Enagas SA

MAD:ENG

[Interpreted] Good morning, ladies and gentlemen. Welcome to this Enagás earnings call for the first 9 months of 2024. Our earnings were disclosed this morning before the market opened, and the figures are available on our website, www.enagas.es. Arturo Gonzalo, Chief Executive Officer of Enagás, will run through this earnings presentation with you, which should take him about 15 minutes, after which we will open the Q&A, and we'll try to answer your questions in as much detail as possible.

Thank you very much for your attention. I give the floor to Arturo Gonzalo.

[Interpreted] Good morning, ladies and gentlemen, and thank you very much for your attention. I'd like to welcome you to this earnings presentation for the first 9 months of 2024. And I'm here with our CFO, Luis Romero; our Board Secretary and CLO, Diego Trillo; our Chief Officer for Communications, Institutional and Investor Relations, Felisa Martin; our Head of Investor Relations; Cesar Garcia; and our Head of Management Control and Business Analysis, Natalia Mora-Gil.

I'm going to divide my presentation into 4 items. First, I will review the implementation of our strategic plan, focusing particularly on the progress made in Q3 and some details about the operation of the gas system. Second, I will look into the main financial performance indicators for the first 9 months. And thirdly, I will discuss some milestones in our ESG positioning. And I will wrap up reminding you of the targets for this year 2024.

Enagás is making more progress than expected in the implementation of the 2022-2030 plan with significant progress along 3 lines of action. In asset rotation, I will mention the divestment of our stake in Tallgrass Energy to Blackstone Infrastructure Partners in July for $1.1 billion. The $50 million, which in the previous earnings presentation, were still pending -- administrative authorization were received last September. This operation is already having very positive effects. It has enabled us to reduce our net debt to EUR 2.4 billion in 2024; debt level, which we will maintain for 2026.

We have used the cash that has come in through the divestment of Tallgrass Energy to repay debt in dollars for an amount of $700 million. The rest will be allocated to the amortization of a bond, which matures in February of 2025. And after that payment, we will not have any significant maturities until 2026.

In the P&L, the divestment of this asset will from 2025 contribute to improving our gross net financial income as a result of the Tallgrass deconsolidation. The transaction has also improved the company's risk profile.

After the Tallgrass divestment, the rating agency Standard & Poor's and Fitch, have upgraded Enagás ratings to BBB plus with a stable outlook. Moody's has also improved its rating to a positive outlook. We now have a more flexible position for agency requirements in order to maintain our rating, and this will enable us to more comfortably approach our investment plan. The transaction also makes our payout policy more solid and more sustainable in the long term.

And we continue to effectively control our operating expenses with our efficiency plan. We maintain our commitment that recurrent operating expenses will not grow more than 1% in TACC in the period 2022 to 2026. And we are also controlling our financial costs in the same way. We started the year with the cost of our gross debt of 2.8%. On September 30, it was 2.7%. And we expect the cost by year-end to come down to 2.6%. Also, we have 95% of our gross debt at fixed rate, which enables us to mitigate the impact of interest rate volatility.

As for the contribution to decarbonization, in the last months, significant progress has been made for the development of green hydrogen in Europe and in Spain. In Europe, we're beginning a phase in which the European Union is doubling down on its focus on green hydrogen and infrastructures with Ursula von der Leyen presiding the European Commission and Teresa Ribera being the Executive Vice President for [indiscernible] and Competitive Transformation. It's a phase with a reinforced green deal, which gives the future of green hydrogen in Europe, very solid prospects. As demonstrated by the speech given by von der Leyen last July as well as in the mission letter sent by the President of the Commission to the future commissioners, in which she asked to prioritize deployment of the European hydrogen network, establish joint demand mechanisms and cause for the implementation of the Letta and Draghi reports, which emphasize the need to accelerate the development of hydrogen infrastructures and for the establishment of an interconnected network in Europe.

This leadership of the European Union in the development of renewable hydrogen has also been reflected by the International Energy Agency, which, is in its last global hydrogen review upgraded its outlook for this sector, identifying Europe as the continent with the greatest ambition and potential to produce it. Specifically, the International Energy Agency focuses on Spain with 20% of European production, a number which is in line with those of our call for interest, which we held at the end of 2023.

