Enefit Green AS (EGR1T) Earnings Call Transcript & Summary

Hi, good morning or good afternoon. Welcome. I'm happy to see you all here at our interim -- unaudited interim report presentation. My name is Aavo Karmas. I'm the CEO of Enefit Green.

Hi. Good morning from my side as well, Veiko Raim, CFO of Enefit Green.

As usually, we're going to present our results and expect you all also to ask your questions during a presentation. You please use a chat during the meeting. And if anything else -- I mean, any questions or comments you may have, you're always welcome to e-mail [email protected] anytime you want and all your questions will be answered by us. So let's kick it off. And so year 2023, how was it? So before making any comments specifically on '23, so it was a kind of a proof again that not every year a similar to another one in energy sector. So that we all remember of extraordinary year 2022, which is now a history, and '23 was not a similar to 2022 at all by all means. But we will come to it during our presentation. But in general, if we speak about Enefit Green in 2023, we continued our growth story. So last year, we made an investment decision for 3 wind and solar parks in Estonia, Latvia and Lithuania in total capacity of 180 megawatts and estimated CapEx of those projects is around EUR 200 million. And as of today, we have around 500 megawatts of capacity in operation and more than 700 megawatts of wind and solar projects under construction. And then also last year, we increased our development portfolio and currently it is around 5,000 megawatts. And all in all, during the last 3 years, we have invested around one -- or made investments in around EUR 1 billion in order to grow as we expect. And last year's power generation, overall generation was 1.3 terawatt hours, which was historically highest result, and then 20% more than in 2022. But we expected more, to be honest, that we had an extraordinary winds, which resulted to less production than we expected and we'll come to that later on. So the power prices. So here, we have brought out power prices in the countries around the Baltic Sea. And as you can see, the prices in all countries have been -- or dropped almost 2x compared to 2022. So this is, I would say, one of our most significant -- how should I say, significant events, what had impact also on our results as overall. And if we have look on annual production and consumption in the country. So compared to 2022, we didn't see much of changes there. So the overall consumption -- or sorry, production last year was 593 terawatt hours and consumption 573 terawatt hours, remaining the same level compared to 2022. The same with import. That last year, countries total imported around 20 terawatt hours of electricity. And the highlight from here is Finland -- in 2022, Finland exported -- sorry, imported around 12 terawatt hours compared to 5.6 terawatt last year, so almost twice as less. And this is mainly because of a start of Olkiluoto nuclear power plant last year. So here, we show you a power forecast -- power price forecast of different analysts companies. So it's Volue, SKM and Thema. So this is kind of the average combined results. So basically, what we can see from here that those, analysts do not expect any kind of significant fluctuations in the power price for coming decades. So, basically, we can say that we are back in the normality. We see that the Baltic power prices will be in a range of EUR 80 to EUR 90 per megawatt hour. Poland, a bit more, between EUR 110 and EUR 120. And Finland, kind of traditional being the lowest of all, around EUR 70 per megawatt hour. This is, of course, the current knowledge as we have also brought out here that actually analysts' expectations have also dropped by 50%, what we were a year ago. Now if we come to regulatory changes in all our home countries. So I would say that it was mostly Estonia, Latvia, Lithuania and Finland have increased their renewable goals by 2030. Poland has not done it yet. And Estonia, and then Lithuania even aim to have 100% of consumption covered by renewable generation by 2020 -- 2030, and as well as European Union has increased its ambition from current -- or previous 40% to 42.5%, aiming 45% by 2030. So on that slide, we have brought together all major changes in renewable sector, both in European Union level as well as in our home markets. I will not go it through everything here. You can read it from our interim report. But what it's all about is, the countries are looking for opportunities to increase the generation of renewables faster than it has been so far. And the same applies to European Union level, where new directive RED III was approved, which is mostly about putting a new target for industry, transportation and also building sector and also finding ways for our faster permitting. We -- last year was historically here in Europe, as such that was the first year -- electricity, which was produced with wind was higher than from gas, which has been traditionally the largest source of energy or power generation in European Union. 