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 first three quarters of fiscal 2024. I will now hand over to Thomas Denny. Please go ahead.
Thank you, and good afternoon, ladies and gentlemen. Thank you for joining the 9 Months 2024 RWE Investor and Analyst Conference Call today. Our CEO, Markus Krebber, will kick it off with the key nine Months highlights and an update on capital allocation, including a share buyback program. Afterwards, our CFO, Michael Müller, presents the details and will guide you through the financial performance of the first nine Months, as well as the outlook for the current year, and with that, let me hand over to Markus.
Yeah, thank you, Thomas, and also a warm welcome to everyone from my side. This year is all about execution of our strategy, delivering the financial performance, and constantly reassessing capital allocation. We have made strong progress in executing our Growing Green strategy and continued the transformation of our company with profitable growth through our investments. So far, in 2024, we have invested €6.9 billion net, with 95% of our investments being Taxonomy- aligned. We have 11.2 gigawatts of capacity under construction across all technologies. With 8.2%, the average IRR of our investment decisions exceeds our target of 8%. Despite headwinds from declining commodity prices, we delivered a good financial performance. Adjusted EBITDA stood at €4 billion, and we have already reached more than 75% of the lower end of our EBITDA guidance for the full year 2024.
Adjusted net income stood at €1.6 billion and more than 85% of the lower end of the full year guidance. Based on our good performance in the first nine months of 2024, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT, and adjusted net income in the middle of the guidance ranges. We constantly reassess our capital allocation in the light of changes of the risk-reward environment for our investments. Currently, we see higher uncertainties for certain technologies. In particular, we see higher risks and delays in the development of U.S. Offshore Wind and in the ramp-up of the hydrogen economy in our core European markets. We therefore reduce our CapEx program for the next two years. In the current environment, investing in RWE shares is highly attractive. Consequently, we decided on a significant share buyback program.
Over a period of up to 18 months, we will return an additional €1.5 billion to our shareholders. Our dividend target of €1.1 per share for fiscal year 2024 and the objective to increase the dividend year on year are confirmed. Let me now hand over to Michael with more details on the share buyback program and our nine months financial performance.
Yes, good afternoon also from my side. We will start the share buybacks already this quarter. The program has a duration of up to 18 months, and the total volume is up to €1.5 billion. The share buyback program will be executed under the existing authorization as granted in the AGM 2023. As this authorization lapses in May 2025, we will ask the shareholders for a renewed authorization in the AGM next year. The program is funded from lower net cash investments in the coming years. We now plan net cash investments for 2025 and 2026 to average €7 billion, compared to a run rate of €8 billion that we laid out in our Capital Markets Day a year ago. No impact on rating KPIs is expected, as we stay committed to maintaining our strong investment grade rating.
For 2027, we confirm the EPS guidance range set at the last Capital Markets Day. Let's now take a closer look at the financials. After the exceptional earnings in the first three quarters of last year, EBITDA in the first nine months of 2024 stood at € 4 billion, thanks to good performance in our Flexible Generation segment and our trading business. In Offshore Wind, adjusted EBITDA was € 1.079 billion. Earnings were up on the back of better wind conditions. Onshore Wind and Solar EBITDA stood at € 990 million. This was driven by organic growth, the full year contribution of the CEB assets, and higher hedged prices and better weather conditions in Europe. Offsetting effects have been lower prices for unhedged positions and weaker weather conditions in the U.S. Adjusted EBITDA for the Flexible Generation business was € 1.447 billion.
As expected, we have seen lower earnings in line with normalizing market conditions after an exceptional prior year. Our Supply & Trading business delivered a good performance in the first nine months after an exceptional prior year. The last nine months result stood at EUR 465 million. On the back of the good operational performance, adjusted net income amounted to EUR 1.6 billion. The year-on-year adjusted financial result is lower due to increased net financial debt. For adjusted tax, we applied the general tax rate of 20% for the RWE Group. Adjusted minority interest reflects lower earnings contribution of minority partners. The adjusted operating cash flow was EUR 4.4 billion at the end of the first nine months. The main drivers have been good operational performance and seasonal effects in operating working capital.
Changes in operating working capital were marked by a reduction in trade receivables, partly compensated by a decrease of trade payables. Net debt increased to EUR 12.2 billion due to investments and timing effects. In total, we invested EUR 6.9 billion net into our green growth. Other changes in net financial debt amount to EUR 2.2 billion. This includes timing effects from hedging and trading activities, as well as an increase in leasing liabilities. Our net position from variation margins for power generation hedging stood at EUR -1 billion, representing an outflow of EUR 2.4 billion since the beginning of the year. This includes net variation margins from the sale of electricity, as well as the purchase of the respective fuels and CO2 certificates. We expect other changes in net financial debt to largely revert over the rest of the year.
Based on the good performance in the first nine months for 2024, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT, and adjusted net income in the middle of the guidance range. The dividend target remains €1.1 per share for this year. And now, let me hand back to Thomas.
Thank you, Michael. We now start the Q&A session. Operator, please begin.
Thank you. Ladies and gentlemen, if you would like to ask a question on today's call, please signal by pressing Star one on your telephone keypad. That is Star one for your questions today, and up first, we have Alberto Gandolfi from Goldman Sachs. Please go ahead.
Hi, good afternoon, and thank you for taking my questions. And just wanted to congratulate you on the move for taking a stance against an unreasonably low share price. I have two and a half questions, so I hope you forgive me, but we've been waiting for today for such a long time. So the first question is, on the CapEx delays that you have announced, am I right in thinking that because it's largely U.S. offshore and hydrogen, the 2027 net income is barely affected by it? So when it comes to focusing 27 EPS, we get the accretion from the cancellation of the shares, but we don't have much of a reduction in net income. Or maybe if you can tell us how small the dilution from lower investments could be?
Related to this, and talking about the share buyback and returns, I bundle into one, that's why it's probably one and a half. Am I right in thinking that at the current share price, a share buyback is a mid-teen IRR, implied IRR, instead of developing organically? Is that the way you're thinking at it as well, besides the shares are depressed? On the back of this, I was reading a translation from the press conference you had, and you said this is not a cancellation of CapEx, it's a delay in investments.
Can I ask, is it just the same project that you delay, or are you thinking maybe U.S. offshore we can remove, we can introduce something else, like could be nuclear restarts, could be, I don't know, but does this mean that the smoothing of CapEx could allow you to achieve a greater IRR than your target 8% on whatever you're spending now in the next three, four, five years? So I'm trying to understand the IRR on buying back the shares and if there's upside risk to the returns you've been targeting so far. Thank you for indulging with me. Thank you.
Well, maybe I take the first question, and then Markus, you want to pick the last one? Let's start with guidance for 2027. I mean, first of all, you are right, especially the offshore investments would have been unproductive CapEx since, you know, the projects would only go online by the end of the decade. So therefore, no earnings impact from this one. On hydrogen, yes, there would be some impact, but I think broadly what you said is right. The impact on earnings is largely limited, and then effectively you see the accretion from less shares. The return of the share buyback obviously is difficult to calculate because you have to assume at which share price you buy back the shares. But I mean, as we said, we feel that this investment is attractive at the current share price.
You can assume that we do assume that the return of the buyback should be higher than the 8% average return that we see on our existing asset fleet.
Yeah, I take the last one on the CapEx program. So there's of course now speculation, but two things are clear. I mean, we said we're going to cut out 2025 and 2026. We call that delay because we still believe that the hydrogen economy will be needed, will be picked up if we don't give up on the climate protection targets, but it will come later. And U.S. offshore, of course, depends on the administration, especially the permitting side. But what you can already assume, Alberto, is that even if we call it delays, it will be pushed out beyond 2030. So today, we don't expect that we're going to pick it up in the second half of the 2020s. So we're not going to reach the €55 billion.
On the exact mix, how we invest beyond 2025, 2026, where we have now very high visibility again, then depends on what is the risk-reward framework for potential investments. Of course, we go only for those where we meet the hurdle, and everything which is above the hurdle needs prioritization. And then, of course, we have now introduced share buybacks as one part of capital allocation. So we also look at the relative attractiveness of that when we decide how big the CapEx program might be. But that's to be decided then when we have more clarity about investments in the later 2020s.
This is very clear. Thank you so much. Congrats again.
Thanks, Alberto.
