EDP Renováveis, S.A. (OTCPK:EDRVF) Q2 2022 Earnings Conference Call July 27, 2022 8:00 AM ET
Company Participants
Miguel Viana – Head of Investor Relations and Sustainability
Miguel Andrade – Vice, Chairperson and Chief Executive Officer
Rui Teixeira – Chief Financial Officer
Conference Call Participants
Manuel Palomo – BNP Paribas
Alberto Gandolfi – Goldman Sachs
Jorge Guimarães – JB Capital
Jose Ruiz – Barclays
Skye Landon – Jefferies
Fernando Garcia – RBC
Arthur Sitbon – Morgan Stanley
Olly Jeffery – Deutsche Bank
Operator
Hello, and welcome to the EDPR Q2 Results Call. My name is Rianne and I’ll be your coordinator for today’s event. [Operator Instructions]
For now, I’ll hand you over to your host, Miguel Viana, Head of Investor Relations and Sustainability to begin today’s conference. Thank you.
Miguel Viana
Good afternoon, everyone. So thanks for attending EDPR’s first half 2022 results conference call. We have here with us our CEO, Miguel Stilwell de Andrade; and our CFO, Rui Teixeira. We’ll run you through the key highlights of our strategy execution and first half 2022 results. We’ll then move to Q&A, in which we’ll be taking your questions. We know today is busy results day we will try to do this call in no more than one hour.
I’ll give now the floor to our CEO, Miguel Stilwell de Andrade.
Miguel Andrade
Thank you, Miguel. Good afternoon, everyone. So as Miguel said, I know it’s a busy week. So I’ll try and just talk you through the key highlights in the presentation and the whole year as well, obviously, for the financial impact. So I’d start off by going straight into the presentation on slide 5, and essentially, say EDP renewables had a strong performance in the first half of 2022. Quite frankly, as you know, sometimes we have bad quarters, good quarters, this quarter and this semester is definitely a strong one, strong growth and EBITDA, up almost 50% to EUR 980 million approximately, very much supported by the expansion of the asset base, we had installed capacity increasing 10% year-on-year, we had good strong renewable resource, namely the stronger wind volumes, 2% above the long-term average for the portfolio.
And we also saw a significant improvement in the average selling price that increased 27% year-on-year with essentially higher realized market prices in Europe in general and a positive impact also from the update of the Spanish regulatory framework. And we’ll maybe talk a bit about that later on. So it was a win-win. Our net profits, it increased around 87% to EUR 265 million. So reflecting the strong EBITDA performance. Focusing on growth towards the business plan targets, and specifically the capacity additions. So since 2021, we’ve achieved additions of 3.2 gigawatts, and we have a record of capacity under construction of 3.2 gigawatts by the end of June. I think this is something worth highlighting that we’ve really been ramping up the under construction or the project under construction over this period. We have an additional 2.2 gigawatts of projects contracted and committed since the beginning of 2022.
And we now have 10.6 gigawatts of secured capacity for the ‘21 to ‘25 period. So overall, with these, say these highlights of these achievements, we are moving closer and closer to 21 or 25, target of 20 gigawatts of capacity additions. So overall, solid ramp up of growth across all regions and technologies.
In terms of value, so this quarter, we completed two asset rotation transactions, one in Spain, and another one in Poland, with a good average multiples around EUR 1.9 million per megawatt, and a total of around EUR 100 million of gain. We have another transaction signed, that’s expected to close by yearend. And there are other transactions under negotiation, which is we’ve indicated previously to the market, we expect would bring more than EUR 300 million of asset rotation gains in 2022. On excellence, we continue to be recognized as a clear enabler of the energy transition best-in-class regarding the ESG performance. And we’ve had several distinguished distinctions if you went throughout the first semester. I mean, they’re highlighted here on the slide. And obviously happy to go into any of these that you want.
Moving forward to slide 6. Let’s talk a little bit about renewables growth. So I think clearly one of the things that’s been highlighted by all the market movements over the last, well over the last couple of months, and particularly I think, the tragedy of the war in Ukraine is that renewables is a strong answer, not just to decarbonization, but also to security of supply and affordability. I mean, the typical energy trilemma where normally more focused on renewables more focused on the decarbonization aspect. Clearly, now it’s supported all three axes of the typical energy trilemma. So we clearly think that it’s something that needs to be supported globally, that to ensure that we particularly in Europe, that they are able to get sort of this additional security of supply and affordability.
Europe is in fact taking the lead. And just to do a couple of highlights on the different regions, you have Europe, US, LATAM and APAC. So in Europe, we [Inaudible], presented may be ambitious targets, for example, increasing the weight of renewables in energy consumption to 45%. So increase versus the fit for 55. But increasing ambition also requires execution, it can’t just be about setting targets for the long run. So the member states now need to act to achieve these targets. And there’s also been some support I’ll say support and push by the European Commission regarding things like licensing and permitting, which I’ll talk a little bit later on.
On the other hand, in the US, unfortunately, we see some lack of positive developments. The build back better, as you know, was back in December didn’t move forward. There was also some expectation that it might move forward now, before the summer, that doesn’t seem that it’s going to happen. It’s not moving forward at the Congress or Senate level. And there’s no visibility on the tax credit extensions for now, although this is something that typically comes later in the year. On the positive sides, some of the uncertainties around the import tariffs are on solar panels have been reduced. This is something I mentioned on the previous calls. So the anti-circumvention investigation. There’s now a two year tariff waiver, which, so we have at least visibility on that which is important. But on the other hand, there has been some increase in the bureaucratic process of imports of solar PV equipment that may cause some delays to adapt to the new rules.
