Earnings call transcript: ERG sees solid Q2 2025 with EBITDA and net profit growth

ERG reported a strong second quarter for 2025, showcasing double-digit growth in both EBITDA and adjusted net profit. The company continues to expand its renewable energy portfolio, despite facing challenges from low wind speeds across Europe. The stock saw a slight decline of 1.69% following the announcement, closing at 22.52 euros. According to InvestingPro data, ERG maintains impressive gross profit margins of 37.67% and has consistently paid dividends for 28 consecutive years, demonstrating long-term financial stability.

Key Takeaways

• Q2 EBITDA increased by 11% year-over-year to 128 million euros.
• Adjusted net profit for the quarter rose by 21% year-over-year to 34 million euros.
• The company completed significant renewable energy projects, including a battery storage plant in Sicily and a wind farm in Northern Ireland.
• ERG’s stock price fell by 1.69% post-announcement, closing at 22.52 euros.
• Guidance for 2025 includes EBITDA of 540-600 million euros and CapEx of 190-240 million euros.

Company Performance

ERG demonstrated robust performance in Q2 2025, with EBITDA and adjusted net profit both showing substantial year-over-year growth. This growth was achieved despite a challenging environment characterized by historically low wind speeds across Europe, which impacted production levels. Nevertheless, the company maintained total production at 3.7 TWh for the first half of the year, consistent with 2024 levels. InvestingPro analysis reveals the company’s strong financial health with a current ratio of 2.87, indicating robust liquidity management. Get access to 6 more exclusive ProTips and comprehensive financial metrics with an InvestingPro subscription.

Financial Highlights

• Q2 EBITDA: 128 million euros (+11% YoY)
• Adjusted Net Profit Q2: 34 million euros (+21% YoY)
• First Half EBITDA: 274 million euros (-3% YoY)
• First Half Adjusted Net Profit: 83 million euros (-22% YoY)
• Net Financial Position: 1.949 billion euros (+9% vs. end of 2023)

Outlook & Guidance

ERG’s guidance for the remainder of 2025 includes an EBITDA range of 540-600 million euros and CapEx between 190-240 million euros. The company anticipates a year-end net financial position of 1.85-1.95 billion euros. ERG remains optimistic about a recovery in wind conditions and is targeting 70-80% hedging for 2026. With revenue growth of 7.44% and trading near its 52-week high, ERG shows promising momentum. Discover the company’s detailed Fair Value analysis and access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Executive Commentary

CEO Paolo Merli emphasized the importance of flexibility and electrification in the energy market, stating, "Flexibility is going to be a game changer in the market." He also highlighted the unstoppable nature of the decarbonization process.

Risks and Challenges

• Wind Speed Variability: Continued low wind speeds could impact production and revenue.
• Regulatory Changes: Shifts in energy regulations, particularly in the U.S., could affect market dynamics.
• Investment Allocation: Balancing between M&A and organic development investments remains crucial.
• Market Competition: Increasing competition in the renewable sector may pressure margins.

Q&A

During the earnings call, analysts inquired about ERG’s participation in FERIX auctions and the potential impact of U.S. market regulatory changes. The company also addressed its growth strategy in battery storage and the importance of electrification to meet future electricity demand.

Full transcript - ERG (ERG) Q2 2025:

Conference Call Operator: Good afternoon, this is the course call conference operator. Welcome and thank you for joining the ERG second 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 quarterly results presentation. Here with me as usual, Michele, our CFO. Let’s get started with an overview of results over the period. I am on page number four. First of all, let me put the results into context. The first half of the year, including the second quarter, was characterized by much lower wind speed than last year and the historical average. I soon share the results of a historical wind analysis conducted by our experts against this backdrop. In the first half, our EBITDA closed at €274 million, slightly down -3% year on year. While looking at Q2, results got back to positive with EBITDA at €128 million, +11% year on year. There were two major effects behind this performance.

On one end, and this is true for the semester and for the second quarter, the much weaker production on a like-for-like basis was partially offset, this is the second factor, by the contribution from new installed capacity with the first repowering projects now up and running and the full contribution of the U.S. asset portfolio, which I remind you is being consolidated as of 04-01-2024, despite the higher prices on screens. All in all, the price effect on a year on year basis was just marginally positive as the lower production resulted in lower merchant volumes. Investments amounted to €143 million, significantly down year on year. I remind you that the reduction is mainly due to the fact that the CapEx in the first half of last year included the acquisition of a wind and solar portfolio in the U.S. and a smaller one in France.

