Scatec ASA

OSE:SCATC

Earnings Call Transcript 2021-Q3

[Raymond Carlsen, Chief Executive Officer]

Good morning, everybody. I have to say it's extremely nice to be here and not only talking to the screen. It's nearly 2 years, well, 1 year and 3 quarters since we last met. So -- well, it's a tremendous pleasure to be seeing you all. And it's also a pleasure to present you the third quarter results 2021.It will be handled by myself and Mikkel as usual. I start out. Mikkel goes through the numbers, and I'll provide a short summary. If you look at the bullets for the past 3 months, it's manifested, I think, in the -- in a good performance in terms of power production. And if you compare it to last year, we have an increase of almost 2.5x, up from 430 to 1,065 gigawatt hours. The proportionate revenues is NOK 1.25 million, and the EBITDA at NOK 767 million.We have reviewed our project pipeline, and I'll have a separate slide on that to go into the details of the various projects as they stand today. The good news, and I follow this directly on YouTube. Actually last night, there was the presentation by Minister Mantashe in South Africa of Round 5. We were awarded 3 projects totaling 273 megawatts. So that's another manifestation of our position in South Africa, so a market that we consider a whole market. I'll return on a separate slide to a bit more details about South Africa.A couple of weeks ago I was visiting Cairo. Well, I've been there a few times over the past few months, and we signed an agreement with Fertiglobe, a large fertilizer producer in Egypt. I'll return with more information on that too. But I think that is -- I believe, for us, it's an extremely important milestone. Now everybody is experiencing cost increases. I mean, it's not only within our industry. Everybody sees it. And you wonder, where is this going to end? In spite of these cost increases that we've seen on the panels, on some of the equipment, the -- our industry is actually stronger than ever. And I'll spend a bit of time to explain that, to put that into a perspective on a later slide.On the projects that have been in our backlog that we -- earlier in the year, we're hoping to put into financial closure and start construction of this year. We had to make some adjustment to the time schedule, and I'll explain why that is.In Pakistan, the government is responsible for providing land. Land in countries like Pakistan is a fairly complex issue, and the authorities informed us that it will have to be some delays because of demarcation, actually fencing in the land. And that process has taken much, much longer than we anticipated. Of course, we're not running the authorities. The authorities are running this process by themselves. So we have decided. And to move out to optimize the schedule to move the construction start into 2022.South Africa, we -- this was a part of a separate press release earlier this fall where financial closure is pushed towards the last part of January or in the beginning of Q1. The Minister Mantashe yesterday reiterated and confirmed that, that is the plan. The reason for this taking a bit longer is that there are -- I mean, it may not appear clear to everybody, but the processes around getting the approvals for these projects, and especially when there are many projects takes long. And this delay, I have to admit, is not the first time it has happened in South Africa. It has happened before too. They need the extra time to make sure that everything comes out correct.Now over to an important market for us now and in the future, India. We have been working with ACME for almost a year, and now closer to 15 months to develop a project in the northern part, northern central part of India. And we -- this is 900 megawatts. So it's a huge project. Of course, when you develop a project, there are many, many elements that need to be taken into place.Environmental impact assessments will have to be run. I mean, we do that on all our projects, and that is not done in a week. It's actually, you need 2 years sometimes. But anyways, we were hoping to place or ACME is doing that, place the order for the modules sort of in the middle of the third quarter. That didn't happen.And at the same time, the authorities have decided to implement a duty on importation of modules from India -- sorry, from China and other places. And we see now that there's -- you are sort of caught in between a rock and a hard place. I mean it's not enough time to have delivered the modules before the potential duty is coming into effect starting in April 1 next year.The industry -- and we're not the only project. There are many other projects that are in a similar situation. They're not getting the modules delivered on time. The idea by the Indian government was to actually get a manufacturing line on modules up and running. They are doing that, but it's taking longer. So the industry is in place. These signals -- or the industry is supporting this, the authorities are giving positive signals about moving the importation duty out in time and also the COD out in time. As a consequence, together with our partner in India we have decided to move the construction start and financial closure prior to that into next year.Tunisia, those of you that follow Tunisian politics knows that the government was resolved in -- or dissolved in towards the last half of -- at the end of July this year, a new government is still not in place. We have a comprehensive package of documents that needs to be ratified, approved by the government, and that has not yet happened. But I mean we're getting signals now that things are sort of approaching a more normalized situation, so they can move the projects ahead. Again then we think it's wise to move it out in time.Brazil, that is not in our backlog. That is a pipeline project. This is a project that we have been developing together with Equinor. The off-take here is Norsk Hydro joint venture. In fact we have also invited Norsk Hydro into the project. So it's Hydro, Equinor and us. It's taken a bit longer to conclude on the agreements, but I hope that will happen soon.So that is the situation on the backlog. I mean, these projects don't disappear. They are moved out in time, and they are moved out in time for good reasons. Once they have been constructed, they will then start a long journey of 20, 25 years production and revenues. So I think just to reiterate this, and I think you understand it, this is the setting of the projects. And I can also say that the projects that are in operation have remaining production time with concrete contracts of almost 19 years. So