Terna — Interim / Quarterly Report 2022

Jul 29, 2022

INTRODUCTION

The Terna Group's half-year report for the six months ended 30 June 2022 has been prepared in accordance with the requirements of art. 154-ter of Legislative Decree 58/98 introduced by Legislative Decree 195 of 6 November 2007 (the "Transparency Decree"), as amended by Legislative Decree 254 of 30 December 2016.

Contents

5 INTERIM REPORT ON OPERATIONS FOR THE SIX MONTHS ENDED 30 JUNE 2022
	Terna's role in the energy transition	6
	Highlights	8
	Ownership structure	11
	Structure of the Group	13
	The value creation process and the business model	14
1	The reference scenario Macroeconomic environment Market environment Regulatory framework	17 18 19 24
2	The Group's strategy The Company and our strategy Innovation Our people Risk management	27 28 34 38 41
3	The Group's business Operating activities Financial review for the first half of 2022 Terna's shares Outlook	45 46 75 86 88
4	Annexes Regulatory framework and other information Changes in the dimensions of the NTG Alternative performance measures (APMs) Reconciliations	91 92 96 98 99

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2022

103

INTERIM REPORT ON OPERATIONS FOR THE SIX MONTHS ENDED 30 JUNE 2022

Terna's role in the energy transition

The electricity system supply chain is made up of several segments: production, transmission, distribution and the sale of electricity. Tasked with transmission and dispatching, Terna is responsible for the key transmission segment. As Transmission System Operator (TSO), Terna must on the one hand design a grid capable of handling the progressive decarbonisation of the sources of production and the growing integration of renewables ("transmission operator"), whilst on the other guaranteeing that, at all times, energy demand from consumers is always balanced by the amount produced through so-called "dispatching" ("system operator").

This is an extremely complex task, requiring an independent central coordinator capable of taking an overall view and controlling a high number of actors, both on the supply and the demand side: this is why we refer to ourselves as "driving the transition".

From the point of view of transmission, this challenge calls for a major effort to plan, approve and carry out investment projects on a scale not seen in recent decades in Italy. It is crucial to be able to identify rapid, effective solutions, if necessary using funds made available by the European Union in response to the post-Covid situation through the National Recovery and Resilience Plan (NRRP). Against this backdrop, we have further accelerated work on key investment projects of most importance to the electricity system, envisaging expenditure of over €18 billion on the projects included in our ten-year Grid Development Plan.

In terms of the "system", on the other hand, the transition to a "distributed production" system based on renewable sources is rapidly altering the market with the rise of the "prosumer" (at the same time a producer and consumer) in place of the traditional "consumer". This is leading to exponential growth in active distributed resources connected to the grid. By managing demand for HV connections, coming directly or indirectly (via distribution companies) from entities proposing renewable initiatives, we can obtain a systematic view of the current situation and future scenarios. In this manner, Terna can monitor the system's ability to meet demand for electricity whilst satisfying security and quality of service requirements: in a word, the system's "adequacy".

An electricity system is deemed to be adequate if it has sufficient resources in terms of generation, storage, demand control and transport capacity to meet expected demand for electricity with a reasonable degree of confidence. Thanks to advanced forecasting and planning tools, together with innovative data management and analytics solutions, we constantly assess the generation resources needed to ensure system adequacy. We do this in the short, medium and long term, also with a view to producing new flexible resources for the system.

An extremely complex challenge. Economic growth is based on an energy model that is no longer sustainable, whilst the world is crying out for a collective commitment to cutting greenhouse gas emissions as quickly as possible. Taking up (and meeting) this challenge means proposing a new approach to efficiency, sustainability and security in all areas of the economy, starting with the energy sector.

In 2015, a meeting of world leaders in Paris reached a historical agreement to deal with climate change. The shared goal is to keep the rise in the average global temperature to below 2°C compared with pre-industrial levels, with the willingness to intensify efforts in order limit the

increase to 1.5°C. COP26, held in Glasgow between 31 October and 12 November 2021 and presided over by the United Kingdom in partnership with Italy, reinforced the international commitment to decarbonisation and sustainable development. Such a commitment plays a key role in our Group's strategic thinking.

Terna plays a central role in this major transition process, as we enable the integration of renewables and the electrification of consumption. Development of the electricity grid is the main enabling factor in achieving decarbonisation of the entire energy system.

What does this mean? Achieving the ambitious European and international goals will obviously require the participation of all members of society, but the energy sector must take the lead, given that it is by a long way the biggest producer of emissions at global level: just to get an idea, the energy sector accounts for approximately 82% of Europe's total greenhouse gas emissions.

Under the European Green Deal, the net zero emissions target is to be achieved in two main ways: by increasing use of renewables and through growing electrification of consumption. In this sense, an essential role in all the various scenarios designed to arrive at "carbon neutrality" is played by the key tool of energy efficiency.

Introducing the "energy efficiency first" principle, the European Commission invited member states to include this principle in all their decisions regarding policy, planning and investment. In this way, in keeping with the EU's long-term strategy, final energy consumption in Europe is expected to fall by (at least) 35% by 2050 compared with the levels in 20191 .

The key consideration, in this sense, is that electricity will be the main energy carrier and the electricity grid will operate as the "backbone" for decarbonisation for all the other energy sectors. This reflects the carrier's intrinsic efficiency and the technological maturity of renewable energy sources (RES).

To fully exploit this potential, the proportion of total energy demand met by electricity needs to grow progressively, involving what is defined as electrification of the system. Europe expects to see the percentage of final energy demand met by electricity rise from the current 23% to 30-31%2 by 2030 and to between 47%3 and 60%4 by 2050. Currently, electricity accounts for approximately 2% of demand from transport, 24% of household demand and 34% of industrial demand5 .

This factor, together with the growing penetration of renewables (which are projected to cover over 85% of the electricity generation mix by 2050, under the European Commission's longterm strategy and excluding nuclear power), will help to fully decarbonise energy consumption by 2050, starting with light transport, housing and services.

¹ EU long-term strategy.

² The European Commission's impact assessment accompanying its announcement of 2030 Climate Target Plan (September 2020).

³ Idem.

⁴ ENTSOE & ENTSOG TYNDP 2020 Scenario Report (June 2020).

⁵ Eurostat for EU27 2019.

Highlights

The "Driving Energy" 2021-2025 Industrial Plan was updated on 24 March 2022.

398.1 +3.5% vs H1 2021 Profit attributable to owners of the Parent 8,994.0

660.5 +10.2% vs H1 2021

Capital expenditure

Net debt

Terna's share price

€7.488 per share at 30 June 2022 versus €6.284 per share at 30 June 2021.

ALL-TIME HIGH

€8.334 per share recorded on 25 May 2022.

FINANCIAL CAPITAL

EBITDA

Terna successfully launches first ever Italian corporate issue of non-convertible, perpetual, subordinated hybrid green bonds for institutional investors, amounting to a nominal value of

€1 billion.

S&P and Scope reiterate their ratings of the Company in recognition of the robust nature of the updated 2021-2025 Industrial Plan.

Bilateral ESG-linked Term Loan amounting to €300 million agreed.

Terna's €9 billion Euro Medium Term Note (EMTN) Programme is renewed in June.

Agreement is reached with CDPQ on 29 April for the sale of all the Group's power transmission activities in Brazil, Peru and Uruguay for over €265 million.

79 km of new power lines built in the first half of 2022.

On 10 March 2022, Terna, Lazio Regional Authority and Rome City Council signed a Memorandum of

Understanding for the deployment of four "invisible" connections extending for a total of around 25 km, involving investment of

In April, Terna's public consultation on the West Link section of the Tyrrhenian Link, the submarine interconnector linking Sicily with Sardinia and Campania at a cost of

Terna is the global leader in live-line working for the security of the national grid and, in June 2022, organised and coordinated the thirteenth edition of Icolim, the main international event on Live-line Working held at Turin's Lingotto exhibition centre.

From July, Terna has become the first TSO to be a member of MITEI, the Massachusetts Institute of Technology (MIT) department focusing on energy research, education and outreach. Under a threeyear agreement, the Terna Group will take part in MITEI's 'Future Energy Systems Center', which aims to facilitate interactions between MIT's teachers and researchers and member companies to address pressing energy challenges and develop decarbonisation solutions to bring to market.

ELECTRICITY SYSTEM

RENS quality 108* MWh vs target 791

Performance well below targets set by ARERA

* Provisional data.

Percentage of demand met from RES 33* % -12.1% vs H1 2021

+179 professionals added in the first half of 2022, an increase in line with the investment programme included in the Driving Energy Industrial Plan for the period 2021-2025.

Launch of the "Terna Academy", the research and training hub set up with the aim of enabling everyone within the Group to develop new skills.

Terna has signed a partnership agreement with the universities of Cagliari, Palermo and Salerno marking the formal launch of the Tyrrhenian Lab, which aims to establish a centre of training excellence. This will enable the Company to develop and deploy new technologies and expertise in the power transmission sector.

Launch of the second edition of the "Terna Ideas" initiative in April, paying greater attention to sustainability and training in innovation.

Terna becomes the first company internationally to adopt the Envision protocol, a rating system used in the design and deployment of sustainable infrastructure that measures, determines and certifies how "green" and resilient the assets are.

International indices and ESG ratings

In January 2022, Terna's membership of Bloomberg's Gender Equality Index (GEI) was reconfirmed for the fourth consecutive year. This is an international index that measures companies' performance regarding gender equality issues and the quality and transparency of their public reporting.

In June 2022, Terna was for the second year running included in the MIB ESG, the blue-chip index for Italy created last year to focus on ESG best practices.

In February 2022, Terna was included in Standard & Poor's Gender Equality & Inclusion Index, confirming its position as one of the best companies for inclusivity and commitment to gender equality.

In June 2022, Terna received the Business International Finance Award 2022 in the "Non-financial indicators, ESG and Sustainability Report" category for our 2021 Integrated Report.

In May 2022, Terna was awarded the "Best in Media Communication 2022" prize, receiving BIC - Best in Media Communication certification from Fortune Italia and Eikon Strategic Consulting.

Ownership structure

At the date of preparation of this report, Terna's share capital amounts to €442,198,240, comprising 2,009,992,000 fully paid-up ordinary shares with a par value of €0.22 each.

Based on periodic surveys carried out by the Company, it is estimated that 51.4% of Terna's shares are held by Italian shareholders, with the remaining 48.6% held by overseas institutional investors, primarily from Europe (not UK) and the USA.

Based on information from the shareholder register and other data collected at June 2022, Terna's shareholder structure breaks down as follows.

SHAREHOLDERS BY CATEGORY

SHAREHOLDERS BY GEOGRAPHICAL AREA AND CATEGORY

The Parent Company's buyback of 1,280,717 own shares (equal to 0.064% of the share capital) was completed in June at a cost of €9,999,993. The shares have been purchased in implementation of the buyback programme to service the Performance Share Plan 2022-2026, approved by the Board of Directors on 29 April 2022.

Major shareholders6

CDP RETI S.p.A.7 (a company controlled by Cassa Depositi e Prestiti S.p.A.):

Information on the ownership structure, restrictions on the transfer of shares, securities that grant special rights, and restrictions on voting rights, as well as on shareholder agreements, is provided in the "Report on Corporate Governance and Ownership Structures" for 2021. This is published together with the Annual Financial Report of Terna and the Terna Group and is available in the "Sistema di Corporate Governance – Governance Report" section of Terna's website.

⁶ Shareholders who, based on the available information and notifications received from the CONSOB, own interests in Terna S.p.A. that are above the notifiable threshold established by CONSOB Resolution 11971/99 and Legislative Decree 58/98, as amended.

⁷ On 27 November 2014, a shareholder agreement was entered into by Cassa Depositi e Prestiti S.p.A. (CDP), on the one hand, and State Grid Europe Limited (SGEL) and State Grid International Development Limited (SGID), on the other, in relation to CDP Reti S.p.A., SNAM S.p.A. and Terna S.p.A.. This was later amended and supplemented to extend the scope of the agreement to include Italgas S.p.A..

Structure of the Group

The structure of the Terna Group at 30 June 2022 is shown below.

Scope of assets held for sale*

Compared with 31 December 2021, the voluntary liquidation of PI.SA. 2 S.r.l., which began on 10 December 2021, was completed on 27 January 2022.

* Companies involved in the planned sale of subsidiaries operating in Latin America, classified as assets held for sale.

TRANSITION

CHING

ANCE

SECURITY

INVESTMENT IN THE NATIONAL

INTANGIBLES

Adequacy Report Innovation New policies

5,315

NexTerna New Ways of Working

Active role at national and international level Participatory design

professionals (H1 2022)

INTELLECTUAL CAPITAL

HUMAN CAPITAL

SOCIAL AND RELATIONSHIP CAPITAL

Development and Resilience Plan

FINANCIAL CAPITAL

INFRASTRUCTURAL CAPITAL

NATURAL

FUTURE PROSPECTS

Y

OUTPUTs OUTCOMEs

GROWTH IN CLEAN ENERG

ADEQUACY

INTERNATIONAL ACTIVITIES

QUALITY OF SERVICE

EFFICIENCY

RESILIENCE

TRANSMISSION GRID

STRUCTURE AND ALLOCATION OF RESOURCES

Financial strength Sustainable fi nance Growth (NRRP)

Decarbonisation

The value creation process and the business model

Terna's process for creating value over time8 is based around three areas of business: Regulated Activities (essentially electricity "transmission" and "dispatching"), corresponding with Terna's core business, and the two complementary deregulated areas of operation,

PROCESS FOR CREATING VALUE OVER TIME

⁸ Terna has adopted the principle-based framework proposed by the International Integrated Reporting Council ("IIRC"). The guiding principles are: (1) Strategic focus and future orientation, (2) Connectivity between information, (3) Stakeholder responsiveness, (4) Materiality, (5) Conciseness, (6) Reliability and completeness, (7) Consistency and comparability. These form the basis of the framework. Their almost total coincidence with the guiding principles in the GRI standard 101 – Foundation setting out the content of quality ESG reporting further strengthens the structure of this Report.

INTANGIBLES

Financial resources to support development and maintenance

of the electricity system

National Transmission

Management of the electricity system (data)

professionals (FY 2021) Distinctive expertise

Institutions, businesses

for the future of energy

and citizens

Environment

Innovation Code of Ethics and values

Grid (NTG)

5,136

BUSINESS

(INDUSTRIAL)

NON-REGULATED ACTIVITIES

C

PERFORMANCE

REATION OF VALUE OVER TIME

COMPANY'S ACTIVITIES

MORE RENEWABLES AND

SYSTEM COMPLEXITY

RISKS AND OPPORTUNITIES

LEGISLATIVE AND

CAPITAL

INPUTS

REGULATORY FRAMEWORK

FINANCIAL CAPITAL

INFRASTRUCTURAL CAPITAL

INTELLECTUAL CAPITAL

SOCIAL AND RELATIONSHIP CAPITAL

HUMAN CAPITAL

MODEL GOVE

DISP

ECOLOGICA

consisting of Non-regulated and International Activities. All these activities focus on delivering the energy transition and a sustainable and inclusive growth model by maximising all the available capitals, from the financial and infrastructure capitals (the national transmission grid) through to those of an intangible and environmental nature.

We are living through a period of great complexity: the planet is growing at an increasingly rapid rate with an energy model that is no longer sustainable and the world is crying out for a global commitment to progressive decarbonisation, to be achieved as quickly as possible. To meet this challenge means ensuring efficiency across all areas of the economy. International decarbonisation and sustainable development goals, given renewed impetus by the last COP26 in Glasgow, play a key role in our strategic thinking.

Ternapeople #DrivingEnergy

Macroeconomic environment	18
Market environment	19
Regulatory framework	24

1 The reference scenario

Macroeconomic environment

Following the decline in GDP seen in 2020, due to the restrictive measures introduced to contain the Covid-19 epidemic, the launch of vaccine rollouts and the introduction of largescale fiscal and monetary support packages made it possible for many areas of the economy to restart in 2021. This was in spite of the ongoing restrictions needed in order to limit the spread of the virus. Global GDP growth amounted to approximately 6.1% in 2021, whilst this is expected to slow to 3.6% in 2022 (IMF). Specifically in terms of Italy, GDP rose 6.6% in 2021 (ISTAT). The role played by Terna's capital expenditure, the pace of which was stepped up in 2021, is worthy of note in this regard due to its positive impact on the Country's GDP (on average, every euro spent adds three euros to GDP).

One of the most significant economic trends in 2021 and 2022 was rising inflation, driven above all by unprecedented increases in energy prices. In addition to the upturn in demand linked to global growth, other factors were at play in Europe: extremely low gas stocks due to geopolitical tensions that had already resulted in a decline in imports in 2021, combined with tensions on the international market for liquefied natural gas (LNG). As a result natural gas prices rose sharply, setting new records across all European markets.

All these factors, in addition to the tensions caused by the unplanned shutdown of several French nuclear plants, led to the biggest rises in wholesale electricity prices seen in the last 20 years.

In addition, the outbreak of war in Ukraine in February 2022 triggered further price rises, above all as regards gas, which drove an increase in wholesale electricity prices. The national unit price in the first six months of 2022 reached an average spot price of €276 per MWh (€67 per MWh in the first six months of 2021). Energy price tensions could also continue in future years as a result of several factors, leading to rising inflation in Italy with an impact on consumer spending. The situation also raises questions about energy security and independence, bearing in mind that 30% of the gas consumed in Italy comes from Russia, 30% from North Africa and to a significant extent from Azerbaijan and the Middle East.

In addition to rising energy prices, the war has also had an effect on the food sector and, more generally, on the global and European economies. The most recent expert predictions indicate that annual price inflation will be 6.8% in 2022, easing to 3.5% in 2023 (source: ECB).

Market environment

According to the IEA9 , the energy sector is largely responsible for the greater part of emissions produced by human activity and its decarbonization is thus key to avoiding the potential effects of climate change. Under the net-zero pathway developed by the IEA, by 2030 the global economy will have grown by 40% but must use 7% less energy than today. Energy efficiency and the electrification of final consumption will thus be the key drivers of decarbonisation. The real enabler of this transformation is electricity as an energy carrier, given the high level of intrinsic efficiency of final uses based on this carrier (resulting from thermodynamic laws and thus independent of any effective technological development): an electric vehicle is from 3 to 5 times more efficient than any technology based on the use of liquid or gaseous fuels, whilst a heat pump is 5-6 times more efficient than any fuel-based alternative.

Europe's approach to shaping the future of its energy sector is set out in the guidelines and regulations in the European Union's Clean Energy Package, adopted at the end of 2018 in response to the commitments made in the Paris Agreement. The bar was further raised in terms of targets for cutting emissions, renewable energy and energy efficiency, with the publication, at the end of 2019, of the Green Deal, which has set the goal of transforming the European Union into a net-zero economy by 2050. This will require us to cut greenhouse gas emissions by at least 55% by 2030 compared with 1990 levels. In addition, on 14 July 2021, the European Commission presented a package of proposals aimed at achieving the targets set for 2030 and 2050, called Fit for 55. Finally, in response the hardships and global energy market disruption caused by Russia's invasion of Ukraine, the European Commission has recently presented its REPowerEU plan, containing financial measures and legislative initiatives designed to build the new energy infrastructure and system that Europe needs. The package aims to find solutions for managing the gas supply emergency, by identifying alternative supplies but above all by stepping up the drive towards renewable energy to reduce Europe's energy dependency, focusing primarily on solar power. Achievement of these new goals will require major additional investment.

At national level, with reference to 2030, the National Integrated Energy and Climate Plan (PNIEC) remains our reference scenario, with the aim of adding 40 GW of renewable energy capacity by 2030, equally distributed between north and south. However, the targets in the PNIEC will have to be revised in line with the new legislation: This will mean adding 60/70 GW of new renewable capacity, requiring the installation of approximately 6-8 GW of new capacity each year (in recent years the figure stands at around 1 GW per year). This will enable renewables to meet at least 65% of consumption. In addition, as regards transport, the PNIEC envisages that there will be 6 million more electric vehicles on the roads by 2030, whilst there are expected to be around 4 million more heat pumps for summer and winter use installed in homes and approximately 10 GW/50 GWh in additional (hydroelectric and electrochemical) storage capacity in the next 10 years. These goals will also have to be raised as part of the process of adopting the new EU targets.

⁹ IEA: International Energy Agency. "Net Zero by 2050" report.

EFFICIENCY FIRST AND DEVELOPMENT OF RES PROPOSTA DI PIANO

NAZIONALE INTEGRATO PER L'ENERGIA E IL CLIMA

31/12/2018

Italia

WIND AND SOLAR INSTALLED CAPACITY TRENDS THROUGH TO 2030 [GW] The Italian approach:

Consumption of electricity is thus destined to rise: the PNIEC predicts that electricity demand will total approximately 331 TWh by 2030. As highlighted earlier, given the growing adoption of electric-powered heating and cooling systems for buildings, electric vehicles and the increased electrification of consumption in general, we expect a further increase in demand between 2030 and 2040. The figures for electricity demand are clearly also subject to revision based on how Italy plans to meet the Green Deal goals.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

To achieve these objectives, it will be necessary to implement a series of actions:

Develop grid

infrastructure to enable the integration of renewable sources and the largescale electrification of final consumption.

develop infrastructure to enable the integration of RES;

accelerate consents processes that today

represent the main obstacle to achieving decarbonisation targets.

Increase the pace of

deployment, giving priority at administrative level to the deployment of RES and simplifying the consents processes for plant installation;

ensure adequate security of supply, exploiting the range of technologies available;

ensure a coherent approach at both the planning and installation stages in terms of timing and geographical location.

For Terna, guide the correct choice of technology mix and location for plants, diversifying sources of supply;

confirm the use of reverse auctions.

Deploy new hydroelectric and electrochemical storage systems to manage overgeneration, grid congestion and residual load ramping events, and provide high-quality services to the system.

For Terna, identify the optimal amount and mix of technologies.

Identify a correct market design mix to achieve an optimal combination of forward markets (RES auctions, storage auctions, the Capacity Market) and spot markets, for both energy and services markets;

broaden the participation of "new" resources (RES, EVs, DSR) in the provision of flexibility services.

For Terna, open up the dispatching services

market (DSM) to resources that are currently not enabled, as non-conventional resources (Virtually Aggregated Mixed Units, the Fast Reserve, the secondary pilot and voltage regulation).

Electricity demand and production in Italy

Demand for electricity in Italy

Demand for electricity in Italy amounted to 158,017 GWh in the first half of 2022, an increase of 2.7% compared with the same period of 2021.

ELECTRICITY BALANCE IN ITALY (GWh)*	H1 2022**	H1 2021**	CHANGE	% CHANGE
Net production	137,857	133,334	4,523	3.4%
From overseas suppliers (imports)	23,481	23,566	(85)	(0.4%)
Sold to overseas customers (exports)	(2,055)	(1,674)	(381)	22.8%
For use in pumping***	(1,266)	(1,420)	154	(10.8%)
Total demand in Italy	158,017	153,806	4,211	2.7%

* Does not include demand for energy for ancillary services related to electricity production.

** Provisional data.

*** Electricity used for pumping water for subsequent use in the production of electricity or as a way of immediately balancing overproduction.

Monthly demand for electricity in Italy continued to grow in the first half of 2022, compared with the same period of the previous year. This reflects the decline in demand in early 2021 due to the measures introduced by the Law Decree of 14 January 2021, which extended the state of emergency until 30 April 2021 and imposed new lockdowns that had a significant impact on consumption. There was a major hike in demand in June due to the high temperatures recorded.

MONTHLY DEMAND FOR ELECTRICITY*

The reference scenario The Group's strategy The Group's business Annexes

Meeting demand and energy production Net wind production Net photovoltaic production Net biomass production Net geothermal production Net renewable hydro production Net thermoelectric production 62.1 Net non-renewable hydro production 10.5 6.4 2.0 10.0 0.6 8.4 H1 2022* 137.9 TWh % NET ELECTRICITY PRODUCTION BY SOURCE * Provisional data. 55.4 9.9 6.7 2.1 17.3 0.7 7.9 H1 2021* 133.3 TWh %

Electricity production in the first half of 2022 is up 3.4% compared with the same period of 2021.

In the first half of 2022, approximately 33% of total energy demand, including overseas imports, was met from renewable energy sources, down on the same period of 2021. In terms of individual renewable sources, hydro production fell sharply (down 40%), partly offset by increases in wind (up 9%) and solar (up 10%) production. Geothermal and biomass production are broadly in line.

Regulatory framework

Terna operates as a natural monopoly and within a market regulated by the Regulatory Authority for Energy, Networks and the Environment (ARERA, or the Autorità di Regolazione per Energia, Reti e Ambiente), which determines the level of regulated revenue for transmission and dispatching activities, currently representing approximately 86.7% of the Group's total revenue.

In Resolutions 653/2015/R/eel, 654/2015/R/eel and 658/2015/R/eel, ARERA set the tariff regime for electricity transmission, distribution, metering and dispatching services and regulations regarding the quality of the transmission service for the fifth regulatory period (subperiod "NPR1", 2016-2019). The regulatory framework for the second four-year period (subperiod "NPR2", 2020-2023) was revised by Resolutions 567/2019/R/eel, 568/2019/R/eel and 574/2019/R/eel.

The framework for the period 2020-2023 (NPR2) is broadly in line with the criteria applied in the previous four-year period from 2016 to 2019 (NPR1), with the principles for recognising the cost of capital (rate of return) and operating costs (price cap and profit sharing) unchanged with respect to the previous regime. The most important change regards readmission of the return on fixed assets in progress, under a mechanism that reflects the related expenditure in tariffs based on rates of return differentiated on the basis of how long ago the expenditure was incurred and for a maximum of four years (beyond four years, the tariff will take into account interest expense incurred whilst work was in progress)10.

At the end of NPR2, the regulations provide for adoption of a Totex/Output-based approach. This recognises costs based on total expenditure incurred (operating and capital expenditure) and focuses more on outputs and the levels of service provided.

In Resolution 583/2015/R/com, ARERA announced the procedure for determining and revising the Weighted Average Cost of Capital (WACC) for a period of six years (2016-2021). This applies to infrastructure services in the electricity and gas sectors and is subject to revision, mid-way through the period, which, with Resolution 639/2018/R/com, enabled adjustment of the allowed WACC in a predictable and transparent manner in keeping with the economic cycle. The WACC for the period 2019-2021 has been set at 5.6% for the transmission service. In Resolution 614/2021/R/com, ARERA set out the procedure for determining and revising the WACC for the various regulated infrastructure services in the electricity and gas sectors in the 2022-2027 period, setting a WACC of 5.0% for the transmission service in 2022. In this Resolution, ARERA confirmed the adoption of a mechanism for revising key macroeconomic parameters at the end of the first three years (2022-2024) and also envisaged the possibility, in the same three-year period, of a further annual revision if the change observed in the key market parameters used in the calculation formula were to result in a change in WACC of at least 0.5%. To date, this threshold for the adjustment has not been reached.

A number of key aspects of regulation in the fifth regulatory period are described below, with regard to allowed revenue for transmission and dispatching services.

¹⁰ When reviewing transmission tariffs for 2020, ARERA also accepted Terna's request for the partial readmission of the Italy-Montenegro Interconnector project among the list of strategic projects in the regulatory period 2012-2015. This means restoring the return on the related LICs not already included in the tariffs, in relation to the share of public investment (not covered by the interconnectors).

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

Transmission revenue makes up the most significant portion of regulated revenue

Transmission revenue makes up the most significant portion of regulated revenue and is generated from application of the related transmission charge (TC), billed by Terna to distributors connected to the National Transmission Grid. This charge pays for the transmission services provided by all transmission service operators, including the owners of residual portions of the grid (external to the Terna Group), and is divided into two components: a power component (equal to 90% of revenue, expressed in euro cents/kW/year) and an energy component (10% of revenue, expressed in euro cents/kWh).

The dispatching service charge (DSC) aims to recompense Terna for carrying out the activities relating to the dispatching service and is billed by Terna to users of the dispatching service in proportion to the quantity of energy dispatched.

Allowed costs that combine to determine the TC and DSC components are attributable to three main categories, as summarised below.

THE MAIN TYPES OF ALLOWED COST

Determined on the basis of the Regulated Asset Base (RAB) and the Weighted Average Cost of Capital (WACC). The RAB represents net invested capital for regulatory purposes. It is revalued annually on the basis of data from ISTAT (Italy's Office of National Statistics) on the change in the deflator applied to gross fixed investment and revised on the basis of the performance of investment and disposals. The WACC represents the weighted average cost of equity and debt. The methods of determining and revising the WACC are established by the regulator.	1. To cover the return on capital (RAB)
Allowed depreciation (calculated on the basis of an asset's useful life for regulatory purposes) is revalued annually based on the change in the deflator applied to gross fixed investment.	2. To cover depreciation
Allowed costs are determined by the regulator at the beginning of the regulatory sub period, based on operating costs recognised during the relevant year, increased by any remaining portions of additional efficiencies achieved in previous regulatory periods. The resulting amount is revalued annually to take account of inflation and reduced by an efficiency factor designed to ensure that additional efficiencies are, over time, passed back to end users in full.	3. To cover operating costs
In addition to the above items, a portion of the remuneration of transmission and dispatching services derives from regulatory incentives linked to the achievement of specific objectives, such as improvements in the quality of the transmission service, increases in transmission capacity between market areas, relieving congestion within those areas, network constraints and conditions for essential service provision, and reductions in dispatching services market costs, in accordance with the provisions of ARERA Resolutions 567/2019/R/eel, 699/2018/R/eel, 597/2021/R/eel and 132/2022/R/eel.	4. Output-based regulation

The ecological transition is an obligatory, irreversible process. Reinforcing our central role in driving and enabling this transition is the aim of our Industrial Plan. Between 2021 and 2025, we will invest €9.5 billion in regulated assets in Italy. Our capital expenditure has a major multiplier effect in terms of both GDP growth and job creation, thus making a decisive contribution to Italy's post-Covid-19 recovery.

Ternapeople #DrivingEnergy

The Group's strategy

The Company and our strategy

The updated 2021-2025 Industrial Plan, "Driving Energy", was approved by the Board of Directors on 24 March 2022. The Plan provides for total capital expenditure of €10 billion, through which Terna will accelerate its commitment to the country's ecological transition, energy independence and decarbonisation. This will strengthen our role in driving the Italian electricity system, in keeping with the challenging objectives set in the National Integrated Energy and Climate Plan ("PNIEC") and the targets in the EU's Green Deal, which aim to cut greenhouse gas emissions by at least 55% by 2030.

The key driver in the 2021-2025 Industrial Plan is sustainable investment, a concept embedded in the Company's value creation process and in the benefits for the system and the environment. Terna's capital expenditure, 99% of which is classified as sustainable based on the EU Taxonomy, targets the development of renewable sources. The transmission

The reference scenario The Group's strategy The Group's business Annexes

backbones that transport energy from points of production, which are increasingly located in Italy's southern regions, to where demand is highest in the north of the country, will be boosted by resolving existing issues caused by grid congestion and further development of cross-border interconnections. Thanks to its strategic geographical location, Italy will be able to reinforce its role as a European and Mediterranean electricity transmission hub, becoming a leading player at international level.

The Terna Group's development initiatives will focus on three strategic areas: Regulated Activities in Italy, Non-regulated Activities and International Activities.

In terms of Regulated Activities in Italy, which continue to represent the Group's core business, Terna plans to invest €9.5 billion in developing, modernising and strengthening the national transmission grid, confirming our role in driving the energy transition and enabling an increasingly complex, sustainable and innovative electricity system. This investment, focused on increasing the country's energy security, will generate major benefits for the system as a whole, with a significant multiplier effect.

The planned investment will increase the value of our RAB to €22.7 billion in 2025, with a CAGR of 7% over the life of the Plan. By the end of 2022, the value of the RAB will be €17.9 billion, compared with €16.9 billion at the end of 2021.

Enablers

Enablers

The updated 2021-2025 Industrial Plan targets increased investment in development of the national transmission grid, which is due to total €5.6 billion. This is primarily linked to the construction of high-voltage direct current lines with the aim of resolving grid congestion, boosting transmission capacity between the various market areas, fully integrating renewable sources and improving quality of service. This type of investment will also involve the construction of undersea cable connections. The most important project is the Tyrrhenian Link, the power line that will connect Sardinia, Sicily and Campania and that will contribute to the development of renewable energy production and the phase-out of the most polluting coaland oil-fired power stations. The other projects include Sa.Co.I.3, the interconnector linking Sardinia with Corsica and Tuscany, and the "Colunga-Calenzano" power line between Emilia-Romagna and Tuscany.

Investment in renewing and improving the efficiency of assets, covering the reorganisation of existing infrastructure, with the replacement – where technically feasible – of overhead lines with underground cable, will amount to €2.6 billion.

Finally, Terna plans to invest a total of €1.3 billion in the Security Plan, over the life of the Industrial Plan, with the aim of boosting the system's technical and technological capabilities to increase system functionality.

Non-regulated Activities will help to generate new business opportunities thanks to the development of innovative, digital solutions in keeping with Terna's public service role in supporting the energy transition. These activities will include:

• industrial activities in the field of transformers, thanks to the consolidation of Tamini, and in underground cables, leveraging the distinctive expertise in terrestrial cables acquired with Brugg Cables, to respond to the system's growing needs in both sectors;
• connectivity offerings, including within the context of partnerships, involving the provision of housing and hosting services to enable telecommunications providers to use our fibre network, and the installation of telecommunications equipment at Terna's existing sites;
• energy solutions and energy efficiency services for industrial customers and O&M activities for photovoltaic plants, taking into account the skills acquired with the LT Group and including through the use of innovative data collection and analysis technologies.

Terna expects Non-regulated Activities to contribute a cumulative total of over €450 million to the Group's EBITDA over the life of the Plan, in return for limited investment and risk exposure.

Turning to our International Activities, following the decision to extract value from our South American assets, we will continue with the strategic assessment of opportunities. These may take the form of partnerships, involving the careful selection of projects with a view to ensuring a low risk profile and avoiding the need to tie up large amounts of capital.

Terna will look to exploit new opportunities in low-risk markets with attractive growth potential, such as the United States, where the Company can make available our experience and expertise in the design and management of infrastructure, in line with our business strategy.

and Robotics (process automation).

The reference scenario The Group's strategy The Group's business Annexes

Over the coming years, innovation, new technologies and digitalisation will acquire ever greater importance, playing an increasingly central part in enabling the energy transition for the benefit of the entire system. In response to the growing complexity of the system, Terna intends to invest approximately €1.2 billion from the total of €10 billion earmarked for capital expenditure in the 2021-2025 Industrial Plan in digitalisation and innovation. We will concentrate our efforts on the use of advanced technology to remotely control electricity substations and transmission infrastructure. The Plan identified four technology clusters around which the new initiatives and projects will be focused, taking into account global technological trends and Terna's requirements: Digital (intelligent energy and capacity management solutions); Energy Tech (innovative solutions using more efficient, greener technologies); Advanced Materials (research and development resulting in eco-compatible materials to reduce our environmental impact);

Terna's people, with their unique, distinctive, world-leading technical expertise, are a key asset in enabling the Group to achieve the challenging goals we have set ourselves. The Company has launched an ambitious cultural transformation called NexTerna, involving the definition of a new leadership model and new ways of working and operating that are a response to the current scenario. This innovative approach is based on the digitalisation of processes and tools to increase people's efficiency and productivity, bringing logistical benefits and, above all, improving quality of life for all our workers. Terna's people-centric approach is also reflected in the creation of jobs: over the life of the Plan, we expect the number of employees to rise to approximately 5,900 by 2025.

ESG objectives in the 2021-2025 Industrial Plan

In March 2022, together with the presentation of the "2021-2025 Industrial Plan" to the market, the ESG objectives were updated and - in line with the overall presentation of the Group's operations adopted with effect from the 2021 Integrated Report - reorganised in terms of types of capital.

In particular, the process of embedding sustainability within our business takes the form of setting objectives aimed at increasing intangible capital and respecting natural capital.

THE CONTRIBUTION OF ESG CRITERIA TO THE CREATION OF VALUE

INPUTS	TOOL	AREA OF INTERVENTION	OUTPUTS	OUTCOMES
Awareness of external challenges and global trends Commitment to achieve the benchmark SDGs	EMBEDDING ESG ASPECTS IN PLANNING AND MANAGEMENT OF THE BUSINESS		Human resources HUMAN CAPITAL Stakeholders and communities SOCIAL AND RELATIONSHIP CAPITAL Integrity, responsibility and transparency	Availability of adequate intangible capital	MITIGATION OF ESG RISKS
matching the Group's strategic objectives		INTELLECTUAL CAPITAL		CONTRIBUTION TO ACHIEVING
		The environment NATURAL CAPITAL	Containment of environmental impacts	THE STRATEGIC OBJECTIVES

These objectives help to leverage certain enablers of full implementation of the Industrial Plan and mitigate the ESG risks associated with the Group's activities. They are aimed at ensuring the sustainability of our business, creating value in the medium and long term, further embedding sustainability within the Group's value proposition and maintaining Terna's attractiveness for investors, who increasingly take these issues into account.

Innovation

In an expanding and highly complex electricity system, innovation and digitalisation play an increasingly important role, forming the two pillars that underpin Terna's virtuous growth path.

Terna's innovation is aimed at developing new solutions to meet the growing needs and challenges arising from the ecological transition, in line with the role of driver and enabler set out in the Company's strategy.

In response to the challenges and the Company's needs, Terna has kept track of technological developments and identified the emerging issues that will affect the Italian energy system. Based on their potential impact on the business, we have identified four technology clusters around which the new initiatives and projects will be focused:

• Digital: intelligent energy and capacity management solutions;
• Energy Tech: innovative solutions using more efficient, greener technologies;
• Advanced Materials: research and development resulting in eco-compatible materials to reduce our environmental impact;
• Robotics: the automation of operating and administrative processes.

Terna has thus adopted and developed an innovation model geared towards meeting new needs and generating value for the Company and our stakeholders, via an approach that is concrete, open, inclusive and distributed, and that responds to the identified needs. The model involves both external players (at one and the same time, both enablers and beneficiaries) and internal actors with the aim of developing, protecting and safeguarding our intellectual property. This broadly-based innovation ecosystem facilitates Open Innovation, entailing the beneficial, continuous exchange of ideas and generating a range of initiatives.

Innovation projects

Initiatives in the first half of 2022 relating to high value-added projects in the innovation portfolio include:

Production of a first drone to measure electrical resistance (using an OHMSTIK sensor) was completed in May, with the benefit of reducing risks when carrying out live-line inspections high above the ground and the introduction of new specialised measurements. This project is part of a programme of innovation initiatives regarding the development of occupational safety solutions and technologies. Drones for specialised activities

Equigy

In the first half, development of the platform's personal data management functions regarding distributed flexibility resources was launched, as well as the design phase for using the platform to support structural innovation project initiatives.

The reference scenario The Group's strategy The Group's business Annexes

This solution involves the digitalisation of communications between operations rooms and field personnel during the securing of high-voltage installations - which were previously carried out by telephone - via the exchange of phonograms.

After successful testing of the identified solution, carried out in early 2022 on four Infrastructure Units and their respective Local Control and Remote Control Centres, the project entered the adoption phase in the second quarter of 2022.

The development of additional features and functions also began as part of the "Making equipment safe to work on" initiative.

In line with our role in driving the energy transition, Terna is working with the European Union on the development of research and innovation projects, with funding provided under the Horizon programme.

Idea generation and scouting

The main Open Innovation initiatives carried out in the first half of 2022, in collaboration with large companies, Italian start-ups, SMEs and innovation facilitators, are described below.

This is a corporate entrepreneurship programme that aims to spread the culture of innovation throughout the Company. The initiative enables the Company to gather innovative ideas (and subsequently develop some of them) and to provide an unprecedented overview of innovation requirements in all the different areas of the Company.

In the first half of 2022, a proof-of-concept development process was launched for the three winning ideas of the first edition of the programme, relating to concept design and feasibility studies for the proposed solution. In June, the three winners' business cases were finalised and, during the gate review held in July, the ideas that will proceed to development were chosen.

The set-up of the second edition of the programme began in the first six months of the year and the Open Call phase, focusing on three new challenges, was completed. The challenges regard the evolution of training and working methods, boosting grid management efficiency via digital tools and the exploitation of data and solutions that consolidate the Company's commitment to circular economy initiatives. The Open Call attracted 85 ideas presented by over 250 Terna Group employees. Selection of the ten ideas that will go on to the incubation stage is underway.

This initiative promoted by Terna in collaboration with the Cariplo Foundation and the Cariplo Factory, is aimed at developing young talent and supporting the growth of start-ups and companies with innovative projects.

