Snam S.p.A. (SRG) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to our strategy presentation. Over the last 6 years, we've reshaped Snam in 4 main ways. We've made Snam simpler, leaner and faster. We've removed organizational layers up to 4 in certain areas. And we've hired or acquired 1,396 new colleagues that bring new excellent skills, particularly in green energy. Great people are going to be a key scarce resource in the race to zero. Second, we've enhanced the value of our assets and secured their role in the energy transition. Snam has taken the leadership on hydrogen readiness, designing and carrying out tests for both transport and storage and future-proofing our assets and investment plans. Third, we have expanded our playing field, launching new ventures in hydrogen, biomethane, energy efficiency and sustainable mobility. Fourth, we've expanded our geographical footprint. The assets we've acquired have enabled us to establish partnerships with key investors and energy companies to generate superior returns and provide opportunities for additional growth in areas of the world with the best renewable potential, for instance, in the Middle East. And we've done all this while continuing to cut costs and grow. We have increased investments in our core business and earnings per share by around 50%, and we've returned almost EUR 5 billion to shareholders through dividends and buybacks. As a result of this repositioning, Snam today is in a sweet spot. We have solid near-term growth in cash flows, and we have the assets and competencies required to excel in the energy transition, providing accelerated and superior long term growth. Today, we're announcing some breaking news that will underpin our future. First, our vision to create a 2,700-kilometer hydrogen backbone before 2030. The first tranche of a national hydrogen infrastructure, which we expect will be regulated at a premium compared to today's returns. Second, our acquisition of the TTPC, TMPC pipelines, which carry natural gas from North Africa into Italy. These will be key to unlocking the vast potential of North African green hydrogen production, feeding into our H2 backbone and through Italy into Europe. Thirdly, the test that we've carried out to show that our 17 billion cubic meters of gas storage capacity can hold up to 100% of hydrogen. This provides a truly massive amount of net zero flexibility. I think this is the least understood challenge and also opportunity of the energy transition to build the same amount of storage for electrons that is in batteries would require tens of trillions of euros of CapEx. Fourth, we've also made our first international storage acquisition buying a stake in dCarbonX, a company which is set to play a key role in the promising hydrogen market in Ireland. And finally, our partnership with De Nora has created a lot of value, not least through our support of the De Nora electrolyzer gigafactory project. This value will be crystallized as the company has indicated it will go public in the near future. At the same time, as having an enviable future-proof portfolio of assets, Snam also has unique characteristics. We are a purpose-led company committed to net zero. We are the first in our sector to announce a Scope 3 emissions reduction target on our associates and on our suppliers. We have unique engineering and project management expertise to deliver infrastructure projects on time and on budget. And our ability to work in partnership will become increasingly relevant in the context of accelerating investments in the decarbonization. Our presentation today will provide a vision of our growth to 2030 as well as our 5-year strategic plan horizon. COP26 was a tipping point for net zero. Political commitment, technology, policy and funding are finally all falling into place. What is missing are now bankable, replicable and scalable projects that need to be sanctioned in a hurry if we're to achieve staying below 1.5 degrees warming. This is the world's challenge, and this is Snam's opportunity. There are now finally a consensus that green gas will have a very significant role to play. Electricity will only account to about half of the energy mix by [ 2050 ] in a fully decarbonized state. And over 1/3 of the system will be running on biomethane, low-carbon gas and especially hydrogen. Hydrogen is no longer the fuel of the future. It is happening today. Following cost mean that in the next few years, we'll have hydrogen cheaper than fossil fuels cost today. This, coupled with a supportive policy environment means that real, sizable projects will approach FID much sooner than expected. This is the beginning of an investment opportunity, which will account for the lion's share of the $150 trillion of CapEx required to reach zero. There is no shortage of investors keen to supply the capital. The Glasgow financial alliance for net zero has signed up already $130 trillion of assets committed to the net zero pathway. Much of the value creation of this investment cycle will be focused on midstream infrastructure. That's because of the key and central role it will play. In a traditional energy system, the really hard job was finding and producing oil and gas. It required capital, cutting-edge technology, the capacity to manage geopolitical risk, and that was where the lion's share of the project's returns were. The midstream sector traditionally was mainly a way of getting fuels from A to B. It could still make good returns on some complex projects, but more or less, infrastructure returns were half of those in the upstream. The net zero energy system will make these roles invert. With the advent of modular renewables, upstream energy production will have low barriers to entry, very high competition between different sources, lower risks and lower returns. The sun and the wind and the capacity to harvest them will scarcely be a problem. What will be far more complex is turning this intermittent, seasonal and often far away energy produced in the oceans and the deserts into energy that's available exactly where and when we want it. That's why the energy storage will be the next big thing. There will be value in interconnecting molecules and electrons. For example, turning excess renewable into hydrogen, transporting and storing it through the gas grid and then using it to deliver peak winter heating, whether directly or by providing flexibility to the power grid. This will be far cheaper than trying to manage the intermittency of supply and the seasonality of demand through electricity alone. What happens in a hybrid vehicle, which is constantly optimizing between electrons and molecules, will begin to happen in factories and maybe in homes, enabled by the smart integration of infrastructure. This is where people will be able to earn higher returns. A sizable amount of the CapEx super cycle will be focused on midstream green energy infrastructure along 3 mega trends. The first, we need 30x the solar and wind capacity we have today. Second, hydrogen production will need to increase 100 to 200x the current size to account for between 15% and 35% of the total energy needs, an endeavor that will require up to $100 trillion of CapEx. A third megatrend that is finally gaining more traction is carbon removal. We may need to capture and store up to 1/3 of the CO2 that we emit today if we're to keep within 1.5 degrees. All of these figures assumed a continued effort on energy efficiency. We need to keep overall energy demand flat to 2050, notwithstanding a doubling of GDP and 2 billion extra people on our planet. Overall, this super cycle entails around 100 trillion to 150 trillion of investments through the value chain by 2050. That's around $5 trillion per year, a significant challenge for an energy sector that's already stretched investing less than 2 trillion a year. It means conceptually, there's room for every company and every investor to almost triple the current pace of investment. I believe the bottleneck will really be the capacity to get steel built on the ground. People, equipment and project management capabilities are going to be the missing ingredient and the scarce resource. And that is exactly what Snam is good at and why as I think about the energy transition, I think the world needs more Snams. Looking more closely at hydrogen from a starting cost of around $600 per megawatt hour, we're already down to below $100 today, where it's sunny. That's already half of today's wholesale power prices in Europe, and that's broadly aligned with today's expensive gas costs. The tipping point for hydrogen is $2 a kilo or $50 a megawatt hour. According to the green hydrogen catapult of which Snam is a founding member, we'll get there within 5 years, assuming only 25 gigawatts of accumulated global electrolyzer demand. That looks increasingly achievable as we already have over 90 gigawatts of hydrogen capacity that has been announced worldwide. At $1 a kilo or $25 per megawatt hour, hydrogen becomes competitive with many more fossil fuels, including coal and most current uses. Getting to that level is the only way we will stay below 1.5 degrees and that's what's required to get China and India to phase down and eventually phase out of coal. I'm therefore very excited that the $1 a kilo level is the Department of Energy's earth shot. They want to get there -- the U.S. government wants to get there before 2030. I'm even more excited to see BNEF, the Bloomberg energy studies to forecast hydrogen at below or around $0.5 a kilo by 2050. Just as a reminder, that's only above EUR 10 per megawatt, which is almost 10x cheaper than some of the more recent nuclear projects. Given hydrogen's cost trajectory, some policy nudges will only be required to get the initial scale going. Many countries are stepping in to provide just that. The new German coalition government has double targeted hydrogen capacity to 10 gig by 2030. Italy has a 3.6 billion hydrogen CapEx support in the recovery and resilience plan, and that's mainly going to be focused on the hard-to-abate sectors. We see widespread recognition for the need of OPEC support to hydrogen projects in the form of contracts for difference, both on the supply and on the demand side. The U.S. has recently approved funding for hydrogen hub and is now proposing tax credits of up to $3 per kilo for clean hydrogen as well as enhanced fiscal support for CCS. Blending hydrogen in the natural gas grid is a useful way to scale up the market at a very low cost. This is being considered in the Netherlands and according to a leak version in the EU gas and hydrogen package. Imports and exports will be crucial to optimize the overall market. Germany is set to allocate significant public funding to hydrogen production also outside of Europe. Italy's ambition is to become a hydrogen hub for Europe, importing green hydrogen from North Africa and exporting it to the north. With regards to infrastructure, the emerging consensus is that in Europe, it will be regulated hydrogen networks with their own RAB. The EU is expected to address the issue in the upcoming gas and hydrogen package. Germany has already proposed regulation for the hydrogen network, with a 9% cost of equity to be included in the premium WACC formula. Hydrogen's green premium can also be bridged by consumers. The cost of a car made with green steel is only 0.7% higher than an ordinary car. And there's an interest in a growing system of eco-labeling which could allow this to happen for any good. We see a centralized model as the most efficient way of producing and delivering large volumes of hydrogen. The analysis we've done for Italy suggests that producing renewable power in the sunny South, turning it into hydrogen with large-scale electrolyzers, and then using existing natural gas pipelines and storage is both the most secure and the cheapest way of delivering hydrogen up between $2 and $4 a kilo -- only a 1/10 of which would be necessary for transport. Producing hydrogen at the point of use by using dedicated nearby renewables avoids the transport cost but may mean choosing suboptimal areas for renewable production, even assuming there's enough space. It also means every consumption site needs to build its own storage to manage the seasonality and intermittence of renewable production. To reach its overall objectives, Italy needs to build 8 gigawatts of renewable sources a year until 2030 and beyond. Today, we're only building 1 gigawatt per year. And so that's going to be a real challenge even without having to try to build additional renewables focused on the near the consumption areas. Producing hydrogen using power from the grid is probably the easiest thing to do to get going, but it will not work in the long term as the market scales up. Transporting energy through the power grid is expensive compared to using the gas network especially considering the cost for balancing and storage. Running all the energy we need through the power lines will further burden the electricity network, requiring significant investments to upgrade it and it also makes for a more fragile system. Of course, there will be space for the different archetypes and different circumstances, but promoting a centralized model will deliver a much more affordable, scalable and secure system. As well as pipelines, the new energy system will also require an entirely different approach to storage. Today, each fuel value chain has its own vertical storage built into it. The oil sector, for example, has 7.2 billion barrels of storage, which is equivalent to over 70 days of global consumption. The gas sector has 422 bcm of storage scattered around 661 different facilities globally. Overall, fossil fuels and fossil fuel molecules have intrinsically in their value chains over 19,000 terawatt hours of storage capacity. Now to replace those in today's systems would cost around EUR 500 billion. But if they were to be replaced with batteries, the cost would skyrocket in the hundreds of trillions of euros. In a net zero system, overall storage requirements will change dramatically. We will need to invest in new types of storage, some of it to replace our current molecules in the form of long-term flexible storage and some to cover the shorter-term fluctuations. We will need to substitute the long-term storage currently provided by the gas system. In Italy, in the U.K., the gas grids delivered twice as much energy as a power grid in the summer, but deliver 4x to 5x more energy in the winter as is clearly seen in this graph. Only a week of very cold weather can have the same demand impact as the entire electricity system. At the same time, the daily variation in demand on the power grid will increase by 3.5x compared today as the grid relies on intermittent and seasonal production and has to satisfy and accept a greater percentage of consumption. We recently had a taste of what this means when in September, lower wind in the U.K. took around 20 gigawatts of capacity out of an already strained system, sending prices through the roof. The much needed flexibility of the net zero system will be provided by green electrons and green molecules working together. How we will store this energy will very much be a function of time of the duration of the storage. When charged and discharged daily, batteries add EUR 110 per megawatt hour to power costs. That's around 5x higher than the cost of using hydrogen tanks and 50x higher than salt caverns. If we're looking at storage durations that are longer than a day, weekly, monthly or seasonal storage, hydrogen and biomethane cost between EUR 5 and EUR 40 per megawatt hour. Battery would cost EUR 770 per megawatt hour when used weekly. And if you were to spread the CapEx over a monthly use, they would cost over EUR 3,000 per megawatt hour. Let's not even think about the seasonal use. There is also large differences in the CapEx required to build the different technologies, developing 10 terawatt hours of depleted fields, turning them into hydrogen storage would cost around $1 billion, twice as much as the cost of methane storage, but still 2,500x less than the 2.5 trillion it would cost to develop the same storage with lithium ion batteries, even assuming the cost of batteries fall to a low $100 per kilowatt hour. Much of the investment required by 2050 will be in hydrogen production and the reshaping and purposing of the energy, transport and storage system, including for the CO2 value chain. All these areas are ones in which Snam already has a leading position and in which we have chosen to focus our future growth. More specifically, we've chosen to focus our growth on 3 areas. The first is the energy networks to transport methane, biomethane, low-carbon gas and CO2. The second area is new integrated energy storage, where we will enhance the performance of our hydrogen-ready assets and expand into new low carbon storage in new geographies. The third area of growth for Snam are our integrated green projects in the molecule space, particularly. We will continue to leverage our skills, commercial relationships and partnerships we've developed through our energy transition platforms to seek projects that are bigger, scalable, particularly in hydrogen and biomethane. Following the work we've done, the reputation we've built, we're fortunate that we have access to more opportunities than we have the people, bandwidth and resources to pursue. We are, therefore, choosing to focus on the best projects those which have scale or close to our assets where we can deploy our competencies and therefore, have higher returns. The screening from a broader set of opportunities has already yielded EUR 23 billion of weighted investments for the 2021-2030 period. EUR 15 billion of these are in energy networks, where we envisage 12 billion in investments in our Italian transport infrastructure and EUR 3 billion to create the first tranche of a hydrogen backbone running from north to south mainly using existing infrastructure and really positioning Italy as a hydrogen export hub. EUR 5 billion will be in energy storage, where we've identified 3 billion investments to maintain and enhance the performance of the regulated methane storage and EUR 2 billion of weighted greenfield and brownfield opportunities in the new energy storage, including hydrogen and CO2. With regards to the green energy projects, we have EUR 3 billion of investment opportunities, continuing our existing platform and pursuing bigger hydrogen, biomethane and CCS projects in Italy and abroad. The basket of investments would not alter Snam's risk profile as 18 billion are in businesses, which are -- or which we expect to be fully regulated. While for the 5 billion in new energy storage and integrated projects, we are pursuing a contracted model that minimizes volume and commodity risk. We expect regulated natural gas assets to make returns in the mid-single digits, while new regulated hydrogen asset base is expected to receive a premium. For new energy storage and integrated projects, we're looking at returns in the high single digits or above, also benefiting from incentives, grants and policy support. Overall, these expected returns could deliver average annual EBITDA growth to 2030 of around 7%. As a result of our 10-year visibility on investments in regulated businesses, we've upgraded RAB growth to 2025 to over 2.5%, with an acceleration to over 3.5% between '25 and 2030. That only includes investments identified in natural gas, transport and storage. The hydrogen network provides upside to these numbers. And so would further -- and so would further storage capacity required for the transition from natural gas to hydrogen. Our investment plan to 2030 is based on the verified knowledge that our transport and storage assets are compatible with hydrogen blends up to 100%, which means that any investments which are needed today to maintain and enhance the performance of the gas system will be valuable assets for the energy transition. This knowledge has been gathered by Snam in collaboration with leading universities, technical institutes and very importantly, many, if not most, of our European peers. Massimo Derchi, who runs our Italian assets, will now explain a little more about his groundbreaking work done in this precious effort to future-proof our assets.

