Endesa Sa Madrid

Good morning to all the people connected. Welcome to the first half 2025 results presentation, which will be hosted, as always, by Endesa CEO, Jose Bogas, and the CFO, Marco Palermo. Following the presentation, we will have the usual Q&A session open to those connected on the call and on the web. Thank you, and now let me hand over to Jose Bogas.

Thank you, Mar, and good morning, everybody. I would like to open this presentation by highlighting the solid performance delivered across all our businesses during the first half of 2025. This has led to a strong cash generation and operating results, confirming the strength and resilience of our business model. The energy framework during this period was marked by the April 28th blackout, and the implementation of the subsequent measures mainly aims at reinforcing security of supply, as well as we will elaborate on later during the presentation. Today, more than ever, Spain needs to bring its network investment up to the level required to ensure a modern, efficient and reliable distribution network, as set out in the PENIEC and also endorsed by the European Union, who recently upgraded 2040 climate targets. To this end, it is essential to define a remuneration framework that is fair and sufficient to address the huge increase in investment foreseen at country level. The proposal currently under discussion endangers this investment and clearly goes against government policies to achieve the energy transition. Finally, I would like to highlight that as of end June, we executed approximately 40% of our 500 million share-by-back program planned for the year, and close to 70% according to the last CMB filing. These reflect our commitment to delivering value to our shareholders while preserving flexibility in order to increase our investment in the regulation if the regulation is finally favorable. Let's now turn to the key financial and operational highlights of the period. On slide number four, we continue to make solid progress on the strategic pillars outlined at our last capital market day. Our determined and disciplined approach is driving solid and predictable results across all business lines. Profitability remains strong, with EBITDA increasing by 12% year-on-year to 2.7 billion euros, and net income rising by 30% to 1 billion euros. Importantly, this positive outcome resulted in outstanding cash generation FFO grew significantly, doubling the cash generated compared to the same period last year, and confirming the quality of our earnings and our capacity to sell finance investment and shareholders remuneration. On slide number five, a brief details of the progress made on our main operational KPIs and on the execution of our capital allocation strategy. More than 900 million euros have been invested to strengthen the company's core businesses with particular focus on energy transition. A key pillar of this strategy is the reinforcements of our non-emitting generation base. During the period, we added 0.7 gigawatts of new renewable capacity, bringing our total to nearly 11 gigawatts. As a result, 79% of our mainland generation mix is now emission-free, further consolidating our decarbonization goals. Regarding customers, we continue to improve the quality of our client base by focusing on the most valuable segments, enhancing the resilience of our supply margins. And finally, our commitment to high standards of service quality and network reliability is reflected in the improvement of the time of interruption index. Furthermore, total losses remain flat at around 10%, still heavily impacted by non-manageable losses associated with localized fraudulent hotspots. Now let's look at the market context on slide number six. The first half of 2025 was marked by significant volatility in energy market, driven in part by external commodity trends and also by the operational consequences of the post-blackout system management. Commodity prices remain at higher levels year and year, TTF gas spot price rose by 47% to 41 euros per megawatt hour on average, while CO2 significantly closed the gap compared with the last year during the second quarter, but still remained 11% higher on average. As a result, the Iberian power pool price surged by 58%, rising from 39 to 62 euros per megawatt hour. Furthermore, May 2025, stands out as a period of particular stress where the TXO post-blackout extremely cautious management led to a spike in ancillary services costs reaching levels of 26 euros per megawatt hour. While we understand that the security supply must take priority, we cannot predict how long this conservative approach will remain in effect. Based on our forecast, we estimate that ancillary services will average around 16 euros per megawatt hour for the whole year, on top of an estimated pool price of something around 70 euros per megawatt hour. On slide number seven, and in connection with the blackout, let me underscore the following. No final report has yet been issued to clearly establish the causes. Our analysis revealed that the blackout was the result of operational planning that did not provide sufficient backup capacity for voltage control, followed by operational decisions that further weakened the Iberian system It is important to recall that the responsibility for maintaining system stability, including voltage control, lies with the transmission system operator, the TSO. From our side, we can confirm that we fully complied with all instructions issued by the TSO. All our generation facilities connected at the time of the incident were operating in accordance with the requirements established by the TSO in the technical restriction dispatch. Furthermore, all planned disconnection occurred above the established technical safety threshold in line with the regulatory protocol. However, We should learn a constructive lesson and not let this then undermine the country's broader decarbonization goals. Spain has made substantial progress in its transition to a low-carbon economy, achieving one of the highest levels of renewable energy penetration in Europe. While the blackout highlights several vulnerabilities, vulnerabilities in system stability, it also reaffirms the importance of accelerating investment to reinforce Greece's resilience and foster demand electrification. On slide number eight, we focus on demand evolution, which has performed very well so far this year, showing a clear upward trend that seems to confirm a turning point and a return to pre-energy crisis baselines. Mainland electricity demand showed a steady recovery, leading to a 2.7% growth year-on-year, or a 2.2% adjusted, while Endesa's figure climbed to 4.7% and 2.9% respectively. When looking at the different segment figures, we can conclude that first, residential consumption grew significantly with the year-on-year temperature increase, particularly in June, having a meaningful impact. Second, industrial service demand recovery is not isolated, but part of the wider trend of increased energy consumption across the sector. This is consistent with the substantial increase in connection requests received over the past few years, which seem to be starting to resolve into actual demand. In this regard, it is worth highlighting the growth of the service sector, particularly in the Aragon area, which has seen a 15% increase in demand, mainly in the second quarter, associated with the incorporation of data center activity. In fact, as we can see on slide number nine, The exponential growth in access and connection requests since from 2021 to date underscores the scale of new demands seeking to integrate into the grid, particularly from large-scale consumer and electrification-driven sectors. This search reflects the country's increasing attractiveness for industrial and commercial investment, driven by strategic location and competitive energy costs achieved through a decarbonization energy mix. However, despite this opportunity, our ability to connect new demand has been significantly constrained by existing network limitations. As a result, around 80% of Dendesa's medium and high voltage connection requests received in 2024 had to be rejected, while year-to-date only 10% had been granted. And this is primarily due to just 12% of our total network capacity is currently available. In fact, the number of access and connection requests received by Endesa in 2024 alone is already equal to the total million high voltage contracted power in Spain as of year end. Such statistics underline the urgent need for grid re-informance and regulatory support to unlock the full potential of the transformation being at risk of missing a unique opportunity for re-industrialization and economic growth. Now, in slide number 10, demand electrification is essential, and to do so, we must have a fair and attractive regulatory framework that facilitates the massive investment required for decarbonization. As you are all aware, at the beginning of July 2025, the CMNC launched the public consultation process to establish negative remuneration for next regulatory period. Going into details, the proposal considers a new methodology that we think introduces structural limitations that could hinder the sector capacity to deliver on electrification and grid modernization objectives. In particular, the investment framework shows bias against capital expenditure targets. which limit the investment needed to support network upgrade. Efficiencies are subject to an excessive capture rate, while benchmarks are based on outdated data, which are still pending final settlement. Although the new incentive model represents and evolution over the previous one, there is still room for improvement. Regarding rate of return, the rich premium methodology employed to set the 6.46% proposal is both discriminatory and asymmetric when compared to other regulated sectors in Spain and most European countries. Likewise, the beta coefficient and cost of debt considered are both unrealistically low. While both circulars fell short in expectation, we believe the most critical aspect is that those proposals greatly endanger the level of investment required to meet Spain's decarbonization target. Demand electrification and grid investment as outlined in the PENIEC and certainly in misaligned with the government's energy policy guidelines. Nevertheless, we are confident that the final version after the consultation process will provide the necessary economic signals to address the challenges of the energy policy in Spain. Let me now hand over to Marco for the final financial results.

