It's already October, and we just finished the third quarter of 2018, and I have a cold. I'm in desperate need for some more sun. Actually, just to spend a minute on this first page, this is the last plant that we put into operation in Honduras. Actually, it's a beautiful aerial photo. I'll talk a bit more about that plant a bit later in the presentation. To the highlights. As in last quarter, also this quarter, Q3, has been extremely busy on the execution side. Building at three continents is, of course, a challenge in itself, but it's under control. If you look at the revenues, NOK 1,259 million and an EBITDA of NOK 257 million. Out of that, a large portion comes from the development and construction activity that turned over NOK 1.08 billion, with a contribution of EBITDA of NOK 130 million.
The 35 MW project was actually finished on the last day of October, which was the plan. The revised plan, I should say, because it should have been finished a long time ago. You know that we had a few delays caused by some issues that was resolved. We are, of course, working extremely hard on converting the pipeline into backlog, and I'm sure that you're going to measure us on that every quarter. Last night we publicized an added backlog of 121 MW in Ukraine. I have a separate slide on that a bit later. Of course, what counts at the end of the day, apart from producing clean energy, is to make sure that the cash that is being generated from sale of electricity finds its way back to the accounts here in Norway. So far this year, that's almost NOK 190 million.
You also notice that we sent out a press list of an increased stake in our existing plants, taking over a portion of the Norfund investment in those plants in South Africa. There are a few reasons for that. Number one, we wanted to retain our position being in operation control. Not that we would have lost operation control, but we felt that the shareholding structure would benefit from an increased shareholding. Secondly, it was strategically important for us because, as you know, South Africa, along with a few other markets down the road, is our home market, and we have right now 258 MW under construction. That will in total bring us up to almost 460 MW. It's a big operation. In light of that, we decided to increase or take a stake from Norfund.
In terms of the investment criteria or the hurdle rate that we looked at, it meets our investment criteria, for your information. This is Honduras, and it's a beautiful site. It's on the Mediterranean not the Mediterranean, the Pacific side. It's a bit further away of the country. 35 MW. We are in partnership here as well as in Agua Fria with Norfund. It started a few weeks ago on its journey producing energy for the next 20 years. I've shared with you before that we had a few challenges there. Not every location that we're at is straightforward. The key is, of course, to make sure that you build a relationship with the local community that is sustainable. I think that the success of this plant, at the end of the day, is greatly contributed to our social programs.
For your information, only two weeks ago, we invited 30 doctors to the area. We had 500 patients, sorry, 5,000 patients coming in from everything, checking ultrasound on pregnancy, on broken legs, cold like my own, and it was a great success. Of course, this program will continue throughout the lifetime of the plant. It doesn't mean that it's going to stop producing after 20 years, but we will continue to interface with the community as a responsible social operator. The other plants that we have under construction now. Excuse me. East Malaysia. These are three plants, a little bit shy of a few hundred megawatts. The one that you see here is Gurun. It's producing electricity and is earning revenues as I speak. It's in its initial operational phase, and that will be replaced by commercial operation date in a couple of weeks from now.
We have two more plants that are approaching the same maturity level. That is Merchang on the east coast and Gurun a little bit north of Malacca. I was there two weeks ago, and great progress. These projects have been a bit delayed compared to what we have shared with you previously. Our experience is, and maybe that should have been put into our plans when we communicated this last, is that when you're entering into a testing phase for the first time in the country with a utility that haven't done it before, it takes a bit longer. It's not only our eager to finish the plant that decides when it's going to finish. We need to tangle with utility, and it's not like turning on the light switch when you are connecting a solar plant to the grid.
Solar plant produces electricity at different levels throughout the day. Also, you may have clouds, and the grid, the one where you actually distribute the energy, needs to accept those electrons in a manner that is controlled. To be able to simulate that, we need to think about all these transient conditions that the plant and the grid are going to dance at different levels to make sure that the performance will be satisfactory. This is what we've been doing over the past few weeks on Gurun, and we passed the tests well. In Mozambique, this is for those of you that scored high on geography, it's a bit north of northwest, or I should say rather northeast of South Africa. The plant is centrally to the west in Mozambique. It's in a rural area.
