RWE AG

XETRA:RWE

Earnings Call Analysis

RWE Boosts Guidance Amid Share Buyback and Investment Revisions

In a strong performance through Q3 2024, RWE reported an adjusted EBITDA of €4 billion, achieving over 75% of its lower annual guidance already. The company now expects to meet the middle of its adjusted EBITDA, EBIT, and net income forecasts for the year, citing an adjusted net income of €1.6 billion. Despite cutting its CapEx plan by €2 billion, focused on U.S. offshore wind and hydrogen, RWE announced a €1.5 billion share buyback over the next 18 months and confirmed a dividend target of €1.1 per share, emphasizing shareholder returns amidst market fluctuations.

Strategic Execution and Financial Performance

In 2024, RWE AG has focused on executing its 'Growing Green' strategy while achieving solid financial results despite challenges arising from declining commodity prices. The company has invested approximately EUR 6.9 billion thus far, with 95% of these investments aligning with sustainability criteria. The average internal rate of return (IRR) on these investments stands at 8.2%, exceeding the company's target. Adjusted EBITDA reached EUR 4 billion, with more than 75% of the lower end of the guidance range accomplished in just nine months.

Revised Financial Guidance

Given the strong performance in the first nine months, RWE has revised its guidance upwards, now forecasting adjusted EBITDA and net income in the middle of the guidance ranges. The company expects adjusted net income of EUR 1.6 billion, which is more than 85% of the lower end of the full year guidance. This adjustment indicates confidence in maintaining robust operational metrics despite market uncertainties.

Impact of Market Conditions on Capital Expenditure

RWE has recognized increasing uncertainties regarding certain technologies, particularly in U.S. offshore wind and the hydrogen economy. Consequently, the company has decided to reduce its capital expenditure (CapEx) program over the next two years by approximately EUR 2 billion, with a particular focus on these areas. This adjustment reflects a shift in their investment strategy towards more stable and less risky ventures while maintaining a strong investment-grade rating.

Shareholder Value Initiatives

In a move to enhance shareholder value, RWE announced a significant share buyback program amounting to EUR 1.5 billion over the next 18 months. This decision is part of a broader effort to return capital to shareholders, alongside maintaining a dividend target of EUR 1.1 per share for fiscal year 2024. The share buyback initiative is expected to improve return on equity by reducing the number of shares outstanding, which should ultimately provide a strong return on investment.

Performance Breakdown and Segment Insights

Delving into segment performance, the flexible generation segment reported adjusted EBITDA of EUR 1.447 billion, showing lower earnings as market conditions have normalized following an exceptionally profitable prior year. The offshore wind segment performed well, generating EUR 1.079 billion in adjusted EBITDA, aided by favorable wind conditions. However, the company faced headwinds from weaker markets, particularly in U.S. operations, which affected overall profitability.

Forward-Looking Strategies

Looking ahead, RWE continues to see strong demand for renewable energy solutions, with a significant emphasis on Power Purchase Agreements (PPAs). The company expects PPA prices in the U.S. to remain stable, driven by robust demand and a tightening supply market. Additionally, RWE has engaged in strategic discussions about potentially bringing in partners for projects under development, enhancing capital efficiency and investment returns while reducing financial exposure.

Conclusion: A Balanced Approach to Growth and Returns

In conclusion, RWE AG is navigating a challenging market landscape while striving for strategic growth in green energy. Through prudent capital management, a robust buyback plan, and increased guidance, the company is positioning itself for future success. Investors should note RWE's focus on aligning investments with environmental sustainability, which can offer potential long-term returns amid a changing global energy landscape.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to the RWE conference call. Markus Krebber, CEO of RWE AG; and Michael Muller, CFO of RWE AG, will inform you about the developments in the first 3 quarters of fiscal 2024.

I will now hand over to Thomas Denny. Please go ahead.

[Thomas Denny, executive]

Thank you, and good afternoon, ladies and gentlemen. Thank you for joining the 9-month 2024 RWE Investor and Analyst Conference Call today. Our CEO, Markus Krebber, will kick it off with the key 9-month highlights and an update on capital allocation, including a share buyback program. Afterwards, our CFO, Michael Muller, will present the details and will guide you through the financial performance of the first 9 months as well as the outlook for the current year.

And with that, let me hand over to Markus.

[Markus Krebber, executive]

Yes. Thank you, Thomas, and also a warm welcome to everyone from my side. This year is all about execution of our strategy, delivering the financial performance and constantly reassessing capital allocation. We have made strong progress in executing our Growing Green strategy and continued the transformation of our company with profitable growth through our investments.

So far in 2024, we have invested EUR 6.9 billion net, with 95% of our investments being taxonomy aligned. We have 11.2 gigawatts of capacity under construction across all technologies. With 8.2%, the average IRR of our investment decisions exceeds our target of 8%.

Despite headwinds from declining commodity prices, we delivered a good financial performance. Adjusted EBITDA stood at EUR 4 billion, and we have already reached more than 75% of the lower end of our EBITDA guidance for the full year '24. Adjusted net income stood at EUR 1.6 billion and more than 85% of the lower end of the full year guidance.

