Corporación Acciona Energías Renovables, S.A. (ANE) Earnings Call Transcript & Summary

This is the results presentation for Acciona Energia 2021 results. I'm Jose Manuel Entrecanales, Chairman. On my right, Rafael Alcala, CEO; and on my left, Arantza Ezpeleta, Chief Financial Sustainability Officer, and here in the room with us, a few of our top executives who will be addressing some of your questions should that be necessary. It has been a successful year indeed. Despite a complex environment and undoubtedly its key event has been the IPO, indeed, one of the most important strategic milestones in our history at the time when we are entering a new phase for the renewable energy industry. As I repeatedly mentioned in our IPO road show, we started this industry in its infancy period back in the '90s, then followed by its adolescence in the early 2000s. And finally, living its adulthood with a company exceptionally well suited to tackle the multi-decade growth opportunity that derives from global decarbonization objectives. The IPO was indeed a catalyst for Acciona Energia as it will facilitate realizing our full potential by significantly deleveraging and letting us achieve investment-grade ratings, presenting a simpler clean-cut story for both credit and equity investors, enhancing our ESG profile and significantly reducing our cost of capital, which we estimate will be -- has been already in the north of 100 basis points. Our financial results for the year are better than we forecasted despite unusually low production and almost full hedging of the Spanish market. EBITDA was up 25% over the last year, 4% above market consensus. Net profit up 77% over 2020, consistent with market consensus. We invested in excess of EUR 800 million, which was 42% higher than the previous year. But we had to -- the year before, obviously, we had to optimize our cash management in the pandemic context. Still below market. This year, execution or CapEx was still below market expectations as a result of global tensions in the supply chain. And we ended up with a stronger investment-grade leverage ratio of 1.83 net financial debt to EBITDA, which is, as I said, significantly below market consensus and including our initial expectations. The last 6 months since the IPO have been a busy period with plenty of challenges and significant opportunities. The decarbonization trends continued to accelerate despite considerable industrial tensions arising from the post-pandemic global economic recovery and who knows is now from the strategic tensions. But given the somewhat crowded renewable energy development sector, we believe these challenging moments actually constitute a competitive advantage for well-capitalized experienced global renewable energy companies such as Acciona. And despite higher inflation in affecting equipment costs, transport and logistics, the high prices, best-in-class procurement capacity and large operating asset base, put Acciona Energia in an advantageous competitive position. Simultaneously, strong demand for our clean electricity supply and to a great extent, the flight to quality from clients who absolutely need to honor their decarbonization pledges together with scarcity of mature projects in the market place us as one of the leading signatories of PPAs in the world. PPA prices are also improving gradually as clients accept they will have to pay some degree of a premium to secure firm reliable non-emitting electricity supply. Risks and challenges. There are some. The regulatory environment is volatile in a number of markets and supply change disruptions continue to test our execution capacity. We are, however, actively managing our well-established relationship and profound knowledge of the global supplier network, hence minimizing the impact of rising equipment costs, delivery delays and logistic bottlenecks. As for higher CapEx cost and return pressures, in general, higher PPA prices are offsetting this trend. Global decarbonization policies remain supportive. Countries accounting for 80% of the global emissions have committed to net 0 by 2050. Social awareness continues to mount and consumer demand for nonemitting electricity and energy efficiency remains very strong. There are undoubtedly significant hurdles to a speedy energy transition, such as growing not in my backyard effect, slow permitting, great access, cues of frequent and unpredictable curtailments. And we would see that some of these risks require policymakers, sector agents, grid developers to have a very active coordinated action in order to continue the decarbonization process. Despite asset prices remaining high, deal flow for potential corporate transactions has boomed as a result at least partially of Acciona Energia's IPO with higher visibility of the company, a more competitive cost of capital and the clear perception by the market of a stronger balance sheet and the existence of a stock currency. The Acciona acquisition, Cargacoches and some moderately mature pipeline acquisitions recently are good examples of this pipeline of this movement in corporate transactions. '21 we'll probably remember as the takeoff year of green hydrogen. We once again are partnering this revolution with our first green project, Green Hydrogen Mallorca already in production and our joint venture with Plug Power and healthy pipeline of new projects in our key hubs. To finish, looking ahead to '22 and with all the caveats of the growing geopolitical tensions, it appears it could be also a good year given the strong commodity price environment, the commercial strategy hedges that we have been implementing in recent months and the strong PPA demand. In this context, we expect a healthy delta relative to 2021 EBITDA. In terms of execution of our 5-year plan, our most up-to-date program is delivering close to 1 gigawatt of capacity additions during '21. This is approximately running 6 months behind schedule, mostly due to supply chain and network tensions. We do expect, however, to have over 2 gigawatts under construction at year-end and exceed our 23 to 25 capacity additions targets to reach the 20 gigawatt global installed capacity objective by the end of the period 2025. We have added recently around 1.5 gigawatts of incremental pipeline in the U.S., Brazil and Peru. Some of it ready for construction and the rest with a time horizon of 12 to 18 months. These other possible additions should contribute to maintaining the momentum in the plan despite the short-term delays. As I say, the environment is not a void of short-term challenges. We are here for the long run, and we remain committed to our strategic goals. There is a lot to keep us busy in 2022 to take advantage of a renewable energy market that is increasingly attractive with huge untapped growth potential and strong pricing trends. So before leaving the floor to Rafael, I would like to mention that the Board has proposed a dividend of EUR 0.28 per share, implying 25% payout ratio, consistent with the dividend policy that we outlined in our IPO. So thank you very much. Rafael, the floor is yours.

