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

Good morning, ladies and gentlemen, and a warm welcome to our 2021-2023 strategic plan. I'm Mar Martinez, Head of Investor Relations of Endesa. As you can see in the agenda on the screen, we will start with our CEO, José Bogas, who will guide us through Endesa's current positioning and will share with us a vision of Endesa for the next decade. Then our CFO, Luca Passa, will detail the main targets and financial figures of the 3 years plan. After some closing remarks, we will then open the Q&A session to those connected both on the call and on the web. Thank you. And now I give the floor to José Bogas.

Thank you, Mar, and good morning, ladies and gentlemen, and thank you for joining us today for our 2020 Capital Market Day. Endesa has further consolidated the status of leading player in the Iberian market, thanks to its portfolio of strategic assets while progressing in its commitment towards a cleaner, more sustainable and efficient business model. We are the largest operator of power generation with a market share higher than 22%, supported by a growing share of renewable capacity. We are the first player in networks in Spain with a market share of 43% with more than 12 million end users, with forecasted 105 terawatt hour of distributed net energy in 2020. In the supply business with client market share higher than 34%, we are the reference operator in power sales with around 91 terawatt hour. We managed the largest customer base in Iberia with a total of 12.1 million customers, a competitive edge as retail activities are and will become even more strategically relevant. This leading position is the result of a clear strategic vision and consistent execution. Let me now take you through the delivery of the plan released last year in Slide #5. Our strategic repositioning towards renewables has led to a significant chain of our portfolio mix, which, by the end of 2020, will be 83% of CO2 free output, ahead of the goal set for our previous plan. Our customer center strategy has also delivered outstanding value creation by increasing our free customer base, reaching 5.7 million customers at year-end. In addition, the integrated management of the liberalized business has allowed a significant increase in the unitary margin expected to reach EUR 32 per megawatt hour. The charging points installed by Endesa X will stand at 8,000 by year-end or a 60% increase versus last year, progressing towards our target. Finally, on infrastructure and networks, first-generation smart meter full deployment provides the basis for further reducing the unitary OpEx per customer, in line with the announced target. In summary, we are delivering a set of a sound operating result -- I would say, another set of sound operating result and progressing on our strategic target. On Slide #6, we show how our financial metric have moved since 2014. The consistent achievement of our target during the last 6 years has led to the outstanding performance of the share price. Total shareholder return of more than 160% achieved since 2014 secondary offer is a clear recognition of the value we have created over time. Endesa has provided its shareholders with one of the most attractive returns in the industry, which compare very favorably with the main stock market indexes. Such performance has been also a companion by a growing participation of socially responsible investor, reaching more than 14% of our total shareholder as of December 2019. The main financial figure shows a sound progress accomplishing and exceeding the target that we have set out in our business plans. Our CapEx has almost doubled, focused on renewables and networks, in line with the long-term goals of supporting the energy transition. EBITDA is set to reach EUR 3.9 billion on a like-for-like basis, increasing at a 4% annual compound rate. Net ordinary income evolution shows an outstanding 14% cumulated annual growth. Accordingly, gross DPS is forecasted to reach EUR 1.9 per share or a growth of 16% in cumulated annual terms. Focusing now on Endesa's long-term vision, that is the year 2030 and starting with the -- with some context in terms of climate change on Slide #8. The European Union's ring deal points the way to decarbonization by 2050. The proposal assumes more ambitious emission reduction target in 2030 versus 1990 from current, 40% to 55% European commission or even 60% European parliament. This target will be accompanied by an increase in the share of renewable synergy to around 40% as well as in energy efficiency metrics. In Spain, the Energy and Climate integrated national plan set an emission reduction target of 23% versus 1990 and established this carbon neutrality by 2050. The target for renewable energy is set at 42%, while energy efficiency should attain 39.5%. All these objectives are fully aligned with the Green Deal premises aimed at limiting global warming to 1.5-degree centigrades. All in all, this framework provides an estimate of around EUR 240 billion of investment opportunities in Spain linked to the energy transition, of which around EUR 140 billion between renewables and network. Moving on to Slide #9. Today, more than ever, the regulatory initiatives, both at the European Union and national levels must play a key role to set up a favorable investment framework to spark up the economic turnaround. In an attempt to revive the economy after the COVID impact, the European Union has launched the next-generation European Union initiative, increasing funds for the period 2021 to 2024 by EUR 750 million through the so-called recovery fund. These funds will be applied mainly to support the Green Deal and digitalization. The Spanish government in an attempt to give effect to the EUR 140 billion, of which EUR 72 billion of nonrefundable grants, has defined a series of guidelines and leverage policies for allocating these resources across several sectors, such as the old bank agenda; the energy transition, 37% of the funds; the digitalization, 33%; and the pack for science. We firmly believe that the energy transition provides unique opportunities for an economic relaunch in a post-COVID scenario, and Endesa will play for a meaningful role on this recovery. In this sense, Endesa has defined 10 programs in the areas of energy transition, networks, sustainable mobility, efficiency or hydrogen. About 110 projects that could have a place in the leverage policies and traction plans defined by the government. We will have to wait to see how the destination of the funds is articulated to be shared if we can finally obtain some funding for this project. Moving on to Slide #10. Our long-term vision-based on decarbonization, enabling infrastructure, electrification and the customer centricity will leverage on these opportunities to further consolidate our leadership in 2030. In the decarbonization of our generation mix, we are planning to add more than 10 gigawatts of new renewable capacity, reaching an installed capacity above 18 gigawatts by 2030. We aspire to revolutionize our generation mix profile with renewables, reaching 60% of our total installed capacity. The integration of this growing renewable generation requires a strengthening of the enabling infrastructure of distribution with good lead to a regulated asset base around EUR 13 billion in 2030. In electrification, consumption increase, coupled with the progress migration of customer to free tariff, and increase sophistication of customer needs will increase the value of our customer portfolio. In 10 years, we aspire to increase by 30%, our free customer base, exceeding the EUR 7 million figure. Delivering on the Endesa 2030 vision, we estimate it will require around EUR 25 million over the next 10 years. As an order of magnitude, this amount would represent approximately 18% of the investment foreseen in the PNIEC, mainly in renewables and network key drivers as well of our strategy. All this provides the right stage for long-lasting, sustainable growth. On Slide #11, we show our commitment to CO2 emission reduction. Last year, Endesa undertook the commitment to reduce its specific Scope #1 emission by more than 70% in 2030 versus 2017, bringing then down to below 140 grams CO2 equivalent per kilowatt hour. This year, the acceleration in the transformation of our generation mix allow us to set a more ambitious target of approximately 80% reduction by 2030 compared to 2017 and to have 80% emission-free production by the same day. Specific emissions in 2030 will be reduced to less than 95 grams. Finally, we are determined to reduce by 16% Scope 3 in direct emission by 2030. Scope 3 emissions are associated with indirect action of use of gas by our retail customer. Moving now to Slide #12. This acceleration of our decarbonization pathway has been possible, thanks to the resaving of our generation mix and the closure of coal power plants. After the required closures of the domestic coal facilities last June, we foresee that the 2 mainland imported coal plants will seize production by June 2021. This will leave operative only the Alcudia group on Majorca for security supply reasons, but with very reduced load factor, foreseeing the definitive closer by 2027 with the commissioning of the second interconnection line with the mainland. In Slide #13, throughout this coal phase out process, we remain fully committed carrying out orderly closures applying gas transition plans in all the affected sites, promoting dynamics in the surrounding affected areas. The integrated plan for Andorra thermal is a perfect example. It foresees the installation of more than 1.7 gigawatts of renewable energy with an investment of more than EUR 1.4 billion. Concerning improved employment opportunities, a wide variety of products will be launched given a priority to rescuing and hiring of local people, both in the dismantling and renewable construction processes. Circular economy and sustainability will characterize decommissioning and construction. All these make it an internationally recognized project as an example of social and environmental value. Continuing now with our innovative project, innovation in the generation mix is currently and will certainly remain a fundamental pillar of our strategy. In this sense, we intend to develop during the time frame of this plan around 280 megawatts of battery storage project, and we will enter into being hydrogen project under the scope of the European Union Recovery Fund. The hybridization of batteries, both in our renewable and thermal power plants, will provide economic and operational benefits for Endesa and electricity system as a whole in terms of stability and resilience. The future development of hydrogen with this large link to all the renewable hour to be installed going forward in Spain, and we'll have multiple applications in the field of industrial processes and mobility for heavy vehicles among others. Some of these projects are also included within the lease submitted to the label -- to be eligible for the European funds, specifically the hydrogen. We have already built up a pipeline of 22 projects. Looking now at Slide #15. The acceleration of renewable generation and backup technologies requires a radical resaving of our enabling distribution infrastructure. A boost in demand electrification will confer an even greater importance to the network business as it will began an enabling factor. Endesa, as a first network operator, mass a spearhead this technological leap, and we are clearly committed to becoming a best class digital -- best-in-class digital network operator while maintaining a continued focus on operational efficiency. In terms of incremental activity, we foresee a 6% increase in the total number of end users between the baseline year 2030. Beyond our digitalization initiative, we are working to create a single platform operating model aimed at improving asset resilience that will contribute to better reliability and quality of service. In particular, we forecast a sharp reduction of 29% and 31% in the time and number of interruptions, respectively, while further reducing the OpEx for end user by 21% in the next decade. In the retail business, on Slide 16, customer centricity will be at the forefront of our strategy. We will actively promote the electrification of our customer base delivery in an integrated offer of power and the new and more comprehensive range of products and services. With the so-called beyond commodity services, we aim to be the reference provider protecting our business from increasing competition. We foresee that the electric consumption of our customer in 2030 may be more than 20% higher than today. The gradual transfer of regulated customers to the free market and their appetite for more innovative complex and highly personalized services like demand response or e-mobility will undoubtedly unlock value. Digitalization and platformization will be fully exploited to provide a tailored experience to customer while providing for additional operating efficiencies. Regarding digitalization in Slide #17. In 2016, our strategy for digital transformation was defined for the whole of the Enel Group. This was based on 3 pillars: customer, asset and people. And three, enablers: the cloud, cybersecurity and platforms. This approach has allowed us to obtain relevant digital efficiencies. Since then, the initial digital transformation has evolved to a new platform-based business model. Nowadays, we have focused our strategy on platformization that will enable the extraction of additional value from existing asset and plug-and-play offer of smart and third-party services designed around the prosumer fee. And now I will hand over to Luca to explain the strategic plan over the next 3 years.

