Ladies and gentlemen, welcome to Galp's Virtual Capital Markets Day. Our team is thrilled to have so many of you joining us online. Today's agenda will begin with a strategy presentation by our CEO, Andy Brown, which will demonstrate how Galp plans to thrive through the energy transition. During the presentation, Andy will be joined by our CFO, Filipe Silva, when covering our next five years financial plan. We will then have a short five minutes break and open up our Q&A session, where the remaining executive members of the board will also participate. At the Q&A, we invite analysts and investors to submit their questions by using the chat tool available on the streaming platform. The questions may be submitted during and after the presentation. I will read them out in the Q&A session.
We have invited all sell-side analysts that cover Galp to participate live in video, and therefore, we expect to have some of them joining at that time. We may need to limit the number of questions made during the session to control the total event's timeline. Before we start, please note that today's presentation will include forward-looking statements based on the plans, estimates, and projections. We refer you to our initial cautionary statement for further information. We will now start the presentation. Andy, the floor is yours.
Thank you, Otelo, and good day to all of you, wherever you are. It's a pleasure for me to be able to present Galp's 2021 Capital Markets Day. I've been in the company for four months now, and I've got to know the people, the assets, the opportunities, and the challenges. We've undertaken a comprehensive strategic review together with the board of directors, and I'm really pleased to be able to present our plans to you today. What I found in Galp, a great asset, great people, great opportunities, a company that can grow and decarbonize and distribute competitively. What I'm going to do, I'm going to discuss some of the conclusions first from the strategy refresh before deep diving into the individual businesses.
I'm going to touch on our ESG performance before handing to Filipe to talk about the financial framework, and I'm going to come back and make some concluding remarks. In our strategy refresh, we really challenged ourselves to offer shareholders a resilient investment case against an accelerated energy transition, but also one that offered an upside in the base case. If we look at the next decade, our industry is not going to be static. The pace of energy transition will accelerate. Our markets will change. It's not just economically appropriate for us to change, it's also the right thing to do. We're lucky that we have such a strong portfolio. It is resilient with a growing upstream. Actually, coupled with Galp's size, its agility, its innovation, places us really strong for the energy transition.
We are already a leading player in the markets we operate in, and we've already started to change. We have a leading position in solar in Iberia. We're a leader in sustainability. We have a very low CO2 emissions in our upstream business. We have a strong starting point for the energy transition, but our traditional markets in Iberia will decline in oil and gas. Every change is also an opportunity. An opportunity in renewable power generation, in renewable electricity sales, in renewable fuels, in hydrogen, in the battery value chain. Galp can and will thrive through the energy transition. We know this is going to require change. That change will be about our portfolio, but also about our culture. That's why with the board, we've agreed a new purpose in Galp.
Let's regenerate the future together." This is a purpose that will be about our portfolio, about our relationships, but also about our people. A portfolio that would shift to lower carbon products prudently, stepwise, but will have made significant progress by the end of this decade. We want to refresh our relationships with our customers and with society, offering new products to the almost a half a million people that come to our forecourts every day, or the hundreds of thousands of people we serve at home to expand our brand. To expand from quality and service to also be innovative and caring. Thirdly, we want to reenergize our people to develop and acquire new skills to thrive through the energy transition. To bring increased agility to the way we work, to motivate our staff, to allow everyone to achieve their potential.
Today, we will cascade our new purpose. It will set a direction for us internally and externally for us to adapt into that future. For me, regeneration means a new chapter in Galp, one that is refreshed and energetic. Let's look at the businesses and how do we think about these businesses and how we allocate capital. We see four discrete themes, which kind of reflects our thinking. The cornerstone of our business is still our upstream growth. It's high quality, it's high margin, it's cash generative, and it's low CO2. We also have a downstream transformation business, predominantly in Iberia. This is a business with an opportunity to grow and transform at the same time, moving to lower carbon products. Thirdly, we've got our renewable growth business.
We made an important step last year, already in a material position, but we want to expand that in size, in geography, in technologies, and to integrate down the electricity value chain. Fourthly, we have a new segment, our new energies business. This is a business that will be fast-moving, low CO2, with complementary skills and assets to what we hold today, and particularly looking at hydrogen and the battery value chain. We have two growth themes, one transformation theme, and one new business theme. What does this mean in capital investment? Well, firstly, it will be a disciplined net capital investment of between EUR 0.8 billion and EUR 1 billion per year over the five years. 50% of that will be in traditional oil and gas, and 50% will be in low and zero CO2 products.
These low-carbon products will be fast-growing renewable energy, advanced biofuels, electrical mobility, convenience, and other value pools in commercial, but also future opportunities like hydrogen and the battery value chain. Our distribution of that capital will be 40% in our upstream growth, 25% in our downstream transformation businesses, 30% in our renewables growth, and about 5% in new energies over the five years. We're expecting strong IRRs of more than 20% in our upstream business at a $60 oil price, at between 10% and 20% in our commercial business, and above 15% in Industrial and Energy Management, and on a life cycle basis, above 9% in our renewables growth business, and in new energies, at least 10% IRRs. Over time, we see our upstream growth business growing in cash flows, but upstream's proportion of the total pie will reduce. Why is that?
Our low-CO2 businesses will grow even faster. This is a strategy of growth and decarbonization. We want to set clear capital allocation guidelines. Our current leverage is close to around one net debt to EBITDA. We want to maintain this level of balance sheet strength. We want to allocate between EUR 0.2 billion and EUR 1 billion net CapEx to grow and transform the business. We may need to rotate some assets to stay in this range. The quality of our investment portfolios means that we can marry growth and decarbonization by using less than 50% of our operational cash flows. We also want to offer a resilient base dividend of EUR 0.50 per share. When there are additional cash flows and our balance sheet allows, we will distribute dividends up to a third of our operational cash flows.
We'll distribute the base 2x per year with a variable element after approval at the AGM and with full year results. This is a unique investment opportunity to reshape the portfolio and to provide a competitive yield. We have growth from our established legacy businesses, our renewables growth business, our new energies business, as well as competitive distributions with upsides. In our base case premise, we can grow our operational cash flows by 35% by 2025, and we can distribute 35% of our current market capitalization in dividends. For the first time, we are committing to be a net zero CO2 emission company by 2050. Let's look at the individual businesses. Firstly, our upstream growth business. This upstream business is the envy of our industry.
We built it up over the last decade, and this decade is a decade of free cash flow and growth. In my career in upstream, I think this portfolio has all you want in an upstream portfolio. The core is the Brazilian pre-salt, long life, high margin, low decline rates, large resource base with longevity and growth. This is also a resilient portfolio with low unit operating costs and low CO2 intensity. It also has an enviable growth funnel of opportunities that we are ready now to commit to. It's a portfolio with medium-term growth and a lot of options for the future. In numbers, we aim to grow our production by 25% by 2025, offering very low production costs, around $3 a barrel of oil equivalent. We have a portfolio with IRRs at $60 or more than 20%.
The operating cash flows from this business over five years will deliver more than $6 billion. We have future growth opportunities beyond 2025, but we must extract value from these opportunities in a disciplined way. Putting this portfolio in graphical context, it is one of the most competitive, attractive, lower CO2 portfolios in the world. The average NPV10 breakeven of our project is around $25 a barrel. That puts us in the top quartile of all projects. Our CO2 intensity is less than 10 kg per barrel oil equivalent. This is half of the IOGP average. As you can see, this is truly a leading portfolio. The jewel in the crown of this is Tupi and Iracema. Almost 80% of our production comes from those fields.
They've produced more than 2 billion barrels already, still just a fraction of the ultimate recovery that we can get from these fields. It is still early days in the full field development of Tupi and Iracema, there are attractive investment opportunities still to come. This year we will be submitting and agreeing a plan of development for the fields. Within that, there's possibility for a field lifetime extension. We have other fields, Iara in particular with Berbigao, Sururu, Atapu. This is still ramping up this year. In Angola, in Block 14 and 32, we're strongly in harvest with strong cash flows from those fields. This year, we're going to start up Sépia in Brazil, 180,000 barrel a day FPSO. Next year, we think Coral FLNG will also start up in Area 4 in Mozambique.
Since last year and the COVID crisis, we've taken strong capital discipline in our upstream. Still, we have a healthy production outlook from short-term cash engines alone. As I said, we have some significant growth opportunities ready to launch. This week you will have seen that we have FID the Bacalhau project. This is an amazing project. It's a project which we have a 20% stake in, costing around $8 billion. It's a project we actually made good progress already with the 220,000 barrel a day FPSO. It's a project that will recover more than a billion barrels of recoverable reserves. It is a low CO2 intensity project, around nine kilograms barrel oil equivalent, with a breakeven price well below $35 a barrel. We expect this project to come online in 2024. Yield a working interest volume for Galp of 40,000 barrels a day.