Of course, also there, we have tribes that we have to interface with, which has been a success so far. As you can see, we are progressing well. Brazil, yeah, it wasn't only hydro that enjoyed the rain there. We did too, which actually put us back a month compared to our original schedule. We managed to catch up, and I think during November, we will be in commercial operation. The plant is physically complete, and we are in the final testing mode at the moment. Egypt, sixth plant, same location, close to the Aswan Dam. Huge power plant, great grid, can accept all this energy that we're going to produce. We are approaching 50% completion on the first plant, and the others are going to follow suit as we sequentially produce or build these plants.
Try to utilize as much of the learning from the first plant to the last plant. You know that on our plants, when we build them, we have 85%-90% unskilled workers. Their learning there is extremely important for us to actually take benefit of when we are completing these plants. South Africa, last time I told you that we are starting to build roads. Yes, we are continuing to do that. We're going to ramp up during this quarter for full construction, starting to put steel into the ground and mount the panels. This may look quiet and nice from the air. I have to say that when you are in construction, this is a major operation. Take Brazil or Apodi project, for example. This is the largest project at one location I've ever built so far. You know how many kilometers?
This is not good for the environment though, the rest is. You know how many kilometers we drove during construction? Trucks and everything. Four million kilometers. Back to geography, the equator, how long is that? 40,000. You can work out how many times we rounded the globe to find out that this was quite a distance. We did that without any accidents. If you compare that to statistics in a few countries, you would have had a few accidents. It's a major operational issue to control the traffic. In Egypt, we're having the same issues. In fact, we're not only there, we have a few other plants that are being built at the same time. It's tremendous focus on traffic because of all these trucks and all the operations.
Just to share a bit of those things that we are dealing with every day with you all. Ukraine. We said after the first quarter that we have spotted Ukraine as a country that are really determined to add renewable energy to their portfolio of energy sources. We set out, we actually started last year, looking for opportunities, and we have previously said that we have actually bagged a couple of plants into the backlog. The feed-in tariff there is friendly. It's around EUR 0.15 per kilowatt hour. The period of the PPA is 10 years. If you look at this from a financial point of view, it's probably a very efficient place to put your equity because you're going to get your returns back within that period. We have right now a bit more than 250 megawatts in backlog.
We are working with EBRD and other development banks for debt financing. That as for the first project, it is at an advanced stage, meaning that we are closing in on construction start and financial closure. We have an additional 200 plus megawatts that we are developing, and hopefully, we are able to also transform most of that into our backlog. All of these plants will be built during next year. It's going to be a very high activity in Ukraine for next year. We have established an office there. We're hiring people. In fact, Ukraine has a high level of educated people. I mean, those that are in the IT industry appreciate that. Also in the mechanical industry, we're going to benefit from that when we're building our plants.
If you look at our map, we are concentrating around the solar belt of the world where there are a lot of developing countries, a lot of countries that really have additional energy on their agenda, not replacing old, dirty energy. For us, we have a special mandate to give them that clean new energy. We have a very high activity within our market. We have a pipeline of around 4,000 MW. Although you cannot see the 4,000 MW type of activity that are happening on the ground, I can share with you that a lot of these projects are maturing and are moving slowly towards a backlog. When they reach backlog, we previously communicated that then it's 90% probability that it will be completed. In fact, in the past, everything that has become 90% has actually turned to become 100%.
I'll give the word to Mikkel, that will guide us through the numbers for the last quarter, and see you in a few minutes.
Thanks, Raymond. We'll move into more on the numbers then. As mentioned by Raymond, proportionate revenues reached NOK 1.3 billion in the quarter and EBITDA NOK 257 million. You can see on the graph that the activity level increased quite significantly over the last two quarters, revenues are up by 40% compared to the same quarter last year. Construction is the main contributor here. NOK 130 million of the EBITDA is related to that activity. Important also to note when you look at the third quarter last year, that we had a net gain of close to NOK 400 million on the partial sale of the Apodi project to Equinor back in the third quarter last year. That's affecting both revenues and EBITDA in the second quarter last year. The underlying development here is, of course, quite significant compared to last year.
