EDP Renovaveis SA

ELI:EDPR

Earnings Call Transcript 2021-Q1

[Operator]

Hello, and welcome to the Q1 2021 EDPR results presentation. My name is Val, and I will be your coordinator for today's event. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Miguel Stilwell de Andrade, CEO, to begin today's conference. Thank you.

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Well, good afternoon, everyone. Thank you all for attending EDPR's first quarter results conference call. I hope you're all well and safe. It's also a pleasure to speak to all of you and especially those who follow the company more and more closely. So I have here with me Rui Teixeira, CFO of EDPR; and also Andre Fernandes, who's the new Head of Investor Relations, Planning, Control and Sustainability EDPR. So welcome, Andre. Moving on to the presentation. So if we turn to Slide 5, and I'd like to go through the key 3 strategic pillars of the business plan that we highlighted for '21, '25. On the first pillar on growth. So EDPR continues to accelerate its growth with 1.9 gigawatts added year-on-year, which consolidates a very solid portfolio of 12.5 gigawatts of installed capacity as of March of this year. During the first quarter of the year, EDPR installed 0.3 gigawatts and it currently has under construction 2.9 gigawatts of capacity, which further ramps up its growth. So this is a major construction program underway, and it's a good stretch for the teams and helps us move towards that 4 gigawatt per year target growth rate. EDPR now has 6.4 gigawatts secured and growth prospects remain solid with 2.5 gigawatts of PPAs currently under negotiations, along with more than 30 gigawatts of auctions expected in 2021 in EDPR's existing markets. So this provides us a really good, strong short-term visibility on PPAs -- on potential PPAs. On value -- on the value pillar, so the asset rotation strategy continues to be a value acceleration engine for EDPR's business plan. And here, we continue to see strong demand and good appetite from the investors. And that's across various different geographies. As of March, EDPR already has 1.1 billion of transactions signed in the U.S. with expected closing still this year. And in addition, besides the transactions already announced, we also have good visibility on additional deals that are ongoing in Europe. So all in all, we are confident that we'll be able to deliver the additional transactions until year-end. translating into gains north of the EUR 300 million guidance that we provided the strategic update. On the excellence pillar. So in the first quarter of '21, EDPR achieved a 34% load factor, which is stable year-on-year. This reflects 97% of the expected long-term average gross capacity factor for the first quarter. And obviously, this is very much impacted by the one-off U.S. weather event, the Polar Vortex. So as you know, EDPR has a fantastic team. It has a great technical and operational excellence, and that's also been an obsession for us, and this is also reflected in the high technical availability. And so that, together with the efficient operations, it translates into a 3% reduction of core OpEx per megawatt and reflects also in our O&M strategy and cost control. So despite -- we are front-loading the growth in terms of incorporating people. So there is upfront scale to cope with the growth acceleration and to make sure we can continue to deliver on this ambitious growth plan. If we move on to Slide 6. Now obviously, the financial performance this quarter was impacted by the one-off ERCOT event, so in Texas, and also the lower wind resource globally in the U.S., which then normalized in March. But clearly, February was very much hit. From the first quarter, financial results ended up being very much driven by strong performance in Europe and Brazil. which had EUR 22 million positive, so greater year-on-year EBITDA. There's also an improvement in the average cost of debt, which goes down by 0.5% from 3.8% to 3.3% and reduced the financial expenses by EUR 26 million to EUR 55 million. In general, below the EBITDA, there's lower depreciation, amortization, tax equity investment and also lower tax rate. This is driven mostly by a EUR 17 million R&D tax credit in the U.S. As I mentioned, the one-off ERCOT event impacted EDPR EBITDA by around EUR 35 million. So EUR 26 million impact in the net income, so low 10s, as we talked about. The top line, however, was also impacted by the lower wind resource in the U.S. given the polar vortex. As I mentioned before, this was then normalized in March. Finally, in this point, the euro-U.S. dollar depreciated year-on-year had a negative impact of EUR 10 million. So as a consequence, as a result of all this, EBITDA totaled EUR 269 million. So this is 21% down year-on-year, and net profit amounted to EUR 38 million for the quarter. As a result of the capital increase, we implemented the treasury optimization during the first quarter. So in advance of the cash in April, that meant that we significantly improved our working capital position. It also helps lower the financial cost because you're not paying to have cash on balance sheet. Net debt ended up being at around EUR 4.65 billion, so EUR 1.2 billion versus December 20th. But this is temporary and will materially decrease in the second quarter following the capital increase cash in of the EUR 1.5 billion. The institutional partnership liabilities, they totaled EUR 911 million, so EUR 233 million below December 2020. And that reflected the benefits captured by the projects together, obviously, with the route classification to assets held for sale of the 2 projects, Bright Stalk and Harvest Ridge, which resulted from the asset rotation transaction, which we denounced back in April. Finally, EDP paid a dividend of EUR 0.08 per share. This was approved at the shareholders' meeting and was paid on May 12. We move on to the next slide, Slide 7. So talk a little bit about the capital increase. Here, I think we're very proud to have closed this capital increase in April of the EUR 1.5 billion. I think we brought in 100 new growth investors into EDPR shareholder base. It allowed EDPR to fund its business plan to start off really on a strong footing and have a stronger capital structure for long-term growth. So make sure that there's absolutely no question about our ability to deliver on the growth plan. The transaction has also significantly improved EDPR's position in the capital markets. It increased EDPR free float by 50%. It improved its position for indexation and a lot of the indexes like iShares, MSCI and others So I think overall, this ended up being a very good transaction for the company, and we believe also for investors in allowing EDPR to make sure it can continue to grow successfully going forward. Just a final note in this section on governance. So as we talked about in the Capital Markets Day, this was then recently approved, so formally approved in this year's shareholder meeting. So EDPR implemented a leaner, more diverse, more independent corporate governance structure. This fosters efficiency but also higher performance. And so just to highlight a couple of comments here. First, the Board went from 15 down to 12 members, 2 of which are executives, which is Rui Teixeira and myself. It's also led by an independent Chairman, which I think also provides a strong signal to the market. The composition of the Board is reinforced by a higher presence of Independent Directors. So this increased from 40% to 50%, and we also increased the presence of women on the board to 33%. Regarding the 2 Board committees, 100% of the members are independent directors and the specialization on the corporate governance matters was attributed to the appointments remunerations and corporate governance committee. Finally, the management team, which leads the daily operations of the business has its remuneration tied to operational, financial and ESG KPIs and so -- and it also has long-term incentives. So there's full alignment between the management team and the shareholders and the successful growth and value creation from EDPR. So I'll now turn it over to Rui Teixeira, who will walk you through the first quarter results in further detail, and I'll be back at the end. Thanks.

