Good day, ladies and gentlemen, and welcome to Terna's first quarter 2023 consolidated results. My name is George. I'll be your coordinator for today's event. Please note this conference is being recorded, and for the duration of the call, your lines will be listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I'd now like to hand the call over to your host today, Mr. Agostino Scornajenchi, to begin today's conference. Please go ahead, sir.
Good afternoon, everybody, and welcome to Terna's first quarter 2023 result presentation. This was the last set of results released before the next week's AGM. Let me remind you that its agenda includes, among other items, the renewal of the board of directors. As usual, before starting to analyze the figures, I would like to share with you the latest main achievements of the company. Regarding regulated activities, let me remind you that on the 15th of March, we published the new 10-year National Development Plan, which foresees more than EUR 21 billion of investment. Confirming our key role as energy transition enabler, the investment foreseen in this new National Development Plan aims at continuing the integration of renewable sources and the progressive phase out of coal-fired power plants in line with the target set at national and international level.
In March, Terna signed agreements with the European Investment Bank for the second and the third tranches of the EUR 1.9 billion loan for the Tyrrhenian Link, the submarine cable connecting the Italian peninsula with Sicily and then to Sardinia. The contract signed established a further two tranches totaling EUR 900 million for the construction and the commissioning of the east and west sections of the Tyrrhenian Link. For this infrastructure, we will be fully operational in its entirety by 2028. Terna plans an overall investment of around EUR 3.7 billion. Regarding Terna's financial structure, on the 14th of April, the company successfully launched a fixed- rate single tranche bond issue for a total amount of EUR 750 million.
This issuing, which received a great market response with demand outstripping supply by almost 4x the offered amount, represent a part of the EUR 9 billion Medium-Term Note Program. The bond has a duration of six years and will pay a coupon of 3.625%, well below the market standard for this period. The proceeds will be allocated to meet the ordinary financial requirement and to fund the needs of the group's industrial plan. After this brief introduction, let me give you the usual overview of the Italian electricity market, turning to the next slide. I'm now at page five. As you can see from this chart, in the first three months of 2023, national demand was about 77 terawatt-hours, with a decrease of 4% versus last year, when national demand was about 81 terawatt-hours.
The reduction in electricity demand observed in the first three months of the year shows a decreasing trend compared to the same period of last year. This is mainly due to the increase in average temperatures and to the reduction in industrial consumptions. In the first quarter of 2023, renewable sources covered about 30% of national demand with a slight increase respect to last year. Regarding national net total production, this stood at 64 TWh, 10% lower than the same period of 2022. Despite that, let me highlight the increase in solar generation, which grew by 4% versus 2022. Let me also say that in this first quarter, renewable sources covered about 36% of the national net total generation. Let's move to the main features of the period.
The first 3 months of the year continued to be characterized by a complex scenario. Despite the challenging and very volatile context, Terna recorded a significant improvement in all economic and financial indicators. Group revenues and EBITDA were up by 11% and 8% respectively versus last year, which means EUR 68 million and EUR 39 million higher than the first quarter 2022. Group net income was EUR 200 million and with an increase of 4% versus last year.
Group CapEx stood at EUR 315 million, 7% more than first quarter 2022, confirming once again Terna's CapEx acceleration, driven by increasing system needs to ensure efficiency, resiliency, and security of supply, in line with Terna's institutional role for the country. At the end of March 2023, net debt was EUR 8.8 billion versus about EUR 8.6 billion at 2022 year-end, and fully in line with our internal expectations. Now, let me make a deeper analysis of the first quarter 2023 figures, turning to the next slide. They are now at page 8. Total revenues in the first quarter of 2023 increased by 10.6%, reaching EUR 713 million, up by EUR 68 million versus last year. As you can see, we registered positive result both from regulated and non-regulated activities, which contributed for EUR 52 million and EUR 16 million respectively.
For the details of the revenues evolution, let's move to slide number 9. The regulated revenues reached EUR 614 million, EUR 52 million better than last year, which means about 9.2% more than the same period of 2022. The increase was mainly due to higher output-based incentives effect related to the higher benefits generated for the system. Non-regulated revenues reached EUR 99 million, 19.7% higher versus last year. Non-regulated growth was mainly attributable to the greater contribution coming from Brugg and Tamini, the increase in revenues of the energy solution mostly related to LT Group, and the entry into operation of the private section of the interconnector Italy- France. International revenues were set to about zero in accordance with IFRS 5 accounting standard referred to Assets Held for Sale. Now, let's go through operating cost analysis.
