Orron Energy AB

STO:ORRON

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Robert Eriksson, executive]

[indiscernible] There will be a presentation by CEO, Daniel Fitzgerald and CFO, Espen Hennie followed by a Q&A session. And the questions are asked by using the Q&A function at the bottom of your screen. So not the chat function or raised hands, but the Q&A function and we'll make sure that all your questions are answered.

And with that, I would like to hand over to Daniel Fitzgerald.

[Daniel Fitzgerald, executive]

Thank you, Robert. And it's a pleasure to be here, as always, to share some updates from the company what we've done during the quarter, and what we're looking forward in terms of focus areas for the following quarters to come and our view on the markets also within both of those periods. I think important to start with Q3 being a really mixed quarter for the company. I think the third quarter of this year was really challenging for the whole industry, for the whole renewable sector with a mix of challenges around lower electricity prices, certainly in Europe and across the globe, lower gas prices, we've seen increasing interest rates, increasing CapEx costs.

And that ultimately has put some pressure on the industry in terms of returns and cash flow. And I think for us to come out at the end of the quarter, we have seen the impact of that. And as we go through the slides, I think we'll share a little bit more around the market conditions and also where we sit within that framework.

On the other side, though, it's been a really good quarter of progress for the company. I think we've made really good inroads in our strategy. We started out with a strategy back in 2021, and we're fulfilling some elements of that through this quarter and through this year, and we're starting to see the results of some of the seeds we planted on the back of acquisitions in 2020 or earlier this year, we're starting to see the fruits of those processes coming to fruition through the quarter as well.

So I think we'll spend a bit of time going through both sides of that story in this quarterly results, and I'm joined by Espen Hennie, who will touch in more detail on the financials for the quarter and the liquidity of the company. If we start quickly with the strategy of Orrön Energy, and I think really important in market conditions like this to challenge and understand what we're trying to do as a company. And I think we remain unchanged in what our strategy was from when we first considered this business back in 2021. And we remain resolute on what we're trying to achieve with the company. And we are a pure-play renewables company, but that hasn't changed and that won't change.

We are diversified across technologies. We took an active choice back in the beginning to stay in the proven low-cost onshore technologies, and we now have a platform of onshore wind, onshore solar and working towards batteries, which are proven low-cost technologies. We took a conscious choice not to step into the exposure of offshore wind. And I think we're seeing the results of some of that through this quarter across the sector, which is really putting growth under a spotlight across many companies. The core of this business is our operating assets, and we'll touch on it a little bit as we go through, but we will grow our production base as we come into the tail end of this year.

We've added significant volumes over the last year through acquisition. And with Karskruv coming online, we will meet that 1,100 gigawatt hours target for next year. And that gives us a really solid platform for the business and generates cash many decades into the future. So a really important part of our business continues to grow, and we continue to see accretive deals even at low electricity pricing like we've seen year-to-date this year.

I'm pleased to share more and we'll touch more on it during the presentation on the greenfield growth platform. And we've shared today that we have a portfolio of over 30 gigawatts where we've already secured grid connections in the U.K. and a portfolio in the Nordics as well.

That large-scale portfolio is again across the onshore proven technologies, primarily solar and battery across Europe, solar battery and wind in the Nordics. And we see those 2 elements of our business, both the producing assets and the greenfield development as 2 areas where we still see really strong returns even in low markets. And finally, the work that takes us a little bit longer to come to fruition, but is amongst the most accretive in terms of economic returns is around our organic growth platform. And post acquisitions, we've really been nurturing these platforms and adding competence and capability into our teams to continue that organic growth platform. And we will start to see the results of that as we enter 2024 a little bit more -- in a bit more detail.

And so as a summary, our strategy remains unchanged as a company. I think the areas that we're focused on, we still see value in markets such as these and in quarters such as these. And we'll touch on that a little bit more as we step through each of the parts of our business. I think importantly, before we start on Orrön, we need to go and have a look at where the market conditions are sitting today. And I think if we roll back towards the end of 2022, which is the left-hand side of this chart, we see the tail end of the energy supply crisis. And that crisis in primarily quarter 3 and quarter 4 of 2022 showed a really high energy price on the back of shortages of gas, on the back of the Ukraine-Russia situation.

And really through the early parts of this year, we've seen the price normalizing back from those high prices at the end of 2022, and that's on the back of a mild winter leading into gas storage being full and gas prices being low through the summer. The demand destruction we saw at the end of 2022 has factored into weak demand in the summer of 2023. And I think that was coming to a relative plateau, and we saw a number of events in the early and middle stages of quarter 3. We saw Storm Hans in the southern part of the Nordics, which delivered a 50-year storm, a storm that's once in 50 years. It contributed to large-scale flooding across the southern parts of the Nordics and the filling of hydropower reservoirs across the same region.

