Endesa, S.A. (ELE) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and a warm welcome to the 9 Month 2020 Results Presentation which will be hosted, as always, by our CEO, José Bogas; and the CFO, Luca Passa. [Operator Instructions] Additionally, we kindly ask you to limit your questions to the financial and operational performance of the company during the period and to wait until next 25th of November for the update of our strategic plan. Thank you for your attention. And now let me hand over to José Bogas.

Thank you, Mar, and good evening to everybody. Thank you for being able to join us today in this unprecedented and troubled times we are living. It is my heartfelt desire that you and your families are safe and in good health. Let's start with the main highlight of the period. In 9 months 2020, we have continued to deliver solid financial results despite the extremely complex environment. EBITDA increased by 8% compared to last year, 3% on a like-for-like basis, excluding the nonrecurring impact booked during the period as a consequence of the new collective agreement application and the new personnel provision that we will detail later on. Our liberalized business has shown a sound performance, proving again its resiliency against the COVID-19 backdrop. On last 31st of July, Endesa reached an agreement with the unions to apply a new voluntary individual early retirement program that will involve up to 577 people related to the restructuring of the activities resulting from the change in energy generation mix. This is a further step forward towards greater flexibility that will allow us to meet future challenges by providing new efficiencies. At the bottom line, net ordinary income base for the dividend payment increased by 38%, further proof of the sound foundation of our company. Endesa, as part of its commitment to society during the COVID health crisis, designed an action plan called Public Responsibility Plan endowed with EUR 25 million with actions directed to our clients and to all citizens. In October, we launched the second phase of this plan aimed at mitigating the COVID-19 consequences. Moving now to Slide #4. I would like to comment on the market context for the period. During third quarter, power demand, minus 3%, continued to recover progressively as expected compared to the month of lockdown in the second quarter where demand fell 13%. In the first 9 months of 2020, mainland demand is estimated at 176 terawatt hour, falling 6.1% versus 2019, quite consistent with our full year estimate. In a similar way in Endesa's concession area, gross demand has shortened the fall to 5.2% and to 6% in adjusted terms with demand variation of minus 3.1% and minus 1.8% in adjusted and not adjusted terms, respectively. This development is mainly driven by the drop in the industry and services segment for the abovementioned region, partially offset by the slight increase to the residence in the residential sector activity. For 2020, we are expecting a decrease in B2B demand of around 8% to 10% to be partially compensated to -- or for -- by demand rights in B2C customer by 4% to 5%. We will monitor the COVID-19 evolution during the fourth quarter of 2020 and the economic impact of the containment measures for the second wave. Consumption evolution in 2021 will also depend on the sake for the recovery of the fourth quarter of this year. As far as prices are concerned, the progressive improvement in demand and commodity prices during the third quarter drove the recovery of full prices despite the strong hydro output of the period and the nuclear recovery relative to the second quarter. All in all, spending wholesale price averaged EUR 31.9 per megawatt hour in 9 months 2020, still showing a decrease of 36% versus same period in 2019. On Slide #5, we can see the increase in renewables capacity, which now represents around 44% of total mainland figure, well on track to reach the 60% target set out in our business plan once imported coal plants are phased out by 2021. Around 0.8 gigawatt of new renewable capacity has partially compensated the thermal output loss while contributing in reaching a record renewable output of 9.9 terawatt hours or 3.1 terawatt hour increase versus 9 months 2019. Emission-free production represents around 85% of total mainland production, already reaching the target set for 2022. The drop in Spanish demand has led to a 10% decrease in total gross sales, affecting mainly B2B minus 14%, strongly hit by the economy deceleration due to the COVID-19. As a result, B2B cluster suffered heavily with industrial sales decreasing by 12%, while SME has run by 27% -- minus 27%. The total power customer failure slightly decreased by 1% due to the increased competitive intensity in the sector. This customer loss, together with the abnormally milder temperatures during the last winter, explained the small decrease in the B2C segment. Coping with these competitive pressure, we