Welcome to the RWE conference call. Michael Müller, CFO of RWE AG, will inform you about the developments in the first three quarters of fiscal 2021. I will now hand over to Thomas Denny.
Thank you, Jill, and good afternoon, ladies and gentlemen. Thank you for joining us for RWE's conference call on the nine-month results today. I'm joined by our CFO, Michael Müller. Michael will lead you through the main highlights and the financial performance of the first nine months of 2021. After that, we'll move on to Q&A. Before we start, let me remind you about our Capital Market Day next Monday. For those of you who have not yet registered, don't forget to sign up. You'll find the registration link on our website. The final countdown has begun, and we look forward to welcoming you to this event next week. With this, let's kick it off. Over to you, Michael.
Thank you, Thomas, and good afternoon to all of you. Our performance in the first three quarters is good, and we are making strong progress on our growth program. At the end of September, adjusted EBITDA from our core business stood at EUR 1.7 billion thanks to the strong earnings from Supply & Trading. Adjusted EBITDA of the group reached EUR 2.4 billion. We confirm our full year guidance for 2021 after raising it in July. Since the beginning of the year, net debt has decreased significantly to EUR 2.9 billion based on reduced pension provisions, a strong adjusted operating cash flow, and margin inflow. We are making great progress on our construction program and have lined up all projects to reach more than 13 GW by the end of 2022.
As part of this, it is a real achievement that all turbines at our offshore project, Triton Knoll, have been installed. In the Onshore Wind/Solar business, we are also progressing well. Recently, our first onshore wind project from the acquired development pipeline in France was commissioned. Our development pipeline is also strongly growing. We were successful in the German offshore wind auction and have been awarded with a 225 MW Gode Wind project. Together with our partner, Northland Power, we have executed our step-in right for a 433 MW project off the German coast. In onshore Wind and Solar , we have expanded our pipeline with a joint venture with PPC to jointly develop renewable energy projects, particularly our solar projects in Greece. Finally, a word on the MoU we have signed with Shell.
We are stepping up our efforts to build a European hydrogen economy. Jointly with Shell, we want to develop projects to produce, use, and sell hydrogen. We intend to initiate large-scale projects in the U.K. for the production of green hydrogen using offshore wind. We also want to explore options to use hydrogen in electricity generation. The MoU also covers activities to decarbonize gas and power biomass power plants. Let's now take a look at the earnings development in the first three quarters. Adjusted EBITDA of the core business stood at EUR 1.7 billion, driven by the outstanding performance of the Supply & Trading business. An adjusted EBITDA of a good EUR 600 million after three quarters even topped the previous year's great results.
The Hydro, Biomass, and Gas division increased their earnings year-on-year based on a strong day-to-day optimization of the power plant dispatch and higher British capacity payments. Nevertheless, adjusted EBITDA remains affected by the negative one-off effects due to the Texas cold snap in the first quarter of this year. Both wind divisions have suffered from weaker than normal wind conditions, particularly in contrast to the very strong Q1 last year, which was well above average. Group-adjusted EBITDA, including the solid performance of Coal and Nuclear, stood at almost EUR 2.4 billion and is above previous year's level. In Q3, around 400 MW have been commissioned, leading to a total addition of 800 MW year to date. Among others, the two U.S. onshore wind farms, Cassadaga and West Raymond, entered commercial operation.
The latter is part of the sell-down in Texas we told you about at the end of last year. At the end of September, our installed capacity in Wind and Solar stood at 9.5 GW. I'm very pleased that we have lined up all our projects to meet our target of more than 13 GW by 2022. In Q3, we have taken investment decisions for 500 MW, of which the majority is expected to be commissioned by the end of 2022. Projects are a mix of onshore Wind and Solar projects located in the U.S. as well as France, Poland, and Germany. Let's continue with the performance of the individual divisions. The EBITDA for the Offshore Wind division amounted to EUR 656 million after nine months.
Earnings were lower as wind conditions in all three quarters of this year have been weaker than normal, particularly in contrast to the very strong wind levels last year. These negative effects were partly compensated by the full consolidation of Rampion, as well as income from the pre-commissioning phase of Triton Knoll. Gross cash investment of EUR 1.5 billion were mainly spent at our U.K. offshore wind project, Triton Knoll and Sofia. We confirm the outlook for the division of EUR 1.05 billion-EUR 1.25 billion for the full year. Moving on to the onshore Wind and Solar business on page 11. Adjusted EBITDA amounted to EUR 36 million at the end of September. The main driver is the negative one-off effect of -EUR 400 million linked to the Texas cold snap in February.
