Good afternoon, everyone, and welcome to the ENGIE Energía Chile's second quarter 2019 results conference call. If you need a copy of the press release issued yesterday, it is available on the company's website at www.engieenergia.cl. Before we begin, I would like to remind you that this call is being recorded and the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward-looking statements. We would like to advise participants that this call is dedicated to investors and market analysts, not for the press. We ask all journalists to contact ENGIE Energía Chile's PR department for details. I would now like to turn the conference call over to Mr. Eduardo Milligan. Please go ahead, sir.
Thank you very much. Good afternoon, and thank you for attending our quarterly call. Today, Marcela Muñoz, Head of Investor Relations, Verónica Infante, Head of Corporate Finance, and I are very pleased to be here with you and present our first half results. Let's start, and please go to page number 6. Here, just to identify in the map a couple of changes in our asset base. First, we are showing this map that recently we acquired two solar plants, Los Loros and Coya, with combined peak capacity of 55 megawatts. Second, Tocopilla coal units 12 and 13, with a combined installed capacity of 171 megawatts, are not anymore in the map, since both units were recently disconnected from the system. Third, IEM unit is now in full operation, so this unit is not anymore in the commissioning phase.
Now, let's jump directly to page eight to discuss about the future and our decarbonization strategy. There are three main events to discuss. First, and as part of the asset rotation plan we started back in 2018, units 12 and 13 were finally decommissioned during the second quarter of this year. This was possible considering the full interconnection of the Chilean system. Second, we signed a binding agreement with the government in which we committed to close coal units 14 and 15 in Tocopilla. Following this commitment, we requested authorization to the market coordinator to disconnect both units by the end of 2021. This is an important step for us towards the transformation of the company. Hence, we have fully committed to close 439 MW of coal units in the site of Tocopilla.
As part of this agreement, we are also committing to participate every five years in a roundtable with the authorities and generation companies to evaluate additional actions in line with the country's ambition and challenge to become carbon neutral by 2050. Let's go over the most recent events and turn to page 10, to first give you an update on the system's interconnection. The full interconnection of the Chilean system was reached on May 29th. This is a key milestone for the system, and it's mainly contributing in three key aspects. First, the full interconnection reduced the volatility of the system's marginal cost. We can see this positive effect in both graphs below, showing the marginal cost in the north and south center SEN during the months of June 2018 and 2019.
The green line represents the marginal cost in June 2018, while the red during this year after the full interconnection. I believe both graphs are very clear and show how the marginal price is less volatile after the full interconnection. Second, the interconnection also helped to reduce a bit the marginal cost of the system. Well, the interconnection is not the only factor. We also need to consider the lower coal prices, which are basically determining the system's marginal cost, and also the additional gas coming from Argentina in the center SEN. Third, we have seen after the interconnection, a more frequent coupling of the marginal cost at both systems, which is also very relevant to reduce differences between both systems. This is adding, of course, more competition, and therefore benefiting the overall system's efficiency. On next page 11, we are basically explaining the decarbonization announcement mentioned before.
On June 4, President Piñera announced an agreement with four generation companies to phase out some specific coal units from the Chilean system. In summary, the announcement includes the binding commitment by Engie and two additional companies to close eight coal units during the next six years. These eight units have a combined installed capacity of approx 1 GW. Now, this agreement also includes our commitment to reassess every five years the feasibility of further actions to reduce CO2 emissions. As you can see in the chart between 2018 and 2019. We have basically committed to close 439 MW of coal units located in the site of Tocopilla. The closure of these units also triggered an impairment of $116 million.
As a consequence of these actions, and here comes the transformation and growth story for the company, we are planning to build up to one gigawatt of renewables to replace the units we are closing. In this line, we started with the acquisition of two solar plants with a combined capacity of 55 megawatts peak, and we will start with the first three greenfield projects of our portfolio of renewables. These are the Calama Wind Farm and Capricornio and Tamaya solar plants, all located in the north, and that represent a combined power capacity of 362 megawatts and an investment that should be close to the $300 million. We will give you an update in some minutes on the status of these projects. Let's turn to next, page 12, other important recent events for our business. First, our clients.