Thank you, Pepe, and good morning, everybody. Turning to the analysis of the economic performance, I'm now on slide 12. EBTDA reached around 2.7 billion euro, showing a 12% increase versus previous year. This strong performance was driven by several key factors. First, the elimination of the 1.2% extraordinary levy, which had a negative impact of around 200 million in the same period of last year. Second, the 6% increase in generation and supply EBTDA, the main drivers of which will be detailed later on. And finally, the distribution business, which remained stable and aligned with our full year guidelines. Moving now to slide 13 for a more detailed analysis of the generation and supply businesses. The eBTDA improvement was driven by the positive evolution of gross margin, which grew 6%, and the stability of fixed costs. The main moving parts of the margin performance were as follows. Conventional generation margin grew by 10%, triggered by a strong margin from gas management, thanks to favorable prior hedging positions, and a good performance of the non-mainland. All of this partially offset by lower margin from short position management as a consequence of the sharp rise in bull prices in the period, and nuclear margin decline following the increase of EREZA tax since July 2024 and the full impact of the 7% tax on generation. Likewise, good performance in customers, mainly thanks to the higher gas return margin. Finally, the contribution from the renewable business decreased by 7%, mainly explained by lower wind and solar output and lower capture price, which offset the positive impact of higher hydro volumes. Moving to slide 14 now, these dynamics are reflected in the free power margin, which, as expected, is normalizing compared to last year's levels. Integrated margin amounted to 53 euro megawatt hour with a stable power supply margin of 18 euro megawatt hour. The supply margin remained nearly flat, highlighting the success of our strategy based on customer value rather than volume, which has been able to offset the surge in ancillary services and peak costs following the blackout. Analyzing the gas business from an integrated approach, now on slide 15, strong improvement of gas margin driven by favorable previous hedging position and price resilience in the B2C segment. This solid performance is expected to normalize over the course of the year in line with the target announced at the Capital Market Day last November. Moving now to the analysis below eBTDA, I'm on slide 16. DNA slightly increased versus previous year, driven by higher amortization on the expansion of CAPEX deployed over the last years. Financial results improved on the back of lower average gross debt in a context of lower interest rates. Finally, the effective tax rate stood at approximately 25%, no longer impacted by the non-deductibility of the 1.2% temporary energy tax that penalized last year's results. Overall, report and net income increased by a solid 30%. This improvement is clearly reflected in the net ordinary income to EBTDA conversion ratio which reached 38% in the first half. Turning to the next slide, cash generation remains strong, with NFFO standing at 2.4 billion euro, doubling the figure recorded in the same period of last year. This strong performance was mainly due to the robust EBITDA growth, and the positive working capital contribution of around €0.7 billion in the absence of the Qatar arbitration payment booked in the first quarter of 2024. On slide 18 now, net financial debt came in at around €10 billion, with cash generated in the period more than covering the deployment of organic capex, as well as the acquisition of the hydroassets. In addition, we paid the interim dividend in January and executed around 40% of the €500 million show-by-back program planned for the year. Gross financial debt remained stable, while its average cost declined to 3.4%. All these allow us to maintain strong credit metrics and a significant financial flexibility. And now, let me hand over to Pepe for the closing remarks.

