Good morning ladies and gentlemen. Welcome to Auren's Earnings Conference Call to discuss the results of Quarter Two 2022. This conference call is being recorded and the replay will be available at the company's IR website, ri.aurenenergia.com.br, where the slide presentation will also be available for download. We inform you that all participants will be in a listen-only mode during the company's presentation. After which, we will open the floor for questions, and at that point, further instructions will be given. Before proceeding, let me mention that any forward-looking statements made during this conference call are based on beliefs and assumptions of the company's management and the information currently available to Auren. These forward-looking statements may involve risks and uncertainties because they refer to future events that depend on circumstances that may or may not occur.
Investors, analysts, and journalists should consider that any events related to the macroeconomic environment, the industry, and other factors can make results differ materially from those expressed in such forward-looking statements. We have today present with us Mr. Fabio Zanfelice, CEO, and Mr. Mario Bertoncini, CFO and IR Director. The investor relations team is also present here with us. Now I would like to turn the conference over to Mr. Fabio Zanfelice to start his presentation. Mr. Zanfelice, you may proceed.
T hank you. Good morning ladies and gentlemen. Thank you for attending our earnings conference call for quarter two 2022. I'm going to start our presentation right away so that we can leave time for questions in the end. On the next slide, we have today's agenda.
We're going to go over the quarter highlights, then the energy market, the operational performance, the financial performance, the growth strategy, and our closing remarks. For the quarter two highlights from the operational standpoint, here we have the first point is the full reestablishment of project Ventos do Araripe III, a project that had an abnormal operation of its transformers, and the situation is normalized as of quarter two. We also had a great wind performance in our wind farms. We're also going to go over our trading, our trading strategy and the continuous increase in the customer base of Auren. In terms of our financial performance, the Adjusted EBITDA reached BRL 424 million in quarter two, a 71% increase year-over-year. An operational cash flow of BRL 385 million after the debt service.
A cash conversion of 93% in the H1 of 2022. Also an important highlight was that this quarter we partially concluded the participants of the Vivest pension plans. We concluded the migration of the participants, so we had a reduction of the actuarial risk of the plan. Our growth strategy, we completed Auren's corporate reorganization. We're also going to go over some numbers of the Ventos do Piauí II and III wind complex, with nearly 60% of the wind turbines already operating. The COD, the commercial operation date, will be November this year. Also special highlight to the acquisition of the company Aquarela. It's a start-up that operates in market intelligence and data analytics. First let's start with the highlights of the energy market. On page six, we have a very interesting piece of data here.
I'm sure you've been following the recovery of the affluent natural energy in recent periods. Here we have information since October 2020 until the end of quarter two 2022 in June. We had the worst water crisis in the history of the industry. We had about a 39% reduction, about 3.3 GW average below the average. Starting in October, when the wet season started again there was a reversion of this expectation, we had more than 3.3 GW average of affluent natural energy in relation to the average. A 3.9% increase in comparison to the long-term average. This inflow recovered the reservoir and made it possible to reduce thermoelectric generation.
We started to see an expressive reduction in thermal generation, equivalent to 12.4% of the system's total generation, the lowest level in the past 10 years. On the next slide, we see the effects of this better water level, this better water scenario. On the left, we have a composition of the different two-year periods, starting in October and finishing in June of the following year. Here we can see the evolution between the wet period and the dry period for each of these two-year periods. From June to September last year in 2021, the stored energy evolution reached one of the lowest historical levels.
Fortunately, starting in October, we start to see recovery and storage reached 75% in May 2022, one of the highest storage levels in the last 11 years. The water conditions have been reestablished. The storage is at very favorable conditions, which led to a reduction of our marginal cost of operation, as we can see here on the right. At the same time, last year, we saw a higher marginal cost of operation in August, reaching nearly BRL 2,500 per MWh. Starting this year, we have one of the best marginal cost of operation of the last years, which led the system to be at the regulated floor of BRL 55.70 per MWh. On the next chart, we have data about our operational performance.
Here we have information about the energy balance of our hydro assets, which are 100% operated by Auren. This is to give you an idea of how the hydrological risk has been managed in Paraibuna and Porto Primavera. In quarter two, in order to cover for the GSF of these two plants, we acquired at the price of BRL 269 per MWh. Compared with quarter two 2021, this value was higher. In quarter two 2021, we covered nearly 300 average MW of deficit at BRL 193 per MWh. Of course, this difference has an effect on the diligent decision-making of the company. Last year, we made a decision to go for this coverage of this deficit when we were with one of the highest supply risks for the system in the past 10 years.
