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ERG reported its Q1 2025 earnings, revealing a challenging start to the year as low wind conditions across Europe significantly impacted production. The company’s EBITDA fell 12% year-over-year to €145 million, while adjusted net profit dropped 37% to €49 million. Despite these setbacks, ERG maintains a cautiously optimistic outlook, supported by strategic acquisitions and a diversified portfolio. According to InvestingPro analysis, the company maintains a "GOOD" financial health score of 2.55, suggesting resilient fundamentals despite current headwinds.
Key Takeaways
- EBITDA decreased by 12% year-on-year due to adverse wind conditions.
- Net financial position remains strong at €1,850 million.
- Strategic investments in wind farms aim to offset production declines.
Company Performance
ERG faced a tough quarter as unusually low wind speeds across Europe led to a significant reduction in wind production. Despite these challenges, the company continues to focus on its value-over-volume strategy, leveraging its diversified portfolio across Europe and the US to mitigate some of the impacts. The acquisition of new assets, such as the Broken Cross wind farm, contributed to partially offsetting the production decline.
Financial Highlights
- Q1 2025 EBITDA: €145 million (-12% YoY)
- Adjusted Net Profit: €49 million (-37% YoY)
- Investments: €115 million, including €72 million for a wind farm acquisition
Outlook & Guidance
ERG has set its EBITDA guidance for the year at €540-600 million and expects capital expenditures between €190-140 million. The company is cautiously optimistic about achieving the mid-point of its guidance range, assuming wind conditions return to historical averages. ERG’s net financial position is projected to be between €1,850-1,950 million by year-end. InvestingPro data reveals the company has maintained dividend payments for 28 consecutive years, demonstrating long-term financial stability. The company’s revenue growth remains positive at 8.96% year-over-year.
Executive Commentary
CEO Paolo Merdely emphasized the company’s commitment to prioritizing value over volume, stating, "Value is coming first, then volumes." Merdely also noted the strategic patience in replacing EBITDA lost from disposals, highlighting, "We are not in a hurry to replace the EBITDA we lost from disposals."
Risks and Challenges
- Low Wind Conditions: Continued below-average wind speeds could further impact production.
- Market Volatility: Fluctuating power market prices may influence revenue stability.
- Supply Chain Issues: Potential disruptions could affect ongoing and future projects.
- Regulatory Changes: Changes in renewable energy policies could impact operations.
- Competitive Pressure: Increasing competition in the renewable sector may affect market share.
Q&A
During the earnings call, analysts inquired about the company’s approach to the unusual wind conditions and its strategy in the Italian renewable auctions. ERG also addressed questions about its US market strategy and the dynamics of the supply chain and market.
Full transcript - ERG (ERG) Q1 2025:
Conference Operator, Chorus Call: Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the ERG First Quarter twenty twenty five Results Presentation. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Mr. Paulo Merdely, Chief Executive Officer of ERG. Please go ahead, sir.
Paolo Merdely, Chief Executive Officer, ERG: Good afternoon, everyone, and welcome to our first quarter results presentation. As usual is our CFO, Michele. So let’s get started with the usual overview of results for the period. I’m on Page number four. As mentioned during our webcast in March, the system wind routes impacted the business environment throughout the period, analyzing our financial results.
The first quarter was still characterized by extraordinarily weak wind conditions across The EU, well below the historical average and last year. EBITDA closed at €145,000,000 down 12% year on year. Again, there were two major effects, say, behind this performance. On one hand, the much weaker production recorded during the period on a like for like basis. And this effect was only partially offset by the production the contribution I mean from new installed capacity in Europe.
With the first repowering projects now up and running and the new capacity in The U. A, where the asset portfolio is being is now consolidated as of Q2 twenty twenty four. Despite the higher prices on screens, all in all the price scenario on a year on year basis was just marginally positive as the lower production resulted in scale availability of merchant volumes. I mean, all the volumes that were produced were already hedged with CFD, either CFD or PPA. Investments amounted to €115,000,000 twothree related to an acquisition of the Broken Cross wind farm in U.