Thank you, Marco. Let me start by saying that the industry and in particular, refineries and petrochemical have been dealing with the transport of hydrogen for decades. Today, we have more than 4,000 kilometers of hydrogen lines in operation in Europe and in the U.S. There is an international recognized standard, the ASME B31.12 which is dealing with the transport of hydrogen by pipe, both in terms of design of new pipelines and repurposing of existing lines. Unfortunately, that is not yet a similar European standard, but its definition is in progress, and the first step will be the incorporation of the same contents of the ASME B31.12 standard. We had decided in 2019 to launch a comprehensive assessment of the suitability of the network to a transport of hydrogen. Based on the 2 methodologies provided for by the ASME code, Option A and Option B., both applicable design of new hydrogen pipelines or for the conversion of existing pipelines. The application of Option A, which is based on desktop studies, to this Snam plain network confirms that almost all of existing network is convertible. Although in some cases, this leads to a reduction of a maximum operating pressure. Such reduction may be scaled back or even canceled once the road map on the usage of the other option, Option B is completed. Option B includes extensive testing. The entire verification process of each individual pipeline as well as with the termination of the applicable maximum operating pressure for the transport of hydrogen will be certified by RINA one of the leading international third-party certification bodies. And I'm proud to say that on November 26, the first statement of material suitability for the transport of hydrogen has been issued by RINA for the pipeline connecting the arrival of top to the Italian national network. Having a standard for hydrogen readiness is of crucial importance, but so is having a shared standard at least among European TSOs in order to ensure safe cross-border transport. And to this end, we are working with -- we are working to set European standards in cooperation with other gas TSO university and institutions. We took a different route to verifying whether our storage sites, which are equivalent to 17 billion cubic meter of capacity in depleted gas fields were hydrogen ready. Because on depleted reservoir, there is no relevant technical [indiscernible] or test. We launched an extensive project in cooperation with the Polytechnic of Turin, an Italian Institute of Technology, to investigate and simulate the physical, chemical and microbiological phenomena associated with storing a hydrogen natural gas blend in natural gas depleted fields. Over the course of the project, we tested that there is no risk of dissolution or alteration of reservoir and the cap rock minerals, even if they are exposed to 100% hydrogen. We tested the gas tightness of reservoir from blend up to 100% hydrogen. In other words, we checked that there is no risk of diffusion of hydrogen through the cap rock of reservoir. We also tested that the bacteria which are present in the reservoir are not affected by hydrogen, which means that there is no risk of production of an acid-like H2S. And eventually, we tested the [ wells ] material, cement and seals. While further investigation are needed to confirm the long-term behavior of the systems in presence of hydrogen, no risk were highlighted by this extensive set of test. The next step will be to complete microbiological test in a multi reactor, which means we will test the bacterial behavior under the actual pressure and temperature conditions. And we will launch a pilot test on the Snam storage site as soon as the necessary alterations are achieved. Based on the results of our achieved, we are, therefore, very confident about the possibility of storing hydrogen, even pure hydrogen in depleted natural gas reservoir. I will now hand you back to Marco for a closer look to our 10-year investment plan.