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

Thank you, Miguel. So now let me deep dive into the results of the first quarter. On growth, since March 2020, EDPR added a total of 1.9 gigas of wind and solar capacity, of which around 1.8 fully consolidated and about 988 megawatts are equity consolidated, specifically about 793 megawatts in Europe and Brazil, and this includes the acquisition of Renewables business of the Viesgo in Spain, 1,025 megawatts in North America and 55 -- or 53, sorry, megawatts net in offshore related to the Wind plus in Portugal and the Seamade offshore project in Belgium that entered in operation in March.On asset rotation, EDPR successfully sold 639-megawatt net, that's regarding the 237-megawatt portfolio in Spain that was sold to [indiscernible] 102-megawatt Build & Transfer of wind farm in the U.S. to NIPSCO and 80% of 563-megawatt portfolio in the U.S. to CCNL, as you know of which 200 megawatts will close post 100 -- the first quarter of 2021. This results in the wind and solar capacity of 12.5 giga as of March 21, a very balanced portfolio across North America with 56%, Europe with 41% and Brazil will be 3% of the installed capacity. As of March 2020, we have 2.9 gigas of new capacity under construction. Those are 2.2 gigas of wind onshore, around 400 megawatts of solar and 169 megawatts net, that was referring to EDPR stake in more East offshore project in the U.K. From a geographical perspective, we have 1.8 gigas under construction in Europe and Brazil and 832-megawatt under structure in North America, that includes U.S. and Canada. I would like now to talk a little bit about the load factor in the first quarter. So we achieved a 34% load factor. That's 97% of the expected long-term average as capacity factor for the first quarter. And then of course, I mean we were impacted negatively by the one-off weather event in the U.S. So in Europe, the EDPR reached a 32% load factor. This is a good recovery of 2 percentile points year-on-year and in line with the P50. In North America, EDPR achieved a 36% load factor, and that's 1 percentile point below last year. And in Brazil, 31% of load factor, that's a 9 percentile points above the first Q 2020 on the back of a very strong wind resource at around 110% of the P50. Technical availability reached 96.8%, so very high, very much in line with the first quarter last year of 96.9%, definitely good recovery happening in Europe and Brazil. It did -- that also offset the one-off ERCOT event and the overall weather conditions in U.S., which during March were normalized. So in the first quarter of '21, EDPR produced 8.1 terawatt hours of clean energy, that's 5% increase year-on-year, avoiding 5 million tonnes of CO2 emissions. And these evolutions, of course, they benefit from the capacity additions over the last 12 months and a slightly higher wind resource naturally, if we were to exclude the one-off weather events in Texas. So in Europe, generation increased 15% year-on-year. That is mainly impacted by higher installed capacity and strong wind resource in Iberia. North America output decreased 3% year-on-year to 4.6 terawatt hours. Of course, this reflects, in one hand, the positive impact of the new capacity in operation, that's a 9% increase. But that was offset by the one-off ERCOT event and the overall polar vortex impact in the U.S. In Brazil, production increased 39% driven by the higher installed capacity along with a higher wind resource. So all in all, in Q1 '21, operations in Europe, North America and Brazil generated 41%, 56% and 3% of the total output, respectively. Now looking into the economics and to price. The average selling price declined 8% year-on-year that is driven by the Spanish portfolio mix naturally post the sell-down transaction. And of course, on the U.S., we have a negative impact from the mark-to-market of ERCOT hedges. As you know, this is a one-off event. Also, we were impacted by unfavorable ForEx. So in detail, in Europe, average price decreased 70% -- around 74.4 years per megawatt hour. And as I said, it's due to the asset mix in Spain and above standard production in Spain, along with the new additions and there extension in Portugal, then again, partly offset by the rest of Europe, so 4% positive performance. In North America, average price also decreased to $43.1 per megawatt hour. That's a 4% reduction year-on-year. mainly impacted by financial hedges and by Canada with average price decreasing by 17% on the back of new capacity in operation related to nation rise and wind farm. In Mexico and as a consequence of the PPAs escalator, average price increased by 2% year-on-year. Brazil, average price decreasing 9% driven by the mix effect regarding the new capacity in operation. So the average price for EDPR, if you were to adjust by the sell-down effect, ForEx and of course, the one-off of the quarterly weather event in U.S. decreased 2%. This reflects an increasingly competitive portfolio, where the new additions are driving lower prices, but we're long-term contracted, so very robust risk profile. And of course, reflecting lower CapEx per megawatt in higher NCFs therefore, maintaining value creation, very much in line with our current track record. So the impact of this into the revenues is that the revenue decreased to EUR 448 million in the period. That's an 8% decrease year-on-year. If you were to break this down, EUR 37 million come from the sell-down, around EUR 16 million by lower selling prices. I mean this, of course, excluding the sell-down. And ForEx translation and other is around EUR 18 million impact -- a negative impact. On the positive side, EUR 23 