RWE Aktiengesellschaft (RWE) Earnings Call Transcript & Summary

Welcome to the RWE conference call. Michael Muller, CFO of RWE AG will inform you of the developments in the first quarter of fiscal 2025. I now hand over to Mr. Thomas Denny. Please go ahead, sir.

Thank you, George, and good afternoon from us. And to investors and analysts, I know it's a busy day for you, so a special thanks for joining the RWE Q1 Investor and Analyst Conference Call today. Our CFO, Michael Muller will guide you through our key highlights and financial performance of the first quarter and the outlook for the current year. And with that, let me hand over to Michael.

Yes. Thanks, Thomas, and also good afternoon to all of you from my side. RWE had a solid start into 2025. Adjusted EBITDA stood at EUR 1.3 billion and adjusted net income at EUR 500 million despite weak wind conditions in the first quarter. We confirm the guidance for the full year we presented in March, which already reflected the weak wind conditions until then. Our EUR 1.5 billion share buyback program is making good progress, and the first EUR 500 million tranche will be completed by the end of the month. Shortly thereafter, we will start the second tranche. The full program will be completed by May 2026 as planned. We are also well underway with our offshore portfolio optimization. We successfully sold down 49% equity stake in our 1.6 gigawatt Nordseecluster and our 1.1 gigawatt Thor offshore project at an attractive valuation. The agreed purchase price is approximately EUR 1.4 billion as of closing. We are making good progress and expect closing by the end of Q2 2025. The transaction significantly reduces our share in the project's net cash investments by approximately EUR 4 billion. Let's now take a closer look at the construction program. Our offshore wind projects under construction are all well underway. The 1.4 gigawatt project Sofia in the U.K. is on track to be commissioned in 2026. As we speak, 49 of the 100 foundations and 12 turbines have already been installed. We expect first power in the second half of this year, and the project will have a 15-year inflation-linked CfD. In Denmark, we have just started offshore construction at our 1.1 gigawatt project, Thor. 5 out of 72 monopiles have been installed and all offshore, onshore and supply chain works are on schedule. For this project, we will close the PPA ahead of COD in 2027. Our 1.6 Nordseecluster project in the German North Sea will be commissioned in the year 2027 and 2029. All supplier contracts have been signed and first foundations have been offloaded at our marshaling port in Eemshaven. The start of installation is scheduled for this summer. As we speak, preparation for the offshore work is ongoing. For this project, we will also sign PPAs ahead of COD, and we have already contracted the first 400 megawatts. With our onshore wind and solar business, we have commissioned 500 megawatts in the first quarter of 2025. More than 95% of the offtake of the commissioned assets and of all projects under construction is secured. In U.S., we have largely mitigated supply chain risk of our projects under construction. Our tariff risk is not material and we do not have economic risks from federal permitting. In Europe and Australia, we are also forging ahead with 90 projects under construction in 9 markets. In 2025, we have secured attractive offtakes for further 400 megawatts in CfD auctions across various European markets. In our flexible generation segment, we have fully commissioned one of the largest battery storage systems in Germany with a total capacity of 220 megawatts. The system is dispassion optimized in the wholesale market and contributes towards stabilizing the electricity grid through balancing energy markets. Another 1.4 gigawatt of stand-alone batteries in Germany, the U.K. and the Netherlands are under construction, on time and on budget. The new German government wants to push ahead to incentivize the build-out of new gas plants. We are ready to construct at least 3 gigawatts if the conditions are right. We will do so at existing sites, and we have already secured the supply chain, including turbine slots for 2.4 gigawatts. All necessary permit applications have been kicked off. Let's now take a closer look at Q1 2025 financials. Despite the weak wind conditions in Europe, we have achieved solid earnings. In offshore wind, adjusted EBITDA was EUR 380 million. Earnings were below last year due to wind conditions and lower hedge prices. Compared to the first quarter of last year, our offshore wind generation volume was down 33% due to lower wind speeds across our U.K. and German offshore wind portfolio. Onshore wind and solar recorded an EBITDA of EUR 496 million. In U.S., we benefited from significant capacity additions and higher hedge prices compared to last year. Our U.S. capacity amounted to 11.2 gigawatts at the end of Q1 this year compared to 9.3 gigawatt a year earlier. The increase -- and the earnings increase in the U.S. was partially offset by weak wind conditions in Europe and lower hedge prices in Europe. Adjusted EBITDA of the flexible generation segment was EUR 376 million. As expected, we have seen lower earnings in line with normalized prices. Our Supply & Trading business had a weak start into 2025. The Q1 result stood at EUR 50 million, driven by a lower trading performance. Other consolidation was EUR 400 million. In total, adjusted EBITDA came out at EUR 1.3 billion. The year-on-year adjusted financial result improved due to an increase of capitalized interest during construction. For adjusted tax, we applied the general tax rate of 20% for the [ RWE ] group. Adjusted net income stood at EUR 500 million, resulting in an adjusted earnings per share of EUR 0.7. The adjusted operating cash flow was minus EUR 1.15 billion at the end of Q1, driven by seasonal effects in operating working capital as well as changes in provisions and noncash items. Changes in operating working capital were marked by the purchase of CO2 certificate rights in Q1, partially compensated by a decrease in the inventory of gas and storage. Changes in provisions and other noncash items were driven by seasonal effects in the utilization of provisions. It also includes the cash flow of our fatal technologies. Net debt increased to EUR 15.9 billion due to investments and seasonal impacts in our adjusted operating cash flow. In total, we invested EUR 2.7 billion net in the growth of our offshore wind, onshore wind and solar business. Other changes in net financial debt amounted to EUR 1 billion, driven by timing effects from hedging and trading activities. We expect net debt at the end of the year to be lower than at Q1. We assume net debt will be slightly below our 3x leverage target. For 2025, we confirm the outlook. Adjusted EBITDA is expected to be between EUR 4.55 billion and EUR 5.15 billion. Adjusted net income will range from EUR 1.3 billion to EUR 1.8 billion and adjusted earnings per share between EUR 1.8 and EUR 2.5. The dividend target is EUR 1.2 per share for this year. And with that, let me hand back to Thomas.