Worth mentioning is that we are continuously reviewing our project pipeline, we have decided to discontinue some development projects, we have done an impairment of NOK 17 million in the third quarter of project rights. This is then increasing our D&A and impairment charges to NOK 57 million, up from NOK 39 million in the previous quarter. That's not something that we do often. It's actually the first time since 2016 that we are doing an impairment of project rights. It's been at low levels, and we are aiming, of course, to keep that at low levels also going forward. Cash flow to equity reached NOK 141 million. Again, if you adjust for the sale of the Brazil project rights last year, the underlying cash flow has increased substantially over the last quarters.
If you just look at the power production segment, the production reached 73 GWh in the quarter, and it is basically in line with the same period last year. The mix is changing a bit, though. EBITDA increased by 7%, and that is because the Czech Republic performed really well in this quarter. It is 100% owned by us, affecting the numbers here. The performance is basically driven by what we have seen in Norway as well. It has been some very nice sunny summer months in the Czech Republic over the last quarter. We enjoyed that. As you can see to the right, we have seen stable financials now over the last two years in the power production segment.
Of course, we are happy to now report that the grid connected the Los Prados plant and we will connect other plants in the coming quarter, and we will see growth again in the power production numbers. That is, of course, something we are looking forward to report on. On the O&M side, again, fairly stable underlying operations. Worth mentioning that we in the previous quarter, in the second quarter, we had a catch-up of NOK 8 million related to the Jordan portfolio, affecting those numbers. Furthermore, we had also fairly good weather conditions in South Africa, also affecting the performance of O&M in this quarter. Again, fairly good results in the segment. As we grid connect new plants, and just to repeat our model here, the O&M business line will then get more revenues as we grid connect new plants, and that is expected to happen, as I mentioned.
That follows the power production profile of growth going forward. The development construction activities, we have already talked about this. I want to mention that we report about 34% or one quarter progress so far at the end of the third quarter across the portfolio of all construction projects. The gross margin came in at 14.9%. We are happy with that level, and that will, of course, vary both the margin level, but also the top line here will vary from quarter to quarter with progress. Keep that in mind when you look at our numbers also going forward. On the balance sheet, we maintain a solid financial position. We have now invested about NOK 1.4 billion over the last 18 months into the construction portfolio. This is equity in our share of the equity investments done in this portfolio.
The third quarter consolidated assets stood at NOK 11.5 billion, and that has increased by almost NOK 1 billion since the beginning of the year, and driven by these further CapEx investments. We, of course, follow the cash developments. If you look at the consolidated cash, it was about NOK 2 billion at the end of the quarter, while we had about NOK 0.5 billion of free cash at the group level. I will talk about the cash movements in a minute. The group level book equity increased by about NOK 100 million over the quarter to NOK 2.9 billion, and the equity to capitalization ratio ended at 80% at the end of the quarter. Looking at the free cash movements again. We first of all received about NOK 50 million of dividends from operating plants.
As Raymond mentioned, we have year-to-date received close to NOK 190 million of distributions from operating power plants, and we expect to get slightly more also in the fourth quarter. We'll get back to you on that number when we report in January. NOK 100 million or so of cash flow from D&C. This is a number that we derive from the EBITDA reported. The working capital movements is reflected in the box to the far right of this graph, the negative NOK 100 million or so. That's just also good to keep in mind. The large portion of cash outflow is equity investments, NOK 500 million. As some of you may remember, the Malaysia project have a structure where we invest equity last, meaning that towards the end of the project, we are deploying the equity, and have done so now in Malaysia.
We have also invested now all equity into Egypt, which is a structure where we inject equity in the beginning of the project, and also, of course, in Honduras. For South Africa, which is a project that we have now started, it will be equity last. These are important elements to have in mind also when you think about the cash movements going forward. We spent about NOK 14 million on further development of the backlog and pipeline. Again, we of course continue to invest in new project opportunities. It's been quite a lot of focus on emerging markets risk over the last few months. We thought it would be worthwhile to present this slide that we also used on the Capital Markets Day to talk a bit about how we structure our projects. Basically, all our projects are based on long-term power purchase agreements.
