EDP Energias de Portugal SA

ELI:EDP

Earnings Call Transcript

[Operator]

Good morning. We welcome you to the EDP 9 month '23 Results Presentation Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Miguel Viana, Head of IR and ESG. Please go ahead, sir.

[Miguel Viana, executive]

Good morning, ladies and gentlemen. Thank you for attending EDP's 9-months 2023 Results Conference Call. We have today with us our CEO, Miguel Stilwell de Andrade; and our CFO, Rui Teixeira, which will present to you the main highlights of 9 months 2023 financial performance. We'll then move to the Q&A session, in which we'll be taking your questions, both by phone or a written question that you can insert from now onwards at our web page.

I'll give now the floor to our CEO, Miguel Stilwell de Andrade.

[Miguel de Andrade, executive]

Thank you, Miguel. Good morning, everyone. So thank you for attending EDP's results conference call. And as usual, let's start and go straight to the presentation and go to Slide 3. And talk really about the very strong performance in the 9 months of 2023 with a sound EBITDA of EUR 3.8 billion, representing an increase of 26% year-on-year. This result has been supported by the recovery of the integrated margin in Iberia, so reflecting the normalization of the hydro generation. It's up 58% year-on-year. And the improved sourcing conditions also following the decline in electricity and gas sourcing costs from peak levels last year.

On the asset rotation gains, we had around EUR 0.4 billion recorded this quarter. As you know, at the EBITDA level, mitigating the weak operational performance of EDPR, given we had lower wind resource and lower prices. Electricity networks, resilient, roughly stable year-on-year with networks globally representing 30% of total EBITDA. And last month was also marked by a positive regulatory update impacting Portuguese and Brazilian networks on which we'll provide more color later in this presentation. So I'll talk about that in a couple of slides.

This quarter also brought the achievement of an important milestone. It was the first quarter with EDP Brazil being fully consolidated following the minorities buyback or the buyout. We executed this earlier this year, as you know, following the capital increase we did at the Capital Markets Day. And that's led to a decrease in the noncontrolling interest of around EUR 40 million year-on-year.

Finally, and as I'll comment on that later on, we're delivering on the strategy to become coal-free by 2025. We have the signing of the sale of Pecém and also the plan to convert and the decision to convert Aboño into gas by 2025, and the 50-50 partnership we've done that with an industrial player.

All in all, recurring net profit stood at EUR 1 billion, so doubling year-on-year, fostered by this growth of the EBITDA and the Brazil full consolidation. And because I know that many of you will probably try to be turning to the back pages just to look at what is our guidance and before I go on with the presentation. Just to say that we are reiterating our guidance of recurring EBITDA at around EUR 5 billion. We're upgrading the recurring net profit guidance to EUR 1.2 billion to EUR 1.3 billion. And I'll explain why later on. And net debt for the year, we continue to expect around EUR 15 billion or even below that depending on the tariff securitization and the positive contribution of the asset rotation proceeds. So we'll talk about that more towards the end of the presentation, but just so you have that straight upfront.

If we go to Slide 4, and now going into a little bit more detail on some of the factors I just mentioned. So looking at the hydro volumes for the fourth quarter of 2023 and the electricity market output. Since we last spoke, our hydro reservoirs are at the maximum of the last 10 years for this time of the year. They're currently at around 70% and substantially above the 2022 levels.

Additionally, during October, the hydro resources were 75% above average. So that leaves us comfortable with the volumes for the fourth quarter. I just wanted to note that in accumulated terms, the hydro coefficient in Portugal as of October was still 14% below the historical average. So this year wasn't particularly wet. October was particularly much higher hydro than average. But let's say, as on a normalized basis, we're still fairly below for the full year.

Normally, as you know, we caveat our year-end results, the hydro conditions for the fourth quarter, but the fact that we've had this already very good conditions for October means we are confident for this final stretch of the year. And you can actually see that in the graph. You can see that recovery of hydro, when you look at it last year, we were at very low levels, and this year, we're already basically at the level that we closed last year after a strong rain.

On top of this, we're seeing improved market conditions over the last 3 months. If you look on the right-hand side, you have the forward electricity prices for the 2024 to 26 deliveries rebounding significantly versus when we last spoke on the call in July when forward price for 2024 deliveries was around EUR 101 per megawatt hour, that's increased to around EUR 120. So these are prices that are more or less aligned with our business plan assumptions, and they support our targets for '23 to '26 periods.

So we get asked the question around comfort to run the medium-term targets, '23, '24, '25, '26. And I think these prices are giving us comfort on that. It's also important to highlight that our baseload production for 2024 is currently hedged at 50%, so this increase of forward electricity prices improved the prospects for next year versus the market scenario 3 months ago.

If we move on to Slide 5 and on to a topic, which I know has been under also quite a bit of discussion. Just briefing on the recent regulatory updates applying to our networks business. So in October, the Portuguese regulator published a proposal for the 2024 electricity tariffs. Once again, the retail tariffs are relatively stable. They increased only 1.1% versus 2023. I think this really shows the resilience of the Portuguese regulatory system.

Over the last 3 years, the Portuguese domestic consumer has not been subject to the volatility of the wholesale energy market. And as we've explained in previous calls, I mean, a large penetration of fixed price renewables in the system covers the domestic consumer demand and protect consumers against this price volatility. And I think that takes a lot of regulatory pressure off the system.

The regulator estimates electricity system debt at EUR 2 billion by the end of 2024. That means that despite the deviations we've seen during 2023, temporary deviations, the system debt continues to be under control with a downward trend since 2015.

Another important outcome of this proposal was the definition of the amounts and the conditions under which EDP can securitize these amounts by year-end.

Regarding 2023, as we stated in previous calls, lower-than-expected electricity prices in the first half led to a temporary increase in the regulatory receivables, which was mostly solved with the access tariffs increase since July 1. We've already successfully securitized part of the 2022 deviation in the third quarter, so that was around EUR 300 million of cash in.

We're prepared to securitize the remaining regulatory receivables. The sale process is already at an advanced stage, and we are working with investors and banks to ensure this gets done before year end. It's important to note that the Portuguese government is running a budget surplus and is expecting to bring debt to GDP below 100% next year below other countries such as Spain, France, Belgium, et cetera. So I think this is important also just to give investors confidence on the sovereign credit rating and there's no pressure to introduce additional regulatory measures.

If we move forward to the next slide, Slide 6, and talk about distribution networks. So looking at the '24 tariffs annual review for distribution networks in Portugal, the regulatory revenues increased 4% or EUR 44 million year-on-year. This was supported by the inflation update on the regulated asset base and the target OpEx and CapEx costs as well as an increase in the regulated rate of return.

As you may remember, the rate of return of electricity distribution in Portugal is updated annually based on an indexation to the average 10-year Portuguese government bond yields until October of each year. So as a result, the regulated rate of return for 2023 is now at 5.57%, close to 50 basis points increase versus last year. And we've got the expectation of a slight further increase in 2024 based on the most updated bond markets' data. So the stable regulatory framework provides the hedge on inflation and interest rate volatility, which is, I think, particularly relevant in the current macro environment.

