Good afternoon, ladies and gentlemen, and a warm welcome to the Q1 2021 results presentation, which will be hosted by our CEO, José Bogas, and the CFO, Luca Passa. Following the presentation, we will have the usual Q&A session open to those connected on the call and on the web. Thank you, and now let me hand over to José Bogas.
Thank you, Mar, good afternoon to everybody. Let's start with the main highlight of the video. In the first quarter of 2021, we have faced a complex and turbulent market context in which we have managed to achieve an EBITDA slightly above EUR 1,000 million, in line with our two-year guidance announced back in November last year. The investment in digitalization undertaken in recent years and the provision booked so far devoted to coal fleet accelerated closure and digitalization have allowed for a high degree of operational efficiency. Clear evidence of our progression in reshaping our company towards a cleaner and more sustainable business approach is delivering more than 90% of our CO₂-free output on the mainland, while all of our bank debt was linked to sustainable metrics.
Our active management of current assets and liabilities has allowed us to deliver sound cash generation, doubling operating cash flow when compared to the 2020 first quarter. Finally, the 2020 shareholders' remuneration proposal, which is the highest since 2014, was approved at our recent AGM. A final dividend of EUR 1.3136 per share will be paid on the first business day of July, which, on top of the EUR 0.7 per share of the interim dividend already paid in January, represents a 37% increase versus last year. To slide number three. In terms of ESG, 2021 will be a turning point for Endesa. The acceleration of the coal -fleet closure has allowed us to exceed 2023 CO₂ emission-free output targets two years in advance.
Further proof of our strong commitment to decarbonization was the recent approval of the AGM complementing the variable senior management remuneration with the renewable deployment during the timeframe of the current plan. Concerning the social aspect, we firmly believe in the commitment to alleviating the needs of the most vulnerable group. In this sense, Endesa and the Catalan government agreed to write off energy debts for more than 35,000 vulnerable families.
Within the circular economy objective under the European Union Recovery Fund framework, we have presented 17 projects for a total of EUR 3.6 billion. For this initiative, 40,400 new jobs could be created. We have also achieved a further step forward in our plan to promote gender diversity with the presence of women in positions of responsibility, reaching over 36% of directors on the board from the former 30% and well on track to reach the announced 40% by 2022.
I would like to point out that regarding health safety, it should be noted that Endesa is continuing its effort to protect employees and contractors in the work environment. The combined accident frequency rate of our own workers and contractors has improved, confirming the downward trend recorded for many years now. The deployment of all of our initiatives and the integration of the ESG scope across all areas have been recognized by the most prominent ESG rating worldwide. Endesa has recently been included in the top -ranking position by the ISS Quality Score Index. I would like to comment on the evolution of the scenario over the period on slide number four. First quarter of 2021 clearly shows that electricity demand in Spain is still far from recovering from the effects of the pandemic.
Despite the cold waves experienced this winter, we have seen one of the most hesitant first quarters in recent times. Mainland power demand has increased by 0.6% but decreased by -0.4% when adjusted by calendar and temperature effects. Likewise, in Endesa's concession area, growth demand has slightly increased by 0.4% in non-adjusted term and 0.1% in adjusted term. These figures are mainly driven by the drop in industry and service segments, partially offset by the increase in residential sector activity. As far as prices are concerned, the 30% increase over the period mainly stems from the effect of lower temperatures due to the Filomena storm in January, which can be clearly seen in the chart, as well as the rise in gas references.
Let's move now to slide number five. Thanks to our continued effort on decarbonization, mainland renewable capacity represents around 45% of the total, well on track to reach the 62% target set out in our business plan. Likewise, CO₂-free sources constitute 64% of our installed capacity in the peninsula. As a consequence of the coal phase-out process, today thermal generation represents just 9% of the total mainland production, mostly from CCGTs, a decrease of 21%. This mix has allowed us to reach a renewable output of 4.1 TW hours, a 14% increase versus the first quarter of 2020. 73% of this production increase is due to the combination of new wind capacity, which came on stream at the end of 2020 and higher load factors. Emission-free production boosted to 91% of the mainland total output, already exceeding the target set for 2023.
On page number six, let us now focus on the main driver supporting our ambitions to grow in renewables. We continue to maintain a constant effort to feed our renewable project pipeline, which is key to achieving our ambitious 2030 capacity development plan. Our ROF pipeline was boosted to 44.4GW from 41.8GW announced in the full year 2020, out of which around 15% has TSO-awarded connection points and 2.3 GW under execution. Considering the latter project and the mature pipeline, solar technology weighs 70%. All of this provides comfort to be well on track to meet the 700 MW of renewable capacity target. In March 2021, Endesa acquires a photovoltaic portfolio of 119 MW from the Spanish developer Arena Power. Total CapEx, including acquisition and construction, will amount to EUR 350 million.
Regarding storage projects, we have built up an important pipeline of 6 GW in batteries, out of which 0.4 GW are already in our mature pipeline. When it comes to electrification on slide number seven, total energy sold dropped by 3% quarter-on-quarter as a consequence of the COVID impact on economic activity. This last quarter has been fully affected, whereas in the first quarter of 2020, it impacted barely 15 days. Also, the high competitive intensity in the market, the labor effect of 2020 being a leap year, and the different Easter holiday period must be taken into account. By segment, the most affected is B2B, - 9%, hit by the economic deceleration due to COVID impacting industry activity. B2C sales showed an increase of 10%, mostly as a consequence of the low temperatures due to the Filomena storm and the still important homeworking mode.
