Photon Energy N.V. (PEN) Earnings Call Transcript & Summary

Good morning. I'd like to welcome you to the Q4 unaudited 2021 results call for Photon Energy NV. As traditionally, next to me is Clemens Wohlmuth, our CFO.

Good morning.

And we'll walk you again through a very quick introduction. As many of you know our company already, but we'll quickly walk you through a little bit of history and our business model, our strategic outlook and then, of course, a detailed discussion of our quarterly numbers. So we'll begin with the business model. So the Photon Energy Group, just as a very quick highlight. We are a Dutch company. We were founded originally in 2008. We are present in over 10 countries worldwide. We have 140 employees. And as a company, we're not only listed on the regulated markets of the Warsaw and Prague Stock Exchange and also Open Market in Frankfurt. But we -- as many of you are aware, we are also very active on the bond market, highlighted through our first green bond issuance in Germany, which in total was already our third bond that we issued in place and then listed on the joint market, but for the first time, a green bond on the back of a sustainability rating that we also obtained as the company, as an issuer. So it's not only the bond that has been rated, but also our company. We have to date built over 120 [indiscernible], which slightly over 90% is in our portfolio from long-term ownership with service to our O&M division. Of course, all these power plants, but also a large number of external. So in total, 310 megawatts worldwide. Our project development pipeline at this moment stands at 790 megawatts, and our portfolio of PV power plants last year generated about 103 or slightly over 103 gigawatt hours, as not all the power plants in our portfolio have been connected. So the full production potential is not expressed in this. And at the moment, the portfolio as it stands, has an annual production capacity of over 120, probably close to 125 gigawatt hours. So without any additions, this is what we expect our portfolio to generate this year. But of course, we expect quite a few additions to our portfolio throughout 2022. And then, of course, we also have our water business line, where we're focusing on lake management, services to water utilities in the area of drilling and maintaining their wells, and we have a very promising additional business line in remediations with a particular focus on PFAS chemicals, more on that later. So very quickly to our business model. We are fully downstream integrated in the solar energy space, which means that we don't manufacture any of the components, but we cover the entire life cycle value chain of a PV project that later translates into an operating power plant. So we get involved in the development. We do as much as it's possible, we do it in-house. We codevelop with other developers. And in some cases, we also acquire projects that are fully developed, ready to build. We build those power plants for our portfolio, but we also providing [ DTC ] solutions to external customers, where our main focus is not so much on volume, but on more complex projects using or combining photovoltaics and energy storage, most in the form of batteries, but in some cases, hybrid solutions build and stocking include DC generators. An important part for the new power plants is, of course, procurement of components, which is done for a separate division, Photon Energy Technology and on the back of the procurement for our own construction needs and the construction for customers, we also distribute and resell these components to the external customers, which range from small installation companies to EPCs and sometimes developers who decide to build themselves. So this mainly includes modules, inverters, and now we see very, very significant growth in the distribution of batteries, which we were particularly in the last couple of months and has also been a great contributor for -- has been driving our revenue growth in this part of the business. As we mentioned before, the core and the backbone of our company is the portfolio of power plants, where our philosophy is that only power plants that we have built ourselves, in most cases, we'll develop ourselves, make it to our portfolio. We typically don't sell any power plants. So our investment horizon is essentially forever. But at the same time, we also don't acquire existing power plants from others. So our portfolio is homegrown, and this is also the philosophy going forward. And last but not least, the connection of the power plant is only the first step in a very, very long journey. And this is where operations and maintenance is of utmost importance. And again, here we take care of all power plants, but also those of a growing number of external customers. And there, over the last 10, 12 years, we've acquired very deep knowledge. So we don't only do the physical operations and maintenance, but we have our own monitoring software, and our control room, and we also have teams that focus on certain core aspects, and one of them is our before to [indiscernible] and Cardio, which provides very, very deep services in relation to central inverters for a large number of external customers throughout Europe. So this is where our footprint goes way beyond the Central and Eastern European region. That is the main area of focus in Europe and of course, on top of Australia. In the area of water services, again, just a very quick summary. So one of focus area is water treatment, mainly in -- with the focus of generating drinking water, wells and resources as a service and all suite services mainly focused on water utilities. The water resource management, sometimes also referred to as lake management, is, again, suite of services and technologies into improving the quality of surface water bodies, so lakes, ponds, sometimes also rivers. And there, we have a particular focus on fighting blue-green algae bloom, which has become globally a problem. So we have several customers that have been serving over the next couple of years in Europe. And in Q4, we're also happy to announce that we executed our first project in Australia in the area of -- or in Photon Energy Water -- sorry, Photon Water Technology, we also put a strong emphasis on research and development. And one of the areas that is mainly related to the research part is remediation, where with our own pending technology for groundwater remediation. This is an [ NC2 ] technology that means we clean the groundwater where it is. We don't need to pump it or dig any holes. So we can excavate, the contaminated water gets cleaned below the surface. And our technology has proven to work for a large number of contaminants and one where we see significant potential is the PFAS -- group of PFAS chemicals, which have become a global problem and Australia, where we are currently running a pilot project with the Department of Defense is the country in the world that regulates PFAS chemicals, the strictest. North America follows second and Europe, we've seen our first time of regulating body -- regulatory bodies waking up to the problem and reducing contamination limits. Our presence is, as mentioned before, in Europe. And here, the main focus is on the 4 Visegrad countries: Poland, Czech Republic, Slovakia and Hungary, plus Romania. We have also customers throughout Western Europe and Southern Eastern Europe. This is mainly in the area of inverter services. And Australia is the second market that we fully focus through an office in Sydney with about 20 employees. So the highlights are, at the moment, close to 800 megawatts under development across Australia, Hungary, Poland and Romania, the Czech and Slovak markets with -- thanks to the increase in energy prices, it's now very quickly waking up. So we also expect to see some additions to our