A2A S.p.A. (A2A) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the A2A Group First Half of '21 Results Conference call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Renata Bonfiglio, IR Manager of A2A Group. Please go ahead, ma'am.

Thank you very much. Good afternoon, and welcome to A2A's conference. Renato Mazzoncini, CEO; and Andrea Crenna, CFO, will present the group H1 '21 results. A Q&A session will follow. I now hand you over to Renato Mazzoncini. Please go ahead, sir.

Okay. Thank you, Renata. Good afternoon, everyone, and thanks for joining our conference call. I just now finished the Board that approved the first half results of 2021. And let me say that I'm very happy about the result compared with the same period of 2020. But, remember, for us was not so critical, because it was flat like ordinary EBITDA on 2019. And so the growth of our economics is comparable both with 2020 and 2019. If you have the slides of our results, looking at Slide #3. There are some achievements of this second quarter. Some of these very important like the nonbinding agreement signed with Ardian for a partnership in energy generation and supply in Italy. A2A and Ardian are aiming to establish the second largest Italian platform focused on energy transition. In particular, we talk about this agreement, that is able to accelerate our capacity in renewable, considering that Ardian in Italy has, in this moment, a large eolic portfolio. And of course, the equity that is able to bring to our JV can push our growth, in particular, in renewable. But also staying in our traditional gas generation. The authorization for upgrading the gas-fired turbines in Sermide and Piacenza, which are a couple of our thermoelectric power plants, through AGP is very important for our marginality and our EBITDA in the next years. And shifting to the customer base growth, 3 lots awarded from gradual protection services tender for the supply of electricity to small business was for us, a very good result. Also because the number of lots was, if I were remember, 6 or 7, and so we won 50% more or less of the total lots on the table. Talking about circular economy. As you know, we are working a lot to grow in water management. So during this quarter, the building and civil works, was completed at Gavardo in province of Brescia, is a new wastewater treatment plant, but served more than 20,000 people. And EUR 12 million of CapEx. And the operation date is confirmed by the end of this year. And an interesting agreement in Milan with Eni for district heating. You know that we are working a lot to introduce renewable energy in district heating. We want to arrive to 73% at the end of our plan. And we are looking for it to recovery, like a couple of agreements that we do in Brescia with a steel plant. And in this case, Eni Power has a production site in Bolgiano that is able to provide energy for 6,000 families. Some key enablers, open innovation. We decided to extend our project of corporate venture capital. In the last Board, we decided to put on the table, another EUR 15 million. So in this moment, our capacity on corporate venture capital is globally EUR 45 million. That is nice to work with the ecosystem of -- stepped up. And talking about simplification of 10 authorization processes, it's very important that there are a lot of, let's say, movements at our government level to, in particular, to solve the problem of authorization, [Audio Gap] New green plants in our accounts. Okay. So shifting to page 4, financial strategy linked to sustainability. In particular in January, we -- as you remember, we deployed our industrial plan with 10 year strategic plan very focused on ecological transition. In May, the financial framework to be able to use as better as possible, our focus on sustainability also to, let's say, to win on the market -- on the finance market. And in fact, in July or I don't remember, Andrea, if July or the end of June, we delivered the first sustainable linked bond for EUR 500 million. So also, this is very important for us. And if we look at Page 5 of key ESG highlights, we can see that we grow about 15% in recovered waste. And the renewable capacity, growth of 14%, in particular, because, as you know, we bought the solar portfolio of Octopus. We reduced the coal production 35%. And let's say, we are closing the coal production. And the emission factor, you probably -- you remember that we are certified with the science-based targets. And for this emission factor, that is very important, we have to arrive in 2030 less than 230 grams of CO2 per kilowatt hours. In this moment, the reduction compared with 2019 is 7%. Let's say, is completely unuseful to compare the production with 2020, because the very low level of demand changed completely all the KPIs. So we decided that it is more interesting to compare 2 years, let's say, normal like 2019, and we hope 2021. Talking about people, 600 new employees. 29% are women. We are looking to grow this number. Group injury index, I think very, very good on Page 5. And shifting to the economics, the numbers. I think that we can go very quick on Page 6, because you all know that the energy scenario is truly positive. But you have to consider that we have a very important hedging on the energy scenario and in this case, of course, is a loss of opportunity. The MSD margin is really important in this semester. And also, the hydroelectric production, twice more than 2020, is surely a result much better than the benchmark in our country. The district heating volumes growth also for the [ thermal ] temperature, that was very low till May. So of course, for us, very interesting. Water cycle tariffs increased, in particular, in a couple of areas in Lombardi, that is in Brescia. And M&A with, in particular, the consolidation of our subsidiary in Brianza, AEB. We bought -- we closed the agreement by JV with AEB in November 2020. And so EUR 32 million of EBITDA is inside our perimeter. Other M&A, Octopus, very important, but not so visible like EBITDA in this quarter. And Agripower and Agritre that we closed last -- at the end of last year. So looking at Page 7, 28% of growth of revenues. 23% of EBITDA, we have up to EUR 690 million of EBITDA. So it's clear that is a result for us, very important. There are surely some timing effect, but Andrea will explain later better. The EBITDA ordinary is about the same, a couple of million euros of differences. And the group net income is, let's say, incredible EUR 340 million years, considering 30% [ affected to ] the business. So the higher EBITDA, increase in D&A and in particular, there are EUR 145 million due to book value versus tax based assets alignment in what in Italy, we call Decreto Agosto, is very interesting for this. So looking only the ordinary group net income, the growth is 31%, so from EUR 154 million to EUR 202 million is also very important. And let's say, also the net financial position is very good. In particular, if we consider that the cash out for M&A is more or less EUR 400 million and the growth of the net financial position, less than EUR 300 million. Last page, page #8. So in this page, you can see a breakdown on the 4 business units. You remember that we are working to unify the business unit generation with the business unit retail. And in this case, you still look the different business unit, because we are working side internal organization to business unit with the extraction of synergy that is a number of new unique business unit in the future. So in this moment, representation is, let's say, typical that you know, but surely, the generation and trading move through the most important growth, but is very interesting to see that all the business units are performing very well. The delta perimeter for the consolidation of AEB is EUR 32 million. And so there is EUR 100 million of, let's say, organic growth. In this EUR 100 million, there is timing -- some timing effect. And this is the reason why at the end, we decided to put a guidance that probably you have seen in the presentation. It is between EUR 1.270 billion and EUR 1.3 billion. I only want to underline, because in my personal opinion, it is probably the most important thing, the growth -- the incredible growth of the CapEx, but we forecast in the business plan that also talking with you analysts, some risk of, let's say, execution in the CapEx, to get on the path and the fact that we accounted the 65% of growth on CapEx compared with the same period of 2020, let's say is a signal, very strong, in particular. And I'm looking at Page 15, the growth is let's say, all in development, because you can see that with more than EUR 100 million in development. Development is 50% of the growth. And so this is the reason for why I can confirm like guide a CapEx [Audio Gap] EUR 1 billion. And this is really, in my opinion, the most important element that says that our company is running a really very, very quick on our industrial plan. So Andrea, if you want to give more detail about the single business units, the floor is yours.

