Thank you for holding. Welcome to ENGIE's half year 2023 results presentation. For information, this call is being recorded. It will take place in a listen-only mode, and you will have the opportunity to ask questions after the presentation by pressing star and one on your telephone. I will now hand you over to Delphine Deshayes, Head of Investor Relations.
Thank you. Good morning, everyone. We are pleased to welcome you to our H1 conference call. Shortly, Catherine and Pierre-François will walk you through our first half results, and then we will open the lines for Q&A. With my usual polite request, if you could please limit your questions to one or two only. With that, over to Catherine.
Thank you, Delphine, good morning, everyone. I am very pleased to announce a very strong set of results for the first half of 2023, with some major breakthroughs and achievements. First, our earnings performance is up substantially on what was already a strong first half last year, which demonstrates the benefits of our integrated model, indeed, that we can capture fluctuating market conditions. Second, we continue to focus on delivery of the strategic plan that we set out in February this year. Third, we achieved a fundamental de-risking of our exposure to nuclear, consequently, a de-risking of the group as a whole. This happened when we concluded a framework agreement with the Belgium government just a few days ago, following on from the interim agreement of late June. Moving to the next slide. We have made further headway on our main ESG targets.
Greenhouse gas emissions from energy production in the first half were 26 million tons, below 30 million of last year. We expect to accelerate in the rest of this year. In Brazil, which is one of the four countries which we are targeting to be net zero for 2030, we sold our Pampas Sul coal plant in June. We are now a purely renewable-based electricity generator in this country. This disposal also means that our coal capacity globally is now just 2.1 GW, which is slightly above 2% of our total capacity, and down by more than a quarter since the end of 2021. This means that we are well on track for a full exit by 2027.
We have made strong operational progress across our global business units in the first half. In renewables, I will go on renewables a bit more details in the next slide. In networks, we boosted our grid activity in Brazil, as we won a 30-year, 1,000 km power transmission concession. This is our third such regulated project there, and it adds to the 2,700 km that we have been awarded since 2017. We consider this to be a key and value-creative business within a framework of robust regulation, which complements our renewables generation in the country. In France, it is worth mentioning the report from the CRE, the energy regulator, in April, confirming the need for resilient transport and distribution gas networks by 2050.
Just this morning, the CRE communicated a preliminary proposal of a 2.9%-4.2% return on RAB, pre-tax real, for gas transport networks and storage in the upcoming regulatory period starting April next year. This is part of a public consultation. As you know, the remuneration of the RAB is an important criteria, but it is also part of a broader set of parameters, such as level of investments and inflation. We are in constructive, ongoing engagement with the CRE, expecting that the final outcome will be in line with our guidance. Moving on to our Flex Gen and retail business unit. We recently commissioned our biggest battery facility at Hazelwood in Australia, of which more in a moment. In retail, regulated gas tariffs in France ended in June.
A smooth transition indeed, as we were able to transfer around 2 million customers who had not opted out of regulated tariffs to the switchover tariff, also known as l'offre passerelle. Finally, in our energy solutions business unit, we continue to win business on very supportive markets, including multiple district heating and on-site energy production contracts, such as in Cannes, a 25-year district heating and cooling concession. In Barcelona, a biomass plant. Also contracts to support the decarbonization efforts of customers such as Arkema in France and Le Grand in Italy. In June, we launched our electric charging brand, ENGIE Vianeo. Already rolled out to an initial 1,000 points in France with a target of 12,000 in 2025. Moving on to the next slide. You will already know that we met these major milestones that we announced in Belgian nuclear in June.
I won't repeat the main elements, just a couple of updates. First, that we moved forward from the interim agreement, which was signed in June with the government, to a framework agreement that was signed last week. Things are therefore moving forward as planned, towards the signing of the transaction later this year. Second, that the aim will be a restart of output from November 2025, and a flexible long-term arrangement that we named Flex LTO. This arrangement still for 10 years of additional production to be sold according to a CFD mechanism that we described to you earlier. Third, the impact on our 2023 reported earnings and economic debt has been favorably fine-tuned since June, and Pierre-François will go into more details on this. Important to stress, there is negligible impact on our net recurring income for this year and on our medium-term guidance.
I repeat, this eliminates a, and perhaps the major source of long-standing uncertainty for the group. It also substantially de-risks our company. Turning briefly to our very positive first half financial performance, EBIT, excluding nuclear, grew 53% organically to EUR 6.7 billion, leading to a significantly higher recurring net income group share of EUR 4 billion. This was driven by a higher contribution from most of our activities, with particularly substantial increases from GEMS and renewables. Robust financial performance indeed, that demonstrates the strength of our integrated model. Cash flow from operation also very strongly up and our balance sheet remains solid. I can reaffirm our full year guidance, which you'll recall, we raised just a few weeks ago, and Pierre-François will obviously go through more details for these results.
In renewables, we raised a capacity to 38.2 GW over the first six months. Our construction schedule guarantees a strong second semester. We accelerated our capacity under construction with about 6.6 GW and has more than doubled over the last year. It's not a surprise, given the project that we won in recent years, and also the construction schedule. Still it is a pretty striking increase. We started several flagship projects such as Gulf of Suez 2 in Egypt, Lomas de Taltal in Chile, in onshore winds. In offshore, we started work on Moray West in Scotland, on Île d'Yeu, Noirmoutier and Dieppe Le Tréport in France. These three with combined capacity of 1.9 GW, which are due on stream in 2025 and 2026. Ocean Winds raised its stake in Principle Power to over 36%.
