EDP Renewables, S.A. (EDPR) Earnings Call Transcript & Summary

Hello, and welcome to the EDPR 1H '21 Results Presentation. My name is Stefan, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand over to your host, André Fernandes, to begin today's conference. Thank you.

Thank you. Good afternoon, everyone. Thank you very much for attending EDPR's first half 2021 results conference call. We have here with us our CEO, Miguel Stilwell de Andrade; and our CFO, Rui Teixeira, who will run you through the key highlights of the business plan execution and also through the first half results. We'll then move to Q&A, in which we will be taking your questions. This call is expected to long around -- to last around 1 hour. And now I'll give the floor to our CEO, Miguel Stilwell de Andrade. Thank you.

Thank you, André, and good afternoon, everyone. I hope you're all doing well, and it's always a pleasure to take the chance to speak to all of you that follow the company so closely. Today, we have a presentation, which we'll go through and then, obviously, open up for Q&A as André mentioned. I'd start off by turning -- asking you to turn to Slide 5, and talking about essentially the 3 pillars that we typically talk about. So the first one is growth. Here, what we see is that, on one hand, we're accelerating the growth, clearly, we're adding 2.1 gigawatts year-on-year, essentially consolidating a portfolio of 12.6 gigawatts as of the end of June. We also continue to ramp up. We have 3.6 gigawatts of capacity already installed or under construction. 0.7 gigawatts added year-to-date and 2.9 gigawatts under construction as of June. So I think clearly, you can see from these numbers that the operations are ramping up quickly. On the secured capacity, we have now 6.7 gigawatts and visibility on additional 3.7 gigawatts of PPAs in our key markets, where we are shortlisted or currently under negotiation. So overall, strong short term visibility on additional PPAs. And of course, we'll be participating in several auctions in Europe, which total over 30 gigawatts of capacity until year-end in our existing European markets. So we think there'll be quite a few opportunities there to secure some additional megawatts until the end of the year. We also continue to expand our footprint into attractive markets where we think there are the good growth opportunities with stable regulatory frameworks. We've recently entered into Chile. You will have seen that, also Vietnam, U.K. onshore. And also we have more visibility now on offshore and in Poland. So 4 markets, where we provided some information to the market over the last couple of weeks. Moving over to the second pillar, asset rotation. So here, we have a very strong execution of the asset rotation strategy. And I think that really shows the value and the quality of our projects, both wind and solar. We announced the asset rotation deal in Portugal. So we now have EUR 1.9 billion of asset rotation proceeds signed at extremely attractive multiples. So on average, around EUR 1.6 billion per megawatt, EUR 1.7 billion for wind and EUR 1.25 billion for solar. And we'll go there in more detail in just a minute. We also completed recently EUR 500 million of asset rotation proceeds in the U.S., and we had a capital gain of around EUR 100 million, which is slightly above our business plan assumption of around EUR 200,000 per megawatt. So the multiple is actually around EUR 250 million. So this EUR 100 million gain was booked in the first half results. Overall, asset rotation going well and as per the guidance provided in the first quarter. So we're in good shape to deliver gains North of the EUR 300 million guidance we provided at the strategic update, and we'll be able to talk a little bit about that later on. It, obviously, depends on the timing of some of the regulatory approvals that we get for some of these asset rotations. On operational excellence, so the third pillar. So in the first half, EDPR had a 31% load factor, so stable year-on-year, reflected around 95% of the expected gross capacity factor. I mean, it's particularly tough in the U.S. since first half, so we had low resource, not just through ERCOT event, but just generally, there was much lower wind, let's say, than the P50 for the U.S. From a technical perspective, we continue to deliver good availability of around 97%, so slightly above -- slightly up year-on-year. And together with competitive and efficient operations, so we had a 3% reduction of core OpEx per megawatt, which I think reflects our O&M strategy and cost control. And obviously, this is despite having to scale up upfront to cope with the growth acceleration. So I'll go through these points in more detail in the next couple of slides. So if we go to Slide 6, just a quick word, just to detail a little bit the growth. So the 6.7 gigawatts of capacity I mentioned for '21 to '23 is around 64% of the overall target additions. Since the Capital Markets Day earlier this year, we secured 800 megawatts -- around 800 megawatts mostly in the U.S., and including quite a lot of solar. Return and risk profiles, I know this is something that we got a lot of questions on. So I would just really like to reiterate our disciplined investment approach, which I think is well known, and we've been very consistent on this over the many years. We secured capacity across all technologies and are above our investment thresholds, both from a return and risk perspective. So perhaps, just highlighting 2 numbers. One is the spread of a WACC of around 320 basis points. I think I'd already given an indication on that in the last call. And from a risk perspective, I think it's also interesting to note that we tend to invest only in long term contracted assets. And on average, we've had a contracted NPV above 60%. So NPV over total -- well, percentage of NPV contracted on a total NPV. So disciplined approach or growing with a disciplined approach, I think that's the key message. We move to Slide 7, and perhaps just to touch on another point, which I think has been raised over the last couple of months, and we've talked about this, but I would just like to reiterate. So our investment policy is to contract major equipment upfront already with fixed prices. So when we take investment decisions, we are basing them on the latest real-time quotes requested to suppliers. And then once we have the projects, we typically lock in those prices. So you can see here on the graph, that major equipment is 85% has already been fully contracted. 