Out of the total invested in the first half this year, about 50% was again related to M&A with the acquisition of Brock and Cross wind farm in the UK and the remaining about 50% allocated to organic development, mainly greenfield and repowering in France, Germany, Italy, and the UK. Bottom line, adjusted net profit in the first half was €83 million, down 22% year on year due to the already mentioned decline in EBITDA, higher depreciation, and financial charges linked to new assets. Again, looking at Q2, earning direction returned positive with net profit at €34 million, up 21% year on year. Net financial position at 30 June was €1 billion and €949 million, +9% higher versus the end of 2023-2024, discounting also, not just the investments, a total distribution, I mean dividends and buyback of roughly €160 million, which basically fully justify the increase.

Michele will provide more details on the cash flow over the period as mentioned. I’m now commenting Page number five as mentioned, the economic results of the period were significantly impacted by unfavorable wind conditions throughout Europe. The economic impact of lower volumes, I mean on a like for like basis versus our budget and versus last year in the first half, was in the order of €50 to €60 million. I think it’s important for you to understand the magnitude of this event. The map above shows the usual map that we are posting on our webcast. The map shows the deviation of wind speed from its long-term average, say in Europe. In this case in Q2, dark blue indicates the areas where the negative deviation is greatest.

It’s quite unusual to see a situation like this with weak wind virtually everywhere in the regions where we have installed capacity, I mean everywhere, say across Europe. This map in Q1, and you can find it in the last webcast presentation, was even worse. This prolonged wind drought was caused by a persistent high pressure system all over Europe. Please consider that production of a wind turbine moves proportionally to the wind speed with a multiplication factor of 2 to 2.5 times, which translated in simpler words means that if the wind speed drops by 5%, the production will drop by 10% to 12% on average, according to national public data. These are data published by the national TSO. Wind power production during the period on a like for like basis decreased year on year by 17% in Italy, as shown in the chart.

Those are the data published by Terna and I tell you they are not here but in France the same, minus 15%, minus 25% in Germany, and minus 25% in Poland. Those, I repeat, are national data, even though our own trends over the period were pretty similar. As said, we conducted an internal analysis to understand better, also in light of the magnitude of the event. The graph below shows the average wind speed recorded over the first half of the last 85 years in Europe dating back to 1940. We were inspired by some public study issued by other independent institutions to do this analysis. The result confirmed that this semester 2025 first half was extraordinarily weak. We repeated the analysis in every European country where we operate and the result was very similar.

In each country, the wind drought over the period was among the worst ever recorded. Not the worst, but among them in Europe as an aggregate that is shown here in the chart is the lower because this phenomenon was all over Europe. This analysis led us to a couple of conclusions. Very simple. First, wind speeds have always been erratic and historical data show that this type of wind installed wind capacity, but this event was always there. Difficult to say there is a clear trend related to climate change. These are the same conclusions other independent third party analysis came to and among the institutions that said that I would include also the International Energy Analysis. The second consideration is that in this specific case, geographic diversification across Europe proved less effective because as I already said, the wind drought was well distributed all over the continent.

The good news is that over the last couple of months wind speed has gone back to normal and this makes us confident about our full year guidance, which I anticipate will be confirmed. I move to page number six. Over the period we continued to deliver on our strategy. We are very pleased with the completion of our first battery storage plant in Vicari, Sicily, 13 megawatts, as flexibility is becoming increasingly important. We also completed construction of the Korlaki wind farm in Northern Ireland. The 47 megawatt plant is now operational and in its ramp up phase and we expect it to reach its full potential over the next few months. We are also advancing our project pipeline with 50 megawatt of greenfield and repowering projects in France, Germany, Italy, fully authorized.