The booking from the farm down of our four assets in Texas, realized in Q1 and Q3, partly compensated for this. Those effects are non-recurring items. Below normal wind conditions, compared to the strong previous year, brought down earnings further. The additional capacity could not compensate for this fully. Gross cash investment amounts to EUR 1 billion, which is spread over various projects, such as the 200 MW Hickory Park solar project with co-located storage and two 200 MW onshore wind projects, El Algodon Alto and Blackjack Creek. For both wind farms, we now expect commissioning in 2022. Additionally, some smaller European projects are also included in the CapEx number. Gross divestments stem mainly from the farm down of the Texas assets. We confirm the outlook of EUR 50 million-EUR 250 million for the full year.
Our Hydro/Biomass/Gas division achieved an adjusted EBITDA of EUR 430 million. This is a EUR 50 million increase year-on-year, which resulted from higher earnings in the day-to-day optimization of our power plants dispatch, as well as higher earnings from the British capacity market. Overall, the division performed as expected, and we confirm the guidance for the full year of EUR 500 million-EUR 600 million. Moving on to the Supply & Trading division. The performance of the Supply & Trading division in H1 was extraordinary, and they continued their success story with a good third quarter. Adjusted EBITDA amounted to EUR 609 million, even exceeding the very high results from last year. For the full year, we reiterate the outlook, which was increased to significantly above EUR 350 million at the end of July.
Having now reported on the core business, let's move on to Coal and Nuclear division. Adjusted EBITDA for Coal and Nuclear stood at EUR 720 million. Year-on-year earnings increased due to higher realized hedge generation margins. This year's earnings profile is much more balanced. This is why we have seen a stronger third and second quarter than in previous years. Costs associated with the German coal exit and those with the flooding in the middle of July partly reduced this effect. Besides all, in lignite, we saw negative margin effects from outages. These were offset by higher earnings due to an increased availability in nuclear. We confirm the outlook of EUR 800 million-EUR 900 million for the full year. Moving on to adjusted net income.
Adjusted net income topped EUR 1 billion after nine months, which is in line with the good development of adjusted EBITDA. Year-on-year, the adjusted financial result has significantly improved as we recorded a negative one-off last year. Adjustments in tax are applied with a general tax rate of 15%. For adjusted minorities, we keep our guided level of -EUR 100 million for the full year. This is driven by the full consolidation of Rampion, as well as the commissioning of Triton Knoll. Adjusted operating cash flow reflects the impact on net debt from operating activity. This is adjusted for special items and other effects that balance out over time. At the end of Q3, the adjusted operating cash flow amounted to EUR 1.8 billion.
It results largely from negative effects in working capital, which can be attributed to the seasonal increase of gas storage levels. Changes in provisions and non-cash items are mainly driven by legacy and restructuring effects, as well as book gains from the farm down of the fourth U.S. onshore wind farms in Texas. The payment from the German hard coal auction, which we received in the first quarter, partly compensates for it. Turning to the development of net debt on page 14. The debt decreased to EUR 2.9 billion. This relates to the very good adjusted operating cash flow and timing effects. Another driver is the change in pension provision by roughly EUR 800 million, resulting from higher discount rates.
As introduced in the last earnings call, we provide more details on net variation margins for our power generation hedging activities over the liquid center and the respective cash flow. This includes margins from the sale of electricity as well as margins on the respective fuels and CO2. In the first nine months, we recorded a net outflow of margins from power generation hedging of EUR 3.2 billion compared to year end. In September, prices for power started to increase. At the same time, carbon prices remained unusually flat. This has led to a significant net outflow of variation margin. As of September 30th, our net position from variation margins for our power generation hedging amounts to -EUR 1.7 billion, which had a negative impact on our net debt. This position will unwind over the next five years.
All these numbers are, of course, based on the assumption that commodity prices will stay stable. If commodity prices and interest rates remain stable, the leverage factor should be well below 3x net debt to core EBITDA at year-end. Finally, moving to the outlook for the fiscal year. We reiterate our earnings guidance for the year 2021. As such, adjusted EBITDA of the core business will range between EUR 2.15 billion and EUR 2.55 billion at the year-end. Adjusted EBITDA for the RWE group will be between EUR 3.0 billion and EUR 3.4 billion and adjusted EBIT between EUR 1.5 billion and EUR 1.9 billion. Adjusted net income will range from EUR 1.05 billion to EUR 4 billion, and we confirm the dividend target of EUR 0.90 per share for this year.
