Terna — Interim / Quarterly Report 2023

Jul 28, 2023

2023 HALF-YEAR REPORT – 30 JUNE

Driving Energy

We are behind the energy you use every day

We are responsible for making sure that electricity reaches Italian homes and businesses at all times.

We guarantee everyone equal access to electricity and are working to provide clean energy for future generations.

Terna is leading the energy transition

We are committed to building a future powered by clean energy, enabling new forms of consumption and production increasingly based on renewable sources.

Thanks to our overall vision of the electricity system, we are leading the energy transition and the country's pathway to net zero by 2050, in line with European climate goals.

Terna is investing in Italy's development

We guarantee energy security by balancing electricity supply and demand 24 hours a day, working to ensure that the system is reliable, efficient and accessible to all.

We invest and innovate every day to develop the electricity grid, improving links between the different areas of the country and strengthening cross-border interconnections, applying a sustainable approach that takes into account the needs of the communities and people we work with.

PREAMBLE

The Terna Group's half-year report for the six months ended 30 June 2023 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

INTERIM REPORT ON OPERATIONS FOR THE SIX MONTHS ENDED 30 JUNE 2023	5
Terna's role in the just transition	6
H1 2023 overview	8
Ownership structure	12
Structure of the Group	14
The value creation process	16
1 The reference scenario Macroeconomic environment The energy sector Regulatory framework	19 20 21 26
2 The Group's strategy 2021-2025 Industrial Plan Risk governance	31 32 37
3 The Group's business Operating activities Innovation People Financial review for the first half of 2023 Terna's shares Outlook	43 44 70 73 76 87 90
4 Annexes Regulatory framework and other information Changes to the dimensions of the NTG Alternative performance measures (APMs)	93 94 99 102

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS AT AND FOR THE SIX MONTHS ENDED 30 JUNE 2023 107

INTERIM REPORT ON OPERATIONS FOR THE SIX MONTHS ENDED 30 JUNE 2023

Terna's role in the just transition

The electricity system 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 a complex task, requiring an independent central coordinator capable of having an overall view of a high number of actors involved in both production and consumption. This is why Terna refers to itself as driving the energy transition towards a new decarbonised model.

Terna is aware of the fact that the goal of decarbonisation must be addressed by taking into account not only the environmental aspects, but also the social dimension in order to deliver a just transition that is as fair and inclusive as possible. In this sense, it is of fundamental importance to involve all the players affected by the transition (including, for example, trade bodies, civil society and stakeholders through partnerships), roundtable discussions and engagement initiatives.

The transition to a distributed production system based on renewable sources is rapidly altering the electric system, resulting in exponential growth in active resources connected to the grid. Managing requests for connection to the HV grid, coming from entities proposing renewable initiatives, enables Terna to have a systematic view of the current situation and future scenarios. In this way, the TSO can monitor the system's ability to meet demand for electricity whilst satisfying security and quality of service requirements: in a word, ensuring the system's "adequacy".

The European Union (Regulation (EU) 2021/1119) has targeted net zero by 2050, with an intermediate target of cutting greenhouse gas emissions by at least 55% by 2030. The EU's new legislative package, Fit for 55, has set new challenges for the electricity sector: at national level, by 2030 it will be necessary to install approximately 70 GW of additional renewable capacity so that renewable sources account for at least 65% of final consumption. These greenhouse gas emission reduction targets have recently been joined by the need to become independent from Russian fossil fuels, as described in the RepowerEU plan.

Market operators are responding to the challenge with major investment programmes: the level of renewable plant development projects being put forward by private investors is extremely encouraging. At 30 June 2023, Terna had received applications for connection to the national transmission grid (NTG) for over 320 GW of new renewable capacity (onshore and offshore wind and photovoltaic). Most applications are from southern Italy and the islands, locations renowned for being windier and sunnier. To continuously monitor all these initiatives, Terna, in collaboration with the Ministry of the Environment and Energy Security, launched the new digital platform called Econnextion1 in February 2023. This an important new consultation tool enabling operators in the sector to share information on the regional and local distribution of requests for the connection of renewables to the HV grid, broken down by source (onshore and offshore wind and photovoltaic).

The data on applications for the connection of new renewable plants to the electricity grid reveal that we are one right track: it would be sufficient to complete 20% of the currently proposed initiatives to reach the targets set.

¹ https://www.terna.it/it/sistema-elettrico/rete/econnextion

Differences in the geographical distribution and technology mix compared with earlier forecasts make this a very tough challenge: from the point of view of transmission, to achieve this fresh injection of renewable energy into the grid will require a major effort to plan, approve and carry out investment projects on a scale not seen in recent decades in Italy.

An extremely complex challenge. Terna plays a central role in this energy transition, both in enabling the electricity system's transition towards renewable sources and in coordinating this transformation process. The electricity grid is in fact the main enabling factor in achieving the global goal of decarbonisation.

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 have an idea, the 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 take energy efficiency into account in all the 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 2019 levels.

The key consideration, in this sense, is represented by the fact 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). These topics all form the basis of the corporate advertising campaign Noi Siamo Energia, launched by Terna in December 2022 in consultation with the Ministry of the Environment and Energy Security, with the aim of raising awareness among the public and businesses of the need for the conscious, rational and attentive use of electricity in Italy.

Climate targets also play a key role in the United Nations 2030 Agenda for Sustainable Development, not only because SDG 13 focuses explicitly on the climate, but above all because dealing with the climate crisis and guaranteeing, therefore, a healthier planet for the future, is key to enabling the world to achieve all the other goals contained in the Agenda. This means delivering truly prosperous, long-lasting development as part of a "just transition".

Awareness of the Company's role as a driver and enabler of the current ecological transition coincides with Terna's wish to further strengthen its environmental strategy, already intrinsically green. Adoption of a Science Based Target (SBT) with the aim of cutting its CO2 emissions based on measurement of the existing situation and the planning of concrete actions, validated by a third-party entity, turns a good intention into a real, tangible contribution to containing the rise in the global temperature, in line with the Paris Climate Accords of 2015. Terna has thus committed to cutting its CO2 emissions by 46% by 2030 compared with 2019.

H1 2023 overview

New Board of Directors 2023-2025

Election of Terna S.p.A.'s new Board of Directors on 9 May 2023

CHAIRMAN Igor De Biasio

CHIEF EXECUTIVE OFFICER Giuseppina Di Foggia

DIRECTORS

Jean-Michel Aubertin Regina Corradini D'Arienzo Enrico Tommaso Cucchiani Angelica Krystle Donati Marco Giorgino Gian Luca Gregori

Karina Audrey Litvack Francesco Renato Mele Qinjing Shen Simona Signoracci Anna Chiara Svelto

(€m)

1,485.3 +11.6% vs H1 2022 Revenue

411.4 +3.3% vs H1 2022 Profit attributable to owners of the Parent 9,458.4

1,019.2 +7.6% vs H1 2022 EBITDA

830.5 Capital expenditure

+25.7% vs H1 2022

Net debt

Terna's share price

€7.806 at 30 June 2023

The shares reached a half-year high of €8.100 on 12 May.

Two tranches totalling

€900 million agreed with the European Investment Bank under the €1.9 billion loan facility obtained to finance the Tyrrhenian Link (the East and West sections).

An ESG-linked Revolving Credit Facility worth a total of

23 April 2019.

€1.8 billion agreed in May to refinance the ESG Revolving Credit Facility of €1.5 billion obtained on

Successful launch, as part of the Euro Medium Term Notes (EMTN) programme, of a fixed-rate bond issue in a single tranche, amounting to

Renewal of the

€9 billion Euro Medium Term Note Programme (EMTN) in June.

Successful launch, on 17 July, as part of the Euro Medium Term Notes (EMTN) programme, of a green, single-tranche, euro-denominated, fixed-rate bond with a total nominal value of

€650 million. The market showed a strong appetite for the bonds, with the issue approximately four times oversubscribed and attracting interest from high-quality investors from throughout the world.

8 TERNA GROUP | HALF-YEAR REPORT – 30 JUNE 2023

Presentation of Terna's 2023 Development Plan for the NTG: investment of over

€21 billion in the next 10 years to accelerate the energy transition.

Launch of Econnextion, the first digital platform in Italy for requesting the connection of renewable energy plants to the grid, providing an important, innovative form of consultation for all operators in the electricity sector.

Inauguration of Terna's new Suvereto (LI) office, the new

eco sustainable building that will play a central role in preparations for the construction of Sa.Co.I 3, the submarine connection that will link Tuscany, Sardinia and Corsica, and its converter substation.

Terna has received the International Edison Award, the electric power industry's highest honour awarded each year by the Edison Electric Institute, the association that represents all US-investor owned electricity companies. The Group won the award for the planned new power connection between Italy and France, which will link the Piossasco (in province of Turin) and Grand-Île (in France)

substations, crossing the Alps through the Frejus tunnel.

In June, Giuseppina Di Foggia, Terna's Chief Executive Officer and General Manager assumed the role of Vice President of GO15 (GO15.org), the global association bringing together very large power grid operators.

complete the acquisition of a 100% stake in Edyna Transmission S.r.l., at the same time renamed Rete Nord S.r.l., thus acquiring 2 electricity substations and approximately 70 km of power lines in Alto Adige already forming part of the National Transmission Grid. The transaction is part of the Group's strategy of unifying Italy's electricity transmission infrastructure with the aim of further boosting grid efficiency and reliability.

June also saw Terna

ELECTRICITY SYSTEM

Demand 151* TWh -5.3% vs H1 2022

RENS quality 357* MWh vs target 763 MWh

* Provisional data.

Demand met from RES 35* %

Cost of quality 5.1 €m +€3.8m vs H1 2022

H1 2023 overview

+199 new personnel added

in the first half of 2023, with growth in line with the Driving Energy Industrial Plan for the period 2021-2025.

New Normal: the maintenance phase of the programme of cultural change launched with the NexTerna programme is continuing, with monitoring of the initiatives launched, broken down into four macro-areas: People, Process, Platform and Place.

Terna Forward enters CDP Venture Capital's Corporate Partner I fund,

which involves a number of leading companies from Italy and beyond through collaboration and investment in start-ups in the industrial, energy, services and infrastructure sectors, with the aim of driving the growth of Italy's venture ecosystem.

Terna is one of the first Italian companies to receive certification for all its compliance activities. The Company has obtained ISO (International Standards Organization) 37301:2021 certification, awarded by Accredia, extended to all the key compliance obligation of a number of Group companies (Terna Rete Italia S.p.A., Terna Energy Solutions S.r.l. and Terna Plus S.r.l.).

Launch of the third edition of Terna Ideas - Corporate Entrepreneurship, the

innovation-focused corporate entrepreneurship programme for Terna's people that rewards the most innovative ideas by transforming them into business projects. The Terna Ideas Platform is also open to external participants: the first data science for resilience call, aimed at innovative start-ups and SMEs, has also been launched.

Launch of the second edition of the Master's course on Digitalisation of the Electricity System for the Energy Transition, organised by Terna in

collaboration with the universities of Palermo and Salerno as part of the Tyrrhenian Lab project.

TV launch, in January, of the corporate advertising campaign called Noi Siamo Energia, created by Terna in consultation with the Ministry of the Environment and Energy Security with the aim of raising awareness among the public and businesses of the need for the conscious use of electricity in Italy.

Launch of the Driving Energy Award 2023 – Contemporary Photography,

the second edition of the free competition open to all photographers in Italy, aimed at promoting the country's cultural development and nurturing new talent in the sector.

Terna has strengthened its commitment to combatting climate change by setting a new Science Based Target (SBT). The Company has committed to cutting its direct (Scope 1) and indirect (Scope 2) CO2 emissions by 46% by 2030 compared with 2019. Terna has also introduced a target to reduce Scope 3 indirect emissions, such as those relating to employee mobility or the supply chain.

International indices and ESG ratings

Terna's membership of Bloomberg's Gender Equality Index (GEI) has

been reconfirmed for the fifth consecutive year. This is an international index that measures companies' performance regarding gender equality issues and the quality and transparency of their public reporting.

Terna is again leading the way on sustainability: having scored 91 out of 100, it has been ranked the best company out of the 250 global electricity utilities rated as part of S&P Global's Corporate Sustainability Assessment 2022. In addition, for the eighth time in 14 years of inclusion in the Dow Jones Sustainability index, the Company is among the Top 1%, the highest ranking in the latest Sustainability Yearbook, published in February 2023.

Terna's inclusion in the MIB ESG, Euronext Vigeo, FTSE4Good and S&P Developed 100 Gender Equality & Inclusion indices was also confirmed in the first half of 2023.

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 49.1% of Terna's shares are held by Italian shareholders, with the remaining 50.9% held by overseas institutional investors, primarily from Europe and the USA.

Based on information from the shareholder register and other data collected at June 2023, Terna's shareholder structure breaks down as follows.

At 30 June 2023, the Parent Company has purchased 537,827 own shares (equal to 0.027% of the share capital) for a total cost of €4,105,167. The shares have been purchased to service the Performance Share Plan 2023-2027.

Major shareholders2

CDP RETI S.p.A.3 (a company controlled by Cassa Depositi e Prestiti S.p.A.):

29.851%

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 2022. This is published together with the Annual Report – Integrated Report of Terna and the Terna Group and is available in the "Sistema di Corporate Governance – Governance Report" section of Terna's website.

² 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.

³ 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 2023 is shown below.

Scope of assets held for sale*

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

Compared with 31 December 2022:

• ¹ On 7 February 2023, the acquisition of shares in SEleNe CC S.A. was completed following the withdrawal of the Romanian TSO, National Power Grid Company Transelectrica S.A., from the company's shareholder base. The Company's stake has thus increased from 25% to 33.33%.
• ² On 29 March 2023, through its subsidiary LT S.r.l., Terna completed the acquisition of a 100% stake in Omnia S.r.l., a company providing O&M services for photovoltaic plants. The acquisition helps to consolidate the LT Group's position as an Italian market leader in the construction and operation of photovoltaic plants.
• ³ On 22 June 2023, Terna completed the acquisition of a 100% stake in Edyna Transmission S.r.l., at the same time renamed Rete Nord S.r.l., a company that owns two electricity substations and approximately 70 km of power lines in Alto Adige already forming part of the National Transmission Grid. The transaction is part of the Group's strategy of unifying Italy's electricity transmission infrastructure with the aim of further boosting grid efficiency and reliability.

The value creation process

Terna's process for creating value over time4 is shaped by a form of Governance that targets sustainable success through the definition of a solid medium- to long-term Strategy, based on the 2023 Development Plan and the 2021-2025 Industrial Plan, with the aim of delivering a just transition. The other key element that will contribute to achieving a just transition is the correct allocation of the resources, which Terna manages by focusing its investment on the efficiency and resilience of the national transmission grid (NTG) and by assessing and managing the financial and ESG risks connected with the business and the related potential opportunities.

Terna's business model is divided into three separate lines of business (Regulated Activities, Non-regulated Activities and International Activities). These correspond with the core business (Electricity Transmission and Dispatching) and the two complementary deregulated areas of operation, consisting of the design, engineering, operation and maintenance of energy market solutions (Non-regulated Activities) and the development of partnerships and projects with a low risk profile (International Activities).

Terna thus pursues sustainable growth by focusing all its operating activities, via the responsible use of all the available capitals, on the priority goal of delivering a just transition, whilst also paying attention to social aspects.

⁴ 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.

Macroeconomic environment	20
The energy sector	21
Regulatory framework	26

1 The reference scenario

Macroeconomic environment

Global GDP growth is expected to be 2.8% in 2023 (ISTAT), below the level recorded in 2022 (3.2%), which was itself down on the figure for 2021 (6.0%). This is evidence of the continuing challenges faced by the global economy since 2022. Uncertainty, the energy crisis, inflationary pressures and the slowdown in global trade (5.4% growth in 2022 compared with 10.4% in 2021) have helped to put a brake on global economic growth.

With specific regard to Italy, GDP growth for 2023 is expected to be 1.0% (source: Economic and Financial Planning Document, April 2023), compared with growth of 3.7% recorded in 2022. In this context, Terna's capital expenditure played an important role. This reflects the sharp acceleration in investment in 2022.

One of the most significant economic trends over the three years from 2021 to 2023 has been rising inflation, driven above all by one of the highest rises in energy prices in the last twenty years. In particular geopolitical tensions have emerged, driving the prices of natural gas, oil and other energy sources higher. These increases have had a major impact on businesses' production costs and consumer expenditure, driving inflation even higher. Initial indications in 2023 point to the fact that last year's inflationary pressures have stabilised thanks to an increase in imports in the form of liquid natural gas and through trans-Mediterranean gas pipelines, in addition to a decline in consumption. Demand for natural gas fell in the first quarter of 2023 due to a series of factors, including: a) mild temperatures in the first half of 2023 and b) reduced consumption by consumers and businesses in response urging by the Government and to the high price of energy. Nonetheless, forecasts for the coming winter remain uncertain. Forward pricing at the beginning of July 2023 indicates that prices in the first quarter of 2024 are unlikely to be lower than those recorded in the first half of 2023, with an average of approximately €50 per MWh.

The outbreak of war in Ukraine drove prices even higher, above all the price of gas, which also resulted in rising wholesale electricity prices. The situation is improving, with the SNP in the first six months of 2023 resulting in an average spot price of €136 per MWh (in the first six months of 2022 it was €249 per MWh). Energy price tensions could continue into the coming years as a result of a range of factors, exposing Italy to the risk that ongoing inflationary pressures will impact consumption. The country is also faced with the issue of energy security and independence, given that the gas consumed in Italy comes mainly from North Africa, Azerbaijan and the Middle East.

In addition to increasing energy prices, the war has also impacted the food sector and, more generally, the global and European economy. Experts now forecast that annual inflation will be 5.4% in 2023, falling to 3.0% in 2024 (source: ECB).

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario Annexes

The Group's strategy The Group's business

The energy sector

According to the IEA5 , 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 netzero 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 (given that, as an energy carrier, electricity is intrinsically efficient) will 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.

The European and Italian response

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, presented by the European Commission in December 2019. This aims to transform the European Union into a net-zero economy by 2050 and achieve an intermediate goal of cutting greenhouse gas emissions (GHG) by at least 55% by 2030 compared with 1990 levels. A key part of the Green Deal is the European Climate Law (Regulation (EU) 2021/1119), formally adopted by the Council of the European Union on 28 June 2021 and that came into effect on 29 July 2021.

In 20216 , the European Commission also presented a package of proposals aimed at achieving the targets set for 2030 and 2050. The package, called Fit for 55 (or FF55), has strengthened the guidelines with 8 revisions of existing legislation and 5 new proposals.

One of the most important initiatives for the energy sector is RepowerUE, an emergency plan launched by the European Commission on 18 May 2022 following Russia's invasion of Ukraine. This aims to strengthen the European Union's strategic independence by diversifying energy sources and boosting the Union's energy independence and security. The key targets set in REpowerEU include increasing the resilience, security and sustainability of Europe's energy system through an appropriate reduction in the continent's dependence on fossil fuels and by diversifying energy sources, increasing the use of renewable energy, energy efficiency and energy storage capacity.

⁵ IEA: International Energy Agency. "Net Zero by 2050" report.

⁶ The first part of the package was presented in July and the second on 15 December.

In addition to RepowerUE and also as part of the FF55 package, the provisional texts of two Directives raising the targets linked to the energy transition have recently been approved:

• a) The new Renewable Energy Directive, which has raised the targets for the share of energy from renewable souces from 40% to 42.5% by 2030⁷ . The European Parliament's ITRE Committee approved the text of the provisional agreement between the members of the Trilogue on 28 June 2023. The Directive must be formally adopted by the Parliament (during the Plenary Session of 11-14 September) and then by the Council before being published in the Official Journal of the EU and coming into force.
• b) The EU Energy Efficiency Directive also raises the targets for energy saving from 9% to 11.7% by 2030. The European Parliament's ITRE Committee approved the text of the provisional agreement between the members of the Trilogue on 25 April 2023. The Directive must be formally adopted by the Parliament (during the Plenary Session of 10-13 July) and then by the Council before being published in the Official Journal of the EU and coming into force.

At national level, the Italian Government has just submitted its proposal for an updated8 new National Integrated Energy and Climate Plan ("PNIEC") to Brussels. The document sets out key policy guidelines for development of the country's energy system. The new plan, updated using a realistic, technologically neutral approach, is definitely more challenging than the old PNIEC (2019), reflecting the more ambitious goals set at European level.

⁷ https://www.europarl.europa.eu/news/en/press-room/20230626IPR00840/renewable-energy-itre-meps-endorse-deal-with-council. Adoption by the European Parliament is expected by mid-September.

The Ministry of the Environment and Energy Security press release, "Climate: the Ministry has submitted the proposed PNIEC to Brussels", dated 30 June 2023. https://www.mase.gov.it/comunicati/clima-il-mase-ha-trasmesso-bruxelles-la-proposta-di-pniec

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario Annexes

The Group's strategy The Group's business

Enabling factors for the energy transition

Delivery of the infrastructure necessary to achieve the energy policy goals within the set timetable inevitably requires a significant acceleration of investment in the energy sector and, even more so, in the electricity sector. This investment must, to a large extent, be directed towards the development of new renewable energy capacity, storage systems and transmission and distribution networks, to be carried out in a coordinated manner to make the system more efficient as a whole.

The ecological transition is needed not only to combat climate change and boost environmental sustainability, but also to reduce the country's energy dependence, limit energy price pressures due to commodity costs (gas and CO² ), and to drive the country's economic growth and technological research and innovation.

What is needed

GRID DEVELOPMENT	Strengthen the grid and cross-border interconnections Investment to offset the loss of inertia and in voltage regulation and grid resilience	Terna develops infrastructure to enable the integration of RES Terna engages with government institutions with the aim of speeding up consents processes that today represent the main obstacle to achieving decarbonisation targets	Under Terna's direct responsibility
MARKET DESIGN	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	Terna is opening up the dispatching services market (DSM) to resources that are currently not enabled
DEVELOPMENT OF RES	Increase the pace of deployment Ensure adequate security of supply, leveraging the range of technologies available Give priority at administrative level to the deployment of RES and run more effective campaigns to raise awareness and improve public acceptance	Terna guides the correct choice of technology mix and location for plants, diversifying sources of supply
STORAGE SYSTEMS	Deploy new hydroelectric and electrochemical storage systems to manage overgeneration and residual load ramping events, and provide high-quality services to the system	Terna identifies the need for new storage capacity, taking into account expected growth in RES plants

Source: Terna data.

This represents an extremely challenging, long-term commitment, which will require a coordinated approach to timing and geographical location to channel the massive investment being undertaken by operators in a way that is in keeping with the related plans. This transformation is a major opportunity to boost Italy's competitiveness: the country's lack of energy resources has historically meant that energy costs were higher than the European average and that the country was highly dependent on imported energy. This situation has been highlighted by mentioned tensions regarding the import of gas from Russia.

In this new scenario, Italy will see a reduction in its energy dependence and the investment planned for the coming years will determine the country's strategic role in the future global economic system.

The investment planned for the coming years will determine Italy's strategic position in the global economic system of the future. Terna is thus driving the transformation of the energy system as part of the country's ecological transition. This commitment also takes the shape of efforts to promote ever closer strategic cooperation with other players in the sector, including through the membership of various European bodies (e.g., ENTSO-E) and partnerships with other European TSOs (e.g., the Equigy initiative, whose partners, in addition to Terna, include the TSOs TenneT, TransnetBW, Swissgrid and APG).

Electricity demand and production in Italy Electricity demand

Demand for electricity in Italy amounted to 150,511 GWh in the first half of 2023, a reduction of 5.3% compared with the same period of 2022.

ELECTRICITY BALANCE IN ITALY (GWH)*	H1 2023**	H1 2022**	CHANGE	% CHANGE
Net production	125,559	138,829	(13,270)	(9.6%)
From overseas suppliers (imports)	27,636	23,496	4,140	17.6%
Sold to overseas customers (exports)	(1,532)	(2,059)	527	(25.6%)
For use in pumping***	(1,152)	(1,266)	114	(9.0%)
Total demand in Italy	150,511	159,000	(8,489)	(5.3%)

* 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 in the first six months of 2023 continued to fall compared with the same period of the previous year. This reflects higher average temperatures in the first quarter, a decline in temperatures in the second quarter but most of all a reduction in industrial consumption.

The reference scenario Annexes

The Group's strategy The Group's business

Meeting demand and energy production

INTERIM REPORT ON OPERATIONS

Electricity production in the first half of 2023 is down 9.6% compared with the same period of 2022.

In the first half of 2023, approximately 35% of total energy demand, including imports from overseas, was met from renewable energy sources, an increase compared with the same period of 2022. In terms of individual renewable sources, biomass (-6%), geothermal (-4%) and wind (-3%) production are down, offset by increases in hydro (+16%) and solar (+6%) production.

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 85.0% 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 (sub-period "NPR1", 2016-2019). The regulatory framework for the second four-year period (sub-period "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).

At the end of NPR2, ARERA has provided 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 163/2023/R/com, ARERA approved the amended text governing Totex/Output-based regulation for the period 2024-2031 (TIROSS 2024-2031). This sets out the general criteria and principles for the new framework, valid for all regulated infrastructure services in the electricity and gas sectors, but has delayed concrete application of the general criteria for electricity transmission until the review of infrastructure regulation for the sixth regulatory period 2024-2027, begun in Resolution 166/2023/R/eel.

In Resolution 614/2021/R/com, ARERA set out the procedure for determining and revising the Weighted Average Cost of Capital (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%. In Resolution 654/2022/R/com, ARERA confirmed the current levels of WACC for electricity and gas infrastructure services for 2023, having taken into account the fact that the above mechanism had not been triggered.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The reference scenario Annexes

The Group's strategy The Group's business

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.

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 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.

Transmission revenue makes up the most significant portion of regulated revenue

1. The reference scenario • Regulatory framework

The main types of allowed cost

1. Return on capital (RAB)	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.
2. Depreciation	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.
3. Operating costs	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 (a 50% share).
	The resulting amount is revalued annually to take account of inflation (Italy's rate of consumer inflation for blue- and white-collar households, excluding tobacco products) and reduced by an efficiency factor designed to ensure that additional efficiencies are, over time, passed back to end users in full.
4. Output-based incentives	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, as described below:
	• an incentive system for the delivery, in the five-year period 2019-2023, of projects designed to increase transmission capacity between market areas: this involves recognition of an incentive, capped at €150 million, in proportion to the ratio between capacity delivered by 2023 and the target capacity (Resolution 567/2019/R/eel), plus an additional bonus in the event of the deployment of transport capacity using efficient solutions, including those that are capital light. The mechanism also envisages that the award may be reduced by the regulator if the ratio between the average transmission capacity made available for the day-ahead market and winter peak transmission capacity is significantly below historical levels of this ratio, in one or more of the three years following the entry into service of the investment that made available the additional transmission capacity. In Resolution 23/2022/R/eel, the regulator awarded Terna a bonus of €143.6 million for work carried out in 2020, which resulted in an increase in transmission limits on the relevant sections of the grid with effect from January 2021. The bonus was payable by the Fund for Energy and Environmental Services (Cassa per i Servizi Energetici e Ambientali - CSEA) from the "Quality of electricity services" account (including €40 million relating to the above additional bonus for capital light projects, paid in February 2022, €52.8 million paid in December 2022 and €52.8 million payable by December 2023);

The reference scenario Annexes

The Group's strategy The Group's business

• an incentive mechanism, with a three-year duration (2022-2024), aimed at rewarding the efficiency of dispatching activities and, as a result, reducing DSM costs and the cost relating to the shortfall in wind production and essential plants (Resolution 597/2021/R/eel and Resolution 132/2022/R/eel). The incentive is calculated annually based on Terna's performance, assessed by comparing effective dispatching costs in the incentive year with costs in the year in question, suitably adjusted to take into account commodity price movements and other corrective factors (the bonus awarded to Terna is equal to 12% of the total saving obtained over a three-year period). Rewards (penalties), calculated on an annual basis, are included in the uplift payment defined in article 44 of Annex A to Resolution 111/06 and paid from 2024 according to the procedure described in Resolution 132/2022;
• improvements in quality of service in the 2016-2023 period through an incentive mechanism based on rewards/penalties calculated on the basis of the difference between the effective annual level of energy not supplied through the NTG (the NTG RENS indicator) and the target level set by ARERA, with the annual reward capped at €30 million and the annual penalty at €12 million (Resolution 653/2015/R/eel). In Resolution 623/2022/R/eel, the regulator awarded Terna a bonus of €18.6 million, paid by the CSEA at the end of December 2023 from the "Quality of electricity services" account.

2021-2025 Industrial Plan 32 Risk governance 37

2 The Group's strategy

The 2021-2025 Industrial Plan DRIVING ENERGY - Update

The updated 2021-2025 Industrial Plan, "Driving Energy", approved by the Board of Directors on 24 March 2022, has accelerated Terna's commitment to the country's ecological transition, energy independence and decarbonisation, 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, compared with 1990 levels.

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, with the aim of reinforcing Italy's role as a European and Mediterranean electricity transmission hub, making the country 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 in developing, modernising and strengthening the national transmission grid, confirming the Company's role in driving the energy transition and enabling an increasingly complex, sustainable and innovative electricity system. This investment will generate major benefits for the system as a whole, with a significant multiplier effect.

The updated 2021-2025 Industrial Plan targets increased investment in development of the national transmission grid. 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 contribute to the development of renewable energy production and the phase-out of the most polluting coal- and oil-fired power stations. Other key 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.

Further investment will focus on renewing and improving the efficiency of assets, covering the reorganisation of existing infrastructure and the replacement of obsolete components, and the Security Plan, which aims to boost the system's technical and technological capabilities.

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 and strengthen the supply chain;
• connectivity offerings, including within the context of partnerships, involving the provision of housing and hosting services to enable telecommunications providers to use the Company's fibre network, and the installation of telecommunications equipment at Terna's existing sites;

INTERIM REPORT ON OPERATIONS

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

• 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.

Turning to International Activities, following the decision to extract value from the Group's South American assets, Terna 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 stable markets from a geopolitical standpoint and with attractive growth potential, such as the United States, where the Terna Group can make available the experience and expertise it has acquired in the design and management of infrastructure, in line with the Company's business strategy.

