Good morning, ladies and gen tlemen. Thanks for attending EDP's first half 2023 results conference call. We have today with us our CEO, Miguel Stilwell d' Andrade, and our CFO, Rui Teixeira, which will present you the main highlights of first half 2023 financial performance. We will then move to the Q&A session, in which we will be taking your questions both by phone or written questions that you can insert from now onwards at our webpage. I will give now the floor to our CEO, Miguel Stilwell d' Andrade.
Thank you, Miguel. Good morning, everyone, and thank you for attending today's conference call. I wanted to talk about EDP performance in the first half. I suggest we go straight into slide three, which has a summary, basically, of the key highlights. What I would say is we had a very strong performance in the first half. We had an EBITDA of EUR 2.5 billion. It is the highest over the last decade, an increase of 24% year-on-year, and essentially reflects a couple of different issues. First, the recovery of the integrated margin in Iberia. As the electricity and gas sourcing costs have reduced from peak levels, that has allowed the margin to expand. There has been a good recovery of hydro generation, 68% year-on-year, 60% up year-on-year. It is slightly below expected, so slightly below what would be an average hydro year.
But I think the important thing is that it is certainly better than last year, which is where we had that terrible drought. Also we have been able to keep the storage levels at record high levels. I think that means we are going into the summer and then into the autumn with very good hydro storage levels. Resilience of the electricity networks in Brazil, just generally networks globally, are representing around 30% of total EBITDA. That has been also a strong source of stability. On the EBITDA side, on the renewal side, penalized by weaker wind and solar performance. We talked about that on Wednesday on the call. As I mentioned at the time, the El Niño weather event, it is leading to much lower wind resources in the U.S., particularly in Central America.
Lower generation, and obviously not having had asset rotation gains in the first half of 2023, means that EDPR was impacted by that. As you know, this week we have already announced two asset rotation transactions. They will be coming in the second, or being booked in the second half of the year, so we are not seeing that in the first half results. I will talk a little bit about that later on. Overall, recurring net profits at over EUR 500 million. So a strong increase, 72% up on the first half of last year, driven by the EBITDA growth, mitigated to a certain extent by higher effective tax rates, in line with the previous quarter, since the profits are coming from geographies with higher marginal tax rates.
Now let's go to slide four and talk about something that we commented in the capital market today and I think is an important milestone for the company. It's a buyout of the EDP Brasil minorities. We launched the tender offer, as you know. We announced that on the day of the capital markets. It was at a 22% premium. On July 11th, we had the results of the auction of the tender offer, and it allowed us to increase our stake in EDP Brasil from 56%- 88%, and to move forward with the delisting of the company. We then went further. We continued buying shares in the market under the Brazilian regulations and tender offer processes. We managed to achieve the 95% squeeze out threshold, which means that we will reach 100% stake when the process is concluded in the next few weeks.
We will essentially take EDP Brasil private, as was the intention. As you know, we raised EUR 1 billion for this at the time, and now we've successfully concluded the transaction ahead of schedule. The shares that were acquired, as you know, for a price of BRL 23.73 reais per share, it's, as I mentioned, the 22% premium versus the previous day of the offer launch, and it's already deducted of the dividend, which was paid in the meantime. I think it's worth mentioning that in this context, in these months that the tender offer lasted, there's been positive developments in the electricity sector and the macro environment in Brazil. We started with positive news from the distribution concession renewal. It's a proposal in line with previous renewals. That's something that's under discussion in Brazil at the moment, but positive prospect.
It will certainly reduce the sector risk perception that was very visible by the way the performance of the index in the various different utilities in Brazil. The overall Brazilian utilities index has increased by around 25% since the offer launch. On the macro, we're seeing a decrease in interest rates with the 10-year bond yields down 270 basis points since the offer launch, and the Selic rates is expected also to be cut in the short term. On the currency, we have also positive developments. We have a strengthening Brazilian real on the back of positive market momentum, and so we've had a 5% appreciation since the offer launch. Important to mention that we'd locked in the Euro Brazilian exchange rate for the full acquisition of EDP Brasil minorities.
When we raised the EUR 1 billion at the capital market date, we locked in essentially the Brazilian real, and so that's led to around EUR 40 million savings on the FX versus if we hadn't done that. Overall, positive prospects on economic growth also in Brazil with the GDP growth revised upwards from 1.9%- 2.5%. Honestly, I think it was good timing and very well executed. We move on to slide five. Here, just to talk about the impact that this will have on the EDP overall consolidated results. EDP Brasil earnings will be fully consolidated in the second half of the year and will have a significant contribution to the earnings growth. You can see that there on the left-hand side of the chart.
We expect an impact on net profit of around EUR 90 million to be recorded this year and around EUR 120 million from 2024 onwards. Considering the EUR 1 billion investment and the mentioned earnings contribution, this represents a 12% return on equity, a significant return and I think a healthy investment. Our strategy overall in Brazil, we have talked about in the past, but it is never too much to reiterate it. It is fully aligned with the energy transition, in fact, and with the Brazilian government objectives. President Lula just announced yesterday that in August they will be coming out with, let us say, a more significant proposal to drive the energy transition in Brazil. It has already done a lot, but obviously there is still a lot they can continue to do. On our side, we will be very much focused on electricity networks.
We will be pursuing organic growth and distribution and transmission, and also on the renewable side, where we are scaling up both solar B2B business, utility scale and distributed generation. We are also working on reshoring the portfolio, and this is something we said we were going to do, and we are doing it, and we will be showing concrete results in the short term. We will be coal-free by 2025, so the Pecém process is ongoing, and we should be able to communicate that shortly. We are also progressing in the asset rotation of the transmission. We are looking for further reduction of exposure to hydro following the Mascarenhas power plant disposal in 2022. So we expect our overall group exposure to Brazil to converge to our target long-term level over the next few years.
Finally, we expect this transaction to bring operating and financial synergies between EDP Brasil and EDP Renováveis Brasil that will be materialized in 2024. Those are not included in the net profit numbers that you see there on the chart. Moving on to slide six, and talking about integrated generation and supply in Iberia. Here we had a strong recovery in the first half. We had a long position on clients in the context of a decreasing pool price. That allowed us to optimize our generation and buy electricity in the market to deliver to our clients. For 2023, we expect to continue with a slightly long position on clients and an improvement of integrated margin versus 2022. 85% of the margin is already locked in, and that leaves us confident for the remaining part of the year.