Spain is amongst the most advanced countries in the development of green hydrogen in the EU and has been one of the first to have started the transposition of the European hydrogen and decarbonized gases directive. A very relevant point is the fact that in the recent final version of the National Spanish Integrated Energy and Climate Plan for 2023-2030, Spain has even more ambitious goals to become the leading European hub for renewable hydrogen. The plan defines the potential of electrolyzers for the production of green hydrogen at 12 gigawatts by 2030 and explicitly mentions as one of its main components, the development of the hydrogen backbone network and the international H2Med corridor, a strategic infrastructures.

Industry and mobility will be the 2 key sectors for green hydrogen demand. The Spanish Energy and Climate Plan states that 74% of the hydrogen used by industry in Spain will have to be green by 2030. That is way above the 42% target set by the EU. By then, the plan states the contribution of nonbiological renewable fuels in transport should reach 3.56%, which is significantly higher than the 1% set by the European Union.

All in all, the 2023, 2030 energy and climate plan reinforces Spain standing as one of the most cutting-edge countries in Europe's energy transition.

Another milestone in the energy sector has been the draft law to redefine the Spanish National Energy Commission, which is now going through the upper chamber of Parliament after being approved by the Council of Ministers on September 24. This draft legislation incorporates very significant resources to develop the regulatory framework for hydrogen, such as the methodology for the remuneration of hydrogen transmission and distribution facilities and terminals and remuneration for the operator of the hydrogen network, which is a very significant progress since it sets the basis for defining hydrogen as a regulated industry in Spain, and Enagás will be a key player in this new phase for green hydrogen.

In Europe, after receiving authorization from the Council of Ministers last July 30, as published in the state gazette as a decision from the State Energy Secretary on September 23, we're making headway in the implementation of our European projects of common interest or PCIs. H2Med, the Spanish hydrogen network and 2 underground storage facilities for hydrogen. And in fact, just we took a very important step forward when we submitted our funding application from CEF, the Connecting Europe Facility, so we can obtain European funding for carrying out the in-depth studies of these PCI projects.

The H2Med application developed in close cooperation with our partners, includes letters of support signed by the 4 governments involved in the project: Portugal, Spain, France and Germany. Over the next few months, we will continue to move forward.

On November 7, we will launch from the Enagás headquarters in Madrid, together with our partners, the French TSO, GRTGaz and Terega, REN from Portugal and OGE from Germany, the nonbinding call for interest for the whole H2Med corridor, which will enable us to identify the infrastructure requirements, the actors in the whole hydrogen value chain in these 4 European countries.

And then in our third Hydrogen Day, which will be held in Madrid on January 29, 2025, we will present all the work in progress on the Spanish network and its interconnections. We are already preparing the processes of public participation for these projects, which will involve stakeholders all over Spain and where the local and regional governments will play a crucial role.

And as for the Spanish Gas System, during these first 9 months, availability has been 100% with enormous flexibility. So far, in 2024, we've received LNG and natural gas from 12 different points of origin. In this context, and following indications from the Ministry for Ecological Transition and Demographic Challenge, last August 12, 5 months before the EU deadline, Enagás activated the procedure to establish a methodology for the tracking, control and authorization of LNG loading in the Spanish Gas System. Spain closed August with its underground storage facilities at 100% capacity. And it is the country in Europe, together with Portugal, which has achieved this level first.

And as for the regasification plans, we have 2,189 offloading slots for LNG and over 950 loading slots already leased out until 2039, which demonstrates a high demand for Spanish terminals.

In line with total demand and in line with European figures, in the first half of the year, demand was 8.6%, down year-on-year, mainly due to the greater contribution of renewable energy sources and electricity generation and the high temperatures last winter. Industrial demand has gone up 3.1% in the first 9 months of 2024, largely due to the refinery chemicals, pharmaceuticals and cogeneration industries. Cogeneration demand has increased 13% over the previous months, following the enactment of the new cogeneration regulatory framework.

