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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG IR Day. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Emanuela Delucchi, Chief ESG, IR and Commination Officer of ERG. Please go ahead, madam.

Good afternoon, everybody, and welcome to ERG IR Day, during which we will be showing you our business plan strategy in 2021-2025 period. The COVID-19 situation forced us to make a fully digital event, thus allowing us to be completely sustainable and compliant with the fight against climate change. We hope, in the future, we will be able to meet you again physically. But in a way, we are very happy to be here and showing our strategy. Looking at the agenda of the event, there will be an introduction from our Executive Vice President, Alessandro Garrone. We will show you what ERG did since we met in 2018, reaffirming ERG after a successful journey in the renewables energy growth and decarbonization. Afterwards, our new CEO, Paolo Merli, will drive you through our 2021-25 strategy and targets. Michele Pedemonte, new CFO of the group, will show you our financial strategy in the business plan period. Then I show you the ESG strategy, which is at the core and fully integrated in ERG strategy. Michele will then show a brief snapshot on our results in Q1 2021. Preliminarily, we conclude with his final remarks and the guidance for 2021 prior of the Q&A. [Operator Instructions] And now over to our Executive Vice President, Alessandro Garrone.

Thank you, Emanuela. Ladies and gentlemen, good afternoon. And again, welcome to the ERG's Investor Relation Day. I'm happy to be here together with part of the just appointed top managers of the group, Paolo, Michele and the Emanuela. Since we met in Milan in 2018 in March, we have made some important steps forward. We have continued to expand our portfolio of renewable assets. We have installed 342-megawatt, and we have 398-megawatt now under contraction abroad. We have moved forward our pipeline of repowering assets with 143-megawatt now fully authorized ready to participate to the next auction. ERG is one of the few, if not the only one, player able to succeed in completing the entire authorization process in Italy over the last few years. We have been a pioneer in the energy transition. As you all know, in 2008, just 20% of our capital was invested in renewables, whereas now, 100% is power, no more oil, with almost 90% of our production coming from wind, sun and water. We have made radical changes to our fundraising model. In 2018, ERG obtained an investment-grade rating from Fitch, and afterwards, made a successful approach to the debt capital markets. Over the last 3 years, we have issued 2 green bonds for a total of EUR 1.1 billion, demand for which far exceeded supply demonstrating the validity to -- of ERG's business model. Most importantly, everything we have done is strongly consistent with ESG principles and driven by our commitment to be an SDG's contributor. Throughout our journey, we maintain commitment to the financial community. Over the last 3 years, we achieved what we set out to do over the '18-'22 business plan, both in terms of EBITDA and installed capacity. The EBITDA has been EUR 1.5 billion versus the EUR 1.4 billion announced, and the megawatt added has been 340 versus the 330 announced. This despite the tight scenario, especially in 2020, which was hit by the pandemic and all the challenges the industry is facing in the permitting process, which remained the real bottleneck for organic developments. The amazing job done in finance translated into a sharp reduction in the cost of debt, which almost halved in 3 years, 1.8% versus the 3.1% previously. This successful track record has been recognized and captured by the share price, with ERG outperforming the market and with a total shareholder return in excess of 80%, with dividends paid in the period amounting to almost EUR 400 million. So we are very proud of what we have achieved. Our journey also had a very positive impact on decarbonization, which is on track, with a carbon index, which is calculated the CO2 emission for every kilowatt hour produced, declining by 5% in 2020, in line with our '18-'22 strategy. The carbon index since the beginning of our transformation, declined 90%, thanks to our repositioning in the renewable industry. Avoided CO2 in 2020 was about 3 million tons, in line with our objectives. Our vision allowed us to put the energy transition and the decarbonization of our portfolio at the center of our strategy. We also aim to keep growing sustainably in the future, putting ESG at the core of our strategy as you will see in our plan. At ERG, we all share these values and commitments. All this has also been recognized from the outside. ERG has obtained several awards and recognitions in this respect. Amongst the most important ESG scores, it is worth mentioning that; first, we entered the leadership score for CDP, recognizing our commitment towards contrasting climate change; second, Vigeo recognized ERG as the best company for climate-related financial disclosures; third, recently, ISS granted ERG a B plus rating, placing ERG at the top of the sector average. Last but not least, ERG was recently included in the Standard and Poor's Global Clean Index, with a weight of 0.34% amongst the 82 most green listed company worldwide, an achievement we are all very proud of. So our vision allowed us to anticipate the trends of the energy transition and to meet the requirements of the most severe ESG rating agencies. On the last 26th of April, ERG's Annual General Meeting appointed a new Board of Directors, which named Paolo Merli as a CEO. As you know, Paolo joined ERG in 2006. He was General Manager and CFO. But most importantly, he was part of our transformation story by contributing every step of the way, working side-by-side with Luca Bettonte, who has done an incredible job over the last 15 years of radical transformation for the group, achieving excellent results. Luca, in his new role as Board and Strategic Committee Member, will continue to provide a priceless contribution to the group's development. We are all very, very grateful to him. Together with Paolo, we have identified a new and younger management team, mostly grown internally, but also with an important acquisition from our side for the role of Chief Operating Officer; Mr. Renato Sturani. I believe also as a reference shareholder that we must all continue our journey forward by always respecting the 4 values written in our leadership model, heritage, sustainability, passion and challenge. Finally, we set up a new remuneration scheme linked to the strategy execution expected in the '21-'25 business plan. Both LTI and MBO schemes include a clear commitment to ESG targets. At the heart of ERG's successful transformation story is a best-in-class governance model, which allowed us to grow in accordance with a strict financial discipline and tight control of all investments, both M&A and organic, thanks to the investment control process, managed by our Investment Committee and overseen by our Strategic Committee. As always, our governance is subject to continuous improvement. On the 26th of April, as I said before, ERG renewed its Board of Directors, enhancing its independence and diversity. 6 members out of 12 are independent, 5 members out of 12 are ladies. The Renewed Control, Risk and Sustainability Committee, 100% of of whom are independent members as per the Remuneration Committee, will supervise both risk and sustainability matters in accordance with best practices. So strong corporate governance, financial soundness, strict investment criteria, attention to sustainability and ESG themes, coupled with an enhanced focus on energy sales through CfD and PPA, are the cornerstones of our business model. We have made some important changes to our remuneration policy, in line with the evolution of our talent management system and career planning. We reviewed the remuneration policy for the CEO, with a combination of short-term and long-term incentives to enhance the correlation with the strategy execution. The MBO scheme introduced for the CEO is linked to economics, megawatt growth and ESG targets. We defined a new LTI scheme now allowed to include more than 20 key leaders of the group amongst its beneficiaries. LTI is based on shares, with an escalation mechanism based on stock performance and execution of the ESG strategy. We are proud to say that all these changes are welcomed by the market. For the first time, the large majority of minority shareholders voted in favor of the new remuneration policy. On top of the changes in the remuneration policy, we did something more. Following my proposal as Executive Vice President, proposal shared by the Chairman, the Vice President and the CEO, we resolved to reduce our previous compensation packages by approximately 18%, whilst maintaining the same executive powers and responsibilities as both a sign of solidarity during the pandemic and to narrow the salary gap compared to the average wages of our workforce. The saving of around EUR 1 million will be then allocated to talent management and risk healing. We did it not for necessity, but because we believe in the ethical strength of this message. Thank you all for your attention up to now. I hand you over to Paolo, who will take you through ERG's 2021-2025 business plan. Thank you.

