Good morning and welcome to our first quarter 2019 results presentation, which will be presented by our CEO, José Bogas, and by our CFO, Luca Passa. Following the presentation, we will have the usual Q&A session open to those connected both on the call and on the web. Thank you for your attention, and now let me hand over to José Bogas.
Thank you, Mar, and good morning, ladies and gentlemen, and thank you for joining us today. As usual, let me start this presentation with the main highlights of the period. EBITDA increased by 5% compared to last year, mainly due to the positive performance of the liberalized business, despite market conditions having been unfavorable both in electricity and gas businesses. Regarding the regulated business, its stable EBITDA evolution contributed to 61% of total EBITDA. The ongoing efficiency effort resulted in a remarkable reduction of 5% in adjusted fixed cost. At the bottom line, net ordinary income remained stable over the period. Finally, let me remind you that a total gross dividend of EUR 1.427 per share on 2018 results was approved in the annual general meeting held last 12th of April.
Moving to slide number three, before diving into the details of the first quarter 2019 result, I'd like to review the main regulatory milestones of the first part of 2019. In January, the Spanish government, complying with the European directives, handed back certain regulatory powers to the CNMC. It will be responsible for defining the remuneration of transmission and distribution in electricity and gas, among others, and has announced the calendar of the circulares normativas for 2019. In the exercise of such required functions, a circular normativa containing the remuneration standards for the second regulatory period, that is, 2020 to 2025, should be published before year-end. In February, the government elaborated three separate documents for the European Union Energy and Climate Strategic Framework, the so-called Green Package.
In particular, the draft Integrated National Energy and Climate Plan, the PNIEC, established the pathway to align Spanish environmental targets for 2030 to the European Union while setting a specific milestone for the transition to a modernized economy. While these targets are certainly challenging, the plan represents a firm and achievable commitment. In view of the above, the European Union will issue recommendations to amend the plan by June 30, and the final plan is due to be submitted at the end of the year. In March, according to the draft PNIEC, we signed a protocol agreement with ENRESA and the rest of the plan owners, which defines the calendar for an orderly phase-out of the nuclear plants by 2035.
We think this agreement is positive, and it is based on the shared belief that nuclear technology is essential to provide competitive prices while meeting emission targets and ensuring security of supply. And it is on the latter that the agreement should be able to provide enough flexibility to ensure it going forward. In order to reach renewable capacity targets foreseen in the PNIEC, that is, plus 57 gigawatts, the government announced new capacity auctions on the island in which Endesa will be present. Currently, a specific pipeline is under development. On April 5th, the Council of Ministers approved the national strategy against energy poverty to be put into effect over a five-year time frame, that is, 2019 to 2024, developing the concepts contained in the Royal Decree 15 of the year 2018 and introducing the definition of energy poverty and vulnerable customers.
Finally, on April 6, the Royal Decree on Self-Consumption, regulating the administrative, technical, and economic condition of self-consumption of electricity, was published. The Royal Decree opens a very attractive business scenario for Endesa X, ready to participate in this new business as well. Now, I would like to comment on the market context in Iberia for the period of this financial release, as can be seen on slide number four, which was characterized by a number of factors, both international and domestic. Spanish electricity demand showed a decline both in gross, - 2.8%, and adjusted term, - 2.1%, affected negatively by milder temperatures in the period, especially in March, with - 5.9%, as well as by a reduction in the consumption by large companies, particularly due to the slowdown of the industrial customer activity.
In Endesa's consumption area, gross demand decreased by 1.7%, slightly better than mainland figures, while it increased 0.2% in adjusted terms. This development is mainly driven by higher industrial demand in the Catalan chemical sector and services activities, which could not offset, in non-adjusted terms, the drop in the residential segment for, say, temperature reasons. Electricity pool prices rose significantly to EUR 55 per MWh on average during the quarter, slightly below 2018 full-year price references and 40% higher than in the first quarter of 2018. Behind this price scenario lies the combined effect of the comparatively lower hydro availability and wind load factor and the material increase of CO2 prices since during this period.
In this setting, Endesa's total output dropped by 8%, largely due to the reduction in hydro and renewable generation, minus 28% and minus 6%, respectively, similarly to the Spanish system, while nuclear output, which was fully normalized after last year's stoppages, partially offset this reduction. Finally, as a consequence of all of these effects, CO2-free technologies increased their share up to 57% of our generation mix versus the 53% in the first quarter 2018. Now, on slide number five, we can see Endesa's power operational highlights. Electricity sales decreased by 5%, mainly driven by the drop in Spanish demand as a consequence of mild temperatures and the increase of competition. Total gross sales decreased 1.3 terawatt-hour, - 5%, mainly due to lower residential, while industrial sales maintained a more moderate drop.
