Enel Chile SA

NYSE:ENIC

Earnings Call Analysis

Record Growth and Positive Outlook

In the first half of 2024, the company achieved exceptional financial performance with EBITDA rising 74% to $597 million, aided by robust hydro generation. Net income grew by 2.2 times to $267 million. Favorable conditions from El Niño and increased renewable capacity were key drivers. The company expects to recover part of the $1 billion PEC receivable by year-end, enhancing liquidity. With promising regulatory updates and strong hydro production projections of 12 terawatt hours for 2024, the firm maintains a positive outlook and confirms its annual guidance.

Exceptional Performance Amid Favorable Conditions

In the second quarter of 2024, Enel Chile delivered outstanding results, with EBITDA rising to $301 million, a remarkable 6.4 times increase compared to the second quarter of 2023. The strong performance can be attributed to several key factors, including a significant contribution from Power Purchase Agreement (PPA) sales of $150 million, driven primarily by increased volumes in regulated markets. Furthermore, the company benefited from industrial sourcing amounting to $70 million, largely due to reduced variable costs from lower commodity prices and a more favorable generation mix.

Solid Year-to-Date Results

For the first half of 2024, EBITDA climbed 74% year-over-year to $597 million, bolstered by $168 million in PPA sales and $106 million from industrial sourcing. Commercial sourcing also contributed positively, adding $108 million as a result of reduced spot market prices. The overall financial health is illustrated by a net income that increased 2.2 times to reach $267 million, largely due to these strong EBITDA figures.

Challenges and Adjustments

While the company enjoyed significant gains, it did face challenges. Non-operating activities incurred a negative impact, including a $124 million decline from prior gas trading activities and a $35 million detriment related to the Metka PPA agreement. However, these were outweighed by the improvements in core operations, showcasing the resilience in its business model.

Promising Future Outlook

Management remains optimistic about 2024, maintaining guidance for a hydro generation estimate of approximately 12 terawatt hours, up from earlier estimates. This forecast reflects not only current performance but also ongoing investments in renewables and the strengthening of the company’s operational efficiency. The adjusted guidance demonstrates confidence in the company's ability to meet and potentially exceed previous targets.

Regulatory and Market Developments

Significant regulatory changes are underway, with the Chilean Congress discussing an increase in subsidy benefits for vulnerable households, potentially expanding support to 4.7 million families with an annual cost of $300 million, up from the current $120 million. This legislative support is likely to influence market dynamics and could enhance Enel Chile's operational stability moving forward.

Strategic Investments Continue

CapEx for the first half of 2024 amounted to $290 million, with a strategic push towards renewable projects representing approximately 66% of total CapEx. This reflects Enel Chile's commitment to enhancing its renewable energy portfolio and positions the company favorably against evolving energy policies and market demands.

Balance Sheet Strength and Liquidity

Enel Chile's balance sheet remains healthy, with gross debt increasing 8% to $4.8 billion, attributed primarily to heightened working capital needs and capital expenditures. However, with available committed credit lines of $750 million and cash equivalents of $305 million, the company is well-positioned to support its ongoing investments and navigate future obligations.

Conclusion: A Bright Horizon

To summarize, Enel Chile's second quarter results embody robust financial performance backed by favorable market conditions and strategic management initiatives. Continued investments in renewable resources and adaptations to regulatory changes contribute to a positive outlook for growth and profitability in the coming quarters. The company’s position as a leader in the energy sector in Chile is reaffirmed, making it an attractive consideration for potential investors.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen, and welcome to Enel Chile's First Half and Second Quarter 2024 Results Conference Call. My name is [ Carmen ], and I will be your operator for today. [Operator Instructions] Please be advised that today's conference is being recorded.

During this conference call, we may make statements that constitute forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Such forward-looking statements reflect only our current expectations, are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those anticipated in the forward-looking statements as a result of various factors.

These factors are described in Enel Chile's press release reporting its first half and second quarter 2024 results, the presentation accompanying this conference call and Enel Chile's annual report on Form 20-F, included on the Risk Factors. You may access our first half and second quarter 2024 results press release and presentation on our website, www.enel.cl and our 20-F on the SEC's website, www.sec.gov.

Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of their dates. Enel Chile undertakes no obligation to update these forward-looking statements or to disclose any development as a result of which these forward-looking statements become inaccurate, except as required by law.

I would now like to turn the presentation over to Ms. Isabela Klemes, Head of Investor Relations of Enel Chile. Please proceed.

[Isabela Klemes, executive]

[Foreign Language]. Good morning, and welcome to Enel Chile 2024 Second Quarter and First Half Results Presentation. Thank you for all joining us today. My name is Isabela Klemes, and I'm the Head of Investor Relations. Joining me this morning is our CEO, Giuseppe Turchiarelli.

Our presentation and related financial information are available on our website, www.enel.cl in the Investors section and also in our app, Investor. In addition, a replay of the call will be soon available.

At the end of this presentation there will be an opportunity to ask questions via phone, webcast, chat, through the link ask [ the ] question. Media participants are connected only in [ listening ] mode.

