Earnings call transcript: ERG sees Q3 2025 profits rise, stock dips

ERG reported its third-quarter earnings for 2025, revealing a 9% year-over-year increase in EBITDA to €119 million. Despite this positive performance, ERG's stock dropped 3.78% in early trading. The company highlighted strategic initiatives, including the commissioning of a new battery storage plant and the acquisition of a wind farm in Northern Ireland.

Key Takeaways

• EBITDA grew by 9% year-over-year to €119 million in Q3 2025.
• Net financial position improved by 5% compared to the end of 2024.
• Stock price fell by 3.78% following the earnings announcement.
• New battery storage plant commissioned in Sicily.
• Strong ESG ratings and expanding battery storage pipeline.

Company Performance

ERG demonstrated solid performance in Q3 2025, with EBITDA increasing by 9% year-over-year. The company also reported an adjusted net profit of €27 million for the quarter, reflecting a similar 9% year-over-year growth. However, for the first nine months of 2025, the adjusted net profit decreased by 16% to €110 million, indicating some challenges earlier in the year. ERG's net financial position showed improvement, increasing by 5% compared to the end of 2024.

Financial Highlights

• Revenue: Not specified
• EBITDA: €119 million (+9% YoY)
• Adjusted Net Profit: €27 million (+9% YoY)
• Net Financial Position: €1.088 billion (+5% vs. end of 2024)
• Investments in Q3: €22 million

Market Reaction

Despite the positive financial results, ERG's stock experienced a decline of 3.78%, with the price dropping to €22.2. This movement contrasts with the stock's 52-week high of €22.98, suggesting market concerns or profit-taking following the earnings announcement. The broader market trends and sector performance may have also influenced investor sentiment.

Outlook & Guidance

ERG confirmed its full-year EBITDA guidance, expecting results near the midpoint of the projected range. The company plans to increase its volume hedging to 80-85% by year-end and has set a CapEx guidance of €119-140 million. ERG anticipates improved wind conditions in December, which could positively impact future performance.

Executive Commentary

CEO Paolo Merli emphasized the company's strategic focus, stating, "We are consistently on track, both with our strategy to grow the asset portfolio, but also with our strategy on the road to market to secure revenues through CFDs and PPAs." He also highlighted the growth in the PPA portfolio, noting, "In 2021, we had zero PPA in our portfolio. Now we have 3.7 terawatt-hour per year of production covered by PPA with high-level off-takers across the world."

Risks and Challenges

• Supply chain issues: Potential disruptions could impact project timelines and costs.
• Market saturation: Increased competition in the renewable energy sector may pressure margins.
• Macroeconomic pressures: Economic downturns could affect demand for energy and investment capacity.
• Regulatory changes: Shifts in energy policies could impact operations and profitability.
• Turbine pricing dynamics: Fluctuations in turbine costs may affect project economics.

Q&A

During the earnings call, analysts inquired about ERG's battery storage strategy and its potential revenue contribution. The company also addressed questions regarding U.S. market opportunities and the dynamics of the PPA market. Analysts were interested in ERG's approach to utility investments and the impact of supply chain challenges on turbine pricing.

Full transcript - ERG (ERG) Q3 2025:

Conference Operator, Carusco: Afternoon, this is the Carls Co Conference Operator. Welcome, and thank you for joining the ERG Third Quarter 2025 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Paolo Merli, CEO of ERG. Please go ahead, sir.

Paolo Merli, CEO, ERG: Good afternoon, everyone, and welcome to our Third Quarter Results Webcast. Here with me, as usual, is our CFO, Michele. Let's get started with the usual overview of results over the period. I'm on page number four. The EBITDA in the first nine months closed at EUR 393 million, a touch higher year on year. While looking at the third quarter, as was the case in Q2, results are up year on year with EBITDA at EUR 119 million, plus 9% year on year. The performance of the quarter mainly reflects the full contribution of the new capacity, as well as better wind conditions. I'd just like to remind you that the third quarter in 2024 was very weak from this point of view.

These two positives, I mean the full contribution of the new capacity and the better wind conditions, were partially offset by lower capture prices, also due to the progressive reduction of hedging pricing, which tends to follow the price scenario with a one- to two-year time lag. As far as the first nine months' results, the economic contribution of new assets, which was quite remarkable, was mostly offset by lower volumes due to weaker wind conditions. This was particularly true, as we had already a chance to comment, over the first half of the year. The good news is that we have been making up for the shortfall of the EBITDA registered in the first quarter over the last few months, over the last two quarters, say. Investments in the first nine months of the year amounted to EUR 164 million, down significantly year on year.

