ERG SpA

MIL:ERG

Earnings Call Transcript 2019-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG First Quarter 2019 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 '19 results. As usual, here with me is the CFO, Paolo Merli.

Let's start on Chart #4 when -- where you see the highlights of this first quarter '19. But I'd say still growing results despite of a very dry quarter. Let me give you a general overview about the business environment in this first quarter, while Paolo later will take you deeper through the figures.

Starting from energy prices. They underpin our results. They were higher than last year in all the countries where we have operating capacity, and also the clean spark spread and the thermal generation was higher. So the performance of this sector was negative affected by lower price for White Certificate.

As for production, all in all, it gave us a positive contribution as it was higher in wind, both in Italy and abroad and higher in solar, also on a like-for-like basis, while it dropped in hydro, as per the mentioned very dry season that let me say began in the last quarter of 2018.

But, however, in this context, as for energy certificate it's worth underlying a larger perimeter of megawatts installed. Let me remind you that in wind, we had 39 megawatts of larger capacity in France related to 3 new wind factories. While in solar, we run additional 51 megawatts from the latest acquisition named Andromeda.

This element associated with no megawatts went out from incentivized mechanism in this quarter, allowed us to achieve relevant growth in wind and solar and to post an equivalent result in thermal generation. It is hard to offset the very weak results in hydro, while the lower water availability further reduced the capacity of the plant to modulate as it was last year. All in all, EBITDA was the net EUR 164 million, EUR 2 million higher than last year.

As for the net profit, we posted a slightly low result, EUR 54 million versus EUR 56 million in the first quarter of '18, mainly due to higher depreciation for the latest acquired solar plant, while financial charges were in line with previous year despite the larger average gross indebtedness. The result was also negatively affected by abrogation of ACE tax allowances on the reinvested profit in 2019.

In the end, net financial position at EUR 1.5 billion grew some EUR 171 million as a result of the investments made in the period mainly for the acquisition of the solar plant.

Let me drink a bit of water. So flipping the page. On Chart #5, a recap of our recent development. We have enhanced our technological diversification by acquiring some 51 megawatts of high quality solar panel. We've increased our installed capacity in France to 360 megawatts by acquiring 52 megawatts in wind. We pursue our growth in the U.K. with the authorization to build further 25 megawatts in Northern Ireland. So the overall secured capacity in the range of 75%, as for the business plan in that specific country.

And last but not least, the issue -- the issuance of our first Green Bond of EUR 500 million, within the EMTN Programme, investment grade rating. I'm going to tell you something more in the next chart. So as a conclusion, let me say that ERG has more than 3,000 megawatts of installed capacity in Europe. So keep growing.

In the next page, just a couple of words about our first issuance, our first Green Bond. It is a 6-year fixed rate bond, amount EUR 500 million to be precise. This is in the Luxembourg Stock Exchange. The yield is quite effective, let's say, is at 1.933%, with a green bond issued rating assigned by Fitch BBB- investment grade. What I'd like to say is that requests exceeded 6x the amount offered, and we're talking about more than EUR 3 billion. And the bond was successfully distributed across Europe. With a significant ESG component among the investor. Easy to remember, but let me anyhow say the strategic rationale. Proceeds are used to refinance wind and solar investments and to prepay the big Maestrale project financing in compliance with the requirements of the business plan.

And its underlined evolution of the group financial structure from the project financing to a more adequate corporate financing structure. And it's a proof of the high confidence of investors on ERG reliability and execution capabilities and the recognition of the strong orientation of our business model towards the sustainable development.

On my side, this is all. For the time being now, I will hand you over to Paolo.

[Paolo Merli, executive]

Thanks, Luca. Good morning, everybody. So let's get started by commenting on the price scenario over the fourth quarter a little bit in more detail. I'm on Page #8. Let's start here commenting the power demand in Italy, the top left on the chart, then move anticlockwise. So demand in Italy was down 1% year-on-year. The quarter was characterized by lower water availability offset by rising contribution of wind, solar and thermal generation.

