Good day, welcome to the EDP nine-month 2020 results conference call. Today's conference is being recorded. At this time, I would like to hand the conference over to Miguel Viana, Head of IR. Please go ahead, sir.
Good morning, ladies and gentlemen. I hope that you are all safe, as well as your families and friends. Thanks for being with us today in the conference call on EDP's results for the first nine months of 2020. As usual, we'll begin with the main highlights of these results, and then we'll provide an update on strategy execution. We'll then move to our Q&A session, in which we'll be taking your questions both by phone and via our webpage. The call is expected to last no more than 60 minutes. I'll give now the floor to our Interim CEO and also CFO, Miguel Stilwell d'Andrade.
Hello. Welcome, everyone. It's nice to have you back. Thank you for attending EDP's third quarter results call. I hope you're all well and safe as this pandemic rages on. First, I'd just like to take this opportunity to thank our EDP teams, and I think our ability to adapt in the face of these unprecedented circumstances that we're living has been thanks not only to the measures we took as a group, but also definitely the individual actions of all those that work with us within the EDP network and our supply chain partners. I think together we've remained alert and very aware of our responsibility towards all of our stakeholders. As we look to the future, EDP's investments in the energy transition can, I believe, play a key role in the recovery of the economies where we're operating, as well as create much needed employment.
Turning to our nine-month results. I'm pleased to present a solid set of results this morning in a challenging period marked by the current COVID crisis. In the third quarter of 2020, we saw a recovery of the electricity demand and electricity prices when compared to the remarkably lower levels we saw in the second quarter. EDP's positive performance in this volatile global and economic environment has been very much supported by our resilient business model, with more than 75% of our activities being long-term contracted and regulated, and also supported by a conservative hedging policy in our energy markets. As you know, EDP has been a first move in renewables, our main growth driver. Today, we have more than 20 gigawatts of renewables installed capacity, and despite COVID, we have secured long-term contracts for over 700 MW in 2020.
Looking ahead, we have currently 6.5 GW of secured renewables additions, providing a clear path for future growth. In addition, the strong public support for post-COVID green economic recovery represents a crucial growth opportunity based on investments in new clean energy infrastructures, which will help accelerate the decarbonization and the energy transition in Europe and in the U.S., EDP's two main renewable development markets. Over the last nine months, we've continued to execute our strategic plan with a proactive portfolio management, which aims to reinforce EDP's low risk profile in our alignment with the energy transition. This includes the agreement for the acquisition of Viesgo, which we announced back in July, for which we received antitrust approval from Brussels yesterday, as well as the disposal of the Castejón CCGT and the retail energy supply operations in Spain to Total, as agreed last May.
The decision to anticipate the shutdown of our coal plant in Iberia was also very important in terms of accelerating our decarbonization targets. In August and September, we announced two renewable asset rotation deals that we had planned for this year, which we closed at valuation multiples well above our initial expectations. We continue to believe that all these transactions will close before year-end. You can see we'll have a very busy next few weeks. We also maintain our commitments to a sound capital structure and to our financial deleveraging targets with the execution of a EUR 1 billion equity rights issue in August. In the debt markets, we issued EUR 2.2 billion this year, all green bonds, at an average yield of 1.7%, even including a hybrid emission. Green bonds already represent 30% of our total debt.
What's clear to me is that these challenging times can represent an interesting opportunity if we stay focused on our long-term strategic targets, but also maintain our flexibility to adapt to short-term circumstances, so allowing us to deliver superior value to our stakeholders as the energy transition moves forward. I'd ask you to move to slide four, the key highlights. First, in the first nine months of 2020, our EBITDA fell 2% year-on-year to EUR 2.6 billion. On one hand, the EBITDA benefited from the recovery of the hydro resources in Iberia, but also robust results from our hedging strategy in the energy markets. We saw negative pressure on EBITDA from weak wind resources, the depreciation of the Brazilian real, and the contraction of electricity demand in our key markets versus the same period of last year.
Recurring net profit increased by 14% to around EUR 700 million, driven by Iberian activities, which compensated the lower net profit contributions by EDP Brasil and EDP Renewables. Net profit benefited from the improvement in the average cost of debt by 80 basis points to 3.2%. Our reported net profit was down 8% to EUR 422 million, largely impacted by the non-recurring items I'll detail in a moment. Net debt went down by 6% year-on-year, or year-to-date, actually, EUR 13 billion, backed by higher recurring organic cash flow and the capital increase in August. As a result, the ratio of net debt to EBITDA was down to 3.4 x in September versus the 3.8x in September of 2019.
