Terna S.p.A. (TRN) Earnings Call Transcript & Summary

Good afternoon, everybody, and welcome to Terna's Full Year 2022 Results Presentation. As usual, before starting to analyze the features, I would like to share with you the latest main achievements. Regarding regulated activities in 2022, then obtain the approval by the Italian Ministry of Environment and Energy Security and regional consoles for 29 projects for a total value of more than EUR 2.5 billion of investments. All payment that developing the Italian electricity grid, confirming our key role as energy transition enabler. With this turn a set new records after exceeding the EUR 1 billion in approved investments in 2021 for the first time in history. In this regard, let me remind you that the company's sustainable investments to create value for the country, with the positive effects on gross domestic product and also create jobs they have to make Italy become even more crucial within the European system and the immediate running hub for electricity. In this regard, at the beginning of 2023, the Ministry of Environment and Energy Security also launched the authorization procedure for Tyrrhenian Link, in which Terna will invest over EUR 1 billion. The project will connect the Italian regions of Abruzzo and Marche and will directly or indirectly involved about 120 external partners. Regarding sustainability achievements, Terna is once again confirmed that global sustainability. The company is among the top 1% in assessing ability share book 2023, the leading industry publication for Standard & Poor Global that evaluated ESG performances. The [share awarded] makes terma, the [ Igus ] scoring company out of the 250 electric utilities analyzed around the world. This international recognition consolidates Terna's role as direct and enabler of the energy transition towards an increasingly sustainable, safe and resilient electricity grid. Terna's leadership in sustainability is also underlined by the company's inclusion in several main index as the Bloomberg Gender Equality Index, Euronext video here, FTSE4Good stocks, Global ESG leaders regarding shareholders' remuneration. Today's Board of Directors approved and will to the Annual General Meeting, the 2022 final dividend of EUR 20.83 per share to be paid in June up by 80% compared to the previous year, in line with the communicated dividend policy. The 2022 interim dividend of EUR 10.61 per share was already paid last November. So the total dividend for 2022 is EUR 31.44 per share. Finally, regarding international activities LatAm, the consolidation process is going on as planned. Confirming the company's broader strategy to refocus its international activities, as already announced in updated industrial plan. After the brief introduction, let me give you the usual overview of the Italian electricity market. Turning to the next Slide #5. As you can see from this chart, in 2022, National demand was about 317 terawatt hours, recording a decrease of 1% versus last year when National demand was about 320 terawatt hours. This modest drop in the electricity demand was mainly the result of milder weather conditions recorded in the autumn and winter months and the measures to contain electricity consumption adopted by families and businesses. In 2022, renewable sources covered at about 1/3 of national demand that means the 31.1%. Regarding the national net total production, this stood at 276 terawatt hours, 1.3% lower than 2021. Despite that, let me highlight the remarkable increase of the photovoltaic production, which grew by 11.8% versus last year. Moreover, let me also say that in 2022, renewable sources covered about 56% of the national net total production. Now let's move to the main figures of the period at Page #6. In 2022, group revenues and EBITDA were up by 14% and 11%, respectively, versus last year which means EUR 360 million and EUR 204 million higher than the same period of 2021, while group net income was EUR 857 million with a relevant increase of 9% versus last year. Group CapEx stood at about EUR 1.8 billion, an increase of 16% versus last year, confirming once again the robust CapEx acceleration in line with the Terna's institutional role for the country. Despite this CapEx acceleration at the end of December 2022, net debt was EUR 8.6 billion versus about EUR 10 billion at 2021 year-end. As you can see from the chart, all the many features of the period meet and exceeded the provided updated guidance of the year. Let me also remind you that thanks to the initiatives had further increase benefits for the system and efficiency. 2022 EBITDA and EPS guidance had already increased back in November during the 2022, 9 months results presentation. Now let me just spend a few words regarding the main results registered in these last 3 years, returning to the next Slide #7. The growth path that you can observe in the last 3 years is briefly presented in this chart in details 2022 revenues, EBITDA and EPS grew up by 19%, 14% and 9%, respectively, despite regulatory WACC reduction while group CapEx registered an increase of about 30%, all compared to 2020 year [end] level. As you can appreciate, despite the challenging scenario in which we operated, we were able to see can increase the investments to serve the system needs and to enable the energy transition while generating value for all our stakeholders. Now I leave the floor to the CFO, Agostino Scornajenchi, for a deeper analysis of the 2022 figures next to the next Slide #8.

