now hand you over to Odo Guigurich, who will start the meeting today.
Please go ahead.
Good morning, dear analysts and investors. Welcome to the Uniper interim results call for the first half year of twenty twenty. I'm sitting here with our CEO, Andreas Schoenbeck and our CFO, Sasha Biebert, in our headquarter in Dusseldorf. Looking at today's, again, agenda, Andreas will start with the key highlights and give an overview where we stand on our strategy execution when it comes to hydrogen and the coal exit. Afterwards, he will go through the latest developments on the commodity markets and the respective impact on our business.
In the second half of today's call, Sascha will dive into the details of the financial interim results and provide an update on the full year outlook for 2020. Right after the presentation, you will have the chance to raise your questions. Having said that, Andreas, the mic is yours.
Thanks, Udo, and good morning, everyone, and welcome also from my side. Thank you for participating in our conference call today, and let me start with the essential topics of the first half of twenty twenty. First, I'm very satisfied with our financial performance in the first half. As we saw already in Q1, the guest business is a strong earning driver this year, bringing our overall adjusted group EBIT to EUR $691,000,000, which is more than double compared to prior year. Adjusted net income increased even stronger to €527,000,000 This means that we are on track despite the considerable macroeconomic and commodity headwinds.
The negative impact of COVID-nineteen on production and energy supply volumes had limited impact on our operating results in the first half of our 2020 fiscal year. However, we do see some impacts around project delivery. Based on this overall strong performance, we feel confident to narrow our full year guidance already at this point in time, but I will provide you further details a little bit later. Secondly, on our portfolio optimization and strategy plans. We continue to ramp up our business initiatives in the hydrogen area.
As part of this, a hydrogen business line has been set up within Uniper. The new team is structured in a way to be more efficient than a conventional Zito or silo organization as it enables us to put more resources together and to access a wider range of group wide expertise, which is key to push this topic ahead. We're also involved in various activities to be part of upcoming flagship projects supported by the EU and national government. In order to become carbon neutral in the European generation business by 02/1935, we need to find technical solutions to make our gas fired power plants hydrogen ready. For this, we have formed alliances with our two major equipment suppliers, General Electric and Siemens.
Coming to the coal related business, the concrete implementation of the plant phase out of German coal fired power generation continues to get a pace. The binding laws in place since the July. The first option for hard coal fired power station is earmarked to take place on September 1. Here we are working to implement the best options for Uniper to exit from coal fired power generation as quickly as possible and in a way that preserves value. The coal to gas conversion has accelerated due to the low prices for natural gas and the rising prices for emissions allowances in the EU.
Consequently, Dershing 4 And 5, our two most efficient German gas fired power plants, will exit the German grid reserve mechanism as standby power plants and will be allowed to operate on the merchant market again from October 2020. Now coming to our two legacy growth projects. The Dutton 4 coal fired power plant was successfully commissioned at the May 2020. The coal exit act has confirmed DATN-four's admission to operate. At the same time, it also enables the option to accelerate the phase out of older, more efficient, inefficient hard coal fired power plants.
While we were able to put our DATRN4 power plant into operation earlier than planned, we are facing COVID-nineteen related delays at Belarus Skaia-three, Lignite Fire Power Plant in Siberia. Corona cases at the construction site require the temporary shutdown of the repair work and to take further precautions. Hence, the remaining work here is currently only continuing with a limited skilled workforce. This will postpone the start of better software into the first half of twenty twenty one. With regards to major projects, we cannot ignore the unfortunate development around Nord Stream two, which continues to be a point of contention between The U.
S. And Russian governments. Overall, the pressure on Nord Stream two has been further intensified by the U. S. Government, but the sanctions have not been implemented yet.
Germany and Europe has reassured the political support for Nord Stream two given the security of supply role. On July 15, the US government has updated as public guidance on the Kafka sanctions. And based on that update, the guidance is also called grandfathering has been adjusted. According to our understanding, investments into Nord Stream two are now are also targeted, but only those taken after 07/15/2020. Uniper is further closely monitoring and analyzing situation.
Finally, coming to the shareholders here. Our first successful virtual annual general meeting with high approval ratings for all agenda items confirms that we are on the right track. We can now focus even more on strategic development. The five new supervisory board members elected at the annual general meeting bring a high level of sector and specialist expertise. That's the process of the H1 reporting, Uniper and Fortum teams worked already intensively in order to enable Fortum to smoothly incorporate Uniper as a consolidated entity within Fortum's half year financial statement.
To set another milestone to strengthen the relationship with Fortum, and we congratulate Marcus Raramu on his new role as CEO of Fortum. Over the upcoming weeks, we will be intensifying the exchange between both companies through a strategic alignment process with the aim to bring the strategies of Uniper and Fortum closer to each other. One of the major strategic issues Uniper can apply its expertise and future growth investments in the area of hydrogen, which I'll describe in more detail on the next page. The production of green gases, especially hydrogen, as a supplement of renewable energies for electricity generation is the missing building block to lead Europe to vast sustainable energy supply by 02/1950. The EU and many national European governments have given the issue an enormous political boost in recent weeks.
Thus, the German federal cabinet in June and the EU Commission in early July presented their roadmap for the implementation of a hydrogen strategy. The EU Commission Economics' Mixed Recovery Plan Next Generation EU highlights that hydrogen technology can become an engine of growth in Europe, create local jobs and enable Europe to play a technological pioneering role in a global market. Currently, 75% of fossil fuels still dominate Europe's primary energy mix with 33 still based on oil, around 25 based on natural gas and 15% on coal. It will be a challenging task and the great opportunity for the next decade to replace fossil energies with renewable energies and carbon neutral hydrogen. Currently, hydrogen is mainly being produced from natural gas in a process that release carbon dioxide, and therefore is usually referred as gray hydrogen.
