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

Good afternoon, everyone. Thank you for attending EDPR's First Quarter 2023 Results Conference Call. We have here with us our CEO, Miguel Stilwell de Andrade; and our CFO, Rui Teixeira. We will run you through the key highlights of our first quarter 2023 execution and financial results. We'll then move to Q&A in which we'll be taking your questions both by phone and the written questions that you can insert from now onwards in our conference web page. This call should last no more than 1 hour. I'll give now the floor to our CEO, Miguel Stilwell de Andrade.

Thank you, Miguel. Good afternoon, everyone. I hope you're all doing well. It's always a pleasure to speak to you. So just diving straight into the presentation and talking a bit about EDP Renewables performance in the first quarter. I'd start off by saying that, if we move to Slide 4, we had a sound top line performance driven by capacity growth and pricing updates. Being more specific, our revenues reached EUR 706 million. So that's a 24% increase year-on-year. And it reflects sustainable top line growth supported by operational performance with an installed capacity 5% higher year-on-year and an increase in generation of 11% year-on-year. We also saw a significant improvement in the average selling price of around 8% year-on-year, and this was mainly supported by new PPAs, hedging rollover and inflation updates. EBITDA, it increased to around EUR 450 million, so 14% year-on-year. The 4 regional hubs contributing to year-on-year growth. So that was positive on all the different geographies. Net profit flat year-on-year. It's EUR 65 million. So we had a good top line performance that is then penalized by higher financial costs which are impacted by volatile ForEx mark-to-markets. Gross investments supported the company growth, so around EUR 1 billion in the first quarter of '23, with more than 80% of invested CapEx in Europe and North America. And we reached a record of 5 gigawatts under construction by March. That's diversified by geographies and technologies. So this is truly a major development in construction effort that we're having throughout the company, and it shows how we've been ramping up the organization to be able to grow sustainably over the long run. Since the Capital Markets Day, so just 2 months ago almost to today, our secured capacity has increased by 1.5 gigawatts. Now this is being fueled by strong renewable demand for both corporates and public support, both in Europe and in the U.S.A. Finally, regarding our 2022 scrip dividend program. It was launched yesterday, and shareholders will be able to opt between receiving 1 bonus share of EDPR for every 75 incorporation rights or, an alternative, to receive a EUR 0.265 cash amount per share to be paid on May 26. If we move now into Slide 5 and start going through the different items. So the average selling price of the 8% up, as I mentioned, on the PPAs inflation and hedges rolling over. I'd say that the average selling price is now at almost EUR 58 per megawatt hour in the first quarter of 2022 versus the EUR 62.5 this quarter, so an 8% increase. And it's supported, as I mentioned, by the -- let's say, the PPAs inflation and the hedging rollover. In terms of geographies, the price is supported mainly in Europe, up 22%, and in the U.S., up 3%. Despite the prices remaining high versus pre-pandemic levels, since the beginning of 2023, the electricity prices in Europe have been easing, and this implies lower cost with clawback taxes in Poland and Romania. So all in all, EDPR maintains its low-risk profile, the majority of its portfolio under long-term contracted revenues so close to 90% for 2023 and around 80% for 2024. That's going to support the performance in the upcoming years. And so that's the graph you can see there on the right of the slide. If we move to Slide 6, I think it's worth mentioning, we have active PPA markets. We've seen EDPR securing 1.5 gigawatts since the CMD, so very strong increase in the capacity to 8.5 gigawatts overall. That's around 50% of the overall 2023 to '26 target, which is 17 gigawatts, as you know. And it's also around 75% of the target additions for '23 to '24. So impressive execution from our teams that will support the upcoming growth. Overall, I can also say that we're seeing great appetite from corporates for PPAs. As a matter of fact, 78% of our PPAs have been closed with commercial and industrial companies with an average duration of 15 years at really attractive prices. There's also an active market here in company EDPR as a key counterparty that's being selected for having best ESG practices linked to our project that support local communities, habitat restoration and be net zero-driven projects. So I think we have a lot of people reaching out to us to close PPAs, which I think is positive. I mean as an example, we just closed an agreement with Google to develop 500 megawatts of distributed solar energy in the U.S.A. So this marks the largest U.S. corporate sponsorship in distributed photovoltaic. The deal, it will promote environmental justice and will be an initiative that provides benefits to nearly 25,000 low to moderate-income families. This value is not included in the 8.5 gigawatts, but we'll accrue as we go on closing projects over the coming months. We currently have around 2 gigawatts of PPAs under negotiation between our different platforms, and that will continue supporting our strategy of securing PPAs for this period '23 to '26. If we move now to Slide 7. So talking about capacity under construction and just generally how we're placed over the next couple of years. Out of the 8.5 gigawatts of secured capacity, as I mentioned, we have around 5 gigawatts under construction, we're expecting to deliver now around 3 gigawatts in 2023, of which close to 1.1 gigawatts will be installed in the U.S. I think it's worth noting that we have around 0.9 gigawatts of solar PV installations in the U.S. that we're moving from '23 to '24 essentially related with the delay of solar modules from LONGi, so it's a specific issue with the specific supplier. Unfortunately, it's taking more time than expected to fulfill the customs and border protection documentation requests related to the Uyghur Forced Labor Prevention Act. But we keep going, and we're learning from market dynamics and quickly adapting our strategy for the best delivery in terms of execution. And so we've been reinforcing the diversification of our solar supply chain. So the solar installations in the U.S. in 2024 are going to be sourced from 5 different solar manufacturers. And as you know, because we recently announced that we've contracted 1.5-gigawatt capacity with First Solar for projects post-2024, once again, reinforcing this diversification path. We also see a strong growth ahead of U.S.-based solar modules manufacturing. According to the SEIA, there's a total of 48 gigawatts of factories under construction or that have been announced. So this number represents more than 5x the current capacity in the market. Moreover, we have 1 gigawatt of capacity under construction with delivery planned for post-2023, a significant part related to offshore projects in the U.K. and France. The remaining 2.7 gigawatts are in the process of starting construction with very good prospects. So that's basically the summary there of Slide 6 in the graph there on the left-hand side. If you move forward to the next slide and talking about Offshore Wind and Ocean Winds. So we had recent developments in France with our big projects, Noirmoutier and Le Tréport, which means a final investment decision and starting construction. In the U.K., Moray West also got another milestone and reached financial closing. Our projects have sound economics supported by inflation-linked revenues with clear visibility on CapEx and supply chain. So they comply with our strict investment policy, and we're looking forward to having them in operation soon. As of now, around 20% of our wind offshore portfolio is already installed or under construction, and all the projects framed in the business plan timetable are already under construction. Finally, there are substantial growth opportunities that we're currently analyzing with upcoming tenders where Ocean Winds is participating or will participate over the coming months. If we move on to Slide 9 and we talk about the macro environment. So the current macro environment, it's got high yields. Obviously, it's challenging for growth companies like EDPR. But I think it's worth noting that we have 76% of our financial debt at fixed rates and variable debt, it's mainly coming from Brazil, where revenues are linked to inflation. We've already pre-hedged EUR 1 billion at 1.8% -- EUR 1 billion at 1.8% and $1 billion for a 5-year period, that will bring us even more stability. So as you know, during this quarter, we also successfully raised EUR 1 billion through a capital increase that totally supports the business plan, and it improves the EDPR position in the capital markets. Finally, our 2023 asset rotation strategy has already been launched this quarter. And I can say that based on the processes that are going on and the preliminary feedback, we continue to see high market appetite for renewable portfolios, strongly driven by the ESG angle and the growth prospects. And this is despite the current high-yield environment. So the demand is there and the value is there, confirming our belief that even in this environment, it's possible to do successful and profitable asset rotations. Finally, just before I turn it over to Rui. Moving on to Slide 10 on ESG topics and specifically our environmental performance and strategy. So we'd like to announce that we submitted our commitment letter to the SBTi to set near-term reduction targets by 2030 and net zero targets by 2040. So even though our business inherently reduces CO2 emissions, we want to boost our decarbonization rule by aligning ourselves with initiatives that actively contribute to the global challenge of net zero. This is something that was highlighted by some of our investors, and we've taken their comments and suggestions and are moving forward with this because although EDPR is 100% renewable player, we thought it was important, and that was in the discussion with investors to actually have a concrete plan and target for 2030 and also for 2040. In this context, we're keeping 99.5% of our eligible turnover and CapEx fully aligned with EU taxonomy. As you know, our core business is totally focused on renewables, so that makes sense. And we avoided the emission of 6 million tons of CO2 during the first quarter of the year, benefiting from the increase in the energy production. On the social side, we're happy to have been recognized by several institutions on our efforts and commitments to a healthy and inclusive work experience to combine with our practices and policies to place our people at the center of our strategy. So this reflects our commitment to diversity and inclusion. Our team has now reached more than 3,000 employees, so a 10% year-on-year increase. And we hired 200 employees during the first quarter of the year, of which 36% are women. So this is very much aligned with our commitment of diversity. Our business plan target of having 36% of women employees by 2026. It's currently at 33%. So we're moving clearly in that direction of getting to 36%. And in addition, 29% of our employees in leadership positions are women. So it's a 1 percentage point increase year-on-year, contributing to our overall target. With that, I'll stop there and turn it over to Rui, and I'll come back again for closing remarks. Thank you.

