Good morning and welcome to our first half 2018 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 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 highlight of the period. I will start by pointing out the good results obtained by our liberalized business, with an increase of about 42% at EBITDA level in a context of normalization of market conditions during the first half. That, combined with the stable contribution of the regulated business, has increased by 6% in adjusted terms, has resulted in a 12% increase of overall EBITDA in the period. Fixed costs have remained substantially flat, as efficiency measures put in place over the last few years have been absorbing the effects of inflation and growth.
Regarding the bottom line, the sound performance of the liberalized segment and stability of the regulated business evolution have led to a 15% increase at net income level. Moving to slide number three, you can now find the main financial figures of the period. As just commented on, EBITDA increased by 12%, while net income by 15% compared with the first half of 2017. The main drivers behind this evolution are as follows: the liberalized business has shown a robust performance as a result of the recovery of the extraordinary market circumstances experienced last year. It has been positively driven by the favorable hydrologic evolution in Spain and by the better conditions in the gas market. Also, the regulated business benefited from the consolidation of the remuneration update in distribution.
Finally, net debt increased by 19% during the first half to EUR 5.9 billion, mainly driven by the interim dividend paid last January that amounted to EUR 741 million. Before analyzing the operational and financial performance of the period, let me briefly touch upon the evolution across the key pillars of our 2018-2020 strategic plan. In this context, just a few words regarding slide four on the new European Union’s energy policy target, one step further on the common road to decarbonization. Last June, the European Union Council agreed to adopt a new set of ambitious energy targets to increase renewable contribution from the former 27% to 32% of total final energy consumption in 2030, to achieve energy efficiencies of 32.5% versus former 27%, and finally, to boost interconnection up to 15% of total capacity. Our company is clearly committed to the above target.
On the right-hand side of the slide, you can see that this strategic vision for Spain presented in our business plan update is fully aligned or even assists European Union target while enabling us to comply beyond the 2030 milestone. To fulfill this decarbonization target, Spain will need to add more than 46 gigawatts of new renewable capacity and boost demand of electrification. Moreover, nuclear, thermal, and hydro, together with interconnection capacity, will have to play a key role to ensure security of supply in this period. Moving to slide number five, Endesa's 2018-2020 strategic plan intends to capture opportunities that arise in the energy transition. At this point, a brief update on the progress of each strategic pillar. Endesa is focused on maximizing value from customers.
We recorded a sound increase of 19% in the integrated margin, mainly as a consequence of our leadership in Spain and in our customer-based value-based strategy. Furthermore, Endesa X, our rebrand value-added service business, recorded a 6% margin increase, one of our growth levers. Committed to energy transition and decarbonization target, we continue to pursue and deliver growth, both organic and inorganic, in renewable capacity and network, as I will detail in the coming slide. Progressing ahead on the digital transformation of the company with around EUR 110 million in investment devoted to digitalization over the first six months of 2018. In line with the business plan guidance on efficiency, different measures put in place over the last few years led to an absorption of inflation and growth effects in fixed costs.
Last but not least, we are focused on creating value for our stakeholders, not only with a more than sound total shareholder return of 16% during 2018 after a dividend payment of EUR 1.382 per share against the 2017 result, but also with several initiatives aimed to contribute to the United Nations' Sustainable Development Goals. Moving now to slide six, let me elaborate on the progression of our growth commitments. On renewable, we have already identified the project awarded in the 2017 auctions, and we are finalizing the permitting phase after having signed supply contracts. We expect to be operative even before the official deadline of January 2020 and to be prepared for the auctions in Non- Mainland announced to be held in the second half of the year.
As announced last quarter, the closing of Gestinver purchase took place: 132 megawatts of wind farms with a total investment of around 170 million EUR that should contribute around 20 million EUR per year of EBITDA. When it comes to inorganic growth in networks, today Endesa closed the public offer for Empresa de Alumbrado Eléctrico de Ceuta, a company operating in that city with more than 30,000 supply customers and a similar number of points of delivery. The tender was affected by 94.4% of its shareholders, and the total financial investment amounted to approximately 83 million EUR. Regarding network, we continue our grid automation process with 97% of smart meter deployed so far, improving our loss reduction during the period by 3%. Let's move now to the three pillars leading the digital transformation we identified in our last business plan.
First of all, we are increasing digital contact with customers through the e-billing system, digital sales, and e-care interactions. When it comes to assets, our extensive digital metering plan, grid automation boost through smart remote control devices in our network, and large-scale batteries in generation are progressing according to plan. The advanced progress of our 20-megawatt pilot project in Litoral imported coal power plant, which will improve its flexibility in response to the fluctuation in the electricity system, should be noted. As far as our people are concerned, we have launched several initiatives to boost the digital transformation among our employees, such as the successful TechBar internal service model and our e-Talent program, which was widely accepted. During 2018, we have invested around EUR 110 million to boost digital transformation in the three main areas of action.
