Good morning and welcome to the first Capital Market Day of the new RWE. Thank you for joining us today, whether it is via webcast or the telephone. We would have loved to join you in London today in person, but I think you understand why we have opted for a webcast. It has been two years to the day that we announced our asset swap with E.ON, a transaction which would significantly transform RWE, provide us with a new operational platform, and an excellent outlook for the future. We are therefore delighted to present to you today the strategic and financial outlook for the new RWE. What do we have in store for you today? Our CEO, Rolf Martin Schmitz, will show you where RWE is ideally positioned for the new energy world and how we will support the energy transition.
He will also talk to you about our commitment to the Sustainable Development Goals, at the heart of which is, of course, our ambition to become carbon neutral by 2040. Our CEO of the new renewables business, Anja Isabel Dotzenroth, will talk to you about our excellent starting position in wind and solar and how this provides us with attractive growth opportunities. Last but not least, our CFO, Markus Krebber, will talk to you about our financial steering model, the sustainable earnings profile of the business, and how we intend to create value with our investment in renewables. There will, of course, be plenty of time for your questions at the end, and we also have a Q&A call with the renewables management team at 1:00 P.M. German time. Without further ado, let me hand over to Rolf.
Yeah, thank you, Gunhild, and good morning, ladies and gentlemen, and a very warm welcome from me. The last time we stood in front of you was in March 2017, and we had just undergone a huge transformation with the IPO of Innogy. Here we are again. Only this time, the transformation is much more significant than three years ago. We are now a driving force in the energy world of tomorrow. I want to start by giving you a flavor of the so-called new RWE. If you see us one day, in one week, in one month, this should be in your mind: RWE, well-positioned for the future energy world. You see the key elements of the new RWE on this slide, and these are the main messages. We have designed a business model on green and flexible energy. We have a clear path for coal phase-out.
We want to be carbon neutral in 2040. We have a strong financial position for growth, and we focus on value creation and total shareholder return. To put it in one sentence, the new RWE is well-positioned for the future energy world. We did it step by step. Looking back at 2016, we aligned the business, which remained at RWE after the IPO of Innogy, around the secure supply of energy. With our highly flexible generation portfolio and a leading trading platform, we were able to ensure the reliable and efficient supply of energy to our customers. We have been focused on maximizing the operational performance of our asset base and securing a solid financial position. One important point at this time was the transfer of the nuclear waste storage liabilities to the federal government, which we had to fund with a round of EUR 7 billion.
It was clear that was not enough for the longer-term future of RWE. We knew that our asset base has a finite life. After the phase-out of nuclear power in Germany, sooner or later, we would also have to shut our coal-fired generation. What to do? We conducted a strategic review to see if we could expand our business to other activities. We looked at all sorts of potential businesses and came to the conclusion that renewables were the best fit with our existing operations and where we could add the most value. Because it's the same business. It's delivering electricity. We just change the source, the technology with which we produce it. What I have learned over the last years is that, on the one hand, climate change is coming faster than I expected.
On the other hand, the cost for electricity from solar and wind has gone down dramatically. Therefore, there is a clear sign for change of technology. Every energy has its time, and every time has its energy. The 1950s hard coal, the 1960s lignite, the 1970s and 1980s nuclear, this has made industrialization in different areas possible. Instead of just maximizing the value of our energy stake, we decided to make strategic use of it. The asset swap with E.ON was a perfect way to do just that. We not only kept the energy renewables business, but with the addition of E.ON's renewables portfolio, we were able to be a truly leading renewables player. There was one thing left to do: to find a solution for the phase-out of our coal assets.
At the beginning of this year, we achieved this with the agreement on the coal exit with the German government. This is the transformational story of RWE. Let me come to some aspects which make me especially proud of our company. By transforming a company, often you do strike off the day-to-day operations, but not with our highly motivated employees. We delivered on our promises. As one example, we achieved our target to reduce costs one year earlier than planned. We also continued reducing CO2 emissions in our conventional generation fleet. Since 2012, we have achieved a significant reduction of more than 90 million tons. I will come back to this later. What also makes me proud, we kept our solid financial structure and financial flexibility at all times. Markus, thanks for this. It makes me a little bit sleep better.
At the same time, we de-risked the company with the funding of the nuclear waste storage liabilities, as well as the agreement with the German coal exit with the government. You know, we appreciate our shareholders. We also reintroduced a dividend payment, which had been suspended for two years. The target in 2017 was to keep the dividend at a minimum of EUR 0.50. With the positive development of cash flows, we could grow the dividend year by year. We let our shareholders participate in the successful reimbursement of the nuclear fuel tax, which is a significant one-off dividend payment. You see our energy for a sustainable life. That is the new RWE. This is more than just deliver energy day in, day out to ensure the lights stay on.
It is also the energy of every single employee at RWE, no matter if they are working at a wind farm, in a power plant, or at an office desk. That dedication and commitment ensures that we can deliver clean, secure, and affordable energy to millions of people and companies. That is our purpose. That's what we fight for and what we get up for every morning. I said before, RWE, well-positioned for the future energy world. Do not forget it. Keep it in your mind. Here's why. The market outlook is promising. The trend is clear. The energy world of tomorrow is electric and low carbon. The growing population and, above all, sector coupling are the main drivers for increasing electricity demand. At the same time, there is a strong and severe pressure to reduce carbon emissions. The worldwide movement towards renewable energy is therefore evident and absolutely needed.
The new RWE is ideally positioned for the new energy world. We are a leading provider of renewable energy with around 9 GW of installed wind and solar capacity and more than 20 GW in development. We have 19 GW of flexible power assets with our hydro, biomass, and gas plants. We are keen to broaden our activities in storage, especially batteries. Finally, our strong in-house commercial platform gives us the ability to optimize and market our green and flexible generation portfolio. Furthermore, we are an established partner of the top 500 industrial customers, providing tailored commodity solutions and decarbonization products. A sustainable and decarbonized energy system, that is what we are focusing on. You see, we have aligned our business model to that end. On our core business, we focus on providing green and flexible energy with its 28 GWs of installed capacity.
This includes not only our wind and solar plants, but also hydro, biomass, and a highly efficient gas fleet. The CO2 intensity of our portfolio in the core business is already below 300 g/kWh and continues to come down with the build-out of renewables. In wind and solar, we want to significantly grow our capacities. In offshore wind, we will look to expand globally. In onshore wind and solar, we will focus on our core regions of Europe and the Americas with the possibility of entering other attractive new markets. All the details will be given by Anja in her presentation and later on in the Q&A session from our highly skilled renewables board. We are happy to see all of them here. In hydro, biomass, and gas, we look for investments in flexible assets, including utility storage technologies.
The planned trading continues to focus on expanding its global trading business. Moreover, it's about growing the commercial management of renewables as well as supporting our customers in their efforts to decarbonize their business. That's it. That's our strategy for our future core business: wind, solar, biomass, hydro, gas, supply and trading. What about nuclear and coal? The very successful past of RWE. We have decided to bundle our coal and nuclear activities in one segment. With a predefined roadmap to phase out nuclear and coal, it is clear that the focus will turn to the safe and socially responsible dismantling of plants and recultivation of mines. The importance of these technologies to RWE's earnings will diminish over time. Today, coal only contributes 23% to the group revenues. Coming back to our core business. As already mentioned, we want to grow our green and flexible asset fleet.
By 2022, we want to reach more than 13 GW in wind and solar. We are also fostering the build-out of utility-scale batteries and are looking into further storage technologies. This could be thermal energy storage, like the liquid salt storage project we are currently undertaking in our Rhenish Lignite area, or it could be power-to-X technologies such as hydrogen, which is clearly going to play an important role in decarbonizing other sectors. Without H2, there's no chance to prevent climate change and to decarbonize the industry. We are currently participating in a number of hydrogen pilot projects to see how and where we can best contribute to this technology with our know-how and expertise. Growth in green and flexible energy in the core business, on one hand. On the other hand, responsible coal phase-out.
Let's take a look to our path to phasing out coal with a combined view on lignite and hard coal. The way out of coal started a long time ago. It didn't come as a surprise for RWE. I was in many meetings in the last three years with our employees from the lignite business, and the question was only how, not if, the coal phase-out will come. Compared to the year 2012, we have already significantly reduced our capacity to around 13 GW , and production from coal-fired generation has fallen below 40%. Looking to the future, our coal capacity will shrink to less than 10 GW by the end of 2023. This will equate to less than a quarter of our total capacity. 2030 is another milestone in the agreed phase-out plan.
By then, our remaining coal capacity will amount to less than 10% and total production less than 20%. By 2038, the latest coal operations will shut down completely. Every time has its energy, and every energy has its time. We should be proud of our past in nuclear and lignite. This has given us a foundation to build the new RWE. Therefore, I'm very happy that we have found a solution for our employees to exit the business in a socially responsible way. We will be carbon neutral in 2040. That's our target for RWE, and you know we will deliver. So far, we have already reduced carbon emissions by 51% or more than 90 million tons compared to 2012. I said it before. This 90 million tons corresponds to the CO2 emissions of 45 million cars. That's more than the cars in the U.K. and Germany.