Thank you, Marco. The solid delivery across all business areas during the first half of reaffirms our confidence in achieving the top end of the full year guidance. The consistency of our operational and financial results proves the resilience of our business model and the effectiveness of our execution in a complex and evolving energy landscape. We continue to enhance shareholder value through an attractive remuneration policy, The execution of our share buyback program is progressing as planned, reinforcing our commitment to capital disciplining and long-term value creation for our investors. Together with a high dividend yield, this has supported a strong share price performance in recent months, driving an attractive total shareholder return. Looking ahead, our capital allocation strategy, set to be detailed at the next Capital Market Day in the first quarter of 2026, will remain disciplined and firmly focused on long-term value creation. The investment plan will depend on whether the remuneration for regulated activities proves fair and attractive. We remain fully committed to supporting decarbonization objectives while acting responsibly and in the best interest of our investors. Thank you for your attention and let's now move to the Q&A session.

The telephone Q&A session starts now. If you wish to ask a question, please press star 5 on your telephone keypad. If you change your mind, please press star 5 again on your telephone keypad. Please ensure your phone is not muted.

Okay, we start now with the first question that comes from Alberto Gandalfi from Goldman Sachs. Please, Alberto, go ahead.

Thank you, Mara, and good morning to everybody. Thank you for taking my third question. The first one is, On power demand, I think I wanted to congratulate you because you are the first utility to truly talk about an inflection point in power demand. And I have a two-part question here. First of all, on page nine, I wanted to ask you how much of those gigawatts is really demand or is it all demand, i.e. you exclude renewables or batteries, for instance, and how much within that is data center? And then the second part of this question is, Demand seems to be growing, but when do you think that the churn rate normalizes in Spain? Because you seem to have lost 350,000 customers just this year. So you can't immediately capitalize on rising power demand right now, at least in retail. The second question is, I think your stance on the regulatory proposal is crystal clear. Can I just ask a scenario? Perhaps it will improve, but you were talking about 7.5% in your assumption. What happens if it broadly stays here or thereabouts, maybe a 20, 25 basis point improvement? Would that be sufficient to accelerate investments? And if not, what would you do? Should we expect a bigger buyback from Endesa in that scenario? And the last question, you reiterated for your guidance, but consensus is already above the top end for net income. Any chance you can narrow down your guidance in the top half, the top end, or can you tell us why you didn't narrow it down and what are the key levers, the key drivers you're monitoring to tell us if consensus is too optimistic or reasonable? Thank you.

