RWE Aktiengesellschaft ($RWE)

Ladies and gentlemen, good afternoon from Essen, and thank you for joining RWE's conference call. Today, we are reporting on our 2025 performance, and we're providing a strategy update for the period 2026 to 2031. Our CEO, Markus Krebber; and our CFO, Michael Muller, will first guide you through our presentation. And then we'll start the Q&A session. And with this, I hand over to you, Markus.

Yes. Thank you, Thomas, and a warm welcome to everyone here from the RWE headquarters. Today's energy world is one of high growth and huge opportunities, but also one full of challenges to deliver multibillion investments. We experienced ongoing geopolitical tensions, evolving energy policies and regulation as well as supply chain and tariff uncertainties. We, at RWE, have the capabilities to navigate this environment and to capture the opportunities ahead of us. And in 2025, we delivered again. We remain focused on our key strategic milestones and executed on our strategy, and we achieved the financial performance at the upper end of our guidance. Our investments focus going forward will be on highly attractive growth opportunities in the U.S. power market and German flexible generation. For the period '26 to 2031, we plan to invest net EUR 35 billion, and these investments will lead to exceptional earnings growth of 12% annually until 2031. Furthermore, we are increasing our dividend growth target. We will grow our dividend by 10% per annum. Let's take a closer look back at 2025. We delivered a strong financial performance on the back of the robustness of our integrated portfolio. Adjusted EBITDA stood at EUR 5.1 billion, reaching the upper end of our guidance. Adjusted net income came in at EUR 1.8 billion or EUR 2.5 per share, also at the upper end of our guidance. Driven by strong progress in partnering, our leverage ratio was well below our guidance range at 2.1x. This once again underlines our prudent balance sheet management. We delivered our strategic priorities in '25 as well. We added 2.8 gigawatt of new capacity to our generation portfolio, mostly in the U.S. We took further FIDs and currently have more than 10 gigawatt capacity under construction across all technologies and regions. In the U.K. auction round 7, we were awarded 6.9 gigawatts of gross capacity. These CfDs will secure additionally high attractive offshore growth. The 20-year inflation-adjusted CfD starting at GBP 91.2 per megawatt hour will deliver long-term secured cash flows. We made prudent investment decisions at attractive returns. On average, weighted on CapEx, the IRR of our 2025 FIDs is 9.8%. Our EUR 1.5 billion share buyback program is well underway. At present, we have bought back 34 million shares at an average price of EUR 36. We will finalize our current share buyback program by June of this year. One key pillar of our investment strategy is attractive partnerships. And in '25, we successfully entered into new valuable partnerships. We sold 49% stake in our Danish, Thor, and German, Nordseecluster, offshore wind projects to Norges Bank Investment Management. And we entered into a partnership with Apollo to secure funding for our grid expansion at our 25.1% stake in Amprion. For our Dogger Bank South offshore projects, we continued our long-standing partnership with Masdar. Now we have also secured CfDs in ARM. And in January '26, we announced a partnership with KKR for our Norfolk Vanguard East and West projects. We will carry out these projects in a 50-50 joint venture. This includes a project financing structure that will already lead to positive cash flows for us during the construction phase. In 2025, we delivered on all of our strategic priorities. Let's now focus on our future plans and how we will continue our successful journey. The fundamentals for our business are fantastic. The age of electricity is there. Power demand will grow. For Europe and the U.S., the International Energy Agency assumes continued power demand growth. Net expected load growth in both regions is above 10% until 2030 alone. Key drivers are electrification in sectors such as transport, heating and industry as well as data center and AI growth. This results in substantial investment needs for additional power generation capacity in all our core markets and our core technologies. Renewables with low LCOE and the short time to market, battery storage to bring production profiles in line with demand and flexible gas generation to complement the power system with on-demand generation and backup capacity. Policymakers are now fully aware of the investment needs. Much of the necessary clarity to facilitate the urgently needed investments is there. We at RWE are set to capture the opportunities ahead of us. First, we have a strong portfolio. Our integrated generation portfolio of renewables, storage and flexible gas is the right setup for today and going forward. We have developed a diversified pipeline across regions and technologies, which will enable us to select future growth investments. And our existing sites allow us to head start the development of projects and to create additional value. Second, we have excellent capabilities. We have best-in-class engineering skills to develop, construct and run generation assets. Our proactive supply chain management allows us to mitigate the risk of tight supply and tariffs. We run an in-house commercial platform that enables us to extract the full value of our asset fleet and deliver superb customer solutions. And our strong balance sheet provides us with a high financial flexibility. This is a key advantage in our capital-intensive business. It enables us to adjust our investments and farm down program according to market conditions. And third, we have a proven track record. We have executed all of our major projects on time and within budget. We have continuously delivered and even exceeded our earnings guidance during the past decade. And we have continuously reduced our emissions in line with the 1.5-degree pathway. Let's get now specific on our investment plans. We will invest net EUR 35 billion in the years '26 to 2031. Our new investments will generate returns based on our average target IRR of more than 8.5%. These attractive investments will deliver exceptional EPS growth of 12% annually until 2031. In 2031, our adjusted earnings per share will be at around EUR 4.4. Our investment program will be focused on our key growth opportunities. In total, we will add 25 gigawatts of net capacity. Compared to the previous plans, our offshore net cash investments are being reduced due to the partnering and project level financing. On the other hand, our investments in U.S. power generation are being increased, driven by the U.S. market attractiveness. We maintain flexibility in our investment program. Hence, we are able to adjust capital allocation as market conditions evolve. Share buybacks also remain an option in future depending on the market environment and investment returns. We will also maintain our balance sheet discipline. We will stay at the lower end of our leverage range of 3 to 3.5x net debt to adjusted EBITDA. Let's have a closer look at our specific investment