Good morning, ladies and gentlemen. Welcome to the ENCE Third Quarter 2024 results presentation. I will now hand the call over to Mr. Ignacio Colmenares, Executive Chairman and Alfredo Avello, CFO. Gentlemen, please go ahead.
Good afternoon, ladies and gentlemen. Thank you for joining Ence's Third Quarter 2024 results conference call. Our CFO, Alfredo Avello, and our Head of IR, Alberto Valdés, are also connected to this call. After the presentation, we will be pleased to answer any questions you may have. I would like to start with the main highlights of the quarter on slide 6. We ended a strong operating margin of EUR 190 per ton in the quarter. Hardwood pulp prices in Europe declined by over 20% from their peak in July, driven by pulp destocking in China and the start of new capacity additions. European hardwood pulp reached a gross price of $1,160 per ton in October, equivalent to a net price of around $650 per ton. Our average net selling price during the third quarter was EUR 679 per ton.
This is EUR 200 per ton more than the net price registered during the same quarter last year and EUR 49 per ton less than that of the previous quarter. At the same time, our cash cost increased slightly to EUR 489 per ton, or 89. This is EUR 5 per ton more than in the same quarter last year and EUR 15 per ton more than that of the previous quarter, mainly due to higher wood costs in the context of high pulp prices. Continuing with our operating performance on slide 7, I would like to highlight two things. Firstly, pulp production in Pontevedra increased by 36% compared to the same quarter last year, up to 93,000 tons, despite its annual maintenance shutdown during the quarter and severe drought during the summer.
The new water effluent recovery solution resulted in a close to 50% reduction in the mill's water consumption in August and September, allowing it to operate normally during this period while complying with the ecological river water level. This is an important milestone that significantly improves the resilience of this biomill during dry periods. Moreover, we expect to receive the concession and the environmental permit to recycle the water from the adjacent city treatment plant in the coming quarters. Secondly, we had an incident in Navia Cogeneration Turbine during September. It does not affect our pulp production. However, it requires temporary higher energy purchases to compensate for our reduced energy cogeneration. This implies an extra cost of EUR 1.7 million, which is included in our third quarter operating results. This incident is expected to be resolved at the end of the first quarter of 2025.
Extra costs of approximately EUR 6 million are expected in the fourth quarter of 2024 and EUR 5 million in the first quarter of 2025. Note that these are one-off costs and are not included in the cash cost figure and will be offset by other one-off positives. Continuing now with slide number 8. Our Ence Advanced pulp sales accounted for 22% of our total pulp sales during the first nine months of the year, despite the annual shutdown of Pontevedra. These products deliver higher margins than our standard pulp, as they are better adapted to replace softwood pulp, which is more expensive.
These products delivered an extra margin of about EUR 30 per ton during this period and imply a EUR 7 per ton improvement in our average sales price. The higher the price gap between hardwood pulp and softwood pulp, the more we sell our Ence Advanced pulp products.
We expect these products to continue gaining market share during the coming years, reaching 30% of our total pulp sales next year in 2025 and 50% by 2028. Turning now to slide number nine. Our renewable business EBITDA doubled up to € 9 million in the third quarter, driven by a more normalized energy output, lower operating costs, as well as a higher regulated price. Let's move now to slide eleven, which summarizes our outlook for pulp prices. We believe that prices may begin to bottom out soon over the next two or three months. Net hardwood pulp price has already stabilized in China at $560 per ton. I expect hardwood pulp price in China to recover from here due to fiber substitution supported by a $200 net price gap with softwood pulp and a $400 net price gap with dissolving pulp.
Additionally, several softwood and hardwood pulp producers have already announced market-related production curtailments and swings to dissolving pulp for a total amount of over 1 million tons during the next few months, which will help rebalance the market. Besides, net BHKP prices are already at the marginal production cost level of integrated producers in China, which is currently producing around 5 million tons annually, incentivizing a strong market pulp demand. As you can see in the following slide number 12, our shareholder remuneration policy is based on cash generation and our prudent financial leverage limits in each business. We have approved a second interim dividend against 2024 results amounting to EUR 8 million, equivalent to EUR 0.033 per share payable at the 7th of November. This dividend, when added to the first interim dividend of EUR 0.107 per share paid in August, will increase the annual dividend yield to 5%.
I now invite Alfredo to elaborate further on our financial results.
Thank you, Ignacio. Let's continue with the financial performance of our pulp business in slide 14. The pulp business EBITDA reached a solid EUR 42 million in the third quarter, compared to a loss of EUR 61 million in the same period of last year when pulp prices reached their bottom. In the first nine months, our pulp business EBITDA amounted up to EUR 132 million, which is almost five times the figure registered during the same period of last year. The average net sale price improved by EUR 202 per ton, up to EUR 679, when compared to the same period last year. More than offsetting, a EUR 5 per ton increase in cash cost, up to EUR 489 per ton, mainly attributable to higher wood costs in a context of higher pulp prices.