Thank you, Massimo. The hydrogen readiness of our network underpins our EUR 12 billion investment plan in the grid. We will invest EUR 5.3 billion to replace around 3,000 kilometers of pipeline that are fully amortized. This level of replacement will keep fully amortized pipelines broadly flat at 10,000 kilometers. All new pipes are in line with our hydrogen-ready standards. EUR 2.9 billion will be invested on maintenance to secure the performance and resilience of the system. A further EUR 2 billion will be invested in technologies for our own net zero and to digitalize our network. We will build 6 dual fuel compressor stations, which provide flexibility to the system as we can choose whether to use gas or electricity to compress our gas and change equipment to eliminate methane leakage. Through this investment, we are jumping into our dual fuel sector coupling future. Over the 10-year horizon, we will spend EUR 1.8 billion of network development, including the methanization of Sardinia and new CNG and biomethane grid connections. As well as investing in the resilience of our gas assets. Today, we're happy to share our vision for a new EUR 3 billion, 2,700 a kilometer, mainly repurposed hydrogen backbone, all the way from Mazara del Vallo in the western-most tip of Sicily in the south to our export locations in Passo Gries and Tarvisio in the north. This infrastructure will connect green hydrogen production areas in the south and potential blue hydrogen supply in the North East with industrial customers throughout the country. It is essential for the hydrogen market to develop at scale, allowing the transport of 20 terawatt hours of hydrogen by 2030, but already targeting at least 150 terawatt hours at full deployment and unlocking hydrogen, as mentioned before, at a levelized cost delivered in Italy between EUR 2 and EUR 4 per kilo. The backbone we are presenting today is the first step towards the creation of an integrated, interconnected national hydrogen market in Europe and the positioning of Italy as a hydrogen hub. Further investments will emerge to serve growing Italian demand and export opportunities, especially leveraging on the renewable potential in North Africa, which cannot be underestimated. There are parallel lines from North Africa to Germany, which could facilitate the early emergence of a dual system and a clearly dedicated export route for hydrogen. We expect the Italian backbone to be regulated as mentioned at a premium, in line with what's happening in Germany and at the European level. We have significantly strengthened our position along the very strategic North Africa, Europe route through the acquisition of half of Eni stake in the Transmit and TTPC pipelines. This route is key to ensuring the security of supply in Italy. We have an earn-in, earn-out mechanism to protect us from any downside to these gas flows. But the route also has strong hydrogen upside. It is composed as mentioned, of parallel pipes, 2 on the onshore and 5 on the offshore, which similar to our network are largely made from steel, as Massimo said, that is already hydrogen-ready. And having 5 lines clearly gives us a lot of flexibility and optionality. The transaction, which will have a co-controlled governance model over the NewCo to which any stakes in Transmit and TTPC pipelines will be transferred is expected to close in the second half of 2022 and will contribute an average of EUR 25 a year between '23 and '25. Returns will be in line with those of our similar investments in our portfolio -- in our international portfolio. The availability of a possible hydrogen import route from North Africa will enable the development of upstream projects in the area, opening up interesting perspectives for future integrated hydrogen projects. Turning now to the long-term prospects for our storage business, we have a new plan, which aims to bring our storage subsidiary to another level. We want to leverage our world-class assets and competencies to expand in new energies and new geographies. We start from a position of strength. The value of our 17 bcm of regulated gas storage, the largest capacity in Europe by far, is increasingly clear today given the tight markets we are experiencing in gas. The recent energy market crunch has cost Europe above EUR 200 billion of extra costs just in 4 months, whilst the cost of developing and operating an additional 20 billion cubic meters of storage to shave winter peaks would be just EUR 1.5 billion a year. The fact that our storage assets are also hydrogen compatible supports the rationale for the investments required to enhance its performance. Snam's technical competencies in storage are world leading. Today, we're providing technical services to Chinese clients, including CNPC, Sinopec and PipeChina to support them in quadrupling China's natural gas storage capacity, which would also benefit Europe by reducing Asian winter LNG demand. Right now, Asia and Europe are competing for a few cargoes of LNG that are driving up the prices of the entire gas market as well as the power market in most European countries. Looking forward, in the context of growing requirements for a diversified large-scale storage capacity in the energy transition, there will be strong rationale for repurposing existing storage capacity to hydrogen, both our own depleted fields and the aquifers owned by our subsidiaries, such as Terega. We also intend to use our geographical competencies to expand into hydrogen and CO2 storage in selected international markets. We see real value in the ability to offer integrated energy storage solutions, which may also include electricity storage. In storage, we're approaching a new investment cycle in Snam with EUR 3 billion of investments planned in the next 10 years. Through this CapEx plan, we will add flexibility and performance and reduce emissions and begin to replace fully amortized assets. In particular, we'll invest EUR 1.1 billion in the redevelopment of aging wells and new capacity to increase flexibility. We'll invest 700 million in equipment replacements and workovers, 400 million in net zero investments, including the dual fuel stations as well as EUR 800 million on maintenance. This number also includes increased investment to comply with more stringent regulation. On top of the investments in our core regulated infrastructure, we've been enhancing our capability on aquifers, salt caverns and CO2 storage. Our understanding of sector-coupling solutions, our engineering capacity as well as our commercial reach. We have a weighted pipeline of greenfield and brownfield projects under scrutiny and analysis. We have just announced an agreement with dCarbonX, a great company, which focuses on the development of offshore subsurface resources to enable the energy transition in cooperation with the big Irish utility, ESB. Here, we expect a regulated business model to develop. Post FID, these projects can open up CapEx opportunities of at least EUR 1 billion on a 100% basis. Moreover, through Terega, we're involved in Pycasso with a CCS project in the south of France and in the north of Spain. Turning now to the third pillar of our investment program. The green energy projects see us continuing to leverage our established energy transition platforms and grow through larger scale integrated green gas projects. Looking specifically at hydrogen, in only 2 years, we have gained strong knowledge of and context in the upstream segment through our investments in equipment manufacturers, De Nora and ITM. Our Midstream team are global leaders in hydrogen-ready standards and testing, as you've heard from Massimo. And in downstream, we've opened 156 separate commercial discussions that are ongoing. Some of these will turn into projects and all of them contribute to our deep knowledge of the needs and expectations of our customers, particularly in the hard-to-abate sectors of people making steel, ceramics, glass and the heavy transport that are all now looking at Snam to provide them with innovative solutions to achieve an energy transition at affordable costs. Considering that in green energy, the real scarce resource is going to be the offtake, this commercial head start as well as our strong recognized brand and reputation will provide a very valuable asset. Looking ahead, we're moving from pilot projects to a market in which keen to decarbonize offtakers will require multi-molecule solutions a lot sooner than previously anticipated. This would lead to new integrated projects that will be using midstream and upstream capabilities in the blue and green hydrogen as well as in biomethane and CO2 value chains. Our vision to 2030 is focused on 3 work streams. In Italy, we will invest in larger replicable hydrogen projects in industrial clusters and specific industries such as steelmaking. Internationally, we'll be looking at hydrogen and CCS projects that are including -- in areas, including Northern Europe and the U.S. as well as North Africa and the Middle East, where renewables are indeed very competitive and the potential local offtakers and/or access to export infrastructure or where there are policy frameworks targeting accelerated decarbonization. With regards to biomethane, we'll continue to leverage our Italian platform to develop additional capacity through greenfield projects and bolt-on acquisitions. Overall, we've identified a weighted pipeline of opportunities for EUR 3 billion until 2030 for which we're targeting overall returns, at least in the high single digits. Let's now look at our 2021-2025; plan. Our CapEx plan has increased by more than 10% to EUR 8.1 billion. Investments in our core infrastructure are 6.8%, in line with the previous plan and will deliver a RAB CAGR for transport and storage exceeding 2.5% over the '21-'25 period. This does not include CapEx related to the hydrogen backbone, which will start from 2025 onwards. In this plan, we've increased investments in green energy projects encompassing biomethane, mobility, energy efficiency in hydrogen to over EUR 1.3 billion, mainly due to the expansion of our biomethane and hydrogen platforms. Taken together, green energy projects will provide EUR 150 million of EBITDA by 2025. The investments carried out in the plan period will provide further upside with around EUR 180 million of EBITDA from this CapEx in 2027. This is starting to become a sizable part of our value creation going forward. Our CapEx plan is future proof. Approximately 43% of investments are hydrogen-ready, and this is defined as a replacement and development investments on our assets using new pipelines with hydrogen-ready standards. A further 10% is dedicated to investments, which reduced or Scope 1 and 2 emissions and 5% to digitalization in line with last year. 17% of total investments will be dedicated to green energy projects, including hydrogen, biomethane and energy efficiency. We have run a thorough internal assessment against the taxonomy delegated acts and determined that 40% of our investments are taxonomy aligned. Looking more in detail at the CapEx profile of our Italian asset, it includes EUR 2.1 billion of investments on replacement. Dual fuel compressor stations, the first tranche of the Sardinia project. This has been unfortunately delayed compared to last year's plan, owing to a slower authorization and approval process. We project EUR 300 million of investments in the planned period in line with last year. In storage, we're investing in replacement and substitutions into dual fuel compressor stations and new and refurbished wells and investments in new metering systems, as I mentioned, to comply with the more stringent regulations. When we look at the green energy projects, we continue to invest in the platforms. In our hydrogen plan, we have 8 projects in mobility and industrial clients, some of which have already been awarded funding through the innovation fund and Horizon 2020 and some which have applied for the very important IPCEI European initiative. We have also earmarked EUR 50 million for R&D initiatives and venture capital investments, and these numbers are in the plan. We do this to remain at the forefront of the technological shift that we're observing in the space. So overall, for hydrogen, we're forecasting EUR 250 million of Snam CapEx. On biomethane and mobility, we're planning to invest EUR 850 million, mainly to expand our platforms in urban and agricultural feedstock to reach around 120 megawatts of capacity, nearly double our previous plan. We expect a slower ramping up of our biomethane and mobility businesses, which are interlinked through the regulation due to a significant delay in public administration authorizations that has been accumulated during the -- and after the pandemic as well as the effect of the pending biomethane degree, which on the upside provides new volumes -- incentivized volumes from 1.1 bcm to 3.6 bcm, particularly supportive of agricultural feedstock and less supportive of urban waste. So this is good news for Snam in 2 ways: first, because the more biomethane in the grid, the sooner the grid becomes green, and because the overall market for our subsidiaries is getting bigger. In energy efficiency, we've acquired companies with specific competencies in key segments and developed a real leader in the country. We've renamed it Renovit, Cassa Depositi e Prestiti acquired a 30% stake in January. Renovit is positioned as a key player in the sector. Over the plan period, it will develop a further pipeline of projects in the residential sector also supported by the longer-term fiscal incentive. It will install 90 megawatts of distributed energy and support the deep renovation of public buildings. Overall, we see EUR 230 million of investments broadly in line with last year, producing stable, long-term contractualized returns. We created Renovit as we saw an opportunity to consolidate a very fragmented market with significant growth potential. This is one of the business where we have, though, the least synergies with other activities. Thank you. for your attention so far. I'll now hand over to Alessandra.