For 2024, we already have an expected long position of close to 8 TWh relating to B2C clients, and we have already sold around 50% of baseload generation volumes at a price which is higher than EUR 65 per megawatt hour. I think it demonstrates our strong position in clients and our advanced hedging positions. Positive prospects for 2024 also here. All in all, I think it shows the value of having a diversified and integrated portfolio and also allowing us to optimize the energy sourcing costs too, for our customer needs. Now, if we move to slide seven, just talking a bit about EDP Renewables, and I know I have talked about that on Wednesday, but just to give you a brief recap. Well on track for the execution of the secured capacity. 8.9 GW already secured, which represents more than 50% of the target capacity.
In terms of the forecast additions for 2023, we are expecting to add around 3 GW, concentrated very much in the end of the year. All in all, for 2023 and 2024, as mentioned earlier, we are expecting capacity additions to range from 3.5 GW- 3.9 GW per year on average. That will depend essentially on the pace of recovery of the U.S. solar supply chain issues and the timing of the transmission line license in Colombia, which, as I said, is 500 MW, and so it is obviously quite binary what year it falls in. As we mentioned in the EDP Renewables call, we will and we have continued to work toward diversifying our supplier base. For 2024, the solar equipment is well diversified. We have eight different module suppliers for the U.S. We have five for Europe. For 2025, we have more than four suppliers per region.
As you know, our big issue this year, it was already last year, but this year, is around the 900 MW of LONGi panels specifically, which are having difficulties in importing into the U.S., and that is moving the projects to 2024. I would just also like to highlight that we have 5 GW of capacity under construction, of which some sizable projects are expected post-2023, namely the offshore project in the U.K. and France, and the project I mentioned in Colombia. On slide eight, talking about asset rotation, I think definitely one of the strong highlights of this call. When we spoke just two days ago for the EDP Renewables conference call, we had already signed the asset rotation of 257 MW in Spain. Very attractive multiples.
But just yesterday, we signed another transaction in Poland, and so overall improving our asset rotation metrics significantly when compared with similar deals closed last year. So contrary to a lot of expectations and a lot of questions that we get, we continue to see a healthy asset rotation market and we also continue to see very healthy transaction multiples. So clearly asset rotation for 2023 expected to surpass the EUR 0.3 billion guidance that we provided in the Capital Markets Day. Overall, the ratio of capital gains over capital employed and over the 40%, which is a 2021, 2022 average.
I think, again, we have a high-quality portfolio. We are seeing interest from now more strategic players rather than an infra fund, who value assets with merchants exposure to pool prices and also this repowering and hybrids optionality, which we have in our portfolio. So all in all, positive deals.
We are pursuing other transactions with good prospects both in Europe, LATAM, and North America. We will give visibility on that over the coming months. So wrapping up, upgrading the provision of capital gains for the end of the year to more than EUR 300 million and proceeds of more than EUR 1.5 billion to achieve around 25% of the target proceeds for the full business plan horizon. Moving on to slide nine. Just a quick word on solar DG. Last month we had the opportunity to have some of you on our offsite, solar DG offsite, and talk about the strategy for the business. We are accelerating the solar DG business. We have deployed capacity 30 times versus 2019, reaching close to 1.6 GW peak in the first half of 2023.
On track to delivering the business plan commitment of 4 GW peak additions in the period of the business plan till 2026. In fact, there are 1.3 GW peak capacity already secured across our four regional hubs. When we spoke at the Capital Markets Day, we made a strong bet on solar DG, targeting an investment of around EUR 2.5 billion over the business plan period. It is about 12% of our total investment in renewables, and it is going to translate into strong EBITDA growth, going from around zero in 2022 to around EUR .3 billion in 2026. So tripling over the business plan horizon. The technology itself, as we mentioned, has significant upsides in terms of time to market, good flexibility in terms of grid connection, and also dependent on the system operator.
Less dependency on permitting or supply chain issues, and so good also cost savings for clients versus, let us say, fully loaded energy costs from the grid. So it is a good, nice business and it is growing at a very healthy pace. On slide 10, I just wanted to touch on something which comes up or has been coming up, questions that have been coming up recently, which is the regulated receivables. So in 2023, we are seeing an increase in regulatory receivables. It reached about EUR 0.9 billion in the first half. The increase comes mainly from deviations in the electricity wholesale price, actually verified in the first half of 2023 versus the regulatory assumptions. If you look at the actual numbers, and so you can see them on the slide there, the first half electricity wholesale price in Iberia was at around EUR 88 per megawatt hour.
The regulatory assumption, which was underlying the negative access tariffs for 2023, assumes a EUR 213 per megawatt hour wholesale price. So obviously a big difference there. The regulator has rectified these assumptions as of the end of the first half. They made an exceptional update of tariffs in which they increased the access tariffs and reduced the pool price assumption, so they decreasing the amount of the deviation versus the actual market conditions. So we expect that this update to the tariffs will positively impact the amount of regulatory receivables in our balance sheet, and it will decrease the pace of regulatory working capital increase. So I think the regulator there took quick action to try and obviously adjust to the market conditions. Another point I just wanted to make on this slide is looking at the past level of regulatory receivables, I think one thing is very clear.
We have had positive and negative fluctuations in the past. They were always well-managed by us through securitizations. This year will not be different. We expect to securitize the deficit deviations until the end of the year, and so reduce the negative impact you are currently seeing net debt. So this is a short-term issue, something that we have seen in the past. We have dealt with it in the past. I think all of you have seen very clear evidence of that, so we do not expect 2023 to be any different from that. On slide 11, and just before I hand it over to Rui, just a couple of comments more on the ESG side and also what we are seeing in terms of the energy transition. The first is the normalization of the hydro conditions in Iberia.
That together with a decrease in the thermal activity, means that the renewables, so hydro, wind, and solar, accounted for 80% of our total generation, a 10 percentage point increase year-on-year. We are truly becoming an all green company. Revenues from coal decreased 2 percentage points year-on-year to 4.5%. That's a trend we expect to continue over the next quarter. We're fully on track to deliver on our coal-free commitment, meaning zero contribution of coal power generation to our revenues by 2025 year-end. I'm sure we'll be anticipating that. This significant decline of thermal generation has also improved our alignment with the EU taxonomy to 72% on revenue, 19 percentage points higher year-on-year, and around 97% of our CapEx is fully aligned with that taxonomy.
