Good morning, and welcome to Endesa 2024-2026 business plan presentation. As you can see in the agenda for today, now on the screen, our CEO, José Bogas, will drive you through the pillars for the plan, while the CFO, Marco Palermo, will go in details on the financials. After some closing remarks, we will open the Q&A session. Thank you, and now I will give the floor to José Bogas.
Thank you, Mar, and good morning to everyone. The energy world in general, and Europe in particular, is facing three major challenges ahead to create an affordable, secure, and sustainable energy system. Therefore, I would like to begin my intervention by reasserting that widespread demand electrification, supported by generation technologies without CO2 emissions, is the way forward to tackle these three major challenges. We deem the affordability of energy for both citizen and industries to be essential, and this is why the acceleration of the clean electrification appears as the way forward to enhance the European energy system predictability, to lower energy price volatility, and to promote a very much needed economic recovery. Demand electrification, relying on renewable energies, constitute a major opportunity to bring down energy consumption, and therefore emissions, costs, and energy dependency, while improving security of supply.
Nevertheless, as you can see on the graphs on slide number 5, over recent years, a number of adverse factors, such as the COVID crisis and the surge in prices aggravated by the war in Ukraine, have strongly impacted inflation, interest rate, and also affected the electricity demand context, especially in the industrial segment. All of this has created, to a certain extent, a delay in the electrification process. Furthermore, we are witnessing a high level of uncertainty in the regulatory field, as detailed on slide number 6. In Europe, a new market design is underway, and although still to be defined, it seems to move in the right direction. In Spain, there are a number of capital regulatory fronts that remain to be addressed.
First, the decision of the extension of the crisis measures, such as the 1.2% revenue levy or gas clawback among others. On distribution, the definition of the new remuneration framework for regulated activities in the 2026-2031 period. In the non-mainland, improvement to the investment and remuneration framework will be key to ensure dependability and security of supply. And finally, an adequate remuneration capacity payment scheme to foster the deployment of storage and flexible technologies. All of this has led to a reevaluation of our growth drivers, where investment will be efficiently allocated under our integrated model to improve results and accelerate delivery. We are committed to profitable investment in regulated activities. In the distribution business, first, substantial investment are required to address energy transition. Secondly, allowing the grids to improve quality and resiliency in order to accommodate new connections.
Lastly, consequently, it is crucial to count on a fair and predictable remuneration scheme, allowing us to overcome operational and financial cost increases. On non-mainland, the nature of the flexible energy mix, hard to decarbonize, requires urgent decision to improve the remuneration of the investment that will be needed in the coming years. Likewise, while in renewables, we are embracing a more balanced risk-return investment criteria, tailored to maximize returns, reduce risks, and capture opportunities arising from our integrated model. This new capital allocation will also leverage on third parties to speed up returns and to enhance the value of our pipeline. All of this is being done with the ultimate aim of maximizing the value of our customer portfolio, attracting and retaining customer, and actively promoting the electrification of their consumption.
Based on what I have said previously, our business plan will be driven by three strategic pillars on slide number nine. The first one, the capital allocation. As we have commented on, we have adopted a much more selective and flexible capital allocation criteria, driven by value and leveraging on a new partnership scheme for renewable development, key to maximizing the risk-return profile. Regarding the second pillar, our operation will use streamlined processes that will lead to a more efficient and effective organization. We will apply a strict operating cost discipline to improve cash generation, compensating rising inflation and the cost of capital. And finally, with regard to sustainability, we will develop a sustainable business model that is capable of self-funding its needs while addressing the challenges of climate change.
All in all, a value-based business model designed to capitalize on future opportunities. On slide number 10, let's now turn to the investment of this new plan. Rather, it continues compared to the old one. We will invest around EUR 9 billion to maximize returns, taking advantage of our integrated position and focusing on decarbonization and networks. The capital allocation process criteria will include, first, investment in distribution on a business-as-usual basis, awaiting better regulatory visibility to address the energy transition. Second, we are maintaining the investment pace in renewables development, which together with distribution, represents around 80% of total CapEx. In customer, we are allocating 10% of total CapEx, aiming to enhance customers' value perception and attraction by offering higher-value products and services with superior service standards.
Lastly, the plan does not envisage investment in the new flexible capacity development in non-mainland system, just maintenance CapEx, until a better and predictable remuneration scheme is introduced. Going deeper into network investment, and I am on slide number 11, grids are fundamental to the energy transition in order to accommodate renewable integration and other uses associated to electrification. We are committed to invest EUR 2.8 billion, very much in line with the previous plan, awaiting for a fair and predictable remuneration. Capacity network will be devoted mainly to connection and to improve quality and resilience, which transform into higher quality standard and service rates for our customer while preserving DRAP.
In terms of renewables, on slide number 12, we will invest EUR 4.3 billion by 2026, in line with the old plan, out of which EUR 3.4 billion will be devoted to adding 3.6 gigawatt of new capacity in the period, with a shift towards wind technology. That, together with the current macro scenario of rising inflation and new material costs, have led to an increase in unitary CapEx in both technologies. It should be noted that these development CapEx also includes repowering project to increase plant efficiency and reduce generation costs. The project selection process will be carried out following a strict selective capital allocation and leveraging on partnership schemes to optimize the rates return profile.
With this new capacity, renewable output will reach around 24 TWh, thus, reducing the overall sourcing cost of the energy served to our fixed-price customer. Moving to next slide, a relevant part of our renewable CapEx deployment corresponds to strategic project, and I am on slide number 13. That this strategic project must be considered as part of our full decarbonization commitment, where plants closure are combined with the initiative to promote just transition and economic activity in the area. We leverage on the energy possibilities of the site for a combined technology repowering, when possible, fostering infrastructure and innovation, and maintaining a solid cooperation with the local interest group. So in this large project, there is a significant part of the CapEx allocated throughout the plan that will transform into capacity that will be commissioned beyond 2026.
