Good morning, ladies and gentlemen, and welcome to our 2024 Enel Chile Investor Day. Many thanks to our investors, analysts, and colleagues that are here with us in our new corporate building, and also all that are connected. Joining me this morning are our CEO, Giuseppe Turchiarelli, and our CFO, Simone Conticelli. I am Isabela Klemes, the Head of Investor Relations. Our event will be conducted in English, and our presentation is already updated on our website at www.enel.cl, and also in our app, Investors. Let us now take a quick look at the agenda of the day on slide two, please. Okay, so Giuseppe will drive us through the market context in Chile, our strategic rationale, and also our value proposition. Then Simone will present a financial update of our strategic plan and also our updated targets.
The Q&A session will run at the end of the presentation after the closing remarks. Analysts and investors that are here today, and those that are connected via Microsoft Teams, can participate. For those connected, please raise your hands to book yourself, and we will open your line and camera. We ask for those that are eventually connected by streaming to send us your questions via our email that is ir.enelchile@enel.com. As always, our IR team will be available to provide you with any detailed information you may need with respect to the figures included in this presentation. Thank you very much. I will hand the floor to Giuseppe. Giuseppe.
Many thanks, Isabela, and welcome to our 2024 Investor Day in the new headquarters. I will start my presentation talking about Chile's significant journey toward electrification and decarbonization. Chile offers an impressive renewable potential from diverse sources, positioning the country to achieve its net zero goal. Solar is the largest expanding technology with over 2 TW of additional renewable capacity, followed by wind. Decarbonization and electrification are key drivers to reach net zero goal. Chilean energy demand is expected to increase by 41% between 2023 and 2035, highlighting the need for robust, upgradable, and accessible energy solutions, as well as a distribution reform to improve grid quality and resilience against always more frequent climate change events. Chile aims for 80% of total energy generation from renewable sources by 2030 and plans to phase out coal-fired plants by 2040.
The commitment to electrification and decarbonization is a constant pillar of Chile's strategy. At Enel Chile, we focus on meeting energy demand and customer needs, supporting this process to ensure a sustainable and reliable future. Let's make now a quick review on how the national framework and electricity regulation has evolved in the last years, as well as the several discussions that have arisen from it. We have seen an acceleration in the country's energy transition, including the start of the coal phase-out process toward more sustainable sources over the last years. The increase in renewable energy generation demonstrates the commitment of all market players, including us, who continue to be a leader in this area. The rise in electric vehicles and bus sales indicates a shift toward cleaner transportation, reducing the carbon footprint and fostering innovation in energy and automotive industries.
Supporting policy and regulation has been crucial in this evolution. However, we must remain vigilant and proactive in addressing challenges, including unexpected situations like social unrest and the COVID-19 pandemic, as we will see in the next slide. Over the past five years, Chile and the world have faced significant challenges. In Chile, the electricity sector has seen major milestones and hurdles. Firstly, the Energy Stabilization Mechanism, PEC 1.0, was implemented by authorities, which aimed to stabilize energy tariffs. This measure led to a complex financial situation for all generation companies due to the significant reduction of their cash flow. For us, this has been a particularly challenging period, being in the midst of the accelerated decarbonization process. Later on, as the stabilization mechanism reached its maximum level and updating the tariff became politically impossible, new mechanisms known as PEC 2.0 and PEC 3.0 were created.
These mechanisms were slightly improved as they finally recognized the interest and the time value of money. On the distribution side, we have faced significant challenges. First, the return on the distribution business was dramatically reduced. Second, the VAD 2020-2024 was delayed, creating uncertainty for companies that didn't know the final distribution tariff. Although the new tariff was supposed to be published in 2020, it was only released in June 2024, very close to the beginning of the new cycle. Additionally, during this situation, the Ley Corta in the distribution segment was approved and implemented, leading to an increase in uncollectability. Even when all these factors coupled with a very volatile hydrology and high commodity prices, among others, created a perfect storm, we were able to carry out several managerial actions to cope with it, to adapt and become more flexible and resilient.
Now, necessary measures are being implemented to gradually return to a new normality, as we will discuss in the next slide. The national regulatory framework is evolving, and we are gradually returning to normality. The tariff stabilization law approved in April updated the regulated tariff, preventing further accumulation of accounts receivable for generation companies. The execution of PEC 2.0 and PEC 3.0 factoring with IDB has enabled significant recovery of funds. A key achievement is the implementation of storage regulation in Chile, addressing transmission restrictions and renewable energy seasonality. However, we need specific regulation to recognize the benefit of battery energy storage systems for ancillary services, which could enhance market competitiveness and reduce system costs, benefiting all players and clients. The regulated auction process has improved, aligning with market dynamics to maintain competitiveness of these instruments. On the distribution side, the VAD 2020-2024 has published and applied, updating tariffs as expected.
However, we need urgent changes to the Chilean distribution regulatory model, which is outdated and not aligned with the government's ambition toward electrification and reliable services. At Enel Chile, we will continue to advocate for those changes to ensure a sustainable future. Now, let's move to slide 10 to review our strategic pillars and progress to deliver our commitment to enhance Enel Chile's value as a sustainable and integrated company. First, I'm pleased to share with you that Los Cóndores project has progressed well. We completed the tunnel filling in October, synchronized the plant in early November, and began testing. We expect full production by the year's end. We also have expanded our renewable capacity with diverse projects across Chile. In 2024, we increased our exposure to battery energy storage systems.
Recently, we received authorization to begin commercial operation of 136 MW from two projects: El Manzano BESS in Santiago and La Cabaña BESS 1 and 2 in the south of Chile. Additionally, we completed the Don Humberto photovoltaic power plants and its BESS in Chile's central region. Let's take a look at the video detailing this hybrid project.