Another consequence of the reduced thermal generation was the decline of scope one and scope two emissions by 47% versus 2020 levels. We're on track, perfectly on track to achieve our ambition of reducing these emissions by 95% by 2030 compared to 2022 levels. Apart from the strong metrics I just mentioned, I think it's also important just to highlight a couple of innovation projects, which are extremely relevant. One was the Alqueva floating solar. It was distinguished under the innovation category in the European Sustainable Energy Awards for 2023 by the European Commission. I think it really reinforces the pioneering work we're doing here. Some of you might have seen this either online or maybe even physically.
I think the concept of having hybrids, of putting together wind, solar, hydro, batteries, this is really becoming something of substance and material, and I'm sure will scale up over time. Also in June, we received authorization to start the first hybrid project in Spain, adding to the project we had in Portugal, which was commissioned earlier this year. As I say, beginning to ramp up, no longer just innovation projects, but becoming a reality. Finally, just to say on the hydrogen front, we had two projects awarded funding from the EU Innovation Fund, so we've now got a total of around EUR 200 million already awarded to EDP hydrogen projects in both Spain and Portugal. Again, I think showing good progress on these areas. Smaller scale for now, but definitely we're at the beginning of an interesting S- curve for these technologies.
With that, I'll stop here and turn it over to you, Rui, and then I'll come back at the end for closing remarks. Thank you.
Thank you, Miguel, and good morning to you all. I would like to take us through now the first half results, starting by slide 13. Regarding EBITDA, increased 24% year-on-year to EUR 2.5 billion in the first half of this year. Regarding EBITDA for renewables clients and energy management was up by EUR 0.5 billion, and this is mainly driven by improved energy management results due to the lower electricity and gas sourcing costs, versus the peak levels that we saw in 2022. This is mitigating the decrease in wind and solar EBITDA due to the absence of asset rotation gains in the first half of this year. As Miguel said, we will be booking this in the second half, as well as the lower wind resources that we already mentioned today's go.
Moreover, in electricity networks, EBITDA flat year-on-year, driven by the growth in Brazilian networks, namely the growth in transmission businesses, which mitigated the decrease year-on-year on networks in Iberia's EBITDA. If we move now to slide 14. As we already mentioned, hydro generation has strongly recovered from the very weak levels of last year. We have reached 4.7 TWh of hydro generation in the first half of this year. That is a 68% increase year-on-year. The increase resulted hydro generation above average in the first quarter and slightly below average in the second quarter.
More than stressing this increase year-on-year, I think it is worth to highlight that we were able to maintain our reservoir levels at around 80% of the maximum capacity as of today, very close to the maximum levels of the last 10 years for this time of year, and higher than the historical, leaving us confident in terms of hydro production for the rest of the year. If we now move to slide 15, on integrated generation and supply, we have a strong rebound versus 2022 due to improved results in Iberia. As you recall, hydro client solutions and energy management segment in Iberia in the first half last year was negatively impacted by a hydro shortfall in a context of record high electricity spot prices with the increasing sourcing costs, which led EBITDA to stay at EUR 126 million last year.
On the contrary, in the first half this year, we have electricity and gas sourcing costs lower, given the decrease in electricity and gas spot prices, and this allows us to purchase in the market at the low spot prices. Hydro resources in Portugal up versus a very dry first half last year. Finally, we have a positive year-on-year comparison with no material negative impact from mark-to-market on energy contracts in the first half this year. That in 2022 was mostly related to the derivatives of the Cheniere gas contract. That being said, we reached an integrated EBITDA in Iberia of EUR 0.82 billion. Regarding Brazil, I would say flattish EBITDA, only EUR -6 million, reflecting lower volume from the sale of Mascarenhas Hydro Power Plant in the fourth quarter last year, despite better hydro conditions. Moving on to slide 16.
EBITDA from EDPR decreased 22% year-on-year. This was mainly driven by the absence of asset rotation gains on a year-on-year basis, which amounted to EUR 99 million in the first half last year. As I said, still no booking of asset rotation gains this semester, so into the second half. Lower wind resources with the renewables index 5% below the long-term gross capacity factor, again, mainly driven by the El Niño weather event in U.S., despite the 10% growth in installed capacity year-on-year. The retroactive change of regulated revenues in Spain in the second quarter this year amounted to EUR 52 million. Again, this is no cash and no impact on value. Lower energy prices, -8% year-on-year, mainly driven by lower pool prices on the back of the lower reference price in Spain for the record assets, together with the lower electricity markets year-on-year across Europe.
Year-on-year performance was out in Europe and North America and was partly compensated by a positive contribution in South America and APAC. Now we can move to slide 17. Electricity networks EBITDA stable year-on-year, reflecting mainly a 4% increase in Brazil with transmission expansion and a tariff updates to inflation being offset by these higher over-contracting costs. In Iberia, EBITDA decreased 4%. In Portugal, EBITDA decreased EUR 2 million year-on-year, with the increase in the rate of return on RAB being mitigated by the increase in the OPEX. In Spain, EBITDA decreased EUR 14 million from higher OPEX as a result of inflation impacting the O&M and personal costs. Most importantly, the first half of 2022 was impacted by a recovery of revenues from previous years. We continue focus on the digitalization and efficiency of our electricity networks.
The total number of installed smart meters increased to 7 million across geographies in the first half this year. This is leveraged by the rollout of smart meters. The volume of telemetered energy in Spain already represents 86% and 99%, respectively. Now looking at the financial on the cost of debt on slide 18. Cost of debt at 4.8%, and this includes the Brazilian real denominated debt. That's 30 basis points up versus the first half 2022. If we exclude the Brazilian real denominated debt, cost of debt at 3.1% in the first half this year, pretty much flat quarter on quarter in comparison with 2.7% last year. Increase year on year, mostly due to U.S. dollars denominated debt, given the higher interest rate environment, and the Brazilian cost of debt is pretty much stable year on year.