Thank you, Marco. On the financial structure side, we remain committed to preserving the solidity of our balance sheet. Cost of debt over the plan is circa 1.1%, thanks to the actions that we have taken to lock in favorable market conditions and considering the expected positive environment in interest rates and credit spreads. Further opportunity for funding cost reductions are achievable thanks to increased share of sustainable financing as part of our natural rollover of more expensive bonds. Furthermore, we expect sustainable financing to obtain better pricing versus traditional financing going forward. Second, an opportunistic approach in maturity profile management; and third, further treasury management optimization, via recourse to uncommitted credit lines and commercial paper. Our credit metrics remain comfortable within the threshold of our current rating by Fitch, Moody's and S&P. We expect net debt to fixed assets, including book value of equity affiliates to be comfortably below the official rating threshold of 75% set by Moody's. This is the most suitable leverage ratio compared to the net debt to RAB as it also factors in the contribution of new businesses and associates. And this is clearly recognized by rating agencies. Clearly, the attractive investment opportunity environment connected with the acceleration of the transition towards net zero represent a further credit enhancement factor. Net debt at the end of 2022 is expected at circa 14.8 billion from the guidance of 14.1 billion for 2021. This considers the cash out related to the acquisition of the stakes in TMPC and TTPC for slightly less than 400 million. The full year CapEx 300 million of temporary working capital absorption, mainly referring to the eco-bonus development. And on the positive side, the conversion of our 400 million convertible bond currently well in the money and the reimbursement of a shareholder loan toward an associate with circa 200 million of positive effect. Our focus on ESG also drives our financial strategy. Today, sustainable finance is already at 60% of the total committed funding, having achieved the target set for 2024, 3 years in advance. We are now raising this target to above 80% by 2025. And to achieve this, we will leverage on the new sustainable finance framework published today. The proceeds from bond issuances under the framework will be used for general corporate purposes, incorporating appropriate KPIs for the issuance of so-called sustainability-linked bonds in line with the new plan targets. Specific projects aligned with the taxonomy -- from EU the so-called taxonomy aligned use of proceeds. All future Snam issuances will be in ESG format, either sustainability linked or user proceeds. Turning now to our international affiliates. We have a great portfolio that we continue to derisk and diversify. We have a long-standing history of successful partnerships in different countries with both industrial and financial players. It generates great returns. Excluding the recently announced acquisition of the TTPC and TMPC stakes 2/3 of the capital invested will be paid back already by 2025 through dividends received. Overall, annual cash returns is 10% on average. Some assets in our portfolio are still considered at cost while delivering strong and visible contributions. For instance, TAP that has a book value of slightly less than 300 million provides annual net income to Snam of around 60 million for 25 years. Assets such as TTPC and TMPC or ADNOC, are enablers to access new green projects given their position in areas of the world with competitive renewables and H2 production cost. Looking at mature assets such as the our Austrian associates, they will, of course, experience the effect of anticipated expiry of long-term contracts. At the same time, there will be benefit from their position in future H2 export corridors in the medium to long term. Finally, we have open offices in Middle East and U.S., regions which will have high potential in the development of H2 and CO2 ecosystem and storage. Looking now at De Nora. In less than 1 year from entering into the company, we are very pleased with the performance and the value that we have created for both the company we invested in and for Snam. De Nora, which is a global leader in sustainable technologies continue to show strong growth while building and appealing H2 backlog with the H2 segment expected to deliver positive EBITDA already in 2022. De Nora has already existing manufacturing capacity of 1 gigawatt and with Snam support as filed IPCEI for a request of an additional gigafactory to be realized in Italy. De Nora results are well ahead those foreseen at the acquisition time, and 2021 revenues are expected to be above 600 million, 20% more than 2020. De Nora as heard, is considered an IPO in 2022, depending on market conditions. And similarly, it is their JV partner, TKUCE. We remind you that we valued De Nora at an enterprise value of 1.2 billion on a 100% basis, including its 34% stake in TKUCE. Moving on to our capital allocation policy, it remains coherent with the prior years. We are committed to our current rating metrics and risk profile, and we all invest at or above the risk-adjusted returns available on our regulated CapEx. Furthermore, we assess opportunities in coherence with our ESG strategy and broader net zero vision. We prioritize opportunities where we can leverage our industrial capabilities, unlock growth and new options without jeopardizing risk profile. We do not see growth for growth's sake. As we have discussed with ample investment opportunities and we will continue to apply strict financial criteria when evaluating any initiatives. Turning now to our ESG targets. Today, we're announcing a Scope 3 target covering over 90% of our Scope 3 emissions. We are the first European TSO to do this and the first TSO with a specific target on our supply chain. We're also announcing a new Scope 1 and 2 intermediate target of CO2 emission reduction to 28% by 2025. Benefiting also from the acceleration of our methane emission program. We will work with our associates to intensify their efforts on emissions and incentivize supplier to define clear CO2 targets. We will also develop joint projects with suppliers to use renewables and green fuel in their production processes. In this way, we will not only decarbonize Snam, but also enable and encourage their wider decarbonization and industrial processes connected with our operations such as steelmaking. These targets are in line with the general methodology of the sign-based target. Indeed, our Scope 3 target covers 70% of emissions, higher than the level required and in line with a 1.5-degree scenario. As well as targets related to net zero, we have a broader ESG scorecard covering 14 areas and aligned with our target year to 2025 to match that of our 2021-2025 strategic plan. ESG targets range from the environmental ones on our emissions to our commitment to more equal female representation across the company, to focus on our onboard places and integrating ESG with our strategy. This year, we are introducing new objectives in the areas of sustainable finance as mentioned before. I will now hand over to Marco for his closing remarks.

