Welcome to the RWE Conference Call. Markus Krebber, CFO of RWE AG will inform you about the developments in the first three quarters of fiscal 2020. I will now hand over to Thomas Denny.

Thank you, Jesse, and good morning everyone from us here in Essen. Thank you for joining us to discuss RWE's results for the first nine months of the year. COVID-19 is still very much part of our life. So we hope you are all doing well. I'm joined here by our CFO, Markus Krebber, who will shortly start with the presentation before we continue with a Q&A session. Also, I've got a surprise guest here, a warm welcome to our designated CFO, Michael Müller. Michael Müller: Thank you, Thomas, and hello to everybody on the phone. I'm very pleased to be with you here today. And I'm really looking forward to my new role. After the full year results, I will take over the role from Markus and will be in the driver's seat for these calls. Between now and then, I will already attend several investor meetings and I'm very much looking forward to getting to know you all.

Thanks, Michael. And now before we get started, please remember our presentation focuses on the pro forma figures for 2019 in order to compare like-for-like. So assets taken over from E.ON in the third quarter last year are included in adjusted EBITDA and EBIT for the full year 2019. And with this, I now hand over to Markus for the update on the first nine months of 2020.

Yes. Thank you, Thomas, and a warm welcome to everyone. It's good to speak to you and I really hope you are all safe and sound. The operational and financial performance in the first nine months has been good overall and we have only seen a minor impact on the business from the COVID-19 pandemic. On a pro forma basis year-on-year, adjusted EBITDA of our core business increased 4% to €1.8 billion. The Group's adjusted EBITDA stands at €2.2 billion. With this, we are all well on track to confirm our full year guidance and our expectations for adjusted EBITDA to be at the upper end of the guidance. We reaffirm our dividend target of €0.85 per share for this year. We successfully concluded a €2 billion capital increase via an accelerated book building in August. The additional financial flexibility enables us to accelerate the mid to long-term Renewable growth. Thus, our net debt at the end of Q3 improved and now stands at €5.9 billion. At the beginning of September, we announced that we would exercise the right to redeem the €539 million hybrid bond at its first call date on October 21. After the redemption, we have two more hybrid bonds with a combined value of approximately €600 million and first call date in the middle of the 2020 is outstanding. On the M&A side, we have closed the acquisition of Nordex 2.7 gigawatt development pipeline in Onshore Wind and Solar. The development team of more than 70 employees, which is mainly based in France has joined RWE renewals. This gives us great options for further growth and a broad entry into the French market. The Board's succession is progressing as planned. As of November 1, Michael Müller, our designated CFO; and Nanna Seeger, our new Chief Human Resource Officer joined the executive Board of RWE AG, and I'm very much looking forward to work with them for a successful future of our great company. Ladies and gentlemen, as you know ESG is a key part of RWE's strategy, and I'm pleased that I have some progress to report on this front. CapEx for property plant and equipment eligible for green investments under the proposed EU taxonomy amount to 85% in the first nine months of this year. Also, the Transition Pathway Initiative has acknowledged our ambitious climate protection plan and confirmed that we are in line with the targets of the 2015 Paris Climate Agreement. Speaking of which, we have submitted our detailed emission reduction targets to the Science Based Targets Initiative for assessment. Together, with the SBTi our ambition is to get this done quickly. We will keep you posted. Last, but not least, we further increased our engagement with the UN Global Compact. We are a founding member of the UN Global Compact CFO Taskforce committed to the Sustainable Development Goals. As such together with more than 30 companies from around the world, we have developed first principles for sustainable finance backed by the UN principles for integrated SDG Finance and Investment. And now on to the financials on page 5. As I said earlier, in our core business adjusted EBITDA increased year-on-year by 4% to €1.8 billion based on a good performance in all segments. Broadly speaking, the good nine months result for Offshore Wind and Onshore Wind/solar was due to the very good weather conditions in the first quarter and capacity additions from Onshore and Solar. The Hydro/Biomass/Gas division benefited from the resumption of the GB capacity payments. And the Supply & Trading division delivered a strong performance in the first nine months. Ladies and gentlemen, our Wind and Solar business is scaling up as planned. After capacity additions of good 300 megawatts from the U.S. Cranell onshore wind farm and some solar farms in Canada and Spain, installed capacity increased to 9.2 gigawatts. And further approximately 800 megawatts of capacity is, due to come online by year end, from today's point of view. We are managing the challenging as well as quickly changing environment due to COVID-19 daily. Further progress on our growth targets for 2022 has been made by taking investment decision relating to approximately 500 megawatts from our development pipeline, mainly for projects in the U.S. With regard to the period after 2022, actually for CODs towards the end of the decade, we secured lease agreements for our offshore U.K. expansion options of about 900 megawatts pro rata. In addition, we will now continue with the development of the 400-megawatt remaining seabed option at our operational Rampion site. So overall this is 1.3 gigawatts in the Offshore division that will now move forward through the steps of the development cycle. Let's move on to an update of our construction program on page 7. We have made good progress in Q3 apart from some delays that are mostly COVID related and mainly at U.S. construction side, as I explained on the H1 call, consequently due to adjusted commissioning plans. As a result of this, we expect the overall financial impact for this year to be small to medium double-digit million euro amount at Onshore Wind and Solar. Now let's take a closer look at the individual project level, starting with Offshore. In our Triton Knoll project, all 90 foundation and 250-kilometer long export cables, have been installed to schedule. At the Kaskasi site, preparations are continuing and going according to plan. The construction work will start in Q3 2021. Moving on to the Onshore business. Boiling Springs, with a capacity of 148 megawatts, is our first project in the state of Oklahoma, and will feed its energy into the Southwest Power Pool. The project is in the commissioning phase and is expected to be fully commissioned by year-end. Now