Finally, our pulp sales reached 234,000 tons during the third quarter, down some 4% compared to the same period last year and 9% from the previous quarter, as a result of growth in pulp inventories, avoiding the lower prices of the spot market and also marked by the Pontevedra plant maintenance shutdown. Altogether, our operating margin reached a solid EUR 190 per ton in the third quarter and EUR 187 per ton during the first nine months of this year. This is nearly four times the figure registered during the same period of last year. On a separate note, as our Chairman has mentioned, the lower energy cogeneration at our Navia Biomill had a non-ordinary one-off impact of EUR 1.7 million in the quarter. Note that these non-ordinary one-off costs are not including the cash cost, but of course are included in the EBITDA figure.
Turning now to slide number 15, the renewable business EBITDA reached EUR 9 million in the third quarter, which is more than twice that of the same period last year. As our chairman has highlighted earlier, the strong year-on-year improvement in the renewable business EBITDA was fueled by the 23% recovery in generation volumes, together with a 13% reduction in net operating costs, driven by lower biomass costs and higher fixed cost dilution. Additionally, the average revenues per megawatt hour increased by 10%, up to EUR 157 per megawatt, including the remuneration for investment in the so-called RO. Remember that a new methodology for quarterly updating the cash remuneration of biomass plants was published back in June with effects as of January the 1st.
According to this new methodology, the average sale price of our biomass plants was raised to approximately €115 per megawatt hour through two components: a regulatory pool price composed by a basket of yearly, quarterly, and monthly forward prices, and an RO for the difference up to the set €115 per megawatt hour price. Also, remember that under the new regulation, there is no more regulatory collar that could compensate the deviations between the regulatory and the real market pool price. This means that any difference will be for the benefit or absorbed by the company. In order to reduce the volatility risk and to secure this average selling price under the new regulation, we have decided to fix at least 40% of such price through a hedge that basically replicates the set basket of forwards as of the fourth quarter this year.
In addition to the regulated price, all our biomass plants are fully manageable and provide ancillary services to help balance the power network. This is another important source of revenue for our renewable business, on top of the Ro and the pool price. Furthermore, on top of said revenues, our biomass plants still receive an annual regulated return on investment, the so-called RI, amounting up to €25 million. Let's now talk about our solid consolidated results in slide 16. Group revenues grew by 29% year-on-year, up to €220 million, while consolidated EBITDA reached €52 million compared to a loss of €2 million in the same period of last year when pulp prices dipped and our energy generation was lower.
Looking at the first nine months of the year, consolidated EBITDA amounted up to EUR 152 million, which is more than double the figure registered during the same period of last year. Finally, the group profit increased by EUR 14 million in the third quarter, driving our consolidated profit for the first nine months up to EUR 41 million. Turning now to slide 17, consolidated free cash flow in the third quarter reached EUR 51 million, including a EUR 43 million reduction in the use of non-recourse factoring lines following the collection of the RO of our biomass plants accrued from January to June 2024, and which was factored last quarter.
On top of that, working capital changes implied an EUR 18 million inflow during the third quarter as a result of a EUR 27 million working capital inflow in the pulp business, which was partially offset by a EUR 9 million working capital outflow in the renewable business. Growth and sustainability CapEx reached EUR 9 million in the third quarter, excluding EUR 6 million of EPC contract to finance the fluff pulp production equipment, which is included in our net debt. Remember that the project to diversify of production in Navia into fluff pulp for absorbent personal care products is expected to come on stream towards the end of next year. Other investments are mainly related with engineering or other growth and diversification initiatives that we are carrying out in both businesses, and which our chairman will explain to you later.
Continuing in slide number 18, our net debt stood at EUR 278 million during the third quarter, implying a leverage ratio of just 1.6 times the group average cycle EBITDA.
This net debt reduction was compatible with the set EUR 43 million reduction in the use of factoring lines in the renewable business during the third quarter and includes the payment of a first interim dividend of EUR 26 million to our shareholders and the return of another EUR 12 million to Magnom minority shareholder. Remember that in the first half of the year, Magnom received a bridge loan amounting to EUR 63 million from its shareholder, EUR 19 million in the first quarter and EUR 44 million in the second one, to cover the interim period between the former and the new regulation published in June and until the collection of the RO accrued in the first half of 2024.