You should take into account that commercial strategy launched by Endesa at the end of the year 2017 stemmed from a value-based management that targeted the rotation of the high-value customer, while triggering the exit of some industrial customers with very low margins along 2018. To the contrary, electricity customers remain in line with last year's figures, although it must be underlined the improvement in the mix following the switch between regulated and liberalized segment. Our objective remains keeping our overall market share fairly stable. Moving to slide number six, let me go through the main factors explaining the evolution of the unitary electricity margin. Electricity sales in the liberalized business decreased in Spain and Portugal by 4% in terms of volume, that is, 0.9 terawatt-hours. The unitary integrated margin in the electricity business increased by 16% to EUR 28.4 per MWh.
This remarkable evolution is mainly due to higher OTC reference prices and the positive impact of the temporary suspension of the generation tax, all of which more than offset the increase in variable costs arising from the higher commodity prices, particularly CO2. Also, worth underlining the soundness of our liberalized supply margin, which stayed comfortably above EUR 8 per MWh. Up to now, we have already hedged around 94% of our 2019 estimated output at an average all-in price of EUR 73 per MWh. As far as year 2020 is concerned, we have hedged around 46% of our estimated output at an average all-in price of around EUR 78 per MWh, corresponding mainly to hydro, nuclear, and renewable production. These price references correspond mainly to low-voltage customers, therefore, prices will gradually normalize along the year at around EUR 72 per MWh, similar to 2019.
Regarding slide number seven, the backdrop for global gas market affected the performance of our gas business. Total sales dropped by 10%, mainly in the wholesale activity and international sales, mainly in France. At the bottom of the slide, however, you can see that the number of customers slightly increased by 1%, consolidating levels of 1.6 million customers. Our unitary margin reduced to EUR 1.7 per MWh, very close to our 2018 full-year margin of EUR 1.9 per MWh, mainly due to the reduction in the diversion opportunities caused by the drop in global LNG demand, while the retail business remained remarkably stable. Among the main drivers of this lower demand, we can mention the milder temperatures, the Japanese nuclear restart, and the falling Asian demand.
We expect this gas oversupply situation in Asia and, to a lesser extent in Europe, to be temporary and LNG prices to partially normalize once this context is reverted. Up to now, we have already hedged around 90% of our 2019 estimated sales among retail, combined cycles, and diversion. As far as year 2020 is concerned, we have hedged around 40% of our estimated sales. Now, Luca will continue with the financial results.
Thank you, Pepe, and good morning, ladies and gentlemen. Moving on to slide number nine, the main financial figures of the period. EBITDA increased by 5%, while net ordinary income reduced by only 2% compared with the first quarter 2018. The main drivers behind this performance are the positive evolution of the liberalized business in a challenging market context for both electricity and gas businesses, while the regulated business remained stable compared to previous year.
The continuous effort in efficiency led to a 2% decrease in the fixed cost, 5% in adjusted terms. EBIT increased by 3%, affected by higher D&A in the period, as I will comment later on. Net ordinary income slightly decreased at 2% due to higher financial costs, mainly driven by the workforce provision financial update. As commented before, an important investment effort is being carried out, mainly in renewables and the digital transformation, translating into a sound 140% increase of net CapEx. Finally, net debt increased by 20% over full-year 2018 to EUR 6.9 billion, mainly driven by higher CapEx, the first adoption accounting entry of IFRS 16 for EUR 186 million, and the interim dividend on 2018 results paid in January this year, amounting to EUR 741 million. Moving to slide 10, let's now analyze the EBITDA evolution.
Endesa has reached EUR 928 million of EBITDA, + 5% versus last year, an increase which has been driven by the good performance of both the liberalized and distribution businesses, as well as by the ongoing efficiency drive with a 2% reduction in OpEx, 5% in adjusted terms. Generation and supply EBITDA rose by 14% to EUR 365 million as a result of the increase of the integrated margin that more than offset the degradation of the gas business affected by the aforementioned market conditions. Distribution EBITDA increased by 4% to EUR 501 million due to the increase of gross margin and lower OpEx. Finally, nominal generation EBITDA reached EUR 62 million, as I will comment in the following slide.
When it comes to the regulated business, on slide 11, EBITDA remained almost flat, up to EUR 563 million as distribution margin increased EUR 13 million, + 2%, mainly thanks to the contribution of Empresa Eléctrica de Ceuta and associated revenues. On the contrary, the nominal generation gross margin was EUR 17 million lower, mainly due to lower margin related to fuel as a result of the settlement mechanism in nominal, which used references with six months of delay. Fixed costs decreased 3% year-on-year, with the majority of the improvement in distribution. Overall, the regulated businesses contributed to Endesa total EBITDA with 61%. Regarding net CapEx, the vast majority is in networks, where asset development represents 40% of total CapEx as a consequence of the digital transformation in which our network is involved.