pipeline in these markets in the next couple of quarters. Of our portfolio, we have 15 megawatts in the Czech Republic, 10.5 on Slovakia. These are power plants those were connected between 2009 and '11. Between 2018 and '21, we connected 62 power plants in Hungary with 50.4 megawatts. And since August last year, we have now 3 power plants with a total installed capacity of 14.6 megawatts down under in Australia, O&M is 310 megawatts, as mentioned before. So strategy and outlook. The key driver for our further growth is adding, increasing our portfolio. So we have a strategic goal of growing our portfolio from the current 90-megawatt peak to 600-megawatt peak by the end of 2024. Our current portfolio, which leads into 490 megawatts in Central Europe and 300 megawatts in Australia cover that. But of course, we continue developing. And we've also mentioned that we want to have 1.5 gigawatts under development at the end of 2024. So the 600 megawatts are an interim goal and definitely not the end of the journey. Our strategy has been for a while now, even at the time it was a little bit less obvious to grow our portfolio using an emerging approach. So we're not relying on any kind of support mechanisms anymore, and we are developing and building our power plants so that they're competitive in the open market. So in the right column, you can see our levelized cost of energy that the projects we are developing on average are occurring. So these are the cost per megawatt hour generated electricity over the 30-year expected lifetime of the power plants, already incorporating the cost of capital for this project. So they range from about EUR 60 per megawatt hour in Poland, down to EUR 44 in Romania. And the main difference, of course, is in irrigation, but also land costs and some other factors like taxes. As all of you are aware, energy prices have literally skyrocketed at the end of last year. Prices have come down somewhat since then. But looking at the forward prices, on the [ EX ], which we mainly use as a reference, we can see that the expectation is that energy prices will definitely not return to the EUR 50 level that was the norm until 6 to 8 months ago. So you're looking at German baseload prices all the way to 2032, we see a price above EUR 80 or rather EUR 85. And in the short to medium term, we see energy prices, particularly in the markets where we are, or planning to add to our portfolio this year, around the EUR 200 mark, only to drop to something like EUR 150, EUR 160 next year and slowly reduce. Of course, there's a lot of factors influencing energy prices, but it's very created the difference between our levelized cost of energy and market prices are very, very significant. So we're generating a lot of return at levels of EUR 45 to EUR 60. And of course, as a result of current market prices, we see a lot upside and the actual financial performance of our power plants should be significantly above our cost of capital. We do see growing interest by financing institutions in providing financing solutions for emerging projects. So clearly, many of the banks or the vast majority of banks that have financed renewals in Central and Eastern Europe, but also across Europe historically have been very comfortable in the cushy world of feed-in tariffs and contracts for difference. Over the last year or 2, they've slowly learned or started to embrace PPA structures. But we believe that PV power plants that sell into the market are -- don't only have the lowest credit risk as with any PPA transaction, the credit worthiness of a counter-party for 10, 12, 15 offtake, needs to be taken into account. But we also believe that now that inflation is becoming more and more obvious, of course, largely driven by energy prices, but we believe that the PV plant is selling into the market actually generally are one of the best assets to protect against inflation. So in this inflation environment, we believe this is a -- that of right strategy. 18 months ago when energy prices during the first lockdown were -- lockdowns 2 years ago, when they were -- they hit -- 25-year strategy was not so obvious, but we believe that now it's pretty clear that our direction of travel was the correct one. And of course, our goal now is to connect as many power plants from our pipeline as quickly as possible to generate this kind of returns. We've also made an announcement before beginning of trading hours today that we are considering making use of a new regulation that's coming to force from 1st of January in Hungary that allows power plants that are receiving support on the basis of KAT and METAR-KAT licenses, which are essentially feed-in tariffs currently at the level of about EUR 100 per megawatt hour. These power plants can exit on a temporary basis the support scheme and sell into the market. And the main condition is that the return to the feed-in tariff system can happen earliest after 12 months, that any time and looking at all the market information and the forward rates, we believe that this is a step worth taking. So this is something we are now annualizing in great detail. And if and when we make a decision I will, of course, announce it to the market. The beauty of this would be that without having to invest into a single additional plant we could generate additional revenues, which would feed straight to the bottom line and improve our economics. So -- and as a result, we'll also have an even more significant part of our portfolio already now exposed to market opportunity as we prefer to refer to it rather than market risk and at these market prices, and the outlook we believe that this is definitely worth considering, and this is what we're doing. So just to recap on the key strategic goals. One is, of course, to continue developing and turning those projects into connected power plants. We will also see in the medium term, some projects that we'll start including some storage. Then the next area we want to grow is EPC that means providing construction services to external customers that has been a mainstay in the Australian market, but we want to do more of that in Central Europe. And some of that will be utility scale, but we believe that the vast majority will be behind the meter. And at the moment, we see literally endless demand from corporate energy users ranging from SMEs all the way to multinationals who need to lower but also manage the energy costs going forward and have an [indiscernible] appetite in on-site-generated electricity from solar. So it's not only that the drive to have clean energy, which they're using, but now on top of that, the economics and this is a pricing issue. So this is an area where we definitely see a lot of room to grow, and we are in the process of increasing our capacities in this area. On the back of that, our operations and maintenance is also expected to grow so our proprietary portfolio will continue growing. This behind the meter opportunity will add to the volume of our clients and megawatts that we operate, but we also continue winning new external customers across the markets where we operate. In the area of [ following ] technology. That means the distribution of components, again, we see very strong demand across all categories. So that's modules and verters. As I mentioned before, our batteries, also, volumes are strongly growing. And for all these components, we procure directly from the manufacturers. And so with good access. And of course, now that there's a lot of discontinuities ranging from energy curtailment in China from many of the [ current ] that impacted the production volumes in Q4, the entire logistics chain has also been rather volatile. So it was difficult to get -- capacity prices have multiplied. So -- for container shipments from China to Europe, but we have had that very well in Q4. That's actually created opportunities