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 first half of fiscal 2024. I will now hand over to Thomas Denny.

Thank you, Jeff, and good afternoon, ladies and gentlemen. Thank you for joining RWE's conference call on the first half 2024. Our CEO, Markus Krebber; and our CFO, Michael Muller, will first guide you through our presentations before we will start our Q&A session. And I'm pretty sure you got many questions today. And with this, I hand over to you, Markus.

Yes. Thank you, Thomas, and also from my side, a warm welcome to everyone. Despite strong headwinds at the start of the year, we have delivered a good financial performance in the first half of 2024. Our investments in wind, solar and batteries are leading to year-on-year growth in renewable energy production and earnings in the Renewable segment. We have made significant progress and remain on track to deliver on our Growing Green strategy. And we have supportive market fundamentals. European power and carbon markets have stabilized. Demand for green power remains strong across all our markets. And election results in the European Union and U.K. confirm continued policy support for our business, and we delivered. Last Monday, we were successful in the recent German offshore auction adding 4 gigawatts to our offshore wind pipeline. We FID'd almost 3 gigawatts of renewable projects in the first half of 2024. As we speak, we have in total more than 10 gigawatts of capacity under construction. The returns for these projects are in line with our return targets we set ourselves at the Capital Markets Day back in November 2023. We, therefore, confirm our long-term targets. Our strategy will lead to attractive bottom line growth and a rapid decarbonization of our company in line with the 1.5 degree centigrade emission reduction pathway. Adjusted EBITDA stood at EUR 2.9 billion, and we have already reached more than 50% of our EBITDA guidance for the full year 2024. Adjusted net income stood at EUR 1.4 billion and more than 70% of our full year guidance. Based on the earnings in the first half, we confirm the outlook for the rest of the year at the lower end of our guidance, and we are now more confident that we will achieve that. We continued the transformation of our company with profitable growth through our investments. We have invested EUR 4.5 billion net in the first half of the year, with 95% of our investments being externally aligned. The largest share of investments is currently in offshore. Despite the challenging supply chain environment, our construction projects of PI and Thor are on time and on budget. For our Sofia project from Dogger Bank offshore construction started in May with the installation of the project's first turbine foundation. And since then, we have added 20 more. The offshore converter platform has arrived on site as well and is currently being installed. At our Danish offshore project Thor onshore cable works have commenced. And we are actively managing our offshore development portfolio. At the beginning of the year, we closed the transaction where we sold a 49% stake in our U.K. 3-gigawatt offshore project, Dogger Bank South to Masdar. And our Dutch system integration project, OranjeWind TotalEnergies is now on board as our partner. OranjeWind is our first offshore wind project in the Netherlands with a very attractive characteristics. Given its innovative concept, it is a blueprint for an integrated offshore wind project with items such as electrolyzers, battery storage, e-boilers and smart charging solutions. We took the final investment decision for this project in July, and we have started the marketing of the project already with a clear intention to fully contract the project via PPAs ahead of COD. This week, we further expanded our offshore pipeline, thanks to our success in the German offshore auction. We have been awarded 2 attractive sites with a total 4 gigawatts or total bid price of EUR 250 million. This low price demonstrates again our bidding discipline. The EUR 62,000 per megawatt hour award compares very favorable to the awards of the German offshore to 2 months earlier with EUR 1.2 million per megawatt. We will explore the possibility of developing the offshore projects together with TotalEnergies. The supply chain remains a key focus area. In offshore projects under construction have been derisked on the procurement side with all key components being secured. Here, we make use of synergies across our portfolio and our strong relationships with strategic suppliers to give you an example. In our Thor project, we will utilize the same supplier for foundations as we will use for our Nordseecluster approach. And we will also use the same turbine model in Nordseecluster as in [indiscernible]. We've also made significant progress in derisking the supply chain for our U.S. solar and battery projects. Today, we have already secured out of solar build-out targets for '24 and '25 and largely for '26 by contracting capacities and securing access to local manufacturing. Our contracted capacity have also been derisked in terms of AD/CVD and bifacial tariff risk. And on the battery side, we are largely derisked and have secured our demand for '25 -- '24 and '25, among others, through local supply chains. On our way to becoming a global leader in the new energy world, we already see today significant success in the decarbonization of our portfolio. Electricity production from renewables was on record levels in H1 '26 terawatt hours. And renewable power now accounts for a record 45% of total electricity production at RWE, up from 33% in the same period last year. In the current year, we have also reduced our CO2 emissions significantly by 27% versus last year. By shutting down 5 lignite units with a total capacity of 2.1 gigawatts and through lower utilization. We do see the market fundamentals for our business being supportive. European power and carbon prices have recovered from the lows in February and have stabilized since around 4 months. Since then, German calendar '25 baseload prices are hovering around EUR 90 per megawatt hour and calendar '25 EUAs are trading around EUR 70 per tonne, supported by the confirmation of the EU auction [indiscernible]. And we have observed a rise in power demand, especially in the U.S., where year-on-year demand rose by 4% on the back of a positive economic trend and the expansion of energy-intensive infrastructure like data centers. We clearly see that demand for green power via long-term PPAs remain strong. The current year, we have already contracted PPAs with a total volume of 1.6 gigawatt of capacity. Only today, we have announced a new 374-megawatt PPA that we have concluded with Meta in the U.S. And when I look at our PPA pipeline, I expect significantly more to come for the rest of the year. The PPA market is healthy and remains attractive for renewable developers. The policy support for the energy transition remains intact. The European Green Deal has been confirmed following the European elections. German government just published a white paper on electricity market design of the future underlining continued support for renewables and the need for a fundamental capacity remuneration scheme. Also in Germany, we have just been granted funding for 2 large hydrogen projects support of more than EUR 600 million. The funds will be used for the construction of a 300-megawatt electrolyzer in Lingen and the hydrogen storage facility in Gronau-Epe. In the U.K., the new labor government aims for 100% green power by 2030, and they have announced an ambitious program to achieve these targets. In onshore wind, the factor ban on construction has been reworked. For solar as well as onshore and offshore wind build-out targets have been increased significantly. And for the current CfD auction, the auction budgets have been raised by around 45%. To sum up, we see continuous policy support for the energy transition and therefore, our strategy. We are set to continue to deliver profitable growth. As we speak, we have more than 10 gigawatts of capacity under construction. About half of the projects are in offshore wind. The other half is in onshore wind, solar, battery and flexible generation. These projects represent roughly EUR 20 billion of total investment volume. As of June this year, EUR 6 billion have already been spent for these projects under construction. Our investments will deliver the targeted earnings growth. All investment decisions fulfill our strict return requirements with an average investment portfolio IRR of 8% and EBITDA yield of at least 10.5%. Plus this EUR 20 billion of investment will represent earnings of more than EUR 2.1 billion in EBITDA. Let me sum up. RWE will be a global leader in the new energy world. We are on track to deliver on our targets set at the Capital Markets Day in '23. By the end of this year, we estimate that we will have an operating portfolio of approximately 38 gigawatts, excluding the Phaseout Technologies. Our capacity development will result in attractive bottom line earnings growth. For the current year, we confirm our EPS target of about EUR 2.6 per share, growing to EUR 4 per share by the end of the decade. Our transformation will also lead to rapid decarbonization. We expect carbon emissions to be in the range of 45 million to 50 million tonnes for fiscal year 2024, which means a reduction of more than 40% compared to '21. From 2024 until 2030, we expect to further reduce our emissions by almost 60%, in line with 1.5 degree SBTi emission reduction pathway. I'm sure you will have some questions about what I presented and maybe some with regards to other topics. But first, I now hand over to Michael. As usual, he will present the financials in all details. Please, Mike?

