Scatec (Oslo:SCATC) Q3 2026 Earnings Call

0:00 Good morning everybody and welcome to our Q3 presentation. The third quarter has been an eventful quarter with a very high activity level across the Skatec Group. We've had strong underlying performance especially in the DNC segment and we have continued our progress when it comes to our strategic priorities and also in terms of our growth targets. And the case for renewables continues to strengthen. Renewables is becoming more and more competitive. As I've said many times before, not only as an intermittent source of energy, but also in terms of delivering base load or dispatchable energy. And we're also seeing that energy security is continuing to come higher and higher up on the agenda. And these developments are in general opening up for more and more opportunities for Skatec.

0:55 However, the quarter has also given us a challenging backdrop in terms of the macroeconomic development, the geopolitical situation, and also some regulatory changes. And I will come back with more detailed comments on the revised EBITDA outlook for the power production segment, obviously especially when it comes to the Philippines. In the quarter, we have also taken impairments. This is in Ukraine and Pakistan. Obviously, Ukraine continues to be impacted by the war, and due to increased disruptions in the energy sector, we have taken significant impairments in Ukraine. And finally today, after also Hans Jakob has gone through the financials, I will also provide an update on the strategy and the targets towards 2030.

1:46 Here we have an ambition to double our self-funded growth space in this timeframe. So let me first go through some of the highlights of the quarter, and we continue to have, as I said, good progress on our growth agenda. So in terms of some of the key numbers, proportionate revenues came in at 2.3 billion, and EBITDA came in at 1.2 billion. And also cash flow to equity came in at 385 million and this is up 35% relative to the same quarter last year when you adjust for the refinancing gains of about 250 million that we had in the Philippines. Other key highlights include that we have started construction of SHAD-1 and the first phase of Dandara in the Philippines.

2:34 So SHAD-1 is a 900 megawatt wind project. It is the largest wind project in Africa and it will produce about four terawatt hours when it's fully operations. And we are planning to bring it into operations in phases during the first half of 2028. So we are also implementing this project at a record pace. Then we have Dandara, which is the first corporate PPA in Egypt. Here, we signed loan agreements earlier this week with EIB, EBRD, and also with AFDB. And we also signed agreements for NBE, the National Bank of Egypt, which is a commercial bank, to come in and take a 20% equity stake of the project. Also in the quarter, we have signed an equity platform agreement with EBRD and EBRD will take 40% of this platform and has committed $221 million towards the platform. This is obviously enabling us to reduce the capital need related to pursuing the portfolio that we have in Egypt.

3:37 And also in relation to this, EBRD through the platform will come into Obelisk and our equity stake in Obelisk is being reduced to 24%. We have also secured an equity bridge loan of $150 million, and this is related to enabling equity last in our product portfolio in Egypt. And finally, we have also issued a new bond of 1.5 billion, and this is at 250 basis points of credit margin. This is very attractive terms. and we will use this to refinance more of our expensive debt or we have already done it and this will contribute to 50 million in reduced interest costs on an annual basis.

4:22 And as I said, finally, we have also recognized impairment loss of about 1 billion in the quarter. This is related, as I said, mainly to Ukraine, but also some in Pakistan, and Hans Jakob will come back with more details on this. So in terms of power production, in the quarter, we generated about 1.5 terawatt hours, and this is an increase of 22% relative to the same quarter last year. So a lot of this is coming from new projects. More than 400 gigawatt hours is coming from new projects. And this is from South Africa, Tunisia, it is from Botswana, it is from Egypt, and Brazil. So this shows that now a significant amount of the growth that we've been working on is actually coming into operation.

5:12 We also see that there is less generation in the Philippines. This is due to less water, and we'll come back to this shortly. And we have also generated less in Ukraine, and this is obviously due to the war. In terms of revenues, we increased our revenues in the segment to 1.3 billion, and this is up 10% relative to the same quarter last year. Here we have new projects contributing to about 140 million, and we also have a slight increase in the Philippines, while the Ukraine contributed negatively. So in summary, when it comes to power production, we now start to see significant contributions from the new projects that are coming into operation. So let me then go to the Philippines.

5:57 So in the Philippines, in terms of the third quarter, it was a strong quarter. When we came into the quarter, there were some concerns in terms of the water levels that were quite low in the beginning of July. But the water levels has increased during the quarter. And when they came out of the quarter, the water levels were above the norm. So the water levels were at good levels. In the quarter, we have had lower production at 218 gigawatt hours, but we've had high prices across all the different segments in the quarter. And if you look at this slide, you will also see that there is a jump in the ancillary services price in the quarter, and this was driven by high prices in the reserves market. And our outlook, previous outlook, for Q4 also assumed that these price levels would continue.

