VERBUND AG (VER) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the conference call on the quarters 1 to 3 for 2023 results of VERBUND AG. Throughout today's recorded call [Operator Instructions] I would now like to turn the conference over to Peter Kollmann.

Yes. Thank you very much. Good morning, ladies and gentlemen. Let me welcome you to our presentation for the first 3 quarters '23. And let me thank you for joining today's conference call. I'm here with Andreas Wollein. I'm traveling, so I'm hoping for a very stable telephone line, if not, Andreas is here with us as well calling in from Vienna. Before we move into the analysis of the business development of VERBUND, let me make a few general comments. After the rollercoaster year '22, which was mainly influenced by several factors such as the Ukraine Russian war, massive changes in the capital markets with high interest rates and inflation. And last but not least, sector-specific challenges like the structural change in the wholesale markets with extreme price hikes and volatilities. Volatilities, which were accompanied by massive state interventions and enormously increasing CapEx requirements into renewables but also into infrastructure and new applications. Now the business year '23 has gone back into, how should we say, more quiet waters, more normality. However, with structurally higher prices and higher volatility, a volatility which is going to stay with us for many years to come. The energy world is obviously in a massive transition. And at the end of this transition will look very different. Against this background, VERBUND is presenting its Q3 figures, a very strong set of figures. Indeed, the best numbers which we have ever presented. We have strong earnings, strong cash flows, high profitability and an enormous financial strength, which you can see when you look at our balance sheet with very low debt levels. We are very well positioned for the future and for the energy transformation, which I've just mentioned. Now when we move to the next page let me highlight the most important influencing factors for our results development. Following the development of prices at the electricity exchanges and based on our hedging strategy for our own electricity generation from hydropower, the average achieved contract price increased by EUR 64.4 to EUR 176. The hydro coefficient, which is determining the generation from our run-of-river hydropower plants was better than last year, but below the long-term average. Production from our hydro reservoirs was also higher by approximately 7% compared to last year. Generation from wind and PV was up compared to last year, mainly driven by the new assets which we acquired in Spain and took into operation. Thermal generation in contrast stronger decrease due to lower use of our CCGT in Mellach. Contributions from flexibility products are still at a very high level, but decreased compared to the record year '22. The sales segment contributed negatively, among others, due to higher procurement costs for energy. The grid segment developed well with strongly increasing contributions from the Austrian Power Grid as well as from Gas Connect Austria. Finally, a negative contribution to results was coming from the levy of excess profits in Austria and Romania, totaling approximately EUR 77 million in the first 3 quarters, '23. Now the impact of these influencing factors on the key figures of VERBUND in the first 3 quarters is as follows: EBITDA increased by 83.6% to EUR 3.549 billion and the reported group result increased by 85.9% to EUR 1.98 billion. The adjusted group result increased by 103% to just above EUR 2 billion. The operating cash flow strongly increased to a level of 4.15%. The free cash flow after dividends was strongly positive at a level of EUR 1.475 billion, and net debt decreased by 38% to a level of EUR 2.42 billion. On the basis of the strong financial development in the first 3 quarters, '23, we updated our guidance for the full year '23 based on average hydro wind and PV generation in the fourth quarter as well as the opportunities and, of course, the risk situation of the group. VERBUND expects a reported and adjusted EBITDA between approximately EUR 4.15 billion and EUR 4.45 billion and the reported group result between approximately EUR 2.25 billion and EUR 2.45 billion for the full year '23. The payout ratio will be between 45% and 55% of the adjusted group results between approximately EUR 2.27 billion and EUR 2.47 billion. The earnings forecast and the information on the expected payout ratio are obviously contingent on VERBUND not being impacted further by possible energy policy measures to skim off some of the profits at energy companies. Now let me go into more detail on our hedging volumes and hedging prices, which are, as you know, highly relevant for our results. I have to remind you, EUR 1 per megawatt plus or minus, has a sensitivity of approximately EUR 25 million in the EBITDA line. Now as of the 30th September '23, we reached an average achieved contract price for hydro generation of EUR 173.2 and we have sold approximately 96%. For '24, we have sold 51% of our own generation volumes at a price of EUR 151.8. And for '25, we have sold 38% of the generation volumes at EUR 138.3. On a mark-to-market basis, with prices as of the 13th of October, the average achieved contract price for '23 is at EUR 171, for '24 at EUR 148, and for '25 at EUR 134 per megawatt hour. Now moving on to the next page. Let me comment on some developments on the hydro segment. At 0.93, the hydro coefficient, which you know is an index quantifying the hydropower generation of the run-of-river power plants, was 7 percentage points below the long-term average, but 9% above the level of '22. The reduction from annual storage power plants increased by 7%. Own production from hydropower, therefore, overall increased by 2.26 gigawatt hours or 10.9% to 23,000 gigawatt hours compared to the first 3 quarters of '22. Higher average achieved