This amount, together with the EUR 300 million invested during 2017, represents almost 32% of the EUR 1.3 billion digitalization CapEx committed to in the 2018-2020 business plan. On the left-hand side of the chart on slide eight, we show the results of the many efficiency initiatives implemented over recent years, which allow us to more than absorb the effect of growth and the inflation impact on fixed costs. Now, focusing on OpEx optimization, the efficiency programs are implemented across all business lines. Regarding distribution, workforce optimization together with the continuous efficiency plans in O&M activities, the full deployment of smart meters, and new digitalization initiatives have led to a reduction in our unitary cost per client by 8%.
Likewise, in generation, continuous best practice sharing and improving program in each of the technologies, together with the efficiencies coming from digital plan, have kept our generation unitary costs flat despite higher factors. Similarly, concerning energy and power in Spain, several cost synergy initiatives have already made a 6% decrease in the unitary fixed costs possible. Lastly, the review of main processes and leveraging on the already commented on digitalization initiative enabled us to reduce by 7% the cost to service and supply, despite higher volume of service rendered to customers. Overall, we are well on track across the industrial pillars of our strategy to deliver our efficiency plans, and we are committed to progressing even further. Now, moving on to slide nine, I would like to comment on the market context in Iberia for the period of this financial report.
Electricity demand showed moderate growth rate in both gross, 1.2%, and adjusted term, 1.1%, affected negatively by lower temperatures in June compared with 2017, but recovering levels during July. In Endesa's concession area, gross demand decreased by 0.2%, mainly driven by milder temperatures during the period, especially in June, and likewise by the closure of some chemical plants as already advanced in the first quarter. Electricity prices showed a slight reduction of 2% during the first half of 2018, down to EUR 50.1 per megawatt hour, despite the recovery of hydro conditions leading to a 74% increase in system production. I should also say that reservoirs are currently over the average level of the last 10 years. The high prices of commodities and the planned and unplanned stoppage of three nuclear plants, Vandellós, Trillo, and Almaraz, avoided a greater reduction in electricity prices.
Considering the high prices in commodities, together with the likely increase of thermal gap in the second half of the year, market references of electricity wholesale price point to around EUR 57 per megawatt hour for the full year. Now, on slide 10, we can see Endesa's output decreased 7%, aligned to the reduction seen in the thermal gap in the period. Nuclear output affected mainly by Vandellós outage. On the other hand, in the first six months of the year, our hydro production increased 68% to 5.2 terawatt hour, whereas our expectation for the full year is about to reach output level well above 7 terawatt hour in line, with our average hydro production slightly ahead of business plan.
Regarding electricity sales, a 6% decrease in energy sold, as mentioned in the previous slide, is mainly due to B2B customers affected by the closure of some chemical plants and a result of our value-based strategy management targeting and retaining high-value customers. While the total number of customers remained almost flat during the period, a natural transfer from regulated to liberalized market occurred. In this sense, more than half of the customers who left the regulated tariff have been captured by Endesa as liberalized customers. The customer loss recorded during the first quarter has reverted in the second quarter, resulting in a positive net balance. Additionally, we are implementing a customer retention plan, which is expected to reinforce this positive trend during the second half of the year, allowing us to keep our customer base stable for the full year.
Moving to slide 11, let me go now through the evolution of the unitary electricity margin. Electricity sales in the liberalized business decreased by 6% in terms of volume. As a consequence of the positive hydro conditions and lower pool prices, the mix used to cover our sales commitment has been slightly different from last year. In this context, energy purchases remain almost flat when compared to first half 2017 at 11.9 terawatt hours, while mainland output decreased by 9% or around 2.7 terawatt hour, mainly due to a narrower thermal gap and the stoppage of Vandellós nuclear plant that was more than compensated for by higher load factor in our hydro and wind plants.
The unitary integrated margin in the electricity business has shown positive evolution, increasing by 19% to 25.4 EUR per megawatt hour, benefiting mainly from a higher unitary revenue, plus 7.3% to 64.5 EUR per megawatt hour, and a positive contribution of the short position following a different hedging strategy carried out for 2018. This unitary margin will convert to close to 23 EUR per megawatt hour along the year, slightly above our business plan assumption due to higher thermal output and high commodity prices expected for the second half of 2018. Also, it is worth mentioning that the current level of supply margin, close to 8 EUR per megawatt hour in the liberalized market, has been better than last year and is slightly better than guidance thanks to the better customer value management strategy just mentioned.
