ERG SpA

MIL:ERG

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG Third Quarter 2022 Results Conference Call. [Operator Instructions].

At this time, I would like to turn the conference over to Mr. Paolo Merli, CEO of ERG. Please go ahead, sir.

[Paolo Merli, executive]

Good afternoon, everybody, and welcome to our webcast for the third quarter results. Here with me is Michele, our CFO, who will take you through the results in more detail after my opening remarks. Let me start summarizing the key figures over the period. I'm on Page #4. Numbers here, I remind you, are based on continuing operations, excluding hydro and CCGT from the scope. In a nutshell, I'd say, again, a solid set of results in the third quarter, mainly driven by the larger installed capacity. But now let me focus on the 9 months. Later, Michele will dive deeper into the third quarter.

We posted an EBITDA of EUR 411 million, up 62% year-on-year, mainly as a result of the larger contribution from recently acquired assets in Italy, consolidated during the course of the third quarter, in particular, the 34 megawatts in solar as of the beginning of the quarter and the 172 wind assets as of August 1. And all the other assets outside Italy that progressively entered into operation over the last 12 months. So in the end, let me say this. The results benefitted from all the significant investments made in '21 and 2022.

Let me also underline that the stronger EBITDA year-on-year in Italy was almost entirely attributable to the new assets. So although there is a lot of talk about extra profits, in Italy the price scenario for us was slightly negative oxalis the reduction in the value of incentives was only partly offset by the higher merchant prices that I remind you, limited merchant prices are limited by the hedging policies. Internationally, the EBITDA growth, almost 3x year-on-year was significant and coming from the strong execution of our strategy to expand the asset portfolio beyond the board.

As a matter of fact, we continued to invest heavily with CapEx in excess of EUR 800 million in the first 9 months of the year, more than double compared to the same period in 2021, which was already strong. We continue to do so through a mix of organic and M&A, relying on the financial firepower of the group. So in the end, in 2022, so in the first 9 months, we invested roughly EUR 800 million, out of which EUR 600 million from M&A and in excess of EUR 200 million in our organic developments.

And I'm referring substantially to all the assets we are having under construction, some of them are already in full operation. Some other will come short in U.K., Poland, France, Sweden and Italy, both repowering and greenfield. Let me now comment bottom line net profit from continuing operation was EUR 174 million, more than double year-on-year, let me say, almost triple year-on-year, reflecting the stronger operating results but also lower financial charges.

Let me be clear, net profit here does not include the impact of windfall taxes and clawback measures effective in Italy and Romania for the time being, just those 2 countries and this is those kind of measures that amounted to a total of EUR 58 million in the 9 months. That figure in reality includes also EUR 4 million for the CCGT, out of which say, 45 million in Italy and 13 in Romania.

Given that those are temporary and extraordinary measures, we decided according to the principle and together with our statutory auditors to report them as nonrecurring items while providing full and detailed disclosure on our financial statements. Although it's not represented here, let me tell you that the CCGT generated an EBITDA of EUR 52 million in the 9 months of 2022, plus 80% year-on-year. So it compares to the EUR 29 million in the first 9 months of 2021.

Let me say that this increase partly is a significant portion is due also to the fact that the plant became eligible once again for white certificates as of the beginning of the year. Net financial position at the end of September was EUR 1.42 billion, significantly down compared to the EUR 2.5 billion at the end of '21. There have been many big items, say on the positive side, definitely the cash in from the disposal of the hydro asset to EUR 1.2 billion, EUR 1.3 billion almost.

The strong cash flow generated by the company over the first 9 months and on the cash-out side, we have the huge investments I already mentioned and the dividends paid that are the 2 main figures. But the last is -- underlined in the graph is the fact that the net financial position at the end of the period was inflated by roughly EUR 310 million. That's basically the negative mark-to-market related to the derivatives on energy prices given the huge wins in merchant prices registered in August and September. But let me say, this item is just a temporary debt and is expected to completely reverse in 2023 because all our futures are going to be delivered next year.