PPI is a market leader in floating offshore platform technology and manufacture, and I'm really excited about the future of our collaboration as floating turbines raise their profile within the wider growth of offshore winds. We acquired BTE in South Africa, which more than doubles our local renewables capacity on a fast-developing market that we know very well. Also there in South Africa, we raised our stake in the Kathu Solar Farm, which takes us to a majority position. As I said earlier, I am very confident in our annual installed capacity target of 4 GW on average to 2025, and 6 GW to 2030. This ambition is fueled by a growing pipeline, which has continued to rise now to 85 GW from 80 GW at the end of last year.
Just a few words on wind turbines, since you're doubtless aware that there is a lot of attention on technical problems that have been experienced by Siemens Gamesa on its 4. X and 5. X onshore wind turbine platforms. We have two projects in Latin America that use the turbines in question. We have encountered technical issues at one of them. Remediation works are in progress, while Siemens Gamesa is obviously finalizing its root cause analysis. In our other LatAm project, where we are using the same turbines in Santo Agostinho in Brazil, we have had an isolated event which at this stage seems to be unrelated to these current wider issues. You can be assured that we are closely monitoring developments, and more generally, we have decided to undergo a full operational review of all of our sensitive sites.
Let me now end with two slides illustrating our strategy in battery energy storage systems, also known as BESS. We have an ambitious 10 GW target for BESS capacity by 2030. Where are we today? At the end of the first half, we had nearly 200 MW in operation, 740 MW under construction. We are obviously at an early stage, but we are accelerating towards some degree of scale, and you will be seeing BESS profile growing fast. A focus right now on the U.S., followed by Chile and Australia. Why do we have such an ambition, and why are we so optimistic of being successful at ENGIE on BESS? Several reasons. First of all, a s a product, BESS offers large-scale electricity storage and is a great complement to existing flexible sources of pump storage and CCGTs.
In our 2050 projection, we estimate that 600 GW of additional flexible generation capacity, in other words, a quadrupling, needs to be developed in Europe in order to optimize the growth of renewables. We believe that BESS will dominate this. In fact, we estimate that we need about 150 MW of BESS in order to get the most out of every gigawatt of additional renewables capacity. As for our strength in BESS at ENGIE, we are already a leading provider of flexible generation through our fleet of CCGTs, pump storage and BESS now, all together around 59 GW of capacity. We will drive growth of both, of BESS, both standalone and also co-located with our expanding renewable and Flex Gen capacity. That will add optionality for solar, in particular, by cutting the risk of curtailment.
The value creation potential of BESS is substantial and will be bolstered thanks to GEMS. GEMS will optimize BESS output, when to store, when to sell onto the grid, and will be able to extract the maximum value as it expands for the benefit of the group and for our customers. I'm convinced that we can grow this business not just rapidly, but in such a way that we will create value for the group. A BESS example that makes us particularly proud at ENGIE is the transformation of Hazelwood, which was in Australia, a coal power plant. This transformation into one of its largest battery storage facilities, and for ENGIE, it's our largest so far.
We closed these Hazelwood units in 2017. We started this program to completely rehabilitate the site. This rehabilitation has included the construction of this 150 MW standalone big battery that we just commissioned. Obviously, it will store electricity during off-peak times, deliver it back onto the grid when demand is at its highest. The battery will also help stabilize supply by helping to control the frequency at which it is delivered. For us, Hazelwood is a major milestone that perfectly illustrate the transition made by our group. It also contributes to the goal that I mentioned, to develop 10 GW of batteries by 2030. With that, turning now to Pierre-François, who will discuss our first half financial results. On to you.
Thank you very much, Catherine, and good morning to all. Indeed, a good set of results for this half year, as expected, and maybe even a bit better than expected, with also a very high level of cash flows as working cap has started to untie. Please note that the main impacts of the framework agreement signed with the Belgian government are booked in our H1 accounts, leading to a one-off hit in the net income and economic net debt. All this, of course, is leading us to confirm the guidance we just upgraded end of June. Let's go a bit deeper in the numbers. First, with EBIT, which, excluding nuclear, which is up 53% organically.
In a nutshell, except for the decrease of the contribution of networks, mainly due to low winter volumes and of energy solutions, only due to a one-off expense in the US, all businesses are doing good, or even I should say, very good, like renewables, not mentioning GEMS. Let's go and deep a bit deeper. Renewables first. Strong increase in EBIT contribution, EUR +63 million, that is + 43% organic growth. The key drivers behind the strong operational and financial performance is a positive price effect, mainly in France and Portugal in Hydro. You remember that we had buyback, which cost us more than EUR 100 million last year in H1. A positive volume effect, same geographies. The contribution of commissioning, of growth, for EUR 90 million. Performance was limited and due mainly to G&A, which reflect a higher inflation.
