EDP Renováveis, S.A. (OTCPK:EDRVF) Q3 2022 Earnings Conference Call October 26, 2022 9:00 AM ET
Company Participants
Miguel Viana – Head, IR and Sustainability
Miguel Andrade – Vice Chairperson and CEO
Rui Teixeira – CFO
Conference Call Participants
Javier Garrido – JPMorgan
Manuel Palomo – BNP Paribas
Alberto Gandolfi – Goldman Sachs
Jorge Guimarães – JB Capital
Arthur Sitbon – Morgan Stanley
Jorge Alonso – Société Générale
Operator
Hello, and welcome to the 9M 2022 EDPR Results Presentation. Please note this conference is being recorded and for the duration of the call, your lines will be on listen-only. However, you will have the opportunity for ask questions at the end of the presentation. [Operator Instructions]
I will 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. Thank you for attending EDPR’s nine months 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 nine months 2022 results. We’ll then move to Q&A, in which we’ll be taking your questions. And this call is expected to last one hour.
So, I’ll give now the floor to our CEO, Miguel Stilwell de Andrade.
Miguel Andrade
Thank you, Miguel. Good afternoon everyone. I hope you’re all doing well. Always pleasure to speak to you. So, I’ll kick off talking about basically updating on the strategy execution.
And if we move straight into the presentation and go to slide four, you can see that our nine-month performance for 2022 shows really a strong growth in EBITDA. It’s up 62% year-on-year to around €1.5 billion. And this has been very much supported by expansion of our asset base. So, we increase our installed capacity by 10% year-on-year and the generation overall increases around 14%. year-on-year.
We also see a significant improvement in our average selling price of almost 30% year-on-year. So, supported by higher prices in most of the European markets and also some FX.
Finally, asset rotation gains around €264 million including the transaction in Italy, which was closed in September.
Net profit. Net profits increased 180%, so year-over-year to €416 million. So, very much impacted by the higher financial costs, which is on a negative side due to higher interest rates. But obviously, it also has a positive upside from the EBITDA that I mentioned earlier. Increase of debt and ForEx impact is partially mitigated by the asset rotation gains. And we’ll talk about that later on in the presentation.
In terms of the 2025 targets, both growth and value. On one hand, we have gross investments reaching around €4.4 billion. So, this is more than doubling last year period. And this reflects the ramp-up of our investment plan with renewable projects under construction, reaching the historic record of 4.3 gigawatts over around 15 countries.
Regarding asset rotations, and if we look back to since 2021, we’ve already secured a total of nine transactions in six markets and this represented total proceeds of €3.4 billion, so over 40% of the €8 billion total asset rotation plan that we had for this business plan period.
Finally, we’ve secured until now almost 11 gigawatts of capacity for this period until 2025. And that represents around 55% of the total target that we have for capacity this and so again, moving — continuing to move forward on track with that.
Now, let’s dive into some of the key geographies. And if we move to Slide five, we can talk about the Inflation Reduction Act. I’ve mentioned this before — so actually, last time, we spoke just over the summer, I think I mentioned at the time that we were not holding our breath for this to come out. Fortunately, it did come out actually the day after we spoke. So, there was started — news on this and this was finally approved during August.
So, I’m sure all of you are aware of the legislation and aware of the impact. Maybe just highlighting a couple of key points. First, it brings 10 years of stability for renewables tax credits and in fiscal incentives. So, I think that will avoid the stop and go and the sort of the hesitation from the market in terms of investments. I think that’s good, it gives us a long runway to be able to invest in the U.S. over renewables.
The IRA also extends PTCs and ITCs into new technologies. So, for example, solar PTCs are also now eligible. This will provide better returns for some of the projects. In fact, most of the projects will be able to have some slight increase.
The eligibility also depends on some labor and apprenticeship requirements, but which we are comfortable that we will be able to meet. Regarding new technologies, the IRA also has a new tax credit for standalone storage, as well as an incentive for green hydrogen, which we think will also contribute strongly to the development of these technologies in the U.S. So, both storage and hydrogen, I think get a good boost here, which will be positive, certainly for the U.S. and I think for the market and for ourselves.
Finally, just an interesting point on the IRA introduces a new structure of the tax credits, so it adds a bonus rate to the base rate. And there are essentially two types of bonus credits, one for domestic content, the U.S. manufacturer content and another which is for projects located in certain disadvantaged communities. Mainly those that are dealing with the impact of past and current fossil fuel extraction and pollution. So, for example, coal plants that have been shut down in the surrounding areas, we build a project we’ll be able to get an additional bonus credit.
So, this is definitely positive for renewables growth prospects. I don’t think there’s any question about that in the U.S. And as you know, the U.S. is a key market for us. We’re present in 14 states; we have a long track record reaching all the way back to 2007. We have a significant pipeline of projects under development. And so the approval of the IRA really provides a stable long-term framework to support the renewables projects, commercial activity going forward. And I think we are well-positioned to capture that growth in the U.S.
So, let’s move on to Europe. Now, Europe, you’ve also spoken about this in the past, the renewables growth potential has definitely been reinforced by the REPower EU ambitious targets. The following the Kronos acquisition that we closed in October, EDPR has reinforced its presence also in these low-risk European markets, namely France and U.K., we entered Germany and Netherlands. So, now we’re in 12 European markets.
These markets around 90% and 82% of the EU market growth potential for solar PV and wind capacity, respectively. So clearly, we are sort of the major markets in Europe and unable to capture that potential growth.
Now, everything’s not super rosy, they’re obviously bottlenecks and I think we’ve addressed these very specifically in the last couple of calls and instead of when we talk also to investors and government officials, things like the length of the permitting processes, I mean, this has been a bottleneck. However, we are seeing some movement on the subtraction in trying to actually simplify.