Excluding FX differences and derivatives, adjusted net financial interest decreased 4% year on year to EUR 418 million. I would like also to build up on the strong financial liquidity position that we show on slide 19. As of June this year, we have more than EUR 9 billion of available liquidity, of which EUR 3 billion cash equivalent and the remaining EUR 6 billion of available credit lines. Actually, just today, we announced a sustainability-linked revolving credit facility in the amount of EUR 3 billion, replacing the current RCF in the amount of EUR 2.1 billion, thus strengthening our liquidity position by approximately EUR 1 billion. With this RCF, we have now enough liquidity to cover refinancing needs beyond 2026, as we can see from the graph on the left-hand side of the slide.
On the right-hand side of the slide, we can see that currently most of our debt is fixed around 74% and denominated in U.S. and euros. As we have stated in previous conference calls, in 2022, we pre-hedged the benchmark interest cost for EUR 1 billion and $1 billion on the new debt issues for 2023 and 2024. For the EUR 1 billion this year, we have successfully executed a senior bond emission by issuing a EUR 750 million green bond to which 75% of your interest rate pre-hedging was allocated. The bond was priced at 3.875%, but since we already had the five-year mid-swap pre-hedge for the amounts to be refinanced in 2023 at 1.8%, this led to an implicit yield of 2.5% in these senior bond issuance. Definitely extremely low yield under current market conditions.
On the U.S. dollar, more recently, we have been revising our funding strategy by currency and resulted in the decision to reduce the weight of U.S. dollar funding. We have settled the U.S. dollar pre-hedge, which translated into a gain of EUR 37 million in our financial results. Now if we move to slide 20, net debt increased to EUR 15.2 billion as of June this year, and this is mainly impacted by recurring organic cash flow of approximately EUR 0.4 billion on the back of a strong EBITDA performance in the first half of the year, and including the settlement of the anticipation of regulatory remuneration in 2022 amounting to EUR 0.3 billion. If we exclude this impact, organic cash flows stood at EUR 0.7 billion.
The regulatory working capital at EUR 2 billion from the reversal of the cash flow effect that we registered last year, 2022, together with the increase in deviation from the actual wholesale prices versus what the regulator was estimating. Net expansion investments amounting to EUR 2 billion, and finally, EUR 2 billion from equity capital increases, of which EUR 1 billion at EDP, EUR 1 billion at EDP Renewables, and a dividend payment of EUR 0.8 billion in May this year.
Finally, despite the increase in net debt, the strong performance in the first half this year and the referred EUR 2 billion equity raise led to an improved credit ratios with net debt to EBITDA at 3.2x , and an FFO over net debt at 19% in the first half this year. Both improving year-on-year. All in all, solid financial ratios sustaining the recent upgrade by Moody's to Baa2 with stable outlook.
On the net profit on slide 21, and just before returning to Miguel, I would like to highlight that recurring net profit amounted to EUR 517 million. It increased versus last year when we recorded a EUR 301 million net profit. Reflecting really the strong performing on the operation side, particularly from the integrated generation position, supply business, and electricity networks. Below EBITDA, I would like to highlight that financial costs effectively up, on the back of the higher cost of debt and higher income taxes from higher effective tax rates related to no asset rotations in the first half this year and higher weighting results from Iberian operations and Brazil to regions that have effective tax rate above the portfolio average. With this, I would now hand over to Miguel for the closing remarks, and thank you very much for your time today.
Okay. Thank you, Rui. Now just moving to slide 23 and just talking a little bit about the rest of 2023. First, we are expecting recurring EBITDA around EUR 5 billion, recurring net profit around EUR 1.1 billion, so sound performance by the integrated portfolio and backed, obviously, by the improved market conditions. Also, as we mentioned, the asset rotation execution continues to have a good, solid contribution. So we are expecting asset rotation gains above EUR 300 million this year. Also, we obviously have the full consolidation of EDP Brasil contributing with close to EUR 200 million in net profit in 2023, around 90 million. Net debt for the year expected at EUR 15 billion with a positive contribution of these asset rotation proceeds I mentioned, but also assuming the tariff deficit securitizations by the end of the year.
We are talking also a net debt EBITDA of around 3, which is obviously a very healthy, solid balance sheet. All in all, very confident for the rest of 2023 with the diversification and the resilience of our portfolio backing this earnings guidance. If I move on to the next slide and just some closing remarks before going on to Q&A. First, the results for the first half were very much supported by the hydro and supply conditions normalizing in Iberia. But even so, our hydro was below a 10-year average. In any case, we were able to store it and take advantage of the volatility in the energy prices. This mitigated the weaker wind resource and regulatory impact at the EDPR level.
Secondly, is that we had an important, or we took an important step in the execution of our strategy when we successfully finished the tender offer for EDP Brasil minority. So we have reached 95% stake, which is a squeeze out threshold. We are moving to 100%, and so we will have the process concluded in the third quarter of 2023. So we will be consolidating EDP Brasil from the second half or for the second half of 2023 onwards, translating in a return on equity of 12% on this investment, at least. For the first half of 2023, it is also very much impacted by a strong recovery of integrated generation and supply business in Iberia. So that is the third point.
This long position in clients is expected to persist in 2023, and we have got 85% of our integrated margin already locked in, so confident for the remaining part of the year. On renewables and regarding capacity deployment, since the CMD, we have already reached around 9 GW secured, so more than 50% of the target. We expect to install around 3 GW in our key markets, and we are reinforcing our strategy to diversify the solar supply chain, as you know, to avoid further constraints. So that has been one of the big issues that we had in the first half of this year or that we are having in 2023 in general. In terms of asset rotation, so this fifth point, very attractive multiples for the two transactions that we just recently announced this week.
The asset rotation gains over capital employed above 40%, so the average of 2021, 2022 definitely shows or above the 40% that we had for 2021, 2022, which shows the value of our renewables portfolio. Finally, just to say, our integrated portfolio, the network's resilience, the strong asset rotation execution, the fact that we have 100% earnings consultation of EDP Brasil in the second half support the earnings outlook of around EUR 1.1 billion recurring net profit. With that, I just stop here. I know we can move to Q&A, then I'll have some closing remarks. But thank you.
Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star followed by five on your telephone keypad.