million positive impact by capacity additions. And the wind resource justifying a EUR 9 million improvement, vis-a-vis, the first quarter of 2020. On the OpEx side, and I think it's important to highlight the focus that we keep giving to efficiency. It's very much in line with the growth acceleration. OpEx increased year-on-year to EUR 179 million due to the current O&M strategy and cost control. Core OpEx per average megawatt decreased by 3% year-on-year to around EUR 10,000 per megawatt. And I think this is showcasing the efficient growth. And of course, the benefits of having this large scale across the portfolio. And again, I would like to highlight how much we are obsessed with execution, operational excellence, making sure they are maximizing technical availability and, of course, keeping costs under control. And that's only -- I mean this is the reason why then we can deliver this good operational efficiency results. The impact at EBITDA level is EUR 269 million in the period. That's a 21% reduction year-on-year, given, of course, the top line performance. What I mentioned before about the one-off ERCOT event that impacted at the EBITDA level around $35 million -- EUR 35 million, I'm sorry and lower wind resource in U.S., which then has been normalized or was normalized during March. Europe has an increased contribution to EBITDA in this quarter followed by North America, while Brazil represents only around 1%. On the net profit, of course, we -- at the end, we have a net profit of EUR 38 million. That's a 39% reduction year-on-year, given what I've been explaining. At the EBIT level, we reached EUR 126 million. That's a 35% reduction year-on-year. Of course, this is mostly driven by the top line performance, some negative impact in associated companies due to the offshore JV requirements for us given the need to cope with the projects under construction and the impact from ForEx. Financial expenses decreased to EUR 55 million. That's a reduction 26% versus the first quarter of 2020. If you look at the average cost of debt in the period, we have 3.3% versus 3.8% in the first quarter 2020. Effective tax rate was very low in the first quarter. Of course, it comes from the lower taxable income, but also from a positive impact of around EUR 70 million from research and development tax credits in U.S. that impacted positively the quarter -- the results this quarter. Noncontrolling interest in the period totaled EUR 32 million, decreasing EUR 10 million year-on-year as of resulting, of course, from the top line performance. And as I mentioned in the beginning, EUR 38 million net profit, of course, very much impacted by the top line, although offset by some positive tax impacts, particularly in the U.S. Net debt and tax equity increased EUR 972 million due to growth acceleration and treasury optimization on the back of the recent ABB at the EDPR level. So retained cash flow, which captures the cash generated by operations to reinvest in distributed dividends and repay that total EUR 182 million. Cash investments totaled EUR 1 billion besides growth acceleration to fund the 2.9 gigas under construction, as I previously mentioned. EDPR implemented a treasure optimization throughout the Q1 and as we knew that we had the incoming EUR 1.5 billion proceeds from the accelerated book building. So it resulted in an improved working capital position as of March '21. And in the period, ForEx and others have a negative impact on the cash flow. So all in all, as of March 2021, EDPR's net debt and tax equity partnerships increased to or by EUR 972 million. So total net debt was EUR 4.6 billion. That's EUR 1.2 billion above -- more than -- by December 2020. This, as I mentioned, reflected this treasury optimization during the first quarter, which following the capital increase, cash-in in April will significantly reduce net debt for the Q2. Institutional partnerships, liabilities totaled EUR 911 million. So that's a reduction of EUR 233 million versus December 2020, and it's reflecting the benefits captured by the projects along with the reclassification of asset held for sale of Bright Stalk and Harvest Ridge asset rotation transaction that we announced in April '19. And then to finalize a quick note on ESG performance, improving significantly, both on the environmental and social dimensions. At the environmental level, looking at 3 main pillars, so climate change, circular economy and biodiversity. In climate change, we avoided emissions of 5 million tons of CO2 during the first quarter. And our emissions represent only 0.2% of divided ones. On circularity, EDPR generated 30 kilos of waste per gigawatt hour, improving the ratio significantly year-on-year and we recovered 74% of the total waste generated. And biodiversity, there were no significant spills and fires and there were 23 near misses, which represent a 22% decrease when comparing to the first quarter 2020. And looking to the social dimension, our team increased by more than 20% year-on-year to more than 1,800 employees, of which 31% are women. Health and safety records improved when compared to the first quarter last year with an average of 1 work-related accident per 1 million hours worked, 36 lost workdays of accidents in the first quarter 2021 per 1 million hours worked. And finally, EDPR maintained its EUR 5 million year's cumulative investment in access to energy and reached a EUR 0.2 million in social investment, which is year-on-year impacted, of course, by the COVID-19 pandemic. And now I would hand over it back to Miguel Stilwell to walk you through the business plan update and wrap up the presentation. Thank you very much.