This is really our next step in our upstream growth story and a significant boost to our cash flows from 2025. Our opportunities don't stop there. Coral FLNG is just the tip of the iceberg in Area 4. There are significant gas resources. We're working with our partners to reduce the cost of the Rovuma development. This is a multi-train development. We see also potential to improve it further through synergies with Area 1. Of course, we're awaiting the security situation to stabilize before proceeding. We're confident that the efforts are being made to engage the communities to improve the security apparatus. We expect the right conditions to emerge over the coming years. I've been really impressed with Galp's depth and quality of resources, but also the exploration portfolio.
The next two frontier wells in Jaca in São Tomé and Bob in the deep water in Brazil are world-class. Really want to drill these the end of this year and perhaps into next. Such is the depth and quality of the resources discovered already, that after these two wells and the follow-up, we are going to halt frontier exploration. We believe because of the lead time to bring those online, that it's prudent to preserve our capital for the low carbon opportunities that are emerging. Our downstream transformation. First, the commercial business. This is a strong business, particularly in Portugal. Also in Spain and some African countries. It's a business that spans oil products, gas, LPG, renewable electricity sales, that spans B2C and B2B. In Portugal, we are a market leader.
We have a strong reputation as the flag carrier of Portugal, and we're known for the quality of our services. The merging of our gas and power and oil products business has allowed us to expand and cross-sell all types of products, leveraging our digital tools, expanding and strengthening our brand to our loyal customers. We believe we can expand our offer and our customer experience over time. There are almost half a million people that come to our forecourts every day. These are unique touch points with customers, where we can sell more than traditional fuels. We're privileged to have such a great network. A network that can provide key convenience to customers, where already our non-fuel receipts exceed our fuel receipts. We are actually the largest coffee seller in Portugal. We want to modernize and expand our offering with a new hub concept.
Offering new products, new service, including EV charging, up to 10,000 EV chargers by 2025. As a result, we believe we can double our non-fuel contribution to our operating cash flows by 2025. We're strong today. We have a lot more to offer, with relatively minor investments and innovative solutions. Not only can we expand on the forecourt, we can expand in the home as well. We have a strong position in gas, which we can expand, particularly in renewable electricity, both through the grid, but also from solar panels through our new spin-off company, Energia Independente. We have an ability to cross-sell using digital tools. Just to give you an example, in April, we added 10,000 customers, and a lot of those actually through what we call the Three Minute app. You can get it online, but you can also find it in our retail stations.
That app will allow you to switch just in three minutes. Also, we have an excellent B2B business and a strong market share in gas and oil products. Here also, we think we can expand our renewable electricity sales. We think we can do this profitably, and we think we can more than double our electrical sales by 2025. The foundation of this is a competitive supply portfolio of renewable electricity. Integrating potentially also to our renewable generation position. It's about cross-selling. It's about integrating customer solutions. Innovation and digital tools are going to be key in this journey, where we tailor individual consumer and business solutions. To give you an example in that area, we have a promising new e-mobility application for fleets called Flow. That is also building our capabilities around accessing customers.
EI, Energia Independente, and Flow, a demonstration of Galp's agility, ability to innovate, which has a very short time to market. We will continue to expand those innovative solutions to customers. As a result, we believe that we can grow contribution from commercial up to EUR 400 million operational cash flows by 2025. We think we can do so in a capital light way, a high return way, growing the bottom line, despite a shrinking oil product demand. The cornerstone of this is going to be the non-fuel contribution, expanding from 20%-40% by 2025. The other half of our downstream transformation business is in Industrial and Energy Management. Within industrial, and particularly in refining, improving resilience is going to be key, but also decarbonizing the products that we produce. We want to focus on good high-return projects with short paybacks.
Also energy management is key here to taking a full integrated approach across our oil, gas, and renewable electricity value chains. Our decision to close Matosinhos in 2020 has significantly improved the resilience of our refinery position. It's allowed us to focus on the gradual conversion of Sines from a gray to a green energy hub. From 2017 to 2030, we aim to reduce the Scope 1 and 2 CO2 emissions from our refining business by 50%. We're going to do this prudently. We're going to do it stepwise. Decarbonizing Sines while improving our refinery margin, expanding our proportion of low-carbon products. There will be low-hanging fruits in high-return efficiency projects, but important additions, particularly in biofuels, but also desulfurization to improve the flexibility of our crude sourcing and to reposition Sines higher up the Iberian refinery league table.
At the end of the decade, with hydrogen, we can decarbonize further, but this will also be a platform for new fuels. Sines is in an excellent location with low-cost renewable electricity, fundamental for green hydrogen in the long term, but more of that later. Looking specifically at our projects. Firstly, optimization. Optimization in energy and operational efficiency will allow us to reduce our underlying OpEx by 15% to around $1.70 a barrel by 2025. We're going to leverage the digital applications we're already installing to fully harvest the potential of fully digitalizing our refinery. We're also going to put in a desulphurization project that will desulphurize the 20,000 barrels a day of fuel oil fraction. This will allow us to expand the crude diet.
This is a high return project costing a little less than EUR 300 million, but it improves our long-term resilience right into the next decade. We want to do more than just survive with our refinery. We want to thrive, so we want to expand into biofuels, particularly developing a 270-kiloton HVO renewable fuel unit. A unit that's aligned to RED II, but also has capability to produce drop-in sustainable aviation fuels. We think this is going to be positioned as one of the most competitive HVO units in the world. Why? Because we can recycle equipment from Matosinhos. We can drive synergies from Sines, particularly surplus hydrogen available there. A project we believe we can deliver for less than EUR 200 million.
We fully appreciate that securing long-term feedstock is going to be crucial for this project, and we will do that ahead of FID, which we plan to have next year. Moving now to energy management. When we did this full strategy refresh, the recurrent theme in almost every work stream was energy management. Whether it's how do we market associated gas in Brazil, it's about placing the very competitively priced Venture LNG volumes we're going to pick up in 2023. How do we optimize our LNG from Nigeria or our gas from Sonatrach? How do we get competitive crude sourcing? What opportunities do we have to trade crude and products, particularly around Sines, which has a world-scale storage facility around 3 million meters cubed? How do we source competitively feedstocks for the HVO unit?
How do we place our renewable energy electricity with maximum value, trading off value and risk, looking at merchant and PPA solutions? Also integrating to our own consumption, sourcing electricity competitively for our customers, also for our hydrogen business. There is an enormous opportunity to focus on that integrated margin and risk management, to deliver value through our supply and trading, to offer low-carbon and bundled solutions, to drive for different products and services. We're currently reinforcing our energy management team considerably because we really think we can extract more value from Galp's expanding asset and customer base, and we believe we can deliver more than EUR 120 million operational cash flow on an annual basis. Moving to renewables growth. We made a really important move last year, in our 75% acquisition of ACS. This is a material position. Today, here in Lisbon, the sun is shining.
We have a gigawatt of capacity online. The solar capture prices in the last weeks have been around EUR 70 per MWh. We're happy with this new business we have. Of course, going forward, we have a much more conservative assumption on the solar capture prices, but we're making really good progress on the energy transition. We want to expand firstly in Iberia and then diversify our geographies, but also the technology, moving to wind and storage, battery storage that is, but also leveraging partnerships. At the same time, being very financially disciplined with project financing and selling down our positions once they are de-risked and leveraging up our own equity returns. Then through integration of risk management, unlocking the most value from the electrons that we're producing. As I say, today we've got around a gigawatt in operation.
We actually have 2.8 GW of deals done with projects under development, 2 GW with ACS in their Zero-E joint venture, and about 800 MW outside that joint venture in Spain and Portugal. The development funnel of opportunities we're looking at today is much bigger than that even. Today we're focused mainly on Iberia, but already exploring new geographies, recruiting a strong team with global capabilities. By 2025, we want to have in operation 4 GW, and then up to 12 GW operating by 2030. Most of that growth in the second half of the decade will be outside Iberia with a particular focus around the Americas. This is not about bragging about gigawatts. This is about returns and cash flow. As I said before, on a life cycle basis, we want to get more than 9% IRR contribution from our equity in this business.
We're taking a more conservative solar capture price in our premises going forward. We think we can leverage up with financing 60%-70%. As I say, we want to rotate our assets around 50%. This means we keep real discipline with our net capital, but we will retain the energy and asset management for all these assets. We're also building some distinctive capabilities with behind-the-meter battery storage options around hybridization between solar and wind, particularly in Spain. We're taking a varied approach on risk management. In Iberia, we will have a mix of long and short-term PPAs and merchant risk. Outside Iberia, we're more likely to take long-term PPAs early in the process, lowering our merchant risk. On a pro forma basis, we want to deliver in excess of EUR 100 million operational cash flow by 2025 and EUR 250 million- EUR 300 million by 2030.