Let me now discuss the most relevant figures in our financial performance. Our core after-tax profit has performed well, exceeding the yearly target we updated in July. On September 30, 2024, and without including the impact of asset rotation, profit reached EUR 233.5 million, that's up 7.8% year-on-year. If we include the impact of our divestment, after-tax profit was negative EUR 130.2 million. Our EBITDA was EUR 572.8 million, that's slightly higher than the figure reported for the same period of 2023.

As I mentioned before, the divestment of our TGE stake has made our financial structure even stronger and bolstered our sound liquidity position. On September 30, this year, the company's net debt had dropped to EUR 2.41 billion.

Apart from the Tallgrass Energy divestment, there are 3 factors behind these positive results. Increased COPEX and the positive impact of the Musel E-Hub, amongst other factors, have significantly offset the impact of the regulatory framework on revenues. Our efficiency plan has been most effective and the excellent performance of our subsidiaries, which have contributed EUR 142.8 million to our EBITDA. The Trans Adriatic Pipeline is continued expanding its capacity, confirming market interest, something which demonstrates the value of the strategic asset for Europe. And as for DESFA in Greece, on October 1, the regasification and storage floating unit plant of gas trade in Alexandroupolis, online, this FSTU (sic) [ FSRU ] where DESFA owns 20% of the equity is key in order to reinforce energy security in Southeast Europe.

As for the Stade [ LNG ] terminal in Germany, work continues so that it will come online in 2027. And as for the GSP arbitration award in Peru, we've not received any additional news from the court on the date of the award. But according to our legal advisers, we expect to receive it soon.

As for our ESG performance, we have continued to move forward in order to achieve our ESG targets. And as you can see in the presentation, we maintain leading positions in the major sustainability indexes worldwide. Recently, for the 17th year running, maintained our leadership position in the Dow Jones Sustainability World Index with 87 out of 100 points according to the provisional scores published by S&P Global.

As for our targets for 2024, our performance over the first 9 months enable us to predict that we will close the year above our target. Year-end after-tax profit in the year will be above EUR 280 million. Without including the impact of asset rotation, our EBITDA will be in the upper range of our yearly target, which was between EUR 730 million and EUR 740 million. And we should close the year with our net debt at approximately EUR 2.4 billion. And we uphold our sound commitment to our payout policy, which in 2024 will be specifically to remunerate our shareholders EUR 1 per share.

And I will finish with 5 conclusions. Our results show a high degree of compliance with our strategy plan and the positive impact it's having on the company. The company's business profile has changed. We have strengthened our balance sheet and that gives us more headroom to roll out our hydrogen investment plan. We are already both financially and technically to successfully tackle our major hydrogen projects in Spain and Europe, the H2Med corridor, the backbone network and the 2 storage facilities. Enagás will continue to make a decisive contribution to Spain and Europe's leadership in the energy transition with green hydrogen, at the heart of those efforts. We're already taking the necessary steps to ensure that hydrogen infrastructures will move forward.

An important milestone happening in a couple of weeks when we will consult the market on the international H2Med corridor, an unprecedented milestone for Europe. The company is planning to update its strategy plan to coincide with the year-end earnings presentation in the first quarter of 2025.

Thank you very much. And now, we are ready to answer your questions.

[Interpreted] [Operator Instructions] And the first question is from Javier Suarez from Mediobanca.

[Interpreted] I actually have 3 questions. The first is about the business plan update, which you said you're going to give us during the first quarter of 2025. I seem to recall that in the last conference call before the summer, you said that you would be presenting that business plan in the fall. I think that's what you said. Could you explain why you've pushed that back and what visibility you hope to have during the first quarter of 2025, to which you don't have yet in this fall. I mean in terms of regulation, visibility and also CapEx visibility and whether that business plan will run until 2030 and therefore, also give us visibility about the new CapEx for hydrogen? I'll be interested in knowing the rationale behind that delay and what we might expect to see in that business plan in terms of factors related to hydrogen.

My second question is about the call for interest for H2Med, since it's going to be a nonbinding process. What type of information do you hope to capture in this process? And how relevant is this call for interest going to be for the design of your business plan, including probably some CapEx for the repurposing of the Spanish backbone network and the building of international infrastructures? Also, could you update us on your views on the competitiveness of hydrogen by 2030 or 2040 so we get an idea about when you think hydrogen will become a factor that will drive European competitiveness?

