Edp Renovaveis Unsp/Adr

Good afternoon, everyone. Thank you for attending EDPR 2023 Results Conference Call. We have here with us our CEO, Miguel Espudo Andrade, and our CFO, Rita Scherer. We'll run you through the key highlights on the update on the execution of our strategic plan and the financial performance of the year. We'll then move to Q&A, in which we'll be taking your questions both by phone and the written questions that you can insert from now onwards in your conference webpage. This call is expected to last close to 60 minutes. I'll give now the floor to our CEO, Miguel Sildenrath.

Thank you, Miguel. Good afternoon to everyone, and I think it's good that we can talk and update you on what's been happening in 2023 and also the company's update and outlook for the year. And I start off by saying that 2023 was a challenging year for the renewable sector in general, but also EDPR in particular. And I don't think there's any sugarcoating it, and I won't try to. I'll give you a balanced and realistic view of where I think the sector is and where EDPR is. As you know, we've been regularly briefing you on the year, and the fourth quarter didn't go particularly well either. There were several issues that negatively impacted us and that we've been working through and are continuing to work through, and I'll go through that in detail in the presentation. There are also some positives that I will highlight. So I would start off just by going Just before going to the bulk of the presentation, to slide four, just saying 2023, as I said, definitely challenging. Overall, for 2024, we do expect the underlying business to grow in 2024, you know, as much as above 20%. But assuming the capital gains in line with the business plan, that there would be a moderate growth in EBITDA overall. So moving forward to slide four, first, I think if you look at the capacity additions, we had a strong fourth quarter in 2023. We added 1.7 gigawatts of renewables, which is quite an impressive volume for a single quarter. And so we ended up the year with a total of 2.5 gigawatts of annual capacity additions. So this is what we've previously anticipated at the nine-month results release. Going forward for 24, we have very good visibility on the execution of our four-gigawatt targets. We already have 85% of this capacity currently under construction. And the last couple of months, we've seen also the normalization of the solar panel supply chain in the U.S. So, you know, we had a pretty adverse environment over most of 2023, and it seems to have normalized now. Regarding balance sheets, you know, in 2023, we reinforced our capital structure with a $1 billion equity raise, and we've also successfully implemented a new script dividend policy, which would be the second year. We just came out with – the news release for that this week. On asset rotation, I think it was a particularly strong year. Great execution by the teams and reflecting, I think, the value of the assets. And I remember this time last year when we were getting a lot of questions on the demand for asset rotation, if we could still keep it up. And yes, I mean, the answer was clearly in 2023, we had three great transactions, contributed a total of 1.7 billion of proceeds, 460 million of gains, and an average gain of 60% on invested capital. So again, a year on, I think we can look back and say it was a great year for asset rotation. And it's clearly above the 20 to 25% target return for asset rotations that we'd assumed in the strategic plan. We continue to see strong interest from investors. And in the beginning of 2024, we've already announced the closing of one transaction. We've signed another one. We expect them to close in first quarter of 2024. totaling a total of around $1.1 billion in terms of enterprise value. The 2030 was also marked by quite a few material headwinds, and we shared them over the last couple of quarters, and now we're actually showing the numbers impact. We had a well below average wind resource with a negative impact of around $200 million in the 2023 EBITDA, mostly penalized by the El Nino effect on the U.S. wind resource, I think, We flagged that already, I think, in the first quarter numbers of last year that that was beginning to happen. We had a cost associated with the delay on the transition line permitting in the wind project in Colombia. We had the bottlenecks on the solar panel supply chain in the U.S., and we had the counter-cyclical callback taxes in Europe. So, altogether, these headwinds represent about a $400 million negative impact on our 2020 EBITDA, and they seriously distort our underlying P&L. Finally, in late December, we announced an agreement for a transaction that comes to I think it will allow us to simplify the corporate structure. It's definitely earnings accreted from day one. So we bought back 49% of a one gigawatt portfolio of wind farms that we operate in Europe, around 570 million. The implicit enterprise value per megawatt multiple was around 1.2 times. And we expect the transaction to be closed in the second quarter of this year. So now I'll go deeper into these topics. And I'd start off just by taking a step back and looking at the big picture. First, we had some positive news coming out of the COP in December, essentially talking about tripling the renewables capacity between 2022 and 2030 to reach the one and a half degree target. And so that commitment was, let's say, signed by more than 130 national governments. We have the European Union coming together and also agreeing to triple that. So I think that broad tailwind continues to be there and we continue to see it you know, pushing the sector forward. Solar PV and wind is expected to account for 95% of global renewable expansion, and that's where we are placed, and we're well-placed to take advantage of that. You know, in general, the generation costs continue to be below both fossil and non-fossil fuel alternatives. There's also been upward revisions of the 23 to 27 targets for renewables in countries like Brazil, Germany, the U.S., so large economies where we're present. In the offshore, we also expect the upward price revision auction coming up in round six. You know, the price cap increased by 66%. And in the U.S., we're also seeing a significant increase in the pricing, including inflation updates over the construction stage. So we are seeing conditions improve materially for auctions, both onshore and offshore. We saw in 2023 also the approval by the FERC, so the Federal Energy Regulatory Commission, or rule to speed up the interconnection processes. As you know, that's one of the issues which is holding up a lot of projects for the sector. And that's the first major change to the interconnection requirements in two decades. So, you know, work is being done by the different regulators to try and get, you know, streamline the permitting and the licensing issues. And in Europe, I think, you know, the European Commission has also come out with a goal recommending the 90% greenhouse gas emissions rate. compared to 1990 of around 90%. So 90% reduction for 2040 compared to 1990. So things seem to be going in the right direction. The broad macro wins are there. Now it's really about execution. And so if we go on to the next slide, I think if we look back, we are continuing to scale up significantly versus what our growth rate was in the past. You know, as I say, over the decade 2010 to 2020, we're growing around 700 megawatts a year. We're now, you know, we just did 2.5 gigawatts. You know, that's still a significant increase versus what our historical growth is. And as I say, we are very confident on the 4 gigawatts for 2024. I mentioned to you 85% is on the construction. 