plans, starting with the U.S. The U.S. power market has very strong fundamentals. Power demand growth is high. According to the IAA, demand was up by almost 3% in '25 year-on-year. Driven by electrification and the build-out of new data centers, demand is expected to continue to grow in the coming years. Driven by the rapid power demand growth, technologies with the fastest time to market have a clear advantage. New solar and wind assets complemented with batteries and gas generation. Demand for PPAs at attractive price levels is strong. OBBB provides regulatory clarity about the application of safe harbor tax credits until the end of this decade. For our build-out program, safe harbor tax credits will not be a constraint. Even in this highly attractive market, we will neither compromise on returns nor on risk management. We will continue to make investments based on our strict investment criteria. Projects are only brought forward to FID, if all federal permits are in place. relevant tariff risks are mitigated, offtake is secured and tax credits are safe harbored. From 2026 to 2031, we will invest around EUR 17 billion net, adding 9 gigawatts of net capacity. This also includes the first megawatts of peaking gas capacity by the end of the decade. We are expanding our U.S. presence with flexible gas generation. We will focus on markets with high power demand growth, PJM, MISO, ERCOT, and WECC. These markets are facing data center-driven load growth that represents a massive share of their current peak demand. We are already present in all of these markets with a strong renewable portfolio, excellent market knowledge and secured grid interconnections. We will now leverage this position. We will organically grow flexible generation as a complement to our renewable assets. Currently, we are developing 15 projects with existing grid connections. Our goal is to take the first FID this year and have the first megawatts operational by the end of the decade. Let's now turn to the German market, which also looks very promising for future investments. A study by the German grid Agency has identified the need for additional 22 to 36 gigawatt of firm and flexible capacity. Hence, we are facing significant investment needs. New assets will complement intermittent renewable power generation with peaking and backup capacity. The German government has taken the necessary steps and will introduce the capacity market in 3 phases: 12 gigawatt of new assets, which we expect to be auctioned by late summer this year with COD in 2031 at the latest. Additional technology-neutral capacity market auctions in '27 and '29 will also include existing assets. And finally, a comprehensive capacity market starting for delivery in 2032, in line with EU guidance for capacity markets. And we are well positioned to capture that opportunity. We have 3 gigawatts of ready-to-build gas projects with 2.7 gigawatts of secured turbines, and we can do more. We have 1.6 gigawatt of battery projects under construction in Germany. And in addition, we have 2 gigawatt of battery projects in advanced development with secured grid connections and COD until 2030. In total, we plan to invest around EUR 9 billion net between '26 and 2031 in German flexible generation and will add 6 gigawatts of net capacity. Moving on to offshore. Our offshore construction program is well underway. Currently, we have 3.1 gigawatt of projects under construction. This includes 100% of our Sofia project in the U.K., which we plan to sell down at a later stage. All of our major projects are within budget and on schedule to meet our targeted CODs. A key part of our U.K. offshore wind pipeline is secured with attractive 20-year inflation-linked CfDs. In total, we secured 6.9 gigawatt gross and 3.5 gigawatt pro rata capacity in round 7 of the U.K. auction. Our future development activities are focused on our core offshore wind markets, the U.K., Germany, the Netherlands, Denmark, Belgium, Ireland, Japan and Korea. Future investments in offshore wind projects require secured offtake and the bankability of the investments. We are confident that the regulatory regime in all our core offshore markets will be adjusted accordingly over time. Net cash investments will only be around EUR 2 billion net. Partnerships and project finance will cover most of the investment needs going forward. Until 2031, we will add 5 gigawatt net capacity to our portfolio. Our onshore wind and solar investments outside the U.S. are focused on markets with strong growth potential and attractive offtake regimes. We are exiting markets that do not fulfill our requirements. And we have the flexibility to shift investments among our core markets to navigate the regulatory environment as they evolve. In total, we will invest EUR 7 billion net and add 5 gigawatts of net capacity until 2031. Load growth, especially from data centers is not only a key driver for power demand, it has also changed the fundamental value of the idle infrastructure we own. For data center companies, grid connections and land conditions are key aspects. Grid access is a true bottleneck. We own more than 30 potential locations in our European core markets with currently idle infrastructure. This is an additional potential for value creation. From this portfolio, we have currently 10 sites in advanced development. We have either secured or applied repurposed grid connection with a total of more than 3 gigawatt. These sites are located along the so-called Blue Banana, Europe's megalopolis characterized by high population density and significant industrial activities. Based on our excellent capabilities, we are able to offer a broad range of solutions, energized land, which will include predeveloped land connected to the grid, ready to sell or lease to data center companies. Where feasible, we will complement this with clean power supply. And we can even go a step further and provide on-site power generation, backup power or energy management solutions. Any upside from these projects would come on top of our earnings guidance. Let's wrap it up. Our investments will deliver growth in capacity, cash flow and earnings. In 2031, we will operate 65 gigawatts of generation assets that are well diversified across technologies and regions. In 2031, we will generate EUR 7.5 billion in operating cash flow, and we will deliver EUR 4.4 earnings per share. RWE offers a highly attractive investment opportunity. We have continuously delivered strong project execution and financial performance, and we will continue to be disciplined with our capital allocation. We will maintain our strong balance sheet. Our leverage ratio will stay at the lower end of our guidance range. This provides financial flexibility. Our portfolio will generate a robust cash flow from our existing business and attractive returns from new investments. We will deliver exceptional EPS growth with a 12% CAGR until 2031 and high earnings visibility. And finally, we will continue our strong focus on shareholder remuneration. We have increased our dividend growth to 10% per annum. Thank you for your attention so far. Michael will now guide you through the financial details. Over to you, Michael.