Total operating costs stood at EUR 113 million, 16.1% higher than the same period of last year. Regarding regulated activities, the increase was mainly attributable to the insourcing of new competencies and increased level of activity, while non-regulated activities had been impacted mostly by hybrid costs for the purchase of raw materials related to Brugg and Tamini and by the LT Group contribution. Let me now analyze the EBITDA, moving to slide number 11. Considering the previously mentioned facts, first quarter 2023 group EBITDA reached EUR 500 million, 8.4% higher than the same period of last year. The increase was almost fully attributable to regulated activities, which contributed for about EUR 38 million versus the first three months of last year, showing an EBITDA of EUR 486 million in the first quarter of 2023.
Let's now have a look to the lower part of the profit and losses, turning to the next slide. Depreciation and amortization amounted to EUR 187 million. The increase versus the same period of last year was mainly due to the impact of new assets becoming operational in the period. As a consequence, EBIT reached EUR 313 million, 6.7% higher versus the first quarter 2022. We reported net financial expenses at EUR 32 million. The increase versus last year was mainly due to the rise of inflation registered in the period that impacted our inflation-linked exposure into the increasing level of interest costs registered on the debt capital market. Taxes stood at EUR 81 million, EUR 5 million higher versus the same period of last year, essentially as a consequence to increased profit. Tax rates stood at 28.9%.
As a result, group net income reached EUR 200 million, 4.4% higher versus the same period of last year. Moving to CapEx analysis at page 13. In the first quarter of 2023, total CapEx amounted to EUR 315 million, about 7% higher than last year, confirming the solid CapEx acceleration fully in line with the target set in the industrial plan. Indeed, we invested about EUR 288 million in regulated activities. Among the main projects of the period, it's worth mentioning the Tyrrhenian Link, the Elba Main Link, the Paternò-Pantano-Priolo in eastern Sicily, and the investments in stabilization devices such as synchronous compensator for grid security. For what concerns CapEx categories, development CapEx represented 43% of total regulated CapEx. Defense CapEx stood at 13%, while asset renewal and efficiency was 44%.
No regulated and other CapEx stood at EUR 27 million. This includes capitalized financial charges and other investments. Regarding net debt and cash flow analysis, let's now move to the next slide. Net debt at the end of March 2023 stood at EUR 8,847 million, EUR 271 million higher than 2022 year-end level, mainly linked to the progressive settlement of net trade payables related to 2022. During the period, we generated an operating cash flow of EUR 368 million, thanks to which we were able to cover all the CapEx spending of the period. Let's now make a deeper analysis of our debt profile, moving to page 15.
Thanks to our efficient and proactive debt management approach over the last few years, at the end of March 2023, fixed over floating ratio and gross debt stood at about 87%, while the average duration was about 5 years. As already mentioned, in March, Terna signed contracts with the European Investment Bank for the second and third tranches of the EUR 1.9 billion loan for the Tyrrhenian Link. After the first tranche of EUR 500 million signed at the beginning of November, the loan represented two further tranches of a total amount of EUR 900 million for the construction and commissioning of the east branch and the west branch of the submarine cable.
The loans have a duration of approximately 22 years from the first date of disbursement, are characterized by a longer duration and more competitive in cost than those currently available on the market. They are part of Terna's policy focused on optimizing its financial structure. On April 14th, Terna successfully launched a fixed-rate single tranche bond issue for a total amount of EUR 750 million. The bond issued at a price of 99.281% with a spread of 70 basis points over the mid-swap, has a maturity of 6 years, the payment of an annual coupon of 3.625%.
Before moving to the Q&A session, let me underline that also after the end of this first quarter, we are well on track on the execution of our plan, we are confident to maintain our strategic path toward the energy transition also for the future. Thank you very much for your attention, I am now ready for the Q&A session. Thank you.
Thank you very much, sir. Ladies and gentlemen, once again, if you wish to ask any questions, please press star one on your telephone keypad. Please also ensure that your mute function is activated by similar to your equipment. Our first question today is coming from Mr. Javier Suarez of Mediobanca. Please go ahead, sir.
Hi, everyone, thank you for the presentation. First question is a follow-up after last statement by CFO. I think that is hopefully a legitimate question. There is a change in the management team after the Annual General Meeting. The question for you is that if you envisage any significant change in the company's statistical path, any color on that would be much appreciated. That would be the first question. The second question is on the positive deviation versus, I guess, expectations this quarter. That is, I guess, due to higher collection of output-based incentives. You can please quantify the amount of collected output-based incentive during the quarter and update on your expectations for the full year.
The third question is on the recent document published by ARERA, with the definition of the general guidelines for the implementation of the TOTEX system in Italy from 2020 to 2024. If you could give us your reading of this document and your latest view on how this may impact Terna's business plan going forward. Thank you.
