Good morning, and welcome to RWE's 2023 Capital Markets Day. Thank you for joining us this morning, either in person here in London or online via the webcast. It's been two years since we introduced our Growing Green strategy at the last Capital Markets Day, and I'm delighted that today we present you an update of our strategy here in London. Let's start with a short overview of today's agenda. Our CEO, Markus Krebber, and our CFO, Michael Müller, will present how we'll continue our successful and profitable growth path in the years to come. After the presentations, we'll of course have plenty of time to answer your questions. People from the audience here in London, you can ask the questions directly, but also those who are following the webcast, you can ask your questions via the chat function. After the Q&A session, the webcast will end.
Participants in London are invited to stay for lunch, followed by breakout sessions with operational management. For participants here on site, please be aware of the following safety instructions. In case of a fire, please follow the exit signs to the nearest exit door. There's an adequate number of emergency exits, and escape routes are clearly identified. If a fire alarm is starting today, please note that this is not a drill. Now let me hand over to Markus.
Good morning, everybody, here in person in London and also virtually on the screen. We are very pleased that so many of you are participating in our today's Capital Markets Day. As Thomas has said, two years ago, we presented our Growing Green strategy for the first time, and today, we will update you on how we are taking Growing Green to the next level. We have successfully delivered on our targets financially and operationally. We have grown profitably. We have exceeded our earnings guidance every year in the last three years. We have invested more than EUR 20 billion into our profitable green growth. We have added 9 GW of capacity, and as we speak, we have another 7.8 GW under construction. We have not only delivered on our targets, but we have even accelerated our transition.
Today, we are in leading positions in all our core markets. Where needed, we have achieved that with selective strategic acquisitions. In the U.S., with the acquisition of CEB, and in Europe with solar pipeline acquisitions in the U.K. and Poland. We have invested in organic growth with significant efforts to grow our own project pipeline. Our teams have done an outstanding job in creating attractive future investment opportunities. On the decarbonization side, we have negotiated an accelerated coal exit in Germany by 2030. This is a major step to put the company on a 1.5-degree compliant CO2 reduction pathway. In the last three years, we have again created shareholder value in a very challenging market environment. RWE's total shareholder return outperformed the broader utility index significantly by 20 percentage points.
Reflecting on the challenging years we had, our strategy has proven to be successful and resilient. Firstly, we experienced a crisis in Europe, scarcity in supply and much higher volatility in the energy markets. This has brought security of supply back to the center stage of energy policy. Our strategy has always been to combine renewables with flexible and firm generation capacity, and this integrated business model has proven its benefits in the last years. Security of supply and flexibility will remain very high and relevant on the agenda in future. Secondly, in the last two years, we have seen interest rates rising significantly. Here, our financial strengths and the long-duration liabilities as a source of stable financing have perfectly set this off. Thirdly, we have experienced much higher inflation. With large portion of inflation-linked revenue streams, we have risk-managed this development within our portfolio.
Supply chains across the whole industry were under stress. With our proactive risk management approach, we ensured that we could timely secure critical capacity while diversifying our supplier base. Not one of our projects under development or construction has experienced economic difficulties. This is especially true for our offshore business. Again, our strategy has proven to be successful and resilient in extremely challenging market environment. We have laid now the foundations to take the Growing Green strategy to the next level. We are now in an excellent position to benefit from future opportunities and developments in the energy markets. We will continue our successful and profitable growth path.... We have a strong position in all our core markets, where significant investments in the energy sector are needed.
Despite the challenging environment, these investments will have to grow into green technologies, and we are convinced the energy policy support will adapt to the new market fundamentals where needed. Proof of that is the recent offtake award in the U.S. offshore business and the increased CfD price caps in Europe, most recently the one here in the U.K.. On top of that, we also have the prerequisites and capabilities to deliver additional profitable investments. Our strong balance sheet and high cash-generating operating portfolio gives us significant financial headroom and flexibility. Thanks to our extensive growth pipeline across technologies and regions, we can pick and choose the investments with the most attractive risk-return profile. Finally, we have an experienced team with extensive knowledge along the entire value chain, from origination and development to construction and operations, and a best-in-class commercial platform.
Based on this, we are confident that we will deliver on average an 8% unlevered IRR on our future projects, leading to an average EBITDA yield of 10.5% across the investment portfolio. Michael will present details on this later. Let me now outline what we will have accomplished by 2030. We will be a leader in the green energy world. Our portfolio will consist of more than 65 GW of renewable and flexible generation capacity, and we will focus our investments on industrialized, low-risk countries. This portfolio will deliver more than EUR 9 billion in adjusted EBITDA and substantial bottom line earnings of EUR 3 billion adjusted net income. How will we get there? We will increase our investments until the end of the decade to EUR 55 billion net. Our investment program is fully financed from own cash flow and existing financial headroom.
This translates to more than 30 GW of net capacity additions to our green generation portfolio. What will the future asset portfolio look like? Our investment program will result in a well-diversified portfolio across technologies and regions. About 60% of our total net capacity in 2030 will be in solar and wind, and around 40% will be in batteries, flexible generation, and hydrogen. Also, regionally, our target portfolio is well-balanced between our European core markets and the U.S.. While investing in clean technologies, we are making significant progress in decarbonizing our portfolio. Since our last Capital Markets Day, we have decreased the share of coal capacity in our portfolio to less than one quarter. In 2027, it will be below 10% in terms of capacity as well as revenues. Finally, in 2030, we will have fully exited coal-fired power generation.
Our decarbonization is in line with the 1.5-degree compliant emission reduction pathway. This is currently being validated by the Science Based Targets initiative. Our RWE's transformation into a leading green energy player has already come a long way. We have been able to cut our CO₂ emissions by half over the past decade, and we are strongly committed to further reduce our Scope 1 and 2 emissions by 70% and our Scope 3 emissions by 40% until 2030. By 2040, we will be net zero across all emission scopes. Let's now have a look at the earnings development. Our investments and attractive returns result in strong earnings growth. Over the decade, our EBITDA will on average grow by 14% per annum.
For 2030, we are expecting an adjusted EBITDA of more than EUR 9 billion, significantly above the target we presented at our last CMD. Adjusted net income is expected to increase on average by 12% per annum and to reach EUR 3 billion by 2030. All earnings figures exclude the non-core business, which will be reported under non-operating in future, and our shareholders will benefit. We are committed to grow our dividend per share by 5%-10% per annum. Before we dive into the different technologies, let's now have a look at our strong growth platform. Our investment growth targets are backed by a broad and deep development pipeline across all technologies and markets. We have been able to almost double our pipeline since our last CMD. Today, our total pipeline stands at more than 100 GW.
Strategically, we have put a lot of effort into solar and batteries, where we see the largest pipeline increase. Not only has our growth platform been extended significantly, it has also an attractive maturity profile. Almost half of our pipeline is in a high maturity stage, with possible CODs until 2027. And this pipeline allows us to be highly selective and to choose those investments with the most attractive risk-return profile. Let's now discuss the different technologies, starting with offshore wind. Our offshore wind portfolio is thriving, with an increasing asset fleet in operation, attractive projects under construction, and a strong development pipeline. With the CODs of Triton Knoll and Kaskasi, we added more than 800 MW of capacity in 2022. Both projects have been a huge success. We delivered on time and on budget, and the projects also generate attractive returns.
Triton Knoll, via an inflation-linked CfD, and Kaskasi with one-sided CfD in combination with PPAs. Currently, we have two more large projects under construction, Sofia in the U.K. and Thor in Denmark. They will deliver further 2.5 GW by 2027, both with attractive economics. Our offshore pipeline has made great progress. Today, it stands at 14 GW, with projects in Europe and the U.S., and it does not include those projects with central one-step auctions like in Japan. To be clear, we do not see any offshore project in our portfolio with economic difficulties. Quite the contrary, the recent offtake contract award to Community Offshore Wind in New York has underlined the attractiveness of our U.S. pipeline. The achieved price allows us to deliver attractive returns. We are set to triple our net installed offshore capacity, reaching 10 GW by 2030.
Our build-out plan in offshore is backed by defined projects in our core markets in Europe and the U.S.. Our offshore pipeline is not only a funnel of gigawatt capacity, it is a portfolio of highly attractive characteristics. Let me give you a few examples. I've just mentioned Sofia, which is currently under construction, with planned COD in 2026. This project has excellent location with very good wind condition and is backed by an inflation-linked CfD. Another example is Dublin Array in Ireland. Here, we have also concluded an inflation-linked CfD over a period of 20 years. In Germany, we are developing the Nordseecluster with COD for the first project in 2027. For our entire 1.6 GW German portfolio, we do not have to pay any lease payments.
With over two decades of experience, we have always been at the forefront of driving offshore innovation. Our Dutch wind farm, OranjeWind, is a prime example of system integration. We have developed a blueprint for the integration of offshore wind farms into the energy system, a combination of smart technologies such as new electrolyzers, e-boilers, and battery storage. We have also gained further experience in floating offshore. We have progressed several pilot projects, such as DemoSATH in Spain and TetraSpar in Norway. In addition, we won our first commercial-scale floating seabed lease in California last December. On the sustainability side, we have been the first to install fully recyclable rotor blades at our Kaskasi wind farm, and we will also use them at Thor and Sofia, which are currently under construction.