Thank you, Miguel, and good afternoon to you all. So I'd like to take you through the first quarter '23 results. So if you move to Slide 12, I'm highlighting that EDPR really begins the year delivering strong operational performance. So we installed 1.7 gigawatts over the last 12 months. The asset rotation amounted to 0.9 gigawatts, and that led to a portfolio of 14.8 gigawatts by the end of the first quarter of the year, with a very balanced mix across, North America, 49%; Europe, 38%; South America, 8%; and APAC, 5%. By the end of the quarter, the capacity under construction, as Miguel already referred to, reached 5 gigawatts. That's an additional -- that's 1 gigawatt more versus what we had during the quarter, so throughout the quarter of -- the first quarter of 2023. And this is really supporting the additions for 2023 and beyond 2023. Our renewable resource was slightly lower than last year at 34%. That's minus 1.1 percentage points year-on-year, reflecting a renewables index only 2% below than the expected long-term average gross capacity -- or gross capacity factor and a better-than-expected good first quarter in last year in terms of renewable source. So effectively, last year, as you may remember, we have a better than expected, so year-on-year translates into this minus 1 percentage point. All in all, electricity output increased 11% year-on-year, benefiting from capacity additions and the good renewables resource. And as a result, we generated more than 10-terawatt hours of clean energy and also just, as Miguel said, avoiding the 6 million tons of CO2 emissions. So really good, strong operational performance, solid resource, solid new additions and therefore, higher electricity production. If we move now to EBITDA, that's an increase of 14% year-on-year, backed by an outstanding top line performance. Also a little offset by regulatory clawbacks and lower associates' contribution. That is the Ocean Winds contribution. So EBITDA was positively driven by strong top line evolution. That's a 24% increase in revenues, in line with higher production and with higher selling prices that went up 8% year-on-year. And it was, however, penalized by regulatory clawbacks in Poland and Romania and lower associates' contribution versus 2022 due to the power pricing in the U.K. that impacted Ocean Winds' performance. EBITDA increased to EUR 448 million, representing a strong performance with a 14% growth year-on-year and basically growing in all the regional hubs. Evolution in Europe increased by 21%; North America by 14%; South America, 62%; and APAC with a substantial increase of 5.1x due to the impact of the Sunseap integration from the beginning of 2022. On Slide 14, the net debt evolution mainly driven by EUR 1 billion of net expansion investments, which, of course, is compensated by the EUR 1 billion capital increase and the organic cash flow. So as of end of March 2023, net debt was EUR 4.8 billion. That's EUR 100 million less versus December 2022, driven by EDPR's organic cash flow that is mainly allocated to fund the growth of the business. The asset rotation proceeds from the deal closed in Brazil and the EUR 1 billion of capital increase that offset the EUR 1 billion of net expansion investment that including CapEx and financial investments. In the first quarter, our working capital differences were mainly driven by noncash regulatory adjustments related to the Spanish RECORE assets. So despite this evolution in net debt versus last year, in the last 12 months, net debt over EBITDA ratio remains very strong at 2.3x by the end of the first quarter this year. The average gross debt in the period increased year-on-year from EUR 5.1 billion in the first quarter of 2022 to EUR 6 billion this quarter, fully aligned with our cash management strategy. All in all, this level of net debt is supporting EDPR growth in line with the strong target additions. So if we now move to the financial results. Financial results are penalized by noncash financial items related to mark-to-market forward points along with the higher average cost of debt year-on-year. So with the financial results by the end of the first quarter reached EUR 126 million. That compares with EUR 74 million in the first quarter last year. As I mentioned, this evolution was mostly driven by the noncash financial items related to mark-to-market of U.S. dollar currency hedging and basically the impact of the difference in forward points on FX and derivatives. This is expected to happen under volatile markets but is the reflection of a conservative net investment policy. Excluding this volatile noncash tranche on our financials, the cost of debt amounted to EUR 91 million in first Q this year. It compares with EUR 66 million in the first quarter of 2022. And this is driven by the higher average gross debt year-on-year that supports the CapEx and the future growth and also the average cost of debt that went up by 1 percentage point year-on-year. And this is mainly impacted by the fact that we have the weight of the U.S. dollar-denominated debt and of course, the higher cost of U.S. dollar debt. On the net profit on the following page, we reached the first quarter with EUR 65 million, pretty flat year-on-year. And this is driven by a strong top line evolution and, of course, offset by the clawback and the high financial costs that I just described. So it's -- we totaled EUR 65 million compared with the EUR 66 million in the first quarter 2022. The financial costs were up by the EUR 52 million, but as I mentioned, mainly due to the MTM, or the mark-to-market, on the ForEx and derivatives that representing 27% of our -- of the total financials in the first quarter this year, and that is a result of the market volatility and our conservative net investment policy. On taxes, we have an effective tax rate of 17%. That's slightly below last year, minus 3 percentage points. And minorities of EUR 52 million, decreasing EUR 10 million year-on-year on the back of the lower prices in the rest of Europe, where we have most of our assets with minorities. Just a final note on the scrip dividend program that was launched in -- as we described in our CMD, this is providing optionality to the existing shareholders. The payment is on May 26 with a EUR 0.265 per share. So this is really the first addition of EDPR scrip dividend program. It was launched yesterday after being approved at the AGM on April 4 and yesterday after the Board approved the final terms and conditions. For each share of EDPR acquired until the last trading day, shareholders will receive 1 incorporation right. And with that, incorporation right, they will have different options. So if the shareholder decided to swap for shares, it will receive 1 bonus share for each 75 incorporation rights or the shareholder can sell the incorporation rights to EDPR at a fixed price of the EUR 0.265 during the payment acceptance period or they can actually sell incorporation rights in the Euronext market and trading -- at the trading price during the rights trading period. So as we stated, EDP will opt to receive shares prioritizing cash flow investment in accretive growth to the company. So with this, I will conclude the financials on the first quarter, and I would hand back to Miguel for closing remarks. Thank you.

