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Italgas SpA
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Welcome to everybody and thank you for being here. This is a very important event for Italgas, especially considering the situation, the evolving times we are all living. The energy industry is going through a complete process of transformation, which is crucial both for the future of our economy and for the future of our earth. So sustainability in this process is key, whether it is environmental, economical or social. And in this context, Italgas is playing an active role, sustainability, which has to pass through digital and technical transformation. So I am pleased to meet here on stage both the CEO of Italgas, Paolo Gallo; and also together with them, General Manager, Antonio Paccioretti.
Hello.
Hello. Thank you for being here. And I am welcoming Mr. Paolo Gallo to share with us the consolidated results of the first 9 months and the third quarter of 2020.
Thank you, Chiara, and welcome to everybody. Today is going to be a long day because we are going to share with you the first -- the result of the first 9 months of 2020 and thereafter, we are going to present to you the strategic plan that yesterday, the Board of Director of Italgas has approved. To try to be -- to save time for the strategic plan, I'm going to be quite short in presenting the 9-month results and to leave you also some time for any questions you may have.
So let's start from highlights of our results. And we are continuing the progress that was already evident and clear in the first 6 months. And I want just highlight one thing in this chart, that is the result of the net income. Net income dropped by 6.1%. And if you remember, in the first 6 months, the same number was close to 8%. That means that in the third quarter, Italgas, another time, was able to improve the results even though the impact of the resolution of the new regulatory framework just started on January 1, 2020.
On the second slide, another important element is the CapEx plan. As you remember, in the second quarter of 2020, we say that due to the lockdown, we were obliged to slow down our investment. But thanks to the -- to our supplier and to our people and to support that we gave to our supplier immediately after the lockdown was resolved, we were able to restart significantly our investment and we were able to reach at the 9-month period another record in respect of last year situation.
And that is clearly shown in the following page where you can see that in the third quarter, even with all the restrictions you may imagine due to the pandemic situation, we were able to record another very high number, nearly EUR 190 million of investment.
But let me go back to the previous slide just to make another comment. You will also see that our operating cash flow has been lower than last year. Antonio will explain later in details, but we have the plan to -- and Antonio will tell you why -- we will recover that by the end of the year. Let me continue in looking about the CapEx activity that we performed in the first 9 months. As you can see, we have continued to replace the traditional meter even though, as you can imagine, we had some difficulties in replacing them due to this pandemic situation. We've had the 800,000 meters in place. But also you can see that a significant portion of the investment is dedicated to digitization. And that is going to be the core focus of our strategic plan.
Sardinia is playing a significant role. You see that out of the 700 new kilometers that we put in place in the first 9 months, nearly 300 were allocated in Sardinia. So again, the company has shown the ability to continue to invest even in such difficult times, and that is extremely important also for the Italian economy because, as you know, those investments are very precious for our economy. I always remind you that for every euro that we invest, our gross national product will grow by EUR 3.3.
Let me get to some other number, that is the profit and loss account. As I have already mentioned the net profit after majority, but you can see that either the EBITDA and the EBIT show a significant increase in respect of last year. Of course, some of that is linked to the consolidation of Toscana Energia, but it is not the only reason why and let me explain here.
Let me move to the regulated -- to the revenues. And you can say that we were able to limit significantly the impact of the new regulation that I always remind you that for the full year, it will account for less revenue for EUR 45 million, thanks to the investment we made last year. So you can see that the RAB grew significantly in respect of large tier in terms of revenues.
But then the other big result that we achieved in the -- in this quarter is related to the cost savings. Another time, we were able to significantly reduce the cost and ongoing [ ocho quatro ]. Sorry, but there is some missing problem in terms of presentation, but I will continue. We were able to significantly reduce the cost. And if we look on a like-for-like basis, we are able to say that in respect of last year, we were able to reduce the cost by 8%. That is the picture that I was trying to get from the [ Energia ]. And let me get -- you can see this number. So the efficiency during the third quarter has been significantly and during the 9 months has been even more because the efficiency accounted for EUR 21 million. And then if we look on a like-for-like basis, we were able to reduce the cost again for 6% in respect of last year. And so you can see that there is a very small increase in respect of last year, mainly driven by the fact that it's the consolidation of Toscana Energia.
I think I will pass now the floor to Antonio Paccioretti, that will give you more details about the EBIT and the EBITDA and the net financial position. Antonio, please, if this is okay.
Thank you, Paolo, and good morning to everyone. I will go straight to the slide in relation to the evolution of our EBIT. We had accounted a level of EUR 400 million of EBIT for the first 9 months with an increase of around 6%. This is a result of, firstly, the increase of our EBITDA, as has been just described by Paolo, which is mainly due to the increase of revenues by around EUR 61 million and the reduction of our cost from EUR 5 million to EUR 6 million.
The second element is the reduction of the result due to the increase of depreciation and amortization. D&A increased by EUR 32 million due to the consolidation of Toscana Energia for the amount of EUR 133 million, firstly. Then we have also the usual increase of our depreciation due to the investment plan we are executing, which for this 9 months has a level of around EUR 17 million. Such an element which has been almost completely compensated by the lower accelerated depreciation due to the last phase of the substitution of the traditional meters with the smart ones.
Moving to the net profit. So commenting what happened below EBIT results, the increase of EBIT was, as just described, EUR 22.8 million. The net financial expenses increased by EUR 3 million in this 9 months. This is the result of 2 effects. The first one is the higher financial expenses due to the higher outstanding debt. The average debt increased by around EUR 80 million to EUR 900 million, in particular due to the consolidation of -- as an average, consolidation of Toscana Energia for EUR 400 million. Such an increase compensated -- partially compensated by the reduction of our cost of debt.
The second element is the technicalities related to the consolidation of Toscana Energia. We see the minorities of EUR 14 million. And Toscana Energia has terminated to give its contribution to the net income from associates.
One comment on the income tax. The tax rate is 27.8% in reduction and compared with the tax rate we accounted for the first half this year and is the -- towards a level of 27.5%, which we consider the level -- the reference rate, the recurring tax rate also for the future, for this year and also for the future.
The last slide is dedicated to the cash flow. We accounted the cash flow from operation of EUR 424 million. If we consider the insignificant disbursement for the CapEx plan of EUR 563 million and we consider all the payments which we have paid last spring to our shareholders in the range of -- in the amount of EUR 211 million, the change in net debt is EUR 350 million.
A few comments -- important comments about the evolution of our changing working capital. The absorption of cash of EUR 107 million is the result of 3 elements. The first one, which we have already commented in our previous meetings, commenting the results for the first and the second quarter, is due to the decision of the company to sustain the supply chain and therefore to support the liquidity of our suppliers and to increase the level of our stocks, of our inventories, in order to be in the position to restart immediately after the lockdown. The result in terms of working capital has been so far an increase of our inventories of around EUR 40 million and a decrease of payable of EUR 50 million, so cash absorption of EUR 90 million.
The second element is due to the dynamic -- the financial dynamic related to the white certificates. The -- with the postponement of the payment date from April to November, we had an absorption of cash of around EUR [ 17 ] million. Such 2 elements has been partially mitigated by the billing seasonality for an amount of around EUR 50 million as a support to our cash flow, but in the amount which was lower than the one we had the previous, in the 9 months last year. The reduction of such a support is mainly due to the different timing in the payment from cassa conguaglio to Italgas of the so-called additional components. If we consider the -- for such an element and also for the payment of a significant part of white certificate in the second -- in the last quarter of this year, we believe that such increase and change in working capital will be materially reduced.
That's all for me now and I leave the floor to Anna.
Hi. Good morning to everyone. We are now open for the Q&A session on the 9 months results. I do kindly ask everyone, please to limit the question to the 9 months because then we will start with the strategic plan presentation and they will be over there. Please, operator, open the line.
Thank you, ma'am. [Operator Instructions] And ma'am, your first question comes from the line of Javier Suarez, Mediobanca.
I have 2 on the numbers, on the 9-month numbers. The first one is on the cost cutting. The underlying cost cut, it looks very significant, minus 6%. I just wanted to have an explanation if you see that this minus 6% is a contingent and therefore related to the less economical activity as a consequence of the COVID-19 situation. Or it is recurring and therefore is related to the managerial action that the company has taken on digitalization. So if you can split that minus 6% among the 2 companies, that would be helpful.
And the second thing is on the working capital deterioration during so far this year. If you can give us an indication of where that number should be by the year-end and therefore which would be the capital absorption as a consequence of that working capital deterioration by the year-end.
Thank you, Mr. Javier, for the questions. On the first one, the answer is very simple. The 6% reduction has not been affected by the COVID-19 situation. In other terms, we have taken out from the calculation the effect of either the additional cost brought by the COVID-19 and on the savings brought by the COVID-19. So the 6% is a like-for-like basis and it's mainly driven by 2 elements: the efficiency on the personnel cost and the other one that is larger than that is the efficiency that is coming from the digital transformation that we have started 2 years ago and now we are seeing the first result.
You will see in the strategic plan even more about the outcome in terms of cost efficiency coming from the digitalization. But the main driver of that 6% is digital. We are seeing this -- I mean the results are coming and we are very happy about that.
Let me pass the floor to Antonio about the working capital. But let me say to you, Javier, I will not talk about working capital deterioration. I mean that's a bad word, deterioration. I would say that the working capital is an effect of all the efforts that we have taken during the 9 months to support our supplier and the result of some decisions by the regulatory framework. Otherwise, we would have the working capital in line of last year. Please, Antonio, give the details about that.
Thank you, Paolo. For completing the answer, Javier, I would say that, as previously said, we expect some significant cash-in in relation to the additional components and in relation to the payment of the white certificate in November.
So such -- we believe that such payments will support us to decreasing the -- not deterioration, but increase of net working capital. It is difficult to say today that the working capital will be neutral at the end of this year, but we are strongly committed to reduce significantly such an amount.
I mean just to add, one of the element that the regulator introduced was the fact that the payment for selling the white -- the energy certificate that is normally at the end of May has been postponed to the end of November. That's a significant amount of money. We are continuing to buy energy certificate and we were not able to cash in what was due by last year. That's one example.