And what that meant was a disconnect between gas pricing and Nordic and European pricing and where the Nordic power price was. And you really see that dip towards the tail end of Q3, where Storm Hans had a big impact. And around the same time, we saw the impact of the Orsted announcements in the U.S. pushing market sentiment really negatively towards renewables.

So we're sitting in Q3 with a market sentiment and pricing that's quite negative, but as I look forward, we see -- we're starting to see the emergence of green shoots on this front. We're starting to see the colder winter hit Europe. We're starting to see demand increase. And we're starting to see futures pricing and gas pricing picking up. And you see that just on the right-hand side of this chart.

And as we move from the historical pricing into the future, I think it's really interesting to note that in all of the countries in which we're operating, so Nordics, Germany, U.K., primarily today in France follows that story that the current price levels are not where the market is forecasting things into 2024 and beyond. And so we see a futures market that is a lot more bullish than where we see pricing today in Q3. If I couple that with the energy transition and this forms a fundamental view that we have within the company and within our strategy is that for the energy transition to happen, we need to see pricing that incentivizes some of the technologies that are sitting in front of us. And at the low pricing we see in Q3, there's not many technologies available that produce strong enough economic returns to finish the energy transition.

And I think that's clear on the right-hand side where you see the breakeven cost or the levelized cost of energy for offshore wind is significantly higher than even where the futures market is sitting. Our view is that the future price of energy must be at a level where we incentivize the energy transition to happen. And so this futures price, in our view, is probably at the lower end of where we expect markets to be as we roll forward. And in that price point, which is significantly higher than Q3 2023, we see strong returns again from all of our business. So as I touched on market sentiment and market conditions have been quite difficult in Q3, but as we look towards the future, we're starting to see the shoots of recovery coming into Q4 and Q1.

And that sets us in a really positive outlook when we look at the work that we've been doing through the course of 2023 to build the core of our business. If we look at the 9 months highlights then, so stepping more into Orrön Energy. I'll touch on the 9-month highlights and Espen is going to go into a bit more detail on the quarter, the cash flows and the performance.

At the end of Q3, we delivered 500 just shy of 540 gigawatt hours of power generation. And what we've seen on power generation, slightly weaker Q2 and Q3 due to wind speeds. And as we look towards the full year, we're on track to deliver the 800 gigawatt hours where that lower-than-expected wind speed is offset by early delivery of Karskruv, and also some acquisitions that we've made through the course of the year. So we remain on track to deliver 800 gigawatt hours of production through this year.

EBITDA for the 9 months has come in at EUR 4 million and an achieved price of EUR 49. And Espen will touch on that during his slides to go into a bit more detail of the cash flows.

And really importantly, as well, we sit at the end of the quarter with EUR 66 million of net debt. And also importantly, around EUR 90 million of liquidity headroom beyond that which allows us to invest the final capital into the Karskruv program and gives us ample headroom for accretive growth as we move into the future. If we look then on the operational side of the business, we're now expecting handover of the Karskruv project towards late November, which is ahead of our original schedule. We've touched on the U.K. platform and the Nordic and German platforms where we've secured over 30 gigawatts of grid connection, and we're seeing benefits in both the Nordics where we already have almost ready-to-build projects, and in the U.K. where we have a much larger scale, and we'll touch on both of those as we go through the presentation.

We start with Karskruv. Karskruv has been a fantastic project for the company and a great acquisition by our predecessor company when we acquired it. All turbines have been producing power since August of this year. And Vestas and OX2 who are delivering and managing the project on our behalf have performed fantastically over the course of this year. We're in the final commissioning stages where performance testing and final handover inspections are largely complete, and we expect, as we touched on, handover before the end of November this year.

Karskruv adds 290 gigawatts of net production to Orrön Energy and importantly, in the SE4 price region. And that's an uplift of 40% on our power generation for the full year of 2024.

These Vestas turbines and their 4.3 megawatt turbine, which has been in operation for a period of time before. So it's not brand-new technology. We're not expecting to have teething issues like we've seen on some other suppliers and some other platforms. And so this project really has been fantastic. And we put a little chart in the middle of this slide, which looks at the valuations of Karskruv relative to our Orrön Energy as it stands -- as it stood at the end of the quarter. So we acquired Karskruv for around EUR 125 million and at a price point of EUR 1.5 million per megawatt installed capacity. If we look at transactions in the market today, OX2 sold a project in SE3, which is a lower priced region than SE4 for EUR 2 million per megawatt in September of this year.

So if we just apply that valuation to Karskruv, which is effectively ahead of where that project was sold. So in my mind, a conservative valuation, we end up with a market value of Karskruv based on that transaction of around EUR 170 million, which is EUR 2 million per megawatt installed capacity. Orrön Energy today is EUR 260 million worth of enterprise value. So Karskruv on this valuation alone based on the market in Q3 sits at almost 70% of the enterprise value of Orrön Energy and only makes up around 26% of our production. And so that puts us in a place where our view as it always has been at these share price levels is that Orrön Energy remains fundamentally undervalued compared to the valuation on the underlying assets within the business.

