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

Good afternoon, everyone. Thank you for attending EDPR First Half '23 Results Conference Call. We have here with us our CEO, Miguel Stilwell d'Andrade; and our CFO, Rui Teixeira. We'll run you through the key highlights of our first half '23 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 webpage. This call should last no more than one hour. I'll give now the floor to our CEO, Miguel Stilwell d'Andrade.

Thank you, Miguel. Good afternoon, everyone. I hope you're all doing well in this pre-summer period. So I'd start off by going into the presentation and moving straight into Slide 4. And I think it's clear that this was a tough quarter, but I would like to say that we had some important positives. As you can see here on the slide, we had a secured capacity increased now to almost 9 gigawatts. We added around 1.7 gigawatts in the first half of 2023 and reached 52% of our target additions for the period '23 to '26, and all of these meeting our target investment criteria. This growth has definitely been supported by strong demand for renewables PPAs, and that's something we'll touch on later in the presentation. On the investment side, in the first half, we made gross investments of around EUR 2.3 billion, more than 80% focused on the core markets of Europe and North America. And as of June, we had around 5 gigawatts of renewable projects under construction, covering different markets and technologies. On asset rotation. So we've definitely increased the visibility on asset rotation execution over 2023. And yesterday, we gave clear data points. We closed a transaction in Spain, so signed and closed simultaneously transaction in Spain, 257 megawatts, multiple of around 1.8x, reflecting the renewals asset value and attractive returns. So this goes to a point that we've made previously on other calls, which is that the profile of the buyers and interested parties has changed over time to reflect more strategics. And also the asset profile has changed and assets with some more merchant exposure to pool prices and repowering and hybrid optionality. I mean, these assets have a lot of value. So that's something again we can touch on a little bit later on. But I would also just like to say we're expecting to provide some additional visibility on additional 2 attractive asset rotation deals in the next couple of weeks. So you'll see some news flow on that. On the negative side, as is public and clear from our operating data and others, renewable generation decreased 10% year-on-year in the second quarter. So the wind resources in the U.S. was especially penalized by the El Nino cyclical impact. This is a phenomenon that happens with medium-term cycles, and I'll explain that in the next slide. But if we compare the very strong first quarter, it was up 11% year-on-year. And then we had obviously a decrease or a significant reduction in generation in the second quarter as a result of this capacity additions, higher 10% year-on-year in the first half. The first half results also penalized by some short-term costs associated with supply chain delays in the U.S. We've spoken about that, but we'll go into that in more detail. Permitting issues in Colombia, EU clawback taxes particularly Poland and Romania. So these are not structural issues. There are issues relating to the growth of the company. First half recurring EBITDA, around EUR 764 million. The asset rotation gains will all be in the second half of the year. And we -- so we closed the first half with a recurring net profit of around EUR 100 million. If we move into the next slide, Slide 5, we can talk just a little bit about renewable generation and the impact, particularly of the El Nino. So as I mentioned, we had a strong first quarter. The second quarter was much weaker, mostly the U.S., U.S. Central. The gross capacity factor here was around 82% versus the P50. So it pushed down the whole metric for EDPR for the quarter, but the wind resource was also relatively poor in Europe and particularly in Spain. So we're living in an El Nino phenomenon. It's normal when talking about weather cycles. It impacts short-term wind resources, but the wind levels then recover when the El Nino ends. And so I think it's important to highlight that these kind of cycles are included in the project life valuation. And they don't impact the fundamentals of the return. And so please look at the graph here on the right side of the slide. You can see how the El Nino over time has impacted our generation. This is stretching back since EDPR was listed. So this is something that impacts obviously other companies in the sector as well. But I think the important point is that generation recovers when the El Nino ends, and the long-term generation average is stable throughout this cycle. So you'll see that over this period, the average is 0. So it means that there's volatility around this long-term average. And obviously, when the El Nino hits, it pushes down the resource, but then it also bounces back up once then. So that's a phenomenon we have to live with. It's part of being a renewable energy company. I would say that one of EDPR's strength is its global diversification and so being able to balance the portfolio on a global basis. On a quarterly basis, there will be volatility over time. As I say, that's an intrinsic part of the business. However, these are 30-year projects, 30-year-plus projects. And so what matters is that the long-term average is accurate. And I just really wanted to stress this part, the long-term business. I mean, obviously, we look at the quarterly numbers, but let's also look through those numbers to what the long-term average is. If we move to Slide 6, and so on to a different topic. And this is a question we also get asked quite a lot. So what we wanted to highlight on this slide is that we're seeing continued efforts to improve the permitting processes, both at the country level and the European Union level. The Renewable Energy Directive, RED III, has been endorsed. It's promoting the renewable acceleration areas, with 1 year permitting deadline. The concept of an overriding public interest for renewable energy assets has been consolidated. This contributes to easing environmental permitting processes where there's a conflict in certain cases. And so I think this will help unlock a lot of cases where there's situations that are deadlocked in many countries around Europe. We already noticed these advancements in our development projects in different countries. And so we'll probably be having some anticipation of projects from '25, '26 periods to the '24, '25 period. Regarding auctions, governments have made also significant progress in adapting schemes and prices to the current macro situation. For example, France has already had auctions under the new scheme that introduces indexation from the moment the project is awarded. It's indexed to the PPI, metals, cost of financing. You can also look at, for example, Germany, they've done an upward revision of cap prices for the 2023 auctions. We see flexibility on timing between the expected start of operation and start of PPA contracts for certain country directives. And another area that I think is important to highlight is that we're seeing an acceleration in the hybridization of projects. As you know, this is when we put together megawatts of different technologies on the same grid connection and substation. And this leads to savings in CapEx and permitting times and gets around connection bottlenecks. So we commissioned in 2022 our first hybrid solar and wind project in Portugal. We're finalizing one now in September in Ávila in Spain. And essentially being able to leverage on this, I think will also allow us to accelerate the growth. Just a final comment. I mean, definitely, the investments in grid connection are important to support the accelerated growth of renewables in the energy mix. I know that this is a priority, and the message has been received certainly by government, sector associations and utilities. So that's something we should see also ramping up. Move to Slide 7. So here, capacity execution, well on track with around 9 gigawatts, as I mentioned. We expect to install the bulk of this year's capacity towards the end of the year. I mean, as you know, this is typically asymmetric, so it's concentrated very much towards the back end. It is a big effort, which is leading to short-term higher cost of development that we'll explain later. But all in all, I'd say that for the '23, '24 cumulative period, we're expecting an installation range of between 3.5 and 3.9 gigawatts on average. Depending on the U.S. solar supply chain evolution and also the -- in particular, we have a large project in Colombia, or 2 projects in Colombia totaling around 500 megawatts. And so the licensing permit for the transmission line there. In terms of supplier base, again, important point, certainly for us, we've been diversifying this. And we continue to negotiate new equipment. For 2024, we've diversified, so we now have around 8 different module suppliers in the U.S. and 5 for Europe. And in 2025, we have more than 4 suppliers already per region. So in general, we're also counting on having diversification of the supplier base for the portfolio. We have over 20 manufacturers for solar, more than 10 for wind, are well diversified in terms of equipment types. And that essentially allows us to balance our operational portfolio and reduce risk of specific models or specific issues that -- serial defects that might impact us. So as I mentioned earlier, we have overall 5 gigawatts under construction. Some of these are sizable projects. They are expected for the post-2023 period. Namely, we've got about 700 megawatts of offshore in the U.K. and France. And also, as I mentioned, around 500 megawatts of wind onshore in Colombia, which are -- will be coming online later over the business plan period. If we move to asset rotation. So here, as I mentioned, clear positives yesterday, attractive multiples despite the higher interest rate environment. These are assets which came from the acquisition in 2020 of Viesgo. So together with the distribution networks, there was also some renewables operations in Spain. Once again, I think it shows the value creation within the EDPR portfolio. So year after year, transaction after transaction, we've shown that we can deliver proceeds and value creation. And you can see in the graph, the multiple achieved is in line with the average of previous