Yes. Thank you, Markus, and also good afternoon from my side. Let's take a closer look at the financials. EBITDA in H1 2024 stood at EUR 2.9 billion, thanks to a good performance across all segments. In offshore wind, adjusted EBITDA was EUR 828 million. Earnings were up mainly on the back of better wind conditions. Onshore wind and solar recorded an EBITDA of EUR 730 million. This was driven by organic growth, the full contribution of CEB assets, higher hedged prices and better wind conditions. Adjusted EBITDA of the flexible generation business was EUR 1.014 billion. As expected, earnings are lower, in line with normalized market conditions after the exceptional year in 2023. Our Supply & Trading business had a solid performance in the first half of 2024, after an outstanding performance in the prior year. In H1 2024, results stood at EUR 318 million. On the back of the good operational performance, adjusted net income amounted to EUR 1.36 billion in the first half of 2024. The adjusted financial results is lower due to increased net financial debt. For adjusted tax, we applied the general tax rate of 20% for the RWE Group. And finally, adjusted minority interest reflects lower earnings contributions of minority partners. The adjusted operating cash flow was EUR 3.3 billion at the end of H1 and is driven by seasonal effects in operating working capital. Changes in operating working capital were marked by positive effects from the reduction of trade receivables and seasonal withdraws of gas and storage. This was partly compensated by a reduction of trade payables. Net debt increased to EUR 11.4 billion due to investments and high timing effects. Net debt for H1 is on a similar level as Q1. In total, we invested EUR 4.5 billion in our growth. This includes the acquisition of the Norfolk offshore project portfolio from Vattenfall and our sell-down of 49% of the Dogger Bank South project 2 months back. Other changes in net financial debt amounted to EUR 2.9 billion. This includes timing effects from hedging and trading activities. Our net position from variation margins from power generation, hedging stood at minus EUR 0.5 billion. This includes net variation margins from the sale of electricity as well as the purchase of the respective fuels and CO2 certificates. We expect other changes in net financial debt to revert over the course of the year and net debt to be at a similar level at year-end like in H1. For 2024, our outlook is unchanged. Adjusted EBITDA is expected between EUR 5.2 billion and EUR 5.8 billion. Adjusted EBIT is assumed between EUR 3.2 billion and EUR 3.8 billion. Adjusted net income will range from EUR 1.9 billion to EUR 2.4 billion. We confirm the outlook for the rest of the year at a lower level -- at the lower end of our guidance. Based on the earnings in the first half, we are now even more confident that we'll achieve that. The dividend target is EUR 1.1 per share for this year. And now let me hand back to Thomas.