Yes. Thank you, Markus, and good afternoon also from me. We outperformed our 2025 financial targets again. Adjusted EBITDA stood at EUR 5.1 billion, reaching the upper end of our guidance range. This was also driven by the sale of a data center development project to a hyperscaler in the U.K. and positive earnings contribution from Amprion. Our adjusted financial result improved due to lower financing costs from earlier proceeds from farm-downs. Adjusted minority interest were higher than expected. This was driven by our partner share in capitalized interest and a strong contribution from U.K. offshore wind in the fourth quarter. Adjusted EPS stood at EUR 2.48, reaching the upper end of our guidance range. Let's now look at future earnings development of our business. Our investments will deliver exceptional earnings growth through 2031. The EBITDA CAGR will be 12%. And in 2031, our earnings will be well diversified. Roughly 50% of our EBITDA will be generated by the onshore wind and solar business. The other half is roughly split between offshore wind and flexible generation. Our plan is based on forward prices of mid of February, our long-term commodity assumptions and a high share of contracted margins. Since the beginning of March, commodity prices in the front years have increased substantially. This is an upside to earnings for our generation fleet. However, our trading business had a weaker start into the year. Let's now take a look at offshore. Offshore adjusted EBITDA will grow on the back of commissioning of new assets. For 2026, we assume adjusted EBITDA to range between EUR 1.55 billion and EUR 2.05 billion. The commissioning of Sofia in September this year, the project will fully contribute to our earnings. In 2027, further CODs will follow. Our German Nordseecluster A and our Danish project, Thor, will commence commercial operation and fully contribute to earnings. In 2031 offshore earnings will increase further as more projects will reach commercial operation. This includes OranjeWind in the Netherlands in 2028 and Nordseecluster B in Germany in 2029. By the end of the decade, we will start commissioning of our AR7 projects. For the Norfolk projects, we assume at equity consolidation, hence, we will -- they will only contribute in adjusted EBITDA with their share in net income. Until 2031, several of our existing projects in the U.K. will phase out of the ROC system. Hence, our 2031 target also reflects lower margins from existing assets. 2031 adjusted EBITDA in offshore will range between EUR 2.15 billion and EUR 2.65 billion. Moving on to onshore wind and solar. The increase in earnings is mainly driven by organic growth of wind, solar and battery projects. In addition, we'll have earnings contribution from U.S. build and transfer business. For 2026, our adjusted EBITDA will range between EUR 1.75 billion and EUR 2.25 billion. For '27, adjusted EBITDA reflects the slower pace of investment decisions in the first half of 2025 in the U.S. This is driven by the regulatory uncertainty. Beyond 2027, we anticipate further growth. In the U.S., we'll deliver our pipeline of safe harbor projects. We also expect earnings contribution from our first gas assets in the U.S. Similar to offshore, several onshore wind and solar projects will phase out of their support scheme by 2031. By 2031, EBITDA is targeted to range between EUR 4.2 billion and EUR 4.8 billion. From '26 to '31, this implies an earnings CAGR of 18%. Let's now have a look at flexible generation. In 2026, adjusted EBITDA is expected to range between EUR 1.2 billion and EUR 1.6 billion. This is mainly driven by the absence of the book gain due to sales from a data center project in the U.K. last year and increasing contracted capacity payments in the U.K. In '27, earnings development is largely driven by a further increase of secured capacity payments in the U.K. From 2027 onwards, we will also commission battery assets that are already under construction. Until '31, we expect to grow earnings on the back of new battery and new gas assets in Germany. However, the new gas assets are subject to successful German capacity auctions this summer. We assume adjusted EBITDA in 2031 to be between EUR 1.9 billion and EUR 2.4 billion. Our earnings will lead to a strong adjusted operating cash flow. Average adjusted operating cash flow from '25 to '27 amounts to EUR 5 billion. Our investments will further grow the cash flow by 50% to EUR 7.5 billion in 2031. This excludes the utilization of mining provisions as these are fully covered by our 15% stake in E.ON. In 2031, 75% of our cash flow will be contracted. We are strongly committed to a strong balance sheet. We will maintain our solid investment-grade rating. At the end of '25, our leverage ratio stood at 2.1x, driven by the cash inflow from the partnership with Apollo. From '26 onwards, we expect our leverage to move closer to 3x as we continue to invest. And we will continue to stay at the lower end of our 3 to 3.5x net debt-to-EBITDA range. We aim for a steady long-term dividend growth. For '25, we confirm our dividend target of EUR 1.2 per share. And on the back of our strong earnings development, we will increase our annual dividend growth to 10%. For '26, we'll target a dividend of EUR 1.32 per share, representing a payout ratio of approximately 50%. Let me conclude. Our EUR 35 billion investment program will lead to exceptional earnings growth. Our adjusted EBITDA and EPS CAGR is 12% until 2031. We remain firm in our commitment to financial strength and maintaining our strong balance sheet. And we're committed to attractive shareholder remuneration. We will grow our dividend by 10% per annum. And now let me hand back to Thomas for questions.

