedging costs Gross change in fair value recognized in equity Gross change in fair value recognized in profit or loss Gross change in fair value recognized in profit or loss - Ineffective portion Hedging costs at Dec. 31, 2018 at Dec. 31, 2017 - 17 17 (38) 39 1 11 (55) (44) - - - - 48 48 3 (252) (249) 8 224 232 - - - Millions of euro Interest rate hedges Foreign exchange hedges Hedging derivatives 427 Financial statements of Enel SpAThe following table reports the impact of cash flow hedge derivatives on equity in the period, gross of tax effects: Total gain/(loss) recognized in OCI Ineffective portion through profit or loss Income statement item Hedging costs Amount reclassified from OCI to profit or loss Income statement item Millions of euro At 31 December 2018 Floating-rate borrowings (38) Fixed-rate borrowings in foreign currency Floating-rate borrowings in foreign currency Total at December 31, 2018 At 31 December 2017 Floating-rate borrowings Fixed-rate borrowings in foreign currency Floating-rate borrowings in foreign currency Total at December 31, 2017 29 10 1 3 (263) 11 (249) - - - - - - - - - - - - - - - - - 17 - 17 - 48 - 48 11 financial expense 50 financial income 5 financial income 8 financial expense 215 financial expense 9 financial expense Fair value hedges Fair value hedges are used by the Group to hedge changes ing, the adjustment to the carrying amount of a hedged in the fair value of assets, liabilities or firm commitments item for which the effective interest method is used is am- attributable to a particular risk that could affect profit or loss. ortized to profit or loss over the period to maturity. Changes in the fair value of derivatives that qualify and are designated as hedging instruments are recognized in the The Company currently does not make use of such hedge income statement, together with changes in the fair value relationships. of the hedged item that are attributable to the hedged risk. For more on the fair value measurement of derivatives, If the hedge no longer meets the criteria for hedge account- please see note 34 “Fair value measurement”. Hedge relationships by type of risk hedged 33.1.1 Interest rate risk The following table shows the notional amount and the fair of transactions outstanding as at December 31, 2018 and value of the hedging instruments on the interest rate risk December 31, 2017, broken down by type of hedged item. Millions of euro Hedging instrument Interest rate swaps Interest rate swaps Total Hedged item Floating-rate borrowings Fixed-rate borrowings Fair value Notional amount Fair value Notional amount at Dec. 31, 2018 at Dec. 31, 2017 (159) - (159) 1,440 - 1,440 (135) 15 (120) 390 800 1,190 The interest rate swaps outstanding at the end of the year and rate bonds issued since 2001. designated as hedging instruments function as a cash flow The following table shows the notional amount and the fair value hedge and fair value hedge for the hedged item. The cash flow of hedging derivatives on interest rate risk as at December 31, hedge derivatives mainly refer to the hedging of certain floating- 2018 and December 31, 2017, broken down by type of hedge. 428 Annual Report 2018Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Cash flow hedge derivatives: - interest rate swaps Fair value hedge derivatives: - interest rate swaps Total interest rate derivatives - - - - - - - 800 800 800 - - - - - - - 15 15 15 1,440 1,440 - - 390 390 - - (159) (159) (135) (135) - - - - 1,440 390 (159) (135) The notional amount of the interest rate swaps at Decem- The deterioration in the fair value of derivatives compared ber 31, 2018 came to €1,440 million (€1,190 million at De- with the previous year is mainly attributable to the general cember 31, 2017) with a corresponding negative fair value decline in the long-term segment of the yield curve over of €159 million (negative €120 million at December 31, the course of 2018. 2017). Cash flow hedge derivatives The following table shows the cash flows expected in coming years from cash flow hedge derivatives. Millions of euro Cash flow hedge derivatives on interest rates: - positive fair value - negative fair value Fair value at Dec. 31, 2018 Distribution of expected cash flows 2019 2020 2021 2022 2023 Beyond - (159) - (15) - (14) - (14) - (10) - (23) - (95) The following table shows the impact of cash flow hedge derivatives on interest rate risk on equity during the period, gross of tax effects. Millions of euro Opening balance at January 1 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss - recycling Changes in fair value recognized in profit or loss - ineffective portion Closing balance at December 31 2018 (98) (38) 11 - (125) 2017 (110) - 12 - (98) 429 Financial statements of Enel SpA33.1.2 Exchange risk The following table shows the notional amount and the fair actions outstanding as at December 31, 2018 and Decem- value of the hedging instruments on exchange risk of trans- ber 31, 2017, broken down by type of hedged item. Millions of euro Fair value Notional amount Fair value Notional amount Hedging instrument Hedged item at Dec. 31, 2018 at Dec. 31, 2017 Cross currency interest rate swaps (CCIRSs) Cross currency interest rate swaps (CCIRSs) Fixed-rate borrowings Floating-rate borrowings Total (649) (1) (650) 4,658 198 4,856 (679) (12) (691) 4,639 189 4,828 The cross currency interest rate swaps outstanding at the The following table shows the notional amount and the end of the year and designated as hedging instruments fair value of derivatives on exchange risk as at December function as a cash flow hedge for the hedged item. More 31, 2018 and December 31, 2017, broken down by type of specifically, these derivatives hedge fixed-rate bonds de- hedge. nominated in foreign currencies and floating-rate borrow- ing in US dollars obtained from Bank of America in 2017. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Cash flow hedge derivatives: - forwards - options - cross currency interest rate swaps Total foreign exchange derivatives 2,365 2,327 482 501 2,491 2,501 (1,132) (1,192) - - - - 2,365 2,327 2,365 2,327 - - 482 482 - - - - - - - - - - 501 2,491 2,501 (1,132) (1,192) 501 2,491 2,501 (1,132) (1,192) The notional amount of the cross currency interest rate ciation of the euro against the pound sterling and its depre- swaps at December 31, 2018 came to €4,856 million ciation against the US dollar. (€4,828 million at December 31, 2017) with a corresponding negative fair value of €650 million (a negative €691 million at December 31, 2017). Cash flow hedge derivatives The following table shows the cash flows expected in com- The change in the value of the notional amount and the as- ing years from cash flow hedge derivatives on exchange sociated fair value of derivatives mainly reflects the appre- risk. Millions of euro Fair value at Dec. 31, 2018 Cash flow hedge derivatives on exchange rates: Distribution of expected cash flows 2019 2020 2021 2022 2023 Beyond - positive fair value - negative fair value 482 (1,132) 86 (245) 51 (52) 51 (79) 50 (37) 204 (36) 307 (655) 430 Annual Report 2018The following table shows the impact of cash flow hedge derivatives on exchange risk on equity during the period, gross of tax effects. Millions of euro 2018 2017 Change in hedging reserve Cost of hedging Change in hedging reserve Cost of hedging Opening balance at January 1 Changes in fair value recognized in equity (OCI) Changes in fair value recognized in profit or loss - recycling Changes in fair value recognized in profit or loss - ineffective portion Closing balance at December 31 (236) 39 (55) - (252) (70) 17 - - (53) (208) (252) 224 - (236) (118) 48 - - (70) 33.2 Derivatives at fair value through profit or loss The following table shows the notional amount and the fair value of derivatives at FVTPL as at December 31, 2018 and December 31, 2017. Millions of euro Notional amount Fair value assets Notional amount Fair value liabilities at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 at Dec. 31, 2018 at Dec. 31, 2017 Derivatives at FVTPL on interest rates: - interest rate swaps Derivatives at FVTPL on exchange rates: - forwards - options - cross currency interest rate swaps Total derivatives at FVTPL 4,661 4,661 3,638 3,434 - 9,635 9,635 8,052 2,702 - 204 5,350 304 304 88 83 - 5 405 405 645 123 - 522 4,799 4,799 3,750 3,546 - 9,774 9,774 8,057 2,708 - (368) (368) (91) (84) - (473) (473) (645) (122) - 204 5,349 (7) (523) 8,299 17,687 392 1,050 8,549 17,831 (459) (1,118) At December 31, 2018, the notional amount of derivatives terest rate swaps in respect of the issue of a green bond; at fair value through profit or loss on interest rates and for- > €3,900 from the novation of interest rate swaps from eign exchange rates came to €16,848 million (€35,518 mil- Enel SpA to Enel Finance International; lion at December 31, 2017) corresponding to a negative fair > €233 million from interest rate swaps reaching their natu- value of €67 million (a negative €68 million at December ral expiry date or as a result of amortization; 31, 2017). > €753 million in new interest rate swaps. Interest rate swaps at the end of the year amounted to Forward contracts with the market, with a notional amount €9,460 million. They refer primarily to hedges of the debt of €3,434 million (€2,702 million at December 31, 2017), re- of the Group companies with the market (€4,799 million) late mainly to OTC derivatives entered into to mitigate the and intermediated with those companies (€4,661 million). exchange risk associated with the prices of energy com- modities within the provisioning process of Group com- The overall notional amount shows a decline of €9,949 mil- panies and matched with market transactions. They also lion on the previous year. More specifically, the decline of hedge the expected cash flows in currencies other than the €4,975 million in transactions with the market is mainly at- currency of account connected with the acquisition of non- tributable to the following developments: energy commodities and investment goods in the sectors > €1,250 million from the early termination of pre-hedge in- of renewable energy and infrastructure and networks (new 431 Financial statements of Enel SpAgeneration digital meters) and the expected cash flows in and matched with market transactions. The decline in the currencies other than the euro connected with operating notional amount of cross currency interest rate swaps of expenses for the provision of cloud services. The change €5,146 million is mainly due to the novation of cross cur- in the notional amount and the fair value as compared with rency interest rate swaps from Enel SpA to Enel Finance the previous year is associated with normal operations. International in the amount of €4,768 million and to cross Cross currency interest rate swaps, with a notional amount currency interest rate swaps that expired naturally in the of €204 million (€5,350 million at December 31, 2017), re- amount of €384 million. The value also reflects develop- late to hedges of exchange risk on the debt of the Group ments in the exchange rate of the euro against the other companies denominated in currencies other than the euro major currencies. 34. Fair value measurement The Company measures fair value in accordance with IFRS The fair value of derivative contracts is determined using 13 whenever required by international accounting standards. the official prices for instruments traded on regulated mar- Fair value is defined as the price that would be received to kets. The fair value of instruments not listed on a regulated sell an asset or paid to transfer a liability. The best estimate market is determined using valuation methods appropriate is the market price, i.e. its current price, publicly available for each type of financial instrument and market data as of and effectively traded on an active, liquid market. the close of the period (such as interest rates, exchange The fair value of assets and liabilities is categorized into a rates, volatility), discounting expected future cash flows on fair value hierarchy that provides three levels defined as fol- the basis of the market yield curve and translating amounts lows on the basis of the inputs to valuation techniques used in currencies other than the euro using exchange rates pro- to measure fair value: vided by the World Markets Reuters (WMR) Company. For > Level 1: quoted prices (unadjusted) in active markets for contracts involving commodities, the measurement is con- identical assets or liabilities to which the Company has ducted using prices, where available, for the same instru- access at the measurement date; ments on both regulated and unregulated markets. > Level 2: inputs other than quoted prices included within In accordance with the new international accounting level 1 that are observable for the asset or liability, either standards, in 2013 the Group included a measurement of directly (that is, as prices) or indirectly (that is, derived credit risk, both of the counterparty (Credit Valuation Ad- from prices); justment or CVA) and its own (Debit Valuation Adjustment > Level 3: inputs for the asset or liability that are not based or DVA), in order to adjust the fair value of financial instru- on observable market data (that is, unobservable inputs). ments for the corresponding amount of counterparty risk. In this note, the relevant disclosures are provided in order to More specifically, the Group measures CVA/DVA using assess the following: a Potential Future Exposure valuation technique for the > for assets and liabilities that are measured at fair value on net exposure of the position and subsequently allocating a recurring or non-recurring basis in the balance sheet af- the adjustment to the individual financial instruments that ter initial recognition, the valuation techniques and inputs make up the overall portfolio. All of the inputs used in this used to develop those measurements; and technique are observable on the market. Changes in the > for recurring fair value measurements using significant assumptions underlying the estimated inputs could have unobservable inputs (Level 3), the effect of the measure- an effect on the fair value reported for such instruments. ments on profit or loss or other comprehensive income The notional amount of a derivative contract is the amount for the period. For this purpose: on which cash flows are exchanged. This amount can be expressed as a value or a quantity (for example tons, con- > recurring fair value measurements are those that IFRSs verted into euros by multiplying the notional amount by require or permit in the balance sheet at the end of each the agreed price). reporting period; Amounts denominated in currencies other than the euro > non-recurring fair value measurements are those that IF- are converted into euros at the official exchange rates pro- RSs require or permit in the balance sheet in particular vided by the World Markets Reuters (WMR) Company. circumstances. The notional amounts of derivatives reported here do not 432 Annual Report 2018necessarily represent amounts exchanged between the termined using appropriate valuation techniques for each parties and therefore are not a measure of the Company’s category of financial instrument and market data at the credit risk exposure. closing date of the year, including the credit spreads of For listed debt instruments, the fair value is given by of- Enel SpA. ficial prices. For unlisted instruments the fair value is de- 34.1 Assets measured at fair value in the balance sheet The following table shows, for each class of assets mea- of the reporting period and the level in the fair value hier- sured at fair value on a recurring or non-recurring basis in archy into which the fair value measurements are catego- the balance sheet, the fair value measurement at the end rized. Millions of euro Non-current assets Current assets Fair value at Dec. 31, 2018 Notes Level 1 Level 2 Level 3 Fair value at Dec. 31, 2018 Level 1 Level 2 Level 3 Derivatives Cash flow hedge derivatives: - on exchange risk Total Fair value hedge derivatives: - on interest rate risk Total Fair value through profit or loss: - on interest rate risk - on exchange risk - other Total fair value through profit or loss TOTAL 33 33 33 33 468 468 - - 304 21 - 325 793 - - - - - - - - - 468 468 - - 304 21 - 325 793 - - - - - - - - - 14 14 - - - 67 11 78 92 - - - - - - - - - 14 14 - - - 67 11 78 92 - - - - - - - - - 433 Financial statements of Enel SpA34.2 Liabilities measured at fair value in the balance sheet The following table reports, for each class of liabilities the end of the reporting period and the level in the fair measured at fair value on a recurring or non-recurring ba- value hierarchy into which the fair value measurements sis in the balance sheet, the fair value measurement at are categorized. Millions of euro Non-current liabilities Current liabilities Fair value at Dec. 31, 2018 Notes Level 1 Level 2 Level 3 Fair value at Dec. 31, 2018 Level 1 Level 2 Level 3 Derivatives Cash flow hedge derivatives: - on interest rate risk - on exchange risk Total Fair value through profit or loss: - on interest rate risk - on exchange risk Total TOTAL 33 33 33 33 159 912 1,071 302 22 324 1,395 - - - - - - - 159 912 1,071 302 22 324 1,395 - - - - - - - - 221 221 66 68 134 355 - - - - - - - - 221 221 66 68 134 355 - - - - - - - 34.3 Liabilities not measured at fair value in the balance sheet The following table shows, for each class of liabilities not the reporting period and the level in the fair value hierarchy measured at fair value in the balance sheet but for which into which the fair value measurements are categorized. the fair value shall be disclosed, the fair value at the end of Millions of euro Liabilities Notes 31.2.1 31.2.1 31.2.1 31.2.1 31.2.1 Fair value at Dec. 31, 2018 Level 1 Level 2 Level 3 8,561 1,141 9,702 - 1,045 1,045 2,596 1,895 4,491 15,238 8,561 70 8,631 - - - - - - 8,631 - 1,071 1,071 - 1,045 1,045 2,596 1,895 4,491 6,607 - - - - - - - - - - Bonds: - fixed rate - floating rate Total Bank borrowings: - fixed rate - floating rate Total Loans from Group companies: - fixed rate - floating rate Total TOTAL 434 Annual Report 201835. Related parties Related parties have been identified on the basis of the In November 2010, the Board of Directors of Enel SpA provisions of international accounting standards and the approved a procedure governing the approval and execu- applicable CONSOB measures. tion of transactions with related parties carried out by Enel SpA directly or through subsidiaries. The procedure The transactions Enel SpA entered into with its subsidiar- (available at www.enel.com/investors/bylaws-rules-and- ies mainly involved the provision of services, the sourcing policies/transactions-with-related-parties) sets out rules and employment of financial resources, insurance cover- designed to ensure the transparency and procedural and age, human resource management and organization, legal substantive propriety of transactions with related parties. and corporate services, and the planning and coordination It was adopted in implementation of the provisions of Ar- of tax and administrative activities. ticle 2391-bis of the Italian Civil Code and the implement- ing regulations issued by CONSOB. In 2018, no transac- All the transactions are part of routine operations, are car- tions were carried out for which it was necessary to make ried out in the interest of the Company and are settled on the disclosures required in the rules on transactions with an arm’s length basis, i.e. on the same market terms as related parties adopted with CONSOB Resolution 17221 agreements entered into between two independent par- of March 12, 2010, as amended with Resolution 17389 of ties. June 23, 2010. Finally, the Enel Group’s corporate governance rules, The following tables summarize commercial, financial and which are discussed in greater detail in the Report on Cor- other relationships between the Company and related par- porate Governance and Ownership Structure available on ties. the Company’s website (www.enel.com), establish condi- tions for ensuring that transactions with related parties are performed in accordance with procedural and sub- stantive propriety. 435 Financial statements of Enel SpACommercial and other relationships 2018 Millions of euro Subsidiaries Codensa SA ESP Central Geradora Termelétrica Fortaleza SA Enel Generación Perú SAA Enel Américas SA Enel Chile SA Enel Distribución Perú SAA Enel Generación Piura SA Enel Generación Chile SA Enel Brasil SA Enel X Srl Enel X Italia SpA Endesa Distribución Eléctrica SL Endesa Generación SA Endesa Ingeniería SLU Endesa Red SA Endesa SA E-Distribuţie Banat SA E-Distribuţie Dobrogea SA E-Distribuţie Muntenia SA e-distribuzione SpA Enel Distribución Chile SA Enel Energia SpA Enel Iberia Srl Enel Green Power Chile Ltda Enel Green Power Romania Srl Enel Green Power SpA Enel Green Power España SL Enel Green Power North America Inc. Enel Innovation Hubs Srl Enel Global Infrastructure & Networks Srl Enel Global Thermal Generation Srl Enel Russia PJSC Enel Produzione SpA Enel Romania Srl Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Green Power North America Inc. Enel Global Trading SpA Enel.Factor SpA Endesa Energía SA Energía Nueva Energía Limpia México S de RL de Cv Gas y Electricidad Generación SAU OpEn Fiber SpA RusEnergoSbyt LLC Enel Green Power Hellas SA Slovenské elektrárne AS Unión Eléctrica de Canarias Generación SAU Vektör Enerji Üretim AŞ Total Other related parties Eni GSE Fondazione Centro Studi Enel Monte dei Paschi di Siena Total TOTAL 436 Receivables Payables Goods Services Goods Services at Dec. 31, 2018 at Dec. 31, 2018 2018 2018 Costs Revenue - 1 5 37 26 5 1 2 24 - - 21 (2) - 1 3 4 3 8 90 2 6 1 2 - 9 1 1 - 5 2 11 44 5 24 2 4 1 2 - 2 1 1 4 - 2 17 - 8 386 - 1 1 - 2 1 - - - - - - - - 5 6 3 1 1 - 3 - - - 111 - 47 4 - 1 32 - - 2 3 - - 46 1 21 46 3 2 26 - 1 - - - - - - 1 - 367 - 1 - 1 2 388 369 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 - 2 1 1 - 1 - - - - - - 3 - - - - - 2 3 - 1 - - 61 - - - - - 1 - - - - - - 1 - 78 1 - - 1 2 80 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2 1 1 - 1 - - - (5) (1) - 1 1 - - - 8 1 5 - 1 - 9 1 - - 2 1 3 2 1 7 2 (1) - - - - - (1) 4 1 1 - - - 48 - - 2 - 2 50 Annual Report 20182017 Millions of euro Subsidiaries Codensa SA ESP Central Geradora Termelétrica Fortaleza SA Enel Generación Perú SAA Enel Américas SA Enel Chile SA Enel Distribución Perú SAA Enel Generación Piura SA Enel Brasil SA Enel X Srl Endesa Distribución Eléctrica SL Endesa Generación SA Endesa Red SA Endesa SA E-Distribuţie Banat SA E-Distribuţie Dobrogea SA E-Distribuţie Muntenia SA e-distribuzione SpA Enel Distribución Chile SA Enel Energia SpA Enel Energie Muntenia SA Enel Energie SA Enel Iberia Srl Enel Green Power SpA Enel Green Power North America Inc. Enel Innovation Hubs Srl Enel Russia PJSC Enel Produzione SpA Enel Romania Srl Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade SpA Enel.Factor SpA Endesa Energía SA Energía Nueva Energía Limpia México S de RL de Cv Gas y Electricidad Generación SAU OpEn Fiber SpA RusEnergoSbyt LLC Slovenské elektrárne AS Tynemouth Energy Storage Limited Unión Eléctrica de Canarias Generación SAU 3Sun Srl Total Other related parties CESI SpA Enel Cuore Onlus Eni GSE Fondazione Centro Studi Enel Monte dei Paschi di Siena Total TOTAL Receivables Payables Goods Services Goods Services at Dec. 31, 2017 at Dec. 31, 2017 2017 2017 Costs Revenue - 1 6 27 30 6 1 25 2 27 10 1 4 4 4 7 124 1 204 1 1 1 10 1 - 16 59 4 30 158 5 1 - 4 1 3 1 - 17 - 3 - 800 - - - 1 1 - 2 1 - - - - - - - - 1 - - 3 - - - 164 - - - - 22 1 1 1 - 97 - 86 - 8 100 3 - - - - - - 1 - 19 508 - - 1 1 - 1 3 802 511 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 - 1 - - - 2 - - - - 11 1 - - - 1 - 66 - - - - - - - - - - - - - 83 1 - - - - - 1 84 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1 2 1 - - 12 2 6 2 1 5 1 1 2 34 1 2 - - 1 8 - - 8 13 1 15 1 - 1 - 3 - 1 - 1 - - 1 - 127 - 1 - - 2 - 3 130 437 Financial statements of Enel SpAFinancial relationships 2018 Millions of euro Receivables Payables Guarantees Costs Revenue Dividends at Dec. 31, 2018 2018 Subsidiaries Concert Srl Enel Américas SA Enel Chile SA e-distribuzione SpA Enel X Srl Enel Global Thermal Generation Srl Enel Energia SpA Enel Iberia Srl Enel Finance International NV Enel Green Power Chile Ltda Enel Green Power México S de RL de Cv Enel Green Power North America Inc. Enel Green Power Colombia SAS Enel Green Power Costa Rica SA Enel Green Power Australia (Pty) Ltd Enel Green Power Romania Srl Enel Green Power SpA Enel Green Power Perú SA Enel Green Power RUS LLC Enel Green Power South Africa Enel Green Power Development Srl Enel Investment Holding BV Enel Global Infrastructure & Networks Srl Enel Produzione SpA Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade Romania Srl Enel Global Trading SpA Enel.Factor SpA Enel Innovation Hubs Srl Enel.si Srl Enelpower SpA Enel Green Power RSA (Pty) Ltd Nuove Energie Srl Enel Green Power Brasil Participações Ltd OpEn Fiber SpA RusEnergoSbyt LLC Enel Green Power Panama SA Enel X Italia SpA Enel X Mobility Srl Enel Green Power Hellas SA Enel X International Srl Enel X North America Inc. Generadora de Montecristo SA Parque Eólico Pampa SA Tynemouth Energy Storage Limited Total Other related parties CESI SpA Total TOTAL 438 - - - 121 58 12 8 1 164 - 23 13 - - - - 59 6 - - - 1 17 64 2 122 1 - 89 - - 15 - 11 27 38 127 - - - - - - - - 2 - 981 - - 981 1 - - 370 - - 1,504 - 6,095 - - - - - - - 245 - - - 2 - - 466 29 - 51 - 54 - 21 - 35 - - - - - - 13 55 - 19 - - - - - - - 4,343 - - 1,912 - 33,377 47 3,086 6,787 48 8 12 36 1,724 271 50 1,113 - - 1 1,998 236 1,217 321 7 1,614 - 1 21 - - 86 3,015 36 - 8 3 53 105 - 20 8 22 11 - - - 23 - - - - 802 - - - - - - - 60 1 - - - - - 55 3 - - - 174 - - - - - - - - - - - - - - - - - - 8,960 61,597 1,118 - - - - - - 8,960 61,597 1,118 - - - 69 - - 8 1 240 - 23 12 - - - - 97 8 - - - - - 35 3 7 1 - 95 - - 1 - 11 1 36 2 - - - - - - - - 2 - 652 - - 652 - 162 157 949 - - 792 486 - - - - - - - - 557 - - - - 66 2 229 16 100 - - - 2 - - - - - - - 37 - - - - - - - - - 3,555 1 1 3,556 Annual Report 20182017 Millions of euro Subsidiaries Concert Srl Enel Américas SA Enel Chile SA e-distribuzione SpA Enel X Srl Enel Energia SpA Enel Iberia Srl Enel Finance International NV Enel Green Power North America Inc. Enel Green Power SpA Enel Green Power Perú SA Enel Green Power Development Srl Enel Investment Holding BV Enel M@P Srl Enel Produzione SpA Enel Italia Srl Servizio Elettrico Nazionale SpA Enel Sole Srl Enel Trade Romania Srl Enel Trade SpA Enel Trade d.o.o. Enel.Factor SpA Enel Innovation Hubs Srl Enel.si Srl Enelpower SpA Nuove Energie Srl OpEn Fiber SpA Enel X Italia SpA Tynemouth Energy Storage Limited Total Other related parties CESI SpA Total TOTAL Receivables Payables Guarantees Costs Revenue Dividends at Dec. 31, 2017 2017 - - - 1,759 6 7 1 756 - 161 - - - 3 192 35 114 1 - 105 - 18 - 8 - 23 - - 6 2 - - - - - - - 3,765 - 1,007 1,806 - - - - - 33 - - - - - - 84 - 8 1 3,735 28,196 679 1,268 - 4 - 2 1 - 523 16 - 60 - 46 12,994 - - - 1 2,141 123 1,402 277 5 - 57 11 - - - 30 1 - - - - 68 6 - 1 - 75 12 7 1 - 761 1,578 97 265 - - 16 - 37 - - 2 - 1 - 1 18 1 87 300 - 10 - - - - - - - - - - - - - - 1 - - - - 25 31 1,448 - 679 677 - - 50 - - - - - 23 80 15 - - - 3 - - - - - - - 3,195 6,166 52,752 908 1,797 3,031 - - - - - - - - - - 1 1 3,195 6,166 52,752 908 1,797 3,032 439 Financial statements of Enel SpAThe impact of transactions with related parties on the balance sheet, income statement and cash flows is reported in the following tables. Impact on balance sheet Millions of euro Total Related parties % of total Total Related parties % of total at Dec. 31, 2018 at Dec. 31, 2017 Assets Derivatives - non-current Other non-current financial assets Other non-current assets Trade receivables Derivatives - current Other current financial assets Other current assets Liabilities Long-term borrowings Derivatives - non-current Other non-current liabilities Short-term borrowings Trade payables Derivatives - current Other current financial liabilities Other current liabilities Impact on income statement 793 136 134 191 92 1,860 268 13,397 1,395 12 5,001 82 355 276 2,029 306 125 125 189 14 536 74 4,141 20 9 4,715 43 53 31 317 38.6% 91.9% 93.3% 99.0% 15.2% 28.8% 27.6% 30.9% 1.4% 75.0% 94.3% 52.4% 14.9% 11.2% 15.6% 1,456 16 148 237 111 4,350 453 10,780 2,270 12 5,397 137 176 465 912 - 139 228 98 2,185 435 1,200 28 9 4,896 74 13 29 62.6% - 93.9% 96.2% 88.3% 50.2% 96.0% 11.1% 1.2% 75.0% 90.7% 54.0% 7.4% 6.2% 2,065 428 20.7% Millions of euro Total Related parties % of total Total Related parties % of total Revenue Services and other operating expenses Income from equity investments Financial income on derivatives Other financial income Financial expense on derivatives Other financial expense Impact on cash flows Millions of euro 2018 2017 53 275 3,567 1,626 320 1,581 768 50 79 3,556 437 215 1,033 85 94.3% 28.7% 99.7% 26.9% 67.2% 65.3% 11.1% 133 359 3,033 2,683 410 2,902 872 130 84 3,032 1,640 157 836 72 97.7% 23.4% 100.0% 61.1% 38.3% 28.8% 8.3% Total Related parties % of total Total Related parties % of total 2018 2017 Cash flows from operating activities 3,449 1,613 46.8% 2,465 (2,838) - Cash flows from investing/disinvesting activities Cash flows from financing activities (2,587) (1,344) (2,544) 7,274 98.4% (48) - (2,966) (48) 1,485 100.0% -50.1% 440 Annual Report 201836. Government grants - Disclosure pursuant to Article 1, paragraphs 125-129, of Law 124/2017 Pursuant to Article 1, paragraphs 125-129, of Law 124/2017 The following disclosure includes payments in excess of as amended, the following provides information on grants €10,000 made by the same grantor/donor during 2018, received from Italian public agencies and bodies, as well even if made through multiple financial transactions. They as donations by Enel SpA and the fully consolidated sub- are recognized on a cash basis. sidiaries to companies, individuals and public and private Pursuant to the provisions of Article 3-quater of Decree entities. The disclosure comprises: (i) grants received from Law 135 of December 14, 2018, ratified with Law 12 of Italian public entities/State entities; and (ii) donations made February 11, 2019, for grants received, please refer to the by Enel SpA and Group subsidiaries to public or private par- information contained in the National Register of State Aid ties resident or established in Italy. referred to in Article 52 of Law 234 of December 24, 2012. 