Thank you, Jose Manuel, and good morning to you. I wanted to start first with the key highlights for the year, for 2021, some of which has been covered by Jose Manuel. In terms of financial results, 2021 has been a very strong year, better than we expected with double-digit growth across the P&L. EBITDA is up by 25%, reaching close to EUR 1.1 billion and the new capacity additions have been particularly profitable as the result of the Texas event early in the year in the U.S. and the Spanish business goes with high [indiscernible] and faster payback in the regulated business although our financial hedging strategy has limited the capture of high power prices. We have reached, for the first time, the 20 terawatts hour mark in terms of consolidated output. Lower financial charge has been another important driver for the profit growth, showing the benefits of our new capital structure. During 2021, we added 557 megawatts of additional capacity, mainly in Chile and Mexico and Australia, and we have 700 megawatts under construction at the end of December. I will review our pipeline and construction plans in a moment. We have also been making good progress in our green hydrogen strategy, both in Mallorca project and also in our joint venture with Plug Power. From the balance sheet perspective, our net debt and leverage is better than we expected and is showing our ample capacity to grow. We are particularly pleased with our funding activity on the back of the investment-grade ratings, obtaining [indiscernible] after the IPO became today a frequent issuer of the green bonds in the European market. We have limited refinancing needs in 2022 and a high proportion of fixed debt. In the next slide, in Slide 9, you can see the status of our pipeline in the context of our own targets. Our current pipeline amounts to 17.4 gigawatts plus another 33.3 gigawatts of longer-term opportunities. The secure and under-construction portion that is including the capacity added in 2021 increases from 3 gigawatts to 3.7 gigawatts with some projects as [indiscernible] in the U.S., also San Juan de Marcona in Peru and a small project in the Caribbean. All these new opportunities are projects with short-term construction start dates or already under construction. I would also like to highlight the entry into a new market, Brazil, with the Sento Sé project 800 megawatts wind farm in the advanced development bucket with good start construction in 2023 subject to obtaining its interconnection permit as planned. We aspire to making Brazil into a multi gigawatts hub in the next very few years. Finally, we have also been boosting the long-term pipeline with European projects to keep fueling our growth beyond 2025. Moving on to the Slide 10. We show our current construction targets. In the appendix, you can find the table with the summary of the 3.7 gigawatts that are secured or under construction or have already been installed in 2021. For 2022, our current expectation is to add 800 megawatts of new capacity in 2022. And we expect to have around 2 gigawatts under construction by December 2022 that should give a good degree of visibility to our 2.6 gigawatt target for 2023. You can find in the slide, the individual projects that we are expecting to be under construction as of December 2022. The supply chain disruption is making some of our project schedules slipping into the next year, but we are increasing our near-term and medium-term pipeline to compensate and to give further robustness to our 2025 targets. And so in 2022 and 2023, in aggregate, we will add 3.4 gigawatts not too far from our expectation before the supply chain disruption appears on the same. On Slide 11, one of our key priorities at the moment is mitigating the short-term impacts and potential medium-term risks associated with the global supply chain disruption. The market environment remained challenging with commodities remaining volatile at the peak prices coupled with the current situation in the shipping and in the logistics market. PV module prices are being maintained despite of lower polysilicon prices in the recent weeks and growing manufacturing capacity. And in the U.S., the taxes for Chinese module was extended. We have been working hard to reinforce our supply chain strategy in the context of unprecedented level of volatility. In the slide, you can find some of our key initiatives that is including a tender for 1.5 gigawatts of modules for the period 2023, 2024 as well as a shipping contract for deliveries to Europe from Asia with one of the major operators. We have also agreed for McIntyre Logistics, one of our largest projects in the portfolio. We are containing the impact of higher cost and delays in our current CapEx at hand, which represent around 2.5 gigawatts of capacity for the period 2022, 2023, and we estimate that the overall CapEx for this project in aggregate has increased mid-single digit relative to our initial pricing, and we will mitigate this extra CapEx through the balance of plant efficiencies and to lower cost of financing. In the medium term, we believe that increases in renewable energy project investment cost will be gradually incorporated to the PPA and to the Auction prices. In fact, in the Slide 12, the PPA market is accelerating the demand for additional PPAs driven by corporate ESG objectives. At the same time, as demand increases, there is growing scarcity of new products in the market to supply that energy given the supply chain and the permitting delays. We are seeing today industrial demand shifting to contract with existing renewable plant as opposed to new projects exactly because of the scarcity of projects that I have just mentioned. This is an opportunity -- a good opportunity for us to contract the Spanish volumes at a very attractive medium-term prices. Prices are moving up basically in higher demand, higher CapEx cost, ensuring spot prices and the customers today are accommodating the expectations gradually to this new environment. We are seeing PPA price discussions and negotiations in the Spanish and India parent context for infill projects as producers moving -- moving up by 20% or 25%. Our supply business continues to grow in terms of volume, in terms of customers and we are seeing growing demand for low-end contracts given the current volatility in the power markets. We are accelerating the deployment of the supply business strategy as a hedge for our own generation. In the Slide 13, we have outlined the key developments with respect to the new business initiatives and the new technologies. On the green hydrogen front, we are very proud of the start of the operation of the Mallorca project, the first of its kind in Southern Europe and the first supply contract with a failed leader company. The ACCIONAPlug joint venture continues to work on developing its first utility scale centralized production and supply facilities that we call hydrogen [indiscernible] and also on-site projects for large industrial clients. We are expanding our green hydrogen activity to other countries, and we have already obtained financing in Chile, for example, to develop a new project of hydrogen in Iberia. With respect to the offshore activity, we are working with SSE on the [indiscernible], and we are looking at the floating offshore technology that is in the space today less counted and open for relapse with no clear winners yet. On the Energy as a Service business, providing full decarbonization solution for our customers. We have expanded our businesses through the acquisition of Eqinov, a very successful French operator in the energy efficiency and flexibility capacity in the markets, as well as a fast and superfast electric vehicle charging company in Spain. Finally, on innovation, we would like to highlight the development of our blockchain technology to trace the green origin of the hydrogen for our customers as well as the first storage facility in Spain using second-life batteries from electric vehicles. Now I'd like to hand over to Arantza Ezpeleta, Chief Financial and Sustainability Officer, for a review of the financials and the operations of the year.