I’m also very pleased to say that we this morning signed a long term PPA with A2A which will cover about 90% of the expected production from the Castelvetrano Salemi wind farm in Sicily, again a repowering project that has been operational since December last year. The PPA will be effective as of 01/01/2027 and will substitute the CFD tariff that was awarded in auction held a couple of years ago under the FERIX 2019 decree. In addition to that, we have been awarded the largest part of the first auction launched by FS Group, which is the state owned railways company. These two, three different PPA with an aggregate amount of about 180 GWh per year with a tenure of 5 to 10 years. This is an extremely important achievement as it refers to existing wind projects already out of the incentive scheme.

Overall, in the first half we proved once again successful in securing at attractive condition both new capacity and existing one. Leveraging on our expertise in the PPA market regarding ESG, we have once again confirmed our position among the top tier companies in all aspects of our sustainability strategy. We ranked first in the Identity Corporate Index. We were confirmed on the CDP A list and renewed our Gender Equality certification in Italy, clearly recognizing our strong commitment to the topic. Now to Michele for his review of results in more details.

Michele, CFO, ERG: Thank you Paolo. In second quarter, power market prices have been slightly higher than second quarter 2024 across all countries where ERG operates. However, as you know, this trend had only a limited effect on our all-in unitary revenues due to the quasi-regulated nature of our business model. In Italy, the wind unit revenues stood at €112.0 per megawatt hour in line with the second quarter 2024. Despite the increase of the green incentive value rising to €55 per megawatt hour against €42 per megawatt hour and the higher power market price overall, the unitary revenues remained stable. This was mainly due to short-term hedging strategies executed at lower prices compared to the previous year. In France, the increase in unitary revenues was driven by higher short-term hedging prices combined with a more favorable market environment captured by a few merchant assets.

In Germany, capture price in second quarter are aligned to second quarter 2024 at €94 per megawatt hour. In Poland, unit revenues increased during the second quarter primarily driven by the short-term hedging. In UK, the capture price is around €74 per megawatt hour higher than second quarter 2024 thanks to higher short-term hedging. Note that this figure as usual does not include revenues from balancing services. As for solar, ODIN unit revenues, we recorded a decrease in second quarter in Italy mainly due to low origin prices. In Spain, capture prices were impacted by the current market environment with a significant profile effect during daylight hours. In France, solar revenues are sold at FIT prices compared against 2024 when the energy produced by assets acquired in 2024 was sold at marginal prices. Energy plants in the U.S. have unitary revenues that reflect PPA prices.

Paolo Merli, CEO, ERG: Very stable.

Michele, CFO, ERG: Now focus on production. In the second quarter of 2024, the group’s overall production was in line with previous year. This stability was mainly driven by perimeter effects, which offset the persistently low wind conditions across Europe. In Italy, we have 654 GWh, up 2%, mainly due to perimeter effect coming from repowered and revamped assets both in wind and solar, offset by low windiness. In France, 266 GWh, thanks to new benefit assets entering operation during 2024 and the second quarter of 2025, and the solar plant acquired in 2024, again offset by low wind conditions. In Germany, 107 GWh, down 6% due to lower wind conditions. In UK and Nordics, 137 GWh, in line with last year, mainly thanks to the new asset acquired in January in Scotland, partially offset by low windiness in UK. In Spain, 149 GWh due to lower irradiation, -11%.

In U.S., 248 GWh, -6% due to lower wind conditions. Eastern Europe was the only region where we recorded improved wind conditions, with production reaching 160 GWh, up 15% year on year. In the first half, the production has been 3.7 TWh, aligned with first half 2024, mainly due to perimeter effect, 0.6 TWh, of which 0.3 TWh U.S., partially set by extremely low wind conditions in Europe. Please note that we began to consolidate U.S. assets in the second quarter of 2024. In the second quarter of the year, EBITDA reached €128 million, €12 million more than second quarter 2024. This growth was mainly due to perimeter effect, €9 million linked to the newly acquired asset and organic development, as well as higher capture prices. These positive drivers were partially offset by the already mentioned weak wind conditions across Europe.

In Italy, EBITDA reached €85 million, an increase of €5 million year on year, primarily driven by new investment in both wind and solar. This was partially offset by unfavorable wind conditions and lower capture price on solar. In France, EBITDA is €5 million higher than last year, supported by higher capture price in wind asset and perimeter growth, partially offset by low interval. In Germany, EBITDA is €5 million, €2 million lower than previous year, mainly due to persistently weak wind conditions. In Eastern Europe, EBITDA is €11 million, €3 million higher than previous year, mainly driven by higher wind resources. UK Nordics EBITDA is €7 million, up to €2 million, thanks to the contribution of the new acquired asset in Scotland. In Spain, EBITDA is €2 million lower than last year, impacted by reduced production and lower capture price.

