Good afternoon, everyone. Thank you for attending EDPR H1 2023 Results conference call. We have here with us our CEO, Miguel Stilwell d’Andrade , and our CFO, Rui Teixeira . We'll run you through the key highlights of our H1 2023 execution and financial results. We'll move to Q&A, in which we'll be taking your questions, both by phone and the written questions that you can insert from now onwards in our conference webpage. This call should last no more than one hour. I'll give now the floor to our CEO, Miguel Stilwell d’Andrade .
Thank you, Miguel. Good afternoon, everyone. I hope you're all doing well in this pre-summer period. I'd start off by going into the presentation and moving straight into slide four. I think it's clear that this was a tough quarter, but I would like to say that we had some important positives. As you can see here on the slide, we had a secured capacity to increase now to almost 9 GW. We added around 1.7 GW in the H1 of 2023, and reached 52% of our target additions for the period 2023-2026, and all of these meeting our target investment criteria. This growth has definitely been supported by strong demand for renewables PPAs, and that's something we'll touch on later in the presentation.
On the investment side, in the H1, we made gross investments of around EUR 2.3 billion, more than 80% focused on the core markets of Europe and North America. As of June, we had around 5 GW of renewable projects under construction, covering different markets and technologies. On asset rotation, we've definitely increased the visibility on asset rotation execution over 2023, and yesterday, we gave, you know, a clear data point. We closed a transaction in Spain, signed and closed simultaneously, transaction in Spain, 257 MW, a multiple of around 1.8x, reflecting the renewables asset value and attractive returns.
This goes to a point, you know, that we've made previously on other calls, which is that the profile of the buyers and interested parties has changed over time to, you know, to reflect more strategics. Also, the asset profile has changed. You know, assets with some more merchant exposure to pool prices and repowering and hybrid optionality, I mean, these assets have a lot of value. That's something, again, we can touch on a little bit later on. I would also just like to say, we're expecting to provide some additional visibility on additional two attractive asset rotation deals in the next couple of weeks, you'll see some news flow on that.
On the negative side, as is public and clear from our operating data and others, renewable generation decreased 10% year-on-year in the Q2. The wind resources in the U.S. was especially penalized by the El Niño cyclical impact. This is a phenomenon that happens with medium-term cycles, and I'll explain that in the next slide. If we compare the, you know, the very strong Q1, it was up 11% year-on-year, and then we had obviously a decrease or a significant reduction in generation in the Q2 as a result of this. Capacity additions, higher, 10% year-on-year in the H1. The H1 results also penalized by some short-term costs associated with supply chain delays in the U.S. We've spoken about that, but we'll go into that in more detail.
Permitting issues in Colombia, EU clawback taxes, particularly Poland and Romania. These are not structural issues. They are issues relating to the growth of the company. H1, recurring EBITDA, around EUR 764 million. The asset rotation gains will all be in the H2 of the year, so we closed the H1 with a recurring net profit of around EUR 100 million. If we moved into the next slide five, we can talk just a little bit about renewable generation and the impact, in particular, of the El Niño. As I mentioned, we had a strong Q1. The Q2 was much weaker, mostly the U.S., U.S. Central.
The gross capacity factor here was around 82% versus the P50, it pushed down the whole metric for EDPR for the quarter. The wind resource was also relatively poor in Europe and particularly in Spain. We're living in an El Niño phenomenon. It's normal when talking about weather cycles. It impacts short-term wind resources, but the wind levels then recover when the El Niño ends. I think it's important to highlight that these kinds of cycles are included in the project life valuation, they don't impact the fundamentals of the return. You know, please look at the graph here on the right side of the slide.
You can see how the El Niño, over time, has impacted our generation, and this is stretching back to since EDPR was listed. This is something that impacts, obviously, other companies in the sector as well. I think the important point is that generation recovers when the El Niño ends, and the long-term generation average is stable throughout these cycles. You'll see that over this period, the average is zero. It means that there's volatility around this long-term average, and obviously, when the El Niño hits, it pushes down the resource, it also bounces back up once it ends. That's a phenomenon we have to live with. It's part of being a renewable energy company.
I would say that one of EDPR's strengths is its global diversification, being able to balance the portfolio on a global basis. On a quarterly basis, there will be volatility over time. As I say, that's an intrinsic part of the business. However, these are 30-year projects, 30-year-plus projects, what matters is that the long-term average is accurate, and I just really wanted to stress this part. The long-term business, I mean, obviously, we look at the quarterly numbers, but let's also look through those numbers to what the long-term average is. If we move to slide six, onto a different topic. This is a question we also get asked quite a lot.
What we wanted to highlight on this slide, is that we are seeing continued efforts to improve the permitting processes, both at the country level and the European Union level. The Renewable Energy Directive, RED III, has been endorsed. It's promoting the renewable acceleration areas with 1-year permitting deadline. The concept of an overriding public interest for renewable energy assets has been consolidated. This contributes to easing environmental permitting processes, where there's a conflict in certain cases. I think this will help unlock a lot of cases where there's situations that are deadlocked in many countries around Europe. We already noticed these advancements in our development projects in different countries, we'll probably be having some anticipation of projects from 2025, 2026 periods to the 2024, 2025 period.
Regarding auctions, governments have made also significant progress in adapting schemes and prices to the current macro situation. For example, France has already had auctions under the new scheme that introduces indexation from the moment the project is awarded. You know, it's indexed to the PPI, metals, cost of financing. You can also look at, for example, Germany. They've done an upward revision of cap prices for the 2023 auctions. We see flexibility on timing between the expected start of operation and start of PPA contracts for certain countries' directives. Another area that I think is important to highlight, is that we're seeing an acceleration in the hybridization of projects.
