Solaria Energía y Medio Ambiente, S.A. (SLR) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Solaria 2025 Full Year Results Webcast. My name is David Guengant, the Head of IR of Solaria. I am joined today by Arturo Diaz-Tejeiro Larranaga, our Chief Executive Officer. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. During this presentation, we'll begin with an overview of the results and the main development during the period given by our CEO, Arturo. Following this, we'll move quickly to the Q&A session. I will also like to highlight that you have to submit all your questions via the web. So thank you very much again. I will now hand over the word to Arturo.

Thank you, David, and thank you to everyone joining this conference call. And we'll start. As always, I will move fast around the presentation, and we will pass to the Q&A session. But first point, in order to give guidelines about the 2025 annual report of Solaria, we were completely focused on delivery. If you remember in our CMD, we explained to the market that we are going to move our generation company to a infrastructure platform company and that we will be extremely focused on data center services, that we will expand our activities out of Spain to other countries like Italy, Portugal, Germany, United Kingdom, and that we will entry aggressively in batteries business. And today, we are showing in our presentation that we are accomplishing with our business plan with all that we have explained during the CMD of -- in November in London and that we are completely focused on the delivering. First, results from a results point of view. Obviously, we have accomplished with our guideline. If you remember, our guideline was EUR 250 million of EBITDA, and we have achieved EUR 266 million. It's a great result, a great financial result and better than our initial guideline that we gave to the market more than 1 year ago. And we continue with our installation griding. As we promised, we have achieved 3 gigawatts of installation constructed. We have finished Garona planned during February, and we have connected all the assets, all the other assets during the last quarter of Q4. And today, Solaria is a global platform with 3 gigawatt constructed and connected to the grid. And probably we are the largest platforms from a solar perspective in Europe. At the same time, we explained during our presentation in November that we will be extremely focused on batteries. Today, we can announce that we have a battery functioning, battery completely installed and connected to the grid. And hopefully, during the next month, during the next quarter, especially, we are going to add massively volume of batteries that we will -- give to us enormous flexibility. You know that today, battery business is a really promising business that requires especially to move the first and to move fast, and we are going to do. We will be probably the first global platform in Europe with batteries functioning, massive volume of batteries functioning. And obviously, it's a great advantage with the actual situation of prices in Spain and globally in Europe, but especially in Spain. We talk a lot about data center. We talk a lot during November presentation about our contract with Merlin Properties, our first deal in data center world. And as you remember, we signed a deal based on the supply of infrastructure of grid connection point for a data center and electrical infrastructure. And we had, at the same time, a PPA, a solar PPA for the -- for 15 years. It's great to announce today that we have signed again other deal with Merlin Properties with 3 different parts. First is, we supply electrical infrastructure and connection point, 213 megawatts that will be used by Merlin properties. We signed the first hybrid PPA with a data center player probably in Europe and [indiscernible] in Spain, 426 megawatts of solar PPA additionally. And this is extremely important because we -- you know that price of electricity today are shaking all the time. And with these signature, with these 2 deals, with these 2 PPA that we have signed, we give long-term and high level of visibility to our cash flow, 2 different PPA deals, 1 solar PPA, 426 megawatts, 40 years of lifetime of the PPA. This is extremely important, extremely high level of visibility of our cash flows for the next 40 years. This is extremely important. At the same time, second deal, PPA, hybrid PPA that we will use batteries of 600 megawatts hour, 10 years of lifetime. And I think that we are giving long-term visibility to the market about our future generation business. If [ we ] want, we could enter in details. Capacity installed today, more than 3 gigawatts. It's a great successful because as I have explained, we are probably the largest platform in Europe for solar. And remember that we are going to add additionally wind and more batteries during the next years. It's like probably we will be the global platform -- leader platform in renewables in Europe from solar, wind perspective. And our growth during 2025 was impressive after several years with strong delays, I think that only in 1 year, we have construct more than 1.5 gigawatts. Of course, we had delays in the past. But today, we are announcing an enormous growth and an enormous successful of our Construction division. Of course, 2026, we will continue with our construction rhythm. We, as you know, we have add additional assets that we have today under construction. And in the short term, during this year, we are going to add more than 1 gigawatt of additional solar capacity with PPAs, linked directly with long-term PPAs. It's like, we are going to construct new assets, but always with a high level of visibility of our future