Snam SpA
MIL:SRG
Earnings Call Analysis
Q2-2023 Analysis
Snam SpA
In the first half of 2023, Snam navigated through a period of significantly decreased gas demand, which fell by more than 16% compared to the previous year. The drop in gas consumption was observed across various sectors, with the Italian gas market experiencing a 16% decline, primarily in the thermoelectric sector. However, the reduced volumes from the north were counterbalanced by a substantial 20% rise in LNG imports, demonstrating the company's adaptability in addressing changing market dynamics.
Despite the challenges, Snam delivered solid financial results in the first half of the year, with adjusted EBITDA rising by 5.7% to an additional €66 million. However, net profit adjusted saw a 3.9% decrease due to higher depreciation and cost of debt. Overall, investments decreased by 23% primarily because of the purchase of a vessel the prior year but were partly offset by a 33% increase in technical investment. Snam's net debt increased to €14.6 billion, influenced by expected changes in working capital.
Snam's strategy reflects a firm commitment to the energy transition. In line with the EU's decarbonization initiatives, the company focuses on biomethane, targeting a contribution of around 6 bcm by 2030, and advances in hydrogen development and carbon capture utilization. Notably, a gas storage license was awarded to dCarbonX, and public funding of €32 million was secured for Italy Hydrogen Technologies. Snam also undertook significant acquisitions in the biomethane sector and is actively engaged in decarbonization projects with an allocated €19.5 million from the national recovery and resilience plan and €15 million for hydrogen refueling stations.
Snam successfully navigated the regulatory landscape, with approvals for output-based incentives on fully amortized assets for 2023 and 2024, as well as transport and LNG tariffs. Additionally, the weighted average cost of capital for gas transmission in Greece was raised to 7.85% for the years 2024 to 2027, enhancing the profitability of associate company DESFA and offering increased result visibility.
The company achieved a storage level of about 87%, reflecting a reliable infilling curve, crucial for providing security of supply. Moreover, Snam initiated operations of the Golar Tundra floating vessel early in July, reinforcing its capabilities to meet energy demands. There also exists an ongoing dialogue with institutions for potential Repower EU funds allocation, which could further enhance the company's strategic projects, such as the Adriatic pipeline construction.
Snam's dedication to environmental and social governance (ESG) is evident, with 37% of CapEx aligned with taxonomy and SDGs, and sustainable finance accounting for 75% of its funding. Methane emissions were remarkably reduced by 32% compared to the first half of 2022. The company's inclusion in the CDP Climate A List underscores its commitment to climate action and transparency. Snam's employee engagement level stands well above the 70-75% threshold, indicating strong internal support for its sustainability initiatives.
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Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Snam's First Half 2023 Consolidated Results Conference Call.
As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
At this time, I would like to turn the conference over to Ms. Francesca Pezzoli, Head of IR. Please go ahead.
Good afternoon, ladies and gentlemen and welcome to Snam H1 2023 consolidated results. Today's presentation will be hosted by our CEO, Stefano Venier and by our CFO, Luca Passa. In the presentation, Stefano will provide an overview of the H1 results, the key highlights of the period and an update on the delivery of the strategic plan. Luca will talk you through the financial performance, then back to Stefano for closing remarks and finally, the Q&A session.
And now let me hand over to Stefano.
Good afternoon also on my side. Let's start on Page 2. Gas demand declined by more than 16% on the first half. Gas prices were on average 55% below H1 2022 and experienced significant volatility showing the fragility of the energy system. Domestic gas flows continued to be impacted by geopolitical situation. The decline in volumes from North was offset by a 20% increase of LNG import and lower demand by 16%.
On the regulatory front, we had the approval of the -- by the regulator of the output-based incentives on fully amortized assets for the years 2023 and 2024. Those were in line with the expectation, as well as of transport and LNG tariffs.
The new talent integrated national energy plan that is so-called PNIEC, aligned with the most recent EU directives approved was filed to Europe. It first sets ambitious decarbonization target; second, fully recognized the role of gas to grant security of supply and resilience and third, to pour the role of Italy as energy hub.