In this period, we've also accelerated our contribution to decarbonization with a 47% reduction in our emission factor, supported by a 10% increase in the renewables production and a 50% reduction in our total CO2 emissions. Moving on to slide five. The third quarter showed clear signs of recovering the electricity demand in the city markets where we have an integrated presence, including distribution and supply. Demand in Portugal had a small growth in the third quarter compared with the same period of last year, while in Spain and our concession areas in Brazil, we saw declines of around 3%. Although this still represents a strong recovery from the previous quarter. The volumes evolution is particularly relevant for the short-term performance of our activities of distribution in Brazil, but also in supply in Iberia.
On prices, we saw a recovery in the third quarter from the second quarter, both in terms of spot and in terms of forward prices. Moving on to slide six, talking a little bit about hydro. As a utility with a strong focus on renewable energies, we're obviously exposed to the volatility of the renewable resources. On one hand, in the first nine months of 2020, we saw a good recovery of the hydro resources in Iberia. We had a very dry 2019, if you remember. Now we're close to the historic average. On the other hand, wind resources were 9% below the long-term average, and this impacted our EBITDA by around EUR 100 million. This volatility in renewable resources is one of the reasons why we think it's important to have a diversified portfolio, both in geography, but also in terms of technologies.
Moving on to slide seven. As I've mentioned before, consolidated EBITDA went down 2% year-on-year. With this decline, it was mostly driven by the Brazilian real depreciation in the period. Excluding this impact, EBITDA, so ex Forex, increased by 3%. On renewables, EBITDA fell 6%, reflecting around EUR 150 million decline in wind and solar EBITDA. This was brought about by weaker wind resources with a negative impact of close to EUR 100 million in 2020, and a year-on-year decline of asset rotation gains totaling EUR 200 million in this first nine months of 2020. The decline of EBITDA from hydro in Brazil is mostly explained by the Brazilian real devaluation. On the positive side, we have hydro Iberia EBITDA, which increased EUR 87 million, supported by the recovery of the hydro production volumes. Going on to networks. EBITDA decreased 12%.
It's a 4% decrease if we exclude the adverse FX impact, which accounted for most of the decline in Brazil. In local currency, the networks in Brazil showed an 8% EBITDA decline. Although EBITDA from transmission more than doubled, it was based on the commissioning of new lines in the construction. The EBITDA from distribution fell 24% year-on-year, following last year's significant gains on the revaluation of the residual value of the distribution assets, and also the 7% decline in electricity volumes. We discussed this last year, and we highlighted it in the presentation at the time. In Iberia, the EBITDA evolution reflects a decline in regulated returns, so 4.85% in Portugal and 6% in Spain. As you know, this is obviously following also the reduction in interest rates, and in the case of Portugal, the Portuguese bonds. It's more or less expected.
The strong improvement of EBITDA in Client Solutions Energy Management, it's fully driven by the good performance of the energy management activity in Iberia. It's mostly Iberia. Consolidated EBITDA, positively impacted by a good OPEX performance in the period. We had OPEX decreasing 4% on a like-for-like basis. This is obviously not just due to tight cost control. It is also due to that, but it's also supported very much by a very fast acceleration of the digitalization fueled by all the changes associated with this pandemic. It's natural that a part of this is as a result of less traveling and less costs associated with that. Slide eight, moving on to interests, interest costs and financing costs. The interest-related costs went down 18%, supported by an 80 basis point decline in the average cost of debt to 3.2%.
As you can see in the table on the right-hand side, the yields paying the new bonds issued this year were clearly below the rates that we were paying in maturing debt. We also saw a reduction in the benchmark interest rates in Brazil and a 5% decline of our average debt in the period, which also contributed to this decline in interest costs. This is a downward trend that we expect to continue over the next couple of years. In Brazil, I think it's worth highlighting that the SELIC is now at around 2%, which is extraordinarily low levels. Moving on to slide nine. Talking a little bit about cash flow and CapEx. Recurring organic free cash flow increased 36% to EUR 1.4 billion. It's almost twice the EUR 700 million annual dividend that we paid out in May.
The net expansion investments rose by over 30% to EUR 1.2 billion, of which almost 90% was allocated to renewable projects under construction or development. The EUR 1 billion equity rights issue that we did in August and also the EUR 500 million positive FX impact, resulting from the Brazilian real and the U.S. dollar versus the euro, also contributed to the 6% decline in the net debt to EUR 13 billion. The net debt over EBITDA ratio improving to 3.4 x. Again, low levels certainly by historic standards. Note that we expect to close a significant number of transactions before the end of this year, as I've already mentioned. The combined terms are not only fully aligned with our financial deleveraging commitments, but it will also reinforce the weight of the long-term contracted and regulated activities in our portfolio. Moving on to slide 10.
