On EnBW's annual results 2022. Apologies, let me start again because I think you missed the introduction. Welcome, ladies and gentlemen. Thank you for joining us for today's investor and analyst conference call on EnBW's results 2022. It's my pleasure to welcome our new CEO, Andreas Schell, alongside Thomas Kusterer, CFO, for this event is not only about presenting the figures of a business year, but also about the topic of far-reaching importance, our significantly more ambitious climate targets which we announced this morning alongside our results. Andreas will kick it off in a minute with all relevant facts on our SBTi-approved targets and our accelerated coal exit. Thomas will provide you with details on the developments in our business and the environment we operate in. Afterwards, as always, we look forward to your comments and questions.
Without further ado, I'll hand it over directly to Andreas. The floor is yours.
Thank you, Marcel. Ladies and gentlemen, a warm welcome from me too. As Marcel already mentioned, I took over as CEO of EnBW four months ago, I'm truly impressed by how committed and experienced the EnBW team is, which represents a great basis for me to build on. Needless to say, I am also looking forward to our conversation today. I would like to start with the major topics from my perspective. Our operating result 2020 of about EUR 3.3 billion adjusted EBITDA is well above guidance and also exceeds the circa EUR 3 billion recorded in the prior year. This is a very pleasing outcome in light of significant headwinds in 2022.
This positive performance was only possible due to our highly robust business model and well-diversified portfolio along the entire value chain, which ensured stability, especially in volatile markets and times of great uncertainty. Certainly not least, this success was driven by the impressive commitment of the entire EnBW team. As you know, sustainability is a key element of our business and compass for our strategic direction. In 2020, we published our climate neutrality goal for the first time. Now we set ourselves even more ambitious climate action targets, which we published this morning. We are aligned with a 1.5-degree path for our own emissions approved by SBTi. Moreover, we added an SBTi-approved reduction target for indirect emissions in Scope three. All climate targets are confirmed by SBTi as aligned to the Paris Agreement.
We intend to bring forward the phase out of coal to 28 now. The implementation of these targets of course, requires the accelerated build-out of renewable energies and grids as promoted by the German government. Against this background, we took important decisions on a number of large-scale projects, which underpin our ambition to speed up the energy transition. Let me highlight just three of them. Firstly, we initiated the construction of three fuel switch projects from coal to natural gas. With an overall capacity of 1.5 GW, these new plants will make up for the intermittency of generation from renewable energies. Secondly, we took the final investment decision for our 960 MW offshore wind farm, He Dreiht, last week.
Thirdly, our team is progressing the transmission line SüdLink, which plays a crucial role for security of supply by transporting electricity generated by wind offshore installations from the North or Baltic Sea to the South of Germany. A few key numbers regarding the acceleration of our climate transition plan. We are now Paris-aligned with a 1.5-degree path for our own emissions approved by SBTi. We intend to bring forward the phase out of coal to 2028, and thus by seven years compared to our previous target. As such, we want to become coal-free already 10 years ahead of the formal legal deadline. We thus accelerate our path to climate neutrality in 2035 and expect to reach key milestones significantly earlier than previously planned.
Already in 2027, we will reduce our own emissions by around 50% therefore bring forward this target by about three years. We will reduce our own emissions by around 70% in 2030, which represents a new milestone in our decarbonization timeline. We will reduce our own emissions by 83% in 2035, which specifies our climate neutrality goal. Ladies and gentlemen, important for the success of energy transition is a triangle. It's a triangle of expanding renewable energies and grid infrastructure as well as the ramp up of low carbon dioxide dispatchable power generation. Only if significant progress is made in all three of these fields simultaneously, rather than sequentially, will we be able to realize the energy transition in Germany within the contemplated timeframe.
In this context, it is important to note that a successful transition to a carbon dioxide-free energy supply requires the appropriate economic and political framework. We at EnBW will contribute to this overarching goal by allocating by far the largest share of our investments to precisely these areas. To accelerate the transformation towards a climate neutral future, EnBW is continuing to invest at full speed in sustainable and System Critical Infrastructure. Net investments of around EUR 14 billion are now planned for the period of 2021 to 2025, an increase by EUR 2 billion compared to our previous target. Let's go into some details of our climate transition plan on the next slide. The developments of the past years have dramatically highlighted the vulnerability of energy supply.
As already mentioned, the significantly earlier coal phase out is only possible if we build up dispatchable generation capacity in the first place. Our fuel switch plants at three locations are the synonym for security of supply. Here, coal will initially be replaced by natural gas and in the medium term by hydrogen. The accelerated phase out of our remaining coal power plants with a generation capacity of around 2,000 MW will be finalized in 2028 instead of 2035. This will enable us to reduce our own carbon dioxide emissions by 70% in 2030 instead of the previous 50% target for this year. For the remaining coal-fired power plants, individual exit plans are being prepared. For partly owned sites, we will enter into talks for concrete solutions.
The coal phase out that will be implemented in a socially responsible manner, which means together with our employee representatives and in dialogue with our local partners. By 2030, gas transmission and distribution grids will be hydrogen ready. In 2035, we plan to switch to carbon neutral gases. On the next slide, let's take a closer look at our fuel switch projects. Last year, we made the final investment decision for three major fuel switch projects in Baden-Württemberg with an overall capacity of 1.5 GW and a planned investment volume of EUR 1.6 billion. Conversion work is already underway at our sites in Heilbronn, Altbach-Deizisau, and Stuttgart Münster, and completion is expected in 2026. These three projects represent a key element in implementing the energy transition in the southern part of Germany.
