Scatec ASA

OSE:SCATC

Earnings Call Transcript 2018-Q4

[Raymond Carlsen, Chief Executive Officer]

Good morning, everybody. It's end of fourth quarter and 2018 has just been finished. It's still dark in Norway, but I'm quite happy to say and you probably know this that Scatec Solar today is actually producing solar energy every hour of the day. We're having a plant in -- or plants produced in Asia, in Europe and in America.As usual, we split the presentation into 3. I take the first part, Mikkel will go through the financials and I'll provide some input into the outlook and the summary.Last quarter has been exceptional in many ways for us. Operationally, we have performed very well and we have reached our best financial results ever. The proportionate number came in at NOK 1,666 million in revenues with an EBITDA of a little bit shy of NOK 330 million. The high activity on the construction side manifested itself in revenue of almost NOK 1.5 billion and with an EBITDA of NOK 202 million. The gross margin is slightly above what we have been guiding on and that is expected. I mean, the variation, it's not always 15%. It could be below and it could be above. It was above this quarter.We have connected in the fourth quarter last year projects or plants in Brazil and the first of 3 projects in Malaysia. We've also started construction of a project in Argentina, a smaller one in Malaysia and a couple of projects in Ukraine, totaling almost 250 megawatt. The board has proposed dividends to be at NOK 0.95 per share.If you look at the year as a whole, it has been a record year for us in many ways. We have seen a strong conversion from opportunities into our pipeline, in-flow in the pipeline and also going into backlog and into construction. This is a confirmation what we've previously shared with you that the market remains strong. It will continue to remain strong and it is strong in the areas of the world that where we have our, so to speak, target market.We had financial closure of 539 megawatts and they all moved into construction. We also connected 3 solar plants that started earning revenue, totaling 262 megawatt. And if you remember, last year at this point, we had 330 megawatt in operation. So we are in a very strong growth mode at the moment, harvesting from the investments we've done into development over the past years.If you look at the table to the right, you can see the development from 2016 to 2018, and the revenues has gone up more than 4x. The EBITDA 260% or 2.6x. And as you have also monitored that the D&C revenues was quite high last year. In fact, we have never been above NOK 4 billion in revenues from the D&C segment ever.Gross margin, as guided, we managed to get 15% gross margin. So the year overall in all parts both developing new business, performance in terms of execution has been running quite well. This is our portfolio. And I guess what is unique about our business model is that we operate in different phases. The first phase is Development & Construction. And of course, we generate the revenues and we generate margin there. The margin we generate there, we will take and invest into the long-term cash flows, where we will have contracts lasting from 20 to 25 years. And these are the projects that today are going to be operating and earning revenues over the next 20 to 25 years, although some of them have come a little bit further down their lifetime.Mikkel will show you a slide later on that the plant isn't finished and over with when you're done with your contractual life. In fact, it has a life after. And I think it's useful for you to also appreciate that because that it's taken into account in our contracts.Now we have more than -- or almost 1,100 megawatts in construction in 4 continents, and that's a challenge in itself and our operating model has really been tested, but, I think, that we are doing well. Egypt, fantastic projects, 400-megawatt in the middle of the desert. And here we are doing something that nobody has seen at this scale. We are actually implementing bifacial modules. Bifacial means that we are actually producing electricity not only from one side where the sun rises, but also from the underside. So the sun rise are reflected from the ground or the desert and it hits the bottom -- or the other side of the panel, boosting the yield, so we can get up to 10% more yield from an installation like that. So the 400-megawatt is the largest installation globally. South Africa in the beginning of the 3 projects up towards the Botswana border, northern South Africa, Upington.Jasin and Merchang is left to be finished. We completed Gurun in December, and we are in the final rounds of finishing Jasin and Merchang. There has been some execution issues there, but, of course, those are reflected in our numbers, and we are well on our way in the final testing to be -- for these plants to be connected within a couple of months.Argentina, also quite early. And this is the project that we are doing jointly with Equinor, 50-50. They are providing construction finance. And I just want to reiterate in this context that if we didn't have this facility, we probably wouldn't have started the project so early. So that's good.Ukraine, very interesting. Also here, I mean, Ukraine is sort of north down south, I mean, it's winter in Ukraine. So -- but -- and we are progressing quite well. As you can see, a little bit snow on the ground. The ground is not too hard, so we can actually penetrate the poles. That will actually carry the panels.Malaysia, this is a project that we won in a bidding phase more than a year ago. That has also moved into construction. Mozambique is a couple of weeks away from completion. We're doing the final testing now, so it will start earning revenue as well very soon.Then Mikkel, I think, you should guide us through the numbers.