17 gigawatt hour of additional wind was commissioned in European Union but it is still not enough. So in order to meet the 2030 targets, the average annual addition should be 30 gigawatts per year. So that -- there is certainly a need for a faster generation to come online across all Europe. And the third factor -- external factor, which has an impact on our businesses, is a wind condition. So usually, wind speeds in -- are high in the first and fourth quarter. So it was also last year. Maybe not so much in Estonia where we saw a bit of less wind, in Q4. It was -- remained bit to a slightly higher than Q3 but Lithuania had a kind of average wind conditions. And now coming to our availabilities, which is something what we can have an effect and then we certainly do have a focus on it. So very shortly, going it through. In Estonia, wind farms availability was 0.2 points higher than 2022. So last year, it was 94.7. So it was a good result, especially in our wind turbine fleet. We even saw a higher increase but it was more than 2 points. In Lithuania, a bit less availability compared to 2022. '22 it was at 94.9%. Last year, it was 92.1%. And it was mostly affected by Silute wind farms or interruptions in Silute wind farm, which is operated or is currently under a full service agreement operated by GE, all the other wind farms actually on a higher level compared to 2022. But I'm happy to say that at the end of last year, we agreed an action plan together with GE, how to bring Silute wind farms availability to expected level. And I can say that looking at the results of first 2 months of this year, we have seen already very significant increase in availability of Silute wind farms. So I'm really, really happy about our team contributing to that. And moving on to CHP availability. The last year's results was 96.2%, which was kind of a -- it's more or less expected level, and it was more than 6 points higher compared to 22%. But remember that in September '22, we had a 5-week break in our outage in Iru, our largest CHP plant, which had a lower availability -- effect of lower availability in 2022. And the solar farms continued with an ordinary high, almost 100% level. Here is just a snapshot of 3 projects, which came online last year. So Purtse hybrid park of 21 megawatts of wind and 32 megawatts of solar. And we have Estonian mine solar park and then Zambrowi farm in Poland as well. Now moving on to our long-term plan. So still, as you can see, we still have more capacities under construction and in operations. So that shows our fast growth. And by the end of '25, we expect that our operational capacity will be above 1.2 gigawatts, and our near-term pipeline is around 511 megawatts. We will elaborate later on. Now we've had a closer look on our projects, which are under construction with total capacity of 709 megawatts. Just to bring out a few things from here is Tolpanvaara wind farm in Finland, which is -- should be fully operational Q1 -- by the end of Q1, '24. So currently, still the final adjustments ongoing in wind farms. Most of the turbines are already producing electricity. Final adjustments should be made by Nordex, who is our supplier. When next project Akmene wind farm in Lithuania, which had this unfortunate collapse of a turbine in May last year, which had, I would say, significant impact on -- also on our less electricity production what I mentioned at the beginning. So as our annual production was 1.3 terawatt hours, so Akmene itself only was kind of contributing around 100 gigawatt hours less production compared to what we expected. So currently, all -- I mean, 13 turbines out of 14 are producing electricity. It's already from beginning -- sorry, from the end of last year. All the bulk availability is really good. We are happy with that. And those collapsed turbine, we expect that should be in operation by the end of April this year. And our current focus is purely on getting it online. So certainly, we had also a financial impact due to less production, and we certainly will stand for our rights how to get compensated in the future. And then last but not least, to mention Silale II here, I mean, also all the turbines are up and running. So final tests, grid test should be made in due time. So nothing special here. And same goes with the rest of the projects. So our largest project, Sopi-Tootsi wind farm, we expect the first production should be delivered in Q4 '24. Everything is currently going well. We expect to get it online even faster. This is a target of our development team. So moving on to our near-term portfolio. So this stands out of 150 megawatts of wind -- onshore wind and 361 megawatts of solar. So with those projects we're up and some of them are really in late development phase, some still work needs to be done in order to reach FID readiness during this year. So with those projects, we still expect that they will be -- or they should gain some revenue security before making FID, either it's CfD schemes, support schemes or PPAs for our customers. So still we continue or keep our promise that we will not execute any of our projects purely to merchant power market. So saying that, all our under construction or in operation or under contraction or our near-term pipeline capacity as of today is slightly above 1.7 gigawatts. And our long-term pipeline here, we also have some news. So happy to see that we have also managed to increase our long-term onshore wind and solar portfolio in most of our home markets. We have Liivi offshore wind farm, we are conducting final studies and expect to submit the EIA report at the end of the year, beginning of next year. And the good news -- I have good news, bad news about Loode-Eesti wind farm. In Estonia, which has been under development quite a long time already. But I have to say that at the end of the last year, we are -- our EIA report was approved by Ministry of Climate, which is really a crucial and important milestone in order to go to the next phase of development. But the thing is also that the local NGO has appealed that to a court to cancel this approval of Ministry. So -- but currently, this has no major effects on our actions. So we'll continue our original plan. And then last but not least, to mention from the last year is that we decided to exit our biomass business or operations in order to keep a focus on wind, solar and also storage in the future. So we're happy to say or we're happy with the result, selling Paide CHP, Valka CHP to Utilitas, Estonian utility company. And then Broceni the operations to Warmeston, who is also Estonia region pellet producer. So that with Broceni the deal is closed and with Paide and Valka we're still about to close it in really short time. So that was it for a while from my side and I give it over to Veiko.

