Iberdrola (OTC:IBDRY) (BME: IBE) has announced a substantial increase in its first-quarter profits and investments during the 2024 First Quarter Results Presentation. The company's profit surged to €2,760 million, marking a 20% increase in recurring profit compared to the same period last year. This rise was influenced by a capital gain of €1.7 billion from a deal with Mexican infrastructure partners.
Investments also grew by 30% to €2.4 billion, with significant contributions from network and renewable energy sectors, particularly offshore wind projects. The company is outpacing its 2024-2027 plan and has raised its net profit guidance for 2024, excluding the capital gain from the Mexico transaction.
Key Takeaways
- Iberdrola reported a 20% increase in recurring profit from Q1 2023, reaching €2,760 million in Q1 2024.
- Capital gains from a transaction with Mexican partners and the recovery of a retail deficit in the U.K. significantly affected reported results.
- Investments rose by 30% to €2.4 billion, with a 27% increase in network investment and a 50% increase in renewable investment.
- The company's recurring EBITDA grew by 10%, and they are advancing in offshore wind projects.
- EBITDA for Q1 2024 was €5,857 million, while net profit also saw a rise to €2,760 million.
- Iberdrola's adjusted net debt decreased to €44.9 billion, with an improved debt to EBITDA ratio.
- The company has updated its net profit guidance for 2024 to high single-digit growth, excluding capital gains.
- Iberdrola's CEO, Ignacio Galán, confirmed that the net debt for 2024 is projected to be around €47 billion, excluding certain acquisitions.
Company Outlook
- Iberdrola is ahead of schedule on delivering its 2024-2027 plan, focusing on financial strength and a better FFO to net debt ratio.
- The company plans to use the Mexico capital gain to fuel future growth.
- Investment in energy transition in Spain is expected to become deductible in revenue tax.
- Iberdrola raised its net profit guidance for 2024 to high single-digit growth, excluding any capital gain from asset rotation.
Bearish Highlights
- The company noted low wholesale electricity prices in Spain due to factors like low demand and high renewable energy production.
Bullish Highlights
- Iberdrola is seeing strong operating performance and has completed its asset rotation and partnership targets for its 2025 plan.
- The company is still open to selective opportunities in advanced stages for further growth.
Misses
- There were no specific misses reported in the earnings call.
Q&A Highlights
- The company discussed the potential for electrification in various sectors in Spain, which could significantly increase power demand.
- Iberdrola is negotiating the terms of the Avangrid (NYSE:AGR) Minorities Deal and will provide updates in the coming months.
- They are exploring opportunities in the data center business and aiming to leverage their capabilities to provide electricity and power.
- Despite customers shifting from the liberalized to the regulated market in Spain, Iberdrola maintains a strong position with competitive energy costs and long-term hedging policies.
Iberdrola's first quarter of 2024 has been marked by significant financial gains and strategic advancements. The company's proactive approach to investment in renewable energy and network infrastructure has positioned it well within the industry.
With a focus on sustainable growth and operational efficiency, Iberdrola is navigating the challenges of the energy market while capitalizing on opportunities for expansion and innovation. The forthcoming Annual General Meeting on May 17th is expected to provide further insights into the company's strategies and performance.
Full transcript - Iberdrola (IBDSF) Q1 2024:
Ignacio Arambarri: [Foreign Language] Good morning, ladies and gentlemen. First of all, we would like to offer a warm welcome to all of you who have joined us today for our 2024 First Quarter Results Presentations. As usual, we will follow the traditional format given in our events. We are going to begin with an overview of the results and the main developments during the period given by the top executive team that usually is with us. Mr. Ignacio Galán, Executive Chairman; Mr. Armando Martínez, CEO; and finally, Mr. Pepe Sainz, CFO. Following this, we’ll move on to the Q&A session. I would also like to highlight that we are only going to take questions submitted via the web. So please ask your question only through our web page, www.iberdrola.com. Finally, we expect that today’s event to last no more than 50 minutes. Hoping that this presentation will be useful and informative for all of you. Now, without further ado, I would like to give the floor to Mr. Ignacio Galán. Thank you very much again. Please, Mr. Galán.
