I'll hand you over to Udo Giegerich, 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 2020. I'm sitting here with our CEO, Andreas Schierenbeck, and our CFO, Sascha Bibert, in our headquarter in Düsseldorf. Looking at today's 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. Good morning, everyone, welcome also from my side. Thank you for participating in our conference call today. Let me start with the central topics of the first half of 2020. First, I am very satisfied with our financial performance in the first half. As you saw already in Q1, the gas business is a strong earning driver this year, bringing our overall adjusted group EBIT to EUR 691 million, which is more than double compared to prior year. Adjusted net income increased even stronger to EUR 527 million. This means that we are on track despite the considerable macroeconomic and commodity headwinds. The negative impact of COVID-19 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. Sascha will provide you further details a little bit later. 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 linear or silo organization, as it enables us to pull more resources together and access a wider range of group-wide expertise, which is key to push this topic ahead. We are also involved in various activities to be part of upcoming sector projects supported by the EU and national governments.
In order to become carbon neutral in the European generation business by 2035, 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 core-related business. The concrete implementation of the planned phase-out of German coal-fired power generation continues to gather pace. A binding law is in place since the beginning of July. The first auction for hard coal-fired power station is earmarked to take place on September 1st. 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.
Irsching four and five, 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 Datteln 4 coal-fired power plant was successfully commissioned at the end of May 2020. The Coal Exit Act has confirmed Datteln 4's admission to operate. At the same time, it also enables the option to accelerate the phase-out of older, more inefficient hard coal-fired power plants. When we were able to put our Datteln 4 power plant into operation earlier than planned, we are facing COVID-19-related delays at Berezovskaya 3, lignite-fired power plant in Siberia. Corona cases at the construction site required a temporary shutdown of the repair works 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 Berezovskaya into the first half of 2021. With regards to major projects, we cannot ignore the unfortunate development around Nord Stream 2, which continues to be a point of contention between the U.S. and Russian governments. Overall, the pressure on Nord Stream 2 has been further intensified by the U.S. government, the sanctions have not been implemented yet. Germany and Europe has reassured the political support for Nord Stream 2, given a security of supply role. On July 15th, the U.S. government has updated its public guidance on the CAATSA sanctions and based on that update, the guidance on so-called grandfathering has been adjusted. According to our understanding, investments into Nord Stream 2 are now also targeted, but only those taken after July 15th, 2020.
Uniper is further closely monitoring and analyzing the situation. Finally, coming to the shareholders sphere. 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. With 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 statements. To set another milestone to strengthen the relationship with Fortum, may we congratulate Markus Rauramo 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 that Uniper can apply its expertise and future growth investments is the area of hydrogen, which I 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 towards sustainable energy supply by 2050. The EU and many national European governments have given the issue an enormous political boost in recent years. 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 economic mixed recovery plan, the NextGenerationEU, 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 a 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 releases carbon dioxide. It therefore is usually referred as gray hydrogen. If the CO2 is captured, stored, or reused, ten it's considered blue hydrogen. Green hydrogen is produced through electrolyzers using green electricity.
In our view, we need 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, until green hydrogen is economically viable, blue hydrogen can be a great addition to help develop the hydrogen economy and provide the 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 the policy in three steps. Phase I, policymakers promote technology development through European economy scale flagship projects and create a reliable regulatory framework.
From now to 2024, the EU will support the installation of at least 6 GW of renewable hydrogen electrolyzers in the EU and the production of up to 1 million tons of renewable hydrogen. Phase II, between 2025 and 2030, hydrogen needs to become an intrinsic part of Europe's integrated energy system. The EU ambition is to 10-fold production under 2030, up to 10 MT of renewable hydrogen, backed by at least 40 GW of renewable hydrogen electrolysis. Germany has set a goal to contribute at least 5 GW for that goal. Phase III, from 2030 on, renewable hydrogen should 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 Uniper has acquired in a series of hydrogen pilot projects over the last years.
Our current project initiatives are based on R&D partnering and demi-commercial pilot plants in Uniper's core market, Germany, U.K., 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 cogeneration brownfield sites, such as Wilhelmshaven on 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 Salzgitter AG on the 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 a future hydrogen industry. Our goal is to become CO2 neutral in our European power plant production by 2035. In Germany, the Coal Phase-Out Act was passed on July 3rd after long and controversial discussions. This law does not only end coal-fired power production by 2038 latest, but it also provides the necessary legal framework for our planning over the next years. According to this regulation, German hard coal and lignite-fired power plant capabilities are to be reduced by 40% by the end of 2025. Uniper is significantly more ambitious than this.
