Terna Rete Elettrica Nazionale SpA
MIL:TRN
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
7.204
8.216
|
Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Good afternoon everybody, and welcome to Terna's Full Year 2022 Results Presentation. As usual, before starting to analyze the features, I would like to share with you the latest main achievements.
Regarding regulated activities in 2022, Terna obtained the approval by the Italian Ministry of Environment and Energy Security and Regional Councils for 29 projects for a total value of more than €2.5 billion of investments. All payment that to developing the Italian electricity grid confirming our key role as energy transition enabler. With this Terna records, after exceeding the €1 billion in approval investments in 2021 for the first time in history.
In this regard, let me remind you that the company's sustainable investments create value for the country, with a positive effects on gross domestic product and also create jobs. Thus, they have the help to make Italy become even more crucial within the European system and the Mediterranean hub for electricity.
In this regards, at the beginning of 2023, the Ministry of Environment and Energy Security also launched the authorization procedure for Adriatic Link in which Terna will invest over €1 billion. The project will connect the Italian regions of [indiscernible] market and will directly or and directly involve about 120 external partners.
Regarding sustainability achievements, Terna is once again confirmed at the top of global sustainability. The companies among the top of 1% in sustainability here, book 2023, the leading industry publication for Standard & Poor global that evaluates ESG performances. The score awarded makes Terna the highest scoring company out of the 250 electric utilities analyzed around the world. This international recognition consolidates Terna's role as direct and enabler of the energy transition towards an increasingly sustainable safe and resilient electricity grid.
Terna's leadership in sustainability is also underlined by the company's inclusion in several main ESG index as the Bloomberg Gender Equality Index, Euronext [indiscernible] is efficacy for good Stoxx global ESG leaders. Regarding shareholders remuneration, today's Board of Directors approved and will propose to general meeting the 2022 final dividend of €20.83 per share to be paid in June, up by 80% compared to the previous year, in line with the communicated dividend policy. The 2022 interim dividend of €10.61 per share was already paid last November. So the total dividend for 2022 is €31.44 per share.
Finally, regarding international activities. LATAM consolidation process is going -- gone as planned. Confirming the company's broader strategy to refocus its international activities, as already announced in updated industrial plan.
After the brief introduction, let me give you the usual overview of the Italian electricity market, turning to the next slide, number five. As you can see from this chart in 2022, national demand was about 317 terawatt hours, recording a decrease of 1% versus last year when national demand was about 320 terawatt hours. This modest growth in the electricity demand was mainly the results of mild weather conditions recorded in [indiscernible] and winter months, and the measures to contain electricity consumption are adopted by families and businesses. In 2022, renewable sources covered about one-third of national demand. That means the 31.1%.
Regarding the national net total production, this is stood at 276 terawatt hours, 1.3% lower than 2021. Despite that, let me highlight the remarkable increase of the [indiscernible] production, which grew by 11.8% versus last year. Moreover, let me also say that in 2022, renewable sources covered about 56% of the national net total production.
Now let's move to the main features of the period page number six. In 2022, Group revenues and EBITDA were up by 14% and 11%, respective versus last year, which means €360 million and €204 million higher than the same period of 2021. While Group net income was €857 million with a relevant increase of 9% versus last year. Group CapEx stood at about €1.8 billion, an increase of 16% versus last year, confirming once again the robust CapEx acceleration in line with Terna's institutional role for the country. Despite this CapEx acceleration, at the end of December, 2022, net debt was €8.6 billion versus about €10 billion at 2021 year-end. As you can see from the chart, all the main features of the period meet and exceeded the provided updated guidance of year.
Let me also remind you that thanks to the initiatives aimed at further increasing benefits for the system and efficiency. 2022 EBITDA and EPS guidance had already increased back in November during the 2022 nine months results presentation.
Now let me just suspend a few words regarding the main results registered in this last three years, returning to the next slide, number seven, the growth path. That you can observed in the last years is briefly presented in this chart. In details 2022 revenues, EBITDA and EPS grew up by 19%, 14% and 9%, respectively. Despite regulatory work reduction while group CapEx registered an increase of about 30% all compared to 2020 year end level. As you can appreciate it despite the challenge in scenario in which we operated, we were able to significantly increase the investments to serve the system needs and to enable the energy transmission while generating value for all our stakeholders.
Now, I leave the floor to the CFO, Agostino Scornajenchi, for a deeper analysis of the 2022 features. Next -- to the next slide number eight.
