Elia Group SA (OTCPK:ELIAF) Q2 2024 Earnings Conference Call July 24, 2024 4:00 AM ET
Company Participants
Marleen Vanhecke - Head, Group Communication & Reputation
Catherine Vandenborre - Interim CEO, CFO
Marco Nix - CFO
Yannick Dekoninck - Head, Capital Markets
Stephanie Luyten - Head of Investor Relations
Conference Call Participants
Thijs Berkelder - ABN AMRO Oddo
Temitope Sulaiman - Barclays
Bartlomiej Kubicki - Bernstein
Piotr Dzieciolowski - Citigroup
Olly Jeffery - Deutsche Bank
Mafalda Pombeiro - Goldman Sachs Group
Quirijn Mulder - ING
Juan Rodriguez - Kepler-Chevreux
Harrison Williams - Morgan Stanley
Marleen Vanhecke
Good morning. It's mid-July, so it's time to have a look at the first six months of the year. This live-streamed event will cover Elia Group's half-year results. We are honored to have some new analysts joining us for today's event, so welcome to you. And I would also like to introduce you to the Group's CEO, Catherine Vandenborre; and the Group's CFO, Marco Nix. Welcome to the both of you.
What can you expect from us over the next hour or so, we will look back at the Group's most important events and achievements from the past six months. Catherine Vandenborre will delve deeper into Elia Group's growth. The more projects we realize, the more people and materials we need. And Catherine will explain how Elia Group is approaching talent management and the tensions experienced across international supply chains.
Marco Nix will then take us through the financials and the outlook for the rest of the year. And before we can continue, please read through the disclaimer, which is on the screen now. You must take note of this information. And as always, the slides and the script will be made available later today.
Let's start off with some images of the extreme weather that Belgium has recently experienced. Just over two weeks ago, a heavy storm toppled over nine pylons in the Mechelen area. It also brought down several conductors, most of which ended up in fields and some of which fell on to around 15 homes. Luckily, no one was injured and the security of supply was maintained, but the material damage cost to the local area was extensive and the repair works will take months to complete.
Our thoughts are with the local community that was affected by the storm. The next video explains how our team in Belgium addressed the incident. Keeping everyone safe was their main priority.
[Presentation]
Marleen Vanhecke
A total of 70 pylons were bent over by the storm and thankfully nobody was injured and the electricity supply was not interrupted. But these events make us immediately think of climate adaptation. Catherine, how do we make sure that our critical infrastructure is able to continue to deliver security of supply amidst these extreme weather conditions?
Catherine Vandenborre
Yes. That's indeed a very relevant question in this context, Marleen. But first, I would like to thank our operational teams for the incredible work they have been undertaking over the past weeks. Keeping the lights on for the benefit of society is indeed what drives us. Security of supply has never been at risk and so I am very proud to have such motivated and dedicated staff in our company. The teamwork they have displayed has been exceptional.
Now to answer your question, Marleen, indeed, working on a risk preparedness plan so that we can adapt our infrastructure so it remains resistant to climate change is high on our agenda. And every good plan starts with the identification of the risks involved. Those risks have all been mapped out and we have also carried out an audit of their possible impact on our critical infrastructure. This analysis is also part of our work on being even more closely aligned with the European taxonomy for sustainable activities.
Last year, we worked with an association of German research institutes. They have specific models which assessed the impact of certain weather phenomena on our infrastructure. On top of that, we are also working on a risk preparedness plan at the European level. In line with the European directive, we are setting up collaboration with six other European countries for the electricity sector. To give you an example of what this collaboration could work on, a heatwave in Europe or extreme drought might impact several countries at once.
To conclude, we have several procedures in place to manage the risks. Those procedures range from crisis management plans to operational procedures such as defense plans and restoration plans. The governance and risk portion of our latest integrated annual report includes a climate-related disclosure section.
Marleen Vanhecke
Thank you, Catherine. Marco, let's briefly revisit that climate change audit that Catherine mentioned. The group has carried this out last year. Could you share some insights from that report with us?
Marco Nix
For sure. There are no current indications of an increase in extreme wind speeds. That might come as a surprise given the two incidents we have just experienced. Those kinds of incidents have happened in the past, but they are still very rare. What we do know is there is an increased risk of floods due to the heavy rains. Remember the floods that we had in Belgium two years ago. There has also been a slight increase in heat wave stress. However, the average signals for cold spells indicate that the risk of these in the future is relatively low.
Marleen Vanhecke
Yes. That's audit. But what concrete actions have been taken to protect our infrastructure against the climate change?
Marco Nix
In terms of floods, we conducted an analysis of substations that face the highest risk. We are moving our critical infrastructure to higher positions in some of our substations. We are also constructing additional walls in several places to prevent water from entering our buildings. We are including heat pumps in our new substations. These can be used to cool our equipment down during heat waves, protecting it from overheating.
Although we do not expect an increase in extreme winds, we are reinforcing some of our pylons, particularly those that belong to the 380 KV backbone. Both in Belgium and Germany, we are undertaking a large investment program which involves the installation of new conductors along the existing corridors that can carry more electricity. Stronger pylons are needed for this.
Marleen Vanhecke
Yes. These are all examples of adaptation measures in the face of climate change. But when an incident happens and infrastructure is damaged, restoration plans are needed. And to be ready to put these into action, large-scale training and simulation exercises are held. The video on screen now shows one of such training exercises focused on the construction of an emergency pylon. By testing out different crisis scenarios, our teams in the field are prepared to set up and undertake repair works very quickly.
And coming back to Mechelen, where we started. Elia is now working on the deployment of a backup line. And this involves the construction of five temporary pylons and the backup line should be operational by mid-August. The other restoration work that needs to be carried out across the line that has been damaged will take a few months to complete.
Let's move on to another recent event. Last week, Elia Group announced it is investing EUR12.5 million in an international venture capital fund, which is managed by SET Venture. The fund supports digital innovation in the energy sector. Catherine, this is the very first time that Elia Group is investing in a venture capital fund. What's the rationale behind this decision?
Catherine Vandenborre
Yes. We are indeed participating in this specific venture capital fund to gain access to an ecosystem of European startups, which are all working on the digitalization of the energy sector. Over the next four years, the fund will be invested progressively in European startups that are developing digital technologies and services and are mature enough to be scaled up. The decision to invest in the capital venture fund is part of our overall strategy regarding digitalization.
As you know, we are making digitalization a priority with three objectives. First, to make activities such as system management and asset management more efficient. Second, to manage the increasing complexity of our business linked to integration of renewables. And third, to unlock flexibility, especially at the consumption side. And so by collaborating with promising startups, we will be staying up to date with the latest trends and newest innovations. Also, we have set up a specific internal structure to spread the knowledge acquired through those startups into our organization.
Marleen Vanhecke
Okay. Let's now move on to recent political developments. The European Parliament has confirmed Ursula von der Leyen's second term as the EU Commission's President. In her recent speech, in which she outlined her vision and plans as the Commission President, von der Leyen announced a new Clean Industrial Deal, which clearly emphasizes the goal of staying on course to meet the goals of the European Green Deal.
[Presentation]
Marleen Vanhecke
Furthermore, von der Leyen emphasized the importance of completing the Energy Union and faster permitting procedures. Catherine, that sounds quite promising for our business, I would say.
Catherine Vandenborre
Yes. Indeed, I think we can say that the long-term goals of the Green Deal are not being questioned. Of course, to maintain support for the energy transition, it's clear that the Commission will be more focused on competitiveness. My reading is that this confirms that the climate agenda will more than ever be seen as an investment agenda.
Marleen Vanhecke
Yes. What does it mean for Elia Group in the future?