As of today, we have already hedged around 100% of our 2018 estimated output at an average all-in price of EUR 67 per megawatt hour. As far as the year 2019 is concerned, we have hedged around 52% of our estimated output at an average all-in price of around EUR 74 per megawatt hour. This price reference corresponds mainly to low-voltage customers. Therefore, prices will gradually normalize along the year, converging to 2018 levels. Regarding the gas business, in slide number 12, the recovery of market conditions has resulted in an improvement of the gas margins. Sales have decreased slightly by 2%, mainly due to the milder temperatures of the second quarter that affected residential demand in Spain. This was partially offset by higher sales to wholesale business, driven by international demand. There has been no relevant variation in the number of customers, which has maintained flat year on year.
Our ordinary unitary margin has increased to around EUR 1.1 per megawatt hour as a result of better procurement costs on some of our brand index contracts, as well as the recovery of gas price references. Now, I will hand over to Luca Passa, who will present details of our financial figures.
Thank you, Pepe. Good morning, ladies and gentlemen. I'm now on slide 13, focusing on gross margin, as seen before, and this has reached EUR 2.823 billion, 8% more than in our first half of 2017, a 7% increase ex non-recurrent impacts, which are related to mark-to-market and others in gas, small customer voluntary price rebuilding booked in the second quarter of 2017 for EUR 20 million, and previous year settlements in non-mainland that amounted to EUR 52 million, as highlighted on the left-hand side of this chart.
The improvement in gross margin is driven by both generation and supply, which is a plus 12% adjusted next to higher unitary margin in electricity, and the recovery in the gas and distribution business, plus 5% adjusted, as a consequence of the improvement in distribution regulated revenues. When it comes to the regulated business, on slide 14, the adjusted gross margin improved 4% as distribution already recognized the revenue increase awarded by the draft ministerial order published in December last year, contributing with about EUR 55 million in the period. On the contrary, the non-mainland generation gross margin remained barely flat in adjusted terms. Additionally, it must be stressed that the regulated businesses contributed to Endesa's total gross margin with 57%.
Moving now to slide 15, on the liberalized gross margin evolution, gross margin in the liberalized business reached EUR 1.227 billion, or a 12% boost year on year compared to the adjusted first half 2017 figure. In power, the recovery of adverse market conditions seen last year has led to a significant increase in the integrated margin, supported by higher unitary revenue and a balanced strategy followed in the management of the short position this year that has shown a positive delta of EUR 58 million. When it comes to the gas business, the improvement of these market fundamentals has meant a remarkable increase of EUR 30 million in the recurrent gross margin, up to 65. The main drivers have been the higher selling prices and the increased competitiveness of our portfolio.
As noticed, after a very strong first quarter, the recovery has been more moderated in the second quarter, and we now expect this path to be maintained along the rest of the year towards a guidance of EUR 100 million for 2018. Finally, I would like to shed light on the increasing contribution of Endesa X's business line, our rebranded value-added service business, with 6% growth at gross margin level compared with last year, being e-Home and e-Industry the main margin generators well on track to meet targets. Moving now to slide number 16, on the fixed cost evolution, total reported fixed costs reached EUR 1.09 billion in line with last year's figure. I would like to refer to the like-for-like fixed cost evolution.
Adjusted figures exclude mainly the update of the provision for obligation relating to ongoing workforce restructuring plans and the voluntary departure agreements provisions to deal with the redundancy plans, compensation, and other tax and labor risks, as well as other OEM non-recurrent costs booked in both years. On a like-for-like basis, fixed costs would have been slightly decreased, proving once again the delivery of the main initiative implemented, which allowed to more than absorb the effect of growth and inflation impact. Personnel costs on adjusted decreased by 1.1% due mainly to the reduction of the average workforce of 2%, about 200 employees. Moving now to slide 17 on the EBITDA evolution.
When it comes to EBITDA, adjusted EBITDA split by business line, and summarizing all of the already mentioned effects, it must be noted that a 12% increase, which has been driven by the good performance of both the liberalized and the distribution businesses. In this sense, adjusted generation and supply EBITDA rose by 26% to EUR 616 million. Distribution EBITDA in adjusted terms increased by 8% to EUR 1.12 billion, recording the effects of higher regulated revenues and lower OpEx. Non-mainland generation EBITDA reached EUR 176 million, slightly below last year once deducted one-offs. Finally, Energy and Power Spain EBITDA obtained a result quite aligned with the one of 2017, a first half figure, including about EUR 4 million from the Gestinver consolidation. These solid results updating the period allow us to feel comfortable in reaching the guidance established for this year of EUR 3.4 billion.
For the second half of the year, we expect a normalization of the integrated margin, as mentioned in the previous slides, that would converge to the €22-€23 euro megawatt hour expected. We also foresee a stabilization of the gas margin at around €100 million at year-end. On the OpEx evolution, the second part of the year usually attracts a slight seasonal increase. All in all, in the second half, we expect an EBITDA run rate approximately 8%-10% lower than in the first half, allowing us to meet our guidance. Moving now to slide 18 on the P&L evolution from EBITDA to net income. Starting from the €1,800 million for EBITDA achieved, depreciation and amortization increased by 7% to €751 million.