Thank you, Pepe, and good morning, ladies and gentlemen. I will walk you through our long-term vision. We'll start in the next 3 years, 2021-2023. I'm now on Slide #19. Let's now move to analyze the 2021-2023 period for each business line with power generation. The next 3 years, we'll see the addition of 3.9 gigawatt of new renewable capacity, implying 50% expansion on the current figure. This will bring us to a total installed renewable capacity of 11.5 gigawatt in 2023, which will be supported by an addition 300 megawatt of battery storage. This unparallel acceleration is supported by a solid pipeline evolution, which will be essential pillar for the business growth and value creation. By 2023, we expect that CO2 emission free production represents around 90% of total Mainland output, 6 percentage points above the current share. Moving to the following Slide 20. During the strategic plan period, we will significantly accelerate our power generation decapitalization plan. The new 3.9 gigawatt renewable assets will more than offset the closure of imported coal in Mainland by 2021, raising the share of renewable capacity in Mainland by more than 15 percentage points. This shift in generation mix will drive to a net increase of 6.5 terawatt hours in the estimated total Mainland output, lending to 53 terawatt hours in 2023 with a 13% increase. As the variable cost of this technology is not exposed to commodity's price fluctuation, they will contribute to further improve gross margin stability and its visibility. On Slide 21, we take a closer look on the evolution of the renewable fleet split by technology. 3 gigawatt of new capacity will be solar while the remaining 900-megawatt will be wind farms, envisaging a more balanced position of both technologies in the last year of the plan. With these new additions, our renewable capacity will increase 50% to 11.5 gigawatt and our estimated renewal output will reach 21 terawatt hours, a remarkable 63% increase over 2020 expected figures. Development CapEx for this new capacity will amount to EUR 3.3 billion, around 20% more than the envisaged for the 3-year period 2020-2022 in the previous strategic plan. The remainder, EUR 500 million CapEx, will support innovative technologies and, in particular, new investment in storage and hydrogen projects for EUR 300 million. On Slide 22, continuing with renewables. The ambitious growth targets for the renewable capacity are supported by the portfolio of projects we keep on building. Our gross portfolio currently stands at 26 gigawatt, of which 7.3 gigawatt have already been awarded connection points to the grid with the solar power having a significant way around 68%. This mature pipeline will enable us to deliver on the growth plan we are presenting here today. With regard to the hedging strategy to be implemented for this new capacity, one of our main advantages is that we enjoy a natural hedge with our large and diversified customer base. More precisely, an indicative general hedging of the production will be equally split between PPAs, long-term customers and allocated to the wholesale market. Such indicative hedging strategy allow us to confirm a profitability of around 200 basis points over WACC. This pipeline proves our know-how to address the complexity of the permitting processes. Finally, belonging to a group, which is the world leader in renewable development, allow us for a high degree of synergies and scale economies among other benefits. We move now to the retail business on Slide 23. Starting with the B2C segment, we will focus on customer loyalty, leveraging on our digital and analytics capacity to provide a highly personalized experience to our clients. Applying the same levers to the B2B segments, we aim at exploiting our customization and consulting model to be the leading energy partner of industrials and SMEs businesses. All these strategic initiatives led us to forecast a total energy electricity sales increase by approximately 8 terawatt hours to a total of 99 terawatt hours. Growth will come entirely from the liberalized customers, which are expected to increase by 7%. The size of our customer portfolio will enable us to contribute to increase the cross-sales of other services and products, such as e-Home contracts that will grow more than 40% by 2023. Moving to Slide 24. The significant increase of sales in this plan is backed by this strong commercial commitment through; the development of innovative commercial offers that are adapted to our customer needs; further campaigns, which are contained by corporate communications; enhancement of remote sales; and the development of new channels. Our aim is to build customer loyalty and unlock new sources of value. One of these new commercial offers, which has recently been launched, is the Única tariff, a pioneer fixed tariffs, monthly tariff, independent from the volume of consumption, which has 3 possible contract modalities and will deliver only renewable generated energy. With the Única tariff, we are pioneering the subscription model in the energy sector, which has become a standard model in the TMT sector for years now. Moving to Slide 25. The commercial offer of our products and services will be not limited to electricity supply. Endesa to Endesa X will offer our platform of services and products. Some examples are e-Home contracts that are expected to grow a sound 42% by 2023, reaching 2.7 million. A new service for the B2B segment demand response will entail the management of energy demand of about 160 megawatt. The installation of charging points for electric vehicles up to 56,000 in 2023, seven-folding the 2020 figure. 115 electric bus charging points will be deployed in the next 3 years, boosting to growth by 10x from the 12 charging points installed this year and allowing us to become the reference player in electric mobility. In short, Endesa X is the group platform that will contribute to the electrification of demand, paving the way towards the energy transformation. Now moving to Slide 26. In infrastructure and networks, we are clearly committed to become a best-in-class digital operator while maintaining a continuous focus on quality and operational efficiency. Specifically, investments were EUR 2.6 billion, 30% higher than the previous plan with full digitalization initiatives aimed at improving operational efficiency to meet regulatory standards, contributing to better grid reliability and quality of service along the period of the plan. In particular, we will able to reduce number of interruption by 23%, time of interruption by 27% and losses by 3% by 2023 while further reducing the OpEx for end user by 12% in the next 3 years. To conclude with our sustainable business model, and I'm on Slide 27, we can see the detail on how our business plan intensifies the commitment of our business model to the sustainable development goals set by the United Nations. Each business line has a direct impact on SDGs 7, 9 and 11, and it impacts the wider scope of SDG 13, reaching 94% of CapEx allocated to climate action versus 90% in the 2020-2022 business plan. Endesa as a vocation for leadership in the change of the economic model. We are talking about decarbonization, of course, but also about necessary evolution towards a more circular economy, which is another feature of this plan. In this regard, we can say that for Endesa, a transformation towards the circular economy, is integrated in our strategy. And as a summary of this first part of the presentation, we are convinced that Endesa through strategic plan 2021-2023 is going to play a very relevant role in the development of low emission, economic and energy model while addressing a cultural change in adopting a circular thinking. And now let me go through the details of the 2021-2023 financial targets on Slide 29. After Endesa visions in the next 10 years, the strategic lines in the first 3 years, I would like to retain the evolution of financials over the period. We are going to deploy EUR 7.9 billion of gross CapEx, increasing by 25%, our investment effort versus the previous plan. The CapEx increase will drive sound growth of EBITDA and net income for 2023, despite absorbing a material worsening of the macro scenario condition. EBITDA shows 10% increase over 2020, reaching a level of EUR 4.3 billion by 2023. Net income raises a sound 12% up to EUR 1.9 million by 2023. And finally, net income to EBITDA ratio remained stable along the plan at around 43%. Now moving to Slide #30. To achieve our targets in renewable stored capacity, we'll mobilize EUR 3.8 billion total with a remarkable 30% increase versus the previous plan. As a consequence of the acceleration in the new renewable capacity, Enel Green Power gross margin will reach around EUR 800 million, doubling 2020 level. Profitability shows no signs of contraction as EBITDA to CapEx ratio remained stable over the period despite part of the investment effort in 2023 will generate significant EBITDA contribution beyond the planned horizon. Further