Thank you, Michael and Markus. We will now start the Q&A session. Operator, please begin.

[Operator Instructions] Our first question comes from the line of Peter Bisztyga from Bank of America.

Inevitably, I have to ask, do you have any comments on the recent Calpine speculation? And assuming that's going to have a 1 word answer, can I venture 2 other questions, please. So the first one is you have talked in the past on several occasions that you would consider flexible power generation in the U.S. So can you remind us the criteria that any such investment would need to meet, in particular, to make sure it fits with your growing green strategy? So that's my first one. And then you mentioned that you're selling some solar PPAs with Meta. I presume these are as generated PPAs and there's no premium in there. So I was wondering, can you describe your current ability to market 24/7 PPAs to data centers in the U.S. And do you think your disadvantage to the incumbent U.S. power generators and being able to meet the demands of data centers?

Yes. Thank you, Peter. Of course, we are not surprised with your question. And you're absolutely right. I mean on the rumors, the 2-word answer is no comment. Of course, we answer your strategic part of the question, how we think about U.S. Flex. And actually, nothing has changed from what we already discussed at the CMD. There is, of course, a strategic angle of that. First of all, the U.S. power market is highly attractive with significant growth, and that is the only our big core markets where we currently don't have an integrated position. And you know that we believe an integrated position of renewables and flexible generation can make sense. But we will definitely take our time to consider it. I think there is nothing which will happen overnight. The question is what to consider is, of course, the quality of the assets, the location of the assets, but also the earnings profile of the asset. So what can be contracted, what is contract, how much merchant exposure remains. And then, of course, it needs to fit and be in line with our decarbonization strategy. On the PPA, the PPAs we just announced are unit continuing. So pairs produced PPA, so not 24/7, but current PPA prices in the U.S. for green power are also on this structure. So renewable only highly attractive because there is significant demand and a shortage of supply, it's not a shortage of supply, but demand is even higher than supply of new projects. So for us, very attractive conditions for these 2 assets.

I'm sorry, sorry, just to clarify, are you able to market 24/7 PPAs in the U.S.? Or is that just not possible?

So Peter, from our asset base, as you know, it's not possible because we don't have any flexible assets, we have batteries. But batteries are not good enough for 24/7, but still what you can do and what we also actively do in all markets to simply buy into your portfolio, what is missing bundle and then market it but we don't sit on the asset itself. And of course, there are limitations what you can do in liquid markets.

Your next question comes from the line of Alberto Gandolfi from Goldman Sachs.

And again, apologize in advance for actually starting from external growth. I'm not asking about the press reports. But I understand, Markus, the strategic angle you made about providing 24/7 power and you're not integrated in the U.S. But I think your strategy right now is called growing green. Your organic CapEx is 2.5x your market cap. So is there room for large-scale M&A in your plan? I'm sure it can be constructed quite cleverly, but can you contemplate large-scale M&A? That I think is the first question. The second question is I couldn't help notice that particularly in your part of the presentation, you probably mentioned 4x to 5x the word decarbonization. And acquiring or developing or building whatever gas plants in the U.S., that doesn't seem to be decarbonized in your portfolio? Or am I missing something here? I don't know, the hydrogen conversion, for example, or the fact that maybe you look at every region compared to your current portfolio. And overtime, you reduce lignite and you replace with CCGT. So can you tell me please how you're thinking about the carbonization in the context of an integrated 24/7 portfolio across the Atlantic?

