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

So good morning, ladies and gentlemen, and thank you for being here at the presentation of Snam '23-'27 strategic plan. First of all, I want to thank you for being here with us in Milan or connected remotely. Let me introduce today's speakers. Mr. Stefano Venier, Snam's CEO; and Mr. Luca Passa, Snam CFO. Today, our agenda is the following: Stefano will start with a quick introduction of Snam and its key feature. Then he will provide an update of the recent and future evolution of the energy system followed by an in-depth analysis of our ambition and strategy. Then Luca will take you through a full overview of CapEx plan, financial projection, and targets. And then back to Stefano for the vision to '23-'32 and the closing remarks. At the end of the presentation, there will be a Q&A session. This is the first physical event of Snam this year and from now on, we will have a new policy. So all our events will be sustainable, meaning that we will calculate the carbon footprint through our B Corp Renovit and we will compensate at the end of the year the emission through our reforestation company, Arbolia. And now, let me hand over to Stefano.

Thank you, Francesca, and thank you all for being with us also from my side. Let me start this presentation from the title because this title represent the ambition the company has, energy infrastructure for a sustainable future. It completes our value pyramid that we have developed and puts into -- it in connection with the ambition we have and the purpose, that is, energy to inspire the world. Ambition is -- represent what we aspire to, and where we want Snam to be in the long term. So now let me drive you through some few features of Snam that we thought might be, let's say, important to recall. First of all, I want to quickly remind of our current footprint. Snam is the leading European gas infrastructure player with 37 -- more than 37 kilometers (sic) [ 37,000 kilometers ] of transportation length, more than 20 bcm of storage capacity, and 20 bcm of regasification capacity. And it is fully integrated and regulated player operating along the whole value chain of the industry with a very capillary and well-performing and digitalized network. With the energy crisis, the European energy system gravity center has partly shifted towards south and Mediterranean area. Thanks to the 16 bcm of reverse flow capacity, Italy can be a gas transit country, supporting security of supply to the entire European countries. Snam, through its associate play a pan European role as its assets are located along key gas and H2 future corridors. At the end, we'd provide an efficient, safe, resilient infrastructure to secure the stable energy supplies in Italy and Europe. And we support the transition toward a decarbonized energy system through the new corridors and regional infrastructure. Few figures on Page 4 to let's say recap the business size of the company. The Italian tariff RAB is equal to more than EUR 21 billion. Our associate portfolio has a book value equal to EUR 3 billion as of the September 9, 2023. And in EBITDA per quarter of about EUR 560 million. Moving for a while to 2023, it has been a year of achievements and delivery for Snam. We have seamlessly managed our asset in a volatile environment, brought on stream the first FSU on schedule, and started the works for the second, reached the record level of storage level, and offered new opportunities and new let's say output services to the system. Many of our projects has progressed significantly. The Adriatic line was finally approved, defined as strategic assets, and eligible to receive Repower EU funds. And the south H2 corridor of which our H2 backbone is part of, and our CCS project named Callisto has been included in the European projects of common interest. And in 2023, natural gas emissions were down a remarkable 55% year-on-year. Overall, scope 1 and 2 emissions were down by 8%. And sustainable finance reached 80%, 3 years ahead of the schedule. That was 2026. Let's now move to energy context because we thought it was important to recap the environment we operate in to better fit the Snam strategic framework. On Slide 6, 2022 has been a turning point for a global energy system. The structural underinvestment in the sector with the consequences of the war in Ukraine completely reshaped priorities, particularly in Europe with an increased focus on security of supply. The energy crisis has ceased in 2023, but energy market, geopolitical, and global economy remain unsettled. We think it's more important than ever to continue investing in infrastructure to secure reliable, affordable, and in the future, decarbonized energy supply. Decarbonization is one of the biggest challenges we have to cope with. The State of Climate Actions 2023 report provides a comprehensive roadmap of what's needed by 2030 and 2050 to limit global warming to 1.5 degrees. The window to keep global warming at 1.5 is rapidly narrowing and as a consequence, all the decarbonization levers and technology must be pursued. To this end, decarbonized molecules complement electrons. Biomethane is already a viable and mature option. CCS is gaining momentum and hydrogen is globally targeted as a new energy feedstock with infrastructure as a key enabler to scale it up and to access upon competitive production. Clear policy and incentives along with the visible regulation for a level playing field are all prerequisite to unlock larger scale investments. And we have to say that in the last 12 months, significant progress has been made both at European and national level. Of course, further definitions are still needed. If I had to summarize in a sentence the key trends in the energy space in 2023, I would borrow it from the last COP28, from ambition to transition. Page 7. In just 2 years, Europe has completely changed its gas mix. Gas imported from Russia, both via pipe and LNG has been reduced from 45% to 14% or let's say 42 bcm. The European gas system managed to overcome the challenges faced in 2022, thanks to sharp increase of LNG up to 133 bcm, higher import from sources, and flexibility provided by storage. This shift means that new now Europe is structurally more reliant on LNG market, which is expected to remain quite tight in the next years to come, leading to a foreseeable price volatility. Moreover, several elements of uncertainty remains as such the residual Russian pipe supply sustainability; second, as well Norway ability to keep up recently supply levels. And finally the Russian LNG supplies. Long-term EU gas demand displays an up-down curve with some near-term recovery driven by weather like it happened in January. And price normalization. Future gas demand scenario has large range of outcome which will also depend on timing and execution of actions linked to climate goals. Uncertainty over future scenarios on flows implies importance to continuing investing -- to invest into infrastructure, to secure reliable and flexible coverage of peak demand, expected to maintain high levels, and to balance the increasing intermittent renewable generation. This investment should be done with a multi-molecule perspective we think to ensure reaching decarbonization as an ultimate goal at competitive cost. That is key. Next page. As well known, the decarbonization targets are challenging. You can see an analysis which shows the global cumulative energy CO2 emissions reductions by technology to reach the 1.5 degrees target. While 50% of the reduction will come from higher penetration of renewables and further electrification of energy consumptions, the rest is said to come from energy efficiency by 20%, which drove the largest part of the emission avoidance in the past decade. And finally, 30% will come from decarbonized and green molecules. This for us has 2 clear implications. First, green electrons and decarbonized molecules are jointly, jointly essential to achieve net zero, and synergies between the two need to be efficiently leveraged upon. Secondly, infrastructure development will be a key enabler to make this happen. No transition is feasible without enhanced networks, which need timely planning. According to the IPCC and IEA, CCUS will play a pivotal role in achieving the net zero emissions by 2050. CCS is gaining momentum in Europe and not only Europe. Also, thanks to the policy support. With 14 EU PCI cross-border projects and a 2030 injection target of 50 million tonnes of CO2 per year, that has become more and more important. Considering also non-EU countries, the continent is set to target more than 100 tonnes per year of CO2 capture by year 2030. And in the United States on the back of the Inflation Reduction Act, more than 70 projects has been announced. Of course, CCS costs varies significantly across sites and industries but high CO2 prices in the carbon trading schemes such as the European ETS suggest that industrial players will require limited support, especially when efficient logistic hub are present. Like for the Ravenna project that we are leading together with ENI and which we'll cover later in the presentation. CO2 transport is needed again to give industry access to geological storage and to give producer of synthetic fuel access to sources of CO2. Regulation and business model are still under definition, but the hub-based model is emerging as a standard given its greater cost efficiency. Indeed, the majority of projects in operation or under development in Europe rely on regional pipeline transport which requires relatively upfront capital cost but can provide a cheaper transport for larger volumes first, and much more effective net contribution on CO2 reduction according to recently published scientific studies. Let's now move on. The situation in the hydrogen. Significant progress was made in the course of 2023. Incentive schemes and consumption target has been set, has been introduced. Several European H2 corridors promoted by different TSOs has been announced and achieved the PCI status. The gas package is going to be finalized soon and the [ NOH ], the new EU body will be in charge for the H2 infrastructure planning coordination since next September. Based on European Hydrogen Backbone estimates, hydrogen demand by 2040 by country is supposed to be significant with relevant role of input export particularly from south to north -- south and north to Central Europe. In this context, the Snam infrastructure can play a key role. There is more and more recognition that infrastructure are needed to scale up in hydrogen and they have to be planned well in advance. And Germany is leading to that extent. The centralized model is the most cost-effective option as it provides large volumes at lowest level. Transport and logistic represent less than 20% of the final hydrogen cost, but they can give access to most competitive production areas through COST countries' interconnections. On regulatory and policy front, a significant news flow came throughout the past 18 months both in Europe and in Italy. Here, you have a quick summary of those. In Europe, besides the gas emergency measures, the hydrogen production support has started with the hydrogen bank while other decarbonization measures have been announced. Whilst in Italy, the asset health methodology and ROSS-based regime has been finalized together with the biomethane regulation and the recent National Energy Decree has filled some gaps in the domestic CCS regulation, specifying preparatory aspects for licensing and/or the authorization of CO2 storage and transportation. Hydrogen and decarbonized gas package finalization. The European CCUS strategy to be released on the next 6th of February and the approval of all national energy and climate plans by mid of this year are key focus for us going forward. So let's now move to the, let's say, Snam integrated strategic framework because all these themes that I have just described contribute to shaping this strategic framework that as shown on Page 12, is founded on its key distinctive factors. The first one is that the Snam has a unique geographical position as Med-EU bridge located close to energy and natural resources reaching South Africa and EastMed and infrastructurally connected to Central European demand. Moreover, thanks to the Italian ports, developing LNG or H2 derivatives, liquid molecules, simpler terminals has a substantial potential. Our presence across the whole midstream value chain with a resilient, flexible, and cost-effective infrastructure made by parallel and repurposable lines able to support a multi-molecule transmission. And third, 8 years of experience in building and maintaining critical infrastructure, delivering large projects on time coupled with an early mover status among TSOs with solid R&D programs and energy transition platform. Let me now move on to the energy infrastructure for a sustainable future, that is, let's say, the core part of my presentation before leaving the floor to Luca for the financial projections. I will now explain in detail all the elements of our core ambition. Our gas infrastructure and energy transition business are synergistic and progressively interconnected. Our aim is then to become a pan-European multi-molecule operator, managing a modular, flexible, and repurposable infrastructure to secure energy supply across Italy and Europe. This will be delivered leveraging on 2 main strategic levers: sustainability on one side and innovation on the other side. We plan to realize our ambition by investing EUR 11.5 billion over the period 2023-2027. That makes in reality, EUR 12.4 billion gross of grants, of which EUR 10.3 billion on gas infrastructure and EUR 1.2 billion in our energy transition business. Those are by 37% investment taxonomy aligned and by 58% investment SDG aligned. We have powered up our sustainability strategy, adopting an all-round framework based on 7 pillars with a distinctive ambition, which I will explain later. On innovation, we are deploying a dual-track approach, and we will invest EUR 350 million on proven innovation and EUR 50 million on open innovation over the plan horizon. On Slide 16. An overview on the EUR 12.4 billion investment that, as I said, are gross of grant. 