Moving now to slide 12, on the liberalized business, EBITDA reached EUR 365 million, or a 14% boost quarter on quarter, driven by an increase of EUR 42 million in gross margin. In power, the increase in the integrated margin was driven by the improvement of the reference prices that have been more than offset the rise in the variable costs arising from higher CO2 prices and the reduction of sales affected by the lower demand, and was also supported by the positive impact of the generation tax temporary suspension. Within the integrated margin, it must also be highlighted the positive contribution of Enel Green Power España, mainly thanks to the contribution of Gestinver. In gas, the worsening of the gas market conditions triggered a 30% reduction in gross margins to EUR 38 million, mainly affected by lower wholesale activity, as commented before by Pepe.
ENDESA X decreased by 13%, or just EUR 4 million, its gross margin compared with last year, affected by lower activity in the period. Fixed costs decreased around EUR 4 million, mainly due to lower O&M costs in a period of increased investment for growth, most of which devoted to renewable projects awarded in 2017 auctions, absorbing EUR 184 million, which will be in operations by 2019 year-end or before. Moving now to slide 13 on the PL evolution from EBITDA to net ordinary income. Starting from the EUR 928 million EBITDA, D&A increased by 9% to EUR 406 million. This is mainly due to the increase of amortization as a consequence of the strong investment effort carried out during the last 12 months, mainly in digitalization, and the update of the useful life in relation to coal plants implemented in 2018. Additionally, it includes EUR 7 million as a consequence of IFRS 16 implementation.
Net financial results increased mainly due to the update of financial provision derived from workforce restructuring plans and facility dismantling, which amounts to EUR 15 million, together with the adoption of IFRS 9 financial instruments for EUR 4 million and IFRS 16 leases for EUR 1 million. Net effect of these three amounts is EUR 20 million versus first quarter 2018. Stripping out these effects and other minor adjustments, net financial results would have just increased around 3% due to the reduction in the cost of debt, 1.8% versus 2.1% in first quarter 2018, partially compensating the higher average gross debt. The associates and other items remain almost flat in absolute terms. Income tax expenses amount to EUR 107 million, at 3% less than in first quarter 2018, basically explained by lower profit before taxes. The effective tax rate for the period has been 22.6%, similar to the 22.7% in first quarter 2018.
As a result, net ordinary income showed a slight reduction of 2% in the period. Moving now to slide 14 on the cash flow evolution from EBITDA to free cash flow. Cash flow from operating activities increased 13 times the figure of first quarter 2018, reaching EUR 335 million as a consequence of the following effects: higher EBITDA after provision of around EUR 30 million, working capital variation and others improved by 39% to EUR 544 million, mainly due to the decrease of the negative trade balance, higher cash in on nominal compensation, partially offset by higher inventories. Cash in income tax decreased 70%, mainly due to a lower refund than in first quarter 2018. Net financial expenses paid decreased mainly through the lower cost of debt, almost compensated by higher average financial debt in the period.
The increase on cash-based CapEx by 41% as a consequence of the development of renewable capacity and the digital transformation in which we are investing led the free cash flow to EUR 191 million in the first quarter. These figures improved by 45% versus first quarter 2018. Moving now to slide 15 on the evolution of the net financial debt. Net debts amount to EUR 6,897 million, EUR 941 million higher than the previous year, once considering the first adoption accounting entry of IFRS 16 for EUR 186 million. This increase is due to the free cash flow that was negative for EUR 191 million, as explained in the previous slide, and the payment of EUR 741 million in dividends corresponding to the interim gross dividend against 2018 results in the amount of EUR 0.70 per share.
The results of the above-mentioned effects led to a net debt in the first quarter 2019 of EUR 6.9 million, with a leverage ratio of 1.9 times. The net working capital has increased by EUR 71 million, up to EUR 881 million. Our gross debt structure shows an increase of the fixed interest rate share of 5 percentage points versus 2018, closing as a consequence of a strategy aiming at taking advantage of the current context in historical minimum interest rates to close long-term fixed-rate hedges. Gross debt has an average lifespan of 5.2 years and an average cost of 1.8% at its historical lows, which implies a further reduction versus 1.9 reported at the end of 2018. Financial liquidity amounts to EUR 3,340 million, out of which EUR 235 million in cash and EUR 3,105 million available in credit lines.
As announced in full-year 2018 results presentation, Endesa signed this quarter the first Green Loan with the EIB for over EUR 300 million at very attractive terms. Likewise, we are working on a similar transaction with the aim to efficiently finance our energy mix evolution. Moving now to slide 16, let me hand over to Pepe for the conclusions.
Thank you, Luca. And to close this presentation, I would like to conclude with some remarks on our performance during the first quarter. First of all, the resilience of our liberalized business, despite the adverse market condition, coupled with a stable regulated business evolution, underpinned the positive EBITDA result. Our strong investment in CapEx, mainly in renewables capacity development, led the energy transition, while we confirmed the 879 MW of renewable capacity under the 2017 auctions will be in operation by year-end or even earlier.
In this new investment cycle, we are continuing to maintain our high standard of efficiency. Lastly, we are confident that this set of results will allow us to meet 2019 announced guidance. Ladies and gentlemen, this concludes our first quarter 2019 results presentation. Thank you very much for your attention. We are ready for taking some questions.