Yes. Thank you, Alberto. I mean, -- you're absolutely right. I mean we just laid out a strategy at the Capital Market Day end of last year. And as you can see from con presentation, our clear focus is on delivering on that strategy. On all aspects, as I have laid out in my presentation, managing the portfolio, the development portfolio, especially in the current environment, delivering on the projects, so without delays, without budget overruns on the construction side and also preemptively managing the supply chain, especially where we see potential risk like in the U.S. and in long-term offshore. And that is the focus. On M&A, let me comment, I mean that in the end, M&A is not about the size of the assets, but it's always about finding the right target for your strategy at the right price and at the right time. And that's what we have done also in the past. And we will also do that in future with this paradigm. The decarbonization, I mean I do not speculate on the decarbonization of assets, which are not part of our portfolio. And of course, the decarbonization of the gas assets we currently own in the U.K. and on the continent will, of course, depend on the policy framework. But what we already see is if you exclude Germany, which is a specific situation because of nuclear and coal access, the utilization of these assets will go down. So for us, especially interesting to discuss now with the U.K. government, what kind of policy framework we get where we more or less operate half of our fleet. And of course, the 2 options you have is that [indiscernible] or hydrogen. But it always need -- it needs an infrastructure, it needs some kind of support, and that is a political decision. Let me make a last comment because you asked the partly hypothetical question. I mean, we're going to stick to our decarbonization strategy as a group as we have laid out at the CMD last year.

The next question comes from the line of Ahmed Farman from Jefferies.

On a similar topic, maybe, Markus, could you just sort of help us remind us the EUR 55 billion CapEx for sort of plan. Is that largely sort of the way you approach it? Is that sort of largely sort of based on organic projects? Or is there -- within that, there is enough flexibility in that CapEx to consider M&A? Because I sort of heard, I think you mentioned earlier that you have about EUR 20 billion associated to the project -- 10 gigawatts of projects that you have under construction. So is that really the part of the CapEx that's firmly locked in? That's my first question. My second question is on the other side. As you such that sort of you're seeing the business develop and the market conditions evolve, are there sort of parts of your portfolio that you would think that could be -- would create value for the shareholders to exit.

Yes. Thank you, Ahmed for the question. The EUR 55 billion, which we laid out at the Capital Markets Day was an organic investment program. Of course, we constantly optimize the portfolio. So when we see opportunities to add great projects like the U.K. offshore projects, which we bought from Vattenfall, now fully supported by the direction the U.K. government is going and then partly optimizing by selling down 49% on the more longer-term projects. So an ongoing portfolio optimization is, of course, always part of our investment plan. But out of the EUR 55 billion, there was not the plan to acquire existing assets. And then the question on exiting. I think it will be important given that the market -- that is the current sentiment, how we perceive it has question marks around value contribution from investments in renewables that from time to time, crystallizing value by partly selling down the portfolio and making also visible to the market, how valuable some of the big projects are that we have collected or we have under construction is part of the strategy. So partial farm down. And you should also expect us over the next 12, 18 months that we crystallize some of the value in our offshore portfolio.

Next question comes from the line of Olly Jeffery from Deutsche Bank.

So a couple of questions. So the first 1 is just on looking at the results for the first half, other consolidation has come in a positive EUR 9 million versus the full year guide of minus EUR 150 million. Minorities have come in significantly below the full year guide EUR 250 million, Mike, will you be able to kind of give an updated view of how you see the figures, minority financial expense and other consolidation for the full year. That's the first question. And the second is on the trading business. In Q2, the performance there below $70 million is the lowest result you've had there going back, looking at numbers to start as 2019. Is there any particular reason that there was such a low performance has been trading this quarter? I guess, the masking as structurally, has anything changed from the beginning of the year, which would mean it be more challenging to have profits within Supply and Trading that are above the EUR 75 million a quarter guidance going forward? I leave it at those 2 for now.

Yes, Olly, I take the question. I mean if you have seen that we haven't adjusted the guidance on other consolidations and then also on the minorities, well, I think you can still stick to the numbers. It's more the overall picture. As we said, the guidance we currently have out it's probably more on the conservative side. If you think about trading, indeed, results were low. But as I said, that was kind of expect -- or it's now back to a normalized level. You need to bear in mind that we just have seen extremely high volatility in the market in recent years and that has led to a strong outperformance. And that's, by the way, also what I always communicate when we look at trading and also guiding trading, we assume kind of a normalized earnings profile and looking at the current order, I would say this was a typical normalized trading quarter. And now it depends obviously what happens in the next quarter, yes. So are there additional opportunities, although are we on a kind of normalized level and with normalized levels, we should be fine with the guidance we have given.

Your next question comes from the line of Deepa Venkateswaran from Bernstein.

So my 2 questions. The first one is more a clarification on something you said at the press call on the E.ON stake, something to the effect that it's an attractive asset, but it's not strategic and you would naturally look to see if you can generate attractive results with the asset. So in the context of that statement, could you let me know how you would think of this in terms of losing the optionality to fund the lignite foundation if you sold E.ON now to generate attractive returns? How would you look at that? And my second question is on the IRR. So in the chart, you showed the 8% IRR target and achieved. So my question is for these projects, such as the offshore wind projects in Europe where you don't have PPAs at the point of FID, I guess these are your projections. So how confident are you on getting the right PPA levels to meet those hurdle rates? And could you share some data points or anything that gives you and can give investors confidence that you will achieve the PPAs required to meet those hurdle rates?

