Good day, and thank you for standing by. Welcome to the Enel First Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Monica Girardi, Head of Investor Relations. Please go ahead.
Good evening, ladies and gentlemen. Welcome to our first quarter 2021 results presentation, which will be hosted by our CFO, Alberto De Paoli. In the presentation, Alberto will provide highlights of the period and will walk you through the operational and financial performance for the group. Following the presentation, we will have the usual Q&A session. We ask those connected to the webcast to send questions only via email at investor.relations@enel.com. Before we start, let me remind you that media is listening to both the presentation and the Q&A session. Thank you, and now let me hand over to Alberto.
Thank you, Monica. Good evening, everybody. Let's start with the highlight of the period, and I'm on page number one. The financial performance of the first quarter came in line with our expectations. Despite the disruption faced globally, we delivered on our operating KPI across all businesses in a context where headwinds associated with COVID-19 have continued to play out and some recovery became visible. We made significant progresses on group simplification, sitting now at 82.3% in Enel Américas, following the completion of the merger, as well as of the partial tender offer. This will set the basis for a simpler, leaner and more efficient platform in LATAM, paving the way to a strong value creation. Now we move to an analysis of the period, and I will kick off with the evolution of the EBITDA at page number two.
Our plan anticipated a decline in the first quarter in EBITDA of 13% due to the lack of some one-off items booked last year and forecastable business dynamics. In particular, that drop of EUR 650 million was due to the effect of the normalization of non-recurring items. Worth to remind that last year, we booked more than EUR 350 million of positive impact for the provision reversal in Spain. FX devaluation was assumed to impact our results in the quarter for more than EUR 70 million. Negative impact associated with lower prices hedged in 2022 as a consequence of last year's depressed environment. Lastly, the net effect on the short position normalization and gas wholesale in Iberia. All these items count for EUR 650 million of reduction versus the previous quarter, already expected in our target and budget.
In addition to these anticipated trends, in the first quarter of the year, we faced the following headwinds: a currency devaluation beyond our expectation, a gas shortage and low hydrology in Chile, the effect of the Texas ice storm, and lower than anticipated renewable output in LATAM and the U.S. that are now back to normal already in April. These headwinds have been counterbalanced by some positive items, in particular EUR 188 million for CO2 regularization, better volumes and higher price dynamics in Italy and Spain, and the progressive stabilization of the level of electricity distributed in LATAM, particularly in Brazil, that will last also in the coming months. Let's now focus on CapEx deployed on slide number three. We invested EUR 2.1 billion in the period, an increase of 10% versus the previous year.
In the ownership business model, almost half of the CapEx was devoted to networks, with the remaining half allocated to the generation business, out of which more than 800 million EUR renewables. From a geographical perspective, gross CapEx was deployed mainly in Italy, LATAM, and North America. Around 100 million EUR have been invested through the stewardship business model, focused primarily on Enel X and renewables capacity managed through our joint ventures. Investments catalyzed from third party in the stewardship business model amounted to around 450 million EUR. Moving now on our global generation business on slide number four. You can see from the chart that total renewable capacity stands now at around 49 GW, approaching 60% of our total installed base, up by four percentage points versus previous year. The green repositioning of our generation portfolio is clearly shown by the share of emission free production, now at 66%.
Renewable capacity built over the last 12 months is equal to 2.9 GW, despite the difficult conditions imposed by COVID-19. Over the next quarters, we will scale up the magnitude of new renewable capacity addition, and we expect to commission in three quarters around 5.6 GW of new capacity. As of today, 100% of these projects are in an execution phase, of which 600 MW already built and ready to start producing, offering high visibility on the deployment by year end. Such a remarkable acceleration in future growth prospects are made possible, thanks to our pipeline. I'm now moving to page number five, where you can see that as of today, pipeline has passed the 220 GW, broadening projects optionality with securing both flexibility, capital allocation, and protection of returns.
Mature pipeline now worth around 61 GW, out of which 26 are earmarked for 2021-2023 period, and 34 are already covering project for the 2024-2025 periods. Over the last 12 months, our measured pipeline grew by 34 GW, and seven GW moved to the execution phase. The mature and early stage pipeline dynamics position us optimally for both the planned period as well as for the year to come, offering an advantage into the new decade up to 2030 and supporting our growth ambitions. With respect to the 19.5 GW targeted addition for 2021-2023, we stand at around 66% of the target addressed, with over 12.8 GW currently in execution or already built. The residual target is covered almost four times by the related portion of measured pipeline, which translates in negligible delivery risk and high confidence on achieving even more than this.
Now moving to the operating achievement of global infrastructure and network. I'm now on page number six. In the first three months of 2021, volumes of electricity distributed are up by 2%, showing a progressive recovery from the dynamics observed in 2020 related to lockdown measures. Going depth on the evolution by geography, in LATAM, we observed a level of distributed energy almost in line with pre-COVID levels, driven by Brazil, while in Europe, volumes increased three TW-hours compared to the same period of 2020. Worth reminding that while in Europe, the impact of COVID was already visible in the first quarter of 2020, in LATAM, the pandemic affected significantly KPIs only in the second quarter. This makes the evolution of volumes year-on-year even more notable and bode well for the future.
Digitization of networks remain at the center of our capital deployment, with the number of total smart meters installed that reach 44 million, resulting in approximately 60% of our total end users. Let now take a closer look at customers on slide number seven. Our positioning on customers strengthened in the last 12 months, both via our retail traditional operation, as well as on services and infrastructure offered by Enel X. 900,000 new customers have been added in the free market, mainly in Romania, due to the end of regulatory tariff in Italy. Energy sold in the free market is up by 4%, with volumes increasing in both B2B and B2C segments, recovering progressively the negative impacts associated with lockdown measures. Looking at Enel X, the division performed extremely well. More than 100,000 charging points have been added, reaching around 185,000, up by 2.3x versus last year.
Lighting points reached 2.8 million, up 17% versus last year. Battery storage declined 10 MW as the net effect of new batteries built and some changes in perimeter. In fiber, 11.5 million households have been passed, up 37% versus last year. Finally, the industrial development goes together with the progress on group simplification on slide number eight. As you well know, the merger between Enel Américas and Enel Green Power Americas has been completed on April 1st. While a few days later, we announced the final results of the voluntary partial public tender offer for the acquisition of Enel Américas shares that was launched in connection with the merger. The two transactions allow Enel to increase its stake into Enel Américas to 82.3%.