By 2030, we are targeting a reduction of 75% versus 2012. By 2040, we want to be carbon neutral, as I said before. This ambitious target cannot be achieved by just shutting down coal-fired power plants. We will also have to invest in new technologies to save or offset the limited emissions, which might still come from some gas-fired backup capacities. We take climate change seriously, and we play our part in supporting the Paris Climate Agreement. Our commitment to sustainability goes much further than protecting the climate. We have set ourselves targets to increase diversity within RWE, and we are making good progress here. I'm delighted that we have been able to appoint an equal number of women and men to the board of our renewables business, but this is only one example. Another area of focus is biodiversity. With our lignite mines, we intervene in nature.
That's clear. Therefore, we put particular importance on our recultivation work in order to leave the land as we found it and to the same ecological standards. I'm proud to say that we even go beyond that. We try to improve the biodiversity in our recultivated areas, and we have been very, very successful. Five recultivated areas have been assigned designated protection status. All our efforts are recognized within our ESG ranking, where we actively participate and provide the transparency our stakeholders are asking for. We don't just look for sustainability in our business. We look for it in relation also to our dividend. You know, over the last three years, our focus was on maximizing cash flows. There were little to no growth investments, and we therefore promised to pay out the distributable cash flow.
I've always had a problem with this word, distributable cash flow, to our shareholders. As mentioned earlier, we did not keep the dividend flat. Our improving cash flows allowed us to steadily increase it. Now the focus clearly turns to our capital allocation. With a disciplined spending approach, we will ensure that our investments are not only earnings equitative, but also create value for the company and for you. We will continue to look at cost discipline. This is particularly important for our conventional generation business. Therefore, the lignite business has already kicked off a new savings program to ensure the profitability of the remaining portfolio after the plant closures until 2022. The renewables business will focus on efficiencies from combining the two portfolios. We want to deliver and to continue to deliver a steadily growing dividend. For 2020, we target EUR 0.85 per share.
Markus will explain to you the details of the new dividend. The policy is not only changing because I could not save the distributable cash flow. There are other reasons for that. Now let's come to an aspect of the business which is important in our world and for you and for us too. The remuneration scheme. To incentivize management to deliver on these strategic targets, we are also going to introduce a revised remuneration scheme. The proposed new scheme will align with the strategic goals of the new RWE, as well as with the interests of our shareholders. We will introduce a CO2 reduction target in the long-term incentives, which was only until yet in our short-term bonus before.
In addition, we are going to include the relative total shareholder return in our long-term incentives, and we will also tighten our share ownership guidelines and include a clawback provision. Our Supervisory Board still has to approve these changes, and we will ask the AGM in 2021 to vote on it. Let's summarize. See our NICE stock ? That's the new RWE. Over the last three years, we have worked tremendously hard to take RWE forward. At times, we found ourselves facing difficult challenges, but we managed to deliver a transformation which I think many did not think possible for RWE. Remember, RWE is well positioned for the future energy world. We see attractive growth opportunities in renewables, and we are ready, willing, and able to invest.
We will continue to be prudent when it comes to investments and will always put value creation at the center of our decision-making process. Without any doubt, we are committed to sustainability. Our business model is sustainable, and our earnings will become more predictable. We are really passionate about our business. I'm sure many of you who know me personally will agree. Passionate about energy, passionate about renewables, and passionate about driving our company forwards, onwards, and upwards. This is true for the whole management team, and this is true for each one in our company, from our employees who always go the extra mile to make our company a success. RWE, a great transformational story with a happy ending? No. That isn't quite right. It's a happy beginning. That starts today with this Capital Market Day, the story of the new RWE.
Now I would like to hand over to Anja, who will tell you everything you have been waiting to know for the last one and a half years about our new wind and solar business. Thank you. Anja.
Thank you very much. Ladies and gentlemen, really good to be here today. It is my pleasure to finally raise the curtain and to explain how we will deliver profitable growth in wind and solar. There are four things I want to talk about today. Number one, we have a very attractive asset base to start from. Diverse in terms of technologies, diverse in terms of the geographies where we operate, and with a high level of income stability. Second, we have an excellent platform for growth, a pipeline of more than 20 gigawatts spanning the most attractive markets globally.
Third, we have the capabilities to deliver. An integrated business model that spans the whole value chain and that allows us to stack all the value pools along the value chain and to manage risks comprehensively. Last but not least, obviously, the most important of all the aspects I just mentioned, we have the passionate team to deliver to make this newly formed business a success for RWE and its shareholders. Now let's look at some facts and figures. What's our point of departure? We have an asset portfolio of, as Rolf mentioned, 9 GWs, spanning offshore wind, where we are number two globally, onshore wind, utility-scale solar, and battery storage.
Our portfolio is also well diversified in terms of the geographic focus, with two regions, Europe and North America, and three tier-one geographies, the U.S., the U.K., and Germany, accounting for 80% of our installed base. How does the earning profile look like? Important key takeaway for you is that our earnings profile is very robust. To put it in numbers, 70% of our earnings come from either regulated or secured revenues, such as, for example, PPAs, feed-in tariffs, contracts for difference. You might ask yourself, will this picture materially change over the rest of the decade? The answer is no. If you only take into consideration our installed assets and the assets which are currently under construction, the share of the fixed revenues will still be 60% in 2030. A brief look at the Proforma 2019 EBITDA.
It will be at EUR 1.4 billion and mainly driven by offshore wind. Where do we go from here? What is our ambition? Rolf g ave you already a sneak preview. The ambition is to grow our asset base to more than 13 GWs. This is a growth of more than 50% compared to where we are today. The good news is we are well on track to deliver. We have already 2.7 GWs under construction with COD years between essentially now and the end of 2022. A good example of now is our recent 24th project we CODed in the U.S., Patton Creek, close to Houston. A big success again for the U.S. team. Many thanks for that. More clearly to come.
We are very confident that also the remaining target of 1.6 GWs can be easily filled with projects which we have currently in the pipeline. Please remember, we communicated to you last year that our growth ambition is 1.5 GWs net. As you can see from our growth projection, we stick to that commitment. Let's take a brief look first on where we want to grow before we dig into the pipeline in more detail. The key message is we are going to stay focused. Focused in terms of the regions and the number of countries we want to operate in. What does it mean? It means that in the short to midterm, our focus will continue to be Europe and North America. Why is that? For two reasons. Number one, these geographies are fundamentally very attractive. They provide for a very good growth momentum in renewables.
They have a very stable regulatory environment and low country risk. These geographies clearly play to our strengths. We have a well-established footprint in Europe and in North America. We are also able to leverage our multi-technology setup. Most of the geographies we operate in allow for minimum two, sometimes three or four technology play. A good example is the U.S., where we are already active today in onshore wind, in utility-scale solar, and in battery storage. We have an eye on offshore wind. Moving to Europe, the U.K. and Germany are good examples, where we operate both onshore wind and offshore wind assets with strong ambitions to grow. Clearly, Europe and North America will not be sufficient in the long run. We want to build a third geographic pillar to deliver growth in the second half of the decade.
Here we target, in particular, three countries, namely Japan, South Korea, and Taiwan, with a special focus on offshore wind. Clearly, we will also continue to look into growth opportunities in Australia, where we are already active and have assets under construction, with an eye on onshore wind, solar, and battery storage. You ask yourself, why Asia? Is RWE able to deliver? Can we succeed? The rationale is very simple. We see Asia, and you can see this from the chart and the capacity additions. We believe Asia will be the next Europe in 5 years- 10 years when it comes to the offshore growth momentum. Consequently, we want to lay the foundation now. How do we intend to do this?
We believe it's essential to combine leading world-class technical competencies, which RWE brings, with a strong and deep understanding of the local stakeholder landscape. As a consequence, we will always strive for partnerships when we grow in these geographies. A good example is our partnership with Kyuden Mirai Energy in Japan. Kyuden Mirai Energy is the utility, the renewables arm of Kyushu, which is one of the leading utilities in Japan. We signed a partnership agreement with them to grow in the Japanese offshore market. We have also two additional partnerships, which we cannot disclose at this point in time due to confidentiality reasons. We are very active also in South Korea and Taiwan as we speak to secure partnerships there. Ladies and gentlemen, let's now dig a little deeper into our pipeline. I would like you to take away two main messages.
Message number one is that our pipeline is sizable, more than 20 GWs in total. It's well spread across our technologies, offshore, onshore, and utility-scale solar. On top, we have a dedicated pipeline in battery storage of 2.7 GWhs . The second key message looking at our pipeline is that it has a very healthy maturity profile. We have more than 2 GWs of projects which are close to FID or with an awarded remuneration scheme, and another 2 GWs of projects in very late stage of development. That should provide for ample opportunities for profitable growth. How does this pipeline translate into development spend? We spend approximately EUR 300 million on DevEx per year, and two-thirds of this amount is capitalized. On top, we will pursue what we call strategic pipeline enhancement opportunities.