That's a general comment, I will come back to it at a later stage. Then the others contribution, positive, thanks to some one-off in France and in Brazil, despite the absence of DBSO margin over the period, that keep coming down. This is in line, as you know, with our strategy to keep more assets on the balance sheet, and our sell down today are capped to 49%, therefore, without EBIT impact. For H2, please note that the price effect, including the impact of the higher tax rate on CNR, will turn negative. We do not expect further tailwind on volumes, and we will not get the benefit of sell down comparable to last year. Continued support from commissioning, from performance plan, are not expected to overcome these headwinds for H2. A very good start of the year.
On networks, lower contribution, EUR -116 million, that is 8% down organically. The key driver of that decrease is, of course, the lower volumes, especially in distribution in France, as a result of another mild winter and energy sobriety. We had also to cope, still in France, with increasing staff costs and higher energy costs, as well as the impact of strikes on LNG terminals. Our business abroad, including in Americas, has been performing well. In Europe, we have benefited from additional revenues from capacity subscribed for gas transit between France and Germany, as well as higher margins for storage activities in the U.K. and in Germany, where this non-regulated asset can monetize the market volatility. On energy solutions, it's a steep decrease, EUR -99 million. As you can see on the graph on the left side, we have two very different stories.
I will start by the bad one, which is in the U.S., where we have two different contracts for which we are facing cost overruns for plants construction, I mean, CHP plants construction, combined heat and power production. This cost overruns that will materialize in H2 this year and also in 2024, result first and utmost from poor performance of the EPC contractors. We are quite disappointed, as we are used to handle this kind of project work successfully in the rest of our geographies. We have taken immediate action and implemented specific, strong managerial focus. First, to finalize construction works in a new budget, timeline, also with strong quality control. Second, to realize any opportunity to reduce the cost, including through contractual discussions with suppliers, partners, and customers.
Accordingly, we have booked a provision for onerous contract of EUR 150 million in EBIT, and we are confident our risk is now covered. We are also strengthening our project management capabilities in the U.S. for energy solutions to make sure we have no further surprises. Aside from this industrial step back, energy solution is doing quite well across the board, in line with the plan. +22% EBIT organic increase, +78 basis points on EBIT margin, excluding the U.S., strong operational performance, good commercial development. This lead us to be quite confident for the upcoming second half. Flex Gen, EBIT contribution is up EUR 102 million, that's +16% organic growth. To a large extent, same drivers than in Q1. In Chile, the situation keeps improving, thanks to the normalization of market condition and reduction of our short position.
In Europe, our locked position from the past hedging have enabled us to capture higher spreads, offset by a lower level of ancillaries from a record high in 2022. Finally, the year-on-year variation benefits from the negative impact in 2022 of the extraordinary tax in Italy. That was about EUR 130 million. Overall, very pleased with H1. For H2, despite active hedging activity since the beginning of the year, only 60% is hedged at the end of June for the balance of year. We still have significant open position, while average spots, clean spark spread in Europe are decreasing. Of course, unexpected events can suddenly boost or depress prices, it's fair to say there is a fair degree of uncertainty over where we will end up. On retail, the EBIT amounted to EUR 489 million, that is 17% organic growth.
This EBIT increase was mainly driven by price effects due to higher margins in France, including phasing effect and in Romania, as well as a new profit-sharing mechanism on portfolio optimization that was put in place between GEMS and Retail. This was largely offset by a negative volume effect, mainly due to a mild winter and lower consumption. Last but not least, other, and here, of course, I mean mainly GEMS. GEMS has been posting a very strong contribution, EUR +2.1 billion improvement, with each and every arrow pointing in the right direction. That's a long list. Firstly, first half results of last year at GEMS were negatively impacted by substantial costs and provisions to cover the risk from suspension of Gazprom contract. This was not repeated.
Second, GEMS has achieved a persistent, strong performance in energy management activities in Europe, taking advantage of a combination of key market drivers. These drivers, they are well down on the extreme levels we saw last year, but they are still favorable. Volatility indicators, which are our bread and butter, are still on average, around quadruple the levels of 2021, and prices are still high on an historical basis, especially year ahead, when they include a significant risk premium. Third, as the market was somewhat less tight than last year, this led to a continuous reversal of market technical reserves that we had booked in 2022, which has offset the decline of some of these market drivers. Four, in the B2B segment, we see continued flight to quality.
This has meant slightly less intense competitive pressures compared to pre-crisis, which have enabled full valuation of the cost of risks. Five, some contracts include winter, summer seasonality, and H1 is benefiting from some timing effect, about EUR 200 million that will reverse in H2. Finally, for part of the business, with some contracts' duration, there was a continued positive effect of deals signed in 2022 at good conditions, which materialize at delivery date. First half, EBIT for GEMS was clearly ahead of expectations, but please don't get carried away and don't expect the second half to be anything like H1. Prices, and in particular, volatility in H2 last year, were at their peak, and there is no significant negative gas farm effect in second half to depress the base of comparison for 2023.
Second, the potential for further release of market reserves is now far more limited, as normalization of market conditions is not expected to go much further. Third, the timing effect I mentioned earlier will indeed be negative in H2. Last, there will be a steady slowdown in delivery of high margins volume negotiated last year, but booked at time of physical delivery. All in all, you should expect a significant year-on-year decrease in EBIT for GEMS in H2. To remind you of what I said back in February, and again in May, the long-term expectation is that GEMS should deliver a hardcore EBIT of around EUR 1 billion, with potential upside coming on top of this in supportive market conditions as demonstrated. On nuke, we have a strong decrease of the contribution, EUR -0.6 billion, same drivers than in Q1.