Catherine Vandenborre
Yes. Investment in clean energy infrastructure and technologies will be given priority and will be scaled up. This will, of course, cover great infrastructures and investments in energy efficiency measures and the digitalization of the energy system. There will also be a focus on reducing administrative burdens, simplifying and accelerating tendering processes and finally accelerating the implementation of projects through faster permitting procedures. So the political guidelines that have been presented by von der Leyen speak to the very heart of our business and we are really looking forward to supporting the next European Commission in its decision-making.
Marleen Vanhecke
Indeed. And during the first six months of this year, Belgium held the presidency of the Council of the European Union. Several of the events it organized, such as the informal Energy Council, were supported by Elia Group. Catherine, what is your overall assessment of the impact of Belgium's presidency on Elia Group?
Catherine Vandenborre
The Belgian presidency offered Elia Group with many opportunities to engage with relevant European policymakers. We organized tours of our National Control Center and Nemo Link converter station. This allowed us to raise awareness of Elia Group and its work and to share some of our attention points with key stakeholders. This includes, for example, the importance of the relationship that Europe shares with the U.K., particularly in terms of energy. In short, the presidency was clearly focused on electricity grids, on offshore development and on international collaboration.
Marleen Vanhecke
Yes. And speaking of offshore development, Elia Group and the Danish wind farmer developer Orsted published a joint paper earlier this year about hybrid interconnectors entitled Making Hybrids Happen. The paper was launched during this year's WindEurope conference in Bilbao in Spain. The paper outlines strategies for overcoming the obstacles which are currently hindering the development of offshore hybrid projects in Europe. Catherine, why are these hybrid interconnectors across Europe so necessary?
Catherine Vandenborre
Yes. Offshore hybrids are a key element for ensuring the success of Europe's green transition. This has been confirmed by ENTSO-E studies, which indicate that by 2050, up to 80 gigawatts of offshore wind capacity could be connected to two or more markets. Offshore hybrids are key because offshore wind potential is not spread out equally across Europe.
Some countries have a shortage, like Belgium and Germany, whilst others, like Nordic countries, have more offshore renewable energy than they can use. Hybrid interconnectors will therefore help Europe to harness the full potential of its seas at the lowest possible cost. However, as the paper outlines, several barriers lie in the way of their development.
Marleen Vanhecke
Yes. Since the further development of offshore wind is crucial for the next phase of Europe's energy transition, Elia Group is working on a new viewpoint which will be explore the subject in some depth and this will be published mid-October. The viewpoints will be looking at the benefits of offshore wind and will include proposals and recommendations related to planning and financing as well as the strengthening of the supply chain. It's therefore something to look forward to.
Marco, we just covered some of Elia Group's project highlights from the first half of the year, but what about the Group's figures?
Marco Nix
Thanks, Marleen. It's important to mention that the Group had a record start in terms of investments. Elia Group invested EUR1.7 billion during the first half of the year, of which EUR458 million in Belgium and EUR1.3 billion in Germany. We are well on track and are delivering on our CapEx plan. The key drivers of this investment plan remain the reinforcement of the international -- internal backbone and the connection of offshore wind to our grid in Belgium and Germany. We are also continuing to digitalize our operations.
In terms of financial result, Elia Group achieved a strong performance, leading to an increase in the net profit Elia share of 11.8% to EUR181.6 million. Turning to our nonfinancial KPIs. And at the first dimension of our sustainability program, ActNow, Elia Group has shown -- has now developed its own scope-free carbon accounting platform on the SAP Business Technology platform.
This allows for transparency regarding the carbon footprint of our investment activities and has enhanced the maturity level of our scope-free data. We have been furthermore awarded for the innovation earlier this year and more important, have achieved our group-level target of a minimum of 60% spent.
For the seventh time in a row, Elia was recognized as a top employer in Belgium. Its score this year rose to 90%. Elia made most progress in terms of diversity and inclusion and wellbeing teams. 50Hertz has also demonstrated its appeal as an employer in Germany, with over 200 individuals joining the company during the first half of the year.
Finally, we also received the confidence from our shareholders to have authorized capital, allowing the Board of Directors to increase the capital subject to certain conditions. This provides us further flexibility in structuring our future capital raise.
Marleen Vanhecke
Yes. And the first half of the year was also quite busy concerning financing activities. Marco, could you provide us with an overview?
Marco Nix
Absolutely. As illustrated well on the slide, our teams have been very busy. Throughout this period, we successfully carried out numerous transactions, raising a total of EUR3.2 billion in the debt capital markets and securing new liquidity of EUR4.2 billion across the group. The proceeds from the green bonds issued by ETB and EuroGrid are allocated towards financing the CapEx programs and facilitating the energy transition.
We also increased the revolving credit facilities, which are intended to strengthen and enhance the liquidity profile of the group, thereby making our companies more resilient and robust. Lastly, the issuances by Elia Group are used to finance the group's growth opportunities in energyRe Giga and EuroGrid. Overall, these transactions highlight the group's ability to secure funding for financing its growth. They also underscore our dedication to diversify our credit investor base, incorporating sustainability into our financial strategy and maintaining prudent financial management to the benefit of all stakeholders.
Marleen Vanhecke
Thank you, Marco. Let's take a closer look now at the record amounts in terms of the implementation of our CapEx program. On the next slide, you'll see an overview of the past year and it's clear that the investments in the first six months of this year have gotten off to a record start. Catherine, what has been the impact of this on the organization?
Catherine Vandenborre
Deliver, deliver, deliver. That's our motto. It shows that our ambitious investment program is in full swing. And it's fair to say, Marleen, that there is some pressure on the organization to deliver its project on time to a high standard of quality and within budget. But that growth didn't happen overnight.
We have been able to prepare for it. Given that the challenge years we face will continue to be significant over the coming years and given that we want to keep our further growth manageable, we are focusing heavily on digitalization and innovation, attracting new and talented people to work for us, securing our supply chains and finally strengthening our financial foundations.
Marleen Vanhecke
Yes. You mentioned attracting new and talented people to the group. And this year, the total workforce is expected to increase to 3,754 employees. By the end of the year, an impressive 458 new employees should have joined us. 200 of them will work exclusively in Berlin. And to provide those newcomers with an appropriate workspace, our headquarters in Berlin are currently being expanded.
The topping off ceremony was held in April. And this marked a successful completion of the shell construction work. The new building should be ready to host its first employees by next summer. And once ready, the new building will also host a child daycare center.
Yes. And let's briefly revisit the number of 458 new employees. In the next video, our heads of HR, Peter Michiels and Sylvia Borcherding, explain how Elia Group is achieving this target amidst a competitive war of talented individuals.
[Presentation]
Marleen Vanhecke
And in terms of all the vacancies that needed to be filled during the first half of the year, 1/3 was filled in by internal people moving to a new position. 1/3, Catherine, that's a lot.
Catherine Vandenborre
Yes, indeed. But that's a positive thing, I believe. We are big investors in people. We need employees with high amounts of expertise and we invest strongly in training them via Elia Group's academies. So if you invest in people, you prefer keeping them. Internal mobility is an essential part of our retention policy. Currently, we have a turnover rate of 2%. Compared to the market, that's very low and we want to keep it like this.
Marleen Vanhecke
Indeed. And let's zoom in now on our home countries. And we'll kick off with Stefan Kapferer in Germany. A new record in renewable energy integration was achieved during the first half of this year, and some of 50Hertz's key projects are well underway.
[Presentation]
Marleen Vanhecke
With the overview of the past six months in Belgium, let's start with an update about the Princess Elisabeth Island, our flagship.
