Dear ladies and gentlemen, welcome to the conference call of VERBUND AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Peter Kollmann who will lead you through this conference. Please go ahead, sir.
Thank you. Ladies and gentlemen, let me welcome you to the presentation of VERBUND for the first quarter of 2020, let me thank you for joining today's conference call in these exceptional times. I hope you're all well and healthy. I'm sitting here on my own in my office. Andreas Wollein is in a different room, you see we take social distancing very seriously. Before we move into the analysis of the business development of VERBUND, let me make a few general comments about this extraordinary first quarter 2020. 2020 started well for the general economy and for VERBUND until the coronavirus arrived in Europe and had devastating consequences not only on the people but also on the economy as a whole. The energy business sector, as you know, could not escape from this development.
The situation is being characterized by falling prices for primary energy sources, CO₂ certificates, and declining demand for electricity. All that results in a decline in wholesale prices for electricity, which obviously has an impact on us. However, due to our hedging strategy, VERBUND managed to deliver a satisfying results development in the first quarter, slightly lower on a year-over-year comparison. We managed to guarantee the security of supply in Austria without any issues and problems, and we're ready to restart with our project pipeline once corona restrictions will be lifted. Against this background, I'm going to present the figures for the first quarter to you now, and I'm moving to the next page. As always at the beginning, I want to highlight the most important influencing factors on our results development.
Based on our long-term hedging strategy for own generation from hydropower, the average achieved contract price was higher compared to the first quarter 2019, despite much lower spot market prices for electricity. The hydro coefficients determining the generation from our run-of-river hydropower plants was higher than the long-term average, but considerably lower than in the first quarter 2019. Contributions from flexibility products, especially from congestion management, increased compared to last year. Overall, the results development was negatively influenced by lower contributions from the grid segment.
The impact of these influencing factors on the key figures is as follows. EBITDA decreased slightly by 4.9%. The group results decreased by 12% to EUR 156.5 million. The operating cash flow was at a level of EUR 298 million. That's a minus of 21.5%. The free cash flow was positive at a level of EUR 150 million and allowed us to reduce the debt level further.
Net debt decreased by 6.7% to a level of EUR 2.1 billion. Let me now give you our adjusted outlook for the business year 2020. Due to the COVID-19 crisis, we adjusted our guidance range. VERBUND expects for 2020 an EBITDA between EUR 1.09 billion-EUR 1.25 billion and a group result between EUR 470 million-EUR 560 million. The payout ratio will be between 40% and 50% of the adjusted group result. The adjustment reflects the significantly lower spot market prices for our unhedged volumes for 2020 and the lower contribution from the grid business coming from lower national tariffs because of lower demand for electricity, as well as lower contributions from congestion management services and auctioning of cross-border grid capacities. On the next page, on those charts, I will explain the influencing factors in more detail. I would like to start with our own generation volumes.
If you look at the hydro coefficients, we saw low levels in January, but above average levels in February and March. At 109, the hydro coefficients, as you know, an index quantifying the hydropower generation of the run-of-river power plants, was 9 percentage points above the long-term average, but 12 percentage points below the level of the first quarter 2019, which was exceptional. However, the production from annual storage power plants increased by approximately 14% due to increased lowering of water levels and more turbining. Own production from hydropower, therefore only slightly decreased by 122 GWh or 1.6% compared to the first quarter 2019. Generation from thermal power was up by close to 50% or 191 GWh, reason mainly from the increased use of the CCGT Mellach for congestion management.
Generation from wind power also increased by 90 GWh to 6.2% due to a more favorable wind condition, particularly in Germany and Romania. Second important influencing factor is, of course, the average achieved contract prices. At the end of the first quarter 2020, always based on our hedging strategy, we achieved an average achieved contract price for our hydro generation of EUR 46.2. For the full year 2019, we achieved EUR 39. Please note that we have already hedged approximately 78% of the volumes for 2020. On a market basis, as of end of April 2020, we calculate with a price of EUR 43.7 per MWh, ± EUR 1, has a sensitivity of approximately EUR 25 million in the EBITDA line. On the next page, flexibility products.