Thank you, Rafael, and good morning. On Slide 15, you can find key financial and operating highlights of the year. Revenues grew by 40% to EUR 2,472 million, on higher generation as well as energy supply revenues. EBITDA increases by 25% to EUR 1,086 million, supported by both the Spanish and international businesses. Earning before tax as well as net profit grew by more than 70%, boosted by operating profit growth as well as lower financial charges. Net investments cashflow amounted to EUR 819 million, and net debt stood below EUR 2 billion, leaving the gearing ratio below 2x, better than we initially expected due to a slightly lower investment and good cashflow generation at the end of the year. In terms of the operating metrics on the right-hand side, the consolidated capacity grew by 6% while the consolidated output by 3%. Our average achieved price increased by 19% to EUR 75.5 megawatt hour, driven by Spain and Texas. In Slide 16, we show our ESG highlights and key environmental and social performance metrics. Our vocation is to position ourselves as a climate leader and strongly aligned with the European Union taxonomy for low carbon activities. The company has gone through the Standard & Poor ESG rating process obtaining a great result, and we will gradually obtain ratings from other key ESG providers as a stand-alone company. We have rolled out our own sustainability master plan to 2025 with the aim of reducing our environmental footprint and boosting our positive impact. On the social metrics front, we have improved the ratio of women in manager and executive positions and our social impact management metrics. The accident frequency index has increased from the previous year. However, this is the second highest result ever, and we have been reducing the number of accidents for 11 years in a row. On the environmental side, 100% of our CapEx is aligned with the European taxonomy Scope 1 and 2 emissions fell year-on-year to 14 million tons. We have increased the proportion of waste recovered to 97% and have planted close to 75,000 trees as part of our nature-based solutions commitments related to our syndicated loan facility. In Slide 17, you have more detail on our net investment cashflow of EUR 819 million with a breakdown of the ordinary CapEx of EUR 614 million, representing the investment from a fixed asset perspective and the net movement in payments to CapEx providers of EUR 205 million related to last year's cash flow management. The majority of the CapEx is concentrated in our 5 hubs and includes the increased ownership in ACCIONA Energía Internacional. In Slide 18, you can see the cashflow and movement of net debt during the period. Operating cash flow amounted to EUR 792 million, almost offsetting fully the net investment cashflow of EUR 819 million during the period. I would also highlight the capitalization of the Intragroup debt for EUR 1,859 million preparation for the IPO and the dividend paid to our parent company in April of EUR 100 million, corresponding to the 2020 net result. The Intragroup capitalization is therefore the main driver for the reduction of debt in the company, which including the IFRS-16 amounted to just under EUR 2 billion. In the next slide, you can find more detail about the net debt position. I would highlight that the average cost of corporate debt stands at around 1.2%, while the project finance debt is much more expensive given currency denominations and the circumstances when these old structures were arranged. Following the recent issuance, our average cost of corporate debt is around 0.6%. With no further interest rate increases, we expect broadly similar or lower cost of corporate debt in 2022 relative to the 1.2% in 2021. How much lower will depend mostly on how much we do in U.S. dollars and Australian dollar, which, as you know, are more expensive. With respect to the average maturity of the debt, as of December, it stood at 3.55 years. But with the 10-year bond issued in January, this would become 5.2 years. We are very pleased with our 2 first green bond issues, not just because of the very competitive costs achieved and the way the transactions turn out to be even more successful than we invested, but also because we have now established a secondary curve. The issue of these bonds have increased the proportion of fixed versus variable, which as of December was 43%, but with the new bond moved to 64% on a pro forma basis. During the rest of the year, our strategy is focused on increasing the serve of U.S. dollar and Australian dollar in our debt mix to better reflect the underlying asset exposure. In the appendix, you will find more detail about our liquidity and maturity schedule. In the next few slides, I would like to summarize the operating performance on the Spanish and International generation businesses during