Verbund AG

VSE:VER

Earnings Call Transcript 2022-Q1

[Operator]

Dear ladies and gentlemen, welcome to the conference call of VERBUND AG. At our customers' request, this conference will be recorded. [Operator Instructions] And I now hand you over to Peter Kollmann and Andreas Wollein who will be you for this conference. Please go ahead.

[Peter Kollmann, executive]

Thank you. Ladies and gentlemen, let me welcome you to our presentation for the first quarter, and let me thank you for joining today's conference call.

Before we move into the analysis of our business development, let me make a few general comments. As early as '21, as you know, there was a massive increase in primary energy prices on the international procurement markets. This development was exacerbated by the outbreak of the war in Ukraine and the tight supply and low storage levels in Europe and high demand were particularly noticeable in gas price developments.

But the uncertainty caused by the geopolitical conflict in Eastern Europe, regarding gas supplies contributed to a further rise in gas prices and high volatility for all commodities on the energy market. As a result of the sharp rise in world market prices for primary energy sources and the high cost of CO2 allowances, European wholesale electricity prices increased and had, as you will, see a big impact on our earnings.

Again, the background of geopolitical challenges. The pressure is growing in Europe to phase out fossil fuels and move away from energy imports, particularly from Russia. An increased expansion of renewable energies, as well as an increased expansion of grids and storage facilities is necessary in order to achieve this.

You know our business going very well, and you know that we can make a valuable contribution in this context. Thus, we will continue to invest massively in the expansion of our grids and power plants in the coming years.

Now let's move on to the details. At the beginning, as always, I would like to highlight the most important influencing factors for the results. Based on our hedging strategy for our own electricity generation, the average achieved contract price increased by EUR 66 to EUR 113.8 in the first quarter 2022 compared to the first quarter '21.

The hydro coefficient, which determines the generation from our run-of-river hydropower plants was 6 percentage points below the long-term average and 5 percentage points below the first quarter '21. Production from our hydro reservoir on the other hand, was higher compared to last year.

Contributions from flexibility products increased in all categories, especially control energy and pumping in total by -- close to 160% compared to last year. There was also a positive contribution from the full consolidation of Gas Connect Austria.

Finally, we had a positive nonrecurring effect amounting to EUR 56.6 million. This effect results from the revaluation of deferred taxes due to the reduction of the corporate income tax in Austria as part of the so-called Eco-social Tax Reform Act.

Now the impact of these influencing factors on the key figures of VERBUND in the first quarter '22 is as follows: EBITDA strongly increased by 170% to EUR 815 million, and the reported group result increased by 255% to EUR 515 million. The adjusted group result increased by 220% to EUR 464 million.

The operating cash flow increased to a level of EUR 209 million. The free cash flow after dividends was negative at a level of minus EUR 105 million. Net debt increased by 5.3% to a level of EUR 3.7 billion.

VERBUND expects for '22 a reported and adjusted EBITDA between approximately EUR 2.8 billion to EUR 3.5 billion and the reported group result between approximately EUR 1.55 billion to EUR 2 billion based on an average generation from hydro, wind and PV as well as the current risk situation of the group.

The payout ratio will be between 45% and 55% of the adjusted group results between approximately $1.5 billion to EUR 1.95 billion.

The guidance for flexibility products is approximately EUR 190 million. As you know, our old guidance was approximately EUR 130 million. The reasons for the increase are improvements in all areas, especially our returns from pumping due to higher spreads.

On the next page, you see our hedging volumes for '22. We achieved an average achieved contract price for our hydro generation of EUR 95.4, EUR 94.1 for '23 and EUR 97.8 per megawatt hour for '24. Please note that we have already hedged approximately 78% of the volumes for '22, 36% of the volumes for '23 and approximately 21% for '24 as of the end of the first quarter.

On a mark-to-market basis, as of the end of April '22, we calculate with a price of EUR 125.7 million for '22, EUR 157.4 million for '23 and EUR 156.9 million for '24. As you know, EUR 1, plus or minus in the power price has a sensitivity of approximately EUR 25 million in our EBITDA line.

Now going through the various segments. I'm starting with our most important segments. Hydro at 0.94, the so-called hydro coefficient, which is an index quantifying the hydropower generation of the run-of-river plants was 6 percentage points below the long-term average and 5 percentage points below the level of the first quarter '21. The production from our annual storage power plants increased by 15%, mainly due to higher turbining.

Own production from hydropower, therefore, overall decreased slightly by 47 gigawatt hours or a minus 0.8%. Higher average achieved prices and an increase in the contribution from flexibility products compensated the reduction in volumes. I should say, overcompensated the reduction in volumes because the EBITDA in the hydro segment increased by 193.5% to EUR 515 million.

Our main project, the 480-megawatt Limberg III pumped-storage power plants and the 45-megawatt Reißeck II pumped-storage power plant projects are both on time.

On the next page, we talk about the new renewables segment. The new renewables coefficient, which here, similar to hydro, is an index quantifying the generation from wind power in photovoltaics amounted to EUR 1.06 million in the first quarter compared to EUR 0.86 million in the first quarter '21.

