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Good morning, everyone. This is Abel Arbat speaking from the Capital Markets team at Naturgy. We hope you're well, and we thank you for joining our results call for the first quarter of the year. You should all have received our results presentation or else you will find it available on our website. Next to me, is our Head of Financial Markets, Steven Fernandez; our Head of Financial Planning and Control, Jon Ganuza; and the Secretary of the Board, Manuel GarcIa Cobaleda. As usual, we're going to run over the presentation first. And at the end, we will open the floor to live Q&A. So with that, I'm handing it over to Steven to start over the presentation. Steven, please go ahead.
Thank you, Abel, and hello, everyone. We're going to go over the presentation as usual in our format. We'll try to do it a quick and painless as possible, knowing that you have had access to the information since this morning. And this way, we can leave more time for any questions that you may have. Before I start, though, on the subject of questions, I just want to make sure that we understand given the current situation, we're not going to be answering any questions regarding the tender offer. So beyond that, if we move on to Page 4 of the presentation that you have in front of you. As you can see, energy demand is showing some positive signs of recovery in the region where the group operates, particularly taking into account the first confirmed COVID case in the Iberian Peninsula dated back to the end of February of last year. And therefore, the COVID-19 outbreak only began to materially affect operations in March of 2020. This is one of the reasons why the improvements in the chart shown is more noticeable at the later part of the quarter. As you can see, electricity and gas demand in Spain compare on average a 2% and 3% above, respectively, versus Q1 2020, while electricity and gas demand across LatAm experienced on average an increase of around 5% and 14%, respectively, during the same period, obviously, with some exceptions that we will review later. So all in all, demand recovery seems to be underway, although obviously, it's still uneven and somewhat heterogenous by region. If we move over to Slide 5 on the evolution of energy markets, you'll find a comparison between the average of key commodity prices during the quarter versus 2020. As you can see there, the beginning of the year has been marked by gradual improvements in economic sentiment driven by the ongoing vaccination efforts occurring across the globe, which has been accompanied by increasing inflation expectations, particularly in the U.S., and this has led to a gradual recovery of commodity prices globally. Brent prices have increased by 21% on average when compared against the same quarter last year, while gas prices on major hubs such as the Henry or the NBP have risen on average by 29% to 84%, respectively, during the first quarter. Wholesale electricity prices in Spain for this part have increased by around 30% on average versus the first quarter of last year. Obviously, also by proved by, among other things, CO2 emission lines. So all in all, we see an energy scenario that, again, is showing some signs of life. If we move over to Page 6 of the presentation, which is the evolution of the different currencies where we are exposed, you'll see that LatAm currency seems to be stabilizing in the recent weeks. However, when you compare FX rates versus a year ago, the COVID has had an important impact on the depreciation of LatAm currencies against the euro. So comparing quarters, FX have had a negative effect of around EUR 46 million and EUR 14 million on EBITDA and net income, respectively. This has been, as you can see, more acute in Brazil and Argentina where the exchange rate compares unfavorably by around 25% or 35%, respectively, relative to 2020. The important significant exchange rates have not yet been recognized for the most part into existing tariffs and inflation in tariff updates are not enough, therefore, to compensate for the relevant currency devaluation in this period. If we move over to the second section of the presentation, we just want to touch base really quickly on where we are on the IFM process. The offer was submitted for processing by CNMV, that's the Spanish regulator on the 18th of February 2021. We remind you that the offer price of EUR 23 per share has been adjusted downwards to EUR 22.37 per share as a result of the complementary dividend that actually be paid on the 17th of March. And this is obviously something that was indicated in the offer announcement. Moving forward, the price, as a reminder, could be adjusted for future dividends if the offerer so decides. In terms of regulatory approvals on 18th March, the Mexican Federal Economic Competition Commission authorized the business concentration that we resolved from the offer, and that's fulfilling one of the conditions to which the offer will subject. And the offer now remains subject to the required regulatory approvals from the Spanish Council of Ministers and the CNMV. As you know, the CNMV shall not authorize a takeover payments of the previous mandatory authorization is obtained from the