Scatec ASA

OSE:SCATC

Earnings Call Transcript 2022-Q1

[Terje Pilskog, executive]

Okay. I think it's time. Good morning, everyone, and welcome to this Results Presentation. I'm Terje Pilskog, and I took over as CEO of Scatec earlier this week. Still I'm not new to the industry nor to the company. I've been part of Scatec's management team for the last nine years with responsibility for many different functions in the company. For the past years, I've been Head of Product Development in the company. But I've also more than 15 years of experience within the industry.

And I've been working with renewable energy in that period basically across the globe. Since 2013, I've been working for the team here in Scatec in developing the position that we currently have today. And I think at this point in time, I would like, on behalf of the management team and the company, to thank Raymond for his leadership ambition in terms of bringing the company forward to the position that we have today. So today together with our CFO, Mikkel Torud, I will present our first quarter results.

But first the time to act is now. We see and this is also commented by the UN Climate Change Panel, the pace of -- oh, sorry, the pace of the green energy transition is going too slow. At the current pace, we are not going to reach our 1.5 degrees target, we will not be able to limit the increasing temperatures to 1.5 degrees and we will also not be able to limit it to 2 degrees. The situation is dramatic for globe. We need to increase the pace and in here also lays the opportunity for Scatec going forward in terms of our focus on renewable energies.

So Scatec was founded with a mission to bring renewable energies clean and affordable energies to countries where the energy gap is still significant and where the energy transition needs to increase. And for the past 15 years, Scatec has been in the forefront of the investments and the deployment of solar energy on a global basis. And today we have involved into a leading provider of solar, wind and hydropower plants with about 3.5 gigawatts of capacity across four continents. So I look forward to continue developing our strong position as a leader in renewable energy.

Overall, I would say the direction of the company is going to stay more or less the same. We will now work over the next months to further fine-tune and refine our strategy and ensure that we have the appropriate focus on discipline in our activities going forward.

Then at this point in time, before moving forward, I would also like to say a few words about Ukraine. We continue to see war and aggression on the country and people that are very close to us and we have spent a lot of time. We have 66 Ukrainian colleagues. Happy to report that all of them currently are safe and sound. As a matter of fact, we also met with some of them last week. I have to say, it was a quite emotional and touching meeting which impacted all of us quite a lot. As I've said, I've spent a lot of time over the past two years in Ukraine. It has been a very progressive and promising country. And obviously now, we hope that the war is coming to an end as quickly as possible, so that we can limit further human suffering.

So then let me turn a bit more to the macro economic situation. As you all know, we are currently experiencing turbulent macroeconomic times. We have lived through the pandemic. We are seeing supply chain disruptions. CapEx is being impacted, interest rates developments are uncertain. And on top of this, the war in Ukraine is creating an unprecedented energy crisis on the global basis. If you look at these charts, you will see that fuel and energy prices are going through the roof. The impact of this current turbulence on a long-term basis is hitting thermal energy sources significantly more than renewable energy sources. And then on a relative attractiveness basis, this is actually improving the position of renewable energy going forward in this context. And if you look at our portfolio and where we are operating, we are also operating in some deregulated markets like for instance in the Philippines. And this picture with increasing energy prices will also over-time positively impact our positions in these markets.

So in summary, on the macroeconomic side, we believe renewable energy will continue to gain competitiveness and I think wind energy transition will continue to offer attractive growth opportunities also going forward for Scatec. And this is especially irrelevant in many of our key markets with the current dependence on coal, oil and gas-based energy is very high. These are countries where we will see a significant need of transition and these are the countries that are currently mostly impacted by high energy prices.

So now turning to the quarter. And as we have announced, the quarter is impacted by the war in Ukraine and we've had to take impairment of receivables and asset values in the country. Furthermore, the EBITDA has also been impacted by seasonality, so proportionate revenues came in at NOK 1 billion and EBITDA at about NOK 400 million. Mikkel will obviously come back with more details about this, but the hydrology is within normal valuations and does not impact our expectations for the second half.

