Cloudberry Clean Energy ASA

OSE:CLOUD

Earnings Call Transcript 2022-Q3

[Anders Lenborg, executive]

Hi, and welcome to this presentation from Cloudberry. We have prepared third quarter presentation for you. My name is Anders Lenborg. I'm the CEO of Cloudberry. And I'm joined today by Christian Helland, our CFO. We will run through the presentation, and then we open up for Q&A. So please use the Q&A link to post questions.

We have an agenda, where I will take you through an overview of Cloudberry and the highlights, and then Christian will take you through the key financials. And we'll finish off with an outlook before we take questions.

Before we dive into the numbers, just let me give you a short introduction to Cloudberry. Cloudberry develops own and operates renewable assets in the Nordics. We believe it's important to have a portfolio of projects and have the in-house competence to develop the projects from the very beginning, from the very greenfield projects and to production and also operation and maintenance.

Our focus is hydropower projects and production in Norway and wind power projects in Sweden. We have a very experienced development team, both on the hydropower side and the wind power side. And we'll give you more input on the projects, both onshore and offshore wind and hydro power in this presentation. Cloudberry is a listed company on Oslo Stock Exchange under the ticker Cloud.

Moving on to the highlights. It's a pleasure to present the third quarter, that's characterized by solid growth in production. It's characterized by high power prices in all our relevant areas and is also good progress on the project side. So, as you can see on this slide, both our consolidated and proportionate EBITDA is very strong in this third quarter. And the increase is due to both more production and higher prices and the increase also on the proportionate EBITDA driven by the internal sale of Han wind farm from development to production.

We have also a tax proposal out that we will come back to. But it's a proposal in Norway to increase the tax burden on renewables. The whole renewable sector in Norway is working on this proposal to change the design of it. Still early days, but it creates some uncertainty. And for Cloudberry, it's the Odal wind project that is the one that is hit by the new proposal. We have also strengthened our equity with a raise of NOK 800 million last quarter, and we're now fully financed for around 1 TVH.

On the project side, we have had a very strong quarter. We have managed to move Odal forward faster than we thought. We have had production now above 150 megawatts and 33 out of 34 turbines are in operation. The last turbine, we need to do some repairs. But during next year or early next year, we will have that also in production. So all in all, Odal is now moving from a construction project to operational phase.

And then we're also very happy to have Han up and installed, all turbines is now erected. We erected the last turbine on Friday, and we are actually electrifying the first 2 turbines today. Han is a 100% in-house developed project. It's also a project that we have moved forward on time and budget 100%, and it also shows you the value creation that we can do in Cloudberry with our development portfolio.

It's also first of several projects in SE3 in Sweden. So both Kafjarden, Munkhyttan and Duvhallen is onshore wind project that will be constructed over the next years. And Kafjarden, we have also managed to get permission for larger turbines. So it's also a positive development on the production of estimates on Kafjarden.

Stenkalles is our shallow water project, where we entered into a joint venture with Hafslund this summer. That is now closed, and we are working together on the procurement and looking to take financial -- an FID on that project over the next 6 months.

We have also informed the market of our next shallow water offshore project. That's the Simpevarp project, approximately 800 megawatts in the Swedish sector of the Baltic Sea. Still early days, but it's an interesting next offshore project in Cloudberry. On the right-hand side here, you see that we have doubled the power production and also the production capacity.

This map you have seen and know pretty well many of you. It gives you an overview of the portfolio. As you can see, we have 28 hydropower plants in operation and 3 wind assets, the third one being Han. And we have also 4 wind farms in SE3, 3 onshore and the shallow water projects that are -- have construction permits. And we are working on the procurement of all these projects. And this gives us interesting balance between hydropower and wind power with the different production profiles these assets have.

On the backlog and pipeline, we have also some developments working on the backlog. We'll take some of the projects from the backlog now into the next phase of getting the permits. And Bjornetjarnsberget, which is above 100 megawatt, is the first one of those projects. On the pipeline, it's different project, both hydro and wind in Norway and Sweden. And of course, the larger projects here are the offshore shallow water projects such as Simpevarp.

We have also focused on ESG. We have implemented ESG in everything we do. And we, as you can see, have had no health incidents or any damage last quarter, and we have been able to remove more emissions from the energy mix, doubling the production. We have also doubled -- avoided emission. We will work on the reporting going forward and especially KPIs on the ESG side.