And finally, about the GSP arbitration. Could you help us understand the delay in the award, a very significant delay, which this procedure is experiencing and why you expect it to be completed before the end of the year?

[Interpreted] Thank you very much, Javier. I'm going to try and answer your 3 questions. And the first of these about the reasons why we will be giving you the update of our strategy plan in Q1 next year. And the reasons are multiple. First of all, we expect to have more visibility of some key parameters related to the regulatory framework and the upcoming regulatory and remuneration period.

As you know, the CNMC has launched a consultation process on the methodology to revise the financial remuneration rate, which should give a rise to a financial remuneration letter that will be subject to public consultation by the end of the year. And we think that will be a very relevant input that will enable us to anticipate some aspects of the next regulatory period, even though the letters for the gas system itself will probably not be ready for another year, but we do think it will give us significant visibility.

Secondly, we are seeing significant institutional changes. We have a new phase beginning in the EU with the new commission. These days, we are hearing what the priorities will be for this new commission for its program for the next years. In the coming weeks, for example, there will be hearings in the European Parliament, the Commissioners appointed and Vice Chairs, which will shed a lot of light on the commission's priorities for the next months and years. And so we think that this is also a key input in order to formulate the update of our strategy plan, fully incorporated in the European dimension, which, as you know, is key for the deployment of the hydrogen market in which Enagás will play a crucial role.

Also, by the way, this institutional change in Europe has also meant an institutional change in Spain because the Minister of Ecological Transition and the Demographic Challenge will be becoming the first Vice President of the European Commission once she goes through that hearing on November 12 and so we will have a new minister appointed here in Spain. And I think that for a company like Enagás, which is a regulated company involved in developing hydrogen infrastructure within the context of European and Spanish policies, it makes sense to wait until this new institutional phase commences particularly in Europe, as I've said, but also -- of course, also in Spain.

But on the other hand, there are some elements which need to be clear before we provide this strategic update, including, of course, the Peruvian award and that connects with your third question about the GSP arbitration, has been delayed more than we initially expected and more than the court had initially indicated. We think that now -- but there were reasons for that. Essentially, the complexity of this award and the arbitration courts need to explain and appropriately argue all the elements of their decision.

But considering the original deadlines they gave us and the usual time lines for these types of arbitrations cases and also according to our legal advisers, we believe that the award will be available very soon, and we believe it's best to have that decision before we share our strategic update, which will include a very detailed view on the investment plan for our hydrogen infrastructures, particularly the PCIs. And that also because just yesterday, we presented the application for funding for the in-depth studies of our 5 PCIs. And so we are developing very in-depth knowledge of these projects, which will enable us to come up with solid CapEx estimates.

When we give you that update in the first quarter of 2025, we'll also be giving you Enagás views on other molecules, which are going to be key in the energy transition, including above all CO2, but also ammonia amongst other molecules. We will be giving you our vision and Enagás' role with relation to these molecules and an initial estimate of investments in that area.

And your second question was about that call for interest for H2Med. It's true that it's nonbinding, and it makes sense that in an initial consultation of the market, we really use it for an informative purpose. And it's about the needs for infrastructure and the capacity demands that the different actors in the hydrogen value chain have identified for 2030. It's informative only, but of an enormous value. For example, a call for interest that Enagás launched for Spain last year, this time enabled us to get the basic information we needed to prepare the nonbinding infrastructure proposal that the Ministry had asked us to provide when we were designated [indiscernible].

We think that this call for interest is key in order to have enough visibility about the demand for a pan-European infrastructure in order to achieve the targets set by Europe and the member states. We are convinced that the results will show us a hydrogen sector that is very vibrant in Europe with a major pipeline of projects under production and very mature needs and demands by major consumers.

On the other hand, this call for interest is a very important element for the maturity of the H2Med project, which still has other stages and milestones ahead in the authorization process, including the investment requests from regulators and having done this consultation of the market is an essential milestone for that. And so it's a very important initiative, and we believe that it will be a turning point for Europe because it will be the first major call for interest for hydrogen infrastructures out of pan-European level.