Enel Américas' new structure is aligned to the one of other subsidiaries with the group. Integration of renewables will unlock synergies and will reduce operational and financial risk. The successful completion of these two steps allow us now to focus on the next leg of this project. We are looking forward to sit down with remaining shareholders to define the way forward for Enel Américas, focusing on implementing the strategic options that will maximize value creation in LATAM. Let's now open to the section on financial results. I am now on page number 10. EBITDA stood at EUR 4.2 billion, in line with expectation for the quarter, as discussed before. Group net ordinary income stood at EUR 1.2. FFO reached EUR 2.5 billion, up 24% versus the first quarter of 2020. Finally, group net debt stood at EUR 45.9 billion, increasing by 1% versus the end of 2020.
We move in the composition of EBITDA on slide number 11, where it's worth to highlight that renewables and networks account for almost 70% of the overall ordinary EBITDA. In the period, retail and networks activities showed a resilient growth, driven by the progressive recovery of electricity distributed on our grids and sold to our customers. In terms of geographies, the bulk of our EBITDA comes from Europe, which accounts for more than 75%, while the remaining portion is generated mainly in LATAM, with a 22% share. We will move into a deeper analysis on the results. We are now on slide 12 on Global Power Generation. The EBITDA of Global Power Generation stood at EUR 1.5 billion. Enel Green Power ordinary EBITDA came in at around EUR 1.1 billion. The main operating dynamics are as follows.
We have the contribution of new capacity installed in 2020, mainly in U.S., Brazil, and Spain, that impacted positively for around EUR 45 million. We got EUR 30 million positive coming from an increase in volumes of 2.1 TW hours, mainly in Italy and Iberia. On the other side, this positive impact has been offset by the following negative dynamics. Around EUR 50 million from the storm in Texas and the exceptional suspension of gas delivery from Argentina and Enel Green Power in Chile. Around EUR 60 million from FX devaluation in LATAM, and the rest associated with a decrease in energy prices as a consequence of last year, particularly depressed electricity market due to the pandemic.
This is for the Enel Green Power results. Conventional generation, the red part in the chart, including EBITDA, decreased by 36% versus last year. The underlying performance has been affected by the following dynamics. Trading activities are back to the pre-COVID performance. This contributed negatively for around EUR 140 million compared with last year. On the conventional generation, we recorded minus EUR 75 million due to the decrease in hedged power prices, mainly in Italy, Spain, and Chile. Minus EUR 35 million related to lower volumes as a consequence of coal power plant closure. Minus EUR 25 million from the currencies devaluation in Latin America, counterbalanced by efficiencies recorded in Spain and Italy.
Worth to highlight that the period has been affected by the CO2 regularization in Spain, which had a positive impact, while last year, performance included around EUR 170 million associated with the provision reversal in Spain. The two effect are counterbalancing. The net effect is almost zero. Let's now take a look at our infrastructure and network on slide 13. Ordinary EBITDA stood at EUR 1.7 billion, down 11% versus last year. In the quarter, we recorded EUR 180 million negative impact of non-recurring items, such as the provision reversals in Spain, negative compared versus last year. A EUR 180 million negative impact from currencies devaluation in LATAM.
Net of these two items, EBITDA would have increased by 2% or EUR 35 million. This increase is driven by EUR 80 million positive increase associated with investment deployed for digitization of our grids and to improve the quality. Around EUR 25 million positive of efficiencies. These positive items were partially offset by EUR 45 million negative impact from regulatory adjustment and CPI on others. As a result of our ongoing investments, SAIDI, so the quality of our networks, have improved by 6%. SAIDI decreased 6%, that means quality has improved for the same amount.
From a geographical standpoint, in LATAM, excluding the FX impact, EBITDA increased by 2% versus the same period of last year, benefiting from the tariff indexation and the increase in volumes in Brazil. While the performance in Europe demonstrates once again the resiliency of our networks supported by solid regulatory frameworks. Now we move on retail on page 14. EBITDA came in at EUR 900 million with a progressive recovery from the extreme condition experienced in 2020 associated with the COVID-19 pandemic. The group expanded its free market customer base by adding 900,000 new clients over the last 12 months on the back of the end of regulatory tariff in Romania and the increase in the customer base in Italy. Cost reduction effort continued to progress with OPEX per customer down by 5%.
Looking closely at EBITDA, free market EBITDA is almost flat, thanks to a better performance in Italy, mainly attributable to a 5% increase in volumes, which compensated a 4% decrease in Spain. In Italy, EBITDA increased 18% year-on-year or around EUR 95 million, driven by a pickup of volumes in both B2C and B2B segment and a better marginality with unitary margin up by 14% on average. In Iberia, net of non-recurring items, EBITDA declined by 20%, mainly driven by lower volumes in the B2B segment associated with the economic deceleration for the industrial segment still affecting Spain by COVID dynamics. This has been partially offset by an increase in the B2C due to higher unitary margin, and the reduction in unitary margin from the B2B segments partially compensated by a higher marginality for the residential customer.
In Romania, finally, retail EBITDA increased by around EUR 20 million due to the end of the regulatory tariff, as already commented. Regulated market EBITDA is down around EUR 20 million year-on-year on the back of the elimination of the regulatory tariff in Romania and the decrease of the regulatory customer base overall. In the next slide, we will show in detail the earnings evolution during the period. I'm on page 15, where you can see that ordinary group net income came in at EUR 1.2 billion, down by 5% year-on-year on the already commented dynamics at EBITDA level, which are smoothed by better results recorded in all the other lines of the profit and loss.
D&A are almost in line versus previous year as a consequence of lower depreciations thanks to the impairment made in 2020 on coal assets in Chile and lower bad debt accruals compared to last year, which was affected by COVID-19. These two items totally offset the impact of the investments deployed. The reduction in financial expenses derives from a few different moving parts. First, lower net financial expenses by around EUR 35 million thanks to the efficient debt refinancing carried out during the last 12 months to reduce the cost of debt through lower interest rates, instruments, and hybrids. Second, lower other financial expenses by around EUR 150 million, mainly related to the impact of interest accounted for the CO2 regularization in Spain and the negative effect in evaluation items exposed to exchange rate in 2020. Equity investments contributed EUR 31 million.
