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Edited Transcript of ERG.MI earnings conference call or presentation 2-Aug-19 1:00pm GMT

Half Year 2019 ERG SpA Earnings Call

16149 Genoa Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of ERG SpA earnings conference call or presentation Friday, August 2, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luca Bettonte

ERG S.p.A. - CEO & Executive Director

* Paolo Luigi Merli

ERG S.p.A. - CFO

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Conference Call Participants

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* Roberto Letizia

Equita SIM S.p.A., Research Division - Analyst

* 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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Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the ERG Second Quarter 2019 Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Luca Bettonte, CEO of ERG. Please go ahead, sir.

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Luca Bettonte, ERG S.p.A. - CEO & Executive Director [2]

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Good afternoon, everybody, and thanks for coming to this conference call on our second quarter results. As usual, last year, we made Paolo Merli who works from today in his new wider role of Corporate General Manager and Chief Financial Officer.

We start from the Chart #4, showing you the highlights of the second quarter, where we posted higher results in each technology of our generation portfolio, but for hydropower. Let me give you a general overview about the main business drivers and trends in our industry that affected the performance for the second quarter, while Paolo will take you through a deeper and thorough analysis of the figures also for the first half of this year.

Talking about EBITDA, it's worth focusing on energy prices, that on average, were lower year-on-year in Italy in all the different zones. Just in Sicily, they were higher. It was due mainly to the drop of natural gas prices that began in January and became even stronger in the second quarter, and despite all the 75% growth of the CO2 cost per tons and decreasing demand in the country, was stable.

This trend on one side have penalized the results in wind in Italy. Also, thanks to higher production and hedging transaction, that's been pretty in line with last year. But on the other hand, they have underpinned the good performance in thermal generation, plus 54% year-on-year. To be brought up that in wind, just 2 megawatts [cross-trade balance] from the incentivized scheme in this quarter.

On the contrary, energy prices abroad were higher than last year. This trend associated with an overall higher production, also boosted by a larger perimeter of 90 megawatts in France and 22 megawatts in Germany, allowed us to post in wind abroad very good and higher results, plus 36% year-on-year.

In hydro generation, the performance was a very low year-on-year, minus 53%, for on top of the mentioned lower energy prices, we had a lower price volatility, and above all, a very low water availability, also versus the last 10 years average. The lowest source availability has also reduced the modulation and flexibility of the hydropower plant to take part in dispatching market services. 2019 seems to be a so-called dry year for Central Italy, like in 2017. While it's to bear in mind that in 2018, the 2018 was an extraordinary wet year. Let me conclude with solar generation. Those results have been very high, as they doubled. Thanks both to the better performance of the existing 90 megawatts plant, and to the larger perimeter from the 51 megawatts acquired in January.

The net profit was lower year-on-year, EUR 68 million versus EUR 76 million, a look at the first half '19 now. This was as a result of lower gross margin, just commented, higher depreciation from the larger-assets perimeter, all of that part offset by the quite lower financial charges. Thanks to the positive outcome from the efficient liability management program carried out over the last several quarters, coupled with the successful issue of our first EUR 500 million green bond. As a result, average cost of gross debt declined from; 3.1% to 2.4%. As for the main debt, it grew to EUR 1.66 billion, as expected last year. And it includes EUR 307 million CapEx, EUR 112 million dividend distribution and some EUR 43 million costs related to the reversal effect of the fair value book and to the purchase price allocation date of ERG Wind in 2013, all the project financing loans early repaid. Operating cash flow was EUR 195 million, by far higher than EUR 133 million of the first half of last year. As usual, every 6 months, we shared with you a quick update of the business plan deployment.

Here on the Chart #5, we start showing the organic growth abroad by making a comparison of the work in progress in March 2018 and in July 2019. As you see, we keep developing our projects at the right place.

In France, on top of the 55 megawatts in operation, we obtained the authorization from the [Pacte Climat], started the process to get the reconnection consent for 15 megawatts of the wind factory Limousine I, while we succeeded in taking part of the competitive auctions, getting the right to develop 18 megawatts pertaining to Picardie I.