15% is expected to start over the next few months. It's got a big weight of solar DG projects. that normally have an average construction time of around six months. I think it's important to say also that most of the solar panels have already been delivered to the project in the U.S., and so that gives us quite a high degree of confidence there. Let me move forward to the next slides on asset rotation. So here, as I mentioned, you know, very strong gains, around 60% gains on invested capital, three transactions, Spain, Poland, Brazil. I won't go through a lot of detail because I think We've already given information over the course of last year, so this is not news for most of you. I would just highlight that in the beginning of 24, we've already closed those two additional transactions, so around 500 megawatts, 1.1 billion enterprise value. As I said, the other transactions for 24 have already been launched, and we expect to get the gains and the proceeds to be at least in line with the strategic plan target. If we move over to slide eight, Just to give a highlight on the buyback of the 49%, I think it was a good opportunity that we had to take back 100% control. It gives us quite a bit of additional flexibility, simplifies the ownership structure. Its cash flow and earnings accrued at day one, and it gives us more flexibility for hybridization, retiring, and even on the energy management side. So we're expecting this for the second quarter, but as you can see, pretty healthy numbers, you know, double-digit cash yield and around 40 million expected contribution to net income. We move to supply chain. So, supply chain, definitely much stronger position, I think, than we were maybe nine months ago. We had to reconfigure the supply chain in the U.S. because, you know, we had a large dependency on laundry panels as a result of significant delays in the import of those panels. We went back and we reconfigured it to – so now we have nine different suppliers for the 2024 deliveries between the U.S. and Europe. They're all aligned with ESG audit requirements and traceability and the manufacturing origin. I think that's really something that's important is to make sure that we don't get caught up in any issues around UFLPA, so the UGRI Forced Labor Protection Act, or tariffs in the U.S. So some of these modules are already produced in the U.S., we've diversified the polysilicon including origins from the us germany malaysia so i think overall we're in a better place or a more resilient place now in relation to the supply chain and as i say if you see here on slide nine at the bottom you've got the 70 percent of the solar panels already delivered which is what i mentioned on the so in relation to the previous slide so that i think positions as well i think if you look at costs on the right hand side It's also important to see that the costs have been coming down for solar panel prices significantly. We've recently closed frame of agreements on about one gigawatt of solar panel volumes for late 24, early 25 deliveries, mostly in Europe. I think it's record low prices, so I think that also places as well for the growth there. If we move to slide 10, talking about risk and hedging and long-term contracted. As you know, we normally have a policy of being quite contracted and hedged going forward. That sometimes has a downside if prices spike, and we don't capture all that upside. But it also has an advantage, which is when prices fall, we also don't get as much impacted. So we've kept the high rates of long-term contracted and hedged electricity sales. You know, normally we target long-term contracts of at least 15 years maturity. and we try to lock in at least 60% of the cash flows for the investment, let's say, of the NPV with this contracted profile. Specifically in relation to 24, so 90% of the expected generation is already contracted or hedged, and in 25, 85%. Only 50% is related to European electricity markets, which is mainly Spain. The rest of the merchant exposure is mostly U.S. and Brazil, where electricity prices have you know, the volatility has been less significant. And I think it's also important to note that this residual exposure to the spot electricity prices is associated with the low-risk volume management of renewables generation and intermittency. So that, you know, obviously there can be blow more or less. In the case it blows less, you want to make sure you're not over-hedged. And so that is typically where we want to be. Regarding prices, they were above 80%. euros per megawatt hour for 2024, above 70 euros per megawatt hour in 2025. So significantly above the current forward prices. So that is part of the downside, but it's part of, let's say, in relation to a smaller volume. The average maturity portfolio of the long-term contract is around 13 years. So I think that provides quite a lot of stability to the revenues. We move forward to slide 11. So this is an important point that I think we've raised in a couple of calls and conferences, which is, I mean, we are investing over the economic cycles. And particularly when we look at the revenues that we are securing since 2022 for renewable projects to be delivered going forward for 24, 25 and beyond, we are investing in what we think are better conditions, higher PPA prices, assuming already a higher cost of capital And so, obviously, having also higher absolute returns. So, I think these will end up being pretty good projects. So, 61% of the projects have the secured capacity. The decisions were taken since 2022. So, as I say, taking advantage of these assumptions. These projects were approved at an average of, you know, over 1.4 times WACC. They will be entering operations from late 24 onwards. And so I think we might benefit from a slight improvement of market conditions if there's an easing of supply chain pressure or lower interest rates versus the 2033 peak levels. Overall, we continue to see attractive returns based on our investment criteria, not just within the portfolio of secure projects, but also projects under development that we haven't yet secured or commissioning in 25 and beyond. We go to slide 12. Well, this is a point which I think is important. Obviously, in a market where energy prices are reducing, at least on the merchant side, and where there have been delays, it's really important to be focused on efficiency and making sure that we are mitigating the impacts of the delays in the project. So on one hand, we've been making sure that we are focusing the growth. So around more than 90% of secure capacity for 24 to 26, We're expecting to come from 10 core markets and 60% from three core markets, which is basically the U.S., Spain, and Brazil. So leveraging there on the critical mass that we have in those markets. In terms of organization, we are leveraging on the EDP and EPR synergies, so particularly in terms of back office and some global functions to make sure that we're not duplicating teams or not duplicating functions. So I think that's allowing us to streamline, let's say, the the operations and the overheads and really make sure we are the leanest, most efficient company possible. On terms of cost efficiency, we are implementing a series of cost efficiency savings, including the lane of headcounts given slower growth. And so we are estimating savings of more than $30 million already in 2024 and growing. And on O&M, we're also seeing increased availability and also a leaner cost structure there. That's more on the efficiency