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

Hello, and welcome to the EDPR 2021 Results Presentation. My name is Judy, and I'll be your coordinator for today's event. Please note that today's call is being recorded. [Operator Instructions] I would now like to hand you over to your host, Mr. Andre Fernandez, Head of Investor Relations at EDPR to begin today's conference. Thank you.

Thank you. Good afternoon, everyone. Thank you for attending EDPR's 2021 Full Year 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 2021 results. We'll then move to Q&A, and we'll be taking your questions. This call is expected to last approximately 1 hour. And I'll give now the floor to our CEO, Miguel Stilwell de Andrade.

Thank you, Andre. Good afternoon, everyone. So I hope you're all doing well, and it's always great to speak to you. Let's talk about the 2021 performance and results. And if we move to the first page, I mean, it's got a good highlight of really what were some of the key achievements over this year. On growth, on growth we achieved record additions of 2.6 gigawatts in 2021. So we are clearly ramping up the growth towards the '21 to '25 target of 20 gigawatts. And just in order of magnitude, I mean, we built in 2021 more than in the previous 2 years combined in the sum of 2020 and '21 is more than the previous 6 years combined. So really a very strong growth from the EDPR in terms of the megawatts. We also have 8.4 gigawatts already secured keeping a very disciplined investment approach. So with the -- as you know, our metric of IRR of a WACC of over 1.4x. And Ocean Winds also had a great year. I mean, it increased its portfolio to 9.3 gigawatts, and it had awards in the U.S., U.K., Poland and South Korea. So overall, solid ramp-up of growth and attractive returns across all regions and technologies. On value. on value, we completed 4 asset rotations in 2021. So we had strong gains. We had EUR 520 million, which is significantly above the business plan target. And we start 2022 already with 3 transactions signed for completion this year. So we signed them last year, and there we expect to conclude them in 2022. We also did the EUR 1.5 billion capital increase back in April, which, as you know, was an important milestone to fund the growth plan until 2025. So we have the funding in place. We have strong value creation with gains well above the EUR 300 million target as we've been anticipating in previous quarters. On excellence. We continue to be recognized as best-in-class in ESG, several achievements throughout '21. We're top 10 in the S&P Global Clean Energy Index. Once again, included in the Bloomberg Gender Equality Index. Again, recognized as top employer in Europe and top workplace in the U.S., included in the [ FTSE4Good ] Index, among others. So really a strong performance also on the ESG front. We move forward to Slide 6. So here, we ramped up, as I mentioned in 2021, coming from under 1 gigawatt over the last decade to 1.6 gigawatts and in 2020 and now 2.6 gigawatts in '21. It's been a challenging environment. I think no 1 can deny that. COVID, permitting and interconnection, slowing down development. Clearly, it's key that the authorities work to streamline and speed up permitting and the networks accelerate investments in the grid upgrade and expansion. I mean in the context of the current energy crisis, more renewables is definitely part of the solution and not part of the problem. Also, U.S. policies and supply chain introduced some uncertainties on timing. We'll be talking about that later in the call, especially for solar projects. Moving forward, we expect to continue to ramp up the growth and reach the average target for '21 to '25 that we had committed to in the business plan. We move on to Slide 7. So here, we can go deeper on the supply chain. So we don't think this will impact the 20 gigawatts growth plan until 2025, although it has had some short-term impact. So as we mentioned in previous calls, around 90% of our secured capacity is fully contracted for the major equipment at a fixed price, already has a higher CapEx incorporated into investment decisions. So from a cost and returns perspective, the impact is not material, and we continue with a healthy spread of our WACC. For the PPAs that were under negotiation and 400 new PPAs, we've been able to revise prices by $2 to $5 or EUR 2 to EUR 5 per megawatt hour. And we passed through that CapEx increase, so keeping our returns. So I think that's an important point to highlight. I just wanted to stress this. So this increase in future prices has been reflected in the PPA prices. It hasn't impacted -- has not impacted our competitiveness because the overall CapEx increase is general to the sector. And from an offtake perspective, I mean, these PPA prices continue to be well below other alternatives, especially in the current context of the high gas and power prices. However, there were negotiations of the PPAs in the context of the supply chain disruption in the market turbulence have delayed the signing of new PPAs, which we expect to then recover in the coming months. So I mean, we literally had over 1 gigawatt ready to sign. We prefer to go back and adjust for the changes in costs and ensure the profitability we wanted for these projects. So it'd probably be easy to show more megawatts, but in that case, it would have been with worse economics. In relation to timing, we are on track for the wind projects on solar. We could have delays over a few months, potentially moving some projects between quarters, including from fourth quarter '22 to first quarter '23. In a nutshell, I mean we see the supply chain having a short-term impact, moving some capacity from '22 to '23. But overall, we don't see it impacting the EDPR growth plan of the 20 gigawatts until 2025. Move to Slide 8, just to touch on another point, which I think many of you have reached out on and which concerns the sector, which is inflation and interest rates. So we are well protected against inflation and increasing interest rate environment and a couple of comments on this side. On the revenues, 30% of our revenue is inflation linked. And so it has a natural hedge to inflation. This is mostly the case in Portugal, France, Brazil, Canada, the PTCs in the U.S. Also not included in this number, but we have 1.5 gigawatts of operational offshore projects, which are also inflation-linked, WindFloat, SeaMade, Moray East. So that's a big chunk of our revenues. 