Good day, and thank you for standing by. Welcome to the Ignitis Group 3M 2024 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Alternatively, if you wish to ask a question via the webcast, please type it into the box and click Submit. Please be advised that today's conference is being recorded. Speakers, you may now begin.
Good afternoon, and welcome to Ignitis Group's earnings call. I'm Ainė Riffel-Grinkevičienė, the head of Investor Relations, and will moderate the call today. During this presentation, the CEO and CFO of Ignitis Group will review the results for the first quarter of this year, and will present the strategic plan for the next four-year period of 2024 to 2027. This will be followed by a Q&A session. Before we begin, I would like to remind that today's presentation contains forward-looking statements that are subject to risks and uncertainties. These statements are based on the management's current views, expectations, and assumptions, and actual results may differ materially from those expressed or implied . With that, I would like to hand over to the speakers.
Good afternoon, everyone. We started 2024 with strong results. First, on our strategic performance, we increased our Green Capacities portfolio by 0.3 gigawatts up to 7.4 gigawatts, grew installed capacity by 0.1 gigawatt to 1.4 gigawatts, and achieved significant milestones in the development of our portfolio. Second, on sustainability initiatives, we reduced Scope 2 emissions, continued to improve the safety metrics, and maintained high employees' satisfaction. And finally, on our financial performance, our Adjusted EBITDA grew by 21.2% year-over-year and reached EUR 181.7 million. Increased investment by 73.4%, up to EUR 209.5 million. We reiterate our Adjusted EBITDA and investment guidance for 2024. Let me now take you through each of the highlights in more detail.
In first quarter of 2024, we increased our portfolio by 0.3 GW, from 7.1 GW to 7.4 GW. This is a result of greenfield capacity additions as we secured land for development of hybrid projects. So to say, we will develop wind farms co-located to our existing solar projects. We also increased our installed capacity to 1.4 GW as Silesia Wind Farm I in Poland has reached COD in March, and our secured capacity stood at 2.9 GW. In terms of breakdown of our Green Capacities portfolio, it continues to be dominated by wind projects, with share of 4.6 GW. Most of the projects are being developed in Lithuania, accounting for 4.2 GW.
Yet, the generation part represents the largest part of our portfolio, with the capacity of 6.3 GW. Now to our project delivery by technology. First, we continue to make significant progress in the development of offshore wind. At Lithuanian Offshore Wind Farm, we have successfully completed first geophysical and geotechnical campaigns, initiated an environmental impact assessment, and started taking wind and meteorological measurements in the Baltic Sea. We are also proud to have built an experienced team, which now consists of more than 50 experts with extensive offshore wind development experience, experience gained globally. In addition, we submitted a bid in the tender for the second 700 MW Lithuanian offshore wind project. However, due to the limited number of participants, the tender did not convene, but it's expected to take place in due course, following a review of the tender conditions.
On the onshore wind front, as already mentioned, our 50-MW Silesia Wind Farm in Poland has reached COD. In addition, the first wind turbines have been delivered at Kelmė, the largest 300-MW wind farm we are developing in the Baltics. We expect the wind farm to become operational in 2025. And finally, we added new technology to our portfolio after reporting period, as we secured grid capacity for the first early development of BESS projects, with the capacity up to 190 MW in Lithuania. Next, our progress towards sustainability. Firstly, on greenhouse gas emissions. Our market-based total emissions increased by 12.5% year-over-year due to the increase of out-of-the-scope emissions as a result of Vilnius CHP Biomass Unit operations.
Despite that, we reduced our Scope 2 emissions by 60.4% due to the use of renewable energy guarantees of origin for the share of Kruonis PSHP electricity consumption, and the share of electricity distribution of network losses. Second, we increased electricity generated by 39%, mainly due to the generation of new assets such as Mažeikiai Wind Farm, Silesia Wind Farm I, and Vilnius CHP Biomass Unit. The growth was further supported by Elektrėnai Complex, where all three units were operational simultaneously in commercial mode for the first time ever, due to severely cold weather in the Scandinavian countries and decreased electricity production capacities in the region. This, in turn, resulted in the green share generation decrease by 15.7%, down to 79.9%.