Ignacio Galán: Thank you, Ignacio. Good morning, everyone, and thank you very much for joining today’s conference call. In the first three months of 2024, our strong operating performance has led to a reported profit of €2,760 million, with a recurring profit of 20% compared to the first quarter of 2023. As you can see, reported results in the first quarter are affected by extraordinary ratings both in 2024 and 2023. In 2024, we have included the capital gain from the €5,437 million transaction with Mexican infrastructure partners, which has completed in the last days of February, with a positive impact of €1.7 billion at EBITDA and €1.2 billion at net profit level. In the first quarter of 2023, we registered the non-recurrent recovery of the previous year’s retail deficit in the U.K., with a positive impact of €311 million at EBITDA and €238 million at net profit. Reported EBITDA reached €5,157 million, with a 10% increase in recurrent terms, driven by the higher contribution of our businesses. Net loss, mainly due to the new rate cases in the U.S., the U.K. and Brazil, and the new production and customers, which registered better performance thanks to the record renewable production in Iberia and the -- of the last decade and the new capacity mostly offshore wind. We also recorded investment of €2.4 billion in just three months, a 30% increase versus previous year. Network investment grew by 27% to €1.1 billion, driven by new rate cases in the U.S., U.K. and Brazil, with an increase of 85% in transmission, which already represents 40% of the total investment in this business. In renewables, investment are up 50% to almost €1 billion, driven by offshore wind, which represents close to 40% of the total after a 70% increase year-on-year. We have been able to combine this record level of investment with a further increase in financial strength, thanks to a 40% increase in recurring cash flow, reaching €3,145 million, a €5,437 million proceeds from, as I mentioned, from Mexico transactions collected during this quarter. All in all, FFO to adjusting net debt is already above 25%, as Pepe will mention later on. As you can see, we are delivering in our 2024-2027 plan ahead of schedule in terms of result, investment, cash flow generation and financial strength. As mentioned, recurring net profits is up 20% year-on-year. Once, we include the positive impact of the Mexico transaction reporting net profit reaching €2.7 billion in the last quarter. This was possible thanks to a very strong operating performance across our business and geographies, leading to a 10% increase in recurring EBITDA. The network business has benefited from new tariffs in the U.S., U.K. and Brazil, and an increase in regulated assets based both in distribution and transmission, partially offset by temporary IFRS adjustments. Energy production and customers increased its contribution as well, thanks to 10 years record renewable production in Iberia, with higher production from renewable technologies. An additional offshore wind capacity from Saint Brieuc in France, with old turbines already installed and being gradually commissioned in a process that will be completed in the next three months. And the first turbine from Vineyard Wind 1 in the United States already exporting energy as well. Finally, retail performance is better than expected, thanks to our manageable renewable generation in an environment lower prices. A significant part of our growth was driven by new investment. In the first three months of 2024, we have reached a new record of €2.4 billion, up 36% from previous year, with more than 90% allocated to networks and renewables. As anticipated, we presented our planned network business. It is already our first investment destination, after a 27% increase, reaching €1.2 billion in the period. 