Supplier support. We're trying this month to support our supplier and the evidence is in the CapEx delivery that we were able to do it in the 9 months. I mean all these items you should consider when you talk about working capital.
Your next question comes from the line of Enrico Bartoli from MainFirst.
The first one is regarding the acceleration in CapEx that you showed in the 9 months. If you can provide us some color on how you managed to overcome the difficulties due to the lockdown and the COVID emergency. And I saw that you are expecting EUR 750 million of total CapEx for the full year. If you can give us a hint of where your target was before the COVID emergency.
And second question is mainly related to the guidance that you're anticipating on the full year. Actually, if I -- well you still have to cash in some recovery related to the installation of meters for the past years. If we can expect that those amounts, which I remember was EUR 20 million, is going to be accounted in the fourth quarter.
Okay. Regarding the CapEx acceleration, thanks for the questions. It is the result of 2 elements -- let me say, 3 elements.
The first one is that during the lockdown, we supported our suppliers and we asked them to be ready to restart immediately after the lockdown. The second element is that we continue to buy material and that is, in fact, one of the reason of the working capital because our inventory went up. And we are using and we have used such inventory during the summertime to support our supplier and deploy the CapEx that we mentioned. And let's say the third element is that with all the digital application that you will see in the strategic plan presentation have helped us dramatically to move forward way very quickly.
I wanted just to remind you that after the lockdown was ended and we were at mid-May, we were able, by early June, to reopen all our sites, thanks to the WorkOnSite application. We were not obliged to send people around in Italy and we have deployed a new application also to the small site activity and we have completed the deployment. And that is -- was thanks to the digital application that our digital factory released at the beginning of the year.
You said about our view by the end of the year for the CapEx. We said we feel that we will pass the EUR 750 million investment. That is slightly below what we were expecting before the lockdown but is significantly higher than the last year.
I think the last question -- okay, the last question. Maybe you can respond, Antonio, please?
Yes. In relation to the EUR 20 million of recognition for the, let me say, traditional meters substituted which we have announced in the guidance last June, I confirm that so far, the -- such an amount has not been yet recognized. We are completing the exercise of measuring the total effect of this decision taken in last December by the authority, both the one-off element and the around EUR 20 million, which is the part -- the portion of such indemnification that we consider relevant to this -- to 2020.
Your next question comes from the line of Olivier Van Doosselaere from Exane.
I just had 3 quick ones swept up on the 9 months results. First one is if you could give us a bit of a steer on where you expect your net debt by year-end. I think you previously said EUR 4.5 billion, but I wonder if that still remains valid given what you say now on CapEx and working capital as well.
Second one, I wonder if there were any potential one-off elements like tariff settlements already part of the Q3 results now.
And the final one, if you could just highlight us how much is your cost of debt actually.
Excuse me, excuse me to interrupt you but -- I mean the line is not very bad. It's extremely bad. We cannot understand practically nothing. And I think that was the noise. So the only way that we can understand your question is that you speak slower. And we would try to -- and not make a very long statement. Otherwise, we -- because the line is extremely bad. Sorry for that. Can you start again?
Yes. Apologies. I hope this will be better now. I was wondering if you could give us your latest indication for net debt at the end of the year. And then I was wondering if there were maybe any one-offs in the Q3 results like tariff settlement. And then final question was if you could give us your actual cost of debt after 9 months, please, in terms of percentage.
Okay. I think Antonio will answer to you all the 3 questions.
So the guidance for the -- our net financial position at the end of this year is around -- in the range of EUR 4.6 billion. The cost of debt that we expect is a bit lower than 1%.
And if I have well understood, your third question was whether we have accounted, recognized a nonrecurring element in these 9 months, I would say that the answer is yes. Just for -- limited to a number of EUR 12 million that we have recognized as reimbursement for costs for the remote reading activities for the year '17 and '18. So EUR 12 million.
Yes, we have time for question from the 9 months.
Ma'am, over the audio, no more question. Please continue.
Our time to understand, operator.
Sir, no more question at this moment. Please continue.
Okay. Thank you. Thank you for your hour. Thank you to everybody for the questions.
Okay. So I think the session dedicated to the results ends here and we are now ready to go on to the second session which will be dedicated to the strategic plan. But before that, we have a very short video to show you.
[Presentation]
So here we are back live on stage. So we said this is the second session. It's dedicated to the strategic plan. There are many topics we have to discuss with our guests here.
So let's start from the -- from a wide view on the future of the sector, of the gas sector. Mr. Paolo Gallo, we have said that decarbonization is central for the future. So how do you see it?
Yes. Thank you. Thank you, Chiara, for the introduction. Before getting into the plan and before getting into the scenario, I would like just to recall everybody the incredible achievement that was reached by Italgas since the diverging in 2016. I mean just looking at the net profits, the net profit that we are going to record at the end of this year, 2020, will be higher than the one recorded in '16 by more than 50%. Even more, we -- as we said before, we are going to pass the EUR 750 million in CapEx, doubling what we recorded back in '16.
So in these 4 years because, in fact, nearly 4 years ago, it was the November 7, '16, we de-merged, we made an impressive journey. And the numbers, the 4 numbers that we show on the screen, have such meaning. We were able to completely change the company and digital transformation is a mark that is evident to everybody, not only to our sector but also to other industry.
Thank you. So let's go to the second question which is, basically, what's the main challenge you are facing as the gas distribution industry?
Well before I answer to this question, I would like to give a flavor in terms of general scenario, especially the European scenario. The gas -- and you can see in this chart, it's still playing a significant role in providing energy to the EU consumption. And there are other elements that you need to consider when you look at the scenario.
The first element that you need to consider is that in the next years, in the years to come, there will be a significant power plant based on coal that will be closed as similar as some nuclear power plant. So one element that you need to consider in the overall scenario is that more than 1,000 terawatt hour need to be find in the years to come to comply with the objective set by the EU by 2050 and the decarbonization path that the EU has designed. Well these more than 1,000 terawatt hour, you cannot find that very easily. Most of them will be renewable, of course, but then there are alternative sources that are available and that we lent to achieve the decarbonization target that EU has set. And those are the biomethane -- I will talk on biomethane and in a few moments -- that is available now and then we will talk about green hydrogen, that is going to be, in the next decade, the dominant player of the next decade.
I want to point it out, another element that you need to consider is in the full identification scenario, which to me is not real, Eurelectric -- and those are numbers taken by Eurelectric -- has identified a need of investing every year EUR 9 billion to EUR 11 billion from now until 2050. So what is the meaning to invest such amount of money when you have an infrastructure that is the gas infrastructure and transport, distribution and storage that is fully available today to help the -- to help to reach the target of decarbonization by 2015? Let me show you how.
And so let me show. With this -- with -- according to us, but not only to us because we discussed that with [ Carbosanction ] recently about the role of the gas in the transition -- in the energy transition scenario.
First of all, gas, as I told you, is providing the majority of the energy demand by -- in EU, but it's also providing a lot of flexibility in the system. You can see the fluctuation between winter and summer in the major European country and tomorrow, it can sustain decarbonization effort.
Now you can see on the picture on the right side that the gas can cope very well with the variability of the production, for example, of protocol types. Because one thing that you need to consider is the more renewables you put in the system and the more -- and the system will need more flexibility. And one of the way to give flexibility of the system is to leverage the existing gas infrastructure, transportation, distribution and storage.
And more on that, the gas infrastructure, with a little upgrade, with a little investment, with limited investment, can also accept the new gases like biomethane and the hydrogen that I was talking before.
So let's talk about biomethane, that is I said, the new gas which is available now. Everywhere in Europe, there is a clear convergence on the projection in a sense that if you look at the European level, if you look at, for example, you brought here the example of France or Italy, I mean, there is -- every projection show a dramatic increase of the biomethane production. And the example of Italy is clear.
In the last couple of years, so 2019 and 2020, we have seen an incredible increase in term of request of connection. Some of them are already in operation, some of them are in preliminary phase, some other have been transforming a formal request. And you can see the map of the Italian situation.
By 2030, the Italian projections show that more than 10% of the natural gas demand in Italy will be supplied by biomethane. So biomethane is helping the transition toward decarbonization economy and it's going to happen in the next 10 years, so from now on until 2030.
And then on 2030, we will see the green hydrogen taking place. But before talking about the green hydrogen, let me talk about the situation of the electrical system and the need of flexibility. The only way you can respond in terms of flexibility is through the storage. And as you can see on the chart, there are different kinds of storage. But the only effective storage as of today that has been used for decades is the hydroelectric pump storage. But unfortunately, the hydroelectric pump storage has been completely exploited. So there is no more additional resources. All the other storages like batteries that you see, they are -- as you can see, they have a limited capacity storage. They are probably more useful for residential use.
There is one big answer that it's fortunate that we have a big answer to that need of storage. We have the gas infrastructure. Gas infrastructure is widely spread in Europe. We have nearly 2 million kilometers of gas distribution, transport and storage spread all over in Europe and that is practically an unlimited -- has an unlimited storage capacity.
And when you have a lot of energy produced by renewable that is not predictable, then you need to have big storage capacity. And you can transform this energy into green hydrogen and store the green hydrogen or eventually the synthetic natural gas, this so-called power-to-gas concept, into the gas infrastructure. And you see that the storage capacity is practically unlimited, but it is not the only advantage. There is another one. While all the other storages have only one dimension that you can use, that is the time dimension, in other terms, you can store today the energy, and then you can use the energy 1 month from now. The power-to-gas concept has 2 dimensions, that is time and space. You can store the energy today and use it 1 month from now, but also you can use it in a different place.
We -- for example, you can produce photovoltaic energy in North of Africa, use that energy to produce green hydrogen and then pumping this green hydrogen into the pipes and use that green hydrogen in Italy and in Europe. And in the second dimension, the space is an incredible advantage.
Why we cannot use the green hydrogen today? The reason is mainly driven by the cost. This chart shows you that here, there are 2 variables that influence the cost of producing the green hydrogen. The first one is the cost of the electricity that we expect that in the next decade, the cost of the electricity, especially from the renewables, will significantly fall to make the production of green hydrogen competitive with other sources of energy.
