Welcome to the RWE Conference Call. Michael Mueller, CFO of RWE AG, will inform you about the developments in the first half of fiscal 2021. I will now hand over to Thomas Denny. Thank you.
Thank you, Jessica, and good afternoon, everyone, year. And thank you for joining us today to discuss RWE's results for the 1st 6 months of the year. I'm joined by our CFO, call. Michael Mueller, who will lead you through the presentation before we continue with Q and A. Before we start with H1, Let me remind you of our Save the Day for our Capital Market Day on 15th November.
We would have loved to meet you in person, quarter. Given the uncertainties caused by the pandemic, we have opted for a fully virtual event. Nonetheless, I'm sure it will be a highlight in your H2 calendar year. And I'm looking forward to our CMD in November. And with this, let's kick it off.
Over to you, Mikael.
Yes. Thank you, Thomas, and good afternoon, dear investors quarter. Probably the most interesting news was already released 2 weeks ago relating to the upgrade of our full year guidance. Call. So let's start with this.
On the back of an outstanding trading performance in the first half of the year, we have increased not only the guidance quarter. For the division itself, but also for RBG Group on all KPIs from adjusted EBITDA to adjusted net income. This is great news quarter, considering we had a difficult start into the year. At H2, adjusted EBITDA of our core business year. Adjusted EBITDA of the RWE Group reached EUR 1,800,000,000 Net debt significantly decreased to EUR 900,000,000 quarter, mainly on the back of a strong adjusted operating cash flow, reduced pension provisions and margin inflows.
Quarter. Another great success saw the issuance of our first green bond at the beginning of June. Quarter. The issuance met with strong interest in the market and was more than 3 times oversubscribed. Call.
The bond has a volume of €500,000,000 and a tenor of 10 years with conditions year, resulting in an annual return to maturity of 0.655%. The funds will be used year. What is also new is that in the course of extending our syndicated credit line, we have linked the credit terms to 3 sustainability criteria. First, the share of RWE's renewable assets in the overall generation portfolio second, the reduction of carbon footprint of RWE's assets quarter. And third, the share of green investments according to the EU taxonomy.
This clearly demonstrates our commitment year. Another good news is our construction program. All projects are lined up to reach more than 13 gigawatts by the end of 2022. Having said this, 90% of our investments in the first half of the year are eligible under the EU taxonomy. Quarter.
Turning to the news from operations. Ahead of us are a couple of very interesting offshore auctions for which we have teamed up in the New York Bight auction expected in Q4. In Norway, we have partnered up with Equinor and Hydro Rhine in the tender for the SN2 area announced for Q1 2022. Quarter. On Page 4, you see the H1 performance on an EBITDA level.
The adjusted EBITDA of the core business year. Of €1,200,000,000 is driven by the outstanding performance of the supply and trading business. Quarter. At €525,000,000 the earning contribution in H1 2021 even topped the previous year's very strong performance. Quarter.
Nevertheless, adjusted EBITDA remains affected by the negative one off effects due year to the Texas cold snap, which led to a loss of around €400,000,000 in the onshore wind solar division. Quarter. Furthermore, in H1, both wind divisions have suffered from weaker than normal wind conditions, particularly quarter. Our hydro biomass division provided a good earning contribution, but slightly below last year's. Quarter.
Group adjusted EBITDA included a solid performance from coal and nuclear and stood at almost €1,800,000,000 quarter. This is comparable to last year's numbers and a good result. Quarter. Turning to Page 5. With respect to operations, our wind and solar installed capacity stood at 9.3 gigawatts at the end of the year.
Quarter. After commissioning the 250 Megawatts Kyoto Rich onshore wind farm and increasing capacity at Rampion by an additional 80 gigawatts as a result of our increased stake. As already announced in our Q1 earnings call, The RemTeon transaction closed on the 1st April and is economically as well as capacity wise fully reflected as of Q2. Quarter. Our Raymond West onshore wind park was commissioned at the end of July, so that the capacity increase and farm down will be reflected from Q3 numbers onwards.
I'm really pleased to let you know year. That we have 3.9 gigawatts of capacity currently under construction with completion by 2022. With that, year. We will meet our build out targets of more than 13 gigawatts by 2022. Quarter.
In Q2, we have taken investment decisions relating to 400 megawatts, mainly for solar projects located in the U. S, year, as well as solar and wind projects in Europe. These include our 150 Megawatts 5 standard solar project in California co located with a battery of more than 100 megawatts. Quarter. Furthermore, another 23 Megawatt onshore wind project in France has reached final investment decision quarter as well as the 17 megawatts Sandpostle onshore project in Germany.
All projects are expected to be fully commissioned in 2022. Call. Given the recent discussions around component prices increases, I can reassure year. That all these projects meet our internal hurdle rate. So let's continue with the performance of the individual divisions.