Thank you, Pepe. We will start now with the Q&A session. Ladies and gentlemen, if you have a question, please press star followed by one on your telephone keypad now. If you want to withdraw your question, you can press star followed by two. When you're asking your question, please make sure that your line is unmuted locally. The first question comes from Harry Wyburd from Bank of America Merrill Lynch. Good morning, Harry. Please go ahead.
Hi, morning everyone. Three questions for me, please. First on provisions, looking through the earnings report, it looks like you booked 12 million provisions above EBITDA and 15 million below, if I'm not wrong. I wonder, why did you not strip those out in the ordinary net income? Because ordinary net income would have been about 20 million higher on my math if you'd stripped them out. Do we expect any more provision activity in the remainder of the year that we should take into account? That's the first one. Then the second one on your unitary revenues, this is slide six. I believe last year, if you look at the transcript for your full-year call, you'd flagged that you'd hedged your 2018 unit revenues at EUR 64 MWh, and the number for first quarter 2018 is also EUR 64, so that's in line.
This year, a few weeks ago, you mentioned a figure of EUR 74 for full-year 2019, but the number we see here on the slide is somewhat lower at EUR 69, so I wonder why your realized price in the first quarter of 2019 was so much lower than what you mentioned you'd hedged earlier, so that's the second one, and then thirdly, on the non-mainlands, you mentioned the negative impact on the fuel margin settlement. What's that compared to your guidance? Was that something you were expecting, and do you expect that to reverse or change in the full-year results? Any thanks?
Okay, thank you, Harry. I will try to answer the last one, and I will pass the two first questions to Luca. With regard to the non-mainland reduction, you should take into account that the settlement of these businesses is made with the average of the last six months. I'm talking about commodities. It is, or we have a seasonal situation due to the conjuncture of the fuel cost evolution. This situation, for sure, will be recovered in the coming quarters.
Hi, Enrico. Good morning. Regarding provision, I mean, why they are not stripping out of the ordinary EBITDA? Because ordinary EBITDA has been defined at the end of last year, and what we adjust in ordinary EBITDA is just for basically impairments regarding physical assets as well as capital gains or capital loss on the sales of assets. I can explain the EUR 50 million provision below EBITDA regarding to basically the financial update of the workforce provision, and there basically we suffered a decrease of interest rate of about 40 basis points in the first quarter this year, which has not basically happened.
It was flat interest rates in the first quarter of last year, and that affected for EUR 15 million basically the financial cost. We are not expecting, at least for what we see now, further reduction of interest rates during the rest of the year. Therefore, we shouldn't expect any other impact for the remainder of the year regarding financial provision for workforce below EBITDA.
On the third question regarding the, sorry, on the second question regarding the realized price that we see regarding what we say on our hedging activity, I mean, you should take into account that low-voltage customers are added towards the end of the hedging, and those customers basically draw down the final realized price when it comes to hedging. So also this year, 2019, so for the next year, 2019, we said that we have hedged about 94% at EUR 73 MW hours as of today.
You will see a realized price next year when we discuss first quarter, obviously below this number.
Thank you, Harry. Next question comes from Anna Maria Scaglia, from Morgan Stanley.
Good morning, everyone. I have a few questions. The first one is regarding the gas unitary margin and integrated unitary margin evolution in electricity. What are your expectations for the remainder of the year, especially for gas, given that your guidance was predicated on an increase of this margin? The second question is regarding the electricity sales. We have seen this drop in volumes, and of course, there was a seasonal effect, and we know that you want to maintain this stable market share. But what's the impact of this increased competition? Are you worried about that, or are you still comfortable? The third question is regarding NLX. We have seen this drop in margin.
I was wondering if that's seasonal related to specific contracts or something else we need to take into account. And last, the D&A, you haven't adjusted them for the nuclear life extension. I was wondering if there is any plan on that, or we will have to wait for the end of the year. Thank you.
Okay, Ana María, I will try to answer your second question in terms of the electricity market and how do we feel about competition. First of all, that I should say is that the competition in Spain had been very high during the last years, and at least in my opinion, we have dealt with very successfully. So we are not worried about this competition.
As you know, we have changed our strategy, focusing on the most valued customers, the ones that we could give them more value, or we could also obtain more value from them. It is true that in this market, being the incumbent, the way ahead is just to reduce our customer base. That is normal, and we are not worried about this. What it is important for us is just to increase the value of our customer base. We continue switching customers from regulated to liberalized market. We have a target just to increase during this strategic plan or business plan to increase almost one million customers of liberalized customers. So at the end, we could reduce a little the number of customers but increase a lot the value of these customers.
