Terna Rete Elettrica Adr

Good afternoon everybody and welcome to TURN's full year 2022 results presentation. As usual, before starting to analyze the features, I would like to share with you the latest main achievements. Regarding regulated activities in 2022, TURN obtained the approval by the Italian Ministry of Environment and Energy Security and regional councils for 29 projects for a total value of more than 2.5 billion euros of investments, all aimed at developing the Italian electricity grid, confirming our key role as energy transition enabler. With this, Terna set new records, after exceeding the 1 billion euros in approved investments in 2021 for the first time in history. In this regard, let me remind you that the company's sustainable investments create value for the country with the positive effects on gross domestic product and also create jobs. Thus, they help to make Italy become even more crucial within the European system and the Mediterranean hub for electricity. In these regards, at the beginning of 2023, the Ministry of Environment and Energy Security also launched the authorization procedure for Adriatic Link, in which Terna will invest over 1 billion euros. The project will connect the Italian regions of Abruzzo and Marche and will directly or indirectly involve about 120 external partners. Regarding sustainability achievements, Terna is once again confirmed at the top of global sustainability. The company is among the top 1% in the Sustainability Hero Book 2023, the leading industry publication for Standard & Poor's Global, that evaluates ESG performances. The score awarded makes Terna the highest scoring company out of the 250 electric utilities analyzed around the world. This international recognition consolidates Ternas' role as director and enabler of the energy transition towards an increasingly sustainable, safe and resilient electricity grid. Ternas' leadership in sustainability is also underlined by the company's inclusion in several main ESG indexes, the Bloomberg Gender Equality Index, Euronext Video Heris, FTSE for Good stocks global ESG leaders. Regarding shareholders remuneration, today's board of directors approved and will propose to the annual general meeting the 2022 final dividend of 20.83 euro cents per share to be paid in June, up by 80% compared to the previous year, in line with the communicated dividend policy. The 2022 interim dividend of €10.61 per share was already paid last November, so the total dividend for 2022 is €31.44 per share. Finally, regarding international activities, LATAM's deconsolidation process is going on as planned, confirming the company's broader strategy to refocus its international activities as already announced in the updated industrial plan. After the brief introduction, let me give you the usual overview of the Italian electricity market, turning to the next slide, number 5. As you can see from this chart, in 2022, national demand was about 317 TWh, recording a decrease of 1% versus last year, when national demand was about 320 TWh. This modest coefficient of electricity demand was mainly the result of middle-world conditions recorded in the autumn and winter months, and the measures to contain electricity consumption adopted by families and businesses. In 2022, renewable sources covered about one-third of national demand, that means 31.1%. Regarding the national net total production, this stood at 276 TWh, 1.3% lower than 2021. Despite that, let me highlight the remarkable increase of the photovoltaic production, which grew by 11.8% versus last year. Moreover, let me also say that in 2022, renewable sources covered about 36% of the national net total production. Now let's move to the main features of the period at page number 6. In 2022, group revenues and EBITDA were up by 14% and 11% respectively versus last year, which means 360 million and 204 million higher than the same period of 2021. while group net income was 857 million, with a relevant increase of 9% versus last year. Group capex stood at about 1.8 billion, an increase of 16% versus last year, confirming once again the robust capex acceleration in line with Turner's institutional role for the country. Despite this capex acceleration, at the end of December 2022, net debt was 8.6 billion versus about 10 billion at the 2021 year-end. As you can see from the chart, all the main features of the period meet and exceeded the provided updated guidance of the year. Let me also remind you that thanks to the initiatives aimed at further increasing benefits for the system and efficiency, 2022 EBITDA and EPS guidance had already increased back in November during the 2022 nine-month results presentation. Now, let me just spend a few words regarding the main results registered in these last three years, turning to the next slide, number seven. The growth path that you can observe in the last years is briefly presented in this chart. In details, 2022 revenues EBITDA and EPS grew up by 19, 14, and 9% respectively, despite the regulatory WAC reduction, while group CAPEX registered an increase of about 30%, all compared to 2020 year-end level. As you can appreciate, despite the challenging scenario in which we operated, we were able to significantly increase the investments to serve the system needs and to enable the energy transition while generating value for all our stakeholders. Now I leave the floor to the CFO, Agostino Scornaienchi, for a deeper analysis of the 2022 features. Next to the next slide, number eight.