Thanks, Alessandro. Good afternoon, everybody, and very welcome to our Investor Relations Day. My objective today is to take you through our vision of the future and our business plan for '21-2025 period. So let's get started. And I start with what ERG is today. An independent power producer, mainly from renewable sources, with a solid platform of assets in Europe. We are present in nine countries, including Spain and Sweden, recently added to the list. We have 3.1 gigawatts of installed capacity with a major presence in Italy, where we have 4 different technologies: wind, sun, water and natural gas. Outside Italy, just wind in operation for the time being. We can now rely on a pipeline of projects of about 3 gigawatt, grown over time consistently with our organizations and business development. A pipeline of projects spread across Europe, both in wind and solar, both greenfield and repowering, that's what we are today. That's the base we want to expand from. Moving forward, we believe that having a solid capital structure with an investment-grade profile and easy access to the debt capital market is and will be key for our sustainable growth. We have been working this way over the last few years, bringing down the cost of debt, reducing significantly subordination by substituting project with corporate finance, mainly in the form of green bonds. Our indebtedness, as a result, is now 70% covered by green instruments. So the transformation was not simply in the business, but all around it. We have constructed a very solid relationship with Fitch, the international rating agency, based on transparency and clear commitments. Our financial policy, I can summarize it in 2 pillars: commitment to an investment-grade rating as a distinctive factor of our business model, and the net debt EBITDA ratio target of 3.5x. And here, you may remember that we used to have 3x, and we progressively moved it up consistently with portfolio reshaping. In doing so, we committed also to our shareholders for a dividend policy of EUR 0.75 per share per annum, which, we believe, is both fair and sustainable. So in the end, this group has significant firepower to sustain our growth ambitions. Let me now spend a couple of words on how we see the future, and how we read the context around us. So since our latest business plan in 2018, there have been some changes in trends for the renewable industry, which are summarized here in this chart. There is, for sure, an extraordinary momentum, decarbonization, energy transition, all these words are now part of our vocabulary. All this means, for us, a huge potential for further development. So we are right where we need to be. However, the huge potential for the renewable industry is facing a challenge. It's not moving forward as fast as it should be, and especially, as it's drawn in the national plans due to bottlenecks in both permitting and grid connections. Further more, our view is that the renewable industry must evolve towards an infrastructural business model, with shrinking returns, but secured revenues, either through PPA or CfD awarded through auctions. ESG has become a key driver for governments, investors and companies. Decarbonization, energy transition, circular economy and also DNI policy are becoming increasingly central issues. So we try to design a business plan, which factor in all these trends. Let's move forward to this chart. There is no need, I think, to say much about this chart. The targets here are speaking for themselves. The takeaway is quite straightforward. There is plenty of room for growth, and this is true basically in every geography we are targeting. We see a long wave of investments, not just to 2025, but also beyond. The negative side of the coin is the competition, the players, the large integrated utilities, and even big oil companies are expected to play a major role. We are already experiencing that, and we expect this to accelerate or, at least, to continue. Yes, we are aware of that, but yes, we are confident in our capacity to deal with it. Let's move forward, but it's our DNA. We want to be honest with you and show the reality as it is. Permitting is one of the biggest hurdle for development. This is true all across Europe, but this is particularly true in Italy. The significant undersubscriptions over the last auctions are a proof of this. Here, you have an analysis performed by Elements, an independent institution. I don't want to go through each number here, but basically, the analysis says that at current pace, Italy will reach out European Green Deal targets in 2017 for wind and in the next century for solar instead of '23. The average permitting process last 5 years' time for wind, but it's a rare thing when it comes to a conclusion. Zero projects have received the Autorizzazione Unica since 2018. But despite all this, here, there is some positive news. A few weeks ago, evidently, after this analysis was issued by Elements, we obtained Autorizzazione Unica for 3 repowering projects. And other repowering projects in the meantime moved forward in their permitting process. Since the drag government is on power, although it's just few months, we have noticed an acceleration, which we very much welcome. Although we are not yet where we need to go, we are hopeful that this government, with the establishment, in particular of the Energy Transition Ministry, is very committed to speed up the process. So we look forward to working with institutions to do our part. After all, we think it's a win-win situation. So let's move on. As we said before, the industry is progressively moving away from an incentive-driven to an infrastructural mark, and we are not an exception to that. This is bringing a sort of market commoditization. The route to market is played more and more through competitive auctions and PPA, which are gaining ground all across Europe. Following lower LCOE, sales price, prices are getting lower and so are the returns. But the question here is, are those returns still attractive? Yes, we think so. They are more consistent with a lower risk profile and the maturity of the industry. Moving forward, we may -- we want to make our revenues as much stable as possible. And again, the question is, is this achievable? Yes, we think so. Basically, all countries we are looking at have mechanisms in place to stabilize prices over a long-term horizon, usually 20 years, sometimes less, as is the case of Spain and Poland. Our plan is to rely on those mechanisms whenever possible. One important piece of news for us is that the -- even the U.K. government is moving forward to open up auctions to onshore wind. And we are trying to gain a better understanding in order to see if our Scottish projects, now under construction, may be eligible for that. But I'll discuss it a little bit more later on. Let's move on and see here in this chart that PPA has an alternative option to pursue our strategy is gaining progressively ground across Europe. Corporate PPA are on the rise, with a clear prevalence in the Nordics and Spain. Italy, in this context, still lacks behind. But just today, we are very, very proud to announce probably the largest PPA signed in Italy. I'll say more on that later on. ERG wants to move towards a quasi regulated business model, exploiting both auctions and PPA. That's the key message of these few charts. Moving on, and before going through our business plan in more details, I believe it's worth looking at our current base, which, as you may know, will suffer from a progressive phasing out of incentives in the period, both in wind and hydro. This shouldn't be a surprise, and it's, unfortunately, inevitable. The challenge of our plan, you will see, is to more than compensate this physiological depletion with new developments. The progressive exit from incentive is itself part of our energy transition, an industrial evolution towards an infrastructural business model. And now a look on how we see our future. Here, I summarized our strategic objectives for the next 5 years and maybe more. We want to keep on growing our RES portfolio, targeting 1.5-gigawatt additional capacity over the period through a right mix of greenfield, powering, co-development and M&A, so an average of 300 megawatts per year. We are targeting 80% of quasi-regulated EBITDA, which means backed by incentives, tariffs or PPA. And this is consistent with an investment-grade profile and a financial policy with a higher net debt EBITDA ratio. We aim to increase geographical diversification, enlarging the number of geographies: Sweden, Spain are just an example. We are also targeting an increased technological diversification with a larger presence in solar, where we expect roughly 1/3 of our growth. Although we haven't allocated capital in the plan, we want to see the innovation. We are scouting for opportunities, in particular, for storage and hydrogen, leveraging on our asset base. Asset rotation, here been lots of rumors. Today, I can officially confirm that we are exploring this opportunity for both hydro and CCGT, and this is to fuel future growth in wind and solar, but I'll say more on that later on. In all this, ESG is and will be at the core of our strategy. Emanuela will go through what we are doing on this in more details. So moving to Page #25, here our 1.5-gigawatt target is broken down the stream of growth. We have roughly 400 megawatts under construction right now, 300 megawatts will come from our greenfield pipeline in the EU. Repowering in Italy, it has been a long time coming, but now, now we are finally reaping the benefits of our effort that begun in 2018. We reached -- we have just reached full authorization for 3 projects for a total of 142 megawatts, which are now ready to take part to the next auction and then ready to build. In total, we have roughly 350 megawatts under advanced development in Italy, which have been put in our business plan and are equal, on a differential basis, to 200 megawatts. Last but not least, M&A, a flexible approach, as always. We will be leveraging on our unique expertise to capture interesting opportunities in our core countries with a cherry-peaking approach. As I show you in a moment, we have become more active on M&A, also considering the potential asset rotation, though maintaining a selective approach, consistent with our financial discipline. But the blue bit is not just M&A. It can also come from codevelopment agreements we have recently signed in Germany with area and in Spain with Energetic. Or it may come from some upside embedded in our pipeline, both greenfield and repowering just if permitting process is too simplified. Let me wind up this chart by remembering and pointing out once again that we expect 1/3 of growth to be in solar. Let's move on, so now I go stream by stream. Here, we have a little bit more details on projects under construction. You see U.K., Poland, France, Sweden, which represent altogether more than 1/4 of our overall target of 1.5 gigawatts. I think -- and we think that this gives a very high solidity to our overall target. This project as well have -- should have and some, at point in time, a visible route to market. In U.K., we are negotiating some PPA with a long duration, keeping an eye open on the final outcome of government decisions regarding the possibility, I have already said, to take part to auctions, and the first one should be by the end of this year. As far as we have understood, in fact, our Scottish project should be eligible for those actions. While this -- hard to understand, but this shouldn't be true for our Northern Ireland projects, for which we are in an advanced talk for a long term PPA. In France and Poland, our projects have already been awarded tariff, factored in our financials that we are going to see in a moment. So the key message here is both execution and securitization of route to market for under construction projects are well on track. And this, I repeat, gives high visibility to our ambition for growth. Now let's move on, just take a look at the repowering projects. As you know, we have been pioneers in launching a large repowering plan in Italy in 2018. We were the first. Since then, we have made important steps forward in its deployment. Although we have honestly faced important obstacles, slowdowns during the permitting stage, some projects were delayed, sometime curtailments occurred in the number of megawatts, sometimes projects under course, but now we are finally seeing the light at the end of the tunnel. As I said, 3 projects have recently been granted the authorization. And now they are ready to build and ready to auction. And this achievement more in general, gives visibility to the entire repowering pipeline. Repowering will allow us to rejuvenate the asset-based in Italy, leveraging on superior wind locations and the forefront technology already secured to the framework agreement signed with Vestas last year and at the beginning of this year. I think you are used to those magic numbers, but let me repeat them once again. The power means half -- the number of towers more than doubled the installed capacity and more than tripled the production. Here, you have the numbers we put in our business plan, but we are working on a larger portfolio of projects. So some upside will be possible. So let's move on. And here, just to repeat what I have already said, all our organic growth, almost of the organic growth in the business plan are fully secured in terms of wind turbines with the best, say, technology and a very competitive economic conditions and also in compliance with the strictest ESG criteria. And this is another element that makes our growth target visible and reliable. But maybe even more important, we are working, and I move to the next chart. We are working on a larger pipeline, and we can now rely on a larger organization, devoted to development, which moved up consistently. So you can see here the evolution of our organization, which is perfectly consistent with the underlying growing pipeline. So we have made a big effort in this all across our countries in Europe. So we haven't simply reshaped our portfolio of assets, our way of financing, but also, and most importantly, our organizations consistently. So let's move on, again and yet another important piece of our equity story. I said a larger pipeline. And I said a larger pipeline, both in repowering and greenfield, both in wind and solar. Excluding assets under construction, we are talking about 2.6-gigawatt, of which 0.6 have been included in our business plan. So if you make the math, you see that we are talking about success rates slightly higher than 20%. And again, this makes me feel confident about our capacity to deliver on our target. Or let's say that even cautiously confident that some upside may come up in the event of any simplification of the permitting processes. Okay. Now let's move to the M&A. I've already said something about that, and I confirm that we are now very active in this field, also in light of the potential, and I repeat, potential asset rotation. We can rely on our unique expertise and reputation in the market. After all, we have carried out over EUR 10 billion of transactions since 2008, both sell and buy side. We are nowadays working on several deals, one of them has been closed just -- announced just a few days ago. Another one is well advanced, but never say never, in M&A. Others are moving forward. But the takeaways here is that our M&A strategy is based on a flexible and cherry-picking approach in order to identify assets very well fitted to our portfolio, where we can add industrial synergies. We tend to stay away from large processes where competition is too fierce for us and returns too low. Let's move on. We are seeking more geographical diversification, again, with a flexible approach. We want to keep investing in our legacy geographies, but at the same time, we are exploring new ones, among them, Sweden and Spain, which are now on our priority list. We are scouting other countries based on opportunities. Our focus is still on the EU, but again, never say never. We are, for sure, flexible, and we want to become even more agile and focused on wind and solar with, as I said, an agile organization, which make us move faster and seize opportunities wherever they arise. But let me say, Europe is, anyway, a larger playing field. So it's our focus right now and should remain so ever over '21-'25 period. So that's the kind message I want to give you, flexibility and rapidity. If we move on, this chart is, let's say, an exercise to represent what we mean by a flexible and opportunistic approach. We try to figure out what ERG may like -- may look like in 5 years' time in terms of geography scope. For sure, we'll keep growing in our core countries, Italy, France, Germany, U.K., Poland. And now we are trying to do the same in Spain and Sweden, as recently announced, but we can't exclude other potential countries, the ones we have colored in light blue, which will be selected based on the opportunities may come up in the future. The prioritization of every country must take into account the possibility to play an industrial role in the medium, long term. That's always our final objective to create synergies with the rest of our portfolio, leveraging on our industrial know-how, which remain a hallmark of our business model. Now just a couple of words on our most recent developments. We are talking about ready-to-build 62 megawatts projects in Sweden, which we expect to start construction very, very soon and to be up and running by the end of 2022. It's an overall investment of EUR 99 million, secured through a light EPC agreement with Bay.WA r.e.. This asset is amazing in terms of location with huge wind availability. Technological equipment is the most advanced we have ever seen, with the largest wind turbine we have ever installed, basically derived from offshore technology. We have already scouted the PPA market to secure the route to market for the asset, and we are confident to be able to do it at the right moment in time being that Sweden as one of the most active and liquid PPA markets in Europe and maybe in the world. We are progressively, and I move forward -- move on. We are progressively moving away from incentives towards an infrastructural business model. I think you already know this, but I want to stress this point. In '18, we presented a part of our business plan, which was based on a merchant investment case. That's not the point any longer. So in 2020, about 75% of our EBITDA was quasi regulated as defined by Fitch metrics. Nevertheless, this amount is set to decrease over time given the phase out of incentives. Instead, we are, and will be working to keep it up because now we see 2 major routes reliable to market. The first one, which should be our best option, is the participation to competitive option, then awarded -- the awarding of a CfD tariff fixed for 20 years or 15 years depending on the country. And the second best is going to be PPA when auctions are not available. This way, we are at a bit targeting 80% of quasi regulated EBITDA in 2025. And this will allow us to maintain an investment-grade profile, as Michele will explain later on. Okay. But the question, again, is where ERG is in its learning curve about PPA? So we did it in silence, but we have been stating for a while now. As a matter of fact, we are able today to announce an important 10-year PPA agreement with TIM, the national champion in telecommunication, with a quite innovative price collar mechanism, which offers a competitive floor while leaving a substantial area of upside. Part of the volume is baseload, while part is payers produced, linked to a couple of our assets already rebladed or currently under reblading. We also recently closed a small PPA in France with Energia to cover productions from existing assets, which have phased out from tariffs. Another in France is under negotiation. And as I already repeated that we are also in advanced phase of negotiation for PPA for our North Ireland assets and the same in Scotland, even though, there, we are trying to get a better understanding of what is going on with the auction, which should be set by the end of the year. So I move to the next chart, another key distinctive element of ERG is our industrial footprint. We are committed to continuously optimizing our asset base. With this logic, we are applying a lifetime extension program to our wind assets to extend their useful life. And we envisage some EUR 10 million, or a little bit more than EUR 10 million of investments for that over the plan. We are targeting to receive LTE Certification for at least 40% of our capacity by 2025. And other industrial projects where ERG being a pioneer is the reblading, or the replacement of the old blades with innovative ones that are more aerodynamic and so more efficient. We have already completed 2 projects, and we are now working on another one for 40 megawatts, which will be on stream in Q3 this year. Reblading is innovative, even from an ESG perspective, not just for the material of the new blades, but because we are targeting to recycle more than 98% of the dismantled blades. But Emanuela, will tell you more in a moment. We have -- moving to the next chart, we have a distinctive model for O&M as well, with a flexible and global approach, make or buy depending on which model is more efficient vis-à-vis the logistic of the assets per cluster of technology. We can go from a fully internalized model, like in Italy, to a mixed model like in France and Germany, to full scope as is in the U.K. and East Europe. We think that our operational maintenance capabilities are and will remain a distinctive factor. Okay. Let's move on. Now seeding in innovation, storage and hydrogen. I repeat, although we haven't put any CapEx or EBITDA in the business plan because, before doing so, we want to have a clear idea of the numbers, we are working to explore opportunities for both storage and hydrogen, storage, in particular, given the strong industrial fit with our wind and solar portfolio, which is I mean, permitted one. We are -- we have been analyzing a couple of storage developments at 2 ERG sites, which are very promising, but we have now to close the investment case. As far as green hydrogen, we are studying the possible development, maybe or even, for sure, in partnership with other players. But the final thought on this is that we believe that both storage and hydrogen will gain ground in the energy transition. So we must remain vigilant to seize any opportunities that may arise. So I suppose the most interesting topic for you, asset rotation. Yes, it's a possibility under evaluation, and we are working on it. Today, we can say it officially, we have finalized the first phase of the process, we have selected the preferred bidders, and we are now moving forward. Despite this, our business plan is designed on a like-for-like basis, including both CCGT and hydro because this remains an opportunity. As such, I mean, with CCGT and hydro in CapEx plan includes development projects, in particular for the CCGT plant, some of them already ongoing, and you already know them, such as the refurbishment of the steam turbine for Module 1, which should be completed in Q4 '21, making the plant eligible for another shot of white certificates as of its commercial operation date. We also have been working on the authorization for CAR on the second module and for a new OCGT plant, 57 megawatts, which is included in the business plan, and this plant will be inside our industrial site nearby the CCGT, and we are almost completing all the permitting. This kind of plant will become essential for the grid stability. As you can imagine, I can say more about the process, but we see, and I know that you have your own estimates. So let's move now, finally, to the numbers. But again, I have to repeat those numbers are including in the portfolio, the CCGT and the hydro, but I think you have all the skills to do your own analysis to figure out how are may be without them and what asset rotation would imply in terms of financials. So as far as capacity, we are targeting 4.7 gigawatt compared to the 3.1 today, but this is just the math we have discussed before. So the 1.5 gigawatt in wind and solar, plus the 57 megawatts of open cycle in the air power side. Out of the 400 megawatts right now under construction, about 100 will be installed in 2021. That should, I think, explain the acceleration we expect as of 2022. But again, we are also working on several fronts in the M&A field. So maybe I can't exclude could be some acceleration in 2021, but it's too early to tell. So let's see what this means in terms of investments. As far as CapEx, we will be investing EUR 2.1 billion, EUR 1.9 billion for RES development here the breakdown stream. Roughly EUR 100 million in terms of hydro for the new developments, the one I've already mentioned, in particular for the CCGT. And EUR 100 million will be the maintenance CapEx, which is in line with the guidance we have been giving since ever, say. EBITDA. EBITDA is expected to move to EUR 550 million in 2025, with the technological split shown in the chart. Most importantly, we expect 80% of it in '25 to be quasi regulated. For '21, we now expect about EUR 500 million of EBITDA. I'll comment on this later. So moving to the next chart. Here, you have an idea of the geographical diversification in 2025. So with roughly 30% will be coming from outside Italy. Again, I think, it's easy for you to figure out how this breakdown may further evolve in case of asset rotation. Let's move to Page 47, here, the bridge between 2020 and 2025 EBITDA, which is, again, the sum of what I've already touched over my speech so far. We are now factoring -- we are not factoring practically any particular upside from this scenario as we are taking a cautious approach based on our assumption for CfD and PPA, a discount compared to merchant prices. Here, there could be some upside based on current market forwards as part of our production is still floating. The higher volumes simply reflect the fact that 2020, as you know, was a bad year for both hydro and wind in Italy. The impact from the phasing out of incentives, both hydro and wind is quite large, EUR 130 million. We expect to more than offset this with EUR 145 million deriving from the new installed capacity model based on our CfD and PPA assumptions, which, I repeat, are different country-by-country and are usually a discount compared to the merchant prices. So significant growth, as though mostly absorbed by the phase out of incentives, consider that the phase of incentives will be significant over the last 2 years of the business plan, '24 and '25, and there is nothing we can do about that. It's part of our energy transition. And now to Michele.

