Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome, and thank you for joining the EnBW's Investor and Analyst Conference Call on the first 9 months, 2022. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you'd like to ask a question, you may do so by pressing *, followed by 1. Please press the * key, followed by 0 for operator assistance. I will now hand you over to Marcel Münch, Senior Vice President of Finance, M&A, and Investor Relations. Please go ahead.
Welcome, ladies and gentlemen. Thank you for joining us for today's investor and analyst conference call on EnBW's figures for the first nine months of 2022. In a moment, our CFO, Thomas Kusterer, will provide you with details about the latest developments for our business and the environment we operate in, and guide you through the figures for the first nine months of 2022. Afterwards, as always, we look forward to your comments and questions. Without further ado, I'll hand over directly to Thomas to take you through the presentation. Thomas, over to you.
Marcel, thanks a lot. Ladies and gentlemen, welcome also from me. I would like to start with an overview of key events during Q3 and in the past weeks on slide two. In the first nine months of this year, adjusted EBITDA was at the prior year level. The curtailment of Russian gas supplies at subsidiaries and the resulting high replacement costs for the missing gas volumes, as well as higher expenses for network security of supply measures, had a negative impact. These effects were largely offset by higher earnings contribution from renewable energies and trading activities. Besides the war in Ukraine, we are facing some other uncertainties in the current environment. Possible gas shortage, the high market volatility, and the still unclear structure of the windfall profit levy. Against this background, we reduce our full-year guidance at group level by up to about 10%.
I will provide more details at the end of the presentation. However, I would like to point out that the overall uncertainty regarding statements about future developments are currently higher than usual. Hence, we continuously monitor and evaluate the conditions regarding the potential impact on EnBW Group. In particular, since the start of the war against Ukraine, liquidity movements have been elevated but have stayed well within scenarios analyzed. We proactively strengthened our liquidity position substantially by entering into additional bank lines, by issuing commercial paper, and by actively managing our hedging position. As of September 13, we had a comfortable liquidity position with cash and cash equivalents of EUR 3.1 billion and available credit lines on group level of more than EUR 7 billion.
With the issuance of our debut U.S. private placement in November, we successfully expanded our investor space again after issuing our first promissory note with a volume of EUR 500 million in July of this year. U.S. private placement transaction, the total volume corresponding to $850 million, includes amounts in euros, U.S. dollars, and pounds sterling, with maturities of 3-12 years. For the maturity of the transaction volume, the maturities are 10 or 12 years. This long-term financing is a perfect match to our investment projects in grids and renewables. The tight situation on the energy markets continue.
For this reason, the German cabinet approved the draft of another amendment to the Atomic Energy Act on October 19, which lays the foundations for a limited extension of the operation of the remaining three nuclear power plants, Emsland, Isar Two, and Neckarwestheim Two, until April 15, 2023. The use of new nuclear fuel rods is not permitted. In other words, only existing fuel rods may be used. In our plant, Neckarwestheim Two, in addition to the nuclear fuel rods in the reactor core, there are further partially used fuel rods in a storage pool. As an optimization step, these existing fuel rods will be reassembled in the reactor core. This will enable us to run the plant until mid-April 2023, thereby making an important contribution to security of supply and grid stability during these winters.
Lastly, as you are well aware, our subsidiary, VNG, applied for stabilization measures under Section 29 of the Energy Security Act in early September in order to keep financial flexibility and speed up negotiations on covering replacement costs for, back then, 2 gas supply contracts for Russian gas. Following this, both rating agencies issued a note on EnBW. Moody's published an issuer comment on the group's Ba1 rating, leaving the rating evaluation unchanged, while S&P confirmed the rating at A- but lowered the outlook to negative. S&P stated that the rating outlook could be revised back to stable after gaining clarity on VNG's full-year losses and sufficient visibility on the German gas market. Ladies and gentlemen, let me reiterate that we remain fully committed to maintain our solid investment grade ratings.
Let us now turn to our results in the first nine months of 2022 on slide three. I would like to start with a brief look at adjusted EBITDA and adjusted group net profit. Our adjusted EBITDA for the first nine months of 2022 amounted to EUR 1,968 million, and is virtually unchanged compared to the prior year. This implies that we have managed to compensate the significant headwinds that we faced in part, in parts of our portfolio when it comes to our operating earnings. As just mentioned, the following effects had a negative impact, curtailment of Russian gas supplies at subsidiaries, resulting in high replacement costs for the missing gas volumes and higher expenses for grid reserve. This development was largely offset by higher earnings contribution from renewable energies and trading activities. We will look at the details in a minute.