Thank you, Ale. Looking more closely at our growth over the planned period, we expect 4.5% EBITDA CAGR from 2022 as a result of the RAB growth and the contribution of the clean energy projects. Net profit from 2022 is expected to grow at 3%, driven by the excellent growth of the operating level, slower growth at the associate level and higher D&A and interest charges. Assuming the investments and the returns that we've described in our 10-year vision, these growth rates will significantly accelerate to 2030. To sum up our targets. In 2022, investments will increase to EUR 1.5 billion. Tariff RAB will reach EUR 21.4 billion. Net income will be slightly above the guidance for full year 2021 of EUR 1.170 billion, adjusted for the WACC impact, which we have assumed flat and equal to around EUR 85 million at the net income level on a yearly basis. This target assumes some growth in output-based incentives, pending a consultation document on fully depreciated assets expected before the end of this year. Our net debt guidance is at EUR 14.8 billion. Looking at the plan period overall, investments will be EUR 8.1 billion. These will deliver a RAB CAGR above 2.5% and the net income CAGR from 2022 after the WACC has been reduced of around 3%. As a result of our robust growth prospects, we confirm and extend our dividend policy, which sees 5% annual DPS growth to 2022. We are extending thereafter visibility on our minimum annual growth of 2.5% all the way to 2025. In the last 6 years, Snam has delivered best-in-class growth and total shareholder returns, and we remain fully committed to a strict financial discipline and compelling shareholder remuneration. Wrapping up, what I would like you to take away from today's presentation is that first, Snam is a champion in the race to zero. We have future-proofed our world-leading portfolio of assets, which has significant upside potential also in the near term. We have a unique track record in delivering complex projects on time and on budget, which will be the real scarce resource of the energy transition. And we've built a wealth of technological and commercial know-how in hydrogen, which positions us well for the next leg of the market's development. Second, as a result, today, we are spoiled for choice when it comes to new projects. Initiatives worth trillions of dollars will be developed along the hydrogen value chain and in energy, transport and storage. Our positioning allows us to choose the ones where we can create the most value. We have identified EUR 23 billion of opportunities, which we can deliver while maintaining our credit metrics. Our 2030 vision sees the start of a new infrastructure investment cycle in Italy to deliver ample and low-cost hydrogen to the domestic market and to enable exports to Europe. Third, we combine superior long-term growth prospects with a solid near-term industrial plan in which we continue to invest in our hydrogen-ready replacement program and increase our activities in the energy transition. And finally, we remain committed to our treasured financial discipline and confirm and extend our dividend policy providing attractive shareholder returns now and in the long term. I would like to thank everyone for your attention. Alessandra and I would be pleased to answer any questions that you have.

[Operator Instructions] The first question is from Javier Suarez with Mediobanca.

Three questions from me. The first one is on the strategic positioning of the company. Following the presentation, it seems that there is going to be an acceleration in the EBITDA, the projected EBITDA between the Phase I up to 2025 and then Phase II 2030. But I think that most of the growth is coming from nonregulated businesses. So the question for you is if this is not changing the profile of the company, and there is not the possibility that in 2030 is not going to be a different company from the perception now? Then second question is also related to the strategical position is that given the extent of the hydrogen opportunity and the attached storage opportunity as well, why the company continues to push your international growth opportunity? And the question is that maybe Phase #2 from 2025 onwards, the company could consider at asset rotation of those international assets as part of this strategy as well? Then on the numbers to 2025, if you can share with us the contribution to revenues and EBITDA from nonregulated business. So to understand those new activities, which are the contributions that are given to growth during the length of your business plan? And if you can explain also the different approach to maximum gearing versus the previous plan, why the company has changed the definition of gearing in this new business plan, that would be helpful as well. And then finally, on the assumption of your business plan, a little bit the math, I guess that you are assuming WACC reduction in Italy along the lines of minus 60 basis points. So the question for you is that is there any level of WACC cap in which you could have to reconsider either your CapEx or dividend? And I think that that is a very final question that you mentioned during your presentation some contribution from outbase, the base incentive before the year-end to be approved, you could be a little bit more specific that would be helpful as well.

Okay. Thank you, Javier. I will take all the questions and let Alessandra answer on the gearing change that you asked about. On the strategic positioning, no, I think we've been very clear. We've probably said it 3 or 4 times throughout the afternoon that we do not intend at all to change the risk profile. So if you look at the EUR 23 billion, a great majority of that is regulated, is even regulated at a higher premium for the hydrogen backbone in line with what's happening in Germany. And I suspect as the recovery funds make their way into real concrete incentives in Italy and in Europe and incentives are built for the energy transition in general, there's potential upside to that. Even the nonregulated activities will be contracted. And so where you see offtakers that take -- strip out essentially the commodity and and the price, and the volume risk. So we don't intend to change the profile at all and as we mentioned we can chose to dedicate our scarce people, and talent, and resources to really the best and most secured projects. Then you asked about the international growth asset rotation, we had said it all along we do not have an emotional attachment to assets when they stop growing or when we don't see any additional upside, we could consider partial or even total monetization. The international strategy that we've outlined has served us very well so far and is giving us access. We went through our investment criteria, access to invest in new and additional projects. We do not look and we've ruled out several investments that potentially had attractive returns, but would have either ESG implications because, for instance, of attachment to just fossil methane and where we see the risk of the stranded assets, we stay very clear of those assets. On the nonregulated new businesses, as I mentioned, we expect an EBITDA of 150 million on these assets by 2025, and that will grow to 180 million by 2027. So you should take into account compared to last year's plan, two things. First, let's say, almost a 2-year delay on some of the CapEx on biomethane. So it's in there, but it's more end loaded as I mentioned, because of some approval, taking longer because this is really a heavily territorial task, but also because of the change in the decree, it was -- it made sense to put some of the projects on hold and some of our customers has also decided Snam to put some of the projects on hold. So overall, there will be more growth. There will be more capacity, but it will come in '26, '27 and '28 and thereafter. On the WACC, I think your numbers are correct. And we don't see the outcome at a level where we need to revise the CapEx and the dividends that we've announced today. So this shows our confidence in the solidity of the business and in an outcome that is expected to be reasonable. Ale, on the gearing, maybe you want to add something?

Yes. On the gearing, we are very comfortably within our credit metrics. As I said, I think the shift between referring to the RAB and referring to the fixed asset is something that follows the dialogue we've been having with rating agencies and the fact that they recognize that for good quality asset, even if not regulated, it's unfair not to consider them. And that will apply as the new businesses ramp up also to our new businesses, given the low-risk profile that they bring to the equation. So we are simply putting in practice the consequence of our dialogue and applying a stock credit metric, which is more appropriate for both ourselves and reflect what we are doing and also from the rating agency standpoint. If we were to just -- just as a reference, if we were to look at that RAB will still be below the threshold that we've always been using, but we are shifting in consistent with the dialogue we've been having with rating agencies to a different metric.

And an additional comment on the possibility of -- on your assumption on additional [ auto ] based incentive to be approved by the...

Yes. This is a long-going topic that I've been raising now for a few years, which is to get recognition of the fully amortized assets and have some form of incentive not to replace what we can avoid replacing. I think there's no -- I think it's a win-win. I think it hopefully comes out soon in the coming weeks, and there is some expectation of that and our like -- in our 2022 numbers.

The next question is from Harry Wyburd with Bank of America.

Three questions from me, please. So firstly, on this 2026-2030 CapEx hydrogen, how much of this is -- how sure are you that this is basically what we'd consider authorized? So you laid out all the different regions. And how positive all the direction of the legislation is going? And how Germany has said they're going to regulate a premium return? But how concrete is that in Italy you sort of extrapolating from Germany and hoping that Italy will mirror that? Or have you had substantive conversations with the government and with the regulator that means you really feel very confident that this CapEx is definitely going to be approved and you're definitely going to get a higher return on it? And then I'd be interested to know if you've made any assumptions in the guidance on how much higher returns you're expecting versus the, I guess, vanilla transmission return you get in gas, first one. Second one, a very high-level question, and you've given us a lot of the building blocks in the presentation, but I wonder if you could bring a bit, why is the EBITDA CAGR over the next few years so much higher than the net income CAGR, and you alluded to higher D&A, higher interest costs and the associates slowing down, but I wondered if you could give us a bit more color and moving parts on that? And then final one is just a very, very kind of strategic one. I guess, we look at this presentation some very interesting charts on how much cheaper it is to store how using hydrogen and so on or energy using hydrogen as to say. And you've got this great, great growth opportunity in the second half of this decade. But then kind of scroll down and the net income CAGR is 3%, which I guess is somewhat lower than some of your peers. Is there anything you can do to try and front-load this growth in some way? I mean you alluded to selling lower growth assets. So press is talking about selling a minority in storage. But I wonder could you not go a bit further in sell a minority in the transmission business if it's not growing fast enough to maintain control, but that would presumably increase your growth rate. So the question is really, is there anything you can do whilst we sort of wait for the opportunity to arrive to get kind of growth moving between now and 2025?