A good example is the recent acquisition of an offshore pipeline in the Baltics to participate in the upcoming very attractive Polish offshore market. Ladies and gentlemen, talking about offshore, let's look at our pipeline and our growth plan. We have the ambition to almost double our installed base from 2.5 GWs today to almost 5 GWs in 2026. We have a number of attractive projects already secured to underpin that ambition. I think well known to you is our project Triton Knoll, a U.K. project which is currently under construction. Furthermore, there is Kaskasi in Germany, Dunkirk in France, and Sofia in the U.K., for which we have been awarded contracts for difference. On top of these projects, we have a pipeline of bespoke additional offshore projects, in total 5.4 GWs . They are spanning, as you can see, various markets in Europe.
This pipeline consists of three types of projects. First, category preemption rights, such as, for example, Delta Norsea. Options to expand existing projects, for example, Rampion. The third category is bespoke projects which we are currently developing, for example, Dublin Array in Ireland. Moving on to onshore wind and solar in Europe and APEC. We have a very healthy 5 GW pipeline spanning various markets. Looking ahead, we want to grow our installed base to 4.5 GWs until 2022. Good news. 50% of this growth is already today under construction. If you look at the sample projects which we have listed here, you see that the projects span multiple geographies and those technologies. Let me pick two examples, and let's move to the other side of the globe, to Australia, where we are currently constructing our sizable Limondale solar project.
Another example, moving back to Europe, all the way up to the north, is our Nysäter project, an onshore wind project in Sweden. Moving on to the Americas, onshore and solar in the Americas, we have a development pipeline of 10 GWs, which is nicely evenly split between solar and onshore wind. What's our ambition? Our plans are substantial. We want to grow our installed base from 3.4 GWs today to 5.4 GWs by 2022. Again, good news. The lion's share is already under construction. I mean, I think you're all familiar with the situation in the U.S. and with the PTC ramp-down. Also, we have significantly front-loaded our investments to harvest the attractive 100% PTC scheme, which will expire by the end of the year. Consequently, you see a lot of projects with the 2020 COD.
Our outlook for 2021 and 2022 is slightly more conservative to reflect the PTC ramp-down. Ladies and gentlemen, this concludes my remarks on the pipeline. I hope you find that helpful to better understand our ambition and our chances to deliver. A solid pipeline is really the fundament of growth, but it is clearly not sufficient. Equally important is to have the capabilities to deliver. Now let me introduce our business model to you and also explain why we have chosen it. We are fully integrated along the full value chain, starting in origination and development and going all the way through to partnering. This is important for two reasons. First, it allows us to address and stack all the value pools in every single step of the value chain. It also enables us to manage risks comprehensively, technical risks as well as commercial risks.
Allow me to walk you briefly through before we look at some tangible examples. We are hands-on developers, meaning that we actively originate ourselves new sites. To put it in numbers, we are currently originating 2 GWs , which will be added shortly to our pipeline. We have a global engineering backbone with engineers spanning all the engineering disciplines. These colleagues create value in two ways. First, by very active innovation management and by ensuring that every project has the lowest LCOE possible so we can beat competition. These colleagues also ensure that the technical integrity of our assets is preserved once we have taken them into operation. In construction and procurement, the key message is that we pursue a multi-lot approach.
This enables us to drive down costs significantly, but also to comprehensively manage the construction risk and to manage all the interfaces between the various construction lots. Operations, key message, we have a self-perform approach, how we call it. That means we actively, with own technicians and own site managers, operate our assets. This creates value in two ways. First, it drives down costs. Second, it improves availability of our assets. The commercial side, as important as the technical side, we leverage our deep trading expertise. We have two, let's say, buckets of knowledge which we utilize. One is the dedicated renewables expertise that sits in our renewables business. This is complemented by the world-class trading capability that sits in our sister company, RWE Supply & Trading. We consider the combination of these two capability pools an absolute key differentiator for RWE Renewables.
Finally, partnering, which is absolutely essential for us to accelerate our growth ambition. Markus will put it in numbers later. Let's now put a little bit more beef on the bone, and let's talk about some tangible examples. When it comes to engineering, and I am a proud engineer, so I always smile more when I talk about engineering topics, I have been told. Let's see. In engineering, for us, it is crucial to be very active in innovation management to secure a competitive advantage. At the moment, we are focusing in particular on two technologies. First, battery storage. Rolf mentioned already the importance of flexibility in the new energy world. Battery storage assets provide exactly that flexibility. If you look around the world, you see that this market is growing fast, and costs are declining even faster.
We believe that the market potential in 2040 will be $500 billion. Consequently, we want to participate in that growth. It is also very, very important to understand that the vast majority of the battery applications, which range from, let's say, minutes application, frequency regulation, up to multi-hour applications to shift load, the vast majority of projects will be built in co-location with renewable assets, in particular solar assets. It is obvious that we want to master this technology and participate in the growth. An example, our recently won project in Georgia in the U.S., where we will build a 200-MW solar project combined with a 40-MW battery. This battery will be used for load shifting to enable Georgia to master the peak demand when it's very hot in the summer months in particular, but also help to stabilize the grid.
It is a 2-hour battery, so 40 MW, 80 MWh s. What is our capability set in batteries? Maybe a couple of brief comments. We have already 50 colleagues around the world working on battery projects and battery solutions. These colleagues have developed an own proprietary software solution to manage the battery, to optimize operations, and optimize also the technical integrity of the battery. The second technology we are looking at is floating, floating offshore. This technology is very important, in particular in countries like Japan or South Korea or the West Coast in the U.S., where you have very deep coastal waters. What are we going to do? We are currently participating already in two demo projects with different technical solutions, one concrete floater and one steel floater. Our objective is obviously to learn more about the technical complexity of floating offshore.
Think about the mooring system and think about water depths of a couple of hundred meters. It's not so trivial to secure the turbine. What's also clear is that the jury is still out what technical concept will ultimately prevail. We believe that the technical solution will really differ project by project. After the demo projects, the next step is to participate in a first tender for a floating project and a first commercial application. From engineering to construction. You ask yourself, can we deliver? What's our track record? Is RWE Renewables able to deliver projects on time and on budget? I'm quite proud to say that both legacy organizations have a very, very strong track record, as evidenced here on the slide. In the last three years, all major projects bigger than 50 MWs have been delivered on time and on budget and, also very important, safely.
This is clearly not self-evident. Think about the fact that we are mastering four technologies and that we are operating on three continents in parallel. What's also true is that there are always unknown unknowns. I think corona is a very good example of an unknown unknown. I think you will ask ourselves later whether we have seen any implications from corona so far on the delivery of our projects. I'm happy to report this is not the case. No major interruptions, but clearly we will monitor that situation, as you can imagine, absolutely carefully. Another example of an unknown unknown is our project, Peyton Creek, which we just took into operation a couple of days ago. Tropical storm Imelda hit the project, and the site was flooded over a couple of weeks. Good news is we managed.
Moving on to operations, I already mentioned that we pursue a so-called self-perform approach. What does it mean? It means that we have our own technicians, our own site managers who decide on the operating regime of the asset. This is important to reduce costs. We have provided here a couple of tangible examples. By applying this approach, we are able to reduce costs between 10%-20% compared to an outsourced solution. We are also able to boost availability by taking, say, applying an owner's eye and taking the operations in our own hands. Having a self-perform approach is also important for another reason. It gives us much more flexibility to adapt the operating regime of an asset to the commercial value of the asset. Think about projects which are losing their secured income, falling out of an incentive scheme.
Clearly, the commercial profile in certain areas significantly changes. We also need to adapt the operating regime of the asset to this new commercial reality. Hopefully, my passion for technical aspects comes across, but as I said, commercial optimization is equally important. We optimize the commercial value of our assets across the full lifecycle of the asset. Starting before a financial investment decision, we look at how we can secure the income stream because we have, in many geographies, a situation where there is no auction regime. What we do is exploring the option space of products which we can secure. This could be a PPA. It could be a firm hedge. It could be a much more complicated product like a proxy revenue swap or a collar structure. We pick the product that fits best to the risk return profile of a project.
We also engage with a very broad range of contract partners, of off-tech partners. These range from municipalities. It can be a big corporation. It can be an energy trader. Also, during operation, we have a very hands-on commercial optimization approach. Here, important to mention is our close collaboration with our sister company, RWE Supply & Trading. One very tangible example of how this cooperation will look like is that we leverage the great analyst platform that sits in RWE Supply & Trading for long-term commodity price forecasts. We have a consistent view across all technologies on commodity prices. I think my fellow board colleague, Tom Glover, cannot wait to talk more about it later in the Q&A session. Finally, partnering. I mentioned already that this is an absolute essential part of our business model.
