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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning to all of you, and thanks for being with us this morning. I am Xavier Barbaro, I'm the CEO of Neoen. I'm delighted to have this opportunity to present our annual results and to give you a detailed update on our progress so far, as we are halfway in our '21-'25 road map. It's been 4.5 years since Neoen went public, and two years since we unveiled our ambition for 2025 in our Capital Markets Day in March 2021. And as you will see this morning, our young company has grown up. It remains a dynamic as ever and we are well on track to reach our 2025 targets.
And we have all the reasons to be ambitious. The renewable industry is thriving. It responds to a threefold urgency, environmental, economic and strategic, which means that there are major opportunities for a pure player like Neoen to differentiate itself. We will continue to develop and deliver competitive value-added projects which will translate into ambitious, profitable and sustainable growth.
We have built our strong expertise in the markets and areas we are targeting. Our goal is to leverage this expertise and to accelerate our growth in these countries. We have become a company that is today more than the sum of its parts by further combining our power plants, solar and wind with our storage assets and using our unique expertise in energy management to catalyze this potential.
Our model has always been based on a thorough and disciplined approach, both from an operational and financial perspective, and as well from an ESG perspective. As we look forward, our growth will continue to be based on that same discipline with strict criteria in place, and with the ambition to create value for our shareholders and all our stakeholders. We will do so with audacity, integrity, commitment and [indiscernible], which remain the core values of Neoen.
I would now like to say a few words about how the morning will be structured. Louis-Mathieu Perrin, our CFO, will first present our 2022 full year results. The strong increase in revenue and EBITDA that we achieved in '22 is further evidence of our gross profile. I think one over 1.3 gigawatts of new projects, we have proved once again both our competitiveness and our ability to design innovative solutions. And then there will be a first 20-minuteQ&A session after Louis-Mathieu's presentation. This will be followed by a short break, and we will resume the presentations at around 10:05 to update you on our 2025 road map.
I will start with a short overview of the renewable energy markets and how we -- our sector looks even brighter than before. And we will then look at the achievements of the business over the past two years. I will comment on the high growth that we have delivered since 2021, together with Romain Desrousseaux, our Deputy CEO; and Louis de Sambucy, our Managing Director for Australia. Romain and Louis will then give you more color on what we have achieved in terms of storage and explain how batteries are the cornerstone of our strategy and services.
Jean-Christophe Cheylus, our Head of Energy Management, will give us a deep dive of how energy management works at Neoen and explain why it is another strong differentiating factor for our company. Norbert Thouvenot, our COO, will then detail our disciplined approach to procurement and how we execute projects from a construction and operations standpoint. Louis-Mathieu will talk about our financial discipline, and I will outline how Neoen creates both short-term and long-term value. And last but not least, Virginie Moyrand, our Head of CSR, will explain why Neoen is also performing strongly from a CSR perspective. I will then take the floor with Louis-Mathieu to confirm our 2025 road map and outlook and share our vision for 2030. We'll then wrap up with a final Q&A session.
So without further ado, let me now hand over to Louis-Mathieu for the 2022 results.
Thank you very much, Xavier. I will start with a broad overview of 2022 and the key highlights that you can have on this slide. So we continue to show growth, both in terms of capacity and in terms of financial performance. If we start with capacity, we reached 6.6 gigawatts of assets in operation or under construction, meaning that we are already two-thirds of the way towards our 2025 target of 10 gigawatts.
On top of that, we added more than 1.3 gigawatt of capacity to our secured portfolio, which stood at 7.4 gigawatts at the end of 2022. As for key operational and financial indicators, we generated close to six terawatt hour of electricity during the year, which is an increase of 21% year-on-year. Revenue reached €503 million, up 51% year-on-year. Adjusted EBITDA reached €414 million, up 38% year-on-year, and adjusted net income reached €48 million, up 19% year-on-year, and I will come back on these elements in more detail in the course of the presentation.
As I said, full year 2022 revenue was up 51%, and we had a particularly strong Q4 with revenue growth reaching 63% versus Q4 2021. 2022 adjusted EBITDA was up 38% to €414 million or three operating segments, solar, wind and storage, contributing to this strong growth, while the contribution from our formal activity was lower than in 2021. Our capacity in operation or under construction came to 6.6 gigawatts at the end of December 2022, which represents a 21% increase versus the end of 2021.
If we now move to slide number 11, you will have a quick overview of the dynamics within our secured portfolio. We have secured more than 1.3 gigawatts in newly awarded project in 2022, and I will come back on this shortly. In the meantime, we launched construction of 1.1 gigawatts, of which one gigawatt in Q4 2022, including notably Rio Maior and Torre Bela in Portugal for a total of 272-megawatt peak, Fox Coulee 93-megawatt peak, our first asset in Canada, Western Downs storage and Blyth Battery in Australia, 200-megawatt, 400-megawatt hour each and Storen Power Reserve -- 40 megawatts, 40-megawatt hour or first battery in Sweden. We also added 571 megawatts of capacity in operation during the year with the commissioning of 557 megawatts and the acquisition of three wind farms in France for a total of 14 megawatts.
On top of that, some farms are still under construction, already started to inject electricity into the grid, including notably Western Downs Storage, 460-megawatt peak and Kaban 157-megawatt in Australia. At the end of December 2022, Neoen had almost 4.1 gigawatts in operation and should reach at least 4.5 gigawatts during the first semester of 2023.
If we move to the next slide, do you want to take this one?
Maybe I can take this one. So we continue to expand our secure portfolio adding 1,340 megawatts in 2022 in Australia, France, Sweden, Finland, Canada and Ireland. This includes 1,015 megawatts in Q4 2022 only. In detail, the Q4 additions include in France, 180 megawatts in the latest technology neutral competitive tender held by the French government. Still in France, we signed a PPA for 62 megawatts with TDF on two French solar farms. This is Neoen's first corporate PPA in France. And in addition, we acquired three French wind farms totaling 14 megawatts.
In Sweden, we signed a 90-megawatt corporate PPA with H&M on the Hultsfred Solar project. And we launched the construction of the 40-megawatt Storen power reserve, which is Neoen's first battery in the country.
In Finland, we added 60 megawatts with the Storbotet wind farm, out of which at least 57 megawatts have been contracted with Equinix. This is the third PPA signed with Equinix by Neoen. In Canada, we launched the construction of the 93 megawatts Fox Coulée solar farm, which is Neoen's first assets in Canada.
Finally in Australia, we signed a 215 megawatt PPA with Stanwell for the demand of full wind farm in Queensland. We added 200 megawatts with the Western Downs battery in Australia, the construction of which has already been launched. And we added under 200 megawatts with Blyth battery in Australia, which is also already under construction. So a very active quarter for Neoen.
As you can see on slide 13 a bit more detail about the already mentioned 180-megawatt that we went through the latest French public tender. The breakdown of those 180 megawatts was between two solar farms of 23 and 19 megawatt peaks and nine wind farms for a total capacity of 138 megawatts. Overall, 45 megawatts entered into our secure portfolio, nine megawatts were already concerned as awarded and another 126 megawatts corresponding to eight of the nine wind farms are not recorded in our secured portfolio yet because they are still subject to a fields even though they have already received all of their permits. And this new success brings the project won by Neoen in French government tenders in 2022 to a total of 272.5 megawatts.
If we now turn to slide number 14. Neoen signed seven corporate PPAs in the last quarter of 2022 for total capacity exceeding 530 megawatts. And as you can see these PPAs are spread in four different countries. They cover solar wind and storage assets. And they include in particular our first baseload contract, 70-megawatt PPA with BHP in Australia mining company. And we will provide energy 24/7 by integrating output from our Goyder South wind farm and storage from our Blyth Battery, while also using our energy management expertise.
As you can see on slide number 15, Neoen launched the construction of three batteries for accumulated capacity of 440 megawatts in December 2022. Western Downs Battery and Blyth battery will be our fourth and fifth large-scale batteries in Australia. Both batteries will have a capacity of 200 megawatts and a storage duration of two hours, allowing us to provide more services per installed megawatt and both batteries will be equipped with grid-forming inverter technology.
Western Downs Battery is located next to our 460-megawatt Western Downs solar farm, which is now let's say Western Downs Green Power Hub. It will deliver a range of essential services to the grid. And Blyth battery will be mainly deployed to firm wind energy from our wind farm Goyder South Stage 1. As such, it will contribute to deliver the 70-megawatt renewable energy baseload contract that we have signed with BHP.
In Sweden, the construction of the 40 megawatts Storen Power Reserve was also launched in December. It will provide ancillary services to stabilize the Swedish grid and it is our second asset in construction in Sweden, which is a new country for Neoen in 2022.
And maybe let me now give you more details on the commissioning of 2022. On the next slide, this is slide 16. We added 571 megawatts of assets in operation in 2022 in France in El Salvador and in Finland. And notably, we added 462 megawatts in Q4. Mutkalampi in Finland for 404 megawatts, two French wind farms with a total capacity of 31 megawatts, one battery in France for eight megawatts, one solar farm in France for five megawatts, and also we acquired three French wind farms for a total capacity of 14 megawatts.
And I now hand over to Louis-Mathieu to comment on our operational data and results.
Thank you very much, Xavier. So let's start with the electricity generation. We generated close to six terawatt hour in 2022. The average solar availability rate was down to 86%, which is due specifically to technical difficulties that we encountered at the El Llano solar farm in Mexico. Production was stopped all along Q3 2022 and the plant operated at limited capacity in Q4. This situation will last until the replacement of its transformer, which is scheduled by the end of Q2. 2023. Excluding the solar farm solar availability rates stood at 99% in 2022.
The average wind availability rate was stable at 97%. And if we turn to load factors, the average load factor of solar assets slightly decreased to 19.1% compared to 19.6% in 2021. On the one hand, we had the positive contribution from Altiplano in Argentina, which has been commissioned late 2021. And I remind you that the Altiplano solar farm has a higher load factors and the average of our assets in operation. On the other hand, we had low irradiation conditions in Australia over the period.
Regarding the average load factor wind assets, it decreased to 28.5% compared to 30.5% in 2021 because of unfavorable wind resources in Europe over the last quarter of 2022 and also at one wind farm in Australia throughout the year.
If we turn to revenue, we achieved €503 million in revenue in 2022, which is a 51% increase year-on-year. This increase was largely driven by assets commissioned in 2021 and in 2022 including notably the early generation revenue recorded during the year, mainly in Finland in the context of very high merchant prices in Europe.
As for the assets, which were already in operation at the end of 2021 – 2020, sorry, the overall price effect was positive, amounting to €21.5 million and reflecting a combination of higher market prices in Australia and Europe in 2022 versus the year before. Higher price for the Bulgana wind farm as you remember, the PPA of this wind farm started in December of 2021. But prior to this the plant was selling electricity on the market at prices, which in 2021 were lower than the PPA price, which applied all along 2022.
Coming back again on this asset, which were operational at the end of 2020, the volume effect was overall insignificant. And as for the storage revenue, it increased by close to €19 million benefiting from the strong performance of Hornsdale Power Reserve in Australia and the Yllikkälä battery in Finland both in the volatile market environment.
As you can see, the decrease in revenue linked to last of farm-down transaction was pretty limited. And finally, we had a positive ForEx impact in 2022. At constant FX rates, revenue was up 46%.
Here, I would like to remember you that we already reported our interim results using adjusted numbers at EBITDA, EBIT and net result level. But before commenting our 2022 results, I'd like to come back on the rationale for adjusting our key performance indicators. As you know within our secured portfolio, we have entered into medium and long-term power purchase agreements, with commercial counter parties known as corporate PPAs, which we call CPPAs. Some of these CPPAs qualify, as derivative financial instruments according to IFRS 9 and have to be fair valued.
Given the forthcoming entry into force of several financial CPPAs, related to Mutkalampi and Western Downs, which have both started producing electricity during the year. We recognized in 2022, the change in fair value of energy derivatives associated with these contracts in our P&L, in the line of the current operating income.
In 2021, no fair value of energy derivatives were recognized in icons as Mutkalampi and Western Down, were not producing electricity at that time. Given its interesting volatility, which is fully beyond our control and is of course noncash. And in accordance with market practices, we have decided to adjust our financial communication EBITDA EBIT and net results for the change in fair value of energy derivatives.
In 2022, the change in fair value of energy derivatives, amounted to a positive impact of €2.8 million more than offset at net result level, by a corresponding negative tax effect of minus €5.1 million, which comes from the difference in tax rate between Finland, where changing fair value with negative in Australia, where change in fair value was positive. Consequently, as we could anticipate not forecast any change in fair value of energy derivatives in our EBITDA guidance for the reasons, I just explained. We have been adopting and communicating on an adjusted EBITDA basis, since the publication of our H1 results. And so our guidance is in Adjusted EBITDA.
If we come back to the presentation and comment on the adjusted EBITDA, it was up 38% year-on-year to €414 million. The driver for this increase, are the following. First of all, the contribution from asset commissioned in 2021, mainly in Australia and in Argentina, also from assets which started injecting electricity to the grid in 2022 in Finland, and to a lesser extent in France.