If the CO2 is captured, stored, or reused, then it's considered blue hydrogen. Green hydrogen is produced through electrolysis using green electricity. In our view, we use both green and blue hydrogen in order to reach the given carbon targets. We anticipate that green hydrogen will play a substantial role in the energy transition at some point in time. However, under green hydrogen is economically viable, blue hydrogen can be a great addition to help develop the hydrogen economy and provides a commercial framework needed to trigger the necessary investments into infrastructure.
The transition process is now ramping up to enable commercially viable business cases around hydrogen. The EU political roadmap provides for the implementation of a policy in three steps. Phase one, policymakers promote technology development through European economies get better projects and create a reliable regulatory framework. From now to 2024, the EU will support installation of at least six gigawatts of renewable hydrogen electrolyzers in the EU and the production of up to 1,000,000 tons of renewable hydrogen. Phase two, between 2025 and 02/1930, hydrogen needs to become an intrinsic part of Europe's integrated energy system.
The EU ambition is to tenfold production under 02/1930, up to 10 megatons of renewable hydrogen backed by at least 40 GW of renewable hydrogen electrolysis. Germany has set its goal to contribute at least five gigawatts for that goal. Phase three from 02/1930 on, renewable hydrogen could be deployed at a large scale across all hard to decarbonize sectors. As you can see on the slide, Uniper has the ambition and the capabilities to occupy many fields within the value chain in the hydrogen economy. Uniper targets are all non CO2 emitting forms of hydrogen production.
Uniper brings project development, partnering, integration capabilities, as well as a strong customer supplier relationship. Depending on the market prerequisites and concrete regulations that are about to be developed, we will choose our engagement according to the potential. In order to identify the future potential of the different market segments in the hydrogen value chain, we need concrete framework conditions and guidelines from European and national political decision makers. This is where Uniper and I can help, for example, in my role as a member of the newly founded German National Hydrogen Council. The council is tasked to advise the federal government on the concrete implementation of the national hydrogen strategy in Germany.
We will be able to significantly contribute to the work of the council based on the expertise that UNIPA has acquired in a series of hydrogen pilot projects over the last year. Our current project initiatives are based on R and D partnering and VIMI commercial pilot plant in Uniper's core market Germany, UK, Netherlands and Sweden. We focus to be part of flagship electrolyzer projects in order to operate hydrogen technologies on a commercial scale for the first time. Aside from the mentioned cooperation with technology providers to convert our gas power plant fleet, we are also working on further developing existing coal generation brownfield sites such as Wilhelmshaften of the North Sea, which could become a future hydrogen hub. Due to its location, this site offers a variety of options for sourcing an electrolysis plant, ranging from offshore wind to transport by ship.
For example, we have signed a letter of intent to conduct a feasibility study for Zailles Gittagi on its production and handling of environmentally friendly sponge iron with upstream hydrogen electrolysis. In addition, we see an evolving international hydrogen economy to provide supply, trading and optimization opportunities. Uniper, with its commercial power and gas business, is well positioned to play a leading role not only on the operational, but also on the commercial side midstream for our future hydrogen industry. Our goal is to become CO2 neutral in our European power plant production by 02/1935. In Germany, the Coal Fares Out Act was passed on July 3 after long and controversial discussions.
This law does not only end coal fired power production by 02/1938 latest, but it also provides necessary legal framework for our planning over the next year. According to this regulation, German hardcore and lignite firepower plant capabilities are to be reduced by 40% by the end of twenty twenty five. We have significantly more efficient sensors. In fact, we are almost twice as ambitious given our commitment to reduce our German coal and lignite capacities by 78% in the same period. As we will also reduce our capacities outside of Germany after 2025, we never the only operating two most modern hard coal fired power plants in Europe, Dublin 4 in Germany and Maasflakter 3 in The Netherlands.
The step in the decommissioning of German hard coal fired power plants is the first cold exit auction taking place as early as September 1. As a result of the first tender, 4,000 megawatts of capacity will be taken off the German grid by the end of the year. Seven more auction rounds will follow afterwards until spring twenty twenty five. While the price kept in the first tender is set at €165,000 per megawatt, and Vivid decreased gradually over time with only €89,000 per megawatt in the last tender round. We are currently analyzing which is the best exit option for our hard coal fired power plants in the upcoming auctions.
There are quite some factors that needs to be taken into consideration aside from the communicated price gaps. Among others, we need to consider our contractual obligations to our customers and of course the needs of our employees. In order to be able to focus on this multitude of strategy development issues, it's helpful that our operating business is in steady waters. And this performance has been achieved against the background of a difficult commodity price environment, as you can see on the next slide. Slide six illustrates how our market environment has been influenced by COVID-nineteen and weather in recent months.
Starting with gas. Prices have fallen significantly during the first month of twenty twenty and have remained low since March. The forward 2021 price, which is shown on our slide, even temporarily fell below €12 per megawatt hour during July. This is mainly due to a depressed outlook for the gas market, characterized by LNG oversupply and very high storage levels. The expected economic situation might be also waiting on the guest demand outlook and therefore dampening forward price.
One of the few supporting sectors are increasing concerns about the impact of potential sanctions on the completion of Nord Stream 2. Moving over to carbon, in mid March, the carbon price collapsed in line with reduced emissions from the power industry and aviation sector on the back of the COVID-nineteen related lockdown. After the significant drop, carbon increased steadily and surpassed pre crisis levels, breaking through the €28 per ton barrier July. Most of the early things detached from the fundamentals, which would imply a more bearish picture. Even increasing concerns about the resurgence of COVID-nineteen do not impact the positive carbon price development so far.
Instead, a key driver seems to be trading strategies fueled by cheap money combined with expectations about an early covenant recovery and accordingly rising demand in the foreseeable future. Finally, the recent demand in EU wide ETFs Accordingly, the liquidity prices in Europe and especially Germany also showed the recent uptick. In those markets, the price setting power plants tend to be fossil, which explains the level of correlation. The Nordics in that sense is a different story, as fossil generation does not play such a big role and interconnectors towards Central Europe are limited, the Nordic outright prices did not follow the carbon rally to the same extent.