Renato, thank you very much, and good afternoon to everybody. Before we enter into the single BUs, let me take -- stress a point that Renato already made, the overall result, and still page 8, EUR 133 million includes so different perimeter from the M&A and some temporary effect, positive temporary effects, as such, we are expecting to be reversed into the second half. If we net the results from these 2 elements, we are left with the pure organic growth, which was, in any case, very, very good and exceeding 12%. If we move now to Page 10 on the generation. In this view, growth, as you see here is almost completely organic as M&A was only represented by basically Octopus with a quite limited contribution in the semi annual results. Where the growth is coming, it's coming from -- for about a bit less than EUR 50 million from the scenario, prices, basically, and spreads, which we have been able to benefit only partially because we were already hedged for the vast majority. We have done still a good performance in the ancillary services albeit a bit less than in Q1 in Q2. We got a positive volume effect. We got a positive contribution, though, minimal from Octopus. And the only negative number you see, apart from costs, which basically relates to an increase in the [Foreign Language] -- in the fees, say, to the regions. It's the only negative numbers from the gas portfolio, which basically splits into 2 reasons. One, a regulatory change in the logistic of the gas -- of the gas portfolio, which basically forbids the possibility to make optimizations. And the other 50%, it's basically a scenario and due to the gas price increases versus the first half of last year. We are currently hedged on the year to go, overall, on the total expected production, about 65%. However, hydroelectric is hedged at 95%, EUR 52.5 per megawatt hour. Whilst on the CCGTs, we hedged 50% and EUR 9 per megawatt hour in terms of spread. On 2022, anticipating what I'm sure might be questions -- on 2022, we hedged 28% -- 28 total production. On hydro, we hedged 45 at EUR 59. And on the CCGTs, we hedged 20% at EUR 7 per megawatt hour. If we move to Page 11, we got the market performance. We see a 14% growth rate, which is quite in line with Q1, but it's no longer due 100% to the effects of the first-time consolidation effects of AEB. Excluding the AEB, the contributions, the BU is reporting an EBITDA, which is increasing at 4.5%. Here, we have as positive drivers, growth in the free market customer base plus 85,000 customers from December -- the end of December. We got strong volumes, both in [ electricity ] and gas, respectively, increasing 23% and 20%. And we have got the unit margins in line with the previous quarter or bit better in both the mass market and in the B2B in gas. And on the other side, we have seen them a bit reducing in the electricity B2B. And then clearly, we have more operating costs, which is acquisition costs for the acquisitions of the new customer base. I remember everybody that last year COVID hit the new acquisition more than other features due to the COVID. On the following page 12, waste profitability is up 15% or 8%, excluding M&A. Here, we don't have news. Just one, the always the same usual positive dynamics, good waste gate fees. We have higher volumes of waste treated. We have positive prices and volumes of electricity. And as Renato already mentioned, paper prices are this year very, very solid. The only negative is you see in the collection and is actually due from the labor cost. And this is because, basically, collection is recovering from the COVID effect last year, especially in Milano, the situation was critical, and most of the businesses were shut down. So the amount of waste collected was really low and labor cost was equally low accordingly. The following page is networks. It's a very, very solid growth. The second quarter was better than the first quarter. The overall AEB contribution was EUR 11 million, mostly -- or the vast majority, EUR 9 million out of EUR 11 million, in gas distribution. If we exclude, once again, the AEB, growth has been 12% and it's coming from a minimum partner in electricity and gas networks from new connections, which were penalized in 2020 by the COVID. We did bit more of higher capitalization of labor costs due to stronger CapEx. Tariff in hydro distribution were positive and stronger volumes in district heating for both easy comparisons once again for COVID and also a longer up to April thermal season. The following Page 14, the full year depreciation perspective, right now, it's about EUR 650 million, EUR 660 million on depreciation only. And let me comment on tax, where you see a positive variance, which includes what Renato just mentioned, being the positive effect from the reversal of deferred tax liabilities following the application of the law [Foreign Language] 104-2020, the Agosto Decree, which has allowed the realignment of tax versus book value of some asset categories. I think on this point, the net effect was EUR 148 million, as Renato mentioned, or on the group net income, EUR 138 million, because we have a few millions of minorities on the application of the law basically in AEB. And ACSM. I think that on top of -- on top, as a consequence of this realignment, apart from the positive one-off net effect on this year net income, the consequences will be than starting from this year and during the following years, we will have higher allowed tax depreciations, which basically all the rest being equal, means lower taxes and higher net income. We estimated that we might have a benefit of about 1% or 2% of lower tax rate starting from next year. Following pages, CapEx, Renato, just mentioned that. Page 15 does [Audio Gap] The cash flow, you see most of the effects are [Audio Gap] Effects, which led the EUR 164 million positive net free cash flow before the M&A activity comes from the net working capital and other -- change in other liabilities variations. This mostly are, once again, temporary effects due to the dynamics of the net working capital. The only point I think is worth mentioning is that the performance of our receivable portfolio is very good. Actually, the DSO is better than last year and is better than 2019. So we actually are not suffering. We have not seen, and we are not seeing any negative consequence from the last year lockdown on the performance of the portfolio receivable. I would now leave Renato although he already spoiled the assessing on governance...