[Presentation]
Marleen Vanhecke
Yes, Frederic already referred to it. One current issue, especially during the summer months, is negative electricity prices. The next slide clearly demonstrates that during the first six months, more negative prices occurred over more hours than they have done in previous years. This is mainly due to the increase in solar energy. In its summer outlook, Elia highlighted the problem of overproduction or incompressibility. Elia called on market parties to stay vigilant over the summer months. Catherine, how did the market respond to this call for action?
Catherine Vandenborre
The answer to this question is so far, so good, Marleen. And so market parties are indeed responsible for ensuring the balance between supply and demand in their respective areas. Elia provides them with all the information they need to be prepared and meet their responsibilities.
Market parties are responding very well to a call and they are avoiding overproduction. In the long run, the answer to these situations such as this will, of course, be more and automated flexibility. The good news is that both the energy sector and policymakers are aware of the problem. So I see this as a wake-up call for more flexibility.
Marleen Vanhecke
Yes. We have provided our audience with updates about many topics so far, Catherine, but there is still one question missing. What about a new Elia Group CEO?
Catherine Vandenborre
Yes. Indeed, and the process for finding a new CEO is ongoing and progressing well, but the nomination committee and the Board haven't taken a decision yet. We expect to have more news to share with you after the summer break. It goes without saying that as soon as a decision has been taken, we will announce the name of Elia Group's new CEO, Marleen.
Marleen Vanhecke
Yes. So we have to wait a little bit more, we have to be a little bit more patient. Luckily, we don't have to wait for the figures, Marco, the financial figures. It's your turn now. What can you tell about the Group's results?
Marco Nix
Indeed, Marleen, let me walk through our half-year results. Elia Group reported strong results across all segments. The Group revenues amount to EUR1.9 billion, a slight increase compared to prior years. In Belgium, revenues increased by around 16%, as revenues were mainly impacted by a higher regulated net profit, increased depreciations and increased net financial costs.
In Germany, revenues decreased by around 7%, mainly due to lower energy prices impacting revenues from incentive regulation and energy revenues. This was partially offset by increased revenues from offshore surcharge due to ongoing offshore investments. The rise in other income due to the higher staff levels to manage the investment program added to that.
Elia Group's net profit rose by 9.6%, reaching EUR218.8 million. ETB's profit increased by EUR15.5 million, mainly due to higher fare remuneration and performance incentives. Meanwhile, 50Hertz transmission had a stable net profit of EUR112.3 million, driven by asset growth and higher base-year revenues, although the lower regulatory return on equity on assets prior to 2024.
The non-regulated segment and Nemo Link recorded an increase of EUR3.9 million due to the higher contribution of Nemo Link, despite higher costs incurred for WindGrid and the financing of the energyRe Giga transaction. Post non-controlling interest and hybrid costs, the net profit Elia Group share increased by almost 12% to EUR181.6 million, resulting in a double-digit EPS growth per half-year.
Let us now turn to the funding of the Elia Group. Debt issuance, backed by operational cash flows, remained the main source of funding in 2024. As of the end of June, our net debt excluding EEG was about EUR10.8 billion, indicating a 19.8% increase from the year's end. This increase is largely due to our first half investments of EUR1.7 billion.
Additionally, the Group's investment in energyRe Giga was financed through debt, which pushed the Group's cost of debt up by 69 basis points to 2.8%. Our current outstanding debt is primarily fixed rate, with the exception of EUR300 million term loan that is fully hedged at 3.5%. The credit rating of the Group remains unchanged at BBB flat with a stable outlook.
Marleen Vanhecke
Yes. That's for the Group. You have mentioned strong results across the three segments. Let us maybe first zoom in on Belgium.
Marco Nix
Sure. We touched on the revenues earlier, so let us go straight to the net profits. The adjusted net profit in Belgium increased by 18.7% to EUR98.6 million. First, the fair remuneration increased by EUR14.8 million, driven by the increased RAB, higher return on equity and increased equity. As you know, a new regulatory period started in Belgium with an important change that means our equity remuneration now includes a revaluation mechanism that is linked to the average 10-year Belgium government bond, the OLO.
The average 10-year OLO is expected to be around 3%, surpassing the fixed 2.4% risk-free rate that was applied during the preceding regulatory period. Second, ETB also saw an increase in incentives, up EUR1.7 million, due to the solid operational performance. We also saw higher capitalized borrowing costs, up by EUR3.9 million, from more assets under construction. However, this was slightly offset by higher regulatory settlements and the reversal of provision for the influenceable incentive, down by EUR4.5 million from the 2023 saldi review.
Marleen Vanhecke
Yes. You already mentioned the expansion of the asset base and also the issuance of a bond this year. What has been the impact of this on ETB's financial position so far?
Marco Nix
We begin the year by issuing a second green bond for ETB and strengthen our liquidity position with a new sustainability-linked RCF of EUR1.26 billion. ETB maintains a balanced debt maturity profile, with all outstanding debt carrying a fixed coupon. The average cost of debt increased by 31 basis points to 2.3%. ETB's liquidity situation is solid, with both the sustainable RCF and commercial paper remaining fully undrawn as of the end of June. ETB's credit rating remained unchanged at a BBB+ with a stable outlook.
Marleen Vanhecke
Okay. That was Belgium. Now let's shift our focus to Germany. A new regulatory period has started there. What has been the impact of this on the first half of the year?
Marco Nix
This period is characterized by an equity renovation for new assets, which is now linked to a base rate and a risk premium, while for investments made before 2024 there is a fixed rate established ex ante for the period. For these assets, the return on equity post-tax is set at 4.13% and for investments as of January 1, 2024, current expectations are close to 5.7%. The result came in flat year-over-year, amounting to EUR112.3 million. This was largely a result of a couple of key factors.
Firstly, there was an increase in base year revenues of EUR22.2 million. This was due to the updated cost allowance that came with the start of the new regulatory period and is covering the EUR17.2 million higher costs we faced. Secondly, the growth in assets led to a higher investment remuneration of EUR10.1 million. But this has been offset by higher depreciations and financial costs.
Let us have a look at the liquidity. In 2024, Eurogrid made further steps in strengthening its liquidity position in line with its investment plan by continuing to tap into the bond market. We issued a dual tranche of green bonds totaling to EUR1.5 billion. We also increased our liquidity at the start of the New Year by securing new revolving credit facilities worth EUR3 billion. As a result of these transactions, the average cost of debt rose to 2.8%, which is a 79 bps increase compared to the end of 2023. As of June 2024, Standard & Poor's rate Eurogrid's credit rating as a BBB flat with a stable outlook.
Marleen Vanhecke
Okay. Let us now shift to the third segment, the non-regulated segment and Nemo Link. What highlights can you share there with us?
Marco Nix
Solid results also for our third segment, with the net profit increasing by EUR3.9 million, bringing it up to EUR7.9 million. This primarily resulted from several key factors. Firstly, there was a higher contribution from Nemo Link amounting to an increase of EUR11.5 million. With the start of a new 5-year assessment period, Nemo Link's contribution was currently not restricted by its cumulative cap as this was the case in 2023, resulting in a higher net contribution for the group despite the lower revenues. Nemo Link has operated at 100% capacity since the start of the year.
Secondly, there was an increased contribution from EGI due to the improved margin management, which added EUR1.1 million. However, these gains were partially offset by a few factors. There was a higher cost for the holding, which increased by EUR8 million. This was primarily due to the higher funding costs associated with the acquisition of energyRe Giga and the financing of the organic growth in Germany.
Lastly, WindGrid contributed negatively with a EUR2.5 million. This includes the equity pickup contribution from energyRe Giga, which currently has various projects under development. Elia Group has entered the market with a term loan and a senior bond to finance its organic growth in Germany and its investment in energyRe Giga.