[Mikkel Tørud, Chief Financial Officer]

Thanks, Raymond. So you've already mentioned it when it comes to the fourth quarter, but I'll reiterate. So NOK 1.7 billion of revenues across our segments on a proportionate basis. EBITDA were NOK 329 million. And it's basically revenues up fourfold since the same quarter last year and EBITDA up almost threefold as compared to last year. And construction activity is what is driving this. We have been, as you can see here, ramping up construction significantly during 2018, and we expect that to continue to be full of revenue effects of this also into 2019, obviously with a lot of work to be done on the construction portfolio.And also, I will say that Power Production and EBITDA numbers are increasing in the fourth quarter. It's actually up 30% year-on-year the EBITDA on Power Production, with more now power sales, and, obviously, we will get more of this in the quarters to come.I will go through the segment results in a bit more detail in a couple of minutes. I just also wanted to highlight the annual numbers. And NOK 4.7 billion of revenues for the year, up from NOK 1.7 billion last year and NOK 1.2 billion in 2016. So we are on a growth trajectory to say the least. And EBITDA now reached for the year close to NOK 1 billion, half of it from the construction activities, the other half from the Power Production segment and the sale of power. And again, we will sell power for the next 20, 25 years under the PPAs. So you'll see returning business and growing business in that area. And of course, we will continue to construct power plants in the years to come.Also, on the guidance for 2018, we have delivered across the board. This is the slide we presented in January last year. We set out our targets for equity returns from D&C margins, but also for Power Production, cash flow to equity. We have basically delivered across all of these targets and we also upgraded our growth target in our Capital Markets Day back in May last year, where we set the target of 3.5-gigawatt by 2021. And Raymond will also refer to how we see the market opportunities and prospects here in the last part of the presentation.Now just briefly on the various segments. Revenues, in the Power Production segments, reached NOK 180 million, EBITDA NOK 139 million, and it's really now connection of Honduras, Brazil and also Malaysia that created this increase, but also the impact of us buying another 6% of the operating assets in South Africa impacted the quarterly numbers.Power Production reached 108-gigawatt hours, up from 73 gigawatts in the same period last year, and this is broadly in line with the guidance that we provided for the fourth quarter. For the full year, revenues reached NOK 622 million and EBITDA NOK 492 million.Moving on to O&M. It's a bit more fluctuating as the seasonality in this business and we have seen underlying fairly stable operations, but we do have some effects from the seasonal variations of performance in South Africa that are affecting the numbers in the fourth quarter, and that's why you also see somewhat lower margin. We also see some impact of us ramping up some OpEx for the segment in preparation for O&M services that we will provide for the new plants that will be grid connected in 2019. So we'll see some improvements in these results as well, obviously, as we move forward.D&C revenues, NOK 1.5 billion. It's now across the projects that Raymond mentioned. We recognize revenue. A cumulative progress across the portfolio that is currently being built is 43% at the end of the fourth quarter, 15.9% gross margin.Moving on then to the balance sheet. We have invested about NOK 1.7 billion of equity in 2018, and I will talk a bit more about the cash movements both in the quarter and for the year. The consolidated assets stood at close to NOK 15 billion at end of 2018, up from NOK 10 billion at a year ago. And it's driven by our CapEx investments.And if you look at the cash and net debt levels, consolidated cash stood at NOK 3.3 billion, while we had NOK 1 billion of free cash at the group level. On top of that, we have an undrawn bank facility of NOK 500 million, which is giving us robust and solid position to move forward with our projects. The group level book equity reached NOK 3.1 billion and the equity to capitalization ratio stood at 81% at the end of the quarter.Now to the cash bridge. We received