10% is partially contracted and 5% divestment decision was already taken post increase of equipment prices. And so it's already incorporated into the PPA or the auction bids and so we're passing through that cost inflation into the energy prices. So out of the total of the 6.7 gigawatts, you can see, we have around 90%, which has pretty much no exposure and 10%, which has just a partial exposure. Bottom line, when we talk about the 320 basis point spread to WACC, you can see that there's a very limited impact of cost inflation on this. So we would expect to be around the 3% spread to WACC even in any scenario. If we move on to Slide 8, and we can talk about pipeline. So you know growth and pipeline go hand-in-hand. We continue to accelerate the ramp-up of our pipeline. And so thinking about the future, not just about the short term, but also about our pipeline over the many years, over the next decade. We're already up 5 gigawatts since the Capital Markets Day. And I think one of the things that we really believe and I think our teams have shown that year in, year out, that the track record and the quality and the diversification of the pipeline, it allows us to do good capital allocation across different regions, different technologies and in different types of processes, whether it's RFP, centralized CfD auctions, bilateral PPA negotiations, I think we've managed to really, as I said, be disciplined and really think intelligently about capital allocation across the geographies and across the technologies. So we're confident that we'll be able to secure the additional growth in the short term. As I mentioned, we have almost 4 gigawatts of PPAs under negotiation in which we're shortlisted. And as I mentioned, also, they're 30 gigawatts to be awarded in Europe throughout the auction until year-end. So our target will be to reach around 90 gigawatts by year-end. Also, I wanted to highlight the collaboration agreement we entered into Amazon that came out recently. So we already have almost 500 megawatts of PPAs executed to date, and we see several additional short term opportunities to explore it in the different markets under this agreement. So we would expect this, let's say, this relationship to scale up quickly over the next couple of months. And I think that's a good example of us being able to partner with really credible counterparts to secure PPAs in many different geographies, so not just in the U.S. but also in Europe and potentially even in Brazil. So let's move forward to Slide 9. Talking a little bit about the expanding the geographic footprint. First, I'd like to say that we're really pleased with the fact that we had a successful entry into Chile, Vietnam, onshore in the U.K. and then also the visibility on offshore in Poland. So these are geographies we've been looking at for quite a while, really trying to identify the best opportunity so we could make our entrance. These countries, as you know, have strong growth potential. They have good visibility on long term contracted remuneration. And you can see here, and I'll just go into a little bit more detail, but it's basically markets, I think, that are fully aligned with our growth strategy. And just going quickly, one by one. I mean, Chile, very solid renewables market. Very stable macroeconomic, I mean, for Latin America. So it really allows us to consolidate our presence in Latin America, good renewable targets. So already 77 megawatts secured with a 20-year PPA. And then with a good quality wind and solar pipeline with visibility to market either through distribution options. There's one, for example, in the next week, there will be others also in the future or through a direct PPA bilaterals. Vietnam, so it's really a first visible step to establish ourselves in Asia-Pacific. We've been there for a while, but I think it's the first concrete, visible step that we've shown to the market. And we think there are really good growth opportunities here in the region. So I mean, Asia, as you know, has tremendous energy consumption. It has also strong commitment to decarbonize, and so we think it's also a very interesting market in which to establish ourselves. And we've already indicated that we will be deploying at least 5% of the business plan to new markets in Asia, which would include, let's say, Asia-Pacific. In this particular case of this project, we're talking about an attractive 20-year feed-in tariff for solar asset. Poland. So Poland, the Polish government has now have the strong commitment to establish the offshore industry in Poland. So this program is backed by the European Union. And I think it was an important step for Ocean Winds, which, as you know, is the joint venture we have with ENGIE to grow in offshore, to establish its presence there. So it's -- it would be, in principle, a 25-year contracted asset. Finally, just a word on the U.K. onshore. As you know, we've been in the U.K. now for a number of years in offshore through the Moray East and West projects. There's a very strong government commitment. There's a renewed ambition with the CfD rounds and also ambition around the net 0 by 2050. So I think that gives us a lot of confidence that there will be a good path for growth in the U.K. In this particular case, we're talking about good assets, a good pipeline, very much linked to very concrete milestones. And so let's say, the price is conditioned on achieving those milestones and on achieving them, I would say, the very specific execution. So moving on to Slide 10, on asset rotation. So we're just 6 months into the business plan, we already have EUR 1.9 billion of proceeds secured. So that's around 25% of the EUR 8 billion target we'd given for the full 5-year plan. In addition to these, we have another transaction ongoing in Europe, which I think I'd already indicated, which at very advanced stage. We expect to be able to announce it in the very short term. Overall, I think this shows very strong execution, and we're very happy with the multiples achieved. I mean, you'll have seen this also in the Portuguese wind transaction, which we announced recently. So I think showing, in general, that across the board, whether it's in the U.S., in Portugal, Spain, as we showed also last year -- or the transaction we expect to announce very, very shortly that will have attractive multiples. In the case of the U.S., as I mentioned, the EUR 100 million, EUR 250,000 per megawatt, which is above the business plan assumption. Overall, as I mentioned, on track to exceed the business plan target and deliver capital gains North of the EUR 300 million. So all in all, assets rotation execution, solid, and we continue to see very strong appetite for investors, and we'll be focusing now on completing the transaction or completing the transaction still this year in 2021. And also, obviously, starting to prepare additional asset rotation portfolios for 2022. So I'll now hand over to Rui, who will walk you through the first half results, and then come back at the end for some closing remarks. Thanks.