In our commitment to decarbonize, we have also taken the lead as the first developer to embrace Siemens Gamesa's green steel wind turbine towers, resulting in a 63% reduction in emissions compared to conventional steel. Qualitative criteria are becoming more and more important in offshore auctions. With our experience, innovative mindset, we are perfectly set up to meet these auction criteria successfully. We have underlined that with the recent New York offtake success. Now on to onshore wind and solar. We have built up a leading position in all our core markets in North America and Europe, and we will continue to increase our footprint in Australia. In total, we are operating assets with an installed net capacity of 12.5 GW globally. We have more than 8 GW capacity in North America, well-diversified across technologies and states.
In Europe, we have more than 4 GW across all relevant markets. In Australia, we have been active at a smaller scale so far. However, we see substantial solar and onshore potential, and we are gearing up to seize this opportunity. While 70% of our portfolio currently consists of onshore wind, we will increase our solar share significantly in the coming years. In 2030, we have set ourselves the target to operate 14 GW of onshore and 16 GW of solar. Our targets are backed by a large and attractive pipeline across all markets, and they are characterized by a high maturity profile. Half of our wind and three-quarters of our solar pipeline consist of projects with possible COD until 2027. The size of our pipeline allows us to be selective. We focus only on those projects with the most attractive risk-return profiles....
Also, in onshore wind and solar, innovation and sustainability are key. With our first AgriPV demo project in Germany, we are demonstrating that solar power can go hand in hand with agriculture. Floating PV is yet another example of how we can utilize more space for renewable assets. We have already commissioned our first floating PV project in the Netherlands. Biodiversity plays an ever-important role. At RWE, we are driving several initiatives to operate renewables assets in harmony with the ecosystem. In a study, we are using black wind turbine blades to increase visibility and help to avoid bird collision. We are using 3D radars and vibration sensors in blade in order to analyze bird and bat behavior. After wind and solar, we will now take a look at storage and flexible generation.
Batteries play a crucial role in our energy system, and in many markets, they offer several attractive revenue streams. Batteries buffer the intermittencies of renewables and make use of increasing price volatility. In addition, they can, in certain markets, generate stable income streams through capacity payments. And lastly, in the ancillary market, they get remunerated by offering grid stability service, like inertial reactive power and frequency response services. At RWE, we will significantly grow our batteries business, backed by a massively increased battery project pipeline. Our objective is to operate 6 GW of battery capacity by the end of the decade. We are one of the largest gas fleet operators in Europe, and in contrast to coal, large parts of the gas infrastructure have a role to play in the future green energy world. Gas plants can be converted to use green molecules.
More flexible and firm generation capacity are required, especially in Germany, in order to provide security of supply in a renewables-driven energy system. In Germany, we can leverage our existing sites. Here, we can benefit from the infrastructure already in place, like grid connections, gas, and water pipelines. Currently, we plan to add 3 GW of new-build H2-ready gas assets by 2030. However, we are still waiting for the regulatory framework and remuneration scheme for the new H2-ready gas plants. Depending on the attractiveness of this scheme and success in future auctions, we could significantly increase our targets in that business. On top of that, we have set ourselves the target to fully decarbonize all our gas assets by 2040. We are exploring CCS and H2 conversion with lighthouse projects at Pembroke in the U.K. and Moerdijk in the Netherlands.
Let's now look at the evolution of the hydrogen business. We have further driven forward our core H2 projects. In Pembroke, we are progressing our electrolyzer projects to enable H2 production by 2027. As part of the OranjeWind project, we are developing our electrolyzer site in the Netherlands to deliver the first of its kind offshore wind and H2 system integration project by 2028. And as part of the GET H2 nucleus in Lingen, Germany, we have received permission for the construction and operations of a 200 MW electrolyzer and are waiting for funding approval. Our objective to operate 2 GW of electrolyzer capacity by 2030 is unchanged. Our asset portfolio is perfectly complemented by our world-class commercial platform. Our central commercial team provides a basis for our investments, route to market, and hedging decisions.
The commercial asset management team runs the integrated optimization of our renewables, flex gen, and storage assets, including the sales platform for PPAs to our industrial customer base. Our global LNG business expands into green molecules, from long-term LNG contracts to import capacities, as well as hydrogen and ammonia import partnerships. Our entire trading business has shown a really strong track record over the past years. The diversification of strategies and products has resulted in robust earnings. Let me summarize: The market fundamentals remain attractive. There is a continued need for massive investments in green technologies, and we are excellently positioned to take advantage of the significant investment opportunities. We have very solid financials, a broad and deep project pipeline of more than 100 GW to choose from, and we have all the experience and expertise to deliver on our targets.
At the end of the decade, we will be operating a very well-diversified portfolio, more than 65 GW in our core markets, highly attractive, industrialized, low-risk countries. Our investments will lead to outstanding earnings of more than EUR 9 billion adjusted EBITDA and EUR 3 billion adjusted net income in 2030. We have set ourselves the target of increasing our dividend per share by 5%-10% per annum. Of course, we are committed to the 1.5-degree emission reduction pathway and becoming net zero by 2040. We are well positioned to deliver profitable green growth. Now, please join me in welcoming Michael on stage, who will take you through the financials in more detail. Thank you.
Thank you, Markus, and also good morning from my side. At our last Capital Markets Day, we committed to deliver profitable growth at attractive returns. We committed to ensure access to capital, and we committed to focus on strict risk management and to create shareholder value. We have delivered on all our promises. We have significantly grown our green portfolio, and we have met our profitability targets for all our investments. We have proven our strong liquidity management capabilities during extreme market conditions in the energy crisis, with access to ample liquidity at all times through our strong core bank portfolio. We maintained our strong investment-grade rating during that time. We have risk managed our commodity exposure and locked in attractive margins. We have created a total shareholder return of 24% since the CMD in 2021. We've outperformed the utility index by 20 percentage points.
Let's have a closer look at the profitability of our projects. We have delivered on our promises. Since the last Capital Markets Day, we have taken about 60 investment decisions. All our investments are in the return range or even exceed the return range we guided at our last Capital Markets Day. In recent investment decisions, we saw higher project returns. This reflects increased return expectations in an environment with higher interest rates. Higher cost of capital and higher costs have more than offset by higher offtake revenues. We have proven our strong investment discipline, and we will do so going forward. On average, we expect projects to deliver an unlevered post-tax IRR of 8%.
Project-specific IRRs must exceed the base WACC by 100-300 basis points, taking into account project-specific risk premiums for location, technology, construction, and offtake risks. The return requirement for offshore wind projects ranges from 7%-11%. For onshore wind, solar, and batteries, we expect investments to meet project-specific IRRs between 6%-10%. For flexible generation and hydrogen, we expect projects to meet IRRs between 8%-12%. Our increased IRR requirements translate into higher earnings per CapEx. We expect EBITDA yields of approximately 11% for offshore and 10% for onshore wind and solar. Let's now take a closer look at our investment program. As Markus outlined, we are accelerating our growth plan, and we plan to invest EUR 55 billion until 2030. Our targeted investment portfolio is well-diversified and balanced across technologies and regions.
Roughly 35% of our net cash investments will go into offshore wind projects, about 20% in onshore wind, and a further 20% in solar, and about 11% into batteries. 15% of our net cash investments will be allocated to flexible generation and hydrogen. On average, 35% will be spent in the largest part in the U.S. 20% will be invested in Germany, and 15% in the U.K., and 25% in the rest of Europe. Given our large pipeline, we do have the flexibility to reallocate investments if return expectations are more attractive in certain technologies or regions. But to be very clear, we will only invest into projects that meet our strict investment criteria. We currently see sufficient attractive investment opportunities, but if we cannot fill our investment program with profitable projects, we will increase capital returns to our shareholders.
Our investments will lead to steady earnings growth. Adjusted EBITDA in 2030 will be more than EUR 9 billion, from EUR 2.8 billion in 2021. Our investments will deliver an EBITDA CAGR of 14%, and in 2030, our earnings will be highly diversified and green. 75% of our EBITDA will be generated by wind and solar, and 25% by our flexible generation and supply and trading businesses. With the coal exit agreed for 2030, we will steer our coal and nuclear business differently from 2024 onwards. We will report coal and nuclear segment under non-operating result and will adjust the reporting structure accordingly. The group financials will only consist of our current core business. Coal and nuclear are no longer included in adjusted EBITDA and adjusted net income.
The earnings shown in this presentation reflect this change and show 2021 and 2023 on a pro forma basis for comparison. Just for the avoidance of doubt, the reporting structure for the full-year 2023 will remain unchanged. The coal and nuclear segment will be steered by an adjusted cash flow from operations. For the remaining years until closure in 2030, business will be cash neutral. The RWE portfolio and market price levels have evolved in the last few years. RWE's lignite portfolio is no longer implicitly short carbon and exposed to the risk from increasing carbon prices. We have therefore closed our strategic position that we entered into in 2017. The positive cash effect from the strategic carbon hedge has been fully realized by a strong variation margin inflows in the past years. This has led to a significant reduction of our net debt.