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

[Operator Instructions] We will now take our first question from Alberto Gandolfi of Goldman Sachs.

I'll stick to the 2-question rule. Very interesting strategic update. Thank you for that. I guess, the first question is asking a little bit to cross-check the calculation and the rationale. So you have achieved a 10% IRR on additions in '25. The power demand outlook is very solid. Competition in renewables is probably not as strong as it was 2, 3 years ago. So can I ask you what is the rationale for sticking to just a bit higher than 8.5% IRR, which is a little bit better than the previous plan? And am I right in thinking that if you were to remain at 10%, how much of the EUR 35 billion CapEx is uncontracted? Is it EUR 20 billion, EUR 25 billion? So we're talking about $0.45, $0.50 upside if you were to stay at 10% IRR. This is just a sensitivity basically that I'm asking and rationale for it. The second question is similar along those lines, but for FlexGen. I was going to ask you how much really power demand have you assumed? And -- what happens if power demand is like an extra 1 percentage point higher? Let's say, you assume 2. What happens if it's 3? What happens to your investments in peakers? What happens to FlexGen, in particular, existing assets, FlexGen in U.K. and Germany? Is there any way you could quantify? Is it EUR 200 million, is it EUR 300 million before taxes incremental? I'm just trying to see how many contingencies you put in 2031.

Thank you, Alberto. Always looking for upside. I love it. So first of all, I mean, you know us now for years, and the basis of our planning is always prudent planning. So of course, there are probably more buffer than upside, more buffers in the plan than hope. But we want to have an investment framework where we say, okay, if we do these investments, it needs to be valuable. What is the hurdle rate? And the average hurdle rate to have a valuable investment according to our cost of capital is 8.5%. And that's why we plan with at least 8.5%. It can be better. The 2 biggest buckets of upside is U.S. projects and German gas plants where we have, I think, a very good position to get higher returns. But we don't want to put it in the plan because that is what we think not a prudent assumption. On the -- but we definitely strive for higher returns as we have also last time, I think when we had the intense discussion on returns, I said 1.5 years ago, now is the time to capture higher returns because the projects you can get through in a very competitive or challenging environment needs to have higher returns and that what we have delivered now. And that can continue, but you never know. On the CapEx, what is committed, I would say probably 1/3 to 40% is committed and the rest is still open with, I mean, the U.S. projects in the later years and especially the German FlexGen investments. We have also a very prudent assumption on power demand. So we start with the current level of European, especially German power demand. And we had that discussion before. If we see for whatever reason, I mean, current situation with the energy prices probably even more challenging. But if we see an uptick of industrial power demand, which could easily be another 30, 40 terawatt hours a year, that would change the picture. But we don't want to speculate what that means in earnings today.

And our next question comes from Ahmed Farman of RWE.

Ahmed Farman from Jefferies. Michael, thank you for the plan. Really interesting. Two questions. Actually, Markus, just a very quick follow-up. On the 2 sources of upside that you highlighted, the gas plants in U.S. and potentially in Germany, could you specify sort of what sort of -- how much of the CapEx is already contributing to the earnings in 2031? And how much of the CapEx still sort of comes afterwards? Just trying to understand the sort of -- how much of the sort of the opportunity is already reflected in the 2031 EPS? And how much sort of potential upside could there be just because of timing effects and some of the CapEx spend comes afterwards? So that's my first question. My second question is on the German capacity market. I think you mentioned technology-neutral auctions in '27 and 2029. Is that already part of the base case plan? Or is that also a source of upside as well? And if it is a source of upside, any indications you could provide on eligible capacity for RWE would be helpful.

Yes. I think on the unproductive CapEx at the end of the planning period, Michael will give you an update. Just to clarify one thing, Ahmed, I think the upside on the earnings is not so much on the U.S. gas side because that will be maybe a couple of hundred megawatts by 2031, if we are now successful with the organic development. It's more on the renewable side because we have seen very strong returns with the recent FIDs we have taken. On the capacity market in Germany, we have incorporated the build-out our share of the first 10 gigawatt of gas plants, it's going to be auctioned. We plan with 3 gigawatts there. We have not included in this plan yet any additional contribution in the potential capacity market from existing capacity. There's 0 in the plan.