Taxes decreased by around EUR 145 million, driven mainly by a lower level of earnings before taxes and tax rate at 30% versus 32% last year. Minorities decreased by 25%, reflecting the increase in Enel Américas and Enel Chile stakes and the higher contribution of Italian companies. Worth remind that in April, we reached 82.3% shareholding in Enel Américas following the completion of the merger and the PTO. In the next quarter, you will see a further reduction of minorities to this other increase in our stake. Now moving to cash flow on slide 16. FFO stood at EUR 2.5 billion, up by more than EUR 400 million versus last year, supported by an improvement in working capital, which recovered from the COVID-19 impact.
Cash conversion improved to 61% versus 43% last year, as 2020 numbers were affected by the provision reversal in Spain with no cash impact and the pandemic working capital. In more details, the dynamics underlying the FFO evolution can be summarized as follows. Lower EBITDA versus previous year, already commented. Lower change in provision, mainly associated with lower bad debt accruals . Net working capital at minus EUR 800 million, improving significantly versus last year, thanks to the recovery of the COVID effect, which impacted negatively for EUR 400 million in the first quarter 2020. Lower taxes paid mainly due to advanced settlement tax payment at the end of last year. Free cash flow to the EUR 500 million positive, with capital expenditure fully covered by the operating cash flow generation. Now take a look at the net debt on page 17.
Net debt is equal to EUR 45.9 billion at the end of the quarter. Changes are driven by positive free cash flow of EUR 500 million, already commented. Dividends paid during the first quarter of the year for EUR 2.1 billion. EUR 100 million associated with our active portfolio management. Hybrid bonds accounted as equity and negative impact from FX of about EUR 1 billion. Gross debt stands at EUR 58.3 billion in reduction versus December, thanks to our effort of cash optimization. Now, before the closing remarks, we take a look on our guidance for 2021. First quarter came in in line with our expectations. As commented, on top of what was expected, we recorded some unexpected dynamics, both positive and negative, that offset each other in the period. Some of these dynamics are not entirely first quarter related, but will extend also to the coming months.
On the negative side, if currencies remain weak compared to plan assumption, today mark to market suggests a potential impact of EUR 1 billion. This estimate assumes a persisting and pessimistic strong devaluation of effects across the board, while we see potential improvements coming from the roll out of vaccines and exit from the pandemic. On the positive side, the initial signs of recovery from COVID-19 are expected to last and accelerate along the year, such as the increase in volumes and prices. The group will continue to create value through this strategic setting. Our ownership business model, which will drive our industrial growth and is showing a delivery in line with expectation, even in a challenging context.
The stewardship business model also confirmed by the recent announcement of Open Fiber deal on which we can leverage to face further headwinds, if any. In light of this, we have full visibility on our full-year delivery, and we can confirm 2021 guidance of both EBITDA at net income level. Now, some closing remarks. As just commented, our full-year 2021 guidance is confirmed. We have full visibility on the acceleration of renewables capacity installation with around 5.8 GW new addition expected by year-end, and almost 66% of our 2021-2023 target already in execution.
All this coupled with an extensive pipeline, which covers around four times the remaining addition for the period. As scheduled, the annual general meeting will be held on May 20, and we will approve the final dividend payment in July based on 2020 results. Worth to remind that for 2021, we have set a fixed remuneration for our shareholders with a DPS of EUR 0.38, implying a 4.5% dividend yield and a double-digit shareholders return. Thank you for your attention, let's now open the Q&A session. I give the floor to Monica.
Okay, thank you, Alberto. We open the Q&A session. I want to thank all of the analysts that sent the Q&A through. In particular, we receive question from Stefano Bezzato, Credit Suisse, Jose Ruiz, Barclays, Lillian Starke from Morgan Stanley, Emanuele Oggioni from Banca Akros, Lueder Schumacher from Societe Generale, Javier Suárez from Mediobanca, Enrico Bartoli from IFM, Manuel Palomo from Exane, Harry Wyburd from Merrill Lynch, Antonella Bianchessi from Citigroup, Alberto Gandolfi from Goldman Sachs, and Javier Garrido from JP Morgan. I start from a few general question. First one, we saw a few negative one-off in the quarter, balancing out with positives at EBITDA level. How do they impact your net income? How this clean net income would compare to last year?
Okay. On the net income impact on what we commented on EBITDA. Converting to net income impact, we may say that the net difference between the non-recurring items in 2020 and 2021 is overall negative on net income for around EUR 50 million. We had other headwinds that are the Texas storm and the gas shortage in Chile. They will total another EUR 50 million of negative impact. We are around EUR 100 million of negative impact. If we take out these two, net income would have been around 3% increase. If you see, and we take out also the FX impact, net income would have an increase of roughly 7% year-on-year.
Second question. Currencies remain far away from your scenario assumptions. Can you share with us what is the expected impact for 2021?
Yes. We have commented already that today the mark to market of the currencies is approximately EUR 1 billion of impact versus the target we presented to the market in November. Well, we think that we are still in a period in which it's not clear what is the direction of effects together with the exiting of the crisis. We do expect this potential impact may be lower than this. Having said that, now we are considering this as a worst case, and we are acting and moving all our action plan to cover a possible worst case like this, while we are expecting to less than this at the end of the year.
Okay. A few question on Open Fiber. The first one is, can you detail the underlying components of the capital gain for the deal?
I think you followed the news and that finally we will sell the entire stake we own in Open Fiber, is 50%. The capital gain expected is around EUR 1.7 billion, and it includes any further payment of capital injection agreed with the other shareholders. The expected net result 2021 of Open Fiber until the closing date. In this calculation, we don't include any potential contribution coming from the earn-out that we have agreed in the final agreement on the selling.
Okay, Alberto, analysts are asking, which was the contribution to net income of Open Fiber in 2019 and 2020?
In 2019, we had a negative contribution of around EUR 60 million, while in 2020, the contribution was zero, only because Open Fiber accounted for a non-recurring fiscal benefit, which completely offset the underlying negative result coming from the operation.