We're assessing the guidance. As I said before, is range between EUR 1.27 billion, EUR 1.30 billion, like EBITDA -- and CapEx, more than EUR 1 billion. So it's clear that we are able with this second quarter to push the guidance more than last quarter and much better than our initial budget. Okay. I think that we can leave the floor to Renato to questions.

Yes, now it's Q&A time. Please go ahead with your questions.

[Operator Instructions] The first question is from Javier Suarez of Mediobanca.

Thank you for the presentation. I have 3 questions. The first 1 is on the increase of the guidance. So if you can help us to understand the underlying reason, I guess there are plenty, but if you can identify the reasons why you are increasing the guidance for 2021 in terms of EBITDA. And if you can give us also an update on the guidance for the net income or underlying net income. And also, I guess, a related question is that in light of what it is happening with electricity prices in Europe and in Italy as well, you feel the necessity maybe you're changing your hedging strategy and updating the market on your assumptions versus what you say in the recently presented business plan. That would be the first question. Then the second question is on the agreement or initial agreement with Ardian. If you can help us to understand when do you think that this transaction could materialize, you can help us to understand the rationale for it and also the impact on both making the assumption that maybe this is completed by the end of the year, which could be the impact in terms of EBITDA and net income for the group in 2022, for example. And then the final question is on I think that the CFO has mentioned that the -- as a consequence of this adjustment on the -- this one-off noncash fiscal adjustment, the underlying tax rate is going to be from 1% to 2% lower to what you have assumed on your latest business plan. If you can clarify that, that is correct. And also, you mentioned that there are some temporary effects that have been pushing numbers during the first half. If you can help understand the dimension of the temporary effects that should be, I guess, corrected during the second half.