During the third quarter, Magnom has returned EUR 26 million to its shareholders, including the dividends, after successfully closing the refinancing of its corporate debt, as we show in the following slide number 19. On July the 30th, we closed and disbursed a EUR 170 million 7.5 year terminal facility, plus a EUR 20 million RCF among 14 banks and institutional investors, extending its final maturity until January 2032. The new facility has no recourse to the parent of the renewable business. The use of the proceeds is the refinancing of the previous facility, as well as the repayment of shareholder loans, among other CapEx and corporate purposes. It is an important milestone that was achieved thanks to our prudent leverage policy, which allowed us to cope with the temporary cash imbalances created by the former regulation.
It is also an evidence of the financial community's confidence in Ence as a solid project sponsor, our operations, and the development of our renewable energy business. As you can see on this slide, we entered the third quarter with a strong liquidity position, which amounted to a consolidated €332 million, with long-term debt maturities in both businesses and no covenants in the pulp business. Note that this liquidity position does not include the revolving trade facilities, amounting to €130 million in the pulp business and €20 million in the renewable business, which remain fully available. Let's turn now to slide 20. I would like to conclude my section emphasizing once again Ence's continued and exceptional sustainability performance. We are leaders in sustainable forestry, circular economy, social commitment, gender equality, and corporate governance. Our best practices have been recognized by independent ESG agencies and indexes.
In its latest study, Sustainalytics has confirmed Ence for the fourth consecutive year as the most sustainable player in the global pulp market. We have been also awarded the EcoVadis Platinum Medal, the highest rating awarded by this platform, and we remain members of the prestigious FTSE4Good index since 2021 and the IBEX ESG and IBEX Gender Equality indexes. Let me hand you back now to our Chairman and CEO to update you on our growth and diversification projects. Thank you, Alfredo. Moving now to slide 22, let me update you now on our diversification initiatives toward higher value-added products in pulp business. Ence's advanced pulp sales continue to gain market share, as mentioned earlier. They accounted for 22% of total pulp sales in the first nine months, with an extra margin of EUR 30 per ton.
We aim to reach 50% of our total pulp sales by 2028 and over 30% next year. Secondly, our project to diversify up to 125,000 tons of our production into fluff pulp for absorbent hygiene products is on track. This is an innovative project that has generated a lot of interest among our clients in Europe, who are currently importing fluff pulp from North America based on softwood. Our fluff pulp will be based on eucalyptus and will be very competitive. It will deliver an extra margin of around EUR 60 per ton compared to our standard pulp, based on fluff pulp prices in Europe during the first nine months of 2024. The project has all the permits required. We have already ordered the equipment and started the civil works. The commissioning is scheduled for the end of 2025.
We estimate a CapEx of €30 million in 2024 and 2025, and we expect to achieve a return on capital employed above 15%. €30 million is the total CapEx. Thirdly, we have developed a portfolio of renewable packaging solutions capable of replacing plastic food trays. This project has a huge growth potential and very attractive returns. We have already homologated our palm trays with a number of important clients in Spain, and we plan to install in summer 2025 a first pilot line in Navia capable of producing up to 12 million trays. We want to start selling to the market while building an independent plant with an initial production capacity of 40 million units, which we will scale up in the future.
We expect this plant will be ready by the end of 2025, with a total estimated investment of up to € 12 million, € 4 million for the first pilot line to be installed in summer in Navia and € 8 million more for the independent plant. The expected return on capital employed on this project is well over 15%. Let's continue with our efficiency and growth projects in the pulp business on slide 23. Firstly, we plan to decarbonize our pulp mills by replacing fossil fuel as the lime kilns with recovered methanol and biomass. We have already started to use recovered methanol in Navia, and we also are finalizing the engineering and permitting in order to start using biomass. This project will allow us to reduce Navia's Scope 1 emissions by close to 60% and to reduce its cash cost by € 13 per ton, € 13.
Estimated investments amount to EUR 35 million, with an expected return on capital employed above 15%. We have already been awarded grants amounting to EUR 13 million for this project. This project is only a first step towards our goal to be fully carbon neutral. Decarbonization at Pontevedra will follow. Secondly, we are advancing with the engineering of our Pontevedra Avanza project, an integral project that will replace Pontevedra's efficiency and flexibility at the forefront of the industry in Europe. This project should allow us to reduce Pontevedra's cash cost by EUR 50 per ton, to improve its flexibility by using different species of eucalyptus, and to continue to upgrade its production from standard pulp to Ence Advanced pulp. We expect to take a final investment decision by summer 2025 once the engineering will be finished.
The estimated CapEx in this project amounts to €120 million during the next five years, with a required return on capital employed of over 12%. Finally, we continue to make progress with the engineering and permitting of the As Pontes project for the production of bleached recycled pulp for paper, textiles, and bioproducts. We recently carried out our first textile recycling test using an innovative technology from our partner ShareTex, the Swedish company. For all these reasons, the project has already completed the public information process, being fully supported by the community. We have presented it to the Decarbonization Program for Greenfield Projects under the European Next Generation Fund. The potential maximum grant under this program amounts to €30 million. Note that none of the investments I have described will require more wood, which we believe is an increasingly limited resource.