This business will be deconsolidated off our balance sheet. This will take the form of cash injection or dividends. We hope to be free cash flow positive, in other words, receiving dividends in the second half of the decade, contributing income to Galp's bottom line, but still growing at the same time. This will become a ratable long-term cash flow with, I think, increased options for value capture around energy management and storage all the time. Moving to our new energies business. In addition to our end-to-end renewable energy business, we have other exciting opportunities, particularly new energies, where there are value pools with adjacent to our assets or transferable skills where Galp's innovation capabilities will come into play, but more industrial in scale than what we were doing in commercial. Two focus areas in new business development for us today is hydrogen and battery value chain.
We believe this can be really important for Galp in the future, but also aligns to what Portugal and Europe is really focusing on at the moment. We talk about around 5% capital in five years. This may be more in a success case. In the second half of the decade, we do believe we will be ramping up more capital investment in these businesses. Let's look at those businesses. Firstly, green hydrogen. We believe we have everything that's needed for success in this business, low-cost renewable energy, cost-effective execution with a skilled workforce, an ability to build at scale and to come down the cost curve, but also a conducive regulatory environment. Sines in South Portugal has all of these and allows us to move Sines over time from a gray to a green energy park.
It does this by offsetting the cost of gas, the CO2 costs, but also utilizing the RED II directive. This decade, we hope to reduce or replace all of our gray hydrogen with green hydrogen. That's about 600 MW of electrolysis capacity, 60 kilotons of hydrogen. We aim to have the first 100 MW already in the first half of this decade. Because we're building this scale, we think that's just the start. Because Sines is one of the most competitive places in Europe for green hydrogen, we see other opportunities like piping hydrogen into the gas network, distributing to heavy-duty vehicles through our retail positions, but also new opportunities for e-fuels or other green applications such as ammonia or industrial applications, particularly in hard-to-abate sectors of the global industry. In addition, we believe there's an opportunity in the battery value chain.
The growth of battery demand, particularly because of the growth of EVs, is going to be more than 10-fold in Europe by 2030. Securing a European battery value chain becomes actually a point of energy security in the European Union. An end-to-end battery value chain that with green credentials has a particularly important place in the thinking of the European Union. Portugal is really well-placed. Portugal and Northeast Iberia boast some of the best lithium geology in Europe. Galp is already in discussions for an offtake of the raw materials from a mine here in Portugal. Our focus isn't mining. Our focus is going to be lithium processing. Today in the whole of Europe, there are no lithium hydroxide processing facilities. In a continent that looks to need 400 kilotons of what's called lithium carbonate equivalent demand by the end of the decade.
Portugal, as I say, really well-placed. It has the geology, it has the deep sea ports, it has the competitive and skilled workforce, but also the cost-effective renewable energy. Galp, as a company, has transferable skills, but we're also building partnerships, and we're in advanced discussions with a leading EU battery manufacturer, considering a first lithium processing facility of at least 25 kilotons. Both the hydrogen and the battery value chain is in business development. With the right condition, this could be fast-moving. This is a 5% of capital allocation in the first five years, but gaining weight in the second half of the decade. Those were the four themes. Now to our decarbonization path. If we look, Galp has a strong ESG performance, a strong track record.
We think our business plans strengthen our ESG position, and we have an ambition to remain a leader in ESG. We've embraced transparent reporting on environmental and social issues. We have an active board who has the desire to lead Galp through the energy transition. We've already been acknowledged in ESG by the Dow Jones Sustainability Index to be the leader in our oil and gas sector in Europe. We aim to retain this lead. In this regard, we're going to increase the number of decarbonization parameters we were going to disclose, but also the pace in which we plan to decarbonize. Last year, we committed to a carbon intensity index of the products we sell to reduce by 15% by 2030. We're increasing that now to 20%. In this update, we have two more parameters. Firstly is our Scope 1 and 2 CO2 emissions.
The CO2 we are emitting in our operations from 2017 to 2030, we're going to reduce that by 40%. Admittedly, the Matosinhos closure was a big step forward, we are going to also decarbonize Sines. We're also introducing a new parameter, and that's about the CO2 intensity of the energy we produce, this is Scope 1, 2, and 3, whether it's an upstream or renewable energy. By 2030, we want to have reduced that by 40%. We introduced this because this is where we're spending most of our money. We also, in this update, have moved from saying that we're going to move in line with Europe on getting to net zero by 2050 by unequivocally saying that we're fully committed to be net zero by 2050. As you can see, by 2030, we will be already making good progress.
I'll hand over now to Filipe, who will talk about the financial framework.
Thank you, Andy. Let's see how this refreshed strategy translates into our 2021-2025 numbers. First, for reporting purposes, we are not changing the four business segments you guys already know. We have only renamed Refining and Midstream to Industrial and Energy Management. This new name serves to highlight we want to broaden the scope and to decarbonize our industrial activities beyond traditional refining. We also want to highlight the bigger role we want energy management to play going forward. Cash generation at group level. Our key guidance is based on operating cash flow, so OCF. That's our measure of clean CFFO without working capital variations, inventory effects, and special items. As most of renewables will be deconsolidated, we add here their pro forma OCF contribution as if renewables were consolidated, and that's proportionate to our equity stakes.
This year, group OCF should be over $1.7 billion, with refining and commercial still recovering from a rather difficult Q1. Group OCF should increase to over $2.3 billion in 2025, and that's using our base case macro deck, which includes Brent at $60. Be mindful that this growth in OCF is relatively back-ended. With Bacalhau operating at close to full capacity in 2025. We are not factoring in a lot of OCF growth over the next couple of years other than the growth we see coming from the gradual transformation of our downstream businesses. For 2021, we have revised up our EBITDA guidance to over EUR 2 billion, and this should be over EUR 3 billion by 2025. CapEx guidance for this year, it remains unchanged at EUR 500 million-EUR 700 million, and that is net of the recent GGND divestments.
The plan has an average of EUR 800 million- EUR 1 billion in net CapEx per year. This represents a 20% reduction versus the previous plan, mainly from project realignments and cash preservation measures. Most of this CapEx is underway with a very good line of sight, I would say, such as Bacalhau and the existing solar pipeline in Iberia, plus the recurring investments into P and commercial. We will continue to keep our CapEx discipline. What is different in this plan is also that around 50% of net CapEx will be allocated to low to no carbon, such as renewables, biofuels, convenience, hydrogen, and the battery value chain. For renewables, we assume that we project finance off balance sheets at around the time of COD, so commercial operation date, we monetize half of what we have just developed very soon thereafter.
We want to keep this business as reasonably asset light. If I zoom in on upstream, we have over EUR 6 billion in OCF during the plan period. Until 2024, OCF should be stable within EUR 1.1 billion-EUR 1.3 billion, and this will increase to over EUR 1.4 billion in 2025 with Bacalhau. EBITDA follows a very similar trend, rather stable until 2024, EUR 1.7 billion-EUR 1.8 billion, and then increasing to over EUR 2 billion from 2025 onwards. We saw on the previous slide that upstream had some 40% of group CapEx. This will have to be supported by potential portfolio management to control overall investment levels in the group and to keep the balance sheet strong. Given the current uncertainty around Rovuma LNG, we are not including much CapEx for the onshore project within the plan period.
Coral FLNG is on track, so that's obviously included in our plans. Commercial activities are picking up really nicely now, after the slow Q1, we keep a prudent OCF of about EUR 300 million for the full year 2021. OCF should gradually rise to EUR 400 million or so and EBITDA to EUR 450 million by 2025. For the entire five-year period, we have over EUR 1.6 billion in cumulative OCF in commercial, and that's across all products and all geographies. Diversifying the commercial offer is obviously important to offset declining hydrocarbon demand. By 2025, 40% of commercial OCF should come from C stores, convenience, gas and power sales, electric mobility, and decentralized solar, for example. This should continue to be a high multiple business. For that, we have allocated EUR 500 million-EUR 600 million in commercial CapEx during the year.
On Industrial and Energy Management, the plan is, as Andy said very clearly, to improve resilience and to decarbonize. For now, OCF will be largely driven by refining margins, which currently are relatively weak. Hopefully, this will improve soon as jet fuel demand normalizes. In 2021, we also have the one-off costs related to the access to the regasification terminal in Portugal. For this year, 2021, OCF from Industrial and Energy Management is expected to be only EUR 100 million-EUR 150 million, and an EBITDA lower than that, about EUR 100 million, as it does not include the associates' contribution from our stakes in the gas pipelines, which will expire anyways this year.
Cogeneration, logistics, and other non-refining industrial businesses should bring in some EUR 25 million-EUR 30 million per year in EBITDA. HVO will add another EUR 50 million or so to EBITDA once it starts up before 2025. Overall, Industrial and Energy Management OCF should be over EUR 350 million by 2025, with energy management contributing with over EUR 120 million.