for us. And we believe that our ability to -- our experience and ability to stay on top of the these continuities will continue driving the growth of this segment. And last but not least, of course, all the areas in our water division are important that we see the most significant growth potential so that which could actually become a pillar of our business going forward in PFAS applications of our remediation technology, and I'm happy to announce that we have won our first small project in -- PFAS-related project here in Europe. At this point, we cannot see more, but it's a small first step to establish ourselves as a frontrunner in this -- in Europe now emerging, growing awareness of the risk related to PFAS contamination. So it's not only in Australia, where we also believe that this year, we'll see some additional business coming our way. So just to conclude, a recap. So the goals that we have communicated to the market, which remain unchanged, are that we would want to grow our portfolio to 600 megawatts by year-end '24. The path towards that will be that in 2022, there will be a significant addition against the 90 megawatts we have today, but probably not from the linear gap. There will be a lot more in 2023 and then even more than '24 build and connected. As mentioned before, the focus is to continue developing across all the markets where we are potentially also some new markets. So by year-end '24, we want to have at least more than 5 gigawatt of projects under development that will drive the continued growth of our portfolio. The O&M target is 1 gigawatt. Again, we believe that there's potential for more, but that is at the moment our goal. And while maintaining a properly leveled, healthy balance sheet, we -- within the confines of an equity ratio of at least 25%, which is also covenant in our bonds, we plan to grow our EBITDA by a factor of [ 5 ] against the 2020 level of EUR 8.4 million. So that points to about EUR 40 million. What is important to say this goal has been set in June last year based on lower energy prices. So the fact that we're now in a much higher price environment, we would hope that [ got ] had to be achieved earlier or if prices remain where they are, that 600-megawatt portfolio could actually have a more significant EBITDA impact. Project development. Just a quick recap. So we have 490 megawatts in Central Europe at the moment, where Romania is the largest market with almost half of that number. You can see that Romania has been growing very dynamically, and we are also now seeing that a significant part of that pipeline is maturing as it gets ready for construction later this year. Poland, where we are relying solely on in-house developed projects. So Romania, it's across -- it's a combination of in-house developed, codeveloped, but also some acquisitions. In Poland, we are going completely organic. So we have a team of land seekers in the back office, the direct, those 2 promising locations. We have grown from just a small starting line of less than 5 megawatts here in 2020 to now 169 megawatts and essentially every month, this number will continue growing. And we do expect to build our first power plants for our portfolio in the first half of 2023. Here, it's maybe important to reiterate again, we are developing and building all our power plants based on single-access tracking technology. Where possible, we're trying to overbuild the capacity. So for every megawatt of reconnection capacity, we're installing between 1.3 and 1.4 megawatt of module capacity, those using bifacial modules. And as a result, we generate not only a higher yield, but also have a significantly more valuable production profile, producing significantly higher output in the morning and the living hours compared to a south-facing fixed installation; and these are the times when energy prices are the highest. So these power plants are fit for purpose, fit for the -- for selling electricity on the open market. And in Poland, we run into the problem that nobody else was developing these type of projects. So this is already -- we decided to take the longer and harder route, which is full in-house development. But at the end of the day, we will have power plants that are going to be the most efficient in the Polish market. In Hungary, we have been a little bit stagnating, but that the pipeline that we have there is maturing. And it has also been rather difficult for certain regulatory reasons to start new development in the last 12 months, but we are now also looking at some acquisition opportunities to further accelerate the growth of our portfolio in Hungary. And last but not least, in Australia, we have gradually exited our large-scale project development, some of which was in cooperation with Canadian Solar, some of it is outside of that cooperation. And in Q4, we sold our 65% stake in the last project. And as has been communicated earlier previously, from now on, all our project development in Australia, large-scale development is based on the range of technology. And as most of you have seen, we communicated in Q4 that we are developing our first such project in South Australia with 300 megawatts of generation capacity, 150 megawatts grid capacity and energy storage capacity based on region's water-based energy storage system of 3.6 gigawatt hours, which at this point in time would make it the largest energy storage project in the world besides hub storage. So this is a truly large project, which is important to point out that this is a project we are at this point in time developing fully ourselves. So this is not based on any cooperation as we had with Canadian Solar. So this is a project where we own 100% of the project rights at this point. And as we communicated before, we expect this project to be ready built by year-end 2023. Just a quick reminder about the RayGen technology. So we invested in the RayGen in April 2020 and then also participated. So there was AUD 2 million investment. We participated in a follow-on financing round a year later in April '21. We invested in [ Australia ]. And in that round, we were joined by AGL, the leading utility -- the largest utility in Australia, also 2 companies from the oil sector, Schlumberger and Chevron, and also some financial investors, which joined later. And the company is currently -- RayGen is currently filling its first full-scale pilot project with 3 megawatt of generation capacity and 50-megawatt hours of storage. This project should be completed and commissioned in the third quarter of this year and it can serve as a great reference. And we are also, at the moment, involved in identifying and developing additional sites in Australia. But of course, we're also looking at opportunities in other markets that have a significant -- a sufficiently high level of target solar radiation. And the main advantage of this technology is that it is -- the storage is free of any chemistry or the need of any rare earth metals, so the storage medium is purely water and the system can run both as a an island or -- but it can also be connected to the grid and provide not only electricity but ancillary services and can turn the generated electricity into any kind of supply profile to the grid or the offtaker. So we can turn solar into 24-hour baseload. We can supply any type of profile that the offtaker may need or want. And of course, now seeing a lot of PV being deployed also in emerging markets, like for example, Africa, so there's a lot of PV being built. However, the [indiscernible] still need to be switched on and the anti-generation becomes a lot more expensive and definitely not renewable. So to take advantage of RayGen that it can meet the 24-hour needs of any kind of community or country. So with this, I will hand over to Clemens to run you through the financials of the fourth quarter and full year 2021.

