Hello everyone. D ear analysts and investors, welcome to our full year 2022 financial results presentation. I hope everyone is healthy and doing well. Thank you for taking the time to join us. Today, I'm here together with Leo and Marc. Leo will give you the strategic update, followed by Marc walking you through the financials. As before, we will leave enough room for your questions after the presentation. Over to you, Leo.
Thank you, Iris. Warm welcome also from my side to all of you. Really a lot has happened since the last year, and I can honestly say that even with my 25 years in this sector, I've not ever experienced such a year. Where do we stand now? Well, the winter season has turned out luckily to be mild, but let me be clear, we are not through the crisis yet. However, especially we at E.ON are much better off than we have been previous year at the same time. We continue to work hard to mitigate the risks which are still existing and to serve our customers through the hardship that they are partially suffering through. We are staying focused on the opportunities ahead, and we will continue to deliver as we have delivered. We are the energy transition company.
Let me kick it off with my four messages for you today. First, we have performed during the crisis. We have delivered a strong operational and financial year 2022, despite severe macroeconomic challenges. We have proven to have a really resilient business model with an excellent portfolio. You, as investors, will benefit from our strength as well. We'll increase our dividend payout for the eighth consecutive year. Marc will later show you that, at the same time, we have strengthened our balance sheet as well. Second, in times of unprecedented uncertainty, we have gained increased relevance for our customers, for our societies in which we operate. We are the largest operator of critical infrastructure for the energy transition in Europe. We take care of security of supply and affordability of energy for one of the largest customer portfolios in Europe.
We actively support shaping the energy market and contribute to keeping Europe a strong economic player. We are a part of the solution for a climate-neutral energy future. This increased relevance and this part of being a solution can also turn into tangible upside for E.ON. Third, with our growth strategy based on sustainability and digitization, we will capture the even stronger tailwinds for a faster decarbonization, which we are right now observing. We did not only manage the crisis in the last year, we also became more sustainable and more digital. Fourth and final, all this means that we face massive opportunities, and we have the financial capacity and resources to ramp up the investments for profitable growth, provided that the remuneration framework is right. I'm confident that this will be the case.
Now let me just talk you through these points in a little bit more detail. First message, strong delivery. Across the segments, we have finished earnings at the top end range of the guided ranges, at top end of the guided ranges. We have delivered what we have promised to you 12 months ago, and I'm really proud of our teams who have done a great job in a challenging market environment that has been really characterized by unprecedented and immense volatility. Both our core businesses have proved to be highly resilient. When it comes to networks, the earnings delivery has been mainly impacted by temporary effects during the year related to higher costs for network losses. As we have pointed out previously, those impacts have started to reverse already. The price volatility has likewise also affected our energy sales business.
Nevertheless, our digitally integrated business model proved to be rock solid, and it helped us to mitigate the risks that we have seen in the last year rapidly and successfully. A clear example of that is the speed at which we have reduced the time to market in the German sales business. Now able to bring new tariffs into the markets within a couple of days, and before the crisis, this took us weeks, and that would have been a severe challenge in the crisis. Earnings in the division have also been backed by continuous strong demand for our decarbonization solutions for industrial customers and cities, as well as for retail solutions for our residential customers. On a group level, also the non-core business has contributed, again at the top end of the guided range.
We've mainly benefited here from higher achieved market prices, but only because we also had world-class operators being able to exploit the opportunity. Altogether, this means we have been able to achieve an EBITDA of more than EUR 8 billion for the group. Also, in adjusted net income, we have seen above EUR 2.7 billion. For both KPIs, we have delivered above our guided range. This success will be translated into a continued strong dividend payout proposal for EUR 0.51 for fiscal year 2022. Strong delivery, and this brings me now to my second message, increased relevance. E.ON is operating 1.6 million km of Energy Networks, and this makes us the largest operator of critical energy infrastructure in Europe. E.ON reaches 20% of all citizens in continental Europe and in the U.K.
This makes us the owner of one of the largest customer portfolios in Europe. Both facts, networks and Customer Solutions, have made us the natural partner for governments to solve the current crisis. Our relevance increased with the understanding that we are an essential part of the solution. We, at E.ON, we assume responsibility when it matters, and we have actively contributed to mitigate an unprecedented crisis, which you see on this chart, in Europe. I've been personally a dedicated member of one of the gas crisis teams of the German government. Across all our regions, our local managers have been in similar situations. I'm also the President of Eurelectric, actively contributing to the market design discussions on the European levels. We really try to make our part happen that the energy crisis can be solved.
All of these activities have led to good outcomes in the interest of both our customers and also our shareholders. The support schemes that have been developed in all our markets are now in full swing, including special measures for our most vulnerable customers. We are convinced that these efforts, such as price caps and our direct support, including offering of payment schemes, cannot be the solution in the long term. We have to invest ourselves out of the crisis in the long term. Nevertheless, they have helped the customers in the short term. This brings me to my third message. We have the right growth strategy. We will capture the strong attainment for faster decarbonization. We will continue to successfully operate in 2023. Why am I so convinced?
We have managed not only to deliver performance, financial performance, which you have already seen. We have also delivered growth and, on top, we became more digital and more sustainable. Let me just give you some proof points of that. Last year alone, requests for renewable connections grew by 40% in our German network business versus prior year. Already 2022 versus 2021, +40%, and the trend is unbroken going up. Outside of Germany, the number of requests for new grid connections is strongly growing as well. For example, in Sweden, in the Czech Republic, we see triple-digit growth rates year-over-year for connecting residential solar. Additionally, we see e-mobility picking up at extremely high speed.