During this first half, we concluded other important PPA renegotiations with Antucoya, part of the Antofagasta Minerals Group, with Molycop, and some additional clients that in total represent 0.5 terawatt-hours of annual contracted demand. The consensual agreement of these renegotiations is the same applied to previous PPAs. An initial discount in the short term, a further discount afterwards, together with a change in the indexation formula, moving to 100% inflation. Finally, an extension of the PPA at latest market conditions. We also signed new PPAs with three clients in the North and South Center regions for almost 0.5 terawatt-hours of additional annual contracted demand. For our assets, two relevant events, the acquisition of two PV plants and the full commercial operation of IEM, both during the second quarter. In relation to our ratings, we also have two positive updates.
Fitch reaffirmed our international BBB rating and changed the outlook from stable to positive. Second, our local rating was upgraded by Feller to AA-. During the first half of 2019, we distributed the final dividend for 2018, and we also distributed the provisional dividend for the present year. In total, we distributed $72 million during the first half of 2019. Now let's move to the key messages of this first half on page 14. First, we are glad to mention ECL has delivered another strong quarter and continues to deliver solid progress towards our objectives for this year. We can confirm that we may be in the upper limits of the guidance we provided for this year. We may also be able to beat the guidance if market conditions are favorable during the second half of this year. We will see.
Second and third, we continue building a strong portfolio of clients and at the same time leveraging on them to start the transformation of our portfolio of generation assets. I will explain in a few minutes where we are in relation to our investment plan. Fourth, we have reached a sound and flexible capital structure with a strong cash generation that will definitely allow ECL to benefit from attractive conditions to refinance our existing debt. Create, of course, attractive returns for our shareholders. Now let's see our performance in the next two pages. I am now on page 15. As you can see in this summary, we reached, during the first half of 2019, total sales for 5.4 terawatt-hours, compared to 4.4 terawatt-hours back in 2017 during the same period.
This means a 24% growth in physical sales, which are mainly explained by the newly related PPA, which triggered the construction of IEM. As a consequence, our EBITDA almost doubled between 2017 and 2019, while the net recurring income increased from $44 million to $145 million. Of course, these figures are very impressive, but we need to consider that we invested almost $1 billion in the IEM project. Now on page 18, we can see the variation between 2019 and 2018. Our revenues increased in 27%, EBITDA in 53%, and recurring net income in 66%, while our physical energy sales increased in 11%. The 53% increase is mainly explained by higher regulated sales with distribution companies in the South Center region.
There is also a positive impact coming from the recognition of liquidated damages paid by our EPC contractor due to the delay of startup of IEM project that Verónica will explain in a few minutes. Let's move to page 17, please. In this graph, we are showing how we supplied our contracted demands. Basically, what we are saying on this page is that between IEM, CPA, CPH, and the spot market, we are covering most of our contracts, adding natural gas combined cycles to stabilize the marginal cost with big hours. As you can see, the production coming from units in Tocopilla is marginal, while CTM1 and CTM2 units continue to be required by the system, but in less extent than in previous quarters. We need to consider in this graph that IEM was only in full operation during May and June.
That's why we will see a reduction in spot purchases during the next quarter. Basically, IEM will start operating in full, and then we will see a higher, let's say, physical hedge for our contracted demand. Pages 18, 19 and 20 are well known and describe our main strength, which is the quality and duration of our portfolio, which currently reaches 12 years and probably represents one of the longest in the market, and we continue adding new clients and contracts. Now, let's talk about our projects under development and where we are with them. Let's go to page 21. Our development team has been very busy, focused on the first three renewable projects of what we call the asset rotation plan, and they are today in the process of finalizing some key milestones to start construction very soon.
I already talked about our acquisition of the Los Loros and the Coya solar plants, which will contribute 55 MW of renewable capacity. Now let's talk about the upcoming new projects. We have three projects in a ready-to-build stage. The Calama Wind Farm will need around 36 turbines of 4.2 MW capacity each, which means a total 151 MW. To give you an idea, the hub height of each turbine is close to 90 meters, and the radio is close to 145 meters. We are finalizing the detail engineering, and we expect to give the notice to proceed to the contractors around next October. This would imply to reach commercial operation date around the first half of 2021. We will, of course, update these figures once we reach, let's say, the construction stage.
For Capricornio PV project, we will require around 250,000 high-efficiency panels to reach a total capacity of 97 megawatts peak. The design includes trackers, and the project is also finalizing the detail engineering to start work around September. The plan is to reach commercial operation date during the second half of 2020. Finally, for Tamaya PV project, we are finalizing the design to reach 114 megawatts peak. We will probably have further news and details on the design and dates in which we will start construction during the next quarter or the following. These three projects that will bring 362 megawatts of renewables to our portfolio will require a total investment that will be close to $300 million and that will be financed inside our balance sheet.
We will continue developing a 24/7 renewable portfolio by combining solar PV and wind technologies in different regions of the country together with our existing gas capacity. Our idea is to keep several open options in parallel and deciding construction and type of technology at best time to market conditions. In addition, on page 22, we show three transmission projects awarded back in 2018, which are under construction. They will require around two years for construction, and the AVI will be close to $1.5 million per year. As we mentioned before, these projects are interesting for us because they are located in areas in which we can have some synergies, and second, they are linked to our renewable portfolio.
On pages 23 and 24, we describe the main characteristics of IEM and the port, considering we reached the commercial operation date of IEM a couple of months ago. The plan and the port are performing as expected. You know that the project was within budget and now in commercial operation. This new project will allow ECL to basically reduce our generation with the oldest coal plants. We'll also replace part of our spot purchases. Third, we lower our average energy supply cost. This is the end of a successful project that has become now part of ECL production fleet. Despite the delay of some months in the commercial operation date, the project team and the contractor did an excellent job to reach the required performance, and very important, within budget. Our congratulations to both teams.
Let's continue, please turn to page 25, where we show that our CapEx financing needs have considerably decreased, releasing on balance sheet financing capacity for our asset rotation plan. We will be able to finance our investment in renewables through a mix of operating cash flow and additional debt while keeping our leverage ratios under control. We have added in this version our best estimate on development CapEx for the full year. That includes investments in renewables and transmission projects. In terms of guidance, before Bernardita explains in detail our financials, please move to page 26. ECL delivered solid results in 2018, reaching the high end of our guidance. For 2019, which is the second year of an important ramp-up period for us, we are keeping the guidance provided last year.
You can realize that if you multiply the first half EBITDA times two, it seems that we'll beat by far this guidance. However, you need to consider that there is a one-shot impact related to the penalties the contractor of IEM paid in the first half of 2019, which includes a portion of the revenues IEM project was not able to generate back in 2018. This is something Bernardita will explain in a few minutes. Said that, we do believe that we may be able to reach the high end of the guidance, and if market conditions are favorable, we could beat this limit following the completion of the southern segment of the Interchile line, and also lower coal prices that should contribute to lower spot energy prices during the rest of the year. Well, now let's move to the next section.
I'll let Bernardita to give you more details on our financial results.
Well, thank you, Eduardo. Hello, everyone. Please turn to slide 28, please. Our EBITDA climbed to $285 million in the first half of 2019, a $98 million improvement compared to the first half of last year. This was mainly a result of the increased volume sales to distribution companies. Let's give a closer look to the bars of this chart. We'll start with the green, representing positive EBITDA variations. In first place, sales under the new PPA with distribution companies, which had a ramp-up beginning 2019, reached almost 1.6 terawatt hours and $206 million in the first half of the year. Physical sales under this contract grew by 86% compared to the first half of 2018 and had a positive $76 million impact on revenue.