Recurring net profit increased 14%. The negative FX impact at the EBITDA level is very diluted, both at the EBIT level and even more so at the net profit level, given that we're funding our operations in local currency. This flows through the P&L. Below EBIT, the positive impact from the lower net financing costs and also from lower non-controlling interest, namely EDPR and EDP Brazil, was partially offset by the slight increase of effective income tax. Reported net profit fell 8%, reflecting EUR 250 million approximately of non-recurring costs in 2020, mostly related to our conventional operations in Portugal. In the third quarter, we made a provision of around EUR 50 million after tax on the alleged overcompensation regarding the CMEC plants and the ancillary services.
We will be contesting this decision in line with the recent appeal by EDP on the Competition Authority on the same subject. Again, something that we will be contesting over the next couple of months. It's also worth noting that we've conducted a review on the various outstanding litigation. Let me just take a moment here to talk about two points in particular. First, in relation to the CESE, we will be withdrawing the litigation against the Portuguese state. This was done taking into account the current pandemic crisis and also following an analysis we do periodically of the probability of success and the costs associated with these cases, and the fact that the proceeds are being allocated to the system debt as we've always defended. We see some progress there. This decision will have no impact on financial results.
The CESE annual costs have been accounted every year since 2014, and EDP is up to date with all the CESE due payments. Note, however, that we expect the CESE to gradually decrease over the next few years in line with the system debt as foreseen in the state budget. The second point I'd like to talk about, which is social tariff. As you know, we've not been litigating on this, even though in accumulated terms we've been charged over EUR 460 million, including extra estimates for 2021. We've always said we understand and we agree with the social tariff, but that we fundamentally disagree with the way it's being financed. I think we said that repeatedly over the years. We don't believe it's compliant with EU directives and best practices, for example, the way it's done in Spain.
Spain, as you know, has already had several iterations of this, and currently they are compliant with EU directives. As you know, in Portugal, it's financed through the generation business, which has no link to vulnerable customers. As a result of this, we'll be requesting that Brussels review this issue and evaluate the conformity with EU directives. That's something that also will be moving forward now in November. We think that these steps are important to stabilize the regulatory environment in Portugal. I'd now move on to strategy, and just a couple of slides here on execution of strategy. We've already achieved 86% out of the 7 GW renewables growth target for the plan until 2022, even without considering the 500 MW that we're adding with acquisition of Viesgo.
We have a total of, as I think I've already mentioned, 6.5 GW of renewable projects secured, of which 2.2 GW under construction, and the rest is in advanced development stage to be added to our portfolio in the next couple of years. All of these projects have a name, a location, execution deadlines, and very importantly, they also have a long-term contract already signed. I'd really like to stress that we have very good visibility on the returns associated with these projects. Even considering some slowdown in the decision process associated with the COVID crisis, we've already secured around 700 MW of long-term contracts for new renewable projects in 2020.
In rough figures, two-thirds of secured contracts are relating to onshore wind projects, but I think it's also worth noting that solar and offshore wind are gaining weight, and certainly versus historic, where it was almost 100% onshore. In regional terms, our renewable investments are pretty well distributed between Europe, North America, and Latin America. You can see that in the graph here on the right-hand side. This is aligned with our strategy of diversification of investments, both at technology level and also geographically. In parallel, it's also allowing us to consolidate some of our positions in those key geographies. I think it's worth noting that we live in a moment of increasing global public support for the decarbonization, and I think that will be a certain trend moving forward.
In Europe, the European Commission has already favored an increase in the targets of emission reduction to 55% in 2030 versus the 1990 levels. The NextGenerationEU fund will provide additional liquidity with at least 30% of the EUR 750 billion being directed to decarbonization projects. Clearly, there's a lot of funds that are being allocated to the energy transition. In the U.S. this year, we've already had the extraordinary PTC extension, and there are also pretty ambitious renewable policy proposals out there, as you know. Moving on to slide 13. We've been conducting asset rotation deals since 2012, although initially on a smaller scale and selling only minority stakes up to 2018. In 2018 onwards, from December, which was when we announced the first majority transaction, we've really decided to intensify this activity and focusing on these sales of majority stakes.
The asset rotation strategy is really allowing us to crystallize part of this value up front, and we've discussed this, I think, on several calls. It also allows us to reduce the age of our portfolio, I think that's also an important variable to keep in mind. After nine years of this type of activity, we see these deals as a key part of our recurring business, we certainly intend to continue to do this going forward. Since 2012, we've done over 20 asset rotation deals, totaling 4.3 GW and more than EUR 5 billion in proceeds, of which EUR 2.1 billion were in 2019 and 2020. I think you all know that so far, we're also exceeding the business plan estimates. We're getting higher EV per megawatt multiples than expected, both in 2019 and 2020.