6:53 In terms of revenues, they came in at 411 million, and they've had strong levels across all the different segments, but as you will also see from the chart, there has been a reallocation of revenues towards the ancillary services segment from pure energy sales. And EBITDA came in at 367 million. This is up about 10% from the same quarter last year, and is in line with the outlook that we had given for the quarter. So in summary here, we continue in the Philippines to capture value based on our flexible asset base and our ability to optimize the commercial strategy across the different segments that we're seeing.

7:38 So let me then also address the reserves market in the Philippines, as this was then a key item in our revised full year outlook. So the resource market was suspended on October 14, and this was due to very high prices in Visayas and Mindanao region. There were also high prices in the Luzon region where we are operating, but these prices were not as extreme as in the two other regions. and the regulator has then requested the redesign of the ancillary services market within six months and we expect it to come back into operation again after these six months. And the estimated effect for us relative to our outlook in Q4 is about 80 million as Snap also had assumed continued high prices in the fourth quarter.

8:29 So then just a couple of words in terms of the history of the reserves market. So the resource market was established in January 2024, so almost three years ago. And immediately when it was established, prices were incredibly high, and it was suspended after only a bit more than one month of operations in March 2024. Then the regulator wanted to do an audit of the price setting mechanisms in the market. This audit was done. It was cleared. New price limits or ceilings were put into the structure. And then the reserves market was again relaunched in September 2024. and since September 2024 it has been operating without significant disruptions with expected price levels but obviously now in Q3 we have seen that the price levels have been peaking.

9:27 Obviously, we and the industry, we are not sitting still. We are working with measures to try to compensate for the current situation. So the industry has immediately proposed measures to how to manage the current situation and the high prices. And the industry, we have also requested an immediate reinstatement of the resource market. because suspending the resource market is also pushing costs over onto other producers in the market that are not being compensated for those costs. In terms of RJV, so SNAP, we also work on compensating measures. We try to shift delivery over replacement and contracted ancillary services to our best items units to free up capacity in the hydro plants to sell more energy in the spot market.

10:15 We also offer bilateral ancillary services contracts to the market operator. And in addition to that, we do intraday trading with our BES in the energy market. So all of these are compensating measures. The real compensating thing here will be to get the reserves market reinstated as soon as possible. So in summary, there is a continued strong need for ancillary services in the market. And this need and this demand will only increase as the mix of renewables in the power segment and the grid is continuing to increase. We expect research markets to be reinstated within this timeline that has been announced. And we expect normalized prices when the market is reinstated.

11:04 Prices like we have seen historically, the most likely change we believe is that there will be additional price caps put in. But they will most likely not impact the average prices that we have typically been seeing. And it's also important to remember that the marginal capacity in the ancillary services market in the Philippines is significantly more expensive than our batteries and our hydropower plants. So in terms of the longer term perspective, we expect limited economic impact of this. Then turning to construction and the DNC segment where we are having record high activity levels. We have revenues of 948 million, gross margin of 26%, and an EBITDA of 168 million. And this is partly related to COD Obelisk, where we've been able then to release more contingency, as this project is now finalized.

12:05 In terms of activity level, we have about 1.4 gigawatts in construction related to solar, 1 gigawatt of wind in construction, and close to 700 megawatt hours of battery storage in construction as we have moved Shadwan and the first phase of Dandara into construction. And we now have a remaining contract value of about 10.5 billion, and this is up from 3.1 billion last quarter, so almost a three times increase. And finally, just to mention that as well, the COD for the Mogobe BEST project in South Africa has moved into next year, and this is due to delays on ESCOM interconnection works. So with that, I will hand it over to Hans Jakob to take us through the financials.

12:58 Thank you, Terje. Thank you for coming here today. I'll walk you through the group financials and the performance of our operating segments. I'll also cover the guiding and the improvements in our capital structure. Looking at the quarter at group level, we continue to deliver EBITDA growth, driven by new assets in operations and strong execution in DNC. Consolidated revenues were 1.7 billion compared to 1.1 billion in the same quarter last year. We delivered an EBITDA of 1.1 billion up from 785 million last year and the increase is driven by a combination of new assets in operation and 220 million of construction revenues from Takadu in South Africa.

13:51 On a proportionate basis, revenues were 2.3 billion compared to 3 billion last year. The reduction is driven by DNC, as the same quarter last year had very high construction activity on Obelisk in Egypt. Power production revenues increased by approximately 10%. Proportionate EBITDA was 1.2 billion, up 14% from last year, and it was driven by assets in operations and a close-up effect on Obelisk in DNC. Now, let me take you through the segments. Our power production segment delivered revenues of 1.3 billion, 10% up year-on-year, EBITDA 1.1 billion, up from 955 million, Thank you very much.