Positive effect of higher capture prices over the period, almost fully offset by the inframarginal rent cap and the specific nuclear tax. That was their purpose. The volumes are positive, with higher availability in Belgium and also drawing rights in France. You can see on the other side, the comprehensive negative impact of the closure of the two reactors, Doel 3 and Tihange 2, for a total of EUR 621 million. Last, higher D&A as a result of the 2022 triennial review of the provisions. This D&A impact, now that we were notified of the final decision of the CPN, is slightly lower than initially planned, as part of the value of this dismantling asset has been revised downwards. This is a good transition to turn to the next slide, to explain the impact on H1 of the framework agreement that was signed with Belgian government.
As I described in our call on the June 29th, we have agreed a fixed amount of liabilities for waste of EUR 15 billion, this sum will be transferred to the Belgian State in two stages. I stress that the EUR 15 billion amount is fixed, albeit indexed up to payment, so no more uncertainty going forward related to the three-year CPN reviews of future cost of waste management. Following the two-stage transfer, we will have no nuclear waste management liabilities left on our balance sheet. The graph on the left shows the different steps that take Belgian nuclear liabilities from EUR 19 billion- EUR 23 billion. This view is a kind of a pro forma to help you to understand the transaction with a position at year-end 2022, for Belgium only.
In the past months, we have made with ONDRAF, a very deep and precise job to define and classify all categories of waste, to define what type of expenses would stay with ENGIE and what would be transferred. This led us to a recategorization of liabilities, as you can see in the first two bars. From the EUR 19 billion to the EUR 19 billion, a EUR 5.1 billion increase in liabilities corresponding to a prudent scenario, could even say a very prudent scenario, have been agreed with the Belgian government, minored by our partner share in the increase, which is EUR 0.5 billion, EUR 0.4 billion. On a parallel track, as part of the 2022 revision process, CPN has agreed to revise downward provisions for ENGIE liabilities by EUR 0.6 billion.
The total impact is a net increase of our nuclear liabilities due to the transaction of EUR 4.1 billion, reflected in the variation of the economic net debt. We expect the funding to come in H1 2024 and in H2 2025, at the time of the restart of LTO. The overall non-recurring P&L impact at the end of June amounts to a EUR -4.4 billion, based on the exact same reasoning with two nuances. The EUR 5.1 billion increase has now risen to EUR 5.2 billion, because of the H1 indexation. The decrease in provision has a positive effect of only EUR 0.4 billion, as when we booked end of 2022 the provision increase, we also recognized the dismantling asset, and not all of it was impaired then.
The provision decrease triggers a derecognition of EUR 0.2 billion of dismantling assets, which we will not have, of course, to amortize in 2023-2025, as mentioned briefly when we reviewed the nuke H1 performance. Performance plan, you will recall that by the end of last year, we reached over EUR 500 million on our 2021-2023 target. We were ahead of schedule, leaving something close to 100 to achieve the full target this year. In the first half of 2023, we are again strong on the operational side. Clearly, our more industrial-focused approach that we introduced in 2021 with the GBU has continued to unlock efficiency opportunities. On the other hand, we must offset the stronger inflationary pressure on G&A. We take into account, as you know, the growth variation.
Given our growth and given the inflation, it requires significant efforts of productivity to bend the curve down. You may agree it's quite ambitious, even demanding, given that we have demonstrated our ability to pass inflation to customers. On loss-making entities, EVBox, while progressing well in delivery and operation, is still behind on its plan to grow sales in a market which is less buoyant. On the good news, should mention that we have completed our restructuring plan in our H2 on July 1st. I'm very confident that next February, we will be able to show you a 2021- 2023 performance plan that is reaching the target. Let's have a quick look now on the net income. Depreciation is up, mainly coming from nuclear on the residual dismantling asset that I mentioned before.
Net financial expenses are up year-over-year, as expected, this is due to higher cost of net debt. Income tax is sharply up on a combination of higher pre-tax earnings and a normalization of the tax rate to 25.1%, in line with the decrease of our nuclear EBIT in Belgium. Minorities are up 47% in line with the growth of results. Taking all this, the net recurring income increased by almost 25% to EUR 4 billion. Reported net income is actually a loss of EUR 0.8 billion. The major factor here being the EUR 4.4 billion negative exceptional result coming from the Belgian nuclear agreement that we flagged back in June. Let's move to cash.
Great to see that the CFFO is up EUR 2.7 billion- EUR 9.5 billion, good to see for the first half of 2023, the working cap requirement variation is a positive EUR 1.4 billion, which is an improvement of EUR 0.8 compared to last year, variation of a variation. There are a few key items you need to look at. As expected, there was a very positive EUR 4 billion impact from gas storage activities, with a more favorable volume trend, +7 TW hour, a more favorable price environment in withdrawal period, January, April, and injection period, May, June. The net receivables have deteriorated by EUR 1.1 billion, as we are still observing the effects of contracts initiated in H2 with high prices.