In the U.K., the engineering development departments is sticking over, ending the grid connection process of the 4 wind factories, about 20 megawatts, so as to begin building them soon afterwards. And in Germany, after building 22 megawatts of the project Linda, we bought a pipeline of some 224 megawatts, a different stage of development, and finalize the co-development agreement to bring forward the relevant permitting phase.

In the end, as of today, we have almost secured 317 megawatts out of 350 megawatts to be built by 2022. That corresponds to almost 90% of the business plan projections.

Chart #6. As for the power in re-blading, is not certain on this page of the status of the different projects. Repowering so far is on track, as we have got the positive opinion for 3 wind factories from Commissione VIA, environmental impact commission of the Ministry of the Environment. These 3 projects added to 92 megawatts at pre-repowering out of 153 megawatts of pre-repowering, including the business plan. We are also working on the other wind factories potentially eligible to be repowered. As of today, further 121 megawatts of pre-repowering are already in the authorization process, while only 106 megawatts of pre-repowering are seen in the engineering for authorization phase. Finally, it's worth saying that we have already submitted relevant technical application to Terni to get the collection consigned to the grid for almost the total wind factories under repowering. In re-blading since May, our factories operating performing better than expected in terms of additional production, plus 19% versus 16%.

As for the remaining 62 megawatts pertaining to 3 additional wind factories, although we've already obtained the VIA decree, environmental impact decree, from the local authorities for 2 of them, that represents 1/3 of the total megawatts. It's fair to underline that the ongoing authorization process may take longer than expected. Then the original planned commissioning date foreseen by the end of this year would be postponed by some quarters, say, at the latest by the second half of 2020.

For the time being, I'm finished now. I will hand you over to Paolo.

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Paolo Luigi Merli, ERG S.p.A. - CFO [3]

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Thanks, Luca, and good afternoon, everybody. Say, in simple words, the second quarter was poorer than expected in terms of both price scenario and volumes. The latter, so the volumes, driven especially by an extremely dry season in Italy, but particularly in Center Italy, where we operate our hydroelectric assets. On the positive side, the new solar assets in Italy, the additional install wind capacity in France, contributed as much as we were expecting against a backdrop of better wind conditions, both in Italy and abroad. This, coupled with the sound performance of our CCGT plant, which once again, is proof of the value associated with having a technologically diversified asset base, help us to mitigate the drop from hydro, which, at the end of the day, say, was basically the main catalyst behind the weakness of this set of results.

Let me now go into a little bit more detail about the period, about the second quarter on Page #8, I'll start here commenting on power demand in Italy, that was flat year-on-year. You see from the chart, the trends associated to different sources. Lower hydro and solar, higher wind and thermal. Looking at our assets, hydro production declined significantly year-on-year, more than twice the national level, then we'll see the number in more details. As I mentioned, due to a particularly dry season, where our plant is located, as opposed to the exceptionally wet season we had last year. When conditions were positive, although to a lesser extent, the national average, partly because there have been some capacity additions in the country and partly due to our exposure to regions like Puglia and Calabria, where wind conditions were weaker than national average. Overall, our wind production was up 8% in Italy and 27% abroad. This is also -- is a huge number, and it's also driven by the freshly installed capacity in France. Our solar productions, which as well benefited from the larger subset base performed as expected. CCGTs, one was up 12%, thanks to favorable trading conditions, especially in Sicily. Electricity prices in Italy, I think the chart is self-explanatory. A slightly weaker price scenario in Italy, reflecting the decline in gas, only partly offset by the rising CO2 price.

Price indicator for renewables in Italy, including feed-in premium was EUR 143 per megawatt hour, down year-on-year, driven by the lower value on incentives, EUR 92 versus EUR 99 in the same period of 2018, which I remind you is, I mean, the price of incentive is calculated on the basis of last year's average national electricity price.