The Iberian pulp industry is already importing over 2 million tons of wood annually from Latin America. The execution of these investments will be adapted and aligned to our cash flow generation throughout the pulp cycle and to our leverage and dividend policies. Remember that our aim is to maintain a prudent leverage and offer an attractive remuneration for shareholders while investing for profitable growth in the future. Turning now to slide number 24, let me update you on our growth and diversification projects in renewables. Firstly, through our subsidiary Ence Biogás, we aim to produce one terawatt-hour of biomethane by 2030. Ence Biogás is already working on a portfolio of 37 biomethane projects for development and the selective rotation at already-to-build status. 28 of these projects already have the land secured and the feasibility studies completed, 16 of which are nearly completing the permitting phase.
We expect six of them to be ready to build already next year. We plan to build these plants with EPC contracts using non-recourse project financing backed by long-term PPAs. The initial estimated CapEx is €0.4 million per gigawatt-hour, with an estimated production of between 50 and 100 gigawatt-hour per plant. The targeted return on the capital employed is over 12%. Nobody in Spain has the deep understanding of biomass sourcing that we have. Our know-how and expertise in this field gives us a unique competitive advantage. Continuing with slide number 25, biomass thermal energy is not only carbon neutral but may also be more price-stable and more competitive than fossil thermal energy. Through our subsidiary, Magnon Green Energy, we signed our first service contract last year with a major industrial company in the food and beverage sector in Spain.
We are now working on 14 projects with important industrial companies in the food and beverage and chemical industries in Spain to provide them with renewable thermal energy, green steam. Our customers appreciate our strong position in the biomass market and our experience in providing integral solutions from biomass sourcing to plant design and operations. We are in advanced negotiations in seven of these projects, and in four of them, we are negotiating in exclusivity. These four projects are already in their engineering and permitting phase. We expect them to be ready to build next year. As on the biomethane business, we plan to build these biomass thermal plants with EPC contracts and using non-recourse project financing backed by long-term PPAs. The estimated CapEx is between €0.1-€0.2 million per gigawatt-hour, with an estimated production of between 40 and 160 gigawatt-hour per plant.
The targeted return on capital employed is over 11%. We have already presented four projects for European Next Generation Funds. One of them has already been awarded a EUR 4.5 million grant, and we expect the remaining projects to be successful too. Let me finish now with some closing remarks concerning slide 26 before we move to the Q&A session. Our third-quarter results show a strong operating margin and a strong free cash flow generation despite softening pulp prices. Pulp prices have already stabilized in China. We expect the price of hardwood pulp to recover from here, supported by its current price advantage versus other pulp grades and by the announced production cut elements. We have a low leverage position and strong liquidity. We are well positioned to reach our growth and diversification goals while maintaining a prudent leverage and an attractive shareholder remuneration.
A second interim dividend of €8 million will be paid on the 7th of November, which together with the first interim dividend of €26 million paid in August implies a 5% annual dividend yield. We expect the first growth and diversification projects in both businesses to materialize in the coming quarters. The accomplishment of our goals should allow us to improve significantly our recurrent EBITDA in the pulp business and more than double the recurrent EBITDA in the renewable business over the next four years. Thank you for your attention. We will be pleased now to hear any questions you may have.
Thank you. Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star one on your telephone keypad. You will have the opportunity to ask all the questions that you may have.
We kindly ask that you ask only one question at a time to our speakers instead of asking multiple questions at the beginning. Thank you. Your first question is from Enrique Parrondo from JB Capital Markets. Please ask your question.
Yes. Good afternoon. Thank you for the insights and for taking my questions. I have three. First one, it'd be great to hear your view on the outlook for the sector ahead of the London Pulp Week. You commented that following good trends in China, you would expect Europe to follow in the next two to three months. So great to know your feedback on this and what sort of price levels you'd be expecting by this time.
Yeah. As I have mentioned, prices in China today are at $560 per ton. Prices in the Middle East are between $560 and $570. In Europe, we have different prices.
As you know, 40% of our sales are linked to PIX. We've been selling till now at $1,160, which means $650 net. We have another 30-35% of sales at net prices negotiated month by month. We have been at $600, and we have a small 15% of sales at the spot prices in Europe at low prices of $550-$560. My view is that the bottom price has already been reached in Asia, Middle East, and Europe. It is $560 and cannot go further down by the reasons I explained before of fiber substitution, and the consumption is supporting this level as well. I think that in China, sooner or later, prices will bottom out. I don't know if it's going to be in November, December, or January.