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Thank you, Rui. So now moving on to the business plan update. I think the first thing to highlight and this has been mentioned before, but EDPR now has 6.4 gigawatts of capacity additions secured for the '21, '25 period. This represents 32% of the total additions and 61% of the target for '21, '23. And it's natural that as we go on moving, we'll go on closing more PPAs towards the back end of this period. But so I think the 61% of the target for '21, '23 is an important number also to bear in mind. Since the Capital Markets Day in February, 0.5 gigawatts, 500 megawatts were secured between Europe and the U.S., and we are confident that we'll secure the additional growth in the short term since we already have around 2.5 gigawatts of PPAs under negotiation and shortlisted. I think also an important point to note, and you can see that on the slide here, we have around 30 gigawatts of renewable auctions in 2021 in most of our existing markets. And you've got some of the key highlights here, I mean, including the U.K., I mean, you've got obviously in Spain, in France, in Portugal, so Brazil. I mean there's -- most of the key markets we're in are expected to have some sort of auctions or processes running in 2021. And these are places where we have a competitive pipeline, and so we're well-positioned to participate in the tenders. And then there's also an additional 20 gigawatts of renewable auctions in other European markets that we're also looking at where we're perhaps not present in yet, but we can also consider. So I mean just a massive amount, 50 gigawatts in 2021 expected to be negotiated. So I think this gives us quite a lot of confidence in terms of continuing to close in the pipeline for the future with profitable projects. If we move forward on to the next slide, Slide 22, also just give you a little bit further visibility on the asset rotation deals. So as Rui mentioned earlier, EUR 1.1 billion signed in the U.S. to be closed in 2021, and that just these in the U.S. will bring the expected capital gains of around EUR 0.2 billion. We denounced to the market back in October of 2019, a 300-megawatt Build & Transfer agreement, which was signed with NIPSCO in the U.S. So this is the Northern Indiana Public Service Company. And the agreement at the time what it allowed us to do was basically develop and build the EDPR and gain across old wind farm in the U.S. and then transfer it already to NIPSCO. And this is expected to come online by 2021 and so that's on track. And so we expect to have that capital gain coming from the asset rotation in this year. The second transaction worth mentioning is in September of last year, 2020, we signed with the CCL, so Connor, Clark & Lunn Infrastructure for the sale of an 80% equity shareholding in the wind and solar portfolio, which is located in the U.S. It's got 560 megawatts, so 450 megawatts net that we're selling. And it comprises 4 wind farms in operation and 1 pre-COD solar asset. So this transaction was closed in 2020 for the wind assets, but the 200 megawatts, which corresponded to [indiscernible] the solar project in Indiana, will be closed in 2021 [indiscernible] so that's a second project, which will be resulting in -- which will be closed in this year. In April '21, so just a couple of weeks ago, we also signed an agreement with funds managed by Greencoat Capital to sell 55% equity stake and this may be upsized to 80% in a wind portfolio located also in the U.S., and this had basically 2 wind projects in operation with a total of 405 megawatts. Bright Stalk on one hand was 205 megawatts, located in Illinois and in operation since 2019 and Harvest Ridge was 200 megawatts, located also in Illinois and in operation since 2020. Another deal, which is announced this year, but has a closing expected in 2022 is a 200-megawatt, so AC Solar Indiana Crossroads, which is also a build and transfer agreement, which was signed and announced in March with NIPSCO in the U.S. So this is something additional that we've announced, but will also be -- only be coming in 2022. So besides all of these various U.S. transactions that we've already announced, we also have asset rotation deals ongoing in Europe with a strong appetite, and I've talked about that. We see strong investor appetite for these projects and these processes. And we're confident that we'll be able to deliver by year-end, the overall asset rotation gains north of the EUR 300 million guidance we provided the strategic update. If we move forward to Slide 23, and I think this is also an important slide. It's not so much about the numbers on the operational side, but it's very much about the regulatory environment, both in the U.S. and in Europe. Now last time we spoke at the strategic update, I mean the outlook for growth of the sector was already pretty robust. And if anything, quite frankly, it's only improved since then. I mean the last couple of months, they continue to reiterate the positive growth that we'd anticipated for the overall sector. And both the U.S. and Europe are continuing to show strong political support for decarbonization. This has been reinforced very much so in the U.S. Only a couple of weeks ago, the Biden administration announced that the U.S. will raise its offshore wind power targets to 30 gigawatts by 2030. So this is obviously extremely positive for the offshore activity. And also the initial details of the $2.25 trillion American job plan, it also provided some very interesting indications of what we can expect for the sector going forward. We still need some more information on how this will play out. But in any case, I think just to highlight a couple of the, let's say, the issues of the -- the positive issues that come out from this. So the extension of the tax credits for wind and solar, and I think that reinforces the already favorable economics for these technologies. Second point is the expansion of the tax credits to storage and fuel cells. I mean this is also extremely positive. And hopefully, we'll also accelerate the deployment of these new potential growth avenues. The direct pay of tax credits, this will definitely benefit the sector. I mean it provides increased liquidity, it provides increased monetization options, which will allow us to fund the renewables growth. So if this comes through, it will be, I think, a very positive development for the sector. And just generally, I mean, the incentives to the U.S. power infrastructure are a major enabler for the renewable development. So we expect that this will just be a positive tailwind for EDP renewables in EDP in the U.S. Cutting overall, cutting greenhouse gas emissions targets on Earth Day was extremely positive for the renewable development in the U.S. I mean we have 45% of our 20 gigawatt investment plan here projected to be in the U.S. until 2025. So overall, I think very positive news coming out of the U.S. over the last couple of weeks and months. In Europe. In Europe, we are on track or on a journey, I'd say, to unlock the largest stimulus package ever to date. The next-generation EU funds is critical to revitalize the European economy, the idea that this will obviously allow to create a more prosperous and resilient society following the COVID-19 pandemic, so to take a major threat and turn it into an opportunity. The EUR 750 billion envelope, which is expected to be applied between 2021 and 2026, quite frankly, it seems to us to represent a unique opportunity to stimulate enterprises and leverage the green economy. And that's certainly something that has been reinforced by, let's say, politicians throughout Europe over the last couple of weeks and months. EDPR will be focusing on 2 key areas: renewables, obviously, and also green hydrogen. I mean both these areas are natural extensions for EDPR's commitment to climate transition and also shows the increasingly critical role that electricity and just general electrification will play in society going forward. So positive news from both sides of the Atlantic. Moving on to the final slide and some key takeaways and very briefly before wrapping up for Q&A. First, the financial performance in Q1 was very much impacted by the one-off taxes events and the lower wind resource in the U.S. So it was not a good quarter for the U.S. I mean we recognize that. Going forward, we expect that the normalization of the U.S. performance, and it is a fantastic growth engine. It's got all the positive tailwinds, which I just talked about. So we continue to expect solid results in Europe and Brazil and the U.S. also to recover. Improvement in the cost of debt. This provides us with a positive outlook for the remainder of 2021. Third point, successful capital increase of the EUR 1.5 billion has allowed us to fund the business plan and improve EDPR's position in the capital markets. The fourth point is the 6.4 gigawatts that we have secured and the significant visibility on the additional capacity over the short term. So another, I think, important point, which highlights the growth that we have ahead of us. Very high visibility on the 2021 asset rotation deals with the EUR 1.1 billion already signed in the U.S. and the other processes in Europe going on track. And so we're on track, as I said, to deliver above the EUR 300 million capital gain. Overall, continued path towards decarbonization with very positive development for the overall sector. Just on a final note, I really wanted to reiterate our commitment to the strategic target to present this to the market. I mean we have no doubt that clean energy will be at the center of the post-COVID recovery, and this will help stimulate the economy. It's good for the economy and it's good for the energy transition. So there's a purpose in what we do, and it's good business. We have no doubt that the future is net 0 And I think EDPR's vision and long track record of the many years can only make us make the long-term growth prospects even stronger. So I think all the positive news coming out, I think, continues to be very good for EDPR. So once again, thank you for this year's -- for this quarter's results. I'll pass the word back to Andre Fernand to kick off the Q&A. And speak to you in a few minutes.