In the future, there will be no net debt impact. The positive EBITDA trends translate into substantial bottom line growth. Adjusted net income will grow to EUR 3 billion by 2030, from EUR 1 billion in 2021. This represents a CAGR of 12% between 2021 and 2030. The strong adjusted net income development is driven by our growth investment, despite higher depreciation and financial expenses, and higher minorities from projects where we have partners on board. Our earnings are, to a large extent, generated by secured income. 70% of the wind and solar gross margins come from either CfDs, Feed-in Tariffs, PPAs, tax credits, or certificates. At our last CMD, we have extended our average remaining support tenure from 12 to 14 years. For new projects, we choose the route to market that provides the most attractive risk-return prospects.
However, on a portfolio level, we aim to keep the gross margin ratio of 70% secured income and 30% merchant income. For U.S. offshore, we are targeting a combination of CfDs and tax credits. In this context, please let me remind you of the highly attractive inflation-linked CfD we have just secured for our Community Offshore Wind project. For onshore and solar in the U.S., the route to market will typically be a combination of PPAs and tax credits. To a limited extent, we would also take merchant positions if there's an attractive risk-return profile. For the U.K., we typically go for inflation-linked CfDs, both for offshore and onshore projects, as well as solar projects. For some solar assets, however, we also see attractive opportunities for PPAs. For German offshore, we are aiming to enter into corporate PPAs.
At an initial stage, though, we feel comfortable with a merchant exposure. On the onshore wind and solar side in Germany, our preferred route to market are CfDs. Let's now take a closer look at the flexible generation segment. Over the past 18 months, we have significantly increased the performance of our firm and flexible generation assets. We expect a high performance in the coming years as well. The gross margin from our flexible and firm generation fleet can be split into three areas. First, system services. This includes stable and regulated revenues, such as capacity payments in the U.K. and Germany, and green certificates for hydro or biomass plants. This revenue stream increases with higher scarcity, as evidenced in the most recent U.K. capacity auctions. The second area is margins from day-ahead and intraday optimization.
The income does not depend on clean spreads in forward markets, but on price volatility in the short-term markets. The earnings increase with higher renewable intermittency and price volatility, and thus provide a good hedge to our intermittent renewable generation. The third area is margins from running the asset. Here, we capture clean spreads and the option value of the assets. The level of earnings is driven by the clean spreads in forward markets and their volatility. The increase in earnings in 2023 was partially driven by higher margins we already locked in in prior years. Throughout the decade, new assets will contribute to the earnings and compensate for decommissioning. These new margins will include secured capacity payments, margins from intraday and day-ahead optimization, and running the asset. The supply chain environment has changed in the past years, and we are seeing shortages and higher inflation.
Thus, proactive supply chain management is more important than ever. At RWE, we focus on three main measures to risk manage the supply chain. First, we systematically analyze the supply chain to identify future bottlenecks and take appropriate measures. As an example, we recently secured a long-term charter of next-generation offshore installation vessels. Second, we manage price risks actively. As an example, we secured over 1 GW of onshore wind turbines via an index contract. This gives us price certainty and transparency. And lastly, security of supply is a primary focus of our sourcing decisions. We are actively working on a robust and regionally diverse vendor basis. For example, we have secured domestic capacities with a Tier 1 supplier for PV modules in the U.S. Our active supply chain management ensures in-time and on-budget delivery and safeguards project returns.
Let's now take a look at how we finance our growth ambitions. Our green growth program is fully financed, with EUR 50 billion from our strong operating cash flow and EUR 12 billion from additional net financial debt. That will utilize our financial headroom. Please keep in mind that other net debt items, such as leasing and wind decommissioning provisions, also impact our financial headroom. Temporary financing effects, such as variation margin and CO2 provisions, must also be considered. Let's now turn to our balance sheet management. We are clearly committed to a strong capital structure and a strong investment-grade rating. We aim not to exceed the leverage factor of 3 x net debt to adjusted EBITDA. This is fully in line with our current rating of Baa2 and BBB+, which we successfully maintained during the energy crisis.
Due to our diversified business, we will be able to extend the leverage factor to a ratio of up to 3.5 x net debt to adjusted EBITDA over time. But while this is our maximum leverage, we intend to stay well below it. The investment in green growth also translate into dividend growth. For 2023, we have already increased our dividend to EUR 1 per share. Going forward, we commit to further grow our dividends per share by 5%-10% per annum. For 2024, we have set ourselves the target to increase the dividend to EUR 1.1 per share. Let me sum up. We are set to further grow our business with a strong focus on profitability. We will invest EUR 55 billion net into further profitable and green growth until 2030.
We will continue to apply strict investment criteria and achieve an average IRR of 8%. We will grow adjusted EBITDA by an average of 14% annually and adjusted net income by an average of 12%. Our growth is backed by a strong investment-grade rating and a solid capital structure, and significant financial headroom from our strong balance sheet. We are committed to growing our dividend by 5%-10% per annum. For 2024, we are targeting a dividend of 1.1 EUR per share. As you can see, we continue to growing your shareholder value. And with that, let me hand over to Thomas to start our Q&A session.
Thank you, Michael. We are now starting our Q&A session. As always, please limit yourself to two questions. Kindly state your name and company when starting your questions. Those who are participating via webcast, you can ask questions via the chat tool, and I will read those questions aloud. Now, Markus, Michael, thank you for joining me on stage. Of course, who would like to ask the first question? Okay, I'll go in the middle. Rob, please go first. Please wait for the microphone, and then again, state your name and company so that those on the webcast can also hear.
Thanks very much. Rob Pulleyn from Morgan Stanley. Well, first of all, congratulations on what looks like an awesome plan, and we'll all have a lot of fun digesting that over the next few days. There are lots of questions, but I will limit to two. The first one is, it's great to see lots of color on renewables value creation. With an eye to 2024, there are a lot of elections in your core markets, U.S., U.K., EU level, and also regional elections in Germany. To what extent do you consider that political risk as perhaps sort of rowing back or risk of rowing back some of the very positive developments we've seen from policymakers? And the second one to Michael, on my favorite subtopic of the carbon hedge.
Could we confirm or clarify how much in your net debt you're effectively keeping from the carbon hedge that now won't flow out? And is that all of the variation margin going forward, or will there still be some relating to, obviously, your trading activities? Thank you very much.
Yeah. Thanks, Rob, for the question. Of course, we have an extensive debate on the risk factors we cannot influence, and that is, of course, political risk. And I mean, the basic strategy, and we have seen that, is a broad diversification across markets where we are confident, and also across technologies. So we shouldn't start betting on what's gonna happen in the U.S. with the election or what's gonna happen in the Netherlands now. I think two things are clear: the energy system is totally underinvested in all our core markets, and do we really believe somebody's gonna build new coal plants? No. So the investments need to channel into clean technologies. It's also actually cheaper. Of course, it can be delayed, and therefore, you want to have a broad universe where you can pick and choose.
So can we promise on the exact split? No, but what we can promise is that the portfolio is good enough to deliver the 55 and 8% on average. So, overall, we see the trend fully intact. I don't want to speculate of outcomes of elections and the, on the consequence policies, but it's important to have this broad and diversified portfolio and not betting only on one or two technologies or countries.
So I take the second one on, on net debt. I mean, first of all, what is important to say is that our CLT CO2 hedge paid off perfectly. So that was the right strategy, and that given the market condition, we are not short, as I said, CO2 anymore, so there is no necessity for the hedge anymore. That's why we closed the position. And therefore, net debt-wise, there is no future impact from the strategic carbon position. However, as you rightly suggested, variation margins used to depend on three factors. One was the strategic hedge, which is now gone, but there are still variation margins from our trading business and from the regular hedging activities of our conventional and renewable assets, and the later ones will stay.
Thank you. Alberto and then Deepa. First in the front here.
Thank you. It's Alberto Gandolfi, Goldman Sachs. I'll stick to two. The first one is on IRRs. I'm pleased to see a step up versus the previous plan. It's a completely different world, of course. The question is: Is 8% really enough in a world that has been characterized by a lot of unforeseen execution problems in offshore? Not by you, but is that giving you enough buffer in case something goes wrong, and is this a minimum level, or is this an average throughout the plan? And the second question is that I mean, that 8% IRR translates in 10%-11% EBITDA yield, which I think is really good. I really like your slide 44, and I was wondering if there is. I'm sure you remember which one. I'm joking.
The slide 44 is a great bridge, I think, between your 2023 EBITDA and your 2030. And I was wondering if, if it's possible to indulge me in the big building blocks for 2024, 2030. You know, your, your, essentially, from 2024, because you give an explicit guidance, that's why I'm asking the question. You probably have an extra EUR 5 billion EBITDA from new developments, give or take 10%-11% yield. And, and your, your 2024 EBITDA midpoint is EUR 5.5 billion, and you land at just over EUR 9 billion. So just CapEx would take me to 10.5. So I was wondering, what is the roughly minus EUR 1.5 billion you're baking into your, your plan? Is it power prices, PPAs expiring, contingencies, safety? I'm just trying to gauge how conservative you've been.
I'm going to extrapolate that back to 27 and so on. So just, just trying to see the mindset of contingencies in here. Thank you.
Yeah, I take the first one, and Michael take the second one. On the 8%, the 8% of the portfolio is the average. And of course, on an individual project, it depends on the risk profile, and you see that certain technologies have higher return hurdles. You mentioned some difficulties in offshore projects. Offshore projects are different, right? I mean, you have offshore projects where you have very long lead times, where you go through two stages, lease auctions first and then offtake, where you need higher returns to cover the entire risk. And you have others, where you have one-step auctions, you know exactly what you have, and it goes fast. So also, there are differentiating factors. We think the 8% on average are good enough. We also have projects which have significant lower return hurdles.