You know that one of the major trends in the new energy world is increasing volatility in the European grid system, a result of the massive development of renewables with our very flexible asset base consisting of CO₂-free, low-cost pumped storage power plants and our very modern CCGT in Austria. We're very well positioned to benefit from this trend through the sale of flexibility products. As a result of EUR 23 million in the first quarter 2019 from these flexibility products, we registered a value of EUR 32 million in the first quarter 2020. The increase results mainly from higher contributions from congestion management. Please also note that since October 2018, our CCGT Mellach has been put into a strategic reserve mechanism in Austria, under which we receive a fixed capacity payment and a payment for the generation.
As a consequence, we have changed an unpredictable, volatile cash flow into a secure, stable cash flow for a period of three years. For 2020, we maintain our guidance for flexibility products, which is approximately EUR 100 million. On the next page, we talk about our grid. As you know, the grid continues to be of strategically high importance for the group. It has an increasing importance in the European grid system. We very much like the regulated character of the business. As always, I mention that there is a gap, a contrast between IFRS and local GAAP that creates a certain amount of volatility in the results contribution, which unfortunately we cannot avoid. The chart on the left-hand side provides you with a comparison between the EBITDA according to local GAAP and the EBITDA according to IFRS for 2019, for 2020, and of course, our guidance for 2020.
The EBITDA from the grid business according to IFRS slightly decreased from EUR 98 million to EUR 84 million. The reason for the decrease results mainly from lower contributions from congestion management. We reduced the grid guidance from approximately EUR 220 million to approximately EUR 190 million because we expect lower contributions from congestion management services and auctioning off of cross-border grid capacities, mainly as a result of the COVID-19 crisis. Please also note that the current regulatory period started on the 1st January 2018 with a WACC of 4.88% pre-tax for existing assets and 5.2% pre-tax, including an investment markup for new assets, therefore an average of approximately 5%. The regulatory period lasts from 2018 to 2022. The regulatory asset base for 2020 is approximately EUR 1.7 billion. The next slide shows how the effects described before influenced our key financial figures.
As I mentioned before, the EBITDA decreased by EUR 16.9 million to EUR 331 million. The decrease is mainly caused by the grid segment, which was EUR 13.4 million lower than in the first quarter 2019. All other segments was also down by EUR 8.7 million, mainly due to the thermal segment being lower as there were no positive contributions from changes in provisions compared to last year. These effects were slightly counterbalanced by high EBITDA contributions from the hydro segment, which was about EUR 2 million, and the new renewable segment with EUR 2 million, and the sales segment with EUR 1.7 million.
Depreciation increased by EUR 5 million, the financial results deteriorated by EUR 9.8 million from minus EUR 2.2 million. This was mainly attributed to the other financial results, to the negative measurement of securities according to IFRS 9. Lower earnings contributions from interest accounted for using the equity method also had a negative effect.
Lower interest expenses because of high repayments in 2019, however, showed a clear positive effect. The group results therefore decreased by EUR 21.6 million of 12.1% to EUR 156.5 million. EBITDA margin slightly decreased to a level of 26.3%. EBIT margin also decreased from a level of 21.4% to 18.8%, reflecting the above-mentioned effects. Finally, I would like to mention the additions to tangible assets, which were based on our CapEx plan above the previous year's level of EUR 88.2 million. The additions concerned mainly the hydropower plants in Töging, in Bavaria, as well as grid investments. On the next page, I'll start with the operating cash flow in the first quarter of 2020, decreased compared to the first quarter of 2019. The decrease of 21.5% to EUR 298.2 million is mainly caused by margining payments from the energy business and changes in the working capital.