You see the supply tariff shields payments from government is now flowing in big time. There was a much lower contribution of margin calls this first half compared to last year, which was very high, but you remember also last year that it was reversed massively in H2. Well on track to see the drag of working cap and cash flow smoothing out. Therefore, our balance sheet remains quite strong after taking in account the transaction in Belgium. Financial debt was slightly down at EUR 23 billion. CapEx set at EUR 3.3 billion, include EUR 2.3 billion of gross investment. You should expect this to be much higher in H2. The nuclear phase out outflow is up on the CPN provision calculation, and dividend outlay, of course, is up as well due to the sharp rise in 2022 dividend per share.
Economic net debt was up by 7% to EUR 41.4 billion. The reason being the EUR 4.1 billion recognition of our nuclear waste commitments under the new agreement. Given the 21% rise in our LTM EBITDA, we in fact manage a slight reduction in net economic net debt to EBITDA over the first half, from 2.8 to 2.7, while taking in account the Belgian transaction. Of course, we do not expect to keep such a low ratio in the future, but we maintain our objective of a strong investment credit rating. With that, we of course, confirm the guidance we recently upgraded, meaning that we expect our 2023 net recurring income to be in the range of EUR 4.7 billion-EUR 5.3 billion, with an EBIT excluding nuke in the indicative range of EUR 8.5 billion-EUR 9.5 billion.
As explained before, some timing effects, especially with GEMS, are embedded in this performance, and we also expect price tailwinds from which we benefited in H1 to decrease over the second half of the year. Please keep in mind that we are more open than usual on our outright productions. Volumes are 89% hedged for the balance of year versus 92% last year or even 96% in 2021. Also, same for our CCGTs in Europe, where we have on average, close to a third less locked position for the rest of the year than what we had in H2-- in H1 2022. With that, I hand over back to Catherine for conclusion.
Thank you, Pierre-François. Just to wrap up, we are progressing rapidly at ENGIE indeed. We are achieving strong financial results, we're making our energy output cleaner and more flexible, and we are de-risking. Our focus is based on a conviction that we have the right strategic positioning for the energy transition. It fits with our 2050 vision for Europe, which concludes that gas will remain highly relevant as it decarbonizes, and that flexibility, battery storage, pump storage, CCGTs, have a crucial role to play in the context of rising power demand and booming renewables. With that, turning to the questions. Thank you.
Thank you. As a reminder, please press star and one to register for a question. To remove your question, you may press star and two. We ask you to please use the receiver while asking questions. The first question comes from Ajay Patel of Goldman Sachs.
Good morning, thank you very much for the presentation. I've got one question, please. It's more about the guidance and today's performance. I start to look at the performance over the first half, and I think, Well, okay, second half of the year to come, even if I was to assume zero for others, so very, very little GEMS performance, and a repeat of last year's second half, I would get a situation where the numbers on EBIT would be higher than your guidance range. I was thinking, well, the second half also had the inframarginal rents. It had a weak performance from supply. It makes me wonder, how conservative is the guidance on, say, the EBIT basis?
Can you give me maybe a laundry list of where you would have sizable headwinds in the second half of the year that we need to think about, and not, to help us sort of, calibrate where maybe the full year numbers could be?
Well, it's an obviously very, very good point. Your key question is when you look at the guidance and when you look at H1, we are in H2, which is going backward versus 2022 to a significant implicit amount. Let me take you through the key items. There is, as you know, always seasonality in our profit, so you cannot compare H1 to H2, and that's not what you are doing, obviously. Now, if we take a step back, it's clear that all GBUs, which have only residual exposure to commodity prices, are expected year-on-year and H2 to be up. I mean networks, I mean energy solution, which is doing well in H1, except for the U.S., and in retail also, we expect them to go up.
Now, we have three GBUs that we expect to go backward. The first one is renewables. I mentioned very clearly the price effect, and we expect in H2, the price effect, net of tax and net of the CNR tax, to be stalling and to be actually going negative in France. We expect also some negative prices because we had some merchant position last year that we benefit from in Europe. There is definitely a, a, a drag on prices that we expect to see in H2, which is somewhat significant. We also expect to have no DBSO contribution in H2. We had about EUR 50 million last year. It's not going to come through exactly for the same reason than H1.
We had also, we, we had also some positive one-offs that we don't expect to repeat in H2 this year, and that explains why our GBU, despite good contribution of commissioning, despite positive contribution of performance, we expect still renewables to be down compared to an H2 last year, which was pretty good. That's the first one. Second one is Flex Gen. Indeed, of course, in Flex Gen, we have open position. I've been very open, so a key assumption underlying our, our, expectation in H2 is, of course, the clean spark spread that we will achieve in Europe and the use of ancillaries. Again, only 60% at the end of June of the balance of year is locked, where last year we were more, and the years before, more 75%-80%. It's definitely lower.
The reason being that the market is still illiquid, so we are struggling to find the right hedging and also to fully value the time value, the optionalities which are in our, in our CCGTs. That's the key point, and indeed, we are, we are planning that we would go down compared to last year. Last year, which I remind you, was exceptional in 2022, with disrupted markets, with very high spreads, very strong ancillaries, and of course, not repeatable. You may remember when we discussed the, the, the guidance in February, that some of you were a bit nervous about our ambition in, in Flex Gen. We are extremely pleased by the H1, which is very good, supported by the recovery of Chile, supported by the, the, the, also the good market conditions we finally were able to secure.