Thank you. And we come to our next question from Peter Bisztyga from Bank of America. Please go ahead.
Yeah, good afternoon. Thanks for taking my questions. So first of all, I wanted to get your thoughts on the implications of Republican clean sweep on your onshore investment plans in the U.S. I know it's some very early days, but it seems pretty likely that we'll see changes to certain aspects of clean energy tax credits. So really just interested to hear what is your base case expectation, what sort of bonus tax credits or other adders could get removed, for example, and how that might affect your onshore growth plans. And please excuse me for asking this, but if the outcome on the onshore side is also negative versus your current expectations, would that also influence your sort of capital allocation decisions going forward? And then my second question is on German elections.
I'm just wondering if you could give us some headline thoughts about how a CDU-led government could alter energy policy based on what they've already said is in their plan? Obviously, particularly interested in your thoughts on nuclear, but also coal phase-out and the rollout of gas-fired power generation. Thank you.
Yeah, Peter, thanks for the question. I take them both. The first on the implication or the potential implication of the Republican sweep on the onshore PV battery business. I mean, we closely observe what are the discussions so far. It's not clear where it's going. So let's focus first on the fundamentals, what we do see. First, we see very strong demand for power and all sorts of power, and especially on the PPA side, only green power. So that demand is strong as never before. And we have very good discussions with off-takers, and currently we see more demand that we can actually fulfill physically by building the assets. Of course, the potential change on the IRR side, I mean, changes the economics, but doesn't change the need for additional power.
So then the second question is, do we get higher PPA prices to actually compensate for a watered-down IRA? I still think the jury is out because the benefits of the IRA, which incentivize investments, which incentivize the build-out of supply chain, creates lots of good jobs across the entire country, especially in red districts, and of course reduces consumer prices for industries, electricity prices for consumers and the industry has huge benefits. I mean, you probably have also followed that we have seen before the election, the letter from eight representatives of the House, Republicans in full support of the IRA. It remains to be seen. But we don't know, and we are not in the business of projecting the future. We are in the business of doing good investments. So as long as we have good investments, we're going to do them.
Currently we have a bit more than four gigawatts under construction, good off-take. That is also important given that we have the Republicans now back and then Mr. Trump in the White House. We have de-risked the supply chain. We will only do de-risk investments which are good. If they are not good, it will of course affect capital allocation. If we don't can compensate in other parts, I mean, we have now proven that share buybacks are part of the mix. This is now, I mean, too many variables. We need to discuss what we might do in different circumstances. Second one is Germany. First is of course the election outcome and what kind of coalition we're going to see.
Do we see a strong conservative-led government with only one party in a coalition, so a two-party coalition, which is of course much easier to find compromises? Or does Germany again, and we had this experience, end up with a three-party coalition? That is too early to tell. But.
The first one is on the changes to the CapEx plan. So can I confirm that the EUR 2 billion you've shaved off is entirely only from Offshore Wind and Green Hydrogen, or is there any other phasing effect or anything? Because I was surprised that you're spending so much on those two, given they're supposed to start much later. Is there anything else in this, maybe more farm downs or anything else which is also in the puzzle? And second question on the U.S., just to confirm, how protected are the projects that you've already taken FID against any changes in tariffs for panels or batteries? And do you have the equipment already there, or could there be any risk to these projects in case of any immediate imposition of tariffs? Thank you.
Yeah. Yeah, Deepa, I take both questions. Let's first start with the CapEx. No, it's just on offshore and hydrogen. I mean, look, we said that out of the, if you divide the €55 billion plan by seven years, it gives you roughly €8 billion per year. We're now saying for the next two years, we're going to spend roughly €7 billion. So that gives you kind of a saving of €2 billion compared to the CapEx plan. And I mean, you can roughly say half is hydrogen, half is Offshore Wind. I mean, in Offshore Wind, in the next time, we would have engaged into commitments for further locking in the supply chain. That is clearly something we don't do. So therefore, the amount, even though the projects are far out, is quite substantial. On the U.S. projects, we don't see a risk there.
I mean, clearly we need to observe what happens. I mean, as Markus said, our hypothesis is going forward that even in a worst-case scenario, that if there would be changes to IRA, there would be kind of changes to the market simply because there is a strong need for green power. The question is, what happens on the existing projects? I mean, that is clearly something where we have an eye on. At the same time, I mean, the U.S. does have a tradition in not interfering into kind of historic projects. So from the current point of view, we don't see any risk here. But obviously, that's something as a kind of typical regulatory work, we are closely monitoring and taking the right measures here if needed. Let me add one thing, Deepa.
You specifically asked also for tariffs, and probably you are linking to the projects we have under construction. So we have very high confidence that we have protected the projects where we have taken FID. So the moment we take FID, we not only want to understand off-take, we also want to understand the supply chain risk. And you have different kinds of measures. You can move tariff risk to your suppliers. You can buy local. You can buy from certain suppliers which are not exposed to potential measures. And you can also procure early and store already before you start the project in the U.S. So it's a bundle of measures we take, but we feel very comfortable that we can expect no negative impact also with very harsh measures on our projects under construction.
All right. Thank you.
Thank you. And up next, we have Ahmed Farman from Jefferies. Please go ahead.
Yes. Hi, Michael and Markus. Congratulations on the strong set of results, and thank you for taking my questions. I just want to first start on sort of the buyback program. As I understand it, you will be on a regular basis reviewing the attractiveness of the CapEx program and then reassessing your capital allocation going forward. So is there a scope for further upside to the scale of this program as, let's say, visibility emerges on the policy and political framework in U.S., Germany, etc.? Or is the CapEx for 2025, 2026 now very firmly locked in with those sort of targeted IRRs that you mentioned earlier? That's my first question, and then second question is more, Markus, to your comment about the attractiveness of investing in RWE stock.
Are there any other aspects you're considering, such as improving capital efficiency by potentially bringing in partners into under construction projects as part of that too? Thank you.
Yeah. Thank you, Ahmed. So we have now laid out the plan, the CapEx plan for 2025, 2026. So you should not expect us now starting speculation that we change that tomorrow again. I mean, we don't have full foresight of the future. There can always things happen, but we feel very confident with the investments we are now targeting with the reduced amounts and also with the risk profile and especially with the returns we are getting there. But what we do is not every month, but at least, I mean, twice a year, a regular full review of our capital allocation and where we see changes, and then we take decision based on that. But the question of what happened with the plan is probably more imminent from 2027 onwards. I would be surprised if we see another change on 2025, 2026.
Part of the capital efficiency program is also that we intend to bring down what Michael just a couple of minutes ago called unproductive CapEx. So the partnering strategy, we probably try to bring on board partners already in projects under development. And by that, of course, we reduce the burden on our balance sheet. The old days where you typically partnered after COD, where you get, I mean, full value for the construction risk you have gone through, was always probably value maximizing when the unproductive CapEx was not a big issue, but with a higher interest rate environment and higher risk framework, you probably partner earlier to reduce it. And we're going to take measures on that end over the next quarters.
Thank you.
Thank you. And we now move on to a question from Meike Becker from HSBC. Please go ahead.
Yes. Good afternoon, and thank you very much for taking my questions. I have two on PPAs, please. Could you give us an update on the PPA prices you're achieving in the U.S. and the outlook you're seeing, expectations where that's going? And the other PPA question is how you feel about signing PPAs for your offshore projects that currently don't have a CFD in Europe, considering where the market prices are right now. Thank you.
Yeah. So PPA prices in the U.S., we don't disclose absolute numbers, and it's also very difficult to compare them because you have different markets and different types of PPAs. But year on year, prices are higher. Expectation is if the current support scheme, the IRA, doesn't change, we expect prices to at least stay on the current levels. But you see a huge difference in certain markets. So some markets are much more attractive because of higher demand and tighter supply than others. But overall, positive picture, we expect it to continue. On European offshore, you probably referred to our merchant projects, which we intend to fully contract until COD, as we have also done in the past. Not much has changed. I mean, with the stabilization of the power prices, where we already talked at half-year results, I mean, it hasn't changed.
I mean, prices for 2025, 2026 are still at the same level, €85-€90. So it is much more stable since the last seven, eight months. So we know what prices we want to achieve for the offshore assets, and we have started the marketing, and we're now going to sell them piece by piece.
Thank you.