Thank you. So let's go through the financials. So first of all, Q4 2023. So as we have been reporting our electricity production was 430 gigawatts hours, which was 42% above last year's. But it is fair to say that our expectations were quite a bit higher. So while this includes around 112 gigawatt hours of new production and even the existing farms were also and other assets were also producing 3% above last year, then actually, our expectations was quite a bit higher. So we call it that roughly 170 gigawatt hours more we would have expected to produce. And really behind it is, on one hand, the low wind speeds, and on the other hand, the availability matters that I will mention. But also the slower coming online of our under production assets. So this is something that we are working now very heavily to bring them online as fast as possible. So in terms of the price that our every gigawatt hour of electricity produced earns, that was EUR 81 per megawatt hour. We expressed it in such a way that it takes into account both revenues from the sales of our renewable subsidies where we still have any -- also the guarantees of origin. But also it takes into account the purchases of power that we do for servicing the power purchase agreement or balancing energy. So EUR 81 per megawatt hour. Last quarter was 50% below the extraordinary Q4 of 2022. And as a result, if you look at operating income, EBITDA and net profit, they are all around EUR 16 million lower than in Q4 2022, being EUR 29.6 million of EBITDA and EUR 19.1 million of net profits in the recent quarter. Now I would turn to electricity prices and volumes that we sold. So let me start from the top right-hand side. So you can see that our production was indeed for 413 gigawatts hours. On the sales side, 2 green bars, 273 gigawatt hours was sold under the PPA contracts. And then on top of that, 247 gigawatt hours was sold essentially to the market exchange. And you can see compared to the year ago, really, the growth in terms of volume is in the PPA side, whereas the market-based sales was about 12% higher. What has increased roughly twice is the purchases and really that is the split in 2 ways. Firstly, there is around 63 gigawatt hours of PPA-based purchases that we needed at the times when the wind was not blowing to service our obligation. And then in addition to that, there is around 48 gigawatt hours of balancing energy because actually, the wind prediction 100% is near impossible, which means that there are hours when we produce less than we expected, and we need to balance our portfolio as well. So this is -- essentially this is just balancing energy that always is between that prediction and actual final production. In terms of prices, if you look at the table below, left-hand side. So really the one key factor to point out is the price of electricity sold the market in this quarter, which was EUR 64.1 per megawatt hour. And really, this has seen quite a substantial drop, 64% compared to the last year's, whereas, actually in the market price itself has dropped around 58%. So the real reason behind it in Q4 is the more deeper wind discounts in our markets. So in Lithuania, it was about -- actually, Baltics together, it was about 22% in Q4 of last year, whereas in Q4 in 2020, it was around 12%. So just the wind-based power has received less euros per megawatt hour as the prices were not as high in this windy hours. In terms of the PPA price, that has reduced a bit as well, 28% in fact. But in the latest quarter, while the volume of the purchase has increased twofold, then the price of the purchase was actually 2x lower. So actually, the millions of euros that we had outflow in terms of power purchases was actually lower in Q4 2023 than in '22, right. If we now turn to EBITDA. So on that side, the price net impact from -- if one takes together both lower sales price as well as the lower purchase price, then it's EUR 22.8 million. But mainly coming from this lower price earned from sales of the power exchange. Secondly, the net impact from the quantities. I mean, we produced 42% more. So this had a positive impact and increased in total the quantities -- the volumes of sales and volume purchases, EUR 8.9 million. In terms of fixed expenses, then we -- in order to go through these as well, we see that the maintenance costs have increased by about EUR 1.3 million in this quarter. It is to the indexation and having more assets online as well. Secondly, we have service and consultations expenses, about EUR 1 million impact from there. And really, part of that is one-off related to biomass asset sales, about EUR 4.4 million, and the rest of it has really gone to the development side to actually advance the development portfolio and bring that closer to the construction readiness. And finally, the third biggest impact, payroll expenses, it's about EUR 0.3 million. So this is due to ourselves actually having more people, especially in the development teams. In terms of cogeneration segment, here, main impact was that profitability of the pellet business was lower in Q4 than the year before. So the revenue was impacted more -- dropped more than the targetable expenses. And we would also like to point out here that, as we finalized and closed the sale of the Broceni CHP pellet plant and CHP factory, then that earned us EUR 1 million of extra profit in 2023. If we take the whole year now in terms of where we are and how it comes together, as I mentioned, 1.3 terawatt hours of production. Again, we were not where we expected. Our expectations was about 300 gigawatts hours higher. So both in terms of slower wind speed and also coming online of the later of our assets as well as Akmene incidents. I mean, these are all major factors that have contributed. In terms of the price that we earned for our production, EUR 90 per megawatt hour. And I'll tell a bit more about this on the next page. And finally, in terms of the results then our operating income earned 10% below last year's EUR 230 million. Our EBITDA was close to 1/3 lower than last year's extraordinary EUR 154 million, and we earned EUR 105.9 million this year. And then finally, net profit is EUR 55.8 million. If one move on now for the electricity prices for full year. So again, volumes picture on the top right hand side. Then you can see that as mentioned also for the Q4, the volume sold to the market was roughly the same. Then the PPA based sales were around 500 gigawatt hours or up higher. And on the back of that and on the back of higher production, basically, on the back of the PPAs, we need to buy more to service these PPAs at slow wind hours, around 200 gigawatt hours. And on the back of the bigger production, we actually had more imbalance of purchases as well. So that's the other half of 411 gigawatt hours. In terms of prices earned, our prices of electricity sold to the markets dropped by 56%, which is roughly equal to the total market prices on these regions. Our PPA price was -- for the full year, was slightly below last year, so 4%. And what we have been communicating over the last quarters has been that PPA volumes and purchases on the -- to service these PPA volumes have been higher. And even if the purchase price has been twice lower, then that still in total has increased our costs to purchase that power, right. And in terms of -- we now move on to the operating income. So here wouldn't stop for long. Key features here is higher production levels from all our segments. Both wind energy and CHP have produced more, and solar energy actually doubled in terms of production. So these were all strong figures, even though we wanted more. And in terms of the prices earned, they were lower in each of these segments as well. So essentially, what is an outcome is a balance of all of these 2 factors. Plus finally, in terms of CHP segment, also higher revenues from pellet sales for the full year, waste collection revenues from Iru waste to energy plant as well as heat sales. So these had positive impact on our revenues. And the EBITDA bridge, I mean, one call -- I think 2 slides back was that actually the price we earned for that power that we sold to the to the marketplace were 56% lower. And as the volume was roughly the same, then that actually meant that we earned about EUR 22 million less from these sales alone. And, really, while some of it was balanced by lower purchase price, then altogether, still the electricity price net impact