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

[Operator Instructions] The first question today is from Alberto Gandolfi of Goldman Sachs.

Thomas and michael, I wanted to -- so I'll stick to the 2-question rule. I wanted to be a bit specific here, not go big picture, but the first one is on the debt. I was wondering, Michael, if you can be a bit more precise other than saying a bit below 3x or lower than Q1. I mean, I think consensus for the full year is just above EUR 14 billion. I was wondering if you are, a, comfortable with that; and b, am I right in thinking that if you were to take an impairment on community wind, it will be a noncash impairment, i.e., it was related to past CapEx without an impact on free cash flow and net debt. The second question is if you can tell us what you are seeing on trading condition and offshore volumes and pricing in April and May so far. So should we consider Q1 an anomaly that has been normalizing or not? And if you can also talk about onshore, which was clearly way stronger, I think, versus the midpoint that you gave. So just to see how the rest of the year is going.

All right. Yes. Alberto, let's start with net debt. I mean, look, I stated that clearly, the Q1 net debt is marked by a seasonal pattern that will revert over the course of the year. Obviously, there will be then the offset of operating cash flow, so from the earnings and then the investments, yes. But as I said, it should be -- the year-end number should be lower than what we currently see and we do expect it also to be below the 3.0 target based on EBITDA to net debt. Second question on the impairment. So we don't see an impairment need on our New York Bight assets, I mean, look, the asset does have a leasing right until 2060. And we do see clearly the need for offshore winds for that region in U.S. And that's why we see the assets still as being valuable. I mean, we mentioned that in the full year numbers. Clearly, we have significantly reduced our spending to the minimum that is required to keep the option of the lease, and we also don't have any commitments going further. So it's really restricted to the current book value, which we still see as valuable. Then your question on the full year. I mean, look, we don't comment on performance of the current quarter. But I mean you will have seen that at least April wind in Europe, was, again, not very strong. But please bear in mind that the important quarters are Q1 and Q4. So April is typically not so significant for the overall numbers. And that is only obviously for Europe and not the U.S. And if you look at the entire year, we confirmed our guidance, and I mentioned that when we gave the guidance that already incorporated the lower wind here we saw at the point in time when we gave the guidance, which was mid of March.

And Michael, sorry to follow up, but did I miss what you said on trading? And by the way, just let me correct myself, 15.4 is consensus for '25, which basically is a bit below what you said earlier, so very consistent. But have I missed it on trading, forgive me?

Look, trading, I can't tell you anything about the running quarter, that's what we never comment on.

We will now move to Peter Bisztyga of Bank of America.