That is a basis for long-term stable cash flows. It enables us to raise non-recourse project finance. It's debt at the project level that has only security in the cash flows of the power plant itself, and that's reducing equity risk. The PPAs have a fixed tariff for 20-25 years, and there's a take-or-pay obligation for the offtaker. There's no power market volume or price risks involved in our portfolio. Again, that's the basis for us leveraging these power plants by 75% typically, and with debt tenors of 15-20 years. Long tenors on the debt. It's PPAs entered typically with state-owned utilities, so the counterparties are government entities. It's typically with government guarantees backing the obligations of the utilities of the offtaker that we are selling the power to.
In some markets, we are also entering into project risk insurance from the World Bank and other institutions. That is further protecting our investments. Again, when it comes to political risk, we are working with financing partners like IFC, part of the World Bank, the EBRD, and African Development Bank. These institutions have many years of experience of funding and providing debt to governments and providing funds to infrastructure investments for the last 30-40 years. That means that we have seen very seldom defaults under these contracts because the governments rely on these institutions for further funding and there's even cross-default terms in these loan agreements so that if the government default on one project, they might be defaulting on debt on other projects.
It's a structure that is, as we have experienced, quite complex and quite cumbersome to put in place. Once you have it there, the default rates, and studies have been made on this, default rates on PPAs across Africa, for instance, is really low in these structures. Just we wanted to make sure that is again repeated, the way we structure these projects in light of that. When it comes to interest rates, that's part of the project finance structure. We hedge that interest for at least 10 years. It varies a bit how much, but typically 70% or maybe even more of the debt volume is hedged. That is, of course, further locking in the cash flow. Our exposure to long-term interest rates increase is not affecting our cash flows in the operating assets.
Obviously, that will affect, to some degree, the interest rates for new projects. When it comes to currency risk, the tariffs are typically in USD in markets like Argentina and Egypt that we are now active in, is USD-denominated tariff. We are getting paid in USD terms, and we then raise debt for these projects in USD in the same currency as the cash flows. Again, this is representing a hedge for us on the currency side. Then in other markets like South Africa, Brazil, and Malaysia, there's local currency tariffs, local currency cash flows, and then we raise debt, obviously, in the same currency as the cash flows. Then you also have inflation-adjusted tariffs. You get protection through the inflation adjustments of that tariff against the long-term movements and typically a weakening of these currencies in these markets.
There's more details to be shared on how we structure projects, but at a high level, I think this is what's important to keep in mind. Back to targets and guidance. First of all, the short-term guidance. The O&M revenues guidance here of NOK 80 million to NOK 85 million for the year is slightly up from what we have guided on before. It's reflecting that we are grid-connecting now new plants, as I mentioned. The D&C contract value of projects now under construction is about NOK 8 billion, and about half of that we expect to recognize in 2018. Again, keep in mind that these construction revenues will vary. We measure progress in the projects, and it's difficult to be too precise on each quarterly contributions. I think the analysts also recognize that.
Lastly, we guide on the production volumes, and we provided you with a range here because the precise date of commercial operation of some of the new plants is, of course, difficult to pinpoint. It gives you the indication of where we expect to see production as we connect new plants, as mentioned by Raymond. On the longer-term guidance, we're repeating what we said in May on the Capital Markets Day. We're aiming for 3.5 gigawatts of new capacity or total capacity, I would say, by the end of 2021. That will imply that we will have a D&C contribution, after-tax contribution of NOK 2 billion to NOK 2.5 billion from now until end of 2021, realizing this business plan.
The operating plans of 3.5 gigawatts is estimated to generate about NOK 800 million of cash flow every year for the next 20 years. On the gross margin level, we guided on 12%-15% and equity IRRs on investments of about 15%. With that, I leave it to you, Raymond.