Thank you, Georg. Good morning also from my side. I will now guide you through our financials for the last quarter and the full year 2021. Just to highlight here again, '21 figures for the full year, the numbers are not audited yet. So they are preliminary unaudited figures. Before I go into the numbers in detail, just to recap the recent highlights that we have seen mainly that impacted the last quarter of 2021. As Georg already mentioned, we connected end of Q3 our so far 2 biggest power plants in Australia in Leeton in August and which are running fully merchant and basically off-balancing also very much toward the first additions to our power plant -- our power portfolio that off-balance our seasonality here in Europe. In Australia, we have added as well in December this year, our first merchant project in Europe, in Hungary with 1.4 megawatt capacity, which is generating very nicely now and selling electricity directly into the European electricity market. We have grown, as Georg already mentioned before, and you will see in the graphs, significantly our development pipeline, which will be feeding our future growth in construction and then connecting power plants in all our markets by 291 megawatts last year. The biggest addition coming in Australia from this newly RayGen-based technology-based projects that we will continue to develop ourselves for the time being. A milestone in the last quarter was the placement of our first green bond with a total volume of 55 million that was very well perceived from the market, oversubscribed, and we also could see a strong interest from our existing bond investors. Thank you very much at that point here where we have seen a very high exchange ratio from the old bond to the new bond, so more than EUR 21 million from the old bond subscribed to basically directly into the new bond, which is, I think, extraordinary high-risk exchange ratio. And we also -- this bond has been just recently awarded the best issuer for bringing SME bonds in 2021 prize, which is done annually by the bond magazine, so that underlying this bond and its attractiveness. What does this mean in more concrete numbers for the KPIs that go into our financials? We have mentioned our electricity production increased significantly year-on-year by 47%, more than 47% to 103 gigawatt hours. So we hit our internal goal to achieve 100 gigawatt hours of electricity production this year over did that. And as Georg already mentioned, the capacity on a full year basis of the already installed power plant is even above 120 gigawatts gigawatt hours. So we can see for this year a lot of additional revenues coming down, not only from the additional capacity connected but also, as we said, from going more merchant this year and therefore, being able to harvest the at the moment, extremely high electricity prices. So far to the proprietary portfolio, the electricity generation, the portfolio in total grew by 15.8 megawatts this year to 90.5, and we will see this graph continuing to grow like this also in this year going forward. On the O&M side, the growth was not that big. But still we have more than 310 megawatts, which is also generating attractive recurring revenues like the electricity generation that we can see in our overall revenues, which brings me to the income statement. We had the fourth quarter, but also the full year was basically a record year for the company. We had in the fourth quarter an increase of our overall revenues to EUR 11.7 million, a growth compared to the previous -- to the fourth quarter of the previous year by an astonishing 130%. On a full year basis, our revenues will end up around EUR 36.4 million, which is a growth of 28.7% compared to the previous year. Important here, I'm always pointing this out is the recurring revenues of electricity generation, which have been growing on a full year basis to EUR 19.4 million, at 18% compared to 2020, which is contributing most to our EBITDA, which we could turn positive in the first quarter. As you know, usually, the first quarter is the weakest quarter in our -- together with the first quarter, in our seasonal business, but here also the addition of the Australian power plant balances of plus the additional sales and opportunities we could harvest in the year of procurement and technology sales, where we have secured capacities at attractive prices and could benefit from the interruptions in the supply chain, the higher prices on the market, where we could sell our modules and also other components now at prices much better than in the past. So this turned our EBITDA into positive for the first quarter to a little more than EUR 1 million. For the full year, we could grow our EBITDA from EUR 8.4 million to EUR 9.6 million, by 13.6%. So this from the operational side. Clearly, we had in growing depreciation and also growing interest cost from the financing side. But still, we could improve our profitability situation that we could reduce our losses, if you look at the net loss in the fourth quarter, quite a bit, to a minus EUR 870,000, but also for the full year. But here, very important, and I'm trying to point it out every time again, is to look at the really bottom line, the total comprehensive income of the company because of the value creation that we had on top of the operating performance of the company, which is only reflected in the other comprehensive income coming from the revaluation of our -- or mainly coming from the revaluation of our power plants that we have connected. So there was a positive effect from our power plants in Australia already in Q3 when we connected them, plus in Q4 from the recent addition in Hungary that had a very positive impact. This was eaten up a little by the revaluation of the Czech power plants already previously this year, also in Q3, when the newer legislation came in place. However, the effect was much minor than we originally anticipated. And so the bottom line on the total comprehensive income was quite positive that we could even increase that from EUR 2 million, EUR 2.1 million in 2020 to EUR 2.4 million in 2021. That brings directly to the balance sheet, which is basically where the total comprehensive income is then visible or goes into the equity as well. As you might know, our balance sheet has grown also quite strongly to our total balance sheet of EUR 196 million from EUR 159 million end of last year. This growth is mainly in fixed assets and long-term assets, which comes from our additional power plants, but also our investments into RayGen and [indiscernible] that we have mentioned already before, plus we also could significantly increase our current assets, mainly liquid assets, giving us additional liquidity in the companies in a second in the cash flow statement where this came from. And on the other side, our passive side, respectively, liabilities and equity side grew accordingly. On the one side, our equity could be strengthened significantly [ whereas ] positive total comprehensive income on the one side, but also by the treasury share placement we did in the middle of the year with additional EUR 7.7 million that we could place there and strengthen our equity accordingly by about 29% year-on-year, which leaves us with an equity ratio or an adjusted equity ratio of 28.8%, which is an important measure for us as the covenants related to our bond investors, but also which leads us in the -- still in this corridor where we said we want to be with our indebtedness that we keep our equity ratio between 25% and 30%. The remaining part came from increase in debt and liabilities, mainly in long-term liabilities, which was basically coming from additional drawdowns at the beginning of the year from our nonrecourse project financing that we have in place in Hungary, which was a little compensated by early repayment we did end of this year for our Czech portfolio, where we paid the bank financing completely and have now full access to the liquidity generated there, plus the additional bond placement, where we have placed this additional bond this EUR 55 million, which is a net cash inflow of about EUR 32 million coming in. The growth of the current liabilities comes mainly from a reclassification of our old outstanding bond, which is still there, which is due end of this year and therefore, since has a maturity of less than 1 year, it's now shown as a short-term liability. Coming back to, I mentioned before, the liquid assets, which leads me to the cash flow statement. We had continuously, as in previous years, a positive operating cash flow of EUR 5.1 million roughly, compared to EUR 5.6 million previous year. That maturity we had, our starting point, we had about EUR 10 million -- EUR 9.9 million in cash and cash equivalents available. We have this additional EUR 5.1 million operating cash flow. We spent about EUR 14.2 million as investment cash flow in investing mainly in our power plants, but also, as we mentioned before, the participations in -- [ let ] in the beginning of the year in RayGen. Actually, we spent a little more because we also have a positive investment cash flow impact from the sale of the project rights of our Maryvale project, which was a little more than EUR 1.5 million that has basically added a positive value to that in total. And then we had a cash flow from financing activities, which was very positive with EUR 32 million almost compared to EUR 12.1 million in 2020, which, as I mentioned already before, came mainly from the additional bond placement, additional drawdown of financing in Hungary at the beginning of the year compensated by interest payments and debt early repayment of the bank loan for the Czech portfolio in the Czech Republic. This is in a quick and overview on the financials. And then I would propose to go back because we see there's already a lot of questions coming in to the Q&A session. Georg?