Thank you, Stefano. Let's start with revenues analysis. Total revenues in 2022 increased by 13.8%, reaching 2,964 million, up by 360 million versus last year. As you can see, we registered positive results, both from regulated and non-regulated activities, which contributed for 289 million and 71 million respectively. For the details of the revenues evolution, Let's move to slide number 10. Regulated revenues reached 2,542 million, 289 million better than last year, which means about 13% more than 2021. The increase was mainly due to the higher output-based incentives effects related to the higher benefits generated for the system. Non-regulated and international revenues reached 422 million, 20.2% higher than last year. Non-regulated growth was mainly attributable to the increased revenues of the energy solution, mostly related to LT Group acquired in October 2021, and to the greater contribution coming from Tamini and Brook. International revenues were set about zero in accordance with IFRS 5 accounting standard referred to asset health for sale. Now, let's go through operating cost analysis. and I am now at page 11. Total operating cost stood at $905 million, 20.7% higher than last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competences and increased level of activity, while non-regulated activities have been impacted mostly by higher raw material purchases related to Brook and Tamini and by the LT Group contribution. Let me now analyze the BDA. Moving to slide number 12. Considering the previously mentioned effects, 2022 group EBDA reached 2,059 million, 11% higher than last year. This increase was mainly attributable to regulated activities, which contributed for about 206 million, showing an EBDA of 2,007 million in 2022. Let's now have a look to the lower part of the profit and losses, turning to the next slide, page 13. Depreciation and amortization amounted to 726 million. The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached 1,334 million, 11.1% higher versus 2021. We reported net financial expenses at 100 million. The increase versus last year was mainly due to the rise of inflation registered in the period. Taxes stood at 355 million, 37 million higher versus last year, essentially due to increased profits. Tax rates stood at 28.8%. As a result, group net income reached 857 million, about 9% higher versus the same period of last year. Moving to CapEx analysis, in 2022, Total capex amounted to 1,757 million, about 16% higher than last year, and confirming the double-digit acceleration highlighted at the beginning of the presentation. Indeed, we invested about 1,668 million in regulated activities. Among the main projects of the period, it is worth mentioning the terrain link, the Paternò Pantano Priolo in eastern Sicily, and investment in stabilization devices such as STATCOM synchronous compensator for grid security. For what concerns CAPEX categories, development CAPEX represent 41% of total regulated CAPEX, defend CAPEX stood at 16%, while asset renewal and efficiency was 43%. Non-regulated and other CAPEX stood at 89 million. This included capitalized financial charges, and other investments. Regarding net debt and cash flow analysis, let's move to page 15. Net debt at the end of December 22 stood at €8,576 million, about €1.4 billion lower than the 21-year end level, mainly due to the hybrid bond issued in February and accounted as equity, as well as the impact of commercial items on the working capital dynamics versus 2021. During the year, we generated an operating cash flow of $1,596 million, thanks to which we were able to cover almost the whole CAPEX spending for the period. Let's now make a deeper analysis of our debt profiles, moving to page 16. Thanks to our efficient and proactive debt management approach of the last few years, At the end of December 22, fixed overfloating ratio on gross debt stood at about 87%, while the average duration was about 5 years. Thanks to the strong credit profile, Terna is able to top the financial market at extremely favorable conditions. as demonstrated by the green bond hybrid bond launched in February 22 for a nominal amount of 1 billion euro successfully welcomed by the market. I would also like to highlight that in September Torna launched a fixed rate single tranche bond through a private placement procedure for an overall amount of 100 million euro. The notes, with a duration of five years, will pay a coupon of 3.44%. During the year, Terna also signed four ESG Link credit facility agreements for a total amount of 600 million euro. The credit lines will have a term of three years with an interest rate linked also to Terna performance in relation to specific ESG indicators. Finally, on November 8, Terna signed a 500 million euro contract with the European Investment Bank for the financing of the ETH branch of the Terranian Link. This loan is the first branch of a total of 1.9 billion euro approved by the European Investment Bank for the mentioned project. The 22-year loan has a longer maturity and a more competitive cost than those generally available on the market. in lines with Turner Policy to optimize its financial structure. Thank you very much for your attention. And now, before entering in the Q&A session, let me leave the floor to Stefano for his closing remarks. Please, Stefano.