When it comes to customer business drivers, and slide number 14, over the next three years, our steep focus will remain on customer service, which we seek to promote long-term loyalty through an improvement, an improved customer experience and high service standard. To this end, our commercial strategy is based on the knowledge of our customers, enable us to foster tailor, bundle offers, advance customer segmentation and channels, remix, targeting, high value-added service and product, deriving from new and more sophisticated customer needs, and always with the aim of promoting highly, electrified behavior among our customer base. As a result of our commercial strategy, we expect to attract a large number of liberalized customers, increasing by 6%, and improve the profitability of our portfolio. On slide number, 15, we now turn to describing the second pillar of our strategy: financial equilibrium.
We firmly believe that financial strength is crucial, so all of the new plan assumptions are based on financial equilibrium that will transform in net investment and dividend to be covered by funds from operation, resulting in neutral or positive cash flows. Based on this principle, we rely on the collaboration of a stable partner that will allow for a faster and more value creative development of the renewables, increasing our return on investment capital. Besides, operating cash flow will be enhanced by improved financial target and by a discipline of cash cost containment, absorbing inflation and interest rate negative effects. All of these will result in a consistent upgrade of FFO on EBITDA ratio along the plan. And finally, this pillar is essential for maintaining an attractive and sustainable dividend policy. Moving now to slide number 16.
The third pillar of our strategy is financial and environmental sustainability. We will further increase the sustainability of our key financial indicators above the previous plan on an accumulated basis. Given the strategic reshaping, we have depicted all financial metric improved versus the old plan. Thus, EBITDA and cumulative net ordinary income in the period will improve by 13% and 20% respectively versus previous plan, while cash generation in the next three years will improve by 10% versus previous plan. Regarding environmental sustainability, our renewable strategy will allow us to mitigate our direct and indirect greenhouse gas emission in Scope 1, 2, and 3, according to the 1.5 degrees pathway of the Paris Agreement.
We confirm our ambition to bring forward net zero target to 2040, where we shift towards electrification will enable us to withdraw from the retail gas business. After the closure of the last coal plant of the mainland, we reaffirm our commitment to phase out the remaining facility located on the Balearic Islands by 2027, which is still available today for security of supply reasons. When it comes to emission abatement target, as of end of 2023, we estimate lowering them by around 58% versus 2017, which is the base year. This reduction will be around 72% by 2030, therefore, on the right path towards net zero ambition for 2040. Based on this plan, on slide 18, you can see the snapshot of what Endesa will look like in 2026.
Investment in resiliency and quality of our grid will result in an improvement of our main distribution business KPIs, highlighting the 9.2-minute reduction in TIEPI and 0.4 percentage points in lower network losses. Renewable capacity will increase to around 14 GW, with emission-free production reaching more than 90%. As a result of our customer-focused commercial effort described above, more than 60% of our customer base will be in the free fixed price market, which will allow us to increase our bundled offers. Now I will hand over to Marco to explain the financial target for the next three years.
Thank you, Pepe, and good morning, everybody. I would like to detail the evolution of the main financials over the plan period. I'm now on slide 20. As we have recently disclosed, we have just received the arbitration ruling on the reopener of one of our LNG contracts. The outcome of this arbitration represents an extraordinary negative impact of EUR 0.5 billion, to be booked in 2023 EBITDA. In order to explain the evolution of financial targets along the plan, we will consider 2023 results, excluding this impact. The strategic lines that Pepe has just presented drive a sound growth in EBITDA and net income along the plan, facing a context of ongoing normalization of market and regulatory conditions.
EBITDA pro forma will show a 9% compound annual growth rate increase over the period, while net ordinary income will rise around 18% per year, as we will detail later on. Finally, our strategy of maintaining financial equilibrium in the coming years, based on cashflow neutrality, will allow a reduction in net debt to the range of EUR 2.8 billion to EUR 3 billion, or to EUR 2.9 billion. Moving to slide 21, we target EBITDA to grow by 31% over the plan, reaching between EUR 5.6 billion and EUR 5.9 billion in 2026, with a positive contribution from all global business lines. Worth mentioning that 2026 is not analyzed by the 1.2% levy, which, on the contrary, affects both 2023 and 2024.
As shown on the slide, power generation and customers increased by EUR 0.9 billion, mainly backed on the gas margin normalization, the higher volumes and growth in renewables, as well as the expansion in supply margin, margins, leveraging on lower sourcing costs and better customer mix. We will deep dive into these effects in the following slides. Finally, distribution in EBITDA is expected to increase by EUR 200 million, assuming the necessary materialization of the regulatory improvements needed to make the energy transition possible. Now on slide 22. Power generation and customers EBITDA will reach EUR 3.8 billion. This EUR 0.9 billion increase is mainly explained by the free power margin that remains fairly stable along the period, even in a context of declining power prices and by the gas business rebound, of course.
I will deep dive into the evolution of both on the next slide. So here, let me focus on the other components of the EBITDA growth. We expect an increase of other margin by about EUR 300 million due to the reversal of the negative mark-to-market booked in 2023, and the improvement of Endesa X margin, while the non-mainland business remain pretty stable. Finally, we foresee a flat evolution in fixed cost, largely due to cost containment. Analyzing a little more in detail, the evolution of free power margin on slide 23, sales to liberalized customers within the scope of our free power margin will remain stable over the plan, breaking down in lower indexed sales, partially compensated by an increase of 2% in the fixed price sales to 53 terawatt-hour, representing 72% of the total free sales.
Our investments in clean generation to serve our customers means that in 2026, around 90% of total free fixed price sales will be covered by these non-emitting technologies, implying a lower risk associated with exogenous market volatility, better sourcing cost, and an improvement of our margins going forward. In 2026, free power margin, unitary margin is expected to remain almost invariable, around 53 EUR per MWh , mainly as a consequence of, first, supply margin expansion through lower sourcing costs, and the expected enhancement of our customer mix with more than 400,000 free customers increase.
Second, higher contribution of infra-marginal technologies with a solid increase in renewables margins and on the back of the normalized hydro conditions and an increased solar and wind capacity that almost compensate the expected normalization of thermal margins. Third, lastly, the positive results obtained in the management of our short position will progressively, progressively return to normal levels. Moving to the next slide, slide 24, let's focus on the evolution of the gas margin. Total gas sales will show a steep decrease by 35%. While retail sales slightly increase by 4%, up to 49 TWh, other sales are reduced by 74% as a result of CCGT load factors normalization and a decline in sales in other markets. Gas margin will recover from the extraordinary tough market condition in 2023, where results were affected by lower contracted volumes and inefficient hedges.
