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 Full Year 2021 Results and 2022-2026 Business Plan. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Emanuela Delucchi, Chief ESG, IR and Communications Officer. Please go ahead, madam.

Good afternoon, everybody, and welcome to ERG IR Day, during which, after 9 months, we show you an update of our strategy after the asset rotation and after the important achievements in 2021. Looking at the agenda of the day, our CEO, Paolo Merli, will do a brief introduction on the full year 2021 key figures, then we will leave the floor to our Executive Vice President, Alessandro Garrone, who will show you the important steps we did in our successful journey in renewable growth and decarbonization. Afterwards, Paolo will drive you through our 2022-2026 strategy and targets. Michele Pedemonte, CFO of the group, will show you our financial strategy in the business plan period. Then I will focus, as usual, on the updated ESG strategy, which continues to be at the core of ERG business model. Michele will then show a snapshot on our results in full year and fourth quarter 2021, then Paolo will conclude with his final remarks prior of the Q&A. I remind you that you can send Q&A even before the end of our presentation through our app ERG Investor Relations or via conference call as usual. So let's start. And now, over to Paolo.

Good afternoon, everyone, and my warmest welcome to our Investor Relations Day. We are living through extraordinary times. Russia's invasion of Ukraine is a defining moment and is having, among other consequences, a huge impact on energy markets, which were already under pressure in December. In fact, before the war broke out, we saw spikes in prices that had never ever been seen before, driven by gas shortages and geopolitical tensions. The war has exacerbated this even further. Because of this situation, the energy industry and the renewable one, in particular, is being called upon to reduce our dependence on gas to address the unprecedented energy crisis, ERG, with this business plan, wants to play a role in all this. But don't forget what we are doing this as well: to combat climate change. Our business plan will go in that direction. We have raised all our targets and the bar of the challenge. But before we get started on the business plan, which looks to the future, let's see our results for 2021. So let's move on, on Page #5. Results, say, are extremely strong and positive from all angles. We closed with EUR 580 million of EBITDA, up 21% year-on-year, above the top end of our guidance range. Significantly stronger volumes in wind and hydro, particularly wind, in the fourth quarter of the year in a -- against a backdrop, say, of a very strong price scenario, albeit consider that we benefited from the scenario in a limited way because of our hedging policies. Solar was basically in line year-on-year, solid, but basically in line year-on-year, while the CCGT was significantly down because the expiring of the White Certificates and the prolonged general shutdown of the plant to refurbish it in order to make it eligible once again for White Certificates in 2022. We invested about EUR 650 million, so more than 4x what we invested in 2020. CapEx were basically related to the 309 megawatts that entered onstream during the year plus all the investments associated to the projects we have right now under construction in several geographies. Net profit was EUR 202 million, almost double year-on-year driven up by all the great job done over the last few years to minimize the cost of debt and noncash cost, respectively, through liability management and lifetime extension programs. Based on this very solid set of results, the Board proposed a dividend of EUR 0.9 per share. Net financial position closed at EUR 2.051 billion, slightly above the top end of our latest guidance. It includes, that's important to say, more than EUR 300 million related to the negative mark-to-market of derivatives to hedge productions. So part of it has already undergone an important reversal at the beginning of 2022 when we cashed in all the proceeds coming from the hydro disposal. Anyway, Michele will elaborate a little bit more on results, and now, over to Alessandro.

Good afternoon, ladies and gentlemen. And also on my behalf, welcome to ERG's Investor Relations Day. In my speech, I'll show you the significant steps we have made in 2021 on both growth and asset rotation, more than in line with what we have announced last year. Before commenting the charts, I'd like to say that it seems that the change done last year in the management team have been successful so far. Commitment, skills and execution capability together with continuity of values and leadership model have worked very well. We have continued to expand our portfolio of renewable assets in Europe. Installed capacity increased by 309 megawatts in 2021, spread throughout France, Germany and U.K. About 1/3 of that capacity was solar. Over the course of the year, we also secured a further 400 megawatt to continue our journey. We announced both technological diversification, with solar contributing with 170 megawatt to the capacity added since the launch of our business plan, '21-'25 business plan, and geographical diversification as we added 3 countries to our scope, namely, the U.K. with the first megawatt installed; Sweden, where we have 62 megawatt under construction; and Spain with the acquisition of 92 megawatts of solar, which entered into our scope as of 1st of January this year. As committed, we focused on PPA as a key route to market for our energy. We signed PPA covering 0.7 terawatt hour in Italy, Northern Ireland and France. As far as asset rotation, we finalized the hydro disposal to Enel with which we also reached an agreement for the CCGT disposal. Signing is expected to take place in the third quarter of this year, subject to antitrust approval. The integration of ESG into our strategy proved to be successful with important recognition this year, as you can see in the chart. The 2021 was a year of strong execution. We invested more than our EBITDA, as Paolo said, EUR 648 million of CapEx and EUR 580 million of EBITDA. We are continuing to invest to boost our renewable portfolio, with wind and solar capacity posting a strong increase on 2020, plus 309 megawatts plus 15% year-on-year. Our energy transition is shown by the rotation of our capital employed, which is 98% wind and solar as of today. We expect to complete in 2022 with the disposal of CCGT for which we have reached an agreement, as I said, with Enel. The 2021-'25 business plan was based on 3 pillars, as you probably remember, the 3R. We moved forward significantly in each area. First, repositioning of our portfolio of assets. We added, as I said, 309 megawatt partly through M&A and partly through organic development, 2/3 in wind, 1/3 in solar in 3 different countries, in line with our strategic objective to push on both technological diversification and geographical diversification. We also secured initiatives for a total of about 400 megawatts in 3 other different European countries, 2 of which are new, Sweden and Spain, to fuel our growth in the year to come, starting from this year. We are also particularly proud of our repowering projects in Italy. We have been a pioneer in this respect. And finally, in 2021, we started reaping the rewards, with 3 projects fully authorized and awarded with a tariff through auctions. We also succeeded in receiving authorization for a greenfield project on which we had been working hard for years. Let's move on like that. The second pillar was reinforcing organization and reskilling. We can now rely on our [ radar ] organization devoted to development, asset management and energy sales, which moved up consistently. As you can see in the chart, in 2018, in the development area, we had 20 people. Today -- in 2021, we have 100 people with a pipeline of 3.5 gigawatt. We have insourced know-how in all the phases of development, including engineering and [ demonstration ], adapting our organization to a multi-countries business model. We also reinforced our innovation unit, mainly focused right now on battery storage, as you will see later on. In reinforcing our organization, especially over the key areas of development and energy sales, we had a clear focus on fostering gender diversity, with women accounting for about 50% of new entries. The majority of new entries were outside Italy. As you can see here, all the associated KPI are moving up, so we are not simply reshaping our portfolio of assets but also our organization consistently. The third pillar, asset rotation. We already know everything. And in this chart, you will find all the key elements of the 2 transactions, with CCGT still to be closed. Some figures here, as you already know, the total enterprise values for hydro was EUR 1.265 billion, and the total enterprise value for CCGT is EUR 188 million. Plus you have to consider that the total people involved in this sale will be 258. So the figures of '21 in terms of organization will be reduced of 258 people in 2022. We are very pleased with the agreement with Enel, not just because it recognizes the fair value of the 2 assets, but also because it represents the best industrial player to fully unlock the value of the 2 going concerns and all the people that are part of them. Of course, the associated cash in will be used to push further on growing our renewable portfolio, seeking more geographical and technological diversification. Of course, we are always aware of the mission behind all this. To combat climate change, which is becoming more and more evident with increasingly frequent extreme weather events. From this perspective, our journey led us to decarbonize our portfolio of assets significantly. The actions taken over the last business plan allowed us to reduce our carbon index further by 20% in 2021. Another significant step will be taken with the completion of the asset rotation, which will be zeroing direct emissions. The decarbonization of our portfolio was at the center of our strategy. At the heart of ERG's successful transformation story is a best-in-class governance model, which allowed us to grow in accordance with our values, our strategic objective and financial discipline with strict control of all investments through both our Investment and Management Committees and Strategic Committee, which I have the privilege of chairing. Our governance is subject to continuous improvement, and the recent Board performance review yielded very solid results, which gave us confidence that this new mandate has started in the best way possible. Strong corporate governance, financial soundness, strict investment criteria, commitment to ESG issues; our values are hallmark of our business model. Let me now focus on ESG achievements, which I'm particularly proud of. We entered the Standard & Poor's Global Clean Energy Index among the approximately 80 most green listed companies worldwide. For the first time in ERG history, our emission reduction plan was approved by Science Based Targets, a well-known and recognized entity. Third, ERG entered the newly-created MIB ESG index, which includes the best 40 blue chips for ESG performance in the Italian Stock Exchange, then we once again won the Oscar di Bilancio for the transparency of our financial and nonfinancial reporting. We have also been confirmed in the leadership score for CDP, recognizing our commitment and efforts towards contrasting climate change. For the first time, ERG entered the Bloomberg Gender-Equality Index with the recognition of a clear commitment to foster gender equality. Last, but not least, ERG entered the Suppliers Engagement Leaderboard, recognizing the crucial role of our sustainable procurement business model. All this recognition, coupled with the results achieved so far make us confident that we can successfully continue our journey. So thank you for your attention so far. And now over to Paolo, who will take you through that journey, our 2022-2026 business plan.

Thanks, Alessandro. And now let me take you through our vision of the future and our objectives. Let me start here with what ERG is today. We have 2.5 gigawatt of installed capacity well balanced between Italy and abroad based on 2 technologies, wind and solar. We have a pipeline of projects of 3.5 gigawatts. Since last May, we managed to add to our portfolio in excess of 600 megawatts, about 400 of early-stage solar PV both in Italy and France. On top of that, we had also 150 -- about 150 megawatts of battery storage following the launch of a specific project in 2021 called [ recharge ], plus some new wind greenfield projects in Italy and abroad. That was made possible, thanks to having strengthened our business development teams across the organization. Our pipeline now is well spread across Europe, both in wind and solar, based on greenfield, repowering and core development. We are present in 9 countries. That's what we are today. That's the platform we want to expand from. Let's move forward. Here, the message is we continue to believe that having a solid capital structure and easy access to the debt capital market, which means having an investment-grade profile is a hedge for our business model. We have been working this way for several years now. Last year, we issued our third green bond with a yield lower than 1% and a duration of 10 years, so the longest ever since we entered the debt capital market. Thanks to this, our cost of debt will go down further in 2022. Let me point out for you some features of our balance sheet. Our net financial position is today -- today, I mean, while I'm speaking, below EUR 0.8 billion, with gross debt basically 90% based on green bonds. We can rely on cash attend for investments in excess of EUR 1.3 billion, following the proceeds that came from the hydro disposal. Being investment graded is and will remain a hallmark of our business model. Let's move on. Let's see now the main trends we see around us. It goes without saying that we are living dramatic times. Because of the war and geopolitical tensions, energy markets are under pressure. Volatility is something we have to live with, and higher prices are likely to remain long term, at least higher than those we could predict just a few months ago. This geopolitical situation is now increasing pressure on states to accelerate their energy transitions. Institution, regulators, governments are all called upon to facilitate permitting and debottlenecking of grid connections. Solar will play a major role, especially in the south of Europe. PPAs keep gaining ground, and we expect this trend to continue. Somewhere, PPAs are already more appealing than CfD in auctions. ESG is still on its upward trend. Decarbonization, energy transition, circular economy and also D&I are under the spotlight. We tried to design a business plan which factors in all these trends. Let's move to Page #20. As always happen during hard times, some states, among which Spain, which was the first, Romania and unfortunately, Italy, reacted to this situation by looking for quick fixing to long-term trend. Though we acknowledge the complexity of the situation, we think that was wrong. It's a way against, say, the toolbox, the European guidelines. About Italy, we have definitely to wait and see if the decree will be finally converted into law and if so, how the application will be ruled by the energy authority. For the sake of clarity, our guidance for 2022, we'll see it later, does not include anything with respect to this decreto bollette: first of all, because we do not know yet; secondly, because having our merchant productions fully hedged either through PPA or financial derivatives, we wouldn't expect any significant impact. What we do believe is that RES could be the solution and not the problem. Let's move to Page #21. Here is clearly shown that potential for RES is big and targets here, I think, speak 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. Stabilization mechanisms such as auctions are basically available in all countries where we operate. Our plan is to rely either on these mechanisms or PPA, picking whichever one offers the best conditions. In 2021, the PPA market gained further ground across Europe. Corporate PPA are also on the rise, and prices are increasing, driven by surging wholesale prices and also reflecting the inflation in raw materials, which are driving LCOE higher. ERG didn't lag behind, and it took part in this acceleration, with PPAs signed for 0.7 terawatt hour per year in 2021 in different geographies. We are ready to sign others in order to keep on securing our revenues. Permitting. Let's move on. Permitting is still one of the biggest hurdles for development. This is true all across the geographies where we are present and in particular, in Italy. We have been seeing some advancement even recently, but there is more to do. We remain confident as we now see the right amount of awareness of the issue. Everyone knows what needs to be done. The point are -- the points are well underlined here in the chart, but I think you know very well, and there is no need to comment further. Let's move on. And now, a look at how we see our future. Here, we summarize the strategic guidelines and the targets for the next business plan, say, basically, the strategic guidelines are more or less in line with those presented in May last year's, while targets have all been revised upwards. Growth, we expect to increase our installed capacity by 2.2 gigawatt over the period, which means about 450 megawatts per year on average. We'll do this through the right mix of greenfield, repowering co-developments and M&A, with 60% of the target backed by projects under construction or at an advanced stage of development. Route-to-market, we are targeting 85%, 90% of quasi-regulated EBITDA, which means backed by incentives, tariffs or PPA. This is consistent with an investment-grade profile and a financial policy with a 4x net EBITDA, net debt-to-EBITDA ratio. We want to increase geographical diversification. This to derisk our portfolio, more technological diversification. About 1/3 of growth will come from solar. Innovation is becoming a reality. We said in May, we wanted to do something here. We did it. We launched the recharge project, which led us to participate in the last capacity market auction in Italy with several projects, out of which 2 were awarded. Our target is to install at least of storage by 2026. Asset rotation, you know all. We expect to conclude this over the course of the year. We expect to sell the CCGT plant during the third quarter of this year after having concluded the antitrust process. In all this, ESG, last but not least, I would say, is and will be at the core of our strategy. And Emanuela will elaborate a little bit more on that. The last point is just a consequence of the solidity of our business plan. We feel time was measured to raise our dividend from EUR 0.75 to EUR 0.90 per share because this is sustainable over the business plan period. Now let's see how the 2.2 gigawatt target is broken down. We have roughly 500 megawatts under construction right now, which also include more than 100 megawatts of our repowering projects in Italy. So the first megawatts coming from this large project we launched in 2018. Other 500 megawatts will come from our greenfield pipeline, wind and solar, and a further 200 megawatts will come from repowering, which on a gross basis means roughly 400 megawatts. But we see a little bit more on repowering later on. Let's move on. We have also 92 megawatts already in service in 2022 that's associated to the acquisition in Spain, solar, and 900 million -- 900 megawatts, sorry, will come from M&A. So this is, frankly speaking, say, the unknown part of our target, even though, we'll see later, we are working on several opportunities right now. What's important here to stress is that we keep seeking for geographical and technological diversification. 60% of our assets will be outside Italy in 2026. We have right now 562 megawatts under construction. Construction sites are spread out in several geographies: Scotland, Poland, France, Sweden and Italy. Most of those projects, the one in France, Poland, Italy, have their route-to-market secured, with tariff awarded by auction. In Scotland and Sweden, we are right now negotiating long-term PPA in accordance to our risk policies. All these projects are well on track. And now a little bit more on repowering. We were pioneers in launching these large repowering plant in Italy. Since then, through up and downs, we have made important step forward with its deployment. 3 projects are now under construction, after being granted the Autorizzazione Unica and being awarded a CfD tariff in auctions. Further, about 300 megawatts have got the VIA, the environmental permit. New projects enter into the business plan. Repowering will allow us to rejuvenate our assets, leveraging on superior wind locations and forefront technologies with wind turbines, that's an important point, already secured through the framework agreements signed with Vestas and Enercon. I think you got to know the 3 magic numbers for repowering, halving the numbers of towers, more than double the capacity and triple the production. Here, you have the numbers we put in our business plan. which have been revised upwards significantly compared to the previous one, and we are working on a larger portfolio of projects. Let's move to Page #29. Everything is going on in a context of high volatility and uncertainty around the value chain with prices on their way up. We are satisfied to have about 1 gigawatt of our organic growth fully secured in terms of wind turbines, supply, and therefore, we expect limited impact on our CapEx, thanks to that. This is another point that gives visibility to our business plan. Let's move on a few words on our pipeline, a larger pipeline, both for powering and greenfield. We have been working hard to expand it and will continue to do so. We increased it to 3.5 gigawatt by including fresh solar greenfield projects in Italy and France, projects that were brought forward exploiting our current asset base and by securing lands and real estates nearby. The repowering pipeline is going on well and is gaining visibility. We also, as said, added about 150 megawatts of battery storage, with projects located nearby our wind and solar assets already existing or under construction. A few words on M&A. We do believe M&A will continue to deliver. Our track record, expertise and reputation in the market was confirmed in 2021. We closed almost 400 megawatts through M&A in France, Germany, Sweden, Spain, both wind and solar. We are currently working on several opportunities with the same approach based on flexibility to cherry-pick assets that can add and create industrial synergies and value. Let's move on here just a figure to imagine how we can become in a few years' time. We are seeking more geographical diversification as we do believe it's key to reduce volume volatility to our asset portfolio. We want to keep investing for sure in our legacy geographies, but at the same time, we can't roll out other geographies. Flexibility is our approach. Our focus is and will remain Europe. We aim to play, that's the rule of thumb, an industrial role in the medium and long term, wherever we are, to create synergy by leveraging on our industrial know-how and expertise. So let's move to Page #33. Here, you have -- 34, sorry. Our model is confirmed, wants to be quasi-regulated infrastructural model. In 2021, we closed PPA for a total amount of [ 0.7 ], but most importantly, those PPAs were spread out in different countries with outstanding counterparties. Our objective, I remind you, is to cover productions as long as new megawatts are coming on stream. As such, we are now in advanced talks with an off-taker for our Scottish assets as their CODs are approaching. I could summarize our strategy on PPA like this. So we seek to, from 5 to 10 years duration depending on existing or new assets, outstanding counterparties with solid credit profile and a fair pricing even through sometimes flexible mechanisms. All these thanks to our energy management and sales capabilities and organization. Let's move further. Here, the main message is we are and will continue to be an industrial operator. And as such, we are committed to continuously optimizing our asset base. In addition to repowering, another industrial project where ERG has been a pioneer, is reblading, which means replacing the old blades with innovative ones, more aerodynamic and more efficient. In 2021, we completed another project, the reblading of Lacedonia wind farm of 40 megawatts. And we did this by recycling 100% of the blades in line with our ESG plan. Some other wind reblading are included in our business plan, and in 2022, we'll also be working on revamping 30 megawatts of solar PV by replacing existing with new modules. Again, more performing and more efficient, and all this by recycling all the modules at least at 90% ratio. All the related CapEx, though not much, are included in our business plan. Let's see now our approach to operation and maintenance. You know that we have, once again, here, a flexible model and a global approach. We can go from a full internalized model like in Italy to mix models like in France and Germany to full scope as in U.K., Spain, East Europe and Sweden. We think that our operation and maintenance capabilities and know-how will remain a key of our business model. Let's move on. I want to touch the innovation space. 9 months ago, when we presented the previous plan, we said we were working to explore opportunities for both storage and hydrogen, storage, in particular, given the strong industrial fit with intermittent technologies. And now we can tell that storage is a concrete action in the business plan. As said, just after the presentation of last year plan, we launched an internal project called recharge. We scrutinized, say, all the potential projects along our asset base, and we identified a pipeline in excess of 150 megawatts both in Italy and abroad, and we target to install at least 50 megawatts in the plans. It may appear a little bit conservative, and probably it is, but this is the number we included in our plan. We are also exploring opportunities in other innovative areas like floating offshore wind hydrogen and circularity for dismantled [indiscernible]. But as usual, we do not have any specific targets when we feel we are just at a very early and preliminary stage. Let's see what the future brings in this respect, and we want to be say, ready when and if any opportunity may arise in this respect. Okay. Let's move on. And now finally, let's see the targets of our business plan. Here, the capacity, the installed capacity evolution. Of course, everything is presented net of hydro and CCGT because that's our new perimeter. After deploying the 2.2 gigawatt of expected growth over the plan, our installed capacity will reach 4.6 gigawatt by the end of 2026, 80% wind, 20% solar, with an initial position in battery storage. As far as CapEx, we'll be investing EUR 2.9 billion, more than EUR 2.8 billion devoted to RES development, 80% wind and 20% solar. Here, you find the breakdown per stream of our investments. In terms of geographical breakdown, roughly 40% will be invested in Italy, mainly through our repowering projects, while the reminder, abroad. Please keep in mind that our maintenance CapEx is more or less in the region of EUR 10 million per year based on our new perimeter, just wind and solar. Before going through the economics of the plan, particularly given the huge volatility in energy markets, we thought that providing you with our assumptions on price scenario was more important than in the past. As you can see here, our price projections, which were defined last year, at the end of last year, according to our planning process are quite cautious vis-a-vis current and forward market prices. But we still believe they are more linked to the real fundamentals of the industry. That said, when doing your own assumption, please don't forget a large part of our production is already covered by long-term CfD or PPA. Let's move on. Based on our assumptions, we expect EBITDA to reach EUR 560 million in 2026. Out of the total, we expect 20% to come from solar with a more or less 50-50 split between Italy and abroad. We also expect 85%, 90% of our EBITDA to remain backed by price stabilization mechanism, which is at the base of our investment grade profile, as simple as that. Here, the usual bridge between our stated '21 and '26 EBITDA. We expect, compared to 2021, prices to call a little bit off versus the high levels registered last year. The phasing out of wind incentives will continue for about EUR 60 million, but we expect to more than offset these 2 effects with about EUR 270 million of fresh EBITDA deriving from the new installed capacity. A part of it is already, say, in service in 2022 coming from the full contribution of the assets entered into our scope in 2021 and early in 2022. I'm referring to the acquisition in Spain, and I'm talking about the light blue bit. Some contribution will come from our asset under construction, which is the blue bit, some from our pipeline net of success rates, which is the green bit and the rest, the least predictable bit, to be honest, through co-development agreements and M&A, where we can rely on our expertise and track record. And now to Michele for his review of the financial strategy.

Thanks, Paolo, and good afternoon, everybody. As already shown last year, we have now completed the transition from a traditional project financing debt structure to a green debt capital market financial strategy. Now we have a solid investment-grade financial profile, which we are committed to maintain in the whole business plan period. The investment grade rating is the pillar of our financial strategy. And on this base, we can lever our growth in the renewables, maintaining a competitive cost of capital, which, as you can see, is very low and mark an additional distinct point versus our peers. We see our current rating consistent with the leverage in terms of net debt-to-EBITDA of up to 4, which has been raised vis-a-vis the previous business plan after asset rotation and due to the increase of the quarterly regulated component of our revenues. In the business plan horizon, we are planning a significant leverage to boost our wind and solar portfolio. Of course, the journey is possible, thanks to the cash-in for roughly EUR 1.5 billion related to the asset rotation, which would be reinvested in the RES development. Our net debt will increase up to EUR 2.1 billion after CapEx for EUR 2.9 billion to add 2.2 gigawatt to our portfolio, working capital and taxes at EUR 0.3 billion, financial charges at EUR 0.2 billion. We are benefiting from a competitive cost of debt thanks to the liability management exercises brought forward in the past years. Dividends were EUR 0.7 billion, which implies a dividend per share increase at EUR 0.9 versus EUR 0.75 Cumulated EBITDA in the area of EUR 2.4 billion, so a stronger leverage, keeping an investment-grade rating and improved dividend policy. Here, you can find a picture of our financial structure, a solid base for our 5-year business plan. It's worth mentioning, particularly in this volatile period that 95% of our debt is fixed rate. So we fully offset interest rate risk, whether limited corporate repayment in 2023 that in case of refinancing is covered by a pre-hedge at very interesting conditions. Together with the evolution in our business model, we have been able to evolve our financial structure. Shifting from project finance to the green debt capital market tools, we [indiscernible] green bond issued in 2019, '20 and '21. The portion of green bond is now almost 70%. In September 2021, we issued our first 10-year bonds, very well received by the market. Thanks to a good timing, we're successful in fixing a 0.9 yield, securing a competitive long-term cost of funding. And now over to Emanuela for ESG strategy.

Thanks, Michele. And now, ESG. I will drive you in a deep dive in our ESG strategy, which has been updated to take into account the asset rotation and also in an uptick of continuous improvement for all our business model. But before going through in our ESG strategy, it's worth focusing on the global trends affecting all our behaviors. COP 21 before, the European Green Deal, the COP 26 today have emphasized more than ever the urgency in zeroing the carbon emissions in order to limit to 1.5 degree the increase of global temperature. Climate change is still an urgency for us. The pandemic showed also, with clear evidence, that social inequality is running at an alarming speed. What can we do? All of us must create a real and inclusive environment where everybody can play his role. Demand for green investments is growing fast, marking a strong capital allocation toward ESG funds and towards those companies, which are engaged in the energy transition and in the sustainable development. Of course, we must avoid the so-called greenwashing, and therefore, the European Commission introduced clear regulation like the new green taxonomy and the Sustainable Financial Disclosure Regulation in order to provide a clear picture of what is really green and sustainable. So we try to design our ESG strategy to factor in all this trend. So going on, this is our ESG plan, and I think you are quite familiar with this chart. Here is a snapshot of the new ESG plan. We have now 16 targets, which are perfectly aligned to the 14 out of 17 SDGs. We have now identified 8 ESG priorities, which will be the bulk of our ESG strategy, and other 8 objectives with the logic of a continuous improvement. As far as planet, our commitment has been strengthened as we are now evolving from carbon neutrality to be fully net zero by 2040, so 10 years in advance versus European targets. And then I will say more about this target in the next chart. For circular economy, we enlarge the scope of it as now we are keeping the 98% circular wind as we referred to the dismantling of wind turbines, as Paolo already mentioned, with the goal to reduce to a maximum of 2% the waste in landfills. In solar, we are now targeting to recover at least 90% of the dismantled panels part of the solar revamping projects. In addition to that, we are also working to try to utilize part of the dismantled modules for social purposes. As far as engagement, we will continue to support the local communities where we operate with a contribution of at least 1% of our revenues. We are also laying down the foundations for an ERG Academy to involve the younger generation in educational activities on sustainability and renewable energy, with a target of at least 20,000 students by 2026. the ERG Academy will also provide for training activities to all our people, and it will be the basis to define plans for the development of all our employees. As far as people, of course, we are reiterating our commitment to the diversity and inclusion in order to create a more international and also more inclusive ERG. I will explain more in detail our D&I strategy in a specific chart. As far as governance, we want to maintain a best-in-class governance, and our commitment to ESG is well embedded in the short-term and long-term management remuneration. As Michele explained before, our financing is now mostly green. And in our plan, we are committed to keep it green with at least 90% of our loans classified as green funding. To sum up, I will say a solid ESG strategy based on well-defined KPIs that will be monitored throughout the plan period. So going on, net zero. In a few words, we are evolving from carbon neutrality to net zero by 2040. How can we reach this target? First of all, asset rotation. The closing for the CCGT disposal expected in Q3 2022 will accelerate our decarbonization path, bringing our Scope 1 and 2 emissions near 0. Secondly, we will have 100% of our production renewable. And also the 100% of green energy -- we will have 100% of green energy after asset rotation and therefore, electricity sales will be 100% green by 2023. Green consumption. Our plants' and offices' energy consumption will be entirely green. A big effort will be on the supply chain. Thanks to our sustainable procurement, we will lead our suppliers to reduce the remission over time. We now have aimed to have at least 75% of our main suppliers with emission reduction target certified by Science Based Targets by 2030 and also 90% of the suppliers by 2040. All of this will make ERG fully net zero 10 years before the European requirements. And now going on, a focus on our approach to D&I, which is still at the core of our business model. In 2021, we took significant steps to create a more international inclusive ERG. As anticipated before, we approved also the D&I policy, which is the basis of our way of doing business. And we have been included for the first time in the Bloomberg Gender-Equality Index. So we want to continue our journey. As part of the ESG plan, we have 3 main targets to foster gender quality and to promote greater internationalization of our company. Last year, we said that we wanted to increase the number of women amongst the key leaders, and that's what we did. We went from 9% to 14%, and now we want to continue this path, targeting to reach at least 20% in 2026. As far as the internationalization, here, we reinforced the target we had last year. Now we are bringing key leaders abroad from the current 8% to at least 20% after the asset rotation. So we are now an international company, and our organization is evolving in order to enhance all the structures we have outside Italy. This year, we added in our target to foster gender equality. We intend to reach at least 25% of women amongst the entire group. And in this field, we already made big efforts in 2021 with 60% of net female additions during the year. We will join Women's Empowerment Principles in 2022 to promote gender equality in our workplace, our business and our entire community. So all of us are strongly committed to create an inclusive ERG where all the talents can express also by leveraging on an inclusive culture, which is at the basis of a sustainable development. Going on, so here a focus on green taxonomy and the impact on ERG. Very simple. After the asset rotation, we will have 100% green revenues, green OpEx and green CapEx. As far as CapEx, we believe it's worth mentioning that all of them are in line with the United Nations Sustainable Development Goals with a clear focus on the #7, Clean Energy and the #13, Climate Actions. And now over to Michele for his comment on full year and fourth quarter 2021 results.

Thanks, Emanuela. And now let's have a look at our full year results. Our demand in Italy was up 4% in Q4 2021. Q4 2020 was still negatively impacted by the pandemic situation. Wind and gas contributed positively to demand, whilst there was a drop in hydro production due to poor rainfalls in the period. Looking at ERG, our wind production in Italy were up 28%, a bit lower than country average. Solar production was [ 77% ] down year-on-year. As far as conventional generation, hydro in the quarter was slightly lower year-on-year, so better than average national figure. And CCGT was down 42% due to a tough environment coupled with extraordinary maintenance in the period. Electricity prices in Italy in Q4 2021. There was an extraordinary rise in electricity prices, with the national price at EUR 242, 6x versus Q4 2020. The holding price for -- from EUR 141 to EUR 351 benefited from the increase of electricity prices coupled with the higher value for incentive, which you know is calculated on the basis of last year's average national electricity price that recorded very low levels due to the COVID-19 lockdown. The trend in electricity price, as you know, mainly reflects the strong rises in gas prices influenced in the Q4 by the geopolitical tensions and by the excessive dependence on Russian gas. Of course, the incentive being inversely correlated with last year electricity price implies that incentive for 2022 will be extremely low, EUR 43 versus EUR 109. Our CCGT clean spark spread declined to minus EUR 3 megawatt hour with, rising gas and CO2 prices only partially offset by a recovery of prices in Sicily. Abroad, at the bottom right of the chart, you can see the average reference selling prices for our productions country by country. Even abroad, it's worth noting they generalize the rising prices in Q4, in particular in countries where we have a green certificate-type mechanisms, such as in Romania. Here, as usual, a picture of the main driver of the business of our EBITDA evolution in full year 2021. As we said before, wind was up EUR 76 million due mainly to rising volumes, coupled with a better scenario in comparison to the present COVID-19 environment of 2020, whilst wind abroad was [indiscernible] by a decline in production versus an extraordinary 2020, offset by the contribution of the newly consolidated assets. Solar, almost flat year-on-year, confirming its solidity. Hydro, up EUR 70 million thanks mainly to a strong rise in volumes compared to a particularly dry 2020. CCGT was down EUR 46 million, mainly due to the White Certificate phaseout and the squeeze in spark spreads in the period. Let me also add that in the fourth quarter, we did the extraordinary maintenance works for the refurbishment of the plant to revamp the steam turbine and to be entitled to receive White Certificates for the next 10 years. And now focus on production. And here, I'm focusing on Q4 2021. Wind production at 1,221 gigawatt hour plus 19% year-on-year due to better wind condition in Italy. Wind abroad was up 10%, which reflects a worse wind condition in France and Germany offset by the consolidation of the asset acquired during 2021 coupled with better wind production in Eastern Europe. Solar production at 45 gigawatt hour, plus 39% year-on-year mainly thanks to the contribution of our first solar asset in France acquired during the year and which contributed with 15 gigawatt hour. Production in Italy was slightly down. Hydro, as opposed to full year, which posted a strong rise in hydro volumes, in Q4, production was down 2% due to poor hydro condition in the period. CCGT production was at 360 gigawatt hour, strongly down due to the general maintenance at the Module 1. And now focused on the Q4 '21 EBITDA per business. Starting from wind, EBITDA was EUR 145 million, strongly up year-on-year, 96% more, mainly due to the contribution of Italy, EUR 90 million versus EUR 41 million in Q4 2020 as a result of higher volumes, higher value on incentive and the generalized improved price scenario if compared to 2020, which has been negatively impacted by COVID-19. EBITDA abroad was EUR 47 million, plus 38% year-on-year, mainly as a result of the newly consolidated assets in France and Germany coupled with rising volume in Eastern Europe. Solar EBITDA at EUR 9 million, plus 12% year-on-year with new assets in France to offset the decline in Italy due to lower volumes. Hydro EBITDA at EUR 35 million, plus 48% year-on-year, with favorable scenario, which more than offset poor water availability. CCGT EBITDA negative at minus EUR 2 million due to the end of the White Certificate, a particularly tough scenario with negative spread, coupled with the shutdown of the Module 1 as commented before. And now a brief overview of investment in the period. Here, it's worth focusing on full year. We invested EUR 648 million versus EUR 156 million over the same period last year, an impressive number, meaning that we invest more than our EBITDA. CapEx are composed as follows: about EUR 389 million of M&A in wind and solar abroad, I'm speaking about the acquisition of 62 megawatts ready-to-build project now in construction in Sweden for EUR 41 million; the acquisition done in June 2021 of 80 megawatts of wind and solar capacity in France for EUR 147 million; an acquisition done in October '21 of 152 megawatts of wind and solar capacity in Germany and France for EUR 202 million; about EUR 250 million related to organic CapEx in wind referred to construction activities, mainly in U.K., Poland and France and Sweden; and it also includes the CapEx for the repowering and reblading done in the period; about EUR 24 million related to the refurbishment of Module 1 of the CCGT plant in order to renew its eligibility for another 10 years period of White Certificates. Finally, about [ EUR 90 million ] of maintenance CapEx spread across all our technologies. Let's now move on to financials, commenting on profit and loss on a recurring basis. I have already commented on EBITDA. So going down the profit and loss and looking at the Q4 of the year, in particular, we have lower depreciation, minus EUR 2 million. That reflects the reduction in depreciation of some wind and hydro assets partially offset by the consolidation of the new asset acquired in France and Germany. Net financial expenses at EUR 6 million versus EUR 9 million in Q4 2020, thanks to a lower cost of gross debt, mainly following the issuance of our third green bond in September 2021. Taxes. Tax rate in the quarter was 29% against 25% in the third (sic) [ fourth ] quarter 2020. Taxation in the quarter included the effects of the windfall tax in Romania, introduced to face the electricity spikes in the period. As a result of all of this, adjusted net profit amounted to EUR 72 million in Q4 '21 versus EUR 27 million in Q4 '20 and EUR 200 million in full year 2021. Finally, let's take a look at the cash flow statement and the net financial position for the full year 2021. The net financial debt closed at EUR 2.051 billion, up by EUR 600 million from the end of 2020. Starting from the left, we have our EBITDA, EUR 580 million; and investment made over the period, EUR 648 million; change in working capital, financial charges, dividends of EUR 114 million; and change in mark-to-market hedging future derivatives, EUR 321 million. That reflects the strong increase of future commodity prices at the end of 2021. Please note that as of January 3, 2022, EUR 226 million of mark-to-market of future derivatives have been transferred to Enel as a price adjustment for the hydro disposal, so absorbing part of the rise in our net financial position at the end of the year. I think that I have touched on all the relevant items. Thank you for your attention, and now, I will hand over to Paolo for his final remarks.

Thanks, Michele. Here, we are with our guidance for 2022. We expect EBITDA to be in the range of EUR 400 million, EUR 430 million. Say, on the positive side, we have more installed capacity at full service. So the one -- all the one that entered progressively over the course of 2021, plus the one we closed in Spain at the beginning of 2022. On the negative side, please don't forget the value of incentive in Italy is -- will be much lower than in 2021 as it's inversely correlated to merchant price recorded in the previous year. That's the mathematical formula, I think, you got to know. Let me repeat it loudly for the sake of clarity. We are not factoring, at the moment, any particular impact from the undergoing decreto bollette. First, because we still don't know what form it will take; secondly, because -- secondly and most importantly, because even if approved, at least according to the last draft we have in our hands, reasonably, we should expect a limited impact, given that merchant productions are more or less fully hedged. CapEx, we expect to invest in the range of EUR 420 million, EUR 480 million. Those amounts are mainly related to assets right now under construction and the acquisition already closed in Spain at the beginning of the year. Net financial position is expected to fall down in the range of EUR 750 million, EUR 850 million, discounting the guidance I already just gave you for EBITDA and CapEx, and of course, all the proceeds coming from the conventional assets disposal on top of the dividend, which has been raised to EUR 0.9 per share. Let's conclude the presentation with this chart that summarizes all the key targets for our business plan. First of all, the capacity. We expect to add 2.2 gigawatts and to reach, at the end of the plan, 4.6 gigawatts of installed capacity, which is more or less in line with the previous plan, but without hydro and CCGT. EBITDA will reach EUR 560 million. And very important, 85%, 90% will be secured through incentives, CfD, PPAs with a [indiscernible] geographical and technological diversification. We're going to invest EUR 2.9 million, 98% devoted to development of our wind and solar assets. I remind you, more or less, we are going to invest roughly EUR 10 million for maintenance every year. Net debt after the releverage through the large investment plan will be reaching EUR 2.1 billion at the end of the plan, say. This is consistent. If you simply divide the net financial position with EBITDA, you will realize that, that is completely consistent with our investment policy. Dividend I've already said, EUR 0.9. We consider it absolutely sustainable ahead of the expectation of net profits and the balance sheet of the group. So thank you very much for your attention. Now a very quick video, and then we'll be ready to take your questions. Thank you very much again. [Presentation]

And now we are ready to take your questions. As usual, we start from the question from Chorus Call. And afterwards, we will take the question from the app. So now to Chorus Call, please?

This is the Chorus Call conference operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Roberto Letizia with Equita.

I get some and maybe some follow-up after my colleague's questions. The first one regards the turbines and the procurement, actually both turbines and panels for the strategy period. Happy to see that you have 1 gigawatt turbines already contracted, but can you be more precise on the eventual risk or which item of those contracts suffers inflationary trends? How do you expect to recover? How much of that you accounted for already into the strategic plan targets? Do you -- can you give us your view of what could be the potential short-term additional, if any, intervention from the various government in which you're present in? I know this is difficult, but maybe you can just give us a picture of the trend you are expecting to materialize in the coming months? One important question, at least for me, would be if you can give us a sort of sensitivity considering the PPA that the CfD and the hedges that you already closed for 2022, and I guess, partially for 2023, what actually could be a sensitivity of the EBITDA taking into consideration these elements for EUR 10 per megawatt hour higher prices versus what you indicated in the guidance. And one last one regards the offshore. I know this is a preliminary indication on your side, but can you give us more colors on actually how can you be an active player in the offshore -- in the floating offshore for your technology?

Okay. So I'll try to answer, Roberto, your questions, and I ask kindly my colleagues to integrate in case. About the first question, procurement and supply chain and inflation, our main themes that we are, say, monitoring very, very carefully. Let's say, the EUR 2.9 billion of CapEx, which refers basically to the 2.2 gigawatt of installed capacity increase we expect over the business plan period are already including the latest trend of inflation and raw materials, at least as a reference to the non-megawatts. Let me explain better. We have, as you know, framework agreements with 2 major supplier covering roughly 1 gigawatt out of the 2.2, but this framework agreement are any way, in some way, related to cost of steel, in particular. But the increase we expect is very, very much limited compared to what would have been without those framework agreements. So the order of magnitude we expect on this part of CapEx is in the region of 5%. And this is already included in our EUR 2.9 billion. As regards the ongoing projects, and I'm referring to reblading, revamping in the solar space, even the battery storage, we are envisaging in our plan is based on the very, very last budgetary assumptions in terms of CapEx. So we expect they are already in line with the trends undergoing. There is a part of the pipeline, which is the early-stage pipeline, as well as the component of CapEx related to the secondary market. So the M&A, which is based on assumptions, let me say, that are very cautious. So they should absolutely capture the current ongoing trends in the market. Nevertheless, what you mentioned is a very key point of attention, not just for us but for all the companies in the sector and consider, for instance, that what we are experiencing right now is that somewhere, PPA are becoming more convenient than tariffs awarded over auctions. And that's incredible. It's something that couldn't be believed just a few months ago. So this is changing, say, the paradigm of the sector. So for instance, one of this was LCOE is expected to going down forever. It's not like this. You have seen chart showing the wind turbines trend and is on the rise. The same for panel. Let me just give you an example. The panel, we have just performed a revamping projects just approved a month ago, a couple of months ago, and we have just closed the orders of the materials. The panels have raised by roughly 20%, trackers by 10%. So the order of magnitude is this. So what we hope is the regulators will take into account these inflationary trends, for instance, inserting links to inflation in the tariffs of the CfD -- of CfD signed during auctions. For instance, in Italy, the tariff is flat nominal for 20 years. But coming to your precise question about our EUR 2.9 billion, let me end saying in this amount is included roughly EUR 50 million of overrun costs, okay? The assumption I have already mentioned, but this is more than offset in terms of returns given the higher prices at which we are expected to sell productions. I hope to have addressed your first question. The second is very linked to the -- I think you mentioned the decreto bollette and the regulatory risk that was posed by this kind of measures. First of all, September 21 in Spain -- for the sake of clarity, let me say that the asset we just bought in January 2022 is not, say, affected by this kind of measure because being regulated is excluded from the perimeter of application of the law. In Romania, we are subject to the windfall tax that costed us roughly EUR 5 million, if I remember well, in 2021. It's one of the reasons you have seen the tax rate at 27%, which is slightly higher than the one we usually have. But coming to Italy, it's a bit -- in my opinion, let me say like this, that a state like Italy introduced a measure like this, which is a reaction to the, honestly, an incredible scenario and condition. But we think it's not the right measure. I came from the market, and I know that, usually, this kind of measure gets a little and created big problems in terms of credibility, in terms of perception of the regulatory risk, and let me say also in terms of complexity. Because over the last few months, I spent lots of time trying to understanding the decree, but also how this decree could be applied to the various operators, among them, ERG. Because we have performed, over the last few years, massive amounts of hedging, and the price, which today covers our merchant production is in the region of EUR 65 per share -- EUR 55 per megawatt hour. So we would be unfairly penalized if this principle of applying this kind of extra profit measures wouldn't follow this way. But on top of that, we think it's unfair anyway because it touch only a sector, the renewable one, which is the one which should support the most the energy transition. So for instance, I had several occasions to point out that the EBITDA of the group in 2021 is lower than the CapEx invested by the group. So please, I think this is a point of reflection for everybody. If you want -- if the system wants a operator like us to keep investing at this space, they have to create a reasonable and safe and attractive environment. But again, the answer probably your question was oriented to understand the impact. I think in my answer, there is also the implicit answer to your more precise question. We have hedged everything merchant. Our risk policy, say, created a hierarchy, say, a cascading mechanism to allocate our coverage, either PPA or financial derivatives. First of all, we allocate this to fully merchant production, then to all production subject to kind of feed-in premium tariffs, such as the Conto Energia, for instance, where you have a fixed incentive plus the energy, which is completely decoupled with the incentive. And the remaining part, because there is a remaining part of coverage, will be applied and is applied to also production that come from mechanisms such as the green incentives in Italy, which, as you know, calculated green inversely correlated to the price of energy registered in the year before. So I think the logic is quite solid, and we think we are not just the only operator doing that. So I think the decree should be converted into law, say, by the end of April, but most importantly, we are waiting for the application code which is in the hands of ARERA, the energy authority. And according to the memory, they have already written I hope, and we are confident that they will go down this way. So recognizing the possibility to allocate all these kind of hedging or PPA to -- with a logic of a group like we operate following a portfolio log, okay? So I think this is your -- the answer to your second question. The sensitivity. That's a very good question. Say, the portfolio of a group like ERG, though simple, is complex in terms of mechanisms because we have incentive like in Italy, which are inversely correlated to the merchant price. Sometimes we have feed-in tariffs. Sometimes we have feed-in premium tariffs, sometimes we have PPA, sometimes we have CFD two-way, sometimes like in Germany, CFD one-way, so depends on the distribution of prices over the various geographies. But let's say, as a rule of thumb, EUR 10 that was your question per megawatt hour should translate into EUR 10 million, EUR 15 million more in terms of EBITDA. Of course, without considering an impact from change in regulations included the creditable net. And the fourth question was about offshore. Say, when we presented the plan in May '21, we said our clear objective as far as innovation was storage, we did it. But we have been in the meanwhile, say, stimulated to think about even floating offshore by the transition ministry, by all the stakeholders and we did it because we can't rule out that this kind of technology could become some time, say, in the future, important in our portfolio. So we started, say, exploring these, say, this technology. Thank you, Roberto. And with a specific project. So we spotted early-stage projects in the offshore of Sicily. It's quite big in terms of megawatts. It's 200 megawatts. But let me say, we are just starting how to get it authorized. So it's very, very early stage. So please take it as just a potential opportunity we'll see in the future. It comes something, but we are looking at it.

The next question is from Sara Piccinini with Mediobanca.

Congratulations for the presentation. I also have some questions, and in fact maybe from the full year 2022 guidance. So the impact on 2022 from the lower value of the Green Certificate should be significant. But like-for-like, we are seeing a growth in the EBITDA. Is this only coming from the capacity addition? So where you -- that you said before or also from better pricing, for example, in other geographies or other elements that we should consider? And also, can you clarify that the wind assets that benefit from Green Certificates are excluded from the application of the decree of the letter. And the second question on the guidance is also, if you can provide a level of net income for 2022, given the expected capital gain and also the lower financial expenses? This is the first question. The second question is on M&A. So what is the multiple that you expect to see on renewables transactions? And do you expect to pay a premium given also your financial flexibility while on the other hand, on project returns, what is the level of IRR that you expect from projects? Last year, you indicated if I'm not wrong, a level of 4% to 5% IRR. Is still -- this still a valid reference? Third question is on the pipeline. You usually provide a pipeline in terms of projects in which you have high visibility. But if you have to provide a pipeline in terms of aspiration on pipeline, what would be the number? And do you expect to significantly revise upward this pipeline given the government's commitments at UL level to accelerate on permits? And then final, spot question, so I'm sorry for the many questions. The first is on the level of taxation that you expect over the plan. The second is on repowering when you expect to fully contribute to EBITDA? And final question, if you can provide the details on the hedging for 2022 and '23 and the level of prices that you achieved?

All right. I think you cheated a little bit on the numbers of questions. In my list, there are 8, I'll try to go through them. The first one is, yes, the number, the guidance we gave for 2022, the major contribution will come from the investments and the megawatts that entered into our scope of consolidation in the last part of 2021, which will give full contribution in 2022. The scenario -- we provided you with a range of the scenario, the range because there are different prices along the different geographies where we are in the region between EUR 110, EUR 130 per megawatt hour, which is right now lower, say, than the forward prices and I already gave you a sort of rule of thumb to extrapolating work out, the right sensitivity. Consider that all the assets we bought in 2021 and the ones that are -- that entered in Spain in 2022, they will provide roughly EUR 40 million, EUR 50 million of EBITDA in 2022. That's why notwithstanding, you said correctly, the reduction, the strong reduction in green incentive in Italy, which will go down from EUR 110 to something like EUR 40, which means probably EUR 90 million -- EUR 90 million, EUR 100 million in terms of lower revenues, that will be offset by, for sure, the contribution of fresh assets plus the higher price scenarios we are experiencing right now all over Europe. And second, I just said some signs. The CFD try to remind me -- getting certificate, exclusion of Green Certificate -- yes, I think and I hope you are right. That's our understanding. The green or any kind of assets that are subject to our mechanisms based on a difference, which also should include. That's our understanding. The green -- the wind assets that are under green should be excluded. That's why we expect to have a limited impact from the application of this decree because the major part of our production, which are not completely covered are allocated to this kind of technology. The decree had expressed very clearly that it touches just the merchant asset with a commercial operation date before 2010, if I remember well. So yes, it's like this. The guidance of net profit, let me say, we are not providing this kind of guidance, but I think it's quite easy to go down from EBITDA to bottom line. We provided you with indication for financial charges. The tax rate should be in the region of 25%. I'll try 25% for '22. I'll anticipate an answer to your question, in 2021 was higher, 27%, if I remember well, because of 2 items. One I have already mentioned, the impact in Romania of the windfall tax. But the second, even more important was the fact that we had a fiscal, say, this efficiency of -- in the region of EUR 10 million, EUR 12 million because all the hedging -- and that's an important point and a point that probably hasn't taken into consideration by the government when they issued the decree, we have all the hedgings at the level of energy, power, ERG power generation, sorry, the subholding, while the revenues are at the level of the SPVs. So you have a situation where the SPVs are creating a lot of margin while the subholding is creating negative margins because of the hedging. Then in the consolidated way, they are leading themselves. But from a fiscal point of view, this created this efficiency in 2021 because we couldn't recover, say, the IRAP tax, and this is not bringing forward. We are now fixing this problem by revising all the intercompany contracts in order to avoid this unfair, let me add, this efficiency from a fiscal point of view. But net profit, say, should be reasonable with dividend, let me say like this, reasonable with dividend we have proposed for the entire business plan. M&A, yes, you have seen the plan. There is something like EUR 800 million, which will be coming from M&A or co-developments agreement, but in particular, with M&A in our number, but you can simply work out this by dividing the CapEx associated to M&A to the megawatts and to the EBITDA we expect from it. We have taken quite cautious, that's part of our DNA, cautious assumptions. So in a few words, we are assuming 14, 15x EV/EBITDA multiple, but we proved in the past that we were able to do better than that. But I think the multiple we are assuming in the plan is consistent with the most competitive, say, M&A environment. The return, let's say, even after the last spike in interest rates, our cost of capital is in the range, depending on which country we are talking about, but between 4% and 5%. To this, we usually apply buffers in order to arrive to other rate, which are secret, I can't tell you. But anyway, in the region between 2%, 3% depending on which kind of risk we have to discount. So returns on an unlevered base are, say, in the region of 7%, 8%, 9%, depending on which PPA, on which price mechanism is applied, say, to our projects. And depends if a project is organic, then we can aspire to -- sometimes to a double-digit returns or even higher than that, may be lower for M&A. When I mean return associated to M&A, I mean just what we are buying. We are not usually discounting a potential for repowering terminal value and so on. So all the synergies are remaining to us. That's our approach. Sometimes it's difficult, but it's our financial discipline. Let me say, tax, I already said, 25% hedging for '22. I would say, applying the cascading method I've described before, we have roughly 25% of productions, 20%, 25% of productions in Italy and outside Italy that are some way related to merchant prices. From this, the sensitivity I gave you before. The pipeline aspiration, we don't like this kind of definition. We have a different approach. We know there are other operators that call pipeline, whatever is an idea of a project. We have a pipeline made of name and surname. So I wouldn't change this discipline because it's the one we have shared internally and I stick on it. And what I can say is, we have created our own organization from scratch because in 2018, we had just 20 people or less than that involved in the development. Right now, we have more than 100 people spread out all over our geographies, devoted -- fully devoted to developments. So we hope to enlarge the number of megawatts in our pipeline, but I would say our pipeline is 3.5, the one I just represented to you. I think I've touched all...

Maybe there is a question regarding repowering. Our contribution of repowering will start from 2023 and progressively the contribution increase after 2020. And '24, we have a significant contribution and the level will be reached at the end of the plan.

Can you please correct me on the tax rate?

Yes. On the tax rate, we have some specific issue in 2021. Coming back, and we expect that starting from 2022, we will return to our usual tax rate that is in the region of 20%, 21%. At the end, this is highly dependent also by the governmental measure that can be applied to our margin, in particular, Paolo has mentioned in the Romanian taxation that there is an [indiscernible] taxation that we are -- in this moment, we are not figuring a continuation of this measure, considering that in our scenario, the prices are expected to decrease to a more normalized level in the long term.

The next question is from Nash Cui with Barclays.

Congratulations for the good results. I apologize that I lost my voice. So I'll just ask 2 questions, and I hope you can hear me okay. So the first question is what happened in Ukraine in the last few weeks and we use potential diversification away from Russia gas import. I just wonder how does this affect your CCGT asset sale or operation? Then my second question is with European energy security becoming a more important issue, especially in the long run, and I just wonder what's your view on the regulation trends in the long term, especially in Italy as relating to these, I know ERG's financials are stronger than many of your IPP peers, why not grow your capacity at a much faster pace? That's all for me.

Okay. So let me try to address your first question. The gas supply, which is supplying, say, our CCGT comes from a primary energy Italian company, so which has got diversified portfolio with sources that are coming all over the world. So we are not worried about our gas, but I would say more. You know that one of the main contract we have for our CCGT is with ESAB, which is an Italian entity, which is fully controlled by LITASCO, which is a Switzerland entity. But in the end, LUKOIL is the, say, the last company. But we had contact with ESAB and we are confident that the company is not in any way affected by restrictions. Of course, the situation is evolving and is every day probably different, but we have also legal opinion ensuring and giving confidence that operations should continue. I have to say that the relationship with ESAB are and have always been very good. We consider them a valued partner. Don't forget that last summer, we signed very important extension and amendment agreement with them, extending the duration of the contract until the end of 2031. So for the time being, operations are going as they usually went in the past. Yes, the measures from states and in particular, I think you are referring to Italy. I've already said, it's for operators like us, disappointing to see rule and decree like this, which we feel is like -- as unfair and discriminatory because that is just the renewable sector. From a material point of view, for all the reasons I have already explained, we do not expect any major impact, but we have to wait for, say, understanding better the application code. It should -- that should be issued by the energy authority. But I agree with you, the regulatory risk or the perception of the regulatory risk has increased quite importantly. Unfortunately, in a time where all the sector is called to address the energy transition because on the other hand, all the stakeholders are asking operators like us to accelerate on the investments. And then I come to your last question because if I understood well, you said why you have not been more aggressive on the growth side. Let me remind you that our key element -- one of key elements of our business model is maintaining an investment grade. So all the CapEx we are deploying and releverage which follow is consistent with maintaining a ratio between EBITDA and debt or debt on EBITDA of 4x. Of course, this depends very much on the assumptions I've described before. If M&A will come at a lower price or different conditions. And in the past, it was like this, maybe we can accelerate even further, even further on this way.

The next question is from Roberto Ranieri with Intesa Sanpaolo.

My -- I have 3. My first question is, I would like to go back to the supply chain issues. One of your major supplier is best after which we had a couple of profit [ warnings ] in 2021. So I'm wondering if there are some risks on the supply of the equipment or if there are risks on renegotiating the contract for turbine or others? And that's my first question. My second question is on strategy and assets and geographical repositioning. I'm wondering if Romania and Bulgaria remains core areas. We have seen that the price -- the total price in Romania and Bulgaria are extremely volatile. I am wondering if it is perfectly [indiscernible] with your infrastructure of business and the infrastructure shape of revenues. My third question is on PPA, just a curiosity on it on the mechanism of pricing. We have seen that the chart with prices moving very sharply moving up. So I'm wondering if the -- and the PPA following the market prices. So I'm wondering if that there are any adjustments during the period of the duration of the PPAs which could adjust us to the prices in case of prices going down -- if power prices going down on the market.

Okay. Roberto, I'll answer your second and third question. And being the CFO in our organization accountable for procurement, I'll let him to answer about Vestas and our framework agreements. Say, East Europe has been and we think will be part -- an important part of our portfolio. In the past, over the last few years, Romania and Bulgaria were just left as sort of cash cow, anyway, assets without expectation of increasing the presence in those countries. But right now, we have a very flexible approach. And for instance, we have seen in Romania, things changing in the positive direction as it was for Poland, for instance. You can remember that just a few years ago, the sector in Poland seem to be blocked and then started up again quite abruptly. And we -- being already there, we follow so the wave, and we are now building a couple of projects there. And we are trying to build our organization, our pipelines and so on. The same for Romania. We are right now looking at some opportunities because we think prospective are positive. So we can't exclude any further expansions in those countries, particularly where we are already present. PPA, it's a very complex word. There are different mechanisms depending on the geography, depending the counterparties, if it's a utility, if it's corporate. Let's say, in our portfolio, we had bought some corporate and some utilities. Somewhere they will manage for us as in North Ireland. Also the access to the market and every aspects of the dispatching the energy, sometimes like in Italy with Tim or with [ Chia ], we have all the accountability of managing the energy and as the PPA just regulate the pricing and we can have a fixed pricing -- or sometimes we can have more complex algorithm like collars, within which the prices can float and can move. So we are, again, flexible. Why we are flexible, for instance, compared to some institutional financial investor because we have our own organization, energy management and sales composed by a team of specialists in doing this. So we want to be and remain flexible, knowing the markets, knowing the mechanism all around our energy. But in general -- say, in general, most of our PPA are based or at least the most current -- recent ones are based on a fixed price for the pending duration, 5, 7, 10 years. This is -- and there is no change in law that can, say, make the contract board, let me say. Roberto, I don't know if it was clear enough.

Yes, of course.

I think in relation to construction, we currently have several wind farms in construction with several different manufacturers. We have, for sure, Vestas. We have plants in construction with Nordex, with Enercon, with Siemens. So we rely on different supply. It's true that we have a framework agreement with Vestas and Enercon, in particular, the main one is the one with Vestas. And this is a pillar of our procurement strategy because we secured first availability; second, timing of supply; and third, prices. In terms of prices, this kind of agreement has some formula of indexation related to the steel in particular. But this is relating only as a part of the total cost, a limited part. This is the reason why we are currently estimating a 5% increase on the construction that we expect to start in 2022 and '23. Let me add also that we have also projects that are outside of the green -- or the framework agreement like a new greenfield that was authorized in Italy. In this case, we are tendering the project among different suppliers. And in this case, it's true that we are experiencing a more significant increase in CapEx. That is in the region between 10%, 15% in comparison to the value of 2020. That is to say that this is an issue that is in the market. That's true. But on the other side, the prices of the PPAs as commented by Paolo is allowing us to recover these extra costs in the construction phase.

Now we have a question from the app, Investor Relations. There is a message in a question from [ Tommasini ] of Anima SGR. I would like to ask you if you're planning a new bond emission for funding our project despite the actual rates environment? Maybe I'll hand over to Michele.

Yes. As you can see in this specific moment, we have available cash to invest. Paolo has commented before, EUR 1.3 billion is available. So we are not planning to do any new bond emission in 2022. We have the first repayment in 2023. So maybe we can consider new green bond emission next year, depending at the end on the condition of the -- and the speed of the capital expenditure. Having said that, in the short term, we do not expect any new bond. Let me underline the fact that we have, in any case, a pre-hedge agreement in place that cover us at least partially against future increase of interest rates.

Okay. I think there are no more questions. So before concluding, I will leave the floor to Paolo Merli for his final greetings.

Thank you, Emanuela. Just want to say a couple of words. Alessandro in his speech in the beginning said the management, which I remember was appointed less than 1 year ago started off very well. And let me thank him and all the shareholders, as I already did last year, but for the trust. And all the Board for the support, I received over the last year, say, in the role. But also, I wouldn't forget, say, all these achievements truly belongs to all ERG people. They made a fantastic, really a fantastic job over the last 12 months because don't forget, we invested EUR 650 million, and we arranged the transactions for disposal for a total amount of more -- much more than EUR 1 billion. So you can easily understand the complexity of the works that stayed behind all this. So I think it's time for me to thank my team, but all the ERG employees for their great job tireless and yielding, unwavered, let me use all the adjectives they put on the floor for getting all this done. Thank you very much, and thank you for sure to you all what I've said -- just said. I had the chance to said yesterday during the Board, during the strategic committee. So what I'm saying, what I said is also on behalf of Alessandro is just sitting nearby me; Edoardo Garrone, the Chairman of the Board; and all the Board. So thank you again, and see you next for the general meeting, right, in April.

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