We also see demand for sustainable infrastructure solutions, our so-called IS business, with an increase of investment of almost 30%. We expect a similar trend for 2023. Finally, in residential customers, we are seeing more and more requests for independent energy solutions on the journey to get to net zero. Revenues of our retail solution business grew by around 25% year-over-year, and it exceeded EUR 1 billion in 2022, and, I might say, profitably, not just in whatever it takes. Next, digitization. We are also becoming more digital, an all digital company in all our operations. This will be the driver of efficiency and productivity, and this will ensure that we are also in the future competitiveness, competitive in the energy market. Again, some proof points.
In Energy Networks, we have increased the number of smart secondary substations to digitally steer and monitor our assets in the low voltage. We have reduced operational costs for connection of renewables and accelerated our planning processes. In Customer Solutions, we achieved a much faster time to market. I just gave the example of Germany, and this has happened via digital sales platforms. As prices will remain high and volatile, this will become a real differentiator also going forward. Last, sustainability. We have fully implemented sustainability in all our steering processes in the company. It's also now fully integrated in our annual report going forward, and you can actually look at it yourself. It has been a real effort to come to this integrated perspective on business and on reporting.
We keep on also progressing with our customers, reducing more than 100 million ton for the last year. I just wanna emphasize that obviously it's now also part of our targets, part of our steering taxonomy targets, larger 95% SBTI obviously approved 1.5 degree compliance, et cetera. Be assured, however, in 2023, we will not rest on all these developments. Our strategic pillars, growth, digitization, and sustainability, will continue to be our compass, and we will work hard to make further progress day by day. This brings me now to my last message, growth. The crisis has brought forward the need for an even faster decarbonization. We are now seeing increased targets for renewable build-outs all over Europe. This is great for our networks. Every windmill needs a connection. Every connection, more and more, needs a reinforcement in the backbone.
It's not only our networks. With our Energy Infrastructure Solutions business, we benefit from the heat transition that we see in cities, municipalities, local communities. 2022 has also left a clear mark in end -customer behavior. Demand for heat pumps, for PV panels and electric vehicles is promising significant additional growth opportunities. Basically, growth above what we observed, in 2021, in 2022, and further accelerating in all our core businesses. This is clearly the time in which we want to accelerate our investments to capture these green growth opportunities. Within our CapEx plan, we have reserved EUR 33 billion until 2027 to participate in that growth momentum. Obviously, subject to an adequate regulatory return.
Adequate means attractive for capital owners that have to consider the increased cost of capital, the interest environment, which has changed significantly 2022 versus 2021. With this investment plan, we will be in the position to increase our RAB growth from 6% on average to at least 8% on average until 2027. Again, we will invest in a reasonable way. We have the financial capacity and the resources to invest, provided that the remuneration framework is right. We are confident that this will be the case, as we have just seen the German regulator making a first proposal for an improved cost of debt calculation last week. To be clear here, this can only be the starting point. This brings me to my final message for today. The market is ready to accelerate on all fronts.
We are ready to cope with that speed and to do our utmost to deliver our contributions for Europe's targets to become carbon neutral. I'm convinced that we will do that while still growing both earnings and dividends. With that, over to you, Marc.
Thank you very much, Leo. A warm welcome from my side to everyone as well. We wanna make it super simple for you today. Strong strategic momentum translates into strong operational and financial delivery. What should you take away? First, the year 2022 has been successful despite the challenging macro environment. We did not only deliver bang in line with our initial guidance, we were also on top of our group guidance, and we also kept a close eye, a very close eye on cash. Second, we see boosted growth prospects for all our businesses. This means significant investment opportunity and earnings growth potential for E.ON over the next five coming years and beyond. Third, increased investments stand on very solid financial footing. Our upgraded green growth program will be delivered together with a debt factor target of up to 5 x.
We will comfortably ensure our capital structure target of a strong BBB, Baa rating. This sound financial position also allows us to pay a dividend of EUR 0.51 per share for the fiscal year 2022, and to also reaffirm our long-term dividend growth policy of growing our dividend per share every year by up to 5%. Let's start with the details of our full-year operational performance. Our group EBITDA came in at EUR 1.8 billion, around EUR 250 million above the upper end of our group guidance. Core EBITDA came in at EUR 6.9 billion at the upper end of the forecasted range, which we updated in November. In our Energy Networks business, we were able to achieve an EBITDA of EUR 5.5 billion. Key positive drivers were additional efficiencies and investment-driven growth.
These were partly offset by high energy prices, leading to additional costs for network losses and milder weather and energy savings having an impact on our wheeling volumes. Each of those two negative effects, which I just mentioned, led to a low triple-digit million euro burden year-over-year. Both effects reduced earnings in 2022, but will be recovered over the next years according to the established regulatory mechanisms. Our Customer Solutions business performance was strong and provided EUR 1.7 billion of EBITDA. The main driver for this was our capability to actively and dynamically adjust our procurement strategy in line with amended weather forecasts and consumption patterns. We were also able to sensibly pass on increased wholesale prices to our customers.
Our Energy Infrastructure Solutions business continued to grow very robustly by 19%, or around EUR 90 million year-over-year to around EUR 570 million. All in all, our group and core adjusted net income came in at roughly EUR 2.7 billion, following our EBITDA earnings development. Moving on to an update on our bad debt development. First key message: year-over-year, we still do not see any material change in our actual customers' payment behavior in any of our markets. Second important message: we have increased our earnings-effective additions to bad debt provisions in a year-over-year comparison by about EUR 300 million. We also stay prepared for an adverse outcome during this year or the future. Let me now turn to the development of our economic net debt.