Thank you very much, Mikkel. My voice is still there. Accelerating growth. That was a theme that we selected for the Capital Markets Day. Indeed, we are in an accelerated mode. To simplify this complex world of ours, we decided to try and bring this into four buckets or four pillars rather. As you've seen now, I guess the proof of the pudding is not only in the results that Mikkel shared on the contribution from the constructor activities. It's also about how we conduct our business, meaning that we have to have tremendous focus on health, safety, and environment. We have to have focus on quality. We build quality plants. You should take a look around and compare it to some of our peers, and you will see the difference.
One difference is that we're not only here for the project, we're here for the lifetime of the project. For us, it's of high interest that the plants that we build and leave behind for Torstein Berntsen, who is actually running the asset management and the plants, that are of high quality. That increases the efficiency. If you look at our performance and the availability of our plants, it cannot be above 100%. You know that. It's actually at 99.6%, that's outstanding. That means that we are getting revenue from these operating plants more or less every time the sun is giving us some rays that we transform into electrons. What's also a bit challenging here is that we are at different locations, and these plants are not next to a big city. They're out there in the rural areas.
For us, of course, we are embarking on a new way or new content into our business model, execution model every time. Looking at the resources in the area, making sure that we give them employment. We have actually a discussion now with communities in Upington, South Africa, on how to employ as many as possible, and we will employ as many as possible, meaning that if you look at Kalkbult that I followed from South Africa, we had 91% unskilled workers, half of that from the local area. A lot of them actually gained skill sets that are generating income for their families from today. Focus. We have been a focus company. We will continue to be a focus company. We are not a volume company. We are looking at opportunities, understanding these opportunities, deciphering the complexities into actionable and understandable behavior and financial models.
That is what we're feeding into our growth. That is what is in our 4,000 megawatts of opportunities. Of course, there are some oddballs there that we decide to take out. Like Mikkel said, we took NOK 17 million of project opportunities I've been working out of our balance sheet. Last year, we took nothing out because there was nothing to take out. I said a few times, too, that it's very difficult to look into the future and be certain about where we are 5 years from now. 5 years ago, I would have never guessed what we are experiencing today. The world is moving extremely fast. That means that our little company, we have to watch. We have to be agile. We have to look at new ways of financing, new ways, new partnerships, new technologies that we have talked about a few times.
You are following the battery revolution going on at the moment. I'm sure you are. Europe is now finally deciding that they need to compete with the U.S. and Korea and China because they know that batteries are going to dominate everything. They're going to have a major influence on historical industries in Europe, like the car industry. It's a threat. When you're a threat, you always look for the opportunity. There are tremendous opportunities in this segment that we're in. As we said before, we're looking at maybe optimizing some of our portfolio, meaning that could find home for some of the assets that are in a position that we can sell them, and we deploy the capital earned somewhere else. Refinancing is, of course, also important, where we look at, and we have looked at that for South Africa.
That could very well be that we are coming up with a financial model where we can actually book a financial gain. I'm just sharing with you the work activity at the moment. There's nothing fixed about that. To my final slide, it captures to a certain extent the growth potential. It also captures the long cash flows down to the left, which has increased since last time you saw it, up to NOK 357 million with Honduras involved. Construction at twice that level at the moment. The backlog that increased last night, that will continue to increase and then move into construction. Some of those NOK 457 million will move into construction after financial closure this quarter. You see we have an overhang of more than what we need to reach the 3,500 MW by end of 2021. Again very high activity.
We have extremely good people. It's amazing that sometimes we have an ad out there and there are 100, 150 applicants. That's really good to see. Conversion I've touched on. Reducing cost is important, isn't it? It's all about that. It's not only about technology and reduction of cost of technology. It's also about how we conduct our business in a more efficient way, how we finance more efficient, reducing the margins to the banks, reducing the fees that Are there any lawyers here? Reducing the lawyer fees. I apologize to you all, the lawyers. That's an expensive bit. If you can sort of copy and be a copycat, you can reduce some of those costs. They are expensive, particularly in Africa. I also like to commend the Norwegian government, even though they're not here.