and on the organizational front. On the technologies, hybrids, we continue to see quite a lot of potential for hybrids. So we've now reached 107 megawatts of operational wind and solar hybrid projects in Poland, Portugal, and Spain. We're the first ones to actually have hybrid projects in Portugal and in Spain. And we continue to work to materialize our one gigawatt of hybridization pipeline. So those are, let's say, quick wins that will have quite a lot of value. just because of the sharing of the infrastructure in terms of the interconnections and the access roads and so forth. In terms of storage, we've already installed 60 megawatts in the U.S. We have around 200 megawatts under construction also in the U.S., and we're working also on the pipeline in the U.K. And then in terms of solar GG, the generation and salt capacity both in APAC and in the U.S. has increased over 50% year on year. So we do have leverages or we do have synergies in them. this business line together with CDP to establish a global platform. And in terms of contracts, I mean, in many cases, these are relatively large contracts. So, in 2013, we closed the largest U.S. corporate sponsorship of distributed PV with Google. It was quite a highly publicized contract of around 500 megawatts, and that's something that we're working on to make real over the next couple of years. Finally, in this section, just another word on OW. So we currently have two gigawatts of wind offshore projects under construction in Europe and around 1.7 gigawatts of projects in advanced development stage in both Poland and in the U.S. Starting the under construction, we have three projects in France. I mean, they're progressing as planned. The CODs are expected in 2025, 2026. More West, our project in the U.K., has the foundation installation already underway. I mean, there's some amazing photographs online if you want to see them. The offshore substation platform is being installed. Regarding Poland and BC Wind, it's been approved, so we have the interconnection capacity increase of around 100 megawatts, which means that we have a project which could reach almost 500 megawatts in total. And finally, on South Coast winds, used to be called Mayflower Project. That's the project in the U.S. off Massachusetts. It's an advanced stage of permitting and interconnection. The revenue is not secured. As you know, we canceled the PPA last year, and that's part of the numbers last year. And we are analyzing the potential bid. It's the first multi-state PPA auction in the U.S., so it's the Rhode Island, Connecticut, and Massachusetts. That bid is expected, or let's say that bid PPA auction is expected around the end of March. So like both onshore but also for offshore, we do follow the strict investment criteria, namely in terms of target risks and returns. And we also obviously aim to minimize the timing between PPA contracting and FID. So it's obviously very important. I think we've seen that very clearly in the sector over the last year, the importance of trying to line up both revenues and costs to mitigate that potential disconnect in case there's a market disruption. So I'll stop there for now. I'll pass it over to Huy to go through the 2023 numbers, and then I'll come back for closing remarks. Thank you. Thank you, Miguel, and good afternoon to you all. I would like to take you through the 2023 results now. And maybe if we move just to slide 15, as we already anticipated in the previous presentations, 2023 operational performance has been heavily impacted by the El Nino weather event in North America. It impacted the region this year since April, more or less, leading to an annual renewable index deviation of minus 7% in the region. This compares to a plus 4% in 2022, so a big drop year on year. Obviously, these low wind volumes have a negative impact, a substantial one, close to 0.2 billion euros off the EPITAP. There are two important messages I would like to convey with the chart on the right-hand side of the slide. The first one is that El Nino is cyclical. It's a cyclical phenomenon. We are aware of it, and we already incorporate these sort of events in our long-term forecasts of our net operating hours. So it is captured in our PPP and PV estimations when we go for financial investment decisions for our projects. The second one is that our historical data shows that the slope of renewable resource deviation is zero. So there's no evidence that our portfolio is exposed to a declining wind speed. Obviously, we do have the short-term financial impact by the volatility, the normal volatility of wind, and particularly impacted by this type of phenomenon, weather phenomenon as the El Nino. But it doesn't mean that we have an upward trend of portfolio profitability. For 2024, we do expect a gradual recovery towards more normalized levels of wind resource. If we now move to slide 16, along with lower wind resources, EDPR performance in 2023 was also impacted by other headwinds that we have talked about several times, and those are mainly related with the delays of capacity in the U.S., and the Columbia and some windfall taxes, energy taxes in Europe. So, regarding the first one, U.S. solar project delays caused by the supply chain issues that Miguel already discussed impacted our EBITDA by about 50 million, 51 million years this year. For 2024, we do not expect additional costs from COD delays as around 70% of equipment has already been delivered for the year's installations. And the construction schedule foresees a gradual ramp-up of the U.S. solar capacity and generation volumes over 2024. Floodwaters in Europe have an impact of 106 million years at EBITDA level in 2023, effectively lower than what we initially expected in the beginning of the year. You may recall that we were estimating a potential 300 million years of impact, and this was on the back of lower prices throughout 2023. For 2024, Polish clawback has ended, so it will not be active in 2024. Romania will continue to have an impact. It's a non-cash impact after we unwind the hedges. So there will be an impact, but again, it will not be a cash one. The clawback pure impact, what we call the effective application of a fallback, will not be material at all, given where we are in terms of price conditions for 2024, or price forward curves for 2024. Spain, as you know, introduced the 7% tax on generation revenues, and this will imply around 15 million euros impact in 2024. But all in all, The big number, the 106 million that we have at EBITDA level is going to reduce materially as we move into 2034. Lastly, we have incurred costs with delays in Colombia. This amounts to about 50 million euros in 2023 P&L. This is related to the short position that we have, given that we have the delivery commitment, the energy delivery commitment, but we don't have the operating midfarm. We are in advanced stage of negotiation with the majority of the uptakers, aiming to reduce that short position. In parallel, we have been hedging an important portion of the generation that you are bound to deliver in 2024, and this would reduce the potential impact in 2024. As you've seen in our numbers, we've decided to book a non-cash impairment of 179 million euros, driven by the project delays and the Of course, we consider this as a non-recurring impact, and I'm sure we can provide you some more details if you ask so. Also, as Miguel already said, we expect to get transmission line environmental permit in the second half of 2024 and continue with construction to have these projects fully operational, I would say, by late 2025. On slide 17, recurring