Thank you, Miguel. Good afternoon to you all. So I would like now to move into the first half results. So if you flip to Page 12. We had a strong performance in Europe and Brazil, also delivering on the capital gains, potentially impacted by the Q1 one-off ERCOT events and the lower generation that we experienced in U.S. during the first half of 2021. So we achieved a EUR 654 million EBITDA, EUR 142 million net profit in the first half of the year. In total, we have EUR 118 million of capital gains at EBITDA level, that's EUR 97 million at net profit. On top of the EUR 100 million gain on the U.S. asset rotation that Miguel already covered before. We also have also positive price adjustments from the 2020 transactions, both in offshore and there was water Build & Transfer. I think it's important also to note that last year, we booked in the first half '20, offshore gains of EUR 145 million at the EBITDA level, so that's EUR 141 million at net income. And therefore, this explains a big chunk of the delta that you see here year-on-year. On the performance in Brazil -- in Europe and Brazil, it continues very strong. It added EUR 40 million year-on-year. Below EBITDA, we continue to improve the overall financial results. In particular, I would highlight our average cost of debt, reducing from 3.7% to 3.2%, so that's 0.6 percentual points year-on-year. And in the top line, U.S. impacted by the Q1 one-off ERCOT event, that we discussed last quarter and also by the below-average resource and the 2020 COD delays. I think the good news is that the teams have done a tremendous job to push these projects throughout the pandemic and we now have the 791 megawatts, 100% fully operational as of June 2021, which, of course, will contribute to the results throughout the second half of the year. Just a quick note on a more technical point, but I think it's worthwhile mentioning. In the first half of 2020, our P&L tax in Mexico, which is now at normalized level. But year-on-year, it comes from a positive P&L tax that we booked last year relating to some net operating losses that we generated in 2020. This is, of course, as I mentioned in the first quarter, this is partly offset by the U.S. R&D tax credit. So just in -- this technical note on this point. So moving to the balance sheet. Net debt, we slightly increased year-to-date to EUR 3.56 billion, still down EUR 1.1 billion from the first quarter, naturally as a result of the EUR 1.5 billion capital increase and the EUR 240 million asset rotation equity pursuits. Just also to let you know that already in July, we secured around EUR 650 million -- dollars -- I'm sorry, $650 million of tax equity proceeds for our U.S. projects, which will be further reducing net debt. Just the last note here, still on the tax equity, it decreased around EUR 300 million to EUR 0.86 billion as of June. This is mostly driven by the deconsolidation of the tax equity of the -- related to the asset rotation deal. So if we move now to Slide 13 on an operational perspective, our portfolio increased to 12.6 gigas. We added 2.1 gigawatts year-on-year. As Miguel said before, we have 2.9 giga under construction. I think this is important. I mean, year-on-year, we have successfully completed 0.9 net gigawatts of asset rotation deals. Just, again, to remember, 237-megawatts in Spain with Finerge. And then in the U.S., several transactions, 102-megawatt building transfer with NIPSCO, 80% of 363-megawatts with CCNL, and 68% of 405-megawatt with Greencoat Capital, that was the last one that we announced in June. So overall, the 12.6 giga portfolio by the end of June 2021, quite well balanced between North America, Europe and Brazil. So approximately 56% in North America, 40% in Europe and around 3% in Brazil. If we move to the next slide, Page 14. In the first half, we achieved a 31% load factor, a good recovery in Europe and Brazil, although partly offset by the ERCOT event and lower resource in the U.S. So in Europe, we reached a 28% load factor. That's one percentage point above year-on-year. So a strong recovery also in Spain and Portugal. North America, we achieved 34% load factor. That's a 2 percentage points drop year-on-year. This represents about 94% of our expected load factor. As I said before, impacted on hand by the one-off ERCOT event in the first quarter and overall low resource during the first half of the year. In Brazil, 34% of load factor, that's an 8 percentual points increase year-on-year. This is good resource, 105% versus the expected load factor, so good recovery from this market. So overall, 31% load factor in the first half. Also worthwhile mentioning that technical availability at 96.9%, a very high level, and slightly above last year. So good performance on the technical side. On Page 15, I'm highlighting the electricity output. It increased 5% year-on-year. Naturally, on the back of the capacity additions. So we generated 15.3 terawatt hours of clean energy in the first half. This is equivalent to avoiding 10 million tonnes of CO2 emissions. So naturally contributing to our effort towards climate change. Europe, generation increased 14% year-on-year, mainly impacted by higher installed capacity, and what I said before about the strong resource in Iberia. In North America, output decreased by 1% year-on-year. This is, of course, reflecting on hand, the new capacity in operation, but this is offset by the lower load factor. Brazil, increasing 27% on generation, again, here driven by a high resource and new capacity being brought into operations. So all in all, during the first half, between North America, Europe and Brazil, we generated about 59%, 38% and 3%, respectively, of the total output. So naturally, very strong contributions from North America and Europe. If we move now to the economics on Page 16. So the average price by the end of the first half at EUR 51 per megawatt hour. This is very much reflecting, I think, our good competitive portfolio, and naturally, also the additions of new capacity that, of course, brings to lower prices. So in Europe, average price decreased 6% to around EUR 77 per megawatt hour. So this is due to the change in the asset mix in Spain, of course, above expected production in Spain, also with the tariff extension in Portugal and the new additions. This, of course, have partly offset by the rest of Europe, 7% positive performance. Now in North America, average price decreased 3% to EUR 43 -- sorry, $43 per megawatt hour. This is mainly impacted by the, of course, hedges that we have in U.S. and Canada, on the back of the new capacity, they being brought into operation. While in Mexico, the price increase is in line with the PPA escalator. In Brazil, average price relatively stable at BRL 246 per megawatt hour. So like-for-like, if we are to adjust for sell-downs, ForEx and the Q1 one-off ERCOT event, average price decreased 2%. And as I said, reflects, on one hand, a good competitive portfolio with new additions that drive lower prices. But this reflect good NCFs, I think, a good portfolio with low CapEx per megawatt. But very importantly, very much in line with what it is our expectation in terms of value creation. So if you move to Slide 17, and we look to the revenues. Revenues decreased by 6% year-on-year. Although, if you were to look at it on a like-for-like basis, it would be relatively stable, 0.5% reduction versus the first half 2020. So revenues sort of EUR 856 million. Of course, with the impact from the sell-down, which is about EUR 69 million year-on-year. Lower average prices, that represents around EUR 22 million, if you are excluding sell-downs. And ForEx translation and others, which is about EUR 38 million year-on-year. This, of course, not being offset by the capacity additions and a resource, which would be a plus EUR 72 million year-on-year. So on a like-for-like basis, as I said, this would be relatively stable, only a small decrease of 0.5% year-on-year. On the core OpEx, I think this is very much in line with our growth acceleration. So OpEx, if we look at it on absolute value, it increased 7% year-on-year. Although if we are to adjust, look at the core OpEx per megawatt, it actually decreased 3% due to our O&M strategy, which, as you know, is something that we developed and it's one of our capabilities. Cost control. This is despite the fact that we are front-loading the need to cope with the business plan and the growth embedded into the business plan. So I think just to highlight, we are relatively obsessed about our operations, make sure that we achieve operational excellence, make sure that we maximize technical availability and keep costs under control. So as a result, our EBITDA, that you can see on Page 19, totaled EUR 654 million rather balanced 50-50 between -- 50-50 split between Europe and U.S., reflecting what is, in our view, a low-risk profile of EDPR portfolio. So if you move to net profit on Page 20. Net profit totaled EUR 142 million. Naturally, this is a reflection of the drop in the top line performance and the lower gains -- on the capital gains, I'm sorry, year-on-year. But I think it's important to highlight that on the financials, we improved I mean overall, particularly the cost of debt that, as I said before, it reduced to 3.2%, so that's a 0.6% reduction or 0.6 percentual point reduction year-on-year. So I think here is what I would like to highlight again the negative P&L tax year-on-year that I explained before related to the Mexico case in -- the Mexican tax in 2020 and the R&D U.S. tax gain in 2021. Net debt on Slide 21. As of June, net debt is at EUR 3.65 billion. I would again highlight here the conservative risk profile. 90% of that is at fixed interest rate. It's also important to highlight that we have currently a significant contribution from U.S. dollar-denominated debt, which is also the result that once we cashed in the capital gains -- sorry, the proceeds from the capital increase, then we were also reducing the euro-denominated debt. So right now, U.S. dollar-denominated debt is at 78% of our overall debt. Also, again, highlighting the tax equity reduced to around EUR 860 million, but this is very much the result of the deconsolidation of the tax equity-related to the asset rotation deal that we closed in June. And as I said, in the beginning, I think it's important to share that already in July, we successfully secured the tax equity proceeds for U.S. projects, a significant amount, $656 million, that, of course, we will be contributing to reduce the overall net debt. And just before I hand over to Miguel, maybe a quick comment about some of our ESG indicators, which is at the core of EDPR on Slide 22. Very strong commitment to operate within these very high ESG standards. If I start by the environmental strategy on climate change, we avoided 10 million tonnes of CO2 emissions, as I said before, during the first half of the year. And our emissions represented roundly 0.2% of the avoided ones. Regarding circularity, we have improved our waste recovery to 76%. And on biodiversity, we have no significant spills and fires, and we had 40 near misses that were recorded. So again, highlighting that we are continuously performing under very demanding environmental criteria and making sure that we perform drills to ensure that all our employees, suppliers, they do have the appropriate training to prevent and act if necessary. On the social dimension, our team -- EDPR team, increased 23% year-on-year, very close to 2,000 employees, 31% of which are women, highlighting that 35% of the new hires during the first half of this year are women, which is very much in line with the EDPR's commitment to reach 36% of women in the team by 2025. Regarding health and safety, year-on-year mostly reflects the increase in installed capacity and capacity under construction. On this point, I would like to highlight that we are very serious about this, continuously assessing, improving opportunities in health and safety, both for our employees and our contractors, and we'll be looking very serious, always, at this variable. And just a final note on our communities. We maintain our EUR 5 million cumulative investment in access to energy, which about EUR 0.7 million in social investment. So that's lower year-on-year given the COVID-19 response plan that was implemented in our local communities back in 2020. And with this, I will now hand back to Miguel for the closing remarks. Thank you.

Okay. Thank you, Rui. So just to finalize the presentation and just a few words on the overall environment and outlook for renewals as far as we see it. So if we turn to Slide 24, I think the first comment I'd make is that we continue to see really strong and very supportive environment. And if anything, the outlook of growth for the sector has only improved. The overall commitment to support both the energy transition and the decarbonization, I think, continues to be reiterated globally. And there have been important updates, both in the U.S. and in Europe. In the U.S., following Biden's American Jobs Plan, the Senate is now working on both infrastructure and reconciliation bills. And these include additional support on investments in electricity grids, which are critical for renewables growth. In June, we also had positive news from the IRS' decision to extend the PTC and the ITC eligibility by 2 years. So this takes into consideration already some delays related with the COVID situation, and I think it's positive for our investments in the U.S. So we with -- we have several both wind and solar farms that were at plan commissioning over the next couple of years, which can benefit. In Europe, the Fit for 55 legislative package enhances again the widespread political support for decarbonization. It elevates the renewables growth targets, it includes also mechanisms for the sector, including reforms for the EU Emissions Trading Scheme. And I think it's also worth highlighting that there's increased guidance and financial support for contracting of renewables PPAs by SMEs, which is in line with our expectation of a growing PPA market in Europe. So again, I think definitely calls for strong fundamentals and unprecedented growth in renewables. Which I remind you, I think I've talked about this in the past, but according to the IEA Net-Zero roadmap expected to represent 90% of electricity generation by 2050. And now if we just turn to the last slide, probably just summarizing in 7 points. First, and basically summarizing the -- let's say, the various messages that we've -- both Rui and myself have passed over the presentation. First, we have the 6.7 gigawatts already secured with good returns and a good risk profile, so -- and protected from the recent CapEx cost inflation. I think that's an important message I'd like to highlight. Secondly, we continue to ramp up the pipeline, and we have significant short-term visibility on additional growth. The third is that we continue to expand our geographic footprint, and we continue to tap further growth opportunities in attractive markets. I think fourth, I'd say, asset rotation execution has been very strong with already EUR 1.9 billion of proceeds with attractive multiples and on track to deliver north of the EUR 300 million in capital gains. Fifth, financial performance, strong positive contribution from Europe and Brazil, impacted by the Q1 one-off ERCOT event by lower generation in the U.S. and lower capital gains year-on-year. So stronger Europe and Brazil, weaker U.S. However, going forward, and I think this is the sixth point, the U.S. 2020 projects are now fully operational as of the end of June. And given the good performance in Europe and also the attractive asset rotation multiples, we have a positive outlook for the remainder of 2021. And 7th, and just a final point on this slide. In terms of growth outlook, we continue to see a strong and very supportive environment. And I think EDPR is very well positioned to capture that opportunity. I'd just like to say that on a personal note, I mean, for the team as a whole, we are really enthusiastic about the prospects for the business in several regions. And I think this is an extremely exciting time for the sector. We see very strong demand for PPAs, from off-takers wanting to participate in the energy transition. I think people are certainly much more aware nowadays about, let's say, the opportunities that exist in terms of off-taking. And there's also very strong demand from asset rotation investors with very attractive multiples. So only a couple of months have gone by since we announced our business plan, but we've already secured a significant amount of projects and asset rotation deals. So we're all here very much focused on executing the plan and also very confident that we'll be delivering the targets we set out in the Capital Markets Day. So once again, thank you for attending the first half call. And I think we can now move to Q&A. So thank you.

[Operator Instructions] Our first question comes from the line of Sara Piccinini from Mediobanca.

The first question, Miguel, a clarification on the capital gains that you expect by year-end. So the EUR 101 million that you indicated that just excludes the Portuguese, -- the transaction in Portugal correct? So this was the first one. The second one, it is clear that the recent spike in commodity prices is not affecting your returns. So you don't expect an impact from that. But if this situation persists, what do you expect in the -- in the long term to translate in terms of CapEx per megawatt of -- on your projects? And then another question is on the debt. Looking at your cash flow, the cash CapEx seems to have increased mainly due to the working capital related to PP&E. So this level of working capital that obviously is related to the expansion. Is it expected to be partly reabsorbed by year-end? And could you give an indication on the level of net debt that you expect for 2021?

So in relation to the first question, I think the best slide for this, if you look at Slide 10 in the presentation, you have the various transactions that have already been announced. As I said, there's another one that we expect very, very shortly. But in relation to these that are here on the slide, so the first one is -- so the EUR 101 million is just in relation to the first transaction, okay, the Bright Stalk and Harvest Ridge. Then we have Indiana Crossroads. We have the Portuguese one. We have Riverstart and we have the Indiana Crossroads Solar Build & Transfer. So these -- we have 2 Build & Transfer here. So just to go to your question, we are expecting more than EUR 300 million of capital gains in 2021. EUR 101 million comes from this first transaction. We are following, let's say, the approval -- the regulatory approvals and the completion of these different transactions. And so we'll provide updates over the second half of the year as to how we see these developing. So there's just some uncertainty about whether all of these will fall in 2021 or some of these will move into 2022. But in any scenario, we are quite comfortable with EUR 300-plus million capital gains. In relation to your second question, so the -- basically, the cost. I think, again, there's a good slide here to see on Slide 7. If you see -- and I know it's a small footnote at the bottom, but its footnote 3. So it actually talks about the overall impact on the project CapEx of around 5% for wind and 10% for solar. I think the key point, and that's really what I wanted to stress is that decisions that are being taken today or yesterday or tomorrow, are based on these increased equipment prices. And so this translates into higher PPA prices or high auction bids throughout the sector for anyone who is basically participating at the moment. So this could be another $1 or $2 of increase in the PPA or the auction, but that's the sort of the type of range we're probably talking about. But the key point is that for everything that's under construction, pretty much everything that's under construction or already or secured. It's already -- we don't have that risk for decisions being taken now, we are obviously incorporating the latest information. And then if we win, we are locking in those prices as well. So hopefully, that answers your second question. In relation to the third question, I'll probably pass over to Rui.