Looking at production as we move into 2024. So as I've touched on, we moved from 800 gigawatt hours in 2023 to 1,100 gigawatt hours in 2024. And you can see here the impact that Karskruv has on that, where we see production moving up in the SE4 price region. And SE4 has always commanded a premium to the system price in the Nordics. And based on futures today, that's almost 45% higher than where the Nord Pool system price is. So it is really an important addition to the company where we see not only increased production, but also increased revenues and EBITDA on the back of Karskruv, which has a very low operating cost compared to the remaining portfolio for Orrön.

And when I look at our historical production, we see, as I touched on before, Q1 was a relatively strong performance. We've seen the weaker wins in Q2 and Q3. We remain on track to deliver the 800 gigawatt hours of production, and so we will see an uptick in Q4 of this year, and that will include the contributions from Karskruv and contributions from seasonally higher wind speeds, which we expect to see within Q4 as well.

Touching quickly on the remainder of our Nordic core business. We set out with a strategy to grow through acquisition within the Nordics and to grow organically. So both of those elements are working really well within our Nordic business. We acquired another asset in SE4 price region in Q3, and that will close in Q4. Small transaction but adds really accretive volumes into the portfolio for Orrön Energy.

And if we look back over the last 12 months, we've added 100 gigawatt hours worth of production over these -- the aggregation of these small transactions, which on our 2023 production is around 12.5% of our production base. And so that really, over time, is going to deliver significant value if we're able to accretively acquire producing assets in this market. We also spend a lot of time organically both building a pipeline and optimizing revenues from our existing asset base. And we're starting to see the fruition of some of that work in the quarter. So MLK, we're just about to sign all of the agreements to put MLK into the ancillary services markets. And that will provide some down regulation services that ultimately adds a small percentage to our revenues from MLK.

We're going to do that across our Karskruv project once it's online in the early part of next year, and we're looking at the remainder of the portfolio to add these services in. In and of themselves, they're not a material change to the company. But like we do with the acquisitions, when we aggregate that volume together, it does make a material impact on our underlying revenues.

And our project portfolio continues to grow. Pleased to announce that we have almost 30 megawatts worth of battery projects, either with permits fully approved where we have access to land and grid or in the permitting phase. And we're going to start investing in some of those projects, which are an important diversification of revenues where we can take revenues out of ancillary markets, ancillary services markets and power arbitrage alongside our wind business.

So we will continue to see this organic growth and inorganic growth platform working in the Nordics, and it will take time to grow. However, we're starting to see the results of that already in our business as we enter 2024.

And finally, on our portfolio, pleased to share a bit more detail around our U.K. platform, which has taken some really important steps during this year and during this quarter. We announced this morning that we have over 30 gigawatts worth of grid connections, and we're working at the moment to secure the land positions alongside those. There's 31 projects spread across mostly Southern England, where on average, we have 1 gigawatt worth of solar per project and around 500 megawatts of battery per location, sorry, rather than project, and we have 25 locations.

That's a material scale portfolio, one where we're actively working to firm up not only the land side of things, but also the pre-permitting work. And based on valuations in the U.K. of a portfolio such as this or transactions such as this, this could be a material impact to Orrön Energy.

Now I'd love to invest in 30 gigawatts worth of projects in the U.K., but given the depth of funding required is significantly higher than the resources we have within Orrön, we're aiming to monetize these projects at specific intervals to ensure that we can recycle capital from this platform into other accretive growth. And so as we hit ready to permit or ready-to-build status on these projects, I think you should expect that we look for options to monetize portions of this portfolio moving forward.

And when we work back from the grid dates you see here, the connection year in the table, I think we should expect somewhere 4 or 5 years for ready-to-build status prior to the grid connection date, and then 1 or 2 years before that fall ready to permit. So we could already be seeing some of the fruits of this portfolio coming to market in 2024 or 2025. It's a really exciting platform. We've got a great team leading this part of the business. And it will be interesting to see the developments of this and our portfolio in Germany and France, which are following closely behind as we move through the coming quarters. And if I put all of that together, just before I hand over to Espen, the summary of the company today, we have 310 megawatts worth of producing assets where we're constantly looking at options to optimize, whether it's new projects against existing portfolios of assets utilizing grid connections in a more effective way, looking at life extension, repowering, upgrades to turbines, there's many ways that we can squeeze more value from that portfolio.

On the development side, the Karskruv project is here, which is a majority of that. And behind that, we're starting to see our first battery projects coming to market and coming to investment decision. Behind that, we've got a large-scale pipeline within both the U.K. and the Nordics, which then sets up the future growth in a different revenue stream for the company. And finally, important to mention the Sudan case, I believe, before we move forward, I think we came -- we announced during the quarter that the trial had started on the 5th of September. And it's really important for the company to be in front of the court and in front of a set of judges alongside the defendants to ensure that we have the ability to defend ourselves in court.

