Good morning. We welcome you to the EDP First Quarter 2025 Results Presentation Conference Call. During the presentation, all participants will be on a listening-only mode. There will be an opportunity to ask questions after the presentation. If you wish to ask a question during the Q&A session, you may do so by pressing the star key followed by five on your telephone keypad. If you're experiencing any difficulty listening to the conference at any time, please make sure you have your headset fully plugged in, or alternatively, please try calling from a different device. I'll now hand the conference over to Mr. Miguel Viana, Head of IR and ESG. Please go ahead, sir.
Good morning, ladies and gentlemen. Thank you for attending EDP's First Quarter 2025 Results Conference Call. We have with us t oday our CEO, Miguel Stilwell d'Andrade, and our CFO, Rui Teixeira, who will present to you the main highlights of our strategy execution and the First Quarter 2025 financial performance. We'll then move to the Q&A session in which we'll be taking your questions both by phone or written questions that you can insert from now onwards at our webcast platform. I'll now give the floor to our CEO, Miguel Stilwell d'Andrade.
Thank you, Miguel. Hello, everyone. Thank you for attending our First Quarter Results Conference Call. I'd like to start, for those of you who were not able to listen to yesterday's call from EDP Renováveis, just start with a brief remark on the unprecedented blackout last week in Iberia. I think the first thing to note is, while it is yet to be fully explained and we do not know the root cause, it is really important to recognize how both countries were able to fully restore power and safety to the population. I want in particular to thank the people at EDP and E-REDES, the distribution company in both Portugal and Spain, for all the hard work and the dedication and sort of all the hours they put in to get the power back online. Overall, great work was done by the team.
On the other hand, the event also clearly underlines the need for continued investment in the grid infrastructure and interconnections, in particular interconnections between Spain and France. It's been clear for many, many years that this is absolutely critical, and it would have certainly helped in this context. There is also the need for investment in energy storage and also complementary solutions, for example, the ancillary services. Together with renewables, these are the elements that are key to ensuring an electricity system that provides clean, reliable, and affordable energy to all.
Now, turning to this quarter's results, I think if we go to slide three, and start with a quick recap on the first quarter numbers, EBITDA increased 6% year on year, so it reaches EUR 1.4 billion in the first quarter. This is clearly a very good quarter, particularly for the integrated generation and supply business in Iberia. We had a lot of rain. We had higher power prices, certainly versus last year. We also benefited from strong demand for flexible generation and ancillary services. That was good. On the electricity network side, we also saw resilient performance. It actually increased 7% when we exclude the asset rotation gains and FX from last year.
Bear in mind that last year we recorded EUR 134 million in asset rotation gains split between the transmission and EDPR transactions, and this year we are not recording any gain, and yet we had this underlying growth. Wind and solar underlying performance was also up 20% year- over- year, excluding gains, as we talked about yesterday, supported by an increase in installed capacity after the record additions executed in the fourth quarter and also improved renewable resources. Overall net profit increased 19% year on year, reaching EUR 439 million and reflecting this very strong top-line performance. If you go to slide four, I think this is a particularly interesting slide because it shows that was a quarter with really strong hydro resources, 42% above average, even better when compared to last year's resources, which were already 38% above average.
However, hydro generation decreased year on year since the strong rainfall was crucial to strengthening the reservoir levels. So we took the advantage to fill up the reservoirs. They were at 60% at the beginning of the year. They are now, versus 80% in early 2024. If you look at the left-hand side graph, you can see that the delta on the production year on year was mostly stored in the form of reservoirs. We go into this, let's say, second and third quarter with strong reservoir levels. Despite being lower year- over- year, hydro generation was still above average, around 0.5 TWh above average. Those uncontracted volumes were sold at much higher prices when compared to the first quarter of 2024.
The electricity pool price in Iberia was almost double the first quarter of 2024, and it was EUR 85 per megawatt-hour in the first quarter of this year. All in all, reservoir levels are standing at roughly 93% in early May, so maximum highs of the last 10 years. April was also a very good month in terms of hydro resources, so 52% above average, which leaves us confident for the remaining part of the year. Obviously, the fourth quarter is also an important quarter for us, and we will have to see how that goes in relation to hydro. If we move on to slide five, I think what we wanted to talk about on the slide was really stress the value of our flexible generation fleet.
We can definitely extract additional value from price volatility in the market, and this is key to complementing intermittent technologies. We're seeing a clear trend of more value being attributed to this type of assets. If you look at the final price of electricity in Spain, you can see that the component of it that's attributable to ancillary services and restrictions is constantly increasing. This is due to a combination of factors. On one hand, increasing electrification, so grid management complexity, higher penetration of intermittent resources. All of this increases the demand for balancing services that can be provided by flexible generation assets, hydro, gas. Those are really the key assets for us, obviously pumping. On the other side, this higher penetration of renewables leads to expanded intraday spreads.
