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Enagás Will Invest 2,775 Million Euros in Security of Supply and Decarbonisation Until 2030

By July 12, 2022 12   min read  (2314 words)

July 12, 2022 |

Fuel Cells Works, Enagás Will Invest 2,775 Million Euros in Security of Supply and Decarbonisation Until 2030

Enagás today presented its 2022-2030 Strategic Plan, with which the company aims to adapt and anticipate the challenges that the new global context and the new European energy paradigm represent for Spain and for Europe.

Until 2030, the company plans to invest 2,775 million euros. Adding the interconnection projects included in the European REPowerEU document , this figure rises to 4,755 million euros.

Highlights

  • Enagás presents a new Strategic Plan 2022-2030 with the aim of adapting and anticipating the challenges arising from the new global context and the new European energy paradigm.
  • In this context, the company’s strategic focus will be to help guarantee the security of energy supply and advance the decarbonisation process in Spain and Europe.
  • The company resumes a path of growth focused on Europe, with an investment plan that will translate into an average annual increase in adjusted Ebitda of 2% for the entire period, and 4% between 2026 and 2030.
  • The four growth axes of the Strategic Plan are gas and hydrogen infrastructure and adjacent businesses, innovation, technology and digitization, international development, and the activity and projects of Enagás Renovable.
  • The company will intensify its efficiency plan to minimize the impact of inflation on manageable costs, maintaining its commitment to employment.
  • Enagás has confirmed its dividend policy: it will increase it by 1% in 2022 and 2023 and will maintain it at 1.74 euros per share until 2026.
  • The net profit forecast for the 2022 financial year is between 380 and 390 million euros
  • The company’s new Sustainability and Transformation Roadmap, associated with the Strategic Plan, reinforces Enagás’ solid profile in the three areas of ESG.
  • Enagás has renewed its website with a new design and improvements in accessibility and usability, reinforcing its commitment to transparency with stakeholders.

With the entry into operation of these investments, Enagás expects profitable growth in EBITDA adjusted for dividends of 2% compound annual growth rate (CAGR) for the period 2022-2030, and 4% per year between 2026 and 2030.

During his presentation, the CEO of Enagás, Arturo Gonzalo, highlighted that “Enagás thus resumes a path of growth based on projects of our core business ” and “in a mainly European sphere” as the strategic focus of the investment plan.

Arturo Gonzalo explained that “this 2022-2030 Strategic Plan repositions the company around the two main axes of the new European energy paradigm and Enagás’ purpose: security of supply and decarbonisation”, and highlighted that “in the current complex energy and strategic context, Spain, and also Enagás, can contribute decisively to these European objectives”.

Reference TSO and future HNO

To this end, he pointed out that “the integration of the European energy system through infrastructures is fundamental” and he stressed that a key lever will be those already prepared for hydrogen. “Enagás is a reference European Transmission System Operator (TSO) and this Plan positions us to also be a reference Hydrogen Network Operator (HNO) in 2030”, in accordance with the provisions of the current proposal for community regulations. Along these lines, he clarified that “in 2030 the entire hydrogen infrastructure will be transferred to these HNOs and it is expected that the TSOs will be able to perform this function”.

According to the European Hydrogen Backbone initiative , promoted by 31 European TSOs ─including Enagás─, between 60% and 75% of the natural gas infrastructure can be reused for hydrogen, with which the future network of European corridors will be able to develop all the potential for renewable hydrogen production. Enagás is a key player in the Iberian Hydrogen Corridor, contemplated in REPowerEU , as well as in future infrastructures in this field.

REPowerEU proposes accelerating hydrogen consumption in the EU, which it estimates at 20 million tons in 2030, of which 10 million tons would be produced in Europe and another 10 would be imported.

For that 2030 horizon, Spain could provide Europe with 21 bcm ─equivalent to 2 million tons of hydrogen per year─, which represents 20% of the expected hydrogen production in Europe.

The CEO of Enagás has stated that “together with the critical importance of gas infrastructures”, the new Strategic Plan “is built on the conviction that Europe is going to make its commitment to the creation of a genuine market for renewable gases a reality” because the EU has the industrial capacity, learning curves and economies of scale that are going to make hydrogen competitive sooner than expected and, above all, the political will and determination to promote it, through the necessary regulation.