the period. In Slide 20, we have included an overview of the power markets in Spain, with the average pool price in 2021, increasing to EUR 111.9 megawatt hour, more than 3x the record low prices in 2020 due to the pandemic. I won't go into the drivers for this huge increase in the power price environment as they are well understood by everyone. We have included some statistics on electricity demand, the production mix, hydro reserves and commodity prices that we hope you find interest in. In Slide 21, you can find the key drivers of the generation revenues in Spain. Starting with the consolidated output, it fell by 3%. The nonregulated production exposed to wholesale market represented 43% of total and what's in its majority hedged as part of our prudent commercial policy in the context of the recovery of prices following the worst of the pandemic in 2020 and early 2021. We increased our hedging levels for 2021 substantially relative to what we had been hedged the year before. While this Spanish wholesale price tripled to EUR 111.9 megawatt hour, our average price increased by 27% to EUR 83.6 megawatt hour. The price is lower and so is the year-on-year growth as a result of hedging and regulatory banding. Regulatory income is flattish year-on-year, which also contains the growth. The average price of our financial hedges for 2021 was EUR 51.8 megawatt hour, reflecting the prevailing power price environment in 2020 and the early part of 2021. The Gas Clawback impact in quarter 4, 2021, was EUR 6 million with very limited impact and spread over small unhedged volumes. You can see this with more detail in Slide 34 in the appendix to this presentation. The combination of regulated and nonregulated revenues has resulted in an increase of 24%. With respect to the regulatory banding mechanism, the Spanish Securities Commission issued in October last year, a communication stating its criterion for the accounting of the banding mechanism given that there was no homogeneous accounting across the listed companies and accounting firms, given the complexity of the issue. We have adopted the new guidelines issued by CNMV in our financial statements. Finally, I would like to mention our levels of hedging for 2022. In Spain, we have had 3.35 terawatt hours in mid and a further 0.6 terawatt hours through sales of generation to end customers through our supply business. So that is a total of 3.9 terawatt hours at EUR 123 megawatt hour. We may increase our 2020 hedging volumes further according to our risk policy, and we are now increasing our medium-term hedging through financial contracts and increasingly using our supply business customer base. In Slide 22, you can see the main financials for the Spanish business. Revenues, including energy supply, are up by almost 50% and EBITDA grew to EUR 531 million by 48%. The biggest drivers are the faster payback in the regulated fleet as well as the hydro levy rebate, as already discussed. In Slide 23, we show an overview of drivers for our main hubs in the international business. We draw your attention to the ERCOT prices during February and the strong increase in the global commodity market. Moving on to Slide 24. The production from our international fleet increased by 9% on a consolidated basis, thanks to new capacity in operation, more than offsetting the 7% decline in production for the existing fleet. The U.S. is down due to the weather incident as well as some curtailments while Mexico and Chile are up on new capacity. In terms of power prices expressed in euros, the average price increased by 12% to EUR 68.1 megawatt hour, driven by the U.S. market with lower achieved prices in Mexico and Chile with the evolution of the U.S. dollar, which has depreciated by around 3%. Total generation revenues in the international fleet increased by 23% to EUR 718 million. In Slide 25, you have the full revenue and EBITDA breakdown for the international business. New capacity in the U.S. market with exceptional ERCOT prices are the main reasons behind the growth in EBITDA of 9% to EUR 555 million, offsetting low output and a slightly weaker U.S. dollar. To conclude the presentation, we would like to provide you with our current expectations for the year 2022. We expect another year of solid double-digit growth in EBITDA to be driven mostly by the Spanish business where achieved wholesale prices are expected to be higher where they're already hedged in accordance with our commercial policy were still open. In terms of CapEx, we expect net investment cash flow of EUR 1 billion to EUR 1.2 billion. We also expect net debt to be relatively flat compared to 2021, given the strong cash flow expected in the current environment. And as a result, net debt-to-EBITDA ratio at year-end should be lower than last year. Thank you. And let me hand back to Jose Manuel.

