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

Good morning, ladies and gentlemen, and a warm welcome to the First Half 2021 Results Presentation, which will be hosted, as always, by our CEO, José Bogas; and the CFO, Luca Passa. [Operator Instructions] Thank you, and now let me hand over to José Bogas.

Thank you, Mar, and many thanks to our audience for being able to join us today. We sincerely hope that you and your families are in good health. Let's start with the main highlights of the period. The first half 2021 has proven to be a complex and evolving period, in which we managed to achieve an EBITDA of EUR 1.9 billion. We remain confident that the context and the economic conditions will improve in the second half of the year, where we expect a more positive performance based on managerial action put into effect. On the regulatory front, the European Commission has recently adopted its package of legislative proposal, Fit for 55 packet, that gives continuity to the acceleration in decarbonization, adopting a regulatory proposal that will enable emission reductions while promoting economic recovery. Furthermore, the investment in digitalization, coupled with the restructuring provisions booked lately have allowed for a new standard of operational efficiency, which becomes a strong lever going forward. The progression in reshaping our company towards a cleaner and more sustainable business model is evident with the full mainland coal phase out by year-end and the strong pipeline boost of 11 gigawatt since the beginning of the year, totaling now 53 gigawatt. Lastly, a final dividend of EUR 1.3136 per share was paid in July, which on top of the EUR 0.7 per share of the interim dividend already distributed in January, represents an understanding dividend yield above 9% in 2021. Moving now to Slide #3. On July 14, the European Commission presented a comprehensive package of legislative proposals, called Fit for 55 package, aimed at reaching the European Union emission reduction goal by 2030 and to put it on track for the net zero emissions by [ 2030 ]. With this focal point on carbon neutrality, the package set very ambitious target, such as a 55% reduction in CO2 emission by 2030, sharing therefore in minus 40% and minus 51% between non-EPS and EPS sector, respectively, an increase of renewable capacity to 40% by 2030 from the current 32%. In order to secure this goal, a number of measures aiming to further restrict, ETS have been put in place alongside a new carbon border mechanism and a new fund to protect vulnerable customers. All of these runs in parallel with the European Union Recovery Fund, recently approved for Spain, out of which Spain will receive around EUR 20 billion in 2021. The first run of EUR 9 billion has already been approved in the fall of an advanced payment, and the next will be settled before year-end. In this sense, we have presented a solid plan, with a lease of projects representing EUR 23.3 billion, which place us in a favorable position as our proposal perfectly fits with the return of the [ FTs ]. All in all, we strongly support that European initiative and it's more ambitious target as they pave the way for further electrification and indirectly our [ bid ], which is a key catalyst for a rapid and cost-effective energy transition. On the Slide #4, I would like to comment on the evolution of the scenario over the period, which has been certainly the main driver of this set of results. During the second quarter of 2021, the main evolution in Spain started to show some signs of recovery from the economic effects of the pandemic after the weak start of the year. Indeed, cumulated mainland power demand in the first half increased by 5.5% or 5.1% is adjusted by calendar, temperature effect. Likewise, in Endesa's concession area, gross demand has increased by 4.5% or 3.8% in adjusted. These figures are driven by the increase in all segments, that is industry services and the residential sector. As far as prices are concerned, average pool prices in the first semester have doubled versus the same period of the previous year or previous year, reaching EUR 58.6 per megawatt hour, driven by the demand improvement, but mainly by the increase in the average gas PVB prices and the high average CO2 prices in Europe, supported by the reforms to be introduced by the European authorities. On the first factor, several events came together to create a perfect store that led gas references to further increase during this first semester, among others, the change in the merit order in favor of CCGTs, the low level of gas reserves and cold winter in Asia, the increase in industrial activity and finally, the supply stress in Europe due to Russia and Ukraine's foreign tension and Norway's supply outage. Besides electricity prices, are expected -- besides the electricity prices are expected to remain high for the next few months. As a matter of fact, in July, despite the recent changes in tax action, the upward trend has not been reversed, and average pool prices have surfaced the level of EUR 100 per megawatt hour. The current estimate for the remaining year point at EUR 97 per megawatt hour, meaning that the average market price at the end of the year could be higher than EUR 77 per megawatt hour, which would compare to EUR 34 per megawatt hour average price in 2020. Our power prices in 2022, 2023 are also affected by the increase in energy commodity prices. Now on Slide #5, we will dive more deeply on the reasons for this evolution. First of all, the rise of electricity prices have been driven mainly by the volatility of gas market worldwide and to a lesser extent by the strong increase in CO2 on the back of the prospect of a tightening of emission permits. All in all, out of the EUR 30 per megawatt hour increase in pool price due to evolution explain EUR 6 per megawatt hour, while the spike in gas would be responsible for EUR 21, 3.5x more. Considering these same underlying drivers, the evolution of prices in the rest of the European countries has been very similar, taking into account that the Spain had an additional impact caused by the law 15/2012 taxes. Further renewable penetration will very likely mitigate such scenarios with lower prices in the long run. All of this has had a very important effect on customer, where a typical regulated bill has increased by 25% compared to the same period in 2020. It is important to note that Endesa does not benefit from this scenario as our sales were already hedged at lower OTC references, and we sustained a negative impact for our structural [ sole position ]. In order to address these power price parity, a number of initiatives are being endorsed by the government, aiming at lowering energy costs, the creation of the national fund for the sustainability of the energy sector with. We highly welcome, as we believe, will be a fundamental instrument to achieve the decarbonization of our energy system, a new methodology involving a simplification of the tariff structure applicable since June -- the 1st of June 2021. CO2 clawback preliminary draft bill on which we will comment later. And finally, the temporary suppression of the 7% generation tax and the lowering of VAT, albeit neutral from economic standpoint for the sector, would be positive as it will be helpful to reduce the excessive fiscal burden on the customer bills. Having said that, we believe there are other more efficient and permanent solutions that can be implemented as the reform of the regulated tariffs to protect domestic customers from such high market volatility. Moving on, as mentioned in the previous slide, one of the main proposal from the ministry is to mitigate the increase in pool prices with CO2 clawback on all known GHG emitting production facilities, which went into effect before 2005. Approval of the bill is expected before year-end. We believe that the draft bill is based on [indiscernible] or unfounded assumption that caused strong reputational damage. The main ones are that these assets are fully amortized and receive all the remuneration, known as windfall profit, benefiting from the high CO2 prices in the market. As a matter of fact, this is not the case. Indeed, since 2005, we have made substantial investments in these facilities and have assumed continued and disproportional cost increase, much higher than the CO2 effect. These so-called windfall taxes include the investment fee as well as the law 15/2012 regional taxes and even the civil service cost, among others. All in all, around 30% to 40% of the full cost of nuclear and hydro plants is composed of these take passes. Furthermore, Endesa and other stakeholder, including the