In absence of these effects, unitary margin is expected to expand from around EUR -2/MWh in 2023 to around EUR 7/MWh, essentially due to retail margin that will return to normal levels, with higher weight of B2C sales and other gas margin that will substantially rebound from the negative values recorded in 2023, yielding on positive margin on our procurement contracts when compared to the expected Spanish gas price scenario. On networks, in slide 25, the energy transition we were committed to will not be a reality if we do not strengthen our networks. And for that, a significant improvement in remuneration will be needed to encourage the growth of this key driver of decarbonization. Therefore, we have assumed in our plan that the remuneration parameters will be reviewed as of 2026 to ensure a fair and predictable remuneration.
This increase of regulatory WACC will drive a margin improvement of around EUR 200 million. Nevertheless, the investments committed in this plan will be revised accordingly to the final remuneration. Total fixed costs are expected to be flat, as inflation effect is compensated by efficiencies and by the effect of digitalization investments, leading to a growth of distribution EBITDA. Lastly, RAB is expected to remain stable, approximately at EUR 11.3 billion along the plan period. In fixed cost evolution, on slide 26, sorry, efficiencies remain the core of our strategy. Sorry. Allowing us to maintain the fixed cost base flat along the plan, despite the tough inflationary context.
CPI effects amounting around EUR 200 million, and the growth embedded in the plan are expected to be offset by the efficiency improvements, driven by cost contention on the back of, among others, thermal shutdowns, more efficient organization, processes reshaping, and digitalization in which we are immersed. All this managerial action will allow to achieve a stable unitary cost in 2026 in networks, a reduction of 33% in renewables, and a cost to serve that is expected to decrease by 2% in retail. On slide 27, net ordinary income will come in around 2.2, 2.3 billion euro by 2026.
The EBITDA to net ordinary income conversion ratio increases from around 30% to approximately 40% in 2026, due to the following effects: The D&A that is expected to increase by EUR 200 million, with higher amortization due to the growth of investment, effort to focus on distribution and renewables. Customer amortization increase due to volumes and due to maintenance, CapEx amortization in nuclear, and non-mainland on an aged fleet with, shorter residual life. On the other hand, bad debts provision will decrease by around EUR 100 million, returning to more normalized figures after the peak in, 2023. Net financial charges improve by EUR 200 million, mainly as a consequence of the sharp reduction in gross debt, as we will explain later on, coupled with, very similar expected cost of debt.
Taxes will show an increase of around EUR 300 million, mainly due to the high results, despite the normalization in the tax rate since the 1.2 levy only impacts 2023 and 2024. Finally, minorities will increase by EUR 100 million as a result of the partnership model being the main assumption of this new plan. Concerning the cash flow generation and evolution of net debt, on slide 28, as anticipated in our 9-month results call, we expect to end 2023 with a net debt of around EUR 10 billion-EUR 11 billion, expecting regulatory working capital to be reduced to approximately EUR 1 billion. Sources of funds along the business plan will be close to EUR 14 billion, mainly driven by a strong FFO generation and the EUR 2.8 billion raised by the partnership model.
The cash generator more than offsets the cash outflows from investment and dividend payments, allowing us to reduce debt while preserving the financial balance. This will enable us to accelerate the pace of our investments in the future once we have regulatory visibility. Finally, gross debt is expected to decrease to a range of EUR 10 billion-EUR 11 billion due to the improvement in net debt and collaterals. Regarding financial sustainability, on slide 29, the strategic plan leads us to achieve increasingly solid credit ratios, supported by financial discipline and a strong cash generation. Thus, FFO on net debt ratio is expected to rise up to 55%, a sound increase of 25 percentage points versus 2022, while net debt EBITDA ratio will reach 1.4 times by 2026.
Continuing on, our financial position with debt maturities, on slide 30, we have put in place a number of financial initiatives strengthening the liquidity position, reaching levels we find sufficiently comfortable, both in the short and in the medium term. Current liquidity position amounts close to EUR 8 billion, with maturities averaging 3.6 years. Fixed rate will represent 55% of gross debt, while sustainable debt will increase over 80%, following our commitment to decarbonization. As previously mentioned, net financial expenses are decreasing due to the sharp reduction in gross debt, with the cost of debt expected to remain stable at 3.4% in 2026. And now I will hand over to Pepe, who will conclude this presentation.
Thank you, Marco. In relation to our dividend policy on slide number 32, as proof of our commitment to shareholder, we confirm the dividend policy on the basis of 70% payout of net ordinary income, and additionally, providing a flow of EUR 1 per share each year of the plan, starting from 2023. Likewise, from next year onward, we will return to paying the dividend in two installment, as in previous years. 2023 interim dividend will amount to EUR 0.5 per share, to be paid the second of January, 2024. This dividend policy combines a sustainable equity story with a healthy balance sheet, with which allows us to take advantage to future investment opportunities, while providing shareholders with sustainable and attractive long-term profitability.... with implicit dividend yield averaging around 7% throughout the period 2024 to 2026.
Operational progress is reflected in our target for the next three year on slide 33. Both EBITDA and net ordinary income will present solid growth over the plan, and as we have explained throughout the presentation, this allow us to maintain an attractive remuneration for our shareholders while providing them with protection in an uncertain environment. To end this presentation, on slide number 34, I would like to share some closing remarks. In this plan, we intend to be more selective in the allocation of CapEx, focusing on high return project, both in renewables and network businesses, as key drivers of the energy transition process, essential to increase Europe energy independence, security, and affordability.
The strong cash generation is expected to be key in meeting our commitments to the new energy paradigm, providing enough flexibility to capture potential opportunities ahead while maintaining healthy and sustainable financial metric. We expect our integrated business strategy to allow us to successfully offer a sustainable and attractive dividend policy over the medium to long term, creating value to... for our shareholders. Ladies and gentlemen, this concludes our strategic update presentation. Thank you very much for your attention, and we are ready to take questions.
Okay, thank you very much, Pepe, Marco. Now we start with the Q&A session.