So 2 from me, please. One on this topic of zonal pricing. There was a basically European Commission document pointing to the fact that they might force Germany to adopt zonal pricing. So I was interested in your opinion on whether that might happen even though the German government is opposed to it, and what the impact could be on your generating assets in that scenario? And while we're on the subject, I guess, it would be useful to get your opinion on the U.K. situation as well? And then my second question actually was on your phaseout technology. So you've got guidance of EUR 350 million to EUR 650 million negative cash flow for this year. Q1 was sort of over EUR 200 million negative cash flow. So I'm wondering, does that point to full year cash flow actually being worse than your guidance. I would have thought that Q1 should be one of the stronger quarters. And how long are you actually willing to tolerate negative cash flow for in that business? And what are your options if this continues for the next few years?

Peter, let's start with the latter one first. Let's confirm we stick to our guidance. So that's still the range we see. As we said, we also had a unavailability of 1 asset in Q1, which also led to additional part in the first quarter. But overall, we stick to the guidance. Secondly, I mean, first, please be reminded that when we look at the segment, obviously, we look at each individual asset and optimize the asset and also make sure that they are cash positive. So if an asset is cash negative, we don't operate that. And if you look at the lignite, it's clearly the case. The assets are cash positive. Yet, we are already preparing for the later recultivation so much of the cash flow is already spent into the mining system. If you look at the overall system, over time, costs will come down. So you should see an improvement in the cost basis going forward. Plus obviously, we are also continuously optimizing the assets to improve the situation. So a clear message, we don't run unprofitable and cash-negative assets. And we are continuously optimizing also that segment and stick to the guidance. Next one on zonal pricing, I mean, let's start with the U.K. I mean you know that apart from 1 company, everybody in the U.K. is -- in the business is opposing zonal prices because, I mean, clearly, what you see in the current situation, we do need significant investments into green technologies and an introduction of zonal prices just adds additional uncertainty, which clearly doesn't improve the investment environment. And to be honest, I mean, the latest developments in offshore also underpin that. So I hope for the U.K. government also to properly reflect that if they judge on the zonal pricing. The other aspect is, I mean, it is introducing uncertainties. That's why we don't like it. What the final impact would be is not so clear because you know that our assets are actually better positioned because they are rather in the South. But from our point of view, we don't want to see that uncertainty so rather stick to the current setup. On Germany, a similar topic. I mean, you saw that this investigation was brought forward. There was clear comments also from the German TSOs opposing that review because, first of all, the benefit that was calculated was fairly small, yet the downsides were not fully incorporated like lack of liquidity or lack of investment certainty but also the impact it would have on industry or also potential future PPAs. So first, that needs to be considered. And especially given the advantage was also only minor. There is not a clear recommendation out of that investigation for a zonal split. Secondly, the investigation also didn't incorporate all the grid buildout that is already planned or ongoing. So if that would be considered, we do foresee that the number would have been different. And actually, that is also leading into where our recommendation goes. Germany needs to focus on getting the grid buildout done similar in the U.K. because that ultimately will solve this issue of radius patch from the North to the South. Finally, you already mentioned that in the German coalition agreement, they clearly stated that they are in favor of 1 zone. So my closing remarks would be I don't expect any changes here.

We'll now move to Wanda Serwinowska of UBS.

Wanda Serwinowska, two questions for me. The first one, I just wanted to follow on zonal in Germany. In my understanding, you need to align your view with Luxembourg. So can you please confirm what is the view on the zonal split of Luxembourg? And the second question is on the new CCGTs in Germany. I mean what is the most likely support scheme in your view? And when do you expect clarity on the support given that EU needs to approve it?

On the zonal pricing, I mean, for me, it's very early days. So that was just an investigation or a report. So I don't see any development here. So it's too early to judge, that depends on individual countries. So actually, I wouldn't put too much emphasis on that topic because clearly, Germany has currently other topics to focus on than zonal prices. And that brings me actually to the CCGT topic. I mean, look, the government is just in place with the economic ministry, [ Katharina Reich ], who previously worked for E.ON. We clearly have a very experienced secretary in the ministry who knows the industry and has a good understanding. And one of her 3 priorities she has put forward is to bring forward the gas assets, which we see as very promising. Now the next step, obviously, will be to already engage with Brussels to find a solution that is pragmatic and quick. But honestly, we are pretty confident that this should not go in the right direction given also that she has put that on her priority. I mean we are prepared, as I said also in my speech to go ahead. And yes, then we need to see which direction it's going.