441 Financial statements of Enel SpAAs far as donations made are concerned, the material cases are listed below. Euro Beneficiary Ashoka Italia Onlus European University Institute Fondazione Centro Studi Enel LUISS Fondazione Teatro del Maggio Musicale Fondazione MAXXI Fondazione Accademia Nazionale “Santa Cecilia” Elettrici senza frontiere Onlus Fondazione Teatro alla Scala Organization for Economic Cooperation and Development (OECD) Public Security Department of Ministry of the Interior, State Police, Central Highway Police Office Enel X Srl Enel Cuore Onlus CharIN - Charging Interface Initiative e. V. Fondazione Italia Giappone OME - Observatorie Méditerranéen de l’Energie Global Reporting Initiative WBCSD Open Innovation Corporation A.I.I.A.- Associazione Italiana ANIMA Mind the bridge EU40 ASBL Centre on regulation in Europe ASSONIME EUTC BRUEGEL Bettercoal International Integrated IETA - International Emissions Trading Association Valore D. CSR Europe Asbli Roma Start up Transparency International Italia FSG INC. The European House Ambrosetti The Trilateral Commission ISPI - Istituto Studi di Politica Internazionale Consiglio Cooperazione Economica CEPS - Centre for European Policy Studies CONSIUSA - Consiglio per le Relazioni fra Italia e Stati Uniti Centro Studi Americani Transparency International Italia CONSEL GSEP - Global Sustainable Electricity Partnership Human Foundation Open Innovation Corporation Foundation for the global compact Innovation Roundtable ApS KIC INNOENERGY IBERIA EMF Trading - Ellen Macarthur Foundation ICC ITALIA Business Europe Total donations 442 Amount Description of donation 60,000 Donation to promote sustainable growth of territory 100,000 Donation to support research 100,000 Donation to support research and advanced training projects 61,800 Donation to support study grants 400,000 Donation for cultural projects 2018 600,000 Donation for cultural projects 2018 500,000 Donation for cultural projects 2018 40,000 Donation for development energy 600,000 Donation for cultural projects 2018 75,000 Donation for 2018 Donation of 2 Top Crash systems to support Highway Police operations R&D project co-financed by EU and national resources. Financing received in 2017. Instalment transferred by Enel SpA, following assignment of financing contract to Enel X - Connect Project 23,000 91,745 40,000 Association dues 2018 10,000 Association dues 2018 20,000 Association dues 2018 63,000 Association dues 2018 14,000 Association dues 2018 72,718 Association dues 2018 35,752 Association dues 2018 10,000 Association dues 2018 10,000 Association dues 2018 120,000 Association dues 2018 17,000 Association dues 2018 35,000 Association dues 2018 38,315 Association dues 2018 10,000 Association dues 2018 50,000 Association dues 2018 70,000 Association dues 2018 10,000 Association dues 2018 18,663 Association dues 2018 15,000 Association dues 2018 19,750 Association dues 2018 10,000 Association dues 2018 20,000 Association dues 2018 63,781 Association dues 2018 66,000 Association dues 2018 25,000 Association dues 2018 39,000 Association dues 2018 25,000 Association dues 2018 12,000 Association dues 2018 12,500 Association dues 2018 20,000 Association dues 2018 20,000 Association dues 2018 22,750 Association dues 2018 103,204 Association dues 2018 30,000 Association dues 2018 25,794 Association dues 2018 51,624 Association dues 2018 11,000 Association dues 2018 39,975 Association dues 2018 39,375 Association dues 2018 13,405 Association dues 2018 18,150 Association dues 2018 3,999,300 Annual Report 2018 37. Contractual commitments and guarantees Millions of euro Sureties and guarantees given: - third parties - subsidiaries Total at Dec. 31, 2018 at Dec. 31, 2017 Change 25 61,597 61,622 36 52,752 52,788 (11) 8,845 8,834 Sureties granted to third parties essentially regard a bank Global Trading and Enel.si for gas transport capacity; surety issued in favor of Banco Centroamericano de Inte- > €300 million as counter-guarantees in favor of the banks gración Economica (BCIE) of €25 million, acquired following that guaranteed the Energy Markets Operator on behalf the merger of Enel South America into Enel SpA. of Enel Global Trading and Enel Produzione; > €50 million issued to RWE Supply & Trading GmbH on Other sureties and guarantees issued on behalf of subsidiar- behalf of Enel Global Trading for electricity purchases; ies include: > €50 million issued to E.ON on behalf of Enel Global Trad- > €31,923 million issued on behalf of Enel Finance Inter- ing for trading on the electricity market; national securing bonds issued in European and other > €32 million issued to Wingas GmbH & CO.KG on behalf international markets; of Enel Global Trading for the supply of gas; > €15,216 million issued on behalf of various companies > €38 million issued on behalf of Enel Italia to Excelsia controlled by Enel Green Power for the development of Nove for the performance of obligations under rental new projects under the Business Plan; contracts; > €3,344 million issued to the European Investment Bank > €3,288 million issued to various beneficiaries as part of (EIB) for loans granted to e-distribuzione, Enel Produzi- financial support activities by the Parent Company on be- one, Enel Green Power, Enel Green Power Perú, Enel half of subsidiaries. Sole and Enel X Mobility; > €1,472 million issued to the tax authorities in respect Compared with December 31, 2017, the increase in other of participation in the Group VAT procedure on behalf of sureties and guarantees issued on behalf of subsidiaries Enel Italia, Enel Innovation Hubs, Enel Global Trading, mainly reflects the issue of bonds as part of the Enel Group Enel Produzione, Enelpower, Nuove Energie, Enel.si, finance strategy and the refinancing strategy for consolidat- Enel Green Power, Enel Sole and Enel X Italia; ed debt. > €1,454 million issued on behalf of Enel Finance Inter- In particular, on January 9, 2018 Enel Finance International national to secure the Euro commercial paper program; placed its second green bond on the European market in the > €1,407 million in favor of Cassa Depositi e Prestiti issued total amount of €1,250 million, intended for institutional in- on behalf of e-distribuzione, which received the Enel vestors and backed by a guarantee issued by Enel SpA. On Grid Efficiency II loan; September 12, 2018 it placed a multi-tranche bond issue on > €1,150 million issued by Enel SpA to the Single Buyer the US market and other international markets, guaranteed on behalf of Servizio Elettrico Nazionale for obligations by Enel and intended for institutional investors in the total under the electricity purchase contract; amount of $4 billion, equal to a total of about €3,500 million. > €973 million issued to INPS on behalf of various Group companies whose employees elected to participate In its capacity as the Parent Company, Enel SpA has also in the structural staff reduction plan (Article 4 of Law granted letters of patronage to a number of Group compa- 92/2012); nies, essentially for assignments of receivables. > €597 million issued to Terna on behalf of e-distribuzione, Enel Global Trading, Enel Produzione, Enel Energia and Enel X Italia in respect of agreements for electricity transmission services; > €302 million issued to Snam Rete Gas on behalf of Enel 443 Financial statements of Enel SpA38. Contingent assets and liabilities Please see note 52 to the consolidated financial statements for information on contingent assets and liabilities. 39. Events after the reporting period Please see note 53 to the consolidated financial statements for information on other events after the reporting date. 444 Annual Report 201840. Fees of Audit Firm pursuant to Article 149-duodecies of the CONSOB “Issuers Regulation” Fees paid in 2018 by Enel SpA and its subsidiaries at De- table, pursuant to the provisions of Article 149-duodecies of cember 31, 2018 to the Audit Firm and entities belonging the CONSOB “Issuers Regulation”. to its network for services are summarized in the following Type of service Enel SpA Auditing Certification services Other services Total Enel SpA subsidiaries Auditing Certification services Other services Total TOTAL Entity providing the service Fees (millions of euro) of which: - EY SpA - Entities of EY network of which: - EY SpA - Entities of EY network of which: - EY SpA - Entities of EY network of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network of which: - EY SpA - Entities of Ernst & Young Global Limited network 0.6 - 0.8 - - - 1.4 2.8 10.3 1.3 1.9 0.4 0.3 17.0 18.4 445 Financial statements of Enel SpADeclaration of the Chief Executive Officer and the officer responsible for the preparation of the corporate financial reports 446 Annual Report 2018Declaration of the Chief Executive Officer and the officer responsible for the prepara- tion of the financial reports of Enel SpA at December 31, 2018, pursuant to the provi- sions of Article 154-bis, paragraph 5, of Legislative Decree 58 of February 24, 1998 and Article 81-ter of CONSOB Regulation 11971 of May 14, 1999 1. The undersigned Francesco Starace and Alberto De Paoli, in their respective capacities as Chief Executive Officer and officer responsible for the preparation of the financial reports of Enel SpA, hereby certify, taking account of the provi- sions of Article 154-bis, paragraphs 3 and 4, of Legislative Decree 58 of February 24, 1998: a. the appropriateness with respect to the characteristics of the Company and b. the effective adoption of the administrative and accounting procedures for the preparation of the separate financial statements of Enel SpA in the period between January 1, 2018 and December 31, 2018. 2. In this regard, we report that: a. the appropriateness of the administrative and accounting procedures used in the preparation of the separate finan- cial statements of Enel SpA has been verified in an assessment of the internal control system for financial reporting. The assessment was carried out on the basis of the guidelines set out in the “Internal Controls - Integrated Fra- mework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO); b. the assessment of the internal control system for financial reporting did not identify any material issues. 3. In addition, we certify that the separate financial statements of Enel SpA at December 31, 2018: a. have been prepared in compliance with the international accounting standards recognized in the European Union pursuant to Regulation 2002/1606/EC of the European Parliament and of the Council of July 19, 2002; b. correspond to the information in the books and other accounting records; c. provide a true and fair representation of the performance and financial position of the issuer. 4. Finally, we certify that the Report on operations, included in the Annual Report 2018 and accompanied by the financial statements of Enel SpA at December 31, 2018, contains a reliable analysis of operations and performance, as well as the situation of the issuer, together with a description of the main risks and uncertainties to which it is exposed. Rome, March 21, 2019 Francesco Starace Alberto De Paoli Chief Executive Officer of Enel SpA Officer responsible for the preparation of the financial reports of Enel SpA Financial statements of Enel SpA 447 448 Annual Report 201805 Reports 449 Reports Report of the Board of Statutory Auditors to the Shareholders’ Meeting of Enel SpA 450 Annual Report 2018REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE SHAREHOLDERS’ MEETING OF ENEL SpA CALLED TO APPROVE THE FINANCIAL STATEMENTS FOR 2018 (pursuant to Article 153 of Legislative Decree 58/1998) Shareholders, during the year ended December 31, 2018 we performed the oversight activities envisaged by law at Enel SpA (hereinafter also “Enel” or the “Company”). In particular, pursuant to the provisions of Article 149, paragraph 1, of Legislative Decree 58 of February 24, 1998 (hereinafter the “Consolidated Law on Financial Intermediation”) and Article 19, paragraph 1 of Legislative Decree 39 of January 27, 2010, as amended by Legislative Decree 135 of July 17, 2016 (hereinafter “Decree 39/2010”), we monitored: - compliance with the law and the corporate bylaws as well as compliance with the principles of sound administration in the performance of the Company’s business; - - - - - - the Company’s financial reporting process and the adequacy of the administrative and accounting system, as well as the reliability of the latter in representing operational events; the statutory audit of the annual statutory and consolidated accounts and the selection process and independence of the Audit Firm; the adequacy and effectiveness of the internal control and risk management system; the adequacy of the organizational structure of the Company, within the scope of our responsibilities; the implementation of the corporate governance rules as provided for by the Corporate Governance Code for Listed Companies (hereinafter, the “Corporate Governance Code”), which the Company has adopted; the appropriateness of the instructions given by the Company to its subsidiaries to enable Enel to meet statutory public disclosure requirements. In performing our checks and assessments of the above issues, we did not find any particular issues to report. In compliance with the instructions issued by CONSOB with Communication DEM/1025564 of April 6, 2001, as amended, we report the following: • we monitored compliance with the law and the bylaws and we have no issues to report; • on a quarterly basis, we received adequate information from the Chief Executive Officer, as well as through our participation in the meetings of the Board of 451 Reports Directors of Enel, on activities performed, general developments in operations and the outlook, and on transactions with the most significant impact on performance or the financial position carried out by the Company and its subsidiaries. We report that the actions approved and implemented were in compliance with the law and the bylaws and were not manifestly imprudent, risky, in potential conflict of interest or in contrast with the resolutions of the Shareholders’ Meeting or otherwise prejudicial to the integrity of the Company’s assets. For a discussion of the features of the most significant transactions, please see the Report on operations accompanying the separate financial statements of the Company and the consolidated financial statements of the Enel Group for 2018 (in the section “Significant events in 2018”); • we did not find any atypical or unusual transactions conducted with third parties, Group companies or other related parties; • in the section “Related parties” of the notes to the separate 2018 financial statements of the Company, the directors describe the main transactions with related-parties – the latter being identified on the basis of international accounting standards and the instructions of CONSOB – carried out by the Company, to which readers may refer for details on the transactions and their financial impact. They also detail the procedures adopted to ensure that related- party transactions are carried out in accordance with the principles of transparency and procedural and substantive fairness. The transactions were carried out in compliance with the approval and execution processes set out in the related procedure – adopted in compliance with the provisions of Article 2391- bis of the Italian Civil Code and the implementing regulations issued by Co – described in the report on corporate governance and ownership structure for 2018. All transactions with related parties reported in the notes to the separate 2018 financial statements of the Company were executed as part of ordinary operations in the interest of the Company and settled on market terms and conditions; • the Company declares that it has prepared its statutory financial statements for 2018 on the basis of international accounting standards (IAS/IFRS) and the interpretations issued by the IFRIC and the SIC, endorsed by the European Union pursuant to Regulation 2002/1606/EC and in force at the close of 2018, as well as the provisions of Legislative Decree 38 of February 28, 2005 and its related implementing measures, as it did the previous year. The Company’s separate financial statements for 2018 have been prepared on a going-concern basis using the cost method, with the exception of items that are measured at fair value 2 452 Annual Report 2018 under the IFRS-EU, as indicated in the accounting policies for the individual items of the consolidated financial statements. The notes to the Company’s separate financial statements also refer readers to the consolidated financial statements for information on the accounting standards and measurement criteria adopted, with the exception of equity investments in subsidiaries, associates and joint ventures, which are carried in the Company’s separate financial statements at purchase costs adjusted for any impairment losses. The notes to the Company’s separate financial statements also refer readers to the consolidated financial statements for information on recently issued accounting standards. The separate financial statements for 2018 of the Company underwent the statutory audit by the Audit Firm, EY SpA, which issued an unqualified opinion, including with regard to the consistency of the Report on operations and certain information in the report on corporate governance and ownership structure of the Company with the financial statements, as well as the compliance of the Report on operations with the provisions of law, pursuant to Article 14 of Decree 39/2010 and Article 10 of Regulation 2014/537/EU. The report of EY SpA also includes: - - a discussion of key aspects of the audit report on the Company’s financial statements; and the declaration provided pursuant to Article 14, paragraph 2(e) of Decree 39/2010 stating that the Audit Firm did not identify any significant errors in the contents of the report on operations; • the Company declares that it has also prepared the consolidated financial statements of the Enel Group for 2018 on the basis of international accounting standards (IAS/IFRS) and the interpretations issued by the IFRIC and the SIC, endorsed by the European Union pursuant to Regulation 2002/1606/EC and in force at the close of 2018, as well as the provisions of Legislative Decree 38 of February 28, 2005 and its related implementing measures, as it did the previous year. The 2018 consolidated financial statements of the Enel Group are also prepared on a going-concern basis using the cost method, with the exception of items that are measured at fair value under the IFRS-EU (as indicated in the discussion of measurement criteria for the individual items) and non-current assets (or disposal groups) classified as held for sale, which are measured at the lower of carrying amount and fair value less costs to sell. The notes to the consolidated financial statements provide a detailed discussion of the accounting standards and measurement criteria adopted. As regards recently issued accounting standards, the notes to the consolidated financial statements discuss (i) new standards applied in 2018, which according to the notes did not have a 3 453 Reports material impact in the year under review; and (ii) standards that will apply in the future. The consolidated financial statements for 2018 of the Enel Group underwent statutory audit by the Audit Firm EY SpA, which issued an unqualified opinion, including with regard to the consistency of the Report on operations and certain information in the report on corporate governance and ownership structure with the consolidated financial statements, as well as the compliance of the Report on operations with the provisions of law, pursuant to Article 14 of Decree 39/2010 and Article 10 of Regulation 2014/537/EU. The report of EY SpA also includes: - - a discussion of key aspects of the audit report on the consolidated financial statements; and the declaration provided pursuant to Article 14, paragraph 2(e) of Decree 39/2010 and Article 4 of CONSOB Regulation 20267 (implementing Legislative Decree 254 of December 30, 2016) concerning, respectively, a statement that the Audit Firm did not identify any significant errors in the contents of the Report on operations and that it verified that the Board of Directors had approved the consolidated non-financial statement; Under the terms of its engagement, EY SpA also issued unqualified opinions on the financial statements for 2018 of the most significant Italian companies of the Enel Group. Moreover, during periodic meetings with the representatives of the Audit Firm, EY SpA, the latter did not raise any issues concerning the reporting packages of the main foreign companies of the Enel Group, selected by the auditors on the basis of the work plan established for the auditing of the consolidated financial statements of the Enel Group, that would have a sufficiently material impact to be reported in the opinion on those financial statements; • taking due account of the recommendations of the European Securities and Markets Authority issued on January 21, 2013, and most recently confirmed with the Public Statement of October 27, 2015, to ensure greater transparency concerning the methods used by listed companies in testing goodwill for impairment, in line with the recommendations contained in the joint Bank of Italy - CONSOB - ISVAP document 4 of March 3, 2010, and in the light of indications of CONSOB in its Communication 7780 of January 28, 2016, the compliance of the impairment testing procedure with the provisions of IAS 36 was expressly approved by the Board of Directors of the Company, having obtained a favorable opinion in this regard from the Control and Risk Committee in February 2019, i.e. prior to the date of approval of the financial statements for 2018; 4 454 Annual Report 2018 • we examined the Board of Directors’ proposal for the allocation of net income for 2018 and have no comments in this regard; • we note that the Board of Directors of the Company certified, following appropriate checks by the Control and Risk Committee and the Board of Statutory Auditors in March 2019, that as at the date on which the 2018 financial statements were approved, the Enel Group continued to meet the conditions established by CONSOB (set out in Article 15 of the Market Rules, approved with Resolution 20249 of December 28, 2017) concerning the accounting transparency and adequacy of the organizational structures and internal control systems that subsidiaries established and regulated under the law of non-EU countries must comply with so that Enel shares can continue to be listed on regulated markets in Italy; • we monitored, within the scope of our responsibilities, the adequacy of the organizational structure of the Company (and the Enel Group as a whole), obtaining information from department heads and in meetings with the boards of statutory auditors or equivalent bodies of a number of the main Enel Group companies in Italy and abroad, for the purpose of the reciprocal exchange of material information. As from the second half of 2014, the organizational structure of the Enel Group is based on a matrix of Global Business Lines and geographical areas. Taking account of the changes implemented most recently in 2017, it is organized into: (i) Global Business Lines, which are responsible for managing and developing assets, optimizing their performance and the return on capital employed in the various geographical areas in which the Group operates. The Global Business Lines are Infrastructure and Networks, Enel Green Power, Thermal Generation, Trading and Enel X; (ii) Regions and Countries, which are responsible for managing relationships with local institutional bodies, regulatory authorities, the media and other local stakeholders, as well as the development of the customer base with regard to the sale of electricity and gas, in each of the countries in which the Group is present, while also providing staff and other service support to the Global Business Lines and adopting appropriate security, safety and environmental standards. Regions and Countries comprise: Italy, Iberia, Europe and Euro-Mediterranean Affairs, South America, North and Central America, and Africa, Asia and Oceania; (iii) Global service functions, which are responsible for managing information and communication technology activities and procurement at the Group level; and (iv) Holding company functions, which are responsible for managing governance processes at the Group level. They include: Administration, Finance and Control, People and Organization, 5 455 Reports Communications, Legal