NOK 28 million of distributions from the operating power plants in the fourth quarter. We report NOK 157 million of cash flow to equity from the D&C segment. This is measured based on the EBITDA that we report. And we have a working capital component to the far right, which has a significant positive movement in this quarter, NOK 780 million. And that's based on us reaching the milestones under the EPC contracts that we have in place and that basically is paid by the project companies to us and the project companies that we established a drawn equity and on debt for the projects and then pay us under the EPC contracts. And we had a very positive movement on that front in the fourth quarter.We continue to invest equity into new projects, NOK 350 million in Malaysia, Argentina and Ukraine. And again, NOK 1 billion of cash at the end of the year.If we look at this on an -- for the full year 2018, we received NOK 216 million of distributions from operating power plants the board has proposed to pay, and this is in line with our dividend policy to pay half of that cash as dividend to our corporate shareholders. That's the policy we have, 50% of whatever we distribute from our operating plants to be paid to the corporate shareholders.Then, we have generated close to NOK 400 million of D&C cash flow to equity and we invested, as I mentioned, NOK 1.7 billion of project equity across our project portfolio. And again, we had a very positive movement on the working capital side, more than NOK 1 billion throughout that 2018.Short-term guidance. We expect 2019 O&M revenues to increase to around NOK 110 million to NOK 120 million, with an EBITDA margin of around 30%. The margin levels are coming somewhat down to 2018 in this segment, as I mentioned, both due to somewhat higher OpEx, but also lower underlying margin in the new contracts -- the new O&M contracts that we have entered into for the portfolio that we now are realizing.The current projects under construction represents a contract value of NOK 8.4 billion and the remaining value that's not been recognized here is about NOK 4.8 billion. Most of that we expect to be recognized in 2019. Obviously, as we reach financial close for new projects throughout 2019, we will also have additional revenue in this segment.When it comes to Power Production volumes, we provide you with the guidance on that in a table here. This is based on plants in operation at the end of last year. So any grid connection and we will have grid connection, as you know, in most of our plants in 2019. That will then add to these volumes -- production volumes.Just to mention shortly also as well, we have implemented IFRS 16, the lease standard. It's implemented from 2019. We have some more information about this in our quarterly report. But basically, we are moving roughly NOK 20 million of OpEx. This is OpEx related to land lease and some office leases from OpEx to finance -- net finance in our P&L. So you can get some more information and details on that in the report.Now lastly, I wanted to touch upon and highlight a topic that we believe is important for you to understand really the underlying value of the asset portfolio. And it's referred to the post PPA value of our assets basically. And we see it in the industry now being discussed quite a lot. As you know, we have power purchase agreements, covering 20, 25 years, but the technical life of the solar power plants is expected to be at least 35 years. And we have secured land rights for at least 35 years. So we have the opportunity to continue to sell power also after the end of the PPAs.The market power prices are expected to continue to increase, I think, especially across the emerging markets where we operate and we have these plants. And obviously after 20 years, the marginal cost of these operating these solar plants are very limited. We have -- they're fully depreciated at that time. There's no debts related to these plants. Obviously, there's no fuel costs involved and the cost of operating is limited. So our ability to generate value from this -- these plants also after the PPA ends is significant. And I think also in the secondary market for assets, we see more and more value being attributed to this component. So we wanted to highlight that because we think it's relevant also for valuation of our assets.So Raymond, I would want to give the word back to you.