As part of one of the most relevant and influential energy groups in the world, Enel Chile is a pioneer in the development and implementation of new technologies. In this context, in 2020, we inaugurated our first industrial-scale hybrid power plant in Chile, which combines solar and wind energy. Continuing with this hybridization strategy, we will put three renewable power plants into commercial operation during 2024: two solar and one wind, which have BESS systems [Foreign language].
La Cabaña, El Manzano, Don Humberto. Another significant milestone in 2024 was the synchronization of the Los Cóndores hydroelectric power plant, which will soon be injecting clean and safe energy into the national energy system [Foreign language]. As Enel Chile, we will continue to seek spaces and push initiatives to develop more BESS projects. Our objective is to remain at the forefront of the energy sector, confirming our commitment to innovation and the development of a 100% clean energy matrix in Chile and the world.
Now, let's move to slide 11 to review our financial deliveries and commitment to enhance Enel Chile's value. We reaffirm the pillar of our strategy: resiliency, flexibility, and value generation. Our investment will be focused on the best opportunity in terms of risk and return, maintaining a flexible approach. Efficiency and effectiveness remain our target, aiming to improve cash generation and capital productivities. Financial and environmental sustainability will follow as we strengthen our financial structure. We consolidate our position as the largest operator of renewable power plants in Chile with renewable capacity, including BESS representing around 78% of our total capacity by the year's end. In distribution, we serve 33 municipalities in Santiago with over 2 million clients and nearly 15 TWh of energy distributed this year. For 2024, we are on track to meet our target.
We have updated our EBITDA and net income range to the upper quartile of the original range. Both figures have been already adjusted for the non-cash impact of the change in functional currency in Enel Chile and its subsidiary Enel Generación to U.S. dollar. Our portfolio expansion continues to create value for shareholders, and the dividend policy for this year reflects our commitment to financial stability and shareholder returns despite the change of our book currency that Simone will detail later on. We have shown resilience and flexibility in adapting to market conditions, ensuring consistent value generation. We maintain a healthy financial position while prioritizing environmental sustainability. Our 2024 results empower us to continue our journey with confidence, increasing CapEx for creative opportunities. We are well-positioned to achieve our target and selectively expand our portfolio with more profitable alternatives.
Let's see now the main element of our 2025-2027 strategy on slide 13. As you already know, we have developed a significant growth plan in renewable generation capacity and our distribution network over the last five years. Now, we want to show you our strategy for the coming year to optimize the return of those investments, continue our sustainability growth, and create more value. To ensure stable profit margins, we are reducing our exposure to the spot market through a more optimized commercial strategy. This strategy helps to maintain financial stability with a more conservative and de-risking approach. We are also selectively investing in the most promising renewable energy projects to maximize returns and support a greener future. Our clients are increasingly aware of the urgent need for decarbonization and are more demanding regarding renewable energy and efficiency.
Thus, we are responding with an integrated offering that goes beyond commodity, providing comprehensive solutions to meet their needs. In distribution, we continue to advocate for distribution reform and modernization of the regulatory framework to enhance asset resilience. This will help us to optimize the value of our distribution network, fully meet our clients' needs, and ensure long-term sustainability. Now, let's review our updated and optimized commercial strategy on slide 14. I would like to take a few minutes on this slide to explain the central change in our commercial strategy, which is the foundation of our margin, as I've just explained in the previous slide. Our commercial strategy update aims to achieve the same profitability while optimizing the CapEx needed to reach this goal, all supported by our assets and diversified sourcing strategy.
Compared to the last year of the previous plan, you can see a reduction in the total sales volume while, at the same time, maintaining our margin. Let me explain how we are planning to do it. This is possible because we are optimizing our sourcing strategy. By leveraging our updated view on more competitive natural gas prices and the further deployment of BESS projects in the Chilean system, we can significantly reduce our purchases in the spot market, particularly during the nighttime hours when spot prices are expected to be higher than the previous year. In fact, we foresee a higher thermal dispatch compared to the previous plan for 2026, considering higher spot prices at the night hour and our greater availability and more competitive mix, considering both LNG and Argentina gas suppliers.
This is evident in the expected decrease of around $7 per megawatt-hour of our variable thermal costs, which will allow us to be increasingly dispatched during nighttime in the north and mostly in the center of the country. Additionally, we have decided to optimize our target for third-party purchases in the short term, identified in the slide as PPA Buy, considering our new mix in terms of sales, own generation, particularly thermal dispatch due to attractive gas prices and spot prices. Nonetheless, if we continue to see competitive opportunities in this field, we will continue to pursue the sales cluster with the most favorable prices that complement our portfolio. As you know, we are constantly monitoring market conditions to extract the highest value for our portfolio.
Given all these factors, as shown on the right side of this slide, our generation EBITDA per megawatt-hour sold is projected to increase by 18% by 2026 compared to the previous plan. This improvement is due to the new contract signed and a better price and lower average sourcing costs. To conclude this slide, I want to emphasize that lower sales does not mean we are not competitive in the market. It means that we have reached such a consolidated and optimized mix that we can start to extract more value from the combination of our assets, and we are well-prepared for potential market changes and opportunities. For instance, we anticipate a higher dispatch from the regulated market since the demand in this segment has been recovering for the last two years, especially after the end of the COVID-19 pandemic, as shown in the slide.
This recovery includes the reactivation of both regulated commercial and industrial demand, in addition to residential demand, and also the termination of some renewable regulated PPA either by the sole decision of their owner or due to bankruptcy issues. We understand that this effect will persist in the coming months, meaning a higher potential increase in the dispatch of regulated PPA. If this happens, we have the right portfolio and a mature pipeline to pursue our goal in case needed. Let me elaborate more on our updated commercial strategy on slide 15. In recent years, our PPA portfolio has shifted toward the free market segment, supported by a diversified and efficient renewable generation mix. This strategy has strengthened our position in resilient and profitable sectors like mining and other industrial clients.