Investments around four axes of growth

The 2022-2030 Strategic Plan establishes four axes of growth: gas and hydrogen infrastructure and adjacent businesses, innovation, technology and digitization, international development with the main focus on Europe, and green hydrogen and biomethane generation activity and projects of the subsidiary Enagás Renovable.

In its first axis, gas and hydrogen infrastructures and adjacent businesses, the Plan foresees investments of a total of 1,780 million euros until 2030, of which 890 million correspond to the period 2022-2026.

These investments include the adaptation of infrastructures to the regulatory forecast of 3% hydrogen as the limit for injection into the gas network, the start-up and adaptation of the El Musel Plant as a logistics center, or the Green Link project for connections of biomethane to the network, among others. The company plans to invest 850 million euros in these natural gas and transition infrastructure projects, 470 of them until 2026.

This first axis of growth also includes dedicated renewable hydrogen infrastructures, for which investments of 690 million euros are planned, of which 235 million will be invested until 2026. It includes the main transport projects such as HyDeal —in Asturias and Castilla and León— and Catalina —in Aragon and the Valencian Community—, the connections to the transport network, and the research and development of new hydrogen storage facilities.

As for the businesses adjacent to Enagás’ core business , also included in the first axis of growth, they are related to the use of LNG in sectors that are difficult to decarbonise, such as maritime transport and with small-scale and bunkering infrastructures , as well as the use of renewable gases in sectors such as mobility. An investment of 240 million euros is planned during the nine years covered by the Strategic Plan, of which 185 million correspond to the 2022-2026 period.

The company also considers in this first axis the interconnection infrastructures contemplated in the European Commission’s Plan to reduce the EU’s dependence on Russian energy resources, REPowerEU , projects that the company has submitted to the Ten Year Network Development Plan (TYNDP)and that would entail an additional investment for Enagás of up to 1,980 million euros. These infrastructures are in the proposal and analysis phase for their approval by European regulators. Therefore, until all the information in this regard is available, the company has not included them in its financial projections. Specifically, these projects are a third Pyrenean connection, an underwater gas pipeline to connect Spain and Italy, and a third interconnection with Portugal. All of them would be prepared to transport hydrogen.

For the second axis of growth, innovation, technology and digitization, the Plan contemplates an investment of 105 million euros. Of that amount, 90 million correspond to the period between 2022 and 2026. Among other initiatives and projects, it includes Enagás’ participation in the Hy24 and Klima funds.

In international development ─the third axis of growth─, Enagás plans to allocate 600 million euros (150 million between 2022 and 2026) to projects framed in the Mediterranean Corridor, such as doubling the capacity of the Trans Adriatic Pipeline (TAP) to 20 bcm, and the development of infrastructures in Greece, through its subsidiary Desfa, and in Albania, based on the agreement recently signed with the TSO AlbGaz.

Along these lines, Arturo Gonzalo highlighted that, of the three large linear natural gas infrastructures that REPowerEU includes , “Enagás is positioned in two of them: the expansion of TAP and the submarine gas pipeline between Spain and Italy”.

The fourth axis of growth contemplates the activity and projects of Enagás Renovable. This subsidiary plans to invest 205 million euros in the period in 30 projects for the production of renewable hydrogen and the decarbonisation of all sectors, and 85 million euros in 20 projects for the production of biomethane and the promotion of waste management to contribute to the development of a circular economy. A total of 290 million euros, of which 170 million correspond to the 2022-2026 period.

Arturo Gonzalo has announced that “during this month of July, the entry of Clean H2 Infra Fund into Enagás Renovable, with 30% of the capital, is expected to close”. This new investor is an impact fund managed by Hy24, the largest clean hydrogen infrastructure investment platform in the world, which is a joint venture between Ardian and FiveT Hydrogen.

The CEO of Enagás explained that “the vast majority of the investments that we contemplate in this Strategic Plan have a regulated business model or that will be regulated in the near future, or they will have contracts that guarantee security of returns comparable to that of the regulated activity”.

Regulation

The new energy paradigm requires regulatory actions to accelerate the energy transition and facilitate the optimal contribution of infrastructures to energy security in Spain and Europe.