it's short-term important, but also long-term is equally as important.We -- looking a bit ahead, I mean, where are we? I mean, it's a tendency sometimes to look at the near things and that's important when you are in project execution. But also we are building a company that is looking ahead that is understanding the market, that is trying to apply the business model into taking advantage, enjoying the opportunities that they present themselves to us.And we have, from being a pure solar provider over the past 15 months only, of course we started much before that. But when you saw this happening, we acquired SN Power, hydropower, a bit more than a year ago. We moved into wind storage with a large project that we have in South Africa, all the bids out there as well. And then finally now hydrogen. So this is important for us. It has been a part of the plan, and I'll explain to you a bit later why we are doing this.We will continue to focus on high-growth markets. I mean, not only sort of replacing dirty electricity, if you may call it that, into looking at markets that need additional growth energy. That will be our core markets going ahead, and I'll also move into a more precise explanation of that on a later slide. It is -- it's a pleasure to sort of register that our business model is resilient and adaptable. I mean, we can use the same business model, develop, construct, own and operate also by expanding the technology [ stair ] with these technologies on the left-hand side here.Looking at our pipeline. We have a strong pipeline. It has also grown since July when we last had the presentation. It is -- if you look at the totalities now almost 1 point of 14 gigawatts. And if you look at the distribution of technologies, you will see that almost half is PV, I mean our traditional business, but you'll see that wind has grown quite a lot, 28%. And then you have hydro. Of course, it takes a bit longer to develop hydro. But hydro is of course very different from solar. Solar operates 20% to 25% out of the year, while hydro operates 100% of the time. So it's different technologies, different attributes, but they also fit very well together in some instances.And then we have a release and hybrid solutions. I'll talk a bit more about that. So the -- if you look at the project, if you sort of -- we're inside our company and looked at the development of the project, you will see that they have matured over the past few months, moving closer to be realized. There are also a bunch of projects that have actually not entered into the pipeline yet. So it's not like we're only working on 14 gigawatts. We're working on a huge set of projects within the market areas that we prioritize.We've also prioritized long term PPAs, long contracts, and the market is willing to enter into long-term contracts. We see a growth of short-term contracts that are being addressed by our release concept as well. So it's -- and that is also important for us to sort of recognize. Now what about returns? We are, again, just repeating that the project, when we are looking at the pipeline, the projects that are in this pipeline in a broad brush, averaging out falls within the IRR goal of 12% to 16%. In fact, there are some of them that are higher than that, but there will be some that are a bit lower than that too. But most of the projects fall within that range.The value creation, I mean, origination will create a project development and construction will remain in between 10% to 12%. And that of course also talks about our capacity to generate cash before we start the projects or start production of electricity. If you look at these 6 markets, they represent 11 gigawatts. That is almost around 70% our backlog and pipeline. So it's -- I think it's a good indicator of where we're heading and what projects that we are focusing on.South Africa. South Africa is the eighth most polluting country in the world. They have now publicized, decided by themselves, but of course also assisted by other countries that are stimulating them to remove dirty energy production to really further enhance investment into renewable projects. Eskom is doing it. The main operating electricity company in South Africa. They have actually now also opened up for up to 100 megawatts of PPAs that you can enter into directly without any governmental approval. The minister talked about that yesterday. He gave the award yesterday. It was a pleasure to be among the winners.Again, REIPP, financial closure next quarter -- first quarter next year. And then you also talked about Round 6. That will also be launched. That's like Round 5, but next round, 6, in the first quarter next year. So it will be a higher level of activity, and it's good because we have a very professional company in South Africa.If you look at the backlog, it's solid. It contains solar. It contains wind. And we are developing it, and we have very good partners. Vietnam, a market that is fundamentally on a growth path towards 2030. I mentioned this a few times before. We have 40 megawatts in operation at the wind farm, very good operational statistics on that one. We have a good pipeline. An important part of this pipeline is offshore wind or near-shore wind. It's not that far away from -- on the shores of Vietnam, but it is at the best location that you can imagine.And there are other -- I mean, if you study this, we'll see that some of the bigger offshore wind companies are also looking at the same area. This will be developed over the next couple of years. And at the appropriate time we will invite partners to join us there and on other offshore wind projects.Brazil. Also, an important mark for us, here we are working together with Equinor on the solar side. We are actually discussing whether we should include more technologies, but it's still too early to confirm exactly when that will happen. Mendubim is important project. But of course we are developing a pipeline of projects. We are talking to the market. There is a large market for corporate PPAs. Energy prices there right now. Well, like we experienced many places in the world are also on the high side, which makes people more interested in entering into corporate PPAs.Yes. Philippines, I have a separate slide on. On India, for us India is interesting. I mean they have a lot of dirty power. They have a growing population. They have a growing need for electricity. For us, being a multi-technology company, we find a lot of outlets for our propositions, not only solar but also wind and also in the north, both in India and if you move a bit further into Nepal, there are some very interesting