If we look forward to the next slide, Slide 7. And we look at the left-hand side. So again, just an update on networks in Brazil in this case. We had a tariff review of EDP Sao Paulo for the '23 to '27 period. The outcome of the revision was very positive. We had our RAB increasing more than 70%, following strong investments over the last couple of years and also a record high investment acceptance rate.

So as you know, it's not just enough to do the investments, you then need to get the regulator to actually accept them in the regulatory asset base. And in this case, we had a record -- high level record even for all the distribution companies in Brazil. And we also had the inflation update in the period. And so overall, the return on RAB was set at 7.42% real terms.

I also wanted to highlight the positive development for the distribution concession renewal in Brazil. So concessions are expected to be renewed for 30 years. this will provide, obviously, long-term visibility for investments in distribution in Brazil. Our distributor -- our distribution company, EDP, Espirito Santo, its concession ended in July of 2025. So it's the first distribution company in Brazil to renew its concession. We should have more color in this process in the next few months, but the Brazilian government has already made a specific proposal. It's under public discussion. We think it's a very positive proposal. And it's obviously a very important data point since networks are a big part of our business in Brazil.

Overall, if you look on the right hand side, on a consolidated basis, the regulatory asset base of our electricity networks, net of minorities, increased 29% year-on-year to EUR 7.2 billion. So in Brazil, the net of minorities is doubled in this period, supported not only by the referred regulatory review at Sao Paulo. We have also ongoing investments in greenfield transmission projects.

We have the buyout of the Brazil minorities, which increased our stake in the electricity networks in Brazil from 57% to 100%. So basically, with this transaction, we acquired more exposure to our electricity networks, and we have revenues that are fully indexed to inflation and have benefited recently from this reinforced visibility on this long-term regulatory framework.

If we now move to Slide 8. And again, this is the presentation -- a slide I've already presented on Tuesday as part of the EDPR presentation. But I think it's important to show it again. So we've been asked over the last couple of months about whether this environment of rising interest rates and inflation could compromise our returns. And I just wanted to reiterate that we have been very focused on value creation under the current inflationary and interest rate pressure. That means we've seen an increase in absolute project returns to make up for this inflationary context and preserve capital, but also higher absolute returns, keeping the delta spread.

In 2023, we've approved investments on wind and solar amounting to EUR 3.3 billion across the many different geographical hubs, 84% of that investment is located in Europe and North America. On average, and you can see that on the graph, the returns range from 8% in Europe and APAC, 9% in North America, 13% in South America. And so the spreads of IRR for WACC are higher than the target at around 220 basis points. And again, just to reinforce something I've mentioned before, but I think it's important.

The average contracted period is 16 years, contracted NPV more than 60% as targeted in the business plan, and on average, nominal equity payback period of 11 years. So I think these are some key facts that support sort of the target returns that we're looking at.

We've seen the PPA prices adjust to this higher interest rates and inflation. If you look at the portfolio in 2020 versus the 2023 PPA prices, in Europe, they've increased 70%, and in North America, a 50% increase.

And also more recently, we've also seen CapEx decreasing mostly in solar. So after the spike in polysilicon prices last year, the price of solar modules has significantly declined over the last 6 months, mainly in regions outside of the U.S. And I mean, unfortunately, in the U.S. solar module prices are still higher than in the rest of the world, although the prices are also coming down in the U.S.

And then just a note on the construction costs, we also see a downward trend again both for wind and solar. So all in all, very positive developments that we are already reflecting in our recent contracts and that will support future returns.

If we move now to Slide 9, again, talking about our asset rotation strategy. A couple of points that you already know. So we closed the two transactions in Spain and Poland with attractive multiples. We had asset rotation gains that clearly surpassed the target EUR 300 million per year. These assets are recent in our portfolio, and FIDs were taken in 2019 when the cost of capital is low. So I just wanted to reiterate something I said on Tuesday. We're not -- this is not a cost of capital arbitrage. That's not the reason we're getting these higher multiples. It's not the reason we're getting these capital gains.

So we were able to invest, and particularly in Europe, we see this the hybrids, the repowering potential, the merchant exposure, all of that contributing to having better, let's say, good capital gains.

When we look at the asset rotation gains over invested capital, which I think is also a good proxy for cash-on-cash value creation, I mean it's pretty high for these 2023 deals, certainly above average for the '21 and '22 deals, so around 60% versus 40%. And I think they show the high quality of our portfolio and also they show a key trend we're seeing in the asset rotation market. So an increased interest by more strategic players who value this optionality around the assets.

Finally, just to say that we signed this week, so on Wednesday, an asset rotation deal for two transmission lines in Brazil. That was part of our '23-'26 business plan, asset rotations -- around EUR 500 million, EV/EBITDA 11x, and this is expected to represent an asset rotation gain in line with the average range assumed in our strategic plan. So within the 20% to 25% range of gain over CapEx. We expect that transaction to be concluded within the next few months. We are not including that within the guidance of the EUR 15 billion or even below. So if it would come in this year, it would be even better than the guidance I gave on the net debt.

So wrapping up on the left-hand side, capital gain is around EUR 400 million, as I said, registered in the 9-month accounts, and we're well on our way to deliver on the target proceeds for the full business plan horizon.

On the right-hand side, just a quick update on the renewals growth. So we have had bottlenecks which are well known, in particular, when we look at '23 and '24, around 6.5 gigawatts split between 2.5 gigawatts in 2023 and around 4 gigawatts in 2024.

We are feeling very confident and comfortable around 4 gigawatts. I got that question on Tuesday. I just wanted to reinforce that. We have 5 gigawatts already under construction in an advanced stage.

The '23 capacity additions, as you know, were impacted primarily because of the LONGi panel importations into the U.S. But that issue is solved. And so we are seeing solar capacity adding in 2024 as we were expecting. Colombia, as I mentioned that in the EDPR call, situation remains challenging, consultation period is extremely lengthy for the transmission line. We're talking about 130 local communities. We want to do this well and involving all stakeholders, but it is substantially delay in construction. So we're assuming that the 500 megawatts from the Colombian project will be delayed post 2024, and that's not included in that '24 number that I gave you for the 4 gigawatts.

Just highlighting progress on Solar DG, which we've also talked about some time in a couple of calls. We've now reached 1 gigawatt of Solar DG installed capacity globally, that's about 40% of the total solar portfolio. And just wrapping up, once again, we're counting on the 9.3 gigawatts already secured. That's around 55% of the target additions for '23 to '26 targets. So well on track to reach the business plan targets.

We now move to Slide 10, just to give you a note on efficiency. This is an increasingly important topic and particularly in this context of high inflation. We are taking very concrete steps to become a more efficient organization to simplify structures and processes. Obviously, we've grown substantially over the last couple of years, but we are looking at ways of simplifying the structure to make sure we continue to be not just agile, but also extremely efficient.