as it realized last year was a net negative for us. Then in terms of the quantities, we again produced 20% higher than in 2022 and that had in a net terms, EUR 15.9 million positive impact if you take the both sales quantities and purchased quantities together. And fixed expenses 0.8 -- EUR 8.6 million higher. Well, these are really to do with the -- again, the same fees, really. The maintenance expenses being EUR 2.5 million higher, mostly due to the indexation and higher production levels or the more assets in production. Then in terms of the studies and consultations, EUR 2.9 million increased to take forward our development portfolio. Plus, there is about EUR 1 million of one-off cost also in these consultations due to the various projects that we had. And then finally, the personnel cost, EUR 1.7 million impact. I mean, these are the 3 largest ones. And altogether, finally, the cogeneration segment had a positive impact for the full year, and that included EUR 1 million of the of the sales profit. And we're going through the segments quite fast. Firstly, the wind segment. I mean, all the key features I've mentioned, in terms of the production growth of 21%. I mean, 529 kilowatt hours of production came from Estonia, so that's slightly below last year's, even including the new wind farm. So there that fourth quarter really had a negative impact. In Lithuania, we produced 562 gigawatt hours of power. So that's quite a bit more than last year's 378. That's Silale II and Akmene had a positive impact. And finally, we had 12 gigawatt hours of production of wind also in Tolpanvaara Finland. So this is the small impact, which we expect to be a lot larger this year. And when we speak about operating expenses, maybe it's worthwhile to find out that operating expense per megawatt of capacity were around EUR 40,000 last year for the full year. You can see that it has been 13% higher, compared to the year before due to these indexation impacts that we have been having in our agreements as they come in with lags. But I think one maybe point to find out what is expected to happen in the future is, as these new wind farms come online, then, with the example of the first wind farm, Purtse we can see that the operating expenses per megawatt of capacity is actually 1/3 lower, roughly. Of course, it all depends whether it's on our own land or whether we rent the land. So there are differences between parks. But here we can see that this is -- there will be 2 impacts in the future, including also the new parks being more efficient. Then CHP, maybe the point to highlight on this screen is that, EUR 37.4 million of EBITDA that we earned last year included the CHP based assets -- sorry, biomass-based CHP assets, which we are in the process of exiting finally, and Iru, which is waste to energy. So Iru's share in this EUR 37.4 million was EUR 29.1 million. So this is the ongoing and recurring EBITDA also that will be happening this year, depending on later results. And then finally, all the other impacts, I think, have been pretty much mentioned already on earlier pages. Finally, the solar segment, here, maybe the thing to point out is that -- actually, 2 things. One is that the operating income seemingly 37% lower. But within that, actually, the operating farm revenue having increased in the bottom left-hand side from EUR 4.9 million to EUR 7.3 million as we have exited in '22 already from certain low margin businesses. Whereas, EBITDA performance in 2023 was lower, then that was also to do with fixed cost, in the solar area to support our new assets and new developments, mainly due to the payroll expenses and studies and consultations. Right. In terms of investments, we are -- we have -- going on, too fast -- EUR 355.7 million to be exact, the investments in 2023. So lion's share from that went to the wind side, EUR 315 million and EUR 36 million to solar. And, really the assets that are under construction here, you can see all the familiar names, the Kelme I and II, Sopi-Tootsi, Tolpanvaara, also Vandra PV parks, pretty much all under construction assets, except Kelme II that we just started, will be expected to give their first production in 2024. So Silale II and Tolpanvaara will already had, Purtse is operational, and then we expect Sopi-Tootsi and Kelme I, II deliver the first gigawatt hour as well as well as Sopi PV. So, so moving through them the cycle quite fast. Finally, EUR 55.8 million, we have the net profits, and per share it's EUR 0.21. And taking all of the above into consideration, we, as a management board, have proposed, in coordination with the supervisory council, also, the dividend for the year being EUR 0.105 per share. So around 50% of the of our last year's profits being paid out. So this is according to our dividend policy. Right. Financing. As we have gone through the investment space and there's all -- at the moment around EUR 458 million of unfinished construction in our balance sheet, then, of course, it's quite high or the leverage is increasing fast. We are expectedly higher at 3.9x net debt to EBITDA at the end of last year. And, really, the balance is that we have taken out interest rate swaps in -- in terms of costs really -- have taken out the interest rate swaps in 2022. We have not added to these in '23. So -- but we remain open to do so this year in case we see fit. And, currently, the interest rate is fixed for around 33% of loans. We have signed a lot of loan agreements this year. Last year, we basically EUR 505 million. We have currently EUR 60 million as of end of the year in the balance sheet. We have, debt capacity on unsigned -- unutilized debt facilities of EUR 335 million, altogether EUR 400 million of liquidity, and we're having additional ongoing discussions. So we are quite confident on '24. Of course, the return given the amount of assets that we have that are not yet producing are lower. So once we bring these assets online, that is expected to increase the production, expected to increase also the retail we earn, and by that also returning to our assets more. Power portfolio. So this has been, I think, the focus on each of these calls quite a lot. And, really, PPAs are there to protect against low power prices. Of course, they -- as being as base load PPAs or monthly baseload PPAs, they have flip side as well. That they have risks when the power price go very high. So we have to actually spend quite a lot of time to actually describe the differences in our interim reports. So feel free to have a have a look there. So this year, we will have signed -- for this year we have signed 1.3 terawatt hours power purchase agreements, which is around 60% of the expected production. If we go into next year's '25, '26, there you can see that the level of PPAs -- and '27 as well, is around 1.5 terawatt hours, which is roughly around 50 percent of the expected production from the assets currently operating and under construction. So it is reducing in time. We have latest investments taken also with lower power purchase agreement coverage, recognizing the risks that they bring in the high market price situations. And the total average price that we have is -- for our portfolio EUR 68 per megawatt hour and it hasn't really changed a lot over the last 12 months because we didn't sign a lot of agreements, only 52 gigawatt hours. So at the moment we have portfolio as it stands like this. And we've also brought it out in a bit more detail on quarterly fashion as well for the year '24. 2.2 terawatt hours of production that we expect comprises of 1.2 terawatt hours from the operating assets and 1 terawatt hour or slightly above from our finished or under construction assets. So this is really visible in this production volume graph on the left. And then behind that, or beside that, rather, is the green bars bringing out the PPAs that we have signed for each quarter and also the respective prices. We are mindful that last year we had a risk that -- risk realizing that we produced quite a bit less than we expected. We had quite a bit more PPAs than we ideally would have had. So this brought about actually also the higher expenses for the purchase of power. So this year we are following it very closely and actually we have made, and are making adjustments into our this year's PPAs as well. So as these are basal PPAs, they can easily be repurchased and these positions can be adjusted. Right. I think that is really it from my side.