15:08 The underlying figures also include EBITDA contribution from the divested assets. As more new projects reach COD, we expect the underlying contribution from operational assets to continue to grow. Now, let's have a look at DNC. In the development and construction segment, revenues were 948 million, compared to 1.8 billion year-on-year, driven by construction activity on Obelisk that was last year at its peak. EBITDA was 168 million, up from 135 million last year. This is close to the effects of 140 million on Obelisk, reflecting timely and cost-efficient execution of the project.

15:56 Excluding these effects, the underlying gross margin was 11%, in line with our guiding of 10-12%. Over the last 12 months, the DNC revenues were 5.1 billion, up 14% from last year, and the EBITDA almost tripled to 753 million, driven by strong execution and disciplined cost control. which has resulted in contingency releases of 340 million so far this year on Obelisk. Looking ahead, we expect activity to increase as construction ramps up on Shadwan and Dandara in Egypt and with the remaining contract value of, if I may say, an impressive 10.5 billion under construction, we have strong visibility on DNC revenues going forward.

16:51 Let me start by explaining the updates we have done to our impairment assessments. During the quarter, we recognized an impairment of 1.15 billion on consolidated basis and 1.066 billion on proportionate basis related to Ukraine and Pakistan. In Ukraine, the war is sadly continuing and our thoughts goes to the people in Ukraine which are doing a courageous job in a devastating situation. Russia has intensified attacks on critical energy infrastructure and the restoration of the plant that was targeted in 2025 is being delayed. The prolonged war is further affecting country risk premium and the outlook for longer term power prices.

17:40 These developments resulted in impairment losses of 1 billion on a consolidated basis and 952 million on a proportionate basis in the quarter. This comes on top of the 16 million impairment loss recognized in 2022 when the war started. In Pakistan, the updated assessment was triggered by an increase in the discount rate, reflecting higher country risk premium and higher long-term USD interest rates, combined with the increased uncertainty regarding the timing and amount of future cash flows. As a result, an impairment loss of 150 million on a consolidated basis and 114 million on a proportionate basis was recognized in the quarter related to these assets.

18:33 Our free cash position ended at 1.2 billion in the quarter, down from 1.6 billion in the second quarter. From operations, we received 147 million in distributions from power plants and we generated 137 million in EBITDA from DNC and corporate. Working capital had negative change of 746 million, mainly related to Obelisk reaching COD. Following the end of the quarter, we started construction of Shadvan and Dandara, which will positively affect working capital. We invested close to 700 million in growth projects and we paid 147 million of interest. Net charges in corporate financing was 854 million, mainly reflecting the drawdown of the RCF to cover short-term fluctuations in the working capital.

19:29 Including the 1.5 billion in undrawn RCF, total available liquidity was 2.7 billion. and 3.9 billion including the additional RCF capacity which is now available and thanks for the support from the banks also in making these arrangements. Corporate gross interest bearing debt increased from 6.4 billion to 7.1 billion as a result of the RCF 700 drawdown. This is expected to be repaid in the first half of 2027. Long-term corporate debt is unchanged as we have used the proceeds from the new bond to repay outstanding corporate debt.

20:17 Our strategic direction on corporate debt is unchanged. We are targeting to reduce our corporate debt. On project level, gross debt was stable at 19.5 billion, and debt for projects in operation increased to 14.2 billion, and debt for projects under construction fell to 2.2 billion, mainly reflecting Obelisk Phase 2 moving from construction into operation, and cash held in SPV was stable at 3 billion. Then to the outlook. As announced on October 21st, we have reduced our full-year EBITDA guidance in power production to 3.3 to 3.6 billion.

21:09 300 million lower than the previous midpoint. The bridge on the right shows the drivers behind the full-year power production EBITDA guidance. with operational effects accounting for 214 million. Philippines was reduced by 80 million, reflecting the suspension of the reserves market. Pakistan, 40 million, related to delays in the true-up tariff previously expected to be resolved in the fourth quarter of this year. South Africa, 40 million, mainly related to delayed connection work on the Mogobe asset by Eskom, which is the state-owned utility. Ukraine, 30 million, as the repairs of the damaged power plant has been delayed.

21:56 And FX, a negative 86 million. While some of these delays and updates are actually delays, we continue to work on compensating measures for the impact of the reserve market revenues, as Terje has explained. We now expect full-year power production of 4950 to 5150 GWh, 150 GWh lower than the previous estimate, driven by the third quarter performance, delays in Ukraine, and other minor adjustments to the portfolio. For the fourth quarter, we expect production to be 1,300 to 1,400 GWh and EBITDA in the Philippines of 2 to 300 million. In DNC, the remaining contract value is, as I said, 10.5 billion, and we continue to expect a gross margin of 10 to 12% on average across the portfolio for projects under construction.

22:54 For corporate, we expect a full year EBITDA of minus 110 to minus 120 million. This is an improvement of 15 million from our previous guidance. And then, it's time for the strategy update, Terje. So please come back on stage.