I think it's also important to note that these multiples depend, though, on the location of the portfolio, and they're quite different in Europe or if they're in the U.S. In these two years, we should reach roughly around EUR 700 million of asset rotation gains. This is in line with the amount that we're planning to achieve over the entire four-year period of the business plan. A clear outperformance here. These transactions, coupled with the positive market environment, I think have given us a lot of confidence on the performance of the asset rotation activity for 2021 and 2022. Move on to slide 14. Talking a little bit about decarbonization. Decarbonization, as you know, has been at the core of our strategy for a number of years now.
In the first nine months of the year, the weight of renewables in our energy mix increased to 74% versus 58% just five years ago. Coal-fired electricity production fell by more than half year-over-year to just 7% of the energy mix. The weight of coal in our revenues decreased to 5% versus 7% one year ago. As a result, and I think this is also a number which a lot of people are focusing on, our specific emission factor is almost halved to 122 grams of CO2 per kilowatt-hour. We have good prospects for the evolution of our carbon emissions for the near term. Certainly, if we factor in all of these portfolio resurfacing deals that we've announced, especially including the shutdown of the Iberian coal plant. I really wanted to reinforce our commitment to a more ambitious decarbonization target for 2030.
We will be reducing our CO2 emissions target or factor by 90% in 2030 versus 2015. A reminder that the previous target was a reduction of 90% versus 2005, and it's now versus 2015 levels. This is equivalent to halving the specific emission factor by 2030 to 30 g of CO2 per kilowatt-hour. This target's also been recognized by the Science Based Targets initiative, and it's aligned with the pathway to limit the global warming at 1.5 degrees, which, as you know, was something that we've explicitly outlined as being a core issue for us. Moving on to slide 15, and just a word on Brazil, and we get a couple of questions on this. Brazil is currently 15% of our EBITDA and 10% of our earnings in the period.
I think this is recognized by everyone, the Brazilian economy is being impacted by the pandemic. I think it's also worth noting that the institutions in Brazil have created several mechanisms to support the electricity companies and the consumers. They've reacted, I would say, quickly and strongly to the COVID. In the distribution in particular, I think it's worth highlighting the creation of the COVID account. This has increased liquidity for the companies, but it's also provided a pass-through of costs related to the estimated COVID impact on the increase of involuntary surplus of long-term contracted electricity volume. This is obviously key for that business. In the generation business, and I think this is something that we discussed, new legislation has been published to solve the dispute on the GSF cost in the free market.
The detailed rules are still being designed by the regulator, but the approved solution involves extending the concession period in some hydro plants in exchange for the settlement of the current legal disputes, and that will solve the uncertainty that existed until now. Our expectation would be that that would be in place by the end of the year, but obviously, we're monitoring that closely. Looking at the macro environment, the depreciation of the Brazilian real has obviously impacted our financials in EUR terms. However, the fact that we fund in local currency and the fact that most of our regulated activities have revenues indexed to inflation indexes, either the IGPM or the IPCA, depending on which you use, it significantly mitigates this impact at the net income level. On our distribution concessions, they recently had their annual tariff revision, and they benefited from the update of the IGPM.
This is more correlated with the FX changes than the IPCA. In the case of EDP São Paulo, it had a tariff revision a couple of weeks ago, it was communicated by Brazil, at an increase of 21% in the parcela B, which is the part of the tariff which can be managed by the DISCOs. It's backed also based on an IGPM of rise of almost 18%. In transmission, we had some delays in construction, as you know, relating to COVID, but construction has resumed, and we already have almost 80% of total CapEx for the six transmission lines already executed. Slide 16, and we're moving towards the end. Guidance, and I think this is obviously a key slide. First, we are upgrading our financial guidance for 2020 since we now have more visibility until the end of the year.
We now expect a recurring EBITDA at EUR 3.7 billion. Previously, we were aiming for the EUR 3.6 billion. In terms of net income, so recurring net income, we're looking at around EUR 0.9 billion, towards the upper end of the range we communicated previously. Just to remind everyone, as in the past, this net profit, recurring net profit, assumes that the sales in Portugal is a non-recurring item. Okay. What are the drivers that are leading to this upgrade in guidance? First, obviously, the high levels of hydro reservoirs in Iberia, so we're having a relatively, well, it's an average year, but certainly better than last year. Better outlook also from the activities in Brazil.
Quite frankly, I think we were a little bit pessimistic about Brazil a couple of months ago, but I think things have started to shape up, and so we're more positive on Brazil now. Good visibility on the asset rotation gains. We expect an additional around EUR 0.2 billion versus what were our estimates a couple of months ago. Then also some benefits from the increase in volatility in the energy markets, in the energy management activity. Finally also, obviously, the decline in the interest cost. I think these solid results really show that in these challenging times, it's not just the resilience of our earnings and the business model, but I think it also really shows the focus of our teams in delivering the commitment to our strategic plan. I started out by thanking the teams, but I think it's really been tough times on the ground.