It basically spans the full asset lifecycle of our installed base. An example I mentioned already for a development partnership is our partnership in Japan with Kyuden Mirai Energy . Another good example is our project Triton Knoll, where we invited partners in when we took the financial investment decision. This is to reduce our exposure because these are very, very sizable multi-billion projects to also share the construction risks, but also clearly to monetize our development activities and development success. A quick link back to what I explained about operations. Since we are an active operator of assets, we are also able to offer our partners a broad range of operations services depending on the risk appetite of our partners. This can be a fully open book concept, but it could be also a full rep service contract with availability guarantees.
We are able to cover the full spectrum. Ladies and gentlemen, I talked about our growth ambition. I talked about our pipeline. I talked about our business model and how we will deliver. Now let me talk about the most important aspect of all aspects, the team. It is my pleasure to introduce the great team that will make RWE Renewables a success. We have established, how we call it, a hybrid model. This hybrid model is centered around three operating pillars, which are led by my fellow colleagues, Sanne Otter Müller, taking care of offshore, who will lead the business out of Hamburg. Onshore PV Americas is led by my fellow colleague, Silvia Otten, out of Austin, Texas. Onshore PV Europe and APAC is led by Katja Wünschel out of Essen. These operating businesses are supported by three globally steered enabling functions.
All finance functions will be led by my colleague, Holger Himmels, out of Essen. All commercial functions led by Tom Glover, out of Swindon. Last but not least, all remaining functions and our global engineering backbone will be led by myself, out of Essen. I'm pretty sure that you will give us later a proper grilling in the Q&A session, and we are very much looking forward to that. Ladies and gentlemen, let me conclude. What to take away from today? We have a strong and diversified asset base with a very stable earnings profile. We have an excellent platform for growth with a more than 20-GW pipeline, which gives us sufficient optionality to deliver. We are already well on track to meet our targets. We have the right capabilities and the right business model to deliver, being integrated along the full value chain.
Last but not least, we have the right team to deliver: 3,000 passionate people who want to make this business a success. With that, I hand over to Markus.
Thank you, Anja. Ladies and gentlemen, the last three years of RWE have been primarily restructuring, negotiations, and execution. That has led to a truly transformed company. The task ahead of us is now to create valuable growth in the green energy world. Looking at the new RWE, I want you to take away five key messages. First, the earnings profile has changed from a volatile commodity play with assets of limited lifetime to a sustainable future-proofed business model. Second, our large investment program in renewable energy will set the course for attractive long-term growth.
Third, we have a solid balance sheet, which not only backs our renewable investment program, but also ensures investment-grade rating of at least triple B flat. Fourth, we have decided to separate the coal phase-out liabilities, financially ring-fence them, and cover them with a financial asset portfolio. Finally, we aim to increase our dividend constantly in line with the operating development of our core business. Before I get into the finer details of the new RWE, let's take some minutes for a brief recap of what we have achieved over the last three years. RWE, from a financial point of view, faced a couple of challenges. First, the uncertainties in the global commodity markets. Second, our financial exposure to rising CO2 prices, which was significant.
Third, we were facing the issue to transfer EUR 7 billion of cash to the German government for the nuclear waste storage. We had to increase our mining provisions by EUR 2 billion because of the accelerated coal phase. That had to be digested by the balance sheet. I am really proud that we mastered all these challenges very, very well. You can see the summary here on the slide. The final financial targets over the last three years were met or even beaten, especially true in 2019, given the extraordinary result of our Supply and Trading Division. We were able to secure the value of our outright power position stemming from our nuclear and lignite business at very favorable generation margins given our successful hedge strategy. We have locked in generation margins now clearly significant above current market values. We have actively managed our CO2 exposure.
We can now report that our CO2 exposure is financially hedged until the end of 2030, so the end of the fourth compliance period. After that period, after 2030, with the ongoing build-out of renewables and the coal phase-out explained by Rolf, our remaining CO2 exposure is actually very little. We have kept a solid balance sheet and our investment-grade rating even during the times of transferring EUR 7 billion to the German government, as I explained, and increasing our lignite mining provisions by EUR 2 billion. Still, I have a very good and healthy financial position. This, ladies and gentlemen, is now enough of the past. Let's now look at the new RWE in more detail. You can see here that we have decided to structure the group a bit differently in line with the strategy which was outlined by Rolf earlier.
Our core business in future will comprise of four segments: offshore wind, onshore wind solar, hydrobiomass gas, and supply and trading. We will provide in future key KPIs for our core business. The RWE group, besides the four core segments, also includes the segment of coal and nuclear, which actually will contribute significant earnings until 2022. Based on a proforma basis 2019, where we have included the assets acquired from E.ON on a full-year basis, we have achieved an adjusted EBITDA of EUR 2.7 billion in 2019. We plan to invest around net EUR 5 billion over the next three years in our growth projects, especially in wind and solar, while maintaining a credit rating metrics of at least 3x net debt to EBITDA. Let's now look at the different segments.
Offshore wind, the main contributor to earnings in future, has achieved an adjusted EBITDA on a proforma basis of EUR 1 billion in 2019. Onshore wind solar accounted for around EUR 0.4 billion. Hydrobiomass and gas achieved EUR 0.7 billion. This includes the income from our participation in KELAG. KELAG has a clear focus on hydro generation and fits strategically very well in this segment. The segment also includes our Dutch plants in Amer and Eemshaven, which we are currently converting to biomass coal firing. The proforma figures for coal and nuclear include the minority interest, which we acquired from E.ON in the nuclear plants for the full year, as well as our German hard coal business. Ladies and gentlemen, with now a more stable and sustainable earnings profile, we are able to provide for the first time since years a more longer-term outlook for our financials.
As you can see here, we will see an earnings growth in our core business of around 8% per annum. Until 2022, offshore wind will primarily benefit from the contributions of Triton Knoll, and we assume normalized weather conditions, while in 2019, we have seen below-average wind conditions, especially in the U.K. Earnings growth in onshore wind and solar will mainly be driven by the commissioning of approximately net 3.5 GW of new capacity. Again here, weather conditions are assumed to be normal. Hydro, biomass, and gas will in future suffer from declining payments from the U.K. capacity market, but we are very optimistic that that can at least partly be compensated by higher generation margin in the flexible generation fleet. For supply and trading, which now includes also the gas storage business, we expect on average an earnings contribution of around EUR 250 million per annum.
Please note, this earnings guidance does not include any disposal gains. Let's now turn to an update of the portfolio curve, which we have already provided to you when we announced the transaction with E.ON in 2018. Here you can see the long-term prospects of our wind and solar business. The updated curve shows the EBITDA contribution from wind and solar when we have delivered our outlined plan until 2022, so excluding any new projects beyond 2022. You can see that we expect, even without new projects from 2023 onwards, an EBITDA in 2030, which is still above the current level of 2019 pro formas. Of course, some of the projects are running out of the support scheme, but we are very optimistic that we can more than offset that with new projects also beyond 2022.
Where are all our investments going in the next three years? We will spend approximately EUR 5 billion in gross investments in wind and solar. This will grow our installed capacity base on a net basis from 8.7 GW to above 13 GW. Anja has walked you through all the detailed investment and project plans already. Including asset rotation, the gross investment could go up to EUR 8 billion-9 billion. To be clear, we will steer the balance sheet with an eye on the net investment amount of EUR 5 billion. Gross investments and asset rotation partnering are interdependent figures. Higher gross investments need to result in more partnering and asset rotation. Close to half of our investments on a gross basis will go into our offshore business.
Here, especially the big wind farms Triton Knoll and Sofia in the U.K. and Kaskasi in Germany. Onshore wind and solar in America accounts for around 30% of our investments, and onshore wind PV in Europe and FHEC for the remaining 25%. For approximately 1/3 of these investments, we have already taken investment decisions. For another third, we are very close to take that decision. Let's have a closer look at the asset rotation program. As just mentioned, this asset rotation number is not a fixed one, but interdependent from our gross investment program. Approximately 20% of that program refers to the disposal of the grid connections of the U.K. offshore wind farms. You probably know that the plant developer has to invest in the grid connection in the first hand and then later is obliged to sell it further on.
The disposal amounts of these investments are quite predictable. The second cluster for which we are looking for partners, especially to share financing and construction burden for large projects. One very successful example of the past here is Triton Knoll. To be clear, we also want to keep the majority stake in these projects, and certainly, we want to operate them. The third cluster of portfolio optimization is portfolio optimization in order to achieve a broad balance across the different regions and technologies. As part of the asset rotation programs, some projects and assets will change from full consolidation to equity consolidation or will be fully deconsolidated. This goes in hand with approximately an EBITDA effect of -EUR 100 million. Working on a huge investment program also needs very strict investment criteria in order to ensure value accretion.
We therefore have set a very strict hurdle rate approach for all our investment decisions. Depending on the different risk we see in the projects for market or technology or regulatory risk, our required IRRs range from 4.5% in solar and mature markets to 10% in offshore and new markets. Our project IRRs typically exceed the base renewable reg by 100 basis points -300 basis points. Before we take a final investment decision, we not only look at the NPV based on the hurdle rate, but also payback profiles and sensitivity analysis. Finally, approximately after two years, we conduct a post-completion review to see whether we have any learnings for future investment decisions. Let's now turn to the balance sheet. Our strong growth path is backed by a very strong balance sheet.