Finally, we improved our employees' total recordable injury rate to 0.99, as the number of safety incidents decreased from 3 to 2. Also, no incidents occurred between contractors. And lastly, we maintained a very high employee overall experience rate at 65.5%. For now, I conclude the overview of our strategic performance and pass the word to Jonas to cover the financials.
Thank you, Darius. Let me start with the financial highlights of Q1, 2024. We have again delivered a strong set of results. Adjusted EBITDA grew by 21.2% year-over-year, with growth across all business segments except Reserve Capacities. Green Capacities segment remains the largest contributor to the group's Adjusted EBITDA, representing 42.4% of the total. Adjusted net profit increased by 26.9% and reached EUR 112.6 million. We have continued our extensive investments program, and our investments increased by 73.4% year-over-year and reached EUR 209.5 million. This reflects our progress in Green Capacities segment, where our investments have tripled. Return on capital employed decreased by one percentage point to 11.1%, mainly, as it takes a few years until capital invested starts generating EBITDA.
Our leverage metrics remain strong, with a FFO to net debt at 28.9% and net debt to Adjusted EBITDA at 2.49x. Finally, in line with our dividend policy, we paid a dividend of EUR 0.643 per share for the second half of 2023, which is 3% higher than last year. Now, let's take a closer look at each of our KPIs. Starting with Adjusted EBITDA, it has increased by EUR 31.8 million year-over-year from EUR 149.9 million to EUR 181.7 million. Green Capacities EBITDA grew by EUR 7.1 million, mainly due to the launch of new assets and higher captured electricity prices due to the flexibility of our assets.
Networks EBITDA grew by EUR 16.8 million, mainly due to higher RAB as a result of continued investments into our electricity network and higher regulatory WACC, which reflects a higher interest rate environment. Customers & solutions EBITDA grew by EUR 16.5 million, driven by lower loss in electricity B2C business and better results in Latvia and Poland. The growth in the three mentioned segments was partly offset by a decline in Reserve Capacities segment. Next, let's deep dive into the EBITDA of each segment, starting with Green Capacities. Its EBITDA increased by 10% year-over-year from EUR 70 million to EUR 77.1 million, and it continues to remain the largest contributor to the group's Adjusted EBITDA, accounting for 42% of the total.
The main drivers behind growth were, firstly, the launch of new assets, Mažeikiai Wind Farm and Vilnius CHP Biomass Unit in Lithuania, and Silesia Wind Farm I in Poland. And secondly, higher captured electricity prices, mainly due to the flexibility of our assets. However, the growth was offset by two factors: OpEx increase as a result of continued expansion and lower volumes generated in existing assets, mainly driven by Kruonis Pumped Storage Plant. Moving on to the Networks segment, its Adjusted EBITDA grew by 35% and amounted to EUR 65.5 million. The increase was mainly due to higher regulated asset base, which increased by 11% from EUR 1.4 billion to EUR 1.6 billion as a result of continued investments into electricity network.
and higher WACC set by the regulator, which increased from 4.1% in 2023 to 5.1% in 2024, reflecting the higher interest rate environment. Worth noting, that the result also includes temporary volume effect, which will level off over the year. Next, in Reserve Capacities segment, we delivered strong performance both in Q1 of 2024 and 2023, as we utilized the optionality to earn additional return in the market on top of the regulated return. However, due to extraordinary market conditions in 2023, EBITDA decreased from EUR 28.6 million to EUR 20 million. Lastly, Customers & Solutions Adjusted EBITDA increased by EUR 16.5 million year-over-year, and reached EUR 17.4 million, driven by several factors. Firstly, lower loss in electricity B2C business, and secondly, better results in Latvia and Poland.
Next, our investments. They have increased by 73% year-over-year, and the key driver behind that was our accelerated investment in Green Capacities, which we tripled to EUR 138.9 million, mainly because of the construction of new onshore wind farm projects in Lithuania, Kelmė Wind Farm I and II . Green Capacities segment accounted for two-thirds of the group's total investment. Networks investments, on the other hand, have decreased slightly by EUR 7.9 million, driven by lower number of new connections and upgrades in electricity networks. Turning to our net working capital figures, it has decreased by 17.6% since the end of 2023, down to EUR 144 million at the end of Q1 2024.