Yes. Thank you, Veiko. So as it was year 2023. So compared to 2022 many things have changed, namely power prices. Also a bit of lower wind availabilities using Lithuania. Unfortunately, Akmene case all that had an impact on our business results. But taking into account that there is a still huge need for renewable electricity in the future in all our home markets due to new national climate plans, energy consumption is growing. Electrification is certainly one of the drivers mainly in transportation and in housing or heating sector, which all will need more and more renewables coming online -- to come online in the future. And nevertheless taking into account the results of '23, we do not see that there is the need for change our strategic approach. We still keep going on growing our portfolio. Our main focus for this year is to bring online every megawatt hour of currently under construction projects in time or even faster. So this is very crucial. At the same time continuing our development portfolio, increase of our development portfolio, which is currently very strong. Knowing our professional and dedicated team and their capabilities, I'm really positive that they can do it even more. But at the same time, we also realize that it's not all about the growth. That we have to be mindful -- with taking our risk, we have to be mindful of keeping our promises to our shareholders regarding our return on the capital, that it's always not less than 2 points on our weighted average cost of a capital. And we always follow our investment policy and investment criteria. So this is all what we do. And same time, we also know that there is also capability for us to acquire additional capital from the market when it's needed. So saying that, thanks very much for listening, and now we are ready to take your questions.