Yes. And Ahmed, on the unproductive CapEx, I think EUR 9 billion to EUR 10 billion is a fair assessment. I mean, clearly, we have a higher rate of unproductive CapEx currently. As you know, there are lots of offshore projects that are just due to come online. So we expect that share to come down and also the sell-down to partners has contributed to a decrease, but I think EUR 9 billion, EUR 10 billion is a good run rate in the later years for our investment plan.

And our next question comes from Deepa of Bernstein.

So my first question is on U.S. gas. I think, Markus, you mentioned it's a couple of hundred. So should we think that the CapEx allocation for U.S. gas within that EUR 17 billion is fairly negligible in the scheme of things? And do you also have the equipment already sorted? My second question is more on the energy crisis. I think, Michael, you mentioned that there is upside to the near-term numbers with the higher commodity prices. However, you said trading was off to a weak start. So just wanted to understand what are the dynamics going on here that impacts trading? Is it any specific position you have? And I did note that you have quite an unusually high open position for '26 in your sensitivity table. So EUR 10 million change for every EUR 1 change on offshore. Is it because you deliberately left the merchant noose of Sofia or any of the other under construction projects open? Because I would have assumed you would have been more hedged for '26. So just wanted to check whether there was anything strange going on in '26 on hedging.

Yes. Thank you, Deepa. I'll take the first one on U.S. You are right. I mean the CapEx until 2031 is low, definitely less than 10% of the EUR 17 billion more in the area of EUR 10 billion in the current plant. If we are successful, we can upgrade that, of course. But the plan is really here for the new development and existing sites to offer our offtakers also a 24/7 baseload band with renewables, batteries and gas. And we have many sites under development now where we have gas pipelines close by. So we clearly see an attractive growth case. We have not secured any equipment yet, but we don't see a problem for peakers and engines. CCGTs is different, but we plan only with peakers and engines here. On the energy crisis, I mean, Michael said that the upside is not in. I think that's too early. I mean we need to wait and how things evolve. Let's hope that we see a de-escalation fast and also energy prices coming down. But I mean, we have made the sensitivities quite visible and transparent. On the trading side, the traders more had the outlook of, I mean, the LNG glut coming and we are more conservative also on CO2 prices and then implicitly power prices, more or less an offset position to our asset position by chance. And that, of course, means on the one side, we have no upside from the current situation, but trading will be weak in the first quarter.

Yes. And just to your question, you're fully right. So the open position in '26 in offshore is mainly pre-COD income from Sofia, from Thor and from North Sea Cluster, which we typically don't hedge because, I mean, we are in the commissioning and you have some variability in those productions, and that's why we don't hedge them. Obviously, that has now the upside if prices stay at those elevated levels in the front years.

Our next question comes from Peter Bisztyga of Bank of America.

So first one, I was trying to actually figure out your sources and uses of funds basically between 2027 and 2031. So your guidance suggests EBITDA is going to increase by EUR 3 billion. So that would imply EUR 9 billion more net debt on your 3x multiple. I think operating cash flow guidance suggests maybe EUR 7 billion a year cash flow, then you've got probably, what, EUR 8 billion a year CapEx plus dividends plus Amprion funding. I don't know if that's fair, but that would sort of imply around EUR 1 billion per annum increase in net debt, so EUR 4 billion, 2028, 2031 rather than the EUR 9 billion in your plan. So all of that, the question is what's the EUR 5 billion missing piece? Or have I got something wrong in that math? And then just maybe a quick one on the German CCGTs. The Federal Cartel Office seems to want to cap yours and everybody's market share at 10% in that auction. I'm not sure there's even people who could build CCGT quickly in Germany. So do you think the government will ignore the Cartel Office on this? Or how do you think that plays out?

Peter, let me comment on the first question. I think you mentioned all the right moving parts. But honestly, I believe now on stage is probably not the right thing to go to a model. So if you are fine with it, I suggest that we do a follow-up call to go through the numbers one by one. But in principle, you're right. I mean, we have strong cash flow generation. We're very clear on the CapEx numbers and there are a few other moving pieces like cash interest, cash taxes, working capital developments, but we can go through line by line, if you want to unless, Michael, you want to comment further?

Can I maybe sort of put the question differently then, which is simply, do you expect to be at that 3x by 2031? Or actually, is there a bit of buffer beneath that as well on your current plan?

No. So no, the plan clearly is based on a 3.0 leverage. As we said, that is obviously at the lower range of our guidance. I think there is potentially more upside if we want to leverage higher. But I think given the current uncertainty we see in the geopolitical arena, we feel very happy with a more conservative leverage target.

The second part of your question, Peter, was on the 10% restriction, which is discussed by minority voices in the debate. We don't expect that to come. I mean the argument is very strong. The German government has forced us to close, I mean, in the tens of gigawatt. They ask us to do this transformation in a socially acceptable way, 10,000 people involved. And now some people ask for a restriction of 10% so that we can only build 1 or 2 gigawatts that doesn't make sense. I mean our sites are the best ones. We need to employ the people for future business. Actually, the old government had plans to give a bonus for those who were forced to close old units. So actually doing the opposite. I don't expect a bonus, but I also don't expect the 10% restriction. The argument that, that might be cheaper for the consumer is nonsense because, I mean, it's a competitive auction when the others are cheaper, they're going to win anyhow. I expect us to be successful in the auction with more than 10%.