The reduction is mainly due to the fact that last year the CapEx included the acquisition of a wind and solar portfolio in the U.S., in particular, also a smaller portfolio in France. Out of the total invested in this first part of the year, about 40% was through M&A. In particular, I'm referring to the acquisition of a wind farm in the U.K., while the remaining 60%, or about 60%, was spent on organic developments, I mean greenfield and repowering projects that are under construction in France, Germany, Italy, and the U.K., and to the completion of the first battery storage plant in Sicily. I believe this trend, I mean the lower CapEx spent on a year-on-year basis, is very much consistent with our value over volume approach.

Adjusted net profit in the first nine months was EUR 110 million, down 16% year on year, basically due to higher depreciation related to new assets coupled with higher financial charges as a result, basically, of a mix of higher net debt, higher cost of debt, and lower yield on cash management, given the trend in interest rates. Again, the good news is that earnings direction was positive over the quarter, with net profit at EUR 27 million, up 9% year on year. Net financial position at the end of September was EUR 1 billion 88 million, plus 5% higher versus the end of 2024, also discounting total distribution, I mean dividends and buyback, in excess of EUR 160 million. Let's move on. I'm now on page number five. Over the period, we continued to deliver on our strategy. In terms of in-store capacity, we had two important additions over the quarter.

Forlock, a wind farm, 47 MW in Northern Ireland, came online at the end of July and is now ramping up production, which we expect to reach full potential, say, in a couple of months as of the start of 2026. We are also very pleased with the commissioning of our first battery storage plant in Vicari, 12.5 MW, as flexibility, as said, is becoming increasingly important in our plan. We are also pursuing our revenue securitization strategy with the signing of three different PPAs during the period with FS Group, which is basically the state-owned railway company, for an aggregate amount of around 180 GWh per year with a tenor of 5-10 years. This is an extremely important achievement as those contracts are related to existing plants, I mean plants that have already exited any incentive scheme.

Basically, they are merchant, and they will now be covered by this long-term contract. On top of this, we participated in the FER1 auction with three projects for a total of 148 MW, out of which basically the biggest part was made of two repowering projects in wind, 141 MW, and those very small greenfield projects in solar. We expect the outcome to be made public in December by GSE, but we are quite confident, fingers crossed, about the outcome. We also took part in the recent auction in Germany with a smaller project of 12 MW, and again, here, the outcome is expected in the coming months. We are consistently on track, both with our strategy to grow the asset portfolio, but also with our strategy on the road to market to secure revenues through CFDs and PPAs.

As per our ESG strategy, we maintained our top-tier position. A couple of ratings that have improved: sustainable feature, increased the score from 79 to 83, and also GRASP confirmed ERG as a top performer with a 98 out of 100 rating. Very, very top. We also unveiled our fifth project of the social purpose for solar revamping program, this time with Banco Alimentare in Sicily. These kind of projects are something we are particularly proud of. Now to Michele for his review of results in more detail.

Michele, CFO, ERG: Thank you, Paolo. In third quarter 2025, baseload market prices have been lower than third quarter 2024 in most of the countries where ERG operates. However, as you know, this trend had only limited effect on our whole unit revenues due to the closely regulated nature of our business model. In Italy, the wind whole unit revenues stood at EUR 121 per megawatt-hour, lower than last year, mainly due to hedging at lower prices and lower spot market price, partially offset by the increase of the green incentive value, rising to EUR 55 per megawatt-hour from EUR 42 per megawatt-hour. In France, the increase in unit revenues was driven by higher short-term hedging prices. In Germany and Romania, capture prices are aligned in the two quarters. In Poland, unit revenues were slightly lower than third quarter 2024, mainly driven by the short-term hedging.

U.K. capture price is around EUR 68 per megawatt-hour, higher than third quarter 2024, thanks to higher short-term hedging. Note that this figure does not include revenues from balancing services. In Sweden, the unit revenue is higher than third quarter 2024, driven by higher spot market price. As far as solar whole unit revenues, we recorded a decrease in the quarter in Italy, mainly due to lower hedging prices. In Spain, capture prices were impacted by the current market environment, with a significant profile effect during daylight hours and by short-term hedging at lower prices. In France, solar revenues are sold at fixed prices compared to 2024, where the energy produced by newly acquired assets was sold at merchant prices. ERG plants in the U.S. have unit revenues that reflect the PPA prices, so very stable. Now, focus on production.

In the third quarter of 2025, the group's overall production was higher than the previous year, mainly due to perimeter effects coupled with better windiness in the period compared with the third quarter 2024, characterized by windiness well below historical average. In detail, in Italy, we recorded 622 gigawatt-hour, plus 36%, mainly due to better windiness and irradiation coupled with perimeter effect due to repowered assets. In France, 263 gigawatt-hour, plus 12%, thanks to new greenfield asset and renovation during 2024 and second quarter 2025, but also to better wind condition on existing assets. In Germany, 95 gigawatt-hour, minus 5% due to lower wind condition and also to the extraordinary out-of-service of two substations that are in the process of being resolved.

