ERG S.p.A. (ERG) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG 2020 Annual Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luca Bettonte, CEO of ERG. Please go ahead, sir.

Good morning, and thanks a bunch for coming to this conference call related to our 2020 annual result. Here with me is the Corporate General Manager, Paolo Merli. As usual, we start with the Chart #4. I'll give you a quick overview of the main figures of the year, while Paolo will take you through them in depth also for the fourth quarter. 2020 has been so far the year most affected by COVID-19, with a significant drop in the first half of all the key elements of the power industry across Europe, such as the power demand, power prices, natural gas prices and clean spark spread. Only from the third quarter, and mainly in the fourth quarter, we saw a rebound that seems to lead to a far better 2021. Let me start by saying that the last quarter of this year has gone in the range of our last guidance. So in the bottom end, mainly for well below-average wind conditions in Italy. Based on that, I'd like to say that ERG's business also in such a [ blue stone ] has turned down to be quite reliable and resilient. 2020 EBITDA came in at EUR 481 million, 5% lower than last year. Net profit was EUR 106 million, a bit higher than in the 2019, while net financial indebtedness ended at EUR 1.439 billion, some EUR 37 million lower than 2019. As for ERG performance, I get going quickly through each sector. Overall, wind has posted lower results than last year. In Italy, the outcome has been worse, mainly because of the weaker price scenario that came along with a quite good wind availability, as the production dropped by 12%, minus 259 gigawatt hours. The negative trends were partly offset by hedging transaction and higher green unit value. Abroad, on the other hand, we have posted better results as we have benefited from a large installed capacity in France of some 38 megawatts and in Germany of some 22 megawatts for the full year. The power that we produced abroad has been some 170 gigawatt hours, plus 9%, higher than in 2019. And in 2020, the foreign production above 2 gigawatt hours overcame that of Italy for the first time ever. In solar, the result has been higher than in 2019 due to a higher production, better feed-in tariff mix and that continuous cost control. As for hydropower, we have had a second dry year in a row. In 2020, the production was even lower than in 2019 by some 131 gigawatt hours. That means minus 11%. Such drop associated with the weaker energy price scenario has led to lower results despite of higher green unit value and hedging transactions. Thermal power have posted a lower result, too. On top of weaker clean spark spreads stemming from an overall world scenario, we had a significant lower production of White Certificates in 2020 due to phasing out of our initial 10 years' high-yield co-generative scheme. Going down the profit and loss. Net profits for the year is EUR 106 million, a bit higher than in 2019. Despite of the lower EBITDA just commented, we had been increasingly benefiting from the declining amount of financial charges. We made some significant debt capital market transactions in these previous years, followed by a deep reshaping of our gross indebtedness profile, leading to lower and lower costs. Let me underline this is the third year in a row that we overcome EUR 100 million for net profit. I dare to say we are getting used to it. Net financial position at year-end was EUR 1.439 billion. It's lower than in the previous year, with a deleverage of some EUR 37 million. Such result is due mainly to lower investments in 2020. As in 2019, we had carried out some relevant M&A transactions, in particular, in solar power. Let then me finish by saying that we made all the requirements set forth by the rating agency in order to keep deserving an investment-grade rating. Okay. Now the Chart #5, where we have compared 2020 actual results with the last guidance. EBITDA at EUR 481 million is in the low end side of the range of the right projections, as we expected. Overall, the projections have been met in all the business lines. But for the wind sector, that has been strongly affected by lower wind availability. Hydro and thermal has posted better results, while solar has been in line with forecast. CapEx at EUR 156 million is in between the revised guide range border. In 2020, we invested mainly to develop our pipeline to carry on the construction of wind farms abroad, in the U.K., France and Poland. As anticipated last year in May, we could have had some delays in making these investments due to COVID-19 impact. That's why the final figure for CapEx is the low-end side of the range. Net financial position at EUR 1.439 billion is slightly higher than the upper limit of the guidance range. This outcome is affected by one-off cash outflows stemming from the early payment of some financing and corporate loans, following not predicted issuance of green bonds and related liability management transactions. Nothing significant to say about other cash flow items. That's for what's happening in 2020. Go ahead. Now I would like to remind you that we are planning to disclose our business plan for year 2021 to 2025 on the date we will present the first quarter results for 2021. In order to develop an understanding of the new business plan, we think it's time to share with you both the latest industry evolution in Europe and the state of the art for the existing ERG's '18-'22 business plan. In this Chart #7, we have simply reported the guidelines and targets set for by the European Union under the name of EU Green Deal and Next EU Generation. That would imply support -- strong support to renewable energy sources. To be honest, these statements have not been translated in full into reality yet. Let me drink a bit. Here, in Chart #8, you see trends of the new installed capacity in Europe, with a deep dive in the countries where ERG is investing. Looking at the chart in the middle, there is no doubt that the industry has been experiencing an emission slowdown phase, exacerbated by COVID-19 in 2020. Permitting procedures are too complex and too long. Investment to announce the national grid is lagging behind and the carbonization of the power industry is not proceeding at the required pace. In addition, complex permitting rules, out of the basis of the slow growth path, are repowering. In Europe in 2020, out of the 3.5 gigawatts of onshore new store capacity, only 345 megawatts were through repowering, without forgetting that the 388 megawatts of the commissioned assets, that's the picture. However, and despite this progress and constraints, I'm on Chart #9 now, although with some delays, we are on track and on budget as for the deployment of our business plan. As of today, we have increased by 342 megawatts hour capacity. And we are building some 647 megawatts, out of the which 336 megawatts greenfield abroad and 311 megawatts in Italy by powering our existing assets. In the Chart #10, we have simply put a quick snapshot of the 366 megawatts of wind capacity that we are at present building outside of Italy. Programs are duly following their original pass, with some minor delays, mainly due to COVID-19 impact that we disclosed in May last year. Taking the page, in this Chart #11, we show how the repowering program in Italy has been changing over time. In 2018, we had planned that we will have grown by 2022 of some 256 megawatts. We've reduced such forecast to 178 megawatts. That should be up and running partly in 2022 and partly in 2023. Main reasons to explain such change can be identified in permitting procedures longer than expected, appeals and claims against the denials over authorization and issuance of non-completed permits. We strongly believe all these matters could bring about further delays rather than a reduction of the repower capacity, as without repowering, no targets in any European state climate plan will be achieved. And in the meanwhile, we have increased the capacity suitable to be repowered by additional 259 megawatts. That will bring about further investments to build some 498 megawatts. That's our pipeline in Italy. Talking about fiber. Before giving the floor to Paolo, let me finish by bringing to your attention our pattern of some 2.5 gigawatts. It's composed of both wind, 1,911 megawatts, and solar, 600 megawatts. As for wind, we have different clusters at different stages of development, ranging from pure greenfield to repowering, while for solar, it's represented by assets to be developed from the latest co-development agreements we've signed. It's the basis for the next business plan that we'll be sharing with you in May this year. Again, when, hopefully, we may have a deeper and clearer visibility about the different recovery plans across Europe. That should boost and accelerate the development of the renewable energy sources. And now I will hand you over to Paolo for his speech and analysis.