So generally, as you know, we continue to believe strong structural growth in the US, some short term issues around sort of basically the solar side. Moving on to LATAM. LATAM, as you know, in Brazil, typically, the regulated auctions in the C&I market continues to support growth. So we also had some recent auctions there that we were successful in. And in Mexico, just to mention, I mean, we only have 3% of our operational capacity there. But there is still some significant regulatory uncertainty for renewables, which is being addressed by the sector. And last, but not the least, in APAC, we are seeing governments have more and more commitments to the decarbonization targets, again, not just because of the decarbonization, but also because of energy security and affordability. Many parts of Southeast Asia, including China are net energy importers. So obviously, this gas price and energy prices in general, are also having an impact there.
So in Singapore, for example, two RFPs were launched recently for projects to import, up to 4 gigawatts of renewables up to 2035. In Vietnam, just give another example, you have the power development plan eight, which increases the 2030 renewables capacity targets, versus the previous plan increases by around 40% for solar, and almost triples for wind. If we move to slide 7. And just going a little bit more in depth on the repower. I think what I’ve mentioned here is, clearly Europe is leading the way. So as I mentioned, the target increasing to 45% by 2030. Overall, renewables and electricity sector expected to grow from 36% in 2020, to almost 70% by 2030. And so I think it’s worth highlighting this last bullet here, which is very striking. The annual additions new to ramp up for solar is around 3.5x to 48 gigawatts per year, and around 2.5x for wind onshore to 36 gigawatts per year. So the total renewables installed capacity needs to increase by 2.5x times by the end of the decade to reach more than 1.2 terawatts by 2030.
So clearly, a lot of ambition. But there also needs to be execution. And we’re convinced that more or less bumps in the road, but there’s going to be this push to grow. We move on to slide 8, ambitious plan, as I mentioned, but it needs to be executed. And so just highlighting some key points that I think should be addressed. And that we’ve been discussing at various levels, whether it’s at the member state level or whether it’s even at the European commission level. There’s definitely a need for faster permitting. This is something I think that we can all agree with can digitalize it, simplify and standardize it. So clearly, you need to also have more resources here. The plan for the repower EU has mandated an average development time of two years, while currently easily exceeds three years. So clearly there needs to be a push here, I can tell you that we have been getting a lot of or having a lot of dialogue with the different countries to see how to do this. And I do see movement here. And I do see sort of a willingness to try and increase or to accelerate the permitting.
Second, easier grid connection, hybridization repairing all this requires Fast Track permitting, but also the long term grid planning and investment. So that needs to go hand-in-hand with the increase in the build out of renewables. So Europe overall, we expected to need an additional 85 gigawatts of interconnection capacity by 2030. And finally, last, but not the least, again, regulation definitely important, stable, adequate regulation, to incentivize investments in the region. And so reduction in the market intervention and giving visibility on auctions to promote the build out of renewables. So it’s not just about setting the 2030 target. It’s about setting almost annual targets over the next couple of years to make sure that we get to the 2030 target. So clearly strong measures also a sense of urgency driven by the macro context. And probably not, we won’t see a very short term impact. But definitely midterm outlook is positive. And we think EDP renewables is very well positioned to capture this additional growth.
We move on to Slide 9. And just to talk a little bit about where we are in terms of the capacity build up, we already have more than 50% of the 25 target committed. So we’ve increased it by around 4.6 gigawatts. Now, this includes all capacity with long-term contracts or with CapEx committed. So the 3.2 gigawatts already operational, 3.2 gigawatts that are under construction. And the rest we’ve already secured at typically with PPAs. We continue to have good visibility and execution of the plan, we currently have more than three gigawatts of PPAs currently under negotiation. And obviously, we continue to follow also our investment criteria, which we’ve talked about in terms of IRR over WACC and spread over WACC.
So what I’d say here is we are confident on the execution. Even recently, we took a step back and looked at how things were progressing. And I can tell you that we are very confident on this. We continue to secure different growth opportunities. So it’s diversified in terms of platforms and technology and growing across the different regions. On the technology sides, I mean we have a great track record on wind onshore, we are developing very quickly, the wind offshore I think the last six months have been very strong in wind offshore. And for solar PV, we’ve been working on it for quite a few years. And so we also continue to see good growth here in the various different markets. And also in distributed solar, quite frankly, both in North America and in Southeast Asia where we see that as a technology which has a lot of scope to grow. Specifically on offshore and Ocean Winds, as you know, our partnership with ENGIE 50:50. It is a major source of growth. So we currently have 12 gigawatts portfolio. So we’ve almost doubled the portfolio we had, as of the capital markets day back in February.
I think it’s important to highlight that development projects in France, the UK and Poland, have inflation updated revenue secured so we are well protected against inflation risks. This is a question we get asked quite frequently. Moray East one of our projects in Scotland is under construction as a very recently July. It’s been awarded around the 200 or 300 megawatt CFD contract at £47 per megawatt hour as of 2022 prices. And we have complementary corporate PPAs for the full number of megawatts of Moray West. Then we also have a small merchant component of this. Another point which I think is worth mentioning, as you know, in ScotWind, with one approximately one gigawatt, or the reference we gave to the market was one gigawatt was actually confirmed this month that it’s actually two gigawatt capacity potential. So thanks to a UK grid reinforcement plan that was recently announced, we will be able to double the capacity coming out of the Caledonian project. As you know, Moray East, Moray West and Caledonia are all contiguous up in the Moray shore. And so I think that gives us quite a lot of again, visibility, let’s say of growth in Scotland.