The main drivers for lower net working capital were a decrease in inventory, mainly in Customers & Solutions segment, due to the decrease in value of natural gas and storage, mainly due to lower volumes stored. The second factor was lower trade receivables due to lower energy prices and lower volume sold. Adding it all together, our free cash flow metric was positive EUR 5 million, with EBITDA and the positive change in net working capital offsetting the investment. Regarding our leverage metrics, our net debt decreased by 2.3% and stood at EUR 1.3 billion at the end of Q1 2024. FFO to net debt remained at a solid level of 28.9%, which is well above 23% threshold of S&P credit rating agency required for BBB+ credit rating.
Net debt to Adjusted EBITDA has improved slightly from 2.7x to 2.5x. Finally, our guidance for 2024, following our Q1 performance, which was in line with our expectations, we reiterate our full year 2024 Adjusted EBITDA guidance of EUR 440 million-EUR 470 million, and investment guidance of EUR 850 million-EUR 1 billion. Directional guidance for Adjusted EBITDA by segment also remains unchanged.
Thank you, Jonas. Before moving on to our next four-year strategic plan, I would like to summarize the strong performance we had delivered in Q1 of 2024. In our strategic performance, we increased our Green Capacities portfolio by 0.3 gigawatts up to 7.4 gigawatts, and grew installed capacity by 0.1 gigawatt to 1.4 gigawatts. Next, on our sustainability initiatives, we reduced Scope 2 emissions, continued to improve the safety metrics, and maintained high employee satisfaction. And finally, on our financial performance, our Adjusted EBITDA grew by 21.2% year-over-year and reached EUR 181.7 million. We increased investment by 73.4%, up to EUR 209.5 million.
To reiterate our full year 2024 Adjusted EBITDA guidance of EUR 440 million-EUR 470 million, and investments guidance of EUR 850 million up to EUR 1 billion. Now, let us move on to presentation of our strategic plan for 2024-2027 period. In 2023, we updated our strategy and defined our purpose to create a 100% green and secure energy ecosystem for current and future generations. We continue to stick to our deep purpose. We fully. We fulfill our purpose by contributing to Europe's decarbonization, as well as energy security in our region. Both are driven by external factors and are in full alignment with our strategy and strategic plans. First, on the decarbonization agenda.
It's supported by EU action and climate-related targets, sets to reduce greenhouse gas emissions by 55%, 55% in 2030, by 90% in 2040, and reach net zero emissions by 2050. Second, on our regional energy security, it became of crucial importance since the beginning of energy crisis and drives for the change to replace natural gas with renewable sources of energy and to increase energy self-sufficiency. Because of that, it is forecasted that renewables capacity will increase 2.6 times by 2050. Both decarbonization and energy security has two common denominators: energy flexibility and grid, needed to be enable the energy transition. Regarding green flexibility, it is forecasted that European battery capacity will increase almost 10 times by 2050, and Power-to-X capacity will be fully utilized by 2050.
Let me note that, with this strategic plan update, we updated our green generation segment's name to Green Capacities, as it concludes both green generation and green flexibility technologies, and better represents the essence of green energy transformation. To enable this energy transformation, growing investment in power grids is needed. Investment needs to more than triple compared to the historical levels. For successful integration of large renewable sources and to be able to transport power over long distances from offshore, while considering the electrification of transport, industrial and heating sectors, increasing connection requests and aging Europe's distribution grids. To sum up, our strategy is aligned with both enablers. We are developing green flexibility technologies and continue to invest in power grid, which is well integrated in our business model.
By utilizing our integrated business model, we are maximizing our full potential. This is our backbone for strategy execution. It means that, first, we will focus on delivering 4-5 gigawatts of installed green generation and green flexibility capacities by 2030. Second, we will expand the resilient and efficient network that enables the electrification. Third, to enable the Green Capacities build out, we will utilize and further expand our customer portfolio, which is currently the largest in Baltics, with 1.4 million customer base in our Customers & Solutions segment. And finally, Reserve Capacities is foreseen to be mainly operating as a system reserve, with strategic focus on contributing to security of the energy system. The forces behind the change and our business model wrapped up, let us now deep dive into strategic priorities of our business segments. Jonas, passing the word to you.