Weather is a stronger driver here. Nordic power prices are still suffering from a sustained period of high hydro levels and relatively high temperatures in the beginning of the year. The importance of weather could also be seen in June and July, where dry phase lifted frontier prices under the subsequent wet phase led to a price reversion to above lower levels. Accordingly, a dry phase June lifted frontier price. This upward movement reverted when the dryness predicted for the summer disappeared from the forecast.
Looking into the outer years, the sentiment is further affected by questions around demand recovery, potential delays in interconnector projects, as well as an ongoing build out of renewables. Those aspects combined with the fact that the outer years are typically more of a buyer market, keep the market price for delivery years '22 and '23, currently below the €26 mark. How does spreads develop? Generally, dark spreads have decreased and spark spreads have increased since the May. While coal and gas generation costs increased almost equally for coal and gas fired plants, the increase in carbon has a naturally stronger effect generation.
Beyond, spark spreads remain heavily supported by the low gas prices. As you can see, the peak spark spread has been in the double digit area now for quite some time. This development was the base for bringing back Erskine four and five back into the merchant market. However, as spark spreads have increased in the forward market, the opposite was true in the spot market of 2020 as reflected in Universe power production volume shown on the next slide. On Slide seven, you can see how our operating KPIs developed during the first half of twenty twenty compared to 2019.
Let's start with the global commodity business. Looking back on Q1 twenty twenty, we had already high fitting levels back then of 71%. Since then, further gas was injected giving the very low gas price during the summer season. Overall, this resulted in storage fitting level of 89% as of June 30. That means the storage has been already close to their peak at the end of H1.
From a financial perspective, storage is being ahead of the usual filling schedule means that the cash flow in the first half was burned. However, the cash flow in H2 benefits from that as there will be less working capital built up needed to reach the maximum filling levels. Second, our European generation volumes have fallen by 25% year over year. You can see this not only on the graph, but also in the appendix of today's presentations, where we incorporated the detailed table with Uniper power production volumes split by country technology. Starting with H1, we will provide this overview on a quarterly basis going forward.
When it comes to our hydropower plants, the production volumes remain overall on the same level compared to the first half of twenty nineteen. While we had additional hydro volumes in Sweden related to higher precipitation and snow melt, those positive effects were compensated by lower hydro volumes in Germany. Nuclear was down by around 24%, mainly driven by the closure of Ringhalt 2 and extended outages at Vostka Sem 3 and Ringhalt 1 And 3. Gas and coal fired production was down about 35% volume wise, mostly due to a lower power demand caused by the COVID pandemic and the greater availability of renewables, especially in Germany. However, the decrease in gas fired production was also significantly affected by the disposal of the French business, which has contributed to last year's prior year's production.
Last year, our business segment International Power or Russian Power Generation, as we will call it going forward, delivered a strong performance. This year, UniPRO's production volumes were burdened by an abnormal warm winter, very good hydro conditions at the beginning of the year and the lower demand due to COVID-nineteen in Q2. Thus, our Russian business produced 14% less electricity during the first six months compared to 2019. Finally, Uniper emitted 22% less CO2. Of course, this development is purely driven by the decrease of thermal generation.
Nevertheless, this is the direction Unifier is striving for, producing less emissions and focusing on more environmental friendly technologies. This brings me to the end of my part today. I would now like hand over to Sascha for the financial part, after which Sascha and I will be ready for your questions. Thank you very much.
Thank you, Andreas, and good morning also from my side. I'll start with the usual overview of our KPIs on Page nine. What you see here is a picture comparable to the first quarter, however, pronounced as Q2 stand alone has been, as indicated, positive but not extraordinarily positive. Adjusted EBIT and adjusted EBITDA are roughly twice as high as compared to the prior year. You may remember that the first half twenty nineteen was not only showing a muted business performance, but was also affected by significant negative intra year phasing effects.
This year is better in both categories as we will see in a minute. Consequently, the first half earnings are quite close towards the lower end of the full year target range as I mentioned in our last conference call. OCF is up by €600,000,000 compared to the first half twenty nineteen and therefore showing a significantly higher year on year swing compared to EBITDA as the cash effective EBITDA was materially higher. Still, the cash conversion of roughly 30% is rather low, however, relates to the first quarter. This is expected to revert to a more normal level towards the end of the year.
Adjusted net income is fully in line with the adjusted average development as economic interest and taxes showed the expected linear development throughout the first '2 quarters. In contrast to the other KPIs, reported net income is down compared to H1 twenty nineteen. It does include about CHF 90,000,000 of asset impairments on our fossil generation assets. Moving on to economic net debt. After the first six months, it is at CHF 3,300,000,000.0 and therefore above the level at the beginning of the year.
However, please keep in mind that economic net debt tends to have a somewhat seasonal pattern with H1 reflecting the cash out for the dividends, while the majority of operational cash flow is still to come in the second half of the year. From a credit rating perspective, our metrics for BBB flat continue to be rock solid, and I have no concerns with respect to our planned investments and dividends. Now let's break down the earnings drivers on the next chart. Looking on the year on year effects, the picture is in line with what we showed you at Q1 stage. Please note that the goal of this overview is to provide transparency on the underlying business drivers for the Uniper Group.
Usually, the effects shown here fit nicely to the segmental breakdown in the appendix. However, this time around, there are quite some shifts and consolidation effects at work between the operating segments and the adminconsolidation line. Hence, if one would start from the segments that one would need to adjust for a couple of effects to get to the true performance. Overall, we are up €380,000,000 versus prior year. Commodity optimization, mainly in the form of our gas midstream business, continues to be the main driver, contributing already €315,000,000 to the positive year on year development.
However, if you compare this effect to Q1, you realize that it came down as the isolated Q2 EBIT contribution from gas was negative in 2020. Such a Q2 in the Gas business is not extraordinary, if you look back to 2018, for example. Further, as we have mentioned in the last call, the very high margin in Q1 came partly at the expense of somewhat lower margins in future quarters, and this affected already Q2. As you may remember from our Q1 call, one of the key successful strategies of our gas team is to use the flexibility in the assets and rather leave the storage is full. However, full storages limit the flexibility, the room for optimization and finally the earnings potential going forward.