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, Uniper is the only operating two most modern hard coal-fired power plants in Europe, Datteln 4 in Germany and Maasvlakte 3 in the Netherlands. The step in the decommissioning of German hard coal-fired power plants is the first coal exit auction taking place as early as September 1st. As a result of the first tender, 4,000 MW of capacity will be taken off the German grid by the end of the year. seven more auction rounds will follow afterwards until spring 2025.
While the price cap in the first tender is set at EUR 165,000 per MW, it will be decreased gradually over time, with only EUR 89,000 per megawatts 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 need to be taken into consideration aside from the communicated price caps. Among others, we need to consider our contractual obligations towards customers and, of course, the needs of our employees. In order to be able to focus on this multitude of strategy development issues, it is 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-19 and weather in recent months. Starting with gas. Prices have fallen significantly during the first months of 2020 and have remained low since March. The forward 2021 price, which is shown on our slide, even temporarily fell below EUR 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 weighing on the gas demand outlook and therefore dampening forward prices. One of the few supporting factors 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 the aviation sector on the back of the COVID-19-related lockdowns.
After the significant drop, carbon increased steadily and surpassed pre-crisis levels, breaking through the EUR 28 per tonne barrier beginning of July. Most of the rally seems detached from the fundamentals, which would imply a more bearish picture. Even increasing concerns about a resurgence of COVID-19 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 COVID recovery and accordingly rising demand in the foreseeable future. Finally, the recent demand in EU-wide ETS auctions has indeed picked up from the historic lows in May, providing at least some fundamental support. Accordingly, electricity prices in Europe, and especially Germany, also showed a 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 a dry phase first lifted frontier prices, and the subsequent wet phase led to a price reversion towards lower levels. Accordingly, a dry phase beginning of June lifted frontier prices. 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, keeps the market price for delivery years 2022 and 2023 currently below the EUR 26 mark. How does spread develop? Generally, dark spreads have decreased and spark spreads have increased since the beginning of 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 on coal generation. Beyond, spark spreads remain heavily supported by the low gas price. 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 Irsching 4 and 5 back into the merchant market. While spark spreads have increased in the forward market, the opposite was true in the spot market of 2020, as reflected in Uniper power production volume shown on the next slide. On slide seven, you can see how our operating KPIs developed during the first half of 2020 compared to 2019. Let's start with the global commodity business. Looking back on Q1 2020, we had already high filling levels back then of 71%. Since then, further gas was injected, giving the very low gas price during the summer season. Overall, this results in a storage filling level of 89% as of June 30th. That means the storages have been already close to their peak at the end of H1.
From a financial perspective, storages being ahead of the usual filling schedule means that the cash flow in the first half was burned. The cash flow in H2 benefits from that, as there will be less working capital build-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 a detailed table with Uniper Power production volumes split by country and technologies. 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 2019.
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 Ringhals 2 and the extended outages at Oskarshamn 3 and Ringhals 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-19 pandemic and the greater availability of renewables, especially in Germany. The decrease in gas-fired production is also significantly affected by the disposal of the French business, which has contributed to last 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, Uniper's production volumes were burdened by an abnormal warm winter, very good hydro conditions at the beginning of the year, and a lower demand due to COVID-19 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 Uniper 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 start with the usual overview of our KPIs on page nine. What you see here is a picture comparable to the first quarter. However, less pronounced, as Q2 standalone 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 2019 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 EUR 600 million compared to the first half 2019, therefore showing a significantly higher year-on-year swing compared to EBITDA, as the cash effect of 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 EBIT development, as economic interest in taxes showed the expected linear development throughout the first two quarters. In contrast to the other KPIs, reported net income is down compared to H1 2019. It does include about EUR 90 million of asset impairments on our fossil generation assets. Moving on to economic net debt.
After the first six months, it is at EUR 3.3 billion, and therefore above the level at the beginning of the year. 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 triple B flat continue to be rock solid, and I have no concerns with respect to our planned investments and dividends. 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 in consolidation effects at work between the operating segments and the admin/consolidation line. Hence, if one would start from the segment split, one would need to adjust for a couple of effects to get to the true performance. Overall, we are up EUR 380 million versus prior year. Commodity optimization, mainly in the form of our gas midstream business, continues to be the main driver, contributing already EUR 315 million 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.
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 storages full. 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 million. As expected, we saw a strong increase in the achieved prices of about EUR 5 on average.
Volume-wise, we had 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 Ringhals 2 at the end of 2019, as well as due to some extended outages in Oskarshamn 3, Ringhals 1 and 3. The next earnings driver is the U.K. capacity market, which amounted to EUR 60 million in the first half of 2020, and is therefore up EUR 60 million versus the prior year as well, as 2019 did not reflect earnings from the U.K. 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 realize at the end of the year. This is an effect that burdens the first quarter and will revert in Q4. Why is it a positive effect here? Because the negative impact from carbon phasing was about EUR 50 million 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 million compared to H1 2019, 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 demands due to the COVID-19 pandemic and higher availability of cheap hydro generation due to higher water inflows.
The category Other, approximately negative by EUR 40 million, summarizes a series of effects across three categories. Some more negative FX effects, unallocated consolidation effects, and expenses related to our generation business. 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 one minute when looking at the cash effect of 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. 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 effect of EBITDA amounts to almost EUR 1.2 billion, 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 levels that we had already at the end of 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 comparatively lower. The overall EUR 221 million 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 +EUR 159, out of which around EUR 130 million 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 build-up, 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 EUR 6 million in Q1 to now EUR 16 million and is driven by interest income from Nord Stream 2, 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 2019 would have been -EUR 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, i.e., the tax rate and the minorities are straightforward. On the tax side, we generally expect the tax rates between 20% and 25%. Just like in Q1, we ended up once again at the lower side with 22%. The minority interests are largely driven by Uniper, where minority shareholders hold about 16.3%.
Given the higher financial performance of Uniper last year, the total minority interest for H1 2019 would have amounted to -EUR 29 million. Slide 13 summarizes the changes in our economic net debt. It reached EUR 3.3 billion at H1 2020, EUR 650 million above the year-end 2019 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 EUR 421 million was paid in May following our AGM. There is an increase of pension provisions from EUR 1 billion to EUR 1.1 billion due to lower interest rates. Asset retirement obligations are broadly unchanged. Finally, the category other, which reflects an increase in financial leases mainly related to storage contracts in our headquarter in Düsseldorf. 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 EUR 50 million. In case of adjusted EBIT, this means that the old range of EUR 750 million-EUR 1 billion is now replaced by EUR 800 million-EUR 1 billion. This implies a new midpoint of EUR 900 million, which is EUR 25 million above the old one of EUR 875 million. Accordingly, the adjusted net income range is now EUR 600 million-EUR 800 million, with the midpoint being EUR 700 million, replacing the old one of EUR 675 million. Why are we doing this now? After Q1, we already had a strong start into the year. 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. 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. 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 EUR 200 million. 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 million, as does the ambition to grow it further in the years to come. I can hand over to Udo, who has a short announcement before the start of the Q&A session.
Thank you, Sascha. I would like to take the opportunity today to introduce to you our newly developed Energy.Uniper 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 and 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, blog 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 is free of cost. We are neither taking 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&A session. As usual, please limit yourself to two questions each. Operator, please.
The first question is from Alberto Gandolfi of Goldman Sachs. Your line is now open.
Thank you and good morning. I'll stick to the two-question rule. The first one is on earnings, please. Can you please elaborate if in your holding costs, which look like EUR 220 million negative for the first half, there's something not recurring that may also normalize for the rest of the year? It looks like this is partly offsetting the strength in the global commodities. 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 this the main, let's call it, green focus of the company, or can you envisage something more profound?
We're even seeing oil majors like BP right now, for instance, talking about 50 GW net of renewables, which is almost an invasion of your typical backyard and territory power generation. Wondering, is this it? Are you contemplating at some stage down the line, maybe a more profound asset rotation like we are seeing, for instance, Engie even recently announcing to try and also develop other types of green power generation activities. Thank you.
Alberto, this is Sascha speaking. I'll take the first question, and then Andreas will develop on our ambition in the renewable space. You're asking a good and important question. Nothing has changed compared to what I think we have discussed in the past. On a full year basis, you should think of about EUR 200 million admin expenses also in that line item. Full stop. 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. I think when you model that, you have to model EUR 200 million negative on a full year basis, and then you have net effects for the group.
I think whether they then show up in the segment or in the group consolidation line from a valuation perspective is irrelevant. Think about EUR 200 million on average.