transactions in Spain. As I mentioned, what we see is an increasing interest from strategic investors with a focus on renewable assets linked to ESG targets versus some of the usual sort of infra funds and financial institutions that we had in the past. Last year, as you remember, we also had Copel in Brazil, we had ERG in Italy. So really, I say, the mix of investors is changing over time, but I think that's a good thing. And the type of assets is also changing. As I mentioned, we have other transactions under negotiation. We expect to give visibility on that in the very short term, both in Europe, LatAm and North America. So we're upgrading the guidance of the capital gains for the end of the year to more than EUR 300 million, and proceeds of more than EUR 1.5 billion. So achieving around 25% of the target proceeds for the full business plan period. If we move on to Slide 9. Again, I think this is an interesting slide as well because what it shows is that we're seeing strong energy prices supporting long-term revenues. And these are resulting from government organized auctions, in some cases, inflation updates -- updated, but in many cases, also corporate PPAs. As an example, certainly of the first of the auctions, we were awarded 43% of the total Italian auction with a 20-year CfD at EUR 65 per megawatt hour. And in France, we were awarded a 20-year CfD at EUR 85 per megawatt hour on average. So good healthy pricing for projects with good returns. The demand for renewable generation continues to accelerate, I mean, in various different industries that we interact with. So 60% of our total capacity secured right now is through PPAs, and 63% of them are closed with C&I companies, so commercial and industrial companies. And in fact, and this is, I think, an interesting data point, when we compare the PPA prices between 2020 and 2023, we see approximately 70% increase on average of these PPA prices. So yes, cost of capital has gone up, some of the CapEx and inflation has gone up. But you look at the PPA prices, and this is independent entity that provides this information, and in our case also we have the PPA prices. So both independent entities and our own PPA pricing, reflecting this structural increase in energy prices. On the other hand, we have the positive, we have equipment prices going down. So this trend is -- it's more striking in solar than in wind. You can see in the graph there, polysilicon prices had a very strong increase in 2021 and 2022, but they are now back to normalized levels. And this is already material in our recent contracts. So this obviously excludes the U.S. where there's some particularities model, solar module prices are still higher there than in the rest of the world, given difficulties in imports, tariffs, that people moving the manufacturing base back to the U.S.A. But I think importantly, is outside of that, certainly in Europe and sort of LatAm and Southeast Asia, we're seeing the polysilicon prices, the much lower polysilicon prices translating already into normalized module prices. So that's an important data point, I think, as well. If you look at Slide 10, a word on DG. So some of you may have participated in the recent event we did in Madrid to talk about distributed generation. I think, it was a great event. The team definitely did a good job there. We actually showed, sort of the business model. We showed concrete cases, where it's been done. And this is having a solid growth also with a stable rhythm. I mean, it's increased 86% year-on-year in terms of capacity additions. Growth in the U.S. driven by a combination of behind the meter and community solar. We tripled our installed capacity in the last 12 months, and we closed the important partnerships like the one with Google for 650-megawatt peak to be installed in local disadvantaged communities. So I think not only good business sense, but also I think a lot of social impact in this case. In APAC, the growth has been supported by rising decarbonization targets and strong manufacturing in the region. So part of the global supply chain. And so as we -- and sort of the industry and companies throughout the world go on decarbonizing their supply chain, that stretches all the way back into Southeast Asia. And so installed capacity has increased 54% in the last 12 months. This included one of the largest single-site solar DG projects that we've commissioned. It was around 20 megawatts peak in China under a 20-year PPA with healthy cash yields. I think in general, it's worth highlighting, and we've said that before, but just to reiterate, Solar DG has shorter payback periods. It's a good optimizer of capital employed. It has high contracted revenues, and agile installation process. So that shortens the time to market. So many times, these projects can be, I say, started and finished in the same calendar year. And so even when we talk about the 5 gigawatts, I think it's an important point, it's that for example for a lot of the DG projects, those could be started, for example, in 2024 and finished in '24. And so they wouldn't show up in those 5 gigawatt number. In general, I think just in relation to this technology, so it's not exposed to the wholesale market, not exposed to the solar adjustment factor, which is obviously something which is coming up quite a lot in many different markets. And really, the real competition here is against the final customer tariffs. So it diversifies risk by market project, client contract and business segment. And I think it's complementing really the wider EDP clients portfolio. So you have that global presence with a local reach and also a strong track record on the utility scale renewables with also the Client Solutions operations. I think it's a good synergy here. Moving on to Slide 11, and let's talk about offshore for a second. So offshore, the first half, our operating capacity delivered normalized revenues versus last year. So there was lower prices, mainly in the U.K. project, Moray East. I think this project's contribution in 2022 was extraordinary and extraordinarily good but taking advantage of the higher pool prices. We currently have 2 gigawatts of gross capacity under construction in France and in the U.K. So we have good visibility on inflation-linked revenues and CapEx. And these projects will be installed in 2024 and 2026. So I think, again, inflation-linked revenues, and also fixed CapEx, these will be good projects. In terms of other developments, we canceled the PPA of the South Coast project in Massachusetts. So, as you know, we were and we have explored many different avenues and options to get to our target returns in that project. However, ultimately, we concluded that really the best alternative was to exit the project. And so there was a 60 million break fee for the full project, so 50-50 owned by Shell and OW, of which we have 50%, as you know. So net impact for EDPR, it was a $10 million post-tax impact. But again, here, we were disciplined. We looked at the different options, we explored everything with all the relevant stakeholders and authorities. And ultimately, we concluded that it was the best interest of shareholders to just break that PPA. We see there's high demand, we see there's state appetite for offshore wind capacity in the available leases. I mean this is one of the early leases. Massachusetts is the most natural market for South Coast, but there are other markets available like Connecticut and New York and potentially even others like New Jersey or Richmond. So we're committed to participating in the Massachusetts round 4 in January of 2024, but we have other options if we're not successful there. Overall, just to remind you, as you know, the U.S. administration has a 30 gigawatt offshore wind target by 2030. And this project is one of the best placed ones to deliver the capacity within that time frame. And finally, just before I hand over to Rui to go through the P&L and the financials. Just a topic, just on touching on the ESG. So 99.5% of our eligible turnover aligned with the EU taxonomy as well as our CapEx, are totally focused on renewables. Doing even a lot of things like 44% of our service fleet is already electric and hybrid vehicles, an increase of 12% or 12 percentage points year-on-year. So definitely focusing not just on producing green energy, but actually also consuming green energy. And so having a -- sort of a very rational use of resources. I think it's also important, and this is something I mentioned, but just to reinforce. We have submitted a near-term reduction of targets by 2030 and a net 0 target by 2040. So as I say, it's not just about producing green electricity, it's by being, let's say, our whole supply chain also been aligned with that commitment. And therefore, the net 0 target by 2040, according to the Science Based Targets initiative, that's something which has been validated. A point, which is important, on employee well-being, engagement of our employee climate survey that 86% of the -- it's a good increase versus last year. So it was very strong commitment, we've been hiring significantly over time, as you know, to deliver this growth. We have a strong commitment to our people. We have this ambition to be really a global agile and very efficient organization. And I think that's also comes through in the feedback from our employees. And finally, just a quick point on hydrogen. So I think just to highlight, we were recently selected by the EU Innovation Fund grants for 2 projects, Aboño and Sines. They're 2 hydrogen, green hydrogen projects. These were 2 out of 13 awarded in Europe overall. So a very high hit ratio. And actually, of those 13, I think only about 6 were to actually produce directly hydrogen for offtakers. And so with this, we've reached close to EUR 200 million of grants attributed to EDPR hydrogen project under development in Iberia. I think this is really a testament to the maturity of these projects, not just power points, it's good projects that we're continuing to develop. And we're moving forward with the technical and financial analysis and we expect to be in a position to take FID later this year or early next year for a couple of projects. And I think we obviously give visibility on that at the time, but I think it just shows that our hydrogen strategy is beginning to take some steps, some important steps in terms of securing the necessary financial support. With that, I'll stop there and then I'll come back later for closing remarks and then the Q&A, but I'll turn it over now to Rui. Thank you.