Council of Ministers. For that purpose, the Council of Ministers, as a reminder, has 6 months maximum to rule on the offer since its filing. In terms of other developments, if we move over to Page 9, you'll see that on the beginning of March of this year. The company reached an agreement or completed an agreement to amicably resolve the disputes affecting UFG in the international gas, which was the partnership between Naturgy and ENI. This valued the UFG for around $1.5 billion in total consideration, of which around $1.2 billion related to the Egyptian assets and the remaining around $300 million, sorry, for the assets outside of Egypt. Furthermore, we also continue moving forward in the disposal of CGE electricity in Chile, and we expect the completion of this transaction to take place in the coming quarters. So that would be Q2 of 2001 (sic) [ 2021 ]. Moreover, you've seen the company take steps to reinforce this renewals division by acquiring a stake -- a controlling interest in Hamel Renewables in the U.S., which comprises 8 gigawatts of solar projects and around 4.6 giga of energy storage projects. So we also signed a 5-year development agreement with Candela, and we are very excited about the potential that this agreement brings towards growing our renewables space in the U.S. On the consolidated results side, if we move over quickly to Page 11. You've seen the results earlier this morning. So again, despite the improving economic outlook and the gradual recovery of commodity prices, it's worthwhile noting that ordinary EBITDA stood at around EUR 1 billion for the first quarter. That's down 2% versus the same period of last year because of the impact of COVID mainly. Ordinary net income reached around EUR 323 million in the first quarter of the year, that's up 4% versus 2020. But if we look at it from a reported basis, I -- without one-offs, we're reporting a total number of around EUR 383 million, and this is, as you've seen in the release this morning, supported by the completion of the UFG agreement, which had a positive impact of EUR 65 million in earnings. Total CapEx for the period amounted to just shy of EUR 300 million, that's around 2.5% down versus the previous year. And this is basically due to further optimization in maintenance CapEx and FX. Also bear in mind that this number is not to be extrapolated for the rest of the year. There's a seasonality impact here. So as we move forward in the year, you should expect to see the CapEx figure go up. Cash flow from operations remained strong at around EUR 770 million, and net debt remained stable at EUR 13.6 billion. This is not yet reflecting the pretax proceeds of EUR 2.6 billion expected on the completion of the disposal of CGE Chile.If we turn on to Page 12. What we can see here basically is the evolution of of EBITDA where we can conclude that the FX and regulation have partially offset the recovery in demand and improving commodity prices. So all in all, stable results with signs of recovery despite the ongoing challenging environment because of the pandemic. And another way to look at the EBITDA, as shown in Page 13, where we can see, again, ordinary EBITDA is down 2% versus the previous year. Generally, Networks Spain experienced solid results supported by operational improvements as you've seen all throughout this year. You've seen a lot of efficiencies take place, and we are reaping the benefits of this right now. And that allows us to partly offset the lower remuneration into the new regulatory frameworks. On the downside, I guess, LatAm was weaker than the previous year, impacted mostly by FX. Energy management continues to face structural challenges. This is important to highlight, and Jon will elaborate moving forward, despite size of improvements in the energy scenario. Under the renewables side, we see results remain stable, but we are also seeing relevant growth in geographies with stable economies and strong currency. And this is going to be one of the key underlying themes moving forward for the company. Finally, in supply, we are implementing a number of transformational initiatives to regain competitiveness and deliver profitable growth. You've seen in the results that we are beginning to successfully sign interesting PPAs. And again, this is a sign of positive things to come on this part of the business. If we move over to Page 14 on the net income. Net income reached on an ordinary basis, EUR 320 million for the period, that's up 4%. Again, we've mentioned before, we have the main impact on a reported basis of the UFG gains of EUR 65 million. So we continue to actively optimize also our financial structure, which results in an improvement in financial costs on an underlying basis and an overall lower cost of debt. So this is something that, again, we're going to be benefiting from how the year moves over. And while on the subject of the capital structure of the company, if we move over to Page 15, what we'll see there is that net debt remains stable in the period. And again, we'd like to emphasize that these debt levels should go down once we have the cash proceeds coming in from Chile. So with that, I hand over to Jon for a review of the operating performance in the different businesses.