Having spent some time in court and constantly receiving updates and firmly of the view even more now that this will result in full acquittal of the individuals who are currently accused, the substance behind this case is just not there, and the allegations are unfounded against both Ian and Alex in this regard. And -- so when I look at our process over the next number of years, it's great that we have the ability with a team of lawyers behind us to defend ourselves. And I'm absolutely convinced that the right outcome will come out of this. We also announced during the quarter that the prosecutor had increased the forfeiture amount on the company. And my view is that this -- we will never be in a position where this is to be paid. For the forfeiture to be paid we need to get into a guilty verdict for this, which is just not in the realms of possibility, not in my mind.

I believe it will result in a full acquittal, which means that the forfeiture will become not payable at all. Even the amount of forfeiture. I think this is the third time the prosecutor has changed his mind on a methodology behind it, which raises serious questions on the substance and credibility, not only of this claim, but also the case. And so our view has been unchanged all the way through this time and remains unchanged today on the back of effectively no new data. So looking forward to the end of this process, looking forward to the full equity and then hopefully, we can move on without the Sudan case sitting behind us.

And so with that, I'll pass over to Espen to cover some of the financial results of the company within the quarter.

[Espen Hennie, executive]

Thank you, Daniel, and good afternoon to everyone. I'll go through the financial highlights for this quarter and also touch into the liquidity, cash flow and some of the outlook. Starting here with power generation and achieve price. As Dan already has alluded to, we had a slightly lower-than-expected wind speeds for the quarter, which resulted in power generation of 161 gigawatt hours during Q3. But importantly, we are reiterating the outlook for 800 gigawatt hours then on the back of Karskruv coming online during Q4 and also smaller impacts from acquisitions during the year.

Achieved price of EUR 23 per megawatt hour for Q3, as we already have discussed and Daniel has presented. I mean it was a very abnormal quarter in terms of pricing, heavily impacted by low seasonal demand, soft gas prices on the back of record high inventory levels throughout Europe. But I guess, most importantly, Storm Hans, which had a very material impact on prices from August onwards. So that led to quarterly revenues on a proportionate basis of EUR 4 million and an EBITDA of minus EUR 4 million for the quarter. And we'll touch a bit more into the details of that and also on the achieved pricing in a later slide.

Very important to note that we ended the quarter in a very -- in a financially very strong position, proportionate net debt of EUR 66 million as of the end of Q3. If you compare that to our RCF facility, our external revolving credit facility of EUR 150 million before including any accordion options, it's clear that they have a very significant liquidity headroom, which gives us a lot of resilience and also provides flexibility going forward. And if we -- if we focus forward, if you look forward and have peak into 2024, it is very important to note, as we have said before, that we don't have any firm capital commitments from '24 onwards. We have a lot of flexibility. We have a lot of discretion when it comes to capital investments, and we will only invest and allocate capital into value-accretive projects.

The only firm cutting stone capital commitments we have going forward is the remaining CapEx for Karskruv, which will occur during the current quarter and is expected to be just shy of EUR 20 million to get that project fully online. It is actually online already, but handed over to us, which Daniel said in a matter of weeks, we expect that to occur during the current month. And on the back of Karskruv, we will see a 40% increase in power generation for 2024. And with all of that power generation coming from SE4, which is a high-priced region in Sweden, this obviously will have a material impact on our revenues and cash flows going forward.

Just a quick glance at our year-to-date performance versus our guidance metrics. The conclusion is as also has been the case in the previous quarters that we are indeed performing according to our plans and guidance, and we are now reiterating our guidance on all these parameters. We have year-to-date operating expense of EUR 10 million versus a full year guidance of EUR 12 million to EUR 14 million. So if you just look at the year-to-date actuals, we now expect to be either in the EUR 13 million (sic) [ EUR 12 million ] to EUR 14 million range for the full year. G&A expense of EUR 7 million compared to full year outlook of EUR 10 million. And then Sudan legal cost of EUR 5 million so far over the [ 3 first ] quarters this year. And we are also reiterating there our guidance of EUR 8 million for 2023.

Capital expenditure so far this year of EUR 56 million, where the lion's share of that is the Karskruv development. And that is also making up most of the remaining part, leading us up to the EUR 80 million guidance for '23.

And as I said, just shy of EUR 20 million is what we expect to spend on Karskruv, a remaining committed cost for Karskruv, which is fixed cost. So we don't have any inflation risk or any risk of cost increases there for that project, which Sudan is expected to occur during Q4. We are reiterating our full year CapEx guidance of EUR 80 million. But if anything, we see some risk of ending out slightly lower than the EUR 80 million for the full year because there might be a situation where some minor parts of our CapEx transfers or slips from '23 into '24 without any -- without any impact on our operational performance. So if anything, we might be a few million shy of the EUR 80 million for the full year.