efficiencies from OpEx reduction are expected to leverage on the renewable scale increase. Moving to electrification. On Slide 31, we will now have a look at the integrated margin resilience. The strategic actions described for the retail market amply focus on the digitalization of our client relationship for the renewed platforms implies to EUR 400 million of total CapEx. Liberalized sales will improve by 9% to 83 terawatt hours, driven by higher volume, both in B2B and B2C with progressive recovery of the COVID impact. The integrated margin evolution is impacted by the no contribution from short position. Excluding this effect, the renewable contribution and better market condition in supply more than compensate the lower reference prices, the new Catalan Tax and the lower thermal margins. Thus, our unitary integrated margin will consolidate a stable integrated level around EUR 31, EUR 32 per megawatt hour during the whole period. Gross supply margins are also expected to consolidate from around EUR 10 megawatt hour in 2020 to around EUR 11 megawatt hour in 2023. As you know, we have a relevant volumes of price-driven production already hedged for 2021 and 2022 that they make us confident to achieve the integrated margin goals set in the plan. We have hedged 96% in 2021 and about 43% at a similar all-in price of EUR 71, EUR 72 megawatt hour. The rebound of prices in the power market seen since the summer will support hedging of the remaining volumes at higher references. Moving now to Slide 32. Endesa X is also focused on our customer centricity, acting as a demand electrification and decarbonization accelerator. Mature business will provide around 75% of the expected gross margin and require almost half of the CapEx devoted to Endesa X to maintain the path of growth shown in the last years. The mature business will be the base to develop new high potential growth services and products with higher around 30% gross CapEx, increasing their contribution to margin and laying out the foundation for future opportunities in the electric vehicle value chain and the demand and response. Endesa X strategy will allow us to double gross margin by 2023. The platformization efforts in the retail and Endesa X areas will lead to an improved performance in their operation, and I'm on Slide 33. The leveraging on these retail operations will significantly reduce the unitary cost to serve to levels below EUR 10 per customer. Interaction with customers will progressively become more digital. The number of contracts with e-billing will increase up to 5.3 million contracts while the number of digital contracts will stand at 6 million at the end of the plan. Platforms implemented in Endesa X will enhance the customer experience, provide solutions to B2C, B2B and B2G, business to government segments, as well as a smart management of charging points in e-mobility. Moving now to Slide 34. On networks, we will deploy EUR 2.6 billion over the next 3 years, a sharp increase of more than 30% versus the old plan, driving the RAB up to around EUR 12 billion in 2023. 50% of digitalized CapEx, EUR 1.3 billion, will be allocated to digitalize our grids in order to respond to the new needs of the networks, improving reliability and quality of service. Worth to underline the quality plan as the most relevant project. The reduction of rate of return in 2021 from 6.003% to 5.58% and the lower O&M references are neutralized by the investment, mostly devoted to RAB, that increased EUR 200 million by the end of the period and by a slightly high -- other distribution revenues recovering from low activity due to COVID in 2020. Moving to Slide 35. The focus on efficiency remains at the core of Endesa's strategy since 2014. Over the next 3 years, most of the expected savings will come from decarbonization, the plants drawn up for the closure of coal plants allows efficiency in the terms of workforce optimizing and reduction of O&M costs associated, partially offset by higher activity in renewables growth business. And digitalization optimization of operational processes, mainly focused on distribution and retail, and about EUR 30 million of extraordinary COVID cost impact in 2020. For the period of the plan, our objective is to consolidate a remarkable nominal reduction of 10%, around EUR 200 million, where efficiency improvements in real terms around EUR 400 million more than offset the increase in inflation and organic growth. Moving now to the key financial and management of the plan. Around EUR 7.9 million over the 2021-2023, implying a remarkable 25% increase compared to the figures released last year with an annual run rate of more than EUR 2.6 billion, which is 3x what we used to deploy in 2014. The new business plan represents an important focus on growth. More than 80% of the CapEx is allocated to networks and renewables, with investments totaling almost EUR 6.5 billion. The growth in CapEx translate into value creation. EBITDA will be growing by a sound 10%, moving from EUR 3.9 billion to EUR 4.3 billion, driven by distribution EBITDA increased by 5% over the period, mainly thanks to the lower fixed cost. Non-Mainland EBITDA remains flat, benefiting from lower fixed costs then compensate RAB decrease. Liberalized EBITDA remains flat along the plan. The better market issue in supply and the reduction of fixed costs, mainly driven by [ Coelce South ] are compensated by the no contribution of the share position, the lower references, prices, the new Catalan Tax and the lower thermal margins. In renewables, the higher contribution of about EUR 300 million comes from the new capacity put in place during the period and the cost rise due to higher activity in the business line. And now moving to the bottom line on Slide 37. We are forecasting a 12% increase in net income, mainly supported by the above-mentioned EBITDA improvement. This increase will be partially offset by higher D&A, mainly due to the investment acceleration in renewables and networks, the digitalization and platformization CapEx in retail and higher D&A due to the nuclear assets' useful life adjustment in Ascó II and Vandellós plants. Net financial results remains almost flat on the period as lower cost of debt naturalized the higher gross debt figure along the period. Average effective fiscal tax rate along the plan is about 24%. Moving now on the debt analysis on Slide 38. Net debt is expected to increase from EUR 7.1 billion to EUR 10 billion at the end of 2023, an increase of EUR 2.9 billion needed to finance CapEx acceleration and the expected dividend payments in the period. Concerning cash flow generation, the plan entails fund from operation to reach EUR 9.2 billion cumulative during the 2021-2023 period. Moreover, sources of funds shown in the chart do not include additional EBITDA beyond 2023 associated with around EUR 800 million of CapEx already spent during the plan period. The cost of debt is expected to record a new historical low level at 1.4% at the end of the plan based on our interest rate assumption. If considered carryforwards for 2023, the cost of debt could even be slightly lower. Looking more closely at the credit metrics of our growth ambitions, and we move to Slide #39. Fund from operations keep a strong pace along the period, increasing its proportion on EBITDA by 15 percentage points. Despite the increase of leverage up to 2.3x by 2023, as a consequence of higher CapEx, the plan provides for a stability of our credit metrics with FFO-to-net debt ratio stable over the next 3 years. Return on invested capital shows a slight decrease of 2 percentage points in the period, explained by the strong investment effort that do not include additional EBITDA beyond 2023. And moving to sustainable finance on Slide #40. Endesa pursues an ambition approach to sustainable finance to support this strategy and to promote sustainability among stakeholders. In 2020, we have been focusing on sustainability-linked financing based on indicators, representative of our sustainable strategy. Among which, the 2 sustainability-linked club deal bank facilities for an aggregate amount of EUR 550 million and the first listed corporate SDG Euro Commercial Paper program in Europe for an amount of EUR 4 billion. Furthermore, we are expanding such approach to short term and working capital instruments as evidenced by the very recent retail customers factoring. Moving to Slide #41. Such ambition is not limited to supporting the strategy, but also as a valuable tool to engage stakeholders. We plan to expand across diverse ESG goals and will be particularly attentive to the new opportunity arising from the EU recovery plan. By the end of 2020, sustainable finance will account for 45% of total gross financial debt. The share of sustainable debt over total gross financial debt is expected to grow steadily in the coming years to reach approximately 60% by 2023, considering solid third-party debt. This percentage could increase to 75%. And now I will hand over to Pepe for conclusion remarks.

