Rwe Ag Ord S/Adr

Welcome to the RWE conference call. Markus Krabba, CEO of RWE AG, and Michael Muller, CFO of RWE AG, will inform you about the developments in the fiscal year 2023. I will now hand you over to Thomas Denny. Please go ahead, sir.

Thank you, Sergey. Good afternoon, ladies and gentlemen. Thank you for joining RWE's conference call on full year 2023. As always, our CEO Markus Krever and our CFO Michael Müller will guide you throughout the rotation, after which we'll start our Q&A session. And with this, I'll hand over to you, Markus.

Yeah, thank you, Thomas, and also from my side, a warm welcome to everyone. 2023 was a remarkable year. We have delivered a strong operating performance. We have significantly exceeded our financial targets. We have added 6.3 gigawatt of green capacity to our portfolio. And we have cut CO2 emissions by a remarkable 27%. Since December 23, commodity prices have come down by around 30%, but we can keep our 2024 guidance, which we outlined in our CMD last year. We now expect to be at the lower end of our guidance range, which is about 5% below midpoint and translates into 2.6 euros earnings per share. We have a high share of secure revenues in our wind and solar business and consequently only limited power price exposure. And our flexible generation business benefits from an increasing share of secured long-term revenues. Overall, we do see a faster normalization of power prices. Our long-term expectations have not changed. We remain committed to our mid and long-term EPS targets for 27 and 2030 as outlined at our CMD. Let me be clear, our focus is on bottom line earnings per share. Therefore, profitability of our investments is key. And in light of an evolving risk-reward environment, we do constantly reassess our capital allocation. But please do not expect us to change course on an ad hoc basis because of short-term developments. We have made significant progress in expanding our green portfolio. In 23, we even increased our investments and we closed the acquisition of ConElsin clean energy businesses. The investments contributed to a strong earnings growth in 23. Adjusted EVTA was up 33% year-on-year. And our green transformation continues to drive a significant reduction in CO2 emissions. Year on year, they are down 27%. Also long-term, we have committed to a more ambitious CO2 reduction target in line with the 1.5 degree emission reduction pathway. The next milestone on our decarbonization path is the closure of 2.1 gigawatt lignite capacity by the end of March and a further 0.3 gigawatt by the end of this year. Since December last year, we have seen a significant decline in European gas and carbon prices. This has led to power prices dropping by around 30%. Thanks to the robustness of our earnings mix, we keep our full year guidance for 24, but we expect to be at the lower end of the range. For adjusted EBITDA, we now expect around 5.2 billion, and for adjusted net income, 1.9 billion euros. This translates into 2.6 euros earnings per share. In our wind and solar business, we have limited market price exposure. Our strategy is to lock in secured revenues in wind and solar long-term through CFDs, feed-in tariffs, PPAs, and tax credits. And we actively manage our remaining price-exposed volumes by applying hedge strategies. Diversification across various regions further reduces volatility. Page 7 of the presentation provides full transparency about the price-exposed positions, generation margin, sensitivities. Let's move on to the flexible generation business. Here, our long-term market expectations have not changed. We see long-term earnings growth and we see an increasing share of secured revenues reflecting the nature of the business, providing firm capacity and firm flexibility. For example, in Germany, we secured attractive margins in a tender for capacity reserve until 2026. In the UK, The recent T-4 capacity market auction has secured revenues of more than 400 million pounds for the 27-28 period. Our mid- and long-term targets for 27 and 2030 for flexible generation remain unchanged. What has changed is the faster-than-expected normalization of power prices in Europe. From 2024 until 2026, we now expect an average adjusted EBITDA of 1.4 billion euros. Our investments in 2023 have almost fully secured long-term contracted revenues in line with our investment strategy. Only less than 5% of the wind and solar capacity additions in 2023 have price exposure. More than 95% have long-term contracted income streams. Our strategy will lead to an increasing share of contracted revenue for the entire portfolio. Also, all wind and solar projects under construction will have a high share of contracted revenues. For all our offshore projects without CFD government offtake, we are targeting secure revenues via PPAs before commissioning. This is also true for our Danish offshore project TOR, similar to what we have done at our Cascadia offshore wind farm in Germany, where the full capacity has been sold via PPAs at attractive long-term prices. Our investments will lead to attractive long-term earnings growth, and the quality of our earnings will improve continuously. The share of secured revenues will increase further from our renewable investments, as well as the earnings mix in flexible generation. And the portfolio will decarbonize in line with the 1.5-degree pathway. Despite the faster normalization of the commodity price environment, our long-term expectations have not changed. In light of an evolving risk-reward environment, we do constantly assess our capital allocation. With a clear focus on EPS growth, we do confirm our earnings per share targets for 27 and 2030. And now, over to you, Michael.