Some of this decision that we made is related to risk management for the company. On the next chart, we have some good news. In quarter two, we had wind power generation above the P50 certified for projects Ventos do Piauí I and Ventos do Araripe III. Here we have aggregated data for the two wind farms. They are 30 kilometers away, one from the other. Here we see the benefits for the region. It's the same wind regime, so this was very close for the two wind farms. The performance of the two wind farms was very similar in this recent period. Average wind speed was 8.2 meters per second. In quarter two, it was at 8.6 meters per second.
in quarter 2 2021, we had an impact due to the accident that happened in Ventos do Araripe III, which has been completely normalized, which we had already mentioned. The generation was 7.3% over the P90 for Ventos do Piauí I, and 1.4% above the P50. For Araripe III, it was 11% above P90 and 5% above the expected value for P50. On the next slide, we are presenting for the first time the consolidated numbers for generation and trading at Auren. Here you see the company's resources and requirements. In resources we have all the purchase agreement of Auren Trader, plus the total physical guarantee of our hydro plants and also our wind farms. In the requirement line, the red line, we see all the sales contracts that Auren has.
All the sales contracts for its own assets and also for the stakes it has in other hydro assets. Here we see that the company is totally contracted until 2025. Here we see an excess in this balance of 185 average MW in the first year, 110 in the second, and 52 in the third year. In 2024, 132 average MW in 2025. In the long term, from 2027-2032 , we have a contracting level of 65%. It's important to highlight that this considers the total physical guarantee of the company plus the purchase contracts. We don't have any hedge for GSF in this calculation. These are public numbers, so we don't really disclose our GSF premises.
Of these 3,343 average megawatt of resources, only 840 are subject to suffering the impact of the GSF, because this is the portion that the company has as physical guarantee in hydropower plants exposed to GSF. This is just to call your attention to the number that is exposed to hydrological risk. The trader reached a trading volume of 2.6 GW average until 2026. Today, we are still among the top three energy traders in Brazil. I'm going to turn it over to our CFO, Mario Bertoncini, he's going to talk about the financial results of the company in quarter two.
Thank you, Fabio. Now, on slide number 13, we have the company's EBITDA and revenue performance. The net revenue in quarter two was very much in line with results of last year, with a small increment, and the difference here is in the EBITDA. As Fabio had said, we closed quarter two 2022 with an Adjusted EBITDA, BRL 422 million. It's 71% higher than the EBITDA of quarter two last year. For the first six months of 2022, for the H1 of 2022, this EBITDA is 8% higher when we compare year-over-year. The main factors that led to this major improvement in our EBITDA were mentioned before.
It's including our generation performance, and particularly the full recovery of wind generation in Ventos do Araripe III, and also the performance over P50 of our wind farms and good climate conditions in the inner part of the state of Piauí and Pernambuco. Also better sales contracting prices, and this also reflects in better dividends, so a cash effect of dividends and a lower aggregate cost in the purchase of energy when we compare year-over-year. Despite the higher price and ICMS's zero rate, which we performed in the second half of last year, despite this effect in our consolidated numbers, our costs with energy generation this quarter were BRL 93 million lower year-over-year. On the next page, we have the highlight of our capital structure and Auren's cash flow.
We finished quarter two 2022 with a net debt EBITDA ratio of 1.8 x and an increment of 0.3 x the EBITDA compared with three months ago when we closed quarter one 2022. This is mainly due to the progress of our works in Ventos do Piauí II and III, the releases from the BNDES, and the investments in the project itself. Our net profile is still the same. It's practically a 50/50 split between BNDES and debentures. Our cash position is very robust. We closed quarter two with a cash position of practically BRL 3.5 billion and a totally restructured debt with an average maturity of seven years with no pressure whatsoever in the coming years. Now from the standpoint of cash generation, which we have on the bottom of slide 14.
Here we see a snapshot of the H1 of 2022 with a cash conversion ratio post that service or post that interest of 93%. This means that 93% of our EBITDA is converted into operational cash generation post that service. This is 93% for the H1 of 2022 and nearly 92% in quarter two. Very much in line with the plan and expected. We invested BRL 982 million in CapEx this H1, basically focusing on Ventos do Piauí II and III. We closed the H1 with an important cash flow level due to the capital raise. Now we're going to talk about our growth strategy. Okay, now let's go over the growth strategy of the company.
About the project that is now being completed, it's at its final stages of construction, Piauí II and III. It's in the same generation cluster that we have in Piauí I and Araripe III. Through financing from BNDES, we invested BRL 1.6 billion. 70% of this energy is already contracted until 2032. As you can see on slide 11, where we show the company's full balance sheet, this energy is considered contracted until 2025, fully contracted. Today, we have the 93 wind turbines that compose the two wind complexes. 70% of them are already operating. Today, we have 55 wind turbines that are already operating, 36% in operational commercial operation, and the rest is being tested.