our Big Raymond onshore wind project, the commissioning of Raymond East with its 200 megawatts, has started and is expected to be fully commissioned at the end of this year. The other part Raymond West is due to be commissioned at some in the first quarter next year. Besides COVID-19, Hurricane Hanna caused some delays to the turbine deliveries for Raymond West. At our Scioto Ridge project in Ohio, almost all the turbines have now been erected and the pre-commissioning teams are ready to ramp up their efforts. The site mobilization at Hickory Park project located in the southwest of the state of Georgia has recently started. The 196-megawatt solar project will be coupled with a 40-megawatt two hour battery. The Limondale Solar Farm, the grid commissioning testing has started but delayed. We expect the full commissioning to happen in Q2 next year. So, overall we will bring another 800 megawatts online in the current quarter. With that, we can now move on to the details of the individual divisions. Our offshore Wind division realized an adjusted EBITDA of €738 million in the first nine months. Year-on-year, this is an increase of almost 12%, thanks to higher wind speeds in the first quarter, even though earnings from wind field in the third quarter were negative year-on-year. Gross cash investments in the first nine months amounted to approximately €500 million and are mainly driven by Triton Knoll construction work. The fourth quarter typically sees strong winds, and we are assuming normalized weather conditions. Overall, we confirm the outlook for the Offshore division and expect it to be in the upper half of the bandwidth totaling between €900 million and €1.1 billion. The Onshore Wind/Solar division increased 8% year-on-year and adjusted EBITDA amounts to €336 million at the end of September. Value drivers are an increase in capacity of more than 600 megawatts year-on-year, as well as higher earnings in Europe from above average weather conditions in the first quarter this year. Overall, we have seen an unfavorable development of power prices in the U.S. and also various European markets during the course of the year. As a result, the earnings of our open generation positions were slightly lower than expected. For the full year, we expect this effect to be a small double-digit million euro amount. For the full year, we confirm the outlook of €500 million to €600 million, but expect the division to end at the bottom of the guided range given the aforementioned effects from delays mostly related to COVID as well as lower power price levels. Earnings at the Hydro/Biomass/Gas division amounted to €382 million and are higher year-on-year thanks to the British capacity payments. As already reported in August, the fire at the Eemshaven power plant caused an interruption to the biomass co-firing in the middle of May, which we expect to last until the end of November 2020. The financial impact from this for the full year is small to medium double-digit million euro amount. Overall, we confirm the guidance of €550 million to €650 million for the division, but expected to end at the bottom of the range. Moving on to the Supply & Trading division, which contributed slightly above average earnings in the third quarter. After nine months adjusted EBITDA amounted to €399 million on the back of a strong trading performance and a good result from the gas and LNG business. This is in particular due to the very strong performance in the first half of the year. We confirm the division's outlook for the full year of €150 million to €350 million and expect the results to be at the upper end of the range. This is due to a weaker performance we have seen in the fourth quarter so far. Ladies and gentlemen, having now reported on the core business, let's move on to the Coal and Nuclear division. Adjusted EBITDA increased to €381 million. Earnings improved due to higher realized wholesale prices and an updated production plan in the lignite system, remain that implications from the implementation of the accelerated excellent plan needs to be considered. To sum this up, we confirm the outlook for the Coal and Nuclear division. Moving on to the earnings drivers down to adjusted net income, which amounts to €762 million at the end of September, thanks to the high adjusted EBITDA of the group. The financial result at the end of September amounted to minus €231 million, including the negative one-off approximately €150 million from Q1 and the E.ON dividend received in Q2. Adjustments in tax are applied with a general tax rate of 15% in line with the expected mid-term tax level for the group. With that, on to the adjusted operating cash flow on page 14. The adjusted operating cash flow shows the impact on net debt from operating activities. We've adjusted for special items and timing effects that balance out over time. Utilization of nuclear provisions is not included. As you remember, we consider this as a financial cash flow as when the nuclear provisions are utilized they are refinanced by a financial debt. After nine months, the adjusted operating cash flow went up to €2.3 billion in view of the high adjusted EBITDA as well as the positive effect of the working capital. Change in operating working capital of €342 million is mainly driven by the payment from the British capacity market for 2018 and 2019, which we received in Q1 as well as a reduction of gas inventories. For the full year 2020, we expect this in -- this line item to remain positive for the same reasons. Turning to the details on the net debt development. Net debt decreased to €5.9 billion. This is due to the high adjusted operating cash flow and the capital increase of roughly €2 billion. Timing effects from the many CO2-related hedging activities by roughly €0.8 billion. Another driver is the change in pension provisions by roughly €400 million compared to year-end resulting from lower discount rates given the current market environment. With the closing of the acquisition of the 2.7 gigawatt Nordex development pipeline, the purchase price of €400 million will be reflected in Q4 net debt. Also the redemption of the hybrid bond will have a net debt impact of roughly €217 million. For year-end, we expect the leverage factor to be well below three times net debt to core adjusted EBITDA. Finally, moving on to the outlook for fiscal year 2020. As I already said, we confirm our outlook for this year adjusted EBITDA for the core business will come out between €2.15 billion and €2.45 billion. Adjusted EBITDA for the RWE Group will range between €2.7 billion to €3 billion and adjusted EBIT between €1.2 billion and €1.5 billion. For both adjusted EBITDA and adjusted EBIT, we expect to see results at the upper end of the guidance. Our guidance for adjusted net income is €850 million to €1.15 billion. We expect it to end up in the middle of the range due to the negative one-off in the financial results in Q1. The dividend target is unchanged at €0.85 per share for fiscal year 2020. With this, I conclude my remarks and I'm happy to take now your questions.