Thank you, Luca. In relation with our dividend policy on Slide 43, we set a dividend policy as a consequence of our more ambitious growth profile. Over the past few years, CapEx has been growing at an accelerated rate, more than tripling that of 2014, in line with our commitment to decarbonization and energy transition. In this context and in order to maintain the rigs profile and financial strength that have always characterized our company, we maintain 100% payout on ordinary net income in 2020, 80% in 2021 and 70% in 2022, as committed to last year. In 2023, we will extend the payout ratio of 70% on net ordinary income. That is a reflection of the company's new growth profile. This dividend policy combines a sustainable equity story with a healthy balance sheet, which allow us to take advantage of future investment opportunities while providing shareholders with a sustainable and attractive long-term profitability. On Slide #44, we summarize our target over the plan period. EBITDA is expected to increase at a compound annual rate of 3%. Net income is expected to reach EUR 1.9 billion in 2023 from EUR 1.7 billion in 2020, which implies an annual compound rate of around 4%. And net ordinary income would reach EUR 2 billion base of the implicit DPS of around EUR 1.9 per share for 2020. The implied average dividend yield in the period will amount to 8% in 2020 and above 5% for the rest of the period. We believe that the figures presented today represent an important milestone in Endesa's equity story where we are lagging the foundation to address our 2030 vision and deliver sustainable shareholder returns over the long-term. Moving to Slide #45. Endesa's leadership in Iberia is driven by our first-in-class asset portfolio managed through a very successful integrated strategy. Since 2014 and leveraging on such leading position, we have proven in and again our ability to deliver and sometimes exceed on our commitments. Our 2030 vision is focused on decarbonization, enabling infrastructure, electrification and customer centricity as we strongly believe it is the right way forward to remain the reference utility in Iberia. Digital platform implementation across the company will allow us to stand out with a unique energy value proposal. This strong investment acceleration supports our leadership in this evolving energy transition, and the plan presented today reinforces our commitment to deliver on our 2030 vision. We firmly believe in a sustainable business model and in a circular strategy across all dimensions, including the financing side as the best way to deliver a long-term value creation. Before finishing this presentation, let me say something mainly to my colleagues at Endesa. It is an exciting plan, a plan to grow. We need everyone's commitment to carry it out and achieve our goals. We are in a great company. We have a unique team, and I have to say that we are leaders, and as such, we will lead the energy transition, and we will emerge even more stronger at the end of the cycle. I would like to thank the entire team for the dedication and effort in a very difficult environment and year. I would also like to express my most sincere gratitude to you all because you have stepped up to this challenge. Thank you very much. And now yes, ladies and gentlemen, that concludes our key update presentation. Thank you very much for your attention, and we are ready to take some questions.