On the right-hand side here, you see one of the turbines erected in the wind farm Han, where we have also had a very strong ESG focus on the whole infrastructure and wind farm and developing of the site and the turbines.

Here, you have an overview of the portfolio. As many of you know, we started investing into hydropower. We have lots of those hydropower now producing and have producing over time. What you can see here, that we have moved Odal, the wind farm 54 megawatts into the production portfolio. And now under construction, we have Han, the wind farm on 21 megawatt and Ovre Kvemma, which is a hydro power plant on the west coast of Norway of 8 megawatt. The Han project, as I said, it's all turbines erected, and we will energize the first ones today.

On Ovre Kvemma project, we have been drilling a waterway, a long tunnel, almost 2,200 meters with a 2.8 meter in diameter. And that was a breakthrough on Sunday. So the waterway is now drilled all the way from the intake to the power station. So that is a relief, while drilling the tunnels is also a high-risk element in a project like this.

So with that, I give the word to Christian, who can take us -- will take us through the financial numbers. Thank you.

[Christian A. Helland, executive]

All right. Thank you very much, Anders. Yes, I'll just continue on this slide for a little bit before we go into the numbers. For us, it's been, as you know, always important to be well financed to now make financial investment decisions on the 4 next projects. As you see, we have Kafjarden, Munkhyttan, Duvhallen and Stenkalles all lined up to take FID within the next 12 months. So all those are now fully financed, and we have also some excess cash for further growth.

As Anders mentioned, Kafjarden, we are now doing the final procurement process, selecting the turbine provider. And we are also seeing that we -- we have said it was between 20 to 40 megawatts. We're tilting towards the larger case and have, therefore, also updated our production estimates.

The same for Munkhyttan, final negotiation with the turbine supplier. Duvhallen, we are still awaiting the grid. And on Stenkalles, we now have closed the transaction with Hafslund and is also moving into a final investment decision for that project. So projects are progressing well as planned. And also, now for us, it's been important to have a strong balance sheet to go forward with all these projects.

As you can see, strong equity, strong cash position and low debt. That has been key for us as a fast-growing renewable company to have a balance sheet to do this, to make the right decisions and not be forced to make PPAs and so forth at unfortunate times.

So we're still very much driven by the spot prices. We have done a little more securing of power prices, but we have always secured our interest rate. So, most of our debt is -- or all of our debt is fixed on long term. That's typically fixed for 10 to 20 years.

As you also see, we report consolidated proportionate. I think most of you are familiar with it, but the management reporting is proportionate because that also includes our associated companies, Forte and Odal, which are large investments for us, where we own 1/3 of those 2 assets.

All right. So diving into the numbers. For us, a very good quarter. We're starting to -- the profitability is coming along. As you see on consolidated figures, we report EBITDA of NOK 74 million. Last year was minus NOK 3 million. So for us, a significant ramp-up driven by 2 things: increased production and higher power prices.

So this has been a very good quarter for us. And we could have wished for more volumes. It's been low snow conditions in the south of Norway, so less water. So that's obviously taken down some of our volume expectation. And also in the north, we stopped production in July, August when it was historically low prices in the north. So we estimate the production volumes now to continue to come up, and that's important for us going forward.

On the proportionate figures, you also see that we recorded an EBITDA of NOK 284 million. This shows us -- when we come back to it also -- the value creation we have in our development segment, where we're moving projects from -- taking away a lot of the construction risk and moving them into production. And this is very -- you see this very clearly for the Han project. So a very good quarter. We're ramping up. And coming into a strong profitability has been very important for the company to show profitability in the different segments.

So then we show you the production segment, where we are holding our long yielding assets. So primarily long-yielding hydro, but also now Odal is picking up and becoming a more important part of the production segment.

So we see production moving from 35 GVH in '21 to 70 GVH this year, revenue going from NOK 24 million to NOK 173 million driven by volume and price. So we're reaching this quarter a price of NOK 246. We are, again, mostly merchant or spot exposed. So we've had a very good quarter with high prices in the southern areas of Norway.

As mentioned before, the newer projects, we're taking along are all in Central Sweden. So that's also a strong price area, SE3 that has high expectations also and need a lot of power going forward.