Thank you, Darius. I will cover our Green Capacities business segment. As previously, we have two main targets, one for the medium term and one for the long term. In the medium term, by 2027, we expect to double our installed Green Capacities and to reach between 2.4 and 2.6 GW. And in the long term, by 2030, we plan to double it again and reach between 4- 5 GW. So overall, no major changes to our previously published strategic plan. While working towards our Green capacity targets, we focus on technologies that can deliver 100% green and secure energy ecosystem. And to deliver that, we combine green generation and green flexibility technology. In terms of green generation technologies, we focus on onshore and offshore wind.
In terms of green flexibility technologies, we focus on battery storage, hydro pump storage, and Power-to-X technologies. Worth mentioning that part of our complementary assets, such as hydro, biomass, and waste-to-energy plants, provide both generation and flexibility solutions. I will now briefly cover each of these, starting with the offshore wind. Offshore wind is one of our focused green generation technologies. Our target is to build at least two offshore wind projects in the Baltics. One project in Lithuania, with COD around 2030, and at least one more project in the Baltics, with COD post-2030. We currently have two projects in our portfolio, one in Lithuania and one in Estonia. Lithuanian 700-megawatt project has seabed and grid connection secured and is in the active development phase.
Estonian project is between 1 and 1.5 GW, and it has seabed secured and is in the early development phase. In terms of the long-term offshore potential in the Baltics, it is massive. There are around 8 GW of auctions expected during 2024-2027. While long-term potential is more than 30 GW. Moving on to onshore wind, which is another focus green generation technology for us. We target to reach more than 700 MW of onshore wind installed capacity by 2027. Our current total installed capacity stands at around 300 MW, and capacity under construction is around 400 MW.
The conditions in the Baltics and Poland are very much favorable for onshore wind development, as there are no natural barriers, such as mountains, that can block wind, and it has a low population density, especially in the Baltics. In terms of market potential, there is plenty. We expect to see onshore wind installed capacity increasing almost three times in the Baltics and almost two times in Poland by 2030, with more than 10 GW of new capacities coming online. Next, the solar, hydro, biomass, and waste-to-energy are our complementary technologies. We will use solar technology where it adds value, either by creating a more stable generation profile or better utilizing the existing grid infrastructure. We target 400 MW of installed solar capacity by 2027, and currently, we have around 300 MW of it under construction.
In terms of other complementary technologies in our portfolio: hydro, biomass, and waste-to-energy, we are very happy to have these assets in our portfolio, as they provide both green baseload generation and green flexibility solutions, meaning that they are able to capture prices which are above average market prices. Total installed or soon-to-be-installed capacity of these technologies is around 250 MW of electrical capacity and 350 MW of heat capacity. Now, moving on from green generation to green flexibility technologies. First of all, hydro pumped storage. The asset which we already have in our portfolio is Kruonis Pumped Storage Hydroelectric Plant, which has 900 MW of green flexibility capacity and is one of the largest energy storage facilities in Europe.
On top of that, we are currently building additional 110 MW of even more flexible capacity, which will be launched in 2026. After the expansion, this 1 GW plant will be able to run at full load for around 10 hours and provide a massive 10 GWh of storage capacity. Next, our two other focus technologies on the green flexibility side, batteries for the short-term flexibility and P2X for the long-term flexibility. We target to implement our first utility-scale batteries by 2027. And on the P2X side, we plan to launch a green hydrogen production and e-fuel conversion pilot project. And if successful, in the second stage, we will launch utility-scale hydrogen and e-fuel production capacity.
Next, I would like to highlight one of the key elements of our operating model, which is power offtake capabilities. This is one of our key differentiators, positioning us very strongly among the competition. Our current power supply portfolio is six times larger than our generation portfolio. Currently, we generate only around 1 TWh and supply more than 6 TWh. This enables us to build around 2.5 GW of new green generation capacities and simply sell the electricity that they generate to our existing customer base. With this, I will pass the word back to Darius to cover our remaining business segments.