You can see that on the right hand of the slide, which leads also to improved hydro premiums. And so talking about EDP's figures, hydro pump spreads as a percentage of base load prices stood at more than 50% in the first quarter of 2025 and are showing a clear growth trend when compared to past years as a result of this new market profile, which we expect will continue to be like this going forward and even to, well, and so it's more of a structural issue. If we move on to slide six, so looking for at the overall integrated business. This improved market context together with the first, you know, a good first quarter in April as well means that we are updating the guidance for this segment in 2025. So previously, we pointed to an integrated Iberian EBITDA of around EUR 1 billion-EUR 1.1 billion.
We're now targeting 1.1 billion-1.2 billion. Most of that has already been locked in. We have about $500,000 of EBITDA already recorded this quarter, with 0.4 margin locked in for the remainder of the year. That leaves us with 0.3 still not locked in. We expect that to come mostly from flexible generation, hydro pump storage, gas, and these have lower risk, namely hydro, which, as I say, has very healthy reservoirs as of May. Key drivers for this guidance are strong first quarter and also good numbers for April, reservoir levels at 93% in early May, high weight of locked-in margin, assuming normalized volumes, positive prospects for flexible generation with increasing demand for flexibility services, and obviously a very resilient client base that provides stability. That continues to show us an increase in services penetration. Positive outlook for this integrated business.
Talk about networks. On slide seven, as you know, by the end of 2024, we proposed a 50% increase in investments for the next regulatory period, 2026- 2030, in the medium and high- voltage electricity networks in Portugal. There's typically a multi-annual investment program that we have to present every couple of years. We did that with this proposed 50% increase. This proposal has now received a favorable opinion by the regulator. It was the first- ever regulatory opinion without any cuts proposed. I think there's a general consensus in the sector that there is a need for additional investment in the networks. I think this is obviously good news for the investment in our networks business. I think we all recognize that it's absolutely critical for ensuring the energy transition.
I'd also like to highlight here that according to the regulator, the impact on tariffs is immaterial. We're talking about a 0.7% accumulated increase in the 2030 tariffs versus 2025 . This is not a CAGR. This is an accumulated increase of 0.7%, which is absolutely immaterial in the context of the cost of the systems. We want to invest in several fronts here in the networks. Around 45% of the investment in our plan will be allocated to modernization of the grid, around 15% to digitalization, and around 20% to electrification and decarbonization. Finally, and this topic has grown in importance over the last two weeks, 20% of the investment will be allocated to making our networks more reliable and ensuring a continuous robust service as the renewable penetration in the grid grows.
I think it's consensual in the system or in the sector that we need to ensure adequate returns for the electricity networks to support these higher investments and to enhance the assets modernization. On the right-hand side of the slide, just a quick wrap-up of the key regulatory milestones we'll have this year. We have the new regulatory period starting in 2026, as I mentioned. We will be expecting to get a proposal from the regulator on the October 15th in relation, so that's a draft proposal for the next regulatory period. We'll have more information then. As you know, typically on the December 15th is when we get the final decision from the regulator on the next regulatory period. Two key milestones, October 15th ( draft) and December 15th (final opinion).
We expect to have public hearings and discussions over the next couple of months, but at least on the investment side, we already have a positive regulatory opinion on this. It is still dependent on the government approval. We also have to have that discussion around the returns of this additional investment. Talking about networks in Spain, if you move to slide eight , as you know, we've been reinforcing the weight of electricity networks in our portfolio over the last couple of years. We did the Viesgo acquisition back in late 2020. We basically doubled our networks in Spain. We already had the Hidrocantábrico networks up in the north in Asturias with the Viesgo acquisition, mostly networks in Cantabria and also part of Asturias. These contiguous networks generated significant synergies .
I think we were able to really show the value that came out of that and overdeliver on the assumptions underlying that acquisition. This is an area in the north of Spain which has quite a good growth potential due to high industrial demand per capita and also increasing renewables generation. However, and this is something that we've stressed before and many other players in the sector, we think that the investment conditions in Spain have room for improvement. The return on RAB is currently 5.6%, and there's no inflation update. On top of that, there's an investment cap of 0.13% of GDP. T he sector as a whole can't invest more than 0.13% of GDP. We've seen that the government, the Spanish government acknowledges this and recognizes that this needs to be changed.
We believe that the regulator agrees that this is urgent and that the current rate should be increased. The Spanish regulatory period, there'll be a new regulatory period also starting in 2026. The current investment plan for the 2026-2028 period is under discussion with the regulator. It was submitted to the regulators on April 30 2025, after a favorable opinion from the regional governments. This plan is still respecting the current investment caps. We have also proposed another plan with a significant increase for the 2026-2028 period beyond the current cap. If there is an increase in the cap, we already have an alternative plan already prepared. By the end of the year, we expect that the regulator should improve the new investment limits. This is our estimate on the deadline. It could be that we have further visibility either in the second or third quarter of 2025.
Regarding the new remuneration framework and regulatory assumptions, we should have a public hearing soon in the second quarter of 2025 , and then the regulator should approve this by year-end. All in all, for this regulatory period, the key message is that improvement of returns is critical to attract private investment in the networks and critical to support the energy transition. We will see how this evolves over the next couple of quarters. Move on to slide nine and talk about electricity distribution in Brazil. Here we continue to see a continuous increase in electricity demand. As you know, this is extremely important for the returns for the networks in Brazil. This has been supported by demographics, by economic growth, by electrification trends. The electricity distributed increased 7% in our areas in Q1 2025.