hydropower opportunities that is being matured as we speak. So we're going to build up our organization in India to really entertain these opportunities. And we think this is going to be an important market for Scatec moving into the future.Egypt. I mean, 380 megawatt is -- it's the largest solar installation in Egypt. It is nearby the Aswan Dam. We have developed Scatec into an important energy company in Egypt. I've spent a lot of time in Egypt together with our organization there. And the agreement with Fertiglobe didn't come by itself. I'll have a separate slide, as I mentioned, a bit later to dive into that.Egypt is determined to become a hydrogen hub in the world. They are determined to export electricity. If -- those of you that follow the Egyptian news saw that they entered into an MOU with Greece 1.5 weeks ago for an export cable. If you look at the ability that Egypt has to tap into the solar resources they have, like Aswan, it's tremendous. I mean, it's a lot of desert there and cheap competitive energy, good for dam itself but also for the X, Power-to-X.So that's a snapshot of what we're focusing on. Of course, there is another 30% of the projects too that are there, that are very interesting that are in -- within our core markets. Yes. That was last night. These 3 projects are located next to each other. So you may consider them one project, but they are actually 3 different SPVs or special purpose vehicles as they were built because they were -- we could maximum bid 75 megawatts AC, which is a bit more on DC. That's why it's 273. They will produce until 2041. So from -- well, actually, when we finish in 2023 you'll be producing -- or at least until 2043.We have 51% ownership. We will do as usual. I mean, this is our integrated business model. We will -- we have developed. That's why we build them. We will do the EPC. We will do the operational maintenance. In fact, they will be added to the central control room or global central control room that we have in Cape Town, optimizing the plants around the world. And then we will do the asset management on behalf of the partners. The financial closure is expected first half 2022. So South Africa will be very, very busy for the solutions organization. I mean, the people that manage EPC projects next year, particularly in South Africa.Yes. Let's dwell a bit on the Philippines. I mean, Philippine is a deregulated market. It's one of the few markets in Asia or Southeast Asia that are deregulated, maybe the only one. The -- if you look at the power mix at last year, it is -- I mean, it's dominated by coal, it's lot of coal. The power needs in the Philippines are growing, it's a growing economy. It's not stable. It grows at a reasonable percentage. So they will have growth towards 2030. You will see some oil-based, you will see a little bit of natural gas. And there are things hiding behind these numbers because we look at the natural gas, this has basically been harvested from their own fields.The Malampaya field, I used to work on that was in oil and gas 25 years ago. That is depleting now. So they need to find the replacement. Hydro is limited, but it's stable and good, and we have a very strong position there. And then you have the growth opportunities within wind and solar.If you try and look towards 2030, and we do these studies in several markets, you have to have an opinion about market development. You'll see that it will be a growth and more need for electricity. Coal is going to be phased out or there will be no new coal being connected. And in fact, they made a statement just a couple of weeks ago that they are going to go to 50% renewables by 2040.So that comes on top. So for us, this is extremely important or very interesting because we have a position in hydro. We are participating in the ancillary services, not only selling electricity by the kilowatt hour price, but also providing services if the grid is down or some plants are down, we can pump in more hydropower or if there is stabilizing, I mean, you need to have power to be stable, not for the light the flicker. I mean that's also a service that we're doing there.So for us, based on our 640-plus megawatt installation, we have a strong position. We will add more renewable energy to this platform together with Aboitiz, a very prominent company and energy company in the Philippines, over the next 2 years, a strong drive. We have also been using that position to see, okay, what other sources of renewable energy would be interesting where we can position ourselves based on our knowledge.And then of course we did like we have done in Vietnam, WE started scouting the seas around the islands of the Philippines. This was actually being assisted by DNV. They helped us. They have done a lot of that. And we found some very, very good locations, pretty shallow water. The yield, the wind speeds throughout the year, and this is statistics collected over many years, were excellent. And we have been ahead of the pack, at least in the front of the pack and secured 1,750 gigawatt -- 1.75 gigawatt of projects.These will be developed. And of course, we have acquired these projects without having to bid for us. We spotted it. We talked to the authorities, and we got the award, last one just 2 to 3 weeks back. These projects will develop. We will put up maps that will measure and confirm the wind speeds. We will develop them further in terms of environmental impact assessments and so on. And at the appropriate time we will invite in partners for financial reasons, but maybe also for execution reasons.But I mean, we are not in a rush to do that. We would like to reach a good, mature stage before we do that, so that we can capture the value that we are actually being -- that are being generated. And those that know the difference between developing the project yourself from start compared to buying into the project know that there is a lot of value to be captured when you do that.So for us, Philippines will approach or is, I think, on a level of South Africa for us in terms of considering a whole market. Egypt, I think, is going to go there too.Now if you look at us, having been a solar company, and it's good to be a solar company. I mean we have [indiscernible] as well. But of course you always have to keep an eye on the market. How is the market developing? In the beginning I said I want solar at the cheapest possible price. And then the attitude changed a little bit. Well, I like to have electricity. I like to have green electricity, and it should be delivered to me as I need it throughout the 24 hours, 7 days a week. So of course, you, as