K. At €72,000,000 and the remaining onethree allocated to organic developments, mainly greenfield and repowering in France, Germany, Italy and U. K. Adjusted net profit was €49,000,000 down 37 year on year due to the already mentioned decline in EBITDA coupled with higher depreciation and higher financial charges associated to new assets. The debt the net financial position at the end of the quarter was about €1,850,000,000 slightly higher versus the end of twenty twenty four.
But Michele will elaborate a little bit more on the cash flow over the period. Let me now focus on the extraordinary wind route that has been persisting all over Europe since October affecting our results. The map in the chart shows the deviation against the long term average of wind speed in Europe in the first quarter. In dark blue are the regions where the negative deviation is larger. It’s quite unusual to see a situation like this basically involving all the areas where we have wind farms.
In Italy, according to Turner and these are public data, wind production on a like for like basis was down 24% year on year and ag production were more or less in line with that trend. You can also easily read the statements in different countries highlighting the exceptional wind route that affected the first quarter. In the chart below, we show the trends over time of our own portfolio in Italy, France and Germany in the past, say, twelve years. Even though wind availability is quite volatile, we know that with up and downs, Q1 twenty twenty five was unfortunately an exception so far. You see from the chart was basically the weakest ever experienced so far.
It’s worth mentioning that the guidance we published in March already factored in this generalized and exceptionally negative trend in EU, at least for the first quarter. And I comment when talking about the guidance. Moving to page number six. Here, I’d like to underline that despite this challenging environment, we continued to deliver on our strategy over the period. And in line with our value over volume approach, we pursued growth of our portfolio through a selected M and A and organic developments, a mixture of repowering and greenfield in several countries like Germany, France and Italy.
We also made important steps towards stabilizing our revenues, particularly crucial in this volatile price environment. We signed three long term contracts PPA with primary counterparts in Italy and U. K. On top of that, three projects in Germany for a total of 40 megawatts
Unidentified: were awarded with a twenty year one way CRD tariff
Paolo Merdely, Chief Executive Officer, ERG: in the last auction. As far as financing, Fitch has confirmed as long term rating at BBB minus with a stable outlook reflecting in the quarter the solidity of the group business model and the visibility of its green portfolio. As far as shareholder remuneration, the AGM approved the distribution of €1 per share dividend, which will be paid next week and now the authorization for a potential share buyback plan up to 10% of share capital, thus providing the company with a flexible instrument to be activated during 2025, if necessary. So I now over to Michele for his comments on results of the first quarter.
Michele, Chief Financial Officer, ERG: Thank you, Pablo. In Q1, power market prices have been higher than Q1 twenty twenty four in nearly all countries where ERG operates. However, as you know, this trend had only a partial impact on our all in unit revenues due to the cozy regulated nature of our business. In Italy, the wind unit revenue is €120 megawatt hour, in line with Q1 twenty twenty four, despite the increase of the GRN incentive, which is €55 megawatt hour against €42 megawatt hour last year. In the higher power market price, the oil and unit revenues remain stable offset by short term hedging at lower prices versus previous year.
In France, the increase of the unit revenues refers to the higher market scenario captured by merchant assets, such assets that we should not benefit anymore of the two way tariff mechanism or long term PPAs. In Germany, capture price in Q1 are higher than last year, thanks to the one way CFD mechanism, which allow us to capture the higher power market price. In Poland, unit revenues increased in Q1, primarily driven by short term hedging. Romania got a lower power price than previous year, because the government said they claw back a cap price at 400 megawatt hour, while during Q1 twenty twenty four the cap was four fifty megawatt hour. UK capture price is around €67 megawatt hour compared to €124 which benefited of higher short term hedging.
Note that this figure does not include revenues from balancing services. As regard that the solar all in unit revenues, there
Paolo Merdely, Chief Executive Officer, ERG: is a decrease of value in Q1 in Italy due
Michele, Chief Financial Officer, ERG: to lower hedging price year on year. In Spain, the capture price suffers the current market scenario with significant profile affected during daily hours. In France, the all new energy revenues is influenced by asset acquired in 2024, which have a lower fit than the plants already in portfolio. EOG plants in The United States have unit revenue that reflect the PPA prices, so very stable. Now a focus on production on page nine.