Having said that, adjusted group net profit attributable to the shareholders of EnBW AG nearly halved to EUR 397 million in the first nine months of 2022. This decrease in net profit is mainly attributable to IFRS 9 effects. Before we dive into the developments in our operating segments, I would like to give you an update on the latest developments at our subsidiary, VNG, which brings me to slide four. On October 10, VNG and WIEH, a subsidiary of former Gazprom Germania, now operating as SEFE, concluded a settlement which stipulates that WIEH will bear the full costs of replacement procurement in 2022. Furthermore, the contract covering a supply of 65 terawatt-hours per annum, which would have run originally until 2030, will be terminated effective end of 2022.
Even VNG had not sold any gas volumes resulting from this contract at fixed prices beyond 2022. VNG will no longer have any exposure under this purchase contract from the beginning of 2023 onwards. The settlement of the Veha contract was a major step for VNG and significantly reduced the risks resulting from gas replacement procurement. VNG's second supply contract with Russia's Gazprom Export covering 35 TWh also expires at the end of 2022. However, since VNG itself is the importer under this contract and had partially sold gas to its customers at fixed prices for 2022, replacement procurement costs continue to be incurred by VNG.
In our results for the first 9 months of 2022 reflected a total charge of almost EUR 1.2 billion for replacement procurement costs already incurred until end of September, and an assumption about VNG's residual contribution for the costs until year-end. The remaining replacement procurement costs for Q4 2022 of almost EUR 600 million have been taken into account as part of our non-operating results. Two important aspects should be taken into account here. First, these estimates were based on the market forward prices as of September 13, 2022. In the meanwhile, these have reduced significantly, thereby decreasing the expected negative impact by a three-digit million EUR amount. Secondly, we expect the residual costs to reverse to a large extent once we have reached an agreement with the federal government to compensate VNG for the canceled gas levy.
What is important to take away is that from the beginning of 2023 onwards, VNG will no longer have any risk under either of the two purchase contracts. When it comes to the 35 terawatt contract with Gazprom Export, talks with the federal government and the relevant ministries are progressing very well. We are confident of reaching a satisfactory agreement for both sides in the near future that will at least partially compensate VNG for the expenses it has incurred to ensure security of supply. As we certainly understand, we are not yet in a position to comment on the details as this agreement is subject to pending official and court proceedings. Let me be clear, from today's perspective, we expect that the government will not take any equity stake in VNG.
Ladies and gentlemen, let us now look at our three business segments in detail, starting with Smart Infrastructure for Customers on slide five. Adjusted EBITDA in this segment, the first nine months of 2022 was on the same level as the prior year period at EUR 321 million. The sharp year-on-year increase in procurement costs for electricity and gas was offset by positive earnings contributions from newly acquired subsidiaries at our home storage provider, SENEC. Adjusted EBITDA of our segment System Critical Infrastructure on slide six accounted for nearly half of our operating earnings overall. Compared to the previous year's period, it increased slightly by 3% to EUR 944 million.
As a result of the sharp rise in the number of deployments and market prices. We see a significant increase in expenses for pre-reserve measures, including redispatch, to maintain security of supply. On the other hand, congestion revenues were higher due to a higher electricity price differential between Germany and the neighboring countries, France as well as Switzerland. On slide 7, let me turn to sustainable generation infrastructure. Adjusted EBITDA in this segment slightly increased by 3% to EUR 878 million in the reporting period compared to the previous year. Let's look in more detail at the results of the two components of this business segment, starting with renewable energies business. Here, adjusted EBITDA rose significantly by more than 50% to EUR 839 million, mainly due to the following three effects.
First of all, EnBW commissioned new solar farms which contributed to the increase in earnings. Secondly, we benefited from higher market prices. Finally, wind yields were above prior year's level, which was in historical comparison, well below average. With regard to thermal generation and trading, adjusted EBITDA dropped significantly by 88% to EUR 39 million compared to the prior year period. The curtailment and suspension of gas supplies due to the Russia-Ukraine war and negative valuation effect on derivative financial instruments had a significantly negative impact on earnings in this part of the business segment. These were partially offset by higher market prices and a positive earnings contribution from trading activities. Let's now briefly look at the development of our retained cash flow on slide 8. Our retained cash flow rose significantly by almost 70% to EUR 1,506 million.
Non-cash items include, among others, valuation of raw materials, consumables and supplies, mostly gas and storage. The dividends to EnBW shareholders for the financial year 2021 was EUR 1.10 per share. Adjusted for the valuation effect of IFRS 9, this corresponds to a dividend payout ratio of 36%. This brings me to the development of net debt on slide 9. As of September 13, net debt amounted to about EUR 9.4 billion, which is some EUR 600 million above the level end of 2021. Working capital increased by EUR 2.3 billion due to an expansion of inventories and a reduction of net margin payments received since the end of 2021. Net investment amounted to about EUR 1.5 billion. Almost EUR 1 billion were attributable to investment in our grid infrastructure.