and Corporate Affairs, Audit, and Innovability. The Board of Statutory Auditors feels that the organizational system described above is adequate to support the strategic development of the Company and the Enel Group and is consistent with control requirements; • during meetings with the boards of statutory auditors or equivalent bodies of a number of the Group’s main companies in Italy and abroad, no material issues emerged that would require reporting here; • we monitored the independence of the Audit Firm EY SpA, having received from them specific written confirmation today that they met that requirement (pursuant to the provisions of Article 6, paragraph 2(a), of Regulation 2014/537/EU and having discussed the substance of that declaration with the audit partner. In this regard, we also monitored, as provided for under Article 19, paragraph 1(e), of Decree 39/2010, the nature and the scale of non-audit services provided to the Company and other Enel Group companies by EY SpA and the entities belonging to its network, the fees for which are reported in the notes to the financial statements of the Company. Following our examinations, the Board of Statutory Auditors feels that there are no critical issues concerning the independence of the Audit Firm EY SpA. We held periodic meetings with the representatives of the Audit Firm, pursuant to Article 150, paragraph 3, of the Consolidated Law on Financial Intermediation, and no material issues emerged that would require mention in this Report. As regards the provisions of Article 11 of Regulation 2014/537/EU, EY SpA today provided the Board of Statutory Auditors with the “additional report” for 2018 on the results of the statutory audit carried out, which indicates no significant difficulties encountered during the audit or any significant shortcomings in the internal control system for financial reporting or the Enel accounting system. The Board of Statutory Auditors will transmit that report to the Board of Directors promptly, accompanied by any comments it may have, in accordance with Article 19, paragraph 1(a), of Decree 39/2010. The Audit Firm also reported that it did not prepare any management letter for 2018; • we supervised a specific selection process for the engagement to perform the statutory audit of the accounts of Enel SpA for the 2020-2028 period, in which qualified audit firms took part. As part of this procedure, the Board of Statutory Auditors first assessed and approved the technical and financial selection criteria and then examined and approved the findings of the technical and financial evaluation of the offers received, in compliance with the provisions of Article 19, 6 456 Annual Report 2018 paragraph 1, letter f) of Legislative Decree 39/2010 and Article 16 of Regulation 2014/537/EU, which assign responsibility for the appointment process to the Board of Statutory Auditors. In compliance with the applicable legislation, this process ended with the Board of Statutory Auditors drafting a motivated proposal, presented to the Shareholders’ Meeting, containing two possible alternative selections for engagement from among the audit firms that participated in the process, accompanied by a duly justified preference for one of the two; • we monitored the financial reporting process, the appropriateness of the administrative and accounting system and its reliability in representing operational events, as well as compliance with the principles of sound administration in the performance of the Company’s business and we have no comments in that regard. We conducted our checks by obtaining information from the head of the Administration, Finance and Control department (taking due account of the head’s role as the officer responsible for the preparation of the Company’s financial reports), examining Company documentation and analyzing the findings of the examination performed by EY SpA. The Chief Executive Officer and the officer responsible for the preparation of the financial reports of Enel issued a statement (regarding the Company’s 2018 financial statements) certifying (i) the appropriateness with respect to the characteristics of the Company and the effective adoption of the administrative and accounting procedures used in the preparation of the financial statements; (ii) the compliance of the content of the financial reports with international accounting standards endorsed by the European Union pursuant to Regulation 2002/1606/EC; (iii) the correspondence of the financial statements with the information in the books and other accounting records and their ability to provide a true and fair representation of the performance and financial position of the Company; and (iv) that the Report on operations accompanying the financial statements contains a reliable analysis of operations and performance, as well as the situation of the issuer, together with a description of the main risks and uncertainties to which it is exposed. The statement also affirmed that the appropriateness of the administrative and accounting procedures used in the preparation of the financial statements of the Company had been verified in an assessment of the internal control system for financial reporting (supported by the findings of the independent testing performed by a qualified external advisor and the Company’s Audit department, with each focusing on their respective areas of responsibility on the basis of the different nature of the various checks) and that the assessment of the internal control system did not identify any 7 457 Reports material issues. An analogous statement was prepared for the consolidated financial statements for 2018 of the Enel Group; • we monitored the adequacy and effectiveness of the internal control system, primarily through periodic meetings with the head of the Audit department of the Company and holding most of the meetings jointly with the Control and Risk Committee. In the light of our examination and in the absence of significant issues, the internal control and risk management system can be considered adequate and effective. In February 2019, the Board of Directors of the Company expressed an analogous assessment of the situation and also noted, in November 2018, that the main risks associated with the strategic targets set out in the 2019-2023 Business Plan were compatible with the management of the Company in a manner consistent with those targets; • in 2018 we received two complaints concerning events deemed censurable by that shareholder pursuant to Article 2408 of the Italian Civil Code in connection with the procedures of the Shareholders’ Meeting of May 24, 2018. More specifically, the complaints regarded the timing of the distribution to shareholders of the materials containing the pre-Meeting questions and the associated replies and, in the second case, the failure to provide accreditation to the Meeting and the failure to reply to post-Meeting questions. In both cases, the Board of Statutory Auditors, having conducted appropriate enquiries with the support of the Legal and Corporate Affairs department, found no irregularities to report and notified the shareholders involved of our findings. No petitions were received by the Board of Statutory Auditors during 2018; • we monitored the effective implementation of the Corporate Governance Code, which the Company has adopted, verifying the compliance of Enel’s governance arrangements with the recommendations of the Code. Detailed information on the Company’s corporate governance system can be found in the report on corporate governance and ownership structure for 2018. In June 2017, March 2018 and March 2019, the Board of Statutory Auditors verified that the Board of Directors, in evaluating the independence of non-executive directors, correctly applied the assessment criteria specified in the Corporate Governance Code and the principle of the priority of substance over form set out in that Code, adopting a transparent procedure, the details of which are discussed in the report on corporate governance and ownership structure for 2018. In March and September 2017, March 2018 and March 2019, the Board of Statutory Auditors conducted a “self-assessment” of the independence of its members. On those occasions, the Board of Statutory Auditors verified that the 8 458 Annual Report 2018 Chairman Sergio Duca and the standing auditor Romina Guglielmetti met the independence requirements established by the Consolidated Law on Financial Intermediation and the Corporate Governance Code with regard to directors. In September 2017, March 2018 and March 2019, the Board of Statutory Auditors found that the standing auditor Roberto Mazzei, while no longer meeting the independence requirements provided for in the Corporate Governance Code for directors (following the hiring of a close family member as head of the “Global Brand and Advertising Management” unit within Enel’s Communications department), continues to meet the independence requirements of the Consolidated Law on Financial Intermediation with regard to the members of the boards of statutory auditors of listed companies; • a Board review was conducted for the first time with reference to 2018, assessing the size, composition and functioning of the Board of Statutory Auditors, similar to the review conducted for the Board of Directors since 2004. This is a best practice that the Board of Statutory Auditors intended to adopt even in the absence of a specific recommendation of the Corporate Governance Code, a “peer-to-peer review” approach, i.e. the assessment not only of the functioning of the body as a whole, but also of the style and content of the contribution provided by each of the auditors. The findings of the Board review offer an especially positive picture of the functioning of Enel’s Board of Statutory Auditors, from which it emerges that this body has adopted effective and efficient operating methods that comply with the reference regulatory framework, as attested by the independent advisory firm charged with supporting the evaluation process. It should also be noted that, based on the findings of the Board review (further details of which can be found in the report on corporate governance and ownership structure for 2018) and taking account of the provisions of the policy on the diversity of its members (approved on January 29, 2018), the Board of Statutory Auditors – in view of its re-appointment due to expiry of its term of office on the occasion of the Shareholders’ Meeting called to approve the Company’s financial statements for the 2018 financial year – has reached consensus on “guidance” for the shareholders (available on the Company website) on the various professional qualifications it would consider appropriate for the members of the new Board; • during 2018 the Board of Statutory Auditors also participated in an induction program, structured into 5 meetings, organized by the Company to provide directors and statutory auditors with an adequate understanding of the business sectors in which the Enel Group operates, as well as the Company dynamics and 9 459 Reports their evolution, market trends and the applicable regulatory framework. For an analysis of the issues addressed at the various induction sessions, please see the report on corporate governance and ownership structure for 2018; • we monitored the application of the provisions of Legislative Decree 254 of December 30, 2016 (hereinafter “Decree 254”) concerning the disclosure of non- financial and diversity information by certain large undertakings and groups. In performing that activity, we monitored the adequacy of the organizational, administrative, reporting and control system established by the Company in order to enable the accurate representation in the consolidated non-financial statement for 2018 of the activity of the Enel Group, its results and its impacts in the non- financial areas referred to in Article 3, paragraph 1, of Decree 254, and have no comments in this regard. The Audit Firm, EY SpA, issued, pursuant to Article 3, paragraph 10, of Decree 254 and Article 5 of CONSOB Regulation 20267 of January 18, 2018, its certification of the conformity of the information provided in the consolidated non-financial statement with the requirements of applicable law; • since the listing of its shares, the Company has adopted specific rules (most recently amended in September 2018) for the internal management and processing of confidential information, which also set out the procedures for the disclosure of documentation and information concerning the Company and the Group, with specific regard to inside information. Those rules (which can be consulted on the corporate website) contain appropriate provisions directed at subsidiaries to enable Enel to comply with statutory public disclosure requirements, pursuant to Article 114, paragraph 2, of the Consolidated Law on Financial Intermediation; • in 2002 the Company also adopted (and has subsequently updated) a Code of Ethics (also available on the corporate website) that expresses the commitments and ethical responsibilities involved in the conduct of business, regulating and harmonizing corporate conduct in accordance with standards of maximum transparency and fairness with respect to all stakeholders; • with regard to the provisions of Legislative Decree 231 of June 8, 2001 – which introduced into Italian law a system of administrative (in fact criminal) liability for companies for certain types of offences committed by its directors, managers or employees on behalf of or to the benefit of the company – since July 2002 Enel has adopted a compliance program consisting of a “general part” and various “special parts” concerning the difference offences specified by Legislative Decree 231/2001 that the program is intended to prevent. For a description of the manner in which the model has been adapted to the characteristics of the various 10 460 Annual Report 2018 Italian companies of the Group, as well as a description of the purposes of the “Enel Global Compliance Program” for the Group’s foreign companies, please see the report on corporate governance and ownership structure for 2018. The structure that monitors the operation and compliance with the program and is responsible for updating it is a collegial body. Since December 2017 it has been composed of three external members with specific professional expertise on corporate organization matters. The Board of Statutory Auditors received adequate information on the main activities carried out in 2018 by that structure, including in meetings with its members. Our examination of those activities found no facts or situations that would require mention in this report; • in 2018, the Board of Statutory Auditors issued the following opinions: - a favorable opinion (at the meeting of January 29, 2018), concerning the 2018 Audit Plan in accordance with the provisions of Article 7.C.1, letter c) of the Corporate Governance Code, preliminary to the resolutions pertaining to the Board of Directors in that regard; - a favorable opinion (at the meeting of April 17, 2018), pursuant to Article 2389, paragraph 3, of the Italian Civil Code, concerning the proposed revision of the decision concerning the remuneration and job conditions of the Chief Executive Officer/General Manager during the 2017-2019 term; • a report on the fixed and variable compensation accrued by those who served as Chairman of the Board of Directors, the Chief Executive Officer/General Manager and other directors in 2018 for their respective positions and any compensation instruments awarded to them is contained in the Remuneration Report referred to in Article 123-ter of the Consolidated Law on Financial Intermediation, approved by the Board of Directors, acting on a proposal of the Nomination and Compensation Committee on April 10, 2019, and published in compliance with the time limits established by law. The design of these compensation instruments is in line with best practices, complying with the principle of establishing a link with appropriate financial and non-financial performance targets and pursuing the creation of shareholder value over the medium and long term. The proposals to the Board of Directors concerning such forms of compensation and the determination of the associated parameters were prepared by the Nomination and Compensation Committee, which is made up entirely of independent directors, drawing on the findings of benchmarking analyses, including at the international level, conducted by an independent consulting firm Finally, the Report on Remuneration referred to in Article 123-ter of the Consolidated Law on Financial Intermediation contains, in compliance with the applicable CONSOB regulations, 11 461 Reports specific disclosures on the remuneration earned in 2018 by key management personnel. The Board of Statutory Auditors’ oversight activity in 2018 was carried out in 23 meetings (14 of which held jointly with the Control and Risk Committee) and with participation in the 18 meetings of the Board of Directors, and, through the Chairman or together, in the 6 meetings of the Nomination and Compensation Committee, in the 4 meetings of the Related Parties Committee and in the 6 meetings of the Corporate Governance and Sustainability Committee. The delegated magistrate of the State Audit Court participated in the meetings of the Board of Statutory Auditors and those of the Board of Directors. During the course of this activity and on the basis of information obtained from EY SpA, no omissions, censurable facts, irregularities or other significant developments were found that would require reporting to the regulatory authorities or mention in this report. Based on the oversight activity performed and the information exchanged with the independent auditors EY SpA, we recommend that you approve the Company’s financial statements for the year ended December 31, 2018 in conformity with the proposals of the Board of Directors. Rome, April 17, 2019 The Board of Statutory Auditors ____________________ Sergio Duca - Chairman ____________________ Romina Guglielmetti - Auditor ____________________ Roberto Mazzei - Auditor 462 12 Annual Report 2018 463 Reports Report of the independent Audit Firm on the 2018 financial statements of Enel SpA 464 Annual Report 2018465 Reports 466 Annual Report 2018467 Reports 468 Annual Report 2018469 Reports 470 Annual Report 2018471 Reports Report of the independent Audit Firm on the 2018 consolidated financial statements of the Enel Group 472 Annual Report 2018473 Reports 474 Annual Report 2018475 Reports 476 Annual Report 2018477 Reports 478 Annual Report 2018479 Reports 480 Annual Report 2018481 Reports Summary of the resolutions of the Ordinary Shareholders’ Meeting Summary of the resolutions of the Ordinary Shareholders’ Meeting of May 16, 2019 The Ordinary Shareholders’ Meeting of Enel SpA held in Rome in single call on May 16, 2019 at the Enel Conference Center at 125, Viale Regina Margherita, adopted the following resolutions: 1. approved the financial statements of Enel SpA for the year ended December 31, 2018, having acknowledged the results of the consolidated financial statements of the Enel Group, which closed with Group’s net income of €4,789 million, together with the consolidated non-financial statement, both referred to the financial year 2018; 2. resolved: (i) to allocate Enel SpA’s net income for the year 2018, amounting to €3,456,161,520.41, as follows: a) to earmark for distribution to the shareholders: • €0.14 for each of the 10,166,679,946 ordinary shares in circulation on the ex-dividend date, to cover the inte- rim dividend payable from January 23, 2019, the ex-dividend date of coupon no. 29 having fallen on January 21, 2019 and the “record date” (i.e. the date of the title to the payment of the dividend) on January 22, 2019, for an overall amount of €1,423,335,192.44; • €0.14 for each of the 10,166,679,946 ordinary shares in circulation on July 22, 2019 (i.e. on the scheduled ex-dividend date), as the balance of the dividend, for an overall amount of €1,423,335,192.44; b) to earmark for “retained earnings” the remaining part of the net income, for an overall amount of €609,491,135.53; (ii) to pay, before withholding tax, if any, the balance of the dividend of €0.14 per ordinary share as from July 24, 2019, with the ex-dividend date of coupon no. 30 falling on July 22, 2019 and the “record date” (i.e. the date of the title to the payment of the dividend) coinciding with July 23, 2019; 3. resolved: (i) to revoke the resolution concerning the authorization for the acquisition and the disposal of own shares approved by the Shareholders’ Meeting held on May 24, 2018; (ii) to authorize the Board of Directors to acquire, in one or more instalments and for a period of eighteen months starting from the date of the Shareholders’ Meeting resolution, a maximum number of 500 million ordinary sha- res of the Company, representing approximately 4.92% of the share capital of Enel SpA, for a maximum outlay of €2 billion; and (iii) to authorize the Board of Directors to dispose, in one or more instalments and for an unlimited period of time, of all or part of the own shares held in portfolio, also before having reached the maximum amount of shares that can be purchased, as well as, as the case may be, to buy-back the shares, provided that the own shares held by the Company and, if applicable, by its subsidiaries, do not exceed the limit set by above-mentioned authorization to the purchase; 482 Annual Report 20184. appointed the new Board of Statutory Auditors, which will remain in office until the approval of the 2021 financial sta- tements, in the persons of: • Barbara Tadolini - Chair; • Claudio Sottoriva - Regular Auditor; • Romina Guglielmetti - Regular Auditor; • Francesca Di Donato - Alternate Auditor; • Maurizio De Filippo - Alternate Auditor; • Piera Vitali - Alternate Auditor; confirming their yearly gross compensation at €85,000 for the Chair and €75,000 for each of the other regular Sta- tutory Auditors, in addition to the reimbursement of properly documented travel and living expenses incurred in the performance of their duties; 5. resolved to appoint KPMG SpA as Enel SpA external auditor with reference to the financial years from 2020 to 2028, for an overall consideration of €4,352,865 for the whole period; 6. approved the long-term incentive Plan for 2019 reserved to the management of Enel SpA and/or of its subsidiaries pursuant to Article 2359 of the Italian Civil Code, whose features are described in the relevant information document prepared pursuant to Article 84-bis, paragraph 1, of the Issuers Regulation adopted by CONSOB with resolution 11971/1999, and to grant the Board of Directors, with the faculty to sub-delegate, all powers necessary for the actual implementation of the aforesaid Plan; 7. resolved in favour of the first section of the remuneration report drawn up pursuant to Article 123-ter of Legislative Decree 58 dated February 24, 1998, and Article 84-quater of the Issuers Regulation adopted by CONSOB with reso- lution 11971/1999, containing the description of the policy for the remuneration of Directors, General Manager and Executives with strategic responsibilities adopted by Enel SpA for the financial year 2019, as well as the procedures used for the adoption and implementation of such policy. 483 Reports 06 Attachments Subsidiaries, associates and other significant equity investments of the Enel Group at December 31, 2018 In compliance with CONSOB Notice DEM/6064293 of July 28, 2006 and Article 126 of CONSOB Resolution 11971 of May 14, 1999, a list of subsidiaries and associates of Enel SpA at December 31, 2018, pursuant to Article 2359 of the Italian Civil Code, and of other significant equity investments is provided below. Enel has full title to all investments. The following information is included for each company: name, registered office, share capital, currency in which share capital is denominated, activity, method of consolidation, Group companies that have a stake in the company and their respective ownership share, and the Group’s ownership share. 