15% of our revenues also have escalators, typically with annual escalation of 2% to 2.5%. This is the case for many of the PPAs in the U.S. 25% our revenues are merchants, which are currently hedged with the potential upside, especially from 2023 onwards as the hedges roll over. So we currently have 50% of our merchant exposure hedged in '23, 35% in '24, 30% in 2025. On the debt side, here, we have 85% of our debt at fixed rates so not impacted by the increasing interest rates. And over 55% of our debt is maturing post 2025. So overall, we only have 30% of flat revenues, and our debt is mostly at fixed rate with a long-term maturity. Move forward to Slide 9, just a comment about our global footprint. I mean, as you know, with the Sunseap acquisition, we are now in all the key growth regions and across the core renewable technologies, onshore wind, solar, offshore, in total 26 markets globally. Sunseap transaction will reach completion this month, probably next week. And as you know, we're also present offshore globally through the Ocean Winds JV. As we scale up and work with an expanded global footprint, it's really important to have the right organization and team in mind. So we did a reinforcement of the management team, apart from myself and [ Rui ], as you know, we also have Duarte Bello, who's been in the management team since 2017, covering Europe and LatAm. Sandhya Ganapathy takes over as the CEO for North America. She's been in EDPR for 10 years now, driving our investments in growth in the U.S. Pedro Vasconcelos taking the role of COO for Asia Pacific. So Pedro has been in the EDP Group for the last 15 years, most recently in business development. Bautista, long time at EDPR since inception, covering mostly offshore and the technical side of the business, so a CTO. So I think here the key message is we have a really deep bench of talent, and I'm really pleased to be able to work alongside this great team. So very experienced many years in the company and in the sector. And I know they're highly motivated to really continue to drive the growth in the various regions. In terms of operating model, just to say that we really have been ensuring we leverage our scale, our expertise and the global presence. So in things like procurement, origination, engineering, asset operations, investments, I think this is 1 of the things which distinguishes us from many other companies is making sure that we are, let's say, global. So you have some global functions, which mean that we can leverage our scale across the different platforms, but we are also very local in terms of the business development in terms of sourcing the different opportunities. So clearly, giving power to the regions to focus on growth and project development while not losing the scale advantage. We move to Slide 10. So we now have the 8.4 gigawatts secured, 3 gigawatts secured last year. As I mentioned, we have a significant amount of PPAs with the execution, which was delayed given the adjustments for the increase in CapEx -- many of these should be announced in the next couple of weeks and months. And we continue to have a disciplined investment approach with a return above 1.4x in the 300 basis point spread. We move forward to Slide 11 in terms of pipeline. So we continue to grow our pipeline, obviously, to feed the construction pipeline. Continue to be very active in the PPA market. So roughly 60% of our capacity comes from PPAs with corporates, 40% from centralized auctions. So this shift over time from centralized auctions to PPAs is something we see -- I mean, clearly, it was part of the U.S. reality. It's increasing in Europe as well. The backlog continues to increase, backlog in terms of additional PPAs and they're driven by building up PPAs that have this CapEx adjustment accounting for the recent inflation. So as I say, that would be announced in the next couple of months. In parallel, auctions are also expected to increase to around 40 gigawatts in markets where we are present in 2022. So I mean, this gives you an order of magnitude of the size of the auctions taking place in the EDPR markets. Just a quick comment on offshore. As I mentioned, it was a great year for Ocean Winds. Moray East is fully installed, increased the operating capacity now to 1.5 gigawatts. The OW operating capacity is 1.5 gigawatts. We have been successful in recent tenders. So we have the 400-megawatt PPA in Massachusetts for the Mayflower project in addition to the [ 1.2 gigawatts ] we already had -- the 800 megawatt we already had. We've also been awarded the Caledonian 1 gigawatt seabed lease in the ScotWind tender. We have recently given the electricity business license for 870 megawatts in the KFW project in South Korea. So the model is slightly different. But basically, this award the sort of seabed lease, and we're also preparing to participate in next week's New York Bight seabed tender. So we have a total portfolio now of 9.3 gigawatts, and really becoming a reference in the offshore business. And I think the partnership with ENGIE in relation to Ocean wounds, I think, is showing good signs of development. On Slide 13, and obviously, this is an important part of the value creation of the company, the asset rotations. So here, we achieved the target proceeds of EUR 1.5 billion rotating less megawatts. This is something we've discussed on previous calls. So we rotated 1 gigawatt versus the 1.4 gigawatts we had in the business plan but we essentially achieved the same proceeds as we're expecting. So obviously, by definition, mathematically, it means we had higher gains per megawatt, and we had higher gains in absolute terms. We had roughly EUR 500 million versus the EUR 300 million we had in our business plan. And also, and I think this is important, we start already 2022 with almost EUR 1 billion of asset rotation proceeds signed in Poland, Spain and the U.S. We are preparing and kicking off additional transactions to complete the asset rotation program for 2022. So all in all, as the rotation execution has been really strong, we continue to see good appetite from investors. And really, the effort now is completing the transactions that are already signed and moving forward with the additional 2022 transactions. On Slide 14. Just a word -- important word on ESG, particularly on circular economy and biodiversity, and this is something, again, that we've been stressing. We've been very focused now on promoting waste recovery in the operational phase, and we're extending this best practice also to the rest of the value chain. Repowering isn't yet very material. We are focusing on solutions to tackle the wind repowering wave that we expect will be post 2025, especially in Spain and Portugal and to a certain extent in the U.S. as the wind farms start getting to a certain age, but we expect that to be more to the second half of the decade. So far, EDP Renewables has repowered already 3 wind farms, 2 in Spain and 1 more recently in the U.S., Blue Canyon II. And for the site 3 powered in 2021, which is [indiscernible] and Blue Canyon II, we achieved a recovery rate of 100%. So I think a great achievement to keep going forward. On communities, here, we're on track with EUR 7 million of investments and adapting our investments to the new markets and also the local communities. It's really important that we make sure we are a good citizen that we involve the local people so that the projects can proceed smoothly and that we have a good buy-in from the local communities. Obviously, developing renewals can't be done against local opposition. And so it's something that we are very conscious of and that we spend a lot of time thinking about how to manage. On people and diversity, 35% of our new hires are women. So we'll be moving towards the 36% female employees target that we had for 2025, and we're also increasing female employees in senior leadership. We also even recently launched a campaign for universities really to try and -- or universities even pre-university to try and get more female participation in STEM degrees. On suppliers, we've been requesting critical suppliers and incorporating more demand in gender, decarbonization, circular economy, transparency, health and safety criteria in the overall procurement process. So making sure that not just EDPR that needs to be ESG compliant but also all of our suppliers need to get in line and step up as well. So overall, on track and continue to be recognized as the best-in-class in ESG. I'll now turn it over to Rui to walk you through the 2021 results. and I'll come back again for closing remarks. Thank you.