This is mainly related to projects under grid development plans and to the expansion and renewal of the distribution grid. Moreover, we invested some EUR 477 million in our renewables business to complete our Weesow-Willmersdorf and Gottesgabe solar parks, and to secure the lease option off the east coast of Scotland to develop a 2.9-gigawatt offshore wind farm together with BP. On the other hand, we divested 49.9% of the 600-megawatt solar portfolio, which also includes the new large-scale solar farms, Weesow-Willmersdorf, Gottesgabe. About EUR 217 million were allocated to investments in our segment Smart Infrastructure for Customers, predominantly for rolling out our e-mobility fast-charging infrastructure.
Repayment of two subordinated bonds with a nominal value of EUR 725 million and $300 million respectively at the beginning of January 2022 caused an increase in our net debt by about EUR 500 million. At the same time, pension provisions decreased significantly by about EUR 2.4 billion, given a substantial increase in the relevant discount rate from 1.15% by the end of 2021 to 3.75% as of September 30. Liquid funds deriving from the Renewable Energy Sources Act increased by EUR 955 million compared to year-end 2021. Since these funds are restricted and cannot be used to repay debt of EnBW Group, we also show net debt adjusted for this effect.
Adjusted net debt increased by 15% in the first nine months from EUR 10.4 billion to EUR 11.9 billion. Let me illustrate our revised outlook for the full year 2022 on slide 10. As already mentioned at the beginning, the level of uncertainty increased, namely the war in Ukraine, the high market volatility and a possible gas shortage, plus the still unclear structure of the windfall profit levy. Against this background, we reduced our full year guidance at group level by up to 10% and now expect adjusted EBITDA for the full year to amount to between EUR 2.7 billion and EUR 2.9 billion. At the segment level, the earnings guidance for Smart Infrastructure for Customers remains unchanged.
In System Critical Infrastructure, we expect the segment results to fall significantly short of the forecast range stated in the Integrated Annual Report 2021, and to also drop below the prior year level due to the expected further increase in expenses for grid reserve, including redispatch to maintain security of supply in the fourth quarter of 2022. This will be offset in subsequent years, but will still impact earnings in 2022. Lastly, we also expect Sustainable Generation Infrastructure to fall short of the initial forecast range, with the result ultimately depending on the final solution at VNG, still under discussion with the federal government and the final structure of the announced windfall profit levy. Having said that, I would like to point out that against all the challenges in the market environment, our business model proves its robustness again.
We firmly expect to close this year very well, despite the above-mentioned negative effects. The unexpected impact from reduced gas supplies from Russia is limited to 2022 and will be a thing of the past from 2023 onwards. Hence, we believe that we are excellently positioned for the future with our integrated lineup across the entire energy value chain, and that our business model is experiencing significant tailwind from the accelerated transition of the energy system in Germany. With this, I would like to hand over to the operator to kick off our Q&A session.
Ladies and gentlemen, at this time we will begin the question-a nd-a nswer session. If you would like to ask a question, you may press * followed by 1 on your telephone keypad. If you wish to remove yourself from the question queue, you may press * followed by 2. If you're using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press * followed by 1 at this time. One moment for the first question, please. First question is from the line of Calum Emslie with Fidelity. Please go ahead.
Hi. Good afternoon. Thanks very much for the presentation. I've got a few questions, but just the first one, looking forward to next year and the sale of TransnetBW, I was wondering if you can give us some indication of the potential cash inflow from that. You know, I've seen press articles suggesting an EV of EUR 2 billion, but I think the recent S&P report suggests a EUR 2-3 billion cash inflow. I was wondering if you could comment on that, or the impact on net debt from that potential transaction and maybe any indication around timing as well.
I was wondering on second question, net debt, can you give us any indication what you're looking at for year-end, and perhaps how much of that working capital increase you expect to reverse? You know, I noticed there was talking about gas fills and so on, I guess, you know, is that gonna continue into Q4 or should we see some reversal by year-end? Yeah, just finally, can you give us a breakdown of the private placement tranches that you did, basically, you know, or an indication, say of how much you did in each currency, and what coupon you paid for each currency and maturity, if possible? Thanks.
Hi, Calum. Let me get started with your question as regards to TransnetBW. First of all, the process as such is very well in the timeline we've anticipated. We assume that by year-end or in Q1, we will be able to finalize the transaction, and we do have good competition around this asset. That's our timing. Regarding cash flow and cash inflow, sorry to say, but we do not give any indication at this point in time, given that we are in the middle of the sales process. I hope you will appreciate that. As regards to net debt, by year-end, we assume net debt level being between EUR 12.5 billion and EUR 13 billion.
