EVN AG (EVN) Earnings Call Transcript & Summary

So good morning, ladies and gentlemen. Welcome to today's Capital Markets Day. My name is Matthias Neumuller, I'm Investor Relations Officer at EVN. We have prepared the following agenda for today's Capital Markets event. Our CEO, Stefan Szyszkowitz, will start with an update on EVN's Strategy 2030. Then we will have the Managing Directors, Jorg Sollfelner, Helwig Uberacker and Werner Hengst, they will talk about their respective business areas being energy and supply, the renewables business and the grid business. Thereafter, we will have Andrea Edelmann, she's our Head of Innovation and Sustainability. Gerald Reidinger, who is Head of Controlling and Investor Relations, will talk about the financial ambitions until 2030. And then Stefan Szyszkowitz will conclude the presentation with the key messages and a short summary. Before I hand over to Stefan, just a short comment to manage expectations for today. As most of you know, anyway, the financial year of EVN just ended a couple of days ago. Balance sheet closing date is the 30th of September. Therefore, we kindly ask for your understanding that it won't be possible that we present financial figures for the financial year at this stage. But anyway, the outlook and the dividend proposal for the financial year is already public. Today, we would rather like to focus on the future of EVN on our Strategy 2030. And with this, I leave the floor to Stefan.

Welcome here in this room and online. It's a great pleasure to be here. I just remember our Capital Markets Day in 2003. This was on the eve of the liberalization of the European energy market. It was about unbundling. It was about regulation. I also remember, the deal we did in November 2010, when we were addressing capital markets for our capital increase to fund our operations. And today, this is a non-deal Capital Markets Day. But it is maybe facing one of the biggest questions of the energy industry and this is climate change. If we are talking about climate change, we all know that this is on everyone's agenda. We also know it is affecting the core business activities and that EVN today will also try to show how it will affect the energy transition. We want to update you on EVN's fast-changing environment on what we can do in this environment. This will be done, as we have mentioned before, by representative of EVN's senior management team. And our focus will be how we can increase the production of renewable energy, how we can transport and distribute this energy to our customers, how we can do this by producing less CO2 and how we can use innovation also to secure the stability of our system. With this, I want to come back to the question of climate change. And this is also the question of reducing CO2 emission. And what has changed over the last years. We have seen extensive legislation by the European Union, which is giving us a legal framework for the further development. You also see big political debates in society, and there is a very active social society addressing this question. And with this strict legal requirements, we also see that we have something which is not so much covered yet and this is shown by this chart. As you see here a so-called residual load chart. So, the renewable energy transition, trends of Austria have been modeled up to 2030. So, with all this renewable capacity installed, how would then the production over the year, month by month look like. And what you see here is an astonishing result. A dramatic summer and winter difference in the availability of electricity. So in the green side, we have too much. And in the red side, of course, this is the winter, we have too less. And this will be something which is challenging the stability of the system, pricing mechanism and give us also some perspective regarding storage. The dimension of this change is so big that we can call it a generational challenge. And just to give you an understanding for that, if you take all the Austrian primary energy, which is used in a year, this is around 400 terawatt hours. 83% of this 400 terawatt hours are stored in a way of fossil energy. So, it's not about just changing the energy system, it's about finding a way to transform and achieve from over summer production in the winter season. And we cannot switch this renewable energy easily from one year to the next into renewables. So, even the Energy Minister from Germany is now addressing this question. He's acknowledging this fact. He is now talking about renewable electricity and molecules. So, in a way to bridge this gap, it will be necessary on this transition path to develop a way that we can transform excess electricity into green molecules. But he makes a step further. He says, in between from here to 2040, it will be necessary also that we use all kinds of hydrogen, not only green hydrogen, even one which is produced out of natural gas. So, this transformation will change the way our industry will work. It will further enhance also through the CO2 pricing mechanism, which the European Union has introduced. I remember a couple of years ago, we had EUR 7, EUR 8, EUR 9 per tonne. Now we are talking about EUR 80, EUR 90 per tonne and the expectation that it will go up above EUR 100 in the next few years. Therefore, this CO2 price is also then influencing wholesale price markets and pricing mechanism. This story gives us a vision what we want to do on the way to 2030. We see a lot of opportunities for EVN as an integrated utility, as an enabler of energy future, well positioned along the energy value chain as an integrated business. We will benefit for more electricity and from the green molecules. We will grow through investment, which we will show later on and we will see new business models coming from innovation. So, how can we do this? How can we create value by doing the right fit? First of all, a strong push for grids. Without a further enlargement adoption of the grids, it is not possible to secure the energy future. This will bring us almost to a doubling of the regulatory asset base by around EUR 3.5 billion in 2030. This will also increase the return based on this higher regulatory asset base. And of course, which we'll also adopt. We will be more efficient. There will be smart grids and Werner Hengst will address this issue. We also see in Southeast Europe, the chance to further reduce the losses, technical losses, business losses, also called stealing. With this, also our Southeast operation will get more profitable. The second thing is investing in renewable energy. We have a strong record in the last 15 years by building up wind capacity in Lower Austria. We will further scale this. But we will also take advantage of the simple fact that in Southeast Europe, in Bulgaria and North Macedonia, there's much more of the sun than we are having in Lower Austria. So, these favorable conditions will be also be used by EVN's investment strategy. And in this context, please understand, I want to highlight that [indiscernible], they are complementary to our value chain. The work like a financial hedge for our energy procurement. This brings me to innovation. We will today also discuss projects like underground sun storage and hybrid storage facility of RAG. We should transform the existing natural gas storage facilities into green batteries of the future. We will also use smart meter for innovative tariff models to really enhance the flexibility and usage of energy and give customers the possibility to save costs. And this will be all done by a strong digitalization campaign in all our customer processes. Number four, last but not least, we will focus on sustainability. In ecologically and in economically terms, we have, as the only utility and also science-based targets. Every investment must be economically and sustainable visible in the future. And therefore, we also aim to show our investors a sustainable development. To put it on one point, 85% of EVN's Group investments are compliance with the Taxonomy rate category as sustainable. One update I want also to make here because I think it's the right point. WTE developed extremely well over the years. They have done 120 projects in 18 countries. And the biggest project in history, the project in Kuwait is now handing over the wastewater treatment part will be handed over to the client. And during the year '24, more or less all their pipe and pump infrastructure will be finished. With this, we had to take a strategic decision. Is further growth in different regions the objective? Is this a good balance in the relationship to EVN overall activities? Or should we look for a new partner for WTE to realize its potential and the future growth? So, the Board made a decision on the 18th of September to commence a structured bidder process. So, we aim to close the deal in the year '24. And with this, I hand over to Jorg.

In general, we expect for 3.5 million customers, a stable growth of electricity consumption in the next period until 2030. Why is it this because we expect that the increasing number of heat pumps and electric vehicles, they will put a big impact on energy demand. When you are talking about 3.5 million customers, 2.7 million of them are in Macedonia and in Bulgaria, approximately 800,000 situated in Austria. The growth estimation, which we assume this will exceed the effects from energy efficiencies. So, we expect that we will have a stable growth in electricity markets for this decade. But on the other hand, the expected increase of production from wind and especially from photovoltaics will put a high volatility into the market on demand on the supply. Demand will be determined by the heat pumps by the electric vehicles. The supply will be determined, especially by photovoltaic during summer and from the wind. And both together will put a high volatility on prices. Our planning assumptions for the wholesale market prices, our assumptions until 2027, they are based on forward prices. For the periods afterwards, EVN has been using the forecasts of the best institutes in Europe. And what we see here is general trends. General trends, we forecast now and where I want to elaborate a little bit. After the decrease of the demand during corona crisis, prices went up again due to the economic recovery in 2021-2022. And unfortunately, they exploded following Russia's attack on Ukraine. Natural gas now sees a sharp decrease in 2024 because the winter was very mild and the storages they are full. And therefore, for 2024, after normal winter, we expect a slight rise of gas prices. Till the end of the decade, we expect a huge effect coming from additional LNG volumes coming to Europe as many terminals are now finished and will be finished within the next few years. So, a constant LNG flow to Europe will have a dampening effect on gas prices. For the next years, we foresee a constant increase of CO2 prices. Political issue, of course, in order to tackle the CO2 problem, we have to do something on the price side. This is the CO2 price. But the CO2 price, of course, is not a standalone. It is reflected in energy prices. Together with this effect from the CO2 and together with the effect from the dampening of the gas prices and the increasing number of renewables, we can expect that until the end of this decade, we will have electricity price, which is lower than today, but this is important, much higher than the level we saw in the last decade. However, this forecast may be influenced by the further development of the war in the Ukraine, maybe further influenced by the economic development in Asia. This is something where we show now quite a stable development for the next 10 years, but high volatility may occur. And when we talk about high volatility, the 2nd of July 2023, this is a very good showcase. As on this day, there was an oversupply of wind and solar production, extreme negative electricity prices occurred in several countries and 25 gigawatt of wind production all over Europe was taken off the grid. Therefore, what we foresee is a growing winter-summer spread as a market trend, as a general market trend, which we have to tackle. We saw this also a few minutes before on this heat map. Prices between summer and winter, they will differ a lot. The chart here shows quarterly average prices and the power futures already now reflect very clearly seasonal spreads. And by the way, the chart also shows the increase of the fourth quarter '24 in comparison to the current year's quarter, which results from the low gas prices we are facing this summer season. Now we take a look on our hedging and price-setting strategies. EVN clearly distinguishes between marketing its generated power on one hand and purchasing the energy for its end consumers. When we are talking about the generation, the renewable generation is hedged on a rolling 12 to 18 months basis for all quantities on the free market. Additionally, in Austria, we have a fixed feed-in-tariff for wind production for 13, respectively, 20 years dependent on the historic regulatory framework from which you can switch off, you can go out from this regulatory framework. You can go on the free market and then you can come back within this period. EVN's gas-fired power generation is exclusively contracted to the Austrian transmission system operator, and therefore, there is no need for hedging. Looking on the supply side, this is quite different. The hedging strategy there depends on the character of the customer contract type. After 20 years of liberalization in Austria, a bunch of floating and fixed price contracts has been developed that fits to specific customer needs. For index price supply contracts, we use a portfolio hedging strategy, while fixed price contracts are strictly hedged back-to-back. This logic is valid for all customer contracts in the free market, but have in mind that household and small industry is still regulated in Bulgaria and North Macedonia. Let's talk a little bit about the future development of the energy business in Austria. And here, we want to start with a very clear ambition for this supply company to return to positive earnings contribution in this business year in '23-'24 after the turbulences we were facing during the finished -- just finished business year. Our midterm goal is to return to a supply margin of 3% to 5% there. But this may be influenced by the very strict consumer protection from the European Union, but as well as in Austria, where we expect even further intensification. Meanwhile, more and more customers demand contracts with short-term price bindings and flexibility. And therefore, in reaction to these needs, EVN developed several innovative smart meter tariffs that are already used by more than 50,000 customers. And this is the effect from 1 year where we have introduced this. The general trend towards digitalization, once answered by a new website that was introduced in the summer of 2022. It comprises a lot of customer self-service functionalities and we have already managed to attract 300,000 customers to be registered users of EVN's web portal so far within 1 year. And these customers are actively serving us with their customer self-service capabilities. And we will add additional services in the upcoming period in the field of heat business, in the field of eMobility, which I will refer later on. In order to answer the request for sustainable development, the product labeling for power of EVN Austria will become CO2-free in the current fiscal year '23-'24. And it was also mentioned that EVN is one of Europe's leading software suppliers for renewable energy communities. Electric mobility is one of the megatrends and therefore, an area for new business possibilities. EVN already operates 2,300 charging points and is putting its focus on destination charging with DC rather than full area coverage with AC. Following this strategy, EVN already was awarded the contract on the construction and operation of charging infrastructure for 2 of Austria's largest supermarket chains by '26. EVN as an eMobility provider operates as well, and we are building the charging processes belonging to 14,000 charging cards already. And as of October '23, we started a new charging tariff based on kilowatt hours. Here, I want to finish my part, and I want to hand over to Helwig Uberacker, who will tell you something about EVN's renewable generation. Thank you.

It's a great pleasure to give you a brief overview of our planned wind and photovoltaic expansion path up to 2030. In 1996, I started with EVN as a Project Leader for hydropower projects. At that time, no other type of renewable energy production was economically viable. 5 years later, in 2001, I was nominated to lead the first wind park project within EVN. At that time, a wind turbine had approximately a capacity of 1 megawatt, a generator diameter of 60 meters and a total height of about 100 meters. For comparison, the wind turbines, which we are now erecting has a capacity, which is 6x higher. We have a total height of about 250 meters and a rotor diameter of about 160 meters. We are currently developing wind parks with even stronger turbines. We will have more than 7 megawatt and rotor up to 100 meters and a total height of about 300 meters. We are now the largest wind power operator within Lower Austria. Our ambitious project pipeline up to 2030 does not only include new projects, but also several repowering projects. This means that by 2030, our wind power portfolio will not just be much bigger, it will also be much more effective and powerful than today. The powering of existing old wind parks is an important contribution to increased wind generation, not only for EVN, but for Austria in whole. It is essential to develop a secure suitable locations. This is a basis for stable growth in the long term for new and also for ongoing their powering projects in the future. We are very successful in doing that and we will benefit from technical development with increasing efficiency in power generation. I can also assure you that my team has developed a strong and well-balanced project pipeline. These projects are in a different development stage. Therefore I'm confident that we will achieve our 2030 expansion targets with projects in Lower Austria alone. In addition to our 750 megawatt expansion target for wind power, we aim to grow our photovoltaic capacity to 300 megawatt. For PV, geographical diversification is important. Therefore, we develop projects in all 3 core markets. which is Lower Austria, Bulgaria and North Macedonia. Bulgaria and North Macedonia has about 30% more sun hours than Austria. For large-scale PV plants in Lower Austria, it's also our strategy to focus on sites, which have existing grid connections. For example, we are currently building photovoltaic on areas of former thermal power plants. In 2030, based on our existing hydropower generation together with much higher wind and photovoltaic generation, we will be able to generate about 3,800 gigawatt hours of renewable electricity per year. On the following slide outlines why we are a successful developer and operator of wind parks. Our success is firmly based on a very experienced and highly efficient team. Our core team, so the people responsible for project development and construction of wind parks consists of only 20 people. Some of them have more than 20 years of experience in wind power. They don't only have a lot of technical know-how, what is even more valuable for us is the experience, great communication, talking to stakeholder, NGOs and finding solution for ecological issues. But the most important factor for our success is that my colleagues do not just do a job. They are driven by a passion to slow down climate change and we're part of this. In Austria, we also benefit from effect with about 65% of the annual wind production generated during the winter half year, therefore, we benefit from the higher prices in winter. The PV plants generate 80% of their production during the summer half year. This means there is a natural hedge between wind production during winter and photovoltaic production during summer. We have already started to add PV parks to existing wind parks. Product is being homogenized and the wind parks existing grid connection are being used. Our success factor includes high availability of wind power plants and the synergies from EVN's long-standing expertise in marketing and operation. For example, we have a 24-hour trading. The efficient marketing of wind generation became more important in the past years due to higher electricity prices, we decided to take our wind park out of a feed-in-tariff mechanism, such opting out is possible under the Austrian law. However, -- can always return to the feed-in-tariff, which we originally granted for the wind parks. According to Austrian's former Wind Electricity Act, wind parks receive a fixed-in-tariff for a period of 13 years. The amount of the feed-in-tariff there is. But on average, we are talking about EUR 80 to EUR 90 per megawatt hour. Under the Renewable Energy Expansion Act, Austria introduced a new support mechanism for wind power in 2021. The new support scheme provides for market premium, which means that the floor price is granted. If the reference price falls below such a floor, the wind park operator will be compensated for the difference. The support is granted for 20 years to give you an indication for the next wind project with floor set at about EUR 83 per megawatt hour. Here, we have listed some more of the factors that allow us to find sustainable and innovative solutions to realize projects from our pipeline. Our electricity knows no bounds. Earlier this year, we commissioned a floating photovoltaic plant on Grafenworth. At the moment, the floating power plant is the largest of this type in Central Europe. After 6 months of operation, our efficiency figures show an increased output of about 6%. Reason for that is mainly the cooling effect of the cold water. On the last slide, we have listed some challenges and success factors to reach our power expansion target. Based on our success factors and our strong project pipeline, we are certain to meet our goals by 2030. And now, I would like to hand over to Werner Hengst.

The Austrian government made ambitious targets for the climate and energy. That each local government had to implement on the base of the state targets in their own goals. Years ago, the grid was planned for the demand. As you see on the chart, there was a slow increase of the necessary capacity in the last 20 years. And so we can say it was a good not stressful time for us as a company. But the situation changed dramatically, as you know, with the integration of the renewable energy sources in our grid. As you see in the chart in the future, we have to double the capacity of our grid. And however, we are very serious planning and we are well prepared for the future. It is a challenge, not only for our staff, it is also for the necessary materials and services from our suppliers. At the moment, we have connected 55% of the whole wind capacity and more than 20% of the photovoltaic from whole Austria on our grid. As a number, we have 85,000 photovoltaic units connected. That means that 10% of our customers have already their own photovoltaic. This increase of the grid capacity is not only for the in-feed. It is also for eMobility and for the heating pumps for the future. In the past, the grid operation was much simpler than it's going to be in the future. There were big power plants located where was the demand and over the lines and substations. The energy was transported in one direction to the customer. But now and in the future, there are new load flows, decentralized in-feed away from the main customer consumption and much more end user interaction. This interaction is mainly driven by the rollout of the smart meter. And the good news is that we changed more than 98% of our meters in Lower Austria to the new smart metering technology. This is also very important for the new market roles as the renewable energy communities, where we are also a leader in Austria. For this, we need additional data networks and other important tasks, a network control, sector coupling and demand side management. It looks a bit complicated, but one thing will not change, the [indiscernible] will stay the same. After the technical figures, I will present the impact on the investments. The new requirements will cause a high investment in the next years. After 2030, we plan to invest until EUR 3 billion. The focus on these investments will be for the new primary substations, new overhead lines and like cables. In the medium and low voltage grid, we plan to construct around 1,000 kilometers per year. To compare, the distance between Vienna and London is 1,200 kilometers. A few years ago, we built around 180 new secondary substations. Now, we have to build around 700 per year. In new areas, we installed twice as much compared to the past. And in the existing grid, we had to add more secondary substations. We strongly believe that to enable the energy future, all the digitalization and smart grid solutions will be necessary. For this reason, we implemented an execution department in our organization. We are frequently in contact with our colleagues in Southeast Europe and provide our know-how and support with all these new developments. As you see, the increase of investments are very important to enable the energy future. We are operating within the regulated framework and the regulator is committed to the investment needs. And therefore, this gives us security for recognized new investments. Now, we are part of the Austrian Association, [Foreign Language] are discussing with the Austrian regulator for the fifth regulation period beginning of the 1st of January, 2024. Ongoing [indiscernible] that are first adjustments for the new grid requirements. We assume, as example, higher compensation for new investments with a higher interest rate as in the past. However, we believe that the regulatory framework has to be adopted to the new challenges in the grid business. And if I have to summarize all the presentation in one sentence, then I have to say, the future for the energy grid is very challenging, but we are very well prepared for it. And one thing is clear. The modern society is only possible with a stable and flexible energy system. Thank you very much. And I want to hand over to Andrea Edelmann.