Thanks, Markus, and a good afternoon from me. the business performed extremely well. We clearly exceeded our guidance. Adjusted EBITDA across all core segments, especially driven by strong earnings from hydro-biomass gas, supply and trading, as well as significant capacity additions. Strong earnings also use strong cash flows to finance future growths. On the back of a strong business performance, adjusted operating cash flow amounted to 7.3 billion euros. Fitch and Moody's both confirmed our credit rating of triple D plus and BAA2 with a stable outlook, proving our solid credit quality. At the end of 2023, the European Commission granted state aid approval for the 2.6 billion compensation the earlier exit from lignite fire power generation agreed in 2022 subsequently we received the first installments with a total amount of 700 million euros for 2024 we confirm our guidance and expect it at the lower end of the guided range let's now take a closer look at the 2023 numbers in offshore winds Adjusted EBITDA increased to 1.7 billion euros, mainly due to better wind conditions, capacity additions, and higher realized power prices. Onshore wind and solar recorded an adjusted EBITDA of 1.2 billion euros. The increase is driven by capacity additions, including Con Edison clean energy businesses. Lower realized power prices had a negative effect on results. Adjusted EBITDA of the hydro-biomass gas business was 3.2 billion euros. The excellent result was driven by strong asset optimization and hedges conducted at attractive price levels. On the bank of a strong performance, the supply and trading business reported an adjusted EBITDA of 1.6 billion euros. Latvia's results were negatively affected by a one-off relating to sanctions on Russian coal deliveries. Year on year, earnings in coal and nuclear were lower due to more overhauls, outages, and the absence of production from our M-Plant nuclear power plant after it was shut down in April 2023. Overall, Ali's group-adjusted EBITDA stood at 8.4 billion euros. On the back of the strong operational performance, adjusted net income amounted to 4.5 billion euros. Adjusted depreciation increased in line with our growth investments. Adjusted financial results include the financial expenses from the consolidation of Con Edison clean energy businesses' debt. For adjusted tax, we applied the general tax rate of 20% for the Adderley Group. Adjusted minority interest reflects lower earnings distribution to minority shareholders given the decline in power prices. The adjusted operating cash flow was 7.3 billion euros and reflects the impact from operating activities on net debt. This shows the high cash conversion of our operating assets. Changes in operating working capital were mainly marked by a decrease in gas inventories in storage. Net debt increased due to significant investments in our growth. In Q1, we closed the acquisition of Con Edison clean energy businesses and we invested a further 5.1 billion euros net in our green growth program, including the Magnum and JDM solar acquisitions. Net cash investments include the proceeds of the divestment of the gas storage business in the Czech Republic. Other changes in net financial debt increased by 2.5 billion euros. This includes timing effects from hedging and trading activities, as well as cash inflows from the first installments of the lignite compensation. Our net position from variation margins from power generation hedging stood at 1.4 billion euros. This includes net variation margins from the sale of electricity, as well as the purchase of the respective fuels and CO2. For the full year 2024, we confirm our outlook as presented at the CND 2023, despite a significant decline in power prices. We expect adjusted EBITDA, adjusted EBIT, and adjusted net income at the lower end of the guidance range. We also confirm our dividend target of one euro and 10 cents per share for the fiscal year 2024. Our guidance range for the offshore wind is between 1.45 to 1.85 billion euros. Due to the recent decline in European power prices, we expect lower margins. The earnings contributions of offshore wind is expected to be at the lower half of the guidance range and below last year. For onshore wind and solar, our guidance range is 1.5 to 1.9 billion euros. We also expect lower margins due to the decline in European power prices. However, capacity additions, as well as the full year contribution of CEB, will have a positive effect on the earnings. And we expect to close the year significantly higher than 2023, but in the lower half of the guidance range. Flexible generation is the renamed segment, which includes hydro-biomass gas activities and the 30% shareholding in EPZs. Our guidance range is 1.8 to 2.2 billion euros and we expect full year earnings at the lower end of the guidance range. Lower margins from running the assets will be partly offset by slightly higher income from system services. For supply and trading, we assume normalized earnings after an outstanding performance in 2023. The guidance range is between 100 and 500 million euros. as presented at the CND 2023, will steer the pace out of coal and nuclear business on an adjusted cash flow from 2024 onwards. The earnings from segments are no longer included in the adjusted EBITDA and the adjusted net income. The adjusted cash flow for 2024 is expected to be between 300 and 600 million euros. To sum it up, we are confident that will deliver earnings within the guidance range we set at the capital market day. And now, let me hand back to Thomas.