Yes. Deepa, just on the E.ON stake indeed, I was asked the question in the press conference, and I reiterated what I already said previously in those conferences year, E.ON is not a strategic asset. It is a financial investment for us. We have seen, yes, great returns on that asset. I mean, since we -- the asset swap with E.ON in 2019 since then, the share has performed greatly. So therefore, we are very happy with that participation. I mean, your question on the lignite foundation, I mean, that is speculation. I mean we always said we would be ready and prepared for such a situation. But yes, we need to see if something happens. And then obviously, we also would then tackle that appropriately. Talking about the IRRs. I mean, 8% is the average return of our portfolio and then Markus reiterated that we are very confident with the current projects under construction to achieve that average for our portfolio. We're talking -- and that includes, obviously, also the investment decisions we have taken on the offshore assets. Offshore, we guided between 7% and 11%. And that is in effect. I mean, German assets, obviously, with a lower WACC, you should expect rather than the lower half of that range, but they are in the range. And talking about the PPAs. I mean, look, we just contracted almost 1 gigawatt of our offshore assets close to Heligoland to industrial customers at very attractive prices. And so therefore, we are in good contact with the market and also have a good feeling and understanding of the price appetite of our customers. So therefore, we are very confident that we'll also close PPAs for Nordseecluster and translating also into attractive returns of those offshore projects.

Your next question comes from the line of Harry Wyburd from Exane BNP Paribas.

Two questions for me. So one, I guess, is 1 of the last residual questions on U.S. flex general potential U.S. FlexGen. So is it important to you to have a controlling stake if you make an acquisition? Or would you be happy with the minority stake, but perhaps some kind of operational agreement to have dispatching access to flexible generation capacity and perhaps that could be a way of indirectly, perhaps reducing your economic exposure to carbon emissions. And then second, on the recent German offshore lease auctions, clearly, they are at a much lower price. I wanted to understand, do you think this is a direction of travel, i.e., clearly, the industry has been lobbying very hard for more qualitative criteria in these lease auctions. Do you think we've now seen the end of extremely high lease auction prices being paid in Germany or more widely in Europe? And do you think this is a positive signal for the industry overall?

Yes. Thanks, Harry, for the question. I mean I think you fully understand that I don't comment specifically on rumors. So I can, of course, I'm happy to repeat what is important for us when we look at a potential U.S. Flex opportunity. But as we said before, I mean, it will take time and outcome is open. And we're going to look at the attractiveness of the asset allocations, the earnings profile and the decarbonization whether it fits to our decarbonization as a group. And everything has to be seen. On offshore, to be honest, I was surprised about those options. The first one, I would have expected that the first German auction earlier this year we are at much lower prices. And then I would have probably said, yes, now we are where we need to be that prices come down and markets act more reasonable. But I was also surprised that we actually got the award at the very low bit we got, and we still try to get our head around why that happened. And it might have been because it was a different auction style with some qualitative criteria, which were in the overall rating actually not so important, but you had to meet that like coaches of apprenticeships and things like that, which you can do if you have large operations here, and we have made an advantage there. But I mean we are very, very happy about the result. And also when I compare the quality of the site to the others, and of course, the lease payers, we have to -- we're going to get it for an upfront payment of EUR 25 million now 4 gigawatt option and compare that to the other auctions. I would hope for lower lease spend. I think in the long term, these high lease payments are not healthy for the industry. And that's why we have also abstained from taking any involved in this year's earlier auction, but also last year. So we're going to be disciplined. And if we then can get it for the money, we think it's appropriate, we take it, otherwise, we stay out of the game. But the projection how it evolves it's very, very difficult. I mean putting myself in the German government, I still can collect billions to put it back into consumer bill as a release why changing the regime. I think we probably need to see 2 or 3 auctions with low results as we have seen it now or very low participation as we have seen it in the Dutch auction. I think that might trigger the reconsideration of policy. et cetera. Last point, what is important because if you look at the European level, the European framework clearly benefit CfDs. There is, on a European level earlier this year, where they said the support mechanism or the remuneration mechanism for renewables, European-wide should be CfDs double-sided. And that is what we also think is probably best.

The next question comes from the line of Wanda Serwinowska from UBS.