Regarding Europe, our main market, we believe that fixed prices will slightly reduce a bit more in November, but we will be able to maintain that, like we were able in the past, a gap between the lowest price in China and the lowest price in Europe. I don't think prices in Europe for 90% of the sales will be below $600. Like in China, prices will bottom out because what is absolutely different in this occasion, if we compare that with what happened in the past, is that today the market is firm. Today, China is buying. Today, Middle East is buying, and today our European customers are buying. The level of stock, despite it has slightly increased in the last two months, is a good level of stocks. Today, there is not an overhang of pulp on the market.
By all those reasons, I expect that sooner or later, in one, two, to three months, prices will start to go up again. Thank you, Enrique.
Thank you, Cole. My second question was related to one of the points you mentioned. So on inventory levels, as you said, the inventory destocking has slightly picked up in the last two months. I was wondering if you could share any color on where inventory levels currently stand at in customer's hands. That would be great.
Enrique, unfortunately, I have the same information that everybody has. Today, the pulp producers, we have a limited amount of stock. Our customers are short on stock. Like always, when prices decline, they have no stock. And our customers have a normal level of stock. Then I think the stocks are not going to be a problem to prices to bottom out. Perfect. Thank you.
And the final one would be on the timing for the return of the remaining part of the bridge loan from Ancala Partners. So this quarter, we saw EUR 7 million out of the 24. When could we expect the remaining part of it? Thank you.
Thank you, Enrique. I feel that we'll answer your question.
Dr. Avello, let me answer that. You know that we have a very, very conservative and prudent policy. The idea was to bridge the two regulations that we had. We have returned already EUR 26 million. We are just seeing how all these regulations evolve, and we will be prudently repaying all that, either through returns on dividends or through loan returns. It will be during the next year and next quarter, but prudently.
Yeah.
You have seen that the shareholders of Magnon have been fully supporting Magnon during this period of nine months with a big discrepancy between the regulated price and the market price. Now the situation is good with the new regulation, but both shareholders are fully committed with the company, and we will continue to support the company because we think it's a fantastic platform to grow in renewables. So just to add one thing, just remember that since 51% of the company's ours, 51% of whatever returns will be offset in our consolidated numbers. So you only will see the $49 remaining. Okay? Got it. Thank you.
Thank you. Your next question is from Cole Hathorn from Jefferies. Please ask your question. Good afternoon. Thanks for taking the question.
I'd like to follow on the Ence Advanced products and kind of your shift to more value-add when there's a big gap between hardwood and softwood. What are the challenges ramping up those volumes? If you're at 22% now, where could you get to next year? Because I do understand you need to do the fluff project. You still need to do some work on Pontevedra. So what's your kind of limit that you can shift to short-term in the more premium pulp grades?
Yeah. Thank you very much for your question. It's an interesting question. Yeah. Let's say that our commitment in 2024 has been to grow in those products and to increase the margin. Let's say that on the previous years when we started back in 2018, 2019, 2020, and so on, we were growing.
And what we were measuring was the difference in margin between these advanced products and our worst sales, this spot market they were referring before to. Now we just compare with the balance of the sales who are not special with our standard products. And this year, it would have been very easy to sell, let's say, instead of 22%, 30% or 35% of our sales in advanced products, reducing this margin. But we want to build something value and stable for the future. Then we think that jumping from 22 to 30 next year in the range of products we have, with a big gap today of $200 between softwood and hardwood, it's extremely easy. And we want to keep this margin of €30 per ton.
When we say that next year we will be in 30%, we don't talk about fluff because fluff, we are going to start on the second half of the year, and we will almost not sell fluff next year. It's on the range of products we are today selling. We want to grow from 22% to 30% next year. What we are negotiating now with our customers, we think it's workable. The years before, when we were growing faster, well, we always started the year with, let's say, 50% of the budget already agreed, and the balance, the other 50%, was still due to be homologated. Now, in order to sell this 30%, we don't need further homologations. All our products are homologated enough to get this 30%.
That's helpful. Maybe if I'd follow up on the cash costs.
I think back to when we saw the inflation really kick off in 2022 and 2023 with Russia-Ukraine, and everyone saw their wood costs start to go up, particularly the Nordics. I was hopeful that we'd see the Iberian Peninsula and hopefully some of the Central Eastern European wood costs come down a little bit. And we haven't really seen that at all. If anything, they've stopped going up, but they're still elevated, whereas Nordics have continued to go up. How do you see the Iberian Peninsula? How do you see your wood or your cash costs developing into 2025, 2026? Do you think we could be in a position where your wood costs could ease, or should we just be hoping for stability for everyone across Europe? Thank you.
Yeah. Thank you for your question.