And Michael, If I can just put 2 follow-ons. But should we expect clarity by the end of this year or it may take longer? I'm trying to understand when RWE can take an FID or -- between at least 3 gigawatts of the CCGT. On Luxembourg, I think you need to align with Luxembourg because otherwise, the things may get more complicated. I understand the German government and the regulator in Germany are not in favor, but I think Luxembourg have a say. So are you -- do you know what Luxembourg thinks about zonal pricing?

So first of all, I don't know what Luxembourg says on zonal pricing, but from my point of view, we are not yet there that there are kind of decisions needed by individual member states, yes. So we are in a very early stage where just an investigation was done, yes. But happy if there are more detailed questions to follow up on that topic, yes, with the team. The other one on the time line. I mean, look, what is the underlying assumption of the CCGT or the gas buildout is that we can facilitate the further buildout of renewable and the phaseout of coal. And there's a due date, which is 2030. And if you want to have additional capacity by 2030, you should also have the first auctions or FIDs end of the year, latest beginning of next year. So therefore, actually, I'm confident that we'll see something in the course of the year, but we need now to observe what happens in the next months to come.

Next question will be coming from Robin Pulleyn of Morgan Stanley.

Rob Pulleyn here from Morgan Stanley. A couple of questions, please, Michael. So first of all, it would be great to hear your take on the IRA proposals, which came with the first draft of the budget reconciliation and whether that shall we say, change our thoughts about future capital allocation in terms of U.S. onshore renewables. Secondly, if we may ask for an update on the Amprion sale. I believe there was an indication that this was imminent, but that was a few months ago and is, of course, the regulatory review in Germany, sort of, shall we say, a holdup before that actually can transact.

Okay. Let's start with the Inflation Reduction Act. I mean you saw that the Ways and Means Committee of the House of Representatives put forward a proposal. It's a pretty long proposal. So we are currently analyzing that in detail. And you also know that this is just a first proposal. So there will be now a longer legislative process, which needs to follow. So for me, it's too early to already conclude what that really means for our strategy. But looking into the draft, that's actually promising. So I'm confident at least what we red in the draft that this should not impact our strategy or our way forward in the near term. But as I said, we need to see. And therefore, a second comment, it's too early to have any implication on capital allocation. So we need to see how that now evolves. And therefore, we also stick to our strategy, which is -- yes, it's the investment program, but clearly, with more scrutiny. So increased return expectations but also more scrutiny on the individual project, which means we only go ahead if safe harboring is in place, if tariffs are mitigated, if all federal permits are there, and we have also contracted the offtake. Next question was on Amprion. Look, we said we are in the process of looking at alternatives to finance the CapEx program going forward, and we'll tell you once we have taken the decision, and that's not yet done. And on the regulation, no, that doesn't put the process at hold. So that's the process around Amprion is independent on any governmental announcements or Bundesnetzagentur announcement.

We'll now move to Deepa Venkateswaran of Bernstein.

So my 2 questions. So the first one is on the German gas buildout. Michael, could you talk a little bit more about what CapEx you are expecting? For example, some of your peers like NextEra have highlighted that it could be as high as EUR 2 billion per gigawatt. So what would be a good run rate assumption? I believe it was EUR 1 billion in your November '23 plan. So if you could just talk a little bit about the CapEx and therefore, maybe what kind of capacity here in prices? And secondly, just on trading. Just wanted to check if there was anything unusual about this quarter or anything out of the ordinary? Or is there any structural shift in volatility because I guess EUR 15 million is probably the lowest print in several, several quarters. So just wanted to see if there was any read across for the rest of the year on trading.

Okay. Let's start with trading. I mean, no structural changes and therefore also no read across for the remainder of the year. That's why we stick also to the guidance we have. Second one on CapEx for CCGTs. If you go back to our Capital Markets Day, we said that we have roughly EUR 3 billion kind of earmarked for CCGTs our gas assets in Germany. But there is flexibility in capital allocation. For me, the important piece is how does the framework look like. We are clearly developing more assets than just the 3 gigawatts. And then we need to see how the auction goes, how it's designed, how it goes and then to move forward. But to be clear, I mean, the strict investment criteria we applied -- we are applying for renewables, obviously also applied for the German gas assets.

Okay. And so just to confirm, you're still expecting EUR 1 billion per gigawatt of CapEx, not quite the EUR 2 billion that some of your peers are suggesting.