Also, I think it’s interesting to note, we have a floating offshore development project in South Korea with grid access already secured since the beginning of 2022 for 1.3 gigawatts of capacity. So that’s something that will be seen the development of that over the next couple of years. So just to summarize, Ocean Winds, 1.5 gigawatts installed capacity, 3.5 gigawatts under development with long term revenues contracted and 7 gigawatts under development projects with seabed or connection rights secured, so definitely a reference in the wind offshore sector.
Moving on to slide 11, asset rotations, definitely being interested in market dynamics, that’s a positive. No, we were asked lots of questions about whether the increase in interest rates was going to have an impact on asset prices. What we’re seeing is that this has been more than offset by higher energy prices in most of the markets. So we continue to see very high appetite from investors, we continue to see strong asset values, because as I say, and higher energy prices offsetting or more than offsetting interest rates increases. So we clearly expect to be above the EUR 300 million capital gains. We’ve already closed two transactions this year. So one was the 150 megawatt Polish portfolio closed at around EUR 2 million per megawatt. And the second transaction in June was the Spanish Wind portfolio, 180 megawatts at a multiple of 1.8. So gains from these total around EUR 100 million. We already have 2.6 gigawatt, billion euros of assets rotation proceeds out of the total of eight. And so I think that really shows that we are able to recycle capital to reinvest into accretive growth. We have other transactions, something under negotiations, and hopefully we’ll give visibility on that over the rest of the year.
So we are reconfirming the assets rotation gains in 2022, barring any sort of accident or some sort of unexpected issue that might come up. On slide 12 and talk about average energy prices and our selling prices. I think definitely this is something which we have benefited from in the first half. So an increase of around 27%. As I say, generally higher prices throughout Europe. And we expect this level of average selling price per megawatt hour to be maintained until the end of the year. And although we have a high level of long-term contract of revenues, so close to 94% for 2022, we will still have some positive impact from the current environment. Going forward, as the hedges gradually roll over, we will be able to gradually reprice our renewable generation more in line with the current market environment. So merchant exposure as a percentage of total revenues to be on average around 16% in the period ‘23 to ‘25. So clearly be reaching average selling prices above the assumptions in our strategic plan. Also note that we’ve mentioned this on previous calls that we are adjusting our hedging strategy to save the increased exposure to the market on a more structural way. And to avoid over hedging situations in the case of low renewable resources and high merchant prices. I mean, just given the market context, and what we expect over the next couple of years seems like the sensible thing to do.
Overall, we expect a net positive short and medium term impact from this gradual repricing on a renewable generation, even considering some negative short-term impact from government intervention in electricity markets like Romania and Italy. So, last slide on my side, just before turning it over to Rui on ESG. A couple of quick comments here first, obviously 100% of our CapEx to fully align with the EU taxonomy. I mean, the core business of EDP renewables is 100% focused on renewables. Regarding circularity, a waste recovery ratio of 77% in line with our commitment, also of achieving the circular economy target in the business plan. On the social dimension, something which particularly happy the percentage of female employees is increased to 33%. So 2% increase versus last year. So I think that reinforces our commitment to diversity, health and safety, not so positive, but in average of 68 working days lost due to work related accidents per million work hours. And we want to do better on this. We have a specific program called play safe, which is companywide, where we are really focused on making sure that we have an impeccable track record on health and safety. Also proud of having subscribed to the United Nations Sustainable Ocean Principles. As you know, the conference was here in Lisbon. And we took part in that, and also the United Nations Women Empowerment Principles, so clearly aligned with our growth and ESG strategy pillars. I’ll turn it over now to Rui to walk you through the first half numbers, and then I’ll come back at the end for some closing remarks.
Rui Teixeira
Thank you, Miguel. Good afternoon to you all. So let’s move into page 15 for the first half results. So I’d like to start with the main highlights. So we achieved a EUR 976 million EBITDA. This represents a 49% increase versus last year, net profit reached EUR 265 million. So that’s EUR 123 million increase, also versus the first semester last year. We generated 17.8 terawatt hours of clean energies, it’s an increase of 16% year-on-year. Revenues were also positively affected by the average price increase of around 27% year-on-year. And this comes from higher prices in Europe, but also from the Spanish regulatory framework that was updated through the second quarter.
We also have closed two asset rotation transactions with approximately EUR 100 million, EUR 99 million to be precise of capital gains included in the EBITDA. On the other hand, financial costs increased EUR 74 million mainly due to higher interest rate, increase of debt and on the back, of course of the strong investment plan, and this growth CapEx plan, but also of course, with the sensitive acquisition and equity contribution, social wins, we also have a negative impact of taxes and higher non-controlling interest in net income. So all-in-all, very strong results benefiting from a solid performance of EDPR based portfolio, better resource and price.
So if we move to slide 16, by the end of the first half, EDPR have recorded capacity under construction of 3.2 gigawatts, I mean this is a record number of megawatts and the construction for EDPR. This is 1.5 gigawatts of wind onshore. And also essentially a very substantial high number of 1.3 gigawatts of solar capacity with a total portfolio of 13.8 gigawatts, very balanced across the different platforms. So North America 51%, Europe with 40%, Brazil, 6%, and APAC representing already 3% of this pipeline. In the first half, we achieved this very sound operational performance with 33% load factor. That’s a two percentage point increase versus last year, reflecting a renewables index 2% higher than the expected long-term average across capacity factor. This also compares well with the first half of last year. So the electricity output increased 16%. And of course, this is on the back of the capacity additions, but also the higher, low resource, which as I said, compares very favorably with last year. So as a result, we generated 17.8 terawatt hours of clean energy in the first half of this year, and avoided 11 million tons of CO2 emissions. So if we move now to the selling price, the average selling price in the period was 27%, higher year-on-year at EUR 65 per megawatt hour.