During the quarter, we also announced refinancing of several assets; South Africa, Vietnam and Egypt. This constitutes in total about 600 megawatt of our portfolio. So it's a significant chunk of our solar portfolio that we have refinanced during the quarter. This has led to reduced interest rate margins and also increase tenders for these projects. And in addition to that, obviously, there also have been some release of capital. So it has contributed to cash distributions from operating companies in Q1, which including normal dividend has reached almost NOK 500 million. This shows that even in these turbulent times, we have good assets that are generating good cash flows.

Also during the quarter in the Power Production segment, we have entered into partnership agreement in -- for green ammonia in Oman and we are finalizing our first long-term contract for hydrogen in Egypt. And I will further come back to these topics a bit later in the press presentation.

Finally we have also made the final investment decision for a 20 megawatt battery storage investment in the Philippines. So the Philippines is an important market for Scatec and we see promising opportunities across all renewable energy technologies in the country. The country is currently heavily dependent on coal and gas for their energy supply and obviously also impacted by the energy crisis. This is increasing the attractiveness of renewables.

We also have a significant hydropower operation in the country and see that renewable energy will play an important role in the country going forward and also been increasing power prices. This will add to the value of that portfolio. The storage project marked our first standalone investment in the battery system. It will be integrated with our Magat dam and hydropower plant in the country and mainly provide ancillary services to stabilize the grid. The project will be implemented through SNAP, our JV with AboitizPower and SNAP is now making the final preparations for construction start in 2022 and we aim to have it operational in 2024.

So one of my key priorities during 2022 will be to move our backlog into construction. We have a backlog of five projects, totally 1.7 gigawatts and included in that backlog is also 1.1 gigawatt hours of storage capacity. This will ensure our continued growth in the short-term. Obviously, finalizing all agreements and approvals from the authorities and concluding on the loan agreements and meeting all the conditions required to have first roll down. So that is a tedious process. It can take a bit of time. But we have made good progress on this during the quarter. And we still aim to reach financial close and sort of construction on all of these projects by the end of 2022. I'd also like to add that despite the challenges on the CapEx situation on the global basis, these projects are good and robust also from a financial point of view. We expect this project to deliver returns and margins according to our targets and our guidance.

Then together with my team, when it comes to the pipeline, we have developed a significant pipeline over the last years and we will continue to develop this high quality pipeline and we are ramping up our development activities to build the basis for further growth. On the traditional utility-scale renewable energy projects, very increasing focus on our core markets where we see a long-term and predictable demand for renewable energy.

From the chart here, you will see that we have a good distribution of both solar, wind and hydro opportunities and you should expect that in general PV will take shorter to mature, while wind is taking a bit longer and hydro is taking the longest. Further, you should also expect from us that over-time the projects that we perceive increase in size as we continue to optimize our portfolio. Several of these markets are also deregulating and opening up for PPA with corporate off-takers and for shorter-term merchant contracts.

This is the situation for instance in the Philippines, in India and in Brazil. And we see that this development is enable us for -- enabling us to accelerate growth and also being in a position to capture higher energy prices. Converting these projects in the backlog construction and operation will also be one of the team's main priorities going forward. And based on the product opportunities that we are currently seeing, we are still aiming to reach 15 gigawatts by 2025, representing a CapEx of about NOK 100 billion. And at the end, it is more about the CapEx, the returns and the margins than the gigawatts.

And then another one of my key priorities will be building out our Power-to-X business. From the previous page, you saw that currently this only represents about 5% of the total pipeline, but this is partly due to the fact that we are conservative in adding in some of these very sizable project in the pipeline at this point in time. Now Power-to-X for us means marine fuels. It is about green hydrogen and green ammonia, that's where our focus will be.

