Good day, ladies and gentlemen, and welcome to Colbún's first quarter 2022 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Miguel Alarcón. Sir, the floor is yours.
Hello to everyone, and welcome to Colbún's first quarter 2022 earnings review call. My name is Miguel Alarcón. I am the company's deputy CFO, and joining me today is Sebastián Moraga, company CFO, Soledad Errázuriz, and Isidora Zaldívar from investor relations team. I hope that you have received our earnings report and an earnings review presentation that we have prepared to complement the analysis of our figures. Otherwise, you can download them at the investor section of our website. Agenda for today on slide three is as follows. We will begin talking about the highlights of this quarter to then analyze in detail this quarter's results. After that, we will provide an update on our growth opportunities. Following the presentation, there will be time to participate in a Q&A session. Now, please go to slide number four to review the highlights of this year.
Number one, on January 24, 2022, Colbún prepaid 100% of its local bonds. That was series F and I. The outstanding notional amount of those bonds was $181 million. Number two, in February, Colbún was included for the second time in the Sustainability Yearbook 2022, a yearbook that groups together the companies scoring in the top 15% of each industry in the Dow Jones Sustainability Index, which selects the companies with the best evaluation in sustainability matters, including economic, social, and environmental management, as well as corporate governance. Number three, in March, Colbún sold to Chile Electricity PEC SpA the fourth group of accounts receivables associated to the energy price stabilization mechanism, Law 21,185, for a nominal value of $12.9 million.
Number four, on March 30, 2022, the board of directors agreed to propose to the ordinary shareholders meeting to distribute a total dividend of CLP 72.6 million, which consists of, number one, a dividend of CLP 22.6 million, which added to the CLP 250 million paid in October of 2021, represents 50% of the distributable net income for the year 2021. Number two, an additional dividend of CLP 50 million. Number five, regarding the status of the Diego de Almagro project, as of the first quarter of 2022, progress on the ground is 99%, in line with the budget. Since December 9, 2021, the project has been injecting solar energy into the system.
Number six, on April 4, the board of directors accepted the resignation of Mr. Thomas Keller Lippold from the position of CEO, which will become effective on May 16. Thomas will continue to be associated to the company as a director of the subsidiary, Fenix Power, and the parent company, Eléctrica Colbún, and as advisor to the CEO in matters associated with the execution of investment projects. The board of directors agreed to appoint Mr. José Ignacio Escobar as the new CEO starting on May 16, 2022. Now, let's go to slide number five to review the main consolidated figures of the company. Consolidated EBITDA in the first quarter of 2022 reached $146 million, increasing 6% compared to $137 million EBITDA in the first quarter of 2021.
The increase is mainly explained by the higher operating income driven by, first, higher sales to unregulated customers in Chile, and second, higher energy price and capacity sales both in Chile and Peru, given the higher generation of the quarter. This effect was partially offset by higher raw materials and consumables used, mainly driven by higher gas consumption given the higher generation of the quarter with that fuel. It is important to note that this increase was achieved despite that Colbún Transmisión S.A. business is no longer consolidated after its sale in the fourth quarter of 2021.
The company recorded profits of CLP 56 million, compared to a loss of CLP 41 million in the first quarter of 2021, mainly due to, first, the lower tax expenses, mainly explained by a deferred tax recognition of CLP 65 million during the first quarter of 2021, associated with Colbún Transmisión S.A. Sale announcement. Second, the lower non-operational loss given by lower sales of receivables generated by the energy price stabilization mechanism compared to the first quarter of last year. Third, the higher operational result previously mentioned. As of March 31, the company holds CLP 1,199 million of cash and net debt to EBITDA ratio is at 1.8x . Now I will turn to Isidora, who will speak about the main drivers of this quarter results.
Thank you, Miguel, and hello to everyone. Now please continue to slide seven for physical sales and generation balance analysis in Chile. Total generation of the period increased 34% compared to the same quarter of last year, mainly explained by, one, higher gas generation as a result of the higher Argentine gas availability. Two, a higher solar generation given the start of energy injection of Diego de Almagro project. The estimated COD for the project is for the next quarter. These effects were partially offset by a lower hydroelectric generation. Physical sales during the quarter reached 3.2 TWh, 26% higher than the same quarter of last year, mainly explained by higher physical sales to unregulated clients, driven by the entry into force of BHP contract in January 2022. This effect was partially offset by the expiration of CGE contracts in December 2021.
