Ladies and gentlemen, hello, and thank you all for joining today's Colbún Fourth Quarter 2019 Earnings Conference. All participants are in listen-only mode, and instructions on how you can ask a question will be shared following today's prepared remarks. Now to get us started with opening remarks and introductions, I am pleased to turn the floor over to Deputy CFO of Colbún, Mr. Miguel Alarcón. You may begin, sir. Please go ahead.
Hello to everyone, welcome to Colbún's Fourth Quarter 2019 Earnings Review Call. My name is Miguel Alarcón. I am the Deputy CFO of the company, and joining me today are Soledad Errázuriz and Isidora Zaldívar from the 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 strategic agenda progresses to then analyze in detail this year'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. Please go to slide number four to review the strategic agenda progresses.
During 2019, Colbún achieved important progresses in its strategic agenda, which focuses on five main pillars. One, to increase unregulated client segment market share. Two, massive incorporation of cost-efficient projects of renewable energy from variable sources. Three, to continue with the fixed cost efficiency plan implementation initiated last year. Four, to progress in the digitalization and automatization program at our facilities. Five, to strengthen our transmission business. Regarding commercial strategy, in October 2019, Colbún was awarded a renewable energy supply contract for 3,000 GWh a year with BHP for Escondida and Spence mine sites. The contract starts in January 2022 for a 10-year period. The agreement will allow the development of our portfolio renewable projects, especially of the Horizonte Wind Farm. Considering this agreement, during 2019, the company has contracted approximately 3.5 TWh A year of its generation with new unregulated customers.
Regarding the incorporation of renewable energies from variable sources, during 2019, important advances were made in the wind and solar projects pipeline. First, the feasibility stage of the Horizonte Wind Farm was concluded. Second, Diego de Almagro Solar Project's environmental qualification resolution was approved. Third, the environmental impact declarations of the solar projects, Jardín Solar and Machicura, began their formal approval process. Additionally, during the year, Colbún continued looking for renewable projects throughout the country with the target of consolidating a robust and diversified project portfolio in line with the goal of doubling our current installed capacity, incorporating renewable generation equivalent to a total of 4,000 MW by the end of 2030. Regarding the fixed costs efficiency plan implemented last year, it can be highlighted that Colbún implemented operational efficiencies that reduced its fixed cost structure, achieving relevant savings compared to last year.
Regarding to Colbún's digitalization and automatization, it consists in an operational, administrative, and maintenance process review in order to simplify them and increase the efficiency and competitiveness of the company. These initiatives include, for example, predictive maintenance techniques adoption, online operation processes monitoring, plants remote control, among others. During 2019, important progresses were made in digitalizing and integrating the management of the company's commercial cycle, as well as incorporation of a higher level of technology for administrative processes in the supply, contract, and travel management areas. The scope of telemonitoring coverage of our facilities increased. Regarding the pillar of strengthening our transmission business, during 2019, we continued with the progress in the expansion and normalization projects of the company current transmission assets, whose total investment value awarded reached $50 million. Colbún Transmisión recorded an EBITDA of $72 million during 2019.
Please go to slide number five to review the main consolidated figures of the company. Consolidated EBITDA for this year reached $697 million, increasing 2% compared to a $684 million EBITDA for 2018, mainly explained by the efficiency plan implemented in 2018 and 2019, partially offset by a decrease in hydro generation as a result of a more severe drought and to the lower income during the period. Consolidated profit reached $202 million, 12% lower than the $230 million in profits in the previous year, mainly explained by higher provisions for impairment of individual assets, partially compensated by the lower EBITDA recording during the period. Financial investments totaled $797 million. Net debt to EBITDA ratio is at 1.3x .
The average long-term financial debt interest rate in US dollars is 4.5%. Colbún has a total installed capacity of 3,811 MW, comprised of 2,188 MW in thermal units, 1,614 MW in hydraulic units, and nine megawatts from the photovoltaic power plant, Culebrilla. In terms of transmission assets, it owns 937 km of transmission lines and 31 substations. Now, I will turn to Isidora , who will speak about the main drivers of 2019's results.