Okay. Thank you Pepe, thank you, especially for your kind words. Thank you, Luca. Now we are ready to open the Q&A session.

[Operator Instructions] I will now hand the floor over to Mrs. Mar Martinez.

Okay. The first question comes from Harry Wyburd from Bank of America Merrill Lynch.

So 3 of them. First 2 I'm afraid are quite technical on the renewables side. So just focusing on your 200 basis points IRR WACC spreads guidance. I'd just be interested, I don't know, whether you can give us any kind of sensitivity on how that 200 basis point spread differs. Firstly, from the perspective of where you're buying pipeline in versus developing a fully organic pipeline. So in other words, if you're paying a certain amount to buy some land or grid-connected land, what kind of impact does that have on your IRR WACC spreads? And is it a case that some projects might have 100 basis point spread, if you have to buy the pipeline and others might have a much higher spread if you don't? And then secondly, if perhaps we just focus on the sort of PPA capacity that's going to be third of your capacity. Again, as IRR WACC spread sensitivity question, can you give us some kind of flavor as to what happens if power prices actually turned out to be lower after the PPA expires than what you're forecasting? So I think you're assuming sort of close to EUR 50 per megawatt hour Spanish power. But let's say, the end of your PPA, actually, the power price is about, say, EUR 10 lower than you're expecting after the PPA expires. Can you give us any kind of guidance on what that would do to your IRR WACC spreads. Apologies, it's quite technical questions. One more technical one, just similar sort of question on your EBITDA over CapEx. I think you're guiding to about 11% on Slide 30. Is that different for your different routes to market? I mean, I'd assume that for the 1/3 that you're selling to your sort of long-term customers where your unitary revenue is about EUR 66 a megawatt hour, my guess is that EBITDA over CapEx for that capacity specifically probably be a bit higher and then maybe lower for your PPA. It would be interesting to get a clarification on that. And then final one, totally different topic. The non-Mainland business has been the source of a few kind of unexpected sort of -- it's quite small, but still on expected guidance or earnings downgrades during the year. I can see in the slides, you're not expecting any growth from that business over the next few years, but it is a regulated asset at the end of the day given that you're sort of now much more focused on growth in renewables. Does that non-Mainland business sit well in your portfolio still? Or is that something you might consider perhaps rotating at some point?