Thanks, Luca, and good morning, everybody. I'll start as usual by commenting on the price scenario over the period. Then I'll take you through results business by business. And finally, we'll take a look at the profit and loss and cash flow. So let's get started. I'm on Page #14. Let me open here with a general comment, embracing the full year. 2020 has been very complex year for the industry as a whole, with power demand and electricity prices severely hit by the pandemic, in particularly during the lockdown. Our portfolio and business model proved once again to be very resilient and capable of reacting very well to these adverse conditions. Merchant prices were down significantly in Europe across the board, say. We as a company managed to limit the impact of that price scenario, thanks to our hedging activities, with a positive effect of about EUR 45 million and more in the 2020 profit and loss, so which this number, I think, gives an idea of how much prices plummeted and pounded. But then let's focus on Q4, which fortunately marked an end to that trend. At least power demand in Italy was flat year-on-year during the period. Coming to sources covering demand, both wind and water, unfortunately, didn't play in our favor during the quarter. You see here that their contributions to demand a national level were minus 17% and 12% year-on-year, respectively. Our operations were no exception to that trend. As such, our wind production was down bang in line, say, with the country average, while hydro was down 12%, even further, due to its location in Central Italy, where the dry season continued and was even tougher than in 2019. There is nothing we could do about that. The good news here is that 2021 started off very well in terms of rains, but we will see later on when commenting hydro. Solar was -- our solar production were flat year-on-year, while our CCGT volumes was up -- were up, sorry, 10% year-on-year, better than the national level. I think this is given to the peculiarity of the plant, as you got to know. Then electricity prices in Italy as well in Q4 was a slight recovery in the so-called PUN, which was 49%, up 1% year-on-year. But even more important is the all-in price, the reference price, say, for plants such as ours in the renewable, from 140 to 148, which reflects an higher value of the incentive and you know very well the value of incentives calculated on the base on a mathematical formula, which is based on the average national price year earlier. Our CCGT spark spread, you see here declined to EUR 5 per megawatt hour, with, on one hand, rising gas prices, only partly offset by recovery of prices in Sicily. On the other hand, don't forget, we keep enjoying an important premium in Sicily. Abroad, in the graph at the bottom right of the chart, you can see the average selling prices for our productions country by country. Here, it's worth noting the generalized recovery in prices in Q4, in particular in those countries where we have green certificate type mechanisms such as in Romania and Poland. Let's move on, on page -- I'm on Page #15. Let me here comment on the full year. EBITDA was EUR 421 million (sic) [ EUR 481 million ], down slightly less than 5% year-on-year. I think the best way to represent the bridge between the 2 years is this. There were 3 main drivers. The first one was the weaker price scenario. I've already commented on it, though this effect was much limited, mostly limited by hedging across all our business segments. The second effect was linked to weaker volumes, especially I'm referring to wind and hydro in Italy well below their historical level average. And the third fact is still the phaseout of incentives, which keeps going on, and the lower White Certificates as the module 1 of the CCGT plant at the end of 2019 ended the first wave of incentivation. These negatives were partly offset by the contribution of the new installed capacity in France, 38 megawatts, plus 22 megawatts in Germany, fully operative throughout the year. The better results in solar, the higher contribution of the CCGT from the MSD or secondary dispatch market; last but not least, lower overhead costs in the year of the pandemic. This is a particular important achievement. In this very complex year, we launched the specific project on cost management. That delivered very well, despite we had already achieved much in the previous year. So I go now business segment by business segment, concentrating the year-on-year analysis on Q4, and starting from wind. I'm then on Page #16. EBITDA in Q4 was EUR 74 million, down 15% year-on-year; in Italy, minus 20%; and abroad, minus 5%. You have already understood that here, the main driver was the lack of wind. As a matter of fact, the production were down significantly, especially in Italy, minus 17%, as already commented, but also outside Italy, minus 9% on average if we exclude the production that came from the new assets in France, which contributed about 25 gigawatt hour during the year. As far as prices in Italy, the average unitary revenues were EUR 115. This pricing -- this unitary revenues was banging in line with 2019, because the lower merchant component net of hedging was more or less compensated by the higher value of incentive. So again, in the end, the drop here is very, very fully related to lower volumes, as availability wind in and outside Italy turn out to be much poorer than the one, for instance, expected and embedded in our last guidance. So no more to say. Let us move on. Commenting on solar, Page #17. EBITDA was up 20% from EUR 7 million to EUR 8 million, thanks to the combination of both slightly higher production and better, higher unitary revenue because of the production mix, because each plant enjoys its own Conto Energia incentive scheme. Moving on, on Page #18. EBITDA for the hydro was EUR 23 million, in line year-on-year despite the lower volumes, minus 12%, with, say, the volume effect entirely offset by the higher value of incentives and the greater capability of the plant to capture peak prices through modulation in -- particularly in a quarter where the volatility of prices were quite significant. As such, unitary revenues for the -- for our productions were here EUR 103 per megawatt hour, higher than the EUR 94 registered in Q4 2019. Must say that the main takeaway is still the same. We kept repeating a severe dry season, continued and even worsened in 2020 compared to 2019, which was quite -- already quite very weak year. The good news, I think, is that