This is mainly due to the adoption of IFRS 15 in 2018 for an amount of EUR 23 million, while 2017 benefited from a reversal of impairment losses for about EUR 50 million. Without these effects, EBITDA would only increase of 1.3%. The net financial results increased mainly due to the following factors: the reduction of the cost of debt, which was offset by a higher average gross debt, the update of financial provision derived from workforce restructuring plans and contract suspension agreements, and facility dismantling, together with the adoption of IFRS 9. Income tax expense increased to EUR 228 million, negatively affected by the impact of EUR nine million resulting from a fiscal inspection. Stripping out this effect, the effective tax rate of the period would have been flat compared to the first half of last year. As a result, net attributable income increased by 15% in the period.
Moving to slide 19, on the evolution of net financial debt, starting from EUR 5 billion at the end of 2017, cash flow from operations was EUR 639 million positive, showing a clear sign of convergence towards a normalized level after the exceptional low figure booked last quarter. In this respect, we reiterate that cash flow will converge towards a normalized level along the year, just above EUR 2 billion for year-end. On the other end, cash outflow related to CapEx and other items amounted to EUR 862 million, including cash outflow earmarked for the Gestinver acquisition, as well as the related debt consolidation. It also must be noted that the regulatory working capital has substantially increased by around EUR 200 million, up to EUR 742 million due to the different number of regulatory settlements booked in both periods.
Finally, Endesa paid 748 million EUR in dividends, mainly corresponding to the interim dividend against 2017. The result of the above-mentioned effects led to a net debt at the end of the period of just under 6 billion EUR, with a leverage ratio of 1.6 times. Moving now to slide 20. As of the end of the semester, gross debt increased to 6.8 billion EUR, driven by an exceptionally high cash portion due to dividend payment on the following 2nd of July. Gross debt has an average lifespan of 5.4 years at an average cost of 2%, which implies a significant reduction versus the 2.3 reported at the end of the first semester of 2017.
When it comes to the mixed buy interest rate and currency, 52% of the company gross financial debt accrued interest rate fixed rates, while the remaining 48% accrued interest at floating rates, and 100% of the company gross financial debt was denominated in euros. Finally, Endesa liquidity increased to around EUR 3.9 billion, sufficient to meet debt repayments in the coming 32 months. Let me now hand over to Pepe for some final remarks.
Thank you, Luca. Now.
Okay, thank you, Luca. Now, I would like to conclude with some final comments on Endesa's performance during the first quarter semester. First of all, I want to remark on the continuous and timely delivery of our strategic plan, as well as the validity of its underlying assumptions. Our commitment with the full decarbonization of the economy by 2050 and strategic vision of the energy transition up to 2030 is now fully aligned to the initiative recently approved by the European Union. The strong EBITDA evolution supported by the sound performance of the liberalized business based on the proven flexibility and resilience of our integrated energy management strategy and the positive contribution of our distribution business have been once again the main factor of the 12% increase in reported EBITDA. Our constant effort on fixed cost contention across all business lines has enabled us to maintain a flat cost base.
All of the above has led to a strong bottom line figure, which represents a 15% increase compared to the first half of 2017. Lastly, these good results confirm we are well on track to meet 2018 announced guidance, and ladies and gentlemen, that concludes our first half 2018 results presentation. Thank you very much for your attention, and we are ready to take some questions.
Thank you, Pepe. We are now open to answer any question you may have.
For those of you on the phone line, please press star followed by one to ask a question. If you wish to withdraw a question, please press star followed by two on your telephone keypad now.
The first question comes from Alberto Gandolfi from Goldman Sachs. Please, Alberto, go ahead.
Thank you, and good morning. I have three questions on my end, please. The first one is a bit more on short-term earnings, say 2019 mainly focused. I'm trying to understand if I got it right. You were saying that half of your expected production is already hedged at about 74 EUR per megawatt hour versus 67 EUR in 2018. Did I understand right in saying that you do expect that over the course of the year that price will come down and therefore will be somehow close to 2018?
It feels very weird to expect that in the second half of 2019 prices will be down that much versus the 74. So probably I didn't understand right. And if I didn't, could you maybe quantify what upside do you see in 2019 versus your latest plan? Because I think that you were by far not assuming to hedge at 74.
I'm trying to figure out what you think is the upside risk to your 2019. Second question is a little bit more on the Spanish energy policy. I think in a slide you mentioned 46 gigawatts of new renewables effectively over just over 10 years to meet 2030 European Union targets. Considering some of the prices we are seeing around the world and some of the projections that you are seeing also for Spain, the question, I guess, is twofold. First of all, what do you think is going to be, over the next three to five years, the marginal cost of building solar and wind in Spain? Because some of the figures are between 20 and 30 euros per megawatt hour, and what do you think is the impact on the power price that that will have?