In U.K. Nordics, 159 gigawatt-hour, higher than last year, mainly thanks to the new assets acquired in January in Scotland and new greenfield assets in Northern Ireland entering operation during the quarter, coupled with better windiness overall. In Spain, 160 gigawatt-hour, -5%, due to lower irradiation and some curtailment during negative prices hours. U.S.A., 167 gigawatt-hour, -7%, mainly due to lower wind condition. Eastern Europe, 125 gigawatt-hour, -13% due to worse wind condition, especially in Romania. In the nine months, the production has been 5.3 terawatt-hour, higher than nine months 2024, mainly due to perimeter effects, 0.7 terawatt-hour, of which 0.3 terawatt-hour related to U.S. in the first quarter, partially offset by extremely low wind conditions, mainly in the first half in Europe. In the third quarter of the year, EBITDA reached EUR 119 million, EUR 10 million more than third quarter 2024.

This growth was mainly due to perimeter effect, EUR 11 million, linked to newly acquired assets and organic development, as well as better wind condition compared with the third quarter 2024, below historical average, as already commented. These positive drivers were partially offset by lower capture prices in Italy and Spain. Italy, EBITDA reached EUR 81 million, an increase of EUR 10 million year on year, primarily driven by the higher wind and solar condition coupled with new investment in both wind and solar. This was partially offset by lower capture price. In France, EBITDA is EUR 7 million, higher than last year, supported by higher capture price in wind and perimeter growth and better wind condition. In Germany, EBITDA is EUR 4 million, slightly lower than previous year, mainly due to a weak production. In Eastern Europe, EBITDA is EUR 9 million, EUR 4 million lower than previous year, mainly driven by lower wind resource.

In U.K. and Nordics, EBITDA is aligned to the third quarter of 2024, despite the higher production. This is because in the third quarter of 2024, we benefited from liquidated damages and other reimbursements from contractors. In Spain, EUR 3 million EBITDA, lower than last year, impacted by reduced production and lower capture price. U.S.A. EBITDA is EUR 9 million, slightly higher than previous year. Nine months, EBITDA is EUR 393 million, higher than previous year by EUR 3 million, mainly driven by perimeter effects, partially offset by the low wind condition in Europe, in particular, as you know, as already commented in the first half of 2025. A comment now on the investments. In the third quarter, we invested EUR 22 million, mainly due to ongoing construction in Italy, U.K., France, and Germany.

In particular, we spent organic CapEx for GBP 6 million for the completion of the Forlock wind farm and EUR 9 million in Italy, France, and Germany for repowering activities. In nine months 2025, investment amounted to EUR 164 million, of which EUR 72 million of acquisition in the U.K. versus EUR 500 million of nine months 2024, which included the acquisitions in France and the U.S. for a total amount of EUR 319 million. Let's now comment on the financials, commenting on the other item of the profit and loss. Amortization and depreciation are EUR 68 million in the quarter, higher than last year due to perimeter effects. Net financial charges are EUR 13 million versus EUR 9 million of third quarter 2024. Financial charges versus banks and bondholders net of liquidity remuneration stand at EUR 9 million, plus EUR 3 million due to perimeter effect and lower remuneration on cash.

They complemented to EUR 13 million, sorry, EUR 5 million are non-cash accounting items, such as effects coming from the accounting of the tax equity partnership in the U.S. portfolio and figuratively interest expenses according to IFRS 16. Tax rate in the quarter is stable at 25%. The adjusted net profit in the quarter amounted to EUR 27 million, higher than last year by EUR 2 million, mainly driven by the already commented EBITDA, partially compensated by higher financial charges and amortization. The adjusted net profit of nine months amounts to EUR 110 million. Finally, let's take a look at the cash flow statement and the net financial position. The net financial debt in the nine months is EUR 1.9 billion, EUR 0.1 billion higher than the end of 2024, mainly driven by the dividend payment and investment of the period, partially netted by the cash generation of EBITDA.

The networking capital is affected by ordinary dynamics, also affected by payable for investments. Thank you for your time. Now I leave the floor to Paolo for his final. Thank you, Michele. Now let me wrap up this presentation with our guidance for the full year. With just one quarter left. In short, we essentially confirm all our guidance. EBITDA is still expected within the previous range. Let me give you some more details. October was very good, above the historical average in terms of wind, while these early days of November are conversely quite weak. Nevertheless, our best estimate points near the midpoint of the range. Everything will depend on this last part of the year, which usually, as you know, tends to be windier, I mean, December in particular.

In all honesty, reaching the upper part of the range will be very, very challenging given the wind levels so far. We would need extremely favorable conditions, which can't be ruled out, but are sincerely unlikely. With this caveat, we confirm our EBITDA guidance within the previous range, but looking more at the midpoint. CapEx is also confirmed within the range of EUR 119 million-EUR 140 million, and the same for net financial position at year-end, which is confirmed within the previous range. Thank you for listening, and we are now ready to take questions.