The buildup of carbon dioxide reduced dispatchable power is necessary to ensure security of supply, especially in light of the earlier coal exit and until hydrogen is available at large scale. Further carbon dioxide reductions can be achieved by using climate neutral gases or in the long run, hydrogen for electricity generation. We expect to be able to operate with climate neutral gases from the mid-2030s. At EU level, natural gas is recognized as an important bridging technology on the road to carbon dioxide neutrality. The inclusion of gas in the taxonomy takes this into account. Our three fuel switch plants meet the European Union's Commission's taxonomy criteria for natural gas-fired plants and consequently are reported as taxonomy aligned. On slide six, referring to the already mentioned triangle, I would like to share the most relevant information on our offshore wind farm He Dreiht.
For EnBW as an experienced developer and operator of offshore wind farms, our next offshore wind farm He Dreiht is a key milestone in the significant expansion of our renewables. As you may recall, in 2017, He Dreiht was the very first zero subsidy bid placed in an offshore auction worldwide. The FID now taken marks the confirmation of excellent teamwork over more than six years, which culminates in the implementation of this very important project. He Dreiht will be located in the North Sea, around 90 kilometers northwest of the island of Borkum and 110 kilometers west of Helgoland. We already operate our offshore wind farms Hohe See and Albatros nearby. He Dreiht will benefit from this proximity and from our existing service hub in the coastal city of Emden.
It will run on 64 Vestas turbines with a capacity of 15 MW each, which will be in the league of the most powerful in operation, reaching a total capacity of 960 MW. The investment volume for this offshore wind farm is about EUR 2.4 billion. COD is planned in the late 2025. He Dreiht will supply approximately 1.1 million households with clean electricity. Ahead of the start of construction, we will bring on board first-class partners by selling a minority stake of 49.9% to a consortium of Allianz Capital Partners, AIP, and Norges Bank. EnBW will be responsible for the technical, administrative, and commercial implementation during construction. After completion, EnBW will provide technical and commercial management, as well as maintenance and servicing. EnBW has also signed four long-term PPAs so far.
The comprehensive PPA portfolio of 335 MW was concluded by financially solid off-takers, Fraport, Evonik, Salzgitter, and Bosch. Moreover, in December 2022, we secured a EUR 600 million long-term financing from the European Investment Bank, one of the world's largest financiers of climate action and environmental sustainability. Ladies and gentlemen, let me now hand over to Thomas to guide you through the financial details of our fiscal year 2022. Thomas.
Thanks, Andreas, and welcome also from my end. On slide seven , I would like to start with an overall picture of where we stand as of today before we go into details for fiscal year 2022. As Andreas pointed out at the beginning of the presentation, our financial performance was strong in 2022. Our adjusted EBITDA increased by 11% - EUR 3.3 billion, of which around EUR 2.2 billion were derived from low-risk businesses and regulated grids and renewables. Our retained cash flow was up by 42%, and our net debt increased by only moderately 5%, which translates into a high debt repayment potential of 23% at year-end 2022. The most negative impact on our 2022 numbers derived from the curtailment of Russian gas supplies at our subsidiary, VNG.
This is included in our adjusted EBITDA figure. As you might be aware, VNG had two supply contracts with Russian gas. These contracts were affected by counterparties failing to meet their supply obligations and by supply restrictions, and ultimately the suspension of supplies via Nord Stream One pipeline. As VNG had already sold gas volumes at fixed prices until end of 2022, it had to procure gas at significantly higher prices on the energy markets. On October 10th, VNG and WIEH, a subsidiary of the former Gazprom Germania, now operating as SEFE, reached a settlement with regard to the contract for the supply of 65 TWh per year. WIEH paid the full cost of the replacement procurement in 2022. At the same time, the contract, which originally ran until 2030, was terminated at the end of 2022.
At the beginning of December 2022, VNG resolved the residual risks for its contract with Gazprom Export, covering 35 TWh per annum. As partial compensation for the expenses incurred, VNG received an amount in the mid-triple digit EUR million range from the government in Germany. In return, VNG withdrew its application for stabilization measures, which are no longer necessary. The contract with Gazprom Export expired at the end of 2022. The overall negative impact for EnBW from replacement costs at VNG for missing gas volumes in 2022 amounted to a total of EUR 1.1 billion. In December, a resolution to increase VNG's equity by a maximum of EUR 850 million was adopted. EnBW and OEW paid in their pro rata share of this increase.
The second-largest shareholder of VNG, consisting of eight municipalities in Eastern Germany, has until May 31st, 2023, to exercise, in whole or part, its subscription rights to further VNG shares. Another area of focus in 2022, particularly since the start of the war in Ukraine, has been liquidity. EnBW liquidity movements were elevated but remained well within the risk scenarios analyzed. We strengthened our liquidity position substantially and proactively by entering new markets and using new financial instruments. With issuance of our first promissory notes during the summer and the first US private placement in November, we successfully expanded our investor space. We also added bank lines, issued commercial paper, and actively managed our hedging position. Overall, we have significantly expanded and diversified the financing instruments which are at our disposal.
At year-end 2022, we had a strong consolidated cash balance with EUR 5.2 billion cash and additional sources of liquidity available. In total, EUR 7.2 billion of undrawn credit lines to weather a potential resurgence of market volatility. Ladies and gentlemen, looking ahead, we expect a significant increase in operating earnings this year and forecast an adjusted EBITDA of between EUR 4.7 billion and EUR 5.2 billion. Our regulated business not only provides us with an attractive risk-return profile, but also secures a high proportion of stable earnings. Furthermore, in our competitive business area, sales and generation, we hedge our margins for up to three years in advance. For 2023, we are fully hedged, which provides a very robust basis for earnings growth in 2023.