The second element that we expect that the technology will like to reduce is the cost of the electrolyzer. We think that in 10 years from now, the cost of electrolyzer will be reduced by 1/4, will be 1/4 of today cost, bringing the cost of reducing green hydrogen at the level you can see, EUR 35 per megawatt hour. That is a very low number, that is a very competitive number if you compare with other source of energy.
So all the studies that I have seen, all the discussions that I participated at the European level show that the green hydrogen will become the dominant gas in the next decade, waiting for this cost to go down.
But let me finish this scenario, then I will respond to Chiara about the challenges. We're still with 2 scenarios in the -- for the next 10 years about the demand of natural gas in Europe and the following one that is very similar is the demand of natural gas in Italy. Both scenarios -- I mean we have put many scenarios, but all of scenarios are consistent. They show a flat demand in the years to come. But what is important is that we will see an increase in terms of use of green gases, as I told you too before, the biomethane. And you can see that it's going to be true in Europe, but also true in Italy.
And now I'm responding to the question that Chiara asked me before, which are the challenges in this new world for the DSO? So not only for Italgas but all for our industry. I mean the points regarding environmental and all the technological process I have already pointed out in the scenario, which are the major challenges?
The challenge number one to me is the methane emission. That is on the top of priority of the European Commission. And we will show you later how Italgas is taking into consideration very seriously this challenge and is implementing significant methodology and technology to control and more than control to reduce the methane emission.
But then the other big element is to how to tackle the situation, how to adapt the gas infrastructure to the new gases, biomethane and hydrogen. There is only one way, there is no other way, is that need to make your network fully digital. And that is what Italgas is doing since the last 3 years and we will show you which is our progress. That's the only way in -- that's the only way that you can have to make your network fully available for the decarbonization objective, fully available for the energy transition. And then once that you have transformed not only the asset but the company into a digital company, then you have an enormous advantage because you can use artificial intelligence, you can use smart tools, you can use all digital technology that you have in order to change the way that you manage your network with incredible advantage.
I just mentioned, in the 9 months, the result that we achieved in terms of cost cutting, that is mainly thanks to the digital innovation we brought into the company. But in order to cope with these new challenges, you need also a fair and innovative regulation. And I want -- I don't want to spend many words about the regulatory period. We will answer you the question. We'll go into details if you want about the first WACC period, the second WACC period.
I want to bring your attention on the consultation delivered by our regulator about innovation. And that is extremely important because our regulator has demonstrated in the past to be much more advanced than any regulators in Europe, just recall the smart meters deployment. And now it's trying to support development projects in new areas like optimization of network management, different use and innovative use of existing infrastructure, technological and operation -- operational innovation of network. And that is something for which we, as Italgas, we can respond and we are probably the only one in Europe that can respond to all of them challenges that the regulator has put in front of us. But now -- and I will continue.
Let's go to the plan. We are going to show you the plan that is based on 4 strategic pillars, that is the core business development, digital transformation, new opportunities, and then Antonio will discuss with you about financial structure and shareholder return. But in all those pillars, there is the sustainability concept.
Just about to ask you about, Mr. Gallo. Thank you for giving us such a complete picture of the context. And in this specific context, I'm asking you what's the importance of sustainability for you for Italgas?
I think that since de-merging, the company has focused on sustainability. You will find in all the pieces of our plan a concept of sustainability. But just to answer directly with the Chiara questions, I wanted just to show you what we have achieved up to now. You remember that last year, we presented to you the sustainability plan based on 5 strategic priorities, 4 to 7 sustainability actions. And we can say today that 81% of the program has been already completed. So a great achievement for which I don't want to go one by one, but I want just to touch for reach of the environmental, social and governance side at least one item.
On the environmental, we will talk about methane emission. I said that is a top priority for the European Commission. We will tell you how we are going to respond to that and that's part of our sustainability plan.
On the social side, we have demonstrated during the lockdown our behavior toward local community. And when I say local community, I'm saying local community but I'm saying also supplier. Our supplier -- and we have seen and we have supported them during the lockdown -- and our personnel. I mean the list of what we have done during the lockdown to our personnel is very long. So I don't want to list all of them but to tell you how we were very careful about the social component of the sustainability.
And finally, on the governance. Next year, we are going to publish the first integrated annual report. And we -- I and my management -- have taken in front of the Board of Directors direct KPIs linked to the sustainability that will impact our remuneration. So I think that shows the focus that the company has on the sustainability concept. But it's not only words, it's not only list of things, it's the fact that you will see in the plan that we'll show you how care we are about the sustainability.
So let's move on the core business development and let's see, first of all, about the overall investment that we are going to present to you with these strategic plans.
Our strategic plans foresee EUR 7.5 billion in the years 2020-2026. And we wanted to show the comparison between the different plans that we presented in the last years. And if we go back to the plan that we presented and immediately thereafter, the de-emerging, the increase of the investment is significant, is huge, 50% more. And you can see that the major area of increase is on distribution, so on our core business. So we were able to identify in the last 3 years significant area where we can invest to improve, to upgrade, to digitize our network. And that is not -- there has been an enormous work that we carried out during this year. But let me give you more details, and then we will get into one of them.
Let me show you the partition of the EUR 7.5 billion into different components. We will go one by one to describe what we are able to do in the next years about CapEx deployment. And EUR 7.5 billion, in respect of last year, show an increase of EUR 1.1 billion. That is mainly on the investment, not considering the tenders.
So let's talk about the CapEx in the core business. So the first element. There are a long list of activity linked to each of them. I would like just to point it out that the network showing -- show, in respect of last year, an increase of investment by 1, I'm saying EUR 1 billion, so by nearly 150% more than last year.
Sardinia, we are continuing to do the investment. We will give you some numbers, some update about the dissolving of deployment investment. Of course, it's steady because we have already invested. It's slightly below the number of last year. But we will -- we are continuing to make the investment. We will finish by 2023.
Digitization. Digitization is -- we passed the EUR 1 billion. Last year, we were below EUR 1 billion. Even though with 2020, the smart meters replacement will be completed, maybe not at the end of the year, maybe early 2021 due to the COVID situation.
Centralized investment is increasing in respect to last year, mainly driven by this investment. And then we have the gas distribution, so new acquisition of 1,500 -- sorry, 150,000 redelivery points that is similar to the plan that we had last year. It represents a new acquisition and it represents the consolidation of small participation that we have in Italy.
Let me get into more details about that and let me talk about the network. Network, I said, is EUR 3 billion, it's more than EUR 3 billion. 50% of that is devoted to the maintenance of the existing network, upgrading the network, replacing old pipes, making the new pipes available for accepting hydrogen and biomethane.
Another extremely important element is the extension of the new grids. You have seen in the first 9 months that we were able to deploy 700, I think 700 new kilometers. A significant number of that is the expansion. So the expansion of the new grid reaching new customers. And then another important that I want to underline is the fact that we will complete by early 2021 the conversion of all isolated LPG grid, they will be connected to our existing network, and they will be converted to natural gas, providing a better service to our customers, providing a more -- better quality in term of services, providing also a cost of the energy lower than today.
And then we have, for which we will see a small video in a moment -- and then we will have the investment induced by the tenders. You know that we have included in our plan 3 items, that is Torino 1, Torino2, Valle d’Aosta and Belluno, for which there is a significant number. So we will see in a moment about that. But that is something that, let me say, it's a little bit of surprise, I think, for you.
Let's go to the video.
[Presentation]
The good things of the fact that, that is not the video that I was looking for, but that you have already seen what we have done in Sardinia. We will say again about the Sardinia. I will ask the staff to send the video about the tender because I need to talk about the tender.
One second, what is happening?
Otherwise, we're going to talk about Sardinia in advance.
So let's talk about Sardinia, while the people in the back will find the video.
On Sardinia. Sardinia is the island that is going to have the most advanced network in term of gas distribution. They are going to have what we call network digital, so something that we designed today completely digital. We've also fiber optical -- optical fiber nearby. So -- and we have already, as the video was showing, we have already put more than 800 kilometers out of the 1,100 that we are going to do it. And there will be a conversion from LPG to natural gas by these days. We will start these days on some of the area of Sardinia, and this conversion will be completed early next year.
Those are the basin, the area that today are currently in operation by LPG, bringing, and that is something to say, a saving for the final customer in the range of 30% on the overall bill. And then the last to be converted are the largest one of the city like Cagliari, Oristano, Nuoro and Sassari will be converted from LPG to natural gas by early 2023.
So now I'm requesting if the staff is ready to send the tender so we can talk about the tender.
Otherwise, Mr. Gallo, I have another question for you. We want to exchange a little bit the order. I was wondering how important is digitization for you? Because you've been talking about it slightly during your presentation. You've been investing in it a long time.
I'm going to respond to you immediately thereafter because I think digital transformation is extremely important. It's the core of our strategic plan. And so I'm going to respond to you, and you touched, let me say, the core of the plan.
I think the tenders...
The tenders are there.
The tenders are there, has been shown. So let's see the surprise that I wanted to show to our guests that are the fact that if we take a look at Torino 1, Torino2, Aosta and Belluno -- except Belluno, so Torino 1 and Torino2 and Aosta are owned by us. So the total RAB of these 4 items is EUR 700 million. What is very relevant is that we have included in our network development EUR 900 million of new CapEx. That represent 1.3x RAB. That is extremely important. That means that whilst the tender, and we said that many times in the past, once the tender are awarded, then the CapEx deployment is materially significant.
And then, unfortunately, we cannot immediately start with this investment because some of our competitors that have not accepted, not to be the winner because we were the winner by far, go to the court and try to challenge that we were the winner. But we were the winner by far, and we will be the winner. And we will bring to those territories the EUR 900 million investment that will help the local economy to grow.
Let's move on and let's go to the -- to respond to Chiara and -- to the Chiara question that is about the digital transformation.
So the core of our plan is the digital transformation by far. And you know that because we have been talking about that since the last 3 years. We've been very successful. We are probably the only one in Europe that has moved so far so forward, so far away, not only in our sector, in all the sector. Today, everybody are talking about digital. But the fact is that when you think about the digital transformation, you should think about the overall company and not only the asset. Asset, I always say, is the easiest one. It's just a matter of money, it's just a matter of time.