I mean I can say that at least the contracts we have already secured are more in line with the numbers you said. And then it depends on kind of when we do new projects, which type of projects are those. Yes.

We'll now move to Ahmed Farman of Jefferies.

Michael, I just have -- I'm going to start with the guidance. I take from your comments that you've already reflected the weather impact that you had -- sort of reflected some weather impact in your guidance for the full range of the guidance, presumably including the midpoint. Can you tell us -- give us some granularity what exactly so is reflected in the guidance for the weather so we have a sense of what is the underlying earnings for this year? And maybe sort of how much of that has already sort of come through in the first quarter in terms of the weather impact? That's my first question. My second question, I would be just interested in your view on the European offshore wind industry in terms of just for the sector as a whole, anything you can say or give us some sense of where -- what are you seeing in terms of, let's say, cost inflation over the last 12 months? Are there any specific bottlenecks that you're concerned about as you think about upcoming capacity auctions.

Yes. I mean I can't give you now the complete numbers, how we calculated exactly our guidance. But if you go back, I mean, we published the guidance mid of March. And since the guidance was part of our annual report, you can assume that the auditor had to look at the numbers so that we kind of define the guidance internally end of February. And that is also the time that is fully incorporated. So Jan and Feb low winds are fully reflected in the guidance. And yes. The rest is then assumed normalized earnings, I mean also normalized weather. I mean, bear in mind, we don't know what the summer and especially Q4 is bringing. And also bear in mind that if you compare it to last year, last year's, Q1 was extremely strong. So therefore, the relative comparison is not only low winds, but especially low winds compared to a very strong Q1 last year. And therefore, when I look into the full year, I still assume average wins for the remainder of the year. And therefore, we are confident with the guidance we have given. On the offshore industry in Europe, I mean, look, we do see, obviously, an easing in the industry. I mean, on the one hand side, we hear from some of our competitors, especially some of the oil majors that they are not so bullish anymore about the industry, which should lead to some easing on their side. And also some other competitors, at least, vocally, voice that they rather shift CapEx in other areas -- of their -- in other parts of the business, which also should give some easing of the offshore industry, plus late, you saw a big competitor of us withdrawing from a huge project in U.K. I mean, for me, that is -- the signal clearly is that there is an easing on the demand for, yes, offshore components. So I would foresee an easing of the supply chain. I think it also will help to ease financing and also in the sell-down markets, you will also see less projects. So honestly, we believe that our strategy to also be more careful with our investments, keep the powder dry is exactly the right strategy in the current environment. And I mean final comment, if you look at the U.K., if the U.K. government wants to achieve their targets, it's clear that the next auction need to be designed in a way that enables sufficient capacity to be contracted, which, from my point of view, is also a positive signal for the offshore industry in U.K.

Could I follow up on, sorry, the first one. Are you able to say what's the weather impact in the first quarter for you on the numbers? Both.

Yes, I can take that. So in the offshore business, compared to expectations or to normalized weather in the offshore segment, it was around EUR 150 million below expectations.

We will now move to Olly Jeffery calling from Deutsche Bank.

My first question is on some comments that were made at the recent AGM by the municipalities who have expressed the desire for your future capital allocation plan to be more CapEx driven and not to go down the buyback route. So I'd be interested to hear how those comments from these particular shareholders, how that might impact your marginal willingness to go down a buyback route depending on what happens with potential investments across your portfolio? And then the second question is just on AR7. In light of the fact of Hornsea 4 being canceled and possibly moving to zonal pricing. But I guess more with Hornsea 4 being canceled, do you think the probability of seeing 20-year CfDs as being part of AR7 having been materially higher probability now that happening given the U.K. government wish to having secure offering capacity to meet their targets.