With this, I conclude my remarks and hand over to Thomas.
Thank you, Michael. We'll now start with the Q&A session. Don't forget to save some questions for the capital market day on Monday, too. Operator Jess, please start the Q&A session.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally as you will be advised when to ask your question. The first question comes from the line of John Musk from RBC. Please go ahead.
Yes, good afternoon, everyone. A few questions from me on the renewables side. We've heard a lot from other operators and developers on supply chain issues, particularly, I believe in solar versus wind. I just wanted to ask your opinion on that. Are you seeing any issues in any of your developments? What is the reasoning behind solar perhaps being more impacted than wind? Is that due to shorter development cycles on those assets? Secondly, just if you can strip out the weather impact within renewables year to date. You mentioned wind being below for all three quarters. What's been the impact of that on EBITDA?
Yeah. John, thanks for the question. Let's start with the supply chain issues. Indeed, the issues are currently more around solar. That's mostly related to the general global logistics backlogs that we are observing in the economy, and that is also impacting those projects. At the same time, this is nothing that kind of overall from a company perspective is concerning. I would say that's in the range of typical operational issues you have in construction projects. With respect to the weather effects, Thomas, you wanna-
Yeah.
Give us some details.
In the current year, we had an effect of roughly EUR 150 million across our renewables fleet from below average wind conditions in 2021.
Okay. Thank you.
The next question comes from the line of Deepa Venkateswaran from Bernstein. Please go ahead.
Thank you. I had two questions. The first one is, Michael, would you be able to comment on your views on the coalition agreement with the coalition parties where they would ideally want to phase out coal by 2030? And on what kind of quid pro quo would you want from that? The second question on variation margin. It's just more a clarification. Obviously, this quarter you've seen a huge outflow, and so now your net position is basically a receivable of EUR 1.7 billion. Whereas in first half, it was basically a payable of EUR 1.9 billion cumulative. Just wanted to make sure that I got the signs et cetera right. Thank you.
Deepa, thanks for your questions. Let's start with the variation margins. You got the numbers exactly right. I mean, obviously, in the bucket of variation margins, there are other variation margins and then timing effects included. But with respect to the hedging variation margins that we comment on, the numbers are precisely what you quoted. Your question on the pre-agreement of the German coalition. Obviously, we now have to wait what is in the final document and how they take it forward. I think in principle it very much in line with our strategy. Because also in this coalition agreement, it's not only that they're in this pre-agreement, they're not only talking about coal, they are especially talking about accelerating the build-out of renewables.
They are also talking about the potential need for backup capacity. That's exactly our strategy that we always say, "Well, if you wanna phase out coal, you have to do that via a quicker build-out of renewables. You have that via build-out of grid, and you also have to care about the security of supply." That's our business model going forward. Actually looking at these pre-agreements, that's pretty much supporting our strategy.
Okay. I think in one of the media comments you had made, you said that for an early closure, you know, basically the right adjustments will have to be made for all parties. I don't know what exactly you mean from an RWE perspective on what you would seek for the early closure.
I didn't fully get the question, Deepa, sorry.
No. I mean, I think previously you've said that, you know, for an early exit by 2030, basically all parties concerned, and I'm sure it involves you, will basically need to have some structural adjustments or something. I think that's something that I read in a newspaper quote. I was just wondering whether, particularly on the early coal exit, whether there would be specific asks from RWE of the government.
Yeah.
keeping in mind your assets, your unions, et cetera.
I think, Deepa, that's too early to judge. I mean, first we need to see kind of the coalition in place, and then I guess that definitely will be with talks and then we need to see what the situation is like. It's too early to speculate on details.
Okay, thank you.
Thank you, Deepa. Next question, please.
The next question comes from the line of Rob Pulleyn from Morgan Stanley. Please go ahead.
Hey, good afternoon. Thank you. Two questions, if I may. So firstly, continuing the theme on variation margins. So the picture you painted there, Michael, was versus what you disclosed at the first half. There's a EUR 3.6 billion outflow on that explicitly disclosed variation margin. The delta on the slides for the other flow is more like EUR 1.4 billion. I'm wondering what the offsetting circa EUR 2 billion was in this equation. If you could, as far as possible, just sort of explain some of the moving parts, I think that would be super helpful. The second one, if I may, in terms of German coal exit, I appreciate it's incredibly politically sensitive.
However, one thing I presume we can discuss is that the recultivation provisions would, of course, come forward a little bit in time for the Garzweiler lignite mine. I was wondering if you'd care to give us an assessment on what that could mean to the carrying value of the provision on the balance sheet. Thank you very much.
Rob, thanks for your question. On the variation margins, yes, you're right. The delta outflow compared to the half year is EUR 1.4. The difference is variation margins in trading on the strategic CO2 position and also other timing effects that are in that bucket. Concerning the impact of recultivation provisions, that's too early to say. In the end, that's also very dependent on whatever is. If there's agreement, how does it look like? That's something we need to look at once we have more clarity.
Okay, fair enough. Thank you for the answer on the first part. If you wouldn't mind a little follow-up then on one of the previous questions, and that's cost inflation. Some of your peers have given a long list of reasons as to why the impact might be relatively small in terms of costs which have been secured, steel which has been locked in on long-term supply contracts, or CapEx contingencies. I understand the message from RWE is also somewhat measured that you think this will pass and not be too material. Could you give us a little bit more color and confidence around what actions you've taken in your supply chain to protect yourselves? Thank you very much.
Yeah. Well, I think my read would be very much in line with also our competitors, I'd say. I think the key message is in the end, yes, there are some impacts, but yet they are not on a level that really impact our economics of projects. As I said there, I think I talked about that in the last call in half year. Obviously in projects you typically have contingency that's covered for cost increase if there are any. At the same time, obviously, it depends on the status of the projects. Projects that are already in construction, typically, all the costs are locked in.
When you talk about early projects, obviously if the entire market goes up. That should also lead to higher prices in auction. That should also be an impact. There are some projects kind of in between that do see an impact, but at the same time, I mean, it's always it needs two to tango. Obviously there's competition with suppliers, so not necessarily all the cost increases from suppliers in the end up in our budget. At the same time, I mentioned that also last time when you look at the economics of projects, yes, CapEx are a driver of the economics, but at the same time, you also have to look at yields, at scale. What is the scale of the technology you're using?
There are various components, so that in the end, the impact on the economics of the project is not material.
That's very useful. Thank you so much. I'll turn it over.
Thanks, Rob. Next question, please.
The next question comes from the line of Lueder Schumacher from SocGen. Please go ahead.
Yes, good afternoon. Two questions also on my side. The first one is on Hydro, Biomass, and Gas division. We don't tend to talk that much about. At the H1 stage, you warned that earnings might come down as a result of a normalization in terms of earnings from optimization. Now with nine-month results, we no longer have this warning in hand. You have told us that you're making strong gains from optimization. Now, you did mention earlier EUR 50 million. Not quite sure if this was referring just to the delta to last year, which of course is almost EUR 50 million, or is this the additional earnings you have from optimization? Also linked to that, if you could quantify the impact on that.
Is that something you're still experiencing now, or has the market kind of calmed down after the mayhem we have seen in Q3? My second question is related also to the variation margin, but in a slightly different way. I just find it amazing. I mean, you had a swing, a cash outflow just on that, as Rob just mentioned, EUR 3.6 billion Q3. I mean, that is enormous. I would have thought that you would have been very busy in Q3 lining up all these credit lines. I mean, how can you deal with this kind of volatility? And also, how can smaller players, maybe not with the same kind of banking connections, deal with these massive cash outflows from variation margins? Are you seeing that markets are still functional? Is there still enough liquidity?
Also linked to that, of course, are you concerned about counterparty risk when markets are as extreme as they are at the moment?
Yeah. Lueder, thanks for your question. I mean, first about the Hydro/Biomass/Gas. So the EUR 50 million I talked about is the year-on-year comparison. So that's including all the effects. I mean, the second question you asked about the day-to-day optimization. So you're fully right. The day-to-day optimization is very much dependent on the market situation in the respective months. We have been a little bit more careful in the H1 call. But I mean, you see the tightness in the market, and that is obviously an opportunity if you have flexible assets in the market to have been profiting from that in Q3. I mean, it needs to be seen.
In principle, Q4 obviously is also an ideal time for having those assets. Again, it's very dependent on the situation. If the winter becomes has little wind and is cold, there should be upside. At the same time, if we get a windy Q4 and higher and higher temperatures, it can be the other way around. That's why we are typically careful in giving more flavor to that number. I mean, be assured, I guess from the setup we're having and with the capabilities, we are well-positioned to capture that value if it's available under the prevailing market conditions. Secondly, your question on liquidity. Indeed, that's a very relevant question. If you see those moves, they are really significant.