After 12 weeks of work, the proof-of-concept process was completed for 4 of the solutions selected during the Selection Day in February. These were proposed by the start-ups, AnotheReality, CloudVision, Coderblock and Pedius and linked to "NexTerna – Virtual and Physical Spaces" relating to Smart Office and Smart Collaboration initiatives.

In the second half of 2022, the best solution from among those presented by AnotheReality, CloudVision and Coderblock will be chosen and the prototype/demonstration phase will begin. These are Virtual Collaboration solutions, consisting of applications and platforms enabling people to have an immersive, virtual daily work experience.

Extended trials of the solution put forward by the start-up, Pedius, will begin in the second half of 2022. This inclusive application, personalised for Terna, permits people with hearing difficulties to play a more integrated role in daily working life.

Phonograms 2.0

Terna Ideas

Next Energy 5

Open Italy	Testing of the three solutions developed as part of the 2021 edition of the ELIS Open Italy programme was completed in the first half of 2022. The solutions are: "SkillGymXTerna", relating to Digital HR & New Ways of Working (proposed by the start-up, SkillGym) and "JumpInTerna" relating to Digital HR & New Ways of Working, and "Terna CyberPalace" regarding Cybertech, both put forward by the start-up, Another Brick.
	The proof-of-concept results were presented during the Demo Days for the new 2022 edition of the Open Italy programme, carried out in May.
	Further development and testing of the last two solutions, both proposed by Another Brick, is being planned for the second half of 2022.
	For the 2022 edition of the programme, launched in May, Terna has also identified several solutions in the fields of Sustainability, Decarbonisation & the Circular Economy, Safety Management & Digital Health, Operational Excellence and Asset Management, Digital HR & New Ways of Working and Privacy & Cyber Security.
	The first proof-of-concept in the Sustainability, Decarbonisation & the Circular Economy field was launched with the start-up, Krill Design, in June 2022. This puts forward a Green Economy model bringing together the need to recycle waste and create something by exploiting an approach based on the circular economy, technological innovation and creativity. The proof of-concept will last a total of approximately 12 weeks.
International Innovation	As part of the International Innovation project, a workshop entitled "Neuroscience applications for employee wellbeing" was held on 25 January 2022, which dealt with macro-trends in neuroscience, possible applications in the field of wellbeing, and an overview of successful start-ups and scale-ups in the sector.
	In April 2022, a workshop on landscaping for the circular economy was held, analysing technological and market trends (with regard to the US market). A benchmark analysis regarding the circular economy strategies and initiatives of a number of major US energy and non-energy companies was also carried out.
	Scouting for innovative software solutions for training also took place in the first half of 2022.
	Finally, a Cyber Security landscaping exercise was completed in July, with a workshop presenting the key conclusions.
Start-up Intelligence programme	As part of the innovative Start-up Intelligence programme at the Polytechnic University of Milan, which focuses on research, scouting and community activities aimed at innovation managers and other people involved in digital innovation at companies, nine discussion and collaboration round tables were held in the first half of 2022 as part of the latest edition of Startup Intelligence S08.
Luiss Data Girls	In the sixth edition of this programme, which began in November 2021 and ended in April 2022, Terna took part in a challenge, in collaboration with the subsidiary, Terna Energy Solutions S.r.l., regarding the avoidance of emissions and environmental and social externalities through the use of a photovoltaic system integrated with a storage system.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

An increasingly intelligent grid

Electricity data is undoubtedly Terna's most important content asset, and one of the cornerstones of our intellectual capital.

The TSO collects and processes this data for the purposes of managing the electricity system (by the Dispatching department, the nerve centre of the System Operator) and as the basis for statistics, scenarios and analyses, as well as processes, maintenance activities and strategic asset development, which are vital in the context of the energy transition.

The mass of data that is processed contributes to the preparation of essential reports (Energy Forecast Scenarios, Italy Fitness for Purpose Report, Resilience Plan) relating to grid management and development. The purpose of these reports is to evaluate the interventions needed to boost the ability of power lines to withstand increasingly frequent extreme weather events, and to identify sufficient available capacity to achieve the national decarbonisation objectives within the set timeframe and, consequently, be able to scale Capacity Market auction requirements.

unit

2. The Group's strategy

Our people

People are Terna's most important asset, one of the enabling factors in the 2021-2025 Industrial Plan. Each of us brings skills and experience that can help to increase the value of the Company.

THE WORKFORCE	AT 30 JUNE 2022	AT 31 DECEMBER 2021	CHANGE
Senior managers	100	92	8
Middle managers	838	765	73
Office staff	2,905	2,815	90
Blue-collar workers	1,472	1,464	8
Total	5,315	5,136	179

The increase of 179 in the workforce at 30 June 2022 compared with 31 December 2021 is primarily linked to the requirements relating to delivery of the investment programme provided for in the 2021-2025 Industrial Plan, and to the need to strengthen the Group's distinctive competencies.

Management of the health emergency

In the first half of 2022, Terna continued to apply the specific organisational measures designed to reduce the risk of infection from Covid-19 introduced in 2020 and 2021. The measures have remained in place even after the end of the state of emergency (31 March 2022), retaining the option for all employees (office staff and managers) to work in a flexible manner, coming into the office up to 50% of the time. As part of the Sicuri Insieme ("Safe Together") campaign, the offer of molecular testing to anyone making a request proceeded.

The reference scenario The Group's strategy The Group's business Annexes

Main initiatives in the first half of 2022

The NexTerna programme continued in the first half of 2022, with the following main results:

• Cascading of the New Leadership Model, "Leading Next", a tool designed to encourage and guide new leadership behaviours to be adopted on a day-by-day basis in line with the new ways of working. The Leading Next model promotes the establishment of new management rituals for specific occasions, organised differently across the various departments (e.g., group, one-to-one, remote, face-to-face and hybrid meetings), during which people are expected to apply the leadership behaviours needed to respond to the three challenges relating to Performance, Engagement and Wellbeing. Activities linked to the "Train the Trainer" initiative were also completed, with the aim of accelerating the application and adoption of the above rituals within the Company.
• The launch of the Power Supporter initiative (agents of change selected from within the Company) to drive the change management process and adopt new ways of working within the Company.
• Continuation of the Wellbeing in Action programme with the organisation of 4 web conferences and the creation of a Web App making available 4 different ways to support the spread of a culture of wellbeing.
• The launch of the Terna Academy, the new online training platform for Terna's people and everyone within the Group, forms part of the NexTerna cultural transformation programme. The aim is to put forward a new way of working through active, informed involvement of people, promoting innovation, upskilling and reskilling programmes.
• The start-up of the second phase of desk-sharing to support the migration to a hybrid approach to using workspaces.
• The launch of coworking around the country through the partnership with Regus.
• Signature of the Terna Group's New Industrial Relations Protocol, envisaging the establishment of a Committee to consult on the Group's strategy, of a bilateral welfare body and a bilateral body focusing on equal opportunities, diversity and inclusion.

On 15 June 2022, the Board of Directors approved the terms and conditions of the Performance Share Plan 2022-2026, in implementation of the terms established by the Annual General Meeting of shareholders held on 29 April 2022.

Further details are provided in the Information Circular on the Performance Share Plan 2022-2026, published on the Company's website (www.terna.it).

In the first half of 2022, Terna pursued various work-life balance initiatives, in response to corporate welfare needs highlighted by staff. In particular, agreements providing staff benefits have been reviewed, wellness initiatives have been further improved, including nationwide amateur competitions and tournaments, and green mobility services are being supported and promoted. A new "Long-Term Care (LTC) policy for people with care needs" has also been arranged in collaboration with FISDE.

69,482 hours of training were provided in the first six months of 2022, covering topics relating to Sustainability, Compliance and HSE, Energy Transition and Technical Specialisation, New Ways of Working and Acceleration.

NexTerna (New Ways of Working)

Compensation, welfare and policies

Training and engagement

Talent Acquisition and Talent Management	Staff recruitment and selection activities continued with the focus on acquiring graduates from universities and vocational schools with Industry 4.0 expertise, in keeping with the new organisational arrangements. Terna's Talent Attraction strategy also involves working with the academic world and business schools with the aim of recruiting the best candidates.
	During the first half of 2022, we also continued our commitment, in partnership with universities and business schools, to pre- and post-graduate training programmes for young people. Starting this year, candidates can look for vacancies on the Terna.it website and send their applications directly to the Talent Acquisition database.
	Implementation of the new Talent Management Model continued in the first half of 2022. Through a process of alignment with the new Leadership Model and the involvement of all our management teams, the new approach will allow us to identify a pool of talented people to be directed towards special career development pathways. The initiative will involve the creation of a Talent Committee to take charge of running the programme.
Health, Safety & Environment	During the first half of 2022, Terna continued to promote a global approach to safety involving all the Company's staff, as well as people working at Terna's sites in various capacities. By designing improvement and prevention plans, the Company's aims to make safety nothing short of a way of life, thereby achieving a significant reduction in injury indicators for both in-house personnel and contractors.
	Regarding environmental matters, circular economy projects continued, with a focus on reduction, reuse and recycling initiatives. Initiatives in the first half of 2022 included: (i) the Terna circular computer reuse community project, which aims to reuse IT assets no longer in service by donating them to schools once they have been restored; (ii) the recovery of used PPE, which aims to transform materials from discarded clothing used by operational personnel (apparel, shoes and helmets) into a secondary raw materials; and (iii) the green procurement project, which introduces procurement circularity criteria involving application of minimum environmental criteria (MEC) in procurement processes for certain product categories. Alongside these initiatives, we are working on a Company strategy designed to guide the approach to such matters. This will result in a Circular Economy Roadmap with targets for 2030.

Risk management

In view of the distinctive and specific nature of the core business, regulated primarily through a government concession arrangement and by the Regulatory Authority for Energy, Networks and the Environment (ARERA, or the Autorità di Regolazione per Energia, Reti e Ambiente), Terna is not so much exposed to the usual price- and market-related risks (or is so only to a limited extent with regard to our Non-regulated and International Activities, which in any event involve a low level of economic and financial risk), as we are to regulatory and legislative risk, as well as the traditional operational risks that have become increasingly critical during the current ecological transition.

Regulatory risk derives from potential changes in the criteria used to determine regulated revenue, particularly following a multi-year review of the regulatory framework. Legislative risk relates to potential changes in Italian and European laws governing matters relating to the environment, energy, tax and social aspects (above all labour and tenders).

An important reference for the identification of corporate risks is the framework of corporate objectives, based on strategic objectives and key factors in the creation of corporate value (recurring objectives), to which the various kinds of potential risk event that could affect their achievement are associated.

For further details on the framework, the risk management process and the main business risks, reference should be made to the "Risk management" section of the 2021 Integrated Report.

Opportunities and risks for Terna connected with climate change

Climate change brings a series of opportunities and risks for the Company that must be properly evaluated to ensure that they are effectively managed. To identify them, Terna applies the framework used by the Task Force on Climate-related Financial Disclosures (TCFD), which divides climate-related risks into two main categories:

• Transition risks: transitioning to a lower-carbon economy may entail policy and legal risks, due to different regulatory requirements across different geographies, or to new impacts and/ or uncertainties resulting from the policies adopted. The transition may also result in technology risk, due to uncertainties surrounding the role of emerging technologies, and market risk, linked to new dynamics, shifts in supply and demand and an increasingly complex market environment, which could expose organisations to reputational risks;
• Physical risks: physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption.

For further details on the opportunities and risks connected with climate change identified by Terna, reference should be made to the "Risk management" section of the 2021 Integrated Report.

Conflict in Ukraine: risk assessment and prevention for the Terna Group

In response to concerns over global events, from the outset of the crisis involving Russia and Ukraine, the Terna Group took immediate steps to monitor the potential impact/ risks. This focused on the ongoing geopolitical developments and, in particular, the related legislation, above all with regard to the international sanctions introduced following the outbreak of war between the two countries.

For this purpose, we moved quickly to set up specific taskforces to monitor any new sanctions and to strengthen our due diligence procedures and ordinary controls. The main potential areas of concern to be monitored continuously by the taskforces are: cyber security, economic and financial, the electricity system and the impact on procurement.

Since the start of the conflict between Russia and Ukraine, we have seen an increase in cyberattacks on Italian government and corporate websites. These shows of force have not led to major upheaval or data breaches but have created some short-term disruption.

Thanks to the continuous sharing of information with government bodies and priority access to information from Cyber Threat Intelligence providers, a series of rules and atures have been implemented as part of Terna's cyber protection systems with the aim of preventing any malicious acts. Checks confirmed that the Group does not use any cybersecurity products or services linked to the Russian Federation. Work has also begun on further raising the level of cybersecurity for the data flows required by Terna and Swissgrid, as members of ENTSO-E, to monitor the defence systems used by the Ukrainian national grid.

On the economic and financial front, the current crisis has led to significant movements in a number of macroeconomic variables. The rise in inflation, which began at the end of last year due to the impact of the Covid-19 pandemic on the supply of goods and

services, has further accelerated since the outbreak of war in Ukraine, primarily as a result of rising energy prices. Under Terna's existing regulatory framework, which indexes allowed operating costs and the RAB (the latter revalued on the basis of the deflator applied to investment), we do not expect a negative economic impact due to price pressures, even if the above indexation of allowed costs will be reflected in the accounts with a time lag of approximately one year.

The increase in inflation has, on the other hand, led central banks and, specifically, the European Central Bank to accelerate their plans to tighten monetary policy, with the aim of mitigating the effect of rising prices. This has resulted in a sudden increase in interest rates, which will have an impact on Terna's cost of debt in the coming years. The effect will not, however, be immediate in view of the average duration of existing debt and the current high proportion of fixed rate borrowing (around 90%).

On the other hand, major movements in the macroeconomic parameters to which the Group is exposed (interest rates, inflation, the yield on Italian government bonds and European cost of debt indices) could lead to a change in the allowed cost of capital that would offset the impact of movements in the variables themselves. In this regard, from 2023, the WACC is due to be revised annually if, following the update of certain parameters, the WACC rises or falls by more than 50bps. In addition, there will be an overall review of the parameters used to calculate the WACC in 2025, in accordance with the resolution published by ARERA at the end of 2021. In this case, the review process does not provide for thresholds for adjustments to the cost of capital.

Finally, it should be noted that the Group currently has access to funding represented by liquidity and committed lines of credit (thus immediately available). This, together with our ability to generate cash, will enable us to meet the Group's funding requirements for the next 18/24 months and respond to any further capital market tensions.

As regards the adequacy of the electricity system, there has so far been no impact. However, any shortfall next winter in the supply of natural gas, which is used to produce approximately 45% of the power needed, would only partially be offset by maximizing production from other energy sources. The Government and the gas emergency committee are considering what steps to take in response to a major drop in the quantity of gas supplied by Russia. This would involve seeking to import gas from other parts of the world and cuts to consumption, as well as maximising production from remaining coal and oilfired power plants.

Europe's strategy, which is moreover consistent with Terna's energy transition goals, aims to progressively achieve independence from Russian gas.

In terms of procurement, as a result of international sanctions, Terna has suspended the qualification of just one Russian supplier, mitigating the related effect by increasing the use of other available suppliers. We are also taking steps to address issues regarding the supply of power lines, substation equipment and power systems, partly in view of the problems arising as a result of non-indexed supply contracts (claims for extra costs).

As regards major projects (e.g., the Tyrrhenian Link and Sa.Co.I. 3), where substation supply contracts are about to be fulfilled, there will be a potential impact of the uncertainty surrounding commodity prices and possible delays to contract delivery due to force majeure. Finally, in terms of civil works contracts, we are currently monitoring the potential impact - so far considered limited – of a possible revision of contract prices following the Government measures introduced in the first half of 2021.

With our projects and substantial investment in network infrastructure, we are laying the foundations to promote and support the current ecological transition with a fit-for-purpose electricity system that is safe, efficient and makes increasing use of renewables. Thanks to the unique skills of our people, constant dialogue with local communities and the adoption of innovative solutions, we are contributing to the growth and development of sustainable projects for the benefit of Italy.

Operating activities	46
Financial review for the first half of 2022	75
Terna's shares	86
Outlook	88

3 The Group's business

3. The Group's business

Operating activities

The Terna Group's business model is divided into three areas of business. The main area is Regulated Activities, which coincides with the obligations deriving from the government concession, together with Non-regulated Activities and International Activities.

Regulated Activities: the National Transmission Grid

The Terna Group owns 99.9% of the NTG, one of the most modern and technologically advanced in Europe. We are the largest independent electricity transmission network operator in Europe and one of the world's leading operators, with around 75 thousand kilometres of high and very high-voltage lines. The Group is responsible for managing the flow of electricity through the grid in every part of Italy, with the aim of ensuring that there is a constant balance between the quantity of energy injected into the grid and demand, and guaranteeing continuity and accessibility of service for the population as a whole. We are also responsible for planning, construction and maintenance of the grid.

2021 Development Plan

On 7 July 2021, the latest available 2021 Development Plan for the National Electricity Grid, approved by Terna's Board of Directors on 12 May 2021, was presented to the Ministry for the Ecological Transition, in line with the provisions of art. 60 of the "Simplification Decree", which requires Terna to prepare a ten-year Development Plan for the national transmission grid every two years.

The National Transmission Grid Development Plan provides for investment of €18.1 billion over the next ten years, marking an increase of 25% compared with the previous ten-year plan. As well as the works planned for the period, the Plan also covers the state of progress of works planned in previous years.

The Plan must guarantee the sustainable development of the National Transmission Grid (NTG), by enabling the implementation of RES, and supporting the energy transition and the phaseout of coal. It contains all the investments that Terna is committed to carrying out in order to guarantee the efficiency of the grid, the security of supply and of the service and the integration of production from renewable sources, in line with the objectives set out in the Proposal for a National Integrated Energy and Climate Plan (PNIEC), provided for by Regulation 2016/0375 of the European Parliament and Council on the Governance of the Energy Union.

The reference scenario The Group's strategy The Group's business Annexes

To achieve this, four drivers have been identified:

DECARBONISATION

Grid development to support the ecological transition and combat climate change, by:

• facilitating RES deployment and integration;
• facilitating the spread of electric mobility and reducing emissions in the long term;
• supporting the increase in electricity penetration.

AFFORDABLE AND CLEAN ENERGY	SUSTAINABLE CITIES AND COMMUNITIES 1 11 合肥品	RESPONSIBLE CONSUMPTION AND PRODUCTION
CLIMATE 18 ACTION

Supporting economic growth and improving the quality of life by reducing system costs, by:

• building market integration infrastructure;
• integrating the Dispatching Services Market.

AFFORDABLE AND CLEAN ENERGY	8 ECONOMIC GROWTH	O TINDUSTRY, NNOVATI ANDINFRASTRUCTURE
--------------------------------	-------------------	-------------------------------------------

SECURITY, QUALITY AND RESILIENCE

Security of supply ensures the security of the national electricity system and, at the same time, creates an increasingly resilient system, capable of handling critical events external to the system itself, by:

• investing in research and using innovative technologies;
• investing in operation, maintenance, upgrades, new grid connections and cabling.

The ability to plan, design and implement based on rigorous analyses that maximise the environmental benefits together with the economic benefits is the only possible guarantee of sustainability, through:

• investment in innovative technologies to mitigate environmental impact;
• projects to protect biodiversity and natural habitats;
• constant stakeholder engagement;
• efforts to make grids more efficient.

The drivers are pursued along five lines of action:

1. INTERCONNECTORS

The upgrade and expansion of cross-border interconnections to boost exchange capacity with neighbouring countries.

2. INTEGRATION OF RES

Increase exchanges between market areas to boost the integration of renewable energy sources (RES).

3. EXPANSION OF THE NTG

Address critical issues, increase electrification in metropolitan areas;

Integrated management of NTG security;

Increasingly widespread control of the grid.

4. INFRASTRUCTURE SYNERGIES

Synergies with other systems (gas, railways and telecommunications) to integrate networks with a reduced impact on local areas.

5. RESILIENCE 2.0

New approach to identifying and assessing initiatives that increase grid resilience.

The reference scenario The Group's strategy The Group's business Annexes

With regard to decarbonisation, in line with Legislative Decree 93/11 and Resolution 627/16, as amended11, Terna has included a specific section in the National Development Plan setting out the actions needed in order to make full use of the power produced by renewable plants. The network assessments conducted with a view to facilitating the use and development of renewable production have led to the identification of the work to be carried out on both the primary 380-220kV transmission grid and on the 150-132kV highvoltage grid.

The planning process, leading to the definition of the Development Plan, can be divided into four main phases:

• 1) collection of physical grid and economic market parameters, and implementation of the main forecast scenarios at national and European level;
• 2) analysis of the current operational state of the electricity grid and forecast analyses on shared scenarios in order to identify critical areas of the grid, which underlie new development needs and priorities, and also to assess future problems and identify future grid development needs;
• 3) feasibility studies and cost-benefit analyses carried out in order to assess the overall benefits (including those relating to environmental and social sustainability) compared with the associated costs for each investment project;
• 4) planning of the works with the greatest added value for the system, followed by the subsequent phases of consultation and authorisation, procurement and delivery.

¹¹ Resolution 627/2016/R/eel, as amended - Provisions for consultation on the ten-year National Transmission Grid Development Plan and approval of the minimum requirements for the Plan, in relation to the assessments for which the regulator is responsible.

Principal projects for the National Transmission Grid 2021-2025

The Development Plan envisages capital expenditure of approximately €6 billion in the period 2021-2025, which is in addition to expenditure on the Security Plan, the Electricity Asset Renewal Plan and other investment:

150kV Vittoria-Camerina-Scicli antenna

The reference scenario The Group's strategy The Group's business Annexes

DEVELOPMENT PLAN

Interconnectors and lines	Km of circuit	Status	Driver
Italy-France Interconnector	180
Italy-Austria interconnector	24
Italy-Switzerland Interconnector	100
Italy-Slovenia interconnector	154
Sardinia-Corsica-Italy interconnector	778
HVDC Centre South - Centre North	221
HVDC Italy-Tunisia	200
HVDC Mainland-Sicily-Sardinia	950
Restructuring metropolitan areas	182
Chiaramonte-Gulfi-Ciminna	173
Upgrade in the Mid Piave Valley	90
Colunga-Calenzano ü	85
Gissi-Foggia	140
Cassano-Chiari	36
Deliceto Bisaccia	36
Upgrade North-Calabria	10
Paternò-Pantano-Priolo	63
Elba-Mainland ü	35
Substations
Agnosine substation Vizzini substation Pantano substation
Torremaggiore substation Cerignola substation Ariano Irpino substation
Legenda Resiliece and Status*

üResilience Plan	Completed/ in service	Under construction	Awaiting consents	Consultation	Under design	Planned
Legenda Driver*
	De-carbonisation Market efficiency		Security of supply		Systemic sustainability

* The other initiatives completed in the first half of 2022 are shown in the section, "Changes in the dimensions of the NTG" in the annexes.

Security Plan

The National Electricity System Security Protection Plan, also known as the Security Plan, is a four-year programme of interventions to protect the security of the electricity system. Prepared by Terna pursuant to Law 290 of 27 October 2003, the Plan is submitted to the Ministry for the Ecological Transition for approval by 31 May of each year.

The 2022 Security Plan is the nineteenth edition and updates the initiatives designed to safeguard the security of the electricity system for the four-year period from 2022 to 2025, amounting to investment of over €1 billion.

The 2022 Security Plan is fully in line with the evolution of the energy sector, linked to the process involved in the current ecological transition. It responds to the needs resulting from the increase in the proportion of the production mix represented by renewables and the phase-out of coal by 2025, as well as to the increasingly frequent occurrence of extreme weather events of growing intensity that lead to faults or outages affecting the electricity transmission grid.

To drive and support the current ecological transition, whilst ensuring that the electricity system continues to have high levels of security, Terna has prepared the 2022 Security Plan on the basis of 5 guidelines and 4 areas of action designed to address the new challenges presented by the ecological transition:

The 2022 Security Plan thus includes initiatives designed to strengthen and renew management of the electricity system, to regulate voltage and the dynamic stability of the grid, to adapt control and defence systems and to reinforce the physical and cyber security of grid infrastructure.

Attached to the 2022 Security Plan is the 2022 Resilience Plan, drawn up on the basis of the Resilience methodology that received ARERA's approval in resolution 9/2022, and that includes all the investments set out in Terna's strategic plans (Development, Security and Renewal). The Resilience Plan is designed to boost the resilience of the electricity system to enable it to withstand extreme weather events, such as ice, snow and strong winds. Further information on Resilience 2.0 methodology is provided in the 2021 Integrated Report.

SECURITY PLAN

Projects					Status		Driver
Fiber for the Grid
Work on increasing resilience ü
Voltage regulation and dynamic stability devices
Cybersecurity
Initiatives for dispatching and control and defence of the NTG
Legenda Resiliece and Status
üResilience Plan	Completed/ in service	Under construction	Awaiting consents	Consultation		Under design		Planned
Legenda Driver
De-carbonisation		Market efficiency		Security of supply		Systemic sustainability

Infrastructure maintenance

Maintenance of electricity grid infrastructure is essential in order to guarantee quality of service, as well as the security of the assets managed (power lines and substations) and their performance throughout their lifecycle. These operations are primarily carried out on the basis of a conditional approach, although a series of initiatives are currently in progress with a view to switching some of the activities towards a predictive approach to maintenance. The IT and digital tools used to date to support maintenance activities are primarily the following two: the MBI (Monitoring and Business Intelligence) decision-support system, which suggests maintenance activities (monitoring, maintenance and renewal) to be carried out and indicates whether or not they can be postponed; and WFM (Work Force Management) software, which manages the workforce by planning, scheduling and accounting for MBI maintenance activities.

In addition, Terna has participated for many years in international benchmarking activities aimed at sharing O&M and renewal best practices, consistently ranking among the best TSOs in terms of asset management process efficiency and optimal service provision quality.

ROUTINE MAINTENANCE

Repairs are carried out when signs of deterioration are identified as a result of onsite monitoring or through the analysis of data from online sensors. The issues and problems identified are processed using engineering models for the assets covered by the MBI system and developed by Asset Management in agreement with other organisational units. The results obtained using the engineering models feed into a maintenance plan for the assets, designed to guarantee their performance over time.

RENEWAL PLAN

The Renewal Plan is based on an analytical method that, starting from consistent, objective technical criteria, identifies and evaluates extraordinary maintenance works ("renewal"), assessing the state of repair and technical status of line components and substation equipment, using a priority clustering approach with the aim of improving the quality of the electricity service and prolonging the useful lives of assets.

Renewal work is associated with three types of benefit:

• Sustainability: resulting from the use of more eco-friendly components, the replacement of fluid-oil cables and improvements to the reliability of assets;
• Innovation and digitalisation: reflecting the adoption of monitoring systems for existing assets using digital and innovative solutions;
• Resilience: work on strengthening the NTG in order to increase the resilience of the infrastructure.

In the new Industrial Plan, Terna confirms our commitment to increasing service quality through renewal of power line and substation components, environmental quality through environmentally friendly measures (e.g. replacement fluid-oil cables, installation of green equipment insulated with vegetable esters), and process quality through implementation of digitisation projects for electricity assets (e.g. overhead lines, cables, substations).

The reference scenario The Group's strategy The Group's business Annexes

The Group's capital expenditure

The Terna Group's total capital expenditure in the first half of 2022 amounts to €660.5 million, marking a significant increase compared with the €599.6 million of the same period of the previous year (up 10.2%).

				(€m)
	H1 2022	H1 2021	CHANGE	% CHANGE
Development Plan	233.3	218.3	15.0	6.9%
Security Plan (1)	99.3	101.9	(2.6)	(2.6%)
Projects to renew electricity assets (1)	211.9	212.0	(0.1)	-
Other capital expenditure (1)	84.8	39.1	45.7	116.9%
Total regulated assets	629.3	571.3	58.0	10.2%
Non-regulated assets (2)	21.0	23.3	(2.3)	(9.9%)
Capitalised financial expenses	10.2	5.0	5.2	104.0%
Total capital expenditure	660.5	599.6	60.9	10.2%

(1) The figures for the first half of 2021 have been restated following changes to the purposes of investment, without modifying the overall value of investment in regulated assets.

(2) The figures for non-regulated assets for the first halves of 2022 and 2021 do not include assets held for sale reclassified in accordance with IFRS 5. These primarily regard private interconnectors and the re-routing of power lines for third parties.

The following main regulated assets entered service in the first half of 2022:

New overhead connections:

• Bisaccia Deliceto (adding 34.5 km);
• Vaglio Oppido (adding 19.9 km);
• Lesegno Ceva (adding 6.5 km).

New cable connections:

• Udine South Udine FS (adding 7.3 km);
• Rozzano primary substation first connection (adding 1.2 km);
• Rogoredo primary substation connection (adding 2.1 km).

Reactors plan:

• Maida;
• Rotello;
• Deliceto.

MAIN REGULATED WORKS CARRIED OUT DURING THE PERIOD > DEVELOPMENT PLAN – €233.3 million

Tyrrhenian Link (€29.3 million)	Consents: the consents process for both sections (Campania-Sicily - East Link and Sicily Sardinia - West Link) has been initiated. The Services Conference for the East Link has concluded and the Campania Regional Agreement issued, whilst the Sicily Agreement is in the process of being issued. Cable connection: work has begun on the executive designs for the first lots regarding the framework contracts previously formalised. Converter stations: the call for tenders has been published and invitations to bid have
	been issued.
Paternò-Pantano-Priolo (€16.8 million)	380kV Paternò-Pantano power line: work on construction of the foundations and assembly of the pylons (49 out of a total of 50) and on the stringing of the conductors (16.9 km out of a total of 17.9 km) is nearing completion.
	380kV Paternò-Priolo power line: work is continuing on construction of the foundations (47 out of a total of 115) and assembly of the first pylons (45 out of a total of 115).
	380/220/150kV Pantano substation: work is continuing on construction of the foundations for the 380kV and 220kV section, on the perimeter fencing and the outer lamination tank.
Colunga-Calenzano (€8.1 million)	380kV Colunga-Calenzano power line: the executive design phase and the related surveys are in progress, as is the production of key components.
Magenta substation (€7.5 million)	Construction of the foundations has been completed and electromechanical assembly in the area for the new 380kV section has begun; installation of the secondary riser has been completed and laying of secondary cables for the existing 220/132kV sections is in progress.
Vizzini substation (€4.1 million)	Vizzini substation: assembly of the 380kV section has been completed and work on assembly of the 150kV section is in progress, as is work on general systems, auxiliary systems and the monitoring system and on finishing work.
	Vizzini substation connections: work is continuing on construction of the 380kV connections for the foundations (14 out of a total of 16) and assembly of the pylons (9 out of a total of 16). The site is ready for work to begin on construction of the 150kV connections.
Elba-mainland connection (€3.7 million)	The marine survey and geotechnical surveys regarding the terrestrial section have been completed. Production of the marine cable and work on the executive design for the terrestrial section is nearing completion.
Italy-France interconnector (€2.1 million)	Commissioning trials for the connection are in progress, with entry into service scheduled for 2022.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

> SECURITY PLAN – €99.3 million

Latina, Galatina and Villanova: the civil works have been completed, the converters have been delivered to the site and electromechanical assembly is in progress. Aurelia and Montalto: work has begun on construction of the civil works and production of key components is in progress.	STATCOM (€17.7 million)
Maida compensators: supplies have been transported to the site and assembly is in progress. Villanova and Rosara compensators: machinery production has been completed. The civil works nearing completion prior to the start of work on assembly. Codrongianos compensators: the civil works for the 380kV bay have been completed and the civil works for the compensator are in progress. Suvereto compensators: preparatory activities have been completed and the site has been handed over to the contractor so that construction of the civil works may begin.	Synchronous compensators (€15.6 million)
Maida, Deliceto and Rotello: the reactors have been completed and energised and have entered service. Montecorvino, Partinico and Fulgatore: following the start of work, the civil works are in progress.	Reactors (€11.8 million)
This project aims to boost the availability of data on the grid in order to make it easier to manage the security of the electricity system, by increasing and expanding the fibre optic network. By June 2022, the target of 12 substations connected via proprietary fibre was reached, making a total of 522 substations now covered.	Fiber for the Grid (€9.3 million)

> PROJECTS TO RENEW ELECTRICITY ASSETS – €211.9 million

The commitment to the renewal of electricity assets to improve the reliability and resilience of the NTG continues.

The renewal of overhead lines and substation equipment continued during the first half of 2022: approximately 875 km of conductors and 10 items of equipment (9 insulated using mineral oil and 1 green) were replaced.

Renewal of electricity assets

Consents processes

CONSENTS PROCESSES CONCLUDED

In the first half of 2022, the issue of a Decree by the Ministry for the Ecological Transition marked the conclusion of the consents process regarding the planned modernisation of the 132kV electricity grid to serve the city of Brescia. The decrees issued in the first half of 2022 also included the "Separation Premadio GIS", forming part of the cluster linked to the Milan-Cortina Olympics to be held in 2026.

The conclusion of the consents processes has enabled several projects to enter the construction phase in the first six months of 2022, including works relating to the new "Colunga-Calenzano" power line between Emilia-Romagna and Tuscany; construction of the 150kV Pettino - Torrione (AQ) underground cable line; initial steps in the plan to rationalise and modernise the electricity grid in the metropolitan area of Catania; replacement of the underground cable line connecting the "Naples Centre" primary substation with the "Doganella" primary substation; and work on installing the synchronous compensator at the Suvereto electricity substation. Work also began on upgrading the 150kV section of the infrastructure connecting a new e-distribution primary substation to the NTG. In the first half of 2022, Terna also began the most complex phase of the large-scale plan to develop and modernise the HV transmission grid in Lombardy, Veneto and the self-governing provinces of Trento and Bolzano. Work on the 150kV "Sorrento – Vico Equense – Agerola – Lettere" interconnector and on the first stage of demolition of the 150kV "Acireale – Fontanarossa" power line has also begun.

PROCESSES INITIATED

The consents process for the upgrade of the Pettino (AQ) electricity substation and the partial undergrounding of the Pettino-Scoppito de L'Aquila power line was initiated in the first six months of 2022. The process for the "132kV Livigno-Premadio" line, forming part of the cluster linked to the Milan-Cortina Olympics to be held in 2026 also began during the period, as did the consents process for a new power connection in the municipalities of Turbigo, Robecchetto con Induno and Castano Primo within Milan metropolitan city.

APPLICATIONS FOR CONSENT AND NEW CONSULTATIONS

On 28 June 2022, the application for consent for the Adriatic Link was submitted to the Ministry for the Ecological Transition, together with the report on the outcome of the related Consultation. This new direct current undersea power line, entailing capital expenditure of over €1 billion, will link together Abruzzo and Marche. After a participatory design phase, Terna concluded the public consultation, which was carried out pursuant to Legislative Decree no. 76/2020, and included application of Regulation (EU) no. 347/2013 procedures. The Ministry will thus call a preliminary Services Conference to approve the above outcomes, before proceeding with the formal launch of the consents process by calling the Services Conference that will take the final decision.

Consultation on the new HVDC Italy–Greece interconnector (GR.ITA. 2) has begun. The project, to operate in synergy with existing grid infrastructure, consists in doubling the existing HVDC interconnector between Italy and Greece, above all between the Galatina and Arachthos nodes. This will involve the laying of a new submarine cable, the laying of two new sections of terrestrial cable at the Italian and Greek ends and the addition of two AC/DC conversion modules in areas within the existing Galatina and Arachthos substations. Under the coordination of the Puglia Regional Authority, from April 2022, talks began with the Regional Authority and several town councils potentially involved, with the aim of examining certain aspects of the design and the proposed location of the infrastructure, with particular attention paid to the location of the converter station and where the submarine cable will make landfall.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

continued SPECIAL PROJECTS FOCUS

Terna Incontra Suvereto

HVDC connection 3 Mainland – Sicily - Sardinia (Tyrrhenian Link)

The new submarine interconnection is a state-of-the-art project that will connect Campania - Sicily - Sardinia via two submarine, 1,000 MW, direct current power lines. The project has been subdivided into an East Link (Campania – Sicily) and a West Link (Sicily– Sardinia). The connection has a submarine section that is approximately 1,000 km long, including in very deep waters, which means it is one of the new global benchmarks for this type of highly complex infrastructure.

Continuity and quality of service

Each segment of the electricity system - generation, transmission and distribution - plays a role in ensuring the availability of electricity in Italy, guaranteeing adequate quality standards and keeping the number of outages below pre-set thresholds.

Terna monitors service continuity through various indicators defined by ARERA (Resolution 567/19) and in Terna's Grid Code.

These continuity indicators are significant for the system, as they monitor the frequency and impact of events that have occurred on the electricity grid as a result of faults or due to external factors, such as weather events. In all cases, the period of observation is three years, a period in which there have been no significant changes, testifying to the high quality of service achieved.

NTG RENS INDICATOR12

CONTINUITY INDICATORS

RENS*

What it measures

Energy not supplied following events affecting the relevant grid. **

How it is calculated

The sum of the energy not supplied to users connected to the NTG (following events affecting the relevant grid, as defined in the ARERA regulations governing quality of service).

* Regulated Energy Not Supplied. ** The "relevant grid" refers to all of the high-voltage and very high-voltage network..

ASA***

What it measures Availability of the service provided by the NTG.

How it is calculated

Based on the ratio of the sum of energy not supplied to users connected to the NTG (ENS) and energy fed into the grid.

*** Average Service Availability.

*Provisional data.

The "NTG RENS" indicator for the period from January to June 2022, based on preliminary data, amounts to approximately 108 MWh (compared with an annual target of approximately 791 MWh set by ARERA).

As regards the ASA indicator, availability was 99.99992% in the first half of 2022, compared with 99.99994% in 2021. The operating performance shows that ASA has remained stable at a high level over the years (the higher the indicator, the better the performance). This indicator shows that the energy not supplied following a fault on the owned grid represents a minimal part of the total quantity of energy supplied to users of the grid.

Existing regulations (set out in Resolution 567/2019/R/eel) envisage a series of mechanisms designed to regulate and encourage improvements in the quality of service provided by Terna. The overall economic effects of these mechanisms are accounted for at year end (including RENS).

With regard to costs, which are determined periodically on the basis of events that have occurred, Terna recognised costs of €1.3 million in the first half of 2022 compared with €3.3 million in the first six months of 2021.

¹² The targets for 2016–2023 have been set as an average of the 2012–2015 RENS indicator, referred to in ARERA Resolution 567/19/R/eel, with a 3.5% improvement in performance required for each year compared with the previous one. Since 2016, Terna's NTG RENS indicator also takes into account the performance of the grid operated by Terna Rete Italia S.r.l. (merged with Terna S.p.A. on 31 March 2017).

The reference scenario The Group's strategy The Group's business Annexes

Electricity cost trends

Terna uses the Dispatching Services Market (DSM) to procure dispatching resources to guarantee the security and adequacy of the electricity system.

Dispatching Services Market (DSM)

The net charge for using the DSM was €862 million in the first half of 2022 (provisional data), down on the same period of the previous year (€1,141 million).

This decrease in costs in the first half of 2022 reflects a decline in selections made on the DSM13.

MONTHLY DSM COSTS (€m)

Monthly DSM charge 2021 Monthly DSM charge 2022

*Provisional data.

Cost of procuring resources on the Dispatching Services Market (the uplift)

The total uplift was approximately €938 million in the first half of 2022 (provisional data), down compared with the same period of the previous year (€1,195 million). This reflects reductions in the cost of using the Dispatching Services Market and in the cost of contracts providing an alternative to essential providers and an increase in domestic and overseas congestion revenue, partly offset by a sharp rise in the cost of virtual interconnections.

MONTHLY PERFORMANCE OF REVENUE AND UPLIFT COSTS (€m)

¹³ The process by which Terna procures the necessary resources on the Dispatching Service Market (DSM) to enable the electricity system to function.

Local communities

Engagement with local communities promotes a social environment conducive to timely implementation of the investment envisaged in the Grid Development Plan.

The local communities in areas where new electricity infrastructure projects will be built are stakeholders to whom Terna dedicates many engagement initiatives. The aim is to provide these communities with accurate and comprehensive information about the reasons for choosing their areas for such projects, and the subsequent systemic benefits expected from their implementation.

Terna voluntarily shares grid development requirements with local authorities and listens to local citizens in order to identify the best possible location for the new works, starting with the area's peculiarities applying the so-called "ERPA" (Exclusion, Repulsion, Problems and Attraction) criteria. The process is also based on the results obtained through the use of GIS (Geographic Information System) technology, which include all information relating to different types of land use and the related protection constraints (regional, naturalistic, cultural, landscape, etc.).

The guidelines for establishing, maintaining and enhancing quality relations are set out in the "Stakeholder Engagement Model", which identifies the tools and operating methods for engaging and monitoring opinions, with a view to increasing the Group's social and relationship capital. Each year, a specific engagement programme identifies actions to be implemented to optimise current relational methods and to listen to stakeholders on a regular basis.