Thank you, Miguel. Good afternoon to you all. So now let's move into the 2021 full year results. So as we can see on Page 16, strong results benefited, of course, by higher capital gains from the asset rotation deals and stronger performance in Europe and Brazil. At the end, it translated to a net profit of EUR 655 million. That's 100% -- sorry, EUR 100 million growth versus 2020. We achieved a EUR 1.76 billion and EUR 655 million net profit. So that's a growth, as I mentioned, on a year-on-year basis. So that represents about 6% and 18% at the EBITDA net profit level, respectively. We generated 30.3 terawatt hours of clean energy, a 6% growth year-on-year. That's mainly due to the new capacity in operation. So in total, we have EUR 523 million of capital gains at EBITDA level. So that's about EUR 471 million at net profit as a result of our very solid asset rotation strategy program, with deals in the U.S. and Europe that were concluded in 2021 as well as some offshore contingent price reviews. We had a very strong business performance in Europe and Brazil and also a good improvement in terms of the financial results year-on-year. But on the downside, as you know, we had the U.S. top line that was impacted by the first quarter one-off ERCOT events. The wind resource, which was below our P50, it settled at about 96% of our P50, and that is driven primarily by the U.S. And in Spain, that was impacted by the regulatory and financial hedges given the higher pool prices, although recovered in Q4 because mainly of the MCF. On the balance sheet, net debt decreased to EUR 2.93 billion. So that's a reduction of about EUR 500 million year-on-year. Tax equity increased to EUR 1.54 billion. That's about EUR 0.4 billion growth year-on-year. On the funding, we have a very successful year with EUR 1.5 billion capital increase, as you know, in the beginning of the year and also proceeds from the tax equity transactions of EUR 0.8 billion and the asset rotation proceeds of EUR 1.5 billion. Regarding dividends, we will be proposing a dividend of EUR 0.09 per share, naturally subject to the shareholders' approval at the GSM, and that's partly sharing the growth with the shareholders while, of course, prioritizing the cash flow that we want to reinvest and that we'll need to reinvest in credit growth. So if we move on to Slide 17. EDPR added 2.6 giga of wind and solar capacity in 2021, that's the highest capacity ever installed by EDPR in a 12 months' period, and this clearly demonstrates the ramp-up of the company's growth rate. Also, as of December '21, EDPR has 1.8 gigas of capacity under construction and additional capacity, we'll start construction in Q1 and Q2, especially solar capacity. And just to be clear, these numbers do not include the 0.6 giga of installed and under construction capacity related to Sunseap, that this capacity relates to December '21. So does not include these numbers. Year-on-year, we have successfully completed 1 net gigawatt of asset rotation deals. So it results at the end in a 13.6 giga portfolio. This is a December at the end of December 2021, with a very balanced mix across North America, that's around 52%, Europe 42% and Brazil with 6%. In 2021, we achieved a 29.4% load factor with the recovery in Iberia and Brazil offset by the one-off ERCOT event in the U.S. and broadly the low resource that we saw in the U.S. throughout the year. Technical availability was pretty flat year-on-year at 97%. So very good and high level of technical availability of our fleet. Electricity output increased 6% year-on-year on the back of the capacity additions. These are partly offset by slightly lower resource, as I mentioned before, EDPR generated 30.3 terawatt hours of clean energy in 2021. We have avoided 18 million tons of CO2 emissions. And it was also quite balanced, although skewed towards the North America, given the MCF profile. So the operations in North America, Europe and Brazil generated respectively 56% 37% and 6% of the total output. So if you move now to the revenues on Slide 18. Revenues increased 2% year-on-year, driven by new capacity in operation. and higher average price due to some partial merchant upside in rest of Europe and Brazil that were enough to offset the sell-down impacts as well as some unfavorable ForEx. So in Europe, the average price has slightly increased, 0.5% year-on-year despite some of the regulatory and financial hedges in Spain that we saw already in the 9 months but also rest of Europe and Brazil that captured higher pulp prices. North America average price was flat year-on-year with higher merchant prices, offset by the one-off events in ERCOT in the first quarter. In Brazil, the average price was 13% higher year-on-year. It was at BRL 246 on average. And this is on the back of the higher merchant prices, but slightly offset by new capacity. Revenues totaled EUR 1.7 billion. That's a 2% growth year-on-year, 10% if excluding sell-down with the impact from the megawatt additions. So that's around EUR 198 million year-on-year. Average higher price, EUR 33 million year-on-year, excluding sell-down. And this, of course, surpasses the effect from the sell-down itself, which is a minus EUR 132 million year-on-year. Lower resource, EUR 12 million reduction. And ForEx and others, which is about EUR 60 million reduction year-on-year. So if you move now to costs. And as you know, we take good care of maintaining a very efficient operation. So the core OpEx per average megawatt was flat year-on-year as a result of the O&M strategy that we have been implementing. And despite the fact that we are upfronting the scale-up that we need to cope with the business plan growth and the commitment that we have to install 20 gigas by 2025. Overall, EBITDA totaled EUR 1.76 billion. That's a 6% growth versus 2020, naturally driven by the top line performance, as I mentioned before, with a good contribution from Europe and Brazil and higher capital guidance naturally within this period. And in terms of the geographical mix, North America and Europe represents roughly 50-50 of the EBITDA contribution. On the net profit, on the Slide 20, total EUR 655 million. So that's 18% growth year-on-year, an additional EUR 100 million. And this, of course, is on the back of the higher gains, improved financials, mainly from lower tax equity costs and some positive ForEx contribution. And this, of course, despite the negative impact from higher depreciation and amortization for taxes and minorities, and of course, these are driven by the top line performance. Just a final note on the financials. On the net debt and tax equity on Slide 21, this decreased EUR 114 million with the asset rotation proceeds and the capital increase offsetting the impact from the acceleration in growth. As of December 2021, net debt amounted to EUR 2.9 billion. So that's EUR 0.5 billion reduction year-on-year, almost 90% at fixed interest rates and of course, considering the equity proceeds from the asset rotation cash deal in January 2022, our net debt pro forma would be EUR 2.6 billion. Tax equity increased by -- increased to EUR 1.5 billion following the proceeds that we secured in this year of EUR 0.8 billion. Just a final remark on Slide 22 regarding the ESG. So I think it does reflect the acceleration of growth. So starting by the environmental performance. So as I mentioned before, EDPR avoided over 18 million tons of CO2 emissions. So we are actively contributing to the global challenge of Net zero. And in addition, the company's emissions represent only 0.2% of the avoided ones. So naturally with a very, very small footprint. Regarding circularity, we have improved our recovery ratios to 80%. In biodiversity, there was a fire in Mexico that was classified as significant because it affects some protective species according to local protection laws. So this incident is an analysis and naturally, we'll be implementing any corrective and preventive measures that are -- that we may conclude from this analysis. On the social dimension, EDPR team reached 2,150 employees worldwide, so that's a 24% growth year-on-year. In relation to diversity goal, the percentage of female employees increased to 32%; that's a 2 percentage points increase year-on-year. Regarding health and safety, there was an average 2.1 work-related accidents per million work hours and 84 lost workdays per million work hours, which reflects actually the acceleration of growth in construction activities and of course, the increasing size of the portfolio. There is a very complete and holistic program in the way to make sure that we keep on improving on health and safety. And regarding communities, EDPR maintained its EUR 5 million cumulative investment in access to energy reached almost EUR 2 million in social investment. So that's a lower year-on-year also given the COVID-19 response plan that we implemented along the -- across the local communities back in 2020. So with this, I would now hand back to Miguel for the closing remarks. Thank you.