These will become game-changers in hard to abate sectors and we see emerging demand both from fertilizer producers from the shipping industry using this as marine fuels and also from power producer intending to blend green ammonia into the mix when they are producing based on coal. And we are positioning Scatec in this sector for a large global export market and we see that demand is likely to pick-up from around mid-2020 to around 2025.

To be competitive in this market, you need to access large amounts of renewable energy and it needs to be very cheap and low cost renewable energy and there are important that we have good resources in terms of solar irradiation and/or also good wind resources. In addition to that, it's important to be close to the coast and ideally also be close to significant shipping routes. And if you look at where we are located today, the Middle East and North Africa are ideal areas for developing this kind of business, and this is also the areas where we are -- and we are having very strong position today already. So from that point of view, we believe that we are well positioned to capture opportunities in this area.

During the first quarter, we signed an agreement with Acme to partner for a green ammonia project in Oman in Duqm. The project will be implemented through several phases. The first phase will be 100,000 tons of ammonia and the second phase will be up to 1.2 million tons of ammonia. The first phase is already very well advanced. The land has been allocated by the authorities. We have done this time an engineering we are finalizing the negotiations of long-term offtake agreement for the sale of the green ammonia and we are about to mandate the lenders. So it's a very mature project from that point of view. And I would also like to add that as far as we know, this is the first project that has received a green certificate, meaning that the products coming out of the project has already been certified for delivered under the Green regime in Europe.

Then, some of you might also have noticed that Egypt as a contrary has set-out a strategy and an ambition to become a hub for green hydrogen and green ammonia. And based on our existing position that we have in Egypt, I think that also here we have a very strong position. We have already partnered with Fertiglobe, a large fertilizer producer, the Sovereign Fund of Egypt and Orascom to develop a 100-megawatt hydrogen plant supplying for the globe's ammonia production. We are currently working on finalizing the long-term green hydrogen offtake for that project. Further, we have also signed an MoU with economic zone of Suez, where we intend to develop at least 1 million ton green ammonia project. So all-in-all, we are very excited about the opportunities that we have in this area and we believe that we have a very strong starting position.

So, then let's go a bit back to my top priorities and the top priorities of the management team going forward. We aim to bring our backlog into construction during 2022 and we will grow our pipeline in core markets for the traditional renewable energy business. We will build-out the Power-to-X business. This includes continuing the development of the current projects, developing further the strategy in the area and building team and capabilities around this area. We will be focused and disciplined in terms of the diamond growth going forward. This probably means larger projects, few markets, more leverage of existing market understanding and more repeat business. And obviously we will also then continue to further strengthen and develop our team through new hires. We will do internal mobility and focus on competency development.

So in this context, to ensure that we have the right focus and the right capacity in our management team, we are also making some immediate adjustments here. Our current Head of Strategy in M&A, Kate Bragg, has been promoted to the Executive Team and she will take the role as Head of Corporate Development supporting all our growth-related activities. In addition, Ann-Mari Lillejord will join the Executive Team and will lead Product Development for our traditional utility-scale business. This includes hydropower. Power-to-X is moved up to the Executive Management level as we develop our strategy for green solutions further. This will be managed by Pal Helsing, our Head of solutions together with our current Power-to-X team that is also already working on the development side. And then in addition, Release will continue to be built as an independent unit. And then, at the end, I would just like to say that I look forward to working together with this extended management team. And I also would like to welcome both Ann-Mari and Kate onboard into the Executive Management team.

So with that, I'd like to hand over to Mikkel, for him to go through the financials.

[Mikkel Tørud, executive]

Thank you, Terje. And let me then go through the financials, the segment financials, the proportionate numbers.