starting from the end of last year, the end of 2020, heavy rainfalls finally arrived. And though we couldn't produce that water in 2020 because of the physiological operational limits of the turbines, this translated into higher levels of water reservoirs, which at the end of December were filled with equivalent usable energy in excess of 100 gigawatt hour. Moving on to CCGT results on Page #19. EBITDA in Q4 was EUR 16 million, up almost 50% year-on-year, which may seem fairly surprising given the scenario I described earlier, characterized by much weaker clean spark spreads. And don't forget, on top of that, our plants suffered as well from lower White Certificates. So how was that performance possible? Let me elaborate a bit more. There were 3 main effects to explain it, each one accounting for roughly 1/3 of the bridge between 2020 and 2019. So you can make your own calculation about them. The first effect was the scenario, the scenario net of hedging. And the hedging makes the year-on-year impact of the scenario from negative to positive, has almost 100% of our production were covered at much higher clean spark spreads than that offered by the actual merchant scenario during the period. The second effect was the higher contribution of MSD revenues, so the secondary dispatch mark. The plant is able to provide these kind of services. The third factor was associated to lower maintenance costs in Q4, as there was no major shutdown during the period unlike in Q4 2019. So I think these 3 positive business items can explain comprehensively their performance. So let's go on commenting on investments, Page #20. Here, I prefer to comment on the full year because I think it gives a more representative picture of what we did in 2020. We invested EUR 156 million, much less than the EUR 432 million over the same period in 2019, when, I remind you, we had several acquisition, among which, Andromeda in the solar business; wind farm, Polaris in France; wind farm, Barkow, in Germany; the acquisition of some ready-to-build projects in U.K., the pipeline and wind works in Germany. So very 2020 -- 2019 was quite intense year for M&A, which accounted, you see in the graph, for EUR 364 million. This is the main explanation behind the drop of investments on a year-on-year basis. During the full year 2020, the CapEx we invested were broken down like this: EUR 44 million in M&A, which reflects the acquisition of the 38 megawatts in France; EUR 77 million was invested organically in wind developments in U.K., where our capacity and the construction right now is about 250 megawatts; construction work also going on in Poland and in France; and about EUR 12 million were related to the first investments ahead of the so-called CAR 2 projects. And I'm referring to the refurbishment of module 1 of the CCGT plant, according to which we expect to renew its eligibility for another short award of White Certificates as of 2022. And about EUR 20 million or something more than that of maintenance CapEx spread across all our technologies. Now last section, key financials on Page #22, commenting on the adjusted profit and loss. Let me again remind you more smaller formality that these figures are shown on an adjusted basis, so without including the effect of IFRS 16, IFRS 9, as we believe this gives you at our presentation that is more consistent with our cash flow profile. All the related effects are, of course, reported and we'll explain in our profit and loss statements. That said, let us continue. I have already commented on EBITDA, so going down from EBITDA to bottom line. We had slightly lower depreciation, which reflects, say, the end of amortization period for some wind assets in Italy, in particular. Net financial expense, EUR 9 million versus EUR 13 million in Q4 '19, thanks to the lower cost of gross debt following the issuance of the second green bond in September 2020. Taxes. Tax rate in the quarter was 25%, higher than the 16% registered in Q4 '19. This mainly reflect, say, a tough comparison because you should remind that in 2019, first, they canceled the [ arch ] tax breaks, and then they reintroduced it in the final part of the year. So 2019 counted all the benefits during the fourth quarter. That's tough -- the reason behind the tough comparison. But say, looking at the tax rate for the full year, you can see is even better than the one in '19. And this is related to the recovery, the fiscal deduction of all the extraordinary expenses associated to the restructuring of our debt. So I think here, the good news is that the bottom line in the end for the full year, despite the lower EBITDA, despite the catastrophic year with the pandemic, and whatever we have already touched, in the end, the net profit is EUR 106 million higher than EUR 104 million in 2019 and enjoying, say, the much lower financial charges based on a more efficient indebtedness. And about indebtedness, let me conclude with the cash flow statement. I'm on Page #23. Net financial debt closed at EUR 1.4 billion, more or less, slightly down EUR 40 million less than at the end of '19, with leverage flat at 45%. Let's see the -- an overview of the cash flow, but touching on all the items. From left to right of the chart, we have our EBITDA, the investments made over the period. A negative working capital trend, EUR 41 million, which mainly reflects several items, to be honest, among which the most important of the payment of the substitute tax to free up the goodwill, from a fiscal point of view, paid for the solar acquisition in 2019, some cash payments related to the -- to buying, say, the CO2 emission credits for our CCGT plant, which is a fairly major item, honestly, EUR 24 million, given the rising price of CO2. And yes, the remaining are related to the uses of some provisions accounted in the past. Continuing with the least, after net working capital, we have the financial charges. Those are the reported one, which includes EUR 71 million, which includes also the extraordinary charges related to the issuance of our second green bond and the subsequent liability management, the follow-ups, the dividends paid in the period, and other items mainly refer to ordinary taxes and cash flow hedging. So all these effects led to a net debt of EUR 1 billion, actually, EUR 1.439 billion, which simply got a net financial position on EBITDA ratio slightly below 3x. So I think I touched on all the relevant items. Thank you very much for your attention. I will now hand you over to Luca for his final remarks.