With reference to our activity, the key elements are the confirmation of the role of biomethane, whose contribution is maximized to about 6 bcm by 2030, representing approximately 10% of the gas demand mix. The relevance of hydrogen also via import and the recognition of the CCS carbon capture and segregation opportunity to reach the decarbonization target set. This is fully consistent with our strategy and business plan targets.
The first half results were solid. EBITDA adjusted was up 5.7% or €66 million year-on-year. Net profit adjusted reached €621 million, down 3.9% on year-on-year, affected by the higher D&A and the cost of debt. Investment reached €734 million, down 23% on year-on-year due to the acquisition of the first vessel in -- that happened in H1 2022.
Technical investment vice versa are instead 33% year-on-year, supported by completion of the Piombino and the start of works in Ravenna. Net debt increased to €14.6 billion as a fact of the expected reversal of working capital.
Looking at the portfolio of our associates, on April 4th, along with the other core shareholders, we successfully placed 35.7% De Nora shares via accelerated book building to increase free float. The deal generated a cash-in of approximately €144 million and a capital gain of about €76 million. Then on the 7th of July, Nucera, the joint venture between Theiss Group [ph] and De Nora was successfully listed, thus further crystallizing the De Nora value.
Finally, the weighted average of cost of capital of gas transmission in Greece was lifted to 7.85% for the regulatory period between 2024 and 2027. This will support the profitability of our associate, DESFA, while increasing the visibility of the results.
Now moving to Slide 3. Beyond the financial performance, we made significant achievements on security of supply. The Golar Tundra floating vessel started operations at the beginning of July in Piombino. Tariff for the period 2023, 2024 were set and almost all the capacities sold for the -- 20 years going forward.
Storage level is about 87% with a smooth infilling curve. A constructive dialogue with Italian and European institution is ongoing for a possible allocation of Repower EU funds to some of this norms projects starting with the first phase of the Adriatic pipeline construction.
Moving to energy transition, the relevance of the South H2 Corridors was reiterated by Italian and German Prime Ministers during the bilateral meeting held in June. Germany, that is leading the way in terms of H2 market, design and development and started the outline and defined the core H2 network involving the gas TSOs in order to have an infrastructure that connects key imports, production and consumption area, maximizing the repurposing.
Moving to Snam, we further progressed on the third-party appraisal of the H2 readiness for our network. Now with more than 1,500 kilometers of pipe certified by RINA and 2x the full year 2022 levels. Our partners in the energy transition are obtaining relevant accomplishment as well.
dCarbonX was awarded a gas storage license over the depleted Bains gas field in the East RSC with possible hydrogen upside in the future, while De Nora, the Italian, Italy Hydrogen Technologies, the Snam and De Nora joint venture has signed a decree granting the public funding of the €32 million to finance the Gigafactory project that is out of the 63 allowed under the EU State IDCO rule.
I will now mention some relevant issues regarding our sustainability profile. CapEx aligned to taxonomy and SDG represent 37% and 56% of the total and sustainable finance reach the 75% of funding. The effort to reduce leakages are progressing and methane emissions are down by a remarkable 32% versus the first half 2022, which correspond to about 63% for full 2023 versus 2015, then well ahead of the United Nations target of 45% reduction by 2025.
Then, Snam has been included in the CDP Climate A List, which ranks companies for their commitment, transparency and action on climate change. Also, we recently published a paper to describe our climate advocacy position reiterating our commitment to the Paris Agreement and the tax transparency framework.
From a recent employee survey carried out, emerged and engagement level well above the 70%, 75% threshold set in our ESG score guard, combined within a high participation rate of 80%. We also got two new important certification on anti-corruption and gender equality.
Page 4, let me provide an update to the successful delivery of our strategic plan on transport. Output based incentives on fully depreciated assets were approved effective January the 1st. We received a green light from ARERA in the government for the development of the Adriatic line, strategic project submitted to the Italian government for the allocation of the RePower EU public funds as I mentioned before.
We progressed on our H2 Readiness certification roadmap and leak detection and repair program was completed in 85% of the network -- net roaming plants. The South H2 corridor as I mentioned is making strong progress and was filed to the PCI. Let's now move to storage.
We offer new flexibility services to the system. We have made progress on permitting on over pressure at some storage facilities in the Lombard area, as well as on performance upgrade in the storage in nearby Bologna. On LNG, Piombino was commissioned and entered into operation on time, the capacity was nearly fully sold. We submitted the proposal to relocate the vessel after the third year in the Liguria region and the new commissioner was appointed.
We started preliminary works for Ravenna and for new connection of the FSRU and the truckloading project in Panigaglia we mentioned in our business plan was recently approved. As far as energy transition business on Biomethane, we have executed the remaining pipeline of plant acquisition and we took part to the first auction for upgrading with three project that were all successful.
On decarbonization projects, we have first Modena H2 valley, the development of a green hydrogen production ample, jointly promoted by Snam [indiscernible] that was awarded with €19.5 million in funding as part of the national recovery and resilience plan. We were also awarded with €15 million for the realization of eight H2 refueling stations.
Second, we are on track in the development of the pilot project with Eni for carbon capture near Ravenna. Third, we are progressing to launch a market test for expression of interest for the transport of H2 and the CCS capture. On energy efficiency, we delivered a strong project pipeline in deeper innovation projects, while working on the repositioning of our portfolio toward public PA and industrial clients.
On Page 5, we spot the gas demand and flows. With regard to the gas market context, Italian first half demand was down 16%, minus 14% on weather adjusted or 6.4 bcm. That was due to, first, the thermoelectric sector that was down 19.2% year-on-year or about 3 bcm, driven by the electricity demand decline, the increase in imports and the raise on hydroelectric production.
Civil sector contracted by 2.7 bcm due to the milder temperature we had in the last part of the winter, demand containment actions by 1 bcm and the increase in energy efficiency. The majority of the decline is therefore not structural.
Third, declining industrial sector by less than 1 bcm is mainly attributable to economic slowdown with an effect particularly on energy intensive sector so-called, hard-to-abate. Worth reminding that last year gas demand proved to be quite resilient in the first half and started to decline severely in the second part, with an effect on the year-over-year comparison.
Moving to gas flows, they were impacted by the geopolitical scenario, with a 50% reduction in volume from North, fully compensated by an increase in LNG volumes by 20% and as a lower demand. We exported 1.2 bcm to Austria in the first half of 2023.
Let's talk about the gas storage situation on Page 6. The gas in storage is approximately 15 bcm including the strategic reserves, corresponding to a filling level of approximately 87%, well above previous year and the last five-year average. We face next winter with a stronger energy system as we have gas storage facilities full above historical levels and Piombino floating vessel in operation. However, the recent gas price volatility shows that the gas market balance remain fragile and the reserve margin tight.
European gas market now structurally relies more on LNG or about 40% of total in the first half 2023. Therefore, any pickup in Chinese demand could have an impact on prices. In addition, last winter benefited from a mild weather and demand containment measures that are temporary. Measures aimed at maximizing cold by the way are being lifted. For those reasons, the reaction to this crisis need to be structural and we are continuing to strengthen our infrastructure for that purpose.
I will now hand over to Luca to comment the financial results.
Thanks, Stefano and good afternoon, ladies and gentlemen. Let me now move to the first half 2023 EBITDA analysis on Slide number seven. EBITDA for the period was €1.221 billion, plus 5.7% versus last year or €66 million.
The increase was mainly attributable to a €71 million growth in the regulated revenues related to regulated revenues growth 37% in transport, 9% in storage and 20% in LNG. The incentives related to the fully depreciated assets of around €20 million, higher contribution from flexibility services provided to the system for €6 million, mainly related to the full service. This effect were partially counterbalanced by a negative volume effect due to the already commented decline in gas demand and the usual phase out of input-based incentives.
Also, €26 million increase in the energy transition business, mainly attributable to energy efficiency and in particular public administration projects and deep renovation. The difference of the item others is mainly due to the one-off contribution in first half 2022 from the sale of gas excess inventory for €33 million and expiry at the end of 2022 or the fee related to a telco lease contract only partially offset by some positive items in first half 2023.
Moving on to Slide 8, adjusted net income for the period was €621 million or minus 3.9% compared to first half 2022, due to higher D&A for €28 million following rising investments, net financial expenses higher by €36 million, mainly as a result of higher gross cost of debt, which moved from 1% in first half 2022 to approximately 1.7% in first half 2023 due to the increase in interest rates.
2023 is a transition year as the WACC was stable despite the rising interest rate environment, but our regulation provides good cash flow hedging over time. The mark-to-market for 2024 what points to a potential upward revision.
A lower contribution from associates for €17 million, which was the result of lower international associates contribution by €20 million, driven by the decline of TAG due to the expiry of most of the long-term contracts and lower volumes as outbreak of the Russian-Ukrainian war, partially offset by entering into the perimeter of C corridor, which represents a key route to compensate lower flows from North and strong Desfa results, I will comment in detail in the following slide.
A positive contribution of Italian associates by €3 million, thanks to higher results from Italgas, OLT and Adriatic LNG. Higher taxes and minorities, tax rate was 24.5%, slightly higher than the first half of 2022. For the full year, we expect it to be at approximately 25%.
Moving to the Slide number nine on associates. International associates, the positive contributor group net income by €130 million equal to 18% of the group adjusted net income. SeaCorridor entered into the perimeter in January 2023.
Desfa confirmed the strong performance recorded in first quarter 2023, supported by the higher export at its interconnection points with Bulgaria and by the related auction premia. Year-on-year comparisons also benefited by the pass-through mechanism for the energy cost introduced from July 2022 when prices sharply increased following the energy crisis.
TAP continued to work at full capacity. The increase versus first half 2022 is largely due to the CPI-linked tariff. The second phase of the two step of market test launched in 2021, which trigger a minimum expansion of 1.2 bcm on year is now expected by year-end with the results to be published at the beginning of 2024.
Terega results is up €3 million year-on-year, thanks to higher bookings in import from Spain, from more gas transported by Pirineos, interconnection point with Spain, following a reversal weeks of strike starting in March 2023 that slowed the arrival of LNG to France. ADNOC performance remains in line with last year.
Looking at Interconnector, its contribution slightly declined year-on-year. Operating performance remained strong, but profit mechanism kicked in, while last year benefited from the recovery of past year's under performance. The assets enjoy a high medium/long-term visibility, thanks to the bookings till 2027. Cap reached 2026 and approximately 50% of 2027 capacity booked.
Moving to Austria, the negative contribution of TAG is due to the expire of the long-term contracts only partially offset by higher reverse flow booking. Here, the auctions come from the relevant role of TAG for reverse flows booked for approximately 90% to 95% until 2025 and 50% for 2026 with auction premia. GCA performance remained stable, so benefiting from long-term contracts until 2031. EMG performance finally is in line with the previous year.
Turning now to cash flow on Slide number 10. Cash flow from operations for the period amounted to minus €719 million, driven by the expected working capital absorption for around €1.7 billion. This was mainly driven by about €1.5 billion absorption due to the balancing activity, of which about €650 million related to balancing item receivables, about €500 million ready to cash deposits decreased due to the price reduction and about €500 million related to the full service receivables increase, only partially counterbalanced by plus €150 million in positive set items.
And finally, a negative of €250 million on energy efficiency net working capital absorption driven by the fiscal credits related to ECO-bonus revenues. As for the full-year, we expect working capital absorption of about €2.2 billion with a uncertainty over the evolution of the balancing activity.
Net investment for the period amounted to €1.024 billion, mainly related to net CapEx and CapEx payables for €759 million. The cash out of the acquisition of SeaCorridor for €409 million, partially offset by the cash in of €144 million for the disposal of the stake in De Nora. Other outflows were related to the payment of the full year dividend for €919 million, resulting in a change in net debt of about €2.7 billion.
Moving to Slide 11, due to the previous commented cash flow evolution, the change in debt of €2.7 million resulted in €14.6 billion of net debt at the end of first half 2023. The average cost of debt moved to 1.7% and the fixed to floating ratio stands at 75%. Sustainable Finance on committed financing is up to 75%, thanks to the recent funding closed in April.
In April, we secured more than €2 billion of medium, long-term ESG link financing, out of which €1.8 million RCF obtained from Paolo banks and guaranteed by Statoil. In April, our recent [indiscernible] transition one has been awarded a transition bond of the year by Environmental Finance as evident of our continuous efforts in the sustainable finance.
In June, S&P affirmed the rating of BBB+ and lower threshold for the A- standalone credit profile from 12% to 11%, following the revision of the country risk assessments of Italy. Given the previously commented working capital evolution and the funding already executed financing needs for 2023 are almost covered.
We confirm a net debt in range of 15% to 15.5% at the end of 2023, most likely in the upper part of the range, depending on working capital volatility and in particular the withdrawal evolution of cash deposits. In terms of financing cost, based on the current forward curve, we expect the average gross cost of debt to increase to just below 2% at the end of the year.
And now let me hand over to Stefano for the closing remarks.
Thank you. Thank you, Luca. Just very short closing remarks. I do believe we delivered a solid H1 result in a very volatile environment. We are very well on track to achieve the 2023 targets that we confirmed. In detail, €2.1 billion of total investments that is -- that are up 10% year-on-year, driven by the CapEx in our gas infrastructure and the acquisition of the second floating vessel. €22.4 billion tariff RAB that is up 5% on year-on-year. Net income of around €1.1 billion and a DPS up by 2.5% versus 2022, that is in line with our dividend policy.
Net debt to foreclose to €15.5 billion, including the reversal of the regulatory working capital in the high uncertainty on balancing activity as Luca described so far. We faced 2023 winter in a stronger position, but the situation remain volatile and we need to keep the focus on strengthening the energy system for the long term.
EU and Italian policies continue to support our strategy. The Repower EU funds could back further key security of supply projects, while improving affordability and the PNIEC fully recognized the role of gas and green gases, as well as carbon capture to reach the decarbonization targets, we have made this such [Technical Difficulty].
[Operator Instructions] The first question is from Jose Ruiz with Barclays. Please go ahead.
Yes. Good afternoon and thanks for taking my questions. I just have two. The first one is, if you could give us a little bit of the timing of the approval of -- you said you filed a PCI for South H2 corridor. If you can give us the timing of approval? And secondly, if you can split the -- allow WACC in Desfa in Greece, between cost of equity and cost of debt recognized?
Okay. About the first question, the timing for PCI, I mean, the procedure is expected to enter the conclusion by year-end. Of course, the conclusion of the PCI process then will make the projects, let's say, available for specific funding. That is -- means that, that is the first part of the progress for getting, let's say, additional financial support for the deployment of this project. For the second, I turn to Luca.
Yes, on the second one, regarding the 7.85% new allowed return from 2024 to 2027, decree of ratio is 45%, the debt assumption is up 4.8% and then when it comes to basically the risk-free rate is 2.36 country, 1.3% and market risk premium of 5.5%.
The next question is from Javier Suarez with Mediobanca. Please go ahead.
Two or three questions on my side as well. The first one is on the strategy for the company to provide security to Europe and I guess gas and hydrogen supply. There has been a document published by the European Hydrogen Backbone that is extending visibility to 2030 and then 2040 and they are mentioning a new interconnection with Italy to be built by 2040.
So the question for you is, which is the possible upside for Snam on the development of South European hydrogen hub by 2030 and then 2040 and which would be in your view the contribution to ensure better diversification of energy supply for Europe? Second question is on the upside on the recovery Repower EU funds.
When do you expect to have visibility on collection and also details on the project, that would be helpful. The third question is latest thought on the profitability and possible upside from your energy efficiency activity.
Okay. With respect to the strategic perspective, as we said the South H2 corridor and is one of the five corridors that has been identified by European Commission is progressing through the PCI. I think the most valuable part for this project is the fact that according to the estimates and the assessment we have done so far, the largest part of the largest part of the transportation pipe will be repurposed from existing pipes.
We estimate the current estimates assess at 70% will be, let's say, repurpose and that makes the competitiveness of this corridor in terms of cost of transportation very high with respect to, let's say, alternative corridors, of course, with respect to the distance.
The second part is what role can be played? Of course, the role is -- with respect to the gas, it's much easier. I mean, as Luca said, in the last auctions for the reverse flow toward Austria, 100% of the capacity has been sold for the next two years, 50% for the third year ahead. So means that there is appetite for, let's say, volumes.
Of course, the total capacity that was put on option was up to 6.5 bcm per year and among the projects we are developing that will be submitted for Repower EU funds, there is also a) let's say, debottlenecking or strengthening of this export capacity up to 9, 10 bcm per year because we think that this could be in the interest of the surrounding countries, that will work exactly with the same perspective also for hydrogen.
When we do expect the deadline for Repower EU, I mean, according to the most recent information we have, there is a deadline set by the end of August that might be potentially, let's say, managed within the following, let's say, 45, 60 days. So to be conservative, I might say that by the end of September, end of October, we should have a return on the total amount of funds that will be devoted for the two, three, the three projects we have submitted according to the request that came from the government. For the third one, I turn to Luca.
Hi, Javier, regarding your contribution of energy efficiency for the full-year, the overall energy transition business should contribute around €80 million of EBITDA for the full year. You know that we're starting from a good first half, the majority of the contribution of this increase at our second year is actually coming from energy efficiency, which is providing the majority of the growth between now and year-end.
The next question is from Meike Becker with HSBC. Please go ahead.
I have three. The first question is on your long-term expectations for gas demand, let's say, for 2030 and beyond considering the continued depressed levels that we are seeing. The second question is on the hydrogen supply options into the future and I guess there are two parts to it.
The first one is under what circumstances would you consider not with investment into the South corridor? And the second part is, how do you see the supply option between shipping hydrogen into Europe and the pipeline option that the transmission system operators have proposed?
In terms of projections on gas demand, I mean, let me rely first on the national update on the energy plan that was sent to Europe a few days ago. If we take the two scenarios that has been considered, the first one projects for 2030 gas consumption that is up to 67 bcm, that is with the current policies with whilst, the consumption expected for 2030 with -- that is compliant with the, let's say, CO2 reduction of 45%, 47% projects, 59 bcm of gas.
There is one thing we should consider in valuing these numbers is the fact that the underlying economic growth that has been assumed for these scenarios according to the guidelines from EU is about 0.3% on average per year for the country. That might be a bit conservative to certain extent that would be reflected on the, let's say, projection of consumption.
So to say, in general, the PNIEC is projecting something in a region of 60 bcm or with more, let's say, dynamic economy. We might have slightly more than 60 bcm of gas. Going forward toward 2040, that projection reduces the total gas demand in between 50 to 55 bcm. That is according to the government scenarios. I don't know if I got exactly your question on H2.
What I'd like to say that is the fact that, of course, deep projections and the development of the hydrogen corridors still need to have not only the financial support, but also the final approval of the market design that is part of the gas package that is under discussion at the European level.
So what we do expect by year-end is the final approval of the gas, the green gas package that we'll design to certain extent, the market and then, of course, will come the mechanism to, let's say, recognize a return on the investment of the hydrogen infrastructure, that is, of course, a key point for the investment decisions going forward.
There might be also in this scenario the opportunity of receiving, let's say, hydrogen through shipping, possibly through, let's say, through the tracking of the green ammonia is part of the scenarios we are starting. As you know, Italy has several industrial ports along the cost that might receive this kind of shipments. Of course, going forward, what we might have is a mix of the two solutions.
The next question is from Marcin Wojtal with Bank of America. Please go ahead.
A couple of questions. Firstly, if I can ask you about your Austrian associates. How much visibility do you have on these assets achieving a turnaround? And what is actually required to see earnings rebounding? Do you have visibility on auctions or perhaps can you enter into some longer-term contracts? And when would you expect earnings to improve in that part?
And secondly, can I ask you about your potential targets for M&A? I'm talking more about small and medium-size M&A. Previously, you said that you wouldn't rule out perhaps some transactions in Italy. It was reported in the price that you were looking at assets of Edison I believe in Italy. Is there any update on your M&A ambitions?
This is Luca, answering the first one and then I'll leave Stefano to comment on the second one. Basically, regarding TAG, clearly we have some visibility on booking up until 2027, but the assets as regulation, which currently is not supporting the vessel float that we've seen in 2022 then we are expecting to be there going forward given the geopolitical situation.
So we are conducting basically discussion with the regulator in order to change the way in which this asset is remunerated, the discussion started, we expect to have further visibility I would say and final decision by 2024 or the end of 2024 and to have basically a new type of regulation kicking in 2025 for TAG.
So that's what we're working on, but clearly the asset has to change the way it's remunerated given the radical change in flows that we have seen and we are expected to be there for the foreseeable future. And on the second one?
Yeah, with respect to the Edison to [indiscernible] the storage activity of Edison, we already expressed during the business plan presentation and several times afterwards about the fact that we are interested in looking at that asset. I have to be frank, honestly, the process has not started yet. We do expect it's going to start very soon, but not yet as a matter of fact. So we will follow that process and we will see how it will develop.
The next question is from Stefano Gamberini with Equita. Please go ahead.
Just few of them. First of all, regarding a picture of Italy in the future, according to Minister Pichetto, he plan to push to present for a new energy decree in September on energy situation and he underlining some interview that according to him, the LNG import of gas should be around 35 bcm, 40 bcm in order to be completely independent in the future from situation like the Russian one and he also referred to Algeria, which is now the main supplier of Italy.
So what do you -- could you comment about the statement and 35, 40 bcm means? I don't know how many new LNG and are you also ready to invest in this asset or not? The second regarding the update of load work on 2024, do you expect around 80 bps of increase in returns? And what is the scenario that you expect from '25 onwards considering the current situation.
And the third, according to your statement, you are interested also in some M&A activities on the other short-term interest rate scenario worsened a little bit compared to the presentation of your business plan. So could we expect also some asset rotation in the forthcoming months or year? Or you're still fine with the current situation of no disposal of asset rates?
Let me say first about the projections of LNG, I think with the completion of and the say the full operation of Ravenna, Italy will have a total LNG capacity in between 28 bcm, 29 bcm, okay? So with respect to the projections that the Minister of Energy mentioned of 35 bcm, 40 bcm, I not have clear at what tier he was referring to, okay?
And I think that means could be spice for further LNG capacity, for time being, we don't have projects for expanding that capacity, but it doesn't mean that other entrepreneurs might intend to develop these kind of assets.
I have also to say that as was mentioned during our presentation, I think we have also to see how the market sounding that will happen year-end will go with respect to the possible debottlenecking of the capacity of the TAP because as we know presently that asset is importing roughly 9 bcm of gas and there has been, let's say, first approval for a minimal expansion of 1.5, 1.3 and we have this sound of the market by the last quarter of the year to see if there is gas available for further imports and appetite from the market. Theoretically, this increase might pop up to the size 7, 10 bcm, but we will see what the market will turn.
Third, we have also to consider how the production of gas will evolve in the Libya according to the significant investments that Eni has planned to do on the offshore part of that country. So I think there are different pieces in the puzzle that will evolve in the next two to three years and will let us to understand what is going to be the balancing between the side sourcing through pipes and the sourcing through LNG.
About the third and I will leave Luca for the second. About the third I mean, we are sticking with a position we expressed during the Capital Market Day. We said that we will consider asset rotation in case of, let's say, M&A activity, the M&A activity for the time being is still and stand by, as I said, because the process has not started yet and therefore, we are sticking with that the site position we had few months ago. Luca?
Yeah, on the second one, the expectation according to how the variables has moved in terms of WACC, basically reset for 2024 is in the region of between 80 basis point and 90 basis point upwards, which is about 20 basis points higher than what we actually assume in our business plan.
And then going forward for the following years, clearly, a lot will depend on how the formula will be triggered down. But in the business plan, we had a reduction from the six from the 2024 increase by about 40 basis point. So that's the assumption for now clearly, when we have more visibility towards the end on the reset this year, there might be some visibility also for the following down in 2025.
Just a quick follow-up. So the 40 bps reduction is from your previous expectation, so this means around 60 bps reduction compare this increase of 80 bps in '24, am I wrong?
The reduction in the business plan from the reset in 2024 was 40 bps according to the mark-to-market the formula as of today the reduction could be even smaller in and around 30 bps.
Your next question is from Emanuele Oggioni with Kepler. Please go ahead.
My first question is on output based incentives. You collected €25 million in H1, if I'm not wrong. So my question is, what could be the full year contribution, so roughly €50 million, twice this amount collected in H1. This is first question. The second is on LNG vessel Golar Tundra. I wonder what is booked capacity for the coming years.
If you could provide us some color or more color details on that? And also as regards the capacity booked for OLT plant. And finally, the -- as regards to gas storage, you mentioned 87% of the capacity, I suppose that basically this means that all the next winter demand is already fully sold for gas storage, normal gas storage.
Let me start from the last. I mean, we are standing at this 87% fulfillment. We count to reach the 95% that was the same level we reached last year. The fact that means we're going to have roughly 12 bcm of cash of working capital plus the strategic reserve of €4.5 million. That is basically the level we had last year.
It's not enough to say, frankly speaking, that any problem for next year will be then sold because mainly will depend on how the winter is going to be. Of course, if the winter will be as mild as last year, I mean, we are -- we will not run significant risks. If it's going to be more colder, of course, depends on how much colder, that is one point.
Second, when we consider the possible risk profile for next year, we have to consider that you have two dimension to deal with. The first dimension is the total consumption over the winter. The second is the pick in demand in specific days when it's extremely -- the climate might be extremely colder.
And that is, of course, the more complicated part, especially if this cold days comes in February and March when the storages are half empty and the pressure you have in the storage is much lower than at the beginning of the winter.
The way you can, let's say, reduce down to 0 this kind of risk is to have even more flexibility on, let's say, the delivery points for receiving the gas and to that extent, the second floating vessel will play a significant role on the next scenario to secure the situation in the different winters.
In terms of out based, what we do expect is almost €100 million for the year. With respect -- with respect to the €50 million, €45 million we had last year, consider that the major change in this -- the major change in this performance will be -- will come from the fully amortized assets, the so-called asset health contribution that will over in between €40 million to €45 million.
With respect to the Golar Tundra, that was your second question, I can tell you, I mean, we have sold the capacity with the auctions from October, the 1st, that is the beginning of the thermal year. For the first year, we have sold 100% of the capacity, for the second and the third year, we have sold 95% of the capacity, so means that we have only two slots still available, well, from the fourth year to the tenth year means the following 17 years, we have already sold 87% of the capacity. So in other words, almost full of the capacity of that asset has been sold for the next 20 years.
And just complementing on OLT, 100% to 2027 is fully sold and 20% to 2029.
Gentlemen, there are no more questions registered at this time.
So thank you all and I wish you good vacation for those who have still to do them like we. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.