Then I look at some of the key financial metrics in this quarter on Q3 compared to the previous quarters. We start with revenues. And if you look at the top of the 3 bars to the left -- at the left hand of the chart here, you can see power generation in Q3 of 161, as mentioned. That's very similar to what we had in the second quarter. But then the achieved price was significantly lower now in Q3 due to the factors already mentioned. So that sort of -- that significant downtick in prices is explaining also the shortfall or the variance in revenues from Q2 to Q3, where we had Q3 revenues of EUR 3.6 million compared to EUR 9 million in the preceding quarter. And the same variance is explaining also the difference in EBITDA from Q2 to Q3 and with the Q3 EBITDA then minus EUR 4.3 million.

And we also see, obviously, the same pattern in the consolidated reported cash flow from operations. If we look at CFFO, excluding working capital, that was minus EUR 2.9 million for Q3 and with a very small benefit of received dividends. As we have said before, the receipt of dividends from our JVs will be lumpy, and it will vary significantly from quarter-to-quarter. CFFO, including working capital, was positive EUR 1.2 million for the quarter compared to then minus EUR 2.7 million in Q2.

If you dive a bit more into the details on the achieved price for Q3, starting with the average system price. So the average price in the Nordic region during the quarter was EUR 28. Again, very low price and impacted by the factors that we mentioned. And we are very glad to see that we've already seen a significant improvement in both in spot pricing and also in the futures market for '24 and beyond.

If you look at the spot price for our portfolio, so the regional, the average spot price based on our production during the quarter, that equaled the system price. That was also EUR 28 per megawatt hour. On top of that EUR 28, we had a positive impact of EUR 1 per megawatt hour from hedges, but those are hedges that we have inherited through the acquisitions that we've done. And then on top of that, we have a positive impact or positive revenues from guarantees of origin, totaling EUR 4 per megawatt hour. And it's important to remember, we -- since all our production -- all our electricity generation comes from renewable sources, we received guarantees of origin on the total of the volume which we then in turn sell on the market. And for Q3, that corresponded to EUR 4 per guarantees of origin.

And then that leads to EUR 33. So if you start with the spot price at the hedging impact and the guarantees of origin, and to arrive at our achieved price, you see that we had a capture price discount or a cannibalization impact during Q3 of EUR 10 per megawatt hour. And if you look at that as a proportion of our spot price, it is an extremely high ratio. Indeed, if you compare that to the preceding quarter in Q2 is almost 3x on a relative basis compared to a spot price, and also twice what we realized in Q1 or what we experienced in Q1 in terms of capture price discount. And again, we had some abnormal situations during Q3 due to the Storm Hans with very, very high volumes of precipitation, meaning that you saw extremely high hydro production throughout the Nordics, both in Norway and Sweden. At the same time, as you also have wind production, which typically doesn't occur that often.

So -- and that really accelerated or increased the capture price discount and leading to, as I said, almost 3x the capture price on a relative basis as we saw in Q2. So we very much expect this to normalize also along with also more normalized price levels for the coming quarters. Then I look at our underlying cash flow generation for the quarter. This is on a proportionate basis. And as we said before, we think this gives a better quarter-by-quarter view on the underlying cash flow generation of our assets since it's not impacted by the receipt of dividends as is the case with our consolidated cash flow. If we start then with the revenues, including other income, that was EUR 3.8 million, and we had operating cost of EUR 3.3 million. So from that, you can see that our operating assets were generating cash for the quarter even in the very low price environment, which we had in Q3, and also then with lower-than-expected volumes.

And of course, this picture will improve significantly when we have the Karskruv volumes coming on stream with 40% higher volumes, with all of that being in a high-priced region. And as Daniel mentioned, with Karskruv OpEx being significantly lower than the average of our current operating cost for the portfolio. So that difference led operating assets resilience and operating margin will improve in the coming quarters. Then we had G&A of EUR 4.4 million after deducting certain noncash items. Out of that EUR 4.4 million, EUR 3.3 million is related to the Sudan legal case, which obviously is a transitory in nature. And as Dan just provided an update on and then the remaining, which is in EUR 2.1 million of G&A, a very large part of that are investments into growth and making sure that we have an organization which is set up for future growth and value creation. So over the coming quarters and years, both G&A investments is something we expect will generate value and cash flow for the company and our shareholders.

Leading on to the total EBITDA, including all the G&A, including, as I said, the Sudan legal costs and these investments into growth, into the organization of minus EUR 3.9 million for Q3. Had a small positive current tax impact of EUR 0.1 million, meaning that the quarterly operating proportionate cash flow was minus EUR 3.8 million. And then again, very much reflected then by the very low pricing and also slightly lower volumes than we were anticipating.