prices and higher volumes are the main reasons for the increased EBITDA. However, levels on excess profits and lower flexibility products had a negative effect on EBITDA. In total, EBITDA in the hydro segment increased by 71.6% to EUR 3.114 billion. Regarding CapEx, our main hydro projects, excuse me, the 480-megawatt Limberg III pumped-storage power plant projects and the 45-megawatt Reißeck II plus pumped-storage power plant project as well as the 11-megawatt run-of-river project Gratkorn and a 14.3 megawatt Stegenwald run-of-river power plant projects are progressing well and are all on time. Now let me continue with the analysis of the own generation from new renewable, the new renewables coefficient, which is an index quantifying the generation from wind power and PV amounted to 1.04 in the first 3 quarters, '23 compared to 1.01 in the same period last year. Generation from wind power increased by 19.5% or 140 gigawatt hours and amounted to 858 gigawatt hours in the first 3 quarters. More favorable wind conditions in Germany and Romania as well as new installations in Spain more than offset less favorable wind conditions in Austria. Generation from PV amounted to 287 gigawatt hours in the reporting period stemming from PV installations in Austria and Spain. Taking a look at the EBITDA development in the new renewables segment, we see that the EBITDA increased by 75% to a level of EUR 157 million. In addition to the increase in volumes, mainly from our new installations and acquisitions in Spain, we had higher average achieved prices, which made a positive contribution to our EBITDA development. The chart also provides an overview on current developments in the renewable sector. Now we had numerous requests regarding more details on our new renewables activities. So we decided to provide you with an additional charge on a regular basis from now onwards. This chart outlines our capacities in operation and in construction in our markets split by technology, i.e., wind and PV as well as our targets for 2030. In addition, we are providing the expected EBITDA contribution in '23, the historic CapEx spend as well as the planned CapEx until 2030. Please note that the additional explanations in the footnotes on the bottom left of the chart. As you can see, we have currently slightly more than 1,000 megawatts of new renewables in operation. That is approximately 760 megawatt in wind and 250 megawatts in PV out of the 1,000 megawatts, we currently operate approximately 600 megawatts in Spain, 90 megawatts in Germany, 110 megawatts in Austria and approximately 230 megawatts in Romania. We have currently approximately 115 megawatts renewables assets under construction. Now with all the projects outlined on the chart, we will already reach our targets of 3.8 gigawatts renewable capacity by 2030. Furthermore, I would also like to add that our most recent project communicated to the market on the 25th of October regarding the acquisition of 56.4 megawatts wind portfolio in one of Germany federal states in Hesse, North Rhine-Westphalia and Lower Saxony was sold by an infrastructure fund managed by Impax Asset Management, and that is now included in the figures of the chart. Now moving on to our sales segment. As you are aware, the results development in the sales segment is still negatively influenced by the margin pressure stemming from strongly increased wholesale prices of the past and the impossibility to pass on the price increases to our end customers. In the first 3 quarters, 23, the EBITDA contribution improved but is still negative at a value of minus EUR 165 million. The EBITDA contribution from the retail business was negative at approximately EUR 300 million. Now this figure includes EUR 70 million provision for the lawsuits provision, which we booked in the first 3 quarters of this year. VERBUND sold delivered electricity and gas to approximately 500,000 end customers in the first 3 quarters, which represents a decrease of approximately 31,000 customers. Now let's move on to the Grid segment. As you know, the Grid segment consists of our regulated business, Austrian Power Grid, which is the electricity transmission grid operator as well as Gas Connect Austria, which is the gas transmission operator. EBITDA for the first 3 quarters '23 from the electricity grid business according to IFRS was approximately EUR 240 million. Now as a reminder, let me highlight that as of the 1st of January '23, we have a new regulatory period. The regulatory system has been changed. E-Control, the Austrian regulator has set a new WACC for '23 and has split the WAC into a WAC for existing assets and a WAC for new assets. The WAC '23 for existing assets has been set at 3.72%. The WACC for new assets has been set at 4.88%. So overall, the WACC for '23 is 4% on average. On top of the WACC, APG can receive an incentive-based bonus of maximum EUR 12 million per year. Now the WACC for existing and for new assets for '24 will be set again at the end of '23 and will reflect the higher interest rate environment. APG, as you know, has appealed against the level of the WACC mainly because it reflects a historic development of interest rates and does not reflect the very strong increase in rates since last year. The guidance for the electricity grid for '23 is unchanged at approximately EUR 360 million. The planned amount of the regulatory account at the end of '23 will be approximately EUR 490 million. Now with regards to the results contribution of Gas Connect Austria, we report an increase of our EBITDA to approximately EUR 173 million for the first 3 quarters, '23. Now what is the reason for this increase, it is mainly due to a one-off increase in the commodity tariffs because of higher gas prices, and that will be reversed by the regulator next year. The guidance for '23 with regard to Gas Connect Austria is therefore increased approximately EUR 190 million under IFRS for the full year. Now I will hand over to Andreas with all the other segments. Please, Andreas.