Thank you, Stefano. Let's start with revenues analysis. Total revenues in 2022 increased by 13.8%, reaching €2,964 million up by €360 million versus last year. As you can see, we registered positive results both from regulated and non-regulated activities, which contributed for €289 million and €71 million, respectively.
For the details of the revenues evolution, let's move to slide number 10. Regulated revenues reached €2,542 million, €289 million better than last year, which means about 13% more than 2021. The increase was mainly due to the higher output-based incentives effect related to the higher benefits generated for the system. Non-regulated and international revenues reached €422 million, 20.2% higher than last year. Non-regulated grow was mainly attributable to the increased revenues of the energy solution, mostly related to LT Group acquired in October 2021 to the greater contribution coming from Tamini and Brugg. International revenues were set about zero in accordance with IFRS 5 accounting standard referred to asset held for sale.
Now let's go through operating cost analysis and then now at page 11. Total operating cost stood at €905 million, 20.7% higher than last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competencies and increased level of activity. While non-regulated activities have been impacted mostly by higher raw material purchases related to Brugg and Tamini and by the LT Group contribution.
Let me now analyze EBITDA. Moving to slide number 12. Considering the previously mentioned effects 2022 Group EBITDA reached €259 million, 11% higher than last year. This increase was mainly attributable to regulated activities which contributed for about €206 million, showing an EBITDA of €2007 million in 2022.
Let's now have a look to the lower part of the profit and losses. Turning to the next slide, page 13. Depreciation and amortization amounted to €726 million. The increase versus last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reach €1,334 million, 11.1% higher versus 2021. We reported net financial expenses at €100 million. The increase versus last year was mainly due to the rise of inflation registered in the period. Taxes stood at €355 million, €37 million higher versus last year essentially due to increased profits. Tax rate stood at 28.8%. As a result, Group net income reached €857 million, about 9% higher versus the same period of last year.
Moving to CapEx analysis. In 2022, total CapEx amounted to €1,757 million, about 16% higher than last year. And confirming the double-digit acceleration highlighted at the beginning of the presentation. Indeed, we invested about €1,668 million in regulated activities. Among the main project of the period, it is worth mentioning Tyrrhenian Link, the Paternò-Pantano-Priolo in eastern Sicily and investments in [indiscernible] devices such as STATCOM, synchronous compensators for grid security for what concerns CapEx categories developing. CapEx represent 41% of total regulated CapEx. Defense CapEx stood at 16%, while asset renewal and efficiency was 43%. Non-regulated and other CapEx stood at €89 million. This included capitalized financial charges and other investments.
Regarding net debt and cash flow analysis, let's move to page 15. Net debt at the end of December 2022 stood at €8,576 million, about €1.4 billion lower than 2021 year end level, mainly due to the hybrid bond issued in February and accounted as equity as well as the impact of commercial item on the working capital dynamics versus 2021. During the year, we generated an operating cash flow of €1,596 million, thanks to which we were able to cover almost the old CapEx expanding for the period.
Let's now make a deeper analysis of our debt profile. Moving to page 16. Thanks to our efficient and proactive debt management approach of the last few years, at the end of December 2022, fixed over floating ratio gross debt stood at about 87% while the average duration was about five years, thanks to the strong credit profile, Terna is able to top the financial market at extremely favorable conditions as demonstrated by the Green Bond Hybrid launched in February 2022 for a nominal amount of €1 billion successfully welcomed by the market. I would also like to highlight that in September, Terna launched a fixed rate single tranche bond through a private placement procedure for an overall amount of €100 million. The notes with the duration of five years will pay a coupon of 3.44%. During the year, Terna also signed for ESG link credit facility agreements for a total amount of €600 million. The credit lines will have a term of three years with an interest rate linked also to Terna performance in relation to specific ESG indicators.
Finally, on November 8th, Terna signed a €500 million contract with European Investment Bank for the financing of the East branch of the Tyrrhenian Link. This loan is the first branch of a total of €1.9 billion approved by the European Investment Bank for the mentioned project. The 22-year loan has a longer maturity and a more competitive cost than those generally available on the market. Alliance with Terna policy to optimize its financial structure.
Thank you very much for your attention. And now before entering in the Q&A session, let me leave the floor to Stefano for his closings remarks. Please, Stefano.