In Europe, the average price increase by 36% to EUR 105 per megawatt hour. And this is mainly due to the higher realized market prices in Poland, in Italy, and very importantly, the update of the Spanish regulatory framework. In North America, the average price increased by 3% in local currency due to higher merchant prices. But again, not as high as in Europe. And in Brazil, average price was down by 1% to R$ 144 and this is on the back of the more competitive assets that have been added recently to the portfolio. So all-in-all revenues increased 45% totaling EUR 1.2 billion, mainly on the back of additional installed capacity, higher average selling price, excluding the sell-down that accounts for an additional EUR 65 million, EUR 69 million, pardon, on year-on-year, along with Forex translation and others, which is about EUR 100 million, that’s year-on-year.
On slide 18, look into the net profit, net profit totaled EUR 265 million. That’s an increase of 87% year-on-year. And of course, this is on the back of the top line performance that I just explained, partly offset by some higher financial costs and of course controlling interest. So the financial costs are up by EUR 74 million. This is mainly due to the increase in depth, the increase in average cost of debt year-on-year, negative impacts of the Forex, taxes, we have an effective tax rate of 15%. That’s 3% four point below last year, and minorities of EUR 120 million increasing EUR 56 million year-on-year versus on the back on — of the positive top line performance in the portfolio, where we have the minority partners.
So just moving to slide 19. And just to finalize, before I hand over to Miguel, as of June net debt was EUR 5.2 billion. So that’s an increase of EUR 2.3 billion increase versus December closing, reflecting in one hand, the investments in the period, like the acquisition of Sunseap, the equity investments at Ocean Winds, and of course, the impact also from some Forex translation. On the other hand, asset cash flow generation, strong asset rotation strategy where proceeds reached EUR 975 million in the first six months of the year, on the back of the deals concluded in Europe also generated, showing a very strong cash flow generation. Tax equity in US, remain mostly flat over this period at about EUR 1.5 billion. Note that we do keep a very high weight of fixed rate debt, so at 85% of total debt, and we fund our investments in local currency, so matching assets in liabilities. So the US Dollar and Euro denominated debt, they represent more than 80% of our total debt.
So all-in-all, despite the increase in net debt, I think it’s clear that this is in line with the strong target divisions, the record CapEx or the record number of projects under construction. And, of course, this is in line with what we’re set forth for that period of 2021 until 2025. Let me Miguel hand it back to you now for closing remarks.
Miguel Andrade
Thanks Rui. So just last two key takeaways, I’d say six points. The first, solid first half results so the increase in EBITDA driven very much by the increase in generation but also selling prices, and obviously resulting in an increase in net profit. So first point, second, record capacity under construction 3.2 gigawatts, and 1.8 gigawatts of wind, 1.3 gigawatts of solar. Part of that will be added in 2022. Some of it will come in 2023 for reasons that we talked about earlier. Third, committed capacity already more than 50% of the 20 gigawatts target set for 2025. So 10.6 gigawatts capacity with good returns and good risk profile. Fourth point, Ocean Winds, strong portfolio, almost doubling what we had in the capital markets day, so it’s around 12 gigawatts. So continue to show good growth in multiple different geographies, whether it’s in Scotland or in France, or in Poland or in the US, or in South Korea.
I think it’s showing good prospect. Fifth point, good after rotation prospects for the year, as we saw in the last quarter, so two transactions closed, and another one signed, other deals on the negotiation. So on track there, and as I said, interest rate increases being typically offset by energy prices, expectations going forward. And in a lot of demand, just from investors in general, six point, growth outlook strong, very strong. I mean, [Inaudible] makes Europe clearly taking the lead by setting the ambitious targets, but also focusing on trying to simplify things like the licensing and permitting and interconnection. So I think that that is an area that the member states are working on, probably not having a short term impact, but certainly medium term, we think it will continue to be, there will continue to be this public support for renewables for all the reasons that I mentioned, decarbonization, about energy security, and affordability.
So overall, we are working on creating good growth opportunities that are diversified both in terms of regions and technologies that will continue to do that. I think that’s part of the value added that we are bringing, using our scale to buy well to using our competencies to build well and to continue to develop. So in that sense, very focused on executing the plan. Very focused on delivering the targets that were set out last year. And we’ll be working over the next couple of months to even revise some of those targets. So once again, thanks for the attending the call, we can now move to the Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]
Our first question comes from the line of Manuel Palomo from BNP Paribas.
Manuel Palomo
Hello, good afternoon. Thanks for taking my questions. Of course, well, I will stick to three. First one is on interest rates, you already commented on the impact from the higher interest rates on assets rotations that you see, and it’s pretty limited. However, I wonder to what extent and in light of the significant increase in the debt in the period, this hiking interest rates could put at risk your future plans. So that will be the first one.
The second one is on potential M&A. And in the last couple of years, we’ve seen a couple of sizable transactions WEPCO and Sunseap. And my question is whether you are considering or planning any additional sizable acquisition up to 2025? Or do you believe that with what you have today, in terms of pipeline and so on, would be enough to achieve the targets? And lastly, I wanted to ask you about what do you think in terms of offshore because you have commented repeatedly that you have — you see very strong prospects in in offshore, however, offshore is very balance sheet demanding, if I may. So could you please update us on your views and plans for offshore? Will you continue to sell a stakes in earlier stage as in the past? Or are you willing to maybe modify the strategy, given the strong prospects for that technology? Thank you very much.