Call. Ladies and gentlemen, adjusted EBITDA of the offshore wind amounted to EUR 4 EUR 59,000,000 up to the 1st 6 months. Earnings were lower as wind conditions in H1 have been much weaker this year, quarter. Both compared to the normalized wind conditions, but even more compared to last year's very strong wind levels. Quarter.
This was slightly offset by the full consolidation of ramp up. Gross cash investments of €1,100,000,000 are mainly spent for the year. Construction of the Triton Knoll Offshore Wind Project in the UK. Construction at Triton Knoll is well on track. Quarter.
At the end of Q2, a total of 13 out of 90 turbines have been commissioned. Earnings from the commissioning phase quarter are expected to kick in, in the Q3 and ramp up during the rest of the year. In addition, quarter. We have also allocated investments to the Sofia and Kaskase projects. Offshore construction for the 3.40 year.
And lastly, the deposit payment for 3 gigawatt offshore seabed lease quarter. Awarded in the UK Round 4 has further contributed to the cash investments. We confirm the outlook year. For the division of €1,050,000,000 to €1,250,000,000 for the full year. Quarter.
Moving on to the onshore wind solar business on Page 7. Adjusted EBITDA amounted to minus EUR42,000,000 at the end of H1 for the division. The main driver is the negative one off linked to the Texas cold snap in February. The financial impact remains unchanged from our guidance issued already in Q1 of approximately minus €400,000,000 quarter. The book gain from the fall down of the Texas asset realized in Q1 partly compensates this.
Both are indicated as non recurring items. Quarter. The below normal wind conditions in H1 this year compared to the very strong previous year brought down earnings further. Quarter. The additional capacity could not compensate for this fully.
Gross cash investments amounted to 6 year. EUR 65,000,000 which is spread over various projects, such as the 200 Megawatts Hickory Park solar project with co located storage as well as various smaller European projects. Gross investments quarter. They're mainly from the farm down divestments, they're mainly from the farm down of the Texas projects in Q1. Quarter.
Overall, we can confirm the outlook of €50,000,000 to €250,000,000 for the full year. Our hydro biomass gas division achieved an adjusted EBITDA of 2.97 this year. EUR 1,000,000 in the 1st 6 months of 2021. Year on year earnings from the Dutch biomass operations have been lower in H1. This is a timing effect from the subsidy scheme that will revert in the second half of this year.
Quarter. Also, we no longer receive income from Georgia Biomass this year as we sold the asset in summer 2020. Quarter. In contrast, margins have improved as we had a slightly higher income from the British capacity market and very good earnings from the short term optimization of our assets. Altogether, the division performed as expected and we can confirm year.
The guidance for the full year of €500,000,000 to €600,000,000 Moving to the supply and trading division. Quarter. The supply trading division realized an outstanding trading performance in H1, exceeding the already very high previous year's results. Quarter. With an adjusted EBITDA of EUR 525,000,000 the division has already surpassed the financial year.
Year 2021 outlook given in March. For the full year, we have increased the outlook for the division year. It's significantly above €350,000,000 as per our announcement at the end of July. Quarter. Ladies and gentlemen, having now reported on the core business, let's move to the coal and nuclear division.
Quarter. Adjusted EBITDA for coal and nuclear amounted to €545,000,000 Year on year earnings increased year due to a higher realized hedge generation margin. Nevertheless, costs associated with the German phase out need to be considered and are expected to gradually increase throughout the year. Due to the flooding in Germany, In the middle of July, we experienced a damage at the Inden mine and as a result operations have temporarily been limited at the Weizweiler power plant. Call.
Meanwhile, operation in the mine has started again and the mine has resumed coal delivery to the power station at full capacity. Year. The estimated EBITDA impact will amount to approximately €25,000,000 this year €10,000,000 next year. Quarter. Despite this financial hit, as a result of the flooding, we can confirm the outlook of €800,000,000 to €900,000,000
quarter for the full year.
Moving on to the earnings drivers down to adjusted net income. Adjusted net income amounted to €870,000,000 in H1, which is in line with the positive development of adjusted EBITDA. Quarter. The adjusted financial result is slightly higher than expected for H1 and mainly linked to negative interest and higher interest costs for FX Derivatives. Call.
The adjusted financial result includes the E. ON dividend of €186,000,000 which was paid in the 2nd quarter. Quarter. Year on year, the adjusted financial result has significantly improved as we recorded a negative one off last year. Quarter.
Adjustment in tax I applied with a general tax rate of 15%. Quarter. Adjusted minority interest have turned positive at the end of June due to an extraordinary effect related to deferred taxes in the UK. Quarter. After the increased UK tax rate from 2023 onwards became legally effective in Q1 this year, Deferred tax liabilities had to be increased with a negative impact on minority shares of earnings.