Spot market balance during the first quarter of 2022 recorded net sales of 238 GWh compared to the net purchases of 93 GWh recorded in the same quarter of last year. The variation is mainly explained by the higher generation during the quarter. Now please continue to slide eight to analyze the EBITDA in Chile for this quarter. EBITDA in Chile reached CLP 121 million this quarter, increasing 16% compared to the first quarter of 2021. This variation is mainly explained by the higher operating income recorded during the period. This effect was partially offset by higher raw materials and consumable use, mainly due to the higher generation with the gas during the quarter. Now please continue to slide nine for physical sales and generation balance analysis in Peru.
Total generation of the period increased 97% compared to the same quarter of last year, reaching 1 TWh, mainly driven by the higher power plants availability during the quarter, given that during the first quarter of last year, a major maintenance took place. Physical sales during this quarter reached 1 TWh, increasing 79% compared to the same quarter of 2021, mainly explained by one, higher sales in the spot market due to the higher generation of the quarter. Two, higher sales to regulated clients associated mainly to the demand recovery compared to 2021 depressed levels affected by the pandemic. Spot market balance during the first quarter of this year recorded net sales of 385 GWh compared to the net purchases of 6 GWh during the same quarter of the previous year, due to the higher generation recorded during this quarter.
Now, please continue to slide 10 to analyze the EBITDA in Peru for this quarter. EBITDA in Peru reached $25 million, 45% higher than the EBITDA of $17 million recorded in the first quarter of 2021, mainly due to the higher sales to regulated clients and the spot market due to the higher generation of the quarter. Now please continue to slide 11 for the consolidated non-operated income and net income analysis. Non-operated income in this quarter recorded losses of $31 million, compared to the losses of $44 million the same quarter of last year. The lower losses are explained by the lower sales of receivables generated by the energy price stabilization mechanism. The effect in the last year was $14 million, while in this quarter it was $4 million.
The company recorded a profit of $56 million, compared to the loss of $41 million at the same quarter of last year, mainly explained by, one, the lower tax expenses, two, a lower non-operating loss, and three, the higher operational results. Now continuing with this conference call, please go to slide number 13, where Miguel will give you an update on the status of our growth opportunities.
Regarding our growth opportunities in Chile, update for this quarter is as follows: Horizonte. In the first quarter of 2022, a 9% progress was achieved, in line with budget. The installation of fiber optics for communications was completed, and the construction of the camp for 1,200 people and interior roads began. The first supplies have arrived in the country, corresponding to 14 baskets of bolts that are part of the foundations of the wind turbines. Regarding Diego de Almagro, as of the first quarter of 2022, progress in the field is 99%, in line with the budget. Since December 9, the project has been progressively injecting energy into the system. As of March, the 46 transformation stations equivalent to 211 MW were energized. The project is in the process of preparing systemic tests with the CEN.
About Junquillos, during January and April of 2022, early citizen participations were carried out with good results. The first draft of the environmental impact approval was concluded for internal review, which is expected to be processed in mid of this year. For more information regarding our pattern of projects, please review our earnings report. This concludes Colbún's first quarter of 2022 results review. Thanks for listening, and now we're open to answer your questions.
Certainly. Thank you, ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Please hold while we poll for questions. Your first question is coming from Exequiel Fernández from Balanz. Your line is live.
Hi. Good morning, everybody. This is Exequiel Fernández from Balanz. Thank you very much for the materials, and it was great to see resilient results in this difficult market configuration. I have three questions, and I would like to go one by one, if you don't mind. The first one is related to the marginal coal costs in Chile. It remains quite low in terms of dollar per megawatt hour versus the coal international benchmark. Should we expect them to converge to levels more aligned with $200 or $300 per ton that we are seeing now for coal, or maybe not for some reason?
Hi, Exequiel. Miguel Alarcón here. Great talking to you. As you know, we have an auction process in which we try to purchase our coal needs in advance around twice a year, so two times a year. For this time, during the first quarter of this year, the coal that we used in Santa Maria corresponds to the auction we performed by mid last year, around July. Because of that, of course, it's a lower level than the one we have. I wouldn't give you specific values, but I would say that, yes, in some way it needs to converge following international prices.
Got you. Perfect. The second one is related to Peru. We've seen results improving greatly after the change in gas declaration prices. That is great. What I want to know is going forward, the gas purchases for power generators, for Fenix or any power generator in Peru for that matter, are indexed to inflation or to international benchmarks. If that is the case, if the PPAs that you have signed contain also indexation clauses that would protect your margins, and how that roughly works.