Regarding the first quarter of twenty twenty five, the group’s overall production has been slightly higher than previous year, primarily due to the additional new capacity, which offset the persistently very low wind conditions in Europe as already stressed by power. In details, Italy’s Seven Eighty Five gigawatt hour minus 10%, mainly due to persistent low wind conditions compared to Q1 twenty twenty four. And this was only partially compensated by the contribution of new greenfield and repowering assets, 151 gigawatt hour gigawatt in addition. In France, Three Thirty gigawatt hour minus 15% due to significantly lower wind condition partially offset by new assets. In Germany, One Hundred And Twenty Five
hour minus 38% due to lower wind condition. Eastern Europe minus 17% again due to lower wind condition. In U. K.
And Nordics, 1 Hundred And 80 2 gigawatt hour plus 10% compared to last year, mainly thanks to the new asset acquired in January in Scotland. In Spain, Seventy Five gigawatt hour minus 6% due
Conference Operator, Chorus Call: to
Michele, Chief Financial Officer, ERG: lower irradiation. The newly acquired plants in U. S. Contributed two eighty five gigawatt hour in Q1, of which two fifty two gigawatt hour from wind. Overall, in case of production out of Italy, thanks to investment in new capacity over 500 megawatt that mitigates the effect of an exceptionally low wind quarter in all European quarter in all European countries.
In the first quarter of the year, we had an overall EBITDA of 145,000,000 19 million euros lower than first quarter twenty twenty four, mainly due to poor weakness in Europe, partially offset by revenues coming from new assets. In Italy, EBITDA is €86,000,000 lower than last year by €14,000,000 again due to lower wind condition, partially offset by contribution from new repowering assets in particular, coupled with a better price scenario and by the green
Paolo Merdely, Chief Executive Officer, ERG: with the only exception in Romania where the growth back cap has been lower. U. K. Nordic’s EBITDA is €11,000,000 lower than
Michele, Chief Financial Officer, ERG: previous year, mainly driven by lower maintenance in U. K. And lower capture price, partially offset by the EBITDA from new assets acquired at the beginning of twenty twenty five. In Spain, EBITDA is $1,000,000 lower than last year, driven by lower production and lower capture price due to profile effects in daily hours in particular and also short term hedging at lower prices in comparison to last year. The contribution coming from U.
S. Is $14,000,000 and includes it also includes the production tax credit calculated on actual production in the quarter. Let’s comment now on investments. In Q1, we invested 115,000,000 mainly due to acquisition of wind plants in U. K.
In addition, we spent about €43,000,000 of organic CapEx, out of which €60,000,000 in U. K. For the construction of a 47 megawatt wind project €11,000,000 in Italy, mainly for our forest storage project, 8,000,000 in France, Seven Million in Germany for the completion of a repowering project and the beginning of the construction of sampling greenfielding plant. Let’s now move on to the financials commenting on other items of the profit and loss. In Q1 amortization and depreciation are $69,000,000 higher than Q1 twenty twenty four mainly due to perimeter effect.
Net financial charges are at $10,000,000 versus $2,000,000 in Q1 twenty twenty four. In detail, financial charges versus banks and bondholders net of liquidity remuneration stand at 5,500,000.0 plus $3,600,000 versus last year due to perimeter effect and lower remuneration on cash. To complement to $10,000,000 4 point 5 million dollars are non cash accounting items such as FX coming from tax equity partnership with The U. S. Portfolio and the Fiority these interest expenses according to IFRS 16.
Tax rate in the quarter is 23% lower than 25% of last year due to a different contribution of various countries to taxable result. The adjusted net profit of the quarter amounted to €49,000,000 lower than last year, mainly driven by
Paolo Merdely, Chief Executive Officer, ERG: the already commented extremely low maintenance in Europe.