As you are aware, during 2024 and 2025, we are expecting the termination of some regulated contracts, such as the 2008 auctions by the end of 2024 and the 2026 and 2013 ones by the end of 2025. This termination translates into an expected decrease in our average contracted portfolio, which will be partially offset by the regulated auction we were awarded in April this year, which 20-year PPA will start in 2027, a new PPA secured in the free market over the recent year. We have capitalized on the repricing trend since 2023, which has been more profitable than regulated auctions. We will continue optimizing our portfolio of risk-return and capturing profitable opportunities. Our integrated offering gives us a competitive edge, helping clients navigate electrification and decarbonization. To conclude, the fundamental quality of our portfolio is its long-term structure, with an average duration of 14 years.
This allows us to ensure a significant level of stable and recurring revenue and EBITDA in the coming years. Let's take a look at our sourcing allocation that we have designed and developed in order to backbone this commercial strategy on slide 16. Hydrology is a key part of our sourcing strategy. Despite high rainfall in the past two years, our new plan uses a conservative forecast based on the last decade's average hydro generation, slightly below 11 TWh per year. Our gas portfolio has provided flexibility and competitive source prices, supported by long-term LNG supply contract with Shell. This contract, along with the agreement with the Argentina gas supplier, allows us to operate efficient combined cycle power plants and engage in gas trading.
In connection to this, we are pleased to announce that we have been negotiating firm contracts with Argentine suppliers for the entire year of 2025, and we are at the final stage of this process. This agreement will allow us to secure Argentine gas supply in the northern part of Chile, utilizing the GasAtacama gas pipeline to supply the Atacama power plant regularly, as well as in the central part of the country. Strategically managing our sourcing portfolio, we forecast higher coverage through our own generation, including new BESS facilities during no-solar hour. This conservative approach, combined with our natural gas capacity, reduces spot purchases during expensive no-solar hour. By 2027, we aim to significantly cut nighttime purchases, leveraging our PPA profile and diversifying our sourcing portfolio as a potent de-risk strategy.
Now, on slide 17, let's review our CapEx plan for the generation business, an important component of our sourcing strategy. In our new 2025-2027 strategic plan, we will add 0.6 GW of renewable capacity by the end of 2027, reaching a total installed capacity of 9.4 GW, including batteries. This will bring our renewable share to 80%, enhancing flexibility, profitability, and competitiveness. Our total generation CapEx plan is $1.4 billion for the next three years, with $0.8 billion allocated to BESS and wind facilities. We are reducing projected CapEx amount, maintaining margin, and ensuring stable profitability for shareholders. With this updated strategy, we have achieved a more balanced portfolio level, aligning with market conditions and shielding against potential headwinds from price trends, new investment costs, and regulatory changes. Now, let's talk about our view on our distribution business on slide 18.
A supportive regulatory framework is the main driver for attracting investment needed for the transition and providing resilience against increasingly frequent climate change events. Regulatory schemes need to address several factors, such as proper remuneration rates and incentive mechanisms for resilience and performance improvement. We understand that the regulatory schemes need to address these factors. Therefore, we have been advocating for Chile to implement these changes quickly. Meanwhile, this is not a reality to Chile. We have created a business case for the distribution business in which the EBITDA generation shall be allocated as investment. That's what you will see in more detail in Simone's presentation. Let me clarify a very important point. We are willing to invest more and implement a resilience plan if an adequate regulatory model and proper remuneration will be implemented. We are ready, and we have the expertise and resources to do it.
To give you a reference, looking at the Enel Group's experience in Latam, we see in Chile substantially the same CapEx per client, but half of the EBITDA per client. Nevertheless, as Simone will show you later, we are investing all the possible funds to maintain the minimum equilibrium of the company. Today, our funds from operation, known as FFO, are almost all allocated to [DUARA] CapEx. On the distribution tariff review, the regulatory final decree for the 2020-2024 cycle was finally published in early June this year. Regarding the 2024-2028 tariff process, the consultants' technical report was received in July and reviewed by a committee. After the final consultants' report, expected this November, we estimate that by the end of this year or early 2025, the regulator will publish the preliminary technical report on this new cycle.
We expect an improvement in remuneration for this new process, considering the new valor nuevo de reemplazo and VNR already approved, and all the economic and technical assumptions as of December 2022 that are considered in the report. We expect all these factors will be confirmed in the several stages of this process. We are also more confident about the timing of this process, considering that the consultant is the same than in the previous process. Therefore, we understand that some topics already discussed for the previous cycle will be automatically applied and improved for this process. Our CapEx plan for 2025-2027 involves investing almost all our EBITDA, despite regulatory mismatch with market reality. Most CapEx will go toward electrical conductor and power line reinforcement, new remote-control equipment, increasing transforming capacity and reconfiguring medium voltage line in the rural area.
Now, I will hand over to Simone, who will guide you through our numbers and targets. Simone, the floor is yours.
Thank you, Giuseppe, and good morning, everyone. I will start now by presenting our new investment plan for the coming years. As anticipated by Giuseppe, we are allocating an investment of $1.8 billion for the period 2025-2027. Our strategy during this period prioritizes the consolidation of our renewable energy portfolio, the enhancement of its resilience, and finally, the optimization of grid operations. Our investment plan includes $1.4 billion in the generation business, which will significantly contribute to the development of BESS, continuing the strategy presented last year. Additionally, we project an investment of $0.4 billion in the distribution segment, coherent with the current EBITDA contribution and the current regulatory model.
Nonetheless, the CapEx is higher than the last plan figures, and it's focused on strengthening grid resilience for both low and medium voltage and ensuring service quality for all our customers. And now, let's look at the capital allocation for generation business in the next slide. Over the past few years, we have led the expansion of renewable energy in the country by achieving a significant market position and diversifying our portfolio in various technologies and geographies. In the generation segment, the project development investment amounts to $0.8 billion, equivalent to 59% of our investment over the next three years. Given the composition of our current portfolio, we focused on, first, battery projects, adding around 452 MW.