Secondly, what type of market share are you hoping to capture out of these 46 gigawatts? And the last question is about capital allocation. Assuming you were capable of increasing your CapEx in renewables in Spain, let's say Spain becomes a growth area again in renewables for you, would you be happy to continue to gear up your balance sheet, or would you be open to revise your dividend or your dividend policy? Thank you.
Okay, Alberto, let me make some comments, and then I will pass the questions to Luca Passa. First of all, you should take into account that the 74 euros per megawatt hour corresponds to low voltage, mainly, low voltage mainly. So that means that in the future we should add the high voltage that has lower margins, and then that is the main reason why we are expecting to convert to the 67, more or less, and then, well, I will pass the question to Luca.
Yes, good morning, Alberto. On this topic, I mean, obviously, for 2019, we hedged 52% at 74. What we are hedging at the moment is mainly what we call the price-driven type of production, i.e., hydro and nuke, and we are waiting to start hedging basically the core production. That's driven by the fact that we are seeing pressure on spreads as far as coal is concerned. So as of today, I mean, yes, we think we're going to, let's say, end up at a similar level of 2018 overall, but we still need to start to hedge on the core production. So as of today, I don't see, let's say, any upside vis-à-vis our 2019 guidance regarding our hedging policy. Pepe on the Spanish legislation.
Yeah. About the Spanish legislation, let me say, in terms of because I think I didn't catch well the question.
I can repeat very happily, sorry, Pepe. The question was about the 46 gigawatts of renewables coming, according to your slide, by 2030. What do you think that will do to power prices, considering we are seeing forecasts between EUR 20 and EUR 30 per megawatt hour, and what market share would you expect to capture from it?
Thank you again, Alberto. First of all, let me say that we would like to be one of the leaders in this transition period, so we will try to do our best in the deployment of new renewable capacity, but always, always looking for creating value for our shareholders. That means that we will take care about what we do. The second thing is about the prices in the short term, let's say that, with these costs of the renewables. What we think is in the next years, due to the very high commodity prices, as we are seeing now, perhaps the evolution of the CO2, we will see prices flat around EUR 50 per megawatt hour.
Alberto, regarding the third question on capital allocation, I mean, definitely the opportunities of growth in renewables is there, especially on the organic side. We are definitely committed to grow this business, and I would say we will update, obviously, the market with the business plan update in November, but definitely that's one of the key, I would say, growth areas for Endesa. How this, let's say, compares with gearing up the balance sheet, etc., and the dividend policy. Again, I mean, I think we have, let's say, flexibility to increase our investments, and this obviously will not, let's say, affect our dividend policies as of now.
The more obviously we invest, the more we will have to trim in case our dividend policy, obviously, is the growth that we are, let's say, expecting to deliver to the market is, I would say, much greater than what it is today. So that, I would say, is our priorities on the capital allocation side.
Thank you. Next question comes from Harry Wyburd from Bank of America Merrill Lynch, Netherlands.
Three questions from me, please. Firstly, just on nuclear lifespans, things have gone a little quiet in the press. I wondered if you'd had any dialogue with the new government on that issue and whether they've clarified their thinking on what kind of timeline they're going to look at for nuclear and coal closure. Then secondly, on pool prices, pool prices remain extremely high, perhaps higher than might be explained by just commodities alone, particularly given how well hydro is doing. The forward curve remains very heavily backwardated as well. Is there anything else going on in the Spanish power market? Is there some competitor behavior or something else that's leading to such high pool prices, which obviously negatively impacts your business model? And then finally, on slide 18, I just wanted to drill down on your net financial results line.
You mentioned that you had some workforce and facilities decommissioning provisions in there this year. Could you just clarify the exact amount of provisions booked in the first half of this year and the exact amount of provisions booked in the first half of last year in the net financial results line? Thank you.
Okay. In relation with the third question related to nuclear lifespan, let me say, first of all, that at least in our opinion, the early closure of the nuclear fleet would have a major negative impact on security of supply, on system costs, and on CO2 emissions. And in our opinion, it is impossible to carry out all nuclear decommissioning processes at the same time. We agree that there will be an orderly phase-out beyond the technical reference of 40 years useful life. The around 7 gigawatts will reach 40 years operational life starting in 2023 and finishing in 2028. So I think that it would be impossible to go ahead with this shutdown in this very short period of time. In any case, I should say that we have been talking with the ministry.
They are looking for the challenges that we will face in this transition period, and they are absolutely open just to look for solutions.
As far as pool prices are concerned, as you said, I mean, commodities, Harry, are really influencing what we see in terms of pool price. We don't see other, I would say, drivers to this improvement. However, as you say, it's a very peculiar situation in the market, and hence, basically, we haven't started to hedge, let's say, on this basis, our spread-driven production for 2019. As far as your question on slide 18, the provisions for workers' restructuring plans and contract suspension agreements and facilities dismantling for 2018 were minus 5, and for 2017, plus 10.