40% of these network investments were allocated to transmission, with an increase of 85% from 2023 and 60% to distribution, with a 6% increase, driven by new tariff frameworks in most of our key geographies. By countries, 40% of total network investments were directed to the United States, mainly New York, due to the increase in transmission and distribution investments included in the new rate case, as well as in Maine, both in distribution of our interconnection line with Canada. Brazil represents 29% of the total investment, U.K. the 21% and the remaining 10% was invested in Spain. While we continue to have a limit on lowered investment related to GDP growth that we understand is not compatible with urgent need of new connections, and therefore, we expect it will be removed by the government soon, driven additional economic growth with a very limited impact on tariff. As a result of this investment, our asset base reached €43 billion, up 9% year-on-year. In renewables, investment reached €944 million in the first quarter, 50% up from 2023, driven by increases of 70% in offshore wind, which contributed 40% of the total investment and an investment in onshore technology was also up by 43%. In storage, investment rose by 70%. By geographies, 36% was allocated to the United States, mainly driven by offshore wind, as we keep progressing in the construction of Vineyard Wind 1 in Massachusetts. 34% of the total investment corresponds to solar PV, storage and onshore wind in Spain, followed by 22% allocated to Australia, offshore wind in France and Germany, and onshore in Portugal and Italy. Finally, 80% of renewable investments were directed to the U.K., mostly to its Anglia 3 offshore wind farm in construction. These quarters’ results reflect a very strong renewable performance in the Iberian Peninsula, with an increase in production of 90% to reach a 10-year record of 10,600 kilowatt hour. Currently, prices and environment allow us to maximize pumping storage, driven by an 80% increase in energy stored up to 2,240 kilowatt hour in this quarter. As a result, as today, our results are in record levels of 9,500 kilowatt hour. The build-up of new offshore wind capacity is also progressing on schedule, with 1.6 kilowatt already contributing to results, including the first megawatt of two of the three offshore wind farms that we are already under construction. Saint Brieuc in France, 60% of its 500-megawatt are already producing and the remaining 200-megawatt are expected in the next three months. In Vineyard Wind, in the coast of Massachusetts, 130-megawatt are already exporting energy and the remaining 370-megawatt are progressing construction. On top of this, Baltic Eagle in Germany has its first turbines already installed and its 475-megawatt will be fully operational also before the year end. This means that in 2024 we will install 1,100-megawatt more than doubling our offshore wind capacity in just one year. Additionally, we have under construction the offshore wind farms of Windanker also in German Baltic Sea with 350-megawatts and East Anglia 3 in U.K. with 1,400-megawatt of capacity. Both are tracked to be in full operation by 2026 and with a secure route to market. In the last month, we have also continued to secure additional opportunities in this technology for the coming years, like the 375-megawatt Happo Noshiro project recently awarded in Japan to end construction with which Iberdrola holds 39% stake. We are currently working with our partners in the supply chains and the route to market for this project with an expected final investment decision no later than 2026. We also have two projects participating in the Round 6 auction in the United Kingdom, East Anglia 2 and East Anglia 1 North, with a combined capacity of 1.8 gigawatts. And the United States recently presented bids for the New England multistate auction with two projects, New England 1 and New England 2, totaling almost 1,100-megawatts. We expect the result of this auction before the year end. Lastly, we continue securing seabed rights for additional projects for 2030 and beyond, such as ScotWind in U.K., where we have 2 gegawatts plus, a joint venture with Shell (LON:SHEL) for the allotment of another 5 gegawatt of float and offshore wind or Kitty Hawk with 3.5 gegawatt in the coast of Virginia and North Carolina in the United States. As you know, in Australia also, we are expecting a positive result of the auction for seabed rights in Victoria, where we presented our 3 gegawatt Gippsland project. In the last few months, operating cash flow reached €3,145 million, a 14th increase in recurring terms and we continue delivering on our asset rotation and partnership plan. As mentioned, we collected €5,437 million from the Mexico transaction and we expect to continue announcing soon additional progress in our co-investment agreement with our Tier 1 partners. All this is driving an ongoing increase in our FFO over net debt ratio, which it might improve by 180 basis points to reach 25%. We’ll now hand over to CFO, Pepe Sainz, who will present the Group financial year 2024 in detail.