Going deep in the battery business, let me highlight that the BESS projects are strategically located in the north of Chile to take advantage of energy shifting and reducing our spot exposure during the night. Furthermore, the new units will help to increase our geographical diversification, considering that our current BESS units in operation are located in the center and in the south of Chile. Second, we focused on renewable wind power plants, adding around 107 MW, and finally, we will conclude the construction of some solar small and medium distributed generation units, PMGDs, which have a positive impact in some areas, although not material in terms of megawatts. As illustrated in the chart, most of the investment in project development will be made in 2025. This concentration in the first year of the plan is strategically important to support our commercial strategy and the risking effort.
Finally, in terms of asset maintenance, we will allocate 41% of our generation investment, equivalent to $0.6 billion, over the next three years. This investment will mainly focus on ensuring the continuity and the efficiency of our thermal and hydro power plants. And now, let's look at the value of the investment and our strategy for enhancing our integrated margin. As mentioned before, strengthening our integrated margin is core in our long-term strategy and crucial for ensuring value creation. Looking at the chart, we plan to close 2027 with a margin of $1.5 billion, in line with the expected margin for the current year, positively impacted by the high hydrology. This result is achieved despite the expiration of approximately 4 TWh of high-priced regulated contracts, and particularly the 2008 auction terminating in 2024, the 2006 auction terminating in 2025, and the 2013 contracts terminating by 2025.
The termination of these regulated PPAs will bring a decrease in our revenues of around $0.6 billion, as illustrated in the slide. However, this negative effect will be partially offset by a positive effect of $0.3 billion related to the contribution of additional free market sales contracts at a more attractive price. Furthermore, as a result of the strategy illustrated by Giuseppe, we plan to extract approximately $0.3 billion value from commercial sourcing, leveraging on, first, the reduction of spot purchases, particularly during the night hour, thanks to the optimization of selling volumes and the production of new renewable plants. Second, the reduction of spot prices due to the increase of the volume of competitive natural gas and of the number of BESS power plants in the system. As a result of this action, our 2027 margin is almost in line with 2024 margin.
Now, let's review the performance of our grids on the next slide. Okay. First, as Giuseppe mentioned, it is worth highlighting that we are investing as much as possible despite current regulation, that this is not in line with the market realities and requirements. Grids cumulative EBITDA will range between $0.4 billion and $0.5 billion. Almost all the EBITDA will be used to finance the $0.4 billion CapEx plan. This represents an increase of $58 million for the next two years compared to the last plan, allowing us to improve our grid resilience. As a result of using all available resources to strengthen grids, the cumulative FFO minus CapEx will be near zero. Now, let's look at the net income evolution.
Let me first remind you that on November the 7th, the Board of Directors of Enel Chile approved the change of functional currency from Chilean pesos to U.S. dollars. This operation has a negative one-off impact of $0.63 billion on 2024 EBITDA and of $0.45 billion on 2024 net income. For comparison purposes, we have adjusted the 2024 net income by the non-cash impact related to the functional currency change. And now, coming back to the slide, let's look at the net income evolution.
In 2027, we expect to achieve between $0.5 billion and $0.7 billion of net income, mainly due to the $0.1 billion increase in the EBITDA resulting from, first, the stable performance of our power margin, as commented a few minutes ago, second, the higher capacity payment of ancillary services remuneration, third, the already mentioned change of functional currency with a $94 million positive impact on 2027, and then a slight improvement of grid revenues thanks to the increase of distributed volumes and the indexation of the tariffs, finally, the $24 million negative impact of extreme weather events of May and the force majeure event of August. These effects were partially offset by lower gas margin due to the higher trading activities made in 2024. By the way, it is important to mention that we are not considering in this figure any potential future extreme climate event.
Now, going with the other effect impacting the net income evolution, we have higher depreciation due to the new renewable project that will start operating in the planned period, including Los Cóndores hydropower plant. Higher financial costs that are mainly due to lower capitalization of interest for lower amount of project under development and the positive effect of PEC in 2024. These two effects are partially offset by lower net interest on the debt due to the expected debt reduction in the next three years. And now, let's look at the next slide where we will present our financial plan. Our financial strategy is designed to ensure long-term sustainability and value creation. In the 2025-2027 period, we expect funds equivalent to $3.4 billion from the operation. This amount includes around $0.4 billion coming from the full recovery of PEC receivable within the planned horizon.
This fund will allow us to finance our cumulative CapEx plan of $1.8 billion, reflecting our commitment to investing in selective growth opportunities while maintaining financial strength. Additionally, we have allocated $1.0 billion for dividend, considering a minimal payout of 50%. It is important to recall that our Board of Directors agreed to modify the dividend policy in order to neutralize the effect of the functional currency change by proposing to the next ordinary shareholders' meeting the distribution of an eventual dividend that allows maintaining the same payout already contemplated in the dividend policy for 2024. As a consequence of our strategy, we expect a decrease of our net debt by approximately $0.5 billion. Our net debt on EBITDA ratio is expected to improve from lower than 2.6 in 2024 to equal or below 2.0 by the end of 2027, consolidating our financial position.
We expect to maintain this comfortable financial position over the next three-year period, leaving room for potential new opportunities not included in this plan and prepared for eventual headwinds aligned with our de-risking approach. And now, let's move to the slide to review the liquidity and net debt position. As previously mentioned, in the next three-year period, we are focused on optimizing our debt structure and reducing our leverage in line with our sustainability financial policy. In fact, we will increase the average term of our debt from six to seven years with a good mix of long-term and short-term debt in order to maintain high flexibility. Our average cost of debt will remain around 5% during the plan, and the portion of fixed-rate debt will slightly increase to 94%.