I'm sorry, the next question comes from Pavan of JPMorgan.

Firstly, on the U.K. capacity market results we saw this week, would be great to hear some color from you on was this in line with your expectations? And how should we think broadly about the supply-demand balance into the 2030s for the U.K. in general and whether you think this auction is a signal that maybe things are less tight than investors may believe? And then my second question is on your sensitivity to CO2 specifically. Can you talk through how you think about CO2? And if we were to see any interventions that were to cap the CO2 price significantly below current levels, how you see the sensitivity to your earnings on that piece?

Yes, Pavan, thanks for the questions. On the first one, U.K. capacity market, we were not surprised by the auction result. That was more or less in line with our own expectations and analysis. We expect something similar also for the years to come in terms of supply-demand balance. That is why we have for 1/3 -- a bit less than 1/3 of the capacity have gone for 3-year contracts now, so locked in the current one -- current price level for 3 years. And I mean, in the earnings guidance, this assumption is baked in. CO2 sensitivity, I mean, now we need to combine both things, our core business and the lignite business, which still runs until 2030. It is -- the sensitivity is 0. So we are carbon neutral cash flow-wise from the open positions on the core business and from the lignite business. My sense is from the ongoing political discussion that this energy crisis once more for Europe, which is a big importer of fossil fuels will change the debate of the dynamic. We need to find solutions for the energy-intensive business, but the investment signal to invest in electrification, low-carbon electrification to get rid of the fossil import dependency is now stronger.

And our next question comes from Wanda of UBS.

Wanda Serwinowska, UBS. Two questions from me. The first one is on the U.S. flex generation. Maybe I didn't catch, I think Deepa was asking, do you have supply chain in place? Can you talk about the revenue stack? Do you plan for these assets to be fully contracted or merchant? And any EBITDA to CapEx yield would be much, much appreciated. And the question number 2 is on the U.S. investment into the renewables. I mean, how much have you safe harbored for the capacity until 2031? What IRR absolute are you targeting? I think, Markus, you said that returns would be higher, so it will be above this 8.5%, but any ranges, any guidance, more specific numbers would be appreciated. And -- could you also give us a rough split of the new capacity to be added into solar, wind and batteries?

What was the last one?

Capacity split.

Wanda, thanks for the question. So on U.S. Flex, we don't want to build gas generation into the merchant U.S. market. So we want to combine it as a bundle with renewable battery and the profile and then sell it to the customers. So you should expect that not 100%, but like with renewables, we want to contract this for 10, 15 years plus. So the average target is 75% of the value needs to be contracted. And that is also then the case for the additional U.S. Flex investments. On the renewable side, I mean, we said in the speech that, I mean, and the number is very high. we have more than enough safe harbor equipment to run through, I mean, the full lifetime of existing tax credits. We have done that strategically already in the last 18 months. So this will not be a limiting factor. We could do gross more and maybe utilize our safe harbor equipment by selling it to others. But this is for our investment plans, not a limiting factor. You should expect that for the U.S. investments, given the high interest rate environment and other things, the return hurdle is higher. But we have -- I mean, the 8.5% on average is including the higher U.S. investments. But what we currently see with the strong demand and the good PPA prices, then you can achieve higher IRRs for U.S. investments. But of course, we don't want to give you the numbers. This is sensitive information. We will always tell you ex post what the FID returns are for this year's FID when we have done them. Why don't you go for it?

I'm happy to call Michael.

Yes. So I mean we talk about 9 gigawatts in U.S. So it's roughly 5 in solar and then 2 and 2 in wind, onshore and wind and batteries. So that's roughly the split.

And the supply chain in the U.S., do you have it in place for this 200 or a couple of hundred megawatts?

On U.S. Flex until 2031, a couple of hundred megawatts, I would say we are targeting something up to 500 megawatts.

On the supply chain, I think Markus already mentioned that, I mean, so especially the peakers that we plan there. So we don't see such a material supply chain issue, especially given that the time frame is rather towards the end of the decade.

Okay. And the last very ones -- the last one, EBITDA to CapEx for U.S. Flex, any guidance? I think in the past, you were mentioning 10% EBITDA to CapEx for the renewables, and that was very helpful.

Yes, it was less than 10% of the EUR 17 billion. It's more in the area of a bit north of EUR 1 billion.

I think, Wanda, you asked for the EBITDA yield of...

Yes.

If we give you the EBITDA yield, you can back calculate actually our return requirements, Wanda. So I think the last time we gave EBITDA yields for the onshore and solar business as a whole, I think we said we target 11% was the EBITDA, which we targeted then. And probably we'll leave it there unless you want to be more specific.

And our next question comes from Olly Jeffery of Deutsche Bank.