So first quarter revenues reached NOK 1 billion and EBITDA, NOK 398 million, and this is down then from NOK 636 million last year. Power Production continues to be the main business segment with the revenues of NOK 933 million and EBITDA of NOK 490 million. We saw increased production in Solar & Wind compared to last year while Hydro production was down. And looking at EBITDA, compared to last year is mainly impacted by two elements. First, the seasonality in production on the Philippines and that led to increased purchase of power at relatively high prices in the quarter. And secondly, we made a credit loss provision in Ukraine of close to NOK 90 million. I will refer to both the Philippines and Ukraine in a minute.

Then when it comes to Development & Construction, reported limited revenues in line with our earlier guidance. And we report negative operating profit of NOK 772 million impacted by impairments in Ukraine of NOK 770 million, but also impairments related to discontinued projects in Mali, India and Bangladesh. And in Mali and Bangladesh, this is due to the security situation we see, but also the economics of these projects, and India is 900 megawatt that we earlier put on hold, that is now impaired.

Now moving into the Philippines. This is an important asset for us, generating about 25% to 30% of the EBITDA in the company. And as we guided on earlier, we produced about 25% below the five-year average in the quarter. And as you would expect for hydropower, production is really relying on weather -- relying on hydrology and water inflow. And as you can see on the graph, there is both a clear seasonal profile through the year, but also variations year-on-year when it comes to production of hydropower. Now, around 80% of the expected production is sold through bilateral contracts with the purpose of basically hedging the spot price market volatility. And as indicated on the graph with the seasonal production profile, power is then purchased in the market in periods where the production is below the contracted volume and then we buy power. And especially now in the first quarter we buy both more power at relatively high prices that impacted EBITDA.

On the other hand, when we have excess volumes, like in the second half of the year, we can sell more volume in the spot market or to the ancillary services, depending on the market and market prices. Over-time, this approach is stabilizing earnings and cash flow, but obviously had an impact now in the first quarter. Again, in the current environment, where we see very high power prices, we see the value of the hydropower assets increasing. We are here in the Philippines exposed to short-to-mid-term power price developments and we believe that the energy price levels we see now globally will not return to normal anytime soon. That means that we will benefit from this development also on the Philippines going forward.

Then, let me move to Ukraine. We're operating 336 megawatt in that country. Happy to report that still after Russian invasion, 95% of our capacity is available and operating. These pictures are from earlier this week and before maintenance and we're really proud of our team that is out in the field and maintaining our assets in under these very difficult circumstances. But demand is down and grid operator needs to curtail production for us and other operators on and off depending on how the market evolves.

We are also really impressed by the government of Ukraine. We are receiving payment for about 15% of the volume that we deliver to the grid. This is covering our operating expenses and the government has committed to this approach also going forward. The government has obviously also committed to pay any outstanding receivables. But at the moment, we only recognize revenues in line with the 15% that we're actually getting paid for. That is obviously something we hope to change as the situation improves. We also see very strong support from EBRD, our main lender in the country, not only to us, but also to the Government of Ukraine. They are supporting the government and the energy sector in the country quite a lot also in these times. We have agreed a standstill with our lenders without formal waivers and we see no intention from the lender side to acts on their pledges of assets.

Now, obviously, this situation also triggers the need to review the asset values and there is a lot of uncertainty on how things will develop in Ukraine. We have developed three scenarios with equal weights, with two scenarios with invasion is impacting cash flow for two years and five years, respectively, and one scenario where we see no value in the assets. This translates into 30% impairment of the asset values, and as I said, NOK 770 million. And we view this use the same approach when we look at our receivables in the country.

Now, as Terje also mentioned, we've been able to refinance and improve debt terms under these turbulent times and we are quite satisfied with this. We've been working on this for quite some time and we see a very clear trend and a strong demand, I would say for green assets also in the debt markets. And this is really documented in our ability to refinance. We've achieved improved debt terms and we see reduced interest margins of 100 basis points to 200 basis points. That's up to 50% reduction of the margin that the banks are charging us on the project finance structures.