486 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Consolidation method Held by % holding Group % holding Parent Company Enel SpA Subsidiaries Rome Italy 10,166,679,946.00 EUR Holding Holding 100.00% (Cataldo) Hydro Power Associates New York (New York) USA - USD Milan Italy 37,419,179.00 EUR Societa di sviluppo, realizzazione e gestione del gasdotto Algeria- Italia via Sardegna SpA (“Galsi SpA”) 3-101-665717 SA San José Costa Rica 10,000.00 CRC Abc Solar 10 SpA Santiago Chile 1,000,000.00 CLP Abc Solar 2 SpA Santiago Chile 1,000,000.00 CLP Aced Renewables Hidden Valley (Pty) Ltd - South Africa 1,000.00 ZAR Activation Energy Limited - Ireland 100,000.00 EUR Renewables Line-by-line Adams Solar Pv Project Two (RF) (Pty) Ltd Johannesburg South Africa 10,000,000.00 ZAR Adria Link Srl Gorizia Italy 500,000.00 EUR Agassiz Beach LLC Minnesota USA - USD Line-by-line Electricity generation from renewable resources Equity Design, construction and operation of merchant lines Rome Italy 10,000.00 EUR Agatos Green Power Trino Agrupación Acefhat AIE Barcelona Spain 793,340.00 Aguilón 20 SA Zaragoza Spain 2,682,000.00 Equity Electricity generation from renewable resources - Energy and infrastructure engineering 50.00% 50.00% Hydro Development Group Acquisition LLC Pyrites Hydro LLC 50.00% Enel Produzione SpA 17.65% 17.65% Line-by-line PH Chucas SA 100.00% 65.00% Line-by-line Enel Green Power Chile Ltda 100.00% 61.93% Line-by-line Enel Green Power Chile Ltda 100.00% 61.93% Electricity generation from renewable resources Plant construction and electricity generation from renewable resources Plant construction and electricity generation from renewable resources Electricity generation and sale from renewable resources Line-by-line Enel Green Power RSA 2 (Pty) Ltd Karusa Wind Farm Community Trust SPV (RF) (Pty) Ltd Pele Green Energy Karusa BEE SPV (RF) (Pty) Ltd EnerNOC Ireland Limited Enel Green Power RSA (Pty) Ltd 60.00% 60.00% 5.00% 35.00% 100.00% 100.00% 60.00% 60.00% Enel Produzione SpA 33.33% 33.33% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Enel Green Power Solar Energy Srl 80.00% 80.00% Electricity generation from renewable resources Electricity generation from renewable resources EUR EUR Design and services - Endesa Distribución Eléctrica SL 16.67% 11.69% Line-by-line Enel Green Power España SL 51.00% 35.75% Electricity generation from renewable resources 487 AttachmentsCompany name Headquarters Country Share capital Currency Activity Alba Energia Ltda Rio de Janeiro Brazil 15,061,880.00 BRL Albany Solar LLC Delaware USA - USD Plant development, design, construction and operation Electricity generation from renewable resources Consolidation method Line-by-line Line-by-line Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Aurora Distributed Solar LLC % holding Group % holding 99.99% 100.00% 0.01% 100.00% 51.00% Alliance SA Managua Nicaragua 6,180,150.00 NIO - Equity Daniel Hajj Aboumrad Estesa Holding Corp. Francisco Javier Lacasa Fuertes Ufinet Latam SLU Enel Green Power Chile Ltda 0.10% 10.68% 49.90% 0.10% 49.90% 100.00% 61.93% Almeyda Solar SpA Almussafes Servicios Energéticos SL Santiago Chile 1,736,965,000.00 CLP Valencia Spain 3,010.00 EUR Electricity generation from renewable resources Management and maintenance of power plants Line-by-line Line-by-line Enel Green Power España SL 100.00% 70.10% Alpe Adria Energia Srl Udine Italy 900,000.00 EUR Line-by-line Design, construction and operation of merchant lines Enel Produzione SpA 50.00% 50.00% Alvorada Energia SA Ampla Energia e Serviços SA (Enel Distribuição Rio SA) Annandale Solar LLC Apiácas Energia SA Rio de Janeiro Brazil 17,117,415.92 BRL Rio de Janeiro Brazil 2,498,230,386.65 BRL Delaware USA - USD Rio de Janeiro Brazil 21,216,846.33 BRL Aquenergy Systems LLC Greenville (South Carolina) USA - USD Teruel Spain 60,100.00 EUR Electricity generation and sale Electricity generation, transmission and distribution Electricity generation from renewable resources Electricity generation Electricity generation from renewable resources Electricity generation Line-by-line Equity Line-by-line Madrid Spain 3,010.00 EUR Wind plants Line-by-line Aragonesa de Actividades Energéticas SA Aranort Desarrollos SL Asociación Nuclear Ascó-Vandellós II AIE Tarragona Spain 19,232,400.00 EUR Proportional Management and maintenance of power plants Line-by-line Enel Green Power Brasil Participações Ltda 100.00% 100.00% Line-by-line Enel Brasil SA 99.79% 54.09% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Enel Green Power Brasil Participações Ltda EGPNA REP Hydro Holdings LLC 100.00% 100.00% 100.00% 50.00% Endesa Red SA (Sociedad Unipersonal) Enel Green Power España SL Endesa Generación SA 100.00% 70.10% 100.00% 70.10% 85.41% 59.87% Athonet Srl Trieste Italy 60,946.48 EUR - Equity Enel X Srl 16.00% 16.00% Atwater Solar LLC Delaware USA Aurora Distributed Solar LLC Wilmington (Delaware) USA - - USD USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Aurora Solar Holdings LLC 51.00% 51.00% 488 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Aurora Land Holdings LLC Delaware USA Aurora Solar Holdings LLC Delaware USA Autumn Hills LLC Delaware USA - - - USD USD USD Avikiran Energy India Private Limited Gurugram (Haryana) India 100,000.00 INR Avikiran Solar India Private Limited Haryana India 100,000.00 INR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale from renewable resources Electricity generation from renewable resources Avikiran Surya India Private Limited Haryana India 100,000.00 INR - Line-by-line Avikiran Vayu India Private Limited Gurugram (Haryana) India 100,000.00 INR Line-by-line Electricity generation, distribution and sale Aysén Energía SA en liquidación Aysén Transmisión SA en liquidación Santiago Chile 4,900,100.00 Santiago Chile 22,368,000.00 Barnet Hydro Company LLC Burlington (Vermont) USA - CLP CLP USD Baylio Solar SLU Seville Spain 3,000.00 EUR Beaver Falls Water Power Company Philadelphia (Pennsylvania) USA Beaver Valley Holdings LLC Philadelphia (Pennsylvania) USA Beaver Valley Power Company LLC Philadelphia (Pennsylvania) USA - - - USD USD USD Belomechetskaya Moscow Russia 3,010,000.00 RUB Bioenergy Casei Gerola Srl Rome Italy 100,000.00 EUR Black River Hydro Assoc. New York (New York) USA - USD Electricity activities Electricity generation and sale Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Thermal generation plants Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Held by % holding Group % holding Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Line-by-line Equity Equity AFS Line-by-line Enel Green Power India Private Limited (formerly BLP Energy Private Limited) Enel Green Power India Private Limited (formerly BLP Energy Private Limited) BLP Energy Private Limited Enel Green Power India Private Limited (formerly BLP Energy Private Limited) Mr. Sandy Khera Enel Generación Chile SA Enel Generación Chile SA Enel Green Power North America Inc. Sweetwater Hydroelectric LLC Enel Green Power España SL 100.00% 76.56% 100.00% 76.56% 100.00% 100.00% 99.90% 76.48% 0.10% 51.00% 29.55% 51.00% 29.55% 10.00% 100.00% 90.00% 100.00% 70.10% Line-by-line Beaver Valley Holdings LLC 67.50% 67.50% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Green Power Rus LLC 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Equity (Cataldo) Hydro Power Associates Enel Green Power North America Inc. 75.00% 62.50% 25.00% 489 AttachmentsCompany name Headquarters Country Share capital Currency Activity BLP Vayu (Project 1) Private Limited Haryana India 7,500,000.00 INR BLP Vayu (Project 2) Private Limited Haryana India 45,000,000.00 INR BLP Wind Project (Amberi) Private Limited New Delhi India 5,000,000.00 INR Boiro Energía SA Boiro Spain 601,010.00 EUR Bondia Energia Ltda Rio de Janeiro Brazil 2,000,888.00 BRL Boott Hydropower LLC Boston (Massachusetts) USA - USD Bosa del Ebro SL Zaragoza Spain 3,010.00 EUR Bp Hydro Associates Boise (Idaho) USA Bp Hydro Finance Partnership Salt Lake City (Utah) USA - - USD USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Plant development, design, construction and operation Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Line-by-line Line-by-line Equity Line-by-line Equity Line-by-line Line-by-line Line-by-line Broadband Comunicaciones SA Buffalo Dunes Wind Project LLC Quito Ecuador 30,290.00 USD - Equity Topeka (Kansas) USA - USD Line-by-line Electricity generation from renewable resources Buffalo Jump Lp Calgary (Alberta) Canada 10.00 CAD Holding Line-by-line Bungala One Finco (Pty) Ltd Sydney Australia 1,000.00 AUD Sydney Australia 100.00 Sydney Australia 100.00 AUD AUD Sydney Australia 1,000.00 AUD Equity Equity Equity Equity Electricity generation from renewable resources Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Sydney Australia - AUD Renewable energy Equity Bungala One Operation Holding Trust Bungala One Operations Holding (Pty) Ltd Bungala One Operations (Pty) Ltd Bungala One Operations Trust 490 Held by Enel Green Power India Private Limited (formerly BLP Energy Private Limited) Enel Green Power India Private Limited (formerly BLP Energy Private Limited) Enel Green Power India Private Limited (formerly BLP Energy Private Limited) Enel Green Power España SL Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda EGPNA REP Hydro Holdings LLC % holding Group % holding 100.00% 76.56% 100.00% 76.56% 100.00% 76.56% 40.00% 28.04% 99.99% 100.00% 0.01% 100.00% 50.00% Bancale Servicios Integrales SL Enel Green Power España SL Chi Idaho LLC Enel Green Power North America Inc. Bp Hydro Associates Enel Green Power North America Inc. Ufinet Ecuador Ufiec SA Ufinet Latam SLU EGPNA Development Holdings LLC Enel Alberta Wind Inc. Enel Green Power Canada Inc. Bungala One Property (Pty) Ltd 49.00% 35.75% 51.00% 68.00% 32.00% 100.00% 75.92% 100.00% 24.08% 99.99% 21.40% 0.01% 75.00% 75.00% 0.10% 100.00% 99.90% 100.00% 50.00% Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Bungala One Operations Holding (Pty) Ltd Bungala One Operations Holding (Pty) Ltd 100.00% 50.00% 100.00% 50.00% Annual Report 2018Company name Headquarters Country Share capital Currency Activity Consolidation method Held by Sydney Australia 1,000.00 AUD Sydney Australia 100.00 AUD Sydney Australia 100.00 AUD Bungala One Property (Pty) Ltd Bungala One Property Holding (Pty) Ltd Bungala One Property Holding Trust Bungala One Property Trust Bungala Two Operations Holding (Pty) Ltd Bungala Two Operations Holding Trust Bungala Two Operations (Pty) Ltd Bungala Two Operations Trust Bungala Two Property Holding (Pty) Ltd Bungala Two Property Holding Trust Bungala Two Property (Pty) Ltd Bungala Two Property Trust Business Venture Investments 1468 (Pty) Ltd Sydney Australia Bungala Two Finco (Pty) Ltd Sydney Australia - - - - - - - - - Sydney Australia Sydney Australia Sydney Australia Sydney Australia Sydney Australia Sydney Australia Sydney Australia Sydney Australia 1.00 Lombardy East South Africa 1,000.00 Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Equity Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy Renewable energy Renewable energy Electricity generation from renewable resources Renewable energy Renewable energy Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources AUD AUD AUD AUD AUD AUD AUD AUD AUD AUD ZAR USD USD % holding Group % holding 100.00% 50.00% Bungala One Property Holding (Pty) Ltd Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Bungala One Property Holding (Pty) Ltd 100.00% 50.00% Bungala Two Property (Pty) Ltd 100.00% 50.00% Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Bungala Two Operations Holding (Pty) Ltd Bungala Two Operations Holding (Pty) Ltd Enel Green Power Bungala (Pty) Ltd 100.00% 50.00% 100.00% 50.00% 50.00% 50.00% Enel Green Power Bungala (Pty) Ltd 50.00% 50.00% Bungala Two Property Holding (Pty) Ltd Bungala Two Property Holding (Pty) Ltd Enel Green Power RSA (Pty) Ltd 100.00% 50.00% 100.00% 50.00% 100.00% 100.00% Canastota Wind Power LLC Wilmington (Delaware) USA Caney River Wind Project LLC Topeka (Kansas) USA - - Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity Rocky Caney Wind LLC 20.00% 20.00% Abrantes Portugal 50,000.00 EUR Fuel supply Equity Carbopego - Abastecimientos e Combustíveis SA Carodex (Pty) Ltd Houghton South Africa 116.00 ZAR Line-by-line Electricity generation from renewable resources Endesa Generación Portugal SA Endesa Generación SA Enel Green Power RSA (Pty) Ltd 0.01% 35.05% 49.99% 98.49% 98.49% 491 AttachmentsCompany name Headquarters Country Share capital Currency Activity Cascade Energy Storage LLC Delaware USA - USD Renewable energy Consolidation method Line-by-line Held by Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Green Power España SL Enel Alberta Wind Inc. Enel Green Power Canada Inc. % holding Group % holding 100.00% 100.00% 100.00% 70.10% 0.10% 100.00% 99.90% Line-by-line Enel Brasil SA 99.93% 54.19% Line-by-line Enel Argentina SA Inversora Dock Sud SA 0.25% 69.99% 21.83% Line-by-line Enel Green Power Brasil Participações Ltda 100.00% 100.00% Line-by-line Enel Brasil SA 100.00% 54.23% Enel Green Power España SL Endesa Generación SA Central Dock Sud SA Enel Generación Costanera SA Enel Generación El Chocón SA Endesa Generación SA Nuclenor SA Slovenské elektrárne AS 33.30% 23.34% 33.33% 23.36% 6.40% 13.76% 1.30% 33.20% 23.57% 16.76% 0.69% 100.00% 33.00% Equity Enel SpA 42.70% 42.70% Line-by-line Line-by-line Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Green Power North America Inc. 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Castiblanco Solar SL Castle Rock Ridge Limited Partnership Celg Distribuição SA - Celg D. (Enel Distribuição Goiás) Central Dock Sud SA Central Geradora Fotovoltaica Bom Nome Ltda Central Geradora Termelétrica Fortaleza SA Central Hidráulica Güejar-Sierra SL Central Térmica de Anllares Aie Central Vuelta de Obligado SA Centrales Nucleares Almaraz-Trillo AIE Madrid Spain 3,000.00 EUR Photovoltaic Line-by-line Line-by-line Calgary (Alberta) Canada - CAD Goiás Brazil 5,075,679,362.52 BRL Buenos Aires Argentina 35,595,178,229.00 ARS Bahia Brazil 4,859,739.00 BRL Caucaia Brazil 151,940,000.00 BRL Electricity generation from renewable resources Electricity transmission, distribution and sale Electricity generation, transmission and distribution Electricity generation and sale from renewable resources Thermal generation plants Seville Spain 364,210.00 EUR Plant operation Equity Madrid Spain 595,000.00 EUR Plant operation Equity Buenos Aires Argentina 500,000.00 ARS Equity Electrical facilities construction Madrid Spain - EUR Plant operation Equity Equity Centrum Pre Vedu A Vyskum Sro Kalná nad Hronom Slovakia (Slovak Republic) 6,639.00 EUR Milan Italy 8,550,000.00 EUR CESI - Centro Elettrotecnico Sperimentale Italiano Giacinto Motta SpA Champagne Storage LLC Wilmington (Delaware) USA 1.00 USD Cherokee Falls Hydroelectric Project LLC Delaware USA Chi Black River LLC Wilmington (Delaware) USA Chi Idaho LLC Wilmington (Delaware) USA - - - USD USD USD Research and development in sciences and engineering Testing, inspection and certification services, engineering and consulting services Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources 492 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Chi Minnesota Wind LLC Wilmington (Delaware) USA - USD Chi Operations Inc. Wilmington (Delaware) USA 100.00 USD Chi Power Inc. Wilmington (Delaware) USA 100.00 USD Chi Power Marketing Inc. Wilmington (Delaware) USA 100.00 USD Chi West LLC Wilmington (Delaware) USA 100.00 USD Chinango SAC Lima Peru 294,249,298.00 PEN Chisago Solar LLC Delaware USA Chisholm View II Holding LLC Delaware USA Chisholm View Wind Project II LLC Delaware USA Chisholm View Wind Project LLC Oklahoma City (Oklahoma) USA Cimarron Bend Assets LLC Wilmington (Delaware) USA Cimarron Bend Wind Holdings I LLC Cimarron Bend Wind Holdings LLC Delaware USA Delaware USA Cimarron Bend Wind Project I LLC Delaware USA Cimarron Bend Wind Project II LLC Cimarron Bend Wind Project III LLC Delaware USA Wilmington (Delaware) USA - - - - - - - - - - USD USD USD USD USD USD USD USD USD USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation, sale and transmission Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by Enel Green Power North America Inc. % holding Group % holding 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Generación Perú SAA 80.00% 36.27% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Chisholm View II Holding LLC 100.00% 51.00% Equity Equity Equity Equity EGPNA REP Wind Holdings LLC 100.00% 50.00% Cimarron Bend Wind Project I LLC Cimarron Bend Wind Project II LLC Cimarron Bend Wind Project III LLC Enel Kansas LLC Cimarron Bend Wind Holdings LLC 49.00% 50.00% 49.00% 1.00% 1.00% 100.00% 50.00% EGPNA Preferred Wind Holdings LLC 100.00% 50.00% Line-by-line Equity Cimarron Bend Wind Holdings I LLC Cimarron Bend Wind Holdings I LLC 100.00% 50.00% 100.00% 50.00% Line-by-line Enel Kansas LLC 100.00% 100.00% 493 AttachmentsCompany name Headquarters Country Share capital Currency Activity Codensa SA ESP Bogotá DC Colombia 13,514,515,800.00 COP Cogeneración El Salto SL Comercializadora Eléctrica de Cádiz SA Compagnia Porto di Civitavecchia SpA in liquidazione Companhia Energética do Ceará - Coelce (Enel Distribuição Ceará SA) Compañía de Transmisión del Mercosur Ltda - CTM Compañía Energética Veracruz SAC Zaragoza Spain 36,060.73 EUR Cadiz Spain 600,000.00 EUR Rome Italy 14,730,800.00 EUR Fortaleza Brazil 741,046,885.77 BRL Buenos Aires Argentina 14,012,000.00 ARS Lima Peru 2,886,000.00 PEN Electricity distribution and sale Cogeneration of electricity and heat Electricity transmission, distribution and sale Construction of port infrastructure Electricity distribution Electricity generation, transmission and distribution Hydroelectric projects Consolidation method Held by % holding Group % holding Line-by-line Enel Américas SA 48.41% 26.25% Equity Equity Equity Enel Green Power España SL 20.00% 14.02% Endesa Red SA (Sociedad Unipersonal) 33.50% 23.48% Enel Produzione SpA 25.00% 25.00% Line-by-line Enel Brasil SA 74.05% 40.16% Line-by-line Enel CIEN SA Enel SpA 100.00% 0.00% 54.23% Line-by-line Enel Perú SAC 100.00% 54.23% Compañía Eólica Tierras Altas SA Soria Spain 13,222,000.00 EUR Wind plants Equity Concert Srl Rome Italy 10,000.00 EUR Coneross Power Corporation Inc. Greenville (South Carolina) USA 110,000.00 USD Consolidated Hydro New Hampshire LLC Consolidated Hydro New York LLC Wilmington (Delaware) USA Wilmington (Delaware) USA Consolidated Hydro Southeast LLC Wilmington (Delaware) USA - - - USD USD USD Consolidated Pumped Storage Inc. Wilmington (Delaware) Copenhagen Hydro LLC Wilmington (Delaware) USA 550,000.00 USD USA - USD Corporación Eólica de Zaragoza SL Zaragoza Spain 271,652.00 EUR Cranberry Point Energy Storage LLC Danax Energy (Pty) Ltd Dover (Delaware) USA 100.00 Houghton South Africa 100.00 USD ZAR De Rock’l Srl Bucharest Romania 5,629,000.00 RON Product, plant and equipment certification Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources 494 Line-by-line Enel Green Power España SL Enel Produzione SpA 37.51% 26.29% 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 81.82% 81.82% Equity Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Enel Green Power España SL 25.00% 17.53% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 100.00% Line-by-line Enel Green Power Romania Srl Enel Green Power SpA 100.00% 100.00% 0.00% Annual Report 2018Electricity generation from renewable resources Electricity generation from renewable resources Electricity distribution and sale Dehesa de Los Guadalupes Solar SLU Demand Energy Networks Inc. Depuración Destilación Reciclaje SL Desarrollo de Fuerzas Renovables S de RL de Cv Distribuidora de Energía Eléctrica del Bages SA Distribuidora Eléctrica del Puerto de La Cruz SA Distrilec Inversora SA Dodge Center Distributed Solar LLC Dolores Wind SA de Cv Dominica Energía Limpia S de RL de Cv Company name Headquarters Country Share capital Currency Activity Seville Spain 3,000.00 EUR Electricity generation from renewable resources Consolidation method Line-by-line Held by Enel Green Power España SL % holding Group % holding 100.00% 70.10% Washington USA 171,689.00 USD Services Line-by-line Enel X North America Inc. 100.00% 100.00% Boiro Spain 600,000.00 EUR Mexico City Mexico 33,101,350.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Equity Enel Green Power España SL 40.00% 28.04% Line-by-line 99.99% 100.00% 0.01% Enel Green Power México S de RL de Cv Energía Nueva Energía Limpia México S de RL de Cv Diamond Vista Holdings LLC Wilmington (Delaware) USA 1.00 USD Holding Line-by-line Enel Kansas LLC 100.00% 100.00% Diego de Almagro Matriz SpA Santiago Chile 351,604,338.00 CLP Dietrich Drop LLC Delaware USA - USD Line-by-line Empresa Eléctrica Panguipulli SA 100.00% 61.93% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Barcelona Spain 108,240.00 EUR Line-by-line Tenerife Spain 12,621,210.00 EUR Line-by-line Electricity purchase, transmission and distribution Buenos Aires Argentina 497,610,000.00 ARS Holding Line-by-line Enel Américas SA 51.50% 27.93% Endesa Red SA (Sociedad Unipersonal) Hidroeléctrica de Catalunya SL Endesa Red SA (Sociedad Unipersonal) 55.00% 70.10% 45.00% 100.00% 70.10% Delaware USA - USD Mexico City Mexico 100.00 MXN Mexico City Mexico 2,070,600,646.00 MXN Drift Sand Wind Holdings LLC Delaware USA Drift Sand Wind Project LLC Delaware USA - - USD USD E-Distribuţie Banat SA E-Distribuţie Dobrogea SA E-Distribuţie Muntenia SA e-distribuzione SpA Timisoara Romania 382,158,580.00 RON Constanța Romania 280,285,560.00 RON Bucharest Romania 271,635,250.00 RON Rome Italy 2,600,000,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity distribution Electricity distribution Electricity distribution Electricity distribution Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Equity 99.00% 100.00% 1.00% 60.80% 20.00% Enel Rinnovabile SA de Cv Hidroelectricidad del Pacífico S de RL de Cv Tenedora de Energía Renovable Sol y Viento SAPI de Cv Equity Enel Kansas LLC 35.00% 50.00% Equity Drift Sand Wind Holdings LLC 100.00% 50.00% Line-by-line Enel SpA 51.00% 51.00% Line-by-line Enel SpA 51.00% 51.00% Line-by-line Enel SpA 78.00% 78.00% Line-by-line Enel SpA 100.00% 100.00% 495 AttachmentsCompany name Headquarters Country Share capital Currency Activity Eastwood Solar LLC Delaware USA - USD EGP BioEnergy Srl Rome Italy 1,000,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by Aurora Distributed Solar LLC % holding Group % holding 100.00% 51.00% Line-by-line Enel Green Power Puglia Srl 100.00% 100.00% EGP Geronimo Holding Company Inc. EGP Magdalena Solar SA de Cv Wilmington (Delaware) USA 1,000.00 USD Holding Line-by-line Mexico City Mexico 100.00 MXN Renewable energy Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Enel Rinnovabile SA de Cv Hidroelectricidad del Pacífico S de RL de Cv Enel Green Power North America Inc. Enel Green Power North America Inc. 99.00% 100.00% 1.00% 100.00% 100.00% 100.00% 100.00% Line-by-line Line-by-line Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity EGPNA REP Solar Holdings LLC 100.00% 50.00% Equity Enel Stillwater LLC 100.00% 50.00% Line-by-line Stillwater Woods Hill Holdings LLC 100.00% 100.00% Line-by-line Padoma Wind Power LLC 100.00% 100.00% Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% EGP Nevada Power LLC EGP Salt Wells Solar LLC Delaware USA Delaware USA EGP San Leandro Microgrid I LLC Delaware USA EGP Solar 1 LLC Wilmington USA (Delaware) EGP Stillwater Solar LLC Wilmington (Delaware) USA - - - - - EGP Stillwater Solar Pv II LLC Delaware USA 1.00 EGP Timber Hills Project LLC Los Angeles (California) USA - USD USD USD USD USD USD USD Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL EGP Ventos de São Roque 01 SA EGP Ventos de São Roque 02 SA EGP Ventos de São Roque 04 SA EGP Ventos de São Roque 08 SA EGP Ventos de São Roque 11 SA - - - - - 496 Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Annual Report 2018Company name Headquarters Country Share capital Currency Activity EGP Ventos de São Roque 13 SA EGP Ventos de São Roque 16 SA EGP Ventos de São Roque 17 SA EGP Ventos de São Roque 18 SA EGP Ventos de São Roque 19 SA EGP Ventos de São Roque 22 SA EGP Ventos de São Roque 26 SA EGP Ventos de São Roque 29 SA - - - - - - - - Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL EGPNA Development Holdings LLC Wilmington (Delaware) USA EGPNA Hydro Holdings LLC EGPNA Preferred Holdings II LLC EGPNA Preferred Wind Holdings LLC Delaware USA Delaware USA Delaware USA EGPNA Project HoldCo 1 LLC Dover (Delaware) EGPNA Project HoldCo 2 LLC Dover (Delaware) EGPNA Project HoldCo 3 LLC Dover (Delaware) EGPNA Project HoldCo 4 LLC Dover (Delaware) EGPNA Project HoldCo 5 LLC Dover (Delaware) EGPNA Project HoldCo 6 LLC Dover (Delaware) EGPNA Project HoldCo 7 LLC Dover (Delaware) USA USA USA USA USA USA USA - - - - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Consolidation method Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources USD USD Holding Line-by-line USD Holding Line-by-line USD Holding Equity USD Holding Line-by-line USD Holding Line-by-line USD Holding Line-by-line USD Holding Line-by-line USD Holding Line-by-line USD Holding Line-by-line USD Holding Line-by-line Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power North America Development LLC Enel Green Power North America Inc. Enel Green Power North America Inc. EGPNA REP Wind Holdings LLC Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. Enel Green Power North America Inc. % holding Group % holding 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 50.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 497 AttachmentsCompany name Headquarters Country Share capital Currency Activity Consolidation method EGPNA Renewable Energy Partners LLC EGPNA REP Holdings LLC Delaware USA Delaware USA EGPNA REP Hydro Holdings LLC Delaware USA EGPNA REP Solar Holdings LLC Delaware USA EGPNA REP Wind Holdings LLC Delaware USA EGPNA Wind Holdings 1 LLC Wilmington (Delaware) USA El Dorado Hydro LLC Los Angeles (California) USA - - - - - - - El Paso Solar SAS ESP Bogotá DC Colombia 91,690,000.00 Elcogas SA Puertollano Spain 809,690.40 Elcomex Solar Energy Srl Constanța Romania 4,590,000.00 RON Elecgas SA Santarem (Pego) Portugal 50,000.00 EUR Electra Capital (RF) (Pty) Ltd Johannesburg South Africa 10,000,000.00 ZAR Eléctrica de Lijar SL Eléctrica del Ebro SA (Sociedad Unipersonal) Electricidad de Puerto Real SA Cadiz Spain 1,081,820.00 EUR Tarragona Spain 500,000.00 EUR Cadiz Spain 6,611,130.00 EUR Brazil 2,823,486,421.33 BRL São Paulo Eletropaulo Metropolitana Eletricidade de São Paulo SA (Enel Distribuição São Paulo) % holding Group % holding 50.00% 50.00% 100.00% 100.00% 100.00% 50.00% 100.00% 50.00% 100.00% 50.00% Held by EGPNA REP Holdings LLC Enel Green Power North America Inc. EGPNA Renewable Energy Partners LLC EGPNA Renewable Energy Partners LLC EGPNA Renewable Energy Partners LLC EGPNA REP Wind Holdings LLC 100.00% 50.00% EGPNA REP Hydro Holdings LLC 100.00% 50.00% USD Joint Venture Equity USD Holding Line-by-line USD Holding Equity USD Holding Equity USD USD USD COP EUR Equity Equity Equity Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation Electricity generation Electricity generation from renewable resources Combined- cycle electricity generation Electricity generation from renewable resources Electricity transmission and distribution Electricity supply Line-by-line Equity Line-by-line Equity Enel Green Power Colombia SAS ESP Endesa Generación SA Enel SpA Enel Green Power Romania Srl Enel Green Power SpA Endesa Generación Portugal SA 100.00% 100.00% 40.99% 33.05% 4.32% 100.00% 100.00% 0.00% 50.00% 35.05% Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 60.00% Equity Line-by-line Equity Electricity distribution and sale Electricity distribution Line-by-line Endesa Red SA (Sociedad Unipersonal) Endesa Red SA (Sociedad Unipersonal) Endesa Red SA (Sociedad Unipersonal) Enel Brasil Investimentos Sudeste SA 50.00% 35.05% 100.00% 70.10% 50.00% 35.05% 94.40% 52.00% Elk Creek Hydro LLC Emerging Networks Panama SA Delaware USA - USD Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Electricity generation from renewable resources Panama Panama 1,000.00 USD - Equity Ifx/eni - Spc Panama Inc. 100.00% 21.40% Emgesa SA ESP Bogotá DC Colombia 655,222,310,000.00 COP Line-by-line Enel Américas SA 48.48% 26.29% Electricity generation and sale Emittenti Titoli SpA in liquidazione Milan Italy 5,200,000.00 EUR - - Enel SpA 10.00% 10.00% eMotorWerks Inc. Wilmington USA 1,000.00 USD (Delaware) Renewable energy Line-by-line Enel X North America Inc. 100.00% 100.00% 498 Annual Report 2018Lima Peru 3,368,424.00 PEN Line-by-line Enel Green Power Perú SA Energética Monzón SAC 100.00% 100.00% 0.00% Company name Headquarters Country Share capital Currency Activity Eléctrica de Jafre SA Girona Spain 165,876.00 EUR Electricity distribution and sale Consolidation method Line-by-line Madrid Spain 18,030,000.00 EUR Mining Line-by-line Ceuta Spain 65,000.00 EUR Electricity supply Line-by-line Ceuta Spain 9,335,000.00 EUR Electricity distribution Line-by-line Ceuta Spain 16,562,250.00 EUR Holding Line-by-line Empresa Carbonífera del Sur SA Empresa de Alumbrado Eléctrico de Ceuta Comercialización de Referencia SA (Sociedad Unipersonal) Empresa de Alumbrado Eléctrico de Ceuta Distribución SA (Sociedad Unipersonal) Empresa de Alumbrado Eléctrico de Ceuta SA Empresa de Generación Eléctrica Marcona SA Electricity generation, transmission, distribution purchase and sale Electricity transmission Electricity distribution and sale Electricity generation, transmission and distribution Electricity generation from renewable resources Electricity generation, transmission and distribution Electricity supply Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Equity Line-by-line Empresa de Transmisión Chena SA Santiago Chile 250,428,941.00 CLP Empresa Distribuidora Sur SA - Edesur Empresa Eléctrica de Colina Ltda Empresa Eléctrica Panguipulli SA Empresa Eléctrica Pehuenche SA Buenos Aires Argentina 898,590,000.00 ARS Santiago Chile 82,222,000.00 CLP Santiago Chile 48,038,937.00 CLP Santiago Chile 175,774,920,733.00 CLP Empresa Energía SA Cadiz Spain 2,500,000.00 EUR Santiago Chile 12,647,752,517.00 CLP Empresa Nacional de Geotermia SA Empresa Propietaria de La Red SA Endesa Comercialização de Energia SA Endesa Distribución Eléctrica SL Panama Panama 58,500,000.00 USD - Electricity transmission and distribution Endesa Capital SA Madrid Spain 60,200.00 Oporto Portugal 250,000.00 Madrid Spain 1,204,540,060.00 EUR Endesa Energía SA Madrid Spain 12,981,860.00 EUR Held by Endesa Red SA (Sociedad Unipersonal) Hidroeléctrica de Catalunya SL % holding Group % holding 52.54% 70.10% 47.46% Endesa Generación SA 100.00% 70.10% 100.00% 67.50% Empresa de Alumbrado Eléctrico de Ceuta SA 100.00% 67.50% Empresa de Alumbrado Eléctrico de Ceuta SA Endesa Red SA (Sociedad Unipersonal) 96.29% 67.50% Empresa Eléctrica de Colina Ltda Enel Distribución Chile SA Distrilec Inversora SA Enel Argentina SA Enel Distribución Chile SA Luz Andes Ltda 