EBITDA was about 1.8 billion euros. That's a 14% drop year-on-year. This has a positive impact from the asset rotation gains, 460 million, which are very much above the target that we set for our business plan. And also the EBITDA growth or the evolution was driven by an increase in terms of 12% year-on-year installed capacity. But, of course, we had that negative impact from lower renewable resources. Also, lower average selling price, about minus 6% year-on-year, with Europe coming down from the abnormal peak prices in 2022. And this was partly compensated by the 8% increase in realized prices in the U.S., mainly coming from the new additions at higher prices. Also, some temporary headwinds in Europe and the Americas that I already explained. Also, to highlight, the reduction of share profits from associates. This is driven by the reduction of the wholesale prices in the UK versus, again, a very extraordinary level in 2022, and the PPA cancellation penalty that we booked back in Q2. So, all in all, this justifies the drop in EBITDA to 1.8 billion euros. On slide 18, the net expansion investments of 2.9 billion euros. I think it's an important number too, how it shows really that we carry on with the growth, even though we have these headwinds. By the end of the year, net debt was at 5.8 billion euros. That's an increase of around 0.9 billion versus December 2022. mainly driven by the growth effort with this overall 4.2 billion of expansion capex on a gross basis, partially offset by the asset rotation and also the tax equity proceeds. Maybe here I think it's important to highlight that 2024 started with a strong balance sheet position, obviously with the 1 billion additional asset rotation already executed and signed for the year. that are basically reducing the January debt to about, you know, to the levels of the 2022 year-end. We will have more proceeds from these asset rotation transactions through the year, along with a strong contribution from tax equity proceeds as the U.S. projects get to COD, and I expect here more than 1 billion euros contribution. If we now move to slide 19, Financial results amounted to $313 million in 2023, decreasing 30% versus 2022. There are some impacts here. Currency, as we have been rebalancing, as you know, on the net hedge investment, the US dollar exposure. Also, some reversion of the negative impact of Forex and derivatives back in 2022. as well as higher capitalized financial expenses in line with their current project timings. Average cost of debt increased to 4.8%, driven by a higher gross debt of around 1 billion euros year-on-year. And EDPR debt has 82% of the socket fixed rate. And it's important to mention that our financial liquidity, and that includes cash and committed credit lines, continues to cover refinancing needs beyond 2026. and that more than 70% of our debt matures post-2026. So if we now move to net profit, net profit totaled 513 million euros versus 671 million back in 2022, impacted by the top-line headwinds, partially compensated by the strong execution on the asset rotation side, as well as the improved financials. Non-recurrent accounted events of net profit were mainly the PPA cancellation in Massachusetts from Q2, and this is at the typical level, the impairment in Colombia this quarter, and the Romanian provision at the depreciation and amortization, and this is related to the tax fallback in Romania. Lastly, as announced yesterday to the market, the board of directors will propose in 2024 general shareholders meeting to continue with the script dividend program that we introduced last year for the results corresponding to the year 2023, providing, I would say, once again, with a flexible remuneration system for our shareholders that can opt between cash or shares. And with this, Miguel, I would hand back to you for closing remarks. Thank you. Thank you, Rui. So in relation to 2024 guidance, first I'd say that we reiterate the four gigawatt installations for 2024. 85% is already under construction, 100% secured with long-term revenues and the part is also beginning to progress. The second is to say that we start off with a strong balance sheet position and we have the capital increase. We have $2.4 billion of asset rotation proceeds executed and signed as of today. We've had another half a billion of tax equity proceeds also cashed in. And we will continue to execute significant volumes of asset rotation proceeds and tax equity during 2024. So I think that's a positive message and something that we continue to see in the market. Despite the 2024 strong expected installations, we do have a lower cumulative capacity added versus the business plan. So that leads us to estimate a lower volume of renewable generation in the year to around 40 to 42 terawatt hour range even so that's a year-on-year growth of around 15 or more than 15 percent and despite the high weights of the long-term contracted and hedged generation our portfolio there has been a material decline and i'm sure you've all seen that in the market over the last couple of months of electricity prices in europe as i mentioned earlier in the presentation so brazil in the us that there wasn't such a high increase there isn't such a there isn't also a decrease That leads us to estimate the average selling price for the global renewables generation portfolio as a whole from the 53 to 55 euros per megawatt hour. So we don't normally provide guidance at this point in terms of IPTA or net income, but let's say this is some sort of help to try and get a view on how we're seeing 2024 as of today. So as Ruiz mentioned, we do see some headwinds continue to and maintain in 2024, although obviously it's a lower size in 2030. We've been working through a lot of these issues, but we will continue to have some PPA costs in Colombia. We have non, but don't forget that we also have some of the hedges in Colombia, so this is not, it's not a straightforward calculation there. We have non-cash costs with hedges due to clawbacks in Romania, and also some residual El Nino effects in early 2024. We're assuming an El Nino of, let's say, just one year, And so that would come off sort of over the next two quarters. So in relation to guidance for 24, our recurring EBITDA showing a moderate year-on-year growth with a higher underlying contribution excluding capital gains. So we had a lower underlying in 23 and higher capital gains in 23, as you know. And in 24, we expect that the capital gains would be, let's say, in line with what we had in the business plan. And obviously, that means that the higher there will be a higher underlying contribution from the business to give us a moderate year-on-year growth for 24. So I'm not trying to sell you a big story. I'm just saying that I think we, you know, 23 is definitely a bad year in terms of the underline. Obviously, we have done a good contribution from the asset rotation. 24, we're seeing the underlying improve versus 23. Going forward, we will continue to grow. We will continue to invest. based on the investment criteria. I think we've always been very clear about that. We've been disciplined about that. We take relatively conservative projections in terms of energy prices for the future. You know, and we will be focusing on projects that give us those returns. So when prioritizing returns over volumes, that's something that I also wanted to leave that message that we are here to create value and we are here to grow, but making sure we're getting the returns that we want. And I'd stop there. And we can turn it over to Q&A and go in depth wherever you want. Thank you.

