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 Full Year 2024 Results Strategy Update 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, everybody, and welcome to our webcast. The objective today is to review '24 results and achievements while providing you with a strategic update on our business plan and targets. Here with me, as usual, Michele, our CFO. Let's get started with an overview of '24 results. I'm on Page 5. The business environment over the last quarter, in particular, was characterized by wind availability that was well below the normal average across Europe and particularly in the quarter. Here, I'll focus on full year results, then Michele will provide more details about Q4. EBITDA closed at EUR 535 million, basically in line with last year and close to the midpoint of the guidance range. The 2 major effects behind this performance were, on the one hand, the weaker production recorded during the period on a like-for-like basis. And on the other hand, the contribution coming from the new installed capacity, mainly the U.S. portfolio and the additional capacity in Europe, including our repowering projects in Italy. The 2 effects had more or less the same economic magnitude, one negative and one positive, so they offset each other, making the '24 annual EBITDA basically in line year-on-year. As simple as that. We invested significantly over the period, EUR 553 million, 13% up year-on-year. About 2/3 of CapEx was spent on M&A in France and U.S., while roughly 1/3 as organic CapEx, mainly related to the works on assets under construction. Adjusted net profit was EUR 175 million, down 22% year-on-year, notwithstanding the flat year-on-year EBITDA. This is due to higher depreciation and financial charges associated to the new assets. Net financial position at the end of the year was about EUR 1.8 billion, higher versus the end of '23, but bang in line with our central case in the guidance range. But Michele, again, will elaborate more on the cash flow over the period. In '24, we kept delivering on our strategy. We proved successful in execution, adding about 580 megawatts with a mix of repowering, greenfield M&A. '24 marks our entry in the U.S. Another pillar of our strategy, the route to market was addressed, I think, in a positive way. In fact, in '24 and early '25, we signed 5 long-term PPA contracts with corporates, utilities and tech companies for a total of 0.5 terawatt hour per year. Our PPA portfolio is now in excess of 3 terawatt hour per year. As far as financing, we proved to be very competitive. We issued our fourth green bond, and we succeeded in obtaining our first financing from the European Investment Bank. In ESG, we consolidated our top-tier positioning in all ESG ratings and ERG has been included for the first time in the Standard & Poor's '25 yearbook. So say ESG is fully embedded in our business model. As far as shareholder remuneration, we are going to distribute EUR 1 per share in addition to a buyback for EUR 23 million that has already been executed. So EUR 0.15, bringing, say, the total shareholder remuneration related to '24 to EUR 1.15 per share. Let's move on Page 7. Here, a quick summary of our journey over the last 4 years since we announced our transformation into a pure wind and solar player. See, through a combination of M&A, organic growth, we managed to add 1.8 gigawatt of new installed capacity in different geographies, wind and solar. In the meantime, we have returned approximately, I mean, over the same period of time, EUR 850 million to our shareholders, I would say, a quite strong execution. Page #8. As you know, part of our growth relies and will keep relying on repowering, a program that we started well in advance of the industry, which is now looking at it increasingly. We believe we are pioneers in this field with now 270 megawatts already powered in operation. This chart shows some key numbers of repowering project. I think you've got to know, but those are actual numbers. Over these projects, we managed to increase the installed capacity 2.5x and to more than triple the production. And this all occupying the same soil and reducing -- cutting by half the number of towers. With an investment of roughly EUR 360 million, we see both our return on capital employed and a levered internal rate of return in excess of 11%, which is a premium compared to the traditional return in the industry. That's because also we managed to switch from CFD awarded during past auction at EUR 60 per megawatt hour with long-term corporate PPAs at better pricing, more in line with current market conditions. So we expect the new wave of repowering projects to be eligible to be auctioned under the FER-X decree, which set CFD tariffs within a range of between EUR 70 and EUR 95 per megawatt hour. The decree, as you know, was long awaited, but now seems almost ready to be implemented with the first auction expected to take place in '25, I would say, by year-end at the latest, but we hope sooner. Let's move on, Page #9. As I said, another pillar of our strategy is the commitment to securing the route to market for our production. This is becoming particularly important in a time of high volatility and uncertainty about energy prices. In the last 4 years, we have signed several major long-term contracts with Tier 1 corporates, tech companies, utility for a total amounting to a total 3.3 terawatt hour per year. So almost or about, say, 40% of our entire portfolio. We have been able to attract large corporates and utilities with a value proposition to cover their needs for zero carbon green energy. Our PPA portfolio is made up of contracts of various durations ranging from short term, 5 years, that's usually the duration we applied for old assets, to up to 20 years for brand new assets. In a scenario of expected growing power demand over the next decades, driven by data centers, artificial intelligence, crypto currencies and low manner of new and energy-intensive technologies, we believe, based on our track record, that we are very well positioned to capture this coming opportunity. Let's now comment on the regulatory framework evolution. Compared to 1 year ago, we have seen some improvements across all the countries where we operate in the EU. There are now auction systems and remuneration schemes in most of our countries. And in Italy, the long-awaited FER-X Decree has finally arrived. What is still lacking is a clear framework for storage given the growing need for flexibility to couple with RES deployment. In Italy, we are waiting for the MACSE scheme, kind of RAB or regulated asset-based system, tailor-made for battery storage. We are keeping a close eye on this evolution. But in the meantime, we have been developing a pipeline of storage projects to be exploited once the business environment turns favorable. Now we are monitoring it in order, say, to be prepared to capture this opportunity that we see to come. Here, Page #11, we show ERG as it is today. So a solid and international platform of renewable assets with about 3.9 gigawatt of installed capacity today. We can count on a pipeline of projects for 5.1 gigawatts, a pipeline well spread across our geographies based on 2 technologies, wind and solar, and with a growing share in battery storage. Part of our pipeline, you know it, is based on co-development agreement. This is in particular in the U.S. and Spain. And though we are advancing in the permitting based on our business model, we will move those projects into the construction phase only under certain conditions, among which our route to market fully secured at a level that can guarantee returns in line with our objectives. Here we are. This is the platform we want to expand from and leverage on. So let's move now to Page #13, a quick summary of our strategy, just an update compared to the one presented 1 year ago. We are reinforcing our value over volume approach. In a nutshell, if we touch on each point, selective growth, focus will be more on repowering and organic pipeline. We now aim to reach 4.2 gigawatts of installed capacity. We say are adopting a more cautious stance on the U.S. while waiting for the right timing, say, just waiting for things to clear up. Investments in EBITDA. We are lowering EBITDA of more than EUR 600 million in '26. Say, lower CapEx, as said, mainly factors in the delayed FER-X rollout as well as a more cautious stance on U.S.A. Route to market. We confirm our target to have 85%, 90% quasi-regulated EBITDA, which means backed by CFD or PPA. Balance sheet, we are committed to keeping an investment-grade rating as we believe the debt capital market is the best option for funding. In the spirit of value over volume, we are targeting an unlevered return for our projects higher than 200 bps over WACC. As far as geographical diversification, we are more focusing on Tier 1 countries where we aim to keep on growing and consolidating our presence. As far as Tier 2 countries, we'll be, say, taking a more opportunistic approach, even considering maybe some selective disposal, let's say. Storage and hybridization to increase asset portfolio flexibility. We expect storage to progressively become a new stream of growth, and we are pushing on digitalization as well to optimize asset performance. ESG remains embedded into our business model. Last but not least, shareholder remuneration. As for '25, EUR 1 as dividend. We have already executed EUR 0.15 per share through share buyback. And going forward, we confirm our commitment to pay dividend with potential upside to be pursued through share buyback based on yearly performance and prospects. So I think still a superior yield compared to most of our peers. And here, we show our pipeline and our selective approach on CapEx. We have already said about the lower CapEx and the reasons behind it. In the meantime, we keep pushing on the permitting side to make our pipeline advanced in size and quality. And based on current industry trend, we switched part of our PV pipeline projects into storage projects, utilizing basically the very same pieces of land and connections business in particular in Spain. We can rely on a solid pipeline of repowering projects mainly in Italy, but also in France and Germany. Let's move to Page 15. Here, you have a list of assets currently under construction for a total amount of 130 megawatts greenfield repowering and our first battery storage plants. Those assets are spread in Italy, France, U.K. In addition to that, we can count on a fully authorized 500 megawatts, which is basically waiting for securing the route to market before taking the final investment decision. Page 16, this is the Italian case for repowering. As mentioned, repowering is one of the main drivers of our future growth. And this is a study conducted by an independent energy adviser on the potential for repowering in Italy. So according to the study, about 45% of the Italian fleet may be suitable for repowering, bringing an additional 7.5 gigawatt wind capacity on stream from now to 2030. So repowering, looking at the system, not just our company specific, could contribute significantly in reaching the targets set out in the national plan. This kind of exercise could be repeated in every country in Europe. Given our experience, accumulated know-how over time, and track record, we feel we may play a major role when it comes to repowering. And in fact, moving to the next page, here you have more details on our repowering pipeline. So repowering, I said millions of times, we enhance the efficiency of the assets by replacing outdated with cutting-edge turbines able to capture wind in a larger span of velocity. This translates into higher productions. Doing this, we can double the installed capacity, more than triple the production, halving the number of towers and then occupying the same soil. That's why we believe this development should be well accepted by local communities. I have already said that since '23, we have brought into operation for projects. Some are still under construction. Some are fully authorized in Italy, but also in France and Germany, and still waiting for the CFD auctions. All in all, we are talking about a sizable pipeline of about 800 megawatts that are 400 megawatts on a differential basis. Here, let me again underscore our value over volume approach, because I need to be clear on this. We need, first of all, to get the tariff and secure the route to market in order to guarantee the returns of the project are consistent with our targets. So now that the FER-X Decree is in place in Italy, we envisage a potential opportunity to bring on our projects. Let's move to Page 18. Over the business plan period, we expect to explore more and more the opportunity to increase the flexibility of our asset portfolio by developing projects in battery storage. In addition to our first projects already under construction, which will be concluded on stream in '25, we can now count on 1 gigawatt of pipeline between Italy, Spain, France and U.K., out of which 120 megawatts already well advanced. But we still need a regulatory scheme and mechanism to be set out clearly. So let's move to Page #19, ESG. Although from the outside, ESG seems to be losing centrality, we still believe it's important as long as we look at substance over form. ESG is naturally embedded in our business model. As far as planet, we remain focused on net zero by 2040. We will be working on our supply chain as we are already almost net zero on our asset portfolio. Circular economy is the way through which we are implementing our repowering projects. As far as engagement, we continue to support local communities and ensure the involvement of local younger generation in the educational programs to our ERG Academy. Regarding people, our top priority is the health and safety of our employees. In addition to that, we aim to create a more inclusive ERG. As for governance, we are pursuing, say, a continuous improvement regarding our already rated best-in-class governance with a focus on supply chain to align our suppliers to our key ESG priorities. To sum up, I would say we have a clear ESG strategy based on well-defined targets and KPIs.

Thank you, Paolo. Good afternoon, and thank you for attending this webcast. A driver of our economics is represented by the phasing out of the incentives in the period. It is something well known. The incentive phaseout relates mainly to Italy, but also to our oldest wind farms in France, Germany and Bulgaria. We can manage and reduce the otherwise increase in merchant exposure through a combination of PPAs and repowering. First of all, we can secure the sale of old assets for PPAs, both corporates and utilities, maybe shorter tenors, 5 years, as we recently did and announced for 200 terawatt hour with 3 different counterparties, who closed between end of 2024 and first quarter 2025. The second option is the repowering of the asset that becomes again eligible for long-term CFDs after the investment. As you can see in this chart, most of our 2025 production is hedged through short-term hedging, green certificate, long-term PPAs and CFDs. Limited portion of our production is still exposed to merchant volatility. That's unavoidable also considering the intermittent nature of our sources and the structure of data entry. Overall, the revenue structure is well secured, which is an important factor for delivering stable results, a distinctive feature in our business model. Also our debt structure contributes to the stabilization of our results. Indeed, you can see that the interest rates on our gross sustainable debt are entirely fixed. These rates are extremely competitive since we have shifted from non-recourse project financing to green bonds in 2019 [Audio Gap] on our gross sustainable debt are entirely fixed. These rates are extremely competitive since we have shifted from non-recourse project financing to green bonds in 2019 and 2021, during an ultra-low rate environment. Aside from our ample cash availability, our liquidity position is further strengthened by a fully undrawn EUR 600 million revolving credit facility. External conditions have been improved in 2025 -- sorry, 2024, together with its extension to 2027. Fixed and competitive interest rates together with the nonsubordinated nature of our gross debt allow us to have the cash generated by the group at full disposal. It is also on the basis of this balance sheet strength that our rating has been affirmed at investment grade level in 2024 by Fitch. A renewed affirmation by the rating agency is expected next month. In the business plan period, we forecast to reach a net financial position in area of EUR 1.9 billion, maintaining our leverage ratios well inside our rating corridor. Material growth CapEx occurring during 2024 and not contributing EBITDA for a full 12 months, together with lower than average wind availability in Q4 last year and first months of 2025 have temporarily shrunk the net leverage headroom, which is nonetheless expected to recover in the near term. We confirm our strong commitment to the investment grade rating. The flexibility in our CapEx plan, that is in large portion discretional, and the full ownership of our EU assets give us powerful tools to sustain our rating, also in case of material deterioration of the market scenario. The figures you can see here at Slide 24, where we rank in terms of cost of debt as compared to an average of investment grade higher rated European utilities and to a panel of pure RES peers. We project the cost of gross debt that remains moderate in the business plan period, thanks to the group DCM funding structure. The cash generating nature of our business, together with balance sheet solidity and financial charges competitiveness have been and will remain the main driver of our superior dividend yield compared to the sector. Now let's move on to comment on the quarterly results. First of all, I would like to focus on the extreme wind drought, which affected EU since October, and which persisted even during the first months of 2025. There is an aim to describe this peculiarity, Dunkelflaute and namely periods with very low wind and solar generation. As you can see in this chart and ranging from all different sources at international level, these periods of wind droughts already took place in the past, but are quite rare. The map above shows the deviation of wind speed in Q4 in EU against the long-term average. In dark blue, the regions where the negative deviation is larger. It's clearly evident that all the regions where we have our wind farms have been affected by extremely low wind. In Italy, according to Terna, wind production on a like-for-like basis was down 26%. In the chart below, we show what happened at the historical level to our Italian portfolio. As you can see, this extremely poor wind condition, which took place in 2024, were already experienced 10 years ago. So this was a generalized and exceptionally negative trend in EU in the first quarter -- sorry, in the last quarter of 2024. And this continued in the first 2 months of this year. Following the premise on wind availability, the comment on the fourth quarter is quite obvious. In Q4, we have EBITDA at EUR 145 million, lower than Q4 last year, mainly due to the extreme wind production recorded in Europe, as just commented, only partially offset by production from new capacity in operation. In Italy, EBITDA higher than Q4 2023 by EUR 5 million, mainly thanks to higher capture prices, driven by higher hedging prices and green incentive, which is EUR 42 megawatt hour, while it was [ lower ] in Q4 2023, and by the contribution from repowering asset and new greenfield plant entering operation during 2024. Results were most offset by the extremely low production of the quarter that reached only 708 gigawatt hour, minus 17% year-on-year despite the perimeter effect, plus 109 gigawatt hour. EBITDA abroad sat at EUR 64 million in Q4, lower than Q4 2023 by EUR 18 million, mainly driven by wind production below historical trends in Europe and negative price effect in particular in Spain. Both effects are partially offset by the asset contribution in France, Spain and United States. Production abroad in Q4 reached 1.1 terawatt hour, plus 6% year-on-year, mainly due to perimeter effect of 294 gigawatt hour, of which 240 gigawatt hour in United States, partially offset by the already commented low windiness in the period. Let's comment now on investment. In 2024, we invested EUR 553 million, mainly due to acquisition of wind and solar plants in U.S. and France. In addition, we completed about EUR 234 million of organic CapEx, of which EUR 135 million in Italy for repowering and greenfield wind assets and our first storage battery system. The remaining amount refers to construction of wind parks in France, U.K. and the repowering of a small wind farm in Germany. In the last 2 years, we invested more than EUR 1 billion, substantially in line with the accumulated EBITDA of the same period. Let's now move on to the financial commenting on other items of profit and loss. In the last quarter of last year, amortization and depreciation are EUR 70 million, higher than Q4 2023, mainly due to capacity installed. Net financial charges are EUR 9 million versus EUR 2 million in Q4 2023. Financial charges versus banks and bond holders net of liquidity remuneration stand to EUR 4.6 million, plus EUR 2.9 million versus Q4 '23. The complement to EUR 9 million, EUR 4.4 million are not cash accounting items such as effects coming from tax equity partnership in U.S., figuratively, interest expenses according to IFRS 16 or capitalized interest. Tax rate in the quarter is 31%, higher than 24% of Q4 2023, which included asset benefit in Italy. The adjusted net profit of the quarter amounts to EUR 45 million, lower than last year EUR 77 million, mainly driven by already commented extremely low windiness in the period. Finally, let's take a look at the cash flow statement and the net financial position. The net financial debt closed at EUR 1.8 billion, EUR 0.3 billion higher than the end of 2023, mainly driven by a solid cash generation from EBITDA, netted by the already commented investment of the period, the cash financial charges for EUR 17 million, the tax cash out of EUR 39 million, and the net working capital and other items for EUR 75 million, of which EUR 35 million related to one-off taxes on goodwill release already commented in previous quarters. Finally, we remunerated our shareholders for almost EUR 200 million through dividend distribution for EUR 152 million and share buybacks for EUR 47 million. And now I leave the floor to Paolo for his final comments on guidance and business plan.

Thank you, Michele. Now let's see our guidance for '25, and then I'll wrap up with my final remarks summarizing what we have presented so far. EBITDA '25 is expected within the range of EUR 540 million, EUR 600 million. This guidance is factored in the first 2 months of the year with persisting exceptional wind drought across Europe. Say, if we had, had either the same wind condition as last year in January and February or in line with historical levels, EBITDA guidance would have been around EUR 30 million, EUR 40 million higher than the one we are proposing today. We can't rule out there could be some kind of recovery in the months to come. But when setting out the budget with our Board of Directors, we prefer to be cautious and assuming the P50 wind assumptions for the remaining 10 months of the year. CapEx is expected to be in the range of EUR 190 million to EUR 240 million, as already explained. In '25, CapEx will be focused on assets currently under construction. Net financial position at year-end is expected in the range of EUR 1.85 billion to EUR 1.95 billion. And then coming to the conclusion, Page 13, let me summarize the main key targets. Selective growth, value over volume approach confirmed and reinforced with 20% CapEx cut in '24, '26, mainly driven, as said by delays of FER-X and a more cautious stance on U.S. Quasi-regulated business model confirmed EBITDA higher than EUR 600 million, of which 85%, 90% secured through CFD and PPA. This will give us further room to deleverage and accelerate growth whenever the business environment condition will be there. Dividend policy. We are providing a flexible annual shareholder remuneration with a floor of EUR 1 dividend and the flexibility to allocate extra cash on buyback based on yearly performance and prospective. Thank you very much for listening, and we are now ready to take your questions.

[Operator Instructions] First question is from Paul Chabran, Kempen.

I have a few of them. First, I noticed a small change in your value creation targets. I think last year, you were targeting 200 to 400 basis points, and now you are mentioning more than 200 basis points. So have you become more prudent? Or on the contrary, do you think there is upside above 400 basis points? And then looking at the share buybacks, I think you used to have a cap of EUR 0.30 per share for the share buyback. I see no more mention of this cap. So does this mean that you are willing to return to shareholders anything that's not invested and we could see maybe share buyback of, I don't know, EUR 0.40, EUR 0.50? And last question, your main shareholder, SQ Renewables, owns, I think, 77% of voting rights, which I think is enough to initiate a delisting. So considering where the share price stands today, it would be much cheaper to do so than actually building new megawatts. So is it fair to assume that the option of delisting is on the table?

Okay. Thank you for your questions. I say the first one, if you look at carefully the webcast presentation, you will notice that the value creation is 200 bps plus on WACC, that means 200 basis points is the floor at which we set our rate for investments. Last year, yes, you are right, we say a range of 200 to 400 bps considering a spectrum of investments ranging from fully secured, then you have to see the floor, 200, to fully merchant, taking the risk of covering the production after the investments, but this is not anymore the case. So we are just looking at assets, in particular, with the route-to-market already secured. That's the case also for our repowering, for instance. We have, I don't know, 400, 500 megawatts of projects already authorized, but we haven't started yet, say, the construction because we are waiting to securing the route to market. So the final investment decision on the project, that's our business model, will be taken after being awarded a CFD or having closed a PPA to secure the production. That's one of the reasons why we had slowed down the CapEx and the deployment of CapEx and megawatts, because we were, and we are still waiting for the first auction of FER-X in Italy, plus the outcome of other auctions in other countries in Europe, apart from the more cautious stance on the U.S. So that was the first answer to your question. So 200 bps should be seen as a floor. The share buyback, yes, last year, we specified or we identified a collar for shareholder distribution in the region of EUR 1, EUR 1.30; EUR 1 as a dividend and the potential upside through share buyback. So you are right. You have to see the fact that we haven't mentioned a cap as the desire to keep full flexibility in deciding when and how much share buyback to do in case, yes. So it could be even more than the EUR 0.30 per share. The third question is about delisting. I think this question should be addressed to our shareholders and not to the management, because honestly, there is a kind of a Chinese wall at least on these issues as it's fair and right to be. For sure, I can say that the current price is not something that makes us happy, because we have the perception the stock now trades at a huge discount versus the operational assets, not the whole company, just 25% or 30% discount to the existing operational assets. That's our view based on internal analysis. That's what I can say about that.

Next question is from Enrico Bartoli, Mediobanca.

The first one is relating to the evolution of capacity additions over the plant in 2026. You have 130 megawatts which are under construction that you highlighted, and you acquired also some assets in the U.K. I was wondering what you think that would be most likely the evolution for the remaining assets in order to reach the target in terms of geographies? And if you can provide some comment on the pipeline that you have in the U.S. considering the current situation on the regulatory side. Second question is related to batteries. You highlighted that actually you are now definitely considering more open to investments in this technology. And actually, this would be, if I understand well, mostly connected with the existing wind and solar assets. I was wondering what kind of returns you have in mind in order to take final investment decisions related to those assets? And if you can comment a bit about the regulatory frameworks, particularly the upcoming market in Italy and what could be the opportunity also in markets like Spain and Germany. The last one is on asset rotation. It seems that if I'm right, that this is the first time that you mentioned this potential. If you can provide some details in terms of the geographies that you think could apply in terms of disposal asset and if you have any discussions ongoing on this matter?

Okay. Thank you, Enrico. So the first question about the megawatts. Yes, you are right, the new target for '26 is 4.2, and we have already secured -- basically, we have roughly 130 megawatts right now under construction that, coupled with the 43 megawatts we just acquired in Scotland, say, cover half of the target. Honestly speaking, the pipeline already authorized has got a time to market. I mean, the time needed to bring these projects into operation that is in the range of 18, 24 months. So all these projects even in case they will be awarded a CFD in the next auction in Italy or France or Germany will take time to be built and they will come probably in '27. So the remaining part in our objective is covered by the co-development agreement in the U.S., because we still would like to increase our portfolio. It's true that the new administration doesn't seem very supportive on renewable, but please consider that our business model in the area, in the country is, let me say, derisked, because under the preferential right we have in place with Apex, ERG buys assets or is going to buy assets just under 3 condition precedent. The first one, the most important is the asset should be already operative. So we're going to pay the asset in case we find the agreement at the commercial operation date. And the asset has already secured the sales of production under a PPA agreement and a tax equity scheme is already in place. So we do not expect, let me say, in other words, in the U.S., retroactive measures to change the economic case of already existing assets. That's the way we want to grow there in the country. And we are waiting just for the right moment. So just to summarize the answer, half is secured and already under construction. In '25 and '26, the remaining part that should come at least in our objectives from the co-development agreement in U.S. or other very selective M&A in Europe. And this gives me the opportunity to answer also the last question because, as I said during the presentation, we are going to focus on Tier 1 countries. I mean countries where we have already an important industrial positioning like Italy, France, U.K., Germany, while other countries, we have a position like wait and see, like Spain. So for the time being, in Spain, we are very cautious because we want to understand how the market is going to evolve in terms of pricing, because last year, '24 was characterized by this phenomenon of that curve and many, many hours of 0 or very low euro per megawatt hour price. So we are monitoring the market in order to understand the potential of it. But in particular, when we are referring to potential asset rotation, we are looking at those countries where we have basically almost a financial presence with just one single asset like in Bulgaria or Romania or Sweden or these kind of countries. For the time being, we are not in a hurry to do that because we still have headroom in our balance sheet and so on. But for sure, if there are opportunities to strengthen our position in the countries I classified as Tier 1, we would take into consideration also the asset rotation. So I hope to...

And batteries?

I'd say, in general, even beyond our expectations, we think that the battery storage development would be essential for the system and to allow, say, the penetration of renewable in the grids, in the system, and to smooth the curve, the profile effect we are seeing in some countries, I mentioned Spain. So we are looking at it with very high interest. We have been building up a quite solid pipeline for battery storage, because right now we have roughly 1 gigawatt of projects under scrutiny. In particular, you could have seen in our chart that Spain represents quite significant portion of battery storage, because we simply switched some solar and PV projects into battery storage projects, maybe utilizing or leveraging on the same piece of land, on the same connections. But for the time being and given the market condition in Spain, we think battery storage can be a good match with PV projects, and the same in Italy, because all the projects we have are nearby, say, our already existing installations. But still, we lack the regulatory framework. That's why we are waiting for the issuance in Italy, for instance, of the MACSE scheme. And the return we are looking at is exactly the same, the one we are looking at for other projects. So WACC plus 200 bps is our hurdle rate.

Next question is from Alex Roncier, Bank of America.

I have 2 to 3, please. The first one is on spread. I remember there was already a question about that, but I'd just like to maybe deep dive a little bit more. What kind of spread are you expecting for batteries? Again, I think, as previously mentioned, you had a 200 to 400 spread guidance before. It's 200 plus now. Do you think ultimately batteries are commanding a higher spread? And then on those investments, again, as you've got kind of like an M&A/turnkey approach, I suppose CapEx for those batteries should come slightly higher. So again, perhaps supporting a higher spread that is required for those assets in particular. And then following up on capacity market and the MACSE in Italy and any other markets that are coming, would you be looking then to deploy assets on a 2-hour or perhaps I think even 4-hour duration in general compared to your megawatts target? Just to give us a broad sense of the megawatt hour pipeline that you've got there. And again, just on spread, just to elaborate on that. I think everyone across the state has kind of reduced ambition or the pipeline has been a little bit more constrained over the last few years. People and your peers have been reducing targets. But in general, everyone has been increasing spreads. So that's why like it's a little bit perhaps different to what you've just announced today with your new strategy of moving from 200 to 400 to 200 plus, whilst other people were more, oh, we've got 200, and now we're going to move to 250 plus or even 300, let's say. So is that because ultimately, you're seeing the market as a little bit more constrained or busy with people trying to figure out the best projects with the highest return instead of deploying as much capacity as they can. And therefore, you need to reduce to a certain degree your value creation spread expectation? Or is that just because your pipeline has moved? So that would be great to get some color around that. And I'm sorry, because there was like first question on spread, that has many sub-questions. But the last question that I had, which is a bit different is, why really wait for a road to market? I know you mentioned that ultimately you're waiting for FER-X to come in and to deploy new capacity or perhaps for some of your repowering projects. But are not tech players today willing to get PPAs at a good level? I mean you've signed with a number of them over the last few years, even so recently. Does that mean you expect FER-X clearing price to stay at 70 to 90 ultimately compared to perhaps the opening price, and that you're getting PPAs from those tech players below that? Or is that any other reason why not actually sign with any tech player that needs to deploy data center, et cetera?

Okay. So I'll start from the first one about the buffer we see. I repeat what I already said, 200 bps is not different from the previous range. 200 bps is intended to be a floor to apply to our cost of capital. So because we are now looking more fully secured projects, and then I come to your last question, because it was strictly correlated to this, because we are looking just at the projects that have already secured the route to market, either with CFD or with a PPA, most likely 200 bps, which represents the floor of the range, is tailor-made, say, for fully secured assets, I mean, with already a PPA in place or a CFD in place. That's why we said in the presentation 200 bps plus. Please look at the chart and we'll see the plus after the 200 bps, which means exactly the same. We haven't changed our policy in this respect compared to last year, but thank you for the question, because it gave me the opportunity to make it clear. The route to market for us is essential. So you're right, the PPA could be a solution, and we already proved that we are able to manage and to negotiate solid PPA. But let me be honest, a CFD assigned through an auction backed by state is much better than a PPA, because the CFD, first of all, the duration, 20 years. It's not easy to find 20 years duration among PPAs. First. Second, the CFD is fully pay as produced. There are no particular obligations you can find in PPAs. So this is our best case, the CFD. The second best is a PPA. Why we signed 4 PPAs a couple of years ago on our repowering projects? Because we had already been awarded a CFD before. So when we took the final investment decision for those investments the route to market was already secured based on a CFD. Then we decided having, I mean, the CFD in the pocket, to negotiate a PPA to substitute that CFD, because the norms gave us this opportunity to switch from the CFD to the PPA. That's what we did. But again, even that time, when we took the final investment decision, it was based on a fully secured route to market. That's our business model. So I prefer -- we prefer to wait than taking the risk to invest EUR 100 million, EUR 200 million as someone did in the past, not us. So that's our business model. So we prefer to slow down the deployment of megawatts and CapEx, but to do in a way that can secure the return on our investments. That's the logic, say, the rationale behind this. Divestments, we are -- I repeat, we do not have any need in this particular model because the balance sheet is strong. It's kind of opportunistic possibilities. And we are looking at just those countries where we have a very small presence. But again, we are taking into consideration this option just when and if the price is there. If the discount rate the potential buyer is using is above our order rate, no way to proceed from this point of view. We prefer to keep it and to maintain the economics and the cash flow of the assets.

Regarding the battery storage, the normal configuration of our battery storage project is 4 hours. This is the standard configuration, but we are waiting for the final details of the MACSE auction to define what we really need. At the moment, the standard configuration is 4 hours. Just we are developing -- we are seeing BESS as a stream of internal development, not through M&A. So we have both plant already permit -- one small plant in construction. We have some plants already authorized, both in Italy and in U.K. And we are developing an early stage pipeline of large battery process. In general terms, the business model that we have in mind for the battery storage is always in line with our quasi-regulated business model. So we don't see the battery storage as a pure merchant investment trading just on load shifting, but we are working to make this project, let me say, bankable, or through capacity mechanism or through better the MACSE mechanism in Italy.

Next question is from Roberto Ranieri, Stifel.

Just a couple of questions on the context and specifically the price environment in Europe. Germany and Spain seems to suffer some volatility and some lower power prices. I'm wondering if these -- especially in Spain, these lower prices could last for longer or if it is structural or just a volatility. And also in Germany as well, if the power prices were weaker because of the lack of wind resource availability. One more question is on targets. So if you can give us some indication also on 2028. And if I may, very last question is on the technology portfolio. I'm wondering if you are considering also investing in hydro concessions, which could mix this portfolio, also could give lower volatility in terms of resource availability?

I'd say, yes, the context, like you said, in particular in Spain, the baseload pricing is getting -- at least in '24 went very low. And in particular, what hurts the PV, say, operators like us is the profile over the 24 hours, because on average, the pricing tends to be very low during the daily hours. For the time being, year-to-date, the pricing in Spain has improved quite substantially. Last year, probably, there were a combination of factors such as strong wind, heavy rains and nuclear running at full speed. So altogether, we started in this period of time to see prices very, very low. Now it's not the case. So it's difficult to predict because it depends on several factors. But let me say, I think the game changer, not just in Spain, but in Europe in general is the demand side, because the systems keep adding new capacity, either solar or wind, whatever. But what we need is the electrification of constructions, okay? So that's something hasn't yet started with the magnitude we were expecting. But looking forward, we see the coming of, as I said, artificial intelligence, data centers, crypto currencies, all this manner of new technologies that are very energy intensive, to boost the demand side. And even with the last announcements, we should expect, in the next 15, 20 years, an increase of at least 50% on the demand. There are predictions that are forecasting even more than that. That's the real game changer. So electric vehicles, heat pumps, data centers and so on. And according to all the price scenario providers, that's the way. And honestly, we believe the direction is to go to low carbon in future -- to low carbon electricity for future. So that's our view. So we expect the pricing to remain sustained by a growing demand. The hydro concession. Really, we just sold, a couple of years ago, the hydroelectric plant we had in Italy. So we are not looking at it or thinking about it right now, but never say never. We will see the concessions are going to expire in 2029. That was one of the reasons we decided to divest this kind of asset, because it was surrounded, let's say, by the uncertainty about the concession renewal. Let's see, but for the time being, it's not part of our objective. Going forward, I think the webcast presentation was quite clear from this point of view. We are taking a little slowdown over '25, '26, also to digest -- to consolidate the growth we have been through over the last few years, because as seen, we doubled our capacity. And the conditions out there are a little bit uncertain. So we want to wait for things to clear up, in particular in the U.S., but also in Italy. As I said, we are waiting for the FER-X, but the time to market for those assets is going to be 18, 24 months. So nothing before '27 for the new assets. So looking at '27, '28, '29, as you said, we expect the pace of growth to become more as it was 250, 300 megawatts per year. That's what we have in mind in our projections when going beyond '26. Roberto, I hope to have covered all your questions.

Yes.

Next question is from Emanuele Oggioni, Kepler Cheuvreux.

My first question is on the revenue structure, so basically on Slide 21, to understand better the moving parts compared with 1 year ago. So probably the -- for example, starting from the short-term, hedged volumes compared to 1 year ago, the overall picture has improved, or in the meanwhile, in the last 12 months, the overall pricing also in order to hedge for the future has been better than expected, if I'm not wrong. So this could be a positive moving part. PPA and CFD are stable. The green certificates in Italy are EUR 15 per megawatt hour higher than '24. So overall, it seems that the price effect in '25 should be positive. So this is the first question. If you can comment on this. And also on '26, compared with the previous, the latest business plan, in which in May '24, you projected a slide on the range of the expected power prices by count, et cetera, while nothing is in the current presentation. So it seems that compared with 1 year ago, the situation is better in terms of pricing overall at least for the next -- for '25 and '26. And second question linked to still to the pricing scenario, the PPA price levels, if you can comment on the level, if the PPA price levels are in a good shape, what happened compared with 6 months ago, 12 months ago, et cetera? And finally, a question on the U.S. Basically, you zeroed the growth for the next 2 years. So my question is what could be the turning point to decide to invest back in the country?

Okay. Regarding the structure, you're essentially right. In terms of policy, we are not changing our policy. So when we start the year, we know that we have a hedging policy that foresees to enter the year minimizing the merchant exposure. So substantially the structure remains the same. In terms of value, you are right, we can expect a positive price effect in terms of baseload prices. Maybe this is in part compensated by, at least in our projection, higher profile effect that in part offset this higher base load projection in respect to what we saw in last year. You are right regarding the green in 2025. If you compare green in 2026, the consolidation is the opposite, because if we have higher prices in 2025, the green expected in 2026 will be lower than what we expect in the previous business plan. So this could have a material effect in particular for 2026, so not for this year, but for next year. I don't know, Paolo, if you want to comment on PPA or...

The fact that we have signed the PPAs means the pricing and the conditions all around were good. We're absolutely in line with 1 year ago business plan. In fact, if you see, even though we are slowing down the CapEx deployment and megawatts, the EBITDA is still expected in excess of EUR 600 million in '26. That means the pricing at which we think to sell our energy is basically in line or at least in line, say, with the previous plan. Of course, there are different kind of PPAs when we are talking about PPA long term on brand new assets. Usually, you can extract or you can catch a better pricing, because the offtaker is also keen on investing, on, say, supporting the energy transition, and maybe sometimes they are ready, in particular, the tech corporates, to pay a premium compared to what is the base load, say, on the forward screens. While when the counterparty is a utility or a trader, the prices are more in line with the wholesale market, the forward wholesale market. But again, the last PPA were based on a 5 years tenor, and if you look at the forward on average over the next 5 years, the pricing is still pretty good. So we are satisfied from this point of view from our PPA. About U.S., say, surely, the new administration doesn't seem very supportive to renewable. It has been on the newspapers and headlines that President Trump issued a barrage of executive orders trying to slow down, stop the renewable deployments in particularly offshore, wind offshore, but we are not looking at it, absolutely, neither in U.S. nor in Europe. But I repeat, even if Trump's approach introduces some uncertainties, as far as our operating portfolio is concerned, we do not expect repeated -- any retroactive measures. So we are optimistic about our operating portfolio. And as for future developments, I repeat, our business model is derisked, because we are entering just some specific conditions. But we prefer to be a little bit more cautious.

Next question is from Davide Candela, Intesa Sanpaolo.

I also have 3. The first one is still on power prices. I was wondering if you can remind us which are your assumption under your targets in '25, '26, meaning that if you are comfortable with, I would say, current forward curves like in Italy that sees EUR 130 for 2025, and a little bit less than EUR 100 for 2026. That will be the first one. The second one is related to your midterm capacity evolution. If I understood well, you mentioned that you won't exclude some M&A. I was wondering if there is a trade-off between M&A and organic development, if you're going to be successful in awarding the auctions throughout Europe. And so you were looking to prepare the field for higher capacity and capital intensity beyond 2026, and this will exclude basically you to perform some M&A deals and taking advantage maybe from the brownfield opportunities you may have during the market looking at the multiples we see today. And the third one is related to the supply chain and development cost. I was wondering if you can share your view about the potential impact coming from the trade war and if there are -- yes or no? And if you see some downside or upside risk and in general, about the evolution of the cost throughout the next years.

Okay. So I'll try to answer the second question, and I'll leave Michele to the other one. I repeat, about the medium-term expectation for installed capacity deployment, I repeat, we are taking this sort of 1-year slowdown. But then if the framework evolution is going as we expect, I mean, the FER-X, the auction about FER-X takes place, and other auctions in other country take place, we have a solid pipeline that can download projects as of '27, new projects, I mean, because discount in the time to market to build a new installment. So basically, we are ready financially, industrially in terms of know-how, and we are getting ready in terms of project pipelines to hit the ground whenever the conditions out there become favorable. That's what we are waiting for. So you can assume, based on our financial power, balance sheet and considering the fact that we want to remain and we are committed to remain investment grade. That means the capacity to deploy megawatts is in the region of 250, 300 megawatts per year as of 2027, something like that.

Regarding the power prices, our assumptions are broadly in line with the current forward. I would say in particular that our assumptions or our projections were prepared when forward were lower than today. So in particular, in 2025, we have based our figures on lower power price assumptions. And as already commented that also the guidance of 2025, taking consideration in particular, extremely low production in the first 2 months of the year, January and February, February in particular, and only just for factoring in, this low production, we are coming with this guidance for 2025, not including any particular assumption on price. Regarding supply chain, I would repeat the same message that quarter after quarter, we see the cost of the wind technology quite stable. We don't see any major disruption in the industry. In particular, our usual partners in this field continue to be present in the market with prices that remain substantially stable at least for our projects. We see that new suppliers are coming in the market, in particular, Chinese suppliers. And we carefully consider also this option for our development. When we see an opportunity in terms of lower CapEx and higher production, for sure, we can consider also alternative supplier. But for the time being, you know that our fleet is entirely based on Western wind manufacturers.

Next question is from Roberto Letizia, Equita.

I need, I'm afraid, a few more clarifications. The first one is on FER-X. So hopefully, we are going to get it in the next month. But in the form, the FER-X, as of today, it gets visibility only for 1 year, which is a bit of a problem because actually this does not allow operators to have enough visibility over a 2-, 3-year time horizon to make their investment, and that's a negative point of the -- one of the few negative points, I would say, of the FER-X. But actually, do you expect, in the next month, to have more clarity also beyond the 1-year visibility that the current framework of the FER-X gives in order for you to make a better program? Or do you think we are going to have additional delays to have the regulatory frameworks for a 2-, 3-year time horizon? That's the first one. The second one with regard to the repowering. So basically, you are highlighting your repowering opportunity, which is nice. I was one of the biggest fan of repowering opportunities, if you remember, in the past. But actually, you have a pipeline that has been included in the previous plan, say, 400 megawatts, of which partially you already realized and partially will come probably into the FER-X, if approved. And then you have some additional 400 megawatts that is a potential. But this is the same 400 megawatts we saw in the previous plan. And in this update, we are not getting any additional improvement in terms of authorization for the additional 400 megawatts. So can you spend a few words on this point? So is this, the authorization of this 400 additional megawatts, a challenge because the market has deteriorated in terms of local availability to this authorization? Because I'm sure that if you got them already authorized, you would have included in the plan, because you have visibility of getting at this PPA. Basically, you did not include them because they are not authorized, not because you lack the regulatory framework. So can you spend a little bit of time clarifying this? The third one is on M&A. The valuation in the markets are deteriorating not only for you, but for all the renewable in the market. This is like a [ certain ] factor. But this opens up, theoretically, higher opportunity for M&A, which are not included in the market, although you clarified that if it comes up, you will take it. Just wondering if the M&A market is becoming more challenging, not letting you to be more aggressive on what you can do on external growth source of value. Then the clarification on the DPS. So you confirmed the DPS at EUR 1 plus from anything that comes from the buyback. But I was wondering, for the next year, will you reduce the cash flow from dividends by having the same EUR 1 per share and then leaving the higher remuneration of the buyback as a resource of value into ERG's balance sheet? Or will you keep the same cash flow, allowing for a higher DPS on the lower amount of share that the buyback will give you? Can you please clarify this point? And two final very quick. Can you spend the guidance on debt in '26? That's very quick. And what's the cost per megawatt of the ongoing battery project. Thanks a lot, and sorry, if I have too many questions.

Okay. Roberto, I'll try to follow the order. I'd say, the FER-X, yes, you are right. The decree provides for a transition period till the end of '25, but I had the chance to speak with the ministry and a technical, say, trick they found to accelerate the approval from the European Commission, so giving time to the European Commission to go through deeply the scheme over the 5 years window of time that should have covered. But let me say, the common sense and our expectation is after the natural hand at the end of this year will be extended for the next 4 years exactly with the same scheme. And the scheme, just to remind everyone, is a corridor of price between EUR 70 and EUR 95 per megawatt hour. It's going to be a competitive option and separated 2 different options for wind and solar. That's a very important point, because before the auctions were technologically neutral, now are different for each different technology. So the answer is that, that decree will remain for 5 years. It's just a technical reason. The repowering, yes, basically are the same projects, because in the meantime, we were waiting for the clarity on the FER-X and still we are. So there was no point in adding further project when the first one, the best one we're still waiting for. But honestly, we are working on another portion of projects, not just in Italy, but across our portfolio, but they are not included in our pipeline, because we are in a very early stage to assess the engineering layout, to secure the land and blah, blah, because whatever you see in our pipeline is something that has been consolidated over time. I mean, there is a project, there is a name, a surname, there is securitization of the land, a request and allowance for the connection, and blah, blah. We are not still there for the other portion of the early pipeline that are under study. But yes, you're right, the project you could see in the presentation are more or less the same of last year. But remember, our plan was presented in May '24, not that long ago. But we are working to improve the pipeline and quality and size, but let's start with the first project. M&A. I haven't said M&A is out of screen, is out of our plan absolutely. M&A was something I think we are good at and has always characterized our industrial story so far. So definitely, we are looking at all opportunities that may arise from the market. But the M&A market has changed in the sense that the bid ask got larger, because the market is now more a biased market, but the sellers don't want to sell at certain values. So the market in terms of transactions, not just for ERG, but in general, have slowed down a bit for sure. But as always happens, the market, we think, will find an equilibrium sooner or later, and we think soon. DPS. So the question was a little bit elaborated, but let me say the answer is very straightforward. Basically, the remuneration scheme hasn't changed compared to last year. So 1 year dividend plus an upside that could be distributed back to shareholders through buyback. The only thing we changed, we didn't specify the cap. Last year was in a range of EUR 1, EUR 1.30, because, as I said before, we want to be fully flexible to decide how much and when, of course, allocate to a potential share buyback. And that, Michele, I think is...

Yes. The guidance is in the presentation with a target of EUR 1.9 in 2026. And regarding CapEx per megawatt in storage, assuming the 4 hours battery storage system, we see overall CapEx in the region of EUR 1 per hour megawatt.

Mr. Merli, there are no more questions registered at this time.

Okay. Thank you very much for the attention and listening, and we will speak in May for the first quarter. Thank you very much again.

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