The EDP Brazil minorities buyout is one example of how we've simplified the corporate structure, allows us a much more efficient resource allocation and allows us also to extract operational financial synergies between EDP Brazil and EDPR Brazil.

We're also looking to capitalize on our integrated profile. We're combining renewable generation, client solutions, global energy management, and we also centralized our main capabilities by increasing digitalization in the support services optimization. So really leveraging on economies of scale and our global presence.

So just to give you a very specific number, which should positively impact the 2024 net profit. We're expecting a positive contribution from some of these efficiency measures of around EUR 50 million of cost savings. And here, we're including some of the potential synergies between EDP and EDPR Brazil. And so an upside to our business plan in the short term.

Finally, before I turn it over to Rui, just a word on the energy transition, how EDP is, let's say, on track to do that and talking also about our coal-exit strategy. If you look at the left-hand side of the slide, I think it's quite interesting to look at a company which has really evolved over the last 10, 20 years. I mean if you go back to 2005, more than half of our generation came from coal. Since then, we've significantly increased our investments in renewables and progressively phased out coal.

As of the 9 months of 2023, as of today, 85% of our total generation is from renewable sources. So hydro, wind and solar. Very soon, coal generation will have no contribution to our generation or our revenues, and the final goal is being call-free by 2025. So we've taken very concrete steps, as you know, to do that, not just selling coal plants, but we're promoting a just transition on these plants.

And starting with Brazil, just to give you a couple of highlights there. So we signed the agreement for the sale of an 80% stake in Pecém. There are plans to convert the plant to other sources of fuel, namely natural gas and blends with hydrogen or biomass. We are keeping the management of the pilot green hydrogen project that we commissioned at the end of last year in Pecém. And we're also assessing the potential to develop larger-scale renewable hydrogen project in that region.

Regarding the coal plants in Spain, we're moving ahead with conversion of Aboño to gas by 2025. That decision is now taken. We need to ensure the security of supply in the ties regions, which is why a bone plant is so important there.

We have signed a 50-50 partnership with a major local industrial player. And we're also developing hydrogen projects there. We've been very successful in getting additional funding from the European Commission and different national fundings. And so we should be in a position to take some FID decisions on that probably in 2024.

For the remaining plants in Spain, Soto 3 and Los Barrios, we've already formally requested authorization to close those from the electricity system operator. So we're still waiting to hear back from that. And then we have 18 months in which to execute it. So we should clearly be in line with being coal free by 2025.

Interesting note, we expect to be above 90% renewable energy already in 2024. I think that positions EDP really as a leader in this energy transition. Clearly, an integrated utility that has pivoted very quickly over time to be in sort of renewables networks, having this integrated position.

We have this long-term commitment to be Net Zero by 2040, and we are, I think, well towards that goal while creating value. And I don't think the two things need to be incompatible on the contrary, I think it will be a source of competitive advantage going forward for the next couple of years.

And so with that, I'll stop there and turn it over to you, Rui. Thank you.

[Rui Manuel Rodrigues Teixeira, executive]

Thank you, Miguel, and good morning to you all. I know that the webcast has been breaking up, and we're trying to address it. So hopefully, we'll be sorted out from now on.

So going to the financial performance on the 9 month, starting at Slide 13. Recurring EBITDA increased 26% year-on-year to EUR 3.8 billion in the 9 months of this year. The recurring EBITDA for renewables, client and energy management was up by EUR 0.8 billion, mainly driven by the recovery of the hydro generation after the severe drought of 2022. And even with the 9 months '23 hydro resource, 14 percentage point below average, the gen performance, managing reservoirs and buying in the market at lower electricity and gas sourcing costs provided a strong support in terms of recovery of the EBITDA.

[indiscernible] and energy management in Iberia, mitigated the decrease in wind and solar EBITDA due to a weaker underlying performance offset by a strong asset rotation execution with EUR 0.4 billion asset rotation gains recorded in the 9 months this year. Moreover, in electricity networks, EBITDA roughly flat year-on-year.

If we now move to Slide 14, a quick recap on hydro, client solutions and energy management in Iberia for the 9 months last year. If you recall, in last years, this was negatively impacted by a hydro shortfall in the context of record high electricity spot prices with increasing sourcing costs, which led EBITDA to stay at around EUR 443 million.

On the contrary, in the 9 months this year, we are seeing a strong recovery of generation and supply integrated EBITDA, tripling year-on-year to EUR 1.27 billion. And this is a result of the recovery of the hydro generation in Portugal, as I mentioned before, severe hydro or severe drought in 2022, 2023 is still below the average. But very importantly, the management on the integrated position with lower electricity and gas sourcing costs, given the decrease in electricity and gas spot prices and which allowed of course, for the purchases in the market under these lower prices.

For the fourth quarter, we expect supply margins to be negatively impacted by a seasonality effect, having a negative contribution to our Q4 '23 EBITDA, and this is likely to be mitigated by improved hydro volumes.

Regarding Brazil, I would say flattish EBITDA around minus EUR 6 million year-on-year, and this is reflecting lower volume from the sale of Mascarenhas hydropower plant in the fourth quarter last year.

If we move now to Slide 15. EBITDA from EDPR in the 9 months, positively impacted by approximately EUR 0.4 billion of asset rotation gains from the sale of the Spanish and the Polish portfolio deals, an increase of EUR 130 million in asset rotation gains versus last year.

As we have explained in the EDPR results conference call 3 days ago, underlying EBITDA presented a weaker performance year-on-year, reflecting a 6% growth in installed capacity year-on-year, mitigating lower wind resources with the renewables index 6% below the long-term gross capacity or versus what would be long-term gross capacity factor. And as we explained, this is mainly from the El Nino weather event in U.S.

Lower energy prices, a 7% drop year-on-year, mainly driven by the lower wholesale prices in Europe and the sustained increase in the U.S. Lower contribution from Ocean Winds following the drop in U.K. wholesale prices from the 2022 peak, we share profit caption decreasing from EUR 104 million in the 9 months of '22 to just EUR 7 million in the 9 months 2023. All in all, underlying year-on-year performance was down in Europe and North America being partially compensated by a positive contribution in South America and APAC.

If we now move to electricity networks on Slide 16. The EBITDA from this segment was pretty stable year-on-year and -- with transmission expansion being offset by higher over contracting cost in distribution. And in Iberia, EBITDA decreasing 3%. In Portugal, EBITDA decreased EUR 7 million year-on-year, with the increase in the rate of return on RAB being mitigated by the increase in OpEx. In Spain, EBITDA decreased EUR 16 million from higher OpEx, reflecting the inflation impact and given that 9 months '22 was impacted by a recovery of revenues from previous years.