Okay. Thank you, Arantza. We're going to go on to the Q&A session. We are receiving a number of questions. Raimundo is arranging -- Raimundo Fernandez-Cuesta is arranging the questions and passing them on to us, and I will pass it on to the team. Now the first question comes from Oscar Nájar with Banco Santander and Álvaro Navarro with Mirabaud and it's about the weak numbers in America and Australia and what do we think about output, normal load factor and indications about level of prices? So Rafael, please?

Thank you, Jose Manuel. Yes, answering your question about the output in Australia and Americas this year was with a lot of weather incidents, some curtailments in both countries in Australia and also in the U.S. and lower wind resources than expected. Also in Mexico, we had lower resources -- lower wind hours than expected. And additionally, we had an availability during almost one month in January because of our Mexican substation. About the normal load factor and prices, the normal load factor in the U.S. should be around 35%, in Australia around 30%. And the normal prices in the U.S. should be around high USD 30 and in Australia around AUD 40.

The second question comes from RBC and Mirabaud, and it's about the McIntyre projects in Australia and Solar PV projects in the U.S. that have experienced some delays in terms of permitting equipment financing and PPAs. So please ago Rafael, go ahead on McIntyre and then we can hand on.

Okay. About McIntyre project in Australia, we are finalizing all the permitting. Yes, we have received 2 days ago the final full permitting that was the EPVC, the Environmental Protection and Biodiversity Conservation Act. And with that, we are fully ready to start the construction that we will start physically on site in the next couple of weeks. About the other part of the question, please, [indiscernible] Engineering and Construction Manager will have the answer.

Thank you, Rafael. Yes, related to our projects in the U.S., we have two 2 projects already under construction, [indiscernible]. We have adapted our schedules, and we have daily contacts, let's say, with our PV suppliers from China. We have adapted our schedules and now we can also -- we can already confirm that these 2 projects will be finished during the year as we are in a very well advanced position. For the 2 projects that are going to start in the next few months, [indiscernible], we are also having very contact with our suppliers trying to adapt, as Rafael was mentioning schedules and costs and we are very close and -- I mean, well advanced to know that both projects will be as expected, delivered during 2023.

Good. Thank you. And as for the next question, it is from [indiscernible] and is asking us to update on our hedging for 2022 in Spain and what would be our strategy if Spanish regulators decide to extend the gas flow back beyond March in terms of hedging? [indiscernible] why don't you take this one, please?

Thank you, Jose. Okay. For 2022, we go on with our commercial strategy. So now for this year, we have hedged 3.9 terawatt hour at an average price of EUR 123 per megawatt hour is the result of some hedges in forward markets at 3.3 terawatt hour and other 0.6 terawatt hour closed in long-term contract with final clients. At this level, we -- up to now, we avoid any cashflow back in our portfolio. So in case of this Clawback regulation is standard, we consider we will avoid also.

And when you carry on with #4, which is also from Fernando Garcia and that we -- it looks like we are taking a more integrating approach in our supply business to hedge our own output. And it's -- whether this is a long-term change of strategy? Rafael?

Yes. Let me answer your question about the strategy. Yes, this is something that we have been planning for years. The situation is today, we have a base of customers in our supply business of something around 9 terawatt hour per year. So it's a fantastic base of customers to secure our revenues with our own generation. We started years ago and today, this is a structural part of our business. When we are talking about securing 80% of our sales, this is one of the very relevant points to secure one part of that. So this is a planned and successful strategy.