Thanks, Harry. These are great questions. So on the certainty, there is no certainty on the approvals for the hydrogen. There's still a lot of work to be done to get hydrogen, let's say, certified from a safety and from a technical point of view. There needs to be a lot of EU harmonization around the certificates of origin, what we mean by hydrogen, et cetera. But I think '22 is the year when a lot of this will happen. There's going to be a hydrogen gas and gas package coming out of Brussels that will already indicate the direction of travel. There have been extensive interactions with the regulators in many countries. And this, as you will pick up from media reports from both Timmermans and [ Vanderlin ] and Simpson. What I'm talking about the kind of Italy as a hub is now widely reported in the media. So there's an understanding that we need kind of common and harmonized EU rules, which I think is great news. Germany has a 9% return on capital in the premium for the hydrogen. And I think the Italian system and the Italian regulator has a long history of providing input-based incentives when they need something done quickly. And so we've had it in storage. In fact, part of the reason our growth is slowing down on the conventional businesses that some of those input-based incentives are expiring as time progresses. So I think this is really good news kind of underpinning that CapEx, which I think is among the most strategic CapEx in the European kind of energy transition landscape. When we talk about the net income versus EBITDA, it's really the forward curves on interest and the DNA of an accelerating CapEx program that explain it together with the Austrian associates that -- whose contracts will be expiring. So there's nothing more to that. You can put in the forward curves. Of course, we don't know if they will turn out to be there. We have interest rates kind of growing, outpacing inflation, not really able to catch up. So that's really what is going on. I don't know, Ale, if you want to add something on this, but I think these are the main points. On the strategic question that you asked, which is a great question that we also ask ourselves. There will be some options like a De Nora IPO to really front load a lot of that value creation/crystallization, whatever word we decide to use that will be unlocked. In terms of monetizing minority stakes, that's not something that we have a priority because we're not resource constrained nor will we be in the EUR 23 billion of CapEx to 2030. We don't really see monetizing as a necessity in the near term to finance, but we do see the opportunity to accelerate the hydrogen. So I think Europe post Glasgow has realized that it's Fit for 55 is a really challenging kind of portfolio of opportunities that need to be invested in. And some of the stuff that we're doing represents lower-hanging fruits from a decarbonization perspective. So we are now working on a plan where we've been perhaps, I wouldn't use the word shy, but we don't know the shape and form of the incentives. So we assume some incentives are there, but we've also seen companies Snam, when the incentives really make sense to fast track some of the investment projects and some of the projects. For sure, we're in touch with most of the Italian companies. And I can tell you, as CO2 prices are increasing, they really have a real urgency to stop paying EUR 60 or EUR 70 per tonne of CO2 that they weren't paying in previous years or were paying a lot less for it. So the market is clearly there. The political incentive is clearly there. We have what it takes to get stuff approved and built as fast as we can as the TAP project has demonstrated. So I agree with you there could be room to the upside even in the shorter term.

The next question is from Alberto Gandolfi with Goldman Sachs.

Only two are left on my side. The first one is to go back again to balance sheet. And Marco, you just mentioned in the near term, you don't need any extra financing. But from '26, your run rate of CapEx broadly would double. So may I ask you if you still would remain comfortable in terms of balance sheet from '26 to 2030? And if any further let's say, financing might be needed, would you be open to perhaps also split not just De Nora, but at least the whole green energy division as a way of funding the plan? The second question, I'm still not 100% sure if you don't mind repeating, and apologies about this, but how much of the premium CapEx? So the CapEx that is supposed to be regulated for which you're asking for a premium, how much of that is approved as of today? Or when do you expect it to be approved by the regulator? And again, just last, last -- just a clarification here. I see you're expecting premium returns and you mentioned Germany as an example. But couldn't we use as a counter example, the digitalization investments made by [indiscernible] Italy that have not received a premium return. And the realm of 5% is still 1 of the highest returns in Europe. So would your plan still work if actually you didn't have premium returns, would you go ahead with the investments? Or would you just accept a baseline return in exchange?

Okay. So no, I don't think we've thought about IPO-ing the entire business. I think, and Ale, you can jump in. But we feel that the EUR 23 billion of CapEx we can finance on balance sheet. We have as I mentioned earlier, some assets that could be rotated out, perhaps even entirely. And so we see no risk there and no option. But we continue to be in the market to try to optimize the shape and holding of our portfolio. One thing that we could do as some of these projects gain scale is to monetize part of them on FID. So there's just so much appetite from financial investors and from IOCs, and from bigger companies for new attractive integrated projects. So some of our projects we may have the CapEx and have the EBITDA and continue to consolidate them, but we may have minority partners in the project to reduce the cash out. But that's not something that we've put in the numbers. So EUR 23 billion, we can sustain, but several options to increase that if opportunities arise or if we decide to lower the gearing, we have those in the pocket. When it comes to the premium, look, I think there will need to be a level of harmonization in Europe. We have made much higher returns in all our international projects than we have in Italy. And so there's a point in which some of these new, more cutting edge, more technological projects will need to get some form of premium in the market. So I'm confident that we will get there. We don't need it to find until 2025 because as I said, we won't start investing this money before then. So there's a period of time when all this can be panned out. I don't want to talk about returns, but I think the dialogue, in general, around the opportunity for Italy to be hydrogen hub is a very, let's say, high-level, intense dialogue that has evolved over the last 3 years into something that's becoming more and more tangible with our announcements today.

The next question is from Enrico Bartoli with Stifel.

The first one is related to the new [ aerial ] pipeline that you were expecting to develop after '25 for connecting Southern Italy to Central Europe. Actually, I guess that the development of this pipeline is based on also a massive development of hydrogen production in the North African countries. I was wondering, let's say, what's the level of the ability we have that actually the North Africa [indiscernible] going in this direction? And if there are some political discussions at European level with the government there in order to develop this value chain over the next years? Second question is related to the development of EPA that you expect by 2030. If I'm right you are targeting an EBITDA between EUR 4 billion and EUR 4.8 billion. If you can provide a hint of the breakdown between the networks, the storage and the contribution from the new energy projects? And particularly on those considering that for 2027, you are guiding to more or less EUR 180 million of [indiscernible] if we can assume that this figure would at least double by 2030. And the third one is related to the new technical development that you highlighted in the storage business. This new test that confirmed that even 100% of [indiscernible] would be possible. I was wondering what is your confidence of the possible industrial development on these findings? And possible timing of, let's say, increase in visibility on the industrial feasibility of this technical development.

Okay. So the good news on the hydrogen pipeline, contrary to an electric interconnection. First, as I mentioned, from Tunisia to Sicily, we have 5 lines. So 1 of those could be converted even with relatively little volumes. The pipes can operate at high pressure, but also at low pressure. So there's a lot of flexibility. And the good news is that you don't have an inefficient system, even if the pressure is lower up to a point. So you can start converting a piece of the pipe even with relatively small volumes. Thank you, you gave me the opportunity to clarify something that I should have said earlier, this backbone does not depend on North Africa. It will habilitate North African hydrogen, but we can do and sustain the backbone just to move hydrogen from the south of Italy to the north of Italy. So it's not contingent on anything happening outside of Italy. But of course, it will be an enabler of that. The 2030 EBITDA, I think we've given the level of disclosure that we're happy with at this point. So you can work out based on those CapEx figures and return expectations and growth targets, more or less the breakdown. As I mentioned, the new energy businesses will be EUR 150 million EBITDA '25, EUR 180 million in '27 and I think continuing to grow nicely thereafter. On the technical development on storage, this is really an industry breakthrough because we suspected that, that was possible, but there was a lot of skepticism also among some of the leading engineers and geologists that we were interacting with. So to be able to say that we can comfortably considered finished the first phase of this experiment -- in-lab experiment is incredibly encouraging. We don't need to store hydrogen anytime soon, but it means that our investments and hopefully, more importantly, the European investments that should be made in integrated storage projects are really, really future-proof. And this is no longer a problem of stranded assets in the energy transition, but it's an opportunity of having depleted fields available to fill them up at very low cost -- at ultra low cost with completely flexible, clean, abundant and ultra-cheap new hydrogen. But the timing of that is not going to happen anytime soon. I think what will happen sooner and perhaps not starting in Italy, but starting in the U.K., in Norway is CCS and things like that, we're really can play a big role because essentially the skills you need for CCS are exactly the skills that we have.

Next question is from James Brand with Deutsche Bank.

I have 3 questions on different topics. Firstly, on the new incentives that you could be getting. You said you [ expecting ] some incentives into the plan. You didn't particularly enthusiastic that they could be material in making that comment. But equally, on the other hand, I can understand that you might want to be quite conservative at this stage before it's set out. So I was just wondering whether you could comment on whether you think those incentives could be be material for you or not? And secondly, a question on the storage investments. I guess both the investments out to 2025 and thereafter, the investments into 2025, just to be clear, what you're spending the money on there, is that all going into existing gas storage assets? And is that partly to start to ready them for hydrogen? Or is it something else? And then in the plan, can you storage out to 2030. Is there new storage facilities incorporated into those numbers? And then thirdly, I've asked you this question before, but I can see, obviously, your thoughts on the whole hydrogen topic is evolving rapidly, and it's very impressive how much rate you do in it. So I would just be interested in asking it again. And the question is on pathway for the transition, I'm getting from where you are now to industries using hydrogen. Do you see that coming through deblending because I think the blending is quite expensive at the moment? Or do you think that some of the investment in hydrogen backbone complemented with redundancy in your current network that you can have dedicated pipelines? I'm just interested in how we get there.