As regards to working capital level, working capital is extremely high for the time being. Two reasons, predominantly. First of all, our gas storage is at almost 100% levels. Secondly, when you look at our hard coal inventories, we do have significant hard coal inventory currently at our power stations to ensure security of supply through this winter. I would assume very much depending on the weather and how cold winter is going to be in the next six months, that these levels will go down slightly for Q4.
What I would assume is actually that working capital will go down significantly in Q1 because we do assume that gas storage levels will be significantly below current levels, and also that our inventory in hard coal will go down at this point in time. When it comes to U.S. private placement, very briefly, around 50% is actually in euros and the rest is U.S. dollar and pound sterling. I hope that kind of answers your question, Calum.
Yeah, mostly. I just wondered, I mean, I guess if I may have a follow-up on that.
Totally.
Given you went for the private placement market, and I guess you haven't said, you know, the coupon level or indicative levels. I suppose should we assume that is cheaper than what you think you could have funded in the bond market? Or was another reason for going for the
No, I think it's a fair underlying assumption actually. That's what we currently do. We are looking at various instruments and we go in the market, which seems to be the most preferable for us as a company. Fair assumption.
Perfect. Thanks. That's super helpful. I'll let someone else have a go.
Thank you. Thanks, Calum.
As a reminder, that's star followed by one to ask a question. Next question is from the line of Andrew Moulder of CreditSights. Please go ahead.
Yeah, thanks. Hi, Thomas. Hi, Marcel. Colin actually asked quite a few of the questions I was gonna ask myself, but maybe I can just follow up on some of those. On the TransnetBW disposal, I know one of the things S&P is perhaps a little bit concerned about with the EnBW is the size of the minorities that you have. Obviously, if you sell 50% of TransnetBW, you're gonna have significantly larger minorities. I mean, do you believe that your rating could potentially be under pressure if you do sell TransnetBW? I mean, obviously you're reducing your percentage of regulated income, plus you're increasing the minorities. I just sort of maybe a little comment around that. Also just wanted to clarify the net debt number. You said EUR 12.5 billion to EUR 13 billion.
Is that pre or post the EEG adjustment? Perhaps now a couple of other questions. I wanted to try to understand where we are exactly. You talked about the windfall profit levy, and I understand it's uncertain, but perhaps you could just update me on sort of what are the latest proposals that have been put forward. I mean, is it purely a sort of a power price cap on the inframarginal technologies, which I've seen figures of maybe EUR 180 per megawatt hour. I've also seen figures of EUR 100 per megawatt hour. Perhaps you can comment where we are on that. Is there also going to be a price cap on gas? How is that going to work?
Finally, sorry, on the windfall profits, I've also heard that there's supposed to be some sort of a decision at the legislative level on the eighteenth of November, where we might get some clarity. Do you believe that that's a reasonable date, or do you think that's optimistic? Sorry, my final question, just on the VNG effect, you had EUR 1.2 billion in adjusted EBITDA, which I think you said was the cost that you'd incurred up to the third quarter, plus an assessment of what you would incur in the fourth quarter. You had another EUR 600 million in the non-operating result.
I don't quite understand why you're putting it in two different categories, and I don't quite know why you're saying there's only a EUR 1.2 billion effect when that seems to me like a EUR 1.8 billion effect. Could you just perhaps clarify exactly why you've got those two numbers there and why you've categorized them that way? I'll stop there, I think, for the moment. Thank you.
Hi, Andrew. Good to hear you actually.
Thanks, Thomas.
Andrew, let me get started with your final question, the VNG question. Yes, we've recorded EUR 1.2 billion in our operating result. As you just said, it's everything we've incurred until the end of September, including underlying assumptions what we would have incurred under the gas levy. Because if you may recall, the gas levy would also have just covered 90% of the cost for the fourth quarter. In this EUR 1.2 billion, we assume that we will get a reimbursement or from the state for the fourth quarter.
It's all the GM. It's the gas from Gazprom Export, everything in the third quarter, including EUR 200 million for VHR, which we agreed with the government and an underlying assumption, actually, what we might incur for Q4. The EUR 600 million is actually what could be the max risks we are facing in case that we will not get any kind of compensation for the fourth quarter. However, we need to reflect on that because it's the price levels of the forward prices as of the September thirtieth, and prices went down significantly since then. We can reduce the EUR 600 million already by a couple of hundred million.
The rest, we assume, will be covered by the hopefully soon to come agreement with the government as regards to the compensation for 35 TWh gas from Gazprom Export contract. Does that answer your question?
