Welcome to the RWE conference call. Markus Krebber, CEO of RWE AG, and Michael Müller, CFO of RWE AG, will inform you about the developments in the fiscal year 2023. I will now hand you over to Thomas Denny. Please go ahead, sir.
Thank you, Sergej. Good afternoon, ladies and gentlemen. Thank you for joining RWE's conference call on full year 2023. As always, our CEO Markus Krebber and our CFO Michael Müller will guide you through our presentation, after which we'll start our Q&A session. With this, I'll hand over to you, Markus.
Yeah, thank you, Thomas. Also from my side, a warm welcome to everyone. 2023 was a remarkable year. We have delivered a strong operating performance. We have significantly exceeded our financial targets. We have added 6.3 GW of green capacity to our portfolio, and we have cut CO2 emissions by a remarkable 27%. Since December 2023, commodity prices have come down by around 30%, but we can keep our 2024 guidance, which we outlined in our CMD last year. We now expect to be at the lower end of our guidance range, which is about 5% below midpoint and translates into EUR 2.6 earnings per share. We have a high share of secured revenues in our wind and solar business and consequently only limited power price exposure. Our flexible generation business benefits from an increasing share of secured long-term revenues.
Overall, we do see a faster normalization of power prices. Our long-term expectations have not changed. We remain committed to our mid and long-term EPS targets for 2027 and 2030 as outlined at our CMD. Let me be clear: our focus is on bottom-line earnings per share. Therefore, profitability of our investments is key. In light of an evolving risk-reward environment, we do constantly reassess our capital allocation. Please do not expect us to change course on an ad hoc basis because of short-term developments. We have made significant progress in expanding our green portfolio. In 2023, we even increased our investments and we closed the acquisition of Con Edison Clean Energy Businesses. The investments contributed to a strong earnings growth in 2023. Adjusted EBITDA was up 33% year-over-year. Our green transformation continues to drive a significant reduction in CO2 emissions.
Year- on- year, they are down 27%. Also, long-term, we have committed to a more ambitious CO2 reduction target in line with the 1.5-degree emission reduction pathway. The next milestone on our decarbonization path is the closure of 2.1 GW lignite capacity by the end of March and a further 0.3 GW by the end of this year. Since December last year, we have seen a significant decline in European gas and carbon prices. This has led to power prices dropping by around 30%. Thanks to the robustness of our earnings mix, we keep our full-year guidance for 2024, but we expect to be at the lower end of the range. For Adjusted EBITDA, we now expect around EUR 5.2 billion, and for Adjusted Net Income, EUR 1.9 billion. This translates into EUR 2.6 earnings per share. In our wind and solar business, we have limited market price exposure.
Our strategy is to lock in secured revenues in wind and solar long-term through CFDs, feed-in tariffs, PPAs, and tax credits. We actively manage our remaining price-exposed volumes by applying hedge strategies. Diversification across various regions further reduces volatility. Page 7 of the presentation provides full transparency about the price-exposed positions, generation margin, and its sensitivities. Let's move on to the flexible generation business. Here, our long-term market expectations have not changed. We see long-term earnings growth, and we see an increasing share of secured revenues reflecting the nature of the business, providing firm capacity and firm flexibility. For example, in Germany, we secured attractive margins in a tender for capacity reserve until 2026. In the U.K., the recent T-4 capacity market auction has secured revenues of more than GBP 400 million for the 2027-2028 period.
Our mid- and long-term targets for 2027 and 2030 for flexible generation remain unchanged. What has changed is a faster-than-expected normalization of power prices in Europe. From 2024 until 2026, we now expect an average adjusted EBITDA of EUR 1.4 billion. Our investments in 2023 have almost fully secured long-term contracted revenues in line with our investment strategy. Only less than 5% of the wind and solar capacity additions in 2023 have price exposure. More than 95% have long-term contracted income streams. Our strategy will lead to an increasing share of contracted revenue for the entire portfolio. Also, all wind and solar projects under construction will have a high share of contracted revenues. For all our offshore projects without CFD government offtake, we are targeting secured revenues via PPAs before commissioning.
This is also true for our Danish offshore project, Thor, similar to what we have done at our Kaskasi offshore wind farm in Germany, where the full capacity has been sold via PPAs at attractive long-term prices. Our investments will lead to attractive long-term earnings growth, and the quality of our earnings will improve continuously. The share of secured revenues will increase further from our renewable investments as well as the earnings mix in flexible generation. The portfolio will decarbonize in line with the 1.5-degree pathway. Despite the faster normalization of the commodity price environment, our long-term expectations have not changed. In light of an evolving risk-reward environment, we do constantly reassess our capital allocation. With a clear focus on EPS growth, we do confirm our earnings per share targets for 2027 and 2030. Now over to you, Michael.