Based on our good performance in the first 9 months of '24, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT and adjusted net income in the middle of the guidance ranges. We constantly reassess our capital allocation in the light of changes of the risk/reward environment for our investments.

Currently, we see higher uncertainties for certain technologies. In particular, we see higher risks and delays in the development of U.S. offshore wind and in the ramp-up of the hydrogen economy in our core European markets. We, therefore, reduced our CapEx program for the next 2 years.

In the current environment, investing in RWE shares is highly attractive. Consequently, we decided on a significant share buyback program. Over a period of up to 18 months, we will return an additional EUR 1.5 billion to our shareholders. Our dividend target of EUR 1.1 per share for fiscal year '24 and the objective to increase the dividend year-on-year are confirmed.

Let me now hand over to Michael with more details on the share buyback program and our 9 months financial performance.

[Michael Muller, executive]

Yes, good afternoon also from my side. We will start the share buybacks already this quarter. The program has a duration of up to 18 months and the total volume is up to EUR 1.5 billion. The share buyback program will be executed under the existing authorization as granted in the AGM 2023.

As this authorization lapse in May 2025, we will ask the shareholders for a renewed authorization in the AGM next year. The program is funded from lower net cash investments in the coming years. We now plan net cash investments for 2025 and '26 to average EUR 7 billion compared to a run rate of EUR 8 billion that we laid out in our Capital Markets Day a year ago.

No impact on rating KPIs is expected as we stay -- and we stay committed to maintaining our strong investment-grade rating. For 2027, we confirm the EPS guidance range set at the last Capital Markets Day.

Let's now take a closer look at the financials. After the exceptional earnings in the first 3 quarters of last year, EBITDA in the first 9 months of 2024 stood at EUR 4 billion, thanks to good performance in our Flexible Generation segment and our Trading business. In Offshore Wind, adjusted EBITDA was EUR 1.079 billion. Earnings were up on the back of better wind conditions. Onshore Wind and Solar EBITDA stood at EUR 990 million. This was driven by organic growth, the full year contribution of the CEB assets and higher hedge prices and better weather conditions in Europe.

Offsetting effects have been lower prices for unhedged positions and weaker weather conditions in the U.S. Adjusted EBITDA for the Flexible Generation business was EUR 1.447 billion. As expected, we have seen lower earnings in line with normalizing market conditions after an exceptional prior year.

Our Supply & Trading business delivered a good performance in the first 9 months after an exceptional prior year. The last 9 months results stood at EUR 465 million. On the back of the good operational performance, adjusted net income amounted to EUR 1.6 billion.

The year-on-year adjusted financial result is lower due to increased net financial debt. For adjusted tax, we applied the general tax rate of 20% for the RWE Group. Adjusted minority interest reflects lower earnings contribution of minority partners.

The adjusted operating cash flow was EUR 4.4 billion at the end of the first 9 months. The main drivers have been good operational performance and seasonal effects in operating working capital. Changes in operating working capital were marked by a reduction in trade receivables, partly compensated by a decrease of trade payables.

Net debt increased to EUR 12.2 billion due to investments and timing effects. In total, we invested EUR 6.9 billion net into our green growth. Other changes in net financial debt amounted to EUR 2.2 billion. This includes timing effects from hedging and trading activities as well as the increase in leasing liabilities.

Our net position from variation margins for power generation hedging stood at minus EUR 1 billion, representing an outflow of EUR 2.4 billion since the beginning of the year. This includes net variation margins from the sale of electricity as well as the purchase of the respective fuels and CO2 certificates.

We expect other changes in net financial debt to largely revert over the rest of the year. Based on the good performance in the first 9 months for 2024, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT and adjusted net income in the middle of the guidance range. The dividend target remains EUR 1.1 per share for this year. And now let me hand back to Thomas.

[Thomas Denny, executive]

Thank you, Michael. We'll now start the Q&A session. Operator, please begin.

[Operator]

[Operator Instructions] And first, we have Alberto Gandolfi from Goldman Sachs.

[Alberto Gandolfi, analyst]

Just wanted to congratulate you on the move for taking a stance against like an unreasonably low share price. I have two-and-half questions. So I hope you forgive me, but we've been waiting for today for such a long time.

So the first question is on the CapEx delays that you have announced, am I right in thinking that because it's largely U.S. offshore and hydrogen, the 2027 net income is barely affected by it? So when it comes to forecasting '27 EPS, we get the accretion from the cancellation of the shares, but we don't have much of a reduction in net income or maybe if you can tell us how small the dilution from lower investments could be?

Related to the incidents and this I'm talking about the share buyback and returns, I bundled into one that's why it's probably 1.5. Am I right in thinking that at the current share price, a share buyback is a mid-teen IRR -- implied IRR instead of developing organically? Is that we are thinking at it as what besides the shares are depressed? And on the back of these, I was reading a translation from the press conference you had.