rating agencies, denounced the risks of this proposal indicating that it is ineffective in solving the electricity price increase. We would remark, in particular, that it is a barrier to investment and jeopardizes compliance with the current PNIEC target, increase regulatory risks, uncertainty and legal insecurities due to possible future clawbacks, penalizes electricity and will hinder decarbonization as most oil and gas emissions are not subject to emission allowances. It increased also the risk of serious distortion in the market. The CNMC, in its report on the draft bill released last June 29, pointed out some technical improvement, quite aligned to our allegations, which we now expect to be taking into consideration by the government. Likewise, the CNMC proposes that the process of payment should be used to reduce the cost of energy for the electricity customers. Nonetheless, as the process will provide time to introduce improvement to the legislation and will report the ministry to hear all -- to hear the different parties involved, we are confident a more reasonable outcome can be achieved, especially for hydro and nuclear plants. Let's move now to Slide #7, where, thanks to our continued effort in decarbonization, mainland renewable capacity represents around 45% of the total, well on track to reach the 62 targets set out in our business plan. Likewise, CO2-free output constitute 64% of our installed capacity on the peninsula. During this quarter, the growth path of renewable capacity has remained almost flat, but addition will boost in the second half. We expect to fulfill the 0.7 gigawatt of forecasted capacity addition this year. Total mainland output reached 22.7 terawatt hour, 1% higher than the last year. As a consequence of the coal phase-out, today's thermal generation represent just 12% of the total mainland production, mostly from CCGTs, which saw a strong increase in the load factor, plus 30% output, that is 0.5 terawatt hour, due to the low hydro availability during the period minus 21%, that is minus 1 terawatt hour. Furthermore, the combination of new wind and solar capacity, which came on stream at the end of 2020, and higher load factor, allowed for an increase of 0.7 terawatt hour. Entire emissions preproduction remained at 88% of the mainland total output, almost reaching the target set for 2023. On Page #8, let's have a look at the current situation of our pipeline, which will allow us to reach our commitment in renewable growth. Our gross pipeline was further expanded to around 53 gigawatts from 42 gigawatts, announced in full year 2020, maintaining a constant effort to fit our renewable project portfolio. Out of this growth figure, around 50% has TSO-awarded connection points and 2.5 gigawatts are under execution, considering the latter project and the mature pipeline, solar technology weighted in at around 70%. We are accelerating the construction of the 0.7 gigawatt of renewable capacity targeted for the year, expected to come into operation during the second half. Based on our policy of developing batteries, only with the deployment of renewable capacity, we have built a significant BESS pipeline of around 10 gigawatt, out of which 1.6 gigawatt is in a mature state. The aim will be to gradually incorporate batteries into new installed renewable capacity once regulation guarantees the competitiveness of this facility. In Network, and I am now on Slide #9, Endesa's distributed energy increased by 9%, 4.1% when considering only distributed energy to own customers. Last year, significant cumulated investment effort has resulted in some improvement in all operational performance indicator. Also continued their downward trend in the period by 0.3 percentage points, while the time of interaction saw a decrease of 1%. Our continued focus on network digitization is one of the main drivers of these positive effects. We remain committed to becoming a best-in-class digital network operator, maintaining a continuous focus on quality and operational efficiency. When it comes to retail, on Endesa X, on Slide #10, total energy sold rose by 2% on the back of an emerging recovery trend in economic activity and the differential effect of -- on last year's second quarter, affected by the COVID outbreaks and related lockdowns. By segment, both B2B and B2C sales as well as SCVP, that is the regulated tariff, experience an increase in sales. The most relevant was B2B by 3% and to a lesser extent B2C and the regulated tariff. Total power customers decreased by 2% or around 200,000, most of them in the regulated market as a consequence of high price volatility since this first half of the year impacting regulated tariffs. Moreover, on the free market, since the second half of 2020, we saw an increase of the competitive intensity that remain high, especially in the first quarter 2021. However, we are now witnessing some signs of a more rational approach. Proof of this change is that we have been able to revamp the loss in the liberalized segment, where we have grown by 41,000 customers in the second quarter. Regarding electricity mobility, we continue to deliver on our deployment plan of charging points, reaching a total of 8,000. The recent renewable of the state plan to incentivize electric [indiscernible] for the 2021 to 2023 period provides solid support for the strategy -- for this strategy going forward. Concerning our energy management on Slide #11, the unitary integrated margin resulted in EUR 26.1 per megawatt hour, a 25% decrease versus the EUR 35 per megawatt hour in the first half 2020 and minus 17%, excluding the positive store position effect in 2020. Electricity sales in the liberalized business increased by 2%, recovering from first half 2020, strongly marked by the COVID pandemic. The evolution of the integrated margin has been clearly affected by the unfavorable market situation, being the main factor behind the margin decrease. First of all, the lower generation margin, mainly due to the application of the Catalan tax, weaker OTC references, lower income from thermal output and reduced hydro output; second, the absence of the store position effect marked by a tough market context versus a very positive energy management in 2020; and lastly, supply margin in line with previous year where the increase in ancillary services and peak off-peak is offset by higher sales and the recovery of the COVID effect affecting demand in 2020. The unitary margin remains flat at around EUR 10 per megawatt hour. The unitary integrated margin of EUR 26.1 per megawatt hour include EUR 38 million from blend and CO2 hedging, which has been booked in non-mainland business. Regarding forward sales, we have hedged for 2021, 100% of our estimated price driven output, at a price of around EUR 71 per megawatt hour. Once we consider our total sales mix, the all-in revenue, including index energy, will reach EUR 74 per megawatt hour. For 2022, hedge volumes stand at over 74% at an all-in price of around EUR 74 per megawatt hour, that is EUR 3 per megawatt hour higher than 2021. For 2023, we have started the hedging process at prices similar to 2022, but volumes are still not relevant. In terms of ESG on Slide #12, let's comment on a few main highlights achieved during the period. Total gross CapEx attained EUR 0.7 billion or a 15% increase when compared to last year. Each of our main strategic priorities has a direct impact on the SDG 7, 9 and 11 in the wider scope of SDG 13, reaching a total of around 85 of CapEx allocated to climate actions. We keep working on our different programs in all of the 3 dimension, of which we have attained new landmark such as the following: first, the creation of Endesa's Circular Economy Academy; second, in distribution, we are proud to be the first electricity company to receive Zero Waste certificate for our distribution activities in Aragon, Castilla León and Galicia. We have been recognized for the third consecutive year as the Ibex-35 company that best reports on transparency and fiscal result with the maximum score possible, as well as leader in financial information disclosure according to Reporta 2020. The deployment of all of our initiatives and the integration of the ESG scope across all areas has once again been recognized by the most prominent ESG ratings worldwide. Endesa recently obtained and shared with our parent company, Enel, the BESS score of all sectors around the world in the Vigeo Index. Likewise, in it last and very recent update, the FTSE4Good index confirmed our leading position in the conventional electricity chapter also with Enel. And now let me hand over to Luca Passa, who will give you the financial results.

