VERBUND AG (VER) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Conference Call on Third Quarter 2024 Results of VERBUND AG. [Operator Instructions] Conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Peter Kollmann, CFO. Please go ahead, sir.

Good morning, ladies and gentlemen. Let me welcome you to the presentation of VERBUND for the first 3 quarters '24. And let me thank you for joining today's conference call. Before we move into the analysis of our business development, let me make a few general comments. The past quarter was characterized by exceptional weather conditions, which once again impressively demonstrated the impact of climate change. Parts of Austria experienced localized flooding in September. At the same time, we experienced a hot and dry summer intensified by the exceptionally warm Adriatic Sea, which led to severe storms and extreme weather phenomenon. These developments make it clear. Climate change is happening and it affects us all. In order to address this, VERBUND is pursuing its VERBUND Strategy 2030. With this strategy, we're not only sending a clear signal for climate protection, but are also making a significant contribution to the security of supply in Austria. We are investing in the further expansion of Austrian hydropower generation, primarily in flexible storage power plants in order to be able to compensate for the increased volatility in the electricity markets. We're also investing in the expansion of the Austrian high-voltage grid in order to integrate the increasing renewable electricity generation into the Austrian and European electricity system. And we are investing in the expansion of new renewable electricity generation from wind and PV in our defined target markets. Investments in large battery storage concepts to stabilize electricity supply and our hydrogen initiatives should make a significant contribution to decarbonizing our energy system. Now let's move on to the details of the first 3 quarters '24. At the beginning, let me highlight and summarize the most important influencing factors for the results development. After the extreme price fluctuations in '22 and '23 due to the war in Ukraine and Russia, wholesale prices for electricity have gradually fallen again, but are still significantly higher than before the outbreak of the war. Following the development of wholesale prices and based on our hedging strategy, the average achieved contract price strongly decreased by EUR 62.2 per megawatt hour to EUR 113.8 in the first 3 quarters '24. That is a significant decrease, which we have never seen historically within such a short period. The hydro coefficient determining the generation from our run-of-river hydropower plants was far better than last year and above the long-term average. It was 1.07 versus 0.93. The generation from wind and PV was also up, mainly driven by new assets, which we acquired in Spain and Germany as well as in Austria. Thermal generation also increased compared to last year. Contributions from new renewable segment was lower due to lower achieved prices despite slightly higher production volumes. Our contributions from the sales segment improved strongly due to lower procurement costs as a result of the decline in wholesale power prices. The Grid segment contributions declined due to lower contributions from Austrian Power Grid as well as from Gas Connect Austria. Finally, we had lower contributions from flexibility products. Now the impact of these influencing factors on the key figures of VERBUND in the first 3 quarters is as follows: EBITDA decreased by 26% to EUR 2.625 billion and the reported group result decreased by 30% to EUR 1.387 billion. The adjusted group result decreased by 25.7% to EUR 1.485 billion. The operating cash flow also decreased to a level of EUR 2.332 billion. The free cash flow after dividends was negative at a level of minus EUR 392 million. Net debt has increased by 34.8% to a level of just below EUR 2.4 billion. Because of a better-than-expected business development in the first 3 quarters, we increased our guidance for the full year '24. Based on average hydro wind and PV generation in the fourth quarter '24, VERBUND expects a reported and adjusted EBITDA between approximately EUR 3.2 billion and EUR 3.4 billion and a reported group result between approximately EUR 1.7 billion and EUR 1.8 billion for '24. The payout ratio will be between 45% and 55% of the adjusted group results between approximately EUR 1.8 billion and EUR 1.9 billion. Now on the next page, you see the chart which -- with our hedging volumes. Let me go into more details on that. And let me start with both hedging volumes and hedging prices. As you know, EUR 1 plus or minus of higher or lower average achieved prices has a sensitivity of approximately plus/minus EUR 25 million in the EBITDA line. You see the strong sensitivity of our business model to power price fluctuations. The development of our average sales price is influenced by the Ukraine-Russian war and its effect on the gas prices and as a consequence, of course, in the wholesale price for electricity. After having achieved an average price of approximately EUR 55 in '21, average sales prices skyrocketed in '22 and '23 to a level of EUR 115, so more than double of '21, EUR 115 in '22 and EUR 167 in '23 on the back of rapidly increasing gas prices and enormous market uncertainty. Now price levels are normalizing, which is reflected in our future sales prices. However, be aware, price levels are still substantially higher compared to the price levels before the outbreak of the war. Now let me go into mark-to-market for '24, '25 and '26. In '24, as you see on the chart, we have a mark-to-market price of EUR 116.2 with a hedging level of already 96% for '25, we have a mark-to-market of EUR 106.5 million with a hedging level of 59%. And for '26, we have a mark-to-market price of EUR 80.8 with a hedging level of 37%. Now on the next page, we discuss the Hydro segment. At 1.07, the hydro coefficient, which, as you know, is an index quantifying the hydropower generation of the run-of-river power plants was 7 percentage points above the long-term average, and this is a significant 14% above