In line with our strategy and new organizational setup, we have also aligned our net debt definition. The new net debt definition of our core business excludes the coal phase-out liabilities, which are financially ring-fenced and covered by a financial asset portfolio. Compared to the old net debt definition, which you still find in the 2019 report, we have excluded the lignite mining provisions and the receivable against the German government for the compensation payment. Total net debt for our core business amounts to EUR 7 billion. This leads for 2019 on a proforma basis to a leverage factor of 2.6x adjusted EBITDA. The leverage factor is our key KPI to steer debt and the balance sheet, and our target is to be at or below 3x adjusted EBITDA. This is fully in line with a very strong investment-grade rating.
Given the improved business risk profile of RWE, we see a rating of at least triple B flat, or in Moody's terms, BAA2. Our current net debt is dominated by positive financial assets and significant long-term provisions. We expect provisions to decline over time and financial debt to increase, given the utilization of provisions, especially on the nuclear side, but also our huge investment program in renewables. Therefore, we are starting to look at the bond market again, and we are currently planning to issue the first RWE Green Bond later this year. When it comes to our hybrid bonds, we still have EUR 1 billion outstanding. Regarding our Euro hybrid bond, with the first call in October this year, we have decided to call it and not to replace it by another hybrid bond. Let's now move on to the ring-fencing.
As explained, we will financially ring-fence the coal phase-out liabilities, and we will cover them with a financial asset portfolio. The agreement with the German government in the lignite situation is a very important milestone for us, and it now ensures the long-awaited planning certainty for this business. In order to separate our lignite phase-out liabilities from the core business, we have decided to ring-fence them. We have committed ourselves to cover them within financial asset portfolios. The mining provisions of around EUR 4.6 billion are now covered with, first, the receivable against the German government of EUR 2.6 billion stemming from the compensation payment, which we will get in annual installments over the next 15 years. The other part of the financial asset portfolio is currently our stake in E.ON.
Consequently, and I think this is important to note, we have accounted for the E.ON dividend now as it is part of the financial asset portfolio in the financial result and not in the adjusted EBITDA any longer. Taking the full market value of E.ON into account, we still have significant headroom to still cover our mining provisions. At today's market prices, the headroom is around, I think, EUR 1.8 billion. Let's then move on to the coal and nuclear segment. Earnings developments over the next two, three years are determined by two main factors. One, the phase-out of capacity, and the other are increased hedged generation margins. Hedged margins for our outright lignite and nuclear generation will improve from EUR 24 per MWh in 2019 to EUR 27-EUR 32 over the next three years.
You find all the details for the hedging situation and also locked-in prices in our 2019 presentation, which was also published today. As part of the lignite phase-out agreement, we are also working on a new mining concept for Hambach, preserving the Hambach Forest. Although the total amount of lignite which can be mined from Hambach will significantly come down, due to the optimization, we will be able to extract more in the coming two years with a positive production effect on 2020 and 2021. Capacity closures are an offsetting effect to the positive margin development I just explained. You know that we have to close 2.8GW of lignite capacity until the end of 2022. It is also well known that we have to close our remaining nuclear stations by the end of 2021 and 2022, respectively.
All in all, we expect earnings contribution from coal and lignite to improve to between EUR 500 million and EUR 600 million in 2020 and EUR 550 million- EUR 650 million in 2022. From 2023 onwards, capacity closures will show their full effect, and we expect earnings to fall to a level of EUR 0-EUR 200 million adjusted EBITDA in this segment from 2023 onwards. For our lignite operations, this should be at least cash flow neutral once the efficiency program is fully implemented. The next page summarizes the earnings development of the RWE group. As you can see from the color code, already in the next three years, it is clearly dominated by our core business. Group adjusted EBITDA will improve by around 7% per annum, and this fed through to adjusted EBIT and net income.
Adjusted EBIT is expected to reach EUR 1.5 billion-EUR 1.8 billion in 2020, and adjusted net income will improve from EUR 1 billion in 2020 to around EUR 1.2 billion in 2022. You will find all the details on the guidance regarding the financial result, the tax situation, and minorities in the backup. This brings me now, as promised by Rolf, to the new dividend policy. We will grow our dividend steadily in line with the positive development of our core business. When determining the dividend, we will, as in the past, look through trading volatility and also weather effects in the renewables business. We aim for a steadily rising dividend for the years to come. As a growing company with very attractive investment opportunities, it's not only about the dividend payments, it's more about total shareholder return.
The expected dividend payment will result in a 40%-60% payout ratio of adjusted net income. Ladies and gentlemen, we will create valuable growth in the renewable energy world. Our starting position is now a very sustainable earnings profile in our core business. The large investment program in the renewables will set the course for long-term sustainable growth. Our balance sheet is very solid, backs the investment program, and has a lot of financial flexibility. We will clearly focus on shareholder value as in the past and aim for a constantly growing dividend for the coming years. With that, I hand back over to Rolf.
Thank you, Markus. Ladies and gentlemen, to say it very clearly, we have delivered. We have delivered good results for 2019.
We have delivered an optimistic but realistic view for the future and a tremendous transformation of RWE. We deliver a clear path out of nuclear business, a clear coal phase-out plan, and the risking of our company. The new RWE is well positioned for the future energy world. We will deliver clean and flexible energy, to be CO2 neutral in 2040, and a strong and value-creative growth in renewables business. Our energy for a sustainable life. That is what we promise, and that is what we stand for. Now, I hand over to Gunhild.
Thank you, Rolf. I can imagine there are many questions, so I would like to remind you of our two-question rule. Operator, could you please have the first question?
Yes. We will now begin our question-and-answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. If you follow the call via the webcast, please mute your PC loudspeakers while you ask your question to avoid an echo. One moment, please, for the first question. The first question is from Matteo Rudolfo of Goldman Sachs. Your line is now open.
Yeah, good morning. It's actually Alberto Gandolfi in Goldman Sachs. Sorry to confuse you. I have two questions. The second one will be very quick. The first one requires a tiny bit of build-up, so please bear with me. Can you please clarify on your additions rotation the following? I understand it's about 1.5 GW per year and about EUR 5 billion total CapEx. But can you maybe confirm, does it mean about 3 GW gross or 2.5-3? Slide 57 seems to talk about basically a high double-digit million amount of capital gains, including in 2022 guidance. Can you please confirm the overall guidance includes high double digits? Let's call it, I don't know, close to EUR 75 million-100 million. If so, it's a little bit odd because we are seeing EDPR going for a similar strategy, but they seem to be booking EUR 200 million gains for every 1GW they divest.
Maybe can you please clarify how you get to a high double-digit million if that is included and maybe explain net versus gross capacity? Thank you. That is the first. The second one, I could not help noticing in your slides that there is a clear-cut separation between core and non-core business. I mean, the E.ON stake has been removed from EBITDA. You have a net debt now that no longer includes non-core. I am pretty sure you have been thinking about this presentation today for nearly two years. That is, I would expect, intentional. Is there a deeper separation between core and non-core we should be thinking about and expecting down the line? Thank you.
Thank you. I'll take your question on to Markus, Alberto. I mean, first, to clearly clarify, there are no disposal gains in the EBITDA guidance. The included disposal gains are zero. Also in terms of giving a guidance, what we actually expect, you know that most of the assets we had to go through a PPA, so a purchase price allocation. We really had to market them more or less to market. If we sell from the existing portfolio, my expectations for disposal gains would not be too optimistic to put it that way. There are no disposal gains in the guidance. This is really the underlying operating profitability. To your second question, I mean, we have probably not thought about it two years, but definitely for longer. What we wanted to achieve to financially separate the two business, the core business and the coal and nuclear business, also to give more visibility how the group will develop from 2023 onwards, where actually the profit contribution from coal and lignite is, I mean, neglectable.
There are currently no plans to legally separate it or to potentially do other things. There are, on that side, no plans. We need to implement the agreement with the government.
Markus, that's very clear. Sorry. Just when it comes to the question, would you agree that the GW could lead to up to EUR 200 million annual gains and you could do 3 gigawatt gross a year? Thank you. No, currently the plan is not, I mean, it's not that the gross amount of capacity addition is that significantly higher than the net one. It's maybe over the course of the planning period, a GW to a 1.5 GW in total, not per annum.
Perfect. Thank you. Yeah, now ramping up. I mean, Anja explained where the team stands. We are in the process of integrating the teams. Of course, the ambition is high. The pipeline is very, very good. We now start with a very diligent assumption setting and not, I mean, overpromising. It will ramp up over time, but not in the short term.
Thank you.
Thank you. Thank you, Alberto. Could we have the next question, please?
Yes. The next question is from Deepa Venkateswaran of Bernstein. Your line is now open. Thank you.
Two questions from my side. First one is on your end.
Oh, Deepa, sorry, we can't hear you.
Hi, can you hear me now?
Very good. Thank you. Yes, we can hear you now.