We've seen, as you were mentioning, a huge increase on the price of the wood costs. We were expecting now, 12 months ago, that the prices would go down in 2024. Fortunately, the prices of the pulp were rocketing, and it's quite difficult, almost impossible, to reduce the price of the wood when you are increasing the price of the pulp. We have a kind of partnership with our suppliers, and we like to share the good moments of the market with them. We are here for long-term, and we want a strong forest industry. This year, it has been impossible to reduce the prices of the pulp, of the, sorry, of the wood.
We think that there is room to a reduction of between EUR 2 and EUR 5 per cubic meter of wood, which means between EUR 6 and EUR 15 on the medium term, but more working on the increase of efficiency of the harvesting, efficiency of the transport and other logistics than in reducing the price of the standing wood, and don't forget that Iberia has a deficit, a structural deficit in wood. Over two million tons are imported every year from Latin America at extremely high prices, and then that makes it even more difficult to reduce the prices of the wood, then what I think is that depending on the prices of the pulp for the next two to three years, we are going to be where we are today, or maybe EUR 2 to EUR 5 per ton of wood at a lower price.
Thank you.
Thank you once again.
Please press star one should you wish to ask a question. We have another question from Cole Hathorn from Jefferies.
While I have opportunity, I'd like to follow up on the views of pulp. I mean, quite a few of the European industry, you've got the number one player, Suzano. Everyone feels like they're trying to call the bottom. No one's willing to put a number on it, but saying we're getting pretty close to there. But what we haven't heard any discussions on is anything post-U.S. election. Do you have any views or initial thoughts on how any tariffs might impact the global pulp market, if they're kind of tariffs on products from Europe into the U.S. or tariffs on China potentially dampening just demand? If you don't have any views, I completely understand, but I wanted to ask, and then I've got one follow-up. No, no.
We don't have any views.
No. The easy option out. Then I would like to ask on your renewable growth projects. You've talked about the biomethane. You've talked about the renewable thermal energy projects. As you do the due diligence on those, as you start to get the permitting approval, which ones are further towards signing off and agreeing some of the construction contracts? I'm just trying to see which ones would come on stream first, which ones you think would be delivered first.
Yeah. Well, in renewable thermal energy, we have almost signed a contract with a major brewer in the middle of Spain. We already have the EUR 4.5 million grant. We are now just negotiating together the EPC contract with the supplier of the equipment. And I believe we will make an announcement before the end of the year.
This installation could be producing more in 12 months' time. At the same time, as I mentioned before, there are other three projects who are very warm at the very end stage where we are negotiating with our customers. I think they will go three to five months later than the one I mentioned before. Then in 2025, we could have two installations working and two other contracts under construction and further contracts negotiated over the next months.
Coming back to biomethane, well, first, we are always looking for opportunities of M&A. It's difficult, but we may come with a surprise. Regarding greenfield projects, well, as I mentioned before, I think that next year we will start the construction of five of them who will start to make money early 2026. We will continue with the other biomethane plants.
In biomethane, we have, as I mentioned before, a unique advantage. We are by far the largest buyer of biomass in Spain. We are a company based on the land. We know how to deal with the farmers. We know how to buy to the farmers. And the experience we have in developing greenfield projects in biomass and greenfield projects in PV gives us also a strong experience in developing from zero greenfield projects in biomethane, which is quite difficult in this country because you have to face all this terrible permitting. You need to face a growing social opposition, and you need to handle that. And you need to have the expertise we have in that. Remember that in PV, we've been quite successful. In biomass, we've been 100% successful. We know opposition, and we know how to handle that.
We have also the expertise in not assuming the technological or construction risk. As we did in the past in biomass business, we will contract EPC. We are not going to assume any risk of technology nor construction. That's why we are quite confident in those two businesses. We think that we have nice plans to grow the EBITDA, not the volume because there is no wood to grow, to grow the volume in pulp with the special products, with the fluff, with this fantastic engineering program at Pontevedra once the engineering will be finished. The growth in EBITDA on the pulp business is going to be between €30-€40 million. We can double, minimum double, the EBITDA on the next four years in the renewable business, growing with the biomethane and with the renewable industrial thermal energy.
At the same time, we are working for the long term for after 2030 for CO2 capture and renewable fuels, but that's another story. We are just working for the future. We don't see any EBITDA coming from that over the next five years.
Thank you. Then maybe just one clarification on biomass. You are the biggest in Spain. But when I think about your renewable energy businesses or the targeted locations, is there any reason why you can't do it anywhere in Spain, or do you need to do it around kind of your sourcing hubs just to kind of minimize the biomass logistics?
No, no. There is one thing because it's quite small in terms of EBITDA, and we haven't mentioned that. We are developing a trading company of biomass all around Spain. We started next year in Valencia and Catalonia.