Okay, thank you, Alberto. And I will try to give you some color, and then I will pass the question to Marco. About power demand, let me say that what we presented in the slide number nine is the request of new demand that we have received. during the last year. So that means that it is new demand and this new demand include data center, include batteries, include many things that new things that are asking for being here in Spain just because of many, many things. Mainly could be the very good price and also the low emissions that we have. With regard to the turn rate, while we are really suffering, suffering this very high competition, well, But I don't want to elaborate more on that, but I should say that we are trying just to pass this very, very volatile period preserving our PML in the supply margin. That is why we more or less maintain the results even in these circumstances. With regard to this 7.5, In our assumption in the distribution remuneration, well, you should take into account that we have a wrap of something 11, 12 billion euros or so. That means one point is something around 100 million euros, which is very, very, very important for us. But it's more important than this, in my opinion, is that Spain has been doing very well, very well, and we have been very successful just in the transition. I think we are one of the leaders, Spain leaders, in this energy transition. And then we have entry. in the second phase, let me say, in which what is important for the future and to be successful in this energy transition is just to focus in demand and to focus on more renewables. Let me explain a little bit this. focus on demand because it is needed just to increase demand if you want to introduce more renewables. And second, well, if our objectives is just to reach in the year by 2030 something higher than 80% in renewables, we need to increase this penetration. Just to do that, to do that, The key way to do that is the networks. It is clear that without this improvement in the resilience and without strengthening the network, it will be impossible just to go ahead with this transition that we are doing, at least in my opinion, very well so far. So I really think that at the end we will reach a position in which, well, the remuneration, the framework, the regulatory framework for the network will be the third forward. Let me say... Sometimes austerity is something that really gives some sense in the regulation. But with this, the austerity, let me say that, that we have in this proposal of regulation of the distribution will give us to the suicides. I don't know if there is an English word to say austericidio, austeris suicides, or something like that. Well, I think if we want really to kill us, we will see this proposal. But really, I think that it would be absolutely impossible and we will continue going ahead and doing well in this transition. So in my opinion, we will see at the end of the consultation a better framework. With regard to the guidance, let me say that I am convinced that we will give you good news at the end of the year. we have been always conservative. So what we say now is that we will reach the upper end of the range that we have today in the highlands. And Marco.

Thank you, Alberto. And just to add a few things on what Pepe was saying. Regarding your first question, power demand, I mean... I don't know if I can answer exactly with gigabit there and numbers, but what I can tell you, if you go at page eight, is when we look at our territory, that could be a proxy of the rest, even though there are differences between the different regions, because depending on how much space they have in the grid, so how much demand they can connect. But if you look at that page, and if you look at the split between industry services and residential, You can explain the high increase in residential with the weather. That was very hot, so at least a big part of this could be that. But then when you come to industry, and particularly on services, that is exactly where you see data centers in the services. One, that increase, well, it's not related to weather. So, in particular, when we go and we open this into our regions, we do see that, for example, Aragon, where there was more space and, you know, there are projects there, has seen a 15%. percent increase in demand. So, I mean, we were thinking that, and we always said, we always told everybody that we were seeing that increase in demand, but at the end of the year, at the end of the plan, sorry, 2027, there, it looks like it is coming much earlier than we thought, basically. So this was on your first question. On the regulatory stance, basically, Pepe answered. I mean, here is more than a matter of whack. It's a matter of the current topics scheme so that is kind of you know in contrast with the with the phoenix so uh you know we have to understand whether you know that the the will of the regulator is for a you know a development of the grid or whether the will of the of the of the regulator is for a matter you know our horrible is quota why so because uh you know possibly account uh we have experienced this uh sharp increase in ancillary services. And you know that we are particularly exposed because we are very, very long. It's not exactly covering all our need, and particularly when it comes to some of our power plants, they were not all fully somehow available for the ancillary services just to provide that. So basically, I mean, we are a net loser there. And this huge spike in this few months, in this few last months, particularly in May that we showed in page six, has hit us a lot. Despite this, and even though we are somehow assessing that there will continue to be this impact also for the rest of the year, we are moving to the high end of the guidelines. So, I mean, I don't know if I'm answering you, but you know that we are particularly conservative, and despite all this, we are moving to the upper hand of the guidelines. Thank you.

