Endesa announced today its new strategic plan for 2025-2027, which comes at a pivotal moment in the energy transition process and aims to take full advantage of the opportunities and address the challenges arising from this process.

The plan foresees an overall 8% increase in investment, reaching 9.6 billion euros, which represents a historical record for the company since it began operating in its current geographic perimeter (Iberian Peninsula) in 2014.

This indicates the ambition with which Endesa is approaching the upcoming years and the vast opportunities it identifies in the Iberian energy sector.

The document, which is being made public just as the company celebrates 80 years of supporting Spain’s socioeconomic development, revolves around a key axis: boosting clean electrification, based on emission-free generation sources, as a lever to tackle the main challenges of the energy sector across Europe.

This will achieve a competitive energy system for customers, more secure by reducing external energy dependence, and sustainable thanks to a reduction in greenhouse gas emissions.

The document, presented to the investor community by CEO José Bogas and CFO Marco Palermo, also takes into account the main figures and objectives outlined in the updated National Integrated Energy and Climate Plan (PNIEC) presented by the Spanish government last September.

This document forecasts an investment of 308 billion euros, 82% of which should be executed by the private sector.

Fundamentally, this new PNIEC stands out for its focus and greater ambition in electrifying the economy (which will absorb 17% of this investment, ten points higher than in the previous PNIEC); aggressive growth in new solar and wind capacity, as well as storage; and a solid commitment to a more capable and extensive electricity grid.

All of this requires, according to the company, a faster administrative approval process and specific efforts with measures to increase electrification and electricity demand, as well as the approval of capacity payment mechanisms.

More specifically, the 55 TWh of new electricity demand outlined in the new PNIEC to reach 307 TWh by 2030 (excluding demand for green hydrogen production) is supported by two main axes.

First, quadrupling the electricity consumption of the transport sector, which requires a solid charging network. Second, a forecasted 48% growth in industrial demand, which must also be accompanied by the necessary development of the electricity grid to support it.

Focusing on this new industrial demand, Endesa considers that meeting it is a unique lever Spain has for its reindustrialization and economic growth.

The competitive price of electricity generated from clean sources is a differential advantage for the country. Specifically, of the 50GW of new demand that has requested access to the grid nationwide (16GW from data centers), approximately 40% has achieved that access.

This would allow, considering a reasonable degree of project development, to meet the industrial electricity demand forecast of 33 TWh in the PNIEC.

Furthermore, the revenue from grid usage fees paid by this new demand is up to 9 times higher than the costs of adapting the grid to accommodate it.

This shows that enabling growth in industrial demand linked to sustainable energy supply generates long-term benefits for the entire electricity system and the economy.

The PNIEC foresees that investment in networks (distribution and transmission) will reach 52.4 billion euros from 2021 to 2030, which would require tripling the annual investment volume in both types of electricity grids over the remaining years of this decade. This immense effort requires a regulatory framework that ensures:

• An adequate return on investments, with a rate between 7.3% and 8.7%. More specifically, Endesa is aiming for a rate of 7.5%.
• Raising the current annual investment limit in grids.
• Improving the incentive system and simplifying administrative permits.

Regarding data centers, Endesa sees Spain as an incredibly attractive hub for this sector due to its strategic location between Europe, Africa, and America, its robust technological connectivity, solid electricity grid, and abundant and competitive renewable electricity production.

Endesa offers a comprehensive value proposition for data center operators, from identifying locations to connecting to the grid and handling administrative permits.

However, grid connection capacity remains a critical bottleneck, which once again requires improving distribution grid regulations to enable its modernization and growth.

José Bogas, CEO of Endesa, summarized the key milestones of the plan, the company, and the energy sector: “We are at a pivotal moment for achieving the energy transition objectives set for 2030. The regulation must support us in achieving them. This new strategic plan contains the foundation to capitalize on the greatest possible opportunities in this context. It provides Endesa with broad financial capacity to accelerate and increase the investments needed for this. Ultimately, we are in the best sector at the best possible time.”

The grid: the backbone of the energy transition

Focusing on the central pillars of this new strategy for 2027, it stands out that 42% of the planned investment will go toward the distribution grid. This means 4 billion of the 9.6 billion euros, with a 45% increase compared to the investment allocated to this infrastructure in the previous 2024-2026 plan.

Of those 4 billion, 45% will be used to meet the PNIEC goals and address the growing demand for new connections, which are currently being rejected due to lack of capacity.

Another 25% will go toward improving service quality by optimizing the grid structure and increasing remote operation of medium- and low-voltage lines.