Regarding relations with local communities, alongside the periodic meetings with government institutions that make up the lion's share of our engagement activities, Terna has been using another method for some time, called Terna incontra. These are planned events that institute a continuous communication channel with people from the communities directly affected by new electricity infrastructure, whether a power line or a substation, in order to enter into a participatory design process.

During the first half of 2022, Terna organised a total of 19 Terna Incontra events, including 6 inperson meetings and 13 in digital form, the latter devised at the beginning of 2020 in response to the restrictions imposed as a result of the Covid-19 pandemic. This online version combines paper communication (leaflets and pamphlets) with digital content on the website (web pages providing digital information for online meetings) and social media (the publication of social media kits among local stakeholders and sponsored campaigns).

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

OTHER ENGAGEMENT INITIATIVES Stakeholder

Terna's commitment to the environment and biodiversity led, in 2009, to the conclusion of partnership agreements with leading environmental organisations, with the aim of arriving at shared solutions designed to boost the environmental sustainability of the NTG. Growing concerns over the impact of climate change, and the accompanying focus on energy transition initiatives over time, has led to further cooperation between Terna and these organisations. Terna is currently finalising the renewal of its partnerships with Legambiente, the WWF and Greenpeace.

Engagement with investors takes the form of meetings, presentations and ongoing support activities, in order to ensure the transparency and clarity of the information the Company publishes and to avoid information asymmetries among financial market participants.

In this context, there has been an exponential increase in the interest shown by institutional investors in environmental, social, governance (ESG) aspects, which has been further strengthened by the focus on climate change and the energy transition. This has been codified following the entry into force of Regulation (EU) 2020/852 (Taxonomy), which aims to provide investors, businesses and public organisations with reliable shared criteria and methods to identify sustainable economic activities.

Of particular importance, in terms of transparency and reporting, are the recommendations from the Task Force on Climate-related Financial Disclosures (the so-called Bloomberg Task Force) regarding the publication of information on the implications of climate change for business strategies, in terms of risks and opportunities. This is considered of central importance, with regard to both the best possible allocation of investment and efforts to combat climate change.

Operating results of Regulated Activities

The following table shows a breakdown of the results from the Terna Group's Regulated Activities in the first halves of 2022 and 202114.

			(€m)
	H1 2022	H1 2021	CHANGE
Total regulated revenue	1,153.6	1,093.4	60.2
Tariff revenue	1,112.8	1,053.7	59.1
- Transmission revenue	999.9	998.3	1.6
- Dispatching, metering and other revenue	112.9	55.4	57.5
Other regulated revenue	18.3	24.5	(6.2)
Revenue from construction services performed under concession in Italy	22.5	15.2	7.3
Total cost of Regulated Activities	230.9	211.7	19.2
Personnel expenses	126.2	112.8	13.4
External resources	73.5	71.6	1.9
Other	8.7	12.1	(3.4)
Cost of construction services performed under concession in Italy	22.5	15.2	7.3
EBITDA from Regulated Activities	922.7	881.7	41.0

¹⁴ The Terna Group's operating segments are consistent with the internal control system adopted by the Parent Company, in line with the 2021-2025 Industrial Plan.

Environmental organisations: strengthening partnerships

Investors:

a growing request for transparency regarding environmental, social and governance aspects

RAB during the period.

EBITDA from Regulated Activities amounts to €922.7 million, an increase of €41.0 million compared with the first half of 2021. This primarily reflects the impact on tariff revenue (up €59.1 million) of the effect of the output-based incentive mechanisms introduced by Resolution 699/2018 and Resolution 567/2019, after the impact of the reduction in the WACC recognised for 2022 (equal to 5%, compared with the previous 5.6%), partially offset by the increase in the

After excluding revenue from construction services performed under concession (up €7.3 million), revenue from Regulated Activities is up €52.9 million, primarily reflecting:

• the impact on transmission revenue (up €1.6 million) of the output-based incentive mechanisms introduced by Resolution 567/2019 relating to the delivery of additional transmission capacity between market areas (€34.5 million) net of the incentives recognised in the first half of 2021 (down €7.6 million, under ARERA Resolution 579/17 and ARERA Resolution 884/17) and the reduction in WACC recognised for 2022 (Resolution 614/21), partly offset by the increase in the RAB during the period and the volume effect;
• the incentive mechanisms provided for in Resolution 699/2018, relating to grid development projects designed to relieve congestion within market areas and grid constraints due to voltage regulation and improve conditions for essential service provision (€56.2 million);
• increased revenue in the form of the bonus receivable under the RENS incentive mechanism (up €2.9 million), due primarily to recognition of the portion due on the basis of the estimated overall performance in the 2021-2023 regulatory period;
• increased revenue from connections to the NTG (up €2.5 million) and an increase in compensation received for damage to infrastructure (up €1.7 million);
• recognition, in the first half of 2021, of revenue relating to the outcome of the claim for a refund of stamp duty paid on the acquisition of Rete S.r.l. (down €13.4 million).

After excluding the cost of construction services performed under concession (up €7.3 million), the cost of Regulated Activities is up €11.9 million, primarily reflecting:

• the impact on personnel expenses (up €13.4 million) of an increase in the average workforce, partly offset by the higher amount of capitalised expenses;
• an increase in service costs (up €1.9 million), due to increased activity and new initiatives carried out by the Group;
• a decrease in the costs incurred for quality of service (down €2 million), primarily linked to the increased costs incurred in the first half of 2021 in order to mitigate the impact of backfeeds at a number of primary substations due to urgent maintenance work;
• the adjustment to provisions litigation and disputes following the positive settlement of a number of disputes (down €2.4 million).

Non-regulated Activities: Energy market solutions

Our Non-regulated Activities are designed to support the ecological transition, in keeping with our core business. We use Terna's know-how for the design, engineering, operation and maintenance of complex solutions, including the integration of telecommunications networks and proprietary systems. Our aim is to serve commercial and industrial customers with our expertise and experience in a wide range of solutions.

The main areas of business in this segment are:

• INDUSTRIAL
• CONNECTIVITY
• ENERGY SOLUTIONS
• PRIVATE INTERCONNECTORS PURSUANT TO LAW 99/2009

Via two leading companies in their fields, Terna is able to control expertise and supplies in two key areas for grid development:

• Transformers Tamini Group: a world leader in the production of industrial transformers and in after-sales service;
• Terrestrial cables Brugg Cables Group: a centre of excellence for research, development and testing in the field of terrestrial cables, the Brugg Cables Group is based in Switzerland and has several overseas subsidiaries.

TRANSFORMERS – TAMINI GROUP

Tamini operates in the electromechanical sector and is a leader in the design, production, commercialisation and repair of power transformers for electricity transmission and distribution grids, of industrial transformers for the steel and metals industry and of special transformers for convertors used in electrochemical production.

With over a hundred years of experience, Tamini has a well-established name in Italy and overseas, thanks to its technological and engineering capabilities, combined with the degree of customisation and production flexibility it can offer.

Orders for transformers received in the first half of 2022 are worth €89.5 million.

Order book

Orders in the Power sector amount to €67.8 million. This result is linked to the award of major orders placed by utility companies in Italy, Belgium and Finland.

Orders in the Industrial sector amount to €21.7 million, in line with the first half of 2021.

Orders for Services amount to €6.9 million and are down 7% compared with the first half of 2021.

The value of factory backlogs is up compared with the end of 2021 at approximately €154 million (up 14%).

3. The Group's business • Operating activities

Results	Revenue rose sharply in the first half of 2022 compared with the first half of 2021 due to the increased value of transformer production. Several very important items of equipment were also tested, including two 400MVA power transformers and a phase-shifting transformer for two major TSOs in northern Europe, four 125MVA step-up transformers for compensators, three 250MVA autotransformers in Italy and four rectifier transformers of over 100MVA for the United States.
Vegetable oil transformers	Once again, Tamini plans to produce vegetable oil transformers for the Power sector in 2022. The Group plans to produce three 250 and 400MVA autotransformers using vegetable oil at its Legnano plant. A 105MVA transformer for a major steelworks in Italy was also tested.
	TERRESTRIAL CABLES - BRUGG CABLES GROUP The Brugg Cables Group operates in the terrestrial cable sector, producing low through to very high voltage products and specialising in the design, development, construction, installation and maintenance of electrical cables of all voltages and accessories for high and very high voltage cables.
Order book	Orders acquired in the first six months of 2022 amount to approximately CHF124 million (up 45% on the same period of 2021). The High Voltage System segment made a major contribution (CHF78 million). The Low Medium Voltage segment also made a significant contribution (CHF31 million), as did the High Voltage Accessories segment (CHF15 million).
Results	Revenue for the first half of 2022 is in line with the same period of the previous year.
Operating activities	In the High Voltage Accessories segment, significant progress was made in the production of the new Dry Type Outdoor terminal (an outdoor gel-insulated composite terminal). Two new innovative cable joints were also launched on the market, one of a cross bonding type with heat-shrink protection and one a transition joint for oil-insulated cables. These products will contribute to achieving the Group's growth targets. In the HVDC segment, the first prequalification testing is taking place for 320kV.
	In the high and very high voltage systems segment saw strong growth in orders. A number of major orders for high voltage systems have been obtained, with cables manufactured in-house for customers located in Germany.
	In the low and medium voltage segment, the volume of orders is well ahead of expectations. A major order was received from an Austrian customer and a five-year framework agreement has also been concluded.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

CONNECTIVITY

We make our nationwide infrastructure available to meet the increasingly urgent need for fast and reliable digital connections. We also support our partners in developing smart connectivity solutions via the following services: optical fibre use rights, pylon rental, housing and facilities (installation of telecommunications equipment within Terna's already operational facilities).

FIBRE

Under the framework agreement with Open Fiber regarding the provision of fibre infrastructure forming a national and regional backbone, in the first half of 2022 activation letters were signed regarding a further 240 km, which is scheduled for delivery by the end of 2022.	Open Fiber project - fibre IRU and ancillary services (housing and maintenance)
The contract signed in February 2022 envisages the delivery, by 2022, of 9 sections	Fastweb - fibre IRU and ancillary
making a total of 483 km.	services (housing and maintenance)
Under the framework agreement between Terna and the customer, signed in 2018, two	RETELIT - fibre IRU and ancillary
fibre pairs between Venice and Gorizia (191 km) had been delivered by July.	services (housing and maintenance)
The contract signed in 2021 provides for the delivery of a further 393 km in 2022.	Eolo – fibre IRU and ancillary services (housing and maintenance)

We provide engineering, procurement and construction (EPC), operation and maintenance (O&M), telecommunications (TLC) and digital services. C

SMART GRIDS

RENEWABLES – LT GROUP

The LT Group designs and implements the revamping and repowering of existing plants and builds new photovoltaic plants for third parties. Turnover in the first half of 2022 amounted to €15 million, up approximately €6.9 million compared with the first six months of 2021. The significant increase primarily reflects routine maintenance activities, which have increased by approximately 34%. Turnover through to 30 June 2022 and the value of orders and contracts close to fulfilment is ahead of the expected amount for 2022.

1. The Group's business • Operating activities

OTHER PROJECTS

Eni New Energy – fast reserve storage	Under the contract signed in 2021 regarding the design and construction of an electrochemical storage unit in Assemini (approximately 14 MW), design and system integration activities necessary for the start-up of work have been completed, and the batteries have been procured. Construction work has begun and is ongoing, with the related civil works almost completed.
EF Solare – Revamping FTV	As part of the revamping/repowering contracts signed in 2021, work was completed at the Focomorto 2 plant in the first half of 2022. Repowering of the Latina 2 plant and the revamp of the Alfonsine 2, Priolo and Martignone plants is in progress.
	HIGH VOLTAGE
Vetrerie Riunite - construction of new MV cable duct and replacement of transformer	The contract, signed in 2021, envisages the revamp of connection infrastructure. The first phase of design and construction of the new cable duct has been completed and the procedure to be used to enable the upcoming delivery and installation of the HV/MV transformer has been established, with work due to take place by the third quarter of 2022.
Acciaierie Venete - Implementation and supply of 3 STATCOM systems	The contract, signed in February 2021, regards EPC implementation of three reactive energy compensation systems (STATCOM technology). To date, the installation of three compensation systems has been completed. Commissioning at the Padua and Sarezzo sites has been completed and is in progress at the Borgo Valsugana site.
NLMK Verona - HV cabling and installation of compact module	With regard to the contract entered into in 2021, development of the detailed design for the entire project and procurement have been completed. Construction work is in progress and all the activities relating to the MV portion have been completed. Delivery of the compact module, a key component of the bay under construction, is expected by the third quarter of 2022.
EDPR – Construction of Aquilonia electricity substation	As part of the contract regarding construction of the Monte Mattina HV/MV electricity substation to connect the Aquilonia wind farm (25.2 MW) to the NTG, the TOC has been signed, opening the way to entry into service of the infrastructure. A number of ancillary activities included in the contract have yet to be completed.
RFI – Metering equipment	Under the framework agreement with RFI, signed in December 2018 and relating to the "Design, supply, installation, certification and commissioning of metering equipment", during the first half of 2022, one application contract was signed and twelve installations were carried out.
Riva Acciai - Turnkey implementation of STATCOM system	In the first half of 2022, a contract was signed regarding implementation of a reactive energy compensation system (STATCOM technology). Design activities are in progress.

The reference scenario The Group's strategy The Group's business Annexes

Terna is responsible for operation and routine and special maintenance of the interconnector in return for an annual fee. The infrastructure entered service on 28 December 2019 and is owned by Monita Interconnector S.r.l., which the Terna Group sold to the private backers on 17 December 2019. Italy–Montenegro interconnector project The project involves the development of new transmission lines between Italy and Switzerland, with the aim of increasing interconnection capacity between Italy and Switzerland. Italy–Switzerland interconnector project The creation of a direct current line is planned, partly in undersea cable, between the substations of Salgareda (IT) and Divaça/Beričevo (SL), together with work on upgrading the domestic grids in Italy and in Slovenia. The project is currently awaiting the necessary consents on the Italian side. The expected increase in cross-border capacity of approximately 1 GW will raise the interconnection capacity to more than double the current level. Italy–Slovenia interconnector project The Italy-Austria interconnector (the Reschenpass project) involves construction of a new 220kV AC interconnection between the Glorenza (Italy) and Nauders (Austria) substations. This will consist of 28 km of underground cable, including 26 km on the Italian side, and the necessary upgrade of the domestic grid. The project will increase cross-border interconnection capacity between Italy and Austria by around 300 MW, practically doubling the currently available capacity. The cost of the project is expected to be approximately €80 million. The sale of Terna S.p.A.'s 100% stake in Resia to Interconnector Energy Italia S.C.p.A. ("IEI"), Consorzio Toscana Energia S.p.A. and VDP Fonderia S.p.A. was completed on 15 September 2021, together with the signature of agency agreements for the construction, operation and maintenance of the Italia-Austria Interconnector in accordance with Law 99/2009. On 6 May 2021, the European Commission gave the go-ahead for exemption to be granted and, on 17 June 2021, Resia received confirmation of the exemption from the Ministry for Economic Development (for capacity of 150 MW for a period of 10 years), following the receipt of clearance from ARERA and the European Commission. The interconnector is due to enter service in 2023. Italy–Austria interconnector project Out of a total of approximately 95 km of cable for the Italian end of the interconnection, the laying of cable for the entire section running along the A32 motorway and through the Frejus motorway tunnel, has been completed. The remaining activities to complete the power line, including the laying of fibre and the installation of monitoring systems, were completed in 2021. The civil works for the Piossasco converter station, as was assembly of all the electromechanical equipment, have been completed. Given the delays to work on both the Italian and French sides in 2020, as a result of the Covid-19 emergency, the works were completed during 2021. In February 2022, after the approval issued by the European Commission in January, ARERA accepted the request from Piemonte Savoia S.r.l. in 2021 for an 11-month extension of the exemption. The commissioning phase is in progress, which will enable the infrastructure to enter service in 2022. Italy–France interconnector project PRIVATE INTERCONNECTORS PURSUANT TO LAW 99/2009

Operating results of Non-regulated Activities

The following table shows a breakdown of the results from the Terna Group's results from its Non-regulated Activities for the first halves of 2022 and 202115.

		(€m)
	H1 2022	H1 2021 CHANGE
Revenue from Non-regulated activities	177.2	162.6	14.6
Industrial	117.5	115.1	2.4
- Brugg Cables Group	59.6	61.6	(2.0)
- Tamini Group	57.9	53.5	4.4
Connectivity	17.1	22.6	(5.5)
Energy Solutions	35.4	17.0	18.4
- High voltage	15.4	11.6	3.8
- Smart Grids	20.0	5.4	14.6
Private interconnectors	5.7	5.8	(0.1)
Other	1.5	2.1	(0.6)
Cost of Non-regulated Activities	150.0	131.2	18.8
EBITDA from Non-regulated Activities	27.2	31.4

EBITDA from Non-regulated Activities in the first half of 2022 amounts to €27.2 million, a reduction of €4.2 million compared with same period of the previous year. This reflects the greater volume of IRU contracts for fibre concluded in the first half of 2021 and classified under revenue from connectivity services (down €6.9 million), partially offset by an increase in activity linked to the re-routing of power lines for third parties (up €1.9 million).

¹⁵ The Terna Group's operating segments are consistent with the internal control system adopted by the Parent Company, in line with the 2021-2025 Industrial Plan.

International Activities

As part of our overseas initiatives, the plan to extract value from our activities in South America proceeded. Launched in the last part of 2021, the plan involves the sale of up to 100% of our Latin American assets.

On 29 April 2022, Terna S.p.A., Terna Plus S.r.l. and Terna Chile S.p.A. signed an agreement with CDPQ, a global investment group, for the sale of all their power line assets, extending for approximately 1,200 km, in Brazil, Peru and Uruguay. The value of the assets being sold (the equity value) is more than €265 million. Transaction closing is due to take place in phases, for the most part in the second half of 2022.

Initiatives in progress in South America

Project included in the assets currently in the process of being sold Activities connected with management of the contract for the line that has entered service continued in the first half of 2022.

Projects included in the assets currently in the process of being sold Operation and maintenance of the Santa Maria Transmissora de Energia (SMTE) power line in the State of Rio Grande do Sul and the Santa Lucia Transmissora de Energia (SLTE) power line in the State of Mato Grosso continued in the first half of 2022.

Onsite activity for the SPE Transmissora de Energia Linha Verde II S.A., regarding the construction of a 160-km 500kV power line in the State of Minas Gerais, continued. The project is scheduled for completion in the third quarter of 2022.

Engineering work and the acquisition of rights and easements for the SPE Transmissora de Energia Linha Verde I S.A. project also continued. This project involves construction of a 150-km long 500kV power line dubbed the "Governador Valadares-Mutum" in the State of Minas Gerais.

Project included in the assets currently in the process of being sold Operation and maintenance of the 132-km 138kV power line between Aguaytìa and Pucallpa continued in the first half of 2022, following the line's entry into service on 16 May 2021.

Other international initiatives

Via ELMED Etudes SARL16, work continued on development of the electricity interconnector project between Italy and Tunisia. The field work for the marine section survey has been completed, and the survey of the terrestrial section in Tunisia is underway. Work continues on the environmental and social impact study, which under the new EU regulations will also analyse the climate proofing of the infrastructure. At the end of April, an application for consent for the Italian section of the infrastructure was submitted to the Ministry for the Ecological Transition.

Operating results of International Activities

The following table shows a breakdown of the results from the Terna Group's International Activities in the first halves of 2022 and 202117.

EBITDA from International Activities for the first half of 2022 and the comparative period does not include the results generated by the Latin American initiatives involved in the above sale process. As required by IFRS 5, these initiatives are classified under "Profit/(Loss) from assets held for sale" in the reclassified income statement in the paragraph entitled "The Terna Group's financial review for the first half of 2022".

			(€m)
	H1 2022	H1 2021	CHANGE
Revenue from International Activities	-	0.3	(0.3)
Cost of International Activities	3.0	3.5	(0.5)
EBITDA from International Activities	(3.0)	(3.2)	0.2

Negative EBITDA from International Activities, amounting to €3 million for the first half of 2022 essentially reflects the costs incurred by central departments to support overseas initiatives. The figure is broadly in line with the amount for the same period of the previous year.

Assets held for sale report a net loss of €10.1 million, marking a deterioration of €2.3 million compared with the first half of 2021. This essentially reflects the adjustment to the value of the assets recognised in accordance with IFRS 5 (above all the impairment loss on net assets in Peru), partially offset by improved results from the Brazilian assets in service, after taking into account the positive impact of exchange rate movements.

¹⁶ This is the 50/50 Tunisian joint venture between Terna S.p.A. and STEG (Tunisia's vertically integrated, state-owned electrical utility) established in 2009 with the role of conducting studies and providing technical assistance for the Tunisia-Italy electricity interconnector.

¹⁷ The Terna Group's operating segments are consistent with the internal control system adopted by the Parent Company, in line with the 2021-2025 Industrial Plan.

The reference scenario The Group's strategy The Group's business Annexes

Financial review for the first half of 2022

In order to report on the Terna Group's operating performance and analyse its financial position, this section includes management accounts prepared in line with industry best practice. These reclassified statements contain alternative performance measures (APMs, as defined in the guidance provided by ESMA/2015/1415), which management considers to be useful in assessing the performance of the Group and representative of the business's operating results and financial position.

The criteria used in constructing these indicators are the same as those used in the annual report. Details are provided in the Annex, "Alternative performance measures (APMs)".

Basis of presentation

The measurement and recognition criteria applied in this Interim Report are consistent with those adopted in the consolidated financial statements for the year ended 31 December 2021.

Given that the requirements of IFRS 5 have been met, the total results for the first halves of 2022 and 2021 attributable to the South American subsidiaries included in the planned sale of assets, initiated at the end of 2021, have been classified in the item "Profit/(Loss) from assets held for sale" in the Group's reclassified income statement. Likewise, the attributable assets and liabilities at 30 June 2022 have been reclassified to the item "Net assets held for sale" in the Group's reclassified statement of financial position, in line with the comparative amount.

The Group's reclassified income statement

The Terna Group's operating results for the first half of 2022, compared with those for the same period of the previous year, and for the second quarters of 2022 and 2021, are summarised in the following reclassified income statement, obtained by reclassifying amounts in the statutory consolidated income statement.

H1 2021 1,256.3 1,093.4	H1 2022 1,330.8		2021 CHANGE % CHANGE	Q2		2022
		7.1% TOTAL REVENUE		45.8	640.6	686.4
	1,153.6	6.3% - Regulated revenue		34.9	556.7	591.6
15.2	22.5	46.0% of which Revenue from construction services performed under concession		4.0	8.7	12.7
162.6	177.2	13.1% - Non-Regulated revenue		11.0	83.8	94.8
0.3	-	(100.0%) - International revenue		(0.1)	0.1	-
346.4	383.9	12.1% TOTAL OPERATING COSTS		21.7	179.1	200.8
144.4	163.7	14.4% - Personnel expenses		10.4	72.0	82.4
84.2	90.7	10.2% - Cost of services, leases and rentals		4.5	44.0	48.5
86.1	93.7			5.9	46.7	52.6
13.2	12.0			(1.4)	5.7	4.3
3.3	1.3			(1.7)	2.0	0.3
15.2	22.5	concession		4.0	8.7	12.7
909.9	946.9			24.1	461.5	485.6
325.5	339.5	losses		9.2	162.7	171.9
584.4	607.4			14.9	298.8	313.7
(34.1)	(36.2)			4.3	(16.1)	(11.8)
550.3	571.2			19.2	282.7	301.9
156.5	160.5			5.5	78.8	84.3
393.8	410.7	CONTINUING OPERATIONS		13.7	203.9	217.6
(7.8)	(10.1)	sale		(0.4)	(8.6)	(9.0)
386.0	400.6			13.3	195.3	208.6
1.4	2.5	interests		1.2	1.1	2.3
384.6	398.1	OWNERS OF THE PARENT		12.1	194.2	206.3
				12.6% - Materials (24.6%) - Other costs (85.0%) - Quality of service 46.0% - Cost of construction services performed under 5.2% GROSS OPERATING PROFIT (EBITDA) 5.7% - Amortisation, depreciation and impairment 5.0% OPERATING PROFIT (EBIT) (26.7%) - Net financial income/(expenses) 6.8% PROFIT/(LOSS) BEFORE TAX 7.0% - Income tax expense for the period 6.7% PROFIT/(LOSS) FOR THE PERIOD FROM 4.7% - Profit/(Loss) for the period from assets held for 6.8% PROFIT FOR THE PERIOD 109.1% - Profit/(Loss) attributable to non-controlling 6.2% PROFIT FOR THE PERIOD ATTRIBUTABLE TO

		(€m)
H1 2022	H1 2021	CHANGE
922.7	881.7	41.0
27.2	31.4	(4.2)
(3.0)	(3.2)	0.2
946.9	909.9	37.0

Gross operating profit (EBITDA) for the first half of 2022 amounts to €946.9 million, up €37.0 million on the €909.9 million of the first half of 2021. This reflects the improvement in EBITDA from Regulated Activities.

Revenue

			(€m)
REGULATED ACTIVITIES	H1 2022	H1 2021	CHANGE
Tariff revenue	1,112.8	1,053.7	59.1
Other regulated revenue	18.3	24.5	(6.2)
Revenue from construction services performed under concession in Italy	22.5	15.2	7.3
TOTAL	1,153.6	1,093.4	60.2

Revenue from Regulated Activities is up €60.2 million, primarily due to thew greater impact of output-based incentive mechanisms, after the reduction in the WACC recognized for 2022, partly offset by an increase in the RAB during the period and the volume effect.

			(€m)
NON-REGULATED ACTIVITIES	H1 2022	H1 2021	CHANGE
Industrial (Tamini Group and Brugg Cables Group)	117.5	115.1	2.4
Services for third parties (Connectivity, Energy Solutions, other)	54.0	41.7	12.3
Private interconnectors	5.7	5.8	(0.1)
TOTAL	177.2	162.6	14.6

The increase in revenue from Non-regulated Activities, amounting to €14.6 million, primarily reflects increased revenue from smart grids (up €14.6 million), which has benefitted from the contribution from the LT Group and an increase in the net contribution from the Industrial segment (the Tamini Group up €4.4 million and the Brugg Cables Group down €2 million).

Revenue from International Activities is classified in the "Profit/(Loss) for the period from assets held for sale", in application of IFRS 5.

Revenue was up €45.8 million in the second quarter of 2022 compared with the same period of the previous year, primarily due to recognition of the incentives introduced by Resolution 567/2019 and the contribution from the LT Group.

Costs

Operating costs, excluding the cost of construction services performed under concession (up €7.3 million), are up €30.2 million compared with the first half of the previous year. This reflects an increase in personnel expenses (up €19.3 million), primarily due to a larger workforce and the contribution from the LT Group (up €14.2 million).

In the second quarter of 2022, costs were up €21.7 million on the same period of the previous year, in line with the performance described above.

Amortisation, depreciation and impairment losses for the period amount to €339.5 million, an increase of €14.0 million compared with the first half of 2021, primarily due to the entry into service of new infrastructure.

Operating profit (EBIT), after amortisation, depreciation and impairment losses, amounts to €607.4 million, compared with €584.4 million for the first half of 2021 (up 3.9%).

Net financial expenses for the period total €36.2 million and primarily regard the Parent Company (€37.2 million). The figure is up €2.1 million on the €34.1 million of the first six months of 2021, due essentially to inflation during the period, partially offset by an increase in capitalised costs and the essentially impact of exchange rate movements.

After net financial expenses, profit before tax amounts to €571.2 million, an increase of €20.9 million compared with the same period of 2021 (up 3.8%).

Income tax expense for the period totals €160.5 million, an increase of €4.0 million (2.6%) compared with the first half of 2021. This reflects the increase in pre-tax profit after the greater amount of contingent tax assets recognised during the previous year. The resulting tax rate of 28.1% thus marks a reduction compared with the figure for the first half of 2021 (28.4%).

The profit for the period from continuing operations amounts to €410.7 million, an increase of €16.9 million (4.3%) compared with the €393.8 million of the first half of 2021.

The loss for the period from assets held for sale, totalling €10.1 million, has deteriorated €2.3 million compared with the same period of the previous year. This essentially reflects the adjustment to the value of the assets recognised in accordance with IFRS 5 (above all the impairment loss on net assets in Peru), partially offset by improved results from the Brazilian assets in service, after taking into account positive impact of exchange rate movements.

Profit for the period amounts to €400.6 million, up €14.6 million (3.8%) compared with the €386.0 million of the first half of 2021.

Profit for the period attributable to owners of the Parent (after excluding the share attributable to non-controlling interests) amounts to €398.1 million, up €13.5 million (3.5%) compared with the €384.6 million of the first half of 2021.

Cash flow

Operating cash flow for the first half of 2022 was used entirely to finance investing activities. The impact on working capital of movements in trading and tax assets and liabilities compared with 2021, and repayment of a bond issue in the first half (replaced by the hybrid green bond issued on 2 February 2022 and worth €1 billion, accounted for in equity), have resulted in a reduction in net debt.

		(€m)
	CASH FLOW H1 2022	CASH FLOW H1 2021*
- Profit for the period	400.6	386.0
- Amortisation, depreciation and impairment losses	339.5	325.7
- Net change in provisions	2.0	(30.8)
- Net losses/(gains) on sale of assets	(2.0)	(8.8)
Operating cash flow	740.1	672.1
- Change in net working capital	260.0	(296.6)
- Other changes in property. plant and equipment and intangible assets	42.1	15.0
- Change in investments	1.2	0.4
- Change in financial assets	(54.6)	(25.0)
Cash flow from operating activities	988.8	365.9
- Total capital expenditure	(660.5)	(601.9)
Free cash flow	328.3	(236.0)
Net assets held for sale	(88.3)	-
- Dividends paid to the Parent Company's shareholders	(387.7)	(359.0)
- Cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent	1,156.0	40.2
- Other movements in equity attributable to non-controlling interests	0.2	(7.2)
Change in net debt	1,008.5	(562.0)

* Figures published in the Half-year Report for 2021.

The Group's reclassified statement of financial position

The Terna Group's financial position at 30 June 2022 and 31 December 2021 is summarised below in the reclassified statement of financial position, obtained by reclassifying amounts in the statutory consolidated statement of financial position.

			(€m)
	AT 30 JUNE 2022	AT 31 DECEMBER 2021	CHANGE
Total net non-current assets	16,687.3	16,352.9	334.4
- Intangible assets and goodwill	700.9	656.5	44.4
- Property, plant and equipment	15,553.2	15,316.6	236.6
- Financial assets	433.2	379.8	53.4
Total net working capital	(1,966.8)	(1,706.7)	(260.1)
- Net energy-related pass-through payables	(592.3)	(209.1)	(383.2)
- Net receivables resulting from Regulated Activities	531.8	448.4	83.4
- Net trade payables	(575.3)	(737.5)	162.2
- Net tax payables	(88.3)	(50.6)	(37.7)
- Other net liabilities	(1,242.7)	(1,157.9)	(84.8)
Gross invested capital	14,720.5	14,646.2	74.3
Sundry provisions	(50.4)	(48.4)	(2.0)
Net invested capital	14,670.1	14,597.8	72.3
Net assets held for sale	206.0	117.7	88.3
TOTAL NET INVESTED CAPITAL	14,876.1	14,715.5	160.6
Equity attributable to owners of the Parent	5,848.3	4,681.9	1,166.4
Equity attributable to non-controlling interests	33.8	31.1	2.7
Net debt	8,994.0	10,002.5	(1,008.5)
TOTAL	14,876.1	14,715.5	160.6

The €334.4 million increase in net non-current assets compared with 31 December 2021 primarily reflects a combination of the following:

• total capital expenditure of €660.5 million, as described in detail in the section on "Regulated Activities";
• an increase of €53.4 million in financial assets, mainly due to an increase in guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel, as amended (up €45.3 million) and an increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €9.6 million);
• amortisation and depreciation for the period, totalling €339.4 million;
• other movements during the period, resulting in a reduction of €38.5 million, including grants related to assets (primarily in relation to projects financed by the Ministry for Economic Development and the EU and the re-routing of power lines at the request of third parties) and disposals and impairment losses resulting in a reduction of €1.6 million.

The Terna Group's total capital expenditure during the first half of 2022, amounting to €660.5 million, is up 10.2% compared with the €599.6 million of the same period of 2021.

MAIN INVESTMENT IN THE NTG* (€m)

* Amounts include financial expenses.

Net working capital (net current liabilities) of -€1,966.8 million resulted in a cash inflow of €260.1 million compared with 2021. This reflects the combined effect of:

Cash inflows

• an increase in net energy-related pass-through payables of €383.2 million compared with the end of the previous year, primarily reflecting the combined effect of:
  • an increase in net payables relating to essential plants for the security of the electricity system - UESS (€235.2 million), reflecting items collected during the period after payments made in the first six months of 2022 to the owners of essential plants18;
  • recognition of the net amount payable in the form of capacity payments (€170.5 million) payable from 2022;
  • an increase in net payables linked to the virtual import service (€66.6 million), resulting from the mechanism applied on a transitional basis until the final regulations take effect via the shippers selected by Terna19;
  • a reduction in net amounts receivable (€76 million) linked to the uplift due for procuring resources on the Dispatching Services Market, reflecting the sharp fall in DSM costs (a reduction in payables of €503.2 million) compared with the figure for the end of 202120, partly offset by an increase in net payables linked to effective imbalances (€272.7 million);
• an increase of €37.7 million in net tax liabilities, broadly due an increase in net VAT payable (€29.8 million) and an increase in the net amount payable as income tax for the period, after payments on account in the first half and the settlement of tax due for the previous year (€4.3 million);
• an increase in other net liabilities of €84.8 million, primarily due to the above increase in guarantee deposits received from operators participating in the capacity market and from electricity market operators to guarantee the obligations undertaken regarding dispatching and virtual interconnection contracts (up €45.4 million and €37.8 million, respectively).

¹⁸ ARERA ordered payments to the owners of essential plants via resolutions 42-43-67-76-92-131-172-223- 237/2022.

¹⁹ ARERA revised the procedures for settlement of virtual imports in resolutions 49/2022 and 93/2022.

²⁰ In resolutions 597/2021 and 132/2022, ARERA has established an output-based incentive scheme to be applied to Terna with the aim of cutting dispatching costs.

The reference scenario The Group's strategy The Group's business Annexes

Cash outflows

• a reduction of €162.2 million in net trade payables, largely due to the increase in capital expenditure during the last part of the previous year;
• an increase in net receivables resulting from Regulated Activities of €83.4 million. After the factoring transactions carried out at the end of 2021 (€40 million), the increase of €43.4 million primarily reflects a combination of the following:
• intrazonal incentives introduced by Resolution 699/2018: recognition of a receivable of €56.2 million;
• interzonal incentives introduced by Resolution 567/2019 (articles 44 and 46 of annex A): collection from the CSEA of the amount receivable for the efficiency bonus recognised at the end of 2021 (€40 million) and recognition of the accrued amount receivable for the first half (€34.5 million);
• the RENS bonus: the accrued amount due for the first half (€5.8 million);
• a reduction in transmission charges receivable (€16 million) following the revision of tariffs.

Gross invested capital thus amounts to €14,720.5 million, marking an increase of €74.3 million compared with the previous year.

Sundry provisions are up €2.0 million, primarily due to:

• the net release of deferred tax assets (up €35.9 million), primarily due to the effect on taxation of movements in derivative financial instruments held by the Group, amortisation and depreciation and movements in provisions for risks and charges;
• net uses of provisions to fund staff incentives (down €6.8 million), quality of service (down €5.0 million), early retirement incentives (down €3.1 million), urban and environmental redevelopment schemes (down €2.3 million) and disputes and litigation (down €3.1 million), in addition to the change in provisions for employee benefits (down €9.4 million).

Net assets held for sale, totalling €206.0 million at 30 June 2022, are up €88.3 million compared with 31 December 2021. This primarily reflects an increase in investment in infrastructure operated under concession in Brazil and a reduction in the related net debt.

Total net invested capital, including assets held for sale, amounts to €14,876.1 million, marking an increase of €160.6 million compared with 31 December 2021. This is financed by equity attributable to owners of the Parent, totalling €5,848.3 million (up €1,166.4 million compared with the €4,681.9 million of 31 December 2021, primarily due to recognition of the reserve for the hybrid green bonds issued, amounting to €989.1 million and accounted for in equity), equity attributable to non-controlling interests of €33.8 million (€31.1 million at 31 December 2021) and net debt of €8,994.0 million (down €1,008.5 million compared with the €10,002.5 million of 31 December 2021).

Debt

The Terna Group's financial management is based on an approach that aims to maximise efficiency and achieve and maintain a solid financial structure, whilst adopting a highly prudent stance towards mitigation of the potential financial risks. The key aspects of the Group's financial policy are diversification of the sources of funding, a balance between short- and medium/long-term forms of debt and the proactive management of debt.

Gross debt at 30 June 2022 amounts to approximately €11 billion, consisting of approximately €7 billion in the form of bond issues and approximately €4 billion in bank borrowings. The average term to maturity of debt, 86% of which is fixed rate, is approximately 5 years.

Bonds have been issued in the form of both public and private placements under the €9 billion Euro Medium Term Notes (EMTN) Programme (in which a large number of Italian and overseas banks participate), in addition to a stand-alone issue of €800 million dating back to 2004. Focused specifically on qualified investors and listed on the Luxembourg Stock Exchange, Terna's bonds have a very diverse investor base, in terms of both sector and geographical profile.

The main provider of Terna's bank loans is the European Investment Bank (EIB). Total borrowings from the EIB at 30 June 2022 amount to approximately €2.2 billion. Thanks to its strong credit ratings, Terna is able to obtain financing from banks on extremely good terms, as shown by the €1 billion hybrid green bond issue carried out in February 2022 and the amount raised in the form of bank borrowings. In this regard, €300 million was disbursed in the first half of 2022 under a credit facility of the same amount agreed with the EIB in 2021, whilst a further €300 million bank facility was also disbursed. Finally, Terna also has access to two committed revolving credit facilities, amounting to approximately €3.2 billion.

Sustainable finance

Fully in line with Terna's strategy, which aims to combine investment and sustainability to drive growth and value creation, it is Terna's ambition to play a leading role in the sustainable finance market. This strategy was also followed in the first half of 2022.

The ESG-linked share buyback programme to service the Performance Share Plan 2022- 2026 was completed on 13 June 2022. Under the programme, Terna has purchased 1.3 million own shares (equal to 0.064% of its share capital) at a total cost of approximately €10 million. The shares purchased are in addition to the approximately 3.1 million own shares already purchased by the Company in 2020 and 2021. In keeping with Terna's commitment to sustainability and social and environmental responsibility, the programme includes a mechanism based on penalties applicable if the Company fails to achieve specific ESG objectives.

The reference scenario The Group's strategy The Group's business Annexes

On 8 June 2022, Terna S.p.A. renewed its Euro Medium Term Note (EMTN) Programme, which has a maximum value of €9,000,000,000. At 30 June 2022, the senior green bonds issued by Terna amount to €2.6 billion, in addition to subordinated green bonds, issued on a standalone basis, with a value of €1 billion.

The net proceeds from the issues are used to finance the Company's eligible green projects, identified on the basis of Terna's Green Bond Framework, published by Terna in compliance with the "Green Bond Principles 2021" drawn up by the ICMA (International Capital Market Association) and the EU Taxonomy.

On 28 February 2022, Terna agreed a bilateral ESG-linked Term Loan amounting to €300 million with Intesa Sanpaolo's IMI Corporate & Investment Banking division, acting as Original Lender and Sustainability Coordinator. The credit facility has a two-year term, with the interest rate linked to Terna's ESG performance. The transaction provides Terna with a level of liquidity appropriate to its current rating and confirms the Group's strong commitment to introducing a model that increasingly reinforces the role of sustainability as a strategic driver of value creation for all our stakeholders.

On 2 February 2022, Terna successfully launched the first hybrid green bond to be issued by an Italian corporate issuer. The bonds have a nominal value of €1 billion. The nonconvertible, perpetual, subordinated green bonds are non-callable for six years and will pay coupon interest of 2.375% until 9 February 2028, the first reset date. After this date, the bonds will pay annual interest equal to the 5-year Euro Mid-Swap rate plus a spread of 212.1 basis points. This will be increased by a further spread of 25 basis points from 9 February 2033 and by an additional 75 basis points from 9 February 2048. The issue, aimed at institutional investors, saw extremely high demand, with applications topping €4 billion and the issue being four times oversubscribed. The high quality of the hybrid bonds and the wide geographical diversification of investors mean that the issue was assigned ratings of "BBB-" by Standard and Poor's, "Ba1" by Moody's and "BBB" by Scope.