Two questions from me. One is on your CapEx plan. This EUR 55 billion CapEx plan by 2030 put your leverage close to the top end of the range of 3.5x. I think then you have 4 gigawatts of offshore from Vattenfall, you have, let's say, 2 gigawatts from -- in Germany because you can do it together with Total. But how can you finance it? I mean -- is there any flexibility in the 55 gigawatts -- EUR 55 billion of CapEx, can you shift it? Or do you need partners? Or how are you going to basically finance additional 6 gigawatts of offshore by 2030, early 2030? And the second question, Markus you mentioned very briefly power market is on proposals in Germany. Can you elaborate a bit more. Did you like had any concerns that you saw? And when can we expect clarity on the new CCGT in Germany?

Yes. Thank you, Wanda. So on the CapEx plan, we have, of course, room to maneuver. We gave you at the CMD a split what we intend to do in offshore in the U.S., what on the continent in onshore solar batteries, but of course, there is flexibility. And we always have flexibility with, let's call it, optimizing the portfolio also partially farmed down. And I would be surprised if we deliver the 4 gigawatts, which we just got in the German auction 100%. I think that is not the intention. So we materialized part of the project by selling down and depending where we are, we also have, of course, flexibility in shifting in the overall portfolio. But currently, we have no real intention to move away from the split, which we have communicated at the CMD. So the technology and regional split is more or less also with constantly revisiting that what we currently aim for. And the flexibility with farm-downs and so is always in the portfolio. And you have also seen that some of the projects we have actually pushed out now like Dublin Array, which we communicated at the CMD within the 2030 time frame, might probably come a bit later. So there is always flexibility and optimization possible. On the German white paper, it addresses 4 points. One is the remuneration scheme for renewables. So an active discussion whether they want to move to CfDs, how to more integrate the renewables in the market and they have an incentive to dispatch market rationale, which would actually be a big benefit for us because we need operations to be able to do that. Second aspect is capacity remuneration. So capacity mechanisms and the like, I'll come to that in a minute. And the other aspects are about how to better integrate flexibility into the market and how to use local price signals because we have redispatch issues in Germany because of the delayed grid build-out. For us, the most important 2 pieces are remuneration and the capacity market. So on the capacity market, there is a discussion about central decentral capacity market. What is most important for us is that we get as fast as possible clarity how to incentivize new builds. And what is now lacking is it's all pointing in the right direction. It's all supported by all parties, even the opposition party, but we need the details, and we are urgently waiting for the details for the consultation process. That is currently still in discussion, and you also hear it that I'm slightly annoyed about the delays, but it's still in discussion between the German government, the European Commission. We expected it already for last month, but now the commission is on vacation and I can only say I'm expecting it every day. Let's hope that we don't have another call passing, and we still have not the details. So because I want to see it and then we can clearly tell you how attractive it is. I think we have excellent sites, we have a clear advantage in Germany to build firm capacity. But we need to framework first.

Can I just ask a quick follow-up? So on the sell downs, what is the appetite from investors basically currently? Because one of your competitor or studies, basically, we still haven't seen any major sell-downs at least for me, it looks like unit sell-downs to basically deliver the 6 gigawatts of the CapEx. And the second point you said you will constantly adjust the CapEx, but you're happy with the breakdown given during the CMD. But when I look at it, offshore wind 35% of net cash investment out of EUR 55 billion, but when you add 4 gigawatts from Vattenfall it rebalances it, right? It's hard to keep the 35% share of offshore after additional 4 gigawatts in the U.K. So what I'm missing?

Yes, we have said that the target for offshore in total was around 10 gigawatt if I remind it correctly, at the CMD. And that is a net figure. So you cannot simply add the 4-megawatt Vattenfall and the full Nordseecluster and the full Thor because we are in the process of constantly optimizing the portfolio. So you can expect us also to farmed out on these projects. And that is always with an eye what do we actually add net per region to our portfolio. And we have already started some of the processes, so we know the interest. And from our end today, there is no concern that we're going to achieve the necessary sellouts.

The next question comes from the line of Piotr Dzieciolowski from Citi.

I have 2 questions. So the first one, I wanted to ask about your flexible generation midterm targets because since CMD, we've seen pretty low demand for thermal generation utilization, including a gas capacity. We've also seen a delay on the German capacity market introduction and so on. So -- if you were to do the target case, would you be a little bit more cautious on the EUR 1 billion to EUR 1.3 billion EBITDA or you have the other investment idea how to really bridge the -- to get to the target? And the second thing I wanted to come back a little bit to the U.S. So would you consider some type of an asset swap to get a stronger foothold into the U.S. market, yes...