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 will concentrate its efforts on the use of advanced technology to remotely control electricity substations and transmission infrastructure. New projects and initiatives will focus on the four technology clusters identified in the Industrial Plan, 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 the Group's environmental impact); and Robotics (process automation).

Terna's people, with their world-leading technical expertise, are a key asset in enabling the Group to achieve the challenging goals the Group has set itself, confirming Terna's role in driving the transition. The Company has completed the development phase for an ambitious cultural transformation called NexTerna, involving the definition of a new leadership model and new ways of working and operating in 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 the Company's workers.

Maintenance of a strong capital structure through robust cash generation will also help to support an attractive dividend policy.

Finally, the Terna Group's ongoing commitment to implementing the Industrial Plan and achieving the related financial targets has enabled the Group to meet and improve on the guidance communicated to the financial markets for 2021 and 2022. These are important milestones on the way to achieving the targets set for 2025, announced on 24 March 2022 at the time of presentation of the 2021-2025 Industrial Plan, "Driving Energy" to the financial community.

ESG goals in the 2021-2025 Industrial Plan

Together with the presentation of the "2021-2025 Industrial Plan" to the market, the ESG goals were redefined and, in line with the presentation adopted in the Integrated Report, reorganised in terms of types of capital.

The setting of objectives aimed at increasing intangible capital and respecting natural capital, including identification of the related risks and definition of appropriate mitigation measures, marks the full integration of sustainability within the Group's value creation process.

The ability to identify, monitor, manage, prevent and minimise ESG risks is assessed annually by the main international sustainability rating agencies, which provide an important third-party benchmark that benefits the Company itself and its financial stakeholders.

The contribution of ESG criteria to value creation

Allied with the most significant topics emerging from the materiality analysis9 , the ESG goals thus help to increase the availability of certain enabling factors needed for full implementation of the Industrial Plan and contribute to preserving the Group's reputational capital (common to all).

9 See the section, "Materiality analysis" in the Annual Report – Integrated Report (pages 56–59).

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

INTERIM REPORT ON OPERATIONS

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

1. The Group's strategy • The 2021-2025 Industrial Plan

The 2030 goals

Terna's business model describes operating activities that are inherently linked to medium- and long-term goals. In terms of achieving these goals, the Development Plan, covering a period of ten years from the date of publication, is the main document for planning the electricity infrastructure needed to ensure not only the quality, continuity and security of the electricity service in Italy but, above all, the achievement of a just and inclusive energy transition.

In keeping with the environmental and social sustainability goals promoted nationally and internationally, a number of 2030 goals have been included in the updated 2021-2025 Industrial Plan, "Driving Energy". Finally, Terna's Science Based Target ("SBT") was revised at the beginning of 2023 to make it even more challenging.

		TARGET
CAPITAL	KPI	2025	2030
	Women as a percentage of the workforce (assumption: base year 2019)	20%	22%
Human	Women as a percentage of the workforce, excluding blue-collar workers (assumption: base year 2019)	25%	27%
	Workplace safety indicator for Terna Group personnel working in the electricity sector	≤1	≤1
	Percentage of major works accompanied by stakeholder engagement initiatives. Specifically:
Social and Relationship	High-priority electricity works and capex threshold >€50m	100%	-
	High-priority electricity works and capex threshold €10-50m or Medium-priority works and capex threshold >€50m	-	100%
Intellectual	Percentage of employees trained in ESG issues	-	100%
	Reduction in Scope 1 and Scope 2 CO2 emissions in line with the Science Based Target ("SBT" - base year 2019)	-	-46.2%
Natural	Annual CO2 avoided thanks to projects in 2021 Development Plan (in equivalent tonnes)	-	5.6 million

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

Risk governance

With a view to creating and protecting value of the medium to long term, the Terna Group has adopted a structured Risk Management System (the System) for the systematic, iterated identification, assessment, treatment and monitoring of business risks, highlighting, where present, the potential effects with regard to ESG aspects.

In line with the recommendations in the Corporate Governance Code for Listed Companies and international best practices, this System has the ultimate purpose of supporting decision-making processes and developing awareness across the organisation of the level of risk assumed and its compatibility with the Company's objectives. The System also aims to spread and reinforce the risk culture at all levels of the organisation.

The main role in enabling management to identify current and emerging risk events is played by the set of corporate objectives, divided into Strategic (linked to the Industrial Plan) and Recurring (continuous risks linked to the activities carried out under concession, the corporate mission and the codes of conduct adopted).

Physical Asset Management

Each risk event is assessed on the basis of the combination between Impact (divided into four types: financial, reputational, operational and HSE-Sustainability) and Probability of occurrence over the life of the Plan. The assessment also takes into account the Level of Maturity of existing risk management systems. Based on the outcomes, risk treatment priorities and appropriate responses are chosen through the selection of mitigation or corrective actions.

A business's risk profile is not static, but dynamic and may alter due to changes in the external environment and/or as a result of internal organisational and business decisions. Developments in the Group's risk profile are monitored, as is the state of progress in implementing chosen mitigation initiatives.

The above phases of the risk management process are regularly repeated (at least once a year).

Further details of the relevant framework, the risk management process and the main risks to which the Group is exposed are provided in the "Risk governance" section of the 2022 Annual Report - Integrated Report.

Tax Control Framework

In 2023, the Terna Group has continued to strengthen its Internal Risk Control System by implementing the Tax Control Framework, an organisational framework aimed at managing tax risk and included in the corporate governance and internal control system. The framework was adopted in preparation for application for Terna S.p.A.'s admission to the Cooperative Compliance regime governed by Legislative Decree 128 of 5 August 2015 and subsequent provisions. The application was submitted at the end of 2022 and the admission process in in progress. The Cooperative Compliance regime aims to increase the degree of certainty regarding relevant tax issues through constant, prearranged discussions with the tax authorities on specific matters, with a view to jointly evaluating situations that are likely to generate tax risks.

To this end, on 14 December 2022, Terna S.p.A.'s Board of Directors approved the Group's Tax Strategy, setting out the objectives and principles forming the basis for managing relations with tax authorities, with a commitment to promoting a culture of tax compliance among employees. In addition, from an operational viewpoint, Terna S.p.A. has adopted a Tax Compliance Model for managing and controlling tax risk, establishing a set of rules, procedures, organisational structures and processes designed to identify, measure, manage, control and monitor tax risk. Finally, in 2022, the Company initiated a process of defining, updating and maintaining its operating procedures, starting with those relating to administration, accounting and taxation. In line with best practices, operating procedures take a standardised form that describes the flow of activities and assessment of the connected operational and tax risks, focusing on the relevant risk containment strategy.

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. Terna has for some time reported on these types of opportunities and risks in accordance with the framework introduced 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 businesses to reputational risks;
• Physical risks: these risks can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for businesses, such as direct damage to assets and indirect impacts from supply chain disruption.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

Further details of the opportunities and risks connected with climate change identified by Terna are provided in the "Risk governance" section of the 2022 Annual Report - Integrated Report.

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

The Terna Group is constantly committed to monitoring the potential impact/risks of the ongoing crisis involving Russia and Ukraine, in view of the related geopolitical developments and the related legislation regarding international sanctions introduced following the outbreak of the conflict.

To this end, the Group has set up specific taskforces to both monitor any new sanctions and strengthen due diligence procedures and ordinary controls. The main potential areas of concern to be monitored continuously by the taskforces are cyber security, the economic and financial effects, the electricity system and the impact on procurement.

Since the start of the conflict between Russia and Ukraine, there has been an increase in cyberattacks on Italian government and corporate websites. These events have not led to major upheaval or data breaches, with disruption being short-term in nature.

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 Terna does not use any cybersecurity products or services linked to the Russian Federation. Work has also been successfully completed on further raising the level of cybersecurity for the data flows required by 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 over recent years was initially caused by the impact of the Covid-19 pandemic on the supply of goods and services and then by higher energy prices following the outbreak of war in Ukraine. 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), it is not expected that there will be 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 and extend 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, however, will be gradual in view of the average duration of existing debt and the current high proportion of fixed rate borrowing (around 89%).

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, in 2024, the WACC is due to be revised 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.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

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

There has so far been little evidence of any impact on the adequacy of the electricity system. However, given the shortage of natural gas and the fact that gas is used to produce approximately 37% of the power generated (down as a result of the efforts made to maximise production from other sources), it is necessary to evaluate if, were there to be a shortfall in natural gas supply next winter, it can only partially be offset by maximizing production from other energy sources.

In terms of procurement, as a result of international sanctions, the Terna Group has suspended the qualification of its sole Russian supplier, which has now expired, and activated all other contractual remedies. The related effect has been offset by increasing the use of other available suppliers. Steps have been taken to address issues regarding the supply of power lines, substation equipment and power systems by i) the conclusion of additional contracts after new calls for tenders, including indexation mechanisms (using tools such as online tenders that can be carried out quickly, such as for the supply of pylons) and ii) the negotiation of claims on non-indexed supply contracts. Steps have been taken to manage the most significant effects of price movements on supplies of metals (steel, aluminium, nickel and semiconductors).

As regards major projects (e.g., the Tyrrhenian Link and SACOI 3), where substation supply contracts are about to be fulfilled or negotiated as part of the tender process, etc., Terna may see an impact of the uncertainty surrounding increases in commodity prices and possible delays to contract delivery due to force majeure. In any event, it should be noted that, from 2022, legislation has been introduced requiring the inclusion of price adjustment mechanisms in contracts. As a result, the main indices used are constantly monitored by the Company.

Operating activities	44
Innovation	70
People	73
Financial review for the first half of 2023	76
Terna's shares	87
Outlook	90

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 almost the entirety of the National Transmission Grid (NTG), one of the most modern and technologically advanced in Europe. The Group is 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. It 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, whilst guaranteeing continuity and accessibility of service for the population as a whole. Terna is also responsible for planning, construction and maintenance of the grid.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

Development Plan

The identified needs relating to grid development are included in the 2023 Development Plan, which represents a structured and organic response to the challenges brought about by the energy transition and the current international geopolitical tensions.

Principal projects for the National Transmission Grid

The 2023 Development Plan envisages capital expenditure of approximately €21 billion in the next ten years.

1. The Group's business • Operating activities

INTERCONNECTORS AND LINES				KM OF CIRCUIT	STATUS		DRIVER
HVDC Milano-Montalto				450
Central Link				150
HVDC Fiumesanto – Montalto (Sapei 2) and Sardinian Link				640
HVDC Priolo-Rossano-Montecorvino-Latina				450
HVDC Ionian				400
HVDC Foggia-Villanova-Fano-Forlì				520
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 (West Link/East Link)				950
Restructuring metropolitan areas				182
Chiaramonte-Gulfi-Ciminna				173
Upgrade in the Mid Piave Valley				90
Colunga- Calenzanoü				85
Gissi-Foggia				140
Cassano- Chiari				36
Rinforzi North - Calabria				10
Paternò-Pantano-Priolo				63
Elba-Mainlandü				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 2023 are shown in the section "Changes in the dimensions of the NTG" in the annexes.

Security and Resilience 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 of the Environment and Energy Security for approval by 31 May of each year.

The 2023 Security Plan is the 20th edition and updates the initiatives to protect the security of the electricity system envisaged for the four-year period 2022-2025, with capital expenditure of over €1.1 billion.

The Plan is framed by geopolitical and climate-related events that call for an even greater focus on the importance of the security of the electricity system, a key element in driving the energy transition process.

INTERIM REPORT ON OPERATIONS

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To deal with the new energy transition challenges, Terna's 2023 Security Plan continues to be based on 5 Guidelines and 4 Actions designed to guarantee high levels of security for the electricity system:

The Plan thus includes initiatives to upgrade management, control and defence systems for the grid, innovating operating procedures, installing equipment designed to regulate voltage and the dynamic stability of the system and implementing solutions for the physical and cyber security of grid infrastructure.

Attached to the Security Plan is the Resilience Plan, a cross-cutting plan that establishes all the initiatives required to prevent and/or reduce damage to the electricity grid caused by increasingly severe and frequent weather events. The Plan includes infrastructure protection, renewal and monitoring work, assessed using Resilience Methodology for ice, snow and wind.

The 2023 edition of the Resilience Plan also presents the progress of work on developing and refining Resilience Methodology for modelling weather and climate-related events linked to hydrogeological instability.

PROJECTS			STATUS		DRIVER
Fiber for the Grid
Resilience to ice, snow, wind and other weather eventsü
Devices for regulating voltage and dynamic stability
Cyber security
Dispatching, control and protection 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 during their lifecycle. These operations are carried out using a condition-based approach. However, a series of projects are in progress to shift certain operating activities towards a predictive, risk-based maintenance model. The IT and digital tools used today to support maintenance activities are subject to continuous innovation, and primarily include: the MBI (Monitoring and Business Intelligence) decision-support system, which suggests maintenance activities 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 the on-site monitoring process or through the analysis of on-line sensor data. These indications and any problems identified are processed by the asset engineering models included in MBI (Monitoring and Business Intelligence) and developed by the Asset Management department in agreement with other departments within the Company. The outcome of the engineering models are used to draw up the maintenance plan designed to ensure that assets continue to be fit for purpose over time.

INTERIM REPORT ON OPERATIONS

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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, compared with the effective operating conditions they have to deal with and prioritising components and infrastructure of greater importance for operation of the electricity grid.

Condition-based renewal of infrastructure aims to:

• carry out condition-based and component-based work only on individual items of infrastructure that effectively require it;
• maximise infrastructure use at the lowest cost, and thus keep each individual component operating efficiently for as long as possible;
• implement a plan of long-term prioritised works, as established through technical analysis.

To constantly improve and increase the efficiency of the asset management process, the Renewal Plan is divided into the following categories of benefit, which include the renewal objectives:

• Sustainability:

• Environmental quality: introduction of more eco-friendly assets that are environmentally sustainable. These include, for example, investment in vegetable-oil transformers, fluid-oil cables and certain types of cable terminals, technical adjustments to lines/underground cables and the replacement of current and voltage transformers;
• Service quality: solutions to improve the reliability of assets, based on asset management analysis (designed to assess the asset's technical conditions). By improving their reliability, the works reduce the Health Index score and the risk of outages. These include, for example, investment in the renewal of lines, the RIGEL (Reduction of Power Line Failures) programme and substation renewal (equipment and machinery).

• Innovation and digitalisation:

• Quality of the O&M process: the introduction of new solutions and technologies to increase the effectiveness of the operating and maintenance process. These include, for example, investment in the new digital control system for substations, online diagnostics for substation equipment, cable monitoring and functional separations.

• Resilience:

Strengthening the grid's ability to withstand the effects of the snow risk, the exposure of lines to hydrogeological risk and substation exposure to seismic risk. These include, for example, investment in:

• ice/snow line resilience: strengthening power lines, increasing the cutting of vegetation, etc.;
• ice/snow substation resilience: substation work, the digitalisation of substations, etc;
• hydrogeological risk resilience for power lines: the instalment of hydrogeological monitoring devices, etc.;
• substation resilience to exposure to seismic risk: the instalment of seismic dampers.

The Group's capital expenditure

The Terna Group's total capital expenditure in the first half of 2023 amounts to €830.5 million, marking an increase compared with the €660.5 million of the same period of the previous year (up 25.7%). (€m)

THE GROUP'S CAPITAL EXPENDITURE	H1 2023	H1 2022	CHANGE	% CHANGE
Development Plan	390.7	233.3	157.4	67.5%
Security Plan(1)	93.9	100.0	(6.1)	(6.1%)
Renewal of electricity assets	208.3	211.9	(3.6)	(1.7%)
Other capital expenditure(1)	83.8	84.1	(0.3)	(0.4%)
Total regulated assets	776.7	629.3	147.4	23.4%
Non-regulated assets(2)	27.1	21.0	6.1	29.0 %
Capitalised financial expenses	26.7	10.2	16.5	161.8%
Total capital expenditure	830.5	660.5	170.0	25.7%

(1) The figures for the first half of 2022 have been restated following changes to the purposes of investment, without modifying the overall value of investment in regulated assets.

(2) Investment in non-regulated assets primarily regards the re-routing of power lines for third parties and private interconnectors.

The following main regulated assets entered service in the first six months of 2023:

Substations and connections:

• Vetropack (+4 bays);
• Brindisi-Pignicelle (+1 bay).

Reactors plan:

• Partinico (+1 bay);
• Casuzze (+1 bay);
• Fulgatore (+1 bay);
• Bari West (+1 bay);
• Montecorvino.

MAIN REGULATED WORKS CARRIED OUT DURING THE PERIOD

DEVELOPMENT PLAN €390.7 million

East section Tyrrhenian Link

(€135.6 million)

• Cable connections: the detailed marine survey, production of the detailed design and qualification testing are in progress;
• Converter stations: work on the detailed design and geognostic surveys have begun.

West section:

• Consents: the Services Conference concluded in April. Agreement has been reached with Sicily Regional Authority;
• Cable connections: work on the detailed design has begun and qualification testing of the submarine cable and the related accessories is in progress;
• Converter stations: design work is under way.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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380kV Paternò-Pantano power line: construction has been completed pending the conclusion of work on the relevant part of the substation.	Paternò-Pantano-Priolo (€11.6 million)
380kV Pantano-Priolo power line: work is continuing on construction of the foundations (54 out of 115) and assembly of the pylons (50 out of 115), with the stringing of the first sections of approximately 18.6 km out of 45 km completed.
380/220/150kV Pantano substation: work is nearing completion on construction of the foundations for the 150kV section and the ATRs. Electromechanical assembly on the 380kV and 220kV sections is in progress and work on installing auxiliary services has begun.
Site preparation has been completed, as has work on construction of the foundations for the 380kV and 150kV sections, whilst construction of the foundations for the equipment is underway and construction of the prefabricated buildings is nearing completion. Electromechanical assembly is in progress.	Cerignola substation (€11.8 million)
132kV Colmata-Portoferraio power line:	Elba-Mainland
• marine section: laying of the cable has been completed. Work on the protections is in progress;	connection (€10.6 million)
• terrestrial sections: horizontal drilling at the landfall sites has been carried out;
• the cable at the Elba and mainland ends has been installed. Final restoration work is under way.
Portoferraio reactor: construction of the bay has been completed, the reactor has been delivered on site and assembly is nearing completion.
380kV Colunga-Calenzano power line: work has begun at the Emilia-Romagna end and construction has started; at the Tuscan end, confirmation of compliance with requirements imposed during the consents process is awaited from the relevant agencies before work can begin.	Colunga-Calenzano (€9.6 million)
Re-routing of the 380kV Bolano-Annunziata line: construction is in progress, with approximately 1.3 km of civil works completed out of a total of 3.4 km for the line.	Doubling Sorgente Rizziconi connection (€7.7 million)
Assembly of the transformers, control systems and auxiliary systems is nearing completion. Work has begun on installing the 380kV connections, with a shutdown planned for October to enable the new 380kV section to be energised.	Magenta substation (€5.9 million)
Consents: the consents process is under way.	Adriatic Link
Cable connections and converter stations: the contract for supply and production of the HVDC cable connections is being awarded. The tender process for the supply and construction of the converter stations is in progress.	(€5.0 million)

1. The Group's business • Operating activities

> SECURITY PLAN €93.9 million

Synchronous compensators (€28.9 million)	Codrongianos compensators: energised and in service from the beginning of May.
	Rosara compensators: the upgrade of the armoured bay for the link to the 380kV section is in progress.
	Suvereto compensators: delivery of the equipment has been completed and assembly is in progress.
Reactors (€5.5 million)	Montecorvino, Partinico, Casuzze, Bari West and Fulgatore: energised and in service.
STATCOM (€3.9 million)	Aurelia and Montalto: assembly work has been completed and testing is under way.
Fiber for the Grid (€6.9 million)	This project aims to boost the availability of data on the grid to make it easier to monitor and manage the security of the electricity system, by increasing and expanding the fibre optic network.
	In the first half of 2023, a further 11 substations were connected via proprietary fibre, making a total of 546 substations remotely managed.

> RENEWAL OF ELECTRICITY ASSETS €208.3 million

Work on fulfilling the commitment to carry out the renewal of electricity assets to improve the reliability and resilience of the NTG has continued. Renewal of electricity assets

The renewal of overhead lines and substation equipment has continued in 2023, with the replacement of approximately 634 km of circuits and 7 items of equipment in the first half (3 TRs/ ATRs, 4 reactor units, including 2 used as replacement stock).

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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Consents processes in the first half of 2023

CONSULTATIONS

• 380kV Montecorvino-Benevento power line;
• New Italy-Greece link (GRITA2);
• 380kV Caracoli-Ciminna power line;
• Restructuring of the Ferrara grid;
• 150kV Foggia-Orsara-Accadia power line.

PROCESSES INITIATED IN 2023

• Porta Romana primary substation; • Comasina primary substation connection;
• Microsoft Settimo Milanese;
• Partinico substation and the related connections to the 150kV Castellammare–Alcamo line for electrification of the Palermo–Trapani railway line;
• Alcamo substation and the related connections to the 150kV Partinico 2–Partinico primary substation line for electrification of the Palermo–Trapani railway line;
• Melilli-Erg Nuce;
• Undergrounding of the 220kV Patria-Sant'Antimo line;
• T.085/T.086 undergrounding for the Gorla primary substation;
• 150kV connections for the Pantano substation and related works and demolitions;
• Rome West-Primavalle-La Storta-Flaminia;
• New 132kV Acquara-Porto Potenza Picena power line;
• Volpago electricity substation;
• Guarcino primary substation;
• Carsoli electricity substation;
• Collarmele electricity substation;
• Caracciolo primary substation connection;
• Milan South receiver (refurbishment and undergrounding);
• Replacement of fluid oil for the Misterbianco-Villa Bellini cable;
• Falciano electricity substation connection;
• Re-routing of the "Chiaramonte Gulfi Ciminna" line.

COMPLETED PROCESSES

• Moena–Campitello link; • Vandoies-Brunico;
• 150kV Ciampino-Roma South power line.

WORK INITIATED

• • Work on laying the 132kV submarine cable between the island of Elba and Piombino (LI);
• La Casella (PC) substation connection to Enel BESS;
• Rationalisation of the 380-132kV grid in Brescia;
• Caselle primary substation connection;
• Restructuring Trento grid Naturno connections;
• Removal of Glorenza-Castelbello limitation (activity relating to Italy-Austria Interconnector);
• 66kV Livigno-Premadio link Milan/Cortina Olympics 2026 cluster;
• 132kV Laion-Corvara link Milan/Cortina Olympics 2026 cluster;
• 380kV Colunga-Calenzano power line lot 1;
• 380kV Cassano-Chiari power line;
• Enlargement of 380/150kV Melfi electricity substation;
• Catania Industrial Zone electricity substation STMicroelettronics connection.

FOCUS

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

>> continued SPECIAL PROJECTS FOCUS

HVDC 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.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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>> continued SPECIAL PROJECTS FOCUS

HVDC 5 Italy–Tunisia Link (TUN.ITA.)

The new 500kV direct current connection (HVDC) will connect Sicily with the Capo Bon peninsula in Tunisia, enabling the exchange of up to 600 MW of power. The project will be approximately 223km long (of which 200km in marine cable).

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.

Continuity indicators used

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.

The NTG RENS indicator for the period from January to June 2023, based on preliminary data, amounts to approximately 357 MWh (compared with an annual target of approximately 763 MWh set by ARERA).

As regards the ASA indicator, availability was 99.99895% (provisional figure) in the first half of 2023, compared with 99.99990% in the previous year. 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 €5.1 million in the first half of 2023, compared with €1.3 million in the first six months of 2022.

¹⁰ 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).

1. The Group's business • Operating activities

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 €440 million in the first half of 2023 (provisional data), sharply down (49%) on the same period of the previous year (€864 million).

This decrease primarily reflects a sharp reduction in costs throughout the period of selections11 made on the DSM.

¹¹ The process by which Terna procures the necessary resources on the Dispatching Service Market (DSM) to enable the electricity system to function.

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

The total Uplift was approximately €228 million in the first half of 2023 (provisional data), sharply down compared with the previous year (€974 million). This reflects reductions in the cost of using the Dispatching Services Market, in the consideration due for Goodwill and Change of Structure Tokens12, in the cost of virtual interconnection services13 and a rise in congestion revenue in Italian and Overseas market areas14, partly offset by a reduction in imbalance revenue15.

¹² Goodwill and Change of Structure Tokens are payments made to production plants who have the right to receive them when Terna requests them to fire up the plant or change their structure.

¹³ Virtual interconnection is a net cost: Terna plans, builds and operates new cross-border interconnection infrastructure, the cost of which is partly covered by revenue from auctions in which third party finance providers take part and who will then have access to the available transport capacity.

¹⁴ Congestion revenue is generated when there are differences in the balanced prices in the energy markets in the various market areas. 15 The imbalance charge paid/received, under Resolution 111/06, from all users based on the lower/higher volume of energy injected/withdrawn compared with the related plan.

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 numerous 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.

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 establish 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 2023, Terna organised a total of 6 Terna Incontra events, including 5 in-person meetings and 1 in digital form.

Stakeholder	OTHER ENGAGEMENT INITIATIVES
Environmental organisations: strengthening partnerships	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. In February 2023, Terna renewed its three-year partnerships with Greenpeace Italia, with a view to further increasing the sustainability of the Development Plan, and Legambiente and WWF Italia, with the aim of agreeing on a NTG planning strategy that takes into account the impact of electricity infrastructure on local areas and its compatibility with biodiversity.
Investors: a growing request for transparency regarding environmental, social and governance aspects	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, recent years have seen an exponential increase in the interest shown by institutional investors in environmental, social, governance (ESG) aspects, which has been further amplified 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.

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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 2023 and 202216.

			(€m)
	H1 2023	H1 2022	CHANGE
Total regulated revenue	1,263.2	1,153.6	109.6
Tariff revenue and incentives	1,204.3	1,112.8	91.5
- Transmission revenue	1,042.8	999.9	42.9
- Dispatching, metering and other revenue	161.5	112.9	48.6
Other regulated revenue	31.9	18.3	13.6
Revenue from construction services performed under concession in Italy	27.0	22.5	4.5
Total cost of Regulated Activities	273.5	230.9	42.6
Personnel expenses	140.1	126.2	13.9
External resources	91.5	73.5	18.0
Other	14.9	8.7	6.2
Cost construction services performed under concession in Italy	27.0	22.5	4.5
EBITDA from Regulated Activities	989.7	922.7	67.0

EBITDA from Regulated Activities amounts to €989.7 million, an increase of €67.0 million compared with the first half of 2022. The primarily reflects the impact on tariff revenue and incentives (up €91.5 million) of the increase in the RAB after the volume effect and the effects of output-based incentive mechanisms.

After excluding revenue from construction services performed under concession (up €4.5 million), revenue from Regulated Activities is up €105.1 million, primarily reflecting:

• the impact on transmission revenue (up €42.9 million) of the increase in the RAB after the volume effect;
• recognition of accrued revenue generated by the incentive mechanism introduced by Resolution 597/2021, designed to cut DSM costs and ease the shortfall in wind production and essential plants (€99.7 million), after final calculation in the first half of 2022 of the share of the incentive provided for in Resolution 699/2018 (down €56.2 million);
• increased revenue in the form of the bonus receivable under the RENS incentive mechanism (up €5.8 million), due primarily to recognition of the portion due on the basis of the estimated overall performance in the 2022-2023 regulatory period;
• an increase in gains on the sale of assets (up €7.6 million, essentially scrap, transformers and motor vehicles).

After excluding the cost of construction services performed under concession (up €4.5 million), the cost of Regulated Activities is up €38.1 million, primarily reflecting:

• the impact of personnel expenses (up €13.9 million) due to an increase in the average workforce, in provisions for staff incentives, partly offset by an increase in capitalised expenses;
• an increase in service costs (up €18.0 million), due to increased activity and new initiatives carried out by the Group;
• an increase in the costs incurred for quality of service (up €3.8 million), primarily linked to the increased costs incurred following the events in Sicily in February and in Molise in April;
• an increase in costs following the adjustment of provisions for litigation and disputes (up €2.2 million), due to the positive settlement of a number of disputes in the comparative period.

¹⁶ 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.

Non-regulated Activities: Energy market solutions

Non-regulated Activities are designed to support the ecological transition, in keeping with the core business. Terna uses its know-how in the design, engineering, operation and maintenance of complex solutions, including the integration of telecommunications networks, and proprietary systems and RES expertise in the production of cables and transformers. The aim is to serve commercial and industrial customers with the Group's expertise and experience across 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

INTERIM REPORT ON OPERATIONS

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Via two leading companies in their fields, Terna is able to oversee 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 Group is based in Switzerland and has several overseas subsidiaries.

Transformers – Tamini Group

Orders for transformers worth approximately €186 million were received, marking a sharp increase of 108% compared with the same period of the previous year. Order book

Orders amounted to approximately €49 million in the Industrial sector and to approximately €137 million in the Power sector, up 124% and 103%, respectively, on the first half of 2022.

Orders for Services amounted to approximately €8 million, an increase of 12% compared with the same period of the previous year.

The value of factory backlogs is significantly up compared with the end of 2022, at approximately €284 million (up 69%).

Revenue rose in the first half of 2023 compared with the same period of 2022 (up 10.3%), due to the increased value of transformer production. Results

Several very important items of equipment were also tested, including three 400 MVA autotransformers and four 250 MVA autotransformers in Italy, one 500 MVA transformer in Ireland and three 400 MVA transformers for a TSO in Finland.

Tamini continues to be committed to the production of vegetable oil transformers for the Power sector in 2023. A 400 MVA/400 kV autotransformer and two 250 MVA/400kV autotransformers were tested in the first half of 2023. Vegetable oil transformers

Terrestrial Cables – Brugg Cables Group

Order book	Orders acquired in the first six months of 2023 amount to approximately CHF164 million (up 32% on the first six months of 2022). The High Voltage System segment made a major contribution (CHF112 million). The Low Medium Voltage segment also made a significant contribution (CHF29 million), as did the High Voltage Accessories segment (CHF23 million). Compared with the same period of 2022, production of high voltage cables is up 27%, whilst the volume of low and medium voltage cables produced is down 3%.
Results	Revenue for the first half of 2023 amounts to approximately CHF102 million, up 12% compared with the same period of the previous year.
Operating activities	In the High Voltage Accessories segment, orders continue to perform extremely well, and the order book is set to enable achievement of the targets for 2023. June saw the successful installation and switch-on of the first 170kV Dry Type Outdoor terminals (an outdoor gel-insulated composite terminal). The production plant is working at full capacity. The high and very high voltage systems segment saw strong growth in orders. There is a
	clear trend towards higher margins for orders obtained in the European market. The low and medium voltage segment continues to record a high and stable volume of orders. Procurement and production costs are constantly monitored, with prices simultaneously aligned (above all in the first quarter and in June).