So, yes, I think the first question comes from Manuel Palomo from BNP. Manuel, please go ahead.

Hello. Good afternoon, Miguel, Rui, and Miguel. Thank you for taking my questions. I will ask three questions, if I may. First one is on the average selling price. You expect a decline from 61 euro an hour to somewhere between 53 and 55 euro an hour in 2024. My question is, where are What are the judges for the decline? I understand that partly it should be the merchant exposure, but I wonder whether you still see some pressure on PPA prices. That's the first question. Second, it is just a clarification on the asset rotation for the year 2024 after your recent statements, Miguel, about the asset rotations. You say also in the slides that asset rotation in 2024 will be in line with business plan, does it mean that it will be closer to the 300 rather than the above 400 that we saw in 22 and 23? And lastly, I wanted to ask you about your views on the returns for the assets because one of the big concerns that the market could have is that well, there's some merchant exposure, but also there's some exposure to forward curves beyond termination of PPAs. I wonder whether you could shed some light on this and whether you are now assuming lower overall returns for your fleet. Thank you very much.

Thank you, Manel. So, I'm not quite sure I got the last question. So you were talking about the deals, the returns on the asset rotations and whether there's exposure to merchant post-PPAs or something. I didn't quite catch that.

No, no. Sorry. No, I meant to ask about the returns of your asset fleet, not the asset rotations, but the existing fleet in general terms.

Okay. Okay. So on the first price, on the first point around pricing, the reasons for decline, it's essentially on the merchant component. So obviously the PPAs are what they are, and the hedges are what they are. So although we have limited merchant exposure, the prices were obviously much higher previously, and now they've come down. And so it's a small volume, let's say, but it's a big delta. And so that then impacts, obviously, the average selling price. And particularly, if I'm not mistaken off the top of my head, but it's around four terawatt hours in total, 50% of that is in Europe and sort of 50% of that in Spain. And if you look at the deltas of price movement over the last couple of months, that basically is what is driving the change in the average selling price. So, roughly, that's sort of the explanation. On the second point, so yeah, just to clarify, that's exactly what I was saying. You know, we've had great asset rotation deals last year. We had them also in 2022, you know, clearly above 400 million euros. You know, like we do, we never count on extraordinary gains or anything like that. I mean, if it comes, it comes. That's great. That's upside for us. But, you know, in terms of guidance, we definitely don't want to create any expectations. So what we're saying is the asset rotation is 424. Let's say 424. In this guidance that's here, which is the moderate EBITDA growth, we are assuming doing around the 3,000 mark that we had in the business plan. So we're not taking a more aggressive approach there. So what it means, if you back that out, is that you have a slightly better underlying performance, obviously. So you have a decrease in the asset rotation gain, but you have an increase in the underlying. On the third point, so I think – basically on the returns. And if I understood, I still didn't quite understand the question, but from what I understood, it's the exposure to merchant post-PPAs and how that impacts the returns of the projects, right? So, I think there, the comment I would make is that 60%, around 60% of our NPV is contracted, which means that there's 40%, or either with the PPA, well, typically with the PPA, which means that there's 40% of the NPV, which is dependent on the remaining 15 years of life of the project. So putting it another way, assuming a project is 30 years, you lock in the PPA for 15 years, which will typically cover around 60% of your NPV. The remaining 15 years represent 40% of the NPV, which is exposed to merchants. And there, I mean, I can tell you, you know, our prices are... well aligned with market, you know, with other markets, independent consultants and other things like that, sometimes even below that. So it already factors in, you know, the penetration of renewables, you know, aggressive penetration of renewables in the future, things like what we call the solar adjustment factor, wind adjustment factor. So, you know, when assuming that there's a lot of renewables, that that's going to pressure the lower prices, that's all factored into the numbers when we run the models. So just to be very clear on that. And in terms of the absolute returns, I think one of the interesting things is to look at the PPA prices we've been locking in over the last couple of months, even in the declining wholesale prices. So in Spain, recently prices for wind around 55 and solar 42. Germany, 70. UK, 70. Italy, 78. France, 85. Singapore, 75. There's a couple of projects between 58 and 62 in giving us, you know, high single-digit IRRs. In the case of the UK, it was actually double-digit IRRs. So, you know, goods IRR minus wax spreads, clearly above the 200 basis points, and also with a high NPV contracted. So, you know, in many cases, even above 60% NPV contracted. So this is just to give you sort of a sense of the of what we're seeing in the market at the moment. Does that help?

Yes, thank you very much. Very good.

We can go to the next question. I believe the next question comes from Javier Garrido from GP Morgan. Javier, please go ahead.

Yeah, good afternoon. I would have three questions, please. First question is on Spain, given that Spain is the bulk of the merchant exposure in Europe, which is where we are seeing the collapsing prices. Can you give any indication of what is the price that you are using as a reference for your guidance for merchant in Spain? wholesale price or the capture price that you are assuming for the Spanish market in 24. The second question has to do with the, also with the guidance, the range of terawatt-hour versus prices. Is it fair to assume that if the output comes towards the lower end of the range, we should expect as if prices coming closer to the higher end of the range because, again, it is reasonable to assume that you will have less merchant output in the mix. And then the third question is about below the EBITDA line. I understand you are not willing to provide guidance. if you can provide some indication of the moves, because in financial results, there is quite a lot of action that you have taken to manage that line, so you can give some indication of where we should see net financial costs in 24, and also of minorities, given the CTE deal, it makes sense to see a reduction in minorities, you can cast any line, any light on the lines below EBITDA, that would be very helpful. Thank you.

Okay. Thank you, Javier. So, as the first two, and then I'll ask Rui to comment on the, below the EBITDA. So, on the first one, I mean, we're using basically updated forward prices. So, it's, we're not making any specific assumptions or or modeling, we're just taking what we're seeing in the market at the moment for the year, both in Spain and in the other markets. On the second point, so yes, I understand the rationale. So lower volumes overall, I would just say though that the relative percentages, so it depends where the lower volume happens, but if there was a lower volume, then it's not clear if we have a higher cheap price because, as I say, it depends whether it's coming in or we have more contractors or whether we have more merchants. If we have lower volumes in the geographies where we have more merchants, then yes, if the delta wouldn't be as large. And . I would say there are roughly 0.1 billion less depreciation 0.1 billion less minorities and 0.1 billion lower taxes and financial costs. No, wrong figures.