a company, have to think a bit differently. And that is what led us to expand our technology range because we have to have more technologies in our toolbox to be able to offer stable electricity.And now internally, we sort of -- I said this externally, too, we're saying, well, to the customer, they should look at us as a solution provider, a provider of clean, green energy, stable, at a very competitive price. And to the right here, you can see some of the elements and some of the points that allows us to go to the customers and propose that.Firm Renewable Power, well that's exactly the answer what I described, where you combine different technologies, you may even buy a bit of electricity to top it up or sprinkling with some batteries to make sure that the electricity is stable.Hybridizing PV and hydro, I didn't imagine that there were that many opportunities combining hydro and PV. I've talked about this before, and we see that you can optimize the reservoir utilization by actually using the sun during the day. When the peak is high, you just -- instead of reducing the water level on the reservoir, use the sun to actually compensate for the variation. Again, understanding how the grid works. There are areas where you need to conserve the water during the day or as much as possible because the dry seasons. Africa, many places where solar on top of a reservoir makes good sense.We lease a different way of thinking about the customer because not everybody wants to move into long-term contracts. They say, "Oh, okay, my mine will run out in 5 to 7 years. How can we handle that? Well, at the moment, I mean, they are paying -- I'm not saying a $1, but maybe $0.50 per gigawatt hour. Here we can use release. I mean, that's a containerized PV system. You get your order, you ship it out, you have it installed and producing after 3 months.We have talked about it for a while. Market has been a bit slower than anticipated. We see now as a function of the very, very, I mean, $85 per barrel, right? This is being further accelerated. We also talked about power to X. I mean, when you produce electricity from solar, for example, in Tunisia or in Egypt, that $0.025 per kilowatt hour. I mean, what are paying right now in Norway, NOK 1 -- yes, NOK 1.50, we can produce this for NOK 0.25 or NOK 0.20 per gigawatt hour, I mean -- and it's fueled independent. I mean, all the other technologies dependent upon fuel, not hydropower in Norway or elsewhere, not PV, not wind. With all the other technologies.And I've talked about -- I mean, just to reiterate something I should -- I've touched on. I mean, what the world is experiencing now is something that they will experience over the next decades because they are dependent on fuel, whether that is gas, oil or diesel or other fuels. That will cause volatility in the market. And that is going to be a strong push for those that look for stability to go into renewables. We are fuel independent.So when we give a price, we say this is going to be the price until 2040. Don't worry about it, you can plan differently, focus on other things. That's why out of this energy crisis at the moment renewable is going to be emerging as an even stronger candidate, and I used to call that accelerated greenship, which I think is good for everybody.So people may say to us, okay, we are concerned about the cost inflation. Yes, we are. I mean, the panel prices goes a bit up. The steel prices goes a bit up. But for us, even with those cost levels we see at the moment, we are way below all the other technologies on levelized cost of energy. I mean it doesn't really have a dent. So it just reiterate that the business case around renewables is actually being made stronger, even that we are experiencing some cost inflation at the moment. It's a bit uncomfortable for us also. But it has basically only impact on where we cannot sort of push the projects a bit out in time or not optimize the schedule and that kind of thing.So back to the slide, Power-to-X. I mean it's X1, X2, X3. I mean, let's talk about X1. What we signed in front of the Prime Minister and a whole bunch of other ministers in Egypt and Cairo 1.5 week ago was an important milestone for us. I'm not saying it's transformational because it isn't, but it is important because an extension of our business model, where we use cost competitive renewable energy to actually generate hydrogen. And then ammonia. In this case we stopped at the hydrogen, but it's not that far to go from hydrogen to ammonia.President Sisi has by many occasions said that due to the strategic location of Egypt we want to be a hydrogen hub for the world, at least for this part of the world. And that means that they are already focused on how to assist initiatives that are being taken now. The agreement that we entered into was a C-to-C, a company to company agreement with Fertiglobe.Fertiglobe is a large fertilizer producer in Egypt. They are being majority-owned by OCI, a large fertilizer producer. They're up around sort of the Yara type of size. Yara is a world leading. And they have ADNOC out of Abu Dhabi as a minority interested party. So -- and of course, we went through, how should I put it, a prequalification document where we competed with all the usual suspects, and we were selected as the company that they wanted to work with.And the reason for that is of course our position in Egypt as a renewable, a trusted renewable company, but it's also our ability to structure the projects to implement new technologies to financially simulate and actually provide a price that is cost competitive. And I cannot reveal the pricing now, but that will of course hit the market at the appropriate time, but it will be competitive. Otherwise, it wouldn't be in this position.So for us, and we have a group of very qualified people now looking at how to expand this market. I mean, I'm not sure if you've been to this area. But of course, you obviously saw this container ship that was stuck in the Suez Canal a few months back. Well, this is at the rim or at the end or next to the Suez Canal. The ships pass by there. There are a lot of ship owners that are moving from dirty diesel, dirty oil to renewables. They will actually use ammonia as the fuel. So of course strategic positioning of the plant that we're building that we will majority control is key.And of course, we are hopeful that this will be much, much bigger at the end of the day. But of course we need to put in the concept. But the idea here is to -- we have started the feasibility study, financial closure next year, operational 2024.Then I think it's time for you, Mikkel.