Compared to our nine-month figures, economic net debt has been reduced by another EUR 1 billion, down to now EUR 32.7 billion. This is largely due to an exceptionally strong operating cash flow, resulting in a cash conversion rate for the full year of 151%. Our strong financial position at year-end led to a debt factor of 4.1. What does that mean for our capital structure going forward? E.ON remains fully committed to its capital structure target of a strong BBB, Baa rating. This remains unchanged. However, rising interest rates will, ceteris paribus, and over time, increasingly burden rating ratios. With our new debt factor target of up to 5 x, we fully anticipate this effect already today. Even more important is that we will stay comfortably in line with this new target, also including our upgraded CapEx program.
Why are we so confident? Because we will continue to keep a close eye on cash. Our working capital in 2022 strongly improved by around EUR 4 billion. This improvement is, of course, to a certain extent, rooted in temporary effects that will reverse in 2023. However, to a considerable degree, it also stems from working capital excellence measures. From today's point of view, we see a cash conversion of 80% for 2023, which will thereafter swing back to our average of 100% in subsequent years. With that, you should take away that about 1/2, that is EUR 2 billion, of the cash improvement which we have seen in 2022 will stay with us for good.
The portfolio optimization program, with disposal proceeds of EUR 2 billion-EUR 4 billion by 2026, is also unchanged. In 2022, we already made substantial contribution to this with the partnership around our German broadband and business in the western German area with Igneo Infrastructure Partners. I also want to reiterate that we will pursue a series of minor transactions. No big bang, a series of minor transactions over time. Let me now turn to our guidance on investments. As elaborated by Leo, the growth opportunities for all our businesses are shooting up. We will capture these prospects and will gradually but significantly ramp up our CapEx over the next years. We have the financial capacity to invest, and we will deploy these resources, provided that the remuneration framework for our Energy Networks business is right.
We upgrade our five-year CapEx delivery plan by more than 20% to EUR 33 billion. The bulk of the CapEx upgrade will be invested in Energy Networks, where we see accelerating investment opportunities from the clean energy transition. We additionally intend to invest more within our Energy Infrastructure Solutions business, where we are particularly excited about the future prospects. We also increase our CapEx budget within energy retail, with Future Energy Home and charging infrastructure exhibiting significant growth potential. All our investments are required to meet strict internal hurdle rates, broadly made up of project-specific WACCs, plus risk-adjusted spreads. We will continue to strictly adhere to these benchmarks. Turning now to our 2027 outlook as we roll forward our five-year guidance. The CapEx opportunities allow E.ON to be fully committed to its growth promises. We are committed to generating EUR 9 billion EBITDA.
This will translate to around EUR 0.97 per share in 2027. With that, the negative impact from higher interest rates will be more than offset. Our PreussenElektra operations are classified as non-operational as of January 2023. Will hence no longer impact our adjusted earnings. Our Turkish generation joint venture is now reported under corporate functions other. Our outlook demonstrates the value-creating potential of our green investment plan. It also shows the sustainability of the diverse growth drivers across our segments. For 2023 specifically, we forecast EBITDA of EUR 7.8 billion-EUR 8.0 billion and adjusted net income of EUR 2.3 billion-EUR 2.5 billion, already taking a big leap towards our around EUR 9 billion EBITDA and EUR 0.97 EPS target for 2027.
As Leo pointed out, we do not view the European energy crisis as being over yet. In our assumptions for the 2023 guidance, we prudently assume that a cold winter 2023, 2024, and/or a real re-acceleration of global LNG demand in the coming months could reignite an energy scarcity in Europe. For our investors, this means that our businesses will continue delivering their financial targets even in tough times. The flip side of this is, should commodity prices stay where they are today and demand should come back faster to pre-crisis levels, then this will translate into significant upside for us. As mentioned before, our earnings outlook is well supported by our three business pillars.
For Energy Networks, we expect to generate an additional EUR 1.1 billion EBITDA over the next five years, reaching an outcome of EUR 6.5 billion-EUR 6.7 billion in 2027. This increase will be reliably driven by continuous regulated asset-based growth while closely managing the productivity of our cost base. For 2023, we will see a jump in profitability beyond what the mentioned drivers should make you actually expect. I will add more color to this dynamic on the next slide. Energy Infrastructure Solutions are expected to generate an extra EBITDA of EUR 300 million by 2027. This demonstrates the segment's ability to translate organic growth CapEx into sustainable earnings. For 2023, the segment is expected to generate EUR 500 million-EUR 600 million in EBITDA.
We envisage our Energy Retail segment to grow from EUR 1.1 billion EBITDA in 2022 to EUR 1.5 billion-EUR 1.7 billion in 2027, with growth coming from additional efficiencies on our way towards a long-term margin level of 2%-4% across the portfolio. We will also continue to grow our Future Energy Home and e-mobility solutions activities, together adding EUR 2 billion of revenues and EUR 200 million of EBITDA by 2027. The underlying earnings growth trajectory in our Energy Networks Segment is straightforward, as you should expect it. Based on our growth CapEx plan, we will be growing our asset base year-over-year by about EUR 3 billion-EUR 3.5 billion on average during the next five years.
At current allowed returns, this will translate into more than EUR 200 million additional EBITDA every year. In addition, we expect growth from investments into adjacent, largely quasi-regulated activities such as smart meters in the amount of EUR 40 million-EUR 50 million EBITDA per year. On top of that, a bit like the icing on the cake, we will continue to ruthlessly focus on efficiency to ensure both that returns from additional growth investments will flow one-to-one into our bottom line, but also that our regulatory outperformance will at least be maintained. Far, so simple. Another positive feature of our networks activities is that revenues are shielded against variations in demand and commodity prices, and even largely against changes in inflation. As we have outlined in the past, the financial recovery of some of these variations cause temporary shifts in earnings.