In the following slide, Giuseppe will open the presentation with our key highlights of the period, then go through our portfolio and regulatory context update. And finally, he'll give us a view of our business, economic and financial performance.

Thank you all for your attention, and let me now hand over to Giuseppe.

[Giuseppe Turchiarelli, executive]

Thank you, Isabela. Good morning, and thanks for joining us. Let's start our presentation with our main highlights of the period on Slide 2. During the second quarter, our hydro portfolio performed outstandingly, repeating the good performance of the first quarter. This resulted from higher reservoir level at the beginning of the year due to El Nino phenomenon last year, coupled with strong weather events during this quarter. This gave us a robust and efficient [ generation ] portfolio mix for the [ semester ].

We added approximately 250 megawatts of new renewable energy capacity and BESS project. All these additions will support our long-term ambition of decarbonization and the ongoing optimization of our portfolio.

Furthermore, I would like to mention that we have received the commercial operation date from the system operator for around 410 megawatts this year, totaling [ 1.6 ] gigawatts since January 2023.

Moreover, during this period, Enel Generacion, a subsidiary of Enel Chile, secured a 20-year [ term ] regulated PPA, representing a sales of around 3.6 terawatt hour in the regulated [ auction ], starting to deliver around 1.5 terawatt hours till 2027 and the remaining part to reach 3.6 terawatt hour in 2028. This [ contain ] Enel Generacion goal to diversify its sales and include more long-term PPA in its portfolio.

On the regulatory side, we have some important news to share. First, as you may know, the [ Chilean ] Congress approved the law related to the stabilization mechanism, PEC 3. In July, the decree with the updated regulated tariff was published. Now, we are awaiting the [ third ] sovereign guarantee decree during the third quarter to enable to start the factoring process.

Second, the distribution tariff for 2020-2024 came into effect in June of this year. The review process for the distribution tariff for 2024-2028 has already begun and is progressing as expected. I will give you more color on this topic later on.

Regarding profitability, I am pleased to announce that the first half showed solid EBITDA and net income results. This reflects our confidence in our guidance for this year. We achieved a positive FFO despite the PEC receivable. As you know, we expect to recover a portion of this during the second half of this year. The positive effect of FFO reflects our solid operational performance during this semester.

And finally, we have a solid level of liquidity to be used for future cash CapEx deployment. I will provide more detail on this later.

Now, let's look at some updates on the hydrological situation on Slide 3. Positive hydrological conditions during 2023 allowed us to have a greater water availability during the first quarter of this year. In addition, higher-than-expected rainfall during the second quarter of 2024 allowed us to increase our hydro production, exceeding by 72% the level recorded in the second quarter of 2023. Therefore, during the first half of 2024, we have accumulated 2.1 terawatt hours of hydro generation compared to the last year.

The hydrological situation in [indiscernible] reservoir is also very positive year-to-date once compared to the last year figures, especially in the South. In fact, with the water accumulated in our reservoir to date, we have sufficient availability to supply our energy demand until the end of this year, even with the possibility of a weak La Nina phenomenon in August and September.

Based on these results, we have updated our hydro generation estimate to approximately 12 terawatt hours for 2024. We expect to complement this information once we know the results of the [indiscernible] study, which will be carried out in the coming months so that we can better estimate the normal forecast for the fourth quarter.

Now, let's move to the next slide to review how we continue improving our portfolio of generation assets. We continue developing our strategy towards a more efficient generation metrics, increasing our renewable capacity across different areas of the country, focusing on solar close to the center of consumption and incorporating more battery in our portfolio projects.

During this first half, we reached a total net installed capacity of 8.7 gigawatts. We connect almost 250 megawatts of additional net capacity related to our solar plant with battery [ during the ] [indiscernible] located in the metropolitan region and 2 more projects with batteries. These are: El Manzano BESS, which is also in the metropolitan region; and La Cabana BESS II in the south part of the country.

During this half, we received authorization from the national electricity coordinator to begin commercial operation for 410 megawatts related to the 2 solar plants: Las Salinas in the North zone and hybrid product that is located in the same field as Sierra Gorda Este, a 112 megawatt wind farm; and El Manzano, a solar plant located in the metropolitan region of Santiago, very close to the consumption centers; and finally, our wind farm, La Cabana, located and South of Chile.

In addition, let me inform you that we have concluded Los Condores a hydro power plant. In September we will have the important milestone. We will start filling the [ tunnel ] with water to execute what we call the wet test. Following it, coordinated with the system operator, we will start the testing process of Los Condores. Our goal is to add the connection of [indiscernible] testing concluding during 2024.

The deployment of our renewable plans aim to increase the flexibility of our portfolio, which is today 77% renewable-based. It should be noted that with everything mentioned above, we have completed the first wave of growth projects that were part of our plan.

Now on slide -- on the next slide, we will review the performance of our Generation KPIs. Net electricity generation totaled 12.1 terawatt hours as of June 2024, exceeding by 15% the production during the first half of 2023, mainly due to higher hydro and renewable generation, resulting from the improved hydrology in the operation of the new projects, respectively.