Thank you, Jonas. Let me begin with the Networks segment. Networks have the largest distribution grid in the Baltics and operates under natural monopoly, with regulatory framework providing more than 5% return on investment. We see the grids as one of the key elements of energy transition, and therefore, our focus is on three priorities. The first, resilient and efficient electricity distribution. We aim to increase network resilience, automation, and efficiency. The second strategic priority includes electricity network expansion and facilitation of the energy market. We aim to facilitate the energy market development, including transport electrification, EV charging, and energy efficiency. It also includes industrial and heating electrification through the electricity network expansion, new connections, network capacity expansions, and smart meter rollout. Lastly, the third strategic priority includes end-to-end customer experience improvement through standardized solutions and channels reflecting the customer needs.
Next, Customers & Solutions business segment. It has the key role of utilizing and further expanding our customer portfolio to enable the green capacity build-out. We target to utilize it and further expand the customer portfolio, which is currently the largest in Baltics, to ensure the green capacity build-out through internal power purchase agreements, and to grow the share of green electricity supplies to our customers. Additionally, we are building a leading EV charging network in Baltics, which will become a significant off-taker of green electricity in the future. We are expanding in the Baltics across public, commercial, and home charging segments, and developing a public EV fast charging network. And finally, we are optimizing our natural gas supply portfolio and proactively promoting customers to move from gas to power.
As a result, our electricity supply portfolio is expected to increase to 9-11 TWh by 2027, with a cumulative average growth rate reaching around from 8%-13% during 2023-2027. Finally, let me now move to our Reserve Capacities segment, but those key role is contributing to security of energy system. This segment primary provides ancillary services with a load factor of just 3% in the last year by ensuring high availability of around 98%. Additionally, it has an upside potential from having an option to generate electricity in the markets during the low renewables generation or positive clean spark spread periods. Another upside potential is participation in market tenders, capacity options for the provision of ancillary services to other countries.
With that, again, I give the floor to Jonas to cover our financial targets.
Thanks, Darius. Over the next 4 years, we plan to invest between EUR 3 billion-EUR 4 billion. Most of our investments or around 60% will be allocated to Green Capacities segment to achieve 2.4-2.6 GW of installed capacity target by 2027. Another significant part of our investments, around 35%, will be dedicated to our Networks segment, which will increase electricity network resilience and enable the electrification of other sectors. At the same time, increasing our regulated asset base by 50% to more than EUR 2 billion. Sustainability-wise, more than 85%-90% of our investments are expected to be aligned with the EU taxonomy.
Now, let's look a bit closer to our Green Capacities investments, where we will invest, as mentioned, 60% of the total group investment, or between EUR 1.8 billion-EUR 2.4 billion. Out of this amount, 44% will go to assets, which we plan to launch during 2024-2027 period. 53% will go to the assets, which will be launched post-2027. And finally, 3% will go into maintenance. Technology-wise, the largest shares will go to our focus technologies, onshore and offshore wind, 56% and 18% respectively. And geography-wise, around 50% of the investments will go to Lithuania. Moving on to our Networks investments.
To this segment, we will dedicate around 35% of the total group's investments, which is equivalent to between EUR 1.1 billion-EUR 1.3 billion over the 2024-2027 period. 56% of this amount will be allocated to electricity network expansion, 39% to electricity network maintenance, and 5% to the gas network. Next, our target returns, which all these investments are expected to generate. Firstly, in terms of IRR WACC spread, we target at least 100 basis points in non-regulated activities and zero or more basis points in regulated activities. Secondly, our Adjusted EBITDA is expected to reach between EUR 550 million-EUR 650 million in 2027, which represents up to 8% annual growth rate over the strategic period, mainly driven by the Green Capacities and networks.
Finally, we target our adjusted return on capital employed to be at the level of 6.5%-7.5% in 2024-2027 period. Despite our sizable investment program, we continue our commitment to a solid investment-grade credit rating of BBB or above over the 2024-2027 period. In addition to that, we also target to keep our net debt to Adjusted EBITDA below 5x. Finally, in terms of shareholder returns, we will continue to grow our dividends by at least 3% every year... which represents an implied dividend yield of 7.3%-8% over the 2024-2027 period. With this, I pass the word back to Darius.