The majority of CapEx will be directed to transformation HVO desulphurisation. These are investments which are adjacent to our very core operations. It reinforces the competitiveness and the decarbonization of the overall Sines complex. On an accumulated basis, we have some EUR 1.2 billion in OCF during the period, and some EUR 700 million in CapEx. Now the CapEx bar on the right-hand side is already net of the recent divestment in GGND. On renewables, the plan is to keep this business fully deconsolidated with its own capital structure and project financed. Our pipeline is gradually built. By 2025, pro forma OCF should be about EUR 100 million. This assumes we have about 50% of the equity on the over 4 GW we expect to have operating by 2025.
Our share of the projects should generate over EUR 300 million in OCF during the plan periods. This however becomes very meaningfully higher from 2026 onwards. Renewables CapEx should total some EUR 1.2 billion during the five-year plan. That's already net of asset rotation. The plan is to keep and fund 100% of the projects during the develop and build phases, project finance at about the time of COD, rotate half of our equity very soon thereafter. This supports our overall CapEx plan and leverages the returns of renewables. New energies, green hydrogen, the battery value chain, this should make up, I would say, about 5% of group net CapEx. This is ballpark. It will depend on how quickly these projects get off the ground. Most likely, we'll have partners in some of these projects, and we'll be raising finance also at the asset level.
We expect OCF from new businesses to be positive in 2025. The OCF bar here doesn't show new businesses OCF, as 2025 positive OCF is actually eaten up by negative flows during the initial years. Putting it all together, we have about EUR 9 billion in OCF over the five years. Here OCF is as we report, not with the pro rata OCF from the deconsolidated business. This is just with the dividends that we actually receive from, say, renewables, after renewables has serviced its own project finance debt. Where are the EUR 9 billion going to? About 45% is going to CapEx, about 1/3 is going to dividends to the Galp shareholders, that's the base dividend and the variable component, about 10% to minorities and the rest for finance costs, and there's a little bit of deleveraging in the plan as well.
Because we have much lower sustained CapEx than our peers, given the youth and the long life nature of our upstream portfolio, we have room to grow our business and decarbonize significantly faster. On the dividends, now we should be already under one time net debt to EBITDA this year, so which will support the variable component of the dividends. The way this will work is as follows. The base dividend of EUR 0.50 is paid semi-annually, say half is distributed this fall and half is paid in May after the AGM. That is when the variable component is added as well. I will stop here, just highlighting that the plan has free cash flow covering 1.2x total distributions. The quality of the dividends policy is quite robust, we think. Andy, back to you.
Thank you, Filipe, for that impressive deep dive into the financials. I'd like to make some concluding remarks before we go to the Q&A. I hope you've seen that we can thrive through the energy transition. We can and will accelerate the decarbonization of our portfolio. We will grow in a resilient and value-driven way while maintaining a robust financial position. We will also offer competitive shareholder returns. Can I illustrate and compare with our peers? We're offering leading cash flow growth of 35% of operational cash flows to 2025, a strong pace of decarbonization versus our peers. We're growing in a capital disciplined way with only 45% of our operational cash flows put into that growth. We're offering 1/3 of our CFFO in dividends. This is truly distinctive.
We're going to work with the board with the support of my Excom colleagues. We are committed to take on this challenge. Let's regenerate the future together. Thank you.
Thank you, Andy. Thank you, Filipe. This concludes the presentation. I hope it was an insightful one for you. We will invite you to watch a small video now, and we will come back in five minutes. See you in a short while.
[Presentation]
[Break]
Welcome back. Firstly, thank you so much for listening to our presentation. We now have the Q&A, and hopefully we can answer all your questions and explain our plans further. Before that, I have got some support from colleagues from the ExCo. I want to just introduce them. Firstly, I think a lot of you know Otelo. He's going to be our master of ceremonies. He's in charge of IR. We've got Filipe, who is my CFO. He keeps me on the straight and narrow. We have Carlos Costa Pina, he's our COO Corporate Office. He will answer questions around sustainability. We've got Susana. She's in charge of renewables and new business development. We've got Thore Kristiansen. He's responsible for our upstream growth business. We've got Sofia. She's responsible for our commercial business. We've got Carlos Silva, who is responsible for our Industrial and Energy Management business.
I have the whole team here ready to answer your questions. I'm going to hand to Otelo to actually introduce all those questions for us to answer. Otelo.
Thank you, Andy. Before we jump into Q&A, a couple of organizational questions. We will be having sell-side analysts connected through video. We will also read some questions made through the chat platform. Because we already have a lot of participants, we will need to limit some of the questions. Please, for the video participants, we will limit your questions to two per each. Okay? We will try to limit the Q&A up to 90 minutes. I'm told that I already have the first in line for the questions. Joshua Stone from Barclays Capital. Joshua, good to see you. Floor is yours.
Hello. Yeah, thank you, and good afternoon. Thanks for the presentation.
Hi.
Two questions, please. Firstly, you defined a base dividend level at EUR 0.50. Can you talk about why is that the right level for Galp? Should we consider it a sacrosanct regardless of the environment, or is it defined by a particular oil price? My second question on Brazil. You mentioned recovery rates. Are you able to say where we are today? You previously talked about a long-term ambition of 40%. Is that still the case, or has that now gone down the order of priority? Thank you.
Thank you very much for that. Firstly, let's talk about the dividends. I've got Filipe to help me here. I think you had a question about the base and why do we set the base at EUR 0.50 and then have a variable component. Well, it was very much for, as you explained, this is a base case, a resilience case. In our planning, we actually looked, particularly if we have an accelerated transition, and I mentioned that at the start of the presentation, what kind of prices may we get in oil and other parts of our business, and what can we afford as a base dividend? Our conclusion was the EUR 0.50 was resilient through the cycle to keep our balance sheet in shape.
The variable component is very much related to if we get a macro more like the base case, that would start to pay out. Do you want to add anything to that, Filipe?
Josh, the EUR 0.50 is designed to withstand macro events. We all learned our lesson last year. We want to avoid this. Does EUR 0.50 stand if Brent is below USD 50, if oil margins go down? Yes, it does. The upsides, and you see Andy say it's about 35% of our current market cap could be distributed in the plan. If you do the math, that would be on average about EUR 0.20 across the period with Brent at USD 60. EUR 0.50 is resilient. There is upside. One of the questions we also get asked a lot, Josh, is buybacks. What we've kind of tried to provide the solution on having the variable component working a bit like a variable dividend if we have excess cash flows. That is the logic.
Joshua, your second question around the recovery factor, particularly of what we now call the Tupi field. What we think that recovery factor is. That's something that we really leave to Petrobras to reveal to the market as the operator. To answer your question, no, we haven't changed our view on how much oil we can recover from this field. As I said in my remarks, we are at really just produced a fraction. We're essentially in plateau now, but with a lot of development opportunities still to come. Actually it's kind of premature to really count on those last percentage of recovery. There is, because we're not announcing that number today, it is not because we've changed our view on the field.
It is contingent on agreeing a plan of development and possibly a field lifetime extension, which will be part of discussions this year. I don't know if Thore want to add any more to that.
I certainly would like. You guys that have followed Galp now for many years know that I think the world about Tupi and Iracema. It's a world-class by any standard. six years ago, Galp launched on its capital markets day, the ambition that we should really drive up the recovery on Lula and Tupi, Iracema. Actually, last year, there was a major breakthrough on this, because then we agreed in the partnership that we should sign an MOU, where the whole purpose is that we are working this year in order to agree a new plan of operation and development, which we have all the ambition to deliver by the end of this year.
This will be a significant step in order to realize that long-term ambitions, which I have to say, I'm extremely proud of what the Galp team have contributed and how they have been asserting into the partnership that we should really drive for this. I remind you, one percentage point increased recovery on Tupi, Iara is nothing less than 200 million barrels. That's a good day at work for any explorationist. Thank you.
Thank you, Thore. I think we can move on. We will now have Mehdi Ennebati from Bank of America. Mehdi, [Foreign language]. We are happy to take your question.
Hi. Good afternoon, everyone, and thanks for taking the questions. Two questions, please. One follow-up on the dividend that you detailed a little bit. It seems that you are accepting for your dividend to be quite volatile. Let me give you an example. Imagine, the oil price this year will have reached $70 per barrel, so you will have a relatively strong cash flow from operation. Next year, we go to $60 per barrel, then you might have to lower the dividend in order to respect your new dividend policy. Am I understanding well when you say that your dividend could be quite volatile in the coming years depending on the oil price? Just one very small question on that. You expect EUR 2.3 billion of CFFO by, or OCF, let's consider this is roughly the same, by 2025.
If I am understanding well, does that mean something like EUR 0.92 dividend in 2025? Next question regarding your production growth in 2025. Okay? You provided a 25% growth compared to 2021 production. This gives around 160 kboed guidance in 2025. However, currently your production at plateau is around 140 kboed, excluding the pandemic impact. Bacalhau will add another 40 kboed at plateau. That makes your production significantly above your guidance without even including Coral Sépia production, which should add another 10 kboed. My question is very simple.