That's kind of part of our regular liquidity management. Our liquidity management is always based on a buffer concept. We have a short-term liquidity buffer which should enable us to react to those short-term movements in the market. We have a longer-term buffer which then kind of looks at longer-term movements on our liquidity side. That's all secured, and we could utilize that. I mean, with respect to credit, yes, of course.
If you look at the current prices with notionals increasing, that also brings up, I mean, obviously, depending on which side you are, brings up a credit risk of the counterparties we are exposed to, and probably also the other way around for counterparties they are exposed to us. That's true. We still kind of looking at our credit risk portfolio are confident and not concerned about any situation there.
You make this sound as all very normal and business as usual. I just wonder how your usual liquidity buffers would have been able to deal with the highly unusual market conditions we have seen in Q3.
No, I mean, I think one point, it is fair to say in that situation, our liquidity buffers have increased. Yeah. The volatility in the market has led to additional liquidity requirements. What I just want to re-emphasize is that, the management of liquidity that we have in place is perfectly suited for those situations and has worked. You're right, there has been an increase of liquidity demand, which we have fulfilled, given kind of regular measures like, CPs or credit lines that we either have in place or that we have added to our portfolio.
Okay, thank you.
The next question comes from the line of Alberto Gandolfi from Goldman Sachs. Please go ahead.
Thank you. Hi, it's Alberto Gandolfi. I have two questions. The first one is, again, apologies to go back to it, but on cost inflation. Just a couple of details here. First of all, can you confirm your Sofia project has been largely locked in from an equipment perspective and you're only exposed to logistics, and hopefully by 2026 the situation will have normalized. Secondly, your slide, well, your slide five, still on cost inflation is very interesting. Could you maybe specify? So what you said earlier about no big impact, it definitely means that up until 2022 included, you don't see a meaningful impact. I was wondering if maybe you can shed some light perhaps on the IRRs you are achieving on those projects or maybe on the EBITDA over CapEx we should expect from just that slide specifically.
The second question is to go back to the coalition pre-agreement. The wording is quite interesting, carefully chosen about examining the creation of a foundation which potentially could deal with the decommissioning of coal and lignite liabilities. I was wondering if you have any comment on that. Were you involved in it? Because these are private assets owned by you. When a government suggests the creation of a foundation, you know, how would you react to that? Thank you.
Yeah, Alberto, thanks for your question. Let's start with the second one. We were clearly not involved. So therefore, also my comment would be, we don't know exactly what are the underlying thoughts. I guess, we now need to wait for the final agreement and then see where potential discussion takes us. But so far, nothing we really understand in detail, and we need to take a look at that once it's kind of clear in the final agreement or the new coalition starts to work. Concerning cost inflation, your question on Sofia. So Sofia is not fully hedged yet, so there are some exposures still remaining.
I just because I foresaw that question, I just looked at the numbers and I can reconfirm my statement. There are some minor effects, but they are well in the contingency of the project and it's nothing we are concerned about. Finally, on the IRR, I mean, I just can invite you to the Capital Markets Day on Monday, which I'm sure, Alberto, you will attend and for sure, we also share a few more comments on IRRs and returns going forward in the Capital Markets Day's presentation.
Looking forward to that. Thank you.
So do we, Alberto. Thank you. Next question, please.
The next question comes from the line of Peter Bisztyga from Bank of America Securities. Please go ahead.
Yeah. Hi. Thanks for taking my question. A couple from me. Firstly, you know, we've already seen you perform very well in the third quarter on your, I guess, conventional power generation fleet. I'm sort of thinking about 2022. You must have unhedged exposure both in your merchant renewables and in your U.K. CCGTs, for example. The current forward prices are very attractive. We saw Ørsted yesterday, you know, significantly increase its achieved sort of power hedge prices for the next few years. I was wondering if you could just sort of, you know, confirm that you do have unhedged exposure, that you are taking advantage of these current market conditions to enhance your achieved hedge prices for the next year or two. That's my first question.
Then on my second question, really just sort of looking at the other side of that whole inflation discussion, you know, to the extent that you're having PPA negotiations with counterparties, you know, both in the U.S. and Europe, you know, can you confirm that you're seeing an ability to increase PPA prices and to actually pass through some of these costs? Is there any actual evidence of that happening already?