[Mikkel Torud, Chief Financial Officer]

Thank you. So a bit of numbers then. So let's then go back to the quarter and look at the numbers, the proportion of the financials as you see here. Q3 revenues of NOK 1.3 billion, and EBITDA of NOK 767 million and capital to equity of NOK 300 million. The EBITDA increased about 28% from the previous quarter, and this was mainly explained by the improved hydrology in the Philippines, and I will get back to that also in a bit more detail. And compared to last year, obviously, you see the impact of the acquisition of the SN Power assets with the large contributions into the power production segment this year.Over the last 12 months revenues reached close to NOK 3.9 billion and EBITDA of NOK 2.2 billion. And then cash flow generated from these plans after debt service, a bit more than NOK 1 billion.So power production. Again, we have a very positive trend when it comes to growth and production and EBITDA generation. Obviously, looking at it compared to last year. Again, the SN Power assets contributed. But also quarter-on-quarter, we've seen grid connection of new plants in Argentina and Ukraine and increased production in the Philippines. The hydro assets represented an EBITDA of NOK 383 million now in the third quarter.While the solar assets have been fairly stable in terms of revenues and EBITDA generation now year-on-year. So compared to the last -- third quarter last year. And I -- we thought that we should also dwell a bit on power production. Since it has grown quite a lot. We have had some questions around the hydro assets and wanted to explain that a bit more at this quarter. First of all, you can here see to the right a graph of the distribution of EBITDA year-to-date. And this is certainly a well-diversified portfolio with a number of markets where we operate. And this also is reflected in the number of currencies and technologies as well that we operate in.And when it comes to then variability and seasonality, for solar and wind we are used to a fairly stable resource as a basis for production rights. And both on an annual basis also within the year and through the quarters. And the power prices here are secured, as you know, through long-term PPAs and feed-in tariffs. When it comes to hydro, we see a bit more of annual variability and certainly also more seasonality through the quarters of the year.Again, Uganda, one of the assets here is different in the terms of getting fixed capacity payments regardless of the dispatch and the hydrology of the plants. While in Laos, 90% of the offtake is sold under a PPA with EGAT in Thailand. And the storage capacity to this plant reduces seasonal volatility. So that's a different pattern. While Philippines, as you can see here, representing 27% of the year-to-date EBITDA is operating in a power market. And also, we see more reliance on hydrology at the Philippines.And that's what we've seen also this year. And we wanted to just explain that a bit more. To the right, again, you can see a graph showing the 5-year average production for -- on a quarterly basis. That's the dark blue left bar in this graph. You can see Q1, Q2 being a bit lower and then much higher production in the second half of the year. And we touched upon this in the second quarter where there were some questions around the second quarter performance. And as you can see, 20 -- I mean, second quarter this year was not really that far off what we saw as a 5-year average of the production.Now we're also selling a large portion of the energy that we produce, either through ancillary services or through bilateral contracts. 80% of the available production year ahead is sold under long-term -- sorry, under bilateral contracts 1 year ahead. That represents a hedge on the pricing towards the more volatile spot prices that you will see in this market as in -- and the Nordics. And the hedging ratio is then lower if you go 2 years out or 3 years out.And then as we move forward, the hedging ratio increases to become 1 -- up to 80% 1 year ahead. So there's a dynamic there that is good to keep in mind. The result of this is that it's really mostly about the production profile and hydrology that is driving the revenues and EBITDA on the Philippines. The prices are secured at least in the near term. Longer term of course we are exposed to the long-term trends of the power prices in the country.I also wanted to highlight that the bilateral contracts in terms of what we are obliged to deliver is matching this profile when it comes to production, but it will always be a need to balance the portfolio in shorter time periods. And again, that will vary over time and also across quarters, but that's a limited exposure, but some balancing is needed. And then in certain time periods where you have strong hydrology, we would have surplus production available to sell in the spot market.And then depending on the market and the market prices, we can either use that capacity to sell at high prices in a spot market or sell more ancillary services, grid stability services. So there is an optimization exercise being done by the team in SNAP, the JV we have with AboitizPower. This is a JV with about 200 employees, about 40 to 50 people focusing on market analysis, selling of power and optimizing these power plants. So it's a very experienced team operating these plants.Then lastly, ancillary services, as also Raymond touched upon, represent a stable base of the net revenues. And these revenues are not always backed by production. So when you analyze the results, you need to keep that in mind because we get paid for having that plant available to be called upon when needed for grid stabilization. So it's not always a production volume behind the revenues that are part of what we report from the Philippines.Okay. Services is a much smaller part of our business, stable results, NOK 69 million of revenues, NOK 22 million of EBITDA now in the third quarter.Development and construction. And Raymond have explained the short-term delays in Pakistan that continued to impact construction revenues, basically being very moderate, NOK 43 million in the quarter. And on the other side, a very high activity on project development. Also I think highlighted by Raymond in his part of the presentation. We have also impaired NOK 50 million related to discontinued projects under development in Ukraine and Brazil. We pre-announced this also in a separate release October 1.Balance sheet, very stable, I would say, position in terms of cash compared to last year -- sorry, compared to last quarter. We continue to have undrawn credit facilities of NOK 1.6 billion and group equity at NOK 11 billion. Yes, you can see the consolidated assets stood at NOK 33.3 billion. When it comes to cash and cash movements, we received NOK 328 million of distributions from the operating power plants in the third quarter. And we have spent NOK 130 million on developing our projects through development CapEx. And as I say, the cash position overall has then been fairly stable compared to the end of last quarter.And then a bit on the short-term guidance. Power production in the fourth quarter expected to end between 1,000 and 1,100 gigawatt hours, broadly in line with the third quarter. We are also highlighting that, as I already touched upon that. In the Philippines we expect slightly higher production compared to the 5-year average. But we will also want to remind you that there is -- will be higher-than-normal maintenance costs and OpEx on the Philippines in the fourth quarter.And also maybe good to mention that in Ukraine, there's a strong seasonality. There's winter now. We're moving into winter in Ukraine, and that impacts production. I encourage you to have a look at the previous quarters and how that effect was on Ukraine, but now we have more production in operation in Ukraine.On the D&C side, we basically expect Q4 to be in line with the third quarter. And with -- as a consequence of us pushing these projects out in time and that Pakistan also have this delay that Raymond touched upon. There's no changes then to guidance on services and corporates versus what we have mentioned before. Okay.