The free cash flow showed a decrease from EUR 305.6 million to a level of EUR 150 million, caused by the lower operating cash flow I described before and increased investment activity. Net debt as a result decreased to around EUR 2.1 billion from EUR 2.3 billion. Our gearing decreased from 34.4% at the end of 2019 to 30.7% at the end of the first quarter of 2020. With that, I would like to hand over to Andreas Wollein, who is going to take us through the financial liabilities and the CapEx plan 2020 to 2022. Please, Andreas.
Yes. Thank you, Peter. On page nine, you see, as always, our chart showing our development with regard to financial liabilities. The debt maturity profile shows a remaining repayment of EUR 226 million for this year, mainly consisting of a fixed interest bond in the amount of EUR 200 million. The debt maturity profile also shows another peak in 2024 with repayments of about EUR 525 million, mainly consisting of a fixed interest bond in the amount of EUR 500 million. This year's repayment will be done mainly out of our, let's say, free cash flow. This amount basically is fully covered. As liquidity backup for VERBUND's access to a EUR 500 million syndicated loan facility, which is undrawn, has no MAC clause, and is available until 2023 with two extension options. This works very well as a liquidity backup, especially in these times where liquidity is very important.
VERBUND has also access to uncommitted lines with a large number of banks up to an amount of approximately EUR 400 million. The total amount of financial liabilities is around EUR 1 billion, a very low number. The average interest rate on our debt is approximately 2.8%, 98% of our debt is subject to fixed interest rates. In Q1 2020, the development of the external ratings of VERBUND AG showed a continuing positive trend. After the Standard & Poor's upgrade at the end of last year to a single A flat stable outlook, also Moody's improved and upgraded VERBUND's rating in January to A3 stable outlook. We are now among all the utilities in Europe, I would say, among the best-rated utilities.
This development is clearly a result of the numerous measures VERBUND has taken in the past to increase and optimize the cash flow and also, of course, the better market conditions for the VERBUND business model so far. When we move to page 10, you see the CapEx plan. You see the CapEx plan. The CapEx plan is unchanged. We still work under a three years CapEx plan of about EUR 2 billion. You see the split between the growth CapEx and the maintenance CapEx. It's about EUR 790 million as a maintenance CapEx, about EUR 1.3 billion is growth CapEx.
The main part of the growth CapEx, we've invested into the regulated business, especially into the 380-kV Salzburg line. In order to increase the capacity to integrate new renewables and also better address the volatility and congestions in the grid system, about EUR 520 million will be invested into hydropower and new renewables. The biggest project here in the hydro segment is the construction of the run-of-river power plant, Töging, in Bavaria. A project which we acquired in 2009, and when we bought the hydropower plants on the Inn River. In addition to the growth CapEx, we are planning to invest around EUR 790 million into maintenance between 2020 and 2022, which is approximately EUR 260 million per year. The CapEx plan as a basic message is unchanged, even in this environment, and we are further working on our projects, which I described.
Now, let's say the last slide of the presentation, I would like to hand over again to Peter to present the outlook. Thank you.
Thank you, Andreas. As you know, key parameters for the development of our operations business are prices and hydro volumes. Let's look at 2021. At the end of the first quarter, we have hedged approximately 34% of our hydro generation at an average price of EUR 46.2 for 2021, which is approximately EUR 7.2 above the level of the full year 2019. Importantly, on a mark-to-market basis as of April 24, the average achieved price would be at the level of EUR 42.3 per MWh, approximately EUR 3.3 above the 2019 level. We have also hedged approximately 5% for hydro generation, at an average price of EUR 43.2 for 2022.
The mark-to-market evaluation shows a level of EUR 43.9 for 2022. With regard to the year-to-date hydro situation, we have to report a hydro coefficient of 1.01, as of end of April, which is 1%, one percentage point above the long-term average.
On the basis of the aforementioned developments, the guidance for the full year 2020 is now an EBITDA of approximately between EUR 1.09 billion-EUR 1.25 billion, and the group result of approximately between EUR 470 million-EUR 560 million, under the assumption of average hydro and wind generation for the quarters two to four , as well as the chances and risk situation of the group. For the financial year 2020, VERBUND plans to pay out between 40% and 50% of the group results after adjustments for non-recurring effects. As always at this point, I would like to highlight our sensitivities.
