Investor Relations 1

Macro Trend

COP22 Marrakech Climate Change Conference - November 2016 Implementation of Paris Agreement underway

Multilateral cooperation on climate change continues

United Nations 17 Goals to Transform Our World

Mobilize efforts to achieve Sustainable Development Agenda by 2030

Closing the loop EU action plan for Circular Economy

"Closing the loop" of product lifecycles through greater recycling and re-use. Bring benefits for both environment and economy

Guidelines and Targets of Energy Transition

European Guidelines

Decarbonisation

Market Efficiency Security of Supply

…to ensure that Europe has secure, affordable and climate-friendly energy

TARGETS

	2020 EU 20-20-20		2030 The energy bridge

Reduction of GHGs emissions	- 20%	13%1 -	- 40%
Consumption covered by RES2	≥20%	≥17%	27%
Energy Efficiency (vs BAU scenario)	+ 20%	+ 20%	+30%3
Interconnection vs. installed capacity	≥ 10%4	≥ 10%4	≥ 15%5

1. Target for Italy related to Effort Sharing Decision

2. Share of renewable energy in percentage of gross final energy consumption (transport + electricity + heating & cooling)

5. Single Member State target under study by EC

^3. Proposal EC Winter Energy Package (target previously set at 27%)

Our contribution to the Energy Transition

Differentiating through a shared innovation process

CLUSTERS PARTNERSHIPS

Transmission Technologies Electric Power System Operation Grid & Markets Development Smart Grids (i.e. Smart Islands) Business Improvement

Start Up & SMEs Academy & research centers Energy sector & Infrastructures Supply chain

demonstration cases – interconnection - interdisciplinarity

The Energy Transition is Accelerating

NEW TRENDS TO INCREASE CAPEX REQUIREMENTS

At the lowest cost for the System with high quality standards

RES growing & Thermal decreasing R I

Understanding RES Integration

Investor Relations 7 1. RES production / total demand

(RES = Wind, PV, Hydro, Geothermal and Biomass) 2. Residual load = Demand minus renewable production

REShuffling Energy Map

Need for RES integration and new grid reinforcements on the backbone for South-North energy flow Not homogeneous renewables distribution within the Country (concentrated in the South)

Avoiding Adequacy and Reliability Issues

r o t a r e p O n o si s mi s n a Tr	Interconnections and Private Interconnectors	In the Plan: Italy-France, Italy-Montenegro, SACOI3 (Sardinia Corsica- Italy) and Italy-Austria Under Study: Italy-Switzerland, Italy-Tunisia and Italy-Slovenia
	Internal Reinforcements	Transmission capacity increase on a zonal and local basis
	Replacements	Mitigation of risks of service interruption and increase eco-sustainability Supporting maintenance through digitalization
r o t a r e p O m e st y S	Capacity market	premium Selected counterparties to receive a (€/MW-year) for their capacity obligations Terna will run the Capacity Market auctions (first expected by YE2017)
	Digital Grid solutions	Demand response, just-in-time metering and storage solutions to increase security of supply

A Stronger Grid for Energy Transition

Benefits for the System to drive Capex Plan

Maximising

shareholders' remuneration

Reconfirming Mission and Strategy – Executing the Plan

Growth in Domestic Regulated to facilitate Energy Transition and leverage on core expertise to seize opportunities in Non Regulated & International

Priority List

Energy Transition Ongoing...

Enabling Energy Transition

Flexible Toolkit

2017-2021 Confirming Safe Organic Growth

	REGULATED Capex Driven	NON – REG Capital Light
	Yearly average Capex ~+30% vs Old Plan	Yearly average EBITDA ~+40% vs Old Plan
DOMESTIC	~4.0 Capex in 5 years €bn CAGR 2015-2021 ~2% RAB1 up to ~15.6 €bn	~3502 EBITDA €mn cumulated in 5 years O&M TLC
INTERNATIONAL	Up to ~250 max equity allocation €mn	INTER EPC CONNECTORS
	EBITDA CAGR ~2%	Longer Visibility With
	EPS CAGR ~3%