Good morning, Alberto, 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 electrolyzers in Falkenhagen in Germany to produce hydrogen out of wind power. Not on a commercial scale, but just to understand the technology. The whole thing was coming together as we announced our new strategy. We are striving to decarbonize our portfolio. Of course, it means switching off the coal-fired plant and switching to more gas units like Irsching 4 and 5 out of reserve. Something very clear, if we 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. The natural solution for that is using hydrogen. Most of the gas turbines can burn hydrogen. 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, 75% of the CO2 emissions are coming from industry, from transportation, and from buildings, and they have not contributed so much. Hydrogen, especially produced from green sources, taken by 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 these sectors.
On the other hand, in our strategy, we highlighted that we said, yes, hydrogen is a good solution for that, and we want to expand that. Of course, we have kind of contradiction here. Germany wants to expand their renewable generation of energy with wind and with solar, and 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 just the contradictions. On the other hand, 75% of the primary energy used in Germany, for example, is imported. I would say there's no way that all the hydrogen Germany or the other countries are needing really needs to be or can be produced in the respective territory. It needs to be important.
That's why 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's the same kind of business mechanic. 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 a hydrogen environment. Of course, using the capabilities we have in our global commodities to just use that. Of course, we will invest into growth projects. At the beginning, I see that hydrogen is not a complete good business case. It will develop over the time.
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. Just to highlight a little bit the complexity, if you just look at the color code. That has developed in the last, say, years from gray, white, green, blue, turquoise. There's another one coming up from a color, as far as I know. You 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.
You're welcome.
The next question is from Deepa Venkateswaran 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. Maybe first with the coal closure. Could you clarify how much is the coal EBITDA that you're expecting for this year within the fossil division? Is it basically loss-making right now? Obviously the financial impact will be positive, or actually is there any positive contribution to be aware of apart from, of course, your new Datteln plant? Aware of that. Second question on hydrogen. I think you mentioned that you see both green and blue play a role, and you see blue playing a transitionary role. I think one question is, we've not really seen any big, large blue hydrogen projects. CCS hasn't really been done at large scale. There's really no CCS carbon storage or transportation.
How confident are you that blue hydrogen is going to fill the transitionary gap? Might green not overtake it already? Would you be interested in directly participating in the supply of green hydrogen by building wind farms or solar parks or whatever more directly, rather than sourcing it from someone else? Thank you.
Yeah. Let me start to give Sascha a little bit more time to dig up the numbers. Hopefully it will be enough time. If I'm continuing to speak very long-winded, he is still looking at my face and looking for the number, but no, I'm just joking. If you're coming 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 CO2 to the atmosphere, but it's the cheapest way to produce hydrogen at the moment.
If you're adding up some complexity to capture the CO2, or in case of the turquoise hydrogen, you're using a kind of pyrolysis to just take the C out of that, so the carbon, and not generate any CO2, of course, I think it's a natural expansion of the technology. Price-wise, we just have to say the gray one, which is releasing CO2, is the cheapest one. Turquoise and blue one is a little bit more expensive, but still much, much cheaper than green hydrogen because green hydrogen is coming with a hefty price tag because it's generated out of renewables.
At least I see the price difference by more than 30% or even 40%. Just this price gap will probably play in most of the economy the role that you would play with both sources, try to cover the gap as 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 use it for hydrolysis or optimizing the power flow. I see for the first point of view, especially in Germany, a good potential to harvest this ghost electricity which we can't use. If we have too much wind, we cannot transport it in Germany because we don't have the interconnectors.
We are paying actually around EUR 1.2 billion-EUR 1.3 billion every year in Germany for wind farms, for not generating energy. To reuse 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 then I will hand it over to Sascha.
Who is digging himself out of the hole. With respect to your question, are we going to make money with coal-fired generation in 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 Datteln plant, but also to the Netherlands, Maasvlakte, but quite possibly also to the U.K. It is dedicated to certain stations, while the contribution of other stations that may be more exposed to the coal exit at certain points in time is more limited.
Okay, thanks.
The next question is from Vincent Ayral of JPMorgan. Your line is now open.
Yes, good morning. Just to bounce back a bit here on the coal closure again. The auctions are coming. Basically, you made a few comments there. It's a bit difficult for me to hear everything. What do you expect in terms of compensation there, especially through the years, early years, and the following couple of years as you got more, I would say, profitable units to basically come to the crunch. That would be interesting for us to understand the part of the equation of what we could expect in terms of compensation for closure. I think that's what Deepa was looking at as well here, in a way. The second question was more related to the CCGT fleet. You're putting back Irsching 4 and 5. We have seen a tightening of the power markets. 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.