23:14 Thank you, Hans Jakob. So in terms of the strategy, two years ago, we set out a clear plan to invest in profitable growth, recycle capital through divestments, and also to reduce the debt on corporate level. And we have progressed well on all three. So this has put us in a strong and even stronger position. Our near-term growth portfolio is at a record high, our cost of borrowing has come down significantly, and our integrated business model continues to create value across the full project lifecycle. So today we will be presenting the next phase of our strategy where we are aiming to double our equity investments to target 8 billion Norwegian kroners in equity investments towards 2030.

24:03 While we continue to reduce that and more than double cash flow to equity in the period. and we will do this in a fully self-funded plan as we've done before with no new need for equity and also possibilities of having available liquidity towards the end of the period. So let me take you through this now. So first of all, in terms of the industry, the competitive position of renewables, as I've said, it continues to strengthen. Costs are coming down, and renewables is the most competitive source of new power generation in the markets where we are operating. And this is obviously due to the fact that modules have come down by 60% over the last three to four years, and battery systems have come down by close to 80% over the last three, four years. In addition, renewables is providing energy security and predictability and independence, which is incredibly important in many of the markets where we are operating. And it is the fastest and most flexible generation source to deploy. So for Skatec, This means we can target new applications, we have a stronger value proposition, and we see a lot of new opportunities in the market.

25:16 And one example of this is Energy Valley, which is a hybrid project where we're combining renewables to deliver energy on a 24-7 basis, in addition to installing battery systems to support, provide frequency control, and regulating power to the grid. So taking stock of where we are, we are progressing well relative to the targets that we also announced last year. We are ahead of the target for equity investments into new profitable projects, and we estimate to reach 1.3 billion in equity investments this year, which is well above our target of 1 billion. We have also secured projects in construction and in backlog to invest in total 5 billion over the next two, three years.

26:04 So this is already secured growth. We are also progressing well on the target for capital recycling. 2.6 billion has been done out of the target of 6 billion. We will also receive another 300 million in proceeds related to EBRD establishing the platform and then in principle also buying into Obelisk. and we are confident about the remaining 3.1 billion, but the timing and the price must be right. There will be some smaller transactions and some larger transactions to reach this target. Also in terms of the leverage, we are on track to reduce corporate debt to 4 billion by 2030. We're down 2 billion now to 7.1 billion by the end of the quarter.

26:50 And as Hans Jakob also mentioned, there has been a slight increase this quarter as we drew on the RCF due to working capital fluctuations. So based on this, we are increasing our targets towards 2030. This means doubling equity investment targets to 2 billion annually. And out of these 2 billion annually, 60% is already secured in the period between now and 2030, and it is already in construction or in backlog. And in terms of growth, we will continue to focus on scalable markets, the integrated business model and our multi-technology approach, and markets where we see that renewables fundamentally make sense and we see a good value proposition for renewables.

27:40 Then, secondly, we also introduced a new target on cash flow to equity. And here we aim to double cash flow generation to 2.5 billion from 2030. In this period, the DNC cash flow will be increasing given the growth that we're seeing, and this will fund a large share of the equity investments in the period. We also see a large share of increased cash generation coming from long-term PPAs, and this will provide predictable cash flows. We see that new assets should contribute with about 1.2 billion in cash flow in the period. and finally we also continue to focus on strengthening the balance sheet. We maintain our target to reduce corporate debt to 4 billion in the period. 40% of this has been delivered and 3.1 billion remain and we're also confident to reach this target.

28:32 The business plan as we present here is fully funded through divestments and also through strong cash generation from both power plants in operation as well as from the DNC segment. and with this plan we will most likely be able to generate available liquidity towards the end of the period. Available liquidity that can be used either for growth, for the leverage or for shareholder distributions. So then first, let's talk about the growth part. The near-term growth portfolio covers about 60% of the target towards 2030. So on the generation side, we have 2.3 gigawatts in construction and 4.3 gigawatts in the backlog. And this will take us to a total capacity on the generation side to 12.3 gigawatts by end of 2028.

29:30 In terms of storage, we have 0.7 gigawatt hours in construction and 4.7 gigawatt hours in backlog. And this will take us to 6.8 gigawatt hours towards the end of 2028. And this is four to five times increase relative to where we are today. On top of this, we have a robust pipeline which has increased significantly related to battery storage because we are also working on permitting batteries related to the projects that we have on the PV side. So for further growth, we do see significant potential in the markets where we already have a strong position, like South Africa, the Philippines, Egypt, Tunisia, and Romania. And these markets all have very strong characteristics, like competitive economics, renewables is the most competitive solution, scalability, these are large and growing energy markets, We have established offtake routes in the markets, which is important for us to have a long-term perspective to develop a pipeline.