Thank you, Pepe, and good morning, ladies and gentlemen. I would like to comment on the financial highlights of the period. I'm on Slide #14. Reported EBITDA stood at EUR 1.879 billion, decreasing 19%. On a like-for-like basis, once netted from the last year personnel provision effects, the EBITDA would have decreased only 4%. Net ordinary income dropped by 26% year-on-year, reaching EUR 832 million, 3% lower once deducted the first half 2020 provision mentioned above. Funds from operation reached EUR 492 million, 51% down versus last year, mainly due to regulatory collection delays and other conjunctional items as we will explain later on. Finally, net debt increased to EUR 8.2 billion, up by 19% versus full year 2020. Moving to the retail analysis on the like-for-like EBITDA on Slide 15. Let me now briefly set out the main drivers. As already commented, like-for-like EBITDA stood at EUR 1.879 billion, minus 4% versus first half 2020. Generation and supply EBITDA decreased by 15% to EUR 766 million, mainly affected by the market condition impacting in the business as we will explain later on. Distribution EBITDA declined by 3% at EUR 956 million. Finally, non-mainland generation EBITDA increased a sound 131% to EUR 157 million. Moving into a deeper analysis, we are now on Slide 16 on the regulated business. Like-for-like EBITDA increased by 5% to EUR 1.113 billion with a higher gross margin and a reduction of 6% in the fixed cost. Distribution margin decreased by 2%, mainly due to the application of the new remuneration parameters of the second regulatory period. The non-mainland generation gross margin increased by 31%, thanks to the normalization of the negative margins in 2020, driven by the mismatch between the fuel cost reference for regulated revenues and the effective fuel cost, the lower remuneration parameters, the absence of the positive realization booked in 2020 and the positive impact of Brent and CO2 hedging. Fixed costs were EUR 22 million lower once deducted the net provision release effect of last year, mainly due to lower maintenance cost in the islands. On the Liberalized business on Slide 17, EBITDA reached EUR 766 million, 15% decrease with 7% of lower gross margin and 4% increase in fixed cost, on a like-for-like basis, mainly as a consequence of the positive update on the workforce provisions booked last year, mitigated by the cost of the COVID recovery plan recorded in 2020. The liberalized electricity margin amounts to EUR 1, 294 billion, positively affected by the recognition to Endesa of the right to be compensated for the CO2 clawback in 2006 for EUR 188 million booked in 2021, aimed by the ruling of the Supreme Court on the [indiscernible] law set in 15/2012 for EUR 48 million. As commented before, generation margin decreased mainly due to the application of the Catalan tax, weaker OTC references, lower income from thermal output and reduced hydro output. In relation to the short positions, the negative results of the period has been mostly neutralized by the positive from Brent and CO2 hedging. Supply margin remained in line with the previous years where the increase in ancillary service and peak off-peak was offset by the COVID effect impacting demand in 2020. The unitary margin remains flat at around EUR 10-megawatt hour. And Green Power gross margin reached EUR 210 million, plus 49%, thanks to the higher prices seen in the period and the new capacity in place driving a 30% increase in production. Gross margin in gas fell EUR 111 million in first half 2021 to EUR 29 million, mainly affected by the negative mark-to-market due to the steep rebound of gas prices, which we expect to be diluted or fully neutralized along the second half of the year as the contracts are being settled in a market where we expect gas prices to have already reached their maximum levels. Endesa X contributes with EUR 63 million of gross margin aligned to first half 2020 and in line with full year guidance. Now moving to the next slide, on the fixed cost evolution. Total reported fixed cost reached EUR 967 million, a 0.4% increase on a like-for-like basis. Once deducted, nonrecurrent effects, as the update of the provision for workforce restructuring plans in place, indemnities and tax and labor-related risk and the public responsibility plan for the health crisis of COVID-19, fixed cost would have decreased by 3%. This is mainly due to the several efficiency plans put in place in the previous years, crystallizing in a reduction of the average headcount by 4.5% in the first half 2021 versus last year, with a low record of employees since 2014. Thus, efficiency and others, more than offset the positive inflation effect and perimeter and growth effects on cost. Moving now to Slide #19, a quick follow-up on our efficiency program, which is consistently proving to be effective across all our business lines. The new capacity put in operation in the last 12 months, its subsequent production increase and the cost optimization in renewables led to a solid decrease in unitary fixed cost, reaching EUR 16-megawatt hour in first half 2021 from EUR 20 megawatt hour in first half 2020. In distribution, unitary costs remained flat in EUR 41 end user despite the investment effort we are making in Smart Grids. On the other hand, these investments, together with the digitalization initiatives of our processes, led us to expect further efficiencies. Lastly, in supply, we observed a slight increase in the cost to serve. During the period, the Filomena storm and access tariff circular may have been the main causes of the increase in the number of interactions with our customers and therefore, of the corresponding cost to serve. The opposite effect occurred in first half 2020, when the state of [indiscernible] due to COVID pandemic and closure of the customer service point significantly reduced the volumes of operations. In any case, our commitment to digitalization of the business continues steady forward, as can be seen in the following KPI evolution. 16% growth in the number of digital contracts to 5.9 million, a 31% increase in the number of e-billing contracts reaching 5.5 million e-bills, already exceeding the target for 2023. The digital backdrop, boosted by the COVID pandemic, is behind the solid increase of digital interactions with our customers. On the D&A evolution from EBITDA to net ordinary income, and I'm now on Slide 20, D&A increased by 3%, explained by the higher amortization mainly in renewables and distribution due to the investment effort carried out in the last year, partially compensated by minus EUR 80 million or lower bad debt, mainly as a consequence of the current scenario, economic recovery in Iberia, and the intensification of the collection management temporarily suspended in first half 2020 due to the extraordinary measures adopted against the COVID-19. Net financial results were strongly affected by the financial revenues from interest rates for late payment in relation to Endesa to be compensated for the 2006 CO2 clawback and the hydro canon. This was partially offset by the financial update of workforce and dismantling provision. The effective tax rate resulted in 29.4 -- sorry, 24.9%, slightly lower than last year. All in all, net ordinary income decreased by 26% over the period, minus 3% on a like-for-like basis. Before going to the rest of the P&L lines, let me now take a look at our guidance for 2021. 2021 guidance is confirmed despite exceptional condition in this first half, also thanks to the nonrecurrent effects, which mitigated the extraordinary situation in first half. And we expect obviously to normalize based on a more supportive performance in the second half of the year. We expect a second half very similar to the second half that we have experienced in 2020, i.e., EUR 2.1 billion of EBITDA based on the improvement of the integrated margin with a short position, more than offset by commodities hedging and better supply and generation margin, coupled with renewable capacity addition. Gas margin increased in the absence of any additional mark-to-market impact in the second half, further progress in efficiencies and regulated business picking up pace in second half due to the seasonality and investment acceleration. The expected performance in second half will allow us to reiterate our guidance that we have announced last November, i.e., EUR [ 4 billion ] of EBITDA and EUR 1.7 billion of net ordinary income for the full year. Now moving to cash flow on Slide 21. Funds from operation decreased by 51% year-on-year, reaching EUR 492 million due to the following effects: lower EBITDA after provisions paid and net provision release of around minus EUR 141 million; working capital and others rose by 38%, mainly due to the increase of net balance of receivables and payable accounts as a consequence of collection delays related to recently enforced Royal Decree on access stores and charges; the still noncash items included in the first half of 2021 EBITDA, mainly the CO2 and hydro canon and higher inventories, partially offset by the lower other noncash provision. Some of these effects are temporary and are expected to be recovered in the coming months. We're talking about between EUR 350 million and EUR 400 million. Income tax paid amounted to minus EUR 85 million, minus EUR 22 million in the previous year, mainly due to the EUR 73 million corporate tax refund in first half 2020 corresponding to fiscal year 2018. Cash-based CapEx aligned to the previous year led to the free cash flow negative to EUR 368 million in this period, EUR 521 million lower than first half 2020. Nevertheless, as mentioned, we expect FFO to normalize in the second half of the year once we collect the formation delays. Let's now take a look at net debt on Slide 22. Net debt amount to EUR 8.2 billion, EUR 1.3 billion higher than full year 2020. The increase is clearly affected by the negative free cash flow explained before and the payment of the interim dividend against 2020 results. But in January, the regulatory working capital remained below last year's figures at EUR 809 million. And by year end, we expect net debt 2.2 -- EUR 8.5 billion, assuming regulatory working capital worsening to EUR 935 million and FFO in line with budget at EUR 2.6 billion. Our leverage kept stable with net debt-to-EBITDA ratio at 2.1x on a like-for-like basis. Our cost of debt reached extraordinarily low levels, maintaining -- maintained at 1.7%, still marking historical minimum and one of the most competitive financing cost of European Utilities. Another milestone to be remarked is a substantial increase in the coverage of debt maturities to a very comparable 39 months. And now let's take a deeper look on sustainable finance on Slide 23. Sustainable finance accounts for 49% of total gross financial debt, and Endesa is fully confident to achieve the 60% goal in 2023. We have set new milestones to sustainable finance by incorporating sustainability in all its new financial transaction. As a result, all of Endesa's liquidity facilities are now SDG-linked, and the percentage of SDG-linked bank guarantee lines have reached 95%. In its commitment to expand sustainability across all financial products, we also added 2 new sustainable financial instruments to its already highly visible portfolio, like interest and swap as well as green project financing. And this has leading role as a promoter of SDG initiatives has earned widespread recognition in the financial community. And it's worth mentioning that we've also been receiving the Sustainable Loan -- the best Sustainable Loan for 2020 award by the Spanish Sustainable Finance Observatory Office. And now let me hand over to Pepe for his final remarks.