And about the competitiveness of hydrogen in 2030, the assessments that we've carried out and which we've consulted various institutions show that even though there's been an increase in the recent past as a result, especially of inflation, which has increased the CapEx for electrolyzers above our initial estimates and which has also introduced some tensions in the prices for PPAs for renewables, we believe, as shown by the different research carried out that with the falling inflation rates, we will be back on a CapEx track that will position green hydrogen with competitive prices by 2030, considering that by that year also, the price of CO2 emissions for the production of non-green hydrogen will be increasing.

And so I think what we have seen in these last months was the effect certainly to be taken into account and consumers and producers have done so. But I do believe it's a transient effect, which does not in danger the targets for this process for 2030 with green competitive hydrogen as a key driver to achieve our decarbonization targets in Europe.

[Interpreted] Next question from [ Laura Brindad ], CaixaBank.

[Interpreted] Two questions. The first one about the range you're providing. You're saying you're on the high end of the range. And if I'm not mistaken, this implies a yearly fall of 20% in the fourth quarter, quarter-on-quarter. And I'm assuming you have lower benefits from the companies you have stock in. But is there anything else we should consider during this last quarter? And then about return rates for the new regulatory period because in the past few weeks, we've received news that the rate might be below 7%. What is your take in your internal estimates about this?

[Interpreted] Thank you, [ Flora ]. About EBITDA, it is certainly true that the numbers we're presenting today could place us in higher values if transferred to the third -- to the fourth quarter, but there are a few nonrecurrent elements that lead us to the present numbers on Q3. For instance, as you pointed out, we have a lower contribution of our subsidiaries. For the fourth quarter, our estimate is EUR 9 million less due to the lower contribution of EUR 3.4 million in TGP, DESFA with a reduction of EUR 2.5 million and the Altamira plant with a lower contribution of EUR 1.1 million. And there is also a clear season/calendar effect with higher cost concentration in Q4. And that lead us to have a more prudent estimate that places us on the high range, around -- on the high end of the EUR 740 million guideline we provided.

As for the second part of your question, we -- our range was 7% to 8% so far, but things have changed. Some variables around us have changed in the past few months. For instance, Spain inflation went from 3.6% in May to 1.5% in September, which ultimately led to a reduction of the profitability or the yield of the sovereign bond, specifically for Spain as per estimates of the Spanish Central Bank for 2026, a reduction of 50 basis points has occurred so far this year. So we believe it is reasonable to calculate that we can be at the lower end of the range we provided in February, and therefore, place the financial remuneration rate around 7%. We believe that's a reasonable number.

And the consultation of the CNMC on the TRF methodology update for the next regulatory period showed a regulator's intention to consider changes in the methodology that would better allow us to capture the true cost of capital for the next period. So we believe that it's reasonable to have that sort of TRF for this period.

[Interpreted] [Operator Instructions] The next question comes from Manuel Palomo from BNP Paribas.

[Interpreted] I have 2 or 3 questions. The first one is what we've seen in the past few weeks or months with the cancellation of certain hydrogen projects by other players. And also, we recently heard about the possible relocation of hydrogen projects and companies like Repsol. So perhaps this is a vague question, but do you believe all these cancellations or suspensions could become a concern for your strategic ambitions in Enagás? That's my first question.

But I have a second one about the national energy plan. I noticed a certain optimism when you talk about the PNIEC, which seems to be shared by other companies in the industry. Still, other companies in this sector don't -- may not consider the plan fully viable or implementable. So to what extent do you consider this energy -- national energy plan is realistic to implement between now and 2030?

And perhaps my last question, assuming there's a reduction in oxygen investment hub, do you have a plan B? Would you grow your dividend policy, for instance? Or would you consider some external acquisitions to maintain a stable footing?

[Interpreted] And thank you, Manuel, for the questions. About potential concerns or strategic concerns due to the delay or late execution of some projects, I would say that basically, Europe is deploying a new energy vector during a very short period. So this is likely to generate planning adjustments as several players are involved. No adjustments, however, have occurred in the existing European regulation that clearly sets the path for the reference scenario in 2030. Sometimes, we hear debate out there and it's -- there has to be debated, it's legitimate. And we all need to be aligned and achieving a huge challenge and a large objective, but let us not forget that the legislation remains valid and all the relevant European legislation and standards remain valid.

