Solaria Energía y Medio Ambiente

Good afternoon, everyone, and welcome to Solaria 2024 first nine-month registered webcast. My name is David Guingon, the head of IR of Solaria. I am joined today with Arturo Díaz-Tejero Larrañaga, our chief executive officer. During this call, we'll discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. During this presentation, we'll begin with an overview of the results and the main development during the period given by our CEO, Arturo Díaz-Tejero Aranaga. Following this, we'll move on to the Q&A session. I would also like to highlight that you have to submit all your questions via the web. Thank you very much again, and I will now hand over the word to Arturo.

Thank you. Thank you, David, and thank you to everyone joining this conference call. As always, I will move extremely fast over the presentation, and we will pass to the Q&A session. And, of course, key highlights that we want to show in this nine-month presentation. Data centers. Data centers continues is the center of one of the important parts of our global strategy in Europe. We think that the data center business will grow a lot, especially in Spain, but not only in Spain, globally in all Europe. like in the United States, following the rhythm that we are seeing in the United States. And as you know, data centers will be one of the key customers for the electrical markets in the future. They are going to have strong consumption of electricity that they, theoretically, they should receive renewable electricity. And for us, it's one of the key customers for the future. We are bidding strongly for this business unit, and as you know, we are growing, increasing our consumption points in all the countries of Europe, especially focusing on Spain, but not only in Spain, in Italy, in Portugal, Germany, and now even United Kingdom, but especially focusing on Spain, no? We have today power land solutions for 1.7 gigawatts specially allocated in Iberia region for data centers. And today we are negotiating with different players from Europe and United States that are involved in data center business and they want to receive consumer points of electricity power and land, that we say, land options, and at the same time, PPA, renewable energy, electricity for the future. As you know, our data center business, we have decided to entry following two different ways. First is selling connection points and land. It's one of the options that we are developing and we are working with several groups. We will explain during this presentation. The other way is to establish joint ventures with key players, tier one players, with a long track record that wants to establish long-term business in Europe, especially in Spain, but focus in all Europe, with a strong experience in the data center business and that they want to establish joint ventures in the long term with renewable energy players, infrastructure players like Solaria. And we will try to explain during this presentation our business model of joint ventures in data center business. Of course, something new. We are entering in the United Kingdom. We have opened a branch, a new office in Birmingham in the United Kingdom. We think that, as we have explained, it's not a surprise because we have advanced to the market previously. United Kingdom and the new government is extremely bullish around renewable energy expansion. We think it's a good place to be and especially focus on wind technology, on short technologies. We think that the expansion of the data center business will be good and at the same time, renewable expansion will be good during the next years, you know, with... The intention of the government is to expand the wind capacity and the solar capacity in the country. Within our experience and our team is able to expand our activities there and we have decided to enter with all of our business. And we will report information quarterly about our advancements in the United Kingdom, in the country. company situation and where we are today. As you know, during this year, we have lived a tough year from price point of view. In the second quarter, especially price of electricity, we had a really low price of electricity. The good point today is that the price of electricity recovering the price and this is in a better situation than previously. You know that today, for example, in Spain we have price of electricity of 120 euros per megawatt hour. It's more than we have estimated previously. Probably November, December, January, February will continue the situation with the gas price situation. You know that today we are living a strong pressure on prices of gas and it's something that is affecting seriously price of electricity here in Spain and globally in Europe. But our results are affected by this small price of electricity during especially first half. We maintain really good levels of revenues, a bit associated especially with strong production, that we have grown more than 15%. But we have reduced our EBITDA in 14%. Hopefully, we will finish this year with an EBITDA better than previous year, better than 2023, with an estimation of 205-215 million euros of EBITDA that we maintain our estimation for the end of this year. Of course, we are going to talk shortly about the different important points of our business strategy for this year and for the next years. I have explained the concept of data center and our position in the business. At the end of the day, Solaria is a power land partner. We supply to the data center players power, electricity, connection points, infrastructure, substation and grid, ...and land. Obviously around our substation and grid we are contracting land because it's necessary. We are in contact with datacenter players and with the assumption of these guys we are contracting and renting land. That will be key for the development of the future datacenters in all Europe, no? Today our business model I have explained, two different ways, SAIL and joint venture. SAIL is opportunistic business, cash generation, PPA, good, in good conditions, joint venture, long term vision. We think that it's a good idea to introduce the company in the data center business to obtain a bit down cash from the data center business in