Thank you, Jonas. Let me now to move on to the most important asset, our people, which all together contribute our strategy execution. We are organically building our entire renewables branch from scratch. Our renewables organization expected to grow 3.5 times over the four years. In this group is a diverse organization with the energy smart people united by common purpose. Together, we innovate, grow, and act with the sense of purpose to create 100% green and secure energy ecosystem for current and future generation. Continue to align our business goals with the fundamental ESG principles and strategic priorities on decarbonization, safety, employee experience, diversity, and sustainable value creation. Our decarbonization pathway is aligned with our business ambitions.
The result of growing installed green generation and flexibility capacities will reduce the carbon intensity of Scope 1 and 2 greenhouse gas emissions by at least 20%-40% compared to 2023. We also anticipate to further increase the share of green electricity supplied to more than 30% by 2027, by actively encouraging our customers to use green electricity, as well as expanding our electricity supply portfolio within our home markets. Finally, we aim to reducing our absolute Scope 3 greenhouse gas emissions from natural gas supply by encouraging customers to transition from gas to electricity. We will execute on these priorities to reach our net zero emissions target. Let me now sum up the key points of our strategic plan for 2024-2027.
Our purpose is to create a 100% green and secure energy ecosystem for current and future generations. To do that, we will exploit our renewable-focused integrated business model and pursue the purpose-driven priorities: green, flexible, integrated, and sustainable. Regarding our strategic goals, we target to reach 4-5 gigawatts of installed Green Capacities by the end of 2030, and 2.4-2.6 gigawatts by the end of 2027. By 2027, we will reduce our carbon intensity of Scope 1 and 2 greenhouse gas emissions to 215-289 grams of CO2 equivalent per kilowatt hour. By 2040, 2050, we will reach net zero emissions.
To ensure these goals, we will invest from EUR 3 billion-EUR 4 billion over the next four-year period, while maintaining BBB or higher credit rating. This should translate into EUR 550 million-EUR 650 million Adjusted EBITDA in 2027, and 7.3%-8% implied dividend yield over the period of 2024-2027. With that, thank you for patiently listening to us today.
This concludes our presentation and opens the floor for questions. To start with, the first question: Congrats on mind-blending results. I'm honestly running out of superlatives. By my count, Q1 Adjusted EBITDA of EUR 182 million is roughly 40% of the group's planned Adjusted EBITDA for the year. If the midpoint of 440-470 is used, what prevents Ignitis from upping its guidance for the year?
Yeah. So, you are right. Q1 results were very strong indeed, probably towards upper end of the guidance. However, there are several factors why we are not upgrading the guidance. So first of them is the seasonality, right? So, Q1 is usually a stronger quarter for us. So that's one thing. And the second thing is that we had some better performance in Reserve Capacities and in Customers & Solutions, which we don't expect to continue throughout the year. And we also had some temporary effect in the Networks segment, due to a higher share of volumes being distributed in Q1.
This effect will level off over the year as well. Those are the reasons why we are not upgrading the guidance.
Next question is: In Ignitis' strategic plan, 2024-2027, estimated CapEx of EUR 3 billion-EUR 4 billion represents an increase of around EUR 1 billion compared to the previous strategic period. Could you please indicate which factors contributed the most to the increase? Timing of capacity, expansion, more expensive CapEx, else?
... Yes. So, regarding the CapEx, again, there are multiple aspects to this. So, first of all, on the green capacity side, it includes the year 2027, which is already the first year where we will start to see more significant offshore investments. So that's one factor. The second factor is the change in the mix between onshore wind and solar, which we now see that we will do more megawatts on the wind side and less on solar. And the third factor is actually on the Networks segment, where we also see an increase in investment as the network is critical for successful energy transition.
And due to the improvement in the regulatory framework, which took place at the end of last year, now it allows us to actually accommodate all those investments needed to the network, without breaching healthy leverage levels.
Next question. In Ignitis strategic plan, 2023 to 2026, Ignitis targeted EBITDA of EUR 470-EUR 550 for 2026. Now, Ignitis aims to earn Adjusted EBITDA of EUR 550-EUR 650 in 2027. Could you please indicate if the previous target for 2026 is still in place?
Yeah. So, the way we approach these strategic plans, so we are not updating the old ones. So the relevant guidance is only the 2027 numbers, which is the most fresh one.