Thank you, Agostino. After this strong 2022 results, I would like to announce the 2023 guidance. In 2023, we expect the revenues of €3.11 billion and then EBITDA of €2.12 billion. Earning per share will amount to €0.43 per share. Regarding CapEx, for the next year, we expect a figure of about €2.2 billion. This CapEx acceleration for 2023 is a part of an overall grow process driven by increasing system needs to ensure efficiency, resiliency, and security of the supply. Indeed, let me underline that on the 15th of March, we published the new 10-year national development plan as illustrated in the next slide number 19.
The new national development plan comes in an historic moment in which energy is even more central. In a phase of rapid and deep geopolitical change, the energy system has to deal with the series of unprecedented and ambitious challenges. The targets set as a part of the ongoing energy transition will be fully achievable only by developing infrastructures. In this regards, Terna increase the investments for resin in the New Year development plan, which for resist more than €21 billion of investments, the highest ever, with an increase of about 17% compared to the previous plan.
Investments for resin in the national development plan will be made to continue the integration of a renewable sources and the progress face out of coal fired power plants in line with the targets set at the national and international level. Moreover, considering the entire life for the projects included in this development plan behind the 10 years origin, the total amount of investments will exceed €50 billion.
In conclusion, Terna continues to create value for shareholders and communities to the investments for resin in updated industrial plan and the strong dividend policy. Despite the extremely challenging scenario in which we operate under the quarter acceleration of the investments to meet the needs of the system, Terna will remain committed to preserve a solid and sustainable capital structure. As we have proceeded from this presentation, Terna was able to present a very good set of results, even exceeding the guidance provided for 2022, in addition with a strong expectation for 2023, demonstrating the commitment on the execution of the plan.
Thank you for your attention. We are now ready for the Q&A session.
Thank you Mr. Speaker. [Operator Instructions]
We will take the first question from Stefano Gamberini from Equita. Your line is open. Please go ahead.
Good afternoon, everybody and thanks for the presentation. The first question regarding the 2023 guidance, could you help us to understand what is the contribution of the output-based incentives in 2023 that you expect? And also if you can give an idea of what was the level of this output-based incentive in 2022, considering your guidance up to 2026 to receive €600 million of output-based incentives and the better 2022 results, the better guidelines in 2023, could we expect an increase of this total amount of €600 million?
The second question regarding the opportunity of investment, considering also the trend in renewables this amount and the new project that you presented of US$11 billion including the 10-year development plan, clearly are linked to the development of renewables. Could you give us a picture of the situation for the renewables growth during 2022? What was the level that was reached and what you expect in 2023? Because my concern is if we don't have a huge acceleration in renewable installment capacity, you can also have some slippages in the investment in your -- of your CapEx.
These are my main -- sorry -- the third one is regarding the working capital. In the presentation at the slide for the cash flow or the cash flow slide, the number 15, if I'm not wrong, you are outlined was a positive cash flow, working capital effect north of €900 million. Could we expect the absorption of this working capital in 2023? And what is the guidance of net debt next year? Or could we consider this positive effect as a sort of structural improvement that should keep -- maintain also in the forthcoming years and could help clearly the company in its financial structure to face all the investments that you have in your business plan? Many thanks.
Thank you for your question. I can start to answer to the first one, regarding the guidance of 2023 and speaking about the contribution, if I understand well. On these results coming from out basically, incentives. This contribution for this year, for the previous year 2022 is around €400 million on the results. And for the 2023 is around €300 million. And in the 2022 results, our part of this €400 million is related to the new MCD incentives.
Speaking about -- and so you can see that in our guidance for the 2023, we maintain on a structural position our increase, our results and is coming from the rules of the incentives that we apply. For the second question, then Agostino may add something, but I would like to complete, for the second question regarding investments on the renewable. Okay. You say what is the behavior of this increase during the last year? Probably we just said this sometimes ago, during the 2022, there was an acceleration, certainly because the normal rate of investments in the last 10-year was about one gigawatts per year. Last year was about three gigawatts in one year. And now the rate may be more than this. We suppose that is around four and five gigawatts this year. What is really important that the requests of our connections is increased really a lot. And so the basis to calculate the next concrete value is completely different from -- only few years ago.