We have the Easter package in Germany. This was finally approved in July and so that’s got several initiatives to reach the 60 gigawatts of renewables installed capacity until 2030.
In Portugal, the simplex again, exceptional measures to accelerate renewables like streamline permits. And other examples Italy, energy decree is introduced measures to simplify procedures. So, these are positive steps, I think, to try and eliminate some of the bottlenecks.
Obviously, these are only for a limited number of countries. I know that other countries are also working on additional measures. This really is obviously a key issue to be able to accelerate. But I’d say that over the next month or so, we should expect more news coming out with that to move forward with the project.
Let’s move on to slide seven. So, talking about capacity additions. Since our Capital Markets Day back in February, we’ve increased by around 80% or almost five gigawatts secured capacity until 2025. So, we’re now at the 55% target of our 20 gigawatts that we had until 2025. And we continue to increase visibility and execution of the plan. So, we currently have almost three gigawatts of PPAs under negotiation.
We continue to accelerate growth across all platforms. So, with eight gigawatts installed and under construction, so we’re adding up to 40% of the 20 gigawatt targets until 2025.
As you know, some short-term challenges that we’ve had in 2022 in the U.S. have moved or transferred some of the projects from 2022 to 2023. I think we’d flag that in previous calls and months. And to mention a couple of the key ones, one in the U.S. has got to deal with the supply chain delays and the regulatory uncertainty because of the anti-circumvention investigation and also the Uyghur Forced Labor Prevention Act. So, this will pose some challenges and it’s postponed some additions to 2023. So, we have expected additions to be above two gigawatts in 2022. So, we didn’t get it to two and a half, we should be above the two. So, I think coming up to the end of the year, we’re relatively comfortable on that.
And we have 4.3 gigawatts of projects under construction. So, that’s 1.1 gigawatt increase over the last quarter. And I think this will contribute to capacity additions, both in the fourth quarter of this year, but primarily to 2023. So, we are expected more than four gigawatts to be added in 2023, of which three gigawatts already under construction.
I just like to highlight this because this means that 2023 will be an intense period, but as you know, we had around four gigawatts of capacity on average being built. So, just for the projects that we have projected for 2023, it will be an intense year of construction. But I think it’ll also show really the ramp up and what we are able to do with the team that we’ve been reinforcing.
Also, in terms of the medium long-term renewables growth opportunities, I think obviously these are reinforced by the REPower EU Inflation Reduction Act. So, not just the 2024-2025 periods, but beyond — as I say, we are clearly working already on projects even beyond this business plan period. And I think that’s something that it’s good to — I’ve been traveling around a bit to the different geographies and to see the teams already building up that pipeline for the post business plan period. We’ll talk about that I’m sure at some other points.
Ocean Winds. So, Ocean Winds, this has been really fantastic growth over the last year or two years. Ocean Winds has now reached a portfolio of almost 15 gigawatts. It’s more than doubled what we had at the beginning of 2021. We’ve had some important developments over the last couple of months. First, Maury West, it up in Scotland, as you know, contiguous to Maury East, which is already operating.
So, Maury West is already under construction. We expect that to probably be 2024 project and we’re coming in 2024. We also have a smaller floating project in France, which is expected to close its financial close in that same month, and the equipment is also under construction. So, again, we’ll be — we already had a project here in Portugal, the floating offshore, we’ll now also have one in France.
In August, Ocean Winds was also awarded to new floating offshore projects in Scotland, so close to the Shetland Islands, that’s more than two gigawatts of potential capacity. And in Poland, just this week, our 400 megawatt offshore project B&C-Wind obtains its environmental decision. So I think that’s also extremely positive.
So, total portfolio as of September of 2022 included 1.5 gigawatts of capacity in operation, 3.6 gigawatts of project under development with long-term revenues contracted, and almost 10 gigawatts of project under development with other seabed or connection rights secured and so Ocean Winds is clearly becoming a reference in the wind offshore sector.
So, let’s move on to asset rotation. Clearly, asset rotation program continues to deliver value in 2022. We’re talking about €3.4 billion of assets, rotation proceeds secured over the last few years, representing over 40% of our €8 billion target proceeds for 2025.
I think it’s important to highlight the following. And you can see that quite clearly on the graph, we’ve sold less than what we were expecting. So, we sold two gigawatts, below the 1.4 gigawatts per year that we assume that the business plan, yet we resulted in €1 billion of total gains in the spirit, so exceeding by €300 million per year, feeding the target of the €300 million per year. So, we reach an average of around €500 million per — sorry €0.5 million per megawatt in terms of multiple.
And clearly with the strong value creation, so two times the guidance providing the business plan. So, selling fewer megawatts, but obtain the same proceeds and much more gains per megawatt than what we had anticipated in the business plan. So, I think that’s definitely good news.
And if we move on to slide 10, just give you a little bit of detail on both the Italian portfolio and the Brazilian portfolio. So, in relation to the Italian portfolio, this was signed in July, closed in September 172 megawatts of wind capacity, talking about a multiple of €2.4 million per megawatt total asset rotation gain per megawatt of around €1 million and the 65% gain over CapEx. So, definitely the higher energy prices were a significant valuation driver in this portfolio. So, generated more than two times thresholds of investment targets for the business plan. So, I think this is a great transaction. And it shows the value creation potential.
Regarding Brazilian portfolio, so that was signed now in October, we expected to close before year end. Again, we’re talking about a multiple of €1.3 billion. But so we’re expecting an asset rotation gain per megawatt of around €0.6 million and a 60% gain over CapEx.