Yes. Hello. Let me continue with the last segment, all others. Yes, despite the fact that the thermal generation failed by around 500 gigawatt hours, the EBITDA contribution in all other segments increased to a level of approximately EUR 70 million because of positive valuation effects from the energy derivatives in connection with future energy deliveries. However, the contribution from the flex products to the segment decreased by around EUR 14 million. The contribution from our participation in KELAG, the provincial utility of Carinthia increased from EUR 13 million to EUR 47 million due to better realized sales prices for own generation in addition to better hydro conditions. Furthermore, the heating and trading business contributed positively. Finally, let me inform you that the CCGT Mellach is no longer contracted by -- from Austrian Power Grid for future congestion management. Both lines are operated in a market -- on a market-driven basis, at least until April 1, 2025, if economically feasible. If we move on to the next slide, we now present to you the development of the most important key financial figures. So Slide 10 shows the development of EBITDA. As mentioned before, EBITDA increased by 84% to around to EUR 3.549 billion. Depreciation increased by 15% to EUR 388 million, mainly due to the acquisition of our Spanish renewable generation assets and increased investments into the high voltage grid. The financial result improved from minus EUR 23 million to minus EUR 18 million. This is mainly attributable to a higher earnings contribution from interest accounted for using the equity method, mainly KELAG. And higher interest income, while higher interest expenses, mainly caused by the issuance of an ESG linked to [ Centaline ] of EUR 500 million last year and the interest expense from the loans taken over from the Spanish companies acquired in the previous year had account of balancing effect. The group result increased in total by 86% to EUR 1.9806 billion. The group result after adjustment for nonrecurring FX was up by 103.7%. Finally, I would like to mention the increase in additions to tangible assets in total from EUR 811 million to close to EUR 1 billion. This included, for example, the acquisition of operating wind power plants in Spain with a total capacity of 257 megawatts and potential for hybridization repowering from EDPR. Yes. If we move on then to the next slide, you see the impressive development of the cash flow. So VERBUND's operating cash flow in the first 3 quarters strong increase to EUR 4.153 billion mainly due to a significantly high average contract price achieved for electricity as well as inflows from margining payments for hedging transactions, which were deposited with the clearing house of the electricity exchange as collateral for open trading positions. These positive effects were partly offset by higher income tax payments and higher interest payments. The free cash flow after dividends showed a positive development from minus EUR 628 million to a level of EUR 1.475 billion, the significantly higher operating cash flow was the main reason for this development. And finally, the decrease in net debt to a level of EUR 2.4 billion is due to lower financial liabilities because of the repayment of short-term money market liabilities. Gearing correspondingly decreased to a level of 23% compared with 46.8% at year-end 2022. The next slide, Page 12 shows our current actual CapEx plan. I think it's unchanged so [ proponed ] plans to invest in total, EUR 4.5 billion in the period of 2023 to 2025. Out of this number, approximately EUR 3.1 billion is for growth and approximately EUR 1.5 billion is for maintenance CapEx. Approximately EUR 1.4 billion goes into the electricity grid, approximately EUR 1.1 billion into new renewables and approximately EUR 1.2 billion into our hydropower business. The rest will be invested into GCA, Gas Connect Austria and other projects like storage technology. There are opportunistic M&A activities, of course, are not included in this figure. Please note that we are currently working on a new CapEx plan, which will be presented with the full-year figures in March next year. Yes. So Peter, I again would like to hand over to you for presenting the outlook.