Total power customers decreased by 1%, or around 110,000, of which 63,000 in the free market due to the strong increase in competitive intensity. At the same time, we have been putting in place a number of commercial strategies for both the B2C and B2B sectors, helping us to reverse this trend. Our approach is based on our client knowledge and an increasingly sophisticated range of products and services aimed at retaining and attracting higher-margin clients through increased value proposals. All this is possible, thanks to the digitalization investment carried out by the company in the last years, the reinforcement of the commercial channels, and the continued focus on efficiencies. Regarding electric mobility, we continue to deliver on our deployment plan of charging points, reaching a total of 7,500. This continuous effort enables us to maintain our leadership position in Spain with more than 2,000 public charging points.
Regarding our energy management in slide number eight, the unitary integrated margin resulted in EUR 30.3 per megawatt hour , a 12% decrease versus the EUR 34.3 per megawatt hour of 2020, while electricity sales in the liberalized business are down by 4%, -0.7 TW-hour. This margin normalization was already anticipated and in line with the business plan expectation of EUR 29, EUR 30 per megawatt hour in 2021, moving to 31 in 2023, backed by a higher stake of renewables in our mix and better market conditions as COVID fades.
The main factors behind this margin decrease were a lower generation margin, mainly due to the application of the new Catalan tax and lower OTC references, and the absence of the positive effect recorded last year around the effective management of the solar position versus a flat situation in this quarter. The supply margin is almost flat, having a better sales mix with a slightly higher unitary margin, mitigating lower sales and higher ancillary service costs. Regarding forward sales, we have hedged for 2021, 97% of our estimated price-driven output at a price of around EUR 71 per kilowatt -hour. Once we consider our total sales mix, the all-in revenue, that is, including indexed energy, will reach EUR 67 per kilowatt hour. For 2022, hedged volumes stand at over 60% at a price around EUR 74 per kilowatt hour.
All-in on price and estimated all-in revenue will be similar to 2021 once all of the estimated price-driven output has been hedged. Now, let me hand over to Luca Passa, who will give you the financial results.
Thank you, Pepe. Good afternoon, ladies and gentlemen. Let's now have a look at the financials of the period on slide number 10. Reported EBITDA stood at EUR 1,019 million, decreasing 31%. On a like-for-like basis, once netted from last year's personal provision effects, the EBITDA would have decreased 9%. Net ordinary income dropped by 41% year-on-year, reaching EUR 491 million, 13% lower deducted the first quarter 2020 provision mentioned above. Funds from operation reached EUR 583 million, doubling last year's reference. Finally, net debt increased to EUR 7.5 billion, up +9% versus full year 2020. Moving to the detailed analysis of the like-for-like EBITDA on slide number 11, let me now briefly set out the main drivers. As already commented, like-for-like EBITDA stood at EUR 1,019 million, -9% versus first quarter 2020.
Generation and supply EBITDA decreased by 16% to EUR 462 million, mainly affected by the market conditions impacting the business as well, as we will explain later on. Distribution EBITDA declined 3% at EUR 476 million. Finally, non-mainland generation EBITDA remains stable at EUR 81 million. Moving to a deeper analysis, we are now on slide 12 on the regulated business. Like-for-like EBITDA decreased by 2% to EUR 557 million, with a lower gross margin, partially offset by a 13% reduction in the fixed costs. Distribution margin decreased by 3%, mainly due to the application of the new remuneration parameters of the second regulatory period. The non-mainland generation gross margin fell by 15%, negatively affected by the demand drop associated with COVID, the absence of the positive regularization from previous years recorded in 2020, and the lower remuneration in the new regulatory period, partially offset by better fuel and CO₂ compensation.
Fixed costs were 26 million lower once the net provision release effect of last year was deducted, mainly due to the lower maintenance cost in the islands. Moving to the liberalized business on slide number 13, EBITDA reached EUR 462 million, a 16% decrease with a 5% lower gross margin and a 15% increase in the fixed cost on a like-for-like basis, mainly as a consequence of the positive update of workforce provision booked last year.
The liberalized electricity margin amounts to EUR 766 million, being positively affected by the recognition to Endesa of the right to be compensated for the CO₂ clawback in 2006 for EUR 188 million booked in 2021. In addition, as mentioned before, it has been negatively impacted by the new Catalan tax in force since the 1st of July , 2020; the absence of the positive results in the short position booked last year, and lower OTC references.
Supply margin remains barely flat, with a slightly higher unitary margin, overcoming lower sales and higher ancillary services costs. Enel Green Power's gross margin reached EUR 103 million, + 26%, thanks to the new capacity in place and a 36% increase in production. Gas gross margin fell EUR 64 million in the first quarter of 2021 to EUR 11 million, mainly affected by the negative mark-to-market delta of EUR 61 million due to the steep amount of gas prices triggering this opposite non-cash effect. We expect this impact to be diluted or fully neutralized in the next quarters as the contracts are being settled. Excluding this mark-to-market impact in both quarters, gas gross margin is aligned to guidance. Endesa X contributes with EUR 30 million of gross margin, EUR -5 million versus the first quarter of 2020, mainly due to the perimeter effect. Moving now to the next slide.
More details on the evolution of fixed costs. Total reported fixed costs reach EUR 513 million, a 4% increase on a like-for-like basis. Once without the non-recurrent effects, such as the update of provisions for workforce restructuring plans in place and indemnities and tax- and labor -related risks, fixed costs would have decreased by 3% due to the several efficiency plans booked in previous years that will further contribute to the full -year results. Moving now to slide number 15, on the P&L evolution from EBITDA to net ordinary income. D&A increased by 13%, explained by the higher amortization, mainly in renewable and distribution, the negative delta resulting from the reversal of the coal impairment book in 2020, and a slight increase of EUR 10 million in bad debt provisioning, partially linked to the COVID pandemic.