We have now Javier Garrido from J.P. Morgan.
Good morning. First question is specific on the Vandellós plant. Apologies if I missed that in your speech, but is the Vandellós plant back online and full capacity, or if not, when do you plan it to be online? The second question is on your energy management. You are guiding to a drop in the average unit margin in the second half. If the full year is on average 23, that means that in the second half, you are seeing 21, approximately. At the same time, you are talking of being fully hedged at EUR 67 for the second half all in. So that implies a very significant increase in the variable cost.
Is this linked to just the increase in the wholesale market price and therefore your purchasing cost, or should we expect to see a very significant increase in your average production cost due to the higher coal prices? Just simply, you could elaborate a bit more of the constituents of this evolution of the unit margin for the second half. Then the third question is on your renewable growth strategy. Luca just mentioned that that strategy is mainly organic growth-based. Could you let us know whether that organic growth is based on projects that you have developed by yourself since the last year's auction, or whether it is linked to acquisitions of projects in the initial stages of development, and what kind of, what size of capacity do you think you can be ready to build in the next couple of years in the Spanish market? Thank you.
Okay, thank you. Well, Vandellós is back online, but you should take into account that being stopped during this long period, we should test different things. We are back online, but probably we will test during Sundays, the next week, we will stop and test and whatever, but there is no any problem with Vandellós. I don't remember the second.
On the second question on the unit margin for the second part of the year, yes, we are assuming basically a stabilization overall for the year of 2022-2023, which means that the, let's say, the 45 terawatt hours expected for the second part of the year will come with a unitary margin of about €20. So on average, it's going to be between €22 and €23. As you say, this is linked to the increase in variable cost, and I think it's a combination of both the drivers that you mentioned, i.e., higher acquisition cost in the market for the part that we hedge in the OTC market, as well as the higher price for producing on our thermal fleet. And this is driven by the evolution of spreads, as I mentioned before, as well as overall cost of commodities.
I can obviously comment more on what percentage of the two, but definitely those two drivers are there for us assuming hedging unitary margin. I mean, I think unitary margin for the second part of the year around €20. And Pepe, you want to comment on the third one on organic projects and growth in renewables?
Probably we are open just to go ahead with our pipeline, or this pipeline could be increased by acquisition of some project in every stage. It would depend on prices, and it would depend on how to deploy this new capacity. As I have said, we would like to be one of the leaders of this transition period, but we don't have a fixed figure established for the year 2020 or 2021. We will have this figure in the next capital market day in the occasion of the presentation of our strategic plan.
As I may comment, obviously, all the projects are in-house developed as of now. For the moment, that's our line as far as organic growth in renewables.
Next question comes from Rui Dias from UBS.
Hi, everyone. Thank you for taking my questions. I have three brief questions. One is on gas supply margins. Can I just ask if you see this EUR 100 million of margin for the full year as a normalized level going forward? So this is the first question. Then on the second question, just to go back to renewables and to touch base on solar specifically, there seems to be a lot of excitement, or there's a lot of excitement around solar developments in Spain.
And several players, including small ones, are claiming that the economics of these projects, even at power prices significantly below the current levels, are very attractive. But Endesa seems to be very, I would say, quiet or unexcited around this topic. And the question is, is this just a wrong perception from my side, and are you actually doing some work on solar in the background?
Or if not, what are your concerns in this topic? Then third question, just to follow up on the nuclear asset life question, we understand that you believe that the plants should not be closed after 40 years, but if the government decides to limit the life to 40 years, what would be the impact on your P&L? And given that this will not be a cash move, could this eventually lead to a change in the dividend policy?
In relation with gas margin, you are right. We're expecting EUR 100 million for the full year 2018. Let me remind you that in our strategic plan, our figure was EUR 50 million. So that means that the evolution of the gas market and the outlook that we have for the second half of the year or for the full year 2018 is better than the one that we have in our strategic plan. We will see what happens in the future, but certainly the market context and the outlook for the gas business has improved. If we are in solar, calm and quiet, well, we are or we try to be quiet and calm all over the business to take the right decision. We think that solar will be one of the drivers of the renewables in the next decade and also will be just now.
Let me say that in the second auction of the year 2017, we were awarded with 330 megawatts of solar, so that means that we will go ahead not only with wind farms, but also with solar, and I will pass the question of nuclear to Luca.
Yes. Hi, Rui. If, let's say, the hypothesis that you planted, I mean, having a life or use of life of 40 years for the nuclear plants were true, the impact for us would be an EBITDA of about EUR 190 million. And to the second question, would this affect our dividend policy? To be honest, we will consider at the time, at the moment, we consider this as a remote event, as Pepe highlighted before, for the several reasons that he mentioned.