Quarter. For the full year, we expect adjusted minority interest to be around the guided level of around minus €100,000,000 quarter. And now on to the adjusted operating cash flow on Page 12. The adjusted operating cash flow describes the impact on net debt from operating activities. It is adjusted for special items and other effects that balance out over time.
Quarter. In H1, the adjusted operating cash flow amounted to EUR 1,700,000,000 quarter. And results from the change in provisions and non cash items as well as the positive effects in working capital. Quarter. The latter is mainly related to the decrease of trade receivables from energy sales after high levels at year end 2020.
Turning on to the details of the development of net debt on Page 13. Year. Net debt decreased significantly to €900,000,000 Besides the very good adjusted operating cash flow, this relates to timing effects year and provide details on net variation margins for our power generation activities over the liquid tender and respective cash outflows. Quarter. This includes margins from the sale of generated electricity as well as margins on the respective fuels and CO2.
Quarter. For H1 2021, we recorded a net inflow of margins for power generation hedging of €400,000,000 year compared to last year. As of June 30s, we have accumulated a net from variation margins for our power generation of €1,900,000,000 which had a positive impact on net debt. Quarter. This position will unwind over the next 5 years.
All these numbers are of course based on the assumption of stable commodity crisis. Another driver is the change in provisions and pension provisions by roughly €800,000,000 quarter resulting from higher discount rates. If commodity prices and interest rates remain stable, the leverage factor and should be well below 3x net debt to core adjusted EBITDA at year end. Finally, moving to the outlook for the final fiscal year. As I mentioned before, Exceptionally high earnings from supply and trading have led to an increased earnings forecast for fiscal year 2021.
Therefore, in July, we upgraded our outlook for this year. We now anticipate that adjusted EBITDA of the core business will range between year. Adjusted EBITDA for the group will now range between €3,000,000,000 and €3,400,000,000 and adjusted EBIT between €1,500,000,000 and €1,900,000,000 quarter. Furthermore, we also increased our guidance for adjusted net income, which now ranges from EUR 1,050,000,000 to EUR 1,400,000,000 quarter. We confirm the dividend target of $0.90 per share for this year.
An update call. It will be based on group earnings and we need to consider the decline in coal and nuclear results in the next years, quarter, which needs significant green investments to compensate for it. As we also receive a lot of question on the impact From the further from the future higher UK tax rates, we expect our general tax rate to increase accordingly to 20% in 2023. With this, I conclude my remarks and are now ready call for your questions.
Thank you, Michael. Operator, can we start the Q and A session please and start with the first question? Thank you.
Fiscal Q2. Please ensure your line is unmuted locally as you will be advised when to ask your question. And the first question comes from the line of Peter Bisztyga from BofA Securities. Please go ahead.
Year. Hi, good afternoon. Thanks for taking my questions. So first one just on component price inflation. Your comment on IRRs earlier was sort of slightly cryptic.
And I'm just wondering whether You're saying that you are seeing some cost inflation, but you're managing to keep IRR stable or you're not seeing any cost inflation. Can you just sort of clarify quarter. What your exposure is? Are you seeing any turbine OEMs try to renegotiate contracts? Any color on that would be very helpful.
Quarter. And then on the my second question was just on
your variation
margins. Thank you for the additional disclosure. That's very, Very helpful. But I'm just wondering if you could step out what happened in Q2 versus what we saw in Q1, quarter.
Yes. Peter, thanks for the question. I mean, on the component prices, I think the message we want to send is you need to look at that in different kind of time horizons. First of all, quarter? All the projects that are under construction, we have fixed contracts, so no exposure to commodity prices.
Obviously, those projects which we're still in developing, there are potential discussions with suppliers quarter. On prices, obviously, not all their ideas in the end get realized. And secondly, obviously also, quarter. Steel prices are only a small portion of the overall CapEx. And when you look at the investments, this Our return calculation there are also important other elements than just the component prices.
And the message we want to send is That you shouldn't be concerned that there is any impact from that on our returns. So they are still in the guided range of fiscal. 100 to 300 above our cost of capital as we have guided that. And obviously, any projects in the foreseeable future, quarter? We need to see what really happens to commodity prices if they are on a high level on a lasting basis quarter.
And that probably also then has impact on auction prices and so on. Yes. I mean, Talking about variation margins, I would hand over to Thomas to give the exact number.
Yes. Thanks, Peter. I have to admit I don't have the Q number with me call. I will pull up after the call and get back to you after the call in the afternoon. Is that okay?
All right. Yes. Thanks so much. Thanks, Michael.
Year. Next question comes from the line of Alberto Gandolfi from Goldman Sachs. Please go ahead.
Afternoon. Hi, and thanks for taking my question. So I have 2, please. The first one is, again, on cost inflation, just to be a bit Going a little bit deeper here, would you agree that there is a bit of a larger risk in the offshore business versus onshore? So onshore, call.