0.10% 61.37% 99.90% 56.36% 39.10% 43.10% 100.00% 61.37% 0.00% Enel Green Power Chile Ltda Energía y Servicios South America SpA Enel Generación Chile SA 99.96% 61.93% 0.04% 92.65% 53.68% Endesa Red SA (Sociedad Unipersonal) Enel Green Power Chile Ltda 50.00% 35.05% 51.00% 31.59% Enel SpA 11.11% 11.11% EUR EUR Finance company Electricity generation and sale Electricity distribution Marketing of energy products Line-by-line Endesa SA 100.00% 70.10% Line-by-line Endesa Energía SA 100.00% 70.10% Line-by-line Endesa Red SA (Sociedad Unipersonal) 100.00% 70.10% Line-by-line Endesa SA 100.00% 70.10% 499 AttachmentsCompany name Headquarters Country Share capital Currency Activity Endesa Energía XXI SL Endesa Financiación Filiales SA Endesa Generación II SA Endesa Generación Nuclear SA Endesa Generación Portugal SA Endesa Generación SA Endesa Ingeniería SLU Endesa Medios y Sistemas SL (Sociedad Unipersonal) Endesa Operaciones y Servicios Comerciales SL Endesa Power Trading Ltd Endesa Red SA (Sociedad Unipersonal) Madrid Spain 2,000,000.00 EUR Madrid Spain 4,621,003,006.00 EUR Seville Spain 63,107.00 Seville Spain 60,000.00 Paço de Arcos (Oeiras) Portugal 50,000.00 EUR EUR EUR Seville Spain 1,940,379,737.02 EUR Seville Spain 1,000,000.00 EUR Marketing and energy-related services Finance company Electricity generation Subholding company in the nuclear sector Electricity generation Electricity generation and sale Consulting and engineering services Consolidation method Held by % holding Group % holding Line-by-line Endesa Energía SA 100.00% 70.10% Line-by-line Endesa SA 100.00% 70.10% Line-by-line Endesa SA 100.00% 70.10% Line-by-line Endesa Generación SA 100.00% 70.10% Line-by-line 70.10% Endesa Energía SA Endesa Generación SA Enel Green Power España SL Energías de Aragón II SL 0.20% 99.20% 0.40% 0.20% Line-by-line Endesa SA 100.00% 70.10% Line-by-line Endesa Red SA (Sociedad Unipersonal) 100.00% 70.10% Madrid Spain 89,999,790.00 EUR Services Line-by-line Endesa SA 100.00% 70.10% Madrid Spain 10,138,580.00 EUR Services Line-by-line Endesa Energía SA 100.00% 70.10% London United Kingdom 2.00 GBP Trading Line-by-line Endesa SA 100.00% 70.10% Madrid Spain 719,901,728.28 EUR Electricity distribution Holding company Line-by-line Endesa SA 100.00% 70.10% Line-by-line Enel Iberia Srl 70.10% 70.10% Endesa SA Madrid Spain 1,270,502,540.40 EUR Endesa X SA (Sociedad Unipersonal) Madrid Spain 60,000.00 EUR Services Line-by-line Endesa SA 100.00% 70.10% Enel Alberta Wind Inc. Calgary (Alberta) Canada 16,251,021.00 CAD Enel Américas SA Santiago Chile 6,763,204,424.00 USD Line-by-line Enel Green Power Canada Inc. 100.00% 100.00% Line-by-line Enel SpA 51.80% 54.23% Electricity generation from renewable resources Holding. Electricity generation and distribution Airport City Israel 10,000.00 EUR Legal services Equity Enel and Shikun&binui Innovation Infralab Ltd Enel Argentina SA Buenos Aires Argentina 514,530,000.00 ARS Holding Line-by-line Enel Bella Energy Storage LLC Wilmington (Delaware) USA - USD Renewable energy Line-by-line Enel Innovation Hubs Srl 50.00% 50.00% 99.88% 0.12% 54.19% 100.00% 100.00% Enel Américas SA Gas Atacama Chile SA Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Brasil Investimentos Nordeste 82 SA Niterói (Rio de Janeiro) Brazil 10,000.00 BRL Electricity generation, transmission, distribution purchase and sale Line-by-line Enel Brasil SA 100.00% 51.02% 500 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Enel Brasil Investimentos Nordeste 86 SA Niterói (Rio de Janeiro) Brazil 10,000.00 BRL Enel Brasil Investimentos Sudeste SA - Brazil 10,000.00 BRL Electricity generation, transmission, distribution purchase and sale Holding company Consolidation method Held by % holding Group % holding Line-by-line Enel Brasil SA 100.00% 51.02% Line-by-line Enel Brasil SA 100.00% 54.23% Enel Brasil SA Rio de Janeiro Brazil 6,276,994,956.09 BRL Holding Line-by-line Enel Américas SA 98.50% 54.23% Enel Chile SA Santiago Chile 3,954,491,478,786.00 CLP Enel CIEN SA Rio de Janeiro Brazil 285,050,000.00 BRL Enel Cove Fort II LLC Wilmington (Delaware) USA Enel Cove Fort LLC Wilmington (Delaware) USA - - USD USD Enel Distribución Chile SA Santiago Chile 230,137,980,270.00 CLP Enel Distribución Perú SAA Lima Peru 638,563,900.00 PEN Enel Energia SpA Rome Italy 302,039.00 EUR Mexico City Mexico 25,000,100.00 MXN Holding. Electricity generation and distribution Electricity generation, transmission and distribution Electricity generation from renewable resources Electricity generation from renewable resources Holding. Electricity distribution Electricity distribution and sale Electricity and gas sale Electricity generation from renewable resources Line-by-line Enel Holding Chile Srl Enel SpA 0.02% 61.93% 61.91% Line-by-line Enel Brasil SA 100.00% 54.23% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity Enel Geothermal LLC 100.00% 50.00% Line-by-line Enel Chile SA 99.09% 61.36% Line-by-line Enel Perú SAC 83.15% 45.10% Line-by-line Enel SpA 100.00% 100.00% Line-by-line Enel Green Power México S de RL de Cv Energía Nueva de Iguu S de RL de Cv 100.00% 100.00% 0.00% Bucharest Romania 37,004,350.00 RON Electricity sale Line-by-line Enel SpA 78.00% 78.00% Enel Energie SA Bucharest Romania 140,000,000.00 RON Electricity sale Line-by-line Enel SpA 51.00% 51.00% Gauteng South Africa 100.00 ZAR Delaware USA 100.00 USD Line-by-line Enel X International Srl 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Electricity generation from renewable resources Electricity generation from renewable resources Wilmington (Delaware) Amsterdam USA 100.00 USD Finance company Line-by-line The Netherlands 1,478,810,371.00 EUR Holding Line-by-line Enel Holding Finance Srl Enel Holding Finance Srl Enel SpA 100.00% 100.00% 75.00% 100.00% 25.00% 50.06% 50.06% Enel Energía SA de Cv Enel Energie Muntenia SA Enel Energy South Africa Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Finance America LLC Enel Finance International NV Enel Fortuna SA Panama Panama 100,000,000.00 USD Enel Generación Chile SA Santiago Chile 552,777,320,871.00 CLP Electricity generation from renewable resources Electricity generation, transmission and distribution Line-by-line Enel Green Power Panama SA Line-by-line Enel Chile SA 93.55% 57.93% 501 AttachmentsCompany name Headquarters Country Share capital Currency Activity Enel Generación Costanera SA Buenos Aires Argentina 701,988,378.00 ARS Enel Generación El Chocón SA Buenos Aires Argentina 298,584,050.00 ARS Enel Generación Perú SAA Lima Enel Generación Piura SA Lima Peru 2,498,101,267.20 PEN Peru 73,982,594.00 PEN Enel Generación SA de Cv Mexico City Mexico 7,100,100.00 MXN Electricity generation and sale Electricity generation and sale Electricity generation, distribution and sale Electricity generation Electricity generation Enel Geothermal LLC Wilmington (Delaware) USA - USD Enel Global Infrastructure and Networks Srl Enel Global Thermal Generation Srl Rome Italy 10,100,000.00 EUR Rome Italy 11,000,000.00 EUR Equity Electricity generation from renewable resources Line-by-line Metering, remote control and connectivity services via power line communication Consolidation method Held by % holding Group % holding Line-by-line Enel Argentina SA 75.68% 41.01% Line-by-line Enel Argentina SA Hidroinvest SA 8.67% 59.00% 35.63% Line-by-line Enel Perú SAC 83.60% 45.34% Line-by-line Enel Perú SAC 96.50% 52.33% Line-by-line Enel Green Power México S de RL de Cv Energía Nueva de Iguu S de RL de Cv EGPNA Renewable Energy Partners LLC 100.00% 100.00% 0.00% 100.00% 50.00% Enel SpA 100.00% 100.00% Enel Global Trading SpA Rome Italy 90,885,000.00 Newfoundland Canada 1,000.00 EUR CAD Buenos Aires Argentina 46,346,484.00 ARS Sydney Australia 100.00 AUD Sydney Australia 100.00 Niterói (Rio de Janeiro) Brazil 115,513,587.00 AUD BRL Rio de Janeiro Brazil 379,249,747.00 BRL Enel Green Power Newfoundland and Labrador Inc. Enel Green Power Argentina SA Enel Green Power Australia (Pty) Ltd Enel Green Power Australia Trust Enel Green Power Boa Vista Eólica SA Enel Green Power Bom Jesus da Lapa Solar SA Enel Green Power Brasil Participações Ltda Business consulting, administrative and management consulting and corporate planning Fuel trading and logistics Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel SpA 100.00% 100.00% Line-by-line Enel SpA 100.00% 100.00% Equity EGPNA REP Wind Holdings LLC 100.00% 50.00% Line-by-line Line-by-line Line-by-line Line-by-line AFS Enel Green Power SpA Energía y Servicios South America SpA Enel Green Power SpA 96.97% 100.00% 3.03% 100.00% 100.00% Enel Green Power SpA Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Enel Green Power SpA 100.00% 100.00% Rio de Janeiro Brazil 7,161,724,678.00 BRL Holding Line-by-line Enel Green Power Bulgaria EAD Sofia Bulgaria 35,231,000.00 BGN Line-by-line Enel Green Power SpA 100.00% 100.00% Plant construction, operation and maintenance 502 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Sydney Australia 100.00 AUD Electricity generation from renewable resources Sydney Australia - AUD Renewable energy Rio de Janeiro Brazil 245,400,766.00 BRL Goiania Brazil 6,433,983,585.00 BRL Enel Green Power Bungala (Pty) Ltd Enel Green Power Bungala Trust Enel Green Power Cabeça de Boi SA Enel Green Power Cachoeira Dourada SA Enel Green Power Calabria Srl Rome Italy 10,000.00 EUR Enel Green Power Canada Inc. Montreal (Quebec) Canada 85,681,857.00 CAD Enel Green Power Chile Ltda Enel Green Power Colombia SAS ESP Enel Green Power Costa Rica SA Santiago Chile 842,086,000.00 USD Bogotá DC Colombia 843,635,000.00 COP San José Costa Rica 27,500,000.00 USD Enel Green Power Cove Fort Solar LLC Wilmington (Delaware) Enel Green Power Cremzow GmbH & Co. Kg Brandenburg Germany 1,000.00 EUR Enel Green Power Cremzow Verwaltungs GmbH Enel Green Power Cristal Eólica SA Enel Green Power Cristalândia I Eólica SA Enel Green Power Cristalândia II Eólica SA Brandenburg Germany 25,000.00 EUR Rio de Janeiro Brazil 144,474,900.00 BRL Rio de Janeiro Brazil 220,018,418.00 BRL Rio de Janeiro Brazil 368,236,837.00 BRL Enel Green Power Cumaru 01 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Consolidation method Line-by-line Held by Enel Green Power Australia (Pty) Ltd % holding Group % holding 100.00% 100.00% Line-by-line Line-by-line Enel Green Power Australia (Pty) Ltd Enel Green Power Brasil Participações Ltda 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Brasil SA 99.75% 54.10% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Chile SA Enel SpA 99.99% 0.01% 61.93% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Electricity generation from renewable resources Electricity generation and sale Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Plant construction and operation Business services Line-by-line Line-by-line Electricity generation and sale from renewable resources AFS AFS Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Electricity generation and sale from renewable resources Enel Green Power Germany GmbH ENERTRAG Aktiengesellschaft Enel Green Power Germany GmbH ENERTRAG Aktiengesell-schaft Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda 90.00% 90.00% 10.00% 90.00% 90.00% 10.00% 99.17% 100.00% 0.83% 99.93% 99.93% 99.93% 99.93% 99.90% 100.00% 0.10% 503 USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% AttachmentsCompany name Headquarters Country Share capital Currency Activity Enel Green Power Cumaru 02 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Cumaru 03 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Cumaru 04 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Cumaru 05 Sociedade Limitada Enel Green Power Damascena Eólica SA Enel Green Power del Sur SpA (formerly Parque Eólico Renaico SpA) Enel Green Power Delfina A Eólica SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Rio de Janeiro Brazil 76,873,003.00 BRL Santiago Chile 353,605,313.37 USD Rio de Janeiro Brazil 519,612,483.00 BRL Enel Green Power Delfina B Eólica SA Niterói (Rio de Janeiro) Brazil 149,538,826.00 BRL Enel Green Power Delfina C Eólica SA Rio de Janeiro Brazil 46,558,322.00 BRL Enel Green Power Delfina D Eólica SA Enel Green Power Delfina E Eólica SA Enel Green Power Desenvolvimento Ltda Rio de Janeiro Brazil 159,170,233.00 BRL Rio de Janeiro Brazil 160,923,464.00 BRL Rio de Janeiro Brazil 13,900,297.00 BRL Enel Green Power Development Srl Rome Italy 20,000.00 EUR 504 Consolidation method Line-by-line Line-by-line Line-by-line Line-by-line Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Electricity generation and sale from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Chile SA Enel Green Power Chile Ltda % holding Group % holding 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.10% 100.00% 0.90% 0.00% 100.00% 61.93% Enel Green Power Brasil Participações Ltda Parque Eólico Delfina Ltda Enel Green Power Brasil Participações Ltda Parque Eólico Delfina Ltda Enel Green Power Brasil Participações Ltda Parque Eólico Delfina Ltda Enel Green Power Brasil Participações Ltda Parque Eólico Delfina Ltda Enel Green Power Brasil Participações Ltda Parque Eólico Delfina Ltda Enel Green Power Brasil Participações Ltda Energía y Servicios South America SpA Enel Green Power SpA 99.99% 100.00% 0.01% 99.98% 100.00% 0.02% 99.98% 100.00% 0.02% 99.99% 100.00% 0.01% 99.98% 100.00% 0.02% 99.99% 100.00% 0.01% 100.00% 100.00% Annual Report 2018Company name Headquarters Country Share capital Currency Activity Enel Green Power Diamond Vista Wind Project LLC Enel Green Power Dois Riachos Eólica SA Wilmington USA 1.00 USD Rio de Janeiro Brazil 146,472,009.00 BRL Enel Green Power Ecuador SA Quito Enel Green Power Egypt SAE Cairo Ecuador 26,000.00 USD Egypt 250,000.00 EGP Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Management, operation and maintenance of all types of generation plant and their distribution grids Consolidation method Line-by-line Held by Diamond Vista Holdings LLC % holding Group % holding 100.00% 100.00% Line-by-line Line-by-line Line-by-line Enel Green Power Brasil Participações Ltda Enel Green Power SpA Energía y Servicios South America SpA Enel Green Power SpA 100.00% 100.00% 99.90% 100.00% 0.10% 100.00% 100.00% Enel Green Power Elkwater Wind Limited Partnership Enel Green Power Emiliana Eólica SA Enel Green Power España SL Enel Green Power Esperança Eólica SA Enel Green Power Fazenda SA Enel Green Power Germany GmbH Enel Green Power Global Investment BV Enel Green Power Granadilla SL Enel Green Power Guatemala SA Enel Green Power Hadros Wind Limited Partnership Enel Green Power Hellas SA Enel Green Power Hellas Supply SA Alberta (Canada) Canada 1,000.00 CAD Holding Line-by-line Rio de Janeiro Brazil 160,187,530.00 BRL Madrid Spain 11,152.74 EUR Rio de Janeiro Brazil 138,385,174.00 BRL Line-by-line Electricity generation from renewable resources Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Rio de Janeiro Brazil 232,629,073.00 BRL Munich Germany 25,000.00 EUR Electricity generation from renewable resources Electricity generation and sale Line-by-line Enel Alberta Wind Inc. Enel Green Power Canada Inc. Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Endesa Generación SA Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda 1.00% 100.00% 99.00% 100.00% 100.00% 0.00% 100.00% 70.10% 99.20% 100.00% 0.80% 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Amsterdam The Netherlands 10,000.00 EUR Holding Line-by-line Enel Green Power SpA 100.00% 100.00% Tenerife Spain 3,012.00 EUR Line-by-line Enel Green Power España SL 65.00% 45.57% Electricity generation from renewable resources Guatemala City Guatemala 100,000.00 GTQ Holding Line-by-line Alberta (Canada) Canada 1,000.00 CAD Holding Line-by-line Maroussi Greece 8,170,350.00 EUR Maroussi Greece 600,000.00 EUR Holding company – Energy services Electricity generation, transport, sale and trading Line-by-line Enel Green Power SpA Energía y Servicios South America SpA Enel Alberta Wind Inc. Enel Green Power Canada Inc. Enel Green Power SpA 98.00% 100.00% 2.00% 1.00% 100.00% 99.00% 100.00% 100.00% Line-by-line Enel Green Power Hellas SA 100.00% 100.00% 505 AttachmentsCompany name Headquarters Country Share capital Currency Activity Maroussi Greece 106,599,641.00 EUR Electricity generation Consolidation method Line-by-line Held by Enel Green Power Hellas SA % holding Group % holding 100.00% 100.00% Dover (Delaware) USA 1.00 USD Operator Wind Line-by-line HillTopper Wind Holdings LLC 100.00% 100.00% Brazil Brazil 488,696,053.00 BRL New Delhi India 100,000,000.00 INR Electricity generation from renewable resources Holding company Line-by-line Line-by-line Alba Energia Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Development Srl 0.01% 99.99% 100.00% 76.56% 76.56% Enel Green Power Hellas Wind Parks South Evia SA Enel Green Power HillTopper Wind LLC (formerly HillTopper Wind Power LLC) Enel Green Power Horizonte Mp Solar SA Enel Green Power India Private Limited (formerly BLP Energy Private Limited) Enel Green Power Ituverava Norte Solar SA Enel Green Power Ituverava Solar SA Enel Green Power Ituverava Sul Solar SA Enel Green Power Joana Eólica SA Enel Green Power Maniçoba Eólica SA Enel Green Power México S de RL de Cv Enel Green Power Modelo I Eólica SA Enel Green Power Modelo II Eólica SA Enel Green Power Morocco SARLAU Rio de Janeiro Brazil 176,552,644.00 BRL Rio de Janeiro Brazil 186,235,933.00 BRL Rio de Janeiro Brazil 366,279,143.00 BRL Rio de Janeiro Brazil 148,487,530.00 BRL Enel Green Power Kenya Limited Nairobi Kenya 100,000.00 KES Rio de Janeiro Brazil 90,722,530.00 BRL Rio de Janeiro Brazil 150,050,000.00 BRL Rio de Janeiro Brazil 130,850,000.00 BRL Morocco Morocco 170,000,000.00 MAD Enel Green Power Morro do Chapéu I Eólica SA Niterói (Rio de Janeiro) Brazil 390,841,942.00 BRL 506 Bondia Energia Ltda Enel Green Power Brasil Participações Ltda Bondia Energia Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power RSA (Pty) Ltd Enel Green Power SpA Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power SpA Energía y Servicios South America SpA Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda 0.09% 99.91% 100.00% 0.09% 99.91% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 1.00% 100.00% 99.00% 99.20% 100.00% 0.80% 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation, transmission, distribution purchase and sale Electricity generation from renewable resources Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Plant development, design, construction and operation Electricity generation from renewable resources Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power Brasil Participações Ltda 100.00% 100.00% Mexico City Mexico 2,399,774,165.00 MXN Holding Line-by-line Annual Report 2018Company name Headquarters Country Share capital Currency Activity Enel Green Power Morro do Chapéu II Eólica SA Niterói (Rio de Janeiro) Brazil 343,991,942.00 BRL Enel Green Power Mourão SA Enel Green Power Namibia (Pty) Ltd Rio de Janeiro Brazil 25,600,100.00 BRL Windhoek Namibia 100.00 NAD Enel Green Power North America Development LLC Wilmington (Delaware) Enel Green Power North America Inc. Wilmington (Delaware) USA - USD USA 50.00 USD Enel Green Power Nova Lapa Solar SA Enel Green Power Nova Olinda B Solar SA Enel Green Power Nova Olinda C Solar SA Rio de Janeiro Brazil 366,352,371.00 BRL Rio de Janeiro Brazil 452,903,076.00 BRL Rio de Janeiro Brazil 382,703,076.00 BRL Enel Green Power Nova Olinda Norte Solar SA Niterói (Rio de Janeiro) Enel Green Power Nova Olinda Sul Solar SA Niterói (Rio de Janeiro) Brazil 384,003,076.00 BRL Brazil 196,076,538.00 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources AFS AFS AFS AFS AFS Enel Green Power Panama SA Enel Green Power Paranapanema SA Enel Green Power Partecipazioni Speciali Srl Enel Green Power Pau Ferro Eólica SA Enel Green Power Pedra do Gerônimo Eólica SA Panama Panama 3,000.00 USD Holding Line-by-line Rio de Janeiro Brazil 123,350,100.00 BRL Rome Italy 10,000.00 EUR Rio de Janeiro Brazil 140,000,000.00 BRL Rio de Janeiro Brazil 202,534,527.57 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Enel Green Power Perú SA Lima Peru 394,035,184.00 PEN Line-by-line Electricity generation from renewable resources Consolidation method Line-by-line Line-by-line Held by Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda % holding Group % holding 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power SpA Enel Green Power Brasil Participações Ltda 99.99% 99.99% 99.99% 99.99% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power SpA 98.72% 98.72% 98.97% 100.00% 1.03% 100.00% 100.00% 507 AttachmentsCompany name Headquarters Country Share capital Currency Activity Enel Green Power Primavera Eólica SA Rio de Janeiro Brazil 144,640,892.85 BRL Enel Green Power Projetos 31 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Electricity generation and sale from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Line-by-line Enel Green Power Projetos 32 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 35 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 37 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 39 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 40 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 41 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 45 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Enel Green Power Projetos 46 SA Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Line-by-line Electricity generation from renewable resources % holding Group % holding 99.00% 100.00% 1.00% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.00% 99.10% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Projetos I SA Niterói (Rio de Janeiro) Enel Green Power Puglia Srl Rome Brazil 1,000.00 BRL Trading Line-by-line Enel Brasil SA 100.00% 54.23% Italy 1,000,000.00 EUR Line-by-line Enel Green Power SpA 100.00% 100.00% Electricity generation from renewable resources 508 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Enel Green Power Ra SAE (in liquidation) Cairo Egypt 15,000,000.00 EGP Lincoln (Nebraska) Enel Green Power Rattlesnake Creek Wind Project LLC (formerly Rattlesnake Creek Wind Project LLC) Enel Green Power Romania Srl Rusu de Sus (Nuşeni) USA 1.00 USD Romania 2,430,631,000.00 RON Enel Green Power RSA (Pty) Ltd Enel Green Power RSA 2 (Pty) Ltd Johannesburg South Africa 1,000.00 ZAR Johannesburg South Africa 120.00 ZAR Enel Green Power Rus Limited Liability Company Moscow Russian Federation 25,500,000.00 RUB Niterói (Rio de Janeiro) Brazil 246,269,552.00 BRL Enel Green Power Salto Apiacás SA (formerly Enel Green Power Damascena Eólica SA) Enel Green Power Sannio Rome Enel Green Power São Abraão Eólica SA Niterói (Rio de Janeiro) Italy 750,000.00 Brazil 115,513,587.00 EUR BRL - - - - Enel Green Power São Gonçalo 07 SA (formerly Enel Green Power Projetos 42 SA) Enel Green Power São Gonçalo 08 SA (formerly Enel Green Power Projetos 43 SA) Enel Green Power São Gonçalo 1 SA (formerly EGP Projetos X) Enel Green Power São Gonçalo 10 SA (formerly EGP Projetos XV) Brazil 30,001,000.00 BRL Brazil 30,001,000.00 BRL Brazil 15,376,000.00 BRL Brazil 676,000.00 BRL Consolidation method Line-by-line Held by Enel Green Power Egypt SAE % holding Group % holding 100.00% 100.00% Line-by-line Rattlesnake Creek Holdings LLC 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power Development Srl 100.00% 100.00% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 100.00% Design, decision, operation and maintenance of generation plants of all types and their distribution grids Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy Line-by-line Line-by-line Electricity generation from renewable resources Line-by-line Line-by-line Line-by-line Electricity generation Electricity generation from renewable resources Electricity generation and sale from renewable resources Line-by-line Line-by-line Line-by-line Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Enel Green Power Partecipazioni Speciali Srl Enel Green Power SpA Enel Green Power Brasil Participações Ltda 1.00% 100.00% 99.00% 100.00% 100.00% Enel Green Power SpA Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda 100.00% 100.00% 100.00% 100.00% 99.99% 100.00% 0.01% 99.99% 100.00% 0.01% 0.01% 100.00% 99.99% 0.01% 100.00% 99.99% 509 AttachmentsCompany name Headquarters Country Share capital Currency Activity Brazil 30,001,000.00 BRL Brazil 30,001,000.00 BRL Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Consolidation method Line-by-line Line-by-line Brazil 1,000.00 BRL Electricity generation Line-by-line Enel Green Power São Gonçalo 15 - Brazil 1,000.00 BRL Electricity generation Line-by-line Brazil 16,876,000.00 BRL Brazil 676,000.00 BRL Brazil 676,000.00 BRL Brazil 676,000.00 BRL Brazil 14,976,000.00 BRL Brazil 162,676,000.00 BRL Niterói (Rio de Janeiro) Brazil 16,876,000.00 BRL Niterói (Rio de Janeiro) Brazil 14,976,000.00 BRL Rio de Janeiro Brazil 144,640,892.85 BRL Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources Electricity generation and sale from renewable resources - - Enel Green Power São Gonçalo 11 SA (formerly EGP Enel Green Power Projetos 44 SA) Enel Green Power São Gonçalo 12 SA (formerly Enel Green Power Projetos 22 SA) Enel Green Power São Gonçalo 14 - - - Enel Green Power São Gonçalo 2 SA (formerly EGP Projetos XI) Enel Green Power São Gonçalo 21 SA (formerly EGP Projetos XVI) Enel Green Power São Gonçalo 22 - - - - Enel Green Power São Gonçalo 22 SA (formerly EGP Projetos 30) Enel Green Power São Gonçalo 3 SA (formerly EGP Projetos XII) Enel Green Power São Gonçalo 4 SA (formerly EGP Projetos XIII) Enel Green Power São Gonçalo 5 SA (formerly EGP Projetos XIV) Enel Green Power São Gonçalo 6 SA (formerly Enel Green Power Projetos 19 SA) Enel Green Power São Judas Eólica SA 510 % holding Group % holding 99.99% 100.00% 0.01% 99.99% 100.00% 0.01% 99.99% 100.00% 0.01% 99.99% 100.00% 0.01% 0.01% 100.00% 99.99% 0.00% 100.00% 100.00% 0.01% 99.99% 100.00% 0.00% 100.00% 100.00% 0.01% 99.99% 100.00% 0.01% 99.99% 100.00% 0.01% 99.99% 100.00% 99.99% 100.00% 0.01% 99.00% 100.00% 1.00% Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Alba Energia Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Annual Report 2018Company name Headquarters Country Share capital Currency Activity Enel Green Power Services LLC - USA 100.00 USD - Enel Green Power Shu SAE (in liquidation) Cairo Egypt 15,000,000.00 EGP Enel Green Power Singapore Pte Ltd Singapore Singapore 50,000.00 SGD Enel Green Power Solar Energy Srl Rome Italy 10,000.00 EUR Rome Italy 50,000.00 EUR Rome Italy 50,000.00 EUR Enel Green Power Solar Metehara SpA Enel Green Power Solar Ngonye SpA (formerly Enel Green Power Africa Srl) Enel Green Power SpA Rome Italy 272,000,000.00 EUR Enel Green Power Tacaicó Eólica SA Rio de Janeiro Brazil 106,517,360.00 BRL Enel Green Power Tefnut SAE (in liquidation) Cairo Egypt 15,000,000.00 EGP Istanbul Turkey 65,654,658.00 TRY - - - Brazil 132,001,000.00 BRL Brazil 171,001,000.00 BRL Brazil 185,001,000.00 BRL Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Enel Green Power Ventos de Santa Ângela 1 SA (formerly EGP Projetos II) Enel Green Power Ventos de Santa Ângela 10 SA (formerly EGP Projetos 21) Enel Green Power Ventos de Santa Ângela 11 SA (formerly EGP Projetos 23) Consolidation method Line-by-line Line-by-line Held by Enel Green Power North America Inc. Enel Green Power Egypt SAE % holding Group % holding 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Enel SpA 100.00% 100.00% Line-by-line Line-by-line Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Egypt SAE 99.10% 100.00% 0.90% 100.00% 100.00% Line-by-line Enel Green Power SpA 100.00% 100.00% Design, decision, operation and