This was already reflected in the second half of H1 and will also have an impact on the earnings distribution in the rest of 2020. I will pick this up later in the guidance section. Moving to our outright fleet with an effect of roughly EUR 50,000,000. As expected, we saw a strong increase in the achieved prices of about EUR 5 on average. Volume wise, we have higher hydro volumes in Nordic, but those were largely compensated by lower hydro volumes in Germany.
Overall, you might have expected higher earnings from the Nordic water situation, but as the excess volumes in The Nordics were largely unhedged, they faced very low spot prices at the time. Finally, we saw lower nuclear volumes due to the closure of Greenhouse 2 at the end of twenty nineteen, as well as due to some extended outages in OSCAR FAM 3, Ringhalt 1 And 3. The next earnings driver is The UK capacity market, which amounted to EUR 60,000,000 in the first half of twenty twenty and is therefore up EUR 60,000,000 versus the prior year as well as 2019 did not reflect earnings from The UK capacity market until Q4. The intra year carbon phasing effect is also well known to you. In times of rising carbon prices, we need to increase our provisions while the offsetting positive hedge effects only realized at the end of the year.
Hence, this is an effect that burdens the first quarter and will revert in Q4. So why is it a positive effect here? Because the negative impact from carbon phasing was about EUR 50,000,000 more negative last year than it is this year. The significantly lower CO2 emissions that Andreas mentioned before are the main reasons for this. With lower volumes, the overall phasing is less pronounced.
Russia is further down with now EUR 50,000,000 compared to H1 twenty nineteen, with FX only playing a minor role. The main reasons were significantly lower electricity prices in the day ahead market driven by a slowdown in demand due to the COVID-nineteen pandemic and higher availability of cheap hydro generation due to higher water inflows. The category other approximately negative by 40,000,000, summarizes a series of effects across three categories, some more negative FX effects, unallocated consolidation effects and expenses related to our generation business. So to sum it up, overall strong H1, not only in terms of earnings quantity, but also in terms of earnings quality, as also can be seen in a minute when looking at the cash effective EBITDA. Secondly, even though the overall power production came down by 25% in Europe, the financial impact has been limited, which documents the successful hedging and optimization activities around our fleet.
Now over to operating cash flow on Page 11. Here, you can follow the reconciliation from adjusted EBIT to operating cash flow. The picture is basically unchanged to the Q1 call. Cash effective EBITDA amounts to almost €1,200,000,000 up 23% from the prior year. Hence, my earlier comment regarding earnings quality.
Second, the low cash conversion is driven by changes in working capital based on high inventory levels. Compared to Q1, we saw only a comparably low working capital increase based on the high filling level that we had already at the March. As usual, the working capital effect related to the gas inventories will largely normalize over the course of the year. Third, provision utilization was comparably lower. The overall EUR $221,000,000 of provision utilization is almost evenly split across provisions for decommissioning, gas and LNG infrastructure and other including pension and personnel related provisions.
Finally, there is a rather high other with plus 159, out of which around 130,000,000 are the cumulative CO2 impact. What do we mean by that? This is the net effect of all reconciliation items related to CO2, I. E. The correction for CO2 related provision buildup, provision utilization, and the related changes in working capital.
In the past, we used to show those effects on a gross basis in the individual buckets, which ultimately pumped up the individual effects and blurred the view on the overall impact. From this quarter onwards, we will show the net effect within other. This has the positive impact that the different reconciliation items are now much easier to interpret as they are not overlapped by large CO2 related effects that in the end net out to a much smaller amount. On the next page, the adjusted net income developed fully in line with expectations since Q1. The economic interest, which is structurally positive for Uniper, as we have explained in the past, has increased from $6,000,000 in Q1 to now $16,000,000 and is driven by interest income from Nord Stream two as well as the capitalized interest from our legacy growth projects.
While we did not publish the adjusted net income KPI last year, the like for like economic interest result in H1 twenty nineteen would have been minus 36 as there was a strong negative revaluation impact on the hydro asset retirement obligation stemming from a step down in discount rates. The other two elements are either tax rate and the minorities are straightforward. On the tax side, we generally expect the tax rates between 2025%. Just like in Q1, we ended up once again at the lower side with 22%. The minority interests are largely driven by Unit four, where minority shareholders hold about 16.3%.
Given the higher financial performance of Uniper last year, the total minority interest for H1 twenty nineteen would have amounted to minus EUR29 million. Slide 13 summarizes the changes in our economic net debt. It reached EUR3.3 billion at H1 twenty twenty, million above the year end 'nineteen level as the operating cash flow covered investments, but not the dividend. Investments were marginally higher than last year, given the increase in growth CapEx spend. The dividend of CHF $421,000,000 was paid in May following our AGM.
Further, there is an increase of pension provisions from EUR 1,000,000,000 to EUR 1,100,000,000.0 due to lower interest rates. Asset retirement obligations are broadly unchanged. And finally, the category other, which reflects an increase in financial leases, mainly related to storage contracts in our headquarter in Dusseldorf. Now over to the last slide today addressing the outlook. As briefly mentioned by Andreas at the beginning of the call, we narrow our guidance range for EBIT and adjusted net income by moving the lower boundaries up by €50,000,000 In case of adjusted EBIT, this means that the old range of EUR $750,000,000 to EUR 1,000,000,000 is now replaced by EUR 800,000,000 to 1,000,000,000.
This implies a new midpoint of EUR 900,000,000, which is EUR 25,000,000 above the old one of EUR $875,000,000. Accordingly, the adjusted net income range is now EUR600 million to EUR800 million, with the midpoint being EUR700 million, replacing the old one of EUR675 million. Why are we doing this now? After Q1, we already had a strong start into the year. However, back then, the level of uncertainty around the remaining months was simply too high, not only in respect of COVID, but also regarding the business performance outlook for the commodity business, mostly the gas area.