Yes. I mean, it seems a bit counterintuitive to me because I didn't assume with the gas levy being canceled, that your EUR 1.2 billion would have assumed that you actually received compensation when actually you're not getting compensation at the moment. But I understand where it's coming from now.
You know, we split it deliberately because our underlying assumption is that our maximum risk or maximum charge for VNG by the end of the year will be the EUR 1.2 billion. Very clear. We also do not assume that actually this government is going to take a stake in VNG. We are just short of finalizing agreements, but it's too early to be more precise on that, Andrew.
Right. Okay. Thank you.
Let me get started with your first question in regards to TransnetBW. Your question was around rating and whether or not our rating is going to be under pressure due to the fact that we are increasingly looking at the minority stakes within our business. That's at least how I am reading your question.
No, Andrew, because we're already steering our rating pro rata, so it's already in our underlying assumption. It's already reflected in our ratings. You know. Does it answer the question?
I don't know. I mean, I'm not sure that the extra minorities that you'll have when you sell TransnetBW. That's already reflected in the ratings that you're getting from S&P?
Yeah. We're already looking at pro rata numbers, actually. We are already looking at numbers reflecting minority stakes and S&P is fully aware of the sale of TransnetBW.
Okay.
We do not expect any additional pressure due to the sale of TransnetBW on our ratings.
Okay.
To your second question, actually regarding the EUR 12.5 billion-EUR 13 billion guidance as regards to net debt, that's including the EEG account means we are looking at EUR 15 billion if you look at the adjusted net debt number.
All right, thank you.
You're welcome. Your final question was around the windfall profits and how it's going to be set up. Indeed, Andrew, contrary to the European level, with 180 EUR per megawatt hour across all technologies, what we're currently seeing here in Germany is technology-specific power price caps. However, just on the inframarginal technologies, which means that the hard coal and gas will not be included in this windfall profit levy. It's quite similar to what we've seen on EU level, however, with technology-specific caps and the exact cap level is not decided yet, so it's still under discussions. However, we do assume that we will get some clarity. You refer to the eighteenth of November, that's what I've heard too.
Honestly, I do not know actually if we do have the clarity at that point in time.
Right. That cap is on the inframarginal generation technologies. There's not gonna be a cap on gas prices?
No. Exactly.
On gas and hard coal.
No cap on gas and no cap on hard coal.
Okay. No cap on gas that's sold into the general market to your consumers, to businesses or anything like that?
Yep. No cap at all when it comes to gas and hard coal.
Right. Okay.
It's nuclear, it's lignite, and it's predominantly, in our case, renewable energies.
Right. It's gonna be different prices, you think, for each technology?
Exactly. That's currently the way the government is looking at it.
Maybe just a quick question on that. Are you expecting that there'll be any sort of cap on the nuclear generation, the extra three months that you're going to be doing?
Yeah. Yeah, absolutely. Because nuclear is part of the windfall profit levy.
From today's perspective, we need to see actually what it really means in terms of profit for these three months. Very much depends on the level of the cap.
Right. Okay. Sorry, just on the nuclear, is it definitely going to run for those three months, or are we still waiting for a decision at the beginning of December?
No, no further decision needs to be taken. It's clear. The three power stations are allowed to run until the fifteenth of April next year.
Yeah. Sorry. I mean, I knew they were allowed to run, but I thought the government was gonna take a decision at the start of December.
Over whether they would be required to run.
No. That's clarified meanwhile. No further decision needs to be taken and will be taken by government as regards to the fact whether or not the power stations are allowed to run or not.
Okay, good. If you'll allow me, I just have one more question then.
Surely.
On the gas contracts, you've got 100 terawatt-hours at VNG ending at the end of 2022.
Right.
What's gonna happen beyond that? Do you have replacement gas that VNG can then still supply to its customers? Or are the volumes at VNG gonna reduce by, I don't know, 50 or 60 terawatt-hours in 2023?
Actually, we are replacing the volumes in the wholesale market. We are looking at further contracts, let's say Norway and potentially going forward LNG. However, it might well be that we do have less volumes available for our customers beginning next year.
Okay.
We do not have any kind of, I mean, for the obvious reasons, long-term contracts anymore from Russian gas, and that's the 100 terawatt-hours you are referring to.
Right. Okay. You can't give any clarity on how they're actually gonna pay the compensation. I mean, it seems pretty definite that there's not gonna be a government stake taken in VNG, but I mean.
That would seem to me to be quite a neat solution. They take a 10% stake, which gives you know, EUR 200 million, EUR 300 million, EUR 600 million of compensation through an equity injection, but that's definitely not what's gonna happen?