30:32 And we have a strong competitive position where we can benefit from our capabilities in these markets. And these markets that we are presenting here alone represent more than 50 gigawatts of renewables growth potentials towards 2030 for us. So we have South Africa and the Philippines. These are large markets with attractive frameworks and they also need to shift away from coal, which might happen quickly or take a bit more time, but it represents a significant potential. Egypt and Tunisia, as well as the North African region, have fantastic resources. Today, they are dependent on importing gas at very high prices, and it's important for them to move over to renewables to reduce cost of power generation, as well as for energy security and independence.

31:21 And also Romania, a large market with a supported framework, supported also by the EU through Contract for Differences, and it's also going to be an interesting market for BES. In addition to this, we will continue to be opportunistic. We will continue also to look at other markets, but they need to match these criteria. There needs to be attractive economics and there needs to be attractive scale in the market. So energy markets are evolving in terms of maturity, offtake routes and deregulation, and we also have to relate to this. Our capabilities enable us to compete across these different types of markets, while renewables now offer their required competitiveness and flexibility to take a large space in these markets.

32:08 So in terms of traditional markets, our traditional markets are regulated. This is like Egypt and Tunisia. Here there is a single buyer of electricity offering long-term PPAs at a fixed price. This is our home turf. This is where we get predictable cash flow, high leverage, and very high capital efficiency. Then some markets will deregulate, like we have experienced in South Africa and we also see in Colombia. And here they open up typically for direct sales to the private sector. And here, key is in addition to the development capabilities that we're having, being able to originate offtake and optimize generation and customer portfolio also. And as an example, this is exactly what we're doing in our Lyra platform in South Africa, setting up an entity to manage this in a good way.

33:00 And finally, we have deregulated and merchant markets like the Philippines and to some extent, Romania and Brazil. Here, it is important to build a flexible mix of generation and storage assets. And based on this, you can capture value with a mix of contracted revenues. Based on which you can get leverage and selling into the merchant markets. So as I said, markets are deregulating. We are present in different types of markets, but we do have the capabilities to compete across these different markets. So going forward in terms of future growth over and beyond what we have already secured, we will continue and focus on these three pillars.

33:45 We have the traditional IPP business with long-term contracted offtake. This is the most capital efficient way to grow. We continue to see huge growth potential for us here, like in Egypt, like in Tunisia, but also across the North African region. and this is going to very likely be the majority of our growth towards 2030. Then we will continue to position ourselves in markets with mixed offtake portfolios like the Philippines, Brazil, Europe, also to some extent South Africa. These require flexible generation and storage portfolios. And a typical approach is the base of contracted revenues to enable leverage while capturing upsides from market volatility and managing downside risk.

34:33 We expect this to be a significant part of the future growth, but given that we're also very present in the Philippines already and have a significant cash flow from the Philippines, we don't see that this is going to increase significantly in terms of the share of our overall portfolio. Then in terms of new demand and offtake routes, here we see that competitive and baseload renewables will increasingly unlock new infrastructure projects in all our markets going forward. We have been looking into green hydrogen. We are looking into desalination. We are also looking into the data centers. And here across this space, our track record, market position, and integrated business model provides a strong basis for engaging and for competing in this space. This will take more time to convert, but we do see an attractive longer-term opportunity space also for us here.

35:28 So this was in terms of growth. So let's then move to cash generation target. So our cash generation target is supported by our capital efficient integrated business model. And more than 50% of equity required for our growth is secured and covered by the cash flow from the DNC segment. So this is a fairly busy slide with a lot of numbers. So let's start in the middle. The total CapEx related to our projects in construction and backlog is about 54 billion. If we assume 80% leverage and on average 40% equity stake of Skatec, it's a bit below 50% because we are going quite down in Egypt, the equity investment will be around 5 billion for this portfolio.

36:15 Then in terms of the DNC business, which is on the left here, assuming 70% EPC scope and 11% gross margin yields, this will give us about 4.2 billion in gross profit. And this time, let's go all the way down to the cash flow. After OPEX and TAX, this represents about 2.8 billion in total cash flow over the next few years in the DNC segment, and this is more than 50% of the equity to be invested in this period. And obviously, on the right-hand side, our equity investment must meet our hurdles, and this will build a portfolio of operating assets with attractive cash flows and returns over time. We have 1.2 times cost of equity as a hurdle and also 20-30% services margin. And based on this, this portfolio should deliver in the range of 750 million average annual cash flow when the full portfolio has been completed. And this represents on average about 15% cash yield across the portfolio.