Thanks, Paolo, and good afternoon to everybody. Since 2018 business plan presentation, we have made big step forward in our financial strategy. First of all, we have obtained investment-grade rating from Fitch, and we are very proud of this result. We have a completed transition from a traditional project financing debt structure to a green debt capital market financial structure. Now we have a solid investment-grade financial profile, which we are committed to maintain in the wall business plan period. The investment-grade rating is the pillar of our financial strategy. And on this basis, we can lever our growth in renewables, maintaining a competitive cost of capital. We see our current rating consistent with the leverage in term of net debt EBITDA of 3.5x. In the business plan horizon, we are planning a significant deleverage to boost our RES portfolio. The leverage will be consistent with the criteria set forth by the rating agency to keep our current BBB minus rating. Our debt will rise from EUR 1.4 billion to EUR 2 billion in 2025 after CapEx for EUR 2.1 billion to add 1.5 gigawatt to our portfolio, working capital and taxes at EUR 0.4 billion and financial charges at EUR 0.2 billion. We are benefiting here from a competitive cost of debt thanks to the liability management exercises brought forward in 2018-2020. Consolidated EBITDA is in the area of EUR 2.7 billion. So EUR 500 million, EUR 600 million average while keeping investment-grade ratings and our financial sterility. Here, you can find the picture of our financial structure, a solid base for our 5-year business plan. Our thermal and hydro assets are free of that. Project finance covered a few specific solar wind assets where we can optimize tenor and cost of the facility. We do not have any exposure to interest rate risk, and our first refinancing need is in 2023. With the 2 green bonds issued in 2019 and in '20, the portion of green bond is now 55%, 25% is corporate loans and only 29% is project financing. And finally, we have made an important shift towards green ESG and ESG instruments. With green bond and ESG-linked loans totaling 70% of total gross debt. This shows a full integration of our ESG and financial strategy. And in this slide, you can see what Paolo has already commented, we are considering an option for asset rotation towards a pure wind and solar business model. In this scenario, we see a strengthening of our business profile, with quasi-regulated EBITDA that can reach 90%, a greener asset base and an increased asset and geographical diversification. This, in our estimation, could lead to additional debt capacity, still maintaining our investment-grade rating, with the financial leverage that could reach up to 4 in terms of net debt EBITDA. Again, I stress our clear commitment to the maintenance of the investment-grade rating also in this scenario. Now I will hand over to Emanuela for the highlights of the ERG 2021, '25 ESG plan. Thank you.