Thank you, Andreas. Now as always, at this point, we want to highlight the sensitivities as of the 30th September '23. A deviation of plus/minus 1% in the generation from hydropower has an impact of plus/minus EUR 3.8 million. In the group results, a deviation of plus/minus 1% in the generation from wind power and PV has an impact of plus/minus EUR 0.4 million and a deviation of plus/minus EUR 1 in the wholesale price has an impact of EUR 0.7 million in our group results for '23. Now we updated our guidance due to the following 3 factors: number one, we expect lower expenses for windfall taxes. Why? Mainly due to the fact that the planned CapEx for the year is 24% to 26% is now also deductible from the levy. Falling electricity prices also had a positive effect on the calculation. The second reason is we expect to earn more from flexibility products in the full year '23, mainly from pumping. And the third reason is we increased the guidance for Gas Connect Austria, as I outlined before. Now our updated guidance for '23 is the following: we expect the reported and adjusted EBITDA of approximately between EUR 4.15 billion and EUR 4.45 billion and the reported group result of approximately between EUR 2.25 billion and EUR 2.45 billion, of course, under the assumption of average hydro wind and PV generation in the fourth quarter, '23 as well as the chances and risk situation of the group. For the financial year '23, VERBUND plans to pay out between 45% and 55% of the group results after adjustment for nonrecurring effects of approximately between EUR 2.27 billion and EUR 2.47 billion. The earnings forecast and information on the expected payout ratio are contingent on VERBUND not being impacted further by possible energy policy measures to skim off some of the profits at energy companies. Now with that, let us move on to the Q&A session, which Andreas and I will do together. Thank you.

[Operator Instructions] The first question comes from the line of Olly Jeffery with Deutsche Bank.

So the first one is just looking at the guidance that you -- the updated guidance you've given today, but what you've achieved in the 9 months, but what's implied for what you would do in Q4, if you get to the midpoint of guidance, and that implies EUR 750 million and around EUR 370 million net income. Net income quarter Q1 where you did EUR 530 million. Explain why you're expecting to see that drop off? Is that just being conservative? Or are there other things that we should consider. The first question, [indiscernible] Austria, you mentioned the guidance increase. The offset could be expected to come next year when that situation is reversed?