If we now move to Slide 17 on financial costs. Net financial costs increased 9%, impacted by ForEx and derivatives in the 9 months this year, which has had a positive impact last year. Note that the higher volumes of construction activity, namely in renewables, explain the increase of capitalized financial expenses. Excluding the FX differences in derivatives, adjusted net financial interest decreased 1% year-on-year to EUR 619 million.

The Brazilian real denominated debt, which represents 12% of our consolidated nominal debt, has a more than 40% weight on net interest costs following the 14% average cost of Brazilian real denominated debt in the period. I've noted that the Brazilian Central Bank interest rates have already started to decline since August. And as you know, there is a very clear asset liability management and matching assets and liability in Brazil. So part of this, of course, you get recovered through or this is getting recovered through the top line.

On the Slide 18, and maybe I'll spend a little bit of time here. As cost of debt at 4.9%, including the Brazilian real-denominated debt, is 60 basis points up versus last year. If we exclude Brazil, the cost of debt is at 3.2% in the 9 months this year, flat versus the first half of this year and compared with 2.6% last year. The increase year-on-year, mostly due to the U.S. dollar and a euro denominated debt given the higher interest rate environment.

And on this manner, I think it's important to highlight that EDP is actively managing its funding costs, reducing the impact of a high interest rate environment. So first, since June 2023, we are rebalancing our debt currency mix, aiming to decline the U.S. dollar weight and thus decreasing financial costs. We estimate around EUR 100 million savings in financial costs throughout the business plan period, '24 to '26. Again, this was not considered in our business plan financials.

Additionally, we have been active in the debt market, having issued three bonds this year using our pre-hedge on two of those issuances. So if you recall, in 2022, we pre-hedged the benchmark interest cost for EUR 1 billion and $1 billion on new net debt issuances that were planned for '23 and '24. The latter in dollars was settled last quarter, as we announced.

For the EUR 1 billion, this year, we have successfully executed a senior bond emission by issuing a $750 million green bond. The bond was priced at 3.875%, but since we had already the 5-year mid-swap pre-hedge for amounts to be refinancing this year at 1.8%. This led to an implicit yield [indiscernible], which I would say is extremely low yield under the current market conditions.

So likewise, we have issued a EUR 600 million bond on which we partially applied the 5-year pre-hedging at 1.8%, resulting in an implicit yield of 3.7%. So this decrease in yields resulting from the pre-hedge execution as well as the rebalancing of the U.S. dollar-denominated debt weight in the total debt mix, demonstrate our continuous effort towards funding cost optimization to really mitigate the recent interest rate increase.

We are also seeing positive development for the Brazilian real cost of debt. As I mentioned, the benchmark interest rates have been decreasing since August, so there will be a positive impact on financial costs.

Now on Slide 19, I'd like to highlight the strong financial liquidity position of EDP. As of September 2023, we have more than EUR 8 billion of available liquidity, of which $2 billion cash equivalents and the remaining EUR 6.5 billion of available credit lines.

If we consider the asset rotation proceeds from the transactions in Poland that was closed on in [ October 20 ] this year or the 11th of October, and the Brazil agreed that the transaction that is signed since August '23. So this would be amounting to EUR 0.8 billion. And therefore, our liquidity position would stay at $9.3 billion, covering all the refinancing needs until 2026.

Finally, also important to highlight that, as you can see on the right-hand side of the slide, currently, most of our debt is fixed, around 74%, which together with the measures that we are actively pursuing and that I've commented in the previous slide, leave us more comfortable to deal with interest rates increase.

If we move now to Slide 20, net debt increasing to EUR 16.9 billion as of September -- as course of September. And this is impacted by the recurring organic cash flow of EUR 0.9 billion on the back of a strong EBITDA in the 9 months this year, and including the settlement of the anticipation of regulatory remuneration in 2022 amounted to EUR 0.5 billion. Excluding this impact, organic cash flow stood at EUR 1.4 billion.

Regulatory working capital of EUR 2.3 billion from the reversal of the cash inflow effect that was reduced in 2022, together with the increase in deviation from actual wholesale prices versus the regulator's estimate and mitigated by the sale of part of the 2022 tariff deviation total of EUR 0.3 billion. This was executed in September and that has a positive impact in our net debt for the period.

Net expansion investments that amounted to EUR 3.9 billion, reflecting the acceleration of renewable investments and EUR 1 billion investment to acquire EDP Brazil minorities netted by EUR 1.1 billion of asset rotation proceeds, EUR 2 billion from equity capital increases, of which EUR 1 billion at EDP to fund the Brazilian minorities buyout and EUR 1 billion at EDPR to foster the growth in renewables. A dividend payment of EUR 0.8 billion in May. And also, just a quick note, the Polish asset rotation transaction -- if they were to be considered as part of the Q3 net debt, net debt would have stayed at EUR 16.4 billion.

So finally, despite the increase in net debt since Q2, we continue to have a sound balance sheet, supported by the strong operational performance. And of course, the EUR 2 building equity raises that were performed in March this year and the successful execution of the asset rotation strategy. This results in credit ratios at net debt-to-EBITDA 3.3x, FFO net debt at 19% in the 9 months.

If we were to include the proceeds from the Polish transaction, net debt would be at 3.2x versus 3.4x in December last year. And as Miguel said, we are planning to stay at or below EUR 15 billion, depending on the closing date of some of the transactions that are proceeding to close it.

So finally, net profit on Slide 21, just before handing over to Miguel. I would like to highlight, of course, a very strong net profit, EUR 1.026 million doubling versus 9 months '22, when we recorded a €512 million net profit. And this is reflecting the strong operating performance on the integrated generation and supply businesses and actually the contribution from electricity networks.

Below EBITDA, I would like to highlight financial costs increasing, mainly driven by the higher cost of debt and the extraordinary gains with derivatives booked in the previous years. The higher income taxes from higher earnings before taxes, reflecting naturally the strong operational performance. But importantly, lower noncontrolling interest that is already impacted by EDP Brazil minorities buyout.

So with this, I would hand over to Miguel and happy to take questions later on. Thank you.

[Miguel de Andrade, executive]

Thank you, Rui. So now just talking about what to expect for the full year 2023. And as I mentioned at the beginning, we are upgrading our recurring net profit guidance to EUR 1.2 billion to EUR 1.3 billion. We are reiterating our guidance of recurring EBITDA at around EUR 5 billion, around EUR 5 billion. The upgrade on the net profit is really supported by the performance of our integrated portfolio, particularly the businesses we have 100%, so Iberia and Brazil, backed by improved hydro prospects, good market conditions.

I mean, our asset rotation execution was also very good so far. We've strongly contributed to the 2023 results. We expect that rotation gains to be above EUR 400 million this year, supported by the quality of the portfolios, different markets, different regions, different contracted profiles but certainly contributing to this target.

The full consolidation of EDP Brazil has already been incorporated in the 9 months of 2023, so the net profit there. And we'll obviously continue to do so for the fourth quarter as well. Those will be contributing close to EUR 90 million net profit in 2023 impact.