And you said this is not a cancellation of CapEx. It's a delay in investment. And can I ask, is it just the same project that you delay? Or are you thinking maybe U.S. offshore, we can remove, we can introduce something else like could be nuclear restarts? Could be I don't know, but does this mean that the smoothing of CapEx could allow you to achieve a greater IRR than your target 8% or whatever you're spending now in the next 3, 4, 5 years? So I'm trying to understand the IRR on buying back the shares, and if there's upside risk to the returns you've been targeting so far.

[Michael Muller, executive]

Maybe I'll take the first question, and then, Markus, do you want to pick the last one? Let's start with guidance for 2027. I mean, first of all, you are right, especially the offshore investments would have been unproductive CapEx since the projects would only go online by the end of the decade. So therefore, no earnings impact from this one.

On hydrogen, yes, there would be some impact. But I think broadly, what you said is right. The impact on the earnings is largely limited and then effectively, you see the accretion from less shares. The return of the share buyback, obviously, it's difficult to calculate because you have to assume at which share price you buy back the shares. But I mean -- as we said, we feel that this investment is attractive at the current share price. You can assume that we do assume that the return of the buyback should be higher than the 8% average return that we see on our existing asset fleet.

[Markus Krebber, executive]

Yes, I'll take the last one on the CapEx program. So there's, of course, now speculation. But what 2 things are clear. I mean we said we're going to cut out '25 and '26. We call that delay because we still believe that the hydrogen economy will be needed -- will be picked up if we don't give up on the cloud protection targets. But it will come later. And U.S. offshore, of course, depends on the administration, especially the permitting side.

But what you can already assume, Alberto, is that even if we call it delays, it will be pushed out beyond 2030. So we don't -- today, we don't expect that we're going to pick it up in the second half of the [ '20 ]. So we're not going to reach the EUR 55 billion. On the exact mix how we invest beyond '25 '26, where we have now very high visibility, again, then depends on what is the risk reward framework for potential investments. Of course, we go for -- only for those where we meet the hurdle, and everything which is above the hurdle needs prioritization.

And then, of course, we have now introduced share buybacks as one part of capital allocation. So we also look at the relative attractiveness of that when we decide how big the CapEx program might be. But that's to be decided then when we have more clarity about investments in the later [ '20s ].

[Operator]

And we come to our next question from Peter Bisztyga from Bank of America.

[Peter Bisztyga, analyst]

Yes. So first of all, I wanted to get your thoughts on the implications of Republican clean sweep on your onshore investment plans in the U.S. I know it's on very early days, but it seems pretty likely that we'll see changes to certain aspects of clean energy tax credits. So really just interested to hear what is your base case expectation, what sort of bonus tax credits whatever others could get removed, for example, and how that might affect your onshore growth plans. And please excuse me for asking this, but if the outcome on the onshore side is also negative versus your current expectations, would that also influence sort of capital allocation decisions going forward?

And then my second question is on German elections. And I'm just wondering if you could give us some headline thoughts about how a CDU-led government could alter energy policy based on what they've already said is in their plan. So obviously, particularly interested in your thoughts on nuclear, but also coal phaseout and the rollout of gas-fired power generation.

[Markus Krebber, executive]

Yes, Peter, thanks for the question. I take them both. The first on the implication of -- the potential implication of the Republican sweep on the onshore PV battery business. I mean we closely observe what are the discussions so far. It's not clear where it's going. So let's focus first on the fundamentals, what we do see.

First, we see very strong demand for power and all sorts of power and especially on the PPA side, only green power. So that demand is as strong as never before. And we are in very good discussions with off-takers. And currently, we see more demand that we can actually fulfill physically by building the assets.

Of course, the potential change on the IRR side, I mean, changes the economics but doesn't change the need for additional power. So then the second question is, do we get higher PPA prices to actually compensate for a watered down IIA where I still think it's -- the jury is out because the benefits of the IIA, which incentivize investments, which incentivize the build-out of supply chain, creates lots of good jobs across the entire country, especially in wet district, and of course, reduces consumer prices for industry -- electricity prices for consumers and the industry has huge benefits.

And I mean you probably have also followed that we have seen before the election, the letter from 8 representatives of the House, Republicans in full support of the IIA. So it remains to be seen. But we don't know and we are not in the business of projecting the future. We're in the business of doing good investments.

So as long as we have good investments, we're going to do that. And currently, we have a bit more than 4 gigawatts under construction, good offtake, and that is also important given that we have the Republicans now back and Mr. Trump in the White House. We have derisked the supply chain.

So we will only do derisk investments, which are good. If they are not good, it will, of course, affect capital allocation. And if we don't -- can compensate in other parts, I mean, we have now proven that share buybacks are part of the mix. But this is now, I mean, too many variables we need to discuss what we might do in different circumstances.