Next question comes from Peter Vistiga from Bank of America.

Hi there. Two questions from me, please. Firstly, could you just sort of clarify whether, in fact, you would cut your investment in distribution if the regulatory framework remained as is because you increased it at your last strategy date? you know, with the messaging that you're sort of optimistic that things would get better. So if they don't, does it go back down to where it was before? And then my second question is, is there any movement at all from the government yet on timing of the capacity market? Is there any indication when you might get a draft mechanism, whether auctions could still happen before the end of this year? particularly in light of the blackout. Thank you.

Okay. Thank you, Peter. I would say that we don't consider the reduction in investment because, as I have said, within, or we are confident at least, that the final version after the consultation process of the CNMC and with the intervention of the Ministry will provide the necessary economic signal to address the challenges of the energy policy in Spain. There is no way as to do that. But in any case, Marco, if you want to to give him some range. I think Marco is trying just to look for If there is any fear, I don't know, Marco.

Yes, just hi, Peter. Just to answer on your question number two, that is on capacity. Yes, I guess that the government expects to have the first auction by year end this year. So things are moving fast. let's see whether they can reach this challenging target. But, yes, things are moving there.

Thank you, Peter. Next question comes from Manuel Palomo from BNP.

Hello. Good morning, everyone. I'd like to ask you about the electricity margins. This integrated margin was around €52 for the year 23, 54, 55, sorry, 24. And now in the first half, 25, we've seen it down to levels of 53. However, what you project for the year 27, if I'm not wrong, is 56. So I wonder whether you could explain us how you plan to achieve it, considering that it looks like the competition is being a bit more aggressive. Hydro is likely to normalize from exceptionals 24 and 25. And if I'm correct, you are projecting maybe lower renewable installations than initially. The second question is... is about the loss in customers and how it links to the guidance, because you're talking about the end of the guidance, but you've lost, as Alberto was mentioning, 350,000 clients a year today. So my question is, what is happening? Is... Are you, what are you expecting already, this loss of electricity customers? And my last, well, and also it would be great to know where you think these customers are going to, whether it's going to, I don't know, large utilities or companies or smaller suppliers. And lastly, I wanted to ask you, which is, I guess, a recurring one, about the nuclear and the pre-grid schedule. And what is your most recent expectation about the nuclear shutdown? Thank you.

Okay, Manuel. I'm going just to answer the third question, and then Marco will answer the rest of the question. Nuclear, nuclear. Well, the first thing that I would like to say is the important role of nuclear energy. And this is something, an important role in decarbonization is absolutely undisputed, I would say, and recognized for all and also recognized for the Energy Commission. Nuclear provides clean, stable, etc., etc., energy. In that sense, well, it is clear the strategy of all the countries, member states in Europe, which is a little bit different or very different to the ones that we have in Spain. Nevertheless, what we, and I think it is something that I could say, Iberdrola and ourselves, we submitted a proposal to the ministry to, I would say, postpone, because technical reason of both the system... I would say the delay in the flexibility elements necessary for the system, and also the nuclear plants themselves, the delay in the availability of temporary intermediate storage of spent fuel. When we have asked for this, we have indicated that it would be necessary to reduce taxes and tools. Well, because the current full cost, as I have explained many times, of nuclear is something around 65 euros per megawatt hour, with taxes and tools accounting for more than 25%, that is something around 17 euros per megawatt hour, not including the new RSA tax in this figure. At a full cost of 65 euros per megawatt hour, and forward price in 2030 something around 55 euros per megawatt hour, it's not possible to postpone the shutdown. We need a minimum reduction of 10 euros per megawatt hour. And our proposal includes this elimination or the elimination of some local taxes and charges. When we proposed that, and really, as I tried to explain, it's just because technical reasons, the ministry responded by establishing Let's say the minimum condition that will be or would be that this chain in the shutdown does not result in higher costs for the citizens. that these contribute to the security of electricity supply and also the nuclear safety should be guaranteed. The owners, not only Verdola and Endesa, but all the owners of the nuclear problem plants we are in a position to comply with these requirements established by the ministry. So I hope that we will have a meeting soon to discuss this situation. And in my opinion, this nuclear postponed shutdown the more probably things that happen, that occur, that we will see. The energy policy is marked by the government of Spain, and we will follow this energy policy in any case. But we are discussing technical problems now, and we will see what happens.