Thank you, Michael. We now start the Q&A session. Operator, please begin.

Thank you. As a reminder, to ask a question, please signal by pressing star one. And our first question comes from Robert Pullain from Morgan Stanley. Please go ahead.

Thanks very much, and good afternoon, everyone. So first question, if I may, because I think some others may ask some of the other popular ones. So the first one I'd like to go with is, are you guys seeing increased interest in renewable projects for data center PPAs in both the U.S. and Europe? And could you put a bit of color around this in terms of PPA terms, duration, price, you know, and how much this is for a growth area for yourselves? The second one, as I'm sure everyone's very keen to hear, we know you've moved to an EPS commentary, both in your prepared remarks and in the PAC, which, of course, chimes with lots of questions we receive on shared buyback. But may we ask how politically viable it is to do this or even talk about it, given the current negotiations around German capacity market and the government's desire for energy investments? regardless of, of course, your choices of capital allocation and where you want to deploy capital. And thirdly, just to stretch it, is it fair to say that the lignite emissions will be significantly lower in 2026 anyway, given you've sold your implicit fuel hedge last year? And if you maybe just update on how long the explicit carbon hedge will keep those assets in the money. Thank you very much.

Thanks, Rob, for the question. It's Marcus. On general sentiment in the PPA market, it has not changed. There is strong interest for PPAs in both markets, of course, given that we have significant lower spot prices. I mean, there are discussions around price levels, but we have even in the last weeks and months signed long-term PPAs starting mid-20s. at unchanged price levels. So the demand for green electricity is clearly there. I would currently say even stronger in the U.S. given that there is significant demand growth coming. And you have already seen that now given the limited, I mean limited is probably the wrong not fast enough build out of renewables, now some even turn to nuclear because it is needed to back these additional demand. Now, the second one is, of course, probably the most interesting question. I mean, on the EPS side, we deliberately move to EPS because that is in the end which reflects our commitment to create shareholder value best. It's not about absolute earnings. It's about and that of course adds now an additional element of flexibility in what we do. We still believe in a very good investment program we have ahead of us, and please keep in mind that we have a lot of flexibility in this investment program across regions, across technologies, but also in terms of timing, when we invest and when not. And maybe just to add some color, we have promised at the Capital Market Day that we at least yield on average an EBITDA yield of 10.5% with our investments. For what we have shown here on the slide, especially what we commissioned in 2023, that was higher, more than 200 basis points higher, so we were above 12.5% EBITDA yield. So, and now with capital allocation, of course, you need to look at what are your investment opportunities. Some questions are open. I mean, what happens to the PPA market? What happens after the election in all our core markets? When do we get clarity on the H2 gas plant framework in Europe? What happens to the supply chain? So you have a constantly evolving investment environment, and then we will constantly reassess it and take the decisions in order to maximize EPS. We do that with a long-term view. So it's not about pimping EPS for next year. It's really what is the right long-term strategy in terms of capital allocation to increase and maximize EPS in the mid to long-term. And that is what can be read into moving to EPS, given that we have now a bit more higher uncertainty and a bit more cautious. We want to add additional potential instruments, and we are now committed to the EPS target. Last question, sorry to correct, but the hedges are never relevant for dispatching of the plants. Dispatching is always done on spot prices, but you are right, we expect significant lower CO2 emissions in 2026 from our lignite fleet. First of all, we have to then close additional units, but also given the renewable build-out, we expect lower utilization factors of any fossil plants Anyhow, if you now factor in the significant lower gas price and also potentially the effect of fuel switching, you can expect even further reduction of CO2 emissions compared to the old plan.

Thank you very much.

I'll turn it over. The next question comes from Peter from Bank of America.

Yeah, good afternoon. Thank you for taking my questions. I'll stick to two. So the first one, I'm sure I'm not going to be the only person to sort of labour the point on share buybacks. But the angle I wanted to come at it from is that, you know, in the past you've been quite opportunistic on M&A. So, you know, we had the Magnum transaction in the Netherlands, obviously CEB. And I'm just wondering why that opportunism doesn't stretch to buying back shares when they drop to basically 40% below where the street sees fair value. Just wondering what would have to happen to change your view on the relative value? And I'm not talking about EPS here, but just on the relative value of buying back shares at such a massive discount. versus investing at a 10% or 10.5% EBITDA yield. So that's my first question. And then second one, thank you very much for the guidance on flexible power generation. It is quite a big downgrade versus where consensus was previously for 2025 and 26. So I think what would be really helpful for me and everyone would be what assurances can you give that companies your new guidance is somehow at the floor and that it couldn't actually even go lower still. And the reason I'm asking that is because we're looking at forward curves and peak spark spreads on forward curves have now turned negative in some geographies, even for more efficient assets. And I know that those aren't necessarily the right things to be looking at, but clearly it's causing some concern in the market about the future profitability. So if you could sort of draw a line or help us draw a line on the profitability in FlexGen, that would be very helpful. Thank you.