Net financial results were strongly affected by the financial revenue from interest rates for late payment in relation to Endesa's right to be compensated for the 2006 CO₂ clawback. This was partially offset by the financial update of the workforce and dismantling provisions. While rates increased by 0.91% in the first quarter of 2021, rates remain almost flat. The effective tax rate resulted in 24.4%, slightly higher than last year and aligned to the business plan expectation, this has been a consequence of lower tax deductions in the Canary Islands. On the bottom line, net ordinary income decreased by 41% over the period, or - 13% on a like-for-like basis. Moving to cash flow on slide number 16, funds from operation increased by 111% year-on-year, reaching EUR 583 million due to the following effects.
Lower EBITDA after provision paid of EUR -471 million, out of which EUR 356 million is explained by the net provision reversal booked in the first quarter of 2020. Working capital and others improved by 71%, mainly thanks to the above-mentioned net provision released in the first quarter of 2020, the improvement of regulatory receivables, a lower net balance of receivables and payables accounts , lower inventories, and the effect of derivatives and other non-cash provisions. Income tax paid amounted to EUR -2 million versus EUR +74 million in the previous year, mainly due to the EUR 73 million corporate tax refund corresponding to fiscal year 2018. Cash-based CapEx, 16% lower than the previous year, also led free cash flow to a positive EUR 158 million in this period, EUR 390 million higher than in the first quarter of 2020. Let's now have a look at net debt on slide 17.
Net debt amounts to EUR 7.5 billion, EUR 600 million higher than for the full year 2020. This increase is attributable to the payment of the interim dividend against 2020 results paid in January. The regular working capital remains slightly below last year's figures at EUR 848 million. Our leverage remains stable, with a debt to EBITDA ratio at 1.9 times on a like-for-like basis once the provision effect is booked in the second quarter of 2020. It's worth highlighting the extraordinary low cost of debt, which is maintained at 1.7%, marking a historical minimum and placing Endesa as the European utility with the lowest cost of debt, as well as the increase in the coverage of debt maturities to a very comfortable 35 months. Now, let's take a deeper look at our sustainable finance on slide number 18.
During the first quarter, Endesa has continued to deploy intense activity in sustainable finance with EUR 2.8 billion in new sustainable -linked transactions. Endesa signed credit lines for an aggregate amount of EUR 2.1 million with 11 leading financial institutions, meaning that all of its liquidity bank facilities are linked to SDG criteria. We have also reached a new milestone by linking a EUR 150 million, seven-year bank loan to a new SDG KPI of Scope 1 with greenhouse emission reduction. Sustainable finance now accounts for almost 50% of total gross financial debt versus 45% in December 2020, right on track towards the 60% goal in 2023. With the official 2020 Award for the Best Sustainable Loan, we confirm our leadership in sustainable finance, developing innovative structures, applying to a wide range of instruments, and engaging a significant portion of our financial and commercial counterparties.
Now, let me hand over to Pepe for his final remarks.
Thank you, Luca. To close this presentation on slide 19, I would like to share some final remarks on our performance during this first quarter. 2021 guidance is confirmed despite the exceptional condition in this quarter that we expect to normalize during the year. We keep advancing in our decarbonization and electrification process in an efficient way, lowering costs while increasing our share of CO₂-free emission production. To this effect, we increased by 22% up to EUR 23.3 billion, the project percentage to the Recovery, Transformation, and Resiliency Plan. Strong cash generation capacity shown during this first quarter of the year. A relevant set of innovative sustainability-linked financial operations confirming our commitment and leadership in sustainable finance. In such a context, the outstanding dividend yield in 2021 is the strongest evidence of sound value creation to our shareholders.
Ladies and gentlemen, this concludes our first quarter 2021 results presentation. Thank you very much for your attention, and we are ready to take some questions.
Okay. Thank you, Pepe. Thank you, Luca. We are now open to take any question you may have.
Ladies and gentlemen, if you would like to ask a question, please press the star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally.
Okay. The first question comes from Alberto Gandolfi from Goldman Sachs. Please, Alberto, go ahead.
Thank you, Mar, and good evening. Thanks for taking my questions. I guess the first one is I was looking at the evolution of the customer numbers, and it looks like you're broadly down 100,000. Maybe it's a rounding, but it's about 100,000 in the quarter, which would be nearly 4% annually. I was wondering if you can comment on the dynamics in this segment and if you have a counter plan to basically stop this from happening. The second question is on the financial expenses line. Can you tell us maybe without those non-recurring elements what we should expect for a normal quarter? Should have been about EUR 40 million, perhaps. Just trying to see how normalized it would be. Last, not least, when do you think you're going to start to see the benefits from higher power prices?
I guess that's a question on your hedging policies. Just to double-check, you have more than 30 TW hour, about 32 of nuclear and hydro, but also some of the renewables are exposed to power prices. Would you agree that we should think about your sensitivity to power prices for next year, at about 40 TW hours and growing? I know you look at it on an integrated margin basis, but just trying to understand when you can reprice the portfolio and see all the benefits. Thank you.
Okay. Thank you, Alberto. I will try to answer the first one. Give us some ideas about the last one, then Luca can complement what I am going to say and answer the second one about finances. First of all, with regard to the supply competition, let me say, first of all, that the supply margin, our supply margin in the first quarter of this year 2021 remained almost flat, with a slightly higher unitary margin, overcoming, I would say, the lower sales. B2C sales saw an increase of 10%, but B2B sales decreased by 9%, as we have said. The higher ancillary services cost is linked to the very special situation of the Filomena storm and also the very reduced thermal gap in February due to the very high renewable production linked to the very high CO₂ or higher CO₂ gas prices.
