Good afternoon, ladies and gentlemen. Thank you for being with us today in the conference call on EDP's first quarter 2020 results. We'll begin with a brief introduction by our CEO, António Mexia. Our CFO, Miguel Stilwell d'Andrade, will provide us with an overview of the results and the main developments of the period. We'll come back to our CEO for a more detailed analysis of the status of our strategy execution, in particular, focusing on the impact from COVID-19. Finally, we'll move to a Q&A session, in which we'll be taking your questions both by phone and via our webpage. We expect this call will last no more than 60 minutes. I'll give now the floor to our CEO, António Mexia.
Thank you, Miguel. Good afternoon, everybody. Hope you are all well and safe, as well as your families and friends. I know that we have been living difficult times, but once is more value for the work that we have been doing. So thank you very much for attending this results conference call. I think the key word at this moment is resilience. I would like to start by providing this overview on our performance. I believe that the start of 2020 was marked by the achievement of very important milestones, and showed exactly this resilience that derives from our diversified portfolio and its high quality, which was crucial for the good performance in a volatile environment, as well as some decisions that we have taken and are already in our DNA.
EBITDA increased by 6% to EUR 980 million, due to the combined effect of hydro recovery and strong results in our energy management activity in Iberia, that more than offset the low wind resources in the period, and the negative impact of the 13% devaluation of the Brazilian real. The net profit increased by 45% year-on-year to EUR 146 million, benefiting from EBITDA contribution, and the decrease in average cost of debt by 60 basis points. Excluding the non-recurring costs on our hybrid bond buyback of EUR 45 million, recurring net profit rose 51% to EUR 252 million. Our net debt to EBITDA fell to 3.4x . Adjusted for regulatory receivables and the temporary impact from the sale of tariff deficit, with our net debt decreasing by 8% to EUR 12.7 billion, the lowest absolute level over the last 13 years.
Our financial liquidity is at historical maximum levels of EUR 6.9 billion, which covers our refinancing needs beyond 2022. I think it's important to share this in these moments. Our annual dividend of EUR 0.19 per share was approved by more than 99% of votes at our virtual AGM on April 16th, right in the middle of the lockdown period, and the payment date will be next week, May the 14th. I will now pass the word, as usual, to Miguel Stilwell, our CFO, for a more detailed analysis of our results, and then I'll come back to provide an overview on our strategy execution. Thank you. Miguel?
Thank you, António. Let's start on slide five, talking about hydro and wind resources, which is obviously a major driver of our results. Hydro resources had a very strong recovery this quarter compared with the extremely weak first quarter of 2019, but is still 9% below the average year. During this period, our reservoirs stood slightly above historical average, providing a pretty good indication for the second quarter of 2020. It's also worth mentioning that April was a pretty good month, with 17% above average. This year we have, I think, good hydro resources in general. Regarding wind resources, after a decrease of three percentage points year-on-year, this stood 10% short of the long-term average in the quarter, the production declined 8%, with a major impact on the consolidation of our wind farms following last year's asset rotation deals.
If we disregarded this effect, production would have increased 2% year-on-year, and this is something which is quite detailed also in the EDPR presentation and results. Moving on to slide six. An important message here is regarding our green position. Renewables, the weight of renewables in our production mix increased from 69% to 79%, even though our wind capacity declined following last year's asset rotation deal. Our thermal production declined, this was mostly driven or almost entirely driven by the coal production in Iberia, which was reduced very significantly. Another important message is our steady focus on growth in renewables. During the last 12 months, we installed around 700 MW of wind and solar capacity, and we still have another 1.3 GW under construction.
You can see a decline in installed capacity year-on-year, but this is impacted by the asset rotation deals I mentioned totaling 1.3 GW of gross capacity. I'd like to highlight that this number is strongly impacted by the one GW gross capacity of the wind farm sold in Europe last July. We had 51% in this portfolio. If you consider just the net capacity, this decline would only be around 100 MW. Moving on to slide seven on the financials. As António mentioned, our EBITDA went up by 6% to EUR 980 million on the back of the strong recovery of the hydro in Iberia, adding EUR 65 million to EBITDA, and also the good performance of the client solution energy management activity in Iberia, which had a EUR 82 million increase year-on-year.
These good results were offset slightly by the EUR 47 million decline in wind and solar activity and the hydro results in Brazil, which were weaker this quarter. I'll go into more detail on each of these platforms in the following slides. On slide eight, starting with wind and solar. EBITDA declined 12% to EUR 340 million, mainly due to the reduction in the average installed capacity of 7%. This, as I mentioned, is very much related to the deconsolidation of the wind assets sold last year. This was around 1 GW in Europe, 137 MW in Brazil, and around 200 MW in the U.S. The European platform was the most penalized by this effect. As I mentioned, the wind resource also worsened and all in all, production fell 8% year-on-year.
The average selling price remained broadly stable, obviously very much driven by the fact that we have long-term PPAs, tariffs, CFDs in the majority of the wind farms. Going on to slide nine, talking about the hydro business. Here, the EBITDA from hydro rose 22% year-over-year to EUR 209 million, mostly in Iberia or entirely driven by Iberia. Here in Iberia, the improvement in resources led to an 87% increase in production. Despite the declining pool prices that we've observed over the last couple of months, the ultimate impact on the segment was immaterial because we basically forward contracted all of the CESE for this period. I think this is an extremely important point, we'll probably come back to that later.
