ERG SpA

MIL:ERG

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG First Quarter 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Paolo Merli, Chief Executive Officer of ERG. Please go ahead, sir.

[Paolo Merli, executive]

Good morning, everyone, and welcome to our first quarter results presentation. Here with me, as usual, is our CFO, Michele Pedemonte, who will run you through our business performance over the period in more detail later on.

So let's get started with the overview of results. I'm on Page #4, in line with last year's numbers are based on continuing operations, excluding CCGT from the scope and figures are presented gross of clawback measures and windfall taxes as those items are accounted for as nonrecurring being extraordinary and temporary measures.

Throughout the presentation, anyway, we will provide detailed disclosure of those measures. In a nutshell, I would say results were solid, once again in line with our budget and mainly driven by larger installed capacity that allowed us to almost fully offset the sharp reduction in capture prices, also reflecting the zeroing of the green incentive in Italy, given the formula its pricing is based on.

EBITDA EUR 167 million, broadly in line year-on-year as the larger store capacity, partly through M&A and partly through organic growth contributed by roughly around EUR 25 million. This amount positive, say, contribution was basically completely offset by lower capture sales price minus EUR 20 million and lower wind availability, in general, but let me say, in particular, in U.K. Solar, in the period, showed a rising volumes to battery radiation. So all in all, we can say that those results, even though in line with last year, we think a proof of the resilience of our portfolio in this extremely volatile business environment.

I'd like also to say that in this quarter, more than 50% of EBITDA came from outside the border. Clawbacks during the period were EUR 7 million against EUR 3 million in Q1 2022. Adjusted for those items, EBITDA net of clawbacks was EUR 161 million in Q1 '23 against EUR 165 million in Q1 '22. You will find those numbers, I mean, net of clawback in the footnotes in this chart. So you have all the numbers, net and gross.

CapEx in the period amounted to EUR 66 million, lower than the same period of last year as Q1 '22 included EUR 96 million from M&A in Spain. CapEx over the period was mainly related to the advancements for assets under construction, both repowering and greenfield projects. Adjusted net profit was EUR 84 million in line year-on-year, reflecting the operating results and lower financial charges. Bottom line, the impact from extraordinary measures was EUR 5 million in Q1 '23 against EUR 17 million in Q1 '22. Because I remind you that on top of the clawback measures, Q1 '22 as the remaining quarters of last year were hit by some windfall taxes in particular, in Italy.

Net of these items, net profit in Q1 '23 was [ EUR 78 million ] against EUR 67 million in Q1 '22, showing this is good news, reduced intensity from these measures, which we hope are going to phase out completely soon, given the strong correction and reduction in gas prices.

Again, you'll find all these numbers in foot notes. Net financial position at year-end was EUR 1.2 billion, significantly down compared to EUR 1.4 billion at the end of last year because mainly the strong cash flow generated by the company over the period, on top of the reversal, I've been mentioned, say, over the last few webcasts, given the delivery of derivatives that absorbed the last year mark-to-mark -- negative mark-to-mark.

Let's move now to Page #5. I'd like to give you a quick update on our main achievements during the quarter. Say, in general, the message is, we are moving forward with our strategy and in particular, with the expansion of our RES portfolio in Europe. As far as organic growth, we started up our Creag Riabhach wind farm in Scotland, 92 megawatts. As far as M&A, we made an important step in our diversification in solar in Spain with the recent acquisition of 149 megawatts under construction, all details will follow.

In terms of our financing strategy, we are very satisfied with the investment-grade rating just confirmed by picture, which is a recognition of our business model and solidity of our financial structure, which remains a distinctive feature in the space of new renewable players. Year-to-date, we signed a refinancing of EUR 330 million at very, very competitive market conditions as EUR 250 million were pre-hedged in 2019 at almost zero risk free rate. Therefore, with an all-in cost, which is pretty in line with our current cost of debt slightly above 1%.

As far as PPA, we are moving forward consistently with our route-to-market strategy. We signed an important PPA with Luxottica for 900 gigawatt hour related to our [indiscernible] powering project. It's going to be the first entering in operation. In fact, is now under its commissioning phase after the wind turbine selection was completed. We also amended the PPA with the team, the telecom -- the Italian telecom champion to extend early volumes by 200 gigawatt hour and improving economic conditions for the entire volumes in excess of 0.5 terawatt hour.

Our ESG path is continuing to be successful with important recognition on all the pillars of our strategy. We have been confirmed in the Bloomberg Gender Equality index with an improved scoring as the proof of our commitment to fostering women's leadership in our organization. Sustainalytics improved our rating from medium to low risk as regards our governance model. ERG has been included in the Global 100 most sustainable company in the world by Corporate Knights in recognition of the ESG strategy fully embedded in our business model.

Say, despite equity markets have switched to a negative move say, towards renewables we are still moving on successfully and consistently with our strategic path.

Let me give you a little bit more color on the recent acquisition in Spain, the Garnacha solar power plant as a total installed capacity of 149 megawatts in a very advanced stage of construction in terms of size, it's going to be the largest [ portable type ] farm in the group's renewable portfolio. I'd also like to highlight the quality of the assets that are equipped with best-in-class panels, trackers and inverters with a load factor of 22%, which means almost 2,000 hours per year.

As regards to the route to market, the assets come with a 12-year PPA with Google that covers 70% of production. More importantly, with this acquisition, ERG consolidates its industrial presence in Spain, with a total installed capacity of 266 megawatts and over 1 gigawatt of pipeline under development. We can now move to Phase 2 of our development in the country with greater focus on organic growth. Now over to Michele for his review on Q1 results.

[Michele Pedemonte, executive]

Let's start with an overview of the unitary revenues of the period. In Q1, electricity market prices have been lower than previous year. This trend influences our all-in unitary revenues, which are also affected by the hedge made in the past or by other revenue component. In Wind, Italy, for example, unitary revenues are influenced by the value of the incentives, which is [indiscernible] in 2023 and lower by EUR 43-megawatt hour versus previous year. While on the market, we quote a price in line with the previous year, thanks to our hedging policy.

All in all, we have a decline in unitary revenues from EUR 124 megawatt hour to EUR 116 megawatt hour. In France, there are majority of our assets operating under fixed scheme without exposure to market prices. The increase in unitary revenues is mainly related to increase in [ fees ] according to inflation and to some limited hedging activities.

In Germany, the one-way tariff structure coupled with some short-term hedging allow us to capture higher prices than previous year. East Europe unit revenues decreased in Q1, mainly in Romania and Bulgaria. Since Q4 2022, Romanian government introduced obligation for our brands to sell electricity to a PPA at a capped price, roughly EUR 90-megawatt hour, in order to reduce the impact of high energy prices in the [ account ].

In U.K., the decrease in all-in unitary revenues, minus EUR 111-megawatt hour is related to the PPA prices, which are lower than the spot market price captured in the first months of operation of our Northern Ireland assets in Q1 '22. As regard the solar all-in unitary revenues, we see a value increase in Italy, thanks to the new assets at merchant prices versus the previous year completely at fixed prices. In Spain, where our assets have a tariff mechanism that operates as a floor to our revenues, all-in price reflects the lower [ mark ] scenario.

Finally, please note that consistently with the previous year results, our figures are presented gross clawback measures implemented by various European governments and accounted as nonrecurring items also in 2023.

And now a focus on production. We are at Page 9. In Italy, 784 gigawatt hour, plus 11% year-on-year, thanks to wind and solar assets acquired in 2022, 116 gigawatt hour, partly offset by lower wind condition and worse radiation. In France, 396 gigawatt hour, plus 23%, thanks to better wind condition and 21-gigawatt hour coming from new perimeter. In Germany, 203 gigawatt hour minus 2%, compared to a particularly higher production in Q1 '23.

In Eastern Europe, volumes higher than Q1 '22 plus 10%, thanks to asset entering operation in 2022 in Poland, 41 gigawatt hour, partly offset by lower in condition, wind condition especially in Bulgaria and Romania. U.K. and Nordics, we have 132 gigawatt hour. Thanks to the asset energized by the end of 2022 and early 2023 in Scotland and Sweden, partly offset by lower wind condition with respect of our Northern Ireland assets.

Production at our Furuby wind farm in Sweden was lower than expected mainly due to a slowdown in commissioning and ramp-up phase during which the manufacturer recorded some technical issues. The wind turbine manufacturer, Siemens Gamesa is currently conducting a full root cause analysis. This is a new platform, one of the most powerful in the onshore wind industry at this moment. Additional testing and fine-tuning of the installed machines is normal during the ramp-up process of the new platforms.

In Spain, we have 35 gigawatt hour plus 30%, thanks to better weather condition with respect to last year. Q1 production reached 1.8 terawatt hour, mainly due to new assets acquired during internal development in Italy and abroad and lower wind productions in Italy and Eastern Europe. In the first quarter of the year, we have an overall EBITDA equal to EUR 167 million, in line with Q1 '22, thanks to EUR 25 million coming from perimeter effect, which is compensated by lower price scenario and lower volumes, in particularly Italy and East Europe.

In Italy, the EBITDA is EUR 82 million, in line with previous year, thanks to the perimeter effect compensated mainly by the lower value of the incentive, which is [indiscernible] in this quarter. In France, the EBITDA is EUR 29 million, benefited from better wind conditions compared to extremely poor production last year.

In Germany, the EBITDA is EUR 28 million, plus 10%, thanks to higher prices captured through our hedging policy. In Eastern Europe, EBITDA is EUR 23 million lower than Q1 '22, mainly due to lower sales price and lower volumes, partly offset by perimeter effect in Poland. In U.K. & Nordics, the EBITDA is lower than Q1 '22, minus EUR 4 million, mainly due to PPA at a lower price than previous year market scenario, partially offset by the perimeter effect, plus EUR 7 million.

In Spain, EBITDA is EUR 4 million, in line with Q1 '22, thanks to higher production compensated by lower capture price.

At the end, a stable EBITDA in comparison to previous year in a scenario of strong decrease of market prices, thanks to our revenue securitization strategy into the growth of the installed base. I'm on Page 11, and now I will give you a brief overview of investments in the period.

We invested EUR 66 million, an amount which is lower than the one invested in Q1 '22, which was affected by the acquisition of solar plants in Spain. About EUR 63 million are related to organic CapEx in wind, referred to construction activities, mainly in U.K., France and Sweden and includes EUR 36 million of CapEx in Italy for the wind projects currently in construction in Sicily.

Let's now move on to financials, commenting on profit and loss on a recurring basis. We have higher depreciation, which reflects the contribution of new assets, net of the life extension of our Italian wind assets. Net financial charges are EUR 3 million versus EUR 6 million in Q1 '22, mainly influenced by the increased liquidity remuneration in a scenario of interest rate increase with the debt structure almost completely at fixed rate.

Tax rate in the quarter was 22%, in line with previous year. As a result of all this, the adjusted results on continued operation of the quarter amount to EUR 84 million, in line with previous year. Our CCGT is consolidated in the discontinued items. Net results of minus EUR 6 million includes depreciation of EUR 5 million and an EBITDA at breakeven impacted by an extremely negative market scenario for gas generation margins and further worsened by government measures for maximizing power production not from natural gas. Those negative effects are expected to be mitigated from April 2023. Results are also negatively influenced by a machine on time at the beginning of the year that now has been sold.

On Page 14, you can find a summary of the clawback measures that we accounted as nonrecurring items in the quarter. The impact on EBITDA can be summarized as follows: In Italy and France, we have EUR 3 million. In East Europe, clawback is EUR 4 million, and they refer mainly to Poland and Bulgaria. In Romania, the government set a compulsive PPA mechanism at the cap price, which has the same substantial effect of clawback measure. These measures have an impact of net profit for EUR 5 million. Comparing net profit and net of clawback, we see a substantial increase versus Q1 '22.

It was easily affected by the first version of the Italian windfall tax. As already commented during the last webcast, we do believe that these measures are unfair, unjustified, and ungrounded. For this reason, ERG has taken all required actions in order to protect its interest in all countries where it operates, including by challenging the relevant regulation before the competent courts.

Finally, let's take a look at the cash flow statement and the net financial position for Q1 '23.

The net financial debt closed at EUR 1.2 billion, EUR 228 million lower than the end of 2022 driven by a solid cash generation from EBITDA and the net capital positive movement for EUR 100 million, mainly linked to the timing effects from hedging operations done in the period. These impacts are netted by the already commented in investment of the period of EUR 66 million. The net financial position at the end of the quarter includes EUR 40 million due to the domestic market of derivatives and commodities. I think I've touched all the relevant items. Thank you for your attention. I will now hand over to Paolo.

[Paolo Merli, executive]

Thanks, Michele. Before going through guidance for 2023, let me take a look with you at ERG's deliver in terms of RES portfolio growth vis-a-vis the target we set in our business plan. As you can see from this chart, through a combination of M&A and organic, we expect to add a further 369 megawatts by year-end, which is bang in line with the trajectory of the business plan. If that turns out to be the case, it means we will have increased our RES capacity by more than 1.2 gigawatts in 3 years' time from 2021 to 2023. So an average of 400 megawatts per year, which means an increase of about 60% compared to the end of 2020, when we strategically decided for the asset rotation either in Thermo and oriented our efforts towards a pure wind and solar model, being those as our view, the dominant technologies going forward.

And this growth will continue to be a driver of our results. So let's see now, and I'm concluding by giving a detailed guidance for 2023. EBITDA is confirmed in the range of EUR 500-550 million. Let me point out that 2023 guidance is net of clawbacks. CapEx range is moving up from EUR 400-500 million range to EUR 500-600 million range to include the recent acquisition in Spain for EUR 170 million, partly compensated by the fact that some M&A CapEx was already included in our 2023 initial guidance.

Net financial position is expected now in the range of EUR 1.4 billion, EUR 1.5 billion compared to the previous EUR 1.3 billion, EUR 1.4 billion as a consequence of the same reason, the revised CapEx. So thank you very much for listening, and we are now ready to take your questions.

[Operator]

[Operator Instructions] The first question comes from Enrico Bartoli of Mediobanca.

[Bartoli Enrico, analyst]

Actually, I have a few. First of all, a general question on your comments all about the fact that the market is not really much in love with the renewables. And I was wondering if you can update on your view on the sustainability of the returns from your investments and maybe some comment on actually what the market is maybe wrong in appreciating in the share prices of the sector and on ERG in particular. .

Second question is regarding Spain. You completed this important acquisition in the past days. Also here, I'm interested in your view on the Spanish market because there is a lot of discussion whether actually, the prices for solar assets are going to be sustainable going forward, considering the capacity additions in this market. And actually, Spain is going to be a big driver of your growth over the next year, [ like the ] 1 gigawatts of pipeline under development.

The third one is related to PPAs in Italy. You signed this large contracts recently with Luxottica and TIM. If you can provide some color on the environment for PPAs in Italy and the impression that actually demand has continued to grow and some comments also on the pricing environment. And the last one is an update on the hedging in terms of volumes and prices for this year, considering the evolution of power prices in the past few months. Sorry for the many questions.

[Paolo Merli, executive]

I'll try to follow the order of your questions. The first was about our view on the current business environment, including the regulatory. Let me say -- and vis-a-vis, say, the performance of the renewable as an asset class in the equity markets, not say our view is that there are three main factors right now that are putting a little bit of uncertainty on the sector.

And the first is, for sure, the regulatory because the big mess that has been created with this clawback windfall taxes, say, extraordinary measures have increased quite significantly the perception of the regulatory risk. On this respect, my personal view is that sooner or later, and I hope soon, Europe will realize that the energy transition can go on just if the environment for investors stabilizes. And I know the European Commission is working on giving a guidance to the member states, whether to extend or not the clawback measures and I think this should be quite important message. And my personal expectation is that they have realized the impact they have done with this measure, and they will stop them at the natural phase of -- phaseout date, which, in general, is 30 June of this year, even though some member states such like France have already extended the measure till the end of the year. But let's say, I expect 2023 to be the last year with this kind of measure and then back to normal or, say, back to market. .

The other reasons -- the other two factors, in my opinion, underpinning this poor performance of the sector, not of ERG, of the sector, is also the interest rates that are keep moving on up. But from this point of view, let me say, we are in a quite ideal situation because we have EUR 2 billion of gross debt, which has a cost of 1 point something, less than 1.5%. And only fund raising we needed in the short term was already done in these first months of the year at a very super competitive conditions basically in line with the cost of our debt. That was made possible because we pre-hedged mostly this amount in a time where interest rates were basically 0.

So this provides the company with a very strong financial power. And the next, say, fundraising based on the business plan should be in 2025. So let's see. But my personal expectation is the interest rates should be reached or have already reached a peak probably in 2023, and I expect to cool off a little bit. And the third element is the volatility of the gas price. So last summer, it touched EUR 340 per megawatt hour. And right now, it's EUR 35 per megawatt hour. So the volatility is really extreme. In fact, we are glad to confirm the guidance and to have posted our results in Q1 that are basically in line or even slightly better than our budget. And then the number was embedded in our guidance. This is the third element.

And again, I expect the market will find a balance soon and probably, we expect the energy prices anyway to remain in the range of EUR 100, not go back to EUR 50 or EUR 60 as they used to be before the green inflation, the war and everything went on in the world. So that's our view.

About Spain, for sure, the elements you underlined, the penetration of renewables in the market is one of the elements that has been taken when deciding the investments and when deciding the strategy for the country as a whole, but we still believe the area. So Spain is a quite interesting area for photovoltaic investments given the huge presence of the resource.

Let's take our recent acquisition, the plant has got roughly 2,000 hours per year, almost 2,000 hours per year, which is usually a load factor, you can see for wind, not for solar. Consider also that our strategy is -- the strategy for route to market is always based on PPA. And we have quite clear evidence that the PPA market is still hot. I think one of your questions was about PPA. We have signed two PPAs with Italian entities: Luxottica and TIM which was an extension of the previous PPA, but the company proved to be able to process PPAs also outside Italy. We made it in France, in U.K. And we are working also -- or we will be working after closing of this operation, which is already provided with a PPA to further secure the remaining part of the revenues, which are floating because the PPA with Google covers roughly 70%.

Looking forward, I think -- we think this acquisition should move our attention about M&A in other countries in the sense that with this acquisition, we reached a size -- we will reach a size of roughly 300 megawatts and the next installation, the next move should be more focused on organic growth.

From this respect, we are working on several projects, which are in our pipeline are quite large-scale photovoltaic projects, maybe with a time to market of a few years, but still very, very, very promising. I don't know, Enrico, if I touched all -- the hedging, if I might say, as you can see from our net financial position, the mark-to-market of derivatives is quite low in the sense that we -- the reversal, we said last year, was already partly -- mostly realized in the first quarter. We still have some hedging as regards to 2023, not very much on 2024 because we -- our strategy is progressively moving from this kind of hedging to physical hedging provided by PPA.

[Bartoli Enrico, analyst]

Sorry, just some detail on the hedging in terms of pricing. Can you give some info where actually your average price is going to be in '23 compared to '22?

[Paolo Merli, executive]

So the price -- the hedging price for 2023 on average is above EUR 100 per megawatt hour because it's a mixture of the hedging done, say, a few years ago when prices were lower and the ones executed last year. So all in all, I think, value of this hedging is quite satisfactory.

[Operator]

The next question is from Roberto Letizia of Equita.

[Roberto Letizia, analyst]

The first one is on the guidance. And I would like you to explain us what -- which conditions may allow you to realize the high -- the top of the range, so the EUR 550 million EBITDA so what it has to occur to reach that level? And how do you think the potential elimination of the price cap in the second half may affect this, so if this is actually related to this element. A follow-up on the hedging, meaning that you said we are pretty much close to the hedging because the impact is now 0. You said that a few things have remained on the hedging side. Does that mean that if the cap is removed in second half, you make get upside effectively on power prices because you no longer have a hedge on production?

I would like to have an update on the total process of the CCGT, if possible, how negotiations are evolving? And I have a quick follow-up, sorry, if I go back to the previous question on the risk of having very low price, especially in the Spanish market. I was wondering if you can provide a few details of how the PPA are being done but -- not full but just a sense to understand if those contracts, for example, provides you a floor to the energy prices because I guess that they have a profile which follows the market, I guess. But I'm wondering if it gives you a floor -- if you can provide any sense of what kind of floor is embedded in those countries to let and understand how are you protecting against the risk of 0 prices, for example? And how much do you think in the midterm, you will still be open to market pricing, especially in Spain?

[Paolo Merli, executive]

So Roberto, again, I tried to follow the order of your questions. The first is about the guidance and I proceeded through the lines that -- how confident we are about this guidance and what are the assumption the guidance is based on. Say, the necessary premise is that the price scenario is extremely volatile as it has never been our forecast and, therefore, guidance is based on the most recent forward curves, which are lower than the ones our initial guidance was based on. The fact that we are confirming the full year guidance, which is positive in itself is because Q1 was slightly better than our budget. And going forward, throughout the year, we expect results to be supported by several factors, among which our revenue structure, which is mainly based on long-term contracts and fixed price tariffs as the PPA, we recently signed got starting date from 2023 -- 1st January 2023, even though we announced them later on.

The second point, which is maybe the most important is the strong contribution we expect from new assets, the ones that have already entered into our operation, into our portfolio, and they are already up and running, but also the ones that are going to start production during the course of the year. And I mentioned during my speech that one of them, the first repower in the Partinico-Monreale wind farm is in these days, energizing start production. So the deployment of our investments, as I presented during the webcast is on track, and we expect this contribution.

And last but not least, I would say, a very, very big attention, great attention of the group on fixed cost, which maybe could be lower than what was envisaged in our guidance. So all in all, these three elements are suggesting us absolutely a forecast that is in line with our previous budget. But to reach the cap of the range depends on several factors, but the most important one is the price scenario. The gas price is so volatile, and we can't rule out that the gas price will reverse the last month's trend going up again during the summer when hot should play a major role in the supply-demand balance.

So the scenario, let me say, is the most important driver and also the availability of wind and solar because the presence of wind can change the game very, very easily. So down but also up. So those are, I would say, the main elements. As regards the clawbacks, really difficult to predict the evolution of the regulation. For sure, it's quite evident from -- also from public statements from EU representatives that they are very well aware of the damage they have created with these measures. So we expect these measures to progressively phase out from our landscape. Say, during the last webcast, the previous webcast, I said, those measures were going to have an effect of the tune of EUR 100 million, now is much less because the price scenario went down. You see in the quarter, just EUR 7 million. So you can simply try to figure out how much could be for the full year, but surely less than half of what we expected just a few months ago.

Yes, in our guidance, we are expecting all the measures. We are a little bit cautious from this point of view to stay on for the full year. So if they will be canceled in the second part of the year when it's natural because the natural expiring data for most of these norms is 30 June 2023. Yes, for sure, we should have a little upside, let me say.

You asked also for the CCGT, okay. You've seen the results were very poor during the quarter, start from year and even though I know that the question is more oriented to the sale process, but let me elaborate a little bit on the results of the first quarter for the plan. So we deem that the poor results over the quarter were due to a couple of extraordinary factors. The first and most impactful is an extraordinary weaker business environment with clean sparse spreads, particularly in the area where the plant operates under strong pressure and this is mostly related to the [indiscernible], it is a program that has been approved by the government last summer and still in place based on which oil, fuel and coal plants can run at full speed to reduce gas consumption. This program is resulting in an oversupply that is pushing margins down. This program was expected to finish at the end of March 2023, but was recently extended till 30 September of this year.

The economic impact from lower price scenario least looking simply the comparison with the price scenario we had last year was EUR 5 million, EUR 6 million during the quarter, so quite a huge impact for the plant. The good news is that although extended, this program has been significantly reduced in intensity. As a matter of fact, the nearby fuel oil plant, which is impacting our economics, the most has been stopped in February 1. And as a consequence April, I can say, went better. Looking forward, we can't rule out the possibility that this fuel oil plant that will be activated again between now and September, if necessary. But the program looking forward will definitely come to an end and eventually -- because it's encounter, let me say, with the energy transition target simply is polluting plant. After that, we expect CCGT profitability to come back to norm. This is an external factor, but it's quite clear impact.

The second line is a more company-specific because during the quarter, at the very, very beginning of the year, we had a downtime of 400 voltage cable on transformer connecting the module 1 with the grid. This failure resulted in 1.5 month shutdown for the module 1, which I remind you is 1 of the 2 [ trains ] benefiting from white certificates under the [ car ] regime, the high-efficiency cogeneration regime. This downtime has an impact of roughly EUR 3 million -- EUR 4 million on the reported EBITDA over the period, so the first quarter. The failure has now been repaired and the plant has been fully up and running since March. So if you -- I like you to do it, but if you adjust the zero EBITDA of the quarter for these two main effects, you can see the normalized EBITDA is pretty in line with historical, say, profitability of the plant.

So when it comes to the sales process, I just say that it's moving forward, the objective absolutely remains to complete the disposal by year-end. The fact that is of refinery has found a new owner as publicly announced last week, gives more visibility and stability to the pretty all of industrial side as a whole. And therefore, we are confident to deliver on our objective, I can say more than that.

At Spanish -- there was another question. So Spanish, the market and the PPA characteristics I'd say about the market, I've already said that we are quite well aware. We are on the market. We are aware of this item underlined by several analysts and by our organization itself, devoted to market analysis, that the penetration of solar in the market should have as a consequence, some hours with the penetration of solar in the market should have as a consequence, some hours with very low prices and so on. This has been factored in our valuation.

And yes, the PPA, I can't give very much detail because you know we have under confidentiality agreements, I say you said right. So the PPA provider for a kind of floor to the energy -- to the sale price. So that's providing a minimum return of the investment that is quite safe. Roberto, I hope to have answered it.

[Operator]

The next question is from Nash Cui of Barclays.

[Naisheng Cui, analyst]

I have three if that's okay. The first one is just to follow up on the CCGT asset disposal. Paolo, I think you mentioned earlier that you are very confident to get that down end of this year. May I ask, with introduced uncertainty around external oil and coal plants. Will you be able to achieve similar EV as you announced last year, around EUR 180 million. Is that still possible? And my second question, also on a comment you mentioned earlier regarding high power price volatilities. Just wonder if you can let us know, for the merchant exposure part of your portfolio, what is the realized power price discount you have seen across your business? And my third question is on strategic investors. So [ IFM ] Infrastructure Fund, I remember we purchased about 21% of ERT at about EUR 31 per share. Do you know what are their views on the current share price? Are they happy with the business strategy? Do they want anything to change? So those are my three questions.

[Paolo Merli, executive]

So about the CCGT, say, I can just say what I already said. We had a very extremely negative scenario, business environment for the first quarter for the reasons I hope I have explained well. Going forward, it's inevitable, let me say, it's inevitable that this optimization program will be ended in the next months because we can't continue to produce energy from coal and fuel oil, which is even more polluting than coal. So I'm quite confident that after that and the natural ending of this measure is September 30. But as I said, it has already been reduced quite significantly since April 1, I'm quite sure that the number you mentioned can be realized after that because the plant is super efficient. It's got PPA contracts in place till 2031 with the refinery, with other plants in sight.

So we are confident looking at 2023, we are not providing any guidance right now also because we are under the process of sale. But still, I repeat, we expect forthcoming months to be much better than the Q1, first, because we have solved the technical problem. And second, as I said, in April, we have seen already an improvement in the price scenario given the reduction of this optimization program.

About the exposure of the group to merchant. Say, we have in place kind of risk policies to cover roughly 80% of our production. If you take our portfolio, say, our production portfolio, you see we should have roughly 1 terawatt hour, which more or less is exposed to market while the remaining part is secured through tariffs, PPA or some hedging in place.

So the volatility of the price scenario is affecting or could affect just this portion of the portfolio. But consider the portfolio is very well diversified, is in France, is in Germany, Spain, Sweden, UK, Italy. So if you look at these former price this morning, you will realize that in France, the prices went up quite significantly over the last few weeks, maybe related to nuclear, I don't know, while in other countries are lower.

So the portfolio and the diversification of the portfolio as it had been in Q1 anyway, provides strong resilience, resilience of the revenues. So let me say like this. About [ IFM ] I can say I can't speak for them. I'm -- but they are present in our Board of Directors in our strategic committee, and they are super confident about the value of the group, also vis a vis what they paid for the entrance in the group. We are all together committed to move on, on our plan and maybe to do more than our plan. So we remain super positive. I said in my opinion, the market right now is not pricing well the sector, in general, in particular maybe itself because the results are solid. We increased the dividends, current prices. The dividend yield is almost 4%. We are keep generating cash flow. We are moving on, on our strategic path. So I'm confident, very confident about the future.

Maybe it's a moment with some factors that are coming together. And I already said what kind of factors we are talking about, the gas prices going down, regulatory uncertainty, interest rates, and those are the factors that are affecting, I think, the performance of the segment. But we expect the reversal hopefully, of all these three factors in 2023. Nash, I hope to have answered your questions.

[Operator]

The next question is from Emanuele Oggioni of Kepler Cheuvreux.

[Emanuele Oggioni, analyst]

I have only few clarifications. The first one is on the guidance. I'd just like to understand better because you mentioned that the end of clawback in H1 could leave upside in your guidance in your estimates. So just a clarification, if the guidance -- in your guidance, you have included clawback for -- only for H1 or full -- for the full year? This is the first question.

Second is to the further clarification on PPA pricing. Could you confirm about the pricing for PPAs have stabilized on a quite high -- for sure, higher price levels compared with historical average. So interesting levels, thanks to -- so thanks to this level, you could confirm or even increase the profitability of the IRR for your projects. So indeed, they are supportive more than the historical average for the profitability for IRR on your projects? Third question is on the cost inflation. I wonder if you -- do we expect to have seen the peak of the cost inflation. And so in the future -- for the future procurement the CapEx per megawatt will be lower compared to the expectation of a few months ago?

[Paolo Merli, executive]

Again, following the order of the questions. Guidance, yes, I confirm clawback are included in our guidance. So the guidance is net of clawback. And yes, I confirm in our guidance, clawback measure in any states of Europe are expected to last until the end of the year. So we are taking a cautious approach assuming that they will be extended till the end of the year, even though the hope is exactly the opposite.

About PPA, yes, I confirm the pricing of PPA remains much higher than the one we got used in the past of the tune of EUR 100 per megawatt hour. So it's around that figure even for duration of 10 years or something like that. So absolutely, this is one of the driver of the return -- is the most important driver of the return of renewable investments.

And it is right now capable -- or enough, let me say, to fully compensate offset the reduction of returns related to CapEx increase. About CapEx increase as expected in the plan is still going on, going up. Our projects or the current one that are under construction were more or less secured to also framework agreement. But going forward, the cost has progressively moved from EUR 1 million per megawatt hour for wind, let's say to 1.2, 1.3 probably 1.5 million per megawatt hour for wind, if you have to build a new projects right now. And difficult to say about the future for wind because without mentioning any names, but if you just look at the results, the economic results of the main OEM, they are under strong pressure. So I think they should have recovered marginality. So it's difficult to say that CapEx per megawatt in the wind industry will go down, probably the opposite, but I'm quite sure that in the end -- at the end, we should find that the sector should find a balance to make the supply chain as all sustainable.

And the solution is for us, either PPA or higher tariffs in the auctions. That should be the game changer. Some countries in Europe, like France and Germany have already increased the price for auctions moving from progressively from EUR 50 to EUR 75, EUR 80 and something like that. This should be the reduction -- the path and I expect these tariffs will -- should come to a level, should reach a level that is consistent with an overall investment case that provide the right return for this segment. So either PPA or tariffs should be the solution to let the sector growing going forward.

[Michele Pedemonte, executive]

Paolo, let me add my comment on solar, solar procurement on this [ second ] technology. On the contrary, we see some signs of reduction of the cost per megawatt in comparison to the expectation that we had some months ago when we were preparing the business plan. So we see really a sign of a reduction in price for solar finance. The industry is very different in the solar industry. We have much more competition among supplier, the structuring of the industry is completely different, and this is leading to some significant reduction in cost per megawatt. You know that we have a repowering project on our solar plants neatly, and we are experiencing some positive news on this side in the procurement activities of this project. So while on Wind the view is a bit more cautious; on solar, we see signs of open improvement.

[Operator]

The next question is from Davide Candela of Intesa Sanpaolo.

[Davide Candela, analyst]

I just have two. The first one is actually a follow-up on the supply chain and especially speaking about wind. I was wondering when -- if you can share your view on when you see a normalization of the supply chain from the logistics and also from the cost side is more a matter of the second part of this year? Or you are seeing better prospects on 2024.

And the second one is a more general question on the authorization procedures both in Italy and in Europe in general. If you can provide your view on how these are going if on my understanding in the Italy at least photovoltaic is lower than 1 megawatt is going quite good and better than the utility-scale project. So just a general view on the evolution of the authorization procedures?

[Paolo Merli, executive]

Say, starting from the last, the permitting remain harder for the sector, for renewables, in general, solar and both solar and wind. The time to market, so the time needed from scratch to install the capacity remains too long. In our opinion, they have done -- I mean, they -- all the member states have done some simplification to the permitting, but still they are discussing over the nature of overriding public interest of renewable. We should provide the power to governments to say, overtake the boundaries and the constraints put in some regions, from local authorities and so on.

But still, it's a jungle where we are capable of moving. I think we provide some visibility on that, given our growth over the last few years. And we are dealing with it, but still, we are not where we need to be, in my opinion. And I hope also this should be a point of acceleration in 2023 because Europe must accept their policy right now, they are not enough to reach the targets they set out for 2030.

About inflation, yes, I expect '23 should reach a peak because inflation in general should cool off and then interest rates should stop increasing and the same for the CapEx trajectory, but Michele maybe elaborate a little bit being responsible for procurement in the group.

[Michele Pedemonte, executive]

I would say that maybe it's a reasonable to suspect an improvement in the second half of the year, beginning of second half. In 2024, I see a couple of trends. First of all, we see that commodities are going down in respect to the peak, but what happens is that our -- the turbine manufacture some time has already added the commodity at price near to the peak. So before having the possibility to pass through the reduced commodity price to final customers, maybe they need some additional months. For the moment, we don't see in the first half of this year strong change in market.

Consider that our last order are inside our frame of agreement that's going to aspire in the next months. So at the end, we have some limited exposure to this trend. The second trend that I see that could cause a decrease in the technology is the increase of the size of the wind turbine. So if we have a possibility to install 4 megawatt, 5 megawatt 6 megawatts in turbine, for sure the cost per megawatt will decrease if there is a technological improvement that allow us to reduce the cost of our megawatt hours.

[Operator]

A final question is a follow-up from Roberto Letizia of Equita.

[Roberto Letizia, analyst]

Yes. Sorry, very quickly because we are now approaching June and I guess the view progressively will move on '24. So wondering if you can spend just a few words on how much visibility you have on capacity addition for '24?

[Paolo Merli, executive]

Say we have several projects that are currently under construction that are expected to enter in 2024. We have just concluded yesterday and the Board -- the investments related to 3 new projects; two in France, one in Northern Ireland. The two in France should enter in operations, say, probably late '23 or '24. But anyway, they are moving on.

And then we have other projects that have already entered into the construction phase, Mineo Militello Vizzini, which is a big wind farm in Italy, in Sicily, repowering projects. Megawatts -- gross of the megawatts that will be shut down from the whole plant is more than 100 megawatts. Then we have another project [indiscernible] that is larger than -- again, larger than 100 megawatts under construction. Right now, it's, again, another repowering project. I just try to remind, but let's say, the size of what we could expect in 2024 is very similar to the one we expect in 2023. On top of that, we keep seeking for the right opportunities in M&A, the one we expect in 2023. On top of that, we keep seeking for the right opportunities in M&A.

[Operator]

Okay. Mr. Merli, at this time, there are no more questions registered, sir.

[Paolo Merli, executive]

Okay. Thank you very much for the interest and attention, and see you soon with you on next webcast or maybe other events. Thank you very much. Have a good day.

[Operator]

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