ERG SpA

MIL:ERG

Earnings Call Transcript 2018-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG First Quarter 2018 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luca Bettonte, CEO of ERG. Please go ahead, sir.

[Luca Bettonte, executive]

Good morning, everybody, and thanks for coming to this conference call on our Q1 results. Here with me, as usual, the CFO, Paolo Merli. Let me give you a quick overview of our key figures for the period, in which, we posted strong results, better than last year, despite of the negative impact of some items such as the phase-out by the 31st of March of some incentives as regard 172 megawatts versus Q1 '17 equal to some 85 gigawatt hours generated with a negative impact on revenues and then on EBITDA of some EUR 9 million. Lower incentive price in Italy EUR 99 per megawatt hours in 2018 versus EUR 107 last year which affected the whole incentivized Italian production with a negative impact of roughly EUR 6 million year-on-year, wind and hydro, of course. The new regulation by GSE on unbalances for non-programmable sources in Italy, that implied in the quarter higher unbalancing costs by almost EUR 5 million versus lower corresponding EBITDA. And in the end, the first quarter, last year, benefited still in Italy of some [ EUR 80 million ] revenues as a result of the recognition of the Green Certificates of previous years relating to some hydro plants [indiscernible] accounted in the financial statement at the end of March 2017 profit and loss. If you sum up all the above items, you come to about minus EUR 28 million, that was the starting point for us this year. Already known and factored in the business plan presented a couple of months ago.

So that's the way we look up. Let's then in any case continue by looking at the main figures and see how we achieved those stronger results. Year-on-year, EBITDA came in at EUR 162 million versus EUR 151 million, plus 7% with a 57% EBITDA margin, it was 50% last year. I would say an higher EBITDA for all of the technologies, plus the contribution of some EUR 5 million from the newly acquired solar plants and plus other roughly EUR 5 million from other assets addition in the wind segment in France, Germany and in the U.K. The latter as long as it lasted. I'm referring to Brockaghboy, of course. Net profit at EUR 56 million versus EUR 54 million of last year, the latter does not include the contribution of some EUR 6 million from the equity valuation after-tax in Q1 '17 understating TotalErg, of course. Net debt at [ EUR 1.22 million, -- billion, sorry ], a bit lower than last year and [indiscernible] of EUR 1.23 billion. Q1 '18 amount includes some EUR 56 million of vendor loan to API.

[ Kind of ] summarizing and simplify the main reasons by commenting quickly the quarter figures. As for EBITDA, let's start with volumes. A very windy quarter both in Italy and abroad. The production all-in-all was 15% higher, plus 11% in Italy and plus 20% abroad. Outside of Italy, you had in Q1 some 112 megawatts of higher capacity sold, of which 48 megawatt in Germany, 48 megawatt in Northern Ireland till some -- end of March, and 16 megawatt in France. All of them contributed with some 63 gigawatt hours to their higher production. And for hydro power plants, this time, we had a very rainy season. The production was some 84 gigawatt hour higher, plus 20% than last year. And now for the contribution of the solar plant, it was of some 21 gigawatt hours pretty in line with our expectations. Regarding the thermal generation, the production was some 12% lower, but in this case, accounts much in the flexibility associated with the electricity price trend along with the clean spark spread value.

Talking now about prices, energy prices costs. They were slightly below those of last year with the national average price some 6% lower. This affected mainly the wind generation in Italy. As abroad, we are exposed, in particular, to Germany and France, where we get feed-in tariffs. In the end, it has also to be mentioned that in Italy, we had the lower former Green Certificate [ green value ] 99 versus 107 as mentioned before. In Centre North zone, peak prices were lower, minus 7% versus Q1 '17. These are the prices that mostly captured by the hydropower plants. And as for the thermal unit, the baseload clean spark spread was lower than last year due to higher natural gas and CO2 prices. But the Sicilian premium was definitely higher. All the above effect have led to a higher EBITDA where wind in Italy was down by EUR 4 million if including the negative impact from the lower incentives and higher unbalancing costs. Wind abroad was up by EUR 7 million, out of which EUR 5 million from a broader perimeter. Hydro was in line at EUR 35 million, but for higher on a like-for-like basis. Thermal was up by EUR 4 million as usual, thanks to its peculiar characteristics such as locations, site contracts and high flexibility. And finally, solar, where the contribution from the new asset was about EUR 5 million, 10% below our budget as the heavy rains resulted in poor solar radiation in the country minus at country level 18%.