Then there's a question here from JPMorgan, which is the incremental cost that you -- that we'll be facing from acquiring assets ready to build or almost ready to build versus organic growth? Arantza, do you want to take this one?

Yes, sure. So the approach is not very different. We normally buy employees that are still shipping in its earlier stage of development with opportunity to add value on our site. There are markets precisely for that reason, where we are not buying development projects as they are too far from the cost from greenfield and thus, they don't meet the -- our return requirements, for example, Spain, but we're also seeing opportunities in some of the markets such as, for example, in ERCOT where we are buying very efficiently given that we are a trustworthy counterparty closing deals that has existing operators. We are already a player there and with assets under construction. And so usually, the sellers give us exclusivity, not needing us to compete in an auction, which is a great opportunity.

We've been asked by a number of institutions, Santander, BofA and then some others about what the situation in Ukraine of our assets. We have, as you know, 100 megawatts of Solar PV assets, about 100 kilometers northwest of [indiscernible]. And at this stage, we really can't say what the effect will be. It will very much depend on how things evolve. But...

Yes, let me add there. We have been talking with our team there in Ukraine today early in the morning. We have 9 people -- local people working there, all of them are safe at home. They plan to start because they are remote controlled, and they start automatically early in the morning, reducing load half an hour ago because the load factor today or the lower demand today in the country. So we are monitoring very closely the situation in very close contact with our team.

In terms of EBITDA, Ukraine represents between EUR 10 million to EUR 12 million on a normalized basis.

There is another question from Javier Garrido from JPMorgan about if we are satisfied with the profitability of our Australian assets and what should drive an improvement in the contribution of the existing assets in Australia to our P&L. Let me say that in 2021, one of our wind farms in Australia was expediting the PPA and was recontracted in the different level of PPA prices. In the case of our assets in Queensland, we are seeing better prices and better stability for our projects in Australia, where we have a very wider the pipeline, we are expecting our spread of 200 basis points over the local work.

What do we think about the possible tax in the European Union for all generations, how could it impact earning? Well, it's difficult to say. We don't know how it will impact. We don't know how the tax will be applied. So no answer for that one. Sorry, Oscar. Then Mirabaud asks about the profitability of the supply activity in Spain in 2021. That's a very wide question. [indiscernible]

Yes. The question is about the profitability of supply activity in Spain in 2021. So we have to say that the majority of the energy we sell on the supply side to our customers is been acquired -- well, it's sold on pass-through which means it's index, we are taking our pricing risk there. Most of that energy we are acquiring simultaneously when we close the supply contract with our customers. However, there is still a very minor percentage of that, which is open. Typically, our clients, one thing is the volume of electricity they wish to contract and it's different, the amount they actually consume, and there's always a small mismatch there because we are not covering 100% of the contracted volume and in circumstances such as we have seen last year with a huge volatility in prices, there's an amplifying effect of that small percentage. However, as has been mentioned before, those contracts that we are selling on fixed prices, we are also looking at closing internally with around generation, and that is a very good mitigant -- price risk mitigant for around generation.

Okay. Thank you, Javier. There's a question here on -- from HSBC on Brazil. Please provide more information and color about the Brazil hub. What role would it play in the 2025 to 2030 targets? Will all the growth be in the wind? Those are questions that I think could be best dealt by Rafael.

Sure. So Brazil is getting quite an important market for us. we are expecting to bring on the period up to 2025 at least somewhere around 1 gigawatt of installed capacity. The idea will be this 1 gigawatt is a win, we are expecting to still build up a pipeline of somewhere around 2 gigawatts as a normal base in Brazil. And the opportunity on PV, it's also there. As you know, there is a nice regulation in Brazil. So we'll be looking at that also to try to join it with the current assets that we'll be doing there.

Thank you. The next question is from BofA and it's about our IRR versus WACC spreads. And the question is where do we -- if we still see the 200 to 300 basis points for new capacity to '25? The answer is yes. In fact, we've reduced our cost of capital, as we've mentioned, beyond what we expected. Exactly, we believe it's about 130 basis points. Of course, there are elements to be -- to make that exact figure, there is some subjective elements of what is included, but it is around those levels. And PPA prices are also experiencing some pressure upwards. So we believe those margins can be easily achieved -- not easily, but achieved as easily as would be in the past, achieved today. Hedging for '20, this is from HSBC and BofA hedging for '23 and '24. [indiscernible]?