Two questions for me as well, please. The first one just is on Amprion and the assumption for the other section into 2027 with EUR 0 million EBITDA. I mean Amprion is very strong in '25, around EUR 350 million contribution, leading to EUR 150 million in the EBITDA. My question is, do you think there's upside to the EUR 0 million in 2027 because given the strong earnings growth in many German grids, I would have thought that there potentially is upside on that figure. And the second question is coming back to German gas. I know you're talking to wanting to build 3 gigawatts, but previously, you've mentioned the potential to build 6 gigawatts with the sites that you have. Is that still the position you have today? So if the German was successful in the auction, do you still have the feasibility to increase that 3 gigawatt number towards 6 gigawatts, if you saw the opportunity?

Yes. So I take the Amprion question. Look, -- on Amprion, basically, it's a very stable business and the returns effectively grow by the investments you do. And so I mean, in the end, if we invest more, then that would also come with higher earnings, but I wouldn't necessarily talk about an upside here because that's really a long-term plan Amprion is executing. The effect we saw year-on-year was exactly that growth in regulated asset base. On top comes an accounting treatment, and that is if they have there's a delta in accounting between the grid fees they charge and what they have to procure for system services. And if there's a deviation, that is a temporary timing effect. And that led to an increase in '27 -- in '25 that will unwind over the next 3 years. But apart from that accounting asymmetry, which should levelize over 2 or 3 years, I think that's a very prudent assumption on the growth. And I would stick to that as we have included that in the plan.

Yes. And then Olly, on the sizing of the German gas opportunity, it will come in 2 different buckets. One is the 10 to 12 gigawatt, which the German government wants to auction now this summer. And then later, a full-fledged capacity market, which also needs to facilitate additional build-out because the grid agency says we need at least 20. And for the first tranche for the first 10 to 12, we said the target is something around 3, because you cannot overdrive it. I mean, you also need to deliver. What I -- the last thing I want is a ambition plan and then we run into problems building the stuff. So for the first, I would say, 3, maybe a bit more if we are successful in the auction. But later, definitely more can come, but that will not be covered by the 31 plan. So I think the 31 plan is quite firm. Later, we can definitely do more.

And our next question comes from Harry Wyburd of BNP Paribas.

So 2 for me. So first one, can we delve a little bit more into EU power market reforms. You touched on carbon earlier. But how do you think this ultimately ends? I guess you've got potential for reform of carbon. You've got also discussions about reforming the merit order works or maybe taking a leaf out of the Italian book and adjusting the way that gas behaves in the merit order. But what I'm interested in is what would an RWE outcome be? What would you do? Or what would you think Europe should do to get -- send the right investment signals but also control end-user pricing? So that's the first one. The second one is on the leverage. So Michael, I got the point on the geopolitical environment, it's sort of good timing to have a conservative balance sheet plan, which I get. But you were probably planning this a little bit before Iran happened. So is there anything we should read into running lower leverage? Do you like having flexibility? Has your attitude to using flexibility maybe changed given, I guess, our attitude towards life has maybe changed since you last looked at things like M&A. So would you use some of that spare headroom? Was that a deliberate move to keep something back? And could we also think about that as maybe something that you could do that could be accretive beyond the current EBITDA and EPS that you're guiding to?

Yes, Harry, let me start with the second one. The first one is the most complicated question actually. I mean, we deliberately discussed it, and we said you don't know when the crisis comes. And when you are, I mean, maxed out on leverage and the crisis is there, it's difficult to adjust it. So we live in generally more uncertain times. So it's definitely prudent to be more conservative. And now this crisis again shows that the right thing. Of course, we have the flexibility. We love the flexibility, especially with the CapEx-intensive program and farm downs that you are not under pressure to do it now, but you can delay it when market windows open and close, has a very high value. I mean, we could utilize that if we find the right additional investment opportunities where one big criteria definitely needs to be earnings accretive. Otherwise, we wouldn't do it. But the hurdle in the current challenging uncertain times to max it out are high, to put it that way. On the discussion about the European electricity market design and the EU ETS, I mean, I think the best outcome is -- they keep -- they keep the electricity market design unchanged because fiddling around with the merit order might sound great, but every industry has a merit order. You always have different technologies, some more peaking, some more baseload. That's in all industries, and that is the right price signal. And the EU ETS, I think we need some reforms for the energy-intensive industry, especially there where carbon border adjustments doesn't work fully. So more free allocation and maybe also stretch out beyond 2040 with the auction of additional certificates. But I also wish for that we keep the ETS in the fundamentals alive and don't try to fiddle around to get prices significantly lower. Why? We need significant investment in generation capacity and their marginal pricing is irrelevant. In the end, you need to cover full cost. So if we now artificially lower for some years, power prices, we're going to be hit twice in a couple of years' time because build-out will stop. I also expect then that CfDs are more difficult because if you have a huge gap to marginal prices, politicians will reduce support. And what that means because we have already tight markets and more demand to come, prices will go up over time again in 2, 3, 4 years' time, and we have the same tight situation. And then with a different market design, and we just delay investments. So my proposals for people who want to do something for the socially vulnerable and maybe also industries is use the money which is available from the EU ETS and redistribute it or free allocations. But if you take the investment signal for additional low carbon, carbon-free electricity generation away, you're going to wake up in 3, 4 years' time in an environment which is significantly more difficult than today. And maybe we have then all redirected our investments somewhere else.

And our next question comes from Skye Landon of Rothschild & Co Redburn.

