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

Hello, and welcome to the EDPR Q2 results presentation. My name is Riyan, and I'll be your coordinator for today's event. [Operator Instructions] For now, I'll hand you over to your host Miguel Viana, Head of Investor Relations and Sustainability to begin today's conference. Thank you.

Good afternoon, everyone. So thanks for attending EDPR's first half 2022 results conference call. We have here with us our CEO, Miguel Stilwell de Andrade; and our CFO, Rui Teixeira. We'll run you through the key highlights of our strategy execution and the first half of 2022 results. We'll then move to Q&A in which we'll be taking your questions. We know today's a busy result day, so we'll try to do this call in no more than 1 hour. I'll give now the floor to our CEO, Miguel Stilwell de Andrade.

Thank you, Miguel. Good afternoon, everyone. So as Miguel said, I know it's a busy week. So I'll try and just talk you through the key highlights in the presentation and Rui as well, obviously, for the financial impact. So I'd start off by going straight into the presentation on Slide 5, and essentially say EDP Renewables had a strong performance in the first half of 2022. Quite frankly, as you know, sometimes we have bad quarters, good quarters, this quarter and this semester is definitely a strong one. Strong growth in EBITDA, up almost 50% to EUR 980 million, approximately, very much supported by the expansion of the asset base. We had installed capacity increasing 10% year-on-year. We had good strong renewable resource, namely the stronger wind volumes, 2% above the long term average for the portfolio. And we also saw a significant improvement in the average selling price that increased 27% year-on-year. With essentially higher realized market prices in Europe, in general, and the positive impact also from the update of the Spanish regulatory framework, and we'll maybe talk a bit about that later on. So it was a win-win. Our net profit, it increased around 87% to EUR 265 million, so reflecting the strong EBITDA performance. Focusing on growth towards the business plan targets and specifically the capacity additions. So since 2021, we've achieved additions of 3.2 gigawatts, and we have a record of capacity under construction of 3.2 gigawatts by the end of June. I think this is something worth highlighting that we've really been ramping up the under construction or the projects under construction over this period. We have an additional 2.2 gigawatts of projects contracted and committed since the beginning of 2022. And we now have 10.6 gigawatts of secured capacity for the '21 to '25 period. So overall with these -- I'd these highlight, these achievements, we are moving closer and closer to the '21 or the '25 target of the 20 gigawatts of capacity additions. So overall, solid ramp up of growth across all regions and technologies. In terms of value. So this quarter, we completed 2 asset rotation transactions, one in Spain and another one in Poland with a good average multiples around EUR 1.9 million per megawatt, and a total of around EUR 100 million of gain. We have another transaction signed, that's expected to close by year-end. And there are other transactions under negotiation, which, as we've indicated previously to the market, we expect would bring more than EUR 300 million of asset rotation gains in 2022. On excellence, we continue to be recognized as a clear enabler of the energy transition, best-in-class regarding their ESG performance. And we've had several distinguished -- distinctions if you want throughout the first semester. I mean, they're highlighted here on the slide, I'm obviously happy to go into any of these that you want. Moving forward to Slide 6. Let's talk a little bit about renewables growth. So I think clearly one of the things that's been highlighted by all the sort of market movements over the last, well over the last couple of months, in particular I think the tragedy of the war in Ukraine, is that renewables is a strong answer not just to decarbonization, but also to security of supply and affordability. I mean, the typical energy trilemma where it was normally more focused on renewables more focused on the decarbonization aspect, clearly now, it's supporting all 3 axis of the typical energy trilemma. So we clearly think that it's something that needs to be supported globally, that to ensure that we you know, particularly in Europe, that they are able to get some of this additional security of supply and affordability. Europe is in fact taking the lead and just to do a couple of highlights on the different regions here for Europe, U.S., LatAm and APAC. So in Europe REPowerEU presented in May ambitious targets, for example, increasing the weight of renewables in energy consumption to 45%, so increase versus the Fit-for-55 . But the increase in ambition also requires execution. It can't just be about setting targets for the long run. So the member states now need to act to achieve these targets. And there's also been some support and push by the European Commission regarding things like licensing and permitting which I'll talk a little bit later on. On the other hand, in the U.S., unfortunately, we see some lack of positive developments. The Build Back Better, as you know, was back in December, didn't move forward. There was also some -- or some expectation that it might move forward now, before the summer. That doesn't seem that it's going to happen. It's not moving forward at the Congress or Senate level. And there's no visibility on the tax credit extensions for now, although this is something that typically comes later in the year. On the positive sides, some of the uncertainties around the import tariffs on solar panels have been reduced. This is something I mentioned on a previous call. So the anti-circumvention investigation, there's now a 2-year tariff waiver, which -- so we have at least visibility on that, which is important. But on the other hand, there's been some increasing bureaucratic process of imports of solar PV equipment that may cause some delays to adapt to the new rules. So generally, as you know, we continue to believe a strong structural growth in the U.S., some short term issues around sort of basically the solar side. Moving on to LatAm. LatAm, as you know, in Brazil, typically the regulated auctions and the C&I market continues to support growth. So we also had some recent auctions there that where we were successful in. And in Mexico, just to mention, I mean, we only have 3% of our operational capacity there. But there is still some significant regulatory uncertainty for renewables, which is being addressed by the sector. And last, but not the least, in APAC, we are seeing governments have more and more commitments to the decarbonization targets. Again, not just because of the decarbonization, but also because of energy security and affordability. Many parts of Southeast Asia, including China are net energy importers. So obviously, this gas price and energy prices in general are also having an impact there. So in Singapore, for example, 2 RFPs were launched recently for projects to import up to 4 gigawatts of renewable up to 2035. In Vietnam, just to give another example, you have the power development Plan VIII which increases the 2030 renewables capacity targets, versus the previous plan that increases by around 40% for solar and almost triples for wind. We move to Slide 7, and just going a little bit more in depth on the REPower. I think what I've mentioned here is, clearly Europe is leading the way. So as I mentioned that target increasing to 45% by 2030. Overall, renewables in the electricity sector are expected to grow from 36% in 2020 to almost 70% by 2030. And so I think it's worth highlighting this last bullet here which is very striking. The annual additions added to ramp up for solar is around 3.5x to 48 gigawatts per year and around 2.5x times for wind onshore to 36 gigawatts per year. So the total renewables installed capacity needs to increase by 2.5x by the end of the decade to reach more than 1.2 terawatts, by 2030. So clearly, a lot of ambition, but there also needs to be execution and we're convinced that more or less bumps in the road, but there's going to be this push to grow. We move on to Slide 8, an ambitious plan as I mentioned, but it needs to be executed. And so you know, just highlighting some key points that I think should be addressed. And that we've been discussing at various levels, whether it's at the member state level or whether it's even at the European Commission level. There's definitely a need for faster permitting. This is something I think that we can all agree with. We can digitalize it, simplify it and standardize it. So clearly you need to also have more resources here. The plan, so the REPowerEU has mandated an average development time of 2-years, while currently easily exceeds 3-years. So clearly there needs to be a push here. I can tell you