It's after a similar increase in 2024 and an increase of 5% in 2023. Definitely this reinforces the need for additional investment in the electricity networks in Brazil. It's worth highlighting that our two distribution companies in Brazil continue to be a reference in the country in terms of quality of service indicators. EDP São Paulo registered its best historical record for duration of interruptions in electricity distribution in 2024. Now EDP Espírito Santo has also reached this milestone. Both of our distribution companies are committed to delivering best quality of service and capitalizing on this market growth. On the right-hand side of the slide, a recap in terms of the distribution companies. This is obviously a very important year for EDP Espírito Santo. The new regulatory period starts in August 2025 .
The regulator has released the regulatory WACC for 2025 at 8.06% versus 7.15% currently. The distribution concession process is ongoing. The regulator has recommended that the concession be extended for 30 years at the ministry on April 29. We expect the new concession contract to be signed in May. Spírito Santo will have this additional 30-year concession. W e expect to announce that in the coming weeks. We move on to slide 10, just a quick overview on our transmission business in Brazil. Over the last nine years, we have delivered more than 12 transmission projects, unlocking value through operating and asset rotation.
We've sold six lines since 2021, amounting to around BRL 0.7 billion of gains and BRL 6 billion in asset rotation proceeds, including the asset rotation deal concluded last week on LOT 21. Currently, we hold seven transmission projects. Of these, three are under construction. These are the lines that we won in March 2024. The investment associated with this is BRL 2.6 billion, so around EUR 0.5 billion. The regulator expects these projects to enter operation between 2027 and 2028, and we expect to reach double-digit equity IRRs with these projects. On the right-hand side of the slide, regarding our asset base, we expect it to continue growing through the period of 2025 to 2027, reaching BRL 6.7 billion in 2027.
Regarding wind and solar on slide 11, as I mentioned, I've mentioned already previously two gigawatts of new capacity to be added in 2025 , all projects are under construction around 70% expected to be commissioned by year-end. Just giving you a little bit more color on these additions in terms of geography, the US and Europe representing 80%. In terms of technology, it makes approximately two-thirds of new capacity coming from solar and storage. I wanted to take an opportunity to talk about supply chain strategy because this is something that we get a lot of questions on. We adjusted our supply chain strategy over the last two or three years following incidents in 2022 and 2023. Since then, we've prioritized the use of domestically manufactured equipment and established partnerships with US-based suppliers.
This allows us to mitigate the risks associated with the import tariffs. For 2025 and 2026 secured capacity, we have already ensured the necessary infrastructure to keep the projects on track. Most of the equipment is already in the US or not subject to tariff because it is either domestically made or specifically exempt. We estimate tariffs will have a limited impact on our revenues or secured capacity, totaling less than $250,000 or around 1% of these projects' CapEx. I also wanted to just highlight here our multi-year agreement with First Solar. We announced that back in March 2023, and that ensures access to the U.S.-manufactured solar modules, and it gives a lot more visibility and comfort surrounding our project pipeline for 2026 and 2027. On the PPAs, we continue to see strong, resilient demand, mostly backed by regulated utilities and corporate entities.
On PPA pricing, it will likely be adjusted depending on market changes. At the same time, the Inflation Reduction Act tax credits framework remains a key pillar for our investment strategy. Even yesterday, we have had several Republicans signing a letter defending the maintenance of these tax credits. We have around 1.5 GW of projects secured under safe harbor agreements, and we have protected our developments from potential legislative adjustments. All in all, confident in our efforts in the supply chain management that will pay off and that we can continue to grow in the U.S. in a sustainable and value-enhancing way. Just another two slides before I pass it over to Rui, one talking about efficiency on slide 12. I wanted to just highlight here that we think this continues to be a key competitive advantage.
We've been spending a lot of time focusing on this, and this has been reflected also in our numbers. As of the first quarter of 2025, OPEX decreased 2% nominal year-over-year. If we look at the 2023 numbers, we can see a continuous decrease, so - 3% versus the Q1 2023 in nominal terms, meaning a decrease of 8% versus the first quarter of 2023 in real terms. Because over this period, we had around 5% of inflation, 3% nominal decrease, so around 8% real decrease. I think this is really impressive when you think that over this period, we grew our installed capacity by 11%. We grew our distribution network. We grew our transmission business. This is the result of several measures. I mean, these efficiencies, we've obviously simplified our corporate structure. We've resized and restructured some of our platforms.
We've increased the digitalization and automation, you know, as a way to optimize the workflows and resources. These are having an impact on EDP financials, and they will continue to do so in the coming years. Growth and decreasing costs, I think that's a fantastic sort of equation to keep. Tight control over OPEX, really prioritizing cash flow generation and shareholder value. With that, that brings me to guidance for the year. I think we're looking at sort of strong integrated generation supply business, helping us feel very comfortable about our EBITDA at EUR 4.8 billion, net profit EUR 1.2 billion, and net debt around EUR 16 billion for the end of the year. As I say, structural improvements from the flexible generation activity. We obviously had a very good Q1 and sort of strong start to the year.