I mean, I'm not talking about the 3.9 gigawatts you're developing right now. I get that on those costs procurement costs are fixed. Quarter. But would you say for instance, I don't know, Sofia, that the moment you are bidding versus the moment you're actually paying The build for the equipment or perhaps you haven't fully contracted all transport vessels that Lease some exposure, am I right in thinking that? And maybe I don't know if you can quantify any of it.
The second question quarter. It's theoretical. I hope you can answer. If not, I have a backup question, if you don't mind. But the question is, call.
We have been reading in the press the possibility of perhaps with the new government coalition, shutting down your lignite activities in 2013 instead of down your lignite activities in 2030 instead of 2,038. Considering the very successful financial hedges you've already put in place on carbon. Under that event, do these contracts give you the possibility of sitting on a long carbon position that you may be able to monetize before 2,030. So could you sell some of the excess allowances at 57, 58 and maybe you pay 20, 25, 30 and booking monster capital gains for a few years? Thank you.
Yes, that's it. Thanks for the question. I mean, the first question on offshore risk, onshore more risk exposed is, I mean, quarter? Yes, offshore it's slightly higher exposed simply because there is more steel involved in those Projects, that's fair to say. And you're also right, there are some time next between kind of auctions and when you take kind of the financial The investment decision.
On the other hand, I think also offshore projects offer more opportunities to optimize the project. Quarter. So when you talk about turbine size or O and M activities, because I mean relative to the overall business case, fiscal. These aspects are much more relevant for offshore. So coming back to your hypothesis that offshore is more Exposed or less exposed, I wouldn't follow that argument.
The second question is around the coal exit. I mean, quarter? You phrased it as a future asset. I mean, it's clearly Speculation now. The contract itself foresees closure by 2,038.
Year? It has the option to bring that forward to 2,035. That's what is in the contract. I mean, the contract doesn't say anything about our carbon certificates. So that's basically quarter?
Our topic but bear in mind, I mean, the hedges we currently have in place are to match quarter? The implicit exposure we have from the fleet. So I mean, quarter? Kind of in a nutshell, what I tried to say is, yes, we are obviously internally discussing what our potential options, quarter. But it's too early to say anything here and we just need to wait what really happens.
Quarter. But I mean overall, I think we are very happy with the hedges we have in place given the current development development prices, that's for sure.
Thank you
so much.
Quality prices, that's for sure.
Thank you.
Thank you, Alberto. Next question please.
Call. Your next question comes from the line of Rob Pulleyn from Morgan Stanley. Please go ahead.
Call. Hi, thank you. Good afternoon, everyone. Rob Pulleyn from Morgan Stanley. So can I follow-up on the question on inflation?
I suppose it's just sort of a multi barreled question. Is I presume you have CapEx contingencies per project. And I was just wondering quarter. What percentage of CapEx that might be? And where is cost inflation sort of eating into that, I.
E, are those contingencies standing strong? Or have they already been absorbed? I think that would give us a lot more color around the degree of risk on the IRR targets. Quarter. And I suppose the second question associated with that, as you mentioned in your prepared remarks, Kaspersky We'll sort of, I suppose, start spending in 4Q.
I was wondering if any of those costs are locked in before via framework agreements,
year. Yes, I mean, let's start with Kaskazi. So quarter. Yes, everything was locked in and as you rightly said in the second half it will kick in. Talking about the contingency, obviously, I can't reveal now what contingency we typically have in those projects.
Quarter. But I mean, yes, we do have contingencies in there. And the contingencies are I mean, one of the reasons for having contingency is also quarter? Price volatility, so that's for sure. So therefore, what I definitely can assure that there is sufficient contingency in the project To cope with price increases, but exact numbers, I obviously can't reveal yet.
No, that's understandable and thank you for the color. That's year. Fantastic. If I may sneak in a follow-up, which is actually on a different question. But I think we've all seen this.
This quite remarkable divergence between coal spreads and gas spreads in Germany. I was wondering from your perspective how long you expect this To be prolonged. Thank you.
I think that's we don't need to give you an answer on that. I mean, we are quarter. Of course, we do have a view. But then there's also a second question whether we can share the view or not. So please understand we cannot really comment on future commodity price increases in this call.
Call. Fair enough, Thomas. I'll turn it over
there. Yes.
The next question comes from the line of Deepa Venkateswaran from Bernstein. Please go ahead.
Thank you. So my two questions. So firstly on the variation margin, could you just help understand a few numbers that I'm grappling with? I think you mentioned that was an inflow of around €400,000,000 in H1. How do I reconcile with the €3,300,000,000 that you show as other changes in financial debt on Page 13.
