RWE Aktiengesellschaft (RWE) Earnings Call Transcript & Summary

[Presentation] Good morning, everyone, and a very warm welcome from the RWE Campus here in Essen, Germany. I'm delighted to welcome you today for our Capital Market Day 2021. With me onstage are our CEO, Markus Krebber; and our CFO, Michael Muller. Welcome.

Yes, welcome, and hello also from my side, and a very early good morning to the U.S. It's really fantastic to have you all with us.

Yes. And also from my side, a warm welcome.

We'll kick it off shortly with Markus, who will present our new strategic update. Growing Green will lay out RWE's strategic road map for the next decade. This will be followed by the financial part from Michael, including new mid- and long-term earnings targets. Both presentations together should take roughly 90 minutes and will include video messages from our operational board members, too. After that, we'll enter the Q&A session. You can already submit your questions before the start of the Q&A session via the web form. And now without further delay, over to you, Markus.

I'm really excited to present Growing Green, our strategy that will take us through to 2030. It goes without saying that the energy market of the future is green. We are ready to execute our accelerated growth plan, which will place us center stage in a green and sustainable future. We will lead the way to a green energy world. We, at RWE, are perfectly positioned in the green energy market. We have vast experience in green technologies. We have strong market presence in the industrial growth markets. And we operate the leading commercial platform in our industry. Based on this excellent position, we are today accelerating our green growth program substantially. Until 2030, we will spend EUR 50 billion of gross cash investments, building 35 gigawatts of gross new capacity. Net investments and capacity additions will be EUR 30 billion and 25 gigawatts, respectively. Our investment plans are driven by our outstanding teams across all our businesses. And the growth plan is underpinned by our development pipeline, which stands at more than 55 gigawatts across all technologies. This will deliver a powerful and green portfolio. By 2030, we will call 50 gigawatts of green capacity our own across wind, solar, batteries, flexible generation and hydrogen. Attractive investment returns will lead to an average earnings growth of 9% annually in the core business. Our ambition is to deliver a group EBITDA of EUR 5 billion in 2030. And our investment program is fully funded by our strong operating cash flow and by making use of our financial headroom, in line with our commitment to maintain a strong investment-grade rating. Most importantly, sustainability is at the heart of our company. Our ambition is to reduce carbon emissions in line with the 1.5-degree-compliant pathway. And we will become net zero by 2040. We deliver profitable and green growth. The energy sector is crucial for meeting the world's ambitious net zero targets. And we, at RWE, are fully committed to delivering the green energy that will drive the decarbonization of our economies and societies. The future energy market is green. It's all about green electrons and green molecules everywhere. So what will that look like in detail? In order to reach net zero, we need to see massive electrification of the world around us with electric vehicles for transport, with heat pumps to warm our homes and through electrification of key industrial processes, like e-crackers in the chemical industry and arc furnitures in steel production. Significant investments and build-outs of our electricity networks are needed to enable this massive shift to electrification. However, where direct electrification is not an option, the use of carbon-free hydrogen will be the answer. In the long run, primarily green hydrogen will be used to produce fertilizers, will be used in direct reduced iron processes and will be used as a feedstock to produce synthetic fuels for aviation and shipping. To provide all the green energy, a massive deployment of well-established green technologies is required. But we also need to invest in technologies at scale, which are currently in a ramp-up phase. What are the cornerstones of the new green energy market? First of all, we need to utilize all the natural resources around us. The vast majority of green electricity will come from wind and solar. Offshore wind plays an essential role, given its high load factors. The global potential is huge and becomes even bigger when floating offshore is taken into account. Onshore wind and solar are needed everywhere where the technologies can be deployed. But this will not be enough to run the green energy system successfully. There's an inherent need to manage the intermittent nature of wind and solar to ensure security of supply. Therefore, electricity storage and flexible green generation technologies are needed. Today, batteries are already an integral part of many renewable projects, but significantly more battery capacity is needed. Green flexible generation capacity will complete the system to manage seasonal supply and demand imbalances and to ensure security of supply at all times. Necessary newbuilds will run on natural gas for some time before switching to carbon-free hydrogen in the future. The existing gas fleet needs to be decarbonized as soon as possible by either converting to run on carbon-free hydrogen or by employing carbon capture and storage technologies. Let's now turn to the molecule side of the green energy equation. Building a hydrogen business at scale is essential to achieving full decarbonization. We need massive investments in electrolyzers to swiftly deliver green hydrogen to those industries where electrification is impossible. In order to build a successful hydrogen business, industrial partnerships are needed, bringing together producers, off-takers and infrastructure providers with networks and storage facilities. But in Europe, in particular, where we have limited space, we still depend on energy imports. Building an energy import infrastructure for all carbon-free energy products is a must. This will include hydrogen imports but also other green energy products like ammonia, green methanol or green synthetic fuels. Energy is a basis of our prosperity. Security of supply is a basis for successful industrial nations. Both have to be guaranteed, particularly from the perspective of energy-intensive customers. They need a strong partner which is able to deliver tailor-made solutions, to deliver green electricity also in times of low wind and little sunshine and to deliver carbon-free hydrogen. In this more complex world, strong commercial capabilities and services are key. This is the green energy market of the future. And this is us. This is RWE. Our business is leading the way into the green energy world. We have strong market positions in all the building blocks. Our global offshore wind business is rooted in Europe, where we expect the strongest growth in the future. But we aim to expand globally into the industrialized economies in the U.S., Japan, Taiwan and South Korea. Our onshore wind and solar business is enjoying strong growth in all its core markets in Europe and North America. Our expertise in storage solutions and flexible generation is particularly needed in markets with high renewable penetration rates, be it batteries or gas-fired power plants. And there's no doubt that flexibility needs to be and will be green in the future as well. From electrons to molecules, industrial centers are driving up demand for green hydrogen. This puts Europe at the forefront of industrial decarbonization. And we have a great starting position with huge portfolio of partnerships and projects. And finally, our wide range of commercial solution enables us to offer our industrial customers tailor-made green solutions. We are a strong and reliable partner. We are on the way to net zero ourselves. And we are supporting the decarbonization of other industries. What are the key success factors in this new energy world? Being competitive in all the relevant technologies, understanding national energy markets and strong commercial capabilities. This is what makes RWE so unique. We are perfectly positioned in all three areas. We have many years of experience in the relevant technologies. And we operate them at scale, offshore wind, onshore wind, solar, storage and flexible generation. We have strong positions in the most attractive markets. Our core markets are highly industrialized with a stable market environment and high growth for green energy. And our commercial platform is best-in-class. We understand the global energy markets and the dynamics of Growing Green. We maximize value by optimizing our own asset base and our contract portfolio. And we unlock further value by supporting the decarbonization of other industry. We will take advantage of our excellent position. Today, we are significantly stepping up our growth ambitions. Between now and 2030, we will add on average 2.5 gigawatts of net new generation capacity annually. The majority of growth is coming from wind and solar, in which we step up from 1.5 gigawatts to more than 2 gigawatts. And we have set ourselves targets to grow in flexible generation and hydrogen. We are committing gross investments of EUR 50 billion into the energy transition in this decade. This translates into gross capacity additions of 35 gigawatts across all technologies. Taking into account partnering and farm-downs, this leads to a net cash investment of EUR 30 billion, equivalent to net capacity additions of 25 gigawatts by 2030. This huge investment program will change RWE dramatically. In 2030, we will have installed net capacity of 50 gigawatts in wind, solar, batteries, flexible generation and electrolyzers. More than 95% of our EBITDA will stem from this core business from 2023 onwards. Based on attractive returns, our growth investments will lead to an average earnings growth of 9% annually in our core business. And by 2030, we are aiming to deliver a group EBITDA of EUR 5 billion. Sustainability is at the heart of our strategy and the driver of our transformation. Our track record shows that we are a role model for industrial transformation. We have brought down carbon emissions by more than 60% since 2012 and have already shut down more than 12 gigawatts of coal capacity. In 2020, already more than 80% of our investments were eligible under the EU taxonomy. Our transformation journey is in line with the Paris Agreement and acknowledged by the Science Based Target Initiative. In our lignite mines, we have restored over 23,000 hectares to a very high quality with a clear focus on biodiversity. Furthermore, ESG targets are now an integral part of the remuneration for all our managers. And we are now stepping up our ambition in sustainability. We have already committed to a net zero target by 2040. And we have a well below 2-degree reduction path in place. Our ambition, however, is to reduce carbon emissions in line with the 1.5-degree-compliant pathway. Social responsibility has always been important to us. As part of the just transition, we stand by our employees affected by the energy transition. And we will make positive contributions in the communities in which we operate. When it comes to investments, we are committed to invest more than 90% of our CapEx in green projects under the EU taxonomy. Let's now have a look at our growth platform. Our investment plans are driven by excellent origination teams across all businesses. And our growth targets are underpinned by our strong development pipeline, which has grown continuously. Today, our business already have a total pipeline of more than 55 gigawatts across all technologies. The bulk of the pipeline comes from wind and solar. In offshore, we have secured development rights for 8 gigawatts. Earlier this year, we strengthened the pipeline with our success in the U.K. around 4 lease auctions. In addition to secured rights, we are participating in central tenders and lease auctions relating to another 20 gigawatts. We will have submitted bids for 9 gigawatts by the end of next year. And we expect the results of our bids for ScotWind, the Danish Thor tender and the Japanese auction within the next 3 months. In onshore wind, solar and batteries, our pipeline has increased. It now stands at 28 gigawatts across Europe and the Americas. In particular, the strategic focus on solar has resulted in a very strong growth of our solar pipeline. In hydrogen and flexible generation, our early-stage pipeline comes to around 10 gigawatts for each technology. We continue to grow offshore wind portfolio from a position of strength. We are one of the most experienced players globally, and can take advantage of the wealth of experience in the business, experience that spans 20 years. Over that period, we have made it to the #2 in the world, and our assets comprise a gross capacity of 5 gigawatts. We have strong partnerships, and we have forged new partnerships for entering new markets, such as Japan, Taiwan, Norway and the U.S. The offshore market is very attractive. Based on expected investment volumes, the biggest growth is right here in Europe. Here, we have the strongest presence and pipeline. And the new markets in Asia and North America are picking up where we want to become an important player as well. By 2027, we will double our net installed capacity to 5 gigawatts. By 2030, our net installed capacity is expected to be around 8 gigawatts. Our growth until 2027 is fully secured. The U.K. projects, Triton Knoll and Sofia as well as the German project, Kaskasi, are under construction. In Poland, we have secured a CfD for our Baltic 2 project. And in Germany, the projects of the recent tender will have reached COD by 2027. Beyond 2027, we plan to add on average around 1 gigawatt per year from our project pipeline and auctions. We will get to 8 gigawatt net capacity by 2030. To stay ahead of the game, we are very much focused on testing innovative and new applications. Running the business in a sustainable manner is important to us. We are testing the world's first recyclable wind turbine blades. This paves the way to full recyclability of wind turbines and is a significant step in advancing the circular economy. In a similar vein, we are involved in the VISSKA research, which is looking at a very gentle way of installing foundations for offshore wind turbines into the seabed. This helps to limit the impact of offshore construction projects on the maritime environment. We are dedicated and committed to drive new technologies. One example is our active engagement in the Aqua project family, an initiative driving the production of hydrogen at sea directly at the offshore wind farm and transporting it mainland. Plans envisage an electrolyzer capacity of more than 10 gigawatts in the long run. To unlock the full potential of offshore wind, the next evolution will be floating offshore. We are engaged in three projects in Norway, Spain and in the U.S. As an example, the TetraSpar Demonstrator floating wind turbine was connected to the Norwegian mainland this summer. The test site is located 10 miles offshore in water depth of 200 meters. This is just one example. And our plans go way beyond this. Sven, the CEO of our Global Offshore business, will share more insights on floating offshore now.