That's definitely not what's going to happen, actually. The state does not intend to be a shareholder or take shareholdings in, within VNG. We'll find a different solution. I hope that we'll be able to in the next days, not weeks, to provide you with more clarity around that.
Okay. That would be appreciated. Great. Thank you, Thomas.
I'm sure it will. Thanks, Andrew.
Next question is from the line of James Sparrow with BNP Paribas. Please go ahead.
Yeah. Afternoon, everyone. Thanks for the call and thanks, Andrew, for asking all my questions. Really just one follow-up question. Just on the transfer itself, you talked about closing it by the end of this year or Q1 next year. Would that actually be agreeing the transaction or actually closing the transaction? I'm thinking receipt of proceeds, whatever they might be. Are you expecting those to come in in, let's call it Q1? I'm thinking purely around liquidity grounds. Yeah, that's all. Thanks.
James, very briefly, we assume that all the cash inflows will be next year. That's the underlying assumption. I think it's also in line with the process we are currently in. That's how we initially planned it actually. Does it answer your question?
Yeah, that's fine. I mean, I kind of think of it from , more from liquidity given that, yeah.
Yeah.
Given your breaking comment about the.
Fully understood. Yep.
Yeah. Great. Thank you.
Welcome.
Next question is from the line of Orlando Finzi with M&G Investments. Please go ahead.
Hi, good afternoon, Thomas and Marcel. Thanks for the call. Can I just check a few sort of little list of questions if I can? If I could just sort of throw them, and maybe we just whiz through them. You mentioned on the price cap, obviously, devil's in the detail of the implementation. I just guess what I'm curious there is how reassured you are, given interactions and I guess how sort of front foot government's been on this that the details can be worked out, and there won't be any sort of collateral damage from that. Separate question on VNG. Andrew touched on the sort of portfolio going forward.
I'm just sort of curious, and maybe this isn't something you can answer, but in terms of the state not taking a shareholding, what drives that decision? Why that's different than Uniper? Is there something obvious we can just be aware of, in maybe the situation was less, you know, fragile than Uniper. Just to understand it would be helpful. I guess just on credit ratings, you mentioned a very strong commitment, Thomas, to strong investment-grade credit ratings, and that's really appreciated, obviously. I just wonder with that, given the pressures you're under this year, and obviously the energy price isn't solved yet, isn't fixed, we have to live through it and see how what sort of shape it has. Whether there's any other sort of.
If you need other credit support, whether your main shareholder is in a position or shareholders' position to help, or whether reverse is true given the cost of the energy crisis, they're actually pressuring you for dividends. Just how that dynamic works. Maybe a last question, just to throw it in there. We've obviously seen the announcement from RWE on 2030 target to exit lignite. Just in terms of your coal lignite assets, in terms of when you expect to update on those in terms of conversion, replacement or closure. Is there a natural point where you'll be able to update us more on that? Thank you.
Hi, Orlando. Let me get started with your last question regarding our coal assets. We will update you next year on that. We need to get some more clarity on some aspects. From my personal perspective, I would assume that we will close our coal power stations earlier than we have currently indicated so far. Now to your question regarding price caps. I think we're hearing good progress with the government in terms of how the overall framework is set up. There are some concerns from our perspective, one being that the government might be looking at kind of retrospective applications starting September first. I think we need to be very mindful in doing so.
It's always a question of investors, let's say, trust in frameworks. I think you need to be mindful. When it comes to cap levels, a lot has been done, and we have been working with government on ensuring that we've been heard, what is needed to ensure that merit order is still in place and the market itself is working even with this price caps. I think we are in good progress here to come up with a sensible solution. I would hope also when it comes to administrative processes, because what we should be avoiding is a lot of bureaucracy and a kind of bureaucratic monster. That's a concern, but I think we will find a solution here too.
Regarding VNG, when it comes to VNG, indeed, from my perspective, what we currently see and what is very clear, we will not have an equity stake by the government within VNG. It's about compensating VNG for the fact that they ensured security of supply in the gas market. VNG did not forward any kind of increased price levels regarding the replacement procurement costs to its customers. We're talking about a compensation here for not forwarding increased price levels to the customers. As I just said, doing so ensuring security supply in the German gas market. To your final question, as regards to ratings, yes, indeed. I mean, we've just lowered our guidance by up to 10% for year-end.
However, we are still within the guidance we need for our solid investment grade ratings. To your second part of this question, of course, as always, I mean our shareholder base is extremely stable. It's a long-term shareholder base, and if and when needed, we'll get any support from our shareholder base. It's not needed for the time being, to be very clear. I hope that answered your question, Orlando.
Yeah, that's very, very helpful. Thank you. Well done navigating a difficult environment, so far. Yeah.