Terna's leadership in sustainable finance is widely recognised in the market which, since 2018, has shown a strong appetite for the green bonds issued. In addition to its inclusion in the main ESG indices, from January 2021, Terna is the first Italian electric utility to join the Nasdaq Sustainable Bond Network, the sustainable finance platform operated by Nasdaq that brings together investors, issuers, investment banks and specialist organisations.

Terna continues to be a member of the CFO Coalition for the SDGs, which is building on the work of the CFO Taskforce for the SDGs, the initiative launched by the UN Global Compact at the end of 2019 to develop sustainable finance and of which Terna was one of the founding members. The Coalition aims to continue to promote sustainability, scale up its global community and follow the example set by the CFOs that founded the Taskforce.

Further confirmation of our commitment to playing an active role in developing sustainable finance, Terna is taking part in the Corporate Forum on Sustainable Finance, a network of major European businesses committed to the development of sustainable finance as a means to promote a more sustainable and responsible society.

Finally, Terna, both individually and as a member of the above Corporate Forum on Sustainable Finance, will continuously monitor developments in European legislation, with particular regard to the impact of the EU's sustainable finance taxonomy.

Net debt

The Group's net debt at 30 June 2022 amounts to €8,994.0 million, marking a reduction of €1,008.5 million compared with 31 December 2021.

			(€m)
NET DEBT (BY TERM TO MATURITY)	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Total medium/long-term debt	9,232.2	8,917.1	315.1
- Bond issues	6,692.5	6,925.6	(233.1)
- Borrowings	2,346.1	1,909.4	436.7
- Derivative financial instruments	193.6	82.1	111.5
Total short-term debt/ (funds)	(238.2)	1,085.4	(1,323.6)
- Bond issues (current portions)	-	999.9	(999.9)
- Short-term borrowings	1,182.7	1,947.0	(764.3)
- Borrowings (current portions)	543.2	640.1	(96.9)
- Other current financial liabilities, net	62.4	23.6	38.8
- Derivative financial instruments	3.9	0.1	3.8
- Financial assets	(345.4)	(958.5)	613.1
- Cash and cash equivalents	(1,685.0)	(1,566.8)	(118.2)
Total net debt	8,994.0	10,002.5	(1,008.5)
NET DEBT (BY TYPE OF INSTRUMENT)
- Bond issues	6,692.5	7,925.5	(1,233.0)
- Borrowings	2,889.3	2,549.5	339.8
- Short-term borrowings	1,182.7	1,947.0	(764.3)
- Derivative financial instruments	197.5	82.2	115.3
- Other financial liabilities, net	62.4	23.6	38.8
Gross debt	11,024.4	12,527.8	(1,503.4)
- Financial assets	(345.4)	(958.5)	613.1
- Cash and cash equivalents	(1,685.0)	(1,566.8)	(118.2)
Total net debt	8,994.0	10,002.5	(1,008.5)
Net debt attributable to assets held for sale	124.9	161.8	(36.9)

Changes in the Group's net debt are as follows:

• a reduction in bond issues of €1,233.0 million, primarily following the repayment of bonds worth €1,000 million;
• an increase in borrowings of €339.8 million, primarily as a result of the drawdown of new bank facilities totalling €600.0 million, after the repayment of of a €100.0 million loan and scheduled repayments on existing EIB loans;
• a reduction in short-term borrowings (down €764.3 million), essentially due to the Parent Company's repayment of amounts obtained under short-term credit facilities;
• an increase in the fair value of derivative financial instruments (up €115.3 million), primarily due to movements in the derivatives held and in market interest rates;

• an increase in other net financial liabilities (up €38.8 million), essentially due to the recognition of accrued interest on financial products;

• a reduction in financial assets (down €613.1 million) following the repayment of Italian government securities held, partly offset by new investments during the period;

• an increase in cash and cash equivalents of €118.2 million. Cash amounts to €1,685.0 million at 30 June 2022, including €1,476.9 million invested in short-term, readily convertible deposits and €208.1 million held in bank current accounts and in the form of cash in hand.

Net debt attributable to assets held for sale, amounting to €124.9 million at 30 June 2022, essentially includes the value of bond issues, totalling €49.6 million and bank borrowings of €169.1 million, after the short-term portion of investment in infrastructure operated under concession in Brazil, recognised in application of IFRIC 12, totalling €30.4 million, and cash and cash equivalents of approximately €63.4 million. The reduction of €36.9 million compared with 31 December 2021 is primarily due to repayment of a bank loan by one of the Brazilian companies.

Reconciliation of the Group's profit for the period and equity with the corresponding amounts for the Parent Company

The reconciliation of consolidated equity and consolidated profit and the corresponding amounts for the Parent Company is shown below.

(€m)
	PROFIT FOR H1 2022	EQUITY AT 30 JUNE 2022
Parent Company's financial statements	398.9	5,475.3
Profit and equity contributed by Group companies:
- Group companies – Regulated Activities	27.4	387.2
- Group companies – Non-regulated Activities	(9.2)	35.5
- Group companies – International Activities	(15.3)	(46.1)
Companies accounted for using the equity method	(1.2)	30.2
Total consolidated financial statements	400.6	5,882.1
Share attributable to non-controlling interests – Regulated Activities	-	2.2
Share attributable to non-controlling interests – Non-regulated Activities	2.4	30.0
Share attributable to non-controlling interests – International Activities	0.1	1.6
Terna Group's consolidated financial statements	398.1	5.848.3

3. The Group's business

Terna's shares

Terna S.p.A. has been listed on Borsa Italiana's screen-based trading system (Mercato Telematico Azionario) since 23 June 2004. From the date of floatation to the end of June 2022, the share price has risen 340% (a capital gain), providing a Total Shareholder Return (TSR21) of 1,057%, ahead of both the Italian market (the FTSE MIB, up 46%) and the relevant European sector index (DJ Stoxx Utilities), which has risen 274%.

Europe's leading stock markets fell during the first half of 2022, with the declines driven by worsening macroeconomic conditions and the resulting monetary policy decisions taken by central banks. Milan closed the period down 22.1%, Paris and Frankfurt fell 17.2% and 22.0%, respectively, whilst Madrid ended the period down 7.1% and London down 2.9%.

Performance of Terna's shares

Terna's shares closed the first half in positive territory, having risen 5.26% to €7.488, after outperforming the relevant European sector index (DJ Stoxx Utilities), which fell 13.23%. The daily average volume traded during the period amounted to approximately 4.7 million. It should also be noted that the ex-dividend date for the final dividend for 2021, amounting to 19.29 euro cents per share, was 20 June. In addition, the share price reached a new all-time high of €8.334 on 25 May.

PERFORMANCE OF TERNA'S SHARES (Price from 1 January to 30 June 2022)

Source: Bloomberg.

TERNA'S SHARES, THE FTSE MIB AND DJ STOXX UTILITIES (price from 1 January to 30 June 2022)

²¹ Total Shareholder Return (TSR): total return on an equity investment, calculated as the sum of:

• I. capital gain: the change in the share price (difference between the price at the end and at the beginning of the relevant period) as a percentage of the price at the beginning of the period;
• II. reinvested dividends: the ratio between dividends per share paid out during the period and the share price at the beginning of the period. Dividends are assumed to have been reinvested in the shares.

Terna's share price rose 5.26% in the first half of 2022, in contrast with the relevant European sector index (DJ Stoxx Utilities), which fell 13.23%, and the FTSE MIB, which ended the first six months of 2022 down 22.13%.

TOTAL SHAREHOLDER RETURN ON TERNA'S SHARES AND THE FTSE MIB

AND DJ STOXX UTILITIES (from the otation to the end of June 2022)

Source: Bloomberg. Terna Ftse Mib DJ Stoxx Utilities

WEIGHTING OF TERNA'S SHARES	H1 2022	H1 2021
> on the FTSE MIB	2.94%	2.12%

Source: Borsa italiana.

Ratings

	SHORT-TERM	MEDIUM/LONG-TERM	OUTLOOK
Terna S.p.A.
Standard & Poor's	A-2	BBB+	Positive
Moody's	Prime-2	Baa2	Stable
Scope	S-1	A-	Stable
Repubblica Italiana
Standard & Poor's	A-2	BBB	Positive
Moody's	Prime-3	Baa3	Stable
Scope	S-2	BBB+	Stable

Terna's ratings, assigned by S&P, Moody's and Scope, were unchanged in the first half of 2022 compared with December 2021, remaining one notch above the rating assigned to the Italian state.

On 25 March 2022, S&P and Scope confirmed the Company's ratings. The agencies' assessments followed the presentation of the updated 2021-2025 Industrial Plan. This aims to strengthen Terna's central role in driving the energy transition and enabling an increasingly complex, sustainable and innovative electricity system by significantly stepping up investment, due to total €10 billion over the period covered by the Plan.

3. The Group's business

Outlook

Despite the worsening geopolitical situation caused by the prolonged conflict between Russia and Ukraine and continued commodity price pressures, the second half of the year will see the Group continue to focus on delivering on our "Driving Energy" 2021-2025 Industrial Plan. The updated Plan confirms and strengthens Terna's central role in driving the Italian energy system and enabling the ecological transition, with the Group planning to invest a total of €10 billion in the five years from 2021 to 2025, including approximately €1.7 billion in 2022.

In line with the 2021 National Transmission Grid Development Plan presented in July, which targets investment of €18.1 billion over the next ten years (up 25% on the previous plan), expenditure on Regulated Activities will be stepped up. Investment will focus on enabling the energy transition and facilitating the development and integration of renewable sources, making a major contribution to achieving the ambitious goals set out in the Green Deal and helping to drive the country's economic recovery.

In terms of the Group's most important investment projects, work is progressing on the Tyrrhenian Link, for which Terna recently submitted an application to the Ministry for the Ecological Transition for consent for construction and operation of the West Link section, following on from the launch of the consents process for the East Link section in November 2021. The consents process for the Adriatic Link project, the new submarine cable that will connect the Abruzzo and Marche regions, is also expected to begin in the second half. The principal electricity infrastructure under construction includes the interconnection with France, expected to enter service in the second part of 2022.

In terms of the Security Plan, the planned installation of synchronous compensators will continue, with the aim of supporting the regulation of short-circuit voltage and power in areas of the country characterised by a high level of production from renewable sources and a significant reduction in traditional production.

Work on the reorganisation of electricity grids in metropolitan areas will also continue during the second half of the year, primarily involving the renewal of existing infrastructure with new technologically advanced connections meeting the highest standards in terms of environmental sustainability (e.g. Florence and Rome).

During the second half of the year, the Group will continue to make progress towards meeting the requirements resulting from output-based incentive mechanisms introduced by ARERA. These regard work designed to: provide additional transmission capacity between market areas (interzonal incentives), resolve grid constraints due to voltage regulation and improve conditions for essential service provision (intrazonal incentives) and reduce dispatching costs (DSM incentives).

The reference scenario The Group's strategy The Group's business Annexes

With regard to Non-regulated Activities, Terna will continue to consolidate our role as a provider of both connectivity, through the offer of housing and hosting services for fibre infrastructure, including in the form of partnerships, and energy solutions, developing high value-added services for corporate customers and exploiting market opportunities for traditional and renewable customers. This will include openings resulting from the acquisition of the LT Group.

In the industrial segment, the aim is to build on Tamini's performance and, with regard to Brugg, take full advantage of its distinctive expertise in terrestrial cables and of synergies with the Terna Group's other businesses.

Following completion of the due diligence and the agreement entered into with CDPQ on 29 April, International Activities will focus on closing the sale of our South American assets, which is due to take place in phases, for the most part in the second half of 2022, following the satisfaction of certain conditions. Within the scope of the assets being sold, work on the construction of the two Linha Verde I and Linha Verde II power lines in Brazil will continue, with the lines due to enter service in 2023 and the second half of 2022, respectively.

The strategic assessment of further opportunities in overseas markets will continue. This may take the form of partnerships and will involve the careful selection of projects with a view to ensuring a low risk profile and avoiding the need to tie up large amounts of capital.

In line with our approach in the first half, the Group will focus on stepping up investment in innovation and digital solutions in order to continue the transformation that will enable us to manage the growing complexity of the electricity system. In addition, increasingly central roles will be played by people development and the insourcing of strategic competencies, to the strengthening of departments, and to optimising the working environment for our people through delivery of the NexTerna cultural transformation programme.

Management of Terna's business will continue to be based on a sustainable approach and respect for the ESGs, ensuring that we are able to minimise our environmental impact, involve local stakeholders and meet the need for integrity, responsibility and transparency.

The above objectives will be pursued whilst maintaining our commitment to maximising the cash generation necessary ensure a sound, balanced financial structure.

Regulatory framework and other information 92 Changes in the dimensions of the NTG 96 Alternative performance measures (APMs) 98 Reconciliations 99

4 Annexes

Regulatory framework and other information

Summary of the principal legislative measures

A brief description is provided below of the principal legislation of interest to the Group issued during the first half of 2022.

• Law Decree 228 of 30 December 2021, containing "Urgent provisions on deadline for compliance with legislation", converted into Law 15 of 25 February 2022, published in the Official Gazette of 28 February 2022 (the Milleproroghe Decree).

The Law Decree has extended the compliance deadlines relating to the ecological transition (virtual imports until 31 December 2026), the economy and finance (provisions governing the conduct of the general meetings of companies and other entities until 31 July 2022), and for the exercise of special powers in sectors of strategic importance.

• Law Decree 4 of 27 January 2022, containing "Urgent measures concerning support for businesses and economic operators, employment, health and local services connected with the Covid-19 emergency, and containment of the impact of rising electricity prices", converted into Law 25 of 28 March 2022, published in Official Gazette no. 3 of 28 March 2022 (the Sostegni-ter Law Decree).

The Law Decree contains urgent measures designed to contain the impact of rising electricity prices, including a two-way compensation mechanism for electricity prices, reductions in bills for energy-intensive sectors, cuts to environmentally damaging subsidiaries and legislation governing the NRRP-PNIEC technical committee.

• Law Decree 14 of 22 February 2022, containing "Urgent provisions concerning the crisis in Ukraine", converted into Law 28 of 5 April 2022, published in Official Gazette no. 87 of 13 April 2022 (the Ucraina Law Decree).

The Law Decree contains measures concerning national energy security, including a requirement that Terna prepare a plan for maximising the use of power coal- and oil-fuelled generation plants with a nominal thermal capacity of over 300 MW for the estimated duration of the emergence, without affecting the contribution from renewable energy plants. The legislation also requires Terna to submit the plan on a weekly basis to the Ministry for the Ecological Transition and ARERA and to carry our dispatching for the above plants, in accordance with grid security constraints, so as to maximise their use, and treating them as if they were essential for the security of the electricity system.

• Law Decree 17 of 1 March 2022, containing "Urgent measures concerning the containment of electricity and natural gas prices, the development of renewable energy and the renewal of industrial policies", converted into Law 34 of 27 April 2022, published in Official Gazette no. 98 of 28 April 2022 (the Energia Law Decree).

The Law Decree applies a series of proposals from Terna, such as simplification of the process for alterations to renewable energy plants and simplification of the measures applicable to electricity infrastructure. It also contains measures removing system costs, cutting VAT on gas and general gas system costs, reporting to ARERA on efforts to cut energy prices, energy vouchers, a strategy to combat economic poverty, a simplified approach to the installation of photovoltaic plants in suitable areas and to electrochemical storage systems and floating plants, self-consumption, and further simplifications for renewable plants in suitable areas and consents processes for offshore and pumping plants.

The reference scenario The Group's strategy The Group's business Annexes

• Law Decree 21 of 21 March 2022, containing "Urgent measures to combat the economic and humanitarian effects of the crisis in Ukraine", converted into Law 21 of 20 May 2022, published in Official Gazette no. 117 of 20 May 2021 (the Tagliaprezzi Law Decree).

Among the relevant provisions, the Law Decree contains measures simplifying the approach to renewables, the extraordinary grant to help with energy bills, tax credits for energy purchases, the voucher for electricity purchases and the payment of bills in instalments, price transparency for imported gas, special powers in the energy, transport and communications sectors, qualifications for contracting authorities and the revision of prices in public contracts.

• Law Decree 24 of 24 March 2022, containing "Urgent provisions removing the measures designed to combat the spread of Covid-19, following the end of the state of emergency", converted into Law 52 of 19 May 2022, published in Official Gazette no. 119 of 23 May 2022 (the Fine Emergenza Covid Law Decree).

The Law Decree contains measures to facilitate the return to normality following the end of the Covid-19 state of emergency, extending until 31 August 2022 the possibility for private employers to use agile forms of working even where no individual agreements exist (simplified smart working) and until 30 June 2022 the right for vulnerable categories of worker and workers who are parents of disabled children to have access to agile working arrangements.

• Law Decree 50 of 17 May 2022, containing "Urgent measures concerning national energy policy, the productivity of businesses and attracting investment, and social policies and the crisis in Ukraine", published in Official Gazette no. 114 of 17 May 2022, in the process of being converted (the Aiuti Law Decree).

The Law Decree applies a series of proposals from Terna concerning suitable areas for the NTG, the deferral of environmental impact assessments without restrictions, the exemption of cable power lines from environmental impact assessments, simplification of the consents process with commencement notices. It also contains legislation on excess profits, social vouchers, tax credits for energy purchases, regassification, simplifications for renewable energy plants, energy communities and public tenders.

• Law 78 of 21 June 2022, containing "Delegation to the Government regarding public contracts", published in Official Gazette no.146 of 24 June 2022 (the delegated law on public contracts).

The law sets out the principles and criteria that the Government must follow in adopting, within 6 months of the Law coming into force, one or more legislative decrees governing public contracts (revision of the responsibilities of ANAC and standard contracts, revision of the legislation concerning the qualification of contracting authorities in special sectors, simplifications of the regulations and procedures, reductions in the time required to complete tender procedures and greater certainty in this regard).

• Law Decree 36 of 30 April 2022, containing "Additional urgent measures implementing the National Recovery and Resilience Plan", converted into Law 79 of 29 June 2022, published in Official Gazette no. 150 of 29 June 2022 (the PNRR-bis Law Decree).

The Law Decree contains measures on gender equality, changes to the Tenders Code, the production and consumption of hydrogen, water used for irrigation, the approval of water area plans, biomass, environmental offences, cold ironing, special economic zones and simplified logistics zones.

• Law Decree 68 of 16 June 2022, containing "Urgent provisions for the security and development of infrastructure, transport and sustainable mobility, and concerning major events and the operations of the Ministry of Sustainable Infrastructure and Mobility", published in Official Gazette no. 139 of 16 June 2022, in the process of being converted (the MIMS2 Law Decree).

The Law Decree contains measures to accelerate the construction of road infrastructure for Rome and the Jubilee of 2025, concerning dams, road traffic, local public transport, particularly complex public works or those with a significant impact and the operations of the Committee for environment and strategic impact assessments and the NRRP-PNIEC Committee.

• Law Decree 73 of 21 June 2022, containing "Urgent measures concerning the simplification of taxation and the issue of work permits, the Treasury and other financial and social measures", published in Official Gazette no. 143 of 21 June 2022, in the process of being converted (the Semplificazioni fiscali Law Decree).

The Law Decree extends application of the Reverse Charge mechanism until 31 December 2026, and contains measures on the obligation to endorse company records every four months, the donation of a proportion of taxable income to charity, changes to the tax calendar, tax returns and lease contracts.

Resolutions of the Italian Regulatory Authority for Energy, Networks and the Environment

A list is provided below of the principal resolutions adopted by Italy's Regulatory Authority for Energy, Networks and the Environment (ARERA).

ARERA determinations on the remuneration of transmission and dispatching services

• • Resolution 23/2022/R/eel Determination of the reward for the delivery of additional transmission capacity between market areas in 2020.
• • Resolution 25/2022/R/eel Determination of the reward for unification of the national transmission grid following the purchase of a portion of the grid owned by Megareti.
• • Resolution 132/2022/R/eel Changes to incentive schemes to reduce dispatching costs.
• • Resolution 281/2022/R/eel Extension of existing provisions concerning the regulation of reactive energy tariffs on HV and VHV electricity grids.
• • Opinion 265/2022/I/eel Issue of an opinion by the Ministry for the Ecological Transition on the update regarding the national transmission grid.

ARERA determinations on the provision of transmission and dispatching services

• • Resolution 9/2022/R/eel Compliance review of the Code for Transmission, Dispatching, Grid Development and Security regarding an evaluation of the increase in resilience resulting from grid development projects.
• • Resolution 47/2022/R/eel Extension of the deadline for the entry into service of the new Piossasco (IT) – Grand'Ile (FR) interconnector in accordance with the European Commission decision C(2022) 389 Final.
• • Resolutions 49/2022/R/eel, 93/2022/R/eel and 140/2022/R/eel Provisions concerning prolongation of the virtual import service referred to in ARERA determination ARG/elt 179/09, pursuant to the provisions of the Law Decree of 30 December 2021. Approval of the related standard contract and the regulations governing the auctions held to assign the service.
• • Resolution 65/2022/R/com Deadline for 2022 for preparation of the documents describing the scenarios for electricity transmission and gas transport development plans.
• • Resolution 83/2022/R/eel Urgent amendments and additions to the method for setting the strike price on the capacity market, as referred to in the regulator's Resolution 363/2019/R/eel.
• • Resolution 123/2022/R/eel Approval of the proposed changes to the Code for Transmission, Dispatching, Development and Security of the grid, in implementation of the reform of the rules governing imbalances, and further changes to dispatching rules.
• • Resolution 134/2022/R/eel Approval of the proposed changes to chapters 4 and 7 and annexes A.23 and A.25 in the Code for Transmission, Dispatching, Development and Security for Terna's grid.
• • Resolution 279/2022/R/com Start of the procedure implementing the Cabinet Office decree of 29 March 2022 concerning the works and infrastructure necessary for the phase-out of the use of coal in Sardinia.
• • Resolution 285/2022/R/eel Approval of annex A.78 to the Code for Transmission, Dispatching, Development and Security of the grid concerning the measurement algorithms used to calculate negative electricity injected and amendments to the regulator's Resolution 109/2021/R/eel.
• • Resolution 287/2022/R/eel Approval of the proposed changes to annexes A.6 and A.13 in the Code for Transmission, Dispatching, Development and Security for Terna's grid, concerning the exchange of data between Terna, distribution companies and significant grid users in relation to the secure operation of the national electricity system.

Further details of the above resolutions, and information on further resolutions adopted by the regulator (ARERA), can be found on the regulator's website at www.arera.it.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario The Group's strategy The Group's business Annexes

Other information

Additional information is presented below in accordance with specific statutory or industry requirements.

Treasury shares

In implementation of the buyback programme linked to the Performance Share Plan 2022- 2026, in the period between 27 May 2022 and 13 June 2022, the Parent Company purchased 1,280,717 own shares (equal to 0.064% of the share capital). These shares are in addition to the 3,095,192 own shares purchased by the Company in 2020 and 2021.

As a result, Terna S.p.A. now holds a total of 4,375,909 treasury shares (equal to 0.218% of the share capital). The Company does not hold any additional treasury shares, including through subsidiaries22.

The Parent Company does not directly or indirectly hold any shares in CDP Reti S.p.A. or Cassa Depositi e Prestiti S.p.A., nor has it purchased or sold any such shares during the first half.

Related party transactions

Given that Terna S.p.A. is subject to the de facto control of Cassa Depositi e Prestiti S.p.A., a situation ascertained in 2007, related party transactions entered into by Terna during the first half of 2022 include transactions with associates and employee pension funds (Fondenel and Fopen), as well as transactions with Cassa Depositi e Prestiti itself, with CDP Reti S.p.A. and with the companies directly or indirectly controlled by the Ministry of the Economy and Finance ("MEF").

Related party transactions in the first half of 2022 primarily regard services forming part of its ordinary activities and provided under normal market conditions, as described in greater detail in the consolidated financial statements for the year ended 31 December 202123.

The Parent Company's corporate governance rules ensure that such transactions are conducted in accordance with the rules governing procedural and substantial correctness and on an arm's length basis, and in keeping with the regulations for transparent reporting to the market and in implementation of the regulations issued by the CONSOB24.

No material transactions25 were carried out in the first half of 2022, nor were any transactions subject to the reporting requirements applicable in the event of exemptions applied in accordance with the relevant regulations26.

Participation in the regulatory simplification process introduced by CONSOB Resolution 18079 of 20 January 2012

Pursuant to art. 3 of CONSOB Resolution 18079 of 20 January 2012, Terna has elected to adopt the simplified regime provided for in articles 70, paragraph 8, and 71, paragraph 1-bis of CONSOB Regulation 11971 of 14 May 1999, as amended (the CONSOB Regulations for Issuers). As a result, Terna exercises the exemption from disclosure requirements provided for in the above Regulations in respect of transactions of a significant nature involving mergers, spin-offs, capital increases involving contributions in kind, acquisitions and disposals.

²² In this regard, see the press release published on 28 June 2021, available at the following link: https://download.

terna.it/terna/Terna\_concluso\_programma\_acquisto\_azioni\_proprie\_8da4d5856032b0b.pdf. 23 Relations with members of the Parent Company's Board of Statutory Auditors, with particular regard to their remuneration, are described in the notes to the item, "Services" in the notes to the consolidated and separate financial statements for the year ended 31 December 2021. In addition, in implementation of CONSOB Resolutions 18049 of 23 December 2011 and 21623 of 10 December 2020, disclosures regarding the remuneration of "members of management and supervisory bodies and general managers", and their shareholdings in the Company and those of the other persons referred to in the above article, are included in the annual Report on the Remuneration Policy and Remuneration Paid published in accordance with the law.

²⁴ The Regulation containing provisions regarding related party transactions adopted in CONSOB Resolution 17221 of 12 March 2010, as amended. The Regulation was last amended by Resolution 22144 of 22 December 2021, the provisions of which come into effect from 31 December 2021.

²⁵ These are related party transactions classified in compliance with Annex 3 to the "Regulations on related party transactions". 26 As "transactions falling within the scope of the ordinary activities of the Company or its subsidiaries or associates

or of financing activities related thereto, provided that the transactions are conducted on equivalent to market or standard terms and conditions".

Changes to the dimensions of the NTG

DETAILS OF ELECTRICITY SUBSTATIONS OWNED BY THE TERNA GROUP*

	UNIT OF MEASUREMENT	AT 30 JUNE 2022	AT 31 DECEMBER 2021	CHANGE	% CHANGE
380kV
Substations	no.	167	167	-	-
Power transformed	MVA	121,658	121,408	250	0.21%
220kV
Substations	no.	150	150	-	-
Power transformed	MVA	34,003	33,710	293	0.87%
Lower voltages (≤ 150kV)
Substations	no.	580	579	1	0.17%
Power transformed	MVA	4,449	4,388	61	1.39%
Total
Substations	no.	897	896	1	0.11%
Power transformed	MVA	160,110	159,506	604	0.38%

* MVA calculated to the third decimal place and rounded to a whole number. Percentages calculated to the fifth decimal place and rounded to the second decimal place.

DETAILS OF POWER LINES OWNED BY THE TERNA GROUP*

	UNIT OF MEASUREMENT	AT 30 JUNE 2022	AT 31 DECEMBER 2021	CHANGE	% CHANGE
380kV
Length of circuits	km	12,908	12,873	35	0.27%
Length of lines	km	11,726	11,692	34	0.29%
220kV
Length of circuits	km	11,860	11,852	8	0.07%
Length of lines	km	9,488	9,487	1	0.01%
Lower voltages (≤ 150kV)
Length of circuits	km	50,112	50,130	(18)	(0.04%)
Length of lines	km	46,844	46,876	(32)	(0.07%)
Total
Length of circuits	km	74,879	74,855	24	0.03%
overhead	km	70,855	70,849	6	0.01%
underground cables	km	2,262	2,244	18	0.81%
submarine cables	km	1,762	1,762	-	-
Length of circuits	km	68,059	68,054	5	0.01%
overhead	km	64,034	64,048	(14)	(0.02%)
underground cables	km	2,262	2,244	18	0.81%
submarine cables	km	1,762	1,762	-	-
Incidence of direct current connections
(200 - 380 - 500kV)
Circuits	km	2,440	2,440
% of total		3.26%	3.26%
Lines	km	2,120	2,120
	% of total	3.11%	3.12%

* Km calculated to the third decimal place and rounded to a whole number. Percentages calculated to the fifth decimal place.

The reference scenario The Group's strategy The Group's business Annexes

PRINCIPAL CHANGES IN THE SIZE OF THE TERNA GROUP'S INFRASTRUCTURE

Substations

New infrastructure:

The following purchases have taken place:

• the Torre Triolo [VR] switching station (4 150kV bays).

Existing infrastructure:

• construction of 1 new 150kV line bay for the Montalto substation; a further 5 bays, already available, have been commissioned as line bays at the substations of Pianezza and Partanna 2 (1 220kV bay each), Casuzze (2 150kV bays) and Paternò (1 150kV bay), whilst 4 220kV line bays have been decommissioned and made available at the Tavazzano Est substation;
• construction of 1 new 150kV machine bay for the Garigliano substation; a further 4 bays, already available, have been commissioned as machine bays at the substations of Genzano (1 380kV bay and 1 150kV bay), Brindisi Cerrito (1 150kV bay) and Porto Tolle (1 132kV bay);
• construction of 4 new power factor corrector bays for the substations of Rotello 380, Deliceto and Maida (1 380kV bay each) and Larino (1 150kV bay);
• demolition of 2 150kV line bays at the Casuzze substation;
• demolition of 2 150kV power factor corrector bays at the substations of Bellolampo and Partanna (1 bay each).

Transformers

The following transformers have been commissioned:

• 1 new 380/150kV 250 MVA autotransformer for the Genzano substation;
• 1 new 150/20kV 25 MVA autotransformer for the Brindisi Cerrito substation;
• 1 new 150/20kV 16 MVA autotransformer for the Garigliano substation;

and the following further changes occurred:

• replacement of 2 220/150kV 160 MVA autotransformers with 250 MVA autotransformers for the Caracoli substation;
• replacement of 1 220/132kV 160 MVA autotransformer with a 250 MVA autotransformer for the Sangone substation;
• replacement of 1 220/20kV 40 MVA transformer with a 63 MVA transformer for the Colorno substation.

Power lines

• construction of the new 380kV Bisaccia-Deliceto line (34.5 km overhead);
• construction of the new 150kV Oppido Lucano-Vaglio 2 line (19.9 km overhead);
• construction of the new 150kV Pisticci PS-Pisticci 2 substation line (0.2 km in cable);
• construction of the new 132kV Udine RT-Udine South line (7.3 km in cable);
• construction of the new 132kV Ceva-Lesegno line (6.5 km overhead);
• construction of the 132kV Montebello-Montebello SCRI connection (0.1 km in cable);
• construction of 6 in-out derivations with an overall increase of the same number of circuits and 1.6 km of circuit, including: addition of 3 lines and 0.1 km at 150kV, 3 lines and 1.5 km at 132kV; a further increase of 12 circuits, but without changes in length, and resulting from the identification of the same number of in-outs previously recorded as rigid derivations.
• construction of variants, rigid derivations, re-routings and/or changes to grid distribution with an overall increase of 2 lines and 8.6 km of circuit, including: 1 line and 7.3 km at 220kV, 0.4 km at 150kV, 1 line and 0.8 km at 132kV and 0.1 km at 50kV;
• sale to Italcementi of a portion of line representing 1.4 km of overhead circuit;
• demolition and/or retirement of 5 lines amounting to 35.8 km of circuit: 220kV Castelluccia-San Sebastiano (overhead, equal to 1.7 km), 150kV Samatzai-Isili section (overhead, equal to 6.4 km), 132kV Edison Teglia-Pontremoli (overhead, equal to 7.2 km), 132kV Avenza-Arquata (overhead, equal to 5.8 km), 70kV Ollastra-Tirso substation (overhead, equal to 14.7 km).

Alternative performance measures (APMs)

In accordance with the guidelines in ESMA/2015/1415, the APMs used in this Half-year Report are described below.

MEASURE	DESCRIPTION
OPERATING RESULTS
Operating profit/(loss) - EBIT	is an indicator of operating performance obtained by adding Net financial income/(expenses) to Profit/(Loss) before tax.
Gross operating profit/(loss) – EBITDA	is an indicator of operating performance obtained by adding Amortisation, depreciation and impairment losses to Operating profit/(loss) (EBIT).
TAX RATE	is the amount of tax paid as a proportion of pre-tax profit and is based on the ratio of Income tax expense to Profit/(Loss) before tax.
FINANCIAL POSITION
Net working capital	is an indicator of financial position, showing the Group's liquidity position; it is based on the difference between Current assets and Current liabilities of a non-financial nature, as presented in the statement of financial position.
Gross invested capital	is an indicator of financial position, showing the Group's total assets and is obtained by adding Net non-current assets and Net working capital.
Net invested capital	is calculated by deducting Sundry provisions from Gross invested capital.
CASH FLOW
Net debt	is an indicator of the Group's financial structure and is obtained by deducting Cash and cash equivalents and Financial assets from Short- and long-term financial liabilities and the related derivative instruments.
Free cash flow	is the cash generated by operating activities less capital expenditure and is the difference between Cash flow from operating activities and Cash flow for investing activities.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

Alternative performance

measures (APMs)

The reference scenario The Group's strategy The Group's business Annexes

Reconciliations

In accordance with the guidelines in ESMA/2015/1415, reconciliations of the reclassified income statement and statement of financial position and of net debt and cash flow of the Terna Group with the related statutory income statement and statement of financial position are shown below.

RECONCILIATION OF THE TERNA GROUP'S RECLASSIFIED INCOME STATEMENT AND STATEMENT OF FINANCIAL POSITION AND NET DEBT

THE GROUP'S RECLASSIFIED INCOME STATEMENT	€M	CONSOLIDATED INCOME STATEMENT
Regulated revenue	1,153.6	"Revenue from sales and services", totalling €1,297.8 million,
Non-regulated revenue	177.2	"Other revenue and income", totalling €33.1 million, after the cost of International Activities, and "Personnel expenses" of €0.1 million
Personnel expenses	163.7	"Personnel expenses" after the cost of construction services performed under concession in Italy in accordance with IFRIC 12 (€3.0 million) and the cost of International Activities (€0.1 million)
Cost of services, leases and rentals	90.7	"Services" after the cost of construction services performed under concession in Italy in accordance with IFRIC 12 (€15.7 million)
Materials	93.7	"Raw and consumable materials used" after the cost of construction services performed under concession in Italy in accordance with IFRIC 12 (€3.8 million)
Other costs	12.0
Quality of service	1.3	"Other operating costs"
	3.0	"Personnel expenses"
Cost of construction services performed under concession	15.7	"Services"
	3.8	"Raw and consumable materials used"
Net financial income/(expenses)	(36.2)	Points 1, 2 and 3 of letter C - "Financial income and expenses"

THE GROUP'S RECLASSIFIED STATEMENT OF FINANCIAL POSITION	€M	CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Financial assets	433.2	"Investment accounted for using the equity method", "Other non-current assets" and "Non-current financial assets", after the value of cash flow hedges (€65.1 million)
Net energy-related pass-through payables	(592.3)	"Trade receivables" relating to the value of energy-related pass-through receivables (€2,939.4 million) and "Trade payables" relating to the value of energy-related pass through payables (€3,531.7 million)
Net receivables resulting from Regulated Activities	531.8	"Trade receivables" relating to the value of receivables resulting from Regulated Activities (€552.7 million) and "Trade payables" relating to the value of payables resulting from Regulated Activities (€20.9 million)
Net trade payables	(575.3)	"Trade payables" after the value of energy-related pass through payables (€3,531.7 million) and payables resulting from Regulated Activities (€20.9 million) and "Trade receivables" after the value of energy-related pass-through receivables (€2,939.4 million) and the value of receivables resulting from Regulated Activities (€552.7 million)
Net tax liabilities	(88.3)	"Tax assets", "Other current assets" relating to the value of other tax assets (€13.1 million), "Other current liabilities" relating to the value of other tax liabilities (€73.8 million) and "Tax liabilities"
Other liabilities net	(1,242.7)	"Other non-current liabilities", "Other current liabilities" after other tax liabilities (€73.8 million), "Inventories", "Other current assets" after other tax assets (€13.1 million)
Sundry provisions	(50.4)	"Employee benefits", "Provisions for risks and charges" and "Deferred tax assets"
Net assets held for sale	206.0	"Discontinued operations and assets held for sale" and "Liabilities related to discontinued operations and assets held for sale"
Net debt	8,994.0	"Long-term borrowings", "Current portion of long-term borrowings", "Non-current financial liabilities", "Short term borrowings", "Cash and cash equivalents", "Current financial assets" and "Current financial liabilities" and "Non current financial assets" relating to the value of cash flow hedges (€65.1 million)

€M	CONSOLIDATED STATEMENT OF FINANCIAL POSITION
9,581.8	Corresponds with "Long-term borrowings" and "Current portions of long-term borrowings"
197.5	Corresponds with "Non-current financial liabilities", "Current financial liabilities" relating to the value of derivatives (€3.9 million) and "Non-current financial assets" relating to the value of cash flow hedges (€65.1 million)
62.4	Corresponds with "Current financial assets" relating to the value of accrued financial income (€5.0 million) and "Current financial liabilities" relating to the value of accrued financial expenses (€67.4 million)
(345.4)	Corresponds with "Current financial assets" relating to the value of government securities (€199.3 million) and other securities (€146.1 million)
124.9	Corresponds with "Discontinued operations and assets held for sale" (€93.8 million) and "Liabilities related to discontinued operations and assets held for sale" (€218.7 million)

The reference scenario The Group's strategy The Group's business Annexes

RECONCILIATION OF THE TERNA GROUP'S CASH FLOW

				(€m)
	CASH FLOW H1 2022	RECONCILIATION WITH FINANCIAL STATEMENTS	CASH FLOW H1 2021*	RECONCILIATION WITH FINANCIAL STATEMENTS
- Profit for the year	400.6		386.0
- Amortisation, depreciation and impairment losses	339.5		325.7
- Net change in provisions	2.0		(30.8)
Employee benefits		(9.4)		(2.8)
Provisions for risks and charges		(24.5)		(29.7)
Deferred tax assets		35.9		1.7
- Net losses/(gains) on sale of assets (1)	(2.0)		(8.8)
Operating cash flow	740.1		672.1
- Change in net working capital:	260.0		(296.6)
Inventories		(23.3)		1.6
Trade receivables		(939.0)		(479.5)
Income tax assets		(4.0)		4.2
Other current assets		(27.7)		7.4
Trade payables		1,076.5		63.2
Tax liabilities		8.3		36.2
Other liabilities		169.2		70.3
- Other changes in non-current assets	(11.3)		(9.6)
Intangible assets(2)		(0.1)		(0.5)
Property. plant and equipment(3)		42.2		15.5
Non-current financial assets		(54.4)		(24.5)
Other non-current assets		(0.2)		(0.5)
Investments accounted for using the equity
method		1.2		0.4
Cash flow from operating activities	988.8		365.9
Capital expenditure
- Total Capital expenditure	(660.5)		(601.9)
Property, plant and equipment(3)		(576.9)		(560.4)
Intangible assets(2)		(83.6)		(41.5)
Total cash flow from (for) investing activities	(660.5)		(601.9)
Free cash flow	328.3		(236.0)
Net assets held for sale	(88.3)		-
- Cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent(4)	1,156.0		40.2
- Other movements in equity attributable to non controlling interests	0.2		(7.2)
- Dividends paid to Parent Company's shareholders(4)	(387.7)		(359.0)
Change in net debt	1,008.5		(562.0)
- Change in borrowings	(890.3)		(652.6)
Non-current financial assets		(63.5)		51.8
Current financial assets		630.2		93.5
Non-current financial liabilities		175.0		(49.2)
Long-term borrowings		203.6		(287.5)
Short-term borrowings		(764.3)		(300.1)
Current portion of long-term borrowings		(1,096.8)		(148.6)
Current financial liabilities		25.5		(12.5)
Change in cash and cash equivalents	118.2		(1,214.6)

* Figures published in the Half-year Report for 2021.

(1) Included in "Other revenue and income" and "Other operating costs" in the consolidated financial statements.

(2) See note 15 to the financial statements.

(3) See note 13 to the financial statements.

(4) See the consolidated statement of changes in equity.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2022

Contents

Consolidated financial statements	106
Consolidated income statement	106
Consolidated statement of comprehensive income	107
Consolidated statement of financial position	108
Consolidated statement of changes in equity	110
Consolidated statement of cash flows	112
Notes	114
A. Accounting policies and measurement criteria	114
B. Notes to the consolidated income statement	129
C. Operating segments	136
D. Notes to the consolidated statement of financial position	139
E. Commitments and risks	158
F. Business combinations	163
G. Related party transactions	163
H. Significant non-recurring, atypical or unusual events and transactions	166
I. Notes to the statement of cash flows	166
L. Events after 30 June 2022	167
Attestation of the Group's Half-year Report pursuant to
art. 81-ter of CONSOB Regulation 11971 of 14 May 1999, as amended	170
Independent Auditor's review report on the
condensed consolidated interim financial statements
at and for the six months ended 30 June 2022	172

Consolidated financial statements

Consolidated income statement

			(€m)
	NOTE	H1 2022	H1 2021
A – REVENUE
1. Revenue from sales and services	1	1,297.8	1,216.6
of which related parties		857.0	879.3
2. Other revenue and income	2	33.1	40.2
of which related parties		0.1	0.5
Total revenue		1,330.9	1,256.8
B – OPERATING COSTS
1. Raw and consumable materials used	3	97.5	89.0
2. Services	4	106.4	94.0
of which related parties		3.8	4.4
3. Personnel expenses	5	166.8	147.4
- gross personnel expenses		221.8	194.4
- capitalised personnel expenses		(55.0)	(47.0)
of which related parties		1.8	1.6
4. Amortisation, depreciation and impairment losses	6	339.5	325.5
5. Other operating costs	7	13.3	16.5
of which related parties		0.1	0.1
Total operating costs		723.5	672.4
A-B OPERATING PROFIT/(LOSS)		607.4	584.4
C – FINANCIAL INCOME/(EXPENSES)
1. Financial income	8	13.9	8.7
2. Financial expenses	8	(48.9)	(42.4)
3. Share of profit/(loss) of investees accounted
for using the equity method	9	(1.2)	(0.4)
D – PROFIT/(LOSS) BEFORE TAX		571.2	550.3
E – INCOME TAX EXPENSE	10	160.5	156.5
F - PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS		410.7	393.8
G - PROFIT/(LOSS) FOR THE PERIOD FROM ASSETS HELD FOR SALE	11	(10.1)	(7.8)
H - PROFIT FOR THE PERIOD		400.6	386.0
Profit attributable to owners of the Parent		398.1	384.6
Profit attributable to non-controlling interests		2.5	1.4
Earnings per share	12
Basic earnings per share		0.198	0.192
Diluted earnings per share		0.198	0.192
Earnings per share from continuing operations
Basic earnings per share	12	0.205	0.196
Diluted earnings per share		0.205	0.196

Consolidated statement of comprehensive income*

			(€m)
	NOTE	H1 2022	H1 2021
PROFIT FOR THE PERIOD		400.6	386.0
Other comprehensive income for the period reclassifiable to profit or loss
- Cash flow hedges	24	161.5	39.9
- Financial assets at fair value through other comprehensive income	24	(0.8)	(1.7)
- Gains/(Losses) from translation of financial statements in currencies other than the euro	24	17.9	3.8
- Cost of hedges	24	(0.4)	0.2
Other comprehensive income for the period not reclassifiable to profit or loss
- Actuarial gains/(losses) on provisions for employee benefits	24	6.6	1.6
Total other comprehensive income for the period		184.8	43.8
COMPREHENSIVE INCOME FOR THE PERIOD		585.4	429.8
COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO:
Owners of the Parent		582.7	428.4
Non-controlling interests		2.7	1.4

* Amounts are shown net of tax, where applicable.

Consolidated statement of financial position

			(€m)
	NOTE	30 JUNE 2022	31 DECEMBER 2021
A - NON-CURRENT ASSETS
1. Property, plant and equipment	13	15,553.2	15,316.6
of which related parties		18.4	60.3
2. Goodwill	14	256.5	256.5
3. Intangible assets	15	444.4	400.0
4. Deferred tax assets	16	110.7	146.6
5. Investments accounted for using the equity method	17	75.0	76.2
6. Non-current financial assets	18	405.6	287.7
7. Other non-current assets	19	17.7	17.5
Total non-current assets		16,863.1	16,501.1
B - CURRENT ASSETS
1. Inventories	20	93.2	69.9
2. Trade receivables	21	3,716.3	2,777.4
of which related parties		323.9	302.3
3. Current financial assets	18	350.4	980.6
4. Cash and cash equivalents	22	1,685.0	1,566.8
of which related parties		0.1	0.1
5. Income tax assets	23	8.8	4.8
6. Other current assets	19	110.8	83.1
Total current assets		5,964.5	5,482.6
C - Discontinued operations and assets held for sale	30	475.4	375.5
TOTAL ASSETS		23,303.0	22,359.2
			(continues)

(continues)			(€m)
	NOTE	30 JUNE 2022	31 DECEMBER 2021
D - EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
1. Share capital		442.2	442.2
2. Other reserves		1,832.0	683.4
3. Retained earnings/(accumulated losses)		3,176.0	2,964.3
4. Interim dividend		-	(197.4)
5. Profit for the period		398.1	789.4
Total equity attributable to owners of the Parent	24	5,848.3	4,681.9
E - EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	24	33.8	31.1
Total equity attributable to owners of the Parent and non-controlling interests		5,882.1	4,713.0
F - NON-CURRENT LIABILITIES
1. Long-term borrowings	25	9,038.6	8,835.0
2. Employee benefits	26	51.4	60.8
3. Provisions for risks and charges	27	109.7	134.2
4. Non-current financial liabilities	25	258.7	83.7
5. Other non-current liabilities	28	933.5	884.8
Total non-current liabilities		10,391.9	9,998.5
G - CURRENT LIABILITIES
1. Short-term borrowings	25	1,182.7	1,947.0
2. Current portion of long-term borrowings	25	543.2	1,640.0
3. Trade payables	29	4,352.1	3,275.6
of which related parties		42.2	59.9
4. Tax expense	29	36.4	28.1
5. Current financial liabilities	25	71.3	45.8
6. Other current liabilities	29	573.9	453.4
of which related parties		20.0	19.4
Total current liabilities		6,759.6	7,389.9
H - Liabilities related to discontinued operations and assets held for sale	30	269.4	257.8
TOTAL LIABILITIES AND EQUITY		23,303.0	22,359.2

Consolidated statement of changes in equity

31 DECEMBER 2021 - 30 JUNE 2022

THE GROUP'S SHARE CAPITAL AND RESERVES													(€m)
	SHARE CAPITAL	LEGAL RESERVE	SHARE PREMIUM RESERVE	CASH FLOW HEDGE RESERVE	TREASURY SHARES	RESERVE FOR EQUITY INSTRUMENTS - PERPETUAL HYBRID BONDS	OTHER RESERVES	RETAINED EARNINGS/ (ACCUM ULATED LOSSES)	INTERIM DIVIDEND	PROFIT FOR THE PERIOD ATTRI BUTABLE TO OWNERS OF THE PARENT	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT	EQUITY ATTRI BUTABLE TO NON CONTROLLING INTERESTS	EQUITY ATTRI BUTABLE TO OWNERS OF THE PARENT AND NON CONTROLLING INTERESTS
EQUITY AT 31 DECEMBER 2021	442.2	88.4	20.0	(141.6)	(19.5)	-	736.1	2,964.3	(197.4)	789.4	4,681.9	31.1	4,713.0
PROFIT FOR THE PERIOD										398.1	398.1	2.5	400.6
OTHER COMPREHENSIVE INCOME:
- Change in fair value of cash flow hedges				161.5							161.5		161.5
- Actuarial gains/(losses) on employee benefits							6.6				6.6		6.6
- Gains/(Losses) from translation of financial statements in currencies other than the euro								17.7			17.7	0.2	17.9
- Financial assets at fair value through other comprehensive income							(0.8)				(0.8)		(0.8)
- Cost of hedges				(0.4)							(0.4)		(0.4)
Total other comprehensive income	-	-	-	161.1	-		5.8	17.7	-	-	184.6	0.2	184.8
COMPREHENSIVE INCOME	-	-	-	161.1	-		5.8	17.7	-	398.1	582.7	2.7	585.4
TRANSACTIONS WITH SHAREHOLDERS:													-
- Appropriation of profit for 2021:													-
Retained earnings								204.3		(204.3)	-		-
Dividends									197.4	(585.1)	(387.7)		(387.7)
- Purchase of treasury shares					(10.0)						(10.0)		(10.0)
Total transactions with shareholders	-	-	-	-	(10.0)		-	204.3	197.4	(789.4)	(397.7)	-	(397.7)
Equity instruments – Perpetual hybrid bonds						989.1					989.1		989.1
Share option reserve							3.0				3.0		3.0
Coupon payable to holders of hybrid bonds								(9.2)			(9.2)		(9.2)
Other changes							(0.4)	(1.1)			(1.5)		(1.5)
Total other changes	-	-	-	-	-	989.1	2.6	(10.3)	-	-	981.4	-	981.4
EQUITY AT 30 JUNE 2022	442.2	88.4	20.0	19.5	(29.5)	989.1	744.5	3,176.0	-	398.1	5,848.3	33.8	5,882.1

31 DECEMBER 2020 - 30 JUNE 2021

THE GROUP'S SHARE CAPITAL AND RESERVES												(€m)
	SHARE CAPITAL	LEGAL RESERVE	SHARE PREMIUM RESERVE	CASH FLOW HEDGE RESERVE	TREASURY SHARES	OTHER RESERVES	RETAINED EARNINGS/ (ACCUMULATED LOSSES)	INTERIM DIVIDEND	PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT	EQUITY ATTRIBUTABLE TO NON CONTROLLING INTERESTS	EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT AND NON CONTROLLING INTERESTS
EQUITY AT 31 DECEMBER 2020	442.2	88.4	20.0	(216.9)	(9.5)	731.2	2,711.6	(182.7)	785.5	4,369.8	46.0	4,415.8
PROFIT FOR THE PERIOD	-	-	-	-	-	-	-	-	384.6	384.6	1.4	386.0
OTHER COMPREHENSIVE INCOME:
- Change in fair value of cash flow hedges				39.9						39.9		39.9
- Actuarial gains/(losses) on employee benefits						1.6				1.6		1.6
- Gains/(Losses) from translation of financial statements in currencies other than the euro							3.7			3.7	0.1	3.8
- Financial assets at fair value through other comprehensive income						(1.7)				(1.7)		(1.7)
- Cost of hedges				0.2						0.2		0.2
Total other comprehensive income	-	-	-	40.1	-	(0.1)	3.7	-	-	43.7	0.1	43.8
COMPREHENSIVE INCOME TRANSACTIONS WITH SHAREHOLDERS:	-	-	-	40.1	-	(0.1)	3.7	-	384.6	428.3	1.5	429.8
- Appropriation of profit for 2020: Retained earnings Dividends							243.8	182.7	(243.8) (541.7)	- (359.0)		- (359.0)
- Purchase of treasury shares					(10.0)					(10.0)		(10.0)
Total transactions with shareholders	-	-	-	-	(10.0)	-	243.8	182.7	(785.5)	(369.0)	-	(369.0)
Other changes						1.4	3.4			4.8	(7.3)	(2.5)
Share option reserve						1.7				1.7		1.7
Total other changes	-	-	-	-	-	3.1	3.4	-	-	6.5	(7.3)	(0.8)
EQUITY AT 30 JUNE 2021	442.2	88.4	20.0	(176.8)	(19.5)	734.2	2,962.5	-	384.6	4,435.6	40.2	4,475.8

Consolidated statement of cash flows

			(€m)
	NOTE	H1 2022	H1 2021
PROFIT FOR THE PERIOD		400.6	386.0
ADJUSTED BY:
Amortisation, depreciation and impairment losses /(reversals of impairment losses) on non-current property, plant and equipment and intangible assets*	6	339.6	322.8
Accruals to provisions (including provisions for employee benefits) and impairment losses		4.5	7.0
(Gains)/Losses on sale of property, plant and equipment		(2.0)	(8.8)
Financial (income)/expense	8	49.2	41.0
Income tax expense		164.6	157.7
Other non-cash movements		3.0	1.7
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN NET WORKING CAPITAL		959.5	907.4
Increase/(decrease) in provisions (including provisions for employee benefits and taxation)		(23.9)	(38.2)
(Increase)/decrease in inventories		(35.2)	1.6
(Increase)/decrease in trade receivables and other current assets		(901.7)	(467.4)
Increase/(decrease) in trade payables and other current liabilities		1,201.2	118.2
Increase/(decrease) in other non-current liabilities		(16.3)	6.8
(Increase)/decrease in other non-current assets		(40.4)	(25.2)
Interest income and other financial income received		45.2	11.6
Interest expense and other financial expenses paid		(58.7)	(102.2)
Income tax paid		(173.4)	(124.1)
CASH FLOW FROM OPERATING ACTIVITIES [A]		956.3	288.5
- of which: related parties		(38.7)	(10.5)
Investments in non-current property, plant and equipment after grants received	13	(559.0)	(552.7)
Revenue from sale of non-current property, plant and equipment and intangible assets and other movements		(19.6)	14.3
Capitalised financial expenses		10.2	5.0
Investments in non-current intangible assets after grants received	15	(83.9)	(41.5)
(Increase)/decrease in investments in associates and joint ventures	17	1.2	0.4
Movements in short- and medium/long-term financial investments		(342.4)	100.0
CASH FLOW FOR INVESTING ACTIVITIES [B]		(993.5)	(474.5)
- of which: related parties		41.9	33.0
Movement in the reserve for treasury shares	24	(10.0)	(10.0)
Movement in the reserve for equity instruments	24	989.1	-
Dividends paid		(375.4)	(343.0)
Movements in short- and medium/long-term financial liabilities (including short term portion)**		(424.3)	(671.7)
Increase/(decrease) in retained earnings and accumulated losses	24	-	3.4
Increase/(decrease) in non-controlling interests in equity	24	-	(7.3)
CASH FLOW FROM/(FOR) FINANCING ACTIVITIES [C]		179.4	(1,028.6)
INCREASE/(DECREASE) IN CASH AND EQUIVALENTS [A+B+C]		142.2	(1,214.6)
Cash and cash equivalents at beginning of period		1,606.2	2,689.0
Cash and cash equivalents at end of period		1,748.4	1,474.4

* After grants related to assets recognised in the income statement for the year.

** After derivatives and impact of fair value adjustments, including cash movements in right-of-use assets.

Notes

Notes

A. Accounting policies and measurement criteria Introduction

The registered office of Terna S.p.A. (the "Parent Company") is at Viale Egidio Galbani 70, Rome, Italy. The condensed consolidated interim financial statements at and for the six months ended 30 June 2022 include the Company's financial statements and those of its subsidiaries (the "Group"), in addition to the Group's interests in associates and joint ventures. The subsidiaries included within the scope of consolidation are listed below.

The consolidated financial statements at and for the year ended 31 December 2021 are available for inspection on request at Terna S.p.A.'s registered office at Viale Egidio Galbani 70, Rome, or on the Company's website at www.terna.it.

Compliance with IAS/IFRS and basis of presentation

The condensed consolidated interim financial statements at and for the six months ended 30 June 2022 have been prepared in accordance with International Financial Reporting Standards (IFRS), the International Accounting Standards (IAS) issued by the International Accounting Standards Board (IASB) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the Standing Interpretations Committee (SIC). These standards and interpretations have been endorsed by the European Commission ("IFRS") at the above date and were used in the preparation of the consolidated financial statements at and for the year ended 31 December 2021, with the exception of new standards or amendments effective from 1 January 2022.

This document has also been prepared taking into account the provisions of Legislative Decree 38 of 28 February 2005, of the Italian Civil Code and CONSOB Resolutions 15519 ("Provisions governing financial statements in implementation of art. 9, paragraph 3 of Legislative Decree 38/2005") and 15520 ("Amendments to the implementing rules for Legislative Decree 58/1998"), as well as CONSOB Communication DEM/6064293 ("Disclosure requirements for listed issuers and issuers of financial instruments that are widely held among the public pursuant to art. 116 of the Consolidated Law on Finance").

In particular, the Group's condensed consolidated interim financial statements for the first half of 2022, prepared in compliance with IAS 34, do not include all the information required in the annual financial statements and should be read in conjunction with the consolidated financial statements at and for the year ended 31 December 2021.

These condensed consolidated interim financial statements contain selected disclosures, whilst the statements are consistent with those included in the annual financial statements. Given that the requirements of IFRS 5 have been met, the total results for the first halves of 2022 and 2021 attributable to the South American subsidiaries included in the planned sale of assets, launched at the end of 2021, have been classified in the item "Profit/(Loss) from assets held for sale" in the Group's reclassified income statement. Likewise, the attributable assets and liabilities at 30 June 2022 have been reclassified to the item "Discontinued operations and assets held for sale" and "Liabilities related to discontinued operations and assets held for sale" in the Group's reclassified statement of financial position, in line with the comparative amounts.

Use of estimates

Preparation of the condensed consolidated interim financial statements at and for the six months ended 30 June 2022 requires the Group to use estimates and assumptions that affect the carrying amounts of assets and liabilities and the related disclosures, in addition to contingent assets and liabilities at the reporting date. These estimates and the associated assumptions are based on the information available to management at the date of preparation of the financial statements and reflect previous experience and various factors that are believed to be reasonable under the circumstances. The resulting estimates form the basis for making the judgements about the carrying amounts of assets and liabilities that are not readily apparent from other objective sources. Actual results may differ from these estimates.

It should also be noted that certain measurement processes, above all those of a complex nature relating to the estimate of potential impairments of non-current assets, are generally only fully carried out during preparation of the annual financial statements, when all the necessary information is available, unless events or changes in circumstances indicate that there may be an impairment requiring the immediate measurement of a loss. In a similar manner, the actuarial valuations necessary in order to quantify employee benefits are normally carried out at the time of preparation of the annual financial statements.

The estimates and underlying assumptions are reviewed periodically and the effects of any changes are recognised in the income statement if the changes relate solely to that period. In the case that the revision affects both the period in which the revision takes place and future periods, the change is recognised from the reporting period in which the estimate is reviewed and in future periods.

Assessment of the impact of the Covid-19 pandemic

In recent years (2020-2022), the social and economic backdrop has been deeply affected by the spread of Covid-19. The Terna Group's business model has proved to be extremely resilient, with a solid financial structure and a significant level of digitalisation capable of enabling us to respond to the new challenges brought about by the pandemic. Today, although the virus continues to make its presence felt and a certain degree of concern remains, the health emergency appears to be over, as reflected in the progressive relaxation of the earlier restrictions introduced by the Government. As a result, the Group is continuing to focus on delivering on our "Driving Energy" 2021-2025 Industrial Plan and, to date, we are not aware of any circumstances requiring an in-depth assessment of the validity of application of the going concern basis.

This assessment was conducted in view of the provisions of IAS 1, which requires an entity's management, in the event of uncertainties, including the current pandemic, to assess the potential impact on the entity's ability to continue as a going concern. The Group took immediate steps to ensure the continuity of the country's electricity service, putting in place the necessary safeguards to guarantee the security of our operations as a Transmission System Operator (TSO) and the related supply chains. This was done whilst also focusing on efforts to ensure the health and safety of operational personnel and, in general, all the people who work for the Group. The above initiatives continued in 2021 and the first half of 2022, maintaining the highest levels of safety despite the progressive decline in the risks associated with Covid-19. This has seen Terna continue to focus attention on prevention by raising awareness, providing information and through our Sicuri Insieme campaign. At the same time, the Group is focusing on implementation of the NexTerna programme that is shaping and developing the "new normal" post-pandemic, as described in the "Our people" section of the Half-year Report.

In line with the ESMA recommendations published in 2020 and 202127 and in accordance with the requirements set out in CONSOB Warning 1/2021 dated 16 February 2021, the Group has closely monitored the development of the Covid-19 pandemic and its potential impact on individual items in the Group's condensed consolidated interim financial statements.

Non-financial assets, investments and intangible assets with indefinite useful lives (goodwill)

Assessment of the impact of the pandemic has not resulted in trigger events requiring the conduct of an impairment test of the value of the property, plant and equipment owned by the Group or of intangible assets with finite useful lives. This assessment confirms the outcome of the same procedure carried out in 2021, as the pandemic has had a marginal impact on expected cash flows, given that cash flows are for the most part linked to concessions.

With regard to the recoverable amount of property, plant and equipment and intangible assets with finite useful lives forming part of the RAB (regulated asset base), the assessment of expected future cash flows generated by these assets has shown that the slowdown in operating activities, and the macroeconomic effects of the outbreak of the pandemic, have not given rise to impacts constituting trigger events requiring the Group to test for impairment. The same conclusions also apply to the recoverable amount of investments accounted for using the equity method, relating to companies for which the impact of the pandemic has been relatively modest.

The same conclusion also applies to the value of goodwill allocated to the CGU relating to the "Production and commercialisation of transformers", where cash flows have only marginally been affected by the negative impact of the pandemic.

Loan agreements and leases

The loan agreements and leases to which the Terna Group is party have not, to date, been subject to contractual amendments concerning either repayments to be made or the related deadlines as a result of the Covid-19 pandemic.

Financial instruments

The negative effects of the pandemic, which continued throughout the first half of 2022, have not, despite the generally poor macroeconomic environment, had a major impact on the Group's financial instruments.

The Group's trade receivables fall within the hold to collect business model, primarily fall due within 12 months and do not include a significant financial component. The current pandemic and the related developments have not, therefore, had any impact, including with regard to the identified business model for financial instruments, not resulting in any changes to the chosen classification.

In addition, fair value measurement of the financial assets and liabilities held by the Group has not undergone significant changes in terms of an increase in the related risks (market, liquidity and credit). Similarly, movements in the underlying assumptions have not altered the sensitivity analyses linked to their measurement.

In terms of recoverable amount, it should be noted that the outbreak of the pandemic has not led to any deterioration in 2021 in the receivables due from the Group's main counterparties (dispatching customers for injections or for withdrawals and distributors), considered solvent by the market, and therefore assigned high credit ratings.

²⁷ ESMA Reccommendation of 29 October 2021 'European common enforcement priorities for 2021 annual financial reports'.

As described in more detail in the section, "Credit risk", management of this risk is also driven by the provisions of ARERA Resolution 111/06, which introduced instruments designed to limit the risks related to the insolvency of dispatching customers, both on a preventive basis and in the event of an actual insolvency. The assessment conducted has, moreover, not provided evidence of the need to modify the model used following an evaluation of the impact of the pandemic.

With regard, on the other hand, to the Group's ability to obtain financing, no particular issues linked to the pandemic have been identified, considering that the Group's liquidity and committed lines of credit, together with its ability to generate cash, will enable it to meet its obligations falling due in the next 12 months and beyond.

As described in the section, "Default risk and debt covenants", long-term borrowings do not contain covenants linked to financial ratios, but rather consisting of "negative pledge" and "pari passu" provisions and other standard provisions applied to investment grade companies. In addition, Moody's, S&P and Scope have assigned the Group ratings of Baa2/BBB+/A-, one notch above Italy's sovereign rating.

With regard to financial statement items measured at fair value, none of the borrowings and the related hedges accounted for under hedge accounting have, given their nature, been significantly impacted in view of the existing hedging relationship and the strength of counterparties. Moreover, the pandemic and the related effects have not led to changes in the related hedging relationships or in the underlyings, consisting of both past and future transactions.

Revenue recognition

The Group has already, in 2020, assessed the potential impact of the Covid-19 pandemic on movements in the income generated by its activities. Given that the most significant portion of the Group's income consists of revenue from Regulated Activities, and in view of the basis on which revenue is determined, management has not identified a need to modify the value of revenue accounted for by the Group.

Employee benefits

Assessment of the impact of the current pandemic has not led to a revision of the assumptions underlying the measurement of employee benefits compared with those used in the previous year.

Deferred tax assets

Following the assessment of the effects of the Covid-19 pandemic and the related developments, it was not necessary to revise earlier assessments of the recoverability of deferred tax assets, partly with regard to the final results for the period.

Climate change

Awareness of the progress of climate change and its effects has led to a greater need to provide disclosure in the Half-year Report. Although there is no international accounting standard governing how the impact of climate change should be taken into account in the preparation of financial statements, the IASB has issued certain documents providing support for IFRSadopters seeking to satisfy the demand for disclosure from interested parties. Similarly, ESMA, in its European Common Enforcement Priorities dated 29 October 2021, highlighted the need for issuers to consider climate risks when preparing their IFRS financial statements to the extent that such risks are material, regardless of whether or not this is explicitly required by the relevant accounting standards.

Notes

The Terna Group describes its considerations on the actions linked to the need to mitigate the impact of climate change primarily in the sections, "Market environment" and "Opportunities and risks for Terna connected with climate change" in the Half-year Report. In these sections, as a TSO providing transmission and dispatching services, the Terna Group undoubtedly plays an active role in supporting the system in achieving the challenging targets linked to efforts to reduce CO2 emissions. Indeed, in addition to the emissions connected with electricity consumption, the most significant component relating to Terna's indirect emissions is linked to grid losses that in turn lead to the indirect need to produce CO2 to offset such losses with additional electricity. In themselves, a TSO's emissions (scopes 1 and 2 in the 'GHG emission protocol') are extremely modest when compared with the potential system-level reduction resulting from the integration of renewable sources and electrification.

The Group has chosen to report its considerations on climate change in a single note. The following is a summary of management's considerations on aspects deemed material.

IAS 1 – Presentation of Financial Statements

IAS 1 requires entities to provide disclosures - for example, on climate-related matters - not specifically required by IFRS and not presented elsewhere, but that are relevant to an understanding of the financial statements. The requirements of IAS 1 apply to the financial statements as a whole.

As regards the judgements and estimates made in preparing the financial statements, IAS 1 requires entities to provide disclosure of the future-oriented estimates used and that have a significant risk of resulting in a material adjustment within the next financial year. Key assumptions regarding climate-related matters are described below.

In terms of the short term, management has not identified any specific effects of climate-related risks to be considered when applying the accounting standards.

With regard to the medium to long term, management has identified risks primarily linked to the Company's role as a TSO, deriving from the need to adapt the electricity grid in the form of work designed to boost resilience and allow it to handle the new profile and mix of the energy injected into the grid. However, as described in greater detail in the specific sections that follow, the steps planned with the aim of mitigating such risks do not require further consideration during application of the accounting standards used in preparation of these financial statements.

It should be noted, however, that assessment and, more specifically, quantification of climaterelated risks generally requires the use of highly uncertain future-oriented assumptions, such as future technological and policy developments and Government measures.

IAS 16 – Property, Plant and Equipment

With specific regard to the grid and the related transmission service, the action plan requires a commitment to the planning, approval and delivery of investment projects such as, for example, cross-border interconnections and the development of infrastructure to enable the growing integration of renewable energy sources.

In fact, as part of implementation of the Group's Risk Framework, management has identified the risk connected with the intensification of extreme weather events (tornados, heavy snowfall, ice, flooding) with a resulting impact on the continuity and quality of the service provided by Terna and/or damage to equipment, machinery, infrastructure and the grid. In response, the Group continues to carry out new investment designed to increase the resilience of the electricity grid and identify mitigation strategies.

In line with our role in driving the country's energy transition, Terna's 2021 Development Plan (covering a ten-year period) envisages two areas of intervention: a) investment in digitalisation, resilience, inertia and voltage regulation to strengthen the grid and cross-border interconnections; b) predictive solutions for maintenance and renewal.

Mitigating climate-related risk also involves the need to plan maintenance of NTG infrastructure to ensure quality of service, the security of the assets operated (power lines and electricity substations) and their ability to remain fully operational.

In addition to initiatives falling within the scope of the Group's routine maintenance programmes, in this regard, Terna is increasingly required to carry out work on the grid that calls for the replacement of specific components. Aside from renewing grid infrastructure, this enables the Company to mitigate the intensification of damaging weather events. Management considers that this investment does not reduce or modify the expected economic benefits deriving from use of the existing grid accounted for in property, plant and equipment. In the light of the above, it has not been necessary to conduct a critical review of the useful lives of the fixed assets recognised in the financial statements.

The Group also considers that there may be a risk connected with the supply chain due to significant changes in the strategies of key suppliers. This risk is heightened by the crisis in the global supply chain following the pandemic and the energy transition launched in many countries, with a potential impact on construction and maintenance projects, and a resulting impact on the continuity and quality of service and on the time needed to complete infrastructure. The Group constantly monitors developments in the supply chain and has not so far identified any critical issues.

IAS 38 – Intangible assets

With regard to non-regulated activities, the Group is committed to developing innovative, digital technological solutions to support the ecological transition. These activities include the offerings of Tamini and Brugg, the subsidiaries that produce power transformers and terrestrial cables, respectively (industrial activities), involving the development of expertise throughout the value chain, and the offer of Energy Solutions and Connectivity. In addition, the Group is also committed to investing in digitalisation and innovation, involving the development of solutions for the remote control of electricity substations and key infrastructure. This involves the installation of sensor, monitoring and diagnostic systems, including predictive solutions, improving the security of the grid and the surrounding area.

In 2020 and 2021, within the scope of the Resilience 2.0 methodology, the Group has also developed tools for studying and planning new works designed to respond to issues relating to climate change. To promote the spread of a well-informed energy culture and facilitate broad awareness of the issues faced by the electricity sector, in 2021, the Group developed a new Development Plan application and the digital platform called Terna4Green with a view to monitoring the progress made towards Italy's decarbonisation. Via these two new initiatives, Terna continues and strengthens its commitment to ever greater transparency and the spread of information and data, specific expertise and in-depth knowledge of the national electricity system.

Investment in research is expensed as incurred, whilst development costs that meet certain requirements may be recognised as intangible assets. Further information on the criteria used in the recognition of an intangible asset resulting from development work is provided in the paragraph, "Intangible assets".

IAS 36 – Impairment of Assets

As indicated above with regard to property, plant and equipment, management has not identified factors requiring a critical review of useful lives. Similarly, with regard to the risk of impairment losses on property, plant and equipment, management considers that, whilst the

steps taken to mitigate climate-related risk involve the need to plan maintenance work on NTG infrastructure, in keeping with the past, so as to ensure quality of service, the security of the assets operated (power lines and electricity substations) and their ability to remain fully operational, these activities do not, in any event, have a negative impact on the measurement of fair value less costs of disposal. This is because a market operator would take this investment into account as part of the fair value measurement process.

IFRS 9 – Financial Instruments

With regard to borrowings and bond issues, the Group has obtained ESG-linked loans and has issued green bonds. In both cases, the liabilities are linked to sustainability goals and the Group believes that there may be a risk, albeit not significant, connected with the achievement of such goals. The impact of this risk on financial expenses is entirely negligible. The Group constantly monitors developments relating to climate change and has not so far identified any critical issues.

IAS 37 - Provisions, Contingent Liabilities and Contingent Assets

The legislation introduced in response to climate change may give rise to new obligations that did not previously exist. In this regard, Terna Group has introduced an environmental policy setting out its commitment to containing and reducing its environmental impact, in some cases going beyond legal requirements when this does not compromise the protection of other general interests provided for under the concession. Full implementation of this policy, which also covers efforts to reduce greenhouse gas emissions, also involved energy efficiency initiatives and the adoption of measures designed to protect birdlife. Terna extends the issue of environmental protection to both its supply chain and local stakeholders directly affected by NTG development projects, through increasingly eco-sustainable offsets.

Given the regulatory framework, management does not believe that such policies give rise to the need to recognise liabilities not previous accounted for. The same conclusion has also been reached with regard to the previously mentioned risk linked to the supply chain due to significant changes in the strategies of key suppliers. As a result, it has not been necessary to carry out a critical review of provisions in the financial statements.

Conflict between Russia and Ukraine

The Terna Group has been closely monitoring recent international events, focusing above all on geopolitical developments and the related legislation.

In this respect, in its Public Statement of 13 May 2022, "Implications of Russia's invasion of Ukraine on half-yearly financial reports", ESMA highlighted the need to ensure the correct degree of transparency in financial reporting in order to adequately reflect the current and, as fare as possible, foreseeable impact of the conflict on entities' financial position, financial performance and cash flows.

Despite the current geopolitical crisis caused by the ongoing conflict between Russia and Ukraine and continuing commodity market tensions, which are affecting the world's ability to recover from the Covid-19 pandemic, the Group is continuing to focus on delivering on our "Driving Energy" 2021-2025 Industrial Plan and, to date, we are not aware of any circumstances requiring an in-depth assessment of the validity of application of the going concern basis.

This assumption is based on the fact that the largest part of the Group's income is represented by revenue generated by our Regulated Activities in Italy and that this revenue consists of remuneration to cover both operating and capital expenditure, with both components revised

annually based on the performance of inflation and a deflator. In addition, the return on invested capital is based on a WACC that is periodically revised by ARERA to enable the parameters used in calculating the cost of equity and debt to be updated.

Assessment of the impact of the conflict between Russia and Ukraine has not, moreover, resulted in trigger events requiring the conduct of an impairment test of the value of the property, plant and equipment owned by the Group or of intangible assets with finite useful lives.

With regard to the recoverable amount of property, plant and equipment and intangible assets with finite useful lives forming part of the RAB (regulated asset base), the assessment of expected future cash flows generated by these assets has shown that the macroeconomic effects of the conflict between Russia and Ukraine have not given rise to impacts constituting trigger events requiring the Group to test for impairment. The same conclusions also apply to the recoverable amount of investments accounted for using the equity method, relating to companies for which the impact of the conflict has been relatively modest.

In addition, the impact of the conflict has not resulted in an increase in credit risk and has not affected the outcome of the measurement of expected credit losses. The Group's trade receivables fall within the hold to collect business model, primarily fall due within 12 months and do not include a significant financial component. The current conflict has not, therefore, had any impact, including with regard to the identified business model for financial instruments, not resulting in any changes to the chosen classification.

In addition, fair value measurement of the financial assets and liabilities held by the Group has not undergone changes in terms of an increase in the related risks (market, liquidity and credit). Similarly, movements in the underlying assumptions have not altered the sensitivity analyses linked to their measurement.

In terms of recoverable amount, it should be noted that the outbreak of the pandemic has not led to any deterioration in 2022 in the receivables due from the Group's main counterparties (dispatching customers for injections or for withdrawals and distributors), considered solvent by the market and therefore assigned high credit ratings.

As described in more detail in the section, "Credit risk", management of this risk is also driven by the provisions of ARERA Resolution 111/06, which introduced instruments designed to limit the risks related to the insolvency of dispatching customers, both on a preventive basis and in the event of an actual insolvency. The assessment conducted has, moreover, not provided evidence of the need to modify the model used following an evaluation of the impact of the conflict.

It should, moreover, be noted that Terna S.p.A. and its subsidiaries do not have offices or significant operations in the regions affected by the conflict.

Subsidiaries and scope of consolidation

The scope of consolidation includes the Parent Company, Terna S.p.A., and the companies over which it has the power to directly or indirectly exercise control, as defined by IFRS 10. Control exists when the Parent Company has the power or the ability to influence the relevant activities (having a substantial impact on the Parent Company's results) and is exposed to or has the right to variable returns from its involvement with the investee, and the ability to use its power over the subsidiaries to affect the amount of the investor's returns. The financial statements of subsidiaries are consolidated on a line-by-line basis from the date when the Parent Company gains control until the date when such control ceases.

Notes

The companies included within the scope of consolidation are listed below:

NAME	REGISTERED OFFICE	CURRENCY	SHARE CAPITAL	% INTEREST	METHOD OF CONSOLIDATION
SUBSIADIARIES CONTROLLED DIRECTLY BY TERNA S.P.A.
Terna Rete Italia S.p.A.	Rome	Euro	300,000	100%	Line-by-line
Business	Design, construction, management, development, operation and maintenance of power lines and grid infrastructure and other grid-related infrastructure, plant and equipment used in the above electricity transmission and dispatching activities and in similar, related and connected sectors.
Terna Crna Gora d.o.o.	Podgorica (Montenegro)	Euro	208,000,000	100%	Line-by-line
Business	Authorisation, construction and operation of the transmission infrastructure forming the Italy-Montenegro interconnector on Montenegrin territory.
Terna Plus S.r.l.	Rome	Euro	16,050,000	100%	Line-by-line
Business	Design, construction, management, development, operation and maintenance of plant, equipment and infrastructure for grids and systems, including distributed storage and pumping and/or storage systems.
Terna Interconnector S.r.l.	Rome	Euro	10,000	65%*	Line-by-line
Business	Responsible for construction and operation of the private section of the Italy-France interconnector and civil works on the public section.
Rete S.r.l.	Rome	Euro	387,267,082	100%	Line-by-line
Business		Design, construction, management, development, operation and maintenance of high voltage power lines.
Difebal S.A.	Montevideo (Uruguay)	Uruguayan peso	140,000	100%	Line-by-line
Business	Design, construction and maintenance of electricity infrastructure in Uruguay.
Terna Energy Solutions S.r.l.	Rome	Euro	2,000,000	100%	Line-by-line
Business	Design, construction, management, development, operation and maintenance of distributed energy storage systems, pumping and/or storage systems, plant, equipment and infrastructure, including grids; research, consultancy and assistance in matters relating to the core business; any other activity capable of improving the use and development of plant, resources and expertise.
ESPERIA-CC S.r.l.	Rome	Euro	10,000	1%**	Line-by-line
Business	A technical centre owned by a number of transmission system operators, which acts as the regional security coordinator for the TSOs, with the aim of improving and upgrading the security and coordination of the electricity system in south-eastern Europe.

* 5% is held by Terna Rete Italia S.p.A. and 30% by Transenergia S.r.l.

** 99% is held by Selene CC S.A.

NAME	REGISTERED OFFICE	CURRENCY	SHARE CAPITAL	% INTEREST	METHOD OF CONSOLIDATION
SUBSIDIARIES CONTROLLED THROUGH TERNA PLUS S.R.L.
Terna Chile S.p.A.	Santiago (Chile)	Chilean peso 2,224,052,500		100%	Line-by-line
Business	Design, construction, administration, development, operation and maintenance of any type of electricity system, plant, equipment and infrastructure, including interconnectors; provision of all types of product and service, construction, electrical and civil engineering work; research, consultancy and assistance in matters relating to the core business; any other activity capable of improving the use and development of plant, resources and expertise.
SPE Santa Maria Transmissora de Energia S.A.	Rio de Janeiro (Brazil)	Real	42,474,716	99.99%*	Line-by-line
Business	Provision of public electricity transmission services, including construction, operation and maintenance of transmission infrastructure or any other activity necessary in order to fulfil the above purpose.
SPE Santa Lucia Transmissora de Energia S.A.	Rio de Janeiro (Brazil)	Real	153,714,431	99.99%*	Line-by-line
Business	Provision of public electricity transmission services, including construction, operation and maintenance of transmission infrastructure or any other activity necessary in order to fulfil the above purpose.
Terna Peru S.A.C.	Lima (Peru)	Sales	116,813,900	99.99%*	Line-by-line
Business	Design, construction, administration, development, operation and maintenance of any type of electricity system, plant, equipment and infrastructure, including interconnectors; provision of all types of product and service, construction, electrical and civil engineering work; research, consultancy and assistance in matters relating to the core business; any other activity capable of improving the use and development of plant, resources and expertise.
Terna 4 Chacas S.A.C.	Lima (Peru)	Sales	11,814,560	99.99%*	Line-by-line
Business	Responsible for construction of a new 16 km power line in Peru.
SPE Transmissora de Energia Linha Verde I S.A.	Belo Horizonte (Brazil)	Real	434,999,313	75%**	Line-by-line
Business	Provision of public electricity transmission services, including construction, operation and maintenance of electricity transmission infrastructure or any other activity necessary in order to fulfil the above purpose.
SPE Transmissora de Energia Linha Verde II S.A.	Belo Horizonte (Brazil)	Real	252,098,162	99.99%*	Line-by-line
Business	Provision of public electricity transmission services, including construction, operation and maintenance of electricity transmission infrastructure or any other activity necessary in order to fulfil the above purpose.

* 0.01% Terna Chile S.p.A.

** 25% Quebec Holding Eireli.

NAME	REGISTERED OFFICE	CURRENCY	SHARE CAPITAL	% INTEREST	METHOD OF CONSOLIDATION
	SUBSIDIARIES CONTROLLED THROUGH TERNA ENERGY SOLUTIONS S.R.L.
Tamini Trasformatori S.r.l.	Legnano (MI)	Euro	4,285,714	100%	Line-by-line
Business	Construction, repair and trading in electrical equipment.
Avvenia The Energy Innovator S.r.l.	Rome	Euro	10,000	100%	Line-by-line
Business	Provision of energy efficiency, energy consulting and process engineering services to companies and public and private entities; the application of technology to increase energy end-use efficiency; the design, construction, development and maintenance of plant, equipment and infrastructure for networks and other uses.
Brugg Kabel Services AG	Brugg (Switzerland)	Swiss franc	1,000,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
LT S.r.l.	Rome	Euro	400,000	75%*	Line-by-line
Business	Design, construction and maintenance of renewable power plants.
	SUBSIDIARIES CONTROLLED THROUGH TAMINI TRASFORMATORI S.R.L.
Tamini Transformers USA LLC	Sewickley - Pennsylvania	US dollar	52,089	100%	Line-by-line
Business	Commercialisation of industrial-grade and high-power electricity transformers.
Tamini Transformatori India Private Limited	Maharashtra (India)	Indian rupee	13,175,000	100%	Line-by-line
Business	Commercialisation of industrial-grade and high-power electricity transformers.
	SUBSIDIARIES CONTROLLED THROUGH BRUGG KABEL SERVICES AG
Brugg Kabel Manufacturing AG	Brugg (Switzerland)	Swiss franc	7,000,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
Brugg Kabel AG	Brugg (Switzerland)	Swiss franc	22,000,000	90%**	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
	SUBSIDIARIES CONTROLLED THROUGH BRUGG KABEL MANUFACTURING AG
Brugg Cables Italia S.r.l.	Milan	Euro	10,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
	SUBSIDIARIES CONTROLLED THROUGH BRUGG KABEL AG
Brugg Cables Middle East DMCC	Dubai (UAE)	Dirham	100,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
Brugg Kabel GmbH	Schwieberdingen (Germany)	Euro	103,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
Brugg Cables (Shanghai) Co. Ltd	Shanghai	US dollar	1,600,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
Brugg Cables (India) Pvt. Ltd	Haryana (India)	Indian rupee	48,000,000	99.74%***	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
	SUBSIDIARIES CONTROLLED THROUGH BRUGG CABLES (SHANGHAI) CO. LTD
Brugg Cables (Suzhou) Co. Ltd	Suzhou (China)	Chinese renminbi	32,000,000	100%	Line-by-line

NAME	REGISTERED OFFICE	CURRENCY	SHARE CAPITAL	% INTEREST	METHOD OF CONSOLIDATION
SUBSIDIARIES CONTROLLED THROUGH BRUGG CABLES ITALIA S.R.L.
Laser TLC S.r.l.****	Rome	Euro	12,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
SUBSIDIARIES CONTROLLED THROUGH LT S.r.l.
Halfbridge Automation S.r.l.	Rome	Euro	10,000	70%*	Line-by-line
Business	Research, design and production of electronic circuit boards for innovative energy efficiency systems.

* 25% Solaris S.r.l.

** 10% BRUGG GROUP AG.

*** 0.26% Brugg Kabel GmbH.

**** On 13 July 2022, the company was merged with and into Brugg Cables Italia S.r.l.

***** 30% Vima Technologies S.r.l.

Compared with 31 December 2021, the voluntary liquidation of PI.SA. 2 S.r.l., which began on 10 December 2021, was completed on 27 January 2022.

Associates

Associates are investees over which the Terna Group exercises significant influence, being the ability to participate in the determination of these companies' financial and operating policies, without having control or joint control. In assessing whether or not Terna has significant influence, potential voting rights that are exercisable or convertible are also taken into account.

These investments are initially recognised at cost and subsequently measured using the equity method. The profits or losses attributable to the Group are recognised in the consolidated financial statements when significant influence begins and until that influence ceases. Based on application of the equity method, if there is evidence that the investment has been impaired, the Group determines the amount of the impairment based on the difference between the recoverable amount and the carrying amount of the investment in question. In the event that the loss attributable to the Group exceeds the carrying amount of the equity interest, the latter is written off and any excess is recognised in a specific provision, if the Parent Company is required to meet the legal or constructive obligations of the investee or, in any case, to cover its losses.

Joint arrangements

Investments in joint arrangements, in which the Group exercises joint control with other entities, are recognised initially at cost and subsequently measured using the equity method. The profits or losses attributable to the Group are recognised in the consolidated financial statements when joint control begins and until that control ceases. The Group recognises its share of the assets and liabilities attributable to joint arrangements in accordance with IFRS 11.

In assessing the existence of joint control, it is ascertained whether the parties are bound by a contractual agreement and whether this agreement attributes to the parties the joint control of the agreement itself. Joint control exists when an entity has control over an arrangement on a contractual basis, and only when decisions relating to the relevant activities require the unanimous consent of all parties that jointly control the arrangement.

The list of associates and joint ventures is shown below:

NAME	REGISTERED OFFICE CURRENCY		SHARE CAPITAL*	PROFIT FOR THE PERIOD*	% INTEREST	METHOD OF CONSOLIDATION	CARRYING AMOUNT AT 30 JUNE 2022 (€m)
ASSOCIATES
Cesi S.p.A.	Milan	Euro	8,550,000	(9,690,980)	42.698%	Equity Method	46.9
Business	Experimental research and provision of services related to electro-technology.
Coreso S.A.	Brussels (Belgium)	Euro	1,000,000	728,400	15.84%	Equity Method	0.8
Business	Technical centre owned by several electricity transmission operators, responsible for coordinating joint operations of TSOs, in order to improve and upgrade the security and coordination of the electricity system in central and western Europe.
CGES A.D.	Podgorica (Montenegro)	Euro	155,108,283	16,852,684	22.0889%	Equity Method	26.7
Business	Provision of transmission and dispatching services in Montenegro.
Equigy B.V.	Arnhem, (Netherlands)	Euro	50,000	1,292,744	20%	Equity Method	0.3
Business	Provisions of support for electricity balancing by TSOs through the development and implementation of blockchain technology.
JOINT VENTURES
ELMED Etudes S.a.r.l.	Tunis (Tunisia)	Tunisian dinar	2,700,000	(172,904)	50%	Equity Method	0.2
Business	Conduct of preparatory studies for the construction of the infrastructure required to connect the Tunisian and Italian electricity system.
SEleNe CC S.A.	Thessaloniki (Greece)	Euro	200,000	12,479	25%	Equity Method	0.1
Business	A technical centre owned by a number of transmission system operators, which acts as the regional security coordinator for the TSOs, with the aim of improving and upgrading the security and coordination of the electricity system in south eastern Europe.

* Figures taken from the latest approved financial statements at the date of preparation of this document.

New accounting standards

The accounting standards used in the preparation of the condensed consolidated interim financial statements at and for the six months ended 30 June 2022 are consistent with those used in the preparation of the consolidated financial statements at and for the year ended 31 December 2021, with the exception of the adoption of new standards and amendments that came into effect from 1 January 2022. The Group has not elected for early adoption of any new standard, interpretation or amendment issued but yet to come into effect. A number of amendments and interpretations are applicable for the first time in 2022.

International financial reporting standards effective as of 1 January 2022

A number of new amendments to standards already applied, none of which have had a significant impact, came into effect from 1 January 2022. The relevant standards are as follows:

Amendment to IFRS 3, IAS 16, IAS 37 and Annual Improvements 2018-2020

On 28 June 2021, the European Commission issued Regulation 2021/1080, endorsing the following amendments:

• Amendments to IFRS 3 Business Combinations: the changes aim to update the reference to the revised version of the Conceptual Framework in IFRS 3, without this resulting in modifications to the provisions of the standard;
• Amendments to IAS 16 Property, Plant and Equipment: the changes aim to not allow the deduction of the amount received from the sale of good produced from the cost property, plant and equipment when testing such assets. This sales revenue and the related costs must therefore be recognized in profit or loss;

• Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets: the amendment clarifies that in estimating the onerous nature of a contract an entity must take into account all the incremental costs (such as, for example, direct labour and materials), but also all the costs that the entity cannot avoid having entered into the contract (such as, for example, allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract);
• Annual Improvements 2018-2020: the changes regarded IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IAS 41 Agriculture and Illustrative Examples of IFRS 16 Leases.

The adoption of these amendments has not had an impact on the Group's consolidated financial statements.

International financial reporting standards, amendments and interpretations endorsed but not yet effective

At the date of approval of this document, the following standards, amendments or interpretations have yet to become effective and the Group has not opted for early adoption at 30 June 2022:

IFRS 17: Insurance contracts

On 19 November 2021, the European Commission issued Regulation 2021/2036, endorsing IFRS 17. The new accounting standard for insurance contracts was published by the IASB on 18 May 2017, to replace the interim version of IFRS 4. The standard aims to ensure that an entity provides pertinent information providing an accurate view of the rights and obligations resulting from the insurance contracts issued. The IASB has developed the standard to remove inconsistencies and weaknesses in existing accounting policies, providing a single principle-based framework that takes into account all types of insurance contracts, including any reinsurance contracts to which an insurance undertaking is party. The new standard also introduces presentation and disclosure requirements to improve comparability between entities belonging to this sector.

The standard will come into effect from 1 January 2023 and will not have an impact on the Group's consolidated financial statements.

Amendments to IAS 1 and IAS 8: Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2 and Definition of Accounting Estimates – Amendments to IAS 8

On 2 March 2022, the European Commission issued Regulation 2021/2036, endorsing the amendment making changes to IAS 1 Presentation of financial statements and IAS 8 Accounting standards, and changes to the treatment of accounting estimates and errors. These amendments aim to improve the disclosure of accounting policies in order to provide more useful information for investors and other primary users of financial statements and to help companies to distinguish changes in accounting estimates from changes in accounting policy.

The amendments will come into effect from 1 January 2023, but early adoption is permitted. The Group is currently assessing the potential impact of the introduction of these amendments on its consolidated financial statements.

International financial reporting standards, amendments and interpretations awaiting endorsement

For newly-issued amendments, standards and interpretations that have not yet been endorsed by the EU, but which address issues that affect or could affect the Terna Group, assessments are currently being conducted of the possible impact of their application on the financial statements, taking into account the date on which they will take effect. These include the following:

Amendment to IAS 1: Presentation of Financial Statements: Classification of Liabilities as Current or Non-current and Classification of Liabilities as Current or Noncurrent - Deferral of Effective Date

On 23 January 2020 and 15 July 2020, the IASB published the amendment to IAS 1. The document aims to clarify how to classify payables and other short- or long-term liabilities. The amendment will come into effect from 1 January 2023, but early adoption is permitted. The Group is currently assessing the potential impact of the introduction of this amendment on its consolidated financial statements.

Amendment to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

The amendment, published by the IASB on 7 May 2021, clarifies how to account for deferred tax assets and liabilities arising from certain transactions that may generate assets and liabilities of a matching amount, such as leases and decommissioning obligations. The amendment will come into effect from 1 January 2023, but early adoption is permitted. The Group is currently assessing the potential impact of the introduction of this amendment on its consolidated financial statements.

Amendment to IFRS 17: Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 – Comparative Information

On 9 December 2021, the IASB published the amendment to IFRS 17. The amendment is a transition option relating to comparative information on financial assets presented at the date of initial application of IFRS 17. The amendment aims to avoid temporary accounting mismatches between insurance contract liabilities and the related financial assets, and to thus improve the usefulness of the comparative information to the users of financial statements. The standard will come into effect from 1 January 2023 and will not have an impact on the Group's consolidated financial statements.

B. Notes to the consolidated income statement

Revenue

1. REVENUE FROM SALES AND SERVICES - €1,297.8 MILLION

			(€m)
	H1 2022	H1 2021	CHANGE
Transmission charges billed to grid users	999.9	998.3	1.6
Other energy-related revenue and from services performed under concession	135.4	70.7	64.7
Quality of service bonuses/(penalties)	5.8	2.9	2.9
Other sales and services	156.7	144.7	12.0
TOTAL	1,297.8	1,216.6	81.2

Transmission charges billed to grid users

Transmission charges billed to grid users and the related back-billing regard revenue generated from ownership and operation of the national transmission grid or NTG and attributable to the Parent Company (€926.8 million) and the subsidiaries, Rete S.r.l. (€65.6 million) and Terna Crna Gora d.o.o. (€7.5 million).

The increase in revenue from the transmission service (up €1.6 million) is primarily linked to the output-based incentive mechanisms introduced by Resolution 567/2019 relating to the delivery of additional transmission capacity between market areas (€34.5 million) net of the incentives recognised in the first half of 2021 (down €7.6 million, under ARERA Resolution 579/17 and ARERA Resolution 884/17) and the reduction in WACC recognised for 2022 (Resolution 614/21), partly offset by the increase in the RAB during the period and the volume effect.

Other energy-related revenue and from services performed under concession

This item regards dispatching and metering revenue and other energy-related revenue, broadly relating to the incentives designed to drive efficiencies in the dispatching service (€55.5 million for the dispatching component, €0.1 million for the metering component and other energyrelated revenue of €57.3 million) and revenue from infrastructure construction and upgrade services performed under concession, recognised in application of IFRIC 12 (€22.5 million).

Other energy-related revenue and from services performed under concession, after revenue from construction services performed under concession (up €7.3 million), is up €57.4 million, primarily due to the incentive mechanisms provided for in Resolution 699/2018, relating to grid development projects designed to relieve congestion within market areas and grid constraints due to voltage regulation and improve conditions for essential service provision (€56.2 million).

			(€m)
OTHER ENERGY-RELATED REVENUE AND FROM SERVICES PERFORMED UNDER CONCESSION	H1 2022	H1 2021	CHANGE
Dispatching and metering revenue and other energy-related revenue	112.9	55.5	57.4
Revenue from services performed under concession (IFRIC 12)	22.5	15.2	7.3
TOTAL ENERGY-RELATED REVENUE AND FROM SERVICES PERFORMED UNDER CONCESSION	135.4	70.7	64.7

Quality of service

This item, amounting to €5.8 million, regards the RENS (Regulated Energy Not Supplied) incentive mechanism introduced by Resolution 653/2015/r/eel, calculated on a pro rata basis taking into account the estimated overall results expected in the 2020-2023 period. The increase for the period (up €2.9 million) is broadly due to recognition of the portion due on the basis of the estimated overall performance in the 2021-2023 regulatory period.

Other energy-related items – pass-through revenue/expenses

This item regards "pass-through" revenue and expenses (the balance of which amounts to zero) attributable solely to the Parent Company. These items result from daily purchases and sales of electricity from electricity market operators. Measurements for each point of injection and withdrawal are taken and the differences, with respect to energy market schedules are calculated. These differences, known as imbalances, are then measured using algorithms established by the regulatory framework. The net charge resulting from calculation of the imbalances and the purchases and sales, carried out by the Parent Company Terna on the DSM, is billed on a pro rata basis to each end consumer via a specific uplift payment. This item also reflects the portion of the transmission charge that the Parent Company passes on to other grid owners, not included in the scope of consolidation.

The components of these transactions are shown in greater detail below.

			(€m)
	H1 2022	H1 2021	CHANGE
Power Exchange-related revenue items	5,217.0	2,190.0	3,027.0
Over-the-counter revenue items	1,359.0	886.2	472.8
TOTAL PASS-THROUGH REVENUE	6,576.0	3,076.2	3,499.8
Power Exchange-related cost items	5,217.0	2,190.0	3,027.0
Over-the-counter cost items	1,359.0	886.2	472.8
TOTAL PASS-THROUGH COSTS	6,576.0	3,076.2	3,499.8

Other sales and services

The item, "Other sales and services", amounting to €156.7 million, is up €12.0 million compared with the first half of 2021. This primarily reflects the contribution from the LT Group (€11.9 million) and increased revenue from connections to the NTG (up €2.5 million), partially offset by a reduction in other revenue from the Group's Non-regulated Activities.

There was also a reduction in revenue from the Italy-France interconnector (down €11.4 million) due to a contractual penalty payable to energy intensive users for delayed completion of work, offset by an increase in contract revenue at the subsidiary, Terna Energy Solutions, and at the Tamini Group (€11.5 million).

2. OTHER REVENUE AND INCOME – €33.1 MILLION

	(€m)
H1 2022	H1 2021	CHANGE
11.3	0.1	11.2
5.6	6.7	(1.1)
5.4	3.5	1.9
3.2	3.2	-
2.5	1.6	0.9
2.0	2.1	(0.1)
1.2	1.2	-
1.2	0.8	0.4
0.7	14.1	(13.4)
-	6.9	(6.9)
33.1	40.2	(7.1)

This item, amounting to €33.1 million, is down €7.1 million compared with the first half of the previous year, primarily due a combination of the following:

• recognition, in the first half of 2021, of revenue relating to the outcome of the claim for a refund of stamp duty paid on the acquisition of Rete S.r.l. (down €13.4 million);
• the greater amount of revenue from connectivity in the form of IRU contracts for fibre recognised in the first half of 2021 (down €6.9 million);
• recognition of a penalty receivable from suppliers in relation to work on the private Italy-France interconnector (€11.3 million);
• an increase in the re-routing of lines for third parties (up €1.9 million);

There was also a decline in revenue from sales to third parties (down €1.1 million), partially offset by an increase in insurance proceeds as compensation for damage to plant (up €0.9 million, including an increase of €1.7 million attributable to the Parent Company).

Operating costs

3. RAW AND CONSUMABLE MATERIALS USED – €97.5 MILLION

This item includes the value of the various materials and equipment used in the ordinary operation and maintenance of the plant belonging to the Group and third parties, and the materials consumed primarily in connection with the manufacture of transformers by the Tamini Group and of cables and accessories by the Brugg Group.

The increase of €8.5 million compared with the same period of the previous year broadly reflects the increased costs incurred for contract work in the Non-regulated Activities segment carried out by the subsidiary, Terna Energy Solutions S.r.l. (up €4.0 million) and the contribution from the LT Group, acquired in October 2021 (up €3.7 million). The Tamini Group also registered an increase in the cost of materials used in the production of transformers (up €1.9 million).

Notes

4. SERVICES – €106.4 MILLION

			(€m)
	H1 2022	H1 2021	CHANGE
Maintenance and sundry services	45.0	42.2	2.8
Tender costs for plant	26.6	21.8	4.8
IT services	16.0	11.7	4.3
Insurance	8.0	7.4	0.6
Lease expense	6.4	7.2	(0.8)
Remote transmission and telecommunications	4.4	3.7	0.7
TOTAL	106.4	94.0	12.4

This item, amounting to €106.4 million, is up €12.4 million compared with the first half of 2021 (€94.0 million). This is primarily due to an increase in activity and new initiatives carried out by the Group, above all with regard to the contribution from the LT Group (up €7.6 million) and an increase in costs linked to the construction and development of infrastructure operated under concession, recognised in application of IFRIC 12 (up €5.9 million, broadly linked to an increase in the cost of IT services (€3.4 million) and tender costs for plant (€2.1 million).

5. PERSONNEL EXPENSES – €166.8 MILLION

		(€m)
	H1 2022	H1 2021	CHANGE
Salaries, wages and other short-term benefits	208.9	183.4	25.5
Directors' remuneration	1.2	0.9	0.3
Termination benefits (TFR). energy discounts and other employee benefits	11.4	10.0	1.4
Early retirement benefits	0.3	0.1	0.2
Gross personnel expenses	221.8	194.4	27.4
Capitalised personnel expenses	(55.0)	(47.0)	(8.0)
TOTAL	166.8	147.4	19.4

Personnel expenses in the first half of 2022, totalling €166.8 million, are up €19.4 million compared with the same period of the previous year (€147.4 million). This primarily reflects an increase in the average workforce, partly offset by an increase in capitalised expenses.

The following table shows the Group's average workforce by category for the first halves of 2022 and 2021.

(unit)
		AVERAGE WORKFORCE
	H1 2022	H1 2021	CHANGE
Senior managers	98	83	15
Middle managers	796	693	103
Office staff	2,863	2,645	218
Blue-collar workers	1,471	1,417	54
TOTAL	5,228	4,838	390

The net increase in the Group's average workforce in the first six months of the year, as described below, is 390 compared with the same period of 2021. This is essentially linked to the requirements relating to delivery of the investment programme provided for in the 2021- 2025 Industrial Plan, and to the need to strengthen the Group's distinctive competencies, as well as to the acquisition of the LT Group, completed on 12 October 2021.

6. AMORTISATION, DEPRECIATION AND IMPAIRMENT LOSSES – €339.5 MILLION

			(€m)
	H1 2022	H1 2021	CHANGE
Amortisation of intangible assets	39.3	37.4	1.9
- of which infrastructure rights	11.5	12.2	(0.7)
Depreciation of property, plant and equipment	300.1	288.6	11.5
Impairment losses on property, plant and equipment	-	0.1	(0.1)
Impairment losses on trade receivables	0.1	(0.6)	0.7
TOTAL	339.5	325.5	14.0

This item, amounting to €339.5 million (including €4.6 million recognised in application of IFRS 16), is up €14 million compared with the first half of 2021, primarily due to the entry into service of infrastructure operated by the Parent Company (up €13.0 million) and by the subsidiary, Rete S.r.l. (up €1.8 million).

7. OTHER OPERATING COSTS – €13.3 MILLION

			(€m)
	H1 2022	H1 2021	CHANGE
Indirect taxes and local taxes and levies	5.1	4.8	0.3
Fees paid to regulators and membership dues	4.5	3.8	0.7
Quality of service costs	1.3	3.3	(2.0)
Adjustment of provisions for litigation and disputes	(2.2)	0.2	(2.4)
Other	4.6	4.4	0.2
TOTAL	13.3	16.5	(3.2)

This item, amounting to €13.3 million, is down €3.2 million compared with the same period of the previous year. This is broadly linked to the adjustment to provisions litigation and disputes following the positive settlement of a number of disputes (down €2.4 million) and a reduction in quality of service costs (down €2.0 million, primarily due to the increased costs incurred in the first half of 2021 in order to mitigate the impact of backfeeds at a number of primary substations due to urgent maintenance work), partially offset an increase of €0.9 million in the fees paid to regulators, membership dues and other costs.

8. FINANCIAL INCOME/(EXPENSES) – (€35.0) MILLION

			(€m)
	H1 2022	H1 2021	CHANGE
FINANCIAL EXPENSES
Interest expense on medium/long-term borrowings and related hedges	(56.8)	(45.7)	(11.1)
Discounting of receivables, termination benefits (TFR), operating leases and other liabilities	(1.4)	(1.5)	0.1
Capitalised financial expenses	10.2	5.0	5.2
Other financial expenses	(0.9)	(0.2)	(0.7)
Total expenses	(48.9)	(42.4)	(6.5)
FINANCIAL INCOME
Interest income and other financial income	5.0	7.5	(2.5)
Adjustment of borrowings and related hedges	5.2	0.8	4.4
Positive translation differences	3.7	0.4	3.3
Total income	13.9	8.7	5.2
TOTAL	(35.0)	(33.7)	(1.3)

Net financial expenses of €35.0 million are essentially attributable to the Parent Company (€36.0 million) and include €48.9 million in financial expenses and €13.9 million in financial income. The increase in net financial expenses compared with the same period of 2021, amounting to €1.3 million, primarily reflects the following:

• an increase in financial expenses on medium/long-term debt of €11.1 million due to rising inflation;
• the positive impact of exchange movements, totalling €3.3 million;
• an increase of €5.2 million in capitalised financial expenses.

9. SHARE OF PROFIT/(LOSS) OF INVESTEES ACCOUNTED FOR USING THE EQUITY METHOD – (€1.2) MILLION

This item, amounting to a loss of €1.2 million, marks a deterioration of €0.8 million compared with the first half of 2021 (a loss of €0.4 million). This broadly reflects the adjustment to the value of the Group's share of equity in the CESI group, an associate of the Group.

10. INCOME TAX EXPENSE – €160.5 MILLION

Income tax expense for the period totals €160.5 million, an increase of €4.0 million compared with the first half of 2021. This reflects the increase in pre-tax profit after the greater amount of contingent tax assets recognised during the period. The resulting tax rate of 28.1% is slightly down on the same figure for the first half of 2021 (28.4%).

			(€m)
	H1 2022	H1 2021	CHANGE
Income tax for the period
Current tax expense:
- IRES (corporate income tax)	148.6	141.9	6.7
- IRAP (regional tax on productive activities)	29.9	29.0	0.9
Total current expense	178.5	170.9	7.6
Temporary differences:
- deferred tax assets	1.3	6.2	(4.9)
- deferred tax liabilities	(17.5)	(17.1)	(0.4)
Total deferred tax (income)/expense	(16.2)	(10.9)	(5.3)
Adjustments to taxes for previous years	(1.8)	(3.5)	1.7
TOTAL	160.5	156.5	4.0

Current income tax expense of €178.5 million is up €7.6 compared with the first half of 2021, broadly due to the improvement in pre-tax profit.

Net deferred tax income of €16.2 million is up €5.3 million. This reflects the impact of taxation on depreciation and amortisation, movements in provisions for risks and charges and for employee benefits recognized by the Group during the first half.

Adjustments to taxes for previous years, amounting to income of €1.8 million, primarily regard the Parent Company and the subsidiary, Terna Rete Italia S.p.A., and include contingent assets resulting from recognition of the effective amount payable when filing annual tax returns. This item marks a change of €1.7 million compared with the figure for the first half of 2021, when contingent tax assets relating to taxation calculated in the previous year were higher.

11. PROFIT/(LOSS) FROM ASSETS HELD FOR SALE – (€10.1) MILLION

This item reflects the net result from the assets included in the agreement signed by the Terna Group and CDPQ, a global investment group, on 29 April 2022 for the sale of all the Group's power line assets in Brazil, Peru and Uruguay. The value of the assets being sold (the equity value) is more than €265 million. Transaction closing is due to take place in phases, for the most part in the second half of 2022, following the satisfaction of certain conditions.

The agreement confirms the scope of the assets described in the Memorandum of Understanding (MoU) agreed with CDPQ on 20 December 2021. As a result of this agreement, the net assets of the Brazilian companies, SPE Santa Lucia Transmissora de Energia S.A., SPE Santa Maria Transmissora de Energia S.A., SPE Transmissora de Energia Linha Verde II S.A. and SPE Transmissora de Energia Linha Verde I S.A., the Peruvian company, Terna Perù S.A.C., and the Uruguayan company, Difebal S.A., were reclassified in accordance with IFRS 5.

In the consolidated income statement for the six months ended 30 June 2022, the comparative period has been restated resulting in a net loss of €7.8 million from assets held for sale in the first half of 2021.

The revenue and cost items resulting in the net result for the period from assets held for sale, amounting to a loss of €10.1 million, are shown below:

			(€m)
	H1 2022	H1 2021	CHANGE
Total revenue	31.9	15.0	16.9
Total operating costs	20.3	14.6	5.7
OPERATING COSTS	11.6	0.4	11.2
Financial income/(expenses), net	(10.4)	(7.0)	(3.4)
Impairment loss recognised on remeasurement of the fair value less costs to sell	(5.6)	-	(5.6)
PROFIT/(LOSS) BEFORE TAX	(4.4)	(6.6)	2.2
Income tax expense for the period	5.7	1.2	4.5
Profit/(loss) for the period	146.8	66.1	80.7
Profit/(Loss) for the period from assets held for sale	(10.1)	(7.8)	(2.3)

Revenue

This item, amounting to €31.9 million, broadly consists of revenue from construction and development of infrastructure operated under concession, above all the assets held for sale located in Brazil and Peru.

Operating costs

Operating costs essentially regard the costs incurred in application of IFRIC 12 for the construction work being carried out in Brazil (€17.1 million), as well as operating costs incurred in South America.

The loss for the period from assets held for sale, amounting to €10.1 million, marks a deterioration of €2.3 million compared with the same period of the previous year. This essentially reflects the adjustment to the value of the assets recognised in accordance with IFRS 5 (above all the impairment loss on net assets in Peru), partially offset by improved results from the Brazilian assets in service, after taking into account the positive impact of exchange rate movements.

12. EARNINGS PER SHARE

Basic earnings per share, which corresponds to diluted earnings per share, amounts to €0.198 (based on profit for the period attributable to owners of the Parent, totalling €398.1 million, divided by the number of shares outstanding, totalling 2,006,683,355.2, where this number is the weighted average number of shares outstanding during the period). Earnings per share from continuing operations, which corresponds to diluted earnings per share from continuing operations, is €0.205 (based on profit for the period from continuing operations, totalling €410.7 million, divided by the number of shares outstanding, totalling 2,006,683,355.2, where this number is the weighted average number of shares outstanding during the period).

C. Operating segments

In line with the 2022-2026 Industrial Plan, and in compliance with IFRS 8, the Terna Group's identified operating segments are described below:

• Regulated
• Non-Regulated
• International

The Regulated segment includes the development, operation and maintenance of the National Transmission Grid, in addition to dispatching and metering, and the activities involved in the construction of storage systems. These activities have been included in one operating segment, as they are all regulated by ARERA and have similar characteristics, in terms of the remuneration model and the method for setting the related tariffs.

The Non-regulated segment includes deregulated activities and specific business initiatives, above all relating to Industrial activities, which includes the operating results of the Tamini Group, relating essentially to the construction and commercialisation of electrical equipment, above all power transformers, and the Brugg Group, which operates in the terrestrial cable sector, specialising in the design, development, construction, installation and maintenance of electrical cables of all voltages and accessories for high-voltage cables. The Non-regulated segment includes initiatives linked above all to the provision of services to third parties in the areas of Energy Solutions, consisting of the development of technical solutions and the supply of innovative services, including EPC (Engineering, Procurement and Construction) services, operation and maintenance of high-voltage and very high-voltage infrastructure, and the supply of energy efficiency services, broadly attributable to the subsidiary, Avvenia The Energy Innovator S.r.l.). This segment also includes Connectivity (support and housing services for fibre networks and IRU contracts for fibre. This segment includes the activities carried out in relation to the private interconnectors launched by Law 99/2009, legislation that assigned Terna responsibility for selecting undertakings (the "selected undertakings"), on the basis of public tenders, willing to finance specific cross-border interconnectors in exchange for the benefits resulting from a decree granting a third-party access exemption with regard to the transmission capacity provided by the new infrastructure. The Non-regulated Activities segment also includes the results of the LT Group, acquired in October 2021 and a leading provider of O&M services for photovoltaic plants.

On the other hand, the International segment includes the results deriving from opportunities for international expansion, which the Group aims to exploit by leveraging its core competencies developed in Italy as a TSO, where such competencies are of significant importance in its home country. Overseas investment focuses on countries with stable political and regulatory regimes and a need to develop their electricity infrastructure. This segment includes the results of the subsidiary, Terna Plus S.r.l., the Peruvian company Terna 4 Chacas S.A.C. (a charitable project) and the Chilean company, Terna Chile S.p.A..

The results for the first halves of 2022 and 2021 of the Brazilian companies, SPE Santa Lucia Trasmissora de Energia S.A. and SPE Santa Maria Trasmissora de Energia S.A., SPE Transmissora de Energia Linha Verde I S.A. and SPE Transmissora de Energia Linha Verde II S.A., of the Peruvian company, Terna Peru S.A.C., the Uruguayan company, Difebal S.A., have been reclassified to the "Profit/(Loss) from assets held for sale".

				(€m)
	H1 2022	H1 2021	CHANGE	% CHANGE
REGULATED REVENUE	1,153.6	1,093.4	60.2	5.5%
NON-REGULATED REVENUE	177.2	162.6	14.6	9.0%
INTERNATIONAL REVENUE*	-	0.3	(0.3)	(100.0%)
Cost of international activities	0.1	0.5	(0.4)	(80.0%)
TOTAL REVENUE	1,330.9	1,256.8	74.1	5.9%
GROSS OPERATING PROFIT (EBITDA)**	946.9	909.9	37.0	4.1%
of which Regulated EBITDA***	922.7	881.7	41.0	4.7%
of which Non-regulated EBITDA	27.2	31.4	(4.2)	(13.4%)
of which International EBITDA	(3.0)	(3.2)	0.2	(6.3%)
Reconciliation of segment result with
the Company's profit before tax
GROSS OPERATING PROFIT (EBITDA)	946.9	909.9
Amortisation, depreciation and impairment losses	339.5	325.5
OPERATING PROFIT/(LOSS) (EBIT)	607.4	584.4
Financial income/(expenses)	(35.0)	(33.7)
Share of profit/(loss) of investees accounted for using the equity method	(1.2)	(0.4)
Profit/(Loss) before tax	571.2	550.3

* Directly includes the margin earned on overseas concessions.

** Gross operating profit - EBITDA is an indicator of operating performance, obtained by adding "Amortisation, depreciation and impairment losses" to "Operating profit/(loss) (EBIT)".

***EBITDA including indirect costs.

The Group's revenue for the first half amounts to €1,330.9 million, an increase of €74.1 million (5.9%) compared with the same period of the previous year.

Gross operating profit (EBITDA) of €946.9 million is up €37.0 million (4.1%) on the €909.9 million of the first half of 2021.

EBITDA from Regulated Activities amounts to €922.7 million, an increase of €41.0 million compared with the first half of 2021. The primarily reflects the impact on tariff revenue (up €59.1 million) of the effect of the output-based incentive mechanisms introduced by Resolution 699/2018 and Resolution 567/2019, after the impact of the reduction in the WACC recognised for 2022, partially offset by the increase in the RAB during the period.

EBITDA from Non-regulated Activities in the first half of 2022 amounts to €27.2 million, a reduction of €4.2 million compared with same period of the previous year. This reflects the greater volume of IRU contracts for fibre concluded in the first half of 2021 and classified under revenue from connectivity services (down €6.9 million), partially offset by an increase in activity linked to the re-routing of power lines for third parties (up €1.9 million).

Negative EBITDA from International Activities, amounting to €3 million for the first half of 2022 essentially reflects the costs incurred by central departments to support overseas initiatives. The figure is broadly in line with the amount for the same period of the previous year.

Assets held for sale report a net loss of €10.1 million, marking a deterioration of €2.3 million compared with the first half of 2021. This essentially reflects the adjustment to the value of the assets recognised in accordance with IFRS 5 (above all the impairment loss on net assets in Peru), partially offset by improved results from the Brazilian assets in service, after taking into account the positive impact of exchange rate movements.

Information on the financial position periodically reported to senior management is not provided directly on the basis of each individual segment, but based on the measurement and presentation of gross invested capital as a whole, given that the contribution from Nonregulated and International Activities is not material. The following table shows this indicator at 30 June 2022 and 31 December 2021.

		(€m)
	30 JUNE 2022	31 DECEMBER 2021
Net non-current assets *	16,687.3	16,352.9
of which investments in associates and joint ventures	75.0	76.2
Net working capital **	(1,966.8)	(1,706.7)
Gross invested capital ***	14,720.5	14,646.2

* Net non-current assets include the value of "Property, plant and equipment", "Goodwill", "Intangible assets", "Investments accounted for using the equity method", "Other non-current assets" and "Non-current financial assets", excluding the value of cash value hedges (€65.1 million).

** Net working capital is the difference between total current assets less cash and the items, "Current financial assets" and total current liabilities, less the short-term portion of long-term borrowings and the items, "Short-term borrowings" and "Current financial liabilities", and the item, "Other non-current liabilities".

*** Gross invested capital is the sum of net non-current assets and net working capital.

(€m)

D. Notes to the consolidated statement of financial position

Assets

13. PROPERTY, PLANT AND EQUIPMENT – €15,553.2 MILLION

LAND		EQUIPMENT	INDUSTRIAL AND COMMERCIAL EQUIPMENT	OTHER ASSETS	ASSETS UNDER CONSTRUCTION AND PREPAYMENTS	TOTAL
211.7	2,287.9	20,162.3	213.1	211.1	2,192.7	25,278.8
1.0	1.0	0.2	3.9	7.9	562.9	576.9
1.0	1.0	-	-	1.3	-	3.3
0.3	11.5	246.3	1.0	2.0	(261.1)	-
-	1.6	-	2.9	0.2	-	4.7
-	(0.9)	(20.0)	(0.1)	(0.9)	-	(21.9)
-	(0.8)	-	-	(0.6)	-	(1.4)
-	-	(0.1)	-	-	-	(0.1)
-	(0.2)	(16.6)	(0.2)	0.2	(22.0)	(38.8)
213.0	2,300.9	20,372.2	220.6	220.5	2,472.5	25,799.7
(1.5)	(733.8)	(8,891.5)			-	(9,962.2)
(0.3)	(30.9)	(256.6)	(4.1)	(8.2)	-	(300.1)
(0.3)	(3.6)	-	-	(0.7)	-	(4.6)
-	-	(1.2)	-	-	-	(1.2)
-	(0.4)	-	(2.7)	(0.2)	-	(3.3)
-	0.5	18.7	0.1	1.0	-	20.3
-	0.3	-	-	0.6	-	0.9
-	-	0.1	-	-	-	0.1
-	-	(1.2)	0.2	(0.2)	-	(1.2)
(1.8)	(764.6)	(9,130.6)			-	(10,246.5)
211.2	1,536.3	11,241.6	40.3	51.3	2,472.5	15,553.2
6.0	36.9	-	-	3.1	-	46.0
-	0.6	20.7	-	1.5	-	22.8
210.2	1,554.1	11,270.8	39.3	49.5	2,192.7	15,316.6
5.3	40.0	-	-	2.5	-	47.8
-	0.6	21.9	-	1.5	-	24.0
1.0	(17.8)	(29.2)	1.0	1.8	279.8	236.6
			BUILDINGS PLANT AND		(173.8) (161.6) (180.3) (169.2)

The category, "Plant and equipment," at 30 June 2022 includes the electricity transmission grid and transformer substations in Italy.

"Property, plant and equipment" is up €236.6 million compared with 31 December 2021, reflecting the following movements during the period as a result of:

• investment of €576.9 million during the period, including €556.0 million invested in the Group's Regulated Activities and €20.9 million in Non-regulated Activities, primarily relating to private interconnectors and the re-routing of power lines at the request of third parties;
• depreciation for the period of €300.1 million;
• other changes during the period, resulting in a reduction of €40.0 million, including grants related to assets (primarily in relation projects financed by the Ministry for Economic Development and the EU and the re-routing of power lines at the request of third parties) and the penalty applied for delayed completion of work on the Italy-France interconnector (a reduction of €20.1 million);
• disposals and impairments of €1.6 million.

A summary of movements in property, plant and equipment during the period is shown below.

	(€m)
Investment
- Power lines	331.4
- Transformer substations	183.6
- Other	61.9
Total investment in property, plant and equipment	576.9
Depreciation for the period	(300.1)
Other purchases	0.0
Other changes	(40.0)
Disposals and impairments	(1.6)
Translation differences	1.4
TOTAL	236.6

The following information regards work on the principal projects during the period in relation to Regulated Activities: procurement for construction of the Tyrrhenian Link (€29.8 million), the installation of STATCOM devices and synchronous compensators (€17.9 million and €16.1 million, respectively), progress of work on construction of the Paternò-Pantano-Priolo power line (€17.3 million) and on the Italy-France interconnector (€3.5 million), the start-up of work on the Colunga-Calenzano power line (€8.4 million) and on the Elba-Mainland line (€3.8 million), the installation of reactors (€11.9 million), extension of the fibre network as part of the "Fibre for the Grid" project (€9.4 million) and construction of the Magenta (€7.6 million) and Vizzini (€4.2 million) substations.

14. GOODWILL – €256.5 MILLION

Goodwill of €256.5 million at 30 June 2022 regards the following acquisitions completed by the Parent Company in previous years:

• LT S.r.l. (the LT Group) acquired in October 2021 through the subsidiary, Terna Energy Solutions S.r.l., and accounted for at a carrying amount of €24.9 million, and Laser TLC S.r.l. acquired in November 2021 through the Brugg Group and accounted for at a carrying amount of €1.5 million, recognised on the provisional basis applicable to business combinations;

• Terna Rete Italia S.r.l., accounted for in the financial statements at a carrying amount of €101.6 million, RTL, accounted for at a carrying amount of €88.6 million, Rete S.r.l., accounted for at a carrying amount of €26.3 million, and TES - Transformer Electro Services by the Tamini Group, accounted for at a carrying amount of €13.6 million.

This item is unchanged with respect to 31 December 2021.

There was no evidence requiring the conduct of impairment tests at 30 June 2022.

15. INTANGIBLE ASSETS – €444.4 MILLION

INFRASTRUCTURE CONCESSIONS OTHER ASSETS UNDER RIGHTS ASSETS DEVELOPMENT AND PREPAYMENTS Cost 525.2 135.4 587.0 73.2 Accumulated amortisation (394.9) (90.5) (435.4) - BALANCE AT 130.3 44.9 151.6 73.2 31 DECEMBER 2021 Investment - - 0.1 83.5 Assets entering service 7.6 - 12.5 (20.1) Amortisation for the period (11.5) (2.8) (25.0) - Other movements - - 0.1 - BALANCE AT 30 JUNE 2022 126.4 42.1 139.3 136.6 Cost 532.8 135.4 599.7 136.6			(€m)
			TOTAL
			1,320.8
			(920.8)
			400.0
			83.6
			-
			(39.3)
			0.1
			444.4
			1,404.5
Accumulated amortisation (406.4) (93.3) (460.4) -			(960.1)
BALANCE AT 30 JUNE 2022 126.4 42.1 139.3 136.6			444.4
Change (3.9) (2.8) (12.3) 63.4			44.4

Intangible assets amount to €444.4 million (€400.0 million at 31 December 2021). The change in this item with respect to 31 December 2021 (up €44.4 million) is broadly due to the net effect of investment (up €83.6 million, including €26.8 million in infrastructure rights) and amortization (down €39.3 million).

Investment in intangible assets during the period (€83.6 million, including €83.5 million entirely attributable to the Parent Company's Regulated Activities) included expenditure on the development and improvement of software applications for the Remote Management System for Dispatching (€12.9 million), the Power Exchange (€4.3 million), the Metering System (€0.8 million) and for protection of the electricity system (€0.9 million), as well as software applications and generic licences (€55.8 million).

16. DEFERRED TAX ASSETS – €110.7 MILLION

					(€m)
	31 DECEMBER 2021	EFFECTS RECOGNISED IN PROFIT OR LOSS AND OTHER MOVEMENTS	EFFECTS RECOGNISED IN COMPREHENSIVE INCOME	30 JUNE 2022	CHANGE
Deferred tax assets	177.9	15.7	(52.7)	140.9	(37.0)
Deferred tax liabilities	(31.2)	1.0	-	(30.2)	1.0
NET DEFERRED TAX ASSETS	146.7	16.7	(52.7)	110.7	(36.0)

The balance of this item, amounting to €110.7 million, includes the net impact of movements in the Group's deferred tax assets and liabilities.

Deferred tax assets (€140.9 million) declined by a net amount of €37.0 million compared with 31 December 2021 (€177.9 million) as a result of the following movements:

• net uses that did not impact profit or loss, totalling €52.7 million, reflecting the tax effect of movements in cash flow hedges;
• net uses relating to changes in provisions for risks and charges and other movements (€11.2 million);
• use of the accrued portion of deferred tax assets recognised in relation to tax relief on the goodwill resulting from the merger of other companies who own portions of the NTG acquired and then merged in previous years (€1.5 million);
• provisions recognised by the subsidiary, Rete S.r.l., for the non-deductible portion of book depreciation recognised by the subsidiary (€1.3 million);
• provisions recognised by the subsidiary, Terna Interconnector S.r.l., regarding the penalty payable to energy intensive users linked to the delayed entry into service of the Italy-France interconnector (€1.7 million).

Deferred tax liabilities (€30.2 million) are up by €1.0 million, essentially due to uses and other net movements at Group companies and previous provisions for accelerated depreciation at the Parent Company, Terna.

17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD – €75.0 MILLION

This item, amounting to €75.0 million, regards the Parent Company's investments in the associate CESI S.p.A. (€46.9 million), the associate CORESO S.A. (€0.8 million), the associate CGES – CrnoGorski Elektroprenosni Sistem AD (€26.7 million) and in the joint ventures, ELMED Etudes S.a.r.l. (€0.2 million), SEleNe CC S.A. (€0.1 million), and Equigy B.V. (€0.3 million).

The reduction of €1.2 million essentially reflects the adjustment of the Group's share of equity at 30 June 2022 in the associates, CESI S.p.A. (down €1.3 million) and CORESO S.A. (up €0.1 million).

18. FINANCIAL ASSETS

				(€m)
	MEASUREMENT	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Deposit in the Interconnector Guarantee Fund	Amortised cost	296.3	241.4	54.9
Fair value hedges	FVTPL	-	1.6	(1.6)
Cash flow hedges	FVTPL	65.1	-	65.1
Government securities	FVTOCI	22.1	23.1	(1.0)
Financial assets included in employee benefit plan assets	FVTOCI	21.9	21.4	0.5
Other non-current financial assets	FVTOCI	0.1	0.1	-
Other investments	FVTOCI	0.1	0.1	-
NON-CURRENT FINANCIAL ASSETS		405.6	287.7	117.9
Government securities	FVTOCI	199.3	958.5	(759.2)
Other securities	FVTPL	146.1	-	146.1
Deferred assets on fair value hedges		4.4	4.3	0.1
Other current financial assets		0.6	17.8	(17.2)
CURRENT FINANCIAL ASSETS		350.4	980.6	(630.2)

"Non-current financial assets" are €117.9 million compared with the previous year, reflecting:

• the balance of cash flow hedges totalling €65.1 million, hedging bonds and bank borrowings, compared with the liability recognised at 31 December 2021; this amount was measured by discounting expected cash flows using market interest rates at the measurement date;
• increases in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €9.5 million) and in amounts deposited by operators who participate in the capacity market pursuant to Resolution 98/2011/R/eel, as amended (up €45.4 million).

"Current financial assets" are down €630.2 million compared with the previous year, following the repayment of Italian government securities held, partly offset by new investments during the period, amounting to approximately €330 million and represented mainly by Italian government securities.

19. OTHER ASSETS

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Loans and advances to employees	10.6	10.4	0.2
Deposits with third parties	6.7	6.9	(0.2)
Other non-current assets	0.4	0.2	0.2
OTHER NON-CURRENT ASSETS	17.7	17.5	0.2
Other tax credits	13.1	11.2	1.9
Prepayments to suppliers	11.3	11.0	0.3
Prepayments of operating expenses and accrued operating income	27.9	16.8	11.1
Amounts due from partners selected for Interconnector projects	3.4	3.6	(0.2)
Amounts due from others	55.1	40.5	14.6
OTHER CURRENT ASSETS	110.8	83.1	27.7

"Other non-current assets" amount to €17.7 million, marking an increase of €0.2 million compared with the previous year. This primarily reflects an increase in loans to employees (up €0.2 million).

"Other current assets", totalling €110.8 million, are up €27.7 million compared with 31 December 2021. This is primarily due to:

• other tax credits (up €1.9 million), broadly due to the Group's refundable VAT (up €2.4 million);
• an increase in prepayments to suppliers (up €0.3 million), broadly attributable to the subsidiary, Brugg Cables (up €1.6 million), after a decline in prepayments at the subsidiary, Terna Rete Italia S.p.A. (down €1.4 million);
• an increase in prepaid expenses accruing after 30 June 2022 (up €11.1 million), including €7.7 million attributable to personnel and €2.6 million to the unified property tax introduced by Law 160/2019;
• amounts due from others (up €14.6 million), broadly attributable to the subsidiary, Terna Rete Italia S.p.A. (up €10.9 million).

20. INVENTORIES – €93.2 MILLION

This item, amounting to €93.2 million, is up €23.3 million compared with the previous year. This primarily reflects materials to be used in contract work by the subsidiary, Brugg Cables (up €11.6 million), by the LT Group (up €3.6 million) and for use in contract work carried out by the Tamini Group (up €8.0 million).

21. TRADE RECEIVABLES – €3,716.3 MILLION

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Energy-related receivables	3,061.2	2,197.0	864.2
Transmission charges receivables	431.0	395.8	35.2
Other trade receivables	224.1	184.6	39.5
TOTAL	3,716.3	2,777.4	938.9

Trade receivables amount to €3,716.3 million at 30 June 2022 and are accounted for less any losses and recognised in the allowance for doubtful accounts (€33.4 million for energyrelated receivables and €16.5 million for other items in 2022, compared with €33.2 million for energy-related items and €16.4 million for other items in 2021, with further details provided in the section "E. Commitments and risks"). The carrying amount shown broadly approximates to fair value.

The measurement of expected credit losses is described in the section, "A. Accounting policies and measurement criteria".

Energy-related/regulated receivables – €3,061.2 million

This item includes so-called "pass-through items" relating to the Parent Company's activities in accordance with Resolution 111/06 (€2,939.5 million) and receivables due from the users of dispatching services forming part of Regulated Activities (€80 million). It also includes the amount due from the Fund for Energy and Environmental Services (Cassa per i Servizi Energetici e Ambientali - CSEA) ( €41.7 million), relating to quality of service and output-based regulation.

These receivables are up €864.2 million compared with the end of 2021, primarily due to:

• an increase in receivables linked to the Load Profiling adjustment28. This is broadly a passthrough item, offset by payables of an equal amount (€1,000.9 million), primarily linked to the method for determining the value of the payment on account for load profiling provided for in ARERA Resolution 107/09-TIS;
• the recognition of output-based incentives29 (€56.2 million);

²⁸ This is broadly a pass-through item, offset by payables of an equal amount.

²⁹ Recognition of the intrazonal incentive introduced by ARERA Resolution 699/2018.

(€m)

partially offset by:

• a reduction in the uplift (€76 million), primarily due to a decrease in the cost of procuring services on the DSM, as partly reflected in the reduction in receivables relating to this market (€80.3 million).

Transmission charges receivable – €431.0 million

Transmission charges receivable, amounting to €431.0 million, represent the amount due to the Parent Company and other grid owners from electricity distributors for use of the National Transmission Grid. The receivable is up €35.2 million compared with 31 December 2021, linked to a combination of the following:

• factoring transactions completed at the end of 2021 (€40 million);
• revised tariffs after recognition of the accrued amount due as a return on digital substation systems in accordance with ARERA Resolution 565/2020 (an overall reduction of €4.8 million).

Other trade receivables – €224.1 million

Other trade receivables primarily regard amounts receivable from customers of the non-regulated business. These amounts derive from the provision of specialist services to third parties, primarily in relation to plant engineering services, the operation and maintenance of high-voltage and very high-voltage infrastructure, and the housing of telecommunications equipment and maintenance services for fibre networks, as well as in relation to contract work carried out by the Tamini Group, the subsidiary, Brugg Cables and the LT Group.

This item is up €39.5 million compared with last year, broadly due to an increase in amounts receivable at the subsidiary, Terna Rete Italia S.p.A. (up €29.1 million), at the Parent Company (up €4.7 million) and in relation to the Tamini Group's contract work (up €7.9 million), partially offset by reduced receivables from contract work at the subsidiary, Brugg Cables (down €1.2 million) and at the LT Group (down €0.8 million).

The following table shows receivables resulting from contract work in progress (€86.1 million), being carried out by the Group under multi-year contracts with third parties:

	PRE PAYMENTS	VALUE OF CONTRACT	BALANCE AT 30 JUNE 2022	PREPAY MENTS	VALUE OF CONTRACT	BALANCE AT 31 DECEMBER 2021
Receivables resulting from contract work in progress	(275.4)	361.5	86.1	(447.3)	533.7	86.4

The Group's receivables resulting from contract work in progress are down €0.3 million, primarily in relation to a reduction in contract work at the subsidiary, Brugg Cables (down €12.9 million), partially offset by increases in contract work at the Tamini Group (up €9.3 million), at the subsidiary, Terna Rete Italia S.p.A. (up €2.2 million) and at the subsidiary, Terna Energy Solutions S.r.l. (up €1.2 million).

22. CASH AND CASH EQUIVALENTS – €1,685.0 MILLION

Cash amounts to €1,685.0 million at 30 June 2022, including €1,476.9 million invested shortterm readily convertible deposits and €208.1 million deposited in bank current accounts and cash in hand.

23. INCOME TAX ASSETS – €8.8 MILLION

Income tax assets, amounting to €8.8 million, are up €3.9 million compared with the previous year, reflecting the emergence of IRES and IRAP tax credits when paying the balance of tax due for the previous year.

Notes

Equity and liabilities

24. EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT AND NON-CONTROLLING INTERESTS

Equity attributable to owners of the Parent – €5,848.3 million

Share capital – €442.2 million

The Parent Company's share capital consists of 2,009,992,000 ordinary shares with a par value of €0.22 per share.

Legal reserve – €88.4 million

The legal reserve accounts for 20% of the Parent Company's share capital.

Reserve for treasury shares - (€29.5) million

In implementation of the buyback programme linked to the Performance Share Plan 2022-2026, approved by the Annual General Meeting of 29 April 2022, in the period between 27 May 2022 and 13 June 2022, the Parent Company purchased 1,280,717 own shares (equal to 0.064% of the share capital) at a cost of €10.0 million to service the Performance Share Plan 2022-2026.

These shares are in addition to the 3,095,192 own shares purchased by the Company in 2020 and 2021.

As a result, Terna S.p.A. now holds a total of 4,375,909 treasury shares (equal to 0.218% of the share capital), purchased at a cost of €29.5 million, thereby reducing other reserves by this amount.

Reserve for equity instruments – €989.1 million

On 2 February 2022, the Parent Company issued perpetual hybrid green bonds with a nominal value of €1 billion, recognised in the reserve for equity instruments at an amount of €989.1 million.

These non-convertible, perpetual, subordinated green bonds are non-callable for six years and will pay coupon interest of 2.375% until 9 February 2028, the first reset date. After this date, the bonds will pay annual interest equal to the 5-year Euro Mid-Swap rate plus a spread of 212.1 basis points. This will be increased by a further spread of 25 basis points from 9 February 2033 and by an additional 75 basis points from 9 February 2048.

Other reserves – €784.0 million

The other reserves have increased by €169.5 million compared with the previous year, primarily as a result of other comprehensive income. This reflects:

• fair value adjustments to the Parent Company's cash flow hedges (up €161.1 million, including the related hedging costs of €0.4 million, taking into account the related tax liability of €50.9 million);
• the recognition of actuarial gains and losses on provisions for employee benefits (up €6.6 million, taking into account the related tax liability of €2.0 million);
• fair value adjustments to financial assets represented by government securities (down €0.8 million, after taking into account the related tax asset of €0.3 million).

Other reserves also include the reserve for share options (up €3.0 million), relating to the incentive plan for the Group's personnel involving the above share-based payments (the Performance Share Plan 2022-202630).

³⁰ The LTI Plan 2021-2025 involves the grant of the right to the award of a certain number of shares in Terna S.p.A. (Performance Shares) free of charge at the end of a performance period, provided that the performance objectives to which the Plan is linked have been achieved.

Retained earnings and accumulated losses – €3,176.0 million

The increase in "Retained earnings and accumulated losses" compared with 31 December 2021, amounting to €211.7 million, primarily regards appropriation of the remaining portion of the Group's profit for 2021 (up €204.3 million), after the Parent Company's payment of the dividend for 2021 (amounting to €585.1 million). This item also includes the translation differences resulting from the conversion of financial statements in currencies other than the euro (up €17.7 million) and recognition of the interest accruing on the hybrid green bonds (down €9.2 million).

Payment of the final dividend

The Annual General Meeting of shareholders held on 29 April 2022 approved payment of a dividend for full-year 2021 of 29.11 euro cents per share, and the payment – before any withholdings required by law – of a final dividend of 19.29 euro cents per share, to be added to the interim dividend of 9.82 euro cents already paid on 24 November 2021. The final dividend was payable from 22 June 2022, with an ex-dividend date for coupon 36 of 20 June 2022.

Equity attributable to non-controlling interests – €33.8 million

Equity attributable to non-controlling interests, relating to Terna Interconnector S.r.l., SPE Transmissora de Energia Linha Verde I S.A., Brugg Cables, ESPERIA-CC S.r.l. and the LT Group, amounts to €33.8 million, an increase of €2.7 million compared with 31 December 2021.

This change primarily reflects share of profit for the period attributable to non-controlling shareholders recognised by Terna Interconnector S.r.l. (€1.5 million), Brugg Cables (€0.7 million), Linha Verde I S.A. (€0.1 million) and the LT Group (€0.2 million).

25. BORROWINGS AND FINANCIAL LIABILITIES

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Bond issues	6,692.5	6,925.6	(233.1)
Bank borrowings	2,346.1	1,909.4	436.7
LONG-TERM BORROWINGS	9,038.6	8,835.0	203.6
Cash flow hedges	-	83.7	(83.7)
Fair value hedges	258.7	-	258.7
NON-CURRENT FINANCIAL LIABILITIES	258.7	83.7	175.0
SHORT-TERM BORROWINGS	1,182.7	1,947.0	(764.3)
Bond issues	-	999.9	(999.9)
Bank borrowings	543.2	640.1	(96.9)
CURRENT PORTION OF LONG-TERM BORROWINGS	543.2		1,640.0 (1,096.8)
CURRENT FINANCIAL LIABILITIES	71.3	45.8	25.5
TOTAL	11,094.5		12,551.5 (1,457.0)

Borrowings and financial liabilities are down €1,457.0 million compared with the previous year to €11,094.5 million.

The reduction in bond issues of €1,233.0 million essentially follows the repayment of bonds worth €1,000.0 million. The change also reflects fair value adjustments of these financial instruments.

(€m)

Notes

The latest official prices at 30 June 2022 and 31 December 2021 for the bonds listed on the Luxembourg Stock Exchange are detailed below:

		(€m)
ISIN	PRICE AT 30 JUNE 2022	PRICE AT 31 DECEMBER 2021
XS1178105851	n.a.**	100.11
XS0328430003	133.80	131.79
XS1858912915	99.67	101.88
XS0203712939	107.08	114.02
XS2033351995	94.07	100.05
XS1371569978	98.47	104.67
XS1980270810	95.45	103.30
XS1652866002	94.28	105.23
XS1503131713	89.88	103.26
XS2357205587	84.10	98.89
XS2237901355	79.53	97.17
XS2209023402	78.66	99.66

* Source: BNP Paribas and Bloomberg.

** Not applicable.

Compared with the previous year, bank borrowings have increased by €339.8 million, primarily due to the disbursement of new borrowings totalling €600.0 million, after the repayment of a €100 million loan, scheduled repayments and the fair value of existing EIB loans.

Long-term borrowings

The following table shows movements in long-term debt during the period, including the nominal amount:

		31 DECEMBER 2021		REPAY MENTS			CHANGE IN CARRYING AMOUNT	30 JUNE 2022
	NOMINAL DEBT	CARRYING AMOUNT	FAIR VALUE	AND CAPITALI SATIONS	DRAW DOWNS	OTHER		NOMINAL DEBT	CARRYING AMOUNT	FAIR VALUE
Bond maturing 2022	1,000.0	999.9	1,001.1	(1,000.0)	-	0.1	(999.9)	-	-	-
IL bond	594.1	622.9	783.0	-	-	13.3	13.3	620.3	636.2	829.9
Bond maturing 2023	1,000.0	997.8	1,018.8	-	-	0.7	0.7	1,000.0	998.5	996.7
Bond maturing 2024	800.0	889.8	912.2	-	-	(15.6)	(15.6)	800.0	874.2	856.6
Bond maturing 2025	500.0	496.6	500.2	-	-	0.5	0.5	500.0	497.1	470.3
Private Placement 2026	80.0	79.4	83.7	-	-	0.1	0.1	80.0	79.5	78.8
Bond maturing 2026	500.0	498.5	516.5	-	-	0.2	0.2	500.0	498.7	477.2
Bond maturing 2027	1,000.0	1,013.7	1,052.3	-	-	(30.4)	(30.4)	1,000.0	983.3	942.8
Bond maturing 2028	750.0	763.7	774.5	-	-	(61.8)	(61.8)	750.0	701.9	674.1
Bonds maturing 2029	600.0	596.7	593.3	-	-	0.2	0.2	600.0	596.9	504.6
Bonds maturing 2030	500.0	496.1	485.8	-	-	(60.6)	(60.6)	500.0	435.5	397.6
Bonds maturing 2032	500.0	470.4	498.3	-	-	(79.7)	(79.7)	500.0	390.7	393.3
Total bond issues	7,824.1	7,925.5	8,219.7	(1,000.0)	-		(233.0) (1,233.0)	6,850.3	6,692.5	6,621.9
Borrowings	2,512.6	2,512.6	2,512.6	(166.6)	600.0	(95.8)	337.6	2,854.3	2,850.2	2,850.2
Lease liabilities	36.9	36.9	36.9	(3.2)	-	5.4	2.2	39.1	39.1	39.1
Total borrowings	2,549.5	2,549.5	2,549.5	(169.8)	600.0	(90.4)	339.8	2,893.4	2,889.3	2,889.3
Total debt	10,373.6	10,475.0	10,769.2	(1,169.8)	600.0	(323.4)	(893.2)	9,743.7	9,581.8	9,511.2

At 30 June 2022, the Terna Group's has access to additional financing of €3,150.0 million, represented by two revolving credit facilities. In addition, the Group has uncommitted bank credit lines totalling approximately €1,027.9 million.

In addition, as provided for in IFRS 7, the table shows the fair value of borrowings and bond issues. In the case of bond issues, this is market value based on prices at the reporting date, whilst variable rate loans are measured by discounting expected cash flows based on market interest rates at the measurement date.

The following table shows an analysis of bond issues and other borrowings by maturity, showing the related short-term portions.

													(€m)
	MATURITY	31 DECEMBER 2021*	30 JUNE 2022*	PORTION FALLING DUE WITHIN 12 MONTHS	PORTION FALLING DUE AFTER 12 MONTHS	2023	2024	2025	2026	2027	AFTER	AVERAGE INTEREST RATE AT 30 JUNE 2022	AVERAGE NET INTEREST RATE OF HEDGES AT 30 JUNE 2022
	2022	999.9	-	-	-	-	-	-	-	-	-	0.88%	0.98%
	2023	622.9	636.2	-	636.2	636.2	-	-	-	-	-	2.73%	6.98%
	2023	997.8	998.5	-	998.5	998.5	-	-	-	-	-	1.00%	1.14%
	2024	889.8	874.2	-	874.2	-	874.2	-	-	-	-	4.90%	0.87%
	2025	496.6	497.1	-	497.1	-	-	497.1	-	-	-	0.13%	0.32%
Bonds	2026	498.5	498.7	-	498.7	-	-	-	498.7	-	-	1.00%	1.28%
	2026	79.4	79.5	-	79.5	-	-	-	79.5	-	-	1.60%	1.80%
	2027	1,013.7	983.3	-	983.3	-	-	-	-	983.3	-	1.38%	1.90%
	2028	763.7	701.9	-	701.9	-	-	-	-	-	701.9	1.00%	1.28%
	2029	596.7	596.9	-	596.9	-	-	-	-	-	596.9	0.38%	1.71%
	2030	496.1	435.5	-	435.5	-	-	-	-	-	435.5	0.38%	(0.25%)
	2032	470.4	390.7	-	390.7	-	-	-	-	-	390.7	0.75%	0.42%
EIB	2042	854.0	1,047.6	20.5	1,027.1	25.5	29.5	52.7	63.5	69.3	786.6	0.93%	1.12%
Terna's borrowing	2024	200.0	500.0	200.0	300.0	-	300.0	-	-	-	-	-	(0.18%)
Total fixed rate		8,979.5	8,240.1	220.5	8,019.6	1,660.2	1,203.7	549.8	641.7	1,052.6	2,911.6
EIB	2041	1,062.9	1,006.7	112.7	894.0	113.9	115.3	115.3	115.4	115.4	318.7	0.12%	0.18%
Terna's borrowing	2023	400.0	300.0	200.0	100.0	100.0	-	-	-	-	-	0.03%	0.11%
Total variable rate		1,462.9	1,306.7	312.7	994.0	213.9	115.3	115.3	115.4	115.4	318.7
TOTAL		10.442.4	9.546.8	533.2	9.013.6	1.874.1	1.319.0	665.1	757.1	1.168.0	3.230.3

* The balance does not include prepaid fees of €4.1 million at 30 June 2022 and €4.3 million at 31 December 2021.

	31 DECEMBER 2021	30 JUNE 2022	PORTION FALLING DUE WITHIN 12 MONTHS	PORTION FALLING DUE AFTER 12 MONTHS
Finance leases	0.9	2.9	2.9	-
Operating leases	36.0	36.2	7.1	29.1
TOTAL	36.9	39.1	10.0	29.1

At 30 June 2022, payments on operating leases recognised in application of IFRS 16 amount to €3.1 million.

The total value of the Terna Group's borrowings at 30 June 2022 is €9,546.8 million (€533.2 million falling due within 12 months and €9,013.6 million falling due after 12 months), of which €3,230.3 million maturing after five years.

Non-current financial liabilities – €258.7 million

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Cash flow hedges	-	83.7	(83.7)
Fair value hedges	258.7	-	258.7
TOTAL	258.7	83.7	175.0

Non-current financial liabilities, amounting to €258.7 million at 30 June 2022, reflect the fair value of fair value hedges.

Fair value was measured by discounting the expected cash flows using market interest rates at the measurement date. The decrease of €175.0 million, compared with 31 December 2021 reflects the change in market interest rates and the change in the notional value of the derivatives portfolio, compared with fair value gains on fair value hedges at 31 December 2021 and on cash flow hedges at 30 June 2022.

Short-term borrowings – €1,182.7 million

"Short-term borrowings" have decreased €764.3 million compared with the previous year, due to the repayment of short-term loans disbursed to the Parent Company.

Current financial liabilities – €71.3 million

Current financial liabilities at 30 June 2022 include the value of net interest expense accrued on financial instruments and not yet paid and the value of short-term currency derivatives. This item is up €25.5 million compared with 31 December 2021.

		(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Currency derivatives	3.9	0.1	3.8
Deferred liabilities on:
- Hedging derivatives	0.2	4.8	(4.6)
- Bond issues	65.8	39.9	25.9
- Borrowings	1.4	1.0	0.4
TOTAL	71.3	45.8	25.5

Net debt

Pursuant to the CONSOB Communication of 28 July 2006 and in compliance with Recommendation ESMA no. 32-382-1138 of 2021, the Group's net debt is as follows:

	(€m)
	30 JUNE 2022
A. Cash	208.1
B. Cash equivalents*	1,476.9
C. Other current financial assets**	346.0
D.Liquidity (A) + (B) + (C)	2,031.0
E. Current financial liabilities (including debt instruments, but excluding the current portion of non-current financial liabilities)	1,182.7
F. Current portion of non-current debt***	610.1
G.Current debt (E+F)	1,792.8
H.Net current debt (G) - (D)	(238.2)
I. Non-current financial liabilities (excluding the current portion and debt instruments)****	2,539.7
J. Debt instruments*	6,692.5
K. Non-current net debt (I) + (J)	9,232.2
L. Net debt (K) + (H)	8,994.0

* Corresponds with the item, "Cash and cash equivalents" relating to the value of short-term deposits.

• ** Corresponds with the item, " Current financial assets" relating to the value of government securities (€199.3 million), the value of other securities (€146.1 million) and value of the related accrued interest income (€0.6 million).
• *** Corresponds with the item, "Current portion of long-term borrowings" and the item, "Current financial liabilities" less the item, "Current financial assets" relating to the value of accrued income on fair value hedges (€4.4 million). **** Corresponds with the item, "Long-term borrowings" relating to the value of borrowings (€2,317.0 million) and
• the long-term portion of lease liabilities (€29.1 million) and the item, "Non-current financial liabilities" less the item, "Non-current financial assets" relating to the value of cash flow hedges (€65.1 million).
• ***** Corresponds with the item, "Long-term borrowings" relating to the value of bond issues.

Default risk and debt covenants

This risk is associated with the possibility that the loan agreements or bond terms and conditions to which the Group is a party may contain provisions that, if certain events occur, authorise counterparties to call in such loans immediately, thereby generating liquidity risk.

Certain long-term loans obtained by the Parent Company, Terna S.p.A., contain covenants that are typical of international practice. The principal covenants relate to:

• the Company's bond issues, which consist of an €800.0 million issue in 2004 and eleven issues as part of its EMTN Programme (the "€9.000.000.000 Euro Medium Term Notes Programme");
• bank borrowings, consisting of revolving lines of credit and bilateral term loans ("bank debt");
• a series of loans to the Company from the European Investment Bank (EIB), amounting to a total of €2.2 billion (including €300 million yet to be disbursed).

The main covenants relating to the bond issues and the EMTN Programme involve clauses regarding i) "negative pledges", on the basis of which the Issuer or its Relevant Subsidiaries undertake not to create or maintain mortgages, pledges or other encumbrances on their assets or revenue, to guarantee listed bonds (with the exception of certain "permitted guarantees"); ii) "pari passu", on the basis of which the securities constitute a direct, unconditional and unsecured obligation by the Issuer, ranking equally among them and with at least the same level of seniority as other present and future unsecured and non- subordinated borrowings of the Issuer; iii) "event of default", on the basis of which if certain predetermined events occur (e.g., failure to make a repayment, the liquidation of the Issuer, the breach of contractual obligations, a cross-default, etc.) a situation of default is established and the loan is immediately called in.

(€m)

The main covenants relating to bank borrowings involve clauses related to i) negative pledges, on the basis of which the Issuer or the Relevant Subsidiaries undertake not to create or maintain guarantees on their assets to secure borrowings, with the exception of "permitted guarantees"; ii) pari passu on the basis of which the Borrower's payment obligations in relation to the loan agreements in question are not subordinated to any obligation related to other unsecured and non-subordinated creditors, without prejudice to privileges under the law; iii) "event of default", on the basis of which if certain predetermined events occur (e.g. failure to make a repayment, serious inaccuracies in documents and/or declarations, insolvency, business discontinuation, substantially prejudicial effects, the breach of contractual obligations, including pari passu conditions, a crossdefault, etc.) a situation of default is established and the loan is immediately called in; iv) accelerated repayment should the rating fall below investment grade (BBB-) for the majority of rating agencies or should the Company cease to be rated by at least one agency.

The main covenants related to the EIB loans involve clauses related to i) negative pledges, on the basis of which the Company cannot create encumbrances, with the exception of encumbrances granted in relation to borrowings below given amounts and under contractually specified circumstances; ii) the provision to the Bank, at its request, of new guarantees should ratings below BBB/Baa2 be assigned by two ratings agencies out of three, or in the event that all of the agencies cease to publish ratings; iii) pari passu, on the basis of which the Company ensures that payment obligations rank equally with those related to all other unsecured, nonsubordinated creditors; iv) cases of contract termination/application of the call provision/ withdrawal (e.g. failure to make a repayment, serious inaccuracies in documents and/or declarations, insolvency, events that have a negative impact on financial commitments made by the Company, extraordinary administration, liquidation, substantial prejudicial changes, the breach of contractual commitments, etc.); v) accelerated loan payment following the occurrence of given events (e.g. change of control over the Company, loss of the concession, extraordinary corporate events, etc.).

	31 DECEMBER 2021	PROVISIONS INTEREST	COST	USES AND OTHER MOVEMENTS	ACTUARIAL GAINS/ (LOSSES)	30 JUNE 2022
Benefits during the period of employment
Loyalty bonuses and other incentives	5.0	(0.7)	-	(0.1)	-	4.2
Total	5.0	(0.7)	-	(0.1)	-	4.2
Termination benefits
Deferred compensation benefits (TFR)	35.6	0.1	0.1	(0.5)	(4.0)	31.3
Energy discounts	3.2	-	-	(0.2)	(0.4)	2.6
Additional months' pay	5.6	0.1	-	(0.2)	(0.4)	5.1
Payment in lieu of notice and other similar	0.5	-	-	0.1	-	0.6
Total	44.9	0.2	0.1	(0.8)	(4.8)	39.6
Post-employment benefits
ASEM health plan	10.9	0.2	0.1	(0.2)	(3.4)	7.6
Total	10.9	0.2	0.1	(0.2)	(3.4)	7.6
TOTAL	60.8	(0.3)	0.2	(1.1)	(8.2)	51.4

26. EMPLOYEE BENEFITS – €51.4 MILLION

This item, amounting to €51.4 million at 30 June 2022, is down €9.4 million compared with 31 December 2021. This is primarily due to actuarial losses (down €8.2 million, broadly due to the change in the discount rate used) on deferred compensation benefits (TFR) and the ASEM health plan and to uses and other movements (down €1.1 million).

(€m)

27 – PROVISIONS FOR RISKS AND CHARGES – €109.7 MILLION

	PROVISIONS FOR LITIGATION AND DISPUTES	PROVISIONS FOR SUNDRY RISKS AND CHARGES	PROVISIONS FOR EARLY RETIREMENT INCENTIVES	TOTAL
Amount at 31 December 2021	17.9	94.3	22.0	134.2
Provisions	1.4	4.6	(0.1)	5.9
Uses and other movements	(4.5)	(22.8)	(3.1)	(30.4)
Amount at 30 June 2022	14.8	76.1	18.8	109.7

Provisions for litigation and disputes – €14.8 million

These provisions, amounting to €14.8 million, have been made to cover outstanding liabilities that, at 30 June 2022, could result from court judgements and out-of-court settlements regarding the activities of Group companies, have been assessed partly on the basis of recommendations from internal and external legal advisors. The net use during the first half amounts to €3.1 million.

Provisions for sundry risks and charges – €76.1 million

These provisions are down €18.2 million compared with the previous year, primarily due to:

• a net reduction of €5.0 million in provisions linked to regulation of the quality of the electricity service (the mitigation and sharing mechanism introduced by ARERA Resolution 653/2015/R/ eel) which, after provisions for estimated penalties linked to outages during the period, reflects payments to distribution companies and releases following final determination of the penalties due in previous years;
• net uses of €6.8 million relating to staff incentive plans;
• net uses of €2.3 million for urban and environmental restoration schemes.

Provisions for early retirement incentives – €18.8 million

Provisions for early retirement incentives reflects the estimated extraordinary expenses to be incurred in relation to the cost of the scheme for the year, linked to the early retirement of Group employees who have reached pensionable age and where the Group has an obligation. This item has decreased by a net €3.2 million, reflecting payments during the period.

28. OTHER NON-CURRENT LIABILITIES – €933.5 MILLION

This item, amounting to €933.5 million at 30 June 2022, regards accrued grants related to assets receivable by the Parent Company (€72.0 million), in addition to payments on account received in relation to construction of the private Italy-Montenegro, Italy-France and Italy-Austria Interconnectors (totalling €553.9 million).

This item also includes the guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel (€162.8 million), ), in addition to the Interconnector Guarantee Fund set up by Terna S.p.A. following the issue of the 2016 Stability Law (€137.1 million), in order to fund investment in interconnections in accordance with art. 32 of Law 99/09.

The increase in this item compared with the previous year, amounting to €48.7 million, essentially reflects an increase in guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel, as amended (up €45.4 million) and an increase in the Interconnector Guarantee Fund (up €9.8 million), after a reduction in payments on account received from the entities financing the private Italy-France interconnector (down €1.8 million), the Italy-Montenegro interconnector (down

€2.0 million) and the Italy-Austria interconnector (down €0.1 million) and a reduction in deferred income relating to grants related to assets receivable by the Parent Company (down €2.6 million).

29. CURRENT LIABILITIES

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Short-term borrowings*	1,182.7	1,947.0	(764.3)
Current portion of long-term borrowings*	543.2	1,640.0	(1,096.8)
Trade payables	4,352.1	3,275.6	1,076.5
Tax liabilities	36.4	28.1	8.3
Current financial liabilities*	71.3	45.8	25.5
Other current liabilities	573.9	453.4	120.5
TOTAL	6,759.6	7,389.9	(630.3)

* Information on these items is provided in note 25, "Borrowings and financial liabilities".

TRADE PAYABLES – €4,352.1 MILLION

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Suppliers:
- Energy-related payables	3,552.6	2,353.5	1,199.1
- Non-energy-related payables	757.3	883.8	(126.5)
Amounts due to associates	4.1	9.4	(5.3)
Payables resulting from contract work in progress	38.1	28.9	9.2
TOTAL	4,352.1	3,275.6	1,076.5

Suppliers

Energy-related/regulated payables – €3,552.6 million

The increase of €1,199.1 million in this item compared with the end of 2021 essentially reflects energy-related pass-through payables (up €1,193.4 million). This is primarily due to:

• an increase in payables linked to the Load Profiling adjustment31 (€1,001.2 million);
• an increase in payables due to imbalances (€398.2 million);
• an increase in payables linked to plants that are essential for the security of the electricity system – UESS (€221.6 million) after payments ordered by ARERA in the first half32;
• an increase in amounts payable in the form of capacity payments (€200.8 million) payable from 2022;

partially offset by:

• a reduction in payables linked to DSM transactions and services (€558.4 million) due to reduced selections33.

³¹ This is broadly a pass-through item, offset by receivables of an equal amount.

³² ARERA ordered payments to the owners of essential plants in the following resolutions: 42-43-67-76-92-131- 172-223-237/2022.

³³ In resolutions 597/2021 and 132/2022, ARERA has established an output-based incentive scheme to be applied to Terna with the aim of cutting dispatching costs.

Non-energy related payables

The exposure to suppliers regards invoices received and to be received for contract work, services and purchases of materials and equipment.

The balance at 30 June 2022 (€757.3 million) is down €126.5 million compared with the previous year. This is largely due to the greater volume of investment that took place towards the end of the previous year (primarily at the subsidiary, Terna Rete Italia S.p.A., down €139.6 million), offset by an increase in payables at the Tamini Group (up €8.5 million) and at the subsidiary, Terna Interconnector S.r.l. (up €11.1 million).

Amounts due to associates

This item, amounting to €4.1 million, is down €5.3 million compared with the previous year. This item regards amounts payable to the associate CESI S.p.A., for services provided primarily to the Parent Company (€0.6 million) and to the subsidiary Terna Rete Italia S.p.A. (€3.4 million), relating to electro technical studies and research.

Payables resulting from contract work in progress

Payables resulting from contract work in progress, amounting to €38.1 million at 30 June 2022, are up €9.2 million compared with 31 December 2021 (€28.9 million). This essentially reflects contract work in progress at the Tamini Group (up €10.5 million).

This item breaks down as follows.

						(€m)
	PREPAYMENTS	VALUE OF CONTRACT	BALANCE AT 30 JUNE 2021	PREPAYMENTS	VALUE OF CONTRACT	BALANCE AT 31 DECEMBER 2021
Contract work in progress	(138.4)	100.3	(38.1)	(166.2)	137.3	(28.9)

The carrying amount of trade payables broadly approximates to fair value.

The commitments assumed by the Group towards suppliers amount to approximately €2,375.2 million and regard purchase commitments linked to the normal "operating cycle" projected for the period 2022-2026.

TAX LIABILITIES – €36.4 MILLION

This item, amounting to €36.4 million at 30 June 2022, is up €8.3 million compared with 31 December 2021. This reflects the recognition of income tax for the period, after payments on account in the first half and the settlement of tax due for the previous year.

OTHER CURRENT LIABILITIES – €573.9 MILLION

			(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Prepayments	101.7	91.4	10.3
Other tax liabilities	73.8	38.5	35.3
Social security payables	29.3	26.0	3.3
Amounts due to personnel	58.9	53.5	5.4
Other amounts due to third parties	310.2	244.0	66.2
TOTAL	573.9	453.4	120.5

Prepayments

This item (€101.7 million) regards grants related to assets collected by the Group (€97.3 million attributable to the Parent Company, €2.2 million to Rete S.r.l. and €2.2 million to Terna Rete Italia S.p.A.) to fund the construction of non-current assets in progress at 30 June 2022.

Compared with the balance at 31 December 2021 (€91.4 million), this item is up €10.3 million, essentially due to the net impact of grants deducted directly from the carrying amount of the related assets, totalling €14.6 million, and new prepayments received from third parties.

Other tax liabilities

Other tax liabilities, amounting to €73.8 million, are up €35.3 million compared with the previous year. This primarily reflects the increase in VAT payable by the Group (up €32.2 million).

Social security payables

Social security payables, essentially relating to contributions payable to INPS (the National Institute of Social Security) by the Parent Company and the subsidiary, Terna Rete Italia S.p.A., amount to €29.3 million. The figure is up €3.3 million compared with the previous year, broadly due to increased contributions payable on staff incentives (up €0.6 million). This item also included the amount payable to the Fondo Previdenza Elettrici – F.P.E. (the Electricity Industry Pension Fund), amounting to €3.0 million (€2.6 million at 31 December 2021).

Amounts due to personnel

Amounts due to personnel, amounting to €58.9 million, essentially regard the Parent Company and the subsidiary Terna Rete Italia S.p.A.. They primarily relate to:

• incentives payable in the subsequent year (€36.7 million);
• amounts due to employees in the form of accrued and unused annual leave and bank holiday entitlements (€18.7 million).

This item is up €5.4 million, due primarily to an increase in incentives payable to personnel in the following year (up €3.8 million) and an increase in amounts due to employees in the form of accrued and unused annual leave and bank holiday entitlements to be settled (up €3.8 million), after a reduction in benefits payable to personnel leaving the Group by 30 June 2022 (down €3.1 million).

Other payables due to third parties

Other payables due to third parties, amounting to €310.2 million, primarily regard guarantee deposits (€208.2 million) received from electricity market operators to guarantee their contractual obligations under dispatching and virtual interconnection contracts. This item also includes the potential liabilities attributable to the subsidiary, Brugg Cables, arising from the Purchase Price Allocation (€33.0 million, covered by an insurance policy) and resulting from ongoing litigation regarding a number of contracts with Colombian counterparties, and deferred income (€20.4 million, primarily attributable to the Group's Non-regulated Activities).