37:21 So then let's take one step further and look at how this looks across the total portfolio on the corporate level when we come towards 2030. The current run rate in terms of cash flow is in the range of 1.2 billion, and we aim to more than double this towards 2030 to 2.5 billion. The 8 billion in equity investment should add about 1.2 billion in new cash flow, The higher investment pays should also increase cash flows from DNC by about 0.5 billion. And obviously some existing cash flow in power production will be lost as we divest and farm down in projects or exit certain markets. However, also with the lower corporate debt, the lower interest cost will improve the cash flow in this period. So this brings us to an annual cash flow target of about 2.5 billion in a 2030 perspective.

38:21 and this plan is fully funded and can based on these targets even generate available liquidity towards the end of the period. So again, if you look at the overall numbers in terms of growth, equity investments over four years amount to 8 billion and more than 50% will be funded by DNC. The rest will come from cash flow from operations. In terms of the leverage, corporate debt repayments can be funded by the 3.4 billion in targeted divestments that we have in the period. And as I said, this leaves potentially free capital towards the end of the period. So in summary on this, the plan is self-funded. Equity investments are not dependent on divestments.

39:07 Divestments are used to take down leverage. and if the plan yields free liquidity, so there is room for more growth, more the leverage or alternatively also shareholder distributions. And then in terms of the balance sheet, Our target, as I've said, is to bring corporate debt down to 4 billion by 2030, and this target stands firm. We are on track to achieve this. We have reduced debt by more than 2 billion since announcing this target, so it's 3.1 billion left to get down to 4 billion, and this is covered by the target divestment proceeds. and we already see significant effects of the leveraging and refinancing today. Significant reduction in credit margin has been achieved since our 2023 bond, which was at very high levels. We have issued a new bond now in Q3, 1.5 billion, with 250 basis points in credit margin.

40:07 And this bond has been used to refinance older, more expensive debt. So this alone saves us about 50 million annually in terms of interest costs. So then, in terms of summarizing today, first of all, when it comes to the quarter, we've had solid financials, especially within DNC, with a gross margin of 26%. We have started construction of Shadwan and Dandara, and we now have 10.5 billion in remaining contracted revenues in the D&C segment. And we have secured equity platforms with Iberdi, and we have also secured EBLs for the projects in Egypt to ensure that we can implement them on an equity-less basis.

40:57 And then in terms of the strategy, renewables continue to strengthen the value proposition. And for us, this means that the opportunity space increases in the markets where we are operating. We have a target to double equity investments in cash flow to equity towards 2030. And 60% of that growth has already been secured. And we have a self-funded approach. and we have the possibility to have available liquidity towards the end of the period to fuel either, as I've said, further growth, more deleverage or shareholder distributions. Thank you very much. Then we will go and take questions.

41:44 Thank you, Terje and Hans Jakob. We will then take questions. So as usual, we will start here in the room, and then we have some questions from our online listeners. We're starting with Andreas from Arctic. Thank you. So looking ahead now that you've put this situation in the Philippines behind you, I think you've done a good job in explaining the market, what's happening and what we can expect going forward. So very good to hear. Big ambitions going forward, two billion of equity investments annually.

42:30 Can you say something, because in Egypt, especially, you do this on a fully funded basis. Are you talking about two billions in book equity or cash equity?

42:46 We are talking about two billions in cash equity. So cash flows from corporate down to the SPVs. Yes. Okay. And if we're looking at Egypt, of course, those structures are really attractive and the scale of the projects are immense. What can we expect going forward from Tunisia and Romania? I know that in Romania you're now... The EPC scopes on what you currently have in the backlog, not that high comparing to what you're doing in Egypt. Can we expect higher EPC shares of those projects and in Tunisia, what will that look like?

43:27 Well, I think in Tunisia and across the North African region, I think that we see significant ambitions in terms of accelerating the deployment of renewables from basically in all countries. So in Tunisia, we hope to see larger projects and accelerated deployment in the country. and there we will take the full EPC scope as we typically do and as we have done in the projects that we have implemented so far in Tunisia. In Romania our ambition is also to take the full EPC scope and have a fully integrated business model. Typically, you have to expect in Romania that it's a different contracting structure. The leverage will be slightly lower.

44:15 So from that point of view, equity relative to DNC margins will be slightly shifting. But obviously, still, we have the same hurdle rates for Romania as we have other places. And our ambition is also to take the full EPC scope, as I said, in Romania. Okay, and that's clear. And one more on Tunisia. What stands in the way for seeing gigawatt plus solar projects in Tunisia going forward?

44:49 Tunisia is a fully regulated market so it is the authorities that for the time being decide how quickly they are going to build out and under what type of procurement mechanisms they are going to build out. Tunisia so far has been running tender processes while in Egypt we are able to do bilateral negotiations so there are slight differences. But rest assured, we are engaging actively with the authorities in Tunisia and trying to show them what we can do in other places, for instance in Egypt, to motivate them also to accelerate the pace of renewables in Tunisia. And obviously today, Tunisia is highly dependent on importing gas to generate electricity, and renewables is a significantly more attractive solution from an economic point of view.