maintenance of generation plants of all types and their distribution grids Electricity generation from renewable resources Plant development, design, construction and operation Electricity generation from renewable resources Electricity generation Electricity generation from renewable resources Electricity generation from renewable resources Design, decision, operation and maintenance of generation plants of all types and their distribution grids Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 511 AttachmentsCompany name Headquarters Country Share capital Currency Activity Brazil 1,000.00 BRL Electricity generation from renewable resources Consolidation method Line-by-line Brazil 1,000.00 HUF Brazil 178,001,000.00 BRL Brazil 182,001,000.00 BRL Brazil 1,000.00 BRL Brazil 198,001,000.00 BRL Brazil 1,000.00 BRL Brazil 126,001,000.00 BRL Brazil 132,001,000.00 BRL Brazil 126,001,000.00 BRL Brazil 113,001,000.00 BRL Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources % holding Group % holding 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda - - - - - - - - - - - Enel Green Power Ventos de Santa Ângela 12 Enel Green Power Ventos de Santa Ângela 13 Enel Green Power Ventos de Santa Ângela 14 SA (formerly EGP Projetos XXIV) Enel Green Power Ventos de Santa Ângela 15 SA (formerly EGP Projetos 25) Enel Green Power Ventos de Santa Ângela 16 Enel Green Power Ventos de Santa Ângela 17 SA (formerly EGP Projetos 26) Enel Green Power Ventos de Santa Ângela 18 Enel Green Power Ventos de Santa Ângela 19 SA (formerly EGP Projetos 27) Enel Green Power Ventos de Santa Ângela 2 SA (formerly EGP Projetos III) Enel Green Power Ventos de Santa Ângela 20 SA (formerly EGP Projetos 28) Enel Green Power Ventos de Santa Ângela 21 SA (formerly EGP Projetos XXIX) 512 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Brazil 132,001,000.00 BRL Electricity generation from renewable resources Consolidation method Line-by-line - - - - - - - - - - - Enel Green Power Ventos de Santa Ângela 3 SA (formerly EGP Projetos IV) Enel Green Power Ventos de Santa Ângela 4 SA (formerly EGP Projetos VI) Enel Green Power Ventos de Santa Ângela 5 SA (formerly EGP Projetos VII) Enel Green Power Ventos de Santa Ângela 6 SA (formerly EGP Projetos VIII) Enel Green Power Ventos de Santa Ângela 7 SA (formerly EGP Projetos IX) Enel Green Power Ventos de Santa Ângela 8 SA (formerly EGP Projetos 18) Enel Green Power Ventos de Santa Ângela 9 SA (formerly EGP Projetos 20) Enel Green Power Ventos de Santa Ângela Acl 12 (formerly EGP Green Power Projetos 36) Enel Green Power Ventos de Santa Angela Acl 13 SA (formerly Enel Green Power Projetos XVII SA) Enel Green Power Ventos de Santa Angela Acl 16 SA (formerly Enel Green Power Projetos 38 SA) Enel Green Power Ventos de Santa Angela Acl 18 SA (formerly Enel Green Power Projetos 47 SA) Brazil 132,001,000.00 BRL Brazil 132,001,000.00 BRL Brazil 132,001,000.00 BRL Brazil 106,000,001.00 BRL Brazil 132,001,000.00 BRL Brazil 185,001,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Brazil 1,000.00 BRL Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation and sale from renewable resources % holding Group % holding 99.99% 0.10% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% 99.90% 100.00% 0.10% Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda 513 AttachmentsCompany name Headquarters Country Share capital Currency Activity Niterói (Rio de Janeiro) Brazil 110,200,000.00 BRL Electricity generation from renewable resources Consolidation method Line-by-line Enel Green Power Ventos de Santa Esperança 08 SA (formerly Enel Green Power Projetos 34 SA) Enel Green Power Ventos de Santa Esperança 13 (formerly Enel Green Power Projetos 33 SA) Enel Green Power Ventos de Santa Esperança 15 SA Niterói (Rio de Janeiro) Brazil 147,000,000.00 BRL Niterói (Rio de Janeiro) Brazil 202,100,000.00 BRL Enel Green Power Ventos de Santa Esperança 16 SA Niterói (Rio de Janeiro) Brazil 183,700,000.00 BRL Enel Green Power Ventos de Santa Esperança 17 SA Niterói (Rio de Janeiro) Brazil 183,700,000.00 BRL Enel Green Power Ventos de Santa Esperança 21 SA Niterói (Rio de Janeiro) Brazil 202,100,000.00 BRL Enel Green Power Ventos de Santa Esperança 22 SA Niterói (Rio de Janeiro) Brazil 202,100,000.00 BRL Enel Green Power Ventos de Santa Esperança 25 SA Niterói (Rio de Janeiro) Brazil 110,200,000.00 BRL Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources % holding Group % holding 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.90% 99.91% 0.10% 99.99% 100.00% 0.01% 99.90% 100.00% 0.10% Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Green Power Ventos de Santa Esperança 26 SA Niterói (Rio de Janeiro) Brazil 202,100,000.00 BRL - Line-by-line Niterói (Rio de Janeiro) Brazil 1,000.00 BRL Holding Line-by-line Enel Green Power Ventos de Santa Esperança Participações SA (formerly Enel Green Power Cumaru 06 SA) Enel Green Power Villoresi Srl Rome Italy 1,200,000.00 EUR Line-by-line Enel Green Power SpA 51.00% 51.00% Electricity generation from renewable resources Enel Green Power Zambia Limited Lusaka Zambia 15,000.00 ZMW Electricity sale Line-by-line Enel Green Power Development Srl Enel Green Power RSA (Pty) Ltd 1.00% 100.00% 99.00% 514 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Rio de Janeiro Brazil 140,001,000.00 BRL Electricity generation from renewable resources Enel Green Power Zeus II - Delfina 8 SA Enel Holding Finance Srl Consolidation method Line-by-line % holding Group % holding 99.00% 100.00% 1.00% Held by Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Rome Italy 10,000.00 EUR Holding Line-by-line Enel SpA 100.00% 100.00% Enel Iberia Srl Madrid Spain 336,142,500.00 EUR Holding Line-by-line Enel SpA 100.00% 100.00% Enel Innovation Hubs Srl Rome Italy 1,100,000.00 EUR Civil and mechanical engineering, water systems Line-by-line Enel SpA 100.00% 100.00% Enel Insurance NV Amsterdam Enel Investment Holding BV Amsterdam The Netherlands The Netherlands 60,000.00 EUR Holding Line-by-line Enel SpA 100.00% 100.00% 1,000,000.00 EUR Holding Line-by-line Enel SpA 100.00% 100.00% Enel Italia Srl Rome Italy 50,100,000.00 EUR Enel Kansas LLC Wilmington USA (Delaware) Enel Minnesota Holdings LLC Minnesota USA Enel Nevkan Inc. Wilmington USA (Delaware) - - - USD USD USD Line-by-line Enel SpA 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line EGP Geronimo Holding Company Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Personnel administration activities, information technology, real estate and business services Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Enel Operations Canada Ltd Calgary (Alberta) Canada 1,000.00 CAD - Line-by-line Enel Green Power Canada Inc. 100.00% 100.00% Enel Perú SAC Lima Peru 5,361,789,105.00 PEN Holding Line-by-line Enel Américas SA 100.00% 54.23% Enel Productie Srl Bucharest Romania 20,210,200.00 RON Enel Produzione SpA Enel Rinnovabile SA de Cv Rome Italy 1,800,000,000.00 EUR Mexico City Mexico 100.00 MXN Electricity generation Electricity generation Electricity generation Line-by-line Enel Investment Holding BV 100.00% 100.00% Line-by-line Enel SpA 100.00% 100.00% Line-by-line Enel Green Power Global Investment BV Enel Green Power México S de RL de Cv 99.00% 100.00% 1.00% Line-by-line Enel SpA 100.00% 100.00% Line-by-line Enel Russia PJSC 100.00% 56.43% Enel Romania SA Judetul Ilfov Romania 200,000.00 10,000.00 RON RUB Business services Renewable energy Enel Rus Wind Azov Limited Liability Company Enel Rus Wind Generation LLC Moscow Moscow Enel Rus Wind Kola LLC Murmansk Enel Russia PJSC Ekaterinburg Russian Federation Russian Federation Russian Federation Russian Federation 350,000.00 RUB Energy services Line-by-line Enel Russia PJSC 100.00% 56.43% 10,000.00 RUB - Line-by-line Enel Russia PJSC 100.00% 56.43% 35,371,898,370.00 RUB Electricity generation Line-by-line Enel SpA 56.43% 56.43% 515 AttachmentsCompany name Headquarters Country Share capital Currency Activity Enel Salt Wells LLC Wilmington (Delaware) USA - USD Enel Saudi Arabia Limited Al-Khobar Saudi Arabia 5,000,000.00 SAR Electricity generation from renewable resources Management of activities associated with participation in tenders called by the SEC for the development of smart metering and grid automation Consolidation method Held by Equity Enel Geothermal LLC % holding Group % holding 100.00% 50.00% Line-by-line e-distribuzione SpA 60.00% 60.00% Enel Servicii Comune SA Bucharest Romania 33,000,000.00 RON Energy services Line-by-line E-Distribuţie Banat SA E-Distribuţie Dobrogea SA 50.00% 51.00% 50.00% Enel Sole Srl Rome Italy 4,600,000.00 EUR Enel Soluções Energéticas Ltda Niterói (Rio de Janeiro) Brazil 48,500,000.00 BRL Enel Stillwater LLC Wilmington USA (Delaware) Enel Surprise Valley LLC Wilmington (Delaware) USA Enel Texkan Inc. Wilmington USA (Delaware) - - - USD USD USD Enel Trade d.o.o. Zagreb Croatia 2,240,000.00 HRK Enel Trade Romania Srl Enel Trade Serbia d.o.o. Enel Trading Argentina Srl Bucharest Romania 21,250,000.00 RON Beograd Serbia 300,000.00 Buenos Aires Argentina 14,010,014.00 EUR ARS Public lighting systems and services Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity trading Electricity sourcing and trading Electricity trading Electricity trading Line-by-line Line-by-line Line-by-line Line-by-line Enel Trading North America LLC Wilmington (Delaware) USA 10,000,000.00 USD Trading Line-by-line Enel X Argentina SAU Enel X Battery Storage Limited Partnership Enel X Brasil Gerenciamento de Energia Ltda Buenos Aires Argentina 42,440,000.00 ARS Line-by-line Marketing and energy-related services Vancouver Canada 10,000.00 CAD - Line-by-line São Paulo Brazil 117,240.00 BRL Renewable energy Line-by-line Line-by-line Enel X Srl 100.00% 100.00% Line-by-line Equity Enel Green Power Brasil Participações Ltda Enel Green Power Desenvolvimento Ltda Enel Geothermal LLC 100.00% 100.00% 0.00% 100.00% 50.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Chi Power Inc. 100.00% 100.00% Enel Global Trading SpA Enel Global Trading SpA 100.00% 100.00% 100.00% 100.00% Enel Global Trading SpA 100.00% 100.00% Enel Américas SA Enel Argentina SA 55.00% 45.00% 54.21% Enel Green Power North America Inc. Enel X International Srl 100.00% 100.00% 100.00% 100.00% Enel X Canada Holding Inc. Enel X Canada Ltd EnerNOC Ireland Holding Limited EnerNOC Uk II Limited 0.01% 100.00% 99.99% 0.00% 100.00% 100.00% Enel X Brasil SA Rio de Janeiro Brazil 62,972,136.60 BRL Electricity Line-by-line Enel Brasil SA 100.00% 54.23% Enel X Canada Holding Inc. Vancouver Canada 1,000.00 CAD Holding Line-by-line Enel X Canada Ltd 100.00% 100.00% Enel X Canada Ltd Oakville Canada 1,000.00 CAD Renewable energy Line-by-line Enel X International Srl 100.00% 100.00% 516 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Consolidation method Held by % holding Group % holding Enel X Chile SA Santiago Chile 3,800,000,000.00 CLP Services Line-by-line Enel Chile SA 100.00% 61.93% Enel X Colombia SAS Bogotá DC Colombia 5,000,000,000.00 COP Enel X Federal LLC Delaware USA 5,000.00 USD Installation, maintenance and repair of electronic plant Renewable energy Line-by-line Codensa SA ESP 100.00% 26.25% Line-by-line Enel X North America Inc. 100.00% 100.00% Enel X Financial Services Srl Rome Italy 1,000,000.00 EUR Services Line-by-line Enel X Srl 100.00% 100.00% Enel X Finance Partner LLC Lutherville (Maryland) USA 100.00 USD - Line-by-line Enel X North America Inc. 100.00% 100.00% Enel X International Srl Rome Enel X Italia SpA Rome Italy Italy 100,000.00 EUR Holding company Line-by-line Enel X Srl 100.00% 100.00% 200,000,000.00 EUR Upstream gas Line-by-line Enel X Srl 100.00% 100.00% Enel X Korea Limited Seoul Korea, Republic of (South Korea) Enel X MA Holdings LLC Lutherville (Maryland) Enel X Morrissey Blvd. Project LLC Lutherville (Maryland) Enel X Mobility Srl Rome USA USA Italy 1,200,000,000.00 KRW Renewable energy Line-by-line Enel X International Srl 100.00% 100.00% 100.00 100.00 USD USD - - Line-by-line Line-by-line Enel X Finance Partner LLC Enel X MA Holdings 100.00% 100.00% 100.00% 100.00% 100,000.00 EUR Electric mobility Line-by-line Enel X Srl 100.00% 100.00% Enel X New Zealand Limited Enel X North America Inc. Wellington New Zealand 313,606.00 Delaware USA 1,000.00 AUD USD Renewable energy Renewable energy Line-by-line Line-by-line Enel X Rus LLC - Russian Federation 8,000,000.00 RUB - Line-by-line Energy Response Holdings (Pty) Ltd Enel X International Srl Enel X International Srl Giulio Carone 100.00% 100.00% 100.00% 100.00% 99.00% 99.00% 1.00% Enel X Srl Rome Italy 1,050,000.00 EUR Holding Line-by-line Enel SpA 100.00% 100.00% Enel X Services India Private Limited Marathon Chamber - A India 45,000.00 INR Renewable energy Line-by-line Enel X Taiwan Co. Ltd Taipei City Taiwan 65,000,000.00 TWD Enel X Uk Limited London United Kingdom 10,001.00 Enel.Si Srl Rome Italy 5,000,000.00 Enelco SA Athens Greece 60,108.80 GBP EUR EUR Enelpower Contractor and Development Saudi Arabia Ltd Enelpower do Brasil Ltda Riyadh Saudi Arabia 5,000,000.00 SAR Rio de Janeiro Brazil 18,342,000.00 BRL Renewable energy Renewable energy Plant engineering and energy services Plant construction, operation and maintenance Plant construction, operation and maintenance Electrical engineering Enelpower SpA Milan Italy 2,000,000.00 Energética de Rosselló AIE Barcelona Spain 3,606,060.00 EUR EUR Engineering and construction Cogeneration of electricity and heat Enel X International Srl Enel X North America, Inc. EnerNOC Ireland Holding Limited Enel X International Srl 100.00% 100.00% 0.00% 100.00% 100.00% 100.00% 100.00% Line-by-line Line-by-line Line-by-line Enel X Srl 100.00% 100.00% Line-by-line Enel Investment Holding BV 75.00% 75.00% Line-by-line Enelpower SpA 51.00% 51.00% Line-by-line Enel Green Power Brasil Participações Ltda Energía y Servicios South America SpA 99.99% 100.00% 0.01% Line-by-line Enel SpA 100.00% 100.00% Equity Enel Green Power España SL 27.00% 18.93% 517 AttachmentsCompany name Headquarters Country Share capital Currency Activity Lima Peru 6,463,000.00 PEN Tarragona Spain 96,160.00 EUR Energética Monzón SAC Energía Eléctrica del Ebro SA (Sociedad Unipersonal) Energía Eólica Alto del Llano SLU Valencia Spain 3,300.00 Energia Eolica Srl Rome Italy 4,840,000.00 EUR EUR Mexico City Mexico 50,000.00 MXN San José Costa Rica 10,000.00 CRC Mexico City Mexico 33,452,769.00 MXN Mexico City Mexico 673,583,489.00 MXN Santiago Chile 2,404,240,000.00 CLP Mexico City Mexico 51,879,307.00 MXN Mexico City Mexico 5,339,650.00 MXN Energía Global de México (Enermex) SA de Cv Energía Global Operaciones SA Energía Limpia de Amistad S de RL de Cv Energía Limpia de Palo Alto S de RL de Cv Energía Marina SpA Energía Nueva de Iguu S de RL de Cv Energía Nueva Energía Limpia México S de RL de Cv Energía y Servicios South America SpA Santiago Chile 3,000,001.73 USD Mexico City Mexico 2,953,980.00 MXN Energía Limpia de Puerto Libertad S de RL de Cv Energías Alternativas del Sur SL Las Palmas de Gran Canaria Spain 546,919.10 EUR Zaragoza Spain 3,200,000.00 EUR Zaragoza Spain 18,500,000.00 Barcelona Spain 1,298,160.00 EUR EUR Energías de Aragón I SL Energías de Aragón II SL Energías de Graus SL 518 Consolidation method Line-by-line Line-by-line Line-by-line Line-by-line Held by Enel Green Power Perú SA Energía y Servicios South America SpA Eléctrica del Ebro SA (Sociedad Unipersonal) Enel Green Power España SL Enel Green Power SpA % holding Group % holding 99.99% 100.00% 0.01% 100.00% 70.10% 100.00% 70.10% 100.00% 100.00% Line-by-line Enel Green Power SpA 99.00% 99.00% Line-by-line Enel Green Power Costa Rica SA 100.00% 100.00% Equity Equity Equity Line-by-line Line-by-line Line-by-line Line-by-line Tenedora de Energía Renovable Sol y Viento SAPI de Cv Tenedora de Energía Renovable Sol y Viento SAPI de Cv Enel Green Power Chile Ltda Enel Green Power México S de RL de Cv Energía Nueva Energía Limpia México S de RL de Cv Enel Green Power Guatemala SA Enel Green Power SpA Enel Green Power SpA 60.80% 20.00% 60.80% 20.00% 25.00% 15.49% 99.90% 99.91% 0.01% 0.04% 100.00% 99.96% 100.00% 100.00% 99.99% 100.00% Enel Rinnovabile SA de Cv Enel Green Power México S de RL de Cv 0.01% Line-by-line Enel Green Power España SL 54.95% 38.52% Line-by-line Endesa Red SA (Sociedad Unipersonal) 100.00% 70.10% Line-by-line Line-by-line Enel Green Power España SL Enel Green Power España SL 100.00% 70.10% 66.67% 46.74% Electricity generation from renewable resources Electricity generation and supply Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity transmission, distribution and sale Electricity generation Hydroelectric plants Annual Report 2018Company name Headquarters Country Share capital Currency Activity La Coruña Spain 270,450.00 EUR Madrid Spain 963,300.00 EUR Madrid Spain 1,722,600.00 EUR Torre del Bierzo Spain 1,635,000.00 EUR Mexico City Mexico 656,615,400.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Tangiers Morocco 750,400,000.00 MAD Equity Combined-cycle generation plants Consolidation method Line-by-line Held by Enel Green Power España SL % holding Group % holding 77.00% 53.98% Line-by-line Enel Green Power España SL 80.00% 56.08% Line-by-line Enel Green Power España SL 100.00% 70.10% Equity Enel Green Power España SL 50.00% 35.05% Line-by-line Enel Green Power México S de RL de Cv Energía Nueva de Iguu S de RL de Cv Endesa Generación SA 99.99% 100.00% 0.01% 32.00% 22.43% Energías Especiales de Careón SA Energías Especiales de Peña Armada SA Energías Especiales del Alto Ulla SA Energías Especiales del Bierzo SA Energías Renovables La Mata SAPI de Cv Energie Electrique de Tahaddart SA ENergy Hydro Piave Srl Energy Response Holdings (Pty) Ltd Energotel AS Bratislava 2,191,200.00 EUR Slovakia (Slovak Republic) Soverzene Italy 800,000.00 EUR Melbourne Australia 630,451.00 Enerlive Srl Rome Italy 6,520,000.00 AUD EUR EnerNOC Australia (Pty) Ltd Melbourne Australia 2,324,698.00 AUD EnerNOC GmbH Darmstadt Germany 25,000.00 EnerNOC Ireland Holding Limited EnerNOC Ireland Limited - - Ireland 100,000.00 Ireland 100,000.00 EnerNOC Japan K.K. EnerNOC Polska Sp Z Oo EnerNOC (Pty) Ltd Tokyo Japan 165,000,000.00 Warsaw Poland 5,000.00 Melbourne Australia 9,880.00 EnerNOC Uk II Limited London United Kingdom 21,000.00 EnTech (China) Information Technology Co Ltd EnTech Utility Service Bureau Inc. Eólica del Cierzo SLU Eólica del Noroeste SL China China 1,500.00 Delaware USA 1,500.00 Zaragoza Spain 225,000.00 La Coruña Spain 36,100.00 EUR EUR EUR JPY PLN AUD GBP EUR USD EUR EUR Equity Slovenské elektrárne AS 20.00% 6.60% Line-by-line Enel Produzione SpA 51.00% 51.00% Line-by-line EnerNOC Australia (Pty) Ltd 100.00% 100.00% Line-by-line Maicor Wind Srl 100.00% 100.00% Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Line-by-line Enel X International Srl 100.00% 100.00% Enel X North America Inc. Enel X International Srl EnerNOC Ireland Holding Limited Enel X International Srl EnerNOC Ireland Holding Limited Energy Response Holdings (Pty) Ltd 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 60.00% 60.00% 100.00% 100.00% 100.00% 100.00% Line-by-line Enel X Uk Limited 100.00% 100.00% Equity EnerNOC Uk II Limited 50.00% 50.00% Line-by-line Enel X North America Inc. 100.00% 100.00% Line-by-line Line-by-line Enel Green Power España SL Enel Green Power España SL 100.00% 70.10% 51.00% 35.75% Operation of optical fiber network Electricity purchasing and sale Renewable energy Electricity generation from renewable resources Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Renewable energy Plant development and construction 519 AttachmentsCompany name Headquarters Country Share capital Currency Activity Eólica del Principado SAU Eólica Valle del Ebro SA Eólica Zopiloapan SAPI de Cv Oviedo Spain 60,000.00 EUR Zaragoza Spain 3,561,342.50 EUR Mexico City Mexico 1,877,201.54 MXN Eólicas de Agaete SL Las Palmas de Gran Canaria Spain 240,400.00 EUR Eólicas de Fuencaliente SA Las Palmas de Gran Canaria Spain 216,360.00 EUR Eólicas de Fuerteventura AIE Fuerteventura (Las Palmas) Spain - EUR Eólicas de La Patagonia SA Buenos Aires Argentina 480,930.00 ARS Eólicas de Lanzarote SL Las Palmas de Gran Canaria Spain 1,758,000.00 EUR Eólicas de Tenerife AIE Santa Cruz de Tenerife Spain 420,708.40 EUR Eólicas de Tirajana AIE Las Palmas de Gran Canaria Spain - EUR EPM Eólica Dolores SA de Cv Mexico City Mexico 100.00 MXN Erecosalz SL Zaragoza Spain 18,030.36 EUR Essex Company LLC Boston (Massachusetts) USA - USD Explotaciones Eólicas de Escucha SA Zaragoza Spain 3,505,000.00 EUR Teruel Spain 3,230,000.00 EUR Zaragoza Spain 100,000.00 EUR Explotaciones Eólicas El Puerto SA Explotaciones Eólicas Santo Domingo de Luna SA 520 Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and distribution Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation, transmission, distribution purchase and sale Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by Enel Green Power España SL % holding Group % holding 100.00% 70.10% Line-by-line Enel Green Power España SL 50.50% 35.40% Line-by-line Line-by-line Enel Green Power México S de RL de Cv Enel Green Power Partecipazioni Speciali Srl Enel Green Power España SL 56.98% 96.48% 39.50% 80.00% 56.08% Line-by-line Enel Green Power España SL 55.00% 38.56% Equity Equity Equity Equity Enel Green Power España SL 40.00% 28.04% Enel Green Power España SL 50.00% 35.05% Enel Green Power España SL 40.00% 28.04% Enel Green Power España SL 50.00% 35.05% Line-by-line Enel Green Power España SL 60.00% 42.06% Line-by-line Equity Equity 99.00% 100.00% Enel Rinnovabile SA de Cv Hidroelectricidad del Pacífico S de RL de Cv 1.00% Enel Green Power España SL 33.00% 23.13% EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Green Power España SL 70.00% 49.07% Line-by-line Enel Green Power España SL 73.60% 51.59% Line-by-line Enel Green Power España SL 51.00% 35.75% Annual Report 2018Company name Headquarters Country Share capital Currency Activity Explotaciones Eólicas Saso Plano SA Explotaciones Eólicas Sierra Costera SA Explotaciones Eólicas Sierra La Virgen SA Zaragoza Spain 5,488,500.00 EUR Zaragoza Spain 8,046,800.00 EUR Zaragoza Spain 4,200,000.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by Enel Green Power España SL % holding Group % holding 65.00% 45.57% Line-by-line Enel Green Power España SL 90.00% 63.09% Line-by-line Enel Green Power España SL 90.00% 63.09% Fenner Wind Holdings LLC Dover (Delaware) USA 100.00 USD Holding Line-by-line Enel Kansas LLC 100.00% 100.00% Florence Hills LLC Minnesota USA Fowler Hydro LLC Delaware USA - - USD USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Front Marítim del Besòs SL Barcelona Spain 3,000.00 EUR Real estate Equity Fulcrum LLC Boise (Idaho) USA - USD Furatena Solar 1 SLU Garob Wind Farm (Pty) Ltd Seville Spain 3,000.00 EUR Gauteng South Africa 100.00 ZAR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale from renewable resources Line-by-line Equity Endesa Generación SA EGPNA REP Hydro Holdings LLC 61.37% 43.02% 100.00% 50.00% Line-by-line Enel Green Power España SL 100.00% 70.10% Enel Green Power RSA 2 (Pty) Ltd Garo Community Trust Investment (RF) (Pty) Ltd Hepax Trade and Invest (Pty) Ltd Enel Chile SA Enel Generación Chile SA Endesa Generación SA Enel Generación Chile SA Gas Atacama Chile SA Gasoducto Atacama Argentina SA 60.00% 60.00% 5.00% 35.00% 2.63% 97.37% 58.04% 100.00% 70.10% 0.03% 58.04% 99.97% 100.00% 58.04% Gas Atacama Chile SA Santiago Gas y Electricidad Generación SAU Palma de Mallorca Gasoducto Atacama Argentina SA Santiago Chile 589,318,016,243.00 CLP Spain 213,775,700.00 EUR Chile 208,173,124.00 USD Electricity generation Electricity generation Natural gas transport Line-by-line Line-by-line Line-by-line Buenos Aires Gasoducto Atacama Argentina SA Sucursal Argentina Argentina Gauley Hydro LLC Wilmington USA (Delaware) - - USA 1.00 USA - Gauley River Management Corporation Willison (Vermont) Gauley River Power Partners LLC Willison (Vermont) Genability Inc. San Francisco (California) ARS Natural gas transport Line-by-line USD USD USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% USA 6,010,074.72 USD - Equity Enel X North America Inc. 50.00% 50.00% 521 AttachmentsCompany name Headquarters Country Share capital Currency Activity Generadora de Occidente Ltda Guatemala City Guatemala 16,261,697.33 GTQ Generadora Eólica Alto Pacora SA Generadora Estrella Solar SA Generadora Fotovoltaica Chiriquí SA Panama Panama 10,000.00 USD Panama Panama 10,000.00 USD Panama Panama 10,000.00 USD Generadora Montecristo SA Guatemala City Guatemala 3,820,000.00 GTQ Generadora Solar Caldera SA Generadora Solar Tolé SA Geotérmica del Norte SA Gibson Bay Wind Farm (RF) (Pty) Ltd Panama Panama 10,000.00 USD Panama Panama 10,000.00 USD Santiago Chile 326,577,419,702.00 CLP Johannesburg South Africa 1,000.00 ZAR Gnl Chile SA Santiago Chile 3,026,160.00 Goodwell Wind Project LLC Wilmington (Delaware) USA Goodyear Lake Hydro LLC Delaware USA - - USD USD USD Gorona del Viento El Hierro SA Valverde de El Hierro Spain 30,936,736.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Development and maintenance of El Hierro generation plant Consolidation method Line-by-line Line-by-line Held by Enel Green Power Guatemala SA Enel Green Power SpA Enel Green Power Panama SA Group % holding 100.00% % holding 1.00% 99.00% 100.00% 100.00% Line-by-line Enel Green Power Panama SA 100.00% 100.00% Line-by-line Enel Green Power Panama SA 100.00% 100.00% Line-by-line Line-by-line Enel Green Power Guatemala SA Enel Green Power SpA Enel Green Power Panama SA 0.01% 100.00% 99.99% 100.00% 100.00% Line-by-line Enel Green Power Panama SA 100.00% 100.00% Line-by-line Enel Green Power Chile Ltda 84.59% 52.39% Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 60.00% Design and LNG supply Equity Equity Enel Generación Chile SA Origin Goodwell Holdings LLC 33.33% 19.31% 100.00% 50.