Thank you.

Okay. I think we can go for the next question. Next question comes from Alberto Gandolfi from Goldman. Alberto, please go ahead.

Hi, good afternoon, and thank you for taking my questions. I also have three P's. First, going back again to the 24 guidance, just to be very clear, you're talking about moderate growth year-on-year. Just to be 100% right, you're using the recurring roughly 1.85 billion EBITDA. And I was going to ask you, I really like your slide 16. You know, it really – all the headwinds, temporary headwinds here in 23, would it be possible to say, for you to tell us what similar headwinds have you assumed in the 24 guidance? So do we have two, three, 400 million of temporary effects on 2024 profits? I'm asking this because the original guidance you gave about a year ago for 24 was two and a half billion. But secondly, going to 2026 now, I know this is not subject of a call to revisit guidance, but can you remind us what power prices you were using for 2026 and what level of hedges and visibility we have right now? Because I remember that I think the base of the price was above 80 euros a megawatt hour. And again, in Spain, we're below 50 for 2026. So I was trying to understand if we need to take five, six, seven thousand dollars of merchant exposure and trying to see on a market-to-market basis where we might end up. So if you help us with the building blocks, it would be great. And the last question is, I can't help noticing that the divergence of performance between EDP and EDPR is even more pronounced. Is there a psychological threshold beyond which you would just, be more inclined perhaps to combine the two companies in a single entity and what would be the rationale? Thank you.

Thank you, Albert. On the first one, so on the, yes, so the base is the 1.85 that you mentioned. And in terms of, let's say, the deltas that we still expect for 2024, So we're expecting roughly half the impact of 2023. I mean, as I mentioned, some of the El Nino, we're still expecting to carry on through 2024. That's clear. We're not expecting any, so just going through these, you know, we're not expecting any additional costs with the PPAs or additional delays. Poland, I mean, we have this highlighted here, mainly what we are expecting sort of will continue, let's say for 2024. Colombia will continue to be a drag in 2024. So, I mean, what other sort of key issues there? But I think those are sort of the key ones. Yeah, I would say so, Miguel. If you want, Alberto, just to give sort of a round of numbers, you know, Colombia is likely to keep the 50 million ballpark. The Romanian non-cash is going to be around, the Quebec non-cash is about 50 million. As I mentioned there, you have the 7% tax in Spain that will be about 15.5 million. So, all in all, I would say 0.1, all part.

Thank you. Plus, you ask those factors, right? That's already for Q1 for about, what, 50 to 100 as well? I'm sorry, can you repeat, Alberto? Sorry, the U.S. low factors on top of these, right? So it's about 100 million plus U.S. low factors. So we're talking about 200, 250 million is probably embedded as a temporary effect in your 24 guidance as a negative.

So I would say not that high, but yes, in Q1, we should have some impact in January and February from low wind speeds in the U.S.

Thank you. Great.

On the second one, I think you're absolutely right. We're looking at the same prices, I guess, that you are in terms of the forwards for 2025 and 2026. We don't have a better estimate or guess than you would have. Perhaps the only nuance I would make that we sometimes look at is what is the implied market price based on the gas forwards, because the gas is a much more liquid commodity rather than the merchant that you see is sort of in the Spanish wholesale price. So the gas might give you just a slightly higher price than the wholesale electricity price. Like the implied electricity price from the gas would give you a slightly higher than the wholesale electricity price that you'll see. But yes, but that's basically, we're assuming the same values that you're seeing. In relation to the third question, Oh, sorry, but just in relation to the second question. But I think the point there that I made on the slide on the long-term contracted hedging is that, you know, a big part of our revenues are long-term contracted and hedged. And so, yes, there is that merchant component. The delta is what it is. So, I mean, run the numbers on that. But we're not providing additional guidance or methodology versus what you said. On the EDP versus EDPR, I think here the question is really You know, we've talked a lot about this quite often. I mean, we obviously look at that option constantly. It's a regular thing. I think it would always be important to understand what would be the value behind it. I think, you know, we've always said we've been comfortable and we are comfortable with the current structure. You know, we are working on, and I mentioned that in the call, on trying to extract as many synergies as possible under the current structure, so integrating the bank offices and, you know, and some of the global functions to get the synergies. You know, obviously, I'm not going to provide, like, any specific levels or anything like that where it would make sense, but, I mean, in the past, in 2017, I think it was a different market, different circumstances when we tried to buy the minorities of GDPR. At this point, We've said we are comfortable with the structure, and I keep saying that. That's not something that I see changing. It depends, you know. To be honest, to buy for cash would not make sense. We don't have the balance sheet for that, and it would be, you know, and for shares, it really depends on the relative ratio, and the truth is EDP is also relatively depressed, and so I think it would depend very much on the ratios. So I just say that it's an option. We analyze it, but it doesn't seem like it makes a lot of sense at this moment.

The next question comes from Arthur from Morgan Stanley. Arthur, please go ahead.

Hello. Thank you very much for taking my questions. I have two. The first one is on... In one of your slides you talk about current PPA prices that are still resilient to the downward trend on wholesale prices. I guess that's a comment that is applicable to contracts that have been signed so far. I was wondering if you could comment on ongoing negotiations. Are they going according to plan despite the foreign prices and generally speaking, I think we've seen difficulties to sign good PPAs at good prices in a market like Brazil, for example, where power prices were depressed for quite some time. I think we're not there yet in Europe, but I would be interested in getting your view on what, if anything, may prevent European renewables market to turn like the Brazilian one if ever power prices were to drop further. That's the first question. The second one, just on the on the guidance on average selling price. So you're talking at the midpoint of 54 euro per megawatt hour. That's down 12% year on year. But you indicate that only 10% of your revenues are merchants. So I'm struggling a bit to reconcile how the price could come down 12% if only 10% of revenues are exposed. I guess it may be related to the hedges. But, yeah, any more detail on that would be quite helpful. Thank you very much.