Thank you very much, Javier. Let me start from the second question. I will come back to the first at the end. Well, to state correctly, the result of the first quarter of 2023 are impacted by higher output-based incentives with respect to what has been originally foreseen. This is something that we already analyzed at the end of 2022. What I can confirm is that during 2023, we do expect around EUR 300 millions of output-based incentives, of which 2/3, so you can consider EUR 200 million, more or less, connected with MSD incentives. Regarding the progressive change in regulation, well, the ROSS implementation, let me say, first of all, let me remind you that we strongly believe that introduction of ROSS would be consistent with the path that we already follow toward this output-based approach.
It was something that we discussed already. The more benefits we provide for the system, the more reward that we could obtain. As a consequence of that, in ROSS approach, we see an opportunity to create further value for the system and shareholders because this could promote, let me say, an higher overall efficiency through new output-based regulatory measures. We are fully committed to do that, and we are happy about the step taken by the authority with the resolution of output-based incentives.
More in detail, at the end of April, if I'm not wrong, it was the 20th of April 2023, ARERA published a specific resolution through which approved the 2024-2031 ROSS regulated integrated text, containing at this time the general principle and the criteria for setting the allowed cost for that period. With this resolution that, let me say, is an initial one on the general principle, but it's important because with this resolution, ARERA confirmed the gradual approach for the implementation of the ROSS regulation, foreseeing a first phase, so-called, let me say, ROSS-based framework, where at the beginning, the expenditure will allow, you know, substantial continuity with the current rules, and the overall expenditure will be split between slow money components and fast money components according to the capitalization rate. I think that this is what we have in front of us up today.
We do expect further clarification and further detail from the authority, and we will come back to you as soon as possible on this. Regarding your first question... Yeah, no problem. Regarding your first question about potential impact coming from the change in the management, well, let me say it's pretty simple. You can assume that Terna will continue to pursue the goal of driving the energy transition process, supporting the country in this, let me say, difficult task, always providing highly professional and state-of-the-art services and ensuring security of supply and efficiency for end users. As a part of the management team, I'm personally aware of the high level of responsibility that comes with this role.
I believe that with the coming appointment of Giuseppina Di Foggia, who brings a wide range of technical competencies in developing and deploying critical networks and management skills and business vision, I am more than certain that Terna will continue to expand and strengthen its role in helping the country to develop the electricity system of the future.
Thank you, sir. Our next question today will be coming from Mr. Stefano Gamberini, calling from Equita. Please go ahead, sir.
Good afternoon, everybody. I have a follow-up regarding the Javier question on the simplified TOTEX, and in particular, the fact that the regulator will monitor the return on RAB, introducing this return on regulatory equity. What is your comment on this measure? Could the regulator then share the extra return with the clients what you expect on it? The second, regarding the aim of the government to require to the public companies to use the PNRR funds. Which projects in your business plan could be financed through this measure? Could you receive some way a remuneration if you use this money, otherwise we know that this should be deducted by the RAB. Last question, regarding the networking capital.
You experienced the positive impact of around EUR 1 billion at the end of the year, as you underline. EUR 300 million more or less already were already restored in the first quarter. What is the path of the full reservation, full, sorry, trend, invest trend, for this EUR 1 billion when this will be fully reabsorbed? Very finally, sorry, as regard the storage, your National Development Plan includes 70 GW of new installed capacity, renewable installed capacity, but also 11 GW of utility- scale storages. Could you share with us if something is changing, what are the incentives that the government is working on in order to accelerate the investment in storages, and in particular, could Terna be directly involved in storages sooner or later? Thanks a lot.
Well, Stefano, hope to remember all the questions. Let me try with the first one.
I could repeat.
No, I know, I know. I'm sure of that. I'm sure about that. Regarding the sort of implementation of SOLEX remuneration on equity, I think that is a little bit too early to provide comments. We don't have enough information. I said before, the resolution taken by the authority at the end of April is only an initial one, only general principles that are more or less in line, that are confirming what we do expect before. Let me insist on this again. We are not concerned at all from the implementation of this new mechanism. At the very end, we do expect to have benefits.
Of course, we will have managerial effort, given that our ability to control the business in real time, to provide details, to be, let me say, to stake on the, on the efficiency in our project in term of respect to the margin, respect to the timing, will be more crucial in the future. I think that we are very well prepared to do that. Having said that, let's wait the second part of the year. At the moment, we will receive more detailed information by ARERA. We will more than happy to share it with you. Regarding the second question about the PNRR implication for us. We are talking only about residual implication. Our business case is remunerated business case on a regulated asset base. The moment we get a public incentives, we deduct it from the RAB.