We have hydro generation above average in the first quarter and in April and sort of high reservoirs in May, so we can manage over the next couple of months. We've had resilient electricity networks, and the underlying business is positively impacted by this growing electricity demand and the inflation update on the revenues. Wind and solar is having an increased contribution from new capacity added in the fourth quarter of last year. On the other hand, we have and are expecting lower asset rotation gains this year versus 2024. On the negative side, we are facing weaker dollar and Brazilian real versus the euro. Putting all of that together means that we are confident in delivering this guidance for 2025. Net debt guidance at EUR 16 billion for the year.
We're assuming around EUR 2 billion of asset rotation proceeds, mainly from EDPR, and also assuming around EUR 1 billion of tax equity proceeds. Looking forward, we're working on a new strategic update for 2026 onwards that will take into consideration the new regulatory frameworks for the electricity networks in Spain and Portugal. Hopefully, we'll also have more visibility on the outlook regarding the energy policies in the U.S. We expect that we'll have more visibility on the Inflation Reduction Act, how that sort of settles down over the next couple of months. All of this will feed through into the new strategic update from 2026 onwards. With that, I pass it over to Rui for the financials.
Thank you. Thank you, Miguel. Good morning to you all. Let's move to slide 15 to start reviewing the financial performance of the first quarter.
Recurring EBITDA reached EUR 1.4 billion. That is an increase of 6% year-over-year or 8% if we exclude the forex impact in this period. This is basically reflecting the renewables, clients, and energy management being up by EUR 134 million, driven, as Miguel said before, by the hydro client and energy management, which benefited from higher flexible generation, also improved power prices in Iberia year-on-year. Also, EDPR with an improved underlying performance year-on-year by EUR 23 million up, and actually EUR 81 million up if we were to exclude the asset rotation gains that, if you recall, were EUR 58 million in the first quarter last year. Networks, they are down by EUR 72 million, but this reflects the absence of asset rotation gains this year versus EUR 76 million last year.
If we exclude the gains, EBITDA from this segment increased EUR 4 million year-over-year following the strong electricity demand across the different geographies and the performance across the different geographies. Finally, I would like to highlight the efforts on efficiency in the growth context. OPEX decreasing 2% year-over-year nominal terms. The efficiency measures we have been implementing are already positively impacting the bottom line. If we now go through the segments and we go to slide 16, just a quick wrap-up on the EDPR performance, which we have detailed yesterday. Underlying EBITDA went up 20% and improved performance year-over-year. This is on the back of 17% growth in installed capacity following record additions in the first quarter in the fourth quarter of 2024. Improved wind resources versus the first quarter last year with the renewables index at the 1 percentage point above the long-term average.
This led to a 10% increase in electricity generation. On the other side, the average selling price decreased 5% year-over-year to EUR 57 per MW h. This is a combination of lower realized prices in the European portfolio. As we said yesterday, it has to do with a shift in terms of the energy mix with higher weight from regions that have lower prices, also lower average hedging prices, but partially offset by higher realized prices in the U.S. All in all, EBITDA increased 5% year-over-year with the underlying performance being mitigated by no asset rotation gains in the first quarter this year versus the EUR 58 million capital gains that we had in the Q1 2024. Now going to the segment of generation and supply, the integrated margin. On slide 17, a deep dive on the EBITDA.
Recurring EBITDA on the segment increased 27%, reaching EUR 523 million this quarter. This is really great performance. This is obviously backed by our integrated business in Iberia, where we saw a high demand for flexible generation and backup services. Hydro generation in Iberia was 13% below year-over-year as we took the opportunity to substantially increase the reservoir levels, as Miguel showed before. This follows the strong hydro resources in the quarter, which were 42% above the average. Actually, versus our expectation, we generated an additional 0.5 TWh that were sold at much higher prices versus last year. If you recall, electricity prices or the spot price increased 90%, so almost doubling versus the Q1 2024 to this quarter where the price booked was EUR 85 per MWh , or the average price on the market was EUR 85 per MWh .
Reservoir levels at 93% as early May, and therefore this brings us, you know, this gives us confidence for the upcoming quarters. Slide 18. Really solid performance on the network segment, accounting for 30% of total group EBITDA. The EBITDA from this segment, excluding gains, stood pretty much flat or slightly up year-on-year. A EUR 6 million increase in Iberia following the increase in electricity distribute, so additional 3%. Also the increase in supply points, 1% year-over-year. I think it's worth highlighting here that we continue to see a strong increase of connection requests related to the energy transition when we for new renewable power to be connected that has increased 25% year-over-year. In Brazil, EBITDA, excluding gains, relatively stable year-over-year with the 7% increase in electricity demand being offset by the FX impact in this period.
If you look to the underlying values in Brazilian real (BRL), both in distribution and in transmission, they are increasing year-over-year. EBITDA, including asset rotations, was, or the capital gains from the asset rotation last year was about 15% lower. This is after the BRL 76 million gain in the transmission deal that was booked in the first quarter last year. Now moving to slide 19. Net financial costs in recurring terms increased 8% year-over-year, resulting from, on one hand, cost of debt that increaseing from 4.7% to 4.9%. This is reflecting a higher Brazilian real- denominated cost of debt. If we exclude that Brazilian real debt, the cost of debt stays stable at 3.3%. Cost of debt in mostly in euros and U.S. dollars, it is stable year-over-year. Also, on the other hand, higher average debt versus the first quarter of 2024.