So first question, what impact do you see from EVs and heat pumps growth in coming years? As I briefly mentioned that certainly those 2 sectors are drivers of a future electrification, transport and heating. So we already see that the number of EVs is growing. It's just a matter of time, and it's a breaking point for acceleration in that. And also seeing that the heat pumps are replacing existing solutions based mainly on gas. So this is the future. So the only question is that how fast it will change. And I don't want to speculate here. But it will happen. So Latvian State Forest and Latvenergo joint project, can you please give some comments? Yes, I mean, this is about giving exclusivity rights to a joint venture to develop onshore wind in almost 10% of Latvian State Forest lands which are suitable for wind development. I think this is not the fair treatment of market participants, so to give such exclusivities. But as a Latvian State Forest is currently doing auctions for their areas for wind development, so I don't see why one company should have just exclusivity for 10% of that. And then I know that -- there are some market participants would agree the same. And, yes, I just don't consider it right.

Yes. What future steps will be taken to increase dividend versus share price yield? I think we are more of growth company, so we don't specifically target any yield. What we've said during the IPO is, our dividend policy is 50% of payout and really our focus is on increasing the production. That in turn expected to increase the EBITDA, also increase the net profits. And then that would create the conditions to allow for dividends and increasing dividends at times. So, yes, this is our way.