the level of the first 3 quarters of '23. The positive effect from the higher hydro levels on our EBITDA as of the end of Q3 was approximately EUR 70 million. Let me add that the latest developments in the water supply in October shows a continuing positive trend. In October, the hydro coefficient was at very high 1.43% and therefore 43% points higher than the long-term average. For today, the hydro coefficient is 1.10. The production from annual storage power plants increased by 1% on production from hydropower, therefore, overall increased by 2,961 gigawatt hours or 12.8% to 26,000 gigawatt hours compared to the first 3 quarters '23. Lower average achieved prices, as I explained before, are the main reason for the decrease in EBITDA. In addition, lower flexibility products, especially the products for congestion management, but also for control energy had a negative effect. In total, EBITDA in the hydro segment decreased by 26.9% to EUR 2.276 billion. Our strategic focus in the hydropower segment is to increase efficiency in existing hydropower plants and to increase flexible generation capacities in order to cope with the increasing volatility in the grid system from the renewables build-out. The Capex reflects our strategic focus. Our main hydro projects under construction are the 480-megawatt Limberg III pumped storage power plant project and the 45-megawatt Reisseck II plus pump storage power plant project as well as the 14.3 megawatt St. Vite run-of-river power plant project. The relatively small run-of-river project, Gars started operating beginning in October '24. Now let me come to the new renewables segment. The new renewables coefficient, Here, it is an index quantifying the generation from wind power and PV has decreased and amounted to 0.92 in the first 3 quarters 2024 compared to 1.04 in the same period last year. Generation from wind power, however, increased by 54.2% or 465 gigawatt hours and amounted to 1,323 gigawatt hours in the first 3 quarters '24. The reason for the strong increase in generation is the start of operation of new assets in Austria, Germany and Spain. Generation from PV increased as well and amounted to 360 gigawatt hours or 25.4% plus in the reporting period stemming from PV installations in Austria and in Spain. The increase in generation volumes in the new renewable segment has not led to an increase in EBITDA, which decreased by 21.7% to a level of EUR 123.4 million. Now what is the reason for that? The lower EBITDA is a result of lower achieved power prices, particularly impacting our unhedged generation volumes, which is approximately 25% across the total renewables portfolio. Our strategic focus in the new renewables segment is to increase our renewables generation to 25% of our total generation by 2030. In order to reach that target, we are constantly developing our asset portfolio. Now let me move on to the sales segment. In the first 3 quarters '24, the EBITDA contribution of the sales segment overall is still slightly negative, but it has improved strongly to a value of minus EUR 1 million. Last year, it was minus EUR 164.6 million. This improvement in EBITDA was mainly due to lower power prices, i.e., lower procurement costs for electricity and gas in the end customer business. This positive effect was, however, partially offset in particularly by negative valuation effect for energy derivatives in connection with future energy supplies. In detail, the EBITDA contribution from the retail business is a negative minus EUR 76 million. The contribution from the trading business is a positive plus EUR 75 million, including a negative valuation effect from energy derivatives of minus EUR 70 million. Now what is our focus in the sales segment? We obviously want to increase profitability in the retail business by various measures like an optimized hedging strategy, cost-cutting measures and an improvement in the service business and want to be back in positive territory again in '25. And we want to constantly optimize the sale of our own generation volumes with our portfolio and trading capabilities by, among other measures, strengthening the storage business in order to be able to offer a constant 24/7 renewable electricity supply, which is gaining importance. The next segment is the Grid segment. The EBITDA contribution from the Grid segment overall declined by approximately EUR 156 million to EUR 257 million. The EBITDA contribution from the electricity grid business according to IFRS fell by EUR 55 million to approximately EUR 186 million. Now the reason for the decline are lower contributions from auctions and lower national grid revenues due to volume and tariff decreases. The regulatory account will increase again from EUR 494 million to EUR 542 million in '24. With regard to the results contribution of Gas Connect Austria, we report a strongly decreased EBITDA by approximately EUR 100 million to approximately EUR 70 million for the first 3 quarters of '24. The main reason for the decrease are lower transmission revenues, particularly from the commodity tariff because of a tariff-related overcompensation in '23 because at the time, as you might remember, gas prices were extremely high. The strategic focus on the high-voltage grid is to implement the ambitious grid development plan, which foresees investments of approximately EUR 9 billion over the next 10 years. The growth in Capex will result in a constantly growing regulatory asset base and as a consequence, in an increase in the regulated return, very steady increase in regulated returns. With regard to the development of the regulatory accounts, we are aiming towards an accelerated decline in '25 with a planned reduction of approximately EUR 70 million. Now the strategic focus in the gas grid is to isolate Gas Connect Austria from any future volume risk, which is achieved by a change in the regulatory system to a pure cost-plus system starting from '25 and to prepare for a future hydrogen transfer system, which will be a result of hopefully developing green hydrogen system in Europe. Now with that, I will hand over to Andreas Wollein, who will discuss all other segments and the key financial figures. Please, Andreas.