Fibre

Since 2017, indefeasible right of use (IRU) has been granted to primary telecommunications operators for a total of approximately 33,000 km of fibre, for which Terna provides maintenance and housing servicing for regeneration.

A total of 402 km of fibre was delivered during the first half of 2023, and activation letters were signed for a further 200 km.

Finally, in February 2023, a framework agreement was signed with E-distribuzione regarding the granting of indefeasible right of use (IRU) for the construction of infrastructure to connect the primary substations to the operating centre. Between 2023 and 2027, the agreement envisages delivery of approximately 42,000 km of fibre that will connect 1,923 E-distribuzione plants via 153 rings. The delivery of sections amounting to 3,215 km is scheduled for the second half of 2023.

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Smart grids

Renewables – LT Group

The LT Group provides O&M services for photovoltaic plants, designs and implements revamping and repowering projects for existing plants and builds new photovoltaic plants for third parties. Turnover in the first half of 2023, amounting to approximately €34 million, is broadly in line with previous guidance for 2023. Compared with the first half of 2022, the figure is up approximately €18 million, due primarily to EPC, revamping and repowering activities, after growth of approximately 200%.

On 29 March 2023, LT S.r.l. completed the acquisition of a 100% stake in Omnia S.r.l., a company providing O&M services for photovoltaic plants. The acquisition helps to consolidate the LT Group's position as an Italian market leader in the construction and operation of photovoltaic plants.

Other projects

In the first half of 2023, the construction of an electrochemical storage plant in Assemini (approximately 14 MW) was completed.

With regard to revamping/repowering contracts for photovoltaic plants, the Troia and Deliceto plants were completed and module revamping and inverter repowering activities continued at the other plants involved.

Preparations for the construction of a "Smart Island" in Sicily also began.

High Voltage

The turnkey construction of two STATCOM systems at two large industrial plants was completed, while the detailed design for a new transformer bay and control system for another industrial operator is in progress and will be completed by the end of 2023. Production and supply of an HV cable duct for a third party was also completed during the period.

Work also continued on the agreement with RFI regarding the "Design, supply, installation, certification and commissioning of metering equipment", with 82 application contracts agreed and 5 installations carried out in the first half of 2023.

Work on the detailed design for construction of an electricity substation in Puglia also began, as did work on the design and construction of another electricity substation in Sardinia to enable the connection of a utility-scaled photovoltaic plant.

Work on the planned construction of an electricity substation in Sicily to enable the connection of a utility-scaled photovoltaic plant by the end of the year also began.

Private Interconnectors pursuant to Law 99/2009

Terna is responsible for managing routine and special maintenance activities and operating the interconnector that was completed on 28 December 2019 and is owned by Monita Interconnector S.r.l., which was sold to the private backers on 17 December 2019. Italy–Montenegro interconnector project

The Terna Group is responsible for managing routine and special maintenance activities and operating the interconnector. The infrastructure was completed on 7 November 2022 and is owned by Piemonte Savoia S.r.l., which was sold to the private backers on 4 July 2017, pursuant to Law 99/2009.

Italy–France interconnector project

Italy–Austria 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 interconnector is due to enter service by the end of 2023.
Italy–Switzerland 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–Slovenia 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.

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 2023 and 202217.

			(€m)
	H1 2023	H1 2022	CHANGE
Revenue from Non-regulated activities	222.0	177.2	44.8
Industrial	142.9	117.5	25.4
- Brugg Cables Group	79.8	59.6	20.2
- Tamini Group	63.1	57.9	5.2
Connectivity	18.2	17.1	1.1
Energy Solutions	49.7	35.4	14.3
- High voltage	12.8	15.4	(2.6)
- Smart Grids	36.9	20.0	16.9
Private interconnectors	9.2	5.7	3.5
Other	2.0	1.5	0.5
Cost of Non-regulated Activities	190.8	150.0	40.8
EBITDA from Non-regulated Activities	31.2	27.2	4.0

EBITDA from Non-regulated Activities in the first half of 2023 amounts to €31.2 million, an increase of €4.0 million compared with same period of the previous year. This reflects the increase in turnover at the Industrial segment (up €2.6 million at the Brugg Cables Group and up €1.4 million at the Tamini Group).

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.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

International Activities

South America – sale of the Latin American assets

As part of overseas initiatives, the plan to extract value from activities in South America is proceeding. Launched in the last part of 2021, the plan involves the sale of up to 100% of the Group's Latina American assets.

Transaction closing, due to take part in stages, for the most part took place in November and December 2022, with the sale to CDPQ of SPE Santa Maria Transmissora de Energia S.A., SPE Santa Lucia Transmissora de Energia S.A., SPE Transmissora de Energia Linha Verde II S.A. and Difebal S.A.

Work on construction of the SPE Transmissora de Energia Linha Verde I S.A. project in Brazil continued in the first half of 2023. This project involves construction of a 150-km long 500kV power line dubbed the Governador Valadares-Mutum in the State of Minas Gerais, which is scheduled to be sold in 2024.

In Peru, the operation and maintenance of the 132-km 138kV power line between Aguaytìa and Pucallpa also continued, following the line's entry into commercial service on 16 May 2021. The company is scheduled to be sold by the end of 2023.

North America

Development of the North American business continued in the first half of 2023, through Terna USA LLC and BMT Energy Transmission Development LLC, with a view to taking advantage of business opportunities relating to the acquisition, development and construction of large onshore and offshore electricity transmission infrastructure projects in the United States.

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 2023 and 202218.

EBITDA from International Activities for the first half of 2023 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 discontinued operations and assets held for sale" in the reclassified income statement in the paragraph entitled "The Terna Group's financial review for the first half of 2023".

H1 2023	H1 2022	CHANGE
0.1	0.0	0.1
1.8	3.0	(1.2)
(1.7)	(3.0)	1.3

Negative EBITDA from International Activities, amounting to €1.7 million for the first half of 2023 essentially reflects the costs incurred by central departments to support overseas initiatives. The figure has improved by €1.3 million compared with the same period of the previous year primarily due to cost efficiencies relating to personnel expenses following a reorganisation of the Group's workforce.

Assets held for sale report a net loss of €3.5 million, marking an improvement of €6.6 million compared with the first half of 2022, essentially reflecting adjustment of the value of the assets in the comparative period after an increase in operating losses in view of the difference in scope.

¹⁸ 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.

Innovation

In keeping with its role in driving and enabling the energy transition set out in the Company's strategy, for Terna, innovation has the purpose of developing new solutions to respond to the growing challenges connected with the achievement of European and national targets. Innovation and digitalisation are indeed the two pillars that underpin Terna's growth path.

Further details of the Group's innovation strategy are provided in the 2022 Annual Report.

Innovation serves the entire Company in the development of new solutions that can positively impact our business, with a view to constantly improving the service we provide. This fully integrated model gives a voice to Terna's people, who may then actively participate in the evolution of the Group.

Corporate Venture Capital - Venture Building

Through Terna Forward, established by Terna on 11 November 2022, the Group carries out corporate venture capital investments. Terna Forward is a Limited Partner in the Energy Tech and Infra Tech segments of Cassa Depositi e Prestiti VC's Corporate Partners I Fund, in which approximately €2.5 million has been invested. The Energy Tech segment focuses on issues relating to the energy transition, such as form example energy efficiency, electric vehicles, the management and control of network infrastructure and exploration of the technologies used in integrating energy systems. The Infra Tech segment, on the other hand, specialises in research into technological solutions applicable to infrastructure, including the monitoring and maintenance of infrastructure using drones or IoT sensors and satellite images, new building materials, AI solutions, software and robotics for use in the sector.

To support its investment activities and oversee the Venture and Corporate Venture Capital ecosystem, Terna Forward has become a member of leading associations in the sector: AIFI19 and the Italian Tech Alliance20.

Key projects during the period

The innovation process follows the Stage&Gate model (checking and validation sub-processes), from the screening of the idea to the adoption of the solution.

This model facilitates construction of an overview of innovation by accelerating high value-added projects. The results produced by the model then help to define planning, economic and strategic, and reporting activities.

¹⁹ AIFI is the Italian Private Equity, Venture Capital and Private Debt Association, established in May 1986 and internationally recognised as a representative body and as a promoter of the above activities. The Association conducts research, above all using its own database, and draws up documents, promotes exit channels and conducts operational benchmarking, etc.. The AIFI has a corporate venture committee.

²⁰ Italian Tech Alliance is the industry association that brings together and represents the interests of investors, start-ups, businesses and innovation professionals, including through training (the VC academy) and the monitoring of legislation. The association's members include investors (venture capital funds, corporate venture capital firms, family offices and business angels); entrepreneurs (innovative start-ups and SMEs that have raised at least €500,000 in equity or had turnover of at least €500,000 in the year prior to joining); supporters (law, headhunting and consulting firms, and those that provide subsidised financing and fundraising).

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

Projects in progress during the period include:

Virtual collaboration – TernaVerso

This project develops and incorporates new technologies into Terna's systems to improve the Company's collaboration and interaction through virtual spaces and facilities. In the first half of 2023, the first release of the Terna Metaverse began, with the aim of developing functions and use cases constituting the basis for increasingly innovative and impactful future developments. The use cases identified regard the following topics: the application of LIDAR to an electricity substation; an immersive experience of the Thyrrenian Link; Classroom + scaled support DEMOs; 3D modelling of Terna's assets. HUMANCENTRIC CORPORATION

Anti-icing and VALE (video analysis of power lines) systems

These systems respond to the need to mitigate and monitor the formation of ice coatings on ground wires. Intelligent cameras (VALE project) enable identification of incipient ice coating formation, via integration of environmental temperature and humidity measurements with photographic stills taken in the field. Approximately 3,000 km of treated ground wires on HV lines in Abruzzo, Piedmont and Veneto have been installed to date.

Automatic failure detection

This project aims to identify any anomalies in the visible field present on HV power lines, by processing data collected via special instruments installed on Terna helicopters. Detection will be carried out via the development of an artificial intelligence algorithm, which will enable identification of component failures/ faults via automatic image recognition. So far, an innovation partnership has been launched, software architecture for databases has been developed and the first thousand kilometres of inflight images have been mapped to train the algorithm.

Smart Safety Anchors project

This initiative reflects the need to mitigate the risk of falling to which workers who work at height on the grid are exposed. The technological solution involves development of a device that adds special sensors to the traditional safety anchors currently in use, making it possible to warn operational personnel of any moves that are not in line with existing operational procedures. The system being developed will enable workers to verify the correct positioning and attachment of anchors on power lines and send acoustic warnings in the event of critical issues and gather and store data acquired in the field. CORPORATION

GIS for mapping degraded areas

There is a need to have a geolocalised database for use in identifying abandoned or degraded areas (disused railway lines or factories, abandoned quarries, etc.) with potential for development and/or redevelopment, maximising the sustainability of infrastructure and simplifying the consents process.

The project this aims to develop and test a cooperative GIS tool (an app for smartphones and webmaps) that can be used by Terna's personnel, but also by NGOs, agencies and other industrial peers to extensively map degraded areas, at the same time encouraging active participation in the development process. COPPER PLATE GRID

ORION project

The project that won the Terna Ideas 2022 competition aims to develop an Artificial Intelligence algorithm (developed entirely in-house) capable of processing average resolution satellite images to obtain output similar to that obtainable from the processing of higher quality satellite images, thereby achieving a significant reduction in costs.

The ultimate goal of analysis of the images is to identify, and in certain cases prevent, potential irregularities regarding compliance with clearances for buildings and structures in general. The system will be backed up by on-site inspections as part of periodic surveillance of power lines, carried out on a regular basis by Terna's personnel.

Marine Drone projects

Marine drone projects regard the need to be able to survey seabeds with limited (or without the) use of vessels, potentially at depths of up to 2,000 metres, reducing the time needed, cutting costs and increasing the sustainability of development initiatives. The project consists of two initiatives: the identification and testing of mature technological solutions involving the deployment of USVs (Unmanned Surface Vessels) to conduct

preliminary near-shore surveys; the identification and testing of a solution based on AUVs (Autonomous Underwater Vehicles) capable of surveying both near- and off-shore seabed morphology

INTERIM REPORT ON OPERATIONS

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

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

				(unit)
THE WORKFORCE		AT 30 JUNE 2023	AT 31 DECEMBER 2022	CHANGE
Senior managers		105	94	11
Middle managers		891	841	50
Office staff		3,194	3,090	104
Blue-collar workers		1,506	1,472	34
Total		5,696	5,497	199

The increase of 199 in the workforce at 30 June 2023 compared with 31 December 2022 is primarily linked to the requirements relating to delivery of the challenging investment programme provided for in the 2021-2025 Industrial Plan, and to the need to strengthen the Group's distinctive competencies.

Main initiatives during the period

Until 30 June 2023, the Terna Group continued to apply the infection prevention measures, solely retaining those relating to social distancing, the cleaning and disinfection of workplaces and limits on the capacity of shared spaces. Personnel continued to have free access to PPE equipment, such as FFP2 or equivalent masks and alcohol-based hand sanitizer.

The Terna Group also continued to offer all vulnerable workers and the parents of children below the age of 14 the opportunity to work entirely from home, for up to 5 says a week, in accordance with the regulations in force and as a further safeguard for vulnerable people until 31 December 2023.

The "Maintenance Phase" for initiatives launched and the lessons learnt during the two years of the NexTerna cultural change programme, which came to an end in December 2022, is continuing. The 1st eNPS Survey for 2023 was completed. This allows everyone to periodically express their degree of engagement, with the survey extended to include Tamini and Brugg Cables.

Compensation, Welfare and Policy	On 14 June 2023, the Board of Directors approved the Terms and Conditions for the Performance Share Plan 2023-2027, as described in the Information Circular published on the Company's website (www.terna.it).
Diversity and Inclusion	As part of the "Sistema Scuola Impresa", a school and business partnership programme, the Role Model initiative was presented on 11 May. This involves a number of staff taking part in Inspirational Talks for high school students through to June 2024. On 20 June, the CEO, Giuseppina Di Foggia, confirmed the award of intercultural scholarships for the children of employees, with the aim of supporting multiculturalism and empowerment of the younger generations.
Talent Development and Training	The development of staff through performance appraisal (People for Performance – P4P) continued with over 4,000 staff involved and their skills mapped. As regards the Talent Next process, the pilot phase aimed at identifying people with capabilities in line with the definition of talent based on the Leading NexT leadership model continued. Over 114,000 hours of training was provided in the first half, covering topics relating to Sustainability, Compliance and HSE, Energy Transition and Technical Specialisation, New Ways of Working and Acceleration.
Engagement and Wellbeing	Terna proceeded with the plan to discover and trial New Ways of Working with the Power Supporter initiative, involving staff becoming promoters of change. On 18 May, the second edition of the NextGenerationTerna (NGT23) induction programme for recent graduates got under way. This aims to speed up their induction into the Company, boost engagement and disseminate a culture based on New Ways of Working. The wellbeing project for operational and shift personnel working in telecontrol and control rooms is continuing.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

During the first half, Terna took part in STEM-related events with the objective or promoting its image as a best employer. Thirteen orientation seminars were run as part of the Alternanza Scuola Lavoro work experience programme, with approximately a hundred individual interviews Talent Acquisition and Candidate Experience

Organization and Change Management

Union agreements

Health, Safety & Environment

held with year 5 high school students. The second edition of the Master in Digitalisation of the Electricity System for the Energy Transition is being planned in collaboration with three schools in Salerno, Palermo and Cagliari. Terna S.p.A.'s new Board of Directors took office on 9 May and proceeded to appoint the Chairman and the Chief Executive Officer and General Manager. In June, the Industrial

An agreement was signed with the labour unions for the sector on 22 February 2023. The agreement recognises the significant improvement in the Terna Group's results for 2022 with the

Program Management Office was created with the aim of facilitating ever closer oversight of the Program Management activities involved in coordinating and monitoring projects, initiatives

and works of strategic importance and/or with relevance to several departments.

award of a one-off bonus amounting to €1,200 per employee.

On 26 June 2023, a framework agreement was reached between Federmanager and management union representatives with the aim of adopting regulations governing the procedure provided for in art. 4, paragraphs 1 to 7-ter of Law 92/2012, as amended (knowns as the Fornero Law), accompanied by the signature of the related implementing agreements.

The Excellence in Safety programme has been created as part of the Terna for Health & Safety initiatives, aimed at developing and advancing issues relating to prevention and occupational health and safety. The initial phase of the programme involved 33 Infrastructure Units around the country. A new figure, known as a Safety Ambassador, has been introduced as an agent and accelerator of change, with the aim of raising awareness and engaging other colleagues, observing and conveying feedback on safety routines and disseminating positive safety messages. As part of the Terna for Safety initiatives, the Safety Working Group set up by Terna and ANIE (the National Federation of Electrical and Electronic Businesses) has been relaunched with the aim of sharing occupational safety guidance, methods and good practices with other companies, above all with regard to operations involving overhead power lines and electric cables.

The Company's Circular Economy strategy was further strengthened in the first half of 2023, with the launch of the operational phase of the Circular Economy Roadmap with targets for 2030. The Roadmap is based around 4 Pillars – representing the key stages in the lifecycle of a product or service – tailored to match Terna's business. Specific actions have been identified for each Pillar, with a total of 35 short- and medium/long-term actions. Enabling factors common to all Terna's activities have also been defined and will be adopted as part of the strategy for effectively managing the switch to a circular economy model. These Enablers have resulted in the identification of a further 12 short- and medium/long-term actions that have added further to the Roadmap.

Financial review for the first half of 2023

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 Half-Year Report are consistent with those adopted in the consolidated financial statements for the year ended 31 December 2022.

Given that the requirements of IFRS 5 have been met, the total results for the first halves of 2023 and 2022 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) for the period from discontinued operations and assets held for sale" in the Group's reclassified income statement. Likewise, the attributable assets and liabilities at 30 June 2023 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.

INTERIM REPORT ON OPERATIONS

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

The Group's reclassified income statement

The Terna Group's operating results for the first half of 2023, compared with those for the same period of the previous year, and for the second quarters of 2023 and 2022, are summarised in the following reclassified income statement, obtained by reclassifying amounts in the statutory consolidated income statement.

		Q2						(€m)
2023			2022 CHANGE % CHANGE		H1 2023		H1 2022 CHANGE	% CHANGE
772.8	686.4	86.4	12.6%	TOTAL REVENUE	1,485.3	1,330.8	154.5	11.6%
649.3	591.6	57.7	9.8%	- Regulated revenue	1,263.2	1,153.6	109.6	9.5%
16.8	12.7	4.1	32.3%	of which Revenue from construction services performed under concession	27.0	22.5	4.5	20.0%
123.4	94.8	28.6	30.2%	- Non-Regulated revenue	222.0	177.2	44.8	25.3%
0.1	-	0.1	-	- International revenue	0.1	-	0.1	-
253.6	200.8	52.8	26.3%	TOTAL OPERATING COSTS	466.1	383.9	82.2	21.4%
92.4	82.4	10.0	12.1%	- Personnel expenses	181.3	163.7	17.6	10.8%
61.8	48.5	13.3	27.4%	- Cost of services, leases and rentals	114.5	90.7	23.8	26.2%
71.8	52.6	19.2	36.5%	- Materials	121.2	93.7	27.5	29.3%
9.1	4.3	4.8	111.6%	- Other costs	17.0	12.0	5.0	41.7%
1.7	0.3	1.4	-	- Quality of service	5.1	1.3	3.8	-
16.8	12.7	4.1	32.3%	- Cost of construction services performed under concession	27.0	22.5	4.5	20.0%
519.2	485.6	33.6	6.9%	GROSS OPERATING PROFIT (EBITDA)	1,019.2	946.9	72.3	7.6%
193.6	171.9	21.7	12.6%	- Amortisation, depreciation and impairment losses	380.2	339.5	40.7	12.0%
325.6	313.7	11.9	3.8%	OPERATING PROFIT (EBIT)	639.0	607.4	31.6	5.2%
(27.0)	(11.8)	(15.2)	128.8%	- Net financial income/(expenses)	(59.1)	(36.2)	(22.9)	63.3%
298.6	301.9	(3.3)	(1.1%)	PROFIT/(LOSS) BEFORE TAX	579.9	571.2	8.7	1.5%
87.2	84.3	2.9	3.4%	- Income tax expense for the period	168.5	160.5	8.0	5.0%
211.4	217.6	(6.2)	(2.8%)	PROFIT/(LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS	411.4	410.7	0.7	0.2%
(3.0)	(9.0)	6.0	66.7%	- Profit/(Loss) for the period from discontinued operations and assets held for sale	(3.5)	(10.1)	6.6	65.3%
208.4	208.6	(0.2)	(0.1%)	PROFIT FOR THE PERIOD	407.9	400.6	7.3	1.8%
(2.8)	2.3	(5.1)	-	- Profit/(Loss) attributable to non-controlling interests	(3.5)	2.5	(6.0)	-
211.2	206.3	4.9	2.4%	PROFIT FOR THE PERIOD ATTRIBUTABLE TO OWNERS OF THE PARENT	411.4	398.1	13.3	3.3%
								(€m)
EBITDA BY OPERATING SEGMENT Regulated Activities					H1 2023 989.7		H1 2022 922.7	CHANGE 67.0
Non-regulated Activities					31.2		27.2	4.0

Gross operating profit (EBITDA) for the first half of 2023 amounts to €1,019.2 million, up €72.3 million compared with the €946.9 million of the first half of 2022. This reflects the improvement in EBITDA from Regulated Activities.

International Activities (1.7) (3.0) 1.3 EBITDA 1,019.2 946.9 72.3

1. The Group's business • Financial review for the first half of 2023

Revenue

		(€m)
H1 2023	H1 2022	CHANGE
1,204.3	1,112.8	91.5
31.9	18.3	13.6
27.0	22.5	4.5
1,263.2	1,153.6	109.6

Revenue from Regulated Activities is up €109.6 million, primarily due to the increase in the regulated asset base in the period and an increase in output-based incentives.

			(€m)
NON-REGULATED ACTIVITIES	H1 2023	H1 2022	CHANGE
Industrial (Tamini Group and Brugg Cables Group)	142.9	117.5	25.4
Services for third parties (Connectivity, Energy Solutions, other)	69.9	54.0	15.9
Private interconnectors	9.2	5.7	3.5
TOTAL	222.0	177.2	44.8

The increase in revenue from Non-regulated Activities, amounting to €44.8 million, primarily reflects increased revenue from the Industrial segment, with revenue from the Brugg Cables Group up €20.2 million and from the Tamini Group up €5.2 million, and from the Energy Solutions segment, with the LT Group recording an increase of €13.5 million. The private Italy-France Interconnector also recorded an increase in revenue (up €3.5 million, essentially following the asset's entry into service in November 2022).

Revenue from International Activities, relating above all to the Latin American assets in the process of being sold, is classified in "Profit/(Loss) for the period from discontinued operations and assets held for sale", in application of IFRS 5.

Revenue was up €86.4 million in the second quarter of 2023 compared with the same period of the previous year, primarily due to tariff movements and the recognition of output-based incentives, in addition to increased contributions from the LT Group and the Brugg Cables Group.

Costs

Operating costs, excluding the cost of construction services performed under concession (up €4.5 million), are up €77.7 million compared with the first half of the previous year. This primarily reflects the increased cost of procuring materials and services at the Brugg Cables Group (up €16.0 million) and the LT Group (up €14.4 million) and for regulated activities (up €18.0 million), in addition to increased personnel expenses (up €17.6 million) due to the greater workforce and provisions for staff incentives, after an increase in capitalised expenses. There was also an increase in quality of service costs (up €3.8 million), linked primarily to the higher costs incurred as a result of the events in Sicily in February and in Molise in April.

In the second quarter of 2023, costs were up €52.8 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 €380.2 million, an increase of €40.7 million compared with the first half of 2022, primarily due to the entry into service of new infrastructure.

Operating profit (EBIT), after amortisation, depreciation and impairment losses, amounts to €639.0 million, compared with €607.4 million for the first half of 2022 (up 5.2%).

Net financial expenses for the period total €59.1 million and primarily regard the Parent Company (€58.6 million). The figure is up €22.9 million compared to €36.2 million of the first six months of 2022, due essentially to inflation during

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

the period, the agreement of new loans and rising interest rates. These factors were partially offset by an increase in capitalised costs and greater income from the investment of cash, reflecting an improvement in market conditions.

After net financial expenses, profit before tax amounts to €579.9 million, an increase of €8.7 million compared with the same period of 2022 (up 1.5%).

Income tax expense for the period totals €168.5 million, an increase of €8.0 million (5.0%) compared with the first half of 2022. This reflects the increase in pre-tax profit and the greater amount of net contingent tax assets recognised in the same period of 2022. The resulting tax rate of 29.1% thus marks an increase compared with the figure for the first half of 2022 (28.1%).

The profit for the period from continuing operations amounts to €411.4 million, broadly in line with the €410.7 million of the first half of 2022.

The loss for the period from assets held for sale, totalling €3.5 million, marks an improvement of €6.6 million compared with the same period of the previous year, essentially reflecting the adjustment to the value of the assets recognised in accordance with IFRS 5 after the operating results of the assets in view of the difference in scope.

Profit for the period amounts to €407.9 million, up €7.3 million (1.8%) compared with the €400.6 million of the first half of 2022.

Profit for the period attributable to owners of the Parent (after excluding the share attributable to non-controlling interests) amounts to €411.4 million, up €13.3 million (3.3%) compared with the €398.1 million of the first half of 2022.

Cash flow

Cash flow from operating activities and the change in net debt were sufficient to meet cash requirements linked to capital expenditure during the period and payment of the final dividend to shareholders.

		(€m)
	CASH FLOW H1 2023	CASH FLOW H1 2022
- Profit for the period	407.9	400.6
- Amortisation, depreciation and impairment losses	380.2	339.5
- Net change in provisions	(28.6)	2.0
- Net losses/(gains) on sale of assets	(9.7)	(2.0)
Operating cash flow	749.8	740.1
- Change in net working capital	(375.3)	260.0
- Other changes in property, plant and equipment and intangible assets	21.9	42.1
- Change in investments	(2.5)	1.2
- Change in financial assets	4.5	(54.6)
Cash flow from operating activities	398.4	988.8
- Total capital expenditure	(830.5)	(660.5)
Free cash flow	(432.1)	328.3
Net assets held for sale	(15.0)	(88.3)
- Dividends paid to the Parent Company's shareholders	(418.7)	(387.7)
- Reserve for equity instruments, cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent	(10.6)	1,156.0
- Other movements in equity attributable to non-controlling interests	(5.7)	0.2
Change in net debt	(882.1)	1,008.5

The Group's reclassified statement of financial position

The Terna Group's financial position at 30 June 2023 and 31 December 2022 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 2023	AT 31 DECEMBER 2022	CHANGE
Total net non-current assets	17,921.1	17,485.3	435.8
- Intangible assets and goodwill	791.2	775.8	15.4
- Property, plant and equipment	16,623.3	16,200.9	422.4
- Financial assets	506.6	508.6	(2.0)
Total net working capital	(2,357.2)	(2,732.8)	375.6
- Net energy-related pass-through payables	(1,312.5)	(1,332.6)	20.1
- Net receivables resulting from Regulated Activities	929.2	778.7	150.5
- Net trade payables	(641.2)	(775.5)	134.3
- Net tax liabilities	(57.8)	(50.5)	(7.3)
- Other net liabilities	(1,274.9)	(1,352.9)	78.0
Gross invested capital	15,563.9	14,752.5	811.4
Sundry provisions	(39.6)	(68.2)	28.6
Net invested capital	15,524.3	14,684.3	840.0
Net assets held for sale	76.1	61.1	15.0
TOTAL NET INVESTED CAPITAL	15,600.4	14,745.4	855.0
Equity attributable to owners of the Parent	6,124.1	6,142.0	(17.9)
Equity attributable to non-controlling interests	17.9	27.1	(9.2)
Net debt	9,458.4	8,576.3	882.1
TOTAL	15,600.4	14,745.4	855.0

The €435.8 million increase in net non-current assets compared with 31 December 2022 primarily reflects a combination of the following:

• total capital expenditure of €830.5 million, as summarised below and described in detail in the section on "Regulated Activities";
• the contribution of NTG assets from the acquisition of Edyna Transmission S.r.l. (renamed Rete Nord S.r.l.), totalling €13.3 million;
• amortisation and depreciation for the period, totalling €378.7 million;
• other movements during the period, resulting in a reduction of €25.3 million, including grants related to assets (primarily in relation projects financed by the Ministry for Economic Development and the EU) and disposals and impairment losses resulting in a reduction of €3.7 million;
• a reduction of €2.0 million in financial assets, broadly due to a decrease in guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel, as amended (down €16.0 million), a net increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €8.7 million), the recognition of the investment by the subsidiary Terna Forward S.r.l. (up €2.5 million) in the Energy Tech segment of CDP Venture Capital's Corporate Partner I fund and the increase in the stake held in the joint venture, SEleNe CC S.A., which rose from 25% to 33.33% in February (up €2.1 million).

The Terna Group's total capital expenditure during the period, amounting to €830.5 million, is up 25.7% compared with the €660.5 million of the same period of 2022.