Thank you, Rui. So just a couple of comments sort of is key takeaways and then also just some comments on how we see the overall sector context and outlook. In terms of key takeaways. First, as you saw in the presentation and the numbers really was a record year in terms of growth for EDPR. And so clearly, ramping up towards the 2025 targets of the 20 gigawatts. I mentioned already earlier, a significant increase versus 2020 and almost more than tripling versus 2019. The second comment is on the supply chain. So obviously, there has been disruption. I think that's -- everyone is aware of that. We don't see that impacting the overall business plan. And we do see that we are well protected from inflationary and interest rate pressure. On the 8.4 gigawatts secured good returns and good risk profile. It's already a very significant percentage of the '23 target of around 75%. As I mentioned, we already have 6 gigawatts shortlisted and under negotiation, taking a bit more time, mostly due to the fact that we were renegotiating the PPAs to take into account increases in the CapEx so to ensure that we kept the returns. On Ocean Winds, growing, its operating capacity is 1.5 gigawatts in the total portfolio pipeline of 9.3 gigawatts, so continued to develop very well. On asset rotations, EUR 1.5 billion proceeds with EUR 500 million gain booked in 2021, and we already have around EUR 900 million proceeds signed with attractive multiples for 2022 completion. In terms of financials, overall EBITDA of around EUR 1.8 billion, net profit of EUR 650 million, so EUR 100 million more year-on-year. And finally, I mean just generally, the growth outlook continues very strong. We're very well positioned to capture it now globally, including all of the major key growth regions. And I think just a couple of general comments. I mean, we do see the policy environment still supportive of the energy transition. Naturally, there's an energy crisis going on with the gas prices and the power prices. But we had COP26 Health in Glasgow just a couple of months ago, as I mentioned earlier, we definitely see renewables as being part of the solution and not part of the problem. And if anything, the European commission and the various different governments are aware of that, and they know that they need to facilitate and accelerate the pace of renewables build-up, facilitating also things like licensing and permitting the build-out of infrastructure to make sure that, that happens. The IEA World Energy Outlook was released last October. I think that was also an important milestone last year. If you just go back to that -- to what it said. I mean, essentially, it said that the overall investment that is required for the global clean energy until 2030 is around $4 trillion. So that's a very significant investment over this period and obviously, a very significant growth versus what it was or what it's been. In Europe, I mentioned already, the European Commission does have a very strong incentive to deploy more renewables as well as renewables also just energy storage solutions, energy efficiency, building out grids. All of this is going to be supported by the deployment of the European next-generation funds. So that's something that's also moving forward and we expect to have more visibility during 2022, but there's obviously a lot of applications of projects at national levels, including the just transition funds to help transition, for example, carbon coal plants to renewable projects to hydrogen. So there's going to be a lot of activity in some of the geographies we are present in on that. In the U.S., demand from the corporate continues very strong. The renewable targets continue to be upgraded at the state level. I mean, unfortunately, as you all know, The Build Back Better Bill was not approved, yet at least. But I think without wanting to have any expectations, the truth is we've seen -- we've been present in the U.S. since 2007 and despite all the different administrations and all the different, let's say, federal perspective, the truth is that a lot of this is driven at the state level. And so we continue to believe that the sector will continue to grow. And obviously, there will be some benefits from potential short-term extension of the PTCs and the ITC as we've had in the previous administration. Just on a final note, just saying that we do continue to see this strong demand. As I said, the energy crisis that's going on just highlights the importance of really accelerating the energy transition and making sure that we have more renewable sources, more endogenous sources, that it's a question of energy independence and not just a question of environment. And I think that's something that people are very aware of and they're very focused on as well. And so I'd probably stop there and turn it over to Q&A and talk to you soon.

[Operator Instructions] The first question is coming from the line of Alberto Gandolfi from Goldman Sachs.

There will be a lot to talk about. I'm clearly going to stick to 3 here. The first 1 is on returns. Pretty much every metric you've been showing on Slide 10 exceeds the expectations you provided on the business plan. So I wanted to ask you, if you can elaborate with a few numbers here. Were you pricing in a contraction in IRR over WACC, which has not happened or has actually IRR over WACC expanded. So I'm trying to gauge if there is an industry-wide improvement in returns or maybe CDPR specific, you were just better at that. So I'm just trying to understand what's really going on returns versus your expectations just over a year ago. And second question is, I think you've been super clear in telling us 90% of equipment is secured, 75% of the project. May I ask you, if you were to look at your previous business plan and you look at the current one. If you were to freeze the world current expectations for, let's say, end of 2022 inflation, slight normalization, but not going back to what we had a couple of years ago. How would your plan look like? What would be your leverage? What would be your EBITDA by 2025? I think you had a EUR 2.3 billion EBITDA target with EUR 300 million gains in it. So it's kind of like EUR 2 billion underlying. Are we now going to have something like probably a bit higher EBITDA because of power prices and the inflation hedge but higher leverage as well because CapEx, can you help us understand a little bit almost on a mark-to-market basis? And last, not least, you continue to achieve higher-than-expected exit multiples on your asset rotations. So can you maybe tell us versus the 20 gigawatts that you were originally planning to add, how much more are you going to retain versus your original expectations? Same value creation you keep or you divest or similar-ish, I suspect. But can you tell us, are you going to retain more megawatts perhaps than what you were thinking last year? And does it mean that the underlying EBITDA '25 should be even greater in that case? Or maybe I'm just totally off.