Generation from wind power increased by 24% or 61 gigawatt hours and amounted to a total of 314 gigawatt hours in the first quarter '22. More favorable wind conditions in all markets in Austria, Germany and Romania were the reason for this development. Generation from PV amounted to 0.7 gigawatt hours in the reporting period.

Now taking a look at the EBITDA development. In the new renewable segment, we see that the EBITDA increased by 80% to EBITDA amounting to EUR 24.2 million. In addition to higher volumes, higher average achieved prices were the reasons for the EBITDA development.

Now on the next page, you see our sales segments. Now taking a look at the EBITDA development here, we see that EBITDA increased by 29% to EUR 37.5 million. The improvement results from a better result from the valuation of energy derivatives and higher contribution from flexibility products, while higher procurement prices for electricity and gas for end customers had a negative impact.

VERBUND delivered electricity and gas to approximately 533,000 end customers in the first quarter '22, which represents an increase of approximately 3%.

On the next page, I continue with all other segments. The generation from thermal power plants was up by 557 gigawatt hours to 688 million due to the market driven use of one line of the CCGT Mellach for electricity and district heating higher volumes and higher spreads contributed positively to our EBITDA development here.

The second line of Mellach was contracted by APG for congestion management. The contribution from flexibility products decreased by EUR 8.8 million. Contribution from KELAG, the provincial utility of Carinthia to the financial result amounted to minus EUR 8.8 million due to a lower hydro situation and nonrecurring effects.

Finally, let me remind you that the Mellach CCGT was contracted from Austrian Power Grid for future congestion management, starting with the 1st of October, '21. In detail, Line 10 is contracted from the 1st October, '21 to the 30th September, '23. And the Line 20, second line from the 1st of April, 2022 to the 30th September, '22.

In the first quarter and in the fourth quarter, we can use Line 20 on the market-driven basis. So as you can see, we have a combination of market driven use and the quasi regulated business as part of our congestion management. The district heating power plant Mellach was not contracted by APG and is there for mothballed as of the 1st of October, '21.

On the next page, we come to our grid segment. As you know, the grid segment consists of our regulated business, Austrian Power Grid as well as Gas Connect Austria. First, the contribution from APG. As you know, there is a difference between local GAAP and IFRS. Unfortunately, mix reporting were complicated under IFRS. In contrast to the local GAAP, volatilities in the results contribution cannot be avoided because the so-called regulatory account cannot be applied. That is something we're working on with the IFRS board, and we hope that within the next 2, maximum 3 years, we get an adjustment here and we can introduce a regulatory account into IFRS as well.

The EBITDA for the first quarter '22 from the grid business according to IFRS was approximately EUR 137 million. The EBITDA guidance for the electricity grid is only EUR 75 million. Now the reasons for this are the following. With regard to congestion management, there has been only very low cost for the Austrian control area in the first quarter '22. Currently, we are seeing very high prices and the month with the highest demand for congestion management that are still to come.

Also with regard to auctions, we had very high revenues in the first quarter 2020, particularly due to the increased price spreads at the border, especially with Germany. This year, however, the auction mechanism will be changed. The entry into port of the new regulations and the future bidding behavior is currently very difficult to estimate, but a significant reduction in revenues compared to current and past auction revenues is to be expected.

In addition, the clawbacks of the regulator to reduce the regulatory account will have a negative impact. Therefore, that delta between the relatively high first quarter and the overall guidance for the entire year.

Now Gas Connect Austria operates and construct natural gas high-pressure pipelines in Austria. The company is also responsible for the marketing and provision of transport capacity at border points, so-called entry and exit capacities. The transport capacity required for domestic natural gas demand is included in that. The company plays a pivotal role in the supply of natural gas in Austria and Europe. The natural gas is transported to the Austrian federal states, but also Germany, France, Slovenia, Croatia and Hungary.

With regard to the result contribution of Gas Connect Austria, we only report January to March 22, amounting to approximately EUR 28 million. Please note that we do not provide value from last year as we did not own the asset by then.

Now the guidance for '22 with regards to Gas Connect Austria is approximately EUR 100 million under IFRS. This guidance relates to the full year '22.

Now with that, I would like to hand over to Andreas Wollein. Please, Andreas?

[Andreas Wollein, executive]

Yes. Thank you, Peter. Let me quickly go into the key financial figures and the developments on -- starting on Page 10.

Let me start first with the EBITDA development. So EBITDA increased by EUR 512 million to EUR 815 million. This increase is mainly attributable to an increase in all segments. The hydro segment was up by EUR 340 million, mainly caused by higher average achieved prices and an increase in the contribution from the flexibility products.

The new renewables segment was also up in total by around EUR 11 million due to more favorable wind conditions. The grid segment was up as well by around EUR 84 million, due to higher contributions from auctions and higher national grid usage revenues. And also the all other segments were higher by about EUR 72 million, because of higher volumes and higher spreads in the thermal segment.

Depreciation increased by around 15% to EUR 110 million. The main reason for this development is the acquisition of Gas Connect Austria last year and, of course, increased investments mainly into the high voltage grid, APG. The financial result was weaker -- was slightly weaker by around EUR 1 million. This was mainly attributable to lower earnings contributions from the interest accounted for using the equity method, mainly KELAG, the reasons I think were described already before.