Yes. Thank you, Peter. So a quick remark to all other segments. So despite the fact that thermal generation grew by about 120 gigawatt hours to 500 gigawatt hours, EBITDA contribution decreased to a level of approximately EUR 17 million, mainly because of a negative valuation effect from energy derivatives in connection with future energy deliveries. The contribution from flexibility products in this segment decreased by EUR 13 million. I continue. The contribution from... Connect... [Operator Instructions] I'm not sure how much you heard. I heard that the line was broken. So let me start again with all other segments. So I mentioned already that -- despite the fact that the thermal generation volumes grew to 500 gigawatt hours, EBITDA contribution decreased to a level of approximately EUR 17 million, mainly because of negative valuation effects. The contribution from our equity consolidated participation in the provincial utility KELAG increased strongly from EUR 46.9 million to about EUR 80 million, mainly due to the improved water supply in the province. In addition, a higher trading result and an improved result in the end customer business contributed significantly to this increase. Finally, let me inform you that with regard to CCGT Mellach, we have to inform you that the power plant was not contracted from Austrian Power Grid for congestion management services -- so as a consequence, the asset will be operated on a market-driven basis. The district heating Plant Mellach, on the other hand, was contracted by EPG for this period. Now moving on to Slide 9 and Slide 10, we go quickly into the development of the key financial figures. Because of the aforementioned developments, EBITDA decreased by 26% to EUR 2.625 billion. Depreciation increased by 10% to EUR 427 million, mainly due to the acquisition of Spanish renewable generation assets and increased investments into the high-voltage grid. The financial results strongly improved from minus EUR 18 million to plus EUR 46 million. This development was attributable to higher earnings contributions from interest accounted for using the equity method, mainly Kellogg, higher interest income and lower interest expenses, mainly caused by the repayment of the so-called Schuschealen in November 2023 in the amount of EUR 500 million as well as lower interest expenses from money market transactions. Taxes on income decreased by 36.8% to an amount of EUR 480 million following the decline in results. The reported group result, therefore, decreased by 30% to EUR 1.387 billion. The group result after adjustment for nonrecurring effects was down by about 25%. Finally, I would like to mention the decrease in additions to tangible assets in total from about EUR 1 billion in Q1 2023 to EUR 780 million in the respective period of 2024 due to a big acquisition in the third quarter 2023. On the bottom left, you will find the additions into tangible assets of Gas Connect Austria and APG, whereas on the bottom right, you will find the additions into tangible assets in the renewables business and others. Yes, with regard to our cash flow situation and the gearing, VERBUS operating cash flow in the first 3 quarters strongly decreased to EUR 2.3 billion, mainly due to lower average achieved prices as well as significantly lower inflows from margining payments for hedging transactions in the electricity business. In addition, higher income tax payments contributed negatively. The significantly lower operating cash flow was also the main reason for the negative development of the free cash flow after dividends. Furthermore, dividend payments increased compared to the previous year. In Q1 '23 2024, we paid a total of EUR 2 billion in dividends to VERBUND and minority shareholders. The free cash flow after dividends, therefore, showed a decline from EUR 1.475 billion to a level of minus EUR 392 million. Net debt increased from EUR 1.758 billion to EUR 2.37 billion at the end of September due to the negative free cash flow gearing correspondingly increased to a level of 22.2% compared with 15.7% at the year-end 2023. So with that, let me hand over to Peter doing the last chart, which is the outlook.