Alberto, was good to talk. So in terms of the 3 questions. In terms of returns and looking at Slide 10, I mean, we have had, I think, a good performance. So this is the stock of the different projects that we already have secured. And we continue to see -- I mean, obviously, this depends on the technology. It depends on the markets, but globally, the portfolio continues to have an average return above the 1.4x. I wouldn't say it's expanded. I mean it has -- in some places, it will go up and then come down. I mean, it has its own market dynamics depending on the competitiveness, which varies from time to time. And what we've done, I think, is just a good capital allocation. So we really are quite ticker or disciplined about the project. And if we see that the returns are going down too much. We won't invest there, and we'll go and invest somewhere else, and so try to keep that high overall return expectation. That's, I guess, 1 point. That's 1 of the reasons why with the recent CapEx increases, we obviously had a lot of PPAs that were under negotiation. And in many cases, we had to go back and ask for the additional $2 to $5 or EUR 2 or EUR 5 depending on the geography, to ensure we got that. And as I say, that was a conscious decision. So we wanted to make sure we just didn't lock in the PPAs for the sake of the PPAs, but that we actually got the returns we wanted. So we've managed to keep that. I mean, the WACC obviously has varied over time. But the returns on the current cost of capital basis continues to -- we continue to look for the same spreads in multiples that we have in the past. On the second question, I'm not sure I got it 100%, but if you want me to comment on 2025 versus previous business plan. Is that it?

That's correct.

That EBITDA. Yes. So first, we are investing more, and we are growing faster than in the previous business plan. So what we had in the previous business plan as in the '19, '22, we had an average of 2 gigawatts sort of growth expected. Just last year, we built 2.6 gigawatts. And so clearly, we are looking to continue to ramp up despite, obviously, the challenges that I talked about, but continue to ramp up the pace of growth. So on that side, I would say that we are going to have more megawatts being built, which means more CapEx as well. In terms of other, let's say, dynamics that we see in the market, clearly, the power prices are much higher now and expected to be in the next couple of years. I mean even looking out until in just 2023, we're seeing OTC pool prices in Iberia, for example, above EUR 100 per megawatt hour. I mean that was absolutely unthinkable sort of any time over the last decade and so that naturally translates or we think will translate into higher revenues from the components that aren't fully hedged at the moment. So we do think that over the next couple of years and depending on how prices are. But just looking at where they are now expected for '23 to '25, there could and should be some upside there. In terms of the third question, which was the exit multiples. So again, what we look at is the balance sheet and what we want is to ensure that we have a solid balance sheet to ride out the different economic cycles and make sure we can continue to grow without any problems there. And so what we'll do is we'll back out what are the megawatts that we need to rotate in order to achieve that -- the proceeds to keep that balance sheet at the BBB. In this case, we're getting much higher proceeds per megawatt than expected and better capital gains as well. So as I said, we'll probably be able to achieve the overall proceeds with fewer megawatts. And I think we've discussed on previous calls that the question will be, and that's not a decision we've taken us to whether we then continue to grow even more or whether we just retain more -- rotate more and trying to grow more or retain more. But in any case, I think the bottom line is that we are clearly exceeding the capital gains and the proceeds on a per megawatt basis, which just shows a lot of demand for these type of assets. And I think that we are able to create value in this process. So we're kicking off a bunch of different transactions also for 2022. And we'll also see how it goes this year, but we have no reason to believe that we won't continue to see very attractive return the value creation there. So hopefully, that answers your question as well there.

And the next question is coming from the line of Jorge Guimarães from JB Capital.

I have 4, if I may. So the first 1 is still related to the asset rotation program. And I would like to have your view on whether the current inversion of the industry rate cycle already had some impact on the demand for assets in terms of prices paid, but mostly in terms of volumes, that would be my first question. The second 1 is also related to inflation. But here on the CapEx side, if you -- whether you had to cancel any project due to CapEx inflation that you were not able to pass on to PPIs or to tariffs. The third 1 is if you can clarify what is currently being discussed in the U.S. regarding PTC by ITCs because there is a lot of things going on. So what is the current point of situation, what is pending? And the final 1, it's a bit more conceptual. You have been doing some arbitrage between the prices paid in public and private markets by doing the asset rotation program. My question is, if you could go a bit further and do some type of buyback or something like that.