[Operator]

[Operator Instructions] Our first question for today comes from the line of Alberto Gandolfi from Goldman Sachs.

[Alberto Gandolfi, Head of European Utilities Research]

Having the privilege of being the first, I ask maybe one more than usual, but hopefully quite quick. The first one is not quick at all. It's about cost inflation. Can you tell us how you procure the equipment on the 2.9 gigawatt under construction and whatever you have already FID on the 6.4 gigawatts. So are you fully hedged? Do you buy at a fixed price? Is there a profit sharing? Is there a risk of an IRR squeeze? Or are you insulated from any cost inflation we see out there?The second one, am I right in saying that all the Spanish portfolio is exposed to power price volatility within the band. And so you're going to be capturing quite a decent uplift as soon as you hedge for 2022 on your portfolio. So maybe if you can elaborate on the merchant exposure, please. Just a question in considering you said you're going to exceed the EUR 300 million. How much -- can you give us a guidance where do you see the underlying EBITDA before gains. Just to give an idea consensus for Bloomberg is EUR 1.6 billion. Probably in there, there are EUR 300 million. So if you don't answer the first, can you maybe tell us at least if you're comfortable with that? And very last, should we expect the net debt for the year, once you get the EUR 1.5 billion pay a bit of a dividend and start accelerating CapEx, perhaps in the neighborhood or maybe below EUR 4 billion?

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Alberto, good to hear from you. In relation to the first question on the cost inflation, we don't expect it to have any material impact. I mean, completely residual, if not 0, on what we have already under construction. And the reason for that is we typically -- typically now, we also -- when we take investment decisions, we're also locking in the procurement of the different components. So when we take that investment decision, we are already very confident about the CapEx that we're going to have for that. So we don't expect any IRR squeeze on the projects already under construction. And in relation to the rest, I mean, obviously, any change in prices is then reflected also in the models and in the pricing of the actual PPAs, et cetera. So once again, that's typically passed through. And finally, I'd just say that at least depending on some of the commodities where they're talking about steel, for example, which I think is one of the things that people have talked about. I mean, a 10% increase in steel has less than 1% impact on the overall CapEx of the project. So on that, I think we're quite comfortable, and it's not something that we're losing a lot of sleep over. As I say, going forward, it is important that all the different players incorporate that into their pricing assumptions and into their, let's say, whether it's in the tenders or in the PPA. Perhaps just on the EUR 300 million, to jump into that, and then I'll pass the word also to Rui here on the debt and on the merchant exposure. On the EUR 300 million, so I wouldn't go into that. I mean we haven't provided that information. What I would say is for what we have already closed on what -- let's say, which is the U.S. transactions. So that's already locked in around EUR 200 million. Point 2, we still have the European transactions, which are underway at the moment. So I wouldn't like to specifically comment on those. We do expect to get binding offers over the next couple of months and then be able to close them by the end of the year as we typically do. And that should get us over the EUR 300 million there was -- let's say what was in our business plan that we set out. So I won't comment on the consensus, but we are comfortable -- very comfortable above the EUR 300 million. And perhaps, Rui, on the net debt and the margins.