Even though COVID is far from being defeated as of today and concerns about the second wave are rising, we feel confident that the financial short term risks for Uniper in 2020 are manageable. Additionally, with now only six months left, we have a better picture of the expected business performance, which shows us that the old range did not fit anymore. Now, following the young tradition that we have from the last two calls, I would also like to give you an idea on how to think about the earnings distribution across the upcoming two quarters. When it comes to the next two quarters, you can expect Q3 isolated to be negative in absolute terms like it has been in the last two years. This time, the seasonality might be even more pronounced, more comparable to the year 2018, where we recorded an EBIT loss of more than €200,000,000 Additionally, Q3 will also be affected by the mentioned backswing effect in gas, I.
E, the fact that the high earnings in Q1 came also partly at the expense of margin in Q3. Based on our full year guidance, you can therefore expect our earnings in Q4 to then be again significantly positive. The dividend target for the financial year 2020 remains EUR $500,000,000 as does the ambition to grow it further in the years to come. Now I can hand over to Udo, who has a short announcement before the start of the Q and A session.
Thank you, Sascha. I would like to take the opportunity today to introduce you to you our newly developed Uniper at Energy app. We are aware that Uniper is not the company with the easiest business model and structure. Our aim was, therefore, to come up with an app that helps external stakeholders to understand our business better. It specifically aims at investors, you, the analysts, and your clients.
With this app, anyone can stay updated about all relevant aspects of Uniper's business, power, its commodity price developments, stock behavior, and consensus for both Uniper and its peers and all Uniper news channels in one place, including press releases, social media, blogspot posts, and upcoming events. Not to forget the direct link to our financial reports and presentations. It's available for both Android and iOS platforms, and it's free, of course. We are never take your money nor collect your data. No strings attached.
We encourage you to try it out and give us your feedback whether you think it is helpful and investors can appreciate it. After this short commercial break, let's start with the q and a session. As usually, please limit yourself to two questions each. Operator, please.
Now we will begin our question and answer session. If you find your question is answered before there's a chance to speak, you can dial 02 to answer your question. If you are using speaker equipment today, please lift the handset before making the selection. One moment please for the first question. The first question is from Alberto Gandolfi of Goldman Sachs.
I'll stick to the two question rule. The first one is earnings, please. Can you please elaborate if in your holding costs, which look like €220,000,000 negative for the first half, there's something nonrecurring that may also normalize for the rest of the year because it looks like this is partly offsetting the strength in the global commodities. And thanks for clarifying the pattern in Q3 and Q4. That actually has answered lots of questions.
The second one is a bit of a bigger picture. You spent quite a lot of time at the beginning trying to, in a way, position Uniper across the hydrogen value chain. I guess the question here is, is this the main, let's call it, green focus of the company, or can you envisage something more profound? We are even seeing oil majors like BP right now. For instance, talking about, you know, 50 gigawatts net of renewables, which is almost an invasion of your typical backyard and territory power generation.
So wondering, is this it, or are you contemplating at some stage down the line maybe a more profound asset rotation like we are seeing, for instance, Angie even recently announcing to try and also develop other types of green power generation activities? Thank you.
So, Alberto, this is Sasha speaking. I'll take the the first question, and then Andreas will develop on our ambition in the in the renewal space. You're asking a good and important question. Nothing has changed compared to what I think we have discussed in the past. I hear on a full year basis, you should think of about 200,000,000 admin expenses also in that line item, full stop.
And that admin expense is usually split reasonably evenly across individual quarters. However, as the name of the line implies, it includes admin as well as the consolidation line. The consolidation in the second quarter is particularly negative, that is a random path and it has offsetting effects in the segments. So I think when you model that, you have to model 200,000,000 negative on a full year basis, and then you have net effects for the group. But I think whether they then show up in the segment or in the group consolidation line from a valuation perspective is irrelevant.
So think about 200,000,000 on average.
Yeah. Good morning, Alberto, and thanks for the question. It's Andreas speaking. If you look at our hydrogen strategy, where we are coming from and where we want to go, there are a few things to mention. First of all, we are not completely new to the hydrogen sphere.
We started already 2012 with the first hydrolysis in Feichenhaagen in Germany to produce hydrogen out of wind power, not on a commercial scale, but just to understand the technology. And the whole thing was coming together as we announced our new strategy. We want to be striving to decarbonize our portfolio. Of course, it means switching off the coal fired plant and switching to more gas units, like, take emerging four and five out of reserve. But something very clear, if you really want to go to a decarbonized world, we have to do something with the gas units as well.
We have to reduce their CO2 footprint. Yes, it's helping quite a lot, switching to natural gas or to LNG, but still there are CO2 emissions. And the natural solution for that is using hydrogen. Most of the gas turbines can burn hydrogen, so that would help. On the other hand, it would be too easy to just think that would be the solution of all our problems.
If you look at Germany, Seventy Five Percent of the CO2 emissions are coming from industry, from transportation, and from buildings, and they have not contributed so much. So hydrogen, especially produced from green sources, taking the right PPAs or whatever, is much too expensive and much too valuable to really burn it immediately in a gas turbine and generate energy again. Using it for chemical industry, using it for transportation would help tremendously to decarbonize the sector. On the other hand, in our strategy, highlighted that we said, yes, hydrogen is a good solution for that, and we want to expand that. But of course, we have kind of contradiction here.
Germany wants to expand their renewable generation of energy with wind and with solar. We have not reached that in Germany. On the other hand, we want to produce hydrogen out of that. This will not work really because it's just a contradiction. On the other hand, 75% of the primary energy used in Germany, for example, is imported.
So I would say there's no way that all the hydrogen Germany or the other countries are needed are needing really needs to be or can be produced in the respective territory. So it needs to be important. That's why we are we are setting on our strategy as well on trading hydrogen, transporting hydrogen, storing hydrogen, and using exactly the business models we have. In the global commodity business, for us, it doesn't make a big difference if you're trading LNG or liquid hydrogen or if you're trading natural gas or hydrogen. If you're storing it, if you're optimizing it, it's the same kind of business mechanic.