Interest expense on our external financing totaled EUR 1.3 million. And then we had EUR 15 million of CapEx for Q3 on a proportionate basis. With sort of the lion's share of that being related to the Karskruv development. So all of this taken together by minus EUR 20.1 million operating cash flow after interest and CapEx.

As I touched upon in an earlier slide, all our operating costs, G&A and CapEx is all in line with our guidance and expectations. So this is very much according to plan. And then obviously, revenues impacted by the price environment during the quarter. And as you can see to that minus EUR 20 million for the quarter, the big driver here is the cost of CapEx, which in a matter of weeks, will be fully behind us. And then we'll have these new assets expected to be -- to generate very strong cash flow for us for the next 30 years.

Moving on to our consolidated cash flow and also the proportionate net debt development over the quarter. So we entered the quarter with a proportionate net debt position of EUR 51 million. Then we had the CFFO or cash flow from operating activities, excluding working capital of minus EUR 2.9 million, had a positive working capital impact of EUR 4.1 million. And then cash flow from investing activities on a consolidated basis of EUR 14.5 million that also includes completion of our previously announced acquisition. And we also saw some small other impacts, including FX changes, which you always see from quarter-to-quarter. And on top of that, a small change in our JV cash balance is EUR 0.1 million. So all in, ending then with a proportionate net debt of EUR 66 million at the end of Q3. So it's very clear when you compare that to our EUR 150 million facility, we have a very -- we are in a very robust financial position, and we have ample liquidity headroom, which provides us with a lot of flexibility and opportunities and also resilience going forward.

And if we touch upon the total liquidity for the company as of the end of the third quarter, we had a cash balance of EUR 20 million. Our net share of cash in our joint ventures totaled EUR 7 million. And we have EUR 61 million, which is undrawn on the RCF facility, providing them a total liquidity of EUR 88 million or just shy of EUR 90 million at the end of the quarter.

And as I said before, the only firm capital commitment facing us at the moment is the remaining CapEx for Karskruv project, just shy of EUR 20 million. So again, that's just a testimony to the robust financial situation that the company is in.

So with that, I'll hand it over to Dan for some concluding remarks.

[Daniel Fitzgerald, executive]

Thank you, Espen. And I think as we conclude, just before we go into Q&A, I think it's important to take a broader view of the market as we did at the start. We saw hugely high pricing in 2022. We've seen the opposite of that in quarter 3 of 2023. And our view on the long term is that there needs to be more stability over a much longer period of time, we will tend to see a more stable price that allows us to invest for the long term, and the platform that we've built across this company is made up, as I touched on, the core assets, delivering 1.1 terawatt hours of power generation. Karskruv coming online, making a material difference to the company's cash flows for next year.

The development platform that we've built across multiple countries, large-scale assets, small-scale assets is going to deliver value over the coming years. And all of that together gives us a fantastic technical outlook and operational outlook for the company. As Espen touched on, we remain financially strong. We've got ample liquidity headroom, we've got discretionary future investments where we can choose the pace of investment to match the cash generation and performance of the company. And to have all of that together in a market such as this, gives us the opportunity to go and make investments into things that deliver accretive growth.

And as I touched on in the Karskruv slide, the valuation of the company today is completely out of sync with the underlying market value of the assets. And so it does provide opportunity as we look at the company as it stands. So with that, I think I'll pass back to Robert and ask Espen to come and join and we'll move into Q&A.

[Robert Eriksson, executive]

Thank you, Daniel. Thank you, Espen. And I'm happy to say that we have a lot of questions. I think we should get started with those right away. And there has been a couple of questions about being spot price exposed versus hedging? And would you consider doing hedging? And how do you see that panning out in the coming spring and winter?

[Daniel Fitzgerald, executive]

Yes. I think it's a very important question and hindsight is always lovely. Had we been in a position where we hedged at the end of 2022 and the volatility, we would have made an outsized return in 2023. I think we have been looking at hedging. We have been opportunistically looking at hedging as well. We're ready to hedge. And I think the question is a pertinent question that we're following up very closely internally.

If we see the conditions during Q4 and Q1 that allow us to take some of the volatility out of the summer months of next year without taking unnecessary risk against the company, then you should expect to see us take that view on hedging. Today, though, the price is still low, and it's on the upwards trend. So I think today is still not the right time to do it, but the company is absolutely ready to step into hedging should we wish to do so. And should we see the opportunity to do so.

[Robert Eriksson, executive]

Thank you, Daniel. And we also have a few questions on the Sudan legal case, namely around are there any milestones coming up in this case, which you can share more information. And what about costs? Should we look at the legal costs staying pretty much the same or increase or decrease?