Okay. So the first question is -- yes. So the first question is whether we're entering the capital markets in Australia, so as on to list on the ASX. So then the question is the approval of the RayGen project in Australia. And the third part of the question is whether we are considering paying dividends? So the answer to the first question is no. So at this point, we're not considering. I mean, we did look at interest several years ago. It is both very expensive. And secondly, with our listings in Europe, extremely complicated from a regulatory point of view. So this is definitely not something on the card at the moment. With respect to the 300-megawatt project in South Australia, so we communicated that we expect the project to be ready to build. So in other words, to have all the required permits by year-end 2023. I mean, this project, of course, is very large and very complex. We did announce this project already at a relatively advanced stage. So it's not like we just found the spot and made this announcement or we make announcement at the point in time when we signed the preliminary agreement to secure the land. There's been a lot of work done before that. Also, there's various types of authorities, including the regional government. So this is a project that has received thumbs up already from various parties. But of course, there's still a lot of work ahead of us. So there's a community consultation process, the grid connection studies and models that need to be made and this takes time. So with the year-end 2023, we believe we have communicated a conservative deadline. So of course, we are highly motivated to complete this process earlier. And I guess as we progress, we may give an -- or we'll give an update. So this is a conservative estimate. At the same time, as I said before, we are also trying to secure additional locations in other parts of Australia. So hopefully, this year, there may also be some news on that. And last question about the dividends. Our approach to dividends is a very simple one. We believe that as long as we -- so the benchmark is our cost of capital. So if we can -- as long as we can deploy capital at a higher rate than a higher return than our cost of capital. We believe we're expected to do so and create additional value. And when we run out of those options, the times come to return capital to shareholders, to investors. So this can, of course, take several forms. It can also take -- be done through a repayment of debt, but of course, also a return of capital to shareholders in the form of dividends, share buyback's also the way I would do that. So at the moment, we believe that we have a lot of such opportunities to deploy capital at a higher rate than our cost of capital here. Just a tiny reminder, when we connected our first power plant in Hungary that runs on emerging basis, Tolna, in early December last year, the total investment across, so covering development land, cost of construction, investment was about EUR 1 million. And based on the forward prices back there and actually, we cross-checked it now coming to similar numbers. So we expect this power plant to generate about EUR 400,000 of revenues this year. We have also published the valuation and the other comprehensive income related to this, which was a plus 420...