So on the first 1 on the asset rotation. So we're not seeing, let's say, any change in demand from investors based on sort of the interest rate cycle in person. And in terms of prices, I mean the last transactions that we closed both in incorporate, any sort of any material adjustment. I mean obviously, I think people will -- as we go throughout the year, I don't expect there to be an issue of demand. I think there's always demand for these assets and we've seen that throughout the many years that we've been doing this. But in terms of prices, obviously, people will incorporate the latest information in terms of cost of debt and cost of equity at any particular moment in time. So I mean, I expect that, that will be priced in. On inflation and CapEx, if we cancel any project, the answer is no. What we did, and I think we've been quite successful in going back to the clients. And as I mentioned, when you're closing your PPA, it's 30 and you're revising up to 34 or 35 as an example, I mean it's still a hell of a lot cheaper than what the current pool prices are and what the power prices are the next couple of years. So what we found is, let's say, the ability for our customers to incorporate these deltas in price and continue with the project. So we haven't had any cancellations, and we've managed to find a solution for the projects that we had in -- that we're already sort of in advanced negotiations on the PPAs. On the U.S. PTCs and ITCs. Listen, so I'm not building an expectation on the triple, on The Build Back Better. I think that's done. I don't have an indication, but that will be resuscitated or certainly I don't, even if there's talk about it, I'm not betting on it. What I am betting on, which I think is the base case, and it was the base case also even when we presented the business plan, is that the U.S. will continue to have very strong demand at the state level. And that the PTCs and the ITCs in some form or other will continue to be present. And so I think we go a little bit more specific, Joe Manchin, which is a senator from West Virginia, which has blocked The Build Back Better. I mean he's had public statements saying that he's supportive of the renewables part of the clean energy part of The Build Back Better. It just wasn't supportive of the social part of it. So I think there's clearly space there. I mean, in the past, we've seen it sort of over the many years of being able to extend the PTCs and the ITCs. And so I think our base case is that, that will continue to happen, not with as much predictability as would have happened under The Build Back Better, but it will happen in any case. Other things that were present in the bill, things like direct pay and stuff like that. I mean, to be honest, that wasn't going to be like a major issue for us, positive or negative. Would have facilitated perhaps not for other companies, but we've always had access at very competitive rates to tax equity. And so we've always been able to monetize PTCs and ITCs, and we've been doing that for many years. So it's business as usual for us. So in that sense, not having direct pay is not an issue. If anything, it could be even potential barrier [ 20 ] for smaller players. On the fourth one. No. I mean we don't have any plan for buybacks, to be honest, we've been just focused on -- we do this asset rotation because we think it's a good way of releasing value and being able to reinvest it back into the business. But we don't have any current plans to do any buybacks.

And the next question is coming from the line of Javier Garrido from JPMorgan.

I have 3 questions, if I may. The first 1 is if you can comment on the difference between gross and net capacity factors. Is there a widening gap due to curtailment in any of your markets? And the second question would be on your hedging strategy in Spain. Have you managed to change it now to start to exclude the output from the regulated capacity? And then the third question is on your comment on the 25% of revenues, that should be merchant in 2023, particularly it would be very useful if you could cast some light on the allocation of those revenues on a per country basis to get a better feeling of what could be the benefit of having that merchant exposure?

So I'll take the first 1 and then pass it to Rui. He will talk about the second and third one. In relation to gross versus the net -- I mean, -- so we had 1 situation clearly in the U.S. on quite heavy curtailment, which was during the time of the polar vortex and a sort of around that time. So that was relatively strong curtailment. In Spain, we've had some specific situations, some curtailments. And so I'd say those 2 situations which are quite specific are what explains a big part of the delta between the growth and the net capacity factor. Not thinking you have anything else, which has sort of materially impacted that delta. In terms of hedging Spain, I don't know, Rui, if you want to comment?

Javier. So I mean, we did some optimization mainly between the fourth quarter 2021 and the fourth quarter 2022 just taking into consideration a specific detail on the regulation. But as you know, I mean, it was pretty much locked in. So what you would see here is, of course, I mean, -- in the fourth quarter, we have a good impact from the NCFs because they were 104% of our P50. So that had a positive impact. And then just the fact that in the previous quarter, we had the regulatory adjustment. Basically, we were concentrating into a single quarter, the impact from the 9 months. But from a hedging perspective in Spain, I mean, there was some adjustments, but again, some shifts between Q4 '21 and Q4 '22. And then the final question, I mean on the split per country, I think we can follow up on that. I don't have that in front of me. But I mean, there will be a substantial part, which is Spain and the U.S. Then there will -- we will have smaller percentages coming from Poland that would likely be on top of this because it's more on the reg side. So it would be fundamentally Spain and U.S. Roughly speaking, I would say maybe half U.S., 1/3 Spain, but we can follow up with more precise data.

And the next question is coming from the line of Sara Pacini for Mediobanca.

I have 3. The first 1 is on this situation of commodity prices that is obviously under the spotlight. So you say that 90% of the capacity is contracted. Are you referring to the 8.4 gigawatts, correct? And if so, when will you start to contract -- to negotiate for the contracting of the new capacity? And if you see higher prices, which is the technology where you see higher risks of higher prices, and so that could delay investments. So this the first question. The second question, if I understood correctly, you saw a slowdown in the negotiations of PPAs or maybe there are some PPAs that are still on and all the -- The question is, isn't this counterintuitive in the sense that in this delicate situation of high energy prices in Europe. Shouldn't we see an acceleration of PPAs with government pushing for contracted power with renewable players. So just if you can give your view on this? And final question is, if you have any indication on the guidance for capital gains from asset rotations that you expect for 2022 and maybe a guidance for 2022 in general?

So thanks for the questions. So I think in relation to the first one. I mean just first in terms of technologies where we're seeing sort of just January, we saw the highest increase in prices that was mostly solar for projects that we were negotiating, mean the 90% contracted, as you say, is in relation to the 8.4 gigawatts, but it already includes -- that includes already the megawatts that were closed with no changes in CapEx and our CapEx that had already renegotiated PPAs. For future PPAs, we are incorporating that higher CapEx numbers. And as I say, that's going to be mostly solar and we hope to be announcing those shortly. In relation to your second question, which is, I guess, a follow-on from what I just said. The slowdown in PPA negotiation just means you need to go back to the customers and so -- and tell them they need to revise their numbers. I mean it does take time. I mean in 1 case, I can tell you, which is quite a large -- or they're probably talking about a gigawatt of projects, it's taking about 2 months to go back. So there is an administrative procedure, which ends up being slow. I mean we're talking about 15-year contracts. So I mean, people are seeing the higher prices. I don't think there's necessarily -- that means that they can rush through the administrative processes that they need to go through just because of that. So what we are seeing -- so let's say that's 1 part of it. In general, I do agree, though, with your comments that we are seeing a lot of corporates in Europe, which in the past, we didn't see as much. So as you know, in the U.S., you always had a lot of corporates doing PPAs. In Europe, not so much. It wasn't really that such a strong market for corporate PPAs. We are seeing a significant pick up in that and clients wanting to discuss that. So in the past, customers would look for your traditional corporate in Europe would look for an 18-, 24-month contract with a retailer, and now they're looking at 5 years plus energy contract and considering doing PPAs. And so I think there is a reaction from the market. But because the market is not extremely mature, it also takes some time for people to feel comfortable with what it means to negotiate a PPAs with everything that goes along with it. I mean it's obviously a much more complex contract than simply going to your local retailer and buying energy for the next 12 months. But I think there is a lot of education going on at the moment in the sector regarding longer-term PPAs in Europe. In relation to your third question. So the guidance for -- so we don't give full guidance for 2022. What I can say in relation to the asset rotation gains is that we expect, again, to be comfortably above EUR 300 million this year. What we had in the business plan was EUR 300 million. I think what we've seen, and I mentioned that and also in the answer to Alberto Gandolfi is that we've been finding that we are getting better multiples than probably what we were expecting or incorporating into the business plan. So I'd say above EUR 300 million for 2022.