The telephone Q&A session starts now. If you wish to ask a question, please press star five on your telephone keypad. If you change your mind, please press star five again on your telephone keypad. Please ensure your phone is not muted.
Okay, the first question comes from Manuel Palomo, from BNP Paribas Exane. Please, Manuel, go ahead.
Hello, good morning, everyone, and thanks for taking my questions. I've got several questions, but I think that I will speak to three this time. First of all, I'm a bit surprised about the increasing network CapEx. I understand that that could have to do with the fact that you will be paid in T plus two. But, and I mean, what I wanted to just ask you is: What is the increasing returns you assume in distribution 2026? I see that the RAB remains flat at EUR 11.3 billion, EUR 200 million increase suggests something, if I'm not wrong, around the 180 basis points. That would be my first question. Second question would be on your, let's say, the regulatory framework scenario.
You have confirmed that you assume that the 1.2% revenue impact will not be extended. Question is about whether you expect the current cap on hydro and nuclear to be or not removed? And in case that those two are extended, what is the... I mean, is this going to be considered as ordinary or not? Meaning, that would it impact the dividend or not? And finally, on this one, what is the effective tax rate that you assume, given that there have been some rumors or speculation about potential increase in the effective tax rate? And finally, I will ask you one on the integrated margin, power integrated margin, which seems to be stable at around EUR 53 /MWh in your assumption.
While we see a big decline in the average, daily market price, in slide number 37, from the EUR 106/MWh in 2024 to EUR 74/MWh in 2026. So this is EUR 32 decline. How do you expect, to offset, that decline, and keep the unitary margin flat at EUR 53/MWh? If you could help us to, to understand the main drivers for this, that would be great. Thank you very much.
Okay. Thank you. Thank you, Manuel, for your, for your questions. Let me say I will try just to give you some color about the three question, and then Marco will go more in detail in his answer. The increase in network CapEx and the remuneration that we are expecting for the future. As we have said, one of the key drivers of this energy transition is the network. The network, as we know and as the government of Spain has said, and also the International Energy Agency, we need to almost double the investment in this network in the future if we want really to avoid this bottleneck that we will have if we don't do that.
In that sense, we are absolutely convinced, and I think that the regulator in Spain also is convinced, that it needed an improvement in the incentive. We are seeing that all over Europe with some kind of statement of the different regulators in Europe that one year, one day or two days ago the regulator of Italy has really explained the importance of incentivize that the grids. On that sense, we are thinking that this is something that will happen in the future. We have, you know, that we have a review of the regulated period starting in the year 2026 to the year 2031.
We are thinking in the figures that we have here are better WACC or tax remuneration for the network. With regard to the stand of the crisis measures, well, as Marco has told, the 1.2% levy in revenues, we have considered only in the year 2023 and 2024, based on the results or the revenues of the year 2022 and 2023. Why we have not considered this in the future?
Again, we don't want to claim now or to say anything, but it is absolutely clear that if we want just to invest the huge amount of money that is needed, believe me, we are aligned with the policy, the energy policy of the government. We need to have cash. At least in our opinion, it has no sense to pay this mainly because we have this cap clawback, and that means that we don't have extraordinary profit. And even more, at the European Union level, the electricity system is not penalized by these 1.2% of tax. What's going to happen in the future, is gonna be ordinary or not?
Well, it would be ordinary, I think, in my opinion, because it's something included in the embedded in the business. With regard to the integrated margin, you are right, that there are huge decline in the pool price. How we keep the unitary margin? First of all, we have many levers just to do that. One of these is the change in the mix of our customers, increasing the retail B2C and decreasing the top on large customer. The other is lower sourcing cost. The lower sourcing cost due both yes because of our increase in renewables and also the decrease in the pool price.
That, in any case, I think that Marco will explain with more detail.
Thank you, Pepe, and thank you, Manuel. So, coming to your question number two, that I guess was referring not only to the levy but also to the clawback, and eventually our assumption, and how to consider them. So, for the clawback, we were assuming in this plan, as we were, as it was in the previous one, actually a clawback during all 2024. That could be maybe considered a conservative assumption, I don't know, but, that, that's what we have in the plan. If this changes, would this impact be considered ordinary? Of course, it would be ordinary results. I mean, it doesn't change much, but yes.
And for the future, actually, we do not have a clawback in 2025 and 2026. But the difference is not huge. In terms of... Coming to your question number three, that is basically, if I understand correctly, how do we maintain, you know, a free power margin that is basically stable, with a decreasing scenario? Well, you know, somehow Pepe highlighted, but the big effect here is that, true, that you have a price that goes down, but we have also the cost of sourcing that goes down. That basically has been the base of our strategy in the decarbonization of our fleet, and in the expansion of the renewable capacity.
So that's why we can still keep the stable price. And on that, of course, there are many other, you know, changes and many other effects, but basically, that is what it is.
Okay. Thank you, Manuel. The next question comes from Alberto Gandolfi, from Goldman Sachs.
Mar, thank you. Good morning, and thanks for taking my question. The first one is maybe on refinancing and 2024 guidance. Am I right in assuming that the 2024 adjustment in guidance, it's just due to the fact that over the past 12 months, interest rates went up a lot, and you used to have a quite large share of variable debt or anything else, because it seems that there's not much of a change. And when it comes still to refinancing, you know, you talk about EUR 200 million improvement in financial charges on lower gross debt. What is the marginal refinancing rate you're assuming?
Because in the slide, you seem to have a cost of debt largely unchanged between now and 2026, and I would be expecting your marginal refinancing rate to be maybe a little bit higher. So that's, that's to understand that part. Secondly, on the 2026 targets, sorry to go back again to it, but just, is it possible, in EUR million, to have a bit of a breakdown of the different moving parts in retail, basically margins, volumes, and in the allowed returns and network, just to be crystal clear on what you're assuming there.
And last, you know, you end up with a leverage of 1.4 times, so I guess that is not steady state, and I know this is beyond the scope of this plan, but if allowed returns go up, and I believe they will, because it's a mathematical reflection of much higher interest rates. So let's assume with higher allowed returns, are you essentially preparing the balance sheet for a further step up in CapEx in power grids? Can you give us a quantitative indication of how much CapEx step up could be, or how much RAB growth could be in the second part of the decade? And what is your plan B if returns don't go up? Prepare your balance sheet, returns do not go up. Is it at that point, what? Dividend, a share buyback? To be seen.