Secondly, the liquidity damages which we recognized in 2022 mainly in Australia, then the strong performance of Hornsdale Power Reserve in Australia, and to a lesser extent the Yllikkälä battery in Finland. These positive items, were partly offset by the lower contribution from El Llano in Mexico in 2022. I will come back on this later on. And by the lower contribution from farm-down capital gains compared to 2021.
As you remember, we sold -- last year in 2021, we sold four solar farms and two wind farms for a total capital gain of €50 million. Whereas in 2022, we sold one wind farm for a capital gain of €16.4 million and we just disposed early 2023 the Cabrela solar farm in Portugal.
If we now look at the breakdown of our performance by segment, starting with solar. Solar revenue increased by 20% and adjusted EBITDA was up 32% at €181.6 million. This is due to a strong contribution from Asset commission in 2021, essentially in Argentina with Altiplano and to a lesser extent in France, in 2021 and also in 2022. We also benefited from the early generation revenue in Australia and in Ireland 2022.
We also had the recognition of liquidity damages in Australia, as a consequence of delays in construction, but this positive were partly offset by on the one hand the lower contribution from El Llano which is due to a combination of two factors. First of all, a high comparison basis last year. As you may remember, the PPA started as of first of July 2021 versus end of June 2020 initially expected, with electricity value-added market price of this period.
And secondly, again for El Llano the production was stopped during the whole Q3 2022 and remained limited in Q4 2022 because of technical difficulties. The other negative is also the impact from the disposal of four solar farms in France, in H2 2021, which implied no contribution from these farms in 2022.
Turning to wind. Revenue was up 60% and adjusted EBITDA increased by 70%. This is due to the early generation revenue from Mutkalampi in H2, 2022 and to a lesser extent from French assets, also during the year in the context of high merchant prices. We also enjoy higher market prices, which were captured in French in H2 and in Australia and in Ireland, all over the year by wind farms having the merchant exposure.
And also we benefited from the higher contribution from Bulgana compared to last year. In addition, to the already flagged higher average selling price. We also had a higher output from the plant, which was already injecting electricity to the grid in 2021. It was only generating at around 70% of its capacity in Q4 2021. And finally, we benefited from a partial exemption of penalties historically recognized under a PPA in Australia.
Turning to storage. Its revenue almost tripled and its adjusted EBITDA more than doubled. We benefited from the contribution of the VBB, which was commissioned in December 2021. In Q1 2022, which regarded the seasonal revenue earned from a capacity reserve contract with the Australian regulator, which is into force during the Australian summer.
On the last three quarters of 2022, the battery has also actively supported the grid in a volatile environment. The revenue and the EBITDA growth of the storage segment were also supported by the very good performance of HPR in Australia and Yllikkälä in Finland, which expanded its sales of network services to several markets in 2022. Overall, both batteries benefited from favorable local market conditions.
Here you have the breakdown of our solar and wind revenue between merchant and contracted. The merchant proportion of community generation revenue, meaning solar and wind, reached 24% in 2022 compared to 16% in 2021, which was driven by early generation revenue in Finland, Australia, France in the context of higher market prices.
If we look at the details of our P&L, and we focus on below adjusted EBITDA items, adjusted EBIT was up 37%, which is a direct consequence of the increase in adjusted EBITDA. Depreciation, amortization and provision increased in line with the growth in the volume of assets in operation and to a lesser extent as a consequence of the limited ForEx impact.
Moving to the noncurrent item. In 2022, we booked €19.9 million impairment loss on Metoro solar plant in Mozambique. The local security situation suddenly deteriorated in June 2022, and we had to suspend the construction of the solar farm with no visibility on the timing when a construction operation will be able to resume.
Our financial cost of debt increased by 27%, which is a direct consequence essentially of the growth of the number of assets in operation, but also a slight increase in the group average cost of project finance debt bps on average between end of 2021 and end of 2022. And it was despite the positive impact of the progressive repayment of historical project finance debts.
Looking at other financial income and expenses, they increased in line with the growth in assets in operation and also as a consequence of a higher negative ForEx impact, notably in Argentina, on the part of our exposure, which is non-dollarized.
Effective adjusted tax rate was up, reaching 36% versus 25% in 2021. I will come back to this in more detail on the next slide to explain the rationale. And as for adjusted net income group share, it's amounted to €48 million versus €40.2 million last year consolidated net income including the impact of the fair value of the energy derivative financial instrument net of tax amounted to €45.7 million and is presented in the appendix to this presentation.
In details looking at our adjusted effective tax rate, it was impacted first of all by the lower contribution from farm-down in 2022 compared to 2021. As you may remember farm-down in France generally benefit from the long-term capital gain tax regime. Last year, it represented a minus 19% impact on our effective tax rate.
Second effect in 2022 the tax rate was also impacted by the non-recognition of deferred tax assets for obvious reasons on Metoro's impairments. And those two effects were partly offset by lower hyperinflation impact in LatAm where we have not stayed inactive. Also it is worth reiterating that the large past of the hyperinflation impact is beyond our control. If you strip out the Metoro impact, as you can see on the chart, our adjusted tax rate would have been much closer to a theoretical tax rate at around 29% versus 25%.
If we turn to our cash flow generation and start with the cash flow from operation, it amounted to €457 million in 2022, which is €181 million increase compared to last year. It was largely driven by the increase in adjusted EBITDA. We also had a punctual positive effect of €90 million on working capital.
As you may know most of our plants benefiting from CRE tariffs in France sells electricity on the market the difference between market prices and the tariffs being covered by EDF OA.
When this regulatory scheme was implemented, no one has anticipated that prices may be as high as in 2022 is that renewable facilities would benefit from market prices higher than the CRE tariffs putting us in a position of debt towards EDF OA. This cash will be paid back in 2023 according to applicable regulation. We are just awaiting attraction from EDF OA on the applicable repayment scheme, which we should get shortly.
Turning to cash flow used in investing activity, they reached slightly more than €1 billion, €1.1 billion exactly as we continue to invest over the period notably in Kaban, Western Downs, Goyder, the VBB, and Capital Battery in Australia, as well as Mutkalampi and Bjorkliden in Finland, Rio Maior in Portugal, Storbrännkullen in Sweden and several solar wind and storage assets in France.
In the meantime, net cash flow from financing activity reached €681 million, mainly reflecting a net increase in project finance borrowing and the issuance of a green convertible bond in Q3 2022 for a nominal amount of €300 million. As a result, our group's cash balance reached €623 million at the end of December 2022 versus €593 million at the end of 2021.
Looking at our gross debt, it totaled €3.5 billion at the end of December 2022, up €556 million versus end of the year 2021. The net increase in borrowings which is the difference between issuance and impairment amounts to €753 million and is mainly due to additional project finance raised with the construction of new assets and the issuance of the third convertible bond for a €300 million nominal amount and it was the second in a great format.
We also had the conversion into equity of the convertible bond issued in 2019, which partly compensated the increase together with the change in fair value of derivatives in a liability position which is derived from an increase in forward interest rates in a country where Neoen is active. All interest rates derivatives were in an asset position at end of December 2022.
The average cost of project finance debt for assets in operation is up at 4% versus 3.7% at the end of 2021. This is due to the commissioning of Mutkalampi later in 2022 and to a higher interest rate environment worldwide in 2022 and affected the unhedged portion of project finance. Even so, this portion remains limited as you all know with more than 75% of our floating interest rate exposure on project debt, which is swapped.
Overall, the group average cost of debt increased slightly at 3.8% versus 3.5% at around 2021 and we continue to have more than 80% of our debt which is non-recourse with long average tenure.
Focusing on net debt on slide 30. Excluding positive nonrecurring items, it went up by €626 million to €2.9 billion. The positive non-recurring items include €90 million of cash mentioned earlier, which will be paid back to EDF OA according to applicable regulation as already explained and so slightly more than €300 million of positive fair value of interest rates derivative, which is directly linked to a significant increase in fair value interest rates in 2022.
Net debt excluding positive non-recurring items to adjusted EBITDA ratio decreased to 6.9 times as a consequence of a more rapid increase in our adjusted EBITDA. If we were to include these two temporary elements, net debt and leverage ratio would stand respectively at €2.5 billion and six times as of December 31, 2022.
Besides, we continue to stick to a very strict financial discipline. We have project finance debt on assets in operation showing long tenure of 15.9 years on average. And our debt remains [Indiscernible] in the same currencies as the cash flow of our underlying PPA contracts providing form of natural hedge, something we do not intend to change in the future.
And I now hand over floor back to Xavier for the rest of this presentation.
Thank you, Louis-Mathieu. On slide 28 -- 32 sorry, we give you the latest situation of 2.5 gigawatt of assets under construction at the end of 2022. As we said earlier, out of those 2.5 gigawatts under construction, almost 700 megawatts are already producing and selling electricity in the market at the end of December 2022. And as usual this map shows our current best estimates of expected CODs.
So, let's go quickly through our main projects. In Australia, we still have six plants under construction that are running according to schedule. The COD of our large solar farm, Western Downs is expected in H1 2023 and please note that injection into the grid has started.
We launched the construction of Western Downs storage and Blyth Battery in December 2022 with COD is expected respectively in H2 2024 and 2025. Other Australian projects include the Kaban wind farm and the Capital Battery in Canberra due to be commissioned in 2023, as well as the Goyder South Stage 1 wind farm due to be commissioned in 2024. Please note that Kaban has already started to inject into the grid.
In Finland, the construction of the Björkliden wind farm is ongoing. It's COD is still expected in Q1 2024. And in Sweden the construction of the Storbrännkullen wind farm is progressing well and COD is still expected at the end of 2023.
Also in Sweden we launched the construction in December 2022 of the Storen Power Reserve, our first battery in the country with COD is expected in 2024. In Ireland, our three solar farm projects started injecting electricity into the grid and CODs are now expected in H1 2023.
In Portugal, we launched the construction in December 2022 of Rio Maior 150 and Torre Bela with CODs are expected in H1 2024. In Canada, we launched the construction of Fox Coulee, our first assets in the country which COD is expected in H1 2024. And finally in France, we currently have 320 megawatts of solar capacity and 64 megawatts of wind capacity and eight megawatts of storage capacity under construction. Those projects would be commissioned between 2023 and 2024.
Last regarding the Metoro solar project in Mozambique the situation has not changed since our last call in November. The construction work remains suspended for an indefinite period of time.
If you turn now to slide number 33. For the second consecutive year, the Board of Directors will propose to the Shareholders' General Meeting a dividend. It will amount to €0.125 per share representing a 25% increase compared to 2021. The dividend will be payable on June 8, 2023 and shareholders will be given the choice of receiving its 100% in cash or 100% in shares.
Please note that Impala our main shareholder has already indicated its intention to opt for the scrip dividend. Beyond 2023, the group intends to continue increasing progressively and regularly its dividend.
This ends our opening remarks on our full year 2022 results. We've been very happy to share with you some detailed information about our good set of numbers. And as you have seen Neoen continues to grow its EBITDA and its portfolio year-after-year.
Thank you for your attention and we are now open to questions.
[Operator Instructions] We'll take our first question from Vincent Ayral. Please go ahead. Your line is open.
Yes. Can you hear me?
Yes.
Yes.
Okay. Good morning. Good morning, everyone. Thank you for the presentation. I would have -- I'll stick to two make on that if there is more space later. Two questions. One is related to merchant exposure and the short-term guidance 2023. I have to say, I've been a bit disappointed there. Basically you have some significant merchant exposure. You had it in 2022. I know commodity price laid down, but still -- and the French government is offering 18 months merchant exposure for capacity to be commissioned before end of 2024. So I'd be interested in understanding a bit how you set your guidance how much you allocated to this potential upside and get a bit more color on it.
So last time we talked about this specific topic the nine months, we didn't know if it was to be subject to a cap on renewables or not the information you gave at the time that was that the draft was not envisaging any cap. So I'll be interested the first question is this basically 2023 guidance merchant exposure and more of the drill down on the 18 months break or postponement of EDF OA in France. That would be my question number one.
Question number two, when we look at the 2025 guidance, it's fairly materially below consensus. Yet we have more capital, CapEx to get there and centime equity at €750 million. So you give us a bit of color on basically the evolution there because you say that the return remained the same. I think, I saw that on the press release, but we're spending more money. Potentially, it should be a higher revenue line and EBITDA to compensate for this higher CapEx yet the 2025 guidance is lower than the consensus expected. So it would be interesting for us to understand exactly what is the equation there and whatever color you can provide would be useful? Thank you.
Thank you, Vincent. Louis-Mathieu maybe you can take the first one and I'll take the second one?
Yes. So on the merchant exposure, I just remind you that we have been very clear on what we will accept. So in terms of capacity it's 20% of solar and wind capacity excluding storage. If we look at where we will have exposure this year you have of course France and I will come back to this.
You have Finland for the beginning of the year and you have Australia where we have a number of assets which will benefit either from merchant sales or early generation revenue. If you look at prices they all went down compared to the end of Q3 and Q4 sometimes in a significant manner. And I also remind you that we don't get fully the forward price. What we get is the price multiplied by the ratio base load to capture. And this ratio base load to capture is not 100%. And the higher the price of electricity, the lower the ratio base load to capture it's today around 60% to 70%. So the guidance that we built, of course, we took into consideration the recent decrease in prices even if prices remain higher than their long-term average.
Coming back specifically to France, the cap will only apply two plants, which were already in operation and at the merchant exposure. The new construction built and the new assets entering into operation starting early September 2022 will benefit from 18 months of merchant prices without any cap. But still, when you look at prices today, they are below the cap €180 million. And on top of it you have to apply what I explain the baseload to capture ratio, which is not more a percent.
All this is flagged into our guidance. I know that there has been a bit of excitement around where prices were at the end of Q3, but really look at the trailing prices it has changed even if it's still higher than in the past it's lower than where it was in Q3, which of course explains the difference compared to some estimates. So I hope it answered your question.
And on the -- on your second question, Vincent. So if we go back to what we said at the last Capital Markets Day in March 2021, we said that we would reach 10 gigawatts at the end of 2025 in operation or under construction. We raised €600 million in 2021 for the first half of this investment plan.
We -- so just today that we actually only need another €600 million to fulfill this initial plan, despite the increase in CapEx, which means that we have been able to absorb -- that we will be able to absorb the increase in CapEx with non-equity financing and that's something that we can do through project debt, through corporate debt, through farm-downs. And as you know, there has been a steep increase in CapEx for Solar, for wind it's also true for storage. So the good news is that, despite this increase in CapEx, we can fulfill the 2021 business plan with just another €600 million.
The €150 million that we want to add to that relates to additional capacity on top of what we had presented in 2021. So it's for storage. It's the same, let's say, power capacity, but it's twice the energy storage capacity. So there will be the same output in terms of megawatt, but there will be twice as many megawatt hours per battery, meaning that we will be able to offer more valuable services.
And as you pointed out, it does not translate immediately in a much higher EBITDA guidance or consensus for 2025, because, of course, construction takes time and it's something that usually happens and that usually materializes one or two years down the road. So if we start building longer duration batteries in 2023, 2024, 2025 the financial impact is not happening, obviously, in the exact same time frame.
But we are -- I would tend not to agree with you on the, let's say, disappointing dimension of our numbers on the contrary. We believe that we are doing a good job at managing the CapEx increase through non-equity tools.
And that's again the good news, is that, we are able to stay in line with what we said in 2021 for those 10 gigawatts. And the additional equity needs actually relates to additional investments that we believe are, especially, value creative, even if it will not show in the next couple of years, because again construction takes time, even for storage.
Okay. Thank you, very much. It's extremely clear, actually. So you're saying additional CapEx is for additional capacity, which does not reflect in the 10 gigawatt, because it's a battery and the additional EBITDA will materialize post 2025, as I understand.
It will start fully to materialize in 2025, but again, there is always a lag one, two, three years depending on the -- of course, the pace of investment that we are going to have.
Yes. Okay. I would have expected some to show for the 2025 guidance, but okay point taken. And on the merchant exposure, just coming back, I understand that pulp price has come down, but there is still upside from this merchant exposure, especially, on the French 18 months. How much has been baked in the guidance that could be useful for us to basically understand a bit how the numbers are built?
I won't disclose any specific figures. But during the Q3 conference call, Xavier flagged the number of megawatts of French project, which would be benefiting from this exposure to merchant prices. And so, there will be spread over the next 24 months. So it will be gradual. So you will have an upside in 2023, of course, but you should also have a benefit in 2024.
Apart from France, the merchant exposure that you have is really in Finland for part of the year, because Mutkalampi will have this PPA starting in Q2 and Q3. And also in Australia, we have some assets which are in commissioning phase at the moment and which would benefit from such an exposure.
I come back to what I gave you as an indication, Vincent. This 20% is really the cornerstone of our commercial behavior and so, we'll stick to that. So you should expect not more than that in terms of exposure, overall, if we strip out storage in 2023.
Okay. Thank you, very much.
Welcome.
Thank you. We will move on to our next participant, Henry Tarr from Berenberg. Please, go ahead. Your line is open.
Hi, there. And thanks for taking my questions. I guess, the first one would just be around CapEx expectations for this year. And I know on the capital raise timing is going to be reliant on markets et cetera, et cetera, but is there sort of a time by which you would like to get that capital in?
And then, secondly, if I could just ask sort of more broadly on whether you're actually seeing changes to the environment, particularly in Europe for building new capacity and actually accelerating, permitting and some of the other blockages that we've seen through the last few years? Thank you.
Thank you for those questions. Maybe, a quick answer on the first one. We had said in 2021 that we would do a second capital increase in 2023, that's obviously going to happen. The cash position of the company is quite robust. So there is no urgency on our side. We will take the best possible window of opportunity.
So there is again no pressure on this one. And let me highlight again that the capital increase or the new equity needs that we are presenting this morning are the -- I mean, €600 million to fulfill the initial business plan.
And again, we have managed to control the CapEx increase through other non-equity tools and an additional €150 million for additional storage, which we believe is a very compelling opportunity. But, again, no pressure on our side. Cash position of the company is quite strong and it will still happen in 2023. But there is no pressure on this one.
And on the second one, yes, in Europe, we do believe that, it's time to accelerate and that Neoen is well positioned for that. Of course, there are some different realities from one country to the other. In France, the permitting process is and will remain complex. At the same time, you could argue that, it plays in the favor of players like Neoen that are well established versus newcomers. But we do see some acceleration in for example in Finland, especially after the disconnection with Russia, there was one gigawatt of electrical connection between Russia and Finland, which is not operating anymore.
So there is a need for green electricity. That's no news. The carbonation is of course, a central theme in Europe. There is a need for cheap electricity. Especially, to regain some industrial competitiveness across the continent and there is a need for domestic electricity.
Of course that relates to what's happening in Ukraine. We do see some great potential in the countries, where we are already operating France, Finland, Sweden, Ireland, Portugal. We have started in Italy at the end of 2021. We are starting in Germany this year, with a specific focus on storage. We do think that Neoen will be in a great position to take advantage of those strong trends in Europe, and we'll get back to this in more detail in the second half of this presentation.
Great. Thanks very much. If I could just ask one more. Just on – in terms of returns how do you think about the storage investments versus new renewables projects? Are you targeting, the same level of returns? And do you have the sort of same confidence on delivering those returns? How do you stack up the economics of storage versus renewable?
We have always said that, we had the same target returns for storage. So that's typically 7.5% equity return in France, 8.5% in Australia and other OECD countries – sorry, France and Europe 7.5%, Australia and other OECD Canada and the like 8.5% and non-OECD 10%-plus. What we have observed in the past is that storage could be much more valuable than that. We are not making it a guidance. We are not making it a target. We wanted to be cautious on this one because it's a little bit new for – even for Neoen. We started in 2015, but we are still let's say learning and gaining speed and storage.
But what we have observed and that's true in Australia and that's public information is that those assets have proven to be extremely valuable not only for us, but also for our customers and it's probably the main point. We have generated huge savings for our customers meaning that in return they have asked more from us meaning that in return we have been able to get more profitability than what we initially thought. So yes storage is a great option. There is some volatility. What we want to have at Neoen is at least, let's say, robust floor IRRs.
I want to make sure that we invest in storage units with at least a robust floor. And for the rest, there is no ceiling that this was something that we have observed in Australia. One thing to keep in mind is that, those assets because of the let's say volatility in cash flows are how to finance with the project debt. So it's the reason why it means more equity. But again, that's good equity at work.
That's great. Thanks very much, guys.
Thank you. We'll move on to our next participant Naisheng Cui from Barclays. Please go ahead. Your line is open.
Thank you. Good morning. Thanks for taking my question. I’ve three, if that's okay. The first one is just thinking about CapEx and equity requirement both increase. Could you please explain to me what's the rationale of increased dividend, please? And the second question is on Storage EBITDA margin. I just realized 2022 margin decreased to about 74% from 88% last year. What's the reason for that? That's the third one very quickly. I think, there's a few acquisition made in France for a few offshore assets. Just I want to understand, a bit of color on that. Why do you think you will make more acquisitions in the future? Thank you.
Thank you, Nash, for your questions. Maybe I can take one and three, and Louis-Mathieu you can take the second one. On the dividend, we said at the time of the IPO of Neoen in 2018 that, we would have a first dividend based on your 2021 and paid in 2022 and that's something that we would keep. So we wanted to stay true to our word. Cash – in terms of cash it's negligible, I would say, because 80% last year of our dividends were actually paid in shares. So the cash impact is just literally a few million euros.
So it's not incompatible with raising new equity. I mean there is no paradox there. We believe that, it's a good practice for a company like us to start paying dividends. Hopefully, that is something that will be valued by some of our shareholders. I mean, we heard last year from some investors that they were super happy that we started paying this dividend because they could only invest in companies paying dividends. That is not something that we had in mind but it was good news for us. So we do believe that, it's a good policy in terms of cash. It's again just a few million euros. So there is no paradox there. Louis-Mathieu mention maybe on the –
The answer is extremely simple. We are in an environment where prices for electricity are very high. So the charging cost for the battery, are much higher than the year before. So if you do the calculation for a same amount of margin. You -- of course, we have more volumes thanks to the EBITDA. But the unitary margin did not change that much. And of course as the charging cost is higher of course if you divide the margin by charges cost you have an EBITDA margin which goes down. It's quite mechanical.
And on your third question Nash on acquisitions. We said in 2021 that, Neoen would stay true to its model, which is to grow organically. And if you look at the past couple of years 99% of our growth was organic. We sometimes acquire let's say permits or land rights just to gain some time but we always do let's say the core of the job which is to finalize permits grid connections structured the investment and financing obtaining a PPA, et cetera, monitor construction and operations.
We said in 2021 that we would still be open to acquisitions, two potential types of acquisitions. One is distressed assets, something that we haven't done by the way, at least in the past couple of years that's something that we did almost a decade ago when we acquired PVO [ph] and Juwi in France.
We also said that we would be open to acquiring old assets in order to reveal the recurring opportunity that is embedded in those assets. That's something that we have done in Ireland, in France. And that's something that we have done in particular in 2022 when we acquired three wind farms for a total of 14, 1-4 megawatts.
So, fairly limited investments. Those wind farms are located in Brittany, good winds olden turbines that we plan to replace at some point. So we do believe in the potential upside that there can be in acquiring all assets that we can repower and potentially -- which we can potentially increase the size.
Again, that's not an important part of our budget, typically 1% to 3% of our investments. That is something that we may scale a little bit in the future, if we believe that there is a good angle for us, especially in Europe where there are many old wind farms, but if not 1% or 2% that may be 3% or 4% or 5%, I don't know. But please keep in mind that the growth of Neoen is first and foremost organic.
Very clear. Thank you very much.
Thank you. We'll take the questions remaining on the next part. Thank you.
Okay. We will have again another set of Q&A at the end of our second half of this presentation and that can include as well financial questions. So please keep with us. We'll have a five-minute break and then we'll be back to talk about strategy outlook and do a deep dive on storage and energy management. Thank you very much. We'll be back in five minutes.
Thank you.
[Break]
Thanks, again for being with us. The second part of this presentation this morning is about the update on the 2025 road map that we had released in March 2021. And starting with the outlook for renewables, what we can see here is that the demand for electricity obviously is surging. That relates to two things. I mean global growth with population growth higher standards of living. That means basically more fridges, more lightbulbs more TVs. And that also relates to the replacements of thermal power by electricity typically vehicles, green hydrogen. So strong growth. And of course, renewables will take the lion's share of this growth.
And for let's say a good set of intrinsic reasons, renewables of course help with decarbonation. They are cost competitive. They are local and energy sovereignty, especially in Europe at the moment is a key theme. They are reliable, thanks to storage the combination of solar wind hydro storage is especially strong and reliable. And of course they are the fastest to market. It takes 10 to 15 years to build a new nuclear reactor. It only takes one year to build the equivalent capacity with renewables.
If we look in particular at solar and wind, especially in new and core regions, we see the same growth in Europe, in Australia, in the Americas. There is – there are some variations obviously but the trend is especially impressive. And on top of the volumes we can also look at the prices, the positive outlook for renewables is also about electricity prices that are expected to stay high in the medium-term. That relates to carbon taxes to higher prices of commodities to aging power plants and to constraints in grids that we believe – that the market believes actually because it's not new in view will remain high.
And if you look at this slide you can compare the views that the market had one year ago and the view that it has today three Neoen countries France, Finland, Australia, the trend is obviously upwards and that is something that we believe will stay.
Beyond this, let's say this quick outlook for renewables. If we look at what Neoen is doing and what Neoen has been doing since 2021. So this is the same exact slide that we showed at the end of our presentation in March 2021. Bold ambition for 2021, 2025. And that's something that we would like to look back in details, because since 2021, Neoen has delivered all its objectives.
Starting with high sustainable growth. We have consistently delivered double-digit growth. That's true for EBITDA. That's true for growth in terms of installed capacity. That's also true in that's I believe interesting in terms of number of assets in operation, which is a great proxy for where we are in terms of learning curve.
Just looking at EBITDA in 2021, we said, we would have a growth of at least 10% every year. In 2022, we have delivered 38%. And what we have done in the past couple of years was also about balancing our asset mix. We have added 2.5 gigawatts in the past two years in Australia, in France, Finland, Portugal, Sweden and Canada. We now have I think a well-balanced mix in terms of geographies, in terms of technologies across solar, wind and storage. Storage has grown and will further grow. And that is something that we have done across all of our regions Australia, Americas, Europe and Africa. Let's call it Europe because out of 2.9 gigawatts, we actually have 2.18, 97% in Europe. So Europe, Australia and the Americas a well-balanced mix and as well in terms of technologies.
And what we have done as you can see on this slide, the addition in terms of capacity in the past couple of years. It's especially happening in OECD countries. There is also Salvador on this slide, which is a country that we like a lot and where we have been quite successful a dollarized country. So even when we operate in non-OECD countries, we do have dollarized contracts.
But as you can see the growth came from Australia, from France, from Canada, from Finland, Portugal, Ireland, Sweden. So that's something that I believe is a good proxy for what we will do in the next years as well. And our current pipeline the – what we call the advanced pipeline, advanced project and tender ready project has grown as well, which means that there is today some embedded future growth in our pipeline. That's something that we have actively developed in the past couple of years and that will bear fruit in the next future.
If we look at what – where we were in 2021, we have added 5 gigawatts in terms of advanced pipeline. That's the net growth. But knowing the 2.2 gigawatts have moved from our advanced pipeline to our secure pipeline, it means that we have actually added more than 7 gigawatts to our advanced pipeline.
We have always been a bit cautious about communicating on the early-stage projects. That's something that is not included in our advanced pipeline. Many of our competitors display dozens of what we call bragawatts. But at Neoen, we're a bit conservative on this one. We have always said that we had more than 5 gigawatts. We just wanted to convey the message that we were also working on projects for the long run.
Today we are comfortable, saying that we actually have more than 10 gigawatts as early stage project. And this early stage pipeline has grown in proportion with the rest of our pipeline, which means that we focus as much on the long-term as we focus on the short and medium-term.
Something that we can we safely summarize by saying that we have a double-digit pipeline in terms of gigawatts at early stage projects. Something to note obviously, that it's also well balanced in terms of technologies and geographies. There is no specific focus on any technology even if – again, we do believe that storage will grow faster than solar and wind. And again if we do believe that's our future as we said earlier, it's also a bit more European than before given the -- given what's happening in Europe.
On the second part the plan that we had released in 2021 our ambition to be a local leader in selected countries. I will leave the floor to Louis de Sambucy, who is based in Sydney and who is in Paris with us today to talk about Australia.
Thank you, Xavier. So with three gigawatts innovation on the conclusion, we continue to hold our number one position in Australia. Our leadership has been reinforced, over the last couple of years. And I need to give you a few facts.
First, we have continued to grow faster in the market. We have added 1.1 gigawatts in our Central portfolio since December 2020 winning nearly three gigawatts. It's a very well-balanced portfolio with one gigawatt of wind, one gigawatt of solar and one gigawatt of storage is also well diversified from a geographical point of view. It's present in on the main states of Australia, South Australia, New South Wales, Victoria and Western Australia.
When we have strengthened our presence in front of the ground, we have local offices in all the states where we operate and the inclusive to our markets has been really, key to our success. We have the critical mass to be able to grow unlike some of our smaller competitors. We also have increased our level of expertise.
We have all the competencies locally from development, to finance, to operation and energy management to continue to grow and to continue to grow faster in the market. It is worth noting, that we have launched the construction of a couple of flagship projects that are extremely competitive.
I want in particular to mention the Western Downs solar farm, is Neoen larger solar farm with 460 megawatts, but also the largest solar farm in Australia, an extremely competitive solar farm. The greater wind farm, Neoen largest wind farm but which is also leveraging some world-class wind resources.
In storage, we have maintained our leadership. We have maintained our leadership and are now very close to have one battery in each of the main states. Both Western Downs Batteries and Blyth Batteries have been launched at the end of 2022. Each of our battery projects is as a unique business model.
The Victorian Battery supported by a contract with a network operator. For the Western Downs Battery, we have leveraged the existing assets of our solar farm and Blyth Battery will be used in conjunction with greater wind farm to serve the needs of BHP PPA that we have signed last year.
And finally, we have continued to innovate on the commercial front, thanks to our energy management team. We have signed our first virtual battery contract. We have been the first to deliver inertia with a battery at a large scale in 2022. And we have signed our first virtual PPA at the end of last year with BHP.
I will now comment on what we are doing in France. So France is historically tough. We started here in late 2008. And we have strengthened in the past couple of years our leading position in France. It's of course a different story than what we have in Australia. We have smaller projects, but of course yet to our taste.
We have good IRRs. We have well-managed execution and good gearings. And we have a triple play approach to France. It's solar, its wind and storage. And we've been the leading IPP, the number one IPP in France. And in absolute terms, we are in the same zip code as EDF Total or ENGIE in terms of growth.
In 2022, we were number two, which is behind EDF and ahead of Total and ENGIE. And that is something that we will of course keep on developing in the coming years. Despite difficulties we believe that we can create a lot of value.
In France, we have a great team. We have a strong local presence, many regional offices and again a great track record on which we can build to facilitate future business development. We are now going to look at another type of beauty this time in Northern One and that is Romain who will comment on what we do in Finland first and then Sweden.
We have been successful at expanding our presence in Finland which is now our third largest market. It plays a key role in our strategy. Since our establishment in 2018 we have developed six projects in wind and storage.
The Hedet wind farm in operation, the Yllikkälä Power Reserve Battery, operating since 2020, it was the largest in the Nordics at construction and it provides a significant share of the Finnish frequency regulation requirement.
Mutkalampi is a large wind farm which is currently finalizing its grid test. It is the largest wind project in operation in Finland and it's also Neoen's largest in operation. The Björklinden wind farm, neighboring Hedet is under construction. And we have other projects which will start construction this year.
Neoen is the second largest wind generator in Finland. We have signed significant corporate PPA in the country with recurring clients, twice Google, Heineken, Philips, Signify and Nouryon in 2020 and more recently Equinix for which we signed three PPA.
Leveraging this experience and our local team, we are planning to further accelerate our development in Finland with more than 1.5 gigawatts of wind solar or storage assets in development. Another example of our strong European platform is our recent expansion into Sweden. Neoen has experienced a great start in Sweden.
We opened our office in 2020 and we have managed things to develop three projects in our three technologies. The Storbrännkullen wind farm is a project where we acquired the permits in 2018, started construction last year and we signed a corporate PPA with recoveries in order to be able to finance early 2024.
The Storen Power Reserve is a storage asset currently under construction leveraging the wind farm experience and the -- which -- because it's near the wind farm. And the last significant milestone was the signing in 2022 of the first utility scale solar PPA in the country for Hultsfred wind farm. On top of these assets, we are developing additional storage, solar and wind project in the country.
In addition to the previous key geographies, we have strong ambition in several other countries. We target countries with significant market opportunity and where we have the potential to become a leading player. In the Americas, we have launched the construction of our first asset in Canada, the Fox Coulée solar farm. And we are developing more projects.
In Ecuador, we are waiting for the official results of the last renewable tender. We have three solar projects for 216 megawatts for which we are the lowest bidder.
In Europe, we've launched the construction of the 272-megawatt solar farm in Portugal, which is the largest to-date in the country. We have started producing energy in Ireland with the Ireland's first large-scale ground-mounted solar farm and will soon launch construction of more projects.
In parallel, we are expanding in new countries such as Croatia, Italy last year, and in 2023, we'll open Germany. In all of these countries, we have local team developing prime greenfield project for future growth.
Let's now focus on our genuine differentiation through storage and energy management. Neoen strongly believes in storage, which is a key differentiator and one of our growth engines. We have the first-mover advantage in storage since 2015.
Storage is a great complement to our other technologies. Stand-alone, it can offer several services. It also helps the energy transition by supporting the grid. And coupled with wind and solar, it will allow for a differentiated commercial offer. We'll see that in detail in the next slides.
Since 2021, Neoen has strongly accelerated the storage asset deployment. We will continue to capitalize on this differentiating factor in the coming year. More project means more expertise, hence more services, more differentiation, allowing to serve more clients, which will then unlock more projects.
Maybe a small remember on simple fact about storage at Neoen. We have chosen lithium-ion battery as our preferred storage technology. We believe that it offers critical benefit. It is reliable. It is easy to roll out. We are able to provide multiple services and it's a bankable solution. We have built a strong pool of suppliers both at the EPC level and at the battery cell level.
Let's now zoom on our growing storage portfolio. With 1.1 gigawatt of storage assets in operation or under construction spread across three continents, Neoen has become a market leader in storage. This 1.1 gigawatt of power capacity comes with 1.8 gigawatt hour of energy. Hence about 1.6 hours of storage per megawatt. We will come back about this point a bit later.
In Europe, we have built several batteries in Finland and France and we are currently under construction in Sweden. We also have the largest battery in Central America on our Salvadorian power plant. And we are further developing new storage assets in most of our geographies. Louis?
Thank you, Romain. In Australia, we have a very strong position in storage. We have been pioneers in 2017 with the first 100-megawatt battery in Hornsdale. And since then we have managed to maintain our leadership in this field nearly multiplying by 10 our installed capacity. We have today 470 megawatts in operations and 500 megawatts under construction.
But on top of this growth of our installed capacity, we have also been able to expand geographically with a battery in every main state. We have been able to implement new technologies like Inertia, which is a world's first and valuable addition to our business model.
And we have been able to sell differentiating solutions to our customers combining our usual wind and solar assets and our batteries like for baseload PPA or just with a stand-alone battery like for the virtual battery.
We have developed a high level of expertise in the field of storage and Australia is likely to be showing the way for other geographies as it's going through the energy transition probably more quickly than some other geographies today.
Thanks Louis. Lithium-ion batteries are managed with inverters that are purely electronic equipment. This allows for very fast adaptation of batteries power output, ideal for frequency control ancillary services. So, frequency support services have been provided by batteries since several years now.
Alternatively, batteries can rely on their energy reserve to provide power system integrity services. The kind of insurance reserve that is only activated in case of emergency. Neoen batteries have provided power system integrity services since 2017 in South Australia and since 2021 in Victoria.
And finally, trading around the battery energy reserve allows to charge when prices are at the lowest during the day and to discharge at peak prices, usually in the evening. This arbitrage activity is a classic for batteries operations.
In 2022, we launched three new services. Synthetic Inertia trials have been positively concluded in South Australia. The virtual battery agreement offering the battery as a service has been finalized with AGL, a major Australian generator and retailer. And leveraging the flexibility and energy reserve of the battery, we have been able to firm wind generation and to finalize a renewable baseload power PPA with BHP.
We will now explore these new services in more details. For power system, inertia is like when you use your gear to slow down a car going downhill. It is resisting frequency variations that can cause serious issues and potentially blackouts.
Traditionally, inertia has been provided mechanically by rotating machines such as gas or steam turbines. Mechanical inertia converts into power inertia. As coal and gas generation units are planned to phase out of the market it is essential for power system security that inertia is provided by alternative solutions.
Synthetic inertia, an inertia provided by purely electronic equipment has been successfully implemented after two years of trials at Neoen's Hornsdale Power Reserve battery. It is the result of an intense cooperation between Neoen and Tesla and the Australian grid operators. It is also opening up great market opportunities for our future batteries.
While developing new battery projects, we were confronted with many potential customers interested in off-taking battery capacity. But a battery is a complex asset to manage optimizing its dispatch requires high level decision-making processes most of the time run by bespoke algorithms.
Only one entity can decide for the whole battery and it is not possible to split its capacity. So we wanted to design a product that would allow our customers to scale up or down the battery capacity they offtake and to leave them full liberty of decision on how they would operate it.
As a result, we developed a virtual battery agreement that is essentially a financial product. The customer conceptually charge or discharge virtual energy reserve and benefits from the financial outcome of its decisions. Together with the contract, we developed a bespoke user interface for operating the virtual battery. It is very similar to a sophisticated smartphone application.
Finally, we hedge the virtual battery with our capital battery a real asset. And we keep our full dispatch autonomy, which is allowing us to provide grid services in addition. We signed our first virtual battery agreement with AGL in early 2022.
Also in the past years, we met many customers who wanted to offtake green energy, but we're not satisfied with the traditional generation following PPA. There was simply not enough adequacy between what they were buying and what they were consuming. In order to bridge that gap we combined wind generation, storage optimization and market capabilities to structure a renewable baseload PPA. We signed our first baseload agreement in 2022 with BHP for capacity of 70 megawatts covering around 50% of the Olympic Dam mine power consumption.
And now this is how it works. The baseload is a constant demand, we must provide all the time whatever the wind generation. We do not use the battery to store excess wind generation and restitute it later. We use the market instead. So when wind generation and battery discharge exceeds the baseload demand, the excess energy is sold to the market. This is the situation one on the graph.
On the contrary when wind generation plus battery discharge is below the baseload demand leasing energy is both on the market. This is situation three. Now when prices are low the battery will charge.
And finally, when prices are high the battery will discharge either to avoid buying from – sorry, buying when wind production is not sufficient to cover the baseload or to benefit from arbitrage opportunities. In this strategy, we overall generate more power than we sell as we do when we contract a traditional PPA. But in addition, we deliver a high-value product to our customer and we leverage our battery capacity to mitigate our merchant exposure and benefit from price volatility.
So if I have to summarize in a few words the essence of our energy management activity, I would say that we are integrating our resources composed of our own renewable generation, our batteries and our access to energy markets in order to deliver new offers and services to our clients and to manage Neoen's merchant exposure.
In order to do that, we rely on people. In total, 11 dedicated specialists in Europe and in Australia covering market research, business development, data analysis and software engineering capabilities combined with expertise in contracting PPAs and services.
We have established entities fully-licensed to trade on power and green certificates market. We write and implement risk management and hedging policies. And last but not least, we develop in-house software programs and algorithms for business modeling, risk management and asset optimization.
We can now talk about clear industrial and financial discipline as discussed in March 2021. And if we can share both let's say both dimensions of the [indiscernible] size starting with our COO, Norbert Thouvenot about our industrial approach and then we will of course talk about financial discipline with our CFO, Louis-Mathieu Perrin.
When it comes to the implementation of our projects, we have set up quite a few simple rules that have proved to be pretty efficient in the recent past. Talking first about sourcing, standardization of our plants design as well as a multiyear and multiproject approach towards our suppliers has allowed us to consolidate volumes and as a result it gives us quite a good leverage when we talk about sourcing and procuring solutions.
During the construction phase, turnkey full EPC contract provides us with a very strong natural protection against supply chain disruptions. During the extreme volatility and logistic challenges that we have experienced in the past few years, those tools have proved to be extremely efficient.
Talking about operations then. We are relying more and more on local operation and maintenance pure players. As a result, we see that we get better service level on our plants as well as more cost-effective solutions.
And last but not the least, we do consider our operation as a continuous improvement process whereby we consistently try to reengineer and repower our operation to stay on top of what technology has to offer.
This slide is an illustration that Romain and Xavier already talked about before of what we think is a very successful implementation of a project. This is our landmark wind farm in Finland, we talked about already. It's a 401 -- 404 sorry, megawatt wind farm. To-date it is still the largest wind farm -- onshore wind farm in Finland. We were very proud to have developed and completed the construction in a pretty challenging environment and completely accident free.
To illustrate what we said before of our EPC contract our partner Vestas has offered us a full EPC contract price which means guarantee on price and guarantee on schedule. We also have developed for this one a pretty well-balanced and diversified sourcing of the supply chain. The cells were built in Europe, towers in Vietnam, blades in Turkey, which means that during the lockdown that we have experienced for the past two years, especially from the Chinese ports, we were almost protected or shielded from any impact on the project itself. This project has been as said before has been in operations since the last part of 2022 and it's completed its network connection test as we speak.
So in summary for the past couple of years, we have successfully built north of one gigawatt of projects. During the COVID years, we have experienced significant cost of inflation, significant delays and challenges as far as the supply chains of our businesses are concerned along with as mentioned before lockdowns that have impacted adversely the logistics supply chain.
On top of keeping on time and budget, we were happy also to deliver on return IRR ranges. We used different tools to get there. One of them is to capture all the spot market that we could capture, thanks to merchant exposure but also in some instances increasing the scale of a given project in order to benefit even more the economy of scale.
To talk about the financial discipline. So as you can see on this slide, we have enjoyed and will continue to benefit from predominantly long-term predictable and derisk cash flows. We have a young portfolio of assets, less than four years old on average with almost 12 years of remaining PPA duration, which gives us visibility over the long-term. We only invest in projects offering exposure to strong currencies, 100% of our revenue are denominated either in Australian dollar, euro or US dollar to date and we will within the next 12 months generate revenue also in Canadian dollar.
While we may face exposure to local currencies this is essentially through tax disclosure in LATAM, which is something, which is not fully dollarized. We benefit from more than €7 billion of contracted revenues from our long-term contracts, predominantly with investments grade counterparties, which makes our cash flow generation predictable and low risk.
This predictable cash flows enable us to raise project financing, which accounts for 80% of overall total debt to date. Project financing are long-term. The average residual turnover debt being to date close to 16 years for assets in operation. They are denominated in the same currency as the underlying PPA, which provides a form of natural hedge, something we intend to keep in the future, and which is strongly protective.
Project gearing is on average at 72%. Gearing at project level is depending on PPA maturity, quality of the counterparty and proportion of merchant exposure, the size of gearing enables us to efficiently use our equity. The average cost of project finance debt for project in operation is around 4% from 3.7% in 2021.
In line with our rigorous financial discipline, we largely hedge our interest rate exposure to keep our cost of debt under control. Despite rising interest rate condition in 2022, our average cost of project finance debt, therefore, only increased by 30 bps.
Project financing will remain the cornerstone of our financing strategies, but we intend to continue using corporate debt as a complement to project financing in a very disciplined manner. In the past three years, we've put in place a syndicated loan currently of an amount of €250 million with longstanding bill of banking partners. And we have also issued three convertible bonds, two of them being outstanding afterwards a successful conversion of the oldest one at very attractive terms.
I remind you that we are a pioneer in the green convertible market in Europe. Overall, corporate debt, bond debt amounts to €470 million. It represents only 1.1 time of 2022 EBITDA and is backed by predictable cash upstreams from projects. Thanks to the visible and dynamic growth of our cash flows, we consider that we can further increase our corporate debt in a very disciplined manner. I remind you that the use of corporate financing is kept by strict RCF internal covenants. The source of funding also enabled us to optimize the group average cost of debt, which is a plus in the current context of rising interest rates.
The fifth theme that we presented in March 2021 was about both short-term and long-term value creation, and as you know long-term value creation is the core of what Neoen does. We call it developed to own business model. And it's still true today developed projects. We are own developer, which means that we create value for our own accounts. It also means let's say a deeper knowledge of our own project. So it facilitates execution. There is a lot of value to reveal over the lifetime of a project through potential renegotiation, refinancing, extension, retrofit of storage, hybridization that is something that we want to keep for ourselves. And there is again what we've been doing since 2008.
But in March 2021, we also said that we would add farm-down to sources of funds. That's something that we do let's say in a very selective and limited manner. No more than 20% of our newly awarded megawatts in a given year can be farm-down. It will contribute to no more than 20% of our EBITDA versus something that usually goes to 50% or beyond 50% at our competitors.
So we have implemented this strategy since 2021 with great success in France and more recently in Portugal. And we had announced earlier that we had closed the Cabrilla transaction in Portugal. We have farm-down some solar farms and some wind new firms. Solar farms were of different nature. Some of them included concentrated solar, which is something that we were not so much interested in. And what we've done interestingly, I believe for solar -- for wind farm is to keep a call option on those assets.
Meaning that after 30 years, we can buy back those assets or actually buy back the 95% that we would not own because we keep a 5% interest just to be part of the story in the next three decades, and which means that we can keep for ourselves the repowering value that we have in those assets. When we develop projects, we usually say equivalent for the next seven, eight or nine decades. Meaning that if we sell those assets or if we sell those cash flows for three decades or 30 years to a financial investor, we can still keep for ourselves the value of repowering, so replacing those turbines by new ones and still benefit from the work that we've done in the development phase.
There will be some farm-down every year at Neoen. That is something we have stated clearly in 2021. There are some good candidates in our portfolio especially in mature countries such as France. We still have some assets that let's say are not really a part of Neoen's future, typically rooftops that we can easily sell, but that is again something for, which we want to have total flexibility. The idea is to create value. The idea is at the same time to retain value, and maybe to illustrate with a few numbers.
So those five transactions have led to €90 million of capital gain, which is of course something that we will put at work in the new investments. So that's farm-down means, dry powder for future investment. That is something that we -- I believe we have perfectly illustrated in the past couple of years. We have also in March 2021, started to talk a little bit more about ESG. Of course, ESG is something that is -- and that has always been at the core of what Neoen does, but we wanted to give it a bit more structure.
And we now leave the floor to Virginie Moyrand, who is our Head of CSR.
Thank you, Xavier. Indeed, we've talked about our achievements, our technologies, our differentiation, but we also wanted to update you on our CSR commitments because they are important to us. Of course, as a producer of exclusively renewable energy, we are green by nature. But because there are many other aspects to sustainable development back in 2021, we presented you with our sustainability framework, the formal approach that we have since deployed across all our countries.
This framework is organized around three pillars. The first pillar is, about people, each one of us and how our daily actions accelerate the transitions toward a more sustainable future. The second pillar, corresponds to our project, the location where we strive to deliver excellence in sustainability. And then, last but not least, our communities. Every project is surrounded by a community, that participates in the transition alongside us.
So I'm not going to enter into detail of all the commitments that we took in 2021, but we wanted to give you a quick overview on what we have achieved in some of the key pillars. So starting with the first pillar, our people. The first thing is, our work ethic. We work with integrity and this is one of our core value. This is why, we request all our employees to sign our Code of Conduct.
Second, when it comes to diversity Neoen, with 40 nationalities represented, in our 350 workforce it's the source of pride and dynamism for us. But we are also focused on improving the gender balance of our workforce to go beyond the industry benchmarks, which currently sits at 33%. So women made up 30.7% of our workforce in 2022, which is a good increase from the figure of 28.8% in 2021, but there is still room for improvement.
And third, reducing our carbon intensity is very important to us. So the first step, was obviously, to carry out comprehensive calculation of our carbon footprint in 2021. We will now repeat this assessment in 2023, based on our 2022 activities and on the three scopes 1 2 3 and this will help us to set a path reducing our carbon intensity.
The second pillar, our projects. First thing, health and safety. We are very -- we are looking after the health and safety of all of those working on our site. So we are pleased to announce, that we have more than half our LTIFR, so the Long-Term Incident Frequency Rate. But again, there is still room for improvement in this area, and we are now targeting getting it under 2. We also care about the land the environment by university, we are delighted to confirm that the vast majority more than 90% of our commission assets in 2022, have been subject to an environmental impact assessment. The only exception that we have here is, when we have an extension of products such as storage for instance where there is no additional EIA. But basically, we do an EIA all the time.
And taking a more longer view -- the longer view we were thinking about -- we were -- we understand that it was very important to plan for future decommissioning and recycling. So we were very proactive in this area, and our procurement development has negotiated a recycling clause, for 975 megawatts of equipment purchased in 2022.
And then the third pillar, let's move to our communities which represent the sales [ph] here where we can amplify our contribution. Our developed own models means, that we will own the asset for the whole lifespan. So it means, that we're going to be a long-term neighbor for this community surrounding our site. That's why it's crucial to us, to inform consult cooperate with the gold stakeholder, and we do this systematically. And the number of 90% or more than 90% of commissioned assets, that we have been doing information to, et cetera is -- the only exception that we have is the same for EIA, when it's about a small expansion.
On top of that, we want to contribute to local and regional economic development because our projects have the potential to deliver significant benefits in this area. So for instance, the creation of direct and indirect jobs but not only. We don't have any KPI here, but those who want to have a bit of more color on the type of initiatives that we are undertaking, I invite you to look in our year 2022, which would be available in mid-March.
Similarly, we want to share the benefits of the energy transition with our communities. And benefit sharing is a catchall term that includes, all sorts of initiatives usually tailored to the local context. Here as well, no KPI available but we are supporting many different interesting local development and alternatives some of which are showcased in the next 30 [ph].So while doing so basically, we're not only contributing towards the two obvious sustainable development goals that are dedicated to Neoen or Neoen is dedicated to, delivering clean energy to fight climate change and promoting access to affordable to sustainable energy called number 7, but we're also through what we have just presented contributing to many more of them.
And CSR is a journey. So all this progress that we're making is reflecting in the rating issued by ESG assessment agencies. We are very proud to see for instance, that in the case of Moody's, we have improved our rating by eight points in the last three years, and we've now ranked among the top 2% of the company's assets. This progress is also reflected by other agencies too. And we will -- because it's a journey as I said, we will continue on working on these different topics. That's all for me.
Let me now hand you back to Xavier, who will give you more details on Neoen's governance.
Again, we believe that excellence in ESG for Neoen should go beyond pure and automates and thank you, Virginie, for having presented all the CSR efforts we are making. In terms of governance, which is an important dimension of what we look at especially, as a listed company we have a Board of Directors of seven members plus one, observer so in majority -- sorry main shareholder has three seats actually, one of them for me and Stephanie Levan and Simon Veyrat meaning that we have four directors that are not related to our main shareholders.
One is [indiscernible] who's been a long-term shareholder of Neoen since 2014 and which is not independent. And we have three independent Board members, Helen Lee Bouygues, who is the Lead Director of Neoen, Bertrand Dumazy who is an independent director, who's Chairman and CEO of Edenred, and who is also the chair of the Governance and CSR Committee.
And Christophe Gégout, who is independent but who represents FSP one of our shareholders considered an Independent Director, who is also the Chair of the Audit Committee. Our Board of Directors with the – let's say, the organization and functioning of directors was assessed a few years ago by gender and this assessment first confirmed that we were compliant with the FF media code and that we had a well-diversified and balanced Board of Directors in terms of expertise in terms of gender diversity in terms of course of internationalization and that is something that, we will keep on doing in the coming years.
Just a few words about the two permanent committees that we have Audit Committee and Governance and CSR, it's important to state that for example the audit committee's role goes beyond pure finance. It's very involved in risk management insurances extra financial performance. And when it comes to governance and CSR, it's actually unusual for that committee, which used to be more focused on the compensation and today is well focused on CSR. That is again, something that shows as Virginie said earlier that CSR is a journey and we are working on improving our profile as much as we can.
And that's about it, for the let's say the look back on the 2021 CMD and what we had said at the time. As you can see, we have worked hard and met all of our targets so far on all of these six dimensions. If we now look into the coming years, so the next couple of years obviously for the 2025 business plan and beyond 2030. The growth ambition that we had stated at Neoen, was to grow by two gigawatt per year 2025 and onwards. And we believe that, we are ideally positioned to deliver this growth for three reasons.
I mean, first we are experts. We have this know-how, we have this expertise. We have this track record. Second, we are local. It means that, we are close to our project close to our stakeholders. I think, it's a strong differentiator. We have presence in 15 countries in 28 offices, and we have in terms of track record almost 15 years in Europe more than 11 years in Australia, and in the Americas close to 10 years.
We also have already developed projects. We have a pipeline of advanced projects meaning tender ready and advanced project of 11.9 gigawatts. We have more than 10 gigawatts of early-stage projects. And obviously, this is something that is, extremely valuable, because you can have the best team. You can be as local as you want, still you would not have a time traveling machine, and the efforts that we have put into those projects in the past 15 years are something that is obviously super hard to replicate. Of course, you can buy projects, but it means that the efforts and the size of those projects are highly valuable, because they are not so easily replicable.
If we zoom into this advanced pipeline that, I referred to 11.9 gigawatts. It has grown by more than five gigawatts in one year. It's really a number to keep in mind. It means that on top of working at Neoen on the current year or the next year we also work on the medium term. We are extremely comfortable and this is something that I will comment in more detail about getting to 10 gigawatts in 2025, because we believe that, we have an advanced pipeline in terms of geographies in terms of technologies countries that we know well most of the expansion of Neoen is actually happening in existing countries, even if we are more than happy to look at new countries.
So we are in countries that we know well where we have good teams local teams experienced teams and this advanced pipeline gives us a lot of confidence about our future.
If we look at where and how we want to grow, we want to grow in our three regions Australia, Europe, the Americas. We do not plan to expand in Asia. We do not plan to do anything more in Africa, but we do plan to grow significantly in all of those three regions. We also want to grow in our three technologies. So solar wind and obviously storage, where we want to accelerate. That is something that has started in Australia in 2015 that we have progressively rolled out into new countries in Europe in the Americas and that is something that you will probably see more than half of our countries in the coming years.
We know, which clients we want to serve. I think we have great opportunities with governments with utilities, with grids, with corporates and also in spot markets is something that we will keep on limiting to 20% of our power generation. But all of those markets are very promising. We do not want to go into retail. We do not want to go into electric vehicles or whatever. We have again a clear vision of what we want to do and we plan to grow especially first in corporate PPAs. That is a very attractive and fast-growing segment of what we are doing.
In the past three years, the size of this market has been multiplied by almost three. As you know, at Neoen we started with utilities a few years ago selling electricity to AES in the Americas to ENGIE in Australia. And then, we expanded starting with for example with Finland to tech companies, selling electricity to Google, selling also electricity to large consumers in Australia in the mining industry. In the – in the past year, we're saying for example a very interesting corporate PPA with BHP.
And then we expanded in Finland into another pool of potential clients midsized clients 10, 15, 20 megawatts, 25 megawatts, Philips was a good example. That is something that is extremely important, because those plain vanilla companies in a way Philips, H&M TDF and others, of course, mean a great future for Neoen. We started with 20 clients, a few years ago our vision is to have probably 200 clients in the next three or four years at some point. One day, we will probably have 2,000 clients going potentially down to 5 or 10-megawatt contracts, we will never of course have retail customers, but that is something that we will keep on growing.
And looking back in the past two year, we have signed almost a gigawatt of new corporate, PPAs bringing the total that we have signed since 2015 to two gigawatts, a strong acceleration at Neoen in what is probably the most exciting segment of our commercial statements.
Meaning that, we are well on track to reach our growth pace of two gigawatts per year. That is something that we said in 2021, that we would be at 2 gigawatts per year 2025 and onwards. At the time of the IPO, we had said that, we would grow by 0.7 gigawatts, so 700 megawatts per year. We have achieved 1.3 gigawatts in 2022. We are again on the right trajectory to get to two gigawatt per year, which is three times as much as what we had anticipated only a few years ago. And one key theme for today, what we believe in terms of Neoen's future in storage.
Thanks, Xavier. Longer battery duration will bring additional value. So, I'm going to go back a bit to the service and the battery can give. And the first comment is contrary to solar and wind. The battery has two dimensions. We can build them with different duration of storage for a given megawatt capacity. The battery can be designed to store several minutes of energy up to several hours. It does mean that we physically install more battery cell into the same asset. And this is the megawatt hour element of the project.
So depending on the service you want to provide, you need to install different duration of storage. For example, when you do grid support, you need strong megawatt capacity, but during a very short period of time. For example, when you do inertia or blackout insurance. A good example is our DeGrussa solar and storage project, which have a short 15-minute duration storage.
Then moving on the right, when you want to provide grid investment deferral of frequency regulation, you need a bit more duration. This is the case of our European batteries or the Hornsdale battery, which provide these services and which have a bit more than an hour of storage duration. But then, when you evolve to energy arbitrage, it might be efficient to have a longer storage duration. It allows to store more energy and to capture more efficiently the price swings.
And finally, when you do firm renewable energy, as we do with our Blyth Battery, you want to have at least two hours of storage. So when we design a battery, we need to decide what duration we will install, and that will depend on the service we plan to offer. When you have more duration, you have more optionality to offer the different services with the same asset and to stack the different revenue streams. It is more expensive asset, but we can optimize it a bit better.
So Neoen plans to invest in long-duration batteries. As mentioned earlier, we have accelerated our focus on storage in the recent years. As per our investment plan, our storage unit and storage capacity installed have doubled between 2020 and 2022. We expect to have more than 20 storage units in 2025 and a storage capacity installed of more than 1.5 gigawatt and beyond this strong gigawatt figure, we plan to install longer duration battery, so higher gigawatt hour figure. From one-hour average in 2020, we plan to be above two hour in 2025. So on average, it means more than three-gigawatt hour for 1.5-gigawatt installed. This has already started.
In Australia, the batteries we are currently building are more than two-hour battery. In our initial 2021-2025 plan, we thought that a one-hour battery would be optimal. The decision to move to a two-hour battery is a decision that we took to allow more services. It will require a larger investment, and we estimate this investment to be of an additional €150 million of equity. We believe this shift toward a longer duration battery is a good investment, because it will allow to maximize the profitability of our batteries.
If we look at our investment plan and how it has changed since 2021. We will first start with the assumptions that we have because it's a key parameter for CapEx per megawatt for wind, solar and storage, and that is something that Norbert will comment.
Sure. If we start with solar first. We have seen over the past two years, cost of projects go up roughly 50%.Polysilicon was the main -- the core component of solar modules, has increased significantly initially due to industrial accidents in the supply chain, mostly in China. And then as a result of lockdowns in the same part of the world, logistic costs have gone to the roof. PV modules themselves have increased in the range of 80% to 100% over the period.
If we now look towards the 2025 into the future, we do see prices of PV modules going down. We do see, as a result, the cost of solar project to stabilize, but we don't see those costs coming back anytime soon to pre-COVID years. Solar project also have a very intensive manpower component in the cost. So this one is, we think, is going to follow basically inflation growth in the next -- in the coming years.
On the wind side, the same model, we saw an increase of product cost in the range of 20%, 25% over the past two years. For this segment of our business, raw material costs have been the driving factor for costs going up and still, especially with the critical component of the cost of wind farms and towers has been the leading factor for cost going up.
Another aspect of the wind business is that, this is a pretty concentrated business. There are just a few -- just a bunch of manufacturers around the world, all of them without exception have posted extremely high losses in the past two years and recently in 2022. So looking forward towards 2025, we see this market stabilizing. But unfortunately, due to still a bounce back on steel cost and the fact that those OEMs are going to factor their losses in their future price, we don't expect a reduction of the price of a product cost when it comes to wind farms.
Last but not the least the storage, which has been talked about a lot and is a key component of our growth. Again, we have seen over the past two years the cost of project – storage costs going up roughly 60%. The main component of that increase was the cost of lithium.
Lithium is the driving factor for the cost of battery sales and as a result has a huge part of the cost of storage project cost. This cost of lithium has changed a lot during the past years as a result of a strong imbalance between the demand of electrical vehicles and the offer on the market. We do share with the electrical vehicle business a common component, which are the battery cells. So we've been – the cost of lithium is going up with the demand that was extending the offer.
Looking forward into 2025, we see the industry catching up a bit. We see offer catching up a bit with additional capacity of lithium mining opening around the world. But at the same time, we still think that this part of our business is going to remain quite volatile, due again to the fact that we are only a part of the market side, which is the electrical vehicle who has experienced again a very large volatility in the recent months.
Thank you very much Norbert. If we look at what it means in terms of aggregate numbers, we had said in March 2021 that to get to 10 gigawatts in 2025, we needed to invest €5.3 billion. Of course things have changed. CapEx increases per megawatt as Norbert said, meaning that we have to envisage €750 million of additional CapEx with the same capacity and storage duration as we had in mind in 2021. And the good news is that we feel that we can absorb this CapEx increase without needing more equity or let's say no more than the €600 million that we had presented in March 2021 and we do that through additional project funding because of course there are some increase in CapEx but there are also some increase in revenue per megawatt. So more cash flows can serve more debt.
We have excess as well to corporate debt. We will also keep on doing some farm-down. Even if it's a limited source of revenue, it's something that of course increases our investment capacity.
On the additional storage that Romain introduced, which is a change compared to our 2021 business plan with the same capacity in terms of gigawatt of storage, we want to have more gigawatt hours. And of course if you want to have a battery that has a duration of two hours, it means literally twice as many cells as for one-hour battery. And that is something that will require, an additional €150 million of investments, which will – and that is something that we will discuss which will have to be covered mostly by equity because we do not have access easily or not at the moment at least to project debt for batteries.
Meaning that overall, the €5.3 billion of investment plan of 2021 have become €6.2 billion. And that is something of course that reflects not only market conditions but also an acceleration that Neoen wants to materialize in the next couple of years.
In terms of equity, we said in 2021 that those €5.3 billion would be covered by €4.1 billion of non-equity funding and €1.2 billion of equity, of which we raised €600 million in 2021. If we look today at what we plan to do with the upgraded business plan of €6.2 billion, we believe that we can cover 5 – sorry the – again the initial plan plus the CapEx increase with non-equity funding and €600 million as stated in 2021 and that we will have to raise €150 million of additional equity to fund additional storage meaning that overall, we have equity needs of €750 million for the next couple of years to not only fulfill the business plan of 2021 at let's say same capacity and despite CapEx increase per megawatt but also to add additional longer duration storage to our portfolio, which we believe is a very attractive opportunity.
In terms of guidance and outlook. In terms of project returns, first for OECD countries, Europe including France, we have targets that are unchanged at 7.5% for equity IRRs plus or minus 150 bps depending on project, depending on risk, depending potentially also on locations.
For Australia, 8.5%, again plus or minus 150 bps. And Canada and other OECD countries, the same 8.5% plus 150 bps – plus or minus 150 bps. For non-OECD countries, we want to have double-digit IRRs. And of course, it all relates to the assumptions that we have and that we believe are more conservative than some of our competitors. So we have lifetime expectations of 30 years for solar and wind, 20 years for batteries.
We have power price assumptions that are based on independent expert forecasts. We do not include terminal value in our calculation. And of course, we do not take additional upsides that we believe will materialize but we don't know yet to which extent, such as portfolio refinancing on optimization, recontracting, regearing, repowering, hybridization, something that we have worked on in the past couple of years and that exists but again it's hard to quantify. So we prefer to leave that as an upside.
In terms of volume, 10 gigawatts at the end of 2025, we have 6.6 gigawatts already today. We also have 0.8 gigawatts already awarded to Neoen but not yet under construction but those of course will materialize in the next couple of years, meaning that the gap is 2.6 gigawatts to actually get to 10 gigawatts and knowing that we have 11.9 gigawatts of advanced projects and tender-ready projects, there is more than enough in our pipeline to fulfill our 2025 targets.
Financial guidance. The adjusted EBITDA for 2023 is expected between €460 million and €490 million with an EBITDA margin of around 80%. In terms of farm-downs, we have this rule of going no more than 20% of our EBITDA and 20% of our newly awarded projects. In 2023, we are going to have farm-down below 15% of our EBITDA in terms of contribution and again, no less than 15% of our newly awarded capacity.
In terms of dividends, as we stated a couple of years ago, there would be a progressive dividend policy, so for 2022 it will be -- if approved by the General Assembly, it will be €0.125 and you can expect more for 2023 paid in 2024.
Medium-term outlook. So, 10 gigawatts of capacity in operation under construction at the end of 2025. Double-digit annual growth for the EBITDA and we will be beyond €600 million of EBITDA in 2025. Of course, we will give a proper guidance for 2025 in due time, but we can already give that guidance. So we will be beyond the threshold of €600 million in 2025, which is twice as much as what we had in 2021. So, great acceleration.
In terms of farm-down we stick to this policy, no more than 20% EBITDA contribution and no more than 20% of the newly awarded capacity. In terms of dividend, again progressive dividend policy for the following years. And in terms of leverage, I don't know. Louis-Mathieu, if you want to comment on this one.
So in terms of leverage, we will continue to stick to what we have announced historically. So net debt to adjusted EBITDA should be between 8 and 10 times, and total debt to invested capital should be above 70%. So it's really a reiteration of what we said in 2021.
And beyond 2025, our vision for 2030, we believe that we can have 20 gigawatts in operation under construction at the end of 2030, which is obviously twice as much as what we will have at the end of 2025, which means that Neoen will really be in Champions League. 90% to 95% of those projects will be in OECD countries. We plan to be a local leader in 12 to 14 countries across three regions; Australia, Europe, the Americas.
And of course, we want to make a big push -- a big leap forward in storage and energy management, which is something that can bring more value and more differentiation for Neoen compared to its competitors. That is really something that will be even more core to what Neoen does in the coming years.
I think it's the end of this presentation. Thank you very much for your attention. We can now take your questions and all sorts of questions. We can have additional financial questions. We can have industrial questions, questions about storage CSR. All of us are still here. The management team of Neoen is with you this morning. So please do not hesitate to ask whatever you have in mind.
Thank you. [Operator Instructions] We'll take our question from Michael Harleaux from Societe Generale. Please go ahead. Your line is open.
Hi. Good morning. Thank you so much for taking my question, and thank you for this very useful presentation. So I have two questions. The first one will be on returns. So if you listen to what Engie said last week, they essentially reported higher walks but also higher IRRs whereas today you maintained your return guidance unchanged, but I suppose works are going up. Does that mean that we should take into account the compression of spreads?
And then the second one will be on the US. I'm sure you've seen that many of your peers have rushed to the US as the new El Dorado for renewables because of the IRA. You have stated, if my memory does not betray me, that you had made an attempt to penetrate the US market and to be a local leader in the state of Georgia maybe, if I remember correctly but that did not work. Has the change in terms of regulatory frameworks incentivized you to make another push to enter the US market? Thank you very much.
Maybe Louis-Mathieu can take the first one and I can also be part of the first question. And Romain and myself, as well can comment on your second one. So on returns Louis-Mathieu.
So as we -- as you know and we have already discussed this point quite a number of times, we are prudent. And that's the reason why we guide to this constant target return. I remind you of the fact that those returns are within the band, so plus or minus 150 basis points. Of course we do everything we can to achieve the upper end of the range.
But realistically speaking, when you are in an environment where CapEx are increasing by more than 20% and rates have increased by more than 200 basis points over 12 months, I really struggle to see our returns could expand materially. I'm not in the shoes of my competitors, but I'm very comfortable with the reiteration of what we said in 2021. This target reserves within the band. And of course, as the management of this company, we'll do everything we can to achieve the band upper end of the range.
Maybe three comments from me on your first question, Michael. I mean first, we do believe that we can achieve those returns. And what matters to us is really to, let's say, have a flow. We wanted to have a robust -- to make robust investment decisions, to make sure that it does not go south. So it's very important that we are able to materialize those IRRs and assume that sometimes we can do better, and that's my second comment. I mean we want to accelerate in storage. As I said earlier, we believe that storage can lead to IRR. That is not something that we promise but that is something that we have observed, and I think that there is an upside there.
And my third comment is about, let's say, our competitors. I don't know how Engie is doing its calculations. But what we see here and there is that some of our competitors include in the IRRs of the project that they keep the upside coming from the farm-down of some other projects. So there is some -- sometimes some strange secret source behind IRR calculations again outside of Neoen.
At Neoen, you know how we calculate our IRRs. It is just really on the asset itself. It's not including other sources of funds and other sources of cash flows. So I think that we are extremely transparent and conservative, and I think that it's good for analysts and investors to understand that we are not blending everything to come up with a better-looking IRR. On the US, Romain, if you want to start?
Yes. We have tried for several years to enter the US market, but we haven't been successful in finding the returns and project numbers that we are looking for. This is a very competitive market, with some people taking long hypothesis, in particular, in the life of the project and also, being able to be more efficient with the tax equity scheme. And that was something where we didn't feel confident enough in terms of warranty at risk and return to continue. So we decided to stop our US ventures.
And that is not a decision that we are going to change. I mean, despite the great potential of the US, I'm quite happy to hear that many of our competitors are rushing towards the US, because it means that maybe we will have less competition in other geographies.
I think that at Neoen, we can be busy enough for the next one, two or three decades with Australia, Europe and The Americas -- outside of the US. Again, we do not plan to expand in Asia or to go back to the US. We have plenty on our plate. I don't think that there are superior returns in the US. I think that, in the end, competition always plays its role and that there is no reason why IRRs should be higher in the US? Why risks should be lower in the US?
Maybe there are again some much higher volumes than anticipated one or two years ago, but it's also true for other geographies where we are very active. So there is no regret on our side. And again, I'm sure that Australia or Europe or Canada can deliver impressive growth. And it's good news if our competitors are focused in the US, while we are busy at developing other countries.
Thank you for answers. It was extremely good. Thank you so much.
Thank you, Michael.
Thank you. We'll move on to our next participant, Vincent Ayral from JPMorgan. Please, go ahead, sir. Your line is open.
Yes. Hi, again. A very interesting transition on the storage duration, extension to towers. So you made it very clear in the presentation that this underpins the €150 million of equity need additional, but how much EBITDA, net income of our contribution should we assume for this investment, that would be interesting.
And coming back to the previous question indeed, the IRRs have not changed when the WACC has increased, so spread to WACC has decreased mechanically, hence value creation. It's reassuring to see that you don't want to rush to the US, because you want to be financially disciplined based the floor -- in terms of value creation or has decreased mechanically here.
So I ask, Xavier, to understand the comment saying that value creation is maintained. Now, if your WACC has increased that plus/minus 150 bps was already there, so the midpoint should have moved up. So could you give us a bit of color there? Because higher CapEx, higher cost of capital, yes, that means higher EBITDA, ultimately, in order to ensure that the return on equity is maintained, potentially an increase is the cost of equity increase, who knows.
But the point about, yes, we may do more return in battery. I take it, why don't we have it in the total guidance, because it's important for us to value the pipeline here mechanically, the value creation of our pipeline seems to be going down. The size of the pipeline yes may be going up over the longer duration. I understand that, but the percentage of value creation on the CapEx is mechanically going down, as far as I understand. Happy to be corrected. Thank you.
Thank you, Vincent, for this easy question. I'm sure that we can have some nice fireside chat about work and happy to have a long answer to your question in the coming days, but -- so let's start with reasonably short answer from Louis-Mathieu. And then, I will complement this one.
Yes. So, let's be as clear as I can be. When you look at the horizon of the guidance, what we said for 2025 is higher than €600 million. If we look at the investments that we are doing in battery, they will be progressive. And so, they will continue to generate beyond the horizon of the plan.
So we are not giving a strict number for 2025, because of course there are timing of construction. There are timing of a start of operation. But definitively having batteries with a higher duration will translate going forward in higher revenue and higher EBITDA. It's just a question of timing.
We will have more visibility going forward on when those battery will start contributing to the P&L, but definitively more gigawatt hour means, of course, more revenue and more EBITDA and I reiterate it. We did not give a firm number for 2025.
We give a minimum number. And, of course, as a management team, we do all our efforts so that the 2025 number be as high as possible. So that's my answer on your first question, but you don't build battery overnight. It does not happen.
So, again, some lag effect between investments and actual EBITDA materialization.
We seem to have difficulties with the line.
Is it working now? Is it working, Vincent?
Now, it is. Yes. Now, it is. You were at higher EBITDA basically, maybe not by 2025 but later and after your line has stopped.
Okay. Yes. So there are some lag effect. So we believe that the EBITDA will partly materialize post 2025. We do believe, as we said earlier, that there will be some upside and some positive impact on acceleration in storage earlier than 2026, but that is something that is hard to quantify yet. And that is, again, why we said that we would have more than €600 million of EBITDA in 2025, but that's something that we will be precise in the next couple of years?
And then on the IRR for this €150 million of equity investment in the battery storage. And if you don't have the details on EBITDA and the outlook or the line of it, but what are you expecting in terms of return on equity on these battery storage investments?
At least, what we get with other investments. Again that's the floor. The upside is -- I mean, it's not an easy answer. I mean, just look at what we said out of the six, let's say, service lines, if I should cut on that way, that we have today with batteries, three of them were new from 2022.
So it's really a service offer that we are developing at the moment, getting into more sophisticated products. We do believe that there is some significant upside. It's hard to comment on that.
If you look back – let me give you some examples of the past. If you look back at what we did in 2017, so six years ago, we invested in our first big battery in South Australia. We had the same equity IRR targets then for solar, for wind. And in the end, we ended up at – and it's still – by the way it's still improving over time but we already have a superb IRR and for good reasons because we provide superb service to our clients who want more of what we can do.
So we had a great payback. I think this battery has already paid back. We're not going to give you more details. But normally, we have paybacks in 12, 15 years. We have IRRs that are single-digits. What we have done in batteries in Australia and in other countries, we see some very compelling investment cases in Europe and in The Americas.
We start again with a robust investment decision that gives us at least on paper the same return as for other investments in solar and wind and we try of course to drive it up but it's really hard again to give you more precise numbers in terms of IRRs, EBITDA contribution.
We have just observed in multiple locations for multiple assets. Again, we have one gigawatt already of storage at Neoen that it can be extremely good investment. And we will tell you more in the coming years based on what we observe in different countries and for different business cases but many of our product lines are new, the virtual battery something that was created by Neoen last year. Synthetic in Russia is new as well. It's really unknown territory. And of course, it can only be good news.
Thank you very much. It's a very interesting business indeed and the answer is very useful. Thank you.
We will move on to our next participant Arthur Sitbon from Morgan Stanley. Please go ahead. Your line is open.
Thank you, management for taking my question. The first one is on your Slide 6, where you showed the prices in France and Australia, the power prices. I was wondering if those prices for 2023, 2024 and 2025, if they are capture prices or just the basal prices because they do look quite lower than the current forward baseload prices. So if you could comment on that that would be quite helpful. And if these are the assumptions that you have in your plan as well?
The second question is related to financing. I was wondering if on top of the equity raise compared to the 2021 Capital Markets Day, are there other additional dilutive instruments that you could consider. So typically convertible bonds, do you consider more opportunistic farm-downs than in 2021? Do you consider more minority stake sales than in 2021, so that's the second question. And the third one, I know you don't guide on cost of equity in absolute terms. But I was wondering if you could provide at least some sense of how your cost of equity has evolved since the 2021 Capital Markets Day. Thank you very much.
On the first one the Slide 6, well to my knowledge, we took the baseload prices, the calendar baseload forecast. So it's not captured. So if there is a gap between our numbers and yours, let's look at it but we really took off-the-shelf numbers coming from market operators. It was – I mean the idea was just to show trends but happy to discuss that in more detail. But again those are meant to be baseload calendar lower prices for the different regions that we showed and second and third Louis.
To answer the end of your first question. So what we capture is of course we capture price, which is lower than the baseload price, which is between 60% to 70%. And in the guidance that we gave for 2023, we looked at prices very, very recently. So we looked at prices in February. So this is the right reference when doing our guidance.
The December prices were even here for illustrative purpose. So on question two and on the use of potential dilutive instruments so it's fair to say that we have done three convertible bonds historically. The first one being converted.
When looking at corporate debt instruments, we really consider the variety of potential instruments, so traditional debt a potential increase in our term loan potentially term loan B and of course, potentially convertible bonds. We intend to do slightly more than what was embedded in the 2021 plan. When we released it in 2021 for a very obvious reason gearing at project level are trending down and we stick to the 70% ratio that we said, so debt to invested capital and as a consequence as we have increasing upstreams coming to the parent company, we think we are in a good position to raise additional corporate debt still in a very conservative way.
Maybe two broad additional comments. I mean we are – let's say in an equity intensive in a capital intensive and hence in an equity-intensive industry. And still at Neoen, we believe that we have let's say a good mileage for equity. We historically have been able to develop gigawatts of projects with limited access to equity. Now that we've been listed since 2018 of course, we have access to capital markets. And yet we will be at 10 gigawatts at the end of 2025 and potentially 20 gigawatts at the end of 2023 actually without that much equity compared to what others are doing and we still have not activated some additional levers that we have something that we mentioned in March 2021, we could easily have minority shareholders in some of our projects.
At the moment, we are raising equity from the top plus a little bit of farm-down, let's say as the lateral source of funds. We could also open the capital of our existing and future assets and that will be a non-dilutive source of equity that we haven't tapped yet. So that is something that we may activate at the moment. The 6.6 gigawatt that we have in our portfolio I think 92% or 93% owned by Neoen, which is something that's pretty much no one can match in our industry. And it also means that we have a huge potential reserve of equity there.
Thank you, Mr. Arthur. We'll move on to our next participant, Philippe Ourpatian from Oddo BHF. Please go ahead. Your line is open.
Yes. Good morning to all of you. Very interesting presentation. I have three question, follow-up. The first one is concerning the German storage outlook for Neoen. Could you little bit elaborate about what are exactly your plan? What could be the installed capacity you are forecasting?
Concerning the US, you clearly answered to the question of my colleagues regarding your development but it seems that as the increase of renewable is accelerating through the IRA, is it for you let's say medium-term opportunity to develop ancillary services, means battery to grid businesses in the US as you have a quite silicon experience?
And the third question, is a question mark in fact. Your presentation of the 2025 update has no mention about hydrogen. First question, sub-question is why? And secondly, have you changed your mind about the hydrogen. That's the three questions I have. Many thanks.
Thank you. I can take the last one. Romain and myself can take the second one and the first one.
On hydrogen, you are partly right Philippe. There is something that was not mentioned in the presentation already, but it's in the slide talking about France. So it's still on paper or on screen even if not in my mouth. We do have a pilot for hydrogen at the moment in France. So hydrogen is something that we believe in. It's not something that you will see at significant scale in our portfolio before 2025. We do believe that we will have hydrogen assets before the end of the decade probably in Australia and in Europe, I don't think so in the Americas.
But at the moment, the math do not work, the economics do not work for hydrogen despite what some other can say. Electricity itself is very valuable and it's a poor choice to use electricity to produce hydrogen that's really a value destruction at least in the coming years. So we still believe that there will be improvement in this equation that there will be economies of scale innovation and everything.
We do believe that one day Neoen will not only sell electrons, but also hydrogen molecules and we believe that this will happen before the end of the decade, but certainly not before 2025 apart from a few pilot projects, which are good occasions to learn on how to operate those assets on a small scale. And again this is something that would potentially happen in France. It was mentioned in the slide describing what we do in France. We have a pilot near Paris.
On the US, or let's start with Germany actually. How to quantify? It's just the beginning. We do believe that given the strong push in renewables, wind solar means more intermittency. Given the future retirement of nuclear farms, nuclear plants and coal plants there will be let's say more instability. There is actually at the moment not much storage in Germany. And from what we have observed in other countries such as Australia or Finland there is an obvious need for storage, which volumes -- which market share for Neoen I mean, those are question marks, but still we believe that we can do something exciting there.
There we've hinting, the Germany experience will be an experience focused on storage. We believe it's a good entry point, we have experienced and we're probably not coming too late. Neoen will have a very strong difficulties to be a market leader in wind and solar in Germany. We believe there's an opportunity for us to be a storage player and focus on the storage development with the rollout of the market change on the progress. And that is what we would like to do in the next years to come. So no number yet. I think the team is joining and ramping up. We don't want to put pressure too quickly.
And you could argue that the same reasoning could be true for the US, but I mean never say never but we do not see ourselves going back to the US for solar and wind and I don't think that it will be true either for storage. There is much to do at the moment in Australia and in Europe for storage. The US is a market that we do not know well. And let's say, let's go back to the question in a few years, but I really do not see ourselves developing storage in the US.
Many thanks. Very clear.
Thank you. We will move on to our next participant, Juan Rodriguez from Kepler Cheuvreux. Please go ahead. Your line is open.
Hi, thank you for taking question. I have two follow-ups on my side. The first one is on storage. I would like to better understand the reasons on the difficulties you signal for these projects to get project financing. And as a follow-up on this one is maybe to better understand the contract framework for this increased duration CapEx that you're targeting in storage. How much of this can be locked in contracts and how much will be captured through higher spreads or services? A bit clarity on this will be helpful.
And the second is in the evolution of cost slide actually you signaled if I'm not mistaken on page 66 across technologies, which is quite useful. I'd like to better understand have you seen any one-to-one adjustment on the PPAs to these cost measures or have you seen any compression tightness especially in some region's technologies as we've seen some lag on project PPAs being tendered better clarity on this will be helpful as well. Thank you very much.
Thank you Juan. I can take -- start with the last one and maybe Louis-Mathieu can take the one on project financing, and Romain, the duration of batteries. Yes. So we have higher CapEx per megawatt. And at the same time we do have higher price points for PPAs whether with governmental counterparties or with corporate offtakers.
I would even say that the bargaining power has switched on to us. If you look at -- it's not true for all geographies and all situations. But if you look at let's say governmental tenders in France, they are undersubscribed. We do not have an unlimited ability to increase our PPA prices. There are some caps and there are some rules, but till we are able to pass our own CapEx increases onto our public clients in France in Ireland. And it's also true for discussions with corporate offtakers, the PPAs that we have signed in 2022.
I will not disclose the prices, but they are much higher than what was anticipated a year before, not only by Neoen but also by its future clients. And yet it's still a good deal for them, because that electricity even if much more expensive than what they thought one year before is still much cheaper than what they can pay on the market or with any other source of energy.
So, it's really something that in the end leaves no loser. There is really some ability for Neoen to keep good IRRs even with increasing CapExs and good gearings because we also have higher cash flows and in absolute terms that leads to more project debt funding, but it's still in the interest of our clients.
On project financing, maybe Louis-Mathieu.
Yes. On storage financing situation today is very simple. If you want to finance a storage project, you need either a capacity payment or a contract. So, that is what we've done for example on the VBB where we have a capacity payment. But apart from that, there is no way you can finance a storage asset if you are only doing some arbitrage or some sale of a FCAS product for example.
We are having discussions with banks at the moment to try to see how we can finance such project going forward, but it's very preliminary and in the plans that we disclosed we've not made any assumption on any significant project financing storage for the FCAS business or the arbitrage business, but we hope it will change in the coming years.
And duration, Romain?
The additional duration is I mean depending on the case, we're really on a case-by-case project, the additional duration can be required to provide a global PPA as we have in our BHP case where we decided to have a two-hour battery to be able to firm better the PPA. And in this case, this duration is included into the global financing of the battery.
In other cases, we can decide to add duration to be able to provide on the long run services on the merchant part and therefore it's not contracted and not financed. So, it's really a case-per-case for the storage.
Thank you.
Thank you. We will move on to our next participant Paul Chabran from Kempen. Please go ahead, your line is open.
Yes, good morning. Thank you very much for taking my question. I had two related to the industrial part of the business. For Louis-Mathieu I think you mentioned that Vestas offered you a full EPC contract with good protection against CapEx increase and delays considering the struggles of all OEMs, which you also talked about. Can you still purchase the same type of contract, or are there may be more let's say indexation clauses that you have to accept?
And second question still on EPC, could you just briefly tell us which other EPC providers you are working with in solar and wind? Thank you very much.
Norbert?
I'll take that one. On the EPC side of things, as I mentioned before, we're trying to as much as possible to have guaranteed price and guaranteed schedule. To be honest it's a struggle. The easy way would be to split the project in pieces and try to buy our stuff on our own in smaller pieces than 10 different contract.
I tried to mention in the presentation before, we are extremely happy that we could hold the line throughout the two or three past years. Just to give you a couple of examples. Suppliers would dream about making sure that if something is costing more than the end user the owner has to pay more. That's the guaranteed price of it.
And then maybe even more importantly in the past two years, when you look at what happened on the supply chain -- on the logistic cost of transporting modules for instance out of China to Europe or to our destination markets, as well as Australia, you had logistic costs going tenfold -- multiple it tenfold over the past two years. So, you don't want to go to buying your stuff free on board somewhere in China and then advantage for the transportation stuff. So, we're very happy that we could do that. Is it an easy thing? No, it's a permanent struggle.
One part of the answer that we are giving to that one of both is that we try, as I mentioned before, to propose a portfolio of projects on a multiyear approach towards our suppliers. So, when we come to the market -- and we go to the market, basically, what we offer and what we go through is not a project-by-project procurement or negotiation service, but rather to build on a relationship with Tier 1 long-term partners to whom we are proposing our volume for the next one, two, or three years and we have a limited number of suppliers. So, the short answer is volume makes the whole difference. And we think it strengthened the relationship with long-term partners.
You had a second question on the solar part of things. So, same answer on EPC obviously. The solar projects are a little bit less technical let's say to implement than the storage part or the wind one. So, we still see some appetite on most of our markets being Australia, Europe, but even in America, we still see some strong appetite into contracting with pure EPC on full turnkey of prices.
And then you had a sub-question on indexation. To some level although, we were resisting towards indexation at the time, let's say our markets were pretty stable, I have to acknowledge that in the second part of 2022, we did reopen and renegotiate a significant number of our contracts in which we took some level of indexation towards the core component of such contracts be it policy count when you talk about the solar project or lithium when you talk about storage project.
If you just have a quick look at what the trends in the future of the market are showing for the first part of this year, clearly we are going to benefit and our rate of return are going to be boosted by the fact that what we bought three months ago is now thanks to this indexation on at least those two components is going to lower our acquisition cost of those projects.
Thank you, Norbert. We have three questions coming through different channels. So, in writing. I can read them and fully answer them. First one was from [indiscernible]. Could you please provide an indication of installed capacity by year end 2023 and year end 2025?
So, by year end 2023, we will have five gigawatts fully in operation. By year end 2025, so out of 10 gigawatts in operation or under construction, which is the proportion of assets that will be fully in operation, hard to say, but it's something that will be typically 8.5 gigawatts. Hopefully, a bit more than that. Let's see if it goes at 9 gigawatts, but we will keep you updated on that I would say between 8.5 gigawatt and 9 gigawatt.
Well another question from Martin Tessier. Do you plan to raise further equity beyond 25% to reach the 20 gigawatt target? If yes, what will be your equity requirements over 2025 -- 2023 – 2030, sorry?
Well you do not get to 20 gigawatts from 10 gigawatt without additional equity, but as I said earlier there are different sources of equity. It can be raised at the top co level which is what we are planning to do in 2023 or it can also come from existing assets. The idea to have 10 gigawatt of assets almost fully owned brings two benefits. So at the end of 2025 we will have cash flows from those assets, but we will also have the flexibility maybe to raise capital within those assets by selling some equity at the project level.
I don't have in mind and nobody at Neoen has in nine yet the exact mix of funding that we will need to get to 20 gigawatts in 2030. That is something that we will discuss probably in 2025, but we let's say, the general message that I wanted to convey is that the growth between 2025 and 2030 will certainly be less dilutive at the top co level at the Neoen SA level than what we have seen, let's say, in the first chapter of our history.
We will have more tools in our hands. I mean you can also think about farm-down. We will have a lot of installed capacity. And in absolute terms, we will be able to monetize more than what we are already doing. So we will have more flexibility, more tools certainly less dilutive growth. And at the same time, there was nothing wrong until 2025 with raising new capital because I think that we have made good use of the equity that we have raised at the top co level.
There is also a question on the additional €150 million equity requirement for storage. What's the impact on the IRR of doubling of the megawatt hour capacity from one hour to two hours? Again this is a little bit unknown territory, but yes, the impact -- the idea is to have a positive impact because we can offer more services with the same assets. It's maybe one comment before Romain can answer this in more details.
The great thing with storage is that compared to solar and wind you can have different strategies. I mean, if you have 10 megawatts of solar that belongs to Neoen or to Iberdrola or to ENGIE whatever. I mean there's basically the same IRR profile in the end. There is no additional value brought by who the owner is.
With storage, especially, of course with Neoen because we have more expertise than many of our peers, we do believe that we have here a very differentiating type of assets and that the strategies and the procedures and the algorithms that we have developed in the previous years will be extremely valuable, especially, if we have the opportunity to have two hours to play with instead of one hour.
Think in average we guide on the IRR of a battery project and not on the IRR of the half of the battery in the second half of the battery. So in average the IRR of the battery project remains within our guideline. There's a strong volatility on what happens on the battery. It depends on the market opportunity, which of course are higher when there's a strong volatility. It also happens with the first mover advantage that Neoen has and with time the profile of the battery profit will change. So it's very hard to say what is the exact benefit of each part of the battery that we strongly believe in it.
There is one last question on screen that I will take from Michelle [indiscernible]. What is the run rate EBITDA range in 2025 if all assets were operating instead of under construction?
Thank you because I think it's a very interesting question. We said over this morning that we would have at least €600 million of EBITDA in 2025. But of course the run rate even if it's hard to quantify it's going to be north of €700 million the run rate EBITDA of those assets that will be in operation or under construction in 2025 to 10 gigawatts.
If I were to give you an indication don't take it as a guidance. I would say €750 million would be the run rate EBITDA of those 10 gigawatts that we will have in operation or under construction at the end of 2025. Of course, it could be more than that if batteries bring the expected extra performance that we feel they can bring.
Maybe a word of conclusion. Thank you. Well thank you everyone for your attention and for your questions -- your interesting questions. Many thanks as well to the management team of Neoen who presented with me today.
As you can see you have before you a team of very committed and talented experts. The takeaway from this presentation this morning is that Neoen has a great track record especially in the last two years and that we have a promising future.
Looking to 2025 into 2030, we are determined to deliver strong balanced and value-creating growth strong with 10 gigawatts at the end of 2025 and go to reach 20 gigawatts at the end of 2030.
Again we will be in Champions League among the big ones balanced because with our technologies, geographies and clients we can minimize risk value creating, especially, thanks to the Storage business and Energy Management expertise that sets us apart and in a way that allow Neoen to be more and to go beyond that the sum of its own parts, and profitable. Thanks to clear industrial and financial discipline and last, but not least sustainable because this growth meets the most demanding ESG requirements.
Thanks everyone for this discussion and looking forward to future questions and explanations. Thanks very much.