Okay. I think this question refers back to the capital gain. How much of that capital gain was included in your business plan assumptions?
Well, when we made the assumption, we had a potential deal of around 40% of the stake and not 50%. Before this, we had a forecast of 1.4 that now is 1.7.
Okay. Next one is, when do you expect the deal to be finalized? If you see any risk that the deal is not finalized by year-end?
We think that we are going to close during the third quarter. Today we have just completed the signing phase. We are opening the phase for all the authorizations needed for the deal. We don't see any major headwinds. We think it's only a matter of time. We foresee the closure in the third quarter.
Okay. To close on fiber optic topics, can you comment on your potential interest in Ufinet?
Well, Ufinet is a very good company that makes the same business of Open Fiber in Latin America, based on Central America and in the countries which we operate with our distribution networks. In 2018, we bought a 21% stake for EUR 150 million of cost, and in the agreement was included a call option that can be exercised by end of December 2021. Now, looking at potential partnership, cost of the call, potential development that we may do in the area, we will take a decision during this time, if exercise the call or not, and so going ahead with the development of this business also in Latin America after the very good results of having done this in Italy.
We go back to the topic guidance. You have an EBITDA target for 2020 ranging between EUR 19.7 billion and EUR 20.3 billion. Taking out the contribution of Open Fiber in 2021, there is quite some road to cover. Can you walk us through the drivers to get to the 2022 guidance?
Well, we have plenty of moving parts. It's a very strange period in which we have a lot of moving parts. I can say that on one side, we have on the ownership model, I think that one of the most promising drive out of the full recovery of COVID-19 and possible extra recovery in the first year of completely exiting the pandemic. We have, on the CapEx side, the main way to improve our results. I'm talking about a complete reinvestment of the FX impact on our CapEx. You know that out of compressing a little bit our EBITDA, the level of investments is also compressed. We are reinvesting directly, the compression of CapEx, this year we are accounting for roughly EUR 600 million, EUR 700 million of extra investment, not impacting the financial position because are related to the FX impact on our CapEx assumption.
The second is the Next Generation EU, that now is in the final decision, and then we'll start the action plan. This will drive a further increase of investments, not impacting our financial position, and also a further increase of returns and extra returns that may be followed by this kind of the investment granted for the grant that would be devoted to the development of this project. Thirdly, we have a very good and promising financial situation. We can push strong on using our balance sheet to increase organic investments in many parts of the business that needs an improvement. That is distribution. We can increase the investments and the weight of development of renewables. We can increase the weight of customer acquisition, and that we will do.
We have plenty of things from the energy business that we can push on to fill the gap for 2022. We have just started with our stewardship model. Open Fiber is a good example, but we have plenty of other way to develop any value of this model. We are working on several parts in all the business line to implement this model and also the value creation. For sure, portfolio rotation is our guided start. We have today that there are huge amount of huge valuation of several assets. Using a clever asset rotation may create value and other opportunities for the group.
Okay. Next is on financial performance in the quarter. What was the impact of COVID in the quarter? How much you expect COVID to account for in your numbers for the full-year? Is there any residual risk that you see on your business?
In the year now, we are experiencing a gradual recovery of post-COVID-19. It is what we have assumed in our target for the year. Looking at from this side, we haven't got relevant impacts at EBITDA level. KPIs are now going back to a more normalized situation. This is the first quarter, but we foresee this for the full-year. We don't expect significant impact. It's clear that impacts coming from the last year to this year are already in the expected results. We were obliged last year to cover a part of our energy with a very low price. This is something that we still have in 2021, that we will not have in 2022. The part that we are hedging now is now hedged at prices that are in line with the 2019 prices, but we got two years to pass. The COVID-19 impacts our numbers.
Okay. Can you please update on the regulatory situation in LATAM, particularly in Brazil?
Well, Brazil is still open. Enel now has opened the third phase of public hearing, to further discuss the economic rebalance. We think that a final decision may come by the second semester. During this time, a lot of tariff adjustments have been done in Brazil, keeping an eye on not increasing the impact on the customer bill. Managed in a way in which the distributors are not having any economical impact. The final decision in the second semester, after another public hearing that now is going to be held.
Okay. Enel Américas, when do you expect the kickoff of the second phase of restructuring?
Well, we have just finished the first phase. Now with the 82.3% of the share capital, now we are going to complete the phase with all the contribution of the assets and formality. After this, we think that we may open the table with the remaining shareholders to define a common view on the best way to valorize the presence in the Latin American business. I think that this is something that is going to start in the second half of this year. You will see some action at the end of this year.
Okay. Next, following the approval of the national recovery plans, can you quantify the additional investments compared to your current business plan?
We have presented a very comprehensive plan, on different business, on networks. We presented for Smart Grids, digitization, renewable integration. On renewables, mainly all the investment related to hybridization, through storage and green hydrogen of our renewable fleet. On customer side, on Enel X, everything related public charging infrastructure, buses, smart buildings and grid ports. Now we are expecting the final outcome. We think that around the projects we have presented, we may expect an increase in the range of 10%-20% of the overall EUR 24 billion of investment in Europe that we have earmarked in our plan for the new development. This is something that will come at different level of grants, that may add profitability, an extra profitability to our overall European plan.
Okay, we move back to Italy. Are there any updates on timing around the simplification decree in Italy? Is the approval of this dependent on the reform package that the new government wants to implement?
No, the approval of the simplification decree is independent from the package. The simplification measures will have to be adopted via decree, to be approved at end of May. The simplification effort will be centered streamlining the environmental laws and procedures, with the aim to cut excessive length of the administrative and bureaucratic procedures, and so through this way to cut times for, in our case, for renewable development.
Okay. Last one before getting into the business-related question. Has the opportunity set for Enel X changed in the context of the U.S. climate plan and EU recovery fund, particularly considering the focus that these plans have on infrastructure like electric vehicle and charging infrastructure?
Well, I would say definitely yes. This focus for Enel X, mainly on electrical transportation, is at the bulk of the Enel X strategy in the U.S. This will accelerate for sure all the sector and for Enel it is one of the main actors active in the United States.