Looking at our asset, they didn't make any exception to this trend, hydro production in the quarter declined significantly year-on-year, minus 36%, even worse, I'd say, the national level due to a particularly dry season where the power plant is located, as opposed to the exceptionally wet season we saw last year. On the positive side, wind conditions were positive, with productions up 10% in Italy and 8% over the border. Our solar production benefited from the consolidation of the newly acquired assets together with rising solar availability.

Again, our thermal generation in line with the national trend shows that 23% rise in production, thanks to favorable trading condition in thermal generation in Sicily so much better than the trend seen in the mainland.

Prices, still a very solid environment with PUN. The national average price at EUR 59 per megawatt hour plus 10% on a year-on-year basis. So price is, your main take away that prices are starting to reflect the rising CO2 cost.

Price indicator for renewable, which includes also the feed-in premium was EUR 152 per megawatt hour, down -- slightly down year-on-year as the lower incentives made it up for the higher merchant price and this is quite like motif through our results.

Price in Sicily kept trading at the premium versus the national prices even though in line, more or less, with the value seen last year. Our CCGT clean spark spread was significantly up year-on-year from 2 to 4, even though the numbers in absolute terms are not that high. The spark spread again started reflecting in the prices you'll see that, the higher cost for CO2.

Abroad, say, here in the graph at the bottom right of the chart, you can see the average reference selling prices for all our productions across the countries where we operate. Here, it's worth noticing the significant upward trend in prices in Eastern Europe, in particular in Poland, with Origin Certificates, price is up very, very much year-on-year. In Romania as well, we enjoyed a significantly better merchant price. So it seems that those countries started rewarding more renewable.

Let's now comment, I'm going to page -- I'm on Page #9, commenting the economics for the group in a nutshell. EBITDA was EUR 164 million, so slightly up -- 1% up year-on-year driven by the following main effects. So significantly higher wind productions, both in Italy and abroad. The scope effect was slightly negative as the contribution from new capacity in France, about a couple of million euro, was more or less -- or even more than compensated by the exit of Brockaghboy wind farm in Northern Ireland, which I remind you was sold in March 2018, thus contributing to the first quarter of last year. Contribution of solar assets more than doubled, thanks to the acquisition of Andromeda, consolidated as of January 1, 2019, in a backdrop of better sun availability in the period.

Hydro, I've already commented, was driven down by consistently lower volumes. And the CCGT, last but not least, only slightly down as higher volumes, higher spark spreads, lower fixed cost, were unfortunately, say, more than offset -- slightly more than offset by lower revenues from White Certificate, fully linked to price effects. But I'll tell you a little bit more in details, but here, I think, it's important to pass to you the following takeaway that the price scenario effect was basically neutral as the higher merchant prices, which affected positively all our technologies were more or less compensated by the lower price of incentives in Italy. So it's a matter of volumes more than prices, the performance we are commenting right now.

Let's now then comment on each business segment, starting from wind. I'm on Page #10. EBITDA in the period was EUR 115 million, 8% on average year-on-year, mainly as a result of stronger production everywhere. So in Italy and abroad.

As said, the -- we enjoyed higher megawatts installed in France, but these effects, from an economic point of view, were -- was wiped out by the absence of the contribution from Brockaghboy Windfarm in Northern Ireland.

A few more details on production, just excluding the Brockaghboy effect, which is anyway reported in this chart, you can appreciate that increase of the productions abroad would have been 15%. So keep growing where we want to grow.

Let's now comment on solar results. I'm on Page #11. The results includes, for the first time since January 1, 2019, the 51 megawatts following the successful acquisition of Andromeda portfolio, with 2 solar plants located in Montalto di Castro, near Viterbo in Central Italy. You can see the production was more than doubled compared to last year's, partly 16 gigawatt deriving from the newly acquired asset, while the remaining is related simply to a better performance because of the higher sun availability.