As you know, this is when we put together megawatts of different technologies on the same grid connection and substation, this leads to savings in CapEx and permitting times and gets around connection bottlenecks. We commissioned in 2022, our first hybrid solar and wind project in Portugal. We're finalizing one now in September, in Avila, in Spain. You know, essentially, being able to leverage on this, I think, will also allow us to accelerate the growth. Just a final comment. I mean, definitely the investments in grid connection are important to support the accelerated growth of renewables in the energy mix. I know that this is a priority, you know, the message is being received, certainly by government, sector associations and utilities. That's something we should see also ramping up.
Let's move to slide seven. Here, capacity execution, while on track, with around 9 GW, as I mentioned, we expect to install the bulk of this year's capacity towards the end of the year. I mean, as you know, this is typically, let's say, asymmetric, so it's concentrated very much towards the back end. It is a big effort, which is leading to short-term, higher cost of development, that we'll explain later. All in all, I'd say that for the 2023, 2024 cumulative period, we're expecting an installation range of between 3.5 GW and 3.9 GW on average, depending on the U.S. solar supply chain evolution. In particular, we have a large project in Colombia, well, two projects in Colombia, totaling around 500 MW.
Yeah, the licensing permit for the transmission line there. In terms of supplier base, again, important point, certainly for us, we've been diversifying this, and we continue to negotiate new equipment. For 2024, we've diversified so we now have around eight different module suppliers in the U.S., and five for Europe. In 2025, we have more than four suppliers already per region. In general, we're also counting on having diversification of the supplier base for the portfolio. You know, we have over 20 manufacturers for solar, more than 10 for wind, are well diversified in terms of equipment types. That essentially allows us to balance our operational portfolio and reduce risk of specific models or specific issues that, you know, serial defect that might impact us.
As I mentioned earlier, we have overall 5 GW under construction. Some of these are sizable projects. They're expected for the post 2023 period. Namely, we've got about 700 MW of offshore in the U.K. and France, and also, as I mentioned, around 500 MW of wind onshore in Colombia, which will be coming online later over the business plan period. If we move to asset rotation. Here, as I mentioned, clear positive yesterday, attractive multiples, despite the higher interest rate environment. These are assets which came from the acquisition in 2020 of Viesgo. Together with the distribution networks, there's also some renewables operations in Spain. Once again, I think it shows the value creation within the EDPR portfolio.
Year after year, transaction after transaction, we've shown that we can deliver proceeds and value creation. You can see in the graph, the multiple achieved is in line with the average of previous transactions in Spain. As I mentioned, what we see is an increasing interest from strategic investors, with a focus on renewable assets linked to ESG targets, versus some of the usual sort of infra funds and financial institutions that we had in the past. Last year, as you remember, we also had Copel in Brazil. We had ERG in Italy. Really, I'd say the mix of investors is changing over time, but I think that's a good thing, and the type of assets is also changing. As I mentioned, we have other transactions under negotiation.
We expect to give visibility on that in the very short term, both in Europe, Latam and North America. We're upgrading the guidance of the capital gains for the end of the year to more than EUR 300 million and proceeds of more than EUR one and a half billion. Achieving around 25% of the target proceeds for the full business plan period. If we move on to slide nine, again, I think this is an interesting slide as well, because what it shows is that, you know, we're seeing strong energy prices supporting long-term revenues, and these are resulting from government-organized auctions, in some cases, inflation updated, but in many cases, also corporate PPAs.
As an example, certainly of the first of the auctions, we were awarded 43% of the total Italian auction, with a 20-year CFD at EUR 65 per MWh. In France, we were awarded a 20-year CFD at EUR 85 per MWh on average. You know, good, healthy pricing for projects with good returns. The demand for renewable generation continues to accelerate, I mean, in various different industries that we interact with. 60% of our total capacity secured right now is through PPAs, and 63% of them are closed with C&I companies, so commercial and industrial companies. In fact, this is, I think, an interesting data point, when we compare the PPA prices between 2020 and 2023, we see approximately 70% increase on average of these PPA prices.
Yes, cost of capital has gone up, some of the CapEx and inflation has gone up, but you look at the PPA prices, and this is an independent entity that provides this information. in our case, also, we have the PPA prices, so we have both independent entities and our own PPA pricing, reflecting this structural increase in energy prices. On the other hand, we have the positive. We have equipment prices going down. This trend is more striking in solar than in wind. You can see in the graph there, polysilicon prices had a very strong increase in 2021 and 2022, but they are now back to normalized levels. This is already material in our recent contract. This obviously excludes the U.S., where there are some particularities model.
You know, solar module prices are still higher there than in the rest of the world, given difficulties in imports, tariffs, that people moving the manufacturing base back to the USA. I think importantly is outside of that, certainly in Europe and, you know, sort of Latam and Southeast Asia, we're seeing the polysilicon prices, the much lower polysilicon prices, translating already into normalized module prices. That's an important data point, I think, as well. If you look at slide 10, a word on DG. Some of you may have participated in a recent event we did in Madrid to talk about distributed generation. I think it was a great event. You know, the team definitely did a good job there. We actually showed sort of the business model. We showed concrete cases where it's been done.