The -- no, the reason you may have perceived some frustration in my voice on the output-based incentives is because this, for me, is a no-brainer because it's really in the system's interest. So we have some in. There's a range. We will see what the new consultation will be very shortly, I think, around the middle of December. And hopefully, we can settle this very soon in the new year. I was hoping to get it done by the plan. I was hoping to get it done by year. But I understand there's been some delay, but I don't expect any real negatives there. And so we -- because the dialogue is so active, we don't want to give specific numbers at this point, but this is kind of good news for the system and for us, and it really creates even more optionality and flexibility if we can avoid replacing some assets also in the context of developing the new corridors. When it comes to storage, yes, we will have incremental storage capacity. I think at a standard of 500 million cubic meter, so 0.5 billion cubic meters. What's happening in storage is similar to what's happened sooner in the grid. So we have some mandatory investments we have to make for security compliance, which has become more stringent. We have some replacements, so fully amortized and necessary to replace assets. We have some well investments in the wells themselves. We have some investments in the dual fuel compressor stations, which are going to enable us to reduce the CO2 and methane emissions, and we have to get emissions of methane essentially close to zero. So these are all good and healthy investments that contribute to the RAB growth and that we absolutely need to carry out until 2025. And then we have the new storage, as I mentioned, going to look at CCS as well as maybe salt caverns and other hydrogen ways of storing it. When it comes to the way I see the market develop, I see our network being over time and maybe not everywhere, not in every country we operate. I see networks evolving to be able to transport CO2, biomethane and hydrogen. So there will be 3 types of network. In Holland, you already have a CO2 backbone, for example, as well as some hydrogen backbones that are already beginning to operate, particularly in North America. The blending is simply a means of creating a market to break the chicken and egg to create immediate low-cost demand for hydrogen. I agree with you. It's not the most energy-efficient way to deliver hydrogen. So it's exactly what we did with the biofuels directive, you may remember, to create a kind of overnight market. The beauty of blending, the reason I'm a blending advocate is that you can dial it up and dial it down depending on the real demand build that customers have. When I talk to customers and I talk to a lot of big industrial users, I break them up into 3 camps. First, people who simply want the CO2 taken away from their factories. They have complex industrial processes. They need CH4 either as a feedstock or in very high precision percentages and quality and they don't want to deal with changing their whole infrastructure. They just really want to get out of the CO2 as quickly as possible. Then we have customers that are happy to invest, to take on hydrogen, and they're doing that at a pilot phase. And that potentially gets into the way of really decarbonizing the system because we don't really need a lot of pilots, but they understandably want to see the impact on their factory. A lot of this equipment is proprietary. They really want to test it in-house before committing to bigger volumes. And then there's customers who use essentially hydrogen -- sorry, today use natural gas for very high heating, for example, to make ceramics or some types of DRI. There's some green steel projects that are popping up here and there. Here, you have customers that are ready to commit to big volumes of hydrogen very quickly. So the market will develop along these 3 routes. The good news is that Snam can play a big role in all 3, both because of the transport, because of the storage and because of our commercial outreach into these markets where we really have a lot of credibility.

Next question is from José Ruiz with Barclays.

It's just three quick clarifications about the presentation. Number one, could you tell us when are you assuming -- which year you're assuming that you will have Italian regulation for hydrogen networks for transport? Secondly, in Slide #15, the EUR 12 billion investments and EUR 3 billion for transport, where is repurpose and where is dedicated? So would you include -- have you included a repurpose of hydrogen in the first category in CH4 transport or is all included in hydrogen transport, the EUR 3 billion? And third question is on the same table in storage. So new energy storage, the EUR 2 billion, I was wondering what is the reason why this should be included in the RAB? Is that because it's too early? Or you're expecting a later regulation and storage? Or you are just considering that any new form of storage is not going to be regulated?

This also allows me to clarify something. So on the EUR 3 billion -- on the regulation for the EUR 3 billion, we don't need that before 2025. However, before the end of the year, the commission will publish their draft gas package and hydrogen package, and there will be a usual kind of 18-month consultation around that. So that's really what happens. When you look at the EUR 12 billion and you see a breakdown of that as we go into the 5-year plan, a lot of that is replacement. When you look at the EUR 3 billion, all of that is repurposing to make it hydrogen ready. So that's basically entirely repurposing. And to be specific, that does not include the compressor stations potentially to export the hydrogen into Northern Europe. So that's that for the EUR 12 billion. Regarding the new storage. Now we wanted to be crystal clear here. So I've put that little star on the EUR 2 billion and the EUR 3 billion, saying none of this will be regulated. But that's being a little conservative because in Ireland, for example, I think it will be regulated. But because I don't know yet, I've put it into the non-RAB so that the RAB figure I gave you is essentially a function of what we have in Italy, what will be entirely and most certainly regulated at a wrap. But I will -- if I have to make a bet, some of the 3 billion plus 2 billion that have that -- that footnote will eventually be regulated.

Next question is from Javier Garrido with JPMorgan.

In the interest of time, I will just make one question. It's a general question on affordability. You are talking when you're [indiscernible] you are talking of higher growth on 2025 onwards. You are also talking about new returns for high-end investments. And -- how do you make that fit into an environment where the regulator is showing to be mindful about the cost of the service? And in a context where there may be pressure on the cost of the raw material with also hydrogen costs initially being high, and how do you square the circle of getting higher returns growing faster and making the business as [indiscernible].

You touch, Javier, on a key point. So I think the first path to affordability is for Europe to build more gas storage that will then -- or fill up the existing gas storage so to scale down, and China is doing the same and should do the same to scale down the competition for winter gas because no one will want gas in the summer, it's going to be very cheap and the opportunity to store more gas in the summer will help Europe, will help the energy transition, will help Asia as well get quicker of coal. When you look at the Fit for 55, so much needs to happen that what we're talking about is by far the lowest to use a modern concept, the lowest green premium, the lowest hanging fruit, to the lowest abatement cost. And so we're talking about tiny numbers in the context of the energy transition. And the PNRR the National Recovery and Resilience Plan for Italy is a generous one. A big part of that is earmarked for hydrogen. And the good news is that covers really the 2022 to 2026 period, which if you look at the hydrogen cost is where you need some support before it reaches a parity level. So the end game is to deliver energy which is cheaper than today's, notwithstanding our extra returns and a lot of other players, incremental returns from the CapEx. And I think this is a common theme also looking at some of the other utilities presentations in the last few days. I think we all now believe as you can get hydrogen to $1 a kilo, $25 a megawatt hour, we're paying gas $90 today. So there's really a near-term opportunity to address the affordability issue with cheaper renewable energy, and we have this big resource available from the national recovery plan to help not only bridge that gap when hydrogen is more expensive, but also to give it a nice and gentle nudge to get the snowball effect on the ball rolling.

Next question is from Antonella Bianchessi with Citi.

Very few question. The first one is if your net debt guidance for 2022, already includes the impact of the acquisition of the pipeline between Algeria and Italy? The second, if you can quantify the contribution of these assets to your net profit? Then if you can give us a little bit of time on the contribution of the affiliates, international affiliates in 2025? So how much of this is coming from this? And finally, if in your projection you are assuming that the allowed return will remain stable or if you have any kind of changes depending on rate assumption and the 3-year adjustment and the other things as expected by the regulation? My last big picture question is the clear bottleneck to your vision is the development of renewable in Italy which was really core also in 2021, and also this idea to develop hydrogen in Africa. Would the company be willing to directly invest in this assets, given that they are so keen to the implementation of their vision?

Thank you very much, So yes, the net debt includes the acquisition, the target. The average contribution is around EUR 25 million for the planned period. The -- Ale, maybe you answered the affiliates question. I will take the last point on the direct investments. I think there will be a rush to invest in renewable projects wherever there is space. So what hydrogen really does and what our backbone does is a debottleneck some of those investments that are currently not proceeding because there is a bottleneck on the power grid. So it's really an enabler of greater renewable growth, as I mentioned, to hit the 8 gigawatts per year. Italy significantly has to ramp up those investments. And I don't think we have the luxury of choosing where to make them. We will need to make them where there's land, where there's local acceptance, of course, where it's sunny would be better. And the backbone is a very neat way to debottleneck a lot of these investments.

On the international

Yes, sorry, on the WACC, you were asking me if it was stable, yes, we assume it's stable throughout the plan. So it's that EUR 85 million that I talked about flat for the plan.