This was due to both intraday profile effects and short-term hedging at less favorable price levels compared to the previous year. In the U.S., the EBITDA is $10 million, $2 million lower than the previous year due to lower production in the quarter. In the first half 2024, EBITDA is €274 million, lower than the previous year by €7 million, mainly driven by the persistent low wind condition in Europe, partially offset by a €3 million effect. The second quarter allowed us to partially recover the underperformance of the first quarter, which was heavily affected by poor windiness across Europe. Let’s comment now on the investment. In the second quarter, we invested €28 million, mainly due to ongoing construction in the UK, France, and Italy.

In particular, we spent organic CapEx for €10 million in the UK, mainly for the construction of the Korlaki wind farm, 47 megawatt, €12 million in Italy, referring in particular to our first storage project and some revamping and repowering activities, and €4 million for the beginning of our first repowering project in France. The second quarter 2024 includes €235 million for the acquisition in the U.S. In the first half 2024, investments amount to €143 million, of which €72 million of acquisition in the UK, versus €444 million of first half 2023, which includes the acquisition in France and the U.S. for a total amount of €319 million. Let’s now move on to the financials. Commenting on the other items of the P&L, loss in the second quarter, amortization and depreciation is €69 million, in line.

In the second quarter 2024, net financial charges are €12 million versus €7 million in the second quarter last year. Financial charges versus banks and bondholders, net of repeated remuneration, stand at €8 million, €4 million up in comparison with last year due to remitter effect and lower remuneration on cash. They complement to €12 million. €4 million are non-cash accounting items, such as effects coming from tax equity partnership in the U.S. or figurative lease interest expenses according to IFRS 16. Tax rate in the quarter is 26%, lower than 30% of last year due to different contributions of various countries to taxable result. The adjusted net profit of the quarter amounts to €34 million, higher than last year’s €28 million, mainly driven by the recommended EBITDA, partially compensated by higher financial charges. The adjusted net profit for the first half amounts to €83 million.

Finally, let’s take a look at the cash flow statement and net financial position. The net financial debt at the end of the first half is €1.9 billion, so €0.2 billion higher than the end of 2023, mainly driven by the dividend payments and the investment of the period, partially netted by the cash generation from EBITDA. The net working capital is affected by dynamics due to payables for investments. Thank you for your time. Now I leave the floor to Paolo for his final comments.

Paolo Merli, CEO, ERG: Thank you, Michele. Now let’s see our guidance for the full year. As you know, the EBITDA guidance given during the last webcast already took into account the low winds since April. Unfortunately, this trend continued, although to a lesser extent in May. June was almost near budget, while July is doing well. It seems that some sort of return to normality is taking place when 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. To reach the upper part of the range, however, we would need windiness above the historical average, then assuming a recovery, or at least a partial recovery in the second half of the year of what we have lost in the first. With this caveat, we confirm our EBITDA guidance within a range of €540–600 million.

CapEx is also confirmed within the range of €190 to €240 million, as well as net financial position at year end within the range of €1.85 billion to €1.95 billion. Thank you for listening, and we are now ready to take your questions.

Conference Call Operator: Thank you, sir. This is the course call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. We kindly ask you to use handsets when asking questions. The first question comes from Enrico Bartoli of Mediobanca.

Hi, good afternoon. Thanks for taking my question. Actually, I have three. The first one is related to the FERIX auctions that are expected to be held shortly. If you can share with us your view for the and let’s say the amount of capacity that you are planning to participate to the tenders, and some comments if possible on the level of competition that you expect from the first auction. The second question is related to the U.S. There were several changes in the regulation recently. If you can share with us, say, your view on the potential for ERG in this market and let’s say the possibility to access the 1 GW pipeline that you have in the country. The third one is related to battery storage. You highlighted that actually you had the first battery storage in operation in the past quarter.