Thank you, Agostino. After this strong 2022 results, I would like to announce the 2023 guidance. In 2023, we expect the revenues of 3.11 billion euros and an EBITDA of 2.12 billion euros. Earning per share will amount to 43 euro cents per share. Regarding CAPEX for the next year, we expect a figure of about 2.2 billion euros. This CAPEX acceleration foreseen for 2023 is part of an overall growth process driven by increasing system needs to ensure efficiency, resiliency and security of the supply. Indeed, let me underline that on the 15th of March we published the new 10-year National Development Plan, as illustrated in the next slide, number 19. The new National Development Plan comes at an historic moment in which energy is even more central. In a phase of rapid and deep geopolitical change, the energy system has to deal with a series of unprecedented and ambitious challenges. The targets set as a part of the ongoing energy transition will be fully achievable only by developing infrastructures. In these regards, Terna increased the investments foreseen in the new year development plan, which foresees more than 21 billion of investments, the highest ever, with an increase of about 17% compared to the previous plan. The investments foreseen in the National Development Plan will be made to continue the integration of renewable sources and the progressive phase-out of coal-fired power plants, in line with the targets set at the national and international level. Moreover, considering the entire life of the projects included in this Development Plan, Behind the 10-year horizon, the total amount of investments will exceed 30 billion euros. In conclusion, Terna continues to create value for shareholders and communities through the investments foreseen in updated industrial plans and a strong dividend policy. Despite the extremely challenging scenario in which we operate and the deferred acceleration of the investments to meet the needs of the system, Terna will remain committed to preserve a solid and sustainable capital structure. As you appreciated from this presentation, Terna was able to present a very good set of results, even exceeding the guidance provided for 2022, in addition with a strong expectation for 2023, demonstrating the commitment on the execution of the plan. Thank you for your attention. We are now ready for the Q&A session.

Thank you, Mr. Speaker. A reminder to the participants, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We pause for just a moment to allow everyone the opportunity to signal for questions. We will take the first question from Stefano Gamberini from Equita. Your line is open. Please go ahead.

Good afternoon, everybody. Many thanks for the presentation. The first question regarding the 2023 guidance. Could you help us to understand what is the contribution of the out-of-base incentives in 2023 that you expect? And also, if you can give an idea of what was the level of this out-of-base incentive in 2022. Considering your guidance up to 26 to receive 600 million euros of out of base incentives and the better 2022 results, the better guidance in 2023, could we expect an increase of this total amount of 600 million euros? The second question regarding the opportunity of investments. Thank you very much. Thank you very much. My concern is if we don't have a huge acceleration in renewable installment capacity, you can also have some slippages in the investment of your capex. The third one is regarding the working capital. In the presentation at the slide... For the cash flow slide, the number 15, if I'm not wrong, you underlined that there was a positive cash flow working capital effect north of 900 million euros. Could we expect a reabsorption of this working capital in 2023 and what is the guidance of NetDebt next year? Or could we consider this positive effect as a sort of Thank you for your question. I can...