cash flows with strong PPAs. Of course, numbers on production, we have increased all the numbers during 2025, net sales, profits, net profits, EBITDA, impressive growth. Cash flow, even with all the enormous investments that we have done during 2025, not only in solar, invest without project finance sometimes. We maintain the same level of cash, even we have increased. And at the same time, we maintain really good ratio debt EBITDA. Remember that all of our debt, practically not all, but 90% is project finance [ structure ], and long-term debt with fixed interest rate. 3 pillars of value creation. And we explained deeply during the November CMD, but technology diversification, we install our batteries and diversification of customers, oil and utilities companies following traditional PPAs, and now new customers like Merlin with data center PPAs. And we add -- and this is extremely important batteries, that is something that is going to change completely the game, especially during 2026 and 2027 because I think that we see enormous opportunities to get money and to get cash associated with instability in price of electricity in Spain. And as I have explained, we have the batteries. We have the capacity. We will construct and we are going to add this these batteries during the first half of this year, and we will use during 2026, 2027. Country diversification. We're continue on -- our expansion, especially in Italy that I think that we will give really good news in the next quarter associated with our expansion in Italy. You know that Italy today, from a price point of view is one of the best markets in Europe. And we are betting strongly for this country. And I think that Solaria probably will be one of the leading platforms in Italy in the next years. And Portugal, you know that we have strong developments in Portugal, and we continue, hopefully, during this first half, we will announce a PPA associated with our global assets in Portugal, and we will start with the construction. And of course, PPA signed, first hybrid PPA signed. Now this is extremely important because you know that today, batteries is something that is in the market, all the people is talking about batteries, batteries and global investment that will go to batteries business will be normal in the next year, but nobody has signed serious PPA based on batteries. This is the first serious PPA deal probably in Europe based on batteries, and 10 years, 600 megawatts hour. We will reside project finance associated with this PPA. And surely, we will announce our global deal of project finance associated with both PPAs, and this is extremely important for Solaria. We are executing. We are installing batteries and at the same time, probably we will be the first that will announce project finance associated with batteries. Of course, today, the volume that we have under negotiation is enormous, not only based on data center, based on batteries business, at the same time. We have a lot of players that are negotiating today with us, data center locations, PPA deals and batteries or hybrid PPA deals based on batteries, utilities, technology companies from United States, from Europe. It's incredible, the attraction that we are raising around this business, data center and batteries. I think in the short term, we will talk a lot about this. And this is an estimation. We are talking about probably 1 gigawatt hour that we could sign. But you will see the delivery in the next month. PPA, we are probably the European champion in PPA because globally, we have an enormous amount of PPA signed with Tier 1 on players globally, all the Tier 1 players signed PPA deals with us today, more than 2.5 gigawatts under PPA concept. And I'm going to say that the average price of all of our PPAs is around EUR 50 per megawatt hour. That is, in our view, really good. The price, conditions, lifetime of our PPA and quality of our customers, we are extremely proud about the quality of our customers and they trust a lot in Solaria. They repeat contracts. They want to work more with us, and we are extremely satisfied about this. We are extremely proud about this. The second data center agreement. This is extremely important for us because our growth in this division is impressive. In only a few months, we have changed completely the face of company. We start to talk about data center long time ago. Let me say a long time is 1 year, 1 year ago. And in only 1 year, we have demonstrated that we are able to raise connection points that we are able to construct infrastructure for third parties. And at the same time, we are able to sign really good contracts and to supply services to our customers. Really satisfied with our collaboration with Merlin Property, that is a Tier 1 company in data center business, and we will be with them and we will support them. And I think that we are really proud about this global deal. In order to give details, it's 230 megawatts of supply of grid access and infrastructure and power. And the 2 PPA deals that I have explained, and really good collaboration with this customer that hopefully will continue in the future with additional deals. Of course, we have signed 2 deals and what could happen in the future. I can say that the future is great and we are negotiating today several large deals with final customers, with some technology companies. And hopefully, in the short term, we could announce third deal. Our view about these kind of customers is that they are enormous players that are executing massive investments, especially in Spain. As you know, an important part of our platform is based in Spain. They are going to execute massive investments, and they need all kind of services. What does it mean? Our