Let me now move on the next page, Page #5. To give you a quick update on our recent achievements, which I believe have been quite significant. We are moving forward with the expansion of our portfolio of renewable assets in Europe. And the third quarter was a good one as well. We completed during the quarter, the construction of the first 50 megawatts wind farm in Scotland, the first slot of Sandy Knowe project that allow us to reach an installed capacity in U.K. of 120 megawatts. And this amount is expected to double in the next 5, 6 months because the other 2 projects are completing the construction and expected to enter soon.

In U.K., we also acquired a fully permitted and very high-quality wind project in Northern Ireland, very close to all our other installation with a capacity of 47 megawatts and this will enter into our new business plan. In Poland, we commissioned our newly built wind farm at Laszki, 36 megawatts. We are very proud of this because despite a tough surrounding consider that this wind farm is very close to the Ukrainian board. We managed to complete it as expected. So now in Poland, we have 142 megawatt installed that's quite significant capacity.

Let me also say a quick comment on the CCGT disposal. As you know the antitrust authority didn't authorize the disposal to ENEL. Deniable, we were a little bit surprised by this decision as our plant is mainly supplying the Priolo site, so a captive market and not a merchant market. So we have a different view on this, but nevertheless, we look forward and we reiterate our objective to sell the plant as soon as possible. Our objective is to rearrange the process that we need to close the 2022 to have a sector of reference data.

And we will work to relaunch very early next year, the process and definitely to complete it, I think fingers crossed during 2023 or the first part of 2023. As far as ERG, we are continuing to receive important external recognition, Moody's included air in the top 2% of the world ranking. We also strengthened our ESG governance model, having published the policy against the Violence, Harassment and Bullying with a 0 tolerance approach in order to once again confirm our commitment towards an even more inclusive approach.

We also updated our sustainability policy, which is now incorporating a biodiversity policy in line with international principles. Last but not least, we strengthened our financial power while confirming our commitment to green financing. As a matter of fact in the last weeks in October, we signed an ESG revolving credit facility for EUR 600 million, which provides ERG with more flexibility to manage this very volatile business environment, but I would say even more will allow us to keep looking for growth opportunities in a cost-efficient way. We didn't require any public guarantees, like [indiscernible]. It was an opportunity and not a necessity.

Let's move on the chart. I like the most because provides you and ourselves with clear evidence on the execution of the growth. Please look at the chart, I think it's quite self-explanatory thanks to the significant investments made in the second part of '21 and in the first 9 months of 2022. We could count on a larger asset base in service during the 9 months, which in the end was the real reason behind the trend of our economic results. In the fourth quarter or the very beginning of 2023 because some projects are very near the end of the year, we expect to add a further 150 megawatts from wind farms currently under completion in the U.K. and Italy, which will start likely contributing to our results this year, but say they will be contributing at full speed in 2023.

I now hand you over to Michele for his review on results.

[Michele Pedemonte, executive]

Thanks, Paolo. And now let's have a look at our third quarter 2022 results at Page 8. Let's start with an overview of unitary revenue trend. The revenues per megawatt hour for wind were higher year-on-year in all countries where we operate, with the exception of Poland, where they slightly declined as the rise in electricity prices have been more than offset by the hedging main in line with our expose. In Italy, Unitary revenues rose in third quarter, thanks to the acquisition of new assets, while the assets already in the group quarter price is in line with previous year.

As the rise in electricity price has been offset by the hedging and by the 2022 value of the incentive, which declined from EUR 109 megawatt per hour to EUR 43 megawatt. In France, the large majority of our assets operate under a fixed scheme without exposure to market price. So unit revenues have limited the increase year-on-year. In Germany, the one-way tariff structure, coupled with some short-term hedging allow us to capture part of the peak merchant prices. As a regard of the solar all-in nit revenues, we see value increase in it, thanks to the acquisition of new assets.

In Spain, where our assets are a tariff making that operate as a flow to our revenues, the holding price is aligned with the overall merchant scenario and has been influenced in the last quarter by the regulatory framework update. Overall, a positive scenario, in particular, for our foreign countries. As a side note, we expect a negative impact recorded on our nonrecurring result with Italian clawback measure on the recent acquired solar assets of [indiscernible] 34 megawatt hour that captures nation prices. Finally, we noted also the fact of the Romanian clawback measures that caps to roughly EUR 90 per megawatt hour, the unit revenues of our 70-megawatt [indiscernible] wind farm are recorded as nonrecurring items. And now focus on production.