In Sicily, price was a premium, as usual, versus the price in the mainland by EUR 13 per megawatt hour, but even higher than it was in Q2 2018 when it was EUR 8. As a consequence of all that, our CCGT's clean spark spread was up significantly year-on-year from EUR 2 to EUR 14 per megawatt hour. Just to remind you, the price for White Certificates, even though not reported in these charts, are at EUR 250 per unit. Let's now comment abroad. This price scenario abroad in the graph. At the bottom right of the chart, you can see here our average reference selling prices for our productions country by country. It's worth noticing the significant upward trend in prices in East Europe, in particular, in Poland, with the region certificates prices up very much year-on-year. In Romania, as well, we enjoyed a better match on price and the lower discount on our selling prices.

Let's now move to Page #9. Here, I'll comment on our economics in a nutshell during the first 6 months, while later on I'll focus on quarter. EBITDA was EUR 273 million, down 1% year-on-year, driven by the following main effects. Let me say them in order of magnitude. A weaker performance from hydro, driven down by consistently lower volumes, as already commented. And again, let me say, don't forget first half 2018 instead was an exceptionally strong period from this standpoint. Then higher wind production, both in Italy and abroad, coupled with a larger asset base, contribution of solar assets, more than double thanks to the acquisition of Andromeda. In our scope since January 1st and to better sun availability in the period. CCGT plant was up consistently, thanks mainly to stronger and better profitability. I repeat, especially in Sicily. So you can easily see from here that all our technologies performed quite well during the first 6 months of the year, with the exception of the hydro plant, entirely due to the scarcity of heavy rains in the period. It happens unfortunately that the hydro's underperformance exceeded the outperformance of all the other segments. That, we think, is the main takeaway message of the day.

Let me now go segment by segment, starting with wind on Page #10. EBITDA in Q2 was EUR 56 million, 6% up year-on-year mainly as a result of stronger production, both in Italy and abroad. Scenario was slightly better as the higher electricity price, which also reflects the hedging strategies, were only partly offset by the lower value of incentives in Italy. In the quarter, we benefited from new assets in France.

A few more details on production. This was up, as I said, 8% in Italy, and 27% abroad, which is a quite significant number. Also thanks to a very strong wind conditions, in particular in East Europe and Germany, while in France, wind conditions weren't so good, but we enjoyed a larger perimeters of assets.

Let's now move on Page #11, commenting on solar, which includes, as you know, as of January 1st, 51 megawatts from the most recent acquisition of Andromeda portfolio. Production in Q2 was 74 gigawatt hour, almost doubling year-on-year, thanks mainly to the contribution of the new assets. The unitary revenues were EUR 306 per megawatt hour, up compared to the EUR 291 in Q2 2018 as the new assets, let me remind you, enjoy an even stronger incentive scheme. The mix of higher production and selling prices led to an EBITDA of EUR 21 million in the quarter, which is almost double compared to the EUR 11 million posted in the same period of last year.

And now moving on to Page #12, commenting on hydro. Here EBITDA was EUR 21 million, minus 54% year-on-year, driven, as many times commented, by the lower production, which was down 45% year-on-year. So my first comment is that it was a tough comparison as Q2 '18 benefited from exceptionally strong conditions. We knew that, and it was already factored into our budget. But frankly speaking, the period to now to be much weaker than we could have expected, with production well below historic average, which is basically our budget. Unitary revenues were more or less in line, EUR 102 per megawatt hour, just slightly down compared to EUR 104 registered in the same period of last year, which mainly reflects the slightly better electricity price, but more than offset in this case by the lower unitary price of incentives. Finally, I should add that our water reservoirs at the end of the period were lower compared to the same period last year, but fortunately higher than the situation at the end of December and March 2019.

Let's now comment on CCGT results on Page #13. Here, EBITDA was EUR 17 million, plus 50% year-on-year. So huge increase. This performance is mainly explained by three factors. First, and the most important, the higher clean spark spreads due to lower gas costs and higher price in Sicily. The plant in absolute terms continues to benefit from its positioning in the island, where prices kept trading at premium compared to the mainland, but even higher than the one (inaudible) issued last year. Higher volumes, but this is simply a consequence of the higher spark spreads and lower fixed costs year-on-year, as in 2018 we had an unplanned stoppage, which affected our cost base during the period. These positive effects were only partly offset by the lower contribution from White Certificate due to a reduced quantity of certificates in the period, driven by the lower request for steam from the nearby plants.