Are you expecting a significant depletion rate from your existing production in Brazil to justify 160 kboed, and why? Or do you already take into account some delays regarding Bacalhau startup and ramp-up due to pandemic situation in Brazil? Thank you.
Thank you very much, Mehdi. Let's first answer your question around will this dividend be quite variable? The answer to that is, yes, it will be, but it has the resilient EUR 0.50. It has an ability, and your calculations are right, that in 2025 it could be up, and it could be more like EUR 0.90 or 9% yield at that point. As Filipe pointed out, on the average, if we look at our plan, it's around 7% over the five years. Clearly, if we have a real dip, we will use the balance sheet a little bit to smooth out and allow the debt to go up a little bit, and still pay the EUR 0.50.
It has a floor, and it has this flexible variable element that is very much aligned with the macro, because we're pretty clear about how much capital we're going to spend, and we've got pretty clear ideas of how much cash our business can generate. I think the answer is yes, you are right. It will have that variable element. It means our shareholders are enjoying the business when we're enjoying it. As Filipe says, it avoids this situation, this boom and bust, that we have to cut the dividend and everyone's disappointed, and you don't have any understanding or predictability of where we're going. You understand steady base with variable that reflects the macro. I think just leave it on the dividend and move on, perhaps then to the numbers. I'm going to ask Thore to contribute here.
We've got Bacalhau, is it 40 in 2025? How do we think about that 25% increase? Does that mean our base is declining? Perhaps you can explain a few things around that, Thore.
Thank you. I think it's very important to factor in here that even in 2025, Bacalhau will be in a ramp-up state. We're expecting no delays to the start of Bacalhau, but as we have guided you to, this is second half 2024. 2025 will be a ramp-up year. We have put into, and is in our plan, that there will be a natural decline from the existing fields. In addition to that, we have put in an element of cautiousness, where we have sort of in general assumed on some of the Brazilian assets that we have a somewhat lower production efficiency because we see that the units will require more maintenance. You can say it might be prudency. We think it is good business practice to put this in, and we're feeling comfortable, therefore, with the 25% growth target that we have put forward for 2025.
The base is pretty stable. I think that's the conclusion. The Bacalhau comes up, and it's still going to ramp up in 2025. That really fundamentally, I think, is the answer to that one. Thank you for the question, Mehdi. The next in line will be Oswald Clint from Bernstein. Oswald, good to see you. Please go ahead.
Thank you very much, everybody. Andy, it is refreshing, I guess, to hear your enthusiasm about the upstream, your developments, and even exploration certainly in this day and age. I wanted to ask you around what's a longer-term growth rate do you think is possible beyond, or what should be targeted given your accelerated decarbonization targets today, please? Secondly, I wanted to ask around the retail network, the B2B and the cross-selling. This is new, I think. This is a strategy. It wasn't on the agenda before. It certainly felt very Shell-like listening to it, but we know the business through Repsol in Spain. Others like Cepsa, I think, have been less successful trying to replicate them there. I can see why Galp should be successful, but why has it not done before? Why are you confident?
The 20%-40% uplift here, is that back-end loaded, or is that ratable across the next five years? Thank you.
Yeah. Thank you very much, Oswald. We're not disclosing numbers beyond 2025. You can see that. The exploration, I have to be clear, and I think this is quite an important point. After the two wells that I have indicated we'll follow up, so we are going to halt our exploration, our frontier exploration program. This is very much saying we have enough in our resource base to stimulate growth for some time. 2.4 billion barrels of 2P and 2C resources. 50 years at current production rates. That's a lot of oil and gas currently discovered, which gives us an ability to grow after 2025. Clearly, what happens to Mozambique when that LNG project is brought online is an important element in that. We're not guiding on long-term production for very much the reason you indicate. We're taking a cautious approach today. We're growing our alternative businesses.
We have the options in upstream, and we will pursue those when, for instance, the security allows, and when they become very attractive opportunities within our capital discipline. We talked about our new energies business, our hydrogen business, battery value chain. We're going to have options for investment after 2025, but today we can't be fully predictable. It isn't at this stage, I think, appropriate for us to be giving you production numbers beyond 2025 when we really don't understand which are going to be the most attractive investments for Galp and which fits our long-term strategy. We come to the commercial business, and I think this realization that we can do so much more with customers, I think is one that, I think it is a new, fresh approach in Galp.
I brought something. Sofia, who's only recently joined our executive also has brought that sort of insight. I think particularly in Portugal we have such a strong brand. We are the market leader. We have the opportunity to offer much more to our customers than we're offering today. I think, I'm very excited about the opportunity that this gives. We're actually already on the journey. This isn't just like, "Let's do that tomorrow." 2020, we actually started to do quite some exciting things. We're going to have some of these new hubs online relatively soon. We're going to lean into this quite quickly.
I'm going to hand over to Sofia to perhaps talk about a couple of things we're doing and just a touch on how quickly we're going to be able to offer more services and hopefully make more money in the non-fuel space. Sofia.
Thank you, Andy. Thank you, Oswald, for your question. We are super excited to speed up on this transformation. We believe that we have the right to be on this area. Actually, these stores represent EUR 60 million of EBITDA today, and we believe that we can double them until 2025. Why? Because we have, as Andy mentioned before, we have half a million of people entering into our stores, customers that are engaged with our strong brands that have been engaged with more digital tools that we are implementing. On the other side, we can also cross-sell, as you mentioned, to these customers and touch them during their day, not only on our ecosystem of e-mobility, but also in our ecosystem of the home.
As Andy mentioned, we are rethinking, and we just conceived three concept stores for the new service hubs around mobility and around lifestyle. With this, we are going to offer products and services totally different around these new trends, these community trends. The world has been changing, so we are also changing. We believe that with this, we'll be able to go from 20% of low carbon contribution into 40% in 2025, and it's true that it's something that it's new and it's something that other companies didn't succeed, but we believe that we have the right to do because we have such a broad portfolio that allows us to really cross-sell and to touch-point with the customers on all of these journeys. On top, we have recently launched new businesses like EI and like Flow.
That are also being speeding up towards our customers and towards the B2B, and with also these new energies, we'll be able to cross-sell and to maximize the value towards our customers.
Last year, we started expanding Uber Eats and Glovo, and we found customers really like ice cream, particularly in the evenings. You get this array of products that we're able to offer customers that I think we hadn't really discovered previously, but I think will be very successful for the future. Next time you think of an ice cream, just call us. Now, next guest is Raphaël Dubois. [Foreign language], Raphaël from Société Générale. Please, we are happy to take your question.
Bonjour.
Bonjour.
Thank you very much for setting up this event. You should not be talking about ice cream, I'm starving now. Anyway, two questions, please. You show on slide 31 your expectation for EUR 100 million of OCF by 2025. Can you please share with us a little bit more your assumptions behind this number, what kind of power prices is embedded, and also what will be left once project finance debt servicing is achieved? That's my first question. The second one is on the offtake agreement that you mentioned in the new energy business for lithium. I think you talked about a mine. Are you referring to the project of Savannah Resources? If not, can you maybe share with us a bit more information? What is the plan B if this mine of Savannah Resources is not up and running by 2025?
Thank you, Raphaël. I think, look, it's really important for us to perhaps explain a little bit around the cash flows around our renewable energy business. We have taken a more conservative approach. We have increased the number of PPAs and therefore the risk management of that. Perhaps Filipe can explain how we manage the debt and how much of the EUR 100 million that we can recover.
Raphaël, it's actually quite a simple business. The price at which you sell the electrons drives. CapEx is relatively standardized, certainly in Iberia now. If you have a solar capture price, which we've now assumed at a deeper discount to base load prices, pool prices, and you take EUR 35- EUR 40 and you multiply by 20% yields on your installed capacity, and that's a net of 2 GW, not 4 GW, because we're assuming we're rotating out of half of what we have, you get that sort of number. Fairly straightforward. What is left. This is a deconsolidated business. This money in 2025 is still not coming to Galp. We are servicing the debt of the project companies, and we'll be deploying excess cash into new projects. Free cash flow positive only a few years after.
What we are not factoring in in this plan is dividend recaps. That's a huge upside. There's very little point in having this great business de-levering quickly, not paying dividends. Most likely, given that it's such a low risk business, that you would do a dividend recap and upstream cash into Galp much earlier than we are building up in the plan.
Look, if I can perhaps then just address the whole issue around, we are assuming a declining solar capture price off the pool prices. We are assuming that we're going to take a fair amount of short and long-term PPAs. We’ve got some merchant exposure as well. This is Iberia. Outside Iberia and the rest of the world, we think we’ll take a larger amount of PPAs. Some of these things, clearly as time goes on, we see opportunities to leverage up returns more than perhaps just even the 9% that we put into the presentation. I’m going to ask Susana to say a little bit about how we might think about, we might even get some more from this base plan, which I think we’ve conservatively set. Susana?