Thank you, Andreas. Yes, always at the end of our results presentation, our outlook and is always at this point, we want to highlight the sensitivities ‘24 as of the end of the third quarter. A deviation of plus/minus 1% in the generation from hydropower has an impact of plus/minus EUR 3 million. 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 the group result for '24. Now based on the positive business development, we have increased our guidance range for the full year '24, mainly because of better-than-expected results from the electricity grid, around EUR 30 million and from flexibility products, they are around EUR 45 million -- our increased guidance for '24 is as follows: We expect a reported an adjusted EBITDA of approximately between EUR 3.2 billion and EUR 3.4 billion and a reported group result of approximately between EUR 1.7 billion and EUR 1.8 billion under the assumption of average hydro wind and PV generation in the fourth quarter '24 as well as, of course, the chances and the risk situation of the group. For the financial year '24, VERBUND plans to pay out between 45% and 55% of the group results after adjustment for nonrecurring effects of approximately between EUR 1.8 billion and EUR 1.9 billion. Now with that, let's move on to our Q&A session.

[Operator Instructions] The first question is from Wierzbicka Serwinowska with UBS.

Wierzbicka Serwinowska, UBS. Two questions and one asked for me as always. So the first question is on your solar development in Spain. If I look at the map in the presentation, solar is the key market for you to develop new renewables to reach this 25% renewables share of the generation mix. But when I -- when we look at the Spanish or Iberian renewables market, it's becoming more and more tricky. Some basically that the deployment of new renewables becomes a bit uncontrolled, and we have more and more hours with a negative power price or 0 negative power price. So my question is, what makes you confident you can deliver returns above WACC and what you can do in terms of the securing PPAs because the competition is pretty fierce there. That's question number one. Question number 2, on the Austrian elections that happened at the end of September, is there anything happening in Austria? Or is there any focus from the politicians on the energy cost or anything that may impact Verbon, that would be helpful. And Peter, the last ask, if you can disclose the latest hedging with mark-to-market? And what do you expect on the surplus and regulatory accounts by the end of 2024 because you raised the guidance for APG. That would be much, much appreciated.

Okay. Great, Wanda. Now I will start with the last question on the up-to-date hedging levels per the 5th of November. We have hedged for '24 98% at a mark-to-market price of 117. For '25, we have hedged 60% at a mark-to-market price of $107. And for '26, we have hedged 37% at a mark-to-market price of 81%. The next question you had was on the elections. At this point in time, there is not a lot I can say apart from there are coalition negotiations among the parties at the moment, particularly between the conservative party and the socialist party. Media speculate that there is a high chance for a triple coalition, i.e., between the conservative, the socialist party and a party called NEOS, the party which has gained the highest popular vote, which is the Freedom party is currently not part of the negotiations. At this point in time, no matter which constellation we are going to see, we don't expect any negative political decisions on the energy market at this point in time. And your first question is a perfectly rational one on solar development in Spain. You're right. The market is indeed challenging. You call it more and more tricky. Yes, tricky because we have obviously a large build-out of renewables, particularly solar. At the same time, you mentioned negative prices. Yes, that is true as well. Low prices, 0 or negative prices and the PPA market is very competitive. We have a relatively large pipeline of solar projects in Spain, slightly below 2,000 megawatts those 2,000 megawatts will be built. And the way we see it, the future of solar in Spain is in combination with other technologies. So that could be any kind of baseload, but it could also be storage. As you have probably seen, storage is getting more competitive. We also think that a number of Asian producers could come out with a new generation of batteries, which have a higher density and a lower price. Now if solar were combined with battery storage, that would be an opportunity to create not really synthetic baseload, but almost synthetic baseload is if you then combine it with wind and for example, hydro, you should have a more stable production.