65% or almost EUR 8 billion, of which will be delivered -- will be to deliver green and decarbonized gas molecules. In fact, 20% will go on emission reductions, and we have -- we can make some examples like electric compression station, leak detection and repair, and so forth. And green molecules like biomethane plant and connection, hydrogen, CCUS, and energy efficiency. And 44% in H2-ready gas infrastructure, meaning replacements done with H2-ready technical standards. The remaining amount will be supporting LNG for security of supply and maintenance by 25%, and the rest, of course, on ICT and corporate stuff. On Slide 17, it becomes evident the broad array of investment opportunities we have in asset resilience with flexible solutions. We will invest about EUR 1 billion in 4 dual-fuel compression station and biomethane connections. EUR 3.5 billion will be dedicated to H2-ready gas infrastructure, of which EUR 1.4 billion net will go to the first phase of the Adriatic Backbone to increase the capacity of import from south to 10 bcm of gas per year. This project has been, as you know, included in the Repower EU funding program and has been -- will benefit from EUR 0.4 billion of grants. North of EUR 2 billion will be invested in the replacement of 900 kilometers of pipes according to the asset health methodology that has been introduced in 2023 and agreed with the regulator. EUR 1.8 billion will be invested in the new FSRUs, including all the related works to connect it to the, let's say, the national network and for the relocation of the first terminal from Piombino to the -- as you know, to Vado Ligure. While the vessel of Ravenna will be completed by year-end, and we will launch its capacity auctions by the first quarter of 2024. These are by the way strategic assets to secure supply and have 20-year regulatory cycle. Finally, throughout our subsidiary Greenture, we will invest in midstream activities, initiatives like the LNG truck loading in Panigaglia and the Liquefaction plant in Pignataro, and later, we'll take a benefit of EUR 22 million grants. As we invest on -- next page, as we invest on our infrastructure, we do it with a future-proof approach. Over the last 12 months, we have moved from the perspective of H2-ready, as we used to call it aimed at verifying our transport and storage assets as compatible with hydrogen to a hydrogen-proof action plan. Firstly, we are working to define operating technical standard, which is a prerequisite for kicking start the H2 market. Secondly, we are moving to physical assessment such as testing within the European Pipeline Research Group pipes taken from the operating network to understand how it works. On storage, we will execute a pilot project dedicated -- on a dedicated layer of the Fiume Treste gas field that is located in the central part of Italy whilst our associate dCarbonX is developing a storage platform in U.K. and Ireland. Moreover, we are part of several projects, some of which are in partnership with other players such as the Modena Hydrogen Valley. That recently received almost EUR 20 million of grants from as you know, the PNRR program. Moreover, through our decarbonization unit, we provide a containerized -- I don't know, electrolyzer for H2 testing for the hard-to-abate industries. Finally, we have been awarded by Arera EUR 7 million of grants within the new innovation and Snam books program for projects, including power to hydrogen and hydrogen separation membranes. I mean this long list aims to give you a concrete flavor on how we are progressing on this field. We have also framed a long-term view on how our infrastructure could evolve to support the transition to hydrogen while continuing to grant the gas security of supply. That is fundamental. This can be achieved by repurposing one of our 3 parallel lines post the completion of the Adriatic line. This is part of the south H2 corridor, a 3,300 kilometer pipeline connecting North Africa to Germany, passing through Italy and Austria, enabling to support -- enabling the supply of low-cost renewable hydrogen produced in the southern part of Med to European industrial clusters. One of the key H2 corridors enriched by the Repower EU and the most cost-efficient as it maximize the repurposing and enjoys a significant embedded line pack storage flexibility corresponding from 60% to 70% of expected 2030 daily demand. This storage flexibility related to long and capable lines also offer an additional opportunities for long-duration energy storage to renewable production. Over the last 12 months, several step forwards have been made. In November, it has been included, as we said several times in the list of the project of common interest, thus eligible for possible grants. We are now working to extend the same status to south H2 corridor, the part that connects Sicily to Algeria to complete the end-to-end corridor. In 2024, we also will need -- we will start the engineering investment, and we will launch a market test to assess the appetite of domestic industrial clients, mostly hard-to-abate, of course, towards different decarbonization options, either CCS or hydrogen. Let's now move to the CCS project that we are jointly developing with ENI in the Ravenna area. It will be the first and largest project in the Med area with a total estimated capacity exceeding 500 million tonnes and possibly one of the most efficient due to its geographical location with the storage facility at a short distance from the coastline, less than 7 kilometers and in close proximity to large and concentrated industrial clusters located in the Pianura Padana. CO2 will be stored in depleted gas reservoir offshore of Ravenna in shallow waters. The project is modular and can be progressively scaled up. In the planned period, we envisaged EUR 350 million of investments net of grants to deliver. First, the start-up phase that will start in 2024 to capture the first 25,000 tonnes of CO2 and then test the storage performance. And the industrial phase operational from 2026 to store up to 4 million tonnes per year, supporting the decarbonization of the hard-to-abate industries in the northern part of Italy with the optionality to receive volume via shipping from the Med, including the south of France that is part of the Callisto project. Final investment decision on the industrial phase will be subject to supportive market and regulation. From 2030 onwards, the significant capacity of reservoir will allow to increase the capacity to 16 million tonnes per year, depending, of course, on market demand. Snam role will focus on transport first, also capitalizing on existing infrastructure, and we will work with ENI on the storage facilities. We will have a third-party access model that is expected for transport and storage services. The project has made significant progress in the last months. Works for start-up are targeting few months to be for the completion. And the project has gained the PCI status, as we said, while the recent national energy decrease has set the context for the national CCS market design. Let's move now to another piece of our energy transition platform, that is biomethane. That is the most mature and rapidly scalable green gas available today and is compatible with existing infrastructure and equipment. So it's the easiest to deploy. Its potential is relevant according to the drafted Energy -- National Energy and Climate Plan by 2030. Rising costs and lack of clear development scheme has slowed down the growth in the last 2 years. But those has been overcome in the last months. Snam is progressing on a twofold role by promoting and optimizing the interconnection of plants to the network that -- where the requests are rapidly ramping up and by building a solid platform with about 41 megawatt of biomethane capacity and biogas plants in operation at the end of 2023, acting in this way as industrial developer. With regard to the production, the Italian Biomethane Decree provides a compelling semi-regulated regime, relying on the PNRR funds, covering part of the CapEx, and offering a 15-year feed-in tariff updated by inflation. We successfully participated to the first auction -- 4 auctions in 2023, and we are ready to submit 5 new projects in the upcoming one. The plan envisages EUR 400 million of investments net of EUR 80 million of grants to reach approximately 80 megawatt by 2027 based both on upgrades of biogas and new biomethane plants. There is one peculiarity, extremely important on this platform. That is the concentration of those assets in the northern part of Italy with some few spread all across the country, specifically on, let's say, organic waste feedstock. Whilst on the energy efficiency on next slide, over the past years, we have built a leading player in energy services and delivered a strong project pipeline in deep renovation. Going forward, the strategy is to reshuffle the business portfolio towards public administration and industrial clients, capitalizing on Snam, abroad national presence, and sound balance sheet. By focusing on energy performance contract, we aim at increasing the overall backlog and the average duration, thus further gaining revenue visibility. As you can see on the chart, we project backlog to move from EUR 2 billion in 2022 to more than EUR 3 billion by 2027, having more than 60% of which in public administration with average duration from 7 years to 12 years. Let me now move to the strategic levers and first, the sustainability approach. In this slide, you see our comprehensive sustainability framework. We made a decision. We moved from a traditional approach to an all-round approach fully integrated in the strategy of the company and in our operations. And this strategy is based on 7 distinctive pillar and 7 distinctive ambitions. The first 2 pillar are those more related to our core business and are more in line with the former approach and these are, of course, the multi-molecule infrastructure and the green transition that will help to reach the system decarbonization and sustainable growth throughout the inclusive pathways. The other 5 are related on how we managed our operations. And first, I'd like to mention the carbon neutrality. Decarbonize the core business in line with our path to net zero. Second, the new one, a biodiversity and regeneration, leverage new infrastructure projects to positively impact on natural and local environment following a science-based approach. The fifth is people, of course, empowers Snam people, fostering professional growth and providing comprehensive care. This while we keep working on our core targets such as D&I and safety. The sixth is local communities as we are all spread all across the country. Keep generating value for local communities, strengthening the listening of the territory needs in cooperation with this Snam Foundation. And the seventh, the transformative innovation. So the innovation culture to maximize the technology effectiveness, thus enhancing asset safety, reliability, sustainability, and the value chain capabilities. In line with the framework, we have also updated the ESG scorecard with relevant KPIs to measure progress across all the pillars in line with the plan horizon by 2027. You will find in the presentation a sustainability annex that lists all the different aspects of the 7 pillars and we'll provide you an update on our progress on regular basis. Let's focus for a while on the emissions. On emission reduction, our commitment remains firm. Even in the current challenging scenario that is characterized since 2022 by a reversal of gas flows and higher use required for storage facilities. On scope 1 and 2, we commit to a 40% reduction by 2030 and 50% reduction by 2032 on the regulated business perimeter, taking 2022 as a baseline and a carbon neutrality by 2040. Our enhanced efforts on methane emission reduction led us to outperform our target by some years. As I mentioned at the beginning of the presentation by 2023, we reduced by 55%, those emissions. And we have -- and we are following -- strictly following the recommendation by United Nation that once again 2023 awarded the company with a gold standard. On scope 3, we are reinforcing our commitments moving to targets in absolute terms with emission reduction of 30% and 35%, respectively, by 2030-2032. Scope 3 emissions mostly come from our associates on which we have promoted specific decarbonization programs and, of course, from suppliers, of which -- for which we introduced an ESG criteria in tenders while working on data gathering. I have to say that more than 130 suppliers that are basically 66% of them are complete -- have completed the CDP questionnaire. An interesting example on how we partner with them is what we call it green work site, in which we promote the adoption of green and best practices by our contractors like waste and water reuse and recycling, electrification of machineries, use of biofuels to reduce the emissions. But more important, we add a very relevant new commitment to be net zero across all emissions by 2050. All the targets are aligned to the SBTi general methodology, and we are committed to be validated by SBTi as soon as the sector-specific methodology will be available. Page 25. Conserving and restoring natural space and the biodiversity they contain is essential for limiting emissions and adapting to climate change. We started our impact assessment on nature in a more comprehensive way. We have been the first pure infrastructure player globally to join the new SBTN Corporate Engagement Program, and we carried out a detailed analysis based on available science-based target for natural scientific approach. We got to 2 findings. Material impact is related to realization of large works to build new pipelines. And thanks to the already high technical standard and innovative technologies used for executing -- for execution monitoring, we minimize the impact by design. We operate already zero net conversion by remediating all not available conversion restoring 100% of the impacted areas. By 2027, we commit to net positive impact, meaning that on specific hotspots, we will implement initiatives to regenerate, rewild, and protect the landscape. We also paid the same attention to sea and ocean and more in general to water, and we see the blue carbon as a new frontier to explore. The targets, as I said, are aligned with the SBTN guidance. As part of the engagement program, we will contribute to the definition of the sector-specific guidelines and submit our targets as soon as the methodology is finalized. Also, I'd like to announce that in the third quarter, we want to organize a dedicated event on sustainability and where we will also introduce our forthcoming transition plan. The second lever, as I said, is innovation. On innovation, we have a dual-track approach, exploring both open and proven technologies. On proven technologies, we are continuing to invest on the SnamTEC program that started some years ago, accounting for EUR 350 million investments over the plan horizon, involving more than 50 projects to that extent. And the key -- using all the key enabling technologies like the IoT and sensor installation, like increasing the computational capacity through distributed edge and cloud computing, data platform to manage and display effectively integrated data and information. And finally, the artificial intelligence. That we will use it firmly for the predictive maintenance of our assets and massive analysis on big data from failed sensors as well as in the projections of the gas flows that are more and more less predictable after the 2022 crisis. On top of this, we are developing the asset control room. You see on the chart, on page of this asset control room. That is a single point of entry, all the operating activities, which is giving a full end-to-end view of our processes across the whole system we manage. The program enables among others, the predictive and optimized maintenance, supports the staff safety and security, helps and support the energy efficiency and CO2 emission reduction, but specifically contributes to reduce the transport and storage OpEx indexes, respectively by 10% and 20% over the plan horizon. My last chart is on open innovation, just to close the loop on the different strategic levers. On that field, we are planning to invest EUR 50 million, including EUR 10 million of grants that has been already awarded. We are pursuing 35 projects, of which 5 obtained the EU or Arera grants. On the right-hand side of the slide, you can see an overview that cluster according to various applications, maturity level, and relevance for us. We leverage on both internal and external skills via R&D and Oprah approaches. We have 2 open innovation programs called Snaminnova and HyAccelerator that are -- that scouted more than 3,000 start-ups, 28 of which are under pilot and one has been funded and works on -- and is active on biogenic CO2 valorization. Finally, we have also some investment on CDP, Venture capital, and Hy24 fund. Let me now turn to Luca for the business plan projections. Thanks.