Thank you, Andy. Of course, as Andy have mentioned, we have considered a larger share of PPAs in our portfolio. We are planning that by the end of this period, we'll have between 80%-90% of all our projects under PPA, more outside Europe, of course, than in Iberia. I think there's a lot of upsides that you can put on top of these returns with PPAs. Of course, you have financial returns, you have asset management fee returns, you have some certain hedges returns that you can improve the economics of the projects. I'm also especially excited about, let's say, four. One of them is because of our integration with the commercial business. We can take some merchant risk that can balance across our business. We can take some of this upside.
I think for me, it's also very important, as Andy already mentioned, the asset management, where we will be able to anticipate some of the value of these projects and rotate the capital for further projects, and that will also increase the overall returns of these projects. Maybe for me, because I'm also into innovation, the two that I'm most excited about are storage behind the meter batteries. We are already working on a pilot that we hope to have ready by Q1, where we see a huge upside about being able to balance the production curve and being able to capture the hours of the day with higher electricity prices. Of course, also hybridization with wind.
This is an upside everywhere, but especially here in Iberia, where you can get up to higher 50% more capacity on your connection point. By combining solar and wind, you are able to create a much more baseload profile, more profitable for our clients. This is a very conservative scenario, a lot of upsides, a lot of leverage that we can have in order to increase these IRRs going further.
Thank you, Susana. Let me now address the whole issue of the battery value chain. I did mention that we're in discussions with a mine, and you may well have seen a press release where our HOA lapsed at the end of last week. We don't like negotiating via press releases, we're in discussions with the mine still, I have to confirm that. This is a lithium-prone area that spans across North Portugal into Spain in Northeast Iberia. It's an area where we believe there will be more opportunities. Because we're planning on the processing side over time to perhaps take a really big position, we also have to consider opportunities also to import some of the raw materials. We're looking at all sorts of options, our focus is on lithium processing.
For that, we're actually working with a leading European battery manufacturer on understanding how we can work together. As I said, there's no lithium processing in Europe. There's going to be an enormous demand. We see a key opportunity. Obviously, sourcing renewable feedstocks is going to be crucial. Clearly, the mine in Portugal is one that we have been working with, we've done some due diligence, and we need to work with them on how we could work that particular mine. These things have to come together for us to make this whole chain. Galp really wants to be right in the middle of that chain, working from the sourcing of the spodumene through to the delivery to the battery manufacturers onto the gigafactories. It's early days. By the week, things are moving fast.
I have to say, as a business leader looking at the future of Europe and the future battery demand of Europe and the geology of Portugal and the deep sea ports and the capabilities of Galp, this is a business that I think could be really very big for Galp for the future and very much aligned with the energy transition.
I will take the opportunity to read one of the questions that we received in the platform from Jorge Guimarães, from JB Capital Markets. "Galp is not a renewables developer. How do you expect to create value in the development phase in order to fund down with a profit later, the 50% you expect to fund down? I assume part will be capturing the margins of electricity supply from cheaper sourcing, but even so, the question remains." Filipe, you want to take this one?
Yeah. We do have very significant capabilities. You will have noticed our CapEx into renewables has gone up compared with our previous plan. We are assuming we will hold on to the projects during the build, develop, de-risk phase, project finance only at that stage, and find partners, whilst before the plan had this monetization much before. There is significant value to capture in using our skills, our balance sheets, de-risking PPA commercial contracts so that we monetize the premium that comes with higher risk as well. We have very significant demand by very low risk, very low cost of capital investors that would like to come in at that stage with a much lower cost of capital. The rotation part of the build, de-risk, and sell down is integral to our business case.
Our next question comes from Biraj Borkhataria from RBC Capital Markets. Biraj, please go ahead.
Thanks for taking my question. I hope you can hear me. Two, please. The first one on decarbonization targets. The base year is 2017. Could you talk about the impact of the refinery closure on those targets as of 2023, 2021? I would have thought that that's quite a significant step, both in an absolute basis and intensity. The same question is on the Bacalhau . At one point earlier on in the process, you were talking about co-producing this. Is that still being considered at all, or is that completely off the point? Thank you.
I didn't quite hear. Can you repeat the second question, Biraj? Sorry. On Bacalhau ?
At the Bacalhau .
Yeah.
At one point, you were considering co-production unit earlier on.
Okay.
Is that still being considered at all at some point?
Okay.
Is that off the point?
Thank you. Hi, Biraj. Good to see you again. Clearly Matosinhos closure has helped us with the overall Scope 1 and 2 decarbonization, and also towards the 50% reduction in the refinery CO2 emissions that we have. I think on the refinery, of the 50%, around 27% is actually from the Matosinhos, if I'm right. It's an important part of it, and clearly, refinery closures and the CO2 we save from that. The rest of that, and I look at the 50% we're talking at Sines, or the refineries in total, is going to be various decarbonization projects that we're going to go through. Low-cost decarbonization projects, also then introduction of hydrogen over time in Sines. That really are the key elements for us to, on a whole Galp basis, to reduce 40% from Scope 1 and 2.
The second question was related to Bacalhau and the second unit. What happened to it? Got the first phase FID'd yesterday. Great news. Thore, where is the second unit?
I have to say that I'm so proud of Galp also in this case, because we are the only original partner in Bacalhau. The others disappeared. Equinor and Exxon came in. Yesterday we had the FID of something that is a world-class product by any standards. Yes, we think there are more. That will happen in the second phase. What we need to do before we decide on that is to do further appraisal work, based on that appraisal work, we will decide what will be the best way of developing the next phase. Several options. It could be a tieback, it could be a standalone unit, we need more appraisal. The big triumph today for the Galp team yesterday that actually was the only original investor in the Bacalhau field.
Good. Thank you, Thore. More news to come on further development to Bacalhau beyond phase I.
Okay, next one from Peter Low of Redburn. Peter, good to see you. Please go ahead.
Questions. The first one was on renewables. Most of your growth post 2025 looks like it will be outside of Iberia, which on the face of it is your natural market, given your existing customer base and brand. Is that because you see competition and returns in Iberia as more challenging versus what is available elsewhere? What's driving that switch? The second question, which is a clarification. You talked about portfolio management in upstream to help manage the CapEx commitments there. Can you just clarify what that means? Are you looking to reduce your stakes in certain projects or actually other parts of the portfolio you would consider exiting? Thanks.
Good, let me answer the second one first. Around portfolio management in upstream. Clearly, no company wants to reveal what they may be thinking of selling, but Galp has an enormous upstream portfolio, and I talked about the 2.4 billion of contingent resources. We have a lot of exploration positions. We have pipelines. We have positions on production. What I'm really keen to get message across is that we are going to manage that portfolio for value. It doesn't mean we're going to stop all new business development. It means that we're going to keep Thore strictly to his net capital number, and we're going to manage the portfolio, which means selling some things. It means developing some things. It's too early for us to give you a definitive list of these things that we're firmly planning to sell.
On your first question around renewables post 2025, and why leave your home base in Iberia? This is really about risk management, to be honest with you, but also growth of capabilities. Iberia is a competitive market. Iberia is a fantastic market for solar because of the opportunity, how much solar radiation there is, the drive of the Spanish and Portuguese government to bring more renewables into the portfolio. As we also mentioned, it is somewhere where with a lot of solar penetration, you're going to get a disconnection between solar capture prices and pool prices. In order to manage this as a well-managed risk portfolio, we're looking to expand overseas as well. We see overseas locations where you get much more attractive long-term PPAs, where we're building a team with some real capabilities of understanding some of those locations.
With an opportunity to move into markets, perhaps also earlier in their evolution, where there are some higher returns than we think we may be able to enjoy in Iberia. Risk management, diversification of both using solar and wind in order to make sure that we have a well risk managed high yield portfolio. I don't know. Susana, you want to add anything to that?
No. Maybe one thing is, yes, we are building a team, but we already have an outstanding team. Over the last year, we have building a team that has been developing thousands of gigas. I'm sorry, thousands of gigas tens of gigas around 35 countries around the world, have managed assets, gigas of assets also in many countries, have also built these assets. We have a very robust team already with experience that as Andy very well said, we are continuing to expand and bring new capabilities into these teams. I see it not as a risk, I see it as an opportunity. As Andy very well said, this growth is enormous. It's enormous around the world. We have the capability. We have the agility that we have shown in building the team and building the assets.
We have the financing power that the small players don't have. We have the ability to partner. I think one of the things I like the most about Galp is what a great partner it is and how easy it is to partner with Galp and the great relationships that it has with its current partners, and we already mentioned the team. For me, what is important about new geographies, as Andy said, stable market for PPAs, where you can have businesses taking PPAs at much more attractive conditions than we have today in Iberia. Countries where we have reasonable country and currency risk and renewable growth, where we have long-term investors that are interested in asset rotation and sticking to those assets in those markets.