Okay. Thank you. First question is really on the return expectations. I think in the bullet point, it kind of says that you're targeting 100 basis points-300 basis points over WACC, which I think is generally in line with what other companies are saying.
When I kind of look at some of the individual expectations by technology and by geography, the numbers actually do not quite look. Could you explain particularly maybe the lower end of expectations, like Europe onshore wind with 4.5% or offshore wind with 5.5%? Those do not particularly look like having too much of a spread over WACC. That is my first question. Second one on the E.ON stake, with the financial ring-fencing and the headroom, is it a fair assumption that actually for the foreseeable future, you will retain that E.ON stake? And given that these mining liabilities, you will probably need the next 20 years or so. Is that understanding correct? Thank you.
Yeah, Deepa, I mean, the return expectations, especially for onshore and solar, are combined here. Of course, for solar, they are a bit lower than for offshore wind. For onshore wind, you should expect a higher return expectation than the lower end of the range. In total, to maybe give you an impression of what we expect on average for the entire portfolio, when you take the portfolio split, what is the return or the expected return of total capital? We currently think it will be around 6.5%. With 6.5%, I mean, you definitely agree that we are very well in the range of 100 basis points-300 basis points above renewable WACC in the different regions. I think there is no implicit downward guidance of the return expectation we have with the renewable projects. Second question on the E.ON stake, we have said we are going to back the lignite liabilities with a financial asset portfolio. That does not necessarily mean that this is the E.ON stake. The E.ON stake is a financial investment.
We currently have no plans to sell it down. We are happy with it. The question when we address it, and also the headroom we implicitly have, comes from the question when we have better investment opportunities. When we see very good investment opportunities, and that, of course, will probably be in the core business, we will start thinking about the E.ON stake. Of course, half of the E.ON stake still needs to go into financial investment then in order to back the lignite mining provisions. When it comes to duration, I think the first significant utilization of the mining provisions will come in the 2030s. It is far out. We still have the EUR 2.6 billion of the German government over the next 15 years, which will more than cover the outflows in the first 15 years.
There is no direct connection between duration of the E.ON stake and the mining liability. Do not see it as a reason to really keep the E.ON stake for an indefinite period. I mean, it is full flexibility. We are going to use it.
Thank you.
Thank you. Next question, please.
The next question is from Sam Arie of UBS. Your line is now open.
Oh, hi. Thank you. Good morning, everybody. Thank you for an excellent presentation today. I think you said a few times it is a big milestone day today, but obviously, it is great to have the new business sort of laid out in all this detail. My first comment is just to say thank you for that.
My question, if I may, and I'm just sort of looking at the questions that are coming in to us this morning and people sort of running through your midterm guidance, which looks to come a little bit short for 2022 versus where, I guess, consensus was. On the other hand, I noticed that consensus is still within the range that you're implying for 2022. Could you talk a little bit about what's in that range? I mean, is that sort of just thinking about wind and weather conditions, or is that thinking about more flex around how much capacity you might be able to bring online by 2022 or variation in the other businesses? I think it'd be helpful just to understand what it would take to be at the upper end of the range rather than the lower.
And apologies if this is just something that you explained, but I could not quite follow. I think it is on page 48. You talk about the step down in the coal and nuclear earnings after 2022. I think you have a section there called Midterm Earnings Outlook 2023- 2025. Can you just clarify what that 0 million-200 million is? Is that the step down, or are you saying that the coal and nuclear will step down to the 0 million-200 million range? I just was not quite sure I understood the wording on page 48. Thank you.
Thanks, Sam, for the questions. I think you are right. When you look at the latest guidance that we are, maybe when you take the midrange of 2022, I do not know, it is 50 million , 40 million , 30 million below average. I mean, as we said, we do not want to overpromise. There are some uncertainties until 2022. You read it, it is maybe a bit more on the conservative side, but definitely within the range, right? What are the uncertainties? I mean, let us see how the U.S. will develop after the phase-out of the very favorable tax equity situation. This is an unknown we do not know yet. Also, there might be, from your expectations, a phasing effect because the entire CapEx for Kaskazi is within the planning period. The current COD date for Kaskazi is end of 2022. From this investment, you currently see nothing in the earnings, nothing relevant in the earnings in 2022. You could expect a slightly above-average earnings upstep then in 2023 from the investments there. That might maybe not be understood yet very well.
In our impression also, I mean, very carefully thinking about it, not for two years, but very long, what your expectation was, this is definitely not something like down-guiding your latest average expectations, definitely not. On the question on lignite and nuclear or coal and nuclear, this is a guidance that earnings will go down to a level of EUR 0-EUR 200 million. I mean, you know that in 2022, end of 2022, we closed one very favorable, at current market conditions, very favorable plan, which will cost us a couple of hundred million in earnings alone. Of course, then we have offsetting cost compensation, and the efficiency program will be implemented. I mean, we expect that the level will go down to a level of EUR 0- EUR 200 million from 2023 onwards. The overall business should still be cash-neutral when we have implemented the efficiency program.
That's fine.
That's very helpful. Can I just have a quick clarification on that last one? Is there time?
Quick one.
Look, no, it's very helpful. Thank you, Markus. What we should have then from 2022- 2023 is around a - EUR 500 million EBITDA effect at the midpoint of 2022 and then what you're saying for 2023. I do not think you then spoke about guidance for the rest of the business, but I assume, given your comments on Kaskazi and so on, that some proportion of that - EUR 500 million is offset then by further growth post 2022 in the renewables business. Are you able to quantify how much of the EUR 500 million you offset in the rest of the business?
I mean, when you will see at Q1 our guidance for hedged margins and volumes, you will see that actually on the margin side, we lose from 2022- 2023 around EUR 700 million in earnings contribution in lignite and nuclear. That can be offset by significant cost reduction. That is why the overall reduction is at the level you described. Going down from on average EUR 600 million to then maybe on average EUR 100 million. We lose around EUR 500 million here. Please understand, we do not want to give guidance now beyond 2022. It was hard enough to get all the commitments on a very conservative basis for up to 2022. As the business develops and the more confident are we also about developments beyond 2022, we might also update you from quarter- to- quarter. Please, no guidance for 2023 now. Otherwise, we would have put it in the presentation.
Okay. All right. I understand. Thank you for your answers. All the same. Thanks again for the presentation.
Thank you, Sam. Could we have the next question, please?
The next question is from [Luda Schumacher of Docktren]. Your line is now open.
Good morning. A couple of questions from my side. One is going back to the IRRs you mentioned. I mean, Markus, you said 6.5% across the entire portfolio, but maybe you can elaborate a bit more on the 5.5% offshore wind IRR in mature markets. Is that still reflecting the risk involved in these projects, or is it just something set by projects like Kaskazi, or do you really expect to come out more in this 7.5%-8.5%, which I guess is more normal for offshore developers, certainly in terms of targeted returns?
The second one is, apologies for this, but going back to part of the old RWE, has there been any progress on the contract negotiations over coal exit compensation? It's all gone very quiet there. What's the timeline there?
Let me answer briefly on the IRR, and then I hand over to Rolf for the coal question. It depends. On average, we would expect in our core markets for offshore wind also to reach the mid guidance of the to be expected IRRs. For some projects where you have, I mean, very low construction risk because it is actually at a site, and you use logistics, and you use suppliers you already know from other projects, and they are very close to other projects, and you have lots of synergies in the portfolio, it could also be at the lower end.
Please, again, we are not down-guiding our expectations because I think on average, when you look at the entire investment amount of EUR 5 billion, to reconfirm on average 6.5% on return should give you much comfort on that. On the coal side, yes, the discussion about the contract will come now. The IR discussion is a very short discussion with Mr. Feicht on the BMWI that they continue now with this. They had some other problems to solve. One thing, the other thing, there was a proof about the planning with LEAG and with us. It has finished now, and everything is clear. Therefore, the numbers are clear. This contract will be in line with the legal development now, and we think it will end in May or latest in June.
Okay. Thank you. Very clear.
Thank you, Luda. Next question, please.
The next question is from John Musk of RBC. The line is now open.
Yeah. Morning, everyone. Two questions for me. Firstly, just again, a clarification on the numbers, slightly different from the one earlier. But slide 44, when you talk about the dilution effect on the disposal program of just EUR 0.1 billion, again, is that included in the guidance that you're giving, or is that something we need to be considering on top of that or deducting that from the guidance that you've given? Secondly, the question would be on—sorry, I just need to change my screen here—on the balance sheet and the net debt target, maybe unlikely to happen, but do you have a lower band of your net debt metric that you would communicate?
For example, if you were to go down to sub2x , perhaps if some opportunities did not come forward, what would you be thinking around capital allocation then?
Yeah. Thanks, John. I mean, first, very simple clarification. Everything which we have presented is incorporated in the guidance, so also the negative effect of around EUR 100 million from the disposals.
Maybe I take the opportunity and give maybe some more light on the renewable guidance overall and how that fits together with the investment program. When you take our investments of around EUR 5 billion net for the renewables business, you always have phasing effect. We still benefit on the earnings side for the planning period from investments which were done prior to the planning period, but we have investment in that period which will only materialize later. We have a little phasing effect here.