Considered that three years ago when we started Terna, when this mandate, we had on the table something like 50 gigawatts of total request main on solar plants. Now we are speaking about more than 300 and up parties for wind generation. So, we suppose that also with some simplifications of the actual process for authorization, the return may increase. In any case, when you speak about our investment, the impact of this evolution on our investment, let me ensure everybody on this point. We are called to rehabilitate the system. And the infrastructure has to be made in several years. You know that when we plan an investment and we realize it, and we build the new line, it takes between seven, eight, and 10 years so that the complete evolution of the network needs several years to be made, and we cannot modulate the speed of our infrastructure by looking to the speed of the increase of rest -- and of renewable installation. So, we have to go on for the next 10 years with the national plan, the new one that we have presented. But we have some flexibility opportunity during this plan because we agreed with the authority, like a completely new method, the possibility to design project and plan investments that are in any case paid by authority at this level. So, the authority pay our designing, our project, our planning. Also, we will not realize these systems if there is something that will change during the next future.
Let me give you example. Let's suppose that the government at a certain point decide to incentivize in the north of Italy, for example, photovoltaic. At the moment, the most part of requests are in south of Italy, but something may change. And so also our design of the network may change if we are going on with the project, we can also change direction. And this is specifically related to the fact that every two years we have to redesign the new and update the new plan for the next 10 years. So, it's to be considerate a dynamic design of the network and we have all the leverage to manage this.
For the third point, I think Agostino may answer, but Agostino can you add something to my first …
No, there is not too much to add. Just that the contribution of the MSD output-based for 2022 is slightly below €200 million, and this is slightly above €200 million for the 2023. The total amount of output-based is €400 million in 2022 and €300 million in 2023.
Moving to your third question, regarding working capital dynamics, you know that there is some structural question now, working capital dynamics due to several so-called pass-through energy items. As you remember, coming from the past, we had some accumulation of working capital due to the uplift mechanism, especially in the mediate timing of the pandemic in spring 2020. This amount has been reabsorbed in a couple of years, so has been completely absorbed in 2022. And during 2022, there was a reduction in the credit related to the uplift, and an increase in the payables related to the essential plans for the security of electricity system, which will be reabsorbed in the common months. So, there is some fluctuation that is typical for our business and we do expect that this amount will disappear in the next month.
May I ask you something because it is not clear to me what is the situation of both regarding first output-based incentives. What I know is the target was €600 million by 2026. Now you said €400 million in 2022 and €300 million in 2023. So, the amount is €7 million in two years. So that the target -- the 2026 of US$6 million increase to, I don't know, where. And the second, I didn't catch about the answer on the working capital. Now you had an improvement of US$900 million 2022 part also to the previous worsening. So, what is the amount more or less that you expect to be resorbed during 2023? Many thanks.
Yes. Let me start from the second one. The amount that you have to be expected to be reabsorbed in the coming months is around €901 billion. This is the order of magnitude that this is an accumulation of payables for pass-through items that should have been paid by year-end 2022. In order to pay such amount, we have to weigh for some specific resolution coming from the authority. The authority did not issue such resolution in time at the year-end 2022. That's why we have this additional cash in our pocket. This situation will be managed and settled by the authority during 2023.
Coming back to the output-based incentives, yes, of course, your calculation is right. We have an increase in such contribution. We have realized an increasing amount of output-based contribution, especially on MSD. The original target was €500 million. We increased such target to €600 million, and now we have some additional contribution from output-based. That's why we do have €400 million in 2022 and €300 million in 2023. And you have to expect something similar also for 2024.
Okay. Clear. Many thanks. Many, many thanks.
You're welcome.
You will do the next question from Javier Suarez from Mediobanca. Your line is open. Please go ahead.
Hi, everyone, and thank you for the presentation. Three questions in addition to the previous one by Stefano. So, the first one is a high profile question on the 10-year development plan that you presented, that you recently presented. So there is a -- and you mentioned that in the presentation, a significant increase in CapEx by 17%, and that is the largest ever 10-year development plan in Italy. So, can you help us to understand the benefit of that business plan for Terna for the country and for the European Union? And what has changed as a consequence of the crisis and as a consequence of the lesson that has been learned with the crisis that makes this CapEx plan even more important for Italy and then for Europe? That high profile question would be extremely interesting to see the strategic path for the company in the next 10 years.
Then, on the reporting of the company and the numbers of the company, two follow ups. The first one is on the output-based incentives. You gave the number for 2022 on the expectation for 2023. In 2024 and 2025, can you share with us your late expectation on this output-based incentives? I think that you have just been mentioned, a number similar in 2024 to the one in 2023. So along the lines of €300 million, then in 2025, that would be helpful as well.