Thank you. And from UBS, we now have Wanda Serwinowska with our next question. Please go ahead.
Hi. Wanda Serwinowska, UBS. The question is for me. The first one is on the U.S. onshore and solar. How many gigawatts of the renewables can you safe harbor? If you could give us a number, that would be appreciated, and the second question is on the JV with National Grid in the U.S. National Grid has a put option, basically, on their stake. So can they exercise it now, given that the project is delayed, or under what circumstances they can do it? Thank you.
Wanda, thanks for the question. So U.S. onshore, can we clarify what you mean exactly with safe harbor? You mean for the IRA?
Yeah, yeah, exactly. For the ITC, what your peers are saying, if you put 5% of CapEx into the project, you basically, your ITC is safe. So I'm trying to understand how many gigawatts you can basically safe harbor in the U.S.
Yeah. In that respect, a difficult question because when we have seen the safe harbor rules in the earlier years, in the first Trump administration, where you had the yearly extension of the IRA, it was relevant. Currently, we have no expiry of the IRA. So it will, in the end, depend how they change the rules. So if we go back to the old rules, I could answer that question, but you first need to know the new ones. As the regulation currently stands, there is no need for safe harbor because there is no expiry date of the IRA. On the National Grid put option, of course, it's confidential how it exactly works, but the put option can only be exercised when the partners disagree on certain developments. So if somebody wants to put in a bit and the other doesn't agree to the price.
Currently, we don't see the case for an exercise of the put option.
Thank you.
Thank you. Olly Jeffery from Deutsche Bank has our next question. Please go ahead.
Thanks very much. A couple of questions. The first one is on Community Offshore Wind. If that project is delayed beyond 2030, and assuming you spend no CapEx on Community Offshore Wind this decade and taking into account the delays in hydrogen spend, should we think of that as being around a kind of a €10 billion CapEx saving on the €55 billion plan that you can choose to allocate elsewhere? The second question is on TTF gas prices. I'd just be interested to hear your views on the impact of Trump potentially impacting gas prices globally. What does your commodity team think of kind of the medium-term impact could be on gas prices? Do you think that potentially you could see gas prices below the €29 TTF per megawatt hour that we see at the moment in 2027?
And then lastly, on your comments regarding offshore partner sharing, potentially bringing in partners earlier, would you aim to do that after achieving PPAs on those projects with the hope of making those projects more valuable and achieving gains? Or if you continue to bring partners in before COD, should we think of that more as proceeds and no gains associated with that? How should we think about the gains element when you're bringing in partners before COD? Thank you very much.
Thanks, Olly. Great questions. I mean, on Community Offshore Wind, I have to disappoint you because, I mean, this is now a very partial view of the portfolio. We would need to discuss many things like what was your assumption on additional farm down? Did you assume project financing and so on? So I'm reluctant to give you that clear answer because then you would it's a portfolio approach. I mean, for now, we know we're not going to spend anything in addition to what has been spent for the next two years, and then we decide what we do in the following years. And also, since we always had likelihood behind the offshore projects, the long-term view is more on a portfolio view. Short-term view is on a very, very specific project view.
So we can answer that question when we know what are the alternatives in offshore for the late 2020s. TTF, we don't see any mid-term price impact from whatever the U.S. administration might do because that, in the end, depends only on additional liquefaction capacity. I mean, and that is a relevant point because with limited liquefaction capacity in the Gulf, even if you drill more gas in the U.S., global prices will not be affected. Then it's stranded in the U.S., and you see U.S. prices coming down. I think the most relevant determining factor mid-term on global gas prices is Russian gas. What happens there? Do we go back to full deliveries or no deliveries? I think that has a higher impact than anything which happens in the U.S. U.S. is, of course, important long-term if we see new energy export terminals coming in the early 2030s.
And your last question, I mean, it can be all. And we're going to approach the partnering strategy as we have also done in the past, value maximizing. So sometimes you take the construction risk, sometimes not. Sometimes you take the commercial risk, sometimes not. I mean, for big projects, I would definitely prefer to have a partner for an aligned interest, which has exactly the same risk profile than us. So actually entering into the development pretty early, as we have done with Total for part of the German ones. And of course, the earlier you take a partner on board, with less likelihood you should expect any kind of gain.
Thanks. That's pretty.
You can get the gain only if you take over certain risks and then manage them better than they are priced in the market.
Yeah, makes sense. Thank you.
Thank you, and we now move on to Harry Wyburd from BNP Paribas Exane. Please go ahead.
Hi. Thank you. So I think we've covered a lot of the big ticket topics quite thoroughly. So I'll just keep it to one question on a slightly more fundamental topic. So we're seeing a lot more curtailments, a lot more zero price hours, a lot more negative price hours in Europe, a huge surge so far this year versus previous years. I wondered, have you revised or thought about the capture rates you assume in your European CFDs and PPAs? And are you happy that the CFDs and PPAs that you previously signed and the ones that you are signing on a look-forward basis adequately protect you from things like curtailments? And would this trend perhaps be another reason why you might reconsider capital allocation if you see bigger opportunities in storage and flexibility, particularly in Europe? Thank you.
Harry, very easy answer. With all the commercialization of our renewables, we don't see any big risk, even with increasing curtailments. I mean, there might be a minor effect here and there, but typically, I mean, first of all, the fleet is not very big. And the biggest problem with the curtailments you actually have with the solar peaks around noon and our solar capacity is not very big. Of course, when the rules change, and I expect that the rules are going to change and that renewables need to be better integrated into the market, you know that upfront, we don't expect any retroactive changes to the regulation. If the regulation changes, you need to factor it in. And you are already hinting to the point where we currently see is a huge investment wave in storages. I mean, the markets work, which is good.
The market signals work. And currently, storage is very attractive. We have also ahead of us certain big FIDs on storages in Europe.
Okay. Thank you.
Thank you. And now from Citi, we have Piotr Dzieciolowski with our next question. Please go ahead.
Hi. Good afternoon, everybody. I wanted to ask you two questions. So first, when you look at your guidance price for this year, when you say you lifted from the bottom end of the range to the middle of the range, actually, when you look granularly through the divisions, all of the renewable divisions, so offshore, onshore, solar, and flex gen, are at the lower half of the guidance ranges you provided. And it's the trading that makes a difference. So I just wanted to understand what is it. I presume you were targeting more like a middle of the range. Is there any reason why this division is kind of performing weaker than you expected? Is there one denominator for all of it? Was it the price? Was it the volume? And is there any read across to it to the next year?
And the follow-up I have on the 11 gigawatt you have under construction, how much of this capacity is going to contribute to your P&L next year? And if you can give a large bracket of what is the magnitude of volume, EBITDA, contribution, and so on. Thank you.
Yeah. I think the first question and the details Thomas is just looking at. So let's start with the guidance 2024. I mean, well observed. I mean, you know that we always have some positions in our asset fleet that is not hedged. I mean, you know that we deliberately leave it open in renewables also to cope with the volume risk. So you don't want to fall short in certain times. Plus, if you talk about the onshore business, we also have certain markets where the markets are not so liquid, so you can kind of hardly hedge that. So if you talk about Poland, Italy, and also Spain. And that leaves us with and also U.K. for now. So that leaves us with some merchant positions.
And it's basically in offshore and onshore, those are the merchant positions that were left open that brought it down. Secondly, I mean, you also obviously need to see what happens to the wind in the remainder of the quarter. I mean, in flex gen, it's very much the same. It's not so much the spreads, but it's the volatility that has come down that makes us currently still a bit more cautious in the range of the respective segments. But what is important is that overall, if you put together all the numbers and also the strong performance in trading, we believe that we will be back in the mid of the range. I mean, what are the capacity for 2025? So roughly four gigawatt is the number that we assume to come online in the course of 2025.
I mean, yeah, then you kind of can assume what is the average investment and then the 10% EBITDA yield, which comes out of the 8% return. That should give you the number.
Okay. Thank you very much.
Thank you. And now we take a question from Ingo Becker from Kepler Cheuvreux. Please go ahead.
