Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Terna SpA (TERRF, Financial) reported a strong growth in all P&L lines and CapEx, with group revenues and EBITDA increasing by 18% and 23%, respectively, compared to the same period last year.
- The company achieved a record group CapEx of over EUR1 billion in the first six months of 2024, reflecting a 26% increase from the first half of 2023.
- Renewable energy sources covered about 53% of the national net total production in the first half of 2024, overtaking fossil fuel production for the first time.
- The Tyrrhenian Link, SACOI 3, and Adriatic Link projects have all obtained full authorization and signed procurement contracts, ensuring progress in the CapEx plan.
- Terna SpA (TERRF) generated an operating cash flow of EUR931 million, covering almost all CapEx spending for the period and reducing net debt to EUR10.3 billion.
Negative Points
- Total operating costs increased by 6.7% compared to the same period last year, driven by higher costs for raw materials and services.
- Net financial expenses rose to EUR63 million, primarily due to new financing and increased interest rates.
- The company faces potential risks related to regulatory changes, including the implementation of the Ross-Integral framework and the assessment of the 2024 deflator.
- Despite the strong financial performance, the challenging macroeconomic environment and high interest rates could impact future cost of debt, expected to be around 2.5% by the end of 2024.
- The increase in grid-connection requests and the need for additional infrastructure development could pose challenges in managing CapEx and project execution.
Q & A Highlights
Q: Can you provide an update on the upcoming introduction of Ross-integrals?
A: The authority has confirmed a gradual approach for implementing a loss regulation, starting with a transitional phase this year. The full Ross-Integral framework is expected to begin potentially in 2026, following a dialogue process between ARERA and operators.
Q: Could you comment on the last consultation document on the renewal of the output-based incentive scheme for reducing dispatching costs?
A: The output-based incentives have been successful in increasing system efficiency and reducing costs. The consultation document proposes to renew the incentive scheme until 2030, confirming Terna's central role in the Italian energy system.
Q: What is your view on the potential assessment of the deflator for 2024 tariffs?
A: Discussions are ongoing with the authority to evaluate the best solution for preserving the regulatory asset base against inflation. The deflator for 2024 tariffs is currently set at 5.9%, but this will be reassessed in 2025.
Q: Can you comment on the assumptions for the 2025-2027 period?
A: The WACC for the period 2025-2027 will be updated by ARERA by the end of 2024. Our strategic plan assumes a WACC of 5.5% from 2025 onwards, reflecting the application of the graduality rule and market conditions.
Q: Do you see any risk on project execution regarding procurement and authorizations?
A: Our CapEx plan is solid, with about 75% of it already secured by signed contracts. We are also on track with authorizations, with more than 80% of the plan already authorized.
Q: Any update on the renewables installation rate and its impact?
A: The installation rate of renewables has accelerated, with about 3.7 gigawatts of new capacity installed in the first months of 2024. This supports the target of 63% renewable energy in electricity consumption by 2030.
Q: Could you provide an update on grid-connection requests?
A: Grid-connection requests have increased significantly, with 150 gigawatts from solar and slightly more than 100 gigawatts from wind onshore, totaling about 255 gigawatts.
Q: What is the potential impact on CapEx from offshore wind projects?
A: Connection requests from offshore wind plants have increased to about 85 gigawatts. The necessary development of electrical infrastructure for these projects is already included in our investment plan.
Q: How many output-based incentives were accounted for in the first half?
A: Terna recognized about EUR132 million in incentives in the first six months of the year, mainly related to dispatching service market efficiency and the creation of additional transport capacity.
Q: What is the expected cost of debt for the full year 2024?
A: Given the high-interest environment, we expect a slight increase in the cost of debt, which should be around 2.5% by the end of 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