And then on the working capital thing, can you share with us your expectation for the net debt by the end of 2023? That could be helpful as well. And then on the new guidance for 2023, there is an element of higher output-based incentives versus maybe previous expectation, a higher deflator as well. Can you elaborate a little bit and to help us to understand these increasing guidance consensus expectations, the different building blocks to build up the argument.
And the very final question left is on the operational performance of Tamini and Brugg. You can give us an indication if this subsidiary has any contribution to the EBITDA and expectation for the next years. Thank you.
Thank you for your question. And I would like to start from the second one. The contribution of incentives and the MSD methods. Let me clarify that. The contribution of the last year and of this year, provided for this year is absolutely clear and calculated. And so, we give to you in terms of numbers as you see.
Then we have pursue an impact, similar impact on the following year. But we have to -- we have -- first of all to consolidate the results during this period. And then we can give a number. But you have to consider that is not a one shot result of this year over the last year, is more structural behavior. But what it's really important is that at the end of this year, there is an important appointment with regulation, as you know, for the next year. And also, we expect for a modification and maybe an increase of WACC value coming from the observation period. And I have not to explain to you. So, the mix of a possible effects that will impact the next two, three years has to be well calculated during the next month. I think that until the end of this year may be possible that we update the plan and more we are near to the final definition of rules without already more we are precise on this. So please let's give us the right time for this.
Then coming back to the first point, and there is a great question because our development plan for the next 10 years is really -- let me say a fantastic news for Italy and for the electricity system in Europe and in the inside the Mediterranean area, because as you can see we have a planned investments for €21 billion. That is, like you said, something like the 70% more than the previous plan of only two years ago. That was about €18 billion. And with this investments, we create the possibility for our network to bring something like the double quantity of power from the south to the north of Italy. This is really important for several motivations. You consider first of all that the benefit costs ratio between this specific plan and the previous is really increased a lot, because we obtain five -- four, five times more in terms of effectiveness in the transfer of energy with the same money. So, the €11 billion that we had with the -- what we named the hyper grid is a new -- completely new technology application. We think to transfer energy coming on the same corridors that we have on the continent, but by using a different kind of power, let me say also voltage, and we elevate voltage by using the HVDC application that generally we use undersea connection.
And it's really important because the impact on the environment and the [indiscernible] impact is really reduce it a lot. Also, the timing for -- the timing to build this kind of network is reduce it a lot, some years less. And other with some-- other projects with undersea connections around our country, we will contribute to solve all the bottlenecks and to increase this energy transmission capacity. It's important because in the next years we will connect also the north of Africa, Tunisia and Sicily. We will complete the connection between Campania Sicily and Sardinia. We also think to realize the second connection with Greece and the second one with the Montenegro. And on the table, there are only discussion coming on, but it will be a possible modification of next plan in two, three years. We are supposed to connect also Algeria and maybe also Egypt with Italy because in all the community, and I speak about the -- all the TSOs community in North Africa, in south of Europe and on the Balkans is discussing around the possibility to manage a different flow of energy from the south to the north. Considered that when you speak about Photovoltaic in the south of Italy, you speak about 2000 hours of productivity. When you go on the north of Africa, you can have also 3000 hours. So, it is a completely different productivity with a reduction of the energy cost at the region.
So, in terms of renewable evolution, in terms of energy transition, in terms of centrality of Italy, and this network in this complete system is really, I can say, a revolution. Our companies, more grow company, is a company that guarantee results and also satisfaction and dividends for shareholders, but it's also a company that has to manage a target that is at the moment, like geopolitical target or energy independency and security. So, I think it's enough to have some information on this.
Then I can ask to Agostino if you want to go on the third question, on working capital?
Yes. Again, on working capital dynamics, I can only repeat what I just said, is simply an accumulation of payables of pass-through items that should at pay by year-end. But in order to liquidate such items, we need to wait a specific resolution coming from the energy authority. Such resolution did not come time. So, we do expect to receive this resolution during 2023. That's why we expect to reabsorb this amount during the coming months.
Regarding your last question, if I may Stefano on Tamini and Brugg, well, contribution of Tamini Brugg was really positive in terms of revenue generation. Of course, we also have examined a massive increase of cost, especially related to the cost of metal, copper and the aluminum that are the raw material mainly utilized by those companies increased lot. So, net-net, the contribution was neutral, but we have a big increase of the pipeline for 2023 and we do have really positive expectation for the result in 2023.