Thank you, Stefano. Let's start with revenues analysis. Total revenues in 2022 increased by 13.8%, reaching EUR 2,964 million, up by EUR 360 million versus last year. As you can see, we registered positive results both from regulated and nonregulated activities, which contributed for EUR 289 million and EUR 71 million, respectively. For the details of the revenues evolution, let's move to Slide #10. Regulated revenues reached EUR 2,542 million, EUR 289 million better than last year, which means about 13% more than 2021. The increase was mainly due to the higher output-based incentive effects related to the higher benefits generated for the system. Nonregulated and international revenues reached EUR 422 million, 20.2% higher than last year. Nonregulated growth was mainly attributable to the increase in revenues of the energy solution mostly related to LT Group acquired in October 21 to the greater contribution coming from Tamini and Brugg. International revenues were set about 0 in accordance with IFRS 5 accounting standard refer to asset held for sale. Now let's go through operating cost analysis, and I'm now at Page 11. Total operating costs stood at EUR 905 million, 20.7% higher than last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competencies and increased level of activity while non-regulated activities have been impacted mostly by higher raw material purchases related to Brugg and Tamini and by the LT group contribution. Let me now analyze EBITDA, moving to Slide #12. Considering the previously mentioned effects, 2022 group EBITDA reached EUR 2,059 million, 11% higher than last year. This increase was mainly attributable to regulated activities, which contributed for about $206 million, showing an EBITDA of EUR 2,007 million in 2022. Let's now have a look to the lower part of the profit and losses, turning to the next slide, Page 13. Depreciation and amortization amounted to EUR 726 million. The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached EUR 1,334 million, 11.1% higher versus 2021. We reported net financial expenses at EUR 100 million. The increase versus last year was mainly due to the rise of inflation registered in the period. Taxes stood at EURO 355 million, EUR 37 million higher versus last year, essentially due to increased profits. Tax rate stood at 28.8%. As a result, group net income reached EUR 857 million about 9% higher versus the same period of last year. Moving to CapEx analysis. In 2022, total CapEx amounted to EUR 1,757 million about 16% higher than last year and confirming the double-digit acceleration highlighted at the beginning of the presentation. Indeed, we invested about EUR 1,668 million in regulated activities. Among the main projects of the period, it is worth mentioning the Tyrrhenian Link, the Paternò-Pantano-Priolo in Eastern Sicily and investments in stabilization devices such as such as Statcom synchronous compensator for grid security. For what concerns CapEx categories, development CapEx represent 41% of total regulated CapEx. Defend CapEx stood at 16%, while asset renewal and efficiency was 43%. Nonregulated and other CapEx stood at EUR 89 million. This included capitalized financial charges and other investments. Regarding net debt and cash flow analysis, let's move to Page 15. Net debt at the end of December 22 stood at EUR 8,576 million about EUR 1.4 billion lower than '21 year-end level, mainly due to the hybrid bond issued in February and accounted as equity as well as the impact of commercial item on the working capital dynamics versus '21. During the year, we generated an operating cash flow of EUR 1,596 million thanks to which we were able to cover almost the old CapEx spending for the period. Let's now make a deeper analysis of our debt profile. Moving to Page 16. Thanks to our efficient and proactive debt management approach over the last few years. At the end of December '22, fixed over floating ratio on gross debt stood at about 87% and while the average duration was about 5 years. Thanks to the strong credit profile, Terna is able to tap the financial market at extremely favorable conditions as demonstrated by the Green bond hybrid bond launched in February 22 for a nominal amount of EUR 1 billion successfully welcomed by the market. I would also like to highlight that in September, Terna launched a fixed rate single[ trans] bond through a private placement procedure for an overall amount of EUR 100 million. The notes with the duration of ideas will pay a coupon of 3.44%. During the year, Terna also signed for ESG-linked credit facility agreements for a total amount of EUR 600 million. The credit lines will have a term of 3 years with an interest rate linked also to Terna performance in relation to specific ESG indicators. Finally, on November 8, Terna signed a EUR 500 million contract with European Investment Bank for the financing of the east branch of the Tyrrhenian Link. This loan is the first tranche of a total of EUR 1.9 billion approved by the European Investment Bank for the mentioned project. The 22-year loan has a longer maturity and a more competitive cost than those generally available on the market, in line with Terna policy to optimize its financial structure. Thank you very much for your attention. And now before entering in the Q&A session, let me leave the floor to Stefano for his closing remarks. Please, Stefano.