The next question comes from Enrico Bartoli from MainFirst.
I mean, our first question is on your commercial policy. There was, as you mentioned, a reduction in electricity sales in the second quarter. Could you update on what can be expected over the next quarter if we continue to focus on high-margin clients and if we are going to see a further drop in the total figure for electricity sales? Second question regarding, again, if you have regarding the plans, if you had any discussions with the government on coal plans, if you see with your intention to close the domestic coal in a couple of years, if there are any discussions regarding this matter, and the third one is related to the value-added services. There was an increase in EBITDA from Endesa X.
Can you give us some details on what are the services that actually seem to be successful in the market with your clients and what can be the outlook over the next quarters for this? Thank you.
Okay, Enrico. With regard to the first question in our commercial strategy, I would say that, as you know, we commented before, at the end of the year 2017, we launched a new commercial strategy stemming from a value-based management that targeted the retention of high-value customers. Well, that is our strategy. We are looking for the whole margin and not for the market share. What we want really is to give value to our customer and to obtain value from them. In relation with the coal shutdown plans, well, let me say that Spain has currently 10 gigawatts of coal plants, which for sure will be closed gradually. The aim, in our opinion, is to avoid investment in other fossil-fuel plants like new combined cycles, which will have to be closed before 2050.
In relation with our domestic coal power plants, I should say that under current regulatory and market conditions, as we have said in the past, the IED investments are economical, and these plants need to comply with the IED beyond June 2020, so that is the position that we have today.
Thank you, Pepe. On your last third question, Enrico, the evolution of Endesa X in the quarter and outlook for the remainder of the year, I mean, the margin grew up 6% to EUR 57 million, which is in line with our business plan expectation. We have, let's say, a margin of in and around EUR 120 million for the full year. We had an increase of 14%, about EUR 15 million in the B2B and about 8% in the B2C market for a total of EUR 42 million. The drivers here are many of the services that we are using. It's mainly maintenance and repair to the B2C customer and some energy services to the B2B customers. Obviously, this, as you know, is a new global business line. It's operating well as of now.
We plan to expand, let's say, further, especially into the B2B segment, which at the moment is the minor part of the business, while consolidating our services in the B2C segment, which is the largest contributor at the moment.
Thank you. Next question comes from Ana María Scaglia, from Morgan Stanley.
Hi, good morning, everyone. Just two questions, if I may. The first one is regarding distribution and Non-mainland regulation. I was wondering if you, given the new government, if you had any chat on that, what are the expectations, if you think there is any evolution possible there? And the second question is regarding the nuclear plants. In most of the plants you have partners, therefore, to ask for the extension of the life you need to have an agreement with them. I was wondering if you had a dialogue with them in terms of applying for nuclear life extension or if this is too early. Thank you.
Thank you, Ana Maria . In relation with the distribution and non-mainland generation, that is the regulated business, I should say that, at least in my opinion, one of the government's main focuses should be and will be the transition period and the transition of the generation mix. Therefore, it will intend, in my opinion, to promote renewables and also network investment for the next decade to support the decarbonization processes. In such context, we expect regulatory returns to be aligned to the capital costs and to the rest of the European countries, and this is the same for the non-mainland generation, regulated non-mainland generation. It is very important just for the security of supply, just because of the environmental framework, etc.
So in our opinion, I think just because of the very high commitment of this new government with the decarbonization, we will see all the measures that will help and support this transition period.
On the nuclear plant extension, as you probably know, Ana Maria, let's say the first key date for us is March 19, where we will have to agree with our partners to extend the plants. We will start, obviously, discussing this after the summer.
Thank you. Next question comes from Meike Becker from Bernstein.
Yes. Good morning. Thank you very much for taking my questions. I have two. The first is on slide eight on your cost evolutions in the distribution segment. Can you remind me again what you will do apart from having deployed or deploying the smart meters that you're now at 97% of deployment rate to get to this 41% of unitary costs? And how confident do you feel? Because you mentioned before that you are committed to outperforming your efficiency. So could you elaborate a little bit more what you're doing specifically in distribution and by how much or how confident you are in terms of outperformance on your efficiency targets? That is my first question. And the second one is on the PPAs in solar.
Coming back to the renewables, for your organic growth strategy, how happy or how confident would you be to do that on market prices? And how strongly are you pushing or how strongly are you thinking about signing PPAs with customers to do this?
Hi Meike, this is Luca. On the first question, as far as, let's say, distribution efficiency, I mean, obviously, the first goal for us is to fully implement 100% digital meters, which should happen this year. And that, obviously, will improve the performance of the network. Already in the first part of this year, we had an improvement in terms of, let's say, minor losses of 3%. And what are we doing else? I mean, basically, it's a digitalization not only to smart meters of the networks. I mean, how much you can remotely control the networks from the central station. And that means other investments in remote control items within the network, which will increase this type of efficiency. And that, obviously, will be reflected not only in the improvement in terms of, I would say, losses, but also in the reduction of frauds.