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity Unión Eléctrica de Canarias Generación SAU 23.21% 16.27% Gratiot Farms Wind Project LLC Wilmington (Delaware) USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Guadarranque Solar 4 SL Unipersonal GV Energie Rigenerabili ITAL- RO Srl Seville Spain 3,006.00 EUR Bucharest Romania 1,145,400.00 RON Hadley Ridge LLC Minnesota USA Hastings Solar LLC Delaware USA - - USD USD Line-by-line Endesa Generación II SA 100.00% 70.10% Line-by-line Line-by-line Enel Green Power Romania Srl Enel Green Power SpA Chi Minnesota Wind LLC 100.00% 100.00% 0.00% 51.00% 51.00% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources 522 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Consolidation method Held by % holding Group % holding Heartland Farms Wind Project LLC Wilmington (Delaware) USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Hidroeléctrica de Catalunya SL Barcelona Spain 126,210.00 EUR Hidroeléctrica de Ourol SL Lugo Spain 1,608,200.00 EUR Hidroeléctrica Don Rafael SA Hidroelectricidad del Pacífico S de RL de Cv San José Costa Rica 10,000.00 CRC Mexico City Mexico 30,890,736.00 MXN Hidroflamicell SL Barcelona Spain 78,120.00 EUR Electricity transmission and distribution Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity distribution and sale Line-by-line Equity Endesa Red SA (Sociedad Unipersonal) Enel Green Power España SL 100.00% 70.10% 30.00% 21.03% Line-by-line Enel Green Power Costa Rica SA 65.00% 65.00% Line-by-line Enel Green Power México S de RL de Cv 99.99% 99.99% Line-by-line Hidroeléctrica de Catalunya SL 75.00% 52.58% Hidroinvest SA Buenos Aires Argentina 55,312,093.00 ARS Holding Line-by-line Hidromondego - Hidroeléctrica do Mondego Lda Lisbon Portugal 3,000.00 EUR Hydroelectric power Line-by-line USA 100.00 USD Holding Line-by-line Enel Américas SA Enel Argentina SA 41.94% 54.76% 52.42% Endesa Generación Portugal SA Endesa Generación SA 10.00% 70.10% 90.00% Enel Kansas LLC Wind HoldCo 3 LLC 68.00% 32.00% 68.00% High Lonesome Wind Holdings LLC Wilmington (Delaware) High Lonesome Wind Power LLC - USA 100.00 High Shoals LLC Delaware USA - High Street Corporation (Pty) Ltd Melbourne Australia 2.00 Highfalls Hydro Company Inc. Wilmington (Delaware) USA - HillTopper Wind Holdings LLC Wilmington (Delaware) Hispano Generación de Energía Solar SL Jerez de los Caballeros (Badajoz) USA 1,000.00 Spain 3,500.00 Hope Creek LLC Minnesota USA - Hydro Development Group Acquisition LLC Albany (New York) USA 1.00 USD USD AUD USD USD EUR USD USD Renewable energy Electricity generation from renewable resources Renewable energy Electricity generation from renewable resources Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Design and development Line-by-line Equity High Lonesome Wind Holdings LLC EGPNA REP Hydro Holdings LLC 100.00% 68.00% 100.00% 50.00% Line-by-line Energy Response Holdings (Pty) Ltd 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Enel Green Power España SL 51.00% 35.75% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Equity AFS EGPNA REP Hydro Holdings LLC 100.00% 50.00% Enel Green Power North America Inc. 100.00% 100.00% Equity Enel X Srl 30.00% 30.00% Hydro Energies Corporation Willison (Vermont) USA 5,000.00 USD I-EM Srl Turin Italy 28,571.43 EUR Ifx Networks Argentina Srl Buenos Aires Argentina 2,260,551.00 ARS - Equity Ifx/eni - Spc V Inc. Minority Stock Holding Corp. 99.85% 0.15% 21.40% 523 AttachmentsIfx/eni - Spc III Inc. - Ifx/eni - Spc IV Inc. - - - - Ifx/eni - Spc Panama Inc. Ifx/eni - Spc V Inc. Ifx/eni - Spc VII Inc. Ingendesa do Brasil Ltda em liquidação Inkolan Información y Coordinación de obras AIE International Endesa BV International Multimedia University Srl (in fallimento) Inversora Codensa SAS Inversora Dock Sud SA Isamu Ikeda Energia SA Italgest Energy (Pty) Ltd Company name Headquarters Country Share capital Currency Activity Ifx Networks Chile SA Ifx Networks Colombia SAS Santiago Chile 5,761,374,444.00 CLP Bogotá DC Colombia 15,734,959,000.00 COP Ifx Networks LLC Delaware USA 80,848,653.00 Ifx Networks Ltd - Virgin Islands (British) 100,000.00 Ifx Networks Panama SA Panama Panama 21,000.00 Consolidation method Held by Equity Equity Ifx/eni - Spc IV Inc. Servicios de Internet Eni Chile Ltda Ifx Networks Panama SA Ifx/eni - Spc III Inc. % holding 41.00% 59.00% Group % holding 21.39% 58.33% 41.67% 21.40% Equity Ufinet Latam SLU 100.00% 21.40% Equity Ifx Networks LLC 100.00% 21.40% Equity Ifx/eni - Spc Panama Inc. 100.00% 21.40% Equity Ifx Networks Ltd 100.00% 21.40% Equity Ifx Networks Ltd 100.00% 21.40% Equity Ifx Networks Ltd 100.00% 21.40% Equity Ifx Networks Ltd 100.00% 21.40% Equity Ifx Networks Ltd 100.00% 21.40% - - - - - - - - - - USD USD USD USD USD USD USD USD BRL Virgin Islands (British) Virgin Islands (British) Virgin Islands (British) Virgin Islands (British) Virgin Islands (British) 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 Rio de Janeiro Brazil 500,000.00 Bilbao Spain 84,140.00 EUR Line-by-line Design, engineering and consulting Equity Information on infrastructure of Inkolan associates Enel Generación Chile SA Gas Atacama Chile SA 1.00% 58.04% 99.00% Endesa Distribución Eléctrica SL 12.50% 8.76% Amsterdam The Netherlands 15,428,520.00 EUR Holding Line-by-line Endesa SA 100.00% 70.10% Rome Italy 24,000.00 EUR Training - Enel Italia Srl 13.04% 13.04% Bogotá DC Colombia 5,000,000.00 COP Line-by-line Codensa SA ESP 100.00% 26.25% Electricity transmission and distribution Buenos Aires Argentina 241,490,000.00 ARS Holding Line-by-line Enel Américas SA 57.14% 30.99% Rio de Janeiro Brazil 45,474,475.77 BRL Johannesburg South Africa 1,000.00 ZAR Jack River LLC Minnesota USA Jessica Mills LLC Minnesota USA - - JuiceNet GmbH Berlin Germany 25,000.00 JuiceNet Ltd London United Kingdom 1.00 JuiceNet SAS Paris France 10,000.00 USD USD EUR GBP EUR 524 Electricity generation and sale Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy - - Line-by-line Line-by-line Enel Green Power Brasil Participações Ltda Enel Green Power RSA (Pty) Ltd 100.00% 100.00% 100.00% 100.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line eMotorWerks Inc. 100.00% 100.00% Line-by-line eMotorWerks Inc. 100.00% 100.00% Line-by-line eMotorWerks Inc. 100.00% 100.00% Annual Report 2018Company name Headquarters Country Share capital Currency Activity Julia Hills LLC Minnesota USA - USD Kalenta SA Maroussi Greece 4,359,000.00 EUR Istanbul Kavacik Eoliko Enerji Elektrik Üretim Ve Ticaret Anonim Şirketi Kelley’s Falls LLC Delaware Turkey 9,000,000.00 TRY USA - USD Kings River Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by Chi Minnesota Wind LLC % holding Group % holding 51.00% 51.00% Line-by-line Enel Green Power Solar Energy Srl 100.00% 100.00% Line-by-line AFS Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Enel Green Power North America Inc. 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Kingston Energy Storage LLC Wilmington (Delaware) USA - USD Renewable energy Line-by-line Kinneytown Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Kino Contractor SA de Cv Mexico City Mexico 100.00 MXN Kino Facilities Manager SA de Cv Mexico City Mexico 100.00 MXN Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Electricity generation from renewable resources Kirklareli Eoliko Enerji Elektrik Üretim Ve Ticaret Anonim Şirketi Kongul Enerji Sanayi Ve Ticaret Anonim Şirketi Istanbul Turkey 5,250,000.00 TRY - Line-by-line Istanbul Turkey 125,000,000.00 TRY Line-by-line Electricity generation from renewable resources Kromschroeder SA Barcelona Spain 627,126.00 EUR Services Equity La Pereda CO2 AIE Oviedo Spain 224,286.00 EUR Services Equity Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Green Power North America Inc. 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Enel Green Power México S de RL de Cv Hidroelectricidad del Pacífico S de RL de Cv Enel Green Power México S de RL de Cv Hidroelectricidad del Pacífico S de RL de Cv 99.00% 1.00% 99.00% 1.00% Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Endesa Medios y Sistemas SL (Sociedad Unipersonal) Endesa Generación SA EGPNA REP Hydro Holdings LLC 100.00% 100.00% 100.00% 100.00% 29.26% 20.51% 33.33% 23.36% 100.00% 50.00% LaChute Hydro Company LLC Wilmington (Delaware) USA Lake Emily Solar LLC Delaware USA Lake Pulaski Solar LLC Delaware USA Lawrence Creek Solar LLC Minnesota USA - - - - Equity USD USD USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% USD - Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% 525 AttachmentsCompany name Headquarters Country Share capital Currency Activity Lindahl Wind Holdings LLC Delaware USA Lindahl Wind Project LLC Delaware USA Little Elk Wind Holdings LLC Delaware USA Little Elk Wind Project LLC Oklahoma City (Oklahoma) USA - - - - Littleville Power Company Inc. Boston (Massachusetts) USA 1.00 Livister Guatemala SA Guatemala City Guatemala 5,000.00 Livister Latam SLU Madrid Spain 3,000.00 Panama Panama 10,000.00 USD USD USD USD USD GTQ EUR USD Llano Sánchez Solar Power Cuatro SA Llano Sánchez Solar Power One SA Llano Sánchez Solar Power Tres SA Panama Panama 10,000.00 USD Panama Panama 10,000.00 USD LLC Belomechetskaya Wps LLC Rodnikovskaya Wps Moscow Moscow Lone Pine Wind Project LP Alberta (Canada) Russian Federation Russian Federation Canada Lower Saranac Hydro Partners LLC Lower Saranac Hydro LLC Delaware USA Delaware USA Lower Valley LLC Delaware USA Lowline Rapids LLC Delaware USA 10,000.00 10,000.00 - - - - - RUB RUB CAD USD USD USD USD Luz Andes Ltda Santiago Chile 1,224,348.00 CLP Maicor Wind Srl Rome Italy 20,850,000.00 EUR 526 Consolidation method Line-by-line Held by EGPNA Preferred Wind Holdings LLC % holding Group % holding 100.00% 50.00% Equity Lindahl Wind Holdings LLC 100.00% 50.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Little Elk Wind Holdings LLC 100.00% 100.00% AFS Equity Enel Green Power North America Inc. 100.00% 100.00% Ufinet Guatemala SA Ufinet Latam SLU 2.00% 21.40% 98.00% Equity Ufinet Latam SLU 100.00% 21.40% Line-by-line Enel Green Power Panama SA 100.00% 100.00% Line-by-line Enel Green Power Panama SA 100.00% 100.00% Line-by-line Enel Green Power Panama SA 100.00% 100.00% Line-by-line Line-by-line Line-by-line Equity Enel Green Power Rus Limited Liability Company Enel Green Power Rus Limited Liability Company Enel Green Power Canada Inc. 100.00% 100.00% 100.00% 100.00% 10.00% 10.00% EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Chile SA Enel Distribución Chile SA 0.10% 99.90% 61.37% Line-by-line Enel Green Power SpA 100.00% 100.00% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources - - Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Thermal generation plants Thermal generation plants Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity transmission, distribution and sales and fuel Electricity generation from renewable resources Annual Report 2018Company name Headquarters Country Share capital Currency Activity Consolidation method Held by % holding Group % holding Marengo Solar LLC Wilmington (Delaware) USA 1.00 USD Photovoltaic Line-by-line Enel Kansas LLC 100.00% 100.00% Marte Srl Rome Italy 5,100,000.00 EUR Marudhar Wind Energy Private Limited Más Energía S de RL de Cv Gurgaon India 100,000.00 INR Mexico City Mexico 100.00 MXN Mason Mountain Wind Project LLC Wilmington (Delaware) USA - USD Matrigenix (Pty) Ltd Houghton South Africa 1,000.00 ZAR Electricity generation from renewable resources Electricity transmission, distribution and sale Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power SpA 100.00% 100.00% Line-by-line Line-by-line 99.00% 75.79% Enel Green Power India Private Limited (formerly BLP Energy Private Limited) 99.00% 100.00% Enel Green Power México S de RL de Cv Hidroelectricidad del Pacífico S de RL de Cv 1.00% Line-by-line Padoma Wind Power LLC 100.00% 100.00% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 100.00% Mcbride Wind Project LLC Wilmington (Delaware) USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Medidas Ambientales SL Medina de Pomar (Burgos) Spain 60,100.00 Mercure Srl Rome Italy 10,000.00 Metro Wind LLC Minnesota USA - EUR EUR USD Mexico City Mexico 181,728,901.00 MXN Mexicana de Hidroelectricidad Mexhidro S de RL de Cv Electricity generation from renewable resources Electricity generation from renewable resources Environmental studies Equity Nuclenor SA 50.00% 17.53% Electricity generation Equity Line-by-line Enel Produzione SpA Chi Minnesota Wind LLC 100.00% 100.00% 51.00% 51.00% Line-by-line Enel Green Power México S de RL de Cv 99.99% 99.99% Mibgas SA Madrid Spain 3,000,000.00 EUR Gas market operator - Endesa SA 1.35% 0.95% Midelt Wind Farm SA - Morocco 300,000.00 MAD Mill Shoals Hydro Company I LLC Wilmington (Delaware) USA - USD Equity Nareva Enel Green Power Morocco SA 70.00% 35.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Analysis, design, construction and maintenance of engineering works Electricity generation from renewable resources Minicentrales del Canal de Las Bárdenas AIE Minicentrales del Canal Imperial- Gallur SL Zaragoza Spain 1,202,000.00 EUR Hydroelectric plants - Enel Green Power España SL 15.00% 10.52% Zaragoza Spain 1,820,000.00 EUR Hydroelectric plants Equity Enel Green Power España SL 36.50% 25.59% Minority Stock Holding Corp. - Virgin Islands (British) 50,000.00 USD - Equity Ifx Networks Ltd 100.00% 21.40% Mira Energy (Pty) Ltd Houghton South Africa 100.00 ZAR Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 100.00% Electricity generation from renewable resources 527 AttachmentsCompany name Headquarters Country Share capital Currency Activity Missisquoi Associates LLC Los Angeles (California) USA Montrose Solar LLC Delaware USA - - USD USD Msn Solar Tres SpA Santiago Chile 1,000,000.00 CLP Nareva Enel Green Power Morocco SA - Morocco 300,000.00 MAD Electricity generation from renewable resources Electricity generation from renewable resources Plant construction and electricity generation from renewable resources Holding. Electricity generation Consolidation method Held by Equity EGPNA REP Hydro Holdings LLC % holding Group % holding 100.00% 50.00% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Enel Green Power Chile Ltda 100.00% 61.93% Equity Enel Green Power Morocco SARLAU 50.00% 50.00% Navalvillar Solar SL Madrid Spain 3,000.00 EUR Photovoltaic Line-by-line Enel Green Power España SL 100.00% 70.10% Nevkan Renewables LLC Wilmington (Delaware) USA Newbury Hydro Company LLC Delaware USA - - USD USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Nevkan Inc. 100.00% 100.00% AFS Enel Green Power North America Inc. 100.00% 100.00% Rome Italy 1,710,000.00 EUR - Equity Enel.Si Srl 20.00% 20.00% Newco Cogenerazione. Si Srl Ngonye Power Company Limited Nojoli Wind Farm (RF) (Pty) Ltd Lusaka Zambia 10,000.00 ZMW Electricity sales Line-by-line Johannesburg South Africa 10,000,000.00 ZAR Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Enel Green Power Solar Ngonye SpA (formerly Enel Green Power Africa Srl) Enel Green Power RSA (Pty) Ltd 80.00% 80.00% 60.00% 60.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Chi West LLC 100.00% 100.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Endesa Generación SA Enel Global Trading SpA 50.00% 35.05% 100.00% 100.00% Line-by-line Enel Brasil SA 100.00% 54.23% North Canal Waterworks Boston (Massachusetts) USA Northwest Hydro LLC Wilmington (Delaware) USA - - USD USD Notch Butte Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Nuclenor SA Burgos Spain 102,000,000.00 EUR Nuclear plants Equity Nuove Energie Srl Porto Italy 5,204,028.73 EUR Empedocle Nuxer Trading SA Montevideo Uruguay 80,000.00 UYU Construction and management of LNG regasification infrastructure Electricity trading 528 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Nxuba Wind Farm (Pty) Ltd Gauteng South Africa 1,000.00 ZAR Electricity generation and sale from renewable resources Consolidation method Line-by-line Nyc Storage (353 Chester) Spe LLC Wilmington (Delaware) Ochrana A Bezpecnost Se AS Mochovce OGK-5 Finance LLC Moscow USA 1.00 USD - Line-by-line Slovakia (Slovak Republic) Russian Federation 33,193.92 EUR 10,000,000.00 RUB Equity OpEn Fiber SpA Milan Italy 250,000,000.00 EUR Origin Goodwell Holdings LLC Wilmington (Delaware) USA Origin Wind Energy LLC Wilmington (Delaware) USA - - USD USD Osage Wind Holdings LLC Delaware USA 100.00 USD Osage Wind LLC Delaware USA - USD Ottauquechee Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Held by Enel Green Power RSA 2 (Pty) Ltd Nxuba Wind Farm Community Trust SPV (RF) (Pty) Ltd Pele Green Energy Nxuba BEE SPV (Pty) Ltd Request Renewables (Pty) Ltd Demand Energy Networks Inc. Slovenské elektrárne AS % holding Group % holding 51.00% 51.00% 5.00% 35.00% 9.00% 100.00% 100.00% 100.00% 33.00% Security services Finance company Installation, maintenance and repair of electronic plant Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Russia PJSC 100.00% 56.43% Equity Enel SpA 50.00% 50.00% Equity Equity EGPNA Wind Holdings 1 LLC 100.00% 50.00% Origin Goodwell Holdings LLC 100.00% 50.00% Line-by-line Apollo Global Management LLC Enel Kansas LLC Line-by-line Osage Wind Holdings LLC 50.00% 50.00% 50.00% 100.00% 50.00% AFS Enel Green Power North America Inc. 100.00% 100.00% Istanbul Turkey 11,250,000.00 TRY - Line-by-line Ovacik Eoliko Enerji Elektrik Üretim Ve Ticaret Anonim Şirketi Oxagesa AIE Teruel Spain 6,010.00 Oyster Bay Wind Farm (Pty) Ltd Johannesburg South Africa 1,000.00 Padoma Wind Power LLC Los Angeles (California) USA Palo Alto Farms Wind Project LLC Dallas (Texas) USA - - EUR ZAR USD USD Paravento SL Lugo Spain 3,006.00 EUR Equity Cogeneration of electricity and heat Line-by-line Electricity generation and sale from renewable resources Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Enel Green Power España SL Enel Green Power RSA 2 (Pty) Ltd OOZ Trading (Pty) Ltd Oyster Bay Community Trust Invsetment (RF) (Pty) Ltd Enel Green Power North America Inc. 100.00% 100.00% 33.33% 23.36% 60.00% 60.00% 35.00% 5.00% 100.00% 100.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Enel Green Power España SL 90.00% 63.09% 529 AttachmentsCompany name Headquarters Country Share capital Currency Activity Consolidation method Held by Madrid Spain 1,183,100.00 EUR Madrid Spain 1,313,100.00 EUR Mexico City Mexico 100.00 MXN Mexico City Mexico 100.00 MXN Mexico City Mexico 100.00 MXN Santiago de Compostela Las Palmas de Gran Canaria Spain 5,857,586.40 EUR Spain 1,603,000.00 EUR Rio de Janeiro Brazil 6,545,639.00 BRL La Coruña Spain 3,606,000.00 EUR Madrid Spain 120,400.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Equity Equity Line-by-line Line-by-line Line-by-line % holding Group % holding 30.00% 21.03% Enel Green Power España SL Enel Green Power España SL 30.00% 21.03% 100.00% 100.00% 100.00% Enel Rinnovabile SA de Cv Hidroelectricidad del Pacífico S de RL de Cv Enel Rinnovabile SA de Cv Hidroelectricidad del Pacífico S de RL de Cv Enel Rinnovabile SA de Cv Hidroelectricidad del Pacífico S de RL de Cv 99.00% 1.00% 99.00% 1.00% 99.00% 1.00% Line-by-line Enel Green Power España SL 100.00% 70.10% Line-by-line Enel Green Power España SL 80.00% 56.08% Line-by-line Enel Green Power Brasil Participações Ltda 100.00% 100.00% Line-by-line Enel Green Power España SL 75.00% 52.58% Line-by-line Enel Green Power España SL 50.16% 35.16% Madrid Spain 3,006.00 EUR Wind plants Line-by-line La Coruña Spain 552,920.00 EUR Line-by-line Enel Green Power España SL Enel Green Power España SL 100.00% 70.10% 82.00% 57.48% Electricity generation from renewable resources Electricity generation from renewable resources Parque Eólico de Santa Lucía SA Las Palmas de Gran Canaria Spain 901,500.00 EUR Line-by-line Enel Green Power España SL 66.33% 46.50% Buenos Aires Argentina 1,201,745.00 ARS Holding Line-by-line Rio de Janeiro Brazil 6,964,177.00 BRL Santa Cruz de Tenerife Spain 3,810,340.00 EUR Madrid Spain 6,540,000.00 EUR Electricity generation from renewable resources Plant construction and operation Plant construction and operation Line-by-line Enel Green Power Argentina SA Enel Green Power Brasil Participações Ltda 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power España SL 90.00% 63.09% Line-by-line Enel Green Power España SL 75.50% 52.93% Madrid Spain 3,006.00 EUR Wind plants Line-by-line Enel Green Power España SL 100.00% 70.10% Parc Eòlic La Tossa-La Mola D’en Pascual SL Parc Eòlic Los Aligars SL Parque Amistad II SA de Cv Parque Amistad III SA de Cv Parque Amistad IV SA de Cv Parque Eólico A Capelada SL (Sociedad Unipersonal) Parque Eólico Carretera de Arinaga SA Parque Eólico Cristalândia Ltda Parque Eólico de Barbanza SA Parque Eólico de Belmonte SA Parque Eólico de Farlan SLU Parque Eólico de San Andrés SA Parque Eólico del Castillo SA Parque Eólico Delfina Ltda Parque Eólico Finca de Mogán SA Parque Eólico Montes de Las Navas SA Parque Eólico Muniesa SL 530 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Parque Eólico Palmas Dos Ventos Ltda Parque Eólico Pampa SA Parque Eólico Punta de Teno SA Parque Eólico Sierra del Madero SA Bahia Brazil 4,096,626.00 BRL Buenos Aires Argentina 6,500,000.00 ARS Tenerife Spain 528,880.00 EUR Soria Spain 7,193,970.00 EUR Parque Eólico Taltal SA Santiago Chile 20,878,010,000.00 CLP Parque Eólico Valle de Los Vientos SA Parque Salitrillos SA de Cv Santiago Chile 566,096,564.00 CLP Mexico City Mexico 100.00 MXN Parque Solar Cauchari IV SA San Salvador de Jujuy Argentina 500,000.00 ARS Electricity generation and sale from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by Enel Green Power Brasil Participações Ltda % holding Group % holding 100.00% 100.00% Line-by-line Line-by-line Enel Green Power Argentina SA Parque Eólico del Castillo SA Enel Green Power España SL 20.00% 100.00% 80.00% 52.00% 36.45% Line-by-line Enel Green Power España SL 58.00% 40.66% Line-by-line Enel Chile SA Enel Green Power Chile Ltda 0.01% 99.99% 61.93% Line-by-line Enel Chile SA Enel Green Power Chile Ltda 0.01% 99.99% 61.93% Equity Line-by-line Parque Solar Fotovoltaico Sabanalarga SAS Parque Solar Maipú SpA Parque Solar Valledupar SAS Parque Talinay Oriente SA Parques Eólicos Gestinver Gestión SL Parques Eólicos Gestinver SL Paynesville Solar LLC Pegop - Energia Eléctrica SA Bogotá DC Colombia 400,000.00 COP - Line-by-line Santiago Chile 404,212,503.00 CLP Line-by-line Electricity generation and sale from renewable resources Bogotá DC Colombia 400,000.00 COP - Line-by-line Santiago Chile 66,092,165,171.00 CLP Madrid Spain 3,200.00 EUR Line-by-line Electricity generation from renewable resources Renewable energy Line-by-line Madrid Spain 13,050.00 EUR Wind plants Line-by-line Delaware USA - USD Abrantes Portugal 50,000.00 EUR Pelzer Hydro Company LLC Wilmington (Delaware) USA - USD Pereda Power SL La Pereda Spain 5,000.00 EUR (Mieres) Line-by-line Equity Equity Electricity generation from renewable resources Electricity generation Electricity generation from renewable resources Development of generation activities Tenedora de Energía Renovable Sol y Viento SAPI de Cv Enel Green Power Argentina SA Energía y Servicios South America SpA Enel Green Power Colombia SAS Enel Green Power Chile Ltda Enel Green Power del Sur SpA (formerly Parque Eólico Renaico SpA) Enel Green Power Colombia SAS Enel Green Power Chile Ltda Enel Green Power SpA SIMEST SpA Parques Eólicos Gestinver SL Enel Green Power España SL Aurora Distributed Solar LLC 60.80% 20.00% 95.00% 100.00% 5.00% 100.00% 100.00% 1.00% 61.93% 99.00% 100.00% 100.00% 60.91% 76.64% 34.56% 4.52% 100.00% 70.10% 100.00% 70.10% 100.00% 51.00% Endesa Generación Portugal SA Endesa Generación SA EGPNA REP Hydro Holdings LLC 0.02% 35.05% 49.98% 100.00% 50.00% Line-by-line Endesa Generación II SA 70.00% 49.07% 531 AttachmentsCompany name Headquarters Country Share capital Currency Activity PH Chucas SA San José Costa Rica 100,000.00 CRC PH Don Pedro SA San José Costa Rica 100,001.00 CRC PH Guacimo SA San José Costa Rica 50,000.00 CRC PH Río Volcán SA San José Costa Rica 100,001.00 CRC Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Line-by-line Held by Enel Green Power Costa Rica SA Enel Green Power SpA Enel Green Power Costa Rica SA % holding Group % holding 40.31% 65.00% 24.69% 33.44% 33.44% Line-by-line Enel Green Power Costa Rica SA 65.00% 65.00% Line-by-line Enel Green Power Costa Rica SA 34.32% 34.32% Pincher Creek Lp Alberta Canada (Canada) CAD Renewable energy Line-by-line - - Delaware USA USD Line-by-line Enel Alberta Wind Inc. Enel Green Power Canada Inc. Aurora Distributed Solar LLC 99.00% 100.00% 1.00% 100.00% 51.00% Line-by-line Enel Green Power España SL 56.12% 39.34% Line-by-line Equity Equity Equity Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) PowerCrop SpA (formerly PowerCrop Srl) PowerCrop SpA (formerly PowerCrop Srl) 100.00% 100.00% 100.00% 50.00% 100.00% 50.00% Enel Green Power SpA 50.00% 50.00% Line-by-line Prairie Rose Wind LLC 100.00% 50.00% Equity EGPNA REP Wind Holdings LLC 100.00% 50.00% Line-by-line Line-by-line Enel Green Power Brasil Participações Ltda Enel Green Power España SL 100.00% 100.00% 100.00% 70.10% Line-by-line Enel Green Power España SL 100.00% 70.10% Equity Enel Green Power España SL 30.00% 21.03% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale Plant development and construction Plant development and construction Hydroelectric plants Pine Island Distributed Solar LLC Planta Eólica Europea SA Pomerado Energy Storage LLC PowerCrop Macchiareddu Srl PowerCrop Russi Srl PowerCrop SpA (formerly PowerCrop Srl) Seville Spain 1,198,530.00 EUR Wilmington USA 1.00 USD Bologna Italy 100,000.00 EUR Bologna Italy 100,000.00 EUR Bologna Italy 4,000,000.00 EUR Prairie Rose Transmission LLC Minnesota USA Prairie Rose Wind LLC New York (New York) USA - - USD USD Primavera Energia SA Rio de Janeiro Brazil 36,965,444.64 BRL Productor Regional de Energía Renovable III SA Madrid Productor Regional de Energía Renovable SA Madrid Spain 3,088,398.00 EUR Spain 710,500.00 EUR Productora de Energías SA Barcelona Spain 30,050.00 EUR 532 Annual Report 2018Consolidation method Line-by-line Held by Enel Green Power España SL % holding Group % holding 100.00% 70.10% Line-by-line Enel Green Power México S de RL de Cv 99.99% 99.99% Equity Endesa SA 45.00% 31.55% Tenedora de Energía Renovable Sol y Viento SAPI de Cv Tenedora de Energía Renovable Sol y Viento SAPI de Cv Enel Green Power SpA Energía y Servicios South America SpA Enel Green Power SpA Energía y Servicios South America SpA Enel Green Power SpA Energía y Servicios South America SpA Enel Green Power España SL Enel Green Power Partecipazioni Speciali Srl Energía y Servicios South America SpA Enel Green Power SpA 60.80% 20.00% 60.80% 20.00% 99.00% 100.00% 1.00% 99.00% 100.00% 1.00% 99.00% 100.00% 1.00% 33.33% 23.36% 99.90% 100.00% 0.10% 90.00% 90.00% Company name Headquarters Country Share capital Currency Activity Promociones Energéticas del Bierzo SL Proveedora de Electricidad de Occidente S de RL de Cv Proyecto Almería Mediterráneo SA Proyecto Solar Don José SA de Cv Proyecto Solar Villanueva Tres SA de Cv Proyectos de Energía Sol y Viento 5 SA de Cv Proyectos de Energía Sol y Viento 6 SA de Cv Proyectos de Energía Sol y Viento 7 SA de Cv Proyectos Universitarios de Energías Renovables SL Proyectos y Soluciones Renovables SAC Pt Enel Green Power Optima Way Ratai Pulida Energy (RF) (Pty) Ltd Madrid Spain 12,020.00 EUR Mexico City Mexico 89,708,835.00 MXN Madrid Spain 601,000.00 EUR Mexico City Mexico 100.00 MXN Mexico City Mexico 56,370,700.00 MXN Electricity generation from renewable resources Electricity generation from renewable resources Desalinization and water supply Electricity generation from renewable resources Electricity generation from renewable resources Equity Equity Mexico City Mexico 139.00 MXN Renewable energy Line-by-line Mexico City Mexico 139.00 MXN Line-by-line Electricity generation from renewable resources Mexico City Mexico 139.00 MXN Renewable energy Line-by-line Alicante Spain 27,000.00 EUR Lima Peru 1,000.00 PEN Electricity generation from renewable resources Electricity generation Equity Line-by-line Jakarta Indonesia 10,001,000.00 USD Houghton South Africa 10,000,000.00 ZAR Line-by-line PV Huacas SA San José Costa Rica 10,000.00 CRC Pyrites Hydro LLC New York (New USA - USD York) Quatiara Energia SA Rio de Janeiro Brazil 16,566,510.61 BRL Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation Line-by-line Enel Green Power RSA (Pty) Ltd 52.70% 52.70% Line-by-line Enel Green Power Costa Rica SA 65.00% 65.00% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Green Power Brasil Participações Ltda 100.00% 100.00% Rattlesnake Creek Holdings LLC Wilmington (Delaware) Reaktortest Sro Trnava Panama Red Centroamericana de Telecomunicaciones SA USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Slovakia (Slovak Republic) Panama 66,389.00 EUR Research and development Equity Framatome GmbH Slovenské elektrárne AS 51.00% 16.17% 49.00% 2,700,000.00 USD Telecommunications - Enel SpA 11.11% 11.11% 533 AttachmentsCompany name Headquarters Country Share capital Currency Activity Red Dirt Wind Holdings LLC Delaware USA - Red Dirt Wind Project LLC Wilmington (Delaware) USA 1.00 USD USD Renewable energy Electricity generation from renewable resources Consolidation method Held by % holding Group % holding Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Red Dirt Wind Holdings LLC 100.00% 100.00% USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Red Fox Wind Project LLC Wilmington (Delaware) Reftinskaya Gres Limited Liability Company Asbest Renovables de Guatemala SA Guatemala City Russian Federation 10,000.00 RUB Guatemala 1,924,465,600.00 GTQ Electricity generation and sale Electricity generation from renewable resources Line-by-line Line-by-line Enel Russia PJSC 100.00% 56.43% Enel Green Power Guatemala SA Enel Green Power SpA Enel Alberta Wind Inc. Enel Green Power Canada Inc. 0.01% 100.00% 99.99% 99.00% 100.00% 1.00% Riverview Lp Alberta (Canada) Canada - CAD Renewable energy Line-by-line Roadrunner Solar Project LLC Delaware USA 100.