Thank you, Agostino. After this strong 2022 results, I would like to announce the 2023 guidance. In 2023, we expect revenues of EUR 3.11 billion and an EBITDA of EUR 2.12 billion. Earnings per share will amount to EUR 0.43 per share. Regarding CapEx for the next year, we expect a figure of about EUR 2.2 billion. This CapEx acceleration for Vizzini for 2023 is a part of an overall growth process driven by increasing system needs to ensure efficiency, resiliency and security of the supply. Indeed, let me underline that on the 15th of March, we published the new 10-year national development plan as illustrated in the next Slide #19. The new national development plan comes in a historic moment in which energy is even more central. In the face of rapid and deep geopolitical change, the energy system has to deal with a series of unprecedented and ambitious challenges. The targets set as a part of the ongoing energy transition will be fully achievable only by developing infrastructures. In this regard, Terna increased the investments for Vizzini in the new year development plan, which for is more than EUR 21 billion of investments, the highest ever with an increase of about 17% compared to the previous plan. Investments for Vizzini in the national development plan will be made to continue integration of the renewable sources and the progressive phase out of coal-fired power plants in line with the targets set at the national and international level. Moreover, considering the entire life of the projects included in this development plan behind the 10 years horizon, the total amount of investments will exceed EUR 50 billion. In conclusion, Terna continues to create value for shareholders and communities to the investments for Vizzini in updated industrial plan and a strong dividend policy. Despite the extremely challenging scenario in which we operate and the further acceleration of the investments to meet the needs of the system Terna will remain committed to preserve a solid and sustainable capital structure. As you have proceeded from this presentation, Terna was able to present a very good set of results, even exceeding the guidance provided for 2022 in addition with a strong expectation for 2023, demonstrating the commitment on the execution of the plan. Thank you for your attention. We are now ready for the Q&A session.

Thank you, Mr. Speaker. [Operator Instructions] We will take the first question from Stefano Gamberini from Equita.

The first question regarding the 2023 guidance. Could you help us to understand what is the contribution of the output-based incentives in 2023 that you expect? And also if you can give an idea of what was the level of this output-based incentive in 2022. Considering your guidance up to ['26] to receive EUR 600 million of output-based incentives and the better 2022 results, the better guidance in 2023, could we expect an increase of this total amount of EUR 600 million. The second question regarding the opportunity of investments considering also the trend in renewables, this amount and then the new project that you presented of EUR 11 billion, including the 10-year development plan, clearly linked to the development of renewables. Could you give us a picture of the situation for the renewables growth during 2022. What was the level that was reached? And what do you expect in 2023 because my concern is if we don't have a huge acceleration in renewable installment capacity, you can also have some slippages in the investments in -- of our CapEx. These are my main -- sorry, the third one is regarding the working capital in the presentation at the slide, for the cash flow or the cash flow slide, the number 15, if I'm not wrong, you underlined that there was positive cash flow -- working capital effect north of EUR 900 million. Could we expect the absorption of this working capital in 2023? And what is the guidance of net debt next year? Or could we consider this positive effect as a sort of structural improvement that should maintain also in the forthcoming years and could help clearly the company in its financial structure to face all the investments that you have in your business plans?