Taxes on income were influenced by a positive nonrecurring effect amounting to around EUR 57 million. So this was already explained by Peter. And the group result, therefore, increased by around EUR 370 million or 255% to EUR 540 million. The group result after adjustment for nonrecurring FX was up by 220%.

When we move on to Page 11, and we'll go to the operating cash flow development. So the operating cash flow in the first quarter was slightly increased. It showed an increase by 2.7%, mainly due to the higher average achieved contract prices for electricity and the higher operating cash flow from the grid segment.

Higher tax payments and increased margining payments for energy derivatives had a counterbalancing effect. Excluding the margining effects in the operating cash flow would have been around EUR 500 million effect. So the operating cash flow would have been higher by EUR 500 million.

The free cash flow showed a decrease from EUR 35 million to a level of minus EUR 105 million caused mainly by the increased investment activity and the net debt figures slightly increased to around EUR 3.7 billion. Again, here, this figure was heavily influenced by the margin requirements for the trading business.

Moving on to Slide 12. A few words about the development of financial liabilities. So I think it's worth mentioning that we have in this market environment, sufficient access to all kinds of different credit lines. So as a liquidity backup, VERBUND has a EUR 500 million syndicated loan facility, which is undrawn and has no [indiscernible]. We have also access to a number of committed and uncommitted lines in total of around EUR 3 billion.

The total amount of our financial liability is approximately EUR 2.8 billion. The increase is mainly caused by the issuance of a Green Bond, the acquisition of Gas Connect Austria and the higher amount of short-term money market liabilities due to higher margin requirements.

The average interest rate on our debt is approximately 1.7% around 46% of our debt is subject to fixed interest conditions. The rating of the bond is unchanged. So we have a rating, let's say, of A/stable outlook with Moody's and A3/stable outlook at Standard & Poor's.

And now let me hand over to Peter again for giving you the outlook.

[Peter Kollmann, executive]

Thank you, Andreas. Now at the end of our results presentation, we always give you our sensitivities. A deviation of plus/minus 1% in the generation from hydropower has an impact of plus/minus EUR 28.6 million. In our group results, a deviation of plus/minus 1% in the generation from wind power has an impact of plus/minus EUR 0.8 million. And a deviation of plus/minus EUR 1 in the wholesale price has an impact of plus/minus EUR 3.5 million in the group results.

Now on the basis of the aforementioned developments, our guidance for '22 is the following. We expect the reported and adjusted EBITDA of approximately between EUR 2.8 billion and EUR 3.5 billion and reported group results of between EUR 1.55 billion and EUR 2 million under the assumption of average hydro, average wind and PV generation in the remaining quarters as well, of course, as the overall risk situation of the group.

For the financial year '22, VERBUND plans to pay out between 45% and 55% of our adjusted group results. And that would be between EUR 1.5 billion to EUR 1.95 billion.

Now with that, we have come to the end of our presentation, and I would like to hand over to you for Q&A.

[Operator]

[Operator Instructions] The first question is from Wanda Serwinowska of Credit Suisse.

[Wanda Serwinowska, analyst]

It's Wanda Serwinowska from Credit Suisse. Two questions for me. The first one is on the potential political intervention in Austria, which options, apart from the windfall profit taxes or special dividend are being discussed. What is the most likely outcome in your view? And do you consider a new basically market model where power price will be based on the kind of return on the asset value?

And the second question is on all the other sectors EBITDA. I struggle a bit to reconcile a EUR 70 million increase in EBITDA in Q1 because you -- even if I take 800 megawatts of Mellach, I would need to run a 40% load factor to get to 0.7. But then I would need to take EUR 100 per megawatt hour spread, if I needed justify EUR 70 million increase. When I look at Reuters on the spread -- on the market spreads, it's all negative. So my question is what I'm missing, if you could explain. And very quickly request, would you be able to disclose the latest hedging in the hydro situation?

[Peter Kollmann, executive]

Yes. Okay. Now we have -- let me just summarize. We have the question, windfall taxes and dividends. We have a question on market model. We have an update on the hedging and then you had a detailed question in terms of load factors, et cetera, et cetera. Now Andreas would look into the EBITDA question that was very specific. In the meantime, I will cover the other 3.

Now let me start with the windfall taxes. At this point in time, we have no specific information, which I could share with you. And the reason for that is the Ministry of Finance is currently looking at a lot of different proposals. They're looking at a lot of different ways to look at the sector and potential succession.

As you know, there are many countries within EU that have basically applied different methodologies. We have the Spanish situation with the EUR 50. We have the French situation with the retail prices. We have, again, a different methodology in Italy, in Romania, in Greece. As a result of that, among that relatively wide optionality of potential measures, we don't know which one is going to applied by the Republic of Austria to the sector.

Furthermore, because you also asked about the dividend, we have no specific information that would be a request for an extra VERBUND dividend to be paid.

In terms of the market model, I'm not surprised that you are bringing it up. That is a big discussion around Europe. You all might remember that it was first brought up by the Spanish government, and that was already in fall of last year. They were basically arguing that why should a very high gas price determine the price for production technologies, which are much lower.