Thank you, Miguel. Hi, Sara. So on the working capital, just bear in mind, I think I made that comment in the previous call, in the first quarter call. We have been running some cash management strategy. As we knew that we were having the cash in from the capital increase, EUR 1.5 billion. So we're anticipating some payments to suppliers. So that's why we should now, from now on, see a more normalized working capital. And as for year-end, I would say that net debt should be below the EUR 2.5 billion.

The next question comes from the line of Alberto Gandolfi from Goldman Sachs.

I have 3. The first one is on asset rotation and the underlying profits. Now given you're achieving much better multiples or better multiples, higher multiples than you were expecting initially. I guess the question is, why aren't you selling fewer gigawatts? So you can achieve the same gains, but retain more assets and boost more the underlying profit. So I'm quite curious to see why you stick to the same actual gigawatt and you just basically book more gains? I'm asking you this because I guess that personally, I would not put the same whatever, 15x EBITDA multiple on a rotation, but I would on something that has maybe 20 years of residual life. So I guess it could help your multiple. So if you can elaborate on the way you think about this would be great. Secondly, on cost inflation. I think you've been very clear on what is FiT. You've been very clear, you think that afterwards, does a generalized cost increase is going to impact everyone at the same time, so it's a pass-through, I totally agree. Can I ask you if you see any difference within onshore solar and offshore? Because we're hearing from some developers that in offshore, there's not such a thing as a fixed cost really because there's a too big leeway between order and delivery. And do you think some manufacturers could, at some stage, trigger force majeure if steel prices were to go up again from here? Is there any legal, let's say, basis for anyone to do that? Last question is that we are hearing there is a second draft on the Spanish carbon clawback and I was wondering -- I know that's a question also for tomorrow or well, day after tomorrow on EDP. But when it comes to EDPR, do you also share the view that there seems to be the higher chance that the initial proposal is improved?

Welcome. So great to hear you -- hear from you. In relation to your first question, I mean, it's a great question. Our commitment is really to the overall proceeds, as you rightly say, because this is essentially -- I mean, taking a step back, what we want is also to balance growth and, let's say, leverage. In the case of EDP it would be also dividend in the case of EDPR, it's not so relevant the dividend. But if we are okay on leverage and we are able to -- and we are growing at the pace that we want. We have a commitment to sell a certain amount of proceeds to keep that leverage ratio in place. But if we achieve that with fewer megawatts, then that's fine. As I say, it's not -- our commitment is not so much necessary to set number of megawatts. It's more to the proceeds and to the, let's say, the financial ratios that underpin the rating and the balance sheet. So it's a great point. If we do get much better multiples, then we would be able to sell fewer gigawatts and still keep the balance sheet where we want it and keep the growth also where we want. In relation to your second question, so I mean, you've clearly -- we're aligned on the various points that you mentioned that we mentioned. In terms of offshore, I believe the practice here is more to hedge some of these underlying materials. And so even if there's not a specific contract for the overall, let's say, turbines or the different components that go into the actual Capex, that there's a certain amount of hedging in place for, let's say, the commodities that are underlying that. So to a certain extent, we feel comfortable. It is obviously longer term, but there's a certain amount also of risk management that goes into the management of offshore. In relation to the third point, I'd probably pass over to Rui, who is our Spanish expert.

Thank you, Miguel. Alberto, Hi. So I mean, yes, well, we don't have any yet, any official decision other than what is presented at this draft for discussion of this CO2 clawback. Nevertheless, I mean, what -- there are some rumors that we have been hearing in the market and also based on what could be the interpretation of the regulator report. If this applies to assets built from 2003 onwards, the impact at EDPR would be at around the 200 megawatts, 150 megawatt. So I think it would be any material impact in what concerns EDPR.

Can I ask a very quick follow-up? One on offshore. Maybe Miguel, can I ask you -- you say that you hedge some of the underlying material, but I know that the liquidity on some of the steel curves is not very high. So how close to delivery, you begin to hedge? Or I don't know what percentage can really be hedged out of these risks? I don't know, you're exposed to 2 years and then 2 years just before you construct, you are safe or you're safe throughout?

I can talk to you about the policy in terms of the specific numbers or more specific hedges that are in place, probably we'd better take that offline, and I can get you more concrete numbers. To be honest, I don't want to talk off the top of my head because I don't want to mislead.

I'll take on that offer.

Your next question comes from the line of Ayesha Khalid from Citigroup.

A lot of my questions have already been answered. But I just wanted to touch upon how you see EDPR's average achieved selling price evolving in the next few years, especially in the context of new capacity and new geographies that will be coming on. And obviously, excluding the negative effect from the Spanish asset mix? And second question, if I may, on CapEx and hedging Capex. Could you touch a bit on what that 10% or 15% of partially contracted equipment include? And that's it from my side.

Thank you. So I'll take the first one. So I mean, it's -- you're going to reduce the average price. Again, please bear in mind that once we are installing new capacity, naturally, we are installing projects that have lower LCOE. And therefore, it means that just the PPA pricing, everything else being equal, is going to reduce over time. Again, it doesn't mean that we are compromising the profitability. It's just the fact that it's an LCOE reduction. So yes, with the new additions, you should expect to see, I would say, gradually reduction in terms of the overall average price. Miguel, do you want to take the...