Can you please explain more why there are so few gigawatt hours of your projects in Latvia? Yes. This is a good question, I mean, we need to go back a bit to a history. I mean, before Enefit Green acquired Nelja Energia, we were mostly Estonian based company with our operations back in 2018. In 2017, we approved our new strategy, looking -- or taking Enefit Green approach to go abroad to our neighboring countries, including also Latvia. We started to set our teams and our activities. In 2018, we acquired Nelja Energia, who had the operations both in Estonia and in Lithuania. So this was kind of, I would say, that organic move that we have more operations in Estonia and Lithuania, for instance. But Latvia, we have a dedicated team in Latvia. I mean, working with our developments. If you remember one of my slides, I showed you our long term pipeline. So our long term pipeline, we consider that those are projects, which will reach to FID after 2025. So that there is also Latvian projects, both solar and also onshore wind and also storage. And this year we currently do have 2 solar projects under construction with total capacity 17 megawatts in Latvia. So those are just kind of first signs -- I mean, first marks that we do have a serious plans in Latvia. That taking into account what is a share of renewable production. From a total consumption in Latvia today, we see that there is still a lot of room to increase it. And Latvia has -- when I'm specifically talking about the wind, good wind conditions, they have very good solid grid. So there is a lot of potential. So it is certainly one of our core markets. Looking at battery storage solutions for better price. Yes, I mean, of course. I mean, battery, we cannot ignore this technology. And then we really have a first pilot already this year in our Purtse hybrid park with 2 megawatt and 4 megawatt hour battery. And as we have also said before, that all our new developments are designed in a way that we can connect to the same connection point onshore, wind, solar, and also storage. So certainly storage is a future. We see that actually the price for storage is coming down. And of course, one needs to find really a good business case for a storage. It can be either arbitrage against market prices, it can be service offering for TSOs for system services, and so on and so forth. So that, yes, this Purtse is for us as a pilot to learn and study. But we have created kind of opportunities for a future development. How much interest expense do you expect?

Record P&L this year. Last year we recorded very little, as you remember. This year, we -- in the beginning of the year, still will be capitalizing most our interest costs. If you just take the current loan balance and the current percentage that we are paying are around EUR 16 million, based on that. And as the loan balance will grow, so it will exceed total interest EUR 20 million this year, we believe. But we still believe that we are likely to capitalize most of it. So it would definitely expect it to remain short of EUR 10 million of P&L based interest costs. Yes.

So, the next one. Have you considered purchasing projects on a market that are ready to build stage? What can you say about return profile of such projects compared to developing in house end to end? The short answer is no. And why? Of course, I will explain. I mean, in order to explore our strengths, I mean, this is our knowledge and experience from operations and development, combined with our ability to finance our projects. We have decided that we have so called vertically integrated business models. So that we plan, we design, we develop, execute and operate all our assets by ourselves. So that we see that doing so, we can create more return to our projects. Just our experience has shown that those so-called turnkey projects, which are currently operational are too expensive. I mean, they will not meet our return targets. Hence, we are ready to look for so called predeveloped projects, which are in the middle way, on a way to become operational. So that this is part of our everyday job. But once again, we follow our investment criteria and return expectations here.

And next one is for me. So, how much you lost with those power purchases in the last year? Have you made changes to your contracts to avoid similar risks in the future? Good question. So what we've looked at is that, we went at the year at around 60% expected PPA production ratio, right. We produced less than we expected, so we ended up being more. But we have around backwards looking that what would have happened had we been 80% hedged, 40% hedged? No hedged at all. And what we have figured is that our earnings would have been around EUR 5 million higher had we had no PPAs at all. So it is a substantial amount but not higher. So, last year, as the power market price realized, not very far from the PPA price, then we did less well than we would have. But actually, our main concern last year was the missing production. So this is one. What we've looked at is that these PPAs protect us in case the power prices are low. But they have pose certain risks when there are peaks, and especially if we have shortage of production. So this year, we are managing it more actively, acknowledging the risks that we have from our under construction portfolio. And we are in the process of actually adjusting these hedges as well because these can be -- as these are Basel hedges, these can be adjusted on an ongoing basis, of course, at market terms. And this is the way how we are approaching it this year. Next one, what was your original electric production projection for 2023 in terms of gigawatt hours? It was around 1.60 terawatt hours. So around 300 gigawatt hours more than we actually ended up producing.