We have a lot of people actually on the day-to-day business, whether it's in the distribution networks or in the generation plants or in the supply business, that are out there making sure we are delivering high-quality service and electricity to our customers. I think that's something I would really like to highlight. I really believe we're well positioned to deliver stronger long-term growth and value creation for our stakeholders. We have a unique starting point, and I think we really continue to benefit from the green economic recovery programs in a post-COVID world. I think we'll have a lot of good and positive news and targets to talk about when we go back to the market in the first quarter of next year. Thank you all. I'll stop now and open it up for questions that you might have. Thanks, everyone.
We will now take our first question from Alberto Gandolfi from Goldman Sachs. Please go ahead.
Thank you. Good morning, and thanks for taking the questions. I have three, but promise one is quite brief. The first one is, given there's a lot of moving pieces, assets leaving the business, Viesgo being consolidated, more disposals to close, the CapEx potential acceleration, would you mind guiding on net debt for year-end and maybe commenting a bit on your leverage situation? It looks to me as you are overshooting your own target. A second question, which is a continuation of the first one is, considering the exposure to contracted capacity and networks, do you really need to stop there, or are you gearing up to capture some of the upside that we are seeing in the industry? Lots of your competitors are open to chase as much growth as possible.
We are seeing a strong year ahead of us in offshore, more and more regions moving to net zero from Asia to potentially even the United States. I guess the question is, you're going to talk about that in the CMD, but is now the balance sheet no longer a constraint for a CapEx upgrade? The last question is a little bit detailed and perhaps boring, but I think very important. The EUR 900 million net income guidance, you talked about EUR 400 million gains. Two points. The EUR 400 million gains, am I right in assuming they all come from EDPR? We should take about 80% of those, and they are largely tax-free, but not fully. Perhaps, in the EUR 900 million, am I right in thinking there's a bit less than EUR 300 million of gains?
The clean net income would be EUR 600 million. You said two important points. One is that capacity factor normalization in wind is worth EUR 100 million, and COVID volumes was, I think, EUR 57 million, EUR 54 million. What I'm trying to say, there's probably another EUR 150 million we could normalize these figures for. If I take out the gains, add back those items, are we talking about the EUR 750 million underlying net income before any asset rotation gain? Thank you so much.
Hi, Alberto. Thanks for the questions. All very insightful. I'd say in relation to the first one, in relation to net debt. We are aiming to definitely meet our target of net debt to EBITDA by the end of the year, and probably be close to around EUR 12 billion of net debt. I think when you look at this, you need to take into account, as you yourself mentioned, the pro forma of these various things. We have, for example, a full year of the hydro, or pretty much full year of the hydro. We won't have yet Viesgo consolidated. When we talk about the net debt to EBITDA, it's worth doing, let's say, a pro forma of all those different moving pieces. I can say that from our forecast and our estimate, it would be net debt of around EUR 12 billion, as I say.
EBITDA, around EUR 3.7 billion, as I said, and regulatory receivables may be about EUR 0.8 billion included in that. Hopefully that can help you get to the numbers that you need. In terms of the second question, contracted capacity and gearing up. Listen, I think we've been gearing up over the last two years, certainly since the strategic update, with the revised targets. We've been ramping up from 700 MW to around 2 GW. That's, let's say, the cruising speed we're aiming for. We continue to do that exercise, and we continue to look forward and think about how we can continue to grow the business, optimizing the number of megawatt, the profitability of those megawatt, and the risk of those megawatts. That, as you say, that's something we will talk about, I think, more holistically at the CMD.
We are definitely thinking about it and are looking at what we can do in terms of additional growth or in terms of the growth of the business going forward. In relation to your third question, which is a very specific question, but I think it's a good question. I'd say yes, you can basically do that calculation that you've outlined. I would tend to agree with those numbers. Obviously, bear in mind that this year we had the pool prices already fully hedged, and so we had a pool price of around EUR 55 per megawatt- hour. As you know, for next year, we have it at around EUR 45 per megawatt -hour, already fully hedged. That's something to take into account. There are other things that are moving pieces, things like FX, et cetera, which can also vary over time.
Doing a simplistic calculation as you've done, I think it's roughly right.
Thank you.
We will now take our next question from Harry Wyburd from Bank of America. Please go ahead.
Hi, everyone. Thanks very much for taking my questions. On the first one, I wonder if I could just add on a little extra to Alberto's question, and Alberto's set out the base, I guess, for this year, but just thinking about a few more of the kind of year-on-year changes. Firstly, the most obvious one is scope. Coming from this year into next year, we'll see a lot of scope changes to count on in our models. Can you give us any kind of flavor, maybe even at just an EBITDA level, as to what you think the year-on-year scope impacts are, particularly from things like, if you add together all the asset sales and the Viesgo and stuff, I mean, we're pretty familiar with the hydro sale, but if you could give an overall view for scope changes year- on= year.
Then also just on wind and hydro volumes, I think on the nine months, you said in one of the slides, wind is worth about 150 - up to nine months. Hydro is still this year, well it's much better than last year, still slightly worse than an average year. Again, maybe could you just give us any kind of sense for what the year-on-year impact of those volumes could be? Second question, just obviously very busy year for M&A. Excluding EDPR, so just focusing on the other parts of the business, are you now happy with the scope of the business? Should we be sort of bearing in mind that there's potential for further reshuffling, either adding or selling assets in the non-EDPR business?
Then finally, this could be an incredibly naive question because, obviously, there are lots of different arms of the state and the judicial system in Portugal, but we keep sort of returning to lawsuits, both from parts of the government to you and now today, you to parts of the government and so on. I guess, in the kind of olden days, quote unquote, when utilities were sort of seen as, often politically, as sort of punch bags, perhaps to use an unfair phrase. Nowadays, you guys are the sort of renewables leader, and particularly in the scope of Europe, you're a major export force now, and Europe has the biggest renewables developers globally. Is it still relevant in today's environment for the government to keep sort of attacking you from lots of different angles?
Do you think for EDP, there's a scope now potentially to, and again, this could be incredibly naive, but is there a scope to kind of come to some sort of settlement with the government to stop this treadmill of sort of you suing the government on for one thing and the government suing you back for another thing? Particularly with governance such a focus nowadays, I just wonder whether there's a scope to perhaps stop these headlines or reduce them. Thank you.
Okay. Thanks, Harry. As you say, the scope is definitely several moving pieces, and so that's one of the reasons why I think it would be important for us to go back to the market and do a CMD at the beginning of next year when we'll have, let's say, be able to give the full picture with more specific numbers. In any case, I think over time, we've given out some of the deltas for these different pieces, whether it's the Viesgo, the asset rotation, the sale of the B2C/CCGTs in Spain, and also the sale of the hydro in Portugal. I don't have all those numbers specifically here, sort of detailed, so that I can give them to you, but we can give that after through the IR.
We'll get back to you on that with, let's say, what we've said publicly about this so that we can make sure we're reconciling this with what's public information. In relation to the question on reshuffling or the additional changes of scope outside of EDPR, I'd say the answer is definitely yes. We are constantly looking at our portfolio and thinking about how we can continue to optimize it, continue to align it increasingly with these energy transition trends, which we really believe in, whether it's renewables or networks or some of the newer businesses. We will continue to do that going forward and look at it and think about what makes sense in terms of the portfolio. I'm not going to give you any specifics, to be honest. It's not anything that we're specifically doing right now, but it is a constant exercise that we do.
In relation to your last point, I don't think it's a naive question at all. I think it's a great question. We don't litigate to litigate. We obviously only do that if we think that something is either unfair or not legal or not justified. Obviously, that's not our objective. We would very much like and expect and hope to have a stable, productive relationship, whether it's with the Portuguese government or the Spanish government or the Brazilian government. In whatever geographies we're operating in, we need to obviously comply with the local regulation and legislation. We expect everyone to do the same. I do believe, again, you mentioned that the traditional utilities are becoming increasingly international, increasingly drivers of the potential future economic recovery. This energy transition is a key part of, for example, the Green Deal and the EU Recovery Fund.
It's something that we see a big political alignment around this industry. Yeah, I think we are all working in the same direction, which is to make sure that we can deliver the energy transition going forward and, obviously, make this a better economy and a better place to live in for everyone. Whether that's for the government or everything. I think hopefully we'll have a good relationship with everyone, and that's certainly what we're working towards.
Okay, many thanks.
Just to complement on the numbers that we provided already in the presentation. Viesgo, EBITDA 2019, it was in the region of EUR 240 million. We expect to consolidate from the 1st of January. The disposal of the portfolio in Spain to Total, it's an EBITDA around EUR 35 million in 2019. The hydro portfolio 2019, again, EUR 150 million EBITDA. Net impact would be around EUR 40 million based on these numbers that were ones that were historical and public, the ones that we provided.
Got it. Many thanks.
Our next question comes from Arthur Sitbon, Morgan Stanley. Please go ahead.
Hello. Thank you for taking my question. I have two. The first one is, it seems that the recurring net income guidance of EUR 900 million implies quite a sharp fall in net income in Q4 2020 versus Q4 2019. I was wondering if you could spend some time walking us through the moving part from last year to this one on the fourth quarter. My second question is actually fairly detailed, is could you quantify the EBITDA contribution at EDP level of the transmission lines in Brazil for the future years? Thank you very much.
Okay. Thanks for the question. I think in relation to the nine, or you said around EUR 900 million. Obviously, this will depend very much on what happens now in November and December, which are typically important months in terms of hydro factor. Last year, when you do a year-on-year, don't forget last year, we had a very strong December. You need to take that into account. If you assume, let's say, an average month of December, it would certainly get you to a different number. Some other points I think that are relevant when thinking about the fourth quarter. First, in the asset rotations, we are expecting some tax impact, and also EDP's share on those gains is around 83%.
Another comment I would make is that the contribution of thermal, and to a certain extent, energy management is penalized by the uncompetitive coal production from us winding down the thermal plant. As you know, we're doing that in relation to Sines, which is expected to close at the first couple of days of 2021. We're also assuming a relatively weak Brazilian real, so a continued very low rate, which we're assuming at around 6.7. The average for, let's say, the first nine months of the year was 5.7. I think there's also maybe a component of that there. I think that hopefully helps you think about that fourth quarter. As I say, let's see how these next two months come out.
In terms of the EBITDA of the transmission lines, I don't have the specific number with me. To be honest, we can get that to you. IR will follow up on that with the exact numbers. Okay.
Okay. Thank you very much.
Thank you. Our next question comes from Sara Piccinini from Mediobanca. Please go ahead.
Hi. Good morning, thanks for taking my questions. The first one is on the upgrade of the guidance. Looking at the EBITDA, my question is, are you including any impact from the lower demand in the fourth quarter related to the lockdown measure? There could be any risk that the slowing down of the demand could impact the guidance by year-end. Still on the guidance, the question is on the energy management. If I'm not wrong, in the first half, you indicated that you were not expecting a strong contribution from the energy management as in the first half during the second half. I was just questioning if you have seen an improvement in the energy management in the second half, so the contribution will be stronger also through the year-end. The second question is still on the net debt. You have clearly outperformed versus expectations.
My question is there any managerial actions behind these reductions that the management has done to reduce this debt? How do you see the evolution of the working capital and bad debt provisions also related to the impact from COVID? Many thanks.
Okay. Thanks. In relation to the EBITDA on the 3.7 and the operating guidance. If I understood the question, are we taking into account the lower demand that could come over the fourth quarter? We're being, let's say, hopefully realistic, and I won't say prudent, but realistic in terms of the estimates we're doing. We're also taking into account things like what could be any uptick in bad debt from clients over the fourth quarter, also given everything that's going on. We've tried to build in, let's say, a scenario which takes into account the current pandemic situation. In relation to the second question, the energy management. October was a relatively good month or an okay month. I think what's happened and what I think has been probably more positive for us is an increase in volatility.
I think we've always said we like volatility, or we think that ends up being positive for the business. As I said, let's see also November, December, October was already a relatively good month, that's also incorporated into that upgrade of the guidance of the 3.7. In terms of net debt and the outperformance versus expectations, to be honest, it's in line with our plan. I think we're delivering on what we said we were going to deliver, obviously, we've been working hard to get there.
Doing the various different transactions, the hydro sale, as I say, the sale in Spain of the CCGTs and the B2C, that was unexpected probably by the market, but it was a very concrete action that we took to make sure that we were delivering on that, as well as the asset rotations, which have also come in better. Don't forget also that this also includes a rights issue, which we did of, let's say, EUR 1 billion to help fund the acquisition of Viesgo. That also works into that number of the EUR 12 billion that I was giving you. I think hopefully that gets you there. We've been taking the actions that we need to take to deliver on the targets, and that's our commitment. It's been our commitment to the market.
When we went back last year, I think people were, I won't say skeptical, but certainly there was some doubts about the delivery. I think we've managed to show over the last 18 months that we're very focused on delivering the targets and delivering the numbers that we'd outlined at the time. Thanks.
Many thanks.
Okay. I will do just a follow-up on Arthur question on the numbers of transmission in Brazil. EBITDA in transmission in Brazil, in the first nine months was BRL 276 million. We expect to be this year clearly above EUR 400 million. As we said before, expect to complete all the six lines by end of 2021. By that time, we should reach this gross bill above BRL 700 million, okay? Maybe we can go now to the questions in the web. We have here a question that comes from Mamadou from Bloomberg on how long do you think it will take for your social tariff dispute to be resolved? Will it be years before the final decision?
On the social tariff, typically the European Commission is relatively efficient in looking at these type of cases, so I wouldn't expect it to be years. Hopefully. I can't give you an expected time, just to be honest, it's up to them, but it's not years.