If we do, for example, solar installations on our own lignite area land, I mean, where you have everything in place, the permission, the grid connection, everything, you have lower return. So I think when you compare it to the portfolio, the 8% is good enough. It exactly translates into the increase in, in cost of capital, which also you calculate. But maybe one final comment, we have also taken out certain markets. You might have seen that. So I mean, in the old presentation, we had certain offshore markets which, which we have now taken out, and these were the higher-risk markets. So that's also why the upper end of the band of the return hurdle expectation is now a bit lower because we have taken high-risk countries out.
I mean, we also like the chart very much, because it was a good plausibility check if our plan is intact, and we feel it's fully intact. So maybe lead through the different segment. I mean, first of all, offshore wind, as we described, we do see some reductions in revenues simply because of the degression model in Germany. I mean, we have communicated that obviously, the impact is not so significant because we were able to secure PPAs on those volumes, and therefore, they dropped from the subsidy level, from the Feed-in Tariff level to what we now see in the PPAs, but yet there is some dropback. And then there's also a smaller asset that we own that is currently due to be decommissioned in the time horizon.
The same is actually true with onshore wind, where we currently see that assets are running out of the subsidy regime or are decommissioned. But, I mean, you can be sure that this is something which we put in now for planning purposes, but obviously, the operational teams will do the utmost to either look at-- to always look at the economics, be it to extend lifetime, to enter into PPAs or whatever. So this is kind of our current assumption on those projects. Flexible generation, you see a big shift down. I mean, this year is obviously driven by very high volatility and also hedges we entered in, as I said in my presentation, in 2022. So therefore, the earnings level, as you also see in the 2024 guidance, is already slightly lower.
And going forward, we also see some more normalization, yet still significantly above the levels we have seen before the crisis. The last one is supply and trading. You know, on supply and trading, we always take kind of an average, more conservative approach in our guidance, because as we always said, it very much depends on the market conditions. And we want traders to take positions if there's an attractive risk/reward profile, as we have seen in the last years, and then there is also much upside. However, on an average basis, therefore, our assumption is rather conservative, and that leads to the reduction.
The rest is then the EUR 55 billion that we want to spend, times an average EBITDA yield of 10.5%, which brings you to the number of 9.2.
Maybe we can end, you know, of course, the IR team can take you through 2023, 2024, 2027, 2030. Just let us know, and we can have it all the data-
It has been properly analyzed.
Great. We continue with Deepa on that side, and then with Vincent on the other side again.
Deepa Venkateswaran from Bernstein. I have two questions. So, Michael, I will take you up on the net debt. So you're going to be borrowing just another EUR 12 billion more. And yes, and you also said on the variation margin, there should not be a substantial outflow because of the closure of the strategic hedges. So crudely, your net debt by 2030 will only be around EUR 18 billion. Maybe we add some decommissioning and so on, but I see it not north of, say, EUR 20 billion, crudely, which would put your net debt position as 2x. So what am I missing in this crude math? And so you would be substantially underlevered at 2x rather than 3.5x. And then just a follow-up on the strategic hedges closing, because this is a big number.
We've generally been assuming you might have EUR 4.5 billion or EUR 4.8 billion outflow. You're saying this is not the case. Just wanted to double-check that. You're running the lignite as a cash neutral at current carbon prices and power prices. Therefore, we can largely ignore that, and yes, we'll take the mining liabilities, but there is no outflow, and the trading and liquidity then are fine. You do give those disclosures, and we can track that, but that's not big sums. So could you just clarify this? And one last thing: Is there a big difference between net CapEx and gross CapEx? Because previously you used to talk about that, now it's all net. Should we just ignore it? Is there any big assumptions on gross to net?
All right, Deepa. Let me take the first one, and Markus, you want to take the second and the third one? I mean, first, net debt, two comments. One is, when you think about the net debt bridge, as you rightly said, you have to also consider other elements than just the net cash investments, which are leasing obligations. Leasing both on the sites, but also, for example, the installation vessels that we now secured for five years. They come under IFRS with leasing obligations, so that has to be considered in this one as well. Plus, we have the asset retirement obligation of the assets, and with our increasing portfolio, that also increases. Plus, we have impacts from variation margins in the next years to come.
Second comment would be if you do the math, I mean, we said we could potentially go up to 3.5%, but our target, as we also show in the backup, is more between 3% and 3.5%, because in the current environment, we believe there is a benefit to have some leverage room on your balance sheet and not max it out to the extreme.
But we are utilizing significant parts of our financial headroom for the investments till 2027 and 2030, right? I think also in the backup, in one of the backup slides, there is a prediction where we are with our net debt in 2027 and 2030. On the lignite side, yeah, let's make it very simple. You don't see it anymore in future. You shouldn't worry, and we manage. And now I tell you how we manage. On the variation margin side, it's neutral because we have-- I mean, as Michael have explained, we have cashed in the lifetime mark to market via variation margins, and that is not put into operating cash flow, so that is more or less a lock box. It's, it's closed. The position is financially closed.
Then, on lignite, we expect from now till 2030, it being cash neutral, on average for the full lifetime. Of course, there is some carbon exposure, but it's not significant because not a lot of this capacity is in the money. You so see lower utilization, and this carbon exposure, which is still there, is part of the operational hedging. Yeah. There is little carbon, but this is more part of day-to-day management and not a strategic position anymore. Yeah. So for us, financially, it's, we, we are done.
Your last question was on net debt. You are right. Our numbers in this capital markets are purely the net numbers. Obviously, the gross number will be higher, but the way how we steer the business is really, on the one hand side, we look towards the operational business, if they come up with attractive projects, and if they have attractive projects, we want them to take, take investment decisions. Then, the net is really what we can finance with our balance sheet. So you can expect gross numbers to be above the net numbers, but clearly for you, and in the end, the bottom line and top line gross, important is the net number, and that's the one we are communicating.
The next question here from Vincent, then we take a few virtual questions, and then thereafter, we continue with Michael.
Good morning, Vincent Ayral from JP Morgan. I'd like to come back quickly on a comment regarding the trading, among other things. I'm sorry, but you keep sticking to very, very conservative assumptions there. We can see that the flex generation, the outlook in higher volatility is higher. This is structural. So why keeping to such low assumptions as the trading is somehow a function of volatility? The other comment is regarding Germany. So we see you could do 12 GW of flexible generation. Germany is in a corner. It will need this to happen. You don't have the investment framework yet. You're just talking about three GW of new capacity, and most of your investment is to be spent in U.S.
What do you need in order to increase your investment and in Germany in order to help the system there? What magnitude could you do with your balance sheet, knowing that you have some room as we just discussed in the previous question? Thank you.
So on trading, yes, you are absolutely right. We are conservative, because the last position we want to be in is the moment we take the guidance up, we have problems in that business, so we keep it better the other way around. We stay conservative and outperform. So, but it's difficult to give you a different number, right? I think from how we run the business, how we risk management it, we feel very comfortable to deliver the EUR 300 million. It can be higher, but how much higher? It's very difficult to, to give you a number, right? And, on, the second question, yeah, one thing is totally clear, we need significant and more than 3 GW from RWE in flexible generation in, in Germany. But unfortunately, we still are waiting for the framework.
I mean, we have not, remuneration framework. We have no investment framework. You know, in which state the current coalition is. I cannot predict when we get it. They still promise it for this year, but first, when we have—we first need to look at it to credibly increase our investment targets. And then, of course, it depends on how the investment framework looks like. Is it a capacity payment over 20 years? Is it upfront investment support? If it's upfront investment support, you don't have a huge impact on net debt. You could significantly increase the targets. But we can tell you in more detail when we have the framework.
And, as we have all said, we are not, we don't have a plan which takes us to the absolute limit of our headroom, so there is some remaining buffer if we see even more attractive investment opportunities on top of our net presented plan. But since we are here dependent on political decisions, until it's not clear, we stay on the conservative side.
Under current regulation, I would say, it would probably take six years to plan, to permit, and to build a gas plant. So we are still... I mean, if we get it faster, we get the first auctions next year, we're going to deliver by 2029. But of course, in parallel, we are also discussing how we could accelerate that, that we shorten the timeline. But it all starts with a clear political framework. And that is a question I cannot give you an answer. I mean, I really hope that the German politician of the coalition sticks to what they have promised, and they are now first sorting their budget issue. Maybe when that is sorted, they can agree on the firm and flexible capacity framework.
We know there is a draft version discussed among the three parties. It's well advanced. It has also been discussed with the European Union, but it's not agreed within the coalition yet because they are now working on the budget issue. I hope to see it this year.
Thank you. A few virtual questions. The first one from Ingo Becker, from Kepler. Does a +10% per annum DPS growth target apply for the entire 2024-2030 horizon? I think it's a... Should I take that? I think it's a misunderstanding, Ingo, because the 10% applies for the increase from 2023 to 2024. For the long term, our target is 5%-10% DPS growth per annum. Next virtual question comes from Per Lekander, from the Clean Energy Transition Fund. Page 46 in your presentation implies you have unwound your long CO2 position. Is that correct? And over what timeframe did this happen? Michael, you want to comment on that?