That's Andreas 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 answer that because, yes, we have a coal exit law, but it has not passed all the levels, so we need the signature from the Angela Merkel, from the President, and it has to be published. On the other hand, the Bundesnetzagentur has not produced a complete set of rule books, how the auctions are running, which and so on. The European Commission has to approve the German coal exit law as well. There's still a lot of noise about those nitty-gritty details, how this would work. The only thing what is clear is the amount of gigawatts they want to take out with the auctions. They have put a clear price cap, a maximum price cap on the auction.
If you're starting early and bidding in the process, you cannot go over that price cap. You can go under that price cap, which sparks some competition, some readiness considerations, and so on. It will be kind of thing we have to model from a game theory, what we are doing, who is participating and not. Of course, if you're winning, you're getting some benefits for your employees. You get some payments. At the moment, we're really looking at that and trying to understand how the process will work.
Vincent, on the CCGT profitability, I'm not 1,000% sure that I got your question in full, but let me try to start and we can specify, i.e., the upcoming change of Irsching 4 and 5 from reserve into the merchant market is an earnings positive versus the prior status, and is also an earnings positive versus the prior year. Let's say EUR 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 want to just reiterate that part of the equation or that part of the question.
Yes. My question was indeed this one, basically. Irsching 4 and 5 are back, profit through CCGT have increased, it's positive for bringing back these two units to host the rest of the fleet. We have a positive on one hand of the equation, but we got a negative on the lower power prices. Net at a Uniper portfolio level, is it a positive or a negative? On the call auction, my question was a bit sneaky. It was, we have a cap, but we don't really have a floor. Is it fair to assume it could be zero basically here?
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 on that, because it's a competitive process. The government has just made sure that the prices cannot go sky high, and of course, they put an incentive in that you auction as early as possible, because the incentive to getting high prices is going away over time. Everybody in the market has now to run their own numbers, what are their benefits, and what is their right strategy. Of course, depending on customer contracts and so on, because we cannot tell the customers where we have maybe to deliver energy or we have talked to customers, and it's a highly competitive project process.
On the other hand, you still have the BNetzA there, which can tell you where you can auction, but you're not allowed to touch on because we consider you as system relevant. It will be an interesting couple of months going forward with that.
Going back to the CCGTs. The comparison depends on the starting position. If outright is pretty much hedged, I think the CCGT contribution could be higher. If you're comparing the Irsching 4 and 5 delta contribution with an unhedged outright position of Uniper, certainly the swing factor in the outright position is higher. Just a small add-on to the items Andreas mentioned on coal exits. I just want to 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 2022 to 2020. From my memory, there wasn't a box that said compensation for coal closures. That may tell you something about the base planning.
Thank you.
Can we have the next question, please?
The next question is from Peter Bisztyga of Bank of America Securities. Your line is now open.
Yeah. Thank you. Good morning, and thanks for taking my question. First one, just circling back onto 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. Also, I know this is 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? Then second question, I was just wondering if you could describe in a little bit more detail why Berezovskaya is delayed. Again, apologies, I sort of missed your comments on that at the start of the call. What is the risk, I guess aside from a sort of COVID second wave, that there could be any further delays?
Have there been any delays at your other projects like Scholven and Irsching 6, please?
Okay. Yeah, thank you for the question. In regards of hydrogen, I think it's a complex question at the moment. We are a little bit colorblind on hydrogen. We don't really care what color it is, as long as it's CO2 neutral and not releasing CO2. The price tags 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, we are cautious about the timeline of profit contributions. I think that's the right thing to say. We are investing into projects. We 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.
The other hand, we are quite optimistic that the earning projection could be very much faster than we think, because I believe that you could see the same kind of technology jump like with renewables, where nobody would have forecast that the technology and renewables would develop that fast and rapidly. I would say a horizon of 5- 10 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. In 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, COVID is a nasty thing, as we see. Russia is a complex environment. We have the workers on the site, we have normally more than 1,000 coming from Kazakhstan and other areas.
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. 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 heavy parts are all over. We are now doing insulations and decorative paintings, some fire protection. It's a mixed picture. It's very unfortunate that COVID-19 has impacted our project schedule, but I'm afraid I cannot guarantee anything about COVID at the moment, but probably nobody in the world can say.
There was at least another question, I think, with respect to potential delays of the other projects, including Scholven and Irsching 6. Certainly, COVID is not making it any easier, that's obvious, but we are very closely working with our contractors, and so far, we are well on track. Nothing to report on the negative side from that perspective.