As a matter of fact, this new period in Europe is not necessarily a period to define a regulatory framework as that framework was defined last quarter -- or in the last period. It is now a time for implementation. So our regulatory duties remain there, and Europe will continue to use all the resources available to meet those duties and regulatory objectives.

I would say that the fact that certain projects are being canceled or delayed in terms of hydrogen generation infrastructures and other areas in Europe, actually, can only underscore our largest strategic project, which is placing the renewable hydrogen generation of the Iberian Peninsula at the service of our industry's competitiveness but also the competitiveness and strategic autonomy of Europe. So those delays and cancellations and other hydrogen projects can only underscore the strategic importance of H2Med and the Spanish backbone infrastructure. And I believe that this is increasingly evident in Europe as time goes by.

So I believe our obligations remain valid. The RED 3 initiative remains valid. The national plans are approved and raised to Brussels. And we're just waiting for the clouds to clear and everyone involved to feel that we can all participate in this huge common challenge, which is the decarbonization of Europe.

As you said, yes, I am optimistic. We are optimistic about the Spanish national plan. And there are 2 major factors here. One, decarbonization in Europe and Spain cannot be postponed any longer. Net zero by 2050 removes a nonnegotiable objective. It has to happen. The decarbonized future is our duty and our pledge. And European institutions are not changing their minds about this pledge. So the national plan sets the right amount of ambition for Spain and a clear political will from the Spanish government to move towards that high ambition.

So I do believe that the national plan is the right amount of ambition in the right scenario, and it is up to the rest of us to do our best to make the plan a reality because this is not just a matter for the government to deal with, clearly, the government has a responsibility, but also are all the players involved in the energy sector to make this national plan come to fruition.

So Manuel, having this clear European framework with demanding deadlines, we're filing our PCI projects for European funds with a view to implementing these plans by 2030, but this is not just Enagás. There are 5 TCOs supplying with all the support of European institutions. So we do not believe there will be any significant delays. And if there are any nonmaterial delays, I am sure these can be accommodated into our financial forecasts and planning. And certainly, we have a couple of ideas out there that we can modulate to finally meet the hydrogen objectives, like CO2, as I mentioned before. I mean the capture, usage and storage of CO2 will become a huge new activity sector in Europe.

As of 2026, the free allotments of the European system in emissions and negotiations will be decreased. And everything will go up as an effect of supply and demand and CO2, carbon usage and storage will grow, and we have a natural position in that area.

So yes, we do have some supplementary idea like adjacent businesses; small scale, bunker business; hydrogen-based mobility. So these are projects that will help us navigate these waters. As part of the forecast, we will introduce in our strategic update during the first quarter of next year.

There are no further questions in the Spanish channel. We will now take questions in English.

[Operator Instructions] Our next question comes from Arthur Sitbon at Morgan Stanley.

I have 2. The first one is on the 2024 financial targets. You're mentioning that you're on track to exceed the current net income target for 2024. I was wondering if essentially, what you're saying is that you may be in a position to reach net income more in around EUR 300 million compared to current target of EUR 270 million, EUR 280 million?

The second question is on the regulatory review on Spanish networks. You made some comments earlier on the potential allowed return. I was wondering as well if as part of that review, you would expect a potential revision to the trajectory for the RCS remuneration? Obviously, it's a -- it's already scheduled to be at a much lower level than it used to be before the previous regulatory review, but should we expect that to keep coming down or stabilize at the current level? Is that even a topic of discussion in the review? Yes, I would be interested in any thoughts on that.

Thank you for your questions, Arthur. First of all, regarding our guidance for net income for the year, it's true that if we move to fourth Q, the results obtained in Q3, we would approach a level such as you said. But I already answered a question concerning the EBITDA. There are some nonrecurrent effects in third Q. I've mentioned the contribution of the affiliate companies. I've mentioned the intensification of some expenses in fourth Q, the calendar effect, but also regarding the financial result, there are some elements that are not going to be recurrent in 4Q.

As you know, the interest rates are decreasing over the course of the year. This means that the remuneration of our cash is going to be lower in 4Q. So we think we should be prudent. And definitely, we expect to get a net income above EUR 280 million without taking into account the asset rotation effects. But we shouldn't give a more specific figure at this point in time.