As previously announced, the Group intends to allocate EUR480 million of debt to fund the equity contribution into Eurogrid. After these two transactions, the cost of the holding for the debts stands at 3.8%, with a weighted debt duration of 5.9 years. Regarding liquidity, both the CP and the RCF commercial paper and revolving credit facility were completely undrawn at the end of June.
Marleen Vanhecke
Yes. Last but not least, we still need to cover the outlook for 2024. What can we expect there?
Marco Nix
Indeed, based on a strong performance in the first half year, we have revised the full year net profit range guidance upwards. We project that by the end of 2024, the net profit share of Elia Group will range between EUR355 million and EUR395 million. This points towards an adjusted return on equity of between 7% and 8%. Examining the different segments, in Belgium we aim for a net profit between EUR200 million and EUR220 million, factoring in a Belgium 10-year OLO of around 3%. We plan to invest roughly EUR1.4 billion.
In Germany, we aim for a net profit between EUR260 million and EUR290 million, factoring in a base rate of 2.79% for regulatory return on equity, while investing roughly EUR3.3 billion. The non-regulated segment and Nemo Link is expected to report a loss to the Group's result in a range between minus EUR30 million and minus EUR35 million.
While Nemo Link is expected to contribute around EUR30 million profit, depending on the availability of the interconnector, the operational activities and project funding of the holding and the other non-regulated activities like WindGrid and energyRe Giga will likely result in a loss ranging between minus EUR40 million and minus EUR45 million.
Finally, the Group secured its funding for the German CapEx plan and other funding needs, pointing towards a funding cost of around minus EUR20 million. As usual, this guidance do not consider any potential M&A transactions.
So in a summary, a strong first half year with solid results led us to lift up the net profit guidance towards year-end. This is based on the ramp-up of the CapEx projects in the first half year, the proactive funding of this CapEx plan and the strong operational performance despite some challenges. All of these factors contribute to our confidence in achieving these targets.
Marleen Vanhecke
Thank you, Marco. Before we move on to the Q&A, Catherine, I would like to invite you to share some final thoughts with us. What will be the points of focus in the second half of this year?
Catherine Vandenborre
We have defined five points of focus. CapEx delivery remains the main focus, along with the strengthening of our financial foundations. Talent management and supply chains are important areas of focus in terms of achieving our ambition. And finally, digitalization to unlock the flexibility in the system is important.
Also, after the election, we will invest in building relationships with the new policymakers at Belgium and European level. Our new studies on the future energy mix in Belgium and the future of offshore development will certainly be interesting areas to explore and discuss with them.
Marleen Vanhecke
Yes. Indeed, the second half of the year is presenting itself as busy, but interesting, as always, I would say. I suggest we now move on to the Q&A section. In a moment, we'll do a position switch because Yannick Dekoninck, Head of Capital Markets, will take my place during the Q&A session. Stephanie Luyten, our Head of Investor Relations, will guide us through this Q&A session. Stephanie, could you already share the first question with us, please?
Question-and-Answer Session
A - Stephanie Luyten
Yes. Good morning, Marleen. [Operator Instructions] We will go in an alphabetical order and start with ABN AMRO. Thijs, please go ahead with your first question.
Thijs Berkelder
Congrats. Great presentation despite, let's say, all the problems you counted with the storms. My first question is primarily on net debt. Net debt at the first half was slightly higher than consensus. Can you, again, give guidance for where you expect to end the year? Previously you said around EUR13 billion. Is it now more likely to become EUR13.5 billion or EUR14 billion? And relate to that, can you also maybe give guidance on what we should expect from the EEG cash in the coming months?
I've seen the huge debates in Germany on how to fund the TSOs. Is this level of around, let's say, EUR500 million now the level we should look for? And maybe final question for now. I'm missing in this press release or in this presentation a repeat on your required equity for the coming years as well as on the expected timing of that equity raise. Is it busy changing or is it still as it was before?
Yannick Dekoninck
Thank you, Thijs. I propose that I take the question on net debt and then give the floor to Marco for EEG and equity. So indeed, Thijs, for the end of year, we expect to end the net debt of around EUR13.3 billion, so quite close to the indication we have provided during our Capital Markets Day. On your question on the EEG, Marco?
Marco Nix
Yes. Happy to take it. Recently, government decided on an extra budget in 2024 and on the budget on 2025 already and both include a significant lift-up of the amounts foreseen for the EEG funding. So that is something we still can count on, that the difference between the market price and the sub-venture scheme will be equalized by the government, meaning that in terms of projection towards year-end, the mechanism which we currently have in place, which includes a slight liquidity corridor, will continue as it is today.
So your indication that there is a kind of surplus at the end of year is one which we are relying on, as the mechanism has not been changed and the funds are available to a degree. Furthermore, on the net debt, Yannick already pointed out that potentially both entities will maintain active on the debt market, so both ETB and Eurogrid, while we are confirming that we are not tapping into equity market in 2024.
So that is still valid. As we recently achieved the authorization, we are now working on with the Board of Directors on a concrete plan, as there are several aspects to consider. One is, of course, the deployment of the capital as efficiency is something which is a huge driver, which we are following, of course. Market capacity is another one, momentum too and all these aspects are considered in the plan. So it's too early now to announce how we are going to tap the market.
Stephanie Luyten
Thank you very much. I think, Thijs, that answers all of your questions. If it's okay, then let's move on to Barclays. Temi, please go ahead.
Temitope Sulaiman
Congrats on your strong set of results this morning. I've got two questions, please, one on guidance and I think you partly answered the second one on capital raise. On guidance, just on Germany, it looks like your assumptions for CapEx and base rates are the same from the CM deal earlier this year. Is it fair to assume the step-up in the net profit majorly comes from incentives, or are there other things to kind of think about on that side?
And just on the capital raise, I hear you're still looking at the plans and thinking about a number of things. Is it -- do you have an idea of timing as to when you would have completed that process? Will you understand nothing that reason itself isn't happening this year, but as to when you would have completed the process of thinking through your options, when do you think that might be?
Marco Nix
Well, maybe to pick up the guidance on Germany. It's fair that we increased mainly the guidance in Germany, which comes from two main factors. On one hand, as we pointed out, the strong operational performance is rather robust, something we rely on and we do see, even though we incorporate already some amounts for the storm damages, that we are continuing to outperform the base year revenues in that regards. Furthermore, down the road, the effectiveness of the new staff hired and the charging to the investment programs is something contributing to that performance as well. So that's one of the fundaments.
And the second one is in terms of the CapEx, that we are optimizing the schedules to some extent that can benefit from certain optimization, in particular in relation to the commissioning states in several projects, as this is contributing to the results significantly as being fast in commissioning is a benefit for both cash generation and profits.
Catherine Vandenborre
In terms of capital increase, I will take it this time. So basically, the answer is no change here as compared to what we have said in the past. No change in terms of timing. Like Marco mentioned, you probably have seen in the press that we have the authorizations in terms of authorized capital, but that there is also a date in this authorization, which makes that at the earliest a capital increase could take place in 2025, which is confirming what we said in the past in terms of timing.
In terms of amounts, no change here is neither. We are still contemplating over the five years, perhaps something between EUR4 billion to EUR4.5 billion in equity or equity-linked instruments, like we said in the Capital Market Day. We will take into consideration, of course, profitability, which is an important element, knowing that these funds need to be invested in the investment base that will be built over the five years' time period. And we will also, like Marco just said, consider the market capacity. At the moment that we believe there is something more concrete we can inform the market about, we will do.
Stephanie Luyten
Thank you, Temi, for your questions. Let's now go to Bernstein. Bartlomiej, it's up to you.