Okay. Javier, I will take the questions on the guidance, underlying assumptions. And very quickly, the answer to question, I would leave the more strategic questions concerning Ardian to Renato. Well, we clearly have, in looking at the guidance, we have taken -- it started from the results of the first half, which have been a bit better than we were expecting. And of course, as we always do, we have tried to figure out what's going on over the next 6 months. And basically, what we have ahead is it's a world in which the upside, but also the downside, possibilities connected with hydro productions are very limited. And the upside are limited to the possibility for us to generate more hydro productions than we are expecting. Okay? Now we are -- today, we are waiting for basically the budgeted volumes in the second half. It's fair to say that in the fourth quarter of last year and the fourth quarter of 2019, hydro productions were stronger than what is today our expected volumes. But it's also fair to say, to acknowledge that only God knows how many rainfalls we will have in Q4. So in a normal scenario, the hydro upsides are limited. We opened 50% on the CCGTs, where we are not 100% hedged. Here, we do have some possibilities and some risks. And we have made the usual assumptions on the ancillary services, which then you might -- as very frequently, we are challenged. You might argue that we are conservative, but we keep on believing that in a normal scenario, from EUR 8 million to EUR 10 million of ancillary services per month is what the system as far as otherwise is concerned should deliver. And then for the other businesses, the forecast is less complicated, of course. So by taking all that into consideration, we came up with the guidance we have provided, okay? It's very simple. On the net income, I think you can -- I just gave the D&A full year forecast. You have the EBITDA, you can clearly quite easily run the forecast on the net income. Certainly, you have to add when you come up to the group net income, i.e. the net income for A2A, i.e., after the minorities, to consider the EUR 138 million of net income, which comes from the realignment of the tax to book values of the assets, okay? And I'm sure you will come up to a number, which is very close to what we have in our forecast right now. In terms of the tax rate, yes. But the realignment by the way, I've read on all those companies that have reported yesterday and the day before yesterday, the results, they did it basically. There's been an opportunity provided by the law that whoever was in the positions to benefit from the law clearly took the chance to do it. You basically have to pay an upfront fee. You realign if you have it, the tax value of the assets to the book value, allowing for strong deductible depreciation. And the positive IRR comes from the fact that lower taxes you will pay from now on up until the end of the amortization of these assets versus the upfront fee. In the A2A case, we will have a kind of EUR 12 million, EUR 13 million of lower taxes -- cash taxes and P&L taxes for the next 8 to 9 years. And then this amount will start to fade. As long as the assets become fully depreciated. And if we have to estimate the impact on the tax rate, is 1% to 2%. Meaning that if our current tax rate is 32%, we are expecting anything between 30% and 31%.

Okay. Okay. Talking about AXA. Talking about Ardian, let's say, as you know, we put on the table a nonbinding offer, a symmetric nonbinding offer for this JV. And we expect it to finalize the agreement until the end of '21. So in the next -- in the next month. In this moment, to understand there is going due diligence from Ardian on our assets and from A2A on the assets of Ardian. Because in the agreement, the agreement is interesting for us. And so I can answer to the question of rationale and the impact is interesting for us, not only because Ardian is found that is able to put fresh money on our table to develop more and quickly, the -- our target. Because as you know, our target of 3.7 gigawatt renewable solar eolic and is a target that we are able to reach also with our cash flow. The problem is that we want to arrive quickly to the target, but we put on '25, 2024, '25 and the fact that Ardian has, let's say, more or less 500-megawatt offer in particular, eolic in some fund, 3 new 4 new some fund is, for us, very interesting. So the agreement is -- we put -- we built a company with inside all our generation and supply. Ardian put money, more or less EUR 1.5 billion, to arrive to 40%, 45% or more of share. And we want to buy as quick as possible the eolic Italian portfolio of Ardian, to increase our power production in renewable to arrive to the end of this operation to manage more or less 800 megawatt of eolic and solar plant. Of course, this has an impact on EBITDA. Is enough to look with how much is it the impact in EBITDA of the fund managed by Ardian in renewable in Italy. So the 2 fund target are 3 new, 55%, 50% with another private investors. And for new, that is fun in which Ardian is 100% owner. So surely, the rationale of the agreement is to create the condition to maintain investment by the fund in generation, but with a clear guide from an industrial company like A2A. Because I absolutely believe that with the future in -- with the renewable and market parity, it's absolutely fundamental to be able really to dispatch different sources of energy, to be able to hedge the production and market parity with the customer base, in the logic of PPAs. And I think that in the future, the fund will have 2 options or like Glennmont, Octopus and others, to sell and to go out from the market. Or if they want to remain invested, in my personal opinion, the best solution is to invest through a minority with a large company like A2A, able to live in the next 100 years in this market.