Thank you, Stefano. Good morning to everybody. Looking at the regulatory framework. I'm on Slide 29. Our business plan is underpinned by visible and supportive regulation. The trigger mechanism for the annual WACC update provides for an uplift in 2024 already approved by the regulator Arera, which implies a plus 80 basis points on transport and plus 60 basis point on storage and LNG. In addition, the base ROSS will be introduced from 2024 to transport with positive change such as the recognition of CapEx and OpEx capitalization rates based on average and historical forecast data, a shorter time lag for D&A from 2025, and an updated deflator recognition and a better work in progress remuneration. All in all, these changes provides a faster cash conversion over the plan horizon. Moving to the business plan projection on Slide 30, we can see a sound and improved growth. Our CapEx for the period 2023-2027 has increased by 15% versus the previous business plan to EUR 11.5 billion net of grants, which amount to approximately EUR 1 billion, mainly driven by the acceleration of the Adriatic Backbone. We foresee more than 6% RAB CAGR 2023-2027, a 100 basis points increase versus last year plan, thanks to higher investment and a deflator contribution. EBITDA CAGR is over 7% and is driven by RAB growth, WACC update, base ROSS introduction on transport, and the energy transition businesses contribution. In terms of net income, to start, we improved our 2023 guidance to EUR 1.114 billion, mainly due to a better-than-expected associate performance. Net profit CAGR in the plan horizon is approximately 4%, plus 100 basis point versus last business plan, reflecting a sound EBITDA contribution, which mitigates rising D&A and higher interest expenses. We will be able to deliver solid growth while keeping financial strength and flexibility. Net debt will increase to approximately EUR 19 million in 2027 with credit rating metrics to remain with ample flexibility within the thresholds of our current rating positioning. In the annex, you will find underlying macro scenario assumption that underpin these projections. And for the sake of clarity, there is no material M&A included in the business plan. Let's now look in more detail to the CapEx plan and I'm on Slide 31. Our total 2023-2027 CapEx plan amounts to EUR 11.5 billion, net of about EUR 1 billion of grants. The plan is backed by a high level of visibility with around 55% of total CapEx that are already fully authorized. Total investments in our multi-molecule infrastructure amount to EUR 10.3 billion, of which EUR 7.4 billion related to transport, which increased by around 17% compared to the previous plan, mainly due to the acceleration of the Adriatic Backbone, EUR 1.4 billion on storage, mainly attributable to the performance upgrading of existing fields, installation of dual-fuel compression station and a small contribution from the early phase of Alfonsine, and a new site development. And EUR 1.5 billion related to LNG due to the second vessel acquisition, or the Mooring infrastructure of the Ravenna and new FSRU, and the investments for the relocation of the Golar Tundra from Piombino. Investment in the energy transition business account for EUR 1.2 billion, plus 20% versus the previous plan, and are related to the development of our biomethane platform, the start-up and the first industrial phase of the Ravenna CCS project, the re-focus of our energy efficiency business on long-term contracts with public administration and the engineering of the South H2 corridor. Our CapEx plan is future-proof, thanks to H2-ready replacement investments to reduce emissions and investment in the energy transition. Around 37% of our CapEx are taxonomy aligned and 58% are SDG aligned. Moving to EBITDA evolution and analysis on Slide 32. EBITDA annual growth will be 7.4% in the plan horizon. This increase will be mainly driven by the contribution of gas infrastructure, which will benefit from regulatory items for a total of around EUR 110 million, mainly from the WACC uplift on the back of the trigger mechanism. The effect of ROSS on transport is overall neutral over the plan horizon as the positive effect from shorter-term lag for D&A is offset by the fast and slow money effect equal to 15%, 85% in the first 2 years, 2024-2025, and 13%, 87% in the following 2 years, 2026-2027. As it depends on the CapEx profile and the capitalization rates, fast and slow money has a positive effect in the first years of the plan and a reversal in 2027. Finally, organic growth for around EUR 590 million, driven by the investments and the impact of the deflator, which account approximately 50% each. In terms of energy transition business, the contribution will increase to around EUR 140 million by 2027. The increase will come from the ramp-up of our biomethane platform as described by Stefano and the consolidation of our energy efficiency businesses. All in all, the energy transition business target a slight slowdown compared to the previous plan due to a more selective biomethane platform development plan. By 2027, we will reach EUR 3.2 billion of EBITDA and EUR 2 billion of EBIT. Let's now look at the details of net income evolution on Slide 33. We project a 4% CAGR over the plan horizon starting from 2022, improved guidance of EUR 1.114 billion. This will be mainly as a result of the sound EBITDA performance, as previously explained, partially counterbalanced by D&A increase due to the new assets entering into operation, the rise in interest expense with the cost of debt increasing to 2.9% at the end of the plan. Clearly, we will actively look at opportunities to reduce it over the plan period. In terms of contribution from our associates, we project a slight increase over the plan horizon that will be mainly driven by TAP and the Italian associate performances. On the financial structure, Slide 34, we remain committed to keeping our balance sheet financially solid. Credit rating metrics are expected to remain with ample flexibility with the threshold of our current ratings by Moody's, Standard & Poor’s, and Fitch over the plan horizon. In particular, leverage will remain well below the 75% Moody's threshold of net debt to fixed asset plus book value of associates, and FFO to net debt will be on average around 12% in the plan horizon. Average cost of debt is approximately 2.6% over the plan, which is 60 basis points higher than compared to the previous plan. We will continue to focus on sustainable finance with a commitment to rely on energy financing and an improved target of 85% from the current 80% of total funding by 2027, which is one of the highest in the sector. Moving to our portfolio of associates on Slide 35. Our main goal is maximizing the value creation from our associates by supporting their business and growth initiatives also in the transition space. Some of our associates went through a regulatory review, and we have a full final outcome in terms of WACC update for DESFA and Terega for the next regulatory period. On TAG, we are progressing in the dialogue with the regulator to neutralize volume risk in order to reflect the change in gas flows. The new regulatory framework should start in 2025. We are also making significant progress on the energy transition side. In particular, European associates are moving forward with the H2 readiness assessment of their assets and achieving stronger traction for their initiative. As for the latter projects presented by Terega, DESFA, TAG, and GCA have been included in the PCI list, 3 for H2 related and 2 in the CCS segment confirm the strategic role in the energy routes. Falling volume from Austria were mitigated by rising volume from Algeria and Azerbaijan, highlighting the diversification benefits embedded in our portfolio and the strategic position of our assets. The overall associates' contribution in the plan increased by 7% to around EUR 320 million by 2027, mainly driven by TAP and our Italian assets with a higher level of visibility. Moving to Slide 36. We confirm our cluster presented last year, where we indicated as value-enhanced industrial assets with direct or virtual connection to the Italian infrastructure, enablers of business optionalities, associates with no connection to our assets, providing and reinforcing market intelligence and business development potential. And in the last cluster, companies with a more opportunistic angle. In the last 12 months, we've implemented an active portfolio management across the 3 clusters to maximize value extraction. On April 4, along with the other core shareholders, we successfully placed 5.7% De Nora shares via an accelerated book building with a market-friendly deal to increase free float and promote the stock rerating. Last September, we successfully issued a bond exchangeable into Italgas shares, proactively leveraging on our participation to contain cost of debt while keeping voting rights and expected dividend flows. We are now exploring portfolio rotation opportunities with regards to Interconnector UK. We will continue to operate according to this active portfolio management approach during the plan horizon. Moving to our financial targets. I'm on now Slide 37. 2023 full-year, we confirm our financial targets while improving net income adjusted guidance to EUR 1.114 billion. Now looking at the 2024 outlook. CapEx, we reached EUR 2.9 billion, mainly driven by gas infrastructure investment, which include, among others, the start of the erratic decline in CapEx and Mooring and connection investment for the second FSRU in Ravenna. Tariff RAB is up around 6% year-on-year at EUR 23.8 billion. We expect EBITDA of around EUR 2.7 billion, mainly driven by WACC uplift, deflator impact, ROSS effect on transport, and RAB growth. In terms of net income, we expect around EUR 1.118 billion with EBITDA positive performance, partially counterbalanced by higher D&A and financial expenses and lower contribution from associates. Net debt will increase to approximately EUR 17.6 billion with an expected average cost of 2.6%. Finally, at the end of the plan horizon in 2027, we see a RAB growth of more than 6%, EBITDA adjusted growth of more than 7% and net income adjusted CAGR of 4% while keeping net debt at around EUR 19 billion, underpinning the financial strengths of this business plan update. Moving to dividends. Slide 38. As already announced, 2023 DPS will increase by 2.5% at EUR 0.28 and EUR 0.2. We just paid the interim dividend of EUR 0.1128 per share. The solidity of this business plan update allow us to improve our dividend policy going forward. We commit to a minimum 3% annual DPS growth from 2023 to 2027 from the previous minimum of 2.5%. The sustainability of this dividend policy is supported by the regulated nature of our core business, the higher level of visibility of the plan, and the accelerated EPS growth. This reflects our commitment to a compelling shareholder remuneration while keeping financial solidity and flexibility. And now let me hand over to Stefano for the vision and closing remarks.