[Raymond Carlsen, Chief Executive Officer]

Thank you. That's very kind of you. Yes, final lap, outlook and summary. I guess, this is a topic that I've touched on for the past few years. So cost of solar energy continues to come down and that happened last year as well. But there's something else happening right now. I mean, we're not above every other source of energy. We're, at the moment, at the bottom in terms of cost per kilowatt hour produced. And that has some significant impact on the establishment. Because if energy produced and the cost of it doesn't have any competition, then it actually stimulates, motivates those that depend on electricity to carry out the business to look at solar in a different way. And we see that -- that allows us to sort of use our imagination or rather you have to talk to new customers to listen carefully to them how can we actually generate a partnership together that will allow you to tap into this low cost of energy.So it does something to the complete structure. And I'm not going to use the word revolution, but if you follow this and try to remember my words, if you follow this over the next 5 to 10 years, you will see that there will be dramatic changes to the established structure on how energy companies, the industry are actually approaching the subject.But before I move into the slide, I will debate a bit about it. Just let me dwell a few seconds on this slide. We have now reached 4,500-megawatt of pipeline. I would say, this is a high-quality pipeline. And from last quarter, it is up 600-megawatt. We have become even more systematic when we are assessing opportunities. And for us, of course, every opportunity we look at, that is a failed opportunity is something we shouldn't look at. But of course, not everything in this pipeline is going to transform themselves into a project that will be standing there, producing electricity for the next 20 years. But I mean, it's a very vibrant market at the moment and our business team is extremely busy in our market segment that you see on this slide.Now back to what I just opened with. We see several and many market opportunities with corporate offtakers and there are different types of corporate offtakers, some of them are big, some of them are small. If you look to the left there, it says, wheeling. Well, that means that you are using a grid highway to transport electricity, meaning that you can put a plant out into a rural area and you can take out the electrons 200 kilometers away where the user is. It's not the same electron that is being produced, but the way that the system is put together is that you can actually make a transaction that allow you to take out that electricity elsewhere. This is in operation in Europe. I mean, you know that you can actually buy hydropower type of electrons in Norway and take them out, lighting your house in Germany, for example. I mean, it's the way that the energy market operates.This allows us actually to build solar plants where the land is cost competitive, and then find customers, maybe corporate customers elsewhere in that particular market, extremely interesting. But of course, you have to have a regulatory regime that it allows you to do that.On the next one, and that is what I call behind the meter production. It's like when you put a solar panel on your roof, you produce to yourself, you store in the battery and then you consume when you need it. Excess energy. If the utility company allows this, you can actually export and get some income from utility. So we are talking to many companies at the moment, large users in several big markets, where they really see that solar is going to give them a predictable power contract that will also secure their basic business, that some of them -- actually the cost is up to 50% of the cost just for electricity payment. So here, we also see an interesting market opportunity for us.And then to the right. I mean, did you really know that 250 gigawatts of power are being produced from diesel-generated engines in Africa. It's a massive amount. And they are not buying at the level that we are selling power at, $0.06 per kilowatt hour. They're paying $0.20, $0.25, $0.30 per kilowatt hour, the poorest people in the world. Is that right? No it isn't. It doesn't make sense. Of course, now we can offer opportunities, where you have distributed generation, maybe some batteries, maybe in harmony with an existing diesel generated because you need to have base loads, so maybe you can optimize the system. We -- in fact, we have developed optimization programs that allows us to actually tailor batteries and solar to diesel, so that we can actually show them how much we are saving. This is a tremendous market. Of course, in this instance, we're not talking about sort of the typical debt financing that we're using for big plants. We will probably put and look at the platform financing that you can finance many plants under different types of financing scheme. But this is something that we're working on and I hope that we will be able to share some details about that later on.Now we complain about politicians to certain extent. I mean, they're good too. But sometimes they are not showing the way. I mean, they are a bit slow out of the box when it comes down to renewable energy and that kind of thing. Now what we see here is that these are 100 leading companies and there are many more in addition, but these are the initiative -- initiating companies that have decided that all the electricity that they're going to buy is going to be 100% renewable. This group has grown out to almost 200 companies. And you see on the right-hand side that many of these are in Europe, where you have the regulatory regime that I just talk about that allow you to distribute electrons a bit more efficiently, but you see also the growing -- the emerging markets are going to follow suit.Now what does that do? Well, it tells the world that the serious companies are making up their mind on what to do, but as a different factor. Because in the growing economies, they want the investment. They want some of these companies and other companies to invest. When they come in and negotiate, they say, "Well, you have renewable energy?" No, we don't. I mean, we have some brown coal type of energy. "Well, sorry man. I mean, we're not investing." So it actually will change the behavior of some of these politicians in those