Thanks, Markus. And a good afternoon from me. In 2023, the business performed extremely well. We clearly exceeded our guidance. Adjusted EBITDA across all core segments, especially driven by strong earnings from hydro, biomass, gas, supply and trading, as well as significant capacity additions. Strong earnings also yield strong cash flows to finance future growth. On the back of a strong business performance, adjusted operating cash flow amounted to EUR 7.3 billion. Fitch and Moody's both confirmed our credit rating of BBB+ and Baa2 with a stable outlook, proving our solid credit quality. At the end of 2023, the European Commission granted state-aid approval for the EUR 2.6 billion compensation for the earlier exit from lignite-fired power generation agreed in 2022. Subsequently, we received the first installments with a total amount of EUR 700 million. For 2024, we confirm our guidance and expect it at the lower end of the guided range.
Let's now take a closer look at the 2023 numbers. In offshore wind, Adjusted EBITDA increased to EUR 1.7 billion, mainly due to better wind conditions, capacity additions, and higher realized power prices. Onshore wind and solar recorded an Adjusted EBITDA of EUR 1.2 billion. The increase is driven by capacity additions, including Con Edison Clean Energy Businesses. Lower realized power prices had a negative effect on results. Adjusted EBITDA of the Hydro, Biomass & Gas business was EUR 3.2 billion. The excellent result was driven by strong asset optimization and hedges conducted at attractive price levels. On the back of a strong performance, the supply and trading business reported an Adjusted EBITDA of EUR 1.6 billion. Last year's results were negatively affected by a one-off relating to sanctions on Russian coal deliveries.
Year-on-year, earnings in coal and nuclear were lower due to more overhauls, outages, and the absence of production from our Emsland nuclear power plant after it was shut down in April 2023. Overall, RWE's group Adjusted EBITDA stood at EUR 8.4 billion. On the back of the strong operational performance, Adjusted Net Income amounted to EUR 4.5 billion. Adjusted depreciation increased in line with our growth investments. Adjusted financial results include the financial expenses from the consolidation of Con Edison Clean Energy Businesses' debt. For adjusted tax, we applied the general tax rate of 20% for the RWE group. Adjusted minority interest reflects lower earnings distribution to minority shareholders given the decline in power prices. The adjusted operating cash flow was EUR 7.3 billion and reflects the impact from operating activities on net debt. This shows the high cash conversion of our operating assets.
Changes in operating working capital were mainly marked by a decrease in gas inventories in storage. Net debt increased due to significant investments in our growth. In Q1, we closed the acquisition of Con Edison Clean Energy Businesses, and we invested a further EUR 5.1 billion net in our green growth program, including the Magnum and JBM Solar acquisitions. Net cash investments include the proceeds of the divestment of the gas storage business in the Czech Republic. Other changes in net financial debt increased by EUR 2.5 billion. This includes timing effects from hedging and trading activities, as well as cash inflows from the first installments of the lignite compensation. Our net position from variation margins from power generation hedging stood at EUR 1.4 billion. This includes net variation margins from the sale of electricity, as well as the purchase of the respective fuels and CO2.
For the full year 2024, we confirm our outlook as presented at the CMD 2023 despite a significant decline in power prices. We expect adjusted EBITDA, adjusted EBIT, and adjusted net income at the lower end of the guidance range. We also confirm our dividend target of EUR 1.10 per share for the fiscal year 2024. Our guidance range for the offshore wind is between EUR 1.45 billion-EUR 1.85 billion. Due to the recent decline in European power prices, we expect lower margins. The earnings contributions of offshore wind are expected to be at the lower half of the guidance range and below last year. For onshore wind and solar, our guidance range is EUR 1.5 billion-EUR 1.9 billion. We also expect lower margins due to the decline in European power prices. However, capacity additions, as well as the full-year contribution of CEB, will have a positive effect on the earnings.
We expect to close the year significantly higher than 2023, but in the lower half of the guidance range. Flexible generation is the renamed segment which includes hydro, biomass, gas activities and the 30% shareholding in EPZ. Our guidance range is EUR 1.8 billion-EUR 2.2 billion, and we expect full-year earnings at the lower end of the guidance range. Lower margins from running the assets will be partly offset by slightly higher income from system services. For supply and trading, we assume normalized earnings after an outstanding performance in 2023. The guidance range is between EUR 100 million and EUR 500 million.