I start to answer to the first one regarding the guidance of 2023 and speaking about the contribution, if I understand well, on these results coming from out-based incentives. This contribution for this year, for the previous year, 2022, is around 400 million euros on the results and for 2023 is around 300 million euros. And in the 2022 results, the half part of this 400 is related to the new MSCD incentives. And so you can see that in our guidance for the 2023, we maintain on a structural position our increase of results and is coming from the rules of the incentives that we apply. For the second question, then Agostino may add something, but I would like to complete this. For the second question regarding investments on the renewable, you say what is the behavior of this increase during the last year. Probably we just said this some times ago, during the 2022, There was an acceleration, certainly, because the normal rate of investment in the last 10 years was about 1 gigawatt per year. Last year was about 3 gigawatts in one year, and now the rate may be more than this. We suppose that is around 4 and 5 gigawatts this year. What is really important is that the request for connections has increased really a lot. And so the basis to calculate the next concrete value is completely different from only a few years ago. Consider that three years ago when we started in term with this mandate, we had on the table something like 50 gigawatts of a total request, main on solar, Now we are speaking about more than 300 and the half part is for wind generation. So we suppose that also with some simplifications of the actual process for authorization, the rhythm may increase. In any case, when you speak about our investment, the impact of this evolution on our investment, let me... We are called to habilitate the system and the infrastructure has to be made in several years. You know that when we plan an investment and we realize it and we build the new line, it takes between 7, 8 and 10 years. so that the complete evolution of the network needs several years to be made and we cannot modulate the speed of our infrastructure by looking to the speed of the increase of renewable installation. So we have to go on for the next 10 years with the national plan, the new one that we have presented but we have some flexibility opportunity during this plan because we agreed with the authority like a completely new method the possibility to design project and plan investments that are in any case paid by authority at this level so the authority pay our designing our project our planning also if we will not realize this These systems, if there is something that will change during the next future. Let me give you a simple. Let's suppose that the government at a certain point decided to incentivize in the north of Italy, for example, photovoltaic. At the moment, the most part of the requests are in the south of Italy, but something may change. And so also our design of the network may change. If we are going on with the project, we can also change direction. And this is specifically related to the fact that every two years we have to redesign the new and update the new plan for the next 10 years. So it's to be considered a dynamic design of the network. And we have all the leverage to manage this. For the third point, I think Agostino may answer, but please Agostino, can you add something to my first answer?

No, there is not too much to add. Just that the contribution of the MSD output base for 2022 is slightly below 200 million euros. and this is slightly above 200 million euro for the year 2023. The total amount saved by Stefano is 400 million euro in 2022 and 300 million euro in 2023. Moving to your third question regarding working capital dynamics, you know that there is some structural fluctuation in our working capital dynamics due to several so-called pass-through energy items. As you remember, coming from the past, we had some Accumulation of working capital due to the uplift mechanism, especially in the immediate timing of the pandemic in spring 2020. This amount has been reabsorbed in a couple of years, so has been completely reabsorbed in 2022 and during 2022 there was a reduction in the credit related to the uplift and an increase in the payables related to the essential plans for the security of electricity system which will be reabsorbed in the coming months. So there is some fluctuation that is typical for our business and we do expect that this amount will disappear in the next months.

May I ask you something because it is not clear to me what is the situation of both. Regarding, first, output-based incentives, what I know is The target was 600 million euros by 2026. 900 million euros 2022, probably part also to the previous worsening. So what is the amount more or less that you expect to be reabsorbed during 2023? Many thanks.

Yes, let me start from the second one. The amount that you have to be expected to be reabsorbed in the coming months is around 901 billion. This is the The order of magnitude, this is an accumulation of payables for pass-through items that should have been paid by ERN 2022. In order to pay such amount, we have to wait for some specific resolution coming from the authority. The authority did not issue such resolution in time at ERN 2022. That's why we have this additional cash in our pocket. This situation will be managed and settled by the authority during 2023. Coming back to the output-based incentives, yes, of course, your calculation is right. We have an increase in such contribution. We have realized an increasing amount of output-based contribution, especially on MSD. The original target was 500 million euro. We increased such target to 600 million euro, and now we have some additional. and some additional contribution from output base. That's why we do have 400 million euro in 22 and 300 million euro in 23 and you have to expect something similar also for 24.

Okay, clear. Many thanks. Many, many thanks. You're welcome. You're welcome.

We will take the next question from Javier Suarez from Mediobranca. Your line is open, please go ahead.