Thank you for your question. I can start to answer to the first one regarding the guidance of 2023 and speaking about the contribution, if I understand well, on the results coming from our basic incentives. This contribution for this year for the previous year 2022 is around EUR 400 million on the results. And for the 2023 is around EUR 300 million. And in the 2022 results, the half part of this EUR 400 million is related to the new MSD incentives. Speaking about -- and so you can see that in our guidance for 2023, we maintain on a structural position, our increase of results and is coming from the rules of the incentives that we apply. For the second question, then Agostino may add something, but I would like to completed this for the second question regarding investments on the renewable, okay. You say what is the behavior of this increase during the last year. Probably we just said this some time ago, during the 2022, there was an acceleration certainly because of the normal rate of investments during the last 10 years was about 1 gigawatt per year. Last year was about 3 gigawatts in 1 year. And now the rate may be more than this, we suppose that is around 4 and 5 gigawatts this year. What is really important that the request of our connections has increased really a lot. And so the basis to calculate the next concrete value is completely different from only a few years ago. Consider that 3 years ago, when we started in Terna with this mandate, we had on the table something like 50 gigawatts of total request main on solar plants. Now we are speaking at more than 300 and the [art] part is for wind generation. So we suppose that also with some simplifications of the actual process for authorization. The written may increase. In any case, when you speak about our investment, the impact of this evolution on our investment, letting me ensure everybody on this point. We are called to habilitate the system and that the infrastructure has to be made in several years. You know that when we plan an investment and we realize it, and we build the new line it takes between 7, 8 and 10 years. So that the complete evolution of the network needs several years to be made. And we cannot modulate the speed of our infrastructure by looking to the speed of the increase of rest and of the renewable installation. So we have to go on for the next 10 years with the national plan, the new one that we have presented but we have some flexibility opportunity during this plan because we agreed with the authority like a completely new method the possibility to design project and plan investments that are, in any case, paid by authority at this level. So the authority pay our designing our project, our planning. Also, we will not realize these systems if there is something that will change during the next future. Let me give you an example. Let's suppose that the government at a certain point, decided to incentivate in the north of Italy, for example, photovoltaic. At the moment, the most part of our requests are in south of Italy, but something may change. And so also our design of the network may change. If we are going on with the project, we can also change direction. And this is specifically related to the fact that every 2 years, we have to redesign the new and update, the new plan for the next 10 years. So it's to be considered a dynamic design of the network. And we have all the leverage to manage this. For the third point, I think Agostino may answer, but it Agostino, can you add something to my first.

No, there is not too much to add. Just to aid the contribution of the of the MSD output-based for 2022 is slightly below EUR 200 million, and this is slightly above EUR 200 million for the year 2023. The total amount of said by Stefano is EUR 400 million in 2022 and EUR 300 million in 2023. Moving to your third question regarding working capital dynamics, you know that there is some structural situation in our working capital dynamics due to several so-called pass-through energy items. As you remember, coming from the past, we had some accumulation of working capital due to the uplift mechanism, especially in the immediate timing of the pandemic in spring 2020 this amount has been reabsorbed in a couple of years, so it has been completely absorbed in 2022. And during 2022, there was a reduction in the credit related to the uplift and an increase in the payables related to the essential plans for the security of electricity system, which will be reabsorbed in the coming months. So there is some fluctuation that is typical for our business, and we do expect that this amount will disappear in the next months.

May I ask you something because it is not clear to me what is the situation of both regarding first output-based incentives? What I know is the target was EUR 600 million by 2026. Now you said EUR 400 million in '22 and EUR 300 million in '23. So the amount is EUR 7 million in 2 years. So that's the target that 2026 of EUR 600 million increase to, I don't know where and the second, I didn't catch about the answer on the working capital. Now you had an improvement of EUR 900 million 2022, for part also to the previous worsening. So what is the amount more or less that you expect to be restored during 2023?

Yes. Let me start on the second one. The amount that you have to be expected to be reabsorbed in the coming months is around EUR 901 billion. This is the order of magnitude. This is an accumulation of payables for pass-through items that should have been paid by year-end 2022. In order to pay such amount, we have to wait for some specific resolution coming from the authority. The authority did not issue such a resolution in time at year-end 2022. That's why we have this additional cash in our pocket. This situation will be managed and settled by the authority during 2023. Coming back to the output-based incentives. Yes, of course, your calculation is right. We have an increase in such contribution, we have realized an increasing amount of our foot-based contribution, especially on MSD. The original target was EUR 500 million. We increased our target to EUR 600 million. And now we have some additional -- some additional contribution from output-based. That's why we do have EUR 400 million in '22 and EUR 300 million in '23. And you have to expect something similar also for '24.

Okay, clear.

Will do the next question from Javier Suarez from Mediobanca.