On the international associates, by 2025, the entire portfolio will contribute something in the range of EUR [ 180 ] million as a mix of the decline that Marco commented and I commented before of some of our Austrian [ associates ] which will run on a short-term contract basis versus long-term control basis with lower remuneration, compensated by the contribution of both change perimeter and the other associates.

180?

For the international ones, just international ones.

I think you need to add around 100 for the domestic for the Italian.

At least, yes.

So it's kind of 280 and 180.

The next question is from Stefano Gamberini with Equita.

Few question also from my side. First, regarding the investment in the energy transition out of EUR 1.3 billion of investments, you more than double the investment in [indiscernible] and gas mobility. While in the meantime, in hydrogen, the investment increased just by EUR 100 million, while there are a lot of support from a lot of projects where you are involved. Why despite all these investments and all the support in incentives that have to be spent by 2026 you increased just by EUR 100 million investment in this area? And the second question is just if you can give me an idea, what are the main cost performance differences between the alkaline electrolyzer from De Nora and the PAM electrolyzer from IPM. So what you expect could be probably the win in the long run? The last -- from your side, considering the development of hydrogen that now are mainly focused on heavy transport or hydro-based sectors. Do you expect that in the long run, hydrogen could be also replaced natural gas for heating system? Or do you think that this is a very unlikely scenario?

Thank you, Stefano. I'll take the two -- the second and third and then Alessandra will will answer on the new energy CapEx. The PAM and the alkaline performed different jobs. So PAM is good for more flexible, shorter-term swings, smaller footprint, smaller projects, and the alkaline is better for the giga projects, the bigger scale projects. We're still in the early stages of really scaling up this technology. So we are happy to be involved in both, and we think both are needed, and we suspect that we will soon run into manufacturing bottlenecks similarly to what's happening in batteries. The good news is that we're moving away from rare materials, and that's where a lot of the R&D is working on and the performance of some of these electrolyzers is improving, and so is their durability. And we will also have new types of electrolyzers like solid state, et cetera, et cetera, emerging I'm sure. So this is an opportunity for people like De Nora who have been in the space for decades to really continue to invest and stay ahead of the technology. And that's what we want to do with our hydrogen venture capital and R&D programs that were very seriously spending time and money on. When it comes to heating, for -- I don't know and some people are very much in favor, others are very much against, whether hydrogen will be delivered to all the homes. I suspect it will be delivered to some homes. I suspect some people will want to have a hydrogen boiler that behaves exactly like their natural gas boiler and other people who are refurbishing the entire home will move to heat pumps. What I do know because of the slides I shared with you on the storage is that even that heat pump will have behind it, a hydrogen storage system to provide that winter heating power. Now in the U.K., where you have a lot more wind in the winter than in the summer, you can do with less heating, but in Germany and Italy, for example, where you have plenty of winter days with no wind at all, then you will need a lot of hydrogen. Even if in the home, it's a heat pump, it will still be essentially hydrogen heating. Ale, on the new investments?

Coming on the new investments on the new businesses, the reality is that the strong increase is on biomethane where you have the 700 net net of grants around 700 and change of million of investments. Mobility is essentially flat vis-a-vis last year. So there is no change. Equally, energy efficiency is essentially flat vis-a-vis last year, and we are increasing hydrogen by 100 million versus what we had in the past plan. And as Marco was saying, these initiatives are those that are consistent with all the submission that we've made to the different incentive program. So said innovation fund. But of course, we will monitor how the P&L will evolve to the extent that more opportunities will come relevant to the initiatives that Marco described at length that we are taking forward with all the customers that are today connected to our grid and looking to understand what it will take to decarbonize.

So just a quick follow-up. So do you expect a lot of room on these hydrogen projects in the forthcoming years? Or do you think that the main investments will remain in the biomethane plants?

We -- it's 2 different things. I think we put in the plan what we have visibility on based on the submission we have already made on this incentive and funding schemes. It doesn't mean that we could increase what we are going to invest in hydrogen. We simply lack the complete visibility. We do have a number of other initiatives that will continue to bring forward. And that could mean that the mix when looking at the overall investment plan looking forward, could change with the greater share of hydrogen vis-a-vis the big increase that we're already showing in biomethane where the increase is around EUR 600 million vis-a-vis last year plan.

The next question is from Chris Laybutt with Morgan Stanley.

I have only really got one left just on the Algerian asset contribution. Marco, you mentioned the level earlier. I missed it, I sort of maybe $20 million or $25 million. Is that contribution to 2022 or 2023 full year contribution? And just some sense for the contract composition within the portfolio that we have. Do you expect that to grow with inflation? Or is it a relatively flat contribution over time over the next, say, few years, just to give us an idea of the evolution of the asset as far as you can see it at this stage?

Thanks a lot. So the closing is expected in the second half of next year. So the contribution in '22 is very marginal. The contribution will be 25% average for the planned period. There's an earn-in earn-out mechanism, depending on the actual volumes of gas that flows because the contract is tied to volumes of gas. And so we've been able very constructively with any to kind of -- that's a pass-through so that we're not taking any essentially volume risk on this very strategic asset. So the yearly flows will depend on the volumes, and we'll be providing updated on our forecast. The good news is that the volumes are decided upfront and they don't really change unexpectedly.

The next question is from Bartek Kubicki with Societe

Few things left, if you don't mind. Firstly, I would like to maybe stress test a little bit your long-term CapEx assumptions to a scenario were actually a centralized hydrogen production doesn't work and it's replaced with decentralized hydrogen production. And for instance, moves on with their plan to have a certain amount of pump storage deployed in Italy, plus for instance, Russia sit the blue hydrogen production. How do you think your outlook until 2030 could change? And then some clarifications, you don't mind, again on Algeria, because you're talking about 25 million contribution whereas in the press release for the transaction, you mentioned 90 million for 100% of the assets earned in 2020. So I wonder where the contraction is coming from? And also on the WACC gain from '25, I think we can assume with quite high level of probability given the [ consultation ] papers actually the allowed WACC will decline in '25. So I'm wondering what is the reason for actually keeping it stable. And maybe the very, very last small point, if you look at your base cost of debt and your 2025 cost of debt, what do you assume in '25, please?

Good. So Ale, maybe you take the Algeria 90 million 2020 question. I'll take the first and the last. On the -- so we will need everything. We will need all of the pumped hydro. We will need more -- much more than the CapEx that we've put in our kind of nonmethane CapEx. And even that won't be enough just because of the level of intermittency and volatility and unpredictability and seasonality that we will have in storage. Blue hydrogen will be very narrowly defined. And I think the new government in Germany is very much favoring green over blue. But look, Snam is incredibly nicely hedged. If methane continues to run, we are happy. If biomethane grows further, we are happy. If blue hydrogen comes, it's exactly the same infrastructure that we use for for green. Even gray hydrogen would behave in exactly the same way in our pipes and in our storage. So we're very nicely hedged. And if anything, I think there will be upside opportunity to this plan both 2025 and the 2030 plan. When it comes to the WACC, you're right, if we take today's forward curves, there could be some adjustment in the last year of the plan. The current forward curve is quite steep. I suspect it could reflatten slightly as concerns about the pandemic extend. But there is so many moving parts to this that I thought it was easier to just keep it flat. That certainly helped our Board and our management team and hopefully helps you also be able to see through the WACC and look at what's happening apart from the WACC. And then when the WACC number is finally precise and approved, then we will all adjust for that and be able to adjust for that quite quickly. Ale, on Algeria.

Yes. So on Algeria, the reference was to the 2020 full -- say, net income contribution on an ENI full share basis. As we said, we have worked with ENI to effectively design a mechanism that completely protect volume risk according to a contractual baseline. So we -- that means that, that number hedges us vis-a-vis delta. So the -- if we were to apply what we have bought to 2020 numbers, we would get a 45 million contribution. The '25 numbers that Marco indicated is the average. There will be years where the contribution is higher, maybe similar to the 2020 numbers and years where it is lower, but it doesn't really matter versus what we pay because we have a euro per euro actual protection until 2029. When it comes to the cost of the debt in 2025, it's 1.1%.

Next question is from Emanuele Oggioni from Kepler Cheuvreux.

I have one left. On -- it's quite general. On the -- how Snam could be impacted by the new global methane deal from COP26? I know you provided on Slide 5 referral on this. but I wonder what would be the next moving part that could affect or be positive for Snam?

Yes, we are completely determined to getting to zero emissions of methane. We start from a very low base, 0.07. So there's work CapEx that we're doing, some of our leakages were there by design. And so there's some equipment that we're changing really to be able to strip out all the methane leakages. So we think the head start that we have because we started working on this 5 years ago, again, will be a competitive advantage as our ESG score that Alessandra mentioned will be based on that and will give us an even -- we are already doing better than the COP agreements and then the COP target. So we're -- we see this as a further area of outperformance.

There are no more questions registered at this time.

Okay. Thank you all very, very much for the depth of questions and for your interest and attention, and hope to see you soon in person. Bye-bye

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.