As regard to Q3, we are in Italy, 493-gigawatt hour, plus 80% year-on-year, 8% year-on-year, thanks to the consolidation of new wind and solar assets in Q3 plus 68 gigawatt-hour, coupled with better selling radiation, partly offset by lower in conditions. In France, 187 gigawatt-hour, thanks to 46 gigawatt-hour coming from new perimeter that more than compensated the weaker average production of the period in comparison to Q3 2021. In Germany, we have 82 gigawatt-hour, benefiting the perimeter effect for 17-gigawatt hours due to the acquisition made in 2021, 55 megawatts, partly offset by slightly lower wind volumes.

In Eastern Europe, wind volumes higher than Q3 2021, plus 28%, which will affect a better condition in Bulgaria and Romania. Higher volumes in Poland reflected the new capacity operation by the end of June plus 11-gigawatt hour. On top of that, we are the contribution to the portfolio of the assets building Northern Ireland in 2021 and acquired in Spain in January this year for a total of 88-gigawatt hours. In the first 9 months, production reached 3.6 terawatt hour, plus 700 terawatt hour, mainly due to the new assets acquired or internally developed Italy and abroad and higher wind production in test Europe.

In the third quarter of the year, we had an overall EBITDA equal to EUR 133 million, higher than Q3 '21, by EUR 58 million, of which EUR 44 million from perimeter effect. In Italy, the EBITDA was EUR 90 million, plus 42%, mainly due to the 2022 acquisition, EUR 22 million for wind and EUR 9 million from solar assets, partly offset by lower wind volumes on our asset base. In France, the EBITDA was EUR 7 million, benefiting the consolidation of the assets acquired in Q4 2021. The new assets contributed with EUR 3 million. In Germany, the EBITDA grew consistently in the quarter due to a better scenario which accounted for EUR 5 million and the perimeter effect of EUR 2 million.

In Eastern Europe, the EBITDA benefited mainly from better scenario, which resulted in EUR 11 million contribution, higher volume, plus EUR 6 million and a perimeter effect in Poland, plus EUR 2 million. The figures that do not include info tax in Romanian accounted as a nonrecurring item. It is worth mentioning that in Q3, 2022, U.K. and Spain has contributed to our results for EUR 6 million. In the first 9 months, EBITDA reached to EUR 411 million, EUR 157 million higher than previous year, of which about EUR 91 million comes from perimeter effect in Italy and the [ growth ]. Notwithstanding the last acquisition in Italy, the group EBITDA shows a significant increase of geographical diversification in 2022. More than 40% EBITDA comes from a diversified panel of European countries.

While in 2021, the foreign EBITDA was 125%. And now a brief overview of investments in the period. In 9 months '22, we invested more than EUR 800 million, an amount which is higher than the one invested in 9 months '21 2,350 million, which was strongly influenced by the M&A operations in France and Sweden. CapEx for the period are composed as follows: about EUR 610 million of M&A related to wind and solar acquisition in Italy, of which 172-megawatt wind and 34 megawatts of solar with closing took place in Q3 2022, a solar acquisition in Spain, 92 megawatts acquired in January this year. About EUR 194 million related to organic CapEx wind refer to construction activities, mainly in U.K., 70 million; Poland, France and Sweden. It also includes EUR 60 million of CapEx in Italy for the following projects of Camporeale, [indiscernible]; and the greenfield project of Roccapalumba in Sicily.

It's worth mentioning that the recently made an important step forward in our construction works with the commissioning of last in farm in Poland, 36 megawatts and the first part of [sending] now in farm in U.K. 50 megawatts. About EUR 12 million related to the revamping of store plants in Italy and finally, about EUR 7 million related to maintenance CapEx spread across all our funds. Let's now move on to financials, commenting on profit and loss on a recurring basis. We have higher depreciation, EUR 8 million, which reflects the contribution of the new assets, so a perimeter effect. Net financial charges at EUR 6 million versus EUR 7 million in Q3 2021, thanks to a lower cost of gross debt, mainly following the issuance of our turning bond in September '21.