Last, but definitely not least, the high replacement procurement costs at our subsidiary, VNG, for missing gas volumes were a one-off in 2022. Let us now have a closer look at our 2022 figure. I would like to start with a look at our operating earnings on slide eight. Adjusted EBITDA amounted to EUR 3.286 billion in financial year 2022, an increase of some 11% compared to 2021. In 2022, the share of adjusted EBITDA attributable to taxonomy-aligned activities will exceed EUR 2.4 billion, or 73%, compared with under EUR 1.9 billion in the previous year. The increase was largely driven by higher earnings in renewable energies, which are fully taxonomy-aligned. Let's now dive deeper into our operating segments, starting on slide nine.
Adjusted EBITDA in Smart Infrastructure for Customers increased significantly in 2022. This positive development was driven in particular by higher earnings with business customers at subsidiaries and at our solar home storage business, SENEC. Milder-than-expected temperature and energy saving measures resulted in lower sales volumes, with the corresponding sale of excess volume contributing positively to earnings. Moreover, in 2022, SENEC had a high growth rate, especially driven by higher sales volumes, which increased by 40%. Compared to the previous year, adjusted EBITDA of our segment, System Critical Infrastructure, on slide 10, decreased by 17% to EUR 1.046 billion. The decrease was largely driven by higher expenses for grid reserve measures, including redispatch and reserve power plants to ensure system stability. Caused by the energy crisis, the number of deployments, as well as the market prices, increased sharply.
The impact on the fourth quarter of 2022 was lower than assumed in the updated guidance of November 2022, mainly due to the warmer-than-average weather towards the end of the year. Congestion revenues were higher due to the high electricity price differential between Germany and the neighboring countries, France and Switzerland. On slide 11, let me turn to Sustainable Generation Infrastructure. Adjusted EBITDA in this segment increased by almost 30% - EUR 1.935 billion in financial year 2022 compared to the previous year. The main reasons why we exceeded our forecast are lower than expected negative valuation effects and the higher overall earnings from trading activities. The legislation on the windfall profit levy passed in December is in line with our initial assumptions based on technology-specific price caps.
The proceeds from the sale of electricity generated from renewable energies, nuclear power, mineral oil, waste, and lignite will be skimmed off for the period from December 1st, 2022 to June 30st, 2023 in order to finance the relief for end customers. Let's look in more detail at the results of the two components of this business segment, starting with renewable energies. Here, adjusted EBITDA rose by almost 40%, the first time over EUR 1 billion. The result of EUR 1.107 billion was achieved mainly due to the following three effects. First of all, we benefited from higher market prices. Secondly, wind yields were higher than in previous year, which was well below average by historical standards. Finally, EnBW brought new solar farms into operation, which contributed to the increase in earnings.
In thermal generation and trading, the exceptional market situation in 2022, with high commodity prices and volatility, led to large offsetting effects, the positive effects dominating. The curtailment and suspension of gas supplies due to the war in Ukraine and the negative valuation effects on derivative financial instruments continued until the end of the year and had a negative impact on earnings. As already stated, the negative impact from VNG alone amounted to EUR 1.1 billion. However, these effects were offset by higher market prices and a positive earnings contribution from trading activities. Compared to financial year 2021, adjusted EBITDA from thermal generation and trading increased by 11% to roughly EUR 828 million. As in the grid area, security of supply also played a significant role to which our power plant fleet made an important contribution.
This brings me directly to our electricity volumes generated in 2022 on slide 12, which also include long-term purchase agreements and partially owned power plants. EnBW's own generation of 42 TWh was pretty much at the same level as last year's. Compared to 2021, generation from renewable sources increased due to more favorable wind conditions and higher generation from photovoltaics due to the addition of further solar parks. Hydropower generation was significantly lower than the previous year due to low water levels. With thermal generation plants, overall generation volumes decreased. Generation from coal-fired power plants increased slightly, while generation from gas-fired power stations decreased significantly. The proportion of total electricity generated from coal was 40%, while renewables accounted for almost 28%. This brings me to our closely watched key performance indicator, CO2 intensity.
In the wake of the Ukraine war, our thermal generation units, particularly those in the southwest of Germany, were needed to maintain security of supply, not only in Germany, but also in France, where a large number of nuclear power plants were unavailable. Due to the priority given to increasing gas storage levels in the second half of 2022, more coal had to be used to generate electricity instead of gas. These developments translated into a moderate rise of our specific CO2 intensity by 2.6% to 491 grams per kWh . This is at the lower end of our forecasted range for 2022 of an increase of 0%-15%. Compared with the base year, 2018, CO2 intensity in 2022 decreased by 11.5%.
For 2025, we want to reduce our CO2 intensity by 15%-30% compared to 2018. This means that we are still on track to meet our 2025 target. In 2022, our renewables capacity increased to 5.4 GW compared to 5.1 GW in the previous year, mainly due to the commissioning of our large-scale solar farms, Gottesgabe and Alttrebbin. This corresponds to about 42% of our total generation capacity as of end of 2022. This brings me to our investments in financial year 2022 on slide 13. As already stated during last year's conference calls, we primarily invested in the expansion of electricity transmission networks and renewables, and thus, with a strong focus on the energy transition. Total investments came to almost EUR 3.2 billion, implying a 12% increase year-over-year.