This is having a solid growth also with a stable rhythm. I mean, it's increased 86% year-on-year in terms of capacity additions. Growth in the U.S., driven by a combination of behind the meter and community solar. We tripled our installed capacity in the last 12 months, we closed important partnerships like the one with Google for 650 MW peak to be installed in local disadvantaged communities. I think not only good business sense, but also, I think, a lot of social impact in this case. In APAC, the growth has been supported by rising decarbonization targets and strong manufacturing in the region, part of the global supply chain.
As we, you know, sort of as industry and companies throughout the world go on decarbonizing their supply chain, that stretches all the way back into Southeast Asia. Installed capacity increased 54% in the last 12 months. This included one of the largest single-site solar DG projects that we've commissioned. It was around 20 MW peak in China, under a 20-year PPA with healthy cash yields. I think in general, it's worth highlighting, and we've said that before, but just to reiterate, solar DG has shorter payback periods. It's a good optimizer of capital employed. It has high contracted revenues, and, you know, agile installation process, so that shortens the time to market. Many times, these projects can be, say, started and finished in the same calendar year.
Even when we talk about the 5 GW , I think it's an important point. It's that, for example, for a lot of the DG projects, those could be started, for example, in 2024 and finished in 2024, and say they wouldn't show up in those 5 GW number. In general, I think just in relation to this technology, it's not exposed to the wholesale markets, it's not exposed to the solar adjustment factor, which, you know, which is obviously something which is coming up quite a lot in many different markets. The real competition here is against the final customer tariffs. It diversifies risk by market, project, client, contract, and business segment. I think it's complementing, really, the wider EDP client portfolio.
You have the global presence with a local reach and also a strong track record on the utility scale renewables with also the client solutions operations. I think it's a good synergy here. Moving on to slide 11, let's talk about offshore for a second. Offshore. The H1, our operating capacity delivered normalized revenues versus last year, there was lower prices, mainly in the U.K. project, Moray East. I think this project's contribution in 2022 was extraordinary and extraordinarily good, taking advantage of the higher pool prices. We currently have 2 GW of gross capacity under construction in France and in the U.K., we have good visibility on inflation-linked revenues and CapEx. These projects will be installed in 2024 and 2026.
I think, again, inflation-linked revenues, also, fixed CapEx, these will be good projects. In terms of other developments, we canceled the PPA of the South Coast project in Massachusetts. As you know, we were, and we have explored many different avenues and options to get to our target returns in that project. However, ultimately, we concluded that really the best alternative was to exit the project. There was a EUR 60 million break fee for the full project, so 50/50 owned by Shell and OW, of which we have 50%, as you know, so net impact for EDPR, it was a EUR 10 million post-tax impact. Again, here we were disciplined. You know, we looked at the different options.
We explored everything with all the relevant, you know, stakeholders and authorities. Ultimately, we concluded that it was the best interest of shareholders to just break that PPA. We see there's high demand, we see there's state appetite for offshore wind capacity in the available leases. I mean, this is one of the early leases. Massachusetts is the most natural market for South Coast. There are other markets available, like Connecticut and New York, and potentially even others, like New Jersey or Richmond. We are committed to participating in the Massachusetts round four in January of 2024. We have other options if we're not successful there.
Overall, just to remind you, as you know, the U.S. administration has a 30 GW offshore wind target by 2030, and this project is one of the best-placed ones to deliver the capacity within that timeframe. Finally, just before I hand over to Rui to go through the P&L and the financials, just a topic touching on the ESG. 99.5 of our eligible turnover aligned with the EU taxonomy, as well as our CapEx, totally focused on renewables. Doing even little things like 44% of our service fleet is already electric and hybrid vehicles, an increase of 12%, or 12 percentage points year-on-year.
Definitely focusing not just on producing green energy, but actually also consuming green energy, and so having a sort of a very rational use of resources. I think it's also important, and this is something I mentioned, but just to reinforce, we have submitted a near-term reduction of targets by 2030 and a net zero target by 2040. As I say, it's not just about producing green electricity, it's by being, let's say, our whole supply chain also being aligned with that commitment, and therefore, the net zero target by 2040, according to the Science Based Targets initiative, that's something which has been validated. A point which is important on employee well-being, engagement of our employee climate survey that 86%, it's a good increase versus last year, so there's a very strong commitment.
We've been hiring significantly over time, as you know, to deliver this growth. We have a strong commitment to our people. We have this ambition to be really a global, agile, and very efficient organization, and I think that's also comes through in the feedback from our employees. Finally, just a quick point on hydrogen, which I think just to highlight, we were recently selected by the EU Innovation Fund grants for two projects, Aboño and Sines, two hydrogen, green hydrogen projects. These were two out of 13 awarded in Europe overall, so a very high hit ratio. Actually, of those 13, I think only about six were to actually produce directly hydrogen for our off-takers.
With this, we've reached close to EUR 200 million of grants attributed to EDPR hydrogen projects under development in Iberia. I think this is really a testament to the maturity of these projects, not just PowerPoints. It's good projects that we are continuing to develop, and we're moving forward with the technical and financial analysis, and we expect to be in a position to take FID later this year or early next year for a couple of projects, and I think we'd obviously give visibility on that at the time. I think it just shows that our hydrogen strategy is beginning to take some steps, some important steps in terms of securing the necessary financial support.
With that, I'd stop there, and then I'll come back later for closing remarks and then the Q&A, but I'll turn it over now to Rui. Thank you.