Then Wanda, I think the last question was on regard -- was linked to the surplus of the regulatory account in APG. Yes. So this year, I think there is another increase in the regulatory account. This is not a big one, but it is an increase. So we started 2024 with a negative of EUR 494 million. Now the regulatory account will increase according to our latest planning to about EUR 540 million. at the end of this year. For next year, we are pushing for and as Peter said, an accelerated, let's say, reduction in the regulatory account. That's why we are currently assuming a net decrease next year of around EUR 70 million.

Peter, just 2 quick follow-ups. Do you have the hedging price without mark-to-market? Because I think you gave me the blended price. And the second one, when you talk about combined PPA, solar, wind and batteries, when I look at your plants, you have 1.7 giga target 2030, but this is solar. You only have 400 megawatts in wind. You have no batteries or this is not included in the current plan. You don't have any hydro. So should we expect more cooperation with other utilities or other players? Or should there be more M&A in Spain?

Well, both is possible. No, all 3 are possible. On the one hand, we obviously continue with our organic growth on the execution of the existing pipeline, which we had acquired a couple of years ago. That is number one. Number 2 would be that we are going to increase our Capex in battery storage and the cooperation with other utilities and/or electricity users through PPA or other arrangements is a possibility as well. And in terms of the more detail on the hedging levels, for '24, I mentioned 98% is hedged. That would be hedged at 117 -- the 60% for '25 that are already hedged are hedged at 119 and the 37%, which are hedged for '26 are hedged at 79%. And you're right, the prices which I gave you before are mark-to-market, i.e., blended prices.

The next question is from John Campbell with Bank of America.

First one, I wanted to ask you about gas prices. So specifically related to Ukraine. I'm interested sort of what is your outlook for gas prices, particularly in the context of the recent U.S. presidential election? And do you see upside from gas flows from Ukraine? Second question relates to special dividend optionality. So you've got EUR 2.4 billion now of net debt relative to EBITDA, that's sub 1. What is your appetite basically? What's your latest appetite for the topic of special cash returns? And then I'd be interested also any comments you can have on the sales segment. So I think you previously said you saw a loss of EUR 100 million. Your 9 months is just minus EUR 1 -- so what should we sort of expect for the full year now in that specific segment?

Sure. Yes. I'll divide up your questions. I will discuss gas prices with your special dividend. Andreas is going to cover the sales segment. Yes, I think your question on gas prices is highly relevant for all the generators. You might remember that we have been discussing gas prices in previous conference calls. And you might also remember that I have been forecasting lower gas prices as a result of an oversupply coming to Europe starting in '27. That oversupplies effect because we already know about sort of like the contractual agreements, particularly on the LNG side. We know the capacity of the reliquidification plants, et cetera, et cetera. Now what could change with the elections, and I think that is not just a speculation, but that is a relatively rational opinion that is developing in the market. If we have more flows coming from Russia, into Europe as a result of some sort of an arrangement between the Ukraine and Russia, that would mean that we have even more supply coming into Europe that could already start earlier than the LNG supplies, which I've mentioned. And that in combination of higher supplies which have developed during the war coming from Norway and higher suppliers coming from Northern Africa, of course, from Algeria through Italy all the way up to Europe, when you put all that together, there should be downward pressure on gas prices going forward. Now if you -- so if you assume that gas prices would normalize, to levels which we have seen pre-war. And if CO2 prices don't go up from the current levels, I think today, they are around EUR 64. So let's just assume that it would stay somewhere between EUR 60 and EUR 70, even EUR 60 and EUR 80, you would also, as a consequence, see lower power prices. On the -- on your second question on the special dividend, we currently have no plans for a special dividend. And Andreas, maybe you could comment on the sales segment.