Peter, thanks for the question. I mean, first on M-on-A, I mean, we have always differentiated our M-on-A strategy in two buckets. One, as you call it, is opportunistic. I mean, like an offshore wind farm in development here and gas asset there, that is more part of the normal organic investment program where you see, I mean, individual smaller opportunities here. which are even more attractive than your own development, and we go for that. The other aspect, I mean, CEB was a strategic acquisition to get us into the U.S. and in solar to the market position we want to have, right? I would never consider buying your own share in the same bucket than M&A. That is something totally different. Here it is about long-term EPS maximization. And if you cut, you have to cut significant more out of your CapEx program because you lose headroom and so on before you can buy back your own stock. So it's not a simple math. It's only simple if you look at one or two years ahead. But if you look long-term, you have negative effects on EPS. And it's about, I mean, how to maximize that with a clear long-term view. And as I said, we are committed and we will consider all potential options to maximize EPS by 2030. On FlexGen, when you now look at the chart, you can see that we have this constant trend of increasing earnings, which are secured. And this is especially capacity market, but also other reserve payments and series service where we are confident and so on. And now you also see that we already expect a full normalization of power prices, and that is what you already mentioned. The current spreads you can see on the screen for 25. So we have the current curve in this assessment. Because I think that is the best you can do. I mean, we never deviate our planning exercise in the short term from the market. If there are significant further downside, I would say clearly no. If you see, for whatever reason, significant demand drops or crisis, I mean, you can never root things out, but it is definitely skewed to more upside than downside. It's very close to a floor now, what we have put on that slide, very close to a floor.

Okay, that's very helpful. Thank you, Marcus. Next question, please.

Alberto Gandolfi, Goldman Sachs. Please go ahead.

Oh, hi, and good afternoon, and thank you for taking my question. The first one is on your 2027 assumption. Noted that you're focusing on EPS and maximizing growth on EPS at three euros a share. Is there any chance you could shed a bit more light, I don't know, for instance, telling us that power price you're using, you're assuming on your merchant generation, perhaps, I don't know, the volumes exposed to, or in general, the total volumes by then, some more details on FlexGen. So just some underlying assumptions to make everyone comfortable on the three euros a share. And the second question is, once again, on how we get to the three euros per share. So I'm just trying to understand the philosophy here. Marcus, this is the first time I hear you stress so clearly several times that the focus is on EPS, that all potential options to maximize EPS growth are being considered. So there are two ways I can see of getting to three euros. One is through investments. Let's say constant prices, of course. One is through investments. The other one is by reducing the share count. Reducing the share count has a very, very casting stone IRR because it's the share price today, right? You don't need to take a view on long-term power prices. So you could argue that reducing the share count perhaps is a safer, more visible, and less risky approach to do that. I'm not saying that's going to be the entire capital allocation, but would you agree that get into three euros if you wanted to reduce risk, you'd be fairly indifferent between investments and reducing the share count, or perhaps maybe even more tilting towards the latter option. Thank you so much.

Yeah, let me start with the 2027 numbers. I mean, we don't reveal numbers here, but I mean, you can assume that we obviously did internalize the math before confirming our guidance. So we looked at our assumptions we took at the time of the capital market day and we took at current forwards prices where they are. And we also looked at markets discussed in the other income streams, namely the secured revenues from flexible generation. And that led us to the conclusion that the number fits perfectly. I mean, you also need to bear in mind, that's why we put forward also on page seven and page eight, the split of income, how much of that is secured and how much is market dependent. So what you see is there's a large chunk of income that is already fixed via secure income streams. And also with new investments clearly coming online until 2027, that share will increase. So therefore, That's the underlying rationale where we are confident in confirming the numbers for 2027.