This is particularly true for the recent variations in wheeling volumes and network losses, where we do expect recovery of past losses, specifically during 2023 and 2024. It also applies to certain effects relating to pension liabilities, specifically in our German network businesses. Because inflation rates moved sharply, our pension liabilities under German regulatory GAAP were significantly inflated during 2022. This inflation-driven increase in liability will cause a positive one-off compensation by the regulator in T + 2, and that is in 2024. What should we take away? First, economically, all these effects are a wash over the midterm. Cash effective upside in 2023 and 2024 offsets cash effective downside of prior years.
What really matters in terms of value creation is our underlying performance built on growing our power rep and managing tightly for efficiency. Our guidance is cautious as it reflects no adjustment to current regulatory returns. We are confident that regulators will recognize our commitment to increase CapEx and accelerate the energy transition in Europe by adjusting allowed returns more responsibly to the massive shifts in macroeconomic variables that we have seen during the last 12 to 18 months. This should provide for further upside potential also at the long end of our guidance. Let me now summarize the updated financial framework for E.ON. As you have heard before, we are accelerating our CapEx plan to EUR 33 billion. That translates into EUR 9 billion of EBITDA. That translates into EUR 0.97 earnings per share by 2027.
We remain fully committed to our strict internal investment hurdle rates, which will translate into an average return on capital employed of 7%-8%. We are also fully committed to our dividend policy of growing the dividend every year by up to 5%. We adjusted debt factor leverage guidance to up to 5 x, underpinning our commitment to the unchanged rating target of a strong BBB, Baa rating. With that, back to Iris.
Thank you very much, Marc and Leo. With that, we come to our Q&A session. I'd like to kindly remind you that please stick to two questions per person. With that, we'll start with the first question. The first question comes from Wanda Serwinowska from Credit Suisse. Wanda, please.
Hi, good afternoon. Wanda Serwinowska, Credit Suisse. Two questions from me. The first one is on the EC proposal that was announced yesterday on the new power market design, which seems to put a lot of focus on the end customer protection. It seems that there will be an obligation for more conservative hedging at the supplier side. Consumers will have an option to sell the excess of electricity to other consumers, something that is not the case right now. Big retailers would need to offer a fixed price contract. Any thoughts, any initial thoughts from you on how this can impact E.ON retail business? The second question is on Energy Infrastructure Solutions. Leo, you mentioned last year that demand was very strong, but there were some supply side constraints. Have you seen any improvement on the supply side, heat pumps, solar panels?
Yeah, Wanda. Thanks, thanks for the questions. Number one, on the EU market design. I would say, considering, where the consultation started in the last year, or even before the consultation, the current proposal is, I would say, a reasonable starting point, for a good discussion. I think we have seen, last year, proposals that would have really changed the market and had side effects which would have been hard to understand and quantify. The current proposal on the table, I think, is more a glass 1/2 full than 1/2 empty, and we can work with it. I agree with you that, we have to study it in detail, and we have to follow the trilogue discussions, in depth, because there are lots of changes in there.
It's actually lots of words, lots of small changes, and each of them matters. On the hedging, I'm actually pleased with the outcome because whilst in the beginning there have been debates about a very prescriptive hedging, like we have seen in other markets, like in the U.K., with very negative effects. It has been understood that actually to be too precise on the hedging is not beneficial for customers because it forces all the participants in the market to behave in the same way at the same moment in time, which obviously leads to an increase in volatility, completely undesirable. Therefore, what I foresee right now is that the hedge, that there might be some obligations which will, however, not change fundamentally the business we at E.ON are doing.
Also, there have been now no exceptions put into the proposal for smaller players, which would have been really distortive to the market. In total, I would say glass half full. We can work with it. The most dangerous and most difficult proposals have not been put on the table by the European Commission. I'm confident that we will see rather a targeted, somehow reasonable amendment of the current frameworks rather than a revolution of the framework within a too short time period with all possible side effects. On the EIS completely changing, you know, EIS supply chain. Yes, we have seen challenges in the supply chain. We are seeing, you know, a partial relief. For example, you've all seen the chip scarcity is slowly getting better.
Therefore, right now, I would argue the biggest bottleneck we have is twofold, which is having enough engineers to deliver the project and having sufficiently enough standardized approach to scale the business to really benefit from the growth momentum which we are seeing.
Okay. Thank you, Leo.
Can I make a very quick follow-up?
Okay. Quick one, Wanda.
Very, very, very, very quick one, I promise. You mentioned the hedging, but don't you see a risk from a volume, risk point of view if you are forced to make a longer-term hedging for for higher share?
No.
Would you still see 2%-4%-
This is ex...
... EBIT, range as a-
This is exactly...
... kind of, sustainable?
This is exactly the case that we made to the European Commission. You will always understand the changes in liquidity in the market slower than the market because you're not in the market. You will always be behind the market. If you actually give a very detailed hedging, you know, guidelines three years out, two years out, one year out, then actually all you're doing is you might force suppliers to buy into an illiquid market, driving prices up. Now, I think that argument has resonated. Therefore, yes, the danger is still there, but at least the argument has been heard. We have seen, you know, now we are seeing the proposal that countries might put obligations on their suppliers. I hope that this will be done in a very reasonable and, let me call it, cautious way.
Okay. Thank you, Leo.
Thanks a lot.
Next question comes from Harry Wyburd from Exane.
Hi, everyone. Thank you for taking some questions from a new face. It's Harry Wyburd from Exane BNP Paribas. Two from me, please. First on regulation. You mentioned the German regulator had made its first proposal for an improved cost of debt calculation. I just wondered if you could just update us on what's been exactly proposed there, and what the timeframe might be for that actually to have some impact on your earnings. And if possible, whether you could give any kind of sense for how material that could actually be from an EBITDA perspective. The second one's on your EUR 0.97 of EPS for 2027.