I’m wondering, let’s say, if you think that even, let’s say, there could be an acceleration in the investments in this technology. If I remember well, you had a 0.6 GW pipeline in March, and if you are planning to participate to the MACSE auctions, and maybe some comment on the level of profitability that you think can be achieved in the Italian market. Sorry for the many questions.

Paolo Merli, CEO, ERG: Thank you. Thank you, Enrico. Ferrix, yes, sure. We have few projects that are going to take part to the auction. In all, we think roughly 130, a little bit more, 130 megawatts, a little bit more than that. Most of them, basically 95% wind and repowering projects. We expect a fierce competition because based on the manifestation of interest, there are 2.9 gigawatts of wind capacity that is going to take part to the auction and 17 to the PV option, even though we are more focused now on wind. Of course, the price at which we are going to bid is very confidential. The auction is already open, and it’s going to close. The last day it’s possible to submit bids is on 12th September, and the outcome of the results should be published by GSE within November, December. Let’s see how it’s going.

I think even today with the PPA signed with A2A.

Michele, CFO, ERG: There.

Paolo Merli, CEO, ERG: is a clear knowledge and capacity of the company to find other routes to markets. We are confident that either through CFD awarded to auctions or PPA we will be able to carry on our project. We would have liked to bring more capacity to the FERIX, but unfortunately we are in Italy and we have some Autorizzazione Unica on some projects, for instance in Sardinia, that are struggling to find the right framework to be implemented because of the hostile behavior, say, of the region that has issued the Autorizzazione Unica for our Nurbi Pro Ag wind farm, which is more than 100 megawatts, but subject to several conditions precedent that make basically the project, say, not feasible. You know that we have been fighting on these projects for the last six, seven years because we submitted the first documents for the permitting in 2018.

I make the story short, but through ups and downs, the project was authorized in 2022 by the Prime Minister Mario Draghi to, say, find an equilibrium between the different opinions of different institutions around the project. The decision was appealed by the Sardinia region and, say, avoiding to say what is in between. The last move was the administrative court that ruled in our favor, forcing the region to issue the permit and if not, the Prefect would have issued the permit on behalf of the region. The region yesterday issued the Autorizzazione Unica, but as I said, full of tricks and preconditions. The most likely scenario, we want to go through it, but is that we are going to appeal or challenge this Autorizzazione Unica to the Supreme Court.

We are absolutely confident that we are on the right part of the reality, and we are quite confident that this Autorizzazione Unica was issued, say, intentionally to be challenged in order to prevent the Prefect from issuing the Autorizzazione Unica that in that case would have been for sure clean and not subject to all these conditions. We are really, say, annoyed by this situation, but we keep going on because we are confident that in the end our rights and interests will be safeguarded by the appropriate authorities. For the time being, this project that we thought was going to take part in the auction, we decided not to, because before we have to make clear the situation around it. It’s not just a business case, it’s more. It’s becoming a matter of principle now. Okay, so the first question, was this in the U.S.?

Yes, the regulation is evolving. Mr. Trump, the president, is quite clear that he is a little bit against the development of renewables. In particular, there is an executive order or a law that is envisaging the phase out of the tax equity schemes in a couple of years. Based on our business model and based on our approach to the country, we don’t expect direct consequences on us. I mean, we do not expect any retroactive actions. The portfolio we are running now is not going to be affected by this new regulation. For sure, this new regulation would make it harder for developers to install new capacity, authorize new capacity.

You know that our model is to buy assets on a totally de-risked framework, when they already have the PPA, when they already have the COD, the commercial operation date, and in case there is no tax equity scheme, we would price this new layout and the project. We do not expect any particular direct consequence. For sure, even for us, it would be tougher to grow. We are also, in this moment, in these days, elaborating some offers to submit to our partner Apex, because this was part of the agreement. Let’s see if we can find an agreement. The targets we set out for our business plan remain the same. Yes, we are very happy and satisfied that we put in operation our first storage system, 13 megawatts in Vicari, Sicily, nearby our wind farm.