During the second quarter of 2024, net generation grew by 11% to 6.1 terawatt hours, mainly due to higher hydro and wind generation. Our energy sales totaled 17 terawatt hours in June 2024, 10% higher than the level recorded in the first semester last year, resulting from higher sales to both regulated customers and [ frequent buyers ].

It's worth mentioning that our commitment with our clients were fulfilled with a higher portion of our renewable generation, which also led us to lower energy purchases in the spot market, mainly in solar [ hour ]. During the second quarter of 2024, [ physical ] energy sales grew by 11% to 8.5 terawatt hours, mainly due to higher sales to regulated customers.

In terms of our balance, during the first semester, we increased our purchases from third-parties by 1.5 terawatt hours as part of our continued effort to diversify our [ sources ].

Now, on the next slide, we will review the performance of our main KPIs. In the generation business, during this semester, we have seen relevant improvement in our KPIs. In terms of renewable and [ BESS ] increased capacity reaching 6.8 gigawatts of net capacity, representing a 77% stake in our generation portfolio. This enabled us to reach 74% CO2-free production, which is 13 basis points higher than in the first half of 2023.

Additionally, the energy sold in the Generation segment reached 17 terawatt hours, representing an improvement of 10% compared to the last year.

I would like to highlight now the great contribution that [indiscernible] is making in terms of our [ integral ] [ offering ] that allow us to continue driving the electrification process. We improved our figures in this semester compared to the last year period. We have increased the number of public and private charging points for electric cycles by 25%, reaching almost 3,000 charging ports. Regarding [ e-Home ] services and electrification indicator, we also improved our number by 40% and 60%, respectively, compared to the last year.

In regarding the public lighting, we reached 372,000 lighting poles, 1% higher than last year, mainly due to the maintenance contract [ retail ] operator, [indiscernible] and which is what with [indiscernible] municipality.

Regarding the Distribution segment, the number of clients in distributed energy and our [ concession ] have continued to grow by 2% and 3%, respectively, compared to last year.

It is relevant to mention that this quarter we had some critical weather events with heavy rains and snow that affected the stability of the electricity supply, impacting our quality indicators, such as SAIDI, SAIFI and losses. Regarding SAIDI and SAIFI, as a matter of comparison, the number presented on this slide do not include the impact of the maintenance event.

Now, on the next slide, let's look at some updates related to the regulatory [ content ]. As you may recall, last call we indicated that in January this year, the Ministry of Energy presented a bill related to the stabilization of energy mechanism with the purpose of continuing the PEC mechanism and mitigating the project starting to ban [indiscernible].

At the same time, we also aim to improve the client protection mechanism known as MPC mechanism to a low gradual repayment of accumulated debt with the [ generator ] and establish a transitory subsidy for the most vulnerable clients. This new law was discussed and approved by the Chilean Congress in April, published in [indiscernible] report last Tuesday, April [ 30 ].

In June, the PNP decree was published. And with this publication, the tariff of the regulated clients started to be updated, [ depend on ] their location and monthly consumption. Clients with consumption below 350 kilowatt hours had their generation component of the target updated by inflation and clients with consumption above 350 kilowatt hours shall foresee a higher amount increase of around 35% related to the starting to pay the real price of electricity, plus a new charge [ NIM MPC ].

We are now waiting for the issuance and publication of the sovereign guarantee decree as well as a complementary set of rules and regulation to the new law needed to start the factoring process. This guarantee will be presented to investors as a part of the issuance coordinated by the [ IDB ] expected in the next few months.

As of June 2024, we had an account receivable related to the PEC already net of factoring of $904 million. Considering the readjustment in the interest of around $115 million, we reached an accrual of $1 billion approximately. With the issuance and publication of the pending regulation, we expect to execute the factoring of the current accounts receivable during the second half of this year, ranging from $550 million to $650 million. We expect that by the end of 2024, the accounts receivable net of factoring should range between $350 million to $450 million.

Now, all the discussions are standard on the subsidy in place, which could increase the number of family that will receive [ these ] subsidies and avoid further tariff increase. According to the law approved today, $100 million are coming from subsidies paid by the consumer, particularly [ repeat ] customer and $20 million are coming from the [ treasurer ] of Chile. This $120 million would support around 1.2 million families.

The [ famine ] that will be [ beneficiated ] shall be known during September and the distribution company shall apply retroactively since July this benefit, during October this year. Now Congress is discussing with executive authorities a potential increase of this benefit to increase the number of families supported by the subsidy to around 4.7 million families, increasing the total [ around ] subsidy to around $300 million per year versus the current $120 million in place.

The potential changes to increase the subsidies are still under discussion by the government and the Congress. We expect the final proposal to be submitted by the middle of August.

On the distribution tariff review, the regulatory final decree for 2020-2024 cycle was published in early June, and therefore, the new distribution tariff will represent an increase in the tariff for the [ finance consumer ] in our [ concessionaire ] of around 5%.

Regarding the 2024-2028 cycle, in July, the consultant technical reportable review was received and is currently being reviewed by the committee. The final record is foreseen to be published early in the Q4 2024. We expect that by the end of this year, the regulator shall publish the preliminary technical report on this new cycle. We are more confident regarding the process, considering that the consultant who is working is the same one who was in that previous cycle period. Therefore, we understand that some topics already discussed for the previous cycle shall be automatically applied to this process.

Now, let's review on the next slide our earnings indicator of [ the ] [ quarter ]. Our economic and financial performance was very solid in the first half and second quarter of 2024. As you can see on the slide, in the first half and second quarter 2024, we had an important improvement in EBITDA and net income versus last year's figures. This is mainly explained by the outstanding hydrological situation and a more efficient generation mix.

In the first semester of 2024, the FFO also showed an improvement compared to last year, reaching $52 million. This is mainly explained by the improvement in EBITDA, offset by a negative impact due to higher tax payments related to Arcadia operations and a more significant [ PEC ] accumulation. Regarding the second quarter, FFO improved by $27 million in 2024 versus 2023 due to the same impact already mentioned in the slide. We will review more detail on the following slide.

Now, on the next slide, let's review the progress on CapEx. Our total CapEx reached $290 million this first half, 9% lower than last year considering the conclusion of several renewable and solar projects since the second quarter of 2023. 66% of our total CapEx equivalent to $190 million was related to renewable and storage, and 22% equivalent to $63 million was related to [ decree ] mainly due to new customer connections associated to the growth of our customer base and corrective maintenance of the network.

Asset management CapEx reached $87 million, which represents 30% of our total CapEx. It decreased by around 22% compared to the last year's figures, mainly explained by increased CapEx in the distribution business, mostly related to activities in the low and middle [ voltage ] and maintenance activity in our generation fleet, particularly in our hydro and gas facilities.

Finally, development CapEx reached $167 million, representing 58% of our total CapEx, a decrease of 21% compared to last year's figures, considering that we are finalizing our renewable and BESS portfolio under construction.

Let's now move to the next slide where we have a summary of the second quarter EBITDA breakdown. In the second quarter of 2024, our EBITDA reached $301 million, 6.4 times higher than the second quarter of 2023.

Let me explain the main effects on this quarter. I will start with the positive effects. First, I would like to highlight a relevant contribution from PPA sales equivalent to $150 million, primarily related to higher volume, mainly regulated market as we have view in the preliminary slide and indexation in the free market.

Another relevant effect this quarter is related to industrial sourcing for $70 million, mainly explained by lower variable costs coming from lower commodity prices in thermal generation considering this quarter hydrological situation and more efficient generation mix.

Third, there is a positive contribution of $60 million related to commercial sourcing primarily due to lower parties in the spot market, mainly explained by lower prices as a result of more significant [ hydro generation ] in the period. In addition, we had a positive effect of $12 million related to the grid margin, mainly explained by the grid remuneration associated with the VAD 2024 regulatory report publication.

Finally, we had a positive effect of $13 million from Opex and others. This is mainly explained by higher capacity payments coming from new projects, which more than offset higher Opex related to these new renewable projects.

The above-mentioned effects were partially offset by a negative effect of $7 million related to the largest gas activity carry out during the second quarter of 2023. And finally, we had a negative effect of $10 million related to the Metka PPA agreement, which was signed in 2023.

Let's move on to the next slide to review the main impact on the EBITDA during the first half. In the first half, our EBITDA was 74% higher than last year, reaching $597 million. Let's start by explaining the positive effects.

First, we had a positive contribution from PPA sales equivalent to $168 million, mainly related to the higher volume in in the regulated market and indexation in the free market, in line with the effects explained previously in the quarter.

Second, there is a relevant effect of $106 million related to industrial sourcing primarily explained by lower variable costs due to lower [indiscernible] generation as a consequence of the remarkable hydrology of the period and a more efficient generation mix and [indiscernible] [ this year ] effect of the [indiscernible] performance versus 2023.

Third, there is a positive contribution of $108 million related to the commercial sourcing primarily explained by lower prices and volume associated with the purchases in the spot market. This effect is partially offset by higher purchases from third-parties . In addition, we had a positive effect of $16 million related to the grid margin primarily explained as in the quarter by the recognition of the VAD 2020-2024 in the period.

Now, on Opex and other, we had a positive effect of $16 million from Opex and other, which is mainly explained by the same effect as I already mentioned in the quarter linked to the higher capacity payments coming from the new projects, which offset higher Opex related to them and higher costs for contingency plan after the climate events during the second quarter of 2024.

The above mentioned effects were partially offset by a negative effect of $124 million related to the remarkable gas trading activity carried out during the first half of 2023 for around [ 20 terra BTU ]. Finally, there was a negative effect of $35 million related to the Metka PPA agreement signed in 2023.

Let's move on to the next slide where we will review the net income evolution accounting for $267 million. Our net income increased by 2.2 times versus last year's figures, mainly explained by the EBITDA results. Let me drive you through the additional effect for the first half.

Higher depreciation, amortization and bad debt of $34 million, mainly resulting from higher depreciation in energy and power due to the new renewable capacity coming into operation, higher bad debt accrual in [ Green ] due to higher credit losses expected associated with the residential customer.

Regarding financial results and equity investment, we recorded a $6 million reduction versus last year, mainly explained by higher interest related to the PEC receivables, offset by higher financial expenses and lower financial income linked to the lower average interest rate.

