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Edited Transcript of EDPR.EP earnings conference call or presentation 30-Oct-19 2:00pm GMT

Q3 2019 EDP Renovaveis SA Earnings Call

Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of EDP Renovaveis SA earnings conference call or presentation Wednesday, October 30, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* João Manuel Manso Neto

EDP Renováveis, S.A. - Executive Vice Chairman & CEO

* Rui Antunes

EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability

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Conference Call Participants

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* Alberto Gandolfi

Goldman Sachs Group Inc., Research Division - Head of European Utilities Research

* Javier Fernandez Garrido

JP Morgan Chase & Co, Research Division - Head of Utilities and Senior Analyst

* José Javier Ruiz Fernandez

Barclays Bank PLC, Research Division - Research Analyst

* Manuel Palomo

Exane BNP Paribas, Research Division - Analyst of Utilities

* Meike Alina Becker

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Mikel Zabala

BofA Merrill Lynch, Research Division - Associate

* Sara Piccinini

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello and welcome to the EDPR 9 Months 2019 Results Presentation. (Operator Instructions) I am now handing over to your host, Rui Antunes, to begin today's conference. Thank you.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [2]

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Thank you very much. Good afternoon, ladies and gentlemen. Welcome to EDPR 9 Months 2019 Results Presentation and to this conference call. I have here with me, Mr. Manso Neto, the CEO of the company, and we will do this as usual. I have some introduction, some highlights on the results, some execution of business plan, and then we'll be opened for the Q&A from your side. I'll hand over to Mr. Manso Neto for the first highlights of the period.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [3]

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Okay. Thank you very much. Ladies and gentlemen, it's a pleasure to be again with you for the third quarter results presentation. And the first idea that I would like to share with you is that I think it was a strong first quarter, which is normally a lower one, but this one was a very distinct quarter in the 3 pillars that we've been working on from one side in terms of the operational activity, it was a normal, I would say, it was a normal quarter.

The load factor was basically in line with what was expected. What we know until the end of the -- for the 9 months, we have 30% load factor still below the average because of the first quarter, but basically, as the second and the first quarters were normal in terms of revenues, notwithstanding the expected PTCs expiring of the ones which were done 10 years ago, there was a healthy 10% increase in revenues, which have to do, not only with the extra capacity, but also with the higher load factor and the price recovery, as you will see later on, basically, in U.S., Spain and mainly in this year.

All in all, in terms of costs, the cost -- the adjusted core OpEx per megawatt were kept flat, representing a policy -- the usual policy of cost control and efficiency even in the context of increased growth. Risk is kept at a very low level, with 96% of the revenues for '19 already fixed as with EUR 56 megawatt hour price, which is, as we call, 5% over what was sold last year. In terms of the growth, we are more than online in terms of the business plan. We have already built 344 this year, 1.1 giga in construction and what is new today is that we have already about 70% of the 7 giga or guarantees until 2022 which I would say, it's an achievement.

I recall that when we presented the business plan, we were below 50%. So in 4 months, we were able to build the portfolio overall of reaching 70%, keeping our profitable (inaudible). In terms of EBITDA and net profit, strong results. EBITDA had an increase of 40%, including in this number at EUR 226 million from the sell-downs already booked. However, even without that, we will have a healthy increase in EBITDA over double-digit net profit, increased 3x from EUR 115 million to EUR 342 million. Again, the sell-downs were important, but all in all, even excluding that, we will be over 20%. And we, I would say, it's really solid, but nevertheless, as we have been telling several times, that sell-downs are not one-offs. They are something which is core part of our business. So strong operational, strong growth, and we are -- in only less than 6 months, we are -- after announcing the business plan, we are [70%] on the objectives for 2022 and self-funding business, I would say that strong and already exceeded what we are not going to do anything more, EUR 1 billion of sell-downs year-to-date, and we don't expect anything more.

The debt was decreased slightly, notwithstanding the high CapEx because -- also because of the CapEx of the sell-downs but mainly because of the operating cash flow, cost of debt slightly increased from 4.4 -- from 3.9% to 4%, which is more than expected because we are increasing the weight of high currencies debt, namely (inaudible) and dollars when you compare with euros. So it's a very good result in terms of tax equity. The average cost is still decreasing, 6.7%.

And finally to operation. Operational cash flow, which is, let's say, the core of direct activity increased 8%, reaching 9 months at EUR 838 million. So strong results in all the 3 pillars. So Rui will drive now through the details, and I will return at the end. Rui, please.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [4]

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Thank you, João. We can turn to Page 7. This time, we will start with installed capacity of EDPR. So we built 344 megawatts since the beginning of the year, 200 megawatts in U.S., 145 megawatts in Europe, and we already have more than 1,000, so 1.1 gigawatts under construction. Until the end of the year, we should install a few more megawatts to reach a good level of build-out, and some of it is already for next year. And you can see on the right of these displays. So the 344 million plus vis-à-vis December, the sell-downs, we sold one big portfolio in Europe, the portfolio of almost 1,000 megawatts that was closed in July. And we sold as well, one of the projects that was included in the package announced later last year. So Prairie Queen, a project in the United States that we sold 80%. We concluded construction and we sold 80% of this project to the financial investor. And then we have also a wind farm on the rePowering, with the commission, 24 megawatts that will come online over the next few months, and then will reach the 10.8 gigawatts of capacity that we have as of September.