Three questions in addition to the previous one by Stefano. So the first one is a high-profile question on the 10-year development plan that you presented that you recently presented. So there is -- and you mentioned that in the presentation, a significant increase in CapEx by at 17%, and that is the largest ever 10-year development plan in Italy. So can you help us to understand the benefit of that business plan for Terna for the country and for the European Union? And would is -- what has changed as a consequence of the crisis. And as a consequence of the lesson that has been led with the crisis that makes this CapEx plan even more important for Italy and then for Europe? That high-profile question, it would be extremely interesting to see the strategic as for the company during the next 10 years. Then on the reporting of the company and the numbers of the company, 2 follow-ups. The first one is on the output-based incentives. June gave the number for 2022 and the expectation for 2023. In 2024 and '25, can you share with us your late expectation on these output-based incentives. I think that is a chance just been mentioned a number similar in 2024 to the one in 2023, so along the lines of EUR 300 million, then in 2025, that would be helpful as well. And then on the working capital then, can you share with us your expectation for the net debt by the end of 2023? That would be helpful as well. And then on the new guidance for 2023, there is an element of higher output and incentives versus maybe previous expectation, higher deflator as well. Can you elaborate a little bit and to help us to understand this increase in guidance versus consensus expectation on the different building blocks to build up the argument. And the very final question left is on the operational performance of Tamini and Brugg you can give us an indication if these subsidiaries have any contribution to the EBITDA and the expectation for the next year.

Thank you for your question. And I would like to start on the second one. The contribution of incentives and the MSD methods. Let me clarify that the contribution of the last year end of this year provided for this year is absolutely clear and calculated and so we give to you in terms of numbers, as you see. Then we have pursued an impact -- a similar impact on the following year, but we have to -- we have first of all to consolidate the results during this period, and then we can give a number. But you have to consider that it's not a one-shot results of this year over the last year is a more structural behavior. But what is really important is that at the end of this year, there is an important appointment with the regulation, as you know, for the next years. And also we expect for a modification maybe an increase of WACC value coming from the observation period, and I have not to explain to you. So the mix of possible effects that will impact the next 2, 3 years has to be well calculated during the next months. I think that until the end of this year, may be possible that we updated the plan. And the more we are near to the final definition of rules without auditing more we are precise on this. So please, let's give us the right time for this. Then coming back to the first point, and there is a great question because our development plan for the next 10 years is really let me say, a fantastic news for Italy and for the electricity system in Europe and inside the Mediterranean area because as you can see, we have planned investments for EUR 21 billion that is, like you said, something like the 70% more than the previous plan of only 2 years ago, that was about EUR 18 billion. And with these investments, will create the possibility for our network to bring something like the double quantity of power from the south to north of Italy. This is really important for several motivations. You can see that, first of all, that the benefit cost ratio between this specific plan and the previous is really increased a lot because we obtained 5 -- 4, 5x more in terms of effectiveness in the transfer of energy we did the same money. So the EUR 11 billion that we had with what we named the hyper grid is a new -- completely new technology application. We think to transfer energy coming on the same corridors that we have on the continent, but by using a different kind of power, let me say, also voltage. And we elevate voltage by using the [ADC] application that generally we use under the sea connection. And it's really important because the impact on the environment and the [Pathogenic ] impact is really reduced a lot. Also the timing for the timing to build this kind of network is reduced a lot, some years less, and added with some other projects with the undersea connections around our country we will contribute to solve all the bottlenecks and to increase this energy transmission capacity. It's important because in the next years, we will connect also the North of Africa, Tunisia and Sicily. We will complete the connection between Campania Sicily and Sardinia. We also think to realize the second connection with Greece and the second one with Montenegro. And on the table, there are only discussion coming on, but it will be a possible modification of the next plan in 2, 3 years, we are supposing to connect also Algeria and maybe also Egypt with Italy because in all the community, and I speak about all the TSOs community in North Africa, in south of Europe and on the Balkans, is discussing around the possibility to manage a different flow of energy from the south to the north. Consider that when you speak about a photovoltaic realized in the South of Italy, you speak about 2,000 hours of productivity when you go on the North of Africa. You can have also 3,000 hours. So it's a completely different productivity with a reduction of the energy cost at the region. So in terms of renewable evolution, in terms of energy transition, in terms of centrality of Italy and this network in this complete system is really, I can say, a revolution. Our company is more a group company, is a company that guarantee results and also satisfaction and dividends of our shareholders, but it's also a company the test to manage a target that is at the moment, like geopolitical target or energy, independency and security. So I think it's enough that we have some information on this. Then I can ask to Agostino, if you wanted to go on the third question on working capital.