Hi, Manuela. Thank you for your questions. So question number one on free power margin, 53. Yes, this is what we have for this first semester, and it is also what we expect to have for year end. You're right. Our business plan was seeing a slight improvement of this number. It actually was almost one euro for each year, an increase of one euro for each year. Now, how is it possible? Well, I guess that the answer is exactly in the 53 number that we have right now today. Why so? Because, you know, If we were able to keep this 53 despite this horrible quarter and this skyrocketing ancillary services cost, you know, this probably means that in a more normal situation we would probably do better than that. By the way, the fact that this is, we define this as a horrible quarter is also because, I mean, as I said, We were not exactly expecting this increase in demand to start to happen now. We were thinking this happening later on. So, you know, next year, 2027. So what we were doing was somehow preparing all our fleet just to be ready to give those kind of services. So particularly when it comes to repowering of pumping, for example, or even improvement in our CCGDs. So this increase right now, actually the blackout that caused this increase, caught us a bit by surprise. So on one hand, we cannot, we couldn't, you know, take profit, full profit from our fleet when it comes to grab, you know, the extra marginality of these services. And on the other hand, we didn't have the time just to somehow pass through this cost on our portfolio. So, I mean, you know, and despite this, we are basically there. So, you know, I guess that this probably answered your question on password clients. There are many clients that really switch with very high frequency. Now, the problem with these clients is that, you know, you pay a fee just to get those, and then you end up paying it again when you try to. I mean, you end up making a lot of investments that is difficult just to get back. Now, you were asking, where are they going? Well, it's difficult to answer this question, because actually, you know, we can make, inquire, and somehow try to guess a bit. But it looks like this is not now, you know, competition between, I would say, the big players. It's more of newcomers. Not always... there are to be one company and then, you know, moving you to another company. So, I mean, we think this is somehow moving part of the clients that do not trust the phone. So now they want to get back to physical, you know, premises. So, I mean, we are trying to adapt and this takes a bit of time. But, I mean, this was expected. I guess that we somehow normalized by year-end. And again, you know, I guess that this is not a matter of size here. It's a matter of marginality and profitability. The high switchers, the very high switchers, I mean, really I'm not sure it makes a lot of sense just to keep it in the portfolio. Thanks.

We move now to the next analyst, Pedro Alves from CaixaBanca.

Hi, good morning. Thank you for taking my questions. The first one is a follow-up on your comments that you could revisit your investment plan once you know the final proposal from the regulator for remuneration of grids. Should we understand that you are very unlikely to announce any further biotech program still this year, so any final decision would be announced only next year with a capital market stay? And the second question is if you can elaborate a bit on the weaker contribution from renewables in this quarter. I was a bit surprised to see this lower contribution despite volumes being higher year on year. So, eventually, if you can also elaborate on the hedged prices for this year and how do they compare to last year. Eventually, this should be obviously read in an integrated manner because, on the other hand, that was also surprise services. Thank you.

Hi, Pedro. So thanks for your question. Regarding the investment plan and the share buyback, no, this doesn't mean that, you know, you have to wait, you know, next year for the current share buyback program. It's public opinion. It's public data now. It's been completed at around 75%. So, I mean, of the 500, we are approximately in the 380. And it looks like the algorithm with these prices is going very fast and is building amounts. I remind you that we have approved $2 billion. So, actually, if you ask me, probably at this level of prices, it makes a lot of sense to follow on with that. I mean, despite all the rest. And regarding the question number two of the weaker contribution of renewables, actually on one side of the former ACCIONA assets in the hydro, of course, there was not a full contribution for the semester because we just get them back. And yes, on hydro, we have our storage, I would say. We have our water, I mean, plenty of water and recovered basically a normal situation there when we look at the previous year. But when we move to other technologies, in particular on the wind, there's been less wind. And also in the production of the solar, also there we had a lower contribution. You were asking on the supplies, and correctly, how do you stick there basically with this? it has to be read with the price that basically the supplier receives. Actually, there is seasonality in the price that the supplier receives. So particularly in the second quarter is where generally prices tend to be lower. It has been much the case also last year, and that's where they keep the supply margin. Now, the problem this year is that they were lower when compared to the rest of the average of the year, but much higher. than the quarter of last year. So, I mean, there that's also where we suffered on the short position because basically there was no, basically no marginality to grab. And this was another reason why, I mean, for us this quarter has been like the kind of horrible, horrible quarter also on that point of view. Thank you.