Net debt for the year, I think I mentioned that, Rui mentioned that. So we continue to expect around EUR 15 billion. It could be below, reflecting the positive contribution of the asset rotation proceeds, and obviously, the expected tariff deficit securitization by the end of the year.

So overall, very confident for the remaining part of 2023 based on not just the diversification of our portfolio, and also backed by an improved energy market outlook, which I think more than compensate for the higher interest rate environment.

I was just going through the final slides for some closing remarks, seven key points. One, strong results in these 9 months, positive prospects for the fourth quarter, as I mentioned, driven by the recovery of the integrated margin in Iberia, resilient electricity networks, better-than-expected after rotation execution. So all that's supporting an upgrade of the 2023 earnings guidance.

Second point is the buyout of 100% of EDP Brazil minorities, around EUR 1 billion of investment that's already came through in the third quarter, obviously, in the fourth quarter as well. Important to highlight the positive news flow, both on the macro context with -- but also on the regulation in Brazil, we have decreasing interest rates in Brazil. We have Brazilian real appreciation. Positive update for the new regulatory period in EDP Sao Paulo. And also positive prospects for the 30-year extension for the distribution concessions on track.

Third point is just ongoing efficiency measures. It's not assumed in the '23-'26 business plan and we're estimating new cost savings of around EUR 50 million, and upside to the business plan in the short term.

Fourth point, attractive returns in our renewable investments being approved, supported by the increased PPA prices stable or downward trend on CapEx costs, strong demand for renewable energy and generally a scarcity of ready-to-build projects. So the issues around permitting licensing have been improving in some countries, but obviously still a big ramp-up that can be done in many places.

The fifth point is obviously a strong focus on the strong balance sheet, supported by the EUR 2 billion equity raise we did in March 2023. Good execution of the asset rotation plan, more than EUR 1.5 billion of proceeds that we're expecting this year, tariff deficit sailing in the fourth quarter. So net debt to EBITDA at a healthy 3.3x.

Sixth point. We're managing our cost of funding. We've just spoken about that. Cost of debt increases have been mitigated by pre-hedged interest rates. We have a lower weight also of U.S. dollar debt, together with a decline of interest rates in Brazil. So higher energy market prices and PPA prices, and inflation-linked revenues as relevant interest rate mitigators.

And finally, just saying that we are taking significant steps to phase out coal. I've talked about Pecém and Aboño in Spain. So I think we have very good visibility now on the strategy which was one of the strategic commitments that we had. And so as I mentioned, this will bring EDP to above 90% renewable generation, hydro, wind and solar for 2024. And I think that's really something quite distinctive.

So thank you very much for attending this call, and we can now move to Q&A.

[Operator]

Ladies and gentlemen, the Q&A session starts now [Operator Instructions]

[Miguel Viana, executive]

Okay, our first question comes from Jorge Guimarães from JB Capital.

[Jorge Guimarães, analyst]

I have three. The first one, it's -- if you can give us some indication about where you see either production in 2024, given the good evolution of reservoirs you just mentioned.

The second one is related to the special energy tax in Portugal. How do you see it for 2024? And if it maintains, flat year-on-year, is it an indication for the things to come?

And the final one is a more strategic one. Regarding the -- your closure of coal. Can it be read as -- I remember that in the EDPR conference call, you said that you are closely following the evolution of the share price. Can we read the coal closure as initial steps for a higher integration of the group?

[Miguel de Andrade, executive]

Thank you, Jorge. So hydro 2024. Listen, weather -- or no one can predict the weather more than a couple of weeks in advance, so I can't comment on the hydrology for 2024. What I can comment in which I think is a good sign is that we are certainly in the fourth quarter already with the very high levels of reservoir.

And there's still quite a lot of rain expected to come over the following couple of weeks so we expect that to carry those reservoirs to continue filling up for the -- certainly the remainder of November. As I said, past that, it's difficult to predict.

So I'd say we will come into 2024 with a strong hydro position. How 2024 then plays out, I would just assume an average year. I mean, that's certainly what we do. It's not -- I don't think there's any better estimates really than that.

In relation to the sales, so the government budget draft has come out. It's currently being discussed. There is some wording there that basically says that this says will not be applied to investments in -- that are according to the EU taxonomy. So I'm literally sort of trying to reproduce what it says, which means that additional investments, which are compliant with EU taxonomy, which are typically green investments or renewables, even networks would not be subject, that says, this is in a draft form. We'll need to follow it. I think for purposes, I would just assume maintaining roughly the current levels so I wouldn't try to guide you to sort of a more optimistic number on that, certainly not at this point.

On the third point on coal. So listen, it's part of our -- so the closure of coal is just the reading you have to take of it is just we're closing coal. So we are committed to Net Zero by 2040. Certainly, we'd said that we would be out of coal by 2025, and that's what we're delivering on that strategic commitment. I wouldn't want you to read anything else beyond that.

[Miguel Viana, executive]

Next question comes from Javier Garrido from JPMorgan.

[Javier Garrido, analyst]

A couple of questions on cost savings first. Firstly, is there going to be any cost to deliver the EUR 50 million-plus cost savings in 2024? If you are going to book any one-off cost in Q4?

And then on the cost savings that you already announced the EDPR call at the financial level, is this reduction in cost, this EUR 100 million cumulative to '26, is going to be offsetting an increase in financial costs due to higher interest rates? Or is -- do you think this is going to be a net improvement versus what you have in the business plan?

The second question is on the financing of the Portuguese social tariffs, if there is any new news on this aspect.

And then the third question is on the guidance. You are reiterating the EUR 5 billion in guidance for 2023 at the EBITDA level. I understood that you said that Q3 performance was better than you expected, but is it fair to say that your expectation for the full year is now conservative? Or is there anything that should make Q4 be negatively impacted versus your previous expectations?

[Miguel de Andrade, executive]

Okay. Thank you, Javier. So on the cost savings, so the -- we're not expecting one-off costs. And certainly, we haven't, let's say, calculated that. If there is anything, we will obviously give a heads up but that's not incorporated. We're not assuming that in as part of that number that I gave you.

I'll pass on the question on the financing to Rui, but perhaps I'll just address the social tariff and the guidance questions.

So on the social tariff, so what we know, and we're still waiting for the final details to be fully published but is that the government has approved a social tariff financing. So as you know, we've always been said that if the government chooses to have a social tariff, that's perfectly understandable that happens in many different countries. The issue was how and by whom it's been financed. And that if you look at the Spanish model, it's shared between all the different operators in the sector.

So the government, and as you know, we also went to Brussels, and Brussels agreed with us. The government has now approved the change in the social tariff, which we believe will share this burden between the different operators. The details have not come out yet so I can't give you very specifics. What I can say is that we expect that for EDP, the social tariff costs will be lower than it has been in the past.

But we still need to see the final details to understand the full magnitudes of that. So it should be material because, as I say, it would be then shared in the other operators, the same way that we pay social tariff in Spain as do the other operators as well. But hopefully, that will come out in the very short term, and we can then provide further information on that.

On the final point. So I think it's more a question of mix. So we're having a very strong performance on the businesses that -- where we have 100%. So certainly, Iberia has that integrated position. Brazil is also having a good performance. And so that's going straight to the bottom line and offsetting sort of any weakness that we have this year because of lower wind or COD delays on the EDPR where we have some additional minorities there.

So I'd say that on the EBITDA guidance, we're not trying to be conservative here. But certainly, we see the upside on the net income. And so that's why we're guiding to a EUR 1.2 billion to EUR 1.3 billion sort of for the full year.

[Rui Manuel Rodrigues Teixeira, executive]

Javier, it's Rui here. On the EUR 100 million, so just to be clear, this is the impact versus the business plan '24-'26. So if you recall when we presented the business plan, we gave also some guidance about the sort of assumptions we were taking for interest rates.

So assumptions just by the fact that we are changing or reducing the U.S. dollar weight in the debt and versus where -- and given where we have the interest rates right now that will have that impact versus the business plan financials of about EUR 100 million cumulative between '24 and '26.

[Miguel Viana, executive]

Next question comes from Alberto Gandolfi from Goldman Sachs.

[Alberto Gandolfi, analyst]

Three on my end as well. Sorry to get back on the guidance. But would it be fair to say that you were expecting EUR 5 billion all along, but now you have less contribution from EDPR at EBITDA level where basically there's much less net income, and you have a 30% minority and you have more contribution from hydro in Iberia and Brazil. So the same EBITDA leads you to a higher net income and then you have some financial expenses. So essentially, if I were to adjust EBITDA for the ownership stake, this would be an underlying upgrade also of the EBITDA. You just don't see it because of consolidated 100%.

And the second question, and tell me if I wasn't clear, I can ask it in a different way because I'm not sure I was clear. Second question is, can we look at the EUR 1.2 billion, EUR 1.3 billion as a good starting point for incremental growth into 2024? And where I'm coming from is that you probably are going to book maybe EUR 150 million incremental capital gains versus a normal year. But on the other side, you have very poor load factors in EDPR, one-off taxes.

So should this be seen also as a proper clean number upon which you can build proper and substantial incremental growth because as you said it yourself, power prices that have actually been more resilient than you thought.

And you're delivering EUR 1.2 billion, EUR 1.3 billion, also, let's not forget, with relatively disappointing capacity additions this year. So next year, you have also all of that. So I'm trying to gauge, are you still convinced you can deliver quite a lot of growth into next year? Maybe anything you can elaborate on that. I suspect you're giving us the next target for few years at the full year results, but directionally.

And the last question is something similar to what I asked on Tuesday, but I was wondering if you have more details now. I think it's excellent to see the granularity on the IRR on what is under construction and development. Would you be able to share more light on the IRR on the existing portfolio? That I think would be extremely helpful. And perhaps, would you be able to share -- I mean, if you already have that, I don't need to ask the second part of the question.

Otherwise, I was trying to understand, if you have rerun the numbers, whenever you were winning a project at 6%, 6.5% at the trough of the cycle, is that IRR now, what, 7.5%, 8%, 7%, 8%. So just trying to understand how inflation and power prices have supported rising profitability of the existing assets.

[Miguel de Andrade, executive]

Okay, I'll get them. So a lot of good questions. Let me see if I can get to them or answer them all. So on the EUR 5 billion and the link to the EUR 1.2 billion, EUR 1.3 billion, I think, yes, I mean, we are clearly reiterating the EUR 5 billion. The mix is different. And as you said, as I explained on the call, a big part of it is coming from a strong performance on our, let's say, our 100% owned businesses, Iberia and Brazil from now. So I think this is a good basis.

I mean, it's certainly in line -- well, certainly good numbers. We had EUR 871 million last year of -- or EUR 870 million of net profit. So this is even on a full year basis, we're talking about a very substantial double-digit growth year-on-year versus 2022. I think looking forward, it depends obviously on the energy prices. It depends on when the CODs of the different projects come in.

But I would guide to consensus business plan numbers that we gave. I mean, we came out with is, let's say the -- and I think we gave specific numbers for '24 there. I'd say we're certainly well positioned for them to deliver on those numbers.

I mean, just a little bit of history but you know how quickly the world changes. If you remember the previous business plan, if you go back to 2021, we were guiding at a time to around EUR 1.2 billion of net income for 2025. We're now in 2023, and we're at EUR 1.2 billion to EUR 1.3 billion. So I think definitely the world has moved, and it's improved, let's say, on this level. So we've had very strong growth '23 versus '22.

For 2024, we're comfortable with the business plan and just general consensus you obviously, we can get upside to that. And then we'll discuss that over the course of the year. But sitting now in early November, I wouldn't want to go much beyond that.

On the issue around the granularity of the IRRs, and by the way, then if you want to tell me if that was okay or if you want me to go deeper. But on the granularity of the IRR. So I talked to you about the other construction on the existing portfolio. So I mean, we have a portfolio which goes back 20 years so we have multiple different vintages, if you want, of the different projects. But let me just give you an interesting number. So yesterday, we're looking at a project that we approved in the U.S. And one of the things I think we need to bear in mind and which I've spoken about is the fact that in many cases, we renegotiated PPAs and increased the prices.

And so that's something that we've been doing on a relatively recurrent basis. And that's happened in Europe. That's happened in the U.S. as well. So to make sure that the projects are always NPV positive. I mean, the project that was approved in, let's say, April of 2022. It had an IRR which was something below 7. We renegotiated the PPA, and we just reapproved it, it's now closer to 8.5%.

It's the same project that we renegotiated the PPA stuff and increased up. I'm just giving that as a sort of data point of the type of work which has been done by the team throughout the year and throughout the last months to really make sure that we keep these projects certainly NPV positive and keep them with a good spread.

So we're actually keeping the same spread. This project was approved. As I said, we took an investment decision in April of 2022. We reapproved it now. It has the same spread. Why? Because we increased the PPA price. We changed the settlement location. We have pretty good visibility on the CapEx. And so we have kept that. As I say, that is one example, I can give you many others of how we're seeing sort of even projects approved in the past that we have managed to renegotiate and create value.

So as I say for the overall portfolio, I think it's a harder number to come up with because we have projects going back 20 years, and so I need to go and calculate, let's say, the IRRs of all of those projects for the full portfolio. But just also -- maybe I don't want to take too long with this question. But again, one of the reasons why we brought up what the CODs and the FIDs of the project that we rotated now this year, the Polish project, the Spanish project, also the project that we sold last year is at the lowest point of the interest rates cycle.

And so as I mentioned, it's not -- we're not -- it's not an interest rate arbitrage that we're doing here. I think in many cases, it's a project that have good value. Now I mean, I'm not saying all projects are great, but I'm saying that overall as a portfolio, I think we're pretty comfortable that we're getting to the target returns.

[Alberto Gandolfi, analyst]

Yes, sorry, just taking you up on your offer of clarifying the second question. I mean, consensus for next year is EUR 1.2 billion in Bloomberg. And you're guiding EUR 1.2 billion, EUR 1.3 billion this year. If I assume an average hydro year, let's say I'm losing EUR 150 million capital gains at the EDPR level, so let's say EUR 100 million for bottom line. But theoretically, I'm supposed to have EUR 300 million normalization in EBITDA from EDPR from load factors, from lapsing of levies and taxes. And then I have incremental capacity to put on top. So how can you be flat year-on-year on net income?

[Miguel de Andrade, executive]

All right. So I thought the consensus actually was a little bit higher than just telling me it's that. But for the time it was 1.250. okay. But...

[Alberto Gandolfi, analyst]

Okay, still.

[Miguel de Andrade, executive]

In any case, it's not the [ 1.250 ]. So we're still working on the budget for 2024. So I have to be honest, I don't feel 100% comfortable in giving too much guidance on '24 because we're still working at it. I think one of the data points I also gave is that this year actually, okay, we're looking at a great fourth quarter in terms of hydro. But the year as a whole wasn't that great in terms of hydro.

So if you normalize also for hydro, we also see upside there. So I think there are different moving parts. I don't have the budgets. We haven't gone through that exercise. Actually, we have the budget discussions next week. And I'm sure I would be able to give you probably maybe a little bit more clarity on that after that. But listen -- but hopefully, I'd certainly say, listen, we're pretty comfortable for 2024. Maybe that's the key message.

[Miguel Viana, executive]

Our next question comes from Manuel Palomo from BNP Paribas.

[Manuel Palomo, analyst]

I still have two, three questions. The first question is on the integrated margin that you have in Iberia, which I think that has been the key highlight of these results. Making some rough calculations, I've seen that this margin at the EBITDA level, I'm seeing Europe [indiscernible] has doubled or even more compared to last year. But it's also very well above historical average. So I wonder whether you could give us some arguments to make us more comfortable about the sustainability of those margins going forward. That would be much appreciated.

Then I have a question on detail of the financial investments in assets held for sale, which amount, if I'm not wrong, to EUR 3.5 billion versus EUR 1.9 billion in December 2022. Could you explain the EUR 1.6 billion difference, which I guess it refers to assets held for sale and what assets could be included?

And the last one is whether you could share with us what is the expected impact on the minorities just coming from the buyout of the Brazilian minority. So what is the expected decline in minorities as a result of that transaction in 2024 versus 2023?

[Miguel de Andrade, executive]

Thank you, Manuel. So perhaps you can take the second and third. On the first one, Manuel, you were breaking up a little bit, at least on my end. But if I understood correctly, so on the integrated margin, getting comfortable with the margins going forward, is that it?

[Manuel Palomo, analyst]

Yes, the sustainability. Yes, we do see that it's a big year 2023.

[Miguel de Andrade, executive]

Yes. Okay. So thinking about -- well, I think first, we need to look at the forward prices, and that's why we provided that slide showing how there's been a rebound now of the forward prices for '24 and beyond '25 or '26 and sort of they're now back in line with pretty much the business plan numbers.

We already have around 50% hedged for 2024. So we still have, meaning, obviously, 50% open in '24. So at these levels, that would mean that we would be quite comfortable or that we would have a good margin for 2024.

Other 50% is hedged at close to EUR 100 per megawatt-hour. So 50% is, let's say, locked in, the other 50% forward prices look good. We'll be managing that over the period. As you know, our hedging strategy now is we don't lock in everything, just given the volatility, so we'll typically be a little bit open in that position. But we probably will look on some additional amount over the next couple of weeks and months. So hopefully, that gives you some comfort on the '24 margin.

On the other two points, I'll turn it over to Rui.

[Rui Manuel Rodrigues Teixeira, executive]

Thank you, Miguel. So on the assets available for sale, so basically, we currently have the Pecém, the coal plant in Brazil, and the transmission line in Brazil. In those two, they have an impact also in that because they have third-party debt. Also, we have the wind asset rotation in Brazil as well classified as available for sale. And I would say those are the three main ones, at least are in the books in the 9 months for EDP.

On the minorities, so EUR 48 million now booked in -- that's coming from Brazil, EUR 48 million in Q3, the estimated for the year -- for the rest of the year or, if you want, for the second half of '23 is EUR 100 million. And in 2024, we are expecting EUR 120 million, and this is excluding any synergies. So just expectation of the...

[Miguel Viana, executive]

Next question is from Olly from Deutsche Bank.

[Olly Jeffery, analyst]

I just have one question, please, on capacity additions. Going back to the half year presentation that you gave at the EDPR level, you indicated that the level of additions you might expect from '23 or '24 range from 7 to 7.8 gigawatts. And in the most recent presentation, you indicated it will be 6.5. And I understand 500 megawatts of that gap is because Colombia has been pushed back into 2025 and beyond. And that still leaves a gap of 800 megawatts.

So could you please explain why that 800 megawatts has been pushed into 2025 and beyond? Is it because there's challenges around doing deals? Or is it wanting to slow down execution? And if it is execution, does that not make it more challenging, because in '25 and '26, you're going to have significantly more gigawatts to try and add to the portfolio?

[Miguel de Andrade, executive]

Thanks, Olly. So I think the two comments, I think, around this. One is, yes, there is just an issue in terms of -- I mean, we are building currently 5 gigawatts. And so the way we've dimensioned ourselves is to sort of do around 4 gigawatts per year. And so that means that for 2024, we're sort of looking at that, I think I mentioned on the EDPR call, around 70 projects, 4 gigawatts. So we have pushed some projects into 2025 just because it would not be humanly feasible to do them all in 2024.

The second comment is also to do -- so that's part of the explanation. The second comment is that, I mean, we go on locking in PPAs, and as I said, that we think are value accretive and that where we feel comfortable that we'll have the economics and the value spread. And so we're already working on the '25 pipeline. Part of that is the '24 that move into '25, and we continue to build that up. But I'd say we're aiming for the 4 gigawatts more or less on an ongoing basis.

In the case of, let's say, 2024, I think certainly, the U.S. team has got not just delivering 1.7 gigawatts now until the end of the year, but they've already got 2 gigawatts to be built in 2024. I think to put additional megawatts on top of that would not be possible, and we would then be running risks that we don't want to run. So we prefer to, let's say, manage that growth and make sure it's sustainable, value creating, and that's what we're aiming to do.

[Operator]

Our next question comes from Arthur Sitbon from Morgan Stanley.

[Arthur Sitbon, analyst]

I have two. The first one is on the net debt. I was wondering if you could remind us, help us with the key moving parts that will make you go back from EUR 16.9 billion of net debt in 9 months to the EUR 15 billion or below as you were mentioning by the end of the year. So just the key moving part, the key blocks that would be helpful.