Thank you, Rui. So to finalize the presentation, just to reiterate a couple of key messages in relation to EDPR performance and also few words on the overall environment and outlook for renewables. I'd say the first thing is that strong top line performance in the first quarter, and that's driven, as I mentioned earlier, by the increase in generation and also increase in the average price, resulting in EBITDA of around EUR 450 million, around 14% up year-on-year. And this is despite the clawback and the lower contribution from Ocean Winds. Net income at EUR 65 million, flat year-on-year. As I say, the higher top line offset by the noncash financial cost items. Second point, as I said, that EDPR average selling price is benefiting from the new PPAs, inflation updates and gradual hedges rolling over. Now obviously, the decline of electricity prices in the rest of Europe reduces the clawback impact and the financing hedging cost expectations for the year-end. Third point is just to mention the positive development on execution. So 5 gigawatts under construction, a record and around 3 gigawatts to be installed in 2023 with around 0.9 gigawatts pushed into '24 due to the modules delay in the U.S. Around 50% of the capacity targets for '23 to '26 already secured, good geographical and technological diversification and also good short-term perspectives with 75% of the capacity secured for 2023 and 2024. OW achieved FID on the French project and the 2023 asset rotations have launched and are on track clearly to reach expectations. EDPR is also stepping up to the challenge of decarbonization, so we're publicly stating our commitment to set near-term targets by 2030 and net zero targets by 2040, in line with the Science Based Target initiative criteria and recommendations. And finally, as Rui just mentioned a little while ago, so the scrip dividend has now been launched, and that provides optionality to the EDPR shareholders. And we think that's a net positive for everyone. So once again, thank you for attending this first quarter results call. And I think we can now move to Q&A. Thank you. Miguel?

So we can go for the Q&A through the phone first. So you can go directly for the Q&A. And the first question comes from Javier Garrido from JPMorgan.