Michele, Chief Financial Officer, ERG: Finally, let’s take a look at the cash flow statement and the net financial position. The net financial debt closed at €1,900,000,000 0 point 1 billion euros higher than the end of twenty twenty four, mainly driven by the cash generation from EBITDA, led by the ready commented investment commented investments of the period. The cash financial charges for $6,000,000 tax cash out for $9,000,000 and net working capital for $65,000,000 mainly due to ordinary net working capital dynamics. Thank you for your attention. And now I leave the floor to Paolo for his final remarks.
Paolo Merdely, Chief Executive Officer, ERG: Thank you, Michele. Now let’s see our guidance for 25,000,000 As you know, the EBITDA guidance given during the last week webcast already took into account the low winds in the first quarter. Fortunately, this trend continued in April throughout most of Europe, although to a lesser extent than in the first two months the first three months of the year. Nevertheless, assuming windiness in line with the historical average from now on, we are still confident that we can approach the midpoint of the guidance range. Let me be clear, to reach the upper part of the range, however, we would need windiness above the historical average, basically assuming at least a partial recovery in the second half of the year of what was lost in the first.
With this caveat, we confirm our EBITDA guidance within the range of €540,000,000 6 hundred million euros CapEx is also confirmed within the range 190,000,000 to €140,000,000 as well as net financial position at year end that is expected within the range of €185,000,000,000 1 hundred 90 5 billion euros So thank you for listening and we are now ready to take your questions.
Conference Operator, Chorus Call: Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question comes from Enrico Bartolik of Mediobanca.
Unidentified: Hi, good afternoon and thanks for taking my question. Actually, have three. First of all, I’d like to start with your comment on the guidance. You mentioned that in April and we are seeing also May that wind resources continue to be weaker. I was wondering what kind of level of load factor you are assuming for the second quarter in your guidance and particularly what you said that the middle of the range would imply average wind resource is going forward to the end of the year.
Also, I was wondering if you can elaborate a bit on, let’s say, what are the main drivers of the two, the top and the bottom of the range, if you mentioned wind resources, but if there are also different assumptions in terms of prices? Second question is regarding the upcoming auctions for the FX decree, which if I’m right should be maybe in June. I was wondering what is going to be your policy for the participation to the auction as you have 300 megawatts for the rest of with recurring projects already authorized, if you expect them to participate all to the auction? And what kind of level of competition that you are anticipating? And the third one is related to The U.
S. If you can provide some, let’s say, your approach to the one gigawatt pipeline that you have in The U. S. Considering the recent evolution with tariffs, the proposal that was made in the Congress recently for the modification of the RA, if you are actually freezing those projects or what you are planning for that portfolio? Thank you.
Paolo Merdely, Chief Executive Officer, ERG: Enrico, I’ll try to answer your questions in the order you posted them. But the first, I confirm that in our guidance already took it already into account the first quarter, lower production in the first quarter. To come clean on this April and the May were maybe at a lesser extent than the first quarter, but anyway well below the historical average. And I think you can find you all can find a lot of news, headlines showing this trend. And in particular, this morning, on a German newspaper, there is an analysis conducted by the German weather service showing that over the last six months, the wind speed was very low in the area of 5.5 meter per second against an average over the last eight years in the region of six and seven meters per second.
If you consider that the production of a wind farm is moving proportionally to 2x the speed of wind, you can simply understand that speed, which is 15% less than the historical average translates into 30% reduction in terms of volumes or load factor. The positive outcome of this analysis, this is I’m quoting, say, the head of department of this German weather service, there is nothing related to climate change because similar cases were experienced very back in the past in ’sixty three and in 1972, ’19 ’70 ’3. So when climate change was not yet on the agenda, say, of everyone, say. It’s a very unusual wind route, stronger than the one we have experienced so far. But still, this analysis and it’s an independent analysis conducted by an institution, a third party institution is giving confidence that, that could happen, has already happened in the past, but is not or shouldn’t be correlated to climate change.