Thank you, Miguel, and good afternoon to you all. Now let's move into the H1 results. On slide 14, maybe I would like to start by showing that the Q2 performance has been particularly impacted by short-term headwinds that we expect to be temporary, and therefore not affecting the medium-term earnings prospects. The most significant ones are those related to the low wind generation, reflecting on the impact of around EUR 80 million in the H1 results. As Miguel already explained, these weather cycles affect quarterly results, but there is no impact on assets valuation, as we already include or embed this into our projections, the cyclicality. The second one is related to something that we announced in the beginning of the year, the remaining in Poland, clawbacks still having an impact in our accounts.
For the H1, it represented about EUR 34 million at EBITDA level, much lower than what was expected on the back of the lower prices that we are seeing in the market. This impact is related mostly to the tax in Poland, which is currently scheduled to end by December 2023. We also have some costs incurred with capacity addition delays in U.S. and Colombia. They total about EUR 41 million in the H1 of the year, and we are working on ways to limit this short-term impact, and this is mainly through the PPA terms renegotiations.
A fourth element to bear in mind is the Spanish government updated, or as you know, the Spanish government updated the reference price for the record assets, where the 2023 reference price is now EUR 109.3 per MWh , and this is versus the previous EUR 207.88 per MWh . Also, the bands were adjusted accordingly. This impacts a total of 0.8 TWh of our generation, and this is already net of the asset rotation that we announced. And these assets, they are having a retroactive change from January 2023, and this is leading to this negative accounting impact of EUR 52 million in the H1. Again, this is a non-cash impact, has no impact in the valuation, nor on the project returns.
I think it's important also to say that we don't expect these drivers to continue in the upcoming years, so we don't really see a reason for not having a big recovery here. Note that at the consolidated EBITDA, we expect to mostly compensate these short-term headwinds this year with a very positive and significantly higher than expected asset rotation gains in 2023, of more than EUR 300 million, as a result of higher than initially expected gains per megawatt. Also, as Miguel stated, this will be concentrated in the H2 of the year. If we move to slide 15, recurring EBITDA was EUR 764 million, a decrease of 13% year-on-year, if we exclude the asset rotation gains from last year for a like-for-like basis.
Asset rotation in this year, we'll see that flowing through our books in the Q2, in the Q3 and the Q4. In this period, we had a 10% increase year-on-year of new additions, naturally penalized by the lower resource, mainly on the back of the El Niño in U.S. and some temporary headwinds in Europe and the Americas that we have already explained, along with some lower average selling price. That's a -4% year-on-year. Brazil, with the sound growth, new capacity and operation, contributing positively with a 51% year-on-year performance, 51% increase. APAC EBITDA also growing, driven by new capacity in operation, along with the full contribution from Sunseap during the last 12 months.
The share of profits from associates' contribution was completely extraordinary in 2022. The H1 of this year, we are seeing these levels return to normalization. It was also impacted by the EUR 10 million related to the PPA cancellation in Massachusetts. If we move now to slide 16 for the net debt, as of June 2023, net debt was EUR 5.7 billion. That's EUR 0.7 billion above December 2022. This is driven by EDPR's organic cash flow that is mainly allocated to fund the growth of the business. The asset rotation proceeds from the deal closed in Brazil, and of course, the EUR 1 billion capital increase, which partially compensated the EUR 1.8 billion of net expansion investment, including the CapEx and financial investments.
In the H1 this year, working capital differences were mainly driven by non-cash regulatory adjustments and timing differences between the revenues that are booked in the P&L and the amounts that are effectively collected. Average gross debt in the period increased year-over-year from EUR 5.6 billion in the H1 last year to EUR 6.4 billion in the H1 this year. This is fully aligned with our cash management strategy. All in all, this level of debt is supporting EDPR growth in line with the strong target additions that we have. On the financial results on slide 17, they added to EUR 159 million in the H1.
This includes a EUR 37 million positive impact booked in the Q2 from unwinding the pre-hedge of benchmark interest rates for a $1 billion amount and the 5-year maturity. This is on the back of a, you know, decision that we will be reducing the weight of US dollars in our debt currency structure. Excluding Forex and derivatives, financial increased 30%, following higher average cost of debt to 4.8%. This, of course, is mainly impacted by the higher cost of US dollar and its weight on our balance sheet. Although 81% of EDPR debt is at fixed rate and a higher average gross debt to support growth.
Just to finalize on slide 18, on the net profit, total, EUR 102 million, EUR 80 million versus the H1 2022, excluding asset rotation gains for a like-for-like basis. Basically, these are explained by the already mentioned drivers, along with the non-recurrent accounted events such as the PPA cancellation in Massachusetts, and also a provision in DNA related to a tax flowback of EUR 12 million in Romania. Lower financials year-on-year and the lower income tax, despite higher tax rates, and this is mainly driven by the Spanish retroactive adjustment in the Q2 this year. Minorities decreased EUR 35 million year-on-year on the back of the top-line performance. I would hand over to Miguel for the closing remarks. Thank you.
Thank you, Rui. Just to finalize the presentation, I just wanted to reiterate some key messages in relation to EDPR's performance and say a few words on the overall environment and outlook. First, the short-term financial performance was definitely penalized, on one hand, by lower wind volumes in the Q2. As we mentioned, this is expected natural volatility, and so it's incorporated in the long-term average assumptions. It's also impacted by the capacity delays in the Americas, in North America, as you know, well, in the Americas in general, but I think that's something we flagged, in particular, the 900 MW , we're still awaiting importing those long G panels. Political intervention in Europe, on the callback, that was something that was relevant also for the H1.