Second, we reported an increase in average realized prices, mainly due to the greater weight of the higher price-regulated contracts and also due to higher fuel prices used in the tariff indices, particularly in the first quarter, which reflected the coal price highs observed in the last quarter of 2018. Higher average realized prices had a $7 million positive impact on EBITDA. Third, our generation decreased 16% due, among other reasons, to the increased penetration of renewables in the system, plant maintenance schedules, and the frequent dispatch of coal plants at lower load factors. Coal generation, in particular, dropped by 31% as compared to the first half of last year, and it was affected by the delayed start-up of the IEM project.
In contrast, gas generation increased by 25% due to an increase in gas supply, particularly towards the end of the second quarter, and because gas generation is better suited than coal to cope with the intermittency of renewable generation. The decrease in generation, coupled with a decrease in international coal prices through the first half of the year, resulted in a $45 million decrease in the fuel cost item in the first half of 2019. Our fuel cost could have decreased even further had it not been for the number of plant start-ups to cope with the system's intermittency, which requires higher consumption of diesel. We would like to note the increase in renewable generation following the acquisition of the Los Loros and Andacollo PV plants in April, which contributed 20 terawatt hours in three months. In fourth place, we had $3 million in net operating cost savings.
Last but not least, among the positive factors, I'd like to comment on the last green column labeled Other Operating Income. As discussed earlier, the IEM project, whose construction was committed to supply distribution companies, reported delays. IEM was initially expected to begin commercial operations in July 2018, but it did not start commercial operations until May 16, 2019. On the one hand, this meant that IEM failed to receive capacity payments over such period, and on the other, ECL's energy supply costs were higher than those it would have reported had IEM been in operation. This is because IEM is the lowest-cost plant of our thermal fleet. The customary protection against the risk of project delays is, as you know, the liquidated damages included in the construction contract with the main contractor.
Delay liquidated damages are intended to compensate for lost income, similar to the concept of business interruption or [Foreign language] lucro cesante in Spanish, which is normally used in the insurance industry. In this specific case, the IEM EPC contractor paid liquidated damages, of which $74 million went to our income statement. This amount is considered recurring operating income because it compensates for recurring operating income, which our company failed to receive during the delay period. In other words, it is a kind of phasing or timing effect in the recognition of operating results. We recognized $75 million in one shot in the second quarter, while we should have recognized roughly $30 million in the second half of 2018 and $45 million in the first half of 2019. In this same bar, we also included the variation in other insurance compensations for business interruption, which resulted in a $3 million reduction in EBITDA.
The $75 million in liquidated damages, plus the negative variation in insurance compensations, resulted in a $72 million net positive impact on EBIT. We may now comment briefly on the gray bars, which correspond to the effects that put our electricity margin under pressure. First of all, given the significant sales increase, which coincided with a decrease in our own generation, we reported higher physical energy purchases, which represented a $55 million cost increase. Second, physical sales to free clients decreased 6%. In the first quarter, some mining operations reported temporary stoppages due to the Altiplanic winter and environmental improvement works at smelters. The second quarter was affected by the 14-day strike at Colbún mine . The regulated clients in the north also reported a decrease in physical sales. All in all, the physical sales decrease had a $7 million negative effect on EBITDA.
In third place, the drought in central-south Chile caused an increase in average spot energy prices. The average realized price at which we sourced energy was $57 per megawatt hour versus $50 in the first half of last year. These higher spot prices explain the $15 million impact on EBIT. Fourth, the contracted sales increase also requires higher capacity purchases. The increase in the sufficiency capacity provisions had a $28 million impact on EBIT. Now, please turn to the next slide 29. At the center of the slide, we can see each of the after-tax variations in net recurring income, which increased 66% from $87 million in the first half of 2018 to almost $145 million in the first half of 2019. The good news is that by far, the main variation is the $72 million after-tax increase in EBITDA, which we just explained.