Thank you, Markus. Jess, please start the Q&A session. [Operator Instructions]

Thank you. [Operator Instructions] The first question comes from the line of Alberto Gandolfi from Goldman Sachs. Please, go ahead.

Thank you, and good morning. I'll stick to two questions please. The first one is that I've noticed from your bridge to the path towards 13-gigawatt that you only have 700 megawatts yet to secure and its November, mid-November 2020. So I wonder with construction time for solar six to nine months and construction time for wind about 12, what's the degree of confidence of finding those 700 megawatts? And could we actually given the integration of the Nordex pipeline begin to exceed the 2022 goal? Because you don't seem to be short of projects, nor of capital. I'm going to skip question on full year net income, but I'm going to stick a little bit to bigger picture here because we have discovered not many weeks ago that the offshore auctions expected from now let's say until Christmas 2021 are 25 to 30 gigawatts. So I was wondering you are obviously not exposed to the U.S. East Coast, but of the 25 to 30, so of all the auctions that are expected to come in the next 12 months, could you maybe disclose with us, which regions you're going to be able to bid into? And perhaps, if you can give us maybe the seabed in those regions. So trying to figure out can you be bidding for about 15 gigawatts of projects next year? And considering that most of the CapEx on those will come in 2025, 2024, 2025, 2026 what's the limit? I mean, what stops you from trying to win all of the auctions you're going to? Just trying to see how you think about it? Thank you.

Yes. Good morning, Alberto. Thanks for the question. The first one how confident are we about the 13 gigawatt? I can confirm that we are very confident to reach that level. As I have said before, it's too early to speculate and now give interim update targets. We stick to the 13 gigawatt plus the Nordex pipeline where we said probably around 100-megawatt per year, which then brings you to 13.2, but I mean that is not enough to update the target now, right? So -- but very high confidence that we can achieve that. On the auction side, look I mean adding up numbers for auctions is sometimes difficult, because you talk about different options. Sometimes it's a lease seabed auction. Sometimes it's a central tender. Sometimes it's CfD auction. So we will participate in all tenders where we think we're going to be competitive and it fits to our policy. And I mean you know the regions. It's Europe. It's the U.S. where we are a bit more cautious because we have so far not successfully entered. And it's the three Asian markets which we have named being Japan, Korea and Taiwan. But you know that Korea is early days. So the upcoming auctions where we have something to bid in is Japan and Taiwan. But I'm a bit reluctant to now add up central tenders, seabed lease auctions and CfDs, we have nothing for the next CfD auction in the U.K. That's also transparent. But where I agree is that when you think about bidding in these processes, of course you commit now capital. But financing is actually not a concern at this point in time. And if you get the right projects, these are all I mean marketable. You can find partners later or you even bid with a partner and do something. So, that is not a constrict. So, I think there is no limit other than having projects ready and think you are competitive in the process. So, you can expect us to participate in many of these auctions.

Thank you.

Thanks, Alberto. Next question please?