Thank you so much.
Okay, Alberto, thank you very much. I will try just to give you some clues about the third question, and then Marco will answer the first two, and perhaps just add something to the last one. Let me say, as you have seen, here in our plan, what I think is that the fundamentals of our plan are very, very strong. Having said that, I would say that we are looking, just because of the context that we have presented, the high inflation, high interest rate, uncertainty in the regulation, we are looking for having a strong financial discipline, and I would say a strong cash flow generation.
For sure, this will enhance us to accelerate the pace of our investment in the future once we have regulatory visibility. So, we have room to do that. And even more, we have tried to be probably prudent in this step now, looking for what is going to happen in the future. If things go better than what we think, for sure, we will think there is gonna be a lot of opportunities in network, in the non-mainland, even more in the renewables in the future. So there are many things to do, but what we have been looking for in this plan is to have the strength and the flexibility to could afford this situation in the best position.
That I think that the plan give us this power, fire, let's say that, to do that. If don't go up, it would be a huge mistake because I think that we are talking about the energy transition, the climate change, and all these kind of things. But if not, if taxes increase, if regulation it's gonna be even more tough than the one that we have today, we will see what happened. But it is clear that this is not a reasonable framework for us in the future, but we will see what we could do. And, Marco, could you?
Yeah. Thank you, Pepe, and good morning, Alberto. Thank you for your questions. Going to question number one, yes, you got it right. It's the side, our variable part that is actually causing the increase in our expenses for our debt, and that we are trying to bring back somehow under control. Just to give you some figures, there you have to assume that we have the fixed part of our debt that is around 3% and will represent slightly more than 50%.
On the other side, there is, on the variable part that is, that is relevant, that of course has been, has been rising a lot, and that of course, looks like to be probably, given our scenario, very in line with today in 2026. But, you know, with, has been rising very, very, you know, very, very quickly, and, and therefore is somehow, you know, impacting us.... at, net income, net income level. Coming to question number two, regarding the, the, the targets in, 2026, and, basically what is, behind that.
If we go to the free power margin, actually, what we have seen is that there is an expansion in the supply margin. You know that today we are approximately at EUR 14 there, and we see an expansion there. But on the other side, you know, we see a reduction in the short position, because as you have seen in our plan, if you couple the fact that, on one side we lower our index sales, and on the other side, we continue growing in renewables and signing PPAs, we are going to close basically almost all our short position.
And that's what you have behind the free power margin. When you come to the gas margin, then here, I want to remind everybody that in the previous plan, what we had was actually the sale of the gas, and therefore we had no results for the gas in the plan, basically. While now, we have decided just to keep our position in gas, both in retail and the rest, and therefore, you know, there is also this marginal contribution that somehow kicks in in the plan. And regarding the leverage and step-up, you were asking for, you know, numbers.
What I can tell you there is that, like probably others, we are below our cap. We believe that, you know, the investments that are needed are even on top of the cap that actually is set by the regulator. So, I mean, the increase there could be relevant. And, also remind you and all our friends that basically we have also the regulated part in the islands, with all the generation that is regulated, but that is very old and where we see a need for new capacity. And there, I mean, the investments are not measured in hundreds of millions, are more measured on billions.
That's why somehow we are getting ammunitions, we are getting room for, you know, increase in the, in the investments that we, we believe could, you know, have a high probability to come. And that's why, you know, trying to prepare for that. Thank you.
Okay. We move now to JP Morgan. Javier Garrido, please go ahead.
Yeah, good morning. Sorry to come back to the post-2026 question, but, do you... I mean, it would be great if you can tell us, what do you think your reasonable sustainable leverage should be? Because even if we were to exclude the partnerships as a rotation proceeds, you would still be below 2x Net Debt to EBITDA by 2026. So I really, really struggle to understand why you have to go to 1.4x, even if you have these opportunities that you have just outlined. It's reflecting massive, big opportunities, or is it reflecting that in 2027 to 2030, you are factoring in a further decline in power prices and therefore a decline in EBITDA, and therefore you need to be very prudent now?
You can cast a bit more of light, because honestly, the 1.4 times number is passing. The second question is on the near term, the opposite. If I remember correctly, your latest guidance for 2023 was that you were targeting the top end of the EBITDA guidance of EUR 4.44 billion-EUR 4.7 billion. Now you are talking of EUR 4.5 billion pro forma. Why it's now EUR 4.5 versus the top end? And then the last question would be on the EUR 2.8 billion cash inflow from partnerships and asset rotations. EUR 2.8 billion is a very large number, and you don't seem to be assuming asset rotations in renewables, because you are adding 3.9 GW in the period.
So does it include anything else outside renewables? And specifically, are you including, again, the sale of gas contracts in line with the 35% reduction in gas sale targeted? Thank you.
Thank you, and good morning, Javier. Thank you for your questions. Question number one, so regarding the 2026, the short answer, yes, we do see bigger opportunities. Now, just to give you clues, you know, we got, for example, you know, there is a... As I said, there is a lot in regulated networks, a lot, potentially a very big number. There is a lot in the islands, potentially also there a very big number, and there are many other things. Like for example, you know, things that we didn't put in the plan, but where we are somehow getting grants, for example, for expansion in the hybridization of some of our plants. So there are many, many CapEx opportunities.
But of course, I mean, just to do that, we have to prepare, and by the way, many of those are not in our hands. I mean, it's are in the hand of the regulator that has to decide what to do and what kind of remuneration kind of rate of remuneration to put in place for the next few years. So, yes, the answer is because there are big opportunity, big investment opportunity. Then coming to question number two, in the near term, why the 4.5? Well, it's easily explained, unfortunately, for what happened related to the reopener. So what we are somehow taking, putting into the...
Plugging in into the 2023, it's the impact. In the guidelines, we are putting the impact of this related to the year 2023, and then treating the rest, of course, the previous, somehow the previous impact, the impact on 2020, year 2020, 2021, and 2022, as a side. So that's why we are correcting our guideline there. And, regarding, you know, question number three, so just to be clear here, the EUR 2.8 billion of cash in that we are somehow envisaging comes from partnerships in renewables, okay? So the gross investment in renewables is there because, of course, we will somehow think about maintaining the control, but the partnership are related to renewables.
