Italgas S.p.A. (IG) Earnings Call Transcript & Summary

Good morning to everyone. I'm Gabriela Grayson. I'm glad to be here with you as moderator of these events. It will be interesting for me to hear your stories. In this difficult year that we have just passed, companies like yours have ensured the continuity of essential services thanks to the foresight of some tough choices in the direction of digital innovations such as remote management. Today, more than ever, there is a widespread desire to have a better world around, a real physical, more beautiful way. And so we look at the nature with a different eye now. We need to value our environment, the one that welcomed us during the month when we were shut in. This is why we use a new [ network ] today that allow us to feel good sustainability, ecology, intelligent use of energy, responsibility in the use of resources. It is not an abstract ideal but a model of development to which everyone can contribute, starting from the awareness that every action we take has an impact on the environment. And today, more than ever, this ideal is also pursued by large companies, which is why there are so many of us who love the environment, why we are all contributing to save the planet, a real mission for everyone, because sustainability is an act of responsibility that each of us can take on to save the environment and take care of the people who will come after us. The title of today's event is Empowering Our Future. The energy transition today is fundamental, as well as digital and technological innovation. The concept of repurposing is a social responsibility action that Italgas is carrying out to play a key role in the energy transition. Today, the world sustainability is fundamental, reducing environmental impact by zeroing out emissions, a life mission as well as an impulse. The company's measured intervention are aimed at reaching the target set by the EU, and this is something to be proud of. So now we start the Italgas strategy presentation, in which I'm happy to take part. I'm very curious to listen to speeches far from my world because I'm physicist. But seeing the meetings of the past few days, I think it will be very interesting. Going in one direction with the participation of all with care for the environment around us, with care for what we love with sustainability, inclusion, we can look to the future. This is the right way to be in the world that make us live, not just survive. Thank you, and let's start the presentation. Let's get right to the heart of the event. Now with me in the stage, there are Paolo Gallo, CEO, Italgas; and Gianfranco Amoroso, CFO, Italgas. Welcome. Welcome, Paolo Gallo. Can you introduce us to today's events?

Thank you, Gabriela, and good afternoon to everybody, and good morning to the ones that are following us from the Americas. Gabriela has mentioned several keywords. I would like just to remind 3 of them: digital transformation, energy transition and sustainability. The first time in our plan that we are going to present our targets about sustainability. Sustainability is the backbone of our plan. So let me introduce you with a video about this sustainability, please. [Presentation]

I have a first question for you, Mr. Gallo. In this scenario, energy transition is one of the key topics in the policy agenda of many governments. In particular, the European Union has set a specific target for 2030 and 2050. Do you think that these targets can be met and how?

Thank you, Gabriela. Before answering the question, I would like to bring back to you two statements made by Ursula von der Leyen and by Frans Timmermans. The first one before the pandemic and the second statement during the pandemic. I think they represent very well which are the targets that the European Union aim to achieve by 2050. But before getting into the number, let me also talk about the journey that started more than 6 years ago, back in Paris COP 21. You remember at the time, the targets were set in terms of reduction of greenhouse gases emission. At the time, we set 40%, we'll see in a moment which is the new target. And we have been going through several discussions and upgrade about the target to be achieved. And last but not least, we will talk about our Italian recovery plan that has been recently presented to the European Commissions. So let me -- I have tried to summarize the major targets set by the European Union. All of them will see Italgas a significant player in reaching these targets for the Italian situation. So as you can see, CO2 emissions should be cut by 55% by 2030. And we see also a significant target about energy efficiency. We will talk that in a moment. But I wanted to underline 2 other aspects of these targets. Biomethane consumption should arrive in 2050 about between 20% to 30% of the gas demand in Europe. There are different objectives among the various countries in Europe. For example, in Italy, in 2030, most of the study expect that the biomethane will pass 10% of the gas demand -- of the annual gas demand in Italy. Similar for hydrogen. Hydrogen has been on the screen in the last months in a very important way. And the target set by the European Union are also very ambitious. Thinking about nearly 15% of the all energy mix in EU by 2050 is a very challenging demand. That's the reason why the number of investment, the amount of money to be invested to reach this target is huge. But to me, it's not only a problem of money. It's a problem of having all the sectors cooperating between themselves to reach such ambition target. So it is extremely important that all the sector will cooperate, will leverage the existing asset to reach those targets. Let me spend -- before closing the question, let me spend a few words about the recovery -- Italian recovery plan. You know very well all the data about the recovery plan, but I wanted to underline the fact that over 50% of the money is allocated to the energy transition and the digital transition. And that is extremely important because it's exactly the true pillar that is on which is based the Italgas plan. So to answer to your question, Gabriela, yes, the targets are achievable as long as all the sectors involved, gas, electric, transportation, buildings, will make their own effort to reach those targets. If one or more of the sector we just put -- left aside, so in other terms, will not be involved in that big effort, then the targets are very difficult to be achieved.

Very interesting. I have another curiosity. Some people claim that the world should go full electric. In this perspective, gas distribution network seems to not have a future. How do you see it?

Well, that's a question that many times has been raised to me. And I think the person that are saying, "let's go full electric. It's the only way to reach the target set by the European Union," is something that is not realistic. I mean, it's an easy answer, but it's also an unrealistic answer. And I will explain why. First of all, let's see which is the perspective of the European Commission about the use of the gas in their infrastructure in the future. We are talking about 2050. So 2050, you should remember is the date in which there should be zero emission from a CO2 point of view. So the implication for the gas infrastructure and the use of gas is what has been written in this chart. So European Commission see that around 20% of the gas will continue to be used, the 20% of the energy consumption will be covered by gas. Which kind of gas? Probably something quite different from the existing natural gas. It will be mainly biomethane, it will be hydrogen, it will be new gases. So there would be a variety of gases to be used. And the gas infrastructure are -- should be able to manage these kind of gases, and therefore, DSO distributor, transportation and storage should change the way in which they manage their own asset or network. And finally, as I said before, those targets are achievable only if the electrical sector and the gas sector are cooperating together. It's the concept of the sector coupling. I've been listening about sector coupling since many, many years. In reality up to now, the cooperation we do in the sector has been very limited. If we want to achieve those targets, the ones that we have seen before, these 2 sectors should be effectively cooperate and leverage its own assets. But let me explain why in details. The gas is still needed in 2050. There has been several studies about the need of the gas and the picture is relevant to 2040. Why there is still a need? Because the more renewable we introduce into the system, the more the electrical system is becoming rigid. They have to -- the system has to recover somewhere the flexibility. Especially maybe during the cold winter, when wind maybe is not blowing or sun is not shining too much, and there is a need to provide energy to the final customer. In those scenarios, you see 3 of them, different scenario. In all 3 scenarios that are different one from each other. You see that in certain peak moment of the year, in certain situations, still, the amount of energy that should be covered by gas supply is still significant, and it is very similar to the same picture that was taken back in 2020. So still, the gas is a significant role to provide flexibility to a system that it evolves towards renewable, but it evolves towards lack of flexibility. And we have an existing infrastructure. So we don't have to build a new infrastructure, brand-new. If you look at the transportation and distribution system, we have more than 2 million kilometers around Europe. We have 2,000 -- more than 2,000 DSO in Europe, we have nearly 50 DSO around Europe. And it's fully available. It's a fully available infrastructure that can manage -- today, it's managing only natural gas. But tomorrow, we can manage biomethane, hydrogen, e-gases. And this infrastructure is strategic to provide flexibility and security of supply to the energy system to the whole Europe. So the answer to you, can we go full electric, it's a nonstatement in a sense that we need to have somewhere the flexibility that today has been provided by conventional power plant and tomorrow will be provided by the gas infrastructure supplying different kind of gases when it's needed and where it's needed. Let me talk a little bit about the 2 gases that I mentioned, biomethane and hydrogen. Biomethane is available today. So we don't have to wait 10 years. Biomethane is already competitive today. Biomethane is also a solution to the waste treatment. Not only it support the circular economy. If you see what has changed, what has changed since 2018, we have seen a significant increase in the number of biomethane plants in Europe in the past 2 years, and is happening the same in Italy. Still, the amount of biomethane produced in Italy is still limited. Especially if you look at the different sector, for example, water treatment, I know quite well that sector. I mean, only 4%, it's very small number. And we know the amount of the resolve, the math is coming from the water treatment that has to be treated somewhere. And the best way is to use it -- to produce biogas and biomethane and compost. So we will see in those sectors, especially agri food waste and water treatment, a significant increase of biomethane. Operators will build the biomethane plant and will produce biomethane to be introduced, to be injected into our infrastructure. And that is something that is going to happen this decade in a significant way. In the meantime, we are waiting for the green hydrogen to become competitive. We have tried to map the number of projects that they've been developed in the hydrogen all over the world. And we can see that the majority of the project are promoted in Europe. So Europe is the continent that is becoming the leader in the hydrogen development. But the cost of the green hydrogen is still not competitive. We should wait probably until 2030. That is the, let me say, most of the studies have indicated that by 2030, the green hydrogen will become competitive. Why? For two reasons. We can see in the chart. From one side, the cost of the electrolyzer will dramatically decrease. And that's also the reason why if you go back to the chart of the new target, there is a number of megawatt in electrolyzer to be installed by a certain date. The more you install electrolyzer, the more the cost will drop. The second element that will help the cost of green hydrogen to become competitive is the more renewable you put into the system, the more you will have a surplus of energy. Surplus of energy, when the energy -- the demand of energy is -- there is no demand of energy. So the producer, for example, or the owner of a photovoltaic plant or a wind plant in a certain period of the day should decide, in absence of demand, should I stop the plant or should I use the energy and should I sell the energy at a very low price to produce the green hydrogen? It's the concept of the Power to Gas that we will describe later as a pilot project for Italgas. But that will be the discussion. It's much better to sell the energy or to use the energy to produce the green hydrogen because then you will have a vector that you can move around in timing the space to be used when it's needed. So that is going to happen. When? Not now, in the next decade. In the meantime, we have the biomethane available. But this is the concept of the energy transition. The transition means that you move from one scenario to another, not with a step, but with a subsequent or small steps one after the other. That's the concept of the transition. And finally, we have a challenge as a DSO in that scenario. I would mention 3 of them. The first one is if we want to affect different gases in our network, our network should be digital, flexible, smart. In a moment, I will explain you how. The second challenge that we have is the we should promote, we should support the development of the circular economy, namely biomethane. Why -- or the green hydrogen. Why? Because the distributors are widely spread everywhere. And it's more likely that a new biomethane plant or a new hydrogen production plant will be built and realized nearby a gas distribution network. And we should be able to affect all the quantity produced even though locally may not be accepted, there is no demand. So the flexibility that I mentioned before means that we should change the paradigm of the gas flowing from the gas transportation to the final customer, which is a set a situation where the flow of the gas is going in the opposite direction, from a point of production into the transportation, is the concept of the reverse flow. The third objective, the third challenge that we have is to reduce the greenhouse gases. And we should do it now. And I think Italgas has demonstrated that we can do that with the new technology. And that's the major effort that Italgas has carried out in the last couple of years, and we will continue to do it. It's an environmental responsibility that we have to take care. And we have all the tools, of course, innovative tools that will help us to reduce such emissions. And it's extremely important because we can do it now.

Yes. So you said that the circular economy is fundamental for the EU target. And green gases are fundamental. What is Italgas doing to prepare to those challenges and opportunities?

Well, we try to practice what we preach. So what we think is the right thing. We just not talk, we just don't give targets, but we try to put in place all the action to be consistent with what we say. So I will describe to you what we are doing on our networks to comply with what I said before. And the first chart that I want to show you is the concept of our digital, flexible, smart network. It's quite complicated, but it's also easy to describe. The first one, digital. What does it mean? Digital means that any equipment that is sitting on the network should be digital. There is no compromise on that. If you miss a part of that network, not becoming digital, you miss a lot of information. From a flexible point of view, I've already explained, we need to have a network that is able to reverse the flow. Not everywhere, but where it is needed, where there is a big production of biomethane, where there's going to be a big production of biomethane, where there's going to be a production of green hydrogen. And smart means that you are able to manage different gases. In the future, we will have 4 gases going into our networks. Natural gas, biomethane, green hydrogen, e-gases. So -- and you know that all those 4 gases have different calorific value, different energy. So we need to know what there is inside our network. And we need to get all the data from our equipment, be able to read those data and be able to react to those data and be able to send remote instruction to our equipment. That is the concept of -- that is through the contract room. That is the concept of digital, flexible and smart network. To do that, there is the plan. So the physical plan to replace all the traditional equipment with a smart one. On the smart meter side, we have nearly completed the replacement. You remember last October when we presented the plan, our plan was to complete by the year-end 2020 replacement of the traditional meter. Unfortunately, we did not achieve that target due to the pandemic situation. We will replace all of them by -- in these months. But what is important is that we started already last year to replace all the other equipment. The pressure reduction station is one of the example. We will see a big effort in 2001 -- 2021 and 2022 as well as the network endpoints. These equipment that measure the pressure at the end of the grid. But that is not enough. We will talk about gas analyzer. We are going to introduce gas analyzer everywhere in the grid What does it mean? The time reading in real -- on a real-time basis the content of the gas or the authorization plan. And they'll keep continuing for hours describing which are the equipment that has to be replaced. That's the reason why the overall CapEx has been increased to EUR 1.4 billion. And the majority of that replacement will happen between this year and next year. But if I stop -- before I said that digitalization is needed for the energy transition, there are also many other positive effects. And I would like to describe some of them. The first that I describe here are towards the stakeholder, the final customer. Safer operation. We will be able to provide on real-time basis the data consumption. In that case, our final customer will be able to, let me say, understand that their behavior toward consumption and therefore, be able to reduce their consumption, so to be more efficient in the use of energy. We will put even more under control the emissions. I said before, with the new technology that we imported from U.S., we were able to reduce dramatically the leakages on the grid. But with all the data that we will receive from the equipment, we will be able to prevent the emission, to reduce the emission to prevent the leakages. And finally, we will be able to set all the green gases. That is towards the external ecosystem. If you look at the inside the company, the digital transformation will help us to improve our operation or better, even better than improve, to change our operation, to be more smart in our operation. We will be able, for example, to move from a traditional maintenance to a predictive one. We will be able to reduce the consumption of the gas for depleting. We will be able to provide the correct pressure of the network. I mean -- and I can continue describing all the advantages. In other terms, we will manage the network in a completely different way in respect to the past. It will be a smart management of the network. But to continue to do that, we need to invest in research and development. And that's the reason why for the first time in our plan, we have dedicated a part of the research and development activity. First of all, we will build our research and development center in Torino, leveraging the expertise of our laboratory center that has been recognized as a -- for their competency in Europe, but also launching new R&D projects. Two of them, I would like to talk about and describe. One is already known, that is the Power to Gas project. And the other one is the design of a new smart meter. Let me start with the Power to Gas project, and I will ask a video to start while I'm describing it. Please. [Presentation]

So the power gas project that we launched 1 year ago has the objective to test the whole value chain from renewable production and the use of this energy to produce green hydrogen, the use of this energy to produce synthetic natural gas through the methanation and then using all those gases into our network. We decided to do it in Sardinia. The reason being is that we have our most advanced network. They have been just recently built with all the infrastructure being smart and flexible. So we will provide this green hydrogen to residential, we will provide the green hydrogen to industry and soon for mobility. And the good news is that our project has been shortlisted by the Minister of Industry being eligible to receive European fund. And we are very proud of that. The project will start authorization very soon, and we hope to start construction at the beginning of next year and being in operation next year, the same. We have already attracted several other partners, from a scientific partner, like the university, but also some other industrial partner. They want to participate with us in this project because it's a project, as I said before, that covers the whole value chain of the green hydrogen. The second R&D development that I would like to discuss with you is the development of a new smart meters. When Italgas started to replace the traditional meter with the smart one, the smart meters are provided by different supplier, and they were based on functional specification. After revenue stalled nearly 8 million of smart meters, I think we have gained a lot of knowledge, a lot of competence on the smart meters. And we understand that for the next generation of meters, we need to think about Italgas products. We want to have this product to be available in a few years from now and becoming the standard in the Italian market, if not in the European market. And that's the reason why we have put around the table with us several suppliers, some university, like the Polytechnic of Torino (sic) [ Politecnico di Torino ], to try to get the best available technology today or best available technology in the near future to put this technology into the smart meter. So the smart meter will be security by design. It will be sustainable from a material point of view. The battery will last longer. It will manage gas blending and it will do many other things. We are working very hard to have the smart meter specification by next year and then to start producing it later on and piloting in our grid. We want to be the standard for the meters in the future. But again, to do the -- let me say, to comply with the European target, that is not enough. We need also to invest on our network. We need to repurpose our network to make it fully compatible with the new gases. And we need also to extend our network. As I said before, biomethane plant, hydrogen plant will be maybe located in area where they are not reached by any other, if not the gas distribution. So we need to extend, to further extend our network in Italy, even though the penetration in Italy is very, very high, 92%. But I think there are areas, like Sardinia, where the natural gas just recently was available. And that is extremely important because if you want to leverage, if you want to leverage our infrastructure and, if we want to leverage the cooperation with the electrical system, we need to make our infrastructure available also in remote area. And that's the reason why there are EUR 3.4 billion allocated, out of which, you can see EUR 1.3 billion is allocated between Sardinia and the area where we won the tenders. Let me just talk about the area where we won the tenders. You see Torino, Valle d'Aosta and Belluno, especially the last 2, Valle d'Aosta and Belluno, a region where the natural gas is not very widely spread. That's the reason why there is EUR 1 billion just allocated to extend the network. And Sardinia, Sardinia, the numbers has been decreasing since last plan, and the reason is because we are progressing very fast in completing the network. I should recall, and we are very proud of that, that we started just 2 years ago when natural gas was not available in Sardinia. And today, since January, we started to supply natural gas in Sardinia, and we have built a very innovative, from a technological point of view, digital and flexible infrastructure. You will see in the video, you will see more details in the video that is going to run right now. [Presentation]

In Sardinia, we have, let me say, come back to our origin. You remember Italgas, in the '90s, brought the natural gas everywhere in Italy. But if we go to the Sardinia region now we are filling the gap. And the advantage for the citizen are clear. First of all, from an economic point of view, 30% less in the tariff. From a sustainability point of view, we are replacing the LPG that it's part of the oil. We are replacing the small tank that is used for kitchen with a security of supply. So there is environmental benefit through the gas distribution. And it's extremely important that this role has been completed by Italgas because, again, it demonstrated the ability to Italgas to bring natural gas where natural gas is not available. And we did it. We did it in 2 years. This is an exceptional result. And as we have done on the peninsula that we have converted all our LPG gas distribution into natural gas, we will do it the same in Sardinia. In a few years, Sardinia will be only supplied by natural gas that it's a flexible and secure form of energy. We would love also to be in another part of the Italian territory, if the tenders will move forward. Because it's not only a matter of the role of Italgas for the tenders. It's a matter of a missing opportunity for our country, and there are 2 missing huge opportunities. The first one are the amount of investment. In a moment like this one where we need significant investment in infrastructure to recover the economy, it is essential that also the tenders will be concluded. And therefore, the bigger operator can invest. And that's the first huge missed opportunity. The second one is, is the digital transformation. What you have seen before, our effort to transform the network into a digital, smart and flexible, is we are probably the only one that are doing that. The medium and the smaller operator are just waiting the tenders to happen. So there is a part of the network distribution that is not going through the upgrade, the technological upgrade, the digital transformation. We need to have the tenders to happen. We need to conclude this tender because it's not only for Italgas, it's for the country.

Thank you, highly impactful. Now we'll change topic. Let's introduce the new session Italgas, not only gas. [Presentation]

You have explained your view on the role of DSOs and on the centrality of networks. It comes natural to ask if in the future, you see Italgas as being engaged also in other sectors more than now?

Yes. I have mentioned already the fact that the DSO role is not only -- should not only be limited to the gas distribution, but should involve, thanks to the local presence, also some other sectors, like promoting the circular economy or promoting the energy efficiency. And I would like to stay one moment on the energy efficiency. I think most of the people that are listening today recalls that in 2018, Italgas acquired the first company, the energy efficiency company called Seaside. And from that point on, we started a long journey for which we are seeing today already the first result. But before getting to our numbers, let me just give you an overview of the energy efficiency sector in Italy. I have already said that it's highly fragmented. So it's very similar to the gas distribution like it was some years ago. But what is also important is that the energy efficiency, remember the target set by the European Union is not easy to achieve if some sectors are left behind. And you can see in this chart that transport, residential services industry and probably industry, the smallest one, are playing an important role in achieving the objective. And the first one is sector. But we should say that the most important one is the residential sector. But we should say that more than 60% of the houses are -- in Italy are older than 45 years, and 1 out of 4 have a very low energy efficiency index. So there is a huge potential and a huge need in the same so potential and need to intervene, to refurbish most of the residential houses if we want to achieve the target that is set there. And investment are expected also to be huge. It is clear that, that is being even used by the new legislation, the so-called 110% or so-called super bonus. But what we have seen is to face such a big challenge, you need to have a big player because only the big player can support the investment that is behind this challenge. Italgas want to become a big player in that sector. So let me describe the step that we have already achieved and what we are going to do. What we have already achieved? You know that in our group, there were 2 different energy efficiency company. One, the one that we acquired in 2018 was more focused on the private sector and on the digital solution. Toscana Energia Green, that was fully owned by Toscana Energia, was more focused on public sector and on renewable sources. When we put them together and the result is not like you normally say, 1 plus 1 equal 2. It's 1 plus 1 equal 3 because they were very complementary. So we are very happy that the merging, with the support of the public shareholder in Toscana Energia, has been successful. But that is only the first step of a long journey. In fact, I'm very happy to announce today that yesterday, we signed a binding agreement for the acquisition of Ceresa. You remember in October, we presented a plan where we wanted to grow our energy efficiency business, either in terms of organic growth, like using and leveraging the opportunity provided by the legislation. But on the other side, also growing by acquisitions, so consolidated the sector. The first acquisition after the merging of the 2 company has been successfully achieved. Now we have to implement Ceresa. Ceresa is a very old company, 100 years old, was founded in Torino and is mainly focused on the northwest part of Italy. Putting together Ceresa with the other, we decide we will have another step forward in our business. Our target as of today and probably is still a conservative target is to invest EUR 100 million in that area and be able to reach by the last couple of years of the plan around more than EUR 40 million in terms of EBITDA. That is quite a significant number, starting from close to 0. But to me, that is even conservative. I'm sure that we will be able to do it better than that. And there are other opportunities, like you say. We are trying -- when we design the opportunity, we are trying to leverage the things that we will do best, that we are doing in the best way. So the things in which we are the best in -- at least in Europe. So one of the reasons why I'm talking about Greece is because we think we are the best player for this tender. Tender should be -- the tender offer should be expected by mid-July. And it's the privatization of the gas distribution network. Why we like that? First of all, Greece is one of the European countries, a friend of us, it's a friend of Italy. So we feel like being at home. The second one is that they have a very nice regulatory framework, very similar to the Italian one. But the third reason why we love Greece is because it has many similarity with what we have done in Sardinia. They need to extend their network significantly. As of today, it is concentrated, like you can see on the chart, mainly in Thessaloniki and Athens. But they need to extend the network significantly because I know that the Greek government wanted to reduce and bring to 0 the use of lignite and coal. To do it, you need to have an energy -- something else to replace the use of lignite and coal and the natural response is the natural gas. But we need to -- they need to extend the network. So they need an operator like us that is able to invest. That has an engineering capability, that has all the competence to develop not only a new network, but a digital network. That is the second part. So Greece looks like, in a bigger size, the journey that we have done in Sardinia. And the third opportunity that I would like to discuss is the water distribution. The situation of the water distribution in Italy is not very positive. I think I can mention only one number to explain why it's not in a very positive situation. The average leak rate in the distribution network is 41%. I wanted just to give you the number that we have in our network in the gas, 0.1%. So we are talking about 1,000 of difference. It's a huge difference. And why not applying the same technology that we apply to the gas distribution network close to the water network? And by experience, I can tell you that it is easier in the water distribution and not in the gas. So our idea is leveraging our knowledge. And as a first step, and we are doing that, making the small network that we have in Caserta fully digital, demonstrated that we can do it, that you can reduce significantly the loss of the water. That is precious resources. You cannot just think that 40% of leakages is fine. It's absolutely something that you cannot affect, that we need to change, and we love to change it. So we will do it as a demonstration in the distribution network that we have in Caserta. But we would like to do more. That's the reason why we still have allocated EUR 100 million of acquisition. We would like to leverage the TaKaDu partnership that we have that is helping, from a digital point of view, how to manage our water network. This partner is a more recognized company that is helping everywhere in the world to manage efficient the water network. And I think if we will be able to bring all our technology into the water, we will demonstrate how the water distribution can be at the same level of any other infrastructure. And the last, but not least, information technology. You know that we started in '17 a long journey, very successful, very visionary. We don't have, as you know, any more IT infrastructure owned by us. We selected the public cloud, and we are very happy about what we have done 3 years ago. And we have already achieved several accomplishments. Think about all the applications that were developed by our digital factory, proprietary application. We want to do now a next step. We have already announced that it's going to happen in the next days. We are not going to disclose the new names of the ICT newco. It will be disclosed very soon. But the idea is to concentrate resources, people, organization, effort in one single company to become even more efficient, to become even more effective in developing new applications for our business and for our operation. We are talking about 100 resources allocated. We are talking about EUR 100 million of -- in material assets. As I said, we don't have any more -- the ownership of any asset, but we have a lot of contracts. The value is EUR 100 million of that. So it's quite a medium-sized company. And the target for this company, the targets are two. The first one is they have to accelerate the process of digital transformation. They have to accelerate the development of new applications for the business and for the operation. They have to accelerate the deployment of those applications to make the digital a day-by-day activity. And on the other hand, this proprietary application can be offered to a third party. And we are not talking about only about other peers of us, but we are talking about other industry. Making an example, Work-on-site, our very well-known application that let our people remotely control the construction site. Our main construction sites that we have in Italy, millions at the same time. This kind of application can be used with little modification to any of the companies that are dealing with construction site. So that is something that hopefully we will be able to offer to a third party. And all our application that we have developed can easily find different applications in different sectors. But I have told you, since the main numbers, I tried to give you as much as why possible to give you the idea of the challenge that we have in our plan. But let's recap with some number, at least for the benefit of our friend analysts. So just to give you a number about investment. Nearly EUR 8 billion of investment in the next 7 years. With an increase of 5% in respect of October plan, mainly driven by the increase of digitization, for which I have already explained to you why. Tender represents a significant amount, EUR 2.2 billion, that include either the acquisition, the cost of acquisition of a new network, and the CapEx induced by the acquisition of those tenders. And the numbers of investment is significantly higher in respect to the first plan that we presented the year after the merging from Snam, increase of 58%. And you can see that the increase is significant in the area of digitization that in the first plan, the plan that we presented back at the end of 2016, did not practically exist. And it appears in '17, and it grows year-by-year. And in those following our growing confidence and competence about the effect and the need to transform from a digital point of view, our company. The result of those investments are in an increase of our RAB. If you look at the increase of RAB in term of -- without the tenders point of view, the increase is significant, 4.2%. Of course, it's becoming even bigger, moved from 4.2% to 6.3%, if included tenders. And we have a similar increase in the delivery point, mainly driven by the tender. Now let me spend two words about the change of delivery point year-by-year without the tender. The net increase, net, between the people that are asking new connection and the people that are decided to interrupt the connection, the net increase every year is between 30,000 to 50,000 redelivery points depending on the year. So significant number is a net. So it's new connection minus the ones that decided to stop the connection from the gas. And that is driving the first step of increase from EUR 7.6 million to EUR 8.2 million. And of course, with the tender, with the increase of the market share, we are arriving nearly to 10 million redelivery point. And before giving the floor to Gabriela, I would like just to close with an important -- an important chart that is the first one that we have seen ever in our plan, the targets about reduction. You have seen the introduction. You remember it was shown a minus 30% in CO2 emission, minus 25% in the net energy consumption. The main difference is we are declaring a target in 2027 in respect to 2020. This target has been calculated as a sum of the action to be taken and delivered during the plan period. So it's not a general target. It's the target that is coming from an exact calculation of what we can do, and I'm sure we'll do better, what we can do in order to decrease the CO2 emission, and to reduce the energy consumption. You see that the majority of CO2 emission will come from gas leaks. We can improve our leakage rate, reduce the leakage rate and reduce the CO2 emission. That is our major efforts. And you may say that 30% is not in line with 55%. But remember that the European Commission set this 55% reduction in comparison to 1990. We tried to get the number in 1990. But honestly, 30 years ago, the -- let me say, the sustainability and the counting the numbers at that time was not so usual. So we didn't find the number, and we didn't want to put any numbers invented. But I'm sure that 30 years ago, the level of emission was much higher than 2020. So the 30% will even more comply with 55% because we have reduced since 2019 to 20 -- since 1990 to 2020, we have reduced significant the emission, and we are going to reduce even further. And the same for the energy consumption. You can see that the 25% is spread more equal between electricity, use of electricity, use of gas and vehicles. And we are very confident that we will be able to reach those targets. So earlier than the target set by the European Union. And why we are so confident? Because we have identified a series of actions to be implemented to reach those targets. Gabriela, I hope that I will not -- I'm not being too long in explaining all that.

No, no I'm impressed by this number. Thank you. Thank you, Mr. Gallo, and I have the pleasure to introduce another theme, power levers. [Presentation]

Mr. Gallo, you comprehensively illustrated an important plan of about EUR 8 billion. What are the main levers you will use to implement it?

I think there are mainly two. And the first one is our people. It's the personnel of Italgas. I think that what we have done in the last 5 years, we would never be able to achieve that without the support of our personnel. They supported us in all the direction, especially in the digital transformation. Maybe a bit reluctant at the beginning, as always, when there is a change, but then very supportive when they realized that the change was necessary for the company to be at the forefront of the innovation and the technology. Because thanks to what we have done in the last 5 years, Italgas has become a model not only in Italy, in Europe, in the world. And we have been receiving such recognition at all the levels, about the effort that we have done to make this company truly digital. So the people and the person of Italgas are at the center of our plan. And I'm trying to describe 3 of the pillars that have been designed that are part of our plan. We need to further engage our personnel. What does it mean? It means that the people should be proud to work in Italgas. The people should be happy, should be -- should recognize being part of the family. But on the other hand, we need to help everybody to change the way that they manage the day-by-day activities. Because the digital transformation force us to differently manage the day-by-day activity. So we need to support them that there is a change going on and therefore, we need to put many action in place. We need to use many tools to help everybody to change and to progress. So in other terms, we don't have to leave anybody behind. And that's the concept of sustainability and inclusion. We need to involve all our personnel being part of this big project. But we should not forget that through the digital transformation, we need to achieve operational efficiency. We need to change the way that we manage the network. So we cannot forget that. And one of the way is to be able to bring back the core competence and the core activity that years ago have been given to a third party. We have already started to do that, but we will continue to do that. Some example. When I arrived in 2016 in Italgas, the leakage activity, the leakage detection activity was completely outsourced, was not by -- done by Italgas personnel. We brought the technology, innovative technology from U.S. We started to have our personnel doing the leakage detection. We trained more than 200 people to do it. And now we don't depend to anybody. It's completely in-sourced. And we have the largest fleet in the world of vehicles that are doing gas leakages detection. Why do you think this is so important, for example, this operation? Because going back to the target by the European Union, reducing of greenhouse gases emission is paramount. And therefore, to do it, we need to do it with the best technology available with the best people available. And the same for the other activity. What we would like to do in the years to come, in the next couple of years, is to do the same thing for the engineering. Facing the Sardinia project, we realized that -- not only Sardinia projects, also the tenders activity. We realized how it is important to keep the governance of the engineering in-house. So we don't want to say that we are going to build an engineering company, that is not our business. We will continue to get the support from the engineering company. But we want to have a governance inside the company. We recently reorganized the engineering and construction activity. We have a very young female that is running it. And we are very happy. And in a couple of months, we will be able to get again back the governance of the engineering. That's the extremely important. Thinking about Greece. It's going to be the same. We need to engineer the new grid, we need to build a new grid. We need to have a strong governance about the engineering. And then we're introducing all the digital equipment. We know that we need to manage, for example, the maintenance of the digital equipment. One example is the smart meters replacement. We have built a proprietary application that is managing that, but we need the people to do it. So the concept here is because our people are extremely important to support the plan, to support the objective, to support the targets that are set in the plan, we need to have the people managing the core activities. And we need to have the people with the core competence. And that's the reason why those are many of the targets that we have set. That's the reason why in our plan, we have more than 600,000 hours of training. But to me, I mean, this number may not tell you something, but think about the numbers of hour of training per employee per year, nearly 40 hours, means 1 week, 1 single week per year that is devoted only to training. So it's a huge number if you think about. So -- and that is not the only target, as you can see. Gender equality, the age of the personnel, we need to have also young people to support the digital transition. And all the other stuff that you see, the ambassadors that are helping us to make the people one single family, with the same objective, with the same target to be achieved. That's an extremely important level. But the other one, Gianfranco Amoroso, our CFO, will tell you about the other lever. Please, Gianfranco.

Thank you, Paolo. Thank you, Paolo. Let me start pointing out to the concept that financial strategy is a key source of value creation for us. And also in this strategic plan, this element is confirmed. First element is our cash flow generation capability. This is really key. It has always been like this, it is confirmed. You can see in the chart that our operational cash flow covers entirely our organic CapEx and pretty entirely our dividends along, across the business plan. What is new are the targets, as Paolo said, sustainability target allow us to approach the market of sustainable funding sources. In order to do that, the basic is that you need the data. And now we have the data because we have digitized our network, we get the data from the sensors. So we will be able to make an accountability of these data, and we'll be able to link the cost of our instrument to such data. The flexibility is allowed by the cash flow, but how we use this flexibility? First, we want to preserve and maintain our rating, a solid investment-grade rating. Second, but also important, the flexibility is available for the tenders, for the M&A new opportunities and for the remuneration of the shareholders. Let me drive you to our financial structure. First, you can see on the top of the slide, the profile of our maturities. This is very well distributed, as you can see, is a result of the transaction that we have performed recently in February. We made a buyback of our bonds, we made a new emission benefit for a very competitive condition and extended the average tenure of our portfolio. We have made also prefunding. So we have now a significant amount of liquidity in order to make a prefunding of the financing needs of our plan. We have a very low exposure to volatility in terms of interest rates because our debt is 98% fixed rate. The result of all this is that our cost of debt is among the lowest in the sector, around 1% across the plan. Credit metrics are linked to our credit profile. As you can see on the left, the very important ratio of net debt over RAB. We remain across the plan well below the upper limit of 70%. There will be, of course, a peak in the years where the tenders are more concentrated. After that year, you will see a decline and will end more or less the same level of now, which is 61%. On the right, the other very important indicator which is the ratio between the fund from operation and the net debt. This is a proxy of our cash flow generation. To give you an example, considered that our cash flow, on average, represent 10% of our RAB each year. You have seen it power the growth of our RAB at the end of the plan, approaching EUR 12 billion. So you can imagine our cash flow as of the year. The ratio is stabilized across the plan, always up compared to the limit of 15% and very well positioned compared to the limit set by the rating agency of 10%. Let me now approach the other source of value creation, which are the operational efficiency. I will start from the benefit of the digitization because this is a key to get the efficiency. We are now approaching a very important figure of EUR 250 million, higher than the figures that we have marked in the last business plan. Why is that? Because now we are better designing all the structure of the smart gas network. Of this EUR 250 million, approximately EUR 190 million will be for P&L savings impact. This number of EUR 190 million is spread between ICT advantage almost completed after having adopted the cloud. Operational activities mainly focused, thanks to the digitization to the activities for the end user that are -- that will be all remotely performed. A reduction of penalties that are mainly linked to the gas leakage detection that will be very -- will be reduced in a very important way, thanks to the technology that we are deploying with Picarro. On the other side, an important number, an important figure approaching EUR 100 million will be for incentives we got from ARERA. You are pretty familiar with the mechanism. If we detect the leakage, we get the incentive. If the third party detect the leakage, we get the penalty. Consider that this number approached EUR 100 million. On the left side, we have the benefit in terms of reduction of CapEx. Why is that? This reduction inducted by a change in the approach of the maintenance. Thanks to the digitization, the maintenance become predictive. It's no more planned. It becomes predictive means that you can anticipate the need to replace a portion of your grid. And this, of course, is an optimization of the CapEx and the reduction. The result of that, as discussed, this chart is very important. Now we are focusing on the gas distribution activity. You see the starting point, the OpEx an aggregate year 2021, you see the final year of the strategic plan, 2027, strong declining in the aggregate value. The main enabler of this are efficiency, the blue pillar in the chart. These efficiencies are partly compensated by the inflation that we have factored in our numbers and the increased number of redelivery points due to the extension of the network. How much we reduce that? This is the question. I can say that thanks to this, we are able to offset and fully mitigate the X factor impact that has been introduced by the 570 Resolution. If on top of that, you consider also the effect of the tenders, you see in the low part of the chart that the green line always stands below the blue line, meaning that at the end of the plan, starting from 2024, you will get another advantage in terms of unit cost per redelivery point. Why is that? Because we can benefit, in the case of the tender, from economy of scale and the geographical optimization of our presence. Let me recap and let me give you some guidance. For 2021, we can project revenues exceeding EUR 1.35 billion. EBITDA for this year will be in the range of approximately EUR 1 billion. We project also an EBIT between in a range between EUR 560 million and EUR 580 million. And I point out the figure for the CapEx. You see a range between EUR 850 million and EUR 900 million. This is a significant amount of CapEx well in excess compared to the figure last year, more or less EUR 100 million more. Net debt will end at EUR 5 billion, including the effect of impact of IFRS 16 and the leverage starting point of our plan is 61%. Going to the final end, the final year of the strategic plan, 2027. We project revenues landing at a level of approximately EUR 2.1 billion, EBITDA growing up to EUR 1.6 billion. EBIT RAB constantly continuously growing, 7.5%, 2024, 8.2%, 2027. This is the effect of operational efficiency, mainly. The RAB according to -- is also due to the CapEx plan that Paolo has illustrated will reach EUR 11.9 billion at the end of the plan with an intermediate step at EUR 10.5 billion in 2024. Cash flow, as I said, always 10% of RAB each year of the plan, leveraged in point because you can understand there will be an increase mainly concentrated in the year of the tenders, up to but not above 62%, and then a decline to -- landing to 60%. Let me end with dividend policy, confirmed. We announced last year a new dividend policy, just to recap the [ higher ] between 65% payout on adjusted net income or the growth of 4% per annum of the DPS of the fiscal year 2019 .The policy will last 3 years and will cover up to the fiscal year 2023. Now I leave the floor to Paolo for the final remarks.

Thank you, Giancarlo -- thank you, Gianfranco. Sorry, for changing the name. Thank you, Gianfranco. My recap is just to try to give you the idea of the challenging -- of the challenges that we have set for ourselves in the plan. They are mainly driven by the energy transition. We want and will be part of the energy transition. But becoming a player, a significant player in the energy transition means that we need to work hard in order to change our network, to make it, as I said before, digital, flexible, smart, we need to change the way that we manage the network. We need to start using all the data that we are collecting from the digital equipment using means designing algorithm that will help us to forecast the behavior of the network, as Gianfranco was saying before, in terms of predictive maintenance, for example, but also in terms of future leakages. And the other big challenge is cut the emission, reduce the consumption of energy. We want to be as much as sustainable in the future in respect of today. That's an effort that you cannot just -- let me say, okay, we are going to do that. You need to do it day by day. So we need to explain to each of our personnel that the sustainability approach is not something that you do a couple of times per year. The sustainability approach means that you look at what you are doing every day to cut the CO2 and reduce the energy consumption. So it's a continuous effort. And then we want to have our company to grow for also -- for the benefit of our shareholders. So we would like to leverage all our competence, best technology, best practice to take all the opportunities that I showed you before. Because we feel that our competence, our technologies, our practice can be applied to other sectors or to other countries, and we will be successful. And as Gianfranco was explaining to you, we need to back up all these efforts by a solid financial strategy that will be even more than before, focused on finance -- on the sustainability also from a financing point of view. So those are all the challenges that are contained in the plan. And I'm happy to have spend with you the last 1.5 hours trying to explain in details our plan. Gabriela, the floor is yours now.

Yes. Yes. Congratulations, Paolo. Congratulations, Gianfranco, you have made finance a very enveloping topic. Yes, now it's time to go deep, starting the Q&A session. Welcome Anna Maria Scaglia, Investor Relations.

Hi. Good afternoon, everyone, also from myself. So we are ready now for the Q&A session, as usual, through the phone. And we ask the operator, please open the line, and we are very happy to take any questions you might have.

The first question is from Javier Suarez with Mediobanca.

Thank you for the presentation and for taking the questions as well. So three. The first one is on the simplification decree and the coming decree to accelerate on, I think the name is on competition, to enhance competition, that should accelerate the gas distribution auctions. I have noticed that on your presentation, you have delayed by a year the assumption on the peak for the tenders. I think that on the previous business plan, it was in 2023 and now it's 2024 and completion is now in 2026 and before, it was in 2025. So do you think that there is a case on which with this decree to enhance competition, we could see a material acceleration on the auctions? And the -- which is your constructed proposal to the government on the method that has to be taken to make that process a virtuous circle? That is the first question. The second question is on the regulatory review. You have shared us with the assumption that you have on your plan in the allowed return on RAB from next year. And on any conversation with the regulator in the sense of the necessity to adjust the regulatory formula, maybe to a volatile environment characterized by COVID or [ QE ] maintaining interest rates particularly low. So that conversation to persuade the regulator to modify or to introduce adjustment into the formula, do you think that the regulator is open to that persuasion? And the third thing is on the financing of the company, on the leverage of the company. The question is a specific one. Have you made any assumption on the cost for the possible extension of the concession in Rome beyond 2024?

[Foreign Language] Thank you, Javier, for the question. I will try to be, as much as possible, effective, but short to leave also for the other time for the question. For the tenders. We have been talking about that several times. The fact that you have seen a shift in the time line is because in the meantime, 1 time -- 1 year has passed by. And unfortunately, very few tenders has appeared on the scene. We know exactly which are the road blocks. We have already discussed many times in our quarter review with you. I think it is very clear to the government. We have appreciated that in recovery plan, there is a specific article that mentioned the need to restart -- not to restart but to accelerate the tenders. So I mean the solution is clear. I mean, the solution, there are not so many, couple of road blocks that can be overcome with a new legislation. You remember the application of the VIR concept also to the network owned by the comuni, it would be probably the major block to remove. Hopefully, they will do it. Because as I said before in my presentation, it's not an Italgas problem. It's a country problem. Because we are missing 2 huge opportunities. The one is the investment in general that is very precious in this period of the -- of our life, of the recovery the further recovery of the economy. And the second one is the opportunity to transform all our Italian network, not our only -- all the Italian network into digital ones. So hopefully, the article contained in the recovery plan will become a reality soon. The assumption about the regulatory framework. You said a few things that I would like to recall. The first one is the current situation. I mean, we are not over the pandemic situation. We need the economy to recover. There are ample liquidity in the market, thanks to the BC, the Central Bank approach. We are start seeing inflation in U.S., some inflation also in Europe. We have seen stock exchange at the highest even before the pandemic. So we are in a very peculiar and very strange situation. And that is the discussion I had with the regulator in formal discussion saying we are in a very strange situation for which we don't know what is going to happen in the next couple of years. What is sure is that our investments are needed. And it is for the country, and it is for the recovery of the economy. So my point to the regulator was, please be, let me say -- I would not say conservative, but -- will not say or use conservative, be consistent with the current scenario. So what we have assumed, and that is part of our hypothesis, that 6.3% WACC will be reduced at maximum at 6.1%, so will be reduced by 20 basis points. That is contained already in our industrial plan. We think that is -- and we have run several calculation, that is something that can be acceptable. So our idea is that the current WACC, that is not only for us. So it's not only for the gas distribution, it's for the electrical distribution, it's for the gas transportation, it's for the electricity transportation, it's for the storage for every -- all the regulated sector, all the sectors that are available to significantly invest. We have seen the numbers, our numbers for this year, significantly invest in our infrastructure. So we expect that the regulator should consider a reduction for our sector between 0 and 20 basis points. That is what we have assumed in our industrial plan. Third element, you mentioned the Rome concession. You remember last year plan, we said that the Rome concession will not be part of the plan because we thought that the tender would have be completed later. Now we've moved by 1 year, and we have assumed that the tender to be completed at the end of 2026. You know -- I think most of you know exactly the point. You know that there is -- the concession is a little bit complex, but to make it simple, we have developed 2 scenarios. First assumption is that we are going to win Rome. So that's the big assumption at the beginning. But then you know that for that tender, the concession will expand in 2024. The comuni di Roma at 2024 owns part of the network. So we have considered 2 scenarios. The first scenario is comuni di Roma will sell their own part of the network. In that case, is what we have told you many times, we should pay an amount of money between EUR 450 million and EUR 500 million to the comuni di Roma. But on the other side, the current level of concession will significantly drop. It will be reduced by around EUR 25 million to EUR 30 million per year. The scenario that we have adopted is slightly different. It considers that comuni di Roma will keep its own network. So we don't have to pay between EUR 400 million and EUR 500 million to them and the level of concession will remain at the same level of today. Why? Because owning a part of the network, we should remunerate the owner for that. So we have kept that situation in our plan that is only, of course, working for 2027. I hope that I was clear in that. It's a little bit complicated. I hope that I was clear in that explanation.

The next question is from Enrico Bartoli with Stifel.

The first question is related to your targets for 2027. So the EUR 2.1 billion revenues and EUR 1.6 billion EBITDA target. If you can provide us the contribution that you assumed there from the tenders and from M&A. Second question is regarding the inflation assumptions that you have in your RAB evolution, if you can share them with us. And also in general, on, let's say, the inflationary pressures that we start to see at global level. If you expect that an increase in inflation will have an impact also on your CapEx plan and how the inflation is protected in your supply agreements. And if eventually, the increase in the unit cost would be translated into RAB. The last one is regarding Slide 21, when you shared the possible uses of hydrogen and biogases in your network. Just a curiosity on -- you highlighted the possible use for residential buildings like water, cooking, heating. If you can update us on your view on the technological development on these possible uses and what is the [ Power to Gas ] at this moment.

Gianfranco, if you can answer the first...

Okay. I will take the first question about the breakdown in 2027. The contribution, in particular from tenders, other business and M&A, I will give you some reference percentage. In terms of revenues, the contribution of tender will be around 12% of the total revenues. The contribution of other business will be 10% of the total revenues, and the M&A will account for 2% or 2.5%. This is in terms of revenues. In terms of EBITDA, the tender will account for more or less EUR 200 million. The other business will account for EUR 60 million, of which EUR 40 million, as we've seen for the energy efficiency, and the M&A, the receivable of EUR 40 million. All the remaining are the figures for the base activity. Second question was about the inflation of the RAB that we are considering in the plan. We have considered an average inflation of the RAB the deflator 1.8. The inflation embedded in our plan is on average 1.6.

I think the point is the protection. So you know that our RAB is updated every year by the inflation through the deflator component. So we have seen a starting of inflation, and that's the reason why if you look at the previous plan that we delivered in October, there is still -- there is a significant -- a slight increase of the inflation in the plan, and that is reflected also in the evolution of the RAB, of course, because that is the rule of the game. Regarding the last question, the Power to Gas. Well, our idea is to start testing once that the green hydrogen is produced, progressive blending in terms of percentage, yes, that is the slide, progressive blending of natural gas and hydrogen into residential use. What I'm saying it's a progressive blending because we will start to start from 5% to 10% and test which are the results. You should recall that the calorific value of -- the low calorific value of hydrogen is about 1/3 of the natural gas. So we should adapt the pressure of our network in order to deliver the same quantity of energy to the residential. So the idea is not to start from -- let me say, to switch from 0 hydrogen to 100% of hydrogen, but to start progressively increase the percentage of hydrogen and monitor the reaction and the behavior of the network. I don't know if you want to have an update and maybe I have already told during the presentation. Projects should start construction early 2022 and complete the construction by the same time of the year. By the same time, by the same year.

The next question is from James Brand with Deutsche Bank.

Thanks for the presentation. I have 2 questions. The first is on all this digital expenditure and the fact that you're going to be generating all these cost efficiencies that you outlined in the presentation. Do you expect the regulator to call those back? Given that, obviously, all the investments going to the RAB and you're getting remunerated for that. One would expect that maybe at the next business review, the regulator will pass on the savings to customers? And then secondly, on the smart meters. I wasn't quite clear from what you were saying in the presentation. Are you looking to develop your own smart meter from scratch? Or are you just looking to partner with someone else that's already developed a smart meter and work with them?

Only 2 questions?

Yes.

Okay, because normally, the people are raising 3 questions, but it's surprising. Now first answer. We have already seen -- if you know -- I'm sure you know very well the regulation. We have already seen, starting from January 1, 2020, a significant reduction in the offer recognition. That was based on the comparison between the cost -- the effective costs that were communicated to the regulator back in 2018 with what was recognized in the same year by the regulator. So the difference, if you remember, the difference between these 2 numbers was split 50-50. 50% was immediately passed into the in reducing the OpEx recognition. The remaining 50% has been spread over 5 years, determined is 3.53% as a X factor. It's going to happen the same in 2026. They will refer to 2024 as a reference year. But always remind -- I would like to remind you that we are not the only one. There is set of the operators that are in the same family, let me say, and the comparison between the real -- the actual cost, in that case would be 2024, with the costs recognized by the regulator will be the average between different operators. So the answer to your question is, yes, it will go back to the -- it will go to the regulator. It will be -- there will be a clawback, sorry, by the regulator with probably the same rules, 50% the following year, a 50% spread over 6 years. We have already included that in the plan. We do not expect to see the same number as 3.53%, so it's lower than that. It's a little bit above 1% because we think that we are able to bring efficiency, but not all the operators, so there will be a mix, a blending, let me call, a blending between our efficiency and other efficiencies. Regarding the smart meter. I don't know exactly what you mean your own smart meters. What we are doing, we are working with several suppliers in order to have one unique smart meter, also in terms of shape, let me say, in terms of components. Today, we have, I think, 5 suppliers that are producing similar smart meters, but they have different shape. They are different maybe in components. They respect, of course, all the specs that have been provided by us based on the regulation. The difference is we want to develop one single meter that is Italgas smart meter, that will be the same no matter if there is a producer -- there are 1 or 5 producers that in the future will supply this meter. I hope I have responded to your question. If not, please reply.

Well, you have mostly -- you seem to allude to the idea of potentially selling those smart meters around the world. So is the idea you work with the suppliers, you produce an Italgas-preferred smart meter and then you use it for your own network and then you also try and get off and sell it? Is that what you're planning?

Please correct, not selling out but establish a standard for the Italian market and maybe for other European market. So we will never produce the smart meters. So that would be...

So why won't you setting up a joint venture with the supplier? Or is it? Is that how you envisage doing that? You set up a joint venture?

We license our suppliers. So the smart meter will be the property of Italgas from a cost point of view. It will be licensed to the supplier to let them produce, and we would like to create a standard in our industry.

The next question is from Roberto Ranieri with Intesa Sanpaolo.

Thank you for the presentation. My -- I have 2 questions. First one is on -- both on ESG subjects, actually. The first one is on your new business plan, which I see as very ESG oriented. So I'm wondering if this strengthening in your ESG strategy and the energy transition is going to give you some advantages in terms of -- or confirm your position in terms of relating to the EU taxonomy. This is the first question. And my second question is for Gianfranco. And by the way, Gianfranco, congratulation for the new appointment. The other question is on the cost of debt. This strengthening of the ESG strategy is going to give some advantages in terms of lower cost of debt versus your assumptions in the business plan?

I will respond to the first question. Let me say that the target we set and that we explained very much in details will help us driving the investments to be taxonomy-compliant. It is clear that the most that you invest in reducing the CO2 emission and in reducing the consumption of energy is taxonomy-compliant by definition. And in fact, the preliminary calculation as of today, considering that we have financial investment, that we have the IFRS 16, so all the stuff like that, shows us as a preliminary, that more than 60% of our investments are taxonomy-compliant. Based on the legal knowledge that we have about the regulation that still has to be clarified and published by the European Commission. And we feel that the percentage will grow because we will -- to reach the goals that we have set in terms of, I said, the mission and energy efficiency will drive our investment toward taxonomy-compliant investment. So yes, so the answer is -- to your question is absolutely, yes.

Second question about ESG funding. Well, let me say that for the time being, the ESG funding is more a measure of widening our investor base. The impact correlation between cost of debt and sustainability-linked instrument is not so clear for the time being. My opinion is that in the future, this link will become more heavy. Having said that, we have already factored in our business plan the possibility to optimize our cost of debt that will start around 1%, I will say, but with a slight decline across the business plan also because we have secured through a fixed portion very high, the cost of debt that we have now. So we are relative protected against some potential spike in the interest rate coming from the recovery, the inflation or things that we have mentioned.

The next question is from Stefano Gamberini with Equita SIM.

A few questions also from my side. The first, coming back on the tenders. If you can explain a little bit more about your assumption on Slide 25 because I noticed that the number of tenders, I think that should be awarded. I don't know if it's in the slide there is the kickoff or the awarded of the tenders decline in 2022 compared to '21. Just if you can help us to understand this a little bit better. And on this topic also, if the measures that the government could approve in the forthcoming weeks, hopefully, could improve your view this trend of tenders? And in particular, I'm worried about the topic of the litigations after the tender. So how could we reduce this problem in order to accelerate the awarding of the tenders? The second topic is still on taxonomy. Could you elaborate a little bit more what are the criteria are you using in this moment to consider if this investment are eligible, not considering that the European Union are still working on the topic of gas and assets that could be included or not in the taxonomy? And the third is regarding your targets. Could you give us the same spread, breakdown, sorry, on 2024 as well, considering the like-for-like situation, considering the new acquisitions and the new businesses. And if you can link this also, if you can do some consideration compared to November targets where in 2023, the EBITDA was in the region of EUR 1.2 billion with RAB similar in the region of EUR 10 billion. And if I may, just very quickly, first one regarding the RAB deflator in 2021. Are you experiencing an increase of raw material cost for your CapEx? And so could we have a positive surprise in RAB deflator just for 2021 in your view? Or at the end of the day, it should be in line with this 1.8% that you have for the full plan?

On the tenders, let me explain, and I -- maybe -- if somebody will show also the chart so it will be easier, it would be easier to explain the numbers. If you sum up all the number, you will not find 7.9%. So the first point, and I think that is your question. Why? Because there is an overlap in 2023 and 2024 of the M&A in gas distribution and the tenders. So in the scenario that we have developed without the tenders that were shown to you in terms of RAB growth and redelivery point growth. There is the full M&A activity, that is the EUR 400 million. But part of this EUR 400 million, a little bit less than EUR 200 million is allocated in 2023 and 2024. So with the tender scenario, this amount that is slightly below EUR 200 million is disappearing, that is absorbed by the tenders. Why? Because if the tenders are going in the direction that we hope, so to be consistent in 2023 and 2024, there will be no more M&A. We will not be interested to buy new grade, new network or new company while there are tenders going on and the same way the others will -- we are not willing to sell while the tenders is going on. So that's the inconsistency, that is not an inconsistency. But that is the consistency that maybe you have seen. What -- again, I'm repeating myself. There are few road blocks to move the tender forward. One is the VIR to be recognized to the comune, that will be the major one. If there will be a new legislation saying that the network value recognized to the comune has the same rule of the network value recognized to the company like us, I'm sure everything will start flying. Litigation. That, to me, is the Italian problem. It's not the problem of the tender. Everybody -- I mean, you know that we have probably the largest number of lawyer in Italy per population. And this should be a reason. I mean, unfortunately, there are always the idea that if you are the -- if you're not the winner or if you don't like the result, you will go to the lawyers and to the court, and you will try to change it. This is something that we will not be able to do anything about. On the second, on the taxonomy, you're right, I said that there is a preliminary evaluation by us because we don't know exactly rules and details has not been published. It is -- we have done that based on the fact that discussing with the European Commission, they told us that investment in gas infrastructure will be taxonomy-compliant as long as those gas infrastructure are able to affect different kind of gases. So in other terms, are smart, digital and flexible. That is what Frans Timmermans cabinet told us in the discussion we had with the Gas Distribution Association that I -- for which I am the Chairman. So we base our evaluation on that. We will see later in the detail when the European Commission will publish the document on gas infrastructure, if we are -- if we have been conservative, for which I think so, or not. For 2024 question, I will pass the floor to Gianfranco.

Yes. I will have the floor. I will give you the same breakdown in terms of percentage of total revenues. The tenders will count a little bit less than compared to 2027. Of course, around 10%, while the other business, mainly, I would say, energy efficiency and water will be around 10% of the total revenues, and the M&A, around 2% of the revenues. Then you know the profitability of each activity you can derive the figure for the EBITDA. I think that...

The RAB deflator in 2021 in our plan has been set at 1.2% because we feel that we will see some inflation coming as is happening right now.

The next question is from Bartlomiej Kubicki with Societe Generale.

Three questions for me, please. Firstly, I would like to ask you about meters. I remember you used to say that you will see significant OpEx efficiencies once all the meters are installed. You're about there. I wonder if this is still the sort of figures you are supporting. So we should see a significant drop in OpEx in 2021 or '22. And also consequently, whether it will lead to certain, for instance, employment reduction because you will not need so many people to read the meters. So that's my first question. Secondly, I would like you to maybe elaborate a little bit on the concept that you may lose some items where you are the incumbent because somebody else will give a better economic package. So for instance, basically will offer a higher concession fee. So consequently, will it lead to a development where you will be bidding with the highest possible concession fee in order to actually keep the item and mitigate the risk? And thirdly, on investments. I wonder for you or for the system, for the regulator, for everyone. What do you think is more important for investment, to keep the allowed WACC flat or only decreased slightly in the next review or actually to accelerate tenders and M&As?

Well, on the third question, I don't know if you make a selection or choice, either one or the other. It's like when you have a dessert, you have only to take one and not both, but I will answer to you to this point. First question, yes. On the smart meters, there is -- when you install the smart meters, there is a significant reduction in the traditional reading. That's correct. And we have already included in 2020. Not all, still, something was included in the cost in 2021 very, very limited. It will disappear completely in 2022. But the reading has always been done the traditional region by a third party, never by us. I mean it's a very low -- it's an activity with very low content. So we did not do that in the past. Recently, in the end of 2020 is the second part of 2020 and 2021, you know that we have an obligation to read the meters if they are not smart. Sorry, if you don't -- if you don't read remotely. So we have the one -- the meters that are still traditional that will be replaced. We put together the reading and the replacement of the meters. Because when you replace, you need to read the meters because, of course, you need to restart from 0. So from that point of view, The cost has been -- the efficiency has been already included partially in 2020. Nearly whole in 2021, it would be completely recognized in 2022. From a personal point of view, as I said, we don't use -- there will be -- the cost reduction is linked to the fact that we don't have any more traditional reading by a third party. On the tender side, maybe just to make it clear. The concession fees are kept. So we have always said that you win the tenders not really in concession fees but on the industrial development, on the industrial offer, because by law, you cannot raise the concession fee at any level. They are kept. So the -- you -- we may lose the tender because it's a possibility that may happen as long as the other will make a better offer than us from a technical and industrial point of view or a development of the grid point of view. But not freely from a package point -- from an economic package point of view. We have always said when there is a competition in that pattern, most likely, all the competitors will raise the concession at the maximum level allowed by the regulation, allowed not by the regulation, by the legislation. On the third one, while I think that there should be no choice between the 2 options that you give to me in a sense that the acceleration of the tender, it's an opportunity for the country. It's not an opportunity only for the operators. For the fact that we file the tenders, part of the network will not be upgraded to digital ones, and also because you lose investment that are extremely precious for our economy. On the WACC side, I think that to support investment in an environment like the one that we are living, that none of us have never experienced before. We hope that the regulator will adopt or will take a decision consistent with the current times. In other terms, we don't know the inflation if it's going to grow. We don't know what is going to happen to the interest rates. We don't know what is going to happen to the economy and towards the recovery of the economy. So if I were the regulator, I would adapt -- I would select a position that will help all the regulated business to invest even at a higher level because that is the main objective of our economy.

If I may push on the third point a little bit more. Do you think network companies could actually -- if there's a risk network companies could actually cut on investments should the WACC be decreased by whatever, 60 basis points, which has been indicated by the spread between Italian and German rate. So you think it's more about if you keep the WACC flat, then we will actually provide with more investments?

You know when -- I mean, you envisage a big cut in terms of the WACC. And of course, any regulated company with such a big cut, will have nice the CapEx plan because we need to make a CapEx plan that is sustainable from a financing point of view. So it will be revised. It will be reanalyzed, I would use this term, and it will be the same for us.

The next question is from [ Aldo Bonati ] with [indiscernible].

Thank you, Mr. Gallo, for your presentation. Just one question on the emissions reduction targets for the company. And the question is, is the company considering to commit to make its emissions reduction target certified by the science-based target initiative that represents an international standards for investors?

Honestly, it was very bad. But can you repeat the question? Would you mind?

Sure. Can you hear me better now?

A little bit better. Yes. If you speak slowly, it's probably better to increase the cleanness of the line.

Sure, sure. Sorry. So the question is about the emissions reduction targets of the company. And I'm wondering if the company is considering to commit to make its emissions reduction targets certified by the science-based target initiative that represent an international standard for investors.

Absolutely, yes, because, as I said before, this level -- this emission reduction or net energy consumption reduction are not a general, let me say, target. But the number is coming from a detailed analysis and detailed evaluation and detailed action to be implemented to reduce -- to arrive to such a reduction. So we have a clear picture about 2020. So a number, let me say, tons of CO2. So we have a clear and certified number at the end of 2020. We will have a clear and certified number at the end of every year, not -- we should not wait until 2027. But every year, we can check and certify the progression in the CO2 emission, similar for the energy consumption, they are measuring terajoules. We know exactly which is the amount of terajoule consumed in 2020. We will check and certify year-by-year the amount, the new amount and certify the reduction. So the answer is yes. The reason why I'm saying yes is because the way that we built the targets, 13%, 25% is an analytic way. It's not a general way.

[Operator Instructions] Ms. Scaglia, gentlemen, there are no more questions registered at this time.

Anna Maria? Anna Maria?

I leave the floor back then to the management if there are no questions. Thank you, operator.

Thank you. Thank you, Anna Maria. Really interesting, all these questions and answers. Yes, yes, yes. And we are at the end of this day. I remember that Italgas will start tomorrow a virtual road show with major investors around the world. And thank you for having me with you today. It was a pleasure to be here. Thank you to Italgas. The key words today are technological innovation, digitization, renewable energy, sustainability, circular economy. Key words to allude to the future. That is a responsibility, but also vital for big companies like the title of this event, Empowering Our Future, remember us. Companies like Italgas allow us to look at tomorrow with confidence. A great company like the one I had the honor to meet today have many drivers to make this picture concrete. Thank you. Thank you, Italgas. Thank you, Paolo. Thank you, Gianfranco. We are going in the same direction. Thank you to everyone. Now we close this event with the press conference. Mr. Gallo will answer the questions of the journalists. Goodbye, everyone, and see you the next time.