This combined increase of +8% year-over-year on financial costs. On the right-hand side of the slide, average nominal debt by currency shows a decrease of the U.S. dollar- denominated debt in line with our strategy to reduce exposure to this currency. Finally, highlighting that at the beginning of this year, we issued EUR 750 million in green bonds with a 3.5% coupon. More recently, we have signed EUR 500 million in loan agreements with EIB to fund renewable energy and green development projects. I think this shows that we are continuing to actively manage our debt and liquidity needs. On organic cash flow , it amounted to EUR 0.8 billion in Q1 2025, which is EUR 0.1 billion above Q1 2024, relecting EBITDA performance. A good conversion of operational performance into cash generation.
On the right-hand side of the slide, CAPEX decreased from EUR 1.1 billion to EUR 0.9 billion, with electricity networks weight increasing from 19% to 22%, (which 60% is allocated to Iberia, 40% is allocated to Brazil). N et debt on slide 21, as of Q1 2025 stood at EUR 16.1 billion, main drivers being organic cash flow of EUR 0.8 billion. This partly funding the cash investments that amounting to EUR 1.2 billion, mainly from investments in renewables and networks, and including EUR 0.3 billion from payments to PP&E suppliers. This was slightly offset by EUR 74 million in tax equity proceeds. As we showed yesterday, there were some proceeds already booked in Q1 2025 from the tax equity in the U.S. I would also highlight here the share buyback program that we concluded in April 2025 .
It was a program of EUR 100 million, embedding an average price of EUR 2.89 per share ex-dividend. I have to say, I think it was a very successful initiative implying a P/E multiple for 2025 of 9.9× and a dividend yield of 6.9%. Overall, we are maintaining solid credit ratios, namely FFO/ net debt at 21.3%, and we may fully commit to our BBB credit rating. Recurring net profit was EUR 439 million in Q1 202, a 19% increase year-over-yea r, or EUR 71 million in absolute terms. Increase in EBITDA reflecting the strong performance on the operational side. Also, higher D&A and provisions increasing EUR 34 million year-over-year as a result of our investment path. Increased net financial costs due to the higher average cost of debt and increased cost in Brazilian reals, the denominated debt.
Higher income taxes following higher effective tax rate due to the lower asset rotation gains year-over-year that have a different tax treatment and also higher non-controlling interest. Excluding capital gains, the underlying net profit shows a very strong 69% year-over-year . Again, I think it really is the reflection of the very strong performance of the quarter coming across all the different business lines. In reported terms, net profit increased 21% to EUR 428 million. With this, I would hand back to Miguel for closing remarks.
Thank you. Thank you, Hui. Just as a final couple of comments, I mean, five points. First, good solid first quarter numbers supporting strong underlying performance. Net profit up 19% year-on-year, driven, as you saw, by the integrated generation supply business in Iberia and improved EDP Renováveis underlying performance and also resilient electricity networks.
Second, regarding the integrated business in Iberia, we have a positive outlook for 2025, supported by a strong Q1 and solid Apri l. Reservoir levels at 93% by early May, high weight of locked-in margin, positive prospects for flexible generation, increased demand for flexibility services and higher intraday price volatility. All of that driving this positive outlook for the integrated business for 2025. The networks, resilient electricity networks, significant investment opportunities and positive regulatory outlook for the next period, 2026 and beyond, both in Portugal and in Spain. Also the new regulatory period and concession extensions for EDP Espírito Santo in the new regulatory period for Espírito Santo and expect the concession extension already this month for Espírito Santo.
On wind and solar, good visibility on the 2025 additions: 2 GW on time and on budge, all under construction and the supply chain under control and limited exposure to import tariffs in the U.S. O verall 2025 outlook, I think we feel comfortable. We have good visibility on the underlying performance in the various business segments, reinforcing our integrated utility with a low-risk controlled profile. The 2025 guidance for EBITDA is still at EUR 4.8 billion, net profit EUR 1.2 billion, net debt at EUR 16 billion, around EUR 16 billion. Finally, as I mentioned earlier, we expect to do the Capital Markets Day in November 2025, providing a strategic update post- 2026. By then, we expect to have already better visibility on the regulatory outlook for the distribution and also on the energy policies, particularly in the U.S.
With that, I'd stop there and turn it over to Q&A. Thank you.
Thank you. Ladies and gentlemen, the Q&A session starts now. As a reminder, if you wish to ask a question, please press star followed by five on your telephone keypad.
Thank you. I would ask please to take only two questions by each person. The first questions come from the line of Pedro Alves from CaixaBank. Pedro, please go ahead.
Hi, good morning. Thank you for the presentation and taking my questions. My first question is on this structural improvement in flexible generation. B ackup services and pumping spreads are performing very well in the current context.