We have more investments, actually, especially for Kaskazi and also a ramp-up of the expected Sofia investments, which are in this planning period, but will contribute to later years. Let's say that's ballpark figure EUR 1 billion. We should expect for EUR 4 billion additional investments, on average, 10% EBITDA, which is then an additional EUR 400 million. This is already a net figure. In this figure, the -EUR 100 million is already included. We have other positive effects because part of the disposal program is to sell minority stakes, so you still see the fully consolidated EBITDA. That's also around EUR 100 million-150 million. We have positive effects from normalized weather compared to 2019, and we have the synergies, which we expect from the team, of around EUR 50 million, which we reconfirm.
We have already around a reduction in earnings of around EUR 100 million because we have the compression model for Amrum Bank Northway, where returns are now coming over. That more or less explains in full the movement from 2019 to 2022, where you see an average increase of EUR 550 million earnings. Everything is reflected in the earnings. All information you got in the presentation is in there. On the net debt side, when we see not enough projects, we definitely not adjust our debt because we feel very comfortable with the balance sheet. We would actually reduce partnering and asset rotation to still keep the EUR 5 billion investment and achieve the increase in EBITDA, which we have outlined. The factor is more the partnering and investment program or disposal program and not investing less and bringing the debt down.
Okay. Thank you. Very clear.
Thank you. Next question, please.
The next question is from Peter Bisztyga of Bank of America. Your line is now open.
Yeah. Good morning. Just to clarify on sort of that bridge that you gave, could you tell us what the net income impact is by 2022 of what you've assumed for disposals? There's sort of EUR 100 million dilution at EBITDA, but then there seems to be some moving parts on minorities and stuff. What is the net income impact by 2022 there, please? On pensions, I'm just wondering what your pension provisions might look like if you're to mark to market today with equities down 20% and German yields now - 80 basis points, presumably somewhat larger. I'm just wondering, does that matter for your leverage factor?
Would that eat into your capacity to invest in renewables, or is that something that the rating agencies would ignore for the purposes of your kind of credit profile?
Yeah. Thanks, Peter. You see the answer to your question on the other line items other than EBITDA from the disposal program in the backup. What we guide is that minorities will grow from around slightly below EUR 50 million in 2020 to up to EUR 100 million, and that is especially the Triton Knoll effect. Also, financial result will also go down by around EUR 50 million. That is especially because we have a significant investment program in the U.S. and also in the U.K., where the interest level, I mean, at the time we made the plan, was still, I mean, reasonable above the euro level, so you have a higher financial burden from the debt for these projects.
I mean, that is it. On your question regarding the pension, yes. I mean, the interest rate development in Q1 has definitely increased debt at a mark-to-market level. I would currently say it will be between EUR 500,000,000-EUR 1,000,000,000 increase in provisions for all provisions, not only pension, but the effect on the non-pension side is very minor. I mean, are we concerned about it? No. Because, I mean, look, we have a very—we already had headroom with EUR 2.6 billion coming out of 2019. We have some positive cash flow effects in 2020, especially on the working capital side because you know that capacity payments were only paid in January, which is EUR 230,000,000, and we had very high gas inventory. You can more or less say we have EUR 500,000,000 positive working capital effect in 2020.
Of course, we have financial flexibility on the balance sheet. Currently, we are not concerned about—it is not a favorable development on the debt side, but we are not concerned about it.
Okay. Sorry, on that, the first point, you have EUR 100 million of dilution in EBITDA from disposals, minorities going up by EUR 50 million, and financial results EUR 50 million worse. Does that mean there is EUR 200 million negative impacts at net income? Is that right?
I think ballpark, yes, that is right. Yes. Because a significant part of the divestment program will be the grid connection of the U.K. offshore wind farm, where you do not lose any earnings. Ballpark, you are in the right range.
Okay. Thank you.
Thanks, Peter. Could we have the next question, please?
The next question is from Ahmed Farman of Jefferies. Your line is now open.
Yes. Hi. Thank you. Thank you for the presentation. Two questions from my side. I just wanted to clarify again the slide 48, and just want to make sure that I understood this correctly. Did I understand your comment correctly that between 2022 and 2023, you see the earnings in this coal and nuclear business to sort of step down by, I think, from EUR 600 million to close to EUR 200 million, and then gradually close to zero by 2025, and that we should—and given the pipeline that you have, that is probably most of that effect comes through for the group EBITDA as well? That is my first question.
My second question is, are you able to comment on what would be your, in the renewables business, the power price exposure or the output exposed to power price in 2022 and 2025 when some of the step-downs happen in the renewables earnings?
Thank you. Yes. Let me start with the first one. It is right that earnings will go down by, on average, EUR 5 million, but please do not read the EUR 0- EUR 200 million that we start with the EUR 200 million, and then it goes further down. Actually, it will probably look more the other way around because we lose earnings immediately from the closures, and the efficiency program will be implemented over time. That is why, I mean, we are still three years out, and the position is not fully hedged.
I would more or less, from a current point of view, assume it is around EUR 100 million every year, and not going down to first EUR 200 million. That is too early, really, to give clear guidance on that. This will definitely not feed through to net income of the group 100% because when we close capacity, especially on the nuclear side, also depreciation will go down. That is also a significant number, especially for the nuclear plants. I would say at least EUR 100 million less depreciation for the coal and nuclear business, maybe even a bit higher. Your second question was then on
—yeah.
In the backup slide, you see at one of the last pages our sensitivities. For the full open power position, ± 10% is around EUR 60 million.
The renewables teams is following a very similar hedge path in the conventional side, also with deviation. Currently, the hedge ratios for 2020- 2022 are 80%, 70%, 20%. 80% is still open of the merchant position in 2022.
Okay. Thank you. That is very clear.
Thank you, Ahmed. Could we have the next question, please?
The next question is from Martin Tessier of Mind First. Your line is now open.
Yes. Hi. Good morning. Thanks for the presentation. Two questions for me. The first one is regarding Mr. Schmitz and your potential step-down as CEO next year. Should this happen? I wanted, first of all, to congratulate you in advance for all the work that you have done. If you step down next year, do you think that the recruitment process could be opened to non-German candidates?
If no, could you give us a little bit of indication why? Second question is on the project IRRs that you mentioned. Thinking about the equity IRRs, could you give us a rough idea of the debt-to-equity ratio that you apply in the financing of the project? Thank you.
The first question, my contract finished in mid of next year, and I'm then 64, and it's the best idea to be here until 70 or something like this. Therefore, if the supervisory board is fine with this, you can see this step-down. Who will come then or before? That has only to be decided in the supervisory board, and therefore, nothing from my side.
Okay. Very clear.
Martin, I take the second question, which is very easy. I mean, on average, we assume 60% equity and 40% debt in the portfolio.
Okay. Very clear. Thank you very much.
Thank you, Martin. Could we have the next question, please?
The next question is from Rob Colin of Morgan Stanley. Your line is now open.
Hi. Good morning, gentlemen. Firstly, could I just ask, given the asset rotation target, it would be interesting to hear your perspectives as to whether you expect any impact on demand for and/or pricing of these asset rotations given the dislocations currently playing out in financial markets? Secondly, a bit of a hopeful question. Would you care to give a range of net debt numbers for the end of the year given the previous questions, obviously, around pension impact? Also, are we expecting any further unwind of the variation margin which played out through 2019? Thank you.
Rob, thanks for the question. First, I have to correct you. We have two gentlemen and also two ladies here on the podium, so it's not only Rolf and me. The asset rotation program, let's see how the market plays out. I mean, we are not concerned about potential consequences because we always said we want to invest on a net basis to achieve our return targets and projected EBITDAs. If, for whatever reason, asset rotation becomes more problematic, it's easy to scale back on the investment program on the gross basis, and then we sell less. This will, in the end, still play out, and we will deliver the financials we have presented today. That is actually then the flexibility we have. On the debt side, let me turn it around.
I mean, when we said we are committed and not concerned about keeping the 3x EBITDA, you can take our EBITDA guidance for 2020, and let's assume we reach the mid-guidance. That means that debt needs to be around the end of the year 2019 level, so around EUR 7 billion. On the variation margin question, this is not a guidance because, I mean, we have flexibility, and also CapEx programs sometimes move from one year to another. On average, we need to be there to keep our promise on the debt matrix. On the net, I think on the asset rotation, I answered on the net side. What was the last one, Rob?
No, I think you've covered it, Markus, and apologies to the ladies on the podium, the danger of dialing in. Thank you for your answers.
Next question, please.
The next question is a follow-up from Sam Arie of UBS. Your line is now open again. Hi. Thanks. I apologize for coming back on, but just a couple more things that I want to take advantage and ask you. The first is probably an easy small one, but since we last saw you, we had an announcement from Ørsted about the benefits of the latest OFTO tenders in the U.K. that, by their guidance, adds up to quite a large sum of money in the hundreds of millions of value. Just wondered if you could talk about whether a similar effect would have similar value for your U.K. projects coming up, Triton Knoll and Sofia.