Bartlomiej Kubicki
Just a few very short ones, technical ones. On the storms and overall the climate change, what are the regulatory mechanisms guaranteeing that you are getting back all the costs incurred during the storms? I mean, are there regulatory mechanisms guaranteeing that you are getting back 100%? Or are there mechanisms like insurance payments, which make you basically even on any, let's call it climate change impacts on your results?
Secondly, if we look at your procurement, you spoke a lot about this, but could you actually tell us how much of your FY 2024, FY 2028 business plan is already procured? And consequently also, if there is any CapEx overrun, would it be 100% reflected in your RAB or you are actually running a risk of underperforming on your CapEx?
And maybe last question on this capital increase, not asking about the timing, but asking about your thinking, if there was a strategic or industrial player wanting to engage in you as a minority participant, would you consider this or is it something you are absolutely excluding?
Marco Nix
Okay. Let's start in order, you raise the questions and with the storm damages, it's fair to say that there is no clear answer on that one, as partly we potentially will suffer from that. As in particular in Germany, we already embedded certain costs, which we potentially need to carry. On the other side, on the replacement, we are relatively confident that these costs will be considered as within the asset base, as we are usually capitalizing a huge portion of that replacements. So there is a mixed answer in that regard.
So furthermore, down the road, the insurance payment is something which potentially we have a look at in Belgium. As in Germany, these old lines are not insured anymore, as the book value is zero on these lines and we decided a couple of years ago not to insure anymore. Mixed answer as well. So there will be something we need to carry within the system. On the other side, we do have some buckets where we can allocate the cost to and are confident that there is a coverage connected to that, so.
Catherine Vandenborre
Maybe if I can add for Belgium, because you described the situation mainly for Germany. So for Belgium, the lines in question were insured. And so based on the current insurance policy, we'll first have to do everything we can to recover those amounts from the insurance company. Second, in case of new investments to be done and after the deduction of the payment of the insurance companies, these will enter the hub. And the cost that we can do in urgency are seen as OpEx costs and are, let's say, entering in the amount of the OpEx costs like they were mentioned in the past at the moment of the first guidance. So we don't expect for Belgium a strong impact on the profitability of the company after this event. That's for the first question.
Marco Nix
Then maybe we pick up the CapEx overrun as currently -- as long as we can give evidence that these costs are market-based and that's one of the main reasons why we are using public tender procedures on that one. All the costs are considered in the RAB, so there's no cut on that one as there's no budget logic. So it's a consideration in the RAB and the basis of the remuneration and the depreciation will increase by these costs. That's the situation where we are both in Belgium and in Germany on the CapEx side.
On the procurement, I think the commitment is increasing year-by-year. So usually, the frontier is, of course, much higher committed and we are now entering into additional commitments over the year. So far, the total disclosure, which we have made by end of last year was around EUR12 billion on the EUR30 billion CapEx program and this is further increasing. But, of course, it's moving all the time by one year, and with the land win for instance, the commitment is going up significantly, knowing that not all of these costs, for instance, will occur in the 5-years' horizon.
So it's a little bit hard to say how much of the EUR3 billion will be affecting the five years' horizon, but taking the fact that until 2030, 2032 this project shall be finished, you can assume that a significant portion will be added to our commitments. And that was one of the major reasons to increase the liquidity, so the revolving credit facilities, as this needs to be backed from the rating standpoint by available liquidity. So then the question on -- do you want to...
Catherine Vandenborre
The question of an [indiscernible], so in case that we would spend more on the investment that was initially budgeted, I think on this one, first we need to demonstrate to both regulators that we are acting in a professional way, so that we do everything possible to buy at market conditions, which we are doing by definition by organizing tenders when we contract for materials, but also for works by third parties and provided, of course, that we can demonstrate this -- the cost linked to the investment, the amount that we pay to suppliers, will indeed enter the regulated asset base in both regulations.
Of course, with the increasing amounts, we can expect a higher scrutiny from the different regulators. We can expect to have to justify everything. But as a principle in the regulation, it's very clear that the investment that we need to do for the benefit of the entire society, that those investments are entering the regulated asset base. That's for your question on possible overrun, so covered in the regulatory mechanism.
And then the last question on possible minority investor. I would answer that at this stage and having in mind the 5-years' time horizon, we don't exclude any scenario. I'm, of course, not saying anything for the short term. But if you look at the situation over the five years, that's a scenario that we are not clearly excluding.
Stephanie Luyten
Thank you very much. I think let's now move to Citi. Piotr.
Piotr Dzieciolowski
I have a couple of questions around your raising capital strategy. So firstly, I wanted to ask you about the tenet. We've seen that the transaction with the German government failed and potentially the asset may end up in the market. Would that change your strategy because essentially you compete for the same pool of capital? So -- and therefore, are you 100% sure that 2025 is the first time you're going to raise capital? And why do you lock yourself into this timing? So that would be on the tenet.
And second, is there a constraint around the timing of your capital increase related to the finances of your main shareholder? And can you give a bit of clarity on the situation on this front? And finally, a small technical question. So you gave us guidance on the year-end net debt, but what is the kind of the financing rate you expect on this EUR13.3 billion debt?
Catherine Vandenborre
So thank you for your question. The last one, if you could repeat the first and the second question, we have clearly understood, but the last question was not completely clear to us in the room.
Piotr Dzieciolowski
Yes, I just wanted to understand what is the financing rate you expect on the EUR13.3 billion net debt, how much it will increase further from current level?
Catherine Vandenborre
Can you start with this one and then...
Marco Nix
Yes. I think that overall, at group level in our press release, we have indicated what is currently our average cost of debt. I think that's quite clearly mentioned as well. We still need to do some financing this year in a relatively limited size at the level of ETB, but we also need to come back later this year at Eurogrid.
Now when we look at the current lease rates we are on the market, considering that ETB is rated a BBB plus rating, we are expecting a rate which is in the magnitude of the 3.5% for Eurogrid as it's rated BBB. We expect that it will be slightly higher, although we still need to determine what would be the maturity at which we are issuing and so that will also be considered depending on the market conditions.
Catherine Vandenborre
On the question on the capital increase. So on your first question, there were two parts. It was a part on the timing and it was a part on, let's say, tenets impact in terms of capital increase that we can do. In terms of timing, I think the only statement that we gave is that there will be no capital increase in 2024. That's something that we confirm once again today. That's something also that you have seen probably in the provisions for the authorized capital where the first date by which we could do a capital raise is in the year 2025.
Do we look at evolution regarding the tenet file? Of course, when you need to go into the market for raising capital, you need to look at the environment and what is coming around of you. We are doing that, of course. That being said, we believe that the profile of Elia Group is slightly different, quite a little bit more diversified in terms of regulatory risks, while we acknowledge at the same time that there are massive needs for capital in both companies and in other TSOs as well. And that's something that we need to take into consideration when we start reflecting on the right timing and the right amount for doing the capital increase.
In terms of main shareholders, so the PBT, to name them, they remain very committed to the strategy of the company. That's something that we are repeating and that they are confirming both after [indiscernible]. They are also very committed to subscribe to capital increase. So that's something that we said in the past and that we confirm for the moment that there will be an operation in the market.
Stephanie Luyten
Thank you, Piotr, for your questions. Let's now move to Degroof. [Chad] (ph), please go ahead. Are there any questions from the side of Degroof? If not, we can move to Deutsche Bank. Maybe, Olly, please go ahead.
Olly Jeffery
Two questions for me, please. The first one is still focusing on the potential capital raise. The first part of that is, does the incoming new CEO, whoever that may be, will that have any bearing on when the timing of the raise happens? The second question around the equity raise is, how is your thinking in terms of would you rather -- we spoke about previously how your capital -- your CapEx plans increase materially towards the end of the plan.