Okay. Thank you, Arthur. So the negotiations, as I mentioned, so we've been managing to close CPAs at relatively good prices. I mean, the Brazilian example that you give, it's, I mean, it's true you're having a very high hydro conditions in Brazil, which is pressing the prices. I think that that, which is in itself I think also maybe a function of the El Nino, but that's expected to turn around. So this will be, you know, cyclical over time. We've seen Brazil look like maximum level sort of at the cap relatively recently. So I think in Brazil in particular, we think that that's a short-term And once the hydro normalizes, then you'll have the PLD, which is very sensitive to the hydro conditions, reestablished. In any case, one of the reasons that we did also take private of Brazil, and we mentioned that at the time, is that we do have a very good trading and commercial alarm in Brazil. And I think that's one of the things or one of the areas where we're seeing quite a lot of value by being able to articulate that with EDPR so that we have, let's say, renewable projects in Brazil and being able to place that energy with retail customers. There are sort of B2B customers in Brazil, which the EDP Brazil had those competencies. EDP did not. And I think if we take private, we can do that. We can manage that better. EU like Brazil. Listen, the EU had low prices. I mean, we're now, we've just come through a peak of energy prices, but the EU was growing quite rapidly also in renewables with prices also in the round 40 to 50 Euro per megawatt hour in terms of wholesale prices. So I think the driver for Europe is it's not just the wholesale prices. I think it's the decarbonization metrics. It's making sure that the companies or the actual company commitments to go on decarbonizing, that's driving a lot of the demand for the PPA. So it's a different situation from Brazil where they don't have such a strong focus on that decarbonization, let's say, objective. So the EU, so I've talked about Brazil, but on the EU I think it's very much demand driven by by the EU emissions objectives. On the second question, so it's really just a function of, yes, it's not a lot of merchant exposure, but the delta is quite large. So it's a small volume times a big delta. I think that's the point.

Thank you very much.

Yep. Thank you, Arthur. So the next question comes from from GB Capital. Please go ahead.

Good afternoon. Thank you for taking my questions. I have three. The first two are related to Colombia and the third one is a more conceptual one. On Colombia, is it possible to tell us if there is any capital investors beyond what has been impaired? And to clarify the situation, you seem to suggest that the negotiations continue. but yet at the same time you impair the project. So I would like to understand if you really expect the project to go ahead, what will happen to the capital that was impaired now? And if not, what capital has been left to impair? And the third one is there seems to be some type of disconnection between what financial markets are pricing for renewables and what European Union authorities want for green transition. I don't know if you share this view, but if so, what do you believe that European authorities can do to prevent the low power prices from stalling the growth in renewables? Thank you very much.

Thank you. So on Colombia. Just to clarify, I mean, we did the impairment based on the best information that we have, but we are in advanced stages of negotiation of pushing forward the PPAs to 2027. So I think we have pretty good visibility there. Now, the amount of capital, let's say the book value that we have is around 500 million. Part of that is impaired. The rest, we think, you know, there's a path to having a viable project. And that's what we're working with together with the Colombian government. And I think what's on the critical path at the moment is environmental. Well, so it's the PPA renegotiation that's ongoing. And, you know, information I have is progressing well. And then getting the environmental license, you know, as quickly as possible and locking in the agreements with the indigenous community. So once that's done, then we'd be in a better position to progress with the project. Huy, do you want to comment on anything else on Colombia? Maybe just highlight the sort of assumptions that we use because, yes, it's important that we have this sort of negotiation so that we reduce that short position. So that was one important input into the impairment test. Also, I mean, we use a low double-digit return rate to discount the cash flows so that we are also conservative. But at the end of the day, given where we are, we will still even continue with the project forward. It was prudent to book at this point roughly speaking 180 million. On the second question, I mean, it's a great question. I think, yes, I mean, obviously the financial markets are not rewarding renewables at the moment, so I think that's pretty clear from looking at the share price. In the EU objectives, I think things continue to progress. I mean, you know, if we take ourselves back two years and I think I've said this a couple of times, so We tend to overestimate how much impact certain things will have in the short term and underestimate how much they have in the medium-long term. And I think this is one of the cases where Europe is taking pretty aggressive steps in terms of changing and improving and simplifying the licensing and permitting regimes, and the different member states are doing that. They've come out with a new market design at the end of last year, which for the first time incentivizes and recognizes PPAs and CFDs as being, like, an intrinsic part of the market design. That's something which didn't exist in the past. There's been a lot of push to have governments come out with more structured, you know, predictable options over time to continue to drive the demand for renewables. And so, you know, when we go from quarter to quarter, it can feel like things sometimes are not going as well as expected, but I think when we look back, or in this case, when we look back, Europe has actually taken quite a lot of big steps, and I think they continue to do this. And looking forward, I think those will have an impact. I mean, if we look at the bottom, if we look at the installations of renewables globally, but even in Europe, there was a material increase in 2023. And I think the expectation is that some of these measures go on feeding through into the, let's call it the real economy, to the companies, into the different member states, etc., that, you know, the project will continue to progress and accelerate, and that there will be financially sustainable and profitable. So I think the EU continues to have that objective. As I've said a couple of times, you know, I don't think it's just the environmental issue anymore. I think it's definitely also driven by national security issues. I was in Berlin recently, and, you know, definitely it's very palpable, the need to continue to drive the renewables growth there and introducing that concept of overriding public interest you know, and they were giving examples like a German official talking about the fact that in the past when you wanted to build a project, you would sometimes get it stuck in courts and you were basically the judge had to decide between two conflicting private views, you know, the local community which didn't want the project built and maybe the promoter who wanted the project built. Now you've introduced this concept of public interest and so the judge can decide between the local community or the public interest and in many cases that allows him to unblock the situation and move forward with the project. Okay, are we back online? Okay, so I apologize for apparently the connection was broken, obviously. it's a signal for us to move on. Hopefully that was clear, my answer. Maybe we can move on to the next question.

