Scatec ASA (SCATC) Earnings Call Transcript & Summary

Yes. Good morning, everyone. My name is Andreas Austrell, and I would like to welcome you to Scatec's Capital Markets Update 2022. Our CEO, Terje Pilskog and CFO, Mikkel Torud will present how we at Scatec intend to grow and capture value in the green transition. Terje will start and walk us through our sharpened strategy and strategic actions, followed by a finance section by Mikkel. Following the presentation at around 10 a.m, we will have a Q&A session where you will have the opportunity to ask questions. And if you have the time afterwards, please join us in a Mingling with some refreshments and something to eat. With that, I leave the word to Terje. Please proceed.

Thank you, Andreas. So again, welcome to this Capital Markets update both -- to both of you sitting here in the room and also the ones joining us from the webcast. It's good to see so many here. We have a full house here today. We've been working on updating and sharpening our strategy over the summer, and we're quite excited to now be here and present it. I'm sure that it will create quite a lot of energy in our organization. And hopefully, you will also see some positive impacts of it. So it's about, as Andreas said, capturing value in the green transition in emerging markets. Our vision, improving our future is staying the same. This is about building up renewable energy in order to reduce carbon emissions and in order to contribute to us meeting the climate goals globally. But it's not only about the global carbon emissions, it's also about having local impact. It's about having positive impact in the countries where we operate, it's about having positive impact in the communities where we operate and it's about also having positive impact to -- and meet all our stakeholders. And at the same time, as we are also generating value. However, as you all know, the world has been through and is still in turbulent times. We've been through the pandemic and the related supply chain squeeze that has impacted the equipment prices and has taken equipment prices up. We have seen this carrying over on to higher inflation rates and also higher interest rates. And this is also impacting us and also the war in Ukraine has brought impact to the energy scene. We are seeing global energy crisis, and we are also seeing a trend towards more fossil fuels these days. But despite all of these things, we are still positive and we're seeing still significant growth in renewable energies, and we see that being driven by a number of factors. We see it being driven by the fact that renewable energy is still the most competitive source of energy out there despite that we see an increasing equipment prices and increasing interest rates. and especially so in the markets where we operate. We are also seeing that currently, there is significant underinvestment in renewable energies if we are going to achieve our climate goals. As a fact, there are many analyses out on this, and we're seeing that, for instance, Bloomberg says that in order to reach our climate goals, the installed capacity of renewable energy has to increase in the range of 15x. So in this context, Scatec has been -- has a good starting position that we've built over time. We now have 4.6 gigawatts of renewable energy in operation and under construction. We have a proportionate EBITDA over the last 12 months of NOK 2.3 million, and there are more than 700 employees. In terms of avoided emissions, we are at a level of almost 5 million tonnes from the projects that we have in operation. And this, just to put it in context, this is about 10% of Norway's emissions. Then we also have a solid operating system that we have been developing over time. That shows through good operating performance, and it also shows through good HSSE statistics. So this is a good position for further growth. And when we are developing now our new -- and we have been developing our new strategy. We have been basing this on some of the strengths that we have been building over time. First of all, we have a solid experience from emerging markets. We understand how to mitigate and how to manage risk in emerging markets and we have a strong track record of actually doing so. Secondly, we have our proven integrated business model. This is about, first of all, controlling the projects through the life cycle from the development stage through the financing construction under the operations phase. But it's also about having all the capabilities and competencies internally that are required to move these projects, develop them, structure them without having inefficiencies in how we do it, but having cross-functional teams that have a joint objective and joint purpose in how we work. Then we have the multi-technology approach, which has been developed over the last couple of years. This is about having a broader toolbox so that we are able to provide the solutions that are the best suited for the individual markets that we're working in. And when we come back to talking about markets, you will see that we are targeting markets where it's not only solar or only wind that is relevant, but it's actually renewable energies as a whole that is relevant for the markets that we are working in. Then we are a partnership-based company. We work based on partnerships locally with local developers, local authorities. We work with partnerships on a global level, with larger developers with financing institutions and also with sponsors and equity providers. And this is an important point for us to both ensure that we have the right capabilities related to the projects that we work on. But it's also important for us to get leverage on the capital and the resources that we are having. And then finally, ESG is part of our DNA. And ESG for us is not only about reporting. Obviously, reporting is important. It is important to make sure that we are transparent in terms of what we're doing in this space. But ESG is an integrated part of how we do business through the value chain. It is about how we work with the environment, how we work on the social side with the communities and making sure that we have integrity in everything that we do. So this is very important for us. So in sharpening our strategy, that one of the key things for us has been to start out with these core capabilities, the strengths that we have and see how we can get more leverage on these strengths and use these to create more business. So in terms of the strategy, we are continuing to develop, build, own and operate renewable energy in emerging markets. And then there are 3 main areas that we will focus on. One is continuing to grow traditional renewables. Here, the main topic is identifying a number of focused markets where we can take a longer-term perspective, build scale, build competitiveness and make sure that we can operate in a more predictable way. Then we are going to advance green hydrogen. We have already some initiatives here. And here, we will focus on furthering those initiatives. And at the same time, use also here our integrated business model and identify the best locations globally in terms of where we can be competitive on the green hydrogen side. And in terms of green hydrogen, cost competitiveness is key if we want to succeed in the market. Then the last area is optimizing our portfolio. And here, it is about simplifying the portfolio. It is about looking for opportunities to capture higher energy prices. And it's about also launching release as an independent platform to make sure that, that gets a better foundation for growth. And in terms of these changes and adjustments that we are doing to the strategy, we have already also done certain adjustments to organization to make sure that our organization is well structured and we can give the necessary focus to implement this strategy. We have also updated our targets. And we are taking a 5-year perspective on our targets. We believe that, that's an appropriate time line given the development time line of the projects that we are working on. These targets are also somewhat more conservative than the ones that we had and presented about 18 months ago. And that is due to -- as you know, we have been through pandemic. We've been through turbulence in the market and it's also linked to how we see the market going forward, obviously. So we target to invest NOK 10 billion of our own equity into new projects over the next 5 years. So we believe that equity investments, our own equity investment is a good way of capturing our growth targets, given that we now have a different type of business mix than what we had previously. But we will invest this NOK 10 billion with discipline. So we are saying that we target to invest at 1.2x cost of equity. And the cost of equity that we talk about here is the project-related cost of equity. So it will include elements like offtaking credit risk, country risk and other types of technology risks, for instance, that we have in the project. Then we are targeting to increase our EBITDA from power production to about NOK 3 billion. And all of these targets, they represent approximately 1.5 gigawatts of annual growth. So as historically, our growth also in the future will not be linear. So there will be ups and downs, and this might be a bit slower in the beginning and faster towards the end. But on average, over these 5 years, our target is to grow at 1.5 gigawatts per year. And then during the rest of the presentation, we will then elaborate on how we intend to reach these targets. So the first one is growing renewables. So here, our approach is to prioritize certain focus markets. And we intend here to be able to take a long-term perspective on certain markets to build scale, to improve predictability and to secure competitiveness. And the criteria for selecting these markets, they are that there is a large and increasing power demand in the market that these markets have a clear energy transition agenda that they are driving towards renewable energy, that there are predictable regulatory frameworks, and this is a lot about ensuring that we have good opportunities for securing offtake and that there are strong conditions for renewables, meaning that there is good solar irradiation or good wind conditions or ideally both. So we already have a number of markets where we have a strong position where we have a good set of operating assets where we have good pipelines and we have an organization in place that understands the market. That qualify as focus markets. This is Brazil, it's South Africa, it is Egypt and it's the Philippines. So we continue to focus and build our business in these markets. Then we have certain markets -- 2 markets where we have more of an emerging position where we have an organization working on developing and where we have an emerging pipeline. These markets are Poland and India. Then we will continue to focus also on hydropower in Africa. Here, we have a partnership with Norfund and BII, British International Investment. And we believe that our position here that we have taken over through the acquisition of SN Power is a very strong position. We have a good pipeline, a good set of competency in the organization and we are well positioned to capture opportunities in this area. Then it should also be said that we will not stop doing projects outside these focus markets. But the bar for doing projects outside these focus markets will be lifted. So we will see fewer of them and they will be larger than what they have been historically. So South Africa is a good example of such focus markets where we have been able, over time, to have a long-term perspective. South Africa for quite some time has been a market where there has been imbalance in the power situation, where there's significant shortage of supply of power, leading to rolling blackouts in a very difficult energy situation in the country. As a matter of fact, the CEO of Eskom has been out saying that in order to get the power market back into balance, it's going to be required to build out in the range of 50 to 60 gigawatts of new renewable energy between now and 2030 to 2035. And that is assuming that there is no increase in demand. If on top of that, there is increase in demand, then the required build-out might be double that figure, so 100 to 120 gigawatts over the next 7 to 10 years. In terms of our position in South Africa, we have almost 1 gigawatt in operation and under construction. We have a backlog of about 270 megawatts and a pipeline of 3.7 gigawatts. And as an example of what it takes -- what it means to have a longer-term perspective, we can talk about the Kenhardt projects that were awarded in RMIPPP process. These projects we started developing in 2014. That was based on our perspective of the market at that point in time, where we understood where the best locations for developing projects were. Then as we saw that authorities started to indicating that they also wanted to see storage in the project, we also permitted those projects for batteries. Then when the RMIPPP tender came out with quite stringent requirements in terms of being able to provide energy from 5 a.m. in the morning to 9:30 p.m in the evening. Based on our multi technology competency, we were able to put together all renewables projects that were able to meet those requirements. And this project was only all renewables project that succeeded in the tender. And then after some delays due to the fact that the authorities have to get through the approval processes, we were also based on working together with our partnership banks locally and our sponsors, local cosponsors, we were able to move the project to financial close. As so far, the only project in the RMIPPP tender that has reached financial close and is currently now in construction. So this is one example of how we can use our strength and operate in a market where we can take a longer-term perspective and use that to succeed. Another example of that is Brazil. This is a sizable market where we can take a long-term perspective and where we see a significant growth opportunity also going forward. And also here, it is interesting for us to develop both solar and wind projects because it's good to, over time, develop a generation profile that matches the demand profiles in the market. So then it's good to be able to match, solar and wind. Here, we have about 700 megawatts in operation and about 1.3 gigawatts in pipeline. And we have the Apodi project, which is delivering energy to the state utility, and we are now constructing the Mendubim project in partnership with Equinor and Hydro Rein. And this project will deliver about 60% to 65% of the energy to [indiscernible] and then the rest of the energy will be delivered on short- to medium-term contracts into the markets. And in this market, we have a partnership with Equinor. Equinor is a reputable and strong player in Brazil with a good track record. And also Equinor as a company brings in competency in energy and electricity trading and merchant sales. So in that point of view, it's an interesting partner in Brazil because the offtake situation in Brazil is quite interesting in terms of taking a long-term perspective, because you can either sell energy to the state utility. You can enter into corporate PPAs with industrial players or you can sell on contracts on short and medium term basis. And in combining those different offtakes of opportunities, you can be able and you are more in control of moving the projects forward and moving them into construction. So to summarize in terms of our pipeline, we do have, as I said, about 1 gigawatt in backlog. We have about 15 gigawatts in pipeline and about 80% of our pipeline is in our focus markets that I talked about earlier. The pipeline has good distribution between different technologies. And it also has relatively good distribution between the focus markets. We are now targeting to increase the size of the projects that we're doing and the average project size in the pipeline is about 350 megawatts. And in terms of moving forward, we will target to do projects with the average equity investment on our side is about NOK 0.5 billion. Obviously, there will be projects that are larger and projects that are smaller and especially in some of our markets, like, for instance, Poland and the Philippines, we will typically see projects of a slightly smaller size. Okay. So then let's move to advance green hydrogen. So here, our ambition is to take -- our ambition is to be a first mover and take a leadership position in this segment. And also on the green hydrogen side, we do see significant growth going forward. Here, the Hydrogen Council, they forecast about 5 to 6x growth between now and 2050. A lot of that is going to come from new applications and new uses of hydrogen. On a short-term basis, however, the growth is most likely going to be policy-driven. And this is, for instance, like REPowerEU that has a target of sourcing 10 million tonnes of hydrogen between now and 2030, 50% of it coming from Europe and 50% of it being imported from neighboring regions outside Europe. And if you look at the chart, 20 million tonnes is in itself, 40% of the growth that is forecasted between now and 2030. Then another initiative is the Inflation Reduction Act in the U.S., providing a tax credit or a grant in principle, of $3 per kilo green hydrogen. This is a significant ramp, which is almost matching the production cost. So this is also going to drive a lot of development in the industry. The offtake part or the users of green hydrogen, that is to a large extent initially going to be industries, transportation, heating, but a lot of it can also be converted into a green ammonia or also green methanol, and green ammonia will then again be used, obviously, into green fertilizers into marine fuels and also in power production, replacing the usage of coal. So we are building on our strength and believe that we can build on our strengths to be an early mover in the market. And we believe that our integrated business model is also well adapted here. And we also think that in order to be competitive within green hydrogen, you need to ensure that you can produce it as cheap as possible. It is going to be a global market, and you need to identify the best places. So in terms of our approach, there are 4 cornerstones our approach on the green hydrogen side, it is identifying and seeking prime locations. Those are the locations where you have the cheapest renewable energy, where you have abundant availability of land because it takes a lot of electricity to produce hydrogen and where we are close to shipping lanes so that the end product can be exported. We are going to -- and it's going to be important to secure long-term offtake in order to unlock projects early on in the development in this industry, you need to have the long-term offtake. So that is crucial. We believe that we can apply our integrated business model. And this is, again, as I talked about earlier, on renewables. It is about working closely together in 1 cross-functional team having the capabilities and having the joint objective to succeed with the project and avoiding inefficiencies in interfaces on the technology side, or on the competency side. And then finally, it is about securing debt and equity financing. And also here, it's going to be significant financing required. And in order to bring in financing, it's important that all the other pieces of the puzzle here will be in place so that you have the long-term perspective on the projects. So typically, the first projects that we will do in this space, they will be in the range of 100 million to 200 million tonnes -- 100 tonnes, sorry, of ammonia representing 20,000 to 30,000 tonnes of hydrogen. These are projects typically in the range of $0.5 billion in investment. So these are the types of projects that we can drive also ourselves. Then when you move further into the development of this industry, you will start seeing projects of industrial scale. And those will typically be 10x that size. Obviously, when they get to that, then we also need to have other types of partners included in the projects. So then again, in terms of location and low cost and just emphasize that, renewables and electricity even if it is at a very low cost, represents 70% of the cost of green hydrogen. So this makes you understand that it's extremely important to find the locations where you can have the cheapest possible renewable energy. And some of these locations are in North Africa and the Middle East. Here, we have obviously very good solar resources. Some of the countries have extremely good wind resources as well. You do have abundant availability of land, and they are close to shipping lanes. And the good thing here is that these regions have a good overlap with where we're operating today and our credibility in operating in the moving markets. Together with the fact that we also already have good positions, like, for instance, in Egypt is playing very well up to our strategy in this space. So just to give you 1 example of what's going on in some of these markets and the dynamics that we see that is partly driven by the green hydrogen agenda but it's partly also driven by the global energy crisis. Egypt, has, for some years now, had a fairly balanced energy system where demand has matched the generation that they've had. So from that point of view, the last couple of years, there hasn't been a big drive in building new generation capacity. But now they see a significant opportunity in terms of exporting energy through different avenues. The first 1 is to build out renewable energy close down the old gas-fired power plants and rather than export the gas to Europe. That's the first thing they do. Then they're looking at interconnectors between Egypt and -- via Greece into Europe, where they can send the electricity directly. Obviously, it's a project that will take a couple of years. But it's still something that's Egypt and the EU is working closely together with. And then the final 1 is to take renewable energy converted into green hydrogen and green ammonia and exported into the global market. And also here, we see a lot of initiatives ongoing. And we see a lot of support from EU, from the World Bank and from other institutions in order to push this agenda. And this is obviously not only happening in Egypt. This is happening across this whole region, because there is now in principle a raise in terms of becoming the green hydrogen and green ammonia hub in this region. So in terms of our approach, we believe that our integrated business model is well suited to develop and realize such green hydrogen projects. Our approach, to be clear on that, is to integrate all the parts of the process facilities. Starting, obviously, with the renewable energy and going then to the hydrogen plant and if we also have ammonia also including ammonia plant and then into the offloading -- the loading of the end product. So the main input is still the renewable energy. And here, our remote technology experience comes into place. So we have already completed the design of 2 such facilities, the first phase in Oman and the Fertiglobe project in Egypt. And in terms of dimensioning and optimizing such a project again, it's important to think about the whole system. Key design factors going in here is obviously on the renewable energy side. You do solar or wind or do you do both? Are you doing the renewable energy side in an island mode? Or can you use the grid as a battery? And if you use the grid as a battery, what happens to your green certification and you still qualify as green when you sell it into Europe? And how do you dimension the different parts to have the sufficient and appropriate buffer through the facility. And are you delivering product on a continuous basis or do you more deliver the product on a batch type of basis. And all of these elements and many more are going into the design considerations when you work on plants like this. And obviously, we are not doing this all by ourselves. We're doing this together with other industrial companies with engineering companies, with our partners in order to make sure that we have the right set of capabilities into working on this kind of optimization. So in terms of the risk mitigation and how this project is put together and there's also to give you a flavor of how this is similar to what we do on the renewable energy side. It does start with the offtake contract. It is important that we have a long-term offtake with a credible player in order to give the project itself credibility. Then you need to secure the financing. The financing also in this space will be nonrecourse, long-term financing, which is then again backed on the offtake contract. On the sponsor side, we will work together with our developers but also as the projects increase bringing other industrial and financial investors. And then on the EPC side, it will be important to [rep] the EPC so that it gives the lenders the required comfort in terms of the risk on the EPC side. And for these projects, we will play a role there. We will obviously play a role on the renewable side. And then we will bring in other providers on some of the other components. And in order to manage the risk on this part of the project, it's obviously going to be important to work with proven technology, reputable OEMs and system integrators to make sure that we have a good risk allocation in a project, put in sufficient redundancies related to both the system and the technical side as well as all these projects will obviously be in-depth due diligence by our partners, by the advisers to the banks and by other key partners. So we are advancing our 2 1st projects in Egypt and in Oman. In Egypt, we are working together with Fertiglobe, the sovereign fund of Egypt and Orascom to build out 100 megawatts green hydrogen facility delivering wind hydrogen to the ammonia factory of Fertiglobe. The CapEx of this project will be in the range of $430 million. We are looking at 75% leverage, and we are retaining a 52% ownership stake in this project. On the EPC side, we will do the solar part of the renewable energy facility, Orascom will do the wind part of the renewable energy facility, and we will take joint responsibility on the hydrogen side. Then in Oman, we have partnered ACME and in terms of the -- the first phase here, we are -- we have signed a preliminary agreement with the Yara in terms of the offtake of the green ammonia. So this is not only to green hydrogen, but it also includes the green ammonia part. The CapEx here is in the range of $650 million. We are looking at 75% leverage here as well, and we are splitting it 50-50 with ACME. And also here, on the EPC side, we are looking at doing EPC together with ACME. So then in terms of the last area that I'm going to talk about, it's about optimizing the portfolio. So prioritizing our resources, making sure that we have -- that we capture scale benefits in our organization and use our resources as efficiently as possible. This is about consolidating our pipeline and our assets, building scale and also capturing higher prices related to the energy that we sell where that is possible. So first of all, in terms of consolidation, we have obviously been growing this company over the last 10, 12 years in emerging markets. In some cases, we have done big projects, other cases, we've done smaller projects. In some cases, those projects have been in the markets that have been developing into significant and attractive markets for the future. And in other cases, the development of the renewable energy side has stopped a bit in some of those markets. So now some move into focus markets. And for the smaller projects, we will look for opportunities to consolidate the portfolio and divest some of those. This is obviously not necessarily something that's going to happen overnight, but it means that we are actively starting to look for opportunities in this direction. Similarly, we are also -- and that is already reflected in what we are presenting here today. We are also starting to focus and optimize the pipeline that we work on in terms of new projects. Then in terms of adjusting our market approach and trying to capture more value from higher energy prices. At this point in time, this is mainly -- this will mainly happen in the Philippines. And as you see from this chart, in the Philippines over the last 2 years, spot prices have almost doubled. And the Philippines is impacted by the global energy prices as all other countries and markets globally. The energy sector in the Philippines is largely driven by coal, a lot of imported coal and with higher coal prices that impacts the spot price. And we don't see that this situation is going to change very quickly. So today, our contracted sales portfolio and our generation volume is fairly balanced in the Philippines. That means that in a normal year, the fact of having higher spot prices will not necessarily impact us in terms of our results. But what you see on the right-hand side at the bottom is due to the fact that we have had lower hydrology than normal in the first half of this year that on a 12 months rolling basis, the net revenues and the EBITDA is slightly lower. Now as we have communicated, as we are seeing, we have better hydrology in the second half of the year. So we expect that this will come back and be in line with what we have had previous years. But going forward to avoid sitting in this position and to enable us also to be able to capture higher prices we are intending to take down the contract portfolio from today's level and reduce it so that we will be long on energy in Philippines and be able to capture also then the higher spot prices in the market. Then finally, we are also having a very good development on release. We are now finalizing the second plant that we are doing in Cameroon, and we're looking soon to have 46 megawatts in operation. This represents approximately NOK 500 million in investments and an annualized EBITDA of -- in the range of NOK 100 million. So if you look at the figures, you will see that this represents, roughly speaking, simplified a payback time of about 5 years, which is in line with the investment criteria that we have for this business. As I said, in the current energy situation, we do see increased attention and interest in Release. We are in the final stages of negotiating additional contracts. And we believe that this is a good time to now look for external investors and external capital into Release so that we can launch Release as a more independent platform and give it better conditions for further growth. So this is also an important thing that we will work on going forward. So with that, I've been through sort of the 3 key areas of our strategy that we will focus on going forward. Importantly, utilizing our capabilities, utilizing our strength and get better leverage on those with focused discipline and also building scale in key markets. So with that, I will hand over to Mikkel to take the financial section.

Thanks, Terje. So let me take you through the financial platform that we've built over the last years. And I will highlight how we manage financial risk. I will go through the investment framework that we have and that we use when we move forward with new projects, and I will also talk about how we plan to fund the growth going forward. And let me start by highlighting our portfolio. We have generated NOK 2.7 billion of EBITDA from our power production business over the last year. And we have converted about 50% of this EBITDA to cash and cash flow to us as an equity holder of these assets. 80% of this EBITDA is generated across 6 key markets, both with solar and hydro power. So we have a diversified portfolio, but we also can see that the tail end is with smaller assets around 10% of the EBITDA is generated from the 5 smallest assets that we hold. Philippines is the largest contributor in terms of EBITDA. And -- we also wanted to highlight that we're finalizing our assessments against EU taxonomy, and we expect to report that we are fully compliant with the taxonomy when we report for 2022 next year. Now structuring and managing financial risk has always been important for us when we look at projects. We will continue to fund our investments through nonrecourse project finance, as Terje also have spoken about. And this is on the back of the long-term contracts that we typically enter for a sale of power. One important exception is the Philippines, where we do operate in a deregulated market with shorter-term contracts. For the rest of the portfolio, the tariffs are set at pre-agreed tariffs. And that comes with annual CPI adjustments in most markets where we don't already have dollar-based contracts. And you can see a large portion of the portfolio is also dollar based. The other 2 key currencies are Philippine peso and South African rand, together with dollars representing about 80% of our portfolio in terms of currencies. But we are then when it comes to currency risk, also mitigating currency risk by raising debt in the same currencies as the cash flows, as you can see here on the graph, the debt and EBITDA is matching as we have talked about also before. And just to comment on that as well. When we then reevaluate the debt back to NOK, we will see movements on the net debt in NOK terms. We had that in the second quarter. We'll have it again now in the third quarter. The dollar has strengthened quite significantly, but then we'll also have increase on the EBITDA side at the same time. So that is matching just to highlight that. Now we have established stable long-term cash flows to support growth and debt service at the group level. We raised equity and debt to acquire SN Power hydropower assets 2 years ago. And at the same time, we established our green finance framework and that's also our basis for funding going forward. We are now holding net debt of NOK 5.9 billion at the group level, and this is 4.2x the cash that we generated from our operating power plants, and we are very comfortable with that debt level. And we continue to see strong support from our relationship banks, and the maturity of our bridge to bond facility, we have also extended now to Q1 2024. Available liquidity at the group level is NOK 3.8 billion, including the undrawn credit facilities. And this also then excludes the cash that is sitting at the project level that we don't have access to directly from the group as of now. You can also see here that we have a high level of interest rate hedging. 84% of our interests are hedged at the project level, closing 20% at the group level, and we paid in the second quarter, 6% and 3.2%, respectively, of interest. Obviously, the interest rates, underlying interest rates have moved since then, but we also have a very high degree of hedging. Average remaining tenure, you can see 11 years and 3.3 years. Now just to also highlight that we are looking to double the power production EBITDA to NOK 6 billion. 25% of this growth is already secured for projects under construction. We're now investing NOK 2.5 billion in the projects that we have under construction. And then there's another NOK 1 billion of investments related to our backlog. So if you include that, 1/3 of the investments that we're looking to do, we have a very clear visibility on. With leverage around 75% of our projects, 40% to 45% of the EBITDA that we generate will be converted back to cash to the group after debt service at the project level. So that's also something to just keep in mind when we look at the numbers. Now continue -- we'll continue to focus on capital discipline and our framework and approach to this has not really changed, but we have chosen to present slightly differently than before. We are seeking 1.2x cost of equity as a project equity hurdle rate. And that is really equivalent to the 12% to 16% that we have guided on before. That's -- that guiding of 12% to 16% represented projects with cost of equity in the range of 10% to 13% with the focus that we now have on the markets that we talked about today, we believe that we'll see more projects coming in at the lower cost of equity than previously. But as we -- as also Terje mentioned, we do an individual assessment of the cost of equity for each project based on the CAPM methodology. So we take into account the currency, we take into account the country, the offtake structure, the technology, when we do our assessment of cost of equity and make our investment decisions. The illustration here shows you then with a 10% cost of equity. 12% is really our hurdle rate. And then the D&C and service margins comes on top of this, and of course, also further asset optimization will lift the total return of our projects further. The D&C, development and construction gross margin, we guide on 8% to 10%, and we're expecting that around -- the revenues here will represent about 50% of CapEx that we're looking to invest. We guided previously on 10% to 12%. And also to be clear, on the plans that we currently have on the construction, our expectation is a gross margin of around 10%, while moving forward, we expect that the gross margin will come somewhat down from the previous guidance. Services margins, 25% to 30% and also then a target of NOK 500 million as the average investment on new projects and with variations, as Terje also mentioned. And then when it comes to funding of growth, we are estimating net funding needs of NOK 2 billion to NOK 3 billion for the NOK 10 billion equity that we're looking to invest. The NOK 10 billion is based on 75% average project leverage and 50% ownership of the equity, meaning around NOK 80 billion of CapEx on a gross basis. NOK 8 billion to NOK 9 billion, we are expecting to generate from plants in operations and from our service business. We expect to generate NOK 3 billion to NOK 4 billion of gross margin from the D&C segment. And then we are expecting NOK 6 billion of costs related to development of projects, corporate costs, debt service at the corporate level, including also payments to Power China. We expect to pay NOK 2 billion of dividends. And with the cash at hand and the liquidity we have at hand, new funding, as I said, of NOK 2 billion to NOK 3 billion. So to summarize, we have a very solid platform for growth. We have a diversified portfolio, and we have a robustness in that portfolio also in these challenging times. Those cash flows are very resilient in the context of what we experienced around us these days, and we're able to also navigate through this, we believe, with that setup. And -- and with our business model, integrated business model, we also have a very good basis for funding new growth. So with that, Terje, I'll leave the word back to you.

Yes. Just to summarize then. In terms of our focus going forward, we will focus on these -- the areas in terms of our strategy. It is about growing traditional renewables in the focus markets that we have talked about. It is about getting and building and becoming an early mover and building a leadership position within the green hydrogen space. And it's about consolidating our portfolio and optimizing our portfolio so that we have more focus and get better scale on our resources. So I think with that, we are open for questions.

Just 2 seconds. Very quick. Okay. We will start with questions from the audience. But if you're following us via webcast, please use the dial-ins, which you see here and also -- which was sent out this morning in the press release. And with that, I think we can start. Over here. We don't need a microphone. It's microphones in the room.

The ask on the funding need NOK 2 billion to NOK 3 billion, could you tell us a little bit about the timing? When will you see this funding need? And also, how you plan to finance it? Is it new equity? Or how much can you generate by selling other assets to finance the NOK 2 billion to NOK 3 billion? And also maybe if you can elaborate a little bit about the new equity would be at current share price? How do you think about -- what kind of -- what share price are you willing to raise equity? Are you willing to raise equity now? If you elaborate a little bit about that please.

Well, first of all, to the last part of your question, we don't have to raise equity now. We have good funding available to do the projects that we have in construction and also the backlog, also moving a bit beyond that. So exactly when we would need more funding to cover the gap of the NOK 2 billion to NOK 3 billion that we had on the short that will depend on the growth rates that we will have over the next period. But once we start growing beyond what we have in the backlog plus a little bit, then we will need more capital. We have in our capital review, not assumed that we will get significant distribution from selling and divesting existing assets that can contribute to the situation. That depends on the time line for doing that and how quickly we are able to do that. And then beyond that, obviously, when we come out and then we need more equity, it will be on the back of having good projects, strong projects and attractive investment opportunities. And then we will see if we think that -- if we then decide to go to the market, we will have to see everything the market is ready or we have potentially to postpone projects also that can also be an alternative. So we have the flexibility. And I think it's important that we are not putting ourselves into the corner where we have to go to the market and raise more equity at a specific time.

I do have one more question. On the integrated strategy about also like building hydrogen and ammonia plants seem to be like little bit of discussions in the industry. Some renewable players want to be a pure power producer or the ones who wants to be integrated players. And just from the outside, like not knowing too much about it, to be honest, the building hydrogen plants or ammonium plants, it looks a little bit more like petrochemical industry, doesn't it? With huge CapEx requirement, and it's an early technology as well. So we have technology risk. So I just wonder -- what's -- so far away from what you've been doing historically, producing renewables? Why do the integrated player? Why just -- you could produce the electricity and leave somebody else to take overall the petrochemical part of the business? What is your value-add or skill to build petrochemical plants?

Well, if you put it out, we don't have a particular skill in building a hydrogen plant, but we have a particular skill in structuring an integrated project. And we have a particular skill in understanding what the piece -- what pieces you have to put together in order to make it bankable in order to raise financing and in order to get it off the ground. And then we are going to need partners. We are going to need -- we are going to use a proven technology. Ammonia is -- ammonia technology is not new. It is fairly proven. Hydrogen technology is not new, but is being scaled up to larger sizes than what it has been done historically. Now this is going to be important for us to use reputable OEMs in those areas and have good partners in terms of putting everything together. But it is going to be easier and more efficient to do all of these things together and to have 3 different parties, for instance, trying to do each of these pieces of the puzzle independently. So that's the core ground for what we want to do as well.

Is it also driven by your clients? So in Egypt, they're telling you, if you're going to build a solar plant, you also have to provide us with all the other parts of the value chain?

No, it's not. It's not necessarily driven by the country, but it is, in some cases, driven by the customer, for instance, Fertiglobe. They want to see that there is an integrated structure behind -- they don't want to sit them and feel that there is a risk between the renewable energy supply and the hydrogen supply. Because they are very concerned about or focused on, let's call it that, that this hydrogen that is coming out is going to be qualified as a green. So they don't want to sit and risk that suddenly, they are not getting green energy into the hydrogen facility because then suddenly, they are at risk of not being able to produce real ammonia at the end.

And finally, of the NOK 10 billion in CapEx, how much is related to building hydrogen and ammonia plants? Is it possible to give indication of that? And how much is to going to produce your renewable energy?

Well, that will depend a bit on the success. I mean, we are having a 5-year perspective and time horizon here. What is included in these figures are the Fertiglobe project and the first phase in Oman. That's what has been included. So if you have success beyond that, that would come on top.

And how much is that?

The figure?

It's about NOK 1 billion, 10%.

Next question from Jorgen.

Two questions from my side. Just on the topic of the equity CapEx guidance. Could you say something about your inputs going into that guidance? Is that mark-to-market? Or do you assume some sort of normalization of bottlenecks and other chains? That's question number one. And also on the topic of disposal, could you elaborate a bit on your thinking behind the disposals of non-core assets? I mean this is also a topic we visited on the Capital Markets Day in 2018, I believe, on asset rotation. And then I think to wording back then was that you didn't really see sort of peak pricing power for your assets in the secondary market, given where they were in terms of maturity. How does that look like now also with the increasing interest rates taking into account. So maybe some comments on how progressed you are in sort of that plan and also a bit on how you see the demand on secondary assets?

I think in terms of your first question, if I understand correctly, it's about sort of how do we see the CapEx levels going forward? Are we sort of seeing that is going to continue to be CapEx levels as they are today? Or are we going to see if...

In terms of NOK 10 billion, does that assume that CapEx will normalize to, let's call it, pre-pandemic levels? Or does that take into account buffers for the elevated CapEx per megawatt on say on solar as an example as we've seen over the last 2 years?

Yes. No. The current forecast in the industry on the CapEx level and equipment prices is that is slowly going to come down again, not very quickly and not sort of drop directly down to the pre-pandemic level. But that it will slowly come down again, and we are using those assumptions in our planning. Then in terms of the disposal of smaller projects, it is I think maybe the discussion that we had in 2018 was in a slightly different context. This is in the context of making sure that we are focusing our organization. The small product takes as much focus as a big project in terms of managing it and everything related to it. So the projects are mature. There's not sort of a liquid market for this project. But we do believe that there is good interest in some of the projects, but it's also about making sure that we focus the organization and that we build a scalable organization.

And do you think that we will see as the disposals coming one at a time? Or do you think it's more likely that we will see this being bundled and securitized to some extent and then you can come down towards a sponsor, for instance?

Yes. Based on what we have said that these are more of the non-core assets. I think if you look through the portfolio, there's not that many that is easily clustered together in the sales process. So I think it will not be everything in one go at least.

Yes. One question.

Yes. Just on the -- I mean, the last slide, you had like NOK 2 billion to NOK 3 billion in CapEx requirements as others have asked about. And then it shows also minus NOK 2 billion in dividends. And should we expect the Board to revisit your dividend policy, I mean you've got so many interesting projects. So then this is not a cash go, it's a growth company.

Yes.

We have a dividend policy that is approved by the Board and the general assembly. And that's what we used as a basis for our presentation today. That's what I can say.

A couple of questions on the D&C margins. You revised it down. Why is that? The second question is if I may speculate a bit, is it because are you revising down your D&C margins, so you get better project returns on the SPVs? Yes.

Well, I can try. I mean, again, just to reiterate, when it comes to the plants that we already have in the construction, we were at the higher end of that range, that new guidance range. But then it's basically an assessment of our pipeline and how we see the value and of course, the market conditions and how we see those going forward. When we look at value creation in projects, we look across the different buckets of value, if you like, both from the equity investments and the return on that and the D&C and service margins. So that's in our approach, an integrated part of the exercise. So you need to look at it in the context of the full value available.

And you're taking away the 50% to 70% kind of revenue guidance and CapEx down to 50%. Why is that?

That is reflecting, again, the portfolio and the pipeline and how we see the role that we take in different technologies. And it will be different for wind and for solar and for green hydrogen in terms of the role we take on the construction side, for instance. And so that is trying to continue to adjust and adapt to the development there.

And just one last question here. A lot of focus has been on kind of profitability. And if you look at consolidated financials of the Scatec Group, I mean, the returns are quite muted. The SPVs does not really come into kind of view in the consolidated financials. Why don't you kind of introduce a return metric on your group of consolidated financials?

Yes. I mean, that's, of course, a relevant input. We have internally reporting on this. It's obviously that now over the last couple of years with a lot of focus on development of new projects and with limited growth, that has had an impact on the underlying returns. So of course, it's important for us to continue to grow and get return on those investments. So -- but if you isolate and look at the returns on the power production side, of course, you have a different picture.

Yes, we can -- just one more from Jorgen.

Just a short follow-up. You also highlighted Release in the slide deck today, which seems like you're still quite optimistic about the future demand for the risk concept. Maybe you could say something more about sort of the time line here and sort of the tipping point for Release gaining critical scale to stand on its own legs, which seems to sort of be a bit of the comments attached to how you see Release in the future?

Yes, there are -- well, there are a couple of comments related to that. In terms of size and cash flow, we believe that already now that Release is at a stage where it can become more independent and start being more standing on its own feet. But we still believe that at Scatec, we have a lot of things that we can contribute to Release. So we don't think -- yes that it's the right time to sort of completely capitalize and let it sail its own sea. So I think sort of when we are looking now at bringing in additional investors and additional capital initially, we will still keep a meaningful ownership stake in the platform.

Screening for investors, do you have a tilt whether that's financial sponsors or more industrial players that can help scale the business?

Both.

Okay. One last question from the audience and then we open up for the online. Thomas?

Yes. A question on your funding chart. So you have a target that NOK 10 billion will be committed equity investments by the end of 2027. So I assume that means some of that equity could be deployed, for example, in 2028 at least. And in your funding need calculation, have you then included contribution from power plants beyond 2027? Or do you have -- have you stopped that in 2022?

I mean, there's always this cutoff question that comes into play when you try to create these -- this chart on targets. But obviously, I think you should assume and what we have assumed here is that we spend the last equity at the end of 2027 of the NOK 10 billion. Obviously, construction will probably continue into '28, but the committed capital or the cash has been spent. That's what we have done in the graph.

Okay. Operator, could you open up for our online participants? First question.

[Operator Instructions] The first question is from the line of Manuel Palomo from BNP.

Manuel Palomo from BNP. I got several questions. First, few confirmations about the 1.5 gigawatt a year target. My question is whether this average includes 2022, I mean -- do you plan to add 7.5 gigawatt or 9 gigawatt capacity in the period '22, '27? And also a follow-up on this, whether you are talking about operational figures, I mean, operational megawatts or similar to previous [CMB] operational class under construction? Second question is, again, on guidance. You say you're adding NOK 3 billion or you plan to add NOK 3 billion in the period 2022, 2027 and also the proportional figure for EBITDA in power production should be NOK 6 billion by 2027. My question is then, does this mean that you expect to achieve NOK 3 billion in 2022? Third question would be on the EBITDA contribution from the green hydrogen business by 2027, whether you could give us any idea on when the green hydrogen is expected to start contributing significantly to CapEx P&L? And my last question for timing is on Slide 13. You say you leverage our strength and partnership with Equinor in Brazil. I wonder whether this could mean that the end game would be at some point, built to sell for Equinor in Brazil?

Okay. In terms of -- the first question in terms of the targets, the 1.5 gigawatts is from 2023 and onwards. So it does not include what we have in 2022. And the definition is the same as we used before. It's in operation or in construction. Yes. And then...

Yes. And then the doubling of the power production EBITDA, I mean it's -- we have a guidance for 2022 that stands as is, which is the basis. We had a 2021 number of closer to NOK 3 billion. This is back to some of the fluctuations we see also in the Philippines. So you should see in the context of a more normalized year from that perspective.

And then in terms of the -- when will revenues and EBITDA from our green hydrogen projects come into the mix? I don't think at this point in time, I will comment specifically on the projects that we currently have in our pipeline and backlog will start generating. So -- so there is no specific guidance on that.

Is that Brazil?

Brazil, Equinor.

Brazil. Yes. In Brazil, we have -- I would just say that we have a good partnership with Equinor in Brazil. It is on a 50-50 basis. And there is no -- no indications of that sort of ending up in one or the other player taking over the activities.

The next question is from the line of Nash from Barclays.

I wonder if you can clarify the net capacity target for 2022 and 2023, please? And my second question is also on hydrogen. Just want to understand what are your expected costs on a per kilogram basis? And what are your profit margins? And my third question is on Slide 25, which I don't quite understand. So the gross revenue from Philippines for last 12 months, 2022, that grew year-on-year, but the net revenue decreased. Just wonder what's the reason behind that? And my last question is on India. So I think previously, you delayed some Indian projects because of import tax on Chinese solar module. So what has changed now and to your projects to meet your return margin?

I didn't quite understand the first.

The first one, we didn't get, but maybe let's answer the others.

Yes. On the green hydrogen, yes, we cannot comment on the specific cost per kilo green hydrogen produced. But we are in regions where the renewable energy cost is extremely competitive from a global point of view. And we see that the technology development is going very rapidly on the electrolyzer side. So we do see that it's possible to get down to production costs already based on projects started today that are in line with what analysts has forecasted for 2030 and beyond. So it's looking very competitive.

Yes. On the gross revenues in the Philippines, the -- there, again, the explanation is mainly related to the contract portfolio, where we have had more sales on the contracts and we have had to buy also then more power in the market over the last 12 months because the hydrology situation has not been -- it's been below norm. That has then sort of held back the net revenues, even though the gross revenues have increased. That's the main explanation. Did we cover all of them?

Just on the Philippines, I thought Scatec has 50% of ownership, shouldn't net revenue just move along with gross revenue?

Sorry, the net revenues were really to talk about here is really the net revenues or the gross margin. So this is both gross revenues and net revenues on that slide is on a proportionate basis, our 50% share of our revenues.

So the net revenues are defined as after cost of sales, which is basically buying spots in the market.

Okay. That's fine. And sorry, my first question was -- what are your net capacity targets for 2022 and 2023? Can you provide a bit of guidance on that?

We have not set a target for '22 and '23 on a net capacity basis. But we do -- no, we don't. We talk about 2027.

Okay. That's fine. Sorry. I think probably you missed my last question is on India. So I think previously, Scatec said some projects were delayed because of the import duty tax on solar panels. Just wonder what have changed? And are your projects still able to meet the required return hurdle?

So we are not continuing, as we said, with the projects that were impacted by increased component prices and import duties. This is a project that has secured a tariff before that was announced Obviously, what's happening now is a rebasing of the market. The new contracts for selling energy in the market is now based on the import duties that are currently in the market and the current level of equipment prices. And on that basis, we're seeing it's possible to reach our return targets.

Okay. Understood. That's all for me.

As there are no further questions at this moment, I will now hand it back to the speakers.

Okay. Any more questions from the audience? One from Jorgen.

Yes, a question on the focus markets. There are 2 countries that stick out a little bit different from the others. It's Poland, you haven't been before. And as far as I recall it, you don't have -- you haven't got any operations there right now. And the same thing goes for India. And also I could argue India is an emerging market, but Poland is not, historically always been in more emerging economies. Could you tell us why is Poland there? And what are the next plans for Poland? And also, why India?

Well, I hope I'm not offending anybody, but Poland is still defined as an emerging market according to sort of the official sources. But both markets have very attractive opportunities within the renewable energy space across many of the different technologies. But as you said, they are slightly different. In Poland, it's currently a significant opportunity as the Polish market has a very clear and significant green transition challenge, need to move into renewable energies from the current base. And in that transition, there's going to be a lot of opportunities. And on top of that, obviously, we have the current energy crisis in Europe, where a lot of new electricity is required. So those 2 things together puts that market into very interesting position. On India, India is a market where there are many different segments. It's -- also India needs to build out a huge amount of renewable energy, but there are many different segments and SECI auctions get a lot of attention because that's where sort of all the prices are being published. But you also have other segments. You have C&I segments, still significant sizes of projects, hydropower as one alternative. So also in India, we see many different opportunities with our business model and with our technology mix that we're using.

In Poland, all renewable players are talking about Poland. Is it likely to be very competitive? And wouldn't it be an advantage having a position in Poland already as it is an advantage we're having a position in South Africa?

Well, I mean, obviously, if you had been in Poland for 10 years, it would have probably been better than if we had started out in Poland 2 years ago. That is clear. But it's not so that we haven't been in Poland until now and just now, we are suddenly starting in Poland. We have been active in Poland and starting to develop projects from scratch and have an emerging position and also secured some projects in the pipeline and have an organization there. So there are sort of -- we have traction there already.

May 6 was a great day this year. That was the first day you presented the quarterly results. And on that present and [indiscernible] and so forth. Is that still part of what you're guiding to now? Or is that something that we should disregard?

We are still working on those 2 remaining plants that you're referring to, the ones that we have in backlog in Tunisia and in South Africa. And as I said in my second quarterly presentation, I indicated that we will look at the time line on those projects, and they will be initiated when the conditions are correct, both from an economic point of view as well as when the authorities are ready. On the authority side in South Africa, there are some delays, but we do expect that we get to signing all those projects by the end of the year. And on Tunisia, as I also said in my second quarter presentation, we are working on the economics to try to get those -- to meet our returns before we keep off those projects. Today, might also move into next year.

Anybody has questions? Yes. Thank you to everyone for listening. Now ends today's session.

Thank you.