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

Sure. Thank you, Miguel. Alberto, so on the hedging, as you know, we follow a very strict risk policy. So for 2021, we have already 98% hedge at around EUR 49.9 per megawatt hour. For '22, we have 78% hedge at around 46%, a bit more than 46%. The OTCs now are at 59. So there, we would have some headroom or the potential upside. And also for your reference, for '23, we only have around 30% hedged. So we would see at So definitely some potential upside for 2023 as well. And as going back to your question about debt. So this quarter, what you saw in the net debt was the fact that As we understood we would have the cash in from the capital raise. We anticipated some payments to suppliers. Now of course, we have already cashed in -- we have received the capital from shareholders EUR 1.5 billion. So towards the year-end, we would expect the net debt below EUR 3 billion

[Operator]

The next question comes from the line of Javier Garrido from JPMorgan.

[Javier Fernandez Garrido, Head of Utilities and Senior Analyst]

The first question would be back to the asset rotation strategy. You are optimistic about your asset rotation gains in '21, more optimistic than you were in the CMD. Is it fair to say that this makes your asset rotation gain targets to 2025 look conservative? Or is there any one-off specific reason that has affected positively 2021 gains?The second question is if you can make any comment on performance in the second quarter. We are midway through the quarter. So if you can comment particularly on load factors, if there has been any special situation or if everything has been in line with normal P50, if possible. The third question is if you could agree -- sorry, I'm not sure I understood. You could repeat what was in the level at which you are hedged in 2021 in Spain, and it was 98% hedged, but I didn't catch the price. And final question. I noted that in the breakdown of your net financial costs in Q1, there was a very significant increase in the institutional partnership costs. Can you explain why this was the case?

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Okay. Thanks, Javier. And again, thanks for the questions as well. So in relation to the asset rotation gains, we are optimistic about the 2021, obviously, it's more difficult for me to comment about the next couple of years. What we do see is continued strong demand for the type of portfolios across the geographies, whether it's the U.S., whether it's in Europe. And that gives us a lot of comfort that this is a strategy, which makes sense for the company that we are able to attract people who are interested in getting good quality, sustainable, green, predictable yield assets. And that continues to be the case. No matter even now sort of you have -- we had last year with COVID, we've had in last couple of years, systematic demand this year, we continue to see that. So I think that gives us comfort going forward. In terms of the actual values, I mean, we set out the numbers in the strategic plan, '21, clearly above. Going forward, I mean, let's see EBITDA. It will obviously depend also on the mix between wind and the solar. That's also something that you need to take into consideration when thinking about the multiples and thinking about the capital gains. But I wouldn't want to comment too much except good demand, they're good assets and so we expect that to continue. In relation to just a couple of -- so the hedge level in 2021, so around EUR 50 per megawatt hour, that's sort of the -- and as you say, around 98%, so basically 100% at EUR 50, I mean, simplified. And going forward, hopefully, you caught it, otherwise we can repeat it. On the performance of the second quarter, listen, we clearly had a bad first quarter in the U.S. I mean, obviously, the Texas was an extraordinary, but then it recovered in March, and that was more normalized. And so I think that's something that we're quite comfortable with the load factor will be, say, more normalized going forward. In relation to the increasing partnership costs, I think that's just a question of timing in terms of the actual payments. It's not anything particular there. So it's still early to say in relation to the load factors going forward. Obviously, the same way that hydro is also impossible to predict. But in any case, there is -- we are confident that it should revert back to normal. And Rui, perhaps if you, on the tax equity? Yes, go ahead.

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

Yes. On the tax equity, so we have noticed that in the handout -- so the financial results that are disclosed in the handouts are correct, the full amount. But there is a mismatch between what is allocated to interest and to tax equity, and we will be adjusting that and correcting it in the version that will be uploaded in the website of EDPR, okay?

[Javier Fernandez Garrido, Head of Utilities and Senior Analyst]

If I may follow up on the hedging in Iberia. Can you explain why the 2022 hedging, 70% (sic) [ 78% ] hedged, at 46%. Why is such a significant drop versus '21? Is it simply because due to a lot of that hedging activity in 2020?

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

So it's Rui here. So just the way we implemented the hedging strategy, is that we typically, of course, 1 year in advance, we start closing the positions and start hedging the positions. So that when we get close to the year-end, for year-end plus 1, we will have a very high percentage of hedging. So what you see now for 2022, this 78% hedged at this 46.4%, I mean this is the result of implementing the hedging strategy. So throughout 2021 -- or in '20, we were already starting to close some positions for '22. But we still have this 22% left unhedged, which right now we have been working with the OTC prices much higher. But it's just as a result of how we are implementing the strategy in a forward-looking way.