Thank you, Harry. I will try just to give some answers, but I will ask Luca just to give you the figures. Starting with the PPAs and the sensitivity that we will find when we finish with these PPAs. Well, as you know, first of all, we have a natural hedge with 1/3 base in the PPA, another 1/3 in our long-term customers and the other 1/3 just merchant. So that means that the real weight of the PPA is 1/3 only. So we don't expect changes in this even more. What we've seen is that up to the year 2030, prices will continue around EUR 50 per megawatt hour in nominal terms, not in real terms, in nominal terms, will be around EUR 50. Beyond the year 2030, what I guess is that the marginal price or the price in general, the wholesale price will change just because it has no sense when you have a lot in Spain. 37% of renewables on top of the 3 gigawatt nuclear, that will continue if we take into account the nuclear protocol of the government of Spain with the companies, then the marginal price will be close to 0. So something will happen. And not only in Spain, all over the world. We will have a different methodology to fix the price. Perhaps close to the telecoms in the sense that people will pay for the capacity, and then the energy will be for free, let me say that. With regard to the non-Mainland, you have said the reduction or I have understood the reduction in the result. First of all, you need to take into account that, yes, because it's a regulated business, we will have a reduction in the tax remuneration, the same as the distribution with a reduction of 0.5 basis points. Also, you should take into account that during the next 3 years, we will shut down some power. And up to -- that we start to build new capacity in this system, it would be very difficult to maintain the remuneration. But in any case, well, this is the floor, I would say. And if we continue in the future, that we will need to do it, increasing our investment. This remuneration will increase. In any case, I give the word to Luca, just to give you the figures and more precise information --

Thank you, Pepe. Harry, on your first questions, differential or the spread of the WACC by versus basically [indiscernible] generate pipeline. I mean, first of all, our pipeline is, for the vast majority, built on our own and let's say, the cost per megawatt to be developed to us is in the region of between EUR 50,000 or EUR 60,000 per megawatt. Obviously, if you go outside, there are several type of prices, you can find the market. If you want to buy a pipeline as you probably remember, we bought some pipeline from Prodiel back in the end of 2019 at EUR 90,000 per megawatt developed. Now this increase of EUR 30,000 per megawatt obviously has some kind of effect on the spread to WACC. But in the end, blended in the overall portfolio for us, the -- let's say, the impact is not material or minimal. Now for the second one, in terms of PPA effect on the overall blended returns. Obviously, the portion, which is, let's say, linked to a PPA as an EBITDA to CapEx, which is in terms of percentage higher than what it is the rest. But let's say the hedging for us is structured as a way, which is a blended hedging for the energy. Therefore, we look at the overall return of the project on a specific part of the hedging of the project. To give you some numbers, the differential for us in terms of harder rate between I would say, a regulated PPA wind plant is in the region of 250 basis points and the differential of hardware rate again, levered is in the region of 200 basis points when we talk about solar. This is the differential between merchant and PPA regulated. Then on the third question, which is nonmainland, no growth in the plan, the no growth is clearly there because, obviously, we are not investing in revamping our fleet in the islands as you've seen from the CapEx deployment and also the margin contribution, and we have actually a lowering of capacity of about 300 megawatts during the plan, therefore, also [ wrap ] decrease over the plan. Now your question is whether this business sits correctly or not in our strategy. And to be honest, I think what we are trying to do in the islands really to make a radical change in the energy mix that we probably required more than the horizon that we foresee in this plan. So it's a longer term, what we change and decarbonize the mix into the islands. Obviously, there, we will need the support of new regulation in order to pursue this change in energy mix. And for some of the investment, also the support of the EU recovery plan. So I think it sits in our strategy. But obviously, we need a change in regulation for us to revamp the sites and the energy mix in the islands.

Okay. Thank you, Harry. We move now to the next question that comes from Alberto Gandolfi from Goldman Sachs.

I have 3 on my side as well. The first 2 are really focused on renewables. And can you maybe elaborate a little bit more what are the underlying assumptions that have led to a slowdown in annual additions in renewables after 2023? You seem to go down to about a gigawatt a year, you are doing 1.2, 1.3, initially. It's a little bit different to what we are seeing from some of your competitors in Spain. And I'm -- it seems to be also slightly inconsistent with the National Energy plan, which is suggesting a 200% acceleration in renewable additions versus the past -- versus the current run rate. So I was wondering why with the 26 gigawatt pipeline and sitting in Spain, you don't see the ability to do more. The second question is on CapEx. The CapEx is actually EUR 2.5 billion. So when I look at the EUR 25 billion and the 40% for renewables, it looks like you are targeting about EUR 1 million per megawatt or higher. And I assume that of the gigawatt, there's a larger share of solar. And with solar cost probably at about EUR 0.5 million per megawatt on large projects, I was wondering why do you see such a higher CapEx? And do you target, perhaps more wind than I thought or perhaps smaller solar projects, therefore, with a higher unitary CapEx? Maybe if you can help me navigate that. And the last one is, am I right in thinking that if I were to normalize, sorry, for asking that EUR 49 you're assuming to the forward curve, let's say, EUR 5 megawatt hour lower. I need to think about 30-something terawatt hour of hydronuclear. But then, let's say, for 2023, I know that some of the renewables you have, have a target IRR and they have a cap on the floor. But within the cap on the floor, they would be exposed to power price volatility. So am I right in assuming that if power prices, let's say, at EUR 5 lower, the sensitivity should be more on 40, 45 terawatt hour, which would mean about EUR 160 million or EUR 175 million mark-to-market exercise?

Thank you, Alberto. Again, I would try to give you some answer, but I give the word to Luca. Well, the first thing, the slowdown in the renewable addition, let's say, I don't think so, but it is clear that in the year 2020, we are going to be lower than what we forecasted. The reason, the mainly reason was the COVID. What I've seen is that -- well the context remained weak in the sense that the recovering weak situation will take time. There are a a lot of uncertainties. So what we have known is just to try to recover gradually the path that we have -- that we had. And then just to retest [indiscernible], let's say that, in the year 2023 is what we have try to do. In terms of food prices, let me say that -- well, if you compare our old plan with this plan, there is a different of around EUR 2 per megawatt hour. All along the plan, we will reach EUR 49, I would think that we will reach EUR 49 in the year 2023 and then we will be around EUR 50, in the year 2030 we'll reach EUR 52 if I'm right. The reason is mainly that the technology, the fixed price will be [indiscernible], will be the combined cycle. We [ don't ] expect to reach the EUR 20 per megawatt hour of gas up to the year 2030. You should remember that for sure, you remember that in the year 2018, the price of gas was EUR 24. So what we are expecting is a weak context of gas that will recover, let's say, that in the year 2023 for us and will maintain a little bit below the 20s that we used to have and above the 20s in the past. Luca, will explain you the CapEx and the solar for [indiscernible].