Yes. The development segment, here was 2 important events. One was that it was sold from the development to the production segment now when it's coming over in production. We also got that value verified by third parties on the same principles that we've been using historically, equity IRRs of 7% to 8%. And here also, we've shown then the value creation.

A very efficient project, Han was very efficient built with cost-efficient Vestas turbines; in the right price area, we're selling into NO-1. The project is located in Sweden. So high expectations on the prices going forward, and also a good operational project with new turbines from Vestas.

We completed the sale from Stenkalles. We had a cash effect of about -- a little less than NOK 1 million per megawatt cash effect. But there's no -- it's been on -- Hafslund has been coming in on our historical cost levels. So you see no impact on the EBITDA. But we have the cash flow -- positive cash flow of about NOK 40 million for the quarter. There is also an earn out there when the project is coming in production in '24,'25.

Simpevarp, as Anders mentioned, for us a very important project, a new step from the Stenkalles, moving into shallow water in the Baltic Sea, where we can use a lot of the competence we have from Stenkalles to further develop this project.

As we mentioned before, it's been important for us to be near shore, near grid capacity to lower the CapEx investments for offshore. We believe this will be the first -- or the easiest to make profitable projects from. If we go further offshore and don't have set of grid connections, this is a big cost driver for typically offshore projects. So far, we're focusing on nearshore projects with a lower debt, and we can also be -- then have a fixed solution to the bottom, which is also lowering the cost and OpEx over time.

Operations, we talked about a lot last quarter, steady growth also here. The portal gaining new clients all over Europe, which is great. It's showing that the solutions is not only valuable for Nordic countries, but can also be scaled to other hydropower customers in Europe.

We also see that the corporations, Captiva and Cloudberry, growing very strongly together, where we gain a lot of project experience from the Captiva organization now, and we're also going into 4 new projects in Sweden. So very pleased with the integration. We moved into offices next to each other and working closely on developing new projects.

Yes. Time is going, Anders. A couple of final remarks and outlook and summary before we move into Q&A. Thank you.

[Anders Lenborg, executive]

Thank you, Christian. Yes. As you can see, we have updated the outlook on the power prices from Volue. It is a 10-year forward projection, and it's slightly higher than last quarter. So we still have a positive outlook on the power prices going forward, driven by the need for more renewable power and a strong demand side.

All in all, I think we are seeing a very strong quarter. We have had significant growth, both in revenue and profitability. We have a strong cash position, and we have now a fully financed portfolio of above 1 TVH.

On the project side, we see also that we managed to move the project forward. Both Odal and Han now is moved forward into production and test production. And we are now then changing the focus to the next projects, Kafjarden, Munkhyttan, Duvhallen, Stenkalles that will be constructed over the next years.

On the downside, we see that the tax proposal in Norway has created a lot of uncertainty. And as I mentioned, the whole renewable sector in Norway is working to change the design and change that proposal. So it doesn't stop the development of new renewable projects in Norway.

For Cloudberry, it's Odal Vind that is hit mainly, Odal Vind. And we have also, of course, a project portfolio that gives us the flexibility that if we don't get a good enough framework in Norway and a tax that we can live with, then we need to use our time and resources in Sweden and other Nordic countries.

So all in all, we are very happy with the third quarter. And we still believe in a strong power market and that we will have a good framework and conditions for further developing renewable assets in also Norway. So thank you so much.

[Anders Lenborg, executive]

Then that concludes our presentation. And some of you have used the Q&A link, and we have gotten some questions.

So I will just start off with a couple of questions. The first one being, when will you see revenue impact from Han?

So Han is now energized and we will have a test production. We will have a test before taking over the turbines. We will have then a ramp-up and more production going into the end of 2022. And you will see full production from first quarter next year. So that's when you can expect the full impact from Han.

We have also received some questions on Simpevarp, new shallow water project in the Swedish sector of the Baltic Sea. And Simpevarp, it's a very interesting project. It's kind of the next -- based on Stenkalles. It's just a larger project, but has many of the same characteristics, close to the land and shallow water. And it's -- the question is here, is that based on any subsidies? And no, the project is developed without any subsidies. So that's based on the power price in SE3.

Another question related to Simpevarp is the question on exclusivity. And the way the system works in Sweden today, we have registered the project in the Swedish database on Cloudberry that does not give us any exclusivity. But it's at least registered. And the exclusivity you don't get before you get the actual permit.

So I know that in Sweden, they are working on changing the system, so you have exclusivity much earlier. But the way it is today, it's first when you have the concession that you have the exclusivity to the project. But we have come quite a long way with the local stakeholders and other interests in the Swedish renewable sector. So we are positive to the development of the project going forward.

Christian, you have probably some more questions that have come in?

[Christian A. Helland, executive]

Yes, I can take a couple here and read while we talk. But first, just what is the maximum daily production you have achieved on Odal so far?

This is -- we've been up to 150 megawatt. The maximum for the -- is 163. So as Anders mentioned, 33 out of 34 are producing. So we are close to maximum capacity. And also the last turbine is covered by the Siemens guarantees, so no material negative effect on the last one. But obviously, delayed startup. So that's important.

Could you also clarify accounting regarding internal project sales?

The revenue are recognized in the development segment, but the negative impact can be found in any other segment. So this -- we report the gain, and this shows how valuable Han is to us because we have capitalized the historical costs on Han. So the NOK 199 million we show is the gain from our historical costs.

So it's about NOK 9 million per megawatt in gain. That's above our capital cost. And the capital cost is primarily in-house hours for our development team in Sweden spending time on developing the project. So that's the pure gain on the project.

[Anders Lenborg, executive]

I can answer the next question. The precipitation has been picking up in Norway over the last months that we can confirm. We were out last week and it has been a very wet both end of September and beginning of October. So it is -- the hydro balance is up and it's close to the average. So it's also quite mild. So it's producing all the hydropower plants, as we speak.

[Christian A. Helland, executive]

I think, Anders, we also will going forward on our website update more frequently, and hopefully, show more or less live what our production volumes are from our assets. So that's something we hope to provide at least from 2023. So there is -- one can go in on our website and see how the production is going.

One question also was related to FID on the new projects. These are quite -- a little bit different projects, but primarily all look to be well within our equity IRR range. Power prices has -- expectations has come up. Yes, there is some increases in CapEx and material costs over time.

We spend more time, as we also mentioned before, on planning. So we are not stressed on individual components and have enough buffers to make the projects go through. But as mentioned, Kafjarden, the final negotiations with turbine, and turbines are by far the biggest element in that. We already have a lot of the infrastructure in place in Kafjarden.

For Munkhyttan, it's also final negotiations, turbines being the most important one. We have the BOP and so forth. It's fairly simple. Stenkalles, the same thing, more complex project, very important to know the interfaces between the different providers. So there we spend some extra time.

Now also with Hafslund [indiscernible] to do the qualifications of the project and make sure all suppliers are on board, and it is very clear the interfaces. So Duvhallen is the only one we are still waiting the final grid and haven't started the final procurement process. So that's the latest one. The 3 other ones are much closer to a final investment decision.

[Anders Lenborg, executive]

I can take a last one that I can elaborate on, and that's the tax question. Of course, it's still early days. The question is, do you see any changes in the proposed taxes?

And yes, we will -- we have seen one clarification from the ministry of finance when it comes to the windfall tax that is supposed to be just a temporary tax. And they have now said that it will probably be phased out end of 2024. So that is one little step in the right direction.

What we have focused most on is the resource tax on wind power. We need to be investment neutral. And the proposal as it is on the table today is not investment neutral. So that is affecting Odal and also new wind projects. So we are hoping that this will be constructed in the same way as you have for hydropower and oil and gas, where you actually have an investment neutral natural resource tax.

[Christian A. Helland, executive]

Yes, just one last here. How much capacity do you expect to be in construction by the end of '23?

And I don't know if you see this picture. But the ramp-up we have here, you see we expect to have -- we have said above 140 megawatts in production by the end of this year. Then Han is coming in production very shortly, Kvemma in '23. And then Kafjarden, Munkhyttan, Stenkalles, we all expect to start construction in '23. Duvhallen, we hope to start construction in '23, but as mentioned, are still awaiting the final grid. There's a grid for 30 megawatts there, but [indiscernible] is working on the grid to -- so we can at least build 60 megawatts.

Yes, yes. I think that's...

[Anders Lenborg, executive]

I think that's most of the questions. And thank you so much for following this presentation, and have a nice day.