By the end of 2027, our total gross debt will amount to $3.6 billion, with an increase of the share of SDG instrument as a result of our commitment to sustainable long-term growth. Regarding our target for the following year, let's look at the summary that we are presenting in the next slide. Summarizing, our strategy for the planned period is focused on maintaining financial stability with a de-risking approach. Our plan will contribute to a cumulative EBITDA for the 2025-2027 period ranging from $4.4 billion-$4.6 billion. As anticipated by Giuseppe, both our 2024 EBITDA and net income, adjusted by the impact of the functional currency change, are confirmed in the target ranges. Looking at the 2027 figure, EBITDA target will range between $1.4 billion-$1.6 billion, translating into a net income ranging from $0.5 billion-$0.7 billion.
Regarding the shareholder remuneration, we are confirming the dividend payout ratio from the previous plan, leaving room for eventual increase depending on future opportunities and market conditions. Of course, this proposal shall be further discussed with our shareholders during the annual shareholder meetings to take place in April 2025. This dividend policy will allow us to create long-term value for our shareholders while ensuring an adequate financial position in line with our sustainability strategy. And now, I will leave the floor to Giuseppe for the closing remarks.
Thank you, Simone. Enel Chile's strategic vision positions us as a unique, sustainable, and value-driven utility company. Throughout our integrated commercial strategy, we are leveraging our robust and diversified assets to capture a creative market opportunity while delivering consistent value to our stakeholders. Our 2025-2027 strategic plan provides a clear vision for the Enel Chile future.
By adopting a de-risking approach, we enhance both resiliency and operational visibility, equipping us to navigate uncertainty and build long-term stability. Focus on selective capital allocation ensures resources and is directed toward the most profitable and sustainable opportunity, driving growth and maximizing returns. As highlighted in the presentation, we are prepared to increase our investment, particularly in our regulated business, and implement a resilience plan, provided that there is an appropriate regulatory framework and fair remuneration. Finally, our focus on financial soundness guarantees the strength and stability necessary to support our ambition while providing returns for our shareholders. We continue to be committed to leading the energy transition, promoting electrification and decarbonization, and generating long-term value for our investors. Thank you for your attention. And now, I will hand over to Isabela for the Q&A session.
Many thanks, Simone and Giuseppe. We will start now our Q&A session. So, for those that are here today or those that are connected, just raise your hands to book yourself. And also, for those connected via streaming, please just send us an email to our investor account. Okay? Thank you very much. We have some questions coming from Carlos.
Hello, everyone. Thanks a lot for the Investor Day. I have three questions. The first one is on the 2027 sales. How much of your free energy is contracted? Same for the sourcing. How much of the new PPAs is already contracted, the ones you're buying? And if you could give us a sense of the prices, how have they evolved on these new PPAs of the ones you're buying from the older generation companies? The second question is regarding the partnerships.
We didn't see partnerships in this Investor Day, so I wanted to understand a little bit what was the conclusion there. Why are we not seeing them? And the last question is, given that you said that your portfolio is already optimized, does that mean we shouldn't see asset rotation or recycling or potential M&A from, I don't know, Main stream or Acciona Energía projects that are already being sold out? Thanks.
Thank you, Carlos.
Thank you. Thank you for your questions. Let's start with the sales. In 2027, we have, in order to reach this target, we need to contract around 4.5 TWh of new contracts. So, we are looking at this target, and we have already in our minds several opportunities. And for what concerns the purchases, most of these PPAs have been already contracted. So, we don't have any issue on that.
Of course, there are several opportunities in the market that we are looking. And the price, of course, we are thinking about the PPA in buy that covers the no-solar hours, that are the kind of hour where we believe it could be a potential risk, as we said in our optimized strategy. So, what we are looking for is the PPA in buy in no-solar hour. Again, the price can be, as you can expect, around the amount that we have in the no-solar hour. Partnership. Well, considering the evolution of the market and our new strategy, we are thinking about whether it makes sense to go ahead with this optionality. This is the reason because we didn't put in our plan. Of course, we are always available to whatever opportunity we can find in the market. So, as of today, we're going to leave it as an optionality.
Asset rotation, the answer is always the same. I mean, we are always evaluating potential asset rotation that could create value for ourselves, for our company. So, it's not an issue. I mean, we don't put, of course, any kind of asset rotation in our plan as usual, but we are always available in case from the market will come up some very important opportunity on this side.
Thank you, Giuseppe. We have one question here from Fernán González , BTG.
Good morning. You sound more conservative than in recent years with the new investments. I understand the distribution part, but also in the generation segment, you're more conservative while you still have a significant exposure to the spot market going forward. Are you more focused now on shareholder remuneration than on adding new capacity in Chile? Is that a fair assessment of the message you're trying to give us?
Thank you. Well, let me put it in this way. I mean, we review our strategy, and we found that with this capacity and considering the gas price that we see in the market and our contracts, we are able to reach the same EBITDA that we have right now in 2024. Okay? So, basically, we are evaluating whether it makes sense to spend more capacity that, of course, has to cover more sales. Now, the point is that according to this strategy, at the end of 2027, we don't have any more purchases in the spot market during the night. So, basically, all the issues that affected the company over the last year should be resolved by the end of 2027 on this side. Now, this is a projection of the prices.
And, of course, we have an increased production in terms of thermal power plants that, at the end of the day, is very good because in case the price in the spot market during the night is going to decrease, of course, we are able to buy at a lower price. So, we're going to have an upside in our strategic plan. New capacity are always welcome if we find a very good opportunity in terms of project if some regulatory changes are going to be unlocked on the battery side that are the technology on which we are focused. And, of course, if there are a very good sourcing for our PPA sales. Because, I mean, at the end of the day, for us, the important thing is the margin.
So, first of all, we look at PPA in sales that are very good, and later on, we try to understand in which way we are going to cover the sourcing. So, I understand your point. We have a plan that is lower in terms of CapEx comparing with the previous one. But you have also to consider that in the last five years, roughly five years, we spent around $5 billion in CapEx in Chile. So, I mean, we consolidate our position, and now we are in a very good position in order to decide what to do and to share picking the best opportunity in terms of PPA sales and, of course, sourcing.
