2023-11-14 03:14:02 ET
Solaria Energía y Medio Ambiente, S.A. (SEYMF)
Q3 2023 Earnings Conference Call
November 13, 2023, 12:00 ET
Company Participants
David Guengant - Director, IR
Arturo Larranaga - First VP, Board of Directors
Conference Call Participants
Presentation
David Guengant
Good afternoon, everyone, and welcome to Solaria 2023 Nine Months Result Webcast. My name is David Guengant. I'm the Head of IR of Solaria. I am joined today by Arturo Diaz-Tejeiro Larranaga, our Chief Executive Officer.
During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. During this presentation, we'll begin with an overview of the result with the key highlights and the main development during the period given by our CEO, Arturo. Following this, we will move on to the Q&A session. [Operator Instructions].
So thank you very much again, and I will now hand over the word to Arturo.
Arturo Larranaga
Thank you, David, and thank you to everyone joining this conference call. I think recently, we have been in the CMD. You have received a lot of information recently. And of course, we will do a fast conference call explaining 9-month results, and then we will pass to the Q&A session.
First, in order to give some information, we continue growing revenues capacity in operation, EBITDA, net profit in order to give some guidelines -- some financial guidelines. As you know, we have promised to finish this year with EUR 200 million of EBITDA. The 9-month results, I think that we have good rhythm. We are achieving a good rhythm of installation of connection of PV assets, and we are comfortable with this guideline of EUR 200 million of EBITDA for this year.
We have increased our capacity in operation. And obviously, we are increasing at the same time, revenues, net profit and EBITDA. And on this quarter, we have achieved EUR 86.4 million net profits. And hopefully, we will finish with much more. Of course, price of electricity where we are -- you know that during this year, we are suffering less price of electricity -- reduction in price of electricity when you compare with last year, and it's good for consumers. It's the [indiscernible] way that should follow the price of electricity. But in all cases, we are happy with the actual situation of price of electricity and especially with the actual situation of price of PPA.
Recently, in the CMD, we announced a PPA deal with Endesa. Hopefully, in the short term -- similarly short term, we will announce a new PPA deal that will be in a similar interval of prices, probably similar or even better than previous deal announced in the CMD. Size will be similar, and we will continue signing PPAs. For us today, the price of PPA that we are touching on the actual CapEx is a perfect combination that gives to us really good levels of project IRR.
Price of modules. We have explained in the CMD, the situation of the modules is crazy, decreasing price per month. Probably, we think that we are achieving the top part because today, we are closing deals using prices of EUR 0.10, EUR 0.11 per watt that is incredible because with these prices, the CapEx that we could achieve is even less than we have announced in the CMD, EUR 0.375 million per megawatt. This is a critical point for us, as you know, because it defines the final project IRR that we are going to obtain next year. If we are able to maintain a CapEx or even to reduce this CapEx of EUR 0.375 million, the project IRR is crazy, and it's something that is a warranty that we are going to execute all of our business plan, all of our pipeline during the next years.
Of course, from an operational point of view, we continue to increasing per quarter. Energy production, obviously, is better this quarter than previous because we have had more assets functioning. Price of electricity is less because if you compare with other quarters, especially with last year, the average price of electricity is less. Why? Because we are using PPA prices. PPA prices are out of the merchant market and PPA prices, you know that the per day average price is close or around EUR 40s and obviously, price of electricity -- merchant price of electricity today is -- the average is around EUR 70, EUR 80, it depends on the , but even more -- sometimes more than EUR 100. Obviously, using PPA, you have more security, more reliability, but at the same time, the average price in your electricity is less if you compare with merchants.
More assets, more volume, more revenues, same people. At the end of the day, we are more efficient than in previous quarters, and we will continue improving. We have contracted a lot of people and staff associated with our international expansion. As you know, we are extremely focused in Italy, in Germany, in Portugal, and we have increased our staff. But at the same time, we have increased more of our revenues. And at the end of the day, our EBITDA. We are more efficient than in previous quarters, and we will continue.
Guideline on track. Our guideline for 2023 was EUR 200 million. We have present -- we have shown in the CMD presentation. As I have mentioned, we are comfortable today with this target. And I think that we have high level of security that we are going to achieve this number or even better than this number at the end of the day -- end of the year.