Conference Operator, Carusco: Thank you. This is the Carusco Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Enrico Bartoli, Mediobanca. Please go ahead.

Enrico Bartoli, Analyst, Mediobanca: Hi, good afternoon, everybody. Thanks for taking my question. The first one is related to the storage business. You highlighted that you started your first project in this technology. First of all, I would like some comment on, let's say, the revenue pattern that you expect from the Vicari battery. And in general, it would be appreciated your view on this technology going forward, both in Italy, if you expect to participate to the MAX Auction, and in other European countries, what kind of opportunities you see there. In particular, if on the MAX Auction, you can provide a comment on the level of pricing that had been achieved in the first one. Second question is regarding the U.S. market. Several utility companies there, renewable companies, are commenting on improvement in the outlook.

If you can give us some comment on how you see the U.S. market in this moment, and in particular, if, let's say, better market condition could, let's say, accelerate the acquisition of part of the asset in the pipeline on which you have a preemption right in the country. The last one is on the FER1 auction. Theranos provided some preliminary indication of possible prices, if I'm correct, around EUR 80 per megawatt-hour. If you think that if your projects are awarded at that level, if you think that the profitability would be interesting, and in case when those projects you think could be started to contribute to your EBITDA. Sorry for the many questions.

Paolo Merli, CEO, ERG: Thank you, Enrico. I'll try to answer in order as you asked about the storage business. Yes, we are very pleased to announce that our first battery storage plant just started, basically in July. Now it is ramping up its services and its functioning. This plant is totally merchant. I have to be direct on this, but it is located in a specific area where we have another wind farm, and we consider that location particularly attractive given the local conditions of the network. The plant is now also doing whatever is needed to take part in the services provided by the TSO. We expect to have, say, some revenues going forward coming from the participation in this kind of frequency services to the network.

For the time being, but it's just a month or more of operations, it has already made a margin of EUR 100,000 or a little bit more in terms of contribution margin, which is pretty in line with our expectation. Let me say this first plant is a sort of training area for us to learn competencies, how to manage this kind of plant vis-à-vis the network. We hope just the very, very first move into a larger stream of revenues going forward. In fact, the second part of your question was related to the MAX. I can confirm, or I can announce because we hadn't said nothing about this. We participated to the auction with a couple of projects, all in all roughly 80 MW or even a little bit more than that.

As many other operators, we were not awarded the target because our bid was in the region of EUR 20,000-20,000 per megawatt-hour, which resulted higher compared to the average awarded price in the region of EUR 15,000 or EUR 13,000 per megawatt-hour, a significant discount compared to the price cap of the auction that was EUR 37,000 per megawatt-hour. Nevertheless, let me say we remain very committed to this kind of stream, and we are now studying a different business model, different from, I mean, the MAX, even though we recognize the MAX was a quite good mechanism. Now we are studying a hybrid business case for these two projects.

Hybrid means maybe part of the revenues coming from a tolling agreement and part from merchant use of the plant, and maybe part from capacity market because this plant could participate to the next auction of capacity market, which is different from the MAX. In the meantime, we are also working hard on developing a large pipeline of projects of battery storage, I mean, not just in Italy, but also in Spain and in the U.K. Those are the countries where we recognize the better value in developing this kind of assets. In Italy, for instance, we have a quite large pipeline. Part of it is well advanced, and we hope, say, we are working on a 600 megawatts pipeline right now, and we hope half of it could be authorized in the next 12 months.

The second part is second, 300 megawatts are a little bit behind this, but in a couple of years, we would be ready also for this second wave of the pipeline. In the same, so more or less the same in Spain, we are working on several projects, even though, let me say, Spain is not paradoxically because it probably is the country where storage would be needed more, but they are lagging behind in terms of regulation, in terms of connections, and so on. Now something is moving, but our, say, job is to get ready when the right conditions will be there. I hope to have answered your first question. The second one is about the U.S. market. Yes, it's true. We noticed that the base load prices are going up, at least where our current assets are operating in Illinois and Iowa.

Yes, we are also aware that this undergoing trend about data centers that are pushing up demand and then driving prices higher. I have to remind all of you that the two assets in our portfolio are covered by long-term PPA. In the short term, in the medium term, because those PPA have a duration of 10 years since the COD, so still probably eight years to go. By then, we do not see any particular upside from the market, but for sure, it is legitimate to think that probably the renewal of those PPAs will be at a premium compared to the current price. On the development side, you know that our model is learn and grow.

I mean, we are buying just in case some CPs are met, and among those, for sure, the fact that the plant is already started up with a commercial operation date in place and a PPA and tax equity scheme already negotiated. Basically, fully de-risked asset. For the time being, we still see in the U.S. market a gap between bid and ask, and we do not want to derogate on our financial discipline. We are waiting for the right moment. We have a kind of methodology to value these assets, and we want to stick with this methodology. The U.S. market, probably also for what you have just said, is still based on expectations that are not in our, say, approach. We are very cautious. The third question is about Felix. Vice versa, we are very positive, say, on repowering.