As presented at the CMD 2023, we'll see the phase-out of coal and nuclear business on an adjusted cash flow from 2024 onwards. The earnings from the segment are no longer included in the Adjusted EBITDA and the Adjusted Net Income. The adjusted cash flow for 2024 is expected to be between EUR 300 million and EUR 600 million. To sum it up, we are confident that we'll deliver earnings within the guidance range we set at the Capital Markets Day. Now let me hand back to Thomas.
Thank you, Michael. We'll now start the Q&A session. Operator, please begin.
Thank you. As a reminder, to ask a question, please signal by pressing star one. Our first question comes from Robert Pulleyn from Morgan Stanley. Please go ahead.
Thanks very much. Good afternoon, everyone. First question, if I may, because I think some others may ask some of the other popular ones. The first one I'd like to go with is, are you guys seeing increased interest in renewable projects for data center PPAs in both the U.S. and Europe? And could you put a bit of color around this in terms of PPA terms, duration, price, and how much this is for a growth area for yourselves? The second one, as I'm sure everyone's very keen to hear, we know you've moved to an EPS commentary, both in your prepared remarks and in the PAC, which, of course, chimes with lots of questions we receive on share buyback.
But may we ask how politically viable it is to do this or even talk about it, given the current negotiations around German capacity market and the government's desire for energy investments, regardless of course, your choices of capital allocation and where you want to deploy capital? And thirdly, just to stretch it, is it fair to say that the lignite emissions will be significantly lower in 2026 anyway, given you've sold your implicit fuel hedge last year? And if you maybe just update on how long the explicit carbon hedge will keep those assets in the money? Thank you very much.
Yeah, thanks, Rob, for the question. It's Markus. On general sentiment in the PPA market, it has not changed. There is strong interest for PPAs in both markets, of course, given that we have significant lower spot prices. I mean, there are discussions around price levels, but we have, even in the last weeks and months, signed long-term PPAs starting mid-20s at unchanged price levels. So the demand for green electricity is clearly there. I would currently say even stronger in the U.S., given that there is significant demand growth coming. And you have already seen that now, given the limited I mean, limited is probably the wrong word, but the not-fast-enough build-out of renewables. Now, some even turn to nuclear because it is needed to back this additional demand. Now, the second one is, of course, probably the most interesting question.
I mean, on the EPS side, we deliberately moved to EPS because that is, in the end, which reflects our commitment to create shareholder value best. It's not about absolute earnings. It's about EPS. And that, of course, adds now an additional element of flexibility in what we do. We still believe in a very good investment program we have ahead of us. And please keep in mind that we have a lot of flexibility in this investment program across regions, across technologies, but also in terms of timing, when we invest and when not. And maybe just to add some color, we have promised at the Capital Market Day that we at least yield, on average, an EBITDA yield of 10.5% with our investments. For what we have shown here on the slides, especially what we commissioned in 2023, that was higher, more than 200 basis points higher. We were above 12.5% EBITDA yield.
Now, with capital allocation, of course, you need to look at what are your investment opportunities. Some questions are open. I mean, what happens to the PPA market? What happens after the election in all our core markets? When do we get clarity on the H2 gas plant framework in Europe? What happens to the supply chain challenges? You have a constantly evolving investment environment. Then we will constantly reassess this and take the decisions in order to maximize EPS. We do that with a long-term view. It's not about pimping EPS for next year. It's really, what is the right long-term strategy in terms of capital allocation to increase and maximize EPS in the mid to long term?
And that is what can be read into moving to EPS, given that we have now a bit more higher uncertainty and a bit more cautious. We want to add additional potential instruments, and we are now committed to the EPS targets. Last question. Sorry to correct, but the hedges are never relevant for dispatching of the plants. Dispatching is always done on spot prices. But you are right. We expect significant lower CO2 emissions in 2026 from our lignite fleet. First of all, we have, till then, closed additional units. But also, given the renewable build-out, we expect lower utilization factors of any fossil plants anyhow. If you now factor in the significant lower gas price and also potentially the effects of fuel switching, you can expect even further reduction of CO2 emissions compared to the old plan.
Thank you, Markus.
Thank you very much.
The next question comes from Peter Bisztyga from Bank of America.
Yeah, good afternoon. Thank you for taking my questions. I'll stick to two. So the first one, I'm sure I'm not going to be the only person to sort of labor the points on share buybacks. But angle I wanted to come at it from is that, in the past, you've been quite opportunistic on M&A. So we had the Magnum transaction in the Netherlands, obviously, CEB. And I'm just wondering why that opportunism doesn't stretch to buying back shares when they drop to basically 40% below where the street sees fair value. Just wondering what would have to happen to change your view on the relative value. And I'm not talking about EPS here, but just on the relative value of buying back shares at such a massive discount versus investing at a 10% or 10.5% EBITDA yield. So that's my first question.