Okay. The first question comes from Alberto Gandolfi from Goldman Sachs. Alberto, please go ahead.
Miguel, thank you, and thank you management. Thank you for taking my question. I'll stick to three. The first one is on full-year guidance, and I'm really trying to understand the underlying earnings power. So I wanted to test one thing. You just talked about asset rotation gains over capital employed of circa 40%. You also had historically about probably EUR 1 billion proceeds, or less than EUR 1 billion, leading to EUR 300 million asset rotation gain. If now you're targeting EUR 1.5 billion or higher, should we just take proportionally a ratio and say EUR 1.5 billion is EUR 450 million gains for the second half?
The second part of the question is that, if that is the case, you deliver the recurring net income in excess of EUR 500 million for the first half, EUR 450 million gains at EDPR level would be EUR 300 million for your bottom line, so we are above EUR 800 million. You are telling us that you expect an underlying recurring net income for EDP before gains for the second half below EUR 300 million. How realistic is that? Sounds a bit prudent considering the reservoir level that you have and the pricing we see on the screen. The second question is on net debt. Would you mind maybe elaborating a little bit more on a bridge between H1 and year-end? I guess at the end of June, you had not spent yet about EUR 1 billion to buy out Brazil.
If you can give us any indication on securitization, the total amount of disposals, not just asset rotation, but the total amount of disposals you do expect to close for the second half, that would be extremely helpful. My last question, we discussed that on the EDPR. I was just trying to get a bit deeper. You said in that call that you saw U.S. PPA prices up 70% since 2020. We have done the same calculation, and I guess the question to you, though, is this clearly means higher absolute returns. Does it also mean greater value creation? Or, in any case, it is higher absolute returns, which is already good enough, and maybe if you can give us any idea of what these higher returns look like, how big is that? Thank you.
Alberto, hi. Thanks for your questions. Of course, very insightful as usual. In relation to the first one, I would say for the question around the asset rotation gains of a CapEx of around 40% to EUR 1.5 billion, does that translate into roughly EUR 450 million? Approximately, if you want to use that as a guideline, that is okay. In relation to, I guess, the other part of that question, so what does it mean for the remainder of the year?
Yes, that is, let us say, taking a, I am not sure if it is a prudent approach, but it is what we are guiding to, and obviously, if we can beat that, we will certainly do that. Let us say that is what I would say for this at the moment, but your EUR 1.5 billion- EUR 450 million, probably not too far off from what we expect for the full year. On the second point, Rui Teixeira, do you want to take that?
Yeah, sure. Hi, Alberto. I would say broadly speaking, what we will be doing is maximizing that securitization between now and the end of the year. Just with a quick note, the regulator will propose, let's say, a draft on the tariffs by October 15, and then it's a final decision by December 15. This is likely to be really a year-end event, but that's something that we have as a main objective for this year, is to securitize. Pretty much in line with the same process we did over the last years. Secondly, we are counting in that beyond closing, the asset rotations that we just announced, and they're closing in the second half. We have a couple more going on in the Americas.
If they go according to plan, we would be announcing those throughout the second half and closing it by the end of the year. As you know, we also have the Pecém, the coal plant, which is in the final stages of negotiation. Actually, in the first half books, we are getting it as an asset available for sale. I would say that, yes, we will be carrying on those proceeds as well as the debt securitization, and then the CapEx expansion just going in the normal rate. That's why we are targeting that we actually will be close or around EUR 15 billion years of net debt by the year-end.
Alberto, on the third point, on the asset returns, yes. That's exactly how we see it. The asset returns have been going up. Primarily, it's a function of cost of capital as well, so keeping our spread over cost of capital. As cost of capital goes up, pushes up the absolute returns as well. Obviously, that's a good thing, as you say. Just to reconfirm also that the higher PPA prices are reflecting that higher cost of capital, and they're reflecting higher CapEx. In terms of relative value creation, as you know, we typically guide to the 200-plus basis points of spread above the cost of capital. We expect that to stay roughly the same or increase. Many times, we also use a multiplier 1.4X , so as cost of capital goes up, that spread also goes up.
I think the bottom line, as you rightly point out, and that's our view as well, is higher absolute return's definitely a good thing. Wouldn't argue with that. I think that is what we're seeing in terms of the investment decisions we're taking. Thank you.
Very clear. Thank you.
Okay. We have now a question from Javier Garrido from JPMorgan. Javier, please go ahead.
Hi, good morning. Thank you for taking my questions. Actually, a few of them were the ones that Alberto just made, and I am scratching my head still with the guidance, as he is probably doing, too. Anyway, on the performance in the first half, is there any item trading gain or trading mark-to-market that should reverse in the second half of the year? Just to have a feeling of what could happen in the second half with the 85% of hedging that you have already locked in. The second question is on the integrated margin with the current power prices.
2023 is a bit of a strange year because wholesale power prices have declined, but if wholesale power prices stay stable where they are now, more or less, how do you see your integrated margins in 2024? Particularly, do you see them consistent with your guidance, your targets for 2024? Finally, a very specific question, after the dis-impairment on Pecém, what is the book value of Pecém, please? Thank you.
Hi, Javier. Sorry, I just didn't catch the third question, so if you could just repeat that.
Sorry. What is the book value of Pecém after the impairment?
Okay. Okay. In relation to the first point, there's no specific trading gain that would be reversed in the second half. The only thing I'd say there perhaps is that on the supply side, we typically lock in client prices, which are stable throughout the year or fixed, and then you have a sourcing, let's say, schedule or sourcing cost, which can vary throughout the year. In certain quarters you can have a higher margin, in other quarters, you'll have lower margins. That's not a question of trading gains, it's simply a question of the sourcing costs, how they're spread throughout the year. In terms of the second question, the integrated margin with the current power prices, as you say as well, there's definitely a gain as power prices are coming down, as I just mentioned also on the previous question.
That's being captured here. In relation to 2024, I'd say we're relatively comfortable with the guidance that we've seen when we came out in the Capital Markets Day. We'll provide further information over the next quarters as we go on locking in more of that 2024 margin. But I'd say, it hasn't deviated significantly from what we were seeing originally. In terms of Pecém, I think the book value is currently around or slightly above EUR 100 million at the moment. I think with the impairments that were done in this first half or actually in this last quarter, as we moved it to mark-to-market, that should bring the expected sale price to around the book value. Or let's say the adjusted book value. Just bear in mind that we deconsolidated EUR 150 million of debt already in the first half of 2023, okay?
That's also, take that into account when you're looking at the values. You look at the assets for sale, EUR 150 million deconsolidated of debt, book value, slightly above EUR 100 million. That first question.
That's clear. Thank you.
Okay. Thanks.
Our next question comes from Manuel Palomo from BNP Paribas. Manuel, please go ahead.
Hello. Good morning, everyone, and thanks for taking my questions. I will stick to two, given that some of my questions have been already answered. Question number one, I understand that the very strong performance of the liberalized business is partly explained by your pumping hydro assets. I wanted, if possible, to give us some reference about volumes generated from pumping assets and also a spread, at least a reference about how the spreads today compares with the spreads in previous years, if it is possible.
Secondly, I would like to have a bit of detail on two specific items in the balance sheet and the evolution up to the year-end. One is the lease liabilities, what is your expectation? I guess that may be a steady growth, to the year-end. Also, more importantly, the tax equity investor agreements, what is your expectation towards the year-end, given that a big chunk of the growth should come from the U.S.? Thank you very much.
Manuel, I am sorry, I apologize, but again, maybe the sound here in our room, but could you just repeat the second and third question?
Well, there were two, actually.
Yeah.
The first one was the
No. The pump hydro I got, and I will answer that.
Okay.
Just on the second and the third.
The other one is whether you could give us some visibility about the expected amount of lease liabilities by year-end, and also more importantly, the amount of TEIAs, Tax Equity Investor Agreements by year-end, given most of your growth will come from the U.S.
Okay, got it. Thanks. In relation to the first part, yes, we are seeing a higher margin from pumping, pump storage. We are seeing higher margin per megawatt hour. The volumes are slightly lower year-on-year versus 2022. But in absolute terms, we are talking about an EBITDA contribution in the mid double-digit million Euros for the full year 2023. The slightly lower volumes, it is actually part of a very conscious strategic decision. As we mentioned during the presentation, we have very high reservoir levels in Portugal. It is close to the highest of the last 10 years. It is around 80%. That gives us good confidence now for the summer period and for the autumn. Hydro has good potential also for the next years. Just a little bit of detail on that.
The unit margin of pumping goes from around EUR 20 per megawatt hour in the first half in 2022 to around EUR 50 in 2023. We have slightly lower volumes, but the overall EBITDA increases. On the other two questions, Rui balance sheet.
Yep. Manuel, on the operating leases liabilities, this IFRS 16, I would say stable, around EUR 1.4 billion- EUR 1.5 billion. Regarding the tax equity investment, I would expect that this year, and of course, meeting the CODs, by the end of the year, I would expect an additional EUR 0.5 billion, EUR 0.7 billion, but then we will also have the tax equity that follows the asset rotation part, and therefore, we would see a decrease driven by that. Probably, I would say flattish towards the end of the year. Maybe just a quick comment on the tax equity side. This is something that we have been naturally keep working in the U.S.
Again, highlighting the importance of the strong relationships that we have been building with the banks. As of now, I can say that we have good traction for our deals as we are already marketing even for 2025. Just taking the advantage to give you that I think a positive note. Thank you.
Thank you.
Okay. Our next question comes from Jorge Guimarães from JB Capital. Jorge, please go ahead.
Hi, good afternoon. I have three questions, if I might. The first is if you can elaborate on the impact of the over-contracting problems in Brazil, how much is the EBIT in Brazil below run rate on the back of this question? The second question is what type of returns should we expect from the securitization? If the return levels are close to what they were in the past. The third one is a bit of a follow-up on this matter of the Manuel question. Are you feeling any impact of curtailments in your ability to perform hydro pumping in Iberia? If so, can it hamper in the future the profitability or partially hamper the profitability of this technology? Thank you very much.
Okay. Thank you. In terms of the over contracting in Brazil, we are talking probably about a EUR 10 million- EUR 20 million impact. That is something that has been varying and will vary throughout the year. I would say that is sort of more or less the ballpark figure we are talking about. In terms of returns on securitization, I think our point here is we do not want to gain or lose money with the securitization. This for us is just something we do not want on our balance sheet. The returns, let us say the spread is fixed by the regulator, obviously together with the government. All we ask for and all we need really is just have a market return so that we can offload that debt. We are not counting on any capital gains, but also not on any capital losses on that securitization.
On the third point, I'd say honestly, no, curtailment is not an issue, in particular because there's a very specific or very localized curtailment that we had in the second quarter or first half with renewables in specific areas of Spain. We expect this to come down, the curtailment in these areas to come down. Talking to the teams, we think the second half will have much less curtailment. But irrespective of this, I think the point is that our pumping is mostly in Portugal, in hydro. If anything, it actually helps increase the value of this pumping and it increases unit margin. Honestly, the answer is no, curtailment does not impact pumping volumes or if anything, it expands margins. We expect this to be an area which continues to grow in value over the coming years. Thanks.
Okay. The next question comes from Meike Becker from HSBC. Meike, please go ahead.
Thank you so much for taking my questions. I have two, if I may. Can we come back to the value creation for the renewables, because I believe that's sort of a really important driver here. As you mentioned, you also look at this multiplier of 1.4x over the WACC. In the past, I believe you have also communicated in this basis points, and you have said that new projects were almost at 300 basis points over the WACC as opposed to your expectations of 200+ , so much higher. This might have come down to sort of like a little bit less than 300 basis points, sort of like, I don't know, a year or two ago.
But if we, I don't know, say that WACC has increased by 100 or 200 basis points and we put the 1.4 multiplier on top, couldn't we believe that your spreads have actually increased by 50 to 100 basis points so we could actually be for new projects comfortably above 300 basis points? So that sort of like would be great if you could comment from this sort of like triangulation. The second question is, some of your peers have very favorably talked about the repowering opportunities for players with established wind portfolios in the U.S. It would be great if you could sort of like talk about your repowering opportunities and the tax credits in the U.S. Thank you.
Yeah. Thank you, Meike. The first question, you make a very good point, and I think it's also relating to the comments which Alberto Gandolfi was making earlier. As cost of capital goes up, if we're using the multiplier of 1.4x, the spread should also increase by the 0.4. We do look also at the overall absolute spread, which should be above 200 basis points. And desirably in the past, on a portfolio level, it's been around 300 basis points. I think we could see some margin expansion, but I think also it's important to take into account the market dynamics or the competitive dynamics in the different markets. I do believe that these investment opportunities now, we're seeing not only good absolute returns, but we're also seeing good healthy spreads.
They will depend on the different markets if they're increasing or not, but they're certainly not. I would say generally they are increasing in most markets. In relation to the second, I don't want to get too specific because obviously this is going to end up being quite sensitive information. But hopefully it helps you. I would say yes, spreads are not only healthy, but increasing. But we need to take into account the market dynamics and so we can stay competitive. On repowering and hybrids. You talked about repowering.
I'll also talk about hybrids, because I think both of these are essentially what you're taking is a scarce asset, which is grid interconnection, typically with existing projects, and you're either repurposing that project, so the repowering, putting in either bigger turbines, using that available interconnection to repower with more efficient turbines, or you're doing things like hybrids, using that same interconnection point and putting in different technologies.
So you've got a wind project and you put in some solar, or you've got a hydro project and you put in some wind and/or solar. I think both of these are important drivers of growth. They're built into our business plan. We're certainly looking at all of our projects globally, and seeing how we can either repower or how we can put hybrids on them, and so that's built in. Yes, we do look at it as a major driver of growth for the coming years in many of the different markets.
Very helpful. Thank you so much.
Sorry, one little comment on this, but you will have seen even in the transaction that we announced yesterday. Hybrids are becoming more and more priced into these transactions. This is something that, for those of you, if we go back a couple of years, typically we are talking about plain vanilla projects. The market was not necessarily pricing this in, but now it is becoming more and more priced in. You see the multiples, they continue to be very healthy on these asset rotations. A lot of it has to do because you are not just looking at the underlying asset, you are looking at all the optionality that is there. In some cases, it is the merchant optionality. In other cases, it is the optionality to build hybrids or to repower, and that is then being built into the multiple. I think this is an important factor.
It is not just a question of looking at, okay, we have got 100 MW of certain technology and you just apply a standard multiple to that comes out of your DCF. It is what is the additional optionality that you can get, the additional megawatts you can add on to that existing project. I think that is definitely a change I see and that we all see in the market over the last few years or something that is relatively short-term. Thanks.
Okay. Thank you, Meike. We have our next question coming from Olly Jeffery from Deutsche Bank. Olly, please go ahead.
Thank you. Two questions from me, please. The first one is on the earlier consolidation of EDP Brasil than expected. Can you please just remind us, compared to your expectations at the start of the year, how much lower do you expect minorities for the full year to be now compared to the start of the year from consolidating EDP Brasil earlier than first planned? The second question is on, at the EDPR level, with regards to Colombia and the U.S. and the additional costs that you're incurring there. My understanding is that effectively you've got two groups of costs associated with these. One is the loss of revenue from the project starting later than you first envisaged, and the other is costs of having to meet your obligations for the PPAs that were presumably starting at the time when you thought these projects were going to start.
The question I have is for, looking at 2024, if we assume the Colombian project doesn't start until 2025, what is the all-in cost versus budget from having that project not running, but also if you can't have the PPA renegotiated, what is the lower EBITDA we should expect versus budget in 2024? Also in the U.S., and I know the projects are starting, but presumably you will have a chunk at the start of 2024, but you'll still be paying for the PPA. So what is the cost there versus budget? Thank you very much.
Okay, Olly. Just on the first question, on the consolidation and the minorities. I think in the take private, we're expecting it will impact around $86 million on the net profits for the second half of 2023 versus the capital markets, the assumptions. I'd say that the value creation of taking it private and the acquisition of minorities, it's improved on the basis of stronger currency and also lower interest rate assumptions. In terms of the additional costs, I think you framed it exactly right. So you have two types of effect. It's not just in relation to Colombia, it's in relation to processes which are delayed. Losses of revenue and/or costs of those obligations. That, in many cases, for example, like the U.S. projects, the loss of revenue is something that you can never get around.
If you're not generating revenue, if the project is not working, you're not producing by definition. On the cost of the obligations, for example, in the U.S., it's been possible to renegotiate PPAs, and reduce the liquidated damages and sort of push back the date of the COD. So I think the U.S. team has done a fantastic work there, really reducing the cost of this. But it doesn't mean it's zero, but it's certainly much lower than would otherwise be expected if nothing had been done. So, great work there. In the case of Colombia, we are on the same track, so we continue to look at renegotiating the PPAs or finding ways of deferring these costs. I wouldn't want to get into specific numbers, but we're talking about double-digit millions. We will obviously provide information once we have a clearer visibility.
But we are in the process of, let's say, trying to renegotiate PPAs and ensure that the project also continues to be NPV positive. That's what I'd say on this point. Okay. Thank you. Bye.
Okay, so we have the next question coming from Pedro Alves, CaixaBank BPI. Pedro, please go ahead.
Hi. Good morning. Thank you for taking my questions. Two if I may. The first one, and sorry if this is a typical question around capital allocation. But given the strong proceeds and valuation from asset rotation, it looks clearly above your initial expectations. Latest results are not disappointing, and yet the share price does not respond. But given the persistent gap between valuations of your assets in the private market versus the equity market, would you consider at some point a stronger push for asset disposals to eventually fund share buyback programs as long as you keep obviously the triple B rating?
Secondly, about supply in Iberia volumes, there was a double-digit decline in the second quarter year-on-year. I was wondering if this was affected by some market share loss, and if you can update us on the outlook and margin and supply for the coming quarters. Thank you.
Thank you, Pedro. Capital allocation, push for asset disposals to do share buybacks. I think we have an aggressive investment program, which was set out in the Capital Markets Day, and we're very much focused on doing that. It also included, as you say, asset rotations, and that was also clearly identified upfront. We haven't considered doing buybacks. I think that would put pressure on the balance sheet. Or we would then be foregoing the investments that we're doing. If at some point we feel that that trade-off is worth doing, we will obviously look at it. I don't think we're there yet. We're continuing to be very much focused just on the execution of the investment program and keeping a solid Baa2 balance sheet.
On the second point on the supply, we haven't seen any material or even not material change in market shares over time. We continue to be competitive in the market. We have, I think, a very comprehensive value proposition. It's not just about price, it's about quality of service, it's about access to our network. Our network is in our, let's say, stores and things throughout Portugal. It's about services, additional services that we sell to our customers. I'd say we haven't seen a material change in market share in terms of number of consumers throughout this period. Does that answer your second question? I'm not sure if I completely got it, but
Yes. Regarding margins for the second half, if you see any kind of downward pressure from current levels.
No, I think what you see is basically you have the regulator increase access tariffs and bake, as I mentioned earlier in the presentation, increased access tariffs based on the fact that there's lower wholesale prices. That's a pass-through, the change in access tariffs to our customers. From that point of view, there's not a change in margins. What there is seasonality throughout the year in terms of what is the sourcing cost. The actual margin might vary from quarter to quarter. I'd say that's maybe the only thing.
Thank you very much.
We have the last question on the phone from Fernando Garcia, RBC. Fernando, please go ahead.
Thank you for taking my questions. I have three. The first one is, I would like your thoughts. I am curious to know your, taking into account current share price underperformance, despite recent asset rotation. It is still very good valuations, probably at similar levels when EDPR was at its peak. Then on Brazil transaction completed with a contribution to earnings. Finally, confident message regarding future renewable capacity growth and returns. I wanted your thoughts there. That is my first question. The second question is, how are we in the process of approval of social tariffs in Portugal? Lastly, my third question is, last year's gas was a negative driver of results. I would like to know what can you elaborate about performance in 2023 so far? What we are expecting gas profitability for EDP in the future. Thank you.
On the first one, it is difficult to speculate on why the share price does what it does on any particular day or month. I think I would focus much more on the underlying business, which is what we can control and what we can explain. I think we have done great disposals at great valuations. Just this week, you look at the multiples, and when I think about some of the skepticism or some of the doubts that people had about the asset rotation, and you see time and time again, we continue to deliver on that. I think that continues to be positive news. You look at the acquisition in Brazil. We bought the minorities, the 22% premium. The market has gone up 25% in the meantime. We have more visibility on the concessions. We have more visibility in terms of the macro environment in Brazil.
They're doing a structural reform. I think great timing, great execution in terms of that, in Brazil. We look at the number of megawatts that were under construction. They'll come online. It's a question of time, so they're under construction. Whether it's in 2023, 2024, 2025, 2026, we have the business plan to execute, and we're confident there. Honestly, I look at the underlying business, and I think on an overall basis, it's definitely progressing well. The share price, as I say, difficult to speculate on any particular day why it does what it does. I can focus on, talking about the second question on social tariff.
Social tariff, the government has said, and it's said it clearly and publicly, that it will evolve to the Spanish model, so there will be a more fair, spread of the cost of the social tariff between the different market agents, which is what we've always defended. We've always said that the social tariff, we're not against the social tariff. We think it's something that governments are perfectly entitled to implement in their countries. It's the financing of it that should be fair. That's something that was supported by the European Commission. The Portuguese government has said that they're working on it. Even recently, I heard some comments from the minister, mentioning that they were in the final stages of approving that revised financing model.
On that, again, confident that it will come out in a way which certainly reduces the cost of it for EDP and spreads it throughout the sector, which is what makes sense. In relation to the third question, if I understood correctly. Gas last year was a negative driver of results. If we could comment on the performance so far. Well, 2023 definitely much better than 2022. A couple of different reasons. Convergence of the TTF Mid-Gas spread. Last year, that had a negative impact. This year, doing much better given the lower prices in 2022. Versus the 2022 high spot gas prices. Last year, we also had some curtailment from the Trinidad and Tobago contract.
This year, that impact is obviously much lower because the TTF prices are down. Overall, our long-term strategy is to decarbonize and just reduce our presence in the gas business, over the next couple of years, and we're working on that. Hopefully, this helps answer your question.
Okay. We'll go just for a final question on the web, from Jorge Alonso from SocGen. Could you elaborate what could be the next steps in Brazil? Any acceleration in asset rotation, disposals, cost-cutting efficiencies?
Sure. On Brazil, as I mentioned earlier, the strategy is very much focused on renewables, it's focused on networks. I think it's good to take the company private, EDP Brasil, because I think it'll allow us to have a much more streamlined operation in Brazil. Definitely, there will be efficiencies, for sure. But it's not just about on the cost side. You can talk about cash management in Brazil, in Reais, you can talk about tax, you can talk about just having a more efficient structure. But I think there are also important synergies, let's say commercial synergies, because you have an EDP Brasil, a trading platform. You have customers. And one of the key things about Brazil is there's a lot of opportunities there for renewables. The difficulty in Brazil is not getting access to the permitting or the access to the network.
Typically, it's about having the off-takers. In other countries, it's the other way around. In other countries, it's very difficult to get projects, but when you get them, it's quite easy to get the off-takers. I think, getting EDP Renewables Brazil and EDP Brasil working as a more integrated company on that respect, I think will also bring quite a lot of value, and we're already seeing that in terms of some of the projects that we're taking investment decisions on. We will also, as I mentioned, be selling Pecém very soon. We already booked it as asset for sale in the first half accounts.
So, that closing is expected in 2023. I mentioned the asset rotation, the transmission. I mentioned continue to reduce hydro exposure. All of these things, I think that was part of the plan when we made a tender offer for the Brazilian minorities, and we'll be executing and hopefully over-delivering on that.
Okay. We will address then at IR level the standing questions on written, which most of them were already answered. Passing to Miguel for our CEO for final remarks.
Just the final comment. I have already touched on a lot of points throughout the call, but first half, definitely very strong results for the EDP group. Very confident for the full year guidance. Obviously, we always work to then over-deliver on things, whether it is on the transactions or whether it is on the execution. Overall, what I would say is, we have come up to the first half of the year, more disappointing results for EDPR, but the overall EDP group as a whole, I think definitely very strong results, which we expect will continue for the rest of the year. I just leave that note out there. Thanks. Have a great vacation if you are taking a vacation now in August, and I hope you get some time to recharge, and I hope to see you again post-summer. Thank you.