Yeah, Peter, thanks for your question. About the first topic, I would come back to my invitation to the Capital Markets Day of today. We only want to focus on 2021, and any comments on the years to come, we will reserve for the Capital Markets Day on Monday. Concerning your question on PPAs, I would rather take a general answer with a general comment. I mean, what we are observing is that rising power prices in the market and then rising CO2 prices and then the consequent power prices, I think bring some additional momentum to the whole PPA market because customers are now starting to rethink their hedging behavior.
I think the same is true that like in the last years, we have seen, that retailers only have hedged at pretty short notice. I think there will be some rethinking that potentially can lead to upside in PPAs. That's more like a very general comment. Specifically on inflation, I wouldn't comment. That's more like the general scheme in negotiation with PPAs, where we see a rising interest from customers.
Thank you. Maybe given that you couldn't answer my first question, if I could ask a question about Q4 this year about your trading business. You know, we heard, is it EDF, sort of indicating that they were struggling a little bit with power price volatility in October. So Sopna, if there's anything you can say about how your trading business has performed so far in Q4, whether there's anything we need to be worried about.
Sorry that I also have to block that question. I mean, we don't comment on results in an ongoing quarter.
Fair enough. Might as well have tried. Thanks for your answer to my second question.
Take care.
Okay.
Next one, please.
The next question comes from the line of Vincent Ayral from JP Morgan. Please go ahead.
Yes. Very good afternoon. So I will speak to this year's numbers or ask a question. When you look at the nuclear and coal division, you're already at EUR 720 million at the nine months and your range is EUR 800 million-EUR 900 million. Given the current commodity market, is this a scenario where we could expect to see some upside versus guidance? The second question, I wanna ask about the supply chain. It's been raised quite a few times. I'll talk about on the gas. Your working capital for gas has increased materially, supposedly. You made an allusion to it. Can we have some sort of quantum there? Because obviously we have seasonality into the working capital.
It comes from the injection, yes, but this has to reverse. It would be interesting for us to know, how much it represents. Thank you.
Yeah. Listen, thanks for your question. The first question is on nuclear. I mean, as you know, those positions are typically fully hedged. I don't expect-
Oh.
Any upside from the current market level for our nuclear fleet. I mean, on gas, I didn't fully get your question. I mean, but we typically don't comment on kind of the. Are you asking for kind of what are the outflow and the inflow from gas? But that's something we typically don't comment on in detail.
On the nuclear, we may be fully hedged, but any incremental volume versus plan normally is unhedged, isn't it, if you do better on performance? Whether you hedge or not, does that mean at EUR 720 million you seem quite ahead into the year versus the EUR 800 million to maximum EUR 900 million range? Is it a fair comment that you're likely to be towards the top or maybe beyond? Would have been the question there.
I mean, in principle, obviously you're right. Like, we typically hedge our power plants assuming an average availability of those assets. Assuming that there would be a higher availability than kind of the average one we forecast, there are some upsides. At the same time, I mean, it's a symmetric risk profile. Assuming that we kind of have the average assumed, I would say kind of it's fairly balanced. Yeah. Nothing where I kind of would specifically comment on.
All right. Thank you very much. Maybe ask my question number two was canceled. I'd like to see if you could comment quickly on renewables. You may not be 100% hedged on the renewables, and you have some merchant exposure. Any material impact or at this stage or is it something for the future, I guess, then to assume?
I mean, with renewables it is very much the same. I think, first of all, we hedge kind of the exposure that we typically expect to be produced. We commented also in the half year call that following the Texas event, we also have reviewed our hedge ratios to avoid that we are squeezed, and therefore we have reduced the hedge ratio of our renewables assets. There may be some room if there are good availability and then strong winds. I mean, that's kind of the typical volatility in earnings that we comment on is kind of inherent in the renewables business model. Yes. I wouldn't comment.
It's maybe a little bit more pronounced because of prices yet, but it's kind of the regular volatility you see on our wind segment.
Okay, thank you.
Thank you, Marcel. Next question, please.
The next question comes from the line of Sam Arie from UBS. Please go ahead.
Hi. Thank you. Good afternoon, everybody, and thanks for this presentation. Very helpful as always. I have one question on the net debt, and then one sort of big picture question, if you don't mind, on sort of the future of the universe and where we're going and so on. On the net debt, just quickly, to keep it simple, and I apologize if I missed something earlier. I did lose contact with the call briefly. Did you comment on where the net debt might end up at the end of the year? And if you didn't, if there's anything you could share there that would be helpful with us.