Hi everyone and thank you for the presentation. Three questions in addition to the previous one by Stefano. So the first one is a high-profile question on the 10-year development plan that you presented, that you recently presented. So there is a and you mentioned that in the presentation a significant increase in capex by 17% and that is the largest ever 10-year development plan in Italy. So can you help us to understand the benefit of that business plan for Terna, for the country and for the European Union and what has changed as a consequence of the crisis and as a consequence of the lessons that have been learned with the crisis That makes this CAPEX plan even more important for Italy and then for Europe. That high-profile question would be extremely interesting to see the strategic path for the company during the next 10 years. Then on the reporting of the company and the numbers of the company, two follow-ups. The first one is on the output-based incentives. You gave the number for 2022 and the expectation for 2023. In 2024 and 2025, can you share with us your latest expectations on these output-based incentives? I think that it has just been mentioned a number similar in 2024 to the one in 2023, so along the lines of 300 million euros. Then in 2025, that would be helpful as well. And then on the working capital thing... Can you share with us your expectations for the net debt by the end of 2023? That would be helpful as well. And then on the new guidance for 2023, there is an element of higher output-based incentives versus maybe previous expectations, a higher deflator as well. Can you elaborate a little bit and to help us to understand these increasing guidance versus Thank you for your question.

And I would like to start from the second one, the contribution of incentives and the MSD method. Let me clarify that the contribution of the last year and of this year, provided for this year, is absolutely clear and calculated and so we give to you in terms of numbers, as you see. Then we have pursued a similar impact on the following year, but we have first of all to consolidate the results during this period, and then we can give a number. But you have to consider that it's not a one-shot result of this year over the last year. It's a more structural behavior. But what is really important is that at the end of this year there is an important appointment with the regulation, as you know, for the next years. And also we expect for a modification and maybe an increase of WACC value coming from the observation period, and I have not to explain to you. So the mix of possible effects that will impact the next two, three years has to be well calculated during the next months. I think that until the end of this year it may be possible that we update the plan and the more we are near to the final definition of rules without authority, the more we are precise on this. So please let's give us the right time for this. Then coming back to the first point and there is a great question because our development plan for the next 10 years is really, let me say, a fantastic news for Italy and for the electricity system in Europe and inside the Mediterranean area because As you can see we have planned investments for 21 billion that is like you said something like the 70% more than the previous plan of only two years ago that was about 18 billion and with these investments we create the possibility for our network to bring something like The double quantity of power from the south to the north of Italy. This is really important for several motivations. You consider, first of all, that the benefit-cost ratio between this specific plan and the previous is really increased a lot because we obtain and five times more in terms of effectiveness in the transfer of energy with the same money. So the 11 billion euro that we add with what we named the hypergrid is a completely new technology application. We think to transfer energy coming on the same corridors that we have on the continent, but by using a different kind of power, let me say also voltage. And we elevate voltage by using the HVDC application that generally we use under the sea connection. And it's really important because the impact on the environment and the pathogenic impact is really reduced a lot. Also, the timing to build this kind of network is reduced a lot, some years less. And added with some other projects with undersea connections around our country, we will contribute to solve all the bottlenecks and to increase this energy transmission capacity. It's important because in the next years we will connect also the North Africa, Tunisia and Sicily. We will complete the connection between Campania, Sicily and Sardinia. We also think to realize the second connection with Greece and the second one with Montenegro. And on the table, there are only discussions coming on, but it will be We are supposing to connect also Algeria and maybe also Egypt with Italy. Because in all the community, and I speak about all the CSOs community in North Africa and in South of Europe and on the Balkan East, is discussing around the possibility to manage a different flow of energy from the south to the north. Consider that when you speak about a photovoltaic realized in the south of Italy, you speak about 2,000 hours of productivity. When you go on the north of Africa, you can have also 3,000 hours. So it's a completely different productivity with a reduction of the energy cost at the origin. So in terms of renewable evolution, in terms of energy transition, in terms of centrality of Italy and this network in this complete system is really, I can say, a revolution. Our company is more a growth company, is a company that guarantees results and also Satisfaction and Dividends for Shareholders, but it's also a company that tests to manage a target that is at the moment like a geopolitical target or energy, independency and security. So I think it's enough to have some information on this. Then I can ask to Agostino if you want to go on the third question on working capital.

Yes, again, on working capital dynamics I can only repeat what I just said. is simply an accumulation of tables of pass-through items that should have paid by year-end. But in order to liquidate such items, we need to wait a specific resolution coming from the Energy Authority. Such resolution did not come in time, so we do expect to receive this resolution during 2023. That's why we expect to reabsorb this amount during the coming months. Regarding your last question, if I may, Stefano, on Tamini & Brugge. Well, the contribution of Tamenia Brook was really positive in terms of revenue generation. Of course, we also have examined a massive increase of cost, especially related to the cost of metals, copper and aluminum, that are the raw material mainly utilized by those companies, increased a lot. So, net-net, the contribution was neutral, but we have A big increase of the pipeline for 2023 and we do have really positive expectation for the result in 2023.

We'll take the next question from Jose Ruiz from Barclays. Your line is open, please go ahead.

Yeah, good afternoon and thanks for taking my questions. I have three questions and they're all related to the 10 years development plan. The first question is, in the next update of your CAPEX plan, can we translate the 17% increase directly into a 17% increase in CAPEX? Second question, from the 17% increase of the 23, 32, how much is cost inflation? I mean, we have seen the cost inflation hitting and other interconnection projects, for example, Spain and Italy, with cost increases of around 37%. And my third question is just the time allocation. So the 11 billion hyperlink project, how much is included up until 2032 and how much is beyond 2032? Thank you very much.

Okay, everything is clear. So, in our actual industrial plan, that is the 21-25, Only a few quantity of this increase you will see, because as I explained before, the planning and the construction of our network needs 8, 9, 10 years. So the most part of this increase will be on the second part of the plan, so in the second five years, let me say. So between 26, 27, arriving to 32, 31. And going to the last question, when you say hypergrids, the 11 billion more, that is a part of 21, you have to consider that the complete project is around 50 billion value. And in the first 10 years, because we are obliged to plan only 10 years, because it's an Italian rule that we have to respect together, ARERA and the Ministry, We see only the first 10 years with the 21 billion. An important part of this 21 are also involving the hypergrid connections because we changed the priority and as I explained before for the hypergrid some of these investments are Thank you very much. Yes, if I may ask, Stefano,

Of course there are some specific items when we talk about cables, substations, transformers, there is a lot of pressure in the market for this kind of infrastructure and of course there you can also realize that you have to pay even more because there is a huge competition especially on the critical items for the We will take the next question from Marcin Wota from Bank of America.

Your line is open. Please go ahead.

Yes. Good afternoon. Thank you for taking my questions. So firstly, first question on your allowed returns. Would you be in the position to indicate where do you expect your allowed return to be set in 2024, considering the impact of the so-called trigger mechanism based on the current mark-to-market? My second question, that's a small detail, but on your discontinued operations which generated a loss of 20 million in 2022, is it correct to expect these discontinued operations to be essentially at zero in 2023 since you already divested all of your Latin American assets? And I think lastly, if I can ask, do you have plans to organize a capital markets day this year? Where you could perhaps provide a more comprehensive earnings guidance for the next five years. Thank you.

Regarding the value for the WAC, we think that looking to the numbers until now, it's possible that it will arrive around 5.5 or something, 5.6, similar to the last value before the decrease of a couple of years ago. But we will see. In any case, our simulation at the moment is around this number. For the third question, the plan, the update of the plan, I think that it may be possible before the end of this year. May be interesting to stay in this period because it's necessary to better understand the discussion with the authority during the second part of the year. So to give you, starting by the fact that we are working in a really good continuity with an increase of our results and we see really good which is the view for 2023 and in a certain, let me say, way we see also a continuity and grow with the 2024 also if we have not calculated but we are in a comfortable condition at the moment we prefer to understand which is the discussion with the authority until the end of the year and we can add on a update of the plan that the concrete number for WAC return and for the incentives calculated during this year so I think in this period The second question, if you want.

It is correct. We do not expect any relevant positive or negative impact coming from this continued operation, especially in Latin America during 2023.

Thank you very much. We'll take the next question from Davide Candela from Intesa San Paolo. Your line is open. Please go ahead.

Good afternoon, gentlemen, and thank you for taking my question. I have three. The first one is a follow-up on the national development plan. I was wondering if the investment included in the plan includes also some offshore wind capacity that should be connected to the Italian grid, if this capacity will come and also on this aspect if it is Terna the company that will be in charge for the connection of this kind of plant. Just a more general question on this aspect. And the second one is related to the European Commission proposal on the new electricity market design and I was wondering if you can share with us a general view of the Your thoughts about the proposal and what could be the role of the TSOs with regard to the new proposal if this will be approved by the European Commission? And third one, I was wondering if you can share with us some thoughts about your refining needs and considering that, if I'm not wrong, You have about 1 billion euros maturing this year and further 800 million in 2024.

Thank you. Thank you for your question. Regarding the first one, speaking about the plan, when we create the plan, the 10 years plan, we start from meetings of the systems. And the needs of the system at the moment is to allow the increase of about 70 gigawatts of renewable mainly concentrated in the south of Italy and the center of Italy because this is the actual distribution. When I say 70 gigawatts, we speak about not only solar, but also wind. We are not able to say where it will be realized, but we know that the alpha part of the actual request or connection regarding wind installation, offshore and onshore. There is a part of this, so it's important to understand that We build a network that is able to transfer this energy from the south to the north, including islands and international connections. We don't put inside the plant the final connection directly to the, for example, to the offshore wind plant. Consider that to connect one or two gigawatts plants that is an offshore plant, it's necessary to build a connection that may have a cost of over one billion. In our plant, there is not this last mile, let me say, of connections. is not defined who will realize this because actually is in the end of the proposal that the company or the operator that proposed the installation. In a second moment maybe that we will be involved like a service company, let me say an engineering service company, or maybe possible that speaking with the authority we will define that This will be a part of the national grid. This is not a question only in Italy. It's a discussion that is actually also running in other countries. In the North Sea they have a choice, a certain... In the United States they are speaking about another model, so it's not ready at the moment this model. So in our plan you don't see the money necessary to connect the final mile of these plants, but you see the network that is necessary to bring all this energy from the south to the north. Then, on the second point, if you want, Agostino, to say something about the process in Europe for the market.

Yeah, sure. There are other discussions that are taking place at the European level regarding the reform of the market. There is also some fluctuation. You have seen different positions about the inclusion or not of the nuclear generation in IEC framework. There is some forward and stop back on this discussion. I think that the most important part of the discussion will be related to the market design, especially in the confirmation or some, let me say, changes in the discipline related to the formation of the price. Today the system is still a system based on a system margin of price. We all know that system margin of price is highly impacted. By the gas price, and you know better than us that this is the elephant in the room, because the more you push on renewable, but the more you keep this renewable connected with the price of gas, the more it will be complicated to reduce the total cost of energy, given that we may connect with a specific commodity that you cannot control, at least that we cannot control, a sterna, but also a nation, given that we don't have relevant sources of natural gas that we can control. We are obliged to buy it. We acquired a lot of gas from Russia. Now we have changed the flows. We acquired a lot of gas from other countries. But in any case, we are not talking about our gas. So it would be interesting to analyze the possibility to disconnect the price of gas for the general price of electricity. There is a positive discussion related to the growing importance of long-term contract and this is something that we do appreciate. I think that both discussions need to be followed and we will strictly follow those discussions in the coming months. Related to your third question, related to our refinancing needs, consider that we do expect something like a couple of billion euros in 2023, of which one billion of standard bonds that will be refinanced, 700 million of inflation-linked bonds that finally will expire in 2023, and additional more or less 300 million of bank loans that need to be refinanced. And consider additional 1.2 billion in 2024. Let me say that, as usual, we are not suffering any kind of pressure in doing that. We continue to look at the market, not as an obligation, but more as an opportunity. We have, as I said before, very, very Sound depth structure with relevant amount of depth that is indexed at fixed rate. Our average cost of depth is still pretty low. We are in the region of 1.3. Of course, new depth will cost more, but we are really resilient and we do expect only marginal adaptation of the cost of depth in the coming future.

Thanks.

We will take the next question from Emmanuel Ogioni from Kepler Chevro. Your line is open, please go ahead.

Good evening everybody and thank you for the presentation. I have one question left about the TOTEX mechanism. I wonder if you could explain or could explain Add more details based on your understanding. Now I know that there are discussions on that, so all is ongoing. But how the Totex mechanism after the current regulatory period would impact on the current outlook-based incentive schemes? And also... On the Totex mechanism, I'm aware that, in my understanding, that each single project, basically the CAPEX of each single project, will be checked and approved by the authority. So, in the future, in case of an infectionary environment, maybe a CAP will be put on the Thank you for the question.