Yes, Olly, let's start with the first one. I mean, look, to be very transparent, there are -- there is obviously a clear push from some of our investors for share buybacks, but I have to tell you, there's also a push from other shareholders, and it's not just the ones you mentioned, but also others that clearly state if we do have profitable investments, we should consider profitable investments. So therefore, it's not -- it is kind of a mixed picture. But what for me is more important is what we stated at the full year numbers. In the end, it is a matter of comparing the different opportunities and capital allocation. So if we see attractive projects and also an attractive environment that gives us more -- gives us certainty that would be beneficial for investing work. The other one is obviously the share price. The higher the share price, the less you are attuned to buying back shares and vice versa. That's why we said we'll consider that when we take the decision in beginning of 2026. So what is the environment in the U.S. by then? What is the environment around gas assets in Germany? What are we seeing as actual returns on the projects that we can take investment decision on and where is the share price? And then based on that, take a good decision, how to take it forward. Next question on AR7. I mean I can't comment on what the U.K. government will do now. But it's very clear if they want to achieve their 2030 target, we clearly need more projects to be successful in this auction. I mean, bear in mind, AR5, no assets cleared. AR6, yes, basically, the Hornsea 3 cleared, which was already in the building. So there were just 2 additional assets who cleared and 1 of them 2.4 gigawatt is now not built. So it's clear that more capacity will be needed, but it's ultimately up to the U.K. government to decide how to go forward. Clearly, we are there with our projects and are also willing to build not only to bid, but also then to build those assets.

Do you have any visibility on when we'll hear on AR7? Do you think it will be at the same time as we here on zonal pricing, for example?

Look, I would put it the other way around. It's clear that there needs to be even indemnification or clarity on the zonal pricing before anybody would bid into AR7 that's also what we clearly stated towards the U.K. government.

We now move to Harry Wyburd of BNP Paribas Exane.

So these are just 2 follow-ups really on the questions that have already been asked. So firstly, on the draft budget in the U.S. I know, Michael, you mentioned that it's very early days, but can you tell us anything about how the material assistance clauses might play into your supply chain, both in onshore wind and solar? I guess that's going to be one of the most critical things about how this draft budget ultimately plays out. Can you say anything to us now about how your onshore wind supply chain positions vis-a-vis those material assistance clauses and your solar supply chain? And then the second one, one of your Iberian peers seem to be pretty adamant that U.K. zonal pricing was not going to go ahead. I guess as a foreign investor, in U.K., there might be some incentive for the U.K. government to be particularly vigilant to your views and needs. Would you agree that the chance of it happening looks unlikely at the moment?

I'll start with the zonal pricing. Honestly, I can't judge, yes? That is a purely political decision. I mean you saw that the whole industry, except 1 participant is pushing against that. The arguments we put forward are very clear. We need to observe what happens, yes? But as I said, the impact on AR7, we are confident that this will be mitigated to one or the other way. And the other topic is in principle, if it would happen, the impact on our portfolio would by me my assessment would be rather -- there's a good likelihood that this is rather positive. But as I said, we don't appreciate it going forward because it just adds uncertainty that is clearly not needed in an environment where you want to have investments. On the U.S. budget draft, so that's a topic of foreign entity of concern, this is a passage in the draft that is not very clear. So we're still in the -- trying to assess what it really means also in collaboration with the association. But our current view is that it doesn't have an impact.

Next question will be coming from Piotr Dzieciolowski of Citi.

I wanted to ask those, recently Bundesnetzagentur launched the net consultation on the [ grid fee structure ] in Germany. And one of their ideas that was put out was that their power generators would pay for the grid access. So I wanted to understand your thoughts on how do you see the risk of this solution coming into the market. And then second question, I wanted to ask you whether we should somehow link your ability to deliver another round of buyback next year with the execution of the farm downs and the sales of the Amprion. In other words, like if you were to sell a Sofia or Norfolk or Amprion, you'll have some excess funding that you could deploy into the buyback. Shall we link it or that's totally irrelevant?

Yes, I'll start with the last question. I mean, clearly, whatever we do on Amprion, if that adds additional funding to our balance sheet. That is something we would consider in the overall capital allocation. But as I said, we have a current share buyback program running under Q2 2026, and we will decide on that program beginning of next year and obviously, incorporating all the sources and uses available at that point in time. Your question around the proposal on the feed-in tariffs in Germany. I mean, look, first of all, this was a first draft that is out for consultation. We do appreciate that as a start into a dialogue and you may have seen that Markus Krebber and Leo Birnbaum, they both published a short document ahead of the German election on topics to be addressed in Germany. And they also stated the topic that the grid fee -- that we need to kind of work on more flexibilization of demand. And therefore, looking at the grid fee system and also introducing some capacity payments is leading into the right direction because you do incentivize then also more flexible behavior. So it is the right direction. I mean on the exact proposals, we do have some different opinions on some of them. But as I said, it's a start into a discussion and in the end, I think it's absolutely appropriate that if we want to make the energy transition happy, we now also need to address the topic of affordability, and that includes all components, including grid fees.

[Operator Instructions] The next question will be coming from Wanda Serwinowska of UBS.