[Raymond Carlsen, Chief Executive Officer]

Thank you very much, Mikkel. This time around I've decided only to have 1 slide at the end because I think I covered a lot of turf before Mikkel shared the numbers. So I think -- I mean, I'm eating a bit into your schedule, so I'll be quick, and then we'll open up for questions.I mean, it's good to see that the cash generation of the company is continuing to be good. We of course expect that to continue. And it -- yes, it gives a very, very solid floor for us in our growth ambitions that I talked about a bit later on. Yes. I mean, I don't need to repeat myself.The market, as I think everybody appreciate now, is going to be strong. Maybe not everybody understood that the cost inflation or the increased cost somewhere doesn't have an impact or have very limited impact, at least on the long-term or the pipeline that we have, it may have some short-term impact.So yes, I'm optimistic about the future. There are a lot of things that are moving in the right direction. Of course, like in every business, there are some things to be tackled, but that should be business as usual as well. So I suggest that I end with that.And since we're all here, there's a lot of people present, I think it's appropriate to let you all ask questions before we let the people watching on the web log their questions in. So Mikkel, if you want to join us or Andreas.

[Unknown Executive]

Andreas will take your questions.

[Raymond Carlsen, Chief Executive Officer]

Okay.

[Unknown Executive]

Yes, we'll start with the person from Nordea, [indiscernible].

[Jørgen V. Bruaset, Senior Analyst]

Jørgen Bruaset from Nordea. So maybe following up on your comments regarding growth, Raymond. Obviously you have some ambitions for 2025, which you communicated previously. Do you think that at some point in time you would be quantifying the more near-term ambitions in terms of target?Or if not, are you able to say anything about how you think the road towards 2025 will look like in terms of being front-end loaded, back-end loaded or more linear? And the reason for asking is obviously that linear growth is probably easier to digest from a funding perspective, while more lumpiness obviously adds some other dynamics to it.