Thanks, Steven, and good afternoon, everyone. Let me start with Networks Spain on Page 17. This includes our gas and electricity distribution activities in Spain. Ordinary EBITDA reached EUR 414 million in the quarter, a 5% increase vis-a-vis last year. In gas distribution in Spain, operational improvements and efficiencies more than compensated for the lower remuneration under the new regulatory framework. In electricity distribution, ordinary EBITDA amounted to EUR 174 million, a 5% increase vis-a-vis first quarter 2020 as a result of investments and additional efficiencies. All in all, Networks Spain pushed resilient despite the impact of COVID-19 and the regulatory changes, both businesses posting a 5% growth in ordinary retail in the quarter. Moving on to Networks LatAm on Page 13. Ordinary EBITDA amounted to EUR 176 million in the period, 22% lower than previous year primarily due to negative effects with respect each of the regions. In Chile gas, higher demand in gas distribution, especially in residential and commercial segments was partially offset by lower margins in gas supply. In Brazil gas, demand has increased mainly due to thermal generation, offsetting a lower residential and commercial demand. The tariff indexation associated to inflation, in this case, IGP-M that takes place in January should have been 24%, and it was only a [ 6%. ] We expect to see it implemented during this year as we expect to see a resolution of the tariff for this regulatory period, which is currently under review. In Mexico, weaker demand on the retail and domestic segments dropped down the margin and could not be compensated with greater demand in thermal generation, PPA clients and greater efficiencies. The tariff indexation that was due in March has been postponed, and it should come to an effect with the tariffs for the new regulatory period that is due by the end of March. Finally, in Panama, lower demand due to confinement measures and temperatures was only partially compensated by efficiencies. CapEx has decreased in LatAm by almost 60%. This is mainly due to 3 effects: deconsolidation of Chile electricity, which accounts for EUR 35 million in the first quarter of 2020; Panama, due to COVID-related restrictions and FX. All in all, LatAm recovery was negatively impacted by FX and insufficient tariff updates. Moving on to energy management on Page 19. Markets and procurement is benefiting from improved cash procurement conditions following the extensive contract renegotiations conducted last year as well as an improving price scenario.In the case of international LNG, the scenario is improving, not hardly translating into higher margin for us, given the significant weight of contracted sales in our portfolio, whether physically or hedged order in place or about 80% of our volumes are already contracted for 2021. As EMPL, the step down in capacity and a lower U.S. dollar versus euro has caused the decrease this -- in previous year. With regards to Spain thermal generation, results improved, thanks to the higher margins price in CCGTs.In summary, structural challenges persists amid signs of improvement in a scenario, although we think that some of the results that we have seen in the first quarter, especially in thermal generation in Spain cannot be extrapolated for the rest of the year. Moving to renewables and new businesses on Page 21. In renewables Spain, the greater generation, especially in hydro, which was 24% higher was compensated with lower prices. In this sense, I would like to remind that we hedged most of our infra-marginal generation with our sales to our retail customers with fixed price. Therefore, the price that is captured by the renewable generation is approximately the 12-month trailing average of [indiscernible]. In Australia, the negative effect is due to the accounting requirements that we have to do on a quarterly basis of a mark-to-market of our PPAs, even the ones that are associated with parts that are currently under construction. Looking forward, Naturgy continues to progress on its renewable development plans. And in this sense, we will invest -- we will see in this year an investment close to EUR 1 billion. We expect new renewable capacity together will increase its contribution as it becomes operational. Finally, on to our retail supply operations on Page 21. Please note this unit now includes all power sales to end customers in Spain as well as gas sales to end customers below 500 gigawatt in Spain. Ordinary EBITDA amounted to EUR 127 million in the period, 15% higher than in 2020 primarily driven by the recovery of gas prices, while power margins in the industrial segment remain tight.I will now turn it over to Steven to summarize before going on to the Q&A.