have developed a number of initiatives in maintaining our market share and the leading position in this business. As an example, Endesa has recently launched the Única offer to B2C customer. Consistent on a flat rate that provides the security of a single fixed monthly fee regardless of the energy, electricity and/or gas consumed, a tariff that is the first ever of this kind in the supply sector, resembling similar offers in TMT. That is technology, media and telecom sector and is being well received by the client. Another milestone aimed at improving our business management and to adapt to the more demanding needs of our customer has been the recent Endesa X agreement with Athlon to launch OneElectric, the first all-inclusive electric vehicle leasing plan on the market. Moving on to Slide #6 and returning again to one of our priority objectives, the transformation of our generation mix. We continue building our pipeline of renewable projects to support future deployment targets. Our gross pipeline stands at 25.7 gigawatts. Out of this pipeline, around 30% has TSO-awarded connection points with a significant weight of solar, around 65%. At last summer, Portugal total packet tender, Endesa was awarded with 99 megawatts, which will also include at least an additional 20-megawatt storage backup capacity, with a total expected CapEx of EUR 90 million. Among the several auction schemes, Endesa chose the bid on the merchant structure in which we pay a fixed fee for a 15-year period in exchange for the lifetime property of the connection points and the battery service. We are confident that the achieved conditions will allow us to maximize return, leveraging on our trading capabilities, capabilities and our large client base in the country. Moving on to Slide #7. We've seen our electrification strategic pillar, the unitary integrated margin resulted in EUR 33.2 per megawatt hour, showing a 19% increase year-on-year versus the EUR 27.9 per megawatt hour of 9 months 2019. While electricity sales in the liberalized business decreased in Spain and Portugal by 11% in terms of volume, that is minus 6.9 terawatt hour. This margin increase has been possible, thanks to the positive management of the short position, which was partially offset by the comparatively worse evolution of the supply margin, affected by the lower sales and the slightly lower generation margins. As we pointed out in previous occasions, full year expectation at this stage points to a flattening of the margin in the coming quarter, with full year aligned to our guidance in absolute terms while unitary margin is now expected to be around EUR 32 per megawatt hour as a consequence of lower sales volume, driven by demand decrease. Regarding the forward sales, we have around 100% of our 2020 estimated price-driven output already hedged at an average all-in price of EUR 74 per megawatt hour. For 2021, we have hedged around 96% of our estimated price-driven output at an average all-in price of around EUR 72. Once we consider our total sales mix, the all-in revenue, including index energy will convert to levels similar to 2020 reference. For 2022, we have hedged around 43% of our estimated price-driven output mostly to our residential customers, with an estimated all-in price around EUR 71, EUR 72 per megawatt hour. We expect to see a confirmation of the better trends seen in the market since the summer more aligned to our expectation to keep on hedging the remaining levels. A few words on the gas business on Slide #8. Total sales have decreased by 12%, mainly as a consequence of the warm temperatures that affected domestic and international customer and the COVID starting in March that severely affected the industrial sector demand. To the contrary, wholesale sales kept on increasing, reaching a total figure of 7.7 terawatt hour. Total customers remain almost flat, increasing by 17,000 to the liberalized segment due to active client attraction campaigns. This has been achieved despite the strong competitive intensity registered this year. Endesa continues to explore new innovative solutions to increase its offer to customers. To this end, the Única offer to B2C customers include a dual offer with a flat rate also for gas. Our unitary gas margin climbed to EUR 4 per megawatt hour despite lower demand, thanks to the better sales prior reference versus procurement costs. We have continued to take advantage of the arbitrage among markets and of the flexibility of our contract, which has allowed us to benefit from purchasing cheaper gas in the spot market. Retail and wholesale margins have both increased versus last year, which was affected by a different market scenario characterized by much higher prices than the current ones. As expected, the positive mark-to-market effect seen on the first half of 2020 has significantly reduced in these results, showing a cumulative positive of only EUR 11 million. And now I will hand over to Luca Passa.