Moving to Slide 8. Here, we see the performance of the load factor and the wind resource. So load factor was more or less stable when we compare to last year, some small decimals of improvement when compared to last year. We are at 96% of the P50 even after an availability that was at 96.9%. But I think what is important here to see is the chart on the right, where you can see stability of the year. So yes, we had some negative quarters that started last year. Now we see things on the second quarter and third quarter, quite stable. We see the months -- the first months of the last quarter of the year also stable. And it's a year that is displaying towards the average of what we have been expecting in terms of load factor.

Page 9, jumping to electricity outputs. And so we produced 21.9 terawatt hours of electricity, 6% more than last year. Most of it due to the new capacity that was installed. Even despite that, yes, we did -- did consolidate since July, 1,000 megawatts of assets that were in operation, and that those 3 months, we no longer have those assets. But even with that, Europe increased the electricity output by 4%, U.S. another 4%. And in Brazil, where we aren't selling many projects over the next years, increased by 50% in the electricity output.

Moving to Page #10. In terms of average price -- average selling price, we reached EUR 56 per megawatt hour. So it's a plus 5% improvements when compared with last year. We have the dollar, the strengthening of the dollar, favoring this performance; but even without ForEx effect, this would have increased by 3%. We've seen several improvements in our regions. We have seen improvements in Spain, realized price better than the one that shipped last year. Some recovery in the rest of Europe. We have seen this -- we have been seeing this since the beginning of the year in every presentation that we have shown. So recovery in Romania and recovery in Poland. And this last one was big recovery on the green certificate prices. And we see also some improvements in the United States, not only with the new process we are installing, but also with an increase of direct sales that we are seeing in the market since the beginning of the year.

In Brazil, there was installed a new wind farm, and also we have the inflation-linked that favors the increasing year-on-year that you see of plus 6%.

Page 11. In terms of revenues. So total revenues of almost EUR 1.4 billion. It's an improvement of 10% when compared to double-digit improvement when compared with the 9 months of 2018. So the positives are a slight increase on the load factor, a new capacity that was installed in net terms on average throughout the period. That drives an increase on the electricity outputs that impacts positively our revenues. Also, we have a very good improvement in terms of selling price, plus 5%. We have the ForEx as I explained it, that gives out of this 10% gives us plus 3% in terms of performance. And then we have this discontinuity that we have in terms of PTC expiration. So the process in U.S. that completed last year, 10 years. In 2019, they are not receiving PTCs anymore, and that PTCs are for the first 10 years of the project. This is something that we saw in 2018. We are seeing, to a lesser extent, in 2019, 2020 basis is going to be very small, given that the process that we install in 2010 were with the cash. [10, 11 and 12].

Page 12. In terms of efficiency and costs. So costs, reported -- costs, total cost declined by 3%, and core OpEx also declined by 3%. Here, I believe that we need to be fair and compare apple with apples. We need to remove the change -- the accounting change of the IFRS 16 that removes some costs related to leases and rents to depreciation line and to the financial costs. So if we strip out those costs, total costs would have gone up by 5% and Core OpEx by 7%. In terms of the Core OpEx per average megawatt, which is our metric to follow our efficiency is a decline of 6%, but adjusted by IFRS 16 and adjusted by the ForEx. It's a flat when compared to last year. Of course, we have here 2 forces: one, we are building a very demanding business plan, and that requires some upfront efforts in terms of costs. But at the same time, we are having our name strategy, our cost control policies that enable this to be on the flat level when we compare with last year.

Page 13, in terms of EBITDA. So more than EUR 1.2 billion of EBITDA. We have very strong performance in revenues, have a good level of performance on costs, and we also have the impact of the strong execution in terms of our sell-down strategy. So sell-down, the 1,000 megawatts that we sold, net for us was half of that value, generated a capital gain of EUR 226 million, and that explains why the other income line, we see a big jump when we compare to last year. So good level of growth of plus 40% when we compare with EBITDA last year and to EUR 1.2 billion levels.

Moving to Page 14 and making the bridge of the EBITDA to net profit. So we see the same level of performance net profit, but instead of seeing the plus 40%, we multiply by 3, the net profit. So EUR 342 million of net profit. Even if we say that we can make -- we don't adjust but because this is our core business, but let's see behind this big capital gain, what would have been the net profit, I would say, as João already mentioned at the beginning, this would be a 20%-plus performance when compared with last year. So a good double-digit performance at bottom line. Without the big transaction, and with the big transaction is a very, very strong bottom line as already shown at the middle of the year with the first half results.