Fourth, simple three simple reasons that are mentioned in this article. You can ask Emanuella, our investor related to share this outlook. This is public. But the three simple reasons are, first, I already said, there has been other two cases in the past, in the 70s and in the 60s, so when climate change wasn’t there. Secondly, because no more than eighteen months ago, I mean, the third quarter from September 23 to April 24, we had seven months of very good and strong wins, okay?
You can remember the results in those quarters. So we are not talking about an age ago. We are just talking about one year, one point years ago. And third, which is a more scientific reason, analyzing the data of these eight years because the analysis, as I remember well, the article started covers, say, the period of from 1950 to 2024. There have been many swing in this month.
For instance, April, there was a long series of data showing very good April and very bad April. So this is normal. Then your question is more concrete on the guidance. What could be the case for the floor? What could be the case for the cap, say, of the range?
As I said, very honestly, now we are slightly below the midpoint because of April, but we had some buffer, say, in our guidance. So we are still confident that if from now on, wind is going to be, let’s say, in line with historical average, I mean, the P50, it’s very difficult to give you a load factor because it’s the sum, a mixture of hundreds of plants. But let’s say, if it’s in line with historical average and you can measure this with all these institutions that provide this kind of information publicly, then we are confident to approach the midpoint of the guidance, even including maybe some efficiency we can reach from a cost point of view and blah, blah. To go in the upper part of the guidance, we would need wind speed that is not at the cap, I said before, of the range, slightly above the historical average, which basically means assuming a partial recovery of what we have lost during these four months of the year. So very difficult to predict because wind is unpredictable.
But still, I repeat, it’s normal. So this kind and there is a chart in the presentation showing and there was the same chart for the fourth quarter showing the fluctuation of our portfolio and production. And this graph is on a like for like basis. So there is no weird comparison. I mean, we are just comparing the same assets.
And you can see that there are up and down all over the window of time analyzed. Fair X, yes. Fair X, we expect the first and unique, the only, I mean, auction for ’25 to take place before summer. Probably the last bid should be submit within June or July, something like that. We expect to take part of the auction with three projects for around 150 megawatts.
It’s not said or a little bit less. But it’s not said, I mean, that we are going to win and award the tariff because we expect a competitive auction because remember that we have been waiting for three years. I mean, the sector, all the operators have been waiting for three years this auction. So there is a long queue of already authorized projects. And second, you probably have seen the creto ministeriale, the ministerial decree that followed the ferries through which the ministry set the amount of the curve, I mean, the offer curve.
And they expect to assign apparently a limited amount of megawatts for wind. The target is 300 megawatts, even though the national plan would ask the country to install four gigawatt of wind in 2025. So let’s see. I don’t know if it’s a strategic approach to stimulate operators to keep the bid the bidding prices as low as possible. Let’s see.
But we don’t care, I mean, about the approach. We have our value over volume approach. We will submit those projects at a level, I mean, a CFD level, which is consistent with our target return. Of course, within the range of the ferries that I remind everyone, that is from €70 to €95 This is the range in which operators can offer their capacity. So let’s see what’s going on.
For the time being, we are quite happy with the construction undergoing. We have 130 megawatts that should enter into operation in 2025. We have some megawatts, 30 megawatts that are already in construction that we’ll enter in 2026. And on top of that, we recently approved investments about three projects in Germany, Forty megawatts that were awarded a CFD between €880 and €100 per megawatt hour. So that those are the real CFD in Germany.
You will probably read on the screens 69, 60 eight, but then there is the correction factor that is always positive. And then raising, let’s say, tariff in Germany. In France, the same. We have a couple of projects that were awarded a tariff. And the tariff, again, twenty years CFD are in the region both of EUR 90, something like that.
So we want to move step by step. I mean, value is coming first, then volumes. This is the approach, which is exactly the same for U. S. You ask for U.
S, our approach hasn’t changed. So we want to buy assets that are fully secured, in particular, in this uncertain environment. I mean, the administration moves up and down or back and forth. We still are trying to understand the direction in The U. S, even though we believe The U.
S. Is a great market for it to be, because it’s a very it’s a market not based on CFD, but based on private negotiation, made of all PPAs. It’s another market. So whenever you have a longer supply in no time, I mean, industries and consumption will rise around that node because it’s convenient to buy energy from that node. So we believe it’s a true geographical diversification in The U.