And then I also read in your notes that fair value adjustments to OCI has offset impairments in the lignite assets of around €800,000,000 So I'm just trying to reconcile this €400,000,000 €800,000,000 and the 3.3 year? Vivien, so that's the first question on variation margin. And maybe there is something else also going on, if you can just help understand what is the delta between the 3.3 and the 0.4. And I think second question is on your state in E. ON.
Call. I believe we're probably at the point where maybe you are permitted to basically go down to whatever level you want. Quarter. How are you thinking about the E. ON stake?
Or do we sort of need to wait through your CMD to have more clarity on where the stake figures out in the bigger picture?
Call. Yes, Deepak. So maybe to explain what we see in this other changes in net financial debt. So there are various elements in there. One is around margins from our generation hedging.
As I To communicate because that kind of needs to be put into perspective of what we communicate as a guidance For the conventional segments, because obviously the guidance includes the hedging. So therefore, we want to avoid that there's a double counting of this element. Call. What is the else in there? I mean, there are variation margins from our trading business, which are by nature pretty volatile.
Quarter. This volatility to state that is clearly not linked to the performance, so that's just related to the positions. Quarter. So there is volatility there. Then you are right or implicitly mentioned the CO2, the strategic CO2 position that's also included there.
Year. But there are also effects in like the cash we received back from a tax audit Related to peers former years, so before 2012, that's also included in the numbers. Your second question around the
Sorry, Grace, just as a follow-up on your answer. Sorry, so the 800 is kind of on top of the 400. And for the middle chunk, right, the trading business, quarter. Should we assume that this will unwind because obviously when we're thinking about net debt for next year and so on, I suppose we want
to know how much of
this would unwind in the ordinary course of business, so within the next 6 months or so. And therefore, we should adjust for that by valuing you.
I mean the trading piece is, as I said, pretty volatile. So that's probably will unwind quarter? In the next in this year or in the next years to come, so rather short term, but you never know how kind of commodity prices develop, so that can also quarter? We'll be in a different direction. And I mean, concerning your numbers, you deducted from the OCI, You also need to be a little bit careful.
That is not directly linked to those two numbers. Then the next question around the E. ON stake. I mean, as you know, the E. ON stake itself is not of Strategic importance for us, so we have always said that if we have attractive opportunities to invest, quarter.
We would also use the proceeds, at least the excessive proceeds from the E. ON stake because you know that we have put also the E. ON stake against Our lignite provision, so part of that is blocked against this one. So there is definitely some headroom, which we could use for investments. But I mean, if you look at the our financial situation, there's currently no need to dispose that asset.
Quarter. And as we also mentioned, there is currently a tax benefit as long as you keep 15%. So therefore, that's the trade off in the end we need to take, what is our view fiscal? On the stake, do we have investment needs and is that the best financing in the moment of time or not?
Quarter. Okay. Thank you.
Thank you, Lisa. Next question please.
The next question comes from the line of time, Ari from UBS. Please go ahead.
Thank you very much. Good afternoon, everybody. I'd like to ask one on the coal side and one on the renewable side, if that's okay. On the coal side, quarter. Look, I think Alberto mentioned earlier the discussion in the press about potentially some political groups wanting to bring the coal exit target forward.
And I think my understanding is you have some protection against that from your existing signed contract. Can you just comment on the provisions in that contract around the state aid approval? I think I'm right in saying Even if there was a problem with state aid, the contract is still valid. But could you just walk us through the details of that so we'll kind of understand? And then secondly on the renewable side, so we focus on the positives too.
Look, I just wonder if you could comment on your latest thinking around The U. S, we've obviously seen the big infrastructure bill go through and there's talk of a 3,000,000,000,000 yen 4,000,000,000,000 Additional reconciliation, Bill, with a lot of money in it for the clean energy sector, starting to make the U. S. Look really I can outstandingly interesting market. And it'd just be really interesting to hear from you How you're thinking about the U.
S. And how important the U. S. Seems likely to be in your planning? Thank you.
Yes, thanks for the question. I mean on the $2,600,000,000 as you know, the European Commission is currently reviewing it. Quarter? That's a process obviously, I mean, we are not a direct participant in that process because it's formally the federal government of Germany, year. And we need to see where it takes us.
But I mean, as we have communicated previously, We're very confident with the SEK 2,600,000,000 and in the contract there are provisions that in case we don't get the SEK 2,600,000,000, quarter? We need to find measures that kind of bring us in a similar position as before. So that's how the contract stands and we now need to see how this approval by the commission follows. But as I said, we are Confident with our arguments here. I mean, the other aspect which I like to mention is we are obviously now having Quite some discussions in Berlin around the way forward of convention generation and renewables.
Quarter. And what politicians are really realizing is that the important lever to bring down coal is to build out renewables, quarter? Yes. So therefore also their focus clearly is on to find ways how to accelerate and ensure a sufficient build out of renewables. Quarter.