Okay. Thank you, Luca. To close this presentation, on Slide #24, I would like to share final remarks on our performance during this first half. 2021 guidance is [indiscernible], as Luca commented on before, despite the exceptional conditions during this period, and thanks to the nonrecurring effects that has allowed us to mitigate this extraordinary situation that we expect to normalize backed by a supportive second half. In relation to the aforementioned regulatory initiative, we would like to express our willingness to collaborate with all institutions to find the most effective measures to alleviate the situation of exceptionally high prices that show negatively affect the final customers and therefore our economy. We keep advancing in our decarbonization and electrification process in an efficient way, lowering costs while moving steadily forward and meeting our objectives of Tier 2 pre-emissions production. Endesa will play a key role in contributing to the Spanish economic recovery through solid plan presented to the government in relation to the recovery plan, aimed at providing a structural and long-term value, with a very positive impact both in terms of job creation and GDP increase. All these, with [indiscernible] aside, Endesa's commitment to the [indiscernible] economy as the basis for a new sustainable economic model and its commitment to extend this culture within the company. Ladies and gentlemen, this concludes our first half 2021 results presentation. Thank you very much for your attention. And as always, we are ready to take some questions.

Okay, Thank you operator. Thank you, Luca. We are now open to answer any questions you may have.

I will now hand over the floor to Ms. Mar Martinez.

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

So 3 for me, please. First one is on the windfall tax. Am I right to interpret from what you mentioned earlier that you do expect this tax to be passed? And it seems increasingly clear from all the companies that everyone thinks it will be passed. So I guess the question is, is it now a 100% certainty that there is going to be a tax in your view, but it's just going to be a modified one? And have you had any kind of sense of feedback from government as to which of the modifications they might be open to making the tax? That's the first one. Second one is on the improvement in the non-mainland business. Could you just give us an idea as to how recurrent do you expect that to be? It looks like you booked some hedges inside that part of the business, which is I don't think you've done before. So just wanted to unpick a little bit the result there and see whether that's going to persist in the second half and into next year on non-mainland? And then finally, just looking to next year and the year after, and you updated your -- you gave us the updated hedging prices. Can you give us any kind of flavor as to what the benefit might be of higher power in those future years? Obviously, you've taken some pain on higher spot prices, and that's pretty visible here. But I guess it's not very explicit right now what the upside might be on power prices in 2022 and 2023. So I don't know whether there's a rule of thumb or some kind of guideline you can give us as to how material the improvement might be for the next 2 years on higher forward power prices?

Thank you, Harry, and I will try to answer the first one, and then I will give to -- I will pass to Luca to answer the second and the third, and to give more details in the first one. If I have understood well, you are saying about how we are going to deal with this CO2 clawback proposal and the taxes that we have in this paying -- we are paying now in the recruiting sector. First of all, let me say that -- what we have in Spain is a huge [indiscernible], and we have the same situation that all other countries in Europe. But the huge difference, for me, is the rest of the European countries [indiscernible]. The main difference between Spain and the rest of the European countries is the regulated tariff, which you know is indexed to the wholesale prices and therefore, [indiscernible] domestic customer from the market volatility. So for me, this would be the first and the main actions in the future.

Okay. I'll take on the second and third question, if you agree. So on mainland, basically the spectrums in terms of performance for the second half, supported by demand recovery, seasonality demand is more pronounced, especially in the third quarter in this business. Despite this recovery, full year recurring gross money is expected to be slightly lower than what we expected. Basically, we are pointing to something higher than EUR 500 million of gross margin. We're going to be just below EUR 500 million of gross margin. As a consequence, obviously, of an efficient regulation of fuel cost and recognition, especially in the gas, basically consumption. Now what we book in terms of hedging, which is the EUR 38 million of Brent and CO2, is something that will be there still in the second part of this year because those positions are, let's say, cash hedge accounted in the islands, but it's something that it really depends in the future years, whether we use the same strategy when it comes to basically our overall store position. So to be honest, it's very difficult to give an answer for the future years. This year, they've been impacted by this hedging, which is accounted for cash flow hedging purposes in the islands. Then when it comes to the third question, i.e., our flavor on, I would say, 2022 and 2023 higher prices, let's say, effect. I mean, as pointed out today, we have hedged 74% of '22 at the moment at an all-in price of EUR 74 megawatt hour, which is already EUR 3 megawatt hour higher than our hedging for 2021. We are pending to be hedged for '22, 9.4 terawatt hours. And the OTC references at the moment are pointed to EUR 68 megawatt hour vis-a-vis basically our business plan assumption, which is 48. So we have basically a EUR 20-megawatt hour delta, which means if we manage to hedge at this level, that we will have a positive effect of EUR 190 million. For 2023, to be honest, the OTC references are much lower, much less liquid and, let's say, the part that needs to be hedged is much larger. So the effect could be larger, but obviously, 2023 in terms of the material rate will be done also after our business plan announcement where we are going to revise also full price assumption. But definitely, we have, let me say, some positive support from this, I would say, higher forward prices vis-a-vis our business consumption for 2022 and 2023.

Okay. So EUR 190 million, right on sort of EBITDA impact, if I heard that correctly?

Those are [indiscernible] financial between 68 OTC reference today vis-a-vis business assumption of EUR 48 megawatt hour.

Harry, I'm sorry because I think that we have some issues with the phone line. Hopefully, it has been solved. Okay. The next question comes from Enrico Bartoli from Stifel.

First one, I would like to go back to the CO2 clawback issue. I was wondering if the measure is finally approved? If you have already in mind some measures that could offset on your EBITDA, the impact of the new tax? And also from the Slide 6, I understand that you are quite positive on a possible improvement or the first proposal by the government. I was wondering how confident you are on this? And if you can provide us some indication of the impact that you expect on the EBITDA should the proposal of the CNMC be finally approved by the parliament? Second question is regarding the guidance of '21, sorry, also that the line was very, very bad. If you can repeat the drivers that you expect in the second half of this year? I get that the hedging on CO2 and fuel costs will be there, also an improvement on the gas margins, but if you can a bit elaborate more on that point? And the last one is on -- also going back to the CO2. There were some discussions in the industry about the profitability on neutral plans. If you can elaborate a bit on where we are now? And what you expect the impact would be from the implementation of the CO2 clawback? And if the CO2 clawback is finally approved, if you would ask the government to revise the current plan for the phase-out of the plants that are already agreed in the past years?

So let me try to give you an answer regarding the first and the third question. If I have understood well, because the line, as you have said, it's not perfect. Well, starting for the profitability, well, we are talking up here. Well, the problem is very clear. The [ beta ] rise because prices are high, that is. Let me say that all the European countries are facing effectively the same situation regarding spot prices, but nowhere as [indiscernible] debate like this is taking place. Well, the reason is, as I have said before, at least in my opinion, is regulated tariff. Having said that, well, the second thing that I would like to say is that in our PNIEC, that is the National Integrated Energy and Climate Plan that we have, in my opinion, it's very, very important, the nuclear power plant, also the hydro, but the nuclear, given the premium capacity to the system. When you introduce some kind of taxes or reduction of the remuneration of the nuclear power plant, well, you should take into account what could happen with the profitability of these. I mean more or less people think that we have a windfall profit in this asset. Let me say, simply do not [indiscernible] back if they [ assist ], they would [ assist ], which is not the case. They are more than compensated by the windfall taxes, which are after the year 2005. We are talking about something around EUR 21 per megawatt hour in the nuclear and EUR 15 per megawatt hour in hydro. So we have, let me say, in the cash cost of the nuclear power plants, something around EUR 45 per megawatt hour, taking into account that 21 are windfall taxes, let me say that again. In my opinion, the government should take into account this because the final proposal analyzes the nuclear and the hydro, in that way that we are not able to recover the cash cost usually, while there is no viability for these assets in the future. The second thing that I would like to say is that the increase in the price of CO2 is not because of this situation. For me, the situation, which can last for many months, affecting all the European countries, is due to the natural gas. Natural gas for me is that we are responsible of the pool price increase. So we should focus in this problem and how to resolve -- at the level of the European Union, how to resolve these problems. I think that mistakenly, we have focused in the CO2 price mitigation when, again, the real [ culprit ] natural gas. Well, also, we could take, in my opinion, care about these because these kind of matter could introduce regulatory instability and increased uncertainty, and will create an important -- could create important distortion in the market and could be barrier to invest. Also I said, there are more efficient alternatives. Nevertheless, we are in an open dialogue with the ministry. And we think that just because the objective of both, in that case, the ministry and also the utilities, is the same, for me, is really just to fulfill, get the objective set by the European Union. Let me say, the Fit for 55 that we have to date, challenges, but achievable, and that is our objective. So I'm confident that at the end, we will reach a solution that will really be helpful for all of us trying to reduce the impact to the customers and not penalizing without any sense the utilities and not put in breaks in the evolution of our PNIEC. And Luca, do you want to add anything or...