A deviation of ± 1% in the generation from hydropower has an impact of ± EUR 3.7 million in the group results, a deviation of ± 1% in the generation from wind power of EUR 0.4 million, and a deviation of ± EUR 1 in the wholesale price has an impact of ± EUR 3.8 million in the group results. With that, I would like to begin with our Q&A session. Please.
Ladies and gentlemen, we will now begin our question-and-answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question has answered before it's your turn to speak, you can dial zero two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question received is from Lueder Schumacher of Société Générale. Your line is now open, sir. Please go ahead.
Indeed, Lueder here from SocGen. Good morning. A couple of questions from my side. The first one is on your revised outlook. You say that it has been revised down to account for the effects of the COVID-19 crisis. What exactly are these effects and where, in which divisions should we expect to see them? As you said, you're already 78% hedged on the hydro business. Presumably that is not where you expect to see the effects. Grids would only account for about half of your downgrades. I'd be interested to see where you expect to see those lower earnings in the rest of the year. The second question is on flexibility products. I'm a bit confused there. On the one hand, you say it's been exceptional, it's been very strong. You point towards a 36% increase in flexibility products.
Yet for the grids, you are talking about lower contribution from congestion management. It would be great if you could explain this a bit more. Where do you see the impact of the higher congestion management? Where should it be lower, why has the outlook for the full year not changed from the EUR 100 million, if you've seen a 36% increase in Q1? Lastly, perhaps the easiest one, Gas Connect Austria, do you have any update for us on that?
Yeah. Thank you. I will start with the Gas Connect. We are currently in the midst of our due diligence. As you can imagine, due diligence is not exactly getting easier with all the restrictions in place. That is certainly very challenging. As soon as we have more specific information, we will share that with you. At the moment, I cannot comment on Gas Connect any further. I think your first question in terms of guidance, obviously, I think it's the most important question, probably something that interests every single person on the call. The guidance change is very much influenced by power prices. When you looked at the power price development for the last six months, we have seen a steady decrease, quite dramatic actually, in every single product, in the quarterly product, in the weekly product, also in the forward product, either one-year forward product.
That is something that is very much impacting the open volumes which we have. When you look at the time when we originally gave you the guidance, we still had around 7 TWh, which were not hedged and were open. At that point in time, the average prices were above EUR 40. At the moment, we are around EUR 30. What you see there is, you see a dramatic drop in prices. I just give you one example, which is the quarterly product. Six months ago, the quarterly product was at 45, then moved down at the beginning of the year from 45 to 40, but then it dropped by another EUR 10, and currently it's below 30. You see that there is a dramatic development, which as far as we are concerned, is a result of the crisis.
We can talk about that in a second. That has a direct impact on our revenues, and that has a direct impact on our EBITDA and on our earnings, and that is the key driver for our new guidance. On the grid, you are right. On the grid, we had different effects. We actually had three effects. One effect on the grid was that we have lower revenues from auctions, number one. Number two, we have higher costs on congestion management. Yeah. Therefore, the contribution from the grid is lower. Yeah. Because the cost of congestion management is higher. Then, of course, because demand has come down, we have less tariff income from the usage of the grid, which also has an impact. I would say the key, the big driver is the power price. The second biggest driver is the grid.
Those are the key factors which resulted in the lowering of our guidance. I've already mentioned the flexibility products. In terms of the flexibility products, and I always have to say that, and I know it's boring, because it's always the same answer. It is very hard to predict flexibility products, because it's a direct result of the volatility, not just in Austria, but also in Germany, in France, in all the surrounding countries. We have decided that we are going to stick to our EUR 100 million guidance on the flexibility products, because it's very difficult to predict the increased volatility for the rest of the year. Increased volatility as a result of demand supply, which is obviously different as a result of the Corona crisis. The demand in some of the countries has come down quite dramatically.