that we have been getting a lot of or having a lot of dialogue with different countries to see how to do this. And I do see movement here and I do see sort of a willingness to try and increase or to accelerate the permitting. Second, easier grid connection. Hybridization, repowering all this requires fast track permitting, but also the long term grid planning and investment. So that needs to go hand-in-hand with the increase in the build out of renewables. So Europe overall, we expected to need an additional 85 gigawatts of interconnection capacity by 2030. Finally, last but not the least, again, regulation. Definitely important, stable adequate regulation to incentivize investments in the region. And so reduction in the market intervention and giving visibility on auctions to promote for the build out of renewables. So it's not just about setting the 2030 target, it's about setting almost annual targets over the next couple of years to make sure that we get to the 2030 target. So clearly, strong measures also sense of urgency driven by the macro context. Probably not, we won't see a very short term impact, but definitely mid-term outlook is positive and we think EDP Renewables is very well positioned to capture this additional growth. We move on to Slide 9. Just to talk a little bit about where we are in terms of the capacity build up. We already have more than 50% of the '25 target committed. So we've increased it by around 4.6 gigawatts. Now this includes all capacity with long-term contracts or with CapEx committed, so the 3.2 gigawatts already operational, 3.2 gigawatts that are under construction, and the rest that we've already secured typically with PPAs. We continue to have good visibility on execution of the plan. We currently have more than 3 gigawatts of PPAs currently under negotiation. And obviously, we continue to follow also our investment criteria, which we talked about in terms of IRR, WACC and also spreads over WACC. So what I'd say here is, we are confident on the execution. Even recently, we took a step back and looked at how things were progressing. And I can tell you that we are very confident on this. We continue to secure different growth opportunities, so it's diversified in terms of platforms and technology and growing across the different regions. On the technology sides, I mean, we have a great track record on wind onshore. We are developing very quickly the wind offshore. I think the last 6 months have been very strong in wind offshore. And for solar PV we've been working on it for quite a few years. And so we also continue to see good growth here in the various different markets. And also in distributed solar, quite frankly, both in North America and in Southeast Asia where we see that, that is a technology which has a lot of scope to grow. Specifically on offshore, Ocean Winds, as you know, our partnership with ENGIE 50-50. It is a major source of growth so we currently have 12 gigawatts portfolio, so we've almost doubled the portfolio we had as of the Capital Markets Day back in February. I think it's important to highlight the development projects in France, the U.K. and Poland have inflation updated revenue secured, so we are well protected against inflation risk. This is a question we get asked quite frequently. Moray West, one of our projects in Scotland is under construction as of very recently, July. It's been awarded around the 200 or 300 megawatt CFD contract at EUR 47 per megawatt hour as of 2022 prices. And we have complementary corporate PPAs, let's say for the full number of megawatts of Moray West, and we also have a small merchant component of this. Another point which I think is worth mentioning, as you know in ScotWind, we'd won approximately 1 gigawatt or the reference we gave to the market was 1 gigawatt, was actually confirmed this month that it's actually 2 gigawatt capacity potential. So thanks to a U.K. grid enforcement plan that was recently announced, we will be able to double the capacity coming out of the Caledonian project. As you know, Moray East, Moray West and Caledonia are all contiguous up in the Moray Firth, and so I think that gives us quite a lot of again, visibility, let's say of growth in Scotland. Also, I think it's interesting to note we have a floating offshore development project in South Korea with grid access already secured since the beginning of 2022 for 1.3 gigawatts of capacity. So that's something that we'll be seen, the development of that over the next couple of years. So just to summarize, Ocean Winds, 1.5 gigawatts installed capacity, 3.5 gigawatts under development with long term revenues contracted and 7 gigawatts under development projects with seabed or connection rights secured, so definitely a reference in the wind offshore sector. Moving on to slide 11, asset rotations. Definitely been interesting market dynamics, but I'd say positive. Now we were asked lots of questions about whether the increase in interest rates was going to have an impact on asset prices. What we're seeing is that, this has been more than offset by higher energy prices in most of the markets. So we continue to see very high appetite from investors. We continue to see strong asset values because as I say, and higher energy prices offsetting or more than offsetting interest rate increases, so we clearly expect to be above the 300 million capital gains. We've already closed 2 transactions this year, so one was the 150 megawatt Polish portfolio, closed that around 2 million per megawatt. And the second transaction in June was a Spanish wind portfolio, 180 megawatts at a multiple of 1.8. So gains from these total around 100 million. We already have EUR 2.6 billion of assets rotation proceeds out of the total of 8. So I think that really shows that we are able to recycle capital to reinvest into accretive growth. We have other transactions under negotiations and hopefully we'll get visibility on that over the rest of the year. So we are reconfirming the assets rotation gains in 2022, barring any sort of accidents or some sort of unexpected issue that might come up. On slide 12, let's talk about average energy prices and our selling prices. I think definitely this is something which we have benefited from in the first half to an increase of around 27%. As I say generally higher prices throughout Europe. We expect this level of average selling price per megawatt hour to be maintained until the end of the year. And although we have a high level of long term contracted revenues, so close to 94% for 2022, we will still have some positive impact from the current environment. Going forward, as the hedges gradually rollover, we will be able to gradually reprice our renewables generation more in-line with the current market environment. So merchants exposure as a percentage of total revenues should be on average around 16% in the period '23 to '25. So we'll clearly be reaching average selling prices above the assumptions in our strategic plan. Also note that we've mentioned this on previous call that we are adjusting our hedging strategy to slightly increase exposure to the market on a more structural way, and to avoid over hedging situations in the case of low renewable resources and high merchant prices. I mean, just given the market context and what we expect for the next couple of years and it seems like the sensible thing to do. Overall, we expect a net positive short and medium term impact from this gradual repricing on our renewable generation, even considering some negative short term impact from government intervention in electricity markets like in Romania and Italy. So last slide on my side, just before turning it over to Rui. On ESG, a couple of quick comments here. First, obviously 100% of our CapEx still fully aligned with the EU taxonomy. I mean, the core business of EDP Renewables is 100% focused on renewables. Regarding circularity and waste recovery ratio of 77%, in line with our commitment also of achieving the circular economy target in the business plan. On the social dimension, something which I'm particularly happy. The percentage of female employees is increased to 33%, so 2% increase versus last year. So I think that reinforces our commitment to diversity. Health and safety, not so positive, but an average of 68 working days lost due to work related accidents per million work hours. We want to do better on this. We have a specific program called play it safe, which is company-wide, where we are really focused on making sure that we have a an impeccable track record on health and safety. Also proud of having subscribed to the United Nations' Sustainable Ocean Principles. As you know, the conference was here in Lisbon, and we took part of that. And also the United Nations Women Empowerment Principles, so clearly in line with our growth in ESG strategy pillars. I'll turn it over now to Rui, to walk you through the first half numbers, and then I'll come back at the end for some closing remarks. Thanks.