Thank you, Miguel, and good afternoon to you all. So now let's move into the first half results. On Slide 14. Maybe I would like to start by showing that the second quarter performance has been particularly impacted by short-term headwinds that we expect to be temporary, and therefore not affecting the medium-term earnings prospects. So the most significant ones are those related to the low wind generation, reflecting in the impact of around EUR 80 million in the first half results. As Miguel already explained, these weather cycles affect quarterly results, but there is no impact on asset valuation as we already include or embed these into our projections, the cyclicality. So -- and the second one is related to something that we announced in the beginning of the year, the Romanian and Poland clawbacks still having an impact in our accounts. For the first half, it represented about EUR 34 million at EBITDA level, much lower than what was expected on the back of the lower prices that we're seeing in the market. This impact is related mostly to the tax in Poland, which is currently scheduled to end by December 2023. We also have some costs incurred with capacity addition delays in U.S. and Colombia. They total about EUR 41 million in the first half of the year. And we're working on ways to limit this short-term impact. And this is mainly through the PPA terms and renegotiations. And a fourth element to bear in mind is the Spanish government updated, or as you know, the Spanish government updated the reference price for the record assets, where the 2023 reference price is now EUR 109.3 per megawatt hour. And this is versus the previous EUR 207.88 per megawatt hour. Also the bands were adjusted accordingly. This impacts a total of 0.8 terawatt hours of our generation, and this is already net of the asset rotation that we announced. And these assets, they are having a retroactive change from January 2023, and this is leading to this negative accounting impact for EUR 52 million in the first half. Again, this is a noncash impact, has no impact in the valuation nor on the project returns. I think it's important also to say that we don't expect these drivers to continue in the upcoming years. So we don't really see a reason for not having a big recovery here. So note that at the consolidated EBITDA, we expect to mostly compensate these short-term headwinds this year with a very positive and significantly higher-than-expected asset rotation gains in 2023 of more than EUR 300 million as a result of higher than initially expected gains per megawatt. And also, as Miguel stated, this will be concentrated in the second half of the year. Now if we move to Slide 15, recurring EBITDA was EUR 764 million, a decrease of 13% year-on-year, if we exclude the asset rotation gains from last year, on a like-for-like basis. Asset rotation in this year, we will see that flowing through our books in the second quarter and the fourth -- and in the third quarter and the fourth quarter. In this period, we had a 10% increase year-on-year of new additions, naturally penalized by the lower resource mainly on the back of the El Nino in U.S. and some temporary headwinds in Europe and Americas that we have already explained, along with some lower average selling price. That's a minus 4% year-on-year. But Brazil with a sound growth, new capacity in operation contributing positively with a 51% year-on-year performance, 51% increase. APAC EBITDA also growing driven by new capacity in operation, along with the full contribution from Sunseap during the last 12 months. The share of profits from associates contribution was completely extraordinary in 2022, and therefore, the first half of this year, we're seeing these levels of return to normalization. But it was also impacted by the EUR 10 million related to the PPA cancellation in Massachusetts. If we move now to Slide 16 for the net debt. As of June 2023, net debt was EUR 5.7 billion. That's EUR 0.7 billion above December 2022. And this is 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 of course, the EUR 1 billion capital increase, which partially compensated the EUR 1.8 billion of net expansion investment, and including the CapEx and financial investments. In the first half this year, working capital differences were mainly driven by noncash regulatory adjustments and timing differences between the revenues that are booked in the P&L and the amounts that are effectively collected. Average gross debt in the period increased year-on-year from EUR 5.6 billion in the first half last year to EUR 6.4 billion in the first half this year, and this is fully aligned with our cash management strategy. So all-in-all, this level of debt is supporting EDPR growth, in line with the strong target additions that we have. On the financial results on Slide 17, they added to EUR 159 million in the first half. This includes a EUR 37 million positive impact booked in the second quarter from unwinding the pre-hedge of benchmark interest rate for USD 1 billion amount and the 5-year maturity. And this is on the back of a decision that we will be reducing the weight of U.S. dollars in our debt currency structure. So excluding ForEx and derivatives, financial increased 30% following higher average cost of debt to 4.8%, and this, of course, is mainly impacted by the higher cost of U.S. dollar and its weight on our balance sheet. Although, 81% of EDPR debt is at fixed rate and a higher average gross debt to support the growth. So just to finalize on Slide 18, on the net profit, totaled EUR 102 million and EUR 80 million versus the first half 2022, excluding asset rotation gains for like-for-like basis. So basically, these are explained by the already mentioned drivers, along with the nonrecurrent accounted events such as the PPA cancellation in Massachusetts, and also a provision in D&A related to a tax clawback of EUR 12 million in Romania. Also lower financials year-on-year, and the lower income tax despite higher tax rates, and this is mainly driven by the Spanish retroactive adjustment in the second quarter of this year. Also minorities decreased EUR 35 million year-on-year on the back of the top line performance. So I would hand over to Miguel for the closing remarks. Thank you.