We'll take the next question from Jose Ruiz from Barclays. Your line is open. Please go ahead.
Yeah. Good afternoon and thanks for taking my questions. I have three questions and they're all related to the 10-year development plan. The first question is, in the next update of your CapEx plan, can we translate the 17% increase in -- directly into a 17% increase in CapEx?
Second question, from the 17% increase of the 23 -- 2032, how much is cost inflation? I mean, we have seen the cost inflation heating other interconnection projects, for example, Spain and Italy with the cost increases of around 37%.
And my third question is just the time allocation, so the €11 billion hyperlink project, how much is included up until 2032 and how much is beyond 2032? Thank you very much.
Okay. Everything's clear. So, in our actual industrial plan, that is the 21-- 25, only a few quantity of this increase, you will see because as I explained before, the planning and the construction, our network needs 8, 9, 10 years. So the more -- the most part of this increase will be on the second part of the plan. So, in the second five years, let me say. So between 26, 27 arriving 31.
And going to the last question. When you say hyper grades, the €11 billions more, that is a part of €21 billion. You have to consider that the complete project is around €50 billion value. And in the first 10 years, because we are obliged to plan only 10 years because it's an Italian rule that we have to respect together, ARERA and ministry, we see only the first 10 years with the €21 billion. An important part of this €21 billion are also involving hyper grid connections because we change the priority. And as I explained before for hyper grid, some of these investments are easier than the other, let me say, in terms of construction and authorization and timing. But in any case, in a total time of 15 years, we will have an expenditure of about €50 billion.
Then speaking about the cost inflection, we work in our plan around 4% in terms of calculation, but please consider that when we speak on the realization and on the return on this investments, our rules of regulations consider also the inflection. So, the inflection for us until certain values is not really a problem, but maybe also an opportunity.
Agostino?
Yes. If I add Stefano, of course, there are some specific items when we talk about cable substation transformers. There is a lot of pressure in the market for this kind of infrastructure. And, of course, there you can also realize that you have to pay even more. Okay. Because there is a huge competition, especially on the critical items for the high voltage grid, especially in submarine and underground cables.
You very clear.
Thank you.
We will take the next question from Marcin Wojtal from Bank of America. Your line is open. Please go ahead.
Yes. Good afternoon. Thank you for taking my questions. So, firstly -- first question, when you are allowed returns, will you be in the position to indicate where do you expect your allowed return to be set in 2024, considering the impact of the so-called trigger mechanism? Yeah, based on the current mark-to-market. Next question that -- that's a small detail, but it's on your discontinued operations, which generated a loss of 20 million in 2022. Is it correct to expect these discontinued operations to be essentially at zero in 2023, since you already divested all of your Latin American assets?
And I think lastly, if I can ask, do you have plans to organize a capital market today this year where you could perhaps provide a more comprehensive earnings guidance for the next five years? Thank you.
Regarding the value for the WACC, we think that looking to the numbers until now, it's possible that it will arrive around 5.5 or something 5.6, similar to the last value before the decrease of -- a couple of years ago. And -- but we will see. In any case, our simulation at the moment is around this number.
For the third question, the plan, the new, the update of the plan, I think that it may be possible before the -- of the end of this year. May be interesting to say in this period because it's necessary to better understand the discussion with the authority during the second part of the year. So to give you -- starting by the fact that we are working in a really good continuity with an increase of our results and we see really good, which is the view for 2023, and in a certain, let me say way, we see also a continuity and grow with the 2024 also if we have not calculated, but we are in a comfortable condition. At the moment, we prefer to understand, which is the discussion with the authority until the end of the year. And we can had on update of the plan, the concrete number for WACC and for the incentive calculated during this year. So I think in this period.
The second question, if you want Agostino…
It is correct. We do not expect any relevant positive, or negative impact coming from discontinued operation, especially Latin America during 2023.
Okay. Thank you very much.
We'll take the next question from Davide Candela from Intesa Sanpaolo. Your line is open. Please go ahead.
Hi. Good afternoon gentlemen, and thank you for taking my question. I have three. The first one, it's follow up on the National Development Plan. I was wondering if the investment included in the plan, includes also some offshore wind capacity that should be connected to the Italian grid if this capacity will come onstream in the next years. And also on this aspect, if -- it is -- Terna the company that will be in charge for the connection of this kind of plan. Just a more general question on this aspect.