On the CapEx hedging, I mean, in relation to the 10%. I mean it's essentially -- we'll have part of the equipment. I mean, what it means literally is part of the equipment contracted, for example, it could be solar panels we'll have that partially contracted, maybe not necessarily the BOP or -- so that's -- the CapEx includes several different components. It's not just a major equipment. So in the case of solar, it would be panels. It would be inverters, it would be also the BOP. In the case of wind it would be the turbines and it would be, let's say, the BOP, those would be 2 key pieces or the substations associated with that. So what we're saying here is essentially some of these may not be totally contracted. But overall, it ends up being a relatively small exposure or only 10% is exposed to some of these cost inflation. So it ends up being relatively limited in terms of impact.

Your next question comes from the line of Jorge Guimarães from JB Capital.

Some of my questions have been answered already, but I have 2. The first one is about hedging in Spain for next year. If you are taking advantage of the current high market price environment to hedge. I know that forward curve is very odd, at least, but it's at very high levels, nonetheless. And so if you're hedging something for 2022? And the second one is be a clarification on some comments, I believe, from Miguel, that the EDPR expected to reach 9 gigawatts of secured by the end of the year. If this is correct?

Its Rui, thank you for the question. So in what regards the hedging strategy for Spain. So as you know, 2021, we have 100% hedged at around EUR 50 per million hour. For 2022, we have about 86% and at EUR 45 per megawatt hour. And for 2023, we have around 63% at EUR 50. So I think that right now, we are -- and again, bear in mind that there is part of the unhedged generation is regulatory hedge. So which means...

Sorry Rui, just a clarification. Sorry to go back to you, but you said that you were hedged 86% of 2022 at EUR 45 and 63% of 2023 at EUR 50. So 2022, is hedged at a lower price than 2023. Is that correct?

That's correct. And again, just bear in mind that the rest of this is the part that we hedge, because there is a regulatory hedge, which means that when a current market prices, it's a EUR 60 regulatory capital.

But you hedge -- effectively, you added 2022 at a level below the low color, the low-value of the color?

No. So again, this is for the component, which is not under the regulatory hedge. So you have volume, which is under the regulatory hedge.

Correct. Correct. Okay. Okay.

Okay. Okay.

And also on the other -- on the 9 gigawatts, which I mentioned. So that's exactly right. So that would be, let's say, our target. We're currently at 6.7. We're working on, as I mentioned, a lot of different PPAs and participation in auctions, which we hope to get visibility on over the next couple of months. So we expect that the secured capacity will increase significantly or substantially over the next couple of months. So I think we'd indicated a 9 gigawatt [indiscernible] also back in the Capital Markets Day. And that's what we're working towards. Obviously, that's a stretch target, if you want. We don't necessarily have -- by definition, it's not marked in today, so it's a target, but that's what we're working on.

Next question comes from the line of Arthur Sitbon from Morgan Stanley.

So I have 2. The first one is regarding the Slide 6 that you show on your value creation metrics and return criteria for renewable projects. I was wondering what type of long-term power price assumption you make to get to this level of returns given about, well, less than 40% of the NPV, as I understand, merchant. And my second question is, if you could comment on consensus on 2021 net income, it's around EUR 500 million. As I understand, it implies quite a strong improvement in your results in H2. Are you comfortable this can be achieved?

So in relation to the first one, what I would say is that, I mean, our long-term power prices are typically very aligned or even more conservative than some of the third-party consultants that we see in the market. So it's your standard -- it depends obviously on the different markets, whether it's in the U.S. or in Europe, in Europe, you have the different markets. But it's built bottom-up, looking at the energy mix of each geography, how it evolves over time, the different inputs, namely CO2 prices, gas prices, so setting the marginal price over that period, renewables penetration. So we have a fully developed model for each of the different geographies, and then we benchmark it also against third-party providers. So relatively standard, let's say, power price curves. In relation to the second question, which is the 2021 net income consensus, we feel comfortable with that number. As you say, the second half, well, we have several transactions, which we're also expecting to close in the second half. So as I mentioned, the EUR 300 million plus of capital gains coming in as well as, obviously, the operational performance that we expect in the second half. So my comment is we are comfortable with the 2021 consensus.

The next question comes from the line of Olly Jeffery from Deutsche Bank.

Three questions from me, please. The first is just on the U.S. corporate PPA market. The U.S. corporate PPA market delivered 14 gigawatts a year in 2019 and 2020. My question simply is, do you think we've reached a peak in terms of the annual corporate PPA market, because there are only so many Amazon and Facebooks in the world, sort of outlook for the market for this decade? And the second question on the corporate PPA market is, if we move to the Biden Administration's plans to moving to direct pay provisions -- direct pay provisions for U.S. renewable tax credits. Do you think that will make the market for corporate PPAs more competitive, as that might reduce the need for tax equity funding and therefore, might make it more competitive to yourselves when competing against other developers? And lastly, just on your point on consensus, where you sort of are comfortable with EUR 500 million. I believe this other deal that you're potentially talking about getting through, which could be quite a significant capital gain. If that were to come through, would you expect to have a significant increase in the EUR 500 million or does your -- comfortable with the EUR 500 million exclude the other gain that might come through?

