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 Second Quarter 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Merli, CEO of ERG. Please go ahead, sir.

Good afternoon, everyone, and welcome to our second quarter and first half results presentation. Here with me, as usual, is our CFO, Michele Pedemonte, who will run you through our business performance over the period in, say, more detail later on. So let's get started with the overview of results over the period. I'm on Page #4, and now I'll focus on first half results, then Michele will elaborate more on second quarter figures. EBITDA closed at EUR 281 million, up 4% year-on-year, mainly driven by the larger installed capacity, which included the full consolidation of the U.S. portfolio as of April 1. The higher production for about 0.7 gigawatt hour over the first 6 months of the year, more than offset much weaker price scenario, which -- it must be sighted, was particularly strong in the first half of last year. We experienced basically 2 different trends in Italy and abroad. In fact, in Italy, EBITDA was up 20% year-on-year, thanks to the larger installed capacity and progressively into operations of second half of last year coupled with a positive effect stemming from the value of incentive that was 0 last year, being inversely correlated to the merchant price, it's out mitigating the weaker price scenario. On the opposite, outside Italy, EBITDA was down 16% year-on-year, as the consolidation of new assets in France, Spain and U.S. were more than offset by a particularly tough comparison in terms of price scenario, basically in all the European countries where we operate. But in particular, in Germany, where, as you know, we sell electricity through one-way CfD and in Spain, whose electricity market suffered the so-called duck curve phenomenon or say, very low price in the daytime hours. Overall, new assets contributed EUR 28 million in the first half on a year-on-year basis. We still invested significantly over the period EUR 444 million, significantly up year-on-year, say, more or less 2/3 of the CapEx were related to M&A in France and U.S., while roughly 1/3 in the organic -- as organic CapEx mainly associated to assets under construction, both for powering and greenfield projects. Adjusted net profit was EUR 106 million, down 7% year-on-year, notwithstanding the [ EBITDA. ] This is as a result, say, of higher depreciation, financial charges due to the consolidation of new assets and a higher tax rate following cancellation of some fiscal benefits in Italy known as ACE. Net financial position at 30 June was EUR 1.9 billion, higher versus the end of 2023, mainly reflecting investments, buyback and dividends. It also included a EUR 35 million item paid as substitute tax to free up goodwill associated to some recent acquisitions, thus offering tax savings over the next 5 years. So let's move on. Page #5, commenting on recent achievements. So in the period, we continued our journey forward in line with our business plan in repowering, which remains a key pillar of our strategy. We completed another project in Sicily, Mineo-Militello-Vizzini, for 101-megawatt capacity that is now fully up and running. As far as the U.S., we finalized the acquisition of a wind and solar portfolio. We are continuing to work on our co-development agreement to look for further opportunity in the U.S. We have chosen our team who will go oversea to work together with our partner. In France, we completed the construction of a solar and a wind plant. In the country, we are carrying forward our under construction projects, which accounts now for roughly the 550 megawatts. As far as financing, we continue to have a very sound financial structure as Fitch confirmed our investment-grade rating on our debt as we -- and we successfully issued our fourth green bond for EUR 500 million. But Michele will tell you more about that. In ESG, MSCI confirmed AAA rating on ERG, we are also very proud to have just obtained yesterday. On a quick look at delivery on our strategy, Page #6. We are well on track to reach the target for the year at 3.9 gigawatts of installed capacity. As a matter of fact, as of today, we have added about 500 megawatts to our asset base made up of a good mix of wind and solar, M&A and organic. About 100 megawatts are now in the very final phase of construction. So in a year, we will be adding 600 megawatts of new capacity plus 18% versus the end of '23. So well spread over different geographies. Those assets are going to fully contribute to our results as of '25. So I would say, quite significant growth. Here, a quick snapshot of assets currently under construction. I'm on Page #7, about 200-megawatt wind, solar and our first installation in battery storage. As you can see from the chart, those assets, again, are in Italy, France, U.K., Germany, as geographical diversification remains central to our strategy. We can also rely on our pipeline of projects for almost 500 megawatts that are already fully authorized, spread in Italy, France, Germany, U.K., but still waiting for our final investment decision as we first need to define the route to market, either through CfD awarded in auctions or PPA, say, consistently with our value-over-volume strategy. As you know, for instance, we are still waiting for the FER X decree in Italy, necessary to define the business case for all our repowering projects. Having said that, relying on our well-advanced pipeline of projects, we remain confident about our business plan targets. And now over to Michele for his review on results.

Thank you, Paolo. In Q2, power market prices have been significantly lower than previous year in all markets. This trend has partially influenced our all-in unitary revenues which are, in any case, mainly dependent on incentives, feeding schemes, long-term PPAs and short-term management. Italy is a clear example of this. Wind all-in unitary revenues increased from EUR 117-megawatt hour, to EUR 121-megawatt hour, mainly influenced by the value of the green incentive, which is EUR 42 per hour in 2024 and [ lower ] in 2023, and partly offset by the lower market price captured in second quarter of 2024 compared to last year. In France, the unitary revenues decreased because the lower market scenario impacts on assets, which do not benefit anymore of the two-way type mechanism or by PPAs and on our newly acquired plant awaiting to enter in the tariffs [ scheme. ] In Germany, captured price in the second quarter of 2024 are strongly lower than last year because previous year was influenced by short-term hedging at high prices. While in 2024, they are aligned to one-way CfD flow. East Europe unitary revenues decreased in the second quarter, mainly due to decrease in energy prices in Poland and Bulgaria. Also in Romania, starting from second quarter 2024, the government set the clawback cap price at RON 400-megawatt hour roughly EUR 80-megawatt down, lower than RON 450-megawatt hour last year. In U.K. captured price is around EUR 55-megawatt hour, not including balancing services revenues, lower than second quarter of 2023, which still benefited from 1 plant at merchant price. As regard to the solar, all-in unitary revenues, there is an increase of revenue in the second quarter in Italy, thanks to a higher hedging price year-on-year. In Spain, the captured price suffers the current market scenario and compared to the second quarter of 2023, which benefited of higher hedging prices. In France, the all-in unitary revenues is influenced by the newly acquired asset that advertised at lower prices than other brands. ERG plants in the United States have a unitary revenues that reflects the PPA prices and the Production Tax Credit for our wind assets. And now I focus on production on Page 10. As regard to the second quarter, where in Italy 641 gigawatt hour was plus 14% year-on-year. Thanks to new asset contribution related to the powering and the [ new build fitment ] entering operation at the beginning of 2024. In France, 262 gigawatt hour, up 3%, thanks to new assets acquired in January 2024, partially offset by lower wind condition compared to particularly windy second quarter of 2023. In Germany, 113 gigawatt hours, plus 10%, thanks to better wind condition. In Eastern Europe, minus 5%, volumes slightly lower than the second quarter last year, mainly driven by Romania. U.K. and Nordics, 137 gigawatt hours, 60% up compared to last year when our assets were still in commissioning. Production in U.K. are also influenced by remunerated balancing services market in Scotland and grid curtailment, not remunerated in Northern Ireland. In Spain, 167 gigawatt hour, more than doubled year-on-year. Thanks to the production of newly acquired plants that enter in operation between July and December 2023. The contribution related to the new plants in the U.S.A. is equal to 263 gigawatt hour in the second quarter, out of which 213 comes from wind and 50 from solar. As regard to the first half, the production reached 3.7 terawatt hour, plus 23% year-on-year, mainly driven by the perimeter effect. In the second quarter of the year, we have an overall EBITDA equal to EUR 116 million, EUR 9 million higher than the second quarter of 2023, thanks to the new asset contribution, partially offset by lower market share. In Italy, EBITDA is EUR 81 million, higher than last year by EUR 12 million, thanks to the new asset contribution, coupled with a better price effect driven by the green incentive as already commented. In France, the EBITDA is EUR 8 million, lower than previous year, due to lower market scenario, coupled up with the worsening conditions compared to particularly windy second quarter 2023. In Germany, EBITDA is EUR 7 million, lower than previous year, which was influenced by short-term hedging at higher prices, while half quarter results reflect in the CfD flow. In Eastern Europe, EBITDA is EUR 8 million, lower than previous year, which benefited from higher captured price and higher production. U.K. and Nordics EBITDA is slightly lower than second quarter, mainly due to lower captured price, partially offset by higher production in the period. In Spain, EBITDA is EUR 4 million, lower than last year because of lower captured price, partially offset with perimeter effect coming from the capacity entering operation in 2023. The contribution coming from the U.S.A. is EUR 12 million and include the Production Tax Credit calculated on actual production equal to EUR 6 million in the second quarter. As regard to the first half, the EBITDA is EUR 281 million, EUR 10 million higher than first half 2023, mainly due to perimeter effect and better wind conditions in Italy, U.K. and Nordics, partially offset by lower market share. Let's comment now on investment in the period. In the first half, we invested EUR 444 million, an amount which is higher than [indiscernible] invested in the first half of 2023, mainly due to the acquisition of wind and solar plants in U.S. and EUR 135 million in France, while first half 2023 include [indiscernible] pay. In addition, we made about EUR 118 million of organic CapEx out of which EUR 60 million in Italy for a power in greenfield asset and the remaining part in France and U.K. Let's now move on to the financial, commenting on the other items of the profit and loss. In the second quarter, amortization and depreciation at EUR 68 million, higher than last year, mainly due to new assets acquired and then the in operation. Net financial charges at EUR 7 million versus EUR 3 million in second quarter 2023, increase is mainly influenced by the accounting mechanism of the tax equity partnership of U.S. portfolio. So not a cash item. In addition, please note that the second quarter EUR 2.6 million are [indiscernible] interest expenses according to IFRS 16. The sum of these 2 accounting items today is EUR 5.5 million out of overall EUR 7 million of net financial charges. Tax rate in the quarter is 30%, higher than 24% of second quarter last year due to the cancellation of the ACE benefit in Italy. As a result of all of this, the adjusted net profit for the quarter amounted to EUR 28 million, lower than last year, EUR 36 million. The adjusted net profit for the first half amounted to EUR 106 million versus EUR 114 million in the first half of 2023. Finally, let's take a look at the cash flow statement and the net financial position for the first half. The net financial debt closed at EUR 1.9 billion, EUR 0.5 billion higher than the end of 2023, mainly driven by solid cash generation from EBITDA, netted by the [ recommencing ] investment in the period. The dividend distribution for EUR 184 million (sic) [ EUR 148 million ], the last part of the buyback operation for EUR 37 million and EUR 53 million of tax cash out. A part of this tax cash out of EUR 35 million is related to one-off taxes on goodwill release to attribute tax relevance to the [ government, ] to the goodwill arising from the mergers of the Siena and Donatello projects. This payment allows future tax benefit to the tax amortization of the value of the goodwill starting from fiscal year 2025. Finally, a brief overview of our last bond issue, the fourth. First of all, please note that the settlement happened on the 3rd of July. So the net financial position at the end of the quarter is not affected by the issue. It was really well received by the international debt capital market with the demand picking 5x the bond size, and that allow us to extend the average debt duration at over 5 years and to show a business plan period without any further refinancing need. The green bond benefits by EUR 250 million pre-hedge at 0.4% that leads the bond cost at 3% per year. After this last issue, we can confirm a very competitive cost of gross debt in current interest rate environment in the range of 1.5%, 1.7%. The success of our fourth bond demonstrates the benefit of an investment reiterating financial policy. It allows the group to access to the debt capital market at very attractive terms, delivering a financially sustainable net profit also in the long term. Thank you for your attention. And now I hand over to Paolo for his comments on the guidance.

Thanks, Michele. And now let's see our '24 guidance, I keep it short, we are confirming all our guidance. Full year EBITDA is expected within a range of EUR 520 million, EUR 580 million, which includes the consolidation of the U.S. portfolio as of April 1 '24 and the progressive contribution of the asset under construction. CapEx within a range of EUR 550 million, EUR 600 million, including the cash out for the acquisition in U.S.A. and France as well as the CapEx associated assets under construction. Net financial position at year-end is expected in the range of EUR 1.75 billion, EUR 1.85 billion. This guidance has remained unchanged despite the cash out of EUR 35 million, not estimated at the time of the original guidance as we just recently decided to invest an amount to pay the substitute tax at 16% to free up the goodwill associated to some assets in order to benefit from cash tax savings to the order of EUR 13 million per year over the next 5 years. In a nutshell, I'd say, so far so good, more or less, everything is in line with our budget. And now we are ready to take your questions.

[Operator Instructions] The first question is from Enrico Bartoli, Mediobanca.

Good afternoon, everybody. A few questions from my side. First of all, a question regarding your Slide 7, when you light these 500 megawatts of project fully authorized. I was wondering what are the conditions that would trigger a final investment decision on those projects and particularly if you can provide some details on the repowering. And if price that had been anticipated regarding the FER X of around EUR 85 per megawatt hour would be consistent with your expectations in terms of returns for those projects. Second question is related to '25. I know it's early for a guidance, but if you can provide some qualitative indications of what a reasonable evolution can be, particularly considering that green certificate maybe will be in Italy higher in terms of price than this year. There will be the contribution from the additional capacity and the forward curves indicate power prices in -- for next year compared to this year, in particular, if you can update us on the level of hedging and the price there. And I see that the consensus is around EUR 590 million or below EUR 600 million, if you think that this is -- could be a reasonable number. The last one, just the details on results, if you can provide the breakdown of EBITDA for Italy and France between wind and solar.

Okay, Enrico, thanks for your question. Say, the first one, yes, it's the first time we are providing this kind of here, 500 megawatts, which are the assets already fully authorized, consider that out of this amount, more than 300 megawatts are Italian project -- Italian repowering projects. So that's why we haven't yet taken the final investment decision because here we are waiting for the FER X issuance. Honestly, we have been waiting for it for almost 2 years. Now the conditions seems -- are closed for the issuance, we hope by the end of the year to have more clarity on this because for sure, the easiest path forward is to participate to the auction and get a 20-year CfD. That's the base of the structure of -- for the new tariffs in Italy, and this is already defined as a draft decree has been circulating, say, in the sector, but we are still waiting for the officiality of the price. The range in the draft is between EUR 70 and EUR 95 with full link and exaggeration to the CPI. So this is very positive. But yet, we need to wait for the official decree and above all, the first auction in order to participate. So our process would entail first to participate to the auction. And once getting CfD, then we will take our final investment decision and not vice versa. And in other countries, such as in France or in Germany where we have other projects fully authorized, we are in these days trying to participate to the next auctions. I can't disclose the price at which we want to participate. But in case they will go through, for sure, we will take accordingly the final investment decision. But let me say the key message here is we are, based on the amount of the pipeline, fully authorized. And we are quite confident that we are going to meet, say, our objectives for -- say, in the business plan. Let me elaborate a little bit more on one specific project because -- something that touched me. We have these very great projects of repowering, which is one of the best in our pipeline in Sardinia. And as you know, there has been a regional law that is preventing, say, from constructing new assets in the island until the region will define over the next 18 months that the deadline they said in the law, the go, no-go areas, but we are quite confident about this project because being powering, we think this is a go area by law. But just to say and elaborate a little bit more about your questions, sometimes you have a fully authorized assets, but you can't go on because there are constraints like this in Sardinia. But anyway, we have a constructive dialogue with the region, and we are, let me say, confident that we will go through this project. The second question was about '25, yes, still early to say a guidance for '25, but you are right. So we should expect the full contribution from the assets that progressively enter in the scope of consolidation. Last but not least, in the U.S. that's going to contribute for the full year next in '25, while just 9 months in '24, but on top of this, all the other assets that have already entered into operation during the first part of '24 and the ones that are going to enter in the second part of the year. And please consider that even the assets that were started up in the first half, they are not fully up and running since the 0 time. They need time to reach say -- to reach the full potential. '25, we have covered roughly 1 terawatt hour production at a price above EUR 100 per megawatt hour. So I think quite good pricing. And as you said, the value of the green is expected to be higher because, as you know, it's worked out from a mathematical formula that consider the actual price in '24. So according to the estimate -- the best estimates, the calendar for the full year, we should expect this green to be, I don't know, EUR 60, instead of EUR 40, EUR 42 this year. So maybe your last question is the split between wind and solar on EBITDA. So in Italy it was EUR 50 million wind and EUR 30 million. In France, EUR 6 million wind and EUR 2 million solar.

Just sorry, comment on your -- for a question. If I understand that if you get the right conditions for taking the final investment decision for the project in the pipeline, you [ highlighted ] authorized actually those project would likely contribute starting 2026. So on '25, most of the capacity additions is the one that is currently under construction. I take it, right?

Yes, it's absolutely right. For sure, the project I mentioned in the pipeline, even though already authorized, even in case of a final investment decision by year-end, considering the construction time, for sure, it's going to be beyond '25. In '25, we expect the contribution of the assets already entered into operation plus the 3 power wind farms that are going to enter in the second half of the year. And as you know, we have a preferential right agreement, kind of co-development agreement in U.S. We are working on some projects in the area, but yet, we don't know we can find an agreement. But in case, yes, we could expect also a contribution from these projects consistently with our business plan that entails a significant development in the U.S. But it's still too early to say if there should be further assets in '25 on top of the one you already know.

The next question is from Alexandre Roncier, Bank of America.

I'll just like to -- I've got 3, please. I'd just like to follow up on the previous question and some of your remarks about FER X. And I know there's been a draft circulating, and you've commented on that as well. But I think in the past and with other stakeholders, there was always some issues regarding no specific pricing depending on the technology. I think you've been quite vocal about the need to increase the prices for wind compared to solar. Have you had any more discussion about that? Has there been as well any more discussion or comments about the discount for repowered assets as well as on zonal pricing, specifically? The second question is about batteries. And you just commented about the U.S. and a preferential right to buy assets there. And we've seen, obviously, the market moving more and more in storage. You've had a first move and -- or you are the first move actually in storage in Italy for 2025. Would you be actually considering as well with your partnership with Apex storage assets in the States? And then last question, if I may, which is more about the numbers for the French and the U.S. assets. I can see from the disclosure that you've consolidated the full quarter EBITDA for both despite the closing kind of mid-quarter for each Q1 and Q2. Should we assume also a full quarter cash contribution for those assets? Or is there some kind of working capital movements there, i.e., would get the full EBITDA, but the cash impact will actually just be pro forma from the date of closing.

Thank you for your questions, Alexandre. So I'll say the first 1 about the FER X, I try to elaborate a little bit more. Yes, we think the financing [indiscernible] them, the draft is in this direction. There will be separated and independent auction between the different technologies, wind solar. The range of prices are more or less the same between EUR 70 and EUR 95. And we think the competitive auction for the PV, the solar will end up with a price, not probably at the cap, while when talking about wind, we would expect the price awarded should be more near the top of the range because as you are aware, wind industry has got a [indiscernible] capital intensity. And I think the OEM results, at least so far, are demonstrating the value chain in the wind is a little bit more under pressure. But, say, yes, we think if the flexibility is there, and then we can get the higher part of the range, at least some investment should be appealing and then we expect to go on. You mentioned another point, which is very important for us and is distinguished from the FER X, the discount at which the repowering projects are asked to bid. But basically, it's not -- it's a penalization more than a discount in the sense that the SPV, the company that own the asset that is going to be repowered, didn't participate or didn't adhere to the [indiscernible] plan, was a plan to smooth the value of incentives, extended the duration of them that was submitted to operators in 2013, so many, many years ago, but the low at that time, implied that the decision was free for operators. So it was on a voluntary basis. But if the operator wouldn't apply then this -- they were not allowed to participate in any kind of public system, public mechanism. And then this prohibition was converted into this 5% discount, which doesn't make any sense. It's against the development of repowering as -- which, as you know, has got some additional costs compared to a greenfield because we have to dismantle the assets. So we are working with the ministry in order to abolish, say, this norm, which is totally no sense, and we hope to have -- even though it's not all under our management, but we hope to have this situation solved by the first auction of FER X, which is expected to be probably in January 2025. So at least we are working in this direction. About battery storage, I think the awareness around the world, not just in Europe, not just in Italy, but around the world is the battery storage, the flexibility is becoming more and more important given the phenomenon of negative prices, zero hour, duck curve, whatever. So operators should be -- should become smarter from this point of view, and we are working in this direction. We set Technical and Performance Committee and within the company in order to kind of addressing all this kind of situation. But definitely, the Vicari project is the first one, but we have -- we are -- we've been analyzing a larger, much larger pipeline of battery storage projects. And in particular, in some specific European countries where the value of battery is even more important. I can easily mention Spain, where the volatility between peak and low prices during the daily hours is very big and massive or even in the Northern Ireland where we are suffering stronger curtailments because the infrastructure there are not as they should be to sustain the penetration of renewable. So, say, with our cherrypicking approach, we are trying to target some specific projects in order to enhance the value of our portfolio. Also, in a defensive manner. In the U.S. for sure where the market is more mature, and they are more used to dealing with this kind of volatility. For the time being, we still -- we haven't had the chance -- opportunity to study. But of course, we are open to discuss with Apex, any potential opportunity in this direction. About if I got well, the third question, about the contribution of the new assets, I need to take my management effort and we discussed today in the Board. And let's say, in the second quarter, we had a contribution from new assets of EUR 12 million EBITDA -- no sorry, I picked the wrong page, sorry, EUR 22 million. This is the contribution of new assets in the second quarter of '24, so quite a big one and is well spread all over the new assets. We have a contribution from Italy, they did the first repowering projects; from the acquisition in France; from the new assets in Spain and the U.S. So I prefer not to give the breakdown because it's something. But all in all, the new assets contributed EUR 22 million during the quarter. And almost EUR 30 million over the first half of the year, against the backdrop of merchant prices well below the value of last year, so consider this.

Paolo, if I may add, regarding the U.S. answer. The closing was in the first day of April, and so we consolidate from the beginning of the month and the same for the French assets that were -- the closing were -- was in the first days of January. And so we consolidated by the beginning of the first quarter. So but in particular for U.S. it was an acquisition with locked box date where we are entitled to the cash flow of the asset starting on the locked box date [indiscernible] in reality mid-2023. So the consolidation is a partial reflection of the real cash generated by these assets for the benefit of group.

The next question is from Roberto Ranieri, Stifel.

I have 2 questions, please, about the perimeter effect and also expectations in the future. The first one is on U.S.A. If you can remind us basically the contribution to the EBITDA on a full year basis, probably amidst this figure. And as specific on the company -- on the assets that you bought in the U.S., just to understand with -- I am asking what the contractual scheme is in -- related to this plant. I suppose it should be PPA, if you can give us some more details on the duration of the PPA that would be useful. On U.S.A as well, you mentioned during the conference about other opportunities in U.S. If you can give us some granularity on which -- the megawatt are you targeting in this country would be also helpful. And my last question is on the power prices in Spain, which has suffered some very high volatility in the recent past. So I'm wondering what -- I'm asking what -- which the -- your expectations are for the remaining of the -- some competitors are saying that the power prices in Spain should go up even significantly materially versus the average prices that we have seen in the first and second quarter of this year. So if you can share some of your expectation on this price in Spain would be very helpful as well.

So I'll try to answer your question, the number Michele presented before, said that in the U.S., in the second quarter, we recorded an EBITDA of EUR 12 million. So let's say, if you take on average, something in the region of EUR 40 million for the full year, is a sound number. I can say more than that, of course, depends on the wind, on the solar, [indiscernible] of the prices. The price is just say, the basis, which means the differential between the base load, but I don't want to enter in this complexity because all the production is covered by a long-term purchase price agreement. But more or less the magnitude of the EBITDA is in the region of EUR 40 million. But please, to be honest, consider that when we announced the transaction, $270 million for the portfolio is about 75%, and we are consolidating 100%. So EUR 40 million is the full consolidation of the asset -- of the portfolio. 25% is not owned by us and then will be revert in the minority line of the P&L, just to be straightforward and transparent. Yes, in the U.S., that was part of the original agreement, we have this kind of co-development agreement, which is very structured. It's about 5 projects, wind and solar, for an aggregated amount of 1 gigawatt. We are not expected to buy all of them, but the objective, just to answer your question in detail is to double more or less the current installed capacity that we have in the U.S. right now, 320, more or less, we are targeting roughly double this amount and we are working hard with -- together with Apex to reach this target, it's not given. There is no obligation for them to sell, but there are kind of framework. We have to move in between, and we hope to find an agreement on some of those projects that are very valuable. And so far so good, the chemistry, let's say, because we set up the organization, our team that is going to fly overseas and to join Apex to work together on this pipeline of projects. And the third one was about Spain. Difficult to say. So yes, we have noticed a quite huge volatility, in particular, in April, May and the first part of June, with many hours with negative -- not negative, but near to 0 prices. In fact, we are performing an hourly analysis with our management control and that are showing -- those analysis are showing that roughly 50% of the hours during the second quarter were near to 0 or even negative. This is not a very good market in this moment -- in those months. In fact, when decision maker here in Italy are saying, Spain is an example, I shouldn't say that. But let me say in a positive way that this phenomenon is now over. Today, the price in Spain is EUR 94 per megawatt hour. And if I see the hourly price even in the central hours of the day, the price are above EUR 100 in some hours. So in the very early morning or late evening when sun is still -- the solar plants are still running. And in the very central hours of the day, the prices today -- but today, just to give you an example, are in the region of EUR 70 per megawatt hour. So very positive. So the market is a little bit crazy, moving from 0 to EUR 70 in just a couple of -- just a few weeks. Because now with a hot season, the demand is getting stronger and stronger. So [ recurring ] some [ investor ] and also the deployment of renewable are a little bit slowing down. So I believe in the market, the market will adjust this weird price situation that we have lived, say, in the first part of the year. So we remain -- we are not getting too excited when the prices are very high like today, and we were depressed when we saw this phenomenon in April because we have a medium long-term view and we expect this market to be a quite solid market also because as you can see from newspaper major technology companies like Google, et cetera, et cetera, are going to massively invest in Spain because on the opposite of Italy, they are deploying larger scale industrial solar plants and not rooftop that are more expensive and not so efficient. So there, the energy cost less and is attracting demand and attracting data center, data lakes, data warehouse and blah, blah, which should be the trigger for the pick-up in demand going forward. So Roberto, I hope to have added some value on this point.

The next question is from Nash Cui from Barclays.

Three, please, if that's okay. So the first question I just want to get a bit of help on your full year guidance. I remember last time, you said the guidance that only includes 6 months of the U.S. But then we are having -- sorry, 2 quarters of the U.S., but now we are having 3 quarters. And I think, Paolo, you mentioned earlier, we have EUR 40 million on a full year basis, that means we are now including average EUR 10 million more in the EBITDA, but you're not changing the guidance. But the main, the 2H outlook is becoming more negative what has changed? I just wonder. And my second question is around when CapEx. We heard a few different stories around wind industry in the last few weeks. Just wondering if you can tell us what's your expectation for wind CapEx evolution for rest of the year or 2025 or beyond? And then my third question is now you have the U.S. portfolio, and what are the positive and negative surprises over there?

Thank you for your questions. About, say, the first one about the guidance. Yes, you're right. To be very, very precise, I'm talking to analysts, so I want to be very precise. Now our budget -- the U.S. was consolidated as of June 1. Maybe we -- for telling reason we said in the second part of the year, but -- so there are just a couple of months difference between what was included in the first guidance. We prefer considering that 6 months have already passed to consider -- to maintain the same guidance, EUR 520 million, EUR 580 million, because honestly, May and June and July was not that different. The wind conditions across Europe were not as good as expected in our market. But notwithstanding that, let me say, over the last couple of years, we have noticed that the wind tends to be stronger than expected in the fourth quarter. Last year, we -- you know, and all the audience knows that we changed the guidance in the second quarter to be surprised because all the lower production registered in the second quarter were more than offset in the fourth quarter. So -- and as you know, the fourth quarter for us is the game changer for our P&L. So we think and we are still confident that the fourth quarter should be good. Say, the midpoint of the guidance is based even for the second half of the year, in line with the budget. So we are not expecting any recovery compared to the lower wind production in these months, I mean, May and June. But if the second part of the year is going to be as windy as last year, we should finish in the top end of the range. So it depends on wind. I can't control it, but I think to -- I provided you with a comprehensive answer. Maybe the last one because you said, of course, our pro forma results, including the contribution of U.S. in the first quarter would have been EUR 10 million more than the guidance -- the current guidance. And this is I always said that those EUR 10 million are in our cash flow because the contract we signed was based on our locked box data. So all the cash we got in the first -- in the -- the second half of '23 because the locked box date was on 30 June and in the first quarter of -- Q1 '24 is ours. In fact, in the end, the acquisition cost was lower than the $270 million because at the closing day, we found cash in the vehicle we bought. I hope, Nash to have answered this question. The second one is our view about CapEx intensity in the wind industry. You know that we have always been cautious in this respect because when I was -- I'm a former analyst like you. So I know that when companies are suffering in their P&L, reporting losses, sometimes at operational level, they have to recover this marginality and then it's difficult to expect them to lower their prices -- their selling prices. But we have already factored this CapEx trend in our business plan, and I can confirm that more or less, we are basically in line. Now the cost of installing new megawatt in wind is in the range of between EUR 1.5 million, EUR 1.8 million per megawatt. But I missed probably the third...

Positive and negative of U.S.

I see. So far, so good. We are happy because the numbers we have seen so far, in particular, in the first half of the year are banging in line with our analysis, with our budget and with the numbers and the base of the acquisition. So this, say, it's not -- let's say, it's not granting also the future, but we started in the right way. Let me spend a couple of words about Apex. The feeling with them is super positive. We recognized the very excellence in what they are doing and the work in their core business. So we are also very happy about the joint venture, the partnership. And more than before, we are confident that the way we identified to enter in the U.S. through this partnership was, by far, the best way possible because we are learning while growing exactly as announced and stated during the business plan.

Perfect. Can I ask a very quick follow-up question, if that's okay. Just very curious if ERG is going to consider Siemens Gamesa or some Chinese wind turbine suppliers. Will you just exclude them? Or will you put them in your supply list?

Say, honestly, we have one project in Sweden that is equipped with the new platform of Siemens Gamesa. We are suffering a little bit because -- but it's a common knowledge is that this platform is something to be fixed. We are working well with them in order to fix all the issues. We have a punch list to be solved and it's a little bit painstaking work because it's lasting more than we could have expected maybe 6 months ago. But step by step, bit by bit, I think we are in the right direction to solve the issues and to bring, say, the planned at its full potential -- and to bring the plant at its full potential. Of course, your question, I know it was a little bit different. Looking at the future, we want to be sure that all the technological issues we encountered with this technology is solved definitely before buying other wind turbines.

The next question is from Stefano Gamberini, Equita.

The first, still regarding your pipeline. You have 500 megawatts of fully-authorized projects. Could you elaborate a little bit about the different phases that you have for the other projects that you have in your pipeline, which are clearly more close to the final authorization and in which countries are this project? The second regarding your financial flexibility. So in the case that you find the right regulations that match your IRR requirements or an acquisition with the same characteristics. What is the financial flexibility you have on top of your targets to -- 2026 business plan targets, really. The third, regarding the hedging. You said that you already hedged 1 terawatt hour north of EUR 100 per megawatt hour on 2025. Could you give us the same figure for '24 and what is the remaining production math, both on '24 and '25, just to do some math of the changes, '24 and '25 on this metric?

So I'm going to answer the first 2 and I'll let Michele to provide you the details about hedging. I'd say that the 500 megawatts of pipeline already fully authorized is spread over say, 3, 4 countries, including Italy. Italy and all the pipeline, I already said that 300 megawatts, a little bit more than that are -- is made of repowering projects, all wind. Then we have other projects, all wind, in France, roughly 16-megawatt -- 60 megawatts, something like that. Then we have more or less the same amount in Germany, which is a premium market. And so we are quite happy to have this fully authorized projects in Germany. And we have also some projects in U.K. on top of the one that we are already constructing. For instance, in U.K. We have a new park that is currently under construction, Corlacky, that is not included in the target for '24, but the COD, the commercial operation date is expected to be late 2025. And most of the pipeline is wind. We have some pipeline quite important in solar PV in Italy, in France, especially -- and in Spain, but it's not at the same level, at the same stage of those wind farms. So it's not yet fully authorized. And on top of that, you know that in Italy, the -- I don't know how to say, I mean, the Agricultural Decree has been just issued a couple of months ago and it's not to say the least, very supporting for the development of solar PV in Italy. But let's see. Honestly, the last amendment before the issuance of the decree said the projects that are already under permitting -- have already started the permitting process are not affected by this decree. And in fact, according to our understanding most of our pipeline in the solar PV shouldn't be affected by this. But this is on top of the explanation to answer your question about the breakdown of the pipeline. Hedging?

Yes, maybe -- the question also [indiscernible]. But any case, I can answer the hedging. The portion of merchant exposure in 2024, so in October and still open for the remaining part of the year, is roughly 1 terawatt hour. And these figures regarding 2025 is roughly to 2 terawatt hour -- a bit more than 2 terawatt hours. So consider that -- the full year is still open so we're building up our short-term hedging during the second part [Audio Gap] also benefiting of some increase of the forward curve in the last -- these last months. The figures regarding our sort of merchant exposure of 2024 and 2025. So roughly also in 2025 we have 1 terawatt hour and our short-term matching already closed at price close to the price mentioned before by Paolo for 2024.

Sorry, I didn't get you exactly. So 2 terawatt hours still, we can say open on '25, and 1 terawatt hour already hedged north of EUR 100 per megawatt hour as we got '24 -- I lost...

Still after 1 terawatt hour merchant for the second part of the year.

And you already hedged in '24 at what price, more or less?

It's another 1 terawatt hour, rather -- the price is higher than EUR 100 per megawatt hour.

Just as regard to the leverage, if you have the answer?

Leverage, you know that whether financial [Audio Gap] linked to the is the main pillar maintenance of the investment-grade rating that is translated in a leverage maximum leverage in the region of 4x, in terms of net debt to EBITDA. And this is our habit, we still have to grow in this -- maintaining this financial -- maintaining our current rating. And so we still are moving in this aspect. In addition, as already mentioned during the business plan presentation, we have the full ownership of all of our assets. And so we still have the flexibility through asset rotation program to exploit further growth opportunities, leveraging on existing asset base. So -- and asset rotation could be an opportunistic way to find way -- financial means to grow because we are one of the few players with the full ownership of the portfolio we have.

The next question is from Davide Candela, Intesa Sanpaolo.

The first one is on the -- back to Spain. I was wondering if you can go back to the second quarter dynamics that we observed in 2024. I was wondering if this could be more or less a structural dynamic also for the next year and which were the reasons for that trend in the second quarter? My -- the idea is that I was wondering if there will be too much production of renewables that more than offset the demand and the pressure on demand that you could have in the quarter. So just your view on that. And the second [ question ] is on the PPA market. If you can provide us some color on the evolution and now, which is the stage of the market and maybe considering if there is competition and some pressure on the prices that went down compared to last year, if, I don't know, large-scale utilities could come, available clients because they have the tools for hedging themselves internally or the companies, the corporates still are the major customer for you?

Okay. Thank you for your questions. About Spain, I can tell you that the selling price at which we [indiscernible] our productions over the second quarter was more or less in the region of EUR 35, EUR 40 per megawatt hour, which is -- EUR 40 let's say, which is not the price we imagined in our budget, so it's below but it's anyway protected by some PPA because on the larger asset -- we have a PPA with Google that provides a floor, so even when the prices on average are below the threshold of the floor, we are getting this amount. But I repeat, I think this phenomenon was not temporary because it could happen again, but now it's over. So it just happened in the second quarter, in particular, in April, May and the first part of June, as I said, but I repeat, close to 0, [ plus 200 ] hours with negative price. So which means if you sum the 2 more than 1,000 hours in a quarter with very low price. This is 50% of the entire hours in a quarter that are a little bit -- 2,200 hours. So -- but we are not expecting this to remain because the market react to this. It should react with battery storage, flexibility. Even ourself, we are trying to understand the opportunity to invest in flexibility tools like battery storage. So -- and the demand is expected to pick up following the investment, the huge investment, the country is having. So we are and remain, I repeat, confident about the future of the country. In fact, we are happy with our investment because they are from a technical point of view, performing very, very well. I think a couple of months, I know the market -- the financial markets are a little bit hysterical sometimes, but we are not because we are valuing investments over a 30, 40 year horizon. So we are absolutely confident that the -- those investments are very valuable. PPA, of course, the volatility in the price is not helping the negotiation of PPA and in particular, the first part of the year suffered low prices. So we are negotiating some contracts, some long-term contracts. But the match, say, between demand and offer is not there because we have different expectations. But now the prices are reversing on the upside, they are moving up. And this has been not overnight, but was a very quick process. So in the blink of a month, 30 days, the future and floor of the prices are moving up quite significantly, the TTF gas price moved from the low of the year of '20. Now it's EUR 36, so almost doubled. So we expect this should be reflected in the energy prices in the medium, long term.

The next question is from Paul Chabran, Kampen.

I have only one, which is a follow-up on previous comments that you had on CapEx. On wind CapEx, you mentioned that currently, you are expecting a price moving forward of EUR 1.5 million, EUR 1.8 million. I think in the business plan, you had mentioned EUR 1.6 million in average in Italy. So this is a 60% increase of the price of other CapEx, say, in 2020. But during the same time, the price of turbines only increased let's say, 25% to 30%. So I'm trying to reconcile this gap between, let's say, the increase in CapEx of around 60% over the past 4 years, and the 25% to 30% increase in turbines over the past 4 years during the same period. So if you could help me, let's say, pin those together, that would be extremely helpful.

I try to give you more factors in order to make the calculation on a like-for-like basis. Yes, it's true, we move from EUR 1 million to EUR 1.6 million, but don't forget the EUR 1 million we had in our regional business plan for the repowering and for other assets was based on a framework agreement we signed -- we negotiated and signed with Vestas and [indiscernible] in 2018, 2019 in a completely different business environment. So -- and this framework agreement, I remember exactly, but I think we signed in 2020, lasted 3 years. So up to the end of 2023, up to the end of last year. That's why we managed to have some projects with overall spending in EUR 1 million, EUR 1.1 million per megawatt. That was an outstanding achievement of the group because we found the right moment to negotiate this framework agreement. But in these 3 years, was not the reference our CapEx per megawatt because the CapEx per megawatt moved progressively from EUR 1 million to EUR 1.2 million, then EUR 1.3 million, EUR 1.4 million in 2023. So that's why we had this jump from EUR 1 million to EUR 1.5 million and EUR 1.6 million, which is, by the way, in line with the current dynamic of the market. And now we are more in the region of EUR 1.6 million, EUR 1.7 million. I invite you to look at other operators and to just simply divide the CapEx for megawatts. This is the market value. So it's not -- it's a 60% increase, but compared to a super favorable framework agreement we signed in a time where market was completely different. I hope this could help your understanding.

It does it. But I think the other question for me is also trying to just get the bridge between the total CapEx and the price of turbines. I think, Vestas and Nordex are reporting average selling price at EUR 1 million or a bit less than EUR 1 million. And it's true that most operators will build wind capacity for more than that, much more than that. But it's usually, say, 20% to 30% more, including all the, I'd say, construction costs. So sometimes a bit -- I'm trying to understand, I mean, it seems to me that ERG is, let's say -- yes.

Sorry, I got the question, it was very clear even from the beginning. I just give you a picture of the entire price. The cost of turbine in our case, which is -- of which the EUR 1 million and EUR 1.5 million was EUR 0.6 million -- when the cost of the entire megawatt was EUR 1 million, of which EUR 0.6 million the turbine. But now if you take an Investor Relations presentation of Vestas or -- they are listed companies. They are saying that the selling price for a wind turbine is EUR 1 million, EUR 1.1 million per megawatt at which you have to add the balance of planned CapEx that have increased quite significantly over the last few years because electrical, civil, mechanical works are now -- cost much more. The cost associated is much more than it used to be just 3 years ago. All in all, that was the increase. But now I know -- I understand you wanted to reconcile the cost of turbine with the entire cost of installing a megawatt, but this is the trend. The wind turbine moved from EUR 0.6 million, in our case to now EUR 1 million, EUR 1.1 million per megawatt but even the BoP that costed roughly EUR 0.2 million, EUR 0.3 million, something like that in 2018, 2019, now it's going to cost EUR 0.6 million -- then EUR 0.5 million, EUR 0.6 million per megawatt, then putting together these 2 figures, you got to the number I mentioned.

The last question is from Francesco Sala, Banca Akros.

I was just wondering about the tax scheme of the U.S. assets in general, and more in particular if in Q2 or going forward, there's going to be a tax component above the EBITDA level that we should consider?

Yes. In particular, one of the 2 assets of the Pinnacle portfolio -- one of the 2 assets of the Pinnacle portfolio, the wind asset in particular, benefit of the so-called Production Tax Credit. This kind of Production Tax Credit account roughly half for our EBITDA in the second quarter of this year. So this is a tough component that is record in our EBITDA for the second half of the year.

Mr. Merli, that was the last question. I'll turn the conference back to you for any closing remarks.

Thank you. I just thank you, the audience and all the analysts attending the meeting today, and I hope you have a very nice summer and see you soon in October, or September for whatever it is. Thank you very much and have a nice holiday.