Having said that, it is true that total power customers decreased by 1%, that is, 100,000, but in the free market, which is the important tier for us, there are 60,000 customers, which is very, very important. All in all, we have faced the first quarter of 2021 with lower demand than expected due to the COVID restrictions, but in line with last year, perhaps, this higher ancillary and, let's say, factor cost, mainly due to Filomena, leaves us with a EUR -25 million. A strong increase in competitive intensity. Strong increase that we saw in the fourth quarter of 2020, and it has continued in the first quarter of 2021.
This strong increase in competitive intensity, well, it was produced, at least in my opinion, by one of the incumbents, which has increased its aggressiveness, I would say, doing three things, in my opinion, two of them with sense, in my opinion, and the other without any sense. The first one is the brand and commercial campaigns, a huge increase. The second is a high sales channel remuneration. Okay. The third is a price war in the sense of trying to reduce prices for the customers. The rest of the competitors have started to respond to this incumbent and are also following, not as this first one, but following this strategy. We are facing a situation that has a high probability to occur, that this is a price war.
In my opinion, this situation, a price war, is never linked to intelligent or smart market management. It is usually executed, in my opinion, by new entrants who normally do not seek to remain in the business but to, I would say, extract value quickly by selling the customer base. When one of the main incumbents executes this strategy, it is usually due, in my opinion again, to a specific action for a short-term interest, which is time, or, I would say, to a lack of ideas or the ability to make an offer to customers that adds value to both the company and the client, in my opinion. We remain being the market leader, and we have, again, in my opinion, a very clear commercial strategy.
We have the most advanced utility in Spain in terms of digitalization, which will allow us, for sure, to approach our customer in completely different and personalized ways. Therefore, we have to continue with our medium- to long-term strategy based on the extraordinary effort we are making in digitalization to build a future unique value proposition for our clients, personalized and adapted to their needs.
However, in the short to medium term, as you have said or asked, we are launching a set of actions, shorter actions, to mitigate the negative impact of our competitors' strategy, looking for a not -meaningful deterioration of our client portfolio's marginality. In that sense, we are increasing all channels' capacity and performance, looking for a greater number of acquisitions just to compensate for the losses. Also, we are allocating additional resources to strengthen loyalty and retention based on our knowledge of the customer and the advanced analytics.
All this with a continued focus on efficiencies based on the digitalization and the platformization of the business should allow us to mitigate or navigate in these troubled waters, let's say that. Being honest, I think that sooner or later, and I think that sooner rather than later, we will recover the very high competitive market in which we are living, but with more sense than the ones that we have had. In my opinion, we should not be nervous. We should manage the situation, which is not easy. We should manage, we should continue with our commercial strategy that will give value to our customers and will give value to us. With regard to when we are going just to benefit from the higher power prices, for sure in the year 2022. For sure.
Also, just because of the volatility of these prices, and not only the power but also the commodities. You should know that we have a long position in CO₂ and in oil, et cetera. We will try to mitigate, to compensate, and really to benefit from this situation. Absolutely clear in the year 2022. Now, Luca, if you want to answer and complement.
Yes. Thanks, Pepe. No, I'll give just the right numbers. When it comes to customer loss, 63,000 is in the liberalized market and the rest, the complement, 110,000 is in the regulated market. Just probably underline that obviously we look at liberalized customers as the main objective for us to reduce this kind of customer loss. On the regulated front, I can tell you that the trend is reversing, and this is a trend that started last year with , actually, the evolution of pool price, where the regulated tariff became the most effective tariff in the market. Obviously the pool price is increasing, this is already reverting, and we will see the reversion in the coming months. Regulated customers are not an issue for us. When it comes to liberalizing, the strategy that Pepe pointed out.
For the second question, when it comes to a normalized cost of debt, for us, it's in the region of EUR 40 million per quarter, with a guidance in the region of EUR 170 million for the full year. For the, say , third and fourth questions, as Pepe said, we still have about 40% of our production to be hedged in 2022. Therefore, there, we will realize some of these higher prices, because if you recall, we started hedging with our residential customer base, and we are leaving, I would say, volumes in B2B to the latter. Obviously, B2B is more, say, linked to the evolution of pool prices. Therefore, this remaining 40% will benefit from higher prices.
Okay. Thank you, Alberto. The next question comes from Harry Wyburd from Bank of America.
Hi, everyone. Good evening. Two questions from me, please. First one's on the CO₂ gains. I just wondered if you could remind everyone on the call of the background to those. I just want to check I'm understanding correctly. There's EUR 188 million in EBITDA and EUR 70 million in financial income, and obviously if you add that up, that's nearly 40% of pre-tax profit. Have I thought about that right? Was this assumed in your guidance, or is this different from what you're expecting? That's the first one. Second one, totally different topic. On the projects you've proposed for EU stimulus, a couple of things on this. Firstly, how do you envisage returns and competition on these projects? What kind of IRRs do you think are realistic to assume here?
Do you think you're going to see the same level of financial competition on these as you do in generic renewables? Also, if you got all of those projects funded, would that represent an upgrade to the CapEx plans that you outlined back in November? Thank you.
On the first one, first of all, the numbers are correct, EUR 188 million in gross margin and about EUR 70 million of financial revenue for accrued interest. This is the final judgment of the Audiencia Nacional recognizing Endesa's rights to be compensated for the reduction in the remuneration in 2006, in the amount of the internalization of CO₂ emissions rights freely assigned by the National Emission Rights Allocation Plan, the NERAP, which basically has no legal duty to be there. That's what the sentence that we received was, basically two weeks ago. The impact on the net income level is basically EUR 194 million, which is basically deducted for the taxes. Whether it was included in guidance? obviously not, it wasn't included in guidance.