And when that happens, there will be automatically the impact on coal. And I mean, you can obviously understand that also given our business model, this is What we are pushing, so we are providing support to the government on what are relevant levers you need to pull In order to accelerate the build out, because I think it's first good for the decarbonization of society and secondly also perfectly matches Our business model, so that's the direction we should take the look on. Question around the U. S. I mean, one is the strategic, we clearly see the U.
S. As one of our core markets and I think also the whole sentiment is quarter. As in Europe, shifting towards more renewables and also the infrastructure, I think is an important element because it leads to investment into grid infrastructure, Which is also important to cope with more volatility you get from the renewable build out. So definitely leading in the right direction. But it's too early to comment on the exact impact because it's not yet clear how legislation and impact on non renewables Will exactly be.
So that's something we are carefully observing, but a clear strategic direction for us It's continued build out in the U. S. Because we feel it's an attractive market going forward.
Very helpful on both topics. Thank you. Quarter. If I may just say, as an observation from my side, it seems very striking to me the relatively low valuation the market on your Renewable business, especially when you factor in the exposure you have to the U. S.
And to Europe and the fact that you don't have exposure Some of what some people might think are lower value geographies around the world, Latin America, Africa, Some bits of Asia and so on. So I just think it's great to have that discussion with you about the U. S. In the mix of these other points.
Quarter. Perfect. Well appreciated. Your comment.
Thanks, Sam. Next question please.
The next question comes from the line of Lueder Schumacher room at Societe Generale. Please go ahead.
Good afternoon. Two questions on my side. The first one quite straightforward. Did I hear you right that you say the variation margin as of the end of June is €1,900,000,000 And if not, can you confirm what the total variation margin As of the end of H1Ease. My second question is also quite straightforward.
Quarter. On Slide 10, you mentioned higher realized hedge generation margins as one of the reasons for the performance. Is that Just versus 2020? Or has the old hedge price of €32 a megawatt hour actually improved?
Year? Yes. Duda, thanks for the question. I mean, first on the variation margin, as I also referred To the question of Deepak, so the 1.9, that's the accumulated value of the hedge variation margins quarter. Related to our power hedging in the liquid center, so related to power, the fuels and CO2.
However, in the position, the cumulated position of other changes in net financial debt, quarter. There are other margin payments in, as I said, for the trading business, but also for our strategic position. But these are positions for kind of yes, markets and certain reasons we can't reveal. Year.
Yes. But if you can't review sorry, if you can't review details on this, this is fine, fair enough. But I think In order to work out the relevant total net debt number, it would be quite helpful to have a total Variation margin across all business lines, not just power hedging. Is there something you could share with us?
I think the you need to take a view quarter. What do you need to reflect in your model? And I mean, what we have shared with you is really the margin of what is plated quarter. To our liquid tender on the hedge period, we are also giving you certain earnings guidance and that's what we disclosed in order for you to be able to compare apples and apples. And I think it's important to that really differs potentially from model to model how you look at the other bit strategic position there of course quarter.
They've also received inflow of margins, but then it really depends on how you have built up your models and how you reflect that in your valuation. And therefore, I think it's Not possible to give a general answer because it's a very specific question, but we can of course go in more detail. We understand how you look at it from a relation perspective and then I see how I can help you with that. Quarter? But it's I think difficult to answer at this call.
Yes. And the second
question Duda, you're right. Year? So the increase is related to the previous year.
Okay. So still 32?
Quarter.
Okay. Thank you.
The next question comes from the line of Vincent Ayral from JPMorgan. Please go ahead.
Yes, good afternoon.
I think Questions regarding suppliers and everything is already out. So what more quarter. Well, as related to CO2 anyway, given those prices, other business, which is the hedging, quarter. It's a material information, which the market needs to better understand its exposure going forward. Quarter?
It being either in the profitability outlook or from a balance sheet point of view. So it's a straight question I'll ask it just in case this time it works is how many advances do you have? And otherwise, You say you fully had until 2,030. So does it include the CNG fleet as well? What load factors for Lignite and CNG
quarter. Vincent, sorry, I didn't get the first question.
Basically, I'm asking, are you straight? How many CO2 elements Do you have?
And if you don't want
to give that, I'm saying you say you hedge until 2,030. So does it include the 60 feet When you say you hedged? And if so, what those factors are you using for you for some reason? So we can work something on quarter. It's quite a number already, but it's difficult to be sure about the other magnitude you have.
Yes. So I mean, quarter. Please understand that I can't reveal the number of CO2 certificates we have on our balance sheet. But I think What is important is to understand how do we hedge and you have to distinguish between 2 different aspects. 1 is quarter.
And that's where we gave the guidance on the variation margin is the liquid tenor. Obviously, in the liquid tenor, whenever we sell power, We also buy the CO2 that is required to produce that power. So in that period, It's a clear hedge between power and the CO2 you need. And that's obviously where you also have higher volumes of CO2, but you need to submit those quarter? In the days that in the year after you produced it.