The next question: Is asset rotation still a viable option? If some assets get eventually farmed down, what premium over CapEx can Ignitis reasonably earn on average?
So, to answer the first part, yes, asset rotation is part of our strategy. It's part of our funding strategy. So, it's done for two reasons. One is to recycle capital, so get back the capital from assets which are built, and to reinvest it into new assets. And the second part of the target is to earn that additional premium over CapEx. How big that CapEx premium can be, you know, we will see once we complete the transactions.
The following question: Could you please elaborate on CapEx prices for the wind, offshore, onshore, and solar? What are the averages now, and what dynamics have been observed lately? Any signs of easing, getting cheaper?
Yeah, so, I mean, we, since last year, we are not seeing any significant movements in the CapEx per megawatt. They have stabilized, and we are seeing, you know, solar at EUR 0.5 million-EUR 0.6 million per megawatt, while for onshore wind, it's around EUR 1.5 million. For offshore wind, since we haven't done any contracting yet, it's, you know, yet to be seen.
Next question: What power price assumption is factored into the long-term guidance?
Regarding the long-term power price assumption, so it naturally differs across different geographies. But to give you a very rough guidance, it's around EUR 80-EUR 90.
The following question: Can you enlighten us more about Lithuania's second offshore wind project? Why did you choose to participate in it? When should we expect the next auction? Should Ignitis participate with a partner?
The decision to participate in second tender was driven by the change in the project implementation schedule. As the project set to be implemented within 8 years around 2032, it will potentially not coincide with the implementation of the first 700 MW of Lithuanian onshore wind farm. This made it financially feasible to successfully implement both projects in the event of successful tender. As currently, we do not know when the tender will be relaunched, we do not discuss our participation in that tender. After conditions will be clear, we will make a decision, and we will announce it.
... The following question, battery projects. Do you already see a possibility to operate it purely on market conditions without subsidy?
You're right, we made the first step of making reservations or grid capacities for large-scale battery systems. While doing so, we still do not expect to operate those entirely on the market conditions, and it will require some level of subsidies.
One more question. Both Silesia Wind II and Tauragė Solar Farm projects are already built. When should we expect first electricity produced there?
Yes. So, both projects are currently nearing the completion. We are finalizing the testing procedures and working with the grid operators, both on Lithuanian and Polish side, to, you know, to finally connect them. And, hopefully, next quarter, we will start seeing generation or even this quarter from both of them.
Following question. Moray West project nearing its finish, when should this produce the first electricity? What are the plans for this project? Should Ignitis sell it after COD?
Yeah. Regarding Moray West, it's scheduled to become operational in 2025. In terms of our approach to the project, it is not, you know, we don't plan to be a long-term investor in that project. For us, the participation was due to the need to learn about offshore projects and to see how they are being developed and built. So once it's completed, we don't see too much rationale in staying in that project. And if the opportunity comes up, we would consider exiting.
The following question: It seems that you are ramping up investments into green generation pretty fast. How do you consider in current economic environment, green generation investments do look more lucrative than two years ago, or somehow your sentiment have changed about it?
Now, so the short answer is, there's no change in our sentiment. We think, green generation and green flexibility investments are attractive. Of course, you know, it very much depends on a case-by-case basis. So we look at each project separately, and we invest only if we meet our target return criteria.
Next question. On inflation side, how do you see inflation and further CapEx in green generation from recent contracts with partners? It is cooling down and stays at the same level of Q1, 2023.
We covered the levels which we are seeing for the CapEx numbers. But in general, we see inflation stabilizing and CapEx metrics remaining stable compared to the end of last year.
Following question. The second question on capital allocation. We are all aware of the dividend policy. However, have there been any discussions with a major shareholder about potential payout expanding to shareholders? It is clear that the current priority is CapEx, but I'm more thinking on beyond 2027. Could we expect dividend growth more than 3% per annum?
Yeah. Currently, you know, currently we are very much committed to the existing dividend policy of growing by at least 3% annually. Going forward, we will see, but in general, we are striving for the right balance between investments, dividends, and credit rating. Which means that we can sustain those 3% growth in the dividend growth. Above that, we would need to you know look when the time comes.
One more question. Could you explain, what did you put, how reconcile Adjusted EBITDA to IFRS EBITDA for this quarter? What is it suggested for exactly? Thanks.