intention is to supply services to these guys and to make with them new business units that could give mutual profits that could extend our collaboration. And hopefully, as I have explained, we will announce shortly a third deal, other deal with other customer, final customer. And hopefully, we will give visibility to new business units associated with data center business world and artificial intelligence players and others. Our intention is to transform Solaria in a global infrastructure platform. Of course, estimations. We have estimated that probably EUR 0.7 billion of revenues will come from DC services. Honestly, it's a conservative estimation in my view. But the important point is -- important percentage of this number is fully covered with the actual contracts. New contracts will give more visibility. But I think that this an estimation quarterly, our intention is to improve this number. Of course, it's crazy the cash flow that is going to generate this business globally and PPA is other part of this business. At the end of the day, these guys -- this final customer is going to use enormous amount of electricity. They will need enormous amount of electricity. And obviously, Solaria is a supplier of electricity. It's the perfect combination. Cheap price for them because, as we know, the self-consumption concept that we explained in November in other presentation, it's extremely useful for them because they are going to save a lot of money with this concept, probably close to 30% of the total bill. And at the same time, we obtained important advantage for this concept. And of course, 40 years, standard contract with data center will be 40 years and it's going to generate a normal visibility of our cash flow in the long term, 40 years, I think, it's long term. Capital-light growth. And I think that we explained during the November Investor Day, we are focusing partnership and growing with partners in different activities, real estate activity with an area that, hopefully, during this year, will give good news.Gravyx, that is the European best platform with the Stoneshield, that will enter strongly in the market during 2026 with a strong growth, growth, growth, growth. We are extremely exciting with this new partnership because we think that it's the correct moment to entry aggressively in the best business, especially in Italy and Spain, but globally in Europe. And this platform is a great [ vehicle ] for entering in this business as soon as possible, fast and with a strong flexibility. And the new one, Solaria data center. And it's not a secret that we are negotiating with several players that wants to entry in our global data center platform. And we have received several proposals, a strong interest from the market. We are studying, we are studying different options with some of the players, global agreements and asset agreements. And I think, as I have explained in the short term, in the next quarter, Solaria DC is going to give great news to our shareholders. We continue with the asset rotation that we have planned in November. We have received several proposals with really good price because we have high visibility of our long-term cash flows and will be executed during 2026. European expansion, I don't want to expand more. Germany, Italy, Portugal, focused especially in Italy from a profit point of view, I think that is a great country, extremely difficult to entry, but the good point is that we have done, and we have a really good pipeline, it's timing for the [ explosion ] of Italy. And we will be extremely focused on Italy. Germany is a long-term market. It's extremely serious, and we will be there. And Portugal, I have explained in other conference calls, we have a good volume of megawatts. Our target is to sign a global PPA deal with a player and to start with the construction our volume of megawatts. Of course, we are changing our business model. And we will arrange for -- during this year a new Investor Day and with strong surprises, I think, new business units and news that will change even again, the face of Solaria. But we are moving our strategy, from a renewable energy platform that is good, extremely efficient from a CapEx perspective and OpEx to a strategic energy infrastructure player, and a global infrastructure player that could supply several services at the same time to final customers. Extremely important in this new time of the company, we are trying to give a strong long-term visibility to our cash flows. And I can say that it's an innovation, the PPA for 40 years because we want to give stability and long-term view to all of our cash flows. We have the capacity, we have the pipeline, we have growth, we have the capacity and it's timing for delivery. Highest visibility on 2026 EBITDA, I think that in the first Q results, you will see that. We are not worried about -- obviously, we are worried, but I think that will have strong visibility of our EBITDA target for 2026. In the first Q results, you will see that probably our intention during this year is to [ solar ]. I'm not sure it's the correct word, but to [ solar ], correctly the EBITDA target for 2026. It's important to mention, at the same time, it's something that we explained in June. We have the approval of our Board for the acquisition of the 10% of shares of the company. You know that we announced on June of 2025, we have executed an important part during 2025. Today, our position is close to 4%, probably will be announced in the next days. 4%, and our intention is to achieve 10% of the shares during 2026. It's like we have to acquire an important amount of share during the next month. Of course, -- if you want, I think it's interesting to go to the Q&A session.