Thank you, Pepe, and good evening, ladies and gentlemen. Let's now move to the financial performance of the period, and I'm now on Slide #10. EBITDA stood at EUR 3.136 billion, increasing 8% or 3% on a like-for-like basis, once netted from nonrecurrent effects that we will explain on the next slide. Net income rose by 9x to 1.511 billion, impacted by the impairment book last year worth EUR 1.1 billion and net income level. Net ordinary income grew by 38% year-on-year, reaching EUR 1.7 billion. Funds from operation reached around EUR 2 billion, up 9% versus last year. Net debt increased to EUR 7.4 billion, around 16% versus full year 2019. I will be back on this in a few slides. Now moving to Slide #11. This illustrates the nonrecurrent impacts on personnel costs. As explained in the previous presentations, the collective agreement signed last January provides for a new and more flexible social benefit scheme, as it establishes a modification of certain social benefits, mainly those corresponding to electricity subsidies for active and passive employees more aligned to the average family consumption in Spain. From an accounting perspective, the new assumed commitment in the collective agreement resulted in a positive impact of EUR 515 million from the reversion of the cumulative provision for the employee benefits. Apart from this provision release, a new provision for workforce restructuring plans was booked in the first quarter for an amount of EUR 159 million. Both items resulted in a net positive impact of EUR 356 million booked in the personnel expense line or EUR 267 million positive net impact. As already detailed in the cost of our decarbonization plan, a new agreement with unions representative has led to the recording of a new personnel provision for the voluntary departure of up to 577 employees for an amount of EUR 213 million. As it was the case with the coal impairments booked in 2019, this new provision has been recorded as extraordinary, as it is directly related to the change in the energy model adopted by the company. In this sense, its net effect is not included in the company's net ordinary income, therefore, will not have an impact on Endesa 2020 dividend payment. In summary, we expect to retire about 1,000 employees or more than 10% of our workforce, providing the company with a greater degree of flexibility, allowing efficiency improvements to face future challenges. Before moving to the detailed analysis of the period, let's now take a look at COVID-19 estimated impact on our financial results, and I'm now on Slide #12. While the second quarter reflected a more negative impact due to the extension of lockdown during usually the whole period, the third quarter showed a more moderate impact. The new normal of the summer period brought a certain stability to the economy, which translated in a recovery of the energy demand, commodity referencing and pool prices. As of September end, we have estimated a net impact of around EUR 81 million at EBITDA level, out of which around EUR 20 million in non-mainland, mainly due to the sharp demand contraction. Net of this effect, EBITDA would have been up by 6% year-on-year. Moving down to the P&L, we recorded a negative impact on D&A of EUR 23 million, mainly from the update of bad debt provisions in accordance to IFRS 9, which remains virtually unchanged since last quarter. At net income level, said impacts would translate to around EUR 78 million. Without considering these negative impacts, our like-for-like net ordinary income would have increased at 23% to EUR 1.511 billion. CapEx will also be marginally affected by COVID backdrop, which is causing some delays in the pace of renewable deployment. Part of the delay will be recovered in fourth quarter, leaving the rest for January, February 2021. Despite its very complex to foresee future of COVID-19 impact due to the many uncertainties on the recovery pattern time frame and the length and the outcome of this new partial confinement by regions driven by this new state of alarm, we do not expect additional material impacts from the remaining of 2020. All that make us confident to reach our 2020 announced targets net of extraordinary provisions. Moving now to the items of our like-for-like EBITDA on Slide 13. Let me now briefly set out the main drivers. As already commented, once deducted, the nonrecurrent effects booked in the personnel cost, and this EBITDA stood at EUR 2.993 billion, plus 3% versus 9 months 2019 as some performance despite the current headwinds that proves the resiliency of our integrated and sustainable business model. Generation and supply EBITDA rose by 20% to EUR 1.390 billion, mainly supported by the increase in the integrated electricity margin, the gas business as well as the lower fixed costs. Distribution EBITDA decreased by 4% at EUR 1.471 billion. Finally, non-mainland generation EBITDA reached EUR 132 million, a 38% decrease year-on-year. I will comment each business performance on the next slides. So moving to Slide #14, focusing on our regulated business. Like-for-like EBITDA decreased by 8% to EUR 1.603 billion, with a lower gross margin while fixed costs dropped by 7%. Distribution margin decreased by 4%, mainly due to the application of the new remuneration parameters of the second regulatory period for 2020-2025. On the other hand, EBITDA level, it must be realized that the improvement of adjusted fixed costs by EUR 27 million. The non-mainland generation gross margin decreased by EUR 93 million, mainly due to the negative full margin in second quarter as a consequence of the pool in the international markets and lower O&M compensation. As expected, the rebound of commodity prices experienced since the summertime has allowed a more normalized quarter in the non-mainland generation business, providing an EBITDA in the third quarter 2020 of plus EUR 64 million, which primarily compares with a negative EUR 13 million recorded in second quarter. Despite this improvement, 9-month cumulative like-for-like EBITDA amounts to EUR 132 million, still 38% lower than last year. The approval of the ministerial order on full compensation last August 7 has brought limited improvement to the remuneration