So that's the one element. The other element is then the quarter. Further years out where we have the strategic position and what we have hedged there is only To bring our portfolio in line with the market, because if you look at our portfolio, we do have a higher exposure to carbon Then the German portfolio and that's why this delta is hedged by CO2, so that effectively quarter. Whenever CO2 prices move up, that should compensate for the delta that is not quarter? The power price is not moving up, so that financially, our position always stays the same.
Quarter. And if you look what we have observed in the last month that this hedge is actually working perfectly fine. Call. Yes.
Okay. So you say that the strategy you had, which was for a million tonnes before, quarter. Where basically you stay exposed to just the evolution of the fossil
quarter? I mean, as Michael said, in the 1st year, I mean, we are always quarter. In the first one to 3 years, we're always fully hedged. There are that we are implicitly hedged where you where we just have the exposure for the Gas spreads or kind of spread depending on how the market looks like. But that covers the, let's say, the liquid tenure of the hedging.
And that's where also from us received an earnings forecast For this year, for next year, for the nuclear already for the years. But that is completely separated from I'll say the illiquid tenor, which is more the second half of the decade where we have, as Michael said, only hedged our excess carbon intensity versus the market. But quarter. Of course, you cannot catch any power or fuels or carbon emissions because it's still too far out and you don't have a liquid power price for those years and that's why you need to really separate both topics from each other and that's why we have also clearly Disclose the variation margins related to the earlier part of the liquid tender where we have also given you the earnings guidance for that.
Okay. Thank you.
Quarter.
The next question comes from the line of John Musk from RBC. Please go ahead. Call.
Yes. Good afternoon, everyone. Yes, two questions for me. Firstly, sort of bigger picture, With the balance sheet in better shape and we can discuss variation margins at another stage, but How do we how are you thinking around capital allocation now between organic opportunities and the need to potentially Gain additional foothold through acquisitions. I know this is perhaps something that will be dealt with more at the CMD, but Should we be considering acquisitions is still very much part of your strategy?
And then secondly, That's more simple. Can you just strip out from the H1 numbers the negative impact from lower wind speeds in EBITDA?
Call? Yes. John, let's start with the easier one. So that's the impact. Quarter.
I think on the offshore wind business, it's around €150,000,000 year on year and in the onshore business, it's €50,000,000 year? Year on year, so in the segment that you have from lower wins compared to the very high wins we had in the previous year. Year. I mean, your question about the balance sheet, I mean, to understand our view, I mean, Clearly, we are set up with the whole organization to grow the business organically. So the priority is on organic growth.
However, having said that, if there are attractive opportunities out in the market, I mean, like we demonstrated with the Pegasus pipeline, which we believe perfectly fits into our portfolio and you can also get them at an attractive Price, that's definitely something we are looking at. But the clear prospect or the clear target is to grow the portfolio organically and that's why where we also need our balance sheet for. And as I said, we are well prepared to pursue that.
Fiscal Q1. And the next question comes from the line of Oli Jeffrey from Deutsche Bank. Please go ahead.
Call. Hi, good afternoon. Two questions for me as well, please. The first question is just looking at build out. So Full year results, the residual target to get to the 13 gigawatts by 2022 was 1.1 gigawatts, Which obviously you've now found within 6 months.
Is that a kind of an appropriate run rate that we could expect to continue in the second half? Quarter. And at what point when you're finding products in 2022, for example, do you expect that they'll be built By the end of the year, will they more likely contribute to 2023? Just to help think about where you might end up for 2022 in terms of assets constructed.
That's the first question.
And the second, please, just on supply and trading. I know you've been asked before, but I just want to go back to it again. I know your long term guidance for this is $250,000,000 EBITDA a year. I guess, is there any Level of profitability that you'd see in the business that would make you change that because the number of quarters in a row now that we've been in excess of What you see is normalized levels. It's gone for quite a long time now.
So is there any point where you might reassess that guidance In terms of what you expect to be achieved in that division? Thank you.
Yes, Adi thanks for the question. I mean first on the build out, obviously you're right In assuming that we continue developing projects and taking FIDs and Actually, the numbers we report are the numbers at the end of half year and since then we have already taken additional FIDs. So that's continuing. But obviously, the closer you get towards the end of 2020, year? The less likely it is that those projects will contribute to the number by the end of 'twenty two.
Quarter. I mean, what we have guided is to be at 13 gigawatts plus. We said when we acquired the Pegasus pipeline, we would Add another 100 megawatts per annum on top of that, so that leads you to a number more around 13.2 gigawatts, year? Which I think is a fair number to assume for the end of 2022. Yes.