EUR 419,000.

EUR 419,000. So this is the net present value of this investment. So I think it's pretty clear that we are in a situation where we can deploy capital in a way that creates additional value. And as long as we can do that, we should do so. And companies that return money to shareholders essentially admit that they don't have enough growth opportunities. So this is the in principle approach. So clearly, there may be dividends at some point in the future that -- and whenever it makes sense to -- wherever we can deploy capital in a very creative way, we'll do so. So the next question is are we seeing margins in develop and build and sell PV plants? And whether we see increase in 6 months? Well, I think here it's, first of all, very important to look into what type of solar assets we're talking about because there's still a lot of projects out there that have either signed PPAs or, looking at Poland or Hungary, [ F1 ] 15-year contract for [ difference ] for 15 years at prices that are way below current market prices. In parallel, EPC costs have gone up. So I think a lot people out there that have developed or built the project and have secured the final buyer of the project and now in the process of building it. These 2 moves on top of that. We've also seen an increase in interest rates, of course, particularly in local currencies in Poland, Hungary and the Czech Republic. So all 3 trends kind of going the wrong way. So I think there's a lot of people who -- and a lot of calculations were actually very tight in the first place before these 3 things start moving in the wrong direction. So this is, thank God, a space that we've completely avoided. So we have not been involved in this building cell. Never say never, I mean our main focus is on adding to our portfolio. But on the other hand, we do see projects that are to not our liking. So for example, because they've been developed south-facing and where the opportunity to acquire those projects and then deliver a connected power plant to final investor may exist, we make use of it to make a onetime margin and on top of the total operational maintenance. But this is definitely not the main pillar on which our business is built. We may do that opportunistically with a view of making an attractive margin, but it's definitely our core business. But then again, it also depend on the revenue model that the buyer of the project expects. And also there, we see on the very small, slow shift from these majority of potential investors still want to see a fixed revenue stream, whether that's a contract for difference or a corporate decay and as this is not a space in which we operate, we're also unlikely to be a top-level provider of this type of project. We are comfortable with the market opportunity, others call it risk and all that we're focus on. So if there's an opportunity and there's an offtaker who is happy with us delivering a connected plant that is exposed to the market and will sort out their own revenue management, and I think that this may be an issue or a possibility, but we'll only do it if it's worth our while we focus on many things.

On the next module pricing.

So module pricing for 2022 and after the rise in '21, unfortunately, I forgot my crystal ball at home today. But there's a lot of things going -- happening at the same time. Clearly, the energy price increases are not only European problem, but is certainly China. On top of it, in China, they have -- well, the majority of modules are coming from. There has also been a curtailment in the fourth quarter, which is -- has not only affected the module manufacturers directly, but also their suppliers. So while the module manufacturers, for example, in the assembly line, may have had enough energy, the glass or [indiscernible] foil you have an interruption. And it's just like in the car industry, you don't have the chips, you don't have to finished car. So these things create a ripple effect. On top of that, we have the issue with the transportation costs. There, we've seen a little bit of an easement but nothing spectacular. So I think based on my last information, we're down from the top of $20,000 per container from Shanghai to [indiscernible] to something like $14,000. At the same time, the manufacturers are also adding production capacity, demand, of course, as a result of the higher prices is going up. So we see different signals. So we don't believe that -- so at the moment, we don't expect there to be another massive jump. But we also do not have information at this point that there will be a significant reduction in module prices. And one is module prices in China and then it's the final price in Europe, excluding transportation costs. So we believe that also given where energy prices are, what is important this year is to actually have access to the product and to the right product. And that will make -- have an impact on how successful we are this year. And with the entry prices are EUR 150, EUR 200 per megawatt hour, it almost doesn't make a major difference for the -- a megawatt of modules cost EUR 270,000 or EUR 300,000, which does not mean that we are, of course, always trying to buy the best -- at the right price point for the quality that we want. The current -- so next question is where we can comment on the current level of construction cost per megawatt? What our development cost per megawatt in the CEE region are, including our permits? And what is the margin on O&M services provided for external PV plants? So this is slightly tricky to answer. I'll start with the development cost. Of course, there's a massive difference between the way we do it in-house or it's external. Of course, in-house is always the cheapest. So I don't know if you look at what we do in Poland, I would think that the megawatt in the end will cost us between EUR 25,000 and EUR 30,000 to develop. If we look at prices that some developers are asking for, again, staying in Poland for a project that may not even be ready to build yet, but it has great capacity. We are at EUR 100,000 and more. The next factor is land. So in Poland, for example, we -- there's essentially all the land that is available in the market that can only be leased, whereas in Hungary and Romania in the vast majority, and it's, of course, our preference of projects we are buying the land. And at cost way below what it will be in Poland or also what we see in Czech Republic. So if you -- so there's a wide range of scenarios from in-house development to acquire to land lease versus land board. But let's say, in Hungary, we are somewhere around the EUR 100,000 land included the megawatt and development costs. Let's not forget that the way we build on trackers, lower build, we need about 2 hectares per megawatt of AC capacity. So we need quite a bit of land. So there we're in the region of EUR 100,000. And the actual construction cost we build. And again, it will depend on the size of the power plant, but we are somewhere in the region of EUR 700,000 per megawatt DC, 650 to 700 depending on the size. So that's a general guideline. Of course, all the imports have gone up in price, so not only the modules, the transformers, the cables as copper prices have gone up. So there's been an increase across the key components, but also the balance of system. And then a question about the margin on all end services. This is not so easy to answer as this is a business where each market where we are present, we, of course, have a fixed cost block. And then as we grow the number of our technicians, those fixed costs go up in jumps. And it's important to spread those fixed costs across the largest possible installed base, which is -- this market is going to be a combination of our own and external customers. So in each market, we have a different breakeven point. Still in the Czech Republic, we are above that point. We also -- this year, we'll definitely exceed that breakeven point in Hungary as we go well above 100 megawatts of management. On the other side, we also profitable in Slovakia, although it's a very small market. Clearly in Poland and also Romania, we are at the point where we still need to grow, we're still more in the startup phase, but of course, we're trying to grow as fast as possible. I would say once we get a really good coverage of the market, a target EBIT margin for an [ one ] business should be in the region of 15% to 20%, if it's efficiently run.