Yeah, then let me take the other one. Alberto, you are trying to push us now into something which would reveal a preference. I mean, life is not that easy. I mean, I have said everything we wanted to say on the EPS focus, but let me give you one additional argument. which you could also not, which will have to be considered. It is, if you cut into the investment program, the company will look like different in 2030. And then it comes back to questions like, how robust is the earnings profile? Because with our investment, we reduce significantly CO2 intensity, and we significantly increase secured revenues. So the company and also the potential valuation multiple in 2030 would change with cutting into our investment program. So we need to look at many, many, many different factors. And the promise we make today is we don't rule any of the instruments out, and we look at maximizing EPS and quality of EPS in 2030. And 27, of course. I mean, it's not so long-term, but it's not something we're going to act on a hoc basis because of development of the last 10 weeks.

Thank you. Thank you. And if I may test your patience, is there a date we should be looking forward to when you may have to do a strategic update or you may want to do a mini update to the bigger CMD we have seen last year?

Yes, sure. We communicate the moment we have to communicate something.

That's clear. Thank you so much.

Thank you, Adato. Next question, please.

Deepa Venkateshwaran from Bernstein. Please go ahead.

Thank you. I have two questions. Marcus, I'm so sorry to not leave the topic of buybacks, but I noticed that in your comments, you stated that you're committed to bottom line growth. You won't change course due to short-term development. Can you clarify a bit by what you meant by short-term development? Are you referring to your share price and are you expecting it to recover and therefore ruling out buyback? So that's my first question. And second question is a bit on the flex-gen earnings weakness. So obviously the power prices have fallen, but it is to a very large extent explained by the fall in gas and carbon prices. Therefore, I was just understanding if you can maybe share the math on the sensitivity because it doesn't seem like the spark spreads were that high in November. And, you know, I don't see that. So is it because of some small outright exposures such as biomass or something else that's driving, you know, this? And, you know, to your comment that you are very close to a floor. Could you then explain why it may not drop further in case there is some outright element sitting within FlexJS? I think those are my two questions. Thank you.

Deepa, I'll go with the first one, and I think the second one, Mark has already answered fully in his answers to previous questions. I mean, on flexible generation, you are right. The decline we are seeing is primarily on the Dutch side, where we have the biomass assets, but also gas assets that we, at least for 2024, hadn't hatched during the winter. That was more kind of cautiousness due to spikes that could have happened if we would have gotten a tight winter. So, look, you see a decline in clean spark spreads. You see a decline in clean dark spreads. That's obviously reflected in those numbers, but what you also see is that the volatility in the market has come down to a normalized level, and that is also impacting the projected earnings of the flexible generation fleet.

Okay. Can I go for another question since you didn't explicitly answer my first one? So on the PPA pricing for solar, so you've identified that as being one of the projects where as of now you don't have a PPA. and it's obviously a larger project in terms of, you know, 15% of the capacity under construction. So how confident are you on kind of getting the right pricing for that project in order to meet your hurdle rates? And is there any tendency for data centers to be located in Denmark and, you know, therefore you're even more confident on getting that price because of the a data center demand?

So, Deepa, we are confident that we can lock in the right price level, because otherwise we wouldn't have taken FID on the project. And it's not only about the location. Even power in Denmark can be marketed partly to Germany. because there is an eye interest of additionality and the low profile of offshore compared to the low profile of, for example, solar. And then it's a question who takes the location differential, and you can even partly move it to the customer. So the market is much bigger than only Denmark. That is why we are confident that we're going to close it before we COD the asset.

Okay. Thank you.

Thank you, Deepak. Next question, please.

Ahmed Farman from Jefferies. Please go ahead.

Yes. Hi. I have a similar question, just one question from my side that you sort of talked about. So it seems like, you know, a lot of the sort of it's going to depend upon how you think about the sort of the risk, reward, and opportunities on the investment side. So maybe we can just have some sort of broader comments on how the accelerated normalization in power prices, how is that has impacted or shifted your expectations between the CMD and today in terms of the risk reward or the returns available on the CapEx? And then my second question is, in particular, can we sort of get an update if you have sort of stress tested your existing valuations of the operational assets for the current power price environment? and if you're sort of comfortable with those valuations. Thank you.

Thank you, Ahmed. I think the second will be taken by Michael. On the risk-reward side, the faster normalization has not changed our view on long-term attractiveness. The only pin of salt there is how fast and what happens to the to the green PPA market here. So far, we have seen no effect on prices long term. Let me give you an overview of what we think are clearing events for the evolving risk-reward environment for our entire investment program. But of course, we have significant flexibility, as I said before. so of course one on the one hand side it is about energy policy so what what's going to happen in the european union the uk and the us after this year's elections second is um how do the supply chain challenges evolve um and that is especially uh for the for the offshore business so um how confident are you with um additional investments in offshore at which point in time? Does it take longer to clear the current difficulties in the supply chain or does it go faster? Second, a third one is when do we get clarity on the H2GET investments in Germany, which would be a perfect portfolio fit, and we are in a pole position there. But it's currently in discussion between the German government and the European Commission. If that is clear as fast, I mean, we see a significant chunk of very attractive investments. So these are the potential clearing events over this year. And, of course, we also have to assess – how big and where we want to invest and what are alternative measures to increase EPS.