Miguel again. Exequiel, first of all, on the supply side, the prices, it's a regulated price that in some way follows, I would say, a more local reality. It has some indexators, but again, it's a fixed regulated price. On the revenue side, we do have a couple of indexators that I think we've discussed before. One is linked to an industrial CPI. That's the main component. And the other in some way reflects the cost that we get for getting the gas or supply cost. Yes, in some way the cost of supply moves, we are able to pass through a relevant portion of those costs into our PPAs.
Okay, that's great. Finally, I have a question more related to the Chilean power system and where it should go in the future. In the latest auctions with distribution companies, we have seen some players bidding $20, $25, $30 per megawatt hour for projects starting 2023, 2024 and so on. In this market configuration where we have high spot prices, much higher than what we thought before and probably in a more structural fashion, transmission congestion, decoupling of nodal prices, do you think some of these projects could be canceled and maybe not be commissioned?
Hi, Exequiel. This is Sebastián. Great talking to you. Well, as in previous calls, really, we don't comment on our competitors' prices or strategies. Given the facts that you mentioned, yeah, from the outside, it clearly shows that at least, it's a different scenario with costs going up. Specifically, we don't comment on their pricing strategies.
Okay. That's great. If I may add a final one. We know that the government and power generators have been discussing as of late the issue with the PEC, with the receivables, for the stabilization fund, which should hit a limit in June. I was wondering if you could provide any details on how this situation could move forward, if we should see an expansion of the limit? Maybe some other mechanism at play.
Exequiel. Hi, Miguel. So first of all, if you look at different reports, you'll see that according to different parties, we are about to reach the limit for the cap that was established in the first loan, PEC 1, right? With that, we should expect probably in this year, at some point this year, in the second semester probably, whether an increase in energy prices or a different mechanism to adjust and maintain prices as it was the case in PEC 1.
At the same time, this maybe relates to your previous question. We are now in a different scenario compared to PEC 1, in the sense that we are as generators facing a really challenging scenario in the sense of poor hydrology, high commodity prices, and because of that, higher supply costs. If you look at certain reports, there's one in particular that was issued a couple of weeks ago that says that there should be around CLP 2 billion of additional costs in terms of hydrology and fuel prices that in some way would need to accommodate into this new price reality or to be adjusted over time in the new contracts. I cannot give you an opinion on what's gonna happen.
I do know that discussions are happening among GenCos and with the different counterparties from the government to try to tackle this situation. Of course, the result is something that it's at this point unknown. Because of that, not knowing the mechanism, we cannot give you an opinion on the specifics. We need to wait and see what will happen, again, probably later this year.
Okay. That's fair. I understand. Thank you very much. That's all from my side.
You're welcome, Exequiel.
Thank you. Your next question is coming from Andrew McCarthy from Credicorp Capital. Your line is live.
Good morning, Sebastián, Miguel and the team, and everyone on the call. Thanks for the presentation and taking my questions. Firstly, I wanted to ask about the gas supply strategy for the rest of 2022. You know, you've got obviously the Argentinian gas coming until at the end of this month. You have the supply agreement with ENAP to enable you to have, you know, the operation of combined cycles during the first half of the year. Just trying to understand how you're seeing that supply evolving as we move into the second half of the year. That'll be my first question. Maybe we could take that first.
Sure. Hi, Andrew. Miguel here. As you correctly point out, we have secured Argentine gas up until April. On top of that, for the first half of this year, we also have the ENAP contract for up to two combined cycles. As usually happens at this time of the year, we're still evaluating what we need to be our position from July to September. I mean July to September, because after that in October to December, we expect to continue having Argentine gas available and securing that type of fuel in order to serve our contracts and use in the Nehuenco complex. From July to September, we are evaluating different strategies. We are assessing the possibility of getting additional gas and the cost of that.
As we've discussed before, we need to be really careful about this because in some way this is a replacement for poor hydrology. We're in the process of that. Once we have news, we'll certainly share with you on the rest of the market.
Got it. Thanks very much. Then just looking at the unitary costs of the fuels in the first quarter, you know, they came in quite low. I know you've talked a little bit about the part of the reason behind that on the coal side, given you know the auction in July last year, we were able to lock in lower prices. Just wanted to understand if there are any other dynamics, maybe some hedging that's being taken out there that's also helped. If so, if you could understand that, how that works a little bit better and until when those hedges are maybe in place. Any color around that would be really helpful. Thanks.