The other thing is your less aggressive commercial strategy, where you expect now to be selling less, like 3 TW, I think it was, by the end of the period. How much of this is related to the fact that you want to reduce risk, and how much is that you're not really convinced about the attractiveness of the segment anymore?
Well, we believe that the generation business is really attractive. I mean, I don't have any kind of doubt on that. So, definitely, it's just a matter of understanding and taking the best opportunity that we see in the market. You have to consider also that we just signed or we won the auction in regulated PPA auction in April, that you see only a part of this amount in 2027, because in 2027, we have only 1.5 or 1.7 of this amount, while the full amount of contract is 3.6. So, think about also the fact that the following year, we're going to increase this PPA.
But again, the generation business is really attractive for us, and we are committed to find any possible opportunity that will come up from the market.
We have more questions. Yes, please. Constanza.
Good morning. Constanza González from Quest Capital. Thank you for the presentation. I have a couple of questions. First, in relation with distribution segment, if we see the information that you released this week in the presentation, most of the 80% of your EBITDA, you are investing in CapEx. Why is the reason of that? And also, it's the same question that I did the last year in the same event. And for me, still today, it's not clear why you are taking this investment, considering the situation that you are having in the other segment too.
Yeah. Thank you for your question. You're right. Most of our EBITDA is going to be projected to be invested in CapEx. The reason is because we believe that the distribution business is a very good business as soon as the regulatory framework we're going to change. You have to consider that distribution business is very good for what concerns the electrification of consumption and the decarbonization. So, we believe that there is a lot of value inside of the distribution. We believe also that, as I said, we are pushing for a change in the regulatory framework because otherwise, the services to the clients, they are not going to reach a proper level that at least the client deserves, especially because the climate change events are always more frequent.
Let me clarify and underline this point because the plan that we design is a plan in which we spend as much as possible, of course, taking into consideration the balance between how much we can do and how much the company can afford. But we are thinking about a plan in which we don't have any kind of extreme climate event like we had in August this year. So, the point is how much we are confident and the system, the regulator, regulator are confident about the possibility that any other extreme event will happen. Because we believe that, and we believe because we saw what happened in the other country in Latin America, we believe that this extreme event is going to be repeated.
So, if we want to avoid all the issues that occurred in the distribution and the client, for the client, not only for ourselves, but also for all the other companies, clearly, we need a regulatory framework in which the resilience of the grid has to be increased. This is the point. So, going back to your question, we believe that the distribution company has value for the Enel Chile Group. And so, we are confident that the situation is going to resolve, and the regulatory body is going to start a new framework or at least start the discussion for a new fram ework.
Thank you. And I have a second question regarding the CapEx, specifically for Enel Green Power. Because when we evaluate the total CapEx, most of the 50% came from this area. But, for example, if we evaluate the last result of the last quarter, the result of the company is not so well. I understand that you are investing right now, but I would like to understand what are you expecting more than 2027. If you can comment on something about that. Thanks.
Well, what is going to happen after 2027, of course, depends on a lot of factors. You can imagine the market, the commodity, and the regulatory. And again, let me clarify that as of today, we believe that the battery are the technology in which Enel Green Power has to focus its effort. But we have to consider also that the battery works very well right now because there is a lot of difference between the solar and no solar hour. So, basically, the battery works in this way.
The charge during the solar hour is very low price, sometimes zero, and the discharge during the night is a very high price. Now, how long is going to last this situation? This is the point. So, we believe that we need another stream of revenue for the battery that right now is not so important. Let me say it's very, very low. And that is the ancillary services remuneration. We had several discussions with the regulatory bodies. We believe not only with them, but also with other players. Everybody is aware about the importance for the system of having recognized this kind of services because at the end of the day, these services are not only benefits for the battery owner, but also because they decrease the system cost.
So, at the end of the day, the decreasing of the cost will translate in the decreasing for the price of electricity for the clients. So, I mean, this is the situation. We believe that there is a lot of space. Our pipeline is pretty important. And so, we are just developing our project in our pipeline ready for the opportunity that the market could offer.
Thank you, Constanza. We have from Andrew McCarthy.
Hello. Thanks very much for the presentation. Andrew McCarthy from LarrainVial. First question, I wanted to touch on gas from Argentina. You mentioned you're in negotiations to get firm supply for next year. Can you give us some more color, in particular on the potential volumes, and also comment on how much Argentina gas you've got embedded in your targets? Maybe we could touch on that one first, please.
Thank you, Andrew.
For what concerns Argentina and gas, let me say that we are at the final stage of our negotiation with the Argentina gas supplier. What I'm talking about is the gas that we are going to consume in 2025. You know that we have two suppliers. One is Shell, and the other one is Argentina gas supplier. The Argentina gas has a. They are indexed to the Brent. We are going to cover our needs for all 2025. Let me check. Okay. So, we are talking about for 2025, around 26 TBtu-27 TBtu. This is the amount of gas that we are going to close pretty soon.
And with the difference also, no, Giuseppe, about how the contract is done, that it's done now in an early basis, that this is also an update.
Yeah. Let me say that Argentina gas, you know, that are becoming every year more reliable. So, we do not expect any kind of lack of gas from this side. And this means that we have right now secured both sources of gas. So, LNG coming from our Shell contract and Argentina gas from the border. And thanks to the put in operation of the GasAtacama gas pipeline, we are able to provide the gas also to our Atacama power plant in a constant basis. While in the past, it was a little bit more complicated because we used the Mejillones project.
Okay. Thank you.
Very clear. Thanks, Giuseppe. And just my second question. Just wanted to touch on the assumption for the spot prices in 2027. You've got $45 per megawatt hour versus the $58 in 2024. You mentioned that was driven by lower gas prices or expectations of lower gas prices and greater penetration of BESS. But that's quite a big jump down. So, just wondering if you could provide a bit more color on what you're seeing there. Thanks very much.