Page 15. In terms of cash generation, has been strong as well, is 8% better than last year in the retained cash flow metric. And when we consider the capital gains, if we add to the EUR 636 million of retained cash flow if we add the capital gain, which is a cash inflow for us on the sell-downs, all the cash that we generated plus this value creation that we did would sum up to EUR 862 million. I would say, for the first 9 months is a very good level of cash generation. On Page 16, you see the bridge from retained cash flow to net debt. So the retained cash flow was more than enough to cover all the cash investments -- net cash investments that we did in the period.

The dividends that we pay EDPR shareholders. There's a ForEx negative impact because we have a big amount of debt in dollars and because of the strengthening of the dollar. Nevertheless, there is a decline of $63 million, a net debt plus tax equity figures when you compare with December 2018. So I'd say have a very good balance sheet, that it's good enough for us to continue to execute our ambitious business plan for the next years. I'll now pass this to João Manso Neto for the next chapter.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [5]

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Thank you very much, Rui. So very strong results. So our objectives in terms of the business plan is to keep a strong growth -- profitable growth, and at the same time, keeping high levels of profitability and always keeping our self-funding policy. Based on this in Page 18, you see the evolution of EBITDA. So as you can see, with the EBITDA grew 40%, 4% has to do with things that we don't control or we already knew the PTCs, the U.S. dollar, evolution the IFRS. So things which are not within the business scope. But if we look at the business scope, we see a strong growth of the EBITDA of about 35%, and I would call beside the sell-down strategy, which is something that will continue as a core part of the performance has an increase of EUR 80 million.

So -- and this is not -- it's because it's more capacity because of cost control. It's also a very rigorous policy in terms of hedging and price and which benefit from the price recovery. Asset sell-downs is part of our core business as we have a race that we explained to the market. We had done 2 transactions this year. One is already closed, the second one should be closed in -- Brazilian one in the fourth quarter. This responds to proceeds of EUR 1.1 billion in capital gains just in the first one of EUR 226 million, and not the other one we'll see when we close the transaction. Nevertheless, this transaction besides the strengthening the balance sheet, besides enable an additional growth, besides capital gains, they are not done by this. They are done because they make sense. And they make sense because the yield, the profitability that investor is receiving is much lower than the profitability that we are going to invest in.

So with European portfolio normally means that we -- the yield for invested was about 4% to 5%, we are reinvesting at 7% to 11% in what concerns hedging in dollar and euro. In what concerns Brazilian, who are selling at low mid-10s and we are reinvesting in Brazil assets high level. So clearly, the asset sell-down strategy is a strategy which has basically economical rationale. We are improving value to the company and on top of that, it keeps -- enables us to have a stronger balance sheet and to have a smoother P&L. Growth. I would say that we want to be strong in the present, but the objective to being strong in the present is basically to be able also to create value and to grow in the future. When we present the business plan, we present the business plan of about 7 giga, which -- until 2022. It was -- we assume that it was ambitious. But from day 0, we said that it was perfectly realistic, keeping our profitability [for 8 years.] And what we see today is that we are already in [2.4], 70% already done.

And I would call your attention that in the second half of the year -- in the second quarter of the year -- meaning, in the first quarter of the year, basically we were able to have one from July to October, we were able to do PPAs of about 1.8 gigas which is really, I think, a proof of our ability to originate profitable assets. And you can see have here the full list. And what you can see one of the ideas that you can take from here is that it's a strong (inaudible) portfolio in terms of technology. Of course, wind is important. But you can see here, almost 300 megawatts also not more. You can see here more than 700 megawatts of solar.

And in terms of geographies. U.S. is really very important that besides U.S., we are strong in Brazil, several European countries, including Greece, and on the other hand, as U.S. published last week, we were successful in Colombia, which is a market in which with a 15-year fixed price adjusted by inflation, we were able to have scale in this country, where renewables -- new renewables have a strong potential.

With all of this, as you can see in the following page, we have 4.9% already guaranteed those 70% I referred to. And you can see this is rather smooth in terms of the year -- in the years and again, strongly despite in terms of technology and in terms of [countries]. More and more, we must be able to cope with the new trends in terms of where the demand is. And on the other side, having a strong balance between wind and solar is very important. On top of this, offshore is already there in the last year. As you know, we are building our first wind farm and so this new technology will be hand-to-hand in doing this.

So in summary, I would say that positive 9 months, either in terms of the operations and in terms of our ability to generate cash either operating cash flow and with accretive sell-downs, strong -- because of the strong EBITDA and net profit and with the level of execution of the business plan, which I believe it's higher than what most people expected. And so we are more and more confident that this business plan is going to be done in terms -- in the terms we had agreed and announced the market in May. So thank you very much for your attendance. I will be ready to answer any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our next question comes from the line of Alberto Gandolfi from Goldman Sachs.

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Alberto Gandolfi, Goldman Sachs Group Inc., Research Division - Head of European Utilities Research [2]

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I have 3 questions on my end, please. The first one has to with merchant solar in Iberia. And I was wondering if you see this as a potential opportunity to accelerate your CapEx plan? And if this might be contingent with the divestment of hydro of your parent company. So that probably would allow you to maybe lever up a little bit more. So I'm just trying to understand capital allocation? And related to this, I was wondering if you think that not owning a direct relationship with end customers could impair your ability to maximize returns in merchant solar.