Thanks, Markus. Being ahead of the curve is the key to success in future tenders. Let me elaborate on that, particularly in relation to floating offshore. For quite some time, I have been a strong believer in the potential of floating offshore as this is the only technology that will allow markets without shallow waters to harvest the best resource offshore wind at all. And for other markets, it significantly expands the area available for offshore wind and opens up new regions with better wind conditions. For RWE, floating wind is not a move into the unknown. It's an evolution of what we are already doing. In many ways, a floating project builds upon the same fundamentals and expertise from our conventional bottom-fixed projects. RWE already has a wealth of knowledge in developing, constructing and operating offshore wind projects. So we don't need to go back to basics, just focus on closing the remaining knowledge gaps. Recognizing this, we have been running a comprehensive, multidisciplinary knowledge program for the last 2 years to identify these knowledge gaps and close them in time to be ready for commercial scale deployment. This not only covers technical issues, like floater design, turbine motion, mooring design and O&M but also other issues like contracting strategy, cost reduction and supply chain development. Most importantly, we are making really good progress with our three floating offshore demo projects, where we are getting first-hand experience of real-life challenges. When it comes to getting into the practical details of planning, installing, manufacturing and operating floating offshore, there really is no substitute for real units. I'm really happy to say that I'm seeing great progress in all of this work, reflecting the leading capability of our teams. Of course, we are eager to use the immense knowledge and experience we have gained. We are already on our way to commercialization, thanks to our participation in the ScotWind seabed lease auction in this year. And we've also prequalified for the Brittany South auction that will take place next year in France. Our ambition is to have 1 gigawatt in floating offshore under construction by 2030. Today, we are one of the global leaders in offshore wind and a frontrunner in floating offshore. We intend to further strengthen our offshore position by forging ahead with our strong pipeline and an attractive near-term build-out, coupled with long-term development options. And with that, back to you, Markus.

You can clearly see how many activities we are already pursuing today to ensure the long-term success of our company. Having spoken about offshore wind, let's now move on to onshore. The key differentiating factor for a successful onshore business is a broad and deep organic development activity. We have talented teams on the ground doing a tremendous job in origination and project development. Our experience goes back more than 20 years. We are maintaining geographical focus on larger markets with significant growth outlook. North America is a core market for us. We have a hugely experienced team with broad local presence. And we have gained traction in several U.S. states, states which are particular renewable-friendly, where we can deploy at least two technologies from the portfolio and where we can scale up the business. Our strong market presence in the European markets has recently been further broadened by the joint venture with PPC in Greece, which will realize solar projects of up to 2 gigawatts. Speaking of solar, this is our main focus for growth in the onshore division. We are targeting 8 gigawatts by 2030. And we will continue to invest in onshore wind. By 2030, we are aiming for a total net installed capacity of 20 gigawatts in both technologies. This is almost 3x as much as it was at the beginning of this year. From a geographical point of view, the 20 gigawatts are split roughly 50-50 between Europe and the U.S. The preparations for the acceleration of our growth plans in onshore started some time ago with the step-up of our own development activities. The teams have done a brilliant job in growing our onshore development pipeline. In only 18 months, we have increased the pipeline to 24 gigawatts. Solar development projects have massively stepped up and have doubled to 10 gigawatts. Wind and solar are the obvious technologies of the new green energy world. But let's now move on to the batteries and flexible generation. And let me be clear, when we talk about flexible generation, we mean carbon-free flexible generation in the green energy world. In this area, we are also perfectly positioned. As we speak, we have 10 battery projects with more than 600 megawatts either in operation or under construction. And we run Europe's second biggest gas fleet, which will be the backbone of flexible generation capacity in the future. The market potential for batteries and flexible generation is huge. Forecast see a growing market for batteries, especially in the U.S. and in combination with renewable projects. And the demand for flexible generation is expected to be particularly high in Europe. Here, there's the strongest focus on Germany, the only country where almost all the existing firm capacity needs to be replaced. Our target is to grow to net 3 gigawatts of installed battery capacity, here, where we are mainly focusing on colocation solutions in combination with our onshore wind and solar newbuilds. And we plan to commission net 2 gigawatts of new gas plants. Our pipeline of new flexible generation assets is based on the potential from our existing sites, excellent locations with grid connections, nearby gas supplies and in the near future, hydrogen supply. New investments in gas units needs to fulfill two requirements: on the one hand, guaranteed remuneration for capacity; and on the other hand, a clear path to carbon neutrality. For Germany, this will most likely be hydrogen. Our journey to net zero also covers our existing gas fleet. The work to decarbonize these assets has already started. This brings me now to the molecule part of the green energy world, hydrogen. We are in an excellent position to become a leading player in the evolving hydrogen economy. And we intend to capitalize on that. We have expertise along the entire value chain. We are the provider of green electricity. We have the expertise to develop, build and operate electrolyzers. And we have access to gas storage and transportation capacity. And we can offer tailored customer solution based on our strong commercial platform. The hydrogen economy is picking up in Europe with the EU setting the target to have 40 gigawatts of electrolyzer capacity by 2030. Our ambition is to run and own net 2 gigawatts of electrolyzer capacity by 2030. Our growth target is covered by a 10-gigawatt pipeline. Projects are mostly in the early stage of development. We are confident of taking first investment decisions next year. And four of our projects have successfully participated in the European IPCEI process for funding. And with that, let's hand over to Sopna. Sopna is the Chief Operating Officer of our hydrogen business.

For me, hydrogen is the missing element in the energy transition, especially in industrial sectors that cannot be electrified. Hydrogen plays an important road in abating CO2 emissions. In the future, approximately 20% of final energy demand will be covered by green hydrogen. And we have no time to waste. To be able to realize CO2 savings as soon as possible, RWE is already active along the entire hydrogen value chain from renewable electricity generation and green hydrogen production through water electrolysis, to storage trading and power plant applications. More than 250 RWE hydrogen experts across the entire group are driving forward the development of the hydrogen economy. And together with our partners, we are building integrated projects along the entire value chain. Currently, we are involved in the development of more than 30 green hydrogen projects. We have successfully advanced 4 major projects for the final award round in the hydrogen IPCEI process in Germany. And we expect a positive funding decision in Q1 2022. One of these projects, GET H2, aims to build up large-scale electrolyzer capacity of 100 megawatts by 2024 and 300 megawatts by 2026 with the potential to extend up to 2 gigawatts by 2030. The project follows an integrated approach, which comprises the entire H2 value chain and thus contributes to achieve the critical mass needed from a scaling perspective. It also includes a new hydrogen grid, a cabin storage as well as large-scale offtake in various industries, such as refineries as just one example. The 50-megawatt Dutch project, Eemshydrogen, is expected to enter commercial operation in mid-2024 and has the potential for building out up to 1 gigawatt at RWE's power plant location in Eemshaven. The project demonstrates flexible electrolyzer operation in line with electricity from the existing RWE Westereems onshore wind farm. And also we can leverage synergies with the existing biomass power station, for example, in terms of shared infrastructure, [indiscernible] operation and maintenance. Our offtakers stem from the chemical industry. And furthermore, the Dutch TSO plans to repurpose existing natural gas infrastructure, allowing to supply further offtakers nationwide and beyond as part of the European hydrogen backbone. Our green hydrogen growth ambitions will support the ramp-up of a decarbonized hydrogen economy. And we, at RWE, believe that the lightest element will have a huge impact on achieving the climate targets. This way, hydrogen will be an attractive business for us. And with this, back to you, Markus.

At RWE, we have a leading part in building the hydrogen economy. And in 2030, hydrogen will be a very relevant and integral part of our businesses at RWE. We have always been proud of our commercial platform. And it is fantastic to see the value this platform delivers in a green energy world. We are supporting the decarbonization of our industrial customers. And we are also driving cross-industry projects to accelerate the energy transition. The joint initiative with BASF is a good example. It shows how combining forces can go far beyond PPAs, right up to full partnerships and joint investments. Through our commercial platform, we offer our industrial customers tailor-made energy supply solutions. Our offers attract all industrial sectors. Our partnership with Deutsche Bahn is well-known. In the automotive industry, our customer base includes Volkswagen and Porsche. We are also involved with the fast-growing segment of data centers, telecommunication and IT. One example is the PPA with ASML while another is our PPA with Facebook in the U.S. We also see increasing demand from the drinks industry, paper industry and classical chemicals and steel industries as demonstrated by our PPA with INEOS. Based on our commercial know-how, we maximize the value of our portfolio with an active hedging approach. And we also offer portfolio management services to third parties. And finally, we have already started to explore future imports of green energy with partners in Australia, Malaysia, Ukraine, Slovakia and various other countries. Let me recap of where we stand. 5 years ago, our generation portfolio and earnings were dominated by coal and nuclear. We know that many of you would like to hear more about the future of our coal operations. But please understand that I cannot comment further at this point in time. RWE has changed significantly. And we will continue to change at a rapid pace. By 2023, nuclear will be shut down and coal is no longer relevant from an earnings perspective. And we are leading the way into the green energy world. We are becoming a powerful green energy company with 50 gigawatts of core net capacity and with an EBITDA of EUR 5 billion. We care about the environment and our society. Our transformation is forging ahead at maximum speed. And now please join me in welcoming Michael onstage, who will take you through the financials.

We are accelerating our green growth and are continuing to create value for our shareholders. These are my personal priorities as a CFO. I will target attractive returns in future investments. I will ensure access to capital. I will guarantee strict risk management. And I will focus on creating shareholder value. That's what I commit to. And that's what you can measure us by. Let's take a look at how we delivered on our promises from our last Capital Market Day. All our investments are in the range we guided at the CMD, some even exceed the bandwidth. We are well on track to deliver our target of more than 30 gigawatts of wind, solar and battery capacities by year-end 2022. And in terms of earnings, we exceeded our 2020 guidance, we confirmed our '21 guidance and we raised our outlook for 2022. As you can clearly see, we deliver on our promises. But we don't stop here. Investment discipline will stay a key driver to ensure value creation. This includes the following. We base all our investment decisions on a strict hurdle rate approach. On average, we expect our investments to deliver an IRR of 6% and to exceed the base WACC by 100 to 300 basis points. Compared to last year, our base WACC has reduced, driven by lower risk-free rates and credit spreads. All our projects are also evaluated on payback profiles and sensitivity analysis. And finally, after 2 years, we conduct post-completion reviews to verify investment decisions and to ensure that we take onboard lessons learned for future projects. Investments in flexible generation offer attractive returns. Roger Miesen, CEO of RWE Generation, will share his view on what is needed to grow and operate our flexible generation portfolio on our way to net zero.

Thanks, Michael. New green flexible generation is vital to the success of the energy transition. Particularly in Germany, large-scale flexible generation is required to complement intermittent wind and solar generation and to replace nuclear and coal-fired power generation. Necessary newbuilds will run on natural gas for some time before switching to carbon-free hydrogen or carbon capture and storage in the near future. We see flexible generation as an attractive investment as long as the criteria are met. Plants must be long-term carbon-free. Thus, new assets should be hydrogen-ready, which is the most likely option for Germany or ready for techniques such as carbon capture and storage. In addition, we need a clear road map for fully decarbonizing the assets. And capacity remuneration must be in place as this will be needed to operate the assets profitably and meet our investment criteria. For Germany, we analyzed which sites are suitable for this. Suitable sites are those that have good electricity and gas grid connections, have favorable licensing conditions and are close to a gas grid that is likely to be switched to hydrogen over the coming decade. In total, we have enough sites available to cover our ambition. Examples of those sites are Gersteinwerk, [ Voerde ] and Weisweiler. On top of flexible generation, we will increasingly also need backup capacity with only a few running hours. Here, capacity remuneration must also be in place and the pathway to reach carbon neutrality will need to be clear. In addition to newbuilds of flexible generation, we are exploring solutions for decarbonizing our existing fleet. Hydrogen is an option and will be used wherever possible. There's a strong commitment from us and other industrial players to utilize this technology. CCS is another option, which could play a major role in decarbonization. We are looking into this option in the U.K. and the Netherlands. And for the Netherlands and the U.K., also BECS is an option which would deliver negative emissions. For each of our existing sites, we are analyzing the most likely pathway towards climate neutrality. And we will start pilots for those sites where we think early implementation could be an option. For Pembroke, we are developing CCS and hydrogen options; for Moerdijk, CCS, for Lingen, hydrogen; and for Eemshaven, BECS. To develop these options, we are working closely together with various high-profile industry partners. So that's why we're very confident that we will be able to achieve our net zero target. And with this, back to Michael.

Let's now take a look at our investment program until 2030. We plan to invest EUR 50 billion gross. The majority of our gross investments will be spent in the wind and solar business, equally split between offshore wind and onshore wind and solar. Roughly 10% will be invested in flexible generation and hydrogen. We will actively manage asset rotation and portfolio optimization. Following asset rotation of EUR 20 billion, we will invest EUR 30 billion net into our green growth. We expect EUR 21 billion of this to be spent by the end of 2027. In other words, we are investing on average EUR 3 billion net into our green growth annually. How does this show up in earnings? The adjusted EBITDA development of the company is strong and green. The core business will generate a 9% CAGR between 2021 and 2030. This takes us to our ambition of EUR 5 billion adjusted EBITDA by 2030. From 2023 onwards, more than 95% of our earnings will be generated in the core business. To put this in concrete terms, we expect the adjusted EBITDA for 2023 between EUR 2.9 billion and EUR 3.3 billion. Further looking ahead to 2027. We assume earnings will be in the range of EUR 3.8 billion to EUR 4.2 billion. Let me emphasize, for 2023, our guidance reflects current market prices. For 2027, we assume a normalized price level and apply our company view on power prices. In our earnings guidance, book gains from divestments and asset rotations are not factored in. The EBITDA trend translates into strong bottom line growth. While in 2021, a large part of our adjusted net income stems from legacy coal and nuclear business, this is replaced by the strong growth in our core business by 2027. Taking a pro forma adjusted net income of our core business as a starting point in 2021, we see an average increase of adjusted net income of 10% annually. For 2023, we expect an adjusted net income of EUR 0.7 billion to EUR 1.1 billion. In line with the EBITDA growth, we will grow our adjusted net income to a range of EUR 1 billion to EUR 1.4 billion by 2027. An important point to note is that our wind and solar assets provide for high level of income stability. 70% of the wind and solar gross margins come from either regulated or secured revenues, for example, CfDs, certificates or tax credits. The average remaining support tenure is 12 years. In the wind and solar business, all earnings are green and sustainable. But it's worth noting that 2/3 of our gross margin from the flexible generation business are already CO2-free or low carbon. They come from hydro and biomass activities as well as capacity payments and auxiliary services. For new projects, we select the best route to market depending on the local remuneration scheme, current market conditions and our fundamental market view. In the future, green hydrogen PPAs will provide an additional route to market for our wind and solar assets. All merchant exposures are added to our portfolio and hedged from a portfolio perspective. Renewable and flexible generation assets complement each other. Managing them in an integrated way creates additional portfolio value. Long-term hedges reduce power price risk. We typically hedge 50% of our open position 18 months ahead of delivery. The closer we get to delivery, the more we focus on short-term position management. Based on weather and availability forecast, we optimize our fleet on a day-to-day basis. Following the unprecedented weather event in Texas, we have reviewed all our commercial processes and hedging strategies and have optimized them. Our green investment program is fully funded with a strong EUR 32 billion cash flow from our operating assets, with EUR 20 billion from asset rotation and divestments and with EUR 11 billion of additional net financial debt that will fully utilize our financial headroom. Please keep in mind that other net debt items, such as leasing and [ winds ] decommissioning provisions, impact our financial headroom. Temporary financing effects, such as variation margins or CO2 provisions, must also be considered. Significant parts of our investments will be spent in North America. Up next, we have Silvia, CEO, Onshore & PV at RWE Renewables. Silvia will give us a flavor of our plans in the U.S.

A warm welcome from Austin, Texas. Indeed, we are very excited to be scaling up our solar business as it's something we are really passionate about. In North America, we have been in the renewables business for nearly 15 years now. We have many years of experience and a very talented and skilled development team that is active in more than 20 states and provinces in the U.S. and Canada. Right now, we own 4.1 gigawatts and operate an asset portfolio of 5.4 gigawatts, including those assets which we have partly divested. As we speak, we have almost 2 gigawatts of solar, onshore wind and storage projects under construction here in the U.S. And all of these projects will be commissioned by 2022. In the U.S., renewables are expected to grow significantly over the next decade due to strong policy signals on the federal level and in various individual states. While we will continue with our activities in onshore wind, our main focus for the next few years will be on solar. There is large untapped potential with favorable variation and plenty of land. Our teams are already working hard to deliver this strategy. Over the past few months, they have done a tremendous job and have significantly grown the development pipeline, almost doubling its size since the last CMD and all that organically. Over the next few years, we want to grow, on average, a good 1-gigawatt growth per year in onshore wind and solar. This growth will be complemented by adding battery capacity from co-located projects. This would add another 0.3 gigawatts growth and 0.2 gigawatt net. Adding battery capacity to solar allows us to shift solar generation to evening hours and boost efficiencies. One of the most recent projects, which demonstrates nicely what I have described, is our Big Star project, a 200-megawatt solar facility, coupled with an 80-megawatt/120-megawatt hour battery storage system located near Austin, Texas. Constellation, a leading energy supplier, will purchase power and renewable energy certificates equal to 140 megawatts of capacity from our Big Star and supply the green energy to its major commercial partners. The facility is currently under construction and is expected to enter commercial operation in the second quarter of 2022. That was an example from Texas, but our reach goes far beyond this state. We generally target markets where we can be active with more than one technology to maximize synergies. Furthermore, we want to create a geographically well-balanced portfolio so that we diversify locally, but at the same time, stay focused on a handful of selected states in markets which offer attractive conditions. To sum up, we are continuing to expand our footprint in the U.S. We have a well-experienced and highly talented team and a strong development pipeline, which all means that we are well placed to reach our growth target of 1.3 gigawatt gross per year. And with this, back to Essen.

Asset rotation and divestments allow for portfolio optimization and create additional value. We run portfolio optimization to achieve a balanced portfolio and to mitigate country- and technology-specific risks. A good example is our transaction of wind farms in Texas, where we sold a majority stake at the beginning of the year. Of course, divestments also realize additional value from the portfolio as we did with a farm-down at our Humber offshore wind farm. Partnering in large-scale projects also provides us financial flexibility. We aim to operate these assets and keep a majority stake. One successful example is our Triton Knoll offshore wind farm. In addition, we leverage our partners' expertise. Good examples are our offshore partnerships with National Grid in the U.S. as well as Equinor and Hydro in Norway. Finally, some divestments are carried out to meet regulatory requirements. For example, when we sell the grid connection of our U.K. offshore wind farms. As a plant developer, we have to invest in the grid connection at first and then sell it to the grid operator at a later stage. The disposal amounts are quite predictable and stable. Let's now turn to the balance sheet management. We are committed to a strong capital structure and an investment-grade rating. We continue to see a net debt with a leverage factor as a leading KPI. As of today, our target is not to exceed a level of 3x core adjusted EBITDA. This is fully in line with our strong investment-grade rating of Baa2 and BBB. We received an uplift at the beginning of this year on the basis of our strategy and strong business performance. With the strengthening of our business mix, we expect to extend the leverage factor to a ratio of to 3.5x net debt to adjusted EBITDA over time. This is already factored into our investment program. Green bonds will be our preferred financing tool. In May, we successfully issued our first green bond to fund wind and solar projects. It was multiple times oversubscribed. And we have achieved a highly attractive rate. Our sustainable financing activities go above and beyond. We linked our syndicated credit facility to sustainability criteria earlier this year. This was the first unilateral agreement of this kind in the market. We've updated our dividend policy. In the long term, we target a payout ratio of 50% to 60% based on adjusted net income. In the coming years, adjusted net income will decrease due to declining legacy coal and nuclear business. However, we will keep the dividend stable at the current level of EUR 0.90 per share. Over time, this decline in earnings will be fully overcompensated by the strong growth in our core business. This will lead to steady growing dividends once again. And just one general remark before we move on. When determining the dividend, we will look through potential earning volatility in our trading business and those coming from weather effects. In a nutshell, we are set to grow the business. We are investing EUR 30 billion net into green growth with more than 90% of CapEx eligible under EU taxonomy. We will grow adjusted EBITDA in the core business by an average of 9% annually. Our growth is backed by a solid and strong investment-grade rating. We believe that over time, we can extend the leverage factor to up to 3.5x net debt to adjusted EBITDA. For the foreseeable future, we will keep our dividend stable at EUR 0.90 per share and aim for a long-term payout ratio of 50% to 60%. As you can clearly see, we are accelerating our green growth and are continuing to create value for our shareholders.

Growing Green gives you all the arguments to invest in RWE. We have the driving force in the energy transition, and we are leading the way to a green energy world. We are doing our job in decarbonizing. Our path leads to net zero in 2040. But Growing Green is not just about RWE. We are the trusted partner for our industrial customers. And our energy solutions support the decarbonization of many other industries. For our employees, we are a very attractive employer. At RWE, we invest and grow in innovative technologies in an international environment. For those affected by the energy transition, we find socially responsible solutions because we care. And for our shareholders, we are creating value by delivering profitable and green growth. Our energy for a sustainable life.

Thanks, Markus. Thank you, Michael. Ladies and gentlemen, we'll now continue with the Q&A session. [Operator Instructions] The first question comes from Alberto Gandolfi from Goldman Sachs.

Thanks for the presentation, congratulations on putting it all together. It sounds like a lot of work. So I guess, we stick to two rule -- two-question rule. I have some sub-questions, but please bear with me. The first one is to understand a bit more your growth target in the nearer term. Could you please tell us what percentage of your targets are underpinned by capacity that is either already under construction or ready to go? And can you tell us for the next couple of years, '22 and '23, how are you treating any potential bottlenecks in the supply chain? So what have you assumed? Have you assumed any delays versus what could be the potential otherwise? Can you tell us maybe a bit the ramp-up in capacity? The second question is more structural. I think your Slide 30, if I'm not mistaken, is the most granular I have come across in terms of returns. This have found very helpful for people that believe renewables don't generate any value. You are clearly showing that you are, you have been. I was wondering, going forward though, the 100 to 300 basis points IRR of WACC, would you be able to tell us what you think that translates in the nearer and medium term on an EBITDA over CapEx basis? And perhaps can you tell us what type of EV to invested capital you'll be expecting on the farm-down? Just trying to ascertain a bit the value you can create. And if you can't answer any of those, I would like to hear, of the 100 to 300 bps, where do you think you're going to be on all of these capacity already secured or under development?

Alberto, and let me take the first question. I mean, you know that our offshore growth is clearly visible. I mean, we have shown until '27 which projects we expect. And on the remaining piece, on onshore, wind and solar, we are not depending on auctions, right? I mean, we know our development pipeline. It's a very wise question to ask. What have we assumed in bottlenecks? Because we see certain bottlenecks, especially on the solar side, so we have been, as you know us, we have put in some contingencies. But from an earnings perspective, it will not be relevant whether a wind farm or a solar park is commissioned 6 months earlier or later. That will not change the guidance significantly. On '23 and -- 2022 and '23, the bottlenecks we see, I think, from a current standpoint, they are manageable. So what we expect is factored in. I don't see a huge downside there. Potentially, if it all resolves over time and we see the big push that everybody now wants to build renewables and wants to invest -- wants us to invest more, that there is potentially a bit more upside. Before Michael answers the question on returns and potential farm-down gains, let me make clear and reiterate that as we have done in the past, we have been conservative. So the entire earnings guidance is without farm-down gain. So they would definitely come on top of it. But we don't want to put ourselves under pressure in certain years to meet guidance. So whenever there is something, and probably that's more from the beginning of the mid-'20s, then we will let you know.

Yes. Alberto, from my side, so around the range, how does that translate into the ratio of EBITDA to CapEx? So you could assume something like 9%. That is what is underlying. The planning, obviously as what you see also in the ranges, it varies by technology and also by the offtake. But on average, I think 9% is a fair number to assume. Talking about -- I mean, I told you in my speech that the average return we expect is around 6%, so slightly lower than previous. So the investment decisions we have taken lately already apply those slightly lower hurdle rates. So that's something you should assume here. And with respect to farm-downs, I think Markus already said, they are not incorporated into the numbers.

Thank you, Michael. Thank you, Markus. Alberto, does that answer your questions?

Yes, it does.

Next question has been posted over the web form from Andrew Moulder from CreditSights. How efficient is it to use hydrogen for power generation? What would be the plant efficiency? And how low would the hydrogen costs have to be to make this economic? Markus, a question to you.

Yes, Andrew, I mean, let me maybe comment first on your question because your question assumes that hydrogen would need to compete against natural gas or other fossil fuels. I think the big question is how fast is the push that also the power sector needs to fully decarbonize? And I think certain countries like the U.K. have clearly said that from '35 onwards, the power sector needs to, in order to achieve the overall target, needs to be decarbonized. So I think we need to bring down cost anyhow. But the question is not so much to compete with others because there is no alternative. So it's more the question for us, what are the alternative technologies? Of course, that can be green hydrogen, can also be blue hydrogen. But in some countries, maybe CCS is, in the beginning, the cheaper technology. And it is allowed from a regulatory point of view. So I think guess -- second guessing what are the relative costs, I mean, in the current environment with the high gas prices, even green hydrogen would be competitive in some places. So that it's more what is the drive behind decarbonizing the gas part of the power sector. And that something like gas plants will be needed in the long run is not disputed. I mean, maybe only in countries where you go more or less 100% nuclear for backup, you don't need something like gas plants, where then green gas will be producing power.

Thank you, Markus. Next question comes from Deepa Venkateswaran from Bernstein.

So I had a couple of questions. So firstly, on the asset rotation, just wanted to check that the EUR 20 billion, does that include farm-down gains and OFTO proceeds? So more of a clarification. And if it does, then maybe can you give a sense of what is the overall farm-down you've painted for the next 5 years? Then secondly, on this question of gas investments, just wanted to check, what are you assuming in terms of regulatory support? Are you assuming a new capacity market design in Germany, like U.K.? And secondly, would it be a problem if this was not classified as green under the EU taxonomy? And lastly, just on the hurdle rates, the 6%, would you say the reduction from the 6.5% is mainly driven by your reduction of the underlying WACC? And can you comment on how the spreads have moved on a weighted average basis?

Yes. So Deepa, thanks for the question. Let me start with the asset rotation. Yes. So OFTO divestments are included in the EUR 20 billion. And as Markus said, we don't -- we haven't considered farm-down gains in the numbers, so they are also not considered here.

Yes. On the gas investment requirements, I mean, we have made clear in the presentation, it needs two requirements. One is a clear path to carbon-free operations. So let's make it very practical, investing in a site where you build a gas plant now maybe in order to facilitate an earlier coal closure, we will only do that if we have clarity at what point in time we're going to get a hydrogen pipeline in Germany there. So that's why it's very important to get the hydrogen backbone, the grid plan very early from the next government. That is one part. Then on the capacity market or capacity remuneration, it can have -- I mean, it can look differently. You can have an investment support in the beginning. Like you probably know in Germany, we have, for some conversions of hard coal plant, a bonus when you convert it into gas. I mean that is an upfront investment support or it can be a capacity marker where you ensure decent profitability. How it exactly looks like, I cannot tell you today. But what I can tell you, we will not invest only in wholesale market returns. I mean it needs to be an ensured return also for the capacity element of that. On the taxonomy side, I mean, you know the heated debate in Europe about nuclear and gas. Let's see where that goes. I think the hurdle to invest in gas, if that is not green under the EU technology, for us is significantly higher. Would we rule it out? It depends what it probably means also on the other parts of the business on the coal side. If that would be a facilitator, maybe the picture is different. So let's decide when we are there.

Yes. And Deepa, I'll take the final question around the 6%. Yes, you're right in your thoughts. So the decline is primarily driven by lower risk-free rates and also the credit spread that has come down. And that obviously brings down the WACC. And if we continue to apply the 100 to 300 basis points on top of the WACC, that's then the explanation for your question. Thank you, Deepa.

Another hydrogen question to you, Markus, from Roland Vetter from Praxis Partners. "At what load factor capacity utilization do you plan to run hydrogen electrolyzers," I expect that means "given that electricity from renewables will not be baseload but quite volatile?"

Yes, Roland, thanks for the question. And I'm glad that you asked a lot of questions about, I mean, the long-term prospects of our business, the hydrogen part, which I think is a tremendous opportunity. Look, I mean, we want to produce green hydrogen. And in order to be green hydrogen has to meet the standards of green hydrogen. They are not finally set. We have currently a discussion on the European level how will green hydrogen definition be depending on additionality of renewables but also, I mean, time synchronization of production. Here in Germany, we have in the beginning now a certain -- different, more relaxed approach how to define green hydrogen. Let's see what the final outcome is and then I can tell you what exactly the load factor is. But I can also tell you what I think is not an unreasonable approach. A not unreasonable approach is to say, look, we have the European ETS system. So if you take the power from the grid, carbon emissions cannot go up, but you decarbonize other sectors which are currently not under the EU ETS, which do not have a cap. So -- but of course, that is not the solution because you need more renewables. But then, when you overall, in a country, increase your renewable target, what -- of you -- what you're planning to build in electrolyzers, that could make sense. But that would make green hydrogen also much cheaper because the stricter the rules are in terms of location and time synchronization, the more expensive the green hydrogen will become and the more support you need to use it in certain industries where they currently have to compete with gray hydrogen. So, I mean, in the end, the political definition will determine what are the load factors. But our position is clearly, it should definitely not be too strict, and the target is to reduce carbon emissions and not to have a, let's say, an ideological debate of what is green and what is not green.

Thank you, Markus. Next question comes from John Musk from RBC.

Two questions from me. Firstly, on M&A. Really, there's nothing in the slides here that mentions that you might still be looking to add new capacity via M&A within your plan. So is that something that you don't need or you're ruling out at this stage? And then secondly, on the flexible generation points and CCS, are you just going to be looking at the upstream part of that and just adding CCS to your assets potentially? Or would you look further along the value chain there into networks, et cetera?

Yes. Thanks, John, for the question. Let me start with the significant easier one, the second one. I mean we are not planning to invest into CCS infrastructure. So it's really only the technology at a site, potentially not in Germany. It depends on political acceptance. But the U.K. is clearly stating that they want to go that route. But then we have partners who could take the carbon from us and store it. I mean you have seen that we have announced the recent big cooperation with Shell, for example, which also will look into that. But from our side, no plans to invest in CCS infrastructure other than the technology on site. On M&A, I mean, that's not a surprise. I mean I can tell you that our plans will work even without M&A activity. So we think our origination pipeline and our teams are excellent to deliver on that growth. But of course, we don't rule out smaller M&A here and there, I mean, definitely on project level but also maybe to do some portfolio rotations here and there. And, I mean, I've said it before that if we do something, it's more likely to be on the solar side to balance the portfolio a bit more.

Thank you, John. Next question comes from Olly Jeffery from Deutsche Bank.

Can you hear me okay?

Yes, we can.

Yes.

Super. So two questions, please. The first one is, can you please outline your power price assumptions and mainly in Germany and U.K. in '27 and 2030 particularly the U.K.? And then secondly, just to go back to the book gain assumption. So obviously, no book gains in the guidance. But that is conservative. The question I have, though, is that, are you expecting [indiscernible] to have book gains, potentially material book gains, as you rotate the asset? Or you're just not including that within the guidance because you're being conservative? Or is your expectation to have very minimal capital gains?

Yes, Olly, let me take the first question on the power price assumptions. I mean as you know, we won't reveal any price curves here in these calls. But I think it's important to note, I mean, you have seen that we have increased our guidance for 2022. And also, our '23 guidance reflects the higher commodity price levels that we're currently seeing in the markets and the forwards. So that's reflected. But if you look at the '27 numbers, they assume a normalized level again, and they are based on our internal models with which we forecast all the commodity prices. And the second one, on the book gains, as you said, we have chosen a conservative approach. So in our earnings guidance, no book gains are assumed. But at the same time, I mentioned what are kind of the benefits of asset rotation, and one of them clearly is that we crystallize value out of portfolio optimization and asset rotation. So we do see benefits from optimization and also foresee potential book gains here. But as Markus said, I mean, we want to have clearly the opportunity to decide on the right timing, and we don't want to be forced by some guidance to have to sell down. But if there are good opportunities, and I mentioned the example of the Humber offshore wind park, where we chose the right timing and also realize very attractive book gains on that asset.

And maybe let me add one thing. And here, what Michael described is consistent with the proceed assumptions. So on the farm-down assumptions. They are the same conservative assumptions. So of course, you can assume that we don't invest capital, which is value destroying. So the cost of capital are always earned also on the farm-down part, but no significant gains beyond that also in the proceeds. Nothing is in the proceeds. So if something like, I mean, the Humber would happen again, then, of course, it's a clear upside on both ends, earnings as well as farm-down proceeds, yes.

Thank you, Olly. Next question from Ingo Becker from Kepler Cheuvreux to Markus and Michael. "You're now head-to-head with the biggest CapEx plans of the biggest oil and utilities investors. How has the balance between rising competition and rising market growth developed this year? What did it do to expected returns?"

Maybe I take the first one and then you, Michael, talk about expected returns because you are safeguarding our investment plan when it comes to returns. Look, Ingo, I mean, that was one of the most intensive debates we had. How good is our growth platform? How much can we really deliver from the platform we have, I mean from the offshore development pipeline, including participating in numerous auctions but then also from onshore and solar? So what I think you can see is that in onshore wind and solar, the competition is still not there because you need the -- this long-lasting origination activities. You cannot simply go -- come to the table and participate somewhere. Sometimes it takes 7 years and more. Of course, in M&A transaction also on onshore development pipelines, I mean, you have seen tremendous prices. I mean let's not talk about detailed transaction, but some prices we have seen there is something where we struggle to see value creation. But on the projects which are stemming from our own pipeline and we are -- we have constantly ramped up our origination activities, we are very happy with the returns. And the discussion led to, I mean, what we have now seen in terms of gross build-out targets and then assumption on farm downs. So I think our origination platform is very good to deliver these targets. Offshore is a bit different. I mean offshore, talking about auctions but also talking about tenders, it is very competitive. I think a year ago, I said let's wait for U.K. round 4 because I think that will be a decisive moment in time. And I think it has been also in terms of pricing but also how different players have played it. We are still very happy with what we got out of it. And now let's see. I mean we have an upcoming series of auctions where we expect the results and also the first one in Japan, the one in Denmark and others to come. I think let's see how others are bidding into that. So far, I would say it's too early. But here again, I mean, we have positioned ourselves a bit more on the conservative side because if you look at the depth of our pipeline until '27, our promised earnings are already more or less secured by the projects we have and where we have clear awards and clear visibility of the earnings profile of these investments until '27. And beyond '27, we want to add 1 gigawatt per year to our pipeline. I think, I mean, if you look at the pipeline there and also the auctions to come and assume a decent success rate also for us even only keeping our current market share, I think that's -- even that is very on the conservative side.

Yes, I can just reconfirm. I mean yes, it's true that there has been some more pressure on some projects. But if I look at the latest investment decisions, they were very much in line with our expectations as we confirmed. So therefore, going forward, we believe that we can reach the returns that we have laid out here. And I think the other thing you have to bear in mind, we are in a growing market. So even there, if there's more competition in that market, if the market is growing, there's also more opportunities. And I think that balance out and also justifies the ambitions we have laid down in our CMD today.

Thank you both. Next question comes from Wanda Serwinowska from Crédit Suisse. Wanda, we cannot yet hear you. Maybe we take another question first and then come back to you, Wanda, in the next round. We have a question from Jan Bauer from Warburg Research to Michael. "Yesterday, Annalena Baerbock from the Green Party said that they will fasten up the coal exit in Germany if they become part of the government. How has RWE prepared for that development? And is it an opportunity to exit the coal business earlier than currently planned?" Maybe that's rather to you, Markus.

Thanks, Jan, for the one question. I mean I said in my presentation that at this point in time, I cannot -- I do not want to comment more on that. But, I mean, let me take the opportunity to give you the thinking behind it. I mean look, the coal exit in Germany is a very, let's say, complex topic because it not only has a question of can we green our portfolio faster. The real questions are -- behind it are the social consequences for the workers, the political consequences for the affected regions, but especially, and we should not underestimate it, I think you see it in the current very tight market situation already and power prices in Germany constantly reaching levels of EUR 300 for some hours. We need -- before we can go faster on the coal side, we need to replace the firm capacity, so nuclear and coal. Otherwise, security of supply is not ensured. Nobody will be allowed to shut down the plants. And the third -- and the fourth one is renewable build-out because when we produce, we, of course, want to produce green preferably. So -- and if you put all the 4 things together, you already see that, that is something you cannot discuss here or we cannot lay out our plans. That needs to be discussed. We need to in a very coordinated manner. We are prepared to do that. We have sent clear messages. We are constructive there. But please understand that I cannot comment on that. And we will let you know the moment there is progress which can be communicated. But I think we have done the same in the past, and you can trust us that we are approaching it very reasonably, also including all the aspects I just mentioned.

Thank you, Markus. Next question comes from Peter Bisztyga from Bank of America.

So I'm hoping I can squeeze in 3. So firstly, on hydrogen, what's the typical lead time between FID and when you're operational for hydrogen projects? And also, what are your assumptions about how those projects are going to be remunerated in the future? The second one is, I'm a little surprised that you don't see rising profitability in your Hydro/Biomass/Gas business in 2023 based on where current sort of forward power prices are. So I was wondering if you could elaborate on that. And also, sort of addendum to that, how much of the increase in that business in EBITDA 2027 versus 2023 is higher spreads and how much is new capacity? And then lastly, Slide 30 showing your sort of pinpoint IRRs, they seem to be sort of trending upwards in that chart. Is that just a sort of coincidence? Or can we sort of pull out some sort of underlying trend from that?

Peter, thanks for the question. Now for the 3 questions, I take the first one and then Michael will answer the other 2 in 1 maybe. On a typical hydrogen project, I mean, FID is not a specified, I mean, date. But I would say when you have decided or signed the contracts that you want to do something and you want to invest, it has a lead time of around 24 months before it becomes operational. On the remuneration, it has certain elements. I mean you know that we have been successful with [ IPSA ] funding, where we expect the results mid of next year. But we have also national funding pools. So part of these investments will be supported. But then, for some areas of green hydrogen, because it is under the European renewable energy directive, for example in refinery, it's mandatory to use it. So for part of the green hydrogen, there is even a high willingness to take it at more or less any price. So -- and that's why we form these consortia, where you, in the end, need to find solutions with contracts that everybody can live with it. It's not yet in a state where it's a liquid commodity like gas. So it's really something which is tailor-made in certain solutions. I think it will take at least 5 years before we see the first significant backbone where maybe different players are feeding hydrogen into the same network. So far, it's all bespoke contract, but we only enter it in -- I mean, when you see -- and Michael has been transparent on the returns we expect also for that business, which are more like the one in flexible generation. Otherwise, we're not willing to invest.

Yes. So Peter, I come back to the Hydro/Biomass/Gas question. I mean as you know, the Hydro/Biomass/Gas business, obviously, is also very dependent on the scarcity in the markets. And so as we're also aware on the other numbers, we are rather on the conservative side. I mean this year, we are seeing low wind generation, therefore also more scarcity and, therefore, the Hydro/Biomass/Gas business profiting from that. And that will probably also be a topic going forward into '22 and '23. But the question is, to which degree is that. So therefore, we have incorporated that, as I said, with higher spreads, but we need to observe how markets really develop in the end. Next one is around 2027. As I said, we have included normalized levels here again. But if you, for example, look at the U.K. capacity auctions that came out lately, there has been an increase in the capacity results, and that is also incorporated because we assume those levels to be rather at those higher levels going forward. And finally, on the trend, obviously that's what a CFO would hope for. But, I mean, you know that the structure of the IRR obviously also depends very much on the type of projects. So if these are merchant projects or regulated projects and in which geographies they are, and so the spread is rather dominated by the different characteristics of the projects than a trend. But let's see. Maybe we see a trend if we meet together in 2 years' time.

Thank you, Peter. Next question comes from Rob Pulleyn from Morgan Stanley.

Okay. And may I add my congratulations on the strategic vision. And now for the questions. Just picking up on the last thread, could we just clarify exactly what normalized power prices are in the plan for 2027/2030? Maybe that's easiest in terms of German baseload. But obviously, the last 12 months have, I think, changed people's perspective of what exactly normal is. The second one is sort of a big-picture question across the duration of your guidance. And that is, notwithstanding the current inflationary pressures, how do you see the capital intensity for renewables capacity evolving over the decade? I.e., will the deflation of the last decade continue? Will the inflation that we're currently seeing be persistent? And I suppose most importantly, what's assumed in your guidance for these ambitious numbers out over the decade. And thirdly or part 2b, if I will, just on supply chain. Last week, Michael, you mentioned on particular Sofia, which is a flagship project but not all of the costs were locked in. I was just wondering if you could give a little bit more color as to which large items are secured like turbines and steel and which perhaps are not? And just help us understand sort of the risk as it pertains to some of these offshore projects which are long duration.

Yes. Thanks, Rob. So normalized power prices, I mean, this is now a very -- let's say, a complex topic because when we jump into '27, you need to have assumptions on renewable build-out. And even if you have very tight situation when renewables are not producing, you're not gaining on the renewables side because we have lower capture rates of renewables and running hours of the conventional fleet is -- are coming down. So let me answer it broadly because telling you an assumption of German baseload power, first of all we are not willing to give that. I also think it will not tell you anything. So what we mean by normalized power price was the power price level and assumptions we had before we have seen the recent tightness and spikes in the market. So during those times where nobody of you would have asked us about our power price assumption. So that is from 2025 onwards, 4 or 5 onwards. So what you see '27 and 2030. That is what we mean by normalized. And it's really too complicated to go into all the details what are the driving forces. If you ask me what are the 2 elements which would significant -- where we would -- significant gain in the earnings is if renewable build-out is not going faster, especially in Continental Europe, and we see the delays. I mean, for example, the German government has big aspirations to speed it all up. If that is delayed, that will definitely create tightnesses, but that's also a downside for us because we cannot fulfill our investment plans. And the other element is gas prices. I mean where are gas prices long term? And here also, we have assumed a normalization of the situation. Now the other question on capital expenditure, on inflation. I think the crucial element here is what do you assume in terms of adaptation cycle. So what do I mean with that? First of all, the adaptation cycle, if we see higher CapEx and we expect our investment returns to be real, to be unchanged, we need higher remuneration be it through CfDs or be it through PPAs or in the merchant markets. So in the long run, we should find the same equilibrium with the same spreads over WACC. Of course, when you are committed to build a project, especially during an auction, and then you'll see inflation of CapEx, that is a problem. But in the long run, I would not assume that we see the depressed returns in our industry from inflationary aspects. And the last element is if now under the Biden Plan but also under the Fit for 55 and all other big plans we see we expect a significant ramp-up of renewable targets and renewable build-out, of course there are supply chain issues on both -- on wind and solar side. And it has maybe a 3- to 5-year adaptation time to ramp up production capacity and also on the mining side for the raw materials. And I think the best risk mitigation you can have is be careful on which projects you want to do, do it very concentrated in markets which you understand, and also have a good relationship to the supplier and be a relevant player to them. And then -- you want...

Yes, maybe I add a few words on Sofia or maybe one comment to add to Markus. I mean what you also have, obviously, to incorporate, inflation, obviously, is one element of CapEx. But at the same time, scale and then technology -- of our technology will improve. So in the end, you have to look at the levelized cost of energy. And so there are also counter effects against increasing CapEx prices. Now around Sofia, I mean, as I mentioned in the half year call, I don't go into details what is exactly already hedged and what is already contracted or whatnot. But I think the important message here is to say that obviously, we have project contingencies. And in the moment, we are very confident with our contingency, that they also need latest developments. And at the same time, you have to bear in mind it's always a negotiation process. So if we haven't hedged or contracted all the components yet fully, there's also, obviously, then still discussions with the suppliers ongoing, and that also brings some arguments to our side. So therefore, as I said, it's all in the range in the contingency, and, therefore, we are also confident to meet the IRR we have laid out internally for Sofia.

Thank you, Rob. Next question comes from Manuel Palomo from Exane.

I've got -- so 2 questions. First one is on the onshore NPV. I see in your presentation that you're planning to add 16 gigawatts in the period '22 to '27 from the 7 gigawatts that you have in 2020. It's sort of about 1.5 gigawatt per year. And I wonder whether you could please share how many of the 9 gigawatts that you want to develop and installed in the period '22/'27 are already secured. I mean how many of those gigawatts already have a PPA back in the potential investment? And also, for the full pack of gigawatts to be added, what's your view about how many megawatts will be under -- will be backed by auctions, how many megawatts will be backed by corporate PPAs? And I have a second question, which is on the financing. If I recall well in last week's results call, you admitted that current market volatility was forcing to increase the amount of warranties associated to the trading business. Today, you're increasing renewables installation targets and, at the same time, assuming wholesale price being normalized over the period. So how would you finance the growth in renewables where the warranties become even more demanding for more asset rotations? It could be more divestment. Maybe they own a stake. Or maybe any other option?

Who wants to go first? You want to go on the financing question first?

Yes, maybe I go first on the financing question. Manuel, I think what we have said is given the latest volatility in the market, there have been movements with respect to variation margins that we had to post or that we receive for our trading business. But these are just temporary effects, so that can roll out quite quickly and come back. So that's not really kind of hindering our financing. That's more a question of liquidity management. So how much liquidity do we have at hand to manage that business appropriately. And that's not of concern. The second question around financing the growth, I mean, I've shown in my presentation that in the end, the financing of the growth comes back to 3 levers. One is our adjusted operating cash flow. That is very strong. Then obviously, we have the asset rotation I talked about. And then we also have incorporated the financial headroom that we still see. And with respect to the financial headroom, we took this 3.5 net debt-to-adjusted EBITDA as a ratio and then kind of calculated what is the maximum headroom that we believe we can afford. And that leads us to the number. But as I also said, you have to be careful when calculating. And obviously, in addition to our net debt number, you also have to care for the commissioning provisions that you have to incorporate and also leasing obligations that need to be factored in. And these 3 components then in the end determine our financial headroom and growth ambitions.

And then I take the first one, Manuel. So first of all, I mean, other -- in onshore NPV, I would never talk about, I mean, kind of secured like in offshore. It's a philosophical question whether, when you have a permit, you have it already secured or not. And when you refer to the commercial part, I think we have a portfolio approach. I mean telling you X percent is backed by a PPA, if that is a PPA which is not inflation linked, I mean, I don't want to see that in my portfolio in the current environment. So that would give you an indication that we are risk free, but we are not. And so we have a portfolio approach. And in Michael's presentation, there was the pie chart how our renewable projects are backed. And you have also seen that the average duration has gone up by 1 year and the change is more or less unchanged. And we have a lot of flexibility because especially in onshore, we sell a lot from our new builds. So you can always tweak the portfolio in a way that you like the overall earnings profile of the portfolio. But it's not so much relevant on a specific asset. But for some markets like, to give you the most relevant one, Germany, Poland, France, you can always expect that you go through an auction because every auction is undersubscribed. So it is more the question how fast are you in the permitting process.

Thank you, Manuel. Then we have 2 questions from Oscar Nájar from Santander. "I see the returns are a bit lower. Is this due to an increase in cost problems in supply chain? And the second question, farm-downs. Are we considering selling less than 50% or more of each project?"

Well, I'll take the first one. So as I said, with respect to returns, the lower returns are primarily driven by lower risk-free rates and then lower credit spreads. So it has nothing to do with potential supply chain issues that are currently discussed in the market. Do you want to take the farm-downs?

Yes, farm-downs, I mean, when you look at the relations of gross and net euros, EUR 1 billion, and gigawatt, you see that we come down in gigawatts a bit less than in euros, and that's a clear indication that our farm-down assumptions on the offshore side are higher. So on average, I mean, it's not an unreasonable assumption for offshore to consider, especially on those which come from '23 -- '27 onwards, 50%. In onshore PV, it depends. I mean we also want to have the flexibility to shape the portfolio. And also, if we can deliver even more gross than we have currently promised, then you need to farm down more. When you look at the shape, I would expect that you'll see less farm-downs in the first half of the decade and more farm-downs in the second half of the decade because we still have significant headroom. And of course, we are first utilizing our own headroom. And only when we reach that ceiling, then we start farming down.

Thank you, Markus. Thank you, Michael. Next question comes from Wanda Serwinowska from Crédit Suisse. "Can you please give the EBITDA over CapEx guidance for the hydrogen flexible generation? Question #2, how are you going to balance the increased CO2 emissions from new CCGTs in Germany, if you build them, versus your carbon reduction targets? And third question, if you sell down a stake in Sofia, would you keep your 2027/2030 offshore capacity target unchanged?"

Yes, thank you, Wanda. First one is, I mean, roughly, it's -- and you have seen that the returns are a bit higher for gas than hydrogen. It's somewhere around 10% EBITDA above CapEx for the life cycle. And, I mean, when we build new CCGTs, first of all, we want to have them green because they should positively contribute to the energy transition and replace things which currently emit more and, of course, with a clear path to full decarbonization also of the new builds. And, I mean, for us, the guidance is our SBTi-approved CO2 emission reduction path. Currently, we are below 2, and we have now the ambition to get as fast as possible on a 1.5-degree pathway. And of course, everything we do here in new builds also for the interim until they finally run CO2 free needs to fit with this 1.5-degree scenario. On Sofia, I mean, when you look at the numbers, there is already a bit of farm-down of Sofia assumed when you add the numbers up for '27. So even a farm-down on Sofia would not change our '27/'30 guidance on gigawatt and earnings.

Great. Thank you, Markus. Next question comes from Piotr Dzieciolowski from Citi.

Two questions from my side, please. So the first one, I was looking at your targets for the flexible generation, and I just wanted to have your views on the fact that all the companies assume the commissioning of the Coal/Nuclear, and you also do not seem to be adding any flexible generation in Germany. So who is going to build all the backup capacity we're talking about, 30, 40 gigawatt that is needed to back up the system? If you're not building it, who is going to build it? And then can you, as a kind of a sub-point to this one, describe your pipeline? 10 gigawatt, that's a new number. And then the second question. I wanted to understand how do you think about your merchant power price exposure across your different data time points? So you -- at the Capital Market Day 2, 3 years ago, you showed that 30% of your gross margin is driven by the wholesale power prices. How is that going to change? Whether you can provide any terawatt-hours exposure, percentage of EBITDA that will be subject to power price fluctuations.

Piotr, yes, thanks for the question. I mean the first one is a very relevant one because, I mean, depending on the different studies, if at all, I mean, we can accelerate the coal exit in Germany to 2030. We need 20 to 40 gigawatt of additional firm capacity. And, I mean, we all know that, that will, until '35, not be green. So -- and that's probably gas. And the big question is exactly who's going to build that. I think that will depend on several factors. So first of all is remuneration. How is it remunerated? The second one is, is it green or not under the EU taxonomy? If it's green, it has a very rich remuneration. I mean then, of course, we would probably consider to do a bit more. But, I mean, this cannot be -- it cannot be part of a valid plan today. I mean the plan we have outlined today is, I mean, driven by what we think is under what we know about current regulation is deliverable from us. And also, on the other hand, we have our financial constraints -- not constraints, but I think we want to stay within our headroom, which is plenty, which we have. But of course, us only building 2 gigawatt is probably, compared to what is needed, not sufficient. Who would be the others? I don't know. But if we get good regulation, green, clear path to running them on hydrogen, full commitment to get the hydrogen on the sites, I mean, let's see. I mean the plan is here from what we know today. If we have better knowledge in the future, then we decide from there. The 10 gigawatt of pipeline we show is from our existing sites. So it's really not that we need to buy land or buy grid connections from the sites we have and where nearby gas supply is possible and where we assume the hydrogen backbone will come along. Our current sites are good for around 10 gigawatt, but that is not the plan under current regulation to build. We have to stick to the more conservative one of two. But if this all opens up, this, of course, now has more attractive returns. Because there's less competition, it has huge upside for us.

Yes. And I'll take then the second question on market prices or market power price exposure. I mean I think the first thing you have to do is split between the different technologies weighing. I mean when you talk about renewables, these are largely outright positions, and I think the split we have currently until '23 of 70%, I think, gives you a good split between what is merchant and what is regulated. And as Markus discussed, that obviously is something you can optimize in the portfolio not only by the project you engage with but also by the asset rotation. But I would assume that as a ballpark number going forward. The second is then Hydro/Biomass/Gas. We communicated, and I would hope that also going forward as a fair share, that about 1/3 of that is merchant exposure, 1/3 is capacity and 1/3 is ancillary services. So the later 2 ones are rather regulated one. And also, when you talk about the 30% merchant in Hydro/Biomass/Gas, you talk about spreads. So therefore, the risk is also different to the spread -- or to the risk we have in outright power. As Markus said, obviously the outright power is also largely driven by gas price assumption, which is not so dominant if you talk about the spread of hydro/biomass/gas power plants.

Thank you, Piotr. Our next question comes from Louis Boujard from ODDO.

I just would like to go a little bit further on the last question regarding the flexible generation if possible. Because indeed, when you -- we look to your development pipeline of 10 gigawatt, we feel that you might have more to come on this field by 2030 eventually. What would help you to be more aggressive on this target? Is it more a carbon price-sensitive issue? A regulatory issue? If carbon price is at, I don't know, 150 tomorrow, would you have much more flexibility to push on this target and to accelerate your flexible development? And also, still on this question, what would make you prefer carbon capture over hydrogen, for instance? My second question would be more regarding the CapEx guidance of EUR 50 billion. I appreciate that indeed, obviously, the risk will be slightly compensated in case of inflation with an increase in PPA prices. But my question would be, what is included in your EUR 50 billion guidance? Is it based on a 2% underlying inflation rate assumption or is it based on a real price or absolutely no inflation at all so that we can see, depending on the inflation evolution, where we will -- where you're going to reach and where you would be in 2030? And my last question is regarding floating offshore. You mentioned in offshore a target IRR of 5% to 9%, and I was wondering if it included or not floating offshore if, for the time being, you consider that floating offshore is still too risky to be into this bracket.

Yes, Louis, thanks for the question. I mean what would help us to do more on flexible generation? Three things: clear classification that is green under the EU taxonomy; second, clear remuneration plan for capacity, which gives you a high confidence level about the profitability of the investment; and then the third one is an agreement with the government wherever we build, Germany and Benelux or the U.K., to green that because we don't want to repeat the discussion we have today on our fossil fleet in 10 years on the new builds we do in gas potentially over the next years. And of course, I mean, how did we come to the 2 gigawatt? First of all, in the -- under the current regulation and current sentiment, of course more renewables is preferable. But we also see that the flexible part is urgently needed in order to get to a full green world and also to potentially accelerate coal phaseout. And the 2 gigawatt is maybe the equivalent of what we think is reasonable from the portfolio approach under current regulation and would help with our own coal fleet to accelerate there. Of course, if regulation is more favorable, coming to the 3 points I just mentioned, more is possible. But I think we shouldn't -- that will take some time until we get there. The preference on H2 or CCS, I mean, first of all, we want to have a full backing for whatever we do by the government but also by the people. And to be honest, I think CCS in Germany is -- will take time until people will accept it. So we currently don't plan with CCS in Germany. It's different in the Netherlands, and it's different in the U.K. So it really depends on also what is possible. If a CCS pipeline comes along your gas plant, you go for CCS. If you get a hydrogen pipeline, you take hydrogen. If you ask me as a preference, I would go straight hydrogen if that is economic and doable because I think also CCS has potential, maybe is good for a decade or 2 but not long run. And we talk about investments which probably are there for 20 years and more. And sorry, the floating one, floating is different. So what we have in the return assumptions is without floating. But floating, let's see. I think that's also very interesting to see, the first auctions now on real commercial floating and not only pilots. But we will not go with the shown IRR assumptions in there.

Yes, Louis, your last question is on the EUR 50 billion. They obviously incorporate an assumption on inflation here, and that's based on ECB rates. So just standard here.

Thank you, Louis. The next question comes from Martin Tessier from Stifel.

Two questions from me. The first one relates to your hedging strategy in renewables. So on the one hand, you said that since the cold snap in Texas, you have reviewed some contracts to basically reduce the probability of such an event to occur again. And on the other hand, you indicate on Slide 36 that around 30% of the gross margin of '21/'23 will be merchant, which is the exact same figure as the one you indicated last year in March during the CMD. So could you give us a bit more clarity on what specific action you took? Because it's a little bit difficult for me to understand and to connect the dots you have here. And second question relates to your 15% stake in E.ON because I can't see any information on this topic in the slide. Could you give us some indication on where you expect this stake to be in '25 or 2030?

Good. So yes, Martin, thanks for your question. First, on the hedging. I think what we have taken here is an approach that is very market specific. So probably on the ballpark number, yes, it will lead to probably a slightly reduced hedging rate, but more important is to look into the individual markets. And what we have -- just to give you an example, in markets like the U.K., where we also, at the same time, have renewables but also flexible generation, there are some offsetting effects in case there -- power prices go up because of less wind generation. So we benefit on the flexible generation side. So therefore, our hedge ratio is probably higher than in markets where we only have renewables generation. So therefore, what we have taken here is a very tailored approach, and we look what is the hedge ratio we are confident in the specific situation. And that may also differ during the course of the year because obviously, there are situation, and I think we communicated that already in the half year call, that, for example, in summer, we already had reduced our hedge ratios because of price peaks you see in the U.S. when air conditions go up, and we now have extended that also to the winter period. So it's a very differentiated approach. But by and large, the numbers are therefore not so significantly impacted. Around the 15% E.ON share, I mean, we always communicated that this is not a strategic investment. It's a financial investment, and we'll look at that from exactly that perspective. And if, from a portfolio perspective and from a growth perspective, it makes sense, we would sell it. But, I mean, if you look at the current development of E.ON, we are very happy for the time being with that investment.

In short term, we are very much looking forward to E.ON's CMD as well.

Thank you, Martin. The next question is from Ahmed Farman from Jefferies. "Can you please provide some details on offshore and onshore CapEx per gigawatt on a gross basis? How do they compare with your previous business plan? I would be interested to know much -- how much of the cost of projects in 2027 are locked in."

Yes. And let me start with the CapEx. I think a fair ratio of CapEx is -- and here, you also have to distinguish, obviously, between different countries. I mean take Asia. CapEx are clearly higher there than in other countries, than in the U.K., for example, because you have to also finance the off-the-grid connection that's also more expensive. So it's difficult to come up with an average number. But I think a fair ballpark number would be around EUR 2.5 million per megawatt for offshore and then around EUR 1 million for onshore. I think it gives you a fair representation of the CapEx. And the next question is how does that compare to previous business plans. I think that's about the same. It more depends kind of on the current geographies. Obviously, the more you go into Asian countries, that number could increase. And then say -- next one is then around how much of that cost is already locked in for projects. I think that goes back to the discussion we had around inflation. I mean for those projects that are under construction, that's already locked in. For those projects that are ready to go, there are still some open ones. But if you talk about '27, we haven't taken FID yet for those projects. So definitely, those CapEx are not locked in. But at the same time, since we also have not taken FID, we also have not secured any feed-in tariffs yet.

Great. Thank you, Michael. Next question comes from Vincent Ayral from JPMorgan.

It's coming really late here, so a bunch of them have been asked. I'll come back quickly on 2 topics. First, the merchant exposure and on the renewables. So if I develop there. You've been talking about normalization of your commodity assumptions. If we think about it in a very blunt term, I know looking just at the base load is not perfect, but we were -- having a [indiscernible] around 60 years before the spike doesn't make sense. In terms on -- of volume which are exposed to merchant evolution over the medium term, so if we do not account for any hedging, how much terawatt-hours of exposure do you have in renewables? I'm talking here about volumes on certificates, expired subsidies, et cetera. I would be very interested to know that. And finally, when we look -- we talked about the flexible generation. What are your views regarding the taxonomy? I suppose you have a review potentially on the nuclear and peaking CCGTs by the end of the year. Basically, do you expect gas to be deemed taxonomy compliant and is to be acceptable by the German coalition?

Yes, maybe I'll take the first question on the terawatt-hours of merchant exposure that we have. In general, we say it's about 15 terawatt-hours of merchant exposure that we have in our renewables, wind and solar, portfolio. And that is distributed roughly 6 terawatt-hours in the U.K., so in the ROC system. Then a similar volume in the U.S. And then the rest is scattered in various European markets, Germany, Italy, Poland, Nordics. So it's a bit spread out over the rest of Europe.

The question on EU taxonomy, I mean, the expectation is -- I thought 10 days ago it should be too complicated to find a German-French agreement there. And maybe we have then a reasonable approach which is not too philosophical but really serves the purpose of reducing carbon emissions. And of course, keeping nuclear in the mix but also using gas to replace coal makes sense. Of course, if we need an interim phase, so it needs to phase down over time. But, I mean, now you have seen the declaration against nuclear over the weekend. I don't know. I mean I don't -- currently, I don't have an expectation whether there is a solution or not. I think yes, it is -- you asked also about whether it's acceptable for the German government. I urge them to be pragmatic. I mean what is the task ahead of us? It's CO2 emission reduction and not a discussion about what they think is green or not green.

Does that answer your question, Vincent?

Yes, absolutely.

All right. Thank you, Vincent. The next question is from Sam Arie from UBS.

Can you hear me okay?

Yes, we can.

Yes.

Great. Excellent. As Vincent said, we're way down the order now, so we're into the little detailed questions. But I have one sort of niggly one. But I just noticed on Page 49 and 50, where you give your guidance, you seem to fold the Hydro/Biomass/Gas and the Supply & Trading into a single line of flexible generation and supply. And so I guess I just wanted to check if this presentation, also slides there, is there any change coming in terms of the assets and activities that you group together there? And then second question is sort of a bit bigger picture, I suppose, on the net debt. I suppose that's only thing in what we see today that could feel a little bit like an ask that you can run at 3.5x, which does imply quite a buildup of the net debt, I guess. So I just wondered if you can talk to us a little bit more about 3.5x and also if you can share the FFO or retained cash flow metrics that you would have to be hitting at that leverage level for the agencies. And that's all I've got.

Yes. Thanks, Sam. I mean the first one, don't read too much into it that we combined Hydro/Biomass/Gas and Supply & Trading. I mean look, when we are close to a EUR 4.5 billion, EUR 4 billion to EUR 5 billion business, to just report 1 segment with an expectation of EUR 200 million, EUR 250 million is maybe a strange segmentation. And of course, we have the evolving hydrogen economy. So there's also a big question when you talk about energy imports where do you book the profits? Is it actually with the asset or is it with the commercial function? I mean -- and to take assumptions now there, it was easier for us to combine it. But there is no change short term to come up or there's nothing we decided or discussed. So it's just a presentation issue that we said, I mean, given the size of the profits, it's good enough to guide these together.

Yes. And then, Sam, your question on net debt and our leverage ratio, I mean, let me first start. We have a clear commitment to stick to our current rating, which we want to hold. But we believe that over time, since our business mix is materially changing, especially with less generation from coal, there will be also benefits recognized by the rating agency to our business model that will allow us also to bring up the leverage a little higher. And that's incorporated into the numbers. But as we said, that's only gradual over time as we are also expanding and changing our business model.

So can you -- is it possible to comment at all on the metrics that you would have to hit on FFO and RCF and how that would evolve?

Well, that's a number we typically haven't revealed so far, so that's why we stick to that net debt-to-EBITDA number. But that's obviously something we are in discussion with the rating agencies.

Thank you, Sam. The next question comes from Nicolas Bouthors from AlphaValue. "Regarding your expected EUR 5 billion EBITDA by 2030, could you provide more colors on the technological breakdown? I.e., how much do you expect coming from offshore, onshore, solar and hydrogen especially? And same question on the geographical breakdown. How much of the EUR 5 billion do you expect to generate in Germany, U.S., U.K.?"

May I take the number? I mean putting into context, I mean, the EUR 5 billion for 2020/'30 is already far-reach-out number. So I think -- I mean, we had the discussion that we clearly wanted to give you more guidance going forward than we have historically given. And therefore, we felt it would be appropriate also giving kind of the visibility on our build-out plan to give you now a guidance for 2027, and that's also where we then grouped that into the different segments. But for 2020/'30, that's 10 years out. So we've laid that out as an ambition. And obviously, that's also incorporated into our plan. But please excuse that we don't communicate that. I mean what we obviously have laid out is how we want to invest over time into the different technologies, and I think that gives you also then an indication where EBITDA should be number-wise in 2030.

Next question comes from Heinrich Moller from DL Partners. "How is RWE positioned to gain share in the Germany renewables buildout assuming 2030 coal exit and sufficient acceleration of your renewables business and the capacity additions to support the transition?" Markus?

Yes, I think we have to differentiate offshore, where we have our step-in rights. And as you know, we are together here with Northland Power. And we have exercised our step-in right. We have won an additional site. So I think for offshore, you know what is short term coming. We have also, because I think it's very important for the German industry to get access to wind power, our big projects with BASF, where we have made a clear proposal to the German government to accelerate renewable buildout. Other than that, we need to participate in the -- an auction. I think we can expect an auction design change from the next government after the step-in rights. So it's too early to tell on that. On the onshore side, as you know, it's a very fragmented market in Germany, but we want to gain market share here. So it's clearly a part of our growth plan to also ramp up our origination teams on the ground in Germany because we trust the next German government to really accelerate renewable buildout. How far that will go? I mean that also depends on what changes we can see from planning and permitting processes.

Great. Next question comes again from Deepa from Bernstein.

So one question I wanted to is commenting on the leadership of your overall Renewables division. After the recent departure, what are the plans there? And any comments on the PTC plans in the U.S.? Does that -- is that something you've already factored maybe getting more direct pay? And so any comments on the PTC from your side and leadership of the Renewables division overall?

Yes. Thank you, Deepa. We have finally decided to run the Renewables division or the Renewables business with 3 separate, distinct management team, one for global offshore, one for onshore Europe and one for onshore and -- in the U.S. CEOs have been appointed, and I think we are in the process to appoint the last remaining Board members. I think 2 are missing. We have a very strong internal team, so you can expect us to announce internal candidates here short term. But they're already in charge, so it's not a big change. There is no change to their current jobs. And you probably know many of them, too. You have seen Sven, who is running -- in the video. Sven is running our offshore business. Silvia is running our U.S. business, and Katja Wünschel, who many of you probably already know, runs our European onshore business, including Australia. PTCs, ITC, we see it as very positive. I mean, first of all, the extension, I mean, it's not all true. It's not all done and dusted. But what has been -- gone through the first stage looks very good. And of course, I mean, direct pay is, for us, much more favorable than relying on tax capacity partners. But let's see and wait for the final outcome. But overall, we had never doubted the U.S. market is a very, very good market for renewables because a lot of coal capacity needs to be replaced and nobody is envisaging building new coal-fired power generation and many of the sites are very good. You have seen that currently, we shift more from wind. We still continue to do wind, but we have significant ramp-up on the solar side, which worked out very well. So we are very happy with the development and also very positive about the outlook of the U.S. market with the current regulation on the table.

Thank you, Deepa. Next question comes from Marcin Górnik from Pekao. "Taking into account that maximum CfD price is quite low for offshore projects in Poland, have you considered to participate in second stage of support for offshore projects, i.e., renewable auctions?"

I have to admit I'm not sure what you mean by second stage of support. I mean -- but, I mean, the CfD we have been awarded is very good. We are very happy about the project we have there. And I think there is no doubt that with this contract, very long duration, we clearly take FID. So I don't share the underlying tone that this is not a good business. It's a very good business.

Thank you, Markus. Now we have a question from Lueder Schumacher from Societe Generale.

Finally. Yes, just 1 question and 2 follow-ups from my side. Just focusing on onshore, offshore solar, your growth ambitions are less than 2x covered by your pipeline. Is that a level that you are happy with? Or are you looking to increase that in order to have greater flexibility on the projects you do eventually take FID on? Second question is just a follow-up, a slightly different from -- on the E.ON stake. Can you confirm that all the growth ambitions you highlight in this presentation today can be covered just by organic cash flow or farm-downs and do not require the selling of the E.ON stake at any time during this period? And lastly, just to clarify one thing you said earlier. Would it be fair to say that all projects in which you have taken the FID have all the cost secured already?

So Lueder, let me start. We are happy with the pipeline, definitely, but we are also -- I mean, we are not complacent. So if we can grow the pipeline, we grow the pipeline, and then we can do gross more farm-down and make an additional earning here. But for what we have laid out, the current pipeline looks definitely good. Of course, it needs to be maintained. And then you probably have seen that from the last announcement of the pipeline at our full year results or almost 6 months ago, we have taken 3 gigawatt of FIDs from the pipeline, but it has net increased by 2 gigawatts. So there was a gross pipeline activity of 5 gigawatts. So we will maintain the pipeline. But the current -- that is enough to deliver our gross. On the E.ON stake, I mean, look, I think the question is by far not that relevant as you probably think because we have always said we need the E.ON stake to cover the provision on the mining side. And this is already, I mean, a significant part of the E.ON share. And then the other part is the proceeds we get from the German government after state aid approval. And that one, of course, will be materializing over time, so it will be part of the cash flow. And then you need more of the E.ON stake. So I think net-net, we can tell you that our growth plan is fully funded. It doesn't assume that we need to take -- to sell parts of those financial assets we need to have against the mining provisions. And over time, the -- let's say, the headroom from the E.ON stake is not that big. But that part which we don't need from the E.ON stake for our mining provisions is always part of the financial headroom, right? So whether we keep it or we sell it or we put other financial assets against the provisions is a different question.

And I'll take the last question on the FID. I mean, Lueder, we already mentioned that Sofia is a project we have taken FID for but where not everything is secured yet. So typically, when you go a notice to proceed, so when you actually release all the contracts, that's the point in time where everything is secured. And there is a time lag between the 2, so FID and notice to proceed. And in between, some of the commodities are still open. And that's what I mentioned. That's why there can be some impact. But as I also stated, all what we expect here and also looking to the current development of prices and our contracts is in line with the contingencies we have in place for those effects in our project budget.

Thank you, Lueder. We have a follow-up question from Olly Jeffery.

Just some further questions around the returns in offshore wind. So first, at Sofia, you mentioned you have contingencies in place and that we depended on negotiation. My question is, if the negotiations don't work out as planned, is the IRR you'd expect from Sofia still above...

Sorry, Olly, you're breaking up. Yes...

Maybe it's fair to answer the question. I mean what we're just talking about is not big numbers. So the IRR we have in the project from our perspective is clearly secured. I mean as in any project, you do have a contingency because if you go into the erection of the project, there are unforeseeable things that can happen and that are typically covered by a contingency you have in the project. That not only covers cost increase but also operational topic during construction. So, well, we just want to reassure you that's all covered, and, therefore, we are still very confident to -- that this project will be in line with the IRR we decided on when we took the investment decision.

Can you still hear me?

Yes.

Yes.

Sorry, my line dropped. I'm back on now. The second question I have is just on the new products in the U.K. with the recent leases you secured in round 4. Just thinking about returns for those products today compared to the year ago, given the slight -- given the increase in power prices, are you getting more confident on the returns you can deliver on those projects, firstly? And secondly, I assume those projects are included in your targets towards the end of this decade.

Yes, Olly, I mean, first of all, I mean, projects which are out 8 years-plus, I mean, I would never take a reference to current power prices. It's more the question what is the overall trend and I think the overall trend to decarbonization and relying -- and that relies on green electricity and how fast the governments are pushing for that also now with green hydrogen initiatives. I think the confidence level is even now higher than it has been a year ago that these projects will deliver good returns also when you compare them to others from the same auction. So I think that is still something which is fully driving it. I mean the biggest concern I actually have is long run that we run into green electricity shortages, I mean, which would give you great returns short term but which could have significant demand destruction effects, especially on the industrial side. So, I mean, we are very happy that we make short-term good returns and higher than expected in some markets. But I think in the long run, I mean, a more stable and steady path to greening our entire businesses and economies would be more helpful than these, I mean, huge fluctuations we have seen in the last months.

Thank you, Markus. We have plenty more questions in the queue. But unfortunately, we have to come to an end for timing restriction. But there's one last question which we would like to answer. It's from Ingo Becker from Kepler Cheuvreux. "Could you comment on how, if at all, COP26 outcomes impact RWE? And the same question with regard to potential domestic energy policy changes. Are you already ahead of these influences with your new plans?" Markus?

Yes, I think from what we have seen, the outcome from COP26 over the last weekend and then the last 2 weeks will not change our plans until 2030. It's more a reconfirmation of the path we have taken. German energy policy needs to be weighted, well, how the details look like. But from the first paper which has been released after the first sounding of the parties, I mean, that all goes very well with our plans, and we don't expect a change. And let me comment on one aspect of COP26 which I think is relevant. I mean climate diplomacy always takes long and it comes step by step. So -- and I think what is important for us when we talk about industrial-level playing field, that there is a global agreement how we decarbonize that we don't end up in other tools like trade wars or tariffs, which would, of course, give us, we talked about supply chain and other things, the huge headaches. So I think this global compromise, and let's see and hope that, that holds, will not end up in other discussions. I mean we know the CBAM discussion in Europe, U.S. tariffs on certain products. But I think the more alignment we have on global level, the more stable the overall environment. Because otherwise, you can always have the risk of side effects where you don't expect them. But when it comes to overall policy, I think that has all been reflected in our plan.

Great. Thank you, Markus. That concludes our Q&A session. I would like to thank you for dialing in, for tuning into our Capital Market Day today. Thank you for asking the questions in the Q&A session. Of course, the IR team is at your disposal for further questions after today's session. And I would like to thank Markus and Michael for being here with us today. And you all out there, stay safe and sound, healthy and talk to you soon. Bye-bye.