Thank you, Pepe. On the first question, evolution of integrated unitary margin and then on gas, obviously the evolution will reduce in terms of integrated margin that we're going to reach for the full year. We had a strong first quarter with 28.4. You should see basically a drop towards the remainder of the year towards 25 for an average, I would say, integrated margin of about 26 for the full year, which is about one year above our business plan expectation. As far as gas, we are basically currently EUR 30 million below our business plan expectation for the full year, 2019. We have obviously some levers to recover partially this gap, but obviously the gas market context is in the situation that Pepe has commented before.
And then, regarding NLX, yes, we have a drop of EUR 4 million vis-à-vis first quarter 2018, but with respect to the business plan, it's just one million drop for the first quarter. Evolution for the remainder of the year is basically an expectation of gross margin of about EUR 140 million for the full year and an EBITDA contribution of about EUR 60 million for the full year. There are no particular seasonal effects. I mean, the first quarter is always probably the less strong in this kind of business for NLX.
Then finally, on nuclear useful life, yes, we haven't adjusted our nuclear useful life after the signing of the ENRESA protocol, and that's because the ENRESA protocol, as you know, is based on the national energy plan, which at the moment is in draft form, indicative, and needs to be finalized with the European Union towards the remainder of the year. So we will decide during the year whether we need to adjust or not. Bear in mind that the impact in terms of increased D&A for Almaraz I and II, which are the plants where we actually asked for an extension shorter than the usual extension of 10 years, is for a full year of EUR 15 million.
Thank you, Ana María. We have now Enrico Bartoli from Main First.
Yes, hi, good morning. A few questions on my side. First of all, if you can elaborate a bit on the impact of CO2 prices on your margins in the first quarter and what to expect for the full year, particularly if you can provide some details on your hedging policy regarding the CO2 price? The second question is regarding slide 14, where you have this almost EUR 600 million cash-out related to net working capital. Can you elaborate a bit on what to expect in terms of evolution from this figure over the next quarters? And finally, just, let's say, some flavor on the guidance for the year. You already stated that. How confident you feel about this, considering that you're lagging in the first quarter, the difficult outside environment? Thank you.
Okay, Enrico. I will try to answer the last question with regard to the gas market. I should say, I don't like to say that the gas market is like a box of surprises that you should have to manage like this. I will answer this question, and also I will answer the CO2 question. Let me say, the gas market has been very volatile for some years and will continue like this, in my opinion, up to the year 2021 at least, and there are multiple factors to take into account. The main ones are the drop in the LNG demand. This drop in LNG demand is mainly based on Asia. First of all, we have China.
As you know, throughout the year 2018, China, both gas, especially during the summertime, and storage just to cover the winter 2018-2019 demand. But finally, the mild weather conditions during the winter 2018-19 have turned China into a gas exporter instead of importer. The second effect is the Japanese nuclear restart, about nine gigawatts of nuclear capacity since 2015, with nearly five gigawatts of this capacity returning within the last year. First of all, we have a very low demand, mainly in the LNG. On the other hand, we have new supply, mostly the increasing supply coming from the U.S. Lastly, we have milder temperatures in Europe than expected. That means your gas needs were lower than planned. As a consequence of all of this, global gas prices have declined significantly since the end of the year 2018.
What we have seen is, with all these excess gas, how the coupling between the Brent, which has increased something higher than 20% versus the TTF gas price, which has declined a little bit more than 20%, has created a situation, a very tough situation that we have been dealing with during the first quarter. I should say that in the margin, we have reduced EUR 60 million, and mainly the EUR 60 million comes from the wholesale division because the retail in Spain has been remarkably good for us. What is going to happen in the future? I think that perhaps beyond September, we will recover a better condition in gas. In any case, we have been doing some kind of actions just to reduce the negative impact during this year.
That is in relation with the volumes we have been negotiating a reduction in our subsidy volumes, and we will be aware also of any opportunities to make a specific diversion that will happen for sure in the next month. All in all, what we think is that we will have a volatile market, but we are dealing, in my opinion, very well. And as Luca has told, we are expecting at the end of the year, for the full year, EUR 30 million less than our initial assumptions. But we have other levers just to really deal with this problem. In relation with the CO2, well, first of all, I should say that we have seen a huge change in this market.
If you remember, and if I'm right, in April, more or less of the year 2017, the price of the CO2 was something around five, could be 4.8. Then, last year could be something around 12, 13, and now we are in the level of 25. This has changed a lot, the market. The first thing that we have seen during the month of March and April of this year 2019 is the switch between coal and gas being much more competitive, the gas than the coal. This is something that will happen in the future. But just because of the special situation of the cost of gas, what we expect is an increase in the cost of gas, more or less the same levels in the price, in the cost of the CO2, and again, a switch from gas to coal.
We will be in this situation in which, being the marginal technology and with CO2 very high prices, it could depend on the evolution of the CO2 that, in my opinion, will remain at least during some time flat at the level of 25. And what it is expected is an increase in the prices of CO2. Let me remind you that the TTF, for the first time that I remember, was below the EUR 14 per terawatt hour. And our hedging policy will answer Luca.