All right. Thanks. Thank you, Jon. So just to summarize, you see it here, basically on Slide 23, Networks Spain remain solid while LatAm and FX weakness persisted. We still see some structural challenges in energy management amid signs of improvement in the scenario. We will continue to pursue renewables' growth in stable economies and stable geographies with strong currencies.We are also very excited by the progress made by our supply team, which is rolling out a number of transformational initiatives that are going to start producing results in the coming months, and we are already beginning to see some of the green shoots there. And we're also seeing good progress on the asset portfolio side with the completion of UFG and disposal of CGE expected in the second quarter. So things are actually moving along. So with that, I think it's now time to answer any questions you may have. Again, I'd like to emphasize that we're not going to be answering questions related to the tender offer beyond procedural questions. For that reason we have our Secretary of the Board, Manuel GarcÃa Cobaleda, here with us. And we'll just open up the floor for you guys now.
[Operator Instructions] The first question comes from Javier Suarez from Mediobanca.
Three by geographies, first on Mexico, then on Colombia, and finally, in Spain. On Mexico, there has been several statement by the Mexican administration on the potential reform of the electricity sector, something that has potentially a significant implication for Naturgy. So the question is where we are on that? And if you can update us on potential possible dialogue with the Mexican administration on that reform. That would be the first question. The second question is on Colombia. The Colombian government has been very voicy on the fact that the international court case on Electricaribe is now over. I just wanted to have an update on that to know the position of Naturgy, where we are and -- which could be next step related to Electricaribe. And the third question is on -- in Spain, on the international reform plan that was unveiled by the Spanish cabinet yesterday, you can help us to understand the -- your participation in the elaboration of that [ national ] energy plant and the potential implications that may have for a company like Naturgy.
I can start, this is Manuel. Regarding the Colombian decision of the -- there was an article that was issued weeks ago. They rejected all the claims of Naturgy on the Colombian government regarding the intervention of Electricaribe. So the steps that now has to be taken once [indiscernible] rejected is the liquidation of the company. [ Whilst you ], already some years ago, but the [indiscernible] strategic, as recently, this is part of information. So we will be asked to wait for this process to end that will be.
Moving on to the Mexico and Spain point. Regarding to Mexico, it's -- as you said, the President has put forward several reforms, but that remains to be seen what is able to push through. And I think that until we finally see which reforms are finally approved and [ taken in force ], I think it's too soon to speculate which kind of effect it can have on the asset that we currently have there in Mexico. Regarding Spain, we are constantly talking with all of the stakeholders, the government, the regulatory, but we do not disclose, which is the level of interaction that we have and which conversations that we do have with them. And regarding the plan, I think that it remains to be seen what's the impact is going to have in the company.
Our next question comes from Lillian Starke from Morgan Stanley.
The first one is, if there's any commentary you can provide on how this capacity payment draft could impact the company. I know it's open technology, so it will no longer be only exclusively to CCGT. So how are you thinking about that, is the first one. And then just the second one is around the tariff adjustments in Latin America. Is there a sense that these could be further delayed in 2022 or U.S. fixed government in general to adjust for tariffs throughout this year? It's just a delay of a few months rather than up until a year?
Thank you, Lillian. Regarding the first point, capacity payments, the draft basically are sales, which are going to be the rules that the auction is going to have. And I think what remains to be seen is, which is the final result of those court actions. The view that we have from Naturgy is that the CCGTs are a necessary part of the electricity generation system as a backup, and it's something that is going to be necessary also for the years to come. And we think that without any kind of capacity payments, the way we see it is that it's not sustainable, the way that they have been functioning. But I think that it's not -- so not -- it's not only important to see how the the auction is drafted is also which are the final results. And I think that if we look at other capacity auctions that there have been in other European countries, this is that the response sometimes do vary from year-to-year. So I think it would be way too early to speculate which kind of revenues we are expecting and we want to -- we think that we can get from the capacity payment option. Moving on to the tariff adjustments. It's true that what we're currently seeing is at least 2 countries on which the tariff setting process has been severely delayed. In the case of Brazil, we are currently in the 2018, 2022 tariff period, and we touch the tariffs that we're currently negotiating. So we are at least 3 years in delay, but we expect that by the end of this year, we should be looking or we should have the definitive tariff. And I think that if we delay it any further, the problem is that we have missed or almost missed a full regulatory period. In the case of Argentina, I think that we have a more serious issue because for the past 2 years, we haven't had the tariff indexation that we should have had in April and in October of each of those years. And although it's true that we are hearing positive signals from the government, I think that having seen prior experiences until it's finally black and white on paper, and we start to see the money coming in, I think it will be way too early to think that whether it has had [indiscernible]. And in Mexico gas, we are already with a bit of delay, but we are confident that we should be seeing the tariff -- the new tariff by the end of this year.