As he said, in order to also come into these markets earlier, where we can do greenfield or develop early-stage projects in order to maximize the returns for Galp. It is not that we want to leave our home market, it's that we are ready to grow internationally.
Can I just say, I've come in the CEO of Galp, obviously having had an international career. I find such good competent people here, and very international people as well. I think there's a great opportunity for Galp to continue to develop business overseas. As you see, everyone speaks excellent English. That's very lucky for me. I think they have the potential to expand internationally, and I'm very excited about that.
In Spanish, we'll continue with the Spanish accent because we will now have Pablo Cuadrado from Kepler Cheuvreux. Pablo, the floor is yours. Happy to take your questions.
Hi. Good afternoon, everyone, from Madrid. I hope all of you are fine. Two questions, please. The first one is, you can qualify a little bit, which is the assumption that you have on the upstream volumes by 2030, basically included in your target of 40% reduction in your carbon intensity production figure when compared to 2017. Particularly, I'm looking if you are assuming on those figures, Rovuma, LNG, and the level of production that you are including there. The second question will be on the announcement on the biofuel HVO investment. I know that the FID is next year, and you are talking about 0.3 million tons capacity. I was a little bit surprised when you talk about IRRs above 15%.
If we compare to other peers that have announced investments on HVO biofuel, I think that level of return seem to be a little bit soft. I was wondering if you can detail a little bit more on the basis of that investment, what type of feedstock that you have in mind, I guess probably something linked to waste? If you can also share the margin that you expect per ton that you think you can make or basically the numbers that you use to get to those EUR 50 million every year that I think Filipe mentioned as a potential contribution? On that front as well, and I finish, is that the first step, this potential FID, but you still see that you can enhance more that business exposure?
Yeah. Thank you, Pablo. Let me first say on the 40%, look, I don't really want this to be an opportunity to try and back calculate to see what our production numbers are. It's a target that we take on today, that we mean to adhere to. If we have more production, we may need more renewable energy. I think this is something where I don't want this to be an engineering way to back calculate our production number. You just have to believe that this is something that we are going to be very focused on. As I say, giving this 40% production number, a lot of people have been looking at the sales. Yeah, we're going to do that in 20%, for me, we spend our money, 70%, 30% in renewables, 40% in upstream growth. Gosh, that's where we're spending our money.
That's our contribution to the world in terms of new energies or new energy supplies. That's the number we're focusing on, the 40% reduction. We have a plan, but that plan will change over time. As I said before, it is too early for us to give you some definitive numbers post 2025. On the HVO project, I'm going to ask Carlos Silva in a minute to talk a little bit about the sourcing. As I said before, obviously this HVO unit, what we have to position it is in within an Iberian context, and predominantly, of course, Portugal for us and some Spain in terms of how much HVO is going to be needed to meet the RED II directives in each of the countries. How much space is there for it to achieve the margins we expect to achieve.
We also have made a very strong point that we think we've got some tailwinds on the project in terms of cost with the Matosinhos Sines equipment reuse and some spare hydrogen capacity that exists in Sines today. I'd like Carlos to really focus on then the feedstock sourcing and perhaps also explain that we have some experience already.
Thank you. Pablo, the HVO project is really an opportunity to a value creation project at New Sines Green Energy Park. This project will allow us to be aligned with the RED II that is coming on stream, and it will give us the opportunity to a ssess new value pools on the industrial arena. In regarding to the feedstocks, we have already experience regarding the feedstocks for biofuels. We are already in the international market, so we have some partnerships that we keep developing. By that mean, we are de-risking the feedstock for our project. As well, we are progressing with the studies in terms of engineering and construction. Towards the FID early next year, we will be ready for it. Thank you.
Yeah. We're going to be looking at used cooking oils and animal fats and other produce. We're looking at Asia, we're looking at Americas, Latin America, Europe. We have a global sourcing effort on at the moment to make sure that, I think it's only 75% or so, Carlos, we're going to want to have some kind of long-term agreements in place ready for the FID moment. The EUR 50 million EBITDA, I think, you mentioned. That really is calculating where we assume these feedstock costs are going to be and where we think the renewable fuel we place, taking into account the RED II multiplier, that will enjoy the market.
Next question comes from Sasikanth Chilukuru from Morgan Stanley. Sasi, good to see you. We are all ears.
Hi. Thanks for taking my question. I had two related ones, please. The first one was, you've kind of highlighted that there's no material contribution from Mozambique Rovuma LNG in your CapEx forecast or CapEx guidance. I was just wondering, is that a view that's kind of shared by the other partners as well? In case this project does come back onto the drawing board during 2021, before 2025. I was just wondering, does that mean there's upside risks to the CapEx? Or is it something to do with your asset rotation as well? Would you be looking to exit Mozambique Rovuma LNG, for example?
Okay. Sasi, can I just take that? I think it's very, for us to actually give you a date of when this project will FID, will almost presume we understand how the world will develop and how the social scene there will develop. We really regret the loss of life that happened in Palma just a couple of months ago. I think the Mozambique government is working hard to restore stability there. I think we're hopeful that the situation will stabilize. We haven't put capital in the five-year plan for that. That doesn't mean to say we don't think the project will go forward.
There is a scenario where we go forward with the project, and because Thore is under some pretty strict guidance on net CapEx, if he wants to do that, he may need to find how he can release some capital elsewhere in order to afford that. This is very much us saying it is premature for us to declare a date. We have a clear amount of CapEx we're allocating to our upstream, so 40% of the $0.8 billion-$1 billion. Then Thore is going to have to manage all his portfolio to make the numbers work. Too early to say this is going to be divested, too early to say when it's going to FID, but the discipline will stay in place.
I will take the chance to read one of the questions that we received from the platform, from Richard from B.C., Canada. He seems to be concerned about the dividend policy uncertainty as the cost of capital would increase due to the variability. Why buybacks were not being considered?
Sure. Filipe, this is yours.
Richard, I'm not so certain it's going to be that variable. If you set a dividend policy based on free cash flow, post you get all the volatility that comes from volatile CapEx. CFFO as the anchor is actually quite stable, even if you have big variations in, say, Brent prices. Brent prices collapses, you release a ton of working capital, that's within CFFO. You do have quite high visibility on something that is designed to be variable in the first instance. $0.50 baseline, the 20% that is supposed to be variable is actually not that variable itself. I would reinstate that the base dividend withstands very low micro conditions, everything that comes on top, and whereas if it's more than $60, then dividends could be quite meaningful.
You know just as much as we do, because it's a very simple 1x net debt to EBITDA, all is distributed to you with a cap of one-third. In the plan, we hit the cap all the time because we do have our very strong balance sheet throughout the entire period.
On the share buybacks.
On the share buybacks. If you look back at the last, say, decades, a lot of the buybacks have really been to neutralize scrip dividends. We pay good old cash dividends. We generate cash, we distribute cash when we can. The concern of using the buybacks as a top-up to a base dividend, because it's true that you can be more volatile if you do buybacks when you can afford it. We've kind of replicated this with a cash variable dividend, so it's not that different. There are no scrip dividends to neutralize. Hence 100% in cash.
Okay, we'll come back now to the video platform. Now we'll have Pedro Alves from CaixaBank BPI. Pedro, please go ahead.
Hi. Hello, everyone. Thank you very much for the event. I have here one question regarding your guidance for the new Industrial and Energy Management division. We see here a big jump in EBITDA from the first years of around EUR 200 million- EUR 400 million in 2025. I'm sorry if I'm missing something, but I'm struggling to reach these levels only by incorporating the refining margin of $4 per barrel and the $1.7 of OpEx. Obviously, the contribution from advanced biofuels and EUR 120 million of energy management. Could you please clarify the bridge to get this EUR 400 million? Then my second question regards to renewables. I think you mentioned partnerships to expand the business. Do you consider eventually M&A to reach the 12 GW target by the end of the decade?
If not, if you don't plan M&A, can you give us more visibility on the status of the pipeline of greenfield opportunities to reach those 12 GW target? Thank you.
Thank you, Pedro. On the first question, I am going to ask Filipe to make the bridge and talk about some of the one-offs that we are experiencing at the moment.
Pedro, it's really the 400 is a lot more normal than the starting point. I'm not certain the market appreciates how bad this has been, both with our gas trading and the hit we got with regasification costs and how bad refining has been. We start with a very low base. If you normalize refining margins closer to EUR 4 per barrel, add the efficiencies we're building, add the new units, and a very significant investment in energy management across all products, that's power as well, gas and oil, of course. We get to that sort of number. The base effect is what is driving your question.