Okay, we kick off with the business question related session. We start with global generation. COVID-19 imposed a slippage of 800 megawatt renewable capacity from 2020 to 2021. They were not delivered in first quarter. Can you give us a bit of color on why this slippage happened?
One important point is, yes, last year we had this slippage of 800 MW, and sometimes it's because of COVID-19 impact. I want to stress the fact that we have a very rigid way to account the new megawatt. For some reasons related to the final technical green light, we had 800 MW already built that, for me, was not ready for all the checkpoints to be put into the megawatt in the quarter . They are already in, I would say that no delays are in the Q1 out of some formality of these 800 MW. On the rest of the year, we have now plenty of visibility on the other plants under construction. We have, today, no delays versus the final target.
Okay, which I think also answered the next question that was about the target for the full-year of 5.8 GW, as the Q1 seemed to be lower than expected. Analysts are asking if we can still meet the target, and I think you just answered to that question as well.
Yes.
Next, is there any region where you have seen a more notable change in competition in the renewable market, either easing or intensifying?
Well, competition, as said, has been always fierce of renewables. Having said that, we don't see any notable changes in the competition level. I want to stress the fact that competition, first of all, renewables development is not a one field battle. It's now many fields in which different way, which you can develop renewables. If you look at tenders, I would say tenders are a crowded space with crazy prices offered, and a space that is almost impossible to win a competition. We are not facing this competition because we are not participating such a space. All the other fields of renewables are open. Competition is not fierce.
It's a good competition, also because it's not a competition against very little developers with only one project that are dead or alive if you win a tender, because only a tender you can win, because it's the only way to finance the project. Having said that, now that new big companies are entering the space, we think it's the best way to manage this new space. It's so huge, it's growing so fast that big companies are very rational in their choices, so will change the competition in a way that we prefer.
Next is on the performance in North America. Can you walk us through the performance in North America? Economic results seem out of sync with industrial development.
Yes. We have some moving parts. One is the cold spell in Texas, and we have already commented it. Second is low wind resource at the beginning of the year. The first quarter was very low in the U.S. Now that things are changing. April and May have been good months, so April and also the beginning of May. We had some technical issues that now are solved in a plant in North Dakota that we are now putting alive. We think that now there is a gap to be recovered, as we are working to recover it via the Texas cold spell had been not expected. The others are normal things that happen in a country, and so we have plenty of things that we may activate to cover the gap.
Okay. Cold spell in Texas. We stay in the U.S. You have indicated a very limited impact. Can you please explain why you have been less affected than other companies? Is there any further downside risk to this level of impact?
We had a limited impact because only one country significantly affected our position. All the other part of our presence in the area have been almost completely hedged. Now we activated all our legal rights under this contract for the condition experienced. For the time being, we see no further downside risks on this.
Okay. Hydro availability was an issue in Chile, but better elsewhere. Can you provide a summary of resource availability so far and your view on the year?
Well, it proves a very relevant fact going forward, that being global and developing renewables everywhere is reducing the overall risk for several parts of our business. One is the production, because it is frequent that you have countries with a high performance, countries with low performance. The all-in-all effect is a net effect of all these headwinds, and only one trend that is a trend of growing production because of the increase in installed base that we are doing.
2021 is exactly the case, and because of this, we see that while we had this reduction in Chile, but we are having a very good results in Europe. I would say that still, we have also different ways and different prices. This may at the end be a positive headwind that we are following to have, as I previously said, to have and to cover some adverse effect that we are experiencing on the other side.
Coal phase out, how much coal capacity are you planning to close in 2021?
2.9 GW. 2.6 in Spain and roughly 300 MW in Italy. It's clear that we are ready. We are waiting for the final authorization of the various TSOs of the countries, to have the final green light to shut down the plant.
You have shown prices impacting negatively the results of the quarter. Can you please explain what drives this in light of the high level of forward sales you have across your markets?
Well, as I said, so the very point that are impacting the results on prices this year is because we have to compare the hedge prices in 2020 with the hedge prices in 2021. Having said that, so we covered our production last year with a very depressed scenario. This is the overall pricing impact that we are experiencing this year. Today, we have roughly, say, EUR 130 million of less of impact coming from less prices. I want to say that it is not something that is expected for 2022, where we are hedging 2022 production at prices that are in line or even higher than the prices we had in 2019. Now we are benefiting a very high price because of the CO2 prices and because of the cycle of commodity that is coming back to a normal or even higher level prices than the pre-crisis level.
Okay. The next question on the short position. Can you provide more color on the negative impact associated with the short position in Spain?
Well, this is not a negative impact. It is negative compared versus last year. Today, this year, short position is around zero. It's not impacting the business. Because last year, because of the high volatility of prices, it was very positive. What we said, so the comparison between the two situation is explaining the negative impact that we are seeing.
Okay. We move to networks. Following the interest of a WPD network in the U.K., are you looking for any other assets? Have you already identified a target in the U.S., or would you consider to add assets in LATAM? What would drive your preferences in terms of which grid asset to buy?
Well, first of all, one important specification, the WPD interest by us was related with our stewardship business model. I remember that applied to the grids network, is the way in which we foresee to buy a minority stake in a business, gathering funds for the majority stake. Through this position to offer to the grids and the other shareholder, our services in term of managing the network, using our platform and bringing the network to our international level for purchasing the assets. Through this way, creating value, operating value, along the time in which we stay in the network and creating value, selling the stake together with the other funds when we will exit.
This is WPD. Our ownership business model, which we are seeking for buying the network, new networks, and managing 100% them in our ownership business model. Having said that is important because WPD is only that way. We are keen to do both the side of this business in other countries in which we think that we may create value, managing the networks through our capabilities. U.S. will remain a key target of our further expansion in grids for both the business model, because we think that there is a huge opportunities in the U.S. to make business, because of the energy transition is going to happen, because digitization is going to happen, because there is a big need of modernization of infrastructure.
This would be something that for us is relevant. You will see us looking at some part of the world, approaching country with a different business model, depending on the countries, and depending our aim to create an integrated business or only create value managing as a part of our distribution asset. In Latin America, on the ownership business model, we think that we are now in a good position. We do prefer, or to do some asset rotation only to manage a little bit our asset base. You will see us maybe focusing on other part of the world to create the development of grids.