INTERIM REPORT ON OPERATIONS

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

Net working capital (net current liabilities) of €2,357.2 million resulted in a cash outflow of €375.6 million compared with 31 December 2022. This reflects the combined effect of:

Cash outflows

• a reduction of €134.3 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 €150.5 million, primarily reflecting the effect of recognition of the DSM incentive introduced by Resolution 597/2021, designed to cut DSM costs (up €110.121 million representing the bonus for the first half of 2023) and the incentive introduced by Resolution 567/2019 for interzonal capacity (up €34.5 million attributable to 2022), which will be collected in accordance with the timing set out in the resolution22;
• a reduction in net energy-related pass-through payables of €20.1 million, primarily reflecting the combined effect of:
• a decrease in net payables relating to essential plants for the security of the electricity system UESS (€224.3 million), reflecting payments made in the first half of 2023, which also take into account the maximisation programme introduced by Resolution 430/202223. Partially offset by:
• a reduction in net receivables (€196.9 million) linked to the Uplift component receivable in return for the procurement of energy on the Dispatching Services Market and related items, reflecting a sharp decrease in dispatching costs (in particular DSM costs and imbalances); the reduction in costs reflects a price effect (a decrease in price differentials on the DSM) and a volume effect (a reduction in the quantity procured by Terna on the services market) linked to efficiency improvements made in 2022 and 2023 with the aim of cutting the services procured on the DSM.
• a reduction in other net liabilities of €78.0 million, primarily due to a reduction 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 (down €16.4 million and €57.5 million, respectively).

²¹ The sum of €110.1 million includes the portion relating to financial income from discounting, totalling €10.4 million, in view of the timing of collection under the Resolution.

²² In terms of DSM incentives, Resolution 132/2022 (amending Resolution 597/2021) establishes that bonuses/penalties accruing in the threeyear period 2022-2024 covered by the incentives shall be disbursed as follows:

^- the bonus/penalty for 2022 over three years starting from 1 January 2024;

^- the bonus/penalty for 2023 over two years starting from 1 January 2025;

^- the bonus/penalty for 2024 over one year starting from 1 January 2026.

With regard to interzonal incentives, Resolution 23/2022 provides for disbursement of the bonus provided for in art. 44, annex A of Resolution 567/2019 in two tranches, the first of which was collected at the end of 2022, with the second to be collected in December 2023.

²³ Law Decree 14/2022 (art. 5-bis) introduced certain preventive measures designed to reduce natural gas consumption in the thermoelectric sector, under which Terna adopted a plan to maximise the use of coal- and oil-fired electricity generating plants with a nominal thermal capacity in excess of 300 MW under normal operating conditions.

Cash inflows

• an increase of €7.3 million in net tax liabilities, broadly due to an increase in withholdings payable on salaries (up €7.5 million) and an increase in net VAT payable (€22.5 million), partly offset by a reduction in the net amount of tax payable (€21.7 million) following the settlement of tax due for the previous year and payments on account in the first half, after income tax payable for the period.

Gross invested capital thus amounts to €15,563.9 million, an increase of €811.4 million compared with 31 December 2022.

Sundry provisions are down €28.6 million, primarily due to:

• the net release of deferred tax assets (down €13.4 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 €9.5 million), early retirement incentives (down €2.7 million), urban and environmental redevelopment schemes (down €2.1 million) and those relating to quality of service (down €1.2 million).

Net assets held for sale, totalling €76.1 million at 30 June 2023, are up €15.0 million compared with 31 December 2022. This primarily reflects increased investment in the infrastructure operated under concession in Brazil, after a reduction in trade payables.

Total net invested capital, including assets held for sale, amounts to €15,600,4 million, marking an increase of €855.0 million compared with 31 December 2022. This is financed by equity attributable to owners of the Parent, totalling €6,124.1 million (compared with €6,142.0 million at 31 December 2022), equity attributable to non-controlling interests of €17.9 million (€27.1 million at 31 December 2022) and net debt of €9,458.4 million (up €882.1 million compared with the €8,576.3 million of 31 December 2022).

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 2023 amounts to approximately €12 billion, consisting of approximately €7.5 billion in the form of bond issues and approximately €4.3 billion in bank borrowings. The average term to maturity of debt, 89% of which is fixed rate, is approximately 5 years.

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

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 2023 amount to approximately €3.0 billion. Thanks to its strong credit ratings, Terna is able to obtain financing from banks on extremely good terms, as shown by the issue carried out in April 2023 and the amount raised in the form of bank borrowings. In this regard, in March 2023, Terna agreed loans from the EIB of €900 million, of which €450 million was drawn down in June 2023. Finally, Terna also has access to two committed revolving credit facilities, amounting to approximately €3.5 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 six months of 2023.

The senior green bonds issued by Terna at 30 June 2023, under its €9,000,000,000 Euro Medium Term Notes (EMTN) programme, amount to €2.6 billion, in addition to the perpetual, subordinated green bonds issued on a standalone basis in February 2022, amounting to €1 billion.

Once again under the Euro Medium Term Notes (EMTN) programme, a green, single-tranche, euro-denominated, fixed-rate bond with a total nominal value of €650 million was launched on 17 July 2023. The green bond, issued at a price of 99.107%, with a spread of 90 basis points above the midswap rate, will pay annual coupon interest of 3.875%. They have a term of 10 years and will mature on 24 July 2033.

These green issues are used to finance or refinance Eligible Green Projects. These are projects producing environmental benefits that meet certain criteria listed in the Green Bond Framework published by Terna in compliance with the "Green Bond Principles" drawn up by the ICMA (International Capital Market Association) and the EU Taxonomy. Specifically, the net proceeds from the issues will be used to finance:

• projects that aim to increase renewable energy production for example, infrastructure enabling renewable energy plants to be connected to the national grid or that allow for a larger volume of renewable energy to be injected into the grid;
• projects designed to cut carbon emissions by reducing grid losses for example, infrastructure designed to boost the efficiency of the electricity transmission grid;
• projects designed to ensure the quality, security and resilience of grid infrastructure;
• projects that aim to reduce land use and protect biodiversity.

At 30 June 2023, Terna has also agreed a number of ESG-linked Credit Facilities amounting to €1 billion, two sustainability-linked Revolving Credit Facilities amounting to approximately €3.5 billion and a €1 billion Euro Commercial Paper (ECP) programme.

On 12 May 2023, the ESG Revolving Credit Facility agreed in April 2019 was refinanced, extending it by a further 5 years and increasing the total amount to the current €1.8 billion. The ESG indicators linked to a bonus/penalty mechanism applied to contract terms regarding the commitment fee and the spread were also amended.

The three-year Euro Commercial Paper programme (short-term notes issued to qualified investors) enables Terna to issue ESG Notes provided that the Company obtains and retains a Top 10% Global ESG Score in the S&P Sustainability Yearbook for the Electric Utilities sector. On 2 May 2023, Terna published an initial Supplement to the programme's Information Memorandum dated 16 July 2021.

The share buyback programme to service the Performance Share Plan 2023-2027 was completed on 10 July 2023 at a total cost of up to €7 million and acquiring no more than 1.4 million of the Company's ordinary shares (representing approximately 0.07% of the share capital). In keeping with Terna's commitment to sustainability and social and environmental responsibility, the programme includes a mechanism linked to the Company's achievement of specific ESG objectives.

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 the commitment to playing an active role in developing sustainable finance, Terna is taking part in the Corporate Forum for 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 on sustainable finance.

Further financial resources

With regard to bank debt, as regards the Tyrrhenian Link project, in connection with part of the overall amount made available to fund the project by the European Investment Bank (EIB), amounting to €1.9 billion, in addition to the first tranche obtained in 2022, on 30 March 2023, the Company reached agreement on a further two tranches amounting to €900 million, to be used to fund construction and commissioning of the East and West sections of the Tyrrhenian Link. One of the tranches was drawn down in June.

The above three loans have terms of approximately 22 years from the date of disbursement, have durations that are longer and more competitive costs than those available in the market and form part of the policy for optimising Terna's financial structure.

Furthermore, on 14 April 2023, a single tranche, euro-denominated fixed rate bond issue amounting to a total of €750 million was successfully launched, as part of Terna's Euro Medium Term Notes (EMTN) programme. The bonds, issued at a price of 99.281%, with a spread of 70 basis points above the midswap rate, have a term of 6 years and will mature on 21 April 2029. The bonds pay annual coupon interest of 3.625%.

On 8 June 2023, Terna S.p.A. renewed its Euro Medium Term Notes (EMTN) programme totalling €9,000,000,000, being the maximum amount that may be subscribed. IMI – Intesa Sanpaolo and UniCredit acted as Joint Arrangers of the programme, which has been assigned a "BBB+/A-2" rating by S&P and a "(P)Baa2 /(P)P-2" rating by Moody's.

INTERIM REPORT ON OPERATIONS

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

Net debt

The Group's net debt at 30 June 2023 amounts to €9,458.4 million, marking an increase of €882.1 million compared with 31 December 2022.

			(€m)
	30 JUNE 2023	31 DECEMBER 2022	CHANGE
NET DEBT (BY TERM TO MATURITY)
Total medium/long-term debt	9,315.8	8,588.4	727.4
- Bond issues	5,826.5	5,078.9	747.6
- Borrowings	3,332.2	3,337.8	(5.6)
- Derivative financial instruments	157.1	171.7	(14.6)
Total short-term debt/ (funds)	142.6	(12.1)	154.7
- Bond issues (current portions)	1,681.3	1,658.8	22.5
- Short-term borrowings	314.2	444.1	(129.9)
- Borrowings (current portions)	654.5	250.5	404.0
- Other current financial liabilities net	83.6	40.6	43.0
- Derivative financial instruments	-	0.6	(0.6)
- Financial assets	(230.9)	(251.6)	20.7
- Cash and cash equivalents	(2,360.1)	(2,155.1)	(205.0)
Total net debt	9,458.4	8,576.3	882.1
NET DEBT (BY TYPE OF INSTRUMENT)
- Bond issues	7,507.8	6,737.7	770.1
- Borrowings	3,986.7	3,588.3	398.4
- Short-term borrowings	314.2	444.1	(129.9)
- Derivative financial instruments	157.1	172.3	(15.2)
- Other financial liabilities, net	83.6	40.6	43.0
GROSS DEBT	12,049.4	10,983.0	1,066.4
- Financial assets	(230.9)	(251.6)	20.7
- Cash and cash equivalents	(2,360.1)	(2,155.1)	(205.0)
Total net debt	9,458.4	8,576.3	882.1
Net debt attributable to net assets held for sale	(15.5)	(17.9)	2.4

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

• an increase in bond issues of €770.1 million, primarily following the bond issue launched by Terna on 21 April 2023, totalling €750 million;
• an increase in borrowings of €398.4 million, primarily as a result of the drawdown of a new EIB facility amounting to €450 million, after repayments of existing EIB bank loans;
• a reduction in short-term borrowings (down €129.9 million), essentially due to the Parent Company's repayment of short-term credit facilities;
• a decrease in the fair value of derivative financial instruments (down €15.2 million), primarily due to in market interest rates;

3. The Group's business • Financial review for the first half of 2023

• an increase in other net financial liabilities (up €43.0 million), essentially due to the recognition of accrued interest on financial products;
• a reduction in financial assets (down €20.7 million), following the variation of Italian government securities held (down €51.5 million), partially offset by further deposits during the period (up €17.0 million) and a change in interest accruing on investments (up €14.4 million);
• an increase in cash and cash equivalents of €205.0 million. Cash amounts to €2,360.1 million at 30 June 2023, including €2,284.9 million invested in short-term, readily convertible deposits and €75.2 million held in bank current accounts and in the form of cash in hand.

Net debt attributable to assets held for sale, amounting to €15.5 million at 30 June 2023, essentially relates to the short-term portion of investment in infrastructure operated under concession in Brazil, recognised in application of IFRIC 12, totalling approximately €4.0 million, and cash and cash equivalents of approximately €11.5 million. The change of €2.4 million compared with 31 December 2022 essentially reflects reductions in the short-term portion of investment in infrastructure operated under concession in Brazil, recognised in application of IFRIC 12, and in cash and cash equivalents.

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 2023	EQUITY AT 30 JUNE 2023
Financial statements of Terna S.p.A.	408.8	5,721.8
Difference between equity in the financial statements, including profit/(loss) for the period and the carrying amounts of investments in consolidated companies	7.9	1,796.8
Consolidation adjustments:
- Intragroup dividends:	(18.6)	(232.8)
- Elimination of unrealised intragroup profits net of the related taxation and other minor adjustments	9.4	(1,182.8)
- Foreign currency translation reserve	-	9.6
- Measurement of companies using the equity method	0.4	29.4
Total consolidated financial statements	407.9	6,142.0
Non-controlling interests	(3.5)	17.9
Terna Group's consolidated financial statements	411.4	6,124.1

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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

Terna's shares

Terna S.p.A. has been listed on Borsa Italiana's screen-based trading system (Mercato Telematico) since 23 June 2004. From the date of floatation to the end of June 2023, the share price has risen 359% (a capital gain), providing a Total Shareholder Return (TSR24) of 1,157%, ahead of both the Italian market (the FTSE MIB, up 102%) and the relevant European sector index (DJ Stoxx Utilities), which has risen 337%).

Europe's leading stock markets rose during the first half of 2023. Milan, the best performing European index, gained 19.1%, Paris and Frankfurt rose 14.3% and 12.3% respectively, whilst Madrid was up 16.6% and London 1.1%.

Terna's shares closed the half in positive territory at €7.806 per share, having risen 13.1% compared with 31 December 2022 and outperforming the relevant European sector index (DJ Stoxx Utilities), which rose 8.5%. The daily average volume traded during the period amounted to approximately 3.8 million. It should also be noted that the ex-dividend date for the final dividend for 2022, amounting to 20.83 euro cents per share, was 19 June. In addition, the share price reached a first-half high of €8.100 on 12 May.

²⁴ 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.

INTERIM REPORT ON OPERATIONS

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

Weighting of Terna's shares

	H1 2023	H1 2022
> on the FTSE MIB	2.58%	2.94%

Source: Borsa italiana.

Ratings

	SHORT-TERM	MEDIUM/LONG-TERM	OUTLOOK
Terna S.p.A.
Standard & Poor's	A-2	BBB+	Stable
Moody's	Prime-2	Baa2	Negative
Italian state
Standard & Poor's	A-2	BBB	Stable
Moody's	Prime-3	Baa3	Negative

The rating agencies (Standard & Poor's and Moody's) reaffirmed the Company's ratings in the first half of 2023. Terna's long-term ratings, unchanged with respect to 31 December 2022, are one notch above Italy's sovereign rating.

Outlook

During the second part of the year, the Group will continue to focus on delivering on the "Driving Energy" 2021-2025 Industrial Plan. This will be done despite the highly volatile macroeconomic environment, marked by high global inflation and a tightening of monetary policies by central banks, resulting in rising interest rates, in addition to the geopolitical problems resulting from the prolonged conflict between Russia and Ukraine and continued tensions in the commodity markets, which are having a negative impact on the outlook for global economic growth.

The sharp acceleration in expenditure on Regulated Activities will continue with the goal of enabling the energy transition, facilitating the development and integration of renewable sources and making a major contribution to achieving the ambitious goals set out in the Green Deal, which aims to transform the European Union into a carbonfree economy by 2050, with an intermediate target of cutting emissions by approximately 55% by 2030 compared with 1990 levels.

In terms of the Group's most important investment projects, work is progressing on the Tyrrhenian Link, with the award of the contract for supply of the converter stations and, with regard to the East section, the beginning of all the preliminary activities prior to the start of work and the beginning of the process of supplying the terrestrial cables by the end of the year. With regard to the Adriatic Link, the new submarine cable that will connect the Abruzzo and Marche regions, the contract to supply and install the cables is expected to be awarded in the second half of the year.

The principal NTG assets due to enter service in the second half include the submarine connection between Elba and the mainland, the direct current interconnection with France, the Paternò-Pantano link and the Pantano substation.

Work on the new electricity grid for the "Milan-Cortina 2026" Olympic and Paralympic Games will continue in the second half of 2023 with the aim of increasing the reliability of energy supply in the locations hosting the event, with infrastructure having a reduced impact on the landscape.

In terms of the Security Plan, the planned installation of synchronous compensators and STATCOMs will continue with the aim of supporting the regulation of short-circuit voltage and power. Four new items of equipment are due to enter service by the end of the year.

Finally, the Group will continue to make progress towards meeting the requirements resulting from output-based regulatory mechanisms introduced by ARERA. These regard work designed to provide additional transmission capacity between market areas (interzonal 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, in the second half of the year, the Terna Group will continue to consolidate its 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 exploitation of the LT Group's know-how.

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

In terms of International Activities, the strategic assessment of further opportunities in overseas markets, focusing above all on the US market, 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 addition, as regards the assets being sold, the process of selling the Peruvian assets will continue, whilst work will proceed on construction of the Linha Verde I power line in Brazil.

In line with the approach adopted in 2022, the Group will focus on stepping up investment in innovation and digital solutions to continue the transformation that will enable it to manage the growing complexity of the electricity system. In addition, the Group's activities will focus on people development and the insourcing of strategic competencies, the strengthening of departments and optimisation of the working environment for all personnel.

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

Partly thanks to the above initiatives, including those designed to further increase the efficiency of the electricity system, Terna confirms the guidance for 2023 previously announced on 22 March of this year. This includes expected revenue of €3.11 billion, EBITDA of €2.12 billion and EPS of €0.43. With specific reference to the Investment Plan, the Group has targeted capital expenditure of approximately €2.2 billion in 2023. The above objectives will be pursued whilst maintaining a commitment to maximising the cash generation necessary ensure a sound, balanced financial structure.

Regulatory framework and other information 94 Changes in the dimensions of the NTG 99 Alternative performance measures (APMs) 102

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 2023.

Law Decree 176 of 18 November 2022, containing additional urgent measures concerning support in the energy sector and the public finances, converted into Law 6 of 13 January 2023, published in Official Gazette no. 13 of 17 January 2023 (the Aiuti-quater Law Decree)

The Law Decree contains measures concerning the EIA-SEA Committee and the NRRP-PNIEC Technical Committee, the Ministry of Defence's contribution to Italy's energy independence (assets belonging to the military estate and the Ministry of Defence can host energy storage systems without limits on capacity) and the procedures for awarding contracts.

Law Decree 187 of 5 December 2022, containing urgent measures safeguarding the national interest in strategic industrial sectors, converted into Law 10 of 1 February 2023, published in the Official Gazette of 3 February 2023 (the Interesse Nazionale Decree)

The Law Decree contains measures regarding the exercise of the state's golden power and safeguards of the national interest in the hydrocarbons sector.

Law Decree 199 of 29 December 2022, containing urgent measures regarding legislative deadlines, converted into Law 14 of 24 February 2023, published in the Official Gazette of 27 February 2023 (the Milleproroghe Law Decree) The Law Decree contains measures regarding energy maximisation, renewables, compensation mechanisms, general system costs, remote meetings, remote working, tenders and incentives (tax credits) for investment in tangible and intangible assets.

Legislative Decree 24 of 10 March 2023, regarding "Implementation of EU Directive 2019/1937 of the European Parliament and Council of 23 October 2019 on the Protection of persons who report breaches of Union law" and containing measures regarding the protection of persons who report breaches of national legislation, published in the Official Gazette of 15 March 2023 (the Whistleblowing Decree)

The Decree governs whistleblowing, establishing the subjective and objective scope of application, types of internal and external disclosures, safeguards for whistleblowers and reported persons and administrative sanctions.

Legislative Decree 36 of 31 March 2023, containing the Public Contracts Code in implementation of art. 1 of Law 79 of 21 June 2022 delegating the Government to decide on public contracts, published in the Official Gazette of 31 March 2023 (the Public Tenders Code)

The Decree has reformed the law on public contracts with regard above all to the sole project manager, tender procedures, databases, the location and design of works, public consultation, design, price adjustments, market consultations and technical advisory committees.

Law Decree 35 of 31 March 2023, containing urgent measures on the construction of a stable link between Sicily and Calabria, converted into Law 58 of 26 May 2023, published in Official Gazette no. 77 of 31 March 2023 (the Law converting the Stretto di Messina Law Decree)

The legislation regards the ownership and governance of Stretto di Messina SpA, whose shareholders are RFI, ANAS, Calabria and Sicily regional authorities and the Ministry of the Economy and Finance in consultation with the Ministry of Infrastructure and Transport, the concession arrangement and the restart of work on the planning and design of the infrastructure, expropriation procedures regarding the project with establishment of a website with restricted access to a virtual mailbox and unlimited access to a virtual file; appointment of a Special Commissioner to coordinate the works necessary to upgrade the A19 Palermo-Catania motorway, identification of the priority projects needed to upgrade the infrastructures and the modify their use; adoption of a Communication Plan featuring construction of the Bridge over the Strait.

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

Law Decree 13 of 24 February 2023, containing urgent measures regarding implementation of the NRRP and the CNP and the implementation of EU cohesion and agricultural policies, converted into Law 41 of 21 April 2023, published in the Official Gazette of 21 April 2023 (the NRRP Governance Law Decree)

The Law Decree governs the organisation of Government entities responsible for NRRP projects, the structure of the NRRP mission, control and monitoring of NRRP and CNP projects, simplification of the procedures for managing NRRP finances, price adjustments for commissioning bodies, public contracts in special sectors, the Fund for Urgent Works, the establishment of a central committee for the technical security of the energy transition and management of the risks associated with climate change, simplification of the award of contracts relating to the NRRP and CNP and administrative procedures, terms of reference for the technical committee to oversee EIA and SEA procedures and the NRRP-PNIEC Technical Committee with additional responsibility for environmental impact assessments, the terms of reference of the Special Agency to oversee the NRRP, initiatives designed to deal with flood and hydrogeological risks, simplification of the development of green, renewable hydrogen, the installation of renewable energy plants and the definition of suitable areas (including with reference to projects included in Terna's Development Plan), simplification of the process for handling excavated earth and rocks, energy storage plants and agri-photovoltaics.

Law Decree 34 of 30 March 2023, providing urgent support for the purchase of electricity and natural gas by households and businesses and regarding health and tax-related requirements, converted into Law 56 of 26 May 2023, published in the Official Gazette of 29 May 2023 (the Bollette Law Decree)

This Law Decree contains measures to contain price rises in the electricity and natural gas sectors, reinforcing the vouchers system, VAT cuts, tax credits, temporary solidarity payments, tax relief for energy saving initiatives, etc.

Law Decree 61 of 1 June 2023, containing urgent measures to respond to the emergency caused by flooding after 1 May 2023, published in the Official Gazette of 1 June 2023 (the Alluvioni Law Decree)

The Decree provides support for the areas affected by the floods, regarding the suspension of court orders and administrative and public administration deadlines, the postponement of deadlines for businesses relating to the funding of chambers of commerce, accounting and corporate requirements, mortgages and loans, finance leases, social security, income support, refinancing of the National Fund for Emergencies and the Fund for Structural Economic Initiatives, reduction of the approved budget for the fixed grant in the event of high gas prices.

Law Decree 39 of 14 April 2023, containing urgent measures addressing water scarcity and regarding the expansion and upgrade of water infrastructure, converted into Law 68 of 13 June 2023, published in the Official Gazette of 13 June 2023 (the Siccità Law Decree)

The Decree contains measures to guarantee the continuity of electricity production during a state of emergency caused by drought, introducing a derogation from temperature limits for thermal discharges into the sea, waterways, artificial canals and lakes from thermoelectric power stations with a thermal capacity in excess of 300 MW in the period from 20 June to 15 September 2023; establishment of a Steering Committee within the Cabinet Office; simplified procedures for the construction, expansion and upgrade of water infrastructure; establishment of funding for improvements to the security and management of water sources and of permanent district watchdogs; implementation of maintenance work on water sources through the amendment of Regulation 120/2017 containing simplified requirements for handling excavated earth and rocks.

Law Decree 44 of 22 April 2023, containing urgent measures to strengthen the administrative capabilities of public bodies, converted into Law 74 of 21 June 2023, published in the Official Gazette of 21 June 2023 (the Assunzioni PA Law Decree)

The Decree appoints a climate change tsar; legislation on the personnel of ARERA, ENEA, ISPRA and the Cybersecurity Agency; legislation governing appointments to the corporate bodies of the subsidiaries of state-owned entities as regards the non-applicability of the ban on the appointment of retired workers.

Law Decree 75 of 22 June 2023, containing urgent measures on the organisation of public administrations agriculture, sport, work and organisation of the Catholic Church's Jubilee in 2025, published in the Official Gazette of 22 June 2023 (the second Assunzioni PA Law Decree)

The Decree has simplified the procedures for implementing measures to combat price rises, measures regarding the Emission Trading System Committee, the technical secretariat of the Steering Committee for Drought and the Steering Committee for determining essential standards of service; in addition, the Decree has extended the simplified procedures for the reorganisation of ministries until 30 October 2023 and permits the National Cybersecurity Agency to reserve no more than 50% of new posts for non-management personnel for personnel from state-controlled companies. Measures relating to organisation of the XXV Winter Olympics in Milan and Cortina in 2026 and extraordinary redundancy benefits under exceptional arrangements.

Law Decree 79 of 28 June 2023, providing urgent support for the purchase of electricity and natural gas by households and businesses and regarding legislative deadlines, published in the Official Gazette of 28 June 2023 (the Bollette bis Law Decree)

The legislation extends application of the following measures to the third quarter of 2023: the removal of natural gas system costs, a cut in VAT to 5% for the supply of gas for civil and industrial use.

Law Decree 48 of 4 May 2023, containing urgent measures on social inclusion and labour market access, converted into Law 85 of 3 July 2023, published in Official Gazette no. 153 of 3 July 2023 (the Lavoro e inclusione sociale Law Decree)

The Decree extends remote working for public and private employees, tax measures for corporate welfare, provisions regarding shareholder rights and cost controls (remuneration policy), administrative sanctions for non-payment of social security contributions, fixed-term labour contracts, simplified procedures for reporting employment relationships, incentives for private employers who hire young people.

Law Decree 51 of 10 May 2023, containing urgent measures on the administration of public entities, legislative deadlines and social solidarity initiatives, converted into Law 87 of 3 July 2023, published in the Official Gazette of 5 July 2023 (the Amministrazione Enti Law Decree)

The law has removed the obligation for commissioning bodies to check the reliability of the certification produced by suppliers on gender equality and extends the deadline regarding the procurement of critical raw materials.

Law Decree 88 of 5 July 2023, containing urgent measures on the reconstruction of the areas hit by flooding after 1 May 2023, published in the Official Gazette of 5 July 2023 (the Ricostruzione Law Decree)

The Law Decree governs coordination of reconstruction procedures and activities in the areas of Emilia-Romagna, Tuscany and Marche affected by the floods.

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) in 2023.

ARERA determinations on the remuneration of transmission and dispatching services

• Resolution 109/2023/R/eel Determination of the reward for unification of the national transmission grid following the purchase of a portion of the grid owned by Edyna Transmission S.r.l..
• Resolution 163/2023/R/com Consolidated text of the general criteria and principles for totex and output-based regulation in the period 2024-2031 (TIROSS 2024-2031): approval of part I, containing common measures, and of part II, dedicated to output-based regulation.

INTERIM REPORT ON OPERATIONS

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

• Resolution 166/2023/R/eel Launch of the procedure for devising measures regarding infrastructure regulation of the electricity transmission service for the sixth regulatory period 2024-2027.
• Resolution 269/2023/R/eel Determination of the reward for implementing tools in preparation for output-based regulation of the electricity transmission service in 2018 and 2019.

ARERA determinations on the provision of transmission and dispatching services

• Resolution 15/2023/R/eel Revision of the minimum requirements for the ten-year national electricity transmission grid development plan.
• Resolution 26/2023/R/eel Award to Terna S.p.A. of the incentives introduced by Resolution 699/2018/R/eel.
• Resolution 84/2023/R/eel and Resolution 92/2023/R/eel Reactivation of regulation of the virtual import service under Resolution arg/elt 179/09 from April 2023 and deferral of the deadline for reactivation of the service.
• Resolution 98/2023/R/eel Approval of the proposed changes to the Code for Transmission, Dispatching, Development and Security for Terna's grid, concerning the combination of sections in the definition of production units, participation in the DSM and the technical requirements for the provision of frequency services.
• Resolution 99/2023/R/eel Review of the proposed revision of Chapter 1, Section 1C of Annexes A.17 and A.68 and the proposals for the new Annex A.79 in the Code for Transmission, Dispatching, Development and Security for Terna S.p.A.'s grid.
• Resolution 115/2023/R/eel Approval of the proposed changes to the Code for Transmission, Dispatching, Development and Security for Terna's grid, concerning coordination between the DSM and the European aFRR platform and the introduction of asymmetrical semi-bands for secondary reserves.
• Resolution 209/2023/R/eel Remuneration of immaterial electricity production plants subject to the obligation to maximise production, pursuant to article 5-bis of Law Decree 14 of 25 February 2022.
• Resolution 247/2023/R/eel Criteria and conditions for the functioning of forward procurement of electricity storage capacity, pursuant to article 18 of Legislative Decree 210 of 8 November 2021.

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.

Other information

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

Treasury shares

At the date of the Annual General Meeting, held on 9 May 2023, the Company held 4,375,909 treasury shares purchased to service the Performance Share plans for 2020-2023, 2021-2025 and 2022-2026.

On 9 May 2023 and 1 June 2023, the Company proceeded to award a total of 1,079,860 treasury shares to beneficiaries of the Performance Share Plan 2020-2023, thereby reducing the number of treasury shares held by the Company from 4,375,909 to 3,296,049.

In implementation of the buyback programme linked to the Performance Share Plan 2023-2027, in the period between 22 June 2023 and 6 July 2023, the Parent Company purchased 917,611 own shares (equal to 0.046% of the share capital). These shares are in addition to the 3,296,049 treasury shares already held by the Company.

To date, Terna thus holds a total of 4,213,660 treasury shares (equal to 0.210% of the share capital). The Company does not hold any additional treasury shares, including through subsidiaries25.

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 2023 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 2023 primarily regard services forming part of its ordinary activities and provided under normal market conditions, as described in greater detail in the consolidated and separate financial statements for the year ended 31 December 202226.

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 CONSOB27.

No material transactions28 were carried out in the first half of 2023, nor were any transactions subject to the reporting requirements applicable in the event of exemptions applied in accordance with the relevant regulations29.

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.