Firstly, on the 10 potential data center sites and the more than 3 gigawatts of grid connection. I was just wondering if you are able to help put that into context by perhaps providing some color on the size of the grid connection that was associated with the U.K. sites sold in November '25? And then on the merchant offshore wind assets, i.e., Sofia or Nordseecluster, can you remind us what the triggers are for these assets to move or to take kind of like COD and move on to their contracts and when that might happen?

So Skye, thanks for the question. I mean on the data center side, the U.K. projects that we only also used a fraction of our grid connection to develop the land for data centers. So we have exactly at that site, even more grid connection available. We are now developing more extensively 10 sites out of the 30 where we think data centers are feasible in the near future. We either have already grid connection allowed for data centers or repurposing because they were planned for hydrogen or other stuff. And we are now developing the sites further. Of course, you can assume that we are in discussions with all potential customers there. But we also deliberately said because it is a very volatile and also sensitive topic in terms of competition because others are doing the same, of course, that we don't want to be too transparent. And therefore, the guidance is conservative. So everything which comes on top comes when we can announce something. And we definitely strive for more deals this year. On the second question that was?

Yes. The second one question was on the offtake from the offshore projects. So Sofia, as you know, we expect commercial operating days in 2026. And after that, it will go into an inflation-linked CfD for 15 years. So that is fully contracted. And for our Nordseecluster and Thor assets, so Nordseecluster has 2 parts. Nordseecluster A is roughly 700 megawatts, which has a COD in 2027. The other one is only in '29 and Thor has COD in 2027. And we are trying to -- we committed to PPA those assets until then. And as you probably saw, we have already contracted for Nordseecluster roughly 500 megawatts, and we are in the process of further contracting those. So therefore, ultimately, they also shouldn't be merchant in the long term.

The next question is coming from Piotr of Citi.

So I have one question about the '27 guidance and the other about the leverage in 2031. With regards to '27 guidance, can you please explain why you slightly changed the target for offshore and onshore solar offshore and FlexGen business. So offshore was downgraded by EUR 150 million and FlexGen was upgraded. I presume the FlexGen was because of the asset, but can you say what exactly assets are responsible for contributing to EUR 100 million? And the second question about the 2031 leverage, you say it will be 3x net debt to EBITDA. But I just wanted to ask you how you convert your EUR 7.5 billion operating cash flow number that you provided into FFO and into FFO net debt, trying to see how much buffer versus your credit rating limit you have?

Yes. I'll take the question. So on the 2027 guidance, I mean, on FlexGen, it's mostly around batteries that we currently have under construction. I mean, it was mentioned that we already have 400 megawatts in Germany in production and 1.6 are currently under construction, and they clearly provide upside to those numbers, and that's then offset in offshore. On the net debt-to-EBITDA target, I mean, the 3 to 3.5x is what we guide to the market because it's a good explainable metrics. In the end, it's the rating agencies that look at the KPIs. They have that FFO to net debt ratio. And actually, they also consider in the ratio, the cash flows or the utilization of provisions and also the lignite ones. Having said that, they also include then the E.ON dividend. So it's a slightly different metrics that they consider here.

Sure. But I was just trying to understand how much of the buffer, like what is the requirement versus what you're targeting with your 2031 numbers? I don't know if that's, I mean, can take it offline, but maybe you know like where you will be with FFO net debt versus limits.

Well, you can assume that the plan we have put forward assumes that we are in that range of 3.0, yes. So either we -- as Markus said, if there are opportunities, there's room to leverage that high or obviously, any outperformance on our targets, obviously, will also lead to more cash flow and therefore, provide additional headroom.

Piotr, I think it's a language topic. So what we translate the rating metrics into an easier to communicate metric. So when we say we're going to stay at the lower end of 3 to 3.5x net debt to EBITDA, it also means we stay on the lower end of -- or the higher end because the metric is inverse for the rating agencies. It means also from a rating agency point of view, we should have some buffer in 2031.

And our next question will be a follow-up from Olly Jeffery of Deutsche Bank.

One follow-up is just on the interest financial costs in 2031. My understanding is that the increase in the financial cost from '27 to '31 million is in part driven by higher net debt, but also in part by reduced capitalized interest. Depending on the investment decisions that you made later this decade, could it be possible that the financial costs end up being lower as you take FID for further projects into the 2030s and that capitalized interest builds back up again? Your thoughts on that would be great.

Yes. I mean look, I think the assessment you do is exactly right. Financial result is smaller because of higher net debt and therefore, more financing and offset by capitalized interest. And as you know, I mean, I mentioned that before, assets under construction are fairly high now. But as we now get more of the offshore assets operational, that asset under construction number will come down. And with that, also the interest during construction will come down. And yes, if we would do more investment, that would have then the offsetting effect in the financial results. So that's exactly right.

Thank you, Olly. Now we've come to the end of the call. We crossed the full hour. So thank you all for dialing in. Thank you for your questions. Thank you, Markus. Thank you, Michael, for your contribution today. And of course, the IR team is at your disposal for the rest of the day and the coming weeks. And of course, we are looking forward to seeing many investors and analysts in the road shows in the coming days. So have a great rest of the day, and bye-bye.

Thank you.