This item is up by a total of €66.2 million. This is essentially due to an increase in guarantee deposits collected during the period, totalling €37,8 million, an increase in dividends payable (up €11.7 million), recognition of interest payable on hybrid equity instruments (up €9.2 million) and recognition of accrued expenses payable to personnel (up €8.4 million), partially offset by a reduction in potential liabilities attributable to the subsidiary, Terna Energy Solutions S.r.l. (down €2.4 million).

30. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

The items, "Discontinued operations and assets held for sale" and "Liabilities related to discontinued operations and assets held for sale" include the assets included in the agreement signed by the Terna Group and CDPQ, a global investment group, on 29 April 2022 for the sale of all the Group's power line assets in Brazil, Peru and Uruguay. The value of the assets being sold (the equity value) is more than €265 million. Transaction closing is due to take place in phases, for the most part in the second half of 2022, following the satisfaction of certain conditions.

The agreement confirms the scope of the assets described in the Memorandum of Understanding (MoU) agreed with CDPQ on 20 December 2021. As a result of this agreement, the net assets of the Brazilian companies, SPE Santa Lucia Transmissora de Energia S.A., SPE Santa Maria Transmissora de Energia S.A., SPE Transmissora de Energia Linha Verde II S.A. and SPE Transmissora de Energia Linha Verde I S.A., the Peruvian company, Terna Perù S.A.C., and the Uruguayan company, Difebal S.A., were reclassified in accordance with IFRS 5.

ASSETS	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Property, plant and equipment	2.4	2.3	0.1
Intangible assets	18.2	16.8	1.4
Deferred tax assets	6.4	5.7	0.7
Non-current financial assets	234.6	187.2	47.4
Other non-current assets	3.9	3.1	0.8
Inventories	31.2	19.3	11.9
Trade receivables	90.0	83.6	6.4
Current financial assets	30.4	20.6	9.8
Cash and cash equivalents	63.4	39.4	24.0
Income tax assets	1.0	2.9	(1.9)
Other current assets	16.6	11.7	4.9
Impairment recognised on remeasurement of fair value less costs to sell	(22.7)	(17.1)	(5.6)
TOTAL ASSETS HELD FOR SALE	475.4	375.5	99.9

(€m)

LIABILITIES	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Long-term borrowings	207.6	179.2	28.4
Deferred tax liabilities	42.7	32.1	10.6
Non-current financial liabilities	(0.4)	1.4	(1.8)
Current portion of long-term borrowings	11.1	40.8	(29.7)
Trade payables	6.8	2.5	4.3
Tax liabilities	0.6	0.8	(0.2)
Current financial liabilities	0.4	0.4	-
Other current liabilities	0.6	0.6	-
TOTAL LIABILITIES RELATED TO ASSETS HELD FOR SALE	269.4	257.8	11.6
TOTAL NET ASSETS HELD FOR SALE	206.0	117.7	88.3
Amounts included in OCI:
Foreign currency translation reserve	(12.4)	(27.4)	15.0
CFH reserve	0.3	(1.0)	1.3
Total reserves related to assets classified as held for sale	(12.1)	(28.4)	16.3

Net assets held of sale, amounting to €206.0 million at 30 June 2022, primarily regard investment in the infrastructure operated under concession in Brazil and the amount due from third parties for the contract in Uruguay, partly offset by loans.

Notes

Cash flow

The following statement of cash flows shows cash flows attributable to the Latin American assets held for sale:

		(€m)
	CASH FLOW H1 2022	CASH FLOW H1 2021
Operating cash flow	(14.2)	(22.4)
Cash flow for investing activities	(58.8)	(19.3)
Cash flow from financing activities	97.1	30.2
Cash flow for the period attributable to discontinued operations and assets held for sale	24.1	(11.5)

Operating cash outflow attributable to the Latin American assets amounts to €14.2 million, primarily reflecting purchases of goods and services needed for the lines under construction in Brazil.

Cash flow for investing activities, amounting to €58.8 million, primarily regards investment in the infrastructure operated under concession in Brazil.

Cash flow from financing activities (€97.1 million) primarily reflects the change in net debt attributable to assets held for sale necessary to finance construction services in Brazil.

E. Commitments and risks

Risk management

The Group's financial risks

In the course of its operations, the Terna Group is exposed to different financial risks: market risk (interest rate risk, exchange rate risk and inflation risk), liquidity risk and credit risk.

The Group's risk management policies seek to identify and analyse the risks that Group companies are exposed to, establishing appropriate limits and controls and monitoring the risks and compliance with such limits. These policies and the related systems are reviewed on a regular basis, in order to take account of any changes in market conditions or in the Group's operations.

As a part of the financial risk management policies approved by the Board of Directors, Terna has established the responsibilities and operating procedures for financial risk management, specifically as concerns the instruments to be used and the precise operating limits to apply in managing them.

The Terna Group's exposure to the aforementioned risks is substantially represented by the exposure of the Parent Company. This section provides information on the Terna Group's exposure to each of the above risks, the objectives, policies and processes applied in managing these risks and the methods used in their assessment, including further quantitative disclosures of the Parent Company's exposures at 30 June 2022.

Internal audit and risk management activities relating to the preparation of the Half-year Report for 2022 have taken into account the potential impact of Covid-19 and the significance of such impact on the individual types of risk based on the Company's operations. These activities did not identify the need for specific action.

The fair value of financial instruments is determined in accordance with the fair value hierarchy envisaged under IFRS 7 (Level 2), by appropriate valuation techniques for each category of financial instrument, using market data at the end of the period and discounting projected cash flows on the basis of the market yield curve at the reporting date.

(€m)

The financial assets and liabilities relating to Terna Group's outstanding derivative instruments during the period consist of:

• cash flow hedges, hedging the risk of changes in cash flows associated with long-term variable rate borrowings;
• fair value hedges, hedging the risk of a change in the fair value of financial liabilities linked to movements in interest rates (fixed-rate bond issues).

The related reasons are described in the section, "The Group's financial risks", in the Notes to the Terna Group's Annual Report for 2021.

Updated information, at the date of this report, is provided below on interest rate, exchange rate, credit and liquidity risks; information on market and inflation risks is provided in the section, "Risk management", in the Notes to the Annual Report for 2021.

Sensitivity to interest rate risk

The following table reports the amounts recognised through "Other comprehensive income" for positions that are sensitive to changes in interest rates, in addition to the theoretical value of the positions following a positive or negative shift in the yield curve and the differential impact of such changes recognised through profit or loss and in other comprehensive income. A hypothetical 10% movement in interest rates with respect to market interest rates at 30 June 2022 was assumed:

	PROFIT OR LOSS			COMPREHENSIVE INCOME
	CURRENT RATES +10%	CURRENT AMOUNTS	CURRENT RATES -10%	CURRENT RATES +10%	CURRENT AMOUNTS	CURRENT RATES -10%
30 June 2022
Positions sensitive to changes in interest rates (FVHs, bond issues, CFHs)	(5.1)	(5.2)	(5.3)	160.6	148.8	137.0
Hypothetical change	0.1	-	(0.1)	11.8	-	(11.8)
31 December 2021
Positions sensitive to changes in interest rates (FVHs, bond issues. CFHs)	1.4	1.3	1.2	169.5	167.7	165.9
Hypothetical change	0.1		(0.1)	1.8		(1.8)

Credit risk

Credit risk is the risk a customer or one of the counterparties to a transaction in financial instruments could cause a financial loss by failing to discharge an obligation. It is mainly generated by the Group's trade receivables and financial investments.

The credit risk originated by open positions on transactions in derivatives is considered to be marginal since the counterparties, in compliance with the financial risk management policies adopted, are leading international banks with high ratings.

Terna provides its services essentially to counterparties considered solvent by the market, and therefore with a high credit standing, and does not have high concentrations of credit risk.

Credit risk management is driven by the provisions of ARERA Resolution 111/06, which, in art. 49, introduced instruments designed to limit the risks related to the insolvency of dispatching customers, both on a preventive basis and in the event of an actual insolvency. In particular, the Resolution establishes three instruments to safeguard the electricity market: a guarantee system (bank guarantees provided by individual dispatching customers, based on their turnover); the option of terminating dispatching contracts (in the event of insolvency or failure to replace enforced guarantees); and, finally, the possibility of recovering uncollected debts, after having taken all other possible collection actions, through a specific fee to be fixed by the regulator, ARERA.

Notes

The following table summarises the exposure to such risk at the end of the first half:

		(€m)
	30 JUNE 2022	31 DECEMBER 2021	CHANGE
Fair value hedges	-	1.6	(1.6)
Cash flow hedges	65.1	-	65.1
Cash and cash equivalents	1,685.0	1,566.8	118.2
Trade receivables	3,716.3	2,777.4	938.9
TOTAL	5,466.4	4,345.8	1,120.6

The following tables provide qualitative information on trade receivables regarding the geographical distribution and type of customer.

GEOGRAPHICAL DISTRIBUTION

	(€m)
	30 JUNE 2022	31 DECEMBER 2021
Italy	3,139.6	2,222.5
Euro-area countries	460.8	482.4
Other countries	115.9	72.5
TOTAL	3,716.3	2,777.4

TYPE OF CUSTOMER

		(€m)
	30 JUNE 2022	31 DECEMBER 2021
Distributors	431.0	395.8
CSEA	42.5	138.4
Dispatching customers for injections	820.4	755.1
Dispatching customers for withdrawals (not distributors)	2,188.3	1,288.1
Parties that have signed virtual import contracts and virtual import services (interconnectors and shippers)	7.5	13.8
Sundry receivables	226.6	186.2
TOTAL	3,716.3	2,777.4

The following table breaks down customer receivables by due date, showing any potential impairment.

				(€m)
		30 JUNE 2022		31 DECEMBER 2021
	IMPAIRMENT	GROSS	IMPAIRMENT	GROSS
Current	(0.6)	3,628.0	(0.6)	2,701.9
0-30 days past due	(0.1)	12.6	-	30.8
31-120 days past due	(0.2)	4.3	(0.3)	14.0
Over 120 days past due	(49.0)	121.3	(48.7)	80.3
TOTAL	(49.9)	3,766.2	(49.6)	2,827.0

Movements in the allowance for doubtful accounts in the course of the period were as follows.

	30 JUNE 2022	31 DECEMBER 2021
Balance at 1 January	(49.6)	(51.9)
Release of provisions	0.4	2.7
Impairments for the period	(0.7)	(0.4)
Balance	(49.9)	(49.6)

The value of guarantees received from eligible electricity market operators is illustrated below.

	(€m)
	30 JUNE 2022	31 DECEMBER 2021
Dispatching - injections	250.2	265.1
Dispatching - withdrawals	1,543.0	1,349.2
Transmission charges due from distributors	332.2	334.3
Virtual imports	230.6	134.3
Capacity market (*)	142.4	129.5
Balance	2,498.4	2,212.4

(*) Guarantees relating to Capacity Market contracts to be executed from 2022.

Non-regulated Activities are exposed to "counterparty risk", in particular in relation to the entities with which sales contracts are entered into, in consideration of the credibility and solvency of the parties in question and the impact that their possible insolvency could have on the financial strength of the business. Counterparty risk is mitigated by implementing specific procedures to assess counterparties.

Default risk and debt covenants

This risk is associated with the possibility that the loan agreements or bond terms and conditions to which the Parent Company is a party may contain provisions authorising counterparties to call in such loans immediately upon the occurrence of certain events, thereby generating liquidity risk.

Certain long-term loans obtained by the Parent Company, Terna S.p.A., contain covenants that are typical of international practice. The principal covenants relate to:

• the Company's bond issues, which consist of an €800 million issue in 2004 and ten issues as part of its EMTN Programme (the "€ 9,000,000,000 Medium Term Notes Programme");
• bank borrowings, consisting of revolving lines of credit and bilateral term loans ("bank debt");
• a series of loans to the Company from the European Investment Bank (EIB), amounting to a total of €2,150.0 million.

The main covenants relating to the bond issues and the EMTN Programme involve clauses regarding i) "negative pledges", on the basis of which the Issuer or its Relevant Subsidiaries undertake not to create or maintain mortgages, pledges or other encumbrances on their assets or revenue, to guarantee listed bonds (with the exception of certain "permitted guarantees"); ii) "pari passu", on the basis of which the securities constitute a direct, unconditional and unsecured obligation by the Issuer, ranking equally among them and with at least the same level of seniority as other present and future unsecured and non- subordinated borrowings of the Issuer; iii) "event of default", on the basis of which if certain predetermined events occur (e.g., failure to make a repayment, the liquidation of the Issuer, the breach of contractual obligations, a cross-default, etc.) a situation of default is established and the loan is immediately called in.

The main covenants relating to bank borrowings involve clauses related to i) negative pledges, on the basis of which the Issuer or the Relevant Subsidiaries undertake not to create or maintain guarantees on their assets to secure borrowings, with the exception of "permitted guarantees"; ii) pari passu on the basis of which the Borrower's payment obligations in relation to the loan agreements in question are not subordinated to any obligation related to other unsecured and non-subordinated creditors, without prejudice to privileges under the law; iii) "event of default", on the basis of which if certain predetermined events occur (e.g. failure to make a repayment, serious inaccuracies in documents and/or declarations, insolvency, business discontinuation, substantially prejudicial effects, the breach of contractual obligations, including pari passu conditions, a cross-default, etc.) a situation of default is established and the loan is immediately called in; iv) accelerated repayment should the rating fall below investment grade (BBB-) for the majority of rating agencies or should the Company cease to be rated by at least one agency.

Notes

The main covenants related to the EIB loans involve clauses related to i) negative pledges, on the basis of which the Company cannot create encumbrances, with the exception of encumbrances granted in relation to borrowings below given amounts and under contractually specified circumstances; ii) the provision to the Bank, at its request, of new guarantees should ratings below BBB+/Baa1 be assigned by two ratings agencies out of three, or in the event that all of the agencies cease to publish ratings; iii) pari passu, on the basis of which the Company ensures that payment obligations rank equally with those related to all other unsecured, nonsubordinated creditors; iv) cases of contract termination/application of the call provision/ withdrawal (e.g. failure to make a repayment, serious inaccuracies in documents and/or declarations, insolvency, events that have a negative impact on financial commitments made by the Company, extraordinary administration, liquidation, substantial prejudicial changes, the breach of contractual commitments, etc.); v) accelerated loan payment following the occurrence of given events (e.g. change of control over the Company, loss of the concession, extraordinary corporate events, etc.).

To date, none of the above covenants has been breached.

Bank guarantees

Banks have issued guarantees to third parties on behalf of Group companies which, at 30 June 2022, amount to €305.4 million. This amount breaks down as follows: €75.7 million on behalf of Terna S.p.A., €57.3 million on behalf of Terna Rete Italia S.p.A., €39.2 million on behalf of Terna Interconnector S.r.l., €5.8 million on behalf of Santa Lucia S.A., €1.1 million on behalf of Santa Maria S.A., €4.8 million on behalf of Difebal S.A., €4.7 million on behalf of Terna Perù SAC, €5.8 million on behalf of Terna Energy Solutions S.r.l, €0.1 million on behalf of Terna Cile S.p.A., €0.1 million on behalf of Terna Plus S.r.l., €31.6 million on behalf of Brugg Cables and €79.3 million on behalf of Tamini Trasformatori S.r.l..

Litigation

The main commitments and risks not disclosed in the statement of financial position at 30 June 2022, relating to the Parent Company Terna, its subsidiary Terna Rete Italia S.p.A., are described below. There are no significant commitments or risks for the other subsidiaries at that date.

Environmental and urban planning litigation

Part of environmental litigation deriving from the construction and operation of Terna's power plants, consists of legal actions taken against the alleged negative effects of electric and magnetic fields generated by power lines. In general, this litigation necessarily involves the Parent Company, which owns the infrastructure in question. Moreover, it cannot be ruled out that the parties concerned may also initiate legal proceedings against the subsidiary Terna Rete Italia S.p.A., as the electromagnetism generated by power lines relates not only to ownership of the plant, but also to its operation and the quantity and quality of electricity it transports.

Regarding this matter, it should be noted that the issue of the Cabinet Office Decree of 8 July 2003 – which specifically set the values of the three parameters (exposure limits, safety thresholds and quality targets) provided for in Framework Law 36 of 22 February 2001, which electricity infrastructure must comply with – led to a significant reduction in any such litigation. Other environmental and urban planning disputes, which do not relate to electromagnetic fields, are also pending with regard to Terna S.p.A.. These disputes are connected with the operation of certain Terna-owned plant, which in the event of an unfavourable outcome could also generate immediate effects for Terna Rete Italia S.p.A. (to date unforeseeable and therefore not included in "Provisions for litigation and sundry risks"), both as the entity appointed by Terna S.p.A. to build the related infrastructure and as the entity responsible for its operation. In particular, charges may arise for Terna Rete Italia S.p.A. connected with changes to the infrastructure involved in such disputes and its temporary unavailability. However, after examination of the disputes in question by Terna S.p.A. and external counsel appointed by the Company, it appears that the possibility of any negative outcomes is remote.

Litigation regarding the legitimacy of construction permits and plant operations

Another aspect of litigation connected with the plant owned by the Parent Company derives from legal actions brought before the competent administrative courts, aimed at obtaining the annulment of decisions granting consent for the construction and operation of infrastructure.

Litigation relating to activities carried out under concession

As the operator of transmission and dispatching activities since 1 November 2005, the Parent Company has been a party in a number of court cases, most of which have contested determinations adopted by ARERA (Italy's Regulatory Authority for Energy, Networks and the Environment), and/or the Ministry for Economic Development, (now the Ministry for the Ecological Transition), and/or Terna itself, in relation to these activities. In cases in which the plaintiffs have, in addition to inherent defects in the contested determinations, alleged violation of the regulations laid down by the aforementioned authorities, or in cases in which the determination has had an impact on Terna, the Company has also taken action to defend its interests through the legal system. Within the scope of such litigation – even though some cases have been concluded, at first and/or second instance, with the annulment of ARERA's resolutions and, when applicable, of the consequent determinations adopted by Terna – any negative outcomes for the Company itself may be deemed unlikely, as these disputes normally relate to pass-through items.

F. Business combinations

No business combinations took place during the period.

G. Related party transactions

Given that Terna S.p.A. is subject to the de facto control of Cassa Depositi e Prestiti S.p.A. (registered office at via Goito 4, 00185 Rome, Italy and whose consolidated financial statements are available at www.cdp.it), a situation ascertained in 2007, related party transactions entered into by Terna during the period include transactions with the associates (Cesi S.p.A., Coreso S.A. and CGES) and employee pension funds (Fondenel and Fopen), as well as transactions with Cassa Depositi e Prestiti itself, with CDP Reti S.p.A. and with the companies directly or indirectly controlled by the Ministry of the Economy and Finance ("MEF").

Given that Terna Group companies and the companies directly or indirectly controlled by the Ministry of the Economy and Finance meet the definition for classification as "government-related entities", in accordance with IAS 24 – Related Party Disclosures, the Group has elected to adopt the partial exemption – permitted by the standard – from the disclosure requirements in respect of other companies controlled, influenced or jointly controlled by the same government entity. The remainder of this section provides qualitative and quantitative disclosures on transactions with government-related entities having a significant impact on the Group's results. Amounts relating to pass-through items are not included in these disclosures.

Related party transactions in the first half of 2022 broadly regard the provision of services in the course of ordinary activities and conducted on an arm's length basis.

The nature of sales to and purchases from related parties by the Terna Group is shown below, followed by details of the revenue and costs resulting from such transactions during the period and the related assets and liabilities outstanding at 30 June 2022.

RELATED PARTY	REVENUE-GENERATING TRANSACTIONS	COST-GENERATING TRANSACTIONS
Parent
Cassa Depositi e Prestiti S.p.A.		Credit facilities.
Associates
Cesi S.p.A.	Rental income on laboratories and other similar facilities for specific uses, dividends.	Technical studies and consultancy, research, design and experimentation.
CORESO S.A.		Technical coordination service for the TSO.
Other related parties
GSE Group	Metering charge, dispatching charge.	Rental of spaces and workstations.
Enel Group	Transmission charge and aggregation of meter readings, dispatching charge, leases and rentals, power line maintenance, movement /re-routing of power lines, housing of fibre cable and maintenance of communications carried over proprietary power lines.	Recovery of energy discount, building services, MV power to new substations, specialist services for connection to Terna's control and protection systems.
Ferrovie Group	Dispatching charge, movement of power lines.	Right-of-way fees.
ENI Group	Dispatching charge.	Contributions for NTG connections, sundry services.
ANAS S.p.A.	Movement /re-routing of power lines.	Right-of-way fees.
Open Fiber S.p.A.	IRU agreements for fibre.	Provision of services for the rental of fibre.
Fondenel and Fopen		Pension contributions payable by the Terna Group.
Other related parties of the MEF Sundry services
Ansaldo Energia S.p.A.	Infrastructure maintenance.

REVENUE AND COSTS (€m)

		REVENUE COMPONENTS
	TRANSMISSION CHARGE AND OTHER REVENUE FROM REGULATED ACTIVITIES	NON-ENERGY RELATED ITEMS	COMPONENTS
De facto parent:
Cassa Depositi e Prestiti S.p.A.	-	-	0.3
Total de facto parent	-	-	0.3
Associates:
Cesi S.p.A.	-	-	0.3
CORESO S.A.	-	-	2.3
Total associates	-	-	2.6
Other related parties:
GSE Group	7.0	0.8	-
Enel Group	837.8	5.1	0.1
Eni Group	3.2	0.5	0.3
Ferrovie Group	1.2	0.6	-
Anas S.p.A.	-	-	0.3
Fintecna	-	0.1	-
Ansaldo Energia S.p.A.	-	0.1	-
Open Fiber S.p.A.	-	0.6	-
Other related parties of the MEF	-	0.1	0.3
Total other related parties	849.2	7.9	1.0
Pension funds:
Fondenel	-	-	0.4
Fopen	-	-	1.4
Total pension funds	-	-	1.8
TOTAL	849.2	7.9	5.7

ASSETS AND LIABILITIES (€m)

	PROPERTY, PLANT AND EQUIPMENT	RECEIVABLES AND OTHER ASSETS	PAYABLES AND OTHER LIABILITIES		CASH GUARANTEES*
	CAPITALISED COSTS	OTHER	OTHER
De facto parent:
Cassa Depositi e Prestiti S.p.A.	-	-	-	-	(275.0)
Total de facto parent	-	-	-	-	(275.0)
Associates:
Cesi S.p.A.	2.6	-	4.1	-	4.8
Total associates	2.6	-	4.1	-	4.8
Other related parties:
GSE Group	-	1.8	-	-	-
Enel Group	8.6	313.5	27.5	-	748.1
Eni Group	-	1.4	2.1	-	80.5
Ferrovie Group	0.2	2.9	12.8	-	24.5
ANAS S.p.A.	0.2	0.2	2.6	-	-
Fintecna S.p.A.	-	2.9	2.4	-	-
Ansaldo Energia S.p.A.	1.2	1.1	3.4	-	23.8
Open Fiber S.p.A.	-	0.1	0.1	-	-
Poste Italiane Group	-	-	0.1	-	-
Webuilt S.p.A.	-	-	-	-	0.5
Other related parties of the MEF	5.6	-	5.1	0.1	6.7
Total other related parties	15.8	323.9	56.1	0.1	884.1
Pension funds:
Fopen	-	-	2.0	-	-
Total pension funds	-	-	2.0	-	-
TOTAL	18.4	323.9	62.2	0.1	613.9

* Guarantees regard surety bonds received from contractors, with the exception of the amount relating to Cassa Depositi e Prestiti S.p.A. regarding a Revolving Credit Facility.

The impact of related party transactions or positions on the statement of financial position and the income statement is summarised below:

STATEMENT OF FINANCIAL POSITION (€m)

	30 JUNE 2022			31 DECEMBER 2021
	TOTAL	RELATED PARTIES	% SHARE	TOTAL	RELATED PARTIES	% SHARE
Property, plant and equipment	15,553.2	18.4	0.1%	15,316.6	60.3	0.4%
Trade receivables	3,716.3	323.9	8.7%	2,777.4	302.3	10.9%
Cash and cash equivalents	1,685.0	0.1	-	1,566.8	0.1	-
Trade payables	4,352.1	42.2	1.0%	3,275.6	59.9	1.8%
Other current liabilities	573.9	20.0	3.5%	453.4	19.4	4.3%

INCOME STATEMENT (€m)

	H1 2022			H1 2021
	TOTAL	RELATED PARTIES	% SHARE	TOTAL	RELATED PARTIES	% SHARE
Revenue from sales and services	1,297.8	857.0	66.0%	1,165.4	835.7	71.7%
Other revenue and income	33.1	0.1	0.3%	85.2	2.4	2.8%
Raw and consumable materials used	97.5	-	0.0%	84.6	0.1	0.1%
Services	106.4	3.8	3.6%	80.5	4.4	5.5%
Personnel expenses	166.8	1.8	1.1%	146.3	1.4	1.0%
Other operating costs	13.3	0.1	0.8%	14.0	0.1	0.7%
Financial expenses	(57.1)	-	-	(49.0)	(0.3)	0.6%

The impact of related party cash flows is shown below:

STATEMENT OF CASH FLOWS

						(€m)
		H1 2022			H1 2021
	TOTAL	RELATED PARTIES	% SHARE	TOTAL	RELATED PARTIES	% SHARE
Cash flow from operating activities	956.3	(38.7)	(4.0%)	288.5	(10.5)	(3.6%)
Cash flow from investing activities	(993.5)	(10.0)	1.0%	(474.5)	33.0	(7.0%)
Cash flow from financing activities	179.4	-	-	(1,028.6)	-	-

H. Significant non-recurring, atypical or unusual events and transactions

No significant non-recurring, atypical or unusual events or transactions, involving either third or related parties, took place in the first half of 2022.

I. Notes to the statement of cash flows

Cash flow from continuing operations during the period amounts to €956.3 million, with approximately €959.5 million in operating cash flow and an outflow of approximately €3.2 million generated by changes in net working capital.

The cash outflow for investing activities totals €993.5 million, including €559.0 million invested in property, plant and equipment (excluding right-of-use assets recognised in application of IFRS 16), €83.9 million invested in intangible assets and €342.4 million invested in securities.

The net cash inflow from shareholder transactions amounts to €603.7 million, due primarily to recognition of hybrid green bonds amounting to €989.1 million, partly offset by payment of the final dividend for 2021 (an outflow of €375.4 million) and the purchase of own shares to service the Performance Share Plan 2022-2026 (an outflow of €10.0 million).

As a result, net cash used in investing activities amounted to €993.5 million, mostly covered by cash flow from continuing operations of €956.3 million. Repayment of a bond issue in the first half (replaced by the hybrid green bond issued on 2 February 2022 and worth €1 billion, accounted for in equity) has resulted in a reduction in net debt.

The following table shows the reconciliation of net changes deriving from financing activities in the statement of cash flows:

				(€m)
	31 DECEMBER 2021	CASH FLOW FROM FINANCING ACTIVITIES	CHANGE IN FV AND OTHER	30 JUNE 2022
- Long-term borrowings (including current portion)	10,695.0	(610.4)	(284.1)	9,800.5
- Short-term borrowings	1,947.0	186.1	(950.4)	1,182.7
Net change deriving from financing activities	12,642.0	(424.3)	(1,234.5)	10,983.2

Notes

INTERIM REPORT ON OPERATIONS

L. Events after 30 June 2022

Launch of consents process for new underground connection linking La Spezia and Arcola (SP)

Following the launch, by the Ministry for the Ecological Transition, of the consents process for the plan to build a new power line between La Spezia and Arcola (SP), on 2 July 2022, Terna published the notice setting out the parcels of land potentially affected by the project. The project, in which the company led by Stefano Donnarumma will invest €8 million, will involve the construction of a 4.3 km-long cable connection linking Terna's "La Spezia" electricity substation and the "La Pianta" primary substation owned by the local distributor. The new line, which will be underground in order to minimise the impact on the landscape, will be completely integrated with the urban environment and constructed using latest-generation cables with XLPE insulation. The project will enable increased meshing of the electricity grid in the area to guarantee greater efficiency in the energy transmission service, also taking into account growing demand for energy as a result of future development of the port area in the city of La Spezia.

Terna: consents process for Sa.Co.I 3 connection continues

In readiness for the Ministry for the Ecological Transition's restart of the consents process for the renewal and upgrade of the historical power line linking Sardinia, Corsica and the Italian mainland (Sa.Co.I 3), on 4 July 2022, Terna published the notice setting out the parcels of land potentially affected by the project. The original project has been revised, with a number of changes resulting from the Environmental Impact Assessment, which came to a positive conclusion with the issue of the related environmental compatibility decree by the relevant ministries. Thanks to agreements reached with the municipalities and institutions involved, Terna has presented the Ministry with an alternative site for the future converter substations to be located in the towns of Suvereto (LI) and Codrongianos (SS). This will minimise the project's impact on the landscape. Furthermore, the company has optimised the undersea route of the planned cables. The Sa.Co.I. 3 connection, with a capacity of 400 MW, will contribute to completion of the European electricity market, strengthening Italy's role as the natural energy hub for the Mediterranean area. Consent for the connection is expected in the first half of 2023, with the subsequent entry into service by 2027. Once completed, the project will provide major benefits to Italy's electricity system, guaranteeing the greater integration of renewable sources, increasing transport capacity between the Central North region and the islands and providing greater grid reliability.

Launch of podcast entitled "Nora, the future of energy is our vocation"

On 5 July 2022, Terna presented "Nora, the future of energy is our vocation", a podcast in nine episodes to explain the Tyrrhenian Lab and the issues surrounding the energy transition to generation Z. The podcast, available on leading audio platforms, takes a fresh approach to communicating with people interested in energy and innovation. Renewable energy, digitalisation and new forms of mobility are some of the topics at the centre of a generational debate that explores the major changes taking place and the energy transition through the professional and personal journey of a twenty-eight-year-old self-described "nerd", blessed with an infallible and extraordinary talent as a profiler. Talents and skills are the cornerstones of the Tyrrhenian Lab project, in which the Company led by Stefano Donnarumma will invest a total of €100 million over the next five years: a training centre of excellence developed in close collaboration with the universities of Cagliari, Salerno and Palermo and spread across the cities that are the landing sites of the Tyrrhenian Link. This is Terna's submarine power line that will unite Campania, Sicily and Sardinia and extend for a total of 950 km of at a cost of €3.7 billion. Thanks to the agreements signed with the three institutions, Terna will train more than 150 young people to high professional standards between autumn 2022 and 2025. The students will undergo a 12-month Master's Degree course focusing on the development of technological and strategic skills that will prove essential to the digital and energy transformation. Once the students have completed the 12-month Master's programme, they may then be hired by Terna's local branches in the three cities.

Demolition of "Acireale-Fontanarossa" power line, in province of Catania, begins

Terna began the first stage of the demolition of the 150kV "Acireale-Fontanarossa" power line on 6 July 2022. The Company will remove over 9 km of overhead line, consisting of a total of 39 pylons that currently cross very densely populated areas in the municipalities of Catania and Misterbianco, freeing up around 10 hectares of land. Once the first stage of the work has been completed, in the coming years Terna will proceed to remove other sections of the same connection and overhead lines between San Giovanni Galermo and San Giovanni La Punta and San Giovanni La Punta and Viagrande. The project forms part of the much larger plan to rationalise and modernise the electricity grid serving the Metropolitan City of Catania. The project, in which Terna expects to invest over €50 million, will ensure greater reliability of supply and reduce the environmental impact. The plan to redevelop Catania's electricity grid is part of the Master Plan for projects to improve the security of the electricity system and to develop the regional area, signed by the Sicily Region Authority, Cassa Depositi e Prestiti and Terna on 18 September 2019, with the aim of optimising synergies and pursuing complete environmental, territorial and social sustainability in terms of energy through the close participation of local government and the population in decisionmaking regarding development of the electricity system.

Under the Master Plan, in October 2021 Terna, the Catania City Council and the Metropolitan City of Catania signed agreements to fund major local redevelopment schemes associated with the new electrification projects.

Agreement on route for Acquara-Porto Potenza Picena connection in province of Macerata

On 8 July 2022, Terna and Municipality of Potenza Picena reached agreement on the route for the new Acquara-Porto Potenza Picena electricity connection, a project that will affect the municipalities of Potenza Picena, Civitanova Marche and Recanati, all in the province of Macerata. The announcement was made to local citizens by representatives of the Municipal Authority and the Company's technicians during an open meeting of the authority. The agreement is the result of a long and productive participatory planning process, undertaken by Terna, together with the local community and the municipalities who will benefit from the power lines. This was done with the aim of defining the best solutions for delivering a project of strategic importance for the entire area. The connection, in which the Company will invest more than €13 million, is part of a series of works aimed at securing and modernising the area's electricity grid. It will include an underground cable of over 11 km in length, which will run between the hamlet of Chiarino and the Porto Potenza Picena primary substation.

Launch of consents process for new underground connection in metropolitan city of Milan

Following the launch, by the Ministry for the Ecological Transition, of the consents process for the new electricity connection for the municipalities of Turbigo, Robecchetto con Induno and Castano Primo in the metropolitan city of Milan, on 13 July 2022, Terna published the notice setting out the parcels of land potentially affected by the project. The project, in which the company led by Stefano Donnarumma will invest approximately €8 million, will involve the laying of a 4.5 km-long underground cable connecting Terna's "Turbigo" electricity substation to the "Castano Primo" primary substation owned by a local distributor. The new infrastructure will enable Terna to demolish over 3 km of existing overhead power lines in the three municipalities involved, removing a total of 11 pylons and freeing up 6 hectares of land. The project, forming part of Terna's "Resilience Plan" designed to mitigate against the effects of adverse weather events, will reduce the likelihood of local outages and damage to infrastructure caused by the high winds that frequently affect the area.

Aerial inspections of electricity grid in Umbria completed

On 14 July 2022, the helicopter inspections of the electricity grid in Umbria were completed. Terna conducts such inspections periodically throughout the country to prevent any defects on the conductors and pylons that make up the national grid. Each year, the Company uses its helicopter fleet to monitor approximately 175,000 km of power lines. This activity, which enables the Company to obtain and process the latest data in order to effectively maintain power lines, is a priority for Terna, which invests around €50 million a year in this area. A total of 1,388 km of power line were inspected, including a total of seventy-five 70kV, 150kV, 220kV and 380kV lines.

Application process for a place at the Tyrrhenian Lab opens

On 18 July 2022, the applications process for a place on the Level II University Master's programme entitled "Digitalisation of the electricity system for the energy transition" officially opened. The programme is being promoted by Terna in collaboration with the universities of Cagliari, Palermo and Salerno as part of the Tyrrhenian Lab project. Students in possession of a postgraduate degree in a technical or scientific subjects (physics, IT, engineering, mathematics, data science) can apply for a place on the Master's programme until 18 September. Following verification by the universities involved that the admission requirements have been met, Terna will assess the candidates and select 15 students from each university to take part in the first of three editions of the programme. The course will begin in November and last for 12 months. Terna met interested students in Cagliari on 20 July, in Palermo on 26 July and will be at another meeting in Salerno the next 5 September to present the programme and details of the course. Once they have completed the 12-month master's course, the students may be hired to work at Terna's local branches in the three cities. In this way, the project will also have a positive impact on job creation and on the development of these communities, further confirming the importance that Terna gives to southern Italy, an area of immense potential for the development of both infrastructure and skills.

Terna Academy

19 July 2022 witnessed the launch of the "Terna Academy", the research and training hub set up by Terna with the aim of enabling everyone within the Group to develop new skills. In keeping with the objectives set out in the updated "Driving Energy" 2021-2025 Industrial Plan, Terna wishes to strengthen and promote new know-how through an innovative approach to developing the culture and expertise needed to support delivery of the energy transition. Creation of the Academy is part of NexTerna, the programme of cultural transformation designed to introduce new ways of working through the active, informed involvement of our people. To develop the training offer, which focuses primarily on technical content, the Terna Academy promotes projects designed to innovate, strengthen and refresh the Group's pool of expertise.

Terna and Pirelli join forces to drive the development of sustainable mobility

On 21 July 2022, Terna became the first company in Italy to adopt Pirelli's "CYCL-e around" e-bike sharing project at national level, with the aim of encouraging its employees to use sustainable mobility. Pirelli's "CYCL-e around" project offers a company e-bike sharing scheme by making pedal assist bikes available for use by the workforce at eight of Terna's sites, located throughout Italy, to commute to work. The bikes are available for use during the working day or during free time. There are four hire options available under the agreement between Terna and Pirelli: 'Working Time', for using the e-bike during the working day and travelling within the city for work purposes; 'Home2Work', for the daily commute to work; 'Smart Week', for using the e-bike for seven consecutive days; and 'Weekend Break', for using Pirelli's electric bikes during the weekend, with no limit on mileage.

Attestation

of the Group's half-year report pursuant to 81-ter of CONSOB Regulation 11971 of 14 May 1999, as amended

"Half-year attestation"

The undersigned, Stefano Antonio Donnarumma, as Chief Executive Officer, and Agostino Scornajenchi, as Manager responsible for Terna SpA's financial reporting, having also taken account of the provisions of art.154-bis, paragraphs 3 and 4 of Legislative Decree 58 of 24 February 1998, attest to:

• the adequacy with regard to the nature of the Company, and

• the effective application of the administrative and accounting procedures adopted in preparation of the condensed consolidated interim financial statements during the six months ended 30 June 2022.

In this regard, no material aspects have emerged.

We also attest that the condensed consolidated interim financial statements:

• a. have been prepared in compliance with the International Financial Reporting Standards endorsed by the European Union through EC Regulation 1606/2002, issued by the European Parliament and by the Council on 19 July 2002;
• b. are consistent with the underlying accounting books and records;
• c. provide a true and fair view of the financial position and results of operations of the issuer and the companies included in the scope of consolidation.

The interim report on operations includes a reliable analysis of key events during the first six months of the year and of their impact on the condensed consolidated interim financial statements, as well as a description of the main risks and uncertainties to which the issuer is exposed in the remaining six months of the year.

The interim report on operations also includes a reliable analysis of related party disclosures.

Rome, 28 July 2022

Chief Executive Officer Stefano Antonio Donnarumma

(original signed)

Manager responsible for financial reporting Agostino Scornajenchi

(original signed)

Independent Auditor's

review report on the condensed consolidated interim financial statements at and for the six months ended 30 June 2022

Deloitte & Touche S.p.A. Via della Camilluccia, 589/A 00135 Roma Italia

Tel: +39 06 367491 Fax: +39 06 36749282 www.deloitte.it

REPORT ON REVIEW OF THE HALF-YEARLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

To the Shareholders of Terna S.p.A.

Introduction

We have reviewed the accompanying half-yearly condensed consolidated financial statements of Terna S.p.A. and subsidiaries (the "Terna Group") as of June 30, 2022, which comprise the income statement, statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and a summary of significant accounting policies and other explanatory notes. The Directors are responsible for the preparation of the half-yearly condensed consolidated financial statements in accordance with the International Accounting Standard applicable to the interim financial reporting (IAS 34) as adopted by the European Union. Our responsibility is to express a conclusion on the half-yearly condensed consolidated financial statements based on our review.

Scope of Review

We conducted our review in accordance with the criteria recommended by the Italian Regulatory Commission for Companies and the Stock Exchange ("Consob") for the review of the half-yearly financial statements under Resolution n° 10867 of July 31, 1997. A review of half-yearly condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (ISA Italia) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying half-yearly condensed consolidated financial statements of the Terna Group as at June 30, 2022 are not prepared, in all material respects, in accordance with the International Accounting Standard applicable to the interim financial reporting (IAS 34) as adopted by the European Union.

DELOITTE & TOUCHE S.p.A.

Signed by Domenico Falcone Partner

Rome, Italy July 29, 2022

This report has been translated into the English language solely for the convenience of international readers.

Ancona Bari Bergamo Bologna Brescia Cagliari Firenze Genova Milano Napoli Padova Parma Roma Torino Treviso Udine Verona

Sede Legale: Via Tortona, 25 - 20144 Milano | Capitale Sociale: Euro 10.328.220,00 i.v.

Codice Fiscale/Registro delle Imprese di Milano Monza Brianza Lodi n. 03049560166 - R.E.A. n. MI-1720239 | Partita IVA: IT 03049560166

Il nome Deloitte si riferisce a una o più delle seguenti entità: Deloitte Touche Tohmatsu Limited, una società inglese a responsabilità limitata ("DTTL"), le member firm aderenti al suo network e le entità a esse correlate. DTTL e ciascuna delle sue member firm sono entità giuridicamente separate e indipendenti tra loro. DTTL (denominata anche "Deloitte Global") non fornisce servizi ai clienti. Si invita a leggere l'informativa completa relativa alla descrizione della struttura legale di Deloitte Touche Tohmatsu Limited e delle sue member firm all'indirizzo www.deloitte.com/about.