This is not repeatable, and we do expect Flex Gen to come down in H2. That's not a big surprise. Then you have GEMS, indeed, which we plan to go down, maybe not to zero, but you should expect a significant decrease. I'm not going to elaborate much further, but we have definitely the, the spillover effect of the 2022 contracts, which start fading away. We can see also the first signs of competition being more intense in June, and we, we are expecting it. Actually, we're expecting a bit earlier, but it's coming. Also, we have now a limited anticipation of further market reserves release. That is going to explain this GEMS indeed, being, going backward.
That's the key points, for H2, and I hope it gives you some sense why we, why we are a bit cautious about H2. You can see for the three, that I mentioned, it's very, very much price and market driven.
Thank you. I just want to follow up, just to make sure, right? Offsets to those points, though, are that there should not be info marginal costs in the second half of the year, and also that supply was weak in the second half of the year, which you're not expecting to be as weak. Is that fair, or should we be expecting those headwinds?
No. No, both assumptions are fair.
Okay, fine. Thank you very much. Very clear.
The next question is from Michael Harleaux of Société Générale
Hello, good morning. Thank you for the presentation, thank you for taking questions. Just one. We've seen some news flow in France about the plans of the government to tax toll roads operators. The next day that this plan was announced, we had declarations by Bruno Le Maire saying that in order to be compatible with EU law, we will need to tax hydroelectric concessions as well. Then, we've seen very little news from that point. If you could, if you could tell us what you think about the budget law of 2024 and what it might look like for ENGIE, that would be very helpful. Thank you.
Just not, not much new news here. You know, there is a, a very good, well-working hydro tax. on, on, on the existing, so we don't expect, you know, major changes on, on, on those existing scheme which have, which have worked very, very, effectively. No, no comment on this, Michael.
Thank you. That's very useful. Thank you.
Are you ready for the next question, madam? The next question is from James Brand of Deutsche Bank.
Good morning. Well done for the good results. Just had two, two questions. Firstly, at the Q1 results for GEMS, you said you expected the business to normalize over time to the EUR 1 billion or so in a medium-term guidance that you have. The impression, I believe you, you gave, or at least the one that I took, was that that could take, you know, quite a while to happen. It wasn't necessarily something that's gonna be happening in a few quarters. Maybe it was more like a few years. Just wanted to ask, is that still your kind of broad view? Obviously, markets have normalized a little bit more, since the Q1s. Wondering whether that's changed at all.
Secondly, on batteries, you kind of highlighted what you're doing at Hazelwood. Do you think, are we at the point for Europe where batteries are becoming economic without capacity payments? Do you think that capacity markets and capacity payments are needed still to justify the economics of investing in new standalone batteries? Thank you.
Yeah, thank you very much. Let me pick up the first one. I'm sure Catherine will elaborate on the batteries business model. On the first one, yes, of course, we do expect normalization of the earnings of GEMS, but as you can see, it's taking a bit more time than expected. Definitely, we have some speed that has been unboarded. Where is it coming from? We have these 2022 deals which are not e-exhausted. I mentioned that in the B2B business, 2023 is still coming nicely in terms of margins. It means that we are still signing deals which are, let's say, above average margin, that will help us, of course, in the future.
Second key item is, of course, to keep an eye on the prices and keep an eye on volatility. Here, I mean, especially intraday volatility, which is the key, the key one. Clearly, you know, even if the markets have normalized, we are still at a level which is higher than what it was couple of years ago. Is it going to go further? Is it going to smooth out? Difficult to say, but there is some, some, some, some way to think that it can, it can stay at a, at a good level for still a bit. Clearly, we expect to be higher than the EUR 1 billion hardcore for the quarters to come. That's for sure, including 2024.
That was already the case, in February. It's even more the case, today.
Maybe on, on the battery, a few comments, because, It's fair to say that in Europe, you know, there is a quite a bit of expectation that the CRM, so the capacity remuneration mechanism, is going to be needed for a widespread development of batteries. I think this remains true, although what we're seeing is punctually some very interesting cases, particularly co-located with renewables. When you start to see, in Europe, some very negative price from solar, and obviously, battery has an immediate application, and value can be extracted even though you don't have a CRM. I would say wide deployment of batteries, is, you know, to support that, we need a bit of a CRM scheme to be integrated into the new market design, which is what we have been calling for quite a bit.
Thank you very much.
The next question is from Vincent Ayral of JP Morgan.
Yes, good morning, Vincent here. I'll, I'll come back on the, on the first question. Clearly, I mean, on your net income level guidance, you're already at 81%, at H1. I can understand that you are near, H2 will be lower in, in the Flex G en, it'll be lower in renewables, and potentially lower in GEMS. Absolutely. I don't see any of these, being loss-making or anything like that. How do you plan to print on the 20% of additional net income, to the end of the year, to reach your guidance midpoint at net income level? If there is anything, we don't know, below, below the bid line, or, actually, do you have quite some margin to deliver, if I may phrase it this way?
The, the second question is regarding the Belgium nuclear deal. Congratulations again. I mean, that was a very important step for ENGIE. I saw on the Belgium press last Friday, they were talking about the government, which would ultimately sign the agreement finally. I haven't seen any update on that, so has it been done? So is this really fully settled, or are there still any potential material moving parts we should be aware of on that front? It's all a very, very good deal, but it's important to be sure that it's all been cast in stone. Thank you very much.
Yes, Vincent. So in terms of where we are on the Belgium deal, obviously, we've been clear all along that we were signing a number of agreements.... in anticipation to signing transaction documents, and we said Q4 2023. We are completely on track for that. Followed, you know, we, we signed the intermediate agreement in June, which allowed us, by the way, to recognize the financial impact of the deal onto our, our results, including balance sheet, as you know. It's, you know, in our mind, it is, it is indeed, an agreement that is very, very solid. However, we've always said, you know, that transaction document will be signed in Q4, and then the transaction itself will be closed sometime next year.
Remember, there is also legislative work that needs to happen because the law needs to be changed, and that is obviously going to be taking some time. Since the agreement at the end of June, we signed a framework agreement which precises a number of items in line with what was signed in June, just to show you that indeed we are progressing. We've ordered the fuel, so the, the project is, is well underway, but the transaction will be signed only in Q4. Pierre-François, you want to?
Yeah, Vincent, thanks for pushing, pushing a bit. Yes, I, I can only repeat what I said. I mean, you should expect in renewables, see, a decrease, so no-nobody is loss making, that I, I can confirm. Let's gain-- going down, and you can, you can bet something which is double digits, so that's somewhat significant. Flex Gen is, of course, a key one, huh, where we, we expect a significant decrease compared to last year. That explains, I think, a lot of the, the story. GEMS, indeed, sharply down, and that's the other dimension. When you look at the net income, you need to factor in also that our tax rate is higher this year, 25%, that would stay.
You need also to, to factor in that the, the financial results is also higher, as the financial chart is also higher, in line with our guidance than last year. You do have some dilution of the EBIT contribution at, at the bottom line, as, as expected. I think if you factor everything in, you should, should come to something close to, to what we mentioned. It's fair to say also that on nuke, which is not contributing to EBIT, but contributing to net income, we have stayed with prudent assumption on the availability for H2.
Okay, thank you very much. The next question is from Arthur Sitbon of Morgan Stanley.
Hello, thank you for taking my question. The first one would be on the, on the agreement on Belgian nuclear. From the preliminary agreement in June, you were talking about the framework potentially removing some restrictions on your Electrabel assets. I couldn't see any mention of that in today's announcement. I was wondering if that was still contemplated, if that was still the case? If so, could it lead to, could the removal of this restriction lead to a change in your disposal targets? We know you've guided for quite limited disposal first takeoff, and in particular, could it accelerate your strategy to reduce exposure to gas-fired power plants? You have target from your spend.
Sorry, Arthur, we cannot hear you well, in fact. I don't know if you have a, a telephone issue, but, we can't hear you.
Is it, is it better now?
Yes, much better. Thank you.
Yeah, sorry. No, I was, I was wondering, there was no mention in today's announcement on the potential removal of restrictions on Electrabel assets. I was wondering if that was still contemplated, and if so, if it could lead to a change in your disposal target. In particular, could it accelerate your strategy to reduce exposure to gas-fired power plants? You have this target from your CMD to go to 50 GW of flexible capacity in 2030 versus 60 GW in 2022, which, which I thought seems difficult without selling some of your gas plants. I was wondering if that could accelerate that. The second question is, you were talking about the regulatory review on your French gas network.
If I heard you well, I think you were talking about a real WACC of between 2.9% and 4.2% considered by the regulator. Could you just confirm those numbers? I was wondering if this is very different from your assumptions in the medium-term guidance. The last point on, on GEMS, you talked about a hardcore, EBIT of EUR 1 billion on the year. Should we assume that at least really the minimum for the second half of 2023 would be an EBIT in GEMS of EUR 500 million? Thank you very much.
Okay, I'll, I'll start with the first two. On the Belgium agreement, indeed, what we signed in July is fully in line with what we had announced in June. There will be a lift on the restriction on Electrabel assets. In line with what we said, no impact on our disposal target, to be honest, we not make the link, but obviously this is an important step in the de-risking of the group, so it's a very, very positive aspect of the deal as a whole. On the regulatory review on networks, you know, this is a process that we are quite used to to follow. It's, it, it takes a bit of time.
There are different steps, so now there is this consultation, and indeed, a range has been externalized, the 2.9-4.2. There is also a number of aspects onto this regulation discussion, as you know, that makes a group of parameters. As a whole, as we see that today, you know, we do not see any impact on our guidance, so this is fairly in line with what we expected, and all is going as per plan. Again, these numbers relate to transport and storage assets since they are the earlier in the line for regulatory tariff review. GEMS, you want to comment, Pierre-François?
Yes, and the, the simple answer to your question is, yes, you can count that, there will be a contribution of a minimum, of which is EUR 1 billion divided by two, that's EUR 500 million. Taking into account also the timing effect that I mentioned, H1, H2, EUR 200 million- EUR 300 million, that we had positive in H1, that we reverse in H2. But even so, I mean, we, we expect to deliver some positive in GEMS, even taking into account that, we may decide to restructure a few transaction at the request of our customers to help them to reduce the energy cost in 2023, and restructuring a bit over 2023-2024. That's part of our commercial behavior.