And in fact, our view is an overall view of the company. So not only the asset that are crucial, but they are not the only one. We started to digitize the processes. You will see that by -- in a moment, using the Digital Factory. And we are providing our person with the digital tools, with all the innovation. We try to change the way in which they behave on a daily basis in order to use and to take advantage of all the data that we are collecting from the field, of the fact that our processes have moved from a traditional one to digital one.
And then you can imagine the advantage that you can have, and we make just a small example below, using the big data concept, using all the data that we are [indiscernible] using artificial intelligence, using -- I mean, all the digital tool that we are putting together in order to manage our network completely different.
In order to change the way that we work on a daily basis, and the lockdown has been the proof concept of our digital approach because we were able, during and after the lockdown, to continue to work to guarantee the safety of our operation, to guarantee the safety and the continuity of the supply with no problem, thanks to the fact that our people have all the tools and they have the competencies to approach the problem from a digital point of view.
Let's move on and see what we are doing about the asset. What we are doing is you know already that the placement of the traditional meter with the smart one have been completed nearly. We still have some probably 0.5 million to be done. Hopefully, we will be doing it by -- we will complete the replacement by the end of the year. If not, because of the COVID-19, it will be completed by February, by the first quarter of next year.
But then we have started already last year to replace all the equipment that is sitting on our network because to say you have a digital network, you cannot say, "Okay, I have the smart meter." That is not enough, by far. You need to have all the equipment should be digital. That's the reason why we are replacing our station reduction pressure, more than 8,000. It will take us another 1.5 years. We will be completed by early 2022. We are installing, at the end of the network, equipment that will measure the pressure because we want to guarantee to our final customer to deliver the gas at the right pressure because they pay for that.
But that is not only, odorization station will become digital. We will insert in our network gas analyzer that is crucial to assess the different gases like biomethane or like hydrogen. We will insert valves that will divide our network in subnetworks in order to better manage our network. So all the equipment by early 2022 will be digital. By that time we can say our network is digital, and that will help us to change the way that we manage the network and to assess the new gases that will arrive in the next year.
But now let's talk about the Digital Factory. And hopefully, we will see the video, please.
[Presentation]
Okay. Going back to this point. And I mean, you have seen -- and I don't want to repeat the advantages of the Digital Factory. The cultural changes that the Digital Factory is bringing to all our person. The fact that there are hundreds of person that are -- that have been involved in the Digital Factory yesterday, physically, very remotely. I want to just point it out in the slide the number of processes that we have been reviewed and make them digital since the beginning, that was 2 years ago. That maybe 9 business processes looks a little bit small, but in fact, each of them, you can see, we have gone through several release of the new application. It's like when you receive on your iPhone an update of the application. We did the same.
Our ways of working, you can see on the slide, is that we are able to have in parallel 3 digital room that are producing 3 new application, and MVP means minimum viable product, is the concept of the agile methodology every 12 months. That means that every 4 months, there are 3 new application or 3 new release that are -- that is -- that are in operation and that they provide additional support, additional digital support to our personnel. We have the long list of activity, and you say we move from control room to managing smart meters. I mean all the major business process have been taken into consideration in the Digital Factory, but I can tell you, there are a lot of other that will come in the next month.
Let's see which innovations are -- had been produced by the Digital Factory. I would ask the staff to run the video.
So what you can see here is our control room center is probably the most advanced one that was developed by the Digital Factory. Here, we see the [ veezers ], what we call the [ veezers ] that is helping our technician to being connected remotely with the center receive indication, receive the commentation, receive support. That has been extremely useful, you can imagine, during the lockdown period. That's an application that has been developed by the Digital Factory. And the last one is called WorkOnSite, is the way from which we can control remotely the advance of the activity on site. And it has been, again, extremely useful after the lockdown was ended because we were able to control and to start all the working without sending people around, so keeping safety, our personnel and the personnel of our supply.
Here, you can see another long list of innovation of technology that are underway. Some of them are already in operation like the microturbines. Some other are -- have become our day-by-day activity like Picarro. We will tell you about Picarro in a moment when we'll talk about the methane emission. Some other will be implemented in the next month. But that just to give you an overall view of the capability of our digital factories to elaborate business processes, to elaborate new activities and to transform them into application, digital applications that are provided to our technician on the field.
Let's move on. And let's see the video of Picarro, that is one of the greatest innovation that we brought in Italy and -- not only in Italy, but in Europe. With Picarro, the concept of Picarro is that we were able to increase the ability to detect leakages by 1,000x. So before, with the traditional, the traditional system was able to detect 1 molecule of CH4 out of 1 million of molecule. With Picarro, we are able to detect 1 molecule of CH4 out of 1 billion molecule. So you can imagine the step, the increase of the ability to detect the methane emission.
And I don't want to go through all the details that you see on this chart, I want to just tell you 2 things. First of all, we are able to do annual inspection of the whole network every year. The requirement of our regulator is -- let me go back. The requirement of our regulator is once every 3 or 4 years, depending on the network. We are doing that every year, with the objective by the end of -- by the end of the plan, by 2026, to reduce -- to further reduce the CH4 emission by 20%.
And let me tell you the third thing is that, for the first time, in Europe, not in Italy, in Europe, we were able to, in 2019, to calculate exactly the amount of emission that will come out from our network, abandoning forever, what is called inventory standard. It is a very standard way to calculate the emission that has nothing to do with the fact that you maintain or not maintain your network. With Picarro, for the first time in '19, we were able to calculate precisely what were the amount of emission of our network. And I think that is the response to the request that will come out from the European Commission about to detect and reduce, monitor and control the methane emission. That is the only response that we have, is the most advanced technology that exists on the world.
And let's move about and final to close the digitization stuff, let's move about the effect of the digital transformation. Last year, our overall view was that we were able to bring advantages from a money point of view of EUR 160 million. This year, we increased that number. And you see -- you have seen already the result in the first 9 months period by EUR 50 million. EUR 160 million is the impact on the P&L and as less cost, more revenues, more saving from operation -- I mean, same stuff as you have seen last year. But we know that, that number will be -- is available and is spread on the 7 years plan.
On the other side, thanks to the digitalization, all our CapEx plan is reduced by EUR 50 million, be ready and for the standard CapEx that sooner or later, our regulator will implement. So we will have great advantage also toward the competitors because we are able also to reduce cost in the CapEx deployment.
And now let's move to the third pillar, that is the new opportunity.
Yes. I see you've come to the point, new opportunities. I was just wondering, have you started operating also the water distribution business? How does it interact with the rest of your business?
Well, the point for which we are talking about new opportunities is because we have competence. We have developed new competence in managing the network for which we think that we can extend that competence also to some businesses that are very close to our or very similar to our. And that's the reason why we are talking about water.
We have, let me say, a very little company that is called -- that is a strange name, Italgas Acqua, I mean, gas with water is not probably best combination. But external relation did not have a better idea about the word. So hopefully, you can think about that.
I can think about it.
You can think about that and try to suggest some better word. But -- and I will explain in a moment what we want to do in the water distribution. So we want to enter and we want to become a big player in the water distribution.
In energy efficiency, we have already 2 companies: one is Seaside and the other one is Toscana Energia Green. We want to leverage the competence that are already in the company to expand the business. And finally, we will talk about some R&D project that is very interesting.
So let's move to the water sector. Let's start with the video. So -- which is the concept of entering into the water distribution. First of all, we have already a small activities nearby Caserta, and our objective is to bring all our expertise in the gas network management into the water management.
In fact, by next year, the water network in Caserta will be fully digitized. The idea is that leveraging the knowledge that we have on the regulation, leveraging the expertise that we have in managing complex network, leveraging our digital approach. We want to bring that ideas also in water distribution. As you know that water distribution suffers from big leakages. We are talking about 40% to 50% of water that are lost in the, let me say, in the pipes. We think that we can bring the number down to 1 single digit, similar to the way that we manage our gas network. And I think that's another element of sustainability, not losing all the water that is lost today in the water distribution system is an incredible step forward. We have accounted more than EUR 100 million of investment in the plan that will bring more than EUR 200 million accumulated revenues in the period 2020-2026.
The second one in which we want to invest is the energy efficiency, and I will ask to run the video about the energy efficiency. The video is really shows the activity that are currently performed by our 2 companies: Seaside and Toscana Energia Green. We want to put this 2 company together. They are very complementary one to each other. Seaside is more digital. Seaside is more focused on private sector. Toscana Energia is more focused on public sector and is more focused on photovoltaic production. We want to integrate these 2 company, leveraging the good things one of the other.
And thanks to the new regulation issued by the Italian -- by Italian government, we think that there is an incredible growth that we can take advantage of, mainly on buildings. I mean the eco bonus, 110% is one of the element, but is not the only one. And also thanks to the digital services that the Seaside, in combination with Italgas, can provide to the final customer.
And don't forget, this industry, this sector is extremely fragmented. So there is also the potential of new acquisition in order to grow in term of size and to consolidate this extremely fragmented sector. Again, we have allocated, for the plan, EUR 100 million for investment, and we expect from this sector to add revenues that, cumulated, will be just below, cumulated during the plan period, it will be just below EUR 0.5 billion.
And finally, I want to talk about -- before passing the floor to Antonio, I want to talk about a very interesting R&D project. We talked at the beginning of this presentation about green hydrogen. Many people are talking about hydrogen, but we want also to test what does it mean producing green hydrogen. And what does it mean? The only way that you can do is to launch, and we have already launched a pilot project to produce green hydrogen from renewable, to use the green hydrogen, blended with our natural gas, to use the green hydrogen in combination with CO2 to produce synthetic natural gas and put all of that into our network. And we thought where are we going to do that? I think that was natural to identify Sardinia as the area where to do that because we have the most innovative grids, the most innovative network. And therefore, we can use -- we can leverage all the digital equipment that we have put in Sardinia to control and to evaluate the impact of blending hydrogen and natural gas in our distribution network, even when the distribution network arise to the end user, that are industrial, for example, or the other end users that are the residential.
To do that, we are trying to put many partners around us. We started with the Polytechnic of Torino. We are in touch with the University of Cagliari because we want also to receive the scientific support from the people who knows in details the technicality of the concept of the powered gas. I think, for us, it's an experiment. It's a pilot project that will help us understanding the all value chain of the green hydrogen and the impact of the use of green hydrogen into our network.
Thank you. So talking about kind of delivering in the sector, what does it seem so frequent to accumulate delay?
Well, our -- the tenders are our joy and sorrow. The joy because I showed to you the 4 tenders that were completed. We won all of them even when the competition was very strong, like in Belluno and like in Valle d’Aosta. So we have demonstrated the market that we are able to win the tenders.
The sorrow is that, unfortunately, municipality are not able to tackle properly the old tender process. And that's the reason why every year, you see a delay in the tender process. That's unfortunate because we have also demonstrated the 4 items that I mentioned before is that deployment of CapEx is significant. But it's not only significant for us. It's significant for the -- our economy. So you can imagine, if the numbers that I show you for the 4 items would be applied to the old nations, to the old country, what would be the impact for gross national product? That's unfortunately. And then again, we hope that the government, together with the regulator, will try to solve the problem and to accelerate and not further delay the tender.
For the tender, just to give you an idea, we have allocated EUR 2 billion: EUR 1.2 billion for the acquisition; and CapEx that probably have been, let me say, we are on a conservative situation, EUR 800 million of additional CapEx. The reason also is that the tenders will be completely in our plan by 2025, and therefore, the CapEx deployment can happen only at the end of the plan period. And therefore, you then see the full CapEx deployment that will happen after 2026.
Having given this number, we want to show you the growth of our RAB without and with the tender. Without the tender, by 2026, our RAB will be close to EUR 10 billion with an annual average growth of 4%. If we add the tenders, our RAB will grow by 6.2% and will pass the EUR 11 billion. So -- and hopefully, this EUR 11 billion will be a reality even earlier than 2026 if the municipality, and that is the answer to Chiara question -- if the municipality will accelerate the process to issue and to award the tender.
Clear. Thank you. There's another question I would like to ask you, and I -- then I will pass the word on to Antonio Paccioretti to -- are you keen on investing more abroad in the future?
Well, thank you, Chiara,, for the question that I'm sure will come also from the audience because the audience, our investor, our analyst knows very well that we are looking at the privatization of the gas distribution network in Greece. But I don't want to talk about Greece because I'm sure there will be some question later on, so I don't want to anticipate them. I wanted just to give you the idea why we are looking about Greece, and that is the investment criteria that we listed for the benefit of our audience because we want to show that Greece -- we decided to look after the privatization of gas distribution in Greece because we've met most of our criteria. And we are going to do the same if the other opportunities are there.
The criteria are, let me say, to work in an ecosystem that has a clear regulatory framework, stable, similar to ours. And another element among the ones that are listed that I would like to add is the fact that Greece, in that case, is a characteristic very peculiar that there are a lot of development to be done in developing new network. That is the so-called data that has the objective to bring the natural gas also in the other area, except that you have to [indiscernible] there are 2 other company, the other area that are not reached by the natural gas. And that is very similar to what we are doing in Sardinia. That is very similar to what we have done in the past year in south of Italy. So we like not only to manage the network, but we like to expand the network, to bring new networks with the concept of digital network.
Thank you, Chiara, for your question.
Thank you, sir.
And I will pass the floor to Antonio, please.
Yes. Thank you.
Thank you, Paolo. Let's move now to the financials of our companies. And let's see how we have translate the -- has translated the pillars of strategy that Paolo has just described in numbers.
First of all, the guidance. For 2020, we confirm the guidance for the revenues at a level of EUR 1.3 billion. For EBITDA -- both EBITDA and EBIT, we confirm results that we expect in the -- on the high end of the ranges, which we published last June. For CapEx, we have already discussed the increase of CapEx at a level of more than EUR 750 million. And for net debt, we have just discussed the new guidance at the level of EUR 4.6 billion at the end of this year. The leverage is confirmed in the range of 60%.
For 2023 and 2026. First of all, revenues. The level of the revenues in 2023 is EUR 1.7 billion and EUR 2 billion at the end of the plan period. Let me comment a bit such numbers. The contribution of tenders for 2023 is expected to be around 10% of the revenues, 13% of the revenues at -- on the year -- in the year 2026. The contribution in terms of revenues for -- from the new opportunities is estimated at 5% of revenues for both 2023 and 2026.
In terms of -- or EBITDA margins, the level of -- is for 72% in 2023 and '26, 73%. And the underlying assumptions is a level of marginality of around 75% for the distribution activities, and for both water and energy efficiency, a marginality between 30% and 40%. So the level must take into account -- the level of EBITDA margin must take into account such lower marginality from the new opportunities.
In terms of return on our asset, EBIT to RAB, we start this year from a level of around 7.2% after the reduction of the OpEx recognition decided by the authority last December. The challenge is to recover the level of 7.5% in 2023 and between 8% and 8.5% at the end of the plan period.
EUR 10 billion is the RAB we expect in 2023 and EUR 11.3 billion at the end of the plan period. It is important in terms of cash generation. We estimate the operating cash flow of our group to be at a level of around 10% of our RAB, the annual cash generation, permitting us to have an evolution of our leverage, starting from the 60% today to 62% in 2023 and 61% in '26. The peak of the leverage is expected to be in 2024, but not exceeding 63%.
Such a result are based on the capacity of delivering the strategy that Mr. Gallo said before and the capital deployment. The other 2 elements that will lead to such a result are the capacity of the company to deliver in terms of OpEx, operational efficiencies and on financial efficiencies.
So starting from the operational efficiency issue. The commitment of the company is to offset throughout the plan of the strategic -- the plan of the period, the x factor set by the authority. The authority set an x factor of 3.5% for the distribution activities, 0% for the metering activities, so as an average, something around 2.8%. The commitment of the company is to offset completely such an x factor. The driver are the technological innovation and digitization that has been described before.
In unit terms, so unitary cost per delivery point, the efficiencies is higher considering that there is also -- without M&A and without tenders, there is also an increase in the redelivery points in the amount of around 300,000. If we consider tenders, the room for further efficiencies is important. It's important due to the fact that with the tenders, we can have -- we can estimate higher economy use case due to the higher size and an optimized geographical footprint. We will pass from the 1,800, 1,900 municipality and municipal concessions to the other. So this is the line in green to be compared with the yellow one, which we have commented before. For the tenders, it is important anyway to underline that such a further efficiency in terms of operational efficiency will be more than offset by the expected increase in the concession fees that we assumed in our business plan.
As far as our financial strategy is concerned, I would say that the strategy is the strategy that we have -- we started 2, 3 years ago, and we have implemented in the last period, has been confirmed. We estimate the operating cash flow generation, strong and resilient in the range of 10% of our RAB, capable of covering the organic CapEx and almost fully cover also the dividend. So the current important financial flexibility of the company, of the group will be available for the growth through the tenders, for the M&A and new opportunities and for potential enhancement of our shareholders' remuneration.
The financial flexibility is demonstrated in this chart. We -- with our ratings, the credit metrics are -- the most important, let me say, are the net debt, RAB and FFO-to-net debt at the level of 70%. And with an FFO-to-net debt higher than 10%, the performance, we expect a much better deleverage in -- as an average at 60% and the cash flow generation at more than 50% to net debt.
Moving back to the debt structure. Our strategy as far as the debt evolution, this is the situation today. As you know, we have invested a lot of money in the last 2, 3 years for reducing our financial risk, both in terms of refinancing risk. The schedule of the maturity is self-explaining. And in exposure in -- exposure to interest rate, now 97% of our gross debt is at fixed rate. We want to maintain such a strategy. We want to maintain a low volatility of our debt and the effect of our debt to the net profit.
Today, our cost is at around 1%. And I would say that the opportunities of a further significant decrease of such a 1% is -- a matter of fact, is demonstrated by the current market. Today, we have an average as to maturity of our bond portfolio, which is just a bit higher than 0%, it is around 0.1%, to be compared with the 1% -- 1.1% of our coupon. So we do have real important opportunities to further reduce during the plan period our cost of debt.
As the green, let me say, instrument for financing, we are ready today. We are ready to exploit all the advantages of this new instrument for 2 targets, let me say: the first one is to enlarge the investment base of our bond orders, new source, and therefore, let me say, most effective and efficient funding; and the other one is to confirm once again our attitude to sustainability.
Shareholders' remuneration. The new dividend policy is valid for the next 4 years. We have redesigned such a -- the dividend policy with the -- in order to permitting our shareholders to benefit, to have further benefit from the growth that we expect of our business. The dividend per share will be, for the next 4 years, the higher between the dividend per share calculated with a payout of 65% and a dividend per share, a flow constituted by the dividend per share we paid this spring, so the fiscal year 2019, plus an annual growth of 4%.
Now I would give the floor back to Paolo for the final remarks.
Thank you, Antonio. And I'm going to just spend 1 minute just closing this presentation, and then we will go for any Q&A you may have. Let me just say that the digital transformation, and you have seen how much time we spend on that. And the result we expect and we have already achieved from the digital transformation is our core focus. It will help us to transform assets, processes and people. And thanks to that, we will be able to support the energy transition. We will be able to move into the future. We will be able to follow the decarbonization path. We found that energy transition, decarbonization path will be empty words. And moving forward, our competence will expand. And thanks to the new competence and the existing competence, we will be able to address and to open new businesses like we show to you.
And finally, Antonio talked about the new dividend policy. We feel that it was our objective. It is our objective -- one of our objective to improve our dividend policy because at the end of the day, we're going to create value for all our stakeholders, shareholders, but also all the others that are around us in this more enlarged ecosystem that is [indiscernible] by our shareholder, but also by our local community, by our people, by our supplier, so opening up and create value for all of them. Thank you for your time and for your attention.
Thank you, Paolo. I think we can say hello again to our Anna because it's the time for the Q&A session.
Yes. [Operator Instructions] And we are now ready for the Q&A session. Thank you.
Thank you, ma'am. Your follow-up question, from Javier Suarez from Mediobanca.
On the strategical plan, 3 questions. The first one is on the -- in the new timing for the auctions. I know that this is probably not anyone's fault, but the -- there is a continuous delay on the timing for auctions. So I just wanted to hear from the company management the latest they know from the different administrations involved, in conversation that can lead or decision that can list over an acceleration of that auctioning process and make all that process much more realistic. Why do you think that this is more realistic now maybe a year ago? Why the government should take the regulated decision to accelerate the process? Help on that would be appreciated.
The second question is on the philosophy of new investment. So the company has announced the willingness to invest in other areas, different from gas distribution, when there is a massive opportunity in that distribution. So if you can help us to understand why the company does see the necessity to invest into other activities when there is a significant opportunity in your core business, if that has to do with some questioning on the timing of the auction or that has to do simply on the fact that you see that the company has capabilities that can be exercised to other businesses. And you can give an indication on the different level of profitability of those investment versus your core business.
And the third question is on hydrogen. And the -- I think that the presentation has been dealing with a view that see hydrogen as something to be considered. I just wanted to hear from you, if you see, in due course, Italgas increasing CapEx to make its distribution network hydrogen-compliant. And how is your view on the relevance of that additional CapEx?
Okay. Thank you, Javier, for your questions. On the first one, unfortunately, we always say the same stuff about the tenders. And that's unfortunately, like I said before, it's our joy and sorrow. We expect something to happen by the end of the year from the government point of view because -- and the only reason why it can happen is because we need, as a country, new investment on the economy. We need to build -- to invest infrastructure. And that's -- it's a demonstration. I mean the 4 item that I mentioned, it's a clear demonstration. Then once that the tender are assigned and are awarded, then there is a clear growth in term of CapEx. So hopefully, we will bring this example to the government, and the government will fully understand why there is a clear need to accelerate the tender process. Again, the point -- the major point is that there should be a cooperation between central government and local communities, so local municipality, in order to push these processes toward the success of awarding the tender. That's extremely important.
We know that you know that before summertime, there has been a table between the major stakeholders of these processes, not the operators, but the representation of the operators for our association. The Ministry of Industry has identified, which were the blocking point and also a possible solution. Hopefully, that will help us -- that will help, if implemented, the process, I will not say to accelerate, but at least to keep the pace that we have put on the table. It would be a very great success if the pace of issuing the tender and awarding the tender will continue quite steadily approaching all the nations. We have seen in the video that Naples, we just made -- presented the offer a few weeks ago. Hopefully, that would be another one that is going to be awarded very soon.
The second question is why water distribution and energy efficiency? Well, first of all, those 2 activities are already inside our company. And we think we have all the competencies, all the advantages that we can apply to these businesses to develop these businesses in a completely different way in which they are today managed. So we think on the water management, on the water distribution, that there is a clear opportunity for us to increase what we have already and bring all the technologies, all the competence that we have, improving the water distribution sector, at least in the area where we will have the concession.
And similar on the energy efficiency, we have the company already that are doing energy efficiency activity. We want to make them together, so making one company only and then leveraging the competence that they have in the private and the public sector to grow. And again, bringing all the digital competence that we are building in the company to them to offer digital services to the final customers and to provide new technology and again, being ahead of all the other competitors.
On the third question about the hydrogen, I think it's the hydrogen, yes. The first element that you need to consider is that the compliance of the network to assert hydrogen also biomethane is that the network should be digital. If it's not digital, then you don't go anywhere. Now that is one part of the overall picture. That is the most important part. The idea of the pilot project is exactly to test for all the materials to test practically not only -- because from a theoretical point of view, it looks like there is no problem in the new grades to affect different gases. But before saying that, quite sure, we want to test. And the only way to test is to produce hydrogen, the green hydrogen, and to inject the green hydrogen into our grid and see what is going to happen.
So we will test the pipes. We will test the pressure reduction station. So we will test the equipment. We know already that up to 10%, 15% blending, there should be no problem. But before saying that, by sure, we want to test it and eventually to increase the percentage, just to understand what is happening. So the idea of the pilot project is exactly the idea to test on the field the injection of hydrogen into a distribution network. Thank you, Javier.
We have a follow-up question...
Sorry, I did not answer to one piece of the question that was raised by Javier, the marginality of the new businesses is between 30% to 40% of the EBITDA on the revenues. So at least you have those numbers. Sorry for the delay.
We got a follow-up question, comes from Enrico Bartoli from MainFirst.
First of all, I have one question about the increase in the CapEx in the networks that you included in the new business plan. You explained that the portion is linked also to the new concession that were awarded recently. But if you can give us some details on the other drivers of this increase?
Then I would like a clarification on the contribution on the revenues in the targets that you provided from tenders from the opportunities because we got a 10% for 2023, but I didn't get the other figures. And if you can give us also a figure possibly on the contribution from M&A that you consider in those revenue targets.
Then I also have a question regarding hydrogen. Of course, most of your clients are residential connected to your network. I was wondering, there is a lot of discussions regarding, let's say, the supply side of the value chain of hydrogen. I was wondering what your opinion is on the demand side. And particularly on the technology, the start of the alternative technology for the use of hydrogen in residential leadings in the building, so they're used by most of your client base. How is the situation now? And how you think that this could develop over the next years?
And the last one is on cost cutting. I think that actually, you are continuing to perform extremely strongly in terms of reducing costs. You highlighted that this trend is going to continue over the next years. So if you can give us also here some details on the drivers, of course, one is digitalization, but also on the other portion of your cost base when you have the opportunity to make some reductions.
On the second question, Antonio will answer. On the first one is quite easily. We increased the CapEx by EUR 1 billion, EUR 600 million -- in respect of last year, EUR 600 million are driven by the 4 ATEMs. In other terms, last year, the ATEM that were considered in our, let me say, business plan without considering tenders. The CapEx considered were only EUR 300 million. This year, because we have added a new ATEM being the winner, and we evaluate in more -- in details, the investment, the CapEx in use the increase is by EUR 600 million. The overall amount that was allocated inside the EUR 3 billion is EUR 900 million. That explains the majority of that.
I will go on the other, then I will go back -- will pass the floor to Antonio, on hydrogen. The hydrogen utilization, so you have asked who's going to use the hydrogen, either in -- I can imagine from an industrial point of view. The point is the cost of the hydrogen. If you go back at the beginning of my presentation, you have the cost of the hydrogen that is produced out of fossil fuel, mainly out of natural gas. And then you have those debt costs. And if you compare debt cost with the green hydrogen, you will understand why the use of green hydrogen is very limited. It's more project, it's more pilot project and not reality because it's too expensive. So the moment in which the hydrogen will become competitive, let's just say, with natural gas. So the cost of the hydrogen expressed in euro per kilowatt hour or euro per megawatt hour or the likes, is going to be similar to the natural gas. That is going to be the day in which the hydrogen adoption will be extremely large.
So the driver of the adoption of hydrogen as a fuel from many end customers, especially industrial, is the cost. If the cost is high, nobody will adopt, except if not making some test. That's the reason why the pilot project that we have decided to launch and will be in operation by the end of next year. That is the reason why we launched those pilot project to fully understand which are the driver of the cost. We know that the energy cost is a driver, we know that the electrolyzer cost is another driver, but we want to understand better than that.
And the last point, I think, was on cost cutting. My answer is we are good in cost cutting. We are demonstrating that in the last 3 years. We have been able to reduce the cost every year, every year, every year. We know that at the beginning, our ability to cost -- cutting the cost was linked to the traditional matter. Now we know from the traditional matter to the digital transformation. In our plan, you know that the regulator has put a very challenging mix factor that is 3-point-something percent that blended with the cost reduction relevant to meter that is 0, is going to be slightly below 3%. I think it's 2.8%. We are going to beat the number. And we have -- I think we have a track record, a solid track record of cost cutting. We will continue to reduce our cost and digital will be the major driver.
The other element is the more we grow, the more efficiency we are able to bring to the company. Think about the economy of scale. That's clear. I always told you, when you buy 8 billion -- 8 million smart meters, it's much different than buying just 8,000 smart meters. So economy of scale, the more we grow, the more we are able to bring efficiency. And the digital driver is the one that will bring us our costs down. We have a solid track record. We have demonstrated to be able to do. We are very good in cost cutting, and we will continue to do that. Antonio?
Yes. In relation to the contribution of the different element to the revenues, I repeat, for 2020 -- contribution from tenders is 10% in 2023. 13, 1-3 percent, in 2026. As far as the new opportunities, 5% in '23 and 5% in '26. And in relation to the M&A activities for in the distribution sector, which also includes the possibility of consolidation of affiliated today are not consolidated, we expect a contribution in terms of revenues of around EUR 40 million.
Your next question comes from the line of Antonella Bianchessi.
First, I would like to discuss the assumption on hydrogen. How much hydrogen you are expecting that will flow in your pipes by 2050? And where it will come from? Because you mentioned the potential development of solar projects in Africa, but this is obviously not one of your projects. So there is a -- I was wondering if there is a sponsor for that or it's only Italgas that is now talking about this project, but in reality, there is -- if there is any development on that.
The second question is on timing of your CapEx plan. We said that the hydrogen revolution will eventually happen in 10 years will take, if not for this decade. So I was wondering why the regulator should support the idea of charging these payers today for something that maybe they will use in 10 years' time and therefore, locking in a technology that we still don't know if it's going to be the winner in the future.
The other question is also on the idea of blending that hydrogen in your pipes. Italy is still producing 50% of its electricity with gas. So if you use the electricity to produce hydrogen, you will just end up increasing the CCGT production with a negative impact on the overall emission. So why the Italian should pay more for polluting more?
And finally, on your customer base, you are assuming a slight growth of the gas user in Italy. I wonder if this is compliant with the recent trend, where we have seen the overall customer base also for Italgas, if you exclude M&A, slightly declining. And also, obviously, there is a target from the EU to increase materially the electrification going forward. So I wonder if this is all kind of fit through into the big European project.
Well, I think when you mentioned the North Africa project, that is not a project. It was just an example to explain why green hydrogen can be an extremely interesting vector for energy to move the energy from one location to another. So I mean, that was just an example. I could have said, producing green hydrogen in Germany, based on winning and bring the green hydrogen in Italy to be used. That would be the same. So I really do not understand the mention of the project in Africa because it was really just an example.