Then, second one, thank you very much for the guidance on flexible power generation. It is quite a big downgrade versus where consensus was previously for 2025 and 2026. I think what would be really helpful for me and everyone would be, what assurances can you give that your new guidance is somehow a floor and that it couldn't actually even go lower still? The reason I'm asking that is because we're looking at forward curves, and peak spark spreads on forward curves have now turned negative in some geographies, even for efficient or more efficient assets. I know that those aren't necessarily the right things to be looking at. But clearly, it's causing some concern in the market about the future profitability. If you could sort of draw a line or help us draw a line on the profitability in FlexGen, that would be very helpful. Thank you.
Yeah, Peter, thanks for the question. I mean, first, on M&A, I mean, we have always differentiated our M&A strategy in two buckets. One, as you call, is opportunistic. I mean, like an offshore wind farm in development here and gas asset there, that is more part of the normal organic investment program where you see, I mean, individual, smaller opportunities, which are even more attractive than your own developments. And we go for that. The other aspect, I mean, CEB was a strategic acquisition to get us into the U.S. and in solar to the market position we want to have. Yeah? I would never consider buying your own share in the same bucket than M&A. That is something totally different. Here, it is about long-term EPS maximization.
If you cut, you have to cut significantly more out of your CapEx program because you lose headroom and so on before you can buy back your own stock. It's not a simple math. It's only simple if you look at one or two years ahead. If you look long-term, you have negative effects on EPS. It's about, I mean, how to maximize that with a clear long-term view. As I said, we are committed, and we will consider all potential options to maximize EPS by 2030. On FlexGen, when you now look at the chart, you can see that we have this constant trend of increasing earnings, which are secured. This is especially capacity market, but also other reserve payments and ancillary services where we are confident and so on.
And now, you also see that we already expect a full normalisation of power prices. And that is what you already mentioned, the current spreads you can see on the screen for 2025. So we have the current curve in this assessment because I think that is the best you can do. I mean, we never deviate in our planning exercise in the short term from the market. Is there a significant further downside? I would say clearly no. If we see, for whatever reason, significant demand drops, yeah, or crisis, I mean, you can never rule things out. But it is definitely skewed to more upside than downside. It's very close to a floor now, what we have put on that slide, very close to a floor.
Okay. That's very helpful. Thank you, Markus.
Thanks, Peter. Next question, please.
Alberto Gandolfi, Goldman Sachs. Please go ahead.
Oh, hi, and good afternoon. Thank you for taking my question. Th e first one is on your 2027 assumption. Noted that you're focusing on EPS and maximizing growth on EPS at EUR 3 a share. Is there any chance you could shed a bit more light? I don't know, for instance, telling us the power price you're assuming on your merchant generation, perhaps, I don't know, the volumes exposed to or, in general, the total volumes by then, some more details on FlexGen. So just some underlying assumptions to make everyone comfortable on the EUR 3 a share. And the second question is, once again, on how we get to the EUR 3 per share. So I'm just trying to understand the philosophy here.
Markus, this is the first time I hear you stress so clearly several times that the focus is on EPS, that all potential options to maximize EPS growth are being considered. So there are two ways I can see of getting to EUR 3. One is through investments. Let's say constant prices, of course. One is through investments. The other one is by reducing the share count. Reducing the share count has a very, very cast-in-stone IRR because it's the share price today, right? You don't need to take a view on long-term power prices. So you could argue that reducing the share count perhaps is a safer, more visible, and less risky approach to do that. I'm not saying that's going to be the entire capital allocation.
But would you agree that getting to EUR 3, if you wanted to reduce risk, you'd be fairly indifferent between investments and reducing the share count or perhaps maybe even more tilting towards the latter option? Thank you so much.
Yeah. Let me start with the 2027 numbers. I mean, we don't reveal numbers here. But I mean, you can assume that we obviously did the internal math before confirming our guidance. So we looked at our assumptions we took at the time of the Capital Markets Day, and we took at current forward prices where they are. And we also looked then, as Markus discussed, in the other income streams, namely the secured revenues from flexible generation. And that led us to the conclusion that the numbers fit. I mean, you also need to bear in mind, that's why we put forward also on page 7 and page 8 the split of income, how much of that is secured and how much is market-dependent. So what you see is there's a large chunk of income that is already fixed via secured income streams.
Also, with new investments clearly coming online until 2027, that share will increase. Therefore, that's the underlying rationale why we are confident in confirming the numbers for 2027.