We don't see these as impacting medium-term earnings prospects, and I think that's an important note. Second, is that we continue to see attractive valuations in asset rotation transactions. I mean, we highlighted the one yesterday in Spain. I think it shows the returns, it shows the value creation within the portfolio, it shows the interest from strategic investors focusing on renewables versus the usual financial institutions. We believe that other transactions ongoing will lead us to upgrade the asset rotation gains guidance to more than EUR 300 million in 2023. Another point is the focus on the renewables capacity delivery. We are targeting around 3 GW in 2023, concentrated in the end of the year, and the average of 3.5, 3.9 of, over the cumulative 2023-2024 period.
5 GW under construction, additional DG coming online, certainly over the year, 2023 and 2024. All of this well diversified in geography and technology. Finally, 1 point which I mentioned, I just wanted to reiterate, increase of contracted long-term PPA prices, 70%, 2023 year to date projects versus 2020. Anticipating some delivery some projects in Europe, supported by the regulatory and permitting process updates, and in general, a downward trend in global solar equipment costs, outside of the U.S. All of this supporting value-enhancing growth. I'll stop there. I'm sure we'll have Q&A, so thank you. Let's turn over to Q&A. Mia?
Thank you. Ladies and gentlemen, the Q&A session starts now. As a reminder, if you wish to ask a question, please press star followed by five on your telephone keypad.
We have the first question coming from the phone, from Alberto Gandolfi, Goldman Sachs. Alberto, go ahead.
Miguel, thank you, hi, Miguel and Rui. I have three questions, please. The first one is, going back to the statistic mentioned by Miguel, we have recently conducted a very similar analysis with the same outcome that, you know, PPA prices in two and a half years are up 70%. I guess the question is, how much have your costs gone up by? Are we seeing pricing power in the industry, are actually not only absolute returns going up, but is the value creation slightly better or not? I mean, simply, was it simply pass-through of cost? It would be great if you could maybe talk about an out for IRRs or return on capital employed, seems to have gone up to me.
The second question is on slide six plus, you know, considering that the European response to IRA has gone a bit more quiet, maybe with the exception of Germany, notable exception, but the U.S. IRA momentum is accelerating. I guess what I was trying to understand here, are these developments in European permitting embedded already in your recent CMD, or are these coming on top? Which means that maybe in 2025, 2026 or maybe 2024, 2025, and 2026, we might actually see a faster conversion in the pipeline. The last question is... I mean, some investors have claimed during the H1 that perhaps you're growing a little bit too fast, too quickly.
You know, you had a capital increase, and the debt has gone up, already, a lot, and you're planning to build even more next year by the sound of things. Can I ask you, what reply would you give to that? Maybe any visibility, any bridge you can help us build for the year-end net debt. Thank you so much.
Thank you, Albert. No, all was great questions. In relation to the first question, what I'd say is IRRs, absolute returns are clearly up, cash yields are up. I'd say the delta spread, it depends on the geography, so it may be a broad generalization, but I'd say certainly on a portfolio level, let's say the value creation spread continues to be there. Maybe it's widened a little bit, but I wouldn't. I certainly wouldn't say that we have pricing power, but I certainly say that we have. Well, we have pricing power and the ability to pass through costs, but it is a competitive market. I wouldn't want to insinuate that there was not a competitive market out there.
What I would say is that, if rates do go down in the mid-term or anything, I think we'll find, you know, these are extremely attractive projects, you know, with solid, very solid, absolute returns. On a second point, the way we look at it is, yes, we are anticipating some projects, for example, from the 2025, 2026 period to the 2024, 2025. This is offsetting certainly to an extent, any delays that we also have. We have some projects that have been delayed because of execution issues, you know, the longer panels in the U.S., that pushes projects from 2022 or from 2023 into 2024. That has a knock-on effect in some projects in the U.S.
On the other hand, then in Europe, we can anticipate some projects, for example, earlier into 2024. I think that means that certainly in 2024, we'll have, you know, a record amount of projects being delivered over the year, that's for sure. In Europe, we are managing to anticipate above and beyond what was foreseen in the capital markets day, but that's offsetting some delays that we had in projects in other parts. Okay, so if that's clear. On the third point, well, what I'd say is that we are executing on the plan, which we set out, I think, very clearly and in a very detailed manner in the capital markets day.
That already incorporated not only the amount of investment that we were going to do, but all the costs that we're going to have to take on to grow. I mean, we have a plan and we're executing it. The debt, I think, is perfectly in line with, let's say, what we're expecting. I mean, there obviously, there'll be volatility around working capital at certain stages or asset rotations, you know, when, what quarter they come in. I'd say that it's certainly, you know, very much aligned with the broad plan that we set out. No surprises there, and I think it's very much aligned.
I think, as I say, with the well, the capital increase, plus the asset rotations that we're doing, that will keep us well within what we consider to be very reasonable ratios for this type of business. We'll keep on providing visibility for that, but I would say it's nothing extraordinary there. It's very much part of business as usual.
Okay. Thank you, Alberto. Next question comes from Enrico Bartoli, from Mediobanca. Enrico, please go ahead.
Hi, good afternoon. Thanks for taking my question. I have three as well. The first one is on the Spanish market. I was interested in your view on the evolution there, because on one hand, we are seeing the government increasing significantly the targets for 2030. On the other hand, also you saw some curtailment on your wind production because of bottlenecks in the transmission grid, and we are seeing the impact of PV evolution on prices. I was wondering what you see there in terms of threats and opportunities. In terms of opportunities, particularly if you think that there is the chance to accelerate investments in storage in that market. Second question is relating on offshore. Actually, you are lighted that you canceled the PPA related to South Coast.