Concerning the value of the investment, I mean, at year end, we have done obviously an impairment test that hasn't led to any impairment of our book values. Obviously, forward prices have come down, but at the same time, you also know that valuations are done over the entire tenor of the assets. And as we mentioned, our long-term expectations have not changed.

Thank you.

Thank you.

Next question, please. from HSBC. Please go ahead.

Yeah, thank you very much. Two questions from my side. Maybe actually immediately connecting to your answer to the last question, if I may. Would I be right to read into your answer that you see some things developing slower than you might have thought, such as you pointed to the German decisions on hydrogen plants and perhaps also developments on the offshore side. Is that the underlying driver of sort of like everything we've discussed so far? If that perception correct would be one question. And the second part of that question would really be the slightly softer changes in capital allocation. Is the US looking more attractive because of lower European power prices or not because offshore is still challenging? Is offshore in the U.K. looking more attractive with the buttons by portfolio rather than battery investment? So if you could sort of like what has changed maybe between your investment opportunities that something might shift from one to the other bucket? And the second question is coming back to coal. If it is true that sort of like a coal discount is part of your share price, Wouldn't be more disclosure one of the absolute cheapest options to support the share price? And isn't there, I would say there is no downside to it. So I'm just wondering whether there's something you can do that goes a little bit beyond saying that the share of coal is less than 10% by 26, 27. And isn't that a no regret move disclosing that information? Thank you.

So I think it's too early to say whether things have really slowed down. I'm still, I mean, I'm typically an optimist. I think we probably see clearance from the gas investment framework in Germany before summer. But, I mean, since we are not part of that process, it's between the German government and the European Commission, we have no insight. It could also go wrong, but so far there is no indication. In general, I think, I mean, I also, you know that we invested in all technologies last year. I said that the EVTA yield is higher, 200 basis points higher than we have on average assumed. I wouldn't say that there is a certain bucket which is less attractive than expected currently, but the only thing where we're probably a bit more cautious is on how big the future commitments are in offshore because you have these long lead times and without a very stable supply chain, you should not take too many risks. But since the portfolio is big enough to compensate that as very attractive returns, it is not per se the one reason to cut into the investment program. But other than that, please don't read it as that we see more risk than before.

Maybe on the other cold disclosure, I mean, look, what are the two drivers for bringing down the cold exposure? One is the number of assets you have available, and secondly is then the power price constellation, if those assets have to run or run or not. Now, starting with the first one, we now will close 2.1 gigawatt of capacity by end of March, and a further 30 300 megawatts unit by the end of the year, and that will clearly bring down emissions. At the time of the capital market day, we communicated the 2027 number because by that time, we also foresaw that in addition to the coal closures, we would also see a much lower utilization of the coal assets simply because of the build-out of renewables. If you assume current power price level, you could assume that the utilization of coal is far lower and therefore also emissions come down. But having said that, the latter one is very dependent on actual power price constellations. And in case power prices rise again or we see tight winter, it may well be that emissions at least stay on the level where they are currently until then they ultimately drop towards 2027. So these predictions very much depend on the market, but it's clear that they will come down and therefore the 2027 target is also very confident to achieve that.

Wouldn't it be worth at least a scenario? I mean, belaboring that point that you have done everything you can do and the rest is out of your hands, plus minus a few years, but sort of like a scenario or something on the point. But Thank you. That was very helpful.

Yeah, we'll look into it, Michael. Next question, please.

Harry Webber, BNP Paribas. Please go ahead.

Hi, thanks very much. So the first one for me is on trading, which we haven't talked about yet. I guess Centrica and Engie seems quite upbeat. on trading and the particular energy actually upgraded their guidance quite significantly is that something that reads across to you you haven't really changed anything in terms of your outlook on trading is there something different about your trading business which explains why you're being a little less optimistic I think than some of your peers and then the second one I want to ask a specific question on the PPAs in continental Europe on onshore and solar depending on who you listen to or which PPA index you look at, you get a lot of varying messages on whether PPA prices are actually moving up or down. So what are you seeing in continental Europe specifically with onshore PPAs? And if they are going down, would you think about reallocating capital to other regions where PPA prices are better? Thank you.