I'm just noticing on your consensus tracker that you send around, we sort of collectively, I think we did an okay job on earnings for the nine months, but we were quite a ways off on net debt, and there's a lot of moving parts in the cash there. I was just wondering if we need to improve our thinking on the end of the year. Well, maybe I'll let you have a go at that one, and then I'll come back on my future of the universe question.
Yeah, Sam, we also wanna keep some challenge for you. If we guide everything, that would be too easy. No, just joking. I mean, no, on net debt, we typically don't guide a precise number. I mean, what we say is that we expect, if market conditions prevail, to be below the 3.0 net debt to core EBITDA, which is our leading KPI for net debt. But more, apologies, I cannot guide you on.
Okay. Well, maybe I'll have more luck with my big picture question. Maybe just to confirm.
Give it a try.
We've just finished our big European conference, and I had an interview last night with a politician who was involved in the Glasgow conference. One of the comments I was a bit surprised to hear was that there were a lot of concerns among delegates in Glasgow, particularly as she mentioned the U.S. delegation, about climate policy being to blame for the recent sorta gas and energy price crisis that we've been going through. Yeah, my view, and I think a lot of others on this call probably share it, that climate policy's got, you know, not very much to do with it, actually, or maybe only rather marginal contribution to the situation.
I just thought, can I give you the opportunity to share an RWE view on why we've been in this gas price spike, and what really are the drivers the way you see it, and to what extent do you think it has anything to do with climate policy?
Yeah. That's definitely a question I can answer.
Good.
I would take it from two angles. The one is on gas. I think the situation we are observing on gas is not related to climate politics. I mean, what we observe here is clearly we have a well, to some degree, I'll mention. I mean, one aspect is the recovery post-COVID, where the industry is picking up, and simply the demand for energy is increasing again. There are, I would say, two elements that are related to climate policies. One is obviously the high price of CO2, which leads to the fact that gas should be consumed in order to fuel switch from coal to gas. That puts additional kind of demand on gas, and therefore also pushes up gas prices. That's the one.
The other one, more from a macro perspective, what we are also seeing is that financing of conventional assets, especially on the coal side, so coal mines, and also gas exploration, becomes increasingly difficult. Investments or maintenance investments or investments into new assets have been reduced in the last years. That obviously brought down the supply, especially on the coal side, and led to an increase of scarcity and therefore increase in gas prices. The second dimension is obviously CO2. I mean, the whole situation, not around, as I said, gas prices somehow impacted because higher CO2 prices led, should lead to a fuel switch and therefore higher gas demand. But higher CO2 prices obviously leads to higher power prices.
Having said that, I mean, in the end, that's exactly what climate policies always wanted and also should be. What we're currently observing is, and we see that in those auctions, like take the example of the German auction, which we were successful in, where we entered with a zero bid. That's obviously because market prices now for renewables are at a level where renewable energies are competitive with conventional generation. The target of COP or of climate policies to bring up renewables to a competitive level has worked out. I think what the whole discussion shows is, and that's actually what we always have been saying that we now need a discussion not only around climate protection, but more importantly, about social issues. How do we ensure that the public accepts that situation?
The second one is also around industry policies. Because in the end, I think we don't win if all the industry either goes down or goes to other countries. In the end, what we now need is a discussion between those three elements. The social dimension, the industrial dimension, and the climate protection dimension of that discussion. I think there's now a good chance to have that discussion and bring it to solution. Then clearly over time, with more build- out of renewables, prices should then eventually come down. I think we're now just in that in-between phase where we need further build-out of renewables and therefore the higher price levels will maintain for some time.
Listen, very, very helpful, Michael. I was about to say, I think you should jump on a plane and go make those comments at Glasgow before they wrap up. But of course, people wouldn't want you to fly, so you'd have to jump on a train and a boat or something. But thank you very much for your comments. They're very helpful.
You're very welcome.
Just next question, please.
Before we go to the next question, as a reminder, please press star one if you would like to ask a question. The next question comes from the line of Piotr Dzieciolowski from Citi. Please go ahead.
Hi. Good afternoon, everybody, and thank you for the presentation. I have two questions. The first one on the accelerated coal phase-out and lignite phase-out. If you assume these assets are decommissioned by 2030, how do you at RWE calculate the capacity built- out need and in terms of gigawatts of gas new capacity or any other form? Is it fair to assume that that would require more or less full-fledged capacity market or some form of a auctioning mechanism? Second question I have on the PPA level. I was looking at the third-party vendor of PPA prices in Germany, and I've noticed that on the standard 10-year PPA for solar or wind, they went up by EUR 10 roughly in the last half year.