45:39 Okay, thank you.

45:45 I think it's inevitable to touch on the Philippines, although In this presentation you have not included the overview of drivers in the Philippines for the quarter, which you have done in the previous quarters, breaking down prices. I appreciate that you have it in the chart, but volumes and prices. So could you provide that also for this quarter and going forward?

46:22 Yes, as you said on the chart you see the prices so the main elements is of course somewhat lower production but just quite high prices as Terje explained including spot and reserves market.

46:37 But in the previous quarters you provided a separate slide which details transaction volumes and prices split on segments. It would be very good if you could provide that to the market given the uncertainty and confusion on how those revenues are composed. And a second question on the transaction volumes because you have in the past Thank you very much. Could you say something about the split of volumes on contract and on the reserve market?

47:25 How much of those volumes are contract and are the volumes comparable?

47:35 Yeah, isn't that partly included in one of the slides? Yeah. The one that we shared.

47:40 I think we will add that slide. Okay, so the volumes are comparable?

47:45 The volumes are comparable. The contract volumes, they vary throughout the year. And typically the contract volumes will be lower when we believe and when the forecast is that we have higher energy prices in the market so we can use more of the water to sell energy. And the contract volumes will typically be The annual volumes can be found in the Philippines. Some of the documents say it's not easy to run, but it's around 3 gigawatt hours on the Aspa contract.

48:35 But the contracted volumes in ancillary services is at 225. I think you've reported that in a press release a while back. Is that correct?

48:48 That's the ASPA price you refer to, right?

48:51 That's the contract part of ancillary services. And your average selling price in ancillary services was 2.6 in the second quarter. That's also a figure that you reported in Q2. That suggests that a very high portion of your volumes are contract. Is that fair to assume?

49:13 That's fair to assume, yes.

49:14 Yes, given the time of the year we're in.

49:17 Is that like 90%?

49:21 I don't have the figure. So I think we have to come back to you.

49:26 But just as a final comment, I really appreciate better transparency on this. And I do think that you should continue to provide that information. You should provide it in the past.

49:40 There's a comment on that. It's obviously so that the ancillary services market in the Philippines is also three different segments, right? It is immediate, short term, it is sort of medium term, and it's long term. And it's different prices in those different types of services, as it's typically in any deregulated energy market like you have in Europe as well. So the contracted volumes are linked to those two of those segments with different price levels as well. So we will provide information at an appropriate aggregation level, but there are also some nuances to this, just to be clear on that.

50:25 Okay, any further questions in the room? Then we can have a couple of questions from our online listeners. Do you expect to recognize a gain on the Egypt farm down to EBRD and is this included in the guidance?

50:47 There is likely to be a gain related to the farm down related to Obelisk, but this has not been included in our guidance.

50:55 That we will do when we close.

50:57 Hmm.

51:00 Another question. On the Philippines, as a mitigating action in the Philippines, you state you will reallocate best capacity to existing long-term contracts while simultaneously stating limited long-term effects. Given this, is it fair to assume that you expect the ASPA tariff on new contracts to be broadly in line with your existing contracts at 2.25 Philippine peso?

51:31 I don't think we will comment on at this point in time exactly where prices are going to be, how much volume we might potentially reallocate to long-term contracts relative to keeping for selling into the resource market. It's obviously also important to remember that currently we have 40 megawatt hours. of battery capacity in the Philippines. And we are currently expecting to bring one new battery online over the next couple of months and two new batteries online during next year. So we will also increase the battery capacity in the Philippines from 40 megawatt hours to 160 megawatt hours over the next 12 to 15 months. So we will also have more capacity to operate in the ancillary services market going forward.

52:24 Thank you Terje. Another question, actually two questions from Anis Hagaya, Udo BRF. On the Philippines, you expect only limited long-term effects from the reserves market suspension. What gives you confidence that ancillary services earnings can recover once the six-month suspension ends? And what should we assume as a normalized earnings level beyond 2026?

52:50 Well, there is a couple of elements, and I mentioned some of them in the presentation. First of all, the market needs ancillary services. And currently, the market or potentially master run facilities, they are having additional costs related to the suspension of the market. We believe also that the market will increase in the sense that there are going to be more There will be more need for ancillary services in the future. Second point is that the marginal capacity for ancillary services is related to diesel and heavy fuel oil generation. So it's very expensive capacity that represents the marginal capacity. Then we have also seen historically that when they are changing and trying to adjust the auxiliary service market or the reserves market to manage prices, they typically put on a price cap. or Price Sealing. And this is at least what we are currently expecting the outcome to be this time as well. Obviously, we don't know, but this is sort of what we are currently expecting.

