Earnings call transcript: Iberdrola Q3 2025 profit jumps 17%, raises guidance

Iberdrola SA reported a robust third quarter for 2025, with a 17% increase in net profit year-over-year to €5,307 million. The company also raised its adjusted net profit guidance for the year to €6.6 billion. The stock responded positively, with a 1.64% increase, reflecting investor confidence in the company’s strategic direction and financial health. According to InvestingPro data, the stock is trading near its 52-week high with an impressive 31.91% year-to-date return, though current valuations suggest the stock is slightly overvalued based on Fair Value analysis.

Key Takeaways

• Net profit surged 17% year-over-year, reaching €5,307 million.
• Adjusted net profit guidance for 2025 increased to €6.6 billion.
• Iberdrola’s stock rose by 1.64% following the earnings announcement.
• Installed 2,000 MW of new capacity in the past year, with 5,500 MW under construction.
• Record investments of €9 billion in the first nine months of 2025.

Company Performance

Iberdrola’s performance in Q3 2025 highlights its strong position in the energy sector, driven by significant investments in renewable energy and network expansions. The company installed 2,000 MW of new capacity in the last twelve months and has 5,500 MW under construction. This expansion is part of a broader strategy to meet increasing energy demands, particularly in the US and UK, which together account for 43% of the company’s total EBITDA of $18 billion. InvestingPro analysis shows the company maintains a ’GOOD’ overall financial health score, with particularly strong marks in profit and price momentum metrics. Get access to 8 more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

Financial Highlights

• Revenue: Increased by 2.3% year-over-year.
• EBITDA: €8.2 billion, a 6% increase excluding capital gains.
• Net debt: Reduced to €48.5 billion, down €3.2 billion from the end of 2024.

Outlook & Guidance

Iberdrola has revised its adjusted net profit guidance for 2025 upwards to €6.6 billion, reflecting its strong financial performance and strategic investments. The company expects net debt to be around €51 billion by the end of the year and plans to continue focusing on network investments and renewable energy expansion. An interim dividend increase of 8.2% to €0.25 per share underscores the company’s commitment to returning value to shareholders.

Executive Commentary

"We expect double-digit growth on adjusted net profit to more than €6.2 billion," stated José Ignacio Sánchez Galán, Executive Chairman. He emphasized the increasing demand from data centers as a key growth driver. Galán also reaffirmed the safety and necessity of maintaining nuclear power plants, highlighting their role in the company’s energy strategy.

Risks and Challenges

• Rising electricity prices in key markets could affect consumer demand.
• Regulatory changes in the energy sector might impact operational costs.
• Geopolitical tensions could disrupt supply chains and project timelines.
• The transition to renewable energy requires significant capital expenditure.
• Competition in the renewable sector is intensifying, potentially impacting market share.

Q&A

During the earnings call, analysts inquired about Iberdrola’s strategy in the US market, particularly in light of rising electricity prices. The company also addressed its approach to upcoming UK offshore wind auctions and provided updates on Spain’s energy system and nuclear plant operations. Additionally, Iberdrola clarified its strategy for managing ancillary service costs.

Iberdrola’s strong quarterly performance and strategic focus on renewable energy and network expansions position it well for future growth, as reflected in its increased profit guidance and positive stock market reaction.

Full transcript - Iberdrola SA (IBE) Q3 2025:

Moderator/Investor Relations, Iberdrola: Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2025 nine-month results presentation. As usual, we will follow the traditional format given in our events. We are going to begin with an overview of the results and the main developments during the period. Everything given by the top executive team that is today with us: Mr. José Ignacio Sánchez Galán, Executive Chairman; Mr. Pedro Azagra, CEO; and finally, Mr. José Sainz Armada, CFO. Following this, we’ll move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web. Please ask your question only through our webpage, www.iberdrola.com. Finally, we expect that our event will not last more than 60 minutes.

If any questions remain unanswered, we at IR team are, as always, fully at your disposal. Hoping that this presentation will be useful and informative for all of you. Now, without further ado, I would like to give the floor to Mr. Galán. Thank you very much, again. Please, Mr. Galán.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: Good morning, everyone, and thank you very much for joining today’s conference call. In the first nine months of 2025, our reported net profit reached €5,307 million, leading up to a 17% increase in adjusted net profit, including capital gains from asset rotation. Excluding capital gains from asset rotation, this growth was driven by robust operating performance. We reported EBITDA reaching €3,538 million, mainly in our network business, where EBITDA rose by 26% thanks to a higher rate base driven by investment and improved regulatory frameworks. EBITDA for renewables and customers was impacted by lower market price and higher ancillary service costs in Iberia due to changes in the system operation after the blackout, which we are gradually passing through, partially offset by the contribution from additional renewable capacity. Investment reached a new record of €9 billion in just nine months, reflecting the execution of our plan.