As for the net profit, we posted higher result, EUR 56 million versus EUR 54 million restated in Q1 '17. In this quarter, the higher operating result just commented have offset high depreciation of some EUR 7 million due to the larger win perimeter in wind and to the newly acquired solar plants. Higher financial charges due to a larger average loan tally indebtedness coming from the huge investment made in the quarter.

And in the end, net financial position. [ Lendings ] EUR 1.2 billion, that is in line with the year-end amount as a result of a strong operating cash flow, cash outflow investment of some EUR 365 million and cash flow in from disposals of some EUR 285 million.

Moving now on Chart #5. In this chart, we have just summarized what you already know as for the acquisition of Epuron. There is nothing more to add except to remind that this investment represents a very important boost and acceleration of our business plan. And we are going to see later while sharing our forecast for the guidance, this transactions was not included in the business plan presented in March. It could be seen as an anticipation of the CapEx because included in our business plan, as regard both M&A spending as 26 megawatt was already -- were already operative and under construction that we bought by acquiring Epuron. And above all, business revenue stream as in the perimeters include a huge pipeline of about 750 megawatts, whose partial deployment is going to be carried out in the plan period especially as regard to the advanced portion of the pipeline. This paramount acquisition which is not very different from what E.ON and Boralex did respectively in Germany and France a few weeks after us allow us to achieve 2 important goals. First of all to become owners of a significant pipeline in France and second to increase ERG's workforce there and strengthen our capability and know-how for growing. And now as usual, I will hand you over to Paolo.

[Paolo Merli, executive]

Thanks, Luca. Good morning, everybody. Let's start looking at the general scenario over the quarter. I'm on Page #7 commenting on power demand in Italy. Demand was up 2% year-on-year. The quarter was characterized by a windy and wet season with poor solar radiation. Overall, hydroelectric production in the country was up 11%, while ours rose by 22%. So on our performance, which is basically related to the specific location of our assets in center Italy. As far as wind is concerned, production was up 16% year-on-year in the quarter in the country while our performance was pretty much in line with this trend and or slightly below 11%. This is due to the weaker wind conditions in the East of the country namely Apulia, where we have a solid positioning. Later, I will comment in more in that say, number by number. Conversely, solar was down by 18%. Here, I'm talking about Italian production. Our operations were no exception to that trend even though the gap to our budget was narrower about minus 10%. Outside Italy, wind conditions were good in France and Germany, but weaker year-on-year in East Europe. Let's now talk about prices. The average national price in Italy was EUR 54 per megawatt hour minus 6% year-on-year, say partly due to the fact that prices in Q1 '17 were inflated by the nuclear crisis in France and partly because in Q1 '18 prices basically didn't fully reflect the rising gas and CO2 cost. Price indicator for renewables in Italy, which is the sum of the -- say the national price plus the feed-in premium was EUR 153 per megawatt hour again minus 7% year-on-year. This is basically because the incentive as well went down by 7% from EUR 107 per megawatt hour in 2017 to EUR 99 per megawatt hour.

As you know, this number is worked out from say a mathematical formula, which is inversely proportional to the previous year's electricity price. Let me also outline other 2 important price indicators for our operation. The first is price in Sicily, which traded at a significant premium versus the average -- the national average by EUR 5 per megawatt hour while in Q1 '17 it was negative. And this premium was driven by some bottlenecks, some maintenance works and the interconnection with the mainland. The second indicator is the Central North peak price, which was EUR 63 per megawatt hour and is -- and was EUR 9 per megawatt hour higher than the average national price. This indicator is quite important because it sort of proxy for the selling price of our hydro productions.

Let's now talk about the generation margins in Italy. I'm commenting the graph on the top right of the chart. You can see they dropped quite consistently from EUR 16 to EUR 7 per megawatt hour, due we believe at least was sort of time lag in absorbing the rising cost of CO2, which has doubled from EUR 5 to EUR 10 per ton. Not explained in this graph, say at the national level, our results were up anyway year-on-year as we benefited from being located in Sicily first of all, with higher zonal prices and already commented. And we also benefited from our hedging executed at that time of higher margins. And finally, from the fact that in Q1 '17, say that the plant wasn't fully able to capture the very good spark spread in '17 because we still have a PPA in place with [ year-end ], which kept the marginality of the plant. This contract as you may be aware has expired at the end of 2017. Commenting the prices abroad as far as say -- as far as the scenario again is concerned, you can see on the chart, at the bottom right of the chart that the prices in France, Germany and Bulgaria are quite stable as are based on our feed-in tariff. The only exceptions are Poland and Romania -- sorry where our Green Certificate mechanism is in place. So in Poland, I like to underline that the region certificate were consistently up year-on-year. They tripled more or less due to some regulatory interventions which took place last year. In Romania since 2018, it's also important to underline that our assets benefit from 1 single Green Certificate instead of 2 explaining say most of the trend.