Looking ahead, as we are still short of batteries in Iberia, is there anything that can stop an even stronger demand for balancing services and even higher power price volatility and therefore higher contribution of these assets in the next few years? The second question is on the full- year 2026 guidance. If you can reiterate at this stage the guidance for next year, despite the weaker FX that we have right now, will the integrated portfolio in Iberia be able to compensate for that? Also, how much asset rotation gains should we expect for next year as the effect of the bad vintages in the EDPR portfolio fades? Thank you.
Okay, Pedro, thank you. Great point here on the flex gen.
I think certainly, as you say, without a significant amount of additional batteries, we expect to continue seeing high spreads between peak off- peak. That is just a function of the energy mix that we have currently in the Iberian Peninsula. Obviously, depending on the weather, you could have higher volatility in the intraday market. I would say that in general, we expect that flex gen will continue to be a strong contributor going forward, or it has been increasing over the last couple of years. We expect that it will stay like that also going forward until you have a significant amount of additional batteries or some structural change in the market, which we are not seeing. On the 2026 guidance, we are keeping the same assumptions. We have no reason to change them at this point.
We continue to see sort of energy prices, which is obviously one of the big drivers still, if anything, even slightly higher than what the guidance we have given when we gave it out last year in 2024. In terms of FX, it remain volatile. We are not sort of making any big adjustments for that. We think there are positives and negatives which can offset each other. On the asset rotation gains, I do not think we have given out that specifics yet. I would keep it for now, just take that overall guidance between the various different pieces and packaging. We can provide further information when we come back to the market, probably in the Capital Markets Day in November. Okay.
Thank you.
Thank you, Pedro. The next question comes from the line of Javier Garrido from JP Morgan. Javier, please go ahead.
G ood morning . I will stick to the two. First one would be if you can comment on the impact on EDP from the disconnect between the Portuguese and the Spanish power markets and the resulting higher prices in Portugal since the blackout. And the second question, obviously, is on your 2025 guidance, which is still making me scratch my head. Is your EUR 1.2 billion net income guidance for 2025 a realistic central- case scenario, or is it a worst case scenario with the information that you have today?
Thanks, Javier. Regarding first question, we do not have an estimate of impacts, but I'd probably break it down into. There was the actual day, which there was no energy during that day.
There were a couple of days after that when there was basically quite a strong market splitting and no imports from Spain. We are now back to a situation where there is already flux of energy going between both countries. We expect that this is now normalizing. Overall, we are talking about maybe a couple of days with some markets higher- than- normal market splitting. We do not expect that, at least based on the information that we have, that would have any material impact. Regarding 2025 guidance, it reflects our best estimate as of today. We are comfortable with that number, or we feel even more comfortable than we did before. There are obviously still several months ahead of us. We think it is a realistic number.
If later down the road, we see reasons to change it or to update it, obviously, you guys will be the first to know. As of today, I'd say it's a realistic outlook.
Thank you, Javier. The next question comes from the line of Alberto Gandolfi from Goldman Sachs. Alberto, please go ahead.
Good morning, and thank you for taking my two questions. O n similar topics, your net income before asset rotation gains is already represents 40% of your 2025 guidance . With high levels of reservoir levels, what factors prevent an from upgrading guidance for 2025? What visibility do you have on ancillary services? I mean, you talk about 1.1-1.2 billion, but I assume ancillary services are not hedged, correct? They depend on the volatility in the market.
Do you worry that there's going to be a bit of a contraction in ancillary services, or do you think those will be stable as well? Because otherwise, myself also, I truly don't understand why not changing, upgrading, I should say, guidance right now. The second question is on Spanish allowed returns. I'm not asking you to comment on press reports or media, but for me to understand the way you're thinking about it, if really returns were to come out at a 6.5% nominal, say, without any extra add-ons, would you still upgrade CapEx in Spain, or would money be better allocated in renewables at EDPR? Should we see CapEx go back up, or maybe EDPR could be a share buyback potentially? What would be the best use of capital if returns in Spain don't go to where the industry seems to have been asking? I leave it there. You see if I can ask about any EDPR buyout this time.
Thank you, Alberto. Just in relation to your second question, I think quite simply, I mean, we've seen speculation about or speculation or reports about the 6.5% nominal. I think what the sector has been asking for is 7.5%. And 6.5% seems low if you want to attract private investment, which we think is obviously very necessary in the Iberian Peninsula. Obviously, it's not just about the returns. It's also about other regulatory assumptions. We have to see all of the framework before taking a decision on whether we increase investment or not. What I'd say is we would certainly hope and expect and think it's desirable for the system as a whole, I mean, that you have a higher than the 6.5%.
On the net income, listen, I think a couple of things. First, we obviously had good gas margins and events last year, which we're not expecting this year again. I mean, including sort of things like the Naturgie and stuff like that, which were not recurring versus last year. Also, we had hedged this year at EUR 70 versus around EUR 90 last year. Also for the rest of the year, we're looking at sort of these lower hedge numbers than we had versus last year. Also, in terms of market prices, for example, in April, they were slightly lower. We had a very good Q1 with sort of EUR 85 per MW h, but April's come down. We are also being prudent there in terms of power prices over the next couple of months. Ancillary services, I think we're assuming is pretty much stable going forward. T he combination of all of these things makes us feel comfortable with the guidance. As I say, if we have reason to then upgrade at any point, obviously, we would let you know. As of today, we would certainly reiterate our existing guidance 2025 of EBITDA EUR 4.8 billion and net profit EUR 1.2 billion.
Very clear. Thank you.
Thank you. Thank you, Alberto. Next question comes from the line of Ollie Jeffrey from Deutsche Bank. Olly, please go ahead.
Thanks. Just coming back to the flex generation. If I remember correctly, I n 2023, pumped storage did EUR 50 million. This year, it is maybe around EUR 100 million, maybe you could comment on that. With the rest of storage and CGTs, that might imply EUR 200 million.
I'm just interested to see how for the flex generation plus pumped storage, how that's changed from last year to this year. And then kind of medium term for the hydro Iberian supply business, we've previously guided medium term for around EUR 900 million for that business. Given the structural changes we're potentially starting to see, do you see that number now being a bit higher given the desire to have more firm power and for ancillary services?
Thank you very much. Olly, it's Rui here. Do you mind repeating the question? Because I have to say I was a bit lost. Can you repeat? Sorry.
I was asking about the flex EBITDA number this year where you see there's around EUR 300 million. I'm just trying to understand for how much of that is pumped storage and how much of that 300 million is CGTs and the rest of your ancillary services. I'm just trying to understand how the rest of that has grown from last year. How much have you seen the ancillary services benefit increase this year versus last year? How much has that contributed in the higher EBITDA? The other question was just medium term. I think you guided to hydro Iberia being around EUR 900 million on a normalized basis. Just given the structural changes we're now starting to potentially see around ancillary services and a greater desire for firm power in Spain, do you see that EUR 900 million figure medium term being higher?
Okay. Got it. Thank you very much. Again, on the ancillary services and flex generation, it's hard to say how much, but yes, we are expecting it to slightly go up. As Miguel was saying, I mean, we see it as an outcome of what is happening structurally in the sense of what is the current market matrix, and that's how or why we see that upside. We can follow up offline. We can help you do the sort of splitting between what is a CCGT versus other elements of the ancillary services. You're right, what basically we said was that sort of a cruise speed, this segment of the business should be around the EUR 0.9 billion.
I think back in February, we also stated that this could be around EUR 0.91 billion, actually, exactly because of what we see of the contribution from the hydro pumping spreads versus the base load prices, the contribution of different ancillary services. Yes, I think that we are looking to that segment more towards the EUR 1 billion as opposed to the EUR 0.9 billion. We can follow up offline on the other topics.
Thanks very much.
Thank you, Olly. The next question comes from the line of George Guimarães from JB Capital. George, please go ahead.
Good morning. I have two questions. The first one is related to the potential of setting thermal plants in Portugal with so-called black starts. What type of remuneration could you get from the regulator, if any, if you were to fit more plants with this type of facility? The second one is related with your outlook for the distribution in Portugal. If you can give us, not getting in advance of the capital markets day of November, but if you could give us some idea about what would be the impact in the gross margin of distribution in Portugal from the CapEx plan you presented to the regulator. Thank you .
Thank you, George. Regarding black starts, currently there are two power plants in Portugal with this cap ability: Castelo de Bode, hydro plants, and Tapada do Botelho, a thermal plant located up in the north, which is not ours.
It's already been announced by the government that there would be two additional power plants, so Alqueva, a hydro, and Baixa Bor hydro as well, which would also be fitted out with the black start. I'd say that the remuneration, I don't have exact numbers, but it's low single digit, I mean, or single- digit numbers. We're not talking about material remuneration for this service. On the impact on gross margin, I don't have the exact detail. I’d leave that for later. Obviously, I mean, what we've said in the past is that this increased investment over the next couple of years would lead to mid-single digit growth in RAB over that period. You can probably back out what that means in terms of increasing gross margin. Thank you.
Thank you.
Thank you, George. The next question comes from the line of Arthur Sitbon. Arthur, please go ahead.
Hello. Thank you for taking my question. The first one is on international networks, so Brazil and Iberia. I think on the last conference call, you had talked about EUR 1.6 billion of EBITDA networks in 2026. I was wondering if you would expect any improvement from that given the regulatory review in Brazil that you talked about in the presentation, as well as the regulator opinion on the investment plan for coming years, and maybe your updated expectations on the two regulatory reviews in Iberia. That would be the first question. The first one is just ahead of the CMD in November, and I'm conscious that you probably can't say much at this stage. I was wondering how you think about financial leverage. Basically, would the goal for you be to have delivered significantly by November in order to have a less conservative business plan on capital deployment, whether it be focused on growth investment or cash distribution? I was wondering, actually, if maybe one of the reasons why the guidance for 2025 does not increase is that maybe you assume some dilution from disposal, or is the idea to deliver gradually during the business plan and have an approach more focused on discipline on capital deployment really at the core of the new plan? Thank you very much.
Okay. Thank you, Arthur. In relation to the first one, the guidance that we gave regarding networks already included some assumptions regarding sort of increased investment and return.