S. So we still are looking for growth there, but at our conditions. We are not on a hurry. So we will wait for the right conditions.
Unidentified: You very much. Very clear.
Paolo Merdely, Chief Executive Officer, ERG: Pipeline, Rico, is still there. I mean, we have this partnership with Apex. We share that there is still room to work together. We have to find the meeting point between supply and demand, but we are working on it. Thank you.
You’re welcome.
Conference Operator, Chorus Call: Next question is from Francesco Sala of Banco Acros.
Michele, Chief Financial Officer, ERG: Good afternoon. Thank you for taking my question. I just have a question, a clarification on slide number 14. Especially, I wonder how we should model the net working capital for the rest of the year. If we should assume, let’s say, a similar trend for the remaining three quarters of the year?
Or if we’re going to see some kind of stabilization on possibly a lower level? Thank you.
Paolo Merdely, Chief Executive Officer, ERG: No, no. This is something that is very specific of this quarter. We had some movement at the end of the year mainly related to CapEx of some project in construction. So we do not expect this kind of movement for the remaining part of the year. Thank you.
Conference Operator, Chorus Call: The next question comes from Davide Candela of Intesa Sanpaolo.
Davide Candela, Analyst, Intesa Sanpaolo: Hi, good afternoon gentlemen. Thank you for taking my question. I have two. The first one is related to Italian regulation regulation and the fact that the Regional Ministry Court expressed a negative deal with regards to the Areidone. So I was wondering what’s your view on that.
So basically, I believe that the region should have less autonomy in deciding which where are these areas. And I was wondering if this could change the things about authorization and so on. So just to view on that. And the second question was related to the load factors in wind and I was interested in the Slide number five. Showed, of course, the CEO already talked about that.
But I was wondering if also there are the possibilities to for the wind production to keep up there, let’s say, in May from the data you are seeing. And I don’t know if there are some effects on the prices with regards to slow wind production in the sense that the low wind, the low supply could drive the prices up and so compensate a little bit this negative effect you’re having? Thank you.
Paolo Merdely, Chief Executive Officer, ERG: Okay. Let’s start with the Italian regulation. You had been some pronunciation about the Arizonne in favor of the operators because the operators were complaining exactly what you said about the fact that the ministerial decree gave too much power to the regions to set the go no go areas for renewable installations. Take, for instance, the example of Sardinia that basically issued a regional law that basically prevents operator from installing any megawatts whatsoever and wherever. Then there has been a lot of claims appeal against this decision and this regional law.
We are not we are happy of the decision because they ruled in favor of the operators, supporting what we were saying. But still, we are not happy because we are losing time. This creates a big mess in the courts from a judicial point of view judicial, sorry, point of view, expenses for lawyers, a lot of time spent in reading all the documents and blah, blah. But still, it’s a process for us permitting in this moment is not the main priority. The main priority is to find the right business case to yield the right return on our projects.
Of course, we have one project and probably has been mentioned over time many times, a very nice project in Sardinia, which is a quite big one, one hundred megawatts of wind onshore wind. It’s repowering. I mean, is already another plant there with towers lower for sure than the new ones. And there is a big fight, let me say, from ourselves supporting the quality of the project and the region that still hasn’t issued the authorization. Again, here, the administrative court ruled in our favor, imposing the region to issue the authorization in Munich.
So we are waiting. For instance, in this case, we are not taking part with this project to the next option of ferrics because even though the administrative court ruled in our favor, the Italy case. We still need to gain clarity on this. But as I always said, repowering is like a good wine. So the more you wait, the better the return is because right now, we are running on existing asset that is performing well.
So the Ara Idone is still an issue to be settled. That’s our opinion. It’s very important. And in particular, one of the point in the ruling, which is very positive, is about the areas so called, I don’t know how to say, but we call them exelage, I mean areas where there are already plants up and running. In these areas, new installation should be allowed by definition.
