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Good afternoon, ladies and gentlemen and a warm welcome to all of you who have joined us to our 2020 First Quarter Results Presentation. We hope that you and your families are all safe and well during this global pandemic.
The presentation will be hosted as always by our CEO, José Bogas; and the CFO, Luca Passa. Following the presentation, we will move on to the Q&A session. In light of the exceptional circumstances and aiming at being efficient in the way we answer all the questions received, we ask those connected to send questions only via e-mail at ir@endesa.es.
Thank you for your attention. And now, I would like to hand over to José Bogas.
Thank you, Mar and good afternoon to everybody. The next three slides are dedicated -- and now I am in slide number 2, has dedicated to how Endesa has reacted to the COVID crisis so far and how the company will handle the following phases in the months to come.
Today Endesa has around 6,700 employees working remotely, which is 75% of our global workforce. Thanks to our investment effort in digitalization that allowed us not only to protect the health of our employees but also to ensure business continuity. I would like to take this opportunity to thanks them for their professionalism, which -- with which they have dealt with this difficult situation.
In order to ensure the safety of not only our employees, but also that of our external suppliers, Endesa has optimized the work scheduling, increasing personal protective equipment use and constantly monitoring the health conditions. In addition to this, Enel has taken out an insurance policy for the group's more than 68,000 employees worldwide to provide coverage in the event of hospitalization due to the COVID-19 virus.
Regarding our communities, we believe that the joint collaboration between the public administration, civil society and companies is necessary and fundamental. This is why Endesa has designed an action plan called Public Responsibility Plan with €25 million for direct aid to the purchase of material special supply condition to residences hospitals and medicalized hotels and financial donation to public institution. Additionally, the initiatives include orders such as avoiding supply cuts to residential customer or making more flexible condition for small and medium enterprise self employment and families. Finally, continuing to execute and potentially accelerate our investment plan is a key lever to support the economy.
Moving to slide number 3. Endesa's activities have been classified as essential activities and therefore there has been no interruption in operation. Most of our asset base is digitalized. In generation, we have been able to achieve 100% remote operational management of renewable assets from two different control centers in Madrid and Santiago de Compostela and 100% remote monitoring of conventional generation. Our planned construction and operation automation as well as the rescheduling of the maintenance activities allow us to guarantee this business continuity.
In network, the security of supply and reliability has been strengthened through the duplication of our five grid control centers delivering on 12 million smart meters, allowing to monitor real-time our asset performance, while reducing significantly the intervention of personnel on site. And when it comes to our customer, we are remotely managing all market and client-related activities through robots our automation processes to minimize front-end and back-end disruption leveraging on digital channels.
Having been an early mover in digitalization enable us to maintain business continuity management protecting the smooth running of operation. The effective management of our people and our assets allowed us to face the current situation, while our integrated business model will help us to minimize any potential risks.
And I am now moving on to Slide number 4. Starting with macro risks, I would like to point out that our business unlike others has no support to currency risks and that more than 60% of our business is fully regulated, hence protecting our earnings from macroeconomic cycles.
Moving to business risks, margins are protected, as 100% of our 2020 and around 80% of 2021 price-driven production has already been sold forward. We are not experiencing material disruption in the supply chain of renewables, our network equipment just the minor delays.
Endesa's customer base is well diversified. Our integrated business model with a long customer position give us a natural protection against upheavals. Concluding with financial risks, Endesa's credit profile is strong with healthy net debt EBITDA ratio by 1.7 times, well below sector average. We have ample liquidity available to cover 23 months and the annual need for refinancing is very low.
To conclude, we expect limited impact from the current scenario, thanks to the resiliency provided by our integrated business model that will help us to absorb temporary shocks together with the stability of our regulated business and the strength of Endesa's balance sheet.
Let's now move to first quarter 2020 results on Slide number 5. Today, we present a strong set of results. In the first quarter of 2020, EBITDA increased by 21% compared to last year in a like-for-like basis that is excluding the extraordinary impact from the net effect of personnel provision for €356 million, driven by the new-collected agreement and a new workforce restructuring provision.
These good results were mainly driven by the positive performance of the liberalized business and the steady pace of the regulated component of the business. At the bottom line, net income increased by 59% in like-for-like basis.
Moving now to Slide number 6. I would like to comment on the market context for the period of this financial release. Spanish electricity demand showed a decline both in growth minus 3.2% and adjusted tariff minus 2.8%, affected negatively by milder temperatures during the period as well, as the COVID-19 lock down from March 15, reflected in the decrease of industrial and small and medium enterprise consumption.
In a similar way, in Endesa's concession area, gross demand decreased by 2.7% and even lower in adjusted tariff with a contraction of 3.9%. This development is mainly driven by the drop in the industry and service segments for the above-mentioned reasons and to lesser extent to the residential sector activity.