[Operator]

The next question comes from the line of Sara Piccinini from Mediobanca.

[Sara Piccinini, Research Analyst]

I have 4. The first one in the results report, you mentioned that there are some costs related to the joint venture in offshore wind. Can you explain what are this cost related -- is just development costs or other costs? And also considering that for other competitors, we have some higher maintenance costs related to offshore wind. Would you expect this to be something that affects your assets as well? The second question is on net debt. Did I understood correctly that you expect below EUR 3 billion by the year-end? And related to this, apart from the improvement that we should see with the cash in from the capital increase, obviously, the net debt is increasing a lot. And going forward, you will continue to increase CapEx to accelerate your development. So my question is, would you consider another eventual capital increase to finance this growth and maintain the level of net debt to EBITDA of EDPR in a stable position? Then the third one is hopefully quick on the building sale agreement. When you signed this agreement also in the past. Is that at that time that you decide the price? And so you already decided -- you already know the capital gain that you will have once the construction is closed? Or there are other elements that could modify the capital gain once the plant is completed. And finally, on the level of -- there are so many auctions coming this year. What is the level of competition that you expect in these auctions?

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Thank you, Sara. So taking your questions in relation to -- the first one on the cost of the JV, so we don't expect any -- just in operational terms, we have not been affected by higher maintenance costs. And if you are -- I don't know if indirectly we were referring to, for example, the statement that's not something that impacts us both in Seamade and in Moray East, which are the only ones that have the array. So cable is already installed. We're talking about 5 and over 100 pillars which is absolutely residual for us. And so that's not the issue. So specifically, I don't know if that's the other costs.

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

Sara, it's Rui here. Just complementing Miguel's comment. So at the [indiscernible] there was just a technical issue with the interconnection cable. It's already solved. I mean, will -- there is an insurance to that. But I mean, it was nothing resulting from the design. It was just a bit some damage that. So that's why we get sort of a one-off and there will be insurance coverage.

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

So on the second question, so we are not considering additional capital increase. I mean we sized the capital increase that we did, so that we would be comfortable with the level of debt and sort of the leverage ratios for EDP renewals going forward for the course of the business plan. So independently of the acceleration of the CapEx that was already built into the numbers that we set out and when we decided on the sizing of the capital increase. So we will not -- that's not under consideration, and we don't think we need to raise any additional capital that's already quite comfortable. In fact, I would just reiterate the EDP Group as a whole, as you just had an upgrade by both Fitch and a few weeks ago by S&P. And so I think we have a much more solid balance sheet, and we've also been -- had a positive outlook by Moody's. So very comfortable now on the balance sheet. In terms of the third question, so when we sign an asset rotation deal divestments, I mean, we lock in the price and typically we have the CapEx already if projects has already done, I mean, It is -- the CapEx is what it is. If there's any change in CapEx, which is -- typically doesn't happen, then that adjusts to the capital gain. But as you know, we built on time and on budget. And so that's not something that impacts us. So the capital gain is basically fixed from the moment that we signed the deal. In terms of competition, I mean clearly, there is competition in the market. There has been for a while now. So I think the important thing to note is the size of the opportunity. The fact that there is so much going on, and I think there's space for everyone. So I think there, we do see the typical players, some of the strategics. We see independent developers. I mean those are the ones that we typically come across in all the different geographies. In terms of level of competition, I think it continues to be a competitive market like it has been in the past. So I don't think there's any particular change or reference that I would make in that respect.

[Operator]

The next question comes from the line of Manuel Palomo from Exane.

[Manuel Gonzalez Palomo, Analyst of Utilities]

I just have a couple of questions, if I may. The first one is on the exceptional weather conditions in Texas. You mentioned that the impact is EUR 35 million. However, I mean, my understanding is that, I guess, that there were several impacts on those wind farms stoppages, maybe a bit of purchasing in the market in order to fulfill committed volumes. So I mean, is this the overall impact explained from the polar vortex, the EUR 35 million? Or to put it in a different way, that was EUR 90 million in the U.S. With the EUR 35 million, it would make it EUR 125 million. Last year, it was EUR 160 million. So should we consider that the EUR 125 million, EUR 130 million is the normalized condition for the first quarter or not? And if so, what makes the difference versus last year? And the second one is on asset rotations. You've mentioned that you have already signed some deals. I wonder what you could tell us when you expect these bills to start being accounted, whether we will start seeing something already in the Q2? And the last one also linked to asset rotations. What is the plan with the stake in more offshore wind farm? Is the plan to keep the stake as it is or maybe to downsize it a bit?

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

Okay, in relation to Texas, the EUR 35 million is all in. So it includes all those specific impacts relating to that particular event, the polar vortex. I mean another thing is that there was low wind overall in the U.S., but not necessarily just in Texas, but that was just something that we had lower wind resource. But in the EUR 35 million, everything that's relating to -- specifically to the polar Vortex in Texas is already incorporated there. So I think if you add that back, I believe, is where you get the EUR 120 million from. I confess I didn't quite understand the other question, and maybe just because of the noise on the line, but you're talking about the Moray offshore and when we would decide the timing of the stake. Was that the question?

[Manuel Gonzalez Palomo, Analyst of Utilities]

Not. Hello can you hear me?

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Yes, I can hear you now.