On the first question, how much hydrogen will flow now into our pipes in 2050. If I were able to say that, I will probably go and play in the lottery and I will become rich. Again, the point is not -- we are not saying how much hydrogen will flow into our pipes by 2050. We are just saying another concept that the more renewable you put in the system, in the electrical system, the more rigid of the -- the more you -- the more the system will become rigid. And on the other hand, you need flexibility. And the flexible correspond to flexibility only with one method, with the storage. So you store the energy when you don't need to -- when you have production of energy that is not consumed, and then you use the energy when the energy is needed.
The point that I was making is that the only way today that you can store the energy is to use gas infrastructure that has been shared with the [ carbosanction ], and she agree on that, leveraging gas infrastructure to store the energy. That is the surplus out of the renewable.
And then so I'm responding also to the other questions. We don't want to produce hydrogen using conventional electricity produced out of maybe coal, out of combined cycle. We are thinking about -- it makes sense, and I always said green hydrogen. It always makes sense if the hydrogen is produced out of the renewables, out of the surplus of energy for which you have only two choice: one not to produce that, so you stop photovoltaic production, you stop wind production; or you use this energy, you store this energy and you produce hydrogen. So we don't intend to produce hydrogen using the normal energy. We want to produce hydrogen and I think we will at Italgas. And generally speaking, the system wants to produce hydrogen to store the surplus of renewable for which there is no other destination. So I do not understand your reference to the electricity use to produce hydrogen.
And then the CapEx side. What we are saying is that we are upgrading our gas infrastructure not only for the hydrogen. And I said that. Probably you missed this part, I said we are upgrading the gas infrastructure also to affect the biomethane. And biomethane is not 10 years from now, it's tomorrow. So either you have an upgraded network and you can accept biogas, either you don't have an upgraded network and you cannot assess biogas. So the only way is to have a fully digital network. And the digital network not only will bring the advantage from accepting biogas, that will bring advantage from a cost point of view, and we have demonstrated that. So really, I do not understand your question. Sorry for that. And I think the last one...
I can explain because -- sorry.
Sorry, can I respond to your last question is that about increasing the customer base. Well, we can show you in the first 9 months, that the request of new connection to our gas network has significantly increased and is higher than the number of people we decided not to use the gas meter anymore. So the net is increasing. And that is not -- I mean that is because of the behavior of the person. So the increase of our redelivery point is a small increase based on the fact that I was telling you. So we have enlarged our base.
And then the major increase that brings us the number of redelivery point to EUR 10 million is based on the tender. You add the 2 numbers with and without the tender. If the tender will be completed by 2026, we will reach 10 million redelivery point.
Your next question comes from the line of Stefano Gamberini from Equita SIM.
I'm starting from the relations with the regulatory, if I may, as well as with the government. The regulators tested during the kick off of the new resolution for the update of the WACC that the gas sector is -- will support the transition towards the decarbonization, while the electric vehicle is in the middle of this process of transformation towards new energy system. So my question is, did you have some talks with the regulator regarding this topic of accelerate in such a way this investment in the gas distribution, in particular, the day after that you win new auctions? That was impressive in my view because EUR 600 million for 4 new ATEMs means a huge acceleration in the case that you reach EUR 1 billion of acquisition of the new ATEMs means probably 10x this level. So just to understand what is the approach of the regulator on these new investments. And also, if you can help us to understand the increase of ties that could cause this.
The second, regarding the government as well during last month, I guess you had a lot of contacts with the government. And so what is the approach of the government on this topic that you stressed, higher CapEx in the gas distribution that could help GDP substantially? And why, so far, nothing happened in terms of some changes in the framework of the tenders in order to accelerate all these investments? That's the first.
The second, regarding the water. I didn't understand if your change of approach for the water means just -- is this a tactical approach where you are, you will invest for reduced losses or will you enter in this water system, water sector? What I mean is there are some tenders in Rimini, Reggio Emilia, and probably some others will arise. Is your change of approach in term of enter also this sector?
The last one, if I may, regarding taxonomy. Your investments in the gas probably are in the low level of taxonomy scale, how you could improve this level? What I mean is probably the rate of it or your pipe for hydrogen could improve the taxonomy of your CapEx plan. And I don't know if you have a sort of calculation of what share of your total CapEx considered at the taxonomy level.
Thank you for the question. Well, on the first one, the EUR 900 million that are relevant to the 4 ATEMs is not something that we invented. It's something that was contained in the tender rules by the 4 municipality, let's say, Torino, Torino 2 -- Torino 1, Torino 2, Valle d'Aosta and Belluno. So that was the development plan required by the municipality in the tender. So we just translated what was required by the local municipality, by the local, by the municipality, we issued the tender into numbers.
So that -- I mean that is the -- I mean that is just the demonstration of what we have always said, if you remember. We said if the tender would have been awarded 100%, we would see additional investment per year, per annum by EUR 3 billion. And the 4 of them, the EUR 900 million, of course, it's over 6 -- 7 years planned, sorry. It's a long period. The EUR 900 million is just the translation of the requirement of the municipality that has issued an industrial plan of development, Valle d'Aosta, Belluno, upgrade Torino 1, Torino 2, and that is the result.
So just a demonstration that what we have said for many years, it's true. And you're right. Government should take care of that because the impact on the gross national product by this investment is huge. And I think the Ministry of Industry has identified the blocking point, like the recognition of the VIR, also to the municipality who owns some tenders. Hopefully, they will implement that. They will change some rule of the tenders, and we will see the tenders moving on.
On the water questions. I took -- we have the water activity already. I think we can bring competence and technology to improve this sector. This sector, the water distribution, is very close to our sector. Let me say it's even easier to manage. This sector is probably -- needs investment, but more than that needs technology investment, need technology upgrade. And I think it's a great opportunity for us. So it's not a tactical project. It's a great opportunity for us to expand into a sector in which we feel we have the right competence, and we feel we can bring a lot of value. We can bring a lot of value not only for us, but all for all our stakeholders.
Taxonomy. I -- and probably I was not clear in my explanation. Many of the investment we are making is to improve the efficiency of the system. Let me make you just a few example. Everything that we are doing to reduce methane emission, do you think it's going to be taxonomy compliant? I think so because we -- it's going to reduce significant to the methane emission. And you know that because since the last time that we paid the penalties about leakages is back in 2018. Now we are only on the bonus side. We don't pay any more penalties because we were able to reduce the methane emission. All the investment that we are doing in that direction is taxonomy compliant by far. We reduced the CH4 emission in the air.
When we bring natural gas, where today, we use LPG, like in Sardinia, but also in the other parts of Italy. As I mentioned, one of the investment is the complete -- to complete the conversion of LPG-isolated network into natural gas supply. Do you think it's going to be -- it's taxonomy compliant? I'm sure it is. Because here, we move from the LPG that is coming from oil, you know very well, to natural gas. Similar to what is happening in Sardinia. We are going to replace LPG. We are going to replace coal production not us, but to bringing natural gas in Sardinia, it's going to be taxonomy compliant. I'm sure it is.
So if you look at each of the investment that we are making and look at the impact on the sustainability side, you will probably understand that most of our investment is taxonomy compliant. Thank you.
A quick follow-up, if I may. Just regarding -- when do you underline that the government can change rules for accelerated tenders, when do you expect some novelties? Because something was already expected in the August decree. What could be the next opportunity if you want from the government to go ahead with this acceleration?
Before the end of the year. Before the end of the year.
Next question comes from the line of James Brand from Deutsche Bank.
Can you hear me okay? Can you hear me okay? Okay. I'll assume you can hear me okay. Just checking given the issues early on. I had to kind of...
Can you speak slowly? Because the line -- excuse me, can I interrupt you? Can you speak slowly? Because the line is not so good. Would you mind?
Yes. Okay. Okay. I'll try and speak slowly. So question number one is on CapEx. And in particular, what, if any, approval processes you need to go through when you approve a plan such as this one? And particularly on digitization. So let's say that next year, you decide you want to increase your digitization spend to EUR 2 billion over the planned period rather than EUR 1 billion. Do you have to get approval from that from the regulator or from the government? Or you just do it and base on your own cost benefit analysis? So that's question number one.
And then question number two, is on hydrogen and the long-term vision for biogases. I'm a little bit unclear from the presentation what your long-term vision is for how you'll be operating the gas distribution network in, say, 2050. Is your vision that there'll be some hydrogen blending, there will be some biomethane? And if so, would you see significant investment required associated with that? Because I think you made comments at some point that you didn't really need to change the network very much and all that was needed was digitization. But there's certainly some of the -- there's some of the academic papers and people looking at essential fuels and more hydrogen for households that you might have to have fully polyethylene networks in order to facilitate that. Just understanding a bit more your view, that would be really useful.
On the -- thank you for your question, very clear. On the CapEx side, we need to divide the CapEx in 2 categories, the ones that will flow into the RAB for which we do need an approval from the regulator, but you need to be careful because if you replace some equipment that has not been completely depreciated from a regulatory point of view from -- sorry, it's not completed the regulatory life, the difference, you will not recover the difference from the regulator. It's on your shoulder. And that's the reason why some of the gas pressure reduction station, we are not going to replace them fully but we are going to upgrade them into a digital one. The others that are completely depreciated from a regulatory point of view, we are going to replace some of that.
The second category is the -- what you invest, for example, in ICT, we show you what we call centralized assets. And that is exactly the point that you made. The investment is based on our cost opportunity analysis. Because the regulator recognizes you on a standard basis, the centralized asset. So does not care if you are fully digital or fully paper. They recognize you based on your size, based on the number of redelivery point and so forth. So you don't receive the money for your investment. It's up to you, so to us, to decide if it makes sense to do that investment. That is what is called centralized investment.
Like we, I make another example, we upgrade -- we refurbish our buildings. We are not remunerated for that. We feel that we need to do that to improve the comfort, to improve the ecosystem which our people is working. Because we feel that the better is the environment where our people is working and the better is -- are the performance. So let me divide the two type of investment. The investment that is recognizing RAB, the certain rule, you don't need to receive the approval upfront but you should know that if you replace something that has not finished their regulatory life, you lose money. Let me say it that way. On the other side is centralized investment like ICT, buildings, so forth. It's up to us to make the decision. We will not get any recognition by the regulators.
Our long-term vision, I don't know, Anton, if you want to add something on that?
No.
Our long-term vision on biogas and hydrogen. I was trying to explain maybe at the beginning, maybe I was not so clear. We feel that the biogas will be tomorrow, will be -- we see an increase -- a significant increase of connection, request for connection and the people who produce biogas and we -- and is asking to inject these biogas either in the distribution or transportation network, whichever network is closer to the production.
So we think that we need to address this issue -- this opportunity, this is not an issue, this opportunity in years to come. And the only way is that you need to control your network. You need to know in real time, which kind of gases you have in your network. I mentioned one of the installment that we are going to do in our network is the gas analyzer. The gas analyzer will let you know in real time, which is the -- which is the gas that is flowing into the network and therefore, you will understand if you have CH4 simply or you have CH4 plus biogas in the future also by -- with hydrogen.
We feel that the hydrogen -- the hydrogen will happen in the next decade that we need to be ready by that time. We need to have our meters ready to set also the hydrogen. Just for your comment, you need to consider the hydrogen has a calorific value, so has an energy content that is 1/3 of the natural gas. And so the fact that you blend is also a way to bring the same quantity of energy to the final customer.
All our investments that we are doing right now on the digital transformation on the asset, it's really the aim, the objective of that is to make our network ready to set different gases. And that is shared at the European level with our other peers in the gas distribution. That's the only way in which you can address the transition towards decarbonized economy, but it is a 2050 issue.
Could I just ask a really quick follow-up just on the discussion, the first question around kind of central assets? How much of the EUR 7.5 billion CapEx plan is going into central assets, please?
I was in the presentation, is EUR 300 million and something, EUR 300 million -- EUR 350 million, EUR 370 million. Sorry. So I cannot remember by all the numbers. So EUR 370 million are centralized. That is the -- out of the EUR 7.5 billion. EUR 370 million will not remunerate it as the normal RAB, but they are remunerated on a standard basis, like I explained to you before.
Next question comes from the line, José Ruiz from Barclays.
Three questions. First one, just a follow-up. From -- I understand from the EUR 360 million of centralized is 100% non-RAB. But from the on EUR 1.09 billion of digitalization, can you share with us the percentage that is RAB recognized? Second question, on the new activities, do you have like a return threshold required to invest in these new activities? Third one, just a clarification, you mentioned in the presentation...
I'm sorry. Can you repeat the second question, please? Because I lost the line when -- that went off, please.
What is the minimum return required from new activities? The third question, you mentioned that there are some legal actions against your winning of the tenders, and you seem to be very sure you will win that legal action. Can you expand a little bit? What are your conviction based on?
Okay. On the first one, the 1-point-something billion allocated in digitization, I think, EUR 80 million, so less than EUR 100 million, is centralized. So it's an amount that will not be recognized in the RAB. I think it's EUR 70 million to EUR 80 million something like that.
And the second question, maybe Antonio can answer. In the meantime, I will answer to the third question. Yes, we have received challenges in court on Valle d'Aosta and Belluno. Why we feel confident to win? Because -- I mean we'll win by far. So there is a huge difference. We are not talking about 0.5 point, 1 point out of the 100. We are talking about multiple points. And the first evidence that it is on the court is that the first appeal for Valle d'Aosta, we won the first appeal. So the appeal by the other operator against us in Valle d'Aosta was rejected by the court. So we feel we did a good job. We feel we presented the best offer in terms of technical, in terms of economic point of view. And we feel that, that will be recognized also by the charges. From...
For the threshold, let me elaborate in such a manner. For the water, the water, as you know, is regulated activities. What we have assumed in our business plan is the investment of EUR 100 million with -- assuming the allowed return. So EBITDA margin of around EUR 40 million, EBITDA out of the total revenue. 40%, sorry, 40%. As far as the energy efficiencies, the EBITDA margin that we have assumed is at around 30% of revenues, with a target return, which is close to 10%.
Another question comes from the line of Bartek Kubicki from SocGen.
Three questions from my side. Firstly, and surprisingly, there was no question asked yet on your allowed WACC in the next WACC perspective. And it looks like, given where the spreads are, but there is the risk that WACC will be cut. So I wonder what did you take into your assumptions in terms of allowed WACC in the -- from 2022 onwards. And with that, I would also like to know your view, whether you think the regulator may lift or modify the risk-free rate floor or whether he will most likely keep it unchanged. That's the first one.
Secondly, on your dividend, you have provided 2 charts on dividends in the presentation. First, the first chart on page, I think, 46, regarding this 4-year dividend plan. I wonder it -- I guess it's based on your planning model and your numbers. I wonder whether this is rather based on this 4% DPS growth or rather on a 65% payout ratio. So I wonder if you think your EPS will grow faster than 4% over the next 4 years.
And the third question on the appeal you have made against the regulator on the cut-in allowed OpEx from 2020 onwards. If you can update us where you are in terms of the decision? What is your base case scenario? And given also that, I wonder what do you think about the X factor. Will it stay at, whatever, 3.5% on network until the end of your business plan? Or do you think it could be modified after a couple of years?
While Antonio is preparing the most difficult questions that are the first two, I will respond to the second two. The second -- the third one, well, because I put it 4 questions, but you have 3 questions. The second one is on dividend. We provided, as a minimum, the growth of dividends by 4% in respect to the last dividend that we paid or the maximum, depending if 65% on dividend is going to be the maximum.
When we introduced the payout ratio, we have always applied the payout ratio and we intend to continue to do that. So our expectation is that the payout ratio will work instead of the 4% increase of the dividend share.
Last question is the appeal towards the regulation, I would probably say, worst scenario is everything will remain as it is. And we have already make a step forward. We get the access given by the court to access all the documentation, internal documentation, that the regulator developed in order to apply to the revision of the WACC for the meters.
Regarding that, I don't think it's 3.5%, I think, it's 3.25%, the X-factor. We have applied that for all the 6 years according to the new regulations. So in our plan, the recognition of the OpEx expenses by the regulator is decreasing year-by-year by 3.25%, by 3.25%, blended with the recognition for the metering, as I said before, is going to be 2.8% every year reduction. So that is embedded in our plan. If we are going to win some part of the appeal, then, of course, the numbers will look better than our plan.
I will pass the floor to Antonio for...
In terms of calculation for the revenues and the business plan, what we have assumed in terms of regulation is a full continuity, both in terms of return and in terms of X-factor. The -- as far as the return is concerned, according to our estimation, if the spread will remain within the range between 140 basis points and 110-more-or-less basis point, assuming the same formula, the return should remain the same. Today, the spread is, as you know, around 140. So we are in the low end -- on the low end of the range, but within the range.
As far as the risk-free, it is difficult as all the other parameters to discuss which could be the decisions of the authority into just what we just can comment is the fact that the risk-free flow was introduced when was introduced for increasing the credibility and the sustainability and reducing the risk, let me say, or having -- of very low risk-free. So I would argue that it is difficult to imagine today a reduction of such a parameter.
I understand that there are further questions. So please go ahead.
Next question comes from the line of Virginia Sanz from Santander.
Yes. I had a few questions also on your assumptions. First, if you could tell us a bit about the CapEx split by year without assuming that you win new tenders? So is it going to be quite equal or more back-end loaded? Then if you could also provide us the assumptions you have taken on the RAB deflator in the current environment we are in.
I also wanted to understand these are periods that you are getting on recently won tenders. How long can that go for the regulator take a decision there? So from when actually will you be able to invest this newly assigned CapEx that you have been announcing to us?
And last, on DEPA. I wanted to understand what is the timing there. I think you've been shortlisted, but when will we know who is the final winner there?
Hopefully, we have -- we will try to answer to your question if that was the correct answer because we have a very hard time to understand your question because the line was already bad.
The -- I think the assumption on the CapEx relevant to the tenders, if I well understood, that is, we have shown that there are EUR 2 billion allocated for the tender. EUR 1.2 billion is allocated to buy the new concession we plan to win. And then there are another EUR 800 million that is the amount of CapEx, induced by the fact that we are becoming the owner of the new concession. And those EUR 800 million are allocated at the end of the plan, because that will follow the award of the tenders and are mainly driven by the fact that we are going to acquire concession that are not networks that are not at the same standard level that we have in Italgas, and therefore, we need to upgrade them to our standards.
On the deflator side, I think Antonio has the answer.
The average that we have assumed as deflator investment for the plan is 1.4%, starting from 0.7% from this year.
Then you asked about the new CapEx of the 4 ATEMs. We have considered the fact that expecting Torino 1 and Torino 2 in Valle d'Aosta and in Belluno, there is a legal dispute, let me call it. So we have considered a time that we feel it is reasonable to go over the legal dispute in the court and then to proceed. So it's not going to happen next year. It's going to happen later on, for example, for Belluno and Valle d'Aosta. While Torino 2 -- and Torino 2 has been already awarded. Torino 2 will be awarded shortly. We have considered, of course, the CapEx deployment immediately thereafter. The CapEx deployment of Torino 2 is already ongoing.
And I think the last one is on DEPA. I don't know, Antonio, if you want to answer?
The schedule that we know on such a deal is the presentation for the offer next March.
Mid-March.
Yes. It has been just postponed...
By a couple of weeks, yes.
By a couple of weeks. So we are working on that. We are working on that. Also with the other element in terms of time table that the decision, the final decision, on the consortium that we will present the bid must be taken next February. So...
So we -- well, if mid-March is going today the binding offer to be submitted, I think, the winner will be probably declared before summertime. So there is, let's say, 6 months delay with respect to the original plan that was to identify the bidder by the end of this year, but that is due to the COVID-19 situation that has slowed down all processes.
So if there are no further questions, I think this will end our call today. Thank you very much to everyone for participating. And so thank you very much to everybody for following us. And I thank both of you for being here and answering for the questions, CEO of Italgas, Paolo Gallo; and also Antonio Paccioretti, General Manager. Thank you, both.
For you who are following us, the live stream ends here. We are now going to stop just for 5 minutes and then there's a press conference. If you want to join us there, we'll be there. Thank you.