54:05 And from that point of view, we don't believe that Supply-demand situation in the ancillary services market and the resource market will change significantly. High prices will be capped, especially in Visayas and Mindanao, but we expect the prices to normalize and that historical prices, not Q3, but historical prices is a good benchmark for what we will see in the future.

54:34 Thank you. Another question. With a higher investment ambition, should we expect any change in your return thresholds or project mix, particularly between renewables and storage? Or do you believe the larger pipeline allows you to double investments without compromising returns?

54:51 We will not compromise returns.

54:55 That's clear, thank you. One from Jørgen Lande, Danske Bank. Good morning, just a clarification. The two billion annual average equity investments that you guide towards 2030, is this gross, i.e. before cash inflow from DNC? Yes, I can confirm that.

55:15 Yes, this is

55:18 gross. There was another question. Which of the plants in Ukraine was impaired?

55:23 That's across the portfolio.

55:29 Okay, another one from Jørgen Lande, Danske Bank. On the Philippines. And just to understand the production volumes for 2027, if we assume normal net production to Skatec is around 750 gigawatt hours per year, how should we think the impact from the suspension or the reserves market will hit your 2027 production? in terms of deviation from a normal year.

55:56 You shouldn't expect it to impact our total generation. I mean, the water will be used to generate power, whether it is used to sell into the spot market or whether it comes through the turbines to deliver incidental energy related to the capacity that we offer in the ancillary services market. But all water will be used to generate electricity at the end.

56:29 Okay, we have one. Can you provide guidance for 2026 given the moving parts in the Philippines? I think we have provided that information. Could you update us on asset rotations? Is there anything you want to add?

56:43 No, as I said in the presentation, we expect to receive in a range of 300 million related to The platform that we have established for Egypt with EBRD. And we are working on a number of other, both smaller and larger potential farm downs and exits. But we will provide more information when they materialize.

57:13 Can you shed some more light on how you expect earnings from ancillary services to look like in 2027? Under what time frame do you consider it's probable to sign longer term agreements for your best capacity?

57:29 I think we will come back with further information on 2027 when we provide the outlook for 2027. And the work to see if it's possible to secure bilateral contracts on ancillary services has already started, but it's very difficult to provide so early a time perspective on that.

57:52 One last question. Are you considering selling your hydropower business in the Philippines? Should an attractive offer arise? I don't think we should comment on that. Another one popped up just now. You show 0.3 billion in divestment cash from Egypt. Is this related to Obelisk? Yes, I can confirm that. One more from Andreas. In terms of the Philippines, could you just say that what we saw in ancillary services revenues in 2024, would that be like a very bottom part of the range in terms of what you should expect?

58:42 Because you didn't have much sales to the resource market then.

58:50 I don't think I will make a comment or promise on exactly the level. I agree, 2020-2024, I mean, the market started, we had one or two months, maybe one and a half months of the market working, and then it worked the last, I don't know, four months. So in principle, Thank you.

59:40 What do you expect the transaction, the Obelisk transaction to close, or the bigger transaction?

59:50 The Obelisk transaction will close in Q4.

59:56 Okay, we have some more questions coming in. I think it's three more. We have one from Anis Segeia again, from the BF. On Tunisia, You previously faced some challenges with Steg regarding grid connections for new projects. I'm not sure what the reference is, but have these issues now been resolved? Or do you see grid connection bottlenecks in Tunisia? Also, there has been some load shedding and periodic power cuts during last summer's peak demand to protect the grid. Did this have an impact on the operations or production?

1:00:38 I assume the question is referring to Sør and Sidebosid, the first two projects. I believe they came into operation a bit late. The load shedding last summer has not had any impacts on us, but obviously it has a lot of impact on the country and the energy situation in the country. and I was in Tunisia last week and had discussions with the Minister of Energy and he's trying to encourage us to accelerate the construction of our projects so that we can get them on grid and help them manage the difficult situations on the grid during the summer. So clearly we are working together, us and the authorities, to make sure that we can get more power onto the grid as quickly as possible.

1:01:31 Okay, what about, this was referring to the previous question about 2026 guidance, so follow up on that, what about 2027 guidance? Are the problems in 3Q spilling into 2027?

1:01:52 I think Terje has commented that we will come back to the 27 guidance, but I also think that one of the key messages was that we in the Philippines particularly see a lot of opportunities also and expect less impact going forward as the compensating measures take effect.

1:02:12 Yes, another one on specifically future guidance on the Philippines. I think we've been through that. One question. With NOK 0.3 billion in cash from Oblisk and the DNC contribution and your remaining stake, any estimate of your IRR on this investment? Must be high. I think yes, it is high. But we're not specifically providing guidance on that.

1:02:42 but it's been a very good investment that obviously depends how you calculate the return if you calculate the return on gross investment or net investment I mean the net investment is negative so to speak if that makes sense very short payback time I think we've been through the questions ok, thank you thank you very much thank you