the long term. We are not going to use CAPEX because at the end of the day in these joint ventures we are going to supply the power and land and we will give valuation for in-charge for this power and land that we are going to supply to the joint venture. We have included several estimations and we will link then ...with the joint ventures that we are negotiating today, but approximately we have estimated... ...revenues of 30 to 45 million per year for 100 MW. It depends on the final shards inside the joint venture that we are going to maintain... ...but it's an estimation based between 30 to 50% of the shards. Of course, where we are today, we have several negotiations, something new that we are explaining. We are negotiating today with tier 1 players that I have said at the beginning of this presentation, tier 1 players from Europe and United States especially. And I think that we are in a... good situation today to say that probably for the annual results presentation we are going to close several of these joint ventures. With the European player we have a really good advancement, we are in a really good stage of the negotiations, and probably for December, January, we could announce something with these guys. With United States players, I think that we need to spend more time, but we will try to do an effort, to make an effort, and to try to sign before the results presentation of 2024. We continue with our sales or with our opportunity sales of connection points, and we are advancing with these other deals. UK, as I have mentioned, I'm not going to spend a lot of time because we are at the beginning in UK. It's a promising country for us for renewable energy concept. I think that wind especially, but solar included. We are in contact with the United Kingdom government. We think that it's a good and opportunistic market for renewables. We are going to stay there. It's our obligation. As we have explained during the last years, Europe is the center of our strategy. We are going to grow in Europe, in good countries, with good security, legal security, with serious countries that we call. And for us, United Kingdom, absolutely, it's a serious country with good situation and good for renewables. And it's the moment to attack. It's the moment to be there. And we are going to stay. For us, in our mind, it's a good combination to stay in different countries with different level of risk of Europe, including Europe and United Kingdom. Of course, wind technology. Solaria today, as you know, is a mature player in the solar business, absolutely. We can say that we are probably one of the platform leaders in solar, absolutely, with a lot of experience in all the countries. But wind is our key point for the future. You know that pipeline, to develop pipeline when you have solar developments, to develop wind pipeline is easy and we are doing, we are executing now. And hopefully in the next two, three years we are going to construct massively wind parts. Especially, as always, we are going to start in Spain. ...Iberia region, we have good, really good visibility of more than one gigawatt of pipeline of wind... ...in different locations that you know the locations because it's Garonia, in Trillo, in place that we have established... ...or that we are constructing solar plants and we are going to combine with wind, hybridization process... that we will complete during the next 2-3 years. It's exciting for us because the concept for us is a clear strategy for the future to combine solar, wind, batteries and data center consumption. It's a great idea in our view for the long-term vision of solaria, wind, solar, batteries, and data center consumption, obviously, and traditional PPAs. But it's a global infrastructure strategy, and I love it. And our projection for the future that is estimated is to achieve more than 3 gigawatts of wind in Europe, including Italy, Germany. In Italy, we are not extremely bullish about wind. We think that it's better for solar and wind. We think that Italy is not the place for different reasons, especially for political reasons. Germany is okay and UK obviously is okay. Of course, pure infrastructure player, more than 20 gigawatts, extremely diversified. Europe, we are not going to move out of Europe, not in the short term or medium term. We think that Europe gives to us high-level project IRR, high level of profitability, generation of gas, security, and capex under control. That is critical for us. We think that we are probably the most powerful platform of renewables in Europe. Generia is a good combination. It's something that we made a long time ago because, as you know, land is critical. You are seeing now, even with data center business, land is one of the key parts of the strategy of an infrastructure player. and the generia was a good idea made few years ago that is growing today is attracting interest of some partners but at the end of the day people that are looking for fixed interest long term 20 25 years and the generia offers this great opportunity this great opportunity to these guys. It's like they are going to warranty a good interest rate, close to 8% during the next 30 years. And a lot of interest from the market. We have contact banks, as you know. We are talking with different players, especially funds, insurance companies, but all kind of infra funds, pension funds that want to invest in long term business with good levels of profitability and low risk. And Generia accomplished with this business idea. Hopefully, for the full year's presentation 2024, we will give the name of the final partner that... We will be with them in Generia and the combination will be probably Solaria 51 this partner 49% and he's going to stay with us with cash like a financial investor and hopefully in 3-4 years this business will grow and we will see what we are going to do. It's probably we could sign an option to sell the company to this guy or other options but it's still too early to talk. Probably in the full year's presentation we will give all the visibility. Of course, CAPEX continuous is incredible, but not a surprise. CAPEX falls all quarters. Module price is suffering an awful evolution for module manufacturing companies, because the reduction is