So from our point of view, it will not be so much like asset rotation. It will be developing the assets gradually and over the time into hydrogen environment. And of course, using the capabilities we have in our global commodities to just use that. Of course, we will invest into growth projects. But at the beginning, I see that hydrogen is not a complete good business case that we develop over time.
But for us, it's essential to invest in all parts of the value chain at the moment to find out where the whole journey is going. And just to to highlight a little bit the complexity, if you just look at the color codes, so that has developed in the last, say, years from gray, white, green, blue, turkeys. There's another one coming up from a color as far as I know. You'll see that there's a lot of fantasy in there, but it will for us, not a drastic move, it will be consequent development and steps which we can digest, which makes our business model sound.
Okay. Alberto, questions answered?
Yes. Thank you. Thank you so much.
Welcome.
The next question is from Deepa Venkateshwaran of Bernstein. Your line is now open.
Thank you so much. I had a follow-up question on hydrogen as well and then one on your coal closure. So maybe first with the coal closure, could you clarify how much is the fossil how much is the coal EBITDA that you're expecting for this year within the fossil division? Is it basically loss making right now? So obviously, the financial impact will be positive or actually is there any positive contribution to be aware of, apart from, of course, your new data implant, So aware of that.
Second question on hydrogen. I think you mentioned that you you you see both green and blue play a role, and you see blue playing a transitionary role. But I think one question is we've not really seen any big large blue hydrogen project. CCS hasn't really been done at large scale. There's really no CCS store carbon storage or transportation.
So how how confident are you that blue hydrogen is is is going to fill the transitionary gap? Might green not overtake it already? And would you be interested in directly participating in the supply of green hydrogen by building wind farms or or solar parks or whatever more directly rather than sourcing it from someone else? Thank you.
Yeah. Let me start to give give Sasha a little bit more time to dig up some of the numbers. Hopefully, it will be enough time. So if I'm continuing to speak very long winded, is still looking at my face and looking for the number, but no. I'm just joking.
If you're coming to to to hydrogen, I really believe that blue hydrogen or turquoise hydrogen will play a role because the easiest way to generate hydrogen is really using the natural gas. It's done already with the gray hydrogen where you just release c o two to the atmosphere, but it's the cheapest way to produce hydrogen at the moment. So if you're adding up some complexity to capture the c o two or in case of the Turkish hydrogen, using a kind of pyrites to just take the c out of that or the carbon and not generate any c o two, then, of course, I think it's a natural expansion of us with technology. Price wise, we just have to say the gray one, which is releasing CO2 as the cheapest one, turkeys and blue one is a little bit more expensive, but still much, much cheaper than green hydrogen because green hydrogen is coming with price tag because it's generated out of renewables. At least that is a price difference by more than 30% or even 40%.
And just this price gap will probably play most of the economies role that you would play with both sources, right, to cover the gap with technology jumps over time and so on. For us, for Uniper, I think we probably will not look intensively to build solar farms or wind farms on our own, but probably playing with PPAs to taking the power market that uses for hydrolysis or optimizing the power flow. So let's see for the first point of view, especially in Germany, a good potential to harvest this ghost electricity, which we can't use. If you have too much wind, we cannot transport it in Germany because we don't have interconnectors. So we are paying actually around $1200000000.01300000000.0 dollars every year in Germany for wind farms for not generating energy.
To compare that to or to use that energy and that amount of money to produce hydrogen, is probably a good starting point. It's not enough volume, but definitely the right way to start with. I hope that answers your question, and so now I hand it over to Sascha.
Who's digging himself out of the hole? So with respect to your question, are we gonna make money with coal fired generation in 02/2020? The answer is yes, most definitely. However, as you probably would expect, Deepa, the money generation is quite dedicated to certain generation facilities or countries. Certainly a big part of that money generation comes from Germany related to the Dathlon plant, but also to to The Netherlands, Maasflakte, but quite possibly also to to The UK.
So it is dedicated to certain stations while the contribution of other stations that may be more exposed to to the cold exit at certain points in time is more limited.
Okay. Thanks. The next question is from Vincent Ayral of JPMorgan.
Just to bounce back a bit here on the call closure again. So the auctions are coming. Basically, you made a few comments there. It's a bit difficult for me to hear everything, but, and what what do you expect in terms of compensation there, especially through the years, early years and the and the following couple of years as you got more, I would say, units, profitable units, to basically come to the crunch. And so that would be interesting for us to understand the the part of of the equation of what we could expect in terms of compensation for closure.
I think that's that's what Deepa was looking at as well here in a way. And the second question was more related to the CCDP fleet. You're putting back Ersion four and five. We have seen a tightening of the bond markets. And so the clean sparks are improving.
On the other hand, we got the outright, which has basically been weakened by lower gas prices. Is it a fair assumption to assume that you are net positive in this situation for the longer term outlook? How do you see the overall evolution of the commodity market for your specific portfolio? Thank you.
This is Andrea speaking. Good morning, Vincent, and thanks for the question. Let me start with the first one. At the moment, it's a little bit complex to to answer that because, yes, we have a court exit law, but it has not passed passed all the levels. We need the signature from the chancellor Merkel, from the president, and it has to be published.
On the other hand, the BINSR has not produced a complex set of rule books, how auctions are running, which and so on. The European Commission has to approve the German court exit law as well. So there's still a lot of noise about this nitty gritty details how this would work. The only thing what is clear is amount of gigawatts they want to take out with the auctions. They have put a clear price cap, a maximum price cap on the auctions.
So if you're starting earlier bidding in the process, you cannot go over that price cap. You can go under that price cap, which sparked some competition, some readiness considerations, and so on. So it will be kind of thing we have to model from game theory what we are doing, who is who is participating and not. Of course, if you're winning, you're getting you're getting some benefits for your employees, you get some some payments. So at the moment, we we really looking at that and trying to understand how the process will work.