Investor Relations 14 2. Domestic Non-Reg excluding Tamini

Regulated Capex Plan 2017-2021

Average annual investing ~+30% vs Old Plan

Investor Relations 15 2. o/w ∼10% eligible for incentives, based on current regulation

A Solid +2% RAB CAGR within the plan period

Accommodating the Transition - Regulation

Allowed Return (WACC) confirmed up to 2021 with potential upside on interim review (end 2018)
New Incentives based on outputs for the system (i.e. capacity, quality of service)
Totex Regime: potential outperformance vs outputs, targets and baseline (Opex+Capex)

A new regulation for an evolving system

Non Regulated Activities and International

Exploiting our core capabilities and expanding regulated activities to generate incremental growth

Average ~60% Margin Old Plan ~50%

Limited capital allocation focused on Transmission

Key Assumptions – Regulated Business

Regulatory	2017 Total Grid Fee* 1.91€bn @ RAB growth driven by: - Capex (4€bn) - Inflation at 0.7% on average WACC at 5.3% also after 2019 interim review
	Blended return at 6.3% (incentivized RAB at 40%) Totex Output-based: potential upsides not included and Inflation on allowed Opex at 0.5% on average
D&A	Extension to 45yrs in useful life of HV lines
Cost of Debt	Average 2017-2021 at 1.5%

Key Assumptions - Non Regulated & International

	DOMESTIC NON REGULATED	KEY ASSUMPTIONS
ht g	EPC	850MW  Interconnectors: + cross border capacity new opportunities  RHV Grid
Li al pit	O&M	HV lines/substations  PV  initiatives
a C	TLC	housing services  Long Term contracts for Broadband  New opportunities from Italian initiatives
	INTERNATIONAL	KEY ASSUMPTIONS
n o ti a c o All	Brazil	 2 BOOT concessions for >500km ~180  Capex at €mn  P&L contribution starting from 2019
al pit a C	Uruguay	 BOT concession for >200km ~70  Capex at €mn  P&L contribution starting from 2020 (on PBT)

Group Targets – P&L

Growth at Low Risk

BOTTOM LINE

EPS CAGR ∼3% with increased visibility

Group Targets – Cash Flow

ANNUAL EVOLUTION CUMULATED 2017-2021

Group Targets – Net Debt

Preliminary 2016 and Guidance 2017

Reconfirming Dividend Policy

For an extended period

Consistent and Sustainable

Terna has a major role in the Energy Transition whilst remaining:

Annexes

2017 Total Grid Fee update*

Main Projects

New Cost Benefits Analysis

INVESTMENTS SELECTION FOR SYSTEM BENEFITS MAXIMISATION

New Cost Benefit Analysis (CBA 2.0¹ ) aligned with ENTSO-E criteria and methodology

To be applied to projects >15€mn 2

Introduction of environmental and social KPIs

Terna new capex plan already compliant with the new CBA 2.0 methodology

Main KPIs	CBA 1.0	CBA 2.0
Quality of service and security
Day-ahead market benefits
Renewables integration
Dispatching market benefits
Grid resilience and flexibility
Environmental and social KPI

Investor Relations 30 1. AEEGSI resolution 627/2016

2. 25€mn for 2017 National Development Plan projects

Summary Targets Financial KPIs

Financial structure will remain solid within the plan
Main Financial KPIs on a sustainable level, well below the main rating agency thresholds

Investor Relations 31 1. Of which 0.77 reimbursed in February 2017 2. Government Related Entity

2017 National Development Plan

Challenges Decarbonisation Market Efficiency Security of Supply Renewables Integration Quality of Service Interconnections Bottlenecks Resolution Connections to NG 7.8€bn NDP 2017 26% 25% 23% 21% 6% 2.5€bn in 2017-2021 5.3€bn post 2021 ITA-FRA ITA-MNE ITA-AUS mainly SACOI3 + other local and zonal congestions Existing and new plants

Benefits for the Electricity System (Categories)

2017-2021 Replacement and Defense Capex Plan

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