Pepe Sainz: Thank you very much, Chairman. Good morning to everybody. In the first quarter of 2024, EBITDA reached €5,857 million versus €4,065 million in Q1 of last year and net profit €2,760 million versus €1,485 million last year. FX evolution has had a minor effect on results. The pound rose against the euro by an average of 3%, the real 4%, while the dollar depreciated 1.1%. There are two one-offs impact affecting the evolution, both in the energy production and customer business. As the Chairman has explained, Q1 2024 has been positively impacted by the sale of Mexico assets cashed in on February 26th. The €1.7 billion gross capital gain has been registered at the net operating expenses level, with a €1.1 billion post-tax impact. And in Q1 2023, was positively affected by a €311 million retail tariff deficit recover -- recovery from 2022 in the U.K., accounted as higher revenues, negatively affecting the evolution this year. At net profit, the impact is €238 million. Excluding the Mexico €1.7 billion capital gain, EBITDA was up 2% to €4.14 billion and net profit grew 7% to €1.6 billion euros. And excluding also the €311 million of U.K. tariff deficit recovery in Q1 2023, EBITDA was up 10% and net profit grew 28% as the Chairman has presented. A 33% improvement in procurement costs versus an 18% decrease in revenues has driven a 2% increase in gross margin to €6.8 billion. And excluding the €311 million U.K. retail tariff deficit recovery in Q1 2023, gross margin grew 7%. As I mentioned at the beginning of my part of the presentation, the €1.7 billion Mexico capital gain positively impacted reported net operating expenses, making them to be €78.5 million positive, as you can see in the slide. Excluding this Mexico capital gain, net operating expenses increased 12% and 8.1%, excluding not only Mexico capital gain but also mainly the reconciliation impacts in the U.S. due to storm costs that are recognized at the gross margin level also. Analyzing the results of the different businesses and starting by the networks business, its EBITDA grew 2% to €1,692 million, driven by a higher regulated asset base and tariffs. In Spain, EBITDA fell 6.8% to €404 million, negatively impacted by a €27 million positive regularization of investments recognized in Q1 2023 and higher net operating expenses on this quarter. In the U.K., EBITDA increased 35.8% to £305 million, with higher contribution in transmission thanks to higher tariffs and higher asset base and in distribution thanks to the new framework ED2. In Brazil, EBITDA decreased 0.5% to BRL3,272 million, with higher tariffs and demand partially offset by lower inflation and lower contribution of transmission due to the deconsolidation of the assets as part of the GIC agreement signed in Q3 of 2023. In the U.S., US GAAP EBITDA increased 8.1% to $578 million, showing the contribution of the new rate cases mainly in New York. IFRS EBITDA was down to $346 million due to a $90 million negative timing effect due to IFRS accounting of higher commodity costs that will recover through 2024, despite higher contribution from the rate cases, especially in New York, as I have commented. Q1 2024 energy production and customer business EBITDA reached €4.1 billion compared to the €2.4 billion last year, boosted by the already mentioned Mexico capital gain, partially compensated by a higher comparison base due to the €311 million U.K. tariff deficit recovery last year. As you can see in the slide, Q1 2024 has had a better recurring operating performance than last year, 1% excluding the Mexico capital gain and 16% excluding also the impact of the U.K. tariff deficit. In Spain EBITDA was €1,222 million, 2.7% up, driven by higher output along with lower procurement costs and lower levies. Those positives more than compensate lower prices and a positive effect in gas management in Q1 of last year. In the U.K. EBITDA fell 1 -- 11.3% to £514 million, affected by the above mentioned Q1 2023 positive one-off. Nevertheless, the recurrent evolution of the business with higher contribution in wind onshore and offshore, thanks to better prices and volumes, mostly absorbs the one-off. In Brazil EBITDA increased 3.2% to BRL425 million, as the global consolidation of 261 megawatts hydro assets following the swap with Electrobras last year more than offsets the lower wind output. In the U.S. EBITDA increased 27% to $211 million, thanks to the positive performance of our flexible generation fleet that improved results despite a 9% lower wind production. In the rest of the world EBITDA grew almost 40% to €282 million, with a 29% higher production due to the gradual entry into operation of some real offshore wind farm and more onshore capacity installed. Finally, in Mexico EBITDA reached US$2,037 million. Excluding the capital gain, EBITDA reached $176 million affected by the deconsolidation of the assets sold from February 26. Nevertheless, let me point out that the business from the retained assets evolved positively with better prices and volumes, up 30% to $97 million. EBITDA grew to €4.5 billion, compared to €2.7 billion reported in Q1 2023. D&A grew 2%, driven by a higher asset base, partially compensated by 14% lower bad debt provisions, mainly in Spain. As you can see in the slide, EBIT excluding Mexico capital gain grew 2% and 15% excluding also U.K. tariff deficit recovery in Q1 2023. Net financial expenses were up only €14 million to €524 million. Debt-related costs grew €18 million, €23 million increase is due to the €2 billion higher average net debt in the quarter, as the €5.4 billion cash proceeds from Mexican transactions were received at the end of February. This was partially compensated by €13 million reduction due to the lower cost of debt, 10 basis points falling from 5.08% to 4.98%, and €8 million of negative effects impact. There is a €4 million increase in non-debt-related results. Our reported credit metrics improved versus the end of 2023, mainly thanks to a €2.9 billion decrease in adjusted net debt to €44.9 billion, compared to December 2023 debt of €47.8 billion. Mexico cash proceeds have been partially offset by a record CapEx quarter, as the Chairman has commented, dividend payments plus an FX impacts. As a consequence, FFO adjusted net debt rose to 25% improving the 23.2% at the end of 2023. Our adjusted net debt to EBITDA improved to 3.10 times versus 3.32 times at December of last year. An adjusted leverage ratio was 41.8% versus 42 -- 44.2% at year end. Net profit grew 85% to €2,759.7 million and 7% to €1,595 million excluding the €1,165 million net Mexico capital gain, excluding also the €232 million net tariff deficit recovery in the U.K. in Q1 2023. Recurrent net profit grew 20%. Now the Chairman will conclude the presentation. Thank you very much.