Okay. We move to retail. Can you compare the retail markets in Spain and in Italy in terms of competition by customer segment today?
Well, competition is fierce everywhere. If you compare now in Spain, you have roughly, say 300 power suppliers. In Italy, we have roughly 600. This is the number of competitors in these countries. Competition is there. Market share are different because, in Spain, we have roughly 50% market share. In Italy, we have roughly 44% market share. Today, so if you see this competition, we think that in Spain is a little bit higher, because I think it's now driven by repositioning of other big companies that are trying to take some stake. The churn rate is by far higher in Spain than in Italy.
This not means that an high churn rate translate in a reduction in customer base. It may, at the end, only translate in a higher level of acquisitions. A little increase in investments you have to do to keep your customer base stable, and this is what is happening in Spain. Italy is a little bit lower, mainly because we are still under a big branch of regulated tariff, so we have a big number of customers. This is reducing a little bit the competition. Today is only focusing on the free market. It is not so big like Spain.
Okay, another one on retail. Can you provide more color on margins for B2B and B2C, for both Italy and Spain?
Dividing in segments, I think is the best way to look at it. The residential segment proved very strong in Italy mainly, but also in Spain. This is because an increase in the unitary margin, this is mainly Italy, Spain is almost flat, and also with an increase in the average consumption. Residential segment very good in both markets. On the B2B segment, Italy, very good. Expansion of unitary margin and stable volumes. Iberia, reduction in unitary margin and also a reduction in volumes delivered. Here, as I said, we think that the exiting from the pandemic is slower in Spain than in Italy, so we do expect, following the vaccines, to have a road to recover of the B2B in Spain that will be skewed towards the next quarters.
Okay. Before moving into the last session of Q&A, I have a flow of question coming from different analysts and investors around the guidance. It seems that someone is not squaring the numbers. The first one is a clarification around the guidance for full-year on EBITDA. An analyst is asking if we confirm the guidance, even if the currencies are staying at the current mark to market.
Yes. As said, we confirm the target, because as said, we are working on this worst-case scenario. We classify this as a worst-case scenario, but we are working on it. It's clear that everything we may do on the stewardship business model, this is plenty of things that we can do. On the other side, as said, also on the ownership side, because of the size of volumes and prices and what I said, remember that if we have volumes increase in Italy and Spain, these are not hedged. You have a double increase coming from the increase in volumes and the fact that these volumes are facing spot prices that are in the range of EUR 45 and EUR 60 in Italy and Spain.
This is a big increase. We are working also on some parts of the world in adjusting some tariff indexation we're seeing. There are discussion open in Argentina because you know that Argentina have freezed tariffs for the last two years with a CPI of around 40%. It's clear that now the table is open and may be closed within this year with some benefits and other moving parts that we are working on. That's why we confirmed the target at the EBITDA and also at net income level.
Okay. Staying on net income. A few analysts and one investor is asking about how the capital gain of Open Fiber contributes to the target, because it seems it's too big to squeeze into the target. They're basically asking about the translation from EBITDA down to the bottom line.
Well, the utilization-
Sorry, and I add another part. If any measure might be taken in order to compensate for this big capital gain and bring the positive forward to other years?
Well, as said, it's clear that this capital gain allows us to reach the target. As said, it will help us also in doing some actions that may increase the level of results after 2021. We are looking at several things that we may do. One of this is that we may address a plan to fully refinance the part of the debt that is already out of our sustainable finance effort on one side, and that is bringing a cost that is already linked to a level of interest rates that was the level that we experienced, say, seven, eight years ago. A level of debt is going to expire in the next three, four years.
We may use a part of this to accelerate this refinancing in a time in which we are still experiencing a very low interest rates, but seems to be the final time of this benefit. This is suggesting us to rush and to close this position for, so we can use some part of this capital gain to finance this expansion. This is one of the lot of actions we are assessing to work around the results and to benefit also in the next years of this capital gain.
We move back to the P&L questions. P&L items came out on levels that seem to point to an improvement of the values embedded in 2021, 2023 plan. What should we expect for the full-year on D&A, taxes and minorities? Financial expenses recorded a significant reduction. What is the plan over the next quarters and what's the level of financial cost you are expecting for 2021?
Well said. We don't see any major change related to the numbers that we have earmarked for the items below EBITDA. We think that we will have the D&A that would stay at around EUR 6.7 billion at the end of the year. Tax is EUR 2.7 billion and minority is EUR 1.3 billion. When it comes to financial expense, remember that they have an ongoing.
Sorry, you put your hand on the mic, and we couldn't hear you.
Oh, okay.
for a couple of seconds.
I was saying that reduction in financial expense is not entirely related to the refinancing activity. As said in the presentation, we had a one-off of roughly EUR 120 million-EUR 150 million related to the fact that the CO2 dispute that we won, had a positive impact on the EBITDA on one side, but another impact on financial cost because we got the interest on what we paid some years ago. We piled up interest that we accounted in the financial expenses. Out of this, we have normal trends that are already earmarked in the target that we have for 2021.
Okay. Remaining on the net debt and financial expenses territory, net debt remains pretty stable. What should we assume for 2021, still looking to have a net debt on EBITDA of 2.7 times?
Yes. We'll stay on this level. The impact on the first quarter is related to some time effects on some part of the cash flow, that will be fully recovered in the next quarters, and will bring the final result at the level that we have foreseen our target, that will represent the 2.7x the net debt to EBITDA on a KPI.
Last one before moving into the question that we received last minute from analysts to our email address. Could you please specify the amount of issued hybrids at the end of March 2021? What is the amount of these hybrids, and which one you are including your net debt calculation?
We have a total hybrids in March of around EUR 6.8 billion. Out of this amount, EUR 2.2 are included in the net debt, while the remaining EUR 4.6 are accounted as equity.
Okay. I think we can now move to the question that we received from the web. The question number 14: Are you interested into ERG's hydro CCGT assets in Italy?
Well, I would say that everything that is moving in Italy, we are interested in and looking at it. Yes, we will look at. It's a plant that we know very well because it was part of our asset base. It's a very good asset. We think that hydro production may be useful in a situation in which shutting down coal will bring our position long to customers, and covering a long position to customer with renewable capacity is, in every countries in which we act, something that is relevant for us.