Yeah. Then let me take the other one, Alberto. You are trying to push us now into something which would reveal a preference. I mean, life is not that easy. I mean, I have said everything we wanted to say on the EPS focus. But let me give you one additional argument which have to be considered. It is, if you cut into the investment program, the company will look different in 2030. And then it comes back to questions like, how robust is the earnings profile? Because with our investment, we reduce significantly CO2 intensity, and we significantly increase secured revenues. Yeah? So the company and also the potential valuation multiple in 2030 would change with cutting into our investment program. So we need to look at many, many, many different factors.
The promise we make today is we don't rule any of the instruments out, and we look at maximizing EPS and quality of EPS in 2030. And 2027, of course, right? I mean, it's not so long-term. But it's not something we're going to act on an ad hoc basis because of developments of the last 10 weeks.
Thank you. Thank you. If I may test your patience, is there a date we should be looking forward to when you may have to do a strategic update or you may want to do a mini update to the bigger CMD we have seen last year?
Yes, sure. We communicate the moment we have to communicate something.
That's clear. Thank you so much.
Thank you, Alberto. Next question, please.
Deepa Venkateswaran from Bernstein. Please go ahead.
Thank you. I have two questions. Markus, I'm so sorry to not leave the topic of buybacks. But I noticed that in your comments, you stated that you're committed to bottom-line growth. You won't change course due to short-term developments. Can you clarify a bit by what you meant by short-term developments? Are you referring to your share price, and are you expecting it to recover and therefore ruling out buybacks? So that's my first question. And second question is a bit on the FlexGen's earnings weakness. So obviously, the power prices have fallen, but it is to a very large extent explained by the fall in gas and carbon prices. Therefore, I was just understanding if you can maybe share the math on the sensitivity because it doesn't seem like the spark spreads were that high in November. And I don't see that.
Is it because of some small outright exposures such as biomass or something else that's driving this? To your comment that you are very close to a floor, could you then explain why it may not drop further in case there is some outright element sitting within FlexGen? I think those are my two questions. Thank you.
Yeah, Deepa, I'll go with the first one. I think the second one, Markus already answered fully in his answers to previous questions. I mean, on flexible generation, you are right. The decline we are seeing is primarily on the Dutch side where we have the biomass assets but also gas assets that we, at least for 2024, hadn't hedged during the winter. That was more kind of cautiousness due to spikes that could have happened if we would have gotten a tight winter. Look, you see a decline in clean spark spreads. You see a decline in clean dark spreads. That's obviously reflected in those numbers. But what you also see is that the volatility in the market has come down to a normalized level. That is also impacting the projected earnings of the flexible generation fleet.
Okay. Can I go for another question since you didn't explicitly answer my first one? So on the PPA pricing for Thor, so you've identified that as being one of the projects where, as of now, you don't have a PPA. And it's obviously a larger project in terms of 15% of the capacity under construction. So how confident are you on kind of getting the right pricing for that project in order to meet your hurdle rates? And is there any tendency for data centers to be located in Denmark? And therefore, you're even more confident on getting that price because of the data center demand?
Deepa, we are confident that we can lock in the right price level because otherwise, we wouldn't have taken FID on the project. It's not only about the location. Even power in Denmark can be marketed partly to Germany because there is a high interest of additionality and the low profile of offshore compared to the low profile of, for example, solar. Then it's a question who takes a location differential. You can even partly move it to the customer. The market is much bigger than only Denmark. That is why we are confident that we're going to close it before we COD the asset.
Okay. Thank you.
Thank you, Deepa. Next question, please.
Ahmed Farman from Jefferies. Please go ahead.
Yes. Hi, Markus. I have a similar question, just one question from my side that you had sort of talked about. So it seems like a lot of the sort of it's going to depend upon how you think about the sort of the risk, reward, and opportunities on the investment side. So maybe we can just have some sort of broader comments on how the accelerated normalization in power prices, how has that impacted or shifted your expectations between the CMD and today in terms of these risk, reward, or the returns available on the CapEx? And then my second question is, in particular, can we sort of get an update if you have sort of stress-tested your existing valuations of the operational assets for the current power price environment and if you're sort of comfortable with those valuations? Thank you.
Thank you, Ahmed. I think the second will be taken by Michael. On the risk, reward side, the faster normalization has not changed our view on long-term attractiveness. The only grain of salt there is how fast and what happens to the green PPA market here. So far, we have seen no effect on prices long term. Let me give you an overview of what we think are clearing events for the evolving risk, reward environment for our entire investment program. But of course, we have significant flexibility, as I said before. So of course, on the one hand side, it is about energy policy. So what's going to happen in the European Union, the U.K., and the U.S. after this year's elections? Second is, how do the supply chain challenges evolve? And that is especially for the offshore business. So how confident are you with additional investments in offshore?