Ignacio Galán: Thank you. Thank you, Pepe. To conclude, we have started 2024 with a record first quarter in the history of the company, as it is important to mention that one either in recurring terms, either in reported terms, in the -- either in -- as well in record operating performance and investment. This together with the confirmation of our prospect for the rest of the year allow us to improve our 2024 net profit guidance to high single-digit growth excluding any capital gain from asset rotation. We continue delivering on targets presented in our strategic plan, with a record investment of €2.4 billion in the first quarter and on the way to reach €12 billion in the full year. Also, with a very strong operating result in cash flow. And with additional installed capacity, mainly offshore wind, driven by Saint Brieuc in France, Vineyard Wind in the States and Baltic Eagle in Germany, they will become fully operational by the year end. Also, we have 100% of our expected production for 2024 already sold and higher results for management renewables, record as well. The increasing results and cash flow from all these activities will drive even stronger financial ratios. These set of results show very clearly the benefits of our model based on our four key pillars, vision, anticipation, delivery and flexibility, driving predictable growth and value for all our stakeholders. So, just to conclude, as you know, we have our Annual General Meeting in Bilbao on 17th May, with a wide range of options for virtual participation. Let me invite all of you to join us in this event. You have in our website all the information regarding the agenda, as well as our proposal on dividends and the rest of the items. Also, in the annex of this presentation, you will find all the details of the shareholder remuneration program Iberdrola Retribución Flexible and its key dates. Thank you very much and now we will be more than happy to answer all your questions. Thank you.
A - Ignacio Arambarri: The following financial professionals have asked the question that I will now put to the senior managers present at this event. Alberto Gandolfi, Goldman Sachs; Fernando García, Royal Bank of Canada; Rob Pulleyn, Morgan Stanley; Jorge Alonso, Bernstein; Gonzalo Sánchez-Bordona, UBS; Manuel Palomo, Exane BNP; Pedro Alves, CaixaBank; Peter Bisztyga, Bank of America; José Javier Ruiz, Barclays; Javier Garrido, JP Morgan; Michael Charlton, Santander (BME:SAN); Jorge Guimarães, JB Capital Markets; Javier Suárez, MedioBanca; and finally, Marc Ip Tat Kuen from Berenberg. The first question is related to the guidance 2024. Can you please confirm the basis for the new high single-digit growth? Can you confirm the baseline use and whether Mexico capital gains is included?
Ignacio Galán: So, the first thing I would like to clarify that our 2024 guidance is based on 2023 reported net profit, not on recurring net profit. Basically for 2024 guidance, so is in 2023 reported net profit of €4,303 million. So, it excludes any capital gain from asset rotation and partnership. It does not consider Mexico transaction capital gain of any another resulting from an alliance of asset rotation. So, what does include? Growth drivers, new investment of €12 billion, as I mentioned, in networks with new rate cases in Brazil and United States, trans -- new transmission investment, U.K. additional revenues for investment on the RIIO ED2 and T2, and in production and customer, the strong renewable production in Iberia, additional capacity, and I strongly mentioned offshore wind, 100% of all energy sold at prices secured, higher reserve for management resources, reserve, let’s say, reserves. The consequence is what I mentioned is increased the outlook from €5 to ₹7 [ph] growth in net profit to high single-digit growth.
Ignacio Arambarri: Regarding Mexico capital gain, what is going to be the final use of Mexico capital gains?
Ignacio Galán: So, as traditionally with us, we will use it to maximize future growth.
Ignacio Arambarri: Next is regarding again to guidance 2024. Given the good Q1 2024 results, can we expect further additional guidance hikes throughout the year as occurred in 2023?
Ignacio Galán: So, I insist on that given the first quarter result, we have increased our guidance to give you the most updated information as always with us. Of course, if there are any other trends along the year that make us updated again, we will do it. But at this point, we are comfortable with this high single-digit guidance I’m giving to you.
Ignacio Arambarri: Next is regulation 1.2% revenue tax in Spain. When should we expect news about the CapEx deduction mechanism in Spain revenue tax?
Ignacio Galán: No recent news, but we expect investment in the energy transition will become deductible as announced by the government. Nevertheless, you have to know that we have this tax, we are already deductible in our profit because we have already our fiscal reasoning in the country Basque.
Ignacio Arambarri: Next is related to the net debt guidance for 2024. When should we expect net debt for 2024 to be?
Ignacio Galán: Pepe?
Pepe Sainz: Yeah. As I mentioned the last time, we are thinking about €47 billion net debt excluding the minorities purchase. If in the end the minorities of Avangrid is purchased before the year end, obviously, we’ll have to add that amount to the €47 billion.
Ignacio Arambarri: Next is related to the net debt but in Q1. Could you comment on the Q net debt evolution?
Ignacio Galán: Pepe?
Pepe Sainz: Yeah. In the first quarter, as we mentioned, we have had the cash, the €5.4 billion of the Mexico divestment. We have had a record investment quarter as the Chairman has explained. In addition to that, on treasury terms, we’ve paid a little bit more. So we’ve ended up with a CapEx of over €3 billion. We have also had the impact of the dividend payment in this quarter that it was around €1.4 billion. In addition to that, we have had another €300 million of FX negative evolution and a little bit of working capital and other. Typically, in this first quarter, it’s the quarter in which we have more of the bills to collect, okay? So in that sense, normally, there is a slightly negative impact on the working capital in this first quarter that it is absorbed during the rest of the year. That is what has driven us this 47.8% to 44.9%.
Ignacio Arambarri: Next..
Pepe Sainz: But as I was mentioning, we are maintaining the €47 billion guidance that I gave you in the -- at the -- in the previous results presentation.
Ignacio Arambarri: Next is related to the Avangrid results. What do you expect for U.S. grids EBITDA level in 2024? Will the recovery in return on equity be reflected in 2024 or gradually throughout 2026? Is it a cost issue or revenues recognition?
Ignacio Galán: Pepe?
Pepe Sainz: Well, as -- we are expecting a strong performance in the EBITDA in grids. Basically, as we were saying, driven by the New York rate case, so I think that this year we are expecting this strong performance. As I mentioned in this presentation, there is a negative almost $100 million impact coming from IFRS accounting due to commodity purchases that will reverse through the year. So, basically, we are still looking for a very, very strong performance of our U.S. business mainly due to networks in 2024.
Ignacio Arambarri: Next is regarding the CCGTs in Spain situation. You apparently recently announced the closure of all CCGTs plans before 2030? What will be the backup technology for renewables in the future?
Ignacio Galán: So, we are not planning to close our combined cycles, I think, the first point. And this, because I think in the short-term they provide train capacity, which is key for the reliability and security of the system. I think even is going to be more relevant in the current scenario nuclear closure. We need already -- the fact is that we need already mechanism for the economic viability. I think the system operator is now signaling the problem. So, I think, it’s not only about the commission, it’s mentioned that one. The Electricity Market Reform, which has been recently approved by the European Commission, consider this capacity mechanism. And the Spanish Government is as well initiating the process to carry out this system, which I think is going to be already in the next few months. So, I think, it’s the fact that we are not closing this combined cycle is absolutely compatible with our targets, given the lower emissions linked to lower production. I think we are going to produce much. I think they will secure, but they will not produce large number of hours. And I think in the mission they will make, we’ll offset the mission with another mechanism.