Thank you, Rui. So just to finalize the presentation, I just wanted to reiterate some key messages in relation to EDPR's performance and say a few words on the overall environment and outlook. First, the short-term financial performance was definitely penalized on one hand by lower wind volumes in the second quarter. As we mentioned, this is expected natural volatility. And so it's incorporated in the long-term average assumptions. It's also impacted by the capacity delays in the Americas. In North America, as you know, well, in the Americas in general, but I think that's something we flagged in particular, the 900 megawatts, we're still awaiting importing those LONGi panels. Political intervention in Europe on the clawback, that was something that was relevant also for the first half. So we don't see these as impacting medium-term earnings prospects, and I think that's an important note. Second is that we continue to see attractive valuations in asset rotation transactions. I mean we highlighted the one yesterday in Spain. I think it shows the returns, it shows the value creation within the portfolio. It shows the interest from strategic investors, focusing on renewables versus the usual financial institutions. We believe that other transactions ongoing will lead us to upgrade the asset rotation gains guidance to more than $300 million in 2023. Another point is the focus on the renewables capacity delivery. So we're targeting around 3 gigawatts in 2023, concentrated in the end of the year, and the average of 3.5, 3.9 of -- over the cumulated '23, '24 period. 5 gigawatts under construction. Additional DG coming online, certainly over the year '23 and '24, all of this well diversified in geography and technology. And finally, one point which I mentioned, I just wanted to reiterate, increase of contracted long-term PPA prices, 70% 2023 year-to-date projects versus 2020. Anticipating some delivery or delivery of some projects in Europe supported by the regulatory and permitting process update. And in general, a downward trend in global solar equipment costs outside of the U.S., so all of this supporting value-enhancing growth. And I'll stop there. I'm sure we'll have Q&A. So thank you, and let's turn it over to Q&A. Miguel?

Ladies and gentlemen, the Q&A session starts now. [Operator Instructions].

Okay. So we have the first question coming from the phone from Alberto Gandolfi, Goldman Sachs. Alberto, go ahead.

Miguel and Rui. I have 3 questions, please. The first one is going back to the statistic mentioned by Miguel, we have recently conducted a very similar analysis with the same outcome, that PPA prices in 2.5 years are up 70%. I guess the question is, how much of your cost gone up by? So are we seeing pricing power in the industry? Or actually not only absolute returns going up, but is the value creation slightly better or not? I mean, simply, was it simply pass through, of course? It would be great if you could maybe talk about and also for IRRs our return on capital employed seems to have gone up to me. The second question is on Slide 6, plus considering that the European response area is going a bit more quiet, maybe with the exception of Germany, notable exception. But the U.S. area momentum is accelerating. So I guess what I was trying to understand here, are these developments in European permitting embedded already in your recent CMD? Or are these coming on top, which means that maybe in 2025, '26 or maybe '24, '25 and '26, we might actually see a faster conversion in the pipeline. And the last question is, I mean some investors have claimed during the first half that perhaps you're growing a little bit too fast, too quickly. You had a capital increase and the debt has gone up already a lot, and you're planning to build even more next year by the sound of things. So can I ask you what reply would you give to that? And maybe any visibility, any bridge, you can help us build for the year-end net debt.

Thank you, Alberto. No, all of them were questions. So in relation to the first question, what I'd say is IRRs, absolute returns are clearly up. Cash yields are up. I'd say the delta spread, it depends on the geography. So it's maybe a broad generalization. But I'd say, certainly on the portfolio level, let's say, the value creation spread continues to be there. Maybe it's widened a little bit, but I wouldn't -- I certainly wouldn't say that we have pricing power. But I certainly say that we have -- well, we have pricing power and the ability to pass through costs, but it is a competitive market. So I wouldn't want to insinuate that there was not a competitive market out there. But what I would say is that if rates do go down in the midterm or anything, I think we'll find these are extremely attractive projects with solid, very solid absolute returns. On the second point, so the way we look at it is, yes, we're anticipating some projects, for example, from the '25, '26 period to '24, '25. This is offsetting certainly to an extent any delays that we also have. So we have some projects that have been delayed because of execution issues. The LONGi panels in the U.S., that pushes projects from '22 -- or from '23 into '24. And that has knock-on effect in some projects in the U.S. But on the other hand than in Europe, we can anticipate some projects, for example, earlier into 2024. And so I think that means that certainly in 2024, we'll have a record amount of projects being delivered over the year. That's for sure. So in Europe, we're managing to anticipate above and beyond what was foreseen in the Capital Markets Day, but that's offsetting some delays that we had in projects in other parts, okay? So if that's..... On the third point, well, what I'd say is that we're executing on the plan which we set out, I think, very clearly and very -- in a very detailed manner in the Capital Markets Day. And that already incorporated, not only the amount of investment that we're going to do, but all the costs that we're going to have to take on to grow. So I mean, we have a plan and we're executing it. And so the debt, I think, is perfectly in line with, let's say, what we're expecting. I mean, there -- obviously, there will be volatility around working capital at certain stages or asset rotations -- when -- what quarter they come in. But I'd say that it's certainly very much aligned with the broad plan that we set out. So no surprises there, and I think it's very much aligned. I think as I say, with yet -- well, the capital increase, but the asset rotations that we're doing, that will keep us well within what we consider to be very reasonable ratios for this type of business. So we'll keep on providing visibility for that, but I would say it's nothing extraordinary there. It's very much part of business as usual.

So next question comes from Enrico Bartoli from Mediobanca. Enrico, please go ahead.

I have 3 as well. The first one is on the Spanish market. I was interested in your view on the evolution there, because on one hand we're seeing the government increasing significantly the targets for 2030. On the other hand, also you saw some curtailment of your wind production because of bottlenecks in the transmission grid. And we're seeing the impact of PV evolution on prices. So I was wondering what you see there in terms of threats and opportunities? In terms of opportunities, particularly, if you think that there is the chance to accelerate investments in storage in that market? Second question is relating on offshore. Actually, you highlighted that you canceled the PPA related to South Coast. I was also here -- interested in your view on the prospect for EDPR in this business, considering that we're seeing some other operators canceling projects or asking for revision of the economic terms of the existing one? And the third one is regarding Slide 14. You highlighted these headwinds from all the factors from regulatory clawbacks and so on, on 2023. On the other hand, you're raising your guidance for asset rotation gains. So I was wondering if we're seeing, let's say, an EBITDA from the consensus slightly above EUR 2 billion. If you think that, I mean, these moving parts, you feel confident on that figure. And also, if you can give us some indication what to expect in terms of net debt for the year-end?

Okay, thank you, Enrico. So listen, just a couple of comments, and maybe if Rui then can also comment. But on the Spanish market evolution. So first, the reason for curtailment in Spain is clear, there's a mix of, on one hand, low electricity demand. So hasn't recovered to pre-pandemic levels. It's obviously higher penetration of PV, so 4x increase in the last 5 years, together with self-consumption PV and distribution networks where the current distribution transmission network still doesn't support sort of such a high level. But I think importantly is that there is a lot of available, let's say, demand in Spain still to expand renewables in general. So we continue to believe in the market. I mean, you've seen coal shutting down. I mean, you can debate whether nuclear will come down or not as fast as was expected. But still, you look at the recent energy plan set out by the Spanish and the Portuguese government, and there's obviously a huge potential there. Now obviously, this will raise like specific issues in specific areas at certain times, but I'm sure the network operators will work through those and will be incentivized to get that done. Storage is definitely something we're looking at. I mean, obviously, as you know, it's very much part of the business as usual in the U.S. nowadays. Still not so much part of the business as usual in Europe. It is much more in the U.K., but lets say continental Europe still not very much. We've looked at this in quite a lot of detail. I think it might make sense in very specific situations. I don't think it's still a generalized solution. The economics still don't fully work out, but it is something that we're following very closely and continuing to run analysis to see if we can -- well, if it makes sense to step up storage. Maybe just on -- moving on to the offshore, the prospects, if I understood your question. So it's just generally the prospect in the U.S. or just more globally for...

We saw some in the U.K. that there were some revision of projects. So mainly the U.S. and the U.K., which seems to be the issue now.

Yes. So we're very happy with the projects that we have. I mean we have the South Coast. I think that was flagged for quite a while. But we look at Moray East, you look at Moray West, you look at the French projects that I mentioned, all of these are inflation-linked. The CapEx is secured. We took the FID already knowing fully well, what was -- that we were in an inflationary environment. And so we went into those projects with our eyes wide open and so we're very comfortable with the returns on that. So we don't have any expectation of additional projects where we have these issues on the offshore side. A lot of the other projects still don't have PPAs locked in. So apart from the ones I mentioned, which do, the others are still in the development phase. And so we'd be locking in PPAs once you have more visibility on the development and on the CapEx. And -- so we can take an FID on those projects. But -- so I'd split it into operating of projects very good, Moray East in particular, and [indiscernible] than the ones which are being built. So Moray West and the French ones. And those, as I say, very clear about the returns, and we're very comfortable there. And the others don't have PPAs yet. We're developing them. And so when we take that investment decision, I think it will be with full information. So we won't have any issues around having to cancel projects or contracts. On the third point to be clear, so yes, we have positives, we have negatives. I'd say that we're comfortable with the guidance on the EBITDA. The mix will be different probably from what we originally expected. But I'd say we're comfortable with the overall, lets say, consensus on EBITDA. I wouldn't want to comment specifically on net income. It's just generally more volatile given the different moving pieces. But yes, comfortable with consensus EBITDA with a slightly different mix than what was expected. I don't know, Rui, if you want to make comments there.

Yes, Enrico, maybe just adding on the -- building on what Miguel said about the offshore. Also bearing in mind that in the U.S., this project that we have developed in Massachusetts actually can be into Connecticut, can be into New York, ultimately, could be to Rhode Island, New Jersey. So there is actually quite wide range of alternatives other than the Massachusetts that we're preparing ourselves to be, I think in January. That's the new date. So I think the point is that this project is perhaps one of the most advanced projects in terms of development, that will be there to meet Biden's 2030 targets. Actually now the team will be looking for what maximizes value and therefore, incorporating into those bids, whatever the current cost and interest rate scenario is. So in that sense, I think that is likely to have a positive impact and an upside in terms of the expected returns for the project in the future.

So moving now to José Ruiz from Barclays. José, please go ahead.

I just have only 2, and they're very specific. Can you share with us, would it be possible to share what is the upfront investment per megawatt in solar PV in Southern Europe after this collapse of polysilicon prices? And the second one, would it be possible to share with you, your net capacity additions for this year? We know the gross, EUR 3 billion, and now you have increased the guidance for capital gains. I was wondering if you could share the net capacity additions for 2023.

Great. José, it's Rui here. Just to give you some references for the cost per megawatt. On the cost of the modules, on the PV modules, which is still the largest contributor to the overall investment, we saw over the last months prices coming down in Europe from around $0.20 per watt to around about $0.17. So that's a substantial reduction that we saw just happening effectively within the last quarter. What we're seeing is that then depending on the geography, elements like the balance of system, can be stable, rather stable. So at least everything else being equal, we would see the cost reduction driven by this -- the panels. Okay. And then regarding the second one, the second question. On a net basis, so what we're presenting here is that, roughly speaking 3 gigawatts of additions in gross terms and then about 1 gigawatt asset rotation sales. So net, again, roughly speaking around 2.

Going to the next question. It's from Manuel Palomo. Manuel, please go ahead.

I've got, well, one question actually and a couple of clarifications there. The question is, you mentioned that PPA prices are significantly going up on inflation and interest rates, which makes a lot of sense there. I wonder, would you have perceived any trend on the duration of the PPAs, whether it has shortened maybe on additional volatility or maybe concerns by offtakers on deciding not to take a very long-term risk of forward prices. Then the clarifications are as follows. The first one is in Slide #20. I see that you're targeting, if I'm correct, it's 3 gigawatts in 2023. It says between 3.5 and 3.9 gigawatts in '23, '24. Is that '24, '25? That would be my question. And the other clarification is on the asset rotation deal that you announced today. You were talking about EUR 1.8 million per megawatt, EV per megawatt. Is it considering the 30-year useful life of the asset or only then may be remaining 16-year life of the asset?

Manuel. So if I understood the first question, duration of the PPAs by offtakers. What I'd say is we're certainly no less than 10, normally around 15, and we can get as much as -- well, particularly in the auctions, as I mentioned, we have the auctions you see sort of 20 years. But let's say the average would be between 10 to 15 years for duration of offtakers. I mean, less than that is we haven't seen or we haven't done at least. On the second point, the clarification, so again if I understood, it's between 3.5 and 3.9 average for '23, '24. So that means if we do....

Okay, you understood.

Okay. And on the third point, so this is for the remaining useful life. I think -- listen, these are good assets, let's be clear. So there are 14-year-old assets. They've got 16 years left of useful life, but there is the possibility for either repowering or hybrids or they've got the optionality around the merchant pool price. So these are good assets. And I think it's one of the things which is becoming clear and clear is the optionality around these assets. It used to be, you had a plain vanilla or you value the plain vanilla wind projects and you just look at the pure wind, if it was 100 megawatts, you just value the 100 megawatts. I think now more and more investors are looking at the 100 megawatts of wind, but what can you do also with additional megawatts of solar, what's the merchant profile look like, what optionality has that given me. So that's all baked into these multiples, right? So just your clarification specifically is, yes, it's the 16 years of useful life that's left.

The next question from Jose Guimaraes, GB Capital. Jose, please go ahead.

I have 2 questions. Two are follow-ups. The first one, it's a follow-up on the offshore question. I believe there are relevant concerns about the cost, CapEx cost of offshore projects. Do you share the view that as of today between onshore, offshore and solar photovoltaic, offshore is the one with the returns that are more under pressure? And if so, do you believe this will impact the development going forward? So these would be the first one. The second one, regarding the curtailment questions in Spain, do you believe this will become more of a problem in next years? And to be more precise, do you believe we should reduce the load factors considering the estimates going forward? And thirdly, it's related to offshore. Does EDP plan to participate in the offshore auctions in Portugal assuming they're going ahead because the objectives are very optimistic to say the least?

Thank you, Jose. So concerns around CapEx. Well, I think, listen, whenever taking investment decisions, we're obviously trying to do the best estimate possible of future energy prices and CapEx costs and baking that into what is required PPA that you need to get your investment returns. And so what I'd say is that offshore is the same thing. I mean, we're going to be looking at what are the expected CapEx. It may have increased and it has increased, let's be very clear about that. But certainly for new PPAs that we would be locking in, we would be incorporating that. I think -- so I'm not sure if this is, let's say, answering your question specifically, but I think it's not a question of whether it's more or less pressure. I think it's just a question of, are you incorporating it. If you already have a PPA locked in like we did for the Mayflower, then yes, that it's a problem and you either decide to break the contract or then -- well, you have to take a decision to move forward or not, or you have to look at it, what are the different options. In our case, we looked at all the different options, and we decided to walk away from the contract. I think it's clear that the energy prices, the PPAs for offshore have to increase as well, and they are increasing the same way as onshore and solar. As I mentioned, so the PPAs, I don't think they included offshore in the numbers that we give you, but certainly offshore PPA prices now in the U.S. would have to go up substantially versus where they were 2 or 3 years ago to -- for the projects to be economical. On the second point, on the curtailments. So these are typically local issues. I mean, in our case, for example, it's Galicia and the Locke, I believe. They can be sorted out with local investments, and they can also be -- there are certain optimizations or certain, let's say, automations links that we can do with the system operator to improve or to reduce the curtailment. Some of this curtailment is remunerated by the way. So it's not that it's all lost production. It can be production which is actually still remunerated even though it's been curtailed. It will be local issues, but obviously, this will become a feature as time goes on. And so I think the question on storage earlier from Enrico, I think, was relevant, and it's something that definitely we're looking at. The third point, so we haven't taken a decision yet in relation to participating in the Portuguese offshore. It's -- we're part of -- we're a JV with ENGIE and OW. So it would be an OW decision. And OW itself may decide to partner. So I think it's still early to give you a specific answer on that. But obviously, we will analyze the process, and then we'll take a view on whether it makes sense or not to participate.

We have the next question from Meike Becker from HSBC. Meike, please go ahead.

I have a broader picture question on onshore wind. There has been a lot of news on the solar, also from your peers in line with what you were saying about the cost turning, and also the volumes picking up. I have heard less comments on onshore wind. So it would be great if you could expand on both your views when volumes will pick up or why they are not picking up and developers are focused on solar, as well as when you see a turning point on the costs, or how that is playing out?

Okay. So great question. So I think, first, onshore wind is a premium product in the sense that it typically has more variability over geographies and locations. It has a less predictable profile, and so it doesn't have such a large discount to, let's say, your average base load profile. So these are good projects. I think people will continue to invest in developing onshore wind. I think over the last couple of years, particularly in places like in the U.S., the expectation was that onshore wind would lose competitiveness versus solar, certainly in the U.S. because of the way the tax credits were set up in the PTCs and the ITCs. And so there was less development of onshore wind project. Now that's inverted in the U.S. Clearly, now the PTCs for onshore wind has come back up, and in Europe, people are again trying to push more for onshore wind. But it takes time to develop an onshore wind project. You need to find sort of good locations, sufficiently far from houses and other restrictions, environmental and others that you have. So it takes -- these are projects which do take a couple of years. So I think we're seeing a ramp up. Certainly, I can speak for ourselves. We're investing time and money from people in our team and our development teams to build up these onshore wind projects, but it's not something that you just flick a switch and overnight you suddenly have wind project. So at one point, I think in one of the previous calls that we've had I think I mentioned that typically these projects will be coming on more towards the back end of our business plan. So more around '25, '26. So when you see a sort of bigger pickup in onshore wind project. So maybe that's -- hopefully that's useful.

If you have time, would you mind commenting on the cost turning point in onshore wind?

Okay. On costs, I think, again, the turbine manufacturers have all been hit by -- well, as you know, they've all had relatively negative margins and suffered over the last couple of years as a lack -- as a result of lower volumes, but also just probably the way they were set up in terms of risk management of their contracts. I think they're working through that. For us, it's extremely important that there's a healthy supply chain there. I believe that as commodity prices come down, that will be reflected in the prices in wind, but I'm not sure it's coming down, certainly not as fast as in solar. I think they will try to ensure that they have healthy margins, so they're not -- let's say, they're going to -- try to make sure they don't -- there's not a race to the bottom where they end up in the same place as they were before. So again, Rui, I don't know if you talk to them quite a lot.

Yes. I mean, maybe I would just add a couple of data points. So one is, if I could -- if you look to our last 12 months, the indexes on steel like Platts or Argus, you see that steel came down, I don't know, maybe 20%, 25% depending on the regions, North America, Europe, China. So at some point, and as you know, the manufacturers, they are quite sensitive to this, and they have also been asking for some indexation depending on the year of delivery. So at some point, we should definitely see a reflection of the raw materials coming down. But secondly, it's still quite depending on the geography. So we have talked about the levers for Brazil or for North America or for Europe, we'll see different prices. So yes, just these 2 are data point. So I think we'll still see the prices pretty much level where they are right now. But into the future, I would say that we have a case for those to go down.

We're reaching the end of the call. So I think we have time still to go to the questions on web, a couple of questions. First one from Arthur Sitbon from Morgan Stanley. Could you provide more details on the EUR 41 million extra cost on U.S. and Colombian projects? Why these costs -- these extra costs impacting P&L and not CapEx and if they have some PPA associated?

Sure. So here, the costs are mostly related to energy delivery commitments that were associated with these projects. So PPAs, for example, certainly in the case of the U.S. and their commitments in terms of volumes and starting dates. And so we either have liquidated damages or we have certain commitments to provide that energy. And so those are the costs that I mentioned there. We're working to renegotiate PPA terms in order to limit those impacts, in the U.S. that's been possible. So these numbers have already been revised down significantly over the last year and over the last month. And in Colombia, we're also working on that, so to try and renegotiate the PPA terms.

Last question comes from CaixaBank, Pedro Alves. So it's regarding the capital gains in the asset rotation announced yesterday, if we can assume -- so a lot of questions around if it can represent 50% or more of this EUR 300 million in previous capital gain guidance? So a little bit asking about the guidance on asset rotation gain in the deal.

So in addition to what I mentioned previously about the guidance of EBITDA. In relation to the specific capital gains, I think it would be better to wait for the 9 months presentation in October. So the capital gains will be, let's say, fully defined at that point because there's still a lot of adjustments which are done typically just to get the correct number. And so we can provide you with a firm number and not just, let's say, a high level number. In this particular case, we did provide information on the acquisition price of Viesgo renewable assets in December of 2020. And hopefully, that will help you get close to the final figure. So I think, I mean, the number -- I think you said roughly 50% of the $300 million previous capital gain, you probably won't be far off from that number.

Okay. You have some additional questions that we'll follow-up then from IR level. So I'll move now to final remarks for our CEO.

Thank you, Miguel. Listen, just final remarks. As I -- just to reiterate, it was a tough quarter. I'm not going to hide that. I think we need to look through the quarterly volatility. We're developing long-term projects, the projects themselves take many years to develop, and then they operate for 30 years plus. So we're managing the company on a quarterly basis, but it's a long-term business. And then I think, just wanted to reiterate that on one hand. And obviously, I just wanted to wish you all a good summer. If you do get a vacation break, I hope you get rested and I'm sure we'll meet again in September, either in the roadshows or in meetings. And then also, for the 9-month results towards the end of October. And so I think we'll be able to provide additional visibility there. But listen, overall, globally, tough quarter, but I think things are getting done. Thank you.