Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the ERG third quarter 2021 results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Paolo Merli, CEO of ERG. Please go ahead, sir.
Good afternoon, everybody, and welcome to our webcast. Here with me is Michele Pedemonte, our CFO, who will take you through the results in more detail after my opening remarks. So, the key message I'd like to convey today is the following. Still a very strong quarter, up significantly year-on-year at operating level and even more so at bottom line, which reflects the, I think, amazing job done on both capital structure and non-cash costs, resulting in lower financial and depreciation charges, respectively. The first, as a consequence of the liability management programs on the debt side, and the latter as a consequence of the extended useful life of the asset base following our lifetime extension programs.
You'll see in a moment that thanks to this very solid set of results and a fairly strong price environment out there, we are ready to revise our full year guidance up once again. On top of the economic results, which are definitely good, what I'm most proud of is the excellent execution achieved year-to-date towards our 2021-2025 business plan targets. Execution turned out to be quicker and more effective than expected. As a premise, let me finally point out the unprecedented price environment we are in, especially since August, September, as a consequence of the gas and CO2 price trends. To me, this simply means that the energy transition is not just crucial, but increasingly urgent. This very unique situation has two immediate consequences on our figures.
On one end, it's boosting our operating results as a portion of production is still merchant, as you know. While on the other hand, it's inflating our net financial position, given the mark-to-market of derivatives against future delivery. I mean, delivery beyond 2021. In a nutshell, that's the premise I wanted to give you and what this document is about. Let's now start commenting on results. I'm going to page number four. You see EBITDA is up 10% and 20% year-over-year over the nine months and the third quarter respectively. As I said, a satisfactory result, but let me here focus on the third quarter. In the third quarter, wind closed with EBITDA of EUR 57 million, up 36% year-over-year.
Despite the lack of wind all over Europe, especially in September, we managed to increase our EBITDA significantly year-on-year, thanks to the increased installed capacity and the stronger price scenario, both for merchant and incentive price. This was particularly true in Italy. Solar, EUR 24 million EBITDA, slightly up year-on-year and very solid over time. Hydro was once again the outperformer of the period in the quarter, with EBITDA almost doubled in the period, but the same trend we have seen over the nine months, driven by finally heavy rain in 2021 against a dry year in 2020. This coupled with the utilization of reservoirs, which were filled with water at the beginning of the year.
As far as our CCGT is concerned, here we experienced the opposite situation with EBITDA of EUR 8 million during the quarter, less than half the result over the same period in 2020. We knew it. 2021 is a particular year for the CCGT because we are carrying on the investments to revamp the plant. Coming back to the results and the comparison to last year, this drop mainly reflects the phase out of White Certificates , which accounts for EUR 5 million in the comparison. The extraordinary negative spark spread we have seen over the period with those spikes in gas and CO2 prices resulting in a squeeze in generation margins. All this happened in a quarter where we started the general shutdown at the end of August, and it's still ongoing.
The general shutdown through which we are going to revamp the steam turbine of the Module 1. Once the plant will get back to normal, back on stream, the plant will be eligible for receiving White Certificates. The positive news is the maintenance works, as mentioned before, for the refurbishment are going on very well. We expect all these works to be completed by mid-November. Then the plant back on stream at the end of the month with its eligibility for White Certificates, which means that as of 2022, the plant should recover its normal level of profitability. Let me now comment on net profit, which was EUR 30 million in the quarter, up three times year-on-year. I think quite an impressive number.
Driven up by all the work done over the last few years to minimize our cost of debt and non-cash costs, as I said, through liability management programs and life extension programs. I think it's quite important to say something about the net financial position, which ended the period at EUR 1,829,000,000 roughly EUR 400 million higher than at the end of 2020. Of course, it reflects the dividend pay, the huge investments made over the first nine months of the year, but also, as said, the negative mark-to-market of future derivatives on energy prices. This is something that is not worrying us.