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Rochelle Solar LLC Wilmington USA 1.00 USD Photovoltaic Line-by-line Enel Kansas LLC 100.00% 100.00% (Delaware) Rock Creek Hydro LLC Delaware USA Rock Creek Wind Holdings LLC - USA Rock Creek Wind Project LLC Wilmington (Delaware) USA Rocky Caney Holdings LLC Oklahoma City (Oklahoma) USA Rocky Caney Wind LLC New York (New York) USA Rocky Ridge Wind Project LLC Oklahoma City (Oklahoma) USA - - 1.00 1.00 - - USD USD Electricity generation from renewable resources Electricity generation from renewable resources Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line EGPNA Preferred Holdings II LLC 100.00% 100.00% USD Holding Line-by-line Rock Creek Wind Holdings LLC 100.00% 100.00% USD USD USD Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Thermal generation plants Line-by-line Enel Kansas LLC 20.00% 20.00% Line-by-line Enel Kansas LLC 20.00% 20.00% Line-by-line Rocky Caney Wind LLC 20.00% 20.00% Line-by-line Enel Green Power Rus LLC 100.00% 100.00% Rodnikovskaya Moscow Russia 6,010,000.00 RUB Rsl Telecom (Panama) SA Panama Panama 10,000.00 USD - Equity Ufinet Latam SLU 100.00% 21.40% 2,760,000.00 RUB Electricity trading Equity Enel SpA 49.50% 49.50% RusEnergoSbyt LLC Moscow Russian Federation RusEnergoSbyt Siberia LLC Krasnoyarskiy Kray Russian Federation RusEnergoSbyt Yaroslavl Yaroslavl Russian Federation 4,600,000.00 RUB Electricity sales Equity 100,000.00 RUB Electricity sales Equity RusEnergoSbyt LLC RusEnergoSbyt LLC Chi Minnesota Wind LLC 50.00% 24.75% 50.00% 24.75% 51.00% 51.00% Ruthton Ridge LLC Minnesota USA - USD Line-by-line Electricity generation from renewable resources Saburoy SA Montevideo Uruguay 400,000.00 UYU - Equity Ifx Networks LLC 100.00% 21.40% Sacme SA Buenos Aires Argentina 12,000.00 ARS Equity Monitoring of electricity system Empresa Distribuidora Sur SA - Edesur 50.00% 18.68% 534 Annual Report 2018Salto de San Rafael SL San Francisco de Borja SA San Juan Mesa Wind Project II LLC Sanatorium- preventorium Energetik LLC Santo Rostro Cogeneración SA Se Služby Inžinierskych Stavieb SRO Seguidores Solares Planta 2 SL (Sociedad Unipersonal) Servicio de Operación y Mantenimiento para Energías Renovables S de RL de Cv Servicios de Internet Eni Chile Ltda Servizio Elettrico Nazionale SpA SIET - Società Informazioni Esperienze Termoidrauliche SpA Sistema Eléctrico de Conexión Montes Orientales SL Sistema Eléctrico de Conexión Valcaire SL Sistemas Energéticos Alcohujate SA (Sociedad Unipersonal) Company name Headquarters Country Share capital Currency Activity Consolidation method Held by Salmon Falls Hydro LLC Delaware USA - Seville Spain 461,410.00 Zaragoza Spain 60,000.00 Wilmington (Delaware) USA - Nevinnomyssk Russian 10,571,300.00 RUB Federation Seville Spain 207,000.00 EUR USD EUR EUR USD AFS Equity Line-by-line Line-by-line Electricity generation from renewable resources Hydroelectric plants Renewable energy Electricity generation from renewable resources Electricity services Equity Cogeneration of electricity and heat % holding Group % holding 100.00% 100.00% Enel Green Power North America Inc. Enel Green Power España SL Enel Green Power España SL Padoma Wind Power LLC 50.00% 35.05% 66.67% 46.74% 100.00% 100.00% Line-by-line Enel Russia PJSC OGK-5 Finance LLC 99.99% 0.01% 56.43% Enel Green Power España SL 45.00% 31.55% Slovenské elektrárne AS 100.00% 33.00% Kalná nad Hronom Madrid Slovakia (Slovak Republic) Spain 200,000.00 EUR Services Equity 3,010.00 EUR Line-by-line Enel Green Power España SL 100.00% 70.10% Mexico City Mexico 3,000.00 MXN Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources 0.01% 100.00% 99.99% Enel Green Power Guatemala SA Energía Nueva Energía Limpia México S de RL de Cv Ifx Networks Ltd Ifx/eni - Spc IV Inc. 0.01% 99.90% 21.38% Santiago Chile 2,768,688,228.00 CLP - Equity Rome Italy 10,000,000.00 EUR Electricity sale Line-by-line Enel SpA 100.00% 100.00% Shiawassee Wind Project LLC Wilmington (Delaware) USA 1.00 USD - Line-by-line Enel Kansas LLC 100.00% 100.00% Shield Energy Storage Project LLC Delaware USA Sierra Energystorage LLC Camden (Delaware) USA - - USD USD Line-by-line Line-by-line Electricity generation from renewable resources Electricity generation from renewable resources Piacenza Italy 697,820.00 EUR Equity Analysis, design and research in thermal technology Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) Enel Innovation Hubs Srl 100.00% 100.00% 51.00% 51.00% 41.55% 41.55% Granada Spain 44,900.00 EUR Electricity generation Equity Enel Green Power España SL 16.70% 11.71% Madrid Spain 175,200.00 EUR Electricity generation Equity Enel Green Power España SL 28.13% 19.72% Zaragoza Spain 61,000.00 EUR Line-by-line Enel Green Power España SL 100.00% 70.10% Electricity generation and sale from renewable resources 535 AttachmentsSistemas Energéticos Campoliva SA (Sociedad Unipersonal) Sistemas Energéticos Mañón Ortigueira SA Sistemas Energéticos Sierra del Carazo SL (Sociedad Unipersonal) Company name Headquarters Country Share capital Currency Activity Consolidation method Held by Zaragoza Spain 61,000.00 EUR Wind plants Line-by-line Enel Green Power España SL % holding Group % holding 100.00% 70.10% La Coruña Spain 2,007,750.00 EUR Zaragoza Spain 3,006.00 EUR Line-by-line Enel Green Power España SL 96.00% 67.30% Line-by-line Enel Green Power España SL 100.00% 70.10% Electricity generation from renewable resources Electricity generation from renewable resources Slate Creek Hydro Associates LP Los Angeles (California) USA Slate Creek Hydro Company LLC Wilmington (Delaware) USA - - USD USD Equity Equity Electricity generation from renewable resources Electricity generation from renewable resources Slovak Power Holding BV Amsterdam The Netherlands 25,010,000.00 EUR Holding Equity 4,505,000.00 EUR Electricity supply Equity Slate Creek Hydro Company LLC 95.00% 47.50% EGPNA REP Hydro Holdings LLC 100.00% 50.00% Enel Produzione SpA Slovenské elektrárne AS 50.00% 50.00% 100.00% 33.00% Slovenské elektrárne - Energetické Služby SRO Slovenské elektrárne AS Bratislava Bratislava Slovenské elektrárne Česká Republika SRO Praha Slovakia (Slovak Republic) Slovakia (Slovak Republic) Czech Republic 1,269,295,724.66 EUR 295,819.00 CZK Electricity generation Electricity supply Equity Equity Slovak Power Holding BV Slovenské elektrárne AS 66.00% 33.00% 100.00% 33.00% Smart P@per SpA Potenza Italy 2,184,000.00 EUR Services - Servizio Elettrico Nazionale SpA 10.00% 10.00% Smoky Hill Holdings II LLC Wilmington (Delaware) USA Smoky Hills Wind Farm LLC Topeka (Kansas) USA Smoky Hills Wind Project II LLC Topeka (Kansas) USA Snyder Wind Farm LLC Dallas (Texas) USA - - - - USD USD USD USD Socibe Energia SA Rio de Janeiro Brazil 19,969,032.25 BRL Sociedad Agrícola de Cameros Ltda Santiago Chile 5,738,046,495.00 CLP Sociedad Eólica de Andalucía SA Seville Sociedad Eólica El Puntal SL Seville Spain 4,507,590.78 Spain 1,643,000.00 EUR EUR Sociedad Eólica Los Lances SA Seville Spain 2,404,048.42 EUR Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Texkan Wind LLC 100.00% 100.00% Line-by-line Nevkan Renewables LLC 100.00% 100.00% Line-by-line Texkan Wind LLC 100.00% 100.00% Line-by-line Enel Green Power Brasil Participações Ltda 100.00% 100.00% Line-by-line Enel Chile SA 57.50% 35.61% Line-by-line Equity Enel Green Power España SL Enel Green Power España SL 64.74% 45.38% 50.00% 35.05% Line-by-line Enel Green Power España SL 60.00% 42.06% Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation and sale Financial investment Electricity generation Electricity generation from renewable resources Electricity generation from renewable resources 536 Annual Report 2018Company name Headquarters Country Share capital Currency Activity Sociedad Portuaria Central Cartagena SA Soetwater Wind Farm (RF) (Pty) Ltd Bogotá DC Colombia 89,714,600.00 COP Northern Cape South Africa 1,000.00 ZAR Sol Real Istmo SA Panama Panama 10,000.00 USD Soliloquoy Ridge LLC Minnesota USA - USD Somersworth Hydro Company Inc. Wilmington (Delaware) USA 100.00 USD Sona Enerji Üretim Anonim Şirketi Istanbul Turkey 50,000.00 TRY Sotavento Galicia SA Santiago de Compostela Spain 601,000.00 EUR Southwest Transmission LLC Minnesota USA Spartan Hills LLC Minnesota USA Stillman Valley Solar LLC Delaware USA - - - Stillwater Woods Hill Holdings LLC Wilmington (Delaware) USA 1.00 USD USD USD USD Stipa Nayaá SA de Cv Mexico City Mexico 1,811,016,348.00 MXN Sublunary Trading (RF) (Pty) Ltd Suministradora Eléctrica de Cádiz SA Johannesburg South Africa 10,000.00 ZAR Cadiz Spain 12,020,240.00 EUR Suministro de Luz y Fuerza SL Torroella de Montgri (Girona) Spain 2,800,000.00 Summit Energy Storage Inc. Wilmington (Delaware) USA 2,050,000.00 Sun River LLC Minnesota USA - EUR USD USD Port construction and management Electricity generation and sale from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity distribution and sale Electricity distribution Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Line-by-line Line-by-line Held by Emgesa SA ESP Inversora Codensa SAS Enel Green Power RSA 2 (Pty) Ltd Pele Green Energy Soetwater BEE SPV (Pty) Ltd Soetwater Wind Farm Community Trust Enel Green Power Panama SA % holding 94.94% 5.05% Group % holding 26.25% 60.00% 60.00% 35.00% 5.00% 100.00% 100.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% AFS Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Equity Enel Green Power Turkey Enerji Yatirimlari Anonim Şirketi Enel Green Power España SL 100.00% 100.00% 36.00% 25.24% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Line-by-line Equity Line-by-line Line-by-line Enel Green Power México S de RL de Cv Enel Green Power Partecipazioni Speciali Srl Enel Green Power Solar Energy Srl Endesa Red SA (Sociedad Unipersonal) Hidroeléctrica de Catalunya SL Enel Green Power North America Inc. 55.21% 95.37% 40.16% 57.00% 57.00% 33.50% 23.48% 60.00% 42.06% 75.00% 75.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% 537 AttachmentsCompany name Headquarters Country Share capital Currency Activity Consolidation method Held by Sweetwater Hydroelectric LLC Concord (New Hampshire) USA - USD AFS Electricity generation from renewable resources Enel Green Power North America Inc. % holding Group % holding 100.00% 100.00% Tauste Energía Distribuida SL Zaragoza Spain 60,508.00 EUR Renewable energy Line-by-line Tecnatom SA Madrid Spain 4,025,700.00 EUR Tecnoguat SA Guatemala City Guatemala 30,948,000.00 GTQ Paço de Arcos (Oeiras) Portugal 5,025,000.00 EUR Enel Green Power España SL Posidonia Inversiones Endesa Generación SA 51.00% 35.75% 49.00% 45.00% 31.55% Line-by-line Enel Green Power SpA 75.00% 75.00% Equity Endesa Generación SA 43.75% 30.67% Equity Electricity generation and services Electricity generation from renewable resources Electricity generation, transmission and distribution Mexico City Mexico 2,892,643,576.00 MXN Renewable energy Equity Enel Green Power SpA 32.90% 32.90% Sredneuralsk Russian Federation 128,000,000.00 RUB Electricity sales Line-by-line Enel Russia PJSC 60.00% 33.86% Buenos Aires Argentina 500,000.00 ARS Buenos Aires Argentina 500,000.00 ARS Equity Plant construction and operation Equity Plant construction and operation Tejo Energia Produção e Distribução de Energia Eléctrica SA Tenedora de Energía Renovable Sol y Viento SAPI de Cv Teploprogress OJSC Termoeléctrica José de San Martín SA Termoeléctrica Manuel Belgrano SA Central Dock Sud SA Enel Generación Costanera SA Enel Generación El Chocón SA Central Dock Sud SA Enel Generación Costanera SA Enel Generación El Chocón SA Enel Green Power España SL 1.42% 9.21% 5.33% 18.85% 1.42% 9.21% 5.33% 18.85% 45.00% 31.55% Equity Line-by-line Enel Texkan Inc. 100.00% 100.00% Line-by-line Enel Kansas LLC 100.00% 100.00% Line-by-line Thunder Ranch Wind Holdings LLC 100.00% 100.00% Equity EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Enel Green Power RSA (Pty) Ltd 60.00% 60.00% Equity Line-by-line Equity Enel Green Power España SL Enel Green Power Guatemala SA Enel Green Power SpA Gas Atacama Chile SA 33.33% 23.36% 0.00% 100.00% 100.00% 50.00% 29.02% Termotec Energía AIE en liquidación Valencia Spain 481,000.00 EUR Texkan Wind LLC Wilmington USA (Delaware) Thunder Ranch Wind Holdings LLC Delaware USA - - Thunder Ranch Wind Project LLC Wilmington (Delaware) USA 1.00 Tko Power LLC Los Angeles (California) USA - USD USD USD USD Tobivox (RF) (Pty) Ltd Houghton South Africa 10,000,000.00 ZAR Toledo Pv AEIE Madrid Spain 26,887.96 EUR Transmisora de Energía Renovable SA Guatemala City Guatemala 233,561,800.00 GTQ Santiago Chile 440,644,600.00 CLP Transmisora Eléctrica de Quillota Ltda 538 Cogeneration of electricity and heat Electricity generation from renewable resources Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Photovoltaic plants Electricity generation from renewable resources Electricity transmission and distribution Annual Report 2018Company name Headquarters Country Share capital Currency Activity Transportadora de Energía SA - TESA Buenos Aires Argentina 100,000.00 ARS Transportes y Distribuciones Eléctricas SA Triton Energy Inc. Olot (Girona) Spain 72,120.00 Delaware USA 5,000.00 Triton Power Company New York (New York) USA Tsar Nicholas LLC Minnesota USA Twin Falls Hydro Associates Seattle (Washington) USA Twin Falls Hydro Company LLC Wilmington (Delaware) USA Twin Lake Hills LLC Minnesota USA Twin Saranac Holdings LLC Wilmington (Delaware) USA - - - - - - EUR USD USD USD USD USD USD USD Electricity generation, transmission and distribution Electricity transmission Renewable energy Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Line-by-line Held by % holding Enel Argentina SA Enel CIEN SA 0.00% 100.00% Group % holding 54.23% Line-by-line Endesa Distribución Eléctrica SL 73.33% 51.41% Line-by-line Line-by-line Line-by-line Enel X North America Inc. Enel Green Power North America Inc. Highfalls Hydro Company Inc. Chi Minnesota Wind LLC 100.00% 100.00% 2.00% 100.00% 98.00% 51.00% 51.00% Equity Equity Twin Falls Hydro Company LLC 99.51% 49.76% EGPNA REP Hydro Holdings LLC 100.00% 50.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Tynemouth Energy Storage Limited London United Kingdom 2.00 GBP Services Line-by-line Ufefys SL en liquidación Aranjuez Spain 304,150.00 EUR - Electricity generation from renewable resources Enel Global Thermal Generation Srl Enel Green Power España SL 100.00% 100.00% 40.00% 28.04% Ufinet Argentina SA Buenos Aires Argentina 100,000.00 Ufinet Chile SA Santiago Chile 233,750,000.00 ARS CLP Ufinet Colombia SA Bogotá DC Colombia 1,180,000,000.00 COP Ufinet Costa Rica SA Ufinet Ecuador Ufiec SA Ufinet El Salvador SA de Cv San José Costa Rica 15,000.00 Quito Ecuador 600,800.00 San Salvador El Salvador 10,000.00 Ufinet Guatemala SA Guatemala City Guatemala 7,500,000.00 Ufinet Honduras SA Tegucigalpa Honduras 194,520.00 Ufinet Latam SLU Madrid Spain 15,906.31 USD USD USD GTQ HNL EUR - - - - - - - - - Equity Ufinet Latam SLU Ufinet Panama SA 95.00% 5.00% 21.40% Equity Ufinet Latam SLU 100.00% 21.40% Equity 10.00% 19.26% Empresa de Energía del Pacífico SA ESP Ufinet Guatemala SA Ufinet Honduras SA Ufinet Latam SLU Ufinet Panama SA 0.00% 0.00% 90.00% 0.00% Equity Ufinet Latam SLU 100.00% 21.40% Equity Equity Equity Equity Ufinet Guatemala SA Ufinet Latam SLU Ufinet Guatemala SA Ufinet Latam SLU Ufinet Latam SLU Ufinet Panama SA 0.00% 21.40% 100.00% 0.01% 21.40% 99.99% 99.99% 0.01% 21.40% 21.40% Ufinet Latam SLU Ufinet Panama SA 99.99% 0.01% Equity Zacapa Sàrl 100.00% 21.40% 539 AttachmentsUstav Jaderného Výzkumu Rez AS Rez Czech Republic 524,139,000.00 CZK Madrid Spain 3,000.00 EUR Photovoltaic Line-by-line Enel Green Power España SL 100.00% 70.10% Company name Headquarters Country Share capital Currency Activity Ufinet México S de RL de Cv Ufinet Nicaragua SA Ufinet Panama SA Ufinet Paraguay SA Mexico City Mexico 10,032,150.00 MXN Managua Nicaragua 2,800,000.00 NIO Panama Panama 3,500,000.00 Asunción Paraguay 13,960,000.00 USD USD Ufinet Peru SAC Lima Peru 1,450,923.00 PEN Ufinet US LLC Delaware USA 1,000.00 Johannesburg South Africa 1,000.00 USD ZAR Las Palmas de Gran Canaria Spain 190,171,520.00 EUR Johannesburg South Africa 1,000.00 ZAR Ukuqala Solar (Pty) Ltd Unión Eléctrica de Canarias Generación SAU Upington Solar (Pty) Ltd Valdecaballero Solar SL Vektör Enerji Üretim Anonim Şirketi Ventos de Santa Angela Energias Renováveis SA Vientos del Altiplano S de RL de Cv Istanbul Turkey 3,500,000.00 TRY Niterói (Rio de Janeiro) Brazil 10,000.00 BRL Mexico City Mexico 1,455,854,094.00 MXN Villanueva Solar SA de Cv Mexico City Mexico 100.00 MXN Viruleiros SL Santiago de Compostela Spain 160,000.00 EUR Walden Hydro LLC Delaware USA Waseca Solar LLC Delaware USA Weber Energy Storage Project LLC Delaware USA - - - USD USD USD 540 Consolidation method Held by Equity Equity Ufinet Guatemala SA Ufinet Latam SLU Ufinet Guatemala SA Ufinet Latam SLU Ufinet Panama SA % holding Group % holding 0.01% 21.40% 99.99% 0.50% 21.40% 99.00% 0.50% Equity Ufinet Latam SLU 100.00% 21.40% Equity Equity Tecnología en Electrónica e Informática SA Ufinet Latam SLU Ufinet Latam SLU Ufinet Panama SA 25.00% 16.05% 75.00% 99.99% 21.40% 0.01% Equity Ufinet Latam SLU 100.00% 21.40% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 100.00% Line-by-line Endesa Generación SA 100.00% 70.10% Line-by-line Enel Green Power RSA (Pty) Ltd 100.00% 100.00% Equity Slovenské elektrárne AS 27.77% 9.17% - - - - - - Electricity generation from renewable resources Electricity generation Electricity generation from renewable resources Research and development Plant construction and electricity generation from renewable resources Electricity generation Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources AFS Enel SpA 100.00% 100.00% Line-by-line Equity Equity Line-by-line Enel Green Power Brasil Participações Ltda Tenedora de Energía Renovable Sol y Viento SAPI de Cv Tenedora de Energía Renovable Sol y Viento SAPI de Cv Enel Green Power España SL 100.00% 100.00% 60.80% 20.00% 60.80% 20.00% 67.00% 46.97% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Enel Energy Storage Holdings LLC (formerly EGP Energy Storage Holdings LLC) 100.00% 100.00% Annual Report 2018Company name Headquarters Country Share capital Currency Activity 1,625,000.00 USD - WeSpire Inc. West Faribault Solar LLC Boston (Massachusetts) USA Delaware USA West Hopkinton Hydro LLC Delaware USA West Waconia Solar LLC Delaware USA - - - USD USD USD Western New York Wind Corporation Albany (New York) USA 300.00 USD Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Wild Run Lp Calgary (Alberta) Canada 10.00 CAD Holding Line-by-line Willimantic Power Corporation Hartford (Connecticut) USA 1,000.00 USD Wind Parks Anatolis - Prinias SA Wind Parks Bolibas SA Wind Parks Distomos SA Wind Parks Folia SA Wind Parks Gagari SA Wind Parks Goraki SA Wind Parks Gourles SA Wind Parks Kafoutsi SA Wind Parks Katharas SA Wind Parks Kerasias SA Maroussi Greece 1,208,188.00 EUR Maroussi Greece 551,500.00 EUR Maroussi Greece 556,500.00 EUR Maroussi Greece 424,000.00 EUR Maroussi Greece 389,000.00 EUR Maroussi Greece 551,500.00 EUR Maroussi Greece 555,000.00 EUR Maroussi Greece 551,500.00 EUR Maroussi Greece 768,648.00 EUR Maroussi Greece 935,990.00 EUR Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Consolidation method Equity Held by Enel X North America Inc. % holding Group % holding 11.21% 11.21% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% AFS Enel Green Power North America Inc. 100.00% 100.00% Line-by-line Aurora Distributed Solar LLC 100.00% 51.00% Line-by-line Enel Green Power North America Inc. 100.00% 100.00% Enel Alberta Wind Inc. Enel Green Power Canada Inc. Enel Green Power North America Inc. 0.10% 100.00% 99.90% 100.00% 100.00% Line-by-line Line-by-line Enel Green Power Hellas Wind Parks South Evia SA 100.00% 100.00% Equity Equity Equity Equity Equity Equity Equity Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Line-by-line Line-by-line Enel Green Power Hellas Wind Parks South Evia SA Enel Green Power Hellas Wind Parks South Evia SA 100.00% 100.00% 100.00% 100.00% 541 AttachmentsCompany name Headquarters Country Share capital Currency Activity Wind Parks Milias SA Maroussi Greece 1,024,774.00 EUR Wind Parks Mitikas SA Wind Parks Paliopirgos SA Wind Parks Petalo SA Wind Parks Platanos SA Wind Parks Skoubi SA Wind Parks Spilias SA Wind Parks Strouboulas SA Wind Parks Vitalio SA Maroussi Greece 772,639.00 EUR Maroussi Greece 200,000.00 EUR Maroussi Greece 575,000.00 EUR Maroussi Greece 625,467.00 EUR Maroussi Greece 472,000.00 EUR Maroussi Greece 847,490.00 EUR Maroussi Greece 576,500.00 EUR Maroussi Greece 361,000.00 EUR Wind Parks Vourlas SA Maroussi Greece 554,000.00 EUR Winter’s Spawn LLC Minnesota USA Woods Hill Solar LLC Wilmington (Delaware) USA - - Sofia Bulgaria 5,000.00 USD USD BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN WP Bulgaria 1 EOOD WP Bulgaria 10 EOOD WP Bulgaria 11 EOOD WP Bulgaria 12 EOOD WP Bulgaria 13 EOOD 542 Consolidation method Line-by-line Line-by-line Held by Enel Green Power Hellas Wind Parks South Evia SA Enel Green Power Hellas Wind Parks South Evia SA % holding Group % holding 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power Hellas SA 80.00% 80.00% Equity Enel Green Power Hellas SA 30.00% 30.00% Line-by-line Enel Green Power Hellas Wind Parks South Evia SA 100.00% 100.00% Equity Enel Green Power Hellas SA 30.00% 30.00% Line-by-line Enel Green Power Hellas Wind Parks South Evia SA 100.00% 100.00% Equity Equity Equity Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Enel Green Power Hellas SA 30.00% 30.00% Line-by-line Chi Minnesota Wind LLC 51.00% 51.00% Line-by-line Line-by-line Stillwater Woods Hill Holdings LLC Enel Green Power Bulgaria EAD 100.00% 100.00% 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Electricity generation from renewable resources Renewable energy Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Annual Report 2018Company name Headquarters Country Share capital Currency Activity WP Bulgaria 14 EOOD WP Bulgaria 15 EOOD WP Bulgaria 19 EOOD WP Bulgaria 21 EOOD WP Bulgaria 26 EOOD WP Bulgaria 3 EOOD WP Bulgaria 6 EOOD WP Bulgaria 8 EOOD WP Bulgaria 9 EOOD Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Sofia Bulgaria 5,000.00 BGN Yacylec SA Buenos Aires Argentina 20,000,000.00 Yedesa- cogeneración SA Zacapa HoldCo Sàrl Almería Spain 234,394.72 Luxembourg Luxembourg 300,000.00 Zacapa LLC Delaware USA 1,000.00 Zacapa Sàrl Luxembourg Luxembourg 300,000.00 Zacapa Topco Sàrl Luxembourg Luxembourg 250,000.00 ARS EUR USD USD USD USD Consolidation method Line-by-line Held by Enel Green Power Bulgaria EAD % holding Group % holding 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Line-by-line Enel Green Power Bulgaria EAD 100.00% 100.00% Equity Enel Américas SA 22.22% 12.05% Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Plant construction, operation and maintenance Electricity transmission Equity Cogeneration of electricity and heat Enel Green Power España SL 40.00% 28.04% - - - - Equity Zacapa Topco Sàrl 100.00% 21.40% Equity Zacapa Sàrl 100.00% 21.40% Equity Zacapa HoldCo Sàrl 100.00% 21.40% Equity Enel X International Srl Zacapa Feeder Sàrl 21.40% 21.40% 78.60% 543 Attachments544 Annual Report 201807 Corporate Governance 545 Corporate GovernanceReport on corporate governance and ownership structure The corporate governance structure of Enel SpA complies importance of the Group’s business operations and the con- with the principles set forth in the edition of the Corporate sequent need, in conducting such operations, to adequately Governance Code for listed companies most recently amend- consider all the interests involved. ed in July 2018,18 which has been adopted by the company, In compliance with the provisions of Italian law governing and with international best practice. companies with listed shares, the company’s organization is The corporate governance system adopted by Enel and the characterized by: Group is essentially aimed at creating value for the sharehold- corporate governance Model ers over the medium/long term, taking into account the social > a Board of Directors charged with managing the company; > a Board of Statutory Auditors charged with monitoring: For more detailed information on the corporate governance system, please see the Report on Corporate Governance and Ownership Structure of Enel, which has been published on the company’s website (http://www.enel.com) in the “Governance” section. 18 The current edition of the Code is available on the website of Borsa Italiana (https://www.borsaitaliana.it/comitato-corporate-governance/codice/2018clean.pdf). 546 Annual Report 2018 98 Report on Corporate Governance and Ownership Structure ENEL_CORPORATE_GOVERNANCE_2018.indb 98 03/05/19 16:35 (i) compliance with the law and the bylaws, and with the traordinary session: (i) the appointment and termination of principles of sound administration in the performance of members of the Board of Directors and the Board of Statu- company business; (ii) the financial reporting process, as tory Auditors and their compensation and responsibilities; well as the adequacy of the organizational structure, the (ii) the approval of the financial statements and allocation of internal control system and the administrative-accounting net income; (iii) the purchase and sale of treasury shares; system of the company; (iii) the statutory auditing of the (iv) stock-based compensation plans; (v) amendments of annual accounts and the consolidated accounts, as well as the bylaws; and (vi) the issue of convertible bonds. the independence of the Audit Firm; and (iv) the manner in The statutory auditing of the accounts is performed by a spe- which the corporate governance rules set out in the Cor- cialized firm entered in the appropriate official register. It was porate Governance Code are actually implemented; engaged by the Shareholders’ Meeting on the basis of a rea- > a Shareholders’ Meeting, which is competent to take deci- soned proposal of the Board of Statutory Auditors. sions concerning, among other issues – in ordinary or ex- ENEL_CORPORATE_GOVERNANCE_2018.indb 99 99 03/05/19 16:35 547 Corporate GovernanceConcept design and realization HNTO - Gruppo HDRÀ Copy editing postScriptum di Paola Urbani Printing Varigrafica Alto Lazio Print run: 20 copies Published in June 2019 INSIDE PAGES Paper Fedrigoni Arcoprint 1 E.W. Weight 120 g/m2 Number of pages 548 COVER Paper Fedrigoni Arcoprint 1 E.W. Weight 300 g/m2 This publication is printed on FSC® certified 100% paper Publication not for sale By Communications Italy Enel Società per azioni Registered Office 00198 Rome - Italy Viale Regina Margherita, 137 Stock Capital Euro 10,166,679,946 fully paid-in Companies Register of Rome and Tax I.D. 00811720580 R.E.A. of Rome 756032 VAT Code 00934061003 © Enel SpA 00198 Rome, Viale Regina Margherita, 137 8 1 0 2 _ t r o p e R l a u n n A enel.com Annual Report 2018 8 1 0 2 _ e a u n n a l a i r a i z n a n fi e n o i z a e R l enel.com Relazione Finanziaria Annuale 2018

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