Repowering is a wonderful tool through which we can, on the one end, rejuvenate our asset base and, on the other end, to secure a long-term mechanism, CFD or whatever, a PPA to stabilize the revenue. Yes, we took part to the last auction with 150 MW more or less, basically three projects, say. The one we are looking at more carefully are the two wind repowering projects that are very important for us. The total of those projects is 140 MW, and we are quite confident to be well positioned to get the tariff CFD. As you probably know, GSE issued a press release saying the pricing of wind fell into a range between EUR 70-EUR 83 per MWh. The average point is EUR 76. Our bid was slightly better than this.

It may seem a lower price compared to the initial expectation, but let me say that we managed to negotiate CapEx per megawatts, which are better than what we thought at the beginning. In the end, the return at which we think we can install those two projects are in line with our objectives. On top of that, please, I want to remind you all that we got some financing from the European Investment Bank that makes the levered return on these projects double digit, low double digit. That is our expectation. Enrico, I hope to have touched and covered all your points. If not, I am here.

Emanuele Oggioni, Analyst, Kepler: Yes, yes. Thank you very much. Very clear.

Paolo Merli, CEO, ERG: Thank you to you.

Conference Operator, Carusco: The next question is from Roberto Letizia, Equita. Please go ahead.

Roberto Letizia, Analyst, Equita: Yes. Thanks for the presentation. Just a clarification on the guidance, if it's possible, and the moving part that drives to the guidance. If we stick to the midpoint of the guidance, actually the implied fourth quarter would be in the region of EUR 178-180 million, which would be a significant increase year on year, above 20% basically. Actually, I worked out Kodlaki new plant should maybe potentially add up only EUR 2-3 million. Just wondering if you can a little bit compose this picture that drives to a plus 25% considering Kodlaki and, of course, the other delta change in the perimeter versus the trend in the wind, just to get how visible is also the midpoint that you are targeting right now.

I was also interested in the battery and, if I take it out EUR 100,000 for just a few weeks of operations and I take it on the full year, could it be that we have EUR 400,000-EUR 500,000 of EBITDA over the year for that Vicari plant? That would be nice to have as a reference to understand what's the profit potential of you being involved in the pipeline you said you're working on. I'm afraid, on the incentive, I know we're still getting out and understanding what's the outcome of the FER1, but we always look ahead and we'll start talking about the potential FER2. I don't know if you have any idea of how this could be shaped in the future for the incentives on the 26th and 27th.

The last one is a consideration of the data center you mentioned for the U.S., but it's also a driver for Europe and Italy as well. I was wondering if you are already starting to think about it as a potential business model also for you. We saw in the past days both A2A and Enel yesterday also starting to present this direct involvement into construction of sites and gain on rental fees for the hosting, the energy provider, and the services. I don't know if that can potentially work also for renewable groups that can add on top of the energy service provided the very cheap sourcing cost and as well as the green footprint to any potential IT development. Thanks a lot.

Paolo Merli, CEO, ERG: Roberto, there are many questions. Let me try to go in order. The guidance, I say, I already had the chance to comment during my speech. October was very good. Started off very good. Finally, basically the first months closed significantly above budget. Unfortunately, the very first days of November were very weak. Part of the upside we had in October was eroded. From next week, at least according to the weather forecast, something could change. Wind could be back. Difficult to say. I repeat, we are very, very confident about the fact that the number should be within the range and near the midpoint. We are looking at our best estimates at today is something, a number of all part figure nearby the midpoint of the range.

To go in the upper part is pretty unlikely, even though not impossible, because we would need an extraordinary wind significantly above historical average. It happened, has already happened in the past. It's not, I repeat, impossible. Our real target is nearby the midpoint of the range. Today, we will say the consensus also from you analysts are more or less slightly below the midpoint of the range, because according to our data, it's about EUR 560 million, the consensus, and we are nearby, say. Yes, it's true. It would imply a fourth quarter significantly up year on year. It's not a secret that the last fourth quarter of 2024 was pretty weak from a wind condition point of view. It's a reasonable number.

It is a sustainable number, also considering the larger portfolio we can rely on right now, because it is not just the best for sure, but it is above all of all the assets that enter into operations during 2024 and the first part of 2025. Please consider, and this is always more true, that to bring new assets to its full potential requires time. We are also having an improved performance from, for instance, our U.K. portfolio, our repowering projects, and so on. The contribution of new assets is improving quite significantly over the first 12-18 months of operations. Please consider also this.