The first one is on capacity additions. So now you have lowered your target for '23 [ generation ], but it's now a few years going for the one [ generation ] or the other and you're not hitting the regional capacity generation target. So how comfortable are you about the 12.6 gigawatts in '24, which is what you need to deliver by '23-'24 target, and yet again another big increase versus what you are now actually hoping to '23? What could go wrong? And how are you planning to address those potential threats? That is the first question. Second question is a general question on the industry. There are seem to be quite a few headwinds, obstacles of implementation of the U.S. IRA, which developments in this implementation process could be more than FID? Which are the aspects of the U.S. IRA where you think implementation [ is margin outlook ] for more rapid delivery? And then the third question is asset rotations. You have announced that you have launched [ processes ]. But if we you look at your operating results to qualify [indiscernible], if you look at CapEx with the delays you probably need this money for 2023. Is there possibility that you decide to postpone some of those asset rotations? Or do you still think we're delivering around EUR 300 million of asset rotations gains is the target for you this year?

Thank you, Javier. So a couple of comments on your questions. So in relation to the first one, basically the capacity additions. So we've gone through a very detailed exercise of looking at all the different projects that are projected for 2023 and [ into '24 ]. As I mentioned, we've already got 75% of those secured and already CapEx committed to that. I'd say the 2023 movement of EUR 0.9 million to next year is a very specific issue, which is relating to the LONGi panels, as I mentioned. So the projects are there. They're being constructed. It's a question of getting access to the panels. Unfortunately, because of the specific supplier, that is taking longer than expected. And so we're managing that -- managing expectations that it will be coming in into 2024. There is a possibility that part of that might still come in 2023, but let's say that's -- we don't want to promise that just yet. So we're managing expectations in terms of the round for this year and the rest coming in 2024. So let's say, 75% already secured for the combined period. So I'd say that it's more a question of execution. I think disregarding the specific issue, which is very well identified, the rest, as I mentioned, we have a more diversified supplier mix already for not just for the rest of '23, but for '24 in particular. So I think we should be more okay there. So I'd say we're on track. I mean what's particular issues there. It's just a question of execution of access to panels, access to the turbine, access to the [ BoP ]. But as I said, we've got 5 gigawatts already under construction. And so I think that makes us very comfortable with the combined '23, '24 number. And as I said, we've just gone through very detailed almost project by project on each one of these. On the second question, the industry. If I understood correctly, so it was on the headwinds in relation to the U.S. IRA. I mean just to take a step back. So the only -- I mean there's some speculation at some point about whether [ as you mentioned that ], he was regretting the IRA. Honestly, we don't see any of that. We're seeing the IRA being implemented. In particular, we're seeing the guidelines for the IRA coming out. The most relevant ones for us are the ones that relate, for example, to things like what are considered underprivileged or low, let's say, communities relating to the decarbonization or to the transition. So for example, if you can you get a bonus or an adder in terms of tax credits, if you're building a project near a coal plant, which has been shut down, et cetera. So that's something which is actually playing in our favor. So just talking to the U.S. team yesterday, they're actually seeing that as a positive for our pipeline going forward. So I'd say we also managed and mentioned that I don't think the U.S. IRA is going to have any implication of '23, '24 in terms of number of megawatts. It's having probably a positive impact in terms of the profitability of some of those megawatts. And then what it is going to have more of an impact sort of towards the back end of the business plan because it allows us to ramp up with more certainty on the tax credits coming through. But I don't know if there's any specific headwinds that you were thinking of when you were talking about this U.S. IRA, but if you want then I'll come back to that. On the third one...

I think that's very well...

Yes. No, but I'd say we're very comfortable with the U.S. IRA. So the guidelines continue to come out. As I mentioned, the important ones, I think, for us are becoming clearer. On the asset rotation. So we continue to move forward with the processes of the asset rotation. And so we expect, and as I mentioned on the call, to be in line with expectations of around the EUR 300 million for the year. So that's still moving forward. The CapEx -- I mean, one thing is the CapEx. The other thing is the COD. As I mentioned, we have the 5 gigawatts under construction. So the CapEx program is definitely strongly underway. And so we're also keeping the asset rotation, let's say, in place as projected.

Okay. So we can go to the -- thank you, Javier. We can go now to the next question from Alberto Gandolfi from Goldman Sachs.

The first one is more about the value creation of those projects. Because most investors tend to believe that every euro you invest generates basically no incremental value. I was wondering what effort, incremental effort, can be done by you or the industry to disclosed to provide better disclosure to returns. I mean can you tell us which type of long-term power price? You assume when you said that a lot of what you have under construction or originally installed this 200 to 300 basis points of a WACC. Can you tell us what is the IRR of the overall portfolio? If those 5 gigawatts under construction were to be the end of EDPR. Let's say, you develop no more than those 5 gigawatts. What would be the IRR of your portfolio right now or the IRR of a WACC? And if you can give some disclosure to the assumptions underlying that, I think it would put to bed quite a lot of these very unhealthy debate or unhelpful, I should say, debate is very healthy -- actually, I think it's unhelpful for the shares right now. The second one, again, is to go over the additions. Can you tell us maybe a little bit about the timing and the risks to the 3 gigawatt this year? And to see nearly 5 gigawatt, 4.8 in 2024, when do you need to start construction of all these assets? So let's say, I don't know if by September, we don't have another 6 gigawatt under construction, maybe we are not going to see 4.8 next year. So I was just trying to understand the timing of addition for '23 to forecast earnings and the feasibility for further acceleration for next year. And the last question is that, what specific opportunities do you see, not for opportunities from U.S. IRA and any potential European response? Do you see an opportunity in repowering onshore wind? Do you see an opportunity in accelerating further solar developments, maybe investing more in energy storage. Could you just give us the broad guidelines or where you see the opportunities lie?