I wondered if you could help us understand what refinancing rate you've assumed there, 'cause obviously that's a very big sensitivity as to where you get to in 2027 on the bottom line. What bond yield or finance cost have you assumed on the refi of all of the bonds that are maturing over the next few years? Thank you.
All right, I take the regulation, Marc takes the second question. On regulation, I think German regulation, we have three real discussion points. We have one, which is, I call it an investment incentive, which is the famous interest rate discussion. The seond one is an acknowledgment of the increased cost of debt, which is the topic where the regulator has made a move. I'll get to that in a second. The third one is an appropriate cost audit reflecting the need for higher operational cost when you grow, which is not then counteracted, even if we get a generous cost audit by the requirements of a big productivity increase, yeah?
The German regulator has now proposed a revised, call it equity tools or cost of debt interest rate methodology for new investments from the business year 2024, which could lead to an EK II of 3.9% in 2024, which is obviously much better than the what we have seen before, where we actually still were working on the 2021 basis. I think that is the first encouraging sign. Now, however, this is a proposal. What I really always want to see is black on white, a final, you know, decision, and then as I said, this can only be a starting point because then we have the other topics, cost audit, productivity factors, and interest rate on equity. These are all the discussions which we're gonna have this year. Marc.
Yeah, Harry, and on the refinancing assumptions, we provide full transparency on key economic variables in our capital market presentation. It hasn't made it to the front part yet, but if I recollect it's the first page of the appendix. If you go in there, you will see that we have taken what I would call a cautious approach, is we assume refinancing rates to stay where they are today, that is, at around 4%. While in parallel, we assume that inflation rates will actually go down to 2%. You know that both rates are relevant for our financials and earnings.
We have taken a cautious view in keeping financing rates up while we do assume that inflation rates will come down to the ECB long-term on target.
Got it. That's very clear. Thank you. Just to clarify on the cost of debt, you mentioned in the first question, that's not included in your guidance, right? If you do get that in black and white and it's finalized, then that would be some upside to your guidance and networks.
Yes.
Yes.
Yeah. Mm-hmm.
You get a double confirmation.
All right.
Confirmation is truth.
Thank you, Harry. Next question comes from Peter Bisztyga from Bank of America.
Hi. Good morning. Thank you for taking my questions. Good afternoon, in fact. Two, just reconciling some of the increases in your guidance, please. First one, focusing on the energy retail. Previously you were looking at EUR 1.2 billion-EUR 1.4 billion of EBITDA in 2026. You're now guiding EUR 300 million higher than that for 2027, which is a pretty substantial jump. I'd just like to better understand the building blocks behind that, please. Similarly, on your RAB growth, you've gone from 6%-8% on power RAB. How does that split between higher inflation coming through in the earlier years, and how much is genuinely higher underlying growth?
Also it'd be useful if you could actually break that 8% down between what you're seeing in Germany, what you're seeing in Sweden, maybe what you're seeing in aggregate across Eastern Europe. Thank you.
Yeah. Peter, thanks for your questions. I will tackle them both. On the retail guidance, it's essentially the upgrade of EUR 1 million reflects three drivers. Driver number one is just continued growth in our Energy Infrastructure Solutions business, yeah, as we were ramping, we'll be ramping up CapEx in that business. The growth rate in that businesses will increase over time, and we will be at a run rate by then of approximately EUR 100 million per year. That's one element where just with every year adding to the guidance, you know, you will see investment growth in that business. Second driver is that we have seen during 2022 an enormous increase in momentum in our B2C solutions business all around PV, batteries, heat pumps.
Leo referred to some of the developments which we've seen, just the new connection requests and that kind of stuff. This is the second driver. We just see significant more revenue and enhanced earnings growth momentum as these businesses are scaling up profitably. And finally, we're getting just now with one more year in, and despite the crisis, that this inspired normalization in margins of 2%-4% revenue margins across the retail portfolio, will be that we will be able to competitively implement that, and that's the third driver why we see this upgrade to the target. That's, I'd say very solidly built on these three pillars.
On RAB growth, at this stage, the large part of the upgrade in growth rates is reflecting a real growth in investment activity over time. There is by assumption only a limited impact on in-inflation rates if you look at our CapEx. In real rate regimes, we do have some inflation adjustments on the Regulated Asset Base as well. I guess the best indicator for you is just to look at our CapEx, yeah, and this tells you that about EUR 2.5 billion and then increasing per year of Regulated Asset Base growth will predominantly be driven by kind of increasing physics and not just increasing euro amounts.
We will, of course, closely monitor that, and it is obviously, as you can imagine, a big challenge and focus for us to look at our procurement strategies, how we partner up with key suppliers, et cetera, to make sure that with this massive investment program, we keep inflation rates tamed.
Thank you, Marc. Next question comes from James Brand, from Deutsche Bank.
Hello, can you hear me okay?
Yes, that's fine. We can hear you.
Okay, great. I had, might be a two-parter, apologies if it's interpreted that way. A couple questions on CapEx. One is for the EIS CapEx of EUR 4 billion that you're planning over the plan period. Could you give us a bit more detail on where that's going? Then on the CapEx and networks, there seems to be a general trend of network utilities increasing CapEx, like, quite regularly at the moment. I was wondering how we should think about how you've gone about putting together this new program. Is this kind of an all-in number we should expect, you know, given this increase for it to stabilize here over the next few years?
You know, is it just gonna, you know, are there more projects that you're gonna be identifying over the next few years, and we should be expecting it to progressively increase? This might be a third question, apologies. I had a question on the long-term margin comment from Marc of 2%-4% across the portfolio. Just a clarification, you're talking about the individual retail businesses there being between 2%-4%. That's not a comment on the overall margin range for the retail business in general, 'cause if so, that's a very wide range.