Obviously, we now feel more comfortable achieving obvious guidance, including this regularization, given that obviously the market context in the first quarter has been slightly worse than what we were expecting, especially for the slow demand recovery and the extraordinary events such as the Filomena storm, as well as obviously high prices in the period, which has effectively has on the managing of the short position. That's on the first question. On the second one, when it comes to basically the projects that we have put forward for the EU Recovery or the NextGenerationEU funds, they total 122 projects, EUR 23.3 billion in terms of total CapEx. Now, we are targeting the same returns as for other investments, i.e., if there are obviously grants to some of these businesses, they will have basically to reach, in terms of our financial target returns, the same returns.
If it's renewables, bear in mind that renewables per se cannot be eligible for the NextGenerationEU, but they have to have some specific features. We have some projects in renewables that are either linked to green hydrogen, are either linked to the right transitions in some of the coal facilities we are shutting down. There are projects in renewables, but they need to have some kind of, let me say, different features because obviously renewables are, let me say, competitive in the market as of today without these NextGenerationEU funds. The target returns are spread to around 100 basis points when it comes to this business. We also put forward in the region of three and something billion in projects in distribution. There is the same game.
We have a target IRR return in distribution, which is a spread of around 100 basis points. To the second part of this question, whether these are on top of our basically business plan, yes. I mean, in the business plan, it's only a very small portion of these projects. The majority, I would say 95%-97%, would be on top. The probability of us being assigned, let me say, 100% or a very high percentage of all these projects, I think, is low in the sense that obviously it will be a competitive process. We understand, although it has not been made public, that there will be basically auctions for different basically areas for these funds, which will be obviously run by the government. We will see how it goes along.
For us, let me say, even when it comes to NextGenerationEU potentially granting funding for our projects, we need to reach the same economic returns.
Okay, thank you, Harry. The next question comes from Javier Suárez, from Mediobanca. Please, Javier, go ahead.
Thank you, Mar, and thank you for the presentation. Two remaining questions. The first one is on slide number 19, when you are saying that the guidance for 2021 is confirmed. You are mentioning as well that the exceptional conditions during the first quarter should normalize through the year. Would you please help us to understand what conditions you are referring to, and can you detail how you expect those conditions to normalize and therefore to see an improvement, I guess, in the margin during the next few quarters? That would be the first question. The second question is on the working capital and the cash flow generation during the quarter in slide number 16. There has obviously been a very significant improvement in working capital absorption.
The question here is that you can help us to understand if there is a managerial effort there to reduce structurally the working capital absorption, or putting the question in slightly different terms, what is the number evolution during the next few quarters? Is that first quarter an extraordinary thing, or is it something that we should see as a more recurring reduction in the absorption of working capital? Maybe a third question, a follow-up from the previous question on the recovery fund. Obviously, I think that it was Luca that mentioned the fact that renewables per se are not eligible. Can you help us to understand the logic behind the over 100 projects that you have presented that are eligible for grant financing, and which are maybe those projects that you believe are particularly attractive?
Any granularity on an example of projects that you would be willing to finance would be very helpful. Many thanks.
Okay, Javier, thank you very much for your question. I will try to answer the first one, and then Luca will complement this first one and answer the two more questions. With regard to the guidance, well, first of all, as you know, and as we have said, the first quarter of this year, 2021, was a challenging quarter. As is also expected to happen, in my opinion, in the second quarter of this year, 2021, as forecasted for us, affected by the uncertainty about the speed of the economic recovery and the extreme volatility in the commodity and electricity prices. In our opinion, we really forecasted this, and what we were waiting for is a recovery in the second half, an important recovery in the second half of the year. I should say that in demand, et cetera, we are seeing these results in this second quarter.
On top of this forecast that we had, what we have seen is a weak demand, lower than expected, as we have said, higher ancillary and load-shaping costs due to the restriction of the COVID linked to Filomena; and, as I have said, the very low thermal gap in February, linked also with the CO₂ and gas prices. We have not been able just to manage the short position that we have a lot of benefits in the year 2020, due to the high forward and low spot prices that we had in the year 2020. Also, we have had a negative mark-to-market in gas in the first quarter of 2020, a positive in the first quarter of 2020, and a negative in 2021. Despite all of this, I think that we got very good results. Let's say EUR 1 billion.
EUR 1 billion, if you compare it with the first quarter of other years, 2019, 2018, 2017, and 2016, is higher than this. Lower than the previous year, yes, because it was extraordinary, and we had, on top of this, a short position value that we got and many other good results in the mark-to-market, et cetera. We remain confident to reach our goals by the year -end. Believe me, this is not a whim but is based on our view about the integrated margin and the year as forecasted. Also, the gross gas margin will meet our guidance, supported also by the positive results from the reopeners' processes that were scheduled this year. We think that there will be no surprise in the regulated business. Finally, the efficiencies will arise from the plans adopted in the last few years.
All in all, we feel, as I have said, comfortable and absolutely sure that we are going to reach our commitment with the market. I don't know. Luca?
Yes. Maybe just complementing this, basically, we are expecting obviously a liberalized margin in the region of EUR 2.3 billion for the end of the year, which is aligned to guidance, and that is based on a normalization, obviously, with a unitary margin, an integrated unitary revenue margin in the region of EUR 29 -EUR 30 per MWh. Obviously, we are increasing sales that are more concentrated in the second part of the year, as COVID impact obviously should be lower and basically no additional negatives from ancillary services, which affected us in terms of cost for an additional EUR 25 million in this quarter, obviously considering a normalization of this market for less volatility.