Thank you, Luca. And just a couple of slides to, let's say, wrap up and provides you with the vision we have beyond 2027. Snam vision and investments are linked to the expected evolution of mix of gas molecules that will need to be transported over time. The progressive shift from natural gas to other molecules such as hydrogen and CO2 will increase the overall volume that need to be transported throughout our network, firstly because of the energy content of the hydrogen with respect to natural gas. We expect a coexistence of different molecules throughout our infrastructure in the next future, some green and some decarbonized in their end use, and we can accommodate and support this evolution in a very cost-effective way. Rising volumes on different gases will underpin our long-term investment opportunities and drives the choice we already make today. On Page 41, you have some numbers. I will provide this brief update or projection to 2032, which is consistent with the scenario I've just illustrated. The overall investment opportunities we can tap into will be very significant even beyond the plan horizon, driven by the completion of the security of supply investment and by the decarbonization process throughout green gases. We have a sizable ongoing investment program to maintain world-class reliability and resilience of our assets while reducing their carbon footprint. In addition, we invest to enhance their flexibility, a key word, flexibility, a key objective to secure a safe transition. Significant investments will be required to evolve the energy system towards a multi-molecule setup. The level and timing of the investments in the H2 backbone and CCS scale-up will be addressed on the back of the evolution of the regulatory framework and the availability of grants and financial support as well as demand, of course. We foresee investment of approximately EUR 3 billion per year beyond the plan horizon with a mix more skewed to green and decarbonized molecules, as you can see from 65% to 80%. Let me now move to some closing remarks. In conclusion, this is an updated strategic plan. We -- where we will accelerate by 100 bps the RAB and EPS growth with an improved visibility as regulation is set and policies are evolving in line with our strategy to become a multi-molecule infrastructure player. This allows us to upgrade the shareholder return. We commit to a minimum DPS annual growth from 2023 to 2027 of 3% from the previous 2.5% while keeping a solid balance sheet and flexibility -- financial flexibility. We will do this remaining committed to reducing our carbon footprint in line with the Paris Agreement pathway, and we commit to a net positive impact on biodiversity by 2027. Full digitalization of our assets and open innovation efforts to stay in the forefront of technological advances will support our strategy. So then, thank you very much, and now we are open to your question. Thank you.