Tax rate in the quarter was 26% against 24% in Q3 last year, mainly due to the lower impact from tax benefit at all on the higher EBITDA driven by higher EBITDA. Taxation in the quarter does not include the effect of under-taxes in Italy as they are accounted as nonrecurring items for EUR 40 million. As of January 2022, our CCGT is consolidated in the discontinued items. In Q3 this year, which recorded an EBITDA of EUR 32 million versus EUR 9 million in Q3 '21 and a net profit of EUR 17 million against EUR 2 million last year. The improved results of 2022 are also due to the contribution of the new 10-year period of white certificate following the 2021 refurbishment investments on the asset.

As a result of all of this, the adjusted net profit of the quarter amounts to EUR 64 million versus EUR 13 million in Q3 last year. If we look at the first 9 months of 2020, the adjusted net profit is vital to EUR 190 million, EUR 16 million higher than 9 months '21. Finally, let's take a look at the cash flow statement and the net financial position for the first 9 months of 2022. The net financial debt closed at EUR 1.5 billion, EUR 500 million lower than the end of 2021. Starting from the left, we have the [ catching ] from hydro disposal and deconsolidation of Thermo & Hydro, then the dividend paid in the period of EUR 136 million, our EBITDA is EUR 411 million investment made in the period of EUR 822 million. The change in working capital, financial charges and tax and other for EUR 174 million.

In this amount, we have different effects. We have a contribution of EUR 191 million of commodity derivatives, a positive contribution of EUR 79 million in terms of interest rates for fair value change and EUR 49 million of tax cash out. Finally, EUR 70 million of distribution of reserves coming from ERG Power. The net financial position includes EUR 310 million due to a marked market of derivatives and on commodities. This is a short term effect that will have a positive reversal during the last quarter of the year and in 2022. A final word on the closing on the closing in October of our first ESG linked EUR 600 million revolving trade facility. The line will have flexibility to our financial structure, and it will be able to support the potential acceleration of our growth strategy. Their CFO signed with a pool of international and Italian banks without the need of any public support or guarantees. I think that we have touched all the relevant items. Thank you for your attention. I will now hand over to Paolo for his final remarks.

[Paolo Merli, executive]

Thanks, Michele. Now guidance for the full year 2022. I'm on Page #16. We have revised the EBITDA range upward by EUR 35 million. Therefore, the new range is EUR 520 million, EUR 550 million, same midpoint at EUR 535 million. The upward revision, which is the fourth in a row basically reflects the quicker-than-expected deployment of a larger installed capacity. -- from both organic and M&A. Please consider that this guidance is based -- this is very important on our best understanding of the regulatory frameworks in each country where we operate. Particularly, I'm referring to the cloud, back and price cap measures that should be effective as of December 1, 2022, following the EU regulations, which was published last October 8 on top of those measures already effective.

Now please consider that all member states have the option to introduce more conservative measures. So we should gain more visibility on that in the weeks leading up to December 1. That point is clear, but if not, I think in the Q&A, we can address a little bit better at this point. We are confirming the CapEx guidance in the range of EUR 0.9 billion to EUR 1 billion as per the last webcast. As far as net financial position, we are lowering our guidance range by EUR 50 million, and this basically reflects the higher EBITDA and let me say, also a little bit lower contingency in our estimate given the limited time left until the end of the year.

Please note that the guidance, the debt guidance here and still includes about EUR 260 million, which is our best estimate related to the negative mark-to-market of derivatives, which, as you know, and I repeat it, it's a temporary debt that will reverse in 2023 with the rollout of hedging at their delivery time. I think I've touched everything.

So thank you very much for listening, and we are now ready to take your questions.

[Operator]

[Operator Instructions] The first question is from Enrico Bartoli with Mediobanca.

[Bartoli Enrico;Mediobanca;Equity Analyst, analyst]

Actually, 3 on my side. First of all, interesting in your view or recent developments in the industry, particularly in the current interest rate scenario. I was wondering if the additional cost of capital that the industry is facing, do you think we'll be able to be transferred in the final prices in the PPAs that we expect to sign over the coming quarters. And if eventually the new scenario will be also translated into higher prices in the auctions organized by the government and particularly refer to the Italian auctions where there is a cap, which is fixed. On top of this, if you can also update us on the situation of the cost in the industry, particularly on the CapEx and inflation that you are facing.

Second question is related to the guidance. You alluded in the press release that you expect the contribution from Italy to EBITDA at full year to be lower than 2021. This would imply a very significant reduction in the fourth quarter compared to last year, if you can provide some details on the reason for this and what you are expecting the evolution in Italy in the fourth quarter?

And the last one is related to some way also related to the interest rationality to the cost of debt. In your business plan, you have an assumption of 1.3% in terms of cost of debt. How can -- for what you can visit now, this assumption can be moved considering the current interest rational?

[Paolo Merli, executive]

Okay. I'll try to go through your question, Enrico, I hope, first of all, can well. So the first one was the outlook -- in terms of returns for the industry vis-a-vis the rising cost of capital and the evolution of pricing in the market, in particular, in the PPA and CFD options. But it's a big question, I think, a very complex one. I think this is for all the industry over the last, say, 15 months, more or less, we have seen an increase in interest rates.

These are free the risk-free, say, by 200 basis points, 2%, which is quite a significant amount, in particular for business that are valued on a discounted cash flow model, but we are, at the same time, experiencing very, very high merchant prices. And if you look at the screen for forward prices, they are well above 100% even in 4, 5, 6 years' time. And I can tell you that the -- what we are experiencing on the field when negotiating PPA is the major players of takers we are talking with are assuming a medium, long-term view with a very high price.

So the question is also how can you translate how much of the current merchant prices can be translated in the PPA. I would say today, for 10 years duration PPA, we are definitely looking at number above EUR 100 per megawatt hour, sometimes significantly above EUR 100 per megawatt now -- that's a clear view. The market is reflecting the fundamentals because it's not just regulation guys. There is a shortage of gas all around Europe. It's quite evident and there is an impossibility to switch overnight from the canceled North Stream 1 and 2 into new capacity. And the only very quick capacity to be deployed is the renewable one because there are a lot of talking about nuclear of fourth and fifth generation, but that would take 15, 20 years to be on the field.

The other part of your question was about the CFD if I got well. And this is the problem. So the government and the state members are acting not say as fast as they should be, they should do in order to create the right conditions for investors to deploy capital as quick as it would be needed by this very tough environment. But we have seen over the last few days, important signs from Europe.

The European Commission is now circulating a draft document that should be transformed into regulation soon in the next few weeks. And the aim of this document is to accelerate significantly the deployment of renewables through quite important simplification in the permitting. And in particular, they are talking about reducing and squeezing the timing for authorization within 1 year for greenfield and within 6 months for per hour. Let's see, there will be able to do it because in the end, all these good intentions have to face with the reality, the regional, the local -- the countries realities. But say, on paper, all the signs from this point of view are positive.

And if you want my view, my view is very clear. I don't see any other alternative solutions to these energy crisis, then the liquefied natural garden coming to Italy in order to offset that coming to Europe, sorry, to offset the lower flows from Russia and I would say, above all the deployment of renewable because all other solutions are just for - said for political reasons. But there is no time to deploy nuclear or nuclear capacity. That I suppose was an you also asked about the evolution of CapEx.

It is another issue for the industry, I would say, team for the industry because in the end, if the market works as it should work, sorry, we should expect everything to be reflected in the PPA prices or in the CFD auction prices, providing the right and fair return for this investment. But right now, the CapEx per megawatt for wind installation is moving up, that's at least according to our understanding of the industry, but the first player of wind in Italy and one among the first an in Europe is going up to -- in the region of EUR 1.5 million per megawatt, which is quite a significant increase compared to what we got used until 24 months ago in the area of 1, 1.2 or something like that. For the portable type for the solar, even worse because the cost of panels, the solution, all the equipment, please also consider that the incident of BOP and all the ancillary activity in the photovoltaic segment are bigger than in the wind where 80% or 75% is the turbine.

So in the solar, we are seeing even more this trend. And we have an idea just to say around the number in the region of 1 million per megawatt. We were used to see as that number until 24 months ago or 18 months ago. So I think I have addressed your question. The second one, yes, you are right, the price value in our midpoint EBITDA guidance is a little bit below what we posted in the fourth quarter of '21 with a larger installed capacity in '22. So the question is absolutely legitimate. Please, Enrico consider, first of all, that over the fourth quarter in 2021, we had exceptional really exceptional wind conditions.

So in the 9 months, were bad in 2021, but in November and December last year were amazing. So that's a point you should take into consideration in your analysis. In fourth quarter of '21, the prices, the energy prices were already very high, in particular, in December 2021, while in our forecast for 2022, we assumed the -- all these caps, they are talking about around Europe with state members that are issuing draft decree not fully consistent with 180 spotted and indicated by the European Commission, we are applying, as I said, our best understanding, France, for Germany and for the other countries. So it's a little bit, we are assuming caps in some states much more conservative than the 180. And we will see in a month for the time being, it's like this. Let's say, if the production will be in line with our budget, probably the midpoint guidance is a little bit conservative, but we are happy with it for the time being. -- the third quarter that I will leave our CFO to answer.

[Michele Pedemonte, executive]

Just a final additional comments on the last quarter. Remember that in comparison with last year, the incentive center was EUR 100 megawatt per hour. This year, it's EUR 43 megawatt per hour there also this element that explain the difference '21 against '22. Costco in the business line was 1.2%. For sure, when we did our side our fan business plan, we were in a different rate environment. So we should expect that the new leaders plan the projections will be [ bad ] on a higher cost of debt. But consider on the same time that at least for 2023 and 2025, we're pre-hedging in place that for EUR 500 million of notional protect us against the increase in interest rate. So effectively, we fixed a 0.3% roughly cost of debt on a 5-year standards. And this currently has a positive mark-to-market that we recorded in our 9-month statement and the financial balance sheet for an amount of [ EUR 50 ] million. So it's a protection of rate increase.

[Operator]

The next question is from Roberto Letizia from Equita.

[Roberto Letizia, analyst]

I would like to move the ball on '23 for whatever is possible to comment on next year, which is very interesting for the moving part. So I would like you to possibly sum up the moving perform year as far as your understanding, of course, of both regulation and market prices as we have today. Starting, for example, for -- on a comment on the hedge prices, sorry, if you can comment, for example, how much do you expect in terms of increase in hedge -- average hedged price in euros per megawatt hours for next year? When actually do you expect old edges to terminate both to let us understand when exactly, for example, the hedging you have in the balance sheet will fully disappear?

And when the full market price will start to benefit your hedging policy in 2023. And again, if you can comment on the addition -- a total addition respective next year beyond the 150 megawatts you commented on Page 6, which we probably enter on already this year. So instead, I would like you to sum up how -- what is the total capacity addition expected next year. Coming back just to Italy, I would like to understand if you believe that the net effect for at regards Italy, the net effect from the additional reduction in green certificate -- and the higher hedge price for [ 2023 ] will be a net flat effect or eventually portion. I would assume it should be roughly flat, so letting us, for example, the M&A to fully contribute in Italy next year. Can you briefly comment on the finally ownership for your CCGT electricity sales. And I know this is noncore, but it will affect probably the sale of the asset. So what do you expect for the control of that asset, which is crucial for the sale electricity prices next year? And when do you expect people give us a new safety guidance [indiscernible]?

[Paolo Merli, executive]

Okay, Roberto, I tried to touch the points you raised. So first of all, so 2023 is very difficult. As I said, we did a quite complex size to elaborate the forecast for the full year because the uncertainty right now is massive, let me say, because everything will depend on the rules and the guidelines we are still expecting from the European Commissions to implement the inframarginal electricity price cap. And this is quite material because if the feeling the cap is at 180, okay, is a thing and we can elaborate the decision.

But if any state in France, they are talking about EUR 180 plus or minus EUR 80 per megawatt hour, then could be even EUR 100 per megawatt hour. In Germany, they are talking about 100 -- there is nothing certain in this moment. There are just draft documents that are circulating or even rumor, just rumors. So I don't want to give a number for 2023 because it's too early, and I don't want to give -- create expectations. For sure, the industrial platform of the company is growing up quite significantly. And that there are megawatts that have entered into operations just as of August, and they will be fully up and running for 2023.

So this is a first upside. Then the second upside, we have a concentration of new entries from organic growth concentrated in the end in the last part of the year and in the early part of 2023. So for instance, we have 92 megawatt in Scotland, [indiscernible] where we have installed more or less 60%, 65%, 70%, I don't know, if I remember well, the right numbers of wind turbines -- so the field should be fully up and running, say, by the end of the year or later in January at the end of January 2023 or something like that. Then we have roughly other 36 megawatts in Scotland, again, that should enter into operation in the first quarter of 2023.

We are finalizing the construction of a 60-megawatt or more than 60 megawatts in Sweden that should enter in operation in the first quarter. So -- and some repowering projects that should be entering in operation some by the end of this year and the biggest part in 2023. So let me say, all in all, we have roughly at the moment, at the moment, roughly 350 megawatts under construction that should be part of it enter by the end of the year, and we gave an indication in the region of 150 megawatts, while the remaining 200 megawatts more or less, this is fully organic will enter into operation during the course of 2023. So from an industrial point of view, let me say that the portfolio is going to be stronger than in 2022.

But there are also other effects. The first one I already mentioned is the price cap and the mechanisms through which they will implement this -- this price cap across the different countries. The second element, don't forget, the incentive in Italy in 2023 will go down to 0 because there is this regulation where the green incentive, the value of green incentive is calculated based on a formula that says EUR 180 per megawatt hour less the price of the merchant. The merchant price registered in the year before. But in 2022, the price should be much higher than EUR 180 then that will bring the value of the incentive for '23 at 0 compared to the EUR 43. So there are many elements that have to be put together, let me say, my feeling is positive, but I stop here, okay? So I see still upside, but I stop here because I prefer to do the exercise in full and then come back to you, probably March, when we hope to present an updated business plan. And you had a third question. Probably flattish...

[Roberto Letizia, analyst]

I've asked about the CCGT plant and the issue the refinery, the control of the energy you're going to provide some thoughts on that.

[Paolo Merli, executive]

Yes, there are lots of articles, lots of rumors about the ISAB refinery because the point here is the oil embargo is going to be effective as of December 5. And the question is if ISAB can keep running the business without any supply from Russia and supply from other sources. From a technical point of view, and we were the owner of the refinery, I can assure you that the refinery can work on a different set of crude coming from everywhere. So when we used to manage the refinery, just less than 20% came from Russia, the others include came from other areas. It's more a financial issue because ISAB is asking for credit lines in order to maintain a certain autonomy legitimately in operating the refund.

And I think the issue is on the table of the ministry of the business development, and they are trying to fix it. And so I'm a bit optimistic that they will find a solution because the country Italy can't afford the plant -- the Priolo site to stop because they're providing -- they are supplying 25% -- 20%, 25% of oil -- of fuels, gasoline to the country, and there are 10,000 people work in the industrial supersite of Priolo. And everything is connected.

The refinery is going to stop, then I would stop the chemical plant, our plant so I can't even imagine a situation like that. So from this point of view, we are absolutely confident that they will find a solution. In terms of business environment, again, it's difficult to predict, in particular, the merchant part because the spot spreads are very much sensitive right now, very strongly volatile with big swings we are seeing in gas prices but also in demand, so difficult to predict. In our scenario and even in the forecast for the full year, we are quite conservative, but please consider that more or less 80% of the contribution margin of the plant is coming from the collective market and the white certificates. That's why the results in the first 9 months were so high compared to last year because 2021 was the only year when where the plant was completely out of any efficiency scheme regime.

In the meantime, we made this refurbishment, important investments to substitute the gas turbine, the steam -- sorry, the steam turbine. And as of the beginning of the year, the plant is still eligible for white certificate. So again, I'm quite positive and confident that the plant can keep performing well and generating cash flow to the group as it did say, over the first 9 months of the year.