Mm-hmm.
Thank you.
Yeah. Maybe, first on CapEx, also just giving a little bit of color. We are seeing increased need for investments across the board in all regions. In all our businesses, also in Energy Networks, but not only confined to Germany. We are seeing similar growth rates actually across Eastern Europe with slightly different drivers then, the momentum is a European one, it's not a German story which we're telling here. It's number one. Number two is we are seeing currently continued acceleration of the program. Actually, if anything, we're seeing a continuous increase of the investment opportunity, which we have not factored in yet.
For example, if you have heard about the German Easter Package, yeah, we're still trying to understand what is Easter Package, which would be a further acceleration of the renewable rollout and what that would really imply. The point is also for us, it makes no sense to actually include it until we have seen an improvement on the regulatory framework, because only then would we actually be in a position to say it makes sense for our shareholders to grab this opportunity. To put it a bit bluntly, to invest a lot, you need to earn even more. Unless we can see that we can make these earnings, there's no point in actually just, you know, increasing the stakes. It's a European momentum. It's an increasing momentum.
We are confident that this will provide further upsides all in year to come, but only if we can see the remuneration on the regulatory side coming. This year is an important one because especially in the German regulation, we have some fundamental decisions up. We discussed that already in this call. If anything, I look actually quite optimistic forward. Marc.
Yeah, James. Let me briefly get back on your question about CapEx in our Energy Infrastructure Solutions business. The big focus during the midterm, it's the next three, four years, will be on providing industrial and commercial customers with carbon neutral or low carbon heating solutions. There's been a big momentum during last year.
It's been a big shift in demand away from gas-fired CHP solutions to renewables-based low temperature heating. That has developed into a very healthy pipeline, which we will monitor during the next three, four years. On top, but this will be rather further out, we also see a lot of momentum now coming up from the decarbonization of municipal heating, yeah, specifically in Germany, but also again, across Europe, which we expect to provide them further growth momentum, but further out as typically the lead time for those project is a bit more extended. You asked specifically about the 2%-4% revenue margin target. How you need to interpret that is that this is something which you will see across the portfolio.
There will be variations, region by region. There will also be variations, year by year, yeah? Depending on when price changes, et cetera, will be implemented. You can also have inner market changes from year-over-year. What our investors can expect that we will deliver is these 2%-4%, which is kind of the benchmark for us to make these operations for us a profitable business. I think you should also take away from our performance during 2022 that we are the right owner to deliver onto that ambition.
Marc, can I just add? Germany, we estimate for EBIT to be 50% roughly. The rest would be outside Germany. District heating, if you take a different cut, not by region, but more by business, district heating 1/3 and 2/3 for other solutions like a low-temperature solution Marc just alluded to. That's a bit the split on EBIT.
Mm-hmm.
Great. Thank you. I should say at the beginning, thank you and well done on such a great and clear presentation.
Thank you.
Thank you very much. The next question then comes from Vincent Ayral from JP Morgan.
Yes. Good morning, and thank you for taking my question. Good afternoon, actually. I'd like to ask a question regarding first, the non-recurring elements or the temporary boost from the recovery. You got network loss and volume recovery. You show that on your slide 15. Looks to be about around EUR 200 million for 2023. Then for 2024, you got this German local gap pension inflation adjustment. It seems to be an additional EUR 400-EUR 500 when looking at a chart. Would be quite keen to get another magnitude to actually get more accurate forecast on that.
The second question I have is regarding press reports saying that the German government is looking at consolidating four electricity transmission networks, that includes TenneT, 50Hertz, TransnetBW, Amprion. Basically would have a, therefore, a broader strategic question. The overall energy network landscape in Germany is extremely fragmented. Do you see this press report as potentially the first wave towards a consolidation of the space over the coming decade? Basically, given its leading position, E.ON could be an enabler in such a transformation. How do you see this prospect as strategically, financially, politically, basically, what are the main hurdles? Thank you.
Let me start with, Vincent, with the second question. First, we are seeing government actually acting on the transmission level. To be clear, this is actually what we, what is the norm across Europe. It's not really a fundamental change. If we have a German government, a government rather than a Belgium and Dutch government, that doesn't fundamentally change the picture. I do not see a consolidation on the DSO side. If there's one way how the German government could really miss the target on infrastructure build-out is to embark on a quest to convince 800 municipalities to consolidate. You know, I will just give you one example.
On the saving banks, on the Sparkassen, you know, they have been failing consistently for the last 50 years. They will not do this. I'm actually quite confident because then the, you know, the whole municipal sector would be busy for the next 10 years, without making any progress. If that would happen anyway, I see upside from that because the increased complexity of the DSO business will require more partnerships, and obviously, the partner will be predominantly players who can actually contribute something to the more complex operations of the future, and that will be us. No, I don't fear the consolidation on the DSO level. Actually, I see rather more partnerships coming, and I see them more as an opportunity.
To give you some indication, just one proof point, we have seen over the last two years, competition for concessions going down significantly because it's now clear that this is not a game in which everybody can participate at will without risk, and which has been also beneficial for us as E.ON. That would be my takeaway on your second question. Give to Marc on the first.
Yes, Vincent, then on the one-off effects in Energy Networks. You mentioned rightfully that we still have a certain volume recovery from COVID. That's a, you know, low triple digits, a EUR 100 million recovery, which we still see in 2023. We talked about network losses extensively from 2021 and 2022. We will see recovery in both 2023 and 2024, also in a EUR low triple-digit million territory. When it comes to the pension compensation, this is where we indeed are moving away from low triple digit into the mid triple- digit region.