One [indiscernible] goes up. Okay, next one. Why didn't you participate in Estonians Liivi I and Liivi II offshore wind farm auctions? What is Ignitis seeing there that you are not? Yes, I mean, currently the auctions are ongoing in -- offshore auctions ongoing in Estonia. There was just a news this morning that one of the auctions actually failed. No bids were made for one site. And also with Liivi I and Liivi II were also not, I think. Both projects were won by kind of, I call it original bid or starting price. So the reason why you didn't participate is very simple, because we see that our existing -- we do have 2 offshore projects in our portfolio, as shown before. But we see that our Liivi project, which is more kind of advanced, and both Liivi I and II, and we also do see, according to information we do have about the conditions in Liivi I and Liivi II, that our existing Liivi is much -- more competitive compared to both. So what Ignitis is, I cannot speak for Ignitis, of course.

Yes. What's the underlying index in the maintenance contracts used for indexation to all existing contracts? Have such mechanisms included? Yes, these are either CPI, BPI, or personnel cost based. And it is a tradition in this industry to have these indexed. What we can do about these, at certain points in the time when we have exit opportunities or when we have actually the power production asset reach at an age, we can renegotiate these agreements or take lower protection level, so to speak. So as we are in second half of their lives then we often choose not to pay for the full protection but rather take certain risks ourselves, which actually comes with lower price. So yes, there are ways how to mitigate these growth in indexes and costs as well. Then the next one is how much CapEx do you foresee in 2024? We don't actually project or publish our CapEx predictions. But in the last call we've asked, okay, how much CapEx is still to go until the end of the construction of all these currently under construction projects. It's slightly about EUR 450 million and it will be split between '24, '25 and a little bit remaining in '26. So this is for disclosure. The Baltic power market -- power price market is transferring from our price lots to 15 minutes price lots. Does this create more opportunity, more risk to you? Yes, very good question. So this is mainly going to kick in 2025 but it's the first products will already be available in second half of this year. So it will create a challenge in that respect that as at the moment, 1 hour is one period, and if you have more production in one 15 minutes and less production in another 15 minutes, then these get -- essentially all get netted out for the 1 hour. So now we will have 4 separate periods. So there is a risk that the balancing costs will increase because the imbalance you cannot perfectly predict and you cannot perfectly trade out. So there is a risk that in 2025, it is going to be -- balancing costs will be higher. But we are, of course, working hard with our partners to take all measures into account to ultimately not have our costs increase too much, or maybe even find opportunities in that, because there are also other markets and other products coming, balancing products or regulation products. So we're exploring these also. Second question, what is the leverage level you expect in terms of net debt EBITDA for 2024? Yes, we again don't publish our expected debt levels as well. But what we have said as our financial policy during the time of IPO is that during the construction phases, we can go up to 5x and a bit higher as well. So we can expect to be around there or a bit higher in terms of net debt to EBITDA level this year. So as we are in probably the heaviest construction phase this year. But of course, this will depend heavily on how much production we can bring in, how much EBITDA can we earn based on that production. And then as pretty much all assets are expected to be full year production in 2025 than the terawatt hours that we produce or gigawatt hours we produce, I expect it to be even more in 2025, which will help us to earn more EBITDA also, we expect.

So do you plan to develop a hydraulic storage solution similar to what we plan and build to Paldiski? The answer is no. We do not have any plans regarding to that. But of course we are ready to look for opportunities to work together with the companies offering, pump hydro -- using this pump hydro technology.

So there is one question for me, I guess, what percentage of volume do you want to have on the PPA before FID and for how long? Historically, we've had 60% of the PPA for 5 years minimum. We've done longer, we've done 7 years, maybe up to 10 years, even with reduced size. But it's fair to say that we're also looking at our investment policy and whether we are contemplating different levels for different types of PPAs and revenue security mechanisms because the base of PPA comes with risk. And it's fair to say that probably in the future we are having a bit less of that. So we are reducing the amount of PPAs that we are contemplating as a hedge for our production assets. But we like to actually complement these also with other revenue security mechanisms. For instance, in Estonia there are expected to be the CfD auctions, which are better instruments. In Poland, the CfD auctions are there as well. Every market actually is slightly different with their revenue security mechanism, so each have their own imperfections. But we work through these. And I think what we have been saying still holds that currently we don't do any investment decisions against the market, purely so we need to have some security mechanisms in place.

I think that was the last one. Last comment is our comment. Thanks. Financially successful year for 2024.

Thank you very much for very good questions.

Yes, thank you very much and see you next time.

See you next time. Thank you.

Thank you.