About BESS, I say I do not want to enter into more detail than I have already given in the sense that we are now working operationally on these 12.5 megawatts, and we expect a margin, say, in excess of EUR 1 million for sure on 2026, between EUR 1 million and EUR 2 million from these assets. Let me say that the game changer will be the next projects. As I said, we are trying to elaborate a business case which is different from MAX for the time being, even though two MAX auctions are expected to take place in 2026. We are at a crossroad with different options. We will pick the one we consider the best for us, but we are not ready to give an answer more precise than what I just said. FER Z, yes, it is on the pipeline.

The main innovative concept is to introduce non-economic criteria, and those maybe are welcome because our repowering projects we believe are bringing value added to the system because we are doubling the capacity, tripling the productions without occupying more soil. It should be favored, I mean, by the regulator, but also from a technical point of view, the FER1 should introduce a kind of, I do not know yet how, but some kind of ability. Let me say the FER1 wants to stimulate the creativity of operator to follow the profile of demand. To me, it is quite difficult because wind and solar are unpredictable. I mean, they are producing when sun or wind is out there. Let us see. Let us see.

For the time being, we are focused on short-term FER1 because we would be very, very pleased if those two projects can go on in their construction, if they could enter in their construction phase. Data center, yes, it's the topic trend of these days. Nowadays, we can keep talking about data center. We are positive on them. We still need to see the real upside of them in terms of demand, because everybody knows that one of the problems is the weakness of demand across Europe, electricity demand. The European Commission recently stated through their 2040 climate framework that they should push more on electrification of consumptions. One of the pillars of this electrification is exactly data center. We are not studying right now a precise business model on data center, but we'll definitely benefit if this kind of electricity stream will keep growing going forward.

Roberto, I hope to have touched your point.

Roberto Letizia, Analyst, Equita: Yes. Thanks a lot. Thanks a lot, Paolo.

Paolo Merli, CEO, ERG: You're welcome.

Conference Operator, Carusco: The next question is from Emanuele Oggioni Kepler. Please go ahead.

Emanuele Oggioni, Analyst, Kepler: Hey, thank you. Good evening, everybody. I have three questions. The first one is more high level related to your strategy and the fact that in the last two business plans, you cut the development CapEx and the growth, basically, of the company waiting for an improved scenario. It seems that, in my opinion at least, that this scenario has a bit improved compared with one year ago, for example. We have lower interest rates, probably lower CapEx per megawatt. I have also questions more specific on the CapEx, but not higher for sure. Also, the outlook for in some markets, not only the U.S., has improved as regards to the electricity prices, or at least before everyone would have foreseen a decline in power prices. Now, probably the outlook has improved, etc.

Do you see the condition, this improved condition to resume and to accelerate basically your growth in terms of development CapEx and then as business plan? Thank you. This is the first question. The second one is more short-term on 2026 hedging, if you can provide an update. The third one, as I said, is on the supply chain. If there is an update on the CapEx per megawatt for onshore wind and solar. Thank you.

Paolo Merli, CEO, ERG: Okay. I say about CapEx, yes, you are right. You mentioned a little bit lower interest rates. Some aspects of the outlook have slightly improved over the last few months and 12 months, say, exact. We are very concentrated on our business plan, and part of our business plan is based on power. The fact that you are seeing lower CapEx is just a matter of time. I mean, if FER1 would have taken place, had taken place when it was supposed to, probably right now we would have spent more in terms of CapEx. We are just adapting our deployment in terms of timeline, say, waiting for the proper conditions to go on with our investment. That is the real reason behind the profile of CapEx.

If in a month, say, GSE will confirm that our two projects are among the awarded ones, we will start the construction, and then we'll approve the CapEx. In parallel with those two projects, we have other projects ready to be launched, not just in Italy, but also in Germany, in France, and so on. This environment is not for us stimulating an acceleration beyond what we have already announced during the business plan, because you said just the positive, but also there are points of attention in the market looking, for instance, at the negative hours and so on. For us, it is crucial when we approve an investment to secure its return in terms of IRR. To do that, we need to have the route to market already secured. We would need to secure the CapEx per megawatt.

There is a big work, a big work to do behind this. That is our approach, and we do not want to get away from this kind of approach. We are still on that approach, and we keep it. We do not see particular acceleration. We hope to accelerate on our organic pipeline, that is for sure. We are working on the next business plan, and we hope to say a little bit more in March 2026 when we will update the financial community on our plan.

Michele, CFO, ERG: Regarding hedging, we are entering November with the 2026 volume that are hedged on 75%. We have exposed to market 25%. What we expect in the coming two months is to reach our target, that is around 80-85% by the end of 2025, to start 2026 with our target hedged volume. You know that we are following a three-year rolling hedge policy that adds some short-term hedging to the long-term hedging provided by tariffs or PPAs or green certificates. This is the situation of the hedging today. Regarding supply chain, you are right that we are seeing for sure a stabilization, also some improvement in the supply chain. In particular, we have experience in this moment of projects in Germany, in France, and in Italy, in wind in particular.

In particular, in Italy, the competitiveness of the auction has some effect also on the behavior of the wind turbine suppliers because they recognize that if they want the projects that are based on their technologies, they know that they need to be competitive in their offer. Otherwise, there are no projects for them. I think there is an alignment of interest in this specific case between IPP and technology provider to be competitive in the auction. This is something that we see happening on the market. Regarding the remaining part of the cost per megawatt, so civil works and so on, I do not see any particular disruption in the market, in particular for wind projects and in particular for ERG that is an established player in this market.

Emanuele Oggioni, Analyst, Kepler: Thank you. Just a follow-up on still on the hedging. You mentioned the volumes, but as regards the pricing overall, is there an improvement in this three-year hedging coverage?

Michele, CFO, ERG: I cannot comment on specific figures on the hedging. We are following in these three years methodology the price on the market. In this moment, on the term, I do not see any particular change in respect of 2024 regarding the price that we are building up for 2020. Sorry. The price for 2026, we are not seeing any material change regarding the price of 2025.

Emanuele Oggioni, Analyst, Kepler: Okay. Thank you.

Conference Operator, Carusco: The next question is from Davide Candela in Tiso, São Paulo. Please go ahead.

Davide Candela, Analyst, Tiso, São Paulo: Hi. Good afternoon, gentlemen. Thank you for taking my question for the presentation. I have three, if I may. The first one is still on batteries. I was wondering if you can share your view about the cost trajectory of the technology. To me, it looks like there are some room for improvements also on a technological point of view. I wondered if this is a good positive case for the technology going forward. Second question on M&A. You partly already answered with regards to U.S., but moving to Europe, I wonder if you can share your view how the market is going if you're considering some dossiers, which is the gap actually between the bid-ask in this part of the world. Third question with regards to the PPAs market. This question is partly related maybe to the demand growth expected from data center.

In the PPAs, do you see utilities that are actually some of them downsizing their CapEx renewal as key clients in future to lock in some new capacity that renewal operators like you could develop in future? Many thanks.

Paolo Merli, CEO, ERG: I say very, very quickly. Yes, you're right. We notice a huge improvement in the capital intensity that is getting lower and lower. In particular, over the last few months, the few months before the launch of the MAX auction, we notice a significant drop in CapEx intensity. As a matter of fact, say, in July, the cap was set at EUR 37,000, and then the outcome came at EUR 13,000. With a very huge discount because the pricing of the furniture went down quite significantly. This is an upside for sure going forward. It's not a secret that scale is crucial. I mean, the operator that won 70% or even more of the MAX auction was a large-scale operator. You need to have a significant pipeline to reach this kind of pricing, but we are working in this direction.

M&A U.S. is still an area at which we are looking at despite what I said before, but still it's interesting for us also for the reason Roberto mentioned before, the trend in terms of data center and whatever. Still, we are looking for the right moment to increase our presence there. About Europe, yes, we are involved in some beauty contests, in particular in countries where we have a quite sizable positioning. It's not a secret like France, U.K., Germany, these kind of countries. As you know, M&A, you can't say anything till you have closed it because till the last moment. Yes, we are working on some very specific asset acquisitions that could create value from our perspective. PPA market, I think we are delivering a lot, much more than we ourselves could think just a few years ago.

In 2021, we had zero PPA in our portfolio. Now we have 3.7 terawatt-hour per year of production covered by PPA with high-level off-takers across the world, both in Europe and U.S. We believe to have been a leader in this segment. Even in this quarter, in the third quarter, we closed down three important PPA with FS, the train operator in Italy. We are now working on other PPA on some assets outside Italy. We hope to be in the position to announce something, sorry, in the very near future. If the question was to understand if PPA market is still alive, yes, it is. We expect it to develop even farther because, as you said correctly, most of the integrated utilities are moving capital from RES to other segments like regulated ones in particular.

From this point of view, they would need to sign more PPAs. In fact, ourselves, ERG itself signed a few PPAs with utilities recently. This trend should reinforce, in our opinion, going forward. Daniel, I hope to have answered your point.

Emanuele Oggioni, Analyst, Kepler: Yes, many thanks.

Paolo Merli, CEO, ERG: Thank you. Thank you.

Conference Operator, Carusco: The next question is from Alex Roncier, Bank of America.

Hi. Good afternoon. Thanks for taking my question. I have two, if I may. The first one is just regarding the lower capital intensity or at least CapEx per megawatt, I think, that you were talking about. I just want to kind of make sure I understand correctly because I think historically you had a CapEx per megawatt guidance that was a little bit higher than the rest of the industry due to your own integration as well as Italy and the repowering angle, so some specificities. I think you've been talking down CapEx per megawatt for yourself in terms of your next investment.