Yes. No, no. I mean just confirming that we are pretty confident that the improvement will be substantial on the -- from the first half of the proposal, given the discussion we are having currently with the ministry and other parties involved into this basically revision of the first proposal. Anyhow, on the second question, guidance '21, let me take the opportunity to basically repeat what I've said and give you some more granularity, as I understood that the line was pretty bad. So we basically expect a more supportive performance in the second year, very similar to what we basically performed in the second year of 2020, i.e., EUR 2.1 billion of EBITDA. And this is on the back of the improvement of the integrated margin with a short position, they are more than offset by positive commodities hedging, better supply in generation margin, with obviously new renewable capacity additions, higher volumes and expected lower ancillary services cost, which is the first block. The gas margin increase in the absence of any additional mark-to-market impact in the second half and supported by the positive results from the reopener processes that we are currently undergoing, and this is the second block. Further progress in efficiencies and here, basically, we are targeting the best OpEx performance since 2014, which is EUR 1.9 billion for the full year in terms of OpEx. And for the regulatory business picking up pace in second half due to seasonality and some more investment accelerating in the second part. Now when it comes to the integrated margin, let me give you some granularity. We expect to reach EUR 2.2 billion of gross margin for the full year, which implies basically a unitary margin of EUR 29.50 megawatt hour, which is in line with our original guidance. And this is backed on generation margin that is expected to basically increase in second half to a full year figure of EUR 1.3 billion, mainly thanks to better term results backed by combined cycles to increase output, the suspension of the 7% generation tax in the third quarter, price effect and lower cost that are partially offset by lower volumes in -- mainly in hydro, because we are expecting basically a full hydro year just of 6 terawatt hours vis-a-vis last year, it was 7-point-something terawatt hours. In supply margin, we also expect to stand in the second half reaching the full year target of EUR 900 million of gross margin. And this is a further demand recovery, the repricing of contracts that are underway in the new price scenario, jointly with lower cost; the expected improvement of ancillary services and the peak off peak offset paid in the supply company and deposit resettlements to be booked in the second half. While for the store position, once netted by the expected positive results coming from the already commodities hedges taken on CO2 and Brent, we will end up slightly above EUR 30 million expected in the business plan for the full year. Finally, on gross margin, we basically significantly operated in the second half as negative mark-to-market caused by the record gas prices booked in the first half would be basically reaching a maximum impact now, and it's likely that prices will maintain this trend when every country has become basically settled. Retail, we keep on yielding positive results in the second half, although somehow more modern. All in all, gas margin is expected to end up just slightly below expectation. We had a target of EUR 175 million of gas gross margin for the full year. We're expecting just something north of EUR 150 million for the full year. I won't comment distribution in islands, which are basically on track with budget, and on efficiencies I have already commented on before. I guess this is a pretty detail for your second part of the year.

Okay. The next question comes from Alberto Gandolfi from Goldman Sachs.

Given the detailed explanation for the second half, I was hoping I could ask about '22. Particularly, I wanted to ask if it's still -- you believe it's still possible to grow EBITDA on a recurring basis considering that there were quite a few one-offs in '21, the likely introduction of maybe an improved carbon levy? And maybe if you can comment on how long it would take to reprice the retail portfolio? So that would be very helpful. Or maybe just sticking to the unregulated business for this comment for '22. The second question is more -- again, observing that there doesn't seem to be an EBITDA impact because of the differences in margins between regulated and liberalized customers. But if I'm not mistaken, still nearly averaging, nearly 1 percentage point customer losses a quarter. So can you maybe comment on the dynamics in supply from a customer perspective? Are you letting go customers to protect margins? Do you think this is slowing down, accelerating? Do you have any commercial plan to take back some customers? Maybe if you can comment on the dynamics would be great. And the last one is, on the back of the Fit for 55, would you expect the Spanish Government to revise upward its National Energy and Climate Plan? And I'm thinking in particular on investments in renewables and networks.

Okay. Alberto, let me give you some color to your question, and then Luca could explain better. Starting from the last one, the Fit for 55, let me say that the PNIEC and the recently approved climate chain law are absolutely aligned to this package and I contemplate even more ambitious target in terms of renewable, 42%, or in energy efficiency, 39.5%. So we don't think -- or I don't think that the Government of Spain is going just to change anything in terms of investment for the future. The plan that we have is very -- I mean the PNIEC is very challenging, but as I have said achievable, and now we need just to go ahead with this plan. In terms of the customer dynamic, first of all, the good news is that it seems that we have reached a point in which there are signs of lower competition. Well, that is -- it is strong, the competition, but lower. As we have said before, all of these started with a price [ role ] that I never think that could happen at this intensity in Spain. It don't benefit anyone. And I think that some companies are realizing this situation and then they are trying as to, well, slow the way in which we have been doing in the past. [indiscernible] usually executed by new entrants, who normally, as I have said, do not seek to remain in the business, back to extract value quickly by selling the customer base. So when -- one of the main incumbents that use this price [indiscernible] usually due to a specific action, in my opinion, looking for some target in the short term, interest or what is worse, in my opinion, a lack of the ideas or ability to make an offer to customers that have value to both the clients, the customer and the company. Nevertheless, we are happy because we have seen a reduction in the intensity. Well, we will continue with our strategy. We are trying just to improve our offer to our customers, trying to offer them more value, and we have tried to avoid just to go in this price [ role ], but we have taken strong action in the [indiscernible] to mitigate the negative impact of our competitor's strategy. Well, the good news is that we are now seeing signs of reduction. And this is one of the reason why we think that the second half of the year could be better. And in terms of the second half of the year 2021, let me give Luca Passa the floor to answer.

Sure. I think Alberto is more focused on 2022. But basically, Alberto, I mean is this a business from your question that can have basically increasing our growth in EBITDA from where we are today, according to what is the environment today? I mean my answer is clearly yes. Obviously, we need to couple with the regulatory environment, i.e., if the levy -- the clawback will basically be approved, it depends on the impact of this clawback. But as I pointed out before, we still have more than 25% of basically our production to be hedged. And now the delta between where we see OTC references for 2022 and where is the business assumption, it's EUR 20. So we have, at the moment, a potential upside of EUR 190 million for 2022. And we will see whether regulatory levy changes will lead this potential upside. Now as you probably remember, when we presented the plan back last year, basically, the pool price scenario was completely different. We went out with a curve up to 49. The 4 watts were just EUR 5 on average below. And we have been discussing for 3 months basically why we were thinking that pool price should have increased and you analysts were basically thinking that we were too basically optimistic. Now we are in the opposite position. So I think, this is a company that enable business can definitely deliver more. As far as the sub-questions on this, I mean, how long do we take to reprice our customers? I can tell you that we have already started two large repricing up campaigns for this year that will deliver results already in 2022. And this ties back with the question to Pepe, i.e., do we basically preserve margin or preserve customers? I think, for us, it's really to strike a balance between the two, in terms of the customer that we want to retain and basically the margins that we want to support. So to go back to your question, we expect still an expansion of the unitary margin for 2022. And obviously, we'll need to basically couple what come out in terms of new regulatory hurdles that we need to overcome.