If I can go to the next one. Question about how we see the difference between feed-in tariffs versus the merchant model in our investment decision on how differences in profitability, mainly in the and Hungarian example. To this, I think that the primary question is on the one side, all the differentiation between feed-in tariff versus merchant. It's not always -- or this is actually not so much the question for us because at the moment, there is basically no more feed-in tariffs, but only for new projects going forward. You can go for either participating in auctions or going for power purchase agreements or as we do the merchant model, which is not excluding at the later stage to also sign up for our purchase agreements with commercial off-takers. We go this way because we believe very much that going into the merchant model, it is -- you achieve higher returns than if you go for a auction, where we continue the auction prices recently have been extremely low, not only in Hungary, also in Poland. And therefore, we prefer that model very clearly. However, and on top of that, we have mentioned this just before that we have announced this recently, we are evaluating currently that we would due to the changes in the regulation in Hungary, where the regulator gave the possibility that operators of power plants that are running under the so-called KAT licenses or KAT METAR licenses have the possibility to temporarily exit them at least for 12 months and they can reenter given the current high electricity prices. It's clearly more favorable to do that for us. So we are looking into this way, what are the basically the necessities to overcoming in this respect and investigate that. and for our future power plants that we are developing and have under construction right now, we clearly aim for the emergent model. I think the next question is a little related to that, that is about development in -- our main development in Romania and Hungary. We're in advanced stages of development is 2.7 megawatt and 93.2 megawatt on the other side. We have -- which of those are expected to be moving to the next stage until middle of 2022. Yes, as you can see in our quarterly report from Q4, we have 2.7 megawatt capacity in Hungary, which is planned to be ready to build in Q2. So we clearly plan to build those as well. We hope that there is a little more coming in Hungary, which is moving forward in the development stage as well. the main focus, I think, on construction that we expect for 2022 will be happening in Romania, as you can see on the 1 side from our development of the pipeline but also from the level where the projects are and how we see them to be ready to build. So we see most additions to our portfolio coming from Romania this year. Then secondly, will be Hungary. And as Georg mentioned already before, talking about the pipeline, we expect in Poland to start construction latest in early '23 when the weather conditions will allow us.

What I would like to add here is, looking at our table that you can see, up to the table, you can see in all our monthly reports and quarterly reports and also in the presentation, there are 5 stages. And I think what you can expect is that the projects move at their speed through stages 1 to 3. But at the moment, they're ready to build, they immediately jump from that to #4. So they move from 3 to 4, they actually move to 3 to 5, which means that as we're building those power plants for our balance sheet and of course, our engineering team is involved in the development and knows exactly when -- stands ready to start building the moment our work permitted are in place. So this is why we there's also hope that in Hungary, it will be more than just 2.7. How much of the 93.2 we can get built and connected in Romania is -- we'll have to see. But we will definitely see a significant increase in installed capacity until year-end. We have the 3-year goal until the end of the year in '24. That's clear, and the path to that is something we -- that's quite difficult to -- for any specific point in time, very difficult to predict. Of course, we want to get as much connected as quickly as we can. That's the -- and I think, through our monthly reporting, all of you will be updated constantly. The next question is that our expectations is that 2.5 to 3 gigawatts of new PV will be added in the Czech Republic and what our plans are for the Czech market? Well, the Czech market is a market that -- where we started 13 years ago. But over the last couple of years, we were focusing very much on Hungary, then Romania and Poland. And for a long time, there was a big question mark over the Czech market. So it was not really a focus of ours. Of course, the situation has changed to a very large degree, also driven, well, first of all, by a generally more benign view of the Czech government in solar, which for pretty much the whole past decade has been very hostile. Now, of course, also the investment subsidies that are available or at least people are applying for them, we'll see how much gets paid out. But it has, in the last 18 months, led to a lot of new interest in development, some players that we already started earlier. In that respect, we are kind of a late starter. But for the Czech market, there are several views. When we talk about developing and building from our portfolio, the Czech market at this point in time is not tremendously attractive compared to Hungary and Romania in particular because, first of all, we have lower radiation. Well, first of all, there's still very restrictive land use. As a result, well, then there's been a lot of players, some of them also public, state-controlled companies that have used the last 2 years to secure a lot of the free available grid capacity in this country, particularly for larger projects. As a result of the restrictive land policy, there's not that land that can be used. As a result, it's very expensive. And I mean the projects or even just the land that we get offered in the Czech Republic start somewhere EUR 20 and some people want EUR 30 and EUR 35 per square meter. And in comparison, we are buying land in Romania for EUR 2 and we have 20% higher radiation. So clearly, as a result -- and at least partially energy price is also higher in Romania, where -- when aligned with across the Czech Republic, Slovakia, Hungary and Romania. But sometimes we see a certain divergence, including today, where always the energy in Hungary and Romania are higher. So the economics, just on the base of higher radiation and lower land costs, are much better in Romania. So if we take it purely from a net present value and an IRR point of view, Romania and also Hungary are best destinations for us than the Czech Republic. So this is why we don't have an ambition to start developing hundreds of megawatts in the Czech Republic. Having said that, we are looking at certain locations where we can develop ourselves. We also have -- people are also offering projects to us here. Again, something that is limiting us as that some of the projects that we have been offered have already submitted their request for a subsidy. Unfortunately, developed and designed old style that means south-facing fixed structures, which we don't believe is the right way to go because it has been submitted for the subsidy, it can't be changed anymore. So that basically having to redo the whole process, losing the ticket for the subsidy and having to redo it and refile at a later point. So Yes, these are the issues. We see a lot of interest in the Czech Republic behind the meter. Although, of course, across the rest of the region, this is going to be now a significant part of the focus where a lot of it will be EPC that we build for the offtaker, but we also will invest and sign service for our purchase agreement. So we will invest ourselves. And we also have some projects where we're just trying to go and sell it at market prices. So these are the -- so the Czech market is attractive and important. On the utility scale, we're a little bit observing the situation. And yes, there will be some additions to the portfolio, but I don't expect it to become as significant at least in the short term as the other markets are, where we are, of course, already put in a lot of effort over the last couple of years. Balancing costs. This is a really good question because balancing costs are very volatile across the markets. What we see is that the markets where we are developing projects, the lowest balancing costs are in Poland, somewhat higher in Czech Republic. And in Hungary and Romania, they are significantly higher. They've also been, the last couple of months, have been going up due to -- it's very volatile. We understand that there's going to be a higher level of connection between the markets to reduce capacity -- sorry, to reduce balancing costs. So we are being told by traders that, for example, Hungary, they expect that prices will go down significantly in the next 2 to 3 years. Another way, of course, is it's always very important to have a good forecast which never is an exact science on solar. But clearly, the quality of forecast is important. Then, of course, becoming part of a balancing cycle that has flexibility. And this is where also the cooperation with [indiscernible] comes in as they develop the virtual power plants and sign of other customers with flexibility, they'll also be able to provide us with a very competitive balancing costs. On top of that, we are also considering adding some storage elements either on the plans or maybe separately in the markets where we operate to be able to as a national portfolio total energy portfolio to provide a much more predictable production stream to, in this case, left with our trade business. So there are various avenues to reduce those costs. And it's an important element as, I mean, Hungary and Romania mere well over EUR 10 per megawatt hour at this point in time. So it is significant [indiscernible] cost item. And the last question...