We have now Jenny Ping from Citi. Want to understand what upside there is above and beyond the six and a half. Thank you.

Okay, thank you. Let me give my personal opinion in this. First of all, there are two different things. One is the rate of return, and the other is the methodology. We have to improve the methodology, I think, and we believe some improve in that sense in the remuneration of the investment. But in the other side, talking specifically about the remuneration tax, I could say that there are three elements that could be improved. What we are expecting is something between 7 and 7.7. if we are right in our comments to the CNMC. So we expect just to really improve this tax remuneration rate, something minimum of half a point just to reach seven. Okay.

Thank you, Jenny. Next analyst is Jorge Guimaraes from JV Capital.

Good morning. Thank you for taking my question. I have just two. The first is a follow-up on the question on the remuneration in case networks are not as high as you are looking for. What could be the potential for higher shareholder remuneration? Could you put the company 2.5 times at F2BTA reference? And the second one is related with this. Is there any connection between the conversations with the government about nuclear and about networks? I mean, is it negotiated together? Or is it nothing to do one with each other? Thank you very much.

Okay, Jorge, let me try to explain our view of the nuclear negotiation. Well, as I have said, it is none. That is something that we could try just to give our opinion. about the importance of the nuclear power plants in the transition, in the decarbonization, etc., etc. But this is not the case today. As I have said, what we are trying just to discuss or to really try to clarify, we sat down, as I have said, So, well, we will see. We don't want to change the energy policy because it's a responsibility of the government and we will follow this responsibility in any case. We try to clarify some details, let's say that. And in that case, I should say that all the owners of the nuclear power plants we are aligned and in the position really to comply with the requirements established by the ministry as to do that. So we will be. We will have some meetings, I suppose, to clarify this point, and then we will see.

Hi, Jorge. So on your question number one, First of all, just to repeat it here again, but, I mean, we really do not want to believe and do not believe that the regulator can actually reject the PNIEC in the national plan. So, I mean, you know... Dear, I mean, we do not want to believe and we do not believe that this will be the situation. So a situation where, you know, no additional investment will be required on the grids. I mean, this would be, apart from contrary to the PNEIC, also contrary to all what is happening in the rest of Europe and European somehow... Having said that, on, you know, what it is clear is that we are now given the strong cash, despite investment, but given the strong cash generation, we are at 1.8 net debt to BTDA. That is not the ratio where we should stand. So, I mean, you know, as we told always, I mean, this is not, the ratio we should stand at and, I mean, we will take our decision when it is clear what we can, what we have, what option we have in front of us in terms of CAPEX and then correcting the rest of the policies accordingly in order to reach a fair net debt EBTDA ratio, so fair use of the debt.

Most of them are follow-ups. The first one is on the blackout. The question is, does the company see the necessity to provision any amount to cover against the possible claims coming from either corporate or individual companies? affected by this by the blackout you know any remuneration has to be between seven to seven and a half percent the question is that is there is there a very clear cut i.e a remuneration is below seven percent and this is not going to be based on electricity network and a related question is uh you mentioned on the presentation the possibility of some improvement in incentive um and the argument that there is some room for improvement. Could you elaborate on where do you see the capacity to introduce incentives that could better justify investments on the electricity distribution networks for a company like Endesa? And then, De Sera, next. Thank you.

I will answer the second one, and then Marco will answer you the provision of the blackout and the LNG arbitrations. Well, We always have said that to have a clear view, what we have in our strategic plan is a blended remuneration of 7.5. Well, today we have 6.5 rounding numbers. We expect an increase at least of half point just to reach seven. And could be they take into account the cost of the external resources and also the beta, et cetera. We could reach something around 7.7, but that is our proposal, our proposal that we have sent to the CMC in the consultation period in which we are now. But again, could be many incentives that better justify the investment in the future. Today what we have is a framework in which the most reasonable thing is to be conservative and only invest just to maintain the RAP without any increase. I think that what they have said in this guideline, that I think that will be part of the action plan for affordable resilience and competitive energy that we will see in this year. If you read that, there are many things, very good things in this moment for the need to remove investment caps on the grid, second to the elimination of delays in investment recognition. The third is the approval rules, very clear approval rules of the investment. And then what we are seeing is that the European Commission are trying just to give some clues to the national authorities to adopt a, I would say, forward-looking reacting to current demand. And I think that the methodology that we have in Spain, the proposal, is something that really reacts to the current demand but don't look forward trying to anticipate what is needed now and also the scale of the investment if you see this document of the European Commission about the electricity grid by the year 2040 and the investment needed At the level of the European Union, in the central scenario, they are talking about 79 to 96 billion euros per year annually. If Spain is something around 10%, that means that it would be necessary something between 8 billion to 9 billion per year annually. And compared with the, let's say, signal launched by the CMNC, that what really give us is try to be conservative and try to react to the current demand instead of, as I have said previously, I'm confident that the final version, because otherwise, otherwise, is what I have said, the austerity deal. Well, we are, as a country, we are doing very well in this, and it has no sense just to stop and fail in the end when we need this investment.