Next question comes from Javier Suarez from Mediobanca.

3 remaining questions. The first one is on the regulatory proposal in Spain. The question related is on the necessity to open the debate on the possible modification of the marginal pricing system. So while the discussion is on the possible introduction of a floor, I think that in a scenario in which carbon prices are going to be significantly higher and renewable energy is more relevant in the pool as well, maybe necessary to make an overall rethought for the system. Do you -- you said that -- do you think that, that debate on the possible modification of the marginal pricing [ system ] and to put the basis for a [ system ] that works on a completely different basis is something that is necessary? That would be the first question. The second question is on the guidance. I think that during the presentation the company has confirmed the guidance of net income for 2021 of EUR 1.7 billion. If you can make any comment on the EBITDA and gross CapEx targets as well? And the third and final question is on the proposal that you have made and the recurring funds totaling EUR 23 billion. If you can give us some details on the breakdown for those projects and which are the most promising ones?

Okay, Javier, let me try to answer the first one, and then I will leave the word to Luca, just to give you some details, breakdown of the recovery funds, our eligible project and also the absolutely [indiscernible] the way in which we are going just to reach our guidance. Well, modification of the marginal system taking into account the carbon prices, let me say that we use the same model all over the Europe. And we use that because we are convinced, or Europe is convinced, and I agree that the best way to allocate resources are to optimize the system is the [indiscernible]. It is true that there are some kind of technologies that the variable costs are close to 0, and they receive the price of the -- marginal price of the pool, but that is the way in which things run. And I think that there is no any reason. I have a old group that all these problems that we are living now with the increase in prices, we have focused on the CO2 price. Well, CO2 price will be high and will continue to be higher, even higher, yes, because it's what we have decided at the level of Europe just to reduce the emission of CO2. But on top of that, I should say that this is not the reason of this increase in the pool prices. The real reason, as I have said, is the natural gas. So if we want to resolve this problem going to [indiscernible] we should think about how to manage these increase in natural gas. That is the situation. Second, well, in the long run, I think that when we have only renewables, let's say that, there is no any signal that fix the price, the margin of price. So we will need to [indiscernible] system in the future for tools. I'm trying to imagine that we will have something like a capacity payment that the -- let's say, the customer will contract, and then the energy will be for free. But you will pay for the capital investment, for the investment. And then the barrel cost will be close to 0, and then we will -- we need to change this. When it's going to be the right moment to do that? I think that at least in Spain, and I think also in Europe, not before the year 2030, in my opinion. During this period of time, what we will need is just to add some kind of payments, like the capacity payment, because the problem that we have is that we need to have some kind of storage capacity to support the supply in the year, let's say, 2030, in which we are going just to shutdown some nuclear power plants, and also we have shutdown coal power plants. And yes, because the increase in the renewable, the combined cycles are going to have a very low load factors. And then they will need to be paid for the capacity if we want to maintain the combined cycle, just to give the security of supply to the system. So after the year 2030, I think that we need in Spain to introduce as soon as possible this capacity payment for the technology in general because -- due to the focus on the combined cycle, let's say, at least the combined cycle will need this to give -- to stay in the system. And second, thinking that in the long run, after the year 2030, probably, we will need to change the whole system because we don't have the signal -- any signal because all the production will be renewable production, and we will have a signal of price in the future.

Okay. When it comes to the guidance on EBITDA for the second part of the year, I think, I was pretty clear in the previous answer. But basically, we're expecting performance of EUR 2.1 billion of EBITDA in the second part of the year based on 4 main drivers. The first one is the improvement of the integrated margin, with the store position more than offset by the positive commodities hedging and better supply and generation margins, with the new renewable capacity additions, higher volumes and expected lower ancillary services cost. The second block is cash margin increase in the absence of any additional mark-to-market impact in the second half and supported by the positive results from the reopening processes, which are undergoing at the moment, and further progress in efficiencies where we target EUR 1.9 billion of OpEx for the full year. And obviously, the regulatory business picking up pace in the second half, mainly on seasonality and acceleration of investments. When it comes to gross CapEx, we are guiding to EUR 2 billion of gross CapEx expenditure for the full year, which is in line with the budget. We record -- accounted only for EUR 734 million of CapEx spend during the first part of the year, but that's normally was in budget. We are going to accelerate our CapEx spend during the second part of the year. And then on the third question on the recovery fund. As pointed out on Slide #3, we have EUR 23.3 billion of projects, it's more than 120 projects, and can be summarized in terms of the potential investment according to different basically brackets, renewables for EUR 8.2 billion. These are not trade renewables. You know that renewables per se are not eligible under the next-generation EU. So they need to be basically either linked to batteries or with other, I would say, system or technologies in order for -- to make these investments innovative under their eligible criteria. We have EUR 4.6 billion in storage of flexibility. We have EUR 3.7 billion [indiscernible]. i.e., basically networks. We have about EUR 3 billion in hydrogen. I think we discussed the hydrogen plan also in the last results call. We have about EUR 2.2 billion in refurbishment and efficiency, and about EUR 800 million in sustainable mobility. And then we have about EUR 900 million in upgrading some of the existing thermal facilities. Now you also asked what is the probability or the most probable bucket in terms of these projects? I think it's very difficult to give you an answer today. The Spanish Government is starting as of now to prepare basically the different auctioning for the different areas. Hence, I think we will likely give you more thorough questions towards the end of this year. Now out of the EUR 23.3 billion, obviously, we expect to get something in the region between 20% and 30% as our expectation.

We move now to the following analyst, Manuel Palomo from Exane BNP.

I will have just maybe a couple of them. One is somehow related to the windfall profit tax aimed by the government, and these whether you have requested or will request the extension of that nuclear plant, whose life was expiring in 2021? And my second question is sort of a follow-up on Javier's previous question about the marginal price setting mechanism. And it's about this, what you mentioned about the capacity payments. Is it not a little bit incoherent to request capacity payments when above 78% of the hours in the wholesale market, the price is fixed by gas? And finally, I'd like to ask -- yes, to ask another question, which is about your expectation. If you could update on your expectation about Endesa installation and renewables in the coming few years, but also about the market installation in renewables, about the Spanish market installation in renewables in the coming few years? I tried to understand whether [indiscernible] accelerating, while maybe the market is overall slowing down a bit in terms of renewal installations.

Okay, Manuel, I will try to answer, but could you repeat the -- I would try to answer your question. Could you repeat the first one. It's about the windfall profit tax, but I haven't understood exactly the question.

Yes. I say it's somehow related because at the beginning, you mentioned that you could request or not the expansion of digital life of nuclear plant. And I know that one of them was expiring in 2021, you have to request that expansion. My question is whether you have already requested or if you will request that expansion?

Okay. Well, first of all, we are waiting, but we are absolutely confident in which we will reach a long-term solution. As I have said, yes, because, again, I think that we are absolutely aligned with the government and the objective that we are trying to reach. So at the end, we will find the solution. And I hope that all these kind of discussions will be resolved with this way of doing things, so with this alignment between the government or the regulator and all the utilities. Talking about the marginal price. Well, it is right that now the one who -- which really fix the prices, the combined cycles, and that is the reason why with these very high gas prices -- the gas price is the main the issue that really increased the price in the pool. Talking about the -- and then I will leave the word to Luca. Talking about the renewables, I think that we have an ambitious and challenging renewable expansion plan. If you remember, 3.9 gigawatt for the period 2021 to 2023, also something around 15 gigawatt by the year 2030 that I think are really achievable in accordance with Endesa and also the Enel group technical capabilities, and also our pipeline that we have more than 50 gigawatt. Well, we will try to do this in a profitable way. Trying to give things without -- not making mistakes being a vertically integrated company. Well, we think that we will have higher stable margins, lower risks and in a better position than [indiscernible] because of this. Having said that, well, just to reach something like 5,000 megawatt each year, just to get 50 gigawatt at the end of the year by the year 2030, it is again challenging. I think that we need to improve many things in the future that -- regarding to permit, regarding to [indiscernible]. And perhaps this year, 2020 and the year 2021, we could see a slowdown in the deployment of the renewables all over the system. But at the end, resolving some kind of problems, we will -- in my opinion, we will reach the objective that we have at the level of Spain. And now Luca, if you want to add.