[Operator Instructions]

So thank you. We'll start with the Q&A session. We will start with a question from the audience here in Milan. Then we will open the line to question live. And finally, I will read the remaining question coming from the chat. So first I kindly ask you to say your name and company name.

Javier Suarez, Mediobanca. Three questions. The first one is on the general outlook and your view for the gas infrastructure network in 2025-'27, 2030, and 2040. I'm interested on a bit of elaboration on Slide #7, on which you are showing an expectation for higher utilization of natural gas in 2027 -- '25-'27. That caught my attention. So you can elaborate on why Snam does see a scenario in which there may be an increase in natural gas consumption and the implication that this may have for you and the security of supply and the necessity of strengthen further the network. And then your vision, I think that you elaborated in the -- at the end of your presentation, but vision for 2040 and maybe '50, how do you see the Snam network contributing to the decarbonization of Europe and maybe providing with different molecules and the interaction between competition or maybe collaboration between your project and the H2med project that seems to have a very strong support from several other Southern European countries. That is the first question. The second question is much bottom-up in terms of your business plan. It seems that you have less of an accent of investment on new energy efficiency themes. And it seems that you are -- the word being more selective has been said several times. You can elaborate on why do you think that the company has to maybe invest less on these activities, be more selective, and the implication that this has for your growth pace or profitability or any other consideration. And the third thing that I think is the first time we are asking this is the impact on your cost base that new technologies may have. During your presentation, there has been several references to artificial intelligence and this kind of consideration that has to -- that goes beyond digital transformation. Do you envisage a future during your business plan length in which your cost base could be significantly different as a consequence of all these new technologies? And the very final thing is on the output-based incentive from regulation, if you are including any significant contribution from them.