Miguel Andrade
Thank you, Manuel. So in relation to the first question, interest rates, I mean, no, I don’t think so. Yes, we are seeing sort of interest rates obviously going up, but we’re also seeing energy prices going up. And so the two offsetting each other and or more than offsetting in the case of some of the geographies. So it was good demand and good valuations for these assets. In terms of the increase in debt. I mean, it’s something that we expect will normalize towards the end of the year. And we can also give a little more detail on that. But we don’t see that the increase in interest rates would be an obstacle or a bottleneck to continue to execute on the plan.
On the M&A, listen, I don’t know, what do you mean by sizable acquisition, but we don’t have anything specific on the, let’s say of anything close to the WEPCO transaction or Sunseap. And we also continue to look at opportunities. And so you asked me until 2025, I mean, quite honestly, I have no clue. We will look at opportunities, so that’s our job to also look at opportunities. And if they make sense in terms of portfolio, whether it is technologies or geographies, then we should do it. If we think it adds value to our portfolio, then definitely we think it makes sense to do it. And so we’ll keep you updated on anything which we do, but there are certain areas where we think it could make sense but will obviously keep you, let you know if anything comes up. But again, nothing of that order of magnitude.
And in offshore, yes, strong balance prospects, balance sheet demand. And I think that’s a good way of putting it, it’s true that we do have that strategy of selling down stakes progressively as the project goes on maturing and so ranging from when it’s, we already have the 50:50 JV with ENGIE. So that’s already a way of partially managing and de-risking managing the balance sheet and de-risking. We typically find partners so for example, New York Bight, 50%. Ocean Winds with JIP so we’re indirectly 25%. In case of Mayflower we went with Shell. So we typically find partners, and we will then go on selling down stakes over time as the project matures. So we manage the overall impact on the balance sheet and I think that’s, we prefer to be in multiple projects with decent stakes than to have too much concentration of capital in a single project. And like that, I think we can find a good risk return balance and let’s say overall in terms of the growth in this portfolio. May be, I guess Rui, do you want to comment as well.
Rui Teixeira
Well, yes, Manuel, thank you for the question. Just related to the net debt. I mean, what we are expecting it is that net debt was around four, between EUR 4 billion and EUR 4.5 billion by the yearend. Of course, this the first half we have the impact of the other Sunseap acquisition. And given that we should have more than three gigawatts under construction, there was already some cash out for the period. But as we move through the second half, basically, we’ll have in one hand the cash in from the asset rotation that we are still working to sign and close that we expect to happen before the year end. And also, there will be — there is some seasonality in terms of the working capital with the successful supplier. And basically, we expect this the debt to reduce towards the year end. And then as Miguel said, I mean, we are not expecting any material change in terms of our cost of that. I mean, as of now, as you saw it went up from 3.5% to 3.7%. So it was not material, because most of the debt is fixed, and whatever interest rate environments we will live in will also know that we’ll have that reflect into the power prices. So we are seeing that happening.
Operator
Our next question comes from the line of Alberto Gandolfi from Goldman Sachs.
Alberto Gandolfi
Hi, afternoon, and thanks for taking my questions. I also have three. The first one is [Inaudible] I think Miguel you explained very, very well the end game and that we’re lacking details. But to your best knowledge, could you maybe share with us what do you think pragmatically are going to be the next steps? So when are we going to see maybe legislation in all member states or in the big member states that is actually going to accelerate the conversion of the pipelines? When are we going to see actually, those higher level of about potentially up to 100? Or maybe later in the decade, even 150 gigawatts a year of wind and solar auctions in any given year. So just trying to gauge, when will we see your P&L benefiting from it? Is it 2025 at best? Can it be in ‘24? Or is it during the second half of the decade?
The second question is maybe if you can give us a bit of an update on returns, you already said a lot. I’m particularly interested in trying to understand where you see returns going in this current backdrop? And are you planning to change your strategy to be maybe a bit more exposed to merchant prices given despite price gaps, given the merchant prices provide much stronger returns and more to the point there was about 12 gigawatts in the JV of offshore. And again, most of those are in the second half of decade. So who knows what the returns may look like? But can you tell us if you still are targeting the same IRR minus WACC of about 200 or 300? Perhaps basis points on those projects? Should they be more or less profitable than the rest of the portfolio? I’m specifically referring to offshore.
Last question. It’s basically segue from question number two, six gigawatts on your share of, well, it’s a typical for the JV and half of that for your share. It’s quite a lot of money. So if we start to put together a net debt, including tax equity partnerships, leases maybe in the neighborhood of EUR 7 billion at the end of the year, and then you need you’re about to see an acceleration in project in Europe, in offshore, how are you going to fund it? Are you open? So should we expect to every three years an equity raise from you and nothing wrong with that? I think that it’s for good reason, right? You have plenty of projects to pursue. So I think it is okay, but I just trying to think how you’re thinking about it, is it going to be more farm downs? Or would you actually prefer to retain a little bit more and then try to use some equity. Thank you.
Miguel Andrade
Hi, Alberto. Okay, great questions. So let me take them one by one. [Inaudible], so we are already seeing governments take concrete steps to try and simplify. I can give a very local example which is in Portugal, the government came out actually just this week with what’s called the simplex, so a package of measures which is now for public consultation until September where they are essentially streamlining the process, finding ways of reducing the environmental constraints within reason. And but it’s a dedicated package to simplifying and accelerating the licensing and permitting of renewable projects. So that’s one example. But we can go country by country, and some haven’t made it public yet. But I would say that almost all of them are talking to the associations, to the companies to try and to understand where the bottlenecks are? How can they help? And so that is work, which has been done, it will take months, let’s say to then get into to get the resources and the actual simplifications done into law and to take out some of the bottlenecks. But I’d say sort of 12-18 months, you start seeing already, hopefully concrete impacts of projects beginning to be accelerated and towards the ’24, ‘25, you start seeing some higher growth already coming through from that.
So then, I don’t think I’m being too optimistic. But let’s say that, for me would seem to be the reasonable sort of timeline. And even Germany’s have really pushing forward in terms of inverting the onus of proof so that you basically need to renewables are considered strategic assets. And you now need to prove that building renewables will be harmful, as opposed to you having to put, us having to prove that we won’t do any harm. So there are measures that are being taken, I think governments are very focused on that.
On the second one in, so offshore returns, or in general, more exposure to merchants, so in the past, we are in a different world, okay, I mean, the world has changed, definitely over the last couple of months. In the past, the difference between doing a long term PPA or going merchant, in terms of risk reward clearly was in favor of doing the PPAs. Because the projection of energy prices versus doing a PPA, I mean, with the additional risk of being merchant, you might as well just lock in that price for the next 15 years. So 18 months ago, I don’t think or 12-month ago, there was no doubt about what was the best risk return strategy. I think where energy prices are now certainly for the next two or three years. That changes slightly, I don’t think it swings all the way to the other side. So I certainly wouldn’t, or we wouldn’t continue to consider or advocate doing fully merchant, because it does have a lot of volatility. And prices can go up, but it can go down as well. And so if you’re counting on very high prices, you can get squeeze hard on that. Having said that, I think having long-term PPAs and then what they nowadays call either merchant nose or merchant tail or a small component of merchant, so you can maybe get an extra kicker in returns. I think that is let’s say appropriate given the current market context and what we expect over the next couple of years.
Specifically you were then asking about the JV in sort of on the offshore. I mean, we in offshore, we target 1.5x cost of equity, which again, will be country specific. But we normally look at it on a cost of equity approach because since we have minority interest there, so it’s normally project financing. And so the appropriate measure would be the cost of equity. That’s what we’re getting on that. But we’re talking about double digits or very high single digits in most of the geographies where we’re in until with a good spread on the cost of equity.
In your third point, listen, it’s a deep question. We are definitely comfortable with the current business plan in terms of the financing of that, as we mentioned the debt we are expecting it to sort of normalize more towards the end of the year. So I think I wouldn’t read too much into the net debt level at the end of this semester. Having said that, we are obviously accelerating the CapEx. What I’d say to you is the following, probably beginning of next year, we would normally go to the market to update let’s say looking at where the market is in terms of interest rates, in terms of energy prices, in terms of the prospects for growth, et cetera. And so we’re going through that exercise, but of looking at what are the prospects of growth? I don’t have a concrete answer except to say, with the current business plan with the current assumptions, we are comfortable the way we are. And so we don’t need to go beyond in terms of farm downs or capital raising. And so there — those options are I think we’re sticking to our plan. But obviously, if we think it’s appropriate to go back and revise that, we’ll do that at an appropriate moment. But for now, I’d say the plan is credible and it’s fully funded.
Rui Teixeira
Yes. Just, Alberto, it’s Rui, just again to highlight, now bear in mind that when we look to the offshore and of course, offshore is in a very capital intensive, at different stages of the project development either at when we start participating the auction or sorry PREFID or HCOD, at some point we’ll, Ocean Winds will be selling down stakes. So the point is exactly acknowledging that these are very capital intensive. And throughout the process, we will be bringing in partners different profiles. So that also supports the funding of the entire portfolio.
Operator
Our next question comes from Jorge Guimarães from JB Capital.
Jorge Guimarães
Hi, good afternoon. I have three questions, one of which is the follow up from your answer to Alberto. And the first one is if you can elaborate on the current levels of CapEx, namely for solar PV. Some players are speaking about EUR 0.6 million, EUR 0.7 million per megawatt for installations in 2022 in 2023, in Europe, so I would appreciate your view on this.
The second one is looking at the objectives theory in Iberian, Spain and Portugal. Solar seems to be very much ahead of government objectives, but we not so much. Would you consider to speed up installations in wins in Liberia or is just a matter that the market is not attractive enough.
And the final one and the follow up to, you mentioned high single digit, is it for project return that allow for that ROE equals 1.5x times cost of equity, or the high single digit refers to the project to the equity IRR. So the high single digit is project IRR or equity IRR in offshore. Thank you very much.
Miguel Andrade
Okay, so in terms of current level of CapEx, I’d say that’s right. I mean it has gone up. So probably we’re talking again a year ago, probably below, we’d be below 0.5. I remember projects coming out in 0.4, or there about. So CapEx has increased both on the PPA and the turbine side. For the projects that aren’t, let’s say that didn’t have already the contract locked in. In terms of the objectives for Portugal, solar is moving forward, wind, could it speed up, in Iberia in general? Yes, definitely. And I think there it goes back to one of my comments that I mean, wind in Iberia is also very competitive onshore and onshore is very competitive. It would be good to get visibility on auctions, or let’s say, that would be happening in Portugal and in Spain over the next couple of years. I think would be good for you guys. It would be good for us just to be able to think about allocating resources and sort of what can be the expectation in terms of the build out of both technologies. For corporate PPAs it is possible to do wind. And obviously, solar, I think will probably speed up once they also get simplify the licensing and permitting project. But it is not going as fast as solar, at least at the moment and certainly not in Portugal and not in Spain either.
On return on equity, so we would normally target with let’s say double digit return on equity. As I say it depends on the geographies. And high single digit would be in a very low risk market. Normally, what we find is that when we do the asset rotations or the sell down of the stakes, then these returns go up into the probably high double digits. And, in fact, while I can tell you just looking at the recent, while just looking at Moray East at the moment, for example, we are talking about very healthy return on equities that we’re getting to above 20%. So I think in that sense, well, so hopefully I’ve answered your question but so that would be the returns we will be looking at, that would be a spread to the cost of equity of the country.
Operator
Our next question comes from the line of Jose Javier Ruiz from Barclays.
Jose Ruiz
Yes, good afternoon. And just two questions. The first one, if you could give us a little bit more color on what is going on in the US, you mentioned the legislation packaging of going ahead. I would have been mentioned opposition to direct payments of tax credits. If you can throw a little bit of light if this is just temporary or the future looks more positive.
And the second one on slide number 10, you mentioned Moray West, you’re going to be combining two ways of protection. One is the CFDs. And you say you complement with cooperate PPAs the remaining capacity. Can you mention why are you doing this? You’re getting higher prices in corporate PPAs? Or it was just a limitation of how much CFDs you could get for Moray West. Thank you very much.
Miguel Andrade
Okay, so in relation to the US. So as I mentioned, I think in terms of Build Back Better definitely been, was not going forward. I think that was killed out, that was quite public sort of about a week ago, or the second potential version of the build back better. So I think we’re in the base case scenario, which is we, the structural demand in the US is there, whether it’s from the renewable portfolio standards, whether it’s the corporates, no more than half, I mean, almost 60% of our PPAs, and projects in the US are corporates. So we continue to see strong demand there. And renewables continues to be very competitive in the US, even with the current PTCs and ITCs, for wind and solar. So I’d say that the base case, is what we are looking at or what we’re expecting going forward. If the Build Back Better had gone forward, it would have been an upside to that. It’s not going to go forward. So I’d say the next as a potential area of use. So what’s the base case is the PTCs is in ITCs is phasing out. That’s what’s been agreed. And that’s what built into the business plan. The only additional thing that could happen now probably is the extension of the current level of the PTC. So improving versus the base case that would typically happen at the end of the year. I mean, let’s see, again, we’re not holding our breath for that. But that would be probably the next data point that we would get. What I would mention, though, is in terms of — so in terms of the tariffs, as I said, the two years. That’s President Biden has given that so we have two years in which you have visibility, that will be zero tariffs, by then the Department of Commerce will have concluded investigation. So we’ll have visibility on are there going to be any tariffs or not? And what would be the level in that case?
And I did mention bureaucracy, because I think that’s something that in the short term is impacting, actually bringing the panels into the US. And doesn’t — it’s not a structural issue, but it’s, let’s say it’s a short-term logistical issue. So structurally, what I’d say is, we’re assuming the base case, could be some upside now, at the end of the year, but let’s see, we’re not building that into the business plan.
On Moray West, and so this is called revenue stacking, actually did the other way around. So we had a corporate, we’re not necessarily sitting around just waiting for the CFTs to come by. So we have an active presence in the market looking for corporate PPAs. Yes in this case, we had two corporate PPAs that we were, well advanced in that we’d locked in. So we went for the CFD. This is the volume of CFD that we needed to basically complement. And let’s say the project was what we needed. So we already had the corporate PPAs. We locked in our CFD, it means now we’re fully set. In fact, we took the decision to move forward with the construction of Moray West. I think we’ll see more and more of this, which is revenue stacking, so not just having a single, I mean, you can also have just one contract for the full project if you want but you can also do the bundling. The advantage of that is you get some additional flexibility in terms of price, even in terms of conditions, whether there’s revenue sharing or not. In the CFD, it is what it is. I mean it’s set you bid for it, you lock it in with a corporate PPA you obviously have some additional flexibility to discuss terms when it kicks in when the CFD comes in, and all of that. So if you can find them, they’re also good contracts to have, if the counterparty is credible. So that answers your question.
Operator
Our next question comes from the line of Skye Landon from Jefferies.
Skye Landon
Hi, thanks so much. I just wanted to ask about the under construction capacity, which, obviously, through continuous nice uptick from 1Q. And I am just wondering if you could provide a timeline of the expected the big moving parts there, specifically US solar, the Canada wind projects, and also the Brazilian Columbian projects, thank you.
Miguel Andrade
So we don’t have a specific breakdown of that. But to say it’s about, If I am not mistaken around 50:50 of wind and solar, I mean, most of our wind currently or big bulk of it is in Colombia and Brazil and that we’re expecting Colombia to probably come in beginning of 2023. So that slipped slightly from the end of fourth quarter of ‘22 to ‘23. Solar, I’ve already mentioned the previous call in the US. So that’s the opinion to ‘23. Overall, for this year, we have an expectation of doing between 2 and 2.5 gigawatts. And so the Delta, let’s say, will be coming in 2023.
Operator
Our next question comes from the line of Fernando Garcia from RBC.
Fernando Garcia
Hey, good afternoon. I have a couple of questions. So first one is I want to know the impact in this also, from the changes in regulation in Spain in the first half. And what you expect for the full year on this change of regulation?
Then second question, you say it, if I recall, well, in first part, the results that your PPAs prices, increasing by 10% to 15%. I wonder if you can update that figure. Thank you.
Miguel Andrade
Thanks Fernando. So, Rui.
Rui Teixeira
Yes, sure. Hi, Fernando. So on Spain, just let me just run through the numbers. So we generate about 2.5 terawatt hours in Spain, about 60% of this is under this regulated price that now became the reference price became EUR 120. And as you know, this is a retroactive that also is impacting the first quarter, when the price then was at run, I would say 60s. So basically, this is — there is this first positive impact, then 40%. So the rest of the 40%, the generation the 40% is merchant, we hedged it at around EUR 50 per megawatt hour. So effectively, what we see is that when there is an impact in the first half from this change in regulation, which is about EUR 60 million full year should be around about EUR 150 million. But I would like also to highlight that this is positive for the season. So this is not only positive for EDPR. This is positive for the system because on the other hand, the incentive so that premium that we should be getting into – from the system goes down year-on-year from EUR 58 million to EUR 22 million. So there’s a substantial decrease in that. And that is a positive impacts that the system also is observing. But I mean, again, just the number for us is EUR 60 million in the first half and around EUR 150 million after a full year.