Income tax increased by $57 million, mainly due to better results in the period. This was partially offset by lower costs related to the reclassification of assets held for sale in 2023, specifically those related to Arcadia.

Focusing on the quarter, our net income increased by $137 million. This increase is mainly explained by the rise in EBITDA contribution, which was partially offset by an increase in D&A and the debt of $21 million, primarily due to a $15 million linked to the operation of new renewable capacity. Bad debt increased by $6 million primarily due to higher credit losses among the residential [ customer ] in the distribution business. These dynamics [ closer ] in [indiscernible] but offset in the first half.

Higher financial expenses and lower financial income linked to the lower average interest rate. An increase in tax of $58 million in the period is mainly due to the earnings before tax losses recorded in the second quarter of 2023 and positive [ EBITDA ] in 2024.

Moving to FFO analysis on the next slide. Regarding FFO, the figures for 2023 have been adjusted by $310 million paid in taxes on capital gains obtained from the sale of Enel Transmission in 2022. In the first half of 2024, our FFO reached $52 million, representing an improvement of $56 million compared to the same period in 2023.

Let's see the comparison of our first half 2024 FFO and the balances versus 2023, starting with EBITDA. $597 million coming from EBITDA in 2024 and a variation of $254 million versus last year period, primarily due to higher PPA sales and positive performance of the industrial and commercial sourcing, as already explained.

$216 million negative impact coming from the cumulative stabilization mechanism effect in our receivables. This negative effect is partially offset by the execution of [ IDB factoring ] related to the PEC, which amounted to $70 million this first half. Once compared with the last year figures, the net impact of the PEC adjusted by factoring in the period totaled [ $147 million ], an amount of $15 million higher than last year figure.

Working capital reached a negative balance of $142 million, mainly due to the payment from 2023. Once compared to last year's figures, the working capital was $19 million lower, mainly explained by the sales of our headquarter in Santa Rosa building in 2023, partially offset by higher accumulation of VAD tax credit and payments associated with the Santa Rosa [indiscernible] [ lane ].

Income tax also negatively impacted our FFO results by $137 million, mainly explained by higher tax payment in generation business in 2024 and taxes paid on the sale of Arcadia assets. Once comparing the income tax paid in the first half of 2024 basis, first half 2023, we see a negative balance of $135 million. The main differences come from the tax payment of Arcadia operation, the recovery from previous periods obtained during 2023 and lower tax payment in generation business.

To conclude, regarding financial explain -- expenses, this first half of $120 million has a negative effect, primarily explained by the payment of debt related expenses. Once we compare this first half financial expenses with the last year figures, we see a balances of $32 million, mainly explained by lower financial income linked to both reduced cash level and lower average interest rate.

Now, let's take a look at our liquidity and leverage position. Our gross debt increased by 8% to $4.8 billion by the end of June 2024 compared to December 2023. This higher debt was mainly due to higher working capital and CapEx needs for 2024. This increase in gross debt should reverse during the second half of 2024, considering the seasonality of our generation business and the [ calming ] factor under the [ PEC ] [ we're making ], which we expect to be carry out soon.

The average term of our debt maturity slightly decreased to 5.9 years by the end of the first half of 2024 versus the 6.1 years in December 2023. And the portion of the fixed rate was 76% of the total debt. The average cost of our debt reached 5% as of June 2024 and slightly above the 4.9% recorded in December 2023, primarily due to the Enel Generacion Yankee bond maturity in April 2024 for $100 million at 4.25%.

Regarding liquidity, we are in a comfortable position to support our capital needs for the coming months and cope with the next year maturity. As of June 2024, we have available committed credit line for $750 million and a cash and cash equivalent for $305 million.

Now, I will conclude this presentation with some closing remark.

The first half of this year was very important regarding update in the regulatory framework. The VAD 2020-2024 decree and the approval of the PEC 3 were followed by the publication of the PNP decree, which was a significant milestone for the generator starting to execute factoring in the third quarter 2024.

Today, the regulatory agenda is centered on the potential increase of subsidies for vulnerable family. We understand the importance of this moment, and we are constantly monitoring the situation. We will provide any necessary feedback to the authority and association according to former processes. However, we hope that the State of Chile will make the best decision for all, maintaining the security of the regulatory and market environment.

An important message that I would like to leave here concerns the increase of flexible technology in our generation markets. As you can see, all the committed megawatts of renewable generation and BESS were successfully delivered. As I mentioned before, we are also concluding the Los Condores hydropower plant by the end of this year.

To conclude, in this quarter, you can also see that we have been able to deliver a more than solid operating and financial performance in the first semester. These are the results of our actions to unlock value and give us enough support to be confident about our 2024 guidance.

Let me now hand over to Isabela.

[Isabela Klemes, executive]

Thank you, Giuseppe. Let's now begin with the Q&A session. We will receive questions via phone and chat in the webcast. The Q&A session is open. Operator, please, you may start.

[Operator]

[Operator Instructions] One moment for our first question, and it is from Alessandro Di Vito with Mediobanca.