Ignacio Arambarri: Next is regarding networks in Spain and the regulatory situation. Can you provide an update on the discussion with the CNMC regarding the update of the allowed work expected for 2026? What are your suggestions for the regulator?
Ignacio Arambarri: Armando?
Armando Martínez: Good morning. Yes. I think there is now an open consultation from the CNMC. We always said that we need a huge amount of investment in networks. As we explained in the Capital Market Day, we expect that the rate of return will be something similar. We are seeing other countries where energy transition is taking very seriously the development of networks. In Spain, the need of networks is very, very high. There is a huge opportunity for data centers. We are very confident that the government will move through this direction and will put networks development as one of the main priorities of the energy transition.
Ignacio Arambarri: Regarding energy hedge in Spain and U.K., could you please update on hedge volumes for 2025 and 2026?
Ignacio Galán: Armando?
Armando Martínez: Yes. As the Chairman has said, 100% of the energy this year is already sold. From the period 2025-2026 in Spain, 75% is already closed in a wholesale price in line with the plan that we presented and the final price for customers will be something around €95 to €105, something around that. In the U.K., during the period 2025-2026, we have secured 65%. It’s in line with the market references.
Ignacio Arambarri: Question 11, demand growth. How much do you expect power demand to grow across your main regions, Spain, U.S., U.K. over the coming five years and what will be the driving -- the drivers?
Ignacio Galán: So, I think, I mentioned already in CFD clearly that electrification is unstoppable. So I finish the electrification in the current advanced economies is already growing in between 1.5% and 2% and the developing countries is growing more than 3% per annum. So, share of electricity is still, you have to be aware, is represent only 20% to 25% of the total energy consumption worldwide and I think that the expectation in this share grows by 20% to 30%, 35% by 2020-2030, according with the data of international agency. And I think from 2030, the expectation is that it will be booming because of the more electrification in many, many uses. Which are the main drivers? I think transport is already, according with the information published today, is expected to multiply by four by 2020-2030 and by 19 by 2020-2050, electrical transport. In buildings, cooling and heating is more than 50% will be already electricity by 2020-2040. And in industry, the expectation is to increase by 60% by 2040 and continue greater to 2020-2050. What are other vectors of this increasing demand? I think digitalization, artificial intelligence and data centers are key drivers which are doubling the demand already now by 2026. Countries like United States, which today the demand for data center is on the range of 6% to 8% and the expectation is to double in the next two years, three years. So, I think, there are certain uses today, then heating, which today are below 200 degrees centigrade, which is going to be massively using electrification instead of boilers. So, I think is, I insist, data centers, transport and industry sectors like food, beverage, tobacco, paper, chemical sectors. So, I think, only these three sectors, I think food, paper, industry, chemical sectors are consuming in Spain 70 terawatt hours, which is roughly close to 30% of the total Spanish demand. So, I think, a piece of that one will change drastically the electrification of the country.
Ignacio Arambarri: Next is related to the power prices in Spain. We have seen that wholesale electricity prices in Spain have been frequently at zero megawatt hour during the month of April. Which impact do you expect from this phenomenon? What are the short-term solutions to solve it?
Ignacio Galán: Armando?
Armando Martínez: So, at lower prices due to renewables penetration, I think, we were anticipated in the Capital Market Day. Our model, when we presented, that was very clear that there will be something like that. We maintain our price estimation based on these hourly periods of low prices. Negative prices respond to very specific situation. We can see that the very lowest demand period in the year. Heavy rainfall since October. That has increased the reserves in a level of 85% in our case. And also, we have a high wind productible during the year and also the increase in PV penetration. So, this is something like we expected that all this phenomenon is disappearing, prices will go to normal. But, in any case, we must add that thanks to our hydro pump storage, we are able to capture a huge value of the price volatility from the market.
Ignacio Arambarri: The next is related to the Avangrid Minorities Deal. Have Iberdrola and the Unaffiliated Committee began discussion on the terms of the deal or are you just awaiting for their response after assessing the offered terms? Also, do you expect the Unaffiliated Committee to consult with shareholders before making its recommendations?
Ignacio Galán: I think the Board has delegated to the Avangrid Special Board Committee to already to do whatever necessary for analyze and to nominate advisors to talk whatever they will consider. After it, this Special Committee, the negotiation will follow with a sale depending as well of the Special Committee. If eventually we -- they are -- we approve, we agree and the major agreement signed, it will start regulatory approval process. So, I think, we will keep you informed in the next few months. But, I think we are making all the process in a very, very transparent manner with the special Avangrid Independent Board Committee is doing whatever necessary to give already the proper analysis and to negotiate with Iberdrola the terms after their analysis is made for themselves and for the advisor they will nominate.
Ignacio Arambarri: Next on M&A. Is the company actively scouting for some opportunities to reinvest the casino from the sale of Mexico? In which sector and geographies is the company intention to grow? Any update on the pending asset rotations?
Ignacio Galán: I think we make already our proposal of asset rotation and partnership in 2022. I think it is soon we are expecting. So, I think, now all our 2025 plan is fully completed either in asset rotation, either in partnership targets. But we have many additional opportunities in advanced stage. But we would like to be selective. I think our focus now is on partnerships. Partnerships which make already value creation, which give us the opportunity of building more projects. With through this partnership, we can share risk in the construction phases and cases. And, I think something which is very important, our commitment with the carbonization is 100% and I think that can help to accelerate the carbonization with our own resources, with the resources of our partners.
Ignacio Arambarri: Next is on the current -- on fashion [ph] topic of data centers. Press argued that you may consider entering into the data center business, which could be the rationale behind such move and what synergies could you extract from this activity?
Ignacio Galán: So, we are in this one. We are already in this moment a contract signed for supply electricity for more than 70 hours to our customers in Europe and United States. But, I think, for us it is a very interesting angle to catalyze this new electricity demand and I think we would like to contribute already using our capabilities to make this data center can be developed and can be put in operation. So, what we are making is analyzing how to maximize not only this potential growth demand, electricity growth demand, but as well to maximize the value we can already provide using our capabilities. So, saying that, I think it is not new, we are already in this segment, we are in talks with many people and we will try to help as much as we can all those companies which are developing these data centers to be beside for providing all with our capabilities in electricity, in power and whatever things we can already gave to them to make already to accelerate the process for these data centers in the countries we have already present.
Ignacio Arambarri: And last question received is about supply market in Spain. Can you give color on supply market in Spain? Higher competition as prices are lower. What do you expect going forward?
Ignacio Galán: So, I think, the main things we are observing is that, they are already a move from customers from the liberalized market into regulated one. In the same direction, in the opposite direction, they were moving already the previous year. So, I think, they are more moving from regulated tariff. They were moving from regulated tariff to liberalized, because the condition were more attractive. Now, they are moving to the regulated one, and but I think in any case, we are keeping and maintaining our strong position. Based in what? We have very competitive energy cost. I think I mentioned very many times. We are not selling. We are selling depending what is our cost, not what is the market condition. That’s why we have most of our contracts are long-term hedging policies. We are selling most of electricity is already sold a long time. I think is 100% this year electricity production is sold. Next year is probably 80%, 90% already sold. And why we can make that one? Because we have the production which is not depending of the variable cost of the fossil fuels. And because we have already, as Armando was mentioning, storage capacity that we can benefit already in the moments where the market prices, both market prices are very low, we can already store electricity. We beat our record of storing electricity in a quarter, more than 2.5 terawatt hours and we have already offering to the customers not only a tariff, but a range of products, including smart solutions and another thing. So that’s why I think as a whole, our total customer base in Spain has far less volatility than other competitors. We have such not -- we have not such competitive advantage as we have already, as we can offer. So that’s why we are already quite satisfied how the things are performing.
Ignacio Arambarri: Okay. Without further questions, please allow me to give the floor to Mr. Galán to conclude this event.
Ignacio Galán: So thank you very much for taking part of this conference call. I remind you again that the 17th of May, we will hold the AGM, which will be already attended through different digital channels, but as well, we have already present in Bilbao. You are welcome. You would like to be there. So, in any case, related to this quarter result, our Investor Relations team will be as always available for any additional information you may require. Thank you very much and you are invited to be with us on the 17th of May. Thank you.
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