²⁵ In this regard, see the press release published on 10 July 2023, available at the following link: https://www.terna.it/it/media/comunicati-stampa/ dettaglio/concluso-programma-acquisto-azioni-proprie-2023 26 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 2022. 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.

²⁷ 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.

²⁸ These are related party transactions classified in compliance with Annex 3 to the "Regulations on related party transactions". 29 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".

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

Changes to the dimensions of the NTG

Details of electricity substations owned by the Terna Group*

	UNIT OF MEASUREMENT	AT 30 JUNE 2023	AT 31 DECEMBER 2022	CHANGE	% CHANGE
380kV
Substations	no.	168	168	-	0.00%
Power transformed	MVA	123,688	123,288	400	0.32%
220kV
Substations	No.	152	150	2	1.33%
Power transformed	MVA	34,440	34,503	(63)	(0.18%)
Lower voltages (≤ 150kV)
Substations	no.	584	583	1	0.17%
Power transformed	MVA	4,513	4,489	24	0.53%
Total
Substations	no.	904	901	3	0.33%
Power transformed	MVA	162,641	162,280	361	0.22%

* 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 2023	AT 31 DECEMBER 2022	CHANGE	% CHANGE
380kV
Length of circuits	km	12,914	12,911	3	0.03%
Length of lines	km	11,734	11,730	4	0.04%
220kV
Length of circuits	km	11,935	11,871	64	0.54%
Length of lines	km	9,525	9,496	30	0.31%
Lower voltages (≤ 150kV)
Length of circuits	km	50,118	50,128	(10)	(0.02%)
Length of lines	km	46,852	46,880	(28)	(0.06%)
Total
Length of circuits	km	74,968	74,910	58	0.08%
overhead	km	70,872	70,831	41	0.06%
underground cables	km	2,334	2,317	17	0.73%
submarine cables	km	1,762	1,762	-	0.00%
Length of lines	km	68,111	68,105	6	0.01%
overhead	km	64,015	64,026	(11)	(0.02%)
underground cables	km	2,334	2,317	17	0.73%
submarine cables	km	1,762	1,762	-	0.00%
Incidence of direct current connections (200 - 380 - 500kV)
Circuits	km	2,440	2,440
% of total		3.25%	3.26%
Lines	km	2,120	2,120
% of total		3.11%	3.11%

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

Principal changes in the size of the Terna Group's infrastructure

Substations

New infrastructure:

The following substations have been commissioned:

• construction of the Vetropack switching station [MI] (4 132kV bays);

and the following have been purchased:

• purchase of Edyna Transmission's Ponte Resia switching station [BZ] (12 220kV bays);
• purchase of Edyna Transmission's Naturno switching station [BZ] (8 220kV bays).

Existing infrastructure:

• commissioning of 3 new line bays for the substations at Foggia and Oppido (1 150kV bay each) and Lacchiarella (1 132kV bay); a further 2 bays, already available, were commissioned as line bays at the Foggia and Casuzze substations (1 150kV bay each);
• commissioning of 1 new 132kV machine bay at the Porto Tolle substation;
• commissioning of 3 new power factor corrector bays for the substations at Partinico and Fulgatore (1 220kV bay each) and Bari West (1 150kV bay); a further bay, already available, was commissioned as a 150kV power factor corrector bay at the Casuzze substation, whilst a further 380kV power factor corrector bay was decommissioned and made available for the Maida substation;
• commissioning of 1 new 220kV parallel bay for the substation at Campochiesa;
• demolition of 1 line bay and 1 available bay, both 132kV, at the Villa Opicina substation.

Transformers

The following transformers have been commissioned:

• 1 new 150/20kV 16 MVA transformer for the Brindisi Pignicelle substation;

and the following further changes occurred:

• replacement of 1 380/150kV 250 MVA autotransformer, made available, with a new 400 MVA autotransformer at the Deliceto substation.

Power lines

• construction of the new 132kV Vetropack - Vetropack UT dual connection (2 power lines totalling 0.1 km in cable);

• construction of the new 150kV Ostiense-Laurentina link (7.6 km of extruded cable), replacing the pre-existing line (5.6 km of fluid-oil cable), decommissioned and due to be demolished;

• total reconstruction of the 150kV Carini primary substation Carini RFI line (from 1.0 km of overhead line to 0.9 km in cable) over the new route;
• total reconstruction of the 60kV Torre South Novartis 1 line (1.1 km in cable) without modifying the route;
• purchase from Edyna Transmission of the 220kV Naturno Ponte Resia dual circuit connection (2 lines making a total of 67.9 km overhead);
• purchase from Edyna Transmission of the Ponte Resia connection as a derivation from the 220kV Cardano San Floriano line (1 line equal to 2.0 km overhead);
• construction of 4 in-out derivations with an overall increase of the same number of circuits and 0.3 km of circuit, including: addition of 2 lines and 0.3 km at 150kV, 2 lines and 0.1 km at 132kV;
• construction of variants, rigid derivations, re-routings and/or changes to grid distribution adding a total of 2 lines and a reduction equal to 8.1 km of circuit, including: addition of 8.1 km at 150kV, plus 2 lines and a reduction of 16.3 km at 132kV;
• demolition and/or retirement of 3 lines making a total of 32.3 km of circuit: 220kV Colà Tavazzano East (already decommissioned, overhead line, equal to 1.5 km), 220kV Colà - Tavazzano East (overhead, equal to 1.7 km), 132kV Udine RT - Redipuglia RT (29.1 km overhead).

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.

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	1,263.2
Non-regulated revenue	222.0	"Revenue from sales and services", totalling €1,454.6 million, "Other revenue and income",
Revenue from International Activities	0.1	totalling €30.7 million
Personnel expenses	181.3	"Personnel expenses" after the cost of construction services performed under concessions in Italy in accordance with IFRIC 12 (€4.3 million)
Cost of services, leases and rentals	114.5	"Services" after the cost of construction services performed under concessions in Italy in accordance with IFRIC 12 (€19.6 million)
Materials	121.2	"Raw and consumable materials used" after the cost of construction services performed under concessions in Italy in accordance with IFRIC 12 (€3.1 million)
Other costs	17.0
Quality of service	5.1	"Other operating costs"
	4.3	"Personnel expenses"
Cost of construction services performed under concession	19.6	"Services"
	3.1	"Raw and consumable materials used"
Net financial income/(expenses)	(59.1)	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	506.6	"Investment accounted for using the equity method", "Other non-current assets" and "Non-current financial assets", after the value of cash flow hedges (€67.8 million)
Net energy-related pass-through payables	(1,312.5)	"Trade receivables" relating to the value of energy-related pass-through receivables (€261.2 million) and "Trade payables" relating to the value of energy-related pass through payables (€1,573.7 million)
Net receivables resulting from Regulated Activities	929.2	"Trade receivables" relating to the value of receivables resulting from Regulated Activities (€984.7 million) and "Trade payables" relating to the value of payables resulting from Regulated Activities (€55.5 million)
Net trade payables	(641.2)	"Trade payables" after the value of energy-related pass-through payables (€1,573.7 million) and payables resulting from Regulated Activities (€55.5 million) and "Trade receivables" after the value of energy-related pass-through receivables (€261.2 million) and the value of receivables resulting from Regulated Activities (€984.7 million)
Net tax liabilities	(57.8)	"Tax assets", "Other current assets" relating to the value of other tax assets (€17.6 million), "Other current liabilities" relating to the value of other tax liabilities (€60.1 million) and "Tax liabilities"
Other liabilities net	(1,274.9)	"Other non-current liabilities", "Other current liabilities" after other tax liabilities (€60.1 million), "Inventories", "Other current assets" after other tax assets (€17.6 million)
Sundry provisions	(39.6)	"Employee benefits", "Provisions for risks and charges" and "Deferred tax assets"
Net assets held for sale	76.1	"Discontinued operations and assets held for sale" and "Liabilities related to discontinued operations and assets held for sale"
Net debt	9,458.4	"Long-term borrowings", "Current portion of long-term borrowings", "Non-current financial liabilities", "Short-term borrowings", "Cash and cash equivalents", "Current financial assets", "Current financial liabilities" and "Non-current financial assets" relating to the value of cash flow hedges (€67.8 million)

THE GROUP'S ANALYSIS OF NET DEBT	€M	CONSOLIDATED STATEMENT OF FINANCIAL POSITION
"Bond issues" and "Borrowings"	11,494.5	Corresponds with "Long-term borrowings" and "Current portions of long-term borrowings"
"Derivative financial instruments" – short- and medium/long-term	157.1	Corresponds with "Non-current financial liabilities" and "Non-current financial liabilities" relating to the value of derivatives (€67.8 million)
Other financial liabilities, net	83.6	Corresponds with "Current financial assets" relating to the value of accrued financial income on derivatives (€6.9 million) and "Current financial liabilities"
Financial assets	(230.9)	Corresponds with "Current financial assets" after the value of accrued financial income on derivatives (€6.9 million)
Net debt attributable to assets held for sale	(15.5)	Corresponds with "Discontinued operations and assets held for sale", amounting to €15.5 million

INTERIM REPORT ON OPERATIONS

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

Reconciliation of the Terna Group's cash flow (€m)

	CASH FLOW H1 2023	RECONCILIATION WITH FINANCIAL STATEMENTS	CASH FLOW H1 2022	RECONCILIATION WITH FINANCIAL STATEMENTS
- Profit for the period	407.9		400.6
- Amortisation, depreciation and impairment losses	380.2		339.5
- Net change in provisions	(28.6)		2.0
Employee benefits		0.3		(9.4)
Provisions for risks and charges		(15.5)		(24.5)
Deferred tax assets		(13.4)		35.9
- Net losses/(gains) on sale of assets (1)	(9.7)		(2.0)
Operating Cash Flow	749.8		740.1
- Change in net working capital:	(375.3)		260.0
Inventories		(19.1)		(23.3)
Trade receivables		860.7		(939.0)
Income tax assets		0.7		(4.0)
Other current assets		63.0		(27.7)
Discontinued operations and assets held for sale		(1,165.3)		1,076.5
Trade payables		(22.4)		8.3
Tax liabilities		(92.9)		169.2
- Other changes in non-current assets	23.9		(11.3)
Goodwill		(0.8)		-
Intangible assets (2)		(1.7)		(0.1)
Property, plant and equipment (3)		24.4		42.2
Non-current financial assets		4.9		(54.4)
Other non-current assets		(0.4)		(0.2)
Investments accounted for using the equity method		(2.5)		1.2
Cash Flow from Operating Activities	398.4		988.8
Capital expenditure
- Total Capital expenditure	(830.5)		(660.5)
Property, plant and equipment (3)		(760.9)		(576.9)
Intangible assets (2)		(69.6)		(83.6)
Total cash flow from (for) investing activities	(830.5)		(660.5)
Free Cash Flow	(432.1)		328.3
Net assets held for sale	(15.0)		(88.3)
- Reserve for equity instruments, cash flow hedge reserve after taxation and other movements in equity attributable to owners of the Parent (4)	(10.6)		1,156.0
- Other movements in equity attributable to non-controlling interests	(5.7)		0.2
- Dividends paid to Parent Company's shareholders (4)	(418.7)		(387.7)
Change in net debt	(882.1)		1,008.5
- Change in borrowings	1,087.1		(890.3)
Non-current financial assets		7.7		(63.5)
Current financial assets		17.5		630.2
Non-current financial liabilities		(22.3)		175.0
Long-term borrowings		742.0		203.6
Short-term borrowings		(129.9)		(764.3)
Current portion of long-term borrowings		426.5		(1,096.8)
Current financial liabilities		45.6		25.5
CHANGE IN CASH AND CASH EQUIVALENTS	205.0		118.2

(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 2023

Contents

Consolidated financial statements	110
Consolidated income statement	110
Consolidated statement of comprehensive income	111
Consolidated statement of financial position	112
Consolidated statement of changes in equity	114
Consolidated statement of cash flows	116
Notes	118
A. Accounting policies and measurement criteria	118
B. Notes to the consolidated income statement	130
C. Operating segments	137
D. Notes to the consolidated statement of financial position	139
E. Commitments and risks	158
F. Business combinations	163
G. Related party transactions	165
H. Significant non-recurring, atypical or unusual events and transactions	169
I. Notes to the statement of cash flows	169
L. Events after 30 June 2023	170
Attestation of the Group's Half-year Report pursuant to art. 81-ter of CONSOB Regulation 11971 of 14 May 1999, as amended	172
Independent Auditor's review report on the condensed consolidated interim financial statements

at and for the six months ended 30 June 2023 174

Consolidated financial statements

Consolidated income statement

NOTE H1 2023 H1 2022 A – REVENUE 1. Revenue from sales and services 1 1,454.6 1,297.8 of which: related parties 903.2 857.0 2. Other revenue and income 2 30.7 33.1 of which: related parties 0.2 0.1 Total revenue 1,485.3 1,330.9 B – OPERATING COSTS 1. Raw and consumable materials used 3 124.3 97.5 2. Services 4 134.1 106.4 of which: related parties 4.2 3.8 3. Personnel expenses 5 185.6 166.8 - gross personnel expenses 249.8 221.8 - capitalised personnel expenses (64.2) (55.0) of which: related parties 2.2 1.8 4. Amortisation, depreciation and impairment losses 6 380.2 339.5 5. Other operating costs 7 22.1 13.3 of which: related parties 0.1 0.1 Total operating costs 846.3 723.5 A-B OPERATING PROFIT/(LOSS) 639.0 607.4 C – FINANCIAL INCOME/(EXPENSES) 1. Financial income 8 49.3 13.9 2. Financial expenses 8 (108.8) (48.9) 3. Share of profit/(loss) of investees accounted for using the equity method 9 0.4 (1.2) D –PROFIT/(LOSS) BEFORE TAX 579.9 571.2 E – INCOME TAX EXPENSE 10 168.5 160.5 F – PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS 411.4 410.7 G – PROFIT/(LOSS) FOR THE PERIOD FROM DISCONTINUED OPERATIONS AND 11 (3.5) (10.1) ASSETS HELD FOR SALE H –PROFIT FOR THE PERIOD 407.9 400.6 Profit attributable to owners of the Parent 411.4 398.1 Profit attributable to non-controlling interests (3.5) 2.5 Earnings per share 12 Basic earnings per share 0.205 0.198 Diluted earnings per share 0.205 0.198 Earnings per share from continuing operations Basic earnings per share 12 0.205 0.205 Diluted earnings per share 0.205 0.205		(€m)

Consolidated statement of comprehensive income*

	NOTE	H1 2023	H1 2022
PROFIT FOR THE PERIOD		407.9	400.6
Other comprehensive income for the period reclassifiable to profit or loss
- Cash flow hedges	24	(4.1)	161.5
- Financial assets at fair value through other comprehensive income	24	0.5	(0.8)
- Gains/(Losses) from translation of financial statements in currencies other than the euro	24	5.0	17.9
- Cost of hedges	24	1.1	(0.4)
Other comprehensive income for the period not reclassifiable to profit or loss
- Actuarial gains/(losses) on provisions for employee benefits	24	(0.1)	6.6
Total other comprehensive income for the period		2.4	184.8
COMPREHENSIVE INCOME FOR THE PERIOD		410.3	585.4
COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO:
Owners of the Parent		413.7	582.7
Non-controlling interests		(3.4)	2.7

* Amounts are shown net of tax, where applicable

Consolidated statement of financial position

			(€m)
	NOTE	30 JUNE 2023	31 DECEMBER 2022
A – NON-CURRENT ASSETS
1. Property, plant and equipment	13	16,623.3	16,200.9
of which: related parties		20.9	41.1
2. Goodwill	14	252.3	251.5
3. Intangible assets	15	538.9	524.3
4. Deferred tax assets	16	134.4	121.0
5. Investments accounted for using the equity method	17	76.3	73.8
6. Non-current financial assets	18	481.8	494.4
7. Other non-current assets	19	16.3	15.9
Total non-current assets		18,123.3	17,681.8
B – CURRENT ASSETS
1. Inventories	20	102.1	83.0
2. Trade receivables	21	1,497.9	2,358.3
of which: related parties		348.4	333.2
3. Current financial assets	18	237.8	255.3
4. Cash and cash equivalents	22	2,360.1	2,155.1
of which: related parties		0.8	0.1
5. Income tax assets	23	6.1	6.8
6. Other current assets	19	128.9	191.9
Total current assets		4,332.9	5,050.4
C –Discontinued operations and assets held for sale	30	79.8	70.7
TOTAL ASSETS		22,536.0	22,802.9

			(€m)
	NOTE	30 JUNE 2023	31 DECEMBER 2022
D –EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
1. Share capital		442.2	442.2
2. Other reserves		1,874.5	1,875.2
3. Retained earnings/(accumulated losses)		3,396.0	3,180.9
4. Interim dividend		-	(213.3)
5. Profit for the period		411.4	857.0
Total equity attributable to owners of the Parent	24	6,124.1	6,142.0
E – EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS	24	17.9	27.1
Total equity attributable to owners of the Parent and non-controlling interests		6,142.0	6,169.1
F – NON-CURRENT LIABILITIES
1. Long-term borrowings	25	9,158.7	8,416.7
2. Employee benefits	26	48.7	48.4
3. Provisions for risks and charges	27	125.3	140.8
4. Non-current financial liabilities	25	224.9	247.2
5. Other non-current liabilities	28	957.5	971.4
Total non-current liabilities		10,515.1	9,824.5
G –CURRENT LIABILITIES
1. Short-term borrowings	25	314.2	444.1
2. Current portion of long-term borrowings	25	2,335.8	1,909.3
3. Trade payables	29	2,522.4	3,687.7
of which: related parties		41.1	60.9
4. Tax expense	29	21.4	43.8
5. Current financial liabilities	25	90.5	44.9
6. Other current liabilities	29	590.9	669.9
of which: related parties		29.8	22.7
Total current liabilities		5,875.2	6,799.7
H –Liabilities related to discontinued operations and assets held for sale	30	3.7	9.6
TOTAL LIABILITIES AND EQUITY		22,536.0	22,802.9

Consolidated statement of changes in equity

31 December 2022 - 30 June 2023

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/ (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 2022	442.2	88.4	20.0	81.1	(29.5)	989.0	726.2	3,180.9 (213.3)		857.0	6,142.0	27.1	6,169.1
PROFIT FOR THE PERIOD										411.4	411.4	(3.5)	407.9
OTHER COMPREHENSIVE INCOME:
- Change in fair value of cash flow hedges				(4.1)							(4.1)		(4.1)
- Actuarial gains/(losses) on employee benefits							(0.1)				(0.1)		(0.1)
- Gains/(Losses) from translation of financial statements in currencies other than the euro								4.9			4.9	0.1	5.0
- Financial assets at fair value through other comprehensive income							0.5				0.5		0.5
- Cost of hedges				1.1							1.1		1.1
Total other comprehensive income	-	-	-	(3.0)	-		0.4	4.9	-	-	2.3	0.1	2.4
COMPREHENSIVE INCOME	-	-	-	(3.0)	-		0.4	4.9	-	411.4	413.7	(3.4)	410.3
TRANSACTIONS WITH SHAREHOLDERS:													-
- Appropriation of profit for 2022:													-
Retained earnings								225.0		(225.0)	-		-
Dividends									213.3	(632.0)	(418.7)	(5.8)	(424.5)
- Purchase of treasury shares					2.6			(0.9)			1.7		1.7
Total transactions with shareholders	-	-	-	-	2.6		-	224.1	213.3	(857.0)	(417.0)	(5.8)	(422.8)
Share option reserve							(2.1)				(2.1)		(2.1)
Coupon payable to holders of hybrid bonds								(11.8)			(11.8)		(11.8)
Other changes							1.4	(2.1)			(0.7)	-	(0.7)
Total other changes	-	-	-	-	-	-	(0.7)	(13.9)	-	-	(14.6)	-	(14.6)
EQUITY AT 30 JUNE 2023	442.2	88.4	20.0	78.1	(26.9)	989.0	725.9	3,396.0	-	411.4	6,124.1	17.9	6,142.0

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/ (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 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

(€m)

Consolidated statement of cash flows

	NOTE	H1 2023	H1 2022
PROFIT FOR THE PERIOD		407.9	400.6
ADJUSTED BY:
Amortisation. depreciation and impairment losses /(reversals of impairment losses) on non-current property, plant and equipment and intangible assets*	6	366.8	339.6
Accruals to provisions (including provisions for employee benefits) and impairment losses		13.5	4.5
(Gains)/Losses on sale of property, plant and equipment		(9.7)	(2.0)
Financial (income)/expense	8	58.7	49.2
Income tax expense		169.4	164.6
Other non-cash movements		3.0	3.0
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN NET WORKING CAPITAL		1,009.6	959.5
Increase/(decrease) in provisions (including provisions for employee benefits and taxation)		(28.4)	(23.9)
(Increase)/decrease in inventories		(4.0)	(35.2)
(Increase)/decrease in trade receivables and other current assets		930.0	(901.7)
Increase/(decrease) in trade payables and other current liabilities		(1,251.3)	1,201.2
Increase/(decrease) in other non-current liabilities		(15.2)	(16.3)
(Increase)/decrease in other non-current assets		(13.8)	(40.4)
Interest income and other financial income received		40.9	45.2
Interest expense and other financial expenses paid		(79.3)	(58.7)
Income tax paid		(198.4)	(173.4)
CASH FLOW FROM OPERATING ACTIVITIES [A]		390.1	956.3
- of which: related parties		(28.6)	(38.7)
Investments in non-current property, plant and equipment after grants received	13	(724.5)	(559.0)
Revenue from sale of non-current property, plant and equipment and intangible assets and other movements		10.0	(19.6)
Capitalised financial expenses		26.7	10.2
(Increase)/decrease in goodwill	14	0.5	-
Investments in non-current intangible assets after grants received	15	(69.6)	(83.9)
(Increase)/decrease in investments in associates and joint ventures	17	(2.5)	1.2
Movements in short- and medium/long-term financial investments		32.7	(342.4)
Consideration paid for new acquisitions net of cash		(15.8)	-
CASH FLOW FOR INVESTING ACTIVITIES [B]		(742.5)	(993.5)
- of which: related parties		20.2	41.9
Movement in the reserve for treasury shares	24	(4.1)	(10.0)
Movement in the reserve for equity instruments	24	-	989.1
Dividends paid		(434.5)	(375.4)
Movements in short- and medium/long-term financial liabilities (including short-term portion)**		995.6	(424.3)
CASH FLOW FROM FINANCING ACTIVITIES [C]		557.0	179.4
INCREASE/(DECREASE) IN CASH AND EQUIVALENTS [A+B+C]		204.6	142.2
Cash and cash equivalents at beginning of period		2,167.0	1,606.2
Cash and cash equivalents at end of period		2,371.6	1,748.4
- of which cash and cash equivalents from acquisitions		0.3	-

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

** 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 2023 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 2022 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 2023 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 2022, with the exception of new standards or amendments effective from 1 January 2023.

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 2023, 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 2022.

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 2023 and 2022 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) for the period from discontinued operations and assets held for sale" in the Group's reclassified income statement. Likewise, the attributable assets and liabilities at 30 June 2023 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 2023 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.

Conflict between Russia and Ukraine and macroeconomic environment

The Terna Group has been closely monitoring the current macroeconomic environment and the recent international political events, particularly focusing on geopolitical developments and the relevant legislation.

In this respect, in its Public Statement of 28 October 2022, "European common enforcement priorities for 2022 annual 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 extremely volatile macroeconomic environment and a slowing economic growth, marked by extremely high inflation at global level, monetary tightening by central banks (completely the opposite of the easing seen during Covid-19), rising interest rates, the 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. As a result, 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 current macroeconomic environment and 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.

In addition, neither the impact of the changed macroeconomic environment or the conflict between Russia and Ukraine has 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 effect of these events has not, therefore, had any impact, including with regard to the identified business model for financial instruments, thus avoiding 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 there has not been any deterioration in 2023 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.

Terna is not exposed to any risk of greater contract expenses due to rising inflation or increased costs incurred as a result of rising commodity and energy prices and salaries, or to the possibility that, as an issuer of financial instruments, it is unable to pass such increases on by raising the prices of its own services or goods. This is because any price increases agreed by law are covered by tariff revisions, which envisage adjustments for inflation.

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.

Climate change

Awareness of the progress of climate change and its effects has led to a growing need to provide disclosure in annual reports. 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 IFRS-adopters seeking to satisfy the demand for disclosure from interested parties. Similarly, ESMA, in its European Common Enforcement Priorities dated 28 October 2022, 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.

The Terna Group describes its considerations on the actions linked to the need to mitigate the impact of climate change primarily in the sections, "The energy sector" and "Opportunities and risks for Terna connected with climate change", in the Report on Operations. 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

Notes

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

In the event of uncertainties, IAS 1 requires entities to analyse potential impacts in terms of the entity's ability to continue as a going concern and, with regard to the assumptions and estimates made when preparing the interim financial statements. Entities are required to provide disclosure of the forward-looking estimates used and that have a significant risk of resulting in a material adjustment within the next financial year. As recommended by ESMA, which, as mentioned above, requires entities to take into account climate risks when preparing financial statements, disclosures are provided that, despite not being specifically required by IFRS, are relevant to an understanding of the financial statements.

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 climate-related 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 related to work in response to current and future needs to integrate renewable sources, guarantee the reliability, security, adequacy and efficiency of the electricity system, such as, for example, cross-border interconnections and the development of infrastructure to enable the growing integration of renewable energy sources.

In addition, as described in the Group's Risk Framework, the Group is exposed to the risks linked to the increased intensity of 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 strategic plans, further described in the section, "The value creation strategy" of the 2022 Annual Report – Integrated Report, include action to tackle climate change, identifying:

• the works needed to develop and strengthen the electricity grid in the ten-year Development Plan, including overseas interconnections, to ensure the integration of renewable sources;

• tools to ensure the security and reliability of the electricity system in the Security Plan, in a scenario where renewable sources are increasingly more widespread and thermoelectric plants are decommissioned, resulting in issues relating to system inertia and voltage regulation;
• predictive solutions in the Maintenance and Renewal Plan for electricity assets.

Common to all these plans is the Resilience Plan, which includes all the initiatives designed to increase grid resilience to enable it to withstand increasingly intense and frequent severe weather events, damaging infrastructure and resulting in outages at plants connected to the NTG. The Resilience Plan involves a preventive approach to managing infrastructure, using capital light technological solutions to mitigate the risks to which the grid is exposed and solutions for repairing and monitoring the electricity system.

This also involves the development of innovative technologies through structured collaborations with start-ups ("Open Innovation"), designed to monitor weather events and, as a result, increase NTG resilience.

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 risk arising from the increased intensity and frequency of disruptive 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 conflict between Russia and Ukraine, 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 the Tamini Group and Brugg Cables Group, 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.

With the Resilience Methodology, approved by ARERA in Resolution 9/2022, Terna has established a new innovative and probabilistic tool to plan work that will increase the resilience of the NTG. This involves measuring the related benefit in terms of reducing expected energy not supplied, above all due to ice, snow and strong winds.

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.

In response to the risk linked to the greater intensity and frequency of extreme weather events (tornados, heavy snowfall, ice, flooding), the Group could also benefit from the "Patentability" of the above innovative solutions, with resulting non-regulated business opportunities.

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 certain bank borrowings containing ESGlinked conditions, entered into a commercial paper programme (short-term notes issued to qualified investors), enabling Terna to issue "ESG Notes", and issued a number of Green bonds, as described in greater detail in the section, "Sustainable finance". The ESG-linked bank borrowings (different from the Green Bond issues) include a bonus/penalty mechanism, applicable to the payment of accrued interest, linked to the achievement of specific environmental, social and governance (ESG) objectives. As a result of the above, the Group believes that there may be a risk, albeit not significant, connected with the achievement of such objectives. Failure to achieve the objectives within a contractually agreed date would result in a slight increase in the cost of debt. Nevertheless, the impact of this risk on financial expenses is entirely negligible. The Group constantly monitors activities 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, the 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 biodiversity. 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.

IFRS 15 – Revenue from Contracts with Customers

In terms of Regulated Activities, part of the remuneration for transmission and dispatching services derives from regulatory incentive mechanisms linked to specific targets. The achievement of these targets may be influenced by climate change risks, as for example the intensification of extreme weather events could have an impact on the continuity and quality of the service offered by Terna. The Group monitors these risks and, at this time, has not identified a need to revise the estimates relating to these incentives.

With regard to Non-regulated Activities, above all Energy Solutions, given the portfolio of products and services offered to promote the development of renewable energy in Italy, for example through the construction and operation of photovoltaic plants, infrastructure connecting the photovoltaic plants to the grid and services offered to industrial clients, and with regard to the production of cables and transformers, the Group is not exposed to new uncertainties having an impact on the current revenue recognition model. In addition, the Group did not deem it necessary to conduct a review of existing contracts.

Climate change and the subsequent adoption of policies designed to reduce CO2 emissions and achieve Net Zero Emissions targets by most industrial clients could result in increased business opportunities.

IFRS 2 – Share-based Payments

The current long-term incentive plans, so called Share Performance Plans, are 25% linked to the inclusion of a series of ESG indices, selected to represent the Group's ability to deliver an all-round sustainability performance, including the Dow Jones Sustainability Index World, Stoxx ESG Leaders and the MIB 40 ESG. The inclusion is subject to assessments conducted by three rating agencies: S&P Global, Sustainalytics and Moody's ESG in that order. A significant part of these assessments is linked to the issue of climate change: specifically, in order to be included in the selected ESG indexes every year, and for the whole duration of the Performance Share's Plan, performance and positioning in terms of, for example, climate strategy, the assessment and management of climate risks, cuts in greenhouse gas emissions and public disclosures on relevant metrics, is of great importance.

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.

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

NAME	REGISTERED OFFICE	CURRENCY	SHARE CAPITAL	% INTEREST	METHOD OF CONSOLIDATION
	SUBSIDIARIES 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.
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.
Terna Forward	Rome	Euro	10,000	100%	Line-by-line
Business	Development of new technological solutions for the Terna Group, investing in start-ups and small, medium and large enterprises with high innovation and technological potential.
Rete Nord S.r.l.	Rome	Euro	7,299,000	100%	Line-by-line
	A company that owns a portion of the high-voltage electricity transmission grid in Alto Adige, including the related equipment and connected infrastructure.