Yes. as far as our installation, basically targets and pace, we are targeting 700 megawatts this year, which we are well on track to complete, 1.4 gigawatt next year and 1.7 in 2023. Now to your question, whether we are, let's say, working to accelerate this pace? Obviously, this year is basically gone, in the sense that what we are in execution today will be sufficient to reach the 700 megawatt, but we have not increased this year. While on the rest of the business plan, the current business plan, 2021, 2023, yes, we are working to accelerate. Now whether we are going to deliver this acceleration or not is something that obviously we will see between now and November. But definitely, between the pipeline of projects that we have and the speed at which basically we are developing pipeline, we could be in a position to deliver on average more than the 1.5 gigawatt of annual additions that we are targeting also beyond 2023. So that's, I'd say, the work of management is to be in a position to accelerate our renewables installation going forward.

Next question comes from Javier Garrido from JPMorgan.

Just a couple of follow-ups. First, on your hedging for 2022. You have increased the volumes from 62% at the Q1 level to 74% now, but the price for the price-driven output is stable at EUR 74 per megawatt hour. I would like to understand why that's the case given the rise in the forwards in the period? If it's due to some temporary reasons? Or it's because of rounding? You could elaborate on the reasons that would be very useful. And the second question is on the suspension of the 70% (sic) [ 7%] energy tax in Q3. What the impact you're estimating from that suspension? Could it be around EUR 40 million to EUR 50 million for Endesa? And then the final question is on net debt. Apologies, but I just wanted to confirm, you said guidance is now EUR [ 8.5 ] billion. And if that is the case, Luca, what has driven the increase in guidance versus, I think, it was EUR 8.2 billion in Q1?

Well, Luca is perfect just to answer this.

Sure. And so when it comes to the third question, net debt, the guidance is 8.5 and is based on regulatory working capital of EUR 935 million expected at year-end, which is EUR 300 million higher than what we budgeted for. So basically, we are expecting to recover our FFO at budget level, so EUR 2.6 billion by year-end, that regulatory working capital, and that gives you basically the delta between the 8.2 and the 8.5 at the end of the year. Now if we can, obviously, and we are working to have a better regulatory working capital at year-end, obviously, that will be reflected in a lower net debt at year-end. But at the moment [indiscernible]. Then when it comes to the 7% generation tax, let's say, potential uplift or positive effect. We are at the moment seeing in the region of EUR 40 million, which was very similar to what we experienced back in the fourth quarter of 2018 and the first quarter of 2019, when it was suspended again. And when it comes to the hedges, actually, we have a slightly improvement in the all-in price of the hedges in the end. And to be honest, I mean we have to, let's say, progress accordingly to what we see in terms of also our sales. So that's why we basically have increased the hedging between the 60 -- I think it was 64% in the first quarter to the 74% now. Again, this is EUR 3-megawatt hour, the overall portfolio higher than what we hedge in 2021. So there is already an uplift on the overall hedging vis-a-vis 2021. And as I said, what is left to be hedged is 9.4 terawatt hours in terms of volume, and we are seeing a positive delta of EUR 20 megawatt hour between our business assumption and OTC references. And I guess I answered the 3 questions.

The next question comes from Lillian Starke from Morgan Stanley.

So I might have missed this in the presentation. But when you look at the customer acquisition cost, that was quite material in the second -- in the first half, sorry, but you're still targeting a much lower as for 2023 within your business plan. I just wanted to understand a bit more what was the reason for the spike? But more importantly, why do you expect that customer acquisition cost to come down? And the other question I had was on the working capital improvement. Was there any change particularly in terms of bad debt risk? Or you're not seeing much of bad debt at this point?

Okay. Okay. In terms of the -- with regard to the first question about the customer cost acquisition. Well, today, let me say, we are living in a situation in which prices -- all -- there is a huge interest not only in the renewable but also in the customer. We are seeing how oil and gas companies try to take a position in the Spanish market. On the one hand, it's -- we're very happy because that means that people and companies see helpful business in the future. But just because of this, in my opinion, many companies are paying very high prices just because -- just for this writing in renewables and also with the same in the customer base. On the other hand, let me say that always I have said that in this business, in the energy business and specifically in the electricity business, there are companies that want to be for long in the business, another that are looking for to make -- to extract value as soon as possible. Well, I respect this situation. But I mean they are looking for how to create a pipeline and sell -- I guess because there are a lot of demand at very high price and the same with the customer base. There are many companies that are trying to sell the customer base. And that is one of the reasons of the increase in the intensity of competition because they are not looking for having a helpful P&L. They are looking for having a very high customer base just to sell that. So I mean, in the future, I think that we will see lower prices in terms of customer acquisitions. And again, I always say that the way -- in my opinion, the way in which we should go ahead is try not to make many mistakes in the future. We think that we are a strong company that could really manage and build this situation, and we want to last forever, let's say that, so we will be in this business now and in the future. So we should take care about the market.

And if I may complement, Lillian, the customer or the cost to acquire is actually not presented in our presentation. But to give you a sense, we are arranging at the moment at EUR 70 per customer. And that's slightly higher than the last year, given, let's say, the more investment we are doing in order to basically acquire more customer base. If you are referring to the cost to serve, which is a slide, basically, 19, where we actually have an increase, which I tried to explain, but probably it wasn't clear enough. Basically, the increase of the cost to serve from 10.2 to 11.1 on Slide 19 is driven by the fact that there has been basically an increase in terms of the number of interactions with our customers, driven by the Filomena Storm and the new access tariff circular. While, last year, actually, we had basically all the restriction for COVID. So all the points -- the final points to customers who are basically closed, so the interactions were lower. And that's why we have an increase in the cost to serve at least for this part of the year, that obviously should, let's say, phase down in the rest part of this year and also for the rest of the business plan. When it comes to the working capital, so the second part of your question. As I mentioned in the call, we have 3 main basically -- actually 2 main, but there are in 3 lines, in terms of the effect that we are experiencing working capital negative that will recover. One is that we have to delay basically building on the back of the new Royal Decree on access tolls and charges, and that is affecting first half for about EUR 140 million. And then we have basically the 2 noncash items, which is the CO2 2006 clawback for EUR 180 million and the EUR 48 million of the hydro canon that we are expecting to be basically cash at year-end. So by these 3 elements, we basically are going to recover all the delta that we have vis-a-vis last year in terms of working capital. And to part of your question, whether we are seeing an improvement in bad debt? As I commented, when -- on the net ordinary income, basically slide, we have a release of EUR 80 million from the provision of bad debt on the expectation obviously of the recovery of the second part of the year given that, obviously, we provision much more basically in 2020, given the situation of COVID in 2020. But at the moment, we are basically releasing EUR 80 million of provisions some when it comes to the debt for the remainder of the year.

Next question comes from Jorge Guimarães from JB Capital.