Yes, again working capital dynamics, I can only repeat what I just said is simply an accumulation of payables of pass-through items that should pay by year-end. But in order to liquidate such items, we need to wait a specific resolution coming from the energy authority such resolution did not come time. So we do expect to receive this resolution during '23. That's why we expect to reabsorb this amount during the coming months. Regarding your last question, if I may, Stefano on Tamini and Brugg Well, our contribution of Tamini and Brugg was really positive in terms of revenue generation. Of course, we're also have examinated a massive increase of cost, especially related to the cost of metals, copper and aluminum that are the raw material, mainly utilized by those companies increased a lot. So net-net, the contribution was neutral, but we have a big increase of the pipeline for 2023, and we do have really positive expectation for the results in '23.

We will take the next question from Jose Ruiz from Barclays.

I have 3 questions, and they're all related to the 10 years development plan. The first question is in the next update of your CapEx plan, can we translate the 17% increase directly into a 17% increase in CapEx? Second question, from the 17% increase of the '23 -- '32. How much is cost inflation? I mean we have seen the cost inflation hitting other interconnection projects, for example, Spain and Italy with cost increases of around 37%. And my third question is just the time allocation. So the $11 billion hyperlink project, how much is included up until 2022, and how much is beyond 2032. Thank you very much.

Okay. Everything is clear. So in our actual industrial plan, that is 2025. Only a few quantity of this increase, you will see because as I explained before, planning and the construction of our network needs 8, 9, 10 years. So -- the more -- the most part of this increase will be on the second part of the plan. So in the second 5 years, let me say. So between '26, '27 arriving to '22, '21. And going to the last question, when you say hyber grids, the EUR 11 billion more, that is a part of '21, you have to consider that the complete projects is around EUR 50 billion value. And in the first 10 years because we are obliged to plan only 10 years because it's an Italian rule that we have to respect together ARERA and Ministry. We see only the first 10 years we did EUR 21 billion, an important part of this '21 are also involving the hyber grid connections because we change the priority and as I explained before, for the hyber grid some of these investments are easier than the other, let me say, in terms of construction and authorization and timing. But in any case, in a total time of 15 years, we will have an expenditure of about EUR 30 billion. Then speaking about the cost inflection, we work in our plan around 4% in terms of calculation, but please consider that when we speak on the realization and on the return on these investments, our rules of regulations considered also the inflection. So the inflection for us until certain values is not really a problem, but maybe also an opportunity, Agostino?

Yes. If I may add, Stefano, of course, there are some specific items when we talk about cable, substation transformers, there is a lot of pressure in the market for this kind of infrastructure. And of course, there, you can also realize that you have to pay even more, okay, because there is a huge competition, especially on the critical items for the high-voltage grids, especially in submarine and underground cables.

We will take the next question from Marcin wojtal from Bank of America.

Yes. So firstly, first question is on your allowed returns. Would you be in the position to indicate where do you expect your allowed return to be set in 2024 considering the impact of the so-called trigger mechanism based on the current mark-to-market. My second question, that's a small detail. But on your discontinued operations, we generated a loss of EUR 20 million in 2022. Is it correct to expect these discontinued operations to be essentially at 0 in 2023 since you already divested all of your Latin American assets. And I think lastly, if I could ask, do you have plans to organize a Capital Markets Day in this year where you could perhaps provide a more comprehensive earnings guidance for the next 5 years?

Regarding the value for the WACC, we think that looking to the numbers until now, it's possible that it will arrive around 5.5% something 5.6%. Similar to the last value before the decrease of a couple of years ago. And -- but we will see. In any case, our simulation at the moment is around this number. For the third question, the plan, the new -- the update of the plan, I think that it may be possible before the end of this year. Maybe interesting to stay in this period because it's necessary to better understand the discussion with the authority during the second part of the year. So to give you -- starting by the fact that we are working in a really good continuity with an increase of our results. And we see really good, which is the view for 2023. And in a certain, let me say, way we see also a continuity and grow with the 2024. Also if we have not calculated, but we are in a comfortable condition at the moment, we prefer to understand which is the discussion with the authority until the end of the year and we can add on an update of the plan that the concrete number for WACC at all and for the incentive calculated during this year. So I think in this period. The second question, if you want to.

It is correct. We do not expect any relevant positive or negative impact coming from discontinued operation, especially in Latin America during 2023.

We'll take the next question from Davide Candela from Intesa Sanpaulo.