So start with flexible generation. I mean look, we have always said this is a normalization that we have expected. If we look into the years to come, we see a strong pick up, especially on what we call system services. I mean if you see the capacity income of our assets, already this year, it's higher than we had previous years. And especially in the U.K., that will increase. And you know we have already auctioned capacity premiums until 2028. And also in Germany, we have seen this auction where 3 assets this time won a 2-year contract with significant contribution, and we also have the Biblis assets running. So we see an increase in system services here. And then on the -- what we call running the assets, we are seeing currently a normalization, but still at healthy levels. And any tightness in the market and especially with further decommissioning, we should see further tightening also then provides upside to the asset fleet. So nothing has changed on flexible generation rather, we have a positive view on that segment. And I mean the last thing that's no comment. I mean you are now speculating on something which is a rumor in the market that we don't comment.

The next question comes from the line of Louis Boujard from ODDO BHF.

Maybe just would like to follow up a little bit on the Flex gen, if you don't mind. More particularly, I think that you forecasted for '25, '26, a bit more difficulties in February, March, notably with regard to the current situation to the market in terms of power market prices at that moment. Nowadays, the power market prices, the volatility is quite sustainable. It's much better, I would say, than what we could have expected a few months ago. Would you still be as cautious as what you were a few months ago on this topic? Or do you consider that maybe the current earnings that is to be expected in 2024 is something that could be a good base for the next year as well or close to it at least. And maybe the second one would be more short term in the current earnings, notably regarding offshore and onshore and more particularly regarding the PV as well contributions. We are now already in mid-August, so you are quite far in the third quarter. How do you see the performance evolving on a seasonality point of view, notably in onshore and PV with regards to your full year guidance. I think that most likely the third quarter should be quite good considering your footprint in PV in the U.S. So could you confirm that it's going in the right direction on this specific topic?

Yes, let's start with the flexible generation. I mean, you know that -- I mean, first, I said our view on flexible generation really hasn't changed. I mean, beginning of the year, obviously, we saw a quicker normalization than we initially foresaw. But kind of the longer-term trend is very much intact, and we also observed that. If you look at the earnings profile, we always said that 2024 would be kind of the earnings drop simply because in 2024, we still also FlexGen have some higher hedged prices that realized. So therefore, 2025 will be lower, but nothing has changed there overall at the segment and the attractiveness of this one. Talking about onshore PV -- onshore and PV, I mean, indeed, if you look at the profile, we see strong Q1 and Q4 in onshore in Europe and on the back of wind. And in the U.S., obviously, the segment has a strong PV footprint, which has a strong performance, especially in the third quarter. So that is fair, and we also don't have a different perspective on this one currently.

Next question comes from the line of Alberto Gandolfi from Goldman Sachs.

I just was wondering following your replies throughout the day. Could you please tell me what EBITDA you currently have from U.S. renewables for 2024 and 2025. And I was curious about your comment about strategic rationale or something along those lines to integrate renewables and CCGTs and batteries to provide 24/7 power. So how many gigawatts of combined cycles, would you feel comfortable with to provide an integrated strategy? And where should this gigawatt be located? Because I guess they need to be located relatively close to where your renewable assets are. So if you can give us the U.S. renewable EBITDA and roughly the geographical split in percentage terms, then I guess we can all draw our own conclusions. And again, I'm not asking to comment on a deal or anything here.

Thank you, Alberto. Now I really have to disappoint you because first of all, on the segment, we report externally as we have the segment split in the segments, which is offshore and on the one hand side, an onshore PV globally on the other side. We don't give any further details in that segmental reporting. And the other questions you are asking are exactly the right strategic question, which I also have and which is part of the exercise we are doing to get our head around what I said already at the CMD about the strategic question about FlexGen. And if we have an answer to that, we might come back.

Before we move to the next question from the line up, one question by e-mail from a credit analyst, Markus, that goes to you, Michael. Do we stick to our commitment to the current credit rating? That's question one. And question 2 is surrounded by the M&A rumor, but maybe you can comment on whether we intend to change our green bond financing framework in the future.

I'm happy to take the questions. First, credit rating. So clearly, no change. So we stick to the clear ambition, and that's actually also what we discussed with the rating agencies, actually, one of them last week and the other one, I think, 3 weeks before that our clear ambition is to keep the current rating, and that's also in line with what we plan. Second question on the green bond framework. No, it also stays intact. So no intention to change that. And I think, I mean, especially the latter one is also very relevant because I mean, if you look at this EUR 55 billion investment program we have ahead of us, that is a green investment program, which nicely fits into the green bond framework.

Thank you, Michael. So we go to the next question to the operator we have 7 minutes left for the call, let's see whether we can go through our last question.

Next question comes from the line of Peter Bisztyga from Bank of America.

So a couple of follow-ups. One, just asking about the capacity market in Germany. Do you think that, that could extend to existing assets? Or is it -- is the expectation that it will just be for new generation assets. And then sort of excuse me for this one, but your comment just now vis-a-vis your conversations of credit rating agencies. I was just wondering if that's kind of within the normal cycle of your discussions with the agencies kind of in August.