It's a momentary effect, and we expect this to have a reversal effect either through the sale of the hydro assets or through those derivatives arriving at the delivery time. Let's move on. Page number five, I'd like to spend a few minutes on the very important achievements we achieved over the last three months, say, since we met last in our webcast in August. You know that a few days after that webcast on August 2nd, we signed an important agreement with Enel to dispose of our hydro assets. Here today, I'd like to inform you that in the meantime, just a few days ago, we received all clearance needed from the antitrust. We can confirm that closing will take place first days of 2022.
This, for us, is a very important step towards the further transformation into a pure wind and solar operator to be completed with the sale of our thermal assets. In this respect, I expect that we'll be able to announce an agreement, say, in the forthcoming weeks, let me say like this. Here you have the main financial figures around the hydro transaction, EUR 1 billion of enterprise value. Then there is the perimeter of derivatives which are included in the transaction with a fair value at positive for us in terms of adjustments in price, we expect EUR 130 million. This is the number based on the value registered, say, at the end of September.
This amount basically is already discounted in our net financial position because the cash we anticipate for the closing, but this amount will be received by the company at closing for the hydro asset, if the conditions will remain basically the same. Let's move on. On one end, we moved on the asset rotation. On the other, we moved on in expanding our portfolio of RES activity. On October first, we announced an acquisition which is very much representative of what we are seeking in order to reinvest our proceeds coming from the assets rotation. The acquisition is about 152 MW of wind and solar assets in France and Germany, for a total consideration of roughly EUR 200 million.
We expect this portfolio to contribute roughly EUR 20 million, or slightly less than that, going forward. We are going to consolidate the asset as of October 1st, 2021. The transformation, the good news, or I think I perceive as good news, that the transformation is moving on, and faster than expected in our plan. Moving to page seven, here I have a list of achievements. It was a quite busy period, say, the last three months. Let me summarize like this. We continue to work on securing revenues in line with our strategy to target at least 80% of quasi-regulated revenues. We sign a five-year PPA in France with Engie, covering plants exiting their incentive scheme by the end of the year, for a total amount of 55 MW.
You already knew that we participate with 144 MW in the last auction. In September, we had the official feedback from GSE that all those megawatts were awarded a tariff for 20 years, let me say at cap, in the area of EUR 61 per MWh. In September and October, that's another positive news, we managed to obtain two Autorizzazioni Uniche , so full authorization, for two further projects in Italy. One is our repowering project that was in our business plan, 50 MW in absolute and 30 MW in differential terms. The other project is totally an upside compared to our business plan, because it is a greenfield of roughly 47 MW-48 MW.
The two projects took part in the last auction, which was held in October 2021. We're still waiting for the outcome, the results of the auction, but we are quite positive, say, about the outcome. We had several achievements in the ESG area, which, as you know, is at the core of our strategy, and we obtained three important recognitions. One which surprised, honestly ourselves, we were ranked first out of 80-90 electric utilities around the world by ISS. The Science Based Target as the second achievement. Science Based Targets initiative approved our 2021-2025 emission reduction targets.
Finally, last but absolutely not least, ERG has been included in the MIB ESG Index, which means we are ranked in the first 40 corporate in Italy, listed, most exposed, say, to the ESG world. So far so good. We are right to say on track with our business plan. Last achievement, quite important one, because as you know, in September we issued our third green bond, EUR 500 million, 10-year duration. It's the longest duration so far for us. The issuance was once again a great success, with demand exceeding six times the offer. In the end, all this brought a yield to maturity below 1%, which I may say is a very satisfactory, very, very satisfactory level. Now over to Michele for his comments on Q3 results.
Good afternoon, and thank you again for your attention. I am on page 10. Our demand in Italy was up 3% year-over-year, mainly due to the fact that the third quarter 2020 was still negatively impacted by the pandemic situation. You see here that the only technology which contributed positively to demand was wind, +9%. While there was a decline in all other technology, and namely solar, -2%, hydro, -2%, and thermal, -6%. Looking at ERG, our wind production in Italy were up 8%, pretty much in line with versus country average. While hydro was up 44%, higher than national level, due to its location in central Italy, which benefited from good hydro volumes coupled with the use of reservoir in this period. Electricity prices in Italy.