countries that are emerging. Meaning that they will move quicker into renewables that they would have done otherwise. The good news is also that by doing that, they are actually producing electricity at a lower cost.Vietnam is a very, very good example. If you look at their energy plant, they have huge plants in establishing coal-produced power plants. This plant is now under revision and it can be replaced by -- to a large extent by renewable energy.We have -- Scatec Solar has a growing number of shareholders that are asking us about sustainability and how we fare. And I have decided that since it's sort of the yearly review, our presentation as well to share with you a couple of slides that is -- that gives you a bit of view into our sustainability report that will also be published to the market along with the annual report. So this is actually a part of how we grow our business. We work extremely closely with the local communities. And Honduras, you know that we had some issues there and they were largely connected to a situation on the ground, where we didn't fully comprehend on how to interface with the local community. We spent a lot of money to a certain extent, but more importantly, we spent a lot of time actually interfacing with community and making sure that they could trust us. I think I mentioned this before, but I mean, some of them thought they would get cancer from solar panels, that the solar panels consumed all their water. Of course, it didn't. But of course, this is the world that we're in. So this has actually come out as a very successful initiative from us.In Mozambique, we also implemented a livelihood restoration program, 220 household, and this is in line with IFC Performance Standards. I mean, those are the standards that we applied to all our projects.And then finally, the largest project in Africa in -- maybe in the world. I mean, if you add all the projects that is being built together, we have 400 out of 2,000 megawatts on this location. Also, here, we have spent a lot of time in actually bringing our performance and how we work on our programs up to a very high level or high level. And it has been a success. And in fact, I got the message this morning that we have just passed another inspection because we are being inspected and we are not doing this in isolation. Lenders, partners, everybody is making sure that because they have the same interest that we are performing well.Six million hours -- man hours across 10 projects in 9 countries was actually produced last year. Lost time incidents 3, that's 3 per 1000 -- 100,000 hours, sorry. And we created 6,000 jobs. I mean, some of these people will have learned a skill set that will allow them to earn income for their families later on as well. We've seen that in Africa -- in South Africa, and maybe 80% of this 6,000 people were unskilled. They haven't worked before. So -- and -- I mean, we're used to HSSE in the North Sea. I mean, you have blue collar, white collar, you have workers, you have office people. Workers in Norway are different from unskilled workers in Africa or in South America. I mean, they haven't done it before. So you need an extra effort to make sure that you're actually taking care of these people, so that they don't get hurt.Now to this slide, transparency is essential. So that's why we have really, last year, increased our efforts into this area. We have signed an agreement to be a member of the UN Global Compact initiative. It covers human rights, labor, environment and anticorruption.Secondly, climate reporting. We are -- this we'll do in May report to the Carbon Disclosure Project and that is a standardized reporting platform. We cover all aspects of sustainability, and it will be available for you and every other stakeholder to look into. And if you compare from year-to-year to see that we -- and you should expect us to improve.We have -- maybe as one of the first companies in Norway, we signed to the UN sustainability goals. We have selected 6 or 7 of those that we are actually comparing ourselves to. It's also covered well in our sustainability report.And then finally, there was a ranking made by 100 largest listed companies in Norway. We ended up among the top 15, and we hope that we can actually move up on that list next time we're being evaluated.So to the final slide. I mean, the performance is -- I think, it has been a good performance and the results -- as Mikkel showed you, our financial results are very good. In operation, 584. Under construction, as I have told you before, 1,071-megawatt and backlog 225. The pipeline has increased by 600-megawatt. And if you look to the right, we guided in June to be up to 3,500-megawatt in 2021. We're up to 1,700. So we have to add to reach that goal or even outperform that goal, who knows. Add another 1,800 megawatt to reach 3,500. The 1,800 megawatts are going to come from projects that is in the 4,454-megawatt pipeline. So it's about 1/3 that we have to bring into financial closure and build. Of course, the pipeline is not static. This pipeline it just increased by 600 last quarter, right? So it means that it's not going to be staying at this level. Hopefully, there will be movement and move into backlog, construction. And we have a backlog on the construction side of NOK 4.8 billion, as Mikkel said on the D&C side. Of course, new projects that are being financially closed will move into construction and will add revenue to the D&C segment.So growth is essential for us. In fact, these 4 blue bullets are the same bullets we showed as being the pillars for success over the next few years. And we have put in some information below that.Now on the third one, we're saying that 2019 for us is going to be a breakthrough year with regards to corporate PPAs. And then finally, we have talked about this a few times before, looking at how to create additional value to optimize the financing of the asset portfolio and enhance value. And it only makes sense for us to do that if you can actually create a value that is over and above what we would have expected. So -- and of course, the larger and the more coordinated the portfolio is, the better chance you have is to get a very good pricing for it. So we're working on that as well.So I guess, that concludes my presentation. And we are more than happy to take questions from you present here and from -- almost at the grid, I mean, than that.