[Daniel Fitzgerald, executive]

Yes. So as I've said to investors many times, if and when we get to the end of the case, it will be a fantastic outcome for the company. I think the case, unfortunately, in the Swedish system, the judge doesn't have the ability to throw out a case on lack of evidence. And so he has to unfortunately, hear the entire case. So we shouldn't expect too much information between now and the early part of 2026 when the trial finishes in the district court. Again, having spent time in court I'm firmly of the view that we'll see the right outcome at the end. But unfortunately, we'll have to wait to get there.

In terms of the cost progression, we guided this year around EUR 8 million of cost on Sudan to defend ourselves and the 2 former representatives. And we should expect that to continue while we're in the district court. So for 2024 and 2025, and then we should see a drop off thereafter.

[Robert Eriksson, executive]

Thank you, Daniel. So you have touched upon the subject of hopefully seeing rising prices during the winter months. But can you elaborate a little bit more if you have an actual forecast that you budget against?

[Daniel Fitzgerald, executive]

Yes, I think a good question as well. It's clear that volatility plays a massive part in our business. So we look at a range of forecasts, and I think I've covered this before we look at EUR 30 a megawatt hour in the downside. And we look closer to the EUR 70 or EUR 80 in the upside. And so we ensure that the pace of growth of the company is sustainable at EUR 30 and also that at EUR 80, we're not leaving opportunities on the table. So I think in terms of a reasonable mid-case price around that EUR 50 or EUR 60 a megawatt hour is probably a reasonable base case. In the short term, a little bit lower given where markets are today. Longer term, you're up towards the upper end of that when we look at analyst averages.

So we look at all of those outcomes to plan our business, and the beauty of our investment program looking forward as it is purely discretionary on how quickly we grow and how much we want to invest versus sell assets in terms of the greenfield. So we have all of the levers to play with, and we look at a range of pricing to ensure that we're robust in the downside, which is really important in markets such as these. And as Espen touched on the financial strength of the company is a real credit to the work that's been done.

[Robert Eriksson, executive]

And kind of a follow-up question to that would be if you would be able to provide an update on realized price so far in October and during the beginning of November?

[Espen Hennie, executive]

Yes. No, thanks for that. I guess I mean, as a starting point, we are more or less fully spot exposed. So we have -- I mean we are exposed to the spot prices that we've seen so far, they have improved significantly compared to Q3, and then will go into sort of public sites to have a look at the Nord Pool side to see how the actual prices have been improved significantly. We've also seen meaningful improvements in outlook for '24. So for the coming quarters, we expect based on what we see today, significant upticks in EBITDA and cash flow. And then on top of that, Karskruv coming online in a matter of days or a few weeks. I guess when it comes to cannibalization impact. As I said during my presentation, it was extremely high during Q3, partly due to Storm Hans impacting it and leading to 3x cannibalization impact compared to Q2. So we also expect that normalizing throughout the quarter. But I mean it's too early still to provide any guidance or outlook for Q4. And -- but again, given that we are more or less 100% spot exposed, that will be the best benchmark to look at.

[Robert Eriksson, executive]

Thank you, Espen. And we have the next question here for Daniel, I believe, and it's around the share buyback, a question that we get asked quite often. So a lot of your peers have started to do share buyback programs. Would you consider doing something similar? And do you have any restrictions from banks around doing such a program?

[Daniel Fitzgerald, executive]

Maybe I'll take the strategy and Espen, you can touch on the bank side. At this share price, it's difficult to sit still and do nothing, I think, is my first point. Like I touched on with Karskruv, if we take the current share price of the company should we be able to monetize Karskruv, which is still a very liquid market. We can pay back all of our debt and buy back half of our stock with just the value of Karskruv. So there is a disconnect between the underlying asset value and the value of the company.

I think share buybacks are always very interesting, especially if you can get into a material share buyback, but we're not at that point yet. And should we be, I think we'll announce something if and when we get to a point where we want to do such on buyback. Restrictions on?

[Espen Hennie, executive]

Yes. And that's a very short answer. I mean, we are in a position to do that if we wish sort of the criteria that Daniel has just mentioned are such that we find it attractive. So no absolute restrictions on that related to our financing.

[Robert Eriksson, executive]

Thank you, both of you. And the next question is about 2024 capacity growth beyond the Karskruv now coming online. Do you have a planned CapEx? And do you have a target for net debt-to-EBITDA multiple?

[Daniel Fitzgerald, executive]

Yes, I think we will invest in accretive growth. So that's the #1 target. And where we have both liquidity headroom and we see strong returns in our investments, we will continue to invest. So I think people shouldn't expect complete stop on growth, and we should expect some CapEx in 2024. We'll continue to invest in the greenfield business to some extent. And we will start to see, hopefully, some revenues out of project sales coming from that business as well. So the depth of funding towards that business will share more at the Capital Markets Day.

The same on M&A and investments into our own projects and growth in the Nordics. We'll share some more detail on our CapEx guidance for next year on the back of our Capital Markets Day in February.

[Robert Eriksson, executive]

Thank you. And here we have a question on equity issuance. Is that something you would consider in order to improve the balance sheet?