Great. Thank you 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, on longer-term portfolio strategy or group strategy. You've clearly, in the earlier part of this year, been evolving your approach to coal and carbon overall, but obviously a large chunk of your fossil footprint is in Russia. If you look at it from the Fortum Group point of view, I think something like two-thirds of the CO2 in the group is now in Russia. Just given the way that Fortum and your strategies are evolving, I'm just trying to figure out how sustainable is that big carbon footprint in Russia. My idea is, if you don't mind, can I ask you very directly, do you see Unipro as a long-term core part of Uniper?
Would you at least consider scenarios in which Uniper and Unipro might one day go their separate ways? I guess, I don't know, if you can't comment on that directly, I might have some sort of other ways of asking the question, let me pause and see if you can happy to comment on that directly.
Of course, you can. Sorry, we have some technical issues here. Thank you for the question. I think you can rephrase the question as you want. You will not really get a clear answer from me, because it's a stable earning provider. 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 the international. As of now, we are calling it after divesting Brazil and France as the Russian Generation. It's a stable earning procedure. It's supporting our rating, our triple B rating in a very essential way. 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 this portfolio as well, stepwise, so we represent our strategy there as well.
The modernizations, Berezovskaya causes a lignite-fired strength, and we understand that. It's a complex world. Russia has signed the Paris Agreement and has committed to reduce their CO2 footprints. It's up to them to regulate how they want to do that, and it's accepting power generation from lignite, from hard coal, from whatever sources, and they are fulfilling the Paris Agreement. I think we should live by these rules. 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. Do you mind if I just, as a follow-up, just reconfirm. 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 not having the stable cash flows from Russia, but also having less fossil exposure and less different international sovereign backdrop, and that might be treated differently in the rating formula. The other thing I was just wondering if you could comment on, I 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 people ever come to you over? I'm trying to sense if there would be an active market there or not.
I only confirm that we consider Unipro as a central part of our strategy and of our portfolio. I think we have to hand over the rating issues for more detailed answers to Sascha. As I explained, it's one-third of our income. It's very stable. From that point of view, if you're looking at rating issues, you're always looking at good, stable income streams. As I understand, if you're selling something, the income stream is gone for that as well, right. From that point of view, if you look where we are coming from, how hard Uniper has fought to get this BBB rating confirmed and stabilized by divesting assets which were variable to creating the situation we were at, therefore, I can hardly imagine how that would work.
Just to add to that. Our participation in Unipro is certainly not an obvious negative in the rating equation. As you know, the agencies, they usually look at business risk, they look at financial risk. I think Andreas commented on the positive aspects of the financial risk, i.e., it is largely a regulated earnings 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 the Uniper puzzle.
Okay. Thank you very much for your answers. It is very helpful.
You're welcome.
The next question is from Lueder 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. Given that, I'm not sure if I really understand. Well, 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. This pretty much just falls under gas optimization. Is that the hydrogen strategy for now, use your existing assets and trading capabilities and go into development and other stuff once the economics justify that? The second question is on Nord Stream 2. 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? Can we actually go ahead with the project? 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 financials of the loan you've given? Just to show some scenarios there.
Coming to the hydrogen structure, 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 the electrolyzers, with the pilot projects we have in Germany and in other places. Of course, we have the global commodity, which are looking forward to optimize these things, import that, transport that, and store that. As we found out, as we're looking into that hydrogen, we found out that there are so many touchpoints in Uniper because there are so many groups which have touched hydrogen, which have an interest in hydrogen. It's, 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 is just too early at the moment.
Nobody knows in which direction that goes. That's why we created a virtual at the end there and a virtual group. Not to decide, is it an asset-driven thing, and then they neglect the commodities? Or is it a commodity-driven unit, and it's neglecting the assets on the production side? This unit is reporting to me. Getting the data together, we're driving the project, and then we 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 a P&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, all the red tape we have in big companies always are normally killing small projects. You are right, hydrogen is starting. It's taking off.
There's a lot of fantasy in the market, a lot of subsidies, a lot of plans. To really make money with hydrogen, except gray hydrogen, is at the moment, from my point of view, without subsidies and without regulatory help and investments, quite a stretch. In regards of Nord Stream 2, I don't know if I understand your question completely. We are just a financial investor. We have paid in our financial commitments pool since March this year, 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. Actually, given the sanctions and all the environment, we're not hearing too many technical details in any way.
It would not for me to speculate what they are doing at the moment and when they are going to finish. I assume, 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 2 because we are standing for supply, the security of supply. The worst case would be, of course, if the thing would never be finished. Of course, the question is, can we get our money back or not? 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&A now. Of course, the investor relation 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 Q3 call in November.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.