We started mobilization in March 2021, and we expect to complete in November 2022. This is a wind farm that we built within the budget, on budget and on time, as we say. We were able to start operations despite the COVID pandemic and despite the adversities, the company was able to reach its objective to build this wind farm within the premises that were used for its approval. On slide 17, here we're announcing the construction of the first solar projects Auren is starting to develop. These two projects were announced in our pipeline. The first one is the hybrid project, Sol do Piauí, which will be installed in the Ventos do Piauí I site. It's the first hybrid solar wind power generation plant of Brazil.
The pilot project was approved by ANEEL in 2019. The estimated CapEx is BRL 255 million. We already have advanced financing with BNDES, so we already have the funds for this project. We expect to start building this year and complete the construction in quarter three 2023. Jaíba V in the north of the state of Minas Gerais, one of the regions with the best radiation of Brazil, so 626 MW peak and 500 MW AC to be installed. It will be one of the country's largest photovoltaic plants with an estimated CapEx of BRL 2 billion. We will also start constructing in quarter three this year, and we expect to complete in quarter one 2024. Now we will make our closing remarks on page 19.
Here we have a look at our social activities, the social actions of the company. It is a project that we would like to render some visibility here during this conference call. The company is working on these projects as a private company and also as a third sector organization with the government of Pernambuco. We started a technical training course in the city of Araripina in Pernambuco. That region has a very high potential for generation of renewable energy. We saw there the opportunity to provide technical training to the population that lives around our farms and plants, which would bring benefits in terms of education and also social benefit to the communities.
We're working with Instituto Votorantim and Itaú Educação e Trabalho to build this technical curriculum for renewable energies and update the curriculum of other courses such as IT and workplace safety. We have more than 150 curriculum and also to prepare the classes to be given to students in the state network of schools of the state of Pernambuco. This started in 2020. In 2021, we formed the first classes, and the curriculum was launched in 2022. This curriculum was built on top of the basic national curriculum, so this makes it adoptable by any teaching institution in Brazil.
We're very happy with this partnership with Instituto Votorantim and Itaú Educação, and we're very happy to be able to create this training program and to be able to offer technical professional training to the populations and the communities where we operate, right in the border between Pernambuco and Piauí. On the next slide, we will continue with very diligent management of our directional energy positions through our trader with a very prudent energy balance. We will continue to invest in our market intelligence capacity and commercial management. One example was the acquisition of a stake in the company Aquarela, transaction that was closed in quarter two. We will continue to have our capital structure prepared for our growth opportunities, both organic and inorganic.
We also give highlight to the addition of 548 MW AC of installed capacity in Sol do Piauí and Jaíba V, in addition to the 409 MW of Ventos do Piauí II and III, which are in the final stage of construction. We reinforce our capital allocation discipline, focusing on value creation to all our stakeholders. I stop here, and we are available for questions now.
We will now start the question and answer session for investors and analysts. If you have a question, please press the reaction button and then raise hand. If at any point your question is answered, you can remove yourself from the queue by clicking on lower hand. Please wait while we pull for your questions. The first question comes from Mr. Rafael Nagano. Mr. Rafael, your microphone is open.
Good morning. I have three questions. My first question is about the traders. Was there any advance in the case of? My second question is about the pension plan. You just completed your migration. What will be the impact on your provisions that we should expect for quarter three? Will it be in line with the BRL 300 million that you already paid or anything different from that? My third question is about the capital allocation looking forward. You announced a new project that will start to be implemented now, the solar projects, and you had previously mentioned the capital investments in the secondary market. With these new projects in your portfolio, will you somehow postpone your M&A options, or are you still actively searching for M&A possibilities?
Thank you Rafael for your question. Regarding Três Irmãos, we have no updates about that case. To be honest, we are asked very often about negotiations and about this topic. It's a very controversial topic. The only thing that we can say is that we don't comment on our negotiations because they involve the federal government. We don't disclose information about our negotiations in addition to the litigation that you already know about. I'm sure you are aware of the progress of that lawsuit. Regarding the capital allocation, the company can continue to grow organically through greenfield projects like the ones we announced, and also inorganically by acquiring other assets. The company will continue to develop its projects and then having its pipelines. We have projects such as the Helios project that we also announced when the company was formed.