The next question is coming from the line of Gonzalo Sanchez-Bordona from UBS.

Yes. I have a couple of clarifications, if I may, just to see that I got the message right. On -- if I understood correctly, you are not seeing any sort of changes in the market environment for asset rotation transactions to what regards to the yields required by buyers or potential buyers effectively. Just wanted to confirm that if you're assuming that you will get higher-than-expected capital gains on next deals that you are not probably seeing that, but I would appreciate any clarification on that point, given the environment of pricing yields and potentially rates? And the second 1 would be on the capacity that you have already secured, I mean we've seen a significant slowdown in the last part of the year in terms of new capacity being secured. So I would assume that this is pretty much related with the fact that you have been renegotiating some of the PPAs that you have already kind of closed or so on. But I was wondering if there is something more out of the ordinary you had basically meant that you are seeing less interesting projects or projects that are maybe yielding a lower return and therefore not that appealing to you or if just this was just a matter of calendar by the end of the year, beginning of the year or something like that?

So just to be clear, in terms of the asset rotation, what I said is that we continue to see a lot of demand for these type of assets. And so whenever we go out to the market, we see the -- we see a lot of investors that still have appetite to take on the type of assets, long-term contracted, good cash yields, green. So I think that demand is there. In terms of the actual yields that they're looking for, I mean, what I mentioned is that they will typically price market conditions. So they'll take into account whatever the cost of debt at the time and any cost of equity that they're assuming. So if there is an increase in cost of debt, then I would assume that, that's going to be reflected in the projects that we've already signed, I mean, it's signed, it's done in relation to additional transactions in 2022. I mean we'll have to see. But I assume it will reflect the market conditions at the time. So we'll have to see what the central banks do over the next couple of months. Sorry, on the second question, capacity. No, listen, what -- as I mentioned, we did have to renegotiate the PPAs. So that did slow us down in the fourth quarter and the beginning of this year. Just globally, we continue to see very strong demand. I mean, from corporates and centralized auctions. We do need to -- we are disciplined about the returns we look for. So we -- in some cases, we will not step into certain markets if we think that it's too competitive or we're not getting the returns. But I think globally, we're continuing to see very strong demand. And I mentioned, for example, 1 of the around 40 gigawatts of auctions expected to happen in 2022 in markets that we're present in. So that gives you an indication. Should it accelerate even more. I mean, that's we certainly believe that it should. And that's something that we think that both in the European Commission, given this energy crisis is this something that they're going to be also quite focused on. So how they can facilitate the permitting and the licensing. I mean, without giving you away any confidential information but I can tell you that at the highest level, at the European Commission, it's -- they are looking at sort of how they can help accelerate the rollout of renewables at the sort of local level, looking at things like the faster interconnection point, a single point of contact for the permitting and licensing, very clear milestones. So that's something which I think is Portugal and Spain are already pretty good at that and pretty fast. I'd say that some other European geographies or countries could -- that they could be more agile in doing that.

The next question is coming from the line of Mikel Zabala from Bank of America.

So 2 from me. So first of all, on the offshore JV. So it's very likely that we'll start to consume more CapEx in '22 and '23. So is it the plan here to sell down stakes in some of these projects under construction or would you rather say that, that's going to happen only when construction is completed? And then the second 1 is on supply chain cost increases. Would it be fair to say that the worst is now behind us or are you still seeing component price increases as of lately?

Okay. So I'll take the second one, and we can also talk about a little bit about the offshore. In terms of cost increases, I would say the worst is behind us. We had particular moment, I think, of stress the sector as a whole in the last quarter of last year, where clearly, there was a lot of uncertainty going on, both on the wind and on the solar side. The solar, in particular, with production stoppages in Southeast Asia or Asia. Issues around where commodity prices were going to go. So it was a very turbulent market. I think things have calm down now, doesn't mean the prices have come back to where they were before, but at least there's a bit more stability. And so at 1 point, we have less visibility on when deliveries were going to take place and on the overall cost. And I think as of today, as I'm speaking to you, we have that under control, and it's pretty clear that what are they going to be the timing of deliveries and what is the cost that we can count on. And that's what we've also been sort of pushing back on to the customers. On the offshore, Rui, do you want to take that one?

Yes. Sure, Miguel. Thank you for the question. I mean the strategy is that, of course, we will be selling down our Ocean Winds. We will be selling down some stakes at those projects. I mean there is a good entry point, which is a financial investment decision. So that's prior to the construction start. But it's also likely that Ocean Winds will still retain a significant shareholding position. Therefore, it could also sell down again as it enters into operation. So I think it will be a combination of both. So preconstruction and then as it goes into operational as well.

The next question in the queue is coming from the line of Arthur Sitbon from Morgan Stanley.

The first 1 is on the strong performance of equity income of associates in Q4. I was wondering if you could walk us through the main reasons of that strong performance and tell us how sustainable that can be in the future? The second question I have would be on the slide that you -- where you provide the returns of your project and the IR to WACC spread. I was wondering if you had changed your assumption in terms of long-term power prices with the recent commodity moves we've seen and basically, if you could help us understand a bit what are your long-term power price assumption in your main geographies? That would be very helpful. And the last question is on your asset rotation gains. Just trying to understand a bit the situation for this year, for 2022. My understanding is that with what has already been announced, you could be around EUR 250 million, EUR 300 million of capital gains. I just wanted to check if this is right?