Other non-operating items, mainly the variation in insurance compensations for property damage and depreciation, had a $9 million net impact. We also note a $5 million accounting increase in interest expense. This is just because interest ceased to be capitalized following the completion of the IEM project. If we look outside the box showing results, we see that net income was significantly impacted in both periods by the impairment of coal-fired units that will or have closed. In the first half of 2018, we booked the impairment of Units 12 and 13 with a $52 million after-tax impact, while in the first half of 2019, we reported the Units 14 and 15 impairment with a $64 million after-tax impact. In slide 30, we can appreciate a $36 million net debt reduction.
In terms of uses of cash, capital expenditures amounted to $77 million, excluding capitalized interest, most of which correspond to the final payment to the IEM project's EPC contractor. In the next bar, we show the acquisition of the Los Loros and Andacollo solar PV plants. We paid $35 million for the purchase, but we presented net of the cash available at both companies at the time of the purchase. In next place, we paid $75 million in dividends. This includes the $22 million final dividend on 2018 earnings, which we paid last May, a $50 million provisional dividend on account of 2019 earnings paid in June, and $4 million in dividends paid to our partner in CPH. The next two bars correspond to factors that had a direct effect on debt balances but had no effect on cash.
The first bar includes accrued interest and mark-to-market variations, and the second one includes accounts such as land and vehicle leases that were classified as financial leases as a result of the implementation of IFRS 16. We paid $56 million in income taxes and CO2 taxes in the first half of 2019. Now, our cash sources, included in the gray bars with negative numbers, as they lead to a reduction in net debt, included a $22 million cash payment from 10 and $292 million in operating cash flow. This last number includes an $80 million cash payment corresponding to the liquidated damages paid by the IEM EPC contractor. Of the $80 million, almost $75 million went, as we already commented, to the income statement, and the remaining $5 million went to the balance sheet as a deduction from the fixed asset account. Now, slide 31 details our liquidity and debt structure.
The main changes from our last quarterly call are the following. Thanks to the EBITDA growth, the net debt to EBITDA ratio is continued decreasing and is now at 1.7 times. Our gross debt decreased by $10 million, and our Fitch Ratings confirmed our BBB+ international rating and changed the outlook to positive. The next slide, 32, we can see that in 2019, we have increased the dividend paid, including a $50 million provisional dividend paid in June, to recognize improved recurring income and the conclusion of our CapEx intensity. We are now positioning ourselves to finance the next investment phase, which will allow us to invest in renewables as we embark on our asset rotation plan. Our stock price evolution over the last 12 months shows that ECL share price increased by almost 9.8%, whereas the IPSA fell by 4.3%. Well, thank you for your attention.
This is all on my side, and now I'll leave you with Eduardo to make the final remarks.
Thank you, Bernardita. Well, to conclude this presentation, I just want to highlight the two main messages. First, with the IEM commissioning and full operation, we have concluded a CapEx-intensive phase, and now we are ready to start the construction of our first wave of renewables that will add around 362 megawatts of efficient capacity to our portfolio. Second, we are glad to confirm our guidance on operational results for this year and therefore, to also confirm a stronger cash generation phase for the company that will allow further flexibility to implement our transformation and development plan. With these final two messages, we are concluding our first quarter presentation. As always, thank you very much for your participation, and we are ready for any questions that you may have for us.
Thank you. The floor is now open for questions. If you have a question, please press star and one on your touch tone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing star and two. Questions will be taken in the order in which they are received. We do ask that when you pose your question, that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions. Once again, if you would like to ask a question, please press star and one. Ladies and gentlemen, at this time, I'm showing no questions and would like to turn the floor back over to ENGIE Energia Chile for any closing remarks.
Thank you very much to everyone for participating this time. See you next quarter.
Thank you. This concludes today's presentation. You may now disconnect your lines.