System Critical Infrastructure accounted for 60% of that. The total investment of EUR 1.9 billion in this segment enabled us to press ahead the expansion of our electricity and gas transmission and distribution grids. In this way, we're making a significant contribution to upgrading and expanding the grid-based energy infrastructure in Germany, the backbone of the energy transition. We invested around EUR 860 million in Sustainable Generation Infrastructure. EUR 632 million were attributable to renewable energies, mainly to the solar farms already mentioned and offshore wind. In early 2022, together with our partner, bp, we were awarded the rights to develop a 2.9 GW offshore wind farm off the Scottish coast.
This means we now have a project pipeline of 5.9 GW of offshore wind together with our partner, bp, with FID expected in 2026, and the wind farms coming online between 2028 and 2030. As Andreas mentioned before, in 2022, we also increased the investment in our offshore wind farm He Dreiht. In thermal generation and trading, we invested EUR 228 million, mainly to advance our fuel switch projects. Investments in Smart Infrastructure for Customers made up about EUR 341 million, and were predominantly focused on further expanding our network of high-performance charging infrastructure for e-mobility. In just a few years, we have rolled out a substantial high-performance charging infrastructure. EnBW owns more than 800 charging locations, thereby operating by far the largest fast charging network in Germany.
Divestments came to around EUR 386 million in 2022. We sold a 49.9% minority stake in a portfolio of 16 solar farms with a total capacity of 597 MW to a German insurance group. We exited from the offshore wind power business in the U.S. When looking at the taxonomy alignment of our CapEx, we also include investments into EnBW's equity accounted entities. Of this expanded CapEx, some 83% were taxonomy-aligned, which implies an increase by more than 12 percentage points compared to 2021. On slide 14, I would like to comment on the development of our retained cash flow. Compared to 2021, retained cash flow in 2022 rose by almost EUR 750 million or 42%.
This improvement was driven by three factors: an increase in our adjusted EBITDA, especially in our renewables business and trading activities, as well as in our customer business, as described earlier. Covered with cash relevant earnings in our non-operating result. Last but not least, provisions and accruals we booked as part of our operating results to cater for potential risks, especially in our customer segment and electricity distribution grids. This brings me to the development of net debt on slide 15. As Renewable Energy Act account balances are only held in escrow by the transmission system operator, they are not allowed to be used for operating purposes. From this operating date onwards, net debt excludes these account balances. We have restated the prior year figures accordingly.
As of December 31st, 2022, net debt amounted to about EUR 10.8 billion, which is some EUR 500 million above the level end of 2021. At the same time, working capital increased by roughly EUR 2 billion, predominantly to an increase in inventories. Net cash investments amounted to almost EUR 2.8 billion. The repayment at the beginning of January 2022 of two subordinated bonds with a nominal value of EUR 725 million and $300 million respectively, increased net debt by about EUR 500 million due to a loss of 50% equity credit.
At the same time, pension provisions decreased significantly by about EUR 2.4 billion, mainly as a result of the substantial increase in the relevant discount rate from 1.15% to 3.7% as of December 31st, 2022. As you are aware, we manage our credit profile using the KPI debt repayment potential, which is the ratio of retained cash flow to net debt. The ratio is very similar to the matrix used by the rating agencies and is therefore very well suited for managing our investments and net debt, respectively. As a result, debt repayment potential of over 23% in 2020, in the 2022 reporting year is well above previous year's figure of 17%.
As illustrated on slide 16, adjusted group net profit attributable to the shareholders of EnBW AG decreased by 19% to EUR 973 million. This development is mainly due to a decrease in our financial result, primarily due to a loss on marking securities to market. As a consequence of the negative capital market trends last year. In long term, we aim to pay out no more than between 40% and 60% of adjusted group net profit. Subject to the approval of the annual general meeting to be held on May 3rd, our dividend proposal of EUR 1.10 per dividend-bearing share is at prior year level. This corresponds to a payout ratio of 31%. This dividend proposal will allow for additional funds to remain in the company to finance our future growth and further strengthens our equity base.
Ladies and gentlemen, let me conclude by presenting our guidance for financial year 2023 on slide 17. For the segment Smart Infrastructure for Customers, we expect an adjusted EBITDA of between EUR 400 million and EUR 500 million. For the time being, we expect that volatility will decrease and the market will return to more normal levels. We expect to see increased competition in the commodity business with consumer and business customers. For our new business areas, we are forecasting stable to slightly increasing earnings. In the segment System Critical Infrastructure, we expect a significant increase in adjusted EBITDA. This is expected to be between EUR 1.6 billion and EUR 1.9 billion. The negative effects from 2022 for grid reserve and redispatch will no longer apply in 2023.
Grid revenue will also increase slightly due to higher investments in projects included in the electricity and gas grid development plans. In the Sustainable Generation Infrastructure segment, we expect an increase in adjusted EBITDA to between EUR 2.9 billion and EUR 3.2 billion through the end of 2023. Firstly, the renewable energies business is expected to be level with the previous year at over EUR 1 billion. On the other hand, two effects will make a slightly positive contribution to earnings. Generation volumes, particularly from run-of-river, were significantly below the long-term average in financial year 2022. We expect higher volumes in 2023, and we also expect a slight increase in our renewable generation capacity this year.
There are effects that work in the opposite direction at declining price level compared to 2022, and the windfall profit levy, which could negatively impact the profitability of our renewables business if price levels increase again. We expect a significant increase in earnings in the thermal generation and trading business in 2023. One reason for this is that last year's negative one-off effect at our subsidiary VNG no longer apply. We expect a moderately negative impact from the windfall profit levy and the normalization of the wholesale market. Our full year guidance at group level for the current financial year is a significant increase in earnings to between EUR 4.7 billion and EUR 5.2 billion. This increase in earnings will enable us to make the energy transition even faster and more successful.