In gas, obviously, we expect as well to meet guidance that is also on the back of, let me say, the positive results coming from the reopeners process that we are basically working on this year, and the fact that obviously the flexibility of our contracts will allow us to contribute to continue obtaining additional value in the diversion of shipments in other markets. We have already few cargos already diverted this year, so this is, I would say, working well. When it comes to the regulated part, obviously distribution and island CPDA also are, I would say, in line to reach the targets of EUR 2 billion and EUR 200 million, respectively.
Concerning distribution, basically we had a result in the first quarter slightly below expectation due to delays in revenue for smart meters and rentals, as well as connection fees for EUR 13 million. This should obviously be expected to be recovered along the year. Finally, on efficiencies, obviously, we are expecting to reach the guidance of EUR 1.9 billion in target because all the provisions that took place last year should impact the region of just slightly more than EUR 60 million in terms of efficiency this year. That is to give some numbers on the guidance. On the second question regarding working capital, I would say that this was an exceptionally good quarter when it comes to working capital and cash flow generation in general. We are expecting working capital to be basically neutral along the year, not having either a negative or positive impact.
Let me tell you that managing working capital in, let me say, a COVID environment is probably the most difficult thing a CFO has to manage. We are, let me say, working on that assumption. To your questions, the first quarter has been exceptionally good in terms of managing our working capital. You shouldn't expect the same performance for the rest of the year. When it comes to, I would say, some details for our projects that we submitted to the Recovery Fund. As I said, EUR 23.3 billion in total in terms of CapEx, 122 projects. Geographically, obviously, the majority is on the mainland, about EUR 20 billion. We have in the region of EUR 3 billion on the islands and something also in Portugal. When it comes to the type of projects, we have about EUR 3.7 billion in smart grids, of which EUR 2.5 billion is in grid automation and EUR 1.2 billion is in resilience.
Again, none of what I'm saying was included in the business plan. We have about EUR 800 million in sustainable mobility and about EUR 2.2 billion in building refurbishment and efficiency. As you know, there's been a recent approval of tax incentives also in Spain regarding basically energy efficiency for buildings. We have, and I think we discussed this in the past, about EUR 3 billion in green hydrogen, which includes electrolyzers as well as renewables. Obviously in this case, renewables are basically supported by the NextGenerationEU funds that are eligible. Then we have about EUR 4.6 billion in storage and flexibility. Storage is eligible for the innovation fund.
Another EUR 8.2 billion in renewables, which again are not straight renewables but are either synchronous generation links to renewables or other types of innovations in renewables, and the majority for us are projects linked to the basically refurbishment of the sites where we are shutting down coal facilities. We obviously have some others for the upgrading of existing plants. Those are, I would say, more or less the areas in which we are putting our projects. We have, let me say, a good understanding of what could be eligible and what could be not. In terms of returns, I think I commented before. That more or less should answer your third question.
Next question from the line comes from Enrico Bartoli from Stifel.
Hi. Good evening. Thanks for taking my questions. I have three as well. I would like to go back to the guidance. Particularly, we are seeing a continuing upward trend in the power prices and the evolution of CO₂. I was wondering, let's say, how safe the guidance is in this context if this trend upward for prices in 2021 continues and if you are protected in some way through your hedging policy? The second one is related to slide seven. Actually, you highlighted this decline in electricity sold on the B2B segment. I was wondering how much this is related to the weakness of demand still due to COVID, how much is related to the competitive environment in the commercial side that you mentioned before. If you can share with us your view on the evolution of your electricity sold to this segment over the next quarter.
I understand that you expect some recovery in the second half of the year, but if you can provide some additional comments. The last one is related to the net debt guidance for the full year. If I remember well, you had EUR 8 billion, if this is confirmed. Thank you.
Okay, Enrico, I will try to give you some color on this question, the first and the second questions, and Luca will complement this. Our guidance: have confidence. We are, as I have said, absolutely confident and comfortable with this. It is true that power prices are increasing, and our power position has been negatively impacted in the first quarter of 2021 by the higher -than-expected, let's say that, power prices in Iberia. Cash was compensated by the positive result of our long position in commodities, mainly CO₂ and oil, in which we had a clear bullish view. Well, looking at the full year, a dynamic strategy that we will apply will lead us to limit the impact of high power prices. At the same time, we take advantage of the anticipated CO₂ purchases. That is an opinion and another thing Luca could complement.
In relation to what about the reduction in the B2B segment? it's mainly due to the COVID effects that have really hit this segment, mainly industrial and SME companies. Let me say that during the whole year, that is, during the lockdown and the pandemic situation, the drop was something around 10% in the industry, 10% in the services, and slightly higher in B2C. Services and SMEs continue to drop around 10% , compared with the same period of last year. Only the industry is recovering the situation little by little . In my opinion, the first thing here is, yes, the COVID effect. Luca, would you complement?
Sure. When it comes to the first questions I think you touched upon, we still have some open positions when it comes to electricity positions. As Pepe said, this is counterbalanced by a long position when it comes to Brent and CO₂, obviously for the production that we are expecting in the islands. These two effects are mitigating each other. Even though you could expect higher prices throughout the year, we have an edge that is working perfectly in order not to suffer any negative effect. When it comes to the third question, the guidance was EUR 8.2 billion when it comes to net debt for this year. We confirm the guidance, assuming a regular working capital of about EUR 600 million. Some improvement in regular working capital along the year.