Yes, the sales segment for the full year. So we currently expect for the retail business, still a negative EBITDA contribution of around minus EUR 100 million. Then we expect for the trading business an EBITDA contribution of plus EUR which results in a total minus of EUR 20 million. But the trading business includes also a negative valuation effect of around minus EUR 95 million. So these are the figures.

That's very clear. One more, if I just could quickly. When I look at your full year guidance, right, you've upgraded the EBITDA of EUR 3.2 billion to EUR 3.4 billion. Is that entire guidance range predicated on the concept of hydro being at 1x coefficient? And if I understood properly on the call, you said that October was at EUR 1.43 billion, and you said that the latest is EUR 1.1 billion. So is that entire range of guidance predicated on?

Yes, it is the entire range of guidance. There are obviously positive effects, but also negative effects, which could be relevant for the -- until the rest of the year. As a result, the guidance which we have given encompasses all the influencing factors on the results until year-end.

The next question is from Jeffrey Olly with Deutsche Bank.

Two questions. So one, just following up on that answer you just gave on the guide. My understanding, historically, whenever you've given updated guidance during the year, you do assume the hydro efficient of 1 for Q4. So just to clarify that what you've done in this case or not? And then with the extra October hydro bonanza you had, I presume that's probably like an extra terawatt hour, so maybe an extra EUR 70 million EBITDA. So perhaps the midpoint, if you assume the hydro efficient of 1 for this guidance is not at the midpoint of 3.3, it’s probably the upper end of the range. So your views on that would be great. And then the second question is on the sales segment. So could you help us think about how that can evolve over the next couple of years in the context of as power prices and gas prices start to come down? Is there some correlation between those 2 segments? Or are they very much independent and it just varies from year-to-year? So how do you think -- how do you think about that sales segment progressing in the context of changing commodity prices coming down for the next couple of years?

I'll start with the second one and then move on to the first one. On the second one, what we are currently seeing is that with procurement prices and previous hedges for our retail business, the result is constantly improving. So when we look into '25, we think that the results of the sales segment for '25 will definitely be better than '24. And coming '26, if prices continue to be lower, we should see results improvement there as well over the medium term in that business. And you might remember that I mentioned a number of measures which we are taking in the sales segment. In terms of the guidance, I mean, you're right. What we usually do is we take the existing hydro coefficient and for the rest of the year, we take 1.0. Now yes, in October, we had a very strong hydro coefficient. What is the coefficient going to be in November or December? We don't know. If there were -- and this is a singular piece within our guidance, there are other influencing factors as well. But if the hydro coefficient were very high or high in October, November, December, particularly in November, December because I already mentioned how much it was in October, then, of course, that would be a positive within the guidance range.

And then just to clarify, could October have been an additional EUR 70 million? And on your comment on the sales segment, is that talking about the underlying business, excluding potential improvement of valuation effect? Or is your comment taking into account that valuation effect reducing and therefore, that's why you would see a positive increase in the sales segment?

No, everything I've said in terms of the sales segment, the short and medium-term development is excluding any effects in terms of derivatives mark-to-market valuations.

And on the October being EUR 10 million to EUR 70 million positive, would you agree with that? Or is that too much perhaps?

The October number is somewhere between EUR 50 million and EUR 70 million.

The next question is from Williams Harrison with Morgan Stanley.

So 2 from me. Firstly, could you give us an update on your expected net debt to the end of the year? I think previously, you guided to 0.8x EBITDA, but clearly, you've increased EBITDA today. So an update there would help. And following on, what would be your longer-term gearing level that you are targeting or happy with and maybe the time line you look to get back to that level? And then the second question, just a confirmation on the regulatory accounts again. Can I confirm you said the accelerated unwind of that would be EUR 70 million in 2025? And is that the reasonable number to expect going forward beyond that as well?