As a matter of fact, the load factor for the entire portfolio was 15% against less than 11% last year. But let me also underline that the higher unitary revenues, which were about EUR 327 per megawatt hour in this quarter compared to EUR 289 last year, this is because the new asset, the assets we have acquired, enjoy an even stronger incentive scheme. So the mix of higher productions and higher selling prices ended up with an EBITDA of EUR 13 million in the quarter compared to EUR 5 million in Q1 2018. And let me also remind you about solar seasonality, with Q1 and Q4 usually the weakest in the year and Q2 and Q3, the strongest. So that's just to say that the best is yet to come, at least according to statistics.

Hydro results, I am on Page #12. EBITDA was EUR 23 million, so quite important drop, 34% year-on-year driven by the lower production, down 36%. Yes. We have been particularly unlucky because the rains in the area where our plants were located, as already commented, were very, very poor, if no -- nothing.

So first comment is that it was a tough comparison as Q1 '18 benefited from exceptionally strong conditions. So we knew it and it was already factored into our budget, but frankly speaking, the period turned out to be much weaker than we could expect. Unitary revenues even for the hydro operation were higher, EUR 108 per megawatt hour. This already includes the incentives against EUR 94, which mainly reflects the fact that for sure, the better merchant prices only partly offset by the lower incentive, add incentives insist on just 40% of the production, but undoubtedly, with lower volumes, we were able to modulate more and then enjoy a better pricing.

Vice versa, with lower available water in our reservoirs the revenues associated to the secondary dispatch market, the so-called, hence the [ para ] Italy [ lower ] then in the previous -- in the period last year.

Finally, let me add as a relevant information that our water reservoirs at the end of the quarter were lower compared to the same period last year, but higher than the situation we had at the end of December 2018. So in other words, the current level of our lakes falls just in the middle between the very high level seen at the end of the quarter last year and the very low level seen at the end of 2018. So recovering right now. Hopefully, it's raining in our area.

Let's now comment on Page #13, EBITDA for the CCGT. EBITDA in Q1 was 19 -- was sorry, EUR 18 million -- EUR 17 million, sorry, minus 5% year-on-year, so slightly down. This performance, I've already said, is driven by 3 factors, positives: higher volumes, both electricity and steam; and as a consequence of higher steam production, we also generated more White Certificates, higher clean spark spreads, which started reflecting the higher CO2 cost, and lower fixed cost.

But these positive effects, unfortunately, were compensated by the lower contribution from White Certificates and MSD. Let me remind you that in Q1 '18, we benefited by more than EUR 3 million from the write-up of the entire stock of White Certificates, including those generated in 2017 at a price of nearly EUR 290 per certificate, then it followed the measure taken by the authority capping the prices at EUR 250, which is the current price at which we are accounting our White Certificates. So a huge difference, which explains the slightly downward trend of our performance in the period. The effect, that will disappear in the forthcoming quarters.

Investments, I'm now on Page #14. We invested quite consistent amount of money, EUR 233 million, mostly related EUR 220 million to the acquisition of Andromeda's 51 solar plants, while EUR 10 million were invested in wind developments, EUR 8 million in Germany where we have almost completed or practically completed construction of Linda wind farm, 22 megawatts, which should be up and running by the end of June. While the remaining CapEx was spent for preliminary activity for powering and reblading in Italy. So EUR 3 million is the amount spent for maintenance across all our technology. So in the end, still significant investments, consistent with our business plan though lower than in Q1 2018 when we accounted the CapEx for the ForVei acquisition.

So let's now move on financials. I will comment on profit and loss. I'm on Page #16. Let me here remind you that these figures are shown on an adjusted basis so without including the effects of IFRS 16. Anyway, these effects are clearly reported in our Q1 profit and loss statements. We did these adjustments basically for 2 reasons. First of all, to provide you with a consistent set of numbers with our business plan and our like-for-like comparison on a year-on-year basis. But second, because we believe this way provides you with the most accurate measure for our profit and loss and balance sheet results, reflecting our real cash flows.