In third quarter 2021, there was an unprecedented rise in electricity prices, with the national price at EUR 124, tripled year-on-year. The holding price from EUR 141 to EUR 234 benefited from the rise of electricity prices, coupled with the rise in incentive, which you know is calculated on the basis of last year's average national electricity price, that are recorded very low levels due to the COVID-19 lockdown. The trend in electricity prices, as you know, mainly reflect the strong rise in gas prices and in CO2 prices. As a consequence, our CCGT Clean Spark Spread declined to EUR 3 /MWh, with rising gas and CO2 prices, only partially offset by a recovery of prices in Sicily.
This number reflects a Sicilian premium versus the national price of EUR 11.8 versus EUR 13.5 last year. At the bottom right of the chart, you can see the average reference selling prices for our productions country by country. Even abroad, it's worth noting the generalized rise in prices in Q3, in particular in countries where we have Green Certificate type mechanism, such as in Romania. Now I'm on page 11, and here as usual, a picture of the main driver per business of the EBITDA evolution in the third quarter. As we have said before, wind in Italy was up EUR 12 million, mainly due to better electricity prices and a higher value of incentives, coupled with rising volumes. Wind abroad was up EUR 3 million, mainly due to a slight decline in production offset by the contribution as of July of the recent acquisition in France.
Solar almost in line year-on-year with slightly lower volumes, partially offset by better prices in the period and by the contribution of Joron in France. Hydro up EUR 60 million, thanks mainly to a rise in volume, + 44%, driven by the exploitation of reservoirs. Energy available in lakes is 16 GWh, - 98 GWh versus the end of the year. CCGT was down EUR 13 million, as already commented, mainly due to the white certificate phase out and the squeezing of spark spread in the period. Let me also add that in September we started the maintenance work for the refurbishment of the plant, which is expected to return to its normal level of profitability as of 2022. I am now on page 12 on wind results.
EBITDA in Q3 was EUR 57 million, up 36% year-on-year. EBITDA was up in Italy 44%+, and abroad 18%. Production in Italy was up 80%. As far as prices, in Italy the average unitary revenues were EUR 140/MWh, higher than EUR 122/MWh last year. Abroad, the average is EUR 102/MWh. In the end, the rise here is related to a stronger scenario, both in Italy and abroad, coupled with the rise in production in Italy and with M&A acquisition in France. Let's move on to solar results. Here, EBITDA increased slightly at EUR 24 million, +3% for the following items.
Higher unitary revenues in Italy at EUR 346 versus EUR 321 last year. Again, as a result of the higher merchant price and the contribution of the France acquisition since July 2021. Moving on, I'm on page 14. I'm going to comment on the hydro results. EBITDA was EUR 34 million, +93% up year-on-year, mainly as a result of higher volume, coupled with a better price scenario and the higher value of incentives. As such, unitary revenues were EUR 135 /MWh. The main takeaway here is still the same, strong hydro availability in third quarter, thanks to the use of the reservoir. Vis-à-vis a particularly dry season in third quarter 2020. Moving on to page 15, I'm going to comment on thermal results.
EBITDA in the third quarter was EUR 8 million, significantly down 62% year-on-year. Which of course is a direct consequence of the ending in 2020 of the first 10 years of the validity of White Certificates, - EUR 5 million, and a negative scenario, - EUR 8 million. Let's move on to page 16, now a brief overview of investments in the period. Here, it's worth focusing on nine months. We invested EUR 367 million versus EUR 110 million over the same period of last year. During the nine months, CapEx are composed as follows. About EUR 188 million of M&A in wind and solar abroad.
I'm speaking about an acquisition of a ready-to-build project in Sweden for EUR 41 million, and the recent acquisition of wind and solar capacity in France for EUR 147 million. I remind that the economic effect of the latter started in the second half of 2021, while the plant in Sweden is under construction. About EUR 155 million related to organic CapEx in wind refer to construction activities, mainly in U.K., France, Poland, and Sweden. This figure includes also the CapEx for the repowering and reblading done in the period. About EUR 8 million related to refurbishment of Module 1 of the CCGT plant, in order to renew its eligibility for another 10-year period of White Certificates. Finally, about EUR 15 million of maintenance CapEx spread across all of our technologies.