Our next question comes from Gonzalo Sanchez-Bordona from UBS.
I have 3, if I may. The first one is related with the international LNG business. I think you said that you had around -- over 80% of the gas volumes already contracted. So I was wondering if you could provide some sort of visibility or guidance on when should we expect to see the margins recovering on a year-on-year basis. Is it something that should already happen during the second quarter of this year or probably towards second half or even 2022? So that will be the first question. Second question on renewables. I think you said you are expecting CapEx of around EUR 1 billion in your renewable projects during this year. I was wondering if you could provide some guidance on that number going forward after 2021. Do you expect similar levels to those ones? Or do you expect that you could see an acceleration? Also, I was wondering if you're still focusing on the main markets where you have been focusing in the past like Australia, the U.S. and Chile. And finally, third question related with potential asset disposals. You've been saying in the past that you were continuing to look at potential asset disposals or portfolio optimization. We haven't heard anything recently, so I was wondering if you could provide any comments on that or your thoughts on that, what kind of businesses are you looking at?
Gonzalo, I will be addressing the first question and then Steven, I think he will address second of that one. Regarding international LNG, as you said, 81% of the volumes for this year are already close to margins. It physically -- by physical sales or by financial hedging. And that means that the level of the evolution of the margin is not going to be so fully influenced by how the market evolves or not. Also, as you know, we are not giving any guidance or any outlook of how the margins are going to be evolving either on a cost-related basis nor on a business-by-business basis. So I think that in that sense, we cannot give you any information.
So Gonzalo, this is Steven. On the renewable side, what we can tell you, first, we're not going to give you any indication at this point, okay, on the expected CapEx that we have. What we can tell you is that on the renewables front and also on the new business front, the team is working very hard to make it a cornerstone of company growth moving forward. So just what we ask is a little bit of patience. We can't give you the figures right now. But I think this is something, obviously, that we have in mind and that we will probably elaborate on in the future. On the asset disposals, I have to say it's -- everyone is smiling in this room on your comments that you haven't heard anything recently. Recently, we disposed of UFG, right? So we can expect to see transactions on a daily basis. Or we can tell you that -- just like in the case of Chile where it was a surprise for you guys. We work behind the scenes. We don't communicate on what we're working on, and we'll let the results of our work speak for themselves when the time comes. To summarize it, we are actively looking at our portfolio. We continue to work towards optimizing it. So you can read and see that whatever you want.
Our next question comes from Harry Wyburd of Bank of America.
Three from me. Firstly, just to sort of flip over the question on disposals but actually ask about potential acquisitions. I guess whether you dispose more assets or not, you've got a [ lot to spare ] balance sheet capacity. So my question is what -- if you realize you're sitting on a big amount of capacity, what kind of potential acquisition deal sizes might you look to do? I mean obviously, you've done renewables sort of tuck-in and pipeline acquisitions. And I guess that's an area you'll continue to look at. But if you've got the balance sheet capacity to do it, could there be a transformational size acquisition you might look at doing? And how do you think the market for acquisitions at the moment? And do you feel like you're going to be able to deploy back to their balance sheet capacity in sort of attractive multiples? So that's first one. And second one, just the data point, I apologize if some of this is already in the appendix of the [indiscernible]. I haven't got a time to looking into it yet. Can you just confirm your gas hedging for 2022? And also if it's possible for 2023? I should be interested to know if you've got any hedging for 2023 in the gas business. And then final one, just on hybrid. I think a lot of your peers now don't include the hybrid coupon costs in their earnings, and I believe you do. And I think last year, it was about EUR 60 million, which if you removed those, that would have been a 7% uplift on your, I guess, just the headline net income. So I just want to -- are you going to keep including the hybrid [ check ]? Or is that something you might review, which is obviously sort of increase your headline earnings as if even on Bloomberg?