I'll take the first 2, 3 and then I'll turn to you. First, the comments on Page 7, in terms of gas demand projections, of course, now it's pretty complex to make projections. Of course, you have 2 different scenarios and that are those we referred to. The first one is, let's say, business as usual with respect to the commitments and pledges that has been taken. According to the report from United Nations and IPCC, of course, this will project the increase in the, let's say, global temperature by 2.4 degrees, and that implies a certain level of gas consumption. So that is the upper end of the projections we made. Then you have the commitment to reduce to 1.5. And to be consistent to the 1.5, you have the second line, that is, the lower end of the range. Of course, we -- the message was we have a sizable difference between the two, and we will be probably closer to 1.5 or in the middle of this range. And that this will have, of course, an implications in terms of flexibility. And that's the reason why I stress the word flexibility. We need to regain flexibility in the infrastructure. Flexibility is the core value we could play with to tackle with the energy crisis. What does it mean? We use the spare capacity on LNG infrastructure. We use the spare capacity on transportation via pipeline, and we use the spare capacity on the contracting. And the storage. Those were key fundamental aspects we could play with. But now we are running at 100% capacity. So we need to structure the infrastructure with respect to, of course, the development of the gas demand, but also regaining some of this flexibility. Because as we said, we are running into some years in where the LNG market -- global LNG market will be tight and we will need to have some flexibility to that extent. So that is one point. So we need to redesign and redevelop the infrastructure with respect to the development of gas demand but also some flexibility. That is essential to drive the transition towards a multi-molecule. Because if we don't have this kind of flexibility and the capacity on the infrastructure, we will not be able to take one of the pipes and re-devote it for hydrogen. Okay. And that's -- in the short term, the development of the demand, of course, will be impacted by several aspects. Of course, weather -- climate is one point, of course, weather, cold, and during winter, it's one aspect. The second is the progressive, let's say, reshaping related to the phaseout of coal production that is taking ground all across Europe, Italy. First. The second is the recovery in the industrial production. Of course, we are assuming and everyone is assuming that the current situation in industrial production, especially the one that marked the 2023 with some slowdown in consumption will take some bounce back into that perspective. And I think one of the other aspects that became clear to -- from the COP28 was gas is definitely the transition vehicle for the energy transition. And that will shift some of the consumption from other fossil fuel sources into gas. So we need to prepare the infrastructure to cope with different scenarios with the adequate flexibility. And that's the point. I think it's important especially to have a multi-molecule perspective as we can play with considering the position we play in the entire market. And here, it drives me to the second question, is how we cooperate. I think what is important to understand is in the chart, we showed you, it was on Page 10 is this specific peculiarity you have. You have one, let's say, part of Europe that is asking for sizable hydrogen. And you can't supply that demand only with a single corridor. So I see a clear complementary role between the southern corridors and the northern corridors to supply the entire volumes. And we are referring to Germany as core part with their plans on hydrogen consumption, but also the surrounding countries because, of course, the other countries has to go throughout the decarbonization process. Of course, there will be some competition between the corridors. I mean the south H2 corridor will be in some way in a slight competition with H2med corridor that, by the way, as you know, we are part of through the subsidiary Terega. And this will be played on the transportation cost. The more you can repurpose a pipeline, the better is your competitiveness in these corridors. But part of this will be played by, let's say, the hydrogen sources. And to that extent, I think that the complementary role between pipes and shipping will play another part of role. And whilst -- since Germany is pushing very hard on projects overseas for hydrogen -- for green hydrogen production and through ammonia for shipping it. And some of the Eastern Med and Middle East projects that, by the way, are the -- are in the forefront of the development interaction. It's essential. I mean the great advantage we can put on the table is the fact that we have complementary pipelines. And we stress the fact that with the Adriatic pipeline, we will have 3 corridors in parallel. That is the core flexibility we can play with in the perspective. Of course, we will use it in line with the development of the demand. And I don't know. If you take the point, the important -- I mean when you have such long corridors like the one that goes from Africa to Germany with repurposing a sizable pipe, you have plenty of pipe -- line pack capacity. Line pack is the capacity you can store in the pipeline. So in building the new hydrogen infrastructure system, you don't have to devote in this case, investments to build up underground storages because first, you have the line pack. That can work also in a complementary way with the renewable generation because instead of curtailing, you can convert and store in the pipes the hydrogen. That makes the complementary role not only with respect to the other corridors or the other infrastructure but also with respect to the renewable development production. Why? And then I'll turn to you. While we have been more selective on some of the investments. Well, I have to, let's say, be more precise. We have slightly reduced for 100 to 80 megawatt the capacity on biomethane firstly because we had -- we decided to have a spin-off of part of the assets that were part of the former portfolio, okay, that accounts for 8 megawatt on the total numbers. And second, we have been a bit more selective in some investments because of the interest rates, we raised the hurdle rate and consequently, some of the investments that were not competitive on the high single-digit return we expect from these investments were partly cut off. Of course, can be recovered over time, okay? But for the time being, we have been consistent with a certain return we expect from those assets whilst the energy efficiency platform is in line with the former business plan with a significant development. Of course, the big challenge in there is, let's say, reshaping the portfolio, having overcome the, let's say, superbonus contribution that happened in 2022 and 2023. Please, Luca.

Yes. Just to add up, basically, energy efficiency is still contributing a gross margin of between 19% and 20% over the plan period. And the same amount of CapEx, there are some adjustment in terms of how we count Italian GAAP vis-a-vis IFRS given the nature of the business, but the amount of CapEx is almost the same to the previous plan, while the decrease, as Stefano mentioned, in terms of both CapEx and contribution is implemented by 30% vis-a-vis the previous plan. For the fourth question, in terms of impact on cost base, the fixed cost like-for-like of this plan increased by 2% over the plan period vis-a-vis basically starting and ending point, which compares with a 4% inflation rate. So basically, we already are seeing a benefit in that respect. Labor costs increased in line with inflation. So we're basically making efficiency on what is corporate stuff and all the technology that we are putting in terms of how we deal with transport and storage, the 2 largest businesses. I can give you some details about 11% of efficiency on transport OpEx per kilometer and about 20% efficiency on storage OpEx per capacity. So already, we are experiencing this trend in terms of reduction of cost. When it comes to the last question, output-based incentives. Clearly, we have a very benign 2023 with some also 2022 contribution because it would be in and around EUR 120 million of contribution for 2023. Then we are targeting a range of between EUR 80 million and EUR 100 million over the plan. And that comes from the fact that we are losing some of the output-based services on storage, and there are no reversal from previous years. But the target is to reach EUR 100 million of output-based incentive contribution by 2027.

Stefano Gamberini from Equita SIM. Three question, if I may. The first regarding the situation of TAP. This company should double now the capacity to import gas from 10 bcm to 20 bcm by 2028. We expect the forthcoming auctions for this capacity. Do you see a risk there? Because the trend of gas demand is declining in the last 2 years. So who are the shippers that now take such long-term contracts to import gas and to clearly justify all the investments now we need on the network? The second is regarding flexibility. What is your view regarding the government SEMSA approach on LNG. There are new projects that could arrive that are already approved clearly by other players, but in theory, this could be also interesting for you because if I'm not wrong, recently, the Energy Decree also approved clauses for types that should be similar to what you receive for your plant -- for your vessels? The third question. Regarding the EUR 14.5 billion CapEx that you expect in the long run. Could you help us which part is for multi-molecule and green molecule clearly and need grants? In the plan that you just show, you have less than 10% of grants out of EUR 11.5 billion CapEx. When we move towards -- and clearly, not the green molecule, do you need -- do you think that now this investment needed more grants, and if you see a risk regarding the visibility on these investments?

I'll take the first two, and then you take the last. About TAP. TAP, of course, we -- as you know, we got the confirmation of the first, let's say, increase in the volumes by 1.2 bcm per year. And we will go ahead. Of course, the further developments in the capacity and in transportation is related to the development on the upstream industry first, okay? Coming to your question. Why should shippers take longer-term commitment? Of course, what I see -- I mean the perspective of TAP has moved from, let's say, Italian -- or Greece and the Italian perspective toward more European perspective. I mean in 2022-2023, we have seen more than 1 bilateral meetings between Azerbaijan and European Union. And that plays a role because of the export capacity we have. And in the introduction, I mentioned that Italy has EUR 16 billion of export capacity divided via Switzerland or Austria. And we will increase those 16 bcm to 20 bcm to have 10 plus 10. Okay. Of course, TAP has changed the perspective moving from, let's say, final domestic destination to European support for the energy supply, thanks to the reverse flow we can provide. In fact, that cannot be put in connection with TAP. But if we look at the auctions and the capacity sold in the export, we have sold the entire 6.5 bcm for the next 2 years, okay? So that is, I think, the perspective we have to look at. When this will come? Of course, not in the short term because, as I said, it depends on the development on the upstream. So it's more located in the region of 2027-2028 or probably 2030. And that is, I think, the outlook we can have. But coming to your question, the main four is having a different perspective, okay? The second question was about the new possible projects on LNG. Yes, the -- according to the Energy Decree, those possible projects has been recognized as strategic, so they will take benefit of the guaranteed 64% of revenues. This will not influence at all our 2 FSRUs, firstly, because the Piombino vessel has been sold by 90% for the next 20 years. So it's done. And Ravenna will be put on auction this year by the first quarter, as I said, at least as a first auction. I don't see competition between those assets. Of course, to benefit from that capacity, we need to complete the Adriatic Backbone and add up the 10 bcm that the Adriatic Backbone will bring into moving from 45 bcm to 55 bcm on southern corridor.

Regarding the last question on grant, clearly, the increase in investment, there are some grants, but the run rate of grants in the second part of the 10-year plan, let me say, is less than in the first part. Because we are basically envisaging EUR 150 million of grants in the first part, while in the second part, we are not envisaging any grants on the regulated part, while only supporting both CCS development as well as the Hydrogen Backbone H2 south corridor for a total over the plan period of 10 years of less than EUR 2 billion. So the run rate is actually reducing. Clearly, we will see what it comes out for both 2 businesses, CCS and H2 backbone. But it's an assumption, which I think is conservative and can -- actually we can, let me say, pursue several type of grants at European and national level.

It's Chris Moore from Carbon Tracker. I have three questions too, please. A year ago, I think you talked about the structural changes in the Italian gas market with the fall in Russian gas imports. And you saw quite a substantial increase in your carbon and methane emissions. But I think you just talked this morning about a 55% reduction in methane emissions for '23 and some new targets for '27. Can you talk about whether -- is that just simply a higher base you're working from or have you taken some new measures to accelerate methane emissions? Maybe talk a bit about that. My second question is the Ravenna project. Can you give us some idea of the industries or companies which are going to provide your raw material, your CO2 who the industrial clusters are? And my third and final question is, it's really for the CFO. If you can break out the CapEx plan for us between maintenance and growth CapEx?

Okay. The first one about methane emission detection, I have to say, it's not a matter -- it's not a matter of larger base, but because the total volumes we transported is lower than the years before. Of course, we made more long distance. But the major contribution came from new practices, new equipments we have installed, the new solutions we have deployed. The control room we are setting up is providing a strong support in having real-time data from the field and therefore, intervening and reducing. And also some practices. When we make the maintenance works, we are, let's say, capturing the residual gas in the pipes, and not letting it to go into the atmosphere. And that is a clear, let's say, best practice we have applied into -- to improve the, let's say, the percentage of the emissions. That by the way, as you said, we have increased in term of targets to 65% by 2026. And the numbers we have achieved in 2023 are 3 years in advance with respect to the former targets. Last one for you.

Gabriele Giordani, do you want to comment on the companies that we see that can actually deliver CO2 into the project from what is going to be --

No, no. You do it.

Okay. Basically, with regards to the Ravenna project, Chris, we start with a pilot, which actually is a single sourcing in terms of CO2 emission from one of the ENI refinery sites. The developments will come clearly from an upgrading. And we said that Phase 1, now we reached 4 million tonnes starting from 2026 as a feed date. In terms of the sectors that will contribute, that Northern of Italy has basically more than, I would say, 70% of the industrial part of the hard-to-abate industries of the country. So you basically are looking at steel and cement companies in the region. And to that extent, we are actually, as Stefano said, starting a market test in the first quarter of this year to see how much they're willing to contribute into this project. I don't know, Stefano, if you want to --

Yes. I just said -- yes, I got much better your question. First, cement industry is core counterpart to that extent. And we will announce very soon and say in a partnership with Heidelberg to that extent. Just to quote a name, that is, let's say, a news that will be announced in a week or 10 days. And the second is with some of the major -- with one of the major players in waste-to-energy industry. As you know, waste-to-energy assets benefited in the past from free allowances and soon, we'll lose them. The third is petrochemical industry. Along with ENI, that is of course, the largest player in the chemical sector in Italy, we have several others. And the first one that is cooperating and will be part of the first step of development is a fertilizer producer. We -- just to spot you, in the northern part of Italy, we have at least 4 major refinery and petrochemical clusters, one in Ravenna, one in Ferrara, one in Mantua, and the other one is in Venice, just to quote the largest. And you have, as Luca was mentioning, the large cluster of steel producer in the area of Brescia. Those are the major, let's say, target. And we don't have to forget power generation. Of course, according to the European Union, not of course, according to the European Union, power generation should not be part of those industries that benefit from CCS. But as a matter of fact, since we will need those -- some of those assets, I think CCS can be a feasible solution. And to that extent, the Po River hosts a significant part of the thermal generation in the north part of Italy.

And for the last question, i.e., the CapEx breakdown between maintenance and development, you have in the annex, Slide 46, 40% is development and 20% is maintenance. And you also have the breakdown by business per year.

Federico Pezzetti from Intermonte. A couple of questions. I wanted to go back to a general question on gas volumes. I'm wondering, it's a bit of a difficult question, but is there a level of consumption of flows in Italy, a minimum level that would mean that the current infrastructure will be needed -- would still be needed in the future? I know it's difficult also taking into consideration that clearly, hydrogen has got a different density, but I'm just wondering if there is such a level, if you -- what's your thought around that? The second question is going back to TAG. You mentioned that there is interest in reverse flow. I think you plan to increase to around 10 bcm in the future. There's a new regulation upcoming. I'm just wondering what are your expectations and what you have included in your business plan as a trend in the contribution from TAG. And then a final question, a quick one on taxonomy. If I remember, the storage is still excluded from taxonomy. I don't know if there's been any conversation in Europe. And do you think that something could change in the future?

Okay. I mean defining what is the minimum level of gas need to be transported to maintain the infrastructure is not a comprehensive way to, let's say, understand how you need to set up infrastructure. Because there are at least 3 other dimensions you have to bear in mind. The first one, you size the infrastructure not only on total volumes but specifically on peak demand. And the more you have some cyclicality in the demand, the more you need to have the infrastructure that work -- that goes with flexibility concept. The second is the export. What is going to be the role that export will play? Of course, in the projections we are doing, we are, let's say, keeping a range, okay, because it depends on how the, let's say, balancing in Europe will move. And that is the second dimension. The third one is the capillarity. Because you don't have the consumption that are concentrated in a single or 2 points, but you have the different points that need to be reached with the infrastructure. So you need to maintain a certain regional capillarity because you need to serve the different points of consumption all across the country. So that makes a strong capillarity in the high peak demand we have in Italy because of the residential and industrial consumption. That makes the infrastructure more, let's say, round with respect to other situations.

When it comes to TAG, clearly, volumes in terms of imports have reduced dramatically from 14 bcm in 2022 to about less than 3 bcm for 202, basically 3. We are targeting and there is clearly reverse flow bookings, which is healthy at 90%. 80% to 90%, as I said, up until basically 2024-2025. In terms of contribution, we expect still negative contribution for 2024 and then starting a positive contribution from 2025 when the regulator will finally, I would say, issue the new regulations, which will avoid us to be exposed to volumes. But clearly, it's a conservative, let's say, same assumption, and we will define it once the regulation is finalized. On the final questions, yes, storage is excluded from the taxonomy. We are having several discussion not only on storage, on taxonomy because clearly, there has a lot of investment which for us are, we call it, transition or green decarbonized investment. But the -- I would say the interaction are difficult because clearly, these are, I would say, European white policies and to reach the first agreement has been quite difficult. The revision, we will see whether there will be some opening not only on storage but on other matters as well.

If I can add a single additional information to my answer. Thanks to the asset health methodology and the substitution of pipes, we can progressively adapt the infrastructure, okay, deciding on the right sizing of the pipe. If you have to substitute a 42-inches pipe, and you see that the volumes have stabilized on lower level and peak demand requires certain capacity, you can then install 30 bcm -- 28 inches pipe. So reducing implicitly and progressively throughout the, let's say, asset health substitution program.

Davide Candela from Intesa Sanpaolo. I have two question. The first one is on gas balances. Actually, it's a very short-term one. I was wondering if you can comment on which is the risk maybe related to the long shipments related to the Red Sea situation and which could be impact on also prices for the next year. I know that maybe there is no much pressure on the demand side, but the supply could be at risk. So just maybe if you can share your view about that. And the second one is on hydrogen and specifically on hydrogen supply. I'm interested in this part because my feeling is that the need of the power system in terms of need of renewables and the flexibility might cannibalize the supply of renewable generation for the production of green hydrogen. So I was just wondering if you can share your view about that, and in the context, of course, where the gas molecules and the electrons should collaborate for the transition.