Yeah. So it's correct that we have unwound the position. I mean, on details of exact hedging activities, we typically don't comment, but you can assume that was over time horizon of, say, half a year. Because, I mean, you didn't want to impact the market while doing that and also optimize it.
For better prices and for dates.
There was one question from Pierre- Alexandre from Alpha Value. The question effectively is whether our IRR targets include sell-down proceeds.
Yeah, no. So they don't. So the moment we take the investment decision, we would look at the WACC and then put risk premiums on top, and those don't include sell-down assumptions here.
We now go back to the audience, and we continue with Meike, and thereafter, Peter Bisztyga.
Thank you. Thank you for taking my question. Meike Becker, HSBC. I have a question on the risk buffer that you have in your offshore wind planning. I think your plan has just under 4 GW of additions in 2030. So how comfortable are you with having four projects or even more concluding in that year? And what risk buffers have you included in your planning and your timeline for offshore wind by 2030? And the second one is on the development of your earnings. If we look at consensus right now, it implies a little bit of a dip in earnings expectations when we look at 2025 and 2026. Should we expect something more flat or something more growing? So if you could sort of, like, fill in that little gap of expectations. Thank you.
With this risk buffer, you mean time-wise risk buffer in terms of delivery of the projects?
Exactly.
Yeah.
Some of your peers have had delays, especially in certain regions. How comfortable are you actually to deliver those projects in 2030 or earlier?
I mean, first of all, thanks to our great offshore team, we have not seen any delays in our projects so far. Also, the two ones we have under construction so far, it's going according to plan. Of course, we have always some buffers in the plan. And when you look at the build-out plan of on top of what we have under construction, you see that by name projects, we have significantly more that would take us to more than 10 GW. The target is 10 GW. So we have flexibility to deliver the 10 GW, either in terms of delays or in terms of farm downs, that we take on board, partners for these big projects.
So far, knowing these projects, also the U.S. now, and we have the German one, the first one from the Nordseecluster under plan for development and construction by 2027, we feel very confident. I mean, I can never rule out a delay of, I don't know, six months, but that we see significant delays here. Currently, we don't see it. I mean, as we have both said in our presentation, all our offshore portfolio, and we ensured that we had a very deep dive of our offshore portfolio after what happened. We can confirm again that we don't have any problems with anything which is under construction, under development.
... I mean, on the guidance, we only gave a guidance on 2024 and 2027 delivery, so I can't give you the number. But structurally, what you have to think about is, I mean, offshore, you know that offshore, will be impacted, as I said, by the slight decrease following the compression model. And since we have just commissioned, Kaskasi and Triton Knoll, it takes now until Thor and, Sofia come online. That will be in 2026, so therefore, you will see an uplift in earnings in 2026 in our offshore unit. Onshore wind, I mean, is just a very stable development. I mean, you see on the existing assets, if you look into forward prices, that we currently see a price decrease of liquidation until 2026.
So you can assume on existing assets that have a merchant exposure, there's a decrease until 2026. However, we constantly now bring new assets online that should increase the earnings. Flexible generation, it's the same story. I mean, we benefit from the hedges in the front, but as I said, in the medium term, it's more about the volatility in the markets where the earnings come from. And here, especially also on the secured side, we have seen an uplift in 2026 and 2027. That's because of the U.K. capacity auction that already finalized and came out very strongly, for 2026 and 2027. So that will lead in those years to an increase again. So you have a structure going down and up. And trading, I mean, Markus commented, we just assumed an average income of EUR 300 million.
Obviously, all hoping for good market conditions and our trader to outperform that.
Yeah, Peter.
Hi, it's Peter Bisztyga from Bank of America. Two questions, if I may. First one is: we've seen, you know, companies like Enel and Iberdrola cut long-term renewables targets. Obviously, you're very significantly increasing yours. So just wanted to get your perspective on that. What's driving the divergence in strategy? And actually, is this good news for you that others are sort of cutting back CapEx? And then the second one, sort of a bit more specific on U.S. offshore wind. Clearly, one of the problems in that market is the lack of established supply chain. So when you're thinking about your 2030 targets in the U.S., are you going to be relying on others to put that supply chain in place, or are you going to be making your own investments and how do you think about the risk profile of that, please?
Yeah, Peter, thanks for the questions. I mean, you probably don't assume me to comment on strategies of others. But let me make that comment, that they are in different markets. And if you look into more detail, they're actually not scaling back their investment in those markets, which are our core markets. So at least from what I can see from the outside, and there is a regional shift, we feel very comfortable with our markets. And of course, and that is not a surprise, if you have a good project pipeline, and you are confident on delivering on your return expectations, it is of course a more comfortable environment when some of our peers are retrenching. Yeah, definitely.
I mean, we see less competition in some of the markets than we have seen before. But still, the biggest challenge is, of course, getting your project in time, in budget, built. So supply chain is more critical than maybe some competition in auctions and others. So that leading to your question on U.S. offshore supply chain, and you know that some of our peers have done great things. They have already started building the supply chain and infrastructure, which is needed. So where we can make use of that, we're going to make use of that. And other than that, we have a clear plan, what we need to do.
That was part of the bid we submitted, because you have to lay out detailed, what kind of supply chain investments you make, who are your partners? It is all even partly sub-funded, so we have a fully credible plan. And of course, we also have done a full-fledged lesson learned session on what went wrong in other projects. So confident to deliver Community Offshore Wind.
Thank you. Louis, over here in the front, and then Harry thereafter.
Yes, good morning. Louis Boujard of UBS. Two questions on my side. The first one may be regarding the potential for the farm down strategy. You mentioned, I think that you have a pipeline that is equivalent to something like 13 GW in offshore, but you could bring something GW in offshore, and your target is 10 GW, so apparently, you will be able to do some farm down. My question would be: If you achieve indeed this kind of targets, what would you do with the recycled cash that you would obtain into this strategy? Would you prefer to pay back partly investors with a special dividend, or would you prefer eventually to reinject it into additional investments going forward? And the second question would be regarding the flexible generation business.
I think that you split, at least for the moment, 3 GW hydrogen-ready gas-fired power plant, 2 GW electrolyzer. Maybe firstly, on the 2 GW electrolyzer, is it impacted with the budget discussions that you have in Germany currently? Is it at risk, or is it completely out of the scope and you can go ahead in terms of potential investments? And secondly, regarding the 3 GW, what would be the framework that would make you pretty happy going forward in order to trigger this investment and eventually to expand this beyond the levels that you have mentioned here? Thank you very much.
Yeah. Let me comment on the first one, farm downs. The 55 is net, so if we do farm downs, that doesn't mean that we go below 55, and then we return capital or recycle it. It's the other way around. The 55 net is committed. If we see more opportunities from our portfolio, then we do gross more, and of course, the expectation is that we make some margin on that. Currently, in the plan, we have around, what is it, Michael?
Three.
EUR 300 million from 2027 onwards per annum, but this is no big gains. It's just, I mean, that you earn your decent return on your recycled capital, but no big gains. So there is the assumption because we already know some of the projects in offshore, where we have to or want to farm down, that gross will be higher than net. And of course, the interest on the CapEx spend needs to be, needs to be, have a, have a good yield, and this is around EUR 300 million per annum in 2027 to 2030. Yes, we see a potential to do more, but we didn't want to promise you a gross figure because that puts you under pressure to deliver top-line growth.
Then when markets are not good, you are under pressure to farm down potentially your best projects. We want to do it the other way around. First, we decide what we want to keep, and if we can do more to farm down, then we do more and hopefully make some money on that. Flexible generation, first of all, please note that we have changed many of our targets and increased them. We haven't increased the electrolyzer target because we see a delay in the build-out of that industry, but we are still fully committed to the hydrogen economy. It is needed, and you see also the first positive signs in the Netherlands and Germany, with a national hydrogen network, with first contracts for industry to move to hydrogen. So it will come.
It might come a bit later. Yeah, so that's why we haven't increased it. Is there a risk? It's always difficult to discuss, but my prediction is there is no risk for building the hydrogen economy, because if we would lose funding for electrolyzer build-out in Europe, then hydrogen network doesn't make any sense. So, and then you have the problem of: How do you tell the story about decarbonizing the energy-intensive industry which cannot be electrified? So I think, maybe delays, but not a real risk, and we have flexibility when we, when we invest. On the 3 GW, as simple as possible. So I can better tell you what I wouldn't like. What I wouldn't like is a too detailed technical specification of how you build new flexible firm generation capacity.
And what I wouldn't like is already now discussing under which circumstances you have to move to 100% hydrogen, how that remuneration framework will look like in 2035. Because all that simply increases your risks, and that means you have to put that all into your bid, and that makes it very, very expensive, which wouldn't be good for the acceptance of moving to hydrogen-ready gas plants. So the best one would be, of course, a technological specification that it needs to be potentially 100% hydrogen, for example, by 2035, is needed. We don't want to invest into stranded assets, yeah? But whether it is converted 2035, 2036, or whatever, that depends on the availability of hydrogen. That should be decided later.
Thank you, Louis. We continue here in the front with Harry, and then Piotr, and then Sam.