Thanks, Paolo. Now the guidance for 2021 compared to 2020 actual figures. Before going through the main assumption forecast ranges, let me remind you that this is the guidance for the first year of the new business plan 2021-2025 that we'll be sharing with you on May 14, along with the first quarter '21 results. We expect that going through 2021, there will be a stronger, more stable recovery of the economy. Chances are that 2021 is the year that marks the end of the pandemic. And our figures. EBITDA would come in between EUR 480 million and EUR 500 million. Wind is expected to post better results than last year. For in Italy, we see the production to go back to its historical performance compared to the low wind availability in 2020. We see also higher zonal electricity prices, while green incentive unit value will be, for sure, quite higher. No megawatts will be phasing out from an incentivized scheme in the period. The full EBITDA from wind in Italy is expected to be higher than last year. It's worth mentioning that we have already hedged some 17% of the such production. Abroad, we foreseen generation line with its historical level as lower than that one particularly high in 2020, while the energy price scenario is expected to be better across Europe. We mentioned result with some 76 megawatts from the incentivized schemes. That's for the wind farms present and the construction in France and U.K., some 77 megawatts will be up and running by the end of the fourth quarter, with a negligible contribution to EBITDA. All-in abroad, we see results are lower than in 2020. So the results will be somehow equal to what's achieved in 2020. Some same installed capacity in operation and small differences in terms of generation and energy price scenario that in the end will offset one another. Hydro, on the contrary, might achieve far better results since it comes from normalizing the annual production on the basis of the 10-year historical performance. Remembering that we have had 2 dry years, '19, '20 in a row. So it should change. The plant will benefit also from a higher value -- unit value of green incentive. In addition, please do not forget that the larger production improves the plant flexibility. Thus, it could take advantage of both modulation and as the dispatching service market services. Thermal in the end will post lower results versus last year. It has to do mainly with the complete exit of the plant from the cogenerative regulation, although we have already started to invest, so it's entitled, starting from 2022, to produce White Certificates for further 10 years. In addition, it's worth mentioning that in 2021, there will be a 2-month closure of module #1 due to the works that -- for their ramping to get CCGT qualified again as high cogenerative plant. In short, as for EBITDA, we expect 2021 results to be better 2020, '21. CapEx, obviously, in the range of EUR 235 million, EUR 275 million. Investment in 2021 are for the construction of some greenfield wind farms and to start repowering our Italian wind farms. If we excluded the usual steady maintenance CapEx, the larger remaining amount will be spent to build 4 wind farms in the U.K., 249 megawatts; 2 in Poland, 60 megawatts; 2 in France, 27 megawatts; and to begin repowering some 311 megawatts in Italy. All in all, we are developing and building some 647 megawatts. CapEx in 2021 also included some millions referred to carry out investments in thermal generation in order to allow the CCGT plant to benefit from 2022 and for the ensuing 10 years over the White Certificate mechanism. Net financial position is seen in between EUR 1.35 billion and EUR 1.45 billion. Net indebtedness figure at the end -- at year-end will not be much different from the value it had at the end of 2020 as the operating cash flow, along with lower financial charges, would provide us with the liquidity to fund both CapEx and dividend distribution. Dividends will be at EUR 0.75 per share, as envisioned in the business plan. In short, go back to normal after COVID-19. Profitability up; CapEx on the rise; indebtedness under control; large and diversified pipeline ahead of the next 5-year business plan. That's all for the time being. And now, as usual, ready to take your questions.

[Operator Instructions] The first question is from Roberto Letizia with Equita SIM.

I would like to focus a little bit more on the guidance, which is below our estimates and consensus as well. You qualified, say, the main elements that is driving to your guidance. But would like you, if possible, to quantify some of those elements. The first one is the CCGT impact, which seems to be the biggest difference because we had, and I think the market has, the investments for the attribution of the new White Certificate. But I personally did not got fully that this would have caused a full stop of the plan. So can you quantify specifically on EBITDA how much this is going to cost in terms of EBITDA for 2021? Or if you feel more comfortable just to let us understand what could be the EBITDA of the CCGT in 2021 and then what could it be in 2022? Just to understand what you're going to probably lose this year from the repowering of the assets and what you're going to get then as benefits the year after. I would like to understand, if the new guide does eventually include some additional costs in terms of pipeline development, which is actually something that you would expend today in exchange of higher profitability thereafter in the long run, also considering what you're going to do with the new strategy plan. Would like to quantify how much of this actually, if any, include some pipeline development, and ask you to eventually quantify the other negative elements you've mentioned. So how much are you going to lose in France from the incentive expiry and what actually the loss in terms of production that you assume year-on-year? So if you can please better qualify that. Connected to this, as you confirmed the asset that you will -- of the previous strategy plan, so the additions in 2022, I was wondering if you can elaborate a bit on the old guidance for 2022. How much of that is still in place? How much have you lost because of the new market condition? And this is the first part. If possible, I would like to -- you to be a bit more clear about the rumors on the possible disposal of the hydro and the CCGT because a newspaper are continuing to talk about that, and this is a bit confusing. So I would like to -- you to ask and be more clear on this as a concrete option to be realized or a pure market speculation. And then I would like you to elaborate a bit on the authorizations and if you can share with us your idea on when do you think the first repowering can participate to the tender procedure.

Okay. Right. Let's start from question number one. The impact as for the investment and the -- we -- in terms of lower production and lower utilization of the CCGT as for the revamping of the module #1. In short, I would say that it should cost some EUR 20 million, EUR 23 million. That's the main impact for us in 2021. And that's the explanation of the lower results that we are expecting on the CCGT in 2021. Then going forward, we'll recover a profitability, say, in line with what we had this year, so in 2020. So go down and then we go back to what we have achieved this year on average. But we're going to be more precise when sharing with you the new business plan. But that's it for the time being. As for the EBITDA, talking about -- what we call direct development expenditure costs in our -- in 2021, we are talking about something in the range of EUR 3 million of directs that are affecting our EBITDA. And there's a point. In terms of production, say that, as I've already said, we have -- we are planning, we are expecting it to have a large and high production in Italy because last year was a very -- 2020 was a very poor year for the generation in Italy. And so we -- if we go back to the normal course of business, let's say, we see a quite steady and important recovery, which is simple to be determined by looking at what we been introducing in the last years, so you can have an average, and so that the increase is going to be quite relevant. While on the contrary, this is what should happen abroad, in particular in France, because in France, in 2020, we had a quite extraordinary power generation, thanks to a quite extraordinary wind conditions. And then, again, we go back to the normal course of business. So our projection in terms of production wind, based on the historical, let's say, 5 years' average. And then it's quite easy for you to determine how much is the increase in Italy and decrease in abroad. It is mainly related to France because of the extraordinary generation France delivered in 2020. In terms of, say, capacities sold, you're asking me for providing you some information relating to 2022. Say I will -- I'd like to say that please, we cautioned a couple of months because we are going to show you a new business plan. But anyhow, I can tell you that we are, as written in the presentation, in line, on time, on budget with what we promised in 2018. We may have some delays because of COVID-19. We had already shared with you in May last year that we might have had some delays. This is what is happening. Next year, we are planning at least to have new 77 megawatts installed, which is what we are working on in terms of, say, building new assets, but it is a sort of floor. And it's based on the -- our thoughts as for the, say, lengthy of the authorization process and the like, but we could do better. But so far, please take this number. Point for CapEx, we are including in our CapEx also, of course, the CapEx, the expenditure we are incurring for the installed capacity that will be up and running in 2022. So as for the -- talking about how we are growing. We are meeting what we were expecting to do and what we share with you. Some delays simply because of COVID-19 and some delays relating to the -- some difficulties we might incur in the authorization process. But let me tell you that we should be in a position to confirm the targets set forth in 2018 as for 2022, although 2022 will be just a -- the second year in a row of the new business plan. Don't know, Paolo, if you want to add something?

Roberto, Paolo speaking. Just had a couple of points to explain better the difference between the guidance and probably our estimates. For instance, a point which has been disclosed by Luca during this webcast, you see Page #10. You see -- you have here the map of the projects we are carrying forward. And you can realize that some of them have been delayed in line with the recent disclosure made by the company. The COVID anyway translated into 6 months of delay. So you see that some projects we are now -- we are having under construction right now in the U.K. have been postponed by a few months, but then are not contributing in the end, that this is the bottom-end message, they are not contributing to the EBITDA of 2021. This is the first message. Don't forget also, you mentioned in your question the phaseout of incentives. For sure, this is another element that characterized our asset base. Even in 2020, the phaseout of incentive, though expected in our guidance, pounded for EUR 9 million because some megawatts phased out. And in 2021, I think we have 70, 76 megawatts outside phasing out from the incentives, and this should translate in a lower marginality. So all these elements, coupled with the one described by Luca, should explain the gap between the expectation and the real guidance.

Right. Thanks, Paolo. Exactly what is delayed. I don't think that we will have any real impact in terms of amount of megawatts that we are going to and that we will install as for new capacity. It's just a matter of sale days. You've seen, and we have put in the presentation what happened in 2020 all across Europe. And I wouldn't say that we had seen an acceleration. Say in some countries, such as Spain, you had a spike. But before that spike, if you go back more in the past, you see that in the previous years, Spain was, let's say, stuck in the middle. We didn't do anything almost. So that's the point. Germany is -- there's been a slowdown in new capacity installed compared to the previous year. So that's a moment for the industry which is, say, my opinion, let me put this way, consistent with what the European Union through the recovery plan, the new European green generation and the single member like Italy, they are working and trying for preparing a new, say, green deal based on the acceleration, permitting and the like. So our pipeline is quite solid. This year, in 2021, we're going to install just 77 megawatts, at least, because there's no M&A transaction included in and -- but which is what we really believe we are sure in terms of new installed capacity, for sure. And then something that we forecast to install in 2021 will be postponed in 2022. We're talking about, say, 6 months, 9 months, that's, say, the range in terms of timing I can underline for you. So I'm not worried. I'm just -- I must be patient. I don't like that. That is what is happening all across Europe. And -- but we are in front of a sort of tipping point for the European Union, for the government, if they want to really relaunch and allowing the economy to recover, let's say. So you asked something about the potential sale of a couple of assets, namely [ 2,000 ] megawatts, hydro and CCGT. And let's say that you may have well something great there on the news. The reality is that every 3 years, we prepare our business plan. And before -- and then during this preparation, we are used to making quite in-depth analysis as for our strategy as a whole. And as for our, say, assets -- our portfolio of assets in order to develop an understanding that, if and when, in the medium term, all these assets are something that we are interested in, say, keeping and running in the context of the development of the group in the future. In this context, for sure, we are also analyzing the strategic value, meaning of the hydro plant and the CCGT. And based on that, let's say, we are at a quite preliminary stage into a -- as for a, say, scouting program in order to understand if there may be a better valuation in our portfolio of these assets. So, so far, situation is that we have just begun a sort of accounting process at a very early stage. So it is very difficult to make any comments about that. What I can tell you is that these 2 assets are quite important for us from a cash flow standpoint. We are talking about 2 assets that have been generating cash and a stable way across [ ES ] and are going to do the same from now on. So this is for sure what is -- what counts much for us. For sure, we are not interested in investing in hydro and -- both in hydro and in natural gas, 5 combined plants. So that's where we are. Just at the beginning, putting under discussion our portfolio composition, that is very, very soon to say something and to say that we are selling or we are keeping that. For sure, they are under scrutiny. And we will be in a position to give you a quite clear picture about that in a couple of months. So we are talking about 8 weeks, so be patient a bit about that.

The next question is from Sara Piccinini with Mediobanca.

The first question is on repowering, on the details that you disclosed in Page 11. And I was just trying to reconcile the figure with what you disclosed in the previous business plan. So in 2018, you were talking about 500 megawatt eligible for repowering, reblading. And my question would be, are you increasing -- or at this stage, is the number that you're showing higher than this 500 megawatt? So just to understand if, despite the delays, the capacity of repowering remains 500 megawatts or is actually higher than that. And then if I -- sorry, if I missed that. But did you say -- if you expect to participate already in the first -- in the next auction with repowering? And if yes, can you disclose the amount that -- on which you expect to participate? Or just to say, when are you expecting to participate to these auctions basically? And the second question is about these authorization processes. So we understand that it's very painful sometimes also for repowering to get these authorizations. Do you expect any improvement from the new government and -- that could be done soon, very soon in order to accelerate this deployment of CapEx for repowering? And finally, on the pipeline, you mentioned in your presentation 2.5 gigawatt pipeline. I was just wondering if these are ready-to-build pipeline or maybe if we consider all the options that you consider, that you're analyzing, that this pipeline could be actually higher? So also including early stage, would this 2.5 bill -- 2.5 gigawatt higher or we should stick to this 2.5?

Okay. As for repowering, I simply confirm that we are working on the same base as we -- that we had at the beginning of the business plan '18-'22. So the only difference is due to a continuous fine-tuning of the speed and the amount of megawatts that could be, say, repowered based on the ongoing authorization processes in some region, such as Sicily, the performance is very, very good. And in fact, we are planning to take part of the auctions with some 42 megawatts in this year, in, hopefully, in May. If it is not in May, it will be in September or in November, I don't remember, so in the second half of the year, the second auction. So this is the point. Based on that, and try answering also your question about acceleration, for sure, our expectation is that of this new government, something positive happens because, otherwise, we will not have any difference with the previous one, in the previous situation. As I said before, we need an acceleration. Europe, Italy, the planet needs an acceleration. So expectation are positive oriented, let's say, but wait and see because the role the government has to do is quite high, in my opinion. But anyhow, as for repowering, I confirm the base that we shared with you at the beginning of the business plan. There is some -- there is an ongoing fine-tuning. That's what we have put in our presentation, looking at the Chart #11. We are talking about delays and not a reduction of the potential capability to have to repower our assets. And so leveraging our hope on what is the news that's positive that we can have from the government in terms of facilities and accelerating this authorization process. As for the pipeline, say, we have put in the presentation our pipeline and I don't have anything to add on top of what is written. So I'm going to talk about early stage. This pipeline, let me put this way. This pipeline is made of projects that as we usually say internally, they have their own name, location, number of megawatts and the like. We are not talking about a pipeline that is -- has still to be identify at a very, very early stage. We are talking about a partner that we bought in the past. We paid some goodwill for like Epuron. We are talking about a partner which is based on a specific codeveloped agreement. And so let's say, I want -- say, bring your attention today, orange or yellow portion that we have written on the chart as for Germany, talking about 600 megawatts. We have a codevelopment agreement with a quite, I would say, skilled developer. And this is -- this number is underpinned by specific projects. Of course, this project may have their own, say, success rate in that respect and may be substituted by other project. But so far, what we have put in the chart are quite clear project with their own name and potential time line for the development. That's why we don't put, say, 4, 5 gigawatts of pipeline, out of which 0.5 has just been slightly identified. This is a solid pipeline that represents the initial days for the new business plan. For sure, we would like to have even more pipeline. This is something we are working on, but this is a quite solid pipeline.

Sara, just I had a couple of point here again to help you ask exactly to reconcile the number just to help you. For instance, the 809 megawatts pipeline in Italy reconcile with the Chart #11 for repowering. 809 megawatts are the gross megawatts for repowering. And the differential number compared to the asset we are going to repower is in the Graph #11. So the real differential megawatts are the sum of the 178 and the 259. This is for repowering in Italy. And the rest, its include everything with a name and surname.

The next question is from Roberto Ranieri with Intesa Sanpaolo.

I have some follow-ups on the previous questions and on the presentation specifically. Going to the Slide #8. It seems that in -- we had a slowdown of development -- gigawatt development from 2018, mainly outside the Italy, and then with Italy, basically slightly increasing, even though the amount of the additional capacity in Italy is very low versus the capacity increase abroad. My question is the lower -- my first question is, it is not only of COVID, because we had this kind of a decrease also in 2018. So my question is, if you will see -- I suppose so, you will see -- and how much you would see a ramp-up and when ramp-up in this capacity increases? And more than that, for Italy, which seems to be in peripheral in this capacity growth, do you think that there are the conditions in terms of resource to have a much higher growth of capacity in Italy as a sector, not only for ERG, but as a renewable business overall? That's my first question. Also going back to the 2021 guidance. You talked about a normalization in hydro power volumes. First quarter is going better. My question is, if I understood well, you talked also about the -- a normalization towards a last 5-year historical power volumes. So could you please remind us which is the -- this historical part of volumes? Or is that there could be some upside on it in 2021 versus this historical, looking at the recent hydro power -- hydro resource availability in the first quarter? And in addition to that, could you please give us your -- quantify the -- not only the volumes, but also for thermal, the -- your underlying assumptions for spark spread in 2021? And -- that's it, for 2021. My last question is on hydro assets. Could you please give us -- the last year of green certificate cash-in for hydro assets, if I remember well, it is in the region of 2025. Will you please remind this? And what kind of EBITDA you expect excluding the green certificate in the other assets? Or at least what is your long run assumption -- underlying assumption on power prices in the long run? And what is your long run CapEx assumptions on hydro assets?

Right. Talking about the industry as a whole and if and when there could be a recovery in terms of new store capacity, say that, and in particular in Italy. The problems are the same across Europe. Maybe that, in some countries, such as Italy, and you see that in this country, the operator haven't been developing some -- almost nothing compared to the other. So we are talking about 0.5 on average, 0.5 megawatts per year, which is nothing based on the -- also, if you compare to the National Climate Plan, right? In my opinion, we have 3 main items to look at. The first is, per meeting, too long processes. And there should be shortened. But it's not simply a matter of changing a law or changing a regulation, in my opinion. Because the permitting is, on the one hand, the problem, and on the other hand, is a consequence of other problems. The other 2 problems, one is the delay the TSOs are deploying their investments in order to get the grid fit for the purpose to accept an increasing amount of remittent generation produced by renewables. And the third problem has to do with decarbonization, in particular also in Italy. I heard that some authorization relating to the OCGT implementation in the country is in delay. And so the decarbonization, so the shutdown of the court lines will be also experiencing some delays. Let me summarize this way. Renewables are not the problem. Everybody wants to invest in renewables. If you went down the street asking someone whether or not she, he would like to invest in renewable, the answer, what would be, yes. So everybody loves renewables. Renewables is -- renewables are not the problem. The problem is that we have to create space, the right environment for renewables. And it depends on when -- if and when we sort out the 2 problems I've just mentioned, the investment in the green and they shutdown of the coal plants and fired gas turbine plants, so the fossil fuels fired plants. But in order to do that, we have, first of all, to overcome again the permitting process, very lengthy. Also, for the TSOs, what we are seeing in Italy. But also note that out of the total amount of delays we may incur, a good portion is from these operators that are not able to meet their promises. We're talking about months as for the delays. So I'm not worried. But if you take the industry as a whole, it has an impact. And the second point has to do with the third problem, because by shutting down some assets, you will incur, for sure, in social problems, because in the short run, shutting down plants means to increase the unemployment rate. It is something that nobody likes to talk about, to speak about. But this is a problem. And so based on that, what we will do? What ERG does is that to give you the best and deepest and fair view of what we are doing and what we are sure that we can do. That's why our pipeline is well described. I'm not talking about you, say, [indiscernible] gigawatts being sold over years because I don't care about what will be the world in 2030, simply because I am 58 and it's just already -- and this is already a good reason why. But stop kidding. What I'm telling you is that what counts much for me is what will happen in the next 3 years. And as ERG, we have a quite clear idea of what we can do or what we can achieve in the next 3 to 5 years. That's why we are working on the new business plan. And that's why as ERG we are meeting the -- your expectation in terms of growth. I'm talking about -- I'm referring back to what I told you in 2018. So that's what I think. For sure, we are in front, in my opinion, of a sort of tipping point from the industry, but also for Europe, but from the world. But for Europe, for sure. Consumer want to exploit the best of the funds from the recovery plan. We have to work in order to solve the problems out by using also these funds in order to facilitate the shutdown of some fossil fuel plants in order to create the right environment for the development of the renewables, renewables, source of energy everybody loves. That's my opinion. As for the chart number, I don't remember, but on the roughly [ 11 8 ], what you have mentioned. So normalized production for hydro, say ...

Sorry, Luca. Sorry, Luca, if I interrupt you. Just a follow-up on it. So basically, you see no headwind on a very fast recovery on renewable development, both in Italy and the outside?

No, no. Sorry, sorry. Excuse me, I'm interrupting you.

No. So I guess that renewables power will develop -- will increase in terms of capacity partly. The government there is supportive, and government and the EU for sure is supportive of us. There are some problems. So the first one is on -- in Italy, it's on authorization and probably also the policies on decarb. So just as a follow-up. Do you see any delay in decarb policies and that in that sense thermal plant, coal-fueled thermal plant shutdown? And in addition to that, what is the role in France, for instance, of the nuke power generation? Is Europe also thinking about that? And is Europe including the policies on decarb and nuke in -- when they prepare the sub-schedule for -- in targets for renewable capacity target?

Say that to cut a long story short, I don't want to be -- I want to be polite. But let me say that I haven't said that there will not be any recovery. What I'm telling is that there must be a recovery because everybody knows very well that is the only way to sustain growth to allow the economy to recover. And the European Union and also the U.S. yesterday have put on the table an incredible amount of money. We have some, say, ancillary effects based on that. It's easy for you to translate my -- what I just said in terms of cost for money, for instance. But setting aside for a while the financial implication, I must say that today the government must change their approach. I got involved about the promises on what is going to happen in 10 years' time. I don't care about that because we are playing our cards now and over the next couple of years. So let me repeat that I haven't said that there won't be any recovery. There should be one and very strong. But the signals that I've -- that I saw in 2020 were not towards that recovery. But the signals I see these days, they are underpinning such recovery. And everybody know very well that this is the only direction we have to go to. And so I'm quite positive oriented in this -- looking at this, say, picture. But based on the reality, we must be, say, down-to-earth people, like we have already been in ERG. And so what I put in my projections? And what I put in my projections as for the beyond 2021 is something that I believe in and I'm sure to deliver. Could you consider them as sort of a floor? If you like. But for sure, like I did in the past, my -- let me [ kid ] in you. My word is my bond and that's my interpretation of the reality today. For sure, the key word is delay. And for sure, the development of the renewables will be there and we will take part of as a good and main actor like have been doing so far. I'll go quickly to the other question because I've been talking...

Yes, sorry. Sorry for that.

Yes, right. No, no, no problem. You asked me for giving you some tip for the reduction in hydro. So the average based on 10-year is in the range of in between 1.4, 1.5 terawatts produced every year. That's -- in the last 2 years, we have less than 1, less than 1, and that was a bit more than 1 terawatt hour. So that's quite easy. In terms of spark spread, say that what we are planning to have is in the range of EUR 6.

Is in line with 2020.

Yes.

Exactly in line.

EUR 4, EUR 6.

[indiscernible] in the course of '21, having got any longer the White Certificates, don't forget that, because the Module 2 us exiting is already exited the Green Certificates period, the White Certificates period. So 2021 is a sort of hole, and we are now investing for relaunch another 10 years of White Certificates. But 2021 is the year in between. I go very quickly to the list of your questions. So the -- is spark spread is in line as well as the Sicilian premium? We expect for '21 compared to the national average price. You asked for the value of the incentives for hydro in 2020, is always in the region of 500 gigawatt hour, which is the production incentivized, multiplied by the value of incentives. So we are talking about roughly EUR 50 million for 2020 and EUR 55 million for 2021, as the value of incentive is going up EUR 210, more or less, per megawatt hour because the formula is based on -- relies on the value of the energy in the year before or 2020. I think the other point was the long-run CapEx, and in particular, the hydro. So the maintenance of hydro more or less is always in the region of EUR 5 million per year. And for the remaining of the business, say, we have roughly EUR 120 million. So all in all, EUR 25 million is the maintenance CapEx for this group. In 2021, a little bit higher because the extraordinary general shutdown of the CCGT will take a longer period, which is already included in our guidance, because in the meantime, on the general shutdown, we are also providing for the refurbishment of the plant, which is the base. We are expecting the renewal, say, of the White Certificates. I think I've touched all the point you raised.

Just one very quick question. Delay -- the year you will have the complete phaseout of incentives in the hydro power.

'25.

This concludes our Q&A session for today. Mr. Bettonte, the line is to you for any closing remarks.

Okay. Thanks a lot for being with us. Let me just say see you in May for the new business plan. And for the time being, I have to say, again, stay safe. Have a good day. Thank you.

Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.