[Daniel Fitzgerald, executive]

I'm happy for Espen to jump in at some point, but absolutely not at this stage. Our balance sheet is really strong. We've got nearly $90 million (sic) [ EUR 90 million ] of liquidity headroom. Our assets are generating cash flows, and we've got a discretionary investment program. So at this share price level and with our balance sheet as it is at the moment, it makes absolutely no sense towards our shareholders to issue equity. So yes, short answer, no, we don't need to, and the balance sheet is actually really quite strong. Anything to add?

[Espen Hennie, executive]

No, I mean, I fully agree. I mean we have still leverage capacity within our portfolio. Daniel showed that the very significant mismatch now between our equity -- valuation of our equity and the underlying assets values for our key assets. So -- and we also have a very -- we are in a very robust financial position with ample liquidity headroom. So yes, there's no plans and no needs or there's nothing we're planning for or see the value over this point.

[Robert Eriksson, executive]

And the next question is around the different price areas in which we are active. So we are in SE3, SE4, Finland, Norway, et cetera, how should we think about average achieved price on -- compared to market prices going forward?

[Espen Hennie, executive]

Yes. So that's also what we wanted to show a bit more details in our presentations, which I went through earlier on the slide showing the bridge between the spot price and our achieved price. And as I think on average, our portfolio, if you look historically, our portfolio on average is expected to achieve a premium to the average spot price. And then you need to -- on top of that, we will always have some benefit from the guarantees of origin, which for this quarter was EUR 4, and it's been slightly higher also in the 2 preceding quarters of this year. And then -- from that, you have to deduct the cannibalization impact or capture price discount, which, as I said, was very high for this quarter above 30%, but that was -- have been under 15% in Q2 and just shy of 20% in Q1, which is more a normalized level, which we also expect going forward.

[Robert Eriksson, executive]

And the next question is about the 14 megawatts of permitted solar and battery projects. What are the plans for those? Do you want to sell them as ready to build, construct and utilize for in-house production, forward sales? How are you viewing that?

[Daniel Fitzgerald, executive]

Yes. I think the start of these battery projects make a great diversification against our cash flows. So when I look at the battery investments at this stage in the Nordics, we're looking investment-wise maybe around 700,000 per megawatt installed capacity. There or thereabouts as a market price changing for each asset. And we're paying back based on the ancillary services markets in and around a 2-year time frame. So these are going to be very accretive projects for us. And given we've touched on capture price discount, as Espen said, we're taking revenues from ancillary services, which is a completely different part of the market that in times of volatility has a much higher return.

So it's a great hedge against our existing cannibalization of the wind projects. So the smaller ones, you should see us investing ourselves. However, should another player be willing to pay a significantly higher multiple on these will look to farm down. So opportunistic, but the early-stage batteries, I think you should expect us to invest in ourselves.

[Robert Eriksson, executive]

And the next question is your peer group have commented during the results season about the divergent cost outlook of offshore wind versus solar and batteries. Does this make it more advantage to invest in the latter where the costs are falling versus wind projects?

[Daniel Fitzgerald, executive]

Yes. I think people need to take a view on long-term energy prices and where CapEx interest rates are going. I think you're right. The conditions for offshore wind are going to come back to a reasonable level again in my mind. So interest rates are starting to normalize. We're going to see some of the supply chain and inflationary pressure easing. So in the future, it will get better. But for Orrön, I still don't see the economic -- the strong economic returns compared to what we're doing. And secondly, we don't have the depth of capital to really go into offshore wind in a big way. So I don't think you should expect us to step into offshore wind. .

[Robert Eriksson, executive]

And the last question we have is quite a specific one. It's on Ukraine that will likely not renew contracts in 2024 with Russia concerning gas transport through the pipeline network in Ukraine. Do you see any impact from this on electricity prices?

[Daniel Fitzgerald, executive]

Yes. I think gas price has a huge impact on power pricing, for sure, across Europe. So the price of gas will influence pricing in energy or electricity markets, certainly in the Nordics as well. I don't think Europe has fundamentally sold all of the challenges of 2022 yet. And I think we will see some volatility as we enter the colder winter months, and we start to see the demand picking up. So for me, unsure as to exactly where pricing is going to go. I think we've still got some challenges to solve within gas markets and energy markets, and we'll be opportunistic as we see pricing evolve, we'll be opportunistic about what we do on that front.

[Robert Eriksson, executive]

Thank you very much, Daniel. And with that, we actually have answered all the questions. I hope there are no more questions on my screen here. So with that, I would like to thank all the participants for being on this call, and we will make sure to keep you updated, and we will have a call again at our year-end results, and we have our Capital Markets Day at the end -- in the middle of February next year. So thank you very much.

[Daniel Fitzgerald, executive]

Thank you very much.

[Espen Hennie, executive]

Thank you.