I start from the beginning, but I would like to say the last part is not completely correct, and now we explain why, but in any case, starting from the beginning, please consider that the Totex methods is just now experimented in a certain way by us with Terna with the MSD methodology. It was created exactly to have an output-based impact that is clearly defined before with the and the authority and create a measurable effect on the system. Consider that during the last year we created an impact on the final customer of something like 2 billion euro of reduction of the cost of dispatching. That is really a huge amount, an incredible amount if you think that we passed from something like 18 It's really interesting and also authority appreciates a lot because this is the first experiment, concrete experiment in Italy for a first approach on output beds and totics. On the second argument that you say, I ask to Agostino if you want to explain better the Totex approach for the future that we provide.

Yes, Stefano, thank you. I've said several times, it is a progressive switch from a full input-based principle, from which you are paid on the basis of what you spend, basically, and an output-based, as said by Stefano, You will receive increasing contribution in proportion with the benefits that you will create for the system. So this is the principle of the output base and the Toltex mechanism will be applied on this base. And you have already seen this happening in our business plan and in our actual figures. You remember that we started with an output base contribution in the previous business plan of 200 million euro increases to 244, increase it to 500, increase it to 600, and today we have just declared that you can expect something more also for the future. What the authority will do to measure, if the question is will the authority start to measure 100% of the single projects, we do not expect. We more expect a sort of mixed regime in which we will have a sort of base remuneration still managed through an input-based approach, so an average walk on invested capital. And on top of that, some output-based contribution starting from the biggest project. Why the biggest project? Because the biggest project will be the easiest. to be measured as the MSD experiment is a big project, is easy to measure, show a positive contribution and the authority gave us the possibility to retain a portion of this additional marginality and the huge benefit for the community explained by Stefano. This is the way we see this. Having said that, there is an open discussion. The authority will issue some resolution in the second part of the year and of course we will keep you updated on this process.

Rete Elettrica, thank you.

Question from Bartek Bixky.

Thank you very much and good evening. Just two remaining issues from my side, please. Firstly, on your regulated OPEX excluding IFRIC, The OPEX increased by 15% year-on-year in 2022. I just wonder what the dynamics in the OPEX could be in 2023, given that your employment keeps rising, and consequently whether the regulator will take into consideration all the OPEX increase in the next regulatory period. So that will be the first one. And secondly, on the plan again, in my opinion, the plan is very much based on large projects. And consequently, I just wonder if you are thinking about having partners in some of the projects as well, or whatever is a risk that the regulator may introduce some kind of a competition into the model so that other players would also be allowed to build such massive projects. Thank you very much.

Agostino, would you like to start with your first question?

Yeah, sure. So, through there is an increasing amount of OPEX for 2022. There is some, say, not a current item as extraordinary items related to dismissal of personnel. So we have some dismissal plan that has been accounted for competence already in 2022. In any case, there is also Some specific external communication costs related to webcast advertising and TV advertising that is part of a specific agreement with the energy authority. All these costs will be recovered by the tariff in a normal way.

Thank you, Agostino. Speaking about the second point, it's interesting your hypothesis, but we don't think to proceed in this direction. Until now, our idea is to continue to be the only company, the monopolist of the network in Italy, and we are absolutely sure for the next 10 years to be able to sustain this kind of a plan also on the financial point of view. We have solutions and we have space for this. may be only interesting to have technological partners in the future. This is another topic, another point regarding the great difficulties around in the world coming from the increase of the total amount of investments in networks, in transport networks, in Europe specifically, but not only. So it's important to define... A good approach on the, let me say, technology important. So cables or transformers and so components, accessories, it's important to define which is the right way to proceed to find possible cooperation. But in terms of management of the network and property of the network, no, I think, no chance.

Thank you very much.

It appears that there is no further question at this time. I will leave the floor to the CEO and the CFO to say goodbye.

Thank you to everybody. Thank you.

That concludes today's event. Thank you for your participation. You may now disconnect.