So, I think it’s important to note that this project had a very low, very competitive CapEx per megawatt. Yet we had PPA price, which gave us our returns of over 1.4 times IRR over WACC. So, again, with this transaction, the multiple — gaps with multiples lower, but the gain is extremely good. And we’re expecting to generate two times the investment targets for the business plan.
So, two good examples, as I say, signed one July, one now in October, so, in the middle of the increase of interest rates, but showing that we have been able to create value with the projects that we are building and then selling. So, two good examples. And also, I think it shows in terms of diversification, both in terms of countries and technologies that we’re able to create value from this project.
So, let’s move on to talk a little bit about regulation in Europe. And here are just a couple of comments. Recognize that Europe has tried to create a transversal regulator trying to define a common toolkit, a common set of policies for the different European countries to react to the higher energy prices.
However, what we’re seeing in practice, is that the different member states are all going out on their own and many of them are implementing their own policies, their own measures, obviously, aiming to provide stability for consumers, essentially, through either higher taxation for companies or through caps. Defined revenue cap at €180 per megawatt hour, but the member states have the possibility of establishing lower levels and that’s what some governments are doing.
Now, there are many differences between the different European countries, and I don’t think it’s worth going through all of them individually. But I would just highlight that definitely Romania and Poland. There is — or there are current legislative drafts on price caps and windfall taxes, which do raise relevant concerns.
We hope that there will be a more balanced final outcome towards the end of 2022. I think over the last couple of days, we’ve seen some positive evolution, because quite frankly, what was coming out of both primarily Romania, but also Poland to certain extent was certainly not — it was not even really compatible with the EU directive. So, included things like legislation did not incorporate, for example, hedges in the in the calculations of the of the caps.
So, I think it’s just worth highlighting that because we are seeing quite a lot of different regulatory reduction, or work been going on in the different countries. And to just give you an overview of what’s going on.
We’ll move on to slide 12 and just talking about energy prices, because obviously that’s also a key issue, I think, for everyone. So, over the first nine months, you had an increase in the average selling price of around 29% year-on-year, obviously, impacted by the higher prices in Europe. Those projects that were more exposed to merchant. We expect the level of prices per megawatt hour to be maintained until the end of the year. So, that wouldn’t be our view, our guidance for this.
Regarding hedging strategy, we are optimizing it by reducing the volume of long-term contracts to around 90% in 2023, and then closer to 80% in 2024-2025 period. As you know, we have — a lot of it is still either fixed or hedged, but we are slightly increasing the exposure over this period. And I think that should allow us to benefit from a favorable repricing as the hedges roll over.
If we move on to slide 13 and just before I turn over to Rui, just making a couple of comments on ESG. And you’ve got here some of the key metrics, maybe just going through a couple of them so 100% of the eligible CapEx is aligned with EU taxonomy. So, our core business is totally focused on renewables, avoiding the emission of 50 million tonnes of CO2. That benefits obviously for the increase in energy production and good contribution to the global challenge of net zero.
In relation to circularity, we’ve improved our waste recovery ratio to 79% mostly due to the recovery of turbine blades that had to be replaced. Again, good contribution to the circular economy targets in the business plan. We continue to work with turbine manufacturers and other suppliers and just based on recent meetings we had with them, we’re quite positive that this will continue to develop favorably over the next couple of years. I think the whole value chain is aligned and trying to improve the circularity of what we use.
On the social dimension, three key points, one, percentage of female employees increased the 34%, 2% improvement versus the last year. I think definitely showing our commitment to equal opportunities and promoting diversity throughout the organization.
Regarding health and safety, we had an average of 2.3 work related injuries for moving work hours. Unfortunately, this is not good. So, this is obviously on the negative point.
Health and safety, I’ve talked about this in the past, but it is a top priority for us, we have — we are implementing a safety program called Play it Safe, which is transversal to the entire EDP Group, but obviously, impact EDP Renewables. And its key objective is really to improve the company and its procedures focused on accident prevention. So, that’s something that we’ve been very focused on.
Regarding communities, just one highlight, I mean, we’ve already contributed around €1.4 million. This year-over-year variation is mostly related to donation that we’ve made to support the humanitarian crisis in Ukraine. So, mostly through our operations in Poland and Romania.
Finally, just a quick note, in terms of our governance, so we’ve created an independent ESG Committee, led by our Board of Directors, chaired by the Chairman of the Board of Directors. And we already highlighted the importance of corporate governance matters, so we’re now extending it also to the all the remaining ESG dimensions.
So, regarding the social dimension, specifically, we just recently approved our human and labor rights policy. And, obviously, we’re committed to that through our Code of Ethics, but we’ve now made it much more explicit, just given the importance of this issue.
And we’ve also really increased the commitment to guarantee responsible operations throughout the whole value chain. I think this is something that we’re feeling throughout the sector and it makes sense just to make it more explicit that we really take seriously all of our value chain and making sure that we are being responsible about how we manage that.
I’ll stop here. I’ll turn it over to Rui for the next section, and then I’ll come back at the end. Thank you.
Rui Teixeira
Thank you, Miguel, and good afternoon to all. So, I will now ask you to move into the nine months results. So, if we look to slide 15, I think it shows that EDPR continues to deliver a very solid operational performance, of course, on the back of a growing installed capacity. So, by the end of the third quarter, EDPR have a record capacity under construction, before 0.3 gigawatts and construction balance between solar and wind and therefore, this means that we are effectively evolving in terms of the portfolio diversification.