Yes. That is actually correct. That's the reason on top of the gas supply. Basically, we've been doing this for a number of years. We have a risk tolerance policy, and based on that, we find ways to limit our exposure to fuel prices. In this case, for Brent and for gas prices, we use the Brent ICE call options that we try to buy early in advance of the utilization of that gas supply. Because of that, we have an effect in this quarter's results that turn out positive because we were able to secure strike prices that were significantly below the exercise price that end up occurring towards the average of this quarter.
Of course, we then analyze and have additional of these positions in the derivatives for the rest of the year, trying to mimic our utilization of that gas supply.
Got it. Understood. Just to follow up on that, so did you have any other hedges already taken out for the quarters ahead? Or is that something you're trying to get today for the second quarter and going forward?
Yes. We already have some additional hedges in place for the second quarter of this year. Depending on what happens with securing additional gas, we would take further hedges if needed.
Perfect. Understood. Thanks a lot, Miguel.
Mm-hmm.
Thank you. Your next question is coming from Gabriela Bahachille from PineBridge Investments. Your line is live.
Hi, everyone. Thank you so much for your time and the presentation. It's been very helpful. My first question is a follow-up on a question that other participant already made, and it's about the potential extension of the stabilization mechanism. I just wanted to confirm the timeline. When we should expect further news about it, about an extension of the current stabilization fund or a new mechanism to stabilize prices? Thank you.
Hi, Gabriela. Miguel here. We don't have specific dates, unfortunately. This, as I mentioned before, is a discussion that is currently happening. Since there is a, I would say, a consensus that by June or around June of this year, the current limit should be reached, I think it should be pretty soon.
Thank you. That's very helpful. My second question is, could you confirm, please, how much of your total generation as of today comes from coal and your target year to phase out of coal completely? Thank you. Hello?
Sorry about that. I was having some connection problems. In this quarter, we produced around 640 GWh of energy with coal. As you know, we only have one coal-fired unit, Santa Maria, that produces around 2.5 TWh per year.
Sorry, could you tell us in terms of percentage from your total generation, how much that is? Thank you.
Sorry, it's around 20% if you consider, I would say, an average figure close to 12 TWh and production of 2.5 TWh.
Okay. When's your target year to completely phase out of coal? Could you remind us of that again, please? Thank you.
Yes. By now we are participants of the same agreement that all GenCos reached with the government that says by 2040 all coal plants should be completely phased out. We haven't announced a specific date different than that.
Once you complete your current renewables pipeline, how much do you expect your coal generation to decline? From 20% to how much? Thank you.
That depends, right? Because you're asking about when do we plan to complete our total renewables platform. We are in different stages of development. We have one plant that's already finished. That's the El Madero. We are in the process of building Horizonte, and then we have additional pipelines kicking in. I would say that once we complete the complete renewables platform, it should go below 10%. But again, that's a rough figure. That's the expectation.
Perfect. One last question on my side. I was wondering if you could please talk about initiatives at Fenix Power level to reduce CO2 emissions. Thank you.
Sorry. Can you please repeat the question? I couldn't get it.
Yes, of course. Could you please talk about the initiatives at Fenix Power level to reduce CO2 emissions? Thank you.
I would have to get back to you on that, Gabriela. At least I don't have the information here. I don't know if somebody else on the team might have.
Not on my side, Gabriela. We will note that question and please give us,
Give us some time, probably Monday, and we'll get back to you with the exact information.
Thank you. That's very helpful. One last question going back to Diego de Almagro. Once this plant starts operating, how much do you expect your coal generation to decline from 20% to how much? Thank you.
Hi, Gabriela. Diego de Almagro is injecting energy from December of last year, of course, entering gradually. We expect the COD for the plant this month. We expect an annual generation of close to 600 GWh per year.
It would basically reduce from, let's say, 20% to 19% because as, Isidora correctly mentioned, it should have around 600 GWh per year. Generation should increase.
Perfect. Thanks.
By the same amount.
Great. Thank you. That's very helpful. Thanks. That's it for me.
Thank you. Your next question is coming from Peter Boley from Bank of America. Your line is live.
Hello. Thank you for the call and the opportunity for questions. Could you share an update on any of the possible new initiatives you had mentioned on the previous investor day, like waste to energy, desalination, green hydrogen? Are these projects still under analysis? If so, what timeframes should we have in mind? Thank you.
Hi, this is Sebastián. As we have mentioned, we are on the feasibility phases of the studies. The three, actually, you mentioned, I would say out of the three, the most advanced is desalinization, then followed by waste to energy, and I would say in the third place is hydrogen. To give exact dates, we are not there yet, but we will keep you duly informed of these three initiatives as we move along the year.