And we see release of cash reserves and we see increased leverage. This is obviously improving the return on capital to us as a sponsor. In Egypt, we have established a landmark first Green Bond, a very strong structure with credit enhancement from the World Bank and EBRD, allowing international investors to participate in this Green Bond. It is a first of its kind in Africa. We have now refinanced assets in South Africa, Vietnam, Egypt and the Philippines over the last 15 months and we see other opportunities in our portfolio as well.

The other point that we would like to highlight here is that the maturity of the asset class also in our core market is helping us when we look at new investments. The margins are coming down and that is reducing the impact of the increased underlying interest rates increases that we see at the moment, making sure that we can continue to invest and that's good news for the climate and it's good news for us when it comes to growth.

Now, let me touch on the financial position very briefly. Consolidated assets stood at NOK 32 billion at the end of the quarter. It's down by NOK 1 billion from the end of last year and consolidated cash in the group was NOK 4.2 billion and proportionate net debt ended at NOK 15.1 billion.

And looking at the movements of cash at the group level, NOK 480 million received from the operating power plants, including then the refinancing proceeds from South Africa that came in this quarter. We have more coming in, in the second quarter. We've invested or capitalized around NOK 100 million related to development of our pipeline and backlog in the quarter and cash position increased to NOK 2.6 billion. And we have a total of NOK 4.2 billion of available liquidity, including our undrawn credit facilities. So we see us being in a very strong position from a liquidity perspective and we are ready and well positioned for the investments that we have ahead of us.

Then let me end this by updating you on our 2022 guidance. We expect to produce about between 3.9 and 4.2 terawatt-hours in 2022 and generate EBITDA of NOK 2.3 billion to NOK 2.6 billion. The EBITDA guidance is down by NOK 400 million to reflect Ukraine. And this includes then the write-down of receivables in the first quarter, but also that we expect no contribution on the EBITDA line from Ukraine in 2022. For the second quarter, we expect to produce 860 gigawatt-hours to 960 gigawatt-hours and it's also good to note that the reservoirs in the Philippines have filled up. We have water and we're expecting to produce 20% above the five-year average for the second quarter. We also expect slightly higher power prices on the Philippines for the remaining part of the year. That is compared to how we saw it in our previous EBITDA forecast.

So with this, I thank you for your attention and I think we're open for questions, Terje.

[Terje Pilskog, executive]

Maybe we can start if there are questions in the room.

[Jørgen Bruaset, analyst]

Thank you. Jorgen Bruaset from Nordea. Just going back to Ukraine. Could you elaborate a bit on what would be the worst case outcome in terms of economics for you? So you mentioned you haven't received any formal waivers. So just remind us what is the receivables left in Ukraine? And what would be the economic impact to the parent company of Scatec or I mean, on the corporate level, if your lenders should choose not to be as supported as they are today?

[Mikkel Tørud, executive]

Yeah. So if you start with the receivables, we have about NOK 300 million of receivables in our balance sheet related to Ukraine. And then we have about NOK 2 billion of asset values after the impairment we've done now. And when it comes to the project finance volume or debt volume, the non-recourse part of that is from NOK 800 million to NOK 900 million. So that is not -- that again non-recourse to us as a Group, but then we also have additional commitments to Power China of approximately NOK 700 million, that is recourse to us at a group level.

[Jørgen Bruaset, analyst]

So if you take the NOK 300 million plus NOK 200 million plus NOK 700 million where at NOK 1.2 billion, which is the economics at risk in total scenario where we are very negative on the future. Is that how we should think about it?

[Mikkel Tørud, executive]

Yeah, I mean you can take from that angle or you can take it from the asset value, right, NOK 2 billion plus the receivables. Yeah.

[Jørgen Bruaset, analyst]

Thank you. Also, just a quick question. I know that you are not making any changes to your long-term outlook and obviously 2025 is approaching relatively fast and we are coming out of 18 months of COVID, and then into the situation in Ukraine now with basically bottlenecks across all value chains. How do you think about your, yeah -- what we should call a mid-term growth outlook, both in terms of availability of projects and execution capacity, but also on the funding side, given the equity need to realize that growth versus the recent development.

[Terje Pilskog, executive]

Yeah. I can take that. Yeah, I mean the basis for maintaining our target is the pipeline that I talked about and the fact that we are currently seeing that we have a lot of good and interesting product opportunities that we are working on. And they are fairly diverse in terms of countries and technologists. So we believe that we have a robust starting point in terms of reaching that target.

Then in terms of the funding, I mean these projects will, as we've done historically, be funded through non-recourse project and then obviously we need to get with our other partners will contribute the equity. And there are many different ways of raising the equity required. I mean, we have our positive cash flow, we have current cash balance, we can sell down and take smaller stakes in projects if that is required, but we feel that we have a lot of different tools that we can use in order to fund the projects that we're working on going forward.

[Jørgen Bruaset, analyst]

Thank you. And just a follow-up question on that. So you mentioned initially that it's the CapEx and attached IRR that's the key things to monitor here and not the gigawatts itself. But obviously the ambitions for 2025 is building to gigawatts, assumingly that changed a bit when you are also more diverse in your technology approach and such like that. Would you expect that the CapEx plan towards 2025 will remain unchanged despite on how the mix of types of capacity goes into where you would be in the future or is still sort of the 15 gigawatts target a hard ambition for you?

[Terje Pilskog, executive]

Well, I think, its 15 gigawatts in combination with the NOK 100 billion, which is sort of the -- which is the ambition for us. But as I said, at the end, it's more important the capital that we're able to put in work than exactly the number of gigawatts because a gigawatt of PV is different from a gigawatt of wind, it's different from a gigawatt of hydro and definitely also Power-to-X opportunities will look quite different.

[Jørgen Bruaset, analyst]

Very clear. Thank you.

[Terje Pilskog, executive]

Some questions here.

[Magnus Rasmussen, analyst]

Hi. Magnus Rasmussen from Kepler Cheuvreux. Can you elaborate a bit on the status of the Power China loan, I think it was originally due in a month or two from now?

[Terje Pilskog, executive]

Yeah. It's difficult to elaborate as you probably would understand this is a bit of a sensitive issue. But we have indicated that we are working on a solution here, but we'll have to get back with more on that when we have that established.

[Magnus Rasmussen, analyst]

Okay. Thanks. And the NOK 400 million reduction in Power Production EBITDA guidance, did I understand you correctly that is just related to Ukraine and implies the negative first quarter and then zero for the remaining three this year?

[Terje Pilskog, executive]

Correct.

[Magnus Rasmussen, analyst]

Okay. Thanks. And one question on ammonia as well. Can you explain a bit how you are thinking in terms of how many gigawatts of power do you need to run 1 million tonne ammonia plant? And also what it would take for you to include this in your pipeline like what are the milestones you need?

[Terje Pilskog, executive]

Well, it does, it depends a bit on the energy mix, where it is only solar, solar wind and/or other renewables, but if you assume on sort of pure solar basis, it would be in the range of 4.5 to 5 gigawatts. In terms of what it will take to included in our pipeline, I think our key targets for moving this into pipeline here is the same as it is for other types of projects in PV, Wind or Hydro. So we need to have, I mean, we need to have a secured project. We need to have the land, we need also to have a good visibility on the offtake and that we are seeing the possibility of having a robust business case around it.

[Magnus Rasmussen, analyst]

Thank you. That was it.

[Terje Pilskog, executive]

Okay. It sounds like we should maybe go to the web Andreas, and then of course we can take questions here, if there are more.

[Andreas Austrell, executive]

Yes, sure. We have a couple of questions. One from Eivind Garvik in Carnegie. What's happening in Pakistan?

[Terje Pilskog, executive]

In Pakistan, we are continuing to assure that we are preparing the land for start of construction. We have had good progress there during the quarter. And there is now only a limited part of the land, which is left until we can start construction.

[Andreas Austrell, executive]

Okay. Thanks. And couple of question from Naisheng Cui in Barclays. Good morning. First, congratulations Terje for your appointment. Two questions. First, capacity in operation and on the construction remained flat, but both project backlog and pipeline decreased quarter-on-quarter. I wonder if you could provide more color around this. Do you expect this trend to continue and do you see logistic challenges to continue for the rest of the year? You can start with that.

[Terje Pilskog, executive]

Okay. Well, in terms of in terms of projects in operation, what we have said today is that we are targeting to convert to the current backlog into construction. That does not mean that those projects will come into operation by the end of the year. They will come into operation next year. In terms of pipeline and backlog, obviously, our ambition is to continue to grow that. So we don't expect that trend to continue.

[Andreas Austrell, executive]

Second on Ukraine. What will trigger further impairment as the current impairment is still below the book value? Do you see any possibility of impairment reversal and counterparties resume payments?

[Terje Pilskog, executive]

We've tried to approach this in a way, which makes it robust for basically different scenarios, as I indicated, right. So there is obviously potential for this equation to deteriorate. But as of now, we believe we have approached this in a fairly robust manner. So that based on how we see things now, this is our best estimate obviously, but this is with high uncertainty, that is clear.

[Andreas Austrell, executive]

Okay. And one third from Naisheng here. With European energy security becoming a more important issue, will that change your strategy, so Scatec can invest more into Europe, if struggled with time. Can you -- sorry, yeah, that's the question. Will we move into Europe?

[Terje Pilskog, executive]

First of all, we are already in Europe. We are currently working on product development and opportunities in Poland. And for the time being, we will continue to focus on Poland in the European context. Our DNA and where our key competitive developments is still related to emerging markets and what we'll do here is that we will continue to focus and increase our attention to the larger emerging markets that I've already been talking about.

[Andreas Austrell, executive]

Another one came in from Eivind Garvik. Why have you not taken FID on 100 megawatt in Tunisia? If I'm correct, you have secured project financing.

[Terje Pilskog, executive]

We have secured project finance, but also, as I said in my communication earlier, it's always some time between the fact that the banks are approving a loan until you reach first draw-down. So it's about timing and making sure that we meet all the conditions of the banks, make sure that we're ready on the EPC side and that define the optimal timing of initiating the construction.

[Andreas Austrell, executive]

Okay. We have another one from Richard Alderman. In full-year guidance adjustment, can you be certain, there is nothing further from the Philippines. If so, why? Is it because you have bought-in all anticipated short for rest of 2022?

[Mikkel Tørud, executive]

Well, the visibility on hydrology and production of the Philippines is relatively short. We are basically looking 2 to 3 months ahead. So our estimates for the second half of this year is based on P50 basically what is expected to happen, based on P50 estimates. So that is the basis. There are uncertainty related to that. We believe that, that uncertainty is also captured in the range that we communicated around when we talk about NOK 2.3 billion to NOK 2.6 billion of EBITDA. The main uncertainty is there related to Philippines.

[Andreas Austrell, executive]

Okay. Couple more. What expectations do you have for sale of ammonia in terms of price per unit from...

[Terje Pilskog, executive]

Yeah. We are currently in the negotiations of sales agreement for green ammonia. But at this point in time, we cannot, obviously, comment on the pricing.

[Andreas Austrell, executive]

I think one last one. We have covered the rest. Good morning. Can you elaborate more on discontinued project in India? What were the main reasons for it?

[Mikkel Tørud, executive]

Yeah. This is related to a 900 megawatt project that we were working on last year. We saw throughout the second half of last year and the beginning of this year that import duties but also cost inflation impacted the CapEx and the returns on this project, this specific project in India. This was one in a tender in India, 18 months or two years ago now. So that is the reason why we discontinued development of that project. This was announced a bit early in the year.