formula as some of our requests were not finally addressed. As this ministerial order does not guarantee the full pass-through of the full cost as should be the case in a regulated business, we will continue working with the regulator to introduce more rational references. Regarding our full year estimates, the sharper drop in demand cumulated in the year make us be more cautious in our forecast. Our latest estimates point to a gap of around EUR 50 million versus the EUR 300 million EBITDA target announced last November. More details on this new target would be unveiled in the next Capital Markets Day on November 25. On the liberalized business on Slide #15, EBITDA reached EUR 1.390 billion or a sound 20% increase on a like-for-like basis, backed by EUR 102 million improvement in gross margin while fixed costs dropped by 5%. The main moving parts of the period have been the following. The electricity integrated margin increase has been driven by the positive management of the short position, partially offset by the comparatively worse evolution of the supply margin affected by lower sales. The generation margin slightly decreased versus the previous year's levels as the better generation mix supported by higher hydro and renewable output and better procurement margin in CCGTs were mostly offset by the absence of the positive removal of the 7% generation tax adopted in first quarter 2019, the reversal of the Catalan tax and this year increase in nuclear taxes, especially the increased ERISA tax and the new Catalonian tax effective since the 1st of July. Enel Green Power Spain gross margin reached EUR 216 million, above last year by 2%. EBITDA dropped by 17% due to the increase in fixed costs, explained by the new capacity and the hiring of new staff for new projects in 2020. In gas, gross margin reached around EUR 200 million, showing a remarkable 52% increase despite lower demand. The better sales price reference versus procurement cost and the flexibility provided by our contracts have made possible these remarkable results. Endesa X contributes with a gross margin of EUR 86 million. Moving now to the next slide, which is Slide 16 on the P&L evolution from EBITDA to net ordinary income. Starting from the EUR 3.136 billion reported EBITDA, D&A decreased by 9% to EUR 1.104 billion, once excluding impairment on thermal assets carried out last year. This decrease mainly refers to the lower D&A of generation assets included in the last year impairments, partially offset by the higher amortization in Enel Green Power and adjustment on nuclear fleet useful life set on the nuclear protocol. Bad debts increased by EUR 24 million, mainly affected by the COVID-19 scenario. Net financial results decreased to minus EUR 82 million, mainly driven by the impact of the update of financial workforce and this monthly provision as rates fell by 0.8% in 2019. And the real rates decreased by 0.17% in 9 months 2020. Other positive comes from the net exchange differences, plus EUR 9 million as a result of the U.S. dollars debt associated to the LNG charter contracts. Results from the equity investment and others improved by EUR 36 million, mainly thanks to the formal court decision on Garoña nuclear tax. Taxes increased by around EUR 113 million year-on-year, once excluded a positive fiscal impact of last year impairment. This increase is mainly due to the net positive impact of the EUR 143 million booked in the personnel expense line, which has an impact of EUR 36 million at income tax level. The effective tax rate stands at 23.7% versus 22.6% last year, mainly due to the lower materialization of tax relief and tax credits allocated to results and the allocation of [ deductible ] provision. Finally, net ordinary income increased by a remarkable 38% over the period. Now moving to cash flow on Slide #17. Funds from operation increased by 9% year-on-year, reaching EUR 1.969 billion due to the following effects. Higher EBITDA after provision paid and net provision release with no cash impact of around EUR 135 million. Working capital slightly improved by 3%, mainly due to the change in working capital, thanks to the improvement of regulatory receivables mostly from the non-mainland compensation, partially offset by other noncash provision and the effect of commodities valuation and derivatives. Income tax paid decreased by 7% to EUR 164 million, mainly due to the higher corporate tax refund in 9 months 2020. The cash-based CapEx, 9% lower than the previous year, also led the free cash flow to positive EUR 668 million in this period, increasing by EUR 283 million, a remarkable plus 74%. Let's now look at the net debt on Slide #18. Net debt amounts to EUR 7.407 billion, EUR 1 billion higher than the previous year. This increase is mainly due to the payment of EUR 1.6 billion in dividends corresponding to the gross dividend against 2019 results. The regulatory working capital increased to EUR 942 million. Our credit metrics show a stable level of leverage with net debt-to-EBITDA ratio at 1.8x, slightly higher than in full year 2019. Worthwhile, the extraordinary low-cost debt of 1.7%, debt remains at historical record, pleasing for Endesa. It's one of the best European utilities with the lowest cost of debt. As 30 of September 2020, sustainable financing represents 47% of Endesa's gross financial debt. In that sense, Endesa has recently signed it's first sustainable factoring operation with CaixaBank, which is linked to the fulfillment of sustainable objectives and enforcing Endesa commitment to the United Nations sustainable development agenda for 2030. Going forward, in our e-Mobility plan on 30 July, a EUR 35 million loan was arranged with the European Investment Bank to partially finance more than 8,500 recharging points in Spain. Lastly, our latest guidance for full year 2020 net debt point to a EUR 7.1 billion based on an assumption of EUR 1.2 billion of regulatory working capital, assuming the cash-in during the fourth quarter of 2020 of some pending amounts in non-mainland in accordance with the recently approved Royal Decree on network codes and the return of 2015 definitive settlement. And now let me hand over to Pepe for his final remarks.