I think generally stating, we expect that they will be going down in the longer run. This is the current...

Overall. But of course, there are the strategies and steps that we are taking to take to reduce the intermittency of our power plant portfolio. The last question, which was just added, is political risk in Hungary threats of leaving the EU. Well, first of all, that may also be extended to Poland. I think, well, it's politics. I think that -- I mean, one thing that is -- that I would like to say here is that based on our experience of having development of power plants in essentially 10 countries. Hungary, and we've been on the ground for 5 years, has actually is definitely at the upper end of the spectrum in terms of leaving aside the language, which, of course, is a significant barrier. But the regulations and also the way regulations were changed, for example, during those hot development years between 2016 and 2019, but also the things -- the changes were always done obviously with somebody having sorted through. They were communicated properly, the process of getting permits also during the construction phase, the way the regulator communicate and responds. Hungary is actually a really well-functioning market or country for that. I mean, definitely the other end of the spectrum of how the Czech Republic has been dealing with the solar effect over the last 10 years. So on that front, we have had a really positive experiences. When it's about the future of the EU and its individual member states, I believe that is a tricky question. I think what's -- it's difficult to predict. But one thing that I think is very crucial to reiterate is that we have structured our investment in Hungary, but also in the Czech Republic. And clearly, all new additions to our portfolio in Central and Eastern Europe, all these investments are structured through sub-investment holdings, that means they're fully owned by Photon Energy N.V. and registered in Switzerland so that we have access to the Energy Charter Treaty. But also, the financial investment treaties between Switzerland and in this case, Hungary, but also in Romania, the Czech Republic, Switzerland has a -- with all the countries where we're developing projects has financial investment treaties that are in force also reasonably favorable proper taxation agreements. But one of the problem existed within the EU, the financial investment treaties have been canceled in the last couple of years. So this is why we decided to structure everything from Switzerland. So if Hungary were to exit the EU, then we still have, I would say, the best possible investment protection available today in terms of -- from which jurisdiction we have structured investment in [indiscernible]. And yes, I think this [indiscernible] and the rest. I think it's a bigger question than just Hungary. I think there's a few issues wouldn't be used, which will not be able to resolve here, and I think time will tell. And maybe we will know sooner on that. But we have structured our investments in the best possible way. That's what we feel comfortable with and hope for the best.

Good. Maybe we should come to an end. I can see the last question was about the [indiscernible] in Poland that we have here. I think costs are the highest. I think we have implicitly already answered this a little because one of the main reason is basically that the radiation in Poland is lower than in the other countries where we are active, which means from the same investment we do, the output of electricity will be lower which means that the price per kilowatt hour is increasing. So this is on the investment side and the radiation side, and the other side a little is that in basically all cases in Poland, the land is rented and a little bit then in the calculation, more expensive than in other countries where we can buy the land, and this also has an impact.

The rental, if you compare it to Hungary or Romania, it's higher. So yes, it's mainly those 2 elements. The third one, which is more technical, is that we expect that we'll not be able to overbuild as significantly in Poland as we can do in Hungary and Romania. So it's also from a technical point of view, the technical efficiency department will not be as high as irrigation itself, but also the lower all over factor also increases the LCOE. Okay.

Okay. Good. Production volume does not impact on us. Well, I -- Well, basically, in my knowledge of the formula, it does. But maybe we can have a separate discussion on that.

Yes. Okay. I think then it's about time we have. Thank you very much for taking that much time. We're a little over time already. And I think we will hopefully hear each other in -- and you'll see us in the latest quarter ahead, so when we will present our Q1 figures for 2022. Thank you very much.

Thank you.