And the second question is on renewables. So obviously, you have higher costs on renewable projects with higher rates, higher CapEx in wind. And so far, what you've been showing is that you're able to pass through those higher costs into higher offtake prices. And thanks to that, you maintain a good IR toward spread. I'm wondering how much of that pricing power is linked to the fact that market power prices are high. And is there a risk that as power prices come down and if rates remain high, your pricing power would erode.

[Miguel de Andrade, executive]

Okay. Thank you, Arthur. So on the first point, Rui, do you want to take that?

[Rui Manuel Rodrigues Teixeira, executive]

So key moving parts, a, we are [indiscernible] toward the, we have been working with banks with institutional investors, and that's something that is planned to happen, I would say, third week of December as we have the final tariff '24 published by us, pull the trigger, and we executed that deficit securitization. We are estimating around EUR 1.3 billion, at least for that.

Then of course, we are expecting also the closing of asset rotation, namely the one in Brazil related to the wind farms, so the EDPR asset rotation. The one that was signed this week on the transmission, I think it's likely to be a 2024 event, not in 2023, but we are working to close on the wind side.

Then we have a few other initiatives which will be still material, but definitely smaller than the ones that I've mentioned in terms of cash preservation and, of course, cash flow generation. But definitely, very importantly, it will be the deficit securitization. And as I said, it's something that is being actively worked and discussed with investors so that we can immediately execute it once we have the tariffs published.

[Miguel de Andrade, executive]

Okay. On the second question, so I mean, the pricing power comes because the market has obviously adjusted, the renewables market has adjusted, the PPA market has adjusted to these higher costs, higher CapEx, and higher cost of capital. And so when you're competing for PPAs or CfDs, that's essentially the metric that is most relevant and not necessarily what is the merchant price at any particular point.

Obviously, the fact that merchant price is higher than the PPAs means customers are doing particularly, more confident in contracting at those -- at higher PPA prices. We're talking about, as I mentioned, merchant prices in many geographies still well above EUR 100. And we're talking about PPA prices in some cases, for example, in Iberia, EUR 40 to EUR 60 per megawatt-hour. So energy prices would have to come down a long way to -- for people to start thinking that they want to leave. They don't want close PPAs and they just want to go merchant.

I think another point is that clients in general have realized that volatility is not something that they want to manage that much. And so even if prices do come down a bit, they are certainly -- we're seeing that they prefer to lock in. That's certainly a big part of their energy with at least a predictable price rather than speculate on whether the merchant price is lower today, higher tomorrow. And they're taking a more prudent approach.

I sometimes liken it to the way you manage debt. I mean, you don't just have short-term debt and sort of hope that the -- and if you did, you had a problem. Now with this spike, you have long-term debt, you'll have maybe some short-term debt, medium-term. And that's how you should manage energy as well, particularly for electro-intensive industries.

I think just a third final comment on supply chain. We are seeing the supply chain coming down. I think that's going to be more of a driver in terms of lower PPA prices because generally, you can price -- prices is lower, PPA and CfD is lower because a that will bring down those prices. And I think that will be more of a driver rather than, let's say, what is the merchant price it at any point in time. Hopefully, that helps.

[Miguel Viana, executive]

We go to a last question from José Ruiz from Barclays.

[José Ruiz Fernandez, analyst]

Just two. The first one is this transaction around two Brazilian transmission lines. Is this a one-off or are you going to continue or accelerate disposals in Brazil?

And the second question is just a clarification. You mentioned you're going for EUR 1.3 billion securitization. Does that mean that in the fourth quarter, we are going to see an additional EUR 100 million tariff deficit as you close 9 months with EUR 1.2 billion tariff deficit?

[Miguel de Andrade, executive]

Okay. Thank you, José. So I'll take the first one and Rui will take the second one. So on the Brazilian transmission, so we -- what we said is that for transmission in Brazil, we also see it sitting in within the asset rotation strategy. In other words, we see lots of opportunities to invest in transmission in Brazil, whether it's through auctions or whether it's even in the secondary market, sometimes for projects to build these transmission lines.

And then once they've -- once we've built them, once you've brought them to COD, in many cases, you can rotate them to other companies or funds that have lower cost of capital. And we can redeploy that capital back into the business and build additional transmission lines.

So it's a little bit like what we see on the renewal side. We see where we are -- on our side, where we are creating more value is on the development and the construction engineering and construction phase, rather than necessarily holding on to all of the assets once they're built. So that's how it fits in.

So yes, we have sold other transmission assets in the past, and we might sell additional transmission assets in the future. We don't have anything specifically on the agenda now, but it would certainly fit within this idea of investing in transmission projects, and then rotating them, and then redeploying that capital back into new projects.

On the securitization, I'll pass it over to Rui.

[Rui Manuel Rodrigues Teixeira, executive]

Thank you. So on the securitization, I mean, just bear in mind that we started the year with regulatory payables. So I mean, there will be a netting effect from that. But also bearing in mind that throughout Q4, depending on how the wholesale price evolves, we may have some fluctuation on the deficit. The EUR 1.3 billion is based on what we currently have from the regulator on their proposal on -- for the 2024 tariffs.

So as we said, we already did EUR 300 million. We have this expectation to go for EUR 1.3 billion. I mean, once the number is clearly defined, then of course we'll adjust for that as well.

[Miguel Viana, executive]

So we conclude Q&A and pass now to Miguel for the closing remarks.

[Miguel de Andrade, executive]

First thing, just to note, I've been told that there were some technical problems on the call and that it was sometimes cutting off and I apologize for that. Hopefully, you managed to get sort of the key messages. And if not, obviously, feel free to reach out to us again to clarify any issue but sorry about that. We only sort of noticed it more than halfway.

And finally, just in terms of key remarks. So as I say, really strong results for the first 9 months. Feeling very positive about the fourth quarter. I think we are stronger than ever going into this fourth quarter with super high reservoir levels, predictions of continued rain over the next couple of weeks. Looking good in terms of energy prices for 2024 and even for the rest of this year. Brazil is doing well. Iberia is doing well. Renewables have these one-offs that have impacted this year. Hopefully, wind will recover next year and we'll get -- so the CODs delivered on time.

2024, we're feeling much more confident about that in terms of the delivery of the megawatts. As we said, we had one big issue this year, which we've sorted out. So feeling very positive certainly about the rest of the year and going into 2024.

Overall, we've done well, I think, also on the phasing out of coal. So we really are, I think, a leader in terms of being a green integrated utility. Next year will be more than 90% renewable energy. Present on, I think, really attractive geographies, super-strong focus on the asset management, super strong focus on the efficiency. Good energy management capabilities within the company.

So I think really well positioned to continue to invest and to continue to create strong shareholder value over the economic cycle, and that's really what we're focused on. So thank you for taking the time to be on the call, and I'm sure we'll be talking again soon in follow-up roadshows. Thank you.

[Operator]

This concludes today's event. We thank you all for your presence. Ladies and gentlemen, you may now disconnect your lines.