Yes. thank you. Okay. For 2023 and 2024, we'll continue with our strategy, implementing -- this year we will -- probably we will have more merchant exposure. So we will increase our volumes, but on the other hand, we increased -- we will increase our hedge by long-term contract with clients. So for now, for 2023, we have hedged 0.35 terawatt hours in forward markets at EUR 117 per megawatt hour. And we have 5 terawatt hour closed at EUR 66 per megawatt hour in a long-term contracting in 2023. And for 2024, we are starting with hedging now mostly in long-term contracts, but we will continue with our strategy of 80/20 strategy that we have had in the last years.

Thank you. Next question is from Goldman Sachs from Alberto Gandolfi, and it's 1% of our portfolio has revenues linked to inflation directly or indirectly, power prices? Arantza, why don't you give some light on that?

Yes, sure. Just over 80% of the PPAs feed-in tariffs and PPAs from regulated auctions are indexed. These volumes represent approximately 30% of the total volume and revenues. And this does not include the volumes exposed to wholesale prices, which are implicitly commodity inflation linked and which represents another 20% of the total volume.

Okay. There's also a next question from Goldman Sachs, Alberto Gandolfi about if we can explain more, we can be more specific about how we can add 2.6 next year whilst having only 2 gigawatts under construction by year-end? And if we can provide more visibility on what stages of this 2.6 projects are, in what stage we are? What percentage is permitted, what percentage is CapEx secured, what percentage has already been awarded in auctions? Rafael and [indiscernible], I think, okay?

Yes, I'll begin on the part of how -- which products are under granularity. You can find that on Page 10 of the presentation. Those are -- we are explaining the projects that are comprising 1.9 gigawatts already projects that are approved with the CapEx secured and that they are under construction. And then an outstanding 688 megawatts that those are projects that are on the process of final investment approval from Acciona Energía. Of course, when we get that to an approval, they are ready with all the permission on our ready situation.

Sorry, I was just going to mention, that's the projects, McIntyre, San Juan de Marcona wind projects in Spain and Europe, that will amount for 1 gigawatt approximately. We will have some PV projects in Spain for around 400 megawatts, and the rest would be the PV in USA and PV in LatAm for the rest of the 1.2 gigawatts. That's what we are planning to construct next year. Of course, not all of that is being closed with all the contracts, but for McIntyre, as Rafael was mentioning, we are just starting this. But for projects that we will start in the year, we are working on that.

Okay, thank you, [indiscernible] and Rafael. Next question is from Morgan Stanley and is asking us about the geostrategic tensions, potential impact in our 2022 EBITDA guidance. Well, apart from our Ukraine assets, there's no evident obvious impact. Then again, we don't know what these geostrategic tensions that have started in the recent days. And particularly today, what the evolution of that will be. So we don't know that. I am just concerned that there could be an escalation that would have an impact in our operations. I'm just saying that for the sake of prudence, but I have no quantification of any sort what that possible escalation would imply. Then next question on tax rate from Soc Gen, what can be expected in 2022 and onwards? Arantza?

Yes, sure. We are expecting between 27% to 28%.

Very good. Thank you. Then another one from Soc Gen. What is the hydro output expected for 2022 considering the drought? Well, the drought is -- who wants to take this one? Rafael you take it?

Yes, maybe the production in 2021 was very low production, 1.7 terawatts hour in hydro, the past year was -- the year before it was 2.5. And usually, the average production is around 2 terawatt hour. So it's very difficult to predict, which is production. But any case, all our higher power station are in the mountains, North Spain where the hydrology is usually better than in the rest of the country.

Despite it being difficult to predict what the drought -- how the drought will evolve in the next few months. Next question is from Stifel, Enrico Bartoli, and it's about opportunities in the offshore wind, what are we doing in order to speed up increasing technological competencies? Why don't you take it?

On offshore wind, as you know, we're working on the technological side focused on floating technologies to see how to position ourselves for the upcoming auctions, mainly in Spain and Portugal, where most of the thing is always expected to be floating. We're working on 2 vectors. So we're developing in-house solutions together with our infrastructure colleagues. So the Argo solution that we talked about at length during the IPO process, which is the gravity-based solution. But we're also developing a couple of semi submergible and TLP-based solutions that we're testing in canals as we speak, and we are planning to -- or working to install prototypes, full-scale prototypes in the coming -- in the short to medium term. And we're also monitoring the market to see what others are developing. What -- as you know, there's a large number of startups and independent companies that are developing innovative solutions in the floating technology, and we're keeping a close look to see how to position ourselves and the ones that stand out as being most competitive.

And why don't you carry on with the next question, Jose, which is from [indiscernible] about our acquisition in France and whether that is a first step in the country? Well, it not actually a first step. We were present in the country a few years ago. And we sold our assets there. But yes, why don't you go ahead and then we'll go on to the next part of the question.