As a result of that, with the increase of renewables, people are asking the question, should we change the merit order system, which is a system that has obviously come from a centralized system with -- which has relatively similar production cost and which was much more predictable, should we still apply that to the new world where we are in the midst of an energy transformation.

Now ISA recently has come up with a response. That response obviously is the recommendation. This is something that would then be looked at by the national governments, by the regulators, by the national regulators and of course, by the EU commission. ISA basically said, let's stick to the existing merit order as it gives an incentive to the development also of renewable energies. At the same time, we should not be distracted by a very high gas price, which is the result of a war, and of an extraordinary situation that should not influence the medium to long-term system that is derived from the merit water system. And then they also said there should be other measures, which makes the market more liquid, which make the market more predictable and which overall should lead to lower energy prices.

So I cannot add a lot more to that. I can give you my personal opinion. I think that with the ISA contribution, but at the same time, with some national governments, particularly the French and the Spanish meaning that the merit order should change. I think that discussion is going to stay with us. And I think it is, on the one hand, it can be a political discussion. On the other hand, it needs to be a highly technical discussion, and that is something that is going to be very interesting to follow over the next few years.

In terms of the hedging level, yes, I can actually give you up-to-date numbers in terms of where we stand today. The numbers which I have given in my presentation, obviously were the first quarter numbers. For today, we are 80% hedged for '22. We are 45% hedged for '23, and we are 28% hedged for '24.

We have hedged '22, i.e. 80% at a level of EUR 99. For 45% for '23 at a level of EUR 93. And '24, i.e., the 28%, which we have already hedged at EUR 89. Obviously, you can then put in the current market, which is highly volatile and is changing all the time in order to derive a mark-to-market. Obviously, the mark-to-market, if we take current very high-power prices for '22, '23 and '24 would be significantly higher than the power prices, which we have hedged.

Now I will hand over to Andreas who can now give you the detail of the question you have asked.

[Andreas Wollein, executive]

So, Wanda, 2 additional questions. The first one in regards to the hydro levels, as we said, the hydro situation is weak, continued to be weak now also in April and so far in May. So we have an hydro coefficient of 0.94 for Q1, we had now a hydro level of around year-to-date of around 0.90. It's about 10% below the long-term average.

With regards to your next question for the thermal segment. So I think the solid reticent thermal segment can be attributed to the spreads in the market, as we said. You know that we are -- we have a different way of operating Mellach. One line is operated constantly over the year in the so full capacity reserve. The second line is operated in the market against the market in Q4 and Q1. So the weaker quarter was basically one line operated against the market.

The decision to operate the market-driven line is made on a daily basis. So one day before operational, we decided if we operate it asset or not. It's purely driven by a margin -- it's a margin decision. And based on that I would say roughly half of the EUR 70 million coming from -- as the increase. So around half of that is coming from the -- from running the power plant in the -- against the market and half of the additional income is coming from stripping average also has a significant impact. Congestion management for Q1 played only minor role. So this is the answer I can give you.

[Wanda Serwinowska, analyst]

Very, very quick 2 follow-ups. The first one is, do we have any time line on the political intervention in Austria? When should we hear any update? And Peter, the second question to you on your personal view, I do appreciate that you share your views on the market. Do you believe that it's possible to implement any cut like in Spain and Austria given all the interconnection because if the power price in Austria is cut, everybody will be happy to buy cheap power from Austria?

[Peter Kollmann, executive]

Yes, that's a very good point. I think those are exactly the kind of considerations, which the Republic of Austria needs to think about that is exactly why at the outside as said, there is no panacea. There is no quick solution. I think it requires a very, very careful consideration in terms of the impact on the energy sector, the impact on a lot of other areas, including import and export.

You're right to say that we are in a country in the middle of Europe. We have 7 neighbors. And we have a delta between the power prices in Austria and literally all our neighbors given the different net transfer capacities and there needs to be a very careful analysis.

Now, I cannot comment any further on that, not because we don't want to, but because I think the Chancellor Mr. Nehammer, he has basically said that he is going to give that specific question to the Ministry of Finance and the Ministry of Energy, and that he's basically asking them within the framework, what is possible within the EU looking at a lot of different possibilities, and we cannot make any judgment at this point in time what the result would be.

[Wanda Serwinowska, analyst]

And there is no time line?

[Peter Kollmann, executive]

And that, yes, and we have no specific time line at this point in time, if there were one, we would obviously communicate with the market. But you have to take into consideration that we are talking about the entire sector here. We're not talking about VERBUND specifically. I mean we're obviously by far, by far, the largest utility in Austria, but there are many other sectors within -- sorry, there are many other energy companies within the sector that will then be impacted as well.

[Operator]

The next question is by Lueder Schumacher of SocGen.

[Lueder Schumacher, analyst]

A number of questions from my side as well. The first one, I apologize going back to the idea of a windfall tax, although I appreciate you probably can't say much more about it. But what has changed? I mean in all previous meetings we had, you mentioned that there's actually nothing like this on the horizon that was no debate in Austria. Austria is looking across the border in Germany, where there is still no debate. Did this come completely out of the blue? Or was there suddenly some kind of debate of these windfall profits or the burden of end customers. Just if you can share results, new idea where this might have come from?

And also, it sounds to me, maybe you can confirm this, that you're not involved in this discussion of possible intervention at all, which would seem to be, hopefully, just the fact of early days, but bear in mind the damage that can be done by the wrong kind of intervention. I would have hoped that the market players will be involved at is at some stage, your view on this would be great.

Then also probably one for Andreas. You mentioned that the impact of the variation margin on net debt has been big. It was heavily influenced. Can you put a number on that, please? How much of the increase in net debt is due to variation margin outflows?

And lastly, on your acquisition of Q Energy for about EUR 1 billion. You had many attempts at renewable acquisitions in Spain, but always refused to pull the trigger due to valuation concerns. What makes this one different? Where do you see the attraction? I mean if I look at the portfolio, it seems to be that there's very little value in the existing assets is all about the pipeline. But you could put a bit more color on this.

And also on the 82 megawatts of existing capacity, is that all solar? And can you give us maybe an idea about the age of the plant, is relatively young and maybe if you can also share a bit on the fleet and sales there operating under?

[Peter Kollmann, executive]

Yes, where shall I start. Windfall tax, of course. Let me sort of like summarize the comments which I've made before in previous conference calls. And I remember very well that we had the discussion and starting in Spain and then when we have the measures in Italy and France, you always asked, I mean, you as a group, you always ask so what about Austria. And the answer which I have given at the time was at this point in time, when I said that, I don't think that there will be a windfall tax.

However, there would be 2 developments, which could change the perspective of a windfall tax in Austria. Is that the one would be that media papers start to focus on this in the sense, like in other countries, we have very high electricity builds for consumers. At the same time, we have high earnings of utilities, how we're going to resolve that dichotomy, what is the government going to do and media were the required for a very long period of time, but they have started to very much focus on that point. And that one area which I predicted that would then have an influence on politics happened exactly in that way.

The other point, which I have made is I said if Germany decided to introduce something like that, Austria being the smaller neighbor that always likes to look across the board to see what's happening there could then be influenced. Now the interesting thing is that Mr. Nehammer, our Chancellor has been very outspoken in terms of the possibility of a windfall tax, whereas in Germany, there is Mr. Habeck, who is also saying that this is something Germany should consider and the finance minister who, as you know, belong to another party within the collision government is saying no Germany should not introduce a windfall tax. So now you have an interesting discussion in Germany as well on that point.

Your next question, which is perfectly valid is are we involved now. We are involved in the sense that we say what the impact for what would be -- and obviously, it's not a positive impact. It is a negative impact. So that is something we communicate very clearly that the same kind of communication we would have with anybody else. If we were involved in very detailed discussions from the government level and if we then came to the conclusion that there is a higher than 50% probability that what we are discussing with the government would actually be enforced, then we would immediately have to make a talk announcement according to very, very strict capital market growth in Austria. There is no optionality that is something we need to do.

So theoretically, we will then, as a company, have to go out to tell the market at a point in time when the government has not made a decision yet. So therefore, it is more prudent for us as the market participants not to be involved in the creation and in the design and the methodology of such measures. In fact, I think it would be much more intelligence for the Austria ministries to go into a dialogue with other European countries and to then assess the pros and cons of the different methodologies. So that is my response to the involvement of bonds.

In terms of the projects, which we have -- which we have worked on over the last few weeks and which we have recently signed the EUR 1 billion, consisting of obviously, the debt, which we have assumed, but also the equity payments, which we have made is what we think different from situations which we had looked at previously, what is the difference? The difference is there is a very large pipeline of around 2,000 megawatts, which we would consider advantage. All the entire amount of the 2,000 megawatts, even slightly more, has grid connections, and it does not only have grid connections. It is already pretty advanced. And result we found that very interesting in terms of developing that specific, very large opportunity.

At the same time, we have acquired a platform of around 20 people. Those 20 people were the ones that specifically work on the 2,000 megawatts to get it to the advanced stage. We are going to combine those people with the people which we already have, including senior management, which we have in Spain.

And we think that with the people which we have and with the advanced pipeline, and I'm not even mentioning sort of like the net advanced pipeline, which we have acquired as well, that could be a quantum leap for us. It could really instead of sort of like the 100 megawatts, which we have acquired recently the 150 megawatts, which we have acquired as well, which was sort of like the beginning of our activity in Spain, we have now really come to the stage where we could create a critical mass in this market.

In terms of the megawatts, which you have mentioned, which are in the regulated area, they will run in the regulated system with the feed-in tariff for approximately another 17 years. So it is a relatively long period of time. As a result of that, they are relatively up in terms of those assets. Now you also had a specific question with regards to initial margins, I think the share output. Yes, Andreas, could you?

[Andreas Wollein, executive]

Yes. Only one overall addition to what Peter said, with regard to the Spanish asset I think it's all PV, also the existing assets of PV assets. And with regard to the share of the margin requirements in the net debt figure currently around EUR 800 million. But I mentioned we have approximately, let's say, EUR 4 billion of credit lines to cover potential, let's say, margin cost show the situation, let's say, with regard to the cash flows and the gas prices or positive prices but increase change from equity.

[Lueder Schumacher, analyst]

So the underlying net debt would be EUR 800 million less than the --

[Andreas Wollein, executive]

Yes. Yes.