Second one is Germany. So first is, of course, the election outcome and what kind of coalition we're going to see. Do we see a strong conservative-led government with only one party in a coalition, so a 2-party coalition, which is, of course, much easier to find compromises or does Germany again, and we had this experience end up with a 3-party coalition? That is too early to tell. But you specifically asked about conservative policy. So they just ran an energy conference last week where we also attended, of course. And what is clear is they will stick to the transition path, so the energy transition, but they put much more emphasis on cost efficiency. So not everything at the same time, doing the decarbonization in a very rational way, meaning that you need to look at the full system cost, so also the grid build-out costs need to be considered.

And of course, they're going to stick to the European EU ETS. So there is no benefit in spending more money in Germany to front-run something, which is in the end, steered by the EU ETS. That is their thinking. What my expectation is there might be during the campaign a discussion on nuclear, but I see it as very, very unlikely that we're going to bring them back. But in the end, it's a political decision. And for us, it's a question if we need to do it, what are the economics?

But when I look at the economics, I don't see it also from a political point of view, not being attractive. What I do expect is that they put much more emphasis on very pragmatic build-out of new capacity, especially gas without restrictions on how to decarbonize because that's what we have the EU ETS for. So it could all come a bit faster and a bit cheaper and a bit more attractive also for us. And it's urgently needed as we have seen last week with, I mean, the very, very tight market already in one day.

[Operator]

And now from Morgan Stanley, we have Rob Pulleyn with our next question.

[Robert Pulleyn, analyst]

If I can just follow up on that, Markus, conceptually. So the Chancellor of Germany, let's leave the name blank, calls you asking for RWE's nuclear restart and to name your price and terms. If what you've previously asked or answered was that the economics don't make sense, what would you want in return to make the economics make sense? And how soon could all of this be delivered?

A second sort of pretty ancillary question, if I may. Given the delay in some of the investments and some of the impairments we've seen at your peers, there are no impairments in the announcement today. Is impairment testing something we should be worried about for those hydrogen investments in the U.S. seabed?

[Markus Krebber, executive]

Yes, I think Michael will take the second question. I mean you all seem to love nuclear now. I think the case to extend the lifetime of an existing one is clearly there, but we have passed that point in Germany. And we are currently obliged by law to decommission them to build them back.

So we cut something every day as we speak. So bringing back -- just so that you understand where we are, bringing back Three Mile Island, which was a fully mothballed plant, for economic reasons, it's easier than bringing back our plants, which were recently decommissioned, for a couple of reasons.

First, we have currently no permits. So if somebody calls me, whatever the name is, you left it blank, and says, what do we need? I would not start with discussing what we actually need economically to reinvest in them. That is, of course, technically possible. But the first question is how do we ensure the permits?

Second, the permitting is not only on federal level. It's also partly on state level. And then you have the oversight, which is partly outside to external auditors, which all makes very, very complicated. So we need to discuss first the entire permitting architecture in Germany.

That is the first -- the second is qualified personnel. I mean we are now running these units for 12 years with a clear commissioning date and we don't have the people. So we probably need to invest a lot, and that seems to be the tightest point on the time line. We need to train people that they can run the units, and we need support for that.

And then the fourth is in economic investments we need to take into the units. And of course, since it takes probably 3, 4 years to bring them back, you already know that you're going to commission them again in the next legislatory term with the next government and you need protection if they turn around again. And of course, they -- somebody could take it to the court case.

So coming back to your financial question, I would say, okay, I need protection for my investments if I can never turn it on again. If I run it, I want to have a long-term PPA because we know that renewables and nuclear is not a good pairing because if you have the nukes not on a PPA basis baseload, the renewables are eating into the profitability of your nukes.

And with having said all that, and that's also -- I'm on record in an interview, it's not impossible. If somebody wants it, it's politically feasible. But when I look at what we need to overcome and what the economics are, I think it's unlikely.

[Michael Muller, executive]

Rob, so I'll pick up the second question. I mean, look, on hydrogen, this is -- I mean we already foresaw that something like that could potentially happen. So therefore, what we did, we already kind of scaled back on the hydrogen organization. But we don't stop any projects. It's more that the effort we spent in developing new projects is produced and obviously, then the subsequent spend. So therefore, no capital here at risk.

And with offshore, I mean, look, we still believe that U.S. offshore wind will be needed. I mean if you look at New Jersey and New York, if they simply want to comply or meet the increasing power demands, they basically need offshore.

And therefore, we do see value in those projects. I mean what we now do is obviously be more careful with committing big amounts there, but we definitely will look into what we do with the project going forward, how we keep the optionality because as I said, in the long run, we believe the East Coast will need those projects. And we also feel that with our projects, we are good positioned relative to other projects.

[Operator]

And we now take a question from Deepa Venkateswaran from Bernstein.

[Deepa Venkateswaran, analyst]

I had two questions. The first one is on the changes to the CapEx plan. So can I confirm that the EUR 2 billion you've shaved off is entirely only from offshore wind and green hydrogen? Or is there any other phasing effect or anything because I was surprised that you're spending so much on those 2, given the lead time -- given they're supposed to start much later. Is there anything else in this, maybe more farm-downs or anything else which is also in the puzzle?

And second question on the U.S. Just to confirm, how protected are the projects that you are -- you've already taken FID against any changes in tariffs for panels or batteries? And do you have the equipment already there? Or could there be any risk to these projects in case of any immediate imposition of tariffs?

[Michael Muller, executive]

Yes, Deepa, I take both questions. Let's first start with the CapEx. No, it's just on offshore and hydrogen. I mean, look, we said that out of the -- if you divide the EUR 55 billion plan by 7 years, it gives you roughly EUR 8 billion per year. We are now saying for the next 3 years, we're going to spend roughly EUR 7 billion, so that gives you kind of a saving of EUR 2 billion compared to the CapEx plan. And I mean, you can roughly say half is hydrogen, half is offshore wind.

And in offshore wind, it was, in the next time, we would have engaged into commitments for further locking in the supply chain. That is clearly something we don't do.

So therefore, the amount, even though the projects are far out, is quite substantial.

On the U.S. projects, we don't see a risk there. I mean, clearly, we need to observe what happens. I mean, as Markus said, our hypothesis is going forward that even in the worst case scenario that there would be changes to IIA. There would be kind of changes to the market simply because there is a strong need for green power.

The question is what happens on the existing projects? I mean that is clearly something where we have an eye on. At the same time, I mean, the U.S. does have a tradition in not interfering into kind of historic projects. So from the current point of view, we don't see any risk here. But obviously, that's something as a kind of typical regulatory work. We are closely monitoring and taking the right measures here, if needed.

[Markus Krebber, executive]

Let me add one thing, Deepa. You also specifically asked also for tariffs and probably you are hinting to the projects we have under construction. So we have very high confidence that we have protected the projects where we have taken FID. So the moment we take FID, we not only want to understand offtake, we also want to understand the supply chain risk. And you have different kind of measures.

You can move tariff risk to your suppliers. You can buy local, you can buy from certain suppliers, which are not exposed to potential measures. And you can also procure early and store already before you start the project in the U.S. So it's a bundle of measures we take, but we feel very comfortable that we can expect no negative impact also with very harsh measures on our projects under construction.

[Operator]

And up next, we have Ahmed Farman from Jefferies.

[Ahmed Farman, analyst]

Michael and Markus, congratulations on the strong sort of results. I just want to first start on the sort of the buyback program. As I understand it, you will be on a regular basis reviewing the attractiveness of the CapEx program and then reassessing your capital allocation going forward. So is there a scope for further upside to the scale of this program as, let's say, visibility emerges on the policy and political framework in U.S., Germany, et cetera?

Or is the CapEx for '25, '26 now very firmly locked in with those sort of targeted IRRs that you mentioned earlier? That's my first question. And then second question is more, Markus, to your comment about attractiveness of investing in RWE stock. Are there any other aspects you're considering such as improving capital efficiency by potentially bringing in partners into under construction projects as part of that, too?

[Markus Krebber, executive]

Yes. Thank you, Ahmed. So we have now laid out the plan, the CapEx plan for '25, '26. So you should not expect us now starting circulation that we changed that tomorrow again. I mean we don't have full foresight of the future. There can always things happen. But we feel very confident with the investments we are now targeting with the reduced amount and also with the risk profile and especially with the returns we are getting there.

But what we do is, not every month, but at least, I mean, twice a year, a regular full review of our capital allocation and where we see changes and then we take decision based on that. But the question was, what happened with the plan? It's probably more imminent from '27 onwards. I would be surprised if we see another change on '25, '26.

Part of the capital efficiency program is also that we intend to bring down what Michael, just a couple of minutes ago, called unproductive CapEx. So the partnering strategy, we probably try to bring on board partners already in projects under development. And by that, of course, we reduce the burden on our balance sheet.

The old days where you typically partnered after CUD, where you get, I mean, full value for the construction risk you have gone through was always probably value maximizing when the unproductive CapEx was not a big issue. But with a higher interest rate environment and higher risk framework, you probably partner earlier to reduce it. And we're going to take measures on that end over the next quarters.

[Operator]

And we now move on to a question from Meike Becker from HSBC.

[Meike Becker, analyst]

I have 2 on PPAs, please. Could you give us an update on the PPA prices you're achieving in the U.S. and the outlook you're seeing expectations where that's going? And the other PPA question is how you feel about signing PPAs for your offshore projects that currently don't have a CfD in Europe, considering where the market prices are right now?

[Markus Krebber, executive]

Yes. So PPA prices in the U.S., we don't disclose absolute numbers, and it's also very difficult to compare them because you have different markets and different types of PPAs. But year-on-year, prices are higher. Expectation is if the current support scheme the IIA doesn't change, we expect prices to at least stay on the current levels. But you see a huge difference in certain markets. So some markets are much more attractive because of higher demand and tighter supply than others. But overall, positive picture, we expect it to continue.