Network investment increased by 12% for a total regulated asset value of close to €50 billion. We have added 2,000 MW of new capacity in the last 12 months. Driven by additional investment, operating cash flow increased by 10% to €9,752 million, which combines with €8 billion of new asset rotation and partnership and the capital increase of last July, allowing us to reduce the constraint in the debt by €3.2 billion to €48.5 billion, substantially improving our ratios in line with our BBB+ rating. The strong operating performance and the ongoing improvement in our financial position have led us to increase interim shareholder remuneration by 8.2% to €0.25 per share.

Reported EBITDA reached €12,438 million, driven by a strong performance of our network business, up 26% in the first nine months, supported by higher regulated asset value in all countries, especially the United Kingdom and Brazil, and positive rate adjustment, mainly in the United States and Brazil as well. As mentioned, EBITDA in renewable power and customers was affected by the one-off impact in the changes of system operation applied by Rutherford Electric in recent months, as more synchronous generation has been introduced, which is impacting our retail business in the short term until these costs are passed through. In addition, we saw a lower market price and a lower contribution from Mexico after the last year transaction. All these impacts were partially offset by additional renewable capacity. Networks is once again the main contributor of our EBITDA, driven by the continued growth in our U.S.

and U.K., which increased their combined share by 12 points, reaching 43% of the total EBITDA, reflecting the 13% increase in investment made in both countries, which together represents 60% of the group total as of September. As a result, total investment reached a new record of €9 billion, up 4% year on year. By business scenario, 60% of investments were allocated to networks, where we invested €4,904 million, with a 12% increase year on year. Networks investment increased by 45% in the United Kingdom to €1,524 million, driven by the integration of EMW and an 18% increase in investment in the Scottish Power Transmission and Distribution. Investment in the United States reached €1,739 million, in line with last year, as the 9% increase in distribution was offset by the increase in transmission investment due to the gradual completion of NCEC.

Additionally, we invested €1,215 million in Brazil, up 14%, and €426 million in distribution in Spain, 60% more than last year. As a result, our regulated asset base grew by 12% year on year to €49.3 billion. Investment in renewables reached €3,442 million, well-diversified across geographies and technologies. 60% was allocated to the United Kingdom and the United States, with U.K. investment increasing by more than 45%, mainly linked to our offshore wind farms currently under construction. In East Anglia III, with 1,400 MW of capacity, and in East Anglia II with 900 MW. Our offshore wind farms under construction in other countries are also making good progress, with more than 50% of Vineyard Wind 1’s 806 MW already in operation in the United States, and the 315 MW of the Baltic Eagle wind farm in the German Baltic Sea advancing as scheduled.

Investment in onshore renewables reached €1,104 million, with 62% in onshore wind. We invested more than €300 million in storage, including both pumped hydro in Iberia and batteries, mainly in Australia. Moving to networks business performance, regulatory frameworks continued to evolve positively across key geographies. In the United Kingdom, the RIIO-ED3 methodology for distribution was published, representing the first step in a process that will lead to a new framework by April 2028. In transmission, the RIIO-T3 draft determination was released, as you know, and we have expected final determination before the year end. In the United States, current rate cases have resulted in a 10% average increase in tariffs in New York and Maine compared to last year. Avangrid is already in the process of new rate cases in both states that will be effective for May 2026.

As mentioned, NECEC, our interconnection project between Canada and Massachusetts, is on track to reach full commercial operation before the year end. We are already working on new projects that will continue delivering growth in transmission, mainly the port in New York, which will result in €1,750 million of investment in the coming years. In Brazil, following the annual update in Neoenergia Brasília, rates have increased an average of 8% compared with last year. The renewal of distribution concessions continues to progress. The concession in Neoenergia Pernambuco was redesigned, and we expect the other distribution companies to follow in the coming months. In transmission, Neoenergia is on track to complete the last four lots under construction by December 2025, increasing the annual remuneration in this business by R$600 million to more than R$2 billion per annum.