Yeah, for the energy production CO2, we have hedged around 90% of our CO2 needs for 2019, which is basically the thermal output we already hedged for 2019, about 12 terawatt hours. Only 2 terawatt hours remains of basically combined cycles. And we have not hedged anything for 2020 because we haven't started to hedge our thermal production for 2020.
Regarding your second question on working capital evolution, yes, we have a negative working capital and others in slide 14 for EUR 544 million. Let me remind you, this improved substantially vis-à-vis last year by about 40%. The evolution for the remainder of the year is basically a reduction towards getting into positive figures in basically the last quarter of this year, and then finally, on the guidance, how do we see the year going forward from here onwards? I mean, basically the main risks that we see at the moment are the EUR 30 million, as I discussed before, of, let's say, expected less gas margin vis-à-vis our budget, then we have EUR 30 million of basically lower thermal spreads given the CO2 evolution that Pepe commented and the fact that the change in merit order vis-à-vis coal and combined cycles.
And then also regarding hydro output, as you remember, we had about 7.2 terawatt hours of expectation of output this year. Given the situation in the first quarter, we revised this to 6 terawatt hours for basically full year 2019, and this should affect for another EUR 40 million in terms of gross margin. Where do we see the opportunities in order to meet our guidance? Definitely the better generation and supply margin, as I commented before. We see EUR 1 more of integrated margin vis-à-vis our budget. This is mainly driven by better OTC references and also lower ancillary services cost. Then we see, obviously, basically an improvement as far as efficiency for another EUR 30 million.
As you've seen, we have managed to reduce vis-à-vis last year, and we'll continue to maintain this efficiency, I would say, rate towards the end of the year, notwithstanding we are investing much more than the previous years. And then, obviously, we had positive news basically in April regarding nuclear tax in Catalonia, which has been declared unconstitutional, and that should basically have a positive impact starting from the second quarter for 2019 of about EUR 20 million.
Thank you, Enrico. Next question comes from Javier Garrido from JP Morgan. Please, Javier, go ahead.
Thanks, good morning. I just wanted, if possible, to clarify the last figures discussed by Luca. When you talk about the reduction in the thermal margin of EUR 30 million versus your expectations and the EUR 40 million of lower margin due to the lower hydro output, should we assume that this is already factoring the overall EUR 1 per MWh improvement in your unit gross margin? Because all those items are part of the unit gross margin. In other words, is it fair to say that EUR 1 per MWh times around 80 terawatt-hours of energy management through the year is the net improvement in your gross margin for electricity?
It would be very helpful if you could clarify those figures. And then the second question is on the volumes for 2019 and 2020. You mentioned in the call that you expect broadly a flattish realized price at around EUR 73, EUR 72 per MWh in 2019 and 2020. That is based on your estimated output. Could you disclose what are the differences in coal and renewables output that you expect for both years? You just mentioned 12 terawatt-hour of coal output expected in 2019. What would be the figure in 2020 with the capacity closures? And what is your expected output from renewables in 2020 versus 2019? Thank you.
Well, let me try to give you some ideas about this estimated output and these prices of EUR 72 per MWh in one year and in the other. First of all, I should say that just because the switch between coal and gas, today the coal power plants are not producing very much. So we are in a situation, let me say, very close to the one that we are going to face in the year 2019, in which the competitiveness of the coal would be higher, but the production would be similar.
But the next year, we will have around 1,000 MW of new, that is the 879 MW coming from the 2017 auctions, that will really help us to improve our unitary integrated margin. We don't expect a huge contribution of the thermal capacity, the conventional thermal capacity, just because the very low spread that we will have in any case, being less or more competitive than the combined, just because the more production based on renewables.
Yeah, and giving you figures regarding our expected output, as far as coal, basically we have in 2019 an expectation of about 16 terawatt-hours, more or less, of coal. And obviously, this drops in 2020 to 13 terawatt-hours because obviously all the domestic coal, as you know, will be closed in 2020. So there is a reduction as far as coal production.
And as far as renewables, these numbers are based on just above four terawatt hours for 2019 and about more than seven terawatt hours for 2020. So obviously, there is a shift in the mix regarding these two items. Regarding your first question, I mean, yes, obviously, the hydro reduction with respect for the year, as well as worse thermal spread than what we budget for EUR 30 million. So in total, about EUR 70 million that affects the integrated margin. I mean, I'm not saying that we recover with EUR 1 of improvement, all this effect, but obviously, it's more than enough in order to confirm our guidance. So we will see the evolution towards the end of the year.
Obviously, we've been surprised of the realized integrated margin for the first quarter as well, and we will see the evolution towards the remainder of the year, which at the moment we expect EUR 1 better than forecasted.
Thank you, Javier. We have now Jose Javier Ruiz from Macquarie.