I just wondered whether you to confirm or deny whether that's the case and kind of the PPA levels that are available in the market or the final investment decisions that you gave were the better prices on the PPA than it was the case a half year ago.
Yeah. Yeah. Piotr, thanks for your question. Quickly on the capacity build-out. A clear yes, we would see the need of capacity payments or some kind of remuneration around capacity in order to get the built- out of additional capacity. I mean, the number of potential built- outs obviously depends on whom you talk to, but it is at least a double-digit number for sure. Probably a lower to mid double-digit number or lower I would foresee. Please keep that question for Monday, because that's something we definitely will talk about at our Capital Market Day. Second topic around PPA prices. I mean, I wouldn't talk about specific prices because also in the PPA market, you have to be careful what is the reference.
Is it a baseload or is it a pay-as-produced price? Then that may vary significantly. Indeed, like you said, and I mentioned before, we see increasing interest in PPAs of our customers. Obviously also PPA prices reflect increasing CO2 prices and expectation of a higher CO2 prices and thus power prices going forward.
Okay. Wonderful. Thank you very much.
Thanks, Piotr. Next one please.
The next question comes from the line of Olly Jeffery from Deutsche Bank. Please go ahead.
Hi. Good afternoon, everyone. Three questions for me. The first one is just on P50 for wind. You know, given it's been a very low wind year, have you guys been doing any studies internally? Are RWE doing any studies internally to see if there's reason to be some concern about potentially the impact of climate change on P50? Or are you happy with where they are internally? That's the first question. The second one is just, is there an update on the EU case on the compensation of the mining provisions? Is there an expectation around timing on an announcement on that? The last question is just coming back to the potential decommissioning foundation mentioned in the coalition policy document.
Have you had any discussions at all with the coalition on that to have a greater insight into what is meant by that? Do you think there's a possibility that that could stretch to include operational lignite assets and the coalition taking over control of the lignite assets all the way through? Do you think there's a possibility that could occur? There's my questions. Thank you.
Okay. Olly, since you broke up with a two-question answer, I have to answer them quickly.
Sorry.
I mean, on the coalition on the decommissioning foundation, no, we haven't been in conversation with them. Or I have not been in discussion with them, so we also don't have any details. On the EUR 2.6 billion,
Also, no further information. The EU Commission are pursuing their regular processes, and we haven't heard anything more than that. Finally, on the low wind year, I mean, bear in mind that last year was an extremely strong wind year. I think that's. I thought we're not doing any studies, so that's kind of just the regular volatility you see in the renewables business.
Okay. Thank you.
Does that answer your question, Olly? Go on then.
Yeah, no, it does. Thank you. Just on the coalition point, and I believe you can't really comment on whether you think there's a possibility it might expand to looking at the operational asset, or would you wait to hear more detail?
I think it's as you say. I mean, there was one statement in a 10-page document, but it was really lacking the details. I think it's really too early to start taking something more detailed out of the one sentence which was in the document. I think we'll have to wait a few more months until more details are out.
Fair enough. All right. Thank you very much.
Thank you. Next question.
The next question comes from the line of Ahmed Farman from Jefferies. Please go ahead.
Yeah. Hi. Thank you for taking my questions. Just on the first one, I'm just wondering if you could share with us, you know, any of your expectations around the operating cash flow and the CapEx for the fourth quarter. That would be very helpful. Secondly, it seems that the operations at Triton Knoll have gone well. Can you provide us an update on the Kaskasi development and progress, and if you have seen any supply chain issues or, you know, in the current environment there? Thank you.
Right. Maybe I take operating cash flow or the Q4 out of what you asked for. You know, we don't give specific quarterly guidance. You know our guidance for the earnings for the full year, and maybe based on last year's Q4 numbers, you can of course think about some further elements which would lead you to the cash flow. Please understand that we don't go into further details. Of course, another element is CapEx, as you said. There, you know, we are on a you know, a significant growth program, which will of course include a lot of CapEx for Q4, but we don't nail it down to a single number. Therefore, please understand that we don't go into detail.
Maybe over to Michael for your question on supplier topics from Kaskasi, but I'm not aware of any.
I mean, that's also something that we don't typically comment on any progress of individual projects.
Okay. Thank you.
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