* 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	2,315,194,500	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.
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	13,734,560	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.
TERNA USA LLC.	New York (USA)	US dollar	1	100%	Line-by-line
Business	Acquisition, development and construction of major infrastructure projects regarding onshore and offshore electricity transmission in the United States.

* 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 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.
Brugg Cables Middle East Contracting LLC	Dubai (UAE)	Dirham	200,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
Brugg Cables Inc USA	Chicago (USA)	US dollar	1,000	100%	Line-by-line
Business	Commercialisation of terrestrial cables for use in electricity transmission.
Brugg Cables Company Saudi Arabia	Riyadh (Saudi Arabia)	Saudi Riyal	50,000	100%	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
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.
OMNIA S.r.l.	Rome	Euro	10,000	100%	Line-by-line
Business	Design and construction of renewable power plants.

* 25% Solaris S.r.l.

** 10% BRUGG GROUP AG.

*** 0.26% Brugg Kabel GmbH.

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

The following changes have taken place with respect to 31 December 2022:

Acquisitions:

• on 29 March 2023, through its subsidiary LT S.r.l., Terna completed the acquisition of a 100% stake in Omnia S.r.l., a company providing O&M services for photovoltaic plants. The acquisition helps to consolidate the LT Group's position as an Italian market leader in the construction and operation of photovoltaic plants;
• on 22 June 2023, Terna completed the acquisition of 100% share capital in Edyna Transmission S.r.l., at the same time renamed Rete Nord S.r.l., a company that owns two electricity substations and approximately 70 km of power lines in Alto Adige already forming part of the National Transmission Grid. The transaction is part of the Group's strategy of unifying Italy's electricity transmission infrastructure with the aim of further boosting grid efficiency and reliability.

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.

							(€m)
NAME	REGISTERED OFFICE		CURRENCY SHARE CAPITAL*	PROFIT FOR THE YEAR*	% INTEREST	METHOD OF CONSOLIDATION	CARRYING AMOUNT AT 30 JUNE 2023
ASSOCIATES
Cesi S.p.A.	Milan	Euro	8,550,000	(1,917,255)	42.698%	Equity Method	45.7
Business	Experimental research and provision of services related to electro-technology.
Coreso S.A.	Brussels (Belgium)	Euro	1,000,000	805,757	15.84%	Equity Method	0.9
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	20,300,000	22.0889%	Equity Method	26.7
Business	Provision of transmission and dispatching services in Montenegro.
Equigy B.V.	Arnhem, (Netherlands)	Euro	50,000	540,518	20%	Equity Method	0.4
Business	Provision of support for electricity balancing by TSOs through the development and implementation of blockchain technology.

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

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:

							(€m)
NAME	REGISTERED OFFICE	CURRENCY	SHARE CAPITAL*	PROFIT FOR THE YEAR*	% INTEREST	METHOD OF CONSOLIDATION	CARRYING AMOUNT AT 30 JUNE 2023 (€M)
JOINT VENTURES
ELMED Etudes S.a.r.l. Tunis (Tunisia)		Tunisian dinar	2,016,120	(207,961)		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	20,136		33% Equity Method	2.2
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.
BMT Energy Transmission Development LLC	Wilmington (USA)	US Dollar	500,000	-		40% Equity Method	0.2
Business	Acquisition, development and construction of major infrastructure projects regarding onshore and offshore electricity transmission in the United States.

* 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 2023 are consistent with those used in the preparation of the consolidated financial statements at and for the year ended 31 December 2022, with the exception of the adoption of new standards and amendments that came into effect from 1 January 2023. 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 2023.

International financial reporting standards effective as of 1 January 2023

A number of new amendments to standards already applied, none of which have had a significant impact, came into effect from 1 January 2023. The relevant standards are as follows:

IFRS 17: Insurance Contracts

The new standard for accounting for insurance contracts, endorsed by the European Commission with Regulation 2021/2036, has replaced 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 new standard has not had a significant impact on the Group's consolidated financial statements.

Regulation 2022/1491 also endorsed the amendment that aims to avoid temporary accounting mismatches between financial assets and insurance contract liabilities, therefore improving the usefulness of comparative information for users of financial statements.

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

The amendment, endorsed by the European Commission with Regulation 2022/1329, clarifies how to account for deferred tax on certain transactions that can generate assets and liabilities of equal amounts, such as leasing and decommissioning obligations. The amendment has no current significant 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

The amendment, endorsed by the European Commission with Regulation 2021/2036, introduces 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 changes have not had a significant impact on the Group's 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 and Non-current Liabilities with Covenants

On 23 January 2020, 15 July 2020 and 31 October 2022 the IASB published the amendment to IAS 1 that aims to clarify how to classify payables and other short- or long-term liabilities. The amendments will come into following endorsement, but early adoption is permitted. The Group is currently assessing the potential impact of the introduction of these amendments on its consolidated financial statements.

Amendment to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures: Supplier Finance Arrangements

On 25 May 2023, the IASB published the amendment to IAS 7 that aims to add disclosure requirements and "signposts" within existing disclosure requirements, requesting entities to provide qualitative and quantitative information about supplier finance arrangements.

Amendment to IAS 12 Income taxes: International Tax Reform –Pillar Two Model Rules

On 23 May 2023, the IASB published the amendment to IAS 12 that introduces a temporary exception to the recognition of deferred taxes linked to application of the OECD's Pillar Two rules.

Amendment to IFRS 16 Leases: Lease Liability in a Sale and Leaseback

On 22 September 2022, the IASB published the amendment to IFRS 16 that introduces certain changes to clarify how a seller-lessee subsequently measures sale and leaseback transactions that satisfy the requirements in IFRS 15 to be accounted for as a sale. The amendments will be effective for annual accounting periods starting after 1 January 2024.

(€m)

B. Notes to the consolidated income statement Revenue

1. Revenue from sales and services – €1,454.6 million

	H1 2023	H1 2022	CHANGE
Transmission charges billed to grid users and incentives	1,042.8	999.9	42.9
Dispatching and metering fees and other energy-related revenue	61.2	56.7	4.5
Incentives for dispatching activities	100.3	56.2	44.1
Revenue from services performed under concession	27.0	22.5	4.5
Quality of service bonuses/(penalties)	11.6	5.8	5.8
Other sales and services	211.7	156.7	55.0
TOTAL	1,454.6	1,297.8	156.8

Transmission charges billed to grid users

Transmission charges billed to grid users regard revenue generated from ownership and operation of the national transmission grid or NTG and attributable to the Parent Company and the subsidiaries, Rete S.r.l. and Terna Crna Gora d.o.o.. This item is up €42.9 million, primarily linked to the increase in the regulated asset base during the period after the volume effect.

Dispatching and metering fees and other energy-related revenue

This item regards fees received in return for providing dispatching and metering services (the dispatching and metering components) and other energy-related revenue. The item is up €4.5 million, compared to the first half of 2022, broadly due to the increase in dispatching fees introduced by Resolution 738/2022.

Incentives for dispatching activities

This item, essentially represented by the mechanism introduced by Resolutions 597/2021 and 132/2022, designed to cut DSM costs, the shortfall in wind production and essential plants, is up €44.1 million on the same period of the previous year. This reflects recognition of the accrued amount for the period (€99.7 million) after calculation of the final amount of the incentive introduced by Resolution 699/2018 due for the first half of 2022 (down €56.2 million).

Revenue from services performed under concession

This item includes revenue from infrastructure construction and upgrade services performed under concession, recognised in application of IFRIC 12, amounting to €27.0 million. The increase compared with the first half of 2022, amounting to €4.5 million, regards greater investment in dispatching infrastructure during the period.

Quality of service

This item regards the RENS (Regulated Energy Not Supplied) incentive mechanism introduced by Resolution 653/2015/r/ eel and is up €5.8 million compared with the same period of the previous year. This is broadly due to recognition of the portion due on the basis of the estimated overall performance in the 2022-2023 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

(€m)

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:

	H1 2023	H1 2022	CHANGE
Power Exchange-related revenue items	2,245.9	5,217.0	(2,971.1)
Over-the-counter revenue items	1,604.7	1,359.0	245.7
TOTAL PASS-THROUGH REVENUE	3,850.6	6,576.0	(2,725.4)
Power Exchange-related cost items	2,245.9	5,217.0	(2,971.1)
Over-the-counter cost items	1,604.7	1,359.0	245.7
TOTAL PASS-THROUGH COSTS	3,850.6	6,576.0	(2,725.4)

Other sales and services

The item, "Other sales and services", amounting to €211.7 million, is up €55.0 million compared with the first half of 2022. This primarily reflects the increased contribution from the Brugg Group (up €20.6 million), the LT Group (up €13.3 million) and the Tamini Group (€5.2 million), as well as increased revenue from connections to the NTG (up €1.6 million). There was also an increase in revenue from the Italy-France interconnector (up €9.3 million) due to a recognition in the first half of 2022 of a contractual penalty payable to energy intensive users for the delayed completion of work.

2. Other revenue and income – €30.7 million

			(€m)
	H1 2023	H1 2022	CHANGE
Gains on sale of infrastructure components	9.7	2.0	7.7
Sales to third parties	5.6	5.6	-
Sundry grants	4.7	5.4	(0.7)
Private Italy-France interconnector	4.1	-	4.1
Private Italy-Montenegro interconnector	3.2	3.2	-
Other revenues	1.3	1.2	0.1
Insurance proceeds as compensation for damages	0.4	2.5	(2.1)
Revenue from IRU contracts for fibre	0.3	-	0.3
Penalties receivables from suppliers	0.1	11.3	(11.2)
Contingent assets	0.5	0.7	(0.2)
Other revenues	0.8	1.2	(0.4)
TOTAL	30.7	33.1	(2.4)

This item, amounting to €30.7 million, is down €2.4 million compared with the first half of the previous year, primarily due a combination of the following:

• recognition, in the first half of 2022, of a penalty receivable from suppliers in relation to delays in work on the private Italy-France interconnector 2022 (down €11.3 million) and revenue for the first half of 2023 connected with the asset's entry into service (up €4.1 million);
• a reduction in revenue from payments for damage to infrastructure (down €2.1 million, attributable to the Parent Company);
• a reduction in the re-routing of lines for third parties (down €0.7 million);
• an increase in gains on the sale of assets (up €7.7 million, essentially scrap, transformers and motor vehicles).

Operating costs

3. Raw and consumable materials used – €124.3 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 in the production of transformers by the Tamini Group and in the production of cables and accessories by the Brugg Group.

The increase compared with the first half of the previous year (up €26.8 million) broadly regards the increased cost of materials incurred by the Brugg Cables Group and the LT Group (up €13.2 million and €12.6 million, respectively).

4. Services – €134.1 million

			(€m)
	H1 2023	H1 2022	CHANGE
Maintenance and sundry services	63.5	45.0	18.5
Tender costs for plant	32.1	26.6	5.5
IT services	16.1	16.0	0.1
Insurance	9.7	8.0	1.7
Lease expense	8.0	6.4	1.6
Remote transmission and telecommunications	4.7	4.4	0.3
TOTAL	134.1	106.4	27.7

This item, totalling €134.1 million, is up €27.7 million compared with the first half of 2022 (€106.4 million). This primarily reflects an increase in other activities and in new initiatives undertaken by the Group, above all at the Tamini Group (up €3.3 million), the Brugg Group (up €2.4 million) and the LT Group (up €1.7 million), in addition to increased costs linked to the construction and development of infrastructure under concession, recognised in application of IFRIC 12 (up €3.9 million, in particular reflecting cost increases of €4.7 million for tenders for plant and of €0.4 million maintenance, partially offset by a reduction of €1.2 million in the cost of IT services) and increased costs linked to the Noi siamo energia advertising campaign (up €7.6 million).

5. Personnel expenses – €185.6 million

			(€m)
	H1 2023	H1 2022	CHANGE
Salaries, wages and other short-term benefits	229.3	208.9	20.4
Directors' remuneration	1.3	1.2	0.1
Termination benefits (TFR), energy discounts and other employee benefits	19.1	11.4	7.7
Early retirement benefits	0.1	0.3	(0.2)
Gross personnel expenses	249.8	221.8	28.0
Capitalised personnel expenses	(64.2)	(55.0)	(9.2)
TOTAL	185.6	166.8	18.8

Personnel expenses, amounting to €185.6 million in the first half of 2023, are up €18.8 million compared with the same period of the previous year (€166.8 million). This is due to an increase in the average workforce and in net provisions for staff incentives, partly offset by the higher amount of capitalised expenses.

Notes

(unit)

(€m)

The following table shows the Group's average workforce by category for the first halves of 2023 and 2022.

	AVERAGE WORKFORCE
H1 2023	H1 2022	CHANGE
108	98	10
876	796	80
3,149	2,863	286
1,492	1,471	21
5,625	5,228	397

The net increase in the Group's average workforce in the first six months of the year is 397, essentially linked to the requirements relating to delivery of the investment programme provided for in the 2021-2025 Industrial Plan.

6. Amortisation, depreciation and impairment losses – €380.2 million

	H1 2023	H1 2022	CHANGE
Amortisation of intangible assets	56.7	39.3	17.4
- of which on infrastructure	15.7	11.5	4.2
Depreciation of property, plant and equipment	322.0	300.1	21.9
Impairment losses on property, plant and equipment	1.8	-	1.8
Impairment losses on trade receivables	(0.3)	0.1	(0.4)
TOTAL	380.2	339.5	40.7

This item, amounting to €380.2 million, is up €40.7 million compared with the first half of 2022, primarily following the entry into service of infrastructure operated by the Parent Company (up €33.0 million) and by the subsidiary, Terna Rete Italia S.p.A. (up €3.1 million).

7. Other operating costs - €22.1 million

	H1 2023	H1 2022	CHANGE
Indirect taxes and local taxes and levies	5.2	5.1	0.1
Fees paid to regulators and membership dues	4.9	4.5	0.4
Quality of service costs	5.1	1.3	3.8
of which mitigation and sharing mechanisms	1.6	1.1	0.5
of which the Fund for Exceptional Events	3.1	0.1	3.0
of which compensation mechanisms for HV users	0.4	0.2	0.2
Adjustment of provisions for litigation and disputes	(0.1)	(2.2)	2.1
Net contingent liabilities	0.9	0.8	0.1
Losses on sales/disposals of plant and net contingent liabilities	0.3	-	0.3
Other	5.8	3.8	2.0
TOTAL	22.1	13.3	8.8

Notes

This item, amounting to €22.1 million, is up €8.8 million compared with the same period of the previous year, broadly due to an increase in quality of service costs (up €3.8 million), primarily linked to the increased costs incurred following the events in Sicily in February and in Molise in April, the adjustment of provisions for litigation and disputes (up €2.1 million) and increase in fees paid to regulators and membership dues (up €0.4 million).

8. Financial income/(expenses) – (€59.5) million

			(€m)
	H1 2023	H1 2022	CHANGE
FINANCIAL EXPENSES
Interest expense on medium/long-term borrowings and related hedges	(120.0)	(56.8)	(63.2)
Adjustment of borrowings and related hedges	(1.6)	-	(1.6)
Discounting of receivables, termination benefits (TFR), operating leases and other liabilities	-	(1.4)	1.4
Capitalised financial expenses	26.7	10.2	16.5
Negative translation differences	(0.1)	-	(0.1)
Other financial expenses	(13.8)	(0.9)	(12.9)
Total expenses	(108.8)	(48.9)	(59.9)
FINANCIAL INCOME
Interest income and other financial income	39.8	5.0	34.8
Adjustment of borrowings and related hedges	-	5.2	(5.2)
Discounting of receivables, termination benefits (TFR), operating leases and other liabilities	9.5	-	9.5
Positive translation differences	-	3.7	(3.7)
Total income	49.3	13.9	35.4
TOTAL	(59.5)	(35.0)	(24.5)

Net financial expenses of €59.5 million reflect financial expenses of €108.8 million and financial income of €49.3 million. The increase compared with the same period of 2022, totalling €24.5 million, primarily reflects the following:

• an increase of €63.2 million in financial expenses on debt, primarily due to higher inflation, new borrowings and rising interest rates;
• an increase of €16.5 million in capitalised financial expenses, reflecting increased capital expenditure during the period;
• an increase of €34.8 million in interest income and other financial income, primarily due to increased liquidity and an increase in the related returns;
• an increase of €12.0 million in interest expense on cash flows relating to dispatching items, included in other financial expenses.

9. Share of profit/(loss) of investees accounted for using the equity method – €0.4 million

This item, amounting to €0.4 million, is up €1.6 million compared with the first half of 2022 (a loss of €1.2 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 – €168.5 million

Income tax expense for the period totals €168.5 million, an increase of €8.0 million compared with the first half of 2022. This reflects the increase in pre-tax profit and the greater amount of net contingent tax assets recognised in the same period of 2022. The resulting tax rate of 29.1% thus marks an increase compared with the figure for the first half of 2022 (28.1%).

		(€m)
	H1 2023	H1 2022	CHANGE
Income tax for the period
Current tax expense:
- IRES (corporate income tax)	149.4	148.6	0.8
- IRAP (regional tax on productive activities)	30.7	29.9	0.8
Total current expense	180.1	178.5	1.6
Temporary differences
- deferred tax assets	(11.1)	1.3	(12.4)
- deferred tax liabilities	(1.4)	(17.5)	16.1
Total deferred tax (income)/expense	(12.5)	(16.2)	3.7
Adjustments to taxes for previous years	0.9	(1.8)	2.7
TOTAL	168.5	160.5	8.0

Current income tax expense of €180.1 million is up €1.6 compared with the first half of 2022, broadly due to the improvement in pre-tax profit.

Net deferred tax expense of €12.5 million is down €3.7 million, reflecting 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 expense of €0.9 million, primarily refers to the Parent Company and the subsidiary, Terna Rete Italia S.p.A., and include net contingent liabilities resulting from recognition of the effective amount payable when filing annual tax returns. This item reflects a negative change of €2.7 million compared with the figure for the first half of 2022, when the adjustment resulted in net contingent tax assets relating to the previous year.

11. Profit/(Loss) for the period from discontinued operations and assets held for sale – (€3.5) 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 first transaction closing for the sale of the Brazilian companies, SPE Transmissora de Energia Linha Verde II S.A., SPE Santa Lucia Transmissora de Energia S.A. and SPE Santa Maria Transmissora de Energia S.A., was completed on 7 November 2022. The transaction closing for the sale of Difebal S.A., which operates a power line in Uruguay, was completed on 22 December 2022. The sale of the other assets in Brazil and Peru is due to take place in phases, following fulfilment of the conditions provided for in the agreement.

The revenue and cost items resulting in the net result for the period from assets held for sale, amounting to a loss of €3.5 million, are shown below:

			(€m)
	H1 2023	H1 2022	CHANGE
Total revenue	21.3	31.9	(10.6)
Total operating costs	33.7	20.3	13.4
OPERATING COSTS	(12.4)	11.6	(24.0)
Financial income/(expenses), net	0.8	(10.4)	11.2
Impairment loss recognised on remeasurement of the fair value less costs to sell	9.0	(5.6)	14.6
PROFIT/(LOSS) BEFORE TAX	(2.6)	(4.4)	1.8
Income tax expense for the period	0.9	5.7	(4.8)
Profit/(Loss) for the period from discontinued operations and assets held for sale	(3.5)	(10.1)	6.6

Revenue

This item broadly consists of revenue from construction and development of infrastructure operated under concession, above all the assets held for sale located in Brazil (€20.5 million) and Peru (€0.8 million).

Operating costs

Operating costs essentially regard the costs incurred in application of IFRIC 12 for the construction work being carried out in Brazil (€32.4 million), as well as operating costs incurred in Peru.

The net loss for the period from discontinued operations and assets held for sale thus amounts to €3.5 million, down €6.6 million compared with the loss for the same period of the previous year. This essentially reflects the adjustment to the value of the assets recognised in accordance with IFRS 5 (up €14.6 million), after the operating results of the initiatives (down €8.0 million), in view of the difference in scope.

The agreements entered into with CDPQ, regarding the sale of the Brazilian companies, grant the purchaser a put option for the return of SPE Transmissora de Energia Linha Verde II S.A. to Terna Plus. This may be exercised, under determinate conditions, no sooner than 31 December 2025. At the date of preparation of these financial statements, the option is not exercisable and provides protection for the counterparty, which does not have a significant economic incentive to exercise it.

Moreover, at the date of preparation of this document, a number of disputes are in progress. The related outcomes have been classified as possible and therefore no provisions have been made in the financial statements:

• ongoing arbitration between SPE Santa Lucia Transmissora de Energia S.A. and Planova Planejamento e Construções S.A. and Krasis Participações S.A., regarding responsibility for postponement of the Commercial Operation Date ("COD"), as defined in the EPC contract;
• ongoing arbitration between SPE Transmissora de Energia Linha Verde I S.A. and Québec Engenharia S.A. and Construtora Quebec S.A., regarding cessation of the obligations provided for in the EPC contract;
• ongoing arbitration between SPE Transmissora de Energia Linha Verde II S.A. and Québec Engenharia S.A. and Construtora Quebec S.A., regarding cessation of the obligations provided for in the EPC contract.

12. Earnings per share

Basic earnings per share, which corresponds to diluted earnings per share, amounts to €0.205 (based on profit for the period attributable to owners of the Parent, totalling €411.4 million, divided by the number of shares outstanding, totalling 2,005,706,429.8, where this number is the weighted average number of shares outstanding during the period). Basic 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 €411.4 million, divided by the number of shares outstanding, totalling 2,005,706,429.8, where this number is the weighted average number of shares outstanding during the period).

Notes

C. Operating segments

In line with the 2021-2025 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 Cables 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 also 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 Nonregulated Activities segment also includes the results of the LT Group, a leading provider of O&M services for photovoltaic plants. 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), the Chilean company, Terna Chile S.p.A. and the US subsidiary, Terna USA LLC. The results of Brazilian company, Linha Verde I S.A., and the Peruvian company, Terna Peru S.A.C., have been reclassified to the "Profit/(Loss) from discontinued operations and assets held for sale".

(€m)

	H1 2023	H1 2022	CHANGE	% CHANGE
REGULATED REVENUE	1,263.2	1,153.6	109.6	9.5%
NON-REGULATED REVENUE	222.0	177.2	44.8	25.3%
INTERNATIONAL REVENUE*	0.1	-	0.1	100.0%
Cost of international activities	-	0.1	(0.1)	(100.0%)
TOTAL REVENUE	1,485.3	1,330.9	154.4	11.6%
GROSS OPERATING PROFIT (EBITDA)**	1,019.2	946.9	72.3	7.6%
of which Regulated EBITDA***	989.7	922.7	67.0	7.3%
of which Non-regulated EBITDA	31.2	27.2	4.0	14.7%
of which International EBITDA	(1.7)	(3.0)	1.3	(43.3%)
Reconciliation of segment result with the Company's profit before tax
GROSS OPERATING PROFIT (EBITDA)	1,019.2	946.9
Amortisation, depreciation and impairment losses	380.2	339.5
OPERATING PROFIT/(LOSS) (EBIT)	639.0	607.4
Financial income/(expenses)	(59.5)	(35.0)
Share of profit/(loss) of investees accounted for using the equity method	0.4	(1.2)
Profit/(Loss) before tax	579.9	571.2

* 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.

(€m)

The Group's revenue for the first half of 2023 amounts to €1,485.3 million, an increase of €154.4 million (11.6%) compared with the same period of the previous year.

Gross operating profit (EBITDA) of €1,019.2 million is up €72.3 million (7.6%) on the €946.9 million of the first half of 2022.

EBITDA from Regulated Activities amounts to €989.7 million, an increase of €67.0 million compared with the first half of 2022. The primarily reflects the impact on tariff revenue and incentives (up €91.5 million) of the increase in the RAB after the volume effect and the effects of output-based incentive mechanisms, respectively.

EBITDA from Non-regulated Activities in the first half of 2023 amounts to €31.2 million, an increase of €4.0 million compared with same period of the previous year. This broadly reflects the increase in turnover at the Industrial segment (up €2.6 million at the Brugg Cables Group and up €1.4 million at the Tamini Group.

Negative EBITDA from International Activities, amounting to €1.7 million for the first half of 2023 essentially reflects the costs incurred by central departments to support overseas initiatives. The figure has improved by €1.3 million compared with the same period of the previous year primarily due to cost efficiencies relating to personnel expenses following a reorganisation of the Group's workforce.

Discontinued operations and assets held for sale report a net loss of €3.5 million, marking an improvement of €6.6 million compared with the first half of 2022, essentially reflecting adjustment of the value of the assets in the comparative period after an increase in operating losses in view of the difference in scope.

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 Non-regulated and International Activities is not material. The following table shows this indicator at 30 June 2023 and 31 December 2022.

	30 JUNE 2023	31 DECEMBER 2022
Net non-current assets *	17,921.1	17,485.3
of which investments in associates and joint ventures	76.3	73.8
Net working capital **	(2,357.2)	(2,732.8)
Gross invested capital ***	15,563.9	14,752.5

* 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 fair value hedges (€67.8 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.

Notes

(€m)

D. Notes to the consolidated statement of financial position

Assets

13. PROPERTY, PLANT AND EQUIPMENT – €16,623.3 million

	LAND	BUILDINGS	PLANT AND EQUIPMENT	INDUSTRIAL AND COMMERCIAL EQUIPMENT	OTHER ASSETS	ASSETS UNDER CONSTRUCTION AND PREPAYMENTS	TOTAL
COST AT 31 DECEMBER 2022	217.7	2,403.3	20,979.8	232.2	269.3	2,581.3	26,683.6
Investment	-	2.1	0.5	4.2	8.8	745.3	760.9
of which right-of-use assets		2.1	0.1	-	8.0	-	10.2
Assets entering service	6.0	18.4	234.0	1.9	5.8	(266.1)	-
Contribution from business combinations	5.6	0.1	12.8	-	-	0.1	18.6
Translation differences	-	0.2		0.3	-	-	0.5
of which right-of-use assets	-	(0.1)			-	-	(0.1)
Disposals and impairments	-	(1.0)	(43.2)	(1.5)	(9.5)	(1.8)	(57.0)
of which right-of-use assets	-	(0.5)	(1.1)	-	(0.3)	-	(1.9)
Other movements	(0.3)	(11.8)	(16.2)	-	-	1.9	(26.4)
COST AT 30 JUNE 2023	229.0	2,411.3	21,167.7	237.1	274.4	3,060.7	27,380.2
ACCUMULATED DEPRECIATION AND IMPAIRMENTS AT 31 DECEMBER 2022	(2.2)	(798.8)	(9,318.8)	(185.2)	(177.7)	-	(10,482.7)
Depreciation for the year	(0.3)	(32.7)	(271.8)	(4.5)	(12.7)	-	(322.0)
of which right-of-use assets	(0.3)	(3.6)	(1.2)	-	(4.4)	-	(9.5)
Contribution from business combinations	-	-	(5.3)	-	-	-	(5.3)
Translation differences	-	-		(0.4)	-	-	(0.4)
Disposals	-	0.8	41.3	1.8	9.5	-	53.4
of which right-of-use assets	-	0.5	1.1	-	0.2	-	1.8
Other movements	-	-	0.1	-	-	-	0.1
ACCUMULATED DEPRECIATION AND IMPAIRMENTS AT 30 JUNE 2023	(2.5)	(830.7)	(9,554.5)	(188.3)	(180.9)	-	(10,756.9)
Carrying amount
AT 30 JUNE 2023	226.5	1,580.6	11,613.2	48.8	93.5	3,060.7	16,623.3
of which right-of-use assets	5.3	33.7	18.3	-	39.3	-	96.6
AT 31 DECEMBER 2022	215.5	1,604.5	11,661.0	47.0	91.6	2,581.3	16,200.9
of which right-of-use assets	5.6	35.3	19.4	-	35.8	-	96.1
Change	11.0	(23.9)	(47.8)	1.8	1.9	479.4	422.4

The category, "Plant and equipment," at 30 June 2023 includes the electricity transmission grid and transformer substations in Italy.

"Property, plant and equipment" is up €422.4 million compared with 31 December 2022, reflecting ordinary movements during the year as a result of:

• investment of €760.9 million during the period, including €734.3 million in the Group's Regulated Activities and €26.6 million in Non-regulated Activities, primarily with regard to the re-routing of power lines at the request of third parties and private interconnectors;
• the contribution of NTG assets arising from the acquisition of Edyna Transmission S.r.l. (renamed Rete Nord S.r.l.), amounting to €13.3 million;
• depreciation for the period of €322.0 million;
• other changes during the year, resulting in a reduction of €26,2 million including grants related to assets (primarily in relation projects financed by the Ministry for Economic Development and the EU);
• disposals and impairments (down €3.6 million).

Notes

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

	(€m)
Investment
- Power lines	361,0
- Transformer substations	323,8
- Other	76,1
Total investment in property, plant and equipment	760,9
Depreciation for the year	(322,0)
Contribution from business combinations	13,3
Other changes	(26,3)
Disposals and impairments	(3,6)
Translation differences	0,1
TOTAL	422,4

The following information regards work on the principal projects during the year in relation to Regulated Activities: the start of design work for the construction of the Tyrrhenian Link (€139.6 million), the installation of synchronous compensators and STATCOM systems (€29.8 million and 4.2 million, respectively), progress on construction of the Paternò-Pantano-Priolo power line (€12.8 million), Elba-Mainland (€11.2 million), Colunga-Calenzano (€10.4 million), Sorgente-Rizziconi (€7.9 million, re-routing) and the Adriatic Link (€5.1 million), the construction of reactors (€6.1 million), extension of the fibre network as part of the "Fibre for the Grid" project (€7.0 million), and the construction of substations at Cerignola (€12.0 million) and Magenta (€6.1 million).

14. GOODWILL – €252.3 million

Goodwill, amounting to €252.3 million at 30 June 2023, regards acquisitions recognised by the Parent Company in previous years regarding Terna Rete Italia S.r.l., with a carrying amount of €101.6 million, RTL S.p.A., with a carrying amount of €88.6 million and Rete S.r.l., with a carrying amount of €26.3 million. Goodwill also regards the Tamini Group's acquisition of TES - Transformer Electro Services and totalling €13.6 million and the acquisitions carried out by the Parent Company through the subsidiary, Terna Energy Solutions S.r.l., relating to a 75% stake in LT S.r.l. (the LT Group), with a carrying amount of €19.3 million, and through the Brugg Cables Group, consisting of a 100% stake in Laser TLC S.r.l., with a carrying amount of €1.5 million. This item also includes the goodwill recognised following provisional accounting for the acquisition of Omnia S.r.l. in March 2023 through the LT Group, with a carrying amount of €1.4 million.