Hi, Javier. So, getting, you know... We all know that another utility is the one in charge of the stability and the voltage control of the electrical system. And if you put on top of it that we were fully complied with the system operator instruction and all our plants were operating in full accordance with the established safety protocols technical limits, I mean, there is no reason, no way we can provision something there. Going to question number three, that was the one regarding the LNG arbitration. Yes, there is in our results, in the first semester results, there is an indication that there is an arbitration open and that the arbitration is open for $240 million. So now, of course, I mean, for confidentiality reasons, I cannot detail on what are the reasons for this arbitration and not even what we think and not even what our defense will be. But what I tell you is that, you know, I'm paid to be always concerned and not very much concerned, actually, about this arbitration. So I think that's all I can say.

Thank you, Javier. We have now Arturo Murua from Jefferies.

Hi, everyone. Thank you for taking my question. I have just one, most of them, others have been already answered. It's regarding to the anti-blockout decree which was rejected last week in the Spanish parliament. Does this have any effect to your growth demand forecast? Thank you.

Okay, thank you. Thank you, Arturo. Well, I will try to clarify a little this, but let me say the sole answer is nothing, no impact in our . Having said that, just to give some color to this, well, I think that most of the measures included in the royal decree were positive. You know that based on this royal decree law during the period in which it was in effect, in execution after 2021-2026 transmission plan just to increase investment of about 750 millions and also give some subsidies around more than. On the other side I would say that it will be very important, the result of the distribution remuneration framework that we are waiting for. But having said that then, The other message, more responsibility for the CMC, some improvement in the TSO, the creation of the independent demand, let's say, aggregator, the reduction in the tools for electro-intensive consumer, et cetera, et cetera. First of all, don't impact our P&O. Second, are important measures, but the important ones are the ones that have been launched and should be launched with the distribution.

Okay, thank you, Arturo. Next question comes from Rob Poulain from Morgan Stanley.

Hi. Good morning. Frankly, most have been answered. Just a couple of very nitty-gritty modeling questions. First of all, the first half finance costs are a shade under $200 million. Just checking, is that a good run rate? Would you be willing to quantify quite how much that impacts EBITDA? I think it's quite encouraging that with such an unexpected headwind, you're still on track for guidance and just like to quantify the impact. Thank you.

Yes, you're right, 200 million in this quarter, so you should expect something similar also for the end of the year. Let's see how much, I mean, particularly given that we were hoping just to, I would say, have measured, basically, And I guess that the second question, if I understood correctly, was related to the ancillary services impact. And there I guess that we can quantify it in the first quarter around, I mean, the impact without taking into consideration the recovery on the generation side. is, you know, that is probably comparable to some of the numbers that you've been hearing from competitors, is around 150 million euro for the semester. That could be probably not than the double for the full year because when the system calls to produce on economic merit the CCJTs, you then have an effect that the CCGT is producing so it's giving somehow the services and there is less cost in calling somehow the non-economical power plant. So when we look at this data and we see it as probably a net when considering the also a generation component, I would say that for us the impact this year should be something around 150 million, I guess, on the full year net of all the other components. Thank you.

This is provisional data. On this, what are your thoughts? Second question. Thank you very much. Hi Fernando.

I have just received one question from the email, from the web, and I guess that is for you Marco. It's regarding the unitary gas margin reached in the first half. And the question is if we were considering to upgrade the expectation for this year and beyond. The question comes from Philippe Urpatian from ODO. Okay. So now we are done. We have tackled all the questions received so far. And just to thank you for your participation and to wish you a nice summer break. See you in September.