In concrete terms, this means accelerating the expansion of renewables and our grids infrastructure, where we'll invest even more than before. With this, I would like to hand over to Marcel to kick off our Q&A session.
Thanks, Thomas, and thank you, Andreas. Ladies and gentlemen, we will now get started with our Q&A session. To ask a question, simply raise your hand virtually at the bottom right of the webcast screen. We kindly ask you to not ask questions in the chat. When we call you up, we will bring you into the webcast. When doing so, please be sure to allow access to your microphone and your camera to the extent that you have not already done so. Let's give it a second for the first question or person to pop up. As I said, you should see in the bottom right corner of your screen the opportunity to allow for a question. Here we have Andrew Moulder. Andrew, do you wanna go ahead with your questions? Andreas, it seems your microphone still seems to be put on mute. Okay, now he dropped.
Let's try with Orlando Finzi. Orlando, can you hear us? Again, Orlando, I think your microphone is set on mute. Orlando, if you can hear me, I think your microphone is still switched to mute. Now we should be able to hear you. Hello, Orlando? Orlando, can you hear us? There seems to be a technical problem with Orlando's microphone, so we might try Andrew again. Andrew, can you hear us?
Can you hear me?
Yeah.
Yeah, I think Andrew.
Oh, hallelujah. Okay. Sorry.
We made it. Hello, Andrew. How are you?
I don't know what's happened to my camera. The light is on on my. I don't think you can see me. Anyway.
We can hear you loud and clear, Andrew, so that's better.
Hello. Yes, hello. Hello, Marcel, Andreas. Good results. I just wanted to be clear on the guidance that you gave. It seemed to me really that the fact that it's up so much next year is really only because you don't have the VNG one-off this year. I mean, okay, grids is gonna be better because you've had to pay some costs this year, but the big increase in the generation segment is really because you don't have VNG, the one-off, the EUR 1.1 billion. If you could just confirm that. Then just a couple of other questions. You talked about these hydrogen-ready plants. There's lots of utilities talking about hydrogen-ready plants, but I'm not really sure I understand the economics of hydrogen-ready plants.
I mean, what sort of power price do you really need to have in order to make a plant that's generating using hydrogen an economic proposition? I, you know, I just want a little bit more clarity on that. I don't know if you can give me a sort of a levelized cost of electricity or something else like that, just to give me a feel for whether those things are actually economic. And then I also just wanted to ask you on He Dreiht. You've talked about selling the 49%, but I noticed in your press release and also in your comments today, you didn't actually talk about how much you've sold it for. I don't know if you could perhaps give me that information.
I'm also not 100% convinced that you're selling it at the best time, really. I mean, because the people buying into the project are now gonna be taking some risk until it gets built. You've also got a lot of merchant exposure still. You know, if you waited until it was commissioned, there'd be no construction risk. You might have 600 MW of sold PPAs in place, so, you know, less merchant risk on the price there. You could probably get a much better price from whoever's buying into the project than you could now. I'm just not convinced now is the best time to sell. Maybe you could, you know, give me a feeling on that. My final question, I guess this probably is perhaps more for Andreas.
Originally, as I remember, you had a target to reach EUR 3.2 billion of EBITDA for 2025. I mean, you've hit that already, and you're gonna be maybe up at EUR 5 billion or possibly even more next year. Does the new strategic plan in place? Obviously with Andreas coming in as well, you know, CEOs do tend to look at the strategy of the business and decide whether there should be something that should be done differently. You know, do we need a full strategic review? If so, when might that be? I'll stop there. Thank you.
Andrew, many thanks actually for your, for your questions. The first question, actually, I can only confirm actually what you just said as regards to the increase in earnings in our power generation segment. It's indeed due to the two topics you mentioned, it's VNG, and it's less redispatch and expenses for security of supply reasons in our networks business. I can absolutely confirm what you just said. That's the increase. Second question on hydrogen. Let me try to pick that one up. That's a difficult one because as of today, it's not economically viable to use hydrogen. I think we all can just agree on that.
It very much depends on the future development of the hydrogen market. We assume that by 2035, so the mid of the next decade, we will have sufficient hydrogen available actually for these power plants at economically sensible prices. It's certainly something that needs to be seen, and it's too early to really look into that. I mean, honestly, it needs to be at the price level you currently have for LNG. That's basically what it would mean. There's a long way to go certainly, before we reach these price levels for hydrogen. As regards to He Dreiht, the sale of the 49.9%, Andrew, you will not be surprised to hear from me that we are not disclosing purchase prices.
As regards to the timing of the sale, I think from our perspective, we have met the perfect timing actually with the sale. Indeed, the investors are going to take the investment and construction risk. However, the market has evolved over the last couple of years and matured, and we do not see a significant premium between today and end of construction in the market. From our perspective, to have a partner on board sharing construction risk on the one hand side, also sharing the CapEx during construction, made every sense in the world to sell it as of today.
As regards to the PPAs levels and amounts and volumes. The 335 MW were deliberate decision actually not to increase it further at this point in time because our trading is convinced that there will be better times, even better times compared to what we were able actually to close the PPAs in the near future. We will gradually, over the next couple of years, increase this level to at least 450, potentially above 450 MW. We would like also to have some exposure to the market, even in the mid and long term for He Dreiht.
Can I just come back quickly on He Dreiht?
Absolutely.
I just wanted to confirm, those PPAs, are they sort of, buy as generated, so there's no kind of volume rid there? You know, given what we've seen about inflation and costs being increased, can you just confirm that you've got all of the costs fully locked in for the construction of He Dreiht?