[Andreas Austrell, executive]

Okay. Another one just came in from Michel Sznajer from Ecofin Invest. How much did buying power in the Philippines cost in the first quarter?

[Mikkel Tørud, executive]

Yeah. What I have at hand is the increase in cost of the sales or cost of the buying the power. That was NOK 180 million. So that was the increase from last year. We also bought a bit of power in the first quarter last year, but this was a fairly limited amount. So around NOK 200 million would be rough estimates there.

[Andreas Austrell, executive]

Okay. I think that ends the Q&A.

[Mikkel Tørud, executive]

There's one more here.

[Andreas Austrell, executive]

Thank you. The Q1 financials was apparently weak compared with the market expectations. What do you think that was the case and what will you do going forward preventing repeatedly large negative quarterly earnings surprises?

[Mikkel Tørud, executive]

Well, there is two key elements to that as we've highlighted today. Ukraine, the impact of Ukraine, I think that is something, which is quite difficult to sort of guide on upfront and give. So that's one deviation. Then the other one is related to the Philippines. And again it is difficult for us to give precise guidance on the implications of this volatility that we see short-term on the production side. So we are of course driving to improve and provide clarity around this. We've explained today again how we operate in the Philippines. Hopefully that is giving the market a better understanding of how this works.

[Andreas Austrell, executive]

And another one, if I may. And this is Gustraia. How will you re-establish capital market enthusiasm for Scatec?

[Terje Pilskog, executive]

I think that's the starting point for this is by starting to deliver on what we have talked about. And obviously on a short-term basis, the importance is to convert our current backlog into construction, so that we will see that we are starting to regain short-term growth, providing margins on the D&C segment and relatively quickly moving these projects also into operation so that we see that we start generating also our production revenues related to these projects. And then I think the other thing which is important is that we are able to bring a larger part of our R&R pipeline into backlog, so that we can more visibly talk about some of these opportunities and explain to the market exactly where they are and how much they are relative to bringing forward also the backlog and the construction.

[Andreas Austrell, executive]

One more question here.

[Jørgen Bruaset, analyst]

Thank you. Again Bruaset, Nordea. Just following up on the previous question. So what we're also seeing in the industry as such is that more and more players are engaging in more structural type of processes to crystallize value and regain that momentum that might have administer a bit over the last couple of quarters? How do you see the Scatec playbook in terms of engaging in transactions or other type of structure place to crystallize the value in your portfolio?

[Terje Pilskog, executive]

That depends a bit on sort of what part of our business you're talking about. I think on the traditional utility-scale business, we are continuing to look for structural opportunities and we will consider that if you find good opportunities related to that. On the more projects side of the business, it is clear that these are larger projects and partnerships is most likely going to be an important part of the playbook going forward.

[Jørgen Bruaset, analyst]

Thank you.

[Andreas Austrell, executive]

One more question popping in from Magnus Solheim, Fearnley. Can you comment on the overall inflation impact for the existing portfolio of assets given that a lot of your assets have inflation clauses?

[Mikkel Tørud, executive]

Yeah. I mean that is exactly right. We have inflation protection in a number of our assets, our large assets where we also operate in local currencies like in South Africa, in Brazil. So that is of course giving protection in the current environment. So that's also, as highlighted, important to keep in mind here. Okay?

[Andreas Austrell, executive]

Okay. Just one last one -- it's popping in. I said last one several times. But Eivind Garvik has another one. Will Construction start be back-end loaded in 2022 or do you see projects reaching construction before summer?

[Terje Pilskog, executive]

I think that we are not going to comment on specific dates in terms of when we enter into construction of these projects. So I think I will just refer to what we have already said that we target to have the construction by end of 2022.

[Andreas Austrell, executive]

Okay. With that, I think we're finished with the Q&A. Thank you.

[Mikkel Tørud, executive]

Okay. Thank you everyone.

[Terje Pilskog, executive]

Thank you.