The next question comes from the line of Sam Arie from UBS. Please, go ahead.

Hi, good morning. Thank you for the presentation as always. Just two sort of very straightforward ones from my side. I think, the whole presentation is very straightforward, so just keeping it simple. I think in the past you've talked about the size of the renewables pipeline and some of your competitors have been updating those numbers. I'm just wondering, if you can give us some sort of sense of the size of the pipeline at the minute? And then secondly, on the coal contract that we saw a draft of earlier in the summer. Have you got any update on, where we are now with the kind of process for EU approvals? And if you have a sense of when that contract might get signed? I believe, it hasn't been signed yet. Thank you.

Yes. Sam thanks for the questions. I mean, on the first one, I have to disappoint you. We are not giving quarterly updates on the pipeline. You will get an update on the pipeline next year, a full-fledged update then. On the coal side, yes, we are expected to close the first unit end of this year. We are preparing for that because we are confident that will happen. The law has passed the German parliament. We are expecting to sign the contract with the German government within the next weeks. On the EU approval, which is a procedural question, I cannot give you an update because we are not part of that. It's a process between the German Government and the European Commission.

Okay. But you will sign the contract first and then it goes for approval? Or you wait for it to be approved and then you sign it?

Yes. Let me put it that way. I mean, we expect also after recent interactions with the German government, we expect that we close the first unit. But in order to close the first unit, we need to sign the contract first. Also, because we need to be sure what happens in terms of compensation for the workers, right? And so, my expectation is now that we will sign the contract shortly and we will close the first unit end of this year.

Okay, very clear. Okay. Well congratulations on that. Good luck with the last stages.

Thank you, Sam. Next question please?

The next question comes from the line of Ahmed Farman from Jefferies. Please, go ahead.

Yes, hi, good afternoon -- good morning, good afternoon everyone. Two questions from my side. I was hoping, if you could help us a little bit with a bridge for net debt to year-end. I think you mentioned earlier that you expect the net debt to be -- EBITDA to be significantly below three times. But I was just hoping, if you could give us a little bit more granularity there? Then my second question is, I guess sort of a follow-up to the sort of your response to the first question, where you mentioned the three Asian markets, South Korea, Taiwan and Japan. Just hoping, if you could just give us a little bit more color on your positioning what sort of assets do you have? How you plan to sort of enter these markets? Is this within partnerships and just maybe anything so you can sort of talk about the competitive dynamics in those tender auctions? Thank you.

Yes. Ahmed thanks for the questions on the net debt side. Nothing has changed. So, we have said, before we did the capital increase that we feel -- I mean given our -- considering all COVID uncertainties, but currently it looks much more stable when you look at interest rates and also commodity prices. We expect to stay even without the capital increase at three times net debt to EBITDA. So -- and that is roughly also when you want to quantitative guidance, if you exclude the €2 billion, we expect to end at three times net debt plus EBITDA plus/minus a bit. Let's see where we are. And I mean what is driven, I mean, what I mentioned in the presentation is the redemption of the hybrid, the Nordex transaction. Of course, we have further investment in renewables. We expect a very strong cash flow, operating cash flow in the quarter and we also expect some positive effects from other cash items like realization profiles or hedges and trading. And that all adding up and -- gives us high confidence that we ended three times net debt-to-EBITDA plus €2 billion from the capital increase. On the Asian markets yes, I think on the assets we are very transparent in our renewables presentation but I can briefly walk you through it. So the Japanese market is a central tender market. So the government tenders the sites, the predeveloped sites. And you can bid and everybody can bid into that. And we have formed partnerships to be very active in the first auction which we expect now for next year. The Taiwanese market, and we are preparing already today or we are weighing our options who are the right partners for the next round, which will then come in the later years. Very active discussing with every local partner whether we have joint interest. And I can tell you I'm very satisfied with the progress we are making there. Taiwan is a different market. Taiwan you develop the project yourself. And you know that we bought into one joint venture with Asia Cement. And this is one of the largest conglomerates in Taiwan, where we will now bid our predeveloped project into the route to market or it's a grid connection auction. It's a bit similar to the U.K. model, where you do your predevelopment as you bid into route to market or grid connection auction and secure prices. And here we are looking into doing on development activity and also maybe whether we spend some money in getting additional projects into the pipeline. South Korea it's very early days because the framework is not said. We have recently established a presence there. We have hired a country Chairman. And we are now in discussions with partners and we will decide I would say over the next couple of months with whom we partner up for the first with more specific steps in that market.

Thank you, Ahmed.

Thank you.

Next question, please.

The next question comes from the line of Peter Bisztyga from BofA Securities. Please, go ahead.