Yeah. We've locked in all the costs actually for He Dreiht, to start with. Secondly, your second question was? Help me again.
Just on the, on the PPAs. Are you bearing volume risk or are they just.
Yeah, yeah, no, we are.
Buy as.
No, no, can only confirm. Yeah, Andrew, sorry, yeah. We can only confirm actually we're not bearing any kind of volume risk as regards to the PPAs. The offtaker is actually going to take the volume risk.
Great. Thank you. Yeah. The strategy questions?
Yeah, well, thanks, Andrew. When I started here, it was very clear quickly that EnBW is well positioned today. When we look at 2025, this is very clearly within the paradigm, within the frame of our midterm planning horizon. That's why we're quite confident about our outlook towards 2025. However, to answer your question, it is also very clear that the year 2022 has made such a massive impact in the energy industry. Therefore it is very clear and apparent that we are going to take a look at our strategy. The work has already commenced on that, I think we can say after internal discussions and conclusion, we will update you as we go along throughout the remainder of this year.
Okay, that sounds good. Can I just sneak in one more question? One thing you didn't mention at all in your presentation was Transnet. Can you just give perhaps a comment on how that's going?
Andrew, of course. It's working. It's progressing well as we assumed. We are in the middle of the process. Andrew, you know us, we will provide with further information when we come to a final agreement. It's as we expected, actually.
Okay. Great. I have got a few more questions, but I'll jump off and let someone else ask and raise my hand again. Thanks so much.
Okay, Andrew. Thank you.
Bye.
Thank you, Andrew. I think we've got Orlando again. Let's give that a try if it works now with the microphone. Orlando, can you hear us now?
Now we can see you.
We see you and.
Can you hear me now?
Andrew, we can hear you. We can see and hear you. Hi, Orlando.
Excellent.
Hi. Good afternoon. I apologize. I'm now on the mobile phone rather than the computer. For some reason, it works. Thank you very much for the results and the updated climate strategy. I just. Obviously, there's a lot to digest in what you've announced today. I'd just like to, I guess, to check in terms of the ambition to close coal generation by 2028. Obviously, there's an increased reliance on gas, and as we know, the supply of natural gas at the moment is not fixed, is not adequate. To what extent does your closure of coal rely on developments for the supply of natural gas, of LNG to occur?
Just to understand that relationship and how you've integrated that situation into your decision-making. Thank you.
Well, thank you very much, Orlando. I mean, to answer the question, we also need to look forward. We also said this morning that this depends, and we're investing in that, on the buildup of renewable energy sources, which we are confident will make up a much greater share of the energy supply by the year 2028. By then, the energy that we will have to produce using dispatchable power, using, for instance, fuel switch power plants, will be less and less and less. Therefore, our estimates is that we are able to cope and get the supply of natural gas. We've checked that as a, as part of an internal study, and, that's why...
That's when we were able not to look at the earliest time when we could exit coal, but at the time that makes sense from our viewpoint, and that's how we have concluded with the year 2028. The intent is to use as less dispatchable power as possible and therefore consume less natural gas.
Thank you. That's very clear. Just to understand on that, how does this strategy also integrate with the government and their position on energy? Is there a high reliance there or decisions to be made? Just a separate question. When I look at the increase in CapEx as implied by this, there's obviously a potential to be pressure on credit metrics. Maybe just Thomas, understand how you're thinking about. Again, you've been obviously very clear on credit ratings historically. Just to understand with this new step up, if you like, to the challenge of a climate transition, how confident you are of being able to maintain the same? Thank you.
This goes very well with the expectations and expectations of our government with regards to the future energy buildup in Germany. There are estimates that we need about 50 gigawatts of gas power plants by the year 2040, 2045, and 15 GW to 20 GW of gas power plants post 2030. With our three already announced fuel switch projects, we're playing well on that journey, and I think this will be seen very favorable by our government.
Orlando, as regards to, credit matrix, I mean, you've said it actually. I've always been extremely clear as regards to our ratings positioning, and that hasn't changed. Solid investment-grade ratings is actually what we are looking for. You can see it when you look at our credit at our ratings, S&P as well as Moody's. We feel very comfortable at that level, and that's how we manage our business to stay at that level, not just today, but also going forward. Very clear. It's doable actually. I mean, that was the second part or implied question, if I may say so, Orlando. Can we do it actually with the CapEx ahead? Absolutely.
We also have an increase in our underlying retained cash flow, so we are comfortable actually to be able to meet all the metrics we need to stay within the current ratings grid.
Orlando, we can see you nodding. Does that mean that we've answered your question?
We can't hear you. We can't hear you, but we can see you nodding.
No, it's very kind. That was very clear. Thank you. I'll hand over to the next person. Thank you.
Thank you. Welcome, Orlando.
Before I call Andrew, again, let me just see if there's somebody else who would want to raise a question. If that's not the case, Andrew, over to you, with I guess, some follow-ups.
Hello? Am I on again?
Yes.
You are.
Absolutely, we can hear you.
Sorry, my screen went blank for a minute. Okay, good. Yeah, I just have a couple more. One just basic question. On the net debt, Thomas, you talked about restating it because the liquid funds for the EEG account are ring-fenced. That's fine. What if it moves the other way and actually you owe money to the EEG, and still include that as net debt? Perhaps you could just comment. I mean, I'm only thinking a little bit of EDF and the CSPE, which does move both positively and negatively. I assume the EEG does the same, but maybe I'm wrong, maybe it doesn't. If you could just comment on that. The second thing, I just wanted to ask on VNG and the capital increase.
If I understand correctly, you have already put the extra capital into VNG, and I think you said that the partners in VNG have until May to put their money in. Am I to assume you've put the whole EUR 850 million in, and that you're waiting for them to decide? Because presumably, VNG, you know, VNG needs EUR 850, whether they put the money in or not. Where's the extra money gonna come from if they choose not to put it in? And sorry, one other question on that.
Sure.
How would I see that all reflected in your accounts? Obviously VNG is fully consolidated, so I'm not actually sure I'll see anything in your accounts until the third parties put money in, and then your cash is gonna go up.
Andrew, let me get started with the VNG question actually. What we did actually, we put in another EUR 850, but we paid our share, that's EUR 630 in capital increase, and OEW paid EUR 40. Outstanding actually is the part of VuB, which are eight municipalities from Eastern Germany, and their share is still outstanding. The question is actually would we pick up their subscription rights if and when they would not or only partially actually participate in the capital increase? For the time being, that's not the case because we do, for the time being not see that VNG does need the additional CapEx if VuB would not participate in the capital increase. To start with...
You can see it in the increasing dividends actually going forward, because obviously our share has increased in at least as of today. If we do not see any kind of subscription by VuB, our share has increased, so you can see there. Actually, we would also assume that the dividends going forward from VNG are going to go up because, I mean, we do still have an extremely solid business case in place with VNG, and we would assume that the earnings contribution from VNG is going to go up over the next couple of years.
Sorry, is the capital increase effect already in your 2022.
Absolutely. Absolutely. Absolutely. Yeah, yeah. Yeah, sorry. I didn't appreciate that question, actually. It is in our.
I just.
It's already included.
Okay.
It's included in our 2022 accounts. We've paid in December, actually.
Right.
Yeah. your net debt question as regards to the Renewable Energy Sources Act, it's positive for the time being. If it were to turn negative, actually it would be covered by the state. We do not have actually any kind of obligation here. It would not increase our overall net debt positioning.
Okay.
Right?
Okay, that's great. Thank you.
Welcome.
Thank you, Andrew. I think we have Orlando again with follow-up questions, if I'm not mistaken. Orlando? Orlando, I think you had raised your hand again, we can't hear you and can't see you.
Still on mute.
Yep.
Here he comes again. Hello. Perfect.
Yeah. Hi. Yes, thank you. Could I just ask just on the new climate strategy, which is really encouraging. I'd just like to understand in terms of putting that together, what the pressure points were, the level of confidence in the targets. Obviously, the ambition is very high and commendable, but just to understand the complexities of trying to construct that, is there any sort of insight you can share with us from that process? Yeah, just that. Thank you.
Certainly. It'd be my pleasure. We started last year, and I do think that we really have the experience and expertise inside EnBW to address such a question. Keep in mind, we are the one remaining energy utility company in Germany that is basically positioned across the entire value chain, which means power generation and trading as well as grids and as well as customers. Therefore, it's very important for us to have a perspective. What we did is we did take a look into our own models, and we did forecast the utilization, and therefore, also the potential power generation in the outer years, also looking into trading prices or projected trading prices. Then we basically came up.
We combined basically the art of the possible together with the reality and concluded that the year 2028 was the right year for us. It's very clear we now have to continue the discussions with some of our partners wherever we co-own, power generation plants. These discussions have already started. It's very clear as we go along, we will announce further details on our plans.
Thank you, Orlando.
Thank you.
Does that clarify your questions?
That does. Thank you. It's very helpful. Thank you.
Thank you. Let me ask if there are any more questions. As of now, I don't see any raised hands, but let's give that another second. That does not seem to be. Oh, no. Here we've got somebody. Oh, no, there we go. Let's have Richard Alderman, please. Richard, welcome. If you were to switch on your microphone, I think we can hear you. Richard, can you hear us? Here he comes. Your microphone seems to be on, but we can't hear you yet. Richard? That doesn't seem to work. Richard, maybe we'll try it again in a minute or two. Let's have Callum Hemsley, please. Callum, again, your microphones on mute, but if you unmute yourself, we should be able to hear you.
Yeah, that's good.
Screen's still black. Your microphone seems to be on. Can't hear you yet, though. There seems to be a technical problem as well. Callum, can you hear us? It doesn't seem to work. Let's try James Sparrow, please. James, can you hear us? Switch on your microphone. Hello, James? It seems to be really unfortunate. Callum and James, we have you both in the webcast now. I mean, neither of you we can hear here in the room. That seems to be really unfortunate. We have Richard again. Richard, let's try it with you. Richard, your microphone seems to be switched on. Unfortunately, we can't hear you here in the room.
Look, if you, if you have problems with raising or switching a microphone on, I know I had said that you're not supposed to use the chat, but we might as well turn that around. If you put your question into the chat, we should at least be able to address it right now. Trying to be flexible here and answer as many questions that you have now in the call. We're gonna give you a few seconds to type in questions, and we're trying to address them this way. Okay. I think we have one question from a bit earlier, but that was from James, which I think we answered on Transnet. Okay, there we've got the question that Richard had asked, let me just, you know, repeat it.
Can you please tell me if you need to see the coal reserve to reactivate in 2023 in order to meet the 2028 deadline? Do you have an outstanding cost or costing to be approved? Well, I think the question behind the question is whether we had implicitly assumed that there would be a coal reserve to be put in place in Germany as part of our ambitions to become or to exit coal in 2028. Thomas, do you wanna take that?
Ab-absolutely.
Yeah.