Thank you. The next question comes from José Ruiz from Barclays. Please, José, go ahead.
Good afternoon, and thanks for taking my questions. The first one is, within the integrated unit margin, are you including the EUR 188 million from the CO₂ regularization? If you can share what is from that EUR 30 the retail margin? The second question is basically, if you can make a comment on the proposal of the new capacity market in Spain and if there is any impact, I was wondering if you had included it in your business plan. Thank you very much.
Okay. Maybe, Pepe, I'll ask the first one, you go for the second one.
Okay. Let's go.
When it comes to the CO₂, going back to the 188 , yes, those are included in the integrated margin. Let me add that obviously we have this positive effect, but we also have some negative effects in the first quarter of this year. The sum of all these effects is non-recurrent for a positive EUR 100 million. It's a positive EUR 188 for the CO₂, as we mentioned. We have a negative for ancillary services costs for the volatility we experienced in this first quarter of EUR 25 million. We have a negative mark to market in gas and electricity for about EUR 50 million, the majority in gas, and some other non-recurring fixed costs. Let me say that we have a positive non-recurrence of about EUR 100 million in the first quarter.
When it comes to the basic retail margin, we have, as mentioned during the presentation, a slightly higher than EUR 10 margin in supply, and it is slightly better than the first quarter last year. For the second question, I'll hand over to Pepe.
Okay. Luca and Enrico. First of all, we have not considered this capacity payment in our business plan because, well, up to the last, if I'm right, the 19th of April, we didn't know anything. It is true that the Minister, Teresa Ribera, announced that the Spanish government is launching a consultation on a broad regulation to create a capacity market. In order, on the one hand, to secure the deployment of renewables in line with the Integrated National Energy and Climate Plan 2021-2030. On the other hand, to improve the security of supply, which is very important. Let me say that if we are expecting, forecasting, to have more than 70% of the output in the year 2030 coming from renewables, you should really try to improve or give some kind of comfort to the security of the supply.
The only way to do that is the capacity remuneration of pure capacity. I say not only in the new capacity but also in the existing one and looking for, in my opinion, efficient market signals needed to attract new investment on the one hand and to maintain existing plants, which are absolutely necessary to ensure that demand is met. We are very happy with this new regulation. We will see what happens. It will take, in my opinion, around two years just to deploy and to start with this because of all this discussion that we will have with the companies, with the Minister, and also with the Minister on the role in Spain with the European Union. It's some good news for us. The second thing is that we don't have any euro or any payment in our business plan linked to this.
The next question comes from Javier Garrido from JP Morgan. Please, Javier, go ahead.
Thanks. Good afternoon. I think there is only one question left. If you could explain a little bit more in detail the evolution of the liberalized margin in electricity, where you are reporting a EUR 26 million increase, this includes a EUR 188 million CO₂ regularization, while the drop in liberalized sales and the drop in the integrated margin of EUR 4 per MWh would explain a EUR 100 million drop in the gross margin. What is driving the delta? You have a EUR 188 million one-off in CO₂ , and a EUR 100 million drop in the gross margin from liberalized sales. Why is only the electricity gross margin growing by EUR 26 million? Apologies for the convoluted question. Thank you.
Hi, Javier. This is Luca. Just to give you the integrated margin evolution, basically we have a generation margin, which is down about EUR 54 million, and this is driven by the negative impact of the carbon tax for about EUR 30 million. We have EUR 25 million of lower OTC references vis-à-vis basically last year. Flat margin in generation for ancillary services, which is a cost in retail, and an output that is slightly higher for basically renewables for 0.3, but there's no relevant impact when it comes to generation. In supply, as I mentioned, it's more or less flat, but we have basically a EUR +22 million impact from a better sales mix, i.e., lower sales for about 0.7 TWh but slightly higher margin. That is basically 0.2, and that is driven by B2C sales. Basically, EUR 25 million of cost in ancillary services.
We have a long customer position, so we are a net payer when it comes to ancillary, especially when you have this volatility, because we cannot recover basically this cost in generation. Obviously, the short position, which was positive for EUR 44 million last year and is basically zero this year. These are basically the effects that are driving down the price of electricity. When it comes to gas, obviously the mark-to-market is the one that is affecting this quarter, but you asked for electricity.
The next set of questions comes from Jorge Guimarães from JB Capital.
Good afternoon. Many thanks for taking my questions. I just have two. The first is if you can clarify the negative mark- to -market in gas and where it is coming from. The second one related to your very detailed explanation about the strategic behavior in the supply market in Spain. From your words, I understand that none of the incumbents started a price war, but you and the other two or three so far did not respond. My question is, what do you believe will happen to the other incumbents, which, from your words, have not entered into this war so far? Do you expect them to remain still, or do you see any risk of them entering into this struggle, this fight? Thank you very much.
Let me try to answer the second question, and then Luca, again, will complement and also will answer the first one. In my opinion, there must be rationality and economic sustainability supporting any business. That is the first thing. When some agents only intend to speculate in the short term, instead of seeking to create value in the medium/long term, a bubble is created. That is what happened in the renewables, and that is what happened in the supply. Just because this is not sustainable in the future, what I think, and what I would like to think, is that it is more a tactical situation that will finish shortly. The thing is that you should maintain your self-calm, doing things, of course. Doing things, because what we are looking for is just to create value for our customers and also for ourselves.