Commodities fell sharply at a double-digit rate. Gas market has been affected by a deepening of oversupply, a consequence of new U.S., LNG supply and a pullback in Asian demand and the oil price tension between OPEC and Russia, which has taken Brent prices to its lowest historical levels, all worsened by the initial effects of lockdown to reduce the COVID-19 spread.
The Spanish gas market benchmark PVB plummeted 43% year-to-date and 30% from the beginning of the lockdown to the historically low level of €6.5 per megawatt hour. And CO2 references have suffered the same fate, decreasing 24% this year to around €20 per ton. In this context electricity pool prices decreased to €34.9 per megawatt hour on average during the period, 37% below the third quarter of the previous year.
This pricing scenario results from the demand drop just mentioned, the higher renewable generation of the period, mainly from the improved hydro conditions and the sharp changes in commodity prices during the last months. Demand decrease, declining commodity prices and lower pool prices show the context in which Endesa operated during the first quarter of 2020.
Moving to slide number 7, regarding power generation Endesa's total mainland output decreased by 13%, due to the sharp drop in coal output by 90%. This was partially offset by higher renewable output, mainly due to the recovery of hydro production, the new capacity in operation by the end of the last year, higher load factor in our CCGT and the stability of nuclear plants output.
Our zero-emission technologies accounted for around 88% of total mainland output, versus 68% last year, above our 2022 target. And well on track to achieve a fully de-carbonized generation mix, by 2050.
The drop in Spanish demand has led to a 4% decrease in total gross sales, affecting both B2C that decreased 5.6% that is 0.3 terawatt hour due to the mild winter and B2B segments, minus 3% that is 0.4 terawatt hour.
While industrial sales increased by 2.6% that is 0.3 terawatt hour, small and medium enterprise decreased by 28.7% and that is 0.8 terawatt hours. The total customer figure remains the same, while exchange rate decreased by 1.2 percentage points year-on-year.
Let me go through the main factor explaining the evolution of the unitary electricity margin. And I am on the slide number 8. Electricity sales in the liberalized business decreased in Spain and Portugal by 3%, in terms of volume. That is minus 0.7 terawatt hour.
The unitary integrated margin resulted in €34.3 per megawatt hour, showing a 20% increase year-on-year, versus the €28.6 of the first quarter of 2019 affected by the good margin evolution as well as 3% decrease in the liberalized sales.
The strong margin increase has been possible thanks to the better generation mix with remarkably higher contribution of our price-driven portfolio, hydro nuclear and renewables.
The effective management of the short position, better gas procurement in CCGTs and higher supply margin moving from €8 per megawatt hour in the first quarter of 2019 to around €10 per megawatt hour in the first quarter of this year, more than offsetting the positive impact of the temporary suspension of the generation tax in the first quarter of the last year.
Full year expectation as we've states, going to flattening of the margin in the coming quarters especially in the second quarter with full year aligned to our guidance in absolute terms, while unitary margin is expected to be higher around €30 per megawatt hour, as a consequence of lower sales volumes driven by demand decrease.
Lastly, we have already hedged 100% of our 2020 estimated price-driven output at an average all-in price of €74 per megawatt hour, with an estimated owning for integrated sales including indexed energy of €65 per megawatt hour.
For 2021, we have hedged around 80% of our estimated price premium output at an average all-in price of around €75 per megawatt hour. Once we consider our total sales mix, the all-in revenue including gain index energy will convert to levels similar to 2020 reference.
A few words on the gas business on Slide number 9. Total sales have decreased by 8% mainly as a consequence of the warm temperatures that affected domestic and international customers. The global situation of gas oversupply and the worldwide demand slowed down caused by the COVID starting in March.
Total customer remain almost flat increasing by 5000 in the liberalized segment due to active plan attraction campaigns. The strategy followed in the retail business has had positive effect on the churn rate with an improvement of 0.6 percentage point year-on-year.
Our unitary gas margin climbed to €3.6 per megawatt hour, thanks to the better sales price reference versus procurement cost. In this sense, we have continued to take advantage of the arbitrage among markets and the flexibility of our contracts.
Retail and wholesale margins have both increased versus last year which was affected by a different market scenario characterized by much higher prices than the current ones. This margin also includes a positive mark-to-market effect from our contract which will be flattened out over the year. Excluding this effect the unitary margin would have amounted to approximately €2.2 per megawatt hour.
And now I will hand over to Luca Passa who will present in details of our financial figures.
Thank you Pepe, and good afternoon ladies and gentlemen. Further deepening in analysis of the main financial figures of the period are now on Slide number 11 reported EBITDA increased by 59%. Net income was up to €844 million. On a like-for-like basis once netted from the previously mentioned nonrecurring effects, EBITDA would have increased by 21% to €1.120 billion while net income would increase a sound 59% to €577 million.