So thank you, Harry. I will start with the hedging question, and then I will move it on to Steven for the 2 questions. Regarding the cash hedging, in the information that we provide, you will be able to see that for the LNG business, what we have contracted, so the margins that are closed for 2021 is 81%. And we do not disclose 2022 as a separate year, but we do disclose the 2022 together with 2023 and the figure is 57%. And as you can imagine, the percentage is greater in 2022, down in 2023, at the average of those 2 years is 57%.
So Harry, on the question on the treatment, the accounting treatment for hybrids, the answer is no. For the time being, there is no expected change in company policy. Regarding disposals and acquisitions, what we can tell you is, first and foremost, we do think we have the ability to deploy the cash and that's something that we're working hard on. What we can tell you as well is that at this stage, we're not looking into any transformational M&A transaction. The way we approach growth is more targeted towards similar deals, as you've seen in the U.S., pipelines, et cetera. So no, nothing of major size, okay? Among other things when you look at the market, transformational transactions per se are difficult to come by. When they do appear, they're not only earmarked for Naturgy, but a lot of people look at them as well. So that's something to bear in mind in terms of the returns that you can expect to get from this transaction. And notwithstanding any future opportunities that may arise, we see better value approaching growth from a different perspective.
Our next question comes from Manuel Palomo from Exane BNP.
I've got 2 questions. One is on the outlook or I should say maybe on the lack of outlook for this year compared to previous years. Why is this? I mean, I'm not going to ask you about that. But why -- is this due to the maybe limited visibility of the business or maybe due to restrictions, given you're under this IFM deal? Second question is, I'd like to get your comments on one specific topic. CNMC has recently, well, said that some -- the deleverage for some distribution companies, it might be fund excessive. It's not the first time. And I wonder, first of all, what your views and to what extent this could impact the evolution of the gas distribution business in Spain?
So 2 questions here on the outlook. No, it's not a question of a lack of visibility at all. I think you're -- it's more aligned with the second hypothesis that you put on the table and therefore, linked to the transaction. On the leverage for the distribution companies, I think it's worthwhile if you read the report, the CNMC also mentions that this is looked at from a consolidated perspective. And we explicitly say as well that in this case, not as unique with all the criteria. So this is obviously something that we monitor. We're not worried at all. We've always complied and we continue having an intention to continue complying in the future.
Our next question comes from Jose Ruiz at Barclays.
Just 3 quick questions. First, if you could clarify the improvement in margins for combined cycles in the first quarter if it was related to the renegotiation of contracts. The second question really, if you could explain a little bit more, what are you seeing in terms of margins in power supply for industrial segment in Spain, if you could develop what is the situation, and how long is it going to last this high competition. And thirdly, if you could explain in the markets and procurement division, why is there EUR 63 million positive depreciation?
Okay. Sorry. Sorry, Jose, because I've been answering the question and we were in mute, so sorry to you all. So starting with the first question, the improvement of the CCGTs in the first quarter was not related to the gas supply renegotiations. Basically, it was due to higher food prices as we saw, especially in January due to the Filomena storm. And then also in March, it's true that February, the prices were a bit more depressed. Moving to the second point, the one regarding the industrial, the industrial margin. Basically, what we are seeing is these are -- as you said it's competition, and we expect that the competition is going to remain for the years to come. And if anything, probably the competition is going to increase. We are not giving any outlook regarding of how that [ unitary ] margin is going to evolve on a segment-by-segment basis. Regarding the depreciation of markets and procurements that you see the positive effect in the first quarter, it's basically related to the Union Fenosa Gas contract agreement that we [ let ]. And the main impact that you see is there. It's part of the agreement that it is and the fact that we have consolidated some of the assets that before they were on a 50% basis, and therefore, they were not probably consolidated.
Our next question is from Jorge Guimaraes from JB Capital. Sorry we can't hear you, Jorge. Can you please check your line is not muted.
Hello, can you hear me now? Hello?
Yes. We can hear you -- we can hear you now.
Okay. Sorry. Three quick questions. Firstly is a clarification of what you mentioned during the call on the hedging of the hydro. I understand that you say that infra-marginal technologies are at the final client price, but I would like to understand it better to clarify it. The second one is related to that, is it possible to provide the breakdown of EBITDA of renewables between hydro and nonhydro in Spain and U.S.? And the third one, it's related to the timings of the offer. Once the government decides, the -- I assume that the Board of Naturgy will only give its view once CNMC also clears the offer. And I would like to confirm if this is correct or not.
So once the government provides a decision in achieving its [indiscernible] participants, then it's CNMV that has to authorize the offer because all the rest of commission presented were mentioned by [indiscernible] and its different announcements seem to be already fulfilled. So once the CNMV will now authorize the offer, then the offerer will start acceptance period. And in the first 10 days of this acceptance period, it will -- the Board of Directors of Naturgy has to issue a recommendation to the existing shareholders.
So thank you, Jorge. I will move to the first 2 questions. I will start with the second one, which is going to be the easier one. Sorry, but we do not provide the EBITDA breakdown by hydro technologies in renewables to Spain and most USA. The level of the type of details that we provide is the one that you see in the report, and we do not provide any further, any further improvement. So -- and then moving to the first question, what we try to do with information on technology -- generation technologies that we have in Spain, as we said, is we try to match the generation that we expect that we're going to have in the next 12 months with the sales that we do to end clients on a fixed base basis. In Spain, the sales that -- the electricity sales that are done on a fixed price basis usually are set on the only, that is basically the forward price for the next 12 months. Therefore, the clients that we are going to -- with which we are closing a contract this month, for example, and the big clients that we are acquiring or clients that we are renewing, the price that we are setting for the electricity is set according to the forward price for the next 12 months. Therefore, the signed bilateral contract between the commercialization and infra-marginal generation that is set according to the forward price for the next 12 months. So basically, if you take into account that this is done every month, what we are currently seeing in -- or the price that we are capturing right now for the electricity that is playing -- generated this month by the infra-marginal technology is the [indiscernible] average of the last 12 months and taking into account each of the months, which was the forward cost that was expected for the next 12 months. I don't know whether that's clarified or not the question that you have.
Our next question comes from Fernando Lafuente from Alantra.
Two quick ones for me, please. One, it's a clarification on what -- something that Steven said on the guidance for this year. I understood, Steven, this is because it's conditioned by the transaction, is the -- and if so, why is this transaction, considering that it's a partial offer, kind of conditions the information that you disclose, information that you normally do in the previous quarters? Then second question is on CapEx for 2021. I was wondering if you could give us an estimation or actually an indication of what should we expect for 2021? And the last one is also a follow-up on a comment made on the Australian PPAs and the mark-to-market -- negative mark-to-market. I was trying to understand or if you could help me to understand why this mark-to-market and why the negative impact?
This is Manuel again. We have the company until the moment to [indiscernible] to oblige [indiscernible] to issue its recommendation. It doesn't want to give any hint on what it will do mainly because we still lack all the information to take such a decision. So it's too early at the moment to make any or to express any view on that.
Regarding the question of Australia, basically on -- due to the accounting rules, we are obliged to make, on a quarterly basis, a mark to market of the production that we have within a P50 -- P50 and a P90, taking into account the latest estimate of the forward electricity prices for the duration of the PPA. And that's something that we have to do with all of the current PPAs that we have. Regardless of the fact that the generation, the wind generation is working or even if it's under construction, the fact that we have signed a PPA, we are obliged to do that. Why? Because accounting-wise, they think that there is a speculative nature on that production that is between the P50 and the P90, and that's why we have to make the mark-to-market of certain -- the energy that will be comprised between those 2 percentiles.
The next question is from Jorge Alonso from Societe General.
Just one clarification, please, regarding the renewables. What is the price that you are starting to the capacity? And this price, I'm talking about the Spanish is one, is the end customer price? But if so, then how do you assign the supply margin or simply the spot price? And then obviously, the difference between that and the price signed to the end customers goes to the supply. Just to be sure that this is -- how it is working and how this is going to be for new capacity to be developed in Spain?