Again, if somebody is interested, we can talk about demand situation on this conference call in the geographical areas. That would be the key response to your three questions.
Lueder, may I add to your question about the flexibility product. The difference, and I agree it's a little bit confusing, let's say, to argue that we have different developments from congestion management in the grid segment and in the all other segments, but the reason for that is that when we have an increase in congestion management services, the positive effect and the improvement is seen in all other segments because it's related to the operation of the thermal power plant Mellach because it's heavily used then. On the other side, in the grid business, you may see a decline coming from this effect because there are a couple of clawbacks from the past. It's always a roll-up for all different measures for the last two years.
In this regulatory system, you may see, let's say, a decline in the contribution, but based on the fact that we have an increase in Mellach, in the congestion management, you have an increase. That's why you have two different developments.
Okay. Very clear. Thank you.
The next question received is from Mrs. Livowska of Credit Suisse. Your line is now open, madam, please go ahead. Mrs. Livowska, are you still on mute? Mrs. Livowska is on mute. Just a reminder for all other participants, if you would like to ask a question, please press zero one on your telephone keypad now. We come to the next question, it's from Louis Boujard of ODDO BHF. Your line is now open, sir. Please go ahead.
Yes. Hi, Louis Boujard. Could you hear me?
Yes.
Just a few questions on my side. Thank you for taking my question. I'd like to come back a little bit on Ruediger's question. The first one regarding the power market prices. You were answering that you might have also some sensitivity to the quarterly product and the monthly product in your previous answer. I was wondering if you could give us an idea in terms of volume, in terms of percentage, when you hedge your volumes, when your forward, what would be the share that you will hedge with yearly products and the share that you would hedge with quarterly and monthly products? It could be interesting in the current environment where quarterly, monthly, and yearly products do not have exactly the same price to have this kind of information.
The second question regarding the flexibility product, I know how difficult for you to give a view, but I would have expected also maybe some upsiding to that figure for 2020, in particular with regards to what is happening in the French nuclear fleet. Could you remind us maybe what was the impact or what could be the impact in absolute terms of the stoppage of the nuclear fleet back in 2016? We remember that a lot of nuclear fleet were out of grid in the winter of 2016, 2017. Maybe it would be interesting to have an idea of what was the sensitivity at that time, and is it possible in your view that such a sensitivity could happen again maybe this winter? My last question is regarding the carbon prices.
Could you give us your view regarding the potential evolution of this market in the current commodity environment? It's difficult apparently to go significantly above EUR 20 at the moment. What do you see going forward considering the evolution of this market? Thank you very much.
Yeah. Thank you. First of all, the way we hedge is 60/20/20. 60% would be one year forward, 20% would be the quarterly product, and 20% would be the short-term product. In terms of your second question, very interesting one. Something we observe. If the French decided to put nuclear power plants into revision, that would have an impact on a very strong export situation of France, which we currently have. The key exporters in Europe at the moment are France and Germany. France, of course, a very strong baseload contribution. If France decided to cut down its nuclear production, that would have an impact on price, in my view. There is always different schools of thought on this. This is something that is relatively new in terms of configuration for this winter.
Let's just assume that we have a cold winter, and if nuclear production is going to come down in France, that could indeed have an impact, a positive impact on power prices. Last time when we had the problems in the nuclear and in some of the Belgian power plants, and a lot of the power plants had to be revised, that at the time had an impact on power prices. Can't tell you exactly how much it was, but it was quite significant. In terms of the carbon price, very difficult one, and the best is probably to say nothing, because so far I have a good track record in terms of my predictions, so I don't want to spoil it.