Let's move now to Page #8, commenting the first quarter group EBITDA. So EBITDA was EUR 162 million, up 7% year-on-year. If I wanted to summarize, I would say that mainly this is due to 3 main effects. But first, the higher wind and hydro productions on a like-for-like basis. Second, say the contribution of new assets, namely wind assets in France, Germany and U.K. with Brockaghboy wind farm consolidated up to March 7, so the date at which we sold the asset and also the recently acquired solar business. And the third factor was as already slightly commented, a positive contribution from our CCGT plant, thanks to its high modulation capable to capture the best prices in Sicily and still very high price for White Certificates which remain an important stream of revenues for our plant. This is the general comments. So Luca has already commented about some negatives which were already known say at the time of the business plan but I think, it's quite important to recap them. So the lower price value of incentives in Italy, 99 against 107. These accounts for a negative of EUR 6 million over the quarter. The phase-out of incentives in Italy related to roughly 85 gigawatt hour of production, which went out from the incentivized perimeter. This translated into roughly EUR 9 million of negative impact on EBITDA. The revenues we had in Q1 '17 associated to the recovery of past Green Certificates in hydro operations which accounted for about EUR 8 million and also the change in the routes for the imbalance cost, which translated into roughly EUR 5 million year-on-year of higher unbalancing cost associated to wind operations. So all-in-all, the negative accounted for roughly EUR 27 million which were fully recovered even more as the result is positive from the positive I mentioned before. So I think, for all this reason, a very, very good results in the quarter. Commenting very quickly on Page #9, here you have a recap of our energy portfolio, the 2.2 terawatt hour, it was the production over the period from the different technology, and the management, the entire portfolio was 3.7 terawatt hour because on top of the 2.2 terawatt hour produced by our plants, you have to add the quantity we are buying on the markets in order to adjust our supply profile, optimize the portfolio, and perform our hedging strategy.

As far as the sales, so the 3.7 terawatt hour were sold [ 0.1 ] to our site customers in Priolo, 0.5 terawatt hour sold abroad and the remainder sold on the wholesale market. Let's move to Page #10, commenting now technology by technology and starting from wind. EBITDA in Q1 was EUR 107 million, up 3% year-on-year, thanks to the higher production in Italy, as well as in France and Germany, while already said, weaker in East Europe has anyway shown in the chart. Production also benefited from the contribution of the new assets in Germany, which were not already consolidated in Q1 '17, and France is off effective say -- is off 1st January 2018, with also the contribution of Brockaghboy wind farm in North Ireland, which was consolidated till the date of the sale.

Overall production, commenting in general, overall production was up 15%, load factor was 31% versus 29% last year. So all the KPI were good here. Again, in Italy, with production up 11%, a load factor of 31% against 28% in Q1 '17, but also outside Italy, where production was up 20% with a load factor by chance similar to the one registered in Italy 31% on average against the 30% in Q1 '17. The technical availability and the energy availability of our wind plants was about, on average, on the entire portfolio up 97.5%, which I think is a very good performance from an industrial point of view.

I've already commented negative price scenario with say the reference price in Italy, down by 7% on top of which you have to have the phase-out of incentives. As a matter of fact, the ERG unitary revenues in Italy was EUR 126 per megawatt hours, down 13% year-on-year to reflect all these items I've already commented.

Moving to Page #11, commenting now on solar. Here there is no comparison on a year-on-year basis, because this is the first quarter we are consolidating the assets. I am on Page #11, say the production was 21 gigawatt hour, with a load factor of 21%. As said, this production is 10% below out budgets, but pretty in line with the trend registered in the segment cause of the poor radiation. I think it's important to remind you that in Q1 and Q4 are the weakest quarter for this solar. So we are quite confident for the full-year results of these new assets, which anyway must be seen as part of an integrated portfolio with hydro, wind and natural gas.

Let's comment now -- let's move now on Page #12, commenting on hydro operations. Here EBITDA was EUR 35 million, bit in line with Q1 '17 even though this figure must be explained very well because in Q1 '17, as you remember was included a one-off item of EUR 8 million associated to past -- to the recovery of past wind certificates. So the number excluding this special say item is going to be -- has been, say, much better than last year and this is due thanks to the very higher production 469 gigawatt hour produced in Q1 '18, plus 22% year-on-year.

Looking at the unitary revenue. More or less in line, EUR 94 per megawatt hour, more or less in line with last year. So all the increasing EBITDA once excluding say the EUR 8 million of one-off item including the Q1 '17 is that [ Italy due ] to the higher volumes produced by the plant.

Finally, I think it's also important to add as a relevant information that our water reservoirs at the end of the quarter were pretty full, following the heavy rains and snowfall over the period, which is an encouraging KPI for the rest of the year to come.

Let's move now to Page 13, commenting on CCGT. EBITDA here was EUR 18 million, plus almost 29% year-on-year. Let me try to explain this pro forma because it came in a quarter where basically the spark spread were consistently lower than the same period in '17, in Italy in general. But say, this pro forma could be explained by several effects. First of all, I have to say that the [indiscernible] on a premium in Sicily basically absorb the lower price scenario, when looking at the national average price.

On top of that, we had 3 factor, the 3 elements I've already, quickly mentioned before. So we -- the hedging actions over the spark spreads taken in a time of higher margins and so in -- during -- progressively during this 2017, which contributed for about EUR 3 million positive. So that help us to feel full say the economic impact of the squeeze -- from the squeeze of spark spread during the period.

In addition to this, I remind you, what I've said before that Q1 '17, despite very high spark spread, the plant couldn't fully capture this marginality [ cause ] of the PPA in place at that time with Iran, a contract which expired at the end of 2017. So in this quarter, we were fully capable to capture the higher spark spreads when ready in the market.

Finally, but it's -- I've already repeated, I think, it's important to remind you that the White Certificates remains an important stream of revenues and only for purpose of accounting, the value at which we accounted the White Certificates during this quarter is EUR 288 per certificate, which is lower, frankly speaking, to the current prices on the market. So our policy to use the average price over the last 12 months, so let's see how these prices are evolving in the forthcoming months. And from this point of view, we see more upside than downside for sure.

Okay, say, let's move now to Page #14, commenting on investments. Investments in the period, including the ones related to M&A were EUR 365 million, which include EUR 357 million for M&A and the reminder say for organic investments. In particular, EUR 346 million were relative to ForVEI acquisition. This number slightly difference -- differ from the one announced during the acquisition, because in the meantime, just only for accounting purposes, we accounted EUR 10.5 million of negative fair value relative to the leasing contract acquired during the acquisition, which anyway, incidentally is being refinanced. EUR 12 million is the investments in the wind business and relative to the acquisition of Vent d'Est, which added to the EUR 346 million, makes the total of EUR 357 million associated to the M&A. The remaining CapEx mainly refers to wind, in particular, to the acquisition of Linda project in Germany, 22 megawatts, which is currently participating to the auction, but we are still waiting for the outcome. So this figure are pretty in line with what we have announced during our business plan.

Let's move now to Page #16, commenting on profit and loss on a recurring basis. I've already commented on EBITDA, so going down, higher depreciation, mainly reflect the consolidation of solar as of January 1, and also the German assets, which were not included in Q1 '17. Net financial expenses were up year-on-year from EUR 16 million to EUR 18 million. This mainly reflects the higher debt acquired from solar M&A and slightly lower yield on cash management. All-in-all, if you look at the cost of our gross debt, it remained basically at 3.2%, which is pretty in line similar with Q1 '17, and we think it's quite competitive number. Tax rate in the quarter was 26%, essentially in line year-on-year. You could see that there is -- even though it's close to 0, but includes some minorities, which are related to 25% of Vent d'Est which is the 16 megawatts we've just acquired and consolidated since January 1, in France. So as a result of all these, adjusted net profit was EUR 56 million in Q1 '18 versus EUR 54 million in Q1 '17, so plus 4%. For the sake of clarity, I am commenting here stated figures, which are not including in Q1 '17 the results of TotalErg. This is, I think, to simplify the comparison and to be honest, this figure are not including also the important capital gain associated to the sale of Brockaghboy executed in [ quarter ] during Q1 '18, which would have increased the net profit by roughly EUR 26 million pre-tax say.

Let's move now to cash flow statements. I'm on Page #17. You see at the end, the net debt remains more or less stable, EUR 1.233 billion against EUR 1.229 billion, so basically in line. But you can see from the chart the up and downs are quite significant. Let's try to comment one by one starting from the left, you have the net operating cash generation, namely the EBITDA was EUR 162 million, then the CapEx EUR 8 million. For more clarity, we have separated the organic CapEx from the M&A ones, then we have EUR 65 million net working capital, which is a quite important number. Half of this is associated to the normal say, receivable for incentives and electricity cause the Q1 in generally a quarter when the production seasonally are higher than the other quarters. Part of it is also associated to the fact that TotalErg went out from our consolidation scope, so we have an impact, which is -- which will be seen -- which is evident only in this quarter because this quarter is the one when we actually sold the asset, which is related to the VAT taxes. Then financial charges, EUR 18 million, I've already commented plus some other [ minus ]. All-in-all, the net operating cash flow was of EUR 76 million.

On top of that, you have the M&A and the disposal. The M&A includes TotalErg -- sorry, not TotalErg, it's on the buy side, say the solar, the ForVEI acquisition and the Vent d'Est acquisition. While on the disposal side, you have the TotalErg and the Brockaghboy sale. All-in-all, as said, you arrived to EUR 1.2 billion, more or less in line but with a lower leverage of 38% against 40% is because, in the meantime, the capital invested increased for the new investment. So I hope I have touched on all the key items. So I will now give over to Luca for his final remarks.

[Luca Bettonte, executive]

Thanks, Paolo. And now as usual, it's time to talk about guidance. EBITDA is confirmed at EUR 475 million at year-end as a result of in wind lower EBITDA, in particular in Italy versus last year; abroad were in line, let's say including the larger perimeter and higher development costs, significant higher EBITDA for the hydro plants, slightly lower EBITDA in thermal generation and significant contribution from the newly acquired solar plants. CapEx up from EUR 450 million to EUR 500 million to include the acquisition in France of Epuron. And net financial position up from EUR 1.25 billion to EUR 1.3 billion for the same reason. Say, let me say first of all that although Q1 '18 results are better than expected, we prefer to keep the initial guidance unchanged [ differing a lot in Vent d'Est ]. As for EBITDA, we see slightly lower electricity prices than last year in the next 9 months in Italy. In all, the zones where our plants are located and still low spark spread.

On top of that, this is -- it's worth underlying the lower incentives value per megawatt hour. So the [ frame was at ] 99 versus 107. And the phase-out from incentivized scheme of 284 megawatts which is not bad let's say. Also abroad but for Poland, we see lower electricity price than last year. In wind in Italy, in our projection, we have already included average production that was much lower than expected and we predict to meet the budget for the months to come. Then on a full year basis, the power generated should be slightly higher than in 2017. Also abroad for -- both the larger perimeter in France of some 55 megawatts at year-end and higher wind availability, we forecast overall a higher production.

As for the hydro plant was in light of the much higher than expected average production in this case, we see a so-called rainy season ahead. Thus with the power generating will be by far higher than in 2017, allowing us to receive incentives for more than 40% of the total generation. And now still to remind a lower level of unit incentive value. And then last year, the business line benefited of some [ 7 million representing the ERG ] Certificates. With that into the thermal generation. We foresee lower result versus 2017 mainly due to lower spark spread and lower contribution from the revaluation of the previous year White Certificates, all of that partially offset by the energy management optimizations. In the end, we are forecasting a sound, let me say EUR 475 million EBITDA. As a result -- result indicate it is north of last year EBITDA despite of the phase-out by year-end on a cumulative basis some 286 megawatts from the incentivized schemes as mentioned before. And negative change in the unbalancing cost regulation and the special contribution in hydro in 2017 of previous year's Green Certificates.

As for CapEx, the amount at the end of the year should be about EUR 500 million on top of the initial projection, we have included the acquisition of Epuron in the CapEx to build the 18 megawatt wind farm of Torfou to be up and running by year-end. In conclusion, net financial position in line with last year at EUR 1.3 billion after CapEx for some EUR 500 million and EUR 172 million of dividend distribution. 2018 cash flow will be affected also by some [ EUR 454 million ] of acquisition mainly ForVEI and Epuron and by some EUR 285 million of disposals TotalErg and Brockaghboy. I would say that I finished my speech, now we are ready to take your questions.

[Operator]

[Operation Instructions] The first question is Sara Piccinini with Mediobanca.

[Sara Piccinini, analyst]

I have some. The first one is on the guidance, sorry to coming back again on these. I know that you well explained that. But just to understand on my numbers, so you gave EUR 475 million guidance of the business plan, then you have concluded these acquisition in France which I calculated that should contribute for EUR 4 million. Besides these EUR 475 million EBITDA is still month end. So just -- I just want to understand if these EUR 4 million are included in the EBITDA, but you are maintaining the same numbers to be cautious or if you just can clarify on these? And then on the guidance still, if you can provide the contribution from the White Certificates in these first quarter and how much you are assuming for the full year guidance in your EBITDA?

And the second question is in general on the market, if you can give us an update on the next auctions in Germany and France and if you consider the bids in the auctions as [ addressing there ] we have seen the latest offshore auction in Germany with 0 subsidies. So if you can give us your view on these auctions. And finally, if you can please provide an update on repowering. If you see any risk on delay on the implementation of the National Energy Plan with the new government in place, and if you are -- how do you see the market for PPA with private companies if you are thinking about signing PPA to reduce the exposure to merchant prices.

[Luca Bettonte, executive]

Okay, thanks for your questions. Maybe that we should begin an interactive dialogue with you, because there are not as many. And maybe I don't remember them all, maybe then you can go back and repeat them if I miss some one, okay.

[Sara Piccinini, analyst]

Sure.

[Luca Bettonte, executive]

Alright as for the guidance, say that the application we just finalized, we are about to close say today from a Q4 emerging point in France. It's an acquisition that boosted and accelerated our business plan. And if you consider that most of these acquisitions -- the importance of this acquisition has to be associated with the pipeline that we have bought, now we own some 750 megawatts. So that's averaging for us to say deploy them. As for the specific number that you are asking me for giving you some indication, say the -- in the forecast for this year, the contribution of Epuron is included but you should consider that is made of the contribution of 8 megawatts already in operation, that's early in year. The first wind farm we acquired while the 18 megawatts related to Torfou, the second wind farm is going to be up and running by year-end. So there's no EBITDA contribution from this wind farm and then should also consider that what is [ accounts must for us ] as I just mentioned has to do with the pipeline development and then we put inside the forecast some EUR 4 million cost. In the end, the contribution of Epuron for this first year having them onboard is going to be negative by some EUR 2 million and it is included in our projection.

As for the White Certificates, I am talking about some 7 -- okay, you have to consider the 2 assets as for the White Certificates. The one has to do with the certificate produced in the current year that have a specific value and the second is the revaluation of the -- it is the case and now it is the case of the value. The Green Certificates generated in the previous year are then going to be sold at the final price in the subsequent year. So we are talking about the White Certificates of 2017 revaluation. And the White Certificates of 2018 just introduced right now. So in terms of say contribution margin, we are talking about some EUR 10 million is the contribution for the -- this first quarter as for the 2 assets relating to this White Certificates. Moving to France and Germany. Moving to -- sorry, as for the forecast, we are talking about a number that is north of EUR 30 million as for the contribution of the White Certificates into the guidance in the forecast for this year.

[Sara Piccinini, analyst]

Sorry, 32 right?

[Luca Bettonte, executive]

32, yes. Approximate 32, 33. Of course, based on the projections so far. But in our opinion, maybe that the price of the White Certificates of say 2018 should be a bit say higher than what we are forecasting today, but I usually don't want to change the way that we propose scenario by running the company in the current year. But any case, I think that this number could be a bit higher. That because I said yesterday in the -- I told yesterday in the press release that, I am quite confident with this [ EUR 475 million ] EBITDA at year-end. But going back to your second question. Auctioning first in Germany. The price that we are looking at. We are -- that's coming out from this auction are in line with our expectation and with our capability to say be competitive there. Maybe that you have mentioned something about the offshore. Offshore is another business and so it's very difficult to compare with the onshore business. I shouldn't take care about the -- what is happening offshore indices.

And while looking at what is coming out in terms of initial prices will entry price for the auction and the price to the auction has been paid -- allocated, particularly you see in Germany, [ 52 plus 152 ]. Say [ 51 is EUR 2 ] per megawatt hour. So you multiply by the correctional factor, we are talking about more than EUR 65 per megawatt hour is not bad, it's good. In the end, France, you start EUR 7 per megawatt hour, so now we are waiting for the outcome. And say Italy, though we are just commenting just a potential say that of the new decree -- the entry point is EUR 7 per megawatt hour. So these are figures that are confirming that our strategy going forward is quite solid. Let me remind you, if I may, that we both Epuron, [ 15 ] say couple of weeks ago, 3 weeks ago, signing, I don't remember precisely in February maybe, so is in couple of months. And no later than say couple of weeks ago, Boralex did the same with Kallista. And in particular, what is very important from us is that E.ON by acquiring Vortex did the same transaction, following the same path forward as for the strategic way to growth in the country. So we are operating in. So it is confirming our strategy.

Moving to the repower, reblading. So the only -- so far the main important item stemming from the strategic national energy policy is has to do with the PPA. Of course, for the remaining portion of this venture, I mean the repowering and the reblading, we simply need to get the authorization to build the wind farms. We are not waiting for auction, so we are not waiting for incentives. We are simply waiting for the authorization and we have already got 1, very important, as for 13 megawatt out of 64 megawatt, talking about reblading. So we are ready to start to commencing the activity of building -- of substituting the blades on this wind farms. This is quite positive. We have already filed the authorization for some 66 megawatt as for the repowering. And this, let me say for the figures [indiscernible] 66 megawatt is going to become 164 megawatt once finalized. So, so far, so good. We are on track. We are submitting the authorization and say, despite overall regardless for the time being, the practical translation of the factual translation of the national strategic energy plan. And of course, what is quite important for us is going to be the PPA. So far, you know that, we have based our business plan simply on a margin prices. So but anyhow, what we see is the same positive to these specific investment. So we are confident that each translation is going to be positive for us. Everybody is looking for PPA, not just to say, bring home money, let me say. But mainly to stabilize on the medium and long-term run, the price signal, and something that everybody is pushing all across Europe. So in the end, I say that be positive. Please don't remember, sorry, don't forget that our business plan is based on time line that foresee a couple of years to simply to obtain authorization. So far, we are even better than on track and so, I am confident that we going to meet your and our's expectations.

[Operator]

The next question is from Roberto Letizia with Equita.

[Roberto Letizia, analyst]

I'm afraid, I have to remain on the guidance to be sure to understand the reason why you kept it at the same level. So you mentioned several things for which you're keeping the number, but the majority of those that you mentioned were already included and known at the time you presented the strategy plan or actually, it is changing the element of that actually changing versus that time are only positive because you were expecting the thermal contribution to go slightly down this year versus last year, but in the first quarter is actually up by 30%.

Your envisages recovery in spark spread now. Guess, I'm understanding the reservoir at full capacity with a very high contribution already in the first quarter. So hydro is going to stay higher. You are talking about decreasing prices, but actually the power prices in the second quarter at least in Italy are higher than last year. So actually, I was wondering if you are keeping the EUR 475 million, because it's normal that in the first quarter, you don't want to face the risk in the volatility of the natural resources for the rest of the year or because there are some negative elements that are worst that you were originally expecting in this strategy plan. And if this is the case, can you please tell us what is actually going worse than expected in March when you presented the strategy plan?

Then a confirmation, for example, that could be an element, but a confirmation that the second quarter is actually growing in line with budget for the hydro and the wind, which can support the view that maybe if the natural resources stays in line with budget at the end of the year, you can be much higher than the EUR 475 million.

[Luca Bettonte, executive]

Okay. Let me take some figures. Fine, so I understand that you are forcing me to change the guidance.

[Roberto Letizia, analyst]

No, just telling -- very difficult to see companies changing it in the first quarter. Just to understand, if it's the normal way or there's something that is going wrong versus [indiscernible].

[Luca Bettonte, executive]

I'm simply talking. No, say that, I can give you a general comment that is -- as usual, we try to be conservative for sure in the first -- after the first quarter. What you side, I agree with you. And you have mentioned then you have say -- reminded me all the negative items that we are including in the forecast. For sure, there is some positive items and that you have already underlined. Let me, first of all, tell you that there is no any negative surprise coming because as you have asked me, I can confirm you there is no problem that way. But the only comment I have is that -- for sure, prices, if we look at the forward curves, are quite higher than what you have put in our forecast. And we are working on them, for sure it's going to be an upside going forward. But any case, there are some volatility because they suddenly increase over the last couple of weeks, there is some say too noise globally speaking, if you look at the oil prices going up and up and the forward curve is also quite say, super. Someone told me yesterday, someone of that business, the previous business we had that the oil prices seen at [ EUR 80, EUR 85 per barrel -- $80, $85 ] per barrels going forward. And so it may explain also this trend in the forward curve.

So you have had a quite sudden increase in the value of the CO2 and also an increase in the cost of the natural gas. Everything is pushing towards higher prices than what we have put in our forecast. Anyhow, we want to keep having this forecast, because we don't want to change the way that we predict our forecast, because it's in line and consistent with what we've done in the past than doing now on a normal course of business. But for sure, the upside also are by far larger than the downside having that in the EUR 475 million EBITDA at year-end. This is the way that it was, this is how we are trying to be conservative for sure at the beginning of the year.

Talking about what is happening today, for sure, things are going well. April is again well above budget, thanks to the contribution of the hydro. Thermal is in line with our expectation. Wind is a bit lower and so we are forecasting at year-end and the contribution of solar is pretty in line with budget. So the only thing, I'll tell you is that the wind production in April was quite low. On the other side, the hydro production was very, very, very high. So in the end, we are conservative, prices of hydro plants are quite higher than what we have put in our forecast, also it should be a positive outcome at year-end. And the initial indication for the second quarter is quite positive. But anyhow, I don't change the forecast for the time being. Okay.

[Operator]

The next question is from Roberto Ranieri with Banca IMI.

[Roberto Ranieri, analyst]

Two quick questions, please. The first one is on debt. Could you please -- just a clarification for the future, could you please remind us the covenant on net debt and if the contribution on net debt from solar is a non-recourse project financing. In that case, is that debt to be accounted on this covenant? My second question is on thermal power production in Sicily. Do you see any impact from a potential cable from Tunisia to Italy. And as a question -- as just an outlook on M&A in Italy and abroad, do you see from -- do you see any exit strategy from the financial funds or do you see any increasing competition on the M&A on the infrastructure?

[Paolo Merli, executive]

Hi, Roberto. I'll try to answer your [ two-four ] questions about the debt. The covenant is 4x EBITDA, so we are well, well below this ratio. And yes for sure, the solar project financing as well as the leasing, so all the debt acquired from the solar acquisition is included in this calculation.

[Luca Bettonte, executive]

Right. As for the thermal, the cable to Tunisia, I think maybe that we are not worried about that. Say that -- no comments about, no forecast, no say anyhow. Let me tell you how much time we should need to create such a cable, but anyhow, thanks for the question. We are going to investigate but for the time being, I don't see any problem about that. In terms of M&A, say exit from funds as usual as to doing, my opinion will be naturally expiry of their investment they started in the past, talking about the initial venture in renewables and it has to do with this -- so the -- how old are the plants they are running, vis-a-vis the repowering possibility both in Italy and abroad. So you see that funds are exiting when they are approaching the natural expiry period and when they see that the asset are going to get older and older. Maybe that a good example is from our acquisition of Epuron because we bought it from Impax Asset Management and they exited simply because the reason I just mentioned to you and because of the pipeline associated with the or including in their investment they sold. They are no longer, let me tell you, in the position to exploit it, because they don't have the investment capabilities that we have. And that because we bought Epuron that because E.ON was able to buy Vortex and this is the new strategy that we already shared with you a couple of months ago. So this being deployed in reality.

[Roberto Ranieri, analyst]

So basically, can we see this exit strategy from the financial funds as an additional opportunities and as an upside on your M&A target from the business plan or not?

[Luca Bettonte, executive]

I'll say, as a trend, there is nothing upside. It was already included. If you go back to our business plan, we said that as for the M&A is something that should support the organic growth and that's what has been done by acquiring Epuron. Maybe if there is an acceleration in that direction for sure. But what is important to understand that how much is the amount of -- let me put that way, how much is the amount of megawatts already in operation and that are still eligible to receive incentives out of the total amount of megawatts that say a potential financial investor he puts on sale. In case of Epuron the -- or also in case of Vortex, I see that the amount of megawatt pipeline was by far larger than amount of megawatts in operation sold by the seller. That's the point. While on the other hand, if you say, take the transaction, maybe what has been done by Boralex, the amount of pipeline was as far as I know, lower than the amount of the megawatt still eligible to receive incentives. So this composition is important to understand first the way that the fund is exiting and second, it's going to be the buyers or the potential buyers of these kind of assets.

[Operator]

There are no more questions registered at this time.

[Luca Bettonte, executive]

Okay. So thanks a lot, everybody, for being with us and speak to you during the next webcast for the result of half year. Thanks. Bye.

[Paolo Merli, executive]

Bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.