Moving on, I'm now on page 18. I'm commenting on profit and loss on a recurring basis. I've already commented on EBITDA. Going down the profit and loss and looking at the third quarter of the year, I'm going to comment on the depreciation, financial expenses and taxes. Depreciation, we have lower depreciation, EUR 5 million, that reflects the reduction in depreciation of some wind assets due to the end of the amortization period, coupled with the review and depreciation plan of some intangible wind assets due to the lifetime extension project of our asset. The reduction in depreciation in the consolidated accounts of the hydro assets due to an increase of the amortization period without any tax effect.
Net financial expenses at EUR 7 million, versus EUR 13 million in third quarter 2020, thanks to a lower cost of gross debt, 1.7% versus 2.3% in previous year, mainly following the issuance of our second green bond in September 2020. The tax rate in the quarter was 26%, against the 22% in third quarter 2020. Taxation in the quarter benefited from tax credit in the area of EUR 2.7 million. As a result of all of this, adjusted net profit amounted to EUR 330 million in the third quarter, versus EUR 9 million in third quarter 2020, and EUR 130 million in nine months of 2021. Now I'm on page 19.
Let's take a look at the cash flow statement and the net financial position for the nine months. Net financial debt closed at EUR 1,829,000,000 , up by EUR 390 million from the end of 2020. Starting from the left, we have our EBITDA, EUR 400 million. The investments made over the period, EUR 360 million. Change in working capital, financial charges, and dividends of EUR 113 million. A change in the mark-to-market of the hedging future derivative, EUR 255 million, that reflects the strong increase of future commodity prices. All these effects led to a net debt of EUR 1,829,000,000 .
Please note that about EUR 130 million of mark-to-market of future derivatives are connected to the hydro business, and they will be subject to a positive price adjustment in the sale agreement with the hydro buyer. I think that I have touched on all the relevant items. Thank you again for your attention, and I will now hand over to Paolo for his final remarks.
Thanks, Michele. Here we are with the guidance for 2021. We have already commented the nine months result. Thanks to this solid set of results here today, and the further installed capacity that came within our scope as of October 1st, I mean, contributing as of the first quarter, and also the unprecedented price scenario, which anyway is boosting our results, we are now and today in the position to revise our guidance upwards for the full year with just one quarter missing. Let's say in terms of EBITDA, central case up by EUR 20 million, of which roughly EUR 5 million will be coming from the newly acquired capacity in France and Germany.
CapEx, once again, we revised up the central case by roughly EUR 200 million, which is not the case, it's not a coincidence, it's exactly what we are gonna pay for the latest acquisition in France and Germany. As a result of all this and the dynamics of mark-to-market that I explained in my opening remarks, and then Michele explained even better in his speech, the net financial position guidance is increased by EUR 350 million. I'll say EUR 200 million for the investments, and the remaining for mainly related to the dynamics of the mark-to-market.
Please consider that this is just a temporary effect because it will have a full reversal in 2022, because most of this amount is related to the hydro and CCGT perimeter. Thank you very much for listening, and we are now ready to take your questions.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Sara Piccinini with Mediobanca. Please go ahead.
Hi, good afternoon, everybody, and thank you very much for taking my questions. I have three questions, and then maybe I can follow up later with other. The first question is on hedging. Can you please provide an indication on the level of price that you expect for 2022 and 2023, and also the level of hedging in terms of percentage of production? The second question is more related on the impact of these higher prices on the actual value of the Green Certificate for next year. If this year we have such a high price, this could significantly reduce the level of White Certificates for 2022, so this should have a meaningful impact on results.