Here we are talking about something, the magnitude EUR 300 million-EUR400 million, which maybe at the end see our 2024 results. I just wanna make two things very clear here. Number one, this is really about being transparent to you, that you understand where our results are driven by these kind of one-offs. We have been pretty clean of this stuff in past years. Secondly, be aware that these temporary shifts kind of evolve dynamically. I mentioned earlier that we are still looking at a guidance 2023 with assumptions that we're not yet over the crisis.
These kind of things change that will also then provide for the dynamics, how our Energy Networks earnings would look like and whether or not additional compensation would come or not. From today's point of view, that's the transparency which we can give. I think that should be reasonably clear for you. I hope.
Thank you.
Thank you, Marc. Next question comes from Alberto Gandolfi from Goldman.
Thank you. Hopefully, you can hear me.
Yes.
Thank you. Thank you, guys, and thanks for taking my questions. The first one is on the power distribution business. I was trying to dig a little bit deeper in the underlying assumptions to 2027. I guess the question is, how far in your plan are you going into the electrification path of Europe? How much of a potential Europe IRA have you included? How much of the REPowerEU? How much electrification of households? Can you give us a penetration of this? How much have you put of the 240 GW renewable target for Germany? Perhaps what type of increase in ROE and ROIC, if I can be 100% clear, would you really require to go ahead with this current high single-digit growth rate? That's the first question.
The second question, I hope you allow me an ap pendix at the very end. T he second question is, I think, an absence of today is a discussion on cost-cutting and synergies. You know, your, your business is still relatively young. You have an integration, you know, with Innogy, a very large workforce. Potentially we're about to see big revision in unitary labor costs, can you maybe elaborate how much of cost-cutting have you put into your plan? What type of driver do you see? How much more to go? This is not a third question, in case you think it's relevant, before you cut me off, in case you believe this is relevant, is there any consideration you can tell us in terms of work in progress?
CapEx, how much of the EUR 33 billion does not give you profits in 2027? Some people frequently mistakenly take your EBITDA, 27 minus 22, and divide by CapEx, not accounting for work in progress. Maybe if you can just clear up the air on that one. Thank you so much.
Yeah. Alberto, let me try to walk through... I start with your first question. In essence, the answer is no, we don't have now kind of this perfect foresight model. Again, we would say that's the end state, and here's our now fill rate, to which we've achieved electrification, if I understood you correctly. I don't want to disappoint you, but we have a lot of foresight, but not this kind of foresight. What is it that we assume is that we look at only at those trends which we see materializing today.
That is, when, for example, it comes to the Easter Package, as Leo talked before, you know, if there should be then an additional acceleration on top, this is not something which we assume or otherwise would need in order to deliver on the growth which we have shown. That would be additional upside if, again, the frameworks for that are adequate. On top of that, I would also just remind you that we do see a lot of change in the industrial composition in Europe. Yeah. If I just look at what the connection demand is from data centers, from battery factories. It's not just about adding more renewables, it's also the electrification and change in the whole industrial system in Europe.
Also here, I think we're just at the start of an evolution which we will witness. Also, again, we don't have perfect foresight, but what we have included in our plans is what we definitely see in terms of connection requests already today.
Thanks, Marc. Indeed, this is, Alberto, t his is a discussion which we are leading in the board continuously. We have seen areas where we assume the growth will really be driven by the addition of renewables. Now, to our surprise, we see exactly in those areas a significant increase also driven by load, which is again, then obviously requiring network connections, but this time for the load and not for the supply. For us, it's we are really struggling to capture the full dynamics, but the result is that we have been continuously surprised by higher investment opportunities than we anticipated if we look backwards. Right now, the trend is really increasing, as I said earlier.
On your third question, the EUR 33 billion, what sort of work in progress? You can assume that about EUR 3 billion-3.5 billion of growth CapEx will not be earnings effective in 2027 yet. There is a one-year time lag to most of our projects. I guess the best indicator I would give you is about this EUR 3 billion-EUR 3.5 billion. On cost-cutting. Alberto, the challenge during the next five to 10 years is not going to be about cutting costs. The challenge is going to be how to allow and facilitate this massive growth which we see. We are entirely focused on productivity.
When we look at efficiency, it's not about, kind of where can I cut FTE and where can I cut costs. It is about how can I redeploy our FTE to the most productive way so that they pay onto our growth ambitions. That's why also this digital fabric about, which Leo talked, is for us a fundamental element of how we drive efficiency and productivity in this company. It's one of the key levers, which will enable us to deliver the growth without proportionately every year increase our cost base. With that, you totally be assured that we have a close eye on our cost base, but our focus is making it as productive as possible. It's not cutting it.
Very clear and congratulations again. Thank you.
Thank you. Next question comes from Deepa Venkateswaran from Bernstein. Deepa, I hope I got your last name right.
That's right. Thank you so much for my questions. I am going to be following up on a couple of questions already asked. On the German networks regulation, on the cost of debt, I think you mentioned 3.9 is the proposal. What was it before? Just trying to work out what the impact could be based on your, I think, EUR 23 billion RAB and 60% gear it. That's the first one. Secondly, Leo, you, I mean, maybe just an addition to that one is, on the cost audit and benchmarking, Leo, I think you were a bit fast. I didn't exactly understand what you were trying to achieve. Were you trying to improve the efficiencies compared to last period, or were you trying to preserve it?
My second question is if I look at the overall plan and also guidance for 2023 and 2027, probably the number that has surprised everyone is how strong and confident you are on Customer Solutions, particularly on the energy retail. So I just wanted a stress test, you know, the EUR 600 million improvement from 2022 to 2027, you know, what can go wrong and you know, how firm are these numbers? Thank you.