And, you know, it's public information, it's new to the market, that we are somehow evaluating and exploring the market on our solar or on our operating solar. And as you've seen, we have plenty of new and big projects that will be developed in the next couple of years, where we are foreseeing also somehow partnership, and that's why the cash in. So, what we are assuming here in the plan is partnership into renewable assets. Thank you.
We move now to the following analyst, Jorge Alonso from Société Générale.
Hi, morning. Thank you for the questions. I have a couple of them. Please, if I may. The first one is, I would like to understand how much of the short position in electricity is included in the guidance, if any? Second, the amount of energy coming from PPAs as a procurement on the supply side that you are estimating for 2020-2026. And finally, what is the level of regulatory receivables that you are including as well in the net debt guidance? Thank you very much.
Thank you very much, Jorge, for your questions. So, question number one regarding the short position in the guidelines. Basically, you know, in 2026, you basically have no contribution because there are EUR 100 million in the guidelines, okay? So, basically you have. We have experienced, like, EUR 400 million in 2023, and we are closing this gap because, of course, we are closing our short position with somehow the sales on one side and the generation that we are, the renewable generation that we are building.
So regarding the question number 2, that is related to PPAs, we are assuming, you know, in 2026, approximately between 4 and 5 TWh of PPAs available. So, we are now, I would say, not even half of that. We are assuming that we could get, and we could basically double them by 2026. The third one, regarding the regulatory working capital, basically what we are assuming, it's a, it's a number that is, frankly, higher than, slightly higher than, than the one that we see as, as closing, of, 2023. So we are assuming approximately EUR 1.5 billion of regulatory working capital in, in the, in the numbers.
Next question comes from Jose Ruiz from Barclays.
Yeah, good morning. I just have two questions. First of all, if you are including in your guidance any capital gains from any disposals, any capital rotation? Secondly, there was news in the press that you were actively negotiating with the government about improving or removing the cap on CapEx in networks linked to GDP, if you can update us on that? Thank you very much.
Okay, José, I will try to answer the second, the second one. We, we, as we have said, before, we have a very firm relation with the regulator and with the government, in the sense that we comment on these, very important issues for the energy transition in which we are aligned and involved and committed to. In that sense, as I have said, and, and all the regulators, the international, International Energy Agency, et cetera, declared that, the, the network is gonna be one of the drivers or could be a bottleneck, of this, energy transition. In that sense, it, it is clear, and if you see the figures of the, the, the energy and climate plan of Spain, I would say that it would be needed, it, almost to double the investment in the grid.
So to do that, it would be necessary, yes, to remove this gap in the investment in the network. And also, it would be needed a fair and predictable and incentivizing remuneration model in the network. All of these things, I would say that the regulator is aware of this thing. That doesn't mean that they are going just to give us the reason in the sense to approve what we are asking for. But, I could say that they are aware of that, and they will, in my opinion, change this remuneration framework looking for more incentivizing incentivize more this network this investment in the network.
They will, for sure, remove, increase, or whatever the, the cap in the, in this investment.
If I may, José, on capital gains, so question number one, no, we haven't included any capital gain in the business plan numbers. And if you allow me, also, there is, I guess, a missing piece on the question of Javier regarding... He was asking explicitly whether in our cash-in there was potentially, again, some gas proceeds coming from, I don't know, sales of gas business and so on. No, we are not foreseeing any sale of the gas business, so we still will have somehow our gas contracts that will start to elapse.
You know, that there is, there is one that will elapse in, in the beginning of 2025, and then another one, basically at the end of 2026. And, but we are, we are maintaining, we, we are planning to maintain, the business there. Thank you.
Okay, we move now to JB Capital, Jorge Guimarães. Please, Jorge, go ahead.
Good morning. I have three questions. The first one is related to the asset rotation program. Looking at your figure of minorities of EUR 0.1 billion, it seems to suggest that you are going to sell existing assets because they would already be generating significant net income. So my question is: would you be looking to sell a minority stake in what was the old Enel Green Power, or simply asset by asset? This is the first one. The second one is, you seem to be guiding for a higher gas margin versus gas prices than what was before COVID. And would be- would this be related to the mix because you are considering more retail and less CCGTs?
The final one, is it possible to provide any sensitivity of the EBITDA in 2026 versus the pool price assumed in Spain? Thank you very much.
Okay. I will try, Jorge, just to answer the second, the-
The microphone.
Microphone. I forgot it. Yeah, yeah. Sorry, sorry. Jorge, I will try to answer the second question about the gas margin and what is embedded in this margin. First of all, you should have taken into account what had happened in our gas business in the year 2023. The first thing is, as we explained in the last result presentation, is the how we had been affected, yes, because of the very high prices and the mismatch between the TTF and the PVB, the reference price in Spain, in the year 2022. That has penalized us in the year 2023. I remind you that there are two main reasons.
One of them is the volumes contracted, and the volumes finally supply, with a huge reduction due to mainly the very high price of gas and the decision of some customer just to reduce or even more to close the consumption of gas. That impacted us something around EUR 100 million. And then the other is this mismatch between TTF, PVB, that impacted us around EUR 300 million. So we're talking about 400, and as Marco has said, taking into account the impact of the reopener in the year 2023, we are talking about lower than EUR 100 million. But all in all, we are talking about 500, EUR 500 million, which is a huge amount.
Even having that, we are going just to be in the guideline. Could be in the low range of the guideline, but we will fulfill our commitment. On the other hand, what we have in the future is we are selling more gas to the B2C segment. And also, I would like to add that even the reopener of the gas, the formula that we have today continues being competitive. We really think that we will be able just to recover part or even the total amount that we have been penalized by it.
Thank you. Thank you for your question, Jorge. On, yes, on the asset rotation, just to confirm that this is basically something that we're thinking on partially, only partially. We're talking about some solar assets, you know, the existing ones, but mainly it's future projects of renewables. Okay? And we will see whether it will be package of assets or assets by assets. I mean, it's, and you know, we're still something that we're still deciding on. Regarding the gas margin, yes, you got it right. Part of the increase in gas, it's because of the mix, because there are, you know, there is more B2C there, with declining quantities.