So I'm trying to understand, you need to have an integrated margin like some of your competitors in the region or not? The second question is in terms of your plan, could you please remind me what are you assuming? Or in general, what are you seeing in U.S. wind and solar additions, particularly in light of the gradual phase-out of PTCs? And the last question is extremely topical, a little bit less probably by now, but yesterday morning very topical. Yesterday, (inaudible) has talked about new stochastic analysis -- statistical analysis for turbulence, blockages, wakes. And as slightly reduced by about 1 percentage point versus the mid-range, their expectations on offshore load factor. This morning, we heard (inaudible) downplaying a lot of these. I was wondering if you can have any comments if -- what's your level of confidence in terms of load factor expectations going forward, onshore, offshore? How do you deal with these issues?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [3]

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Okay, let's begin with the merchant activity in Iberia. Let's see. We can have all the opinions regarding the evolution of the merchant prices in Iberia. Because the average price will be very strongly dependent on the evolution of the fuels, namely of the gas prices. And you can have opinions for -- all kinds of opinions, and really in this moment is -- I think it's difficult. And it's arguable, if they go up or they go down. It depends a lot on that. And but so the best way to look at it, we can -- if you assume that the projections of international agencies are true, there should be a trend -- upward trend in terms of the average price, base load price in most of the economies, namely in Iberia. What -- and for that, let's see, we can have different opinions.

Where, as I have, I do believe that the situation is less obtainable, if you want, is in what concerns a discount that renewables may have in this market. Let's say, we are seeing very huge penetration of renewables in this market, and that represent, namely wind, namely solar, and that, of course, represents a discount. And that, as you know, (inaudible) are not very big in what concerns solar. So we think that the probability of having an important discount, namely in solar in Iberia is very material. Having said that, we think that the wisest way of developing our portfolio in Iberia is not through merchants, but basically through PPAs. And what we have been seeing is that there begins to -- long-term PPAs.

I'm not speaking about 2 to 3 years PPA because this is not a PPA. This is a normal thing that you can do in the forward market. So we begin to see some demand, mainly from multinationals which are prepared to buy long-term PPAs, and this is our target. So our growth in Iberia will be very strong based either on 15 years, CFDs, which may occur. In Spain, I don't know what's going to be the new [movement], but nevertheless there was a trend in terms of coming back again with reductions and also with the 15, 12, 15, 17 years, PPAs with corporate. And this is the way we think we should grow. In Iberia, we are developed, namely in terms of solar.

In terms of wind, you can say that base load long-term agreements can more or less protect ourselves. So we can be more flexible on that. The discount on wind is going to be much lower, not only because it's a different profile, but also because permitting is more and more difficult. So -- but I would say that our main way of growing in terms of [our year] will be based on PPAs or on CFDs. Regarding the integration of clients, let's see. My view is very pragmatic. We can always sell the power, really, power with the marginal cost of 0, we can always sell it at the end of the day. So having a client -- for that point, a client which buys on a short-term basis, I'm very -- I'm skeptical about the value add it gives. Very clearly, and this is more or less mathematically.

Where do I believe makes sense is the ability to originate long-term agreement. That's why looking for long-term off-takers either Iberian or multi-nationals. There we should be able to do it. And frankly, we are perfectly well placed to tap this market, not only because we are an incumbent in Portugal and Spain, but also our international contacts, namely what we have been doing in U.S. gives us a strong leverage regarding the -- our ability to originate long-term PPA. But again, hedging the value has to come from long-term PPAs. Doing [sculling --] doing with retail on a short-term basis. Frankly, it's very nice to say, but really, I don't see, from an objective point of view, where the value-added is.

From that point of view, the value add of clients is enormous, but not -- doesn't come from here in my opinion. Regarding renew in U.S., let's say, this is very clear. '20 is going to be '20 -- a peak year in terms of wind installations in U.S. We may see 16, 17 gigas after that because -- why? Because everybody is anticipating or most of the people of (inaudible) utilities are anticipating, utilities or private companies are anticipating the phase down of the PTC. It's going to be the last year with 100% PTCs. So after that we'll see. I believe, it will see a rather mild '21 and '22. After that, it will recover again not to '16, but I would not be surprised with the level of rates 10 gigas per year in what concerns the wind. So I would say '21, mainly '22, we're going to be weak years, but after that, we'll tend to recover, and the recovery has to very much to do with the fact that even without PTCs we'll, is very competitive, much more competitive than other technologies, thermal one.

And so we'll have scope to do that even without [channel revelation]. If wind is going to have lower years in '21 and '22, on the other side solar we'll continue to do up '22, '23 are going to be very strong years. And that's why you can see in what I showed in Page 20, the structure of our portfolio -- not the portfolio -- of the things that you have already established, in which you see wind -- important amounts of solar in '21, '22 and '23. And here, we are speaking only about the things which were done recently. We have more than that in terms of solar. In fact, if you look at Page 21, you can see that in terms of solar represents 0.4 already -- already 0.4 gigas in '21, 0.5 gigas in '22. and a large part of it is U.S., although Brazil and even Portugal is also represented here, but U.S.

So I would say that the renewables market is going to be very strong until 2022, first part of the period, '19, '20, wind is going to be more important, after that solar is going to be more important. But in the end of the day -- and this is the way we see it. Regarding the possible reviews of the load factor,. I think it was 2 presentations ago or something like that, we presented here in a meeting like this, our -- how the comparison between what we have forecast when we -- and what's happened. We made -- analysis from the last -- for the last 20 years and what we have shown is that there is no trend at all in terms of reducing the load factors. And things like the lake effect are things that we are -- we know them very well. Let's see, we are young company, but not so young. So these problems of the lake effects, I remember that big discussions of that in the beginning of, I would say, in the end of last decade, and we clearly have very strong models, let's say.

If there is something in which I'm proud of my company is the quality of the people who are developing the -- in fact, as you can -- recently some of external companies have reduced their preferred cost of winds, and today, which were higher than ours, and now they are still a bit higher than ours. So we are very comfortable with our models. Of course, we always challenging ourselves in terms of trying to improve, but we don't see any reason for our -- to change it because, frankly, those phenomenon are very well-known by ourselves. We have good models. History has proven that internalizing this function in terms of our group is really one of our key strength.

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Alberto Gandolfi, Goldman Sachs Group Inc., Research Division - Head of European Utilities Research [4]

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João, sorry, this is all super clear. If I may, just a second follow-up. You would expect a big discount to solar versus baseload. I agree if you sell spot. Do you think with a portfolio and a trading activity, you could bypass that and selling forward? Or you think there's no or for storage -- or there's no way out of this?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [5]

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Let's say, the forward prices that you can see today is basically reflect the stuff. So if you go to a market and if you want to sell that is generate, you have that discount. The price -- let's say, a few months ago, the market was not distinguishing debt. Today, the market is really distinguished between the base loads and the payers generated by renewals, mainly, again, mainly, solar. The situation of wind is rather different, and I do believe that having permitted wind farms in Western Europe, Portugal, Spain, France, Italy, Poland are very important value because permitting, for obvious reasons, are more and more difficult. So again, having a good portfolio mean that we have, I think it's a strong point of our [quality].

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [6]

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We can move to the next one, please.

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Operator [7]

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The next question comes from the line of Sara Piccinini from Mediobanca.

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Sara Piccinini, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [8]

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I have first question on solar. You announced in August to have participated to the solar auction in Portugal, which has shown historical low prices. So can you indicate the level of IRR that you expect and what are the metrics on which you are working to extract value despite such low prices? And also another question on the deal that you just announced yesterday. You indicated to have spent -- that you will spend -- sorry, EUR 150 million for the CapEx related to your 50%. Is there any indication that we can get in terms of CapEx per megawatt? And also, I would like to understand if you recognize any premium to the fact that these assets already have a PPA attached and also they are almost completed? And finally, another question is on the auctions. What is your expectation for technology neutral auctions in Europe since solar is becoming more competitive? And also, did you participate to the solar auction in Italy that should be -- of which results should be expected soon?

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [9]

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Sara, this is Rui. So on the solar auction in Portugal, I'm not going to give you the exact numbers, given competition. But I will say it's a profitability that is on the high single digits, okay. Not very high, but it's on that level. It's a good spread vis-à-vis the cost of capital that you know that cost of capital nowadays our level is not very high. So outside, it's a project that has a very good load factor and it's a project that the CapEx is quite low. So we are quite comfortable with the level of profitability that we are estimating for it. On the second one, the EUR 150 million, so the equity net value that we are going to invest in this project for the full construction of the project.

And that's the process is going to be under construction for the next months, over the next months we have [COD] of it. It's already net of tax equity. I think tax equity will be done by DPR, which is one of our strengths tax equity execution. I think we can bring value on structuring all the tax equity for this portfolio. In terms of premium, of course, this has been developed by a third party company. So we need to pay the services of what that third-party company has done to have this project in a very advanced stage. That's obvious. But we believe it's a very good portfolio of projects in terms of load factors, in terms of the place where they and in terms of load factors that we estimate. We estimate about 30% of load factors for these projects, a good number above. And we estimate a good profitability.

But more important than that, we believe that the percentage of contracted NPV that these projects have, it's very high. We're seeing something north of 70%. So more than 70% of the value creation that we estimate is contracted is fixed and we even have the possibility to extend or to report the projects by the end of the life. So I think it's a good opportunity. It's an opportunity. And I think we need to be flexible when we get this type of opportunities and enter into these type of agreements.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [10]

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Let's see. And on top of this, I'll just to give you the global picture. Our main value creation is the one when we begin from scratch. And when we developed the project, we find a place, we find a taker, we find a (inaudible). For instance, the project that we announced a few days ago with 300 megawatts in U.S. is a very interesting project, in which we did everything from the beginning. And our strategy is, as you know, we -- is to act from the beginning of the value chain until the end. And this is what we normally do. And the most of the core of our projects, and you can see from the list, you can say, are from that side. That all means that we are not being able to be opportunistic and find some opportunities as the one that Rui referred to.