We are starting this year at the north of Spain. And well, with our expertise, we are going on the renewable thermal energy where the factories of our potential customers are, and we study if there is enough biomass in the area. But it's quite small plants. They require 30-40 thousand tons only, which is quite simple to organize that with our expertise in any work in Spain. And regarding the biomethane, well, there is a balance in order to optimize the price of the PPA because it's quite technical. And then, well, you need, again, agroforest residues. You need the farming residues. And fortunately, we have all that all around Spain.
Thank you. Thank you.
Thank you. Your next question is from Manuel Lorente from Santander. Please ask the question.
Hi. Good afternoon. Just to follow up on the diversification strategy.
You have mentioned the Navia Decarbonization Diversification Project. I was revisiting previous presentations, and they didn't appear. So I was wondering when and how this new diversification plan has arrived and whether it has something related with the issue that you are having in the turbine on Navia and whether this postponed a little bit the decision on the Pontevedra advances plan.
Thank you. I think it's different things who are not linked at all. The problem we had in this alternator or the turbine of cogeneration in Navia has nothing to do with all the other things. It used mechanical energy coming from the turbine to transform the steam into mechanical energy. And as I mentioned before, it's going to be sold at the end of the first quarter next year. Regarding decarbonization in Navia and Pontevedra, we have our goals, as you know, who have been published.
You have to take into account that on Navia's mill, for instance, it's a good example. We use 550 kilowatt-hours of energy per ton of pulp. 100% is green because we produce our own electricity. We use six thermal megawatts per ton of pulp, six. Out of these six, only 0.5 is fossil, which means that what we have to decarbonize is quite small compared to the size of the mill. Navia's mill, who is producing 600,000 tons of pulp, is producing 70,000 tons of CO2 per year. A steam mill on the same site produces over 1 million tons. These 0.5 megawatts out of six, where are they? They are, as I was mentioning before, on the lime kiln, where we are using in Navia natural gas or sometimes fuel, as we did with the Ukraine war because of the crisis. In Pontevedra, still fuel.
Then what we have developed at Navia is the technology to capture the methanol we were firing. And now we are using this methanol we are producing ourselves as a byproduct as primary energy on these boilers. And now we are working on the engineering and the permitting to use, instead of gas, to use pulverized biomass. And we are going to do that, as I mentioned before, over the next three years. Once that will be finished, we will jump and we will go to Pontevedra to do the same. And regarding the Pontevedra-Avanza project, well, it's EUR 120 million of investment. Our aim is to keep production. We don't want to increase production. It's to keep production being able to use the more diversified sources of eucalyptus species and to reduce by EUR 50 per ton the cash cost of Pontevedra. But we have to be sure.
That's why we are working now in what is called phase one, phase two, and phase three engineering in order to be 100% sure that if we invest EUR 120 million, we get those paybacks. This engineering is going to be finished by next summer. Then the final investment decision will be taken next summer. I see.
Thank you. Just a quick one on cash costs. You have perfectly mentioned somehow the midterm evolutions. I'm also seeing on your presentation that cash costs on the fourth quarter will pick up on temporary issues. I was wondering whether you can comment on those temporary issues. Is something related to wood prices, lower dilution of fixed prices or fixed costs, or any other reason?
Yeah. Yeah. There are temporary costs that are going to be increased on the fourth quarter, mainly is caustic soda.
The reason is that it has been a force majeure at Ercros, and they have stopped to supply the industry. And the prices of the caustic soda have rocketed. And they are almost $300-$400 above the prices they were two months ago. And that's going to be temporary till this factory restarts again. And that has an impact. It may have an impact between €8 and €10 per ton in our cash costs during the fourth quarter. And later, this effect will disappear.
Sorry, can you repeat?
Sorry, can you repeat? Who has had some problems?
Ercros. Ercros. A major supplier of the pulp industry of caustic soda. And that's something related to this product.
Regarding wood, we are working for reducing the price of the wood on the fourth quarter, but our best estimation is that the price of the wood will be stable, and we don't see further increases of the wood on the fourth quarter for sure. What is our strategy today? The marginality in our analysis is quite important. The last, let's say, 20,000 tons we produce, first of all, they are sold at low prices at this spot market I was referring before. Secondly, they use the most expensive caustic soda, and they use the most expensive wood. Then for the next two months till the end of the year, we are not going to push nor the purchase of the wood nor the sales of the pulp, and then we may have a temporary effect of lower dilution.
Let's say that we sell 30,000 tons less or 40,000 tons less. Let's say that we produce, because we don't want to push the wood, 10,000, 15,000 tons less on the next two months. Our fixed cost is going to be the same. But in terms of euro per ton, the effect may be higher on the fourth quarter. Then as a résumé, we see for sure an increase, a temporary increase on the cost of the caustic soda. We don't see at all an increase on the wood. We are working to reduce the price of the wood, but we don't see the increase, and we may have a small effect of less dilution or fixed cost, but it is, I insist, in euros per ton. The fixed cost is the same month by month. I see.