How confident are we that we can actually, I would say, exceed, let's say, the KPIs that are in our plan? I mean, already we are at, let's say, EUR 43 customer, which is the KPI that we have chosen for the distribution network, and we have a target of EUR 41 at the end of the plan. So, I mean, I think we are on track. I mean, we have two further two and a half years ahead, so we definitely are on track to meet this target. On the PPA topic, I will pass on the word to Pepe.
Okay. First of all, let me say that we are seeing the first movement in this, let's say, market of PPAs. This is the trend that we have seen in other countries. For sure, they will see it here in Spain. Even more, we're seeing, as I have said, the first movement. That is related with the customer mainly and, of course, the producer, but the customer in the sense that they are looking for green supply to their factories or whatever. It is very early. We are in a very early stage, but I think that will be a reality in the next future. In my opinion, there should be clarified some mismatch today because the life of a renewable plant is longer than the willingness of the customer to sign a contract.
But, well, I think that this kind of thing will be resolved in the future, and for sure, we will have this market.
Next question comes from José Javier Ruiz from Macquarie.
Yeah, good morning. Just one question left, if I may. I mean, with independence or independently from the debate about the lifespan of nuclear, what is becoming clear is that the cost, the total nuclear liability is increasing. I remember that Endesa increased by 9% compared to last year, this liability. And there is increasing comments about a shortfall in terms of financing. So my question is, what do you think about this? And secondly, if you are seeing the possibility or the risk of having to increase the contribution to the Endesa fund. Thank you.
Let me say that the news that we have seen recently in the newspaper are something that we knew before just because of the expert panel in which we could see some figures. These figures are very clear. These figures said that with some assumption, if we continue with the Enresa tax that we have today, it would be and we stop the nuclear power plants when they reach 40 years, it will be a deficit, something between €1-€3 billion. It would depend on the assumption used to calculate this figure. Well, on the other hand, if you want the nuclear power plants continues up to 50 years, then with this Enresa tax, it wouldn't be any deficit. It's what we know, and it is what it is.
Javier Garrido comes back with another question.
Yeah, sorry. Just a clarification. You mentioned the unit margin for this year should be around 23. What was your assumption in your business plan for the year? Thank you.
Hi, Javier. It was 22. So it's slightly better than the business plan.
Okay. Thank you. Now we will answer the questions received by email. The first one is in relation to the potential impairments that we believe there is any need in the generation and supply division.
Thank you, Mar. I mean, in our company, the assets impairment tests are carried out at least once a year, and we carry out our tests in December 2017 and concluded that no impairments were required on our asset base. The current regulation makes it mandatory to run a subsequent test if there is any evidence, internal or external, that actually might lead to impairment. At present, we don't have any evidence that suggests the need of a new test.
We have received some questions in relation to the loss of supply clients in Spain. What is the level at which we expect the number of supply clients is going to stabilize? And if this is a result or not of higher competition coming from the new entrants?
Of course, it's higher competition coming from the new entrants and also the high competition between the incumbents. As we have said, we are looking for value, not for market share. That is the first thing. But in any case, as I have said, we have launched a special program targeting the retention of the customer and also managing the value of the customers and trying to increase the value of our customer base.
Another different topic. We are in talks or not with the ministry if we have some information about the second regulatory period, talking about the regulated activities?
We have held some meetings with some representatives of the minister. And the only thing that I should say is that it has been a very constructive dialogue looking for challenges and looking for solutions. So we are very confident about the next step of the regulations.
Finally, we have received two questions on the dividend policy. First is in relation to the potential update of the dividend policy that Luca has commented during the call. If this is in relation to the potential M&A opportunities, the revision could be after 2020. The second one, sorry, has to do with the dividend that we are going to pay during this year in 2018, assuming that the second half of the year will be weaker. Will we pay the minimum dividend floor that we have announced or could we increase it?
Okay. Starting from this second one for this year, I mean, our dividend policy is very clear. We have 100% payout and a floor. So whatever is going to be the results for the year, that is what we're going to pay according to the dividend policy. At the moment, we are confirming our guidance of net income for 2018. As far as my comment earlier on, I would say, our priorities of capital allocation and potential growth, what I said is if we can deliver expectation of growth different from the one that we have today, we might think of revising the dividend policy. Obviously, this is part of, again, the investment plan that we have for the company. So we revisit this on an annual basis when we present the industrial plan.
So that's when we will consider any change, if need be, according to the growth of the company.
Okay. At this stage, there are no more questions. Just remind you that the investor relation s team will be available for any further questions you may have. That's it. Thank you very much. Have a nice summer.