I know we're not at OFTO tender stage yet, but just if you compare where we are now to what your assumptions were, I'm wondering if there's a few hundreds of millions of extra value there on those projects. My second question, which is maybe a bit of a harder one, and apologies, I know we're sort of mainly talking about renewables today. Given your contact with commodity markets, I think it'd be really helpful to just get your take on what's going on at the minute with oil and gas prices and also a sense of in the round now, thinking of all the different ways that the new commodity price can affect you. How do you feel? How could you summarize your exposure if we stay in this low commodity price environment for a while? Thank you.
Sam, I mean, on the first question, it's maybe too early for us to comment what we expect from the sale of the OFTO in the U.K. because we have not started the process yet. Holger will be on the call, the CFO of the renewables business, so maybe you refer the question then also, and he can give more than I kindly know about it, shed some light on it. On the oil and gas environment, yeah, it is definitely a challenging environment. We are, when you look at the short and midterm, very happy given our implicit fuel hedging strategy that we went short many fuels a long time ago, so we secured the margins already. For the longer period, it remains to be seen how long it stays when it clears up.
What is definitely clear is the remaining lignite portfolio beyond 2023, which is much smaller, still is exposed to gas and, to an extent, hard coal prices, but not to the extent before. Of course, we need to keep an eye on the merchant end of renewables. This is a splitted view because, I mean, Europe will definitely, with lower gas and coal prices, suffer. The immediate reaction on Henry Hub was because of the expectation of the shale industry reducing significant production was actually up a bit, so it could have a positive effect on the merchant end of the renewables. Overall, as you see from the sensitivities we have given, I mean, compared to the old RWE days, this level, what is the impact on the earnings, is now, I mean, far off that it was years ago. It is very, very little.
The remaining question, the most relevant one, is, of course, if the environment stays where it currently is, what does it mean for the long-term prospects of renewable investments? Just to mention two aspects. Will it have an impact on carbon pricing because of reprioritization of the political agenda, especially in Europe? Of course, higher carbon prices would be favorable for renewable projects. Of course, where's the money spent? I mean, are they still putting lots of money in renewable projects, or are they reprioritizing? I think in order to see really here a deteriorating effect for the entire industry, the current environment must be for long-term and also with significant negative social consequences from the crisis, which currently I don't expect. I think the trend to go green is still fully intact and supporting our business.
That's fine, Sam.
Okay. Yes. Thank you ve ry much.
Thanks. Next question, please.
The next question is a follow-up from [Dr. Schumacher of SWAPTEN.] Your line is now open again.
Hi. Just one quick follow-up question on my side. Now, markets have seen quite a considerable amount of volatility so far this year. Now, that's normally an environment where supply and trading tends to benefit quite a bit. Can you, by any chance, comment on how the start of the year has been for supply and trading?
Luna, I mean, you know since years that we don't give interquarter guidances. The only thing we are willing to say today is because we also, when you remember 2006 and maybe also 2011, where you were already around, that trading business is always exposed to event risk, so something you don't foresee. We have, from this crisis, not had a negative effect on the trading business.
Other than that, it is going business as usual.
Okay. Thank you. That was quiet.
Could we have the next question, please?
The next question is a follow-up from Alberto of Goldman Sachs. Your line is now open again.
Thank you. Still, Alberto, I'll be extremely brief. I apologize and thank you for taking it. We have talked a lot about the $500 million decline in EBITDA on the Lignite and nuclear, which is pretax cash flow. I guess extremely relevant. However, can you please tell us the EBIT decline? Because I also know you're going to lose quite a lot of DNA from shutting down nuclear and Lignite. Thank you.
What was it? The EBIT effect?
The EBIT effect, please. Thank you. Sorry. I didn't quite catch it earlier. Thank you.
Give me one second, Alberto.
I think, yeah, I said before that the decline in depreciations will be more than EUR 100 million. Put it at EUR 100 million-EUR 150 million. The EBIT decline will be EUR 100 million-EUR 150 million smaller than the EBITDA decline.
Thank you. Apologies. No worries. Thanks, Alberto. Could we have the next question, please?
The next question is a follow-up from Ahmed Firman of Jefferies. Your line is now open again.
Yes. Just one very quick follow-up question. I just wanted to ask if you could give us the weather impact for 2019. Give us a bit more specific number for the renewable business. Thank you.
Yeah.. The weather effect in 2019, the negative one compared to average is around a double-digit medium million amount and primarily in offshore.
Okay. Thank you. Thank you.
Ahmed, since we are approaching the two-hour mark and it is already the second round of questions, I would suggest we take one or two more and then round the webcast up. Could we have the next question, please?
Yes. The next question is a follow-up from Peter Bisztyga of Bank of America. Your line is now open again.
Yeah. Hi. Thank you. I was just wondering on your renewables guidance, could you sort of flesh out a little bit more what sort of scenario would result in you being at the bottom end of your guidance by 2022? I mean, just on the lignite and nuclear, you have given us a range of 0-200. Presumably, at 0 EBITDA, it is impossible to be cash positive unless I am missing something. Could you just clarify that, please?
Yeah. Peter, on the 0- 200, I mean, what we said is we will be cash flow neutral when we have fully implemented the efficiency program. And when that is fully implemented, we should not be at the 0 anymore, right? I think that is how it fits together. On what should play out when we end 2022 at the bottom end of the guidance, I mean, do you want to sketch out a scenario, Anja? Better not.
Obviously, we are absolutely committed to deliver, but we cannot influence the weather gods. Clearly, weather is always one of the factors that impacts our business. Other than that, I cannot think about any very negative effects. As you have seen, we have already a big chunk of the construction program secured. Therefore, I am confident. Okay.
Okay. Really, the top and bottom of the guidance range is just how windy and sunny it is, right? The midpoint is just on normalized weather conditions.
As Anja said, yes. I mean, we are very confident on the construction program and the to-be-taken FIDs and the returns for that, and it is only weather, and then to the extent where the merchant position is still open. That is a very minor effect.
Okay. Thank you.
Thanks, Peter. I would say do we have a last question?
The last question is from Deepa Venkateswaran of Bernstein. Your line is now open again.
Thank you for giving me the opportunity to ask the last question. This is a very quick question. Just wondering how you are accounting for corporate overheads, Amprion, KELAG within this. Is this just allocated to all these segments, or is it a net zero in the end? Maybe similar thing for DevEx within renewables. Is that just incorporated within the individual segments? Lastly, for renewables, you're saying that you do include the dilution from the sell-down, but no capital gains. Just a confirmation.
Yes, Deepa. On the management support functions for the renewables business, they are allocated to the two segments, so there is no remaining overhead cost somewhere else. The KELAG stake, the equity result of KELAG, is in the hydro, biomass, and gas division. Amprion is as today or as 2019 in others in consolidation, and the E.ON stake is not in the EBITDA anymore, but in the financial result of the to-be-expected dividend of around EUR 190 million-EUR 200 million over the planning period. On the disposals, we have not included any disposal gains.
If the project sales go well, there could be little disposal gains, but as I said, do not be too over-optimistic because we had to run through a purchase price allocation, so we should have reflected fair values already on the balance sheet.
Got it. DevEx and renewables is also included within the segments? Included in the guidance. As Anja said, I mean, one-third is P&L. It is included in the guidance, and 2/3 s is capitalized, and that is part of the EUR 5 billion.
Okay. Thank you. Thank you, everybody.
Before you take the final words, I have to say something because, as you know, Gunhild will, after the capital market, hand over to Thomas as the Head of IR, and I want to take the opportunity to thank you also on behalf of us and Gunhild for an excellent job.
I mean, you on the screens, you have rightly ranked Gunhild number one professional in IR for the high-quality work. Besides the high-quality work, which we benefit from, it's a lot of fun working with you. The good message for us, for us and me, is we will continue working with Gunhild just in another role. The good message for you is that Gunhild will take over not only controlling but also risk management and investment management. She actually will ensure that the EUR 5 billion are wisely spent. Anja is already looking forward to working closely with Gunhild in the future. The roadshow was also planned to be actually the farewell party of Gunhild, which for the corona thing now cannot happen.
We will ensure that when the corona thing is over, we have a proper farewell party for Gunhild, probably because that is easier for you in London. Hopefully, in springtime around our Q1, if the corona is still not solved, then maybe later. I promise you, you will all get an invitation, and you can, from now on, think about the present for Gunhild.
Thank you. Thank you. I can still have the last word. You have said already a lot. I would like just to take the opportunity to say it was a real pleasure to work with many of you over the last 11 years. Thank you for the frank and open dialogue we had and the support you have given me, but also the whole IR team. As an Austrian living in a country which adores the sound of music, the only way to bow out is so long, farewell, Auf Wiedersehen, goodbye. Please stay safe and healthy. Goodbye.
Ladies and gentlemen, thank you for your attendance. This conference has now been concluded.