Wanda from UBS, just one follow-up, if you don't mind, on the U.K. leases, if for some reasons, RWE is not successful in AR7 because of the zonal pricing, you don't have a clarity or the price is too low for you. Is there any risk to your -- is there any risk for impairment of your U.K. leases?

No.

We have another follow-up question. This time coming from Alberto Gandolfi of Goldman Sachs.

Michael, the first question is also yes or no. If I understood well your guidance, you were saying EBITDA for leverage and net debt at year-end, of course. You were talking about, if I take EBITDA a bit below 3x, that's what you would expect. So if EBITDA is 485 let's take 2.9 leverage, I mean essentially, you gave us a EUR 14 million year-end net debt guidance. Am I right?

Yes.

Great. And then the last follow-up. That's half lower than consensus. So the second one is, I find a bit premature, Michael, but I've seen this is the second quarterly presentation where RWE has not talked about Germany a bit more in depth. All economies are upgrading GDP targets for the infra plan, for the defense spending. Do you think there's an angle here to start thinking about an inflection point in power demand and growing power demand as of '26, '27? And what does it do to your business, please?

Yes, a little longer answer to your second question. Look, for me, it's ultimately a question of sentiment in Germany. So I do have to hope that a good program and also a good government changes the overall investment sentiment in Germany, and that -- this then also triggers investments and growth again. And it's clear that any growth we see in Germany will help to boost demand. I mean put it the other way around, we saw a significant reduction in demand on the back of the energy crisis that hasn't recovered. So there is a good chance that if the program really helps to boost the economy that will lead to economic growth and also to demand growth. And clearly, given that German industry is very much focused on also decarbonization that also will help to boost the demand for green power in Germany. So long answer, but short, yes.

We have another follow-up question coming from Peter Bisztyga of Bank of America.

Yes, actually just a quick one on Supply & Trading, thought it would be useful to understand a little bit better if there was kind of anything specific over that went wrong in the business or relating to kind of market conditions during the quarter that led to that very low trading performance. Are you having to sort of implement any changes in that business to sort of remedy that? Or was this just one of those quarters.

Peter, you put it right. It was just one of those quarters. I mean, I guess we are all very spoiled by a clear outperformance in quite a lot of quarters -- previous quarters. So there is nothing specific as I already answered to Deepa's question and also no structural changes. It's just a poor quarter.

Another follow-up question, this time coming from Piotr Dzieciolowski of Citi.

Yes. I have one more follow-up on the gas capacity in Germany. So I understand there will be an auction for new capacity, but the former government also wanted to have some consultation on the capacity market for existing fleet. I mean if you look at the profitability of your roughly 4 gigawatts of capacity in embedded within the 2017 guidance is not very low. I mean, definitely -- I mean, versus the replacement cost, it's a very low number. Is there any discussion about supporting existing capacity at some point in time? And when -- if, yes, when that could be implemented?

Yes. And thanks, Piotr, for the question. This is a very important one. I mean it's clear that we are not just talking about existing capacity -- new capacity but we also need to think about a proper remuneration for existing capacity with more renewables coming into the grid. I mean you see U.K. has that in place. Belgium has introduced it. So that's definitely something to look at. I mean, to be clear, when we talk to politicians, we say -- the topic that is urgently short-term needed is the new build of capacity. That's why we recommend, in the first step, focus on the new capacity. That's why we also appreciate the targets to incentivize 20 gigawatts until 2030. But we are also clearly stating that's the one thing. So what you need to do, ideally in parallel or if not shortly after start consultation on a concept for a proper capacity market in Germany. We know that this will be probably a more lengthy process, and that's why also this one is needed to be kicked off very shortly. But again, I think the first one is let's get it sorted, that we have the new capacity. And then the second topic needs to be addressed in the second step, but those are definitely needed. And clearly, if you look at our business model, I mean, look at the U.K. that does provide a good opportunity for our FlexGen business.

Ladies and gentlemen, as we have no further questions, I turn the call back over to Mr. Thomas Denny for any additional or closing remarks. Thank you.

Well, thank you, George, and thank you, everyone, for dialing into our call today. I hope you get all the answers you were hoping for. If there are further open questions, reach out to the IR team any time. And with that, I wish you a great rest of the day. Bye-bye.

Ladies and gentlemen, that concludes today's conference. Thank you very much for your attendance. You may disconnect. Have a good day, and goodbye.