I was also here, interested in your view on the prospect for EDPR in this business, considering that we have seen some other operators canceling projects or asking for a revision of the economic terms of the existing one. The third one is regarding slide 14. You highlighted this headwinds from all factors, from regulatory callbacks, and so on 2023. On the other hand, you are raising your guidance for asset rotation gains. I was wondering if we are seeing, let's say, an EBITDA from the consensus slightly above EUR 2 billion, if you think that having this moving parts, you feel confident on that figure?
Also, if you can give us some indication what to expect in terms of net debt for the year end. Thank you very much.
Okay. Thank you, Enrico. Listen, just a couple of comments, and maybe Rui then you can also comment. On the Spanish market evolution. First, the reason for curtailment in Spain is clearly there's a mix of, on one hand, low electricity demand, still hasn't recovered to pre-pandemic levels. There's obviously higher penetration of PV, so, four times increase in the last five years, together with soft consumption PV and distribution networks where, you know, the current distribution transmission networks still doesn't support sort of such a high level. I think importantly, is that there is a lot of available, let's say, demand in Spain still to expand renewables in general. We continue to believe in the market. I mean, you've seen coal shutting down.
I mean, you can debate whether nuclear will come down or not as fast as was expected. Still, you look at the recent energy plan set out by the Spanish and the Portuguese government, and there's obviously a huge potential there. Obviously, this will raise like specific issues in specific areas at certain times, but I'm sure the network's operators will work through those and will be incentivized to get that done. Storage is definitely something we're looking at. I mean, obviously, as you know, it's very much part of the business as usual in the U.S. nowadays. Still not so much a part of the business as usual in Europe. It is much more in the U.K., but let's say continental Europe, still not very much. We've looked at this in quite a lot of detail.
I think it might make sense in very specific situations. I don't think it's still a generalized solution. The economics still don't fully work out. It is something that we are following very closely and, you know, continuing to run analysis to see if we can. Well, if it makes sense to step up storage. Maybe just on moving on to the offshore, the prospects, if I understood your question, it's just generally the prospects in the U.S. or just more globally for-
Also.
For also.
We saw some in the U.K., know that, there were some revision of projects, mainly the U.S.
Yep.
The U.K., which seems to be the issue now.
We're very happy with the projects that we have. I mean, we have the South Coast, I would think that was flagged, you know, for quite a while, but we look at Moray East, you look at Moray West, you look at the French projects that I mentioned, all of these are inflation-linked. The CapEx is secured. We took the FID already, knowing fully well, you know, what was that we were in an inflationary environment, we went into those projects with our eyes wide open, we're very comfortable with the returns on that. We don't have any expectation of additional projects where we would have these issues on the offshore side.
You know, a lot of the other projects still don't have PPAs locked in. Apart from the ones that I mentioned, which do, the others are still in the development phase, and so we'll be locking in PPAs once we have more visibility on the development and on the CapEx. We can take an FID on those projects. I'd split it into operating off projects, very good, Maury East in particular, and Sea Made. The ones which are being built, Maury West, and the French ones, and those, as I say, very clear about the returns, and we're very comfortable there. The others don't have PPAs yet.
We're developing them. When we take the investment decision, I think it'll be with full information, so we won't have any issues around having to cancel projects or contract. On the third point, to be clear, yes, we have positives, we have negatives. I'd say that we are comfortable with the guidance on the EBITDA. The mix will be different, probably from what we originally expected, but I'd say we're comfortable with the overall, let's say, consensus on EBITDA. I wouldn't want to comment specifically on net income. It's just generally more volatile, given the different moving pieces. Yes, comfortable with consensus EBITDA, with a slightly different mix than what was expected. I don't know if this.
No.
Comments there.
Yeah, Enrico, maybe just adding on the, building on what Miguel said about the offshore. Also, bearing in mind that, in the U.S., this project that we have developed in Massachusetts, actually can be into Connecticut, can be into New York, ultimately could be to Rhode Island, New Jersey. There is, you know, actually quite a wide range of alternatives other than the Massachusetts that we are preparing ourselves to be, I think, in January. That's the new date. I think the point is that this project is perhaps one of the most advanced projects in terms of development, that would be there to meet the Biden to 2030 targets. Actually, now, you know, the team will be looking for what maximizes value, and therefore incorporating into those bids, whatever the current cost and interest rate scenario is.
In that sense, I think this is a tool, is likely to have a positive impact and an upside in terms of the expected returns for the project in the future.
Thank you very much.
Thank you, Enrico. Moving now to José Ruiz from Barclays. José, please go ahead.
Yeah, good afternoon, and thanks for taking my questions. I just have only two, and they're very specific. Can you share with us, would it be possible to share, what is the upfront investment per megawatt in solar PV in Southern Europe after this collapse of polysilicon prices? The second one, would it be possible to share with you your net capacity additions for this year? We know the gross, EUR 3 billion, and now you have increased the guidance for capital gains. I was wondering if you could share the net capacity additions for 2023. Thank you.
Okay. Hi, José, it's Rui here. Just to give you some references for the cost per megawatt. On the cost of the modules, on the PV modules, which is still the largest contributor to the overall investment, we saw over the last months, prices coming down in Europe from around EUR 0.20 per watt to round about EUR 0.17. That's a substantial reduction that we saw just happening, you know, effectively within the last quarter. What we are seeing is that depending on the geography, you know, elements like the balance of system can be, you know, stable, rather stable. At least everything else being equal, we would see the cost reduction driven by this, the panels.
Okay, regarding the second question, on a net basis, what we are presenting here is that, you know, roughly speaking, 3 GW of additions, gross terms, and then about 1 GW asset rotation cells.
Thank you.
Roughly speaking, around two. Thank you.
Going to the next question. It's from Manuel Palomo. Manuel, please go ahead.
Yeah, hello, and thanks for taking my question. Good afternoon, all. I've got, well, one question actually, and a couple of clarifications. The question is, you mentioned that PPA prices are significantly going up on inflation and interest rates, which make a lot of sense. I wonder, would you have received any trend on the duration of the PPAs, whether it has shortened maybe on additional volatility or maybe concerns by off takers on, well, deciding not to take in a very long-term risk of power prices? The clarifications as follows: The first one is in the slide number 20. I see that you are targeting, if I am correct, it's...
3 GW in 2023, it says on between 3.5 GW and 3.9 GW in 2023, 2024. Is that 2024, 2025? That would be my question. The other clarification is on the asset rotation deal that you announced today. You were talking about EUR 1.8 million per megawatt EV per megawatt. Is it considering the 30-year useful life of the asset, or only the maybe remaining 16-year life of the asset? Thank you.
Hi, Manel. If I understood the first question, duration of the PPAs by off-takers, here what I'd say is, we're certainly no less than 10, normally around 15, and we can get as much as... Well, particularly in the auctions, as I mentioned, we have the auctions, you see sort of 20 years. Let's say the average would be between 10 to 15 years for duration of off-takers. I mean, less than that, it's, we haven't seen, or we haven't done at least. On the second point, the clarification. If, again, if I understood, it's between 3.5 and 3.9 average for 2023, 2024. That means if we do-
Okay, understood.
Okay. On the third point, this is for the remaining useful life. I think, listen, these are good assets, let's be clear. They are 14-year-old assets. They've got 16 years left of useful life, but there's, you know, the possibility for either repowering or hybrids or, you know, they've got the optionality around the merchant full price. These are good assets, and, I think it's one of the things which is becoming clearer and clearer, is the optionality around these assets. You know, it used to be you had a plain vanilla, or you valued a plain vanilla wind project, and you just looked at the pure wind. You know, if it was 100 MW, you just valued the 100 MW.
I think now more and more investors are looking at, okay, it's 100 MW of wind, but what can you do also with additional megawatts of solar? You know, what's the merchant profile look like? What optionality is that giving me? That's all baked into these, into these multiples, right? Just your clarification specifically is, yes, it's the 16 years of useful life that's left.
Excellent. Thank you.
The next question from Jorge Guimaraes, JB Capital . Jorge, please go ahead.
Hi, good afternoon. I have two questions, two are follow-ups. The first one, it's a follow-up on the offshore question. I believe there are relevant concerns about the cost, CapEx cost of offshore projects. Do you share the view that as of today, between onshore, offshore, and solar photovoltaic, offshore is the one where the returns are more under pressure? If so, do you believe this will impact the development going forward? This would be the first one. The second one, regarding the curtailment questions in Spain, do you believe that this will become more of a problem in next years? To be more precise, do you believe we should reduce the load factors, considering an estimate going forward? Certainly, it's related to offshore.
Does EDP plan to participate in the, in the offshore auctions in Portugal, assuming they are going ahead because the objectives are very optimistic, to say the least? Thank you very much.
Thank you, Jorge. Concerns around CapEx. Well, I think, listen, whenever taking investment decisions, you're obviously trying to do the best estimate possible of future energy prices and CapEx costs and baking that into what is the required PPA that you need to get your investment returns. What I'd say is that offshore is the same thing. I mean, we're going to be looking at what are the expected CapEx. You know, it may have increased, and it has increased, let's be very clear about that, but certainly for new PPAs that we would be locking in, we would be incorporating that. I think I'm not sure if this is, let's say, answering your question specifically, but I think it's not a question of whether it's more or less pressure.
I think it's just a question of are you incorporating? If you already have a PPA locked in, like we did for the Mayflower, yes, then it's a problem, and you either decide to break the contract or then, well, you have to take a decision. Do you move forward or not? You know, you have to look at it, what are the different options? In our case, you know, we looked at all the different options. We decided to walk away from the contract. I think it's clear that the energy prices, the PPAs for offshore, have to increase as well. They are increasing the same way as onshore and solar, as I mentioned.
The PPAs, I don't think they included offshore in the numbers that we give you, but certainly offshore PPA prices now in the U.S. would have to go up substantially versus where they were two or three years ago to, you know, for the projects to be economical. On the second point, on the curtailment, these are typically local issues. I mean, in our case, for example, Galicia and Navarre, I believe. You know, they can be sorted out with local investments, and they can also be. There are certain optimizations or certain, let's say, automations links that we can do with the system operator to improve or to reduce the curtailment. Some of this curtailment is remunerated, by the way, so it's not that it's all lost production.
It can be production which is actually still remunerated, even though it's been curtailed. It will be local issues, but obviously this will become a feature as time goes on. I think the question on storage earlier from Enrico, I think was relevant, and it's something that definitely we're looking at. The third point, this, we haven't taken a decision yet in relation to participating in the Portuguese offshore. We are part of, you know, we're JV with Engie in OW, so it would be an OW decision. OW itself may decide to partner.
I think it's still early to, you know, to give you a specific answer on that, but obviously, we will analyze the process, and then we'll take a view on whether it makes sense or not to participate.
Thank you.
We have the next question from Mike Becker from HSBC. Mike, please go ahead.
Thank you very much, for taking my question. I have a broader picture question on onshore wind. There has been a lot of news, on solar, also from your peers, in line with what you were saying about the costs turning and also the volumes picking up. I have heard less comments on onshore wind, so it would be great if you could expand on both, your views, when volumes will pick up or why they are not picking up, and the developers are focused, on solar, as well as when you see, a turning point on the costs or how that is playing out. Thank you.
Okay, thank you. Great question. I think first, onshore wind is a premium product in the sense that it typically has more variability over geographies and locations. It has, you know, a less predictable profile, and so it doesn't have such a large discount to, let's say, your average baseload profile. These are good projects. I think people will continue to invest in developing onshore wind. I think over the last couple of years, particularly in places like in the U.S., the expectation was that onshore wind would lose competitiveness versus solar. Certainly in the U.S., because of the way the tax credits were set up in the PTCs and the ITCs, and so there was less development of onshore wind projects. Now, that's inverted. In the U.S., clearly, you know, the PTCs for onshore wind has come back up.
In Europe, you know, people are again trying to push more for onshore wind. It takes time to develop an onshore wind project. You need to find sort of good locations, sufficiently far from, you know, houses and, you know, other restrictions, environmental and others that you have. It takes. These are projects which do take a couple of years. I think we're seeing a ramp up. Certainly, I can speak for ourselves. We are investing time and money, from people, in our team, in our development teams, to build up these onshore wind projects. It's not something that you just flick a switch and it, you know, overnight, you suddenly have wind projects.
At one point, I think in one of the previous calls that we've had, I think I mentioned that typically these projects will be coming on more towards the back end of our business plan. More around 25, 26. When you see a sort of bigger pickup in onshore winds projects. Maybe that's hopefully that's useful.
If you have time, would you mind commenting on the cost turning point in onshore wind?
Okay. On cost, I think, again, the turbine manufacturers have all been hit by. Well, as you know, they've all had relatively negative margins and suffered over the last couple of years as a result of lower volumes, but also just probably the way they were set up in terms of risk management of their contracts. I think they're working through that. For us, it's extremely important that there's a healthy supply chain there. I believe that as commodity prices come down, that will be reflected in the prices in wind, but I'm not sure it's coming down as fast, certainly not as fast as in solar.
I think they will try to ensure that they have healthy margins, so they're not, you know, let's say, they're going to try to make sure they don't there's not a race to the bottom where they end up in the same place they were before. Again, Rui, I don't know if you talk to them quite a lot.
I mean, maybe I would just add a couple of data points. One is, if I could, if you look at us last 12 months, indexes on steel, like Platts or Argus, you see that steel came down, I don't know, maybe 20%-25%, depending on the regions, North America, Europe, China. At some point, and as you know, manufacturers, they are quite sensitive to this, and they have also been asking for some indexation, depending on the year of delivery. At some point, we should definitely see a reflection of the raw materials coming down. Secondly, it's still quite depending on the geography. If we're talking about delivers for Brazil or for North America or for Europe, we'll see different prices. Yeah, just these two data points.
I think we will still see the prices pretty much level where they are right now, but into the future, I would say that we have a case for those to go down.
Thank you so much.
We are reaching the end of the call. I think we have time still to go to the questions on the web, a couple of questions. First one from Arthur Sitbon from Morgan Stanley: Could you provide more details on the EUR 41 million extra cost on U.S. and Colombian projects? Why these extra costs impacting PNL and not CapEx, and if they have some PPAs associated?
Sure. Here, the costs are mostly related to energy delivery commitments that were associated with these projects. You know, PPAs, for example, certainly in the case of the U.S., there are commitments in terms of volumes and starting dates, we either have liquidated damages or we have certain commitments to provide that energy. Those are the costs that I mentioned there. We are working to renegotiate PPA terms in order to limit those impacts. In the U.S., that's been possible, so these numbers have already been revised down significantly over the last year and over the last month. In Colombia, we're also working on that, so to try and renegotiate the PPA terms.
Last question comes from CaixaBank, Pedro Welch. It's regarding the capital gains in the asset rotation announced yesterday, if we can assume a lot of questions around if it can represent 50% or more of this EUR 300 million in previous capital gain guidance. A little bit to asking about guidance on asset rotation gain in the deal.
In addition to what I mentioned on previously about the guidance of EBITDA, in relation to the specific capital gains, I think it would be better to wait for the nine months presentation in October. The capital gains will be, let's say, fully defined at that point, because there's still a lot of adjustments which are done typically just to get the correct number, we can provide you with a firm number and not just a, let's say, a high-level number. In this particular case, we did provide information on the acquisition price of Viesgo renewable assets in December of 2020, and hopefully, that will help you get close to the final figure. I think...
I mean, the number, I think you said roughly 50% of the EUR 300 million previous capital gain. Listen, you probably won't be far off from that number. Okay?
If you have some additional questions that we'll follow up then from our level. I'll move now to final remarks for our CEO.
Thank you, Miguel. Listen, just the final remarks. Just to reiterate, it was a tough quarter. I'm not going to hide that. I think we need to look through the quarterly volatility. We are developing long-term projects. The projects themselves take many years to develop, and then they operate for 30 years plus. We are managing the company on a quarterly basis, but it's a long-term business. I think just wanted to reiterate that on one hand. Obviously, I just wanted to wish you all a good summer. If you do get a vacation break, I hope you get rested, and I'm sure we'll meet again in September, either in the road shows or in meetings, and then also for the nine-month results towards the end of October.
I think we'll be able to provide additional visibility there. listen, overall, globally, tough quarter, but I think things are getting done. Thank you.