Please bear in mind that EBITDA had an EUR 18 million impact rising from the clawback levy and the generation taxes in Spain, which had been suspended in the first quarter of last year, we're still recognizing in this first quarter of 2020. In Brazil, EBITDA fell 38%, excluding ForEx effects, due to mostly, obviously, the unfavorable evolution of the PLD and the GSF versus our contracted positions, which required the acquisition of energy through bilateral contracts, that penalized the performance. Moving on to slide 10 in regulated networks. Here, the EBITDA from networks decreased 2% to EUR 237 million. In Portugal, the results were penalized essentially by the decline, 50 basis points on the return on RAB to 4.8%, which is very close to the regulatory floor of 4.75%, already reflects the low Portuguese bond yields since October to date.
Obviously, the Portuguese bond yields have increased over the last two months, but before then, as you know, they were extremely low. This effect was just partially compensated by a 1% decline in OpEx in Iberia. In Brazil, a good solid growth of 11% in local currency. This was driven by the growth in the transmission activities with the execution of 63% of the investment, and the commissioning also of the Maranhão transmission line. Distribution EBITDA declined 1%, penalized by a 5% decrease in distributed volumes in the period. Let's talk about the segment, client solutions and energy management on slide 11. Here, there was an increase in 74% to EUR 200 million. It's a strong contribution from energy management in Iberia, and António mentioned that right up the front. This resulted from our hedging strategy and the strong volatility in the energy market in the quarter.
That much more than compensated the 77% decline in the coal production. The supply business also grew EUR 13 million versus the first quarter of 2019. This is a business that has been improving steadily over the last couple of quarters, including the impact from the 5% increase in the penetration of supply services. In Brazil, the EBITDA increase was supported by the improvement of thermal variable costs versus the PPA benchmark. In slide 12, OpEx. OpEx in Iberia was up 1%. I think overall, though, this is a good achievement given that last year's quarter already had a 3% reduction year-over-year. It was already a challenging comparison. In Brazil, the OpEx in local currency, excluding growth, was up 1% when inflation was close to 4% up.
In EDPR, the adjusted core OpEx per megawatt was up 4%, following the need to cope with the business plan growth and also the asset deconsolidation, from last year's asset rotation. Again, this is something I know EDPR has already spoken about. Concluding on the OpEx, excluding FX, it increased 3%, reflecting the growth activity, while on a like-for-like basis, it stood flat. We still expect over the next couple of quarters that the OpEx will come down on a like-for-like basis, as foreseen in the business plan. Slide 13, financial deleverage. I think good news here, our net debt declined 8%, mainly supported by the strong results in our operations, as I've already described, and this led to a 51% increase of our recurring organic cash flow.
Also our net expansion investments of EUR 0.1 billion reflects on one hand, the expansion build-out activity of around EUR 400 million and also the EUR 300 million of proceeds from last year's asset rotation deal in Brazil, and also the tax equity partnerships in the U.S., both of which cashed in this quarter. The change in regulatory receivables and tariff deficit CESE, they had a combined cash positive impact of around EUR 500 billion in this quarter, mainly due to the sale through five bilateral transactions we did with banks of EUR 825 million. That impacted a lot of 2020 tariff deficit in the quarter. Around EUR 0.6 billion of which will be just a temporary positive effect that will then be diluted throughout the rest of 2020.
It's important to bear in mind when doing the net debt EBITDA numbers that there is this temporary effect, although positive in absolute terms, it will then be diluted. Finally, the depreciation of the Brazilian real versus the euro to date resulted in a positive impact of around EUR 0.2 billion in the period. The overall net debt EBITDA, excluding regulatory receivables and the temporary effect from the sale of the tariff deficit, went down to 3.4x . As António mentioned, a pretty low number, certainly versus the last decade. It would have been 3.2x without the tariff deficit adjustment, but as I say, you need to make that adjustment. Moving on to slide 14. The total interest-related costs declined 20%, EUR 35 million year-on-year, and this followed a 60 basis point decline in the average cost of debt.
This excludes the EUR 57 million one-off cost with the liability management at the beginning of the year and also some other smaller non-interest costs. Overall, this means a cost of 3.4%, which compares with the 3.9% at the end of last year and the target of 4% we had in the strategic update. Again, this is something I know we've talked about a lot over the last couple of months. We were expecting to see a decline in the interest costs, and we're clearly seeing it here in this first quarter. You can see on the right-hand side of the slide, the new debt issues, the top right-hand side, done at cost significantly below average. The bonds repurchased or maturing at the bottom right-hand side of the slide, you can see they also had costs significantly above average.
This is a trend we expect also to continue going forward for the following quarters, and it's compatible, as I said, with what we've indicated in the past. On financial liquidity, slide 15. Here, at the end of March, liquidity stood at around EUR 6.9 billion, covering our refinancing needs beyond 2022. At the beginning of April, already during the COVID lockdown period, we issued a EUR 750 million green bond with a seven-year maturity at 1.7% yield. It had a lot of interest from the market. It was massively oversubscribed, which I think was obviously positive news in the middle of all this. This bond is currently trading at a premium in the secondary market.
This, combined with the hybrid and tariff deficit sale we did early in the year, really positioned us well, I think, to face the crisis that we're all living through. It's also worth mentioning that regarding the pending deals, as indicated, we expect the financial closing of the hydro disposal of EUR 2.2 billion to be done in the second half of 2020. Again, very comfortable with our liquidity position. Finally, just moving on to the recurring net profit. This rose by 51% to EUR 252 million, with the hydro and energy management in Iberia playing a critical role here. Also important to stress, and this is something I've mentioned, the good performance of our financial results, penalized by the one-off cost with the hybrid bond buyback, as you know, with a very positive economic effect. I'll pass the word again to António.
Before I do that, just again, to reiterate also what's been mentioned by António earlier, I hope you're all doing well and safe, and that we'll come out of this stronger than we came into this crisis. Thank you.
Thank you, Miguel, very much. I will move now to address EDP's action under the current COVID-19, as well as an update on the execution of our strategy. We see on slide 18, I think it was obvious that the strategy that we presented last year was clearly oriented by a wide de-risking approach throughout all our strategic goals, those five pillars of our strategy. First, our growth has been focused on long-term contracted renewables, wind and solar, at competitive prices, as well as regulated networks. These are businesses which have little exposure to volatility in energy prices and demand.
Indeed, on our investment decisions, we have followed not only a strict return criteria, but we are also selective in terms of risk, with the new investment decisions having an average contract maturity of 15 years and a contracted NPV above 60%, meaning, for example, that we have refrained ourselves from investing in merchant solar. On top of that, we have established a target of EUR 6 billion of proceeds during the period of 2019 to 2022, which consists of EUR 2 billion from disposals and EUR 4 billion from asset rotation. These proceeds will be used to fuel our growth and to deleverage while reducing our merchant exposure. Regarding our balance sheet, we have defined an upfront financial deleverage target of reaching a net debt to EBITDA of 3.2x already in 2020.
In parallel, we have retained a conservative policy on financial liquidity, covering close to 24 months of financing needs, which some of you may have considered as too conservative some months ago, but that today give us additional comfort on the execution of our plan. Digitalization was also promoted to the core of our strategy, and we have committed to invest EUR 800 million on digital CapEx to increase asset intelligence, operation, and process efficiency. Finally, we have maintained a sustainable dividend policy consisting of a target payout range of 75%-85%, with a dividend floor of EUR 0.19 per share. ESG criteria are also embedded in the top priority of our strategy, namely through the clear decarbonization path until 2030, with a target to achieve 90% of renewables in our electricity mix, 90% reduction of CO2 emissions versus 2005 levels, and become completely coal-free. Moving to slide 19.
The importance given to ESG standards in our strategy is also reflected in the strong commitment to all our stakeholders. In our view, ESG is not a trend. As I mentioned, it's in our DNA, and it's part of our long-term strategy being key to build a resilient company. As such, now more than ever, we are called on to demonstrate our commitment toward our stakeholders, and we quickly respond. We have taken numerous initiatives, and you will see in the next slide, providing a key positive contribution to our society, and of course, enhancing always our reputation. In slide 20, let's start with our priority, safety of our people, as we promptly implemented specific measures in all geographies to ensure that. For instance, in Portugal, we have already had about 70% of our employees working from home two days before the declaration of state of emergency.
Currently, overall in our group, more than 72% of our people are working remotely with approximately 100% of the office staff working still from home. Of course, this was only possible due to the strong digitalization effort in the last years. Indeed, EDP is a case study in Microsoft related to the rollout of Microsoft Teams, which allowed us to become more connected, collaborative, and innovative, something that was crucial for our lockdown period. We have also promptly taken the necessary measures to minimize exposure of our employees, which are critical to ensure the continuity of supply and thus need to be in the field. The usual ones, such as the delivery of personal protective equipment and the reinforcement of cleaning and disinfection.
All in all, we were able to ensure business continuity without any disruption of services, and we are convinced that this is a new opportunity to take on the lessons learned and benefit from additional efficiency improvements, namely through this referred digitalization, which may have important positive impacts in the future. Now moving to slide 21. Aware of the unprecedented times we are currently living, we are also promptly active in taking initiatives to contribute to mitigate the impact of COVID-19 in our communities. Far, we have donated more than EUR 11 million to our main geographies through several initiatives across the most affected areas of society: public health, culture, education, and the social sector. Also, very important, to support our suppliers and keep the value chain working, namely small and medium companies, we have anticipated the payment of invoices during April and May.
Overall in April, we have already paid more than EUR 30 million related to almost two months' anticipations of invoices. Now we are making prompt payments of invoices up to EUR 500,000, totaling up to EUR 100 million. This is our way to cooperate with hundreds of partners, more than 1,200 in our value chain, providing liquidity to promote economic activity and employment. Regarding our clients in page 22, we have also adapted our supply operations to meet their current needs. We have a distinct portfolio of clients in each geography. In Portugal, we have a higher weight of B2C, while in Spain, B2B is clearly the core of our supply activity. In both geographies, direct debit of B2C clients reaches considerable high levels, which could be a mitigator of payments delays in these turbulent times.
In Brazil, we have a more balanced mix between B2B and B2C, as you know. Given the COVID context, we have mainly implemented three types of measures to support our clients. First, we reinforce the visibility of digital channels to continue ensuring high quality of service while avoiding a physical contact. Second, we suspended the energy cuts, in most cases, clearly ahead of any regulatory decision to do so. Finally, we enforce the flexibility of determined payments methods, not charging any interest in an effort to help those clients that are facing particularly vulnerable situations. In parallel, we suspended a significant part of the commercial activities, and our field forces was reduced to focus only in urgent interventions. Also, we launched a discount tariff plan for health professional and supplied free energy to hotels that supported hospitals in the fight against this pandemic. In slide 23.
Regarding demand evolution, we can see in the graph on the left that in Portugal, the decline during the lockdown period was concentrated in the non-residential segment, particularly in small business, which represents 7% of total electricity demand. These steep reductions in electricity demand correspond to the lockdown period and are expected to be smoother in the year with the easing of confinement restrictions. During the period from January to April, Portugal demand declined slightly less than 3% year-on-year. In Spain, electricity demand decreased almost 7%. As here, the lockdown began earlier and there is a higher weight of industrial consumption.
In Brazil, the 4% fall in demand in our concessions is related not only with lockdown measures, as the impact of COVID was felt later in Brazil, but also due to specific issues such as adverse temperature effect and a strong decline in consumption from a single large industrial client, [audio distortion] , which is a free market client and thus has no impact on our over-contracting position. Note that regarding the impact of changes in demand on regulated revenues in networks, the impact is zero in Spain, irrelevant in Portugal, and somehow material only in our distribution business in Brazil. Moving to slide 24, talking about hedging.
We are fully hedged for 2020 with all our expected generation hedged at an average selling price close to 55 MWh and an average thermal spread at middle single digit with a good energy management position that should mitigate the impact of the adverse market context. For 2021, the expected reduction in electricity production is driven by the disposable six hydro plants in Portugal. We have already hedged 60% of our expected production at the price close to EUR 50 MWh. Moreover, this 60% hedging does not include the 12 TWh a year of consumption of our B2C clients, which, as you know, have a very low churn rate. Finally, we are also in a comfortable position regarding gas long-term contracts, which should represent around 60% of our expected gas needs in 2021.
Moreover, following the maturity of two contracts in 2020, gas sourcing costs will be more competitive in 2021, 50% of which with indexed to oil prices and close to 50% linked to TTF European gas spot price, which is much higher correlation with Iberian electricity prices you know. Brazil. In this geography, we consider that we have a resilient business model well adapted to face the recent increase of volatility in financial and energy markets. The strong fluctuations of the currency is something that we have lived over our more than 25 years of presence and experience in Brazil, thus justifies our long-term standing ring-fence financing policy with all funding of Brazil operations in local currency. We continue also to have a more conservative financial leverage in this country with a 2x net debt to EBITDA ratio.
Among the specific measures that we have adopted recently, I would highlight the reinforcement of financial liquidity with an additional BRL 3 billion through the anticipation of refinancing deals, short-term cash flow enhancement measures, including tax management and the adjustment of the dividend policy already in 2020. Regarding our operations in the last years, expansion CapEx in Brazil has been devoted, as you know, to long-term contracted activities, namely transmission, which have 30 years regulated revenues indexed to inflation and with no demand exposure. On operations that are more exposed to the current downward trend in demand and energy prices, namely hydro, supply, and distribution, we expect to mitigate negative impact through our integrated management of energy markets risk in order to take advantage of the natural hedges between the different business segments in Brazil. Moving to slide 20.
We continue executing successfully our portfolio operating optimization strategy, which will provide clear contribution to our deleverage targets. On hydro, we have announced, as everybody knows, in December, the sale of six hydro plants in Portugal for EUR 2.2 billion. Process is moving forward. The EC approval was already granted. National regulatory requests were already submitted. The financial closing is expected to the second half of this year, eventually in the first quarter. Those teams have been working on this on both sides. In line with what we have stated in 2019 results presentation, we continue also to consider other complementary options of the optimization of our portfolio, both in Iberia and in Brazil.
On asset rotation, the JV with ENGIE for the offshore wind was already granted the EC approval, and we are working now to complete the process of transfer of assets by each partner to the new company. Moreover, as we have stated before, for 2020, we are working on two deals of asset rotation totaling 0.7 GW of net capacity. Both processes have now moved to a 2 stage in order to receive binding offers by the summer. Regarding renewables in slide 27, we continue developing our pipeline with 1.3 GW under construction, while expecting to add 1.6 GW of capacity this year, mostly in the U.S. As usual, the majority of the plants are planned to be commissioned in the first quarter. We have seen occasional construction restriction due to COVID, mainly related to the lockdown and with supply chain disruption, which can lead to some delays.
However, this is not expected to have any material impact on projects fundamentals. Furthermore, we continue executing new PPAs, 500 MW year to date, and even during the lockdown periods, when we have announced three PPAs in three different markets, Spain, Mexico, and the U.S. On the next slide, 28, I like to share the vision that we see the Green Deal as an opportunity to develop a new model of prosperity, building a more resilient society. It's true that the world is facing not only a public health challenge, but also an economics challenge. It's critical that political decision makers, in designing the plans for an economic rebound post-COVID, look at the energy transition as key for prosperity model.
As such, in the last month, we have joined forces with another 79 individuals, including ministers, members of European Parliament, other CEOs of several sectors, to reinforce our availability to jointly implement Green Deal's ambition. We have a large pipeline of projects that will promote economic stimulus, job creation, and accelerate the energy transition by replacing generation from fossil fuels with renewable generation. The timing is right. Renewables are already more competitive than conventional generation, as we have seen in the several renewables auctions that have been taking place around the world, and we are witnessing a broad support of the society to green alternatives in all activities sector. Economic growth and green investments are no longer a trade-off. They go hand in hand, and together they can build a more resilient society based on a new model of prosperity where everybody wins, nobody is left behind.
Moving to last slide. I think that we can say that we are entered into this COVID period in a quite comfortable position regarding the execution of our business plan, which places us in a much more resilient position to cope with the challenges posed by this crisis. First, regarding our growth, we have already secured 83% of the planned seven gigas of wind and solar additions between 2019 and 2022. On transmission, we have already executed 63% of BRL 3.9 billion CapEx plan. Second, on portfolio optimization, we have already closed and agreed more than half of the EUR 6 billion proceeds related to disposals and asset rotation. Third, we have also reinforced our balance sheet upfront, being at 3.4x in March, and with good visibility in reaching 3.2x by the year-end.
In parallel, we have a liquidity position of EUR 6.9 billion, as stressed again by Miguel, covering financing needs at least beyond 2022. On cost, we have done well in first quarter of this year. Our internal vision is that we should have a very strong performance throughout the year, with the current environment having a net positive impact in this front. With no doubt, the current context provides an opportunity for accelerated digitalization and associated operational efficiency improvements that were not foreseen before this period. On shareholder remuneration, next week, we will pay our 2019 dividend of EUR 0.19 per share as expected and approved, which represents an 81% payout ratio, totally in line with our sustainable dividend policy. We continue to take important steps forward regarding an earlier than expected level of decarbonization targets too, as we can see by our first quarter 2020 figures.
Also considering the expectation for the next quarter. I would say that overall in all metrics, we are close to achieving or surpassing two-thirds of our targets up to 2022, which, as I said before, places us in a very comfortable position to face the new challenges ahead. If I have to pick keywords, I would pick energy management, very successful. Second, capital market management, including liability management. Third, deal execution, both at asset rotation and assets reshuffling. Fourth, investment execution with unprecedented development of the pipeline. These four elements prove that we have been really doing what we should. For 2020, we feel comfortable with the consensus at the EBITDA level, at the net profit, at the debt level. We are ahead of our plans. The business plan was designed to be resilient, and EDP is well-positioned for this green recovery.
Thank you very much, and let's move to the Q&A. Miguel?
Ladies and gentlemen.
Question by the phone, please.
Ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. To cancel your question, please press star two. Once again, that's star one to register a question and star two to cancel. At this time, we will take our first question. Our first question is coming from Stefano Bezzato from Credit Suisse.
Three questions. Yes, hi, good evening. Three questions from me tonight. First, on the farm downs. Can you give us a bit of color if you have seen any change in the level of interest from potential bidders before and after the COVID-19 outbreak? The second question, still related to the COVID-19 outbreak, is on working capital. What is the worst case scenario you have in terms of impact on working capital from delayed bill payments and all other negative impacts we can have because of the current crisis? How quickly do you think you can recover that? My last question is on your hedging strategy. You're showing a EUR 5 per megawatt-hour decline in power price, achieved from 2020 to 2021. Is there any chance you can recover part of this decline through higher supply retail margins?
Stefano, thank you. Farm downs. Farm downs were really, as you know, it's part of our business model today, part of our recurrent activities. It was important to have the perception of the market post-COVID. Frankly, I just want to confirm the following. We have received the non-binding proposals, and the values are exactly at what we expected before the crisis. I believe that the scarcity effect and the look for yield of quality, including these renewables scenario, I think it has proven to be very resilient. If anything, we had more people bidding for this than I expected before, at the beginning of the process. As we see, we will reach clearly the figures above EUR 200 million that was expected in terms of capital gains for the farm downs for the year. We feel really comfortable with the market after COVID.
In what concerns the other hedging strategy, I believe that our figures, we are talking about prices before any supply margins and before ancillary services. I think that they're having already hedged these close to EUR 50 for next year. Around 60% is good. We will, of course, keep closing. As you know, the second half of the year will be important for this, for the rest, and of course, depending also on the price of CO2. In terms of higher supply margin, it depends very much, and I think it's a little bit early to say, that in what concerns 2021, we feel that we are already in a rather safe positioning, especially with our long retail positioning in Portugal that, of course, is less sensitive to any price movement.
Clearly, we feel comfortable with what we have, and at this stage, we would not be hedging in a rush. We don't need it. Miguel, for the COVID working capital.
Hi, Stefano. Clearly in terms of working capital, the measures approved both in Portugal and Spain should have some temporary effects on the working capital and net debt, but we expect to be progressively recovered as of the third quarter 2020 onwards. Really, we should probably expect some sort of peak around May, June. The impact on the 2020 net debt will depend, obviously, on the length of this lockdown period and the recovery afterwards. In any case, it's important to bear in mind that 62 of our customers in Portugal have electronic billing, and almost 100% in Spain. We think this is something which is very manageable. We've gone through previous crises in the past, and I don't think this would be a major issue for us.
We now go to the question by the internet. The first question comes from José Ruiz. Are you comfortable with the net profit consensus forecast for 2020?
Thank you, José. For 2020, we are comfortable with current net profit consensus around EUR 800. It makes sense with the information that we have today. Note that this net profit market consensus assumes energy tax as a recurrent cost. This number does not include non-recurrent gains. Probably, as you know, as we are doing a lot of deals, in 2020, we will have some figures coming from there. Of course, the main uncertainty, as everyone already knows, is how will the recovery take place, and will there be a second wave of the COVID thing. In any case, we feel comfortable. The key variables that we need to follow to the rest of the year is basically in Brazil, business-wise and also FX-wise.
Of course, we have been seeing a rather normal year. Even if up to March it was slightly below a normal year, much better than last year. In April, we are already in a normal year, above. April was above. Depends on the last quarter, but we have already 46% of an island over here, so the energy management results are supposed to be strong, and so we feel totally comfortable with the consensus. Yeah?
The next question that we have initially regarding, it comes from Fernando Garcia from Royal Bank of Canada. Could you comment about the Portuguese tariff deficit, and what are your expectations for 2020?
Okay, on the tariff deficit, obviously it's been coming down progressively over the last couple of years as you know, and I think that's been one of the positive messages coming out of the Portuguese electricity system. Obviously, we think that this year it will be impacted by the lower pool prices and lower consumption. What I could probably say on this is that we expect that probably the end-of-year number would be higher than the 2019 end-of-year number. That we could see an increase in the tariff deficit this year, which we then expect to be reabsorbed by the system in the following years. That's basically it. In terms of numbers, I think it's still a little early to tell, but it's something we'll clearly monitor over the next 12 months.
Go now to another question from the web, from Jorge Guimarães, JB Capital Markets. What is the expected run rate of Iberia Thermal and Energy Management for the next quarters?
Thank you, Jorge. Energy Management was very good in the first quarter. Of course, difficult to anticipate for the rest of the year. I would say that the start of the second quarter of this year is going well, but we prefer to maintain a cautious approach. I would like you to know there is some hedging between supply and energy management and thermal. I think that it was a good year because, as you know, EDP, our strategy is like volatility, and the first quarter, we had that volatility that we like. In what concerns your second question of about our peers, said that they were delaying negotiations with clients for 2022 CESE, waiting for better market conditions. You can follow a similar strategy. The answer is yes.
Our contracting season, as I mentioned, is normally more concentrated in the first quarter, so we see no material change on net dynamics. The third question from you, Jorge, was if we plan to have some hedging to protect against FX losses in the devaluation of Brazil versus the euro . As you know, we have a ring-fencing strategy. Miguel can, of course, enhance on my answer, but clearly the market is not liquid enough. It would be too expensive. It's part of the business, to have those exposure at the EDPR level. We have been basically ring-fencing. That's a critical element.
Maybe we can go now to another question on the web. If you could elaborate on your gas position, and it comes from Fernando Garcia from RBC Capital Markets. If you could elaborate on your gas position and contract versus gas customers and expected CCGT output. Could you comment as well on your gas contracts for 2023?
Okay. Fernando, thank you. As you know, as of today, we have 80% of our 2020 gas oil-linked. CCGT production for contracted at an actionable spread. Note that oil prices have come down and this will reflect in cheaper oil-linked gas production for the first quarter of 2020. For 2021, long-term gas contracts to represent 60% of our expected gas need, 50% Brent-indexed gas sourcing costs, which first should be more competitive given the recent decline in oil price and 50% TTF index gas source, which is highly correlated with Iberian power price. A big part of our gas sourcing cost will be TTF, a significant one has a high correlation, and we see this as a positive. Our strategy is to link these more, and it's what we have been doing, so we feel more comfortable today.
We can go now to the phone questions, please.
Again, that is star one to ask a question and star two to remove yourself if you find that your question has already been answered. At this time, we'll take our next question from Harry Wyburd from Bank of America. Please go ahead, sir.
Hi. Good evening, everyone. Three questions from me, please. Firstly, I wondered if you could go into a bit more detail on LatAm, Latin America, and give us a bit more color on what's happening in Brazil. One thing that's cropped up on a few calls in the last few days has been the notion of some kind of regulatory relief. I'd be interested to know your thoughts on that, what effect that could have both on earnings, but also on working capital and debt. The second one, on the hydro sale. I'm assuming that you'll be able to fully reiterate that sale is definitely going to go ahead, but a couple of sub-questions on it. Firstly, how do you adjust for the water actually in the reservoirs? Obviously, reservoir levels are very high at the moment.
Is there any chance of a positive adjustment on the sale price to reflect the higher reservoir levels? On interest costs, you're going to get EUR 2.2 billion in the door. Looking on page 14, you've got a EUR 35 million year-on-year quarterly run rate improvement in interest costs just from bond refinancing versus last year. If you just look at the disposal of EUR 2.2 billion, and if you're retiring bonds at 4.5%, would I be correct to assume that that's about a EUR 25 million quarterly run rate improvement in your interest costs just from the asset sale, which should kick in from the fourth quarter of this year? Just interested if you can confirm the numbers and thinking on that. The final one, just on the dividend, interested to know your view on what the government stance in Portugal is on dividends.
Obviously, it's a very important topic for a lot of companies at the moment. Have you had any viewpoint from the government on that? I guess some people were predicting that 2021 or 2022 might be the year when the dividend increases. Is that something that we can still envisage even in the post-crisis landscape? Thank you.
Thank you. I will start with dividends, then the other sale. I will then pass Miguel to comment also on Brazil. In terms of dividend policy, we feel very comfortable with our dividend policy in this target range between 75%-85%, with this floor. The information that we have today, I want to be clear, we see the current dividend policy as totally sustainable. It's true that we are living exceptional and uncertain times. Nobody is immune totally. I think that we will always do the best in terms of medium, long term for the shareholders. In our view, our dividend policy, it's the right balance between sustainable shareholder remuneration, reinvestment, and control of leverage. We are today in a much stronger position versus any previous difficult moment because of liquidity.
We have decided, as you've seen, to keep the proposal that we are fully supported by supervisory board and by almost 99.9% of the shareholders, because dividend in 2019 represent a 50% payout on our cash flow generated before expansion in a year when we were able to reduce net financial debt over EBITDA to 3.6x from 4x. In terms of environment, we have seen clearly a support for this balanced approach that we have been explaining. We have followed all the CMVM in terms of providing information to shareholders, proving that liquidity was there, that the long-term sustainability of the business and continuity is supported. We have [audio distortion] that was supposed to be checked by, mainly by European market authorities, as just a recommendation, not because it's the only thing that they can do.
What we have seen is a rather normal reaction to what is normal current of affairs. We have all the Portuguese companies relevant that have the conditions to proceed with dividends, and they paid what they were expected to do. We don't expect any major change. Of course, we don't see what will be if you have a major second wave of COVID, what will be reaction. As we speak today, if anything, we see 2020 as being a year where we fully deliver. I don't see any reason why we would not propose and why shareholders would not vote what we have as current dividend policy. We are comfortable with this. I would like to also, in terms of hydro, all the revenues of the hydros are fully ours until closing.
As we see towards the end of the year, we will keep the normal running of the business. By the way, I would say that small amount compared to EUR 2.2 billion. Anyway, the revenues are ours until then. The interest cost, it's true that it's a mixture. As you know, in our business plan, we had already included EUR 2 billion debt reduction, proceeds from the CESE. It was already incorporated, but I think, and I will pass to Miguel, check your EUR 25 million impact on interest first, and Miguel, this and plus regulatory relief in Brazil.
Hi, Harry. In terms of, as António mentioned, this is already built into the business plan. What you need to look at is the overall debt level and how that evolves. We're expecting it to be around the 12 or below 12, excluding regulatory receivables on that basis. Obviously, we have a large CapEx program, and so that's why it's important not to just look at the isolated impact of the hydro sale, but look at it in the context of the overall debt and investment program that we have. In any case, what we've said is that currently versus our business plan, we are doing better than expected in terms of the interest cost. We highlighted last year that we were expecting around 4% cost of debt, and we're well below that.
As you saw in the first quarter, we're at around 3.4. In terms of absolute numbers, I think we were guiding to close to or a bit below EUR 100 million overall interest savings over this period. In terms of LATAM and some detail on Brazil, and regulatory relief in particular. I think the key points on LATAM from a business perspective in Brazil is the over-contracting on the distribution, such to the extent that they don't have an unbundled system. Also issues around, obviously the payments of receivables, so from the customers. I think the good news is that ANEEL, the regulator, is trying to be as helpful as possible, and so is helping finance the distribution companies and also pay for the low-income customers. To that extent, that is certainly providing a positive uplift on that.
On the major structural issues, even though we're less impacted by that maybe than some others, on the GSF, which is obviously a key issue for the profitability of the system in Brazil. There is currently, I think there's some legislation that is being discussed in Congress, and which would provide also a positive uplift on the business there. In any case, that is something which is still being discussed at the level of the Congress. We will provide further details as soon as I think they become available, but as of today, it's still a draft proposal.
Okay, many thanks.
We have two from the phone. Let's go for the phone for the next question, please.
At this time, we'll take our next question from Alberto Gandolfi from Goldman Sachs.
Hi, good afternoon, everybody, thanks for taking the question, and I extend to all of you my wishes as well. Thank you for your kind words. The three questions are, in terms of the client solutions and the energy management, would you mind to dig in just a little bit more into the main drivers and trying to discern here what may be a few months and what may be actually a bit more structural as long as this current depressed demand and volume situation persists. Can you maybe tell us if you had an open position, if you managed to be much more flexible in actually procuring from perhaps the spot market? I'm just trying to understand a little bit.
You already did half of my full year forecast. I'm just trying to understand if April also started quite well, trying to gauge a little bit more on this division. The second one is, today EDPR talked about, and you mentioned, António, actually, some potential delays. I agree, three, six-month delays on parks wouldn't change much the value given the 30 years of future cash flows. However, can you maybe be more specific about, it looks like almost 85% of your capacity is secured. Can you maybe talk a little bit more about the potential risks? I guess those would be, if you can quantify those, and I guess they've probably already been offset by the Q1 performance in client solutions. Just curious to see if you think this is a fair observation or not.
The third one is, talking about the opportunities from the Green Deal, potentially stimulating, relaunching the economy. Question is, you've lowered your financial leverage to 3.4x , and the hydro disposal is about to come through. The question is your leverage and/or your portfolio structure suited now to capture all the potential opportunities from the Green Deal? Should you maybe strengthen the leverage or do something else? I still think you'd be sharing quite a lot of the future growth with the minorities in EDPR if you didn't fully own it. Maybe if you can elaborate on those dynamics, would be great. Thank you.
Thank you, Alberto. I've seen that by the third question, at the end of the third question, that you like the topic. Of the COVID-19, the question. The first question is, I could share with you is the following. Energy management, as I mentioned, in our case is, because our position in terms of being long allows us to do what? When you close a position and you are hedged, you can, instead of generating, you can buy. Because of our scale, you are big enough but not too big, to be able to go into the market and buy, and then sell to the clients with higher margin than if you were generating maybe. It's the reason why we like volatility due to this positioning, and so it's a reason why it contributed to a very strong energy management at the beginning. Of course, client solutions.
Clients after the beginning, middle of March and the beginning of the pandemic situation, are less in a rush to have meetings because they cannot have whatever optimization. Everything that relates to services is probably slower, but it's very small compared to what are the gains that you do on this energy management. That was done in a very smart way by our teams. We cannot anticipate, because it depends very much on the evolution
Of the pool price and on that volatility to allow to repeat this. In any case, we feel already very comfortable for the year and in terms of hedging for next year. EDP are potential risk. I would like to be clear in the sense that, and if you have seen the question of, especially in subsidies in CapEx and commissioning, all sectors, and mainly in the U.S., have been affected along the old value chain. Almost of all our suppliers, in those cases, have evoked force majeure. Clearly, what we have here, as you know, we can still qualify to receive 100% of the PTC. That is the key question. Value-wise, two, three, four months, it is not meaningful.
The question, if you go from November, December into January, February, I think that we still can qualify to receive 100% of the PTCs of this year because the law includes clauses of a excusable event, and I think if you don't have an excuse with this COVID, I don't know when do we have an excuse, or continuous efforts. We are moving from safe harbor into this scenario, and if the company approves that it continue works on the project, although it was not finished until the year-end, I think that, and EDP Renewables also shared this, I've synced with everybody. The tax equity markets in U.S. remains very robust, and it's very important to state we have closed our intention with a big institution of all tax equity investment for all the 2020 projects, and in the middle of the COVID crisis.
I think that on that front, we feel very comfortable. As we have seen, we have been able to attack different markets besides U.S., that represents our growth engine. In European markets and also in South America, we have been able to tackle those markets. The Green Deal. If I understand your question is, I don't think that our leverage or our portfolio structure, even less our portfolio structure is a constraint to take advantage of the Green Deal. What I believe the Green Deal gives us is, it's supposed to give a more stable framework, and so less temptations to fool around with the incentives that you need to give to investment. I think it's good news for everybody. People understanding that you need to give visibility, mainly, for example, through auctions, and the Portuguese market is an example.
They will launch a new auction for renewables just before summer. People understand that visibility is a critical element, and the Green Deal reinforces not this commitment with the investability on the sector. I will not just do more for more, and frankly, it's not the moment to leverage more. We don't know what will be the second half of the year. We feel very comfortable with the actual positioning, but we are really committed with the deleveraging and to go to the 3.2x , and we are not going to change this. This includes, of course, using cash to buy minorities. Here, we tend to be rather stubborn, not to spend too much cash in buying minorities. Thank you. Alberto.
We can go now.
Thank you
to the last question on the phone. We have some more questions on the web that we'll follow up from the IR level, given the timing in terms of closing the call.
We will now take our final question from Javier Garrido from JP Morgan. Please go ahead.
Hi. Good evening, everybody. Thanks for taking the time for our questions. First, well, actually two questions on Portuguese regulation. What are your up-to-date thoughts about the profile of reduction in the special energy tax, particularly now that you can anticipate a different profile for the reduction in tariff deficit? Also, you could update us on the recalculation of the global tax. Where are we in that process? Second question would be on the cost of debt. One, to be very specific question to Miguel, is there any reason at all why you could see an increase versus the current 3.4% that you have reported for the first quarter? Then the final question, a more generic question. You have mentioned a few times, that you have different strategic options in Brazil.
Without entering into which could be your favorite, but simply, would you mind to lay out what are, in your view, those strategic options that you have in Brazil? Thank you.
Thank you, Javier. First of all, I would also start by the fact that the regulatory risk in Portugal. The one-year extension, we have not mentioned, but I would like to highlight is in distribution, that is supposed to come. It gives additional visibility. I think it would be good. In terms of the profile in energy tax. The CESE, as you know, it's supposed to evolve and to be reduced according to the tariff deficit evolution. The tariff deficit last year decreased. This year, we were expecting, initially a EUR 600, then a EUR 400 at the final calculations of the tariff deficit.
Probably with the COVID situation, we will see rather an increase. In any case, I would like to state two things. The commitment in terms of verbal commitment and execution committed by the government has not changed, relating to the variable that is supposed to follow, the CESE.
I would like to tell two things. First is, this reduction that if everything pre-COVID was probably the amount of up to EUR 10 million. It's really not a game changer in our account. I think it's more the fact that people respect the principle than the fact that they were calculated at EUR 8 million or EUR 9 million or EUR 10 million reduction. That's the most important thing for me. The second, let's see how it will evolve, and the government will take a decision towards the summer, but of course, the COVID situation will probably have an impact. In any case, I would like to stress that the figures that we have presented in this quarter already include the full payment of CESE for 2020. It was specialized in terms of in timing.
As always, we pay at the beginning of the year, the full amount. If anything, we will not have that upside that we were supposed to have pre-COVID. In terms of clawback, the law is clear. The Secretary of State did the dispatch, and now probably it's just a question of implementing. We see really the clawback as a netting off measure of the 7% paid in Spain and the taxes that are paid in Portugal are not in Spain. We see clawback as finally as it should be, as a netting off measure that doesn't allow EDP to have the benefit of the 7%, but taking into account both sides of the border. Strategic options in Brazil. I will pass to Miguel to the specific question of the 3.4% that we share the answer.
Anyway, strategic options in Brazil. As you know, we prefer visibility. We prefer transmission distribution. If anything, we were more flexible on generation. By the way, in this moment, the fact that we have both allowed us to edge a little bit because as you know, distribution in Brazil is very volume driven, much more than in Europe. Anyway, we are not in a rush in terms of, you don't want to crystallize value in Brazil, in BRL, you are not in a rush. Eventually, you can do swaps. You can adjust your portfolio, but we are not in a rush to do anything in Brazil. In Brazil, the key element was to protect cash. Cash, cash, liquidity, and we have been very focused on this, including the dividend policy out of EDP Brazil. That, by the way, is because it's in Brazil.
We have protected the company and take the measures that we needed for this. In terms of strategic options and the things that we are pursuing is basically, as we have presented on a strategic business plan, focusing on delivering the deals that we have already presented, but also working on optionalities on reducing merchant risk or reducing exposure to the market, on lowering exposure to markets where eventually we consider that we are already too exposed. That's the trend that we will follow. Miguel.
Javier, on the 3.4%, there are essentially three variables which impact the cost of interest rates and cost of debt are basically the rate, the mix of the different currencies, essentially the three currencies, dollars, euros, and reais, and then any effects, impact that there are. The dominant factor here is the rate, and that came down substantially over the last couple of months, and it's been coming down over the last year. We expect that, over the full year, the rate would be at 3.4% or even slightly below. That'll be as a result of this impact of the lower interest rates and this refinancing that we go on doing of different bonds that are still outstanding.
As I showed on the slide in the presentation, we still have quite a few bonds, for example, even maturing this year, one in June and another one in September, which are well above 4%. 4.1% and 4.9% are the two ones that are outstanding. As those mature, obviously, they will be replaced by cheaper financing, and so the overall debt cost is expected to come down.
Thank you very much. Thank you. I'm receiving a signal from Miguel Viana that we should stop. I just want to thank you again for your presence and the patience with us in a difficult moment. Keep you safe, keep you healthy. Just to stress, we were ahead of the events. Nobody could anticipate this, but we were prepared for tough times. We were ahead of the events. We are ahead of our plans. We resist, but clearly, we are committed to all our targets. As you will see, we tend to be stubborn. That relates to being sometimes boring in this sector, and the next weeks will, I believe, improve, and the next times will prove what we have been doing. Again, thank you very much. Let's go for it. Keep yourself safe, and see you soon.