So thank you, Arturo. I will now open for Q&A session. And once again, thank you for your time.

So the first question comes from Fernando Garcia from RBC. First question from Fernando is that is the EUR 7 billion of cash inflow in DC is the same than EUR 665 million of DC services revenue in 2030. Yes. Are all these revenue already secured? Can we provide some detail? And did we receive any amount already from Merlin from the first deal? And last question from Fernando is giving the power price falling on CO2 prices. What is the future strategy of Solaria for the existing operating portfolio?

David has answered the first question, yes. secured, I can say approximately 50% is secured. And details, no, I'm not going to give too much detail, I'm sorry. In the -- probably in the Investor Day, we will give global details of our data center business with all the business units, not today, as you know the reason. And CO2 prices and the situation. Today, we have a lot of PPAs that is not going to expire in the short term. I think that even short term, the PPA, the first PPA that should expire in 6, 7 years or something like this, not in the short term. And batteries, as I have explained, we are installing and connecting batteries today, next month and during the first half and second half of the year, we have acquired massively amount -- a massive amount of batteries. And during 2026 probably, we will be extremely focused on the installation and connection of batteries, more even than in the development and construction of [ photovoltaictual ] assets or wind assets. In our view, battery business depend on timing. If you enter in the battery business in 2 years or 3 years, it depends, we will see the evolution of prices. But in the short term, I'm completely sure it's a great, great business. Short term is 2026, 2027. And short term, it's critical and Solaria would be there.

Next question are coming from Flora from Caixa Bank. Can we explain how we will register the DC unit in our accounts? How does the 40 years EPA work? It's fixed for 15 years, and then we have to renegotiate? And can we make also some comment on progress on our negotiation on DC platform and asset rotation.

DC business is infra business for us. DC unit business is infra business for us. How does the 40 years PPA work, it's standard solar PPA, pay as produce and 40 years. It's fixed for 15 years, Yes. You are going to renegotiate, not exactly, but I'm not going to give more details. But it's something standard, not renegotiation process. Negotiations to our partner indices. I have explained. Today, we have received several proposals of companies, technology companies and groups that wants to enter in the Solaria platform. We are starting and working with them and seeing options and different options. They want to enter like, some of them like financial investors, others like financial and final customer investor, and we are talking with all of them. Asset rotation, we have several proposals, and we are working with them, and we are working on due diligence process.

Next question is coming from Manuel Palomo from BNP Paribas. Can we please clarify the split of the sales figure in our number, energy sales and infra sales? Manuel is in the Slide 5, I think we split no sales. Sales is EUR 197 million and of which EUR 123 million is energy, and Infrastructure Services is EUR 74 million. The rest of the income are coming from other income and from GENERIA deal. Next question is coming from Fernando Garcia. Can we please provide some detail about capacity at the end of the year and today.