Thanks very much. Good afternoon. My first question would be on the political environment in Germany. The CDU have been putting quite a focus on lowering energy costs. Just wondering what, in your eyes, you believe that might mean. Energy prices are apparently set in markets and/or by regulators, and there's quite some taxes which might be a maneuver mass. And in addition to that, we'd be interested in your view on nuclear from a system perspective. So not from an out-of-league perspective, but if you believe nuclear revival for Germany, given the transition logic we have, makes sense at all. My second question briefly would be on your flex gen and trading activities and the guidance you have been given in February, which was quite at a time when prices also in the forward market were at their lows year to date.
Whether there's anything in the current 25, 28 forward curve that is imposing any kind of directional change on that guidance, or are you at this stage still very comfortable with that? I understand you don't change the numbers here, but maybe just some kind of understanding if things are moving as you expected in February, March, or has it changed? Thank you.
Yeah. Ingo, let me take the first two questions. Michael will take the last one. On Germany, so it has two elements what the conservatives are targeting. One is what they call cost efficiency, so to get rid of overregulation. To give you examples, I mean, when you have a EU ETS system where the emissions are kept, you don't need to set a date, and you don't need to subsidize to switch from gas to hydrogen and burning it into a hydrogen-ready gas plant. This is, I mean, makes it more costly. And so these kind of things, they don't want to do because they say we have one market instrument which works, and we don't need to overregulate without any positive effect on the climate, but significant more cost.
The other element they are targeting is they specifically say we have significant incomes close to EUR 20 billion from carbon pricing across in the German federal budget, and they want to give that money back either by reducing grid charges or direct subsidies to consumers, so they want to keep all the incentives to move away from carbonized energy in place, but they want to give back the money to give some relief for those hardest hit on the consumer side as well as on the energy intensive industry side. That's how I understand it so far. On nuclear, I mean, I don't see that new builds are part of the solution in many markets. First of all, you have these long lead times.
If we don't address the fundamental problem why nuclear is in the Western world so expensive, which is only driven by the regulatory regime and the oversight. If we don't change that and government authorities are willing to take some more responsibilities and don't outsource that to auditors who always want everything gold-plated and 100%, then we cannot change that. We see that problem in the U.S. We see it in the U.K. We see it on the continent. If that is addressed, it might change. I'm not very optimistic. I mean, the idea behind the SMRs is that you get them convinced that the regulatory regime can be changed. Without that, I struggle to see that it's ever economic again.
Thank you. I picked the question on trading and flex gen. I mean, on trading, we always guide this range of €100-500, and that is basically our base case assumption in a normalized year. Therefore, that is also for the following years. I mean, on flex gen, we said at the beginning of the year that we saw a quicker deterioration or normalization of the higher returns or incomes than initially assumed, and I mean, you now see in the actuals that the outcome is actually slightly better on the back of the scarcity, but there is also some effect for the later years, so there is a quicker normalization in the front years than what we had initially assumed.
Thank you.
Thank you. And up next, we have a question from Pujarini Ghosh from Bernstein. Please go ahead.
Hi. This is Pujarini from Bernstein. And thanks for taking my questions. I have just one on the average IRR of 8.2% that you highlighted. Please could you confirm which projects this includes? Does it include your already commissioned projects or under construction and FID projects? And to what extent is the realization of this IRR dependent on the evolution of wholesale power prices versus predetermined through long-term PPAs?
So it includes all the projects that we have FIDs, yeah, and most of them should be already then under construction. And I mean, it is based on the assumptions we have taken in investment cases. I mean, you know that our clear aspiration is to contract those assets. So you can assume that all the projects in the U.S. are based on PPAs. In Europe, mostly feed-in tariffs. It does include the offshore projects with the respective PPA assumption. But as Markus mentioned before on a question, we are very confident with those prices that we assumed in the business cases to also be realized. And as you said, we are in the process of marketing those assets. But at the same time, you also know some of them only will come online 2025, 2026, 2027, 2028. So there is also still time to lock in those PPAs.
Thank you.
Thank you. And we now have a follow-up question from Ahmed Farman from Jefferies. Please go ahead. Mr. Farman, your line is open. You can pose your question.
Yes. Thank you. Just a quick one, probably for you, Michael. Could you just give us a sense of where you see the net debt to EBITDA under the sort of the cap, a lower CapEx plus the buyback program for 2025? And if you've had any feedback already from the rating agencies on the reassessed capital allocation plan. Thank you.
Yeah. Important question. I mean, as you can imagine, we did have conversations actually yesterday with the rating agencies and explained them that. I mean, for the rating agencies, as you can imagine, it's very important that we do reduce CapEx and basically by that keep in the framework of our overall plan and therefore also our net debt plan. And that we also show that we react to market conditions. So therefore, we are very confident that we will stay in the respective KPIs required for keeping the strong investment grade rating and thus also keeping the rating.
Thank you.
Thank you. And our last question for today comes from Alberto Gandolfi from Goldman Sachs. Please go ahead.
Thank you for your patience because there was no question, Anita. I wanted to ask you if, considering a bit of confusion in the press, have you been in contact with or in touch with any activists, regardless of the name in the press, over the past few weeks and months? Has there been and what can you disclose the nature of the discussion if there has been one? And thank you so much.
So, Alberto, are you incentivized to having the first and the last question, then you get full bonus. So thanks for the question. I mean, it's difficult, right? I mean, first, we need to define what is an activist because we have many investors in the shares, and we are in constant dialogue with all the relevant capital market participants. But you also have seen, after the first specific rumor on one of the very prominent activists, that they have come out with a statement and said they have not made any demand to management. And also from all others, which we would call activists, we have not got any demand. But of course, we are in discussions with many of our investors. And you know that especially the discussion around share buyback didn't come up yesterday.
So it was an ongoing discussion about capital allocation with not only some, but many, many investors and also totally different views. And we have now come to the conclusion, which we think is the right way forward for the next months and quarters. But let me reiterate, and you have seen that statement, there have not been made any specific demands to management from activists.
Thank you.
Thank you. And with that, I'd like to hand the call back over to you, Mr. Denny, for any additional or closing remarks.
Excellent. Thank you all for dialing in. It has been a very, very good call. I highly appreciate it. If you have any further questions, the team is at your disposal anytime. And I wish you all a great rest of the day. Thank you.
Thank you for joining today's call. Ladies and gentlemen, you may now disconnect.
Thank you, and good afternoon, ladies and gentlemen. Thank you for joining the 9 Months 2024 RWE Investor and Analyst Conference Call today. Our CEO, Markus Krebber, will kick it off with the key nine Months highlights and an update on capital allocation, including a share buyback program. Afterwards, our CFO, Michael Müller, presents the details and will guide you through the financial performance of the first nine Months, as well as the outlook for the current year. And with that, let me hand over to Markus.
Yeah, thank you, Thomas, and also a warm welcome to everyone from my side. This year is all about execution of our strategy, delivering the financial performance, and constantly reassessing capital allocation. We have made strong progress in executing our Growing Green strategy and continued the transformation of our company with profitable growth through our investments. So far, in 2024, we have invested €6.9 billion net, with 95% of our investments being Taxonomy- aligned. We have 11.2 gigawatts of capacity under construction across all technologies. With 8.2%, the average IRR of our investment decisions exceeds our target of 8%. Despite headwinds from declining commodity prices, we delivered a good financial performance. Adjusted EBITDA stood at €4 billion, and we have already reached more than 75% of the lower end of our EBITDA guidance for the full year 2024.
Adjusted net income stood at €1.6 billion and more than 85% of the lower end of the full year guidance. Based on our good performance in the first nine months of 2024, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT, and adjusted net income in the middle of the guidance ranges. We constantly reassess our capital allocation in the light of changes of the risk-reward environment for our investments. Currently, we see higher uncertainties for certain technologies. In particular, we see higher risks and delays in the development of U.S. Offshore Wind and in the ramp-up of the hydrogen economy in our core European markets. We therefore reduce our CapEx program for the next two years. In the current environment, investing in RWE shares is highly attractive. Consequently, we decided on a significant share buyback program.
Over a period of up to 18 months, we will return an additional €1.5 billion to our shareholders. Our dividend target of €1.1 per share for fiscal year 2024 and the objective to increase the dividend year on year are confirmed. Let me now hand over to Michael with more details on the share buyback program and our 9 months financial performance.