Finally, in Spain, the process of the review of the remuneration methodology and the rate of return continues. Moving to renewables, in the last 12 months, we have installed over 2,000 megawatts with significant progress in offshore wind. In the United Kingdom, production of our offshore wind farms in operation west of East Anglia and in East Anglia Grande exceeds 2,400 gigawatt-hours in the first nine months of 2025. We continue progressing the construction in East Anglia III with 20 monopiles already installed, and in East Anglia II, where preliminary works are underway after having signed all major procurement contracts. On top of this, our East Anglia One North project with 900 megawatts was qualified for the upcoming IR7 auction scheduled by mid-November. In the United States, the construction of Vineyard Wind 1 is now above 50% completion, with 32 turbines fully installed and more than 200 gigawatt-hours produced.

Finally, in France, a Brittany project produced 1,150 gigawatt-hours during this period. The output of our offshore wind farm in operation in the German Baltic Sea reached 1,594 gigawatt-hours as well. As mentioned, in Germany, we have another project under construction, Baltic Eagle, which is moving ahead as planned for commercial operation in 2026. Over the last 12 months, we have also installed 1,350 megawatts of onshore technologies well spread across our geographies, one-third in the United States and United Kingdom, including 200 megawatts of repowering projects, around one-third in Spain, and the remaining third in other European countries and Australia. Finally, in storage, we continue progressing with our pump hydro project under construction in Iberia, including Torrejón Valdecañas, with 15 gigawatt-hours capacity. In Australia, the Smithfield Battery project is already in operation. The Broad Sound project is progressing as planned for the total of 490 megawatt-hours of storage capacity.

All in all, we have currently close to 5,500 megawatts under construction, of which more than half correspond to offshore wind projects and 25% to onshore wind. We are very well positioned to capture additional growth if demand accelerates due to the electrification, thanks to a strong pipeline of 4.5 gigawatts of advanced projects ready to start construction by 2028, including repowering projects mainly in the United States. Through September, we have also continued improving our financial strength, thanks to a 10% increase in our operating cash flow to €9,752 million, driven by higher cash generation in net worth and the execution as well of our asset rotation and partnership plan. Since January, we have signed a transaction worth €8 billion, with a positive impact of €4.5 billion in our net debt as of September.

On asset rotation, as you know, we have already received close to €1.1 billion from the sale of our smart meters business in the United Kingdom. We have signed other transactions, like the sale of our renewable business in Hungary, which will allow us to collect €128 million before the year end. The regulatory approval required for the sale of our Mexican business continues on track. Regarding partnership, we have added 708 megawatts to our joint venture with Northwest Bank for renewables in Iberia, reaching 900 megawatts in operation, fully on track to reach 2,300 by 2027, with a total co-investment of €2.4 billion. Our partnership with Kansai in the Baltic Eagle offshore wind farm in Germany will represent a total co-investment of €1.3 billion. Our partnership with Masdar for offshore wind in the United Kingdom and Germany, which will result in co-investment of €6.8 billion, is also progressing well.

With the construction of East Anglia III moving forward in line with our plan as explained, and the Baltic region in Germany already energized, increasing cash generation and the execution of our asset rotation and partnership plan, together with the capital increase executed last July, have led to a reduction of €3.2 billion in adjusted net debt year to date to €48.5 billion, driving even better, stronger financial ratios fully aligned with our BBB+ credit rating. FFO to adjusted net debt increased by 330 basis points to 26.2%, and net debt is already less than three times EBITDA. We also maintain a strong liquidity position of €23 billion, sufficient to cover 25 months of financial needs. Thanks to our strong business performance and improving financial strength, the board has approved an 8.2% increase in interim dividend to €0.25 per share, which will be paid at the beginning of this year.

As always, a supplementary dividend will be proposed for approval at the annual shareholders’ meeting to pay in July. I will now hand it over to our CFO, who will present the group financial result in further detail. Thank you.

José Sainz Armada, CFO, Iberdrola: Thank you, Chairman. Good morning to everybody. Our adjusted net income for the first nine months of the year, excluding the sale of the UK smart meters, accounted for in this quarter, which is the capital gain, is €381 million gross, and the same number net as we don’t have a tax impact here. Including the cap allowance in 2025, which is €191 million, reached €5,116 million, representing a 16.6% increase compared to the adjusted net income for the first nine months of 2024, excluding the divestment of the thermal generation assets, which impacted the net profit, was €1,165 million net, and including the UK cap allowance for 2024, which is €81 million, as you can see in the slide. Excluding also the recognition of costs in the U.S. for €389 million, as it is an on-cast item, the first nine months of 2025 growth is 8%, reaching €4,727 million.