During this year, we have installed 1.3 gigawatts. So, that’s an additional 700 megawatts approximately just in Q3. And asset rotation amounted to 0.5 gigawatts in Europe. And therefore, we arrive at a portfolio of 14.3 gigawatts of installed capacity, also with a very balanced mix across North America with around 49%, Europe 38%, Brazil 8%, and APAC naturally ready, representing 5% of the entire portfolio.
So, in the nine months of 2022, we achieved a sound operational performance with a 30% load factor. That’s a 1.3 percentage point increase versus last year. And this reflects that renewables index in line with the expected long-term average gross capacity factor.
Electricity output as a result of this increased 14% year-on-year, naturally, also benefiting from the higher capacity additions. And this compares with a nine month 2021 in which was renewable resources were 5% below the long-term average. So, effectively, an improvement in terms of the resource mostly wind, but also starting now to have an impact positive impact from solar. As a result, EDPR generated 24.4 terawatt hours of clean energy in the nine months this year, therefore avoiding 15 million tons of CO2 emissions.
If you now move to slide 16, as we look into the EBITDA, it increased 62% year-on-year to €1.5 billion, with Europe representing 66%, North America 32%, and the remaining 2% South America, APAC, and others. All of them growing versus the nine months 2021.
Our EBITDA was positively driven by 10% growth in installed capacity and the five percentage point improvement in resources year-on-year, which improve to be in line with the long-term average, as I mentioned before.
14% increase in electricity generation that was sold at an average selling price, 39% higher year-on-year. And finally, we as we close three asset rotation deals in 2022, it generated gains of €264 million.
As we move not to slide 17 on the net debt, EDPR net debt is at €5.6 billion and is well protected against interest rate rises with 65% of fixed rate and pricing mitigated by a pre-hedging strategy. And this was very important because we decided to pre-hatch our debt maturity over the next five years in the total amount of €1.5 billion and therefore, we have effectively eliminated the exposure to interest rate prices in the spirit as these have already been worked in in June.
Now, please note that we also fund our investments in local currency, with U.S. dollar denominated debt, representing 71% of our total debt. And with an average cost of debt increasing to precentral points here year-on-year to 3.7%, for the nine months of this year.
Also regarding debt maturity, as you can see in the slide, more than 50% of our debt matures post 2025. One final note, there’s $1 billion — sorry, €1 billion of variable rate that will be converted with EDP during the fourth quarter this year and as you may have seen, EDP just raise the recently senior bonds, about 1 billion, half in euros and half in U.S. dollars. So, gives us very clear visibility of interest rates that we’ll have to lock in this variable rate as we move into the fourth quarter of this year.
On the next slide, on slide 18, the net debt evolution is effectively driven by the expansion investment investments that we’re having in sub capacity, the asset rotations, but also FX and others.
So as, as of September 2022, net debt was €5.6 billion, that’s €2.6 billion higher than December last year, reflecting the €2.5 billion in expansion investment. This includes of course, CapEx, the acquisition of Sunseap, and the solar portfolio in Vietnam, and equity investments at the Ocean Winds JV, as well as the FX impact. This was compensated by asset cash flow generation and the asset rotation strategy where the proceeds reached €1.3 billion in the first nine months of this year on the back of the asset rotation deals that Miguel just presented before.
All-in-all, the increase in net debt is supporting EDPR growth in line with the strong target division that we have set forth for our business plan 2021 to 2025.
So, on slide 19, net profit total €460 million, that’s an increase of 181% year-on-year. This is supported by the topline performance, partly offset by higher financial costs and controlling interest. Financial costs up by €108 million, mainly due to the increase in net debt. The increase in average cost of debt year-on-year, we’re going to hear some negative impact of the FX.
On taxes, we have an effective tax rate of 13%. That’s a reduction of four percentage points year-on-year. It just a final note on minorities, €167 million, increasing €79 million year-on-year and that’s definitely on the back of the good topline performance in the portfolio. In some of these assets, we do have some minority partners and that’s reflected here.
So, with this, I would conclude the financial section and I will hand as back to Miguel for closing remarks. Thank you.
Miguel Andrade
Thanks Rui. So, just quick comments and then we can turn it over to Q&A. First, strong nine months results and that’s driven by the generation increase of 14%, the increase in the average selling price, plus 29%. And that results in the overall EBITDA going up around 62%. And the net profit going up to €460 million. So, that’s definitely positive.
Also, out of the — the second point, I would say is out of the 20 gigawatts, we’ve already have more than 40% installed or under construction. And secured, we’ve already got close to 55% overall.
Third point I’d say is that in terms of the asset rotation strategy, clearly showing a very strong upfront execution and continue to create value even in the most recent deals announced. So, reaching more than €300 million gains that we had in 2022.
The fourth point is to say, recognizing the interest rate increase, we think we are well protected with 65% fixed rates and pricing risk mitigated also by the pre hedging strategy, so I think that’s something that we’ve — EDPR has quite strong.
The fifth point is saying that the gross output continues to be strong, meaning we are well-positioned to capture it globally. Already in many markets and in the key markets, we have been reinforced by the Inflation Reduction Act and being reinforced by the REPower EU, so strong tailwinds.
And that allows me to move on to the sixth point, which is really, there’s this structural tailwind which we’ve talked about, which is clearly very favorable to renewables. Now, we need to deal with the regulatory uncertainty. But clearly, EDPR is well-positioned to capture this additional growth and to continue to create value.
And so with that, thank you for attending this results call. And I think we can move to Q&A. Thanks.
Question-and-Answer Session
Operator
[Operator Instructions]
The first question comes from the line of Javier Garrido of JPMorgan. Please go ahead.