Thank you, Miguel, and hello to everyone. Please continue to slide seven for physical sales and generation balance analysis in Chile. Total generation of the period decreased 8% compared to the previous year, reaching 11.9 TWh, mainly due to lower hydro, coal, and diesel generation, partially offset by higher gas and wind generation. Physical sales during the year reached 12.2 TWh, 5% lower than the previous year, mainly explained by lower sales to the regulated clients and to the spot market, partially offset by higher sales to the unregulated clients. Spot market balance during 2019 recorded net sales for 735 GWh, compared with the net sales of 1,218 GWh in 2018 as a result of the lower generation of the year. Please continue to slide eight to analyze the EBITDA from the generation business in Chile for the year.
EBITDA of the generation business in Chile reached $555 million in 2019, decreasing 5% compared to 2018. Lower EBITDA of the year is mainly explained by a decrease in the operating income recorded during the period, partially offset by lower expenses as a result of efficiency program and lower raw materials and consumable use. Please continue to slide nine to analyze the EBITDA from the transmission business for this year. EBITDA of the transmission business reached $72 million this year, increasing 9% compared to 2018, mainly explained by an increase in the revenue from zonal transmission assets due to the release of the Decree 60 in October 2018, which modified the pricing of those assets. Please continue to slide 10 for physical sales and generation balance analysis in Peru.
Total generation of the period decreased 4% compared to 2018, reaching 3.8 TWh, mainly explained by the lower availability of the plant, driven by a failure in one of the plant's gas turbines on October 29th. As a result of the failure, the plant operated in one-by-one mode at 50% capacity with a gas turbine and steam turbine for the rest of the quarter. It's estimated that the plant will start its operation on the first day of February in one-by-one mode after repairing the failure in this turbine. Physical sales during this year reached 3.9 TWh, decreasing 3% compared to the previous year. The decrease is explained by the lower generation of the year as a result of the previously mentioned failure. Spot market during 2019 recorded net sales for 756 GWh, decreasing 9% compared to the previous year as a result of the lower generation of the year.
Please continue to slide 11 to analyze the EBITDA in Peru for 2019. EBITDA in Peru reached $70 million in 2019, 96% higher than the EBITDA of the $36 million recorded last year. Mainly due to, first, the recognition of the gas distribution contract with Cálidda as a financial lease from January 2019 onwards. Second, higher revenue sales received during the period. Third, a non-recurring income of $6.2 million derived from the arbitration award, which demanded Cálidda the compensation payment for the income that Fenix used to receive due to the breach of the framework agreement between both companies. Please continue to slide 12 for the consolidated non-operating income and net income analysis. Non-operating income in 2019 presented losses of $176 million, 49% higher than the losses of $118 last year.
The higher losses are mainly explained by, one, higher impairment provision of individual assets recorded, although it is worth mentioning that the impairment of total $48 million of the San Pedro and Guaiquivilo Melado hydro projects, in order to reflect the impact of lower projected electricity supply prices on the book value of those projects. Second, higher financial expenses due to the recognition of the gas distribution contract with Cálidda as financial leasing, previously explained. These effects were partially offset by the positive effect of the variation of the exchange rate, CLP-dollar, on temporary balance sheet items in local currency during the period. The company recorded in 2019 profit of $202 million, 12% lower than the $230 million profit last year. The lower profit is mainly explained by the impairment provision previously explained.
Continuing with the conference call, please go to slide number 14, where Miguel will give you an update on the status of our growth opportunities.
Thank you, Isidora. Regarding our growth opportunities in Chile, we have focused our growth in renewables, meaning hydro, solar, and wind, based on three pillars. First, developing a pipeline of projects. Regarding the incorporation of renewable energy from variable sources, up to this date, Colbún has been able to complete a portfolio of locations for wind and solar projects, which are in different stages of studies and development. Horizonte, a wind farm of 607 MW located in the Atacama Region. Diego de Almagro Sol 1 and 2, which are two photovoltaic projects of an overall capacity of 200 MW, located also in the Atacama Region. Inti Pacha, a photovoltaic project of 430 MW located in the Antofagasta Region. Jardín Solar, a photovoltaic project of 450 MW located in the Tarapacá Region. Machicura, a photovoltaic project of 10 MW located in the Maule Region.
In addition, at the end of the fourth quarter of this year, Colbún holds a portfolio of locations for other wind and solar projects, which are in early stages of development. For more details on this slide, you can refer to the latest earnings report available at our website. Second, the company does not rule out the purchase of renewable assets in operation. Finally, the third pillar of our growth in renewables is acquiring energy from third parties. Regarding the transmission business, Colbún has several projects for the expansion and enhancement of the company's current transmission assets, with a total awarded investment value of approximately $50 million. In addition, the company is also participating in regulated auctions for the expansion of the national transmission system.
In terms of our international expansion strategy, as we have mentioned before, we continue searching for growth opportunities in selected countries of the region in order to maintain a leading position in the power generation business and to diversify our sources of income. This concludes Colbún's fourth quarter of 2019 results review. Thank you for listening. Now we're open to answer your questions.
Ladies and gentlemen, at this time, if you would like to ask a live question over your telephone line, simply press star and one on your telephone keypad. A friendly reminder that if you're joining us today on a speakerphone, please return to your handset before pressing star and one to ensure that your signal does reach our equipment, and also to provide the most favorable sound quality. We'll go first to Murilo Riccini with Santander. Please go ahead.
Hello. Hi, everyone. Thanks for the call, Miguel and Isidora. Congratulations for the results. My question is related to regulated volumes. What are you expecting regarding regulated volumes in Chile? Are you seeing more reductions due to migration during 2020?
Hi, Murilo. This is Miguel. Thank you for your question. I would say, as we have said in previous calls, that we believe that most of the migration, because of the change in regulation, already occurred in 2018 and especially 2019. We don't foresee a relevant volume migrating from the current contract under the current thresholds. No further relevant migration.
Thank you, Miguel.
We'll move next to Alejandra Andrade with JP Morgan. Your line is open. Please go ahead.
Hi. Thank you for taking my question. I was wondering the impact of the stabilization fund this quarter. If you could share how much had you accumulated in terms of receivables, and then your expectations for 2020?
Alejandra, t his is Miguel again. As we've said before, we expect for the company for the whole period to accumulate an amount that would be between $130 million-$150 million for the whole duration up until 2026. Up to this quarter, that figure is still not material, and because of that, we cannot disclose it at this moment.
Okay. Thank you.
We'll go next to Edgar Castro with Credicorp.
Hi, good morning. Thank you for taking my question. I have two questions. The first one is related to the Peruvian operations. I know that you will operate at 50% of your capacity since February. Perhaps you can comment us about what was the cost to return to that 50% of operational level, and how much time do you think would be necessary to get the operation to full capacity? My second question relates to the drought in Chile. What is your view on that? Are you expecting this weather phenomenon to be temporal or perhaps a new normal? Thank you.
Hi, Miguel here. Thank you for your two questions. Regarding the first one, the first gas turbine will be online within the next few days, during the first week of February, in which, as you mentioned, we will operate at 50% of our capacity. The second turbine is being inspected. We did a preventive stop just to inspect the machine and prevent potential issues there. We expect that review will take approximately 45 days. Again, depending on the actual results and findings, we will then decide on the actual stoppage for that second unit and hence the complete back to operation at 100% of capacity. Cost involved, I cannot disclose at this moment. I can say that, of course, we have insurance committed that covers both physical damage and business interruption, if any.
Regarding your second question, I would have to say that in terms of hydrology, as I'm sure you're aware, 2019 was a really dry year. It's among the driest in our history in Chile. We cannot comment and give a forecast for 2020. We never do that. I do can say that preventing similar conditions, as we always do, we have a pretty strict hedging policy in which, in this case, translates into securing sufficient LNG to cover most of the operations in our combined cycles for the first semester of this year, which is the case.
Okay. Thank you. Perhaps I can make a follow-up question regarding the first point. You mentioned that you will need 45 days to implement the second turbine. I was wondering these 45 days, when start? Since the beginning of February, or I don't know. I'm just trying to get an idea on the timing that you will reach the 100%.
Sure. Just to clarify that, the second unit was stopped in January, I would say the first days of January. We expect to have more detailed information at some point, I would say mid-March. Again, that, of course, will depend on the actual findings on the turbine, if any.
Okay. Thank you.
We'll go next to PineBridge Investments, and I do apologize if I mispronounce your name, Gabriela Bajjali. Please go ahead. Your line is open.
Yes. Hi. Good afternoon. My question is regarding some comments you made on your fourth quarter highlights about the regulatory environment in Chile, that you're expecting some laws that are being currently discussed and that could eventually be implemented. I was wondering if you could elaborate a little bit more about it? I understand there are three laws. One for transmissions. The other one is, if I understood correctly, to modify the dispatch from the generators to the distributors. The third one, please, if you could give us a little bit more color on that? Thank you.
Yeah. Now I got it. Thank you. Yes, actually on our earnings report, we did some comments about potential changes in regulation. The first one is a change in the distribution law, what we call the new distribution law, which is something that has been discussing for some time here in Chile. Basically, this has to do with updating a law and a regulation that has been there for, I would say, more than 30 years. That has happened in generation before. We believe we've been seeing some discussions to try to, in some way, address some of the issues regarding, for example, quality of service, promote investments, and to plan in advance more than the current legislation contemplates. That would be the first point.
Regarding flexibility, which is also a point we've discussed before, is in some ways try to remunerate what we believe would be a positive measure to, in some way, provide incentives for certain types of technologies that can complement more easily with renewables. For example, attributes to reduce and take charge, and to accommodate these ramp up and ramp downs that comes with intermittency. I think those are the two main issues addressed in our earnings reports regarding potential changes in regulation.
Sorry, as a follow-up to my question. Regarding the new distribution law that is being discussed, I was wondering if that new distribution law contemplates potential changes in the order that generators dispatch to the distribution company. Can you clarify on that, please? Thank you.
Yes. Not to my aware, Gabriela.
Thanks.
Moving forward, we'll take our next question from Andrew McCarthy at Citi. Please go ahead.
Thanks very much for the presentation and the opportunity to ask questions. My first one is a follow-up on the stabilization mechanism. I got cut off very briefly, so apologies if I'm re-asking a question already made. I just wanted to understand to what extent you are able to perhaps monetize the accounts receivable that you will generate from this tariff stabilization mechanism. Also, what potential tax implications you may see. For example, would you perhaps see some tax benefits from having lower cash inflows in the short to medium term? That would be my first question.
Andrew, thank you for both of your questions. The first one, I would say that yes, we, of course, as the rest of the generators within the system, had, of course, the intention in finding ways to fund these collectible accounts. In that sense, we've already engaged in discussions with some financial institutions to find ways to accommodate this. I do have to say, and this also connects to my next answer, that we're still working based on a draft. The final considerations in the legislation are still being discussed. Because of that, we are still discussing again with these financial partners the actual way and of course, the embedded cost that this type of funding might have. Again, since this law has sector-wide implications, I am pretty confident that attractive solutions to fund this will be available in the upcoming months.
Regarding your second point, I think, again, it's too soon to tell whether or not there will be any tax consequences or tax implications because of this change in the way we've been doing this collection before. I don't foresee them at this point, but again, we can clarify that once we have the final version of the legislation.
Got it. In those conversations you've been having with the financial institutions, how is the issue around the exchange rate assumption being thought about? Is that something that really complicates this ability to monetize the receivables, or is it not so much of an issue?
Again, at this point, that should not be a major issue because once you register the account, you can then find ways to trespass that right to a financial institution. No, the points discussed are again, the executive title that's behind the collectible amount.
Got it. Just one final question, if I may. You mentioned on the call that you were looking to participate in regulated transmission business auctions during the course of 2020. I was wondering, what about for regulated auctions in the generation space? Are you looking at participating in those?
Yes, Andrew. We are also contemplating participating in those auctions, as we've done, I would say always in the past. Having said that, I will also have to say that the company has made a clear statement in which what type of customers we're most focused on and why is that. In terms of going forward, we do expect to participate in the regulated auctions as well as the ones for unregulated clients.
Got it. Very clear. Thank you very much.
We have a follow-up coming from Andrew McCarthy. Please go ahead. Your line is open, sir.
Thanks very much. Just take the opportunity. Just in 2019, you obviously longed the spot market. Since the full interconnection has occurred, from midway through last year, spot prices have clearly come down. I know you probably don't want to give any sort of forecast on where you think spot prices are going to be for this year. Could you talk a little bit about what the key factors are that you're seeing for this year that could affect where spot market prices are?
As you actually mentioned in your question, Andrew, we cannot provide forecast on prices and in this case, on the marginal cost. I do have to say that the integration between both older systems has had a particular effect in the sense of stabilizing and to some extent, also reducing the marginal cost in the integrated system despite poor hydrology. In our case, we still believe in the same commercial policy we've done in the past years, in the sense of trying to be out in the spot market or in the case of a surplus, only when we can margin in our power plants. Having said that, I don't foresee anything materially different in 2020 from 2019, if that helps.
Very good. Thanks very much.
To our leadership team, we have no signals pending from the audience. I will turn it back to you for any additional or closing remarks.
Okay. Thank you everyone for joining this conference call. Hope to see you again in the next quarter review, and have a great weekend, and bye-bye.