And the second one is related to the European Commission proposal on the new electricity market design. And I was wondering if you can share with us a general view of your thoughts about the proposal and what could be the role of the TSOs with regards to the new proposal, if this will be approved by the European Commission.
And third one, I was wondering if you can share with us some thoughts about your refining needs. And considering that if I'm not wrong, you have about €1 billion maturing this year and farther €800 million in 2024. Thank you.
Regarding the -- thank you for your question. Regarding the first one, speaking about the plan, when we create the plan, the 10 years plan, we start from needings of the system and needings of the system at the moment is to allow the increase of about 70 gigawatts of renewable mainly concentrated in the south of Italy and the center of Italy, because this is the actual distribution. When I say 70 gigawatts, we speak about not only solar, but also wind. We are not able to say where it will be realized, but we know that else apart of the actual request or connection regarding wind installation offshore and onshore, there is a part of this. So, it's important to understand that we build a network that is able to transfer this energy from the south to the north, including the islands and international connection.
We don't put inside the plant, the final connection directly to the -- for example, to the wind plant, the offshore wind plant. Consider that to connect one or two gigawatts plants that is an offshore plant. It's a necessary to build a connection that may have a cost source of 1 billion. In our plant, there is not this last mile, let me say, of connection is not defined or will realize this because actually is in the end of the proposal that the company or the operator that propose this installation. In a second moment, maybe that we will be involved with like service company, let me say, an engineering service company or maybe possible that speaking with the authority, we will define that this will be a part of the national grid. This is not a question only in Italy, is a discussion that is actually also running in other countries, in the north, in the North Sea. They have a choice, a certain model in the United States. They are speaking about another model. So, it's not ready at the moment, this model. So in our plan, you don't see the money necessary to connect the final mile of this plant. But you see the networks that is necessary to bring all these energy from us south to the north.
Then about the second -- on the second point, if you want Agostino to say something of the process in Europe for the market.
Yeah. Sure. There are a lot of discussion that are taking place at European level regarding the reform of the market. There is also some fluctuation. You have seen different position about the inclusion or not of the nuclear generation in framework. There is some forward and stop back on this discussion. I think that the most important part of discussion will be related to the market design, especially in the confirmation or some, let me say, changes in the discipline related to the formation of the price. Today, the system is still a system based on the system marginal price. We all know that system marginal price is highly impacted by the gas price. And you know better than us that this is the elephant in the room.
Because the more you push on renewable and that the more you keep this renewable connected with the price of gas, you more will be complicated to reduce the total cost of energy, given that it will remain connected with a specific commodity that you cannot control, at least that we cannot control as fair, but also as nation, given that we don't have relevant sources of natural gas that we can control. We are obliged to buy. We acquired a lot of gas from Russia. Now we have changed it the flows. We acquired a lot of gas from other countries, but in any case, we are not talking about our gas. So, it would be interesting to analyze the possibility to disconnect the price of gas for the general price of electricity. There is a positive discussion related importance, the growing importance of long-term contractor, and this is something that we do appreciate. I think that both discussion need to be followed and we will stick to follow those discussion in the coming months.
Related your third question, related our refinancing needs, consider that we do expect something like couple of million euros in 2023, of which €1 billion of standard bonds that will be refinanced, €700 millions of inflation linked bonds that finally will expire in 2023. And addition of normalized €300 million of bank loans that need to be refinanced and consider additional €1.2 billion in 2024.
Let me say that as usual, we are not suffering any kind of pressure in doing that. We continue to look at the market not as an obligation, more as an opportunity. We have -- I said before, very, very sound debt structure with relevant amount of debt that is indexed at fixed rate. Our average cost of debt is still pretty low. We are in the region of 1.3. Of course, new debt will cost more, but we are really resilient and we do expect only marginal adaptation of the cost of debt in the coming future.
Thanks.
We will take the next question from Emanuele Oggioni from Kepler Cheuvreux. Your line is open. Please go ahead.