Can you please explain us what is your expectation on that, and also if there is any limit on the value of the White Certificates related to the hedging contracts? Sorry. This was the first question, so the level of hedging and also the impact for next year on White Certificates. The second question is on CapEx cost inflation. We are seeing a lot of debate on cost inflation and guidance for net financial position. Should be adjusted for the EUR 130 million that Enel should give you as a price adjustment, correct? Could you quantify the level of these derivatives on the debt that you expect by year-end, and then that should be reabsorbed going forward? Thank you very much, and sorry for the long question.
Okay, Sara. Very clear, your question. Thanks. The first one, on the hedging, let's say I give you a rounded number, but the production hedge in 2022 is in the region of 75%. Slightly higher than that. The price more or less is in the region of EUR 65 per MWh. For 2023, the coverage of production is in the region of 50%, and more or less the price is very similar, price which is higher than what we expected at the time of announcing the business plan. About the value of incentive for 2022, you are perfectly right. It's a mathematical formula, EUR 180 less the price for 2021.
The price for 2021 is gonna be something between EUR 100 -EUR 110 . That means, just a mathematical effect, the incentive next year should be in the region of 50 EUR, something like that, more or less. More than half the level we had, or we are having in 2021. Of course, this is gonna. In our preliminary projections, this effect should be more or less offset by the fact that we still have a portion of energy which is merchant, so the two effects should be surely balanced. Consider that also outside Italy, part of the asset base is gonna enjoy higher scenarios. For instance, let me give you this detail.
For instance, in Germany, the tariffs in Germany are one-way, a one-way CFD, so if the price is higher than the tariff, and that's the case in 2022, at least according to the forward market, you're gonna get the merchant price. In Poland, as well, because, you know, the mechanism is merchant plus origin certificates. Part of the production in Poland is covered, but part is merchant. So all in all, we think the two effects should be at least balanced. Just, this is just a preliminary projection we are building, say these days, ahead of next year. About CapEx, definitely you are right. I think it's not a secret that there is a strong inflation all over the sector.
For sure, the wind turbine providers have reported data last week, over the last few weeks, and they announced profit warning because this cost inflation is squeezing their margins. Fortunately, in our case, we have been good, but maybe also a little bit lucky because we signed just last year a couple of framework agreement with three years duration with Vestas and Enercon, which provide us with, let me say, almost full coverage for our business plan. There are some indexation to iron, but it's not very material. So far, we are very near or we are just experiencing a near increase. By near, I mean a few percentage point compared to what we inserted in the business plan.
There is no major impact because we are covered by this framework agreement. Let me just give you an example to be even more clear. I said during the webcast that we obtained two Autorizzazioni Uniche for two projects. One was already in the business plan, was covered by the framework agreement with Vestas, and then the CapEx per megawatt is exactly in line with what we announced, EUR 1 million per megawatt. The other one is a greenfield. It is a very good wind farm, the return is still amazing. In that case, that project was not in the business plan, was not covered by the framework agreement, and here we are experiencing a higher CapEx per megawatt, at least 10% higher than that. Your point is correct.
I hope the legislator, in particular the Ministry of Ecological Transition, when it looks at the next auctions, take into consideration the fact that this inflation is gonna probably reverse the LCOE trend, which was expected to going down forever, say. I hope. This is not an issue for ERG, it's an issue for the entire sector and probably other industries. In our case, you know, auctions is the main tool through which players are going to secure revenues. I hope, we all hope that legislators around Europe, at least we are in Europe, they are thinking about this and, for instance, connecting and linking the tariff price to inflation, at least. In Italy, there is no inflation. The price, the tariff is nominal for 20 years.
I hope I answered this question. The third one, yes, let me try to explain even better. In our net financial position, EUR 1,829,000,000 at the end of September, this number includes EUR 277 million, so almost EUR 300 million, associated to the hedging, the futures we have signed over time to cover 2022, 2023 and 2024 productions. Okay? Also the remaining part of 2021. Part of this amount is linked to the hydro, and the exact number is EUR 130 million at September. What's going on with this amount?