I have never been, as you know, a believer that we are going to see CO₂ prices going through the sky. I have said that they could see a level of 30, even 35, but I have been very conservative on CO₂ prices. At the moment, we are below 20 today. Now we have a bandwidth. People that look at CO₂ prices in great detail see an oversupply and could well imagine that the prices could go down to 15. Other people argue that CO₂ prices, which have a lot of support also from the political side, could go back up to 30. I would feel very comfortable if we stick around sort of between 20 and 25. That would be my personal prediction for 2020, in terms of CO₂ prices.
Okay. Thank you very much.
Before we take the next question, just a reminder for all participants, if you would like to ask a question, please dial zero one on the telephone keypad now. We receive the follow-up of Lueder Schumacher. Your line is now open, sir. Please go ahead.
Just a quick follow-up question from me. We have seen other TSOs around Europe struggling with predicting new load profiles amid all the lockdowns. What's the experience with APG? Is it all smooth or are you struggling, hence even more demand for balancing power?
Yeah. That's an important question in terms of the grid. APG has been extremely well-prepared, and there were a number of grid operators across Europe which were actually in conference calls with APG, and taking some guidance from APG as they have started extremely early to prepare for the situation in terms of crisis management. I'm knocking on wood, as you can imagine, but so far, we have not seen any issues or problems. The grid has been, and I'm not just talking for Austria, I'm talking for the rest of Europe. The grid has been relatively stable. Yes, there is volatility because demand is changing. In some countries, demand has gone down by 20%. It is relatively stable, and we have no major issues. Obviously, everybody is totally focused on it, and everybody is working extremely hard to handle the situation. I mentioned before, the demand situation.
It's quite interesting what we have seen. For example, you might remember from our last conference call, somebody asked me what I thought the demand decrease, because there weren't any numbers at the time, how much the demand increase could be. I think I mentioned something between sort of like 6% or 7% to 10%. In Germany, we have actually seen an interesting development. We have seen demand going down to close to -18% at the worst. Now demand is going up again, with the partial opening. You have seen that the car industry is starting to produce again. The demand has gone up, and we are now at approximately -7%, yeah, compared to the pre-coronavirus levels. In Austria, we are at approximately -14%.
In Italy, we were at a stage, at the most extreme, -40%, which if anybody had asked any grid operator if that would be a possibility, people would not have seen it in any scenario. We have seen demand coming down by -40%, but it's now up to -17%. In France, we have approximately -16%. What you see is, we see that demand is still down. I think that it will continue to stay down. Of course, with the loosening of the lockup regulation, it's going to increase, but I think overall demand is going to stay lower. Of course, we have to take into consideration how severe the impact of the recession is going to be.
A lot of you are sitting close to your economic research departments, and you probably know that there is a lot of discussion in terms of how long the recession will take. There is a lot of discussion how quick the recovery is going to be. We are also running through different scenarios in our simulations for the next few years, which we have already concluded. We are taking into consideration three different scenarios. A quick V-shaped recovery, which we think is unlikely. We're taking into consideration a recovery by the end of next year. When I say recovery, that by the end of next year, we would be approximately at the pre-COVID levels in terms of GDP.
Of course, we're also taking into consideration, almost like as a bad case scenario, that we would have a prolonged recession with very low growth, with very low consumer demand. Our base case, to be transparent, is that we think that we are going to see pre-COVID levels end of 2021, beginning of 2022. If I look at research, that seems to be the consensus at the moment. I think that we are in uncharted waters, and it remains to be seen how quickly we will recover and how quickly consumer demand is going to recover.
That's very interesting. To complete the numbers, you said German demand was down 18% at worst, and it's now seven. Austria was down 14% at worst, France 16%. Do you just have the numbers for Austria and France, where we are now?
Yeah. In Austria, we are at the moment at -14%, and in France, we are currently at -16%. Yeah.
These are current numbers. These are not the worst you've seen.
No, these are current numbers. Yeah.
Thank you.
The next question received is from Teresa Schinwald of Raiffeisen Centrobank. Your line is now open, madam. Please go ahead.