We have factored in that some kind of these deals could indeed, also impact, H2. That's embedded in our numbers.
Thank you very much.
Very comfortable with the EUR 1 billion run rate.
Thank you.
The next question is from Peter Bisztyga of Bank of America.
Yeah, good morning. Thanks for taking my questions. two more on GEMS, if I may. First of all, could you clarify how much of the EUR 2 billion increase in EBIT from GEMS came from the release of reserves that you mentioned? Can you confirm whether that's a cash effective or not? Then also, could you just remind me, do you book profits from commercial asset optimization on your gas fleet, your gas-fired generation fleet? Do you book that in GEMS, or do you book that in Flex Gen? If you book it in GEMS, could you again, just quantify how much that contributed in the first half? Thank you.
Very good one. On reserves and provision. What I can share with you is that the Gazprom impact in H1 was close to EUR 1 billion, below EUR 1 billion, but close to. Let's say, the high single-digit EUR hundreds of millions on Gazprom. Indeed, you had market reserves with a significant difference between the market reserves that we were actually a charge in H1 last year, and which is, of course, reversed all in H1 this year. The difference is significant. However, you cannot look at this change, at this change in market reserves without looking at the business, because, of course, this technical reserves, they are actually linked, coupled to the, the, the, the value of the instruments.
When we reverse the reserve, it's also because we have moves in the business. I did not mention in the bridge H1, the variation of the market, but as you can imagine, in H1 last year, we had volatility, which was already much higher. We were benefiting from tailwinds that are actually gone, but offset by the release of this reserve. The net impact is actually not that strong, but this is, has been helping us to absorb the decrease in some of the market drivers. So, significant release of reserves, but also to be faced with the decrease in some of our market drivers. Gazprom was a big ticket. I can confirm you that the value of the valuation, the market valuation of the CCGTs, of the assets of Flex Gen, is booked in Flex gen, not in GEMS.
Operator, we'll take one last question, please.
Yes, madam, the final question is from Meike Becker of HSBC.
Thank you so much for taking my question. I have a bigger picture one, and one technical one, if I may. Regarding the European Hydrogen Backbone and France's plan for hydrogen, could you, could you elaborate a little bit how you see ENGIE's role in this sort of like transmission network build-out for hydrogen and how you see sort of like, France's role in this? The second question, which is technical. You mentioned on slide 19, the profit sharing agreement between GEMS and Supply. Can you just explain a little bit more? Should we think about that as some profits have structurally been moved from GEMS to Supply? If that's the case, what order of magnitude are we talking, or how should we think of that agreement? Thank you.
Yeah. Okay, sure. Obviously, very excited at ENGIE about the emergence of this European Hydrogen Backbone. We believe that the hydrogen economy will need both local production, probably from industrial hubs, and also imports and transportation of hydrogen to make sure that this green molecule is distributed at the lowest cost possible to the right consumer, whether it's an industry or port or, or hub, whatsoever. For this, we will need infrastructure. It is absolutely crucial to limit the cost of the energy transition that we reuse as much as possible existing infrastructure. We have made, obviously, some tests and come to the conclusion that reusing existing pipeline, even though they will need some investment, will cost much less than building a brand-new infrastructure network dedicated to hydrogen. Big picture, very excited about it.
We obviously have a significant gas network in France, but we also have a few facilities elsewhere in Europe, and we're looking forward to being a part of that. We have a well-publicized example between Spain going to France and potentially up to Germany, that in this one actually might be a new pipeline. In general, yes, we will be part of this European Hydrogen Backbone. The regulation scheme of such an infrastructure is still in the making, so obviously we are in discussion, consultation with the EU, but also France and CRE, on to how and when this regulation will be ready to allow us to reuse, first of all, invest, and then reuse this transport network dedicated to hydrogen. Profit sharing.
Yeah, thank you. You know that we in ENGIE are getting even closer to the value chain of energy. For us, it's very important that we allocate the profits but also the risk to the right business unit. We did some last year with renewables, and we had it done for CCGTs. That was a question, the question before from... That was already there. Then, of course, we moved with retail with the same view. Basically, what it is, retail is selling with commercial campaigns to retail customers, and then we need, of course, to source and build the hedging at inception of this, and this is done by GEMS.
When it comes to gas, it's pretty simple because we have a portfolio of long-term gas contracts, so we are pretty much in control, and we can definitely, provide the customers, which come with a very, very fixed profile. We can provide with, with the right engine and the right optionalities, which are in our portfolio. When it comes to power, we need also to go back to the market and find it, and that's where GEMS is critical to really, manage this risk. That, that hedging will generate by itself when it goes through the months or quarters, will generate some, some results because you cannot find the, the perfect replication of the risk that you are selling to customers.
That's why you have this, this profit that can turn, that could turn into a loss, but that's a profit indeed, that we, we are managing very, very carefully. It's not supposed to be a huge amount, even if in current markets, you can still make some money. Here we are talking, a few tenths, let's say, close to EUR 100 million on a full year basis.
This is the end of the Q&A session. Thank you for joining the call today. Of course, if you have any follow-up questions, please do not hesitate to call the IR team, and we wish you a very good day. Thank you.
Ladies and gentlemen, this concludes today's conference call. ENGIE, thank you for your participation. You may now disconnect.