[Alessandro Di Vito, analyst]

I have 3. The first one is on the PEC mechanism. So I wanted to understand, you said that you have more or less $1 billion to recover. I wanted to understand if this amount can move, or is it still? Because I saw that on your cash flow you booked additional $200 million in this first half. So I wanted to understand if you could either move upwards or downwards? And then you said that you expect to recover, let's say, $600 million of receivables by the end of the year, but the whole amount is going to be fully recovered by 2025. So I wanted to understand the trajectory of the remaining $400 million? This was the first question.

The second question is on the update of distribution tariffs. I wanted to understand if the conclusion of the review for 2020-24 tariffs had some impact on your numbers? And you also said that you expect a 5% increase in tariffs for the next update for 2024-28. So I wanted to understand which impact this may have on your numbers?

And the last question is on guidance. So you confirmed the guidance for 2024. If I remember correctly, the guidance was based on an assumption of a 10 terawatt hours hydro output. But now we see that the projections are pointing more towards 12 terawatt hours. So I wanted to understand whether this guidance is conservative? Because looking at the numbers, they are more or less -- we're more or less halfway through the year and they're off the number of the guidance. So I just wanted to square the circle on this matter.

[Giuseppe Turchiarelli, executive]

Okay. Starting from the first one. As I said, we have -- at the end of June, we had $1 billion. That includes also around $150 million in terms of [ income ]. Now, the evolution of the PEC is based on the exchange rate U.S. dollar-pesos because, I remind you that we have the PPA in dollar, even if the payment of the [indiscernible] [ income ]. So we have a certain trend at the end of the year, but again, this trend is strictly linked to the exchange rate, FX.

The recovery that we are -- the recovery that we expect in 2024, of course, are strictly linked to this factoring process. The remaining part is going to be recovered between 2025 and [ 2026 ]. I would like to remind you that the PEC 1 was seen to have a mechanism of recovering, that is going to finish in 2027. So approximately, we have -- but again, this is just an estimation so far. We are going to recover another $200 million in 2025 and the remaining part between 2026 and 2027. These are basically the current estimation that we have today.

For what concern the tariff update 2020-2024, as I said, we have an increase in our number of around [ $15 million ] in June versus last year. You have to consider that this amount include also around $7 million that are part of recognition that is referring to the previous year. You have to consider that this tariff decree is basically adjusting a situation that was absolutely [ extraordinary ] because we are at the end of the process and only now we got the final tariff. So part of this increase is related to the adjustment from 2020-2023.

And for what concern the next regulatory cycle, the 2024-2028, let me say that the technical report that we have received [ supplies ] in line with our strategic plan. So basically, we don't see any kind of situation that could so far -- could affect the strategic plan. Clearly, we are going to give us our feedback, and we are going to try to understand which is the best tariff for covering the several aspects of the distribution company. But as of today, we don't have any kind of issue for the [ PEC ] technical report.

In terms of guidance, well, what I can tell you is that as of today, we confirm our guidance, of course. What we declared in the last Capital Market Day was the range. And as of today, I can confirm that we are in a range -- in this range. Clearly, we are still trying to understand which are -- which is the result of the [indiscernible] and that will give us further information to understand how the [indiscernible] season will be in the following months. But as of today, I can tell you that we are in the range of the guidance.

[Isabela Klemes, executive]

Operator, do we have more questions coming from the line?

[Operator]

Yes. One moment for our next question, and that is from Maria Florencia [indiscernible] with MetLife .

[Unknown Analyst]

Just a follow-up regarding the receivables. So for this year, how much are you expecting to be able to monetize?

[Giuseppe Turchiarelli, executive]

Well, for what concern the receivable that is currently affecting our generation company. As I said, in the June closing, we have approximately $1 billion. And if everything is going as expected, in the second half between, I would say September and October, we were able to [ make ] the -- proceed with the factoring process, so we should have around $450 million and $600 million of output. This is the [ EBITDA ].

[Isabela Klemes, executive]

Operator, more questions coming from the line?

[Operator]

Yes, I have one more question from the line of Martin Arancet with Balanz.

[Martin Arancet, analyst]

I have 3 questions. I would like to run them one by one, if that's okay. First, we learned that [indiscernible] expressed a desire to see the Santiago electrical [indiscernible] to strengthen in order to address potential issues with quality of service. I was wondering if this could affect the distribution of Chile Opex and CapEx plan? And if so, by how much?

[Isabela Klemes, executive]

Giuseppe?

[Giuseppe Turchiarelli, executive]

I mean, maybe the extreme weather events that we had in May affected our -- supply of energy into our [indiscernible]. It was very, very complicated because of rain and also temperature. And we had some cost associated with it. It is approximately $3 million. And clearly, we are in discussion with [ BESS ] to understand how to manage this situation. We don't have so far any other information about that.

[Martin Arancet, analyst]

Okay. Well, following up then on energy solution. And I'm sorry because I think that you already mentioned this, so I may be asking you to repeat yourself. But I want to understand the situation around poor household power bills? So if you could please tell us which hikes have already been implemented by July? I guess that the ones related to [indiscernible] already implemented. I was wondering which [ hikes ] have been implemented in the energy component? And also specifically about the surcharge for large customers related to the PEC grade payment, if that has been already implemented in the power bills also?

[Isabela Klemes, executive]

Giuseppe?

[Giuseppe Turchiarelli, executive]

For what concern, the tariff adjustment in the distribution segment, we have 2 kind of adjustment depending on the [ cluster ]. So we have the clients that consume lower than 350 kilowatt hours, which the increase is going to be around 16%. And this increase is basically the result of 3 components. The first one is the update of VAD 2020-2024. That represents 5%. So basically, the increased tariff associated to the VAD 2020-2024, the distribution company is around 5%.

The remaining part is split between an increase in the tariff coming from the updating transmission regulatory framework, so this is around 4%, and finally, we have 8% which is associated to the generation segment. This is for what concerned the cluster of clients lower than 350 kilowatt hours.

For the other one, more than [ 350 ], the increase of tariff is higher because we have an increase in Distribution segment, 5%, transmission 4% and an increase in the segment for the generation company that is going to be around 33%. And this is because, basically, for this customer we are going to apply basically the cost of PPA that the [ tenders ] in the past year has been resulting. For what concern the PEC, the PEC that we're going to factorize by the end of the year includes also the interest.

[Martin Arancet, analyst]

There is a date for these increases, sorry?

[Isabela Klemes, executive]

The date of this increase?

[Giuseppe Turchiarelli, executive]

It's already in place.

[Martin Arancet, analyst]

Okay. Well, my last question then regarding the El Manzano and [indiscernible]. I think that they were connected, if I'm not in mistaken, before. They are co-located [ generation plants ], start the operations. So I was wondering what is the remuneration mix that you expect to receive from these? For the moment [ sale on ] batteries is shut spot trading or also capacity payments and perhaps some ancillary services as well? And also who will be in charge of deciding the charging and discharging times of these batteries? Is it going to be Enel Chile or [indiscernible]?

[Giuseppe Turchiarelli, executive]

Look, for what concern this battery, basically, the composition of the revenues are basically coming from the capacity payment and the energy shift. These are the main component of the remuneration of this plant. The ancillary services, we are waiting for an update of the regulation by the end of this year. And as soon as it's going to be in force, we are going to have also an additional effect coming from this stream of revenue.

And these 2 projects are projects retrofitting. So basically are jointly to another renewable project, in this case the [indiscernible]. And in this case, we are talking about solar power plant. So basically, they are charging from the solar power plants, but the regulation allow us to charge the battery also by the grid. So depending on the situation we are going to use one of the 2.

[Isabela Klemes, executive]

Operator, do you have more questions coming from the line?

[Operator]

Yes, I do. One moment for a follow-up from Alessandro DiVito with Mediobanca.

[Alessandro Di Vito, analyst]

I have a couple of follow-ups, actually. Well, the first one is on PEC. So you said that the general framework to recover the PEC-3 receivables goes up to 2025, but you want to recover all the [indiscernible] before 2027. Is this correct?

And you said that you have this $1 billion at June '24, of which $150 million is related to interest and $850 million is related to tax receivables. Is this correct? Because in this sense, the $850 million is what is [ still ] and the $150 million related to -- let's say, related to interest is the amount that is going to -- that may change in the coming months. So this is the first follow-up.

The second follow-up is just a clarification on the update of tariffs. So you said that you expect a 5% tariff increase on the next regulatory period, so '24-'28, but the $16 million that -- let's say, that you are accounting in your numbers, it's related to the update, so the one that's been concluded, the 2020-2024. I just wanted to have a confirmation on this?

[Giuseppe Turchiarelli, executive]

I mean we'll try to be more clear. So as I said, as of today, we have $1 billion that includes $1 billion credit coming from the PEC 3. That includes $150 million in terms of interest. And by the end of the year, we are going to factorize around $550 million, $650 million. The remaining part is going to be recovered, not necessarily through the factoring, but according to the regular mechanism by the end of 2027. The increase for what concern the outstanding credit that we have today.

Clearly, from now onwards we are going to accumulate -- depending on the market conditions, we're going to accumulate another remaining part that is going to -- is not going to be a huge part of our credit, but we are going to recover it in the next year. And...

[Isabela Klemes, executive]

The second question...

[Giuseppe Turchiarelli, executive]

For what concern the update tariff in the distribution, as I said, the impact for the distribution -- sorry, the remuneration that is going to impact the distribution company is only related to the 5% increase that the company is going to receive because, of course, the remaining component transmission [indiscernible] is going to be passed through to the [ international company and the establishment company ]. So the amount that you see there in terms of margin, of course, is linked exclusively to the 5%. And as I said, we are... sorry?

[Alessandro Di Vito, analyst]

For the next regulatory period '24-'28, right?

[Giuseppe Turchiarelli, executive]

No. For the '24-'28 we are still understanding how it's going to be the...

[Alessandro Di Vito, analyst]

Okay. I just wanted to understand the [indiscernible] regulatory period was related to $15 million which relates to the 5%. So it's [indiscernible].

[Giuseppe Turchiarelli, executive]

First one.

[Alessandro Di Vito, analyst]

Okay.

[Giuseppe Turchiarelli, executive]

[indiscernible] As of today, at least the information that we got are in line with our expectations. So we don't see a drop today, we don't see any kind of worry, but it's too early to understand how it's going to be, the tariff.

[Operator]

And I'm not showing any further questions in the queue. I will pass it back to Isabela for any additional questions on your side.

[Isabela Klemes, executive]

So the first question is coming from Felipe Torres from [ ISP Abita ]. So the question is, could you explain the better results in the Distribution segment? Is it related to the tariff decree of June?

[Giuseppe Turchiarelli, executive]

Yes. As I said, basically, the tariff decree allows energy distribution to adjust the provision made in the past regarding the VAD 2024. So basically, up to June we used to make an estimation on the provision point of view, estimation of the tariff. Right now, we have the [ funnel ] size. So we started applying the [ funnel ] size that we received, and we are recovering part of the adjustment that we made in the previous year. So this is basically the main reason of increase in the distribution company.

Clearly, we have all -- several other effects, the demand, the inflation. But basically, in terms of the decree, this amount is clearly significant for a company because it is recovering the gap that we had in the last year.

[Isabela Klemes, executive]

Also now on distribution, we have received some also questions coming from now our e-mail, okay? So some retail investors are asking us, not regarding the impact of the current tariff discussions on Enel Chile. The question is whether the published tariff decree explain the results of Enel Chile as indicated by the press?

[Giuseppe Turchiarelli, executive]

Let me clarify the point. For what concern the generation company, the tariff decree doesn't have any kind of impact in terms of [ EDA ] because since the first PEC law has been issued, we started to register, to make a provision according to the PPA in place. So basically, we don't have any kind of increase in terms of [ PPA ] because of this tariff increase. And this is the reason because we have the PEC receivables.

So we [ continued ] since the beginning to repeat the correct PPA price. What we received in terms of payment only a part of this PPA price. This is the reason because we have the PEC receivable.

For what concern the target decree, the only impact that we can -- that is related to the increase of our performance is on the distribution company. So basically, what we have already said, distribution is after 3 years [indiscernible] roughly starting to accrue [ according ] the current tariff, and this is explained -- and this explains around $15 million, not more, not less, of which half of it approximately is coming from the adjustment of the previous year.

So basically, in a very short way, I would say that the [ current ] decree impacted in our performance in a very, very low amount.

[Isabela Klemes, executive]

Let's go to another question now coming from -- the second question is coming from Fernan Gonzalez from BTG. So Fernan is asking us, how and when do you expect to receive in the payments from the accumulated debt in the Distribution segments from the delay of 2020-2024 decree?

[Giuseppe Turchiarelli, executive]

Well, our estimation is that we are going to receive the accumulated debt at the beginning of next year, the first quarter of the next year. This is the estimation that we have as of today. I don't believe that we're going to get any kind of adjustment by the end of the year.

[Isabela Klemes, executive]

Now we joined 2 questions here, one from Fernan Gonzalez still from BTG. So how do you feel about your medium to longer-term contracted portfolio? Are you still participating in the new unregulated option to try to win new PPAs? Or do you believe you don't have much room left? So also, there is a very similar question coming from [ Ken Shao ] from Morgan Stanley. He's also asking us about, are you still on track to hit the 33 terawatt hours sales by 2024-2026? You have several regulated contracts ending. So how will you source additional contracts?

[Giuseppe Turchiarelli, executive]

Well, as of today, we don't see any -- we don't have any kind of information about new regulated trends as of today. In general, of course, as I already explained several times, I mean, we don't have any kind of [ prejudice ] in our customers. So the best PPA we are going to choose.

So for what concern the 33 terawatt hour this year, we don't see any kind of issue. We basically -- all the contracts have been already in place. From the next year, we are in negotiation with several customers in order to fulfill the amount of terawatt hours that is going to expire according to the PPA in the regulatory segment. So as of today, we confirm our target in terms of sales, and we are confident to reach.

[Isabela Klemes, executive]

Okay. We have other questions in terms of the guidance that you have already answered. So the other question is coming from [indiscernible] from [ Penta ]. He's asking, can you give us some color on the cost for our new solar and wind project per megawatt? Related to that, what about the cost of our battery?

[Giuseppe Turchiarelli, executive]

I mean in terms of wind, I would say, it is around $1.6 million per megawatt approximately. We said several times it's depending of the project, how it is an extension of an existing one, how much it's close to the grid. But in general, $1.6 million per megawatt is a good proxy of the cost.

For what concern the solar, I would say that we are close between $0.7 million and $0.8 million per megawatt. Let me remind you that in our plan as of today we are not expecting any other solar power plant. And for what concern the battery, we believe that something is improving, the battery cost because we are -- we believe that we're able to reach $1 million per megawatt in the [ BESS ] power plant per hour.

[Isabela Klemes, executive]

We do not have any more questions. So we would like to thank you all for being connected today. And as always, if you have any other doubt, the Investor Relations team will be available. Have a great end of week. Bye-bye.

[Operator]

And thank you all for participating in today's program, and you may now disconnect.