The remaining 30% will be allocated to digitization and modernization, including renewing components, updating the fleet of smart meters, and implementing remote monitoring and control.

With this significant investment effort, Endesa, currently the leading distribution network operator in Spain, will increase its investment to 12.1 billion euros, a 6% rise by the end of the period.

Regarding the financial remuneration rate, while awaiting a proposal from the regulator, Endesa reiterated that comparisons with other countries where updates have already been made show that regulators in Germany, Italy, the UK, Denmark, or Finland have applied a differential of more than 500 basis points over the sovereign bond yield of these countries for 10 years.

Additionally, the company reminded investors of the guidelines recently sent by the Ministry of Ecological Transition to the CNMC for updating this rate: the existence of global competition for resources destined for the energy transition; the need to promote transmission and distribution networks to meet new consumption demands and connection requests from new renewable generation plants; and the need to establish appropriate remuneration that addresses the challenges of the transition without compromising the rates paid by the final consumer.

Generation: pivoting towards higher-value assets

The generation business is the other major pillar of the strategic plan, absorbing 39% of the total: 3.7 billion euros. The guiding principle for the company in the next three years will be to rebalance its portfolio of technologies by reducing exposure to solar (15% of investment), strengthening wind (37% of the total), and hydroelectric (another 37%). The remaining 11% will go to storage with batteries.

Investment in hydroelectric assets already includes the one billion euros allocated to the recent acquisition of 100% of Corporación Acciona Hidráulica, expected to close in the first quarter of 2025.

This transaction is strategically significant as it aligns with Endesa’s commitment to expanding its renewable energy portfolio and the company’s sustainability efforts.

By integrating these hydroelectric assets, not only are the sources of electricity generation diversified, but the vertically integrated business of the entire company is also strengthened.

With this acquisition and new asset investment, renewable production will grow by 32% by the end of the period, reaching 25 TWh. Up to 3 GW of new capacity will be added, including the 626 MW acquired last week, bringing total installed renewable capacity to 13.1 GW by 2027.

Additionally, there is a focus on repowering both wind and hydro assets, which will improve plant efficiency and reduce generation costs. Projects are already underway, such as the Aldeavieja wind farm (Ávila) and the Bárcena reservoir (Ponferrada), among others.

Endesa will continue applying a selective policy when investing in renewable assets and maintain the model of sharing these new projects with partners.

Additionally, Endesa will invest approximately 1 billion euros (10% of the total) during the plan period, primarily for maintaining nuclear generation assets, non-peninsular systems, and combined-cycle plants.

Recovery of the customer base

The energy marketing and value-added services business will absorb another 900 million euros over the next three years. The goal is to recover the customer base’s growth, reaching 7.1 million customers in the free market by the end of 2027, a 6% increase from the current 6.7 million.

Electricity sales will remain stable throughout the period at around 84 TWh, with a strategic refocus on fixed-price sales (mainly to the residential sector) compared to sales indexed to the pool prices.

The strategy will focus on customer-centricity, encouraging the electrification of their energy uses, by prioritizing the most valuable customers for the company and promoting long-term retention. There will be a focus on strengthening commercial channels, enhancing digitalization, and offering high-value services tailored to the increasingly sophisticated needs driven by the energy transition.

Reaffirmation of the Net Zero goal by 2040

This entire review of the strategy across the three main business pillars is accompanied by a reaffirmation of Endesa’s environmental sustainability pathway.

The goal of achieving net-zero emissions by 2040, through 100% renewable energy generation and sales, while exiting the retail gas business due to customers’ shift toward electrification, remains intact.

Endesa’s CO2 emissions will have decreased by 65% by the end of 2024 compared to the base year of 2017. This percentage will rise to 74% by 2030. The company’s last coal plant in the Balearic Islands, which operates for supply security reasons, is set to close in 2027, subject to obtaining the necessary administrative permits.

The company’s just transition process will continue to focus on training workers from businesses being phased out, facilitating their relocation to other company activities.

The roadmap toward a Net Zero company by 2040 aligns with the 2015 Paris Agreement, which aims to limit global temperature increase to no more than 1.5 degrees Celsius above pre-industrial levels, including reductions in direct and indirect emissions.

Main financial objectives and dividend update

As for the main financial metrics in the plan, these include achieving a compound annual growth of 4% in EBITDA (earnings before interest, taxes, depreciation, and amortization) to reach between 5.6 billion and 5.9 billion euros by 2027.

The net ordinary result is expected to range from 2.0 billion to