Yeah, good morning. Just two questions. The first one is if you could quantify what was the impact of a lower generation tax of 7% in the first quarter, of course. And secondly, if you're looking at EDP's hydro assets, if there would be any competition issue and if they make any strategic rationale. Thank you.
Thank you, Jose Javier. I will try to explain our position in the EDP potential disposal asset. First of all, I should say that any potential asset purchase will depend on valuation. So far, we are more interested in distribution and in the renewable asset Investment in CCGTs, in my opinion, are discarded. We will analyze EDP's disposal plan in search of potential generation assets, such as hydro plants in Portugal, that may fit strategically with our position, given that we already have exposure to this market and it is integrated with the Spanish market. Nevertheless, our first objective is looking for the creation of value for our shareholders. And with this idea, it's with the one that we will see this asset.
Regarding your first question on the generation tax suspension of the 7% for the first quarter, the net impact is about EUR 14 million for us.
We have now Antonella Bianchessi from Citi.
Full year in terms of contribution of this division to the gross margin. The second question is on MERDEC, if you expect the working capital to be reabsorbed during the year, and which are your estimates for the full year numbers? And finally, I wanted to know your view on the Viesgo assets, which are as well on sale.
Regarding Endesa X, as I mentioned, or Endesa X, as I mentioned, gross margin expectation for the full year is about EUR 140 million and EBITDA contribution about EUR 60 million for the. Basically, we expect a reabsorption of this negative working capital in the first quarter towards the positive figures in the last quarter, basically, of the year. And this obviously affects net debt expectation. We have an expectation on a debt of about EUR 7.3 billion basically at the end of 2019, and that also takes into account, obviously, IFRS 16 impact. And then.
As I have said, with a very clear priority, which is the creation of value for our shareholders.
Thank you, Antonella. Next question comes from Meike Becker from Bernstein. Have some problem with Meike. Next question comes from Manuel Palomo from Exane.
These renewable auctions in the islands, both in the Balearic Islands and the Canary Islands, do you have any view on what is the amount to be auctioned in these Q2 and Q3 2019 auctions? And also, well, regarding this item, do you expect then these auctions to be as competitive as the full year 2017 auctions? And do you feel like Endesa has any competitive advantage in them? And another one is just to follow up on the nuclear depreciation question.
Luca, if I'm not wrong, you gave guidance of what is the impact for the first two assets on which you have already requested the lifetime extension, but I wonder whether you could provide with what would be the impact, dual impact for the full fleet. Thank you.
Okay, Manuel, I will try to answer your first question with regard to the renewables in the islands. You're right in the sense that, if I am right, at the end of the last year, the government called for a wind auction in the Canary Islands for a total of a little bit more than 200 MW with an endowment of EUR 80 million for investment grants coming from the European Regional Development Fund, the so-called FEDER. The deadline of the auction was the beginning of April, and the official outcome is still pending.
I should say that we are developing our pipeline, and as we have said, we will be present in this auction. What it is clear for us is just because of our situation in the island, we will have the advantage of the synergies that we could obtain over there. With regard to the Balearic Islands, I don't know if there are figures in terms of megawatt. What I remember is that the endeavor was something around EUR 40 million that will give me the idea that should be half MW, that is 100 more or less. The deadline to submit offers ends in July, the beginning of July, more or less. Again, we are developing our pipeline, and we will be present also in these auctions.
Regarding the nuclear plants' increase in terms of D&A, yes, I gave the impact only on Almaraz 1 and 2, where we asked an extension, as I said before, shorter than the 50 years of life that we had in our balance sheet. For the full fleet, the impact would be just shy of EUR 50 million for the full fleet.
Thank you. I think that we have Meike Becker from Bernstein now. Meike?
Hi. I have two questions. The first one was, would you mind elaborating on the renewables pipeline you mentioned a little bit more, where you are now in terms of overall pipeline and maybe how that splits into wind and solar? And we have talked the second question a lot about 2019 guidance and outlook. Could you just also share your level of confidence that you have for your 2021 numbers now?
I think Luca could answer the pipeline, but let me say at the end, we continue developing the pipeline for the year 2020 and 2021. As you could remember, in our industrial business plan, we contemplated 500 MW in the year 2020 and another 500 MW in the year 2021. We are trying to have nine gigawatts of pipeline. To date, I think that we should have two gigawatts, more or less, but Luca will clarify this. In terms of the guidance for the year 2019 and 2020, again, with the results that we have obtained and our view for the future, we feel comfortable and confident to reach the announced guidance.
Yeah, on the pipeline, Meike, I mean, it's about 2 gigawatts of pipeline at the moment, and it's basically shifting towards solar with about 65%-70% of solar, and the remainder is actually wind. Regarding the second question, the 2020 guidance, I think the fact that we already hedged about more than 45%, 46% of our output for 2020 at such high prices obviously gives us confidence that the 2020 guidance is in reach.
The next question comes from Jose Alonso from Société Générale.