Hi, thanks. It's Harry Wyburd from Exane. So two from me. Firstly, M&A. To what extent could M&A still be part of your planning for the rest of the decade? And are you happy with where you are in the different verticals, and happy competing against other players, whether utilities or big oil, who are present or omnipresent across the entire value chain? I'm specifically thinking things like retail supply. I think you've alluded as well to perhaps looking at flexible generation in the U.S.. And if you were to do M&A, would that supplant CapEx that you've got in this plan today, or would you look at other ways of potentially funding that? And then secondly, a bit more technical, but batteries, I guess this is an asset class that we're getting to grips with as analysts.
Could you give us a rough rule of thumb for CapEx per megawatt for batteries and also EBITDA yield, which would be very helpful to help us, I guess, compare this to onshore wind, offshore wind, and solar? Thank you.
Let me start with M&A, and Michael takes over the battery question. First of all, let's go back when we had the discussion 2.5 years ago at the old or last CMD. You also asked a question of M&A, and we said, "If we're going to do something in solar," and that is what we have delivered. I mean, that we, that we made the move also big into solar, especially in the U.S., but also with great development pipelines in the U.K. and Poland. So looking into the next years, there is no imminent need that we do M&A because we are happy with our market position in our core markets.
Of course, opportunistically, if you can get a great project at a good price or a smaller development pipeline, that is possible, but that would be more or less part of the ordinary plan. So there is nothing on the agenda, which is big M&A short term. Retail, we would rule out by today. There is no strategic rationale moving into retail. And I don't buy the argumentation that you need to have a thing for your renewable power. This is a totally different timeline. I mean, we need contracts for 10 years- plus. Retail typically starts at two to three years. That doesn't help you in the markets we are in. It might be different in other markets where we are not big, and we have competitors who see it differently.
But that is our view. In our core markets, there is no need to move into retail. Then you mentioned U.S. flex. Of course, that is an obvious strategic question, but it definitely takes us some time to work on that, so there is nothing short-term on the agenda.
With respect to batteries, I mean, first, the rough number, it's about EUR 1 million per megawatt, so that's, that's the magnitude. Return-wise, we laid out that this is also in the range of 6%-10% IRR, which translates into 10% EBITDA yield. However, batteries work in different regimes, so you have to look at the individual projects. So if you go, for example, to the U.S., we typically would attach a battery to solar assets, and that simply ben-- you have them just have a higher utilization of price levels. While you also have markets also in the U.S., where you then go for a Resource Adequacy reward, so that's basically capacity premiums, you get paid for providing the battery.
And finally, we also have batteries in regimes where you then just opt for ancillary and incomes with the grid operator. So it very much depends on the design, and as we said, if it's regulated income, so you have a Resource Adequacy contract for, say, 10 or 15 years, that would come then with lower IRR requirements. While if it's more towards short-term secured incomes, we would ask for higher returns.
Thank you. We continue in the far back with Piotr, then Sam, and then we go to Katie.
Thank you very much. Piotr Dzieciolowski from Citi. I have two questions, please. So the first one, I wanted to clarify on the lignite, 'cause you said the cash flow will be neutral. You know, during the energy crisis, you were saying that there's still positive value in the asset, but given now the cash flows are neutral, would you say-- and the market still thinks in some of the parts that there's still some value in lignite. Would you say it's zero, on the NPV basis? And the second question I have about your assumption, about your IRR versus, the EBITDA yield. What is the duration of EBITDA, do you assume? So if we look at the 2030, this EUR 5.5 billion you get on the back of a new investment, this will last for how many years, essentially?
How you think about this in this context, a problem, what do you assume for this long-term power prices or generally crowding out effect and potentially not having that much of a terminal value in these renewable assets? Thank you.
Yeah, I'll take both questions. I mean, on the cash flow, first of all, as you said, it's, it's cash flow neutral, therefore, the NPV zero assumption, I think, is a fair one. I mean, if you go back, in the time of scarcity, there was obviously lots of value in the lignite, which we hatched and also benefited from. And I wouldn't rule out if we see tightness in the future, that there is also upside in the lignite fleet, but at least what we currently see from, from the forwards and the higher CO2 prices, probably NPV zero is, is a fair assumption. Concerning the EBITDA yield, we assumed, I think, a 28-year duration of the assets on average, so like 30 years.
And I mean, we do obviously have assumptions around power prices at, at the very end, but here it's more a generic approach. So if you assume a project that has a, an average, return of, say, 8%, what is then the EBITDA yield it would translate into? Yeah, so that's more a generic, modeling assumption. Obviously, on the individual projects, we would then always look at the specific economics and make sure they meet then the return expectations.
It's average, right?
It's average.
It's average. U.S. projects with tax equity-
Yeah
... you have higher returns in the beginning. U.K. offshore wind, with inflation adjustment, you have lower in the beginning, higher in the end-
Exactly
... so but the average portfolio is, what we have outlined.
Thank you. We continue in the far corner over there.
Hi, thank you,
We can hear you, Sam.
Very good. Sam Arie from UBS. Thanks so much for the presentation. I just agree with the other comments before. It was. Looks like a great plan, and as usual, you make complicated business very simple and straightforward. So thanks for that. But look, we're at the end of the questions or, or near the end, I suppose, and I'm scraping the barrel. But a couple of things I wanted to ask. One may be, Michael, for you. On the 100-GW pipeline, which is very impressive, one of the challenges we have sometimes on our side is: What's the definition of a pipeline? And everybody's got a big number, but there's. It's hard for us to value that.
So I just wondered if you could talk to a valuation benchmark that would be relevant for the 100-GW pipeline, so we can think about how much that's worth. Is it EUR 100,000 a megawatt, something like that? Could be really interesting and helpful. I think often the value of the pipeline is overlooked, so would be good to dig into that. And then, Markus, maybe I'll ask you, high-level question. Obviously, things are, you know, the going has been good for the company recently, and a big reason for that is the change in market prices for energy, and that's a problem for the rest of the economy. Of course, we all understand the point that renewables are currently still-
... you know, one of the best things we can do, and, you know, even if renewable costs have gone up, they're still cheaper than market prices. But from a big picture perspective, I think Europe would like to see power and energy prices going back down to where they were before. Maybe not as far as they were when I started as an analyst, and the power price in Germany was 21 EUR. But, like, how do we solve this bigger problem for the economy? How do we get power prices back to a manageable level for households and industry?
Let me start, and this is a high-level question. So if you dig deeper and ask yourself the question, why is it? Yeah. I mean, part of it is the scarcity, huh? But I think that doesn't explain the picture, because if you look at the forward curve, I mean, currently, German power price base load is around EUR 90 . In 2026, 2027, that is still significant higher than what you refer to as a past power price. But the key drivers are two things. One is higher interest rates, and the second is higher raw material prices, higher inflation, and so on. According to our assessment, on average, LCOE for renewable power have gone up by more than 50% in the last two and a half years.
Half of that is driven by inflation, half of that is driven by higher interest rates because it's a very CapEx-intensive business. But it's still cheaper than new fossil generation capacity. So in the end, what it means, the world has to adapt to this higher price level, and it will have severe consequences because people need to spend more on energy. Probably, we see a higher push into energy efficiency, and it also might change the global industrial landscape, where energy-intensive production will happen. Because another element which is driving it is the transportation of fossil fuels, in the end, for a decision where to locate an energy-intensive business, irrelevant, because the transportation costs of fossil fuels are very low.
But transporting green electricity or green molecules is very, very expensive, and that, of course, changes it, and, you have to keep an eye on it, what it means to the industrial structure of our core markets. In the end, I think the trend to electrification is unbroken. And we are in a good, long-term market environment, but you're gonna see maybe some bumps in the road here and there. Because what you don't want is, you don't want to invest in a CapEx, upfront CapEx business at a time where you have a very high interest rate environment and very high, equipment cost, because that means you lock it in the moment you invest, huh? So the moment you see supply chain easing and interest rates coming down, you probably delay a bit, investments.
That was also a strategic discussion we had, that we wanna have significant flexibility in the plan, when to invest and when to do what. But the dream of getting back to EUR 20-EUR 30 power prices, what you need to believe is that we see a drop in raw material prices starting from copper and so on, of 50%, and you need to relieve interest rates, long-term interest rates go back down to zero. It's nothing we should rule out, but I think very unlikely.
Next one is on the pipeline, Sam. I mean, let's first talk about the numbers. We do have clear criteria when something is considered as being in the pipeline or not. Let's start with offshore. So in offshore, it would be typically if we have a lease secured for those projects. I think Markus mentioned that previously. For example, a central auction, like in Japan, where the outcome is unclear until you have the final decision, is not included. So it's only concrete projects, and when you go to onshore or batteries, we also have a very strict gate process, and it's the first gate when that is passed, and that comes with certain requirement on the development of the project and where the status is. If that gate is passed, it would feed into our pipeline.
So therefore, the 100 GW are pipeline. Yeah, but I would say they are not a dream number. They are substantial, and you also see the pie chart that about, the number of, I think 40% of that is... No, 45%, is, are projects we believe can be COD before 2027, and then an additional, 40% until 2030, and that already gives you an indication, that there is some firmness in the numbers. Now, on the valuation, that's your job. Yeah. You should value. I mean, what would be my perspective? I mean, look, we, we expect 100-300 basis points to outperform the WACC. Now, you can assume that some of that is attached to risks, which you have either from merchant or country profiles.