The next question is from Enrico Bartoli of Stifel.

The first one is a bit general on the new outlook in the power generation market in Italy, but in other countries, also in Europe, we are seeing a forward EUR 77 million, more or less for next year in Italy. I was wondering your opinion on, let's say, the sustainability of this level of prices. So you presented the business plan at the beginning of the year, you have some assumption, but if you can elaborate on your view on how this level of prices can remain after 2022. And if you can provide us a sensitivity of your EBITDA to the variation of the Italian power prices? The second question is related to AEB. You disclosed the contribution of EUR 33 million of EBITDA in the first half. If I remember well, the expected contribution of full year last year was at a figure of around EUR 35 million, something like this. I was wondering, first of all, if actually the transaction is working better than expected. And if you can give us a full contribution for 2021? And then on the JV, on Ardian, I think that the reply, the answer to the question of Javier was quite clear. But I was wondering if on top of the acquisition of the wind assets, if you think that would provide additional opportunities to A2A? And if you can give us also a figure on the contribution to net profit in 2020. You anticipated EUR 390 million, if I remember well, in terms of EBITDA from the asset a bit as well, if you can give us a hint of the contribution onto the bottom line?

Okay. Talking about the prices, in this moment, the level of prices is linked to the prices of gas. The prices of CO2 and the fact that the majority of energy is produced from fossil feedstock. But, in my opinion, if during these decades, in Italy and in Europe, really, we'll be able to put on operation in Italy, 60 gigawatts of new renewable. I think that the prices have to decrease. If you remember, in our industrial plan, talking, for example, about solar production in market parity. The price that we put in our industrial plan was EUR 50 per megawatt. And the reason is that this is a price that give let's say, record marginality to investments to the CapEx, that you have to put up front on it able to build the plant. So I think that is very strange situation in Spain in this moment, because the price is too low and probably also the situation in Italy, that is too high. So with the continuous growth of the renewable, in my personal opinion at the end, the assessment of the market will arrive in a situation to give the current marginality to the CapEx to investment. So we are very happy in this moment that this price gives some satisfaction to us. But -- and probably is easy to imagine that also for the next months and probably the next year, the price will remain high. But in long view, my opinion is that the price has to reduce. And so we don't wanted to modify our, let's say, guidance on the price of energy in our industrial plan. Talking about AEB. Well, the contribution full year...

We're just receiving this number, give me 2 seconds. The differential for AEB in the second half...

Okay. So the third question, Ardian. Ardian is interesting not only because Ardian has a plant in exercise. Also because like every other company that is operating in Eolico and Solare in large-scale, Ardian has a company. The name is [ MS ], if I will remember. 20 guys, so a team not so big, but interesting. That is able to develop and so there is a pipeline. So Ardian is able to bring to our JV, not only capacity installed, but also pipeline. Some hundred megawatt of pipeline, both in Eolico and Solare in Italy. And of course, the rationale of agreement with Ardian is to update our final target in renewable in our industrial plan. Because as I said before, our capacity stand-alone to arrive to 3.7 gigawatts of new renewable is out of discussion. But we want -- and with Ardian, we can arrive higher. So I think that immediately after the closing of agreement with Ardian, we will be able to disclose, let's say, a revision of this part of industrial plan to set higher targets, final targets in the next decade. Andrea, you have the numbers about AEB?

The EUR 33 million we gave before actually is for EUR 23 million 2-3 refers to AEB. I'm talking about the numbers saw in the first half, EUR 23 million AEB and EUR 10 million from the other M&A deals. So the total amount, H1, EUR 33 million. In the second half, AEB will contribute for an increase of EUR 8 million. Please remember that we started consolidating AEB in November. So the differential is lower. And the other -- the M&A contribution is going to be EUR 11 million. So the total AEB on the full year is EUR 31 million. That's the incremental from the AEB, okay.

And sorry, on an indication of the contribution to the bottom line 2020 from the assets that will be confirmed in the JV. Can you provide some number?

In net -- the contribution of the net income of the assets, for instance, the hydro CCGTs?

Yes, yes, sir. Because in the press release, you indicated EUR 390 million, if I remember well, of EBITDA, if it's possible to have an idea of the bottom line of those assets?

Yes. So we have to calculate also because the tax effect, the net financial position effects. We don't have specific data allocated to these specific assets, Enrico. We will have to run the exercise, to carve out the assets attributes data and then it will be possible to figure out, which is going to be the net income. Today, it's -- we don't have specific data allocated to these specific assets.

The next question is from Stefano Gamberini of Equita SIM.