Obviously, we already, even though we do not have the numbers or even a draft proposal, we already had certain assumptions built into that guidance number. What we will have is confirmation and the final numbers, and we will be able to then give a more precise value. We already had a certain amount of assumptions in terms of increased investment and returns in that. Regarding your second question, as you know, and as both Rui and I have mentioned is to mantain our commitment to the BB B credit training at all times. What we do is essentially try to triangulate between growth, balance sheet, and dividends. That is the balance that we will be doing for the Capital Markets Day.
We're not trying to preempt or do an additional acceleration above and beyond what would be necessary to keep the BB B for the Capital Markets Day. We're just trying to make sure that we are able to keep this balance between these three points. Hopefully, we'll give them more detail in the capital markets day about what our growth rate is, what our dividend policy will be, and also what we expect in terms of ratios and balance sheets for the coming years. Don't read anything into the dilution. Don't read anything into the dilution disposals or anything.
I think the only thing maybe which I did not mention on a previous question, I think, from Alberto, is do not forget that we have also increased slightly our guidance for this year on the integrated margin, and we decreased it slightly on the EDPR side because of lower capital gains assumptions. Okay. That is really the only thing you should take into account.
Thank you.
Thank you.
Thank you, Arthur. Next question from the line of Gonzalo Urbana from EBS. Gonzalo, please go ahead.
Hi. Thank you. Thank you for the presentation, for taking my question. On my side, just one follow-up on Alberto's questions since he did not ask about the potential buyout of EDPR. A broader question also including this topic. I mean, we get from time to time rumors about potential approaches from you or to you with different options, alternatives. You probably seen them all. I was wondering what would be your view on any sort of big M&A, corporate transformation, so basically whether that message has changed in any way, and that obviously includes any potential change in the structure, the corporate structure within EDP and EDPR. Thank you.
Thank you, Gonzalo. I'll give the same answer, which I've given many times before. I mean, in relation to the structure, we're very comfortable with the current structure. In terms of big M&A, what we're really focused on as management is on delivering value. As I showed, it's growing the company, it's being more efficient, decreasing costs, it's anticipating the dividends as we did this year, or making sure we're able to sort of have a good shareholder return policy, whether it's dividends and share buybacks. That's our key focus. That's what we are really working on. I certainly would not want to speculate on anything else apart from that.
Thank you.
Thanks, Gonzalo. The next question from the line of Jorge Alonso from Bernstein. Jorge, please go ahead.
Good morning, and thank you . My questions relate to energy hedges, especially in Iberia. If you can provide some more color about for the hydro, the wind, solar, what are the levels for 2025 and 2026? You have hedged something for 2027. The other one would be related to the CapEx in renewables, especially in solar outside the U.S., if you expect the CapEx to come down materially, and if that could boost the profitability of some of your projects if you are already with some of the procurement open at this stage. Thank you very much.
Hi, Jorge. It is Rui here. In what concerns hedges for this year, as we said already, we are at around EUR 70/MWh . If we look into 2026, we have already some hedges done at around EUR 63/MWh . That is for about 3 point, I mean, nearly 4 terawatt hours. I would say good pricing above what you currently see as forward curves in the market. In the CapEx in the U.S., I'm sorry, do you mind repeating the question because I'm not sure if I follow?
Yeah. If due to what is happening with the tariffs in the U.S., if you think that the solar CapEx outside the U.S., simply because of the oversupply of the Chinese suppliers, can be low, and these can create an opportunity for some projects in which the procurement is still open. The PPA closed, but CAPEX coming down, and then creates an opportunity for increasing IRRs.
Yeah. Okay. Got it. Thank you. Maybe starting by saying, I mean, what we have seen is that solar module pricing is at minimum levels versus last year's. At some point, I think it's hard to consider that it can continue to go down. As you see, some of the solar manufacturers, their numbers are not looking great. If you look to the other components on the CAPEX, I would say it's hard to think about compressing the labor. My point being that we are not expecting any major shift in terms of downward or reduction on the CAPEX. Again, this will vary region by region. First of all, we are not counting on that.
Secondly, when we are negotiating the PPAs or bidding for CFDs, we will take what is at the moment or how we are going to lock in the CapEx so that we do not open the position in a sense that we would be committing to the power sale without locking in the CapEx. To some extent, ultimately, that starts if there was any shift in the pricing on the CapEx side, it starts getting reflected on the PPA prices as well, but targeting always our spread, the 250 basis point spread to work. I would say that at least we are not seeing a major contraction on the market in terms of the CapEx.
Thank you.
Thank you, George. We do not have any more questions from the line, and we are reaching the one hour that we are supposed to take the call. I'll pass to our CEO for final remarks. Okay.
Thank you, Miguel. Just final remarks. I mean, obviously, it's undeniable that this is a good start to the year, the first quarter, and in April, I think also good. Positive outlook on Iberia integrated business, positive outlook on networks, expecting slightly less in terms of asset rotation gains as we talked about yesterday for 2025. Overall, I think feeling good about the business, reiterating our guidance for the year and feeling comfortable with that. I think the key message is that obviously we're going to be providing additional information over the next couple of quarters, but we expect to be back in November with a more detailed analysis of the business and the outlook for the next couple of years.
In November, we would give that sort of strategic update post-2026, but obviously with additional information 2025, 2026, and beyond. With that, thank you very much, and look forward to talking to you again soon.