But, and the other part is related also to the gas scenario, that it's, you know, somehow different to the one that was years ago. And, I will also add there that this margin that are related to the competitiveness of our gas contracts, you know, we have been even able to lock, I would say, half of the margin that we do expect for the plan period. And in terms of the question number three, that, if I understand correctly, was related again, basically to prices, to the power prices and the assumption behind that in our sales.
Just to be clear here, in 2024, as I said, we have clawback, so you know that we sell our production. There is a clawback set at EUR 67, and we sell basically our production, and at that level. But also for future years, so meaning 2025 and 2026, I mean, the ending level, we're not selling at the market price. What we are seeing, it's coherent with the limit set by the gas, by the gas clawback. That's by the clawback. That's why, you know, I was saying that it doesn't change much in our numbers, whether the clawback is there or the clawback is not. Thank you.
The next question comes from Rob Pulleyn from Morgan Stanley.
Hello. Thank you for taking a couple of last questions, if I can. So firstly, you talk about the regulatory working capital recovery in the fourth quarter, which I believe is similar to what you said at your nine-month presentation. I was just wondering, what confidence can you give us this is on track? Have you received any of those cash inflows so far, or is it all still ahead of us? Question two, on slide 26, you talk a lot about reducing OpEx and sourcing cost. I was wondering, is this... Should we consider this similar to the cost efficiency plan mentioned by the parent company, or do you have a separate cost efficiency plan beyond these OpEx reductions?
Just trying to understand what's what on reducing the cost to operate. I think all of the rest of the questions have probably been asked, so I'll leave it there. Thank you.
Thank you very much, Rob. So on the regulatory working capital, I mean, it's, it's, you know, I'm, I'm the one I'm, very, very suspicious as well, you know, since, since the beginning on that. But, but yes, we are receiving, we are receiving, flows of money.
... and we are receiving also, let me say, all the things that are needed just to then proceed with a reimbursement of this amount. So, I fear that this, in any case, will come by year-end. That's why we're still giving a range in our projections regarding the debt. But it is something that should be really coming. If it is not by year-end, I mean, it should be at the beginning of next year. So I mean, we are pretty confident on that.
Regarding your question number two, related on the cost reduction, yes, of course, is in line with the effort that has been done, and we are starting actually to do at group level. But of course, I mean, you know, we have our own specificity because, of course, there is a different cost structure, and therefore we have you know, our plan is fitting our somehow our particular situation. You remember that we have been starting to talk this, you know, also in the previous, when we were starting to somehow commenting the results at the beginning of the year and so on.
This is an effort that will be even higher right now, because, of course, of inflation biting us, and that's why we have to put even more effort into these plans. Thank you.
Okay. We move now to Maike Becker from HSBC . Please, Maike, go ahead.
Thank you very much for taking my questions. I have three, if I may. The first one is on the timeline of non-mainland investment. So, I mean, you outlined you, you are positive about the volumes, but I don't know, in the horizon between 2026 and 2030, where, where should we think those investments coming in towards the beginning, towards the end? That would be question number one. Thank you. The second one is a follow-up on your remarks on renewables. I believe you said, I mean, there might even be investment opportunities in renewables further out. So I was wondering what, what you're seeing there. Is that related to, to hydrogen and, and that sort of like, some uncertainty here? Or, or what do you see in long-term opportunities in renewables? Number two.
Number three is, would you mind commenting on the competition in the retail market and, sort of like, what are the risks that we might sort of like perceive to your plans to further reshape your retail portfolio? Thank you.
Okay. I will try to give you some color, and then Marco will explain more deeply these three questions, Maike. The timeline of a non-mainland investment. Well, the system operator of Spain has said that it would be needed more than 1,000 new capacity by the year 2028. That means that, taking into account all the procedure that we should follow, the winner of these procedure, I would say that it would be the investment at the end of the plan, of this plan 2024, 2026. Perhaps just only one thing talking about the hydrogen.
Well, we have no hydrogen in our plan, no meaningful hydrogen in our plan, because we believe that at least up today the technology doesn't have the maturity just to be commercial, and it need a lot of subsidies just to go, to go ahead with. We really believe, as I have started saying in my presentation, that the main measure just to go ahead in the future, on top of the shutdown of the fossil fuel power plants and on top of the increase in renewables, is the electrification of the demand. And the hydrogen would be something complementary to the electrification of the demand, but the aim, the main objective would be the electrification of the demand.
But I think that the hydrogen will play some role in heavy industries, also perhaps in the transport, but thinking about trucks, et cetera. But we will see, not in my opinion before the year 2030. Talking about the renewables, I would say that what it is important, very, very important, is not only to increase renewable but also to increase the electricity demand. That is the reason why the electrification is, again, one of the key drivers. Because if we don't do that, it's gonna be very difficult to introduce all these new terawatt-hour coming from the renewables.
about the retail market competition, I would say that we maintain during all our plan, a very high competition, in the sense that we are using a churn rate around 17%. With this very high, the one that we have this year, 2023, I am convinced that this very high competition will decrease. But in this plan, we maintain a very high. That is the reason why we are going to focus in the different segment of customer, mainly in retail. That is the reason why we want to offer bundle product and services. We want to increase the loyalty, and as you have said, we increase our free power market in 6%. That means four hundred thousand customer.
But on the other hand, we are going to reduce a little bit lower the regulated B2C power customer. But Marco, could you?
Yeah. Thank you, Pepe, and thank you, Maike. Just a few numbers there on your question. On number one, you were saying, "When could this happen in the mainland?" I mean, we foresee a tender for new capacity in 2024, because there is so much need in the islands. Regarding question number two, on the investments on renewables, yes, we confirm there are not in the plan period, there are no investments in hydrogen. But yes, there are investments on BESS, actually, on batteries. There are some hybridization, and of course, there could be potentially more than we have plugged in into the business plan.