2.4 was the capacity connected to the grid at the end of December 2025. And we at Garona during the second of this year, February. And we finish -- and we finished all the process during February -- January, February.

Next question coming from Gonzalo Sanchez-Bordona from UBS. First 1 is, are the EUR 42 million infra revenue from 2025, a good base to estimate revenue going forward? I will answer. We already give some number in the CMD. And as we mentioned, we have a huge visibility on next year infra revenue. And in 2025, we received EUR 74 million, 2024 EUR 42 million. And in 2025 EUR 74 million and growing for the coming years. And next question is, can you please -- can we please clarify if the PPA with Merlin announced is part of the deal, announced a CMD or a new one? Can we give some data regarding the 213-megawatt data center and any price indication for this PPA?

It's a new one, even it's in a completely different location because you know that the first 1 was for Burgos, North of Spain, and this 1 is Madrid. It's a new one in a completely different location, and large deals. The indication of PPA price, no. I have, as you know, confidential agreement with our customer, and prefer we to keep confidential all the numbers. And as I have explained, they are going to save a lot of money for the self-consumption concept. And we will share with them a part of this profit, but the number is confidential.

from Gonzalo, also a question regarding the hybrid. The BESS PPA. We can give some indication regarding the price of the 600-megawatt hour of BESS?

I think that you want talk with my customer and they could [indiscernible]. In our case, we prefer to keep confidential the information of our customers. I have talked about -- I have given a number, the global average price of our PPAs is EUR 50.

Next question are coming from Daniel Rodriguez from Bestinver, Manuel Palomo from BNP. More or less the same question. Total capacity is up by more than 40%, while output is down 4%. How we can explain this situation?

Obviously, it's associated with curtailments, I think that curtailment effect globally all the business, not only Solaria, all the solar business. Good point, and I think it's a great opportunity. At the same time, this curtailment in the secondary market because you are going to obtain better prices in the secondary market and with the adjustment of the market, you know the meaning of this word. And at the same, it's a great opportunity for batteries during 2026, 2027, as I have explained.

Next question are coming from a few analysts regarding, if we can elaborate some impact of GENERIA transaction in 2025? And if we can also give some terms in megawatt in millions of euros per megawatt for the DC connection solution, what is the valuation of what we are... So the first, finally, we have registered GENERIA at EUR 96 million versus EUR 125 million. We have been very conservative regarding this GENERIA transaction. So GENERIA impact is less than expected in this 2025 results. And the second question regarding the DC valuation. Unfortunately, as far of today, we cannot give you a lot of detail regarding this valuation per megawatt. But I'm sure that as far as we sign with more customers, with new customers, we're more than pleased to give you some assumption of prices. In any case, in the presentation, you have some assumption of prices per megawatt. Next question is regarding the -- is from Arthur Sitbon from Morgan Stanley. When do we expect the first cash contribution from the 2 grid connection, Merlin deals?

My view as soon as possible because we are going to work together with the customer in the construction, in all the different steps of the process and as soon as possible. And -- but as I have explained, I think that Merlin will give more details. And in our view, our intention is to move fast and to try to start globally with all the deals as soon as possible.

Next question is coming from Alessandro Di Vito from Mediobanca. Can we provide our view on the ongoing discussion in Europe to lower power prices? Second question is what is the merchant exposure of Solaria today? And last question is when should we expect a business plan update?

The price of electricity depends on the country. And in Italy, it's extremely high. In Spain, it's extremely low and it depends on the hour of the day and the country in Europe. It's completely different situation per country and per hour of day. And I think that today, in Europe, we are in discussions with different countries, different situation. It's not easy to establish a framework agreement or a law for the same law for all the countries. I know that Italy is trying to solve the extremely dangerous situation of power prices. But for example, in Spain, it's not the same situation. In my view, with renewables, you will see a reduction on price of electricity. Renewables are going to reduce the price of electricity. Spain is a really good example. Merchant exposure in Solaria, of course. As you know, we always have said to the market, 70-30 was our perfect mix, but it depends [ of ] our data center division because we continue to be successful and we sign more deals. We will extend our percentage with fixed price for the long term with PPAs because we signed additional data center deals, they consume a normal volume of our electricity. And obviously, something that will affect our merchant part.