Yeah. Yeah.

Let me start with the second question, Harry. I mean, when you look in our markets where we do onshore and solar and the investments we have done, Poland, Germany, France, UK, these are all CFD markets. You have typically government auctions, and we have been very successful there, many of them inflation-adjusted. So I cannot comment on certain PPA markets. If you talk about, for example, solar Spain, it might be very difficult, but this is not part of our investment universe.

And talking about trading, I mean, I can't comment on our peers, what they are doing, just about ourselves. I mean, it's just early into the year, and therefore we are very confident with the guidance we have given on trading.

Okay, thank you. Thank you, Harry. Next question, please.

Wanda Srebinowska from UBS. Please go ahead.

Hi, good afternoon. Wanda Srebinowska, UBS. Two questions from me. The first one is on the FlexGen. Based on my industry checks, I understand that the power market conditions have been even worse in February with low forward spreads. I mean, when I look at your accounts, you incurred part of the CCGD portfolio in the Netherlands. So, Does your outlook fully take into account everything that is happening in the market? And if you could disclose what share of your 1.4 billion of EVDO deflection is basically locked in as of today, I think that would be very, very helpful. And the second question is, can you comment on the bankruptcy feeling by Enviva, which is one of your counterparty on the Woodpallet side? What would be the potential impact on RWE? Thank you.

Yeah, Wander, happy to take the questions. Start with the latter one. I mean, don't expect an impact on us from the Chapter 11 process, anything further. I mean, we don't talk about anything with specific customers. Secondly, on the question around the flex market, first with the impairment, I mean, when you look at flex, the impairment, what you see is that in 2022, we had to turn around previously done impairments. So we actually added value again to those assets. And we just basically now took it back to the initial level. So this is rather, yeah. So we're now back to kind of the normal level we had previously. So nothing specifically to read into this one about the future. Secondly, about the hatching, I mean, you know that most of our gas fleet is in the Netherlands and in UK, and you typically can only hatch the assets there, say, a year ahead. And that's also what we have done. So no further hatching in later years.

Sorry, one follow-up, because if I look at the press, it says that RWE said Enviva still owes almost $350 million for the transaction. So can you confirm there's no potential impact on RWE?

You're talking about Enviva or?

Enviva, yeah. I mean, Enviva, yeah, there's the article in the Financial Times today, and the Financial Times says, RW said Enviva still owes $348.7 million for the transaction, according to the feeling.

I can't comment on that one.

I mean, Marcus here. So I can confirm what Michael said is that regardless how the situation of Enviva involves, we do not expect a negative impact on our earnings. Of course, if you have certain claims... If you have certain claims, you bring them forward, but if you see a situation evolving negatively, you have ways to adjust your position, right? I mean, we have seen very similar things with, I mean, in the crisis not getting Russian gas. I mean, the moment a supplier is not delivering, it depends on whether you simply still keep the position as it is and you hope for delivery or you start adjusting your position. We have a claim that is clear. We're going to bring that claim forward. But regardless what happened under the Chapter 11 situation, we do not expect any negative impact on our P&L.

And cash flow, it's the same or it's still... It's still too early to be said. Because earnings are one side, but the cash flow is another side, right? Same. Okay. Thank you very much.

Thank you.

Next question, please.

Ollie Jeffrey from Deutsche Bank.

Please go ahead. Thank you. One point of clarification and a couple questions. Just to clarify the comment earlier regarding long-term expectations having not been changed. I presume that is on power prices, and if it is, is that on long-term 2050? We're talking 2027 and 2030. And then my other questions are, with the three euros a share that we're now talking about for 2027, that implies probably 2.2 billion net income on current share count, which is the midpoint of the guide. And just wondering how that gets to the midpoint, because if we've maintained Flex Jones where it was before, I can understand how you could get there, but I would have thought that the merchant renewable exposure would have dragged that number slightly lower. So could you just please explain why there's not more of a drag from the renewable merchant exposure? And the last question is just on Orangi West and the North Sea Cluster projects, which have merchant exposure. Are they now less in favour given the move in commodity prices and perhaps you're more interested in developing, if you can, some of the vast and full UK CFD projects, if you're able to get a CFD? Thank you very much.

Yeah, okay.

So let's talk first about the long-term expectation. I mean, when we talk long-term, it's 27, 2030, and also when we previously talked about the the value of assets, that's obviously even longer. That hasn't changed. Talking about 2027, I mean, look, this is still pretty far out. So there is also, to some degree, not so much clarity exactly on how things exactly evolve. I mean, if you do roughly the math, given that commodity prices have come down, maybe also compared to what we at that time assumed for 27, there is maybe some less income. At the same time, you have seen that the UK auction on flexible generation firm capacity came out extremely well, and that also contributes to 27. So there's an offsetting effect in the positive direction. But as I said, It's early days, and if we do the math, we're confident that we're in the range we've added.

