- Endesa has updated its three-year strategy for 2023-2025, which will concentrate on three major actions: Solid growth in emission-free generation installations, up to 13,900 MW at the end of the period with an investment of €4,300 million; an extension of the value offer for services and electricity supply for customers, which will involve a further €900 million of investment; and to continue with the process of digitalising the distribution network as a key asset with regard to energy transition, involving an investment of €2,600 million.
- The new renewable capacity that will be added to Endesa's energy mix represents a 10% growth to 4,400 MW compared to the previous plan. Of this, 68% will be solar and the remainder will be wind power. This means that 91% of mainland generation capacity will be emission-free by the end of 2025 compared to 72% by the end of 2022.
- The second axis refers to the commitment to provide clean energy at affordable prices, as well as valuable energy services to customers as a contribution to the decarbonisation of the economy. The number of customers in the free market is expected to reach 7.3 million, 6% more than at the end of 2022, and the goal will be reached with 95% of all energy sold at a fixed price from non-emitting sources. The number of public and private charging stations will increase to 66,000 by 2025, five times more than at the end of this year.
- With regard to networks, there will be a slightly lower volume of investment in order to adapt to a context of regulatory uncertainty, up to 2,600 million. Three quarters of that amount will go to digitalising the grid and increasing quality and resilience, the rest will help cover an expected increase in distributed generation installations. All this will lead to improved quality of service and a reduction of losses.
- 90% of the planned investment is directly related to UN Sustainable Development Goals. And more than 80% is in line with European Union taxonomy. In the same regard, the percentage of corporate debt linked to sustainability objectives will increase from the 67% expected in 2022 to 87% in 2025.
- As for the main financial objectives, Endesa expects to exceed the estimates announced a year ago by the end of 2022: Gross operating profit (EBITDA) will be from 5,000-5,300 million (from the 4,100 million initially expected). By 2025, it will be between 5,200-5,500 million.
- As for net ordinary income (the basis for the distribution of the dividend), there has also been an improvement in 2022 compared to a previous estimate of 1,800 million, it is now 2,200-2,300 million. By the end of 2025, it will be from 2,000-2,100 million.
- The dividend policy has been maintained, extending the 70% pay out for another year, to 2025. The dividend on 2022 results, which has grown from €1.2 to €1.5 per share, will be paid next year in a single payment, in accordance with prudent criteria due to the current market situation. The forecast is that it will be €1.4 per share in 2025.
- The results for 2023 and 2024 will see the effect in both in EBITDA and in net ordinary income of a new tax that will be approved by the Spanish Government, amounting to 300 million per year.
Endesa today presented an update of its strategic plan for 2023-2025 to the investment community. This goes further along the path towards the decarbonisation of the company's generation mix while focussing its offer to domestic and business customers on value-added services and the supply of electricity from non-emitting sources. Total investment contemplated in the new strategy for the Iberian Peninsula represents an increase of 15% compared to the 2022-2024 plan, to 8,600 million, largely as a result of acceleration in the promotion of solar plants and wind farms involving an investment of 4,300 million, 39% more than in the previous plan.
José Bogas, Chief Executive Officer of Endesa, told investors during the presentation of the plan: "In the current market context, the acceleration of the electrification of energy consumption from clean sources is revealed as the best way to achieve a reliable energy system throughout Europe, which will reduce price volatility and contribute to economic recovery. Governments are looking for ways to ensure affordable prices, security of supply and environmental sustainability. Endesa is supported by a vertically integrated business model which enables an increasing proportion of fixed-price contracts with our customers to benefit from our increasing emission-free production. This will enable us to reduce our risk profile and guarantee competitive prices for families, companies and administrations."
The planned investment for the development of renewable power represents half of total investment for the three-year period and will enable the addition of 4,400 MW of solar (3,000 MW) and wind (1,400MW) power to reach a volume of emission-free power of 13,900 MW by 2025 (this figure includes 241 MW of BESS and H2), 51% more than at the end of 2022. With this, 91% of the electricity production in the Iberian Peninsula will be emission-free, compared to the 72% expected at the end of this year. For Endesa this represents an acceleration along the path towards net zero emissions, without the use of carbon storage technologies, established for 2040 for the company as a whole.
This growth in renewables is based on a portfolio including some of the largest and most diversified projects in the sector, with about 85 GW, of which 14 GW are at a mature administrative stage and just over 1,000MW are already in execution. 58% of the portfolio is solar, 16% wind and another 20% corresponds to battery storage projects. The 2023-2025 plan includes 200MW of this type of storage, technology that is incorporated as a novelty compared to the previous plan associated with the two large fair transition projects assigned this year in Pego (Portugal) and Andorra (Aragón).
This growing effort to create a clean energy mix, together with a planned investment of €900 million by 2025 for customers, will be the lever which enables Endesa to be able to offer affordable prices and valuable services. The portfolio of deregulated-market contracts will increase by 6%, to 7.3 million at the end of the period, which will enable the total volume of liberalised fixed-price electricity sales to grow by 2%, to 51 TWh (terawatt hours). In 2022, Endesa has maintained reasonable prices for customers with fixed-price contracts, well below spot prices on the electricity market. Throughout the Plan, it is expected to continue with this pricing policy for fixed-price customers and by 2025 they should be even 10% lower compared to 2022. We expect this to improve the customer base that is committed to advancing in electrification. The volume of public and private charging stations will multiply by five compared to the end of 2022, to 66,000.