Yes. Hi, thanks for taking my question. Firstly E.ON yesterday outlined 200 projects that they're proposing to apply for under the EU recovery fund. And I was just wondering if RWE has done any sort of analysis and identified any opportunities for grants there please? That's my first question. And secondly, we've been hearing concerns sort of from some investors about the impact of competition in the wind and solar market from kind of small sort of gung ho players who are bidding with unrealistic assumptions about what happens to power prices after PPAs and feed-in tariffs roll off. So I was just interested to ask if that's something that you've seen that's something you've experienced in the market? And also perhaps if you could provide us with some reassurances that your teams use more sensible assumptions when they bid.

Yes. Peter, thanks for the question. I mean, you would be highly disappointed, if I tell you that we have not looked into potential programs to get support for our projects. Of course, we have and especially our hydrogen projects. We have applied for support with our larger hydrogen projects in Germany and the Netherlands for EU grants. And we also expect to ask for more or apply for more when the new sources will open, you will also get more on European level, you will also get more on national level. Unfortunately, due to Brexit, our U.K. projects could not be bid into to the European process. And I think the process is now that they will look into the applications of I think around 300 projects have applied for the first round as we are talking about €6 billion, €7 billion on European level. They will now short list them until January and then you have to do a full application when you're on the short list and we expect the grants to be awarded in the second half of 2021. But this is not the only source. This is actually more the smaller on the European one. I think the national support schemes which are currently in the making are the even more relevant one. And we are also actively in the discussion how these programs should be shaped. And I don't want to give you a number in terms of how much euros or how much projects because it's very early days. The moment it gets more specifically will be transparent about it. Competition, it's always difficult to figure out what are the assumptions in bidding processes, right? And we have not seen so many yet. Because when you go into CfD bids you have to have your pre-developed projects, so especially the newcomers and whom you are currently referring to they have no pipeline. So they cannot bid into auctions. But what you can observe -- and there I partly confirm your assumption, what you can see is, what needs to be a reasonable assumption to pay a certain price when you have second market transactions. So when somebody are willing to buy part of our onshore/offshore assets where we currently either process or when somebody might into a U.K. project or U.S. projects you probably know what I'm referring to, you can always do, because many assumptions are very close together. I think CapEx and OpEx assumptions are so close together, that you have two major drivers. One is power price assumption, one is cost of capital. And what we regularly do is, when we see it, you can come up with a two dimensional grid. What is the combination of cost of capital and power price assumptions to get this done? And there I can tell you, there are, let's say, interesting assumptions to come to these prices. But that doesn't mean, that we see short-term, I mean deterioration in bidding processes, because I mean in a CfD project process you need to have a pre-developed project. Let's see -- and that I said it before, I think it will be an interesting observation point is the U.K. lease auction, which is now postponed until early next year, because there everybody starts from zero with everything, with the assumptions of its capabilities but also prices and cost of capital.

Okay. Thank you, an interesting answer.

Thank you, Peter. Next question please.

The next question comes from the line of Deepa Venkateswaran from Bernstein. Please, go ahead.

Thank you. So I have two questions. On Japan maybe a follow-up. Could you maybe give us an idea of what is the size of the site that you might bid for? Just -- and I think your competitor Ørsted has talked about a specific site that they would be using. So, maybe if you could just talk about whether you have both centralized and decentralized auction in Japan? And secondly, just a question on hedging, so for 2022 and 2023 your hedged margins have gone down by €2, could you maybe explain the dynamics? And should we basically assume, that that's a downgrade to your out years guidance for the non-core division? Thank you.

Yes, Deepa thanks. I mean, on Japan, of course we are targeting certain sites, because it's a very complex auction process with a many dimensional criteria catalog and prices only 20% that is especially about, how you intend to do stakeholder management, local content and this. So you cannot bid on short notice, in many sites. The one we are targeting and the first one with our partner is a site which is in the high three-digit megawatt area, so close to 1 gigawatt. And I don't want to be more specific on that, because it's of course sensitive information. On the second question hedging, I mean don't read too much into it, because the production volumes are now significantly lower which we have. I mean, I think they are half of what you used to see at RWE seven, eight years ago. So a movement in hedge prices is much smaller. So what is more relevant also is, how much more capacity moves in the money. And what we have seen due to recent price moves is that we have slightly more capacity in the money now, which then needs to be hedged from zero which comes of course at current market prices are not very favorable. And that deteriorates the average. So when you do the multiplication of expected volumes types price, I can tell you that, we see a slightly negative effect from the development, but that is mainly driven by lower prices or spreads which we realized. But it is to such a small extent that it will not change our guidance for the segment.

Thank you.

Thank you, Deepa. Next question please.

The next question comes from the line of Rob Pulleyn from Morgan Stanley. Please, go ahead.