Let's now comment investments here. Again, I like to comment on the numbers posted in the first half of the year, because I believe this gives you a better representation of what we are doing. We invested EUR 307 million, so quite big number composed as follows: EUR 220 million related to the acquisition of Andromeda; 51 megawatt solar in Italy; EUR 52 million related to the acquisition of Polaris wind assets portfolio in France; 6 million -- about EUR 6 million related to the acquisition of ready-to-build projects in the U.K., Craiggore; and EUR 2 million, more or less EUR 2 billion related to the acquisition of a pipeline of roughly 200 megawatts of projects at different stages of development recently announced and stated; EUR 18 million invested in wind development, of which about EUR 14 million was spent to conclude the construction of Linda wind farm, 22 megawatts, which is now up and running as of January 21, 2019; while, say, the remaining CapEx was spent for repowering and re-blading activities in Italy. We remind you that in the period, as Luca already said, we completed the re-blading at Avigliano in Basilicata, which are very performing very well, and we are very proud of. EUR 6 million of maintenance CapEx spread across all our technologies. In the end, still significant investments in growth, consistent with our business plan, though lower than in the first half of 2018, when you should remember, we accounted the CapEx for the acquisition of both ForVei's solar portfolio and Epuron in France.

Let's now comment the key financials on a recurring basis. I am on Page #16. Let me remind you that these figures, the figures here, are shown on an adjusted basis, so without including the effect of IFRS 16 and IFRS 9, as we believe this gives you representation that is more consistent with our cash items. In any case, all these effects are included and well explained in the reported figure and in our profit and loss statements. That said, let us comment on it. I have already mentioned adjusted EBITDA, so going down and focusing on the quarter. Higher depreciation, mainly reflecting the consolidation of the new solar plants and the new wind capacity in France, less Brockaghboy wind farm in Northern Ireland, which was sold last year in the first quarter. Net financial expenses were at EUR 15 million, quite a big drop, minus 25% down year-on-year despite the higher net debt. So that was possible as the new medium-,long-term project financing debt from new assets, in particular, associated to solar and Andromeda solar portfolio, was more than offset by the lower cost of gross debt. As a result of the liability management in the period covered up by the issue of a EUR 500 million green bond at much better conditions.

Average cost of gross debt was 2.4% during the quarter versus 3.1% in Q2 2018, while the net cost of net debt was 3.7% versus 5.7% in the same period. So I think they are very, very important numbers because despite, we have today an eye that the efficiency of that debt capital structure is much more efficient than it used to be. And I think there is a section in the profit and loss statements, which even in more detail, will describe, say, all these shift from project finance to corporate.

Taxes. The tax rate in the quarter was 33% against 28% in Q2 '18, mainly reflecting the abolition of the tax breaks, known as ACE. Minorities referred to the 21.5% stake in Andromeda, which is basically the only one we have in our portfolio. And as a result of all the lines of the profit and loss, adjusted net profit was EUR 14 million in the quarter versus EUR 19 million in the same period last year, while it was EUR 68 million in the first half against EUR 76 million over the same period in 2018.

In the end, let's see the cash flow statement. I'm on Page #17. Net financial debt closed at EUR 1,662 million, up by about EUR 319 million from the end of 2018 with a leverage of 49% at the end of the period. This increase is mainly related to the huge amount of investments in the networking capital spend, which anyway is reversing compared to Q1 and should reverse even more approaching the end of the year. Financial charges, EUR 33 million, and to some reversal effects associated with the prepayment of our wind project financing, EUR 43 million. Let me underline that this item is purely a noncash item. Plus, the higher negative fair value, which is again another noncash item associated to the IRS hedging, given the further reduction step down in the European interest rate curve.