A few questions also from my side. The first regarding the Waste business. Could you give us your view of the recent consultation paper issued by the regulator about the urban waste and in particular, the fact that they set some essential plans in the system that will be regulated at RAB. Do you see some risk about this situation? Or are you happy with the new consultation paper? I don't know when they will disclose the final regulation, but should be shortly about the waste business. And what are the risks that you see mainly related to the decision from the region about the list of these essential plans? The second topic is still related to the waste, in my view, but in general, considering the recovery plan. What are the upside the day after of disclosure of this recovery plan for A2A. What I mean the main 3 upside that you see in the waste business, I guess, but also in the other ones on your point of view? And the third point is still on this JV with Ardian. Just if you can help us to understand why you didn't already set the fact that the Ardian could confer 500-megawatt of wind assets, but you will set the price later. And the second, I'd like to understand better is how this JV could grow up to 3.7 gigawatt of capacity? Do they have the sources, the strength to grow so strongly? Are there some risks that you kept your ability to grow through this JV? That's my 3 questions.

Okay. For the first question, we are very, very happy about the new regulation of ARERA on the waste. Because our position ever was that there is a situation in Lombardy, and there is a situation in the rest of Italy. Because in Lombardy, the number of plants and the dimension of the market produce the market that is working very well and is fundamental not to destroy a market that works. In all the rest of Italy, the problem is that the reason for why there is so big gap, talking about not only waste to energy plants, but all the plants also for recovery for recycling and so on is not only the NIMBY syndrome that surely varies. But also a fact that without regulation there is too high-risk to invest in some regions. So our question was exactly this and this is the reason for why we look very well. This path, in which, of course, ARERA asked to regions to define -- to play a role in the definition of essential plants. But I, personally, with my teams, meet the [ Rafael Caetano ] which is in regional Lombardy [Foreign Language] very responsible in regions in our government, the Minister, the Regional Minister for Waste. And we really can exclude the risk that the region Lombardy decided to regulate the market here in region. And for the rest of Italy. You know that in our industrial plan, there is the building greenfield of plants, 1 in the center of Italy and 1 in the south of Italy. And let's say, without good regulation it is absolutely impossible to proceed. So I think that the decision of authority is the fundamental enabler of our growth in waste-to-energy and in waste-to-material in Italy. So we are really very happy. Talking about the second question about recovery plan, as I said in different other occasions. In our industrial plan, in our EUR 16 billion, let's say, there is really no money or very few money coming from recovery. Because we are looking to understand better how is possible to -- is possible to participate in to the beauty contest tender. And we don't know exactly the way in which of this money will arrive on the territory. And for this reason, I think that surely, money from recovery plan can be an upside, in particular, in the sectors in which the impact of the CapEx on the tariff can be fatal for the deployment of the infrastructure. A couple of examples. For example, talking about district street heating, we have a very interesting project to bring a recovery heat from the thermal plant in Cassano d'Adda, 30 kilometers from Milan, but without a couple of hundred million euros of grants, it's not possible to be competitive with the gas heating in Milan. And so we hope that this money can arrive, of course, because district heating, in particular, from recovery it, it's very important for decarbonization, so it can be in a target for our city Milan and for Italy. And is a case in which is very important to have money. But another example can be exactly the plant of waste-to-energy in south of Italy. Because if it is possible to have grants for the building of waste-to-energy plant in the south of Italy, the result can be a lower cost for the conferment of the waste there for the local municipality. Is the case that we have in Region Campania. Region Campania, the waste-to-energy plant was completely paid with grant from the Government, Region Campania, and the results for Region Campania is that the cost of -- that they pay to bring the waste to the plant is, let's say, half that of the price of the market. So I think that also in this case, recovery plan can push some investments in the center and south of Italy. Another good example can be water, water investment and distribution are very important to do in Italy, both in purification, and in distribution. We need probably EUR 30 billion of CapEx. The risk is that if all this CapEx has to go on the tariff, the cost of water can increase a lot. And in particular, in some parts of Italy, can be a problem. And also, in this case, some grants from recovery can be very interesting. So surely, we are very excited to know probably in the end of September or October exactly how will be done the tender to assign this money. And we are ready to increase our pipeline of infrastructure with this new money. The third question, I don't remember.

About Ardian?

Can you repeat the question about Ardian, please?

Yes. My question was regarding the agreement with them why they will directly confer the 500-megawatt of capacity and how this JV could then ramp up growth to north of 3.7 gigawatt, if this JV has an enough capacity to grow so much?