It’s also an occasion for us to learn how to manage this kind of asset and its intercorrelation with the wind assets. We are working very hard to carry on our pipeline of BAS. I would say more, we are trying to switch some solar projects into battery storage. This is true in Spain for sure, but also in Italy, because flexibility, we think, is going to be a game changer in the market. We see every day the dark curve in the 24-hour price profile that is very much influenced by the penetration of solar plants that are producing just on a daily hour. Battery storage, we are quite sure, is a stream that is going to be under strong growth for the years to come. I hope to have answered your questions, Enrico.

Yes, just a comment on, let’s say, the participation to the MACSE market and what you think that the profitability could be in that auction.

Yesterday they published the new number for the MACSE. They set out €37,000 per megawatt hour, which is a little bit higher than what we were expecting. We look at it, I mean, at MACSE with high interest. We have not that much capacity with which to participate in this auction, but some just more projects. I’m talking about some tens of megawatts and not more than that. We are trying to explore also on the secondary market if there are projects to buy, I mean in terms of permission, in terms of permitting that are eligible to participate in the auction. Let us work and we need a couple of months to understand better what we can do in this auction. Looking forward for sure, there is a new stream of revenues, a new stream of business.

Michele, CFO, ERG: Perfect.

Thank you very much.

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

Conference Call Operator: The next question is from Emanuele Ogioni of Kepler Cheuvreux.

Good afternoon and thank you for taking my question as well. The first one on the hedging policy for 2026. If you can update on next year, because basically this year is already fully hedged. The second question is a precision, but basically you have already answered before about the recently today signed PPAs with A2A and in general your policy based on your previous statement. Also, when you sign a PPA in Italy, basically this means that the level of power price agreed, obviously it’s not disclosed, I will not ask for it, so the level of the PPA. The power price of PPA is higher than what you expect from other auctions or other level of profitability you expected, for example for the next auction, etc. Could I confirm this? Finally, the question on the share buyback.

I know you have a dividend policy and attached also an additional share buyback plan. I wonder if, considering the depressed level, depressed valuation, it could be the right time to think about an increase in this share buyback plan. Thank you.

Michele, CFO, ERG: Okay, regarding hedging, we are cutting at a level of 70% of our hedging for 2026. We’re building up our short-term hedging position in order to begin the new year, 2026, with the planned leverage in the region of 80%. We are progressing following our usual policy, also on short term.

Paolo Merli, CEO, ERG: Short-term engine for sure.

Michele, CFO, ERG: We take into account also the long-term hedging that we have just closed with FS Group (Ferrovie dello Stato Italiane) and A2A, and take this in consideration for our hedging percentage. Overall, the target is to reach by the end of the year roughly 80%.

Paolo Merli, CEO, ERG: Okay, I can just elaborate a little bit more on your second question on top of what Michele just said. Yeah, we’re quite happy about the PPA with A2A and also the PPA, the three PPAs we have been awarded through an auction system with FS Group, the railway corporate. This is particularly interesting for us because basically it’s covering production coming from old assets, so assets that have already phased out from an incentive scheme and then make their business case more sustainable for the long term. We think this kind of market is going to develop quite substantially going forward. Even the government in the last, I don’t know to say, FERIX decree was envisaging at Article 3 the possibility for GSE to launch a tender for a long-term contract between private off-takers and producers.

We think that decoupling, the so-called decoupling between the day-ahead market and long-term mechanisms, will develop along this way. The share buyback, I can just say that the last general meeting ruled for 10% share buyback, the optionality to buy back own shares up to 10% of the capital. This deliberate should translate into when and if, in the deliberation of our Board of Directors, that so far has not decided anything about this. By the end of the year, we will make a point on this, I can say. Sorry, just to touch a point you raised in your previous question about PPA. Of course, I can say the price.

I confirm that we are talking about the fixed price on a pay-as-produced formula, say for the A2A contract, and the other one is a more base load, but still we can provide this energy coming from the power portfolio. About the price, don’t forget the Castelvetrano Salemi was already awarded a tariff of €64 per megawatt hour, so it’s easy to understand that the pricing should be better than that. If not, there was no point in signing this contract.

Thank you. Very clear. If I may follow up on the hedging as regards the pricing. The moving average, I think the rolling moving average of the hedging, I think, has improved for 2026 considering the year to date. Higher power prices, at least higher than expected for me.

Michele, CFO, ERG: Yeah, you’re right, there is a mild increase. Consider that we build up the position week by week, so we tend to follow the progress of the price during the months. You don’t have to take the position today to consider our level of hedging for 2026.

Thank you.

Conference Call Operator: The next question is from Roberto Letizia of Equita.

Yes, good evening. Thanks a lot for taking my question. The first question is a follow-up on the U.S. market. Just wondering if, without taking into consideration incentives, so just looking at market conditions and also taking into consideration the new trends of demands based on data centers, if in any way market conditions justify buildup of plants out of your pipeline so that you cannot be worried about local policies and just look into the market condition through PPAs as normal merchant positions. Just wondering if the market is envisaging and is supporting this optionality. The second question is more strategic.

I was wondering what would you consider as the right market conditions in order to go back to a different growth rate path, being less focused on the balance sheet and maybe use it a bit more to follow additional optionalities that may arrive, which may be the best as well, or different technologies or different countries that offer growth opportunities. If you can tell us what would be the best market condition for you to expand the balance sheet and pursue a higher growth rate. Thanks a lot.

Paolo Merli, CEO, ERG: U.S. It’s very difficult to say how the market will pan out given the changes that are now undergoing there. Honestly, I have to say that when looking at the projects, I mean when we are making our due diligence exercise, we have noticed that most of the projects struggle to have a fair value that is in line with the CapEx the developers have spent to bring the asset into operation. Because the IRA, honestly with all these tax benefits and so on paid up front, it’s like our super bonus 110. I mean, I think you know what I mean. This has created a big inflation sometimes when comparing the CapEx per megawatt both for solar and wind in the U.S. versus Europe, you see that there in the U.S. this ratio is much, much higher than in Europe.

Of course, if all these fiscal benefits will be eliminated or will progressively phase out, for sure the U.S. market would need rebalancing in terms of CapEx per megawatt and so on. Difficult to say. We are in a, I don’t want to appear too optimistic, but we are in a kind of safe haven because we are not obliged to buy. For sure, the only point I believe is not moving is our financial discipline. We want to grow there. We still believe it’s a great market because consumption and the economy is very hot there, but still at the right condition. That leads me to your last questions, which are the right market conditions. The thing that is worrying me the most is the missing electrification of consumption.

I mean in Europe, but all around the world we are keeping installing renewable capacity but we are not seeing the same growth in terms of electricity demand. I think we need to push on electrification. This is very important and so far we haven’t seen sign and the right commitment also of the European Commission towards the point. Until there are the conditions to accelerate on the deployment of investments, when there is a turning point on this, and sooner or later it will happen, I’m sure because the decarbonization is an unstoppable process. Speed, and this speed is an important point. Whenever we have a sign, a clear sign that this trend is changing, we can consider an acceleration.

Very clear. Thanks a lot for your help.

Thanks to you.

Conference Call Operator: The next question, sir, is from Alex Rossier of Bank of America.

Paolo Merli, CEO, ERG: Hi, thanks for taking my question. I just had one simple one if I may. It was regarding wind speed condition in July. I think, you know, on some of the data that I can get, it looks like wind conditions are actually quite good and actually much better than historical average. I know, you know, guidance is, you know, kind of at normal condition for the rest of the year, but have you seen similar better wind condition trends as of July or is that just, you think, a little bit of a data phasing or perhaps a sporadic data point? Thank you. I confirm that over the last couple of weeks wind is strong, in particular in Italy.

You know that Italy is very important for us because here prices are higher and also a portion of our production is still getting the green certificates, let me call it like this. Also in France and in Germany, UK, and even Sweden, we are now seeing better conditions. It seems like we are getting back to normal. I mean, in terms of wind speed, it’s very difficult. We conducted an internal analysis which is much more, say, in depth than the executive summary that we have shown through this webcast. Basically, the analysis confirms that this kind of volatility in wind presence has always been there. In Italy, we had a wind drought like the current one in the 1980s, in Germany in the 1960s. Back in time, that means probably that climate change is not the main driver behind it.

This is also the outcome of other institutions that said that it’s impossible to find a clear and straightforward link between climate change and the wind speed. In fact, not 10 years ago, but one year ago, in the first four months of 2024, wind was exceptionally good. The other way, I hope to have answered your question. That’s all good. Thank you. Thank you.