Sure. So as you will have seen, we announced the acquisition of a French company called Eqinov which is an independent leader of energy management and energy consultancy services in the country, particularly active in the white certificate market. We believe that France is a leader when it comes to energy efficiency, market model and market regulation. And we think that is a model that will likely be replicated across Europe. We -- our investment in Eqinov hopes to leverage the knowledge of the company when that model is exported to other European countries, and we hope to position ourselves ahead of our competitors, thanks to that knowledge. France is a country that we are monitoring more broadly, and we think that the acquisition of Eqinov can help us can help us build that position. As of right now, we are not actively pursuing any opportunities in the generation business in the country, but it's a country that is obviously close to home and could well present a growth opportunity. But more focused on the energy services side of things, we think there are important synergies that could be realized from this acquisition by combining Eqinov's knowledge and with Eqinov's balance sheet and strength in providing additional services that Eqinov today cannot provide and similarly, bringing the knowledge of Eqinov to the Spanish market as I described.

Thank you. As for your second question, whether we're looking at building or acquiring more production assets in France? No. The answer is at this stage we're not looking at any acquisitions of generation assets in France. And then there's a third question from Kempen about how close we are in securing the shipping line from Vietnam to the U.S.?

Well, usually, we are in very close relation with the Chinese manufacturers, especially today all the supply for our U.S. projects are coming from the solar from China manufactured in Vietnam, and they are responsible for the shipping and for the transport from the factory to the final destination.

And there's a question here from Paul also at Kempen on the placement of additional stake by ANE. Well, this is the ANE, Acciona Energia results presentation. So it's kind of a Board of Acciona mother company decision. So it's difficult for me to give you a final decision on that because it's the Board's decision. However, I can definitely say that at these prices and given the low leverage that we are -- at which we are at this stage, it is very unlikely that we would be placing any more shares of Acciona Energia in the market. Now there is a question on what the situation in Mexico is? Rafael, why don't you take this one?

Well, we are following the situation with the potential reform on the law, that this is in parliament. There are several opinions about how the reform is being discussed today -- that we are doing today is to protect our assets and following the situation. I'd like to say that we are not having planned investment in the next 3 years. We were very successful with the existing assets contracting almost all the energy coming from our existing assets and that we are doing today is to prepare a new portfolio for the second part of the next 5 years. So no risk of the new assets and monitoring the situation in the operating part.

We had about 700 megawatts of capacity to be added in the 2025 period. And I believe at this stage, as things stand, we are not counting on that capacity being put in place, but of course, we expect the situation to clarify itself fairly quickly. So it's kind of a month's situation.

Okay. Now from Alberto Gandolfi at Goldman Sachs, what percentage of '22, '23 and '24 CapEx is secured on a fixed cost? [indiscernible].

Thanks, Jose Manuel. So I don't have the figure. I should take my calculation. Most of our CapEx for '22 and '23 is closed. Of course, we have all the contracts. And some of the contracts for PV modules and for wind turbines are linked in some of the specific components to the commodity prices, [indiscernible], but I don't have here the exact number. And for '24, I would say, none of the cost is already fixed. I mean, we are still working with suppliers, and we will be closing this in the coming months or whenever. Sorry, not able to be more precise.

Well, we can answer that one directly later on through Raimundo. And last question here because we are exceeding the time unless there's anything very important that Raimundo wants to ask us on behalf of the investors and analysts. Gas Clawback, if Gas Clawback is extended to December 2022, what would be the impact of this clawback in revenues from the 3.95 terawatt hour hedged at EUR 123 megawatt hour? [indiscernible]?

Thank you. Finally, if the Gas Clawback is extended at the end of this year, we consider we will not -- in the same conditions, we will consider that there is no impact in our portfolio in the rest in the -- from second quarter to the end of this year, we have higher hedges than the third quarter. And in this third quarter, we avoided this Gas Clawback we consider we will be impacted by this extension.

Thank you. There's one follow-up question about the civil generation from Oscar Nájar with Santander. Is your approach more for industrial clients, midsized companies with solar PV rooftops, parking lots, malls? Rafael, will you take that one?

Yes, our distributed generation business is a part of our portfolio that we are offering our -- to our customers. Our concept to offer to our customer solutions, energy as a service and that we are offering today is, of course, a long-term contract, a PPA supply or in case if they prefer some kind of solutions, distributed generation, energy services, hydrogen, any kind of products in the portfolio, mainly directed to industrial customers.

Very good. Thank you very much. Thank you, Raimundo, and thank you to the audience. With this, I think we finish this results presentation. Thank you very much.