So okay. Thank you, Jorge. I will try to explain it. So first of all, one thing that we'll have to keep in -- bear in mind is that when we sign contracts with retail customers in Spain, usually retail contract in electricity and gas are on a yearly basis. And we have to take into account that there are basically 2 types of contracts in electricity in Spain. And one is what could be the index ones. That basically is a margin that you put on top of the pull price that you're getting in each of the months for which the client has signed the contract. And the second type of contracts is the fixed price. And the fixed price is also a margin that we put on top of what the expected average price of electricity that you are going to get for the next 12 months. And in this second type of contracts, the ones that have the fixed months, that they are done on the expected pool price that you are going to see in the next 12 months, the ones that is backed usually with the -- from marginal generation that we put. And therefore, the kind of bilateral contract that is signed between the supply business and the infra-marginal generation is done on the basis of what's expected to be the average pool price for the next 12 months.
Our next question comes from Elchin Mammadov from Bloomberg Intelligence.
I have 2. The first one is on hydrogen. Can you talk a bit about the development from hydrogen that you've seen over the past few months? I think there's been some announcements to do with Enagás in Asturias, I think. But if you can talk about hydrogen and what are you doing in this space. The second question is on PPA. The market is picking up in Europe. You've talked about Spain and whatnot, but can you please talk about more as to how your customer portfolio can help you hedge your PPA risk and more about subsidy for renewables? That will be great.
So regarding the hydrogen, so as you said, it's true that we are already with 2 really advanced projects, and we have also other projects in our portfolio. But I think that we have to bear in mind that hydrogen, right now, still relies on the subsidies. And I think that the European funds that we are going to see in the next few months are going to play a key role on the finance, which is how great the level of success of hydrogen is going to be. On that sense, I think that -- and this is not only Naturgy's view, I think that it's a view also from other actors in the sector and also from several governments. We think that hydrogen is going to play a key role in the next few decades on the energy transition. But we have to also bear in mind that this key role is, at least in the initial years, is going to be highly dependent on the hub [indiscernible] that are going to be put in place by the governments and the European Union. And those are the ones who are really going to set the pace what really happens. But we are really excited regarding this technology, and we think that, thanks to the projects that we have currently in our portfolio, we will be able to reap several benefits in case of the subsidies have put in place. The market of PPAs, as we have been putting this past in -- making public these past few months, we are starting to sign several PPAs with some industrial customers. We think that this -- that's a view that's going to -- that's a way that is going to help further develop renewable portfolio that we currently have in Spain. And we see that there's a lot of interest in many -- and parts of many of the industrial customers. And as we keep on signing clients, we will give you posted of which is the volume that we're reaching on the PPAs. I think that in this case, it has helped us a lot of the fact that we have industrial sales to end clients. And that's what already gives us a contact and helps us in identifying clients who are willing and are in need to have PPAs and help in the sale of their electricity.
Thank you. Thank you, Jon and Steven, and operator. So -- well, hold on, there's one additional question, I believe, from Manuel Palomo from Exane and we'll wrap it up.
Yes. Sorry, it's just a follow-up of your last answer, Jon, about PPAs. When you are talking about these PPAs with some large customers in order to incentivize renewables growth, are these PPAs exclusive for those renewable plants? Or are you signing, I mean, are you signing as produced-generation PPAs or as consume-generation PPAs? Are you insuring 24x7? Or is it just for the renewable generation [indiscernible]?
So thank you, Manuel. As you might imagine, I'm not going to disclose exactly the details, but I can already tell you that we have -- both types of the PPAs is highly dependent on the customer needs. And of course, the way you structure the offer is highly dependent on whether they want these as pay as produced or pay as consumed.
Okay. Thank you, Jon, and thank you, everyone, for joining the first quarter results presentation and for all your questions. We invite you to keep the dialogue open with the Investor Relations team for any questions you may have in the future. And we thank you very much. With that, we conclude our presentation. Thanks, everyone. Bye-bye.