Conference Call Operator: The next question is from Davide Candela of Intesa Sanpaolo.

Paolo Merli, CEO, ERG: Hi, good afternoon everyone. Thanks for the presentation and for taking my question. The first one is a follow-up on the answer you gave on the demand side and on electrification. I was wondering if you can broaden your answer, sharing your view about what is preventing electrification in your view to build up. Actually, is it the fact that the prices are high, so they are preventing more consumption, or is there energy efficiency that is going the opposite way? Just your view on that will be helpful. Second question, with regards to M&A, it looks like to me that the market is enhanced a little bit, or at least the wind in between the buy and the sell side have approached, so that the parties have approached. Are you seeing that sort of evolution in the market?

If that’s so, are you willing or considering some little opportunities in Europe, just for that one update to build up growth? Thank you. Okay, about the electrification of consumption, the streams the electrification should come from are the heating and cooling, air conditioning, true pump heat pumps instead of gas boilers, so a switch that would allow a switch from gas to electricity, electric vehicles, and data center, that it’s the only stream that is going well, green hydrogen produced. Green means that hydrogen is produced through an electrolysis process supplied by green energy, renewable energy. All these streams are not growing at the speed needed to support the electrification of consumption as initially expected by the European Commission. Now, the European Commission has allocated €100 billion to sustain the electrification of consumption. You ask for my view.

My view is it’s not enough because €100 billion for 27 countries that are part of the union in the end is peanuts. Let me use this term compared to the €700 billion they want to invest in military services or the €300 billion Ursula von der Leyen committed to Mr. Trump for buying gas from the U.S. I think we must do more. I’m sure that sooner or later it will happen because if not, the industry will slow down very, very significantly and the market will become more a bias market. To come to your last questions, yes, the M&A will become easier than it is now. For the time being, the market, the private market, the secondary market is still tight.

Supply and demand are not matching in the sense that the expectation of supply sellers are still very high, while the buyers are a little bit more cautious in allocating certain value. The M&A transactions, I’m not saying it’s not my opinion. There are public data showing these are quite slowing down quite considerably. This could be an opportunity for us, that we have a strong balance sheet. Sooner or later, we keep scouting the market, and even in these days we have submitted several non-binding offers to see if there are good opportunity for us. Let’s see. M&A for sure has always been a successful tool through which company created value, and we still believe it’s the case. Thank you. You’re welcome.

Conference Call Operator: The next question is from Francesco Sala of Banca Akros.

Yes, good afternoon. Thank you for the presentation and for taking my questions. What have you seen in the last few weeks or months in terms of wind turbines and solar panel costs, and more in general construction cost? Secondly, I wonder whether you have seen in particular some disruptions or bottlenecks from China, also in the light of the Chinese government push to reduce capacity. Thank you.

Paolo Merli, CEO, ERG: Maybe I let Michele to elaborate more because he’s in charge of procurement for the group. I’m happy to say that over the last months we are seeing for the first time a change in direction in the CapEx trend for wind. European OEMs are becoming more aggressive now because they want to place orders and they want to prevent Chinese competition to prevail on the market. They want to avoid what already happened in the solar field. For both technology, but for solar it was more expected. We are seeing a downward trend in the CapEx line. I mean the CapEx per megawatt, to be more precise on that.

Michele, CFO, ERG: Yeah. In addition, I would add that we don’t see any particular disruption on the supply, in particular for wind. That is our, you know, our core technology. Regarding wind technology, you know that we are always counting also alternative to traditional western suppliers. We are open, we consider also alternative supplier. The key point is that we look at this opportunity from an industrial standpoint. We don’t value just the capex cost at the beginning, but also the production in the long term, the efficiency of the wind turbine in the long term. We put all the elements in our evaluation and on a case by case, we try to find the right technology for each specific wind project because every wind project is different to another in terms of characteristics of the sites, characteristics of the wind, permitting constraints and so on.

We consider all the technologies and as said by Paolo, we are seeing some improvement in the scenario in the last month because the competition is increasing in the market and from our standpoint this is a positive element.

Thank you.

Conference Call Operator: Gentlemen, at this time there are no more questions registered.

Paolo Merli, CEO, ERG: Thank you all for listening and I wish you a super summer and see you in October or November. November.

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

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