Yes. Okay. Now when we look at the key drivers for our revised guidance. First of all, we had originally considered a windfall tax of slightly more than EUR 400 million with the offset of investments in '24, '25 and '26, we have been able to reduce that to about EUR 125 million. So that is the key reason. That is the reason number one with an impact of around EUR 300 million. The flexibility products went up from EUR 250 million to EUR 300 million. And the key difference has also been Gas Connect Austria and maybe I should explain that in a little bit more detail there. We are moving from EUR 140 million to EUR 190 million. As you might remember from last conference call, Gas Connect Austria is suffering from lower capacities because the capacities from Russia obviously coming down dramatically. However, the regulator has given us what they call a commodity tariff, which is basically a special payment for the compressor stations, which are using gas and that gas is much more expensive. And that has been -- that has an effect of around EUR 50 million, i.e., from EUR 140 million to EUR 190 million, and that is included in our guidance as well. Overall, in terms of the hydro coefficients, we currently have around 0.92. So we are 8 percentage points below the long-term average. And when we take everything into consideration, we think that our guidance is fair. It's not overly conservative. It's a fair guidance for the rest of the year.

Do you expect the -- should we consider the EUR 50 million next year? Or expect to see a decline in the EBITDA outlook for GCA?

Yes, that's important. We expect Gas Connect Austria EBITDA over the next 3 years to come down. So this EUR 190 million in '23 really is a one-off as a result of this commodity tariffs, which will go away in the coming years.

The next question comes from the line of Harrison Williams with Morgan Stanley.

Two from me. The first was on windfall taxes so thanks for the updated guidance this year. As we look forward to next year, recently, the European Council agreed that these price caps could be in place until mid-next year. You have provided any guidance on the impact of that? Or is it such that these allowances make that de minimis? And the second question I had was just on kind of long-term CapEx spend. I think you mentioned in the release you estimate you will invest about EUR 15 billion over the next decade. I was hoping you can maybe provide some breakdown of that investment between hydro electricity grids, gas grids and renewables. I appreciate you provided that to 2025, but should we be extrapolating that or expecting an increase in maybe electricity grids towards the end of the decade?

Yes, sure. First of all, on the windfall tax and for the CapEx allocation, I will hand over to Andreas. On the windfall tax, the E.U. has given member states, as you have rightly said, the possibility to prolong the intramarginal tax, the windfall tax until middle of '24. We have no indication per today that Austria is planning to take advantage of that possibility. However, given the fact that we had a windfall tax until the end of this year in Austria as opposed to a number of other countries, I think there is the possibility that the Austrian government will decide to take advantage of this possibility given by the European Union and will extend the windfall tax in Austria as well. So to summarize, we at VERBUND, we don't know what the government will decide. However, sort of like my personal judgment would be that there is a possibility that it will be prolonged until the middle of next year. Now on the capital allocation, maybe just before Andreas start. The one thing you should be aware of because it has been in the press that infrastructure investment of around EUR 9 billion will be necessary as we have talked many times before, the infrastructure is the absolute foundation for the integration of renewables. So that is something that is very, very important for the overall transformation of the energy system, not just in Austria but everywhere. So those are highly strategic and very important investments. Having said all that, you need to go through pretty cumbersome approval processes, which basically means and you have insinuated that the big investments in infrastructure will come towards the end of the 10-year period. So the grid development the EUR 9 billion [Technical Difficulty] capital allocation into those investments will be much heavier towards the end of the 10 period than at the beginning. Now on the overall distribution, please, Andreas.

Yes. So I think the overall strategy here is with regard to capital allocation is a diversification of cash flows going forward. And when we talk about the split -- and please take in mind that this -- the CapEx numbers are always moving parts, and we're currently working on that as well and may come out with different numbers at the beginning of next year when we publish our full-year results. But for the -- when we talk about this currently EUR 15 billion until 2030, I think it's fair to assume that the biggest share goes into the regulated electricity grid business. So it's around 40%. And then we have around 20% moving into hydropower, again, about 20% moving into new renewables and about 20% into hydrogen and storage facilities. So this is a rough split until 2030. And as I mentioned before, it's following the logic to diversify our cash flows away from, let's say, from merchant exposure in our home markets.

The next question comes from the line of Thibault Dujardin with Societe Generale.

A quick comeback regarding the windfall tax. May I ask if you had an estimate of the impact that it could have in 2024, assuming the same level as it is currently? And second point, would you have the latest hedge of hydro production levels and prices?

Yes, sure. Let me start with the latest figures in terms of our hedging levels, literally for yesterday. We are for '24, we are hedged 60% at a mark-to-market of EUR 145. And for '25, we are hedged at 40% at a level of EUR 130. In terms of the windfall tax, no, we have no impact calculations in terms of a potential windfall tax in '24. Obviously, first of all, we don't know if it's going to come. If it comes, we don't know at what level. The most recent cap in Austria was EUR 120 million, which was reduced from EUR 140 million, what was before. Then we had the offsetting mechanism with the Austrian investments in '24, '25, '26. So we don't know what the rules would be in terms of offsetting of investments if for the next 6 months period, a windfall tax would be introduced. So there are just too many moving parts in order to make an impact analysis.

Maybe a follow-up question concerning the windfall tax for 2023, including in your guidance. You mentioned EUR 125 million. May I ask the CapEx associated in terms of assets.

Yes. The CapEx, which we are offsetting that is a number which we have not made public. Those are internal investment CapEx numbers for our Austrian investments.

[Operator Instructions] The next question comes from the line of Louis Boujard with ODDO.

I would like to come back maybe on the first question on the grid segment and more specifically on what we can expect for next year and going forward, in particular, in APG, what we see here is that you have a poor remuneration framework at this stage. At the same time, you have a strong commitment or willingness to increase the investment on this topic going forward. What could be the likelihood of a significant revision? And what could be the magnitude and when shall we have some indication and the probable or likely higher remuneration that you could expect from it under RAB basis. On top of it, there is a lot of moving parts in this business next year. Could you maybe help us to bridge a little bit what could be the potential earnings of this asset in the next year with regards to the one-off effect and the different elements that have been recorded and recognized in the first -- in this year? Maybe the next question would be also to elaborate a little bit, but this time on the sales segment. Here, it's a poor result of course, considering the situation. But at the same time, you mentioned that there is some elements in terms of mitigating measures that could be implemented in order to avoid 2, 0.5 point increase to the final customers. How shall we expect it to impact the earnings going forward, more specifically in 2024. Does that mean that we are going to remain in a difficult situation for this segment going forward? Or do you have room eventually to improve a little bit and enjoy a better asset return on these assets?

Yes. I'm going to share the answer with Andreas. Let me make a statement with regards to both the grid segment, the electricity grid segment and the gas grid segment. First on the gas one, we're showing a very high EBITDA number for Gas Connect, as I mentioned before, moving up to EUR 190 million because of a very special tariff. But when you look at the overall development of the gas business, this business is very challenged by much, much lower capacities. As you might remember, Gas Connect Austria is basically a hub for Russian gas, which came in through the Ukraine, was then used, obviously, in Austria, was delivered on to Southern Germany and to Italy, very large amounts. And with those gas capacities being much, much lower, we are currently negotiating with E-Control, a new tariff model for the coming years. Without such a new tariff model, the business model of Gas Connect Austria would be highly challenging. So depending on what the new tariff model is going to look like, we are going to have a new set of EBITDA figures going forward. And obviously, this is something where we will inform you as soon as we have agreed something with E-Control. The situation on -- with the Austrian Power Grid is exactly the opposite. There, we have a lot of growth because of very important infrastructure investments. There, the challenge is the regulatory return, which is why we have gone to court because we have come to the conclusion that the historic consideration of interest rates should not be applied in a situation where you have a very, very large increase in interest rates over a very short period of time. As we have seen, we argue that, by the way, like many others in Europe, we argue that the higher interest rates should be reflected and that the methodology should be changed slightly. Now E-Control has already listened to us as far as the new investments are concerned. So the rate for the new investments for '24 will be much higher than it was in '23. It will be around 6.25%. This is for the new investments. Overall, the development of the EBITDA, because if I understood you correctly, you were asking for sort of like the key influencing factors going forward over the next few years. I would say the top 5 influencing factors would be #1, of course, the regulatory asset base, which is going to increase year-by-year. The regulatory accounts, the way it's going to be used by the regulator and then, of course, the classic influencing factors, which are the auction results the congestion management and control energy. Those are sort of like the key influencing factors, which we need to observe. Overall, of course, it is the regulated return, i.e., the WACC, which we are going to achieve in APG. With that, I would hand over to Andreas to talk about the sales segment.

Yes. So with regard to the sales segment, I think, Louis, we discussed a couple of times. I think we -- you know that we have -- is currently a negative. It's the only segment which is not performing as we would like to see. So there is a negative contribution coming from the end customer business of more than EUR 380 million, including the provision, so for the full year. You know that we have set up a provision for this lost yields based on the so-called [ UKI ] let's say, after this loss yield. So yes, we do not have a final decision yet. We also -- we don't know when this decision -- this court decision will come. We expect it end of the year, maybe beginning of next year. But I think we have set up a probability weighted provision in order to reflect a potential negative impact. I mean, for next year, we cannot give you a forecast yet. I mean we don't have a formally approved budget yet, so we're not going to publish a forecast of the segments -- of the various segments. But when we look into next year, we expect the negative contribution to be strongly reduced, maybe not to 0, but there will be a much lower negative impact next year coming from the retail segment. Yes. So I think -- and of course, we are doing all relevant measures in order to restructure the business as much as possible. And we are considering a lot of different options with regard to the end customer segment going forward. But maybe too early to talk about that.

The next question comes from the line of Piotr Dzieciolowski with Citi.

I have 2 questions, please. So first of all, I wanted to ask you about your EUR 15 billion CapEx by the end of the decade. I mean looking at your current consensus for your profitability, it looks like you will generate more cash than EUR 15 billion, and you don't have any debt or you have a limited debt at the moment. So at what point do you think this longer-term strategic plan will be revised either increasing your CapEx or thinking about different ways to pay shareholders either dividend or share buyback or anything like this. So what needs to happen for you to take the decisions on these 2 directions of the cash allocation? And then second, when you think about the 3.8 gigawatt renewable target, how much of it do you think you will buy and how much of it you will build organically?

Yes. Okay. Let me start with the second one. And Andreas, please chip in when there is any additional information. On the 3.8 gigawatts, we are going to do more organically than in the past. The reason is value creation, obviously, when you buy through M&A, you are not in the full scale, value creation. It is important in order to have a platform, it is important to gain critical mass but at a specific stage, it is important to get more into organic development. So that is something we are going to increase. But when we talk about M&A, it's not just buying existing projects. There is also the possibility of buying developers or taking advantage of opportunities. As you know, the market has been very difficult recently. From a development perspective, the reason being higher CapEx, solar panels are now cheaper, but CapEx is still a challenge. Then of course, there is a lot of volatility on the PPA side. There is a tendency towards base PPAs as opposed to price as produced. And then of course, there's high interest rates. So there are a number of challenges for the market, and we having a very strong balance sheet and having the firepower, we will take advantage of opportunities if and when they arise. And that could be opportunities on the development side. In terms of the CapEx, the EUR 15 billion CapEx, I mean, you know our business model. Our cash flow generation is very much dependent on the power price. So if the power price remains relatively high, if there is a structural change in the power price, which some people argue it remains to be seen, but some people argue that we're going to have structurally higher power prices. If that were the case, we would have a higher cash flow generation. And that's together with the leeway which we have on our net debt EBITDA would allow us to make investments into all areas, which we have mentioned before in terms of our capital allocation. And in addition, we will be able to pay a generous dividend. So that is something where we need to look at power price developments very carefully. And adjust our CapEx accordingly. But per today and with the increase in CapEx on various fronts I would say that the EUR 15 billion number is rather conservative number and not a very aggressive number in terms of CapEx allocation.

We have a follow-up question from the line of Olly Jeffery with Deutsche Bank.