Free cash flow decreased by 21% when compared to last year figure. Net debt increased by 16% to €7.4 billion the change is attributable to the interim dividend on the 2019 results and a higher regulatory working capital. Net CapEx decreased by 31% as a consequence of the lower investment pace when compared to last year. And finally net ordinary income rose by 129% to €831 million. These figures include a net reversal impairment for EUR 13 million related to mainland core plants.
Moving now to Slide 12 to illustrate the extraordinary impact of the personnel cost. This collective agreement assigned as January provides for a new and more flexible social benefit scheme more aligned to the current scenario and to revolution from a traditional thermal generator to a fully renewable and digital company.
After two years of negotiation the outcome has been considered beneficial for both the company and the employees. The agreement established a modification of certain social benefits mainly that corresponding to the electricity subsidies for active and passive employees more aligned to the average family consumption in Spain.
From an accounting perspective, the new assumed commitments in this collective agreement resulted in a positive impact of €515 million from the reversion of the accumulated provision for employee benefits. Apart from this provision release, a new provision for workforce restructuring plans was booked for an amount of €159 million.
It resulted in a net positive impact of €356 million booked in the personnel expense line. This new context will provide the company with a greater degree of flexibility following potential improvements in the efficiency to face future challenges.
Moving now to the detailed analysis of EBITDA on slide 13, let me now briefly set out the main drivers. Once the deducted extraordinary effects booked in personnel costs and this EBITDA stood at €1.120 billion or plus 21% versus 2019.
Generation and supply EBITDA rose by 51% to €550 million, supported by the sound increase in integrated electricity and gas margins. Distribution EBITDA decreased by 2% at €489 million. Finally, non-mainland generation EBITDA reached €81 million, a 31% increase. I will comment each business performance in the following slides.
And I'm moving on slide number 14. Regulated EBITDA increased by 1% to € 570 million with a slightly lower gross margin while fixed costs dropped by 8%. Distribution margin decreased by 5% due to the application of the new remuneration parameters of the second regulatory period for 2020-2025.
The non-mainland generation gross margin increased by €20 million, thanks to higher revenues related to the fuel consumption, compensation and a positive resettlement of previous year regularization that overcame the negatives from the lower remuneration in the new regulatory period.
On the liberalized business and I'm now on slide 15, 1-5, EBITDA reached €550 million or a remarkable 51% increase driven by a €171 million improvement in gross margin and the decrease in fixed cost on a like-for-like basis.
The increase in electricity integrated margin was driven by lower variable cost, the effective management of the short position, better gas procurement in CCGTs, and the higher supply margins more than offsetting the positive impact in first quarter 2019 of the temporary suspension of the generation tax.
In gas, gross margin reached €76 million, showing a remarkable 117% increase, thanks to better sales price references versus procurement costs. We have managed to take advantage of the arbitrage among the markets and the flexibility it provided in our contracts. Endesa X gross margin increased by 23% to €34 million. Fixed cost decreased by €14 million, 1-4, when compared to last year once deducted the net provision release effect.
Moving now to the next slide and I'm on page 16, for the P&L evolution from EBITDA to net ordinary income. Starting from the €1.476 billion reported EBITDA, D&A decreased by 12% to €358 million driven by the impairments on our coal and non-mainland generation assets carried out last year, partially offset by the adjustment on the nuclear fleet useful life set on the nuclear protocol and the higher amortization in Enel Green power.
Net financial results decreased to €10 million, mainly driven by the impact of the update of the financial workforce and dismantling provisions due to the increase of the interest rates year-on-year.
Income tax expenses amounted to €260 million, 143% higher than in 2019 driven by the net positive impact of the €356 million booked in the personnel expense line, which has an impact of € 89 million at income tax level.
Effective tax rate stands at 23.5% higher than the 22.6% recorded in 2019 due to lower fiscal deduction. As a result, net ordinary income increased by 129% over the period.
Moving to slide 17 on the cash flow evolution from EBITDA to free cash flow. Funds from operation decreased by 18%, 1-8 versus 2019 reaching €276 million due to the following effects: higher EBITDA after provision paid and net provision release of around €219 million. Working capital and others worsened by 57%, mainly due to higher payments of trade inventories, higher deliveries on commodities and CO2, higher regulatory receivables mainly from non-mainland and compensation and other noncash provisions, all of which could not be offset by the improvement of the net balance of receivables and payables.
Income tax more than doubled to €74 million due to the higher corporate tax refund in first quarter 2020. The cash-based CapEx, which remained almost flat, led the free cash flow to a negative €232 million this first quarter decreasing by 21% versus first quarter 2019.