Yes. Thank you very much. Two questions for me. Firstly, if we could talk about hydrogen is RWE seeking joint ventures or partnerships with chemicals or oil companies for multiple projects like some others have been doing? Is there merit to such agreements? Or will collaboration be sort of on an ad hoc basis? And the second question if I may, is when I look at the auctions available in 2021 I noticed obviously Germany and the Netherlands are part of that for Offshore Wind that is where we have seen zero subsidy contracts in the past. May we ask whether RWE has appetite for those types of contracts as we look to 2021? And how you would obviously manage that risk?

Yes, Rob thanks for the question. So, on the first one the clear answer is yes. And we are already in consortiums. We are currently running the consortium for the largest hydrogen project, of course it's still in the project phase, so conceptual, the largest hydrogen project in Germany, which is the consortium led by us, and it's an oil major and it's two chemical companies, a steel company and a gas grid company. And what we intend to do there is to produce significant green hydrogen in the northern part of Germany from our offshore wind farms. And then also start the establishment of a hydrogen grid to bring it to the Ruhr valley here to the big off-takers steel, chemicals, refineries and that is for example one project where it's not unreasonable to assume that we are asking for grants. And we are not only doing that in Germany. We are also doing that in the Netherlands. It's a bit smaller but the same structure and we are doing it in the U.K. So it's not on an ad hoc basis. It's a really structured approach to bring together the producers of green electricity, the grid operators and also the off-takers. And I think -- I don't know, whether that's available also in English, but we have a nice summary video of all our hydrogen activities on the net, and we will get it over to you. And the other one was on Offshore. I mean, I have always made clear that, we would prefer a double-sided CfD because we think that's a much better model. Of course, we are also looking in these tenders, but I would always value them differently, because we would value them as an option. You would bid for an option where you know what you have to pay, as terms of penalty when you decide in five years not to build it, which is an option premium. And you have the right to work five years on a potential alternative off-take. So I think it's not a digital decision at the beginning. It's more a process where you need to consider how much option premium are you willing to pay at the beginning to get it. And you can think about many scenarios where merchant offshore wind farm, it's may be very valuable in five years' time because maybe we are too slow with our build-outs. We have significant higher demand for green hydrogen whatsoever, but you can also think about many scenarios where merchant offshore position is a very bad position to be in a 5 to 10 years time.

Thank you very much. Super interesting. I'll turn it over.

Thank you, Rob. Next question, please.

Your question comes from the line of Lueder Schumacher from SocGen. Please, go ahead.

Good afternoon. Just coming back on the hedges and why they moved markets. You did mention that more volumes moved into the money. But the overall hedge position at 90% or above 90% has not changed. So if you locked in the price, does this effectively mean that at least for the short term that your implicit long clean dark spread position has moved against you? I'm just trying to understand, the mechanics here because for an unchanged overall volume €2 move is quite a sizable move. We do not understand the dynamics there. And the second question is on Supply & Trading. I know, you don't like to go to more detail than necessary there. But given that nine months were already above your current guidance you said the results of Q4 could be weaker, but can they actually get negative? I mean going back over time there have not been too many negative quarters for Supply & Trading?

Yes, Lueder, thanks for the question. So the mechanics is as follows: when -- we have two elements. One is let's take the unchanged volume. When you -- we constantly hedge the volume from implicit fuel to full hedging. So by that you also realize the currently implicit price setting spread. And that has been lower. So we realized lower spreads than from the already hedged position in Q3. And that brought the overall hedge margin down. That is one element. The other element is when more capacity moves into the market you start with this additional capacity at zero hedge volume, right? So you -- in order to have an unchanged relative hedge position, you need to hedge that to 90%. And you start with current market prices. And I can tell you current market prices or margins oil prices minus CO2 is significantly below what we have historically hedged. So that also brings the average down.

Okay.

Yes. And then the second question on Supply & Trading, yes. I mean, we had a very favorable first nine months. Please understand my hint that we end up -- that we expect to end up at the upper end of the range that you cannot transfer or expect another phenomenal fourth quarter maybe even -- it was a bit weaker. So weaker meaning, not so good as an average quarter. So it could also be that on average, we come down a bit from the €399 million. But it could also be that we end about €400 million. I mean we still have six weeks to go. So please don't read too much into it. More -- that so far quarter-to-date, Q4 was not as an average quarter. But I can tell you whatever happens, we expect that trading will end up the year significantly above-average expectations. So there's no real negative hit in Q4 so far.

Very clear. Thank you.

Thank you, Lueder. Next question please.

The next question comes from the line of Martin Tessier from MainFirst. Please, go ahead.

Martin, are you there?

I think MainFirst recently rebranded, so maybe we have to call the right name.

Jess, if Martin is not there. Then maybe we take the next question and put Martin back in the queue.

Thank you. So the next question comes from the line of Piotr Dzieciolowski from Citi. Please, go ahead.