[Manuel Gonzalez Palomo, Analyst of Utilities]

Okay. No, I was just asking you whether the already signed asset rotation deals in the U.S. were starts to be accounted in the Q2 or maybe in the second half of the year? And then also regarding the asset rotation, basically what is the plan with the stake in Moray offshore wind farm?

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Okay. The accounting, so for the U.S., it's going to be probably more towards the second half of the year. And the European portfolios will also be towards the second half of the year, more towards the end of the year. So that's in terms of the accounting for the capital gains coming from the asset rotation. In terms of Moray, again I didn't quite catch. What's the plan...

[Manuel Gonzalez Palomo, Analyst of Utilities]

There is Whether -- sorry, Miguel, I was asking whether there is any plan to them size the stake that you have in this wind farm -- in this offshore wind farm.

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Yes. I mean, we will analyze potential further reduction, but there is no decision being taken yet in relation to that. You're talking about more Moray West or Moray West, right?

[Manuel Gonzalez Palomo, Analyst of Utilities]

Yes. Yes.

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Moray West, yes. Yes. So we haven't taken a specific decision on that in terms of timing or process, but it is something we would analyze. As you know, we typically do sell down our stakes as the project goes on maturing. So I think we'll just need to identify what is the best timing to do that, but it's probably not going to be a 2021 event. Sorry about not sharing some other questions.

[Operator]

The next question comes from the line of Arthur Sitbon from Morgan Stanley.

[Arthur Sitbon, Equity Analyst]

I was wondering if you were seeing any pickup in interest for corporate PPAs at the moment with carbon prices and electricity prices rising across Europe? And also if you were seeing maybe an improvement of the terms on that front, so in terms of price and also length of the agreement.

[Rui Manuel Rodrigues Lopes Teixeira, CFO & Executive Director]

So it's Rui here. So I mean, yes, we have been seeing good demand on the -- and let me just highlight not only in the U.S. but also in Europe, there has been some additional demand for corporate PPAs. As you know, in Europe, there are also companies acting as consultants for the corporate entities to support them in their PPA procurement process. We have been getting feedback that it's likely that very large RFQs will be coming into the market very shortly typically, for projects with the COD for '23 and '24. So the answer is yes. I think good appetite right now for the corporate PPAs. In terms of pricing, I think what also the feedback that we have is that corporates have been more now open to enter into a longer-term agreement, given this volatility in the spot market and particularly looking in the short term. So in that sense, they are more open to discuss longer-term contracts. So I would say, yes, I mean, it's -- I think we are seeing good demand there.

[Operator]

There are currently no further questions in the queue. So I'll hand the call back to our speakers to conclude the call for today. Thank you.

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Okay. So listen, thank you, everyone, for your questions. Just one comment, which I wanted to highlight. We have a lot of capacity coming online until going back, I think it was to Manuel's question on the U.S. So a lot of capacity coming online also, particularly in the U.S. during 2021. So that's also something to bear in mind when thinking about the growth of the numbers in 2021. Apart from that -- sorry. Is there another question? So I think there's one more question from JBC.

[Operator]

Yes. We do have another question that just registered. And that comes from the line of Ignacio Doménech from JB Capital. Please go ahead.

[Ignacio Doménech, Associate]

So two questions regarding CapEx costs, my first question. So in the business plan, a plan there mentioned percentages to objectives of CapEx and capacity. I come out with EUR 78 billion of solar CapEx, so 41% of total per 8 gigawatts of solar being targeted. This implies a CapEx of EUR 0.97 million per megawatt. So why is this apparently above the usual reference of the sector of EUR 0.5 million per megawatt? And then my second and last question would be what is your view about the recent rise in CapEx cost, mainly in Sealand Logistics. So are you feeling some pressure from vendors increased selling prices. And how would you view such pressure even if temporary, do you see this CapEx cost inflation interrupting in 2021, the downward trend in COEs for the new capacity?

[Miguel Stilwell de Andrade, CEO & Vice President of the Board]

Okay. Thank you, Ignacio. So I believe in relation to the first question, potentially, it's the difference between megawatts AC or DC. And a lot of times, the market has to reference the CapEx per megawatt DC and our numbers are AC. So I mean, As you know, in solar, in particular, in wind this doesn't happen. But in solar, it's producing DC and then it's converted to AC when it injects into the grid. And the difference is around 30% from the AC to DC. So perhaps that will explain the difference that you're seeing in those numbers. So I'd say that that's probably the primary difference. There might be some another which has to do. It's in the U.S. There's no import tax for the first next couple of years. But I would say that's probably the first one. In relation to the second question, I mean, in terms of logistics, I mean that translates typically more into issues on potential delays on the supply chain. As I say, we have the CapEx costs closed for projects that are under construction and under FID. And so and change -- those changes typically don't flow through into the cost of the project. So -- and for projects that we don't yet have closed or haven't taken an FID decision, we would price in or would incorporate any differences in prices as we do normally, I mean, prices are changing all the time over the years. It's not a recent thing. And so we incorporate the best estimate and the best sort of quotes that we have from all the different suppliers when we are taking the investment decisions, and we typically lock that in as soon as we have visibility on the project. So that would be my response to that. I don't know, Rui, if you have any questions. Okay. I think these are all the questions at least that I have here in front of me. So thank you very much, and probably see at least some of you in a short while. Thank you. Take care.

[Operator]

Thank you for joining today's call. You may now disconnect.