Two quick follow-ups. First one was, can you just clarify that for the EUR 15 billion any corporate M&A renewable development portfolios would be on top of that. I think that's what you were saying, just to clarify. The question is a hypothetical. So planning is that this year, you now have a CapEx offset you can include for CapEx spend EUR 24 million to EUR 26 million that's clear if the windfall tax is extended into next year, presumption be that you would not have any ongoing CapEx offset CapEx is allowed to be offset from '27 and beyond, right way to think about it. So that next year, if the cap were extended, your potential might not have any CapEx to offset?

Yes. That's a way to think about it. I can't really comment on it because I really don't know. I don't know if the government is going to extend. Having seen the government extending until the end of the year despite the fact that many, many other countries in Europe hasn't done that. Germany, for example, they finished June '23. Austria extended until the end of the year. So they have already shown in the past that they #1 extended. They have reduced the cap from EUR 140 million to EUR 120 million. Again, there was something where there weren't many other countries that were following a similar stance. I mean Romania is at EUR 90 million, but they are sort of like an outlier. So yes, there is a possibility. But how it would be structured, what the cap would be, what the offset of investments would be? Would they basically go beyond '26 the way you've mentioned, we really don't know. That's very, very hard to say. And coming back to your CapEx, yes, you're right. If we were to make acquisitions on the development side, that would be on top of the EUR 15 billion. And generally speaking, I mean, as Andreas has said, we have not -- we don't have an approved budget that will be in December. We don't have the guidance and the CapEx plan for the years '24, '25, '26 published. We will do that with the full-year figures in March of next year. But it's a fair assumption that the CapEx for the next 3-year period will go up.

The next question comes from the line of Teresa Schinwald with Raiffeisen Bank International.

I was a bit surprised about Mellach not being contracted for -- to APG. Because so far I understood that Mellach was strategically important also location wise for the grid stabilization not only in Austria, but also in Southern Germany. So could you please elaborate a bit on that? And the second one, speaking about Southern Germany, is there any update on your take about the potential price zone split of Germany? And what's your impact assessment on Austria?

Teresa, could you -- sorry, maybe it was just me having a bad line. Could you repeat the second question?

Yes. If there is an update of your impact assessment on the potential power zone -- pricing zone split of Germany for Austria.

Okay. So I'll do the second one and Andreas, if you were so kind as to do the CCGT question. Well, an impact assessment on a potential split in Germany is very difficult because there are many, many variables that would go into such a split. It is very complex. By the way, I don't think that there will be a split in Germany because it's not even necessary. The new system basically has critical branches. And with the flow-based market coupling, there are algorithms which look into different zones across Europe. And if there is a concession in a specific zone, i.e., a critical branch that will then be resolved. So the splitting into 2 zones, when you look into the future development of the European grid system might not even be necessary. However, theoretically, if you split Germany into 2 zones, you would obviously have a lower price in the north, you would have a higher price in the south. And Austria would obviously be much, much closer to the Southern price than to the Northern price. Teresa, having said all that, it's very theoretical because with all the information per today, I cannot really see a zone splitting within Germany. Andreas, could you comment on the CCGT please?

Yes, Teresa with regard to Mellach, I think it can be easily explained. It was a pure economic decision. So we were considering what is the best economic or commercial option for us either to participate in this regulated congestion management process or to sell, let's say, the electricity produced by Mellach into the market on a merchant basis. And these 2 options showed a clear result, which is to sell the electricity into the market, at least until 2025, where we can then make a new decision and we can apply theoretically for this congestion management services again. So it was -- yes, it was an economically driven decision, and we have decided not to apply or to participate in this congestion management process, which Austrian Power Grid had to handle.

There are no further questions at this time. I hand back to Mr. Kollmann for closing comments.

Yes. Ladies and gentlemen, let me thank you for, as always, many questions, a very good discussion. And I look forward to our next conference call with our full-year results and wish you a great day. Thank you very much. Bye-bye. Bye.

Bye.