Cash flow. We are using a lot of cash and a lot of our project finance structure in order to pay all of our investments. We will continue investment -- with our investments -- our investment plan that will grow more in the next quarter. The good point, as we explained during the CMD, we have strong support from our project finance bank and institutions partners. We are covering our CapEx, as always, with project finance, and we will continue with this situation for the long term. Of course, I have done a fast presentation. I think it's more interesting if we go to the Q&A session.
Question-and-Answer Session
A - David Guengant
So thank you, Arturo. We will now open for Q&A session. And once again, thank you for your time. Just let us 1 minute.
Question is coming from Jorge Guimarães from JB Capital. First question is, it is possible to elaborate on the evolution of working capital as of 9 months 2023. Why is the company consuming EUR 79 million of your working capital?
So second question I have from Jorge is regarding average price, EUR 67 according to Jorge calculation, EUR 67 in Spain in the third quarter and EUR 64 in the second quarter. However, as a percentage of pool, it goes down from to . Why is this reduction in capture price in Spain?
And the third question is what do you see as debt by the end of this year?
Arturo Larranaga
Thank you. Of course, about working capital. As always, we have a mismatch between investments and disbursement of the project finance that, for example, today are corrected because we have received the payment from project finance. But for the last day of September -- 30th of September, it was this situation. But from -- in my view about working capital, I'm not worried about this. No, I think that in the 4th of February, you will have a great photo from a working capital point of view. I think that in the next 90 days, things will happen and a lot of things.
And I think that the situation. I always talk about the general situation. The good point is our CapEx is our record CapEx. The project finance is covering more than our CapEx, like we are generating cash. And for the 4th of February, the situation will be extremely good from a working capital point of view. And I'm happy in this point, and I think that we are going to improve a lot in the next presentation, the situation.
About the price of electricity and the situation, as I have explained, we are using now PPA contracts and obviously, good or bad but PPA reduced average price because our PPA price is around EUR 40s, new PPAs better, old PPAs less EUR 40. And the average price is around EUR 40. So obviously, if you compare with price of electricity, it's worse the situation of PPA. At the same time, as I have explained, gives reliability, give good and security -- good financial situation and security for the long term. But in the short term, this is the result.
And the debt, the situation of debt for the end of 2023. theoretically, should be around EUR 1 billion. But we will see because, as I have mentioned, numbers are functioning, and I think that we are going to generate a lot of cash but around EUR 1 billion is reasonable.
David Guengant
Next questions are coming from Fernando Garcia from RBC. First question is, can we update the existing capacity under construction? And second question is, can we give some color about expectations about infra revenue for the coming quarters?
Arturo Larranaga
About capacity under construction is around 1.3 gigawatts. And hopefully, we will include more in the next month -- next month, next 2 months, depending of answers of the government, final permits and final steps of the license process, but 1.3 is under construction today. And about expectation about infra revenues, it's difficult to predict this because it depends on third parties, especially our theoretical competitors or customers that needs to use our infrastructure is complicated to predict when they are going to use, when they will need. But I think that I prefer not to give this number because it's extremely complicated to predict.
David Guengant
Next question is coming from [indiscernible]. First question is regarding Garoña, has Garoña obtains the final administrative authorization? And the second question is that when we expect to close the next financing under the EIB agreement?
Arturo Larranaga
About Garoña, no. Hopefully, in the next weeks, we will finish and we will receive final authorization, and we will start with civil works that we call. We are now executing parts of the substation line, acquiring equipment but we need the final authorization in order to enter in the civil works. Hopefully, we will receive on December. The message from the government is you will receive in December. We will see.
Next, financing, we have today in the market that what we call second gigawatt, and there's a financing agreement that today are receiving proposal from banks for additional 1 gigawatt that hopefully will use or [indiscernible] the European Investment Bank agreement and not only European Investment Bank, there will be other players, other banks that are trying to get position inside the deal. I think that price is in a better situation if you compare with large deal sign. I think that today, the situation is even better. And hopefully, before the end of this year, we will present to the market a new project finance agreement associated with approximately 1 gigawatt.
David Guengant
Next question is coming from Eduardo González Martín from Banco Santander from Victor Peiro from GVC Gaesco, regarding the capacity at the end of the year. Are we still confident to close 2023 with around 2 gigawatts in operation?
Arturo Larranaga
Yes. We think that we are going to finish approximately with -- at the end of this year, we are going to connect at the end of this year, and we will finish with 2 gigawatts of capacity. And of course, we continue with our construction plan and our business plan that we have presented and we have explained to the market.
David Guengant
Next question is coming from Alberto Gandolfi from Goldman Sachs. First question is, for how long do you expect the models oversupply could continue? The second question, do we believe that PPA price will adjust downward to the next new cost of equipment? And where do you see them going to over the coming 12 months if equipment cost remain flat? And the third question is what do you think is our marginal refinancing of -- sorry, what do we think about our marginal refinancing cost today?
Arturo Larranaga
It's complicated to predict the price of modules. Today, we are living an oversupply situation. Chinese players, they have serious problems in order to enter with modules in the United States. They are using Europe. Europe is not following the theoretical rhythm of installation that all people predict a few years or a few quarters ago. And you have -- in China, you have a delay in some installation, as you know. And at the end of the day, you have an oversupply situation.
It's true that with the actual cost, I think that some players could go to even, I could say I'm not going to -- they could have -- some manufacturing companies, they could have financial travels because the price is extremely aggressive, but I don't reject the possibility to see even less price in next quarters because you don't have real demand coming from Europe, not too much. As I explained in all the conference and I repeat, the reading that the Spanish government that Europe promised to the market is not being achieved.
And this is a problem because Spain, yes, you have a lot of gigawatts theoretically on the system, but they are not constructing these gigawatts. They are not constructing these gigawatts. And it's a serious problem that Spain has, not only pain globally Europe, and all the market has done the homework. They have prepared factories. They have prepared module manufacturing change for an almost demand of modules. But the real situation is it's not happening. It's not over the table today, and you have an oversupply situation.
My view is that it will continue at least this quarter -- this last quarter of the year, I think that ate prices are great, and we are closing really good deals because our CapEx -- actual CapEx is great. It's something that will affect PPA prices. The key point is PPA price depends on solar. This is something important. Our PPA players, they are -- they don't care about the situation of solar. Today, they are worried about the situation, they are more worried about the price of oil or gas in the short term and medium term than solar because the guys that are defining the price of electricity at least here in Spain are gas players, not solar players.
Even with a reduction in the module price is something that is not going to affect the price of electricity in Spain and not only in Spain, global in Italy, in Germany, in all the places. Solar is not defining the price of electricity. I don't know if in 6, 7, 10 years, we will define the price of electricity. Today in the short term and in the medium term, solar is not defining the price of electricity. And the equipment cost is not only an issue of modules at the same time, trackers, inverters, substations, all reducing cost. They have better prices and they are improving prices per quarter and not associated with solar situation. I think that if you have more players, more experience of players that have construct substation and they have equipment, and we are reducing, in general, all the cost of the installation.
We are -- about the last question, marginal refinancing cost today. It's still too early? We are doing primary allocations. We are allocating today project finance in primary structures. Probably it's not the best moment for refinancing. We have really good opportunity because if you see the balance of the company, you have a lot of assets that have repaid an important part of the project finance. It could have sense to initiate the refinancing process. But I think that it's better to wait a few quarters in order to see better price of interest rates, probably in 2, 3 quarters, we could close better financing -- better refinancing deals.
David Guengant
Next question coming from Manuel Palomo from BNP and from Nash Cui from Barclays. I think that we already answered to this question regarding working capital, mismatches between project finance disbursement and investment.
Next question is coming from Manuel Palomo from BNP regarding curtailment. There have been curtailment already in the Spanish market due to the high renewable penetration. Could you please tell us if Solaria has been impacted at all by this curtailment?
Arturo Larranaga
Of course, curtailment is a word that today, all the people talk about containment. And the key point of curtailment is when you see the map of construction of new assets -- of new renewables assets in Spain, you have a strange phenomenon. It's -- there are a lot of installation in the same place. It's like we are not installing a normal volume of megawatts per year. This year, we are going to finish not with too much gigawatts, but all of them are in the same places, usually in south of Spain, Extremadura, Andalusia. Curtailments today are more frequent and are -- especially they are suffering in some places with -- that are fully book of wind or solar installation, especially on Andalusia and Extremadura.
But at the same time, if you see, for example, to the north, for example, Castellón or regions like Basque Country. In Basque Country, the only player that are developing today renewables is Solaria practically. Of course, some wind assets but not too much players. And you don't have a fully booked situation in this connection points. And curtailment is associated not exactly with an enormous volume of gigawatts in the electrical market of Spain. The curtailment is associated with some [indiscernible] , some connection points that has, at the same time, wind and solar capacity and normal volume of wind and solar capacity, and this [indiscernible] is not able to receive all of this electricity. And Red Electrica decided to cut some of these installations.
Today, in our pipeline functioning -- not pipeline, assets functioning, the curtailment is an exception. When we have curtailment it's an exception. You know that we have some assets in Extremadura or the assets that have suffered curtailment. The other assets are not under curtailment situations.
David Guengant
Next question are coming from Nash from Barclays. Can we give some color about other income?
I will answer. You know that in this quarter, we recognized EUR 10 million of other income versus EUR 15 million in the first half. And we think that at the end of the year, we may obtain a little bit more than EUR 30 million.
Maybe if we can provide some color about the PPA market, especially in Spain and what is the price range we have been seeing?
Arturo Larranaga
About other income, as I have mentioned, it's complicated to predict the new deals that we could sign. But I'm going to give you an example, recently, 1 week or 2 weeks ago, we have closed a deal of EUR 7 million with one of our colleagues that needs to use a substation and the property and the installation is from Solaria. And they are going to use, and they are going to make payments for EUR 7 million. I know that we have an order book of new players that want to use our infrastructure, a significant order book. For example, we are close to sign the deal of EUR 8 million that if we sign, we will receive immediately this EUR 8 million and other deals. But difficult because we depend on third parties that needs to use our installation, our infrastructure, substation, cable or whatever.
It's true that Solaria today -- and it's different if you compare 2 years ago or 3 years ago, Solaria today, we are extremely active offering services to these guys. Why? Because some of them, they are extremely serious, oil groups, foreign oil groups that if we are able -- and we closed a good deal, we are able to construct for them substation or whatever, some infrastructure that they need. And we are more active, and we are offering these kind of services to third parties because we think it's a healthy business with really good numbers. And we have a skills capabilities and team and we are offering. Difficult to say the amount of millions that will come in the next quarters.
Update of PPA market. PPA market, as I have mentioned, probably we are going to announce a new deal -- a new PPA bill in similar terms that we announced to Endesa -- with Endesa in the CMD presentation. I think that probably will be similar, I have to say, even better but in probably better range of prices but similar conditions.
David Guengant
Next question is also coming from Nash from Barclays. Pipeline development, I understand that Solaria is targeting 6.2 gigawatts of capacity by 2025. And yet in your EBITDA guidance, the capacity number is 4 gigawatt. Just wonder where we are now? And do you think we are on track to achieve this 4 or 6 gigawatts capacity by 2025?
Arturo Larranaga
I think that in Spain, we will give good news about new capacity in the short term, but I think it's not a surprise. We continue increasing our pipeline, but we are certainly focused in Italy and Germany. I think that good surprise will come from Italy and Germany that needs to grow more. As you know, in Italy, we have a global pipeline of close to 3 gigawatts, and we are growing. And in Germany -- we think that in Germany, we will obtain volume, an important volume.
Now in Spain, of course but the Spain for me, we made a good job, and it's okay if we get more. But the critical for us is the international expansion and it's Germany and it's Italy. And hopefully, in the February presentation -- I think that in the February presentation, you will see a lot of things from Solaria. It's not a CMD but probably more complete than a CMD. You will see new business. You will see enormous amounts of new pipeline that will come. You will see connections, and you will see a lot of new things and new surprises. I think that in the next 90 days will happen a lot of things.
David Guengant
Next question are coming from Sonia Ruiz from Mirabaud. If we can give some update on possible asset rotation. Second opinion on future auction in Spain and then any progress in Germany?
Arturo Larranaga
Asset rotation, as I always say the same. Asset rotation is same for us if it's -- it includes something more. From a financial perspective, no. We need to close global deals with much more visibility that only price and cash. I understand that usually, you execute this kind of asset rotation based on cash and price. But in our mind, needs to include cash price and something more. You know that in the past, we made an asset dotation, we did an asset rotation in the Basque Country. Probably we will expand, and we will extend our collaboration there, and we will extend our asset rotation there, and in February presentation, we will see. And always, we are looking for strategic deals, global deals that gives to Solaria much more than the money and the financial results.
And of course, auctions, no auctions of Spain and Germany. If the government approved here in Spain or in Germany, approved auctions, we are going to stay, we are going to participate. We will go with the current price, as always. If they offer with an extremely low price, we are not going to present proposal. Our intention and our view is an auction should be in the range and in the interval of the market if today, Tier 1 players, Tier 1 customers are paying whatever. For this option should be in this range. Out of this, we are not going to participate.
Germany -- about Germany, I think that this is our key country. We are expanding our team. We are increasing our team. We are trying to allocate today land. That is the first priority today of Solaria in Germany. I think that we are getting good results and good successful. And in the February presentation, we will give more information. As we have explained in the CMD, we have allocated opportunities. Opportunities for us is land and possible connection point that will be answered by the authorities in the short term. When we say opportunities because we haven't received yet the confirmation from national authorities of this connection point. As I have mentioned, in the 90 -- next 90 days, a lot of things will happen. Probably in Germany, we will obtain connection points, and we will give more information.
David Guengant
Maybe the last question from Tomás Reis from CaixaBank. First question is regarding tax rate, what we could expect in next quarter and next year? Second question is regarding the actual percentage of installed capacities that is covered by PPA. And maybe the last question from Tom is our PPA usually pay-as-produced or base load?
Arturo Larranaga
About tax rate and new laws, difficult. You know that today, we don't have government, not yet. Theoretically, we will have government on Friday but who knows in this country today. And after the new government will be approved, we will see the new laws that they could want to approve. Honestly, I think that today to talk about this is speculation. You know that European Union is recommending to eliminate all the different weapons or measures that the government laws -- or provisional law that the government approved associated with oil crisis -- gas prices -- gas price crisis, and we will see. Honestly, I think that I have talked with them, and I talk with European Union, and I talk with all the authorities today in Spain, it's difficult to predict the movements of our government. You know that the situation is not easy to predict.
PPAs versus merchant today and the mix that we want to achieve is 70-30, 80-20 approximately, between 70% to 80% PPAs, 20% to 30% merchant prices. And today, probably we have more covered by PPAs but the global mix in the future should be around 70-30, 80-20. And the situation of the pool price, of course, yes. But it's our job. Some days, you have prices of EUR 0 of EUR 10. And then suddenly, you have prices of EUR 150 and EUR 140. You need to see the average price of the year. And the average price of the year, unfortunately for consumers is extremely high.
And this is one of the questions that I ask always to our government and to all the people is -- the only reason because -- the only point that the only weapon that you have for reducing the price of electricity, solar and wind technologies. Why you are not massively installing solar and wind technologies that could reduce the price of electricity. This is the key question. Today, you have a lot of speculation, people that say that has connection points that has permitting or whatever, but they are not constructing the megawatts. And we continue with the same situation.
With this situation, you will see in 1 month, especially the situation in Middle East is worse, extremely high price of gas. And if you see extremely high price of gas, you will see price of electricity of EUR 100 or EUR 120 or EUR 130. And we are not going to control this situation because we depend on gas prices and gas is not in Spain. It depends on third countries, not Spanish, not European countries. Unfortunately, this situation haven't changed, not today, not in the last years, and it's not changing. And unfortunately, in next years, you are not going to see any change in the situation of pool prices if we don't install massively solar and wind technologies.
And honestly, I don't think that -- I don't think we are going to see in the short term. And our PPA is usually pay-as-produced. Base load, we haven't signed. And probably in the short term and in the medium term, we are not going to sign base load. We are not obligated by customers because customers are signing payers produce deals, and we will continue.
David Guengant
Guys, I think it is the end of our conference call. So thank you very much for joining today's call, and I will let the word to Arturo to conclude this conference.
A - Arturo Larranaga
I think that we have done a fast conference because recently, we are at our CMD. As I have explained in February, we will present -- we will give a full presentation of results, new business plan, new business that we are going to start and that we are now developing, more information about pipeline and a lot of surprises that will happen in the next 90 days.
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Solaria Energía y Medio Ambiente, S.A. (SEYMF) Q3 2023 Earnings Call Transcript