So then this premise, let me comment on it. I've already said about EBITDA. So going down higher depreciation mainly reflects the consolidation of the new solar plants as of January 1 and the new wind capacity in France, less the exit of depreciation associated to Brockaghboy.

Net financial expenses. So you can see that notwithstanding the higher net financial debt during the quarter, the net financial charges were more or less in line, actually are slightly lower as the higher mid long-term debt were -- was associated to a lower cost of debt associated to all the actions taken. In the meanwhile, we have communicated, I hope clearly to you, in the recent months.

Taxes. Tax rate in the quarter was 27% against 26%, mainly -- so slightly up, mainly reflecting the abolition of the tax breaks known as ACE, a couple of million euro was the impact associated to it. Minority, say, are not significant in the period, but I just want to remind you that they refer to the 21.5% stake in Andromeda, and by our partner in the venture. As a result of all these, adjusted net profit was EUR 54 million in the quarter versus EUR 56 million in Q1 2018 as the higher EBITDA was more than absorbed at bottom line by higher depreciation and tax.

Let's now take a look at the cash flow statement, which is the metric we care most about. I'm on Page #17. Net financial debt closed at EUR 1,514 billion, up by EUR 171 million year-on-year, with a leverage of 44% versus 42% at the end of Q1 '18. This increase is mainly related to the huge amount of investments, the negative working capital trend -- I'll tell you a little bit more about it later on. Financial charges already commented, which all together, all that Luca say, the gross cash generation, which is in line more or less with our adjusted EBITDA.

So I think the items here are quite self-explanatory. So let me just elaborate a little bit more on net working capital, which very much reflects the seasonality of the cash, especially with regards to incentives in wind and hydro in Italy. Seasonally higher during Q1 in terms of generation, but they are settled in terms of cash with 6 months' delay, then creating this absorption in terms of cash or in terms of working capital during Q1, while this effect should reverse by the end of the year as it is embedded in our full year guidance for net financial position. Luca will tell you a little bit more on that.

I hope I have touched on all the key items, so I will now hand you over to Luca for his final remarks.

[Luca Bettonte, executive]

Gracias, Paulo. Now it's time to talk about the guidance. Starting from this quarter, the results of this quarter. We have reviewed our projection for the months to come, in order to factor in at best both the energy prices and the production estimates. In this respect, as for the energy prices, perhaps having the forward cost and the latest experts' estimates. Overall, we see energy prices a bit lower than previously expecting in the months to come.

While due to the lack of available water and the progressive inclusion on our CO2 growing costs into the final energy prices, we see in Italy a better clean spark spread going forward. No change, of course, for the value of the greens incentives that I remind you is lower than last year.

Looking at the production, depending on higher production in wind and solar, thanks also to the larger perimeter, while we have further reduced the power generated from hydro, assuming it should be a so-called dry year. The lower water availability in hydro, along with a larger request for steam by our Sicilian customers that will lead to a lower income from modulation, but a larger one from White Certificates.

Based on that and as usual, after having concluded that, unfortunately, a bad actual April with wind generation lower than budgeted we could say, no news good news in a sense that we see no reason to change the year-end guidance for EBITDA, we gave you a couple of months ago that we confirm. As for CapEx, we are on track to achieve our targets, having already made more than 65% of the projected investment if we consider the middle point of the reported range. So also in this case, no change.

And in the end, also for the net financial position, based on the above, we see no reason to change the proposed figures. So for the time being, that's all folks. And so ready to take your questions.

[Operator]

[Operator Instructions] The first question is from Roberto Letizia with Equita SIM.

[Roberto Letizia, analyst]

I have a few. The first one is very easy. I would like you to confirm that the IFRS 16 impact on the full year base is going to be around EUR 8 million on EBITDA and around EUR 65 million on debt, positive on EBITDA and negative on debt, of course. I would like to better understand. You mentioned something of the second quarter, you mentioned a weak April with regards to wind. Was asking myself if you can provide some indication also on hydro on April and May. We saw lots of rain falls here in these weeks. I was wondering if you're observing a recovery of the hydro production, particularly in May.