Javier Garrido
Hi, good afternoon, everyone. Thanks for taking my questions. Actually we have two. The first one would be to have some updated views on the financing of your investment plan, given that bond yields have moved aggressively since the last call and you are — as you see opportunities for further growth? How do you see the different inputs into your financing, asset rotations, equity debt playing out?
And then the second question would be, if you could comment on the trends in the contracting with equipment suppliers, particularly, you could discuss in any tangible going on with wind turbine manufacturers if they are putting pressure to share the proportion of risk on input costs with the developers versus what we have seen historically? And also you can comment on solar, whether you have seen any meaningful change in the bottlenecks in the supply chain in the last few months? Thank you very much.
Miguel Andrade
Thanks Javier. So, in relation to the investment plan, I think, as we’ve shown we are well on track, both in terms of growth, but also in terms of the financing. And I think the asset rotation strategy for us is obviously a key part of that and as you can see, that continues to do very well. I mean, we also raise equity last year, and so we think that the business plan to 2025 is fully funded, and we’re comfortable with that. So, between the cash flow, the asset rotations, we are okay with that.
And the fact that the bond yields go up, I mean, don’t forget that also the energy prices are going up. And so what’s most relevant is really the ratios, net debt to EBITDA and for net debt to keep an eye on that, but if both go up, or if both are moving in tandem, then we should be okay.
In relation to trends of equipment contracting, I’d say that well, I don’t know if you also want to comment on this, but wind turbines, I mean, definitely, they’re going through a tough time, I think, you guys will know that well, negative EBIT margins. And so they’ve been pressured over the last couple of months or years.
Just given a slight reduction in capacity in wind and I think also the dislocation in the commodity prices, which has squeezed them in terms of margins. So, I think there’s been a repricing to incorporate this dislocation in the commodity prices. And that’s obviously then has an impact on the [Indiscernible], which we then pass on when we contract new PPA.
So, there is also a discussion of risk sharing. I think that’s a natural discussion and I think it can actually be positive for both sides, make sure we have a more integrated approach to the project development. I mean, we want a successful and sustainable supply chain and I’m sure they also want successful sustainable development part.
So, I think we are aligned and making sure that we are having a good risk sharing and that we are able to really maximize the opportunities that are out there. So, I think we’re aligned in terms of those objectives.
In terms of solar, I’d say that the key bottlenecks and solar are really primarily in the U.S. I think there’s the short-term issue around solar, which had to do with everyone stopping and pausing while we tried to get more clarity on the anti-circumvention investigation on one hand, and now an increased scrutiny necessary to do an additional certification of the panels, going all the way back to this polysilicon, making sure it’s not produced in Xinjiang.
And so that’s producing additional administrative and bureaucratic burden, which has really slowed down the importance of panels into the U.S. So, that’s — but I’d say that’s a short-term issue, which was will solve itself. It does have delays — or does it mean delays in the project, but it’s something which will sort itself out.
I think there’s a more medium long-term discussion around supply chain for solar in the U.S., which has to do with moving some lines your supply chain back to the U.S. and driven by incentives from the IRA. So, as I mentioned, if it’s domestically produced, you get a bonus. And so I think there will be an incentive to escalate — to scale up manufacturing of the supply chain of solar in the U.S. I think we’ll see that sort of in the medium long-term. That’s something that we obviously need to be mindful about. I don’t know, Rui, if you also want to comment?
Rui Teixeira
Well, yes, maybe just a couple of thumbs on — and I guess the question is also about the indexation on the turbine prices. I mean, the answer is that, yes, I think that will have some indexation, which is good effectively because even though the fuel prices, for example, which is a big indicator in the — to run by price came down significantly. I mean, if you look to the last 12 months, you will see that, there is a big reduction, around 40% reduction, over 12 months here in Europe and China be it even higher in the West, on fuel prices.
So that means that, by having this next session, of course, we will also benefit from that further reduction, then there is a discussion also to be helped with some of the decay of circus, because some of that indexation actually can be shared as well.
So, yes, I think that’s something that we should see going forward pricing on the solar PV. And as Miguel said, I mean, in the US, given these restrictions, we are not expecting any decrease in the short term elsewhere, what I have to say is that, when we have seen sort of instability in the policy, we can prices, and therefore, from that angle, we should not we should expect as our civilization on the panel free on board. But transportation costs reduced significantly.
So we’re going to say again, one year ago, we would be seeing container prices, actually, in some cases reaching you know, above $15,000 or $20,000 that but nowadays, they are back to more normal range, and therefore, the cost of transportation is coming down back to 0.8 per watt. And this is impacting positively the overall CapEx.
Again, I think it’s still too early to say that we are seeing this as a further downward trend on the CapEx, but I would say at least stabilizing and with some signals that, you know, some parts of the CapEx could have, some alleviation as we go forward in some of the supply chain gets, the constraints canceled. And also transportation wise, we would see 100 days of transportation now going back to 30 days. So I think things are improved in some areas.
Javier Garrido
Okay. Thanks very much for all the details. Thank you.
Operator
The next question comes from the line of Manuel Palomo of BNP Paribas. Please go ahead.
Manuel Palomo
Hello. Good afternoon. I’ve got three questions if I may. First of all, it’s on the evolution of the cost of debt, currently, we’ve got 35% viable debt 65%, fixed debt. And I wonder, what you could tell us what’s the — what do you think is the longer term idea the structure and on the debt and given that you refer that part of the floating debt will be — how, just to the CDP bonds that if I recall were below 4% for the euro tranche and above 6% for the US dollar tranche. I wonder, whether you could tell us what you think will be the impact on the evolution of the cost of debt for the year 2023?
And also, I’ve got a question on the average selling prices, particularly for 2023. Given that one, maybe there’s a bit higher merchant exposures, but also that I understand that a lot of the hedges are going to be impacted positively, positively prices. I wonder whether you could tell us best estimate of what you think the price for the year 2023 will be on average? Thank you.
Miguel Andrade
Hey, Manuel. So on the first one, and I’m afraid I was not hearing completed, but I just didn’t understand that, you’re asking about the floating versus fix and how we’re thinking about the cost of debt evolving for 2023. So yes, I mean, just to be clear, this on the fixed part of the debt as of today, as we are refinancing this debt with because we have these majorities that go in 2024 — 2023, 20244, 2025, what we did back in June, was that we pre-hatched €1.5 billion of that.
So basically back in June, we fixed approximately $1 billion in dollars at 2.6% that’s five year — for a five years and then €0.5 billion at 1.8%. So, basically as now that matures in you know, in the forthcoming years, we have already fixed the yields for the — for this maturity. So, basically we have we are effectively not exposed to the current yields for the refinancing of this 1.5 billion. As for the floating components, we have will be closing one between EDPR EDP 1 billion, it will be mostly dollars, as in the fourth quarter.
And that, of course, will be based on the last senior bonds that EDP issued in the market, the $500 million, and the provident linears at 6.3% a dollars and the 3.875 in euro. So that will be the basis for the pricing of this 4×6 that we will do in the fourth quarter.
Rui Teixeira
And Manuel, then you had a question I think it was on the pricing on the energy prices going forward. So, we’ve talked about until the end of the year in relation to 2023. I mean, what, six, six? What is still merchant? I mean, assume market — I wouldn’t give you any specific price, just because there’s so much volatility going on, probably your guests will be as good as mine in terms of the energy price for next year. But that’s probably the guidance, I guess. But I mean, if you look at the markets at the moment, it’s obviously positive and higher than what it is at the moment. Sorry, higher than what we had in the past.
Manuel Palomo
If I may ask a follow up here, I was rather than referring to the matching portion, I was referring to the hedged portion, because I understand that, what is the evolution of the hedging and what could be the impact on the average selling price?
Miguel Andrade
So the component, which is hedged is also higher than our current price. But in most GDPR, we’re not giving out the specific numbers, but you can assume with a higher price than what we have. So for the person, which has been hedged in let’s say, in the recent past, because obviously, we have long term PPAs. And those are not — those don’t vary. They are what they are.
Manuel Palomo
Okay.
Operator
The next question comes from the line of Alberto Gandolfi of Goldman Sachs. Please go ahead.
Alberto Gandolfi
Hi. Thanks for taking my questions and afternoon to you. My first question is similar. But I was wondering, when we look at the relationship between marginal interest rate and returns considering the expensive green bonds we have seen in the US considering the cost of debt in Europe, besides the short term refinancing, you may have to buy, I’m thinking you’re going to stay negative cash flow for quite some time because you’re growing so much.
So I guess my question is, in your PPA negotiations in your auctions, are you seeing prices going up to reflect higher marginal borrowing costs? And clearly early days, because half of the move happens in so, but I was wondering, are you already seen that? How many Euros and megawatt hour do we need to see to compensate a 200 to 300 basis points increase in cost of borrowing?
You know, you talked about three to five euro per megawatt hour to offset the CapEx cost inflation? I wonder if you can quantify I mean, we’ve done our calculations, but you know, if you can tell us your view about it, and that will be the first question.
The second question is, again, going back to capital structure, it’s a great problem to have, it’s the quality problem to have the fact that you are already outperforming your own business plan, not many companies can claim they’re doing that. Despite all the issues with bottlenecks and permitting and what have you. Obviously, this is coming though, at the cost of a rising net debt to EBITDA or at least the stain at relatively elevated level you know, if I if I look at it before any capital gains, you are on about five times so distorted or not by offshore, I would argue this type of leverage is higher than peers.
So given the increasing rates, given the potential pressure on farm down exit multiples, I wonder, why not taking in a short term a bit more painful approach of raising equity or suspending the dividend until the credit market normalized a little bit because I agree if you generate a return of work, you should continue to invest in even if rates have gone higher. But I wonder, isn’t there may be short term pain to take here to have a bit of a medium longer term, brighter future?
And the last question is considering the timing of disposals and additions is always a bit tricky. I know you’re going to update us next February, March. But can you tell us next additions that you expect to have at least in 2023? And if you could push it to 2024? So you know, not the gross one, I see that you have outstanding capacity under construction, but what would be net? Thank you so much.
Miguel Andrade
Thank you, Alberto. So let me try and answer your, your three questions. In relation to the first question, I’m glad you asked that today, or at least we’re having a call today, because just over the last couple of days, I’ve seen three PPAs or in some cases 9% cash yields in the US with PPA prices of $50 to $60 per megawatt hour. You know, so I think that gives me quite a lot of comfort that we are seeing a re-pricing of the projects to incorporate the increasing cost of capital. So I’m glad you asked the question. We didn’t talk obviously before, but I think I can quite comfortably answer that we are seeing that re-pricing and it is what it does give us confidence on that on the business going forward.
And as I said, three, very credible off takers, very credible projects, so and fully compliant with our investment metrics. So I think that’s good, you know, incorporating also their most recent CapEx estimates and everything. So I think that’s good news. And as I say, if we spoke maybe a week or two weeks ago, I wouldn’t have had those data points as of now I do.
The second — on the second one, as you say, we’re outperforming the business plan, point one. Debt we have already talked about, I mean, we have short term, sometimes volatility and debt from quarter-to-quarter. But we need to think about this on a medium term basis and so how our ratios evolve over the medium term.
And in that sense, as long as we’re meeting our business plan, both in terms of EBITDA and in terms of net debt, we should not worry too much about the short term, or let’s say the quarterly volatility on those ratios. And so what I’d say is we have a fully funded business plan, we obviously are outperforming on the asset rotation, as you say, we will update you at the beginning of next year, and obviously, then give you more visibility on capital structure and so forth.
But now, as of today, it’s I don’t think it’s the quarterly volatility and at that EBITDA, that would make us take an important decision or a serious decision, like the ones that you suggested, so fully funded business plan, we’re comfortable with it.
On the third point, I don’t have the specifics maybe you can then follow up. I mean, as I mentioned, we’re doing over four gigawatts next year. We don’t have closed, sort of the, the asset rotations. So that’s something we would basically do over the course of next year.
But as I say, we are already quite well ahead, or we’re already at 40% of our total last and rotations will obviously have additional product next year to sell. So on the growth sides you can assume the four gigawatts plus — on the — let’s say on the asset rotation side. You can take some proxy videos of what we’ve done in recent years. But I’d say that’s probably the best guess that I’d have at the moment.
Alberto Gandolfi
This is very clear. Thank you so much.
Operator
Next question comes from the line of Jorge Guimarães of JB Capital. Please go ahead.
Jorge Guimarães
Hi. Good afternoon. I have two questions if I might, the first one is related to the impact of rising interest rates on your assets rotation — on your asset rotation program, if you are already feeling any reduction in terms of volume, and or prices, and so to be so detailed on these, but this is this has been a very important driver for the stock price lately. So it’s important to give your — to have your opinion on this.
The second one, it’s related to the permitting process in Europe is these parameters acceleration is still desire for European authorities already something that can be felt on the ground?
And the final one is related to still to the assets rotation program from looking at your presentation, I get the idea that you are guiding for a full year gains of €430 million, or close to €500 million if the deal in the US is still closed this year. So if you can comment on these numbers, or to clarify if the US is still in 2022 or not? Thank you very much
Miguel Andrade
I can — Jorge, I can definitely, take the asset rotations. So, I mean, the first is that, the interest rate environment, we have seen it, going up very rapidly through the year. And you know, what we presented also in these presentations that those transactions that were signed already this year, and not very far ago, I mean, they were signed with very interesting multiples, both in Europe and also in Brazil. Brazil has been suffering from high interest rate environment even earlier than euro and dollar.
So this also shows that there are other elements that investors are looking for either the exposure to the ESG, or the quality assets that we build. And of course, following there are some scenarios in terms of power prices, on the merchants components of these projects, and therefore we’re at level two, which is very strong valuations.
My only point being that, we know that with higher interest rates, everything else being equal reduces the value of the asset rotation, but we are seeing other elements both on the demand side, on the quality side, and both on the valuation side that are still supporting very strong multiples for these transactions. And just to be clear on the asset rotation gain for this year, likely to be above the 400 for sure. The US transaction is expected to close by the end of this year. According to contracts, we may book 100%, or less than 100%, depending on some of the other cities. But in any case, we expect that because by the end of the year, so that gives us more than 400, I would say there.
Rui Teixeira
Okay. And George perhaps is your question was on the permitting in Europe, and whether we’re seeing additional progress there. I think people have this, while the politicians, they clearly recognize that this is an issue. They are very busy trying to deal also with the issue of energy prices. And so I think it’s one of those cases where the urgent versus the important is happening. They’re focused on the urgent issue of how to manage the high energy prices and mitigate the impact on consumers. They need to also dedicate themselves to dealing with the important issues of how to simplify the permitting and licensing processes, so that actually can have a more structural solution to the energy problem in Europe.
So I think people have got that, as I say some governments are have already moved and others are moving. So we should see progress over time. I think one of the key things that we see is that public administration authorities are swamped in projects. They’re swamped in requests for projects. So it’s not like, people aren’t asking for interconnection, or they’re not asking for the licenses or permitting. It’s just that. No, I give this example and maybe I am repeating myself, but no, I was in the US just a couple of weeks ago and talking about [Indiscernible], one of the US regions.
Just in September, there were 170 gigawatts of requests for interconnection for a region, which has 120 gigawatts of peak demand. The question is, if you’re a public administration official, and you’re sitting there and suddenly you get 170 gigawatts of requests for interconnection, how do you do three hours on that? How do you deal with that? And I think that’s the key issue that various public administrations, whether it’s in the US or in Europe are dealing with is how to sort of sort through — sort out the garbage from speculators from what are credible projects and credible companies. So that’s the challenge. Nothing is easy to solve. But as much as I think that’s the key challenge, really to get it done. I hope that that answers your question.
Jorge Guimarães
Thank you. It does.
Operator
Next question comes from the line of Arthur Sitbon of Morgan Stanley. Please go ahead.
Arthur Sitbon
Hello. Thank you very much for taking my question. The first one is again on asset rotation actually. I was wondering if ever we have the premium to CapEx dropping below the 35% level, which is your NPV to CapEx target. I was wondering if in such case you would have to give up on your asset rotation strategy? And if it is the case, then would you just look for other financing option potentially equity? Or would you have to reduce your growth? I understand this can be a bit of an extreme scenario compared to the level valuation you secure now, but I was interested in your thoughts.
My second question is just that, I’ve noticed that the other division is quite strong in the third quarter, both in revenues, but also in associates. So, I was wondering if we could have a bit more details on that to understand where it’s coming from?
And the last question, I was wondering if you would be confident to reach a net income above €800 million in 2022, given what you’ve managed to do so far this year? Thank you.