The main perimeter change, as you know, is that EMW has been fully consolidated since March. The FX evolution has had a minor effect on results thanks to our hedging policy, with the dollar 2.5% lower and the real 10% lower. Reported net profit for the first nine months of 2025 reached €5,307 million, decreasing by 3% year on year, affected by the asset rotation that I have just mentioned, that has been €784 million less in 2025 than in 2024. Revenues increased by 2.3%, driven by the network business. Procurements grossed 2.6%, and gross margin grew 2%, reaching €18.4 billion. Excluding the capital gains from the asset rotation, as I mentioned previously, which is referring to the smart meter divestment and the thermal generation assets, nine months net operating expenses improved 7%, affected by lower storm costs that also lower the gross margin.

Net personnel expenses rose 0.4% due to a higher number of employees. External services declined 6.1%, mainly due to the €330 million lower storm costs. Other operating income increased by 21% compared to the adjusted nine months of 2024 due to the indemnities of past year costs, the EMW consolidation partially offset by €121 million negative impact of the East Anglia III sale, €4 million more than in the first half results due to a negative impact accounted in Q3. As you will see later, this impact is more than offset at the financial expenses level. Excluding the mentioned storm-related impacts and other adjustments, net operating expenses improved by 0.8%. Analyzing the results of the different businesses and starting by networks, its EBITDA grew 26% to €6,128 million, mainly driven by the strong performance of the UK and the U.S., linked to a higher asset base and past cost recognition.

In the U.S., EBITDA reached $2,046 million, 88% more, with a 10% average higher rates in distribution and a better contribution from transmission. Positively affected since the first quarter by the decision of the New York regulator that allowed to register a regulatory asset under IFRS regarding past costs, which have already been accrued and recorded under the U.S. GAAP, aligning both standards. It is worth highlighting, as the Chairman has mentioned, that NECEC finally is expected to start contributing from November of this year. In the UK, EBITDA increased 22.5%, reaching £1,129 million, including seven months positive EMW contribution of £253 million, with growing results for transmissions driven by a higher RAB. In Brazil, EBITDA was up 12.6% to R$10,000 million, thanks to the higher revenues in distribution linked to higher inflation and an average 8% increase in rate reviews over a higher asset base.

In addition, transmission contributed positively with R$1.3 billion gross margin as construction progresses. As the Chairman has said, it is expected to finalize all the construction of the transmission lines this quarter and will contribute R$2 billion in 2026, already fully completed. In Spain, EBITDA increased by 9.3%, reaching €1,340 million, positively affected by the CNC draft retribution rate of 6.46% versus the previous 5.58% and by positive adjustments to past year’s remuneration. In these first nine months, energy production and customer business EBITDA reached €5.9 billion versus the €6.7 billion in last year, excluding capital gains from asset rotation. The business reached 86% emission-free generation. In Iberia, EBITDA was €3,052 million, 17.5% down, with higher production more than compensated by lower margin and sales, explaining 30% of the year-on-year variation.

Higher ancillary services, higher levies, and positive court rulings in 2024, despite 1.2% revenue tax termination, explain the remaining 70% of the decrease. Hydro reserves remain above the 10-year average. In the U.S., EBITDA remained flat, reaching $813 million, supported by improved wind and solar performance, despite the fact that 2024 was positively impacted by an Arctic blast storm one-off of $34 million. In the U.K., EBITDA grew 5.3% to £1,136 million, driven by the £324 million capital gain from the U.K. smart meters divestment in this quarter. Excluding them, the business decreased 24.8%, with lower wind resource and prices and weaker supply business, also driven by lower prices and volumes. Net operating expenses included a £103 million negative one-off impact linked to the East Anglia III sale, more than compensated at the net financial result, as I have mentioned.

In the rest of the world, EBITDA grew 31.5% to €588 million, with 61% higher offshore production due to higher contribution from wind farms, such as Saint-Brieuc in France and Baltic Eagle in Germany, with lower supply results due to the €30 million negative impact in Portugal due to the ancillary service costs, as in Spain, as a consequence of the blackout. In Brazil, EBITDA fell 23.6% to R$947 million, with lower renewable and thermal production compared to last year. Finally, in Mexico, EBITDA reached $467 million, decreasing 78.5%, with lower reported contribution compared to last year that included the thermal asset capital gain. Depreciation and amortization and provisions were up 2% to €4,272 million, driven by higher asset base, despite the full year 2024 adjustments impact and lower bad debt provisions, mainly in Spain. EBITDA reached €8.2 billion and grew 6%, excluding capital gains.