Sorry, and the second question related to the PPA pricing, I mean, yes, we have been observing a PPA price increase. And something that we have been, of course discussing with the different off takers, depending on the tenure of the PPA. And you’ll see different percentages again, if you’re talking about typically the 15 year tenure PPA that is much more different by the CapEx increase. So doesn’t sort of range to 10%, 15% PPA price pretty much reflecting the CapEx increase. If you’re talking about shorter 10 years, let’s say between 7 and 10 years then it’s more related to the forward curves. And there you will see a higher PPA price just because of merchant prices across Europe, a little less in US, but as well in the US went up. So basically, if you look to the shorter term PPAs, you’ll actually see higher increases than the 10% to 15%.
Operator
Our next question comes from the line of Arthur Sitbon from Morgan Stanley.
Arthur Sitbon
Yes, thank you for taking my questions. I have two. I know you were mentioning some potential delay in the US with well, the bureaucratic procedures on solar panels. I was wondering if you stick to your target of adding 3 gigawatts of capacity in gross terms per year on average for 2022-2023. So that’s my first question.
The second question is a bit more detailed in some of the contribution of associates in H1, so it is up EUR 80 million versus last year? I was wondering which asset is the growth related too, is it sustainable, and which level we can expect on associate for the full year. Thank you very much.
Miguel Andrade
Hi, Arthur. So in relation to your first question, I mean, yes. So we’re — we maintain the target for ’22, ‘23. Obviously, ‘23 is going to be a busy year. But I think what I’d say is we are getting it well advanced. So we’ve got the 3.2 gigawatts under construction, which means and then most of that will be coming in 2022, part of that in 2023. And we’ll also be continued to launch additional projects, let’s say the building of additional project for 2023. So 2023 will be obviously an intense year, but I think the teams are all, will be ramping up also in terms of teams, internally to make sure that we can deliver that. So you’ll have seen that also in terms of headcount, and personnel.
On the second question, it’s mostly Ocean Winds, but not only also some additional projects in the US and in Europe, so Spain and in the US, mostly from where we have sort of interesting projects. And those additional let’s say results are coming through the associate’s line. And is it sustainable? Yes. I mean, given the current market context, it’s something which we expect will continue going forward.
Operator
And the final question is coming from the line of Olly Jeffery from Deutsche Bank.
Olly Jeffery
Thanks very much and good afternoon. And I have one follow up. And then two other questions, please. The first one is to follow up on your response to Fernando regarding the impact of the change of regulation in Spain. And you mentioned this year, that’s a net beneficiary of EUR 150 million EBITDA versus before that change in regulation. When we think about 2023, I understand that the fixed element will be lower, but perhaps the pathway assumption will be higher as well. How should we think about the net effect of that in ‘23 versus before this change of regulation? That’s the follow up question.
The second question is on just to come back to the return metrics. At full year results, you said that the 8.4 gigawatts, you then had secured the NPV over CapEx of those projects was at 35%. And since then, you’ve done an additional two gigawatts and power prices have obviously moved up quite considerably. What NPV over capex for the two gigawatts broadly that you secured additionally, in the first half of this year? And then last question is just on the gain. The target you still have in place and looking to see more than 300 but less than last year’s 4,500. I know you’ve done EUR 100 million so far. Last year, you had one project, the Portuguese project where you sold to Onex that generated over EUR 300 million of gain. That was a huge product for gain. I just wonder of the US project you have in line and other projects you are working on is one of those similarly, very largely size and potential gains or the gains quite evenly mixed across them. There your views and all of that would be much appreciated.
Miguel Andrade
Okay. Thanks Olly. Relation to the first question, Rui, do you want to take?
Rui Teixeira
Sure, absolutely. Hi, Olly. Just say it’s got to be higher than EUR 150 million. So first by November, we’ll have the 2023 price being defined based on it’s a basket of different forward curves. But it’s likely that at this point, we’ll see a higher price than the reference today. And secondly, I mean, as we also have some hedging, that basically will increase because of the hedging opportunity in 2023 is higher. And overall, I mean, we’ll have a higher impact in our EBITDA in Spain, in one hand coming from the regulation also coming from the hedges.
Miguel Andrade
And really the second question that I confess, I don’t have the numbers with me. So we can maybe get back to the — through the IR team. If we have additional detail. On the third question in relation to the gains. So as you say, we’ve locked in EUR 100 million, and I’d say we have, the others would be fairly evenly split. So we’re not expecting a single project sort of to have a certainly nothing of the materiality that we had last year in one shot. So it’ll be more split between the remaining asset rotation portfolios.
Olly Jeffery
That’s great. Thanks a lot.
Miguel Andrade
Okay. So I think that concludes the questions. Hopefully, it was useful. Thanks for taking the time. Again, once again, I know it’s a busy week for everyone. But thanks for taking the time to talk to us. I think it was a good quarter, good first half and good prospects going forward. Good prospects, not just for the rest of the year, but I think, for 2023 onward. So above all, I think the feeling that there’s a very structural tailwind in favor of renewables and so there’ll be ups and downs, but I think the structural growth is there and that’s what we’re working on just making sure we can continue to grow the company and continue to create value. Thanks very much and talk to you soon. Take care.
Operator
Thank you, everyone for joining us in today’s call. You may now disconnect your line.
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