Yeah. I think particularly this year, we've had the regasification costs have been, as you mentioned, Filipe, it's quite a big one-off hit we hope does not happen going forward. Yeah, if you look at Energy Management and the HVO unit alone, that gives you more than EUR 170. That's a big contribution to that future. The second question was around Help me. Oh, the renewables partnerships M&A. I'm going to ask Susana to perhaps give a little bit color about how much we're looking at. Obviously, nothing firm yet. At the moment, we will continue to look whether there are any attractive renewable platforms for us to acquire. We haven't any firm plans at the moment. At the moment, our focus is on organic growth. Why?
We think we get a higher return from that, because the platforms are quite highly priced at the moment because obviously renewables is in the vogue at the moment. We think we get a better return from our own capabilities going in very early in the piece into a development with a developer and then taking it over and developing it. Susana, perhaps give a bit of color of how, because we look at a lot of these options all the time at the ExCom.
Definitely. I think as Andy said, we may do selective M&A opportunities, but it will be very rarely. We still believe with the growth that is in the market, there is a lot of opportunities for greenfield or maybe early-stage development. It doesn't have to be pure greenfield. Just for example, you know that we acquired 2 GW from the ACS Group last year. On top of that, we have added another 900 to the portfolio, and that adds to the 3.8 that you saw. Only this week, we have closed. Already we have executed some contracts for another close to 200 MW, not exactly 200 MW, and we expect to close another 500 MW in the next month or two.
On top of that, we have a pipeline of at least 2 GW of projects that we are looking at outside Iberia. We feel very confident about being able to develop our pipeline through greenfield or mostly, as I mentioned, early development projects. Maybe in some markets, we may choose some M&A opportunities, but we are more cherry-picking good projects than just trying to make massive acquisitions for the future. We feel confident with the team we have and the capabilities we have and the ones we are building. I would say at this point, at the end of the year, we will be ahead of our targets.
Yeah, I think Susana is very much keen to go even faster than we're revealing today in the Capital Markets Roadshow. Look, I have to say, never say never. We will continue to screen opportunities for inorganic acquisitions as well. It's not part of our core base plan in the short term anyway.
Okay. I will take the chance to read one of the questions made into the platform. It's basically related with Bacalhau North. The question is actually asking, when should we take FID on Bacalhau North? How do you think about the possibilities to monetize the associated gas in there? Any production from it included in the 25% production growth by 2025? Should we clarify?
I think, sorry, is Bacalhau North in our plans? Is it going to be producing gas or not? What can we say?
Good question. It is not in our plan. We have not included any contribution of Bacalhau North by 2025. How we're going to handle the gas in the second phase is still to be discussed. As you know, in the first phase, all the gas of Bacalhau is being reinjected into the reservoir. As part of the phase II plan that we're now going to go through, we will also then decide what would be then the optimal development concept for Bacalhau North. Nothing included now. That's an upside for the period beyond 2025.
Good. Thank you. We'll come back to the video questions. We have now Alejandro Dem ichelis from Nau Securities . Alejandro?
Good afternoon, thank you very much for the presentation. Two questions, if I may. If I start as a follow-up on renewables, please. I think Andy Brown mentioned the importance of having an integration between the commercial and the power generation part. The question is, as you go abroad, can you see a situation where you start internationalizing the commercial business, so you can extract even higher returns for that business? The second question, moving on the upstream and cash flows. Brazil is due to auction some of the pre-salt fields again, later this year. How should we think about your position in those fields and those auctions, please?
Okay. Thank you, Alejandro. Firstly, renewables integration down the value chain in overseas locations. Saying that we're going to build a commercial position, I think will be a bit of a stretch. Saying that we will have energy management capabilities to place the renewable energy, for value and to understand how we can bundle our offerings to customers is something that we will look at. As I said, we're also looking at quite a heavy weight to long-term PPAs in some of our overseas businesses. As we get more confidence in that market, we may evolve that strategy. The first plan is for long-term PPAs. We're going to have, as I talked about, reinforcing our energy management capabilities in Galp doesn't just mean in Iberia, it means internationally. That will open up opportunities. Let's go to the transfer of rights.
As you might imagine, we have now seen transfer of rights, Atapu, Sépia, we're in them. We have some unique experience on Sépia also. Are we interested? Well, I'm going to come back to Thore and say, "Well, Thore, are you interested? You've got a net CapEx you have to stay within." Tell us, what do we think about this ToR bid round? Are we interested? Are you going to have enough money to do anything there or not?
The money, that depends on you, actually. No, kidding aside, Brazil is a really key company for us. We are continuously examining all business opportunities. If we see that we can find something that is really is value-creating, it's adding value to that already very competitive portfolio we have with a development breakeven now at $25 per barrel at NPV10. Yes, certainly we will then present it. We have also then taken on the big challenge that Andy has given us, namely, that we need to keep within a CapEx framework we have, i.e., we have to find also ways for how we can finance it then. We are doing both. We are, on the one hand, really looking into it. There is more information to come from Brazil by June with respect to the details.
We will also look into how can we finance that in a smart and creative way. Thanks.
I think, with the ToR round, we're seeing some of the bonus numbers significantly down from the last round, which obviously gets people like Thore quite excited. He also knows the rules of this game on capital discipline. We'll have to see if we can make anything work there.
Great. We are getting close to the end, not before we go to Edinburgh and Jason Kenney from Santander. Jason, good to see you. I hope next time you also have a Portuguese flag behind you.
Yeah. Good afternoon, everyone, thanks for the refreshing outlook and the re-energized strategy. I really like it. Going back to the upstream, the new development sanction 2021 to 2025, NPV EUR 25 a barrel. You highlighted Bacalhau as a most attractive project with an NPV EUR 35 a barrel. I'm just wondering if you could remind us of the range of breakevens for some of the other projects that you are sanctioning in 2021 to 2025 to give us the average of EUR 25. I realize that there's a number of smaller projects within assets you're already developing. If you could just go over some of that'd be great. Secondly, on green hydrogen. Is there a specific or formal role for Galp in the MoU between Portugal and the Netherlands to supply green hydrogen by 2025, I think it is.
How much of the conversion of Sines will need EU grant funding, and what kind of level of funding would you see by 2025 or 2030 for that support of that project? Thanks.
Thank you, Jason. Let's address this below EUR 35. I think we said well below EUR 35 for Bacalhau. What else are we doing? Well, we're doing a lot of infill drilling, which is pretty low breakeven price. I told you I might say some things, but it's a combination of where we think Bacalhau sits, where we have the other opportunities we have, in particularly these very attractive infill opportunities in places like Tupi. We'll give a blended that is in around EUR 25. Anything more to add to that, Thore?
The only thing that I will add is that also factor in Sépia into that equation, which is a very attractive field that will come in production in the third quarter of this year. That is the add-on. I think we just underline what Andy said, namely well below EUR 35. I'll leave it by that.
You're going to get into trouble, Thore. All right. Green hydrogen. Yeah, indeed. I think I can formally say that we're actually stepping out of H2Sines, of the consortium that was planning to deliver this liquefied hydrogen to the Netherlands. We did that a little bit because we want to actually go fast. We want to crack on. The main customer for green hydrogen isn't the Netherlands. It's Sines. It's our own gray hydrogen position. That needed for us to be our focus, is to start moving on that. It doesn't mean to say that as we get into this, as part of the Portuguese national plan, there is a plan to build up hydrogen. As I say, we've got the low-cost renewable energy. We believe with skilled workforce here, competitive workforce, we can build relatively cost-effectively.
The third thing is this whole incentives and how many of the EU funds do we need and which ones. This is obviously something it's too early for us to pick where and how. There is a combination of attracting some of the funds that the EU is offering this area, but also the regulation around how hydrogen and hydrogen fuels are treated in the market. All I can say is that the will of the government, the will of Galp to actually move fast, I think is going to come and give a good conclusion here. I think the H2Sines consortium is going to continue to explore the opportunity of making the hydrogen for the Netherlands. Our focus is going to be firstly on what we need.
Secondly, on further industrialization of Sines itself with e-fuels, with hydrogen into the gas grid, with hydrogen sold to heavy-duty transport and perhaps ammonia. These other products, I think for us, are more obvious and immediate and we believe economic. That should be where Galp is focusing today. We come to the end of the Q&A. Is that the end of the Q&A? It is. Well, look, can I just say to all of you, thank you for your patience. It's been a long presentation and a long Q&A. I hope you can appreciate that we believe Galp has a very distinctive investment case. An investment case of growth. Of growth in renewables, of growth in upstream. We hope you also understand that we believe we're decarbonizing, and we've given you some of the metrics, faster than some of our peers.
We are going to keep financial discipline. I hope you got that message in terms of our capital discipline, in terms of our balance sheet, in terms of being able, therefore, to distribute competitively and to offer the shareholders the upsides when the macro allows. I think it's an exciting plan. The team here is also excited to deliver that. I've just got one message to you. Let's regenerate the future together. Thank you.