Thank you, Miguel. Good afternoon to you all. So let's move into Page 15 for the first half results. So I'd like to start with the main highlights. So we achieved EUR 976 million EBITDA. This represents a 49% increase versus last year. Net profit reached EUR 165 million, so that's EUR 123 million increased also versus the first semester of last year. We generated 17.8 terawatt hours of clean energy, it's an increase of 16% year-on-year. Revenues were also positively affected by the average price increase of around 27% year-on-year. This comes from higher prices in Europe, but also from the Spanish regulatory framework that was updated through the second quarter. We also have closed 2 asset rotation transactions with approximately EUR 100 million, EUR 99 million to be precise, of capital gains included in the EBITDA. On the other hand, financial costs increased EUR 74 million, mainly due to higher interest rates, increase of debt on the back, of course, of the strong investment plan, and this is the growth CapEx plan, but also, of course, with the Sunseap acquisition and equity contributions to Ocean Winds. And we also have a negative impact of taxes in higher non-controlling interest in net income. So all in all, very strong results, benefiting from a solid performance of EDPR based portfolio, better resource and price. So if you move to Slide 16. By the end of the first half, EDPR had recorded capacity under construction of 3.2 gigawatts. I mean this is a record number of megawatts under construction for EDPR. This is 1.5 gigawatts of wind onshore and also essentially a very substantial high number of 1.3 gigawatts of solar capacity, with a total portfolio of 13.8 gigawatts, very balanced across the different platforms. So North America, 51%; Europe with 40%; Brazil, 6%; and APAC representing already 3% of this pipeline. In the first half, we achieved a very sound operational performance with 33% load factor. That's a 2 percentage point increase versus last year, reflecting a renewables index 2% higher than the expected long-term average gross capacity factor. This also compares well with the first half of last year. So the electricity output increased 16%. And of course, this is on the back of the capacity additions, but also the higher renewable resource, which, as I said, compares very favorably with last year. So as a result, we generated 17.8 terawatt hours of clean energy in the first half of this year and avoided 11 million tons of CO2 emissions. So if we move now to the selling price. The average selling price in the period was 27% higher year-on-year at EUR 65 per megawatt hour. In Europe, the average price increased by 36% to EUR 105 per megawatt hour, and this is mainly due to the higher realized market prices in Poland, in Italy and very importantly, the update of the Spanish regulatory framework. In North America, the average price increased by 3% in local currency due to higher merchant prices, but again, not so high as in Europe. In Brazil, average price was down by 1% to BRL 144, and this is on the back of the more competitive assets that have been added recently to the portfolio. So all-in-all, revenues increased 45%, totaling EUR 1.2 billion, mainly on the back of additional installed capacity, higher average selling price, excluding the sell-down that accounts for an additional EUR 65 million, EUR 69 million on year-on-year, along with ForEx translation and others, which is about EUR 100 million, that's year-on-year. On Slide 18, looking to the net profit. Net profit totaled EUR 265 million, that's an increase of 87% year-on-year. And of course, this is on the back of the top line performance that I just explained, partly offset by some higher financial costs and of course, controlling interest. So the financial costs are up by EUR 74 million, this is mainly due to the increase in debt, the increase in average cost of debt year-on-year, negative impact of the ForEx. Taxes, we have an effective tax rate of 15%, that's a 3 percentage point below last year. And minorities of EUR 120 million, increasing EUR 56 million year-on-year versus on the back of the positive top line performance in the portfolio where we have the minority partners. So just moving to Slide 19, and just to finalize before I hand over to Miguel. As of June, net debt was EUR 5.2 billion, so that's an increase of EUR 2.3 billion increase versus December closing, reflecting, in one hand, the investments in the period like the acquisition of Sunseap, the equity investments at Ocean Winds, and of course, the impact also from some ForEx translation. On the other hand, asset cash flow generation, strong; asset rotation strategy, where proceeds reached EUR 975 million in the first 6 months of the year on the back of the deals concluded in Europe also showing a very strong cash flow generation. Tax equity in the U.S. remained mostly flat over this period at around EUR 1.5 billion. Note that we do keep a very high weight of fixed rate debt, so at 85% of total debt. And we further our investments in local currency, so matching assets and liabilities. So the U.S. dollar and euro-denominated debt, they represent more than 80% of our total debt. So all in all, despite the increase in net debt, I think it's clear that this is in line with the strong target additions, the record CapEx or the record number of projects under construction. And of course, this is in line with what we are set forth for the period of 2021 until 2025. But Miguel, I hand it back to you now for closing remarks.

Thanks, Rui. So just last sort of key takeaways, I'd say 6 points. The first, solid first half results, so the increase in EBITDA, driven very much by the increase in generation, but also selling prices and obviously resulted in an increase in net profit, so first point. Second, record capacity under construction, 3.2 gigawatts. 1.8 gigawatts of wind, 1.3 gigawatts of solar. Part of that will be added in 2022, some of it will still come in 2023 for reasons that we talked about earlier. Third, committed capacity already more than 50% of the 20 gigawatt target set for 2025. So 10.6 gigawatts capacity with good returns and good risk profile. Fourth point, Ocean Winds, strong portfolio, almost doubling what we had in the Capital Markets Day, so to around 12 gigawatts. So continue to show good growth in multiple different geographies, whether it's in Scotland or in France or in Poland or in the U.S. or in South Korea. I think it's showing a good prospect. Fifth point, good asset rotation prospects for the year, as we saw in the last quarters or 2 transactions closed, another one signed, other deals under negotiation, so on track there. And as I said, interest rate increases being typically offset by energy prices expectations going forward and a lot of demand just from investors in general. Sixth point, growth outlook, strong, very strong. I mean REPowerEU make Europe clearly taking the lead by setting the ambitious targets, but also focusing on trying to simplify things like the licensing permit in the interconnection. So I think that is an area that the member states are working on, probably not having a short-term impact, but certainly, medium term. We think it will continue to be -- there will continue to be this public support for renewables for all the reasons that I mentioned, decarbonization, both energy security and affordability. So overall, we are working on creating good growth opportunities that are diversified both in terms of regions and technologies. That's -- we'll continue to do that and I think that's part of the value added that we are bringing, using our scale to buy well to using our competencies, to build well and to continue to develop. So in that sense, very focused on executing the plan, very focused on delivering the targets that were set out last year, and we'll be working over the next couple of months to even revise some of those targets. So once again, thanks for attending the call. We can now move to Q&A.

[Operator Instructions] Our first question comes from the line of Manuel Palomo from BNP.

Of course, well, I will stick to 3. First one is on interest rates. You already commented on the impact from the higher interest rates on asset rotations that you see it's pretty limited. However, I wonder to what extent and in light of the significant increase in the debt in the period, this hike in interest rates could put at risk your future plans? So that would be the first one. The second one is on potential M&A. In the last couple of years, we've seen a couple of sizable transactions, Viesgo and Sunseap. And my question is whether you are considering or planning any additional sizable acquisition up to 2025? Or do you believe that with what you have today in terms of pipeline and so on would be enough to achieve the targets? And lastly, I wanted to ask you about -- well, what do you think in terms of offshore, because you have commented repeatedly that you see very strong prospects in offshore. However, offshore is very balance sheet demanding, if I may. So could you please update us on your views and plans for offshore? Will you continue to sell stakes in earlier stage as in the past? Or are you willing to maybe modify that strategy, given the strong prospects for that technology?

Thank you, Manuel. So in relation to the first question, interest rates, I mean, no, I don't think -- so yes, we are seeing sort of interest rates obviously going up, but we're also seeing energy prices going up and so the 2 offsetting each other or more than offsetting in the case of some of the geographies, so with good demand and good valuations for these assets. In terms of the increase in debt, I mean it's something that we expect will normalize towards the end of the year. And we can also give a little more detail on that. But we don't see that the increase in interest rates would be a, let's say, an obstacle or a bottleneck to continue to execute on the plan. On the M&A, listen, I don't know what you mean by sizable acquisition, but we don't have anything specific on the, let's say, of anything close to the Viesgo type transaction or Sunseap. We also continue to look at opportunities. And so you asked me until 2025. I mean, quite honestly, I have no clue. We will look at opportunities. That's our job to also look at opportunities, and if they make sense in terms of portfolio, whether it's technologies or geographies, then we should do it. If we think it adds value to our portfolio, then definitely, we think it makes sense to do it, and so we'll keep you updated on anything which we do. But there are certain areas where we think it could make sense, but we'll obviously keep you -- let you know if anything comes up, but again, nothing of that order of magnitude. In offshore, yes, strong prospects, balance sheet demanding. I think that's a good way of putting it, it's true. But we do have that strategy of selling down stakes progressively as the project goes on maturing. And so ranging from when it's -- we already have the 50-50 JV with ENGIE. So that's already a way of partly managing and de-risking, managing the balance sheet and derisking. We typically find partners, so for example, New York Bight we have 50%, Ocean Winds with GIP, so we are indirectly 25%. In the case of Mayflower, we went with Shell. So we typically find partners, and we will then go on selling down stakes over time as the project matures. So we manage the overall impact on the balance sheet. And I think that's -- we prefer to be in multiple projects with decent stakes than to have too much concentration of capital in a single project. And like that, I think we can find a good risk-return balance, let's say, overall in terms of the growth in this portfolio. In any case, Rui, do you want to comment as well?

Yes. Manuel, thank you for the question. Just related to the net debt. I mean what we are expecting is that net debt will go down to around 4 -- between EUR 4 billion and EUR 4.5 billion by the year-end. And of course, this is the first half, we had the impact of the Sunseap acquisition. And given that we show -- we have more than 3 gigawatts under construction, there was already some cash out for the period. But as we move through the second half, basically, we'll have, in one hand, the cash in from the asset rotation that we are still working to sign and close that we expect to happen before the year-end. And also there will be -- there is some seasonality in terms of the working capital with the successor supplier. And basically, we expect the debt to reduce towards the year-end. And as Miguel said, I mean, I mean we are not expecting any material change in terms of our cost of debt. I mean, as of now, as you saw, it went up from 3.5% to 3.7%. So it was not material because most of the debt is fixed. Whatever interest rate environment we will live in, we will also know that we'll have that reflect into the power prices. So we are seeing that happening.

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

I'll also have 3. The first one is on REPowerEU. I think, Miguel, you explained very well the end game and that we are lacking details. But to your best knowledge, could you maybe share with us what do you think pragmatically are going to be the next steps? So when are we going to see maybe legislation in all member states or in the big member states that is actually going to accelerate the conversion of the pipeline? When are we going to see actually those higher level of about potentially up to 100 or maybe later in the decade, even 150 gigawatt a year of wind and solar auctions in any given year? So just trying to gauge when will we see your P&L benefiting from it? Is it 2025 at best? Can it be a bid in '24? Or is it really in the second half of the decade? The second question is maybe if you can give us a bit of an update on returns. You already said a lot. I'm particularly interested in trying to understand where you see returns going in this current backdrop? And are you planning to change your strategy to be maybe a bit more exposed to merchant prices, given despite price caps, given that merchant prices provide much stronger returns. And more to the point, there's about 12 gigawatts in the JV of offshore. And again, most of those are in the second half of the decade, who knows what the returns may look like. But -- can you tell us if you still are targeting the same IRR minus WACC of about 200 or 300 perhaps basis points on those projects? Should they be more or less profitable than the rest of the portfolio? I'm specifically referring to offshore. Last question, it's basically a take away from question #2, 6 gigawatts on your share of, well, let's say, 2 giga for the JV and half of that for your share, it's quite a lot of money. So if we start to put together a net debt, including tax equity partnerships, leases, maybe in the neighborhood of EUR 7 billion at the end of the year. And then you need -- you're about to see an acceleration in projects in Europe, in offshore. How are you going to fund it? Are you open? So should we expect every 3 years in equity raise from you? Nothing wrong with that, I think that it's for a good reason, right? You have plenty of projects to pursue, so I think it's okay. But I'm just trying to think how you're thinking about it? Is it going to be more fund downs? Or would you actually prefer to retain a little bit more and then try to use some equity?

Alberto, okay, great questions. So let me take them one by one. REPowerEU, so we are already seeing governments take concrete steps to try and simplify it. I can give you a very local example, which is in Portugal the government came out actually just this week with what's called the simplex. So a package of measures, which is now for public consultation until September, where they are essentially streamlining the process, finding ways of reducing the environmental constraints within reason. But it's a dedicated package to simplifying and to accelerating the licensing and permitting of renewable projects, so that's one example. But we can go country by country and some haven't made it public yet, but I would say that almost all of them are talking to the associations, to the companies to trying to understand where are the bottlenecks, how can they help. And so that is work which has been done. It will take months, let's say, to them get into to get the resources and the actual simplifications done into law and sort of take out some of the bottlenecks. But I'd say sort of 12 or 18 months, you'd start seeing already hopefully concrete impacts of projects beginning to be accelerated and towards the '24, '25, you start seeing some higher growth already coming through from that. So let's say I don't think I'm being too optimistic, but let's say that for me would seem to be the reasonable sort of time line. Even Germany is really pushing forward in terms of inverting the owners of proof so that you basically need to renew onto strategic assets, and you now need to prove that building renewals will be harmful as opposed to you having to -- us having to prove that we won't do any harm. So there are measures that are being taken, and I think governments are very focused on that. On the second one, so offshore returns or -- and in general, more exposure to merchants. So in the past, well, we are in a different world, okay? I mean the world has changed definitely over the last couple of months. In the past, the difference between doing a long-term PPA or going merchants in terms of risk reward, clearly was in favor of doing the PPAs because the projection of energy prices versus doing a PPA, I mean, with the additional risk of being merchants, you might as well just lock in that price for the next 15 years. So 18 months ago, I don't think, or 12 months ago, there was no doubt about what was, let's say, the best risk return strategy. I think where energy prices are now, certainly for the next 2 or 3 years that changes slightly. I don't think it swings all the way to the other side. So I certainly wouldn't -- we wouldn't consider or advocate doing fully merchant because it does have a lot of volatility and prices can go up, but it can go down as well. And so if you're counting on high prices, you can get squeezed hard on that. Having said that, I think having long-term PPAs and then what they nowadays call either merchant nose or merchant tail or a small component of merchants, so you can maybe get an extra kicker in returns. I think that is, let's say, appropriate given the current market context and what we expect over the next couple of years. Specifically, you were then asking about the JV sort of the offshore. I mean we -- in offshore, we target 1.5x cost of equity, which again will be country-specific, but we normally look at it on a cost of equity approach because since we have minority interest there, so it's normally a project financing. And so the appropriate measure would be in the cost of equity that's that we're getting on that. But we're talking about double digits or very high single digits in most of the geographies where we're in. And so it's a good spread on the cost of equity. And your third point, listen, it's a deep question. We are definitely comfortable with the current business plan in terms of the financing of that. As we mentioned, the debt, we are expecting it to sort of normalize more towards the end of the year. So I think I wouldn't read too much into the net debt level at the end of this semester. Having said that, we are obviously accelerating the CapEx. What I'd say to you is the following, probably beginning of next year, we would normally go to the market to update, let's say, just looking at where the market -- where the market is in terms of interest rates, in terms of energy prices, in terms of the prospects for growth, et cetera. And so we're going through that exercise, but -- of looking at what are the prospects of growth. I don't have a concrete answer except to say with the current business plan, with the current assumptions, we are comfortable the way we are. And so we don't need to go beyond in terms of farm downs or capital rising. And so there -- those options, I think we're sticking to our plan, but obviously, if we think it's appropriate to go back and revise that, we'll do that at an appropriate moment. But for now, I'd say the plan is credible and it's fully final.

Yes. Just -- Alberto, it's Rui here just again, to highlight, bear in mind that when we look to the offshore and, of course, offshore is a very capital intensive at different stages of the project development either when we start participating in the auction or pre-COD -- pre-FiD or at COD. At some point, Ocean Winds will be selling down stake. So the point is exactly acknowledging that it's very capital intensive. And throughout the process, we will be bringing in partners different profiles. So that they'll also supports the funding of the entire portfolio.

Our next question comes from Jorge Guimaraes from JB Capital.

I have 2 questions. One of it is a follow-up from your answer to [ Alberto ]. The first one, if you can elaborate on the current levels of CapEx, namely for solar PV because some players are speaking about 0.6 million, 0.7 million per megawatt for installations in 2022 and 2023 in Europe. So I would appreciate your view on this. The second one is looking at the objectives here in Iberia, Spain and Portugal, solar seems to be very much ahead of government objectives, but we not so much. Would you consider to speed up installations in wind in Iberia? Or is it just a matter that the market is not attractive enough? And the final one and the follow-up to -- you mentioned high single digits. Is it for project returns that allow for that ROE equals 1.5x cost of equity or the high single digit refers to the project -- to the equity IRR? So the high single digit is project IRR or equity IRR in offshore?

Okay. So in terms of current level of CapEx, I'd say that's right. I mean it has gone up, so probably, we're talking again a year ago, probably below -- we'd be below 0.5, remember projects coming out almost 0.4% or thereabouts. So CapEx has increased both on the PV and the turbine side for the projects that aren't, let's say, that didn't have already the contracts locked in. In terms of the objectives for Portugal, solar is moving forward, wind could speed up in Iberia in general, yes, definitely. And I think there -- but it goes back to one of my comments that I mean, wind in Iberia is also very competitive onshore, our onshore is very competitive. It would be good to get visibility on auctions or, let's say, that would be happening in Portugal and in Spain over the next couple of years. I think it would be good for you guys, it would be good for us just to be able to think about allocating resources and sort of what can be the expectation in terms of the build-out of both technologies. For corporate PPAs, it is possible to do wind and obviously, solar, I think will probably speed up once they also get simplified the licensing and permitting project, but it is not going as fast as solar, at least at the moment and certainly not in Portugal and not in Spain either. On return on equity, so we would normally target, let's say, double-digit return on equity. As I say, it depends on the geographies. High single digit would be in a very low-risk market. Normally, what we find is that when we do the asset rotations or the sell down of the stakes, then these returns go up into the probably high double digits. And in fact, while I can tell you, just looking at the recent -- well, just looking at -- Moray East at the moment, we're talking about very healthy return on equities that we're getting, so above 20%. So I think in that sense well, so hopefully, I've answered your question. But -- so that would be the returns we will be looking at, that would be a spread to the cost of equity of the country.

Our next question comes from the line of Jose Ruiz from Barclays.

Just 2 questions. The first one, if you could give us a little bit more color on what is going on in the U.S. You mentioned the legislation package not going ahead. I would add that -- mentioned opposition to direct payments of tax credits. If you can throw a little bit of light if this is just temporary or the future looks more positive. And the second one on Slide #10. You mentioned Moray West, you're going to be combining 2 ways of protection. One is the CFTs and you say you complement with corporate PPAs, the remaining capacity. Can you mention why are you doing this? You're getting higher prices in corporate PPAs? Or it was just a limitation of how much CFTs you could get for Moray West.

Okay. So in relation to the U.S., so as I mentioned, I think in terms of the build back pattern definitely didn't -- well, it's not going forward, I think that was killed, that was quite public sort of about a week ago or the second potential version of the build back better. So I think we're in the base case scenario, which is we -- the structural demand in the U.S. is there, whether it's from the renewable portfolio standards, whether it's the corporates more than half I mean almost 60% of our PPAs and projects in the U.S. are corporates. So we continue to see strong demand there. Renewables continues to be very competitive in the U.S. even with the current PTCs and ITCs for wind and solar. So I'd say that the base case is what we are looking at or what we're expecting going forward. If the build back better had gone forward, there would have been an upside to that. It's not going to go forward. So I'd say the next let's say, potential area of -- so what's the base case is the PTCs and ITCs phasing out. So that's what's been agreed and that's what's built into the business plan. The only additional thing that could happen now probably is the extension of the current level of the PTC, so improving versus the base case that would typically happen at the end of the year. I mean, let's see, again, we're not holding our breath for that, but that would be probably the next data point that we would get. What I would mention though is in terms of -- so in terms of the tariffs, as I said, the 2 years, that's President Biden has given that. So we have 2 years in which we have visibility that will be 0 tariffs. By then, the Department of Commerce will have concluded the investigation. So we'll have visibility on are there going to be any tariffs or not? And what would be the level in that case? I did mention bureaucracy because I think that's something that in the short term is impacting actually bringing the panels into the U.S., doesn't have -- it's not a structural issue, but it's a short-term logistical issue. So structurally, what I'd say is we're assuming the base case could be some upside now at the end of the year, but let's see. That's -- we're not building that into the business plan. On Moray West, so this is called revenue stacking and actually did the other way around. So we had a corporate -- we're not necessarily sitting around just waiting for the CFTs to come by. So we have an active presence in the market looking for corporate PPAs. In this case, we had 2 corporate PPAs that we were well advanced in and that we've locked in. So we went for the CFT, this is the volume of CFT that we needed to basically complement the project was what we needed. So we already have the corporate PPAs, we locked in now the CFTs it means now we're fully set. In fact, we took the decision to move forward with the construction of Moray West. I think we'll see more and more of this, which is revenue stacking. So not just having a single -- I mean you can also have just one contract for the full project, if you want, but you can also do the bundling. The advantage of that is you get some additional flexibility in terms of price, even in terms of conditions, whether there's revenue sharing or not. In the CFTs, it is what it is. I mean it's set, you bid for it, you lock it in with a corporate PPA, you obviously have some additional flexibility to discuss terms when it kicks in, when the CFT comes in and all of that. So if you can find them, they are also good contracts to have if the counterparty is credible. Hopefully that answers your question.

Our next question comes from the line of Skye Landon from Jefferies.

I just wanted to ask about the -- on the construction capacity, which obviously, a 3.2 gigawatt is a nice uptick from 1Q. I'm just wondering if you could provide a time line of the expected, the big moving parts there, specifically U.S. solar, the Canada wind projects and also the Brazilian and Colombian wind projects.

We don't have a specific breakdown of that. But say it's about, if I'm not mistaken, around 50-50 of wind and solar. I mean, most of our wind currently or the big bulk of it is in Colombia and Brazil. That -- we're expecting Colombia to probably come in beginning of 2023. So that slipped slightly from the end of fourth quarter of '22 to '23. Solar I've already mentioned in the previous call, in the U.S., some of that slipping into '23. Overall, for this year, we have an expectation of doing between 2 and 2.5 gigawatts. And so the delta, let's say, will be coming in 2023.

Our next question comes from the line of Fernando Garcia from RBC.

I have a couple of questions. So first one, I would like to know the impact in results from the change in regulation in Spain in the first half? And what do you expect for the full year on this change of regulation? Then second question, you said, if I recall well, in the first quarter results that you saw PPA prices increasing by 10% to 15%, I wonder if you can update that figure.

Thanks Fernando. So -- go ahead.

Yes. Sure, Fernando. So on Spain, let me just run through the numbers. So we generated about 2.5 terawatt hours in Spain. About 60% of this is under this regulated price that now became -- the reference price became EUR 120. And as you know, this is a retroactive that also is impacting the first quarter when the price then was at around, I would say, 60s. So basically, this is -- there is this first positive impact. Then 40% -- so the rest of the -- the generation of 40% is merchant, we hedged at around EUR 50 per megawatt hour. So effectively, what we see is that, I mean, there is an impact in the first half from this change in regulation, which is about EUR 60 million full year should be around about EUR 150 million. But I would like also to highlight that this is positive for the season. So this is not only positive for EDPR. This is positive for the season because, on the other hand, the incentives sort of premium that we should be getting into from the system goes down year-on-year from 58 million to 22 million. So there's a substantial decrease and that is a positive impact that the system also is observing. But I mean, again, just the number for us is 60 million in the first half and around 150 million at the full year. Sorry, and the second question related to the PPA pricing. I mean, yes, we have been observing a PPA price increase -- and it's something that we have been, of course, discussing with the different off-takers, depending on the tenure of the PPA, and you will see different percentages. Again, if we're talking about typically the 15-year, 10-year PPA, that is much more driven by the CapEx increase. So now that sort of range the 10%, 15% PPA price pretty much reflecting the CapEx increase. If you're talking about shorter tenures, let's say, between 7 and 10 years, then it's more related to the forward curves. And there, you would see a higher PPA price just because of merchant prices across Europe, a little less in the U.S., but as well in the U.S. went up. So basically, if we look to the shorter-term PPS, you'd actually see higher increases than the 10% to 15%.

Your next question comes from the line of Arthur Sitbon from Morgan Stanley.

I have 2. I know you were mentioning some potential delay in the U.S. with the bureaucratic procedures on solar panels. I was wondering if you stick to your target of adding 3 gigawatt of capacity in gross terms per year on average for 2022, 2023? So that's my first question. The second question is a bit more detailed. It's on the contribution of associates. In H1 this year, it's up EUR 80 million versus last year. I was wondering which assets is the growth related to if it's sustainable and which level we can expect on associates for the full year?

So in relation to your first question, yes. So we maintained the target for '22, '23. Obviously, '23 is going to be a busy year. But I think what I'd say is we are getting it well advanced. So we've got the 3.2 gigawatts under construction, which means -- and then most of that will be coming in 2022, part of that in 2023. And we'll also be continuing to launch additional projects, let's say, the building of additional project for 2023. So 2023 will be obviously an intense year, but I think the teams are all -- we've been ramping up also in terms of teams and internally to make sure that we can deliver that. So you'll have seen that also in terms of headcount and personnel. On the second question, it's mostly Ocean Winds, but not only also some additional projects in the U.S. and in Europe. So Spain and the U.S., mostly from where we have sort of interest in projects. And those additional results are coming through the associate's line. And is it sustainable? Yes. I mean given the current market context, it's something which we expect will continue going forward.

And the final question is coming from the line of Olly Jeffery from Deutsche Bank.

I have one follow-up and then 2 other questions, please. The first one is a follow-up on your response to Fernando regarding the impact and the change of regulation in Spain. And you mentioned this year, that's a net benefit of 150 million EBITDA versus before that change in regulation. When we think about 2023, I understand that the fixed element will be lower, but perhaps the power price assumption will be higher as well. How should we think about the net effect of that in '23 versus before this change in regulation? That's a follow-up question. So the second question is on just to come back to the return metrics. At full year results, you said that for the 8.4 gigawatts you then have secured the NPV over CapEx of those projects was at 35%. And since then, you've done an additional 2 gigawatts and power prices have obviously moved up quite considerably. What's the NPV over CapEx for the 2 gigawatts broadly that you secured additionally in the first half of this year? And then the last question is just on the gains. The target you still have in place is looking to see more than 300 but less than last year's 500, I know you've done 100 million so far. Last year, you had one project, the Portuguese project where you sold to Onex that generated over EUR 300 million gains. It was a huge project for gain. I just wonder if the U.S. project you have in line and other projects you're working on, is one of those similarly very largely sized and potential gains? Or are the gains quite evenly mix across them. Your views on all of that would be much appreciated.

Okay. Thanks, Olly. In relation to the first question, Rui, do you want to take that?

Yes, sure. Absolutely. Just it's going to be higher than 150 million. So first, by November, we'll have the 2023 price being defined based on -- it's a basket of different forward curves. But it's likely that at this point, we'll see a higher price than the reference today. And secondly, I mean, as we also have some hedging that basically will increase because of the hedging for 2023 is higher than overall. I mean, we will have a higher impact in our EBITDA in Spain in one hand coming from the regulation also coming from the hedges.

In relation to the second question, I confess, I don't have the numbers with me, so we can maybe get back through the IR team, if we have had additional detail. On the third question in relation to the gains. So as you say, we've worked in hundreds, I'd say we have -- the others would be fairly evenly split. So we're not expecting a single project sort of to have a -- certainly nothing of the materiality that we had last year in one shot. So it will be more split between the remaining asset rotation portfolios. Okay. So I think that concludes the questions, hopefully, it was useful. Thanks for taking the time again, once again, I know it's a busy week for everyone. But thanks for taking the time to talk to us. I think it was a good quarter, a good first half, good prospects going forward, good prospects, not just for the rest of the year, but I think for 2023 onwards. So above all, I think the feeling that there is a very structural tailwind in favor of renewals. And so there'll be ups and downs, but I think the structural growth is there, and that's what we're working on just making sure we can continue to grow the company and continue to create value. Thanks very much, and talk to you soon. Take care.

Thank you, everyone, for joining us on today's call. You may now disconnect.