[Lueder Schumacher, analyst]

Okay. Just one last one. On the feed in tariff you've got for 17 years. Can you give us a number there?

[Peter Kollmann, executive]

No.

[Operator]

The next question is by Mr. Bartek of Erste Group.

[Petr Bartek, analyst]

I would have a question regarding the net debt and the margin requirements. If electricity prices stay at current levels, would you expect that related to margins gradually come down? Or is that be stable maybe in other way, if you have any debt target for the end of this year?

And related to this, what's your outlook for total investments, meaning CapEx plus the investments in renewables. What amount we should expect this year? And what IIR you are targeting on the renewable investments?

[Peter Kollmann, executive]

Sure. Our CapEx plan for the next 3 years, i.e. till remainder of '22, '23, '24 is slightly above EUR 3 billion in grid, hydro, et cetera, et cetera -- renewables as well. Our most recent acquisition, which we have only just signed is not included in that number. So that would be on top in terms of our CapEx plan. I have to make a more general comment on debt because I think it's important in -- specifically when you look at for bond. We have an increase in that on a purely temporary basis.

As Andreas has mentioned before, we had -- last year, we had a dramatic increases in terms of variation margins but also initial margins. Now we have remained at approximately the same level. So therefore, there has been no further increase. Of course, if gas flows would stop, and let's say, gas prices would double then from the current level, we will then obviously, again, go up dramatically in terms of variation margins. However, that is something we have provided for in terms of the liquidity lines, which Andreas mentioned before. So we are perfectly safe in that specific respect.

In terms of the margins, when the future contracts run out, that money comes back. Yes. And this is why sort of like the short-term debt is temporary. I will then hand over to Andreas to give you more specific numbers again on the margins in relation to the debt.

Coming to the overall percentage of new renewables, we are looking at something of around 25% of our generation by 2030 to come from new renewables. We feel that in order to have the diversification effect, which we was talking about diversification in terms of technology, but also in terms of geography, we should have critical mass and that critical mass, we see at around 25% of our generation.

Now coming back to the debt levels, Andreas?

[Andreas Wollein, executive]

There are only few addition remarks on what Peter said. The forecast, the margining environment, as you know, is very typical because it's a very complex system. So basically, the margin requirements are determined by the price, so the less the price level determined by the volumes, which we expect at futures. And it's also dependent on the volatility of the prices. So these are basically the 3 main influencing factors. So if you say -- if your assumption would be, as you said, the price is going to be stable, then it depends on if we keep also the volumes, which we said on the futures, stable, then I think there is no impact, so the level of the margin requirements will be roughly the same.

So if we increase our future volumes, which we said was the electricity exchange, then the marginal requirement could basically increase. If we reduce the futures volumes, then, of course, we have the opposite effect. And then as I said, also volatility is a very important factor, which determines the initial margin in sales. So we want to be this same. There is -- of course, is -- if there is no change in the requirements, if volatility increases, we see the initial margining also goes up. So it's a highly complex system. But let's say, to say there is -- if prices stay at the same levels, and we do not increase the volumes on the futures market then I would say we -- the need for our cash collectors for the trading business will be around this state at the same levels.

[Petr Bartek, analyst]

So you wouldn't expect that your decline in the requirements if prices are stable until volumes are stable?

[Andreas Wollein, executive]

Sorry, can you repeat the question?

[Petr Bartek, analyst]

Just theoretically if prices are at current levels stable, let's say, and your hedging volumes are also stable. Then you would expect the gradual decline of the requirements. So we are going to expect the stability, right?

[Andreas Wollein, executive]

Yes. Yes. If prices stay where they are and if we keep the same exchange strategy, then I think the margining requirements will say where they are, yes.

[Petr Bartek, analyst]

I was also asking about the IRR, which you targeted the renewables investments in the M&A, if you can elaborate on that?

[Peter Kollmann, executive]

Yes. The target would be our hurdle rate, which is approximately between 150 and 200 basis points according to the kind of risk which we are taking above our WACC.

[Operator]

The next question is by Piotr Dzieciolowski of Citi.

[Piotr Dzieciolowski, analyst]

It's Piotr Dzieciolowski from Citi. I have a couple of questions, please. So first one, I'd like to go back a little bit for a second to this possible taxation issue. I wanted to ask you about other players, hydro players in Austria. Like if I was to impose industry-wide taxes, let's not call it a windfall taxes, but let's call it a hydro tax.

What would be the broad base consequences for the other players? Would any of them, according to your knowledge, have any issues and so on. So if I was, let's say, to put the tax, so anything above EUR 100 realized price, I take it to a state budget or something along these lines. So that would be the first question.

Second, on the acquisition you've done, you talked about 2 gigawatt pipeline. Can you say anything as to when this could really come to the market in terms of ready capacity?

[Peter Kollmann, executive]

Yes. Okay. Now first of all, on our hydro tax, if hydro tax were introduced, then of course, you cannot limit it to specific players. All you can do is you can basically say small hydro generation plants would be excluded and larger generation funds would be affected by hydro tax.

And then you basically have to look at the sector. It is very obvious that for both would be the one with by far the largest amount of hydropower stations in most of our hydro power stations, as you know, are very large. But others would obviously be affected as well. We have no information whatsoever that a hydro tax would be introduced. Everything we have heard so far, which is actually very similar to what is out there in the media is to basically look at various forms of windfall taxation.