Now ESG time. For me, it's a pleasure to drive you through our first ERG ESG business plan. As you know, ESG is now at the core and fully integrated in ERG strategy. And it's perfectly aligned with the 17 United Nations Sustainable development rules. The evolution of our purpose is consistent with the evolution of ERG. We are one of the leading European energy players, thus the purpose of we are green energy makers. Our commitment towards the climate change is emphasized by the purpose of we are climate change fighters. With this plan, which is perfectly aligned to 12 out of 17 SDGs, we believe the purpose we as SDGs contributors perfectly fit. So going on. Okay. Here in a snapshot, our 2021-2025 ESG strategy. As you can see from the chart, we identified 8 ESG priorities, which will be the bulk of our ESG strategy and other 5 objectives with the logic of a continuous improvement on them. As you can see, ESG strategy moves along the 4 pillars you already saw in our non-financial disclosure: planet, engagement, people and governance. We will see the full targets in detail in the following charts, but here, let me highlight what are the key priorities of our ESG strategy. As far as Planet, we are targeting to reach the carbon neutrality, at least for direct and indirect emissions. And we are planning to be circular, as Paolo mentioned before, to the tune of at least 98% as regards our reblading and repowering project, thus transforming those investments as full ESG, fully renewable, no additional land and no waste in landfills. As far as engagement, our commitment here is to enhance our relationships with the local communities to sustain the social development. And we aim at providing them for education for the next-generation on the renewable and ESG teams. Our people are the heart of ERG, and we aim at providing all of them without upskilling, reskilling possibilities, and we will be focused on the launch and implementation of a DNI policy. As far as governance, we will keep on enhancing our governance model, which is already best-in-class, and we have completely renewed our remuneration policy as our Executive Vice President explained before, which is now linked to ESG targets, but for MBO and LTI. So the commitment towards ESG is not only on paper, but it is in reality. Moving on. ESG, as you can see from the chart, is a complementary level across the entire value chain and is a key element of ERG's business model. Our ESG targets are based on measurable and well-defined KPIs and move along the entire value chain from business development to financing, operations and the commissioning. So moving on, okay, here you find in details the 13 targets of our ESG strategy, I will give more color now on them. In Planet, our focus, as I already commented, are the circular wind and the carbon neutrality, in addition to the continuous improvement in energy efficiency along all the technologies we operate. We aim at reaching carbon neutrality for Scope 1 and 2 emissions in the business plan period, whilst for Scope 3, namely those emissions that are related to the supply chain by 2040, in accordance with the supplier's commitment to the carbonization. As far as engagement, as we said before, we are targeting to evolve 20,000 students by 2025 to spread over the culture of sustainability and of renewable generation. In addition to that, ERG will allocate at least 1% of its revenues for the social development of communities. As far as people, we are thinking about providing 75% of them -- of people with individual plan programs in the context of an agile transformation, leveraging on digital evolution. As far as DNI, we will see the targets afterwards in a specific chart. Another pillar in people we continue to be focused on is, of course, crucial for us, which is health and safety, which will continue to be a priority. As far as governance, as we said before, we put ESG at the core of management remuneration, and we are also working on the continuous improvement of our supply chain thanks to the sustainable procurement, and we will extend also the tax control framework now in place in Italy, also in France and in Germany. So I would say, a solid ESG strategy based on well-defined KPIs, which we'll be monitoring throughout the plan period. Moving on. This is another perspective on CapEx, so looking at the CapEx, Paolo showed before on an ESG angle. It is worth noting that 100% of our CapEx are in line with the UN SDGs, with a clear focus on the #7, clean energy, #13, climate action, which cover more than 90%. Being the reminder, the circular economy and the innovation and infrastructure. A brief comment also on the green taxonomy, which, I remind you, is a system to classify an activity at green. While we are still waiting for the final outcome of the new regulation, we can easily say that the vast majority of our business is fully green. CCGT, for the time being, can be seen as the contributor for the energy transition, although outcome for gas is expected to be published on September 2021. So going on, we are launching, as anticipated before, a DNI policy with the aim at created company where all the diversity can be included. Our aim for 2021-2025 plan is to enhance diversity at all levels, fostering the gender diversity and also boosting our international presence. Our objective is twofold. We are targeting to have, in 2025, at least 20% of women amongst the key leaders of the group and 50% of key leaders abroad, in line with our aim at keep on growing abroad. In the short term, as far as 2021, we are strengthening the presence of women in our group, with a target of plus 40% net female additions. This is, of course, the basis for the future evolution in our diversity enhancing for women. So I will point out that we are at the beginning of a part for the diversity announcing, and we are working altogether in a transversal way in all the group to create a culture of diversity and inclusion, which are at the basis of a sustainable development. And now over to Michele for its comment on Q1 2021 results.

And now a few comments on ERG first quarter 2021 results. As a general comment, it's worth highlighting a strong improvement in hydro volumes. EBITDA was up 3.2% to EUR 161 million, thanks to the following effect: wind down to EUR 94 million as a result of a decline in production of our in France and Germany after exceptional wind condition in first quarter last year. This was partially offset by better results in Italy. Solar at EUR 11 million, in line with last year. Hydro was strongly up from EUR 24 million to EUR 54 million as a result of strong recovery in volumes, plus 343 gigawatt hour vis-à-vis a particularly dry first quarter in 2020. The heavy rainfalls in the period had a positive impact also on reservoirs at the end of the quarter, which are higher than historic average. CCGT was down from EUR 15 million to EUR 6 million as a result of the end of the wide certificates for both modules of the plan in 2020, with a negative impact of EUR 6 million, coupled with the squeezing generating margins due to higher gas and CO2 cost. Net profit for the quarter is EUR 65 million, EUR 12 million up, due to higher EBITDA, lower depreciation and decline in financial charges, EUR 6 million. We executed a relevant liability management exercise in the second half of 2020, and we are seeing now the positive effects. Net financial position at the end of March 2021 was EUR 1.3 billion. It is lower than the end of 2020 with a leverage of some EUR 120 million. Here, as usual, a picture of the main drivers per business of the EBITDA evolution. As we've said before, wind in Italy was up EUR 4 million, due mainly to a higher volumes, plus 3%, and a higher value of incentive, which, as you know, is inversely correlated with last year electricity price. Wind abroad was down EUR 19 million, mainly due to a drop in production, minus 30%. Solar almost in line year-on-year, with lower volumes offset by better prices in the period. Hydro up EUR 30 million, thanks mainly to a strong recovery in volumes. Energy available in Lakes is 152 gigawatt hour, plus 37 gigawatt hour versus the end of 2020 and even higher versus historical average due to the heavy rainfalls in the period. CCGT down EUR 9 million, as we already commented, due mainly to the white certificate phasing out. Please note that last year -- the first quarter of last year benefited for EUR 4.7 million of insurance compensation. And now a brief overview of investment in the period. We invested EUR 33 million versus EUR 61 million over the same period last year. When I remind you, we had EUR 44 million of M&A CapEx, referred to acquisition of Trinity Wind farms in France, and the acquisition of a ready-to-build project in Poland. During the first quarter 2021, CapEx are composed as follows: about EUR 26 million was invested organically in wind development in U.K. where our capacity under construction is about 250 megawatts. Construction works are also ongoing in Poland. EUR 3 million related to the refurbishment of Module 1 of the CCGT plant, and about EUR 3 million of continence CapEx spread across all our technologies. Let's now move on to the financials, commenting on profit and loss on a recurring basis. I have already commented on EBITDA. So going down to the profit and loss, lower depreciation, minus EUR 7 million, reflects a reduction in depreciation of some wind assets due to the end of amortization period, coupled with a review in depreciation plant of some intangibles wind assets and the reduction in depreciation and the consolidated accounts of the hydro asset due to an increase of the amortization period without any tax effect. Net financial expenses at EUR 8 million versus EUR 13 million in first quarter 2020, thanks to a lower cost of gross debt, mainly following the issuance of our second green bond in September and December 2020. Taxes. Tax rate in the quarter was 24% against 22% in first quarter 2020. As a result of this, adjusted net profit amounted to EUR 65 million in first quarter 2021 versus EUR 53 million in first quarter 2020. Finally, let's take a look at the cash flow statement for the first quarter of the year. Net financial debt closed at EUR 1.3 billion, down by EUR 123 million from the end of 2020. Touching on all the items from left right, we have our EBITDA, EUR 161 million, the investment made over the period, EUR 33 million, a positive working capital trend, financial charges and a positive impact of other items of EUR 2 million. So all these effects led to a net debt of EUR 1.3 billion. I think I have touched on all the relevant items. Thank you for your attention. And now I hand over to Paolo for his final remarks. Thank you.

Thanks, Michele. Now a very, very quick comment on 2021 guidance. We revised EBITDA guidance by EUR 10 million in order to take into account a good Q1 in terms of contribution from the hydro assets, but also to take into account for the high level of reservoir at the end of the quarter. In terms of CapEx as well, we are going to revise the guidance by EUR 50 million, which is the CapEx related to the most recent acquisition in Sweden that are expected to be invested in 2021 with the first phases of the construction for the wind farm. As a result of the revised guidance for EBITDA and CapEx, we adjust -- our adjusted net financial position is expected to be higher by EUR 40 million on average, which is exactly the netting of the 2 items I've mentioned before. So moving on, here, I want just to summarize in a nutshell the business plan. So we said capacity, plus 1.5 gigawatts through different streams, repowering, greenfield, co-development and M&A. 0.4 gigawatt are currently under construction and 0.5 are almost fully secured through our owned pipeline, water powering and greenfield. So I think this target is highly visible and represents a challenge that we can deal with, for sure. Moving to the EBITDA. We expect EBITDA at EUR 550 million in 2025. We expect a huge contribution from the new development, but part of that will be absorbed, as we have seen and commented previously, absorbed by the phase out of incentives. Again, it's very much important for us to underline that 80% of the EBITDA in 2025 will come from quasi-regulated revenues, that means backed by tariffs and PPA. As such, we pay a price in terms of settlement between the price scenarios for PPA and auctions vis-à-vis the merchant scenarios, which are higher. CapEx, we -- to do that, we expect to invest EUR 2.1 billion, out of which EUR 1.9 billion will be devoted to wind and solar new capacity. And I think it's quite important to underline that under the current taxonomy, 100% of our CapEx will be compliant with United Nations SDGs, just to recall the importance and centrality of ESG and our business model. Net debt, so in doing so, we expect a leverage of our indebtedness to EUR 2 billion number, which is fully sustainable and consistent with an investment-grade rating and coherent with the nature of the EBITDA we are expecting in 2025. The leverage is also consistent with the lower risk profile of the EBITDA, but I've already commented on it. An important and last point, it's the dividend. I've already said during my speech, but a stable yearly dividend of EUR 0.75 per share, we believe, is still fair -- both fair and sustainable. So in the end, our business plan is simple as that, can be summarized just through this 5 or 6 bullets in this chart. Now let's move to my last chart, and I'd like to explain this because as to the power of 3, that's our internal way, through which we like to summarize our strategy, which, basically, means repositioning portfolio with more capacity, more geographical diversification, more technological diversification. And here, I mean, solar. But also means reinforcing our organization, especially in business development and energy sales in order to be able to deliver on the 2 main pillars of our strategy, growth and securitization of revenues. And the third area is rotating asset portfolio. As I already said, it's part of our flexible approach. It's not an obligation. It's an opportunity. So at the right conditions, we may consider asset protection as a way to accelerate farther our growth in wind and solar. So in the end, it's a business plan about farther transformation into a pure renewable player, with more installed capacity in wind and solar. Will be -- we will be more international, more agile and faster in seizing business opportunities wherever they may arise. We'll maintain our solid industrial footprint and will strengthen our know-how in both development and energy sales. And let me add that we'll be doing this while keeping our distinctive know-how in energy management, which provide us with better knowledge to go through our energy sales objectives, but also our operation and maintenance skills as we have shown that this can bring further values. Our values, people and sustainability are, and will be at the core of our strategy. So now a very, very quick video, and then we will be ready to take your questions. Thank you very much for your attention. [Presentation]

[Operator Instructions] And as a reminder, we will have a maximum 1 hour time for the Q&A because then we have other scheduled meetings afterwards. So now over to Chorus Call for the first Q&A.

[Operator Instructions] The first question is from Sara Piccinini with Mediobanca.

Congratulation for the presentation. I have some of them, maybe I will start with 4. The first one is on power prices. So from the guidance that you gave, it seems that you're not including the higher level of power prices that we are seeing on the market. Can you please provide more detail on the power price assumptions, both in U.K. and Italy? And possibly a sensitivity on the potential upside that this factor could bring to the guidance. That was the first one. The second one is on the guidance for the EBITDA. Would it be possible to have a breakdown of the EBITDA contribution between M&A, repowering and greenfield? And also, if possible, to have a guidance on the net income by 2025 on a like-for-like basis? The third one is on repowering. What is the price that you assume to be awarded in the auctions for the repowering capacity? Also, at the presentation of the full year, you were indicating 311 megawatts by 2023 and 498 megawatts onwards for 2024. How these numbers compare to the new targets? And also, is the level of CapEx per megawatts for repowering at EUR 1.1 million per megawatt as your figures shown? And finally, the fourth one is on M&A. What is the level of M&A multiples that you are assuming in the business plan in terms of million per megawatt? And that clarification on Slide 31, are these 350 megawatts on top of the 600 megawatts that you indicated in the plan? Or they are part of the 600 megawatts?

I'll start with the first one. Yes, you are right. We have been cautious. We have been conservative we have own -- our own price scenario merchant, which is currently well below the current forward market prices all along the duration of the business plan. And the difference is quite important just comparing our assumptions to the forward prices on the screens today. The difference is very high over the first few years and becomes a little bit lower, but still significant over the next year -- over the last 2 years of the business plan. But you have to consider that the spikes in the energy markets is -- just came over the last few weeks, and we didn't want to change our assumptions. We run some internal sensitivity analysis, and I can say that, especially over the last couple of years, so '24 and '25, where we have still a big portion of our productions, not covering -- not covered by hedging, the sensitivity is in excess of EUR 20 million. So in other words, if we should consider the forward right now on the screens, the EBITDA profile will increase, especially over the last 2, 3 years of the business plan. While for '21 and '22, we have a big portion. There are 2 effects. We have a big portion of our production, which is already covered. And the second, as you may know very well, the value of incentive is inversely related to the merchant price, especially in Italy. And this will compensate for the higher merchant prices. But for sure, the net-net is positive all along the the '21-'25 business plan period, becoming bigger, say, going ahead and going forward in the years. So I hope to have answer this first question. The second one, you asked a breakdown sort of breakdown for the EUR 140 million EBITDA. EBITDA, we expect from our developments, say, it's -- you can apply a proportion based on the CapEx and consider that more is the organic nature of the CapEx, the higher is the return. So in proportion, we expect the most bigger part of the contribution from repowering and from greenfield and while for the M&A, which I think was another question. We are now assuming a multiple, which is in line with the recent transactions recently, means the ones on the market over the last 12 months, which is in the region of 15x EBITDA. But consider, it's a guess because it depends very much on the portfolio, the the younger is the portfolio, the higher tend to be the multiple, but depends also on the countries, depends on the technology, depends on the tariffs. So honestly, it's an exercise of imagination. But based on the deals, we are now seeking and studying right now. We think that 14, 15x is a reasonable multiples. Then you asked for a guidance for net income. We usually don't give this kind of guidance, but say knowing your estimates. I think that if, on one hand, maybe you tend that the analyst tends to overestimates a little bit the EBITDA, and then I try to explain why. You underestimate the net profit, in my opinion, because the cost of debt is very low, intends to become even lower, but also the depreciation of the assets is lowering not just because time passes, but also because, as you may know, we evaluated more than EUR 200 million of assets in the hydro segment in 2020. And this will provide us with a lower depreciation because we are spreading this revaluation and the net capital employed there over a longer horizon of time, which is consistent with the, say, duration of the wet assets, especially in particular. But also, as I had the chance to say during my presentation, we are working on the program called long time extension. And the long time extension means that we are doing a precise exercise asset-by-asset to understand how to distribute over time the depreciation of the assets. So all in all, this exercise both in the hydro and the wind should result in lower noncash cost. That's the first reason. And the second, as I said, was the lower net financial charges. As far as the tax rate is concerned, we are predicting a stable tax rate in the region of 24%. And this should explain why we expect net profit, say, well in excess of EUR 100 million. Well in excess. And going up over the period of the plan, while maybe in the end of the winter plan, we'll stabilize more because the capital intensity will keep -- will start growing up again following the EUR 2 billion investments that we are expecting to do. I think you had also questions on repowering and the price we expect from the auctions, first of all, happy to say that over the last few weeks, I repeat it because it's quite important news for us. We received the Autorizzazione Unica for 3 wind farms located in Sicily. And according to the status of these parks, we are going to participate to the next social auction, which is in June. And given the expectation of supply and demand during this auction, we think the price will be good. But please, I don't want to show so our price strategy for the auction. But I think the situation is quite clear. The last auctions have been hugely undersubscribed, but please also consider that the repowering, and this is something we think is a little bit unfair and then can be fixed by the governments maybe in the next or in the forthcoming decrease, and we are working for that. You know that the repowering is subordinated to greenfield in terms of quota allocation, and it's also subject to a further 5% discount on top of the other discount applied to the auctions. But say that we still expect a price in the region of EUR 60 per megawatt hour. This may help. I don't see the Chart #31, you referred to. Maybe we can put it -- okay. But here, say are the deals we are working on right now. I think the key message here is that we want to have a selective approach because we try to participate to big processes over the last year. But whenever the process is too big, I mean tickets, equity tickets in excess of EUR 400 million, EUR 500 million, the competition is too high. And the return, at least according to our way of evaluating those kind of assets are too low. So we are now trying to have a more cherry-picking approach. As you see here, the size of the deal we are looking for are not so big. Because in this kind of deal, we think to be able to extract more synergies, also leveraging on a little bit less competitive process. So I hope I have touched on all the points.

Yes. Thank you very much. That was very clear. Just a quick follow-up on the level of power prices, can you give us the level or a range of the power prices that you are assuming in the business plan, like around EUR 50, something around that number?

Just give me a second because I have all my reports here in front of me. Let's say, in Italy, our forecast is in the region of -- it starts from EUR 50, EUR 52, EUR 53, which is just already short of the year-to-date value. And quite stable until '23 and then starts going up, reaching between '20, EUR 55 and EUR 59 in '24, 2020-2025. So still quite lower than the current forward. Today, the forwards for '24 are in excess of EUR 64, EUR 65. So it means EUR 10 difference and EUR 10 per megawatt hour difference. We just run an internal exercise means for us having 20%, you say, you know that of floating production means more than EUR 20 million.

The next question is from Roberto Letizia with Equita.

I would like, first of all, my complement for your appointment as a CEO. And then I would continue on Sara's questions for the sensitivity on the power price. And just adding something more. So wondering, you actually said the EUR 20 million sensitivity on the unhedged portion of the plan, which I guess, is the 20%. But I would like to understand, actually, price you mean, you mentioned so the EUR 59, EUR 55, EUR 59 per megawatt hour market price. That is not the price that you have assumed for your economics. Is that correct? Because you have assumed a significant discount over that price, which is the one that you assume as potentially be the level at which you will close the PPA and the CfD. Is that correct? And then I would like to understand, do you believe that the current market prices will help you actually to sign better PPA and CfD contract, which means that actually, you have an upside on the plan, not only on the unhedged portion. But also on the hedge portion, presumed in the plan? And also on this part, I would like to understand if the 80% coverage through PPA and CfD, is that the percentage because you still include the hydro and the CCGT, which in '25 will no longer have PPA coverage or whatever, which actually means that if you sell them up, basically the percentage of coverage of your sales in that year would be higher. Is that correct? I would like you to ask when do you expect to close the procedure for selling the hydro and CCGT? Is that weeks or month? When do you expect -- it's reasonably to know if you're going to sell them. Just a clarification on Sara's question and your answer before. When you mentioned the well in excess EUR 100 million net income that refers to 2021. Is that correct? Because I understood probably Sara was asking 2025 net income indication, which was also my curiosity, if you can give indication. If it's possible, if you can give us some figure on the EBITDA for '23 and '24 because, I guess in the market, there has been some confusion on the timing of the expiry of the incentive and actually provided your guidance of debt EBITDA, there are some difficulties in getting the sense of what is the EBITDA of '23 and '24 depending on the month in which the expiry held. So that will help very much to make the numbers, understanding what's the EBITDA in '23 or maybe only 2024, which is basically the year in which you have more expiry of the incentive. And the last one is just a clarification on the M&A. I'm not sure if you already include in the targets the M&A, which you presented in one page of the presentation, or if actually those assets that you are exploring will come on top of the result?

And I try to answer the list of your questions. So the first one was, again, about the the price scenario. And yes, first of all, I want to say that for sure, the current market prices is changing a little bit the picture. In the negotiation. We are carrying on for PPA, both in Scotland, both in North Ireland. And also in Italy, as today, we announced an important PPA with 340 gigawatt hour per year, which is a quite big amount. It's the largest PPA ever signed in Italy, and we are proud to have signed with another Italian company. And this PPA is structured with a flexible mechanisms, which are based also on our experience in energy management. So this PPA, for instance, is provide us with a color of price with a reasonable floor, but also a quite important space of upside. While in the U.K., the PPA and the process we have launched a couple of months ago are more based on a fixed price, either baseload or payers produced depending on the counterparties. But to be honest, right now, we have a little bit slowdown, sales slowdown the process because exactly for the reason you mentioned. So the spike in the energy prices are maybe slightly change in the picture because we are still trying to understand if this is change -- a structural change or just a spike as we have seen sometimes in the past. But for sure, the fact that the prices are driven up so significantly by the CO2, we think, means something. And so for that reason, we are trying to understand better. And for instance, a way we will try to pursue is maybe to reduce a little bit the duration of the PPA, because reducing the duration, you can capture more the forward curve. So we are doing -- we are trying to do everything with flexibility. But you're right, there is an important upside if because I have to repeat, if the current expression of the market will be confirmed. I've already said in excess of EUR 20 million, but it could be EUR 20 million, EUR 30 million, say, the range. And the profile of the EBITDA, you can assume a quite stable growth over time because the phasing out of incentives, it's true that will accelerate in '24 and '25, because a big bulk of incentives is going to exit at the end of 2023. So the economic impact will be evident in '24 and '25. But in parallel, the contribution coming from the new developments will be consistently with the phasing out. So in our numbers in our business plan, the growth is quite still over time. And you can assume, the average CAGR we have for the EBITDA per year. Then you asked also for -- and of course, sorry, of course, in our business plan, all the assets we have shown under construction are already factoring an assumption of PPA, an assumption which is based on our own estimates of PPA, which are a discount, which has a discount of merchant prices. So even there, there could be a slight upside on the numbers we have. Then you ask about the process for hydro and CCGT. I think the rumors circulating on the news, they are quite precise. We don't know why, but they are, so. And we have completed the first phase, which is an unbinding phase. And now we have selected the preferred bidders, and we are moving to the second and the last phase, which, in a couple of months, that's our schedule in a couple of months. We will provide us with some binding offers. And then based on that, we will take a decision. In the sense that I repeat, for us, it's an opportunity to reshape our portfolio to accelerate the growth in the wind and solar to become a more agile company, purer portfolio. Of course, hydro is 100% renewable, especially our plants. But we think that being just in wind and solar will provide us with a mindset and a portfolio of assets quicker and faster in the opportunity. But of course, this opportunity will be just if there are the right economic conditions. For sure, we are not selling at a price that discount, just the cash flow from now till 2029. So if not, we will keep it, and we are happy, very much happy with us. And then again, you -- so the answer is, the objective is to have a clearer idea by the end of June 2021. Then you ask for the net income? Yes, again, even for 2021? Yes. The expectation for a much higher income is also for 2021 because the reduction of noncash cost should be already in place as of this year. Yes. I mean, you asked also for the M&A. Of course, the M&A is included in the CapEx and consistently is included in our EBITDA, of course, reflecting the assumptions I mentioned before.

And yes, I left also the question on the fact that if you sell the hydro and the CCGT, the CfD, PPA percentage coverage at the end of the plan will be higher. Is that correct?

Absolutely. Roberto, your good analyst, and you got the point. And one of the reasons -- one of the strategic reasons behind the idea to reshape the portfolio towards this direction is exactly for this reason because we think that becoming more wind and solar, we will sustain a higher quasi-regulated percentage of revenues on top of the 80%. And for this reason, by product, we will obtain a higher and stronger, say covenant or called as you want ratio, financial ratios, which will provide us with further capacity of indebtedness, while, of course, maintaining the investment grade, which is a part of our business model, and we want to absolutely keep it.

Very quickly, sorry, on this very last point that you touched, if you sell the hydro, will you recycle the whole amount of cash into new projects? Or will you also consider to pay slightly more?

This is a question, not just for the management, but also for the shareholder. From the management side, I would answer that the objective is absolutely to reinvest in the business. But I believe, Alessandro want to add something?

Yes. Yes, I can answer the same. I think that the -- in the plan, there is a EUR 0.75 per share of dividend, which I think is already quite a high dividend in terms of yield compared also to our peers. So the idea in the plan is to invest all the cash available in the growth of our megawatt and especially in wind and some no no extra dividend foreseen at the moment.

The next question is from Roberto Ranieri with Intesa Sanpaolo.

Yes, and thank you for the presentation. My first question is on strategy. You were talking about the asset rotation and also geographical diversification. I'm wondering if East Europe remains a core asset because from the presentation, you are not investing in East Europe for development. So if this is an area which you are considering potentially disposed. That's my first question. And my second question is again on actions in Italy. Paolo, you mentioned that the situation is not really uncertain. I'm just wondering, what are the major headwinds against the options, if any, what has to happen to have a process and more faster on the auction system. My third question is on the exposure to the inflation. So if you elaborate on the debt, probably I missed something on that but is your portion on a fixed rate and porting rate. And my last question is on ESG strategy. And for Alessandro, specifically, well, ESG strategy is well integrated with the business plan, the financial business plan. Alessandro, you talked about an NBL scheme linked to ESG KPIs. And in particular, I'm interested on how this scheme related to the action that ERG is taken for social KPI improvement and what -- for the benefits of local communities. And in addition to that, if these actions are going to be share value for the company and locate content as well.

Okay. Roberto. Let me start with East Europe. East Europe is an area where we want to stay. And we we enjoy the cash flow from Poland and Bulgaria, Romania over the last few years, which were much higher than what we expected when presenting the business plan in 2018. And still, in Poland, the fundamentals are quite strong. As such, Poland will remain one of our key priority in terms of geographies in Europe. Bulgaria and Romania, we are not envisaging right now any developments. But as I said, the approach is absolutely opportunistic. We are already in the countries. We know the countries. We have offices in there. So if any opportunity may arise, why not, we will be starting according to the principles, I touched before, maintaining our financial disciplines, synergies and the idea to integrating into our portfolio. The auctions, we do not expect for the next auction. They will -- the regulator will change, say, the rules because it's -- we are one month away from the launching of the auction. And if the math is not a doubt, we should expect, again because the numbers of authorization are the one we have showed before. So the only park that has been authorized over the last few months are ours. So we expect still an auction with the offer of megawatts available to be auctioned will be higher than the one ready to participate. So we expect to be awarded with the tariff. I remember that on top of June, there is going to be another auction by the end of the year. So we have 2 shots, say for trying to win our megawatts in the power. As I said before, we gave our availability to discuss further the regulations, and it's part of our business. To explain to the regulators, the fundamentals that stay behind our reasoning, and we are quite sure that repowering is going to play a big major role in the increased capacity over time. It's also a matter of space. It's also a matter of penetration in the territory is the most effective way to increase the capacity without occupying new terrain and new soil. So with this very clear in mind, we will work with institution to help them understanding that it's not fair. That's our belief. That repowering projects are subordinated to greenfield projects and also obliged to receive a discount of 5% in the price. Because in the end, and after all, it's a new installment. On the same terrain, and we may be leveraging on the connections but still, it's a new project. And the last piece of comment, I want to say about the auctions, the government, the Italian government in Italy, sorry, the auction are scheduled just for '21, but we are assuming, of course, that the auctions will be renowned also for the years to come, as in the other European countries. That's our -- absolutely our expectation. About the debt -- sorry, inflation. The inflation, we are assuming a 2% inflation, more or less over the period of time. And I repeat, we are also working when dealing for PPA with this risk in mind. So for instance, the Italian one got a collar, through which the the price can float, but also in the U.K. in some PPA, not yet closed, but we are working on them, and we are considering an inflated price mechanism, even though fixed but adjusted for inflation where possible. And in terms of I don't know if it's part of the question, but if you also want to know our view about the inflation vis-à-vis the interest rates consider that particularly 100% of our debt is covered and is hedged against the possible potential rise in interest rates. I don't know, Michele, if you want to add something.

I can add that we have also executed a free edge exercise for -- to cover against this risk for future emissions of bonds or new loans into 2022 -- sorry, 2023 and '25.

So the last comment I signed from your question was the ESG and the MBO. We introduced a completely revised mechanism for remuneration, and we are very happy as Alessandro explained well that practically 90% or more than 80% of minority shareholders voted in favor of the new remuneration policy. And this remuneration policy is considering an MBO for all the management, so not just the CEO and the C-level, but also all the management with objective related to ESG. And there are 4 objectives. The 1 practically Emanuela explained during the presentation, which are translated into clear objective year-by-year in the MBO and some parameters also in the long-term incentive scheme are introduced, which basically reflects the same KPI, but seen in 3 years' time as the duration of the LTI.

Yes, I can add Roberto that in the ESG indicators, both in the MBO and in the LTI, there are, as you asked, some indicators relating to the community, to the social impact, for instance, in the MBO, we measure the contribution to the commodity where we are going to invest with our assets. And in the long-term incentive, we measure the pillars is the engagement, and we will measure the what we will do for the education for the next-generation in terms of programs and especially in Italy and France. That's some of the key indicators for our MBO and LTI plan.

Roberto can I add something more, if you don't mind, on the engagement for the local communities. I would point out that we are planning to provide with at least 1% of revenues for the social development of the communities in which we operate. And there are, as you also mentioned in the question, some preliminary agreement for community benefit in the U.K. The plant where we are -- which we are building. And of course, the contribution will be completely in line with our ESG strategy and our ethical values. So of course, will be contributed for the real social development of the communities.

The next question is from Emanuele Oggioni with Banca Akros.

Thank you for the presentation. And first of all, congratulation to all the top manager, the new top management. I have a quick follow-up on the -- again, on the guidance. Could you tell us the target -- EBITDA target without the contribution of the acquisitions, this is the first one? And the second one, if you could quantify the upside on EBITDA for sure or at least a range from the potential simplification and draft law in Italy and not limiting generally in your core countries along the plan?

Okay. Say, let me start with the upside because I read some comments this morning and the general comments was we have been cautious in setting out our targets, but probably it's the school of the house to put just what is really visible and not to take any bet on pipelines, which have not reached the, say, certain status of progress. But of course, we are working on a larger pipeline. That's an important point. And for instance, in the repowering, basically the 200 megawatts, slightly less than that, we inserted in the business plan and the one I just mentioned before that they are fully authorized or very, very near to be authorized. But we are working also on other projects. And some of them are important, such as the 1 we have in Sardinia, which has been blocked by the Finance Minister. And we are now under administrative judgment. So -- but all these are upside. So I repeat, the 4.6 megawatts that should come from M&A, means also that may come from upside from our pipelines. And that's an important point. And the same is for co-developments. We have signed an agreement with Energetica to explore the Spain markets. But for the time being, to be honest, we didn't serve any megawatts in our targets. So again, the unknown part of the target, which is less than 1/3, say, should come either from M&A, co-developments or even our own pipeline. That's, I think, an important point. About the guidance before answering the contribution of the M&A, let me also say this, in our numbers, we are paying in some way, the shifting towards this infrastructural model because, as I think as it's been clear by everybody, we are assuming prices which are even at discount with the merchant price, our own merchant price. And this, based on our internal analysis, has got a settlement in the region of EUR 10 million in the numbers of the plan. And on top of that, I show clearly a picture chart that make you understand the growing organization we had in the business development. So in 2018, we thought we had factored an organization, a very small organization. But now the pipeline is growing and so are the organizations. And this has a cost for labor. But as a cost also for the development costs, so the so-called DevEx. So all in all, we have roughly EUR 10 million, EUR 10 million on top of what we thought to have in 2018 because EUR 5 million is the DevEx we have every year, to carry on our pipeline. And EUR 5 million is the labor cost more or less associated to the investments we did in the organization to strengthen the EBITDA. Of course, they are expensed year-by-year in the profit and loss, but they are more related to the future developments of the pipe. I think that it's an important point. So the EBITDA from M&A, you can simply divide the CapEx by 15x, which is, as I said, the embedded multiples at which we are expecting to pursue our objectives in M&A

Ms. Delucchi. This concludes the Q&A from the conference call.

Okay. Thank you. So we can take 2 questions we received in the app. I read it too. First one is for Paul Dobson. You mentioned that your Scottish projects might be bid into the CfD auction, but you are also negotiating PPAs for them, when will you make a decision on which route to market this project will take?

Yes, it's like this. It's like you said, the CfD in U.K. are gaining visibility. We expect the auction to be held in the fourth quarter of this year, but we are also in parallel, negotiating the PPA. So we will take decision whenever the situation will be clear. But I repeat, we will go down both way for the time being. And I can't exclude if the PPA is say, interesting, we can go this way without waiting for this CfD. But as far as we understood, our Scottish projects can participate even though they are right now under construction, they can participate to the auction. So we will can say a little bit more on that, say, in a few months because we are monitoring the situation. And...

And there was another one. From Paul Dobson, what technology will you focus on to reach your 1.5 gigawatts by 2025 target? What counter do you expect most of that capacity to be in? And how are you raising the EUR 2 billion needed to meet this target?

Say, the split between the 2 technology, wind and solar is quite clear. One will come out of 1.5, one will come from wind. And 0.5 will come from solar. And especially solar will come through the co-development agreements. We have signed with [indiscernible] in Germany and with Energetica in Spain. But of course, we are also seeking for opportunity in solar through M&A as well. But say, 1/3 solar and 2/3 from wind. The countries are the one we have mentioned. So if you take the 1.5 gigawatt, I try to remember, but 0.2 are in Italy. It's the differential megawatts we expect from repowering. We have 400 megawatts right now under construction, 250 in U.K., 60 in Poland, 30 in France and 62 in Sweden. And then we have a pipeline -- net pipeline included in the business plan, which is again spread where we have got pipelines. So in France, especially in France, in Germany and the U.K. Those are the countries we are looking at right now. And the EUR 1 billion, it's self-finance in the sense we are using our own debt capacity. And I repeat, I think a key point of our model is to have an investment-grade profile, which means an easy access to the debt capital market. And that's the way we finance ourselves and our developments over the last 2 years, and we want to keep doing this way, but we we are assuming with a stronger capacity because given the shifting towards this kind of infrastructural model will translate or we expect this to translate into higher capacity of financing. But after the business plan, as usual, we will have a meeting with the agency, with Fitch in order to assess with them the assumptions we have made, but we are quite confident of them.

Okay. There are no more questions from the app. So thank you very much.

Thank you very much. Of course, any follow-up questions you may have, Emanuela and myself through one-to-one or a webcast and app, we are available to do that. So, thank you very much for the attention.

Thank you very much.

Thank you.

Thank you.

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