Good evening everybody, and thank you for the presentation. I have one question left about the totex mechanism. I wonder if you could explain or could add more detail on -- based on the United States [ph]. Now, I know that the rather discussion on data, so all is ongoing. But how totex mechanism after the current period would impact on the current output-based incentive scheme? And also still on totex mechanism, I'm aware that -- in my understanding that each single project of -- basically CapEx on each single project will be checked and approved by the authority. So, in the future, in case of inflationary environment, maybe a cap will be put on the -- on the projects, on the CapEx for each project. Is it correct? Thank you.
Thank you for the question. I start from the beginning, but I would like to say the last part, it's not completely correct and now we explain why. But in any case, starting from the beginning, please consider that the totex methods is just now experimented in a certain way by has -- with the Terna, with the MSD methodology. It was created exactly to have an out output-based impact that is clear defined example, let me say, before with the authority and create a measurable effect on the system. Consider that during the last year we create an impact on the final customer of something like €2 billion of reduction of the cost of dispatching. That is really a huge amount, an incredible amount if you think that we passed from something like €18 of cost of -- period cost to the 0.8, 0.9 over the last period. So, it's really interesting. And also [indiscernible] a lot because this is the first experiment, concrete experiment in Italy for a first approach on how to put be and totex.
On the second argument that you say, I ask Agostino, if you want to explain better the totex approach for the future that we provide.
Yes, Stefano. Thank you. I've said several of times, it is a progressive switch from a full input-based principle from which you are paid on the basis what you spend basically, and an output-base as said by Stefano, you will receive increasing contribution in proportion with the benefits that you will create for the system. So, this is the principle of authorization, the totex mechanism will be applied on this space. And you have already seen this happening in our business plan and in our figures. You remember that we started with an output-based contribution in the previous business plan of €200, increase to €244, increase to €500, increase it to €600. And today we have just cleared that you can expect something more also for the future.
What the authority will do to measure? The question is, will the authorities start to measure 100% of the single projects? We do not expect this. We more expect a sort of mixed regime, which we will have a sort of base remuneration still manage through an input-based approach to an average work on invested capital. And on top of that, some output-based contribution starting from the biggest project. Why the biggest project? Because the biggest project will be the easiest to be measured as the MSD experiment is the big project, is easy to measure, show a positive contribution and authority gave us the possibility to retain a portion of this additional marginality and the huge benefit for the community explained by Stefano. This is the way we see this. Having say that, there is an open discussion. The authority will issue some resolution the second part of the year. And, of course, we'll keep you updated on this process.
Very clear. Thank you.
We will take our next question from Bartek Kubicki.
Thank you very much and good evening. Just two remaining issues from my side, please. Firstly, on your regulated OpEx, excluding IFRIC. The OpEx increased by 15% year-on-year in 2022. I just wonder what the dynamics in the OpEx could be in 2023 given that your employment keeps rising. And consequently whether the regulator will take into consideration all the OpEx increase in the next regulatory period. That will be the first one.
And secondly, on the plan, again, in my opinion, the plan is very much based on large projects. And consequently, I just wonder if you are thinking about having partners in some of the projects as well, or whether there is a risk that the regulator may introduce some kind of a competition into the model so that others -- other players would also be allowed to build such massive projects. Thank you very much.
Agostino, would you like to start with the first question and I …
Yeah. Sure. So, there is an increasing amount of OpEx for 2022. There is some, say in order for an item as extraordinary items related to dismissal of personal. So we have some dismissal plan that has been accounted for competence already in 2022. In any case -- there is also some specific external communication both cost related to webcast advertising and TV advertising that is part of a specific agreement with energy authority. All this cost will be recovered by the tariff in a normal way.
Thank you, Agostino. Speaking about the second point, no, it's interesting, your hypothesis, but we don't think to proceed in this direction. Until now our idea is to continue to be the only company, the monopolist of the network in Italy. And we are absolutely sure for the next 10 years to be able to sustain this kind of plan. Also on the financial point of view, we have solutions and we have space for this. May be only interesting to have technological partners in the future. This is another topic, another point regarding the great difficulties around in the world coming from the increase of the total amount of investments in networks in a transport and network in Europe specifically, but not only. So, it's important to define a good approach on the, let me say technology portion and so cables or transformers. And some components, accessories, it's important to define which is the right way to proceed to find possible cooperation. But in terms of managing -- management of the network and property of the network, no, I think no chance.
Thank you very much.
It appears that there is no further question at this time. I will leave the floor to the CEO and the CFO to say goodbye.
Thank you to everybody. Thank you.
This concludes today's event. Thank you for your participation. You may now disconnect.