The road ahead with Rui Teixeira | edp.com

EDP Group’s Vision and Outlook for 2024

In the last two years we have faced a global energy crisis and a challenging macroeconomic scenario. But even so, the company managed to revise its guidance upwards, with an optimistic outlook for 2024. For these results, EDP’s CFO highlights the role of investors and guarantees investment in renewable energy projects that create value.

Considering the current scenario and economic projections, after an upward revision of the guidance for 2023, what are the expectations for the company’s financial performance in 2024?

After a challenging year in 2023, we successfully achieved the set goals, which makes us optimistic about EDP’s performance in 2024. We believe we are on the right track to fulfil the objectives communicated in March last year during EDP’s Capital Markets Day, forecasting a net profit of between €1.2 and €1.3 billion for 2024. This result reflects the strength of our diversified and resilient portfolio. We anticipate a strong performance in our integrated Iberian business, driven by hydro reservoirs above historical maximum levels, a trend that began in 2023 and will continue this year. We also highlight the importance of electricity distribution networks, bolstered by two positive regulatory reviews in 2023: the recent review of regulated electricity distribution tariffs in Portugal, with a 4 per cent increase compared to the previous year, and the impact of the regulatory review of distribution in Brazil. In addition, the active management of financial costs in 2023 should have a positive impact, due to the rebalancing of the weight of US dollars in our debt and a reduction in the weight of Brazilian reais in the total debt. The acquisition of 100 per cent of EDP Brasil’s share capital will also have a positive impact on the group’s net profit for 2024.

China’s real estate crisis, inflationary expectations, climate and geopolitical shocks, and high public debt... How are investors responding to these uncertainties and what are the prospects for energy investments, considering the various risk factors?

There is no doubt that in the last two years, the macroeconomic and geopolitical context has presented some challenges for the development of renewable energies. In particular, the year 2022 served as a wake-up call not only for the energy sector, but for each and every one of us: we had to face a global energy crisis, due to the war, along with the worst drought in 90 years in Iberia. This context, and the increasingly tight deadline we have to decarbonize our planet, reinforce the urgent need to boost the energy transition, accelerating the growth of renewable energies and the electrification of consumption. EDP’s commitment to the energy transition is embodied in our goals of investing €25 billion over the years 2023 to 2026 and adding around 18 GW of renewable capacity.

To this end, our investors play a key role, as allies in the energy transition. Our commitment to investors is to always ensure investment in projects that create value, always evaluating projects in relation to their risk and return and meeting our return targets at >2% IRR/wacc (internal rate of return/weighted average cost of capital), which we are currently achieving, even in this context of high interest rates and inflation.

"Governments are already intervening and need to continue to do so through concrete measures, guaranteeing a stable and reliable regulatory framework for investors."

What will it take for the renewables sector to regain market confidence?

Companies in the sector must continue to map out their strategies, focusing their investment on renewables, and it is essential to maintain the current long-term strategy of the European Union and the USA, and consequent regulatory stability. We have seen the launch of relevant policy measures in the EU, which now aims to have at least 40% renewable energy sources in its energy mix by 2030. The EU guidelines are essential and a very important first step, but now successful implementation and the path to the energy transition are at the level of the Member States, which must ensure speedy permitting and grid connection of renewable projects. In the US, an important step was taken with the Inflation Reduction Act, which provided visibility of investment incentives for more than ten years in different technologies. This was the most consequential change in federal energy policy in US history, an extremely important measure to increase investor confidence in this market.

Governments are already intervening and need to continue to do so through concrete measures, guaranteeing a stable and reliable regulatory framework for investors, otherwise we could jeopardize the energy transition. At EDP we will continue to do our part by continuing to invest in “traditional” renewable technologies, but also in innovative solutions and, necessarily, in electricity networks.