Clearly, together with the American investor, we brought our competence in terms of controlling the construction, in terms of creating all the structure of the transaction, including the tax equity and which makes sense. So the fact that our core is not that in the world like this, we must be flexible and to use all the opportunities which can, which besides what everything what Rui Antunes just said has also an interesting possibility of extension for other projects. So basically it's this. But clearly, this is a project which fits within our criteria. Of course, I do believe -- I do prefer to do it from the beginning. But managing a business like this requires flexibility, not to lose opportunities just because we don't want to lose -- we have to do it. We should do it when the value comes, which is the case.

And again, sometimes beginning creates opportunity as the case to another one. What concerns Italy, there will be an auction. There was an auction which expired today. In fact, we had to present it. This is basically a wind auction. Solar as far as I know, can only compete in the industrial land. So it's going to be basically a wind auction. We will participate. If we win or not, we'll see. We have our investment criteria. If we win, excellent. If we don't win, we'll present us to the next one. In the case of Italy, there is an interesting feature is that there is a timetable of new auctions. So not winning each one, that will enable us to be present in the others. And again, I do believe that countries like Italy, having permitted projects is value in wind is a very strong value.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [11]

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Can move to the next one, please.

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Operator [12]

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The next question comes from the line of Mikel Zabala from Bank of America.

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Mikel Zabala, BofA Merrill Lynch, Research Division - Associate [13]

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I have 2, please. The first one, so you've seen recent news on the wind industry in the U.S., asking for tax incentives extension, whether it's PTC or ITC. How would this change your plans in the U.S., especially in the early 2020s? And the second one is, if we look at the Spanish forward curve, it's in (inaudible). So basically, the power for 2023 is EUR 55 per megawatt, and that comes down to EUR 47 by '23. You've mentioned that you think this is because of solar, but just to double check, and also, how would this impact the profitability of your wind portfolio that's in Spain?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [14]

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So as I told you, as far as what they are. As far as our liquids for the next 2 to 3 years. They are perfectly in line with what we expect. Regarding the future, we are not bullish in terms of -- we are not and our business plans are not bullish in terms of the evolution of the forward prices. So that -- what happened in the market, the expectation of a decrease in price is something that is embedded in a way we see it. And this is the way I ask -- answer the first question. We do believe that it's not through a merchant that we should develop with our portfolio.

Regarding the other questions, tax incentive extension, we are not considering. In our base case, a tax incentive -- an extension of the tax incentives. We are not considering it. If they can, what I said before regarding a decrease in wins in the '21, '22 would not happen in '21, '22, and that would perhaps would give us additional opportunities. Nevertheless, what I do believe is that even without the tax, the PTCs, wind industries is competitive. If it comes better because we can be even more competitive, but without -- even without PTCs, we think that the wind industry is competitive again. So we are mature enough in our camp. We think that we are not considering that, that could be an upside in terms of our business plan. Basically that.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [15]

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Let's go to the next one, please?

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Operator [16]

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The next question comes from the line of José Ruiz from Barclays.

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José Javier Ruiz Fernandez, Barclays Bank PLC, Research Division - Research Analyst [17]

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Just one question. I was wondering if you could explain me what has made you so confident from moving from a prototype of 30 megs in floating offshore. I'm talking about wind float Atlantic to a mega project like the one you announced, the 500 megahertz in Osan, South Korea. And I was wondering if you could share the budget of the project.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [18]

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Let's see. We were -- and we and together another company in this market, in the beginning, the single companies which took seriously the offshore, and they're floating offshore. And frankly, if you look at the globe, you will see that the potential of offshore, not only a potential, the needs of floating offshore is clear. If you think about Japan, if you think about part of Korea, you think about the Mediterranean sea, you think about (inaudible) the market is there. So -- and in this moment, clearly the technology works perfectly well.

And what we are doing in this moment, as you know, we were the pioneers in 1 megawatt. In Portugal, we are building the free platforms, in fact, one of them is already in the place, and we will do it until the end of the year, and that will be another one in France. And we believe that there is a potential of going to more and more to more countries and more installations. What is the challenge? The challenge is really the costs which have to go down. In this case of Korea, I would say that this is a very initial phase. And so if this project will go ahead or not, it's depending a lot on first we having institutional framework for this kind of transaction; on the other hand, to be able to reduce the cost. So we are not going to go ahead with the 500-megawatt investment without be sure that income and the revenues are there and the cost will be reduced. But again, if you want to be a winner in the future, we have to create options. In this case of Korea, it's clear an option. Yes, it's an option what we are trying to do in U.S.

And I'd be surprised if I was mistaken that until, I would say, in 2, 3, 4 years, we are going to see large procurements of offshore in several countries, not only Korea, in several countries, even in Europe, that is France, it's a typical one. In U.K. and Scotland, they were also going to this company. And I do believe that if there are strong purchasing broad [optic] programs, the supply chain will follow. But clearly, we are not -- this is an option. It's a very small development investments, but I do believe that those options will have lots of value and not only in Korea. This is not a dream. This is something which is obvious, that will go ahead.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [19]

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Next one, please.