Regarding the regulatory review in Spain, I already elaborated a little bit about the allowed return. We consider that circumstances have been evolving during this year. We had an inflation rate in Spain, last May of -- at a level of 3.6%. In September, this has been reduced to 1.5%. The Spanish bond yield during this year has been reduced 50 basis points according to the estimates of the Bank of Spain. So we think it's reasonable to think that the allowed return may be reduced to the lower range of what we estimated in February. And so we consider that 7% of the allowed return should be a reasonable level.

As you know, the CNMC, the Spanish regulator launched in recent months, a public consultation on the methodology for the estimation of this allowed return with the declared intention of better capturing the real cost of capital in the next regulatory period. So we think that 7% could be a reasonable outcome of this exercise.

Concerning the RCS, the remuneration of continuity of supply, we maintain our assumptions considering that the level of this concept at the end of the current period will be maintained either with this same concept or absorbed by the extension of the operating life.

The next question comes from James Brand at Deutsche Bank.

I wanted to just ask you about hydrogen regulation and when you think we might be getting more visibility on that? Obviously, expecting to have all the details for -- I guess, most of the details for regulation of the natural gas business coming through next year, do you think that we'll get some increased clarity on hydrogen relation at the same time? Or is that something that's going to come much later? Is the first part of the question.

And secondly, there's been some back and forth, I think, over time as to whether you would be looking for a higher return for hydrogen or whether you're looking for safeguards that provide you with a backstop in being able to be guaranteed to recover any investment that you put in. What's your latest position in terms of what you'd be looking for from the regulator and the government in terms of protecting anything that you invest in hydrogen pipelines?

Thank you for your questions, James. The first one in regards to when the hydrogen regulation may be put in place in Spain. Two things are happening at the same time, which are key for that. First, you know that the process for transposing the EU directive into Spanish regulation has started. The Spanish ministry didn't lose 1 day to start a public consultation on the necessary transposition into Spanish law through the adaptation of the national hydrocarbon law. So that's moving forward. This could take -- this should take not longer than 2 years because this is what is expected in the EU framework.

But at the same time, in parallel, and this is very important, you know that the government of Spain has sent to the parliament, the draft law on the recreation of the National Energy Commission. You know that currently, the energy competencies are included in the responsibilities of the existing CNMC, but the government has initiated this process to recreate a specific regulator for energy, which we think is a good idea because this next stage in the energy regulation is going to need a very specific focus.

This draft law has already been sent to the parliament. And among the tasks and responsibilities of the CNE, many relevant aspects of the hydrogen system are already included. This draft law included the methodology for remunerating the terminals and infrastructure for hydrogen transmission and distribution, the methodology for defining the regulated asset base for hydrogen, the remuneration of the manager of the hydrogen transmission network, the balance actions, access and capacity activities. So this law is, as a matter of fact, creating hydrogen asset regulated sector in Spain. And if everything goes well in Parliament, this new energy commission should be in force in second Q next year.

So we think there is time to have the first hydrogen regulatory period in place in 2027. I think this is a reasonable level of ambition. It's a challenge, definitely is a challenge, but we think is doable. And we think that the momentum that these legislative proposals is taking makes it possible to have this legislation in place and this regulatory framework in place by 2027. So the first regulatory period for hydrogen would coincide with the next regulatory period for natural gas, which would be definitely very good news.

As long as hydrogen is a fully regulated system, the risk assessment of hydrogen investments, hydrogen CapEx is very much reduced. There are some differences, of course. For instance, we don't have a historic track record to define the unitary costs for hydrogen. So we think that CapEx and OpEx during the first years should be a pass-through. There aren't other elements of efficiency in that regard and so probably there should be some kind of premium for hydrogen return. But all in all, being a regulated system reduces very much the risk of hydrogen investments and, therefore, reduces the necessity of having an extra remuneration for hydrogen investments.

Thank you, Arturo. I think that was the last question. [Foreign Language]

Thank you very much, everyone, for your attention. And as usual, remember that we remain available for any follow-up questions or further data requirements in the Investors Relations division. Have a good day. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]