Net financial results worsened €93 million to €1,445 million, driven by €298 million higher debt-related costs due to €7 billion higher average net debt in the first nine months of the year, while interest rate-related costs and FX improved by €85 million due to the FX depreciation, especially of the real. Derivatives had a positive contribution of €244 million due to the East Anglia III derivatives, as I mentioned, compensating the lower net operating expenses. The rest has had a negative impact, mainly due to the Mexico hedges, mainly linked to the positive impact of the Mexico transaction last year, compensated at the net profit level in the tax line. Cost of the debt improved 12 basis points, mainly thanks to lower short-term interest rates in euros and British pounds, and to the depreciation, especially of the real, despite higher interest rates in Brazil.

At the end of September, net debt is €3.2 billion lower than the €51.7 billion reported in 2024 year-end, reaching €48.5 billion. This positive evolution was driven by €9.8 billion FFO generation, plus €4.5 billion asset rotation and debt consolidation, and the €5 billion capital increase, more than covering the €9 billion CapEx and the €4.1 billion dividend, as well as €2.2 billion EMW net debt consolidation. As a consequence, our credit ratios are at a very strong level in the BBB+ band. Our adjusted net debt to EBITDA is below three times. The FFO adjusted net debt reached 26.2%, and our adjusted leverage ratio is 43.3%, two percentage points lower than at the end of 2024. Nine months, 2025 adjusted net profit grew 17% to €5,116 million, taking away also U.S. cost recognition, which is an on-cast item. As I commented, the growth is 8%.

Now the Chairman will conclude the presentation. Thank you.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: Thank you, Pepe. These results reflect the foundation of the plan presented a few weeks ago, a transformational plan based on a specific project capable of delivering double-digit growth in profit in the first nine months of the year, thanks to the rising net worth investment up to 12% through September, with a tighter regulatory framework that is driving increases in tariffs of 10% in the U.S. and 8% in Brazil, as well as the expansion of our generation capacity of 2,000 MW just in the last 12 months, with 5,500 more under construction and 8,500 of additional pipelines ready to cover any potential acceleration of demand growth.

The implementation of our plan also reinforces our strong financial position, fully compatible with our BBB+ rating, supported by a 10% increase in operating cash flow in our asset rotation and partnership plan, and is also delivering a growth shareholders’ return with an interim dividend of 8.2% to €0.25 per share. Driven by this consistent trend of improvement results and financial performance, today we are improving our guidance for 2025 to a double-digit growth in adjusted net profit, reaching €6.6 billion or more, the €6.2 billion even excluding €389 million of net worth core recognition in the U.S. This net profit guidance is already €1 billion above the net profit target set for 2026 in our previous plan, proving once again that our strategy focused on net worth in every country with attractive remuneration forwards and selective growth in renewables is allowing us to grow and beat our estimate constantly.

You can be sure that we will continue working toward that objective. Thank you very much for your attention. Now we can begin with the Q&A session. Thank you.

Moderator/Investor Relations, Iberdrola: The following financial professionals have asked the following question to us: Filippo Patián, Odo, Fernando Lafuente Alandra, Mike Becker, HSBC, Manuel Palomo, BNP Paribas, Pedro Alves, CaixaBank, Gonzalo Sánchez Bordona, UBS, Robert Pulen, Morgan Stanley, Fernando García, Royal Bank of Canada, Peter Viztiga, Bank of America, Pablo Cuadrado, JB Capital Markets, Jorge Alonso, Bernstein Société Générale, Javier Suárez, Mediobanca, Dominic Nash, Barclays, Javier Garrido, JP Morgan, and finally, James Brand, Deutsche Bank. The first one is, can you provide more details on the main factors driving the expected double-digit growth in net profit for 2025 and clarify how the exclusion of capital gains from asset rotations and the inclusion of cap allowances in the UK impact this guidance?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: As I mentioned, we expect double-digit growth on adjusted net profit to more than €6.2 billion, even excluding past cost recognition in New York, which is €389 million. Altogether, close to €6.6 billion. Pepe, I don’t know if you would like to clarify more details.

José Sainz Armada, CFO, Iberdrola: Thank you, Chairman. As I commented, these numbers exclude specifically the capital gains from basically in Mexico, with an impact of €1,165 million, and the smart meters in the UK with €381 million, both at the net profit level. It includes, as we presented in the Capital Markets Day, the cap allowances in the UK. As you can see in the slide, €190 million for 2025 and €81 million in 2024. Obviously, for the end of the year, that will add a little bit more.

Moderator/Investor Relations, Iberdrola: OK. Second question is, can you please provide guidance for net debt at 12 months 2025?

José Sainz Armada, CFO, Iberdrola: Yes, we are expecting the net debt by the year-end to be around €51 billion. This is excluding the potential collection of the Mexico divestment. We are not including that in this guidance, but we are including the acquisition of the pre-built sale of the NEOSTEC in this €51 billion guidance. This will be, even with all these things, below the 2024 close of over €51 billion at the end of 2024.

Moderator/Investor Relations, Iberdrola: Next is regarding the use of capital gains. How will the capital gains from recent asset transactions be used in the future?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: Capital gain, as you know, from asset transaction will be applied, as always, to future efficiencies, yes, to improve the future results.

Moderator/Investor Relations, Iberdrola: Next is regarding the battery storage, our view of this success or this upcoming business for the sector.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think now you talk about batteries. We will start talking about storage 25 years ago. I think, as you remember, my first presentation, we were talking about renewables, we were talking about net worth, and we were talking about storage. I think we’ve been making renewables, we have been making net worth, and we have been making storage. I think what we’ve been doing in storage during these 25 years is we’ve been upgrading our hydroelectric facilities, making most of our turbines reversible to become all those one bi-directional, making already pumping a storage plant. We have, in this moment, a capacity of 120,000 megawatt-hours of capacity. I think it’s a huge capacity we have already in storage. Also, we are investing in batteries, especially where we don’t have hydro facilities in our or we have no project. I think the main places are Australia.

They have attracted spread of a support mechanism. I think we have, in this moment, there are more than 550 megawatts under construction. As well, we have another country. I think we have 200 megawatts in construction in Spain and the UK. We have already more than 1,000 megawatts of projects in our pipeline that will be built up depending on the capacity payment of grants that can be provided.

Moderator/Investor Relations, Iberdrola: Next question is regarding the data center. What is the company’s strategy regarding the growing demand from data centers, and what recent agreements have been signed with technological companies to supply energy?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: As you know, data centers will be an important driver of demand growth. I think that is not new for us. We have already, for many years, been signing PPAs with tech companies. At this moment, we have more than 12 terawatt-hours a year so far of contracts of PPAs already signed with tech companies, mainly in the United States. I think because we consider that is an important driver of demand growth, it is why we are facilitating the expansion of data centers in those countries where it already means for helping the technical companies to invest and to expand. I think in this particular moment, we have an agreement in Spain with Echelon. The first project, which is going to make energy demand in more than 1 terawatt-hour a year, is already ongoing. We have another four projects progressing.

We are active on those ones because we consider that is a driver for increase of the electricity demands. That’s why we would like to help these companies to do the necessary for making that happen.

Moderator/Investor Relations, Iberdrola: Next one is regarding the market situation of the United States. Given the recent increase in demand from data centers and industry, and the rising energy prices in certain U.S. states, is the company considering increasing its renewable ambition on our pipeline? The second question regarding this is, how will these market trends impact your PPA strategy and asset development plans?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think you will respond, Pedro, but just to give you, it’s true that in this moment, the United States, the prices are rising. Our expectation is the prices will rise even more. The fact that new CCGTs are built, these new CCGTs built is going to make the prices increase because there are already new power plants that have to be already amortized toward those ones which are already fully amortized. I think those ones are pushing the prices up independent of the cost of the gas. I think that is a good opportunity for us. It’s a good opportunity because we have almost 40%, 30% of our fleet is in merchant. The contract we have already with a long-term PPA signed is already, let’s say, ending during a certain period.

I think that makes the renovation of this contract probably that is going to increase the prices we are already making that. All in all, that is certainly a great opportunity of increase of value for our renewable assets in the United States. That is why the United States is there a tremendous, let’s say, demand of buying existing renewable assets in operation. I think, Pedro, you can already complete these comments. You agree?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: OK. Thank you, Chairman. I think a couple of examples take us on Oregon, where the prices are already rising. We operate already 3,400 megawatts in those states. In the short term, this benefits our merchant assets. It will be translated, as the Chairman said, to the PPAs. For example, in those states, we have more than 4,000 megawatts of potential pipeline to come. In the U.S., overall, we have 10,000 megawatts right now in operation. 30% of that is merchant and 70% is PPAs. The average PPA life is 10.7 years. I think there is an opportunity for life extension and repowering. Around 360 megawatts under construction in the U.S., 432 globally, and more than 800 megawatts of additional pipeline, 1,500 globally. I think this is good signs of what we can do right now to benefit from the demand increase.

Moderator/Investor Relations, Iberdrola: Next is related to Spain. Can you provide an update on the blackout investigation and the causes that triggered the event?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think during the last weeks, it has already had a lot of public reports, a lot of investigation, even in the Senate and the different conference. I think this public report said clearly that this was a result of lack of synchronous energy to provide inertia in the system. They say also that as more renewables enter into the system, supply becomes also variable. I think that requires more synchronous energy. The fact now the system operator has changed operation and is operating with more synchronous energy. I think what is said in the public report and the public information is precisely what now the system operator is already doing.

Certainly, that has an effect that is increasing the cost of ancillary services, which in our case, we have most of our sales under multi-annual contracts, is affecting our results because we have not passed this extra cost for our customers on all those ones we have a multi-year contract. As Pepe mentioned, that in our case is close to €180 million affecting our accounts up to September.

Moderator/Investor Relations, Iberdrola: Next is related to Spain as well. What is needed to extend the operation of the Almaraz nuclear plant? Is the 50% reduction in the Extremadura eco-tasa sufficient to ensure its continued operations?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: You were listening to me for a long time. The nuclear power plants are safe and are needed. I think they are needed more than ever in this moment for avoiding potential blackouts or potential problems in the service. Also, these power plants that you are talking about, they have a national and international license, which I think allows them to operate at least up to 2030 without being forced to ask for any additional national or international license of operation. There’s something very, very important. It’s a social, national, social demand in the country to maintain them operating. I think every week there are demonstrations. There are people writing of different tendencies, different ideas, different political parties. The civil society are asking to maintain them operating.

For the reasons because of this social responsibility and because the need of this power for keeping the lights on in the country and providing a safe, cheap service is why we three, the owners of the power plant, have asked the government the continuity of the Almaraz power plant. That means in this moment it only depends on the decision of the central government the continuity of those power plants. There are not any other limitations. Technically, they are allowed to operate. Socially, it’s a demand. Economically, it’s the best solution. In terms of the operation of the system, it’s needed for keeping already the service operative. I think the energy policies made by the government, the government has to take the decision. They will explain the consequences, whatever decision they will take about.

Moderator/Investor Relations, Iberdrola: Another trendy topic in Spain. Can you provide an update on the latest developments regarding the regulatory framework for net worth in Spain, and how would the remuneration rate below 7% affect your investment plans?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: You are talking about net debt?

Moderator/Investor Relations, Iberdrola: Net debt, Spain.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: Yeah. I think that, and you know, net worth in Spain for us is quite small compared with the net worth you have in other countries. I think it’s the fourth in terms, as you saw in our presentation, it’s the fourth of all our RAP in the different countries. The first one, the largest RAP is in the United States. The second largest RAP is in the United Kingdom. The third largest RAP is in Brazil. The fourth is Spain. I think it’s small compared with the rest. Saying that, as far as I know, the still that is in process, they are not new news. What I had already heard is they are already making a public consult about the terms that have been proposed. We have no more details on that one.

I think something which is clear is either the government and the central government, either the different governments of the region are asking for the need of more and more investment in net worth. I think if that is not the proper framework, I doubt that this extraordinary investment which is needed is going to be made as fast as it will require.

Moderator/Investor Relations, Iberdrola: Next, how are the increasing costs of ancillary services being managed? To what extent are these costs being passed through to the customer as contracts are renewed?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think as of September, yes, we have a negative impact because of our multi-year contracts. Of course, these costs are being passed through as contracts are renewed. We expect by 2026, 70% of these already through customers and almost 90% by 2027.

Moderator/Investor Relations, Iberdrola: Next is regarding the UK. What is the company’s perspective on the current regulatory environment in the UK, particularly regarding the RIIO-T3 framework?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think we have very fluent dialogue with the regulator. I think recently I met personally the Chair of Ofgem. I think they are aware about the need of sufficient profitability, remuneration, and financiability to attract investment needed. I think it’s certain they make already a draft determination, which is the base of our rate case plan. I think our business plan is already based in this draft determination. I’m sure that the sensibility of Ofgem is such that I hope that it’s a potential improvement during the negotiation to make certain upside. We will know the final determination by December. I think now we are in the process of that one. I think we are in very open dialogue with the regulator, ourselves and another two players on this one.

My feeling is that they are already very sensible about the need of making already some adjustments to facilitate to make the huge investments which are needed.

Moderator/Investor Relations, Iberdrola: Next is, can you provide details and expectations on your strategy for the AR7 auction in the UK?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: As you know, we have already East Anglia One North ready to participate in that one. I think we have a competitive project. We have all the security, all the supply chain secured. I think we are very disciplined in terms of profitability criteria. Yesterday I heard the final budget has been published, which I think only $900 million allocated to offshore. I think there’s flexibility for the Secretary of Energy to increase this amount depending on the number of bidders. I think this number, if we might like it, is, in my feeling, my opinion, not sufficient to achieve the country’s objective in terms of power, in terms of decarbonization. There are no other changes in this AR7. They increase the life of the CFDs from 15 to 20 years.

I think they already make a reference price, which is 11% higher than the previous one, which I think gives sense. The budget, in my opinion, is absolutely insufficient. If the Secretary of Energy has already the power to modify the numbers after the auction, and that is not modified, my feeling is it should be difficult to achieve the targets that they are already thinking in terms of power, new power, and in terms of decarbonization when they are already looking. New power, in my opinion, they will not already achieve the numbers that we are thinking about.

Moderator/Investor Relations, Iberdrola: Next is, what is the current status of the Mexico operation? When do you expect regulatory approvals to be finalized?

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think in Mexico, you mentioned?

Moderator/Investor Relations, Iberdrola: Yeah, the deal in Mexico, the pending deal in Mexico.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: I think the agreement is signed. As far as I know, the buyer has already secured the financing, almost secured. I think now we are depending on the approvals of the different authorities. As far as I know, things are ongoing. I think this week our Mesonero, which is our M&A guy, is in Mexico. I think he will take fresh news already next week. I think we have not any negative inputs about that one. I think they are going according with schedule.

Moderator/Investor Relations, Iberdrola: Two last questions. The first one is probably for Pepe. Effective tax rate is below historical average. Should we expect this effective tax rate to be kept at a similar level at the year-end?

José Sainz Armada, CFO, Iberdrola: I think that we will have an effective tax rate at the year-end to be around 20%. Let me explain that this is below, basically, for several reasons. First of all, because right now the contribution of countries which allow a lower tax rate is higher than in previous years. The UK and the U.S. versus Mexico and Brazil. An impact that is reducing the tax rate this year is, as I mentioned, the UK smart meters capital gain in the first nine months is at the gross and net. There is no tax impact here. Last year, the thermal capital gain was affected by the Mexican corporate tax rate. Finally, as I mentioned, last year we had a negative impact in the taxes due to hedges that we had and had a positive impact in our financial expenses. This year is the opposite.

We are having a negative impact due to the last year transaction, a negative impact in our financial expenses due to the Mexican FX hedges that is compensated at the net tax level. All in all, that is the explanation why this year, in the first nine months, the tax rate is below 20%. The expectation is that by the end of the year, the tax rate will be around this 20%, as I mentioned.

Moderator/Investor Relations, Iberdrola: The last question is related to Spain and the contribution of the hydro production in terawatt hours in 2025, which is our expectation related to the traditional average year.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: Just looking here at the numbers, up to today, our production of hydroelectric is around 18 terawatt hours, which is an increase of around 3% to 4% to our previous year. Approximately 2/3 is traditional, conventional, and 1/3 is pumping storage. I’d say pumping storage is taking an important role on this one. Now the reserves are in the range of 6 terawatt hours. It’s again starting raining, heavily. In a few days, we hope the need for reserves will increase. In terms of the year, it’s important, but it is 3% more. That is not the key of our result. As you know, our result is coming from other sources. Even in Spain, the result is not going as good as last year because of the prices and the ancillary service costs, et cetera. It’s good news in terms that our reserves are high.

Probably with these rains which are now coming and expected, the reserves can be already maintained, which should be a good thing for next year as well, contribution to the next year profits or next year results. That’s good. The news is 3%, 3% to 4% more than previous year. Pumping is 1/3, 2/3 is traditional. The reserves are in a good shape, very high. There is already room for increasing those ones if the rainfall is continuing as the rains at the expectation we have in this moment, with that gave already certain possible, let’s say, extra results for 2026.

Moderator/Investor Relations, Iberdrola: We have received as well a final question regarding the guidance for 2026. This is something that we will be delivering next February. We anticipate something on the Capital Markets Day. For those that have asked this question, in February it will be the deadline. Just to finish this event, please let me now give the floor to Mr. Galán to conclude the presentation.

José Ignacio Sánchez Galán, Executive Chairman, Iberdrola: Thank you very much, as always, for your very clever, intelligent, and very good questions. Thank you very much for participating in part of this conference. If there are any new questions that you consider, I think our Investor Relations will be ready, as always, to give you additional information you may require. Thank you very much. I think see you soon. Thank you.

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