Good afternoon everybody. I have two questions please. So the first one is about the hydrogen CapEx. Do you have a certain amount of money that you earmark for these investments like a budget on the three to five year view or that depends on the conditions of subsidies you get? Just thinking about how much of this could be within the total CapEx of RWE? And the second question I wanted to ask you about your thinking about the structure of the auctions into the magnitude second half of the decade. I mean if you think about the power prices and the carbonization process, it probably -- we could agree that it probably means a lower wholesale prices on the long-term basis. Do you think that could change the structures of auctions into longer duration contracts so that more of the project value is captured within the auction. So how do you think about this?

Yes, Piotr, thanks for the question. On hydrogen, I mean it's too early to have CapEx amount in the next two years' budget. I think -- and also when you look at the capital intensity of the different steps, I think Renewable is very capital-intensive. The electrolyzers themselves are not very capital-intensive. When we talk about 100-megawatt electrolyzer, you probably talk about CapEx of around €100 million. And €100 million electrolyzer is large. I think it's maybe one of the largest we have ever seen. So -- but then of course, a lot of CapEx needs to go to change the processes at the off-takers. So if you imagine, you want to run a steel plant on 100% hydrogen instead of coking coal that is €1 billion investment. So from our side, most of the investments will still go into -- I mean not most, I mean almost everything will go into Renewables. We are also willing to go into electrolyzers. But in terms of CapEx, it's not that big. And also when you think about the pipeline that is properly regulated so also not done by us. And then on the arch design, I think it's a more general question about market design. And I think this is a very relevant question, because when you think through it intellectually, I mean a market where you have 80% to 90% renewables, you can be sure that the current market, the wholesale market as we know is probably very good for dispatch decision. But it never returns the money for investors. And then you probably need to come up with a totally different market design. Whether it's fully regulated, whether it's more long-term governmental contracts or whether it's an obligation of off-takers to secure long-term PPAs and by that paying also for the investment. But I don't expect that discussion to happen with the regulators and politicians within the next two, three years. I think their priorities are different. I mean first carbon pricing, which is a big debate now with the -- then the second one is getting the hydrogen economy up and running. And then potentially when these two topics are solved over the next two three years, then we start discussing the long-term regulatory framework.

Okay. Thank you very much

Thanks, Piotr. Next question please.

The next question comes from the line of Ingo Becker from Kepler. Please, go ahead.

Yes. Thank you for taking my question. Good morning. I got two questions. The first would be on CO2. Could you just reconfirm to us that your hedge is running through 2030, so basically making you immune against any CO2 process? I'm phrasing it differently whatever the CO2 price that hedge will hold? That would be my first question. And then, the second, I was interested if you could comment on your own views or expectations about the future trend of cost of capital of your Renewable projects. Do you see that changing from current or past levels? That would be it. Thank you very much.

Okay. Ingo, the first one is pretty easy. Yes. I can confirm it. We are commercially hedged against any change in carbon prices until 2030 for all our expected production. And the second one, what we see on cost of capital, it's -- maybe give you three aspects. One is we see lower cost of capital, because we have now for much longer and even lower interest rate environment. So, typically you don't take when you calculate your cost of capital. I mean spot rates you average them over six, 12, 18 months. So this is significant lower interest rate environment the cost of capital has come down. And we also see that reflected into valuations of real assets. I mean look at equity, look at real estate and the same, of course, also holds true for Renewable assets. And the second one is, and I talked about that before, when you compare it to, let's say, five, three years ago, also in some areas you feel much more comfortable with the risk profile. When you do your fifth or sixth offshore construction project with the same partners, with the same logistics, you feel much more comfortable than in the previous projects. So required risk premium is also coming slightly down. But what I also see is, at least when we run our calculations, the additional value generation, on top of your cost of capital, is more or less stable. Of course, I mean, coming back to the question I had before, let's see, how that might change in very competitive auction processes and whether you have others, who are willing to get a market entry or whatsoever to bid unreasonably. But I don't expect that to last for too long, because I mean their investors also will ask for decent returns. So, I'm not pessimistic that we run into problems. And there's a counter effect, which means from the just described environment that our existing assets and our existing pipeline has definitely gained in valuation.

Thank you.

Thank you, Ingo. Next question please.

The next question comes from the line of Elchin Mammadov from Bloomberg Intelligence. Please, go ahead.

Hi, there. I have two questions please. The first one is on your Brunsbüttel LNG import project in Germany. The last I heard the binding bids were due by year end. Is that still the case? The reason why I'm asking is there seems to be insufficient interest in Uniper's projects. So I was wondering what yours is doing. And the second question is more broad one. What's your outlook for the evolution of gas and power prices in Europe as well as load factors for 2021, 2022? Thank you.