Just 2 quick ones. Firstly, regarding the recovery of the hydro canon. If you -- I assume you did EUR 48 million at the EBITDA level. Will it be all the impact for the year, this EUR 48 million? Or will it also have some impact in the second half? So are you expecting to recover more in the second half of the year or all of your recovery of the hydro cannon is EUR 48 million at the EBITDA level? And I understand that at financial level, there is also an impact, doing some back of the envelope, I got to EUR 14 million, so is it correct, my number? And the second question is related to the suspension of the 7% generation tax. In the past, this was seen as a pass-through due to crisis. Prices usually went down when the 7% was cut. But now you are assuming that you're going to improve your EBITDA by EUR 40 million to EUR 50 million on the back of this reduction of tax. Since these taxes reduced to reduce the price -- the power prices, don't you fear that if the -- if you appropriate the gain, at least in an open way, the government may decide to go again -- go for the companies and implement another tax to net out this effect? I mean if the generation tax cut was aimed at reducing power prices, and [indiscernible], companies appropriate the game, isn't it a risk of the government imposing more taxes? Sorry for the long question.

Okay. Let me say only that as of the first half of the year 2021, we have recorded. In terms of the hydraulic canon, we have recorded the part. We consider certain to be recovered. We will see how things evolve during the next month, and we will take decisions. But in any case, Luca could you explain...

The part we recorded is related to the 2013 hydro cannon. So we still have about EUR 50 million of potential recovery for 2014. However, this depends on basically the procedures in the court as it evolves throughout the next months. So to your question, whether we can book this remaining 2014 hydro cannon this year? To be honest, I don't have an answer today because it depends on the evolution of this process. Then there was another question within the hydro canon, which I didn't understand, you refer to EUR 40 million, but I didn't get the actual question. If you can probably just say it again. And to the final question, say, the suspension of the 7% generation tax. It generates a positive contribution to the gross margin because we have already hedged our position when this becomes effective. So this becomes effective the third quarter of this year, and we have already fully hedged our production with final customers for the period. That's why there is a positive contribution. Now whether this could trigger other measures by the government? To be honest, I don't think so in the sense that the purpose of these measures is temporary and is to reduce pool price given the situation of price. And this has worked well back in 2018. It's working mildly this year because obviously the gas push up in prices -- supporting price is much higher. But definitely, let's say, some measures with that objective. Now if companies hedged their production 1, 1.5 or 2 years in advance is part of our strategy and nothing can be done about it. And this is something, again, also part of our discussion on the potential new CO2 clawback that needs to take into account the hedges already put in place by each company.

Jorge, I don't know if you want to repeat the part of your question that we missed?

Yes. Can you hear me?

Okay. Yes, perfectly.

I just wanted to clarify the impact on financial results of the hydro canon?

Okay. Below basically EBITDA, it's EUR 11 million.

We move to the following questions, comes from Jorge Alonso from Societe General.

Few questions remaining. On the different tax -- on the Catalan tax, are you taking any legal action? And do you foresee or do you expect to -- I mean a possibility to recover that in time? On the supply side, once again, we were mentioning these dynamics of companies that are just not looking into the long term. But I would just wanted to ask about your view because we've seen as well big companies trying to establish like ENI, Total or even China Three Gorges targeting their retail segment in order to combine with renewable installations. So you see really that this is the beginning probably of a new situation with much bigger players on the supply side? And the last one is regarding the batteries that you mentioned that batteries could be installed only if there is some conditions and regulatory issues. So what are you referring to? That the capacity markets, regulation or other things that should change in order for the batteries to be profitable?

Okay. Jorge, let me give you some answers and then Luca detail. About the Catalan tax, well, we are -- well, I think that we are right and we will win at the end, but we need just to follow the procedure -- the legal procedure just to reach this -- to recover this tax that we think is unconstitutional. With regard to the supply and the long term, well, again, this is in my opinion, I think that oil and gas companies are paying a lot just to entry in the energy or the electricity sector. But for instance that, in these companies, for me, are companies that will try to stay in the business for a long time. So I really highly welcome companies that will want to stay in the business. So we are not worried about the intensity of competition, the payment that they are doing now, or how they are trying to take this position in the electricity sector because we are sure that we will try to be for a long term in that business, and then we will compete for sure. But in a good faith in the sense that trying as to be the best to the customer, but looking for the profitability also of the companies. In terms of the batteries, I would say that we need some kind of regulation in the future. And I think that we will have this regulation very soon because of 2 reasons. One of them is that we need to develop and to deploy some kind of batteries just to really get experience to be how this technology evolves. And also, as you know, in the PNIEC, we consider [indiscernible] consider 2.5 gigawatt of batteries that would be essential just to give the true capacity in the future. But they should be paid in a way in which we don't have yet, but I'm sure that the regulator are trying best to give this remuneration in the future. But in any case, Luca, do you want to add anything?

No. Just on the Catalan tax, basically, I confirm that we initiated the first judicial action against the settlement, the taxes paid quarterly -- on a quarterly basis starting from October 2020. And we have filed the appeal against the regulation going in [ Decotasa ], in which the constitutionality of the same is highlighted. All in all, this is a lengthy process, so it could take more than 2 years to be resolved. But yes, to your questions, we have started also the second part of our judicial appeal.

We move now to the following questions that comes from Gonzalo Sánchez-Bordona from UBS.

Just one clarification and one question from me. On the mark-to-market of gas contracts, and maybe you said this already, but I've had some issues with the line. On the first quarter, you had EUR 61 million negative and nothing was mentioned in the second quarter or in the first half, could you refer to that? And what was the impact in the first half? And also what is the expecting impact for the year? And then a question on the storage projects that you have. You have quite increased your pipeline of projects from the first quarter to the first half -- And I was wondering on the 1.6 gigawatts that you have already mature status, what kind of projects are we looking at? Is just that batteries? Or is it referring to hydro responding or a combination of both? And what kind of time frame are we looking at the moment?

Okay. Luca?

Okay. Regarding the mark-to-market gas contract, we are at EUR 80 million negative mark-to-market in the first half and we're expecting to basically neutralize [indiscernible] this mark-to-market as long as basically the contracts are being delivered -- goes to delivery. So basically 0 impact towards year-end. While for storage, the majority of the projects are actually batteries. You probably remember that in the plan, we have already 300 megawatts of batteries to be developed jointly with some renewables installation. Now obviously, we need to create a pipeline today if we want to deliver even more, let me say, hybrid type of renewable solution with batteries going forward. So that's more or less where the pipeline has grown recently. Now you probably -- and I think I've commented this in the past, still the returns of renewable plants with batteries are slightly lower than normal basically renewal plant, and that's because, obviously, there are -- there is no regulation at the moment for this kind of batteries. We are talking of 20% of the capacity of a plant type of batteries with, let's say, peaks of maximum 5 to 6 hours in terms of the technology. But at the moment, the majority of the pipeline is actually that one. Then obviously, for hydro piping, we have a few projects under the next-generation EU, basically a pipeline of projects, and those will be basically put in place only if we get the grants of our next-generation new funds.

This was the last question of our call. We have received several questions from the web, but most of them have been addressed during the conference. So there is only one question left and that comes from Jose Ruiz from Barclays that is in relation to, if we are expecting more acquisition of solar pipeline?

Luca?

I think -- Okay. The market is -- I hear some echo.

Yes, me too.

can you hear me now? Still some echo. Okay. Perfect. So basically, what I was saying is that for operating assets, it's pretty compelling at the moment in the sense that there is out of activity. We've seen a transaction announced yesterday by ENI. There has been another transaction announced recently. There's been the [indiscernible] which has been probably the largest transaction in the market. So for us, we have, let's say, a very ample pipeline generated in house, but we always look at, let's say, other developers pipeline. And a lot depends on the type of developer, the type of agreement we construct with the developer and obviously evaluation. So there, I can say that we are basically not leaving any stone unturned. And we have a discussion with different parties in order to accelerate further our pipeline developments [indiscernible].

Okay. We are done. Thank you, Pepe. Thank you, Luca. Thank you, everybody, for attending this conference call. And just remind you that IR team is available to help you with any part of the question you may have. And just to conclude, I would like to wish all of you happy and well-deserved holidays. And thank you very much for your attention. Bye.