Thanks a lot, Orlando. Appreciate it.
Next question is a follow-up question from Calum Emslie from Fidelity. Please go ahead.
Hi. Thanks. I just wanted to follow up on the nuclear. I guess a two-part question. I mean, the first thing is if you did need to run beyond April, how easy would it be to get the fuel rods required? I mean, is that actually a physical possibility? I know it is, you know, legally it's meant to end at, you know, in April, et cetera, et cetera. Looking forward, sort of conceptually, like how EnBW and actually within Germany, how are you looking at the capacity margin, i.e., the amount of electricity production you've got available looking into sort of winter 2023? I mean, we've all seen EDF's nuclear forecasts.
You know, we know that the capacity margin isn't great in a lot of other European countries. You know, it seems odd that that would unless you're expecting, you know, is Germany or EnBW expecting that, you know, you're gonna get material volumes of Russian gas back in 2023, or basically you're gonna have to keep running coal plants, you know, at full pelt, you know, maybe for the next two or three winters or so. Can you just sort of give us some color on how you're thinking about that and, you know, maybe the place of nuclear within that? Thanks.
Calum, I mean, I think the political will is very clear, and it's a political decision that's been taken to really close down the three nuclear power plants by mid-April next year. As you just said, conceptually or theoretically, it's all theory beyond this date. From my perspective, I would not assume that the power stations will run beyond mid-April. We are not allowed to buy any new fuel rods, so I think this decision is quite stable. It's a fair point as regards to the power generation for next winter. We do not assume that we will get gas from Russia next year.
However, having said that, your final comment on hard coal, I think, is very topical. I would assume that our hard coal power stations are going to run full power over the next winter, meaning winter 2023-2024. That is hopefully actually sufficient to ensure security of supply in Germany. There's no more I can add to the discussion at this point in time, I'm afraid. I hope I could at least partially answer your question, Calum.
Yeah. No. That's helpful. Thank you. Yeah.
You're welcome.
Next question is from the line of Alessandro La Scalia with BlackRock. Please go ahead.
Yes. Hello, everybody. Thanks, Thomas and Marcel for the presentation. Yeah. A few questions, mostly to clarify a few things that you said during this presentation. One is on your guidance. If I'm right, comparing what you had in H1 in terms of overall yearly costs of the shortfall of Russian gas, you're now adding around EUR 600-700 million or more costs. There is only a EUR 200 million impact on your guidance in terms of the EBITDA. I mean, you are reiterating your guidance in H1, and you're saying it's essentially well EUR 200 million below the level of 2021. I mean, I'm just trying to understand how, why is that?
Why your guidance didn't go down more? The other question is on your net debt outlook for 2022. If I'm right, you are essentially saying that you're gonna add EUR 3 billion to your net debt in Q4. I'm not entirely sure I understand from where that would come. Also considering that, I imagine that part of your additional gas storage costs are going to be, you know, reverted once the gas is injected, and that's going to happen at some point also during the winter. I'd like to hear from you about your assumptions around that. Last question possibly, that's on 2023.
Now, again, something that I find well striking is that at the end of the day, despite all what happened, despite this EUR 1.2 billion hit you're going to take, you are already taking at EBITDA level, your EBITDA in 2022 is again only EUR 200 million lower than 2021. Which seems to imply that without that, you would have had an extraordinary good year. Should we you know imply something about that for your 2023 results? I know that that's, I mean, we're not necessarily comparing apples to apples. There are a number of moving parts. Possibly the question is, would you expect to resume a you know more normal growth rate in 2023?
I mean, I'm not gonna ask you to guide us for 2023, but again, it would be interesting to understand for you what are the main moving parts in terms of operational performance for next year. Thank you very much.
Hi, Alessandro. Actually, let me get started with the first question and perhaps actually also allow me to include your final question into my answer. Indeed, your math is absolutely right. We increased by EUR 700 million the charge due to VNG, and we lowered our guidance by roughly EUR 200 million, which shows very clearly the robustness of our overall business model and that the portfolio effect you can see here paid off. We had positive earnings in other areas, in renewable energies, in trading predominantly. That's actually compensating for the additional losses we have incurred between the second quarter and by year end. That's why we only have to reduce our guidance by the yeah you indicated EUR 200 million-ish number.
When it comes to forward-looking statements, I mean, as you already said, I mean, we would certainly not provide any guidance for next year. However, I mean, what we said, and I think that's obvious, the EUR 1.2 billion is a one-off. To a certain extent, we would assume that positive tailwinds we are currently experiencing in the markets will sustain for a bit longer than just 2022. That's all I can give you as a, let's say, guidance, for the time being.