Yeah, so you probably should deduct the number to some degree, and then you come up with an outperformance, and if you apply that, probably gives you a good number. But I'm happy to see your models.
Maybe as a reference point, I mean, we did some pipeline acquisitions in the past, and, I mean, maybe you can also look at those valuations. Katie, I think we had right here in the front. Then thereafter, I think we had a question in the... Yeah. Oh, yeah, but first, Katie.
Thank you. Hi, I just wondered if you could give us a little bit of insight into how you're constructing the KPIs for the supply and trading teams. Given the sort of long run of outperformance and the consistent volatility and tightness in the market, are you raising the bar for them hitting whatever those KPIs may be as we go forward?
Yeah, supply and trading. It's very simple. So the traders are incentivized on the payout ratio of their performance, and the performance is measured by their actual performance of the book in the year, minus all costs. So we fully allocate the cost of the trading business to individual books, minus the risk capital. And the risk capital is measured by a value at risk approach, and then charged with a premium for the risk capital they use. And the remainder is then the performance, and a share of that performance is their bonus. So therefore, and that goes back to the question, they are not incentivized on the EUR 300 million. They are incentivized on earning their cost of capital and exceeding that.
And therefore, I mean, when I have the discussion with Peter, our head of trading, at the time when I was CFO of the trading business, he always told me: "Michael, I'm the risk manager, not you as a CFO. You are the risk controller, but I am the risk manager." And that's exactly the mindset I want to have. So the traders should look at the risk reward. If there's a clear risk reward, they should enter into the position. If they don't see a risk reward, they shouldn't enter into a position. Plus, second thing to add, this is kind of the short-term perspective, and then on top, we also have investing in there. So, a certain portion of their bonuses is kept for the next one or two years, and it's actually virtually invested into their own book.
That makes sure that they only don't benefit on the short term, but on the longer term, and they also have an interest in subsequently growing their books going forward.
So we are seeing for them, it's very volatile business. Making lots of money and then losing the next because you also lose the bonus of the-
Yeah.
- previous years.
Thank you. Over there.
Thank you, Olly Jeffery at Deutsche Bank. Just coming back to flexible generation, and the figures you've given for 2024 and 2027. I remember, I think, at the half-year results, when you spoke about this division, you thought on average it would do EUR 1.5 billion. And now with EUR 2 billion in 2024 and EUR 1.5 billion-EUR 2 billion in 2027, has your view in that increased since the half year? And then looking at the division longer term, and you put running of the fleet decreases quite materially by 2027 and 2030. Is most of that coming down because your view of the option value? And if it is because of your view of the option value, would you consider that a conservative approach, given that volatility could have a good reason to maintain to the end of the decade? Thank you.
Let me pick that. I mean, Olly, as we said, there are three income streams you need to look at. One is what the secured income or system services. And as I mentioned here, especially. So we see kind of a stable level, and we see an increase in the later years, as evidenced just in the U.K. capacity auction, where premiums go up. So that's the one, the flexible, the intraday and day ahead dispatching, that depends on intraday volatility, which we also assume to rather pick up with the increasing intermittency of renewables and the scarcity on the flexible generation side. And ultimately, you're right, kind of the one that is more difficult to predict is then the spread and the option value.
Also here, with increasing scarcity of flexible generation and more volatility in the markets, you should expect also volatility in forward markets on spread levels, and therefore, also the potential to capture really the option value of those assets.
Thank you. We have a few questions from online that I would like to sneak in now, and then we continue again with the front, taking front row. We have one question from Jocelyn Guyot from Rothschild. What do you intend to do with your stake in Amprion, given that the German government would like to bring the four transmission system operators companies under a single umbrella?
Yeah, I mean, first of all, we are very, very happy with the investment into Amprion. And also in the current environment, I mean, there have been debates about returns, but what we actually see in their plans is there are increased returns, and also the regulator is really supportive here in the returns. So it is an attractive investment, and that also nicely matches to our portfolio. At the same time, we always mentioned, this is not kind of the core of our business, and depending how the portfolio evolves, we may take think about that. But talking about the German government, I guess that is not a clear a good strategy at the current time. Yeah, so let's see what they're really heading for.
I mean, you have seen how much difficulty they have to find an agreement on TenneT, so that's nothing I would base a strategy on. We are happy with the investment, and then we need to see where it's evolving.
We have one question from Oscar, who's on roadshow, Oscar from Santander Roadshow in Australia, so quite late. Question is: What kind of PPA levels do we sign these days, and what is the implicit cost of debt assumption in our plan?
So the implicit cost of debt assumption, you can assume around 5%. And, Oscar, on PPA levels, I know that some of you already asked me that question before. I won't give you a number on this one. I think, Thomas, you have a public quote on PPA levels that you sometimes mention to investors. I think that is something worth looking into, but certainly, our numbers we won't reveal. I mean, also when talking about PPA levels, you also need to look at what is the kind of product you are selling. So if you go out for a pay-as-produced PPA-
... If you go to a pay-as-nominated or if you go to a baseload PPA. And clearly, the latter one is the one the customers, especially industry, are asking for, and this is the one with the highest price level. And here comes the strengths of our portfolio and also our trading capabilities, because we do have the ability to offer baseload PPAs to our customers, and by that, on the one hand side, lock in margins for renewables, lock in margins of our flexible generation, and also realize attractive risk premiums on those contracts.
There's one question from Mark Lewis from Andurand Capital. I think we have answered that, but, Michael, probably that goes to you. When you say that you have closed your strategic CO2 position, does this mean that the only CO2 you have on your books now are the allowances you need to cover the power you have sold forward?
Yeah, that's exactly right.
Great. And then we continue with those who have asked already the first question. Alberto, over to you.
Thank you for the opportunity again. Question on—I noticed, like, a third of your capacity is in the United States. So, if we have a change in presidency and maybe there's any delays or obstruction to the IRA, which I know has to go through Congress and whatever, but let's say towards the end of 2025, we could be in a different political situation in the United States. How much of your growth would you have locked in by the end of 2025? And what do you think happens to tax credits? Because to be fair, they've continued, regardless of who was there. A second question, it starts with an observation. I think that one of my favorite topics has never been brought up today, which is the lignite separation.
So the question is not if it happens, but the question is, does the unwinding of your carbon position potentially facilitate the process?
Yeah. On the U.S., I mean, you know, our above 3 GW position in offshore wind, where we have the first offtake agreement now, we are also optimistic that we get another one that is not at all affected by any change in, in presidency. Now, you push me into speculating what might happen after election, but just a comment. I mean, if you look at the map, where we are building, who are the big beneficiaries, of the IRA, we talk about red states. So let's not discuss the political dynamics, but it's not so clear that the one presidency is pro and the other presidency is totally against, renewable, because investments need to happen.
I think the IRA has a great setup to create local jobs, yeah, and to go into the regions which are politically wanted, where investors should go. So I mean, we are not, we are not concerned at all. I mean, could it delay things? Yes, because it's not only, and maybe we should keep that in mind, it's not only on the incentivization framework, it is also about permitting, it is also about appealing, it is also about the grid, yeah. And of course, it all needs to come together, but the current plan we see in the U.S. is a good one. On the lignite separation, I think the change in accounting and closing the CO2 position doesn't change anything on a potential separation. I mean, this. It needs to be a commercial discussion anyhow, whatever might happen.
But let me take the opportunity to, to update where we are and how we stand. I think we have a clear agreement with the German government on 2030, so that is a set date. We are also happy about it, because if for whatever reason, delay in gas new builds or whatever, it is needed for longer, it's not our problem. It's a clear, agreed end date with the German government. If they want to put it into reserve, it's their reserve. Second, which is very, very important for us also with our, partners on the financial, on the financial industry, this agreement puts us on a 1.5-degree compliance reduction pathway. So all discussions you have with potential insurance companies, banks, bond investors are solved. It's also very important.
And then, of course, and that is the last comment on where we are, we're gonna commit to our social responsibilities regarding the workers. This is also part of ESG, right? So, we take care of the workers. You know that in the coalition agreement, there is a potential solution of a foundation. You know the state of the current coalition, but you also see that, maybe coal is needed for longer and companies are not willing to run it, so there might open a window of opportunity. And we have always said we are open for any discussion around that, but we will not update you, the market, on interim step on that. Yeah.
Thank you. There was a follow-on question from Peter, and then back to you, Martha.
Hi, it's Peter Bisztyga from Bank of America again. Just wondering what the limiting factors were when you were thinking about your 2030 targets, because, you know, Michael, you already said, you know, you're, you're anticipating still have a fair amount of balance sheet headroom. So was that it? Was it the ultimately, the depth of your pipeline? Was it your view on supply chain evolution or grid connection availability longer term? So just be interested to sort of hear how you think about those factors. And then maybe just one clarification: the 3 GW of flexible generation that you have in your plan for 2030, what is that gonna happen irrespective of what regime you get in Germany, or is that contingent on something?
The easier question is the second one. The 3 GW are contingent on the renovation framework. We're not gonna build 3 GW of gas plant without clear capacity-based remuneration framework. You're never going to earn your money back just from running these assets. The second—the first question is, I mean, we had an intensive discussion, what is the right level where we say it's an ambitious plan, but it's still reasonable, and it can be delivered? So we wanted to have this flexibility and some buffers in the plan that we can, as you know it from us, that we can deliver on our commitments. And it's also good, you never know which market opportunities might open, that you have a bit of headroom left, yeah?