As I have said, being incumbents means, for me, big players that want to stay in the business for long. Being an incumbent, or being a new entrant but trying to be in the market, in the business, for a long time, you should take care of the market. That doesn't mean you are not going to compete, of course. You are going to compete. You should compete in technology. You should compete trying to reduce costs. You should compete, but you should never try to go below your cost. Let me say, many suppliers, I would say new entrants, well, at least some of them—if you go to the P&L, they are amazing and negative. What are they looking for? If they have negative P&L, they are looking to increase the customer base and sell the customer base. That doesn't fit very well with an incumbent.
I mean, a big company that wants to stay in the business for a long time. That is why I have said, first of all, I don't think it's going to last a long time. Second, it's our strategy. On the one hand, continuing with our effort in digitalization, looking for platformization, looking for a unique value proposition to our customer, and looking for creating value. On the other hand, of course, trying to mitigate this, let's say, I would like to say a shorter situation. That is what I have said: navigating in troubled waters. Well, I think that sooner or later, and I think sooner, we will see how things go to what they should be. That means very high competition, that is, but not a silly one. That is my opinion. Luca.
Yes. When it comes to the first questions on the mark -to-market of gas, obviously these are the positions that we have on gas, so non-cash. The delta is EUR 61 million. It's negative for EUR 32 million this quarter, and it was positive for about EUR 29 million in the first quarter 2020. As I said, this is basically, we don't have any cash effect, and we expect the impact to be diluted on a fully neutralized basis along the next quarters as contracts are being settled. It suggests, let me say, the current mark -to-market on the position as of today. I guess this is the first question. We don't have any other questions. Mar.
Thank you. The next question comes from Lilian Starke from Morgan Stanley. Please, Lilian, go ahead.
Hi. Just one question from me. You had in the past mentioned that you were focusing more on the SME segment. Given the troubles that you've had so far from what you mentioned, that they're still seeing declines in demand, I was just wondering, is there any concern on your behalf around counterparty risk, that some of these businesses might just be under pressure for a bit longer, given how they might have been affected by the COVID situation?
Pepe, you want me to answer this?
Yeah, please.
When it comes to, let me say, managing bad debt and what we are seeing in bad debt evolution, let me say that once we have seen still some tail of COVID in the first two months of this year, already in March and in April, this has been recovering quite well, especially in all the B2B sectors, including SMEs. Where we see more, let me say, potential increase in terms of provisioning throughout the year is on B2C. B2C is the one that is most affected as of now. It depends a lot on, let me say, the recovery, the GDP recovery of the country, and the impact of this on basically main street, in order for us basically not to basically increase provisioning in B2C this year.
When it comes to SMEs in particular, we have seen already a positive rebound in terms of the evolution of basically counterparties in the last two months. The months of March and the months of April.
Okay. Alberto Gandolfi is back with some additional questions. Please, Alberto
Mar, thank you. Just one, actually, and just because the magnitude is big, so apologies for following up and abusing your kindness. Luca, you said EUR 100 million is the net positive effect in the quarter. Am I right in thinking that you're just talking about above EBITDA, and then we also have the EUR 80 million financial expenses, or is it EUR 100 million all-in at the, let's say, just the entire level at the bottom line? Thank you.
The financial expenses effect, debts—it comes obviously with the rest of the sentence. To be honest, we are not planning on the bottom line. The non-recurrence in the quarter is a positive EUR 100 million. The majority of that, especially the CO₂, was not obviously, let me say, accounted for or budgeted for. We obviously had a tougher situation in the first quarter that we had to face. That's why we are basically confirming guidance, expecting a normalization of the situation along the year, and counting on these basically EUR 100 million positives that we recorded in the first part of the year.
Okay, thank you. This was the last question from the call. We have received a couple of questions from the web. Okay. The first one comes from Erin Van Aldan from Bloomberg. I guess that is for you, Luca. How do you expect your cost of debt to evolve in the coming years if the increase in bond yields and inflation continues?
To date, we have 60% of gross debt, which is interest rate -hedged. The average life of this hedge is similar to the one of the debt as a whole, which is 4.5 years in terms of duration. Given the absolute level of rates in the Eurozone and the significant percentage of risk hedged, we do not expect basically any material impact, or we expect a very moderate impact. Now, the current estimation for the full year is still 1.7 in terms of the cost of debt. Obviously, if interest rates really tend to go higher like we have seen in the U.S. recently, we can also basically start to fix more because we've probably been one of the utilities with the more variable stance in the past. That obviously has allowed us to reach this basically low cost of debt.
Obviously, as soon as we see a change in the environment, we could actually fix more and maintain or limit any impact on the overall cost of debt.
Okay. The last question comes from Gonzalo Sanchez-Bordona from UBS, and he's asking about our view of the potential auction for the access capacity from the coal plants that will be shut down. If we have some advantages by presenting a fair transition project , we will go through the competitive process that the government is planning to launch.
I will say something and then, Luca, please complement the answer. We will go through the competitive processes that we will see in the future. Having said that, just in the so-called just transition, we have many projects linked to the special coal power plant closure that will create real employment and will restore the place in which we had these coal power plants. Having said that, well, mainly we will do these tenders, let's say that, competitive processes. Perhaps some of them will have an extra premium, let's say that, just because we are trying to revert the situation due to the closure of these coal power plants.
Yes. If I may complement, Pepe, basically the regulations for governing the auction for each of these processes are still being approved. According to recent statements by the Ministry of Ecological Transition, the first capacity auction should be for the plant of Teruel, which is in the north in Andorra. The work criteria will be obviously socioeconomic and environmental ahead of the economic criteria. Obviously we are working to obtain the necessary capacity for the renewable developments we are planning in this area.
Okay. Many thanks. There are no more questions. Just to remind you that as always, our team will be available in case you need any help or you have any further questions. Thank you very much for your attention.