The increase in this item, amounting to €0.8 million, compared with 31 December 2022 essentially reflects the above acquisition of Omnia S.r.l..

During the period there were no indicators requiring the conduct of an impairment test at 30 June 2023.

15. INTANGIBLE ASSETS – €538.9 million

				(€m)
INFRASTRUCTURE RIGHTS			ASSETS UNDER DEVELOPMENT AND PREPAYMENTS	TOTAL
583.0	135.4	711.2	108.7	1,538.3
(421.6)	(96.1)	(496.3)	-	(1,014.0)
161.4	39.3	214.9	108.7	524.3
-	-	0.6	69.0	69.6
9.5	-	17.2	(26.7)	-
-	-	0.8	-	0.8
(15.7)	(2.8)	(38.2)	-	(56.7)
-	-	0.8	0.1	0.9
155.2	36.5	196.1	151.1	538.9
592.5	135.4	731.1	151.1	1,610.1
(437.3)	(98.9)	(535.0)	-	(1,071.2)
155.2	36.5	196.1	151.1	538.9
(6.2)	(2.8)	(18.8)	42.4	14.6
			CONCESSIONS OTHER ASSETS

Intangible assets amount to €538.9 million (€524.3 million at 31 December 2022). The increase compared with the 31 December 2022 (up €14.6 million) broadly reflects the net effect of investment (up €69.6 million, including €14.8 million in infrastructure rights) and amortisation (down €56.7 million).

Investment in intangible assets during the year (€69.6 million, including 69.0 million attributable to the Parent Company's Regulated Activities), included expenditure on the development of software applications for the Remote Management System for Dispatching (€11.8 million), the Power Exchange (€4.6 million), the Metering System (€0.4 million) and for protection of the electricity system (€1.1 million), as well as software applications and generic licences (€41.6 million).

16. DEFERRED TAX ASSETS – €134.4 MILLION

					(€m)
	31 DECEMBER 2022	EFFECTS RECOGNISED IN PROFIT OR LOSS AND OTHER CHANGES	EFFECTS RECOGNISED IN COMPREHENSIVE INCOME	30 JUNE 2022	CHANGE
Deferred tax assets	148.6	11.2	1.1	160.9	12.3
Deferred tax liabilities	(27.7)	1.2		(26.5)	1.2
NET DEFERRED TAX ASSETS	120.9	12.4	1.1	134.4	13.5

The balance of this item, amounting to €134.4 million, includes the net impact of movements in the Group's deferred tax assets and liabilities.

Deferred tax assets (€160.9 million) are up €12.3 million net, compared with the amount at 31 December 2022 (€148.6 million), reflecting the following movements:

• net uses that do not impact on profit or loss, totalling €1.6 million, reflecting the tax effect of movements in cash flow hedges;
• net uses related to changes in provisions for risks and charges and other changes (€12.2 million);
• use of the accrued portion recognised in relation to tax relief on the goodwill resulting from the merger of other companies who own portions of the NTG acquired and subsequently merged with in previous years (€1.5 million);
• provisions recognised by Rete S.r.l. for the non-deductible portion of book depreciation recognised by the Company (€1.5 million).

Deferred tax liabilities (€26,5 million) are up €1.2 million, essentially due to uses of provisions and other movements at companies.

17. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD – €76.3 million

This item, amounting to €76.3 million, regards the Parent Company's investments in the associate CESI S.p.A. (€45.7 million), the associate CORESO S.A. (€0.9 million), the associate CGES – CrnoGorski Elektroprenosni Sistem AD (€26.7 million), the associate Equigy B.V. (€0.4 million) and in the joint ventures, ELMED Etudes S.a.r.l. (€0.2 million), SEleNe CC S.A. (€2.2 million) and BMT Energy Transmission Development LLC (€0.2 million).

The increase compared with 31 December 2022, totalling €2.5 million, essentially reflects the adjustment of the Group's share of equity at 30 June 2023 in the joint venture, SEleNe CC S.A., which rose from 25% to 33.33% in February (up €2.1 million), and in the associate, CESI S.p.A. (up €0.3 million).

18. FINANCIAL ASSETS

				(€m)
MEASUREMENT		30 JUNE 2023	31 DECEMBER 2022	CHANGE
Deposit in the Interconnector Guarantee Fund Amortised cost		291.3	299.1	(7.8)
Cash flow hedges	FVTOCI	67.8	75.5	(7.7)
Government securities	FVTOCI	120.0	119.6	0.4
Other non-current financial assets FVPNL-FVTOCI		2.6	0.1	2.5
Other investments	FVTOCI	0.1	0.1	-
NON-CURRENT FINANCIAL ASSETS		481.8	494.4	(12.6)
Government securities	FVTOCI	97.3	148.8	(51.5)
Other securities FVPNL-FVTOCI		97.4	98.0	(0.6)
Time Deposit Amortised cost		17.0	-	17.0
Deferred assets on cash flow hedges		6.9	3.5	3.4
Currency derivatives	FVTOCI	-	0.2	(0.2)
Other current financial assets		19.2	4.8	14.4
CURRENT FINANCIAL ASSETS		237.8	255.3	(17.5)

"Non-current financial assets" are down €12.6 million compared with the previous year, reflecting:

• a reduction of €7.7 million in cash flow hedges hedging bank borrowings, primarily due to movements in market interest rates;
• a reduction in guarantee deposits made by operators who participate in the capacity market pursuant to Resolution 98/2011/R/eel, as amended (down €16.5 million) offset by an increase in the Interconnector Guarantee Fund, set up to fund investment in interconnections by art. 32 of Law 99/09 (up €8.7 million);
• an increase of €2.5 million, reflecting investment costs incurred by Terna Forward in the Infra Tech and Energy Tech segments of Cassa Depositi e Prestiti VC's Corporate Partners Fund I.

"Current financial assets" are down €17.5 million, primarily following the repayment and purchase of Italian government securities held (an overall reduction of €51.5 million), offset by the change in accrued interest on investments in financial products yet to be collected (up €14.4 million), further investments in short-term time deposits during the period, totalling €17.0 million, and an increase in unpaid accrued interest on derivative instruments (up €3.4 million).

19. OTHER ASSETS

			(€m)
	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Loans and advances to employees	11.4	11.0	0.4
Deposits with third parties	4.8	4.8	-
Other non-current assets	0.1	0.1	-
OTHER NON-CURRENT ASSETS	16.3	15.9	0.4
Other tax credits	17.6	86.4	(68.8)
Prepayments to suppliers	7.6	9.2	(1.6)
Prepayments of operating expenses and accrued operating income	32.9	22.7	10.2
Amounts due from partners selected for Interconnector projects	3.1	3.1	-
Amounts due from others	67.7	70.5	(2.8)
OTHER CURRENT ASSETS	128.9	191.9	(63.0)

"Other non-current assets" amount to €16.3 million and are up €0.4 million compared with the previous year. This primarily reflects an increase in loans to employees (up €0.4 million).

"Other current assets", totalling €128.9 million, are down €63.0 million compared with 31 December 2022, primarily reflecting:

• other tax credits (down €68.8 million) mainly reflecting an increase in the Group's refundable VAT (down €69.6 million);
• an increase in prepaid expenses accruing after 30 June 2023 (up €10.2 million), including €9.2 million attributable to amounts due to employees for deferred monthly wages.

20. INVENTORIES – 102.1 million

This item, amounting to €102.1 million, is up €19.1 million compared with the previous year. This primarily reflects materials to be used in contract work by the LT Group (up €15.5 million) and the Brugg Cables Group (up €5.2 million).

21. TRADE RECEIVABLES – 1,497.9 million

			(€m)
	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Energy-related receivables	766.6	1,622.8	(856.2)
Transmission charges receivables	479.3	472.8	6.5
Other trade receivables	252.0	262.8	(10.8)
TOTAL	1,497.9	2,358.3	(860.4)

Trade receivables amount to €1,497.9 million at 30 June 2023 and are accounted for less any losses and recognised in the allowance for doubtful accounts (€19.7 million for energy- related receivables and €17.2 million for other items in the first half of 2023, compared with €19,7 million for energy-related items and €17.4 million for other items in 2022, with further details provided in the section "E. Commitments and risks"). The carrying amount shown broadly approximates to fair value.

Energy-related/regulated receivables – €766.6 million

This item includes so-called "pass-through items" relating to the Parent Company's activities in accordance with Resolution 111/06 (€261.2 million) and receivables due from the users of dispatching services forming part of Regulated Activities (€452.4 million, including amounts receivable in the form of output-based incentives). It also includes the amount due from the Fund for Energy and Environmental Services (Cassa per i Servizi Energetici e Ambientali - CSEA (€53.0 million) relating to quality of service.

These receivables are down €856.2 million compared with the end of 2022 primarily due to:

• a reduction of €1,088.8 in Power Exchange receivables, related to the cost of procuring resources on the DSM (Uplift) and energy-related items, which are affected by a reduction in energy prices and movements in volumes, partly due to the efficiency measures put in place during 2022 and 2023 to reduce the services procured on the DSM;

partly offset by:

• recognition of the bonuses awarded under the incentive mechanisms introduced by Resolution 597/2021 (incentives designed to reduced DSM costs), amounting to €110.1 million, and Resolution 567/2019 (intrazonal incentives), amounting to €34.5 million;
• an increase in receivables related to essential plants for the safety of the electricity system UESS (€91.9 million), reflecting the increase in the charge to cover the costs of the maximisation programme introduced by Resolution 430/202230.

³⁰ Law Decree 14/2022 (art. 5-bis) introduced certain preventive measures designed to reduce natural gas consumption in the thermoelectric sector, under which Terna adopted a plan to maximise the use of coal- and oil-fired electricity generating plants with a nominal thermal capacity in excess of 300 MW under normal operating conditions.

Transmission charges receivable – €479.3 million

Transmission charges receivable, amounting to €479.3 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 €6.5 million compared with 31 December 2022, linked broadly to the impact of revised tariffs.

Other trade receivables – €252.0 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 Brugg Cables Group and the LT Group.

This item is down €10.8 million compared with the previous year, broadly due to a reduction in orders at the Brugg Cables Group (down €10.6 million) and the Tamini Group (down €3.0 million). Further reductions in receivables are attributable to the Parent Company (down €4.9 million) and the subsidiaries, Terna Rete Italia S.p.A. (down €3.0 million) and Rete S.r.l. (down €1.5 million), partly offset by an increase in receivables at the LT Group (up €2.8 million).

The following table shows receivables resulting from contract work in progress (€109.4 million) being carried out by the Group under multi-year contracts with third parties:

						(€m)
	PRE PAYMENTS	VALUE OF CONTRACT	BALANCE AT 30 JUNE 2023	PRE PAYMENTS	VALUE OF CONTRACT	BALANCE AT 31 DECEMBER 2022
Receivables resulting from contract work in progress	(326.6)	436.0	109.4	(305.4)	405.2	99.8

The Group's receivables resulting from contract work in progress are up €9.6 million, primarily in relation to the increase in contract work at the Brugg Cables Group (up €8.4 million) and Terna Energy Solutions S.r.l. (up €3.4 million).

22. CASH AND CASH EQUIVALENTS – €2,360.1 million

Cash amounts to €2,360.1 million at 30 June 2023, including €2,284.9 million invested short-term readily convertible deposits and €75.2 million deposited in bank current accounts and cash in hand.

23. INCOME TAX ASSETS – €6.1 million

Income tax assets, amounting to €6.1 million, are down €0.7 million compared with the previous year, essentially reflecting the use of an IRES refund receivable by a subsidiary.

INTERIM REPORT ON OPERATIONS

Equity and liabilities

24. Equity attributable to owners of the Parent and non-controlling interests

Equity attributable to owners of the Parent – €6,124.1 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 - (€26.9) million

In implementation of the buyback programme linked to the Performance Share Plan 2023-2027, approved by the Annual General Meeting of 9 May 2022 and the Board of Directors on 14 June 2023, at 30 June 2023 the Parent Company purchased 537,827 own shares (equal to 0.027% of the share capital), at a cost of €4.1 million.

These shares are in addition to the 4,375,909 own shares purchased by the Company in 2020, 2021 and 2022, partly offset by the 1,079,860 shares awarded to beneficiaries on closure of the Performance Share Plan 2020-2023 following the Annual General Meeting of Terna S.p.A.'s shareholder held on 9 May 2023, at a total cost of €6.7 million.

As a result, Terna S.p.A. now holds a total of 3,833,876 treasury shares, purchased at a cost of €26.9 million, thereby reducing other reserves by this amount.

Reserve for equity instruments – €989.0 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 €989.0 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 – €824.0 million

The other reserves are down €3.3 million compared with 31 December 2022, primarily as a result of other comprehensive income. This reflects:

• fair value adjustments to the Parent Company's cash flow hedges (down €3.0 million, including the related hedging costs of €1.1 million, taking into account the related tax asset of €1.2 million);
• fair value adjustments to financial assets represented by government securities (up €0.5 million, taking into account the related tax liability of €0.2 million).

Other reserves also include the increase in the reserve for share options (down €2.1 million), essentially relating to closure of the incentive plan for the Group's personnel involving the above share-based payments (the Performance Share Plan 2020-2023), partly offset by recognition of the above Performance Share Plan 2023-202731).

³¹ The LTI Plan 2023-2027 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.

(€m)

Retained earnings and accumulated losses – €3,396.0 million

The increase in "Retained earnings and accumulated losses" compared with 31 December 2022, amounting to €215.1 million, primarily regards the remaining portion of the Group's profit for 2022 (up €225.0 million), following the Parent Company's payment of the dividend for 2022 (totalling €632.0 million). This item includes the translation differences resulting from the conversion of financial statements in currencies other than the euro (up €4.9 million) and recognition of the interest accruing on the hybrid green bonds (down €11.8 million).

Payment of the final dividend

The Annual General Meeting of shareholders held on 9 May 2023 approved payment of a full-year dividend for 2022 of 31.44 euro cents per share – before any withholdings required by law – of which 20.83 euro cents per share to be paid as a final dividend (payable from 21 June 2023 with an ex-dividend date for coupon 36 of 19 June 2023) and 10.61 euro cents paid in the form of an interim dividend payable from 23 November 2022.

Equity attributable to non-controlling interests – €17.9 million

Equity attributable to non-controlling interests, relating to the non-controlling shareholders of Terna Interconnector S.r.l., SPE Transmissora de Energia Linha Verde I S.A., the Brugg Cables Group, the LT Group and ESPERIA-CC S.r.l., amounts to €17.9 million, a reduction of €9.2 million compared with 31 December 2022.

This change primarily reflects the payment of a dividend approved on 13 April 2023 by the General Meeting of shareholders of the subsidiary, Terna Interconnector. The amount due to the non-controlling shareholder, Transenergia S.r.l. was €5.4 million. A further dividend was paid by the subsidiary LT S.r.l. on 21 March 2023 with the amount due to the non-controlling shareholder, Solaris S.r.l., amounting to €0.4 million. The change also reflects the share of profit for the period attributable to non-controlling shareholders recognised by Terna Interconnector S.r.l. (down €0.6 million), the Brugg Cables Group (down €0.2 million), Linha Verde I S.A. (down €3.1 million) and the LT Group (€0.4 million).

25. BORROWINGS AND FINANCIAL LIABILITIES

	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Bond issues	5,826.5	5,078.9	747.6
Bank borrowings	3,332.2	3,337.8	(5.6)
LONG-TERM BORROWINGS	9,158.7	8,416.7	742.0
Fair value hedges	224.9	247.2	(22.3)
NON-CURRENT FINANCIAL LIABILITIES	224.9	247.2	(22.3)
SHORT-TERM BORROWINGS	314.2	444.1	(129.9)
Bond issues	1,681.3	1,658.8	22.5
Bank borrowings	654.5	250.5	404.0
CURRENT PORTION OF LONG-TERM BORROWINGS	2,335.8	1,909.3	426.5
CURRENT FINANCIAL LIABILITIES	90.5	44.9	45.6
TOTAL	12,124.1	11,062.2	1,061.9

Borrowings and financial liabilities are up €1,061.9 million compared with the previous year to €12,124.1 million.

INTERIM REPORT ON OPERATIONS

The increase in bond issues (up €770.1 million) essentially reflects the single-tranche, euro-denominated, fixed-rate bonds, totalling €750 million, issued in April 2023. The change also reflects the adjustment of the fair value of these financial instruments.

The latest official prices at 31 June 2023 and 31 December 2022 for the bonds listed on the Luxembourg Stock Exchange are detailed below:

			(€m)
	ISIN	PRICE AT 30 JUNE 2023	PRICE AT 31 DECEMBER 2022
bond maturity 2023*:	XS0328430003	134.22	133.90
bond maturity 2023:	XS1858912915	99.88	99.13
bond maturity 2024:	XS0203712939	100.95	102.21
bond maturity 2025:	XS2033351995	92.38	91.69
bond maturity 2026:	XS1371569978	93.48	93.87
bond maturity 2026:	XS1980270810	93.04	92.27
bond maturity 2027:	XS1652866002	91.42	90.25
bond maturity 2027:	XS2536846236	98.33	100.78
bond maturity 2028:	XS1503131713	86.71	85.03
bond maturity 2029:	XS2357205587	82.09	80.02
bond maturity 2029:	XS2607193435	80.02	n.a.**
bond maturity 2030:	XS2237901355	78.36	75.66
bond maturity 2032:	XS2209023402	76.78	73.78

* Source BNP Paribas and Bloomberg.

** Not applicable.

Compared with the previous year, bank borrowings have increased by €398.4 million This is primarily due to the drawdown of new EIB bank facilities, with a notional amount of €450.0 million, after repayments of existing EIB loans. The change also reflects the adjustment of the fair value of these financial instruments.

Long-term borrowings

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

										(€m)
		31 DECEMBER 2022							30 JUNE 2023
	NOTIONAL DEBT	CARRYING AMOUNT	FAIR VALUE	REPAYMENTS AND CAPITALISATIONS DRAWDOWNS OTHER			CHANGE IN THE CARRYING AMOUNT	NOTIONAL DEBT	CARRYING AMOUNT	FAIR VALUE
IL bond	662.0	659.6	886.4	-	-	21.8	21.8	669.4	681.4	896.3
Bond maturing 2023	1,000.0	999.2	991.3	-	-	0.7	0.7	1,000.0	999.9	991.3
Bond maturing 2024	800.0	858.2	817.7	-	-	(15.8)	(15.8)	800.0	842.4	817.7
Bond maturing 2025	500.0	497.5	458.4	-	-	0.5	0.5	500.0	498.0	458.4
Private Placement 2026	80.0	79.5	75.1	-	-	0.1	0.1	80.0	79.6	75.1
Bond maturing 2026	500.0	498.9	461.3	-	-	0.1	0.1	500.0	499.0	461.3
Private Placement 2027	100.0	99.8	100.8	-	-	(0.0)	(0.0)	100.0	99.8	100.8
Bond maturing 2027	1,000.0	984.9	902.4	-	-	1.5	1.5	1,000.0	986.4	902.5
Bond maturing 2028	750.0	705.6	637.7	-	-	3.6	3.6	750.0	709.2	637.7
Bond maturing 750_2029	-	-	-	-	750.0	(7.9)	742.1	750.0	742.1	-
Bond maturing 2029	600.0	597.1	480.1	-	-	0.3	0.3	600.0	597.4	480.1
Bond maturing 2030	500.0	403.8	378.3	-	-	9.0	9.0	500.0	412.8	378.3
Bond maturing 2032	500.0	353.6	368.9	-	-	6.2	6.2	500.0	359.8	368.9
Total bond issues	6,992.0	6,737.7	6,558.4	-	750.0	20.1	770.1	7,749.4	7,507.8	6,568.3
Borrowings	3,524.3	3,520.6	3,520.6	(66.6)	450.0	12.8	396.2	4,067.2	3,916.8	3,916.8
Lease liabilities	67.7	67.7	67.7	(7.0)	-	9.2	2.2	69.9	69.9	69.9
Total borrowings	3,592.0	3,588.3	3,588.3	(73.6)	450.0	22.0	398.4	4,137.1	3,986.7	3,986.7
Total debt	10,584.0	10,326.0	10,146.7	(73.6)	1,200.0	42.1	1,168.5	11,886.5	11,494.5 10,555.0

At 30 June 2023, the Terna Group's has access to additional financing of €3,455,0 million represented by two revolving credit facilities and €450 million32 related to a loan agreed with the EIB in March 2023 but not yet disbursed.

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 the market interest rate curve at the reporting date.

³² With regard to one of the two additional tranches agreed on 30 March 2023, amounting to €900 million, to fund the construction and commissioning of the East and West sections of the Tyrrhenian Link. One of these was drawn down in June.

														(€m)
	MATURITY	31 DECEMBER 2022*	30 JUNE 2023*	PORTION FALLING DUE WITHIN 12 MONTHS	PORTION FALLING DUE AFTER 12 MONTHS	H2 2024	2025	2026	2027	2028		AFTER OTHER**	AVERAGE INTEREST RATE AT 30 JUNE 2022	AVERAGE INTEREST RATE AFTER HEDGES AT 30 JUNE 2022
	2023	659.6	681.4	681.4	-	-					-	-	4.90%	9.25%
	2023	999.2	999.9	1,000.0	-	-					-	(0.1)	1.00%	1.14%
	2024	858.2	842.4	-	800.0	800.0	-	-	-	-	-	42.4	4.90%	0.87%
	2025	497.6	498.0	-	500.0	-	500.0	-	-	-	-	(2.0)	1.00%	0.32%
	2026	498.8	499.0	-	500.0	-	-	500.0	-	-	-	(1.0)	1.00%	1.28%
	2026	79.5	79.6	-	80.0	-	-	80.0	-	-	-	(0.4)	0.88%	1.80%
Bonds	2027	984.8	986.4	-	1,000.0	-	-		- 1,000.0	-	-	(13.6)	1.60%	1.91%
	2027	99.8	99.8	-	100.0	-	-	-	100.0	-	-	(0.2)	0.38%	2.77%
	2028	705.6	709.2	-	750.0	-	-	-	-	750.0	-	(40.8)	0.88%	1.29%
	2029	597.2	597.4	-	600.0	-	-	-	-	-	600.0	(2.6)	0.75%	1.71%
	2029	-	742.1	-	750.0	-	-	-	-	-	750.0	(7.9)	3.44%	3.78%
	2030	403.8	412.8	-	500.0	-	-	-	-	-	500.0	(87.2)	0.13%	2.72%
	2032	353.6	359.8	-	500.0	-	-	-	-	-		500.0 (140.2)	1.00%	3.08%
EIB	2045		1,475.0 1,929.7	20.5	2,052.8	14.3	47.7	58.5	104.7	117.2	1,710.4 (143.6)		2.14%	1.55%
Terna's borrowing	2024	300.0	300.0	300.0	-	-	-	-	-	-	-	-	-	(1.22%)
Total fixed rate		8,512.7	9,737.5	2,001.9	8,132.8	814.3	547.7		638.5 1,204.7	867.2	4,060.4 (397.2)
EIB	2041	950.2	893.9	115.2	778.7	57.7	115.3	115.3	115.3	115.3	259.8	-	3.14%	1.35%
Terna's borrowing	2025	799.1	799.2	200.0	600.0	-	600.0	-	-	-	-	(0.8)	3.23%	2.94%
Total variable rate		1,749.3	1,693.1	315.2	1,378.7	57.7	715.3	115.3	115.3	115.3	259.8	(0.8)
TOTAL		10,262.0 11,430.6		2,317.1	9,511.5		872.0 1,263.0		753.8 1,320.0	982.5	4,320.2 (398.0)

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

* The balance does not include prepaid fees of €6.1 million at 30 June 2023 and of €3.7 million at 31 December 2022.

** Includes portions measured at amortised cost and fair value adjustments at 30 June 2023.

				(€m)
	31 DECEMBER 2022	30 JUNE 2023	PORTION FALLING DUE WITHIN 12 MONTHS	PORTION FALLING DUE AFTER 12 MONTHS
Finance leases	1.9	2.5	2.5	-
Operating leases	65.8	67.4	16.30	51.1
TOTAL	67.7	69.9	18.8	51.1

At 30 June 2023, payments on operating leases recognised in application of IFRS 16 amount to €7.0 million.

The total value of the Terna Group's borrowings at 30 June 2023 is €11,430.6 million (€2,317.1 million falling due within 12 months and €9,511.5 million falling due after 12 months net of portions measured at amortised cost and fair value adjustments), of which €4,320.2 million maturing after five years.

Non-current financial liabilities –€224.9 million

Non-current financial liabilities, amounting to €224.9 million, are down €22.3 million compared with 31 December 2022 (€247.2 million) and solely reflects the fair value of fair value hedges.

Fair value was measured by discounting the expected cash flows using the market yield curve at the reporting date. The reduction of €22.3 million, compared with 31 December 2022, reflects the change in the market interest rate curve.

Short-term borrowings – €314.2 million

"Short-term borrowings", amounting to €314.2 million at 30 June 2023, have decreased €129.9 million compared with the previous year, essentially reflecting the repayment of short-term credit facilities by the Parent Company.

Current financial liabilities – €90.5 million

Current financial liabilities at 30 June 2023 essentially the value of net interest expense accrued on financial instruments and not yet paid. This item is up €45.6 million compared with 31 December 2022.

	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Fair value hedges	-	0.8	(0.8)
DEFERRED LIABILITIES ON:
Hedging derivatives	0.1	0.6	(0.5)
Bond issues	74.1	33.5	40.6
Borrowings	16.3	10.0	6.3
TOTAL	90.5	44.9	45.6

Notes

(€m)

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)
	30.06.2023
A. Cash	75.2
B. Cash equivalents*	2,284.9
C. Other current financial assets**	230.9
D.Liquidity (A) + (B) + (C)	2,591.0
E. Current financial liabilities (including debt instruments, but excluding the current portion of non-current financial liabilities)	314.2
F. Current portion of non-current debt***	2,419.4
G.Current debt (E+F)	2,733.6
H.Net current debt (G) - (D)	142.6
I. Non-current financial liabilities (excluding the current portion and debt instruments)****	3,557.1
J. Debt instruments*	5,758.7
K. Non-current net debt (I) + (J)	9,315.8
L. Net debt (H) + (K)	9,458.4

* 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 (€194.7 million), the readily convertible time deposit (€17.0 million) and the value of the related accrued interest income (€19.2 million).

*** Corresponds with the item, "Current portion of long-term borrowings" relating to the short-term portion of long-term borrowings (€635.7 million), the short-term portion of bond issues (€1,681.3 million) and the short-term portion of lease liabilities (€18.8 million), "Current financial liabilities" relating to the value of accrued expenses (€90.5 million) and the item, "Current financial assets" relating to the value of derivative assets (down €6.9 million).

**** Corresponds with the item, "Long-term borrowings" relating to the value of borrowings (€3,281.1 million) and the long-term portion of lease liabilities (€51.1 million) and the item, "Non-current financial liabilities" relating to the value of derivative liabilities (€224.9 million).

***** Corresponds with the item, "Long-term borrowings" relating to the value of bond issues (€5,826.5 million) and the item, "Non-current financial assets" relating to the value of derivative assets (down €67.8 million).

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 ten 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 borrowings");
• a series of loans to the Company from the European Investment Bank (EIB), amounting to a total of €2,967.2 million.

The main covenants relating to 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 specific financial debt, unless the encumbrances are extended on an equal or pro rata basis to the bond issues in question (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

(€m)

Notes

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) "ratings", which involve accelerated repayment should the rating fall below investment grade (BBB-) for the majority of rating agencies or should the Borrower 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 personal or real guarantees or, more generally, 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 the ratings assigned by the rating agencies fall below the level indicated in the respective contracts agreed or should the Company cease to be rated by the rating agencies; iii) pari passu, on the basis of which the Company ensures that payment obligations rank equally with those related to all other unsecured, non-subordinated creditors, without prejudice to privileges under the law; 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.).

30 JUNE 2023
4.0
4.0
29.2
2.3
4.2
0.7
36.4
8.3
8.3
48.7

26. EMPLOYEE BENEFITS – €48.7 million

This item, amounting to €48.7 million at 30 June 2023, is broadly in line with 31 December 2022 (up €0.3 million).

27. PROVISIONS FOR RISKS AND CHARGES – €140.8 million

				(€m)
	PROVISIONS FOR LITIGATION AND DISPUTES	PROVISIONS FOR SUNDRY RISKS AND CHARGES	PROVISIONS FOR EARLY RETIREMENT INCENTIVES	TOTAL
Amount at 31 December 2022	14.0	99.9	26.9	140.8
Provisions	1.3	11.4	-	12.7
Uses and other movements	(1.5)	(24.1)	(2.6)	(28.2)
Amount at 30 June 2023	13.8	87.2	24.3	125.3

Provisions for litigation and disputes – €13.8 million

These provisions, set aside to cover outstanding liabilities that, at the end of the period, 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 balance at 30 June 2023, amounting to €13.8 million, primarily regards disputes involving the Parent Company in relation to the payment of damages relating to operation and maintenance, requests for compensation for easements and labour and social security disputes. This is down €0.2 million compared with the previous year as a result of lower net provisions during the period.

Provisions for sundry risks and charges – €87.2 million

These provisions amount to €87.2 million at 30 June 2023 and essentially regard liabilities associated with urban and environmental restoration projects, regulation of the quality of the electricity service, staff incentive plans, right-of-way fees and tax-related aspects.

These provisions are down by a net €12.7 million, compared with the previous year, reflecting:

• net uses of €9.5 million relating to staff incentive plans;
• the net use of €2.1 million for urban and environmental restoration schemes;
• a net decrease of €1.2 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 year, reflects payments to distribution companies and releases following final determination of the penalties due to previous years.

Provisions for early retirement incentives – €24.3 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 €2.6 million, primarily reflecting payments during the period.