Then on the North Sea cluster, so the offshore wind farms in Germany, I think you mean then, where we are close to take a decision. The effectiveness of these assets has not changed. I mean, first of all, please keep in mind that commissioning of these assets is 28%. And even after faster normalization, our outlook on prices, and especially we talk here about PPA prices for these assets, has not changed. We are in constant dialogue with potential off-takers who have a good understanding where price levels are. And then, of course, it's always a question how competitive are these assets compared to others. And please keep in mind that we do not pay any at least payments for them compared to what came out of the auction in Germany last year. We probably can expect next year load factors of these assets are excellent. So I think these are probably one of the best North Sea sites in Germany. The other question where you are hinting to also comparing them to the CFD assets in the UK is, of course, how much do you want to keep yourself and for how much you take on board the partner. But that is to be decided over the next time. But we see these assets as very attractive in our portfolio. Thank you.

Thank you.

Next question, please. from Citi. Please go ahead.

Hi, good afternoon, everybody. I have two questions. First one, I wanted to ask you about your current outlook for the CO2 market. At the time when you were closing your strategic reserve, you clearly had a negative view and you sold a lot of CO2, but you still own the league-made assets and also, so what do you think is required for the CO2 price to recover and what do you assume in your kind of mid-term targets at the normalized level? And the second question I wanted to ask you was, we haven't talked about your E.ON stake for some time. I recall in the past you said you would need to sell entire stakes for the tax purposes. I just wanted to understand if you are anyhow sensitive on the share price of E.ON with regards to your ownership of this stake, or you think it sits well within your structure of kind of matching with the dignified liabilities that you have. Thank you very much.

Thanks for the questions. Let's talk a bit about the CO2 market. So we have a couple of factors which now put the CO2 price under pressure. One, of course, is the additional auction volumes by the European Commission to raise additional funds. I mean, they have brought some auctions or significant volumes of auctions forward. That is one aspect. as important sector is the general economic muted activity. That is clearly seen and we also know from some industrials the moment the outlook for the activity is weaker, they stop hatching, they stop buying, so there is definitely lower buying activity. If you look at the market overall, we can probably look about two years of healthy supply in the auctions at current economic activity. But then we also know with the kick-in of the market stability reserve on the reduced auction volumes that we're going to see very tight carbon markets from around end of 2025, 2026 onwards. And since you can carry these certificates also into the future, it's a question when start people buying also for the tight situation, 26. That is more a sentiment question. It's difficult to call. It can change very quickly. But as I said, very, very difficult to call. So our view is healthy supply in the next two years, two and a half years, and then a significant tightening of the markets. And as I said, it's more a sentiment question when you're going to see that also reflected in higher prices. On the E.ON stake, just to remind you of the tax rules, the moment we go beyond 15%, we lose state tax advantage. The moment we go below 10%, we also lose federal tax advantage. We always said it's not a strategic investment. We need it for coverage of the LICNAP provisions. So it could also be any other investment portfolio, financial asset portfolio. So far, the tax advantages outweigh the concentration risk we have as one asset. So currently, there are no plans to sell it down. But the moment we start utilizing the Lignite provisions, which is in the late 20s, then, of course, we need to also cut the financial assets.

Okay. Thank you very much. Thank you, Prasad. Next question, please.

We'll now take our final question today from Deepa Venkateshwaran from Benstein. Please go ahead.

Oh, thank you for giving me the opportunity to ask one more follow-up. I had a question on... AR6 parameters that were recently released by the UK government. Our map suggests that not all the permitted capacity, including your Norfolk project, will clear at an attractive price. And therefore, some projects will have to sit out unless the UK government increases the budget. I was wondering if you had any thoughts. And in general, would you be open to waiting out or do you need to wait until the end?

So I think that is now speculation who can participate in which auction. I think we're going to see clarity about that in the coming years. Sorry, in the coming weeks. So, I mean, we're going to decide on our bid strategy and also what we think how good the auction will be in the coming years when we have to take that decision. But, Lipa, please understand that I cannot comment on our strategy, what we think might happen and what clears or not, because that is, of course, the very sensitive information.

Okay, thank you.

Thank you. And with this, I'd like to hand it over back over to Thomas Denny for any additional remarks. Thank you for dialing in.

Bye-bye.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.