Yeah. So our adjustment is very straightforward. We do only one adjustment, which is for temporary regulatory differences. And it means that, for you know, in the beginning of the year, the regulator sets tariffs for several regulated activities, which means that we can collect certain amount of money during the year from regulated activities. If we over collect that amount, we need to return it in future periods, or if we under collect, we get compensated in the future periods. So what we do in our Adjusted EBITDA, we eliminate those over collections or under collections, so that we show just the result which we are allowed to collect.
Next question: Vilnius biomass unit, it is nearing the full COD. After COD, Ignitis will have to sell part of, of it to outside investor. Do you already have plans when that should be done?
So the sell down of Vilnius CHP is very clearly defined in the European Commission support requirements. And it says that we need to initiate the sales procedure within six months after the launch of the asset, and that's what we intend to do.
One more question. Asset rotation program. It is already a long time after it was announced, but we don't see any project sold. Why? Is it because of not favorable market conditions, or there is no need for freeing capital? Should we see first project sold this year?
Yeah, so in short, there was no need for additional capital for us in the previous years. So, you know, when that need arises, and when the conditions in the market are right, you know, we will proceed with the program.
Following question. Thank you for this call. Do you see increase or decrease for LCOE levels for new onshore and offshore wind and solar projects?
So in line with the CapEx developments and rather stable power prices since the end of last year, the LCOE levels are also relatively stable. So there haven't been too much movement on that front.
The following question: Ignitis credit rating is BBB+. Do you still see it to be capable to hold it, bearing in mind the expected high CapEx?
Yes. So, reiterating, our strategic plan commitments, so we are committed to a solid investment-grade credit rating of BBB and above. So, what it implies is that we have one notch headroom in terms of credit rating. And we are giving that commitment to keep it at that level over the next four-year strategic period.
Next question: What is the capture price discount to market price for existing onshore wind and solar projects due to cannibalization, and what do you expect in coming years?
Yeah. So, in terms of capture price discount, I think it's again a bit difficult to generalize because it depends on the geography, it depends on the technology and even within the technology, for instance, you know, for solar, it's depending on the panels which you choose, it can be quite different. But to give you a very high level numbers, so currently we see between 5% and 10% capture rate discounts. In the future, we expect them to grow and to reach 15%-20%.
Naturally, the offshore wind will have the lowest capture rate discount because it's closest to base loads, and solar will have the biggest capture rate discount, maybe even above the numbers which I mentioned, due to the fact that it generates power only in the short period of time during the year.
Next question: In the presentation, you highlighted that solar is complementary capacity and also commented that you will focus more on wind capacity in coming years. Could you elaborate more on this, and why don't you see solar at the same priority as wind? Is it a return profile that doesn't look appealing?
Yeah. So again, it slightly depends on case-by-case basis, but, but you are right. Wind is naturally a very well-suited technology for our region because we have very good wind resource here in the Baltics and Poland, which cannot be said about solar, right? Solar, it generates only, you know, roughly 12% of the time, and it's concentrated in the summer period, which is actually a lower demand period for the region, which means that, it's, you know, there is a certain saturation point which we are nearing, and the solar business case will become challenging and is already challenging in most cases.
The last question received: Thank you for the comprehensive presentation of Q1 results and updated strategy plan. Regarding the investments into Networks, you plan to invest during the next four years period around EUR 1.2 billion, and around 60% of this amount will go to expansion and 40% maintenance. Do you have any guidance of investments into Networks beyond 2027? Will it increase or decrease, or will it change real CapEx and maintenance CapEx shares and total CapEx amount?
Yes. So, actually, in the Networks business, we are also publishing a 10-year investment plan. The latest one is now currently in the process of being updated. But it's fair to assume that investments into Networks will remain at these higher levels, and that the split will remain also relatively similar. And that is due to the fact that Networks are critical to the energy transition, and if we don't upgrade our Networks, you know, we will not be able to deliver the transition.
Thank you. That concludes today's earnings call. Thank you for joining us. If you have any questions, please do contact IR team. Thank you again, and have a great rest of the day.
This concludes today's conference call. Thank you for participating. You may now disconnect.