On European offshore, you probably refer to our merchant projects. which we intend to fully contract until COD as we have also done in the past, not much has changed. I mean with the stabilization of the power prices where we already talked at half year results, I mean it hasn't changed. I mean prices for '25, '26 are still at the same level, [ 85.90 ]. So it is much more stable since the last 7, 8 months. So we know what prices we want to achieve for the offshore assets and we have started the marketing, and we're now going to sell them piece by piece.

[Operator]

And from UBS, we now have Wanda Serwinowska with our next question.

[Wierzbicka Serwinowska, analyst]

Wanda Serwinowska, UBS. Two questions from me. The first 1 is on the U.S. Onshore and Solar. How many gigawatts of the renewables can you safe harbor? If you could give us a number, that would be appreciated.

And the second question is on the JV with National Grid in the U.S. National Grid has a put option basically on their stake. So can they exercise it now given that the project is delayed or under what circumstances they can do it?

[Markus Krebber, executive]

Wanda, thanks for the question. So U.S. onshore, can we clarify what you mean exactly with safe harbor? Do you mean for the IIA?

[Wierzbicka Serwinowska, analyst]

Yes, yes, exactly. For the ITC, what your peers are saying if you put 5% of CapEx into the project, you basically -- your ITC is safe. So I'm trying to understand how many gigawatts you can be basically safe harbor in the U.S.

[Markus Krebber, executive]

Yes, in that respect, a difficult question because when we have seen the safe harbor rules in the earlier years in the first Trump administration where you had the yearly extension of the IIA, it was relevant. Currently, we have no extension of -- or no expiry of the IIA.

So it will, in the end, depend how they change the rules. So it's -- if we go back to the old rules, I could answer that question, but you first need to know the new ones. As the regulation currently stands, there is no need for safe harbor because there is no expiry date of the IIA.

[Michael Muller, executive]

On the National Grid put option, of course, it's confidential how it exactly works, but the put option can only be exercised when the partners disagree on certain developments. So if somebody wants to put in a bid and the other doesn't agree to the price. So currently, we don't see the case for an exercise of the put option.

[Operator]

Olly Jeffery from Deutsche Bank has our next question.

[Olly Jeffery, analyst]

So a couple of questions. The first one is on community offshore wind. If that project is delayed beyond 2030 and assuming you spend no CapEx on community offshore wind this decade, and taking into account the delays in hydrogen spend, should we think of that as being around a kind of a EUR 10 billion CapEx saving on the EUR 55 billion plan that you can choose to allocate elsewhere?

The second question is on TTF gas prices. I'd just be interested to hear your views on -- with the impact of Trump potentially impacting gas prices globally. What does your commodity team think of kind of the medium-term impact could be on gas prices? Do you think that potentially, you could see gas prices below the EUR 29 TTF a megawatt hour that we see at the moment in '27?

And then lastly, on your comments regarding offshore partner sharing, potentially bringing in partners earlier. Do you aim to do that after achieving PPAs in those projects, with the hope of making these projects more valuable when achieving gains? Or if you continue to bring partners in before COD, should we think of that more as proceeds and no gains associated with that? How should we think about the gains element when you're bringing in partners before COD?

[Markus Krebber, executive]

Thanks, Olly, great questions. I mean on community offshore wind, I have to disappoint you because I mean this is now a very partial view of the portfolio. We should -- would need to discuss many things like what was your assumption on additional farm-down? Did you assume project financing and so on? So I'm reluctant to give you that clear answer because then you would -- it's a portfolio approach. I mean, for now, we know we're not going to spend anything in addition of what has been spent for the next 2 years and then we decide what we do in the following years.

And also, since we always had likelihood under -- behind the offshore projects, we -- the long-term view is more on a portfolio view, short-term view is on a very, very specific project view. So we can answer that question when we know what are the alternatives in offshore for the late '20s.

TTFs, we don't see any midterm price impact from whatever the U.S. administration might do because that, in the end, depends only on additional liquefaction capacity. I mean -- and that is the relevant point because with limited liquefaction capacity in the Gulf, even if you drill more gas in the U.S., global prices will not be affected, then it's stranded in the U.S. and you see U.S. prices coming down.

I think the most relevant determining sector midterm on global gas prices is Russian gas. What happens there? Do we go back to full deliveries or no deliveries? I think that has a higher impact than anything which happens in the U.S. U.S. is, of course, important long term if we see new LNG export terminals coming in the early '30s.

And your last question, I mean, it can be all, and we're going to approach the partnering strategy as we have also done in the past: value maximizing. So sometimes you take the construction risk, sometimes not. Sometimes you take the commercial risk, sometimes not.

I mean, for big projects, I would definitely prefer to have a partner for an aligned interest, which has exactly the same risk profile than us. So actually entering into the development pretty early, as we have done with Total for part of the German ones. And of course, the earlier you take a partner on board, is less likelihood you should expect any kind of gain. You can get the gain only if you take over certain risks and then manage them better than they are priced in the market.

[Operator]

And we now move on to Harry Wyburd from BNB Paribas Exane.