Moving to slide 18 on the evolution of net financial debt. Net debt amounts to €7.376 billion almost €1 billion higher than the previous year. This increase is due to free cash flow, which was €232 million negative as explained in the previous slide, the payment of €746 million in dividends corresponding to the interim gross dividend against 2019 results, the evolution of the regulatory working capital, which increased to €1.58 billion mainly corresponding to non-mainland systems.
The leverage ratio remained stable at 1.7 times. Gross debt has an average cost of 1.7% new historical low from the 1.8% reported at the end of 2019. Our latest guidance for full year 2020 on the net debt points to now at €7.4 billion similar to the level we are presenting today based on the assumption of €1.3 billion of regulatory working capital. In any case, we are working in order to reduce the regular working capital amount throughout the year.
When it comes to details on our financial debt maturity calendar and I'm now on slide 19, our robust financial strength is driven by a flexible liability structure and a prudent financial management and lies on our long-term credit rating, which has remained unchanged according to the three main agencies in the strong BBB, weak single A category, which was also recently affirmed by Fitch, and data liquidity of €2.9 billion covering more than 23 months with our need of accessing three markets.
Most of the €1.5 billion maturing in 2020 mainly corresponds to outstanding ECP covered by the bank's credit lines. Additional liquidity of €1.3 billion in credit lines has been negotiated in the last weeks, which will absorb any further unexpected volatility in credit markets.
Moreover we are increasing our share of sustainable finance instruments as part of our liabilities fulfilling our responsible finance commitments, while lowering the cost of debt. All of these ensure the financial strength to face any potential outcome from the current COVID-19 situation.
Moving to slide 20 for conclusion, let me now hand over to Pepe.
Okay. Thank you, Luca. To close this presentation, I would like to conclude with some remarks on our performance during this first quarter. In light of the current COVID crisis, the solid underlying performance recorded during this quarter is certainly a remarkable start that will help us to achieve our announced target by year-end. The resilience of our integrated business model based on 60% of regulated EBITDA, a consistent liberalized business, a long customer hedge and a robust financial strength will allow us to cope with the volatile evolving scenario. Above all, we remain strongly committed to protecting our people and support our communities against the COVID with the same engagement we have demonstrated since its outbreak.
Lastly and importantly, we confirm the proposal of a dividend of €1.475 per share against 2019 results, which will be subject to approval at the Annual Shareholder General Meeting, which would take place remotely tomorrow.
Ladies and gentlemen, this conclude our first quarter 2020 results presentation. Thank you very much for your attention. And as always, we are ready to take some questions.
Okay, perfect. So, as anticipated and in order to be as efficient as possible, I will read the question receiver from analyst. In particular, we have received so far questions from Societe General, Goldman Sachs, JPMorgan, RBC, BBVA, Bank of America Merrill Lynch, BRO [ph], JB Capital Market; Berenberg and Mediobanca.
So, I will start with the first one, which I think is for our CEO that is the following: What impact do you expect on 2020 EBITDA as a result of COVID-19? Can you reiterate the financial targets for 2020?
Okay. Thank you, Mar. Well, I would say that we expect a limited impact on 2020 results. In any case, it is still too early to make detailed assessment and quantification of the possible COVID-19 consequences on Endesa due to the uncertainty of -- at this stage regarding its two days. Nevertheless, I say that we expect a limited impact on 2020. So, first of all because of our regulated businesses that are almost not affected. And secondly because, around 100% of our expected price-driven production is already hedged and the expected impact in the supply business due to the unwinding of a hedged position consequence of lower investment demand will be more than offset by the positive yields coming from the short position, which is benefiting from the lower coal prices.
Okay. The second question is again for you Pepe. And for the coming years, what would be the impact on your guidance if pool prices remain at current forward levels?
Okay. We believe power forward prices for 2021 and 2022 are highly contaminated by these depressed short-time scenario of drops in demand and commodity prices. We believe this situation is clear throughout. So these forward references should react in the post-coronavirus recovery phase.
Even more, what we can see now on screens as current forward references for gas in Spain, we are talking around €15 per megawatt hour for the next year and CO2 around 22%, which imply that CCGT's good offer at prices around €50 per megawatt hour.
That means that with the energy or power prices we are triggering negative things are spread, a situation which does not seem to be sustainable with CCGT in the price setting technology in Spain. In any case, I'm trying to summarize, we expect 2021 not to be significantly affected given the shield provided by our 80% production being already hedged at high OTC references.
On top of that, I have said, we expect the recovery of CCGT prices once the COVID emergency hopefully fades.
Sorry. The next question is about the hedging level, and I think it's also for you Pepe. What is the current hedging level for 2021 and 2022 at what prices? How long can you delay the negotiation with customers? Would you be able to keep current prices in 2022 hedging?
Well, as commented in previous questions, we are 100% hedged in 2020 and around 80% in 2021. At all-in price of €74, €75, this level of prices make us estimate only integrated revenues in levels around €65 per megawatt hour for the whole customer portfolio in which we include the index sales. In 2022, our price-driven production is still pending to be hedged, as we are assessing a potential chain of strategy that will imply some delays in the process waiting for the price recovery in the forward market in the following month.
That we are sure that will happen. On top of that we always adjust our hedging strategy to the different market condition as we have done this year and we have done, I remember very clear in the year 2016. We will do it trying to manage the sole position that gives us a natural hedge. On the client side, there is some time lag in the repricing process but it is easier a scenario. This one given the downward price trend.
Okay. Thank you, Pepe. The next question is for our CFO, Luca. How is COVID-19 and the lockdown affecting the CapEx in 2020? Can these delays affect the 2020 targets? Do you expect project delays until 2021?
Thank you, Mar. Regarding CapEx delays, I can say that are not significant in 2020. We are expecting some delays in renewable CapEx due to some Chinese provider backlog affecting just one plant. Bear in mind that this CapEx delay will not impact 2020 EBITDA.
In addition, the two-week nonessential lockdown also caused two weeks delay in installations of some of the plants. We'll have now called in January of 2021 or February 2021, instead of December 2021. We're talking small type of plans in terms of capacity additions. And finally in distribution, we are estimating basically no impact just some delays in gross CapEx from customer connections that have no effect in generation.
Okay. Thank you. We go back to Pepe. This is for you. Do you have an estimate about the impact in demand volumes? Can you give us some color on how the COVID-19 will affect the industrial versus residential consumption? And the potential impacts on the EBITDA?
Okay. I would start saying that the final impact will depend on the length of the crisis -- is normal. But trying to elaborate a little bit more, let me say that, during the quarantine period that is from March 16 till now, electricity demand has fallen 12%. The sharp -- sharper falls are affecting industrial demand that is B2B customer minus 20% and small and medium enterprise minus 25% impacted by the restriction on economic activities, while residential customers are increasing demand due to the confinement. B2B, it's 9.3% higher.
When I try to think about the full demand, let me say, we started the year with a very weak demand at in the month of January and February minus let's say at 1.4 or 1.5. We have the same in the first half of March. And we have a drop of 8% in the second half of March. And in April, if I'm right, the figure is minus 17% 1-7 percent. So well that is the context.
Today, our current base case scenario considers two months of strong decline followed by a gradual recovery of the economy along the rest of the year. Implying total drop of around 10 terawatt hour in the yearly demand that means, 4% lower than what was expected.
We are expecting a decrease in B2B demand of around 8% to 10% to be partially compensated by demand rise in B2C customer by 4% or 5%.
As of now we see this switch in demand, having a net effect in results, due to the different margins in both cluster of customer. But again, as I have said, the final impact will depend on the length of the crisis.
Okay. Thank you. Now we'll move to the gas business, Pepe. How is the company managing the drop in gas demand? Do you have any flexibility in take-or-pay contracts? Which is the structure of your gas procurement portfolio and which are your gas margin expectations?
Okay. We are not seeing any material impact from lower demand in 2020, just because as in the power, our sales are around 95% hedged. Then our -- nevertheless our expectation point now to get a gas gross margin is slightly below the target announced, in the last business plan.
The situation in 2021 is slightly different. In the sense that, we only have around 50% hedged. But again we are confident that gas prices will recover. We believe we have seen the bottom of gas prices. And we expect to discuss these prices to experience some kind of recovery at the end of the year from the current levels.
In any case, I think that the -- these situation of prices that we have in gas is not a real situation that could last in the future. With regard to our portfolio, our portfolio consist of 6 bcm in total, 50% U.S. Henry Hub linked and 50% Brent index.
Currently below our retail needs, as we have a long customer position which is a good thing, in this context. In the current market scenario with TTF references, below €10 per megawatt hour, it's a good thing, just to be loaning customer.
But also, what we plan to do. And we are doing just to use our possible flexibility that we have in our contract. In the U.S. LNG contract we have all the possibility. We can deviate or cancel cargoes with our cancellation cost, variable cost, a fixed toll and getting benefits from the lower stock prices, as we are currently doing.
And in our Brent contract, we also have flexibility in terms of volumes and deliveries. So we are confident in the year 2020. And we have hedged 50%, in the next year. And we expect an increase in prices.
Okay. We move again to you Luca, regarding the non-mainland business. To what extent could the crisis impact the island activities?
Thank you Mar. Non-mainland generation business has no volume or price exposure, so the impact is very limited. It is a fully regulated business with a visible and well-defined RAB-based regulation, which is now up until 2025.
Okay. Also for you Luca what are the assumption you have considered in your estimates of 2020 bad debt provision, in relation to the IFRS 9?
Okay. Mar, thank you. As far as IFRS 9 is concerned, we are not updating currently on our assumption model. Because to-date we are not seeing a significant increase, in the risk of credit defaults. In any case we are constantly monitoring the situation, which obviously will evolve.
And in relation to the bad debt figure, our annual average inflow amounts to around 0.5% of our revenues, in the region of €25 million per quarter more or less. To-date no relevant risk have been identified that could have a relevant impact on the results.
So we haven't conducted any adjustment in the historical rate of early bad debt provision, in the first quarter. In any case, we are assessing the situation and if needed, we will update this rate in the future.
Okay. Luca, do you expect a surprising working capital, due to COVID-19?
Thank you, Mar. The measures are implemented by the company and by the government through the Royal Decree 11/2020 to alleviate the economic situation of the most number customers are expected to increase the working capital, that's no doubt. As repayments are postponed, a situation that in any case will be temporary. Our last estimate point to working capital increase to be almost fully reabsorbed throughout the year. Obviously we will experience a peak in June. Some of this working capital increase will surely translate into higher bad debt given the tough economic situation that the country is going through.
But as commented before today, it's very difficult to give you an estimate. In data sales balance sheet, however, with low leverage and robust liquidity, which basically permits us not to offsets the market for potentially six months, give us a very wide margin of safety. At March 31st, the increased working capital related to COVID-19 is not significant.
Okay. Next question is about the dividend policy. Are you planning to inform what the reduction of the payout in 2021 dividend or to cut it as a measure to counteract the deterioration of the working capital in 2020? I think this is for you Luca.
Yes. I mean, we have already confirmed also in our release today that we are proposing for our tomorrow's AGM, the final dividend in 2019 of €1.475 share, which is a 3% decrease versus previous year. So this proposal is confirmed and hopefully will be voted positively tomorrow.
And as far as let's say our dividend policy, I mean the financial strength of our balance sheet and our complete access to the capital markets make it possible for our company to maintain -- intact its capacity to pay dividends to its shareholders despite the economic downturn. Therefore, we are not considering any change in our current dividend policy.
Okay. Thank you, Luca. Next the following question I think is also for you. Do you think there will be tariff deficits in 2020? What range do you expect?
Thank you, Mar. The expected reduction, obviously, of electricity demand, the fall in tax proceeds given the drop of pool price and the measures adopted by Royal Decree 11/2020 are expected to cause a temporary shortfall of the system revenues this year. This increase should be temporary, and therefore, it is unlikely to jeopardize the system balance.
However, the system could generate as more tariff deficit in 2020, but it still keeps accumulated pending tariff surplus in the region of €1 billion that can be used to offset a potential short fall of total revenues in 2019 and partially in 2020. And additionally from this sector we are already proposing different measures to the ministry that are still -- or the ministry is trying to adopt certain solutions that can present the appearance of tariff deficit this year.
Okay. Thank you. The next question is the following Luca. Can you update on the impacts you are seeing in terms of cost of social tariffs and bill holidays up until the end of April?
Thank you, Mar. I mean, from the enlargement or the potential number of beneficiaries of the social bonus measures approved in the Royal Decree 11/2020, we are estimating a potential cost of less than €10 million for Endesa based on the assumption included in the -- also in the ministry in Royal Decree. So half million additional homes complying with the requirements and benefiting for a total period of six months, because obviously this is temporary.
The number of applicants for this measure to date is much, much lower than these estimates. In addition, the lower pool price of small customer voluntarily drive so the regulated tariff should mitigate this impact.
Regarding the tariff holidays set by the Royal Decree to help autonomous workers and SMEs during the state of emergency, let us clarify that these bills have been simply postponed until the activity recovers and the Royal Decree establish that these payments will be settled in a six-month period once the state of emergency is over. The impact we are estimating from this measure will affect our working capital figures, but will be temporary and as I said before will be mostly absorbed or resorbed by year-end.
Okay. Thank you Luca. We now go back to Pepe with some questions about the renewables business. First one is how do you think the electricity price environment can affect future renewable projects? Is your plan for renewables energy in Spain at risk?
Okay. Thank you, Mar. First of all, we believe that once the COVID-19 fades the prices will again stabilize at the level of €50 per megawatt hour as foreseen by the National Integrated Energy and Climate Plans and also our business plan based on normal, I would say, prices of gas and CO2. Therefore the profitability of our projects should remain in the expected levels. Therefore, we don't see any material reversal in our long-term CapEx plan in renewables because of the COVID-19. So our medium-term value creation potential would remain intact.
On the other hand, I would say without the right price signal, the energy transition for [Indiscernible] will simply not happen as there will be no incentive to invest and this is a situation that Spain is not keen to allow. We are convinced that climate action strategy will remain critical over the next decade given that investment in climate resilient infrastructure and the transition to lower carbon future can drive significant near-term job creation, while increasing the economic and environmental resiliency.
That is the reason why the government of Spain has declared the energy transition as a key strategic pillar for the recovery of the economy once the COVID-19 crisis is hopefully over. I would say also that at the beginning of April, the Spanish government sent to the European Union the final version of the National Energy and Climate Plans 2021-2030 confirming the target of massive expansion in renewables for generation capacity expected by 2030.
Thank you. Another one for you, Pepe. Do you think the government can accelerate the call for new renewables instructions to encourage investments?
Well, I would say that there is no news on the legislative development. Nevertheless, I think that when the situation is -- will be stabilized, we expect the ministry to pull forward renewables new auction to support economic recovery and an energy transition target. What we know the last news update that we have is that the ministry has launched a new renewable auction in the Canary Island. We are talking about something around 150 megawatts again confined with further and also in addition the ministry and the Balearic Island government are working on a new auction again in process in that area with a potential allocation of €17 million in parts.
And finally at the end of April, a new draft of ministerial order was released for public consultation establishing the regulatory basis of granting of investment aid for small renewables installation in mainland, which may be co-financed by federal community funds further funds.
Okay. Another question on renewables Pepe. Have you seen any different trend in the renewables market in terms of competition? Are there now more opportunities to some PPAs as of taken?
Okay. Thank you, Mar. Well, what it is clear is that we have noticed a lower PPA appetite. Probably, I'm sure as a consequence of the current low-forward prices compared to the renewable costs in the region of €40 to €45. We believe this is not a supportive situation. So when emergency period ends market prices should recover as I've said before. And then PPA market will be more attractive again.
Okay. Thank you, Pepe. The next question I think this is for you Luca. Do you see opportunities for M&A in renewables in the current context?
Thank you, Mar. I would say that obviously the current environment might increase the potential M&A opportunities in this sector and as always we will look at them given that we plan to accelerate organic and inorganic growth in renewables.
But as always, with a very clear priority which is the creation of value for our shareholders. And data on balance sheet obviously provides us with optionality to make bolt-on investments at attractive prices. But obviously this opportunity has to materialize in order for us to consider these opportunities.
Thank you, Luca. Moving now to the regulatory risk, do you consider that there is an additional regulatory risk in the current environment? Could the government extend the current missions or approve new ones? Pepe do you want to take this?
Okay. I will do it. As Luca said through the approval of the so-called Royal Decree Law 11 at the end of March, the government of Spain adopted a series of measures aimed at protecting the most vulnerable customer. By the way, a vote fully served by Endesa.
We believe that with these measures the sector makes a reasonable contribution to solving the crisis; although nevertheless, we have presented additional proposal to help alleviate the impact on society. The impact of the set of measures approved affecting the energy sector in my opinion the impact is limited and in any case will be temporary during the time of the state of alarm which we hope to be solved. Then we don't expect this regulation to become permanent and we see no new risks of that terms are being adopted.
Okay. Thank you. Next question is about the status of the new Catalan tax. Please, Luca.
Thank you, Mar. The Catalonia parliament approved last Friday 24th of April the first budget of the generalita for the next three years. The budget is a company load that articulates a powerful fiscal package with tax modification and the creation of other new taxes focused on increasing the burden on higher incomes and companies.
This tax will be enforced since the 1st of July 2020 and will have an impact on Endesa of about €58 million €53 million in generation, mostly in nuclear and an additional €10 million for distribution. As we have done in the past we plan to challenge this tax in courts, as we believe it is unconstitutional due to the lack of environmental purposes and the duplication with other state taxes, molded and breaches of the European directive.
Thank you, Luca. Going back to Pepe. Next question is the following. Could the fall in GDP in Spain put a limit on new distribution investments?
Okay. Thank you, Mar. Well the energy sector activities as you all know have been classified as essential during this period, let's say the health crisis period and will also be key for the future recovery of the country because we'll be -- the -- let's say the engine for investment employment and economic growth.
Endesa and the rest of the electricity sector has been affected by the COVID-19 crisis, but we maintained our capacity to potentially accelerate investment if the circumstances are correct and the necessary regulatory and fiscal measures are taken.
Last week we have been discussing internally with our colleagues in other companies possible set of proposal from the sector for the economic reactivation of the country after the COVID crisis. The main one is to bring forward the investment of the National Energy and Climate Plan to several regulatory level changes. One of the main points is the proposal to significantly increase the distribution investments, as it will allow for an important job creation in the sector. This would require among other thing an extension of the investment limit that we know that currently is 0.30% GDP.
Okay. Thank you. Next question is about the business performance starting with nuclear. Pepe has the nuclear output been impacted due to the COVID-19 lower demand during March and April?
I would say not significantly. The only relevant matter affecting nuclear output in the second quarter will be the refueling outage we are carrying out in some plans, specifically as you know as of today works have already started in Almaraz and in Asco, but as -- like already previously forecasted, we don't foresee a relevant impact in the current year and nuclear output.
Okay. Thanks. On coal technology Pepe, what's your view on coal output expectation? Is the company still considering the closing down of coal capacity or may reconsider this decision?
Well, I would say that, unfortunately the market condition for the coal plant in mainland remain unfeasible as they are completely uneconomical being out of the Merit Order and this is due to the low ash prices, the increase of the carbon price and some policy changes. The situation is clear that, it is structural therefore will not change either in the future. It is true that we are trying to look for perhaps some kind of solution, some kind of new appreciation or whatever. But nevertheless in this moment, where we have decided that was to submit the formal closure application for our four mainland coal facilities, it's a decision that is not going to be reverted as it is completely aligned to the target to accelerate the categorization of our generation mix in setting our steep. The first two facility will be closed will be general, and both have received the CMC green light. Only the pending step is the ministry approval, but we expect to receive it shortly.
Okay. Thank you. Regarding supply business, and this is again for you Pepe. Given the falling spot prices what is the risk that customers on liberalize tariffs decide to switch to regulated tariffs?
Well, it is true that, as a consequence of the depressed pool prices regulated customers can now see a lower energy component in their bills that is clear. So there maybe an incentive, let's say that for liberalized customer to return to regulated tariffs. But in the other hand, I should say that, it is also true that given the existing volatility forwards customer also are looking now for stability to avoid the risks in their electricity bills and liberalized fixed price tariff protects them from peak increases and those -- as those things in the past. Additionally, customers are also demanding other services that they can't get through the regulated tariffs.
In this regard, we have put in place new offers to attract customers to the free market and we trust that they will succeed once the price react upwards in the post-COVID recovery phase.
Thank you, Pepe. We have now a question about the new personnel provisions. This is for you, Luca. Could you give us some color about the personnel provision release booking Q1 results? Will it be part of the annual dividend? Taking into account this provision release what is your update guidance for 2020?
Thank you, Mar. The result -- the net result of the provision that has been released is now in the company's net income both reported and ordinary. And the dividends as you know are calculated on the ordinary net results at the end of the year. As commented during the presentation in the course of 2020, so in the course of this year, we will be evaluating different alternatives to dedicate these resources to new efficiency improvement plans within the company. As far as guidance, we maintain the announced 2020 guidance of €3.9 billion EBITDA and €1.7 billion in net revenue income net of the non-recurring provision effect.
Thank you, Luca. We move now to other question about the CO2 rights. Hasn't this at quite CO2 rights in the market due to low prices in? This is for you, Pepe.
We have taken advantage of the price drop to bring forward the parts of 2020 that were not yet covered and some of 2021, but not relevant. And since the start of the COVID crisis we haven't moved anything.
Okay. Thank you. Thank you, Pepe. Next question also for you, how much more versus last year did you do from ancillary services?
Thank you, Mar. I would say that due to our long customer position we are net payers in the ancillary services market. Therefore the increased cost of these services in the first quarter 2020 has resulted in a net cost of €14 million in this first quarter, which represent a worsening of something around €6 million compared to the same period of the last year. We have seen ancillary services costs at high level during the month of March and April. But we believe and we expect them to lower down starting from May and the summer period thermal facilities will increase its stake in the spot market.
Thank you, Pepe. We have now the last two questions that are for you Luca. First one is about how much of EBITDA came from benefits from the open position you had going into the year what was the margin on the open position sales during Q1?
Thank you, Mar. I would say that during the first quarter 2020 pool price drop imply a positive effect on the core share position for about €44 million at EBITDA level when compared to first quarter 2019 for a total of 6.7 terawatt hours. For the rest of the year 2020, the share position will depend on the evolution of electricity prices as well as on the evolution of commodities and based on this we will actively manage the purchase of the energy from OTC or stock market. We remain comfortable with this position even more in this low pool price scenario we are now envisaging for the rest of the year.
Thank you. Last question is again on the gas margin. Will the net gain on commodity derivatives be zero by the end of the year?
Thank you, Mar. In first quarter gross margin includes a positive net effect of about €40 million due to the mark-to-market of our energy derivatives. This change mainly correspond to the gas mark-to-market. In any case as commented in the presentation, this effect will be flattened out over the year. Excluding this effect the unitary margin would have amounted to approximately €2.2 megawatt hour instead of the €3.6 megawatt hour as reported in first quarter.
Thank you. Okay. With this, we conclude the Q&A session. We have answered all the questions received so far. But just remind you that IR team can support you in case of you have any additional questions. So thank you very much for your attention and I hope to see you soon. Bye. Thank you.