When it comes to our net debt, indeed, it's an increase of roughly EUR 3 billion, and it's linked to gas storage and an underlying assumption as regards to levels of gas storage by year-end, but also prices. The same is true for our hard coal inventory. We are still increasing, by the way, our hard coal inventory as we speak. Yeah, main factors for the EUR 3 billion are gas storage and coal inventories by year-end. Alessandro, does that answer your questions or any follow-up?
Yes, it does.
Yes.
No, no. It does. I understand, again, your prudence about looking into 2023, but it seems it's gonna be interesting.
I think that's right.
Yes. Again, thanks for explaining to me about the fact that yes, of course, imagine that you're still in the phase of increasing storage in October and therefore, I mean, that balance is going to probably increase economically in Q4. Thank you very much.
Exactly. Thanks for your question, Alessandro.
Next question is a follow-up question from Andrew Moulder with CreditSights. Please go ahead.
Yes. Hi again. I bet you thought I had so many questions before I couldn't possibly ask anything else. Yeah, I just wanted to check on a couple of things. You talked about the private placement, I think in the answer to the first question or so. I just wondered, obviously you have a hybrid with a first call date in 2024, and I mean, really what we've seen this year, the hybrid market's essentially closed. I just wondered whether you would consider refinancing a hybrid if you needed to, in the private placement market, given how you seem to be quite attracted to that market at the moment. Second question. I just wanted to ask again on the technologies and different prices for different technologies and so on.
I just wondered how that's going to work for something like pumped storage in Germany. You know, I mean, clearly pumped storage is usually used when prices are really high, and it's very economic for them to do that, very profitable. But if you start imposing a price cap on that, there could be a danger that pumped storage plants would be used just almost as run-of-river plants and used during baseload times and would not be available when they were actually needed. I just wonder how the German government is thinking about tackling that. My final question.
Obviously, you've got a new CEO, and I'm just wondering if there's some big strategic update coming next year because I presume he will want to have a look at the business and kind of evaluate business priorities. Can we look forward to some sort of strategy update next year? Thank you.
Andrew, to your follow-up questions, let me get started with your with our U.S. private placement and your comment on hybrid. Forgive me, but no comment on the instruments we are going to use. I mean, it's 2024. It's a long way out, and we'll see actually what is the right market for this product at that point in time. As regards to pumped storage, I should have added that actually to the exclusion list earlier. It's not. It's coal, it's gas, and also pumped storage is excluded from the caps. Contrary, by the way, to run-of-river, which is included in the price cap, so included in the windfall profit levy.
Regarding to our new CEO entering, effectively next week, yeah, I would assume too that we'll get some strategy guidance next year. Normally, within EnBW, we do have a strategy supervisory board meeting by mid of the year, so I would assume it's the same next year. Certainly we will see, we'll get some update here and Theo provide some update on our strategy. That's at least my underlying assumption. Does that answer you, Andrew?
Yeah. Yeah, that does. Maybe I can just ask one more question.
Certainly.
You know, I always do.
It's well appreciated, Andrew, as you know.
I just really, you know, a lot of clients I speak with are actually fairly comfortable with the gas situation this winter. I just wonder, what are sort of EnBW's expectations for next winter? I mean, you know, with VNG, you're obviously fully involved with the gas market in Germany. Are you thinking that there's gonna be a real concern about gas supplies for next winter, rather than for this winter? How do you see that situation evolving?
I think, to be very fair, I think it's a challenge next year when it comes to gas. Very much depends, of course, on this winter already. If we do have a mild winter and we will get out of this winter with higher levels in the gas storage, I think it's very much doable. If we have low levels, it's going to be a challenge to fill the gas storage to a level we have seen this year. I mean, we do have the new FSRUs coming in, the floating storage regasification unit. If they are on time, there's a certain likelihood that it's doable. However, I mean, it is a challenge from our perspective, very clearly.
Even if the German sort of population and the economy manages to reduce demand by the 20% that I think they're targeting, you still think it will be a challenge for next winter?
I think it's not so much the 20%, it's more actually the weather, actually. That's my concern.
Because the weather-related impact is what is decisive actually for gas consumption.
Okay. No, that's fair. Thank you very much, Thomas. Thanks, Marcel.
You're welcome.
There are no further questions registered at this time. I would like to hand back to Marcel Münch for closing comments.
Thomas?
Thank you, Thomas, for your answers and comments, and thanks to all of you on the call for making the time. We now wish all of you a nice and peaceful end-of-year season and look forward to welcoming you again and present our full year figures of 2022 on our next conference call on March 27. Until then, all the best and goodbye.
Ladies and gentlemen, this conference call is now concluded. You may disconnect your telephone. Thank you very much for joining, and have a pleasant day.