Miguel Andrade
Okay. So on — I’ll take the first one and the third one, and you can take the second one. On the asset rotation, so to answer your question, so if the premium for CapEx drops below 25% would we drop the asset rotation strategy? I mean, if we’re still creating value 25% is when we invest, we don’t have a metric for when we divest.
As you say, we seem to have quite a lot of buffer in some of these projects. But that’s not let’s say, the guiding principle. So as long as you’re creating value, and we don’t have a specific metric for that, we will also look at what it is doing to our balance sheet. So is it helping us also are recreating balance and being able to reinvest that into new projects where we will also create value. So I think that’s the way we think about the asset rotation strategy.
So as you say, I don’t see a scenario where we would drop it, I think we can adapt it, we can adjust it in terms of pace. We are — we have front-loaded quite a lot of it, which is good. So we can adapt it, I don’t see us completely dropping it.
In relation to your third question on net income, it seems high, to be honest. We don’t give specific guidance, as you know, whether to be renewables. But I would just say that.
Rui Teixeira
And Arthur on the other divisions, I mean, it does include intergroup transaction with the European platform. So basically on our presentation, we actually allocate that number into the European platform numbers, but also included this is quite relevant. The contribution from Ocean Winds profits that were high in the nine months rather than 2022. You have of course the exploit it has currently to merchant UK. But that’s primarily.
Miguel Viana
Can we go to the last question please?
Operator
The next question comes from the line of Jorge Alonso of Société Générale. Please go ahead.
Jorge Alonso
Hi, good afternoon to everyone. Yes, it’s still a couple of questions please on my side, I would like to ask about the annual installation going forward because in order to reach the 2025 target on the 20 gigas gross, if you are about to install 2 giga this year, 4 gigas next year, that means that you will be installing 5.5 in 2024 and 2025. I was wondering if you are thinking that these will be fully organic, or do you think you could make some acquisitions?
And what would be the catalyst or what would really make the step up in the annual installation considering that already, putting 4 gigas in 2023 is going to be a challenge. So just to understand what are the dynamics that will make you to put 5.5 in each of the — of those years?
The next question is related to Ocean Winds. I’ve seen the you have contribute — all in the CapEx, the 600 million contribution for Ocean Winds, if you can provide your view about what could be the annual contributions to Ocean Winds in the next couple of years at least to just to take into consideration.
The last one is if you can provide some kind of guidance about the net depth for the end of 2022. Thank you very much.
Rui Teixeira
Okay. Thank you, Jorge. So I’ll take the first one, maybe Miguel take second and third one on the annual installation. So what we said you will do more than two this year. And we’ll do more than for next year. And so we think — we won’t need to do necessarily the 5.5. But that’s not necessarily the point, I think, given what we are — given what we’ve seen today, we think that over two this year and over for next year, we will be quite comfortable with that, because as I say most of it is already under construction for 2023.
In relation to 2024, 2025, as I say we are ramping up and already in the original business plan. So last year, we were already expecting to ramp up above the four on average. So we were already going to be close to the five in the back end of the project of the business plan. And I think that that’s something that structurally, we would have going forward so that we would be able to go above the four per year.
We have been getting the team together. So I think that is definitely we’ve grown off a number of people with different markets. But I think we’re quite comfortable in relation to the team we already have for delivering the 2023 numbers. And then it’s just a question of continuing to scale it up to deliver.
If you think about it in percentage terms, I mean, in the past decade from 2010 to 2020, we’re building around 800. Last year, we did 2.6. As I said this year for specific reasons, we talked about should be above two, but next year four, but in percentage terms, the jump is less than in previous. And so going from 800 to 2.6 was already multiplying by more than three times, went from a 2.6 to four, you’re already not even doubling it and going from four to five, because that’s an additional 25%. So I think the challenge, we’ve already gone through the bigger bit — worst parts in terms of the growth part.
In terms of Ocean Winds and guidance, Miguel you want to comment on that?
Miguel Andrade
Sure. Thank you. Jorge, thank you for the question. So on the Ocean Winds, I mean, what the guidance we gave at the Capital Markets Day was that for the period 2021 to 2025, out of the €19 billion across investments from the renewables level, about 3% would be to the offshore. So I would probably say more towards the 500. So we are — more or less what we are spending this year.
And again, I think that if you take the few percent of capital allocation of the €19 billion for the period, it’s probably a good number. On the net debt, again, we don’t provide specific guidance, but at least I considered — we should expect somewhere below where we are today. Little bit below where we are today.
Miguel Viana
So with this, we will conclude. I’ll pass now to our CEO for some final remarks.
Miguel Andrade
Thank you. I mean, essentially just wrapping up as I finish the presentation. It’s been a strong nine months, I think we continue to do well and deliver front-load as much as possible the business plan, and I think that was done particularly important part of it, which was the asset rotation program, because I think taking advantage of lower interest rates.
Going forward, we’ve been delivering good, the execution part of it moves from 2022 to 2023. But as I say, we already have an all time high under construction of around 4.3 gigawatts under construction and we will be bringing on additional megawatts into construction over the next couple of months.
Tailwinds good, and obviously some bottlenecks that we need to sort out, but I think those are all solvable problems. And so I think that we continue to see both the sector and EDPR continued to scale up over the next couple of months and years. And I’m sure we’ll be talking again soon to be in effect the end of next year on the — not just for the EDP results, but also the EDPR results for the full year numbers. But in any case, if you have any questions, please feel free to reach out to the Investor Relations. Thanks very much, and have a good rest of the day. Take care.
Operator
Thank you for joining today’s call. You may now disconnect.
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