Okay. Thank you, Pepe. So I think the first one has been addressed by Pepe, Alberto. So moving to the CapEx per megawatt. I mean, in the current plan, 2 things worth noticing is that in year 2023, we have about EUR 800 million of CapEx, which are not delivering capacity within the plan horizon. But we deliver about 1.8 gigawatt of capacity beyond the plan horizon, so call it 2024 and 2025. So taking out this capacity, the CapEx per megawatt in solar is in the region of 500,000, as you mentioned, for solar and about 900,000 for wind. Now the evolution, obviously, of CapEx per megawatt beyond 2023, we expect solar still to drive a little bit further down while for wind, it's still unclear, but it really will depends on the evolution of the technology of turbines. Therefore, you could expect something better between 2023 and 2030 when it comes to CapEx per megawatt, and obviously, in our plan, we not only put wind and solar capacity but there is a lot of batteries, as we mentioned, we have 300 megawatt in this plan. That obviously will evolve further. And obviously, there, the CapEx per megawatt for battery is much higher. So that's how you reconcile the EUR 10 billion for our capacity in 2030. Then when it comes to the capacity exposed to price in 2023, we will reach about 36 terawatt hour exposed to price in 2023. And the sensitivity is for EUR 1 megawatt hour all over price, gross margin negative effect is in the region of EUR 30 million, EUR 35 million.

And next question from the line is Javier Suarez from Mediobanca.

The first one is on the Slide #44 in the financial target that the company has presented. There is a decrease in the target versus the previous business plan in 2021 and 2022. Obviously, there is the COVID outbreak, and I think that the management has been clear on saying that this is impacting the company. But at the same time, there is also an increase in CapEx, and that is remarkable in 2021 and also in 2022. So you can help us to understand and to elaborate for us these 2 dynamics, how they are changing your business plan buildup. So there is on the one hand, the macro context. And on the other hand, the acceleration on CapEx and how that is fitting into your growth. That seems to be in 2021 and 2022, lower than previously forecasted. Then just to the -- on the business plan presentation by [ Enel ], the company provides with guidance for the medium-term up to 2030. So I wanted to ask to Endesa the same question. How do you see Europe financials evolving to 2030 as well? Do you think that this mid -- low mid single-digit growth in EBITDA and net income is sustainable up to 2030 in light of the CapEx plan that maybe the company has to face? And also related to that, how do you see the net debt-to-EBITDA position of the company evolving in that period of time. So [indiscernible] increased to 2.3x by 2023 how do you see that number evolving by 2030? And the very last question is on hydrogen and EU funds, which is -- the question is on the hydrogen -- through the hydrogen value chain where Endesa [indiscernible] is [ strong ] and how the Endesa believe that they can play a role in the hydrogen opportunity? And also on the EU recovery plan, have you included any proceeds on this EU recovery plan? And if not, how do you think that this could impact your business plan or your business plan delivery in 2021, 2050?

Okay. Javier, thank you. Well, let me -- and again, Luca will answer. But let me say some things with regard to the first and the third question. The first thing is that I would tighten this strategic plan. [indiscernible] a sentence from Italian colleagues, making sense of uncertainty, making sense of uncertainty. In that, it is clear for us that the context -- the economy has been severely affected by the energy demand and the commodity prices just because of the COVID. We are moving in an uncertain context in the future. As I have said, we don't know exactly how -- we hope just that in the first half of the next year, we will really finish with this nightmare. But the real finish that we don't know, and we could be affected even more than we forecasted. So in that case, we have tried to put some sense, as I have said. And that means, yes, to be prudent in the sense of how the context, the demand, how the commodities are going to evolve in the future. And that is the reason why, and for me is remarkable, almost maintain the results of the previous plan in the previous year -- years, that is 2021 and 2022 with this. On top of that, we believe that there is -- or there are opportunities. And it's a huge opportunity, the energy transition in the future. And we should not stop with these, I would say, short negative effect of the pandemia. So that is the reason why we have reduced a little our results in the year 2021 and 2022, more or less, we continue in the year '23 growing. And on the other hand, we are increasing our investment, our CapEx because we are convinced absolutely that we have been working during the last years on preparing the company for the energy transition for the digitalization and with a focus on efficiency and the customer centric. So we are very well prepared for this future. This pandemia is going to affect us, of course, and all the people but in the very short time only. With regard to the hydrogen and the European Union funds and the role of Endesa, what we have presented 22 project, if I am right, more or less 22 projects of hydrogen. What we believe is that it is a huge opportunity, and hydrogen will be complementary to the electrification. And it will take some time perhaps, we don't expect any results, any meaningful result in the next 3 years. But without any doubt, the hydrogen will be the complement of the electrification just to reach these heavy industries, heavy vehicles for the decarbonization, that is. Let me say also that the hydrogen will give a lot of benefit, not only in relation with the substitution of the fuel -- of this industry and vehicles. First of all, you should think that if we are trying to increase the renewables in the system, all just to regulate all the production of the renewables could be made by means of the battery storage or also by means of the hydrogen that will be produced at very low prices, just because it's going to take into account the excess of energy during the day. That is the first thing to regulate this. And there is another opportunity, and Luca has said something in the previous question. We are trying just to decarbonize the island system. And one of the ways to decarbonize the island system is the hydrogen in the sense, in that case, not only just to increase the penetration of the renewables, but also to produce hydrogen and to substitute this fuel and gas oil fuels, expensive one, and contaminating for this hydrogen. So we really believe that hydrogen will have a very important role in the future. Second, it will take a little just to get these hydrogen competitive in prices. Third, we would like not only to be one of the players in this game of the hydrogen, but also to create opportunities in all the value chain for the industry in Spain. And third, we have asked for funds in the European Union and the role of Endesa we are -- or we will be absolutely commit to the development of these new energy. And now I'll give the floor to Luca.