Richard, many thanks actually for your question and, sorry, actually that we do have some technical issues here. No, we did not assume that there is a coal reserve actually to be set up, neither for a hard coal nor for lignite. No, that's not one of the underlying assumptions for our coal exit by 2028.
Thank you, Thomas. Let me see if we have either more questions via the chat, or if Orlando wants to give it another try, we might as well do that, because Orlando, it has worked on your end. Orlando, you are now with us again, but your microphone's on mute. Okay.
Hello.
Here he is. Hello, Orlando.
Hello. Yeah. I think maybe the technology works better on a mobile device, funny enough.
Yeah
On the office computer. Anyway, that's my experience. It's very clever technology. Can I just check, obviously, I guess we're all very relieved the energy crisis has turned out, the way it has so far, which is probably better than, anyone feared. Obviously it's not solved when we head towards next winter, where obviously a huge amount of effort has been made and remains ongoing to try and avoid crises. Do.
Can I just ask from an EnBW perspective, how you are prepared in case there is greatly increased volatility again, you know, how you think it might impact you, or not, given you have the knowledge now, and of course, given you don't have the same exposure to gas contracts that you did in 2022. Just to check on that, because clearly the problem, if you like, is not fixed yet. We live with it and have to deal with it and its uncertainty. Thank you.
There's still the uncertainty, Orlando, fully agree. I think the energy crisis is not over yet, especially when you look at next winter. However, actually from a earnings perspective, we shouldn't be impacted negatively by that. It's more about the question about the security of supply for next winter. I'm positive as of today because, I mean, the volumes in gas storage are still extremely high, so I think we might be able to have really 100% of gas storage by the beginning of winter. We need to ensure that we do have enough coal available. We do have inventory on stock, and we make sure that we do have enough coal to get that will get us through the winter. I'm not that concerned in terms of earnings.
Volatility will be there, might pick up again. The rest is security of supply. With the LNG terminals actually getting now online, we should be able to handle it. Does it answer your question, Orlando?
Yeah, that's very helpful. Maybe I could just add on to the question there. Obviously, with the strategy to close coal.
Right.
I n 2028, obviously you need to maintain it available before then. How do you, in terms of achieving a balance of the right amount of stock of coal, stockpile of coal to generate, and then also thinking about running down, how do you get that balance? How do you strike that balance? Is that difficult, or is that fairly manageable?
If we were to shut down our coal power stations tomorrow, it would be difficult, not when you look towards 2028, for different various reasons. First of all, at that point in time, we should also have available, by 2026 to be precise, our three gas power stations, which is certainly helpful. Those power stations still being on the grid by, on, in the market by 2028, we should be able actually to plan accordingly to run down respective coal stocks before we shut it down. Potentially, these power station might also go into grid reserve. That needs to be seen. We are not concerned about that.
I think we'll have the respective levels, coal levels in place actually to run them down by 2028 or actually to ensure that we do have enough coal for the grid reserve. No, we are not concerned about that. Certainly not. Yeah.
Thank you.
You're welcome.
Thank you, Orlando. I think we have another question from Callum here in the chat now, who had problems using or un-unmuting his microphone, I guess. Thomas, I'll put it straight to you whether you could comment on the press reports about the German government looking to nationalize the electricity TSOs. Whether we've been party to these discussions, whether we have a view on whether Germany should put together all the TSOs in one functional group, and whether we'd be prepared to only take a minority stake in that?
I mean, we're not party to these kind of discussions. We've heard that these discussions are, to a certain extent, ongoing. I'm not sure actually at with scale and how serious that is. What we currently see and what was in the press is actually that the German government is currently talking about increasing its stake in TenneT. It doesn't actually have an impact on us as of today, also not on our process in selling down 49.9% in our TSO business, TransnetBW. For the time being, we are relaxed about that, and we do not see any need actually to get involved any further in these kind of discussions.
Callum, I know you don't have the opportunity to answer us directly, but I hope that we could address your questions. I'm not sure whether there's anybody else who would want to raise a question either via the chat or to come into the webcast. Just to give you the opportunity to raise any points. Here we have Andrew again. Andrew, let's try that one final time. See if the microphone works on your end.
Hello. Can you hear me?
Yes.
Absolutely.
We hear you loud and clear.
On the bottom, which I just have to click on. No, I just, one thing just occurred to me, actually. You, you talked about VNG being more profitable and bigger dividends going forward. Obviously, you've canceled those, Russian contracts, which, you know, at the end of 2022. I'm assuming, given current market conditions, it would have cost you a hell of a lot more to replace that Russian gas than the contracts you had originally. Are we really gonna see profits increase from VNG, and why?
Let me put it that way, actually. The two contracts we had with Russian gas were not that extremely profitable as you might think of. Firstly. Secondly, they were profitable, of course, but not to that extent you might assume. A better part of VNG business is the regulated business to start with. Secondly, we do have also another price level currently on the gas market compared to the years before. Overall, we do see actually a great opportunity for VNG also going forward, even so they do not have the benefit of the two Russian gas contracts.
Okay, that's great. Thank you.
You're welcome.
Thank you, Andrew. At least I'm not aware of any more questions either in the chat or people who had raised their hands, so I guess we're nearing the end of this call. Thank you, Andreas, thank you, Thomas, for your answers and comments, and thank you to all of you here in the webcast for taking the time and also for your patience and your efforts to or overcome the technological challenges. It was a great pleasure to see you, here in the stream, and we definitely look very much forward to welcoming you again when we present our figures for the first quarter 2023 on our next conference call on May twelfth. Until then, all the best and goodbye.