Yeah. I take the regulation before. On the What we have seen, the proposal is 3.9% cost of debt, and it was 1.7% before. Something like that. In sense, more than 2%, 200 basis points improvement. As I said, this is now a proposal. There will be a process which now starts in April, and I assume will take, as always, four to five months to then be ironed out, and then we'll see the final results in the summer somewhere. I just wanna mention that this is just one of the critical regulation point. By far, the biggest one is the cost audit, which is running this year. We have the cost audit for the Incentive Regulation in power, which is happening this year.
The question is, you know, do we get a sufficient cost allowance by the regulator, which is then also, if it's sufficient, not just, you know, counteracted by a productivity increase factor, which is then reducing whatever we get, kind of like year-over-year. This is also happening in this summer. The final one is, will there be investment incentives for those players who are actually especially relevant for the energy transition, which is clearly E.ON, by the way, because the energy transition and the reinforcement and investment needs primarily happen in the rural areas, in the high voltage areas, not so much in the municipal areas. I think that is important to understand. It's more an opportunity actually for E.ON rather than for example, municipalities. Yeah.
This, I guess, this is again the regulation story, but the move of the regulator on the cost of debt has been actually a satisfying one. Now the only debate is, are we going to see this, you know, from the first of January next year, or could and shouldn't we already see it from the first of January this year? Which we have both now factored in, obviously, in our plan. Yeah. Marc.
Deepa, then you ask about Customer Solutions, and you know, what could go wrong. If you'd asked me beginning of last year, what could have, you know, what could go wrong? I couldn't have been more off, what we then witnessed during last year, what actually happened.
Despite of everything that happened last year, we have been able to deliver at the top end of the expectations that we set before knowing what we were up to during last year. Instead of actually asking, you know, what could go wrong, my focus on the business is, you know, what can go even more right. As I said, it builds on three strong pillars. I think there can be much more momentum in low carbon and carbon free solutions from our B2C clients. There can be much more momentum from e-mobility. I told you that both businesses for us are scaling, we see them scaling profitably.
I also can envisage an energy retail market where we do not see competition come back to pre-crisis levels because competitors went out, where we do not see the same kind of asymmetric regulation in some countries, because politicians now understood how important it is to have reliable suppliers in the market and so on. I think my view in a nutshell is much more balanced than your question seems to assume. That's why we see our guidance for 2027 standing on very solid footing, also for Customer Solutions.
Okay. Thank you.
Okay, we are running out of time, so we will take one last question, and this question comes from Ahmed Farman from Jefferies.
Yes. Hi, I hope you can hear me. Firstly, congratulations on a strong set of results. Two questions from my side. Firstly, I was just hoping you could give us a little bit more granularity on the underlying volume or demand assumptions behind Customer Solutions business for 2023. You know, sort of relative to a historic sort of average, what sort of assumptions are there? Give us a bit of a sense of sensitivity. If volumes are 1% or 2% better, what can that mean and how does it actually would work through the earnings? That's question number one.
Question number two, as you have rolled forward the business plan, I think the positive momentum across all the divisions is very clear. With that, my question is that, you know, one of the sort of the figures that seems to have remained unchanged is the Return on Capital Employed at 7%-8%. My question is, what could be the drivers of, you know, positive sort of uplift to the Return on Capital Employed? Is that sort of the underlying regulation that we need to see reflect the current environment for that to step up? How are you sort of thinking about that in your own capital allocation decisions? Thank you.
Yeah. First, on the volumes, now please add Marc, because I'm not sure I know all the numbers, but, I would say first, very different assumptions and developments market by market. It's not uniform, for example, in Netherlands versus Germany versus Eastern Europe. We have seen very different developments, also, different in power and in gas. In general, we have observed low reductions on the electricity side, a little bit higher reductions on the gas side. We have observed significant reductions in markets like the Netherlands, where we had very relatively short hedging and prices were flowing through very fast. Whilst, for example, in our largest German market, we have seen temperature-adjusted gas reduction of 10%-11%. Non-temperature adjusted, shy of 20% on the B2C side.
On the industrial side, slightly north of 20% reduction. Whilst on the power side, our best number that we have in our areas is a minus 3% overall electricity decrease. Obviously we have factored in these new "normals" into our forecast market by market, but I cannot give you an average number across Europe, which would make sense.
I mean, what I could add is that now just in terms of what are we assuming now for our guidance in 2023, it's essentially that we will see the same consumption patterns to continue throughout the whole year that we have seen during the last or the second half of last year. That's when I talked about earlier, a cautious assumption for the guidance. If you look at today's price levels, that would give you different indication if you believe in a some kind of sensitivity as it's in last year. That's what makes us believe our assumption and just assuming that 2023 will more or less look like the second half of 2022 is from a volume point of view, a conservative assumption.
That's, as Leo said, different market by market, what that does and means in concrete numbers. Yeah, Return on Capital Employed, I mean, I'm not sure whether I got that question correctly. You gotta come back directly if my response now misses you, your point. If you look at our capital base, the key driver obviously is the return on capital. The biggest driver are then allowed returns in our networks business. The key sensitivity for our Return on Capital Employed is gonna be how regulators will respond to rising rates. But as Leo, I think elaborated on that most efficiently, that's the single biggest key driver we see for return on capital.
Thank you very much. With that, unfortunately, we have to come to an end with our Q&A call. For all those who still have questions but couldn't ask them yet, from the IR side, we're happy to take your questions. Please keep in mind we're on the road the next days to meet further stakeholders, but we will definitively get back to you. Thank you very much, and all take care. Bye.
Thank you very much. Bye-bye.
Thank you.