Yes. On the LNG terminal, I mean, you know that we are not the operator the future operator, we have booked or secured the capacity in the terminal a significant part of the capacity, but we are part of the wider consortium. And out of that role, I can confirm that we expect the EPC contracts to be submitted by year-end. So we have a slight delay, but we expect to take final decision about the terminal in the first half of next year. And we are all optimistic that we will get that terminal being built, which would then be the first LNG terminal in Germany and RWE having booked most of the capacity. On gas and power prices, I mean, that's a difficult one. I mean, maybe gas prices is even more difficult than power prices. The gas prices, I mean, are influenced especially by the COVID situation and overall economic activity around the globe. And that is very difficult to call. I mean, if everything is true what people say -- tell about the vaccine and we see a more rosy 2021, I expect prices to stay at least at the current forward level or maybe even go a bit up. And power price the other factor for power price, the most determining factor is what the European Commission decides on the EU, ETS and how they implement the increased reduction target 2030. Do they do it front-loaded so take out more volumes at the beginning? Do they do it back-loaded or linear that will have a huge impact on power prices for the next years to come. And I think we can expect clarities about some technicalities how they intend to do it by Q2 next year.

Okay. Thank you.

Thank you, Elchin. Next question, please.

[Operator Instructions] The next question comes from the line of Peter Bisztyga from BofA Securities. Please, go ahead.

Yes. Sorry just one to have a follow-up. [Technical Difficulty] Vattenfall regarding nuclear phase-out compensation. I don't know if your legal or regulatory teams have had a chance to look at this in detail yet. But if they have was just wondering if you could give us a view on what it might mean for the -- I think several hundred million euros of compensation that you're due for nuclear phase out?

Yes. Peter, I mean, maybe for everybody in the context, I mean, we had a ruling by the constitutional court a couple of years ago about the nuclear exit where the ruling was there needs to be adequate compensation for the loss production rights and frustrated investments. That was I think in 2018, 2017 -- no it was…

2016.

2016. And then the government came out with the compensation law they intend to compensate the companies. Part of that compensation law was the operators first should try to negotiate whether they can transfer production rights from A to B because some were long. We were long and others were short production rights, and by that solving it. Vattenfall then went to the constitutional court. Again and said, we are not happy with that compensation law by the government and the constitutional court today ruled in favor of Vattenfall saying that what the German government has done as a reaction to the first ruling by the constitutional court is not sufficient, which is overall favorable for the industry, because it strengthened the right for adequate compensation. So I cannot tell you whether we now expect more or less, because the ruling was only that the compensation law by the government is not sufficient. They had some procedural questions on it, but also some content wise questions. I would say, I mean, we currently stick to our expectation that overall from both loss production rights and frustrated investment we expect a medium triple-digit million compensation amount. I would say, the current ruling has definitely not weakened our position.

Okay. Perfect. Thanks very much.

But maybe one cross read, I think what is positive for us also when we think about coal and discussions here and there, but the constitutional court has once more strengthened the position of the industry that when you have government interference that you need to adequately compensate for damages.

Thank you.

Thank you, Peter. Are there any further questions.

Your next question comes from the line of Martin Tessier from MainFirst. Please, go ahead.

Yes. Good morning. And apologies for this IT issue in the markets. We've moved from MainFirst to Stifel at the beginning of this week and we have still IT problems to be fixed. Sorry for that. Anyway, thanks for the presentation. Only one question from me, regarding your open generation volumes in renewables. In your Capital Market Day presentation you indicated that 30% of the gross margin in renewables relied on merchant production. Could you give us an updated figure for the first nine months of the year or at least some color and maybe an indication for the full year and beyond from 2021 onwards? Many thanks.

Yes. Thanks Martin for the question. Maybe a bit of background. So we have some of our renewable production has not a unit contingent offtake. So either I mean CfD feed-in tariff or unit contingent PPA. And of course, with that volume you are partly exposed to market prices when you produce. And this volume cannot be entirely hedged because you don't want to be in a short squeeze. So when you hedge the exact profile -- production profile you expect you always under hedge because you don't want to be in a position where you other than expected don't produce. Market prices are very high and you have to buy back from the market. So the as part of the production, I would say around 3- 4-terawatt hours which is exposed to spot prices. And that is what due to the COVID situation has hit us now, but to a very, very small extent. So nothing to really concerned about because I think if we would not have seen also the delays in construction it would not have made the reason to move at the lower end of the guidance not only this effect. It is very minor. And to your other question of the position how much is hedged. I mean for 2021, we have now hedged more than 70%. And for '22, we have now hedged more than 30% -- 40% of the -- I mean more or less merchant renewable exposure which is very small.

Okay. Very clear. Thank you.

Thank you, Martin. Next question, please?

There are no further questions. So I will hand back over to your host for closing remarks.

Excellent. Thank you everyone for dialing into our Q3 call. I'm looking forward to speaking to you over the coming days and let's meet you at the full year results in mid-March.

Thank you for joining today's call. You may now disconnect your lines.