Hi, good morning. I have a couple of questions, please. Do you think that it could be an acceleration of your renewables portfolio, organic, or due to acquisitions due to the weakness in the thermal spreads or lower output may be expected on the coal due to CO2 prices?
The two remaining questions are, did you expect any impact on the corporate tax rate due to the government plans for the budget going forward? And the last one is on the thermal spreads, on the clean dark spreads, what do you think should change for the thermal spreads to recover? The weakness is due to the low demand? Is it because the thermal gap is narrowing due to the renewables? Is it just weather-driven? So what should happen in your view in order to see these clean dark spreads to recover again? Thank you.
Jose, I will try to answer the first and the last question. In terms of the acceleration of our organic growth in renewables, I would say that in our industrial business plan, what we have is the almost 900 MW coming from the 2017 auctions that could be in operation at the end or even before the end of the year 2019, and then we have another 1,000 MW, half and half, in the year 2020 and 2021. Having said that, the other thing that we have said is that we would like to reach something around 10%-15% of the needed capacity in the Spanish electricity system. That means that we will reach, more or less, at the end of the year 2030, 8,000 MW, more or less, but in any case, we will be aware of what is going to happen in the future.
And of course, our aim is just to improve our position in renewables, merchant renewables. So I don't discard that we could increase this figure that we have today. And in relation with the clean dark spread, well, many things happen. In my opinion, the most important thing is the increase in the CO2. As you perfectly know, an increase of EUR 1 per ton in the CO2 price impacts 0.5-0.6 in the wholesale price, that impacts 0.4 in the cost of the combined cycle, and 0.9 in the cost of the coal. So that means that these increases in CO2 prices reduce the clean dark spread of the coal.
Nevertheless, if the, let's say, gas prices increase in the future, let's say, because at least in my opinion, it's a seasonal situation, the one that we have today, this decoupling between the Brent and the TTF gas prices again disappear, trying to or recovering the normal situation of a certain correlation between these two prices, but we expect it to have an increase in the price of CCGTs and then an increase in the price of the wholesale. So again, increasing the spread, the clean dark spread. So it would depend on these factors mainly, this evolution. Nevertheless, let me should say that what we have discovered, let's say that, is that the forward of these coal power plants regarding the clean dark spread are very different in the spot prices, let's say that, than in the forward prices.
Because if the coal power plant produced, that means that the clean dark spread is positive. And depends on a lot of things, assumptions in the future prices in which we are seeing some difficulties because these clean dark spreads are negative. So you need to manage with care and really be aware of the opportunities to obtain results, and that is what we are doing now.
And José regarding your second question, whether do we fear an increase in, let's say, the corporate tax rate given the recent elections? I think it's very premature to state basically what could be the impact of any change in corporate tax. But definitely, I mean, from the electoral campaign, it appears to be clear that there will be some kind of increase.
I think we will evaluate as soon as the government is formed and they put forward, I would say, tangible proposals.
Thank you, Jose. I think that Antonella comes back with some additional question. Antonella, please.
Yes. Yes, thank you. Just to understand, so you are expecting a net debt for the full year of EUR 7.3 billion, if I understood well. Can you elaborate on the dynamics that are basically causing the increase of the debt?
Yeah, Antonella, it's Luca. Basically, the dynamics are driven by the increase in CapEx. I mean, we have an estimation of CapEx for the full year of EUR 1.8-EUR 1.9 billion, and obviously, that increase at the end of last year is what drives the increase in debt this year. I think we manage, obviously, to secure financing at very attractive cost in order to basically fulfill this increase in CapEx, and that's where this is driven. Bear in mind that the IFRS impact for the full year, as far as estimation as of today, is just north of EUR 300 million. So there is another EUR 100 million-EUR 150 million more vis-à-vis what we have stated in the first quarter. And then regarding, obviously, the impact of regular working capital, we have an expectation of about EUR 700 million, more or less, towards the end of the year.
Okay. Thank you, Antonella. We will answer now a couple of questions received by email. Isidoro del Alamo from BBVA and Elçin Mammadov are asking about if we expect some changes in Spanish energy policy following the recent election results, and also if the current government will fully eliminate the generation taxes.
Isidoro, let me say, first of all, we don't expect any material changes or relevant changes in the regulation with the next government. I should say that the most significant measures adopted recently are unlikely to change with a new government as they were approved to comply with the European Union authorities mandated. Besides, all mainstream political parties seem to be committed to the European Union 2030 target. And lastly, agree that the energy transition is a big opportunity for Spain. In this context, as I have said, we don't expect any material change. I don't know if that is. Yeah, the other question was on whether they're going to eliminate the generation tax. I think already they have stated there was a suspension for two quarters, so we don't expect, let's say, an elimination.
Obviously, as you remember, this was a reaction to very high pool prices, which affected the regulated bills. So unless we get into that kind of scenario, I think it's very unlikely it will be eliminated.
Okay. We have answered all the questions received so far. So that's all. Thank you very much for your attention, and have a nice day.