Thank you, Alberto. So in relation to the first one, I think, listen, we've managed to show, I think, year upon year upon year, the value creation of the project. That's reflected very well in the asset rotations that we've been doing. And I think when we talk about value creation, the capital gains that we're generating on that and we've systematically, I think, outperformed on that, that is, I think, a very good, let's say, indicator of the value creation of what we're doing. In terms of actual IRRs and let's say, cash yields and those type of metrics. So we've been also very clear. I mean we keep the 1.4x IRR over WACC and sort of above 200 basis point spread. We've been seeing higher PPA prices. And so that's something we also indicated in the Capital Markets Day, and we're continuing to see that. Even today, we're talking about PPA prices in the $60, $70s a year versus where we were just 2 years ago when we were sort of in the 20s or low 30s. But I think that's a clear indication also of the market reacting in terms of pricing. So we can talk specific IRRs. I mean, normally, we don't give a breakdown per project, but I can tell you that most of the IRRs we're talking about are, particularly in the U.S., sort of high single digits. That's what were the sort of investment decisions that we're taking at the moment. And in Europe sort of depending on the country, but also in that type of range, sort of 7%, 8%, that's what we're seeing. So listen, I think we will continue to show the value creation of these projects, and we continue to surprise the market on the upside, and that's our goal. On the additions, so this is the second question. So as you say, very rightly, we have 5 gigawatts under construction between 2023 projects and 2024 project. We are continuing to move forward with the [ BoPs ] in closing the CapEx and take projects for what is left for 2024. And so I'd say that, let's say, certainly before the end of the year, we should have relatively good visibility on the full construction profile, not just of the ones that have been done in '23 obviously, but also for '24. I would also just add one additional thing, which is to separate reps what we see for utility-scale projects from what is more, let's say, DG-type projects. Utility style projects typically have a longer lead time, maybe 12, 18 months. And as you know, most of the CODs sort of come in towards the end of the year. So we should be taking those part of the construction for '24 project, let's say, over the second half of this year. But DG project, which is already also an important part of the overall target, that can actually be done within the actual year because these are faster projects to permit. They're faster projects to build, and so we can deploy that capital in those projects on a faster basis. And we're talking about a couple of hundred megawatts there as well so that we can actually see perhaps throughout the year of 2024. On the third comment, so specific opportunities. Listen, I think certainly in terms of the U.S. IRA, it's just giving that predictability, and I can tell you sort of just talking about the teams, and we're discussing that even at the Board yesterday, the EDPR Board. So there's a short-term impact, which is, let's say, we have a project and this has happened to a couple of projects, where we're actually basing them, for example, in communities, which are close to decommissioning coal plants, et cetera, and we're getting the adder and the bonus of the tax credits on that. There's things like being able to switch solar from ITCs to PTCs, which for projects that have high solar capacity or [ NTFs ], that actually results also an uptick in terms of the profitability on that. So those are specific improvements in terms of profitability of the IRA, the U.S. IRA. I'd also talk about storage. So storage previously was not financially viable on a stand-alone basis, it's now become much more viable. And so that's also a big part of what we're looking at. And the final point, I talk about is hydrogen, particularly in the, let's say, certainly, in the U.S., it really seems to be taking off as a possibility. I'd say that's more medium, long term, but that's definitely something that is very much on, let's say, the agenda of the sector, I think, in the U.S. In Europe, there's certainly a lot more movement going on in terms of simplifying the permitting rules and just making things move faster. In Spain, for example, and just to give you a specific example of the last couple of weeks, so post-CMD, we're moving forward with an additional 500 megawatts of projects, which got permitted faster by the Spanish government. And so I think you're beginning to see what was decided at the European or was, let's say, the guidelines at the European level of doing faster permitting and accelerating the projects, moving down to the member states and the member states themselves taking, let's say, more assertive action to move the projects forward. I mean, I could go on. But to be honest, it's almost a full session in itself. So perhaps I'll stop there if there's anything more specific, I'm happy to get back to you.

Thank you, Alberto. So the next question comes from Jorge Guimarães from JB Capital.

I have 3 questions. One is a follow-up from the questions from Alberto. If you can give us some idea about the price range where PPAs in Europe are being signed? So this would be the first one. The second one is related to the Eastern Europe clawbacks, where we are now on that question, namely, if Poland has already agreed to change its loss. And the third one, it's a more conceptual one. If you believe the recent -- or reignited concerns about solar PV capture prices in Spain, could lead to projects being damped. And if you could buy solar PV projects in Spain that developers need to sell.

Okay. Thank you, Jorge. So in terms of price ranges in Europe, again, I think we're seeing sort of in the area of EUR 60, EUR 70 per megawatt hour. North of that in some cases, I think that depends also on whether it's wind or solar and also whether it's more Northern Europe or Southern Europe. Rui, I don't know if you want to make a comment on.

Yes, maybe just to add color. So Jorge, and you look in the South of Europe, you're now getting to prices around the 40s. Northern Europe, as Miguel said, around the 60s, 70s. You win with a premium versus the solar, but there's sort of a relevant price delta between the south and north.

In Eastern Europe on the clawbacks, so there hasn't been any change since we last spoke. What we did is we just to put a stop loss on that. And so I think that effect has been basically captured in the guidance that we gave earlier. So for 2023, let's say, the overall value of that at around the EUR 0.1 billion resulting from that, let's say, unjust component of the clawback, but no other change in law neither in Poland nor in Romania. In relation to the solar capture prices, if I understood your question, so that would be first, is that a concern? And secondly, would that induce opportunities for us to buy in Spain? Is that -- did I understand it correctly?

Yes, because apparently as you know this thing is recurrent and now it's again in the focus of investors and you see projects being put up for sale, if you could look at that.

Yes. So the first thing I'd say is that, I mean, we've been talking about the solar adjustment factor, I think, now for quite a while because I think this is something that was quite predictable as we saw the solar scale up in these different geographies. So we've been modeling that in our project certainly for a long time now and then over the long run that's incorporated in the power prices. So it's not a surprise for us that we're beginning to see sort of the solar adjustment factor coming into play over time. Would we look at projects in Spain? Listen, I think we have a pretty good organic portfolio at the moment. As I said, we're just taking an investment decision to move forward with more than 500 megawatts in Spain. That's not -- we're not actively looking at M&A. It would have to be the very let's say, good price for us to look at that. But I'd say it's not on our agenda at the moment, so we're not actively looking at that at the moment.

The next question comes from Enrico Bartoli from Mediobanca.

The first one is related to offshore -- Offshore Wind announced the FID for these 2 large projects in France recently. If you can elaborate, give some flavor on the returns so that -- you expect from those projects, considering that in the industry, there is in other markets a lot of discussions on, let's say, the profitability offshore projects in the current market conditions? And also, you commented that you would consider whether to attend to the next options. So if you can also give some color on, let's say, the criteria on which your decision could be based. Second question is related. Again, on your indication on PPAs that actually had this strong new signing of PPAs in the past few months. If you can comment a bit on the situation of the PPA market in the U.S. in terms of demand and in terms of the pricing evolution that you've been experiencing. And the last one is related to your agreement with Google on the distributed generation capacity. If you can provide some color on the returns that you expect from these kind of projects in the U.S. And considering the size of this project, if we can assume that there will be an acceleration in discounted projects in the U.S. market.

Thank you, Enrico. So what I'd say in relation to the first one, the returns are actually very healthy. And I can say that a couple of comments. Obviously, these projects are quite old in the sense that they've been. We've been working on them for many, many years now. But the tariff is inflation linked. Obviously, CapEx has also increased. So the overall CapEx is quite high, but the tariff more than makes up for that. So if we actually look at, let's say, the returns that they are well within our parameters, and actually, I would feel personally very comfortable with the returns of these projects. So I think it's -- these are good projects. They've taken a long time to get to FID, but we're finally, there. And I think that's a positive to be able to move forward with that. In terms of future auction criteria. I mean, typically, what we've guided towards is being around 1.5x our cost of equity. Because we don't consolidate these, we look at it more on the cost of equity side. And that's what we've done. So risk adjusted for the different geographies, but I'd say the criteria that Ocean Wind has is 1.5x cost of equity. And that's what we would bid with. On the second one, so the PPA signing, PPAs in the U.S. market, we continue to see good demand there. And I think a testament to that is the fact that we've been able to close PPAs even over the last couple of months. Obviously, some of the large corporates or large tech companies continue to be strong buyers of these but not just that. I mean, we've also been signing, for example, with some of the local or regional utilities, actually quite attractive prices and conditions there. So the mix between corporate and regional utilities, let's say, we continue to see good demand. And in terms of pricing, the last PPA that I was discussing was in the high $60s per megawatt hour, and that's before you add on the PTCs and you add on sort of all the different bonuses, et cetera. So I think we're quite comfortable there in terms of, let's say, developing the pipeline or the returns and the profitability there. On the third point, so we're not giving out specific guidance on the Google 500 megawatts. I'd say it's relatively high single digits, but the project's economics will be analyzed individually on a per project basis. That's why we're not including the 500 megawatts within the 8.5 that we've talked about in the presentation. So this is, let's say -- this is a framework agreement. And as we go on locking in the projects, there's certain economic criteria. We're let's say, benefiting from having locked in also certain prices for the REC with Google, and that should give us a good return on these projects. But as I say, we will be locking these in project by project. So the 500 is a framework agreement that we'll be having over the next couple of years. I think the positive is that it's a step forward, certainly from Google and for ourselves in terms of really accelerating the distributed generation there in the U.S. And I think it's providing that framework with this social dimension, which I think is important as well. And so we're very enthusiastic about that. And I think it's given us good visibility on that growth in that area. Perhaps I'll stop there.

So moving to the next question from Jenny Ping from Citi.

Three questions from me as well, please. Firstly, just back on Slide 9. I just want to clarify your point around the variable debt and the EUR 1 billion or EUR 2 billion -- EUR 1 billion, $1 billion of pre-hedged debt. I presume these are related to the variable component of it. So effectively, if that's the case, then why do we actually see the step-up in terms of the interest rate coming through? That's question number one. Secondly, if you can give us a bit more disclosure around how much debt there is attached to the Ocean Wind JV, which is currently your share, but not on balance sheet, that would be helpful. And then lastly, just a big picture question back to the U.S. and looking at the U.S. debt ceiling and the prospect or potential for some of the IRA to be repealed. What are you hearing on the ground from your colleagues in the U.S. in terms of the elements that could be repealed that's part of the IRA? Is it ITC related? Is it domestic content related? Just a bit of more color around that would be great.

Jenny, it's Rui here. So let me clarify on the first question. So first of all, the amount of variable debt that we have effectively in Brazilian reals, again also to match the asset -- on the asset side, the reflection of the inflation that we have on the tariffs of some of the projects that were there. So basically, this is matching assets and liability. So the pre-hedging that we did is -- has nothing to do with that. So to be absolutely clear. So what we have is -- starting by the U.S. dollar. So we have approximately, at EDPR level, we'll have approximately $1 billion refinancing over the next 3 years, so '23, '24 and '25. So what I wanted to do was to -- back in December 2022, we hedged -- or in this case, we pre-hedged at 2.6%, the yield, so the mid-swap at which we would then refinance this debt over this period. So for example, if you take today's 10-year yields for the U.S., which should be close to 3.5%. So if today, we are issuing new U.S. dollars that would be issued at EDP, of course, and then to refinance this position at EDPR. The cost of debt, let's say, that mid-swap would be 2.6% and not the 3.5%. So that's a substantial cost control, if you want, the measure, which also basically we locked in the mid-swap rates at which we'll be refinancing the U.S. dollar in the same 4 year terms. So basically, the exposure that we have is the spread at which we'll be issuing that new debt when the time comes. But the base or the mid-swap is already locked in, 2.8% for $1 billion. 1.6% for the -- sorry, 2.6% for the U.S. dollars, 1.8% for the euros. Then a second comment related to the financing costs. If you look to the U.S. dollar-denominated debt is predominant right now in our balance sheet. And of course, this is on the back that as we, over time, as we were raising capital in euros and also some of the asset rotation was in euros, the net debt in euro terms has not evolved at the same pace as the U.S. dollar. So if you look at the page in our presentation where we are showing the split in terms of currencies, you will see that euros denominated is only 11%, while U.S. dollars is 77% of our net debt. And that's why you have these higher interest or cost of debt. You just saw on the arithmetics or the math works on the cost of U.S. dollars versus euros. Towards your second -- and I hope I clarified, but if not, we definitely happy to follow up offline. On the JV on Ocean Winds. So the strategy is as we get the project -- as the project evolves and typically starts construction, we also raised project finance at the project level. Effectively, as we raise the project finance, then that becomes our balance sheet and only the equity contributions are balance sheet. But for all the development work and for the projects that are under construction for which we have not yet closed the project finance, we may raise some equity bridge. So either we -- it's corporate debt, and therefore, you would see it in the net debt or it could be some equity bridge loans backed by EDPR, and that would also -- you can see also that in our report because it ultimately is impacting the rating. And that is already being communicated in quite transparently in our reports, highlighting only that for the Moray West project that we currently are constructing, financial closing was already achieved. So that effectively, as I said, will become more of an off balance sheet or exception made for the equity contributions.

And Jenny, sorry, in relation to the third comment -- in relation to the IRA and if it has any implication on the discussion around the debt ceiling. I mean, listen, the IRA is probably, I'd say, the biggest flag that President Biden had and the Democrats in the last couple of years. So I think if this was to be repealed, I think they would have a major political issue in terms of President Biden in terms of his reelection and just the way he presents himself to the public. So we haven't heard anything on the ground in terms of there being any credibility, or are there being any, let's say, probability of this actually happening. Everything we're hearing is there's no way that this will be a trade-off for something like the debt ceiling. So I think they're on a different plane.

Thank you, Jenny. So moving to next question from [ Pedro from Caixa Bank BP ].

The first one regarding your pipeline of offshore projects and looking at the upcoming tenders and your expectations that this will pose growth opportunities for you. So what are your expectations for the upcoming fifth auction round in U.K.? If I remember correctly, the previous round seemed competitive for offshore projects, at least based on the strike prices. And also in Portugal expectations for 10 gigawatts of floating offshore to be launched. Spain also important auction around the corner. So given the 1.5 cost of equity investments like criteria that you just mentioned and the competition out there, do you think you can play an important role in these auctions and increase shortly your offshore pipeline portfolio? And the second question, we are seeing this acceleration of your diversification strategy in solar supply chain, which makes sense considering the specific issues that you are seeing, but I was just wondering whether this implies -- this acceleration implies a higher CapEx per megawatt or is this included in your expectations in your business plan?

Thank you, [ Pedro ]. So in relation to the first question, I mean, we'll be privileging -- so a couple of comments here. We'll be privileging typically processes where there's less of an up-front auction for seabed leases and more whether it's sort of a beauty contest or certain other criteria that are not just price-related to the seabed. So I think that would be our preference in terms of our strategy. The second is that when you look at the U.K., for example, when we took the investment decision on Moray West, we actually had several corporate PPAs, and so we just had a small portion, which was actually part of the CfD sort of the government runs CfD. So we may do it, but let's say, on a more -- for the CfDs, we'll use it, but on a partial basis, not necessarily on a full basis for the full project. In terms of the different projects, I mean, I can tell you, Ocean Winds has been very successful over the last year -- 2 years in terms of securing projects. So I think we've outperformed and exceeded the targets that have been set out when we first did the JV with LONGi. There are several processes that are going on, ranging from Australia, Norway, Lithuania, additional ones in France. We've got the Portuguese one over the next probably year or so, Ireland. So there are several different processes that we will be participating in. Now we will be disciplined in terms of the returns. I can tell you that because I think we're here to make money and to guarantee that these projects are profitable. And that's going to be the key, let's say, when we look at these different processes. On the second one, so accelerating the diversification of supply chain. If it has a higher -- it has impact on the CapEx per megawatt. So this is built in, honestly. It's not something that's we're -- we needed to close CapEx and equipment for the next couple of years and for the projects that we're securing. And so that's been done with different suppliers. The market is competitive. So we're getting market price. I mean, we do not see any -- certainly, we're getting within what we expected, and what was built into the business plan. So it's not any deviation from what we had assumed previously. Rui, I don't know if you want to comment on the first one or just add any color or...

Maybe just highlighting that we today, we believe that Ocean Winds holds a competitive hedge on the floating. As you know, we are the only ones, at least in Continental Europe, that has operating industrial-scale wind farm in the north of Portugal. There's another 1 going under construction. The technology is from PPI. That is -- it's owned by [ Ocean Winds ] with our partners. So as we think about the Portuguese tenders or even the Spanish tenders, definitely. I mean, the teams will be working on these processes and looking at ways of being competitive, making sure that we meet the returns. Also, we have extensive experience developing these projects in South Korea, starting as well in Scotland and the U.S. So just give this comment on the floating side, we see it as a very attractive -- potentially attractive and definitely a substantial growth opportunity there, but always being very disciplined on the returns.

Thank you, [ Pedro ]. Just moving to the last question on the phone, which comes from Olly from Deutsche Bank.

So the first question I have, please, is just on the capital gains guidance. And I know you said that still targeting EUR 300 million. On the pricing and your kind of impression of pricing, if we think back to the EUR 1 million or EUR 1,000 per megawatt that you guided to the CMD, I think broadly that was EUR 250,000 to EUR 300,000 a megawatt, are you more optimistic on the pricing you might be able to achieve now such that we might see pricing materially above that despite keeping the EUR 300 million as the overall annual target? And the second question I had is on the supplier issue, you mentioned this year, the 0.9 gigawatt has been moved to 2024, does that same supplier have additional modules you're expecting in 2024? So could this be an issue that basically repeats again in 2024 or not because you have this diversification of other module providers? And I wonder because of this capacity slipping into '24, how much of an EBITDA impact do you think that is versus plan in '23 and '24? And then final question, please, is on the financial costs. I know a large amount of the financial costs in Q1 are noncash, are you able to kind of give your current view for [ as things stand ] FX-wise, what the full year estimate for financial costs? What would be a good estimate for that for the full year? That would be very helpful.

It's Rui here. So let me address the three questions. So on the first one, yes, I mean we are still targeting the EUR 300 million, I mean we just started the processes going through the normal typical process getting on [ bindings ]. At least what I can say so far is that I think we see a good market there. And as I mentioned before, what we saw was already last year, and we're still seeing this year more of industrial strategic players as opposed to the financials, and they still have their own strong views about [ the developer ] of these assets. So let's see how the process evolves, but I think that we are on track to deliver at least the EUR 300 million of capital gains. On the -- and just one final note there. We may be having more of European Lat Am closing -- deals closing this year, maybe less of the U.S. just because of timing. So we are just launching the U.S. transactions will be flatter. So we might see just more closing this year on the European Lat Am side. On the LONGi-specific risk, no. The strategy to diversify the supplier base towards 2024 and '25 and onwards, it's effectively to make sure that we are, in particular, the case in the U.S., and this is a very particular case in U.S. I think we understand it was important to have this diversification as we are getting -- as we still are not getting absolutely clear about how this UFLPA process will unfold. So there is, I mean this -- we know that the process to show that the manufacturers are compliant with this act is not straightforward. And of course, we respect that. It's just that we do see that we'll need to have a diversification. Ultimately, what we are expecting, and we have been in close contact with LONGi is that as time passes and as they provide this additional comfort about the traceability, the problem we get solved. And therefore, we would be able to get the panels released for our 2023 projects that will be commissioned in 2024 and also starting to get new panels into the 2024 projects. In any case, if by any chance, there was some delay, again, we have additional -- for other suppliers that would compensate for this shortfall. Impact of delays on 2023 EBIT -- sorry, on 2023 EBITDA, I would say, low double-digit region at the EBITDA level. So that's sort of an impact. Into the financial costs and the last question, I would say that should be pretty much in line with 2022, let's say, within the EUR 400 million, EUR 450 million. So we do -- depending on the volatility on FX, I would expect, of course, this MTM to normalize. Also, as I said, at some point, we'll be refinancing some of the maturing year in U.S. dollar, but the mid-swaps are already, the cost of the mid-swap is already locked in through that pre-hedged. So yes, I would expect within the range of the EUR 400 million, EUR 450 million impact on financial costs overall for EDPR.

Thank you, Olly. And now going now to the question from Arthur, which is the last question that we have here from the web. So we are just a little bit tight on time, so for this last one from Arthur Sitbon from Morgan Stanley. The question is was there any negative one-off booked in associates? If not, how can we explain the strong decline in contribution from Ocean Winds despite the CfD of Moray East not having started yet?

Yes. So Arthur, it's Rui here. So last year, we had this project. So our Moray West project was exposed to merchant prices. And the U.K. merchant prices were quite strong in Q1 last year as compared to this year. So I would say that Q1 was, to some extent, an extraordinary year for this project -- sorry, Moray East, I think I mentioned Moray West. Moray East, the operational one. So now all prices are getting normalized. So the contribution that you see in that line is basically that net of the cost. So there is no one-off event there.

Okay. So I'll move now to our CFO and give the floor for final remarks -- CEO.

Thanks, Miguel. So listen, just a final remark, I think definitely the first quarter, we had a good performance on the top line. I think as Rui already mentioned that in terms of the financial performance or the financial costs that were higher and so that ended up impacting our bottom line. But globally, we are very comfortable with the construction program that we have in place. I mean, we're talking about an absolute record of 5 gigawatts. I think Alberto asked a good question that we should see this ramp up over the next couple of months to an even higher number. So this is a massive construction program. We are very comfortable with the returns. So obviously, we are in a higher cost of capital environment, but we have also seen the higher energy prices coming in. And I think as we go on doing asset rotations, we'll be seeing the value of that. And so that's something that we'll be very happy to share with you over the rest of the year as we go on closing those transactions. So globally, I think we continue to -- we've also, I think, highlighting the 1.5 gigawatts that we secured just in the last 2 months. I think also that's a very impressive number. So globally, very positive, ramping up construction, ramping up secured megawatts, looking forward to delivering on the guidance and delivering on the results for the next couple of years. So thanks very much. Talk to you soon. And obviously, feel free to reach out to the IR team for any additional questions. Thank you. Take care.