We have a tremendous cooperation with the Ministry of Foreign Affairs, they're helping us. Norad is helping us, taking some of the risk out of our projects because they're giving contribution to us when we are in early phases of development. That's tremendous and that's good for us. The cost of a plant this year have probably been reduced by 10%. The cost of modules due to the shrinkage or partial or maybe Yeah, the shrinkage of the market in China has reduced the price considerably. Of course, we are enjoying that because we happen to be on the receiving end, but everybody that's upstream are suffering, and they have to become more and more efficient. I think that's good news for industry. I don't think, I know it's good news because it makes power from renewable industry even more competitive. This will continue.
Again, as I said before, you add batteries to this and you have a winning team. I think that concludes our presentation this quarter. I'm really happy to see you all here, and we'll see if we have some questions from you or from the web. Feel free to ask questions. Mikkel, you want to go?
Yeah.
Going back to the projects you announced in Ukraine last night. Could you say something about the CapEx on the projects relative to the previous project you announced in Ukraine? To me, it looks like it's a slightly higher CapEx per megawatt. Is it something project-specific that helps you offset that higher CapEx and receive similar returns as the first project you announced in Ukraine?
You can add, Mikkel. You can't really compare them like that because some of these projects are On their different locations, there is different soil conditions, there are different yields. They will all sort of have their individual outputs in the financial models, and the total cost. Some costs are more or less the same because some of the financing and everything else. It's more the technical side that we'll see a variation. You want to add something?
No, I think that's true. I think it's, as you say, irradiation and the total economics of the project is also to some extent affecting the CapEx levels.
Okay. There's really no sort of source of deviation on the return profile between the three projects you announced in Ukraine?
No, there will be some variations between the different projects, and that's mainly driven by irradiation, because as you maybe saw on the map, it's varying from the north to the south of Ukraine. There's a bit of difference there, of course. Broad terms, similar economics.
Okay, thank you. Just another question. We talked about asset rotation on CMD, and I asked about it on Q2, and I'll ask again. Have you seen any sort of dialogue starting up in terms of asset rotations? Have you seen any incoming requests for discussing potential transactions? Then sort of how's the momentum and how's the timeline on that program?
Well, I think when it comes to potential buyers of assets, I think there is several potentials there. A number of potential buyers, obviously. We are, of course, receiving requests or questions around that. That being said, we have a strategy of being a long-term owner, so we are not really seen as a company that are selling assets. I think we need to be active in that dialogue to sort of have a process, to put it that way. That's, of course, what we will then initiate. Such a process will take time. Just to manage your expectations on when this can happen.
Thank you very much.
Andreas.
A couple questions, if I may. First of all, you mentioned the drop in module prices, this, of course, helping on all component prices, it's helping the long-term outlooks for you. In the short term, however, are you seeing any requests for renegotiations on the existing pipeline that the offtakers are seeing that the price is coming down and want to revisit the PPA levels?
I have to think now. No. Everything that we have started building, they are contractually committed. There are a lot of stakeholders. Like South Africa, Egypt, there are no signs of that whatsoever. In situations where the PPA has not been signed, there could be a temptation to revisit the pricing. We have seen some signs of that, but not many.
Okay. On the Ukraine project, you are, of course, closing in on financial close and getting an equity partner. Are you considering starting the build before everything is in place to capture more of the feed-in tariff value?
It's to match that increased profit with the risk that you're taking by starting early. We have done a bit of both in the past, but mostly, we would like to see new money on the account before we start. It could be that we are exposed, maybe if there is a long delivery time on the transformer that you've put in a letter of intent, and with a cancellation clause, if something should happen. We have done that to reduce the risk and to finish earlier. We would focus on the long lead items. There are not that many long lead items. It's mostly the transformers.
Okay. Your base case is not to-
That's the base case.
Yeah.
Not to start before we have the money in the bank.
Great. Final question. On the opportunities in the corporate PPAs-
Yes
It's definitely something. It's a great opportunity given the pricing levels we're seeing compared to what global smelters are operating at the moment. Can we expect to see any corporate PPAs in 2019 from Scatec?
If I were you, I would hope so.