We continue to develop and look for other greenfield project opportunities, and we are also actively searching for opportunities for inorganic growth. We must highlight that we always do this with very strict discipline and strict monitoring of the return of these projects and with a lot of financial discipline. We are always looking for projects that can add value with the experience acquired by the company in its history. Regarding Vivest, Well, Mario is the specialist, so he's going to answer your question about Vivest.
Hello Rafael r egarding Vivest, we just completed the migration process. If you remember, we started this process. We had the buy-in of 66.17% of our equity of the defined benefit funds where they were migrated. In August first, the company finished paying the BRL 303 million that will fund these participants that migrated to our defined contribution fund. We no longer have a deficit. This deficit has been covered. There was a reduction of the accumulated deficit of BRL 326 million. We paid BRL 303 million, so we reduced to BRL 326 million. Yes, there will be an adjustment in the accounting basis for the deficit.
If you look in our financial statements, you'll see that the adjustment made as of August will be adjusted in BRL -326 million to be more precise. Now about the next front. Just to add, after we migrate, after we complete this migration, the next work front which was actually happening in parallel is the potential change of indices. Today, we are fully indexed with IGPM and we are negotiating and looking for a consensus with all the stakeholders to migrate to a different index, to IPCA or to a temporary hybrid formula between the two indices. We don't have that formula yet, but the conversations are going well and we are also waiting for some court decisions before and then we're going to change the index.
Thank you.
The next question is from Mr. Andre Sampaio. Mr. Andre, your microphone is open.
Good morning. I have a question about your new projects, the CapEx for your new projects. I want to understand the difference between the CapEx of the two projects in terms of millions of per megawatt peak. Is this just because it's a hybrid project? What's the reason for this difference? And my second question is about the risk for this CapEx. We saw that some companies in your industry had difficulty having suppliers deliver equipment in the price they were originally contracted. In the case of solar, we didn't see that for wind. Can you comment on this risk and how the company is protecting itself from these complexities relative to new commodity price increases?
Thank you, Andre, for your question. As for the difference in the price, a good reference here is the scale. For the hybrid project, Sol do Piauí, it is 10% of the size of Jaíba V. The scale is one of the factors here that accounts for most of the difference between the two projects.
Now, as for the CapEx, we are very confident, first, due to the scale of the project, which also helps reduce the CapEx for capacity unit, and also because when we acquired this project, we studied in depth and we found it very competitive. The acquisition also had some positive factors for Auren that also helped us make this CapEx very competitive. Looking forward, we are studying and following the cost of the panels, also the variables that are influencing and increasing the price of the panels, both in terms of logistics and also raw materials for construction. We have been doing this practically on a weekly basis, and now the cost is somewhat stable according to our analysis. Looking forward, we still will see some stability in the cost of the panels looking forward. In our planning, we are not expecting any new increases.
We really studied why this price increase took place in the last months and in the last year. This was due to COVID and due to raw materials. We are not expecting new price increases for panels, at least not within the time frame of the project. Of course, this project is totally different from wind power. It is a project that will be built over time. Logistics makes a very large difference here. Of course, logistics is more exposed to price variations. On the other hand, the construction risk is lower. These two things offset each other in the evolution of the project. We have a lot of experience building these types of projects.
We are using our expertise in the construction of wind power projects, and we are using this expertise for to acquire, to buy equipment, to manage the works, and to manage the contingencies for this solar project.
I have another question. Can you please comment on the contracting of energy in quarter two, both in terms of the value, the amount and the price? Because it really contributed to the differences in the way you published your energy balance, in the way you published your energy balance comparing quarter one and quarter two.
Yes, there was a change. We saw a quick recovery of the reservoirs, which quickly improves the energy conditions, as you could see on our slide.
We understand that this is the right time to contract and sell, and now we expect prices to remain at the same levels in the coming year or even lower. The idea here was to manage the next three years from the standpoint of our energy balance, close to the total contracting. This also gives us freedom. It gives freedom to the trader to go about its natural trading, which is actually the nature of Auren Trader. Strengthen the position of Auren generation. As we said, we have, we showed you the numbers of the sold energy that we have. It's 2.5x times what we have in physical guarantee. This demonstrates again that our exposure to price in the next three years, at least for our generation unit, is very good and we will continue to explore market opportunities.
Of course, the market has some volatility and it has buy and sell windows, and our trader will continue to operate with its expertise in trading. In our results release on page 14, we give some more details about the prices of our own assets. What is the average ACR price, ACL price, and the price for our portfolios as a whole? There we talk about the sale of generation assets. We are not giving any details about the Auren trading sales. In terms of the market, what we see for the next few months is stability or maybe even a reduction in price. Our generation business is protected, and if there's any change in our scenario, our trading company will benefit from that, exploring the price volatility windows.
Thank you.
Next question is from Flavia Souza, Goldman Sachs.
Sorry, I apologize. My microphone was muted. My question is about your energy balance. I want to. Can you please clarify? Because of the change in the basis, I wanted to understand what was the sale and contracting in quarter two specifically.
It's very much along the lines of Andre's question. Do you have any additional question or?
Well, no, you already answered my question. Thank you.
The next question comes from Mr. Felipe Andrade, Itaú BBA. Mr. Felipe, your microphone is open.
Thank you. Thank you for taking my question. I want to insist on the energy balance topic because I want to learn from you or get more information about the acquisition of energy to mitigate the water risk in CESP. We didn't get much information about the volume for the next coming years. We see that these values were acquired in 2021, and they are not impacting the results of the company, but not so much. Can you share the numbers? Is there a relevant volume that was already acquired at high prices for 2023, 2024 to mitigate the water crisis risk?
Thank you. Felipe just to give you some context. After a fantastic period with we're seeing the very high prices of that. After a long wet period, we know that this also affected our risk policy at the time. When you look back and you look at the marginal operation cost, you can't really take on the risk of having an open position in the next year, right? That decision was made despite the high price. The decision was made for the next year.
To cover for the next year's position. We didn't really extend the same strategy for the years after 2022. There's something interesting here, which is the combination of the assets, the combination of energy assets and BTRM. When we combine the assets, and today the management of these assets is done by our trading arm. Within that trading volume, they're also managing the hydrological risk of our hydro power assets. Within this basket of energy that we presented in our energy balance, there's a part there, a portion there that was destined to covering the exposure that we have within our estimations and eventual GSF for the years after 2022. This is already considered in the trader's estimations, and the trader is working to cover for this exposure.
In the past, when we looked at CESP, there was a limitation in terms of this management, but it actually was able to manage brilliantly within the possibilities the company had. Now Auren, with its trading capacity, will be able to manage these positions much better. What happened in the contracted energy this year is actually a result of the worst water crisis that we had in the hydro sector. We diligently adopted the best risk management practice and closed the position at the prices that we announced here.
Thank you.
The next question is from Henrique Perachi, JP Morgan. Mr. Perachi, your microphone is open.
Hello. Good morning, Fabio and Mario. I have a follow-up question to your previous question. Can you please tell us what is the GSF that you're adding for 2023 and for the next years? Looking at your energy balance. You have a 95% contracting and even higher than that for some years. By including the new solar projects in 2023 and 2024, what will be your contracting level? And are you currently with a short position?
Thank you, Henrique, for your question. We avoid talking about GSF projections because you know that we can't really give any estimations. When we look at this energy balance on page 11. Just to recap, in 2022, we had 3,343 average MW of resources, and of these, only 840 average MW are subject to GSF impacts.
When I look at these 840 average MW, and we apply our estimated GSF for the year, for the next years, although the contracting percentage is very close to 100%, in our estimations, what we have here in terms of excess offer is sufficient to hedge the company over the 840 average MW that are subject to the GSF. This is important because we're happy to see that the percentage is close to 100%, when we look at it and we compare with the GSF, they're not comparable because the basis is different. Again, this results from the benefit of the consolidation of the assets and the creation of Auren.
Considering our trader has a very high volume of energy trading, all the management of the generating arm becomes much more efficient and meets the criteria of the shared risk, and we benefit from this opportunity to have the capillarity and the speed of the trader to cover for these amounts. Just one last comment, of course, that here, because we're still building, we haven't really added the resources from our solar and hybrid projects. As you know, the power is high, but the energy amount is smaller. Of the hybrid, it's about 23%, and for the solar project, 32%. In energy and megawatt average, the exposure to be added here is about 170 megawatt average. This doesn't add that much risk to the portfolio, considering the amount of energy that is traded by Auren.
Thank you, Fabio.
This question and answer session is now closed. We'd like to turn the conference back to Mr. Fabio Zanfelice for his final remarks.
Thank you all for attending our conference call today. We were very happy to present our full energy balance for the first time, but we judged this was very important. It was very important to share with you more information about the trading strategy of the company. We were also happy to announce that our wind farms reached the generation over the P50. The construction of the wind farms is very adherent to the generation capacity of the assets. We were also very happy to announce the kickoff of project Jaíba V, a large-scale project, and also project Sol do Piauí I, which is not as large as Jaíba V.
To us, it is very relevant, and we're very happy to be starting the construction of the first solar wind hybrid project in Brazil. Thank you all for attending. Have a great day and a great weekend.
Auren's conference call is now over. Thank you all for participating, and have a great day.