Vincent, on the CCGT profitability, I'm not 1000% sure that I got your question in full, but let me try to start and you can specify, I. E, the upcoming change of Yersheng four and five from reserve into the merchant market is a earnings positive versus the prior status, and is also an earnings positive versus the prior year, let's say medium double digit million. I'm not sure whether you then put that into the perspective of changes in the outright position. If so, maybe you wanna just reiterate that part of the equation or that part of the question.
Yes. My my question was indeed this this one, basically. Aeration point for our back, profitability increased, so it's positive for bringing back these two units, the whole for the rest of the fleet. So we had a positive on one end of the equation, but we got a negative on the the lower power prices. So net net at a Uniper portfolio level, is it a positive or a negative?
And on the call auction, my question was a bit sneaky. It was we have a cap, but we don't really have a floor. So is it fair to assume it's a it could be zero basically here?
Yeah. But, you know, you're describing it completely right. You are flexible at which price you put up in the auction, but I think you would understand that I would not give you any details what is our strategy of it because it's a competitive process. The government has just make sure that the prices cannot go sky high, and, of course, they put an incentive and that you auction as early as possible because the incentive to getting high prices is going away over time. But everybody in the market has now to to run their own numbers, what are the benefits, what are what are what is their right strategy.
And of course, depending on customer contracts and so on, because we cannot tell the instructors where we have maybe to deliver energy or we have talked to customers. It's a highly competitive project process. And on the other hand, you still have to be in that out there, which can tell you where you can auction, but you're not allowed to pass on because you consider US system relevant. So it's that will be an interesting couple of months going forward with that.
And going back to the CCGTs, the comparison depends on the starting position. I e, if outright is pretty much hedged, then I think the CCGT contribution could be higher. If you're comparing the Yersheng four and five delta contribution with an unhedged outright position of Uniper, then certainly the swing factor in the outright position is higher. And then just a small add on to the items Andreas mentioned on cold access. I just wanna remind you that in our March presentation, we have illustrated a few positives and negatives that we think will influence our earnings in the period twenty
And from my memory, there wasn't a box that said compensation for coal closures. That may tell you something about the the base planning. The next
question is from Peter Bischinger of Bank of America Securities. Line is now open.
Yes, thank you. Good morning and thanks for taking my question. So first one, just circling back on to hydrogen. It'd be useful if you could highlight whether any of the green or blue hydrogen opportunities that you highlight on Page four are already economic without any kind of government support? And also, I don't know, that's sort of a difficult question to answer, but over what sort of timeframe do you think hydrogen could start to make a meaningful or noticeable earnings contribution to Uniper?
And then second question, I was just wondering if you could describe in
a little bit more detail
why Beldes of Skyra is delayed. Again, apologies, I sort of missed your comments on that at the start of the call. And what is the risk, I guess, aside from a sort of COVID second wave that there could be any further delays? And have there been any delays at your other projects like Schloven and Erssing 6, please?
Yes, thank you for the question. In regards of hydrogen, I think it's a complex question at the moment. Are little bit color blind on hydrogen. We don't really care what color it is as long as CO2 neutral and not releasing CO2. The price takes and the cost for that and the technology jumps, which we will see will really be decisive because the customer at the end decides and the government what kind of framework they are setting in.
At the moment, are cautious about the timeline of profit contribution. I think that's the right thing to say. Are investing into projects. We want to maybe get some subsidies in some countries. So we are really playing with these projects and so on.
I think we are a little bit cautious with earnings projections. On the other hand, we are quite optimistic that the earning projection could be very much faster than we think because if I believe that you could see the same kind of technology jump like with renewables, where nobody would have forecast that the technology in renewables would develop that fast and rapidly. So I would say a horizon of five to ten years, we're having some contributions at the moment realistic. If it's getting earlier, it's fine. It really depends how this market is developing.
And regards of value about the delays, I think it was your second question and about COVID. Actually, it's very hard for us to say, we were on a good track, but COVID is a nasty thing as you see. Russia is a complex environment. We have the workers on the side and we have normally more than 1,000 coming from Kazakhstan and other areas. So first, they were blocked for leaving their countries, then they opened the border and they came in, we got the virus there, then we have to contain them, quarantine them, test them.
So if there's a second wave or a third wave or another outbreak, then of course, it's very hard to get a statement from that. On the other hand, the good news is we have made very good progress on the technical side. I think the hairy parts are all over. We are now doing installations and decorative paintings, some fire protection. So it's a mixed picture.
It's very unfortunate that COVID nineteen has impacted our project schedule. But I'm afraid I'm not I'm not can guarantee anything about COVID at the moment, but probably nobody in the world can assess a second or third wave.
There was at least another question I think with respect to potential delays of the other projects including Scholven and Icheng 6. Certainly, COVID is not making it any easier. That that's obvious, but we are very closely working with our contractors. And so far, we are well on track. So nothing to report on the negative side from that perspective.
Great. Thanks very much for your answers.
The next question is from Sam Arie of UBS. Your line is now open.
Hi, good morning everybody. Thank you for the presentation today. Very clear and super helpful. I just wanted to come back to a question, I suppose, longer term portfolio strategy or group strategy. And you've clearly, the earlier part of this year, been evolving your approach to coal and carbon overall.
But, obviously, a a large chunk of your fossil footprint is in Russia. And if you if you look at it from the Fortum Group point of view, I think something like two thirds of the c o two in the group is now in Russia. And so just given the way that, you know, Fortum and your strategies are evolving, I'm just trying to figure out how sustainable is that big carbon footprint in Russia. So my idea is if you if you don't mind, can I ask you very directly? Do you see Unipro as a long term core part of Uniper?
Or would you at least consider scenarios in which Uniper and Unipro might one day go their separate ways? And I guess I don't know if you if you can't comment on that directly. I might have some sort of other other ways of asking the question, but let me let me pause and see if you can can happy to comment on that directly.