Okay. About the first question, I mean I think in the short-term, the Suez situation is not impacting significantly. I mean the news that came out about the missing, let's say, arrival of one vessel from Qatar is not a sign of criticality. QatarEnergy has plenty of capacity on vessel for transportation of LNG in the short term. So they can cope with the longer journey they have to take through South Africa. So with respect to the Italian situation, European situation, I don't see major implication in the short term because of that. Of course, we have to see in the long run, but in the short term, I don't see. In fact, the price is, also thanks to the level of storages we have in Europe, are not reflecting any, let's say, expectation of shortage. In terms of what could be the development in 2024-2025, of course, here comes back my point on flexibility. We don't have much flexibility in the new worldwide system in the LNG. The additional capacity of LNG that will come on stream -- expected capacity that will come on stream in 2024 is about 20 bcm, 2-0. That is very low. If you consider that the Asian consumptions grew by 25 bcm only in 2023, 20 bcm of additional capacity is pretty short. So if demand will stay at current levels, okay, I see a certain tightness to that extent. Of course, mainly, it will depend on how the demand in Asia will go. European demand because of the weather. I mean there are several aspects, but the point is the system has not much flexibility. And we need to recreate this flexibility through new infrastructure, okay? Otherwise, we have to implicitly consider volatility on prices as a component of our life for the next 2, 3 years. And I think that's a point. Second question, I think, need to be split in two parts. Of course, if you look at the Italian situation, the main use for the additional renewable capacity will go first for electricity consumption. But the more you install capacity, the higher is the percentage of possible curtailment. Therefore, hydrogen can be a solution to store on long-term that electricity that might be cut off otherwise because you don't have the full infrastructure to ship all this electricity from south to north. Of course, I'm starting from the, let's say, the point that the largest part of the renewable capacity will be installed in the south, okay, where you don't have the largest part of consumption of electricity. So you need to ship the electricity from south to north, okay? And the more you have the same quality of renewable solar that makes the central part of the day more and more critical, okay? And the way of storing on long term, of course, short-term is batteries, but long term means days, weeks, months is converting into molecules that, by the way, are the cheapest to be shipped on long term -- on long distance. That is exactly the point when you look at North Africa -- in the North Africa. Since you have to ship this green source of energy on long distance, it's much more convenient in terms of cost to convert it in molecules. So you don't have a clear direct competition when you look at North Africa. You might have -- but I wouldn't say competition because by definition, it's cheaper to deliver the renewable energy, but the green gases can be a vehicle for long distance or first, a mean for storing that capacity that otherwise would be curtailed. Is that clear? Okay. I think we got yours.

So we do not have any other questions here. So I kindly ask to open the line for --

I'll stand up since I'm back. Gonzalo Sanchez-Bordona from UBS. I have actually three questions and one clarification on the last point you made, which I thought was quite interesting on, you used to presentings in previous strategic plans, your view on cost of long-distance transportation with hydrogen compared to other sources. What -- I mean you just said that you think this -- the hydrogen transportation is the cheapest source. So I was wondering if you have some data on comparing that kind of transportation compared to, I guess, transporting electricity, and particularly, thinking about North Africa to Northern Europe, which might be quite interesting on your side. And then three quick questions. On your investments, I mean the investments up to 2027 I think are quite clear. I'm thinking more beyond 2027, in particular, referring to the part up to 2032. First question here would be on -- you have actually a decrease of CapEx in 2027 compared to 2026, but then ramping up on an average of EUR 3 billion. So I think if I got the number correct, it's EUR 1.7 billion, '27, and then up to EUR 3 billion. So I was wondering if you could provide some granularity on how you expect this ramp-up to happen and in which specific parts of the business are you expecting the big step-up, which I guess it would be quite large? Second question on this point is, I think probably we are in still early stages, but I'm assuming that most of the hydrogen investments will be regulated, most of this carbon storage and others on biomethane and other technologies will not. But I would like to get your views on how do you see not in the next 5 years, but maybe longer term the business evolving? Whether you think it will be more based on contracted volumes over the long term or whether you think it will be regulated in the same way as gas assets are. And then the last one, it's on the equity stakes. I think it's quite clear what you think is non-strategic and could be disposed but I'm thinking more of whether you could actually buy some more stakes or increase your position in some of the stakes that you may consider strategic in the medium, long-term.

Okay. Let's start with the first you made. I mean we have made an estimate on the transportation cost for -- through the south H2 corridor because, of course, we have a much more clear investment plan needed for it. Of course, it's an estimate thing based on the, let's say, preliminary engineering we have developed. And the cost is in the region of EUR 0.4, EUR 0.6 per kilo. That is the cost we have estimated. And that is clearly, let's say, much cheaper than the electricity. But the point in the electricity is also to ship it on a very long distance like 2,000 kilometers. You need to convert it into direct currency. You can't transport it on alternative currency. And therefore, you need to convert it in direct and then reconvert it in alternative currency. That makes a 2,000 kilometers, of course, not a feasible one. I mean historically, if you take even the gas, I mean the main decision has always been taken beyond 500, 600 kilometers. It's much more convenient to convert into molecules because of the losses, because of the technical aspects that makes -- and because of the storage, you implicitly can have on like piping when you have pipes rather than electric networks that don't have storages in itself. So these are these aspects. It's, of course, a matter of cost, but it's also a matter of management that makes things easier. I'll go to the second question. What -- I mean the tariff model was the second question, right? I think we had a clear framework on the new Germany plan. They went for Stem tariff, third-party access, Stem tariff with a modularized accounting for depreciation, not to, let's say, implicitly penalize the first part of the period when you have lower volumes. So I think according to the conversations I had with some other colleagues from other countries, this is considered a well-balanced tariff mechanism, of course, including the part related to the funding that is needed for supporting these investments in the first part of the period.

While for CapEx, why did they go down? In the last year of the plan, and clearly, all the security and supply CapEx is coming to an end in that period. So the ramp-up following is given by the fact that in terms of only of dual-fuel compressor station, we moved from 4 to 19 over the plan. So that's a large increase or ramp-up in investment. And clearly, there is the H2 backbone, which we envisage to start from 2028 in terms of CapEx spending. Those are the 2 delta that bring us to have an average CapEx spending of EUR 3 billion on a yearly basis. Then on the last question, so in terms of equity stakes, we remain, I would say, vigilant in what is happening across Europe around potential disposal of regulated businesses. But clearly, we are already placed in, I would say, the most relevant corridors. So we will see whether there -- some opportunities might come up. As I said, we clearly have the financial flexibility to pursue acquisition if clearly, that brings value to our business. The average financial flexibility over the first 5 year of the plan is north of EUR 2 billion and this is calculated taking into account a lower percentage of 70% in terms of basically net debt to RAB plus associates. The limit is 75%. And beyond the plan, I mean beyond 2027, up until 3032 (sic) [ 2032 ], we are hovering in excess of EUR 2.5 billion of financial flexibility to that limit. So clearly, we have the possibility if we want to pursue inorganic growth.

Okay. So I would now open the line for the questions from home, please.

[Operator Instructions] Our first question is coming from Meike Becker of HSBC.

Congratulations on a very detailed presentation, which always gives us great insight. Can I sort of like, I have one question but have it in three sort of like sub-questions? Really trying to understand the probability of the H2 backbone investment moving forward. Because I think that's sort of like the big question in the room that sort of like makes or breaks sort of like the long-term vision or plan. So the 3 sub-questions would be the following under that umbrella. So in your -- in the second part of the 10-year plan, can you give us some sensitivity around this H2 backbone investment, if your best-case scenario happens? It's like how many more investments should we expect or if it's sort of like the worst case and it doesn't happen, where do we land? Just a little bit of a feeling I think you already mentioned you're a bit conservative. But if you can give any more information around that, that would be really helpful. #2 is on the timing and visibility of moving forward. I think when we were on the call for the 9-month results, and that was not only you, also your peers, there was a sense that everything related to hydrogen was delayed. There was a lot of positive will and movement, but sort of like in the actual execution, there was a sense that things were delayed. What can you -- what are the important milestones in this project where, say, when this has happened, there is such a high visibility that it's going forward? So is there any sort of like time line or sort of like important points, it would be very helpful. And the last one is understanding a little bit the political will and maybe coming back to the question of the -- on Suez situation. I mean clearly, a geopolitical risk with Russia's invasion of Ukraine has brought us where we are today. And it has catalyzed, I would say, European ambition to clearly move away from that source. Do you already hear or perceive in sort of like political discussions or any discussions, a similar dynamic that could arise from the Suez situation? Because, again, we have a political risk situation that might or might not have long-term impact on the European energy security, i.e., with the LNG deliveries through the Suez Canal which we could take to mean that liquid production or pipelines to North Africa, anything that doesn't use those roads is becoming more attractive. So I was wondering whether there is already sort of like first views emerging in that direction.