What you've been doing as well, and I'm glad to see that comment being made again today during the call because you made that first, I think, last time at the H1 call was regarding turbine prices perhaps coming in lower than what you were expecting, or at least the European OEMs being a bit more conscious of Chinese competition and perhaps lowering prices. I think that's a message that's very opposite of what the OEMs themselves are talking about. I would be interested to really have your view about what you're seeing in terms of turbine prices for Europe. I'm just also wondering if the lower costs you are getting on your project is perhaps due to other factors as well.

I mean, is it because of the balance of power, system transformer, connection, EPC, some better integration, or maybe some lower costs that you're trying to put in in terms of risk aversion for the project themselves? Because I know historically in the past, you were getting a lot back from compensation. The second question, perhaps, and sorry for the first long question, is that given that perhaps organically you are trying to accelerate and conscious of that, but you're perhaps not deploying as much capital as what you were thinking, should we safely assume that that means there is even more upside regarding higher dividend per share or higher share buyback into next year, which was already the case at the beginning of the year?

Any kind of color on capital allocation and ultimately if you had any more directionality being given by the board and by both your main shareholder groups. Thank you very much.

Paolo Merli, CEO, ERG: Okay. Alex, try to answer your question very rapidly, and then I leave Michele to elaborate a little bit more on your first question. As a CFO, he's also accountable for our procurement, so he's negotiating every day with all the names you mentioned. I mean, the Chinese and the OEMs, Western OEMs and the Chinese one. I say, historically, honestly, we had a CapEx per megawatt which was lower, not higher than other operators because in 2020, 2018, we managed to sign a framework agreement with Vestas and Enercon at the price at that time. We had a wave of investments three, four, or five years after that framework agreement supported by a lower CapEx per megawatt in terms of wind turbines. Unfortunately, those frameworks expired and then back to normal, let's say.

That's the reason behind the increased CapEx per megawatt over the last, say, two years. Having said that, over the last two projects I mentioned before that took part in the FER1 auction together with our partner, because we consider the OEM with which we work as a partner, and they were aware of the competitiveness expected in this auction, we found an agreement to reduce the CapEx subject to the fact that we order a certain type of machine and turbine. I can confirm that the reduction was strictly limited to the wind turbine supply agreement, subject, of course, to us being awarded by the CFD. Of course, there is also, let me say, I don't want to enter into the shoes of the OEM, but there is a kind of reverse engineering exercise also for them.

I mean, if they know the pricing at the FER1 auction is going to be 75 or 76, they adapt their value proposition for wind turbines in order to get the order. It is a double interest, and fortunately, it is an interest that we have in common. This kind of partnership, we hope, is going to work as regards the FER1. About the balance sheet, I think it is a nice problem to have. I mean, having a stronger balance sheet than other peers, and this is definitely our picture because, as you have seen, the net debt has remained broadly flat, notwithstanding we distributed almost EUR 170 million in 2025, dividends plus buyback because in January, do not forget, we spent more than EUR 20 million in buyback.

Going forward, we like to have a strong balance sheet because whenever opportunities will arise, also from an M&A point of view, we are ready to get them. In March, when we close the profit and loss, say, for the full year, usually we have a confrontation, I mean, a discussion internally to set the dividend, think about maybe buyback and whatever. As we said, buyback is considered a flexible tool to allocate properly cash. For the time being, I'm not ready to take any commitment from this point of view except confirming the EUR 1 per share dividend. That was our minimum, say, target from this respect. Alex, I hope to have answered.

Conference Operator, Carusco: Yeah. It's super helpful. Just maybe if I can just one very quick follow-up. You mentioned you had a historical framework with Vestas. Any comments you can give us about the partners you're having for the FedEx procurement?

Paolo Merli, CEO, ERG: Okay. No. No. But you know that we.

Conference Operator, Carusco: Okay.

Paolo Merli, CEO, ERG: I don't know if you want to.

Conference Operator, Carusco: No, no. What I can say is that we have a history of working with Western O&M, so Vestas, Enercon Nordics, and so on. We cannot rule out the possibility to work also with the Chinese supplier. We see that they are entering the market in Europe, so they have a very small market share up to now. Not all projects are good for their technology in terms of size of wind turbine comparing to the permitting that we have in our project. Notwithstanding that, we have a discussion ongoing also with them to understand if we can benefit from lower-cost technology but without compromising on the asset quality. That is one of the characteristics of our group, that is to maintain quality in our asset base that can deliver value in the long time. Okay.

I haven't selected yet, but keeping all options open, including Chinese providers. That's super helpful. Thank you.

Paolo Merli, CEO, ERG: Thank you. Thank you to you, Alex.

Conference Operator, Carusco: Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Paolo Merli, CEO, ERG: Thank you. Thank you all for the interest, and we will see the next one in March for the full year results and also for the update on the business plan. Thank you very much, and have a good weekend.

Conference Operator, Carusco: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.

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