Well, talking about the 0.5 gigawatt of Ardian, surely, the goal is to bring these assets in the JV. The road to arrive is not -- let's say, is not a direct assignment of asset to the NewCo, because they are still in some fund. So they have to sell it, but of course, the NewCo, we buy it through a direct negotiation. Talking about the total target of NewCo. It's clear that the idea is to manage now cap -- the now maintain of capital in the NewCo as you read, about EUR 1.5 billion from Ardian, and in this way, we will be able to increase the total investment in renewables. So our idea is that if A2A is able to adapt to 3.7 gigawatts stand-alone with Ardian, we have to match this target and to grow more. How much is what we are doing in the industrial plan of a NewCo that is one of the fundamental elements of the agreement. And for to know this numbers, you have to wait the closing of agreement.

The next question is from Emanuele Oggioni of Kepler Cheuvreux.

The first one is on the recent press rumor on some of the gas distribution asset disposals. Based on your current business plan, you might dispose EUR 0.5 billion assets in this year and next year? So in the first 2 years of the plan, so if you can add more color on this potential deal and potential disposals? And the second question is on the political or also NIMBY issue related to the conversion of your plans in pre-industry, for example, or San Filippo del Mela, recently, both the local government rejected your project over conversion. So there is a NIMBY or political issue in this sense. I know that these 2 projects are not included in your base case of the business plan. But if not -- it's a difficult situation to address.

Emanuele, I will pick up the first question. What you read in the press is correct. There is a process currently in place, which, however, is related only to portfolio of assets where [indiscernible] owns only very small minorities of the PDR of the item itself. Basically are the nonstrategic asset item. Those items that should the tenders had been celebrated in time, we would have probably decided not to participate and "lose the asset." Okay, there are no synergy with the major items that we manage and in line with the strategic footprint of the plan, we have decided to bundle all of them into a unique portfolio and trying to see whether someone in the market might be interested to buy these assets, become more strategic for them than they are for us. We're talking not EUR 500 million clearly. We're talking much, much low -- much, much lower amount of millions in terms of RAB. And the process is currently ongoing. So I can't comment more on that.

Talking about the second question, in our industrial plan, we have 3 assets inside the company named ENERGIEFUTURE, [indiscernible] Monfalcone, San Filippo del Mela and Brindisi. And in our industrial plan, we forecast to revamp 1 of these 3 plants in a new thermal plant, gas thermal plant. In this moment, the situation is this one that Monfalcone is, let's say, first in classification. Because we have concluded all the evaluation. And so we have confidence to -- that we can arrive to the tender for the capacity market till the end of this year, done by Terna with the authorization. San Filippo is not bad because the problems that you said is linked not to the thermal plant in which we are absolutely confident to arrive to the handover process. But to a secondary plant for waste to material for humid organic waste. Because we also, let's say, for -- to solve the problem of employee in the site, we proposed to build not on [ the new ] to invest in the full month of the new thermal plant, but also in a couple of secondary plant for waste, 1 for plastic and the other for humid. And the only problem that we have in this moment is the problem with the organic waste for typical problems of smell or such, typical NIMBY problems. But let's say, for these 2 plants, I am absolutely confident that we can arrive to put these 2 plants and not only 1 as we forecast in the industrial plan in the capacity market. For Brindisi, the situation in this is different, because let's say, this moment is probably impossible to do everything. Because, in fact, the situation of the network, electrical network and the energy production in the region seems not favorable to early conversion and investments of it in Brindisi. This is the situation.

The next question is a follow-up from Enrico Bartoli of Stifel.

Sorry, a quick follow-up. I have 2 questions last. One is related to the hedging policy for gas. We always -- you provide details on hedging policy on electricity. I was wondering the impact that you had from the rise in gas prices on your commercial margins. I see the EUR 18 million decline in the generation and trading. But if this is the impact in general, if you can give some details on the hedging that you have for 2021? And the second one is related to the new capacity auctions, what visibility you have and you announced this capacity addition to thermal plants if these investments are linked to the perspective to be remunerated through the capacity payments?

On the gas, Enrico, it's not 100% due to the hedging or not hedging or scenario effects. On the gas, more than 50% is due to what I said it is a no longer possible activity or optimization of the gas capacity. That was possible up until the end of last year, where you basically reserve some capacity. And if you had spare capacity, you could, let me say, "trade" into this capacity and margin out of this capacity if you had it. And today, this arbitrage is no longer possible for regulatory purposes. And then in general, we clearly are short of gas, we don't generate. We use gas for covering sales -- gas sales by our market divisions and with short of gas for our thermal plants, of course. So we don't hedge 100% of our needs at the beginning of the year. We tend to hedge one-to-one sales to the market and not to the -- for the production and not immediately, not 1 year before. So in case we have spikes or rep and time spikes of the gas price, we run the risk of having a scenario similar to what we have today, which is, in any case not the rule. We now, on the expected gas requirements on H2, we hedged well over 90%. So I mean the possibilities for further negative impacts are quite limited or very limited, actually, I should say. The new capacity -- on the new capacity auctions, we are expecting the auctions to be celebrated by the end of the year. Terna has published 3 consultations for some revision of the mechanism. Overall, we're not expecting the tenders to be very different from -- in terms of the mechanist -- mode mechanism, let me say, versus the auctions for delivery '22, and '23, which have already been celebrated. And clearly, right now, it's too early to have a clear view on what the economics underlying the tenders might be. Whether they are in line or not to the previous auctions. Let me remind you that in our business plans, so in the numbers you have seen, we have already accounted for the possibility that the future auctions will be awarded at declining prices, about 7% per year.