I think in relation to the first one on the U.S. corporate PPAs, I mean we see -- we still see very strong demand from corporates. I mean, obviously, our PPAs in the U.S., I mean, are half around corporate, the other half around sort of typically local utilities that are also buying. But from -- on the corporate side, we continue to see a lot of activity. What we see, and it's an interesting also evolution is that, in some cases, you start seeing smaller companies also wanting to contract. Sometimes they won't have, let's say, sufficient consumption to take a full project, but will take half a project and so you put 2 together and take -- to get a full project done. So that's -- we've already seen that happen as well. So I don't have the perception that we've peaked at all. I think there's still a lot of demand. I think the fact that the PTCs have also been extended, means that it continues to be very -- while renewables continues to be very competitive. And obviously, the corporates are taking advantage of that. I think that would be my comments on the first question. In relation to the second question, I mean, direct pay will certainly make it simpler to finance these projects. And it will probably reduce the cost of capital for everyone, including ourselves. So I think it will increase again the attractiveness of renewables in the U.S., not just because of the sustainability angle, but also because it just makes business sense to contract renewables at the moment. It's very competitive from a pricing point of view. So we are favorable to the direct pay, and we actively defend it as being a simpler way of financing the -- let's say, the renewables. So that would be on the, let's say, on the second. I mean, we'll obviously still need some tax equity structures, which I think is good for larger players like EDPR, but still we are proactively in favor of Direct pay. In relation to the consensus on the EUR 500 million. I mean that's based on looking at the transactions, having a certain view on the probability that they will happen this year and sort of in certain permutations of these different deals. And so based on what we think is the likely probability of those coming through and the permutations of these different deals this year is what drives us to be quite comfortable with the consensus. It could be slightly higher dependent then on -- really on what gets through all the regulatory hurdles in time before the end of the year.

Next question comes from the line of Manuel Palomo from Exane.

Just a couple of questions on my side left. What is sort of a follow-up after your previous answer on small companies being interested in PPAs in the U.S. Are all those PPAs with the smaller companies that you mentioned for as produced electricity or given that they are smaller and maybe they don't -- well, they cannot therewith as produced electricity, they're requesting as consumed electricity? That would be my first one. Second one. It's maybe a different approach to the asset rotation. I mean, my question is when you approach another rotation deal, do you prioritize any specific type of asset? I'm specifically curious about the duration of the PPAs associated to the assets since my view, the asset rotation is a strong lever to -- that helps to reduce risk the company. Any color on this would be great.

So Palomo, in relation to the first question, the smaller companies, PPAS. I mean we also see pay as produced. So it's not necessarily that they need to have pay as consumed. And it's more that typically comes down to well, what you're willing to accept. And as you know, we privilege a lot having pay as produced, and that's why we're most comfortable with. It doesn't mean that we will only do that, but we certainly encourage clients to go in that direction. Obviously, move to pay as consumed. It has a higher risk. It has a higher price as well associated with that. So I think it's something that trade-off needs to be made, and it needs to be explicit because, obviously, for the project, it's completely different to be exposed to pay as produced or pay as consumed. But we do see pay as produced even for a smaller company. In terms of the second question, if I understood correctly, do we prioritize from our side? Or I mean, we typically look at a couple of different criteria when we're choosing the portfolio. So it should have sufficient critical mass. There needs to be a decent size, sort of, let's say, a EUR 500 million range is normally -- enterprise value is normally a size we would aim for. It needs to be -- have some geographic logic, mix. So typically, it should be either in the same country or in the case of the U.S. sort of -- well, let's just say it can be diversified in the case of the U.S. But in Europe, it should tend to potentially it should normally be in the same country. So that you don't have a lot of different regulatory, let's say, framework for that the buyer is having to analyze. I mean, and then in terms of PPAS, obviously, a lot of these buyers like having visibility on the cash flows. And so typically, you're talking about infrastructure funds or pension funds. And so we try to have assets that have -- and that's why we like these type of assets to contract in the first place and then also to sell them, because there's predictability on that. So they should have a minimum amount of time of either feed-in tariff or CFT or some regulated tariffs. So that the investors can get comfortable also with the cash flow profile of that. So that's essentially how we sort of think about putting these portfolios together. Hopefully, that answers your question.

[Operator Instructions] Our next question comes from the line of Jose Ruiz from Barclays.

Most of my questions have been answered, but I would like to ask one question, which I should have asked in today's in the EDP conference call, but I cannot wait. Is there any possibility of Portugal going ahead with a carbon clawback basically following the proposal from Bloco de Esquerda.

Yes. So on this, I think there have been statements by the government, basically indicating that they would not go down this path. So it's something which has been raised in Spain, but in Portugal, as far as I've heard. So the public statements made by the government have been to the extent that they would not want to impose sort of the carbon clawback similar to what's been done in Spain. So that's, I think, been a very clear statement. If you want, after we can get you the exact quote and sort of the date it was said. But it was the secretary of state of energy was questioned by the Bloco de Esquerda and that was his reply. So based on that, I don't really have any additional comments. I got to say that's what our assumption for the market.

We have no further questions from the line. [Operator Instructions] There are no further questions. I will hand you back to your host to Miguel Stilwell de Andrade.

Okay. So on my side and Rui and André, just to thank you all for being on the call. Thanks for all the questions and for your patience. It was extremely stimulating. And I guess, let's speak soon, and we'll keep you, obviously, as I mentioned, updated on any additional asset rotations that we do, that we expect to be in the short-term and also on -- basically how they develop over the next couple of months. So we'll keep you updated as usual on everything we're go on doing. Thanks very much. Take care, and have a good holiday. If you're going on holiday soon. Rest, take care, and we'll be back in September. Thanks.

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