I have 3. The first one is a follow-up on the national development plan. I was wondering if the investment included in the plan includes also some offshore wind capacity that should be connected to the Italian grid if this capacity will come onstream in the next years? And also on this aspect, if it is then at the company that will be in charge for the connection of this kind of plants, just a more general question on these aspects. And the second one is related to the European Commission proposal on the new electricity market design and I was wondering if you can share with us a general view of your thoughts about the proposal and what could be the role of the TSOs with regards to the new proposal, if this will be approved by the European Commission. And [indiscernible], I was wondering if you can share with us some thoughts about your refining needs and considering that, if I'm not wrong, you have about EUR 1 billion maturing this year and further EUR 800 million in 2024.

Regarding the -- thank you for your question. Regarding the first one, speaking about the plan. When we -- when we created the plan, the 10 years plan, we start from meetings of the system. And meetings of the system at the moment is to allow the increase of about 70 gigawatts of renewable mainly concentrated in the south of Italy and the central of Italy because this is the actual distribution. When I say 70 gigawatts, we speak about not only solar but also wind. We are not able to say where it will be realized, but we know that the alpha part of the actual request of connection regarding the wind installation offshore and onshore. There is a part of this. So it's important to understand that we build a network that is able to transfer this energy from the south to the north, including Islands and international connection. We don't put inside the plan, the final connection directly to the -- for example, to the wind plant -- the offshore wind plant. Consider that to connect 1 or 2 gigawatts plants that is an official transfer. It's necessary to build a connection that may have a cost us of EUR 1 billion. In our plant, there is not this last mile, let me say, of connection. Is not defined who will realize this because actually it's in the end of the proposal that the company or the operator that proposed the installation. In a second moment maybe that we will be involved like a service company, let me say, an engineering service company or may be possible that speaking with the authority, we will define that -- this will be a part of the national grid. This is not a question only in Italy. It's a discussion that is actually also running in other countries or in the North Sea, they have a choice, a certain model in the United States, they are speaking about another model. So it's not ready at the moment of this model. So in our plan, you don't see the money necessary to connect the final mile of these plants but you see the network that is necessary to bring all this energy from the south to the north. Then about the second -- on the second point, if you want Agostino say something of the process in Europe for the market.

Yes, sure. There are a lot of discussions that are taking place at [indiscernible] level regarding the reform of the market. There is also some fluctuation. You have seen different position about the inclusion or not of the nuclear generation in IAG framework, there is some forward and stop back on this discussion. I think that the most important part of the discussion will be related to the market design. Especially in the confirmation or some, let me say, changes in the discipline related to the confirmation of the price, today the system still a system based on the system marginal price. We all know that system margin applies is highly impacted by the gas price and you know better than us, that this is the elephant in the room because the more you push on renewable but the more you keep this renewal connected with the price of gas, you more will be complicated to reduce the total cost of energy given that we may connect it with a specific commodity that you can control, at least that we cannot control. At Terna, but also as nation, given that we don't have relevant sources of natural gas that we can control. We have like to buy. We acquired a lot of gas from Asia. Now we have changed it the flows, where we acquired a lot of gas from other countries. But in any case, we are not talking about our gas, so it would be interesting to analyze the possibility to disconnect the price of gas for the general price of election. There is a positive discussion related important the growing importance of long-term contract and this is something that we do appreciate. I think that both discussions need to be followed, and we will quickly follow the discussion in the coming months. Related to your third question, related to our refinancing needs considered that, we do expect something like a couple of million euro in 2023, of which EUR 1 billion of standard bond that we financed EUR 700 million of inflation linked bonds that finally will expire in 2023 and addition of more or less EUR 300 million of bank loans that need to be refinanced. And consider additional EUR 1.2 billion in 2024. Let me say that, as usual, we are not suffering any kind of pressure in doing that. We continue to look at the market, not as an obligation but more as an opportunity. We have, I said before, very, very sound debt structure with a relevant amount of debt that is indexed at fixed rate. Our average cost of debt is still pretty low. We are in the region of 1.3. Of course, new debt would cost more, but we are really resilient, and we do expect only marginal adaptation of the cost of debt in the coming future.

We will take the next question from Emanuele Oggioni from Kepler Cheuvreux.

Good evening, everybody, and thank you for the presentation. I have one question left about the TotEx mechanism. I wonder if you could explain or could add more details based on your other state. Now I know that there are discussion on that. So all is ongoing. But how the TotEx mechanism after the current period would impact on the current output-based incentive schemes. And also still on the [Nordic] mechanism, I'm aware that in my understanding is that each single project of business, the CapEx of each single projects will be checked and approved by the authority. So in the future, in case of inflationary environment, maybe a cap put on the on the projects on the CapEx in projects. Is it correct?

Thank you for the question. I start from the beginning, but I would like to say the last part it's not completely correct. And now we explained Why. But in any case, starting from the beginning, please consider that the TotEx methods is just now experimented in a certain way by us with the Terna, with the MSD methodology. It was created exactly to have an output-based impact that is clearly defined [indiscernible] before with the authority and create a measurable effect on the system. Consider that during the last year, we had an impact on the final customer of something like EUR 2 billion of reduction of the cost of dispatching. That is really a huge amount, an incredible amount. If you think that we passed from something like EUR 18 of cost -- period cost stood 0.8, 0.9 over the last period. So it's really interesting and also authorities a lot because this is the first experiment concrete experiment in Italy for a first approach on output business and TotEx. On the second argument that you say, I asked Agostino, if you want to explain better the TotEx approach for the future.

Yes, Stefano. Thank you. I said several times, it is a progressive which from a full input-based principle, from which you are paid on the message of what you spend basically and an output-based, as said by Stefano, you will receive increasing contribution in proportion with the benefits that you will create focuses. So this is the principle of the output-based and the TotEx mechanism will be applied on this space. And you have already seen this happening in our business plan and in our portfolios. You remember that we started with an output-based contribution in the previous business plan of EUR 200 million increase to EUR 244 million, increase to EUR 500 million, increase it to EUR 600 million. And today, we have decade we have just clear that you can expect something more also for the future. What the authority will do to measure. If the question is, will the authority start to measure 100% of the single projects, we do not expect this we more expect a sort of mixed regime, which will have a sort of base remuneration still managed through an input-based approach. So on average walk on invested capital. And on top of that, some output-based contribution starting from the biggest project. Why the biggest project? Because the biggest project will be the easiest to be measured as the MSD experiment is a big project, it's easy to measure, show a positive contribution and authority gave us the possibility to retain a portion of this additional marginality and the huge benefit for the community explained by Stefano. This is the way we see this. Having said that, there is an open discussion. The authority will issue some resolution in the second part of the year. And of course, we will keep you updated on this process.

Question from Bartek Kubicki.

Thank you very much,. Just 2 remaining issues from my side, please. Firstly, on your regulated OpEx, excluding [indiscernible] the OpEx increased by 15% year-on-year in 2022. I just wonder what the dynamics in the OpEx could be in '23, given that your employment keeps rising. And consequently, whether the regulator will take into consideration all the OpEx increase in the next regulatory period? That will be the first one. And secondly, on the plan again. In my opinion, the plan is very much based on large projects. And consequently, I just wonder if you are thinking about having partners in some of the projects as well or whether there is a risk that the regulator may introduce some kind of a competition into the into the model so that the other players would also be allowed to build such massive projects.

Agostino would you have to start with the first question and.

Yes, sure. So it's true, there is an increasing amount of OpEx for 2022. There is some, we say, no current item as extraordinary items related to dismissal of personnel. So we have some dismissal plan that has been accounted for competence already in 2022. In any -- there is also some specific external communication cost related to webcast advertising and TV advertising that is part of a specific agreement with Energy Authority. All these costs will be recovered by the tariff in a normal way.

Thank you Agostino. Speaking about the second point, no, it's interesting, your hypothesis we don't think to proceed in this direction. Until now, our idea is to continue to be the only company, the monopolist the network in Italy, and we are absolutely sure for the next 10 years to be able to sustain this kind of plan also on the financial point of view, we have solutions, and we have space for this. Maybe only interesting to have technological partners in the future. This is another topic, another point regarding the great difficulties around in the world coming from the increase of the total amount of investments in network in transport network in Europe specifically, but not only. So it's important to define a good approach on the let me say, technology port. And so cable or transformers and some component successfully important to define which is the right way to proceed to find possible cooperation. But in terms of management of the network and property of the network, I think no chance.

It appears that there is no further question at this time, I will leave the floor to the CEO and the CFO, to say goodbye.

Thank you to everybody. Thank you.

That concludes today's event. Thank you for your participation. You may now disconnect.