The first tranche of the Strategic Plan, between 2022 and 2026, has a stable regulatory framework and, in the second tranche, starting in 2027, the regulatory bases will be laid for the new renewable gas networks, especially hydrogen. The company is actively working to anticipate this new regulatory framework, for which it will be essential to promote integrated planning of the electricity, gas and hydrogen networks.

Projections 2022-2026

In its projections until 2026, Enagás has confirmed that it maintains its commitment to increase the dividend by 1% per year in 2022 and 2023, and maintain a sustainable dividend of 1.74 euros per share between 2024 and 2026.

Both the shareholder remuneration and the investment plan are supported by the solid cash generation forecast for the period and, also, by the company’s good liquidity situation: 3,300 million euros as of December 31, 2021.

The Enagás Strategic Plan also contemplates the intensification of its efficiency plan in the 2022-2026 period, with the aim of minimizing the impact of inflation on the company’s manageable costs. In the words of Arturo Gonzalo, this plan “means further increasing our high level of operating efficiency, and includes measures such as exhaustive control of corporate expenses, maintaining our commitment to employment.”

Financial year 2022

The Net Profit target forecast for the end of this year is between 380 and 390 million euros. This figure considers both the capital gains derived from the company’s asset rotation process, as well as an impairment of the investment in Tallgrass Energy, in the United States.

Within the framework of this rotation policy, the company plans to close the sale of three assets this year: the 50% stake in the Morelos Gas Pipeline in Mexico will generate a net capital gain of around 35 million euros. The entry of the Clean H2 Infra Fund as a financial partner in the shareholding of Enagás Renovable, with a 30% stake, will contribute a net capital gain of approximately 50 million euros. And the sale of 45.4% of GNL Quintero, in Chile, will mean net capital gains of around 120 million euros and 98 million euros in profit after taxes.

As for Tallgrass Energy, the US investee foresees a very relevant investment in the short and medium term, which it will finance with cash generation, prioritizing its growth plan and its investments over the distribution of dividends in 2022-2025. After analyzing the projections for Tallgrass, and applying a prudent view of the expected returns on these new investments, as well as considering the increase in interest rates, Enagás has considered an estimated impairment of the investment in Tallgrass of between 130 and 140 million euros

New Roadmap for Sustainability and Transformation

Arturo Gonzalo highlighted in his speech that “Enagás has a very solid profile in ESG” with significant progress in recent years in its three areas, environmental, social and corporate governance, which have been reflected in leadership positions in the main indices of sustainability in the world.

Within the framework of the 2022-2030 Strategic Plan, the company has also presented its new Sustainability and Transformation Roadmap.

In the area of ​​sustainability, a key element of this roadmap is Enagás’ commitment to achieve carbon neutrality by 2040. To this end, the company has outlined a decarbonisation path with emission reduction targets in line with the scenario increase in temperature of 1.5ºC, which has already allowed it to reduce its emissions of tons of CO 2 equivalent (tCO 2 e) by 54% between 2014 and 2021. In addition, it has set itself the goal of reducing its indirect emissions of 3 by 25%, and 50% in 2030 and 2040 respectively.

In addition, the company has more than 50 renewable gas projects, which are a key part of its strategy to be carbon neutral.

The investments of the Enagás Strategic Plan 2022-2030 also respond to the requirements of the decarbonisation plans of the Green Deal , a roadmap towards a climate-neutral EU in 2050, and Fit for 55 , a package of measures to reduce emissions in at least 55% by 2030.

In the social and Corporate Governance sphere, Arturo Gonzalo highlighted the company’s commitment to people, to maintaining employment and to its Diversity and Inclusion Policy, noting that Enagás “already has 40% women in its Board of Directors and 33% in the Executive Committee, and we are going to continue advancing in terms of diversity and equal opportunities at all organizational levels of the company”.

Reliable energy for a decarbonized future

During his speech, Arturo Gonzalo mentioned that the motto of the 2022-2030 Strategic Plan, Reliable energy for a decarbonized future , “sums up the purpose of the entire team of people who make up Enagás: to continue contributing to society having energy reliable, while accelerating its progress towards a decarbonized future in Europe.”

Within the framework of this new stage, Enagás has renewed its website ( www.enagas.es ) with a new design, adapting the content to new digital trends and the needs of stakeholders, maintaining maximum transparency, improving the accessibility and usability, and reinforcing its position as a key player in decarbonisation.

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