And so then ideally, you might look to raise potentially in two tranches, one at the start of the plan and perhaps a larger amount at the end of the plan, given the CapEx phasing. Is that the right way we should think about it, or is that still up for debate? And then the last question I have is on for Eurogrid, how much equity are you planning to push down and inject into that business this year? If you can provide any detail there, that would be helpful.
Catherine Vandenborre
So I will take your first two questions, looking at the team, because maybe you want to answer some of them as well, but I will -- and then I will indeed -- you can complement afterwards and take the last one. So in terms of capital increase, I think that the amounts and the sequencing of the capital increase are really driven by the funding of the CapEx plan, rather than on considerations linked to one person.
Of course, a new CEO will look at the situation, will understand and have to understand everything. But honestly, I think that the drivers behind the capital increase are very much linked to strategy of the company and are very much linked to the investment program that we have both in Germany and in Belgium. So I don't expect a material impact linked to that.
Second element -- second question that you raised was about, let's say, if you do a capital increase, is it something that maybe you will do in one shot? Is it something that you will spread a little bit over the period? So like we said, it's not something on which we have taken a firm decision today. I think it was Marco's first statement. That being said, there are indeed a number of considerations which are quite high on the agenda and especially two considerations that were already named.
The first one is profitability. And like the profitability is linked to the investments and so the timing by which those investments are done. And the second is market capacity. So starting from the current market value, market capitalization that we have, what is market capacity from the market? So that will be taken into consideration. And once again, once there is clear and concrete information to mention, we will come with this information. Then if it's okay for you, I will give the floor to Marco.
Marco Nix
Yes. On Eurogrid, the question on the capital injection this year, I think in the course of the presentation, we named the number which has been raised via the debt issuance of the Elia Group this year, where EUR480 million are foreseen to push down into equity of Eurogrid. And if you take the 20% portion of KfW on top of that, you're ending up with EUR600 million. And as we got confirmation that German government and KfW is following that, this is the size you can expect as an injection in the German segment this year.
Stephanie Luyten
Thank you, Olly. I see now that Degroof managed to get his headset working. So [Gert] (ph), please go ahead.
Unidentified Analyst
So I just have one question. It's regarding the VC investment did weeks ago. So I really want to understand actually what's the ambition with the VC portfolio of Elia? What do you expect to target in terms of five for instance?
Catherine Vandenborre
Yes. So first element in terms of ambition is to get access to new technologies, new services, new developments surrounding digitalization of the electricity market and so increasing the possibility to unlock the flexibility. So managing in different ways mainly consumption of electricity. You know that's something that we have already discussed in the past, that with the increase of renewable in the market at the generation site, there is really a need for managing the electricity system in different way, looking at balancing the system in different way. And in that context, making sure that consumption is made much more valuable than what it is today, today is absolutely key.
And the way to go there is by increasing the digitalization in the electricity system. So increasing connectivity, data capture, algorithm and building an ecosystem that will lead to unlocking this flexibility. That's what we want to do. We want to remain ahead of all technological developments. We have built a very specific structure to make sure that the knowledge that we can gain through the participation to a number of committee within the fund, that this knowledge is brought back within the entire organization with a number of people who have been identified and who are responsible for bringing this information back.
But so first is to make sure that we have all the necessary knowledge to optimize the flexibility and the unlocking of the flexibility in the system. The second element, of course, is that by doing this, we remain informed about the best startups which are active in this market. And we can more easily do a number of contracts with those startups or possibly, in a further take, small participation in order to make sure that those developments linked to unlocking the flexibility, that those developments are accelerated.
Stephanie Luyten
Thank you, Gert, for your question. Let's now -- you have a follow-up question?
Unidentified Analyst
Yes. Just my second question was about the expected target size in the future in the VC portfolio of Elia. So today it's EUR12.5 million invested as a first investment in VC. But what do you expect in the future? Do you see like other investments or...
Catherine Vandenborre
No, it's not something -- so for the time being, let's first build the connection with those startups. Let's first make sure that we can indeed benefit from the knowledge that are developed by those startups and bring it back within the company.
Let's first make sure that we indeed do a number of operational contracts to support the unlocking of the flexibility. And then we will reassess the position. But in the next three years, you can consider that the amount that we have and the investment that we have done is the only one that we will do.
Stephanie Luyten
Thank you, Catherine. Let's now move to Goldman Sachs, Mafalda. Do you have any questions for the team?
Mafalda Pombeiro
I have two quick questions, if I may, on Germany regulation. The first one would be just to confirm if there's any parameter that is still pending on this side? And if so, what would be the timeline to -- for it to be fully finalized? And the second one is whether you, Elia, has any expectations of engaging in further discussions about a potential review of the ROE for the existing assets? I'm asking this because some of your peers seemed in the past keen to engage in further discussions and would like to understand what's your stance here?
Marco Nix
Maybe I pick it up and Yannick, you can add on. So for the offshore scheme, the final determination of the return rate is outstanding. However, there's a consultation running. It includes the same rate which we already presented and we do not expect that this is subject of a change. So it will include the 4.13% post for assets prior to 2024 and the 5.7% round for the new assets.
That mainly tackling the second question. We, of course, are in discussion with the regulator, but so far there is no real movement in that regards. We claimed against that in the highest court of Dusseldorf and potentially we are ending up in a decision at the highest court in Karlsruhe. However, this is not being visible for the time being as I think the negotiation is being scheduled beginning of next year. So it's still running, but we don't expect immediate action of the [indiscernible] on the return rates.
What is still open for the electricity sector is the general productivity factor to be set, but this is of minor importance for the German entity as usually both the rate is relatively small. It has been 0.9% last time. That's something we still apply for the time being, but we expect taking the mechanism into account that the number will not be higher than it has been the case before, so.
Yannick Dekoninck
But I think it's very complete, Marco, and we confirm also, Mafalda, that for Belgium everything is fixed, so no changes are anticipated there.
Stephanie Luyten
Thank you, Marco, Yannick. Let's now go to ING. Quirijn, do you have a question for us?
Quirijn Mulder
On your CapEx plans. So is it correct that we can expect an update at the end of, let me say, the third quarter somewhere when you report that, is that correct? And what about, let me say, a second Nemo Link? Is there any progression to mention there in a non-regulatory business?
Stephanie Luyten
Could you be more precise on your last question? What is it exactly?
Quirijn Mulder
I think there was consideration of a second line between Belgium and U.K., so maybe that's a little bit further off. So that was my question. And I have another question later on.
Marco Nix
Do we want to start with...
Catherine Vandenborre
With Nautilus then? So Nautilus is indeed a project that we have in the pipe for a new connection between the U.K. and Belgium. It has been a first consultation of the project buy of GEM that ended, I think it was in March or April this year.
Based on the outcome of this consultation, we have reworked a number of topics, like, for example, the landing of the connection points at the U.K. side, just to give one example. And there is currently, as we speak, a second consultation that runs, based on which we expect to have all the feedback of the market by the end of the year at the latest.
So basically, we are continuing to work on this interconnection, which remains quite key for a country like Belgium. Like I said during the presentation, Belgium is a country which is short in renewable energy. We have a scarcity in terms of renewable energy. So it's extremely important to interconnect the country with others which are long in terms of renewable energy. That's something which remains very high on the agenda. That was for your second question.
Marco Nix
In terms of CapEx update. I think we do not see any reason to deviate from the practice which we have done in the past. So I think it's right to expect some updates on that in connection with the quarter three figures. As we do see that the ramp up of the CapEx program is progressing in accordance to the plan, that's something which we will consider in the announcement which we are going to make then in the course of the Q3 figures with an outlook to the years ahead of, yes.
Quirijn Mulder
My other question is about energyRe Giga. How is the progression there? I think they were going to deliver a project sooner -- or let me say, quite soon, I think 2026. Can you update us on that development there?
Catherine Vandenborre
Yes. So in terms of projects done by energyRe, I would say it's progressing according to the plan. So what we announced is that some of the projects that were in the portfolio of the company would be expected to be completed and commissioned in 2026 and that's still something that we have in the plan. Just as a reminder, there were three big projects in the portfolio of energyRe.
Two out of the three are related to transmission line and one is -- sorry, onshore transmission line and one is relating to offshore. And so what was in the plan was the commissioning and so the sell-down of very small projects linked to the onshore transmission investment. So progressing according to the plan.
For the offshore part, of course, we have this upcoming election in the U.S., which have pushed every actors active in the offshore development to slow down a little bit the expenses and the OpEx. And that's also something that we have done. So we are looking carefully at the situation there and we are managing the spending on the offshore project, which is in the portfolio, the one with the smallest value. Nevertheless, we are progressing in terms of authorization on this project as well.
We received, I think it was in April or May, so a little bit earlier, the PPAs on this project called Leading Light Wind. So at the site of the revenues, we have some clarity. The prices linked to the PPAs will be subject to inflation and a special inflation taking into consideration also the cost of material until the commissioning of the project. But for the rest of the expenses to be done, we are, of course, cautious like any other actors active in the offshore business for the time being in the U.S.
Stephanie Luyten
Thank you, Quirijn, for your questions. Let's now move to KBC, Wim.
Wim Lewi
I've got three questions. I'll start with one for Marco or Yannick on the capital increase. So on the Capital Markets Day, you explained that you could also resort to equity-like products to finance. Maybe you can give some more insight. Like have you thought about which preference, what kind of products that could be, talking about hybrids or convertibles. And maybe if you can give some insight on how that decision process would work. So in 2025, which way, depending on markets conditions, you could go?
Yannick Dekoninck
Well, I think that in detail we included, we said that equity-linked instruments could be part of the capital raise. I think there the authorization that we have in place also allows us, for example, to use a convertible bond. So a hybrid or a convertible bond could be part of our strategy.
But like Marco already said, we are still looking today at what are the best options, considering on the one hand the market capacity that we see in the equity, but also what are the best realization of that equity, considering the growth of our CapEx plan. So today, we cannot clearly give you guidance how it would be structured as such, but those options like a hybrid or a convertible could be part of the structuring.
Wim Lewi
Okay. And I've got two smaller questions for Catherine, if I may. Catherine, you mentioned that the elections in Belgium resulted in a likely change in coalition. Can you elaborate a little bit on what that means for Elia? And also, this morning, I read in the newspaper that there is already pressure on the CEO of the Port of Antwerp, which you know very well. Is there any relation between the elections and the new CEO at Elia? Is there anything that, let's say, you have to consult or that you have to await certain positions to be put in place?
Catherine Vandenborre
Okay. So on the first element, so the result of the election in Belgium have led to a center height, let's say, representation or at least forces are more center height than what they have been in the past. You know that Belgium is a country where we have, on the one hand, federal government and then on the other hand, a number of regional governments.
As we speak, there is already one regional government in Wallonia and discussions are ongoing at the other levels, so the federal level and the regional level for doing governments, but expectations are indeed that it would be more center height than what it was in the past.
What would be or could be the consequences for Elia? I think that energy policy is, of course, very important to any government. In the past, it was very much driven by the willingness to reduce CO2 emissions, but what we have seen in the recent years, the last two years, after the war in Ukraine, is that the electricity change years and that the energy agenda becomes also driven by willingness to ensure competitiveness for the industry and becoming more independent from Russian gas than it was in the past.
And so all in all, I don't expect impact, if it's behind your question, on the investment plan that we have published last year, in November last year, because everything which is included in this plan will, of course, on the one hand, reinforce the independence in terms of security of supply and on the other hand, contribute to the competitiveness on the industry. On the longer run, but there I am after 2035, you might expect and that's something that we are already seeing today in the newspapers, you might expect some discussion on what's the ideal energy mix for Belgium, but it's really in the very long run because you know that decisions that we take today will be implemented, taken into account all the permitting, ordering of materials and so on at best in 10 years from now.
So after 2035, you can expect, once again, discussions on best energy mix and it's that context that we will publish the blueprint that I mentioned during the presentation, which has the intention to really assess a number of options, different options with the cost linked to all those options. So for sure, an interesting read in the context of new governments.
On your second question on the possible link between the election and the appointment of the CEO, I am very clear it's completely disconnected. So there is a process which has been initiated by the Board of Directors and the nomination committee based on which a headhunter, well-known with a very good reputation has been identified and selected. This headhunter is conducting first selection of candidates which are then proposed to the Board of Directors and so there is no link with the results of the election, neither with the timing of the formation of a government.
Wim Lewi
That's clear. If I may, just one last on the flexibility theme, which you stressed and also the picture you showed on the negative energy prices due to the solar power. You say, okay, we need to find solutions. Obviously, you might have some ideas on that. Is there anything you can share? Is it about batteries? Is it about dynamic pricing or anything that you...
Catherine Vandenborre
Yes. All of that. All of that and also making the consumption more flexible. So like often in a sector, there is no one solution that fits all. You need to work on a different solution. So currently what we see is that with the massive investments in solar panels that have happened on the last month, there is a huge production of solar energy in the summer that is combined with nuclear units and that can exceed -- at the moment that the consumption is low and so especially in the weekend, that can exceed the sum of the consumption plus the export capacity that we have.
So as we speak, it's a possibility. So it's not yet a situation that has occurred on the last weeks or last days, although in April at one moment, we were very close to a situation where we had too much of production compared to the consumption and the export capacity. So there are on the short term a number of, let's say, solutions that have been implemented and there are solutions for the long term.
On the short term, the solutions which have been implemented are very much linked to the management of the consumption, but often this solar capacity is connected at the level of distribution and not at the level of transmission. And so we need to be in contact and to contact the distribution system operators so that they can take actions to avoid an excess of production of solar capacity at certain moments of the time. And that's what has been agreed upon between TSOs and DSOs. That's for the short term.
Of course, for the longer run, we want to work on, let's say, market-based solutions, not only solutions where you ask customers to interrupt the consumption or generators to interrupt the generation, but really market-based solutions. And those market-based are, of course, storage. That's one element.
It's, of course, making sure that the moment of the consumption is automatically adjusted based on price signals, showing that the energy is very cheap at certain moments of the time, so that there is some flexibility in the consumption that is organized. And so that's part of the solutions we are working on together with an ecosystem, of course. It's not something that we are doing alone.
Stephanie Luyten
Thank you, Wim. Let's now move to Kepler Cheuvreux. Juan, do you have any questions left for the team?
Juan Rodriguez
Yes, I have actually two follow-up questions, if I may. The first one is on the comments you made on the market capacity consideration of the equity financing. There is a clear equity overhang that is weighted on your share price performance and therefore, on your market cap. So how is the Group looking at this risk? And could the Group, in that sense, accelerate the funding to remove or reduce this uncertainty from the market? So that is the first question.
And the second one is on the top management roles. Can you please provide on where can we expect an update over the final decision of this CEO position and therefore, the CFO as well?
Marco Nix
We want to start with CEO?
Catherine Vandenborre
I will start then with the last question. So in terms of when can we expect an update, I will say after the summer break, so likely in September, we will be able to give you an update on the name of the new CEO. The goal of the Board of Directors, like I was saying, was really, as from the beginning and is still today to onboard the new CEO by the end of the year at the latest.
Marco Nix
In regards of the equity raise, I think we mentioned all the aspects already. And of course, beside market capacities, we said that the market conditions are something to consider as well and overhang is part of the conditions which we are considering, knowing that, of course, all the other aspects like profitability are important ones too.
So therefore, we will make up our plans and continuing that what we already have stated, that we are carefully elaborating our options to come with a plan, which is then feasible to cover all these aspects which we mentioned. There is none superior to others.
Stephanie Luyten
Thank you, Juan. And let's now move to Morgan Stanley. Harry, do you have some questions for the team left?
Harrison Williams
Yes. Most of mine have been asked, but maybe two hopefully quicker ones. Firstly, you had an interesting section on procurement in the presentation and you mentioned some assets and activities that you think are more at risk of bottlenecks or competitive pressures. If you can just elaborate on which assets those might be? So that's the first.
And then the second one, on Nemo, the EUR30 million kind of guide for the full year seems somewhat conservative, given the strength in H1. Just wondering if you can provide any more color on that? Is that a conservative estimate based on a normal year? If we therefore saw a repeat of H1, would we see a much higher number? Just some color there would be great.
Marco Nix
Yes. Maybe to start with the procurement and then Yannick can take over the Nemo Link question then. To be blunt, it's more or less all the typical electrical equipment which we are talking about, starting with the most important one is, of course, transformation assets, shunt reactor, HVDC components, cables which are square in the market and where we have really a tight supplier market and we are working on one hand extending the supplier base horizontally. But, of course, going in particular in the big ones, like the big offshore connections, down into the sub-supplier set to unlock the potential to get delivered there and to make our best that there is an efficient solution coming out of it.
So to answer your question, it's quite a broad set of things which we need to take into account, as we do see sometimes in relatively small equipment pieces scarcity, while in bigger ones we don't, but we do see the other way around in other specific assets as well. And [indiscernible] I mentioned, it's really rare goods, yes.
Yannick Dekoninck
And then to tackle your question on Nemo Link, indeed Nemo Link had a very strong contribution over the first half driven by 100% availability of the interconnector. Now if you look at the second half of the year, there are some planned maintenance. So there will be some outages of the cable. But also, we need to look how the result of Nemo Link will evolve compared to the 5-year assessment period, knowing that if the revenues are above the cap, that then the allowed revenues will be restricted. And so these elements have taken into consideration in the guidance that we have given of EUR30 million for the remaining of the year.
Stephanie Luyten
I see that Bartlomiej has one more follow-up question. Bartlomiej, please go ahead.
Harrison Williams
Yes, I do. Just one thing on this guidance in Germany and what you mentioned, that partially it comes from stronger operational performance. I just wonder two things here, whether this is something sustainable, so consequently could lead to higher earnings in the future as well? So whatever element of ROE outperformance we are assuming here, we should upgrade it throughout the curve?
And also whether this is an impact of inflation indexation of OpEx in Germany, as we all know that the FY 2022 or 2022 inflation has an impact on allowed OpEx in 2024. It was I think at around 6%. So consequently, there could have been quite high OpEx allowance upward indexation and thus the operational performance.
Marco Nix
You named a few of the items, of course. Inflation adjustments is part of the story, that's true and that's something we are benefiting if we are managing to maintain the costs below the increase of this inflation. And currently, adjustment is at 3%, as we usually have a two years time delay. And it's indeed the fact that the higher inflation will be applicable next year and the year after, which we faced the previous years, that's something we are benefiting from.
However, in terms of return rate, taking the total amount compared to the asset remuneration into account, it will not play a major role. It will help us to outperform the regulatory scheme, that's true. If this is pushing up by 0.5% return rate, I would doubt on that one. So I think that's not marginal, but it's neglectable compared to the level of the CapEx program.
Stephanie Luyten
Thank you, Bartlomiej. And then I have received a few questions in writing from our analysts at BNP Exane who couldn't join, so I will read them out. So the first question is linked to the OLO and where do we see the 10-year OLO going for the end of the year? And if we could give some indication of the sensitivity in terms of net income and the same would be applicable for the base rate in Germany?
A second question is linked to the CapEx execution. And if we see that there could be any risks of falling below the announced guidance? And then a last one is on permitting. We have made quite some progress in Germany in permitting. Can we give an update on the permitting in Belgium?
Yannick Dekoninck
So I will maybe take the question on the OLO. So the OLO, as mentioned in the guidance, we foresee an OLO of around 3% on average for the year. If you look at the first six months of the year, we were around 2.96%, so I think we are quite confident there in our guidance. In terms of impact, 10 basis points in 2024 on ETB, a net profit impact of around EUR1 million on the net result. If we look then in Germany, in Germany we factor in a base rate of 2.79%. If you look at the first six months of the year, we were around the 2.7% that Marco has indicated there.
Marco Nix
It's the other way around. Sensitivity in Belgium is a little higher than in Germany. It's EUR2 million in Belgium and EUR1 million in Germany on 10 basis points. So CapEx execution. So of course, we do see a strong ramp-up in the first half year. We never spent that much money and we never progressed that well on the projects.
So knowing that, of course, our profile is back-loaded in the course of the year and there's a longer way to go in terms of total spending as we expect a total of EUR4.7 billion to be spent over the year. But we do see ourselves well on track in that regards so that there are still some risks to be managed, no doubt on that, but we do see them under control so that we can confirm the guidance which we have given in terms of CapEx spending over the year.
In terms of permissions in Belgium, I would say it's quite close to the big flagship projects where there's ongoing debate. However, we assume in our CapEx outlook which we have given some of the debates, some of the discussions and the times connected to that. So it's based on best estimate, not on best possible, the time line there. And this is something we do see still having some room for improvement, no doubt on that. However, at least for the first backbone, we are progressing. For Boucle du Hainaut, I don't know whether you have other knowledge there, so...
Catherine Vandenborre
So I think what you said is completely true. If you want to compare the situation in Germany and in Belgium as a general statement, I think we can say that we have not seen in Belgium the type of measures that have been taken in Germany and which allowed for, let's say, a strong push of permitting procedures in a number of projects. So we remain working on permitting like it has always been done. But there was no administrative actions that have been implemented in order to ease or in order to accelerate the permitting. That's one element.
That being said, most of the big efforts are dedicated towards those three big projects that are contributing on approximately 60% of the investment plan in Belgium and which are the islands, which are Ventilus and which are Boucle du Hainaut. On the island, we have already received a project that are necessary and we are progressing like you have seen in the videos. We are progressing quite well in building the first steps of the island.
On Ventilus, we received a little bit earlier this year an important -- or we went to an important step in the permitting process. So we received what we called the group and that's something which was foreseen at the moment that we received it in the plan. So now the efforts are indeed focused on Boucle du Hainaut, where the new energy minister at the Walloon level will have to take a number of decisions in the next month.
For the time being, the file is being looked at by the administration and we are in dialog with the administration. And of course, we will start a dialog with the representative of the minister in Wallonia as soon as the holiday period is behind us.
Stephanie Luyten
Thank you, Catherine. Thank you, Marco. Thank you, Yannick, for answering all of our questions. I think that brings our Q&A session to an end. If you would have any further follow-up questions, you know where to reach the IR team. We're always happy to set up a follow-up call. And with that, I hand it back over to the studio to Marleen.
Marleen Vanhecke
Okay. Thank you, Stephanie. If there is no further questions, I suggest we bring this presentation to a close. Thank you, Yannick, Stephanie, Catherine and Marco for your contributions. I thank also to our colleagues behind the scenes, Helen, Catherine and Maryline. We'd also like to thank the Director, Jan van Hulleand the whole technical team who was here in the studio today. Ladies and gentlemen, thank you for joining us and enjoy your summer break.