[Raymond Carlsen, Chief Executive Officer]

Yes. I mean, if you sort of look at the history of the company, you have seen that it has been a bit lumpy at times. A couple of years back or in 2019 -- '18, '19, we had the biggest revenues ever on the execution side.This is not by design, but by nature because some of the projects, I mean, they have delays that are not anticipated. And then you may say, well, I mean, you should have the experience now. Yes, we do, and that's why we're actually increasing the pipeline that we have so that you have a bigger funnel of projects so that you will have a more stable situation.I think what is what is happening at the moment is unprecedented, not only with us, but for everybody in the market. And that is very hard to predict. So we think there will be volatility also going forward. But I mean, the long-term goal stands. Of course, the 15 gigawatts is 15 gigawatts of installed power.But I think you have to keep in mind as well that in addition to this there will be storage opportunities and other things that are also part of the equation. So there has been a delay now. I regret that. I wish we could have done something to limit the impact, which we are. But of course, the good thing now or the smart thing to do is to be sensible and adjust the timelines to what makes sense.

[Jørgen V. Bruaset, Senior Analyst]

And on the favorite topic of cost inflation, if we look at what you put into your budgeting process, let's say, 12 months ago, we indexed that CapEx per megawatt to 100. Where do you see the cost inflation leaving that index now?I mean, obviously we've seen the raw material price development. We see different sources quoting different numbers in terms of CapEx increases. Are you able to share something about when you do your sourcing on your contracts with your partners, how you see that cost inflation being indexed?

[Raymond Carlsen, Chief Executive Officer]

I mean what we do, and this is what I've done in my past life too. I mean, you do not want to commit to a fixed price unless you know your cost base. So most of the times you go out and you send out inquiries with the scope, you get prices back from your subcontractors, which who maybe experience the same. And then you see where we are. And -- but we don't use that for everything. We have a very close relationship with some of our larger suppliers, especially the module suppliers, if we look at solar. We have a spreadsheet that is actually -- we have a bunch of different types of module on the Y axis. Then on the other axis you have time.And then you put in the price anticipation of where you are from now until when you are expected to have delivery. And that is being updated generally, but that is how we're pricing. And we're seeing that there is a trend, a reducing trend on the modules, but that may come quicker than anticipated. So we're using as -- to our best ability, our understanding and deciphering the market when we are pricing it. And when we're giving the prices then, it reflects the costing plus the guidance, I mean, the margins that we anticipate.And I think it's -- I'm not sure if I mentioned it or not. But I mean if you look at the last auction in Spain, the prices for the PPAs went up 20%, which means that the market is now starting to accept that it will be higher pricing. But there's always a lag on that because you think obviously this is going to go over in 2 or 3 weeks or 2 or 3 months. So I mean, future projects will take into themselves the costing that we see it, and we're going to price this to our best of our -- to the best of our ability.

[Jørgen V. Bruaset, Senior Analyst]

And last question from my side. On the pipeline development, I'm trying to understand a bit on the movements there with respect to the announcement from South Africa yesterday. So you're announcing awards of 273 megawatts.If we look at what you communicated on your Q2 report, I think that the wording was that you added 1.2 gigawatt to our pipeline where the majority of that was preparations for around 5 in South Africa. Is it fair to assume that the 273 megawatts awarded yesterday represents roughly a 50% conversion ratio of what you put into the pipeline? Or do you have any comments on what the total megawatt you entered into the Round 5 with was versus what you were awarded.

[Mikkel Torud, Chief Financial Officer]

I'm not sure if we want to go out with the total volume, what we bid. But I mean, it's -- we bid more than what we won. I think that's clear. So I think also you saw on the solar side that we were at the high end of the price range when it comes to the winning bids and tariffs. So I think we're fairly satisfied with that.

[Raymond Carlsen, Chief Executive Officer]

I mean, it's a bit of strategic bidding here. I mean we knew that around 6 was down the road, and you would like to -- I mean, this is always difficult. I mean, where do you price it. We want to win, but we don't want to win with the lowest price. We want to win with the highest price that we're awarded. So that means that some 3 projects were inside, some projects were outside, but they are now ready for the next round, Round 6.

[Unknown Analyst]

[ Thomas ] from [ Sparbanken Markaryd ]. I guess some of my questions already have been touched upon. And first of all, congratulations with a good quarter. On cost again, on cost inflation, when will we have to see a decline in module prices and freight costs in order for you to deliver on the now currently announced adjusted timeline. Will we have to see a decline or is that firm, the new time line was published today?

[Raymond Carlsen, Chief Executive Officer]

I mean the adjustment to the schedule has taken into account the pricing that we see in the market at the moment. So this is basically other reasons for that adjustment to the schedule. We would welcome a reduction in prices because it's a fact that some of the margins on the projects have been reduced to what they could have been with the lower module price.But that doesn't mean that the projects are not unprofitable and do not meet the return targets that we're looking for. I mean, historically, some of the projects have been way above what we have guided on. But I mean I study, I follow the logistics side. I mean, container ships, container pricing, 10x higher than we were a year ago. I mean, that affects us and everybody else. I don't think that's going to come down. I mean -- and I don't know this. I'm just reading myself on this information very soon.There are too many constraints around the world. When we look at the container concentration outside of California, it impacts the world. So that is taken into account. I don't think it's going to go further up. That's our view. We don't believe either that if you look at the solar side, I mean, the wind has similar issues. I don't think it's going to go further up. New capacity is being added, both on the silicon side, the silicon price is very high, but also on the module side. I mean, India has an ambition to add 6 or 7 or 8 gigawatts, but you don't do that overnight.

[Unknown Analyst]

And you mentioned the 20% higher PPA price in Spain. How is the willingness to adjust those PPA prices back, considering the fact that most off-takers will probably assume that CapEx will be reduced within the next 2, 3 years?

[Raymond Carlsen, Chief Executive Officer]

I mean, it all depends. I mean, if you have one project bidding, I mean, I think it's very difficult to go back and ask for adjustments. So where that is possible, we will do it. I don't think that's many projects in sort of in the backlog with those that have not been bid, I mean, you're free to do whatever you want to. And the interesting thing is that even with a slightly higher price where it is 20% up, you're still way below the other technologies. So it makes sense. It's actually much cheaper to pay 20% more compared to history for renewables than actually go the other way, to go through traditional energy. I mean, it makes sense.

[Mikkel Torud, Chief Financial Officer]

Okay. Time flies. I mean, do we have 2, 3 questions from the web maybe? Or…

[Unknown Executive]

Yes. We have a couple of questions from Eivind Garvik, Carnegie. Asking us to comment with regards to the mainstream awards, I'm not sure we can comment on that. And also congratulations on the 273 megawatts in South Africa. Aker Horizons with mainstream was awarded 1.27 gigawatt of capacity. Why were they so successful? Do they have a lower return requirement?"

[Raymond Carlsen, Chief Executive Officer]

Well, I think you have to do the math yourself. We're not doing the math, and we're doing the math on our own projects. We were in the upper range, and that was a one.

[Unknown Executive]

Another question from Eivind. "How much solar/wind megawatt is needed for the 50 to 100-megawatt hydrogen facility?"

[Raymond Carlsen, Chief Executive Officer]

It's -- if I remember correctly, I think it's 150 megawatt of wind and 30, 40 megawatts of solar. If that is -- I mean that was what we proposed. We are discussing actually with Fertiglobe now and the Egyptian authorities for an acceleration where we will get on the first plan green energy, certified wind energy that is available in Egypt as we speak.

[Unknown Executive]

Last question for Eivind. How much in percent of the Philippine revenues are from ancillary services?

[Mikkel Torud, Chief Financial Officer]

Yes. I think we've indicated that before, around 40% is a number to have in mind. That will vary through the quarters in a year as well. That's just also one thing to keep in mind. So that is a revenue stream independent of hydrology. So obviously we'll see that fluctuate. Again, when you look at average selling prices, as I know some of you are looking at that, keep this in mind because you cannot just deduct the average selling price from revenues in production here.

[Unknown Executive]

Okay. We have one from [ Magnus Sulen ]. Will Scatec consider to stop paying out dividends to shareholders in order to conserve this cash and instead invest in new projects?

[Raymond Carlsen, Chief Executive Officer]

I mean, we have a policy that has been sanctioned by the Board. And that's what it is.

[Mikkel Torud, Chief Financial Officer]

Yes. Yes, I mean, just to reiterate, I mean, the policy is to pay a minimum 25% of the dividends received from the operating assets, yes, as dividends to our shareholders, right? So that is our current policy.

[Unknown Executive]

Okay. Couple of questions from Manuel from Exane BNP. "Could you give us some more specific guidance about the assets you expect to put in operation in full year 2022?"

[Mikkel Torud, Chief Financial Officer]

Well, I think with what we said today, the timelines have been adjusted, and I don't think it's realistic to assume any significant contribution from new power plants in 2022.

[Raymond Carlsen, Chief Executive Officer]

But of course, a lot of plants will be in construction. That's for sure.

[Unknown Executive]

Okay. Another one from Manuel. It's a question regarding inflation. I think we have touched upon that, but. "Could you explain what is the company policy regarding the hedging of installation costs for those assets already awarded but yet in the pipeline or under construction?"

[Mikkel Torud, Chief Financial Officer]

Yes. So we place orders. We typically place orders for all key components once we have reached financial close and made investment decision on projects. We're not placing any orders until we get to that point. So that is where we lock in all the CapEx and -- for our project.

[Raymond Carlsen, Chief Executive Officer]

Maybe you should round off.

[Mikkel Torud, Chief Financial Officer]

I think we -- yes, I think that's -- we could take the rest of the questions separately, I think. Yes.

[Raymond Carlsen, Chief Executive Officer]

Okay.

[Unknown Executive]

Okay.

[Mikkel Torud, Chief Financial Officer]

Thank you all.

[Raymond Carlsen, Chief Executive Officer]

Thank you very much. It was nice seeing you all. See you next time.