Next question comes also still from Mamadou. I think this we have already answered. What is the size of asset rotation gains you expect to book in the fourth quarter? We have already referred to EUR 200 million. How do you expect evolution of system debt in Portugal to evolve in the coming years? How may prolonged COVID-19 situation impact that? Also from Mamadou, from Bloomberg.
In relation to system debt, again, this is important because it also impacts the sustainability of the system. We continue to see a long, sustained downward trend in terms of system debt. We're expecting that it would converge to, probably zero or around zero by, let's say, 2025. That would be our best estimate at the moment. Obviously, COVID has delayed slightly this, but that's already in the 2025 number that I'm giving you, but it's obviously delayed it slightly. But I would just point out that this year, there's a sustained decrease. Both this year and next year, we are expecting a decrease in system debt. Despite the COVID situation. In total, by the end of 2021, we should be at around EUR 3 billion of system debt. That's the number we're working with.
We have another question from Jorge Guimarães from JB Capital regarding the pace of asset rotation assets per year, if we feel comfortable that 0.5 GW per year is something that we see as the long-term potential of asset rotation in EDPR.
In terms of asset rotations, the volume or the amount that we do, I think that's very dependent also on the growth and on the number of megawatts we're developing and building. I prefer to treat that in a holistic way when we come back to the market at the beginning of next year, because I think we'd like to show both sides of the picture. The number of megawatts we're expecting and the amount of asset rotations we're doing.
We have another question from Philippe Ourpatian from ODDO BHF on our expectation regarding 2020 effective corporate tax rate.
On the effective corporate tax rate, we're expecting, let's say, low twenties. Certainly for this year, that would be what we would guide for.
The final list of questions from Jorge Guimarães from JB Capital. Given the recent devaluation of Brazilian real, could you consider to increase your Brazilian exposure? What type of opportunities would you be looking in Brazil? Maybe putting together, could you consider to acquire energy networks in other Latin American countries?
In relation to Brazil. Brazil, as you know, or EDP Brasil, has its buyback program in place. It's a relatively limited size, I think around BRL 400 million, which is ongoing. That's something that is already out there, and we announced that back in the beginning of September. In relation to additional opportunities in Brazil, we will always look at different opportunities, whether it's in Brazil or any other geography. If it makes sense from a strategy point of view or certainly from a financial point of view, we'll look at it and see if it's worth moving forward with the transaction there. We're constantly analyzing, but as I say, it's not specific to Brazil, it's in the various geographies where we're in.
Another question also from Jorge is regarding synergies in Viesgo, if we have some update on this.
In relation to the synergies on Viesgo, just to say that, first you saw that we got the approval from the antitrust in Brussels this week, that is good news. It means we can move forward, or we will be moving forward shortly to the closing, probably early December. In terms of the synergies, we are working on the, and I have mentioned this before, but working on the 100-day plan so that we can then start implementing as soon as we move in. The numbers are still the same as we have provided guidance on in the past, and the results essentially from work that has been done from the sales side, EUR 20 million-EUR 50 million, depending on whether you are taking into account just operational synergies, also factoring in tax synergies.
We have the final question from the web is regarding pending regulatory changes. If there is any other pending litigation which could risk turning into a loss like the EUR 73 million now booked.
This is an important question because just to be clear, there are at least two, some that I can think of, that are pending a decision. One is, well, both relating to Competition Authority fines. One is around EUR 25 million, I believe, EUR 25 million-EUR 30 million, relating to EDP/Sonae marketing campaign, which was done back in 2012. That's not booked yet. We're waiting for the final decision on that. Also in relation to the ancillary services, which is around EUR 48 million. That's also something which is currently in court. That fine resulted from the Competition Authority review, but we obviously believe there was no wrongdoing, we're taking that to court, and that's not provisioned in the numbers.
Okay, we have one last question from the phone and before we finish.
Alberto Gandolfi from Goldman Sachs. Please go ahead.
Yeah. Apologies for I promise, just one quick follow-up, given nobody asked. Miguel, can I ask what is your opinion on developing solar on a merchant basis in Spain? Do you see it as a way to boost returns, or do you see it as unnecessary risk and an interest in pursuing that path as well? Thank you.
Alberto. As you know, philosophically, we don't like investing in merchant projects. We think it's important to have some sort of long-term contract or visibility on the revenues. Typically, we look at least for 15 years. 10, 15 years, that would be, let's say, the limit. What we would look at is either auctions or corporate PPAs or some type of mechanism, CFD or some other that would be in place. We have no plans to invest on a purely merchant basis. Certainly not in solar in Spain.
Thank you.
Okay. I think with that, we conclude the presentation and the Q&A. Obviously, as you know, IR is always available to take any additional questions or follow up on that. If we don't speak before, I guess we'll see each other, we'll talk to each other beginning of next year for the full-year results. Thank you very much. Take care, everyone.
Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect.