Ladies and gentlemen, thank you for standing by and welcome to the EDP first half 2019 results presentation. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you'd like to ask a question over the phone at this stage, please press star then one on your telephone keypad and wait for your name to be announced. I'd like to advise you the call is being recorded today, Friday the 26th of July, 2019. I would now like to hand the conference over to your first speaker today, Miguel Viana, Head of Investor Relations. Please go ahead, sir.
Hi. Good morning, ladies and gentlemen. Thanks for attending this first half 2019 results conference call of EDP. We'll start with a presentation by our Chief Executive Officer, António Mexia, and our Chief Financial Officer, Miguel Stilwell d'Andrade, followed by a Q&A session. Afterwards, at this Q&A session, you can use those questions by our website, www.edp.com or through the phone line. I'll pass now the floor to our Chief Executive Officer, António Mexia.
Thank you, Miguel. Good morning, everybody. Thanks for being present on this conference call. As usual, I will start with the highlights and key figures and key comments that we want to share with you about the results. If you are following the presentation that you have, on slide three, I would like to start by providing this overview on the performance over the first six months. Our EBITDA increased by 11% to EUR 1.9 billion, with strong growth across our three business platforms. Let's see on the positive side. We had built out of 900 MW of renewables capacity over the last 12 months, mostly wind, and also the execution of our asset rotation strategy with one deal in Europe already with a significant contribution to our first half results, as you will see.
We have reached, basically, we are close to one fourth of our EUR 1 billion target for 2019, 2022, at valuation assumptions above our business plan expectation. Our networks platform showed also some growth. In Brazil, we saw significant demand growth in distribution. It's relevant. While in transmission, we have commissioned our first line, and we have three additional lines currently under construction. In Iberia, the evolution was basically marked by the EBITDA benefiting from an OpEx reduction of 5% year-on-year. On the negative side, our performance was significantly penalized by the weak hydro resources in Portugal, which in the first half of the year were 44% below average.
In terms of net profit, we see an increase of 7% to EUR 405 million, benefiting from the 14% growth at the EBIT, supported also by significant efficiency improvements with OpEx decreasing by 1% year-on-year on a like-for-like basis. Our financial costs were penalized by 30 basis point increase that we have already seen in the last time we met. Why? Because we have an increasing rate of our debt in dollars in Brazilian real, and of course the relevant issuance of EUR 1 billion green bond in January this year. Our net debt fell by 1% year-on-year to EUR 14 billion in June 2019, or + 4% versus the end of December last year. Following organic cash flow of EUR 700 billion, in which this first half, a 16% increase year-on-year.
The EUR 700 million, it represents a significant increase on a year-on-year basis, supported by the expansion of our activities and working capital improvements, while net expansion investments more than double year-on-year, of which 85% were investments in renewables. Last but not least, something that everybody knows, 15th of May, we have paid the full amount of our annual dividend. That amounts to EUR 700 million, fully aligned with our commitment on a sustainable and stable dividend policy. If we move to slide four, as you can see, our hydro production in Iberia fell by 50% year-on-year, following very low, as I mentioned, resources in the first half of 2019. 44%, as I already stressed, below historical average, which compared to 15% above average in first half of last year.
Regarding wind resources, they were close to the long-term average in the second quarter, but still 4% below average for the entire first half. The first quarter were bad, the second on average, but still on average below. Moving to slide five, we explain the 11% increase of the EBITDA. Let's move first in renewables. Renewables EBITDA increased by 9%. In wind and solar, the asset rotation transaction announced in April generated EUR 200 million gain. I want to stress that excluding this impact, underlying EBITDA in wind and solar rose by 6% following a similar increase of installed capacity. A 5% recovery of average selling prices, more than offsetting the effect of weak wind resources that I've just mentioned. On the negative side, in hydro, the low volumes in Iberia imply the EUR -200 million impact on EBITDA, partially compensated by higher average prices.
Our second platform, networks, EBITDA increased by 12%. We see in Brazil, growth driven by 4% increase of electricity demand in distribution and a positive impact from the tariff updates. In transmission, we benefit from the rollout of the lines that we have under construction. In Iberia, as I mentioned, EBITDA increased back by sound cost performance with a reduction of OpEx of 5%. Lastly, in client solutions and energy management, EBITDA was 24% up, supported by the supply operations in Iberia, following the normalization of the market and the regulatory context after the adverse conditions that we faced in 2018. Also important, a 73% increase in gas generation in Iberia. Let's move into cost on slide six. We continue to see a strong performance on operating costs. OpEx on a like-for-like basis showed a decrease of 1%.
In Iberia, OpEx fell by 1% in normal terms and 2% almost in real terms. In Brazil, OpEx increased in local currency in 3% or almost - 1% in real terms in a period of significant expansion of activity. We are doing more with less. At EDPR, adjusted core OpEx per megawatt also, of course, which includes Forex impact and one-offs, fell significantly by 2% year-on-year. Summing up, OpEx year-on-year was below inflation in all our key geographies, leading to a significant reduction in expenses in real terms. Talking of net profit in slide seven. We see a 7% increase to EUR 405 million, as I mentioned, supported by renewables and networks. EDP Renewables net profit increased by 147% year-on-year, of course, significantly impacted by the asset rotation.
In Brazil, net profit increased 10% year-on-year in local currency, propelled by strong growth in networks, partially offset by lower results in energy management. In Spain, the lower net profit reflects the deterioration of dark spreads and the positive fiscal impact in last year. If it was not for this, basically, we are good. Finally, operations in Portugal, I think it's relevant, posted a net loss of EUR 18 million in the traditional business, continuing heavily penalized by taxes and regulatory costs, such as, the CESE, the social tariffs only supported by generators, the clawback levy, also, of course, as we mentioned, the low hydro resource in the first half. All the platforms, with exception of Portugal, are going well. Slide eight, strategy execution.
I think it's important that from here we do something detailed on this because we have just presented four months ago in London our strategic update. I believe that a lot of things since that happened that consolidate the vision of this execution. Moving to slide nine. First element that is relevant, it's the increase of renewables secured projects. We are basically trying to talk about the key figures, the key elements that we were expecting us to deliver since we presented those targets in January. In our strategic plan, we have set the targets of deployment of 7.2 GW of new renewables capacity in the four years period. We have been focused on the delivery of projects that fulfill our investment criteria in terms of risk returns per position.
By June 2019, we had 1.3 GW of renewables projects under construction, and over the first half of the year, we have secured more 800 MW of PPAs for renewables project to start operating before the end of 2022 across all our geographies. We have an increase to 3.3 GW, representing 46% of the target in terms of solar and wind built out for the four years period. Clearly we are delivering almost half of the four years until 2022. In terms of Brazil, regarding on our six greenfield transmission projects, which represent a total investment of BRL 3.8 billion, we have already reached 30% of execution of the total investment, of which 20% incurred in the first half of 2019.
In last December, as you remember, we delivered the first line with 20 months advance to the schedule, and we have currently three lines under construction and two additional lines in permitting stage, one of which added to our portfolio in last May. All of these will be delivered before time. We have also been working on the funding optimization of this project, as you know, it's relevant in Brazil, which has also provided a significant improvement of our returns. Up to now, we have already raised BRL 1.6 billion on the infrastructure or 50% of the expected funding needs for this platform. The second element of the execution on slide 10. The establishment of a JV with ENGIE over 50/50. I think it's relevant.
Offshore will be an important element for our growth throughout the plan, but also throughout the period after 2022, and we expect to show significant growth over the next decade. With ENGIE, we have created clearly a top five wind offshore player. We believe that this partnership will reinforce our competitiveness in this area, giving our complementary competence, and I think it's important, the complementary capabilities to achieve large scales of operations which are required to succeed in such a Capital-intensive business. This JV is also, I would like to stress this, a natural development for two companies that have been partners in several wind projects since 2013. We know each other well.
The JV will have a dedicated team and the shared control governance, with the first Chief Executive Officer being proposed by EDP, and the Chief Executive Officer and the Chairman by ENGIE, followed by a rotation, agreed after three years mandate. The JV has four wind offshore projects in construction stage, all with feed-in tariffs already secured, spread around four geographies, and include fixed and floating offshore technology, representing a total capacity of 2.5 GW. On top of this, we have other projects under development amounting to 3 GW. We'd highlight two Moray East project in U.K., where there will be a CFD auction this year. The Mayflower project in the U.S., which is eligible to the next PPA auctions in Massachusetts and Connecticut. Third element on slide 11. asset rotation and disposals in Iberia.
Very different asset rotation, something that is structural to our business, something that is recurrent, and disposals, of course, in the question of rebalance portfolio and also deleveraging. The asset rotation through the monetization of fully valued renewables projects to invest in new projects in development stages became, as I mentioned, a recurring piece of our business. An important part of our strategy. Not only of us, but in our case, we are clear in this. In this front, since our strategic presentation, just four months ago, we have agreed one asset rotation in Europe, which follow our first deal of this kind, closed in U.S. last December. This deal was agreed at implicit valuations above our business plan assumptions, benefiting from the current downward trend in long-term interest rates and the strong market demand for quality assets, sustainable infrastructure assets, but quality.
This transaction will provide EUR 0.8 billion of cash proceeds over the second half of this year, representing roughly 20% of the EUR 4 billion target in terms of asset rotation deals. We will have more. Second, another important commitment in our strategy plan was the disposal involving assets in Iberia to be executed in a 12-18 month period, targeting to reduce the weight of the Iberian market in our portfolio, and as an important contribution, as I mentioned, to reduce our leverage. Over this four-month period, we have identified a portfolio of merchant generation assets in Portugal, representing an installed capacity of more than 1.5 GW for potential disposal. These assets have raised strong market interest from a large number of potential investors, among which we have selected a restricted group of interest parties to present non-binding offers until next week.
Moreover, in line with what we defined in our strategic plan, we have been developing other options regarding potential disposal in Iberia, which we may execute depending on the evolution of the current merchant process. We have our plan A, plan B. Clearly, we are very focused on these figures that we have committed in January. Overall, we reaffirm our expectations of delivering our commitment in terms of asset disposal through attractive value crystallization to our shareholders within previously announced time frame that would assure the full delivery of the disposal program before 2020 year ends. Finally, on slide 12, I would say that the work is on track to deliver our targets of the strategic plan. Regarding the key elements, so we are talking about visibility.
Regarding our accelerated and focused growth ambitions, we have built, going quickly, 900 MW and added 800 MW of long-term contracted, having secured what I referred, the 46% of the targets up to 2022. The JV on the top, the new transmission line and network. Clearly, all of these items are, in four months, explain exactly why we feel comfortable on this growth. Second, continuous portfolio optimization. We have, as I mentioned, already crystallized EUR 800 million of assets in terms of asset rotation. With valuations better than assumed in our plan. Also, we have clearly launched this process of in Iberia, and the non-binding proposals next week is a good sign of all the work done in the last four months.
Thirdly, in terms of solid balance sheet commitment, we have reinforced our credit metrics through the issuance of the green bond, and we have secured, securitized EUR 1.1 billion of tariff deficit in Portugal, contribution to reach the EUR 6.7 billion of financial liquidity by June, which cover refinancing needs beyond 2021. Clearly, we are in a very strong liquidity position. On efficiency and digitalization front, we have delivered in the first half a 1% reduction of OpEx, as I mentioned. On the digital front, I would highlight as an example, the successful ongoing rollout of digital meters in Portugal, which in this first half, provided a 40% increase in remote readings, with a significant reduction in operating costs. We continue committed with attractive shareholder remuneration, having delivered in last May the dividend, as foreseen.
Finally, I would like to highlight that in terms of guidance for 2019, we maintain basically what we have stated in the first quarter 2019 results conference call. First, we continue comfortable with the EBITDA consensus of EUR 3.5 billion. Second, we consider it is still possible to achieve consensus net profit close to EUR 800 million, depending, of course, naturally on hydro and wind conditions during the first quarter. I will now pass to Miguel Stilwell for more detailed analysis, and then I'll come back for the Q&A session. Thank you. Miguel?
Thank you, António. Now moving on to more detailed analysis of the results. I would ask you to turn to slide 14. Here in slide 14, and as we've shown in previous quarters, we can see that the focus continues to be clearly on renewable energy, with a 2% increase in the renewables installed capacity. I'd also like to highlight that this represents a 6% increase in wind capacity. With this, the renewable energy now weighs 74% of EDP's installed capacity and 68% of its generation mix, despite very high first half in Iberia, and also slightly weaker wind resources in some of our key geographies. Although that was mostly in the first quarter. Overall, renewables production 16% lower than the first half, due to lower renewable resources, but still over two-thirds of our total production. If we turn to slide 15.
Here we can see that the wind and solar EBITDA increased 40% year-on-year to EUR 961 million. Significantly impacted, obviously, by the EUR 219 million of asset rotation gain in Europe. Excluding this impact, the remaining underlying activity still grew by 6%, and I think this is extremely important. Excluding the asset rotation, even so, the underlying business grew 6%, driven by the, obviously, the increase in installed capacity, mostly in the U.S., the higher average selling prices, mostly in North America, Eastern Europe, which more than compensated the wind volumes 4% below long-term average in the period. Let's move to slide 16. Here, we can see that the EBITDA decreased by 36% year-on-year to EUR 302 million. Obviously, strongly impacted by the very dry first half year in Iberia, as António's mentioned.
As he also mentioned, the hydro coefficient was 44% below historical average. If you compare this on a yearly basis, the hydro generation Iberia declined 50% to 4.3 TWh. This was partially compensated by a 15% increase in the average selling price, which prompted higher realized prices associated to these lower load factors, generally in Iberia. In Brazil, EBITDA from hydro declined 10% in local currency and 12% in euros, with the allocation of a higher percentage of our annual energy contracts to the second half of the year. Moving to slide 17. In our networks operations, here you can see the EBITDA increased 12% to EUR 472 million. In Brazil, the EBITDA increased 26% or 33% in local currency. With the transmission activity contributing, EUR 18 million already as the first line became operational in December of 2018.
In distribution, the improvement in results was mainly driven by the 4% demand growth in our concession areas, mostly in the area of Espírito Santo, and positive impacts also rising from tariff updates. In Portugal, EBITDA increased by 6%, despite the decline of return on RAB by 17 basis points to 5.26%, in line also with a slight reduction in the interest rate. In Spain, 16% EBITDA growth includes the unwinding of some previous year's costs. Finally, OpEx in Iberia fell by 5% in the networks business, reflecting significant efficiency improvements, which António also mentioned earlier on. Slide 18. Slide 18 touches on the client solutions and energy management business, which includes also the thermal generation.
The EBITDA from these operations increased 24% year-on-year to EUR 208 million. Regarding supply in Iberia specifically, EBITDA resulted from the normalization of operating margins following a particularly adverse first half of 2018, and also the increasing penetration of new services in our client base. In the strategic update, there's been some doubts as to how this business would evolve to the targets that we've shown. I think these results this year show that clearly there's a very strong improvement in the supply business. Iberian generation also benefited from improvement of market conditions in gas with the CCGT productions increasing by 73%. In Brazil, EBITDA from these activities declined, mainly due to lower volumes in the liberalized supply market.
In Spain, despite decline in results, was mostly due to an extraordinary positive effect in the first half of 2018 as a result of the downward revision of the reference availability level, which obviously happened last year, but it is not happening again this year. Let's move to slide 19 and talk a little bit about net debt. Net debt stands currently at EUR 14 billion, a 4% increase versus December 2018, this reflects a 16% increase of recurring organic cash flow to EUR 700 million. That's positive, mostly due to the expansion of activities and also a big improvement of working capital. We more than doubled the net expansion investment to EUR 1.2 billion with a significant weight around 85% of investment in renewables.
The payment in May of 2019 of the annual dividends of EUR 700 million, finally, a EUR +500 million impact from the 60% equity content of the hybrids we issued in January. There's also a EUR +200 million impact mostly related to regulatory receivables. overall, the net debt to recurring EBITDA stands at 4x . Let's move to slide 20, talk about financial liquidity and the debt maturity profile. here the total available liquidity is currently at EUR 6.7 billion, including EUR 1.5 billion of cash and equivalents and EUR 5.2 billion of available credit lines. this covers clearly our refinancing needs beyond 2021. As we stressed before, we have obviously reinforced our balance sheet with the hybrids, and another important contribution was the securitization of EUR 1.1 billion of the Portuguese tariff deficit, which we sold during the second quarter of this year. that obviously has an impact.
Talking about financial results on slide 21. Here, the net financial cost stood at EUR 371 million in the first half, increasing from EUR 277 million in the first half of 2018. This looks like a big increase. Obviously, there are some significant non-recurring items and others are recurring. Exclude volatile items not directly related to interest costs. In the first half of 2018, we didn't have the IFRS adjustment of EUR 60 million. We had the Celesc goodwill impact of EUR 15 million, and we had an asset rotation gain of EUR 19 million. That was just the first half of 2018, and those are impacts which we then don't have in 2019. Impact in both 2018 and 2019, the results from net Forex and derivatives marked to market with a negative year-on-year impact of EUR 15 million.
Adjusted financial cost grows by just 3% or EUR 11 million, justified by the 30 basis points increase on average cost of debt to 4%. I just remind you that at the end of 2018, this was already at 3.8%, and it is now moved to 4%, it is in line with what we indicated in the strategic update, where we would be. I think it is important to highlight that with the recent significant decline of medium and long-term interest rates, both in dollars, euros, and in the Brazilian real, we believe we will be able to gradually refinance our debt at rates significantly below the ones that we are currently paying in our debt, which is maturing in the short term.
This should have a positive impact on the evolution of our average cost of debt, although more materially post-2019, because refinancing, which will be done now towards the second half, will obviously have more impact as in the following years. This increase in the cost of debt is obviously justified partially by the hybrid, but also in a great part by the higher weight of dollars in Brazilian real in our consolidated net debt, because that's the currencies that we are investing in. That goes on gaining higher weight, as time moves forward. Let's move to slide 22. Last slide. Here we have the 11% growth in our EBITDA. Our EBIT goes up by 14% to EUR 1.168 billion. Financial results in associates go down by EUR 85 million due to the previously referred adverse year-on-year comparison of the non-interest related items.
The effective tax rate is stable at 17% in this first half, versus 16% in the first half 2018. I remember there was some concern in the first quarter results regarding the average tax rates. As you can see, it's now below the 20% that we'd guided towards. Obviously, in the medium term, this will converge to above 20%, to the mid-20%s we talked about. Also, to highlight the results of the first half continue to be penalized by the booking of the full
Annual amount of the extraordinary energy tax of EUR 67 million, which we have excluded from our recurring net profit. Regarding non-controlling interests, they increased slightly by EUR 10 million, reflecting the increase of the EDPR net profit. Overall, our net profit rose 7% to EUR 405 million, while our recurring net profit grew 8% to EUR 470 million. With that, I'll conclude my presentation and turn it over to Q&A. I'll just pass the ball to Miguel Viana. Thanks.
Thank you very much. Maybe we'll start with the questions from the phone.
Thank you very much. If you'd like to ask a question over the phone, please press star, then one on your telephone keypad. We will begin the Q&A in just a few moments. It's star, then one to ask a question over the phone today. Once again, as a reminder to ask a question over the phone today, please press star, then one on your telephone keypad. The first question we have today comes from the line of Stefano Bezzato from Credit Suisse. Please go ahead.
Yes. Hi, good morning. It's Stefano Bezzato from Credit Suisse. Two questions for me. The first one in relation to the asset disposals. Assuming that the sale of the 1.5 GW of merchant capacity in Portugal goes ahead as planned, after that, do you still see the need to reduce exposure to Iberia further? Maybe in light of political regulatory risk? The second question is on the strong performance of the Iberian supply in H1. Can you elaborate on the key drivers? How much is regulation? How much is new products? And how do you expect this division to evolve over the next quarters? Thank you.
Thank you, Stefano. I think that what we have been focused, as you know, on the disposals in Iberia, and we are talking basically more about Portugal. We have been focused now in merchant assets, probably a package of hydro. That makes sense. We have a huge market share in Portugal. If we reach this target, we feel comfortable. It means that we will comply with our commitments. This EUR 2 billion will be matched. As I mentioned, we have other plans if anything doesn't please us or if anything is on the way. The target will probably not move a lot. We want this.
In what concerns thermal, as you know, we have been very frank in the sense that, of course, we would love to reduce even more there, but it relates also to a question of supply and demand, and the question of the time span of those assets and clear the value. We are not ready to leave value on the table for nothing, just for the sake of a nice conversation. Clearly, we will be looking for value crystallization again, at the same time as you deleverage and de-risk. In what concerns the strong performance of Iberian supply, the improvement, I would like to highlight two things. It was basically both in Portugal and in Spain, almost half. The improvement in the first half is in line with our guidance in the strategic update. That cannot be extrapolated for the full year.
If we are talking low 40%s in the first half, we will be reaching the end of the year in the 60%s. It's not the 80%s, it will be the 60%s. Okay? It will not double, but it will be more or less of the half of what we have shown in the first quarter, or in the first half.
We can go to the next question, please.
Thank you very much. The next question on the line today comes from Javier Garrido from JP Morgan. Please go ahead.
Yeah, good morning. I would like to know if you could provide a bit more detail on your asset rotation. You mentioned predominantly hydro. You could give some indication about the mix, whether it's run-of-the-river, pumped storage, reservoir. Any details you can provide about the mix, earnings or the output contribution, that would be very helpful. Also, thinking of this disposal, would you be open to sign a contract where you would sell the asset, but you would keep the operation of the asset so you would continue to provide some O&M services in the long run? Also, finally, if you are selling hydro, could you comment on what could be the implications for those assets of any decision in the future, if ever, from the European Commission on the concession extension in Portugal and the formal process through which that concession extension was done?
That was the first block of questions. The second question would be on asset rotation. Would you be open to include any of the joint venture components into future asset rotations? Now that you have created a joint venture with ENGIE, you feel comfortable with the total stakes you have in offshore? Thank you.
Thank you, Javier. Let's start with the question of the hydro. Of course, we have built a mix that makes sense geographically, that people that would keep those assets, credible players, will be, of course, also able to run something that makes sense, in terms of integration of those assets, in terms of operation. Our base case clearly is not to keep the operation. If it's needed, it's okay, depending very much on the buyer. The base case is not that one. We did a mix with wells, run-of-the-river storage, everything that, of course, will allow somebody that with these assets to be more balanced in the market. We have clearly identified this, we have shared this with the key people that are really serious about this. As I've mentioned, we expect already non-bindings at the end of next week.
It means that we have been doing all this technical stuff. Now, what concerns question of Brussels. I think that, of course, extension of concession is, by the way, is not a Portuguese issue. It's an issue that involves a very large number of countries that, for different reasons of those of Portugal, because they did it later. Portugal did it in a totally legal sound basis. With no questions until recently. The issue is that if anybody's worried about having more players, more competition, whatever, this is a path, of course, to reach in a quicker way, the target. I think that the incentives are aligned between everybody, we expect this to go through. Of course, it's a reason why we never know in terms of timing, whatever.
It's a reason why we're also preparing, as I mentioned, B and C, our plan, because clearly what we will be doing, I can assure you, Javier, is that we want to give visibility until the end of the year, and we want to execute throughout 2020. That's clear commitment, and we will not change it. Including of JV offshore assets in terms of asset rotation. As you know, this is built mainly. We had already done this, by the way, in projects where we are already with ENGIE. The key issue is that now together we will be stronger, and we will have more power to be the leader of consortiums together. As you know, nobody consolidates in these big projects. People basically want the leader, and together we will have more chances to be the leader of any consortium for any new bid.
This is more driven to do new stuff than just to lower what we have today. The key focus, it does not mean that we cannot do it. We don't have any taboo. The key issue is that we have now pooled teams together, that are focused on this leadership of new projects in Europe, in U.S., and also in Asia, including new markets in Asia.
Okay. Thank you.
We can go now to the next question on the phone, please.
Thank you very much. The next question today comes from the line of Alberto Gandolfi from Goldman Sachs. Please go ahead.
Hi, good morning. Thank you for taking my questions. I have three on my side. The first one is on Brazil. We have been reading about this ability of EDP's asset injected in ENGIE Brasil, you becoming a minority shareholder there. I was trying to see what would be the attractiveness for your shareholders to do that. Is there any ground to it, and how would you create value for EDP holders in that scenario? The second question is about capital allocation, and EDPR in particular. Now, let's say you carry out EUR 2 billion of disposals, at least announced before year-end. That is clearly done to improve and strengthen the balance sheet, but could you have incremental disposals of something that you deem as growing much less or non-core, and as a result, maybe upgrade investments in growth areas? You just mentioned the JV in offshore.
As part of all this discussion, where does, in your priority, sit the full integration of EDPR? I think you're now sharing about 17% of your growth from your core business with minorities and very limited liquidity there, why not bring it in and enjoy full growth from it? Apologies, two-part question. Last one, very briefly. You seem to have more projects than balance sheets to carry them out. The question would be, do you think you can stay independent on a three-year basis? Would you be open to consolidation? How is going to this whole renewable development impact your long-term strategy? It seems to become more and more a scale, really type of business where size matters a lot. If you can share any thoughts, it'd be fantastic. Thank you.
Thank you, Alberto, for your ambitious questions and covering very interesting topics. I think that speculation in Brazil, in this moment is not worth spending a lot of time. I wanted to be clear in several items. First, Brazil plays a relevant role in our business, and it has been value accretive for EDP. Of course, we continuously evaluate any option, to the extent it's aligned with our equity story and creates value for shareholders. I don't want to be vague, but in life, the key issue is to keep your principles and what the line that we will not cross. We will not do any evolution on Brazil platform that will not make sense for EDP. Of course, you need to respect minorities, but especially, we will not move in any direction that does not fulfill the interest of EDP shareholders.
That does not deliver the full value of what we believe is the full value of Brazil. We are ready to do whatever. We have been flexible as in the past, to do whatever we have to do when we think it's relevant, and it's a non-regret, but we will not be on a wishy-washy situation. If it's what worries you, we will not accept any wishy-washy, middle of the road solution. The second is capital allocation. The question of EDPR. That's a recurrent question. I would like to say that we will not be integrating anything in cash, so it's out of the question. It's also not a priority. I don't say that it does not make sense. It could make sense. Of course, it has to make sense in all terms for EDP shareholders.
Clearly, we don't move, just for the sake of something that is make it simpler. Of course, making it simpler, it's nice. Of course, it needs to make sense, value-wise. In any case, we will never buy minorities in cash. That's obvious. Whatever the proceeds of any asset reallocation, we will not do it. In terms of projects, bigger projects than balance sheets. Consolidation, three years. Your question, I think it's relevant for a lot of people in the scene. I really believe that our plan shows that we are focused. One of the critical elements that of companies of our size is you need to be focused. You need to lead. At the same time, it's true that size matters, especially, for example, in the offshore, that's clear.
There are other items where eventually, some moves have been done by very real small players and sometimes not really creating a lot of value. What we have been doing is let's keep focused, let's create optionality, namely everything that relates to client relation, new downstream that will be important to integrate on this leadership of energy transition. I believe that we have a story that makes sense and stand by on its own feet without any need of integration, in the future. We can and we will be delivering as it was the case until now. If you see the past, in the last decade, we have delivered more value to our shareholders than the sector. I think that the story still makes sense. Of course, you need to be focused. You cannot have middle of the road solutions.
You need to be ambitious. I think that our strategic plan shows that we have this in mind.
Thank you.
Thank you, Alberto.
We can go to the next question, please.
Thank you very much. The next question over the phone today comes from the line of Jorge Guimarães from JB Capital. Please go ahead.
Hi, good morning. Thank you very much for taking my questions. I have three. First, on the soft guidance that you gave us, you said it includes gains from asset rotation. Should we assume it also includes the gains from hydro assets sales in Portugal? Secondly, the OpEx evolution in Spanish networks division was very good in first half of the year. Maybe it has some recoveries of past costs, What should we assume for the second half of the year? Finally, a question on your generation mix. You are still producing a lot of electricity from coal. Should we assume that your plants are still competitive against the CCGT plants, namely the Sines plant in Portugal? Thank you very much.
Thank you, Jorge. Let's be clear. The guidance for the net profit, as I mentioned, we still possible to achieve. That does not include any gain on any of the results of disposing Iberia. First, because probably even if you are able to show something, a sign or anything, probably any deal will be closed only in 2020. We are not doing this because of capital gains. We are looking for asset reallocation and deleveraging. We are not looking to do capital gains here. If they are there, perfect, but it's not the driver. The driver is really deleveraging and lowering our exposure, because we have also invested a lot in the last decade in Portugal. It's a question of rebalancing the portfolio. No inclusion. In terms of assets rotation, we are working on new deals on the renewables front.
Just to give an idea, when you see the figures and people try to look into the end of the year, it also relates to other questions that we have received on the web, is that when we guide the capital gains, we have talked about between EUR 150 million -EUR 100 million, with a downward trend toward the end of the 2022 plan, where we would be reaching only EUR 100 million. The reality is slightly different for good reasons. In 2019, we will be above EUR 200 million. I want it to be very clear, not because we sell more megawatts, but because we get more euros per megawatt than expected. That's the reason why we think it's still possible to achieve the figure, and this figure does not include any item or whatever disposal in Iberia. The OpEx, it's a trend. We have been very focused on this.
Just an example, it's a detail, but we are doing OBZs everywhere in all the company. We're pushing OpEx in terms of all the items. This minus is to go on and basically, we will anticipate what we have committed in our OpEx program that we are currently doing. In terms of generation mix, I would like to stress the following. Our coal power plants, both in Portugal and in Spain, are among the most competitive. In Iberia, Sines and Aboño are clearly on the first quartile due to location, due to the fact that Sines is one of the most recent, by the way. It's in the 1970s, but it's a recent one and designed to be. We still believe that it's competitive, and it still plays a role in both markets, both in Portugal and also in the north of Spain.
They are very relevant still for the equilibrium, the balancing of the system. They still play a role. We don't see this role, as we have already mentioned, for going to up to 2030. We see clearly in the next years them to be competitive and needed in the system. Unless the rules of the game change. If they change, and if they are not there, of course, we will take all the decision. We have good coal power plants, even if we are focused on just only investing in wind. By the way, as you know, one of those thermal plants in the north uses natural gas.
We are always looking, even when they ask, "Are you a green company?" Yes, we are a green company, but we always try to find a solution that protects the assets and that also makes anything that is brown greener if it's possible using better fuels. I don't want it to take long, but we have been very cautious with this.
We still have time for one more question from the phone and then maybe one or two from the web. Let's go for the last phone question.
Thank you very much. The next question on the phone today comes from the line of Manuel Palomo from Exane. Please go ahead.
Yeah, hello. Good morning, everyone. Thanks for taking my questions. I've got one follow-up, one question, and one clarification, if I may. Follow-up is on the short-term guidance. You have just ruled out the capital gains coming from hydro asset divestments being part of this EUR 0.8 billion, but I didn't get it very clear. Could or should we expect more asset rotation deals also helping the company to achieve this full year target? The question which is maybe for Miguel, on the free cash flow statement, I see that maintenance CapEx has increased versus last year, and I wonder why. The last one is a clarification. It is on the net debt figure. I see that this EUR 14.04 net debt calculation, I wonder, my understanding is that you are not including the impact from the IFRS 16. Am I right? Thank you.
Just to be clear, taking perhaps the last one first, in terms of the IFRS, we are not including that. It is clearly identified in the handouts and in the information. We are being consistent in terms of what we gave, in terms of targets at the strategic updates and the way we are presenting the numbers here. In any case, the information regarding the IFRS impact is clearly identified in the handouts. In terms of the free cash flow and maintenance, we have our normal ongoing maintenance, which obviously goes on increasing also as a result of the renewables business as it goes on growing. There's a certain amount that is being accelerated, relating to the networks business. There's also components associated with the payables to fixed asset suppliers. That has come through also in the first half.
That basically explains the difference between the first half of this year and the first half of last year.
Thank you.
Finally, short-term guidance, as I mentioned, does not include any results from any sale in Iberia. It relates only with gains of the assets rotation as normal business on the renewables platform, means wind and solar. The answer is yes, we are looking into more assets rotation. It's not a question of needing it or not. As you know, we have targeted for the four years. We know exactly what are the assets that we consider for that farming down. We are just implementing this. What we see today, it's great opportunities in the market because of the quality of the assets, because of the situation of the interest rates. We like to take advantage of these, I would say suppliers markets of good assets. It's true. I wanted to be very clear.
We expect to be above EUR 200 million this year, so above the average of the periods.
Thank you.
We can now move to the questions of the web. We have here from Fernando García, Royal Bank of Canada, and Jorge Alonso from SocGen. Some clarification on the impact of the hydro impact in Iberia in the first half 2019. What was the impact in terms of volume and in terms of price?
The questions were mixed. Thank you, Fernando and Jorge. Let's see about the hydro. As I mentioned, the hydro impact was around EUR 200 million of EBITDA, and this includes two things. First, the -4 TWh generated. It's a huge difference because of the hydro resource clearly below the average, more or less half. That also includes the positive of 15% increase in realized price versus a pool increase of 3%. Why? Of course, hydro, due to the flexibility on the system, on the technology, you can pick a better moment so your realized price is better than the average price of the system. This overall explains the EUR 200 million. In what concerns the tariff deficits, we have been very clear about this figure.
It was EUR 3.79 billion in June with a reduction smaller than expected in the tariff deficit because of less received CO2 revenues and also because of lower demand by very mild weather in this winter in Portugal and in Spain. The demand was -1.9%, despite the economic growth. It is clearly weather-sync. We want to be very clear, we continue to see the system debt reducing this year, close to EUR 500 million this year. It is the same trend. The trend is clear over the last years. The reasons that explain this trend are the same. Eventually, you have basically just timing issues here of revenues or weather, seasonal. No change on the tariff systems. There were questions also about the hedging. We talk typically about the hedging in 2019. We are clearly above 90%.
We were clear in what concerns having, so that 58% that compares to last year of 55%. It also relates to if you compare EDP's 52% - 50%. It means that relatively we are in a good position and the spreads have improved. I also like to include the mentioning to the gas, as I think that more or less everybody did. We had a positive impact on the gas of EUR 10 million, mainly on the second quarter of 2019. Due to these hedging positions, we expect additionally EUR 30 million, so it means EUR 40 million for the full year. I think it's relevant for the figures. I've seen also a question about Brazil, the strategy. The first half, we have allocated only 46% of our resource. It means in the second half, we will be allocating the 54%. It was already foreseen.
We have a question about CESE from Jorge. The CESE, we have a commitment towards the system, not towards us, but to everybody that says we'll evolve with the reduction of the tariff deficit. The tariff deficit has been reduced. We expect, for the next years, a progressive reduction of the CESE. As you know, at the end of the plan, still in 2022, we still consider the CESE to be there at 40% level. We expect this. You have also asked about Brazil and Chinese interest on EDP assets. I think that we have already talked about this. We have been very clear. We are focused on our shareholders. I think that we have answered all your questions.
I think with this, we have answered all the questions, even the small pending ones. We'll follow up on the IR level, and I will pass now for the conclusion of the call, again, to the Chief Executive Officer.
Once again, thank you, Miguel. I wanted to share you the feeling that after meeting probably most of you, and at least some of you in January, and having already, basically four months, less than five months after that meeting, we feel very comfortable with the strategic commitments. We have been very focused on that delivery. We have been doing all the homework. Some is already visible. The figures are already there. The money is already in. The others are clear. We want to give that word of visibility of delivery. Of course, it was a first half where we missed rain in Portugal and in Spain, we all missed rain. I think that we have clearly adjust our strategy to this, and if anything, we have been over-delivering on everything that depends on us, on crystallizing value, on reducing costs, on capturing opportunities to grow.
I think that in what depends on us, things are clear. The guidance is also there. See you soon, and thank you for your presence. Bye-bye.
Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect.