Snam S.p.A. (SNMRF) Q1 2023 Earnings Call Transcript

Snam S.p.A Q1 2023 Earnings Conference Call May 11, 2023 4:00 AM ET

Company Participants

Francesca Pezzoli - Head of Investor Relations

Stefano Venier - Chief Executive Officer

Luca Passa - Chief Financial Officer

Conference Call Participants

Javier Suarez - Mediobanca

Emanuele Oggioni - Kepler Cheuvreux

Stefano Gamberini - Equita

Davide Candela - Intesa Sanpaolo

Bartlomiej Kubicki - Societe Generale

Operator

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Snam First Quarter 2023 Consolidated Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation there will be an opportunity to ask questions. [Operator Instructions]

At this time, I would like to turn the conference over to Ms. Francesca Pezzoli, Head of Investor Relations. Please go ahead, ma'am.

Francesca Pezzoli

Good morning, ladies and gentlemen, and welcome to Snam Q1 2023 consolidated results. Today presentation will be hosted by our Snam’s CEO, Stefano Venier and by our CFO, Luca Passa. During the presentation, Stefano will provide you an overview of the results and the key highlights of the period, Luca will walk you through the financial performance, then back to Stefano for closing remarks, and finally the Q&A session.

And now let me handover to Stefano.

Stefano Venier

Good morning, ladies and gentlemen, also my side. I'm on slide two to start the presentation. Volatility continued in Q1. Gas demand declined by nearly 20% while gas prices experienced some stabilization, 46% below previous year level but still nearly two times pre-energy crisis level. Gas flows continue to be impacted by the geopolitical situation and the volume decline from North was offset by a 35% increase of LNG import and lower demand. On the regulatory front, we had two new array resolutions; the first number 139, that's the criteria for gas transportation and metering services, in the six regulatory period, that goes from ’24 to ’27. More importantly, it confirms the four years duration as well as the gearing and beta parameters. The second the resolution was the number 163 that defines the general rules for the ROSS base implementation supporting and smooth transition. Details such as capitalization, efficiency sharing rates will be defined after consulting period. We have just completed the submission to the regulator of the output-based incentives on the fully amortized assets based on the Asset Health methodology. We expect the full year contribution according to guidance with reactive effects since January 1.

First quarter results were solid. Investments of 313 million were up 5% year-on-year supported by the first floating vessel interconnections. EBITDA was up by 1.5% or 9 million Euros year-on-year, notwithstanding positive non-recurring items of 30 million posted in Q1 ’22. Net profit reached 301 million, down 7% year-on-year, affected by higher depreciation and amortization and higher cost of debt, while associates delivered stable contribution. Moreover, in April ’23, we closed more than 2 billion of sustainable financing supporting our solid financial structure as Luca will provide more details later on. In end, on April 4, along with the other core shareholders, we successfully placed 5.7% De Nora shares via an accelerated book-building to increase the free float supporting the potential share re-rating. The cash-in from Snam reached approximately 145 million and the capital gain about 76 million to be booked in Q2 2023.

Moving now to slide three, beyond the financial performance, we have progressed in delivering along our key strategic milestones. We made some sound progress on key security of supply projects. First, we received the green light by Arera on the Adriatic pipeline, which is also eligible for public financing. Second, the Golar Tundra started its commissioning on May 5 and will start operations by the end of May as planned. Moreover, all the capacity was sold for the first three years and 86% for the remaining 17 years, confirming the strategic role of this infrastructure for the entire Italian system. Additionally, OLT capacity was fully booked via auction until 2027 and we have the 20% booked for until 2029. Finally, regarding storage, 1.5 BCM of reverse flow capacity was sold in Q1 contributing along with gas demand decline to keep storage levels at approximately 65% well above last year.

With respect now to energy transition, the South H2 corridor that is promoted by Snam, among others, was presented to the EU within the project of common interests. And few days ago, the project got support letter by the Austrian, German, and Italian government that was sent to Europe. We further progressed on third party appraisal of H2 readiness of our network with now more than 1100 kilometers of pipe certified by RINA towards our 3000 kilometer target set by 2026.

Again, more than our H2 Valley, the development of a green hydrogen production have jointly promoted by Snam and Hera was awarded 19.5 million in funding that covers 100% of the investment as part of the national recovery and resilience plan. We were also awarded by 15 million Euros for the realization of eight hydrogen refueling stations. The participated De Nora just started the realization of the Gigafactory nearby the city of Milan.

Then moving to sustainability, CapEx aligned to taxonomy and SDGs represent respectively 30% and 46% of the total. We monitor the performance of our ESG scorecard KPIs on quarterly basis and you can find it in the appendix of this presentation and we are very well on track to reach the full year targets. We have done an extensive engagement with the key shareholders ahead of the AGM which resulted in an average approval rate of 97% on all the items. And according to a recent analysis, ESG investors represent more than 40% of our institutional investors’ base, well above the sector and Italian average.

Let's now move slide 4 and target European perspective. Europe and Italy are extending measures to promote security of supply, which remains a key priority, while policies to favor de-carbonization and affordability are progressively being outlined and implemented. Let's talk about storage capacity. The storage filling obligation of at least 90% by the end of October this year was confirmed at European level and emergency measures to voluntary reduce gas demand of 15% at national level were further extended to March 24. Moreover, on April 25, the EU Commission launched the process for European companies to register their gas purchases needs via the aggregate EU mechanism, a key milestone to refill EU gas storage facilities in coordinated and timely manner. The news that you find on the paper today is that 77 companies registered in this mechanism for a total demand of 11.6 BCM, as the Vice President Sefcovic declared.

Under the current Repower EU discussions, some of our key security of supply projects such as the Adriatic line, new LNG terminals for the reverse flow capacity, could be eligible to receive Repower EU funds in the form of grants and concessional loans, thus reducing the overall cost for the system. While looking at affordability, as far as production is concerned, the recently announced EU Hydrogen Bank will support green hydrogen production and import. While biomethane in Italy already enjoys a favorable incentive scheme providing 15 years feed-in tariffs coupled with grants. The RED 2 Delegated Acts has outlined certification rules that are conducive of centralized green H2 production model. This is consistent with the results of a new H2 backbone study promoted by major European gas DSOs, which estimates in 330 billion cost savings over the period 2050 through a Pan European H2 network.

Finally, the third angle, that is sustainability. The Net Zero Industry Act launched in March proposes a framework where greens hydrogen CCS and biomethane are defined as strategic technologies for strengthening a competitive net zero ecosystem in Europe. A new European CCS strategy is expected before year end. Both our CCS project in Ravenna, in South H2 Corridor, could be then eligible for EU funds. We are following very closely the final negotiation on decarbonized gas and hydrogen package aimed at assuring that green gases will contribute to reach the EU energy and climate objectives. It's expected to be finalized before year end, and will define the framework for hydrogen infrastructure and the rule of gas DSOs in the future hydrogen system.

Let's have a look now on the development of gas demand in the first quarter of 2023, and we are on page five. So then with regard to the gas market context, Italian full year demand was down by 20% due to thermal active sector down by 22.7% driven by gas to other fossil fuel switch. Electricity demand decreased by 0.7 BCM and raised in net electricity imports that was the major contributor in this decline. Civil sector contractors sharply due to the milder temperature and to demand containment actions. The vast majority of the Q1 decline is not structural, as driven my mild winter 1 BCM and containment measures by 0.7 BCM. We had a significant decline the industrial sector in line with what was observed in previous quarters, preliminary data for April points to a mild decline versus last five year average, with signs of recovering the industrial demand. Last year gas demand proved to be quite resilient in the first half and started to decline severely in the second part impacting year-on-year comparison.

Moving to gas flows, they were impacted by the geopolitical scenario with 48% decline in volumes from North compensated by higher LNG volumes plus 35%, and lower demand. At European level, in Q1, we had 15% increase in LNG imports or 2 BCM and we reached the record high daily deliveries of LNG in April, with US still the first exporter.

Let's move now to gas storage facility on slide six, which are strategic in the security of the supply and let me say also in the development of the prices in the -- will be in the forthcoming months. At the end of the thermal year, March 31, 2023, the stock in the storage was approximately 5.4 BCM that together with the strategic reserve corresponds to a filling level of approximately 60%, well above the previous five year and last five year’s average, as you can see on the chart. In April, storage was filled up on a regular basis with quantity injected in approximately 1.1 billion cubic meters and stock at the end of the month of approximately 6.5 billion cubic meters, which correspond together with the strategic reserve to a filling level of approximately 65% above your P&L average that hovers around 60%.

We face next winter with a stronger and more resilient energy system, as we have gas storage facilities full above a historical level and we are bringing on stream the first new floating vessel in the next few days, which will provide further input flexibility.

I now hand over to Luca to command the financial results.

Luca Passa

Thanks, Stefano, and good morning, ladies and gentlemen, also on my side. Let's now move to the EBITDA evolution and I'm on slide number seven. For the first quarter of 2023, we add 597 million of EBITDA plus 1.5% versus last year. The increase is mainly attributable to a 20 million growth in the regulatory revenues related to tariff RAB growth for 18 million and higher contribution from flexibility services provided to the system for 12 million, mainly related to the default and storage services, partially counterbalanced by a negative volume effect due to a milder weather and demand containment measures; a 15 million increase in the energy transition business mainly attributable to energy efficiency for 14 million in particular residential business deep renovation. Biomethane new plants contributed for 2 million euro. As a reminder, first quarter 2022 benefit from the one-off contribution from the sale of gas excess inventory, with a 33 million EBITDA positive impact and from the contribution of fees related to a telecom lease contractor for about 4 million Euros, which expired at the end of 2022.

Moving to slide eight, adjusted net income for the period was 301 million euro, minus 7.4% compared to first quarter 2022, mainly due to higher D&A by 13 million euro following rising investments, net financial expenses that increased by 13 million, mainly as a result of higher gross cost of debt, which went from about 0.9% in first quarter 2022 to about 1.5% in first quarter 2023 due to the increase in interest rates; a lower contribution from associates for about 5 million euro that was the result of the reduction of TAG partially offset by DESFA, Sea Corridor and Italian associates contribution. I will provide more details in the following slide.

Our portfolio of international associates confirmed associates performance. I'm currently on the following slide. Starting from January we benefited from the positive contribution of Sea Corridor, about 10 million that entering the perimeter on January 10th. TAP continued to work in full swing, even if, as known, the short-term volumes exceeding contracted capacity do not increase its contribution. The second step of its expansion endorsed by the European Commission is expected by year end or beginning of next year. Interconnector contributions slightly declined year-on-year by 7 million. Operating performance remains strong but profit cap mechanism kicked in while last year benefited from the recovery of past year and the performance. DESFA contributed positive by 11 million, thanks to the higher revenues due to the increased LNG imports and export to Bulgaria. The negative contribution from the Austrian tag of 23 million euro is due to expire of long-term contracts, only partially offset by higher reverse flow bookings. Finally, Terega, plus 4 million; increase was due to the higher books in from Spain and lower energy costs.

Turning now to our cash flow on slide number 10. Cash flow from operations for the period amounted to 224 million euro, including 261 million of cash absorption from the working capital evolution. This was driven by minus 480 million due to the balancing activity of which about 170 million related to cash deposits decrease due to price reduction, and about minus one 210 million related to the full service receivable increase, minus 180 million of energy efficiency fiscal credits increase driven by echo bonus revenues. The negative effects were partially counterbalanced by plus 290 million temporary effects attributable to additional charges, plus 100 million other regulated cash deposits related to storage following the start of the new thermal year. Net investment for the period amounts to 783 million euro and are mainly related to net CapEx and CAPEX payables for 374 million euro, the cash out for the acquisition of Sea Corridor for 409 million euro. Other outflows were related to the payment of the interim dividend for 376 million euro.

Moving to slide 11. Due to the previously commented cash flow evolution, the change in net debt amounted to about 950 million euro resulting in 12.9 billion net debt at the end of first quarter 2023. Average cost of debt moved to 1.5% and the fixed-to-floating ratio stands at 82%. Sustainable finance and committed financing was stable at 70%, not including the recent funding that was mentioned and closed in April. Considering such funding, it would have moved this ratio to 73%. Funding for the year is substantially completed. In April, we secured more than 2 billion of medium long term ESG linked financing, out of which 1.8 billion RCF obtained by a pool of banks and guaranteed by such [Phonetic]. In April, our recent EU taxonomy aligned transition bond has been awarded as Transition Bond of the Year by environmental finance is evidence of our continuous efforts in sustainable finance.

Given the previously commented working capital evolution and the pre-funding already executed, financing needs for 2023 are almost covered and we expect the net debt evolution in the range of 15 billion to 15.5 billion at the end of 2023, depending clearly on working capital volatility. Finally, in terms of financing costs, based on current forward curve, we expect the average gross cost of debt to increase to just below 2%.

And now, let me hand over to Stefano for his closing remarks.

Stefano Venier

Thank you. Thank you, Luca. So then, we delivered, I think, a solid Q1 results in a volatile environment characterized by weak gas demand, gas prices declining, but above pre-crisis level and rising interest rates. First quarter is on track to achieve 2023 targets that we can then confirm and that are in detail 2.1 billion Euros of total investments that will be up 10% year-on-year driven by the CapEx on our gas infrastructure and the acquisition of the second floating vessel, the BW Singapore, that will be located in Ravenna, 22.4 billion tariff RAB that will be 5% up year-on-year, net income of around 1.1 billion, and dividend per share up by 2.5% versus 2022, in line with our dividend policy. As was just said, net debt to fall within a range of 15 billion to 15.5 billion Euros, assuming a partial reversal of regulatory working capital. We face 2023 with a much stronger and resilient energy system and we have done sound progress on the delivery of key security of supply projects. Finally, EU and Italian policy support our long-term carbon neutrality path and the Repower EU funds redirection could support further key security of supply projects while improving affordability.

We now are available for your question. Thank you.

Question-and-Answer Session

Operator

Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. [Operator Instructions] The first question is from Javier Suarez of Mediobanca, please go ahead.

Javier Suarez

Good morning. Many thanks for the presentation. Several questions, the first one is going to be portfolio management by the company, which I have read on the press potential several disposal processes in [inaudible] or the possibility of increasing the stake on the Rovigo LNG terminal etc, etc. And at the same time there have been recent decisions to rotate asset such as the stake in De Nora and also you have made modification in the settlement agreement with CDP directly on the Passo. So the question for you is, can you elaborate for us again on your preferred way of financing new acquisition that could imply for your stake in companies such as De Nora and Italgas or other stakes that you have in your portfolio. That would be the first question.

The second question is on the guidance confirmation. I want to ask if you are also confirming the recent guidance on the EBITDA up 2.4 billion Euros including up to date incentive at 100 million Euros and a contribution from energy expenses and business of 70 million Euros. You can please confirm also that.

And third question on just the regulators’ statement on debt guidance. I think that you have mentioned that the EPOs [Phonetic] are partial re-absorption of regulatory working capital in 2023, you can be specific on your assumption in regulatory working capital absorption that is behind the debt guidance of 15 billion to 15.5 billion Euros by the year end. Thank you.

Stefano Venier

Okay. With respect to the opportunities on the M&A you were mentioning, of course, I like to confirm that the company is interested, of course, in understanding how the situation for Edison gas storage will evolve. As I stated several times, we are ready to set with Edison, as soon as Edison will decide how to progress in this potential disposal. It works exactly the same for every Adriatic energy. As you know, we are shareholders in the company; we are following the process that the other two shareholders Exxon Mobil and Qatar Energy just launched and we have agreements with the two shareholders with respect on how and in what circumstances we might round our stake in that asset. Of course, consistently with what we said at the capital market day, this kind of acquisitions will be or can be funded in total or partly through asset rotation.

With respect to the companies you mentioned, I think our valuation will be not limited to those. I would like to exclude again the fact that we will consider a disposal of the Italgas’ stake, whilst in case these two transactions will successfully be concluded, we will see what is going to be the cash out and we will measure the eventual options on asset rotation also with respect to the total net financial positions that we want to maintain consistently with the thresholds and references we have set and we have with the rating agencies. With respect to the guidelines on EBITDA, we can confirm the 2.4 and then I'll turn to Luca for the working capital comments.

Luca Passa

Yes, thanks, Stefano. Yeah, on question number two, EBITDA, basically, we confirm the guidance on EBITDA 2.4, which includes output-based incentives just north of 100 million for this year, for 2023, while we're assuming 100 million basically on average for the rest of the business plan. And then there is an additional business that will contribute around 70 million EBITDA. So basically, the numbers you were discussing before are fully confirmed. As far as the evolution of working capital, regular working capital, basically, we expect for our assumption of guidance of 15 to 15.5 and of net debt at the end of the year, an absorption in terms of working capital in the region of basically just north of 2 billion and that is based on the absorption that we mentioned in terms of regular working capital, in particular [inaudible] will wait up to a maximum of 800 million, tariffs related items in the region of 400 million and other working capital items for about 300 million. Clearly we will have an increase also in the absorption of working capital driven by our stock of energy efficiency eco bonds credits, which will rise to about 700 million and those are basically the main drivers. Clearly in the net debt guidance, we also included the put payment of the dividend which is just north of 900 million.

Javier Suarez

Thanks.

Operator

The next question is from Emanuele Oggioni of Kepler. Please go ahead.

Emanuele Oggioni

Good morning. Thank you for taking my question as well. First one is on south issue corridor. Recently we heard that the Italy, Germany also signed the letter to put these projects under European Union common interest project. So it seems that these could be brought forward by few years compared with your original plan to invest in these projects after 2030 for 4 billion in -- only for the bagging the project and then I also further a billion for the storage capacity -- 3 billion for the storage capacity. So I wonder how these additional CapEx or put forward CapEx could be financed and how could it impact or how it will change the outlook for the company for, I think, it has improved a lot recently, in the last few months for the mid-term. And then another question was on the disposal, more clarity on the asset to be disposed. So the Italgas you mentioned, like asset, is not in the short term among the disposals, but you put the stake among the asset to be sold. So can you recap the priority of your disposal? Thank you.

Stefano Venier

Thanks Emanuele. I mean, regarding basically the first question, first of all, when we presented the plan in January, we have assumed that the 4 billion estimated expenditure for the South H2 corridor was partially before 2030 and partially after 2030. So basically, we estimated the CapEx expenditure starting in the last two years of the decade and the rest for the transport up until 2032. And those are currently part of our long-term business plan and potentially be financed with the cash generation that is within the business plan, i.e. the financing of this CapEx is sustained in by the organic growth of the company. As far as the additional 3 billion for storage, those were originally planned towards 2035, so in the first five year or the next decade, and clearly, once we're going to get there, we will see whether any additional financing measures will be needed in order to basically commit also those CapEx. But in terms of the acceleration of this investment, given the support of the three nations that you were mentioning, I mean, nothing has changed in that respect. I think the real news here is that there is a support from the three major countries involved in these projects that make these projects, let me say, more probable to happen, obviously, depending on what will be the European policy around transport and storage for hydrogen. And then on the second question, you want to answer?

Luca Passa

I can simply reconfirm the clustering we presented at the capital market day. Those if you remember where -- all the associates were clustered in three groups and there was one that included those assets that we deem could be eligible in case of asset protection to support the M&A, and I can simply confirm that. With the specification that with respect to Italgas, that is not a matter for the short term, the disposal of the stake and we also said several times that that stake can be used or can support the some financing structures.

Stefano Venier

And let me just add that, we don't have currently any asset disposal plan in our budgeting. So, clearly these are, let me say, our reasoning if asset rotation will be needed in order to support inorganic investment.

Emanuele Oggioni

Great. Thank you.

Operator

The next question is from Stefano Gamberini of Equita. Please go ahead.

Stefano Gamberini

Good morning everybody and thanks for taking my three questions. The first thing, the fact that the regulator define the general criteria of the, we can say, so called simplified targets [Phonetic] from 2024, you underline that the other criteria will arrive in the second part of the year, but could you comment, if you expect more benefits or risks from the introduction of this simplified targets system from 2024 onwards and probably we can see a full targets approach from 2026 or 2028, we will see.

The second question regarding the -- out of these incentives, you underlined 100 million Euros -- north of 100 million Euros in 2023 and more or less 100 million Euros on the long run. Could you give us a breakdown of these topics? What is the part related to the postponement of, we can say of, the fact that the assets will remain on stream for a longer period and when the regulator will approve all this mechanism if I understood correctly, your introduction? And the same for the 70 million euro non-regulated business what is the part of efficiency measure that are of these 70 million Euros and if you have a projection or so for 2024 would be very welcome.

The third is regarding the trend of working capital next year, do you expect a further absorption for working capital next year or the level that you reach at the year-end will be more or less normalized also for the following years? Many thanks.

Luca Passa

Okay. I'll start from basically the more financial questions, Stefano. So, output based incentive, in terms of the breakdown, clearly we cannot give a full breakdown of output based, but on the asset type, the contribution should be in the range of 40 million to the overall number on a yearly basis. We submitted, basically, our proposal to the regulator. For this year, we expect -- for this year, basically their approval at the end of June, so within a couple of months. Then when it comes to the breakdown of efficiency or energy efficient business to our EBITDA guidance of 2.4 billion, for this year, as I said, is in the region of 70 million. The majority of the contribution comes from the energy efficiency businesses while [inaudible] will contribute in the region of 10 million of the overall 70 million euro contribution. Finally, on the trend of working capital absorption, it is very difficult to say what would be the effect for next year, because a lot will depend on whether we will have any, let me say, delay in absorption this year, depending on prices in the last quarter of this year. So, to be honest, while we are expecting, let me say, our absorption of the positive effect of last year as I commented before on the different items, very difficult to say whether we will have, let me say, a negative effect next year, because it will depend on the prices in the fourth quarter of this year.

Stefano Venier

With respect to the targets, what we can say is simply the fact that we shared the principle of the new methodology that the authority intends to progressively introduce. Of course, we are still missing the details, I mean the mechanism for the regulation of this low money, first money and all the other aspects that relates to this approach. Therefore what I can say we don't see any fact or aspect that could jeopardize the profitability of the company and we are supportive and we will still wait to understand how it will be fine defined in the, say detail.

Stefano Gamberini

Many thanks. I have one question remaining, if I may. Regarding the South center hydrogen corridor, what are the next steps that we can expect before the full approbation of this project by EU? And what is the financing or the incentive that you expect from EU for this kind of project, if I may? Many thanks.

Stefano Venier

It's pretty difficult to say. What they can tell you is that discussion at European level with the people delegated by the commission to define, firstly, if this project can be eligible and can be considered within the projects of common interest is ongoing. I mean, we have I would say a weekly exchange of information with the team delegated to provide further information about how we think this project should be set up and also in defining more precisely volumes and projections we expect. That is, let's say, the phase we are in. Then the following will be, of course, in the hands of the Europe that will set up the level of incentives definitely as four old corridors about hydrogen, the portion of public support need to be significant, especially on the CapEx side, otherwise the cost of this infrastructure will be significantly high. I can say that, generally speaking, the so-called chassis funding support is generally 50%.

Again, with respect to the comparison to other corridors, what I can say is that the percentage of repurposed pipes, it's much higher in the case of the South H2 corridor because it hovers around -- we estimate it will hover around 70%, with only 30% of the pipes that need to be built brand new, and this number is much lower than the ones referred to the other Southern corridor or the Northern corridor. And of course, this has an implication on the total CapEx that as we said, in the case of the South H2 corridor is almost one-third of what it would be in case of total brand new construction. And on the other side, also has a favorable impact on the transportation tariffs that becomes more competitive. But to be straight to your point, I mean, we are just in the middle of the process of discussion with the EU guys to understand the eligibility of this project for the projects of common interest and the eligibility on the financing and also, as I said, with respect to the competition of other projects.

Stefano Gamberini

Many thanks.

Operator

[Operator Instructions] The next question is from Davide Candela of Intesa Sanpaolo, please go ahead.

Davide Candela

Hi there. Good morning, gentlemen, and thank you for the presentation. I just have one and I was wondering if you can share your view about gas demand individual term, so meaning, I will say after 2025. And my question is looking at the new vessels that are coming on stream, so the supply of Italy going up by about 10 BCM, do you expect further infrastructure that will be needed in the second part of this decade in Italy to further diversify the imports if the condition we have seen today remains as stable in the future or this new vessel will provide for the regular supply for the second part of the decade? Thank you.

Stefano Venier

With respect to the global gas demand in Italy and the rest of Europe what I can say is that this year, our projections pose the total demand in line with the full year 2022. We have to say again that this total demand around 68 BCM is the consequence of some permanent efficiency gains, especially in the industry and in the side domestic consumption but this refers only to 20%, 25% of the total reduction in consumption from the historical 75 BCM. And the reason why is because the majority of the reduction in consumptions was driven by the mild winter, we had either in Q4 2022 and Q1 2023, they switch off to other fuel. If you look at the prices at European level, I mean, and you look at the gas prices at 35, 37 Euros per megawatt hour, these prices are still higher than, for instance, the LPG or other oil derivatives and, therefore, for some of the industrial sectors, it is still more competitive to use those kinds of fuels rather than gas.

And also, with respect to the thermal electric generation, we still have the full utilization of coal production that is taking away more than 2 BCM demand from the global demand and I think the first objective for Italy in Europe is to get rid of coal that is the most impacting in terms of emissions and that is the demand that will be back for gas. Therefore, what we do expect is a slight recovery in the years between 2025, 2026, 2027 moving back beyond the 70, 71 BCM and then seeing the effects of the decarbonisation process with the electrification of the consumption and the development of the renewable generation that will bring back the global consumption of Italy in between 60 to 65 BCM by 2030 and that the best projection we can make, assuming that the targets in the renewable deployment will be met.

With respect to the infrastructure, I mean, this kind of numbers are not different than the ones that were used to estimate the needs of infrastructure for the country, specifically with respect to the two floating vessel and the new Adriatic backbone. Of course, these numbers do not take into account the opportunities to export part of the gas in the central part of Europe, mainly those countries that are around Italy, like Austria, Bavaria, Hungarian and Slovakia that are looking at Italy as one of the potential sources for their needs. In fact, last year, we exported, as you remind, almost 5 BCM of gas that we expected will move up especially in the next decade.

Will the two floating vassal be enough or we will need a further capacity of LNG? Here comes also the strategic choices we intend to pursue. Of course, with a 10 BCM and some spare capacity that has been added to OLT and Adriatic LNG will bring the total capacity of LNG up to 40% of the total demand of the country. We might target the 50% to gain further flexibility. What I can say is that with the projection we make the LNG capacity will be fulfilled for more than 70% up to the 2030, 2032, and then we'll hover at north of 50% with this capacity. And of course that is the number that is in line with historical average of utilization of the re-gas units, nothing different than that. So I think that at the end of the day, adding up to 5 BCM of LNG could be another step forward to the further diversification of the sources and strengthening of the role of Italy as a corridor also for the surrounding countries. Sorry if I made it too long.

Davide Candela

Now that was clear and thank you for that.

Operator

The next question is a follow up from Emanuele Oggioni of Kepler. Please go ahead.

Emanuele Oggioni

Thank you. Just a quick follow up on Adriatic corridor. The project was recently approved by the Italian regulator. And as you said, it could be eligible for the EU funding. So if I recall this project is included for roughly 1 billion or 0.9 billion in your current business plan out of 2.4 billion total of investment. So I wonder how much of the CapEx could be self-financed and that will enter in the RAB and what will be the remaining part not eligible for the RAB, due to the EU funding or grants? Thank you.

Stefano Venier

Thanks Emanuele. It's very difficult to comment on how much funding could come from the revalue around the Adriatic project. Correctly you pointed out 900 million on this plan, our total CapEx disbursement of 2.4 billion estimated for the project, of which the majority again is beyond the 2026, highly beyond the plan. Clearly if we are going to get some funding, we might think of accelerating this investment a little bit in terms of timeline, therefore potentially allowing us to accelerate. And then, in terms of the impact that this would have, if we get limited grants, Repower EU grant around this investment, clearly, the remuneration of the contribution of this investment is partial, i.e., we're going to get 10% amortized over five years, which is what is allowed by the European Commission, when you get basically public funding for this kind of regulated investment. But that's forward kind of investment in regulated business and when you get, basically, public funding.

Emanuele Oggioni

Thank you. Very clear.

Operator

The next question is from Bartlomiej Kubicki of Societe Generale. Please go ahead.

Bartlomiej Kubicki

Good morning. Just two quick things. Firstly, in France, I think there's some discussion right now about the new regulatory period from 2024, which of course will impact your Terega business. If you can actually share with us your expectations whether it could have any material impact on the business or not, and what can we expect from the outcome, or what do you expect from the outcome? And secondly, on the strong cost contribution of DESFA [Technical Difficulty] to be relatively volatile, but how much of this improvement do you think is structural and how much is coming from this sort of seasonal volatility in the first quarter and what do you think we can expect in terms of DESFA contribution this year? Thank you.

Luca Passa

Yes, thanks, Bartlomiej. I mean, regarding Terega, basically, yes, there is a revision of the tariff which suppose will affect the tariffs starting from next year. The expectation for us this to, basically, go down just a little bit -- basically, shy of 60 basis points with the current, basically, remuneration. But again, the visibility on this change will happen towards the fourth quarter of this year. Clearly, we have an assumption of this reduction already embedded in our business plan that we presented in January. Then in terms of the contribution of DESFA, I mean, DESFA, as already mentioned, had a positive contribution in the first quarter vis-a-vis our expectation. We expect this contribution to basically continue to perform towards the end of this year but going into next year, it's very difficult to say. For this year, we are talking about 45 million in terms of contribution fully in 2023.

Stefano Venier

If I can add something to the point of this time, what is important also, is the fact is in the perspective what is going to be the role of the interconnection with Bulgaria that significantly contributed to the flows very soon January 1 -- January next year we will have the new float investment of Alessandra [Phonetic] on stream that will provide further flows, partly directed towards Bulgaria. And also third point that will stabilize going forward the perspectives and the profitability of the company relates to two aspects. First, the 10-year development plan that has been increased significantly under the request of strengthening of the infrastructure due to the new floating and new flows toward North, not only within the country, and this 10 year development plan will be significantly higher than the previous one. I wouldn't say double but 50% more than the former one. And the second we have the discussion on going with a Greek regulator also on the return for the regulated activities in the country. And again, as for Terega, we expect an outcome by the end of the years and this outcome, of course, will come after the domestic elections that will take place in the forthcoming months. And again, differently from the situation in France, as far as Greece is concerned, we expect the enterprise in the allowed return from transportation infrastructure, and that also will contribute on the stabilization and profitability of the company.

Bartlomiej Kubicki

Thank you. Just a clarification, this new return will apply from 2024 or retrospectively to 2023 as well?

Stefano Venier

What we expect is a transitory period for 2023 and the new one applied from 2024.

Bartlomiej Kubicki

Thank you, Stefano.

Operator

Gentlemen, there are no more questions registered at this time.

Stefano Venier

Okay, then, thank you. Thank you all for participating to this conference and have a good day. Thank you.