I do.
No, jokes aside, as I said previously, we are working on many opportunities on the corporate PPA side. What we have also noticed is that we have also a learning process because the structure of these PPAs are different from the structure of the PPAs that we are entering into with our governments and utilities involved. You have to really focus on the balance sheet of the buyer, right? There could be tax issues. Are you producing behind the meter or for the other side of the meter? That's important. We are looking at a host of different things to make sure that we're getting a structure that we're comfortable with. But of course, corporate PPAs aren't always available or to be applied in every country. You have to have a regulatory or an adjusted regulatory system that allows you to produce like that. Brazil has that.
Not every country has it. It's very interesting because the power, as you know, that we are producing at the moment are sometimes below the cost of base power in these countries. The companies that may have their PPA or agreement with the utility up for revision, they come and say, "Hmm, maybe we should do it differently this time because the regulatory regime allows it." We have discussions like that with a lot of different partners at the moment.
Great, thanks.
Preben Støle Olsen, Carnegie. Two questions. First, Ukraine. What is the market price, the relevant market price for electricity in Ukraine right now, comparing with the feed-in tariff you are receiving?
That's a good question. It's a high market price. I have to get back to you where it is at the moment. The EUR 0.15 is a high price. The power in Ukraine is priced at a fairly high level due to the Russian situation. Then, of course, there is a commitment to have a high level of renewables within 2025.
Yeah.
Just to add to that, of course, the tenure of the PPA is shorter, obviously, than what we see normally. If you had a 20-year PPA, you could roughly say that, well, the tariff should be half of the level that we're doing on 10 years, right? That's also something to keep in mind, and that's what the government have cautious. They know what they're doing there because they see that to omit for 10 years makes sense for them, and they can get the benefits of a lower price after that.
I went down to Kiev in late June because I wanted to meet the officials to get the first-hand feeling for where they were. Are they aware that this tariff is reasonably high? For the reason that you guys said, it's 10 years. They were. There were several reasons for that. Number 1, they want renewables. Number 2, they are in great need for foreign investments. Number 3, they have a value that we have, predictability. They would like to be predictable. They know that this is going to have a window, which is why we're focusing a lot on it. This feed-in tariff will be revised by the end of next year. It may be an auction system after that, or they maybe have a transitional period.
We will participate in the transitional period, of course, maybe also auctions because then we're all set. We understand the risk. We can take contingencies out, we will add megawatts to already what's in production.
To the impairments for the development projects. Could you give us some more detail on, is it a specific market you're pulling out of? Or some different kind of projects?
Well, there are, I would say, a handful of smaller projects behind that number. It's some in Africa, it's also some in Latin America. I don't think we should want to go into the specific countries. This is, of course, and we discussed it as well, as we say, we do a review of this every quarter and every month, really, and discuss the maturity, the likelihoods of these projects being realized. It's of course, also a certain degree of judgment around that. I'm also saying that, well, it doesn't necessarily mean that we have given up the project opportunity, we say that, well, we're not able to capitalize the spending on this anymore. That's also just worth mentioning that a couple of these projects we will keep. We're not spending money on them really, as we speak.
They can be there for the future.
This is a part of our business, actually. Sometimes you have to make adjustments like that on your balance sheet on projects that we feel are not mature enough to bring forward, or it could be other reasons. It could be soil reasons, it could be property reasons, it could be other reasons. We are budgeting for this internally for a certain write-off. In the past, we have been very fortunate that we have had very few write-offs like that. We're not exiting markets, like we're completely getting out of that market. That's not the reason.
Per Haagensen from Nordea. Raymond, you illustrated the size of the operations. I think it was in Malaysia, where we had 4 million kilometers of driving. That's amazing.
Did I say Malaysia?
No, Brazil.
I meant Brazil, actually. Yeah.
The size of these operations, to what extent do you rely on external contractors? Do you buy the machinery? Do you only use your own employees? Where do you draw the line on that?
One of our other values is working together, collaboration, partnerships. We have about 300 people working in our organization, including blue collar and the operators. Everything we do, more or less, is based on a high-quