RWE Aktiengesellschaft (RWE) Earnings Call Transcript & Summary

Welcome to the RWE Conference Call. Markus Krebber, CEO of RWE AG; and Michael Muller, CFO of RWE AG, will inform you about the developments in the fiscal year 2023. I will now hand you over to Thomas Denny. Please go ahead, sir.

Thank you, [indiscernible]. Good afternoon, ladies and gentlemen. Thank you for joining RWE's Conference Call on Full Year 2023. As always, our CEO, Markus Krebber; and our CFO, Michael Muller, will guide you through our presentation, after which we'll start our Q&A session. And with this, I hand over to you, Mark.

Yes. Thank you, Thomas, and also from my side, a warm welcome to everyone. 2023 was a remarkable year. We have delivered a strong operating performance. We have significantly exceeded our financial targets. We have added 6.3 gigawatts of green capacity to our portfolio, and we have cut CO2 emissions by remarkable 27%. Since December '23, commodity prices have come down by around 30%, but we can keep our 2024 guidance, which we outlined in our CMD last year. We now expect to be at the lower end of our guidance range, which is about 5% below midpoint and translates into EUR 2.6 earnings per share. We have a high share of secured revenues in our wind and solar business and consequently only limited power price exposure. And our flexible generation business benefits from an increasing share of secured long-term revenues. Overall, we do see a faster normalization of power prices. Our long-term expectations have not changed. We remain committed to our mid- and long-term EPS targets for '27 and 2030, as outlined at our CMD. Let me be clear, our focus is on bottom line earnings per share. Therefore, profitability of our investments is key. And in light of an evolving risk-reward environment, we do constantly reassess our capital allocation. But please do not expect us to change cost on an ad hoc basis because of short-term developments. We have made significant progress in expanding our green portfolio. In '23, we even increased our investment, and we closed the acquisition of Con Edison Clean Energy businesses. Investments contributed to strong earnings growth in '23. Adjusted EBITDA was up 33% year-on-year. And our green transformation continues to drive a significant reduction in CO2 emissions. Year-on-year, they are down 27%. Also long term, we have committed to a more ambitious CO2 reduction target in line with the 1.5 degree emission reduction pathway. The next milestone on our decarbonization path is the closure of 2.1 gigawatt lignite capacity by the end of March and a further 0.3 gigawatt by the end of this year. Since December last year, we have seen a significant decline in European gas and carbon prices. This has led to power prices dropping by around 30%. Thanks to the robustness of our earnings mix, we keep our full year guidance for '24, but we expect to be at the lower end of the range. For adjusted EBITDA, we now expect around EUR 5.2 billion and for adjusted net income, EUR 1.9 billion. This translates into EUR 2.6 earnings per share. In our wind and solar business, we have limited market price exposure. Our strategy is to lock in secured revenues in wind and solar long term through CfDs, feed-in tariffs, PPAs and tax credits, and we actively manage our remaining price exposed volumes by applying hedge strategies. Diversification across various regions further reduces volatility. Page 7 of the presentation provides full transparency about the price exposure positions, generation margin and its sensitivities. Let's move on to the flexible generation business. Here, our long-term market expectations have not changed. We see long-term earnings growth, and we see an increasing share of secured revenues, reflecting the nature of the business, providing firm capacity and firm flexibility. For example, in Germany, we secured attractive margins in a tender for capacity reserve until 2026. In the U.K., recent T-4 capacity market auction has secured revenues of more than GBP 400 million for the '27, '28 period. Our mid- and long-term targets for '27 and 2030 for flexible generation remain unchanged. What has changed is the faster-than-expected normalization of power prices in Europe. From 2024 until '26, we now expect an average adjusted EBITDA of EUR 1.4 billion. Our investments in '23 have almost fully secured long-term contracted revenues, in line with our investment strategy. Only less than 5% of the wind and solar capacity additions in '23 have price exposure. More than 95% have long-term contracted income streams. Our strategy will lead to an increasing share of contracted revenue for the entire portfolio. Also all wind and solar projects under construction will have the high share of contracted revenues. For all our offshore projects, without CfD government offtake, we are targeting secured revenues via PPAs before commissioning. This is also true for our Danish offshore project, Thor, similar to what we have done at our Kaskasi offshore wind farm in Germany, where the full capacity has been sold via PPAs at attractive long-term prices. Our investments will lead to attractive long-term earnings growth and the quality of our earnings will improve continuously. The share of secured revenues will increase further from our renewable investments as well as the earnings mix in Flexible Generation. And the portfolio will decarbonize in line with the 1.5-degree pathway. Despite the faster normalization of the commodity price environment, our long-term expectations have not changed. In light of an evolving risk-reward environment, we do constantly assess our capital allocation. With a clear focus on EPS growth, we do confirm our earnings per share targets for' 27 and 2030. And now over to you, Michael.

Thanks, Markus, and good afternoon from me. In 2023, the business performed extremely well. We clearly exceeded our guidance. Adjusted EBITDA across all core segments, especially driven by strong earnings from Hydro/Biomass/Gas, Supply & Trading as well as significant capacity additions. Strong earnings also yields strong cash flows to finance future growth. On the back of a strong business performance, adjusted operating cash flow amounted to EUR 7.3 billion. Fitch and Moody's both confirmed our credit rating of BBB+ and BAA2 with a stable outlook, proving our solid credit quality. At the end of 2023, the European Commission granted state aid approval for the EUR 2.6 billion compensation for the earlier exit from lignite fire power generation agrees in 2022. Subsequently, we received the first installments with a total amount of EUR 700 million. For 2024, we confirm our guidance and is expected at the lower end of the guided range. Let's now take a closer look at the 2023 numbers. In Offshore Wind, adjusted EBITDA increased to EUR 1.7 billion, mainly due to better wind conditions, capacity additions and higher realized power prices. Onshore Wind/Solar recorded an adjusted EBITDA of EUR 1.2 billion. The increase is driven by capacity additions, including Con Edison Clean Energy businesses. Lower realized power prices had a negative effect on results. Adjusted EBITDA of the Hydro/Biomass/Gas business was EUR 3.2 billion. The excellent result was driven by strong asset optimization and hedges conducted at attractive price levels. On the back of a strong performance, the Supply & Trading business reported an adjusted EBITDA of EUR 1.6 billion. Last year's results were negatively affected by a one-off relating to sanctions on Russian coal deliveries. Year-on-year, earnings in Coal/Nuclear were lower due to more overhaul outages and the absence of production from our Emsland nuclear power plant after it was shut down in April 2023. Overall, RWE's group adjusted EBITDA stood at EUR 8.4 billion. On the back of the strong operational performance, adjusted net income amounted to EUR 4.5 billion. Adjusted depreciation increased in line with our growth investments. Adjusted financial results include the financial expenses from the consolidation of Con Edison Clean Energy businesses debt. For adjusted tax, we applied the general tax rate of 20% for the RWE Group. Adjusted minority interest reflects lower earnings distribution to minority shareholders given the decline in power prices. The adjusted operating cash flow was EUR 7.3 billion and reflects the impact from operating activities on net debt. This shows a high cash conversion of our operating assets. Changes in operating working capital were mainly marked by a decrease in gas inventories in storage. Net debt increased due to significant investments in our growth. In Q1, we closed the acquisition of Con Edison Clean Energy businesses, and we invested a further EUR 5.1 billion net in our green growth program, including the Magnum and JBM Solar acquisitions. Net cash investments include the proceeds of the divestment of the Gas Storage business in the Czech Republic. Other changes in net financial debt increased by EUR 2.5 billion. This includes timing effects from hedging and trading activities as well as cash inflows from the first installment of the lignite compensation. Our net position from variation margins from power generation hedging stood at EUR 1.4 billion. This includes net variation margins from the sale of electricity as well as the purchase of the respective fuels and CO2. For the full year 2024, we confirm our outlook as presented at the CMD 2023 despite a significant decline in power prices. We expect adjusted EBITDA, adjusted EBIT and adjusted net income at the lower end of the guidance range. We also confirm our dividend target of EUR 1.10 per share for the fiscal year 2024. Our guidance range for the Offshore Wind is between EUR 1.45 billion to EUR 1.85 billion. Due to the recent decline in European power prices, we expect lower margins. The earnings contributions of Offshore Wind is expected to be at the lower half of the guidance range and below last year. For Onshore Wind/Solar, our guidance range is EUR 1.5 billion to EUR 1.9 billion. We also expect lower margins due to the decline in European power prices. However, capacity additions as well as the full year contribution of CEB will have a positive effect on the earnings. And we expect to close the year significantly higher than 2023, but in the lower half of the guidance range. Flexible Generation is the renamed segment, which includes Hydro/Biomass/Gas activities and the 30% shareholding in [ EPS ]. Our guidance range is EUR 1.8 billion to EUR 2.2 billion, and we expect full year earnings at the lower end of the guidance range. Lower margins from running the assets will be partly offset by slightly higher income from system services. For Supply & Trading, we assume normalized earnings after an outstanding performance in 2023. The guidance range is between EUR 100 million and EUR 500 million. As presented at the CMD 2023, we'll see the phaseout of Coal/Nuclear business on an adjusted cash flow from 2024 onwards. The earnings from segments are no longer included in the adjusted EBITDA and adjusted net income. The adjusted cash flow for 2024 is expected to be between EUR 300 million and EUR 600 million. To sum it up, we are confident that we'll deliver earnings within the guidance range we set at the Capital Markets Day. And now let me hand back to Thomas.

Thank you, Michael. We'll now start the Q&A session. Operator, please begin.

[Operator Instructions] And our first question comes from Robert Pulleyn from Morgan Stanley.

So first question, if I may, because I think some others may ask some of the other popular ones. So the first one I'd like to go with, are you guys seeing increased interest in renewable projects for data center PPAs in both the U.S. and Europe? And could you put a bit of color around this in terms of PPA terms duration price and how much this is for a growth area for yourselves? The second one, as I'm sure everyone is very keen to hear it, we know you've moved to an EPS commentary both in your prepared remarks and in the pack, which, of course, chimes with lots of questions we received on share buyback. But may we ask how politically viable it is to do this or even talk about it given the current negotiations around German capacity market and the government's desire for energy investments regardless of, of course, your choices of capital allocation and where you want to deploy capital. And thirdly, just to stretch it, is it fair to say that the lignite emissions will be significantly lower in 2026 anyway, given you've sold your implicit fuel hedge last year? And if you can maybe just update on how long the explicit carbon hedge will keep those assets in the money?

Yes. Thanks, Rob, for the question. It's Markus. On general sentiment in the PPA market, it has not changed a strong interest for PPAs in both markets, of course, given that we have significant lower spot prices. I mean, there are discussions around price levels. But we have, even in the last weeks and months signed a long-term PPA starting mid-20s at unchanged price levels. So the demand for green electricity is clearly there. I would currently say even stronger in the U.S. given that there is significant demand growth coming. And you have already seen that now given the limited -- I mean, limited is probably the wrong word, but the not fast enough build-out of renewables, now some even turn to nuclear because it is needed to back these additional demand. Now the second one is, of course, probably the most interesting question. I mean, on the EPS side, we deliberately moved to EPS because that is, in the end, which reflects our commitment to create shareholder value best. It's not about absolute earnings, it's about EPS. And that, of course, adds now an additional element of flexibility in what we do. We still believe in a very good investment program we have ahead of us. And please keep in mind that we have a lot of flexibility in this investment program across regions, across technologies, but also in terms of timing when we invest and when not. And maybe just to add some color, we have promised at the Capital Market Day that we at least yield on average an EBITDA yield of 10.5% with our investments or what we have shown here on the slide, especially what we commissioned in 2023, that was higher, more than 200 basis points higher. So we were above 12.5% EBITDA yield. So -- and now with capital allocation, of course, you need to look at what are your investment opportunities. Some questions are open. I mean what happens to the PPA market, what happens after the election in all our core markets. When do we get clarity on the H2 gas plant framework in Europe? What happens to the supply chain channels? So you have a constantly evolving investment environment and then we will constantly reassess and take the decisions in order to maximize EPS. And we do that with a long-term view. So it's not about [indiscernible] EPS for next year, it's really what is the right long-term strategy in terms of capital allocation to increase and maximize EPS in the mid- to long term. And that is what can be read into moving to EPS, given that we have now a bit more higher uncertainty and a bit more cautious, we want to add additional potential instruments, and we are now committed to the EPS target. Last question. Sorry to correct, but the hedges are never relevant for dispatching of the plants. Dispatching is always done on spot prices. But you are right, we expect significant lower CO2 emissions in 2026 from our lignite fleet. First of all, we have till then closed additional units. But also given the renewable build-out, we expect lower utilization factors of any fossil plants anyhow. If you now factor in the significant lower gas price and also potentially the effects of fuel switching, you can expect even a further reduction of CO2 emissions compared to the old plant.

Next question comes from Peter Bisztyga from Bank of America.

I'll stick to 2. So the first one, I'm sure I'm not going to be the only person to sort of labor the points on share buybacks. But angle, I wanted to come at it from is that in the past, you've been quite opportunistic on M&A. So we had the Magnum transaction in the Netherlands, obviously, CEB. And I'm just wondering why that opportunism doesn't stretch to buying back shares when they drop to basically 40% below where the Street sees fair value. Just wondering what would have to happen to change your view on the relative value, and I'm not talking about EPS here, but just on the relative value of buying back shares at such a massive discount versus investing at a 10% or 10.5% EBITDA yield. So that's my first question. And then second one, thank you very much for the guidance on flexible power generation. It is quite a big downgrade versus where consensus was previously for 2025 and '26. So I think what would be really helpful for me and everyone would be what assurances can you give that your new guidance is somehow a floor and that it couldn't actually even go lower still? And the reason I'm asking that is because we're looking at forward curves and peak spark spreads on forward curves have now turned negative in some geographies, even for efficient or more efficient assets and know that those aren't necessarily the right things to be looking at. But clearly, it's causing some concern in the market about the future profitability. So if you could sort of draw a line or help us draw a line on the profitability in FlexGen, that would be very helpful.

Yes, Peter, thanks for the question. I mean, first, on M&A, I mean, we have always differentiated our M&A strategy in 2 buckets. One, as you call, is opportunistic. I mean, like an offshore wind farm in development here and gas asset there that is more part of the normal organic investment program where you see, I mean, individual smaller opportunities, which are even more attractive than your own developments and we go for that. The other aspect, I mean, CEB was a strategic acquisition to get us into the U.S. and in solar to the market position we want to have. I would never consider buying your own share in the same bucket and M&A. That is something totally different here. It is about long-term EPS maximization. And if you cut -- you have to cut significant more out of your CapEx program because you lose headroom and so on before you can buy back your own stock. So it's not a simple math. It's only simple if you look at 1 or 2 years ahead. But if you look long term, you have negative effects on EPS. And it's about, I mean, how to maximize that with a clear long-term view. And as I said, we are committed and we will consider all potential options to maximize EPS by 2030. On FlexGen, when you now look at the chart, you can see that we have this constant trend of increasing earnings which are secured. And this is especially capacity market, but also other reserve payments, ancillary service where we are confident and so on. And now you also see that we already expect a full normalization of power prices, and that is what you already mentioned, the current spreads you can see on the screen for '25. So we have the current curve in this assessment because I think that is the best you can do. I mean we never deviate our planning exercise in the short term from the market. If there is significant further downside, I would say, clearly, no. If you see for whatever reason, significant demand drops or crisis. I mean, you can never rule things out, but it is definitely skewed to more upside than downside. It's very close to a floor now what we have put on that slide, very close to floor.

Alberto Gandolfi, Goldman Sachs.

The first one is on your 2027 assumption. Noted that you're focusing on EPS and maximizing growth in EPS EUR 3 a share, is there any chance you could shed a bit more light? I don't know, for instance, telling us the power price you're using, you're assuming on your merchant generation, perhaps, I don't know the volumes exposed to or in general, the total volumes by them, some more details on FlexGen. So just some underlying assumptions to make everyone comfortable on the EUR 3 a share. And the second question is, once again, on how we get to the EUR 3 per share. So I'm just trying to understand the philosophy here. Markus, this is the first time I hear you stress so clearly several times that the focus is on EPS, that all potential options to maximize EPS growth are being considered. So there are 2 ways I can see of getting to EUR 3. One is through investments, let's say, constant prices, of course. One is through investments. The other one is by reducing the share count. Reducing the share count has a very, very cast-in-stone IRR because it's the share price today, right? You don't need to take a view on long-term power prices. So you could argue that reducing the share count perhaps is a safer, more visible and less risky approach to do that. I'm not saying that's going to be the entire capital allocation. But would you agree that get into EUR 3, if you wanted to reduce risk, you'd be fairly indifferent between investments and reducing the share count or perhaps maybe even more tilting towards the latter option.

Let me start with the 2027 numbers. I mean, we don't reveal numbers here, but I mean, you can assume that we obviously did internal the math before confirming our guidance. So we looked at our assumptions we took at the time of the Capital Markets Day, and we took at current forward prices where they are. And we also looked -- as Markus discussed in the other income streams, namely the secured revenues from flexible generation. And that led us to the conclusion that the number fits. I mean you also need to bear in mind, that's why we put forward also on Page 7 and Page 8, the split of income. How much of that is secured and how much is market dependent. So what you see is there's a large chunk of income that is already fixed via secured income streams. And also with the new investments clearly coming online until 2027, that share will increase. So therefore, that's the underlying rationale while we are confident in confirming the numbers for 2027.

Yes, then let me take the other one, Alberto. You are trying to push us now into something which would reveal a preference. I mean life is not that easy. I give you -- I mean, I've said everything we wanted to say on the EPS focus, but let me give you one additional argument, which you could also note -- which have to be considered, it is if you cut into the investment program, the company will look like different in 2030. And then it comes back to questions like how robust is the earnings profile because with our investment, we reduced significantly CO2 intensity, and we significantly increased secured revenues. So the company and also the potential valuation multiple in 2030 would change this cutting into our investment program. So we need to look at many, many, many different factors. And the promise we make today is we don't rule any of the instruments out and we look at maximizing EPS and quality of EPS in 2030. And '27, of course, right? I mean it's not so long term, but it's not something we're going to act on ad hoc basis because of development of the last 10 weeks.

And if I may test your patience, is there a date we should be looking forward to when you may have to do a strategic update or you may want to do a mini update to the bigger CMD we have seen last year?

Yes, sure. We communicate the moment we have to communicate something.

Deepa Venkateswaran from Bernstein.

I have 2 questions. Markus, I'm so sorry to not leave the topic of buybacks. But I noticed that in your comments, you stated that you're committed to bottom line growth. You won't change core duo short-term developments. Can you clarify a bit by what you meant by short-term developments? Are you referring to your share price? And are you expecting it to recover and therefore, ruling out buybacks? So that's my first question. And second question is a bit on the FlexGen earnings weakness. So obviously, the power prices have fallen, but it is, to a very large extent, explained by the fall in gas and carbon prices. Therefore, I was just understanding if you can maybe share the math on the sensitivity because it doesn't seem like the spark spreads were that high in November, and I don't see that. So is it because of some small outright exposures such as biomass or something else that's driving this? And to your comment that you are very close to a floor, could you then explain why it may not drop further in case there is some ultra element sitting within FlexGen? I think those are my 2 questions.

Yes, Deepa, I'll go with the first one. And I think the second one, Markus already answered fully in his answers to previous questions. I mean on flexible generation, you are right. So the decline we are seeing is primarily on the Dutch side where we have the biomass assets and but also gas assets that we, at least, for 2024 hadn't hedged during the winter. That was more kind of cautiousness due to spikes that could have happened if we would have gotten a tight winter. So look, you see a decline in clean spark spreads. You see a decline in clean dark spreads. That's obviously reflected in those numbers. But what you also see is that the volatility in the market has come down to a normalized level, and that is also impacting the projected earnings of the Flexible Generation fleet.

Okay. Can I go for another question since you didn't explicitly answer my first one? So on the PPA pricing for solar, you've identified that as being one of the projects where as of now, you don't have a PPA and it's obviously a larger project in terms of 15% of the capacity under construction. So how confident are you on kind of getting the right pricing for that project in order to meet your hurdle rates? And is there any tendency for data centers to be located in Denmark? And therefore, you're even more confident on getting that price because of the data center demand?

So Deepa, we are confident that we can lock in the right price level because otherwise, we wouldn't have taken FID on the project. And it's not only about the location, even power in Denmark can be marketed partly to Germany because there is a high interest of additionality and the load profile of offshore compared to the low price of, for example, solar. And then it's a question who takes the location differential and you can partly move to the customer. So the market is much bigger than only Denmark, that is why we are confident that we're going to close it before we see [indiscernible] asset.

Ahmed Farman from Jefferies.

Yes. I have a similar question, just one question from my side that you had sort of talked about. So it seems like a lot of that sort of it's going to depend upon how you think about sort of the risk reward and opportunities on the investment side. So maybe we can just have some sort of broader comments on how the accelerated normalization in power prices, how is that has impacted or shifted your expectations between the CMD and today in terms of the risk reward or the returns available on the CapEx? And then my second question is, in particular, can we sort of get an update if you have sort of stress tested the -- your existing valuations for -- of the operational assets for the current power price environment? And if you're sort of comfortable with those valuations?

Thank you, Ahmed. I think the second will be taken by Michael. On the risk reward side, the faster normalization has not changed our view on long-term attractiveness. The only pint of salt there is how fast and what happens to the green PPA market here. So far, we have seen no effect on prices long term. Maybe -- let me give you an overview of what we think are clearing events for the evolving risk reward environment for our entire investment program. But of course, we have significant flexibility, as I said before. So of course, one -- on the one hand side, it is about energy policy. So what's going to happen in the European Union, the U.K. and the U.S. after this year's elections. Second is how do the supply chain challenges evolve. And that is especially for the offshore business. So how confident are you with additional investments in offshore at which point in time, does it take longer to clear the current the current difficulties in the supply chain or does it go faster. Second -- third one is when do we get clarity on the H2 gas investments in Germany, which would be a perfect portfolio fit and we are in a pull position there? But it's currently in discussion between the German government and the European Commission. If that is clear path, I mean, we see a significant chunk of very attractive investments. So these are the potential clearing events over this year. And of course, we also have to assess how big and where we want to invest and what are alternative measures to increase EPS.

Yes, concerning the value of the investments, I mean, at year-end, we have done, obviously, an impairment test that hasn't led to any impairments of our book values. Obviously, forward prices have come down. But at the same time, you also know that valuations are done over the entire tenure of the assets. And as we mentioned, our long-term expectations have not changed.

Meike Becker from HSBC.

Yes. Two questions from my side. Maybe actually immediately connecting to your answer to the last question, if I may. Would I be right to read into your answer that you see something developing slower than you might have thought such as you pointed to the German decisions on hydrogen plants and perhaps also developments on the offshore side. Is that the underlying driver of sort of like everything we've discussed so far? So is that perception correct, would be one question. And the second part of that question would really be the slightly softer changes in capital allocation. Is the U.S. looking more attractive because of lower European power prices or not because offshore is still challenging? Is offshore in the U.K. looking more attractive with the Brunsbüttel portfolio rather than battery investment? So if you could sort of like what has changed what maybe between your investment opportunities that something might shift from one to the other bucket? And the second question is coming back to coal. If it is true that sort of like a cool discount as part of your share price, wouldn't be more disclosure, one of the absolute cheapest options to support the share price? And isn't there -- I would say, there is no downside to it. So I'm just wondering whether there is something you can do that goes a little bit beyond saying that the share of coal is less than 10% by '26, '27. And isn't that a no regret disclosing that information?

So I think it's too early to say whether things have really slowed down. I'm still -- I mean, I'm typically an optimist, I think we probably see clearance from the gas investment framework in Germany before summer. But I mean, since we are not party of that process, it's between the German government and the European Commission, we have no insight. It could also go wrong. But so far, there is no indication. In general, I think -- I mean, I also -- and you know that we invested in all technologies last year. I said that the EBITDA yield is higher, 200 basis points higher than we have on average assumed. I wouldn't say that there is a certain bucket which is less attractive than expected currently. But the only thing where we're probably a bit more cautious is how big the future commitments are in offshore because you have these long lead times and without a very stable supply chain, you should not take too many risks. But since the portfolio is big enough to compensate that at very attractive returns, it is not per se the one reason to cut into the investment program. But other than that, please don't read it that we see more risk than before.

And maybe on the coal disclosure, I mean, look, what are the 2 drivers for bringing down the coal exposure? One is the number of assets you have available; and secondly is then the power price constellation if those assets have to run or run or not. Now starting with the first one, we now will close 2.1 gigawatt of capacity by end of March and a further 300-megawatt unit by the end of the year, and that will clearly bring down emissions. At the time of the Capital Market Day, we communicated the 2027 number because by that time, we also foresaw that in addition to the coal closures, we would also see a much lower utilization of the coal assets simply because of the build-out of renewables. If you assume current power price levels, you could assume that the utilization of coal is far lower, and therefore, also emissions come down. But having said that, the latter one is very dependent on actual power price constellations. And in case power prices rise again or we see tight winter, it may well be that, that emissions at least stay on the level where they are currently, until then they ultimately drop towards 2027. So these predictions very much depend on the market, but it's clear that they will come down, and therefore, the 2027 target is also -- we're very confident to achieve that.

Wouldn't it be worth at least a scenario? I mean, belaboring that point that you have done everything you can do and the rest is out of your hands plus/minus a few years, that is like a scenario or something on the point.

Harry Wyburd from BNP Paribas.

So first one from me is on trading, which we haven't talked about yet, I guess. [indiscernible] seems quite upbeat on trading, [indiscernible] actually upgraded their guidance quite significantly. Is that something that reads across to you? You haven't really changed anything in terms of your outlook on trading. Is there something different about your trading business, which explains why you're being a little less optimistic, I think, than some of your peers? And then the second one, I want to ask a specific question on PPAs in Continental Europe onshore and solar. Depending on who you listen to or which PPA index you look at, you get a lot of varying messages on whether PPA prices are actually moving up or down. So what are you seeing in Continental Europe, specifically with onshore PPAs? And if they are going down, would you think about reallocating capital to other regions where PPA prices are better?

Yes. Let me start with the second question, Harry. I mean, when you look at our markets where we do onshore and solar and the investments we have done, Poland, Germany, France, U.K. These are all CfD markets. You have typically government auctions that we have been very successful there. Many of them inflation adjusted. So I cannot comment on certain PPA markets. If you talk about, for example, solar Spain, it might be very difficult. But this is not part of our investment universe.

And talking about trading, I mean, I can't comment on our peers what they are doing, just about ourselves. I mean it's just early into the year, and therefore, we are very confident with the guidance we have given on trading.

Wierzbicka Serwinowska from UBS.

Wierzbicka Serwinowska from UBS. Two questions from me. The first one is on the FlexGen. Based on my industry checks, I understand that the power market conditions have been even worse in February with low forward spreads. I mean when I look at the accounts, you impaired part of the CEB's portfolio in the Netherlands. So does your outlook fully take into account everything that is happening in the market? If you could disclose what share of your EUR 1.4 billion of EBITDA of the FlexGen is basically locked in as of today. I think that will be very, very helpful. And the second question is, can you comment on the bankruptcy filing by Enviva, which is one of your [ counterparty ] on the wood pallet side? What will be the potential impact on RWE?

Yes. Wierzbicka, I'm happy to take the questions, start with the latter one. I mean I don't expect an impact on us from the Chapter 11 process, anything further, I mean we don't talk about anything with specific customers. Secondly, on the question around the flex market. First with the impairment. I mean when you look at the impairment, what you see is that in 2022, we had to turn around previously done impairments. So we actually added value again to those assets, and we just basically now took it back to the initial level. So this is rather -- yes, so we're now back to kind of the normal level we had previously. So nothing specifically to read into this one about the future. Secondly, about the hedging. I mean you know that most of our gas fleet is in the Netherlands and in U.K., and you typically can only hatch the assets there, say, a year ahead and that's also what we have done. So no further hedging in later years.

Sorry, one follow-up because if I look at the press, it says that RWE [indiscernible] owes almost $350 million for the transaction. So can confirm there's no potential impact on RWE?

You're talking about Enviva?

Enviva, yes. I mean -- Enviva, yes, there's the article in the Financial Times today, and the Financial Times says RWE [indiscernible] Enviva still owe $348.7 million for the transaction according to the [ hearing ]

I can't comment on that.

I mean, Markus here. So I can confirm what Michael said is that regardless how the situation of Enviva involved, we do not expect a negative impact on our earnings. Of course, if you have certain claims...

And cash flow?

If you have certain claims, you bring them forward, but if you see a situation evolving negatively, you have ways to adjust your position, right? I mean, we have seen very similar things with -- I mean in the crisis, not getting Russian gas. I mean, at the moment a supplier is not delivering. It depends on whether you simply still keep the position as it is and you hope for delivery or you start adjusting your position. We have a claim that is clear. We're going to bring that claim forward. But regardless what happened under the Chapter 11 situation, we do not expect any negative impact on our P&L.

And cash flow is the same or it's still too early to be said because earnings on one side, but cash flow is another side, right?

Same.

Olly Jeffery from Deutsche Bank.

One by a clarification, another a couple of questions. Just to clarify the comment earlier regarding long-term expectations have not been changed. I presume that on power prices. And if it is, is that on long-term 2050, we're talking 2027 and 2030? And then my other questions are with the 3 areas of share we're now talking about the 2027. That implies probably EUR [ 2.2 ] billion net income on current share count, which is the midpoint of the guide. And just wondering how that gets to the midpoint because if we've maintained FlexGen is where it was before, I can understand how you could get there, but I would have thought that the merchant renewable exposure would have dragged that number slightly lower. So could you just please explain why there's not more of a drag from the renewable merchant exposure? And then the last question is just on -- sorry, on [indiscernible] West and the North Sea cluster projects, which have much an exposure. Are they now less in favor given the move in commodity prices and perhaps more interested in developing, if you can, some of the [indiscernible] U.K. CfD projects, if you're able to get a CfD.

Yes. Okay. So let's talk first about the long-term expectation. I mean, when we talk long term, it's '27, 2030, and also we previously talked about the value of assets that's obviously even longer, and that hasn't changed. Talking about 2027, I mean, look, this is still pretty far out. So there is also -- yes, to some degree, not so much clarity exactly on how things exactly evolve. I mean if you do roughly the math, given that commodity prices have come down, maybe also compared to what we at that time as soon for '27, there is maybe some less income. At the same time, you have seen that the U.K. auction on Flexible Generation firm capacity came out extremely well, and that also contributes to 2027. So there's an offsetting effect in the positive direction, but as I said, it's early days. And if we do the math, we are confident that we are in the range we guided.

Then on the North Sea cluster, so the offshore wind farms in Germany, I think you mean them where we are close to take a decision. The attractiveness of these assets have not changed. I mean, first of all, please keep in mind that commissioning of these assets is [ 28% ]. And even after faster normalization, our outlook on prices, especially we're talking about PPA prices for these assets, has not changed. We are in constant dialogue with potential offtakers. We have a good understanding where price levels are. And then, of course, it's always a question how competitive are these assets compared to others? And please keep in mind that we do not pay any seabed lease payments for them compared to what came out of the auction in Germany last year, we probably can expect next year, load factors of these assets are excellent. So I think these are probably one of the best North Sea sites in Germany. The other question where you are hinting to also comparing them to the CfD assets in the U.K. is, of course, how much do you want to keep yourself and for how much you take on board a partner, but that is to be decided over the next time. But we see these assets is very attractive in our portfolio.

Piotr Dzieciolowski from Citi.

I have 2 questions. So first one, I wanted to ask you about your current outlook for the CO2 market. At the time when you were closing your strategic results, you clearly had a negative view and you sold a lot of CO2, but you still on the lignite assets and also. So what do you think is required for the CO2 price to recover? And what do you assume in your kind of midterm targets at a normalized level? And the second question I wanted to ask you was, we haven't talked about your E.ON stake for some time. I recall in the past, you said you would require -- you would need to sell entire stake for the tax purposes. I just wanted to understand if you are any how sensitive on the share price of E.ON with regards to your ownership of this stake or you think it sits well within your structure of kind of matching with the lignite liabilities that you have?

Yes, Piotr, thank for the questions. let's talk a bit about the CO2 market. So we have a couple of factors which now put the CO2 price under pressure. One, of course, is the additional auction volumes by the European Commission to raise additional funds. I mean they have brought some auctions or significant volumes of auction forward. That is one aspect. And then -- but as important factor is the general economic muted activity. That is clearly seen. And we also know from some industrials. The moment the outlook for their activity is weaker, they stopped hedging. They stopped buying. So there is definitely lower buying activity. If you look at the market overall, we can probably look about 2 years of healthy supply in the auctions at current economic activity. But then we also know with the kick in of the market stability reserve on the reduced auction volumes that we're going to see very tight carbon markets from around '26 -- end of '25, '26 onwards. And since you can carry these certificates also into the future, it's a question when start people buying also for the tight situation '26. That is more a sentiment question. It's difficult to call. It can change very quickly. But yes, as I said, very difficult to call. So our view is healthy supply in the next 2 years, 2.5 years, and then a significant tightening of the market. And it's -- as I said, it's more a sentiment question when you're going to see that also reflected in higher prices. On the E.ON stake, just to remind you of the tax rules. The moment we go beyond 15%, we lose state tax advantage. The moment we go below 10%, we also lose federal tax advantage. We always said it's not a strategic investment we needed for coverage of the lignite provisions. So it could also be any other investment portfolio, financial asset portfolio. So far, the tax advantages outweigh the concentration risk we have with one asset. So currently, there are no plans to sell it down. But the moment we start utilizing the lignite provisions, which is in the late 20s, then of course, we need to also pass the financial assets.

We'll now take our final question today from Deepa Venkateswaran from Bernstein.

I had a question on AR 6 parameters that were recently released by the U.K. government. Our math suggests that not all the permitted capacity, including your [indiscernible] project, will clear at an attractive price. And therefore, some projects will have to sit out unless the U.K. government increases the budget. I was wondering if you had any thoughts. And in general, would you be open to waiting out? Or do you need to win [indiscernible]

So I think that is now speculation. If we can participate in this auction, I think we're going to see clarity about that in the coming years -- sorry, in the coming weeks. So I mean, we're going to decide on our bid strategy and also what we think how good the auction volumes will be in the coming years where we have to take that decision. But Deepa, please understand that I cannot comment on our strategy, what we think might happen and what clears or not because that is of course a very sensitive information.

Thank you. And with this, I'd like to hand the call back over to Thomas Denny for any additional or closing remarks.

[Technical Difficulty] Bye-bye.

This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.