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Operator [20]

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The next question comes from the line of Meike Becker from Bernstein.

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Meike Alina Becker, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [21]

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I have 2 at this point. Coming back to the capital gains that you have had for your recent transaction, are these numbers, the 1.6 million per megawatt that we can extrapolate into the future, which would mean you're tracking ahead of the guidance you have given in the business plan? Or should we of these transactions rather think as positive outliers, some diamonds in the portfolio having been sold and that the average premium which should think of is a little bit lower? And the second question is about the rate or the lead time you need to sign PPAs.

So I was looking at Pages 20 and 21, and I'd be assuming that to fill up the capacity of your business plan out to 2022, we would probably be looking at mainly the next quarter and the first half of 2020 for projects to still come in before the 2022 deadline. So it would be great if you could elaborate a little bit on the lead times. And could we still, as of today, expect projects or PPAs signed for 2020? Or how should we think about that?

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [22]

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Let's say, regarding the first point, when we calculate the net price value per megawatt is the certification, as we know. And so it depends a lot on the project, on the character or on the feature of each project. What to expect is that if you look at Page 19, what you see on the left-hand side, those white -- on the white bars, is that we expect that the yields required by the investors should not be very different from this. And why? Basically because interest rate has gone down since that moment. So I would say that it's difficult to say it's 1.6%, 1.7% or 1.8%.

I would believe that what we expect is to continue to have -- to be able to attract investors with yields no higher than those 4%, 5% or 10% in Brazil. I would say we have to look basically at this. Of course, as the numbers are not public, you cannot look at the other ones. But basically the evolution of 1.6%, 1.5%, 1.7% do depend a lot on what we sell. But what is important is that the kind of profitability that we -- we put to the investors should not be higher than this, and our spreads should not be far and far between the investment and should not be very different from this one. Regarding the same PPAs, let's see, I cannot -- I won't and we won't commit with dates, but what I just show you is what we did. If you had asked me in May, if you were able to do 2.4 gigas between July and October, I would not have said you that.

What we have been able to do is that our ability to generate to originate PPAs is strong, and the reality shows that we've been able to be very effective on that. If it's in the fourth quarter, and let's see. It depends on the opportunity, depends on the timetables, what I can guarantee to you is that we are totally engaged and optimistic that we'll deliver the business plan. And the company is not slipping and very happy on the 2.4 gigas or 1.2 gigas is not -- this was done, but we still have other things to do, and the company will continue to do what they have to do. And so if you can do it sooner, we would prefer (inaudible) we'll do it. But we are not going to store it with lower -- reduce the profitability. We'll do it as soon as you can, provided you have profitability. Otherwise, can take a bit longer. But nevertheless, are the recent history, these last 6 months show that we'll be able to do it and quality and (inaudible) is very strong.

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Operator [23]

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The next question comes from the line of Javier Garrido from JPMorgan.

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Javier Fernandez Garrido, JP Morgan Chase & Co, Research Division - Head of Utilities and Senior Analyst [24]

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I have a follow-up question. Well, a couple of follow-up questions on the solar deal you announced last night. Could you please tell us what is the enterprise value per megawatt. That is implicit in the price you pay? And secondly, I was -- I think the remark made by Rui about the 70% being covered by the PPAs, the contracted portion has been interesting. What is the usual proportion? Because you highlight this is a very attractive project because it was as much as 70%. So as you are a specialist in going through PPAs, what is the usual proportion of NPV that is covered by the PPAs in your portfolio?

And then the second question is on your asset rotation strategy. This year, we have seen 2 very different deals. One was legacy assets, where there was a substantial amount of minorities. The other Babilonia is a very new asset with no minorities. Going forward, what is your preferred route? Are you going to explore the sale of more legacy assets? And particularly are you specifically targeting a reduction in the minorities in your P&L or is going to be truly opportunistic?

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [25]

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Okay. On a (inaudible), so I'm not (inaudible). We are not buying operating assets. Okay. So I'm not going to give you a transaction of x per megawatts or something like that, as we do when we sell an operating asset as well. Okay? So it's what we have written on the market announcement. It's EUR 150 million of equity efforts is together is 50%, is together a financial investor that has the other 50% that we are acquiring this portfolio is for the construction -- our piece is for the construction. And we are the ones that are going to structure, of course, the tax equity of the total portfolio that will benefit from that.

And our net effort is that amount -- for that amount of megawatts. The NPV contract yes is a good level. It's more -- it's not 70%, it's above 70%. Outside these levels is close to 70% are the ones that we typically want to see when we look to contracted NPV when you do the [PPIs], when they go to auctions. When we have the CFDs is this high level of percentage is what we want to look. This one was a very good one opportunity, probably slightly better than usual, but very good one for us to take.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [26]

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And again, as I referred before, this notwithstanding our core activity is being no levels of the value chain. We must be intelligent enough not to lose good opportunities which are in the market, and this is clearly an accretive transaction, which besides what is contracted today, has some options in terms of moving forward. Again, we -- doing these easy things is easy, but we prefer to be able to understand and do different things when -- according to what are indicated in the market. So this is a stable one with options to grow in an area in which we are being in the area which is in which we are being more and more important that it makes all the sense within what concerns the portfolio. Regarding the asset rotation, let's say, we -- this year, we are not going to do anything more. For next year, we will take a decision in the next months.

But basically, we follow a few criteria. Let's say, one criteria is always, if there is a market in which I want to grow more, but in which I am comfortable with our exposure, we should perhaps sell to accommodate initial growth. If there is a market or kind of products that which the market pays a premium comparing an additional premium comparing with our objectives, we should prefer this kind of transactions. So I would say that our choice is a multi-faceted one and in due time, we'll have -- we will begin working on that too. Nevertheless, for me, having in mind the quality of our assets, the sell-downs, it's not the most difficult thing. Really, we have quality, we know how to play.

We have very good connections in the network of institutional investors with whom we were used to work for. And this transaction, by the way, of -- with this 50-50 acquisition has also some value because we were able to attract an investor, which came with us and this makes all the sense also this one was solar. But nevertheless. So we have good assets. We have strong connections, we have prestige in terms of operating assets. So I would say that this is not the most difficult thing, namely with this interest rate. So we are working on that. We'll -- in due time, we will go to the market. But nevertheless, it's something that it's perfectly under control.

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Operator [27]

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The next and last question comes from the line of Manuel Palomo from Exane.

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Manuel Palomo, Exane BNP Paribas, Research Division - Analyst of Utilities [28]

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I've got 2 questions, please. One is on Iberia and the other one is on Colombia. The one on Colombia, I was recently reading through the press about the low unitary price coming out from the auction. And I wonder whether there's any additional thing that maybe we're missing in terms of, I don't know, any subsidy, any -- is there anything else that it needs to be added to the unit remuneration? And also, if you could give us a hint on what returns you are forecasting for these assets in Colombia? And the number two is on Iberia. And sorry to insist on this topic, it's about solar again.

But as you mentioned before, the forwards are still quite high. And I understand that there's a discount that it's the one that leads to a final solar achieved price. However, given that the PPAs are for 15 years, and at the end of those PPAs are at 20. I mean, this means that you expect a brutal collapse in the unitary solar price. Otherwise, I understand that you would be willing to do some merchants in Iberia? Or am I missing something else? This is mainly just particularly in the first years, it looks like there's more visibility on the forward projects you could get in a solar plant would be significantly higher than the one that you're going to achieve through the PPA. Any explanation will be appreciated.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [29]

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Regarding Colombia. So from the -- this is double-digit returns. So there is interesting things that in the financial markets, we did not just [do] Colombia because it's nice, we studied it deeply. And then in terms of financing, this moment international financing institutions lend us a very interesting rate in Colombian pesos much lower than the cost of equity much lower. So in this moment, it's not a question of being in the hands of local banks. Now in fact, we are not only it's a double digit, but the funding in Colombian pesos is obtainable with very interesting rates. Regarding the income, so we have the prices that you know which are inflated year by year.

And on top of that, we have capacity payments for part of the generation. So basically, it's economic. Economics are strong, very high load factors. And again, it's a scarcity market. It's going to be -- it's a market in which it's possible to have it because it scares the number of projects which are original. But have to put everything together. Low cost of financing, much lower than one could expect, capacity payments and interest. Regarding the merchant, let's see. We have forward prices with liquidity for at most, at most 3 years. If you begin building a solar wind farm today, it will be at best ready in 1 year. So it's completely, in my opinion, immaterial the forward prices that you have today. If you go and go to the market and speak with professionals regarding the prices, you'll see the prices you'll have.

So I would say that the forward price that you see today, which are real for the next 2 to 3 years are, in my opinion, totally non-material in what concerns the decision, an investment decision. Very clear. And so that's I think, regarding the future, my point is what I told you and based between our best thoughts, in fact, in the models that you use. The increase of solar will depress the discounts. For me, it's very clear in what concerns Iberia. That's why we think that's the wisest doing it is through long-term PPAs or through auctions. And in the 50s or 47 that we have in the market, I'm not determinant. It cannot justify in our opinion, an investment deal.

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Operator [30]

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We have no further questions. So I'll turn the call back to your host for any closing remarks.

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João Manuel Manso Neto, EDP Renováveis, S.A. - Executive Vice Chairman & CEO [31]

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Okay. So if there are no other questions, thank you very much for attending. Really, it's a pleasure to be with you. And this is a strong company, very clear business plan. And one thing that we -- the present is very important. The future is very important. The growth is clear in that we have to be very objective in terms of growth, not only in the traditional markets, we have to think of different ways of doing business and also to look at other markets where the opportunity arises, we are being able to do it. So thank you very much, and you see you next time.

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Rui Antunes, EDP Renováveis, S.A. - Head of Planning & Control, IR and Sustainability [32]

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Thank you.

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Operator [33]

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Thank you for joining today's call. You may now disconnect your handsets. Hosts please stay on the line.