Good morning. Thanks for taking my question. I have two, actually. The first one is on how do you handle on your end customer business side, overhedged electricity? Have you already sold it, or what are you going to do? The second one is Bloomberg ran a story today about VERBUND Green Power and their target to increase the share of new renewables generation to 25% by 2030. If you're prepared to tell us already a bit more about that.
Yeah, sure. I will talk about the new renewables, and Andreas is going to cover your question on retail. Yes. From a strategic point of view, we have decided that over the next 10 years, we are going to diversify our renewable generation. As all of you write on a regular basis, hydropower dominates our business model. It dominates our earnings, and it dominates our share price. We, from a strategic point of view, have come to the conclusion that over the medium term, we are going to diversify our renewable generation, because of two reasons. Number one, as I've often said, unfortunately, we don't have a second Danube. It would be wonderful if we had more rivers in Austria and we could build more hydro. That is not possible. We have limited investment opportunities into hydro. Point number one.
Point number two, we think that in terms of generation profile and in terms of technical diversification, it makes sense for us to diversify into wind. We're already in wind, but not very large, as you know, and into solar, particularly as wind and solar are and will be even more competitive in terms of generation cost. We have come up with a target of 25% within the next 10 years. That would be 25% of our generation. Why 25%? To be relevant, we think that we need to have critical mass, also in terms of being able to have synergies and, as I said, to be relevant. That is why 25%. It could be 20%, could well be 30%. It really depends not so much on the organic growth, but it depends a lot on the inorganic growth. Yeah.
Because organic growth, as you know, in new renewables, in wind and in solar, is quite slow. Now, with that, I would like to hand over to Andreas for the retail response.
Sorry, I didn't understand your question acoustically. Can you repeat it?
Yeah, sure. It's about potentially overhedged retail volumes that might not be consumed over the course of the year.
No, basically, Teresa, we are not overhedged. That cannot be based on our hedging strategy because basically, we sell electricity to end customers always, let's say, on the basis of one year. Are futures linked to the prices of the electricity exchange and with regard to volumes, these are fixed volumes which they have to take. Which they have to buy, based on the contract. Basically, when you want to refer to the fact that if we have an issue with customers not, let's say, fulfilling the contracts, the clear answer is no, we haven't. There is only one customer who is arguing, let's say, with a force majeure clause. The likelihood of this customer to be successful, we think is very limited. This is the only one. Yeah. Basically, we don't have any issue with customers not fulfilling the electricity supply contracts.
Very clear. Thank you.
The next question received is from Peter Bártfai. Your line is now open, sir. Please go ahead.
Good morning. I have two questions. First is to the hydro segment. In the first quarter, you reported only 1% increase in EBITDA, while prices were up more than 15% and generation was down 5%. To me, it looks like the operating costs are growing at 10% rate. If you can comment on that and give us some more outlook for the rest of the year in terms of costs. Second question is the regulatory account in the grid segment. If you already have some agreement with the regulator, how it will be reflected in tariffs. Also in the first quarter, I believe the grid segment had, again, some extraordinary revenues. Some more color on that. Thank you.
Yeah. Thank you, Peter. We're going to split the responses. I'm going to cover the regulatory account and the cost, and Andreas will talk about your first question, with regards to the first quarter differences, if I understood it correctly. On the regulatory account, you're right, that is something we discussed on our last conference call. I mentioned that we are in negotiations with the regulator, in terms of how fast or how slow we are going to decrease the regulatory account. Our objective would be that we have a regular or a linear decrease of the regulatory account, which is at the moment approximately EUR 270 million. We are still in discussions, and we don't have a specific result. That is the short answer. If and when we have a result, we will obviously inform you.
In terms of cost, there is a cost increase coming from areas that are related to innovation and to cybersecurity. Cybersecurity is something which we view as very important. We are a critical infrastructure, and as critical infrastructure, we need to be extra careful, which is why at the end of last year, we have decided that we are going to further invest into our cybersecurity, both on the APG side, of course, and on the VERBUND side. That is something that increases the OpEx. Apart from that, all the other cost items are in line with expectations. Andreas?