On the third one, I'd say that on what's already been announced, the capital gain will be slightly lower than that, but we haven't provided any specific guidance on that number. But overall, for the year, we do expect to be, as I mentioned, above EUR 300 million. On the second one, just to say, we haven't changed assumptions on power prices at the time when we take investment decision with many -- some of these projects come from the past and so the power prices at the time were what they were, and that's what was being assumed in the IRR calculation. In any case, as we look forward, we see obviously, we use the OTCs or the current wholesale prices for the next couple of years. That's for new -- that's how we would assume the power prices. But since we normally contract PPAs, it's not so relevant in the next 10, 15 years, the actual power price. So it's only relevant post the PPA period. So we'd be talking about late 30s decade. And there, we haven't made any material change. I mean, if anything, even goes on adjusting down as a question as a function of assuming more renewables coming into the energy mix. So I wouldn't say that, that has had any material impact on the returns that we assume. On the other income, I don't know, Rui want to give some specifics?

I mean it is related to the performance in Europe. So Europe, we have 104% of the P50. But basically, it's also from some contribution from Ocean Winds. I mean, we can follow up more in detail, but that's fundamentally where it's coming from.

And the next question in the queue is coming from the line of Olly Jeffrey from Deutsche Bank.

So a few questions, please. The first one, just going back to the unhedged merchant position that you have. Could you please confirm when you talk about that, how many terawatt hours do you have on an unhedged basis roughly annually? And can you please just confirm how much you have hedged for '22? I heard you figures earlier in the call for '23, '24, '25? The next question is on supply chain. You mentioned the supply chain is leading some issues of delayed by a couple of quarters. Are you seeing a wide quarter potentially. Are you seeing any potential for that to get larger than that? Or should we not be concerned about material delays beyond the quarter coming into effect? And lastly, I know you're not giving guidance for this year, but I wonder if you could comment on the consensus. Consensus currently on Bloomberg is EUR 1.78 billion EBITDA. So potentially EUR 1.5 billion EBITDA underlying, assuming EUR 300 million gains and EUR 600 million net income. Are you comfortable with the absolute figures and the underlying currently in consensus for '22?

Okay. So with regards to the first question, I mean, so starting by 2022, we have about 75% hedged. That's 7.7 terawatt hours of power, so let's say, 2.5 terawatt hours unhedged. Then the 2023 35% unhedged should be roughly speaking 4 terawatt hours, 4.5 terawatt hours. And then it's about 6 terawatt hours to 7 terawatt hours for the following years for '24 and '25. So give or take, I mean, I would say these are pretty much the numbers.

And in terms of the other. So supply chain delays, do we expect larger than that? So not for now, we have no indication that there will be any more than what we talked about sort of on the solar side, maybe 1 to 3 months, that type of range. As I mentioned at the end of last year, so last quarter, there was a moment when we didn't have that much visibility because we weren't -- the suppliers themselves didn't have visibility on how the logistics and everything was going to work out. At the moment, we have confirmation that for those projects, they will be delivering, as I say, it could mean projects slipping from '22 to first quarter '23, things like that, but not materially more than that. On the guidance, we don't -- I mean we don't give overall guidance. So if I commented on the consensus, I would be giving implicitly guidance. So I prefer not to comment.

And the final question in the queue is coming from the line of Jose Ruiz from Barclays.

Just 2 questions. Number one, are you -- how do you see 2022 in terms of wind resource. We had 2 bad years, particularly 2021. How do you see that year compared to those 2 previous years in terms of wind resource? And the second question is in the current environment of increasing interest rates, particularly in the U.S. How do you see the evolution of cost of tax equity partnerships?

Okay. So on the first one, even recently, I think it was about 3 weeks ago, we got our technical teams together, and we went back and looked at this. We have absolutely no indication that there is any pattern or any indication that there was any decrease in wind. So the volatility we've seen is perfectly within normal years or with a normal, let's say, taking sort of a couple of decades of wind resource data. There's absolutely no indication that there is a change there. So 2 bad years, it happens. I mean, obviously, we need to follow it. I mean if you start getting more than maybe a pattern does start to emerge. But as of the -- as of now, we have there's 0 data that supports that. On the contrary, I mean, it's very consistent with other periods that we've had in the past. Obviously, people are much more sensitive to it now because there's an industry now, which depends on it, and so we become more sensitive. On the tax equity and the interest rates, I mean, on the way down, it didn't have so much, but Rui, do you want to comment more specifically?

Yes, I can. So I mean, tax equity in U.S. is a market, as you know, 2 banks, they pretty much account for about 50% of the market share in tax equity. So I would say that it stays relatively stable. While we saw U.S. dollar yields going down, I mean, the tax equity, I would say, was around the 5% to 6%, nowadays, I would say, it would be more than around the 6%. So they never go down tremendously. They neither go up certainly. So I would expect that for 2022 should be around the 6% or 6% plus.

Today, there are no further questions in the queue. So I would like to hand it over to your host to conclude today's call.

Thank you very much, everyone. Thank you for attending the 2021 results call. I'll just ask for the final remarks for Miguel.

Okay. So listen, thanks for being on the call. Hopefully, it was useful. I think we did have a great year last year. I mean, despite the difficult conditions and obviously, a lot of challenges, a lot of issues, but if this was easy, and we wouldn't be here doing anything. But I think we are very positive on the outlook, and I do think that we've managed to get over some of the bumpier parts of the road certainly in terms of supply chain and in terms of the visibility we had in some of the projects. So we continue to work hard on making sure that we continue to deliver the business plan. Just a final note, just before you, we sign off. So this is Andre Fernandes' last IR presentation here. So he's been doing the IR for the last year. Going forward, [ Miguel Vienna ] will be managing both IR teams, both in Lisbon and Madrid. So he will be the key contact person going forward as well for that. And so thank you, Andre, for the great work, and I'm sure haven't appreciated very much.

Thank you, Miguel.

Thank you, everyone, and talk to you soon.

Thank you, everyone, for joining us on today's call. You may now disconnect your handsets. Host, please be connected.