At which point in time does it take longer to clear the current difficulties in the supply chain, or does it go faster? A third one is, when do we get clarity on the H2 gas investments in Germany, which would be a perfect portfolio fit? And we are in a pole position there. But it's currently in discussion between the German government and the European Commission. If that is cleared fast, I mean, we see a significant chunk of very attractive investments. So these are the potential clearing events over this year. And of course, we also have to assess how big and where we want to invest and whether alternative measures to increase EPS.
Yeah. Concerning the value of the investments, I mean, at year-end, we have done, obviously, an impairment test that hasn't led to any impairments of our book values. Obviously, forward prices have come down. But at the same time, you also know that valuations are done over the entire tenure of the assets. And as we mentioned, our long-term expectations have not changed.
Thank you.
Thank you. Next question, please.
Meike Becker from HSBC. Please go ahead.
Yeah. Thank you very much. Two questions from my side. Maybe actually immediately connecting to your answer to the last question, if I may. Would I be right to read into your answer that you see some things developing slower than you might have thought, such as you pointed to the German decisions on hydrogen plants and perhaps also developments on the offshore side? Is that the underlying driver of sort of everything we've discussed so far? So is that perception correct? Would be one question. And the second part of that question would really be the slightly softer changes in capital allocation. Is the U.S. looking more attractive because of lower European power prices or not because offshore is still challenging? Is offshore in the U.K. looking more attractive with the Vattenfall portfolio rather than battery investments?
So if you could sort of what has changed maybe between your investment opportunities that something might shift from one to the other bucket? And the second question is coming back to coal. If it is true that sort of a coal discount is part of your share price, wouldn't be more disclosure one of the absolute cheapest options to support the share price? And I would say there is no downside to it. So I'm just wondering whether there's something you can do that goes a little bit beyond saying that the share of coal is less than 10% by 2026, 2027. And isn't that a no-regret move disclosing that information? Thank you.
So I think it's too early to say whether things have really slowed down. I mean, I'm typically an optimist. I think we probably see clearance from the gas investment framework in Germany before summer. But I mean, since we are not party to that process, it's between the German government and the European Commission, we have no insight. It could also go wrong. But so far, there is no indication. In general, I think I mean, you know that we invested in all technologies last year. I said that the EBITDA yield is higher, 200 basis points higher than we have on average assumed. I wouldn't say that there is a certain bucket which is less attractive than expected currently.
But the only thing where we're probably a bit more cautious is on how big the future commitments are in offshore because you have these long lead times. And without a very stable supply chain, you should not take too many risks. But since the portfolio is big enough to compensate that at very attractive returns, it is not per se the one reason to cut into the investment program. But other than that, please don't read it as that we see more risk than before.
Maybe on the coal disclosure. I mean, look, what are the two drivers for bringing down the coal exposure? One is the number of assets you have available. And secondly is then the power price constellation, if those assets have to run or not. Now, starting with the first one, we now will close 2.1 GW of capacity by end of March and a further 300 MW unit by the end of the year. And that will clearly bring down emissions. At the time of the Capital Market Day, we communicated the 2027 number because by that time, we also foresaw that in addition to the coal closures, we would also see a much lower utilization of the coal assets simply because of the buildout of renewables. If you assume current power price levels, you could assume that the utilization of coal is far lower.
Therefore, also emissions come down. But having said that, the latter one is very dependent on actual power price constellations. And in case power prices rise again or we see tight winter, it may well be that emissions at least stay on the level where they're currently until then they ultimately drop towards 2027. So these predictions very much depend on the market. But it's clear that they will come down. And therefore, the 2027 target is also we're very confident to achieve that.
Wouldn't it be worth at least a scenario? I mean, belaboring that point that you have done everything you can do and the rest is out of your hands plus minus a few years but sort of a scenario or something on the point? But thank you. That was very helpful.
Yeah. We'll look into it, Meike. And thanks. Next question, please.
Harry Wyburd from BNP Paribas. Please go ahead.
Hi. Thanks very much. So first one from me is on trading, which we haven't talked about yet. I guess Centrica and Engie seems quite upbeat on trading. And in particular, Engie actually upgraded their guidance quite significantly. Is that something that reads across to you? You haven't really changed anything in terms of your outlook on trading. Is there something different about your trading business, which explains why you're being a little less optimistic, I think, than some of your peers? And then the second one, I want to ask a specific question on the PPAs in continental Europe, onshore, and solar. Depending on who you listen to or which PPA index you look at, you get a lot of varying messages on whether PPA prices are actually moving up or down. So what are you seeing in continental Europe specifically with onshore PPAs? If they are going down, would you think about reallocating capital to other regions where PPA prices are better? Thank you.
Yeah. Let me start with the second question, Harry. I mean, when you look in our markets where we do onshore and solar and the investments we have done, Poland, Germany, France, U.K., these are all CFD markets. You have typically government auctions. And we have been very successful there, many of them inflation-adjusted. So I cannot comment on certain PPA markets. If you talk about, for example, solar Spain, it might be very difficult. But this is not part of our investment universe.
Talking about trading, I mean, I can't comment on our peers, what they are doing, just about ourselves. I mean, it's just early into the year. Therefore, we are very confident with the guidance we have given on trading.
Okay. Thank you.
Thank you, Harry. Next question, please.
Wanda Serwinowska from UBS. Please go ahead.
Hi. Good afternoon, Wanda Serwinowska, UBS. Two questions from me. The first one is on the flexGen. Based on my industry checks, I understand that the power market conditions have been even worse in February with low forward spreads. I mean, when I look at your account, you include part of the CCGT portfolio in the Netherlands. So does your outlook fully take into account everything that is happening on the market? And if you could disclose what share of your EUR 1.4 billion of EBITDA for the FlexGen is basically locked in as of today, I think that would be very, very helpful. And the second question is, can you comment on the bankruptcy filing by Enviva, which is one of your counterparty on the wood pellet side? What would be the potential impact on RWE? Thank you.
Yeah. Wanda, happy to take the questions. Start with the latter one. I mean, don't expect an impact on us from the Chapter 11 process. Anything further? I mean, we don't talk about anything with specific customers. Secondly, on the question around the flex market, first with the impairment. I mean, when you look at the impairments, what you see is that in 2022, we had to turn around previously done impairments. So we actually added value again to those assets. And we just basically now took it back to the initial level. So this is rather yeah. So we're now back to kind of the normal level we had previously. So nothing specifically to read into this one about the future. Secondly, about the hedging. I mean, you know that most of our gas fleet is in the Netherlands and in U.K.. You typically can only hedge the assets there, say, a year ahead. And that's also what we have done. So no further hedging in later years.
Sorry, one follow-up. Because if I look at the press, it says that RWE said Enviva still owes almost $350 million for the transaction. So can you confirm there's no potential impact on RWE?
You're talking about Enviva or?
Enviva, yeah. I mean, Enviva, yeah. There's the article in the Financial Times today. The Financial Times says, "RWE said Enviva still owes $348.7 million for the transaction according to the filing.
I can't comment on that one.
Hi. I mean, Markus here. So I can confirm what Michael said is that regardless how the situation of Enviva evolves, we do not expect a negative impact on our earnings. Of course, if you have certain claims, you bring if you have certain claims, you bring them forward. But if you see a situation evolving negatively, you have ways to adjust your position, right? I mean, we have seen very similar things with, I mean, in the crisis, not getting Russian gas. I mean, the moment a supplier is not delivering, it depends on whether you simply still keep the position as it is and you hope for delivery or you start adjusting your position. We have a claim that is clear. We're going to bring that claim forward. But regardless what happened under the Chapter 11 situation, we do not expect any negative impact on our P&L.
Cash flow, it's the same or it's still too early to be said? Because earnings are one side, but cash flow is another side, right?
Same.
Okay. Thank you very much.
Thank you. Next question, please.
Olly Jeffrey from Deutsche Bank. Please go ahead.
Thank you. One point of clarification and then a couple of questions. Just to clarify the comment earlier regarding long-term expectations having not been changed, I presume that is on power prices. And if it is, is that on long-term 2050? Are we talking 2027 and 2030? And then my other questions are, with the EUR 3 a share that they're now talking about for 2027, that implies probably EUR 2.2 billion net income on current share count, which is the midpoint of the guide. And just wondering how that gets to the midpoint because if we've maintained FlexGen as where it was before, I can understand how you could get there. But I would have thought that the merchant renewable exposure would have dragged that number slightly lower. So could you just please explain why there's not more of a drag from the renewable merchant exposure?
Then the last question is just on OranjeWind and the Nordseecluster projects, which have merchant exposure. Are they now less in favor given the moving commodity prices and perhaps you're more interested in developing, if you can, some of the Vattenfall U.K. CFD projects if you're able to get a CFD? Thank you very much.
Not too much. Yeah. Definitely.
Yeah. Okay. So let's talk first about the long-term expectation. I mean, when we talk long-term, it's 2027, 2030. Also, when we previously talked about the value of assets, that's obviously even longer. That hasn't changed. Talking about 2027, I mean, look, this is still pretty far out. So there is also, yeah, to some degree, not so much clarity exactly on how things exactly evolve. I mean, if you do roughly the math, given that commodity prices have come down, maybe also compared to what we at that time assumed for 2027, there is maybe some less income. At the same time, you have seen that the U.K. auction on flexible generation firm capacity came out extremely well. And that also contributes to 2027. So there's an offsetting effect in the positive direction. But as I said, it's early days. If we do the math, we're confident that we're in the range we guided.
Then on the Nordseecluster, so the offshore wind farms in Germany, I think you mean them where we are close to take a decision. The attractiveness of these assets has not changed. I mean, first of all, please keep in mind that commissioning of these assets is 2028. And even after faster normalization, our outlook on prices, especially we talk here about PPA prices for these assets, has not changed. We are in constant dialogue with potential offtakers who have a good understanding where price levels are. And then, of course, it's always a question, how competitive are these assets compared to others? And please keep in mind that we do not pay any feed-in lease payments for them compared to what came out of the auction in Germany last year and what we probably can expect next year. Load factors of these assets are excellent.
So I think these are probably one of the best North Sea sites in Germany. The other question where you are hinting to, also comparing them to the CFD assets in the U.K., is, of course, how much do you going to keep yourself and for how much you take on board a partner? But that is to be decided over the next time. But we see these assets as very attractive in our portfolio.
Thank you.
Thank you, Olly. Next question, please.
Piotr Dzieciolowski from Citi. Please go ahead.
Hi. Good afternoon, everybody. It's Piotr from Citi. I have two questions. So first one, I wanted to ask you about your current outlook for the CO2 market. At the time when you were closing your strategic reserve, you clearly had a negative view, and you sold a lot of the CO2. But you still own the lignite assets and also. So what do you think is required for the CO2 price to recover? And what do you assume mean you'll kind of emission targets at a normalized level? And the second question I wanted to ask you was, we haven't talked about your E.ON stake for some time. I recall in the past, you said you would need to sell entire stakes for the tax purposes. I just wanted to understand if you are in-house sensitive on the share price of E.ON with regards to your ownership of this stake, or you think it sits well within your structure of kind of matching with the lignite liabilities that you have. Thank you very much.
Yeah. Piotr, thanks for the questions. Let's talk a bit about the CO2 market. So we have a couple of factors which now have put the CO2 price under pressure. One, of course, is the additional auction volumes by the European Commission to raise additional funds. I mean, they have brought some auctions or significant volumes of auction forward. That is one aspect. And then, but an as important factor is the general economic muted activity. That is clearly seen. And we also know from some industrials, the moment the outlook for their activity is weaker, they stop hedging. They stop buying. So there is definitely lower buying activity. If you look at the market overall, we can probably look about two years of healthy supply in the auctions at current economic activity.
But then we also know with the kick-in of the Market Stability Reserve on the reduced auction volumes that we're going to see very tight carbon markets from around end of 2025, 2026 onwards. And since you can carry these certificates also into the future, it's a question, when start people buying also for the tight situation 2026? That is more a sentiment question. It's difficult to call. It can change very quickly. But yeah, as I said, very, very difficult to call. So our view is healthy supply in the next two years, two and a half years, and then a significant tightening of the market. And as I said, it's more a sentiment question when you're going to see that also reflected in higher prices. On the E.ON stake, just to remind you of the tax rules, the moment we go beyond 15%, we lose state tax advantage.
The moment we go below 10%, we also lose federal tax advantage. We always said it's not a strategic investment. We need it for coverage of the lignite provisions. So it could also be any other investment portfolio, financial asset portfolio. So far, the tax advantages outweigh the concentration risk we have as one asset. So currently, there are no plans to sell it down. But the moment we start utilizing the lignite provisions, which is in the late 2020s, then, of course, we need to also cut the financial assets.
Okay. Thank you very much.
Thank you, Piotr. Next question, please.
Well, now take our final question today from Deepa Venkateswaran from Bernstein. Please go ahead.
Oh, thank you for giving me the opportunity to ask one more follow-up. So I had a question on AR6 parameters that were recently released by the U.K. government. Our math suggests that not all the permitted capacity, including your Norfolk project, will clear at an attractive price. And therefore, some projects will have to sit out unless the U.K. government increases the budget. I was wondering if you had any thoughts. And in general, would you be open to waiting out, or do you need to weigh on the other?
So I think that is now speculation. Who can participate in which auction? I think we're going to see clarity about that in the coming years sorry, in the coming weeks. So I mean, we're going to decide on our bid strategy and also what we think, how good the auction volumes will be in the coming years when we have to take that decision. But Deepa, please understand that I cannot comment on our strategy, what we think might happen and what clears or not because that is, of course, very, very sensitive information.
Okay. Thank you.
Thank you. With this, I'd like to hand it all back over to Thomas Denny for any additional or clear remarks.
[Inaudible] Bye-bye.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.