Okay. Thank you, Luca. To close this presentation, I would like to conclude with some remarks on our performance during these 9 months. First of all, in spite of the current context, Endesa has offered and continues to offer a sound underlying performance, providing visibility towards full year targets. The resilience of our integrated business model based on a stable regulated EBITDA, a consistent liberalized business, a long customer hedge and a robust financial strength are allowing us to contain COVID impacts. We are committed to a continuous effort to adapt the company to the challenges for the future and convinced that our strategy will enable us to capture all the growth opportunities arising from energy transition. Next November 25, at our Capital Market Day, we will disclose additional details on the main challenges in the near future and a perspective of what Endesa will look like by 2030. We believe that there is no better way to contribute to the economic recovery and to boost the very much needed job creation in the country than by means of accelerating the energy transition. To this end, we are working to accelerate our CapEx plan, leveraging in sustainable financing and continuity to relevant and innovative projects, some of them potentially eligible under the European Union recovery fund mechanism. Ladies and gentlemen, this concludes our 9 months 2020 results presentation. Thank you very much for your attention, and we are ready to take some questions.

Thank you, Pepe. Thank you, Luca. Okay. We stand now with the Q&A. So far, we have received questions from Alantra, Barclays, Bank of America, Crédit Suisse, Fidentiis, Mediobanca, Morgan Stanley and Societe Generale. Thanks to all of you. So I'll start with the first question on the coronavirus issue. This is for our CFO, Luca. How do you quantify the impact from COVID-19 during 9 months? How much do you expect on full year in terms of EBITDA? Have you seen an increase in terms of bad debt?

Okay. Thank you, Mar. As shown on Slide #12, the negatives booked in the first half of the year and not increased materially in the 9 month results, and second quarter was the most affected quarter and the market conditions such as energy demand, commodity reference and pool price progressively improved since the end of the first state of alarm in June. And this integrated business model, while protecting for market volatility, allowed a solid underlying operating performance despite adverse scenario. This resilience, together with the limited COVID exposure of the regular business has led to a relatively limited and managed impact so far. As of September 30, we have estimated accumulated impact of EUR 81 million at EBITDA level, which is just EUR 1 million higher than what we have estimated in the first half, mainly due to the scenario of demand decline. After this amount, around EUR 20 million would correspond to the impact in non-mainland generation business, hardly hit by a sharp drop in demand during the touristic season in summertime. In addition, we estimate an increase of EUR 23 million in bad debt provision in D&A, mainly due to the positive -- to the prospective, sorry, IFRS 9 adjustment which barely increased versus the EUR 20 million registered as of June. Total impact net income level has amounted to EUR 78 million. CapEx delays due to COVID have not been significant in 2020. Concerning our full year impact estimation to date, it's not possible to make a precise estimate due to the uncertain future evolution of the macroeconomic, financial and commercial variables and their impact on the recovery of the company as well as the government measures currently enforced and those that could be adopted in the future. In this regard, last October 25, the government declared a new state of alarm throughout the country to contain the spread of the disease. It has an initial validity until November 9, but the slight probability of being extended potentially up to 6 months. Despite this complex scenario, we remain confident that we'll not have additional material impacts for the remaining part of 2020.

Okay. Next question is also for you, Luca. How much do you expect on full year in terms of net debt and working capital deterioration?

Thank you, Mar. Regarding net debt, our last estimate, again it amounts to EUR 7.1 billion based on the assumption of EUR 1.2 billion regulatory working capital including the return of about EUR 360 million corresponding to the definitive 2015 settlement in non-mainland generation business and the cash-in during the fourth quarter of some of the pending amounts also in non-mainland corresponding to Law 15 taxes in accordance with the recently approved Royal Decree on network codes. The increase of about EUR 100 million compared to the EUR 7 billion estimate that we had as of first half 2020 is related to a slightly worse capital estimated at year-end given the negative evolution of COVID-19 health crisis. We will continue to monitor these figures during the last month of the year. But as of now, we don't expect it to increase significantly. Pressure on working capital seems to be inevitable in this complex scenario, but Endesa balance sheet is sufficiently strong to end this temporary increase.

Thank you, Luca. The next question is for our CEO, Pepe. What's your view about electricity and gas demand in 2021, considering the second wave impact from the COVID-19?

Okay. Thank you, Mar. As we have explained during the presentation, in the first 9 months of 2020, mainland demand amounted to 176 terawatt hour, falling 6.1% versus 2019, quite consistent with our full year estimate, minus 6%. The potential impact for energy and gas consumption in 2021 will depend on some factors, of which we still don't have enough visibility. We are monitoring how the outbreak of COVID-19 will evolve during the fourth quarter of 2020 and the economic impact of the government measures aimed at limiting the spread of the second wave. As you know, we are currently working on our new business plan for the period 2020-2023. That will be presented to the market next November 25. What we can advance today is that we expect a gradual recovery in power demand from 2021, reflecting an increase in terms of GDP. We are forecasting a GDP decrease of around 10% in 2020 and the recovery of the lost ground in 2021.

And the next question, Pepe, I think, is also for you. In light of the tightening misses in Spain due to the spike of -- in COVID cases, do you think there is enough buffer to still meet full year 2020 guidance? Can the target be exceeded?

Okay. 9 month results consider our confidence to deliver our full year target for 2020, that is EUR 3.9 billion of EBITDA and EUR 1.7 billion of net ordinary income. That is net of the extraordinary effect we are booking this year, thanks to the resilience of our integrated business model. Although so far, we have had a manageable impact coming from the COVID-19 health crisis, we must remain cautious regarding potential further effect as explained during the presentation.

Thank you, Pepe. We will go back to you, Luca, with some question about provisions. Regarding 2020 dividend, which provisions have to be considered in the net ordinary income?

Thank you, Mar. Regarding your questions on dividend to date, the net provision affecting dividend amount to positive EUR 267 million or EUR 356 million gross. This results from the positive impact of the EUR 515 million from the reversion of the accumulated provision of employee benefits as a consequence of the new collective agreement and the booking of EUR 159 million provision for most of the restructuring booked in first quarter 2020. As far as the new provision of EUR 213 million booked on July 31, it has been recorded as extraordinary as it corresponds to the initial net allocation of personnel costs for staff restructuring plans relating to decarbonization plan. In this sense, its net effect will not be included in the company's net ordinary income and therefore, will not have an impact on Endesa 2020 dividend payment.

A follow-up question in the same topic. Do we need to expect more significant one-offs in Q4?

Thank you, Mar. In general, our force has been to adopt prudent criteria when making provisions. We must highlight that if the provisions are related to the transformation of the company through our energy decarbonization plan, that will be considered to have extraordinary nature and will not affect the dividend. Anyway, we keep on working on additional efficiency improvement plans to yield incremental ongoing cost savings, but it's difficult to anticipate if this will lead to more provisioning by year-end.

Thank you, Luca. What kind of ongoing cost savings can we expect from the 2 restructuring provisions booked this year? Do you expect further efficiency misses?

Thank you, Mar. All in all, the 2 provision booked so far in 2020 imply the early exit of about 1,000 workers, more than 10% of the employee base, with estimated yearly savings of around EUR 50 million by 2022. These savings will be completed with the reduction of travel expenses, lower corporate pension costs, the lower quarter lease negotiated during the summer and the shift of supply system, including milling. Current OpEx figures for 2020 is expected to stand well below EUR 2 billion, significantly dropping from the EUR 2.4 billion figure of 2014, and we expect it to decline further in the coming years.

On the recovery front, Pepe, has there been any update or feedback on the projects that Endesa proposed for the EU recovery fund?

Okay. Thank you, Mar. Well, the European Green recovery fund is an excellent opportunity to accelerate the energy transition process in Europe and specifically in Spain. Its target are totally aligned with those of the Spanish government in terms of energy transition. And this could be the main catalyst for the economic recovery of the country after COVID-19 crisis. For sure, we are well positioned to benefit from the European Union recovery plan and its translation to the plan for the recovery, transformation and resilience of the Spanish economy, which unveils the main development channels through which the European funds will be mobilized. Our strategy and our plan perfectly fit with the focus that Spain and Europe have put on decarbonization and digitalization, among others. We put value on our ESG plan. We have already submitted to the government a list of around 110 projects, consistent with the objective of these plans able to receive COVID-19 recovery European funds. This project represents around EUR 19 billion of total investment, of which EUR 16 billion are potentially eligible based on energy transition in the island, development of renewable gas transition, energy efficiency, hydrogen, sustainable transport or development of its network. Although it is still very early, we have done our homework. And now the deployment of these funds and the timing of the cash inflows will depend on the processes at European and country levels.

Thank you, Pepe. The next question is for you, Luca, about the distribution investments. Is there any chance that the government could remove the cap on network investments or even maintain the increase in the cap for 2020, 2022 to a longer period?

Thank you, Mar. To increase this limit is a continuous claim from all utilities company as the development of the grid is unquestionably related to the expected growth in renewables needed to comply with emission targets set by Spain in the national energy plan. We have always argued that the energy transition needs to be accelerated in advance, and this should be a priority as it will contribute to accelerate GDP growth, the activity in the economy. To undertake this process, large investments are necessary in distribution. In this sense, the investment cap must be lifted or even removed, adapting it to a new reality of the expected GDP and allowing that the near investment in digitalization can be carried out. Concerning the regulation, the limits can be modified in the event of unforeseen events or economic and technical causes. Therefore, it cannot be ruled out that in view of the hurt in economic crisis and to face the challenges of decarbonization of the economy, investment limits might be modified, especially considering the possibility of having European funds that could co-finance these investments.

Moving now to more specific questions about renewables business. Pepe, can you update us on the progress of new renewables projects? What's your target in terms of renewables growth? Could you give us more details of your pipeline?

Yes. Thank you, Mar. It is clear that we are facing a window of opportunity coming from the implementation of a series of initiatives at European and at national level. I'm referring to the next-generation plan, the transition mechanism and the PNIEC, the integrated energy and climate plan of Spain, which envisage a very significant expansion of renewable capacity by 2030, a scenario in which we are convinced of being a relevant act to. In our latest strategic plan, we were including EUR 2.8 billion growth CapEx for 2.8 gigawatt renewables addition in the period 2020-2022. In the new business front for the period 2021-2023, we will review our target, including CapEx and new installation objectives. So we kindly ask you to wait a couple of weeks to get all the details. What we can advance is that the plan will be focused again on increasing organic growth in renewables and network as key drivers in the energy transition process and accelerators of the economic recovery of the country. Regarding our pipeline, we have been working intensively on developing it so as to support these future deployment targets, a large and diversified pipeline ensures profitable growth at minimizing operating risk. As you could see on the presentation on the Slide #6, as of the 30th of September 2020, we can report a gross pipeline of 25.7 gigawatts until 2026. Out of this pipeline, as we have said, around 30% has TSO-awarded connection points with a significant weight of solar, around 65%.

the next question is also for you, Pepe. Regarding the Royal Decree 23/2020, what's your opinion about renewable connection points?

Okay. Thank you, Mar. This Royal Decree published in July, established, among other things, a development milestone for new renewables connection that should be met for the guarantees not to be executed. This measure is designed to avoid speculation, and we believe it will help rationalize the process of increasing renewable capacity over the next decade, improving visibility. In the same way, it established for those in project access, an exit window for those developers who thought they could not meet this development milestone. In this way, the promoter would recover the guarantee, and the capacity would be returned to the system. The total figure of connection given up at sector level amounted to 9 gigawatts, out of which 1 corresponds to Enel Green Power Spain.

Okay. The next question for you, Luca. What's your view on the PPA market? Are you working on new PPAs?

Thank you, Mar. On this question, we have noticed a lower appetite for this product under this uncertain environment caused by COVID-19, the lower power prices and the announcement of new options. So their liquidity has dropped. As a potential buyer, this is not a problem in our case, as we are long in customers and short in generation. And this situation provides us with the opportunity to buy power under PPAs at very attractive prices, currently very well below the EUR 40 megawatt hour. We believe this is not a structural situation. So when emergency period ends, some market prices should recover and the PPA market should become more attractive and liquid again. In any case, when Endesa buy a PPA, we always retain the option to acquire the plant at the end of the agreement. As a seller of a physical PPA to our customers, out of the 65 terawatt hour sold by Endesa at fixed price, around 5 terawatt hour from B2B customers are potentially interested to sign fixed PPAs nowadays for 10 to 15 years duration. These customers indeed demand fully customized offers for much larger complex and diversified supply profile.

Okay. Next question is about M&A. Are you considering any organic -- sorry, any inorganic growth opportunity? What could be of interest? Luca, it's for you.

Thank you, Mar. About potential M&A transactions, so you know that we are always scouting for opportunities related to our core businesses, with the main focus on renewables and distribution. As it is evident by the recent activity, the current environment is increasing M&A opportunities. And as always, we will be very perceptive given that we plan to accelerate organic and inorganic growth in renewables. In any case, our priority here is clear, transactions must have a strategic fit and create value for our shareholders. Endesa's sound balance sheet provide us with optionality to make bolt-on investments at attractive prices if such opportunities materialize.

Thank you, Luca. Pepe, we start now with all the questions received about the new renewable auction. Can you comment on the outlook for renewable auctions in Spain? Would you consider taking part in them? Do you see the need of these auctions? When do you expect them to take place? And do you expect them to be particularly competitive? How should the new mechanism work? A lot of questions about this topic.