I hope I was able to explain the improved quality of our debt structure with less structural subordination. And I hope I have also touched on all the key items, so I will now hand you over to Luca for his final remarks.

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Luca Bettonte, ERG S.p.A. - CEO & Executive Director [4]

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(foreign language) Paolo. It's time for the guidance. So it's time to fine-tune the projections for year-end. Adding to the first half '19 results, both the lower-than-expected overall performance we are seeing in July and forecast for the remaining 5 months, we would narrow the actual range of EUR 495 million to EUR 515 million to the new one of EUR 495 million to EUR 505 million as adjusting only the cap by some EUR 10 million. Let's analyze the future trends for each of the different technology.

In wind, in Italy, despite all we expected, higher production, lower energy price level in the second half of the year, associated with lower incentive units revenues and the higher cost of production, mainly due to one-off maintenance works leading to get a result slightly lower than in 2018. On the opposite, abroad, we expect higher results compared to 2018 mainly due to a better performance of the existing assets for both volumes and energy prices. A larger perimeter in France of about 90 megawatts are fully operating over the whole year. A larger installed capacity in Germany of some 22 megawatts. All of that partly offset by lower presence in Northern Ireland, as we sold a wind factory of 48 megawatts in March 2018. All in all, the result in wind will be anyway higher than last year. For the larger capacity and higher production abroad overcomes the projected domestic weaker performance.

In solar, it's easy to say that the result expected for year-end will be significantly higher than those in 2018. I would say, twofold. Thanks to ForVei plant good performance and to the contribution of the new acquired Andromeda plant.

In hydro, at the same time, it's even easier to say that we expect a quite significant lower result this year-end versus to 2018 due to the lower availability of water, affecting both the portion of the production remunerated to merchant and that one entitled to get incentives, that was very high last year. We are in a so-called dry year, like in 2017. We hope that the old years do not begin to become traditional years. But anyway, 5 months still to come and to go. Moreover, low availability of water leads to a lower capability to modulate the plant and to take advantage of the [stretchnine] market services like in 2018.

As for the thermal generation, we expect higher results than last year. The very low natural gas prices and higher energy price in Italy are more than offsetting the growing trend in carbon dioxide prices, thus resulting in higher clean spark spread. As usual, the better performance is being achieved also through cost control, larger White Certificate production, and finally from the medium-term PPA agreement with our large Sicilian industrial customers. Overall, we expect that the 2019 EBITDA be higher than last year. But though it's worth saying that so far, the dry backend growth performance of the other power plants also compared to its extraordinary high result of last year is almost offsetting to the better performance of all the other assets and energy management.

As for the CapEx, we do not change the existing forecast. That ranges between EUR 340 million and EUR 370 million. As of today, we have already invested some EUR 307 million, out of which some EUR 280 million in M&A transaction, and the remaining for greenfield development and repower and re-blading of about EUR 18 million and maintenance CapEx of about EUR 9 million roughly.

Finally, we adjust to slightly upward our projection for net debt at year-end. Moving from the existing range of EUR 1.36 billion to EUR 1.44 billion to the new one of EUR 1.39 billion to EUR 1.47 billion. As far as the factoring of the expected lowering of the interest rate curve. That [intends] at the higher than expected mark-to-market value for the interest rate swap agreement in place. So more an accounting difference other than a financial one, anyway. In summary, at this stage of the year, we deem it -- it was time to get the range for the EBITDA more accurate. And now, as usual, we are ready to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Roberto Letizia with Equita.

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Roberto Letizia, Equita SIM S.p.A., Research Division - Analyst [2]

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I would like to dig a little bit into the guidance of the company. I would like to better understand what the risk associated with the price level that we are seeing in the market? Because beyond the level of water, where there is very low, I guess, the main issues for the month of July is the significant drop in the power prices due to the gas -- very low gas levels. So can I ask you, what's the risk on the pricing level? Meaning what actually are you assuming internally as a price for the second half, for example? What kind of sensitivity can we imagine on the remaining part of the year? Still -- staying still on the guidance, I would like you to, if it's possible, of course, to provide a range or an indication for the net income level, especially considering the very low level of interest charges that you got into the first half? That will be very helpful to understand what kind of improvement or what kind of level of net income should we expect with regards to the EBITDA guidance. If it's possible for you, I would like to spend a few words on the very low prices registered in the Portugese auctions for solar in the past days from Iberdrola, they got the final prices at around EUR 14 per megawatt hours. I would like to understand what do you think about the pricing of those technologies affecting the renewable space in the coming years? I would like to better understand reason of the postponement of the authorization process for the 22 megawatt re-blading to the second half of 2020. What actually is happening there for this postponement? While on the re-blading that you already put into operation, I would like to understand how are you selling the extra production? So the 19% increase in production, what price is actually sold? Is it fully merchant? Did you sign already a contract with someone for selling the extra capacity? And finally, consider the high level of tax rate into the first half because of the ACE cancellation, can you please update us on the tax rate that you expect on the full year?

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Luca Bettonte, ERG S.p.A. - CEO & Executive Director [3]

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Are you a representative for everybody else in the conference call, I guess? All right. Price going forward as for our, say, projection, the trend in price is linked to 2 main factor going forward. One is demand; and the second, the price of natural gas. I don't have to make any specific comments, but for these 2 elements are going to be stable in the first and declining the second. And so they are affecting the price of the power in the country. Talking about ourselves, I can say that on the short term, we used to pace our projections on the forward curve. And so we are talking about target, which is in the range of a bit less than EUR 60 per megawatt hours as for the second half of the year. So nothing specific or nothing particular phenomenon that you already know. So I just confirm. In July, going back to what you said, the problem was mainly linked to the volumes rather than to the prices, although prices were below level than last year. As for the net income at year-end, say, within the range of the EUR 100 million. That's our projection EUR 1 million more, EUR 1 million less expense on volatility. In the end, the range is going to be that. As for the Portuguese solar auction at a very low price, I should ask who took part in this auction. In our opinion, for sure, technology is going down in terms of LCOE. And -- but for sure, it's quite surprising that they are one with such a low level of price. Maybe that's bidding on even -- on a further reduction of the cost to generate power to the technology once going to be in the position to restore this capacity in, say, 2 or 3 years time, but I don't want to make any further comment on that.

Avigliano re-bladed power plant. As you know, re-blading is something that we are, say, doing on the wind farms that are still entitled to receive incentives. So at the end of the day, nothing changed. But as for what we were already doing as for the sale of this power, so we sale the power through the management, they match on the portion and we have incentives. That's why the return of this -- the internal rate of return of this project is very, very high. Tax rate, I'll let Paolo to give you some information about that. Going back to the postpone of re-blading, I mean, talking about a couple of quarter, the problem having to do with the central authorization of the main importance is some profits that we are having talking to, say, some municipality because of some specific rights on the territory, that should take longer to be sought out. But at the end of the day, maybe that have been conservative in telling this figure and we have taken note of a couple of quarters, which doesn't affect the return of this project as though you know they are linked to the duration of the centralized scheme. So the sooner the better. And I was talking about smaller, say, activities, we have to do locally. While at central level, and at the same time, the same situation as for repowering, we are proceeding at the right pace, at the pace projecting in the business plan. In terms of tax rate, we are a bit higher because of the ACE but Paolo could be more...

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Paolo Luigi Merli, ERG S.p.A. - CFO [4]

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On the tax rate, of course, following the abolition of the ACE, we are expecting tax rate for the full year in the region of 30%, 31%. The one seen reduced in the second quarter is not fully representative of the full year because the quarter, as you know, it's quite low with a pretax lower than the average so the pressure of the tax rate is a little bit higher. Let me also add an element about the price scenario. Because you rightly commented about the lower price and Luca described how much we are already covered in terms of hedging policies, so the real risk is always associated or more associated to volumes than prices. But our view is that they are very low price, which is in this period of time as a one-off situation, very much linked to the abundance of gas in the stock in Europe. As a matter of fact, the forward prices of myself or we review, but the forward prices are pointing at a much higher price for 2020. So which is very, very much in line with our projections embedded in our business plan.

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Operator [5]

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The next question is from Sara Piccinini with Mediobanca.

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Sara Piccinini, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [6]

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The first question is on Slide 6, on the repowering. If I look at the presentation of the first quarter, I see that the megawatt -- the total potential megawatts were 420, translating into 860 megawatts after repowering. While in this slide, I see less megawatts for full potential repowering, so 380, that translates into actually higher capacity, 880 after the repowering. So if you can please explain what is the difference between this chart and the chart of the first quarter? And then the second question is on the -- so assuming that you get the authorization for all these 380 megawatts, how much would be the megawatt that you can realistically install and how much will it take during the period of the business plan? So what would be the impact that we can assume in case you get the full authorization for all the plants? And so this is the first question on the repowering. And then the second question is on the -- what is the discussion related to the omission of repowering to auction, if you have any update on this side? And finally, if you can comment on the legislation on the -- sorry, on the regulation of the dispatching market that has been issued by the energy regulator? And what is your view on the possible introduction of negative prices in Italy?

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Luca Bettonte, ERG S.p.A. - CEO & Executive Director [7]

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Right. As for the first question, I'd say that during the deployment of the repowering, we analyze and we make a calculation analysis on return on the project. And so we keep investing on the most profitable. That reason why you see and you may see also in the future minor adjustments to the amount of megawatts under repowering starting and ending. Maybe that's also the end there could be even a larger number. Because we have to adjust and to adapt and we optimize the amount of megawatts at the end of the process, taking into account -- maybe prescription into -- not yet received so far, but maybe prescription, the authorization, maybe a different technology in terms of type of wind turbine and the like. So this is small adjustment of, say, to the -- say, fine-tuning, that, on a monthly basis, let's say, or on a daily basis, we are doing while exploiting the project. As for the megawatts installed, we confirm that by the end of 2022, we are going to achieve 400 megawatts from repowering them as a result of the total installed capacity. So a differential of 270, 153 to 200 and to 400, this is the amount. So we confirm both the amount of CapEx and the amount of megawatts by 2022. Telling you that if we are able to accelerate and still a larger capacity before the end of 2022 is difficult to say now. We are adding, and as you see, we are keep working on all the projects in order to achieve such a result. But today is too soon to give you a different, say, projection but for what I gave you, and I'm beginning the business plan, and I am confirming you as of today. Talking about auctions, we are, and personally, I am working and talking to authorities there and associations and the like in order to push for the situation, whereby the repowered plant could take part of the auction. So far, in the new regulation, it's not, say, foreseen. It's not envisaged. And so wait and see. Anyhow based on the relevance of the repowering and maybe on the potential trend of the new auction that could be like the one that we saw in France and in Germany, maybe that something could change. Sale, let me put this way, wait and see. Anyhow, we have -- we should have enough time for being, let's say, allowed to take part of this auction as we start investing, say, in a couple of years' time. And anyhow, we confirm that we go ahead by investing in repowering, giving the very high return that the jump in technology and in wind resource is providing for by this project. Dispatching market, could, for us -- we are awaiting for the final regulation. We are waiting for the auctions to be launched. We could take part with a good amount of power to this market. And so, so far, so good. We are waiting for further information. And as for negative prices, I don't know. There's been something that's been discussed, but so far there's no indication, that in Italy, they should be introduced.

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Operator [8]

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Mr. Bettonte, there are no more questions registered at this time.

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Luca Bettonte, ERG S.p.A. - CEO & Executive Director [9]

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Well, so we can go on holiday. Thanks a lot, everybody, to stay with us, and see you after or see you maybe in some conference that we organized just after the summer breaks. So good holiday, everybody, and bye-bye.

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Paolo Luigi Merli, ERG S.p.A. - CFO [10]

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So for me, bye.

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Operator [11]

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