Yes, good afternoon also from my side. We will start the share buybacks already this quarter. The program has a duration of up to 18 months, and the total volume is up to €1.5 billion. The share buyback program will be executed under the existing authorization as granted in the AGM 2023. As this authorization lapses in May 2025, we will ask the shareholders for a renewed authorization in the AGM next year. The program is funded from lower net cash investments in the coming years. We now plan net cash investments for 2025 and 2026 to average €7 billion compared to a run rate of €8 billion that we laid out in our Capital Markets Day a year ago. No impact on rating KPIs is expected, as we stay committed to maintaining our strong investment-grade rating.
For 2027, we confirmed the EPS guidance range set at the last Capital Markets Day. Let's now take a closer look at the financials. After the exceptional earnings in the first three quarters of last year, EBITDA in the first nine months of 2024 stood at €4 billion, thanks to good performance in our Flexible Generation segment and our trading business. In Offshore Wind, adjusted EBITDA was €1.079 billion. Earnings were up on the back of better wind conditions. Onshore Wind and Solar EBITDA stood at €990 million. This was driven by organic growth, the full year contribution of the CEB assets, and higher hedged prices and better weather conditions in Europe. Offsetting effects have been lower prices for unhedged positions and weaker weather conditions in the U.S. Adjusted EBITDA for the Flexible Generation business was €1.447 billion.
As expected, we have seen lower earnings in line with normalizing market conditions after an exceptional prior year. Our Supply & Trading business delivered a good performance in the first nine months after an exceptional prior year. The last nine months results stood at €465 million. On the back of the good operational performance, adjusted net income amounted to €1.6 billion. The year-on-year adjusted financial result is lower due to increased net financial debt. For adjusted tax, we applied the general tax rate of 20% for the RWE Group. Adjusted minority interest reflects lower earnings contribution of minority partners. The adjusted operating cash flow was €4.4 billion at the end of the first nine months. The main drivers have been good operational performance and seasonal effects in operating working capital.
Changes in operating working capital were marked by a reduction in trade receivables, partly compensated by a decrease of trade payables. Net debt increased to €12.2 billion due to investments and timing effects. In total, we invested €6.9 billion net into our green growth. Other changes in net financial debt amount to €2.2 billion. This includes timing effects from hedging and trading activities, as well as an increase in leasing liabilities. Our net position from variation margins for power generation hedging stood at €-1 billion, representing an outflow of €2.4 billion since the beginning of the year. This includes net variation margins from the sale of electricity, as well as the purchase of the respective fuels and CO2 certificates. We expect other changes in net financial debt to largely revert over the rest of the year.
Based on the good performance in the first nine months for 2024, we are increasing our guidance. We now expect adjusted EBITDA, adjusted EBIT, and adjusted net income in the middle of the guidance range. The dividend target remains €1.1 per share for this year. And now, let me hand back to Thomas.
Thank you, Michael. We now start the Q&A session. Operator, please begin.
Thank you. Ladies and gentlemen, if you would like to ask a question on today's call, please signal by pressing Star one on your telephone keypad. That is Star one for your questions today. And up first, we have Alberto Gandolfi from Goldman Sachs. Please go ahead.
Hi, good afternoon, and thank you for taking my questions. And just wanted to congratulate you on the move for taking a stance against, like, an unreasonably low share price. I have two and a half questions, so I hope you forgive me, but we've been waiting for today for such a long time. So the first question is, on the CapEx delays that you have announced, am I right in thinking that because it's largely U.S. offshore and hydrogen, the 2027 net income is barely affected by it? So when it comes to forecasting 2027 EPS, we get the accretion from the cancellation of the shares, but we don't have much of a reduction in net income. Or maybe if you can tell us how small the dilution from lower investments could be?
Related to this, and talking about the share buyback and returns, I bundle into one, that's why it's probably one and a half. Am I right in thinking that at the current share price, a share buyback is a mid-teens IRR, implied IRR, instead of developing organically? Is that the way you're thinking about it as well, besides the shares are depressed? And on the back of this, I was reading a translation from the press conference you had, and you said this is not a cancellation of CapEx, it's a delay in investment.
And can I ask, is it just the same project that you delay, or are you thinking maybe U.S. offshore we can remove, we can introduce something else, like could be nuclear restarts, could be, I don't know, but does this mean that the smoothing of CapEx could allow you to achieve a greater IRR than your target 8% on whatever you're spending now in the next three, four, five years? So I'm trying to understand the IRR on buying back the shares and if there's upside risk to the returns you've been targeting so far. Thank you for indulging with me. Thank you.
Alberto. Maybe I take the first question, and then Markus, you want to pick the last one? Let's start with guidance for 2027. I mean, first of all, you are right, especially the offshore investments would have been unproductive CapEx since, you know, the projects would only go online by the end of the decade, so therefore no earnings impact from this one. On hydrogen, yes, there would be some impact, but I think broadly what you said is right, the impact on earnings is largely limited, and then effectively you see the accretion from less shares. The return of the share buyback, obviously, is difficult to calculate because you have to assume at which share price you buy back the shares. But I mean, as we said, we feel that this investment is attractive at the current share price.
You can assume that we do assume that the return of the buyback should be higher than the 8% average return that we see on our existing asset fleet.
Yeah, I take the last one on the CapEx program. So there's, of course, now speculation, but two things are clear. I mean, we said we're going to cut out 2025 and 2026. We call that delay because we still believe that the hydrogen economy will be needed, will be picked up if we don't give up on the climate protection targets, but it will come later. And U.S. offshore, of course, depends on the administration, especially the permitting side. But what you can already assume, Alberto, is that even if we call it delays, it will be pushed out beyond 2030.
So today, we don't expect that we're going to pick it up in the second half of the 2020s, so we're not going to reach the €55 billion. On the exact mix, how we invest beyond 2025, 2026, where we have now very high visibility, again, then depends on what is the risk-reward framework for potential investments. Of course, we go only for those where we meet the hurdle, and everything which is above the hurdle needs prioritization. And then, of course, we have now introduced share buybacks as one part of capital allocation, so we also look at the relative attractiveness of that when we decide how big the CapEx program might be. But that's to be decided then when we have more clarity about investments in the later 2020s.
This is very clear, and thank you so much. Congrats again.
Thanks, Alberto.
Thank you. And we come to our next question from Peter Bisztyga from Bank of America. Please go ahead.
Yeah, good afternoon. Thanks for taking my questions. So first of all, I wanted to get your thoughts on the implications of Republican clean sweep on your onshore investment plans in the U.S. I know it's some very early days, but it seems pretty likely that we'll see changes to certain aspects of clean energy tax credits. So really just interested to hear what is your base case expectation, what sort of bonus tax credits or other adders could get removed, for example, and how that might affect your onshore growth plans. And please excuse me for asking this, but if the outcome on the onshore side is also negative versus your current expectations, would that also influence your sort of capital allocation decisions going forward?
And then my second question is on German elections, and I'm just wondering if you could give us some headline thoughts about how a CDU-led government could alter energy policy based on what they've already said is in their plan. So obviously, particularly interested in your thoughts on nuclear, but also coal phase-out and the rollout of gas-fired power generation. Thank you.
Yeah, Peter, thanks for the question. I take them both. The first on the implication or the potential implication of the Republican sweep on the onshore PV battery business. I mean, we closely observe what are the discussions so far. It's not clear where it's going. So let's focus first on the fundamentals, what we do see. First, we see very strong demand for power and all sorts of power, and especially on the PPA side, only green power. So that demand is strong as never before. We have very good discussions with off-takers, and currently we see more demand that we can actually fulfill physically by building the assets. Of course, a potential change on the IRR side, I mean, changes the economics, but doesn't change the need for additional power.
So then the second question is, do we get higher PPA prices to actually compensate for a watered-down IRA? Where I still think the jury is out because the benefits of the IRA, which incentivize investments, which incentivize the build-out of supply chain, creates lots of good jobs across the entire country, especially in red districts, and of course, reduces consumer prices for electricity prices for consumers and the industry has huge benefits. And I mean, you probably have also followed that we have seen before the election, the letter from eight representatives of the House, Republicans in full support of the IRA. So it remains to be seen, but we don't know, and we are not in the business of projecting the future. We are in the business of doing good investments. So as long as we have good investments, we're going to do them.
Currently, we have a bit more than four gigawatts under construction, good off-take. That is also important given that we have the Republicans now back and then Mr. Trump in the White House. We have de-risked the supply chain. We will only do de-risk investments, which are good. If they are not good, it will, of course, affect capital allocation. If we don't can compensate in other parts, I mean, we have now proven that share buybacks are part of the mix. This is now, I mean, too many variables. We need to discuss what we might do in different circumstances. Second one is Germany. First is, of course, the election outcome and what kind of coalition we're going to see.
Do we see a strong conservative-led government with only one party in a coalition, so a two-party coalition, which is, of course, much easier to find compromises? Or does Germany again, and we had this experience, end up with a three-party coalition? That is too early to tell, but you specifically asked about conservative policy, so they just ran an energy conference last week where we also attended, of course, and what is clear is they will stick to the transition path, so the energy transition, but they put much more emphasis on cost efficiency, so not everything at the same time, doing the decarbonization in a very rational way, meaning that you need to look at the full system cost, so also the grid build-out costs need to be considered.
And of course, they're going to stick to the European EU ETS, so there is no benefit in spending more money in Germany to front-run something, which is in the end steered by the EU ETS. That is their thinking. What my expectation is, there might be during the campaign a discussion on nuclear, but I see it as very, very unlikely that we're going to bring them back. But in the end, it's a political decision, and for us, it's a question if we need to do it, what are the economics. But when I look at the economics, I don't see it also from a political point of view not being attractive. What I do expect is that they put much more emphasis on very pragmatic build-out of new capacity, especially gas without restrictions on how to decarbonize because that's what we have the EU ETS for.
So it could all come a bit faster and a bit cheaper and a bit more attractive also for us. And it's urgently needed, as we have seen last week with, I mean, the very, very tight market already in one day. Very detailed answer. Appreciate it. Thank you.
Thank you.
Now from Morgan Stanley, we have Rob Potter with our next question. Please go ahead.
Thank you very much for taking my questions. If I can just follow up on that, Markus, conceptually. So the Chancellor of Germany, let's leave the name blank, calls you asking for RWE's nuclear restart and to nam your price and terms. What you previously answered was that the economics don't make sense. What would you want in return to make the economics make sense, and how soon could all of this be delivered? A second sort of pretty ancillary question, if I may. Given the delay in some of the investments and some of the impairments we've seen at your peers, there are no impairments in the announcement today. Is impairment testing something we should be worried about for those hydrogen investments and the U.S. seabed? Thank you for both. Thank you.
Yeah, I think Michael will take the second question. I mean, you all seem to love nuclear now. I think the case to extend the lifetime of an existing one is clearly there, but we have passed that point in Germany. And we are currently obliged by law to decommission them to build them back. So we cut something every day as we speak. So bringing back, just that you understand where we are, bringing back Three Mile Island, which was a fully mothballed plant for economic reasons, is easier than bringing back our plants, which were recently decommissioned for a couple of reasons. First, we have currently no permits. So if somebody calls me, whatever the name is, you left it blank and said, "What do we need?" I would not start with discussing what we actually need economically to reinvest in them.
That is, of course, technically possible, but the first question is, how do we ensure the permits? Second, the permitting is not only on federal level, it's also partly on state level, and then you have the oversight, which is partly outsourced to external auditors, which all makes it very, very complicated, so we need to discuss first the entire permitting architecture in Germany. That is the first. The second is qualified personnel. I mean, we are now running these units for 12 years with clear decommissioning dates, and we don't have the people, so we probably need to invest a lot, and that seems to be the tightest point on the timeline. We need to train people that they can run the units, and we need support for that, and then the fourth is in economic investments we need to make in the units.
Of course, since it takes probably three, four years to bring them back, you already know that you're going to commission them again in the next legislative term with the next government, and you need protection if they turn around again. Of course, somebody could take it to the court case. So coming back to your financial question, I would say, "Okay, I need protection for my investments. If I can never turn it on again, if I run it, I want to have a long-term PPA because we know that renewables and nuclear is not a good pairing because if you have the nukes not on a PPA basis, baseload, the renewables are eating into the profitability of your nukes." And with having said all that, and that's also I'm on record in an interview, it's not impossible. If somebody wants it, it's politically feasible.
But when I look at what we need to overcome and what the economics are, I think it's unlikely.
Thank you very much for that very thorough reply.
Rob, so I pick up the second question. I mean, look, on hydrogen, this is, I mean, we already foresaw that something like that could potentially happen. So therefore, what we did, we already kind of scaled back on the hydrogen organization, but we don't stop any projects. It's more that the effort we spend in developing new projects is reduced, and obviously then the subsequent spend. So therefore, no capital here at risk. And with offshore, I mean, look, we still believe that U.S. Offshore Wind will be needed. I mean, if you look at New Jersey and New York, if they simply want to comply or meet the increasing power demands, they basically need offshore. And therefore, we do see value in those projects.
I mean, what we now do is obviously be more careful with committing big amounts there, but we definitely will look into what we do with the project going forward, how we keep the optionality. Because as I said, in the long run, we believe the East Coast will need those projects, and we also feel that with our projects, we are good positioned relative to other projects.
Thank you very much, Tania.
Thank you. And we now take a question from Deepa Venkateswaran from Bernstein. Please go ahead.
Hi there. Thank you for taking my questions. I had two questions. The first one is on the changes to the CapEx plan. So can I confirm that the €2 billion you've shaved off is entirely only from offshore wind and green hydrogen, or is there any other phasing effect or anything? Because I was surprised that you're spending so much on those two, given they're supposed to start much later. Is there anything else in this, maybe more farm downs or anything else which is also in the puzzle? And second question on the U.S., just to confirm, how protected are the projects that you've already taken FID against any changes in tariffs for panels or batteries? And do you have the equipment already there, or could there be any risk to these projects in case of any immediate imposition of tariffs? Thank you.
Yeah. Deepa, I take both questions. Let's first start with the CapEx. No, it's just on offshore and hydrogen. I mean, look, we said that out of the if you divide the €55 billion plan by seven years, it gives you roughly €8 billion per year. We're now saying for the next two years, we're going to spend roughly €7 billion. So that gives you kind of a saving of €2 billion compared to the CapEx plan. And I mean, you can roughly say half is hydrogen, half is offshore wind. I mean, in offshore wind, in the next time, we would have engaged into commitments for further locking in the supply chain. That is clearly something we don't do. So therefore, the amount, even though the projects are far out, is quite substantial. On the U.S. projects, we don't see a risk there.
I mean, clearly, we need to observe what happens. I mean, as Markus said, our hypothesis is going forward that even in a worst-case scenario, that if there would be changes to IRA, there would be kind of changes to the market simply because there is a strong need for green power. The question is, what happens on the existing projects? I mean, that is clearly something where we have an eye on. At the same time, I mean, the U.S. does have a tradition in not interfering into kind of historic projects. So from the current point of view, we don't see any risk here. But obviously, that's something, as a kind of typical regulatory work, we are closely monitoring and taking the right measures here if needed.
Let me add one thing, because you specifically asked also for tariffs, and probably you are linking to the projects we have under construction. So we have very high confidence that we have protected the projects where we have taken FID. So the moment we take FID, we not only want to understand offtake, we also want to understand the supply chain risk. And you have different kinds of measures. You can move tariff risk to your suppliers. You can buy local. You can buy from certain suppliers which are not exposed to potential measures. And you can also procure early and store already before you start the project in the U.S. So it's a bundle of measures we take, but we feel very comfortable that we can expect no negative impact also with very harsh measures on our projects under construction.
All right. Thank you.
Thank you. And up next, we have Ahmed Farman from Jefferies. Please go ahead.
Yes. Hi, Michael and Markus. Congratulations on the strong set of results, and thank you for taking my questions. I just want to first start on the sort of the buyback program. As I understand it, you will be on a regular basis reviewing the attractiveness of the CapEx program and then reassessing your capital allocation going forward. So is there a scope for further upside to the scale of this program as, let's say, visibility emerges on the policy and political framework in U.S., Germany, etc.? Or is the CapEx for 2025, 2026 now very firmly locked in with those sort of targeted IRRs that you mentioned earlier? That's my first question. And then second question is more, Markus, to your comment about the attractiveness of investing in RWE stock.
Are there any other aspects you're considering, such as improving capital efficiency by potentially bringing in partners into under construction projects as part of that too? Thank you.
Yeah. Thank you, Ahmed. So we have now laid out the plan, the CapEx plan for 2025, 2026. So you should not expect us now starting speculation that we change that tomorrow again. I mean, we don't have full foresight of the future. There can always things happen, but we feel very confident with the investments we are now targeting with the reduced amounts and also with the risk profile and especially with the returns we are getting there. But what we do is not every month, but at least, I mean, twice a year, a regular full review of our capital allocation and where we see changes, and then we take decision based on that. But the question of what happened with the plan is probably more imminent from 2027 onwards. I would be surprised if we see another change on 2025, 2026.
Part of the capital efficiency program is also that we intend to bring down what Michael just a couple of minutes ago called unproductive CapEx. So the partnering strategy, we probably try to bring on board partners already in projects under development. And by that, of course, we reduce the burden on our balance sheet. The old days where you typically partnered after COD, where you get, I mean, full value for the construction risk you have gone through, was always probably value maximizing when the unproductive CapEx was not a big issue, but with a higher interest rate environment and higher risk framework, you probably partner earlier to reduce it. And we're going to take measures on that end over the next quarters.
Thank you.
Thank you. We now move on to a question from Meike Becker from HSBC. Please go ahead.
Yes. Good afternoon, and thank you very much for taking my questions. I have two on PPAs, please. Could you give us an update on the PPA prices you're achieving in the U.S. and the outlook you're seeing, expectations where that's going? And the other PPA question is how you feel about signing PPAs for your offshore projects that currently don't have a CFD in Europe, considering where the market prices are right now. Thank you.
Yeah. So PPA prices in the U.S., we don't disclose absolute numbers, and it's also very difficult to compare them because you have different markets and different types of PPAs. But year on year, prices are higher. Expectation is if the current support scheme, the IRA doesn't change, we expect prices to at least stay on the current levels. But you see a huge difference in certain markets. So some markets are much more attractive because of higher demand and tighter supply than others. But overall, positive picture, we expect it to continue. On European offshore, you probably referred to our merchant projects, which we intend to fully contract until COD, as we have also done in the past. Not much has changed. I mean, with the stabilization of the power prices, where we already talked at half-year results, I mean, it hasn't changed.
I mean, prices for 2025, 2026 are still at the same level, 85, 90. So it is much more stable since the last seven, eight months. So we know what prices we want to achieve for the offshore assets, and we have started the marketing, and we're now going to sell them piece by piece.
Thank you.
Thank you. And from UBS, we now have Wanda Serwinowska with our next question. Please go ahead.
Hi. Wanda Serwinowska, UBS. The question is for me. The first one is on the U.S. onshore and solar. How many gigawatts of the renewables can you safe harbor? If you could give us a number, that would be appreciated. And the second question is on the JV with National Grid in the U.S. National Grid has a put option, basically, on their stake. So can they exercise it now, given that the project is delayed, or under what circumstances they can do it? Thank you.
Wanda, thanks for the question. So U.S. onshore, can we clarify what you mean exactly with safe harbor? You mean for the IRA?
Yeah, yeah, exactly. For the ITC, what your peers are saying, if you put 5% of CapEx into the project, you basically, your ITC is safe. So I'm trying to understand how many gigawatts you can basically safe harbor in the U.S.
Yeah. In that respect, a difficult question because when we have seen the safe harbor rules in the earlier years, in the first Trump administration, where you had the yearly extension of the IRA, it was relevant. Currently, we have no expiry of the IRA. So it will, in the end, depend how they change the rules. So if we go back to the old rules, I could answer that question, but you first need to know the new ones. As the regulation currently stands, there is no need for safe harbor because there is no expiry date of the IRA. On the National Grid put option, of course, it's confidential how it exactly works, but the put option can only be exercised when the partners disagree on certain developments. So if somebody wants to put in a bid and the other doesn't agree to the price.
Currently, we don't see the case for an exercise of the put option.
Thank you.
Thank you. Olly Jeffery from Deutsche Bank has our next question. Please go ahead.
Thanks very much. So a couple of questions. The first one is on Community Offshore Wind. If that project is delayed beyond 2030, and assuming you spend no CapEx on Community Offshore Wind this decade and taking into account the delays in hydrogen spend, should we think of that as being around a kind of a €10 billion CapEx saving on the €55 billion plan that you can choose to allocate elsewhere? The second question is on TTF gas prices. I'd just be interested to hear your views on the impact of Trump potentially impacting gas prices globally. What does your commodity team think of kind of the medium-term impact could be on gas prices? Do you think that potentially you could see gas prices below the €29 TTF per megawatt hour that we see at the moment in 2027?
And then lastly, on your comments regarding offshore partner sharing, potentially bringing in partners earlier, would you aim to do that after achieving PPAs on those projects with the hope of making those projects more valuable and achieving gains? Or if you continue to bring partners in before COD, should we think of that more as proceeds and no gains associated with that? How should we think about the gains element when you're bringing in partners before COD? Thank you very much.
Thanks, Olly. Great questions. I mean, on Community Offshore Wind, I have to disappoint you because, I mean, this is now a very partial view of the portfolio. We would need to discuss many things like what was your assumption on additional farm down? Did you assume project financing and so on? So I'm reluctant to give you that clear answer because then you would, I mean, it's a portfolio approach. I mean, for now, we know we're not going to spend anything in addition to what has been spent for the next two years, and then we decide what we do in the following years. Also, since we always had likelihood behind the offshore projects, the long-term view is more on a portfolio view. Short-term view is on a very, very specific project view.
So we can answer that question when we know what are the alternatives in offshore for the late 2020s. TTF, we don't see any midterm price impact from whatever the U.S. administration might do because that, in the end, depends only on additional liquefaction capacity. I mean, and that is a relevant point because with limited liquefaction capacity in the Gulf, even if you drill more gas in the U.S., global prices will not be affected. Then it's stranded in the U.S., and you see U.S. prices coming down. I think the most relevant determining factor midterm on global gas prices is Russian gas. What happens there? Do we go back to full deliveries or no deliveries? I think that has a higher impact than anything which happens in the U.S. U.S. is, of course, important long-term if we see new energy export terminals coming in the early 2030s.
Your last question, I mean, it can be all. We're going to approach the partnering strategy as we have also done in the past, value maximizing. Sometimes you take the construction risk, sometimes not. Sometimes you take the commercial risk, sometimes not. I mean, for big projects, I would definitely prefer to have a partner for an aligned interest, which has exactly the same risk profile than us. So actually entering into the development pretty early, as we have done with Total for part of the German ones. Of course, the earlier you take a partner on board, with less likelihood you should expect any kind of gain.
Thanks. That's pretty.
You can get the gain only if you take over certain risks, yeah, and then manage them better than they are priced in the market.
Yeah. Makes sense. Thank you.
Thank you. And we now move on to Harry Wyburd from BNP Paribas Exane. Please go ahead.
Hi. Thank you. So I think we've covered a lot of the big ticket topics quite thoroughly. So I'll just keep it to one question on a slightly more fundamental topic. So we're seeing a lot more curtailments, a lot more zero price hours, a lot more negative price hours in Europe, a huge surge so far this year versus previous years. I wondered, have you revised or thought about the capture rates you assume in your European CFDs and PPAs? And are you happy that the CFDs and PPAs that you previously signed and the ones that you are signing on a look-forward basis adequately protect you from things like curtailments? And would this trend perhaps be another reason why you might reconsider capital allocation if you see bigger opportunities in storage and flexibility, particularly in Europe? Thank you.
So Harry, very easy answer. With all the commercialization of our renewables, we don't see any big risk, even with increasing curtailments. I mean, there might be a minor effect here and there, but typically, I mean, first of all, the fleet is not very big. And the biggest problem with the curtailments you actually have with the solar peaks around noon and our solar capacity is not very big. Of course, when the rules change, and I expect that the rules are going to change and that renewables need to be better integrated into the market, you know that upfront, we don't expect any retroactive changes to the regulation. If the regulation changes, you need to factor it in. And you are already hinting to the point where we currently see is a huge investment wave in storages. I mean, the markets work, which is good.
The market signals work, and currently, storage is very attractive. We have also ahead of us certain big FIDs on storages in Europe.
Okay. Thank you.
Thank you. And now from Citi, we have Piotr Dzieciolowski with our next question. Please go ahead.