Thank you.
Thank you.
Your next question is from Álvaro Bernal from Alantra Equities. Please ask your question. Hello, Álvaro. Your line is now open. Hello. Can you hear me? Yeah. Hi, Álvaro.
Okay. Thank you. Hello. Thank you for taking my question. Coming back to cash costs, if you could help me out a bit with the evolution again for Q4. From my understanding, you will have on the one hand, you will have the effect from the turbine, which may add, and correct me if I'm wrong, which may add up to 20 EUR per ton, maybe impact, 20-25 EUR. You're saying that you also have the caustic soda impact, which if I listen to you correctly, it's maybe another 10-15 EUR per ton. No, I didn't say 15. No, I didn't say 15. I said a maximum of 10 EUR. Maximum of 10 EUR. Okay.
On the other hand, you also have the persistence of the wood inflation, which we have seen this quarter already. So more or less around, we can expect that the cash cost will go comfortably above EUR 500 per ton for the end of Q4. And if I'm also correct, the turbine effect will persist until the end of Q1. So the impacts will be maintained in Q1, with maybe the only improvement being the caustic soda, so around EUR 500 per ton. And correct me if I'm wrong with the mathematics.
Well, there are several things I would like to point out. First of all, the turbine, as we mentioned before, we are putting the extra cost of the energy we are purchasing below the EBITDA. Sorry, above the EBITDA. No, minimizing the EBITDA. Minimizing the EBITDA. Yeah.
But it is not on the cash cost because it's a non-recurrent cost. It's an extraordinary effect of a failure. Secondly, the caustic soda, the maximum effect I see today is EUR 10 per ton, and it's going to be till the end of the year, most probably. And regarding wood, we don't see at all an increase of the cost of the wood on the fourth quarter. At all. I insist. We are working in reducing the price of the wood. I am not sure if we will be able or not. But never we will pay a single EUR more for the price of the wood. And then we have the effect I mentioned before, maybe a lower dilution. And we have to see how the prices of the energy evolve and what happened with the biomass plants we have at Navia and the prices itself. Okay. Perfect.
And remember that regarding coming back to the turbine, we consider that a non-recurrent cost. And because we know our books and we know how the company is, this cost will be offset by all the things we are doing now. And we will give you the ideas on the next quarter. Okay. Understood. But given that the cost of the turbines goes, as you said, below the EBITDA, sorry, but. No, no. It is included on the EBITDA. The cost of the turbine is reducing the EBITDA, but it's not on the cash cost. It's between cash cost and EBITDA.
Okay. Perfect. But the impact you have from purchasing the energy at spot prices will obviously, as you say, affect the dilution. And this quarter has more or less been, I guess, around EUR 8 or something like that, around that. And it's only been one month.
So the impact of the EUR 20-25 stemming from the turbine in cash cost will still be there in Q4, what I'm trying to say.
I don't follow you now. Could you repeat what you are saying now? Because I think I don't understand what you are saying.
So you have the effect from having to buy spot the electricity at spot because of the turbine breakdown. And this impact has probably had an effect this quarter, which has been around EUR 5-10 per ton, given that the cash costs have increased EUR 15 per ton on a quarterly basis. And it's divided between wood inflation, this effect that I'm explaining, and maybe some of the maintenance work you have had to do.
So having that as the basis, that is around EUR 5-EUR 10 impact only from one month, assuming that you have to do it for three months now, that you will have that effect for three months in Q4, you will have an effect of around EUR 20 per ton stemming from the turbine breakdown directly.
Yeah. But Álvaro, I insist. I insist. The extraordinary cost of being forced to buy energy instead of self-producing energy, which we think is going to be EUR 6 million on the fourth quarter and EUR 5 million on the first quarter, is going to reduce our EBITDA, but it is not included in our recurrent EBITDA, in our recurrent cash cost, sorry, cash cost, and as I mentioned before, we have provisions in excess.
We know today that we have excess of provisions because we have made some arrangements who have been provisioned in the past. These are going to offset the ones of the effect of the turbine on the fourth quarter. Okay. Thank you very much. Today, the only increases we see on the cash cost for the fourth quarter is up to maximum 10 EUR per ton in caustic soda. Maybe the dilution, the lower dilution because we may lose some tons of production or some tons of sale because now we are focused on margin and in reducing the price of the wood and in trying to get this increase of the prices of the pulp the sooner the better. Okay.
Thank you very much. Understood.
Thank you.
Thank you. There are no more questions at this time. You may proceed.
Thank you very much, everybody.
We have the pleasure to meet you on the next conference call. Thank you.
Thank you.
Thank you. Ladies and gentlemen, the conference has now ended. You may all disconnect your lines. Thank you.