Thank you.
Thank you. Your next question is coming from Tom Rennie from New York Life Insurance. Your line is live.
Hello. Thanks for taking the question. Appreciate it. There appears to be a bill floating around the Senate and, also a previous bill that, is calling for, fossil fuels to be, eliminated in generation by 2030. A previous bill was talking about coal, in particular, by 2025. Are you aware of any of the progress of these bills? Do you have an opinion on their chances of actually being passed and approved by the new government? Thank you.
Hi, Tom. Yes, we are aware of this, those bills. They haven't moved forward. They haven't been approved. Now, to have an opinion specifically on coal, well, it's the opinion that we have been expressing over the last years. Yes, Colbún believes in coal phasing, but we believe in a responsible coal phasing. That is that coal will be and we will obviously be part of that, moving coal out as we are able to give security to the system. Today, the system is being challenged. We are having less water than we used to have. We have commodity prices that are well above what we used to have. Therefore, this needs to be analyzed very in detail.
To give a specific date or year, well, we haven't, 'cause a lot of things must converge. We need to have more renewable energy. We need to have the transmission to evacuate that energy as well. That's where Colbún is standing. Again, we support coal phasing, but at the same time, we have always stated that that timeframe needs to first of all guarantee the security of electricity supply to the country.
Fair enough. If that bill does gain traction and pass, you would have to shut down your gas plants by 2030. Is that something that is. It sounds like you're saying it's not feasible to do that. I know you don't wanna put a date on it, but would you agree with that?
I'm sorry, Tom. I didn't get the full question. Could you repeat, please?
Sure. The question is: It seems like, you know, if the bill does pass, you guys would be forced to shut down your gas plants in the next eight years. Would you think going forward that is a feasible timeframe or not?
Well, that depends on many factors. Well, the first question is what technology would replace those gas facilities? Obviously, if you cannot build more coal facilities and you cannot build more gas facilities and on the other hand, you are having less hydropower into the system, well, probably the puzzle would be resolved with more solar, wind and batteries. Again, also the transmission should move accordingly to achieve and to generate all the capacity that would come out from the system in the form of combined cycles. The question is, it depends. Sorry. The answer to your question is it depends.
If we have all those things on the table, yeah, it would be plausible, but if we don't, it would be pretty tough to do so.
Okay, great. Thank you for your answer.
Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one on your phone at this time. Your next question is coming from Murilo Riccini from Santander. Your line is live.
Hi, everyone. Thanks for the call and for taking my questions. How do you assess the situation of the transmission congestions in the north, mainly seeing the interest of the audience regarding the coal dispatches nowadays? Do you see less attractiveness currently on investing solar capacity in the north due to the congestion issues or maybe construction costs? My second question, I don't know if you already answered this, but could you give us more details about the good performance of Fenix Power, mainly regarding the energy sales and capacity payment, please? Thank you.
Hey, Murilo. Regarding your question of solar, well, it is clear that the congestion is still there, and it is clear that the costs of building that technology are also going up in being into that investment. Well, you know that we have projects in that area. Again, the theory of Colbún, you know, is that we have assets tied to PPAs, and accordingly, then we see the return on constructing that technology tied to our PPAs. We look at that at these investments in a more holistic way, not only looking at the spot situation, but also looking at with a longer-term view. Again, you see that we have projects on that area.
We have in different advancements and, they are waiting for the, I would say, for the opportunity to have the go, in terms of investment. Currently, we are finishing Diego de Almagro, and we are in the midst of constructing ENERCON . Sorry, the wind Horizonte. The wind park Horizonte, which is supplied by ENERCON , which has had an advancement up to date of 9%. Regarding the performance of Fenix, Miguel, can you take that question, please?
Yes, absolutely, Sebastián. I would say, as you mentioned, Murilo, Fenix is performing really well. It's producing, I would say, at its maximum capacity. It sold during the first quarter almost 1 TWh , of a bit over 1 TWh actually in terms of production, mainly to our clients.
Because of its contractual position, we were able to additionally sell. We don't foresee any reason for that to change. The plant is in pretty good shape. That's it in general, I would say.
Many thanks for the answers, guys. That was very helpful.
Sure.
Thank you. That concludes our Q&A session. I will now hand the conference back to management for closing remarks. Please go ahead.
Well, thanks everyone for attending this conference call. We're very happy with the questions, and we hope we gave good insights into the answers. We hope to see you all on our next results presentation. I wish you all a very good weekend. Bye from Colbún's team.
Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.