Can you please provide an update on the possible approval and the final implementation of the decree on the future incentive for renewables in the next 3 years? The decree is under discussion on the European Union. I was wondering if there is an update on the possible implementation of it.

And I was wondering if you are going to expect additional M&A deal to be done this year to observe capacity acquisition and if the guidance provided on the full year eventually include potential additional perimeter expansion by the mean of external acquisition.

[Luca Bettonte, executive]

Right, I guess that being a number of...

[Paolo Merli, executive]

Yes, the first -- as regards the first question about IFRS 16, yes, I confirm, Roberto, that the impact expected on a full year basis on the EBITDA is in the region of EUR 8 million positive. And on debt is in the region of EUR 60 million. But notwithstanding that, we still believe the best representation we can provide to the market is the one excluding these effects because we want to represent numbers very much related to our real cash flow. That's the point.

[Luca Bettonte, executive]

Okay. Fine. As for the remaining questions, say, productions, April went bad in a sense that productions were lower in the hydro business, easy to be understood. At the same time, had lower production than expected as for the wind generation in Italy. While abroad, we kept growing in terms of power generation for the wind sector. So nothing new, sir. That was what we had already experienced in the first quarter. As for May, situation is a bit transient. So the production is still below expected as for the hydro plant, but it's narrowing the, say, the budget forecast. So wait and see what's going to happen next days as for the climate and the weather forecast. That should be better on our side, of course, not for tourists.

[Paolo Merli, executive]

Anyway, the guidance is fully including the April actual results. So we anyway expect better recovery in the forthcoming months in line with the guidance we gave in the beginning of the year.

[Luca Bettonte, executive]

Yes. While for -- on the wind side, production is online with budget, so it should be -- we hope we are recovering off in the hydro sector. But for the time being, it was what Paolo already mentioned, so that April is included in our forecast.

[Paolo Merli, executive]

Also because please consider that in the second half of the year, the comparison year-on-year should become easier for us because the hydro contribution in 2018 in the second half of the year was weaker than in the first half. And don't forget the seasonality of solar. Solar is going to give the most contribution in Q2 and Q3.

As for the remaining, I guess that we are waiting, as you are, the issuance of this decree. Maybe that the guys in charge for the exercise are, say, looking after something different in -- as for the European election coming. But say, we are awaiting the decree. Our business plan is not based on the new installed capacity anyhow in Italy. So wait and see. Anyhow, no news about any acceleration or if there's an issuance of this decree in the coming months. So no information to give you about that. But for confirming that, we keep on investing in our business plan. Execution is going properly.

And let me tell you that as for the reblading in Avigliano, we have, say, refurbished 16 out of 20 towers, and the field -- the factory should be -- the refurbishment should be finished by the end of this month. So we are quite, quite happy. The 16 turbines already in operation are performing even better than expected. And maybe that -- a field trip also with you on -- is quite interesting for everybody because it's a quarter of big improvement.

As for M&A, as usual, we keep working on M&A on a daily basis. And as usual, we didn't put any, say, number, any figure into the forecast as for the potential M&A.

[Roberto Letizia, analyst]

So you say -- sorry to ask back on this. I know it's difficult for you to provide details on the M&A, but just I was looking on the sense on the probability, let's say. So how do you feel the probability of you to close additional deal, which may contribute into 2019 results?

[Luca Bettonte, executive]

You may say -- let me bring forth the message. First, no. In our forecast, there's no M&A transaction included. Second, look at our, say, recent history. Let's say go back the last 5 years, and you see that the likelihood that we do something is quite high.

[Roberto Letizia, analyst]

Yes, just a very quick follow-up. I was wondering if there is any regulatory or potential regulatory update or change on the possibility of being recognized for the repowering under the incentive schemes.