[Andreas Bertheussen, Equity Research Analyst]

Andreas Bertheussen, Kepler Cheuvreux. Just regarding the pipeline right now, I guess, it's about converting pipeline to backlog as well in 2018. You mentioned corporate PPAs. Could you just provide some color on the development of the South African pipeline and the Kazakhstan pipeline and the Vietnam pipeline?

[Raymond Carlsen, Chief Executive Officer]

What was the middle one?

[Andreas Bertheussen, Equity Research Analyst]

The Kazakhstan.

[Raymond Carlsen, Chief Executive Officer]

To take the middle one first, the Kazakhstan pipeline is not really moving. So we are not prioritizing Kazakhstan for the time being.

[Andreas Bertheussen, Equity Research Analyst]

And on the Vietnam?

[Raymond Carlsen, Chief Executive Officer]

On Vietnam, we are working on several projects. I think Vietnam, as I just indicated, you will see growth, I mean, a fairly strong growth within renewables due to the fact that they are in desperate need for modern electricity and they do not want to build too many more coal-fired power plants. So you should expect us to come up with some more projects there. And that's the part of our pipeline. Projects in Vietnam is part of our pipeline. With regards to South Africa, I mean, if you follow the South African news, which I do every day, Engineering News by the way, it's a good site, you see that they are just about to publish a new energy plan, the previous plan under President Zuma had a nuclear. I think that has disappeared. Renewable will take a more prominent position. South Africa, for us, is a home market. This is where we really made the difference by building the first project for Africa, the largest and for ourselves. So we have a big pipeline of projects, very competitive projects at the right locations, meaning that there is capacity on the grid to receive our electricity. So for us, we're extremely hopeful. Good news from the Minister of Energy as well being very positive about the energy situation in South Africa. They have an issue with Eskom that they have to sort out. That's not really our problem really, but very optimistic.

[Andreas Bertheussen, Equity Research Analyst]

You expect the Round 5 to take place in 2019 in South Africa, the Round 5?

[Raymond Carlsen, Chief Executive Officer]

I mean, I'm not -- I mean, I follow South Africa, but I'm not a South African politician. So they have to go through this. So -- but I -- we think so based on what -- I mean, we didn't think so last year -- in the beginning of last year, but now we think so. It's been very good positive news flows from South Africa over the past few weeks.

[Andreas Bertheussen, Equity Research Analyst]

And the final question, if it is possible to mention some country names in the new 600-megawatt pipeline?

[Raymond Carlsen, Chief Executive Officer]

I'm sure it's possible, I'm sure. Well, just maybe hold your horses a bit, but I have certain number of countries in the world and...

[Mikkel Tørud, Chief Financial Officer]

I think also to add, there's new opportunities within existing markets as well in that increment.

[Preben Rasch-Olsen]

Preben Rasch-Olsen, Carnegie. Interesting to hear more about the terminal value you see out there and just a few questions. First, can you give us some reasoning behind why you think the market prices will continue up given that all the new capacity coming on stream is really you and wind with declining prices? And also, what do you need to put into the plants to make them operate for 10 more years? What kind of CapEx should we expect for having 30 instead of 20 years of production?

[Raymond Carlsen, Chief Executive Officer]

To take the -- I mean, the panel stay last and they are projections and then even guarantees that go beyond the 20-original years, 25, 30 years. So that is not my concern. What would normally -- what you would normally take us as an operating cost is the invertors. They have a certain lifetime and you have to replace them, you have to put that into it. And then Mikkel may want to add something to your first question. And that is, yes, we expect the power prices to go up. It doesn't mean that we assume that power prices should go up for us to make this a good business case. Our marginal cost is 0 plus. I mean, it's not much. So we think that we will be competitive with any other type source of energy because we don't have fuel costs. We have few guys that are running the plant and as you indicated, I mean, some invertor costs and that kind of thing. So we will be very competitive. And remember, all the loans and everything else is payoff. So we will be flexible. And I think it's going to be quite profitable, but I mean, that is yet to be proven.