At current regulation, I do not see major interest in doing this. Of course, if we can provide our contribution to the realization of national critical infrastructure, we will be more than happy to do that. There are some projects that have been identified, but again, I consider this a residual option for us. Third question, net working capital. We are in the first quarter of 2023. Normally in the first quarter, you have a deterioration of your working capital, given that there are a lot of payments related to investors that have been accounted, invoices that have been received in the last part of the year. That, standard deterioration of that. On top of that, we have the progressive reabsorption of the advantage that we get in...
That we got, sorry, in 2022, coming from that pass-through regulatory items that we were not able to liquidate to our market counterparties, due a lack of resolution that the authority, was not able to take in time by the end of the year. Now they started. We do expect a progressive reabsorption on the amount that you have seen at the end of 2022 during the second part of 2023. Regarding storage, it's a critical item, as the more we increase our expectation in terms of renewable, the more we will need some modulation, some storage, some stabilization of the system, and storage will play a crucial role on this. Up today from, let me say, formal and juridical point of view, nothing changes. We are not allowed to play any role in storage.
We will be more than happy to have a discussion about that and to provide our ideas and contribution. I do expect that we could facilitate and provide a good contribution for country needs also on this extent.
Very clear. Many thanks. Many thanks.
Thank you, Mr. Gamberini. Our next question is coming from Mr. James Brand of Deutsche Bank. Please go ahead, sir.
Hi. once on another good set of quarterly results. I was just wondering on the incentives, you've got this EUR 300 million target. if you could give us a bit more detail in terms of what you're actually doing to deliver those incentives. In particular, I know you've done very well on the targets which involve reducing system costs, where you've reduced the system cost quite substantially. I was just really interested in what you're actually doing there to reduce that cost, how you'd gone about it. Thank you very much.
You know, we are in line with what we already announced it 2 years ago. The rule, the way the average weight of the output-based incentives will be increased during the different years. Let me remind you that today we have a general target in the business plan of EUR 500 million, and we are extremely well on track to reach this target. It was not the case only a few years ago. It was 250, the previous business plan, 200 and back. The more we move on toward the future, the more this aspect will have an increasing role. Entering in details, here we are talking about incentives to create efficiency in term of reduction of price difference internally at different electricity zone, energy areas, and also between the different zones.
Stabilization of prices in different geographical areas. It's an ambitious target. I think that we are well on track to reach it. It's something that we started also in the past. Let me remind you that already in 2017, we started doing something similar with the introduction of the interconnection Sorgente-Rizziconi, which we were able to reduce price difference amongst the different zones in south part of the country, expressing a big value. We are doing the same today. We are also working a lot, starting from last year, on the reduction of MSD. You know that MSD is an important component of the total energy cost. We completely readapted our dispatching strategy in order to try to reduce this cost for the final user. It's not an easy task.
I think that the team did an excellent job. Given that we decided to enter in a completely new era, let me say, implementing a lot of IT tools and also a lot of technical tools, as stabilization devices, synchronous compensator, to have the possibility to reduce as much as possible the necessity to ask for, let me say, emergency services, sorry to say, not in technical terms, that are really, really expensive for the system. In 2022, we reached a first important result that we already discussed. I don't want to come back on this. We discussed that in March when we presented the year-end financial statement. We are moving on the same path also for 2023.
As said before, we do expect by the end of the year, at least EUR 300 million of output-based incentive, of which the main part will be represented by MSD incentives.
Thank you very much, well done again.
Thank you, sir.
Welcome.
We'll now go to Sarah. Sorry. We now go to Sarah Lester of Morgan Stanley. Please go ahead.
Thanks so much for taking my questions. I've just got 2, please. Sorry, just to push a little bit more on the output-based incentives. I understand that the regulation has gone through on this. Just wondering how confident you are that the regulator will allow the kind of levels of output-based incentives that you're achieving to continue on an ongoing and persistent basis. Beyond, say, 1-2 years, do you think the regulator is okay with these levels becoming normalized if they do persist? Secondly, just on grid connection requests and wait times, any updated commentary around what you're seeing there would be great, and also any commentary around renewables permitting the bottlenecking please.
Well, to make a long story short, what you can expect is that long term will be represented by ROSS. Regulator is writing the rules. We will have, let me say, an interim period. I said several times, I do expect personally a sort of mixed regime, that will have a joint component of a base regulation on invested capital and additional regulation on output base with a ROSS mechanism. Today, we have already some clear signs of the output-based principle that is represented by this specific