If you combine this with the fact that Italy is a little bit lagging behind in the development of renewables because of bureaucratic impact that now are going to be solved by the simplification decree, but it will take some time to have a level of development, I don't know, like Spain. These steps may be useful. It's clear that it has to be useful at the right price. We are not ready to buy any kind of price to look at these assets.
Okay. Sorry, going back to the capital gain of Open Fiber. An analyst is asking if the EUR 1.7 billion capital gain can be considered ordinary.
Well, yes, because this is part of what we said is our stewardship business model assumption. We said in our plan presentation in November that the first way to look at the stewardship business model, we will count an accumulated EBITDA produced in the next 10 years of EUR 17 billion. In this EUR 17 billion, we have different components that are, one, the products we sell directly through our platform, the products and services that we sell through our platforms to joint ventures.
The third is the capital gain that we made to in buying and selling stakes from the joint venture that we have created. In this case, Open Fiber is the first. Other will come because we talked about Ufinet before. Ufinet is another way to create value to this kind of business in different parts of the world. This will be applied to other business lines, a different way to create value, perhaps within the stewardship business model hat.
Okay. I'll go back to the question from the web, and question number 10. On the short position in Spain and generation and trading margins, is there any actions that Enel is taking in order to regain a level more close to the first quarter 2020 in the near future? Conversely, is the first quarter 2021 EBITDA to be considered as a reference for the future?
No, I say the short position is not related to actions that we may do. It's a situation of the market that may suggest that it's better to buy energy instead of producing it. It's rather complex, but easy to explain. It's clear that the way in which the short position acts is a short or a sharp reduction in prices that suggest that it's better to buy instead of producing energy.
It's clear that the way in which you are exposed to this is the level of hedging that you do. Because we don't want to have any higher level of risk, the position in a normal year, like this year, is neutral. It's almost ranging to zero. That is open to be positive if you see a sharp declining in prices like happened in 2020, in this case, because of the pandemic. Other years, we got for a different reason.
Okay. Question number 13. Enel keeps reducing its average cost of debt. Can the company continue to do so if bond yields keep rising?
Well, I said this. We have two ways to reduce our debt. The first is now, the residual bond to be refinanced are bringing an overall cost of, say, 5%. It's clear that we are not at that level. Also, if we wait, we will get a steep reduction in this cost. On the other side, I remember that the sustainable link bond that we issued the first time two years ago, now are becoming mainstream.
Through this way, all the issuers are getting a discount versus their normal bond, that is in the range of 20, 25 basis points, like we did. These are these two steps. The third is, as I said, because we are having some space in our net income headroom, because of the capital gain, we will move in fastening the refinancing of the residual debt. We will try to have a big tranche liability management this year to cover, in advance, potential increasing in interest rates that are going to happen.
Okay. Question number nine. What is your expectation for Brazilian distribution rates in 2021? In particular, do you expect a regulatory intervention during this year?
Well, no. A regulatory intervention, there is an overall regulatory intervention. No. There are no intervention. We do expect an intervention, as I said, for the economical recovery of COVID-19. It was due last year. Now we are at the third phase of auctions to understand what is the overall impact and the amount. There are a lot of tables open. In several countries, in several distributors in Brazil, I would say that some tables have been closed with positive outcomes, not so relevant. We are not talking about big amount, but EUR 10 million, EUR 15 million every table. The attitude overall is to close positively these tables. Also because you are not going to give for, not still answering on the big request for the economical restoration. You are inclined to have some positive stance on the single request and table opened.
Okay. Question number 11. The improvement in supply within Italy, driven by both margin and volumes, is expected to continue over the coming quarters?
Well, yes. We expect the trend continue, or we are doing extremely well in Italy, in acquisition and also in the margins and in energy sold. We are just starting to have combined selling with Enel X and a lot of products that are going well. I think that Italy this year is set to going on in this positive trends for retail, yeah.
We go back to Open Fiber capital gain, Alberto. Sorry for that.
There are a number of questions around how the capital gain translates into net income. In particular, what's the tax regime that is associated with the gain? How this capital gain is included into our guidance. How much of the EBITDA translates effectively into our guidance?
Well, capital gain, the effect on the medium term is almost the entire level of capital gain. Taxation is very limited on this kind of capital gain because they benefit what is the participation exemptions in Italy. That's why I said, this will create and constitute a big base to start some program like the liability management I said, because it's clear that it's entirely or almost entirely flowing to the net income results.
Okay, just to be clear, there will be some compensation down to the P&L?
Yeah.
Okay. Question number eight. First quarter other financial charges. If Forex stays where it is now, is the drop in other financial costs reported in first quarter sustainable throughout the year, or could it be reversed later in the year?
Well, as commented, so I said that this is a CO2 regularization in Spain is the main impact. If we freeze the foreign scenario at the level it is today, we think that we can maintain this positive gap year-on-year. It is clear that on the other side, as said, so if we will run some liability management opportunities, that may affect the result of the years. The next years is going to be benefiting from this activity.
Okay. Question number seven. Free customers in Italy at the end of first quarter were 9.6 million. Your planned target is to reach 18.5 million customer by 2023. Is it still a realistic assumption? How lower customer base would impact the EBITDA?
Well, the 18.5 million customers, is a level reachable at the time in which the end of regulated tariff will come. Now, so it's going to be delayed. It has been delayed another year, a year and a half. It's compatible with the fact that Enel will maintain the market share that today it has on the free market. Remember that today, so the regulated market, it is not a market, so the regulated tariff, because remember that the market is still open 100%. In the market is present, the regulated tariff, and the customer are free to stay in the regulated tariff or to exit it.
The expiration of this regulated tariff, under which the business is a business that is only based on cost compensation, because energy is provided by the single buyer, companies are only compensated by the commercial cost, the operating cost on customers, is something that is going to be reduced every year. Every year we delay this type of market, it's going to be reduced, because customers are exiting the tariffs are entering the free market, not only because of the commercial effort of all the actors in the market, but also because now that the energy is becoming more central in the energy transition, so having a full range of services instead of only one, is changing the attitude of customers to have different actors that will offer them a full range of services.