[Mikkel Tørud, Chief Financial Officer]

Yes. No, of course, just going to say that, of course, we agree that there will be a lot of growth in solar and wind in the years to come. And the question is, of course, what will be the technology then. Setting the price of power in any given market in 20 years is, of course, a bit challenging to answer that question. But there will be -- of course, we believe that we are not going to set the price with our portfolio or with our -- with the solar. That will probably not be the price setter.

[Raymond Carlsen, Chief Executive Officer]

We also see -- I think, you mentioned, I mean, we see transaction out there in market, where the life after the initial PPAs actually put into as an element in pricing. In fact, that was done when we sold our Utah plant.

[Unknown Analyst]

[indiscernible] Arctic Capital Management. Corporate PPAs, can you give us some flavor and kind of when can we expect some news in which geographies and the magnitude of those projects typical and how much could they move the needle financially?

[Raymond Carlsen, Chief Executive Officer]

I'm not sure if I want to share with you where we're actually negotiating, but they are in fairly substantial markets. The contracts maybe in between 50 to 200 megawatts, so they are substantial, I mean, utility of scale. The difference here is that -- I mean, when we're -- in the past, we have said, okay, there is a PPA, there's a 20-year period and there you go. And we don't really need to understand the customer. We just need to understand that they will be able to actually take the electricity produced and then distribute it to whoever consumes. When you talk about corporate PPAs, you have to listen carefully to the needs of your customer. Number one, they may not want to enter into a 25-year contract. They may have a different business cycle at their end. So you have to understand that. There could be tax or write-off situations or I mean, any -- they could particularities linked to that company that drives their decision behavior when they're moving into a contract. And also, you have to show them some comfort with regards to how the general market is going to -- or is expected to behave when you're entering into contract. Putting all that into perspective and then implementing into an agreement that we could live with and that they can live with is a challenge. But I think, we have found ways to do that, but it will vary from customer to customer. And the PPAs will also -- not with 20 years, it will probably be shorter. So you could have an element of hedging there, I mean, different things that is going to reduce our risk, but still give the customer the opportunity and some flexibility when they enter into a contract with us.

[Unknown Executive]

We have a question from the web from Petter Nyström, ABG. How should we expect working capital to develop in the first half of '19 and for the full year 2019?

[Mikkel Tørud, Chief Financial Officer]

Yes, we will continue to be very active on the construction front throughout 2019 as I mentioned, and, of course, also to -- in the years to come. But -- and then to specifically on the first half of '19, I think, we'll be fairly stable from a working capital perspective, probably some reversal on some of those positive movements we've seen later in 2019, that would be how we see things at the moment, yes.

[Unknown Analyst]

[indiscernible] from Nordic. Back to the corporate PPAs. A few companies that argue that if we are producing our own power, it can be in different country. And then in effect, we will be energy neutral. So how would you -- I mean, based in your discussions, would you say that your discussions are with clients that would like to produce in a physical way like it's the same amount that we produce and we use? Or would they mean a bit flexible? You understand the question?

[Raymond Carlsen, Chief Executive Officer]

Let me try and then you can correct me if I missed the point. You don't -- I mean, you can have a facility that produces more than the one that you enter into the contract with is requiring. So that's the part of the picture. We -- you will be able to sell a part of that to the open market, then you have to understand how that behaves and you put that into the mall, you risk it as well. So I'm not sure if that's what you asked about.

[Unknown Analyst]

It's about how willing are you to take on more amount than they use physically at that site? So -- and does it has to be a link between -- I mean, they can have consumption in Europe and then in Asia. And then if they build 1 big plant in Africa then, then the net position on energy will be neutral, energy neutral food plants, where is more physical need.

[Raymond Carlsen, Chief Executive Officer]

Yes, I think that from the company, the regime isn't like you can exchange electrons from Africa to Australia. But I think, on the carbon, what you call it, carbon landscape?

[Unknown Analyst]

Accounting?

[Raymond Carlsen, Chief Executive Officer]

Yes. I mean, if you sort of reporting as a company, how you are actually -- if you are carbon neutral globally, of course, you can add those up as a management account. But you can't really, at the new operating level, get the same kind of thing. So yes, you can get benefits from that, and I think a lot of companies do.

[Mikkel Tørud, Chief Financial Officer]

Okay. If it doesn't sound to be -- look to be any further questions. So thank you.

[Raymond Carlsen, Chief Executive Officer]

Thanks very much for your attendance.