Hi. Good afternoon, everybody. I wanted to ask you two questions. So first, when you look at your guidance range for this year, when you say you lifted from the bottom end of the range to the middle of the range, actually, when you look at it granularly through the divisions, all of the renewable divisions, so offshore, onshore, solar, and flex gen are at the lower half of the guidance ranges you provided. And it's the trading that makes a difference. So I just wanted to understand what is it, I presume you were targeting more like a middle of the range. Is there any reason why this division is kind of performing weaker than you expected? Is there one denominator for it? Was it the price? Was it the volume? And is there any read across to it to the next year?
The follow-up I have on the 11 gigawatts you have under construction, how much of this capacity is going to contribute to your P&L next year? If you can give a large bracket of what is the magnitude of volume, EBITDA contribution, and so on. Thank you.
Yeah. I think the first question and the details Thomas is just looking at. So let's start with the guidance 2024. I mean, well observed. I mean, what we – I mean, you know that we always have some positions in our asset fleet that is not hedged. I mean, you know that we deliberately leave it open in renewables also to cope with a volume risk. So you don't want to fall short in certain times. Plus, if you talk about the onshore business, we also have certain markets where the markets are not so liquid, so you can kind of hardly hedge that. So if you talk about Poland, Italy, and also Spain. And that leaves us with, and also U.K. for now. So that leaves us with some merchant positions.
It's basically in offshore and onshore, those are the merchant positions that were left open that brought it down. Secondly, I mean, you also obviously need to see what happens to the wind in the remainder of the quarter. I mean, in flex gen, it's very much the same. It's not so much the spreads, but it's the volatility that has come down that makes us currently still a bit more cautious in the range of the respective segment. But what is important is that overall, if you put together all the numbers and also the strong performance in trading, we believe that we will be back in the mid of the range. I mean, what are the capacity for 2025? So roughly four gigawatts is the number that we assume to come online in the course of 2025.
I mean, yeah, then you kind of can assume what is the average investment and then the 10% EBITDA yield, which comes out of the 8% return. That should give you the number.
Okay. Thank you very much.
Thank you. And now we take a question from Ingo Becker from Kepler Cheuvreux. Please go ahead.
Thanks very much. Good afternoon. My first question would be on the political environment in Germany. The CDU have been putting quite a focus on lowering energy costs. Just wondering what, in your eyes, you believe that might mean energy prices apparently set in markets and/or regulators, and there's quite some taxes which might be a maneuver mass, and in addition to that, would be interested in your view on nuclear from a system perspective, so not from an RWE perspective, but if you believe nuclear revival for Germany, given the transition logic we have, makes sense at all. My second question briefly would be on your flex gen and trading activities and the guidance you have been given in February, which was quite at a time when prices also in the forward market were at their lows year to date.
And whether there's anything in the current 2025, 2028 forward curve that is imposing any kind of directional change on that guidance, or are you at this stage still sort of very comfortable with that? I understand you don't change the numbers here, but maybe just some kind of understanding if things are moving as you expected in February, March. Has it changed? Thank you.
Yeah. Ingo, let me take the first two questions. Michael will take the last one. On Germany, so it has two elements what the conservatives are targeting. One is what they call cost efficiency, so to get rid of overregulation. To give you examples, I mean, when you have a EU ETS system where the emissions are kept, you don't need to set a date, and you don't need to subsidize to switch from gas to hydrogen and burning it into a hydrogen-ready gas plant. This is, I mean, makes it more costly. And so these kind of things, they don't want to do because they say we have one market instrument which works, and we don't need to overregulate without any positive effect on the climate, but significant more cost.
The other element they are targeting is they specifically say we have significant incomes close to EUR 20 billion from carbon pricing across in the German federal budget, and they want to give that money back either by reducing grid charges or direct subsidies to consumers. So they want to keep all the incentives to move away from carbonized energy in place, but they want to give back the money to give some relief for those hardest hit on the consumer side as well as on the energy intensive industry side. That's how I understand it so far. On nuclear, I mean, I don't see that new builds are part of the solution in many markets. First of all, you have these long lead times.
If we don't address the fundamental problem that nuclear is in the Western world so expensive, which is only driven by the regulatory regime and the oversight. If we don't change that and government authorities are willing to take some more responsibilities and don't outsource that to auditors who always want everything gold-plated and 100%, then we cannot change that. We see that problem in the U.S. We see it in the U.K. We see it on the continent. If that is addressed, it might change. I'm not very optimistic. I mean, the idea behind the SMRs is that you get them convinced that the regulatory regime can be changed. Without that, I struggle to see that it's ever economic again.
Thank you. I picked the question on trading and flex gen.
I mean, on trading, we always guide this range of 100-500, and that is basically our base case assumption in a normalized year. Therefore, that is also for the following years. I mean, on flex gen, we said at the beginning of the year that we saw a quicker deterioration or normalization of the higher returns or incomes than initially assumed, and I mean, you now see in the actuals that the outcome is actually slightly better on the back of the scarcity, but there is also some effect for the later years, so there is a quicker normalization in the front years than what we had initially assumed.
Thank you.
Thank you. And up next, we have a question from Pujarini Ghosh from Bernstein. Please go ahead.
Hi. This is Pujarini from Bernstein. And thanks for taking my questions. I have just one on the average IRR of 8.2% that you highlighted. Please can you confirm which projects this includes? Does it include your already commissioned projects or under construction and FID projects? And to what extent is the realization of this IRR dependent on the evolution of wholesale power prices versus predetermined through long-term PPAs?
So it includes all the projects that we have FIDs, yeah, and most of them should be already then under construction. And I mean, it is based on the assumptions we have taken in investment cases. I mean, you know that our clear aspiration is to contract those assets. So you can assume that all the projects in the U.S. are based on PPAs. In Europe, mostly feed-in tariffs. It does include the offshore projects with the respective PPA assumption. But as Markus mentioned before on a question, we are very confident with those prices that we assumed in the business cases to also be realized. And as you said, we are in the process of marketing those assets. But at the same time, you also know some of them only will come online 2025, 2026, 2027, 2028. So there is also still time to lock in those PPAs.
Thank you.
Thank you. And we now have a follow-up question from Ahmed Farman from Jefferies. Please go ahead. Mr. Farman, your line is open. You can pose your question.
Yes. Thank you. Just a quick one, probably for you, Michael. Could you just give us a sense of where you see the net debt to EBITDA under the sort of the cap, a lower Cap Ex plus the buyback program for 2025, and if you've had any feedback already from the rating agencies on the reassessed capital allocation plan? Thank you.
Yeah. Important question. I mean, as you can imagine, we did have conversations actually yesterday with the rating agencies and explained them that. I mean, for the rating agencies, as you can imagine, it's very important that we do reduce CapEx and basically by that keep in the framework of our overall plan and therefore also our net debt plan. And that we also show that we react to market conditions. So therefore, we are very confident that we will stay in the respective KPIs required for keeping the strong investment grade rating and thus also keeping the rating.
Thank you.
Thank you. And our last question for today comes from Alberto Gandolfi from Goldman Sachs. Please go ahead.
Thank you for your patience because there was no question, I admit. I wanted to ask you if, considering a bit of confusion in the press, have you been in contact with or in touch with any activists, regardless of the name in the press, over the past few weeks and months? Has there been, and what can you disclose [about] the nature of the discussion if there has been one? Thank you so much.
So, Alberto, are you incentivized to having the first and the last question? Then you get full bonus. So thanks for the question. I mean, it's difficult, right? I mean, first, we need to define what is an activist because we have many investors in the shares, and we are in constant dialogue with all the relevant capital market participants. But you also have seen, after the first specific rumor on one of the very prominent activists, that they have come out with a statement and said they have not made any demand to management. And also from all others, which we would call activists, we have not got any demand. But of course, we are in discussions with many of our investors. And you know that especially the discussion around share buyback didn't come up yesterday.
So it was an ongoing discussion about capital allocation with not only some, but many, many investors and also totally different views. And we have now come to the conclusion, which we think is the right way forward for the next months and quarters. But let me reiterate, and you have seen that statement. There have not been made any specific demands to management from activists.
Thank you.
Thank you. And with that, I'd like to hand the call back over to you, Mr. Denny, for any additional or closing remarks.
Excellent. Thank you all for dialing in. It's been a very, very good call. I highly appreciate it. If you have any further questions, the IR team is at your disposal anytime, and I wish you all a great rest of the day. Thank you.