And obviously, then the rest will continue contribute to later years and these are topics we obviously want to discuss with you at the Capital Market Day because There we want to provide you with a longer term perspective. I mean referring to the supply and trading business, I mean as a quarter. Former CFO at Al West, I'm obviously very delighted by the continued goods performance, but we still feel given That is it is a volatile business that we are very confident with the guidance we have out between €150,000,000 and 3.50 €1,000,000 But I mean, you probably know how the trading business works. There is asymmetric profile, yes. So you have downside protection because of limits in place and stop losses in place.
But obviously, if you have the right positions in place and the market is developing the right direction, you let it go and then you have kind of significant upside, which actually happened in the last years, quarter? Yes. So in a nutshell, we are still very confident and happy with the guidance we have out and that's also what you should assume for the years to come. Quarter. Yes.
Not the increased one, right.
Thank you. Thank you. Next question please.
The next question comes from the line of Tonkreit Voulop from Morningstar. Please go ahead.
Call. Good afternoon. Thank you for taking my questions. I have 2. The first one on dividend.
Quarter. Last year at your Capital Market Day, you guided for dividend for steady growth in line with core business, quarter. So excluding coal and nuclear. And today, you made quite cautious comments saying that we have to Take into account the earnings decline from coal and nuclear and investments required, which might imply quarter. Between now and last year at the Capital Market Day when you issued your dividend guidance quarter.
This is my first question. And the second one on your CCGT, in light of the current commodity environment With very high gas and CO2 prices and given your hedging, what kind of evolution of Profitability of your CCGTs, can we expect next year and the year after? Quarter. Thank you.
Yes, thanks for your question on the dividends. You have to carefully listen to my comments. That is good. But I mean to give you a clear signal, we don't expect any dividend cuts. So that can be excluded.
But on the other side, I mean, we do see attractive investment opportunities going forward. And therefore, We also want to make sure that we have sufficient investment power to follow those investments And that's why we want to communicate, look at the development of the core business. There won't be any cuts, but It's probably a little bit more muted to invest into new projects and obviously then with a quarter? Well developing business, there should also then be more upside for the dividends to come in later years. Around the CCTTs, I mean with CCTTs, you have to be a little bit careful because there are different value contributing to the CCTT.
This is obviously the wholesale margins on the spreads is ancillary income, But it's also the capacity market. And I mean most of our CCTTs are in the U. K. And the way the U. K.
Capacity Mechanism is designed to kind of fund the missing money. So if you earn more on some of the dimensions quarter? That could event or that will eventually compensate then in the other elements. So I would rather expect Stable income from the CCTGs here, so not an increase.
Quarter. Thank you. That's very helpful.
The next
question comes from the line of Piotr Chicholowski from Citi. Please go ahead.
Hi, good afternoon, everybody. I actually have quarter. One two part question. I wanted to ask you about this cost inflation effect on the market. Have you seen Some of the PPAs or some of the auction prices going up with developers trying to pass it through.
And if not, then when would you quarter. Shall we expect this kind of behavior? And then has this different cost of development on
the
CapEx changed The way some of the smaller players behave on the market, maybe they wanted to sell some projects because they didn't get some financing, has there been any impact on How the market will operate?
I mean, let's first talk about the impact of cost inflation on the market. And I think that perfectly also reflects kind of my comments I said earlier. In the end, you need to look at the bigger picture, yes. So quarter? Pressure on component prices from the suppliers is one dimension.
But in the end, you need to kind of consider if that's really impacting the return of the projects And what are the overall economics. So therefore, there are more drivers in the market than just requests or Push from suppliers to increase prices. I mean, on auctions, we haven't lately seen Much auction, so let's observe what happens in the new auctions to come, but that's probably a more medium term effect. And all the same is true for PPA prices. I mean, what we observed with PPA prices is clearly at least in Europe that there is more Demand for PPAs, I mean with more commitments towards decarbonization and also our customers laying out clear commitments To procure green power, there is an increasing demand for PPAs and that may potentially also have impact on PPA prices.
Quarter. So in a nutshell, I think there are more impact multiple factors impacting the prices going forward quarter. And that's the important part. Around smaller developers, I can't comment. I haven't seen anything Not that yet.
Okay. Well, have you seen maybe more pipelines coming for sale because people Can't develop them or can't squeeze in their margins? No. No. Okay.
Thank you.
Call. Thank you, Patrick.
There are no further questions in the queue. So I'll hand the call back to your host for some closing comments.
Year. Great. Thank you, Jessica. Thank you, Michael, and thank you all for dialing in. And that shows the call for half year twenty twenty one.
I'm looking forward to speak to you quarter. Ladies for our Q3 numbers on 11th November and of course at our CMD a few days thereafter. Have a good day. Good summer. Stay safe.
Bye bye.
Call. Thank you for joining today's call. You may now disconnect your lines.