Next question is coming from Temi Sulaiman from Barclays. Thank you for the presentation. Please, can you clarify the 40 years PPA? Would you be reinvested in a new solar asset after the initial 30 years useful life?

It's not our intention. 40 years sounds a lot for us, but for solar technology, it's not significant. I know that probably, if you are not an expert, sounds a lot 40 years. But I can promise to you that 40 years in solar is not significant from efficiency, functioning, operating. For example, I could give to you an example, the asset rotation that we are executing is based on assets connected to the grid on [ 2007 ]. Today, people insurance company and all the people are working on it, and they are giving offers to us based on the next 30 years with assets, with 20 years of lifetime. It's like 50 years of life time, and we are not changing equipment, we are not removing. We -- obviously, we invest CapEx and we invest in the operating CapEx, but not significant.

Next question is coming from Jorge Alonso from Bernstein. Can we explain how the EBITDA is accounting on DC power line, on DC switch? Second question is, will Solaria put best to cover the energy of the megawatts deployed in 2025 to cover 30%, 40%? And final question is when the new PPA will start?

Of course, EBITDA is accounted with a schedule with our customers. And typically, they are responsible of the construction of the data center, and we are responsible of the line that will connect with the data center. Obviously, our responsibility finished with the line that connect with the data center, typically. If we are able to construct this line, the contract will be fully executed. And -- but it depends on the contract. And BESS, as I have explained, we typically have around 30% to 35% of merchants, obviously, BESS is based on merchant because PPA we can use with our solar PPA BESS. But for the merchant part, we cover with batteries. PPA, some of the PPAs are functioning now and others are going to enter in 2027, 2028, 2029. And hopefully, new deals that we are going to announce will be for 2027, especially, but we -- our philosophy is to sign PPAs based on short term because we usually don't sign PPA deals based on price in the future. We have visibility of price of electricity in the short term, and we usually sign PPA with high level of visibility of our construction, of our installation and for the medium, short term, medium, short term is 1, 2 years.

We'll maybe take only the last question from [ Alvaro Lenze ] from Alantra. Can we please provide the valuation range for DC connection solution or at least have a sensibility or reference if Madrid location is more expensive than other location or than the first deal signed location?

I don't think so. I think that it depends on volume. If you have a normal volume in area with good connection and with good conditions, the price could be better than Madrid location. It depends on volume and conditions of the area not -- obviously, Madrid is great, Barcelona is great, Milan is great. But probably it's more difficult to find 500 megawatts altogether in same connection point in Madrid or in Barcelona. And obviously, the price of land and others. The good point, we have all. We have connection points in Madrid. We have connection points out of Madrid. We have connection points in Milan. We have connection points in all the places. We are working now on the land issue. And I think that we have a global proposals to our customers. And they are showing interest in different locations, not only Madrid globally. And valuation range, it changed a lot, and I think that you have a lot of numbers on data and you know [indiscernible]. About -- in order to finish, thank you very much. As we have explained, I think that during 2026 in the medium term, we are going to arrange an Investor Day, and we will talk about new business units linked with the data center business and infrastructure business. And I think that it will be exciting. It's an exciting time and a growth time for Solaria. We are going to develop our platform, European platform based on the infrastructure and digital services. And we are betting strongly for the IA -- AI, sorry, business and with global customers, focus on it and it's exciting time for Solaria, exciting times for Solaria. Thank you very much for being part of this conference call and our Investor Relations team will be available for all additional information that you will require. Thank you, and have a great afternoon.