Now the other point was on how fast would the pipeline be converted. Now that is something that very much depends on the approval process. It is very advanced. It has the 2,000 megawatts of grid connection. They are pretty advanced in the approval process. However, with approve you never know how long it takes if there are any objections, so that is something that is very difficult to judge.

But obviously, it is our goal that we would implement as quickly as possible. In other words, the minute we get the full approval, we will build. And therefore, we hope that we can convert the 2,000 megawatts as quickly as possible. But then, of course, at the same time, we have acquired a very large pipeline of early-stage development, and we are working on that early-stage development as well to bring it to a more advanced stage. So we will obviously I'm sure that you will ask me at every conference call in terms of our progress, and I will report if and when we have new information.

[Piotr Dzieciolowski, analyst]

Okay. Can I please just a follow-up on your CapEx program and on other investments. So when I look at your kind of operating cash flow ability and then look at the market prices and compare it versus your EUR 3 billion CapEx for the next 3 years, you clearly can see that company generates way more cash than required.

So I just wanted to understand, can you come up with an acceleration of a CapEx program so that the excess of cash flow could be redeployed in the business? Or if not, does it mean in order to protect yourself from the taxation you can go for a higher dividend and then change the dividend policy? Because the situation where you kind of pile up the cash on the balance sheet, it's -- I understand why there is a temptation to put that acetone?

[Peter Kollmann, executive]

Yes, it's a very good point. In terms of capital allocation, you can always accelerate CapEx. However, you have to be careful that you don't just accelerate because you have enough money. We only want to accelerate if we feel that we have appropriate returns. And if we don't have the appropriate returns, we don't accelerate. It sounds simple and that's exactly what it is. Where we had an acceleration where we actually had an acceleration of around EUR 50 million was on the grid. We have made much more progress on the so-called sales grid line. We have on the construction. We have been quicker than we thought. We have done a lot of planning. And as a result, we are very careful planning. We have been quick implementation. As a result of that, we have spent EUR 50 million more than we had originally anticipated at this stage.

So wherever we can accelerate construction, that's what we are doing. On the other hand, you shouldn't forget that there is a real challenge in the utility sector across the board. This is across Europe to get material. So for example, it is very difficult to get cables, high-voltage cables for the grid.

There is -- there are the supply chain problems, obviously, which are widely reported. We have a lot of volatility in steel prices in -- we feel inflation. Procurement is a challenge. And as a result of that, we need to -- like all the others, we need to focus, we need to be very diligent in terms of CapEx, in terms of acceleration. Sometimes it is much better to wait a little bit because if you want to accelerate, you pay higher prices. So that is something where we need to find the balance.

From a broadside perspective, yes, you're right. I mean we have -- with power prices where they are. We -- you have seen the numbers I've given you the guidance. It is clear that coming into that, we had a very, very sound capital structure. We have a very strong rating. So we have already come in a very strong way into the situation with the higher power prices.

And now with the higher power prices, despite the fact that we have a higher CapEx plan, we are not -- in terms of medium- to long-term debt, we're not increasing debt. In fact, we are reducing that. Andreas has mentioned before, the changes on the short-term side, which is a reflection of the margining calls, but that is temporary, and that is short-term debt and not long-term debt.

So yes, we are -- we have a very sound structure. We are highly resilient in terms of potential future shocks to the system. And yes, we have the potential to invest more if and when we see an interesting opportunity.

[Operator]

The next question is by [ Ron ] Jeffrey of Deutsche Bank.

[Unknown Analyst]

Just 2 questions for me, please. The first is on, in your answer earlier when referring to why the windfall tax coming in now, what's changed in the narrative. One of the things they spoke about was that in Germany, you're saying that there's been no accrual for a windfall tax. Was there an implication that Austria might follow that same logic? That's my first question.

And the second is, just on the politics for the discussion of the windfall tax. So could you talk a little bit around what the opposition party is saying with regard to this? Have the opposition party mentioned whether the favor special dividend or a windfall tax. Because I just wonder more generally, do you think a special dividend would satisfy both the opposition and electric, sorry, the opposition and the elector optically instead of the windfall tax because the special dividend might not just sound in -- windfall tax sound more -- might sound better than the electric then special dividend. So I'll be interested to hear your views on that.

[Peter Kollmann, executive]

Okay. I can understand why you're asking the question. But the answer is complex. First of all, I cannot judge the opposition party neither in Germany nor in Austria. But you're right that your position partly has basically started or I should say it differently, they have basically taken the clue to the lead from other European countries, and they basically said, but wait a second, if it's introduce in other countries, that is something we should make -- we should turn into a big topic in Austria. And so it was a combination of media. And yes, you're right, the opposition party that is basically taking up that specific windfall tax topic as an important one.

You said, could the dividend, like a special for bond dividend, could that be enough to end the discussion. That's very difficult to say because it's completely different, right? When you look at the dividend, you're only looking at the bonds, when you look at the taxation, you look at the entire sector. I don't think there is a single EU country that has basically taken out one specific company and then said, well, we want a dividend from you or we want the tax for you but not from the rest of the sector. So I think that in terms of like a fair legislation, around windfall taxation, I could imagine that Austria similar to other EU countries is looking at the sector.

Could it be demand for a higher payout ratio from the bond in the future? The answer is yes. I cannot exclude that. I mean, we have between -- we have a range of 45% to 55%. Could there be an opinion across the political spectrum that there should be a higher payout ratio, given the fact that we're 51% owned by the Republic of Austria and that they would be a main beneficiary of a higher dividend payment. That is a possibility. But I don't have any information whatsoever that that would be considered or would be -- that we would be asked to pay higher dividends.

You are right that in the media, there was already a few weeks ago and then again, a discussion around what they call the sum, the dividend, there's another word for special dividends. And that obviously would be related to the very large increase of our earnings.

Then you asked about the discussion in Germany and the potential cross influence Austria influencing Germany or Germany influencing Austria. I mean media has asked when our chancellor made a very specific comment on windfall taxation in Austria, I think a number of channels in Germany have then asked the German government if they would also consider something like that. And if they feel that the statement from the Austria chancellor is something they would see in a similar way.

And then you had the response for Mr. Habeck, who basically said he thinks that Germany should look into windfall taxation as well. And Mr. Lindner, who has denied, I can obviously not comment further on what Germany is going to do. There would be pure speculation. I think we don't know and I cannot simply give you a response here more than commenting on what's out there in the open and in the media.

[Operator]

The next question is by Martin Tessier of Stifel.

[Martin Tessier, analyst]

I have 2 questions from me. The first one is on your acquisition in Spain. So you do not disclose the purchase price. But we've seen some of your competitors disclosing the price and it seems like there is another price EUR 1,000 per megawatt for this kind of pipeline. So would you be in a position today to confirm overall standard or maybe give us some indication if you are above or below this pipe?

And second question on the sales segment. To what extent are you exposed to ocean gas supplies? I mean do you have a direct long-term contract or some indirect exposure? And apologies if we already talked about this topic that I can remember.

[Peter Kollmann, executive]

Yes. No, no, no. We haven't talked about Gas Connect Austria today, so I can happily comment on that. Yes, I mean, Gas Connect Austria is linked to via Slovakia to the [indiscernible] pipeline, which is a very large pipeline coming from Siberia going through the Ukraine and finally going into Baumgarten, which is a major hub in Austria, owned by Gas Connect Austria.

And from there, gas obviously goes into our own distribution for Austrian domestic use, but a large part of that also goes via a pipeline called TAG, T-A-G further on to Italy. And then, of course, there are connections into Hungary into Germany and in other countries as well.

The Austria has a very, very high dependency on Russian gas of around 80%, maybe a slightly more 80%. So any reduction in gas flows from Russia would obviously be felt by Gas Connect Austria and that would reduce the transport capacity of Gas Connect Austria. So that's on the gas side. And sorry, what was your first question again?

[Martin Tessier, analyst]

The acquisition price of the portfolio -- maybe giving out some indication.

[Peter Kollmann, executive]

Yes. Now I'll just give you an approximation. The enterprise value for this acquisition has been around EUR 1 billion. And that obviously includes the existing regulated business, and that also includes the pipeline, the advanced pipeline of the 2,000 megawatts that includes what we call the platform, i.e., the around 20 people, which we have acquired as well. And then there are sort of like with any platform early stage development. So that is what I can tell you in terms of what we paid.

[Operator]

The next question is by Wanda Serwinowska of Credit Suisse.

[Wanda Serwinowska, analyst]

It's Wanda Serwinowska from Credit Suisse again. Just a follow-up on the M&A in Spain, as we haven't had an opportunity to talk about it before the results. Have you signed a contract with the suppliers for the 2 basically to get all the equipment? What is your assumptions for CapEx per gigawatts? Have you seen any increase because remember in the past, you were guiding for EUR 0.55 billion gigawatts, if I'm not mistaken. And then, Peter, you mentioned that the final timing depends on the approval process, what would be your blue and rate cut? I mean can we anticipate 2 gigawatts of new solar capacity to be installed later this year next year? Or are we talking about '24, '25?

[Peter Kollmann, executive]

Yes. On the approval process, I cannot comment. Also, we have just signed, we have not even closed the transaction approval processes, as you probably know from other players in Spain, very, very difficult to judge. I mean it is very advanced, however, I can't give you any specific details. The CapEx assumptions, which we internally make, we don't disclose those assumptions. And what was the first one again, Wanda?

[Wanda Serwinowska, analyst]

If you sign the contract, you basically got all the panels because there --

[Peter Kollmann, executive]

Yes. Yes, sure. Yes, we have some contracts, some supply contracts. And then obviously for business where there is certain openness in terms of timing that we have no supply contracts.

[Operator]

There are no further questions. And so I hand back to you.

[Peter Kollmann, executive]

Yes. Thank you very much. There was a very intense discussion today. Very long Q&A. I'm not surprised that you were obviously extremely interested in the quite around windfall taxation. We have discussed it from a lot of different perspectives. If and when we have more information, we will obviously inform the capital markets. In the meantime, have a good day. And as you know, we are always at your disposal if you have any further questions. Thank you very much. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.