Of course, you can you can sorry. Yes. I'm taking the issues here. So thank you for the question. I think you can rephrase the question as you want.
You will not really get a clear answer for me because it's a stable earning providers, as you always explained. Uniper is sitting on a three leg chair. We have the European generation. We have the commodity trading, and we have international. Now we are calling it after divesting Brazil and France as the Russian generation.
It's a stable earning procedure. We have to it's supporting our rating. Now it will be rating in a very essential way. So at the moment, I cannot imagine having this situation without. From my point of view, we know what we are doing in Russia.
We're decarbonizing the portfolio as well. That's why so we have represent our strategy there as well, the modernization. Berosovskaya, of course, is a lignite fire plant, and we understand that. But it's a complex world. Russia has signed the Paris Agreement and has committed to reduce their CO2 footprint.
It's up to them to regulate how they want to do that, and it's accepting power generation from lignite, from hardcore, from whatever sources and they are fulfilling the Paris agreement, then I think we should live by these rules. One different countries, different rules. That's the way it is, and that's how I see it.
That's a very interesting and helpful answer. Think, do you mind if I just as a follow-up, just just reconfirm? So is is it right that what you're saying is if you didn't have the Russian holding that the implications for the credit rating would be negative? I suppose there'd be a trade off between, you know, not having the stable cash flows from Russia, but also having less subtle exposure and less, different international sovereigns backdrop and that might be treated differently in the rating formula. And the other thing I was just wondering if you could comment on, I mean, know in your position, companies are often approached by potential buyers.
Are you ever approached by potential buyers for your stake in Unipro? Is it something that's ever people ever come to you over? And I'm trying to sense if there would be an active market there or not.
I only confirm that we consider Uniper as a central part of our strategy and of our portfolio. I think we have hand over the rating issues for more detailed answers to Sasha. But as I explained, it's one third of our income. It's very stable. So from that point of view, if you're looking at rating issues, you're always looking at a good stable income streams.
And as I understand, if you're selling something, the income stream is going for that as well. Right? So from that point of view, if you look where we are coming from, how hard Uniper has fought to get us b triple b rating confirmed and stabilized by divesting assets, which were valuable to creating the situation we've had. That I can hardly imagine how how that would work.
So I'm just just to add to that. So our participation in in in unit four is certainly not an obvious negative in in the rating equation. As you know, the the the agencies, they usually look at business risk. They look at financial risk. And I think Andreas commented on the positive aspects of the financial risk, I.
E, it is largely a regulated earning stream. Yes, it does come from a country with a higher country risk that somewhat works against it. But still, it's quite an important piece in in in the UNIPAR puzzle.
Okay. Thank thank you very much for your answers. It's it's it's very helpful. You're welcome.
The next question is from Judas Schumacher of SocGen. Your line is now open.
Good morning. Two questions from my side. One, Andreas, I'm not quite sure if I got this right in the beginning yet again on hydrogen. You said there will be a separate business line. But given that I'm not sure if I really understand what it seems to me that your view on the economics of hydrogen are such that it's not very profitable, not much money, but you're willing to help with your existing trading and storage operations.
So this pretty much just falls on the gas optimization. So is that the hydrogen strategy for now use your existing assets and trading capabilities and going to development and other stuff once the economics justify that? And the second question is on Nord Stream two. There is some confusion, I believe, as to what and who, more importantly, sanctions currently apply to? Is it existing partners?
Is it new partners? Can you enlighten us where we are? And the can we actually go ahead with the project? And what is the worst case scenario for Uniper? If the project failed to be completed, what would be the impact?
Is it just a simple impairment on the financial of the loan you've given? Just to show some scenarios there.
Coming to the hydrogen structure, and I think you already in your question, and thank you for that, you highlighted the complexity what we have. We have activities on the asset side of our house with hydrolyzers, with some other projects we have in Germany and in other places. And of course, we have the global commodity, which are looking forward to optimize these things, import that, transport that and store that. And as we found out, as we're looking into that algorithm, we found out that there are so many touch points in Uniper because there are so many groups which have touched hydrogen, which have an interest on hydrogen. And at the moment, not clear if the balance will swing into assets means production of hydrogen or going into global commodities, trading it, transporting it, and storing it.
That's just too early at the moment. Nobody knows in which direction that goes. So that's why we created a virtual p and l and a virtual group. So not to decide, is it an asset driven thing and then they neglect commodities? Was it a commodity driven unit and it's neglecting the assets on the production side?
So this unit is reporting to me, we can getting the data together, we're driving the project, and then we will observe where is the right place for that virtual organization in the right point of time. On the other hand, I'm a strong believer, you should start the P and L if you have a significant size of the business, if you're creating money and if you see that it's running, because all the overhead, the red tape we have in big companies always are normally killing small projects. And you are right, hydrogen is starting, is taking off. There's a lot of fantasy in the market, a lot of subsidies, a lot of plans. But to really make money with hydrogen, except gray hydrogen, at the moment from my point of view, without subsidies and without regulatory help and investments quite a stretch.
In regards of Nord Stream two, I don't know if I understand your question completely. We are just a financial investor. We have paid in our financial commitments full since March, I think. That's enough money and funds to finish the pipeline from our point of view. From that, the contractual things, I'm not really able to comment on that.
There seems to be some progress on the pipeline. But actually, given the sanctions and all the environment, we're not hearing many technical details in any way, would not for me to speculate what they're doing at the moment and when they're going to finish. I assume and we are believing it's the right project, it will be finished. We are always believing in balancing our strategy with LNG terminals and with Nord Stream two because we are standing for supply, security of supply. But the worst case would be, of course, if the thing would never be finished.
And then of course, question is, can we get our money back or not? But that's the thing to be seen at the moment. I don't expect that scenario. And I think we are in line there probably with all the other financial investors of that project.
Very clear. Thank you.
We have to close, q and a now. Of course, the investor relations team is happy to, answer any outstanding questions, during the day. Thank you very much for your participation in this call, and looking forward to hear you in the q three call in November.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.