And regarding question number 3, competition, yes, what we do see, given that the prices in our scenario are somehow going down, we do see potentially also an increase in competition. And therefore, what we plugged in our business plan was basically, are we growing our sales because actually the demand is growing? No, we are not growing our sales despite the demand growing. On the other side, we plugged in also investment in customers in order to maintain our shares, and then, of course, in the B2C, try to increase our share by 400,000 customers.
To do that, we plugged in CapEx into our business plan in order to, you know, keep happy, you know, bundle our customers. Thank you.
Now we have Pedro Alves from CaixaBank.
Hi, good morning. A couple of quick questions from me. So on the topic of renewables and the PPAs trade-off, now that CapEx levels are in a clear downward trend in solar PV, can you give us a bit more color on your sourcing strategy for PPA, and particularly the level of the PPA price range, where you feel it is more accretive for you than building the renewable plant on your own?
Secondly, I'm sorry to insist on this, on the EUR 2.8 billion target of partnerships, can you give us a little bit more detail on how much could be partnerships and asset rotation, so basically between operating and assets and pipeline, and how much of this is secured or in a very advanced stage of negotiations? And thirdly, CapEx in renewables seems a little bit high compared to the additions that you are foreseen in the plan. Can you please share the unitary CapEx assumptions by technology, and how much CapEx is included in your plan for repowering and battery storage? Thank you.
Thank you, Pedro. So, let's see. Question number one, regarding, our PPA strategy and, the fact that, the CapEx on solar are going down. Yes, probably the cost of the solar panel is going down. Other factors are not going down. And here what we do see, is basically, that we do feel that, you know, PPAs below EUR 45 could be interesting to us. Okay? Basically, I mean, the short answer, it's this one.
Regarding the question number 2, so regarding, you know, our partnership, what is of public knowledge somehow, and that we can disclose is that we are analyzing potential partnership right now on 2 GW of solar power plant that actually will be operational by the end of this year. That's where we are somehow in advanced stage of discussion. For all the rest has to be somehow to be seen. We have ideas, and we are, you know, preparing things, but let's do one thing, and then another.
And then on question number three, regarding the unitary CapEx for technology that we are just plugging in, I mean, you know, we discussed this a lot, what to put in the plan, and we thought it was kind of safer.
... despite the fact that we are seeing the price of the panel going down to foresee an increase. So, basically, CapEx per megawatt for solar around EUR 0.8. And for also in the case of wind, plugging in an important increase, so with CapEx of approximately EUR 1.2 million per megawatt. So, I mean, taking into account the fact that inflation is still high, and we wanted to be somehow on the safe side. Thank you.
Okay, sorry. We have now Gonzalo Sanchez-Bordona from UBS.
Hi, good morning. Thank you for taking my questions and the presentation. I just... Apologies for coming back to the gas outlook or the outlook for the gas margins, but since we are seeing such a relevant increase in margins, I'm curious about a couple of things as follow-ups. One, you mentioned that you have already locked in margins or around half of the margins on the gas for the plan. So I was wondering if you could provide a little bit more detail on that. Is that on half of the volumes that you expect to sell over the next three years, or is that you're referring to just the first two years? Or,
So basically, what do you mean by half of the margins already locked in on that front? And then the other question is, it's also related with some press article I think I saw earlier this week that was mentioning that you were potentially involved in more than one renegotiation or claim for a renegotiated price on gas contracts. So I just wanted to confirm that what we saw already this week on the reopening of the gas is the only process that you have open, and if not, whether you think there is any sort of risk on the gas margins that you are expecting in the plan coming from that. Thank you.
Okay, Gonzalo. Let me try to give you some color, and then Marco will answer again. Regarding the second question, if we have any other contracts, let's say, in arbitration or in renegotiation, well, I should say that we - today, we have 6 bcm. Half of them, that is three, based on Brent, and the ones based on Brent are subject to revision, reopeners on prices when the context change. The other three are not subject to any revision. That is the ones coming from the United States, based on the Henry Hub. Well, we disclose in our financial statement that we have two arbitrations ongoing. One is the this price review.
One is the what you know, that they have penalized us in this EUR 500 million, and the other is ongoing, but we would say that we are in negotiation with the counterpart. That is what we have. As I have said, the long-term LNG contract are subject to mainly, or in our case, the Brent-based are subject to price review because this is common in the sector. And its contract follows its own rules, I would say. And Marco, could you-
Yes. Thank you, Gonzalo. So regarding question number one on gas margin, so basically, I mean, here, what we are saying is that if you take the results of 2023 and you compare to 2026, there are basically EUR 600 million difference in the gas. So, I mean, you know, part of it, we said, comes from a different mix, it's coming from, you know, better return margin, but part of it also depends from the different market condition and the normalization of the situation. And of this, basically, what I was saying, you know, talking about 50%, is that, you know, basically, half of this EUR 600 million difference is something that we've been somehow hedging.
And of course, as typical when we do this, we work, you know, very much on the year that is close to us, on whatever is close to us, so 2024. Then we work less on 2025, and less, and of course, even less on 2026. But basically, I mean, the work that we have done and the sales there, you know, are somehow guaranteeing half of it. And in terms of renegotiation on the gas, I mean, do we have other renegotiation process open? Yes. Do we think this can impact our results, you know, materially?
No, but frankly, given what happened on, you know, on very few days ago, what we thought it was was fair to do in order to somehow being coherent with what we say, was fixing a flaw in our dividend policy. So somehow, you know, guaranteeing that, you know, we don't think there will be anything material there, but in case it is, there is a floor and there is a protection for all the shareholders. Thank you.
Now Garrido from JP Morgan is back with some further question, I guess.
Apologies, my follow-up question has been addressed. Thank you.
Okay, we move to the last analyst, that is Jorge Alonso from Société Générale.
Hi, a follow-up, thank you. Just to confirm that, as Marco said, that if the clawback in Spain is extended, you expect no impact on your guidance? Because what I thought is that the end sell price to end customers without the clawback would be maybe not the forward curve, but approaching to that, so not cap for the by the EUR 65 plus the regulated supply margin. So just to really understand that, this is the situation. Thank you.
Thank you, Jorge. So basically, I mean, it should not be material, a material impact, on the 2025 if we assume that. So, correct.
Okay, this was the last question of our call. Just remind you that, as always, our team will be available in case you have any other questions. Thank you for participating, and have a nice day.