In reality, it's not only a matter of gas or commodity price. It's also related to the fact that the system is going to have more BESS capacity that is going to reduce the spot price. This is one of the other reasons because we believe that the spot price is going to decrease. So, there are both the commodity trend, but also the battery additional capacity in the system.
Yes. Andrew, we have included also in our annex the view that we have for this spot over the years. Okay. Thank you. More questions from here come from our corporate building. No? Yes, we have one. Francisco, please.
Hi, guys. First of all, thanks for the presentation. This has been a good year for the company. Francisco Vaz from Santander. So, basically, my question is regarding these regulatory issues we have been following this year on the generation, distribution, and also transmission in Chile. So, the first question is, first of all, which one of these regulatory issues do you consider the most important for the company to be able to have a more aggressive view on investment going forward? And then, what are the deadlines or timelines for these regulatory issues to develop?
Because we have next year an election here in Chile, and we don't know if this government is going to be able to discuss all the things they are proposing. So, that's the two questions I have regarding these topics.
Okay. Thank you, Francisco. Giuseppe.
Thank you. Well, definitely, definitely the most important regulatory changes that we believe the system need are the distribution regulatory changes. I mean, we need to leave the Empresa Modelo and to start with a different kind of model that could be the RAB base, but there are several possibilities. So, this is definitely the first one. Now, is it clear that these kinds of changes require a lot of time? It's not the kind of modification that is going to be realized in one year before the next presidential election.
The Congress, the regulatory bodies, the government has to start discussing because otherwise, if we never start, we'll never end with a new regulatory framework. What we believe that is in the hands of the Parliament and the government is what we call Ley Corta . So, basically, a specific law that could guarantee a proper remuneration for the resilience of the grids. So, basically, to identify a specific CapEx, which they are going to receive a specific remuneration outside the Empresa Modelo in order to start with this kind of project. We have already discussed with almost everybody, including, of course, the distribution association, in which we basically are aligned under several points of this Ley Corta .
We believe that resilience CapEx has to be done together with other investments, like, for example, the smart meter or a very specific CapEx related to putting the cable underground in order to improve the resilience of the grid. There is a chance of working on this law by the end of the new, by the start of the new election. We are confident that both laws have to be tackled in order to at least have a medium-term view, but also something that could trigger the effect starting from the next year, let me say.
Okay. Thank you, Giuseppe. Do we have more questions from the audience here? Yes, we have one in Ignacio.
Hi, everyone. I'm Ignacio from Itaú BBA. My question is about CapEx per megawatt. You are reducing the total CapEx, but it seems that per megawatt, it's increasing. So, could you give us any color on what technologies are increasing in CapEx? Thanks.
Okay. Thank you, Ignacio.
Okay. Well, I will pass the question to Simone. Simone, I want to add something, but I will give the floor to Simone.
So, talking about CapEx for different technology, in general, the trend is a decrease in price for the different technology. And this is a smooth trend. In any case, you have to consider also the mix. And so, we have a little bit of change of mix among the last plan and the newest plan. And this change of mix is impacting our unitary cost for CapEx. But the very good message is that the base technology for the medium term, that is the battery technology, is a technology that is evolving fast.
We are going in this moment towards battery with more power and so more flexible to different uses at the same price of the old battery, that are battery in such a way weaker. And so, we are having more or less the prices for 4 hr battery in line with the price of 2 hr battery. And so, we are investing in this moment, non-completed mature technology. And this can impact in this KPI that you correctly mentioned. But the evolution of technology on the market is going in the right direction.
Thank you, Simone. We have one question here from Rodrigo Mora.
Good morning. I have three questions. The first one is related to the battery energy storage system. I understood that the expansion is approximately 500 MW in storage. Could you give us some main numbers about how many hours or even the configuration?
Maybe the idea is to use a kind of train, install a capacity, for example, to operate five hours and then continue other five hours. So, on one side, the company could provide 10 hours. This is the first question. And the second question is, could you give us some idea about the wind farm project that the company wants to develop? Also, related to the BESS battery, the idea, what is the idea? Is to install this capacity inside the solar. And what are the names of this solar plant that the company is evaluating to install this capacity? Finally, related to the signing contract with Argentina gas producer, approximately 25 TBtu, 26 TBtu, it is, are we talking about something like 3.5 TWh in gas generation? Please, could you confirm that?
Okay. Thank you, Rodrigo.
Okay. I will answer the first and the last one, and I will give the second to Simone. BESS. BESS, yeah, we have a little bit less than 500 MW. We are talking about 4 hr battery, lithium-ion, that are the most flexible and reliable right now. And as of today, all our batteries are in the hybrid project, so associated to a solar or wind project. Just to give you an idea right now, the cost for a battery is around, for the 4 hr battery, is around $1 million per megawatt. While the wind, of course, is higher, is $1.3 million-$1.4 million, something like that. And this for what concerns the BESS. For what concerns the contract, let me say, yeah, I mean, around 3.5 is a good proxy, depending, of course, on the kind of technology and power plant that we are going to use. But a proxy is okay. Simone?
Talking about the wind farm that we are planning to build, this project will be situated in the center near Santiago, a little bit in the north of Santiago. And it will help us in such a way to manage the balance of production in this important critical area with a lot of demand. Because you know that this kind of power plant has a smoother production curve. I mean, they have a higher production in the night that can compensate the current portfolio of projects in this area.
Okay. Thank you, Simone. Do we have more questions here? No? So let's jump to the Microsoft Teams. So we have a question coming from Javier Suárez from Mediobanca. Javier, you can open your line and also your video. Thank you. We cannot hear you, Javier. Are you open your line? Let's check. You're still on mute.
Can you hear me now?
Now you can. Yeah, now you can. Thank you.
Oh, fantastic. So many thanks, Isabela. Many thanks for taking my questions. It's on the more top-down kind of question, and it's on the balance sheet capacity of the company. So I think that during the presentation, the company has been sending the message that you can accelerate on CapEx if there is a proper regulatory framework for electricity distribution in Chile. So the question for you is, to what extent we can see that CapEx increase? So you can quantify the level of CapEx that is on your balance sheet headroom. And what do you think is your optimal level of leverage? Understanding that that level, a new level of leverage, is only going to reach with a proper regulatory framework.