Peter, with regard to your first question, I think that's relatively simple to answer. You're right saying that the result in the generation segment is stable compared to first quarter last year. We also like to say that there is a price increase. We realized average achieved contract prices, which are, let's say, higher by about EUR 5. On the other side, you have a strongly declining volume effect, based on what we said before. In Q1 2019, we had an hydro coefficient of astonishing 1.21. It's 21% above the long-term average compared to only 9% this year in the first quarter. If you calculate, let's say, the volume effect and the price effect, you may see that these both effects are, let's say, have roughly the same size, the same amount, but of course in different directions.
That's the reason why the EBITDA in the generation segment is quite stable.
Sorry. The increase in prices was relatively smaller in first Q than what we can expect for the full year?
Of course, we cannot forecast the hydro volume for the rest of the year. For the time being, it's relatively low. I think year to date, the hydro coefficient is now exactly on the long-term average. Of course, to forecast how the hydro situation will be for the rest of the year is almost impossible. With regard to prices, you have the effect which we described before, and that's the reason why we reduced our guidance for the full year.
Thank you.
You're welcome.
The next question received is from Martin Bossier of Erste Bank. Your line is now open, so please go ahead.
Good morning. Thanks for taking my question. I have three, actually. Regarding your diversification in renewables, you mentioned that it should be more external growth than organic growth. Could you give us more information on the geographies that you target? Would you be more interested in the acquisition of selected projects or the acquisition of small or medium players as a whole? Finally, do you already have a MW capacity target in the short to medium term, let's say? Thank you.
Yes. On the diversification, we have decided that we are going to stay within Europe. We would like to stay close to where opportunities are. As a result of that, the key countries we're looking at at the moment would be strong solar and partially wind countries, but particularly solar. We're looking to Spain, we're looking to Italy, we're looking to France. We always look to Germany, which we consider almost like our home market. Austria, of course. As far as Eastern Europe is concerned, we are less active in terms of looking at that specific market. We have a big radar screen, and we look at a lot of different opportunities. If there is an interesting opportunity, we don't want to miss it. Geographically, we want to stay within a region which we can reach easily, number one.
Number two, where we have very clear regulatory frameworks and want to stay within Europe, as I mentioned. In terms of we don't have specific MW targets short-term. The reason for that is clear that when we look at inorganic opportunities, there are a lot of factors to be successful. As you know, a lot is down to auctions. In the past, we have been disciplined in terms of pricing. In the future, we will continue to be disciplined on pricing. As a result of that, there is always a possibility not to win in an auction or not to get an opportunity. You might remember that we have been very interested in the hydro assets in Portugal, and we have not been successful because we have decided that we're not going to go above a specific level in terms of purchase price.
As a result of that, I can't give you a specific number in terms of how much MW we are going to acquire within the next two, three years. I think you had another question, if I understood correctly, if we were willing to buy small companies which are in the solar sector and in the wind sector. Did I understand correctly?
Yeah, exactly. Either you acquire one project or you acquire a whole small or medium independent power producer.
Yeah. Both is possible. We are both looking into projects where we just buy projects, but we're also looking into companies which develop and own portfolios and pipelines.
Okay. Very clear. Thank you.
As there are no further questions, I hand back to Mr. Kollmann for closing remarks.
Yeah. Thank you very much for your interest. Thanks a lot for your numerous questions. I can assure you that, as I have said in the last conference call, that our crisis management has worked extremely well. We have been able to put thousands of people into home office within a week. We had no issues in terms of home office and the lockdown, which has been quite strict in Austria. As a result of that, I can report to you that we are very satisfied with our crisis performance so far, both on the generation level, but also on our retail level, on our services, and of course, on the grid level. I'm very confident that we will continue to perform well, even if there is a second wave, which obviously I hope that there won't be.
I would like to thank you and look forward to hearing you on our next conference call. Have a good day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.