[Harry Wyburd, analyst]

So I think we've covered a lot of the big ticket topics quite fairly. So I just give it to one question. On the slightly more fundamental topic. So we're seeing a lot more curtailment, a lot more 0 price hours, a lot more negative price hours in Europe, a huge surge, say for this year versus previous years.

I wondered, have you revised your thought about the capture rates you assume in your European CfDs and PPAs? And are you happy that the CfDs and PPAs that you previously signed and the ones that you are signing on a look-forward basis, adequately protects you from things like curtailments? And with this trend perhaps be another reason why you might reconsider capital allocation if you see bigger opportunities in storage and flexibility, particularly in Europe?

[Markus Krebber, executive]

So Harry, easy answer. With all the commercialization of our renewables, we don't see any big risk even with increasing curtailments. I mean there might be a minor effect here and there, but typically, I mean, first of all, the fleet is not very big. And the biggest problem is the curtailments you actually have with the solar peaks around noon, and our solar capacity is not very big.

Of course, when the rules change, and I expect that the rules going to change and that renewable needs to be better integrated into the market. You know that upfront, we don't expect any retroactive changes to the regulation. The regulation changes, you need to factor it in. And you're already hinting to the point where we currently see is a huge investment wave in storages. I mean the markets work, which is good, the market signals work. And currently, storage is very attractive. We are also ahead of certain big FIDs on storages in Europe.

[Operator]

And from Citi, we have Piotr Dzieciolowski with our next question.

[Piotr Dzieciolowski, analyst]

I wanted to ask you 2 questions. So first, when you look at your guidance rise for this year, when you say you lifted it from the bottom end of the range to the middle of the range. Actually, when you look at granularly through the divisions, all of the Renewable division, so offshore, onshore, solar and flex gen, at the lower half the guidance ranges you provided and it's a trading that makes a difference.

So I just wanted to understand what is the -- I presume you were targeting more like middle of the range. Is there any reason why these divisions kind of performed weaker than you expected? Is there one denominator of it? Was it the price? Was it the volume? And is there any read across to it to the next year?

And the follow-up I have on the 11 gigawatts you have under construction, how much of this capacity is coming -- is going to contribute to your P&L next year? And if you can give a large bracket of what is the magnitude of volume EBITDA contribution and so on?

[Michael Muller, executive]

Yes, I think the first question and the details that Thomas is just looking at. So let's start with the guidance 2024, I mean, well observed. I mean what we -- I mean you know that we always have some positions in our asset fleet that is not hedged. I mean you know that we deliberately leave it open in renewables also to cope with the volume risk. So you don't want to fall short in certain times. Plus if you talk about the onshore business.

We also have certain markets where the markets are not so liquid, so you can kind of hardly hedge that. So like if you talk about Poland, Italy and also Spain. And that leaves us with -- and also UK for that. That leaves us with some merchant positions. And it is basically in offshore and onshore. Those are the merchant positions that were left open that brought it down.

Secondly, I mean, you also obviously need to see what happens to the wins in the remainder of the quarter. I mean in flex gen, it's very much the same. It's not so much the spreads, but it's the volatility that has come down that makes us currently still a bit more cautious in the guidance -- in the range of the respective segment. But what is important is that overall, if you put together all the numbers and also the strong performance in trading, we believe that we will be back in the mid- of the range.

I mean whether the capacity for 2025, so roughly 4 gigawatt is the number that we assume to come online in the course of 2025. And I mean, yes, then you can assume what is the average investment and then the 10% EBITDA yield, which comes out of the 8% return that should give you the number.

[Operator]

And now we take a question from Ingo Becker from Kepler Cheuvreux.

[Ingo Becker, analyst]

My first question would be on the political environment in Germany. The CDU have been putting quite a focus on lowering energy costs. Just wondering what in your eyes, you believe that might work. It might mean energy prices are currently set in markets and/or regulators and that's quite some taxes which might be maneuverable. And in addition to that, I would be interested in your view on nuclear from a system perspective. So not from an ROE perspective, but if you believe nuclear revival for Germany, given the transition logic we have, makes sense at all.

My second question briefly would be on your flex gen and trading activities and the guidance you have been given in February, which was quite at the time when prices also in the forward market were at their lowest year-to-date. Whether there's anything in the current '25 '28 forward curve that is imposing any kind of directional change on that guidance? Or are you, at this stage, still very comfortable with that? I understand you don't change the numbers here, but maybe just some kind of understanding if things are moving as you expected in February, March or hasn't changed?

[Markus Krebber, executive]

Yes, Ingo, let me take the first 2 questions. Michael will take the last one. On Germany, so it has 2 elements what the conservatives are targeting. One is what they call cost efficiencies, so get rid of overregulation. To give you examples, I mean when you have a European ETS system where the emissions are kept, you don't need to set a date and you don't need to subsidize to switch from gas to hydrogen, burning it into an hydrogen-ready gas plant. This is -- I mean, makes it more costly. And so these kind of things they don't want to do because they say we have one market instrument, which works, and we don't need to overregulate without any positive effect on the climate, but significantly more cost.

The other element we are targeting is they specifically say we have significant income close to EUR 20 billion from carbon pricing across in the German federal budget, and they want to give that money back either by reducing grid charges or direct subsidies to consumers. So they want to keep all the incentives to move away from carbonized energy in place, but they want to give back the money to give some relief for those hardest hit on the consumer side as well as on the energy incentive industry side. That's how I understand it so far.

On nuclear, I mean, I don't see that new builds are part of the solutions in many markets. First of all, you have these long lead times and if we don't address the fundamental problem by nuclear is in the Western world, so expensive, which is -- which has -- is only driven by the regulatory regime and the oversight. If we don't change that, and government authorities are willing to take some more responsibilities and don't outsource that to auditors who always want everything gold plated and 100%, then we cannot change. Now we see that problem in the U.S. We see it in the U.K., we see it on the continent.

If that is addressed it might change. I'm not very optimistic. I mean the idea behind the SMRs is that you get them convinced that the regulatory regime can be changed. Without that, I struggle to see that as ever economic again.

[Michael Muller, executive]

Ingo, I take the question on trading and flex gen. I mean on trading, we always guide this range of 100 to 500, and that is basically our base case assumption in a normalized year. And therefore, that is also for the following years. I mean, on flex gen, we said at the beginning of the year that we saw a quicker deterioration or normalization of the higher returns or income than initially assumed. And I mean you now see in the actuals that the outcome is actually slightly better on the back of the scarcity, but there is also some effect for the later years. So there is a quicker normalization in the front years than what we had initially assumed.

[Operator]

And next, we have a question from Pujarini Ghosh from Bernstein.

[Pujarini Ghosh, analyst]

This is Pujarini from Bernstein. I have just one on the average IRR of 8.2% that you highlighted. Please can you confirm which projects this includes or does it include your already commissioned projects or under construction and FID projects? And to what extent is the realization of this IRR dependent on the evolution of wholesale power prices versus predetermined through long-term PPAs?

[Michael Muller, executive]

So it includes all the projects that we have FID, and most of them should be already then under construction. And I mean, it is based on the assumptions we have taken in investment cases. I mean, you know that our clear aspiration is to contract those assets. So you can assume that all the projects in the U.S. are based on PPAs in Europe, mostly feed-in tariffs.

It does include the offshore projects with the respective PPA assumption. But as Markus mentioned previously before on the question, we are very confident with those prices that we assumed in the business cases to also be realized. And as we said, we are in the process of marketing those assets. But at the same time, you also know some of them only will come online '25, '26, '27, '28. So there is also still time to lock in those PPAs.

[Operator]

And we now have a follow-up question from Ahmed Farman from Jefferies.

[Ahmed Farman, analyst]

Just a quick one, probably for you, Michael. I guess could you just give us a sense of where you see the net debt to EBITDA with -- under the sort of the cap lower CapEx plus the buyback program for 2025? And if you've had any feedback already from the rating agencies on the reassessed capital allocation plan?

[Michael Muller, executive]

Yes, important question. I mean, as you can imagine, we did have conversations actually yesterday with the rating agencies and explained them that. I mean for the rating agencies, as you can imagine, it's very important that we do reduce CapEx and basically, by that, keep in the framework of our overall plan and therefore, also our net debt plan and that we also show that we react to market conditions. So therefore, we are very confident that we will stay in the respective KPIs required for keeping the strong investment grade rating, thus also keeping the rating.

[Operator]

And our last question for today comes from Alberto Gandolfi from Goldman Sachs.

[Alberto Gandolfi, analyst]

Thank you for your patience because there was no question on it. I wanted to ask you if considering a bit of confusion in the press, have you been contacted or in touch with any activist regardless of the name in the press over the past few weeks and months? Has there been and what can you disclose the nature of the discussion if there has been one?

[Markus Krebber, executive]

So Alberto, are you incentivized to having the first and the last question, then I get full bonus. Thanks for the question. I mean it's difficult, right? I mean, first, we need to define what is an activist because we have many investors in the shares, and we are in content dialogue with all the relevant capital market participants.

But you also have seen -- after the first specific rumor on one of the very prominent activists that they have come out with a statement and said they have not made any demand to management. And also from all others, which we would call activists, we have not got any demand. So -- but of course, we are in discussions with many of our investors, and you know that especially the discussion around share buyback didn't come up yesterday. So it was an ongoing discussion about capital allocation with not only some but many, many investors and also totally different views, and we have now come to the conclusion, which we think is the right way forward for the next months and quarters. But let me reiterate, and you have seen that statement, they have not made any specific demands to management from activists.

[Operator]

And with that, I'd like to hand the call back over to you, Mr. Denny, for any additional or closing remarks.

[Thomas Denny, executive]

Excellent. Thank you all for dialing in. It's been a very, very good call. I highly appreciate it. If there's any further questions, you know that the IR team is at your disposal any time. And I wish you all a great rest of the day. Thank you.

[Operator]

Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.