[Roberto Letizia, analyst]

If I can very briefly bring a piece of the first question regarding the hedging. Can you just tell us, I imagine actually forward sales for this year has been in the region of 65% or very close to the cap. What is the hedging for the energy component?

[Paolo Merli, executive]

Another question is clear, and I just forgot to ask. I'd say nothing has changed compared to what we said in Boston because in the meantime, we decided to stop any hedging short-term hedging based on futures because the volatility is so high. And I think covering the utility sector, you have an idea of what I'm talking about is so high that we prefer not to do and take any further actions because you see our net financial position was inflated by EUR 310 million at the end of September, cause of the dose hedging. Simply the mark to -- the negative mark-to-market related to those hedging. But this is the first important point. Being all our hedging based on futures fully related to 2023 because we stopped any hedging beyond, say, a 12-month horizon in order to ligate the volatility.

So the first positive message is the EUR 310 million will reverse as a cash flow in the 2023 fiscal year. So we should expect a very strong cash generation in 2023 because a delivery of those future, we will recover so the anticipated cash in the clearing house to face the mark-to-market. And this is a positive -- the first message I want to give you from a financial point of view. From an economic point of view, I can just confirm what we have said. So more or less, the average prices in the region of EUR 120, EUR 120 per megawatt hour. And -- but the real revenues will depend on those price gap. The important surely the positive news, it seems that according to the European regulation, any negative impact the arising from hedging could be included in the computation for the application of the price gap as it was for Italy, as a matter of fact, for us, the impact of Article 15 b of the [ Crete ]. So the one that set out the clawback measure at EUR 65 basically hasn't had any effect because we had this hedging and those hedging were included in the computation. So I hope to have answered your question.

[Operator]

The next question is from Naisheng with Barclays.

[Naisheng Cui, analyst]

Congratulations for the great results. Only 2 questions from me, if that's okay. The first one, sorry to go back to the commodities derivatives again, the 310 million derivatives. Are we expecting the unwinding to be linear next year means you have equal amount every quarter? Or do we expect a large amount to be on hedges to be unwind in the first part of next year? So that's my first question. Then my second question is related to this, so you are going to deleverage quite a lot next year because of sales. Does that have any impact on your CapEx? Do you have any guidance? Or can you provide a bit of color on your CapEx for next year?

[Operator]

[indiscernible] gentlemen.

[Naisheng Cui, analyst]

Yes. I can't hear anything.

[Paolo Merli, executive]

Hello?

[Naisheng Cui, analyst]

Paolo, we can hear you now.

[Paolo Merli, executive]

Okay, sorry, was mine. I don't know whether it is. So next to the first question, because I lost the -- it was about the hedging see the deployment or the deployment of hedging should be more or less linear throughout the year, maybe a little bit more in the first quarter, but we -- in the last quarter because they are the ones where we have expectation for higher production, but more or less, let me say, should be linear throughout the year. Now in terms of CapEx for 2023, back on the line. Sorry, [ I was asked ].

About the CapEx, let me say that it's still early to give an indication. So I prefer to wait for the business plan. Please consider that in 2022, we are going to invest roughly EUR 1 billion, which is well ahead of what was envisaged in the business plan. But my feeling, that's just a feeling, not a precise indication. The company is really strong, not just from an economic point of view, but also from a financial point of view.

And then I see the right firepower to keep accelerating on our external growth. Just if the conditions and the opportunities are the right one because we have our own financial discipline, and we don't want to derogate from it. But let's say, on top of the organic growth, as the one I commented before because we have a lot of capacity that should enter anyway because we are completing the construction. But on top of that, we will keep looking for external opportunities in solar, in particular, because we need to strengthen our solar portfolio, but also in wind, maybe not in Italy, but outside Italy, in particular in the North but let us work for a couple of months to 3 months, and then we will come back to you and provide it with the right sector of targets from 2023 and for coming years.

[Operator]

Gentlemen, this concludes our Q&A session for today. The floor is back to you for any closing remarks.

[Paolo Merli, executive]

Thank you very much for the attention, and we will see you soon at the next occasion. Thank you very much. Thank you. Have a nice weekend.

[Operator]

Ladies and gentlemen, the conference is now over. You may disconnect your telephones.