Yes. Okay. Good. Let me start with the level -- the debt level at the end of the year, it's approximately 0.7x net debt EBITDA. In terms of our target, our target is a net debt EBITDA of around 3. That is something if EBITDA comes down with lower power prices and we continue with our Capex, that is a number we could get to within the next few years, which is fine because the 3 is what we consider a normalized net debt EBITDA level, also something we have discussed over the years with the rating agencies. So this is perfectly acceptable. 0.7 is a low net debt EBITDA, which gives us room in terms of the Capex, which we have been planning. On the regulatory account, yes, it is around EUR 70 million, which we are planning to reduce in the regulatory account between '24 and '25. And what was your third again? Your third question please.

The run rate beyond 2025, the EUR 70 million kind of the run rate we should extrapolate into '26 and beyond.

Can't really say that because it really depends on the regulator. I would not assume that automatically because we don't know what the regulator is going to decide.

Next question is from Thibault Lujardin with Bernstein Societe Generale.

A question regarding new renewables and the impact of capacity addition, in particular in Spain. And I guess you mentioned that 80% of production is hedged. May I ask if you have more granularity per countries just to have a view on run rate EBITDA?

Yes. On the PPAs, granularity per country, I cannot give you more detail. So far, we have decided to give you sort of like the overall percentage of our contracted levels, which is around 75%. In terms of -- in terms of the new renewable development, there, when you look at the EBITDA development, EBITDA has come down. That is something I mentioned in my presentation, despite the fact that we have a large percentage of contracted business. So around the 25% noncontracted business has suffered from lower power prices. That is also in line with some of the questions which we have discussed before. Now with a continuation of lower power prices, we actually think that EBITDA next year in the new renewable segment could actually be either the same or could come down, but that really depends on the power price development. So the new renewable segment somewhere moves in line with the hydro segment with the obvious exposure to power prices.

The next question is from Piotr Dzieciolowski.

I have 2 questions. So the first one, I wanted to ask you more a little bit technically when you think about creating this combination of a solar plus battery. When you have a typical project, call it, 10-megawatt solar in Spain, what type of batteries would you have to add to make it to the baseload? And when you think about this baseload price, what kind of a levelized cost of energy you get at the end of it by kind of making a combination of these 2 assets? So that would be the first question. And the second question I have on your hydro in Austria. Have you tried to lock in a long-term PPA prices for your output for another terawatt hours? Your competitor from Nordics is trying to do a marketing of this power, but I wanted to ask you how it looks on your side.

Yes. Piotr, on the first one, I cannot give you an LCOE on a combined solar and battery. What I can tell you is that when you combine solar with batteries, you should go for 4 hours. There were discussions around sort of like 1 hour, 2 hour, but what you really need is the 4 hours in order to compensate for the very low prices when the radiation is strongest. As a result of that, the Capex for a 4-hour battery is obviously higher than the Capex for a 2-hour, 3-hour battery. So there needs to be a smart approach to the combination of batteries, solar, wind and hydro in order to optimize the LCOE. On your second point, hydro, we have decided that we are going to enter long-term PPAs on our hydro business. However, we have not yet seen price levels for long-term hydro PPAs that we found attractive enough. As a result of that, we have not concluded any significant PPAs. However, should there be developments for premium being paid for very constant green baseload energy, the same way we are seeing it in the U.S., then we would certainly enter such PPAs.

And sorry to be so persistent, but your unwillingness to give these LCOEs comes from the fact that it's different for different setup of our assets or that's because it's a competitive advantage and nobody talks about it yet. And with the 2 prices, your long-term hydro PPA would not be equivalent to exactly this amount.

Okay. Now acoustically, could you say the last sentence as well when you mentioned hydro PPA?

Well, so I just thought -- I mean, you either have a combination of a solar plus battery plus wind, whatever the combination is, and that is a green baseload PPA. So LCOE on this price would be equivalent to your expectations of your hydro PPA because the product is the same. It's just differently produced. But I mean, is that the way you would think about your long-term attractive PPA price?