[Luca Bettonte, executive]

Incentive schemes? No, I don't think so. Of course, incentive schemes anyhow no longer exist. We...

[Roberto Letizia, analyst]

I mean the tenders where's it's no longer -- it does -- it exists in terms of visibility, not in terms of economical contribution. But if you get a fixed price on a tender based at market price that's an incentives in the form of the fixed price, not economical incentive.

[Luca Bettonte, executive]

Yes, right. We are working with the authorities and with the regulator in order to, say, identify whether or not it's possible to reopen the possibility for a repowered plant to take part of the offshore, for sure.

But let me go back on our theory. First of all, we are investing much in various costs based on our analysis. It's worth doing such an exercise because of the very high return, because we have a specific and peculiar advantage that the best site in terms of wind availability and the weakest and the -- technology to be, say, change that into. For sure anyhow, to have the possibility to take part in the auction is quite important, not let's say upside in terms of return, upside in terms of, say, visibility in the medium-term of the revenue streams.

Although let me tell you, frankly speaking, that though I've got the possibility -- I had the possibility to take part with the auction, I will make an in-depth analysis. So whether or not to use all my -- or to bring all my repowered plants through an auction process because their return based on our analysis from a merchant standpoint is very, very interesting.

Anyhow, we are working with the regulator because I think that for the -- also for the entire nation, for Italy, there's a lot of opportunities to ask for a repowering. But if you are not a quite well, let's say, prepared and with large shoulders as, say, an operator like ERG, so for most of the smaller operator, it's going to be quite difficult to try to repower their fleet without having quite solid medium- and long-term price signals. That's the point. So we could take advantage of that, and I think the regulator is becoming more and more aware about this, say, concept. You may see everything in public speeches that you can take part of. And that's all for the time being.

[Operator]

Next question is from Roberto Ranieri with Banca IMI.

[Roberto Ranieri, analyst]

Two questions only for me. Just clarification on figures. Could you please give us the contribution of dispatching services and -- in this quarter and the comparison with the last quarter and what you expect also on a full year basis, just to understand if this condition -- you said that the condition, the poor condition, business condition led to a lower MSD contribution. Just to understand if there could be a recovery of it and this -- and if this recovery would be in line with your budget?

And my second question is on photovoltaic load factor. And in particular, so basically load factor is increasing thanks to Andromeda in your assets there. So I understand that the load factor is very solid. And could you give us the average full year expected load factor, I would say, for Andromeda and as an average for all the photovoltaic installed capacity?

[Paolo Merli, executive]

Okay. Roberto, about the MSD, yes, I confirm the contribution in the first quarter of the year was well below our expectation though was compensated by either other positive items as the outcome was anyway positive and above our budget.

The reason why the contribution of the MSD, so the secondary dispatch market, was lower is related to some specific condition of the market in Sicily. And as regard the hydro asset, linked to, say, to the fact that the reservoirs are so low that you can't use the water with the flexibility you will be asked for in case you participate into this kind of market.

But again, let me say and repeat that all these factors have already been included in our full year guidance. So it means that there are other factors. So in the bottom line is that the resilience of the portfolio -- of an integrated portfolio is providing with some up and down, but in the end, the expectation for the full year is exactly in line with our previous guidance.

The second question, so I tried to remember by heart, but I would say that Andromeda is going to have a load factor in the region of 1,700 hours per year. And ForVei, which is the first 80 megawatts -- 89 megawatts in 2018 and which is not based on a tracking technology, has got 1,400 hours.

So all in all, that's the reason why we will be able to double more or less the contribution in 2018 for 2 reasons. One is the one related to the load factor, the higher load factor, but as I reminded in my speech about the prices, because the incentive scheme of Andromeda is at EUR 30 or more at premium compared to ForVei based on the Conto Energia those plants are enjoying. Have I addressed your question?

[Roberto Ranieri, analyst]

Yes.

[Operator]

The next question is from Sara Piccinini with Mediobanca.

[Sara Piccinini, analyst]

I have some. Starting from the guidance, I understand that maybe it's early to predict weather conditions, but just to understand the moving parts and if you can correct me if I'm wrong. So basically, in the first quarter was very dry. But -- so just the hydro was below budget, while wind production currently has been higher. And then proceeding into April and May, hydro continues to be weak, while also wind has been weak as I understood. So going forward, can we say that the expectation of meeting the guidance maybe could be helped also by the level of prices? Or maybe wind in the first quarter was better and so you believe now it matches your budget for -- until May -- April, May? Just to understand the moving parts, any indication is very appreciated.

And the second question is on PPAs. If you are still working on finding PPAs in Italy, what do you think about the market, why Italy is behind other countries like Spain in terms of signing PPAs? And if you -- I know that in the past, you declined it, but if you maybe consider to buy some clients in the supply market to integrate your offer and hedge your volumes.

And final question, if you see a downward trend in the prices of White Certificates and if you can quantify the -- how much is your expectation of EBITDA from White Certificates in '19.

[Luca Bettonte, executive]

All right. Okay. Your analysis as for the first quarter is correct. As for April, as I've said, hydro performed worse than expected. And also, wind but just in Italy was a bit lower than expected. May is in line or either did better than budget where wind is performing very well in Italy and abroad, while hydro is still below budget. But based on the weather forecast, there are going to be some, let's say, recovery going forward.

As for the entire guidance, I'll say that we made an analysis in order to understand or to tell ourselves whether or not there's going to be a so-called dry year this year. And we formulate in our, say, forecast internally based on that assumption. So let's say that it could also be seen as a conservative exercise, but anyhow, based on the information relating to the last 30 years of production, we thought that it was better to be a bit conservative than we had at the beginning on the year when we was, as usual, to make a forecast of the hydro production. The average last 10 -- the production average in today -- the average production of the last 10 years have never -- they are on the budget.

So as for the production, in the other sectors, good for solar, Paolo already commented, and good for wind also based on the larger perimeter. While from a price scenario standpoint, we have a bit lowered our projection going forward because on looking forward in this business and having a so short horizon, I mean, going to be 9 months. Forward curves are something that we look at quite deeply, let's say. And that we use as a proxy for our, say, projection. We had a specific situation because we are in Italy. So we are in Italy, so we are, particularly in Sicily and South, and we have our hedging policy, so which we have already achieved most of third generation and at quite good prices in 2019.

So there's a lot of, say, items there to be combined in order to understand our guidance. But anyhow, we are quite confident to, say, land in between the range that we gave.

[Paolo Merli, executive]

Maybe it could help to understand why we still expect the same numbers notwithstanding the weaker hydro. I would say that first quarter was -- though in line with the consensus, was higher than our budget. So we had a little bit upside in the first quarter, and consider the M&A contribution is going to be weaker than expected in our previous guidance because the money we expected to spend were a little bit anticipated a few months higher than before was expected in the plant. So all in all, we can compensate the lower numbers. For hydro also, the spark spreads are better than what we expected in our previous guidance. So the portfolio is compensated segment with others.

[Luca Bettonte, executive]

Yes. As for PPAs, a long story to tell. Because in Italy, we aren't [ delayed ] from participating. Spain is doing something, which is a bit different because they have a counterpart that is representing many by the, say, authorities. And so we do work in that -- I mean we have had a long-term discussion with the regulator about that, about what we are trying to do. Plus, I speak, I think, as I've just told in many occasions that it's going to be a good tool to do something so to stabilize prices. But if you take, for instance, the whole sector or the entire nation, I mean looking at Italy, to introduce some automation in creating a base through which -- or a mechanism or a tool as for which put together supply and demand in order to identify a standard agreement that works for many years in a market like the energy market, where you don't have any, say, signal as for the energy price longer than 2 years, it's quite difficult.

Anyhow, we are -- we have, say, PPA. Because when you're talking PPA, you're talking about something that you are selling power to someone else with, say, the refinery with Versalis or with other, say, big customers. They are quite complicated agreements, and we are working on them and providing, say, the Italian cities with our power and the like. But in general terms, I think that there's a lot of work still to be done by the regulator, and I'm not sure that based on the composition of the supply and composition of the demand, actors and operators, I mean it's going to be quite difficult to identify the simple standard mechanism for which to identify the way to sign on the long-term basis the PPA.

On our side, no. We are not -- I'm not sure that I got -- I understood your question because you asked me whether or not we are going to, say, buy some customer supply in order to, say, enter the retail market is not the case for us. We made an analysis. It's not something, which is of our interest and...

[Paolo Merli, executive]

No. Maybe I think maybe there was a fourth question about the phaseout of incentives. So just to again remind you that the big phaseout in our business plan was already done in the previous years, so we are not expecting any further significant impact, say, during the period plan. There are some megawatts, but we are talking some tens of megawatts phasing out between 2019 and 2022.

[Sara Piccinini, analyst]

Sorry. The last question was just on White Certificates. Maybe I was -- I said were green certificates. White.

[Luca Bettonte, executive]

Right. Let's say with, as usual, the ongoing production and the production we had also last year. So we generated some 100,000 certificates. And so time EUR 250 per certificate is EUR 25 million EBITDA. Maybe that this year based on specific request from our customer, it could improve and could enlarge with either a larger production and is not going to be an upside. But for the time being, please take this figure, 1,000 -- EUR 100,000 times EUR 250 is EUR 25 million EBITDA is the contribution from the White Certificates.

[Operator]

Our next question is from Emanuele Oggioni with Banca Akros.

[Emanuele Oggioni, analyst]

Yes, I have one. The first one is on thermal generation as regards the spark spread, which is a trend in Q2 and also your guidance for the full year. Then if you could give us an update on the repowering authorization process, as you mentioned in the last conference call, that you are expecting the green light before the summer. And the third one is on the cost of gross debt, the guidance for the full year.

[Luca Bettonte, executive]

Right. As for the -- right for the -- right. Spark spread, if we look at what is the projection as for the base load clean spark spread that you spread that we can have on the market is in the range of, say -- is something more than EUR 10 per megawatt. This is for the market. As for the repowering -- I'm talking about our projections.

As for the repowering authorization process, yes, so we are waiting for the green light from the -- via Commission that should -- that we are waiting to get it by the end of this month anyhow, or the next month and here before summer. So now, I don't have any news. We're working on that. Say no news, good news, as I have said. And does not have a significant update about that but that we are pursuing our goal. Last one is going to be because of debt, you say?

[Emanuele Oggioni, analyst]

What?

[Paolo Merli, executive]

Cost of debt. Sorry. The question was related to the cost of...

[Emanuele Oggioni, analyst]

Yes, the question was with respect in thermal's improvement on the cost of debt that you have.

[Paolo Merli, executive]

Yes. This is a good question because after the issuance of the green bond, we have already closed the 2 largest project finance we had in our portfolio. The one related to the assets we are going to repower. So the one both from [ ERG ] and the project finance associated to the CCGT. So more than EUR 500 million, which will translate in a much lower cost of gross debt in the months to come. And even compared to our budget, we are expecting very important saving in terms of financial charges in the second, in the third and in the fourth quarter of 2019 of this year. To be more clear, the cost of debt in terms of percentage will move well below 3%.

[Emanuele Oggioni, analyst]

Below 3%?

[Paolo Merli, executive]

Yes, the gross debt will be below 3%. It's already below 3% right now.

[Operator]

Mr. Bettonte, there are no more questions registered at this time.

[Luca Bettonte, executive]

Okay. Thanks a lot, everybody, and speak to you next time for the first half results.

[Paolo Merli, executive]

Thank you.

[Luca Bettonte, executive]

Bye-bye.

[Paolo Merli, executive]

Have a good day. Bye.