If the market remains exactly the same, which is a strong assumption than the one we had at September 30, at the end of the year, we will still have this number in our net financial position. Just few days after, say, let's assume, I don't know, the closing with Enel will be on January 2nd, let me say, just to guess a day. That day, Enel will pay us EUR 1 billion plus EUR 130 million. We are going to recover our net financial position will be recovering, say, in 2022, in the first quarter of 2022. This is just the amount of the hydro.
Then, similar, very similar situation for the CCGT, but there we haven't yet closed the sale, so let me wait. I hope, Sara, I explained everything well.
Yeah. Yeah. It was very, very clear. Many thanks. Just a very quick clarification.
Sure.
The price for the level of hedging that you are indicating is excluding hydro, right?
Yeah. It's wind and solar, let me say. It's for our wind and solar production.
Okay. Can you also give 2021 level? The very last. Many thanks.
The coverage in 2021 was slightly below EUR 60, I think. Slightly below EUR 60 because the coverage had been built, say during over 2020, when the prices were at that level. 55. The exact number is 55.
Very clear. Many thanks.
Thanks to you, Sara.
The next question is from Roberto Letizia with EQUITA SIM. Please go ahead.
Yes, thanks for taking my questions. I have a follow-up on Sara's questions on the hedging, because every time this makes me confusion when it is re-explained, again, just to be clear, you do not hedge the Italian production covered by Green Certificates because these are naturally hedged. When you say the hedging, you say is as a mix of the Italian production covered by the Green Certificate, which are naturally hedged, plus the production that are covered by financial contracts. Is that correct? This is the first question. The second one relates to the disposal procedure.
Wondering if you can now give us a figure of how much of net income is going to be deconsolidated next year in order to allow us to have a better forecast of the 2021 profit and loss. Just wondering, yes, whether the sale of the CCGT, if it's gonna happen, by the end of the year or beginning of next year, whenever it's gonna happen, it will trigger significant changes in the ESG inclusion participation of ERG, as far as you know, of course, because this is not a very predictable matter. But maybe you have already accounted for the fact that in some of the major global indices, you may have an additional re-rating by the fact that your ESG position probably increase. Thanks a lot.
Thanks to you, Roberto. But let me elaborate a little bit more on our hedging policy. No, when I say we have covered roughly 70% of production, I mean all the production, the renewable production. It's true that we have this mechanism for the incentive, but you know, the natural hedging is there, but it's partial because it covers multi years, because the coverage assured by the formula is gonna be the year after. Consider that not far away in time our incentives are going to expire. In our policy, we tend to protect the budget year. We cover, we have hedging ratio based on the entire production, the entire renewable production.
I hope it's now clear. Let me answer first your last question. The sale of the CCGT, we expect to have it for sure by the end of the year. Let me say, the announcement I hope will be coming, say, in the very next few weeks. Yes, you are right. Once the CCGT will be disposed of, we are, say, landing on a zero carbon world, because that's the only plant we have in our portfolio that emit CO2. Yes, we have some idea of the impact of this on, for instance, the Standard & Poor Energy index, other indexes, other ratings.
We are already very top ranked in all the ESG. I can't. Rating.
Thanks, Michele. For sure in the indexes, in the equity indexes, we should make a quite important step forward once CCGT will be out of our portfolio. Honestly, that's behind our strategy. That's why we are disposing this plant, because this plant is a fantastic one. It's always generated cash flow, and we are now finalizing the general shutdown. At the end of November, we expect the new steam turbine and the new steam system be on stream and then eligible once again for another shot of White Certificates for the next 10 years.
You asked me the impact on net profits, say, in the region of EUR 50 million-EUR 60 million can be the impact on net profit coming from the hydro and thermal, more or less.
For both of them. That's included both deconsolidation, EUR 50 million-EUR 60 million.
Combined.
All right. Thanks a lot.
Combined. I think, Roberto, I covered all your questions, right?
Yes, you did. Thanks.
Thanks to you.
Mr. Merli, there are no more questions registered at this time.
Thank you very much, all, and we'll be in touch, say, early in January or maybe before, through our press releases. Thank you very much for listening, and have a good afternoon.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.