But not too much, because we think, with this pipeline and with the investment opportunities we see ahead of us, we should, wherever we get our returns, we should now invest.
Thank you. The next question here in the front from Vincent.
Morning again. Vincent from JP Morgan. I'd like to bounce back on the comment you made on the fact that you don't need supply in your market to be hedged. When we look at renewable projects, let's look just at Germany, to be specific. But I'm happy if you give another country. What is the type of level of power price assumption you're making post-CfD PPA subsidy, post-contracting? Because the question is in 10 years' time. So I'll be very interested in understanding how you look at things there. And the second, you've been making comments like we've always heard renewable developers saying that renewables are cheaper than fossil on LCOE, but one is always produce, the other one is as demand.
So do you have, by any chance, any estimates of, what would be a full package, you know, LCOE renewable, including all the connections and the backup capacity being battery or else? So we can compare apples with apples, because otherwise, I just don't get it. Thank you.
Yeah, first, on the supply side, I mean, it's not that we don't have supply. I think we have the adequate supply side because we serve the energy-intensive industry. I mean, those companies which, I mean, sign power deals with us for five, 10, 15 years. I think if you look at our core markets, I would say the top 10% energy-intensive users are our customers with ongoing relationships, and that is our supply. It's not retail, because retail has, different, different, sourcing periods. The assumption on power prices, we take, it's not, in the next 10 years. Of course, for some projects, but if we enter into new CfDs, we typically talk 15, 20 years, also PPAs are beyond 10 years. So for new projects, it's definitely further out than 10 years.
But the conceptual approach we take is we model the markets we are in, and then we try to model an equilibrium, because we believe in the end, it needs to be an equilibrium. So when you see very high prices, like in flexible generation today, you should assume whatever the technology of choice is, that you get more of that, which will bring your returns down. So in the end, it's all driven by our assumption of inflation and CapEx costs, because that determines where the equilibrium sits in 2035. And that is also important when you think, supply might be the right, the right, offtake for your renewables.
That can be pretty wrong because if for whatever reason, the future energy system can supply low-energy at lower costs, yeah, then you're gonna see somebody who only sets up a new retail business and steals your customers, and you are sitting on locked in higher, higher LCOEs on your renewable power. So that's why we think if you don't have an appropriate duration match, it doesn't help you. So it's 10 years, it's 10 years- plus. On the full system integration cost, we fully... I mean, I fully agree. I think the system costs for renewables are higher than for existing conventional. But that is because if you take a different perspective, we are actually rebuilding the entire energy system. Yeah.
If you would go back and build a fossil system, including the wires again, it also means you have higher costs. They just benefit from what is there. And I don't—I mean, I, I would always look at what is the alternative? If somebody decides it's not renewables because it's too expensive, what is it? New nuclear. Existing nuclear might long run, but new nuclear is not the solution. We talk about 15 years- plus. New coal, impossible. New gas, not economic if you don't get a capacity payment. So there is actually no other way than either go significant for energy efficiency or build, build a renewable system with backup capacity. It costs, it will cost more than people anticipate.
A few more questions online from Ahmed Farman from Jefferies. Probably the first one goes to you, Michael. When you say lignite is free cash flow neutral, is that including decommissioning costs?
Yes, it is, because I mean, on the decommissioning, you know that, for lignite, we have the... Well, to be fair, first, from the structure, we do have provisions for the decommissioning of the mines, and obviously, those decommissioning provisions will lead to a cash out in future years. So therefore, you do have a negative cash effect over, I think the provisions are built over 200 years, with the big chunk in the first 30 years after closure. So over a long time, there will be a negative cash flow out of the utilization of the mining provisions. But other than that, there are no negative impacts.
... Two more questions from Ahmed. The next one is: How much of the EBITDA growth to 2027 is already contracted or highly visible?
I mean, probably a fair assumption, at least on the renewable side, is the 70% secured versus 30% merchant. And then you can assume on the merchant, I mean, there's probably also some kind of floor with respect to prices, yeah? And that probably leads you to a fair assumption, assessment where we are. I mean, on flexible generation, we already detailed that. And you also see that in the chart, how much of that goes to system services, which you can assume is pretty much locked in, and the rest is then development over time.
If I can add to that, Michael, I think also you can very clearly from our disclosure see of the targets for 2027, for example, the offshore target is 6 GW, and you compare that what we have in operation and under construction, you see that on offshore, actually, we are already almost there with the 6 GW.
Yeah.
On the other technologies, the lead time is much shorter. So therefore, of course, you know, we are a bit further away from having already FID the projects, but I think we're well on track for the 2027 targets. The third one from Ahmed is a bit more broadly. Maybe that goes to you, Markus. Can you talk about how operationally, strategically you are managing the renewables business differently in the current high-cost and inflationary environment versus the past?
I think the most relevant and prominent difference is the extensive discussion we have about supply chain and securing the equipment. And then also strategically, not project by project, but more on a portfolio level, which puts us then in the position that we can deliver our plan. I think that would be probably the most relevant one. Other than inflation for operating costs, of course, they are higher, but that hasn't really changed to a different approach.
Maybe to add one thing, what we are also now much more focusing is financing cost. I mean, historically, we have seen large chunk of financing via our provision, and with the growth, obviously, financial, net financial debt is becoming more relevant, so therefore, we do have the discussions about appropriate hedging levels. When do we lock in financing costs? And also around which currencies do we lock in those interest rates? So that's also a new focus. It has nothing to do, obviously, with supply chain, but with the changing environment, interest rate environment, that has become more important.
Thank you. We're coming to the end of the Q&A session. Is there any last question that the audience would like to ask? There's one in the far back.
And one more.
And one more. Okay, so we make two last questions.
Hi, it's Chris Moore from Carbon Tracker. This is a very short, simple question. You talked about coal and nuclear being cash flow neutral. Can you just give us a steer or some idea as these coal assets get to the end of their lives, what the maintenance CapEx is for coal between now and 2030? Thank you.
Yeah, so maintenance CapEx, you can assume between EUR 100 million and EUR 120 million per annum on maintenance CapEx for the assets. Obviously, going down towards the, towards the end. Yeah.
Thank you. And then we had one very last question. Can you bring the microphone to the front? Yeah. That can go.
Hi, Alex from Deutsche Bank. Two last questions. The first one being, you guide 5% financial expense, and you guide the financial expense, which implies EUR 23 billion net debt by 2030, which would imply a 3.5 leverage headroom, about of EUR 10 billion. Is that the fair math to make? And then the second question is, assuming lignite is running on no cash flow basis until 2030, I guess there won't be many volumes generated, which will make the Germany very tight market. And then 75% of the 35 GW of the gas fleet installed in the U.K. is running out of the asset life by 2025. Do you see increased volatility remaining or even getting higher in the years to come, which would drive, you know, potentially hydro biomass gas earnings guidance being a bit too cautious?
Can you repeat the last question?
So there's 34 GW of installed capacity in gas in the U.K., and 75% of it will be beyond the asset life in 2025, meaning that there should be at least 25 GW being built, or there will be a massive shortage of electricity with a mass volatility. How do you see the U.K. market turning out?
Yeah. Let me take the second question, and you take the one on the financing side. So first of all, lignite, it, the change in accounting and the change in on the CO2 hedge side has no impact whatsoever on the dispatch. The dispatch is always done on spot prices. Yeah. And you are also obliged to run it. You cannot hold it back, so it will not tighten the market, our change in the accounting. It will have no operational impact whatsoever. It's just how we present the financials to make it a bit easier and simplified. On the U.K. side, it's, we are conservative with our prediction because you are right that you have a phase-out, but you also see significant batteries being built, yeah, and the one or the other asset coming.
It will depend on weather, it will depend on the demand side. It could be higher, but I think our assumption is reasonable.
... And with respect to the financial result, I mean, first of all, the 5% is an average value, and given that we grow more in the U.S., and but that we grow in the U.S. and U.K., there's obviously also a mixture of GBP and U.S. dollar yields in that number, therefore, it looks higher than the euro number. Secondly, when you think about the financial result, there are other impacts you have to consider. One is we show the E.ON dividend as part of the financial results, so that needs to be deducted. Secondly, we also have interest under construction.
So you activate part of the financing costs, and therefore, especially in the 27 years where we have strong investment program, part of that is capitalized and therefore doesn't show up in the financial result. And then it also depends on the timing, because what we have assumed is kind of a linear emission of bonds so that you can also you also have access to the market, while the effective need of cash obviously depends on the concrete profile of the projects. So therefore, in between, you can also assume that you maybe have already emitted more debt, but you will, yeah, for the time being, invest that into a bank or whatever other topics, and then utilize at a later stage. So therefore, this is a nice exercise for controllers to model in detail for the respective years.
Thank you, Markus, and thank you, Michael. That concludes our Q&A session. I know there have been a few questions online which have not been answered yet, so apologies for that, that we couldn't take all questions, but we'll come back to you with an answer on those questions which have been submitted. Of course, the IR team is at your disposal for further questions, so feel free to reach out to us anytime. I would like to thank all of you for participating in today's Capital Markets Day. And for those on the webcast, have a great day, and bye-bye. For those who will stay with us, please join us for lunch outside the auditorium.