Thank you, Pepe. Javier, on your first question, so new yearly EBITDA projections are lower, clearly on the previous plan in about EUR 350 million impacted by a worst context, it's about EUR 500 million of gross margin impact in 2021 and 2022. Despite a larger investment, which is basically EUR 1.6 billion more and other higher effort in efficiencies, which will account for EUR 150 million less of cost, it implies the postponement basically of 1 year of EBITDA targets of the previous plan. And the liberalized margin is expected to show lower results than the own plan. This is driven, again, EUR 500 million more or less is the impact is driven by the worsening of the macro scenario, which is composed of lower OTC references for about EUR 200 million. Obviously, the new Catalan tax for about another EUR 200 million and tougher condition in the gas business for about EUR 100 million. Obviously, the regulated margin remains quite stable with a slight increase versus the previous plan. So that explain you the 2021 and 2022 revision in terms of EBITDA targets. Then to your second questions, 2030 guidance as far as financials, I can only say we haven't provided explicitly the guidance. But I can only say that the CAGR as far as EBITDA is very much in line to the CAGR we are proposing with this plan, so within the 3% type of range. When it comes to net debt-to-EBITDA evolution, we are ranging between 2x and 2.5x at 2030, more or less, and obviously, a lot will depend on the evolution of the scenario. And then on your fourth questions, you asked also how much CapEx we are counting on the recovery plan within this business plan. I can tell you that less than 4% of total CapEx is something that we are counting on potentially funds from the old recovery plan.

Next question comes from Enrico Bartoli from Mainfirst.

The first one is regarding Slide 23, you are showing a very significant increase in the [indiscernible] of energy by 2023, while the number of customers is remaining more or less unchanged. I see that there is an increase in liberalized clients, but I guess that maybe you're refocusing your client base towards for B2B, if you can elaborate a bit on this. And if you can provide some hint on what the impact you expect from this on your supply margin regarding also the evolution of your electricity space, if you can give us your view on how they are going to evolve by 2030. Considering that, particularly on the B2C side, the unit consumption is expected to grow very significantly. Second question is regarding your PV facilities linked with battery. If you can give us some color on the level of profitability that you expect from these plans considering the still high cost of batteries. And your view is possible on how you see the evolution of the cost of batteries over the next decade. Last one, just a clarification on the ordinary profit for 2020. I guess that you include as ordinary also the reversion of provisions that you had in the first quarter, if you confirm that, and then I understand that the dividend distribution this year would be based on this assumption.

Okay. Enrico, let me say, again, some some things with regard to your question, and then Luca will deeply explain things. With regard to the supply business, well, first of all, we have had reduction in the consumption of our customers during the year 2020 due to the COVID impact. That is clear. We will try to recover, let me say, in volumes, if I'm right, the impact has been something around EUR 3 million. But you have to undo the close position, that it's something around EUR 80 million. Well, just the evolution of the margin that we are going to have in the year 2021 mainly is the recovery of this negative impact and a little bit more. In terms of customers, what that is, and then we have -- I would say, a very conservative evolution. But what it is true is that we have been losing customers during the last years. We are not worried about this because being the lever of this market in Iberia, it is normal just to lose customer. We have -- we try really to look for solutions that increase the loyalty of our customer, given them better value proposal and all things not trying to go directly to a price war with -- against our competitors. So we try to give value to our customers and then to retain this customer and to create a different thing. One of things what Luca has told in the presentation, this new tariff that we call Unica tariff, that is going to be like a subscriber tariff in the sense that you will have tariff, not only for the commodity, but also from services, and we will use the concept of platform in the sense that we will put other services, our own services, but also services coming from third parties. This is going to be that we say a revolution in the electricity sales that I hope that I expect that will leave us a successful position in the future, increasing this loyalty. But in this plan, what we have established is just not to lose a client in the year 2021 to maintain, to increase a little in the year '22 and '23. But we are going to recover the terawatt hour that we have lost. And mainly, we have lost this terawatt hour in the B2B. With regard to the ordinary net income or EBITDA or whatever, Luca will explain you, but absolutely, we are not including the provision, the positive provisions that we have in this figure. But Luca, could you explain?

Thank you, Pepe. Yes, on your fourth questions, Enrico, the 2020 net ordinary income guidance includes the reversal of the provision booked in the first quarter, as already discussed in previous conference call. Then for your first questions, as Pepe pointed out, we are also facing a regular tariff with the current environment is moving more difficult to move regulated customers to the free customer base. Hence, we are having actually a lower increase in free customers during this plan vis-à-vis the previous plan. However, marginality. So the integrated margin in supply is moving from EUR 10 to EUR 11 megawatt hour which is actually the strategy we are doing. So we are preserving margin or increasing slightly margin at the expense of a different client mix driven by the competition for both the liberalized business as well as the regulatory. When it comes to electricity sales indication for 2030, I can tell you that we will be approaching something similar to the 110 kilowatt hours approximately of sales for 2030, of which about 100 will be basically free customer sales. And then on the third question, returns of PV plants with batteries. I think here, it's very difficult to give you an answer because it really depends on the combination of the 2. I mean, what is the generation of the plant? How much batteries we're putting in the plant? And obviously, when dispatching, whether these plants can actually serve or obtain ancillary services type of revenues, which is something, for example, we are doing -- or we will be doing in the Portuguese auction awarded capacity. The cost of batteries still range in the region of slightly below EUR 1 million per megawatt hour of battery installed. And the evolution, obviously, will -- this cost will decrease over time. Now I think it's very difficult to give you an estimate on how quick it will decrease in the next decade. And I guess I've answered all your questions.

Okay. Thank you, Enrico. We move to the next question that comes from José Ruiz from Barclays.

I just have 2. The first one is related to tarifa Única. I was wondering what is the retention period for the customers, if there is any. And if that would affect your hedging policy going forward. The second question is related to unit integrated margin. Last year, you were given EUR 30 per megawatt for 2022, if -- now you're giving only 2023 to EUR 31. Could you tell us what is kind of the guidance for 2022, so I can compare it to last year.

Thank you, José. Well, for the tarifa Única, let me say, in our commercial policy, we don't impose any period of retention of our customers. So our customer, and this is something that really different us from the other competitors, we give the possibility to our customer to move to other company when they want. So because we believe that it has no sense areas to impose a period of time with us. In any case, what we think this tarifa Única is that money -- today, first day is that we are selling this tariff, the answer of the customer is fine. And that is a question. When you change -- or do introduce a new tariff, it takes some time. The people to -- the customer to understand exactly the benefit, et cetera. And we are really trying to innovate on this, and it will take some time. But we are happy in the way which it is going on this new tariff. Well, I think that Luca will give you the unitary integrated margin, I think it was something around 30%, but in any case, Luca will give you.