Another major feature of investment in the new plan, together with renewables, involves that destined for the distribution network. This stands at 2,600 million, slightly below the 2022-2024 period in order to adapt to a context of greater regulatory uncertainty. This volume of investment volume is distributed in three areas: Digitalisation, which accounts for 42%; the adaptation of the grid to the new needs of customers, including self-consumption and distributed generation, which involves a further 34%; and another 24% to reinforce quality and resilience, with regard to both losses and power cuts. With regard to regulatory frameworks for the distribution activity, the company considers that they need to promote transformation to achieve the zero net emissions objective.
Benefits for all stakeholders
The industrial plan that underpins Endesa's strategy until the end of 2025 maximises the value of the vertically integrated business model which will play a leading role in the path towards electrification, while creating value for all stakeholders involved with the company. With regard to the first axis, the 7.3 million deregulated-market customers will be supplied with 95% of emission-free electricity, as a result of the 13,900 MW of renewable energy that will be operational at the end of the period and the contribution of nuclear generation. All this will enable Endesa to ensure that 91% of its peninsular production is emission-free. In parallel, with 42% of the total investment allocated to the improvement of the distribution network, the quality of service will be increased and it will be easier to access to new ways of producing and consuming electricity.
With regard to second axis, involving stakeholders, here are some figures to illustrate this value sharing strategy:
- Investors, will see the return on invested capital increased by at least 300 basis points
- Customers, who will be able to reduce the total energy expenditure in their homes by 10% compared to 2022
- The planet, since emissions from our generation plants will be reduced by 33% in the three-year period
- Local communities where our investments will be made, in which we will increase their wealth by 9,800 million measured in GDP terms
- Employees, by continuing with skills enhancement programmes and learning new tasks
- Suppliers, who we involve in compliance with strict requirements for decarbonisation, occupational safety and regulations with regard to respect for human rights. In fact, 65% of our suppliers already have certification with regard to their carbon footprint, a percentage that we would like to see rise to 75% at the end of the strategic plan
With regard to expected financial performance over the next three years, it should be noted first of all that 90% of the planned investments are in line with the UN Sustainable Development Goals. Over 80% of these investments are also in line with the European Union taxonomy.
EBITDA (gross operating profit) is expected to grow by 4% to reach between 5,200-5,500 million in 2025 thanks as a result of the investment made and the foreseeable normalisation of the market context. Specifically, a stable integrated margin for the deregulated businesses is expected, supported by the normalisation of generation, gas and other margins, a growth in renewables and the improvement of the commercial margin as a result of lower costs for electricity supply, and the stabilisation of the Distribution business.
5,900 of the 8,600 million included in the plan correspond to the investment made in the areas of Generation and Marketing, which represent the two pillars of the company's integrated commercial strategy. The combined estimated EBITDA for both activities will remain at €3,700 million. EBITDA in the Distribution business, will increase by 6% in 2025, to 1,900 million, compared to the end of 2022, 1,800 million after adjustment for non-recurring items.
The expected improvement in the integrated electricity margin will be based on the expected positive effect of replacing market purchases and production currently from gas-fired power plants with production from renewable sources. This clean production is what will enable expansion of coverage for the base of contracts at fixed prices.
Developments with regard to ordinary net profit will place this at about 2,000-2,100 million by the end of the three-year period, compared to 2,200-2,300 million at the end of 2022. This figure represents an improvement on the initial forecast of 1,800 million estimated at Capital Markets Day 2021. This decrease in ordinary net income can be explained by higher than expected amortisations, as a result of the investment made in renewables and networks, as well as an increase in the net financial burden due to a rise in interest rates (despite a reduction in the volume of total debt), explain this decrease in net ordinary income.
Specifically, gross debt will fall to between 12,700-13,200 million in 2025 from an estimated 18,300-18,800 million at the end of 2022. Net debt will also increase to about 11,600-12,100 million as a result of this investment and the impact of the new energy tax in Spain, which will represent about 600 million for Endesa during the two years in which it will be in force. The average cost of the debt will be 2.7% in 2025, up from 1.5% at the end of this year. The net debt to EBITDA ratio will remain significantly below the industry average at a healthy level of 2.1%.
In the words of Luca Passa, General Economic-Financial Manager of Endesa: "We will continue to focus our financial strategy on instruments linked to sustainability criteria in order to sustain growth. In a complex year like 2022, we have raised 13,600 million in sustainable debt and our goal is to progressively refinance future maturities and obtain new funds through instruments linked to sustainability criteria. With all this, the volume of sustainable financing that now represents more than 65% of the total will exceed 85% by the end of the plan."
Endesa is the largest electricity company in Spain and the second largest in Portugal. The company is also the second largest gas operator in the Spanish market. Endesa operates an end-to-end generation, distribution and marketing business. Through Endesa X it also offers value-added services aimed at the electrification of energy usage in homes, companies, industries and Public Administrations. A new line of business has also been created. Endesa X Way is fully dedicated to electric mobility. Endesa is firmly committed to the United Nations SDGs and strongly supports the development of renewable energies through Enel Green Power España, the digitalisation of grids through e-distribución, and Corporate Social Responsibility (CSR). The Endesa Foundation is also active in CSR-related matters. Our workforce numbers around 9,260 employees. Endesa is a division of Enel, Europe’s largest electricity group.