No. Two different markets. When I talk about our solar pipeline and the combination with batteries to achieve an attractive LCOE, there, I'm talking about the Spanish market and obviously, the price development in the Spanish market. And when I talk about hydro PPAs, I'm mainly talking about the Austrian and the German market where we have our hydropower plants.

We have a follow-up question from John Campbell with Bank of America.

A couple more follow-ups. So one investor I was chatting with mentioned that I believe ACCIONA according to Reuters, were considering selling some hydro assets. And in their view, they felt that it's quite rare for hydro assets to come up for sale. Again, it was in Reuters, I think it was a EUR 1 billion price. Is that something you would look at or have looked at, number one. Number 2, German election. So one of the comments we found from Chancellor Schultz was in terms of disagreement with this finance minister was rising electricity prices. So any comments you could give on the politics in Germany, whether that impacts you very much or not? And maybe lastly, just could you give me a reminder, so you said very clearly, right, you've got the EUR 70 million reduction in the accounts or whatever it is for APG. How will that affect the sort of the earnings that you report? Because I know there's some sort of a difference between GAAP and the way you report your earnings, et cetera. So could you just maybe remind me just for my benefit, of that EUR 70 million effect for '25 earnings?

Sure. I will start with the first one. The -- yes, we look at hydro assets in Europe. And we would look at the hydro assets, which you have mentioned as well. The second point is Schultz and his comments, which he has made within the last 24 hours and previously and some of the disagreement. I think it is important because it could be the basis for coalition negotiations next year. Sort of like a working hypothesis would be that there could be elections towards the end of March, maybe beginning of April. I think that those negotiations will probably be between the socialist party and the conservative party, that they – And there seems to be a consensus in Germany, which is quite rational that everybody, the entire industry, retail, everybody wants lower power prices. The pressure is huge because Germany is not doing well. The industry is not doing well. And the industry has very much focused on power prices. And power price is not the only culprit. There are many others, but that is an easy one to sort of like to point out because everybody understands. So I think that there will be negotiations around that point. The problem is you have a conundrum. You have a real conundrum because on the one hand, with the build-out of renewables, you get lower power prices. At the same time, in order to integrate renewables and in your system transformation to move from a decentralized -- sorry, to move from a centralized to a decentralized system, you need a tremendous investment into transformer stations and into the grid. Those investments need to be shouldered and those investments are going to be part of the energy price. So how are they going to resolve that? I don't know. The only approach that would make sense and would be smart is to look at the entire system transformation and look at all the components and try to really find a fully synchronized transformation, which also includes the baseload issue. I don't know if you know, but yesterday, we had a situation where we had no sun and we had no wind. Germany was in a -- I wouldn't say in a dramatic situation, but in a difficult situation, it had to import base load as much as possible in order to avoid the fact that instead of 20,000 megawatt potential wind, there were only, I think, 600 or 700 megawatts. It was at 1,730, 1,800 in the evening. And obviously, there was no sun. So the entire the entire baseload availability was required without imports that would have been a real problem. So that is just another sign how important it is to fully synchronize renewables build-out, baseload availability, availability of flexibility products and then, of course, net transfer capacities from other countries. So that is going to be a big topic. And if you take it seriously, should be a major part of the new policies coming out of a new German government early next year. The regulatory account. Yes. Now yes, the regulatory decreases in the regulatory accounts will have an impact... On the earnings coming from the grid.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to the management for any closing remarks.

Yes. I would like to thank you for, as always, a very interesting discussion, which Andreas and I really appreciate. Today is a very important day because of the U.S. elections and the geopolitical impact, which is very hard to grasp and is very hard to anticipate. We have seen the German coalition falling apart yesterday, last evening with many open points in the future. The geopolitical side continues to be difficult and will bring volatility. We have discussed it in connection with the gas prices. If you take all that, we think that we're going to have -- let me put it positively, we're going to have very interesting 6 to 12 months ahead of us. And in that context, I obviously appreciate your interest and your valid contributions in the discussions which we're always having at those conference calls. Many thanks, and have a good day.

Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.