The next question is a follow-up from Stefano Gamberini of Equita SIM.

Just a few questions I left. First, regarding the hydroelectric concession. There were some statements from development ministers in these days. Could you elaborate a little bit what do you expect on this? If I'm not wrong in some regions where this law are already approved, this could be effective and the national law with regard just the other regions that sounds strange to me. Just to understand what is the best scenario for you? And what is happening in your discussion with the government? Second, regarding the page 10, the Slide 10. I do not understand exactly this A2A achieved prices. It increased from EUR 40 to EUR 53 the mega tower in first half, while in the first quarter, the same figure was EUR 56 and EUR 63. I do not understand why the first quarter was so high and the second declined. But in particular, I do not understand the first half '20 at EUR 40, if I'm not wrong, you had something north of EUR 50, just in order to have a clear picture about that. And finally, there are some rumors that the government is also working on a new decree in order to accelerate all the authorizations for renewables, just to jump from 1 gigawatt per year to 8 gigawatt per year of new installed capacity. You awarded about the situation and you see some upside for A2A? I don't know. It seems to me that this could be interesting for companies with authorization in their hands. What is your judgment on this?

Well, talking about hydro concession, my personal view is this. First of all, it's interesting that in the last -- in the first part of '21, the European Commission closed some inflections some related to Austria, Poland and Sweden, exactly on the competition in hydroelectric concessions. Because they didn't do bad tenders. And the rationale of disclosing is that is not useful competition in a field in which organically is impossible to grow. So the hydro can grow for, let's say, infrastructural reasons, very clear. And so it's not so useful competition, but it's better to using sectors in which there is a lot of growth to manage. Starting from this fact. And I talked directly with Mr. Gentiloni about this topic. And starting from the fact that the target what the regions want is an increasing on the coal that they catch from the concessions and some investments. Because some investment, not so big, but are interesting to do on the land. We -- probably a way can be 2 great conditions for the actual companies that has a concession to proceed with the concession, but with investment. For example, one of the road can be project finance, so PPP or something else. The problem is that in the Italian recovery and the resilience plan, our government gave the promise to the European Commission to publish the annual competition law with inside some elements of competition. And we are discussing also last week directly with [indiscernible] if introduce or not the hydroelectric in this law. Probably will be, probably in the annual competition law, we find also something about the -- about the hydroelectric. But I imagine that the possibility is not to have like a unique way the tender but also tender on project finance presented by the current concessions. So I'm really very confident that we'd be able to maintain our hydro concessions in Lombardy, Friuli Venezia Giulia and Calabria.

I can answer the questions on -- yes, admittedly, cheap prices can be not immediately understood. It's basically [ A2A ] actual price which clearly not necessarily -- or actually, it's never equal to the market price on one side, because it depends on if you -- and we are dispatching and the mix between base load and peak load. It depends on top of hydroelectric production. So how much we generate from the WTEs and it depends clearly on the amount and level of the hedging. So EUR 40 is on the fixed price technology, which is hydro plus WTE, is the price that we have achieved so in 2020 and EUR 53 is the price we have actually achieved after hedging in 2021. Why this difference is so remarkable, because the percentage -- among the other things, the percentage of hedging in -- on the first half of 2021 has been very high, as we mentioned before. It was over 90%. Whilst last year, we were hedged on the same period for a bit more than 30%. And then clearly, the market went down in 2020 for the effects of the COVID-19. And without the hedging in H2 ready to avoid the downshift pressures on the scenario, we were hit basically. While this year, unfortunately, let me say, we are hedged for the vast majority, and we are not taking the benefit. Otherwise, these variance would have been even higher. I don't know if I made myself sufficiently clear, Enrico. It's -- achieved means actual price is what we have done on the fixed price technology.

Yes. Just was on this comparison versus the first Q that was amazing to me from EUR 63 to EUR 53, but it's fine.

Gentlemen, there are no more questions registered at this time.

Okay. Thank you very much to everyone.

Thank you very much.

Yes. We thank you all for your time and attention. The Investor Relations team is available for follow-ups. We wish you a good summer. Goodbye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.