Yes. So I'll take the last one. That's the regular. I mean you know the rating agencies have annual meetings with us. And these are the ones. I mean, obviously, after our CMD, we had a brief discussion with them to give no strategy update, and this was just a regular course of discussions with them on an annual basis exactly.

Then I take the one on capacity market, Peter. So you're probably familiar with the European rules. So whenever you introduce a capacity market, or remuneration, it needs to be non discriminatory. So it has -- needs to involve existing assets, also assets outside your own home country, which can be -- which can deliver into the country with the capacity market. But -- and here is the German problem because of the coal/nuclear asset is to incentivize new builds. So my expectation is that the government is going to focus on get the new build. So my expectation is also in terms of payment, it will be channeled mostly to the new builds. Then maybe if we jump 5, 10 years from now, we probably have a full flesh capacity market when the new builds have been incentivized. But we are not putting anything in the plan on existing assets.

Your next question comes from the line of Ahmed Farman from Jefferies.

Two follow-ups. First one, I say to you, Michael. Michael, you just reaffirmed your commitment to the credit rating. Does it also mean that sort of very much the targets that you gave us in net debt-to-EBITDA terms that sort of they are very much as you see them, you're fully committed to those as well? Or are those targets somewhat sensitive to how the portfolio is optimized and evolves. So that's my first question. And the second one to you, Markus. In terms of sort of addressing the strategic question about sort of, let's say, potential opportunities of U.S. Flex -- and is the political sort of the political election cycle, is that an important clearing event that you -- that has any bearing on your thinking around it?

Well, I take the question, you're fully right. Our credit rating does depend on the net debt to EBITDA or the FFO to net debt ratio of the rating agencies, and that is intact. So if we want to keep the rating, we also need to keep it. So we expect to the numbers we have communicated. Obviously, you can assume that in the discussions, we try to push the rating agencies to increase those levels, yes. But I mean that's I would call kind of the regular exercise you do always because, I mean, if you look at our cash flows with investing into our green growth and also with more PPAs and contracted income, we feel that our cash flows become more stronger and more reliable, and that is something where we believe that over time also the leverage ratios, we can afford for keeping the ratio as the rating should improve. And that's obviously part of the regular discussions we always have with the rating agencies.

And then I take the second, Ahmed. No, the election cycle has no impact on anything. I mean our strategy is for 2030 and longer, and it is not about political tactics. So this can -- the still outstanding elections will have no impact on what we do and when we do something.

The next question comes from the line of Deepa Venkateswaran from Bernstein.

I had 1 question on Chart 8, where you show the emissions target. This is slightly different from what you've shown before. So I had a question on what do you assume for utilization of your gas fleet. For example, this year, we would expect in line with your emissions for '24, that emissions from gas would roughly be 14 million tonnes. So by 2030, you won't have lignite, you won't have coal. So I would expect you to have been very easily sitting at the bottom end of that range. What explains the top end. And surely, you're not assuming load factors of gas are going up between now and then. So presumably, this is assuming some new unabated gas. So could you please comment on particularly the upper end of that range.

No, Deepa. I think that is too much of an interpretation. The numbers have not changed. And I mean I -- when we discuss the presentation, I actually asked exactly that question. These are the same numbers than at the CMD, and they should be the same numbers at the CMD. We still have some gas in and also in 2030 since we only close lignite early 2030. There's also a remaining part of that in and this is fully in line with our submission to the SBTi, which we have done even before the Capital Market Day. So the numbers have not changed.

Thank you, Deepa. Let's go for the last question of the day.

The last question comes from the line of Olly Jeffery from Deutsche Bank.

Just again one follow-up. And that question is, is there a limit to how much gas generation you think you could add to your portfolio before this could start to impact investor appetite to own RWE due to ESG reasons, either now or from 2030 onwards.

Maybe we need to redirect this question to our investors and to you, I mean I don't have an answer to that. I haven't thought about it.

I'll be happy to follow-up with you, Olly, if we have an answer to that question. So looking forward to that comment.

But I mean, adding more gas was already part of the CMD strategy, right? And there our only concrete plans, which are part of the capital allocation has been to invest in new H2-ready CCGTs in Germany. And I mean, according to the rumors, these might run on natural gas for the first 8 years, and then you have to decarbonize them. So what we already said not -- maybe it's not so much about the gigawatt. It's more about how much CapEx, how much earnings so what part of the overall business mix. And then, of course, what is the clear path to decarbonization.

Thank you, Markus. Thank you, Michael, and thank you all investors and analysts for dialing in today. If there are any open questions, the IR team is at your disposal any time. And I wish you all a great rest of the day. Bye-bye.

Thank you for joining today's call. You may now disconnect your lines.