And then the second question is a little bit more bottom-up. It's on the electricity distribution review process. You can share with us the assumption that you are making on the remuneration, the new remuneration system that you are including and is embedded in your new business plan. And then the third and final question is on the decision that the company has made of being more selective while developing renewable energies. If you can elaborate on the reasons behind that and the decision to take a very direct decision pro batteries versus any other technology. Many thanks.
Thank you, Javier, for your questions.
Thank you. Well, talking about balance sheet capacity, let me say that we build up a plan in which we have a lot of enough space in order to increase our CapEx, either on generation business and on the distribution side.
The CapEx in generation are driven basically by the remuneration. When we talk about more selective CapEx, we are talking about that we increase the threshold that we consider acceptable for a project. So it means that we are looking at higher return for each of CapEx. And why that? Because, as I said before, we have already consolidated our strategy, and we are looking for maximizing our margin. So we are available, of course, yes, but we want to have a better return in terms of project. And for what concerns distribution company, well, here we can make a lot of assumptions because the resilience CapEx could be in a range between 400, 500, and even more, depending on how deep you want to go in terms of improving the resilience of the grids.
We are talking about a number that can be modulated according to the distribution financial structure, and we are talking about a plan that could last between five, seven years, depending on the situation. You have to consider that also the supplier in order to implement this kind of project or this kind of program are not available in the full amount in the market. Having said that, for what concerns the assumption about the 2024-2028 cycle, well, we basically took our assumption thinking about the remuneration, the work that has been already set, the 6%, and the only information that are certain information that is the VNR value that has been set up last year, if I'm not wrong, 1.9 billion of assets, so these are the assumptions at the basis of our distribu tion flows.
Technology. Well, as I said before, right now, the BESS we believe are the best technology that not only our balance sheet, but also the system requires. So we believe that the BESS are the focus of our strategy. Wind project, as we see in the presentation, we have some wind project and another technology in which we are spending some money for the rest of the plan.
Okay. Thank you, Giuseppe. Javier, do you have more questions? No?
No, many thanks.
Okay. Thank you. So we have more questions here. No? So I'll go to the questions that we have received from email. So we received one question coming from retail investors that are asking more details about Enel Green Power results for this year that are included in the plan. The question is, regarding Enel Green Power results, what is the results expected considering that you have included in operation new projects now during 2024?
Thank you. Thank you for the question. I will give the floor to Simone. I will work a moment. Let me anticipate a little bit. At the end of 2024, we expect around $400 million EBITDA that is going to increase around $600 million at the end of 2027. This, of course, is the results of the growth strategy of the company.
Okay. Talking about the EGP results, we can confirm that we are planning increasing results during the plan. We count with a constant increase of our ordinary EBITDA.
And so the company, also due to the new investment made, will have an increase in performance during the next year, keep on very sound, and with, I think, a very brilliant future. So we expect to have a positive net income during the planned period in the range of $100 million during all the period. And these results are not so different compared to the performance that we planned in the previous plan.
Okay. Thank you, Simone. We have one more question that is relating to the PEC. So the investor is requesting more information just to make clear what is in our assumptions in terms of PEC. So what we are expecting in terms of recovery for the year plan. And now, so since when are we expecting that we will not have more accumulation of the PEC, these receivables? Thank you.
Simone?
Yes. Sure. So first message is a very important message. It's the fact that given the last increment in the tariff, starting by the end of this year, the two main clusters of customers, the customers with a consumption below 350 GWh per month and the bigger customers with higher consumption, are already paying a tariff that is at least in line with the cost of energy of the system, which is the good news. The good news is that the amount of PEC credit will not increase in the next year. So what about the possibility to recover in which are the assumptions that we are considering in the plan? We count to close the year with a credit in a range among $550 million, thanks to the important cashing that we had the 22nd of October, more or less EUR 650 million.
We expect to recover this amount in the next year. The amount is divided logically in two. There are the amount related to PEC 2.0 and PEC 3.0 mechanism and the amount about $180 million related to PEC 1.0 mechanism. The PEC 2.0 and PEC 3.0 mechanism will be recovered through this operation with the banks, with this securitization operation. And on the other side, talking about the PEC 1.0 mechanism, this was the first PEC mechanism put in place by the system. The recovery will be through the increase of the tariff. And so we will be recovered as in the initial plan by the end of 2027. To give you a little bit of details, we think that we will have a higher amount of recovery in the first year, 2025, around higher than $200 million.
And then the remaining part, around $300 million, will be recovered in the next two years. So by the end of the plan, we should stay with almost zero PEC credit.
Okay. Thank you. We have one last question coming here from email. They are asking more about battery development. So in our former plan, we considered 2 hr batteries. And now, into this new plan, we are updating for 4 hr batteries. So what's the reason? And also, if we're deciding to change the location of our batteries, that today is under the center and the south to the north?
Well, let me say that the 2 hr battery assumption in the previous plan was a preliminary decision considering the market view that we had at the time.
2 hr batteries, of course, are more adapted to answer to the ancillary services, while the 4 hr batteries are better and more profitable when we think about the shifting energy from solar hour to night. So we don't have any privilege, let me say, any—I mean, we are looking at both batteries. As of today, in the plan, we have most of our batteries in the nor th of Chile. So there are four batteries that are more fitting for the system needs. So we believe that the 4 hr batteries are better in terms of return for the location in which we are planning to build up. This is the reason.
Okay. We do not have more questions from email, not by Microsoft Teams. I don't know if someone here would like to do a final question. No? So thank you very much for your presence here. Any other information we may need, we as investor relations will be available. All the materials, as I mentioned, are already published with some annexes in order to also facilitate your review. Okay? Thank you very much and see you soon. Bye.