Hi. So we have now the next question from Enrico. We have still three questions. If you can just make one question in order to sort it here a little bit and give opportunity for everybody to make questions. Please go ahead. Maybe you can go to the next question which is from Fernan Garcia, Royal Bank of Canada.

Yes. Thank you for taking my questions. I have several from about Colombia, no? So I wanted to know there what is the situation of the turbines for this project? So now you say that you are expecting to get all permitting in the second half of the year. So can you be more specific on that? And then can you tell us from getting all permitting, what are your expectations in order to build that project? How long can that take? So you said as well that in terms of the PPS that you are in negotiation to push the PPS to 2027. Then from that 2027, how many years will cover that PPA after and will be with the same prices that you have before? And finally, on the arbitration process, can you provide some information such as timing that you expect in this arbitration and what are you asking in this arbitration? Thank you.

Thank you for that. Let me take a couple of these and if we can complement. So on the turbines, I mean, the turbines have been locked in. They were locked in before with the Vestas. And we actually have them physically already in Colombia. So that's good given. In terms of the permitting, we're expecting the environmental license to be obtained by around October. In terms of the PPAs, the advanced negotiations, yes, so it's pushing them to 2017. I think the question was how many years. I think they're 15-year PPAs. In terms of the timing of the arbitration, what we would expect is to get or to renegotiate or to get an arbitration to decide that the remaining PPAs that haven't renegotiated with us, that their conditions should be changed to be aligned with the ones that we have renegotiated. So at least that. And in general, on the PPAs also, I think your question was around prices and how long, but so in general, maintaining prices, but just extending it a bit further and providing some additional volume because the PPA didn't cover the full expected volumes of the project. I think hopefully that answers your questions.

Yeah, thank you.

Thanks. Thank you, Fernando. So we have last question from Gonzalo from UBS. Gonzalo, please go ahead.

Hi. Thank you for taking my question. Did you say, Miguel, there was the last question? I was going to stick to one, but maybe I have two.

No, you can do two. No problem. Okay.

Perfect. So first one is on the deal you did with CTG. I'm assuming that now with, you know, longer term power prices probably lower than it was just a few weeks or months ago. you might find that, you know, rebuying some of the minorities might be a bit cheaper than it used to be. So I was wondering whether you see possibility for doing more things like that one that would be, I guess, really an integrative and very fast around plus giving the flexibility you mentioned on the deal already did with CTG. And if that is the case, you know, what kind of timing volumes I would be looking at. That is the first one. Second one is related with a very interesting data you brought on slide 15 on the evolution throughout the years of the portfolio in a linear phenomenon. I'm guessing your guidance for 2024 is based on the recovery that you expect based on this chart. But I was looking at, for instance, the period 2014, 2015, where you see a more steep or deeper fall. from the previous high level to the following low level. So I was wondering if you have some alternative scenario in which, you know, it takes a bit longer to recover based on methodological models or anything like that. And if that is the case, you know, what is kind of a secondary scenario? Things don't go under your base case assumptions for 2024. What kind of impact or volatility we could expect on the numbers for 2024? Thank you.

Thank you, Marcel. So I'll take the questions and if we can complement, I think, on the CTG, let's say, in terms of other deals. Yes, so I think this was a good deal, as I mentioned. I think it was fair and with good multiples. If we find other alternatives or other options that are like this, yes, you know, it's creative day one, it's capital positive day one, it's It seems to, well, it ticks all the boxes, so it definitely contributes into the bottom line. So we would be open to doing additional deals. I mean, if it makes sense and if we get the right conditions for it. But we don't, I'm not disclosing anything specific at the moment. On the second, on the El Nino, so listen, predicting, meteorology and climate is an impossible science or a very difficult science. But the expectation, let's say the typical correlations looking at what's happened in the past is that there would be the Q1 and Q2 would still be impacted by the El Nino, but then it would start shifting to La Nina, so the opposite effect by Q3 and Q4. So that would potentially lead to above average volumes in the U.S., but that's, I wouldn't place any guidance on that just because I think, you know, we like to predict based on P50s, which is, you know, the average. In this case, we are in an El Nino, so I think we can say that obviously the El Nino will continue at least for another one or two quarters, but exactly what it will do after that will be, you know, we might have some small correlations, but it's not something I would say make a big bet on. In any case, we What's the comment? I think, you know, basically, I mean, there's no statistical evidence right now that suggests that the El Nino would be prolonged. If any, as Miguel said, it's the La Nina. So, for the forecast or sort of the guidance that we are providing here, we're basically taking the view that for the rest of the year, let's say somewhere around Q2 and then definitely Q3, Q4, we should go back to sort of B15 scenarios. Okay, thank you.

So I think we can move to closing remarks.

Okay, listen, thank you. I'm sorry we went on a little bit longer maybe than what we expected, but just to say, listen, we know 2023 was challenging. We continue to have some of those same challenges in 2024. That's clear. We are working through a lot of these issues. We, I think, set out very clearly what are those headwinds, and we will go on solving them. Total focus is on execution. making sure we are able to deliver. You know, I think we do have the four gigawatts that we're working on very hard to deliver this year. We had a great year in 2023 in terms of asset rotation, so I think that shows just a general structural demand and, you know, an appetite for these type of assets. You know, but I think we keep our eye on the ball and focus on the medium-long-term goals, and so riding out some of these challenges and the economic cycle. And so that's very much what the team is all focused on, and that's what myself and Hui are very focused on. And we'll keep you up to date, I guess, now at the first quarter numbers. We're not expecting anything great for the first quarter because of these challenges that I talked about, but hopefully we will see some recovery over the rest of the year, and we'll keep you updated as soon as we know any more information. Thank you.