28. OTHER NON-CURRENT LIABILITIES – €957.5 million

This item, amounting to €957.5 million at 30 June 2023, regards accrued grants related to assets receivable by the Parent Company (€66.9 million), in addition to payments on account received in relation to construction of the private Italy-Montenegro, Italy-France and Italy-Austria Interconnectors (totalling €453.6 million).

This item also includes the guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel (€139.1 million), in addition to the Interconnector Guarantee Fund set up by Terna S.p.A. following the issue of the 2016 Stability Law (€155.4 million), in order to fund investment in interconnections in accordance with art. 32 of Law 99/09.

The decrease in this item compared with the previous year, amounting to €13.9 million, essentially reflects a reduction in guarantee deposits received from operators participating in the capacity market in accordance with Resolution 98/2011/R/eel, as amended (down €16.4 million) and a reduction in deferred income relating to grants related to assets receivable by the Parent Company (down €2.6 million), partially offset by an increase in the Interconnector Guarantee Fund (up €8.7 million).

(€m)

29. CURRENT LIABILITIES

	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Short-term borrowings*	314.2	444.1	(129.9)
Current portion of long-term borrowings*	2,335.8	1,909.3	426.5
Trade payables	2,522.4	3,687.7	(1,165.3)
Tax liabilities	21.4	43.8	(22.4)
Current financial liabilities*	90.5	44.9	45.6
Other current liabilities	590.9	669.9	(79.0)
TOTAL	5,875.2	6,799.7	(924.5)

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

Trade payables – €2,522.4 million

			(€m)
	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Suppliers:
- Energy-related payables	1,629.2	2,649.5	(1,020.3)
- Non-energy-related payables	838.7	982.7	(144.0)
Amounts due to associates	5.6	10.1	(4.5)
Payables resulting from contract work in progress	48.9	45.4	3.5
TOTAL	2,522.4	3,687.7	(1,165.3)

Suppliers

Energy-related/regulated payables – €1,629.2 million

The reduction of €1,020.3 million in this item compared with the end of 2022 is essentially due to energy-related passthrough payables (€1,019.4 million). This is primarily due to:

• a reduction of €891.9 in Power Exchange payables, reflecting a sharp decrease in dispatching costs (in particular DSM costs and imbalances); the reduction in costs reflects a price effect (a decrease in price differentials on the DSM) and a volume effect (a reduction in the quantity procured by Terna on the services market) linked to efficiency improvements made in 2022 and 2023 with the aim of cutting the services procured on the DSM;
• a decrease in net payables relating to essential plants for the security of the electricity system UESS (€132.4 million), reflecting payments made in the first half of 2023, which also take into account the maximisation programme introduced by Resolution 430/2022.

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 2023 (€838.7 million) is down €144.0 million compared with the previous year, largely due to increased capital expenditure towards the end of the previous year (primarily by the subsidiary, Terna Rete Italia S.p.A., reduction of €111.9 million - and the Parent Company, Terna Sp.A. – a reduction of €41.3 million), and an increase in the LT Group's liabilities (up €17.9 million).

Amounts due to associates

This item, amounting to €5.6 million, is down €4.5 million compared with the previous year and regards amounts payable to the associate CESI S.p.A., for services provided primarily to the subsidiary, Terna Rete Italia S.p.A. (€4.3 million), relating to electro technical studies and research.

Payables resulting from contract work in progress

Payables resulting from contract work in progress, amounting to €48.9 million at 30 June 2023, have increased by €3.5 million compared with the figure for last year (€45.4 million), essentially due to contract work in progress at the Brugg Cables Group (up €3.4 million).

This item breaks down as follows.

	(€m)

(€m)

	PREPAYMENTS	VALUE OF CONTRACT	BALANCE AT 30 JUNE 2023	PREPAYMENTS	VALUE OF CONTRACT	BALANCE AT 31 DECEMBER 2022
Contract work in progress	(124.9)	76.0	(48.9)	(183.8)	138.4	(45.4)

The carrying amount of trade payables broadly approximates to fair value.

The commitments assumed by the Group towards suppliers amount to approximately €5,057.6 million and regard purchase commitments linked to the normal "operating cycle" projected for the period 2023-2027.

Tax liabilities – €21.4 million

At 30 June 2023, this item, amounting to €21.4 million, is down by €22,4 million compared with 31 December 2022, reflecting the settlement of taxation payable for the previous year and payments on account made during the first half, net of income tax for the period.

Other current liabilities – €590,9 million

	30 JUNE	31 DECEMBER
	2023	2022	CHANGE
Prepayments	180.2	152.0	28.2
Other tax liabilities	60.1	99.9	(39.8)
Social security payables	30.8	28.9	1.9
Amounts due to personnel	70.9	54.4	16.5
Other amounts due to third parties	248.9	334.7	(85.8)
TOTAL	590.9	669.9	(79.0)

Prepayments

This item (€180.2 million) regards grants related to assets collected by the Group (€174.6 million attributable to the Parent Company, €3.4 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 2023.

Compared with the balance at 31 December 2022 (€152.0 million) this item is up €28.2 million, essentially due to the net impact of new prepayments received from third parties and grants deducted directly from the carrying amount of the related assets, totalling €26.3 million.

Other tax liabilities

Other tax liabilities, amounting to €60.1 million, are down €39.8 million compared with the previous year, due primarily to a reduction in VAT payable by the Group (down €35.3 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 €30.8 million. The figure is up €1.9 million compared with the previous year, broadly due to an increase in social security contributions payable. This item also included the amount payable to the Fondo Previdenza Elettrici – F.P.E. (the Electricity Industry Pension Fund), amounting to €2.6 million (€2.3 million at 31 December 2022).

Amounts due to personnel

Amounts due to personnel, amounting to €70.9 million, are up €16.5 million compared with 31 December 2022 and essentially regard the Parent Company and the subsidiary Terna Rete Italia S.p.A.. They primarily relate to:

• incentives payable in the subsequent year (€28.6 million);
• amounts due to employees in the form of accrued and unused annual leave and bank holiday entitlements (€19.4 million) and deferred remuneration (€9.4 million).

Other payables due to third parties

Other payables due to third parties, amounting to €248.9 million, are down €85.8 million compared with 31 December 2022. This is essentially due to a reduction of €57.5 million in guarantee deposits received from electricity market operators to guarantee their contractual obligations under dispatching and virtual interconnection contracts, a reduction in coupon interest payable to the holders of hybrid instruments (down €12.0 million) and a decrease in dividends payable (down €11.0 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" included the assets and liabilities that make up the net assets attributable to the companies 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.

On 7 November 2022, the first transaction closing for the Brazilian companies, "SPE Santa Maria Transmissora de Energia S.A.", "SPE Santa Lucia Transmissora de Energia S.A." and "SPE Transmissora de Energia Linha Verde II S.A.", owners of three power lines in Brazil, totalling 670 km, was completed. On 22 December 2022, the transaction closing for Difebal S.A., the owner of a power line in Uruguay, totalling 214 km, was completed. The sale of the other assets in Brazil and Peru is due to take place in phases, following fulfilment of the conditions provided for in the agreement.

Following the sale of the Brazilian companies, SPE Santa Lucia Transmissora de Energia S.A., SPE Santa Maria Transmissora de Energia S.A. and SPE Transmissora de Energia Linha Verde II S.A. and of the Uruguayan company, Difebal S.A., the item includes the reclassification, as required by IFRS 5, of the net assets attributable to the Brazilian company, SPE Transmissora de Energia Linha Verde I S.A., and the Peruvian company, Terna Perù S.A.C..

Notes

ASSETS	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Property, plant and equipment	1.4	1.3	0.1
Intangible assets	20.6	20.2	0.4
Deferred tax assets	2.7	2.9	(0.2)
Non-current financial assets	49.2	23.3	25.9
Other non-current assets	0.3	0.2	0.1
Inventories	11.8	26.9	(15.1)
Trade receivables	0.1	0.3	(0.2)
Current financial assets	4.0	6.0	(2.0)
Cash and cash equivalents	11.5	11.9	(0.4)
Income tax assets	0.6	0.4	0.2
Other current assets	5.7	14.4	(8.7)
Total assets	107.9	107.8	0.1
Accumulated impairment recognised on remeasurement of fair value less costs to sell	(28.1)	(37.1)	9.0
TOTAL ASSETS HELD FOR SALE	79.8	70.7	9.1
LIABILITIES
Deferred tax liabilities	3.2	1.6	1.6
Trade payables	0.1	7.5	(7.4)
Tax liabilities	0.3	0.4	(0.1)
Other current liabilities	0.1	0.1	-
TOTAL LIABILITIES RELATED TO ASSETS HELD FOR SALE	3.7	9.6	(5.9)
TOTAL NET ASSETS HELD FOR SALE	76.1	61.1	15.0
Amounts included in OCI:
Foreign currency translation reserve	5.3	0.9	4.4
Total reserves related to assets classified as held for sale	5.3	0.9	4.4

Net assets held for sale, amounting to €76.1 million at 30 June 2023, primarily regard investment in the infrastructure operated under concession in Brazil, related to the subsidiary, SPE Transmissora de Energia Linha Verde I S.A..

This item is up €15.0 million compared with 31 December 2022, essentially due to an increase in the net assets of the subsidiary, SPE Transmissora de Energia Linha Verde I S.A..

Cash flow

The following statement of cash flows shows cash flows attributable to the Latin American assets held for sale:

	CASH FLOW H1 2023	CASH FLOW H1 2022
Operating cash flow	0.1	(14.2)
Cash flow for investing activities	(0.5)	(58.8)
Cash flow from financing activities	-	97.1
Cash flow for the period attributable to discontinued operations and assets held for sale	(0.4)	24.1

(€m)

(€m)

E. Commitments and risks

Risk management

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 2023.

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.

The financial assets and liabilities relating to the 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 2022.

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 2022.

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 2023 was assumed:

Notes

(€m)

	PROFIT OR LOSS		COMPREHENSIVE INCOME
	CURRENT RATES +10%	CURRENT AMOUNTS	CURRENT RATES -10%	CURRENT RATES +10%	CURRENT AMOUNTS	CURRENT RATES -10%
30 June 2023
Positions sensitive to changes in interest rates (FVHs, bond issues, CFHs)	0.5	(1.6)	(3.6)	5.9	(7.6)	(21.2)
Hypothetical change	2.1	-	(2.1)	13.5	-	(13.6)
31 December 2022
Positions sensitive to changes in interest rates (FVHs, bond issues, CFHs)	5.0	3.6	2.1	169.8	159.1	148.3
Hypothetical change	1.4	-	(1.4)	10.7	-	(10.8)

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.

The following table summarises the exposure to such risk at the end of the period:

(€m)

	30 JUNE 2023	31 DECEMBER 2022	CHANGE
Derivative financial instruments	67.8	75.7	(7.9)
Cash and cash equivalents	2,360.1	2,155.1	205.0
Trade receivables	1,497.9	2,358.3	(860.4)
TOTAL	3,925.8	4,589.1	(663.3)

The following tables provide qualitative information on trade receivables regarding the geographical distribution and type of customer.

Geographical distribution

		(€m)
	30 JUNE 2023	31 DECEMBER 2022
Italy	1,310.5	2,092.6
Euro-area countries	102.3	165.9
Other countries	85.1	99.8
Total	1,497.9	2,358.3

Type of customer

		(€m)
	30 JUNE 2023	31 DECEMBER 2022
Distributors	479.3	472.8
CSEA	117.6	94.3
Dispatching customers for injections	305.4	826.2
Dispatching customers for withdrawals (not distributors)	330.6	682.0
Parties that have signed virtual import contracts and virtual import services (interconnectors and shippers)	11.5	11.8
Sundry receivables	253.5	271.2
Total	1,497.9	2,358.3

The following table breaks down customer receivables by due date, showing any potential impairment.

				(€m)
		30 JUNE 2023		31 DECEMBER 2022
	IMPAIRMENT	GROSS	IMPAIRMENT	GROSS
Current	(0.7)	1,255.3	(0.6)	2,103.6
0-30 days past due	(0.6)	16.1	(0.6)	28.8
31-120 days past due	(0.2)	9.6	(0.4)	56.2
Over 120 days past due	(35.3)	253.7	(35.4)	206.7
Total	(36.8)	1,534.7	(37.0)	2,395.3

Movements in the allowance for doubtful accounts in the course of the period were as follows.

	(€m)
30 JUNE 2023	31 DECEMBER 2022
(37.0)	(49.6)
0.3	14.3
(0.1)	(1.7)
(36.8)	(37.0)

The value of guarantees received from eligible electricity market operators is illustrated below.

		(€m)
	30 JUNE 2023	31 DECEMBER 2022
Dispatching - injections	255.9	249.7
Dispatching - withdrawals	1,923.7	1,665.8
Transmission charges due from distributors	350.3	329.3
Virtual imports	224.4	269.6
Capacity market (*)	181.5	181.4
Balance	2,935.8	2,695.8

(*) Guarantees relating to Capacity Market contracts to be executed from 2023.

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. More information on the contractual provisions of outstanding borrowings at 30 June 2023 is provided in the section, "Borrowings and financial liabilities" in the notes to the Terna Group's consolidated financial statements.

Bank guarantees

Banks have issued guarantees to third parties on behalf of Group companies which, at 30 June 2023, amount to €347.6 million. This amount breaks down as follows: €73.9 million on behalf of Terna S.p.A., €94.3 million on behalf of Tamini Trasformatori S.r.l., €67.8 million on behalf of Terna Rete Italia S.p.A., €19.8 million on behalf of Terna Interconnector S.r.l., €43.7 million on behalf of Brugg Group companies, €0.1 million on behalf of Terna Plus S.r.l., €4.6 million on behalf of Terna Perù SAC, €0.5 million on behalf of Difebal S.A., €4.8 million on behalf of Terna Energy Solutions S.r.l., €0.1 million on behalf of Terna Chile S.p.A. and €38 million on behalf of Linea Verde II.

Litigation

The main commitments and risks not disclosed in the statement of financial position at 30 June 2023, 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.

Notes

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 several 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, 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

Acquisition of Omnia S.r.l.

On 29 March 2023, LT S.r.l. (a wholly owned subsidiary of Terna Energy Solutions S.r.l., in turn a subsidiary of Terna S.p.A.) acquired a 100% stake in Omnia S.r.l., a company providing Operation & Maintenance services for photovoltaic plants. The acquisition aims to consolidate LT S.r.l.'s position as an Italian market leader in the construction and operation of photovoltaic plants.

The accounting effects of the business combination, provisionally accounted for in compliance with IFRS 3 – Business Combinations, are shown in the following table, which summarises the consideration paid in order to acquire Omnia S.r.l. and the value of the assets acquired and liabilities assumed, as recognised at the acquisition date:

Value of the assets acquired and liabilities assumed at 29 March 2023

	(€000)
	FAIR VALUE
ASSETS
Non-current assets
Property, plant and equipment	4
Total non-current assets	4
Current assets
Trade receivables	179
Current financial assets	2
Tax assets	25
Other assets	41
Cash	17
Total current assets	264
TOTAL ASSETS	268
EQUITY AND LIABILITIES
Current liabilities
Trade payables	46
Tax liabilities	27
Other liabilities	31
Total current liabilities	104
TOTAL EQUITY AND LIABILITIES	104
NET ASSETS ACQUIRED	164
Net assets contributed	164
CONSIDERATION	1,521
GOODWILL	1,357

IFRS 3 requires the acquirer to allocate the cost of the business combination in its accounts by recognising all the assets, liabilities and potential liabilities meeting specific recognition criteria at their fair value at the acquisition date. In this case, the cost of the acquisition of all the company's share capital is €1.5 million.

The expected consideration is higher than the value of the net assets at the acquisition date, resulting in goodwill of approximately €1.4 million.

Acquisition of Rete Nord S.r.l.

On 22 June 2023, Terna S.p.A. acquired a 100% stake in Rete Nord S.r.l. (formerly "Edyna Transmission S.r.l."), a company that owns the following NTG assets:

• a portion of a 220kV power line in Trentino-Alto Adige, extending for approximately 70 km;
• the 220kV Resia sibstation (UD);
• the 220kV Naturno substation (BZ).

The accounting effects of the business combination, provisionally accounted for in compliance with IFRS 3 – Business Combinations, are shown in the following table, which summarises the consideration paid in order to acquire Rete Nord S.r.l. and the value of the assets acquired and liabilities assumed, as recognised at the acquisition date:

Value of the assets acquired and liabilities assumed at 22 June 2023

	(€000)
	FAIR VALUE
ASSETS
Non-current assets
Property, plant and equipment	13,249
Intangible assets	801
Deferred tax assets	180
Total non-current assets	14,230
Current assets
Trade receivables	396
Other assets	17
Cash	293
Total current assets	706
TOTAL ASSETS	14,936
EQUITY AND LIABILITIES
Non-current liabilities
Deferred tax liabilities	198
Total non-current liabilities	198
Current liabilities
Trade payables	128
Tax liabilities	5
Other liabilities	7
Total current liabilities	140
TOTAL EQUITY AND LIABILITIES	338
NET ASSETS ACQUIRED	14,598
Net assets contributed	14,598
CONSIDERATION	14,609
GOODWILL	11

IFRS 3 requires the acquirer to allocate the cost of the business combination in its accounts by recognising all the assets, liabilities and potential liabilities meeting specific recognition criteria at their fair value at the acquisition date. In this case, the cost of the acquisition of all the company's share capital is €14.6 million.

The expected consideration is broadly in line with the value of the net assets at the acquisition date.

Notes

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 2023 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 2023.

RELATED PARTY	REVENUE-GENERATING TRANSACTIONS	COST-GENERATING TRANSACTIONS
Parent
Cassa Depositi e Prestiti S.p.A.		Credit facility.
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.
Fincantieri Group		Development and construction of infrastructure.
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.
Poste Italiane		Sundry services.
Snam Rete Gas S.p.A.	Movement /re-routing of power lines.
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	COST COMPONENTS
De facto parent
Cassa Depositi e Prestiti S.p.A.	-	4.9	0.5
Total de facto parent	-	4.9	0.5
Associates:
Cesi S.p.A.	-	0.1	0.4
CORESO S.A.	-	-	2.6
Total associates	-	0.1	3.0
Other related parties:
GSE Group	4.5	0.4	-
Enel Group	882.3	4.2	0.2
ENI Group	4.0	0.5	0.3
Ferrovie Group	1.4	0.4	-
Poste Italiane Group	-	-	0.1
Open Fiber S.p.A.	-	0.6	-
Other related parties of MEF	-	0.1	0.3
Total other related parties	892.2	6.2	0.9
Pension funds:
Fondenel	-	-	0.4
Fopen	-	-	1.7
Total pension funds	-	-	2.1
TOTAL	892.2	11.2	6.5

Assets and liabilities

					(€m)
	PROPERTY, PLANT AND EQUIPMENT	RECEIVABLES AND OTHER ASSETS	PAYABLES AND OTHER LIABILITIES
	CAPITALISED COSTS	OTHER	OTHER	CASH	GUARANTEES*
De facto parent
Cassa Depositi e Prestiti S.p.A.	-	3.8	2.2	-	0.5
Total de facto parent	-	3.8	2.2	-	0.5
Associates:
Cesi S.p.A.	2.2	0.1	4.8	-	4.6
CORESO SA	-		- 0.8	-	-
Total associates	2.2	0.1	5.6	-	4.6
Other related parties:
GSE Group	-	1.1	-	-	-
Enel Group	14.3	333.7	42.1	-	1,027.3
ENI Group	-	3.2	1.1	-	112.2
Ferrovie Group	0.2	1.6	4.4	-	24.6
ANAS S.p.A.	-	1.0	3.0	-	-
Fintecna S.p.A.	-	3.8	-	-	-
Ansaldo Energia S.p.A.	1.3	-	-	-	22.6
Open Fiber S.p.A.	-	0.1	-	-	-
Poste Italiane Group	-		- 0.1	-	-
Other related parties of MEF	2.9	-	10.2	0.8	3.4
Total other related parties	18.7	344.5	60.9	0.8	1,190.1
Pension funds:
Fopen	-		- 2.2	-	-
Total pension funds	-		- 2.2		-
TOTAL	20.9	348.4	70.9	0.8	1,195.2

* 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.

Notes

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

		H1 2023			31 DECEMBER 2022
	TOTAL	RELATED PARTIES	% SHARE	TOTAL	RELATED PARTIES	% SHARE
Property, plant and equipment	16,623.3	20.9	0.1%	16,200.9	41.1	0.3%
Trade receivables	1,497.9	348.4	23.3%	2,358.3	333.2	14.1%
Cash and cash equivalents	2,360.1	0.8	-	2,155.1	0.1	-
Trade payables	2,522.4	41.1	1.6%	3,687.7	60.9	1.7%
Other current liabilities	590.9	29.8	5.0%	669.9	22.7	3.4%

Income statement

	H1 2023			H1 2022
	TOTAL	RELATED PARTIES	% SHARE	TOTAL	RELATED PARTIES	% SHARE
Revenue from sales and services	1,454.6	903.2	62.1%	1,297.8	857.0	66.0%
Other revenue and income	30.7	0.2	0.7%	33.1	0.1	0.3%
Raw and consumable materials used	124.3	-	-	97.5	-	-
Services	134.1	4.2	3.1%	106.4	3.8	3.6%
Personnel expenses	185.6	2.2	1.2%	166.8	1.8	1.1%
Other operating costs	22.1	0.1	0.5%	13.3	0.1	0.8%
Financial expenses	(108.8)	-	-	(48.9)	-	-

The impact of related party cash flows is shown below:

Statement of cash flows

	TOTAL	H1 2023 RELATED PARTIES	% SHARE	TOTAL	H1 2022 RELATED PARTIES	% SHARE
Cash flow from operating activities	383.0	(28.6)	(7.5%)	956.3	(38.7)	(4.0%)
Cash flow from investing activities	(742.5)	20.2	(2.7%)	(993.5)	(10.0)	1.0%
Cash flow from financing activities	564.1	-	-	179.4	-	-

(€m)

(€m)

(€m)

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 2023.

I. Notes to the statement of cash flows

Cash flow from continuing operations amounts to €390.1 million, with approximately €1,009.6 million in operating cash flow and an outflow of approximately €619.5 million generated by changes in net working capital.

The cash outflow for investing activities totals €742.5 million and regards €724.5 million relating to investment in property, plant and equipment (excluding right-of-use assets recognised in application of IFRS 16), €69.6 million invested in intangible assets, €15.8 million relating to the consideration paid for the new acquisitions described above, after the change in investments in securities, amounting to €32.7, and capitalised financial expenses of €26.7 million.

The net cash outflow for shareholder transactions amounts to €438.6 million, due primarily to payment of the final dividend for 2022 and of dividends paid to non-controlling shareholders (€434.5 million) and the purchase of own shares to service the Performance Share Plan 2023-2027 (€4.1 million).

As a result, net cash used in investing activities led to a total outflow of €742.5 million, covered in part by cash flow from continuing operations of €390.1 million and in part by an increase 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 2022	CASH FLOW FROM FINANCING ACTIVITIES	CHANGE IN FV AND OTHER	30 JUNE 2023
- Long-term borrowings (including current portion)	10,326.0	1,126.4	42.1	11,494.5
- Short-term borrowings	444.1	(130.8)	0.9	314.2
Net change deriving from financing activities	10,770.1	995.6	43.0	11,808.7

L. Events after 30 June 2023

Terna and Salerno University present the second edition of the Tyrrhenian lab

On 7 July 2023, the University of Salerno's Biagio Agnes Press Room hosted the presentation of the second edition of the second-level Master's degree in "Digitalisation of the electricity system for the energy transition", organised by Terna as part of the Tyrrhenian Lab project, in collaboration with the universities of Salerno, Cagliari and Palermo. Giuseppina Di Foggia, Terna's Chief Executive Officer, Francesco Del Pizzo, the Head of Grid Development and Dispatching Strategies at Terna as well as the Chairman and Scientific Coordinator of the Tyrrhenian Lab, along with Prof. Vincenzo Loia, Rector Magnificus of the University of Salerno, gave a presentation on the training offered, details of the topics covered and the objectives of the initiative to recent graduates interested in the course. The excellent results achieved last year, both in terms of applications received and student attendance in lectures, has led Terna to increase the number of places available for this second edition, from 45 to 57, confirming the importance that the Tyrrhenian Lab project has for the Group. For students with a Master's Degree in a technical, scientific and IT subject, it will therefore be possible to apply for the course until 4 September. The course will begin in November and will consist of eleven modules resulting in a total of 60 training credits. The course includes personalised pathways based on the previous academic experiences of participants, programming workshops and practical activities in the field. Having completed the Master's course, the 19 students selected with the support of the universities involved will be hired by Terna and can begin work at the local branch office as experts on algorithms and models for the electricity market, analysis and regulation systems, management of equipment in the field and Substation Automation Systems (SASs).

Conclusion of the share buyback programme

Following the announcement of 19 June 2023 regarding the launch of a share buyback programme to service the Performance Share Plan 2023-2027, Terna - Rete Elettrica Nazionale Società per Azioni made the following purchases:

• as announced on 3 July 2023, 384,827 ordinary shares (equal to 0.019% of the share capital) on the screenbased trading system (Mercato Telematico Azionario) between 26 June and 30 June 2023, as authorised under the buyback programme approved by the Annual General Meeting of 9 May 2023. The shares were purchased at a weighted average price of €7.6325 per share, amounting to a total cost of €2,937,199.30;
• as announced on 10 July 2023, 379,784 ordinary shares (equal to 0.019% of the share capital) on the Euronext Milan Market between 3 July and 6 July 2023, as authorised under the buyback programme approved by the Annual General Meeting of 9 May 2023. The shares were purchased at a weighted average price of €7.6223 per share, amounting to a total cost of €2,894,829.97.

Number of applicants for "Driving Energy Award 2023 –Contemporary Photography" doubles

On 13 July 2023, the 2023 edition of the Driving Energy Award – Contemporary Photography, run by Terna, had attracted a record number of applicants: 2,800 photographers from Italy's 20 regions and all 107 provinces, with ages between 18 and 89. This large-scale degree of participation, in both quantitative and qualitative terms, reveals a high-level modern interpretation of the theme of the award, which this year again received the Presidential Medal. The artistic response to the theme, In praise of balance, was so broad and varies, reaching an average of 20 submissions per day over the 136 days of the application period, offering a surprising picture of what balance means for Italians: a dynamic concept, complex and constantly changing, just like Terna's operations. The huge number of subjects captured, stylistic approaches employed and, last but not least, the many topics handled through the

works, are of unique creative and expressive value. The photographs of the 2,800 participants taking part in the Award are now being considered by the jury, chaired by Lorenza Bravetta, consultant in the field of photography and curator of Photography, Film, and New Media at Milan's La Trienniale. The other members of the jury are Maria Alicata, teacher and curator, Diane Dufour, editor and curator, Andrea Purgatori, journalist and television writer, Francesco Zanot, curator and teacher and Massimiliano Paolucci, Director of External Relations, Institutional Affairs and Sustainability at Terna. The Driving Energy Award 2023 establishes that the jury is supported not only by curator, Marco Delogu, but also by an Executive Committee made up of Igor De Biasio and Giuseppina Di Foggia, Chairman and Chief Executive Officer of Terna, respectively. The 40 photographic works selected as finalists, including the winning works, will be presented in a free exhibition at the Palazzo delle Esposizioni in Rome, from 26 September, the day on which the five winners will be announced, until 15 October. The works will also be published in the fourth edition of the Driving Energy book of photography, which is the official catalogue for the Award.

Successful launch of a new green bond worth €650 million, with a 10 year term to maturity

On 17 July 2023, Terna S.p.A. (Terna or the Company) announced that it had successfully launched a green, single-tranche, euro-denominated, fixed-rate bond with a total nominal value of €650 million. The market showed a strong appetite for the bonds, with the issue approximately four times oversubscribed and attracting interest from high-quality investors from throughout the world. The launch of the green bond took place under Terna's Euro Medium Term Notes (EMTN) programme, amounting to €9,000,000,000 and which has been assigned ratings of BBB+ by Standard and Poor's and (P)Baa2 by Moody's. The green bonds, which have a term of 10 years and will mature on 24 July 2033, pay annual coupon interest of 3.875% and were issued at a price of 99.107%, with a spread of 90 basis points above the midswap rate. The final cost of the issue for Terna will be significantly lower than the issue cost, thanks to the previous subscription of interest rate hedges at lower values compared with market conditions at launch. The settlement date for the issue is scheduled for 24 July 2023. It is expected that the net proceeds from the issue will be used to finance the Company's "eligible green projects", defined or to be defined in compliance with the Terna's Green Bond Framework, which is aligned to the "Green Bond Principles 2021" published by the International Capital Market Association (ICMA) and to the EU Taxonomy, aimed at facilitating sustainable investments. An application was made, at the time of the issue, for the green bond to be listed on the Luxembourg Stock Exchange.

Consents process for re-routing of "Canterno-Guarcino" power line in the province of Frosinone begins

Following the launch by the Italian Ministry of the Environment and Energy Security of the consents process for the re-routing of the 150kV "Canterno–Guarcino" power line in the province of Frosinone, on 24 July 2023 Terna published the notice identifying the parcels of land potentially affected by the project. The project, in which Terna will invest over €19 million, will involve the laying of an underground cable of approximately 13 km in length and 250 metres of overhead line in the municipalities of Alatri, Guarcino, Vico nel Lazio and Fumone. The new infrastructure will enable the demolition of more than 8 km of existing overhead line, with the removal of a total of 35 pylons that currently cross the four municipalities involved. With more than 1,900 people at work on development and maintenance of the electricity grid every day, Terna manages approximately 4,900 km of high and very high voltage lines and 56 electricity substations in the Lazio region.

Attestation

of the Group's Half-year Report pursuant to Art. 81-ter of CONSOB Regulation 11971 of 14 May 1999, as amended

"Half-year attestation"

The undersigned, Giuseppina Di Foggia, 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 2023.

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, 27 July 2023

Chief Executive Officer Giuseppina Di Foggia

(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 2023

HALF-YEAR REPORT – 30 JUNE 2023 | TERNA GROUP 175

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