crazy per quarter. and continues not only module inverters all the components of the installation and in my mind it's going to continue it's not something opportunistic it's a continuous line that we are going to see during the next 10 years it's incredible the development of the technology and we are the leader from CAPEX perspective in Europe and especially in Spain obviously and we continue decreasing our CAPEX Of course, where we are now from construction point of view, we have 1.7 gigawatts already functioning and under construction close to 1.5 gigawatts. Hopefully during the next year we are going to connect progressively a lot of installations and we will finish 2025 with more than 3 gigawatts, being the leader in Iberia region and probably one of the leader platforms in Europe. and hopefully we will add some construction associated with Italy that we have a good state of development and probably we will start construction in Italy and we haven't included here but I think that following an optimistic view probably during 2025 we will add a good volume under construction in Italy. But we continue constructing, not complicate construction. I think that progressively we will connect. Of course, PPA, where we are, is something that always we receive questions about the PPA market. You know, during the last month, price of electricity suffered a lot. Solar price, but not only solar, global price of electricity, talking about Spain especially, suffered a lot. Today, recovering price. We are in a better situation, and I think that ...that PPA price is in a better situation. Today we have three terms sheet agreements signed. We have three terms sheet agreements signed with tier one players. Oil and utilities, like always, are new partners. Some of them are new and it will be a good new... we have thought to include even in this presentation but probably will be announced in the next weeks good prices and especially the schedule no because they are thinking to start the con the contract after 2026 no that gives to us a lot of time it's comfortable to us and and mid 30s no that is good price good conditions good long-term view for us no Today we are negotiating 0.6 gigawatts, but probably we could increase if we want. But we are booking some power for our data center business. Why? Because we think that the data center customer will be better. Better is not a correct word to use. All the customers are great. But in our view, data center business could pay more. Why? Because they use connection points, demand connection points. It's self-consumption concept. They are going to save some regulated cost. They are going to save taxes and retail margins. At the end of the day, they are going to save around 20 euros per megawatt hour that a utility or oil company should pay. Obviously, at the end of the day, they are able to pay more on PPA prices. And it's an enormous advantage of these guys. At the same time, they need electricity as soon as possible, and they have some advantage. I think that PPA price that we could sign is much better than the traditional prices that we are announcing to the market. But we will see. We will see, especially with a joint venture, because... Probably it will be a combination. We are going to obtain shards inside the joint venture based on power and land and power and PPA is combined. We will report information. Of course, results, as I have mentioned, we increase production, we reduce sales according with price of electricity. This quarter goes good because price of electricity is growing a lot, especially in November. We will see December probably will follow the same way because I have talked gas situation and gas prices of gas in Europe that in my mind is not going to change, especially with Russia situation that we will see the evolution of the war, but I think that it's not positive from gas prices point of view. And you know that Gazprom has cut the supply of gas. It's not a surprise to Austria, but it's something that increase the inflation over prices. But we will see. Of course, we continue with our EBITDA. It's impacted seriously by tax. The government of Spain approved the Spanish 7% generation tax, you know. It was approved at the beginning of this year, hopefully, and I think I'm positive here. I think that At the end of this year, we'll finish. It's my view. After a lot of conversation with the Spanish government, in my mind and in my view, this tax is going to be cancelled at the end of this year. But we will see. We will see if it's true or not. But it's significant for us because it's something that is affecting seriously our EBITDA. Of course, cash recuperation. We have advanced in the previous results presentation. We are recuperating cash and we are receiving payments from project finance players, suppliers and banks. I think that our construction rhythm continues. We are investing enormous amount of money and we continue maintaining our cash. We are improving our pipeline. We are improving in countries, quality of our pipeline, more wind, more solar, more countries, data centers. And at the same time, we maintain our cash and the discipline inside the company to maintain the cost. It's good. As you know, all of our debt is project debt. And the average cost of debt is not bad, 3.7. Probably with a reduction on interest rate, we will improve this average cost of debt. We will see in the next quarters. Of course, as I have mentioned at the beginning, we reiterate our EBITDA targets and we haven't included here nothing special associated with generia. We haven't included here nothing special associated with data centers. It's like the standard business. We will see the evolution, but we think that that probably will be better than we have estimated, especially associated with price of electricity.

Thank you, Arturo. We will now open for Q&A session. And once again, thank you for your time. So the first question comes from Fernando Garcia from RBC. First question is when the revenue will start in our JVDC deals. Second question is if we can provide some timing to sign the agreement with data section. And third, if we can explain the delay of the capacity under construction from summer 2025 to most of it in the second half of 2025.