Having said that, it's clear that the realistic assumption is really on the time of the end of regulated tariff. Every delay is not impacting us a lot, because at the end, so we have time to move customers out of the regulated tariff, we and the others, so the market will be little than today. On the other side, because at the end, having this market is not giving us any major results. I think that at the end of 2023, so that everything will be done. If further delays will be adopted, this will not impact a lot on our numbers. This will only impact on the number of customers we count on free market, but not on margins and the final result of the business.
Okay. Question number four. Your renewable pipeline is way larger than the capacity you aim to build over the next 10 years. Which success rate are you expecting from the pipeline? If successful, would you consider selling some of the projects?
We have to develop 100 GW of capacity in the next 10 years with a ramp-up, because now in the first few years we'll stay around seven. Having seven at the very beginning of this ramp and having an average of 10, then we have the last years of the plan in which we have to deliver 13, 14 GW every year. To develop a program of 100 GW, you have to have 300 GW of late-stage pipeline. It's not since the beginning, but more or less to have plenty of possibility of choosing the best project, we have to work in this level. Having 220 GW today is not enough at all. We have to increase hugely our pipeline. You will see us doing this, and you have already seen it.
Because we have increased 30%-40% of the pipeline in the last six months, but you will see a steep increase in the next month, because we have to reach very soon a level that will comfortably cover, really, the development we are foreseeing for the next 10 years. Having said that, three times is a high level of coverage, and because it's the only way to have some tender won, but because our development is not only through tenders, it's clear that we may have some excess of project in some countries in which we have already reached the level we were seeking for. In this case, you will see us be keen to sell the projects.
We may do it in selling the project and stop or creating, instead, in our stewardship business model, some joint ventures with funds that may have a lower cost of equity of ours. So they may, in this case, buy project that we are not developing because our request in the return of investments are higher than the joint venture we can establish with them. And that's why we are pushing also the stewardship business model, because it may be the way to valorize, on one side, our pipeline, and on the other side, also to sell the stake to actors that may have lower requirements and so valorize better the stakes we have.
Okay. I have to go back to the guidance, Alberto. I beg your pardon, but there is still a question around the difference between what we were assuming in the plan regarding the capital gain and what we are guiding now. An investor is asking if in last year guidance, we were assuming the contribution of Open Fiber. If not, given that now we have this contribution, we decided to reinvest it in other activities. Given that now the contribution is even bigger than what we were originally estimating, we can use it to offset some effects issue.
We were assuming already in our target, the capital gain of Open Fiber, not at the level of today, because I said that we were assuming a 40% stake to be sold, not 50%. As I said, we had already put in our target some activities to bring forward a part of this effect, like I said, liability management or other way to act and to move the value next years, like renegotiation of some gas contracts that are not producing cash or other way to have better results in our operating business after. It's clear that now that we have an increase in the capital gain, as said, we are facing on the other side, some headwinds on the effects.
It may be useful that this increase may cover some increase, some negative headwinds coming from the effects, if effects will stay the level of today or they will follow the mark to market we have today. This is on the economical side. On the financial side, it's clear it's different because we have EUR 2.6 billion of cash in because the overall transaction is EUR 2.6 billion. On the financial side, it's clear we are going to reinvest this cash in to fuel our organic growth and also to make other things on other parts of the stewardship business model.
As said, we have a call option on another piece of the fiber business in Latin America that is Ufinet. It's not sure, because we are assessing if the call option may drive increase in value, like the Italian Open Fiber in the next year. We can decide to use a part of this money to put in another business to create, we hope, the same or similar value in another venture that we may do in Latin America.
Okay. I lost a little bit the chain of question. I think we have a couple left. One is question number two. Could you please explain how the FX can have a negative impact both on EBITDA and net debt?
No, net debt is not negative. Net debt is positive, so it's reducing debt. Okay. On the net debt, I want to be clear on the net debt because I have already explained this before, but it's better to reinforce the fact. On net debt, we have no impact, really no impact on debt, because our debt is fully covered, it's fully hedged. What we report on debt is related on the level of exchange, mainly related on the dollar. This is ranging around the strike price that we have covered through hedges.
Having said that, today, at the level that we are experiencing, the numbers that we are giving you in the first quarter, we are at the level of the hedge. The level of debt that we have today is, for some reasons, quite in line with what is the level of the debt we will repay at the end of the time. The ranging is only related on the level of U.S. dollars, but is not impacting at all the level of the strike price, where we have hedged almost all the exposure that we have in U.S. dollars.
Okay. Question three. Sorry, can you tell us what returns are you seeing from RES investments, which are currently under construction, more or less than your targeted 12% EBITDA on CapEx?
Well, on the overall, we don't see any major change, because as said, so we have many parts, different parts in which we are working on. Clearly, the overall impact stay around the level that we had in the plan. It's clear that in some parts, so we are looking at different way to develop renewables. We are looking also at some hedging related to the portfolios that we have in specific areas, that may give us the possibility to have an increase in returns, not increasing in a significant way the level of risk that we are taking in developing renewables.
Okay, I think we are approaching the last one, and is about the exposure, the question number six. The exposure of the group to the significant rise in CO2 power and gas prices. Can you remind us the rule of thumb, exposure to prices, and when would you expect any earnings benefit to start to show?
Well, it's clear that, in the way in which CO2 prices is figuring and increasing the spot prices in the market, it's clear that having less and less exposure to thermal production, but having the markets already fixing the price based on thermal production, it's clear that the benefit is rising until a new market design will come. That is exactly the way we are acting. Looking at markets that are still setting prices with thermal production
And so putting renewables with the levelized cost of energy, this is by far lower than this price set by the thermal generation with a so high CO2 level price, is an exceptional period in which you may do a high level of extra profits, reducing the paybacks of your plant. If you can do it, backing the production to your customer base is the best way to create value, and it's exactly what we are pursuing in several countries in which this situation is possible.
Okay. I think this is the last question. I think we have answered to all of them. If something was not answered, it's completely my fault, as we received many questions and some might have slipped out of my inbox. We will provide an answer offline immediately after the closure of this call. Thank you, Alberto, for being with us, and thanks to all of the analysts and the investors that have been so participative to this call.
Thank you.
Thank you.
That concludes the conference for today. Thank you for participating. You may all disconnect.