But for instance, according to the regional law in Sardinia, this is not the case. So they changed retroactively the destination of those lands. This is an important point to be clarified because if it’s all, I mean, all the repowering projects would be possible. But let’s see let’s wait and we think and hope that this matter should be cleared, I mean, in the next months because if not, there is stupid slowdown of the deployment of renewable. The which is the other one, the load factor?
The load factor or And
Michele, Chief Financial Officer, ERG: possible impact of prices.
Paolo Merdely, Chief Executive Officer, ERG: See, prices are strictly correlated, in particular in countries like Germany, where 60% of production comes from renewable strictly correlated to the but say, when there is no resources, prices tend to go up. But actually, we couldn’t benefit from higher prices since we have 80% of our volumes basically covered either through PPAs or CRDs. So if the volumes contraction is higher, the first production that you are going to lose, given the lower presence of resource is the merchant volumes. So the one that the ones that are exposed to the merchant price. So whenever the volumes aren’t there, it’s difficult to benefit from higher price.
In fact, in the first quarter, ’5 percent prices were high, but we didn’t have volume merchant volumes in order to reap the benefits of those higher prices. Say, yes, in May wind can come back, if I remember well a point you touched because one year ago, happened exactly the same. And I repeat from October 23 to April 24, incredible wind, continuously all over this window of time. And then abruptly disappeared, and we are still there. So long period of strong wind, long period of weak wind, so can change without any alerts, let’s say.
So I hope to have touched all the points, all your points.
Davide Candela, Analyst, Intesa Sanpaolo: Yes. Thank you. And maybe if I can have a follow-up, that is a high level question, very difficult maybe. But I was wondering, which are the conditions for you for the renewal market to change in the sense that likely you will need more stability and returns and so on, but which are the conditions to move for that stability and returns? And related to that, if competed in market like a pure renewal company in your view, of course, from your point, but is less remunerative than rather being integrated?
Or is just a perception and just about how you compete in the market and how you close the volumes and so on?
Paolo Merdely, Chief Executive Officer, ERG: Thank you. Thank you for your question. So based on the current environment, for sure, being integrated can provide an edge against this volatility, having retails or but we decided to go this way because we believe in the energy transition in the medium, long term. And the main element, you asked me, which is the most important element to get all the energy transition story a good one is the electrification of consumptions, so I mean demand. If Europe, also from a regulatory point of view, will be able to push in that direction and other area of the world are going in that direction because the electrification board, the electricity demand all over the world is growing at a pace which is double compared to the GDP, except Europe.
So if Europe has continuously stated, we’ll manage to electrify through electric vehicles, heat pumps, hydrogen, data rooms, crypto coins, all data centers and so on, as it’s happening in other parts of the world, for instance, China, Asia and also The U. S, absolutely, the energy transition is there. At some point, I think some adjustments from a regulatory point of view in terms of price mechanisms should be found because the renewable got the investments, capital intensity, but then they got they haven’t gotten haven’t got, say, valuable cost because wind and solar is for free, fortunately. And then we have to I think the regulators should adjust this price mechanism either through CFD and PPA, but extend it not just to the new asset, but also to the existing assets in order to obtain what everyone is asking for decoupling. Decoupling is possible just if made at European level because Europe should be a single market, but with the right mechanisms.
So this is not yet there, but I think we need to go there. That for us is the game changer of the energy transition. And sooner or later, it should come. Thanks.
Conference Operator, Chorus Call: The next question is from Emanuele Oggione of Kepler Cheuvreux.
Emanuele Oggione, Analyst, Kepler Cheuvreux: Good afternoon. Thank you for the presentation and for taking my question. The first one is on acquisitions. General high level question on the current situation. If you consider the current situation more interesting for you as a net buyer of assets in renewed policy in brownfield, existing assets compared with one year ago or a few months ago?
So what is the situation and update some players, for example, say that is a buyer market, so following the buyers more than the sellers, so it could be a positive environment or not. What is your opinion on that? Second point is a clarification on the auction in Italy. What is your expectation about the number of auction? Probably only one auction will be called in before summer probably or do you expect also a second option?
And in any case, your approach value over volume means that you could attain now the first one in which the competitive level pressure could be probably far higher, but the second one or next year, etcetera? And then I have another question on The U. S. Market, an update on this market. Basically, you’ve stopped the CapEx development in The U.
S. So if there is an update compared with a few months ago, what is your outlook on this? When you could restart the greenfield projects, the list or acquisitions in this case? And finally, a question on the supply chain. So due to the trade the current trade war or what could be the implication on your cost CapEx per megawatt for both photovoltaic solar panels and wind turbines if there is some implication do you expect in the next in the coming quarters?
Okay.
Paolo Merdely, Chief Executive Officer, ERG: If I counted well, there are five questions. So I’ll try to follow in the order you touch them. M and A, I’d say, I think you noticed that we became a little bit more selective, not because before we weren’t, but because we have completed the I mean, the transformation. We reallocated the proceeds coming from the disposals of the gas plant and this hydro plant. And now we still have firepower from our balance sheet, but we are not on a hurry to replace the EBITDA we lost from the disposals because we did it.
To be honest, now we have a higher EBITDA than we had before or we were supposed to have before. So we are quite happy and we are just looking for the right opportunities. You said, if I remember well, you mentioned the bid ask. The bid ask is getting larger for sure market because as you said, we are moving from a seller’s market to a buyer’s market or any way something in the middle because the buyers would like to be a buyer’s market and the sellers the other way. So there is always a midpoint in between demand and supply.
So we are trying to find the right one, the right one. And this is valid in Europe, but as well in U. S. In U. S, we are not now I’m moving to the last to your last point, we are not developing greenfield.
We have a co development agreement with a developer in U. S. And the developer is in charge, say, of developing greenfield and closing the business case with PPA and tax equity partner, tax equity scheme, blah, blah. And our model is simple as that. We are buying at the commercial operation date.
So we are not bearing any construction risk, regulatory risk and blah, blah. Because our strategy and we were very clear since the beginning in The U. S. Is grow and learn or if you want to change, learn and grow. Growing safely And in the next few years, be focused on knowing the market, all the knowledge and competencies to become then an independent, say, owner asset owner in The U.
S. Auction, as already I’ve already said, we expect just one single auction in 2025. It’s a matter of technical times. So probably the bid ask will be closed by within the summer. The awarded projects will be announced probably in September or late September.
So there is no technical time to manage another option within the December 2025. When the current FedEx decree is going expire because this is a provisional temporary decree. But we are quite confident that based on the same rule, a couple of options will be taken in 2026. And honestly, as I already said, it’s fair enough to expect the first auction to be oversubscribed because there are a few of projects that have been waiting a lot of time for this auction. So maybe the right tactic is wait for the second auction.
I remind you, all of you, that the previous scheme, called the creto Lumila di Chernob, the rest of the 2019, the first option was super oversubscribed and then unsubscribe all the following. So this is a trend that we could expect similar. I mean, we do not expect all the auctions oversubscribed as the first for the reason I said before. Supply chain, I don’t know, Michele, if you want to say, but still we are not experiencing a reversal in the capital intensity in wind, solar a little bit, storage a little bit, but not something that can change the picture for the time being. No.
In Europe, we don’t see any material disruption of the supply chain for the trade environment. Consider that more and more relevant percentage of our CapEx is made by local content. So the BOP part of our investment is becoming more and more relevant. So it is less influenced by this kind of dynamics. Having said that,
Michele, Chief Financial Officer, ERG: we see an environment in terms
Paolo Merdely, Chief Executive Officer, ERG: of CapEx per megawatt quite stable in solar and wind, still decreasing in storage. But storage, we don’t have any additional projects in construction right now, just the first battery project that is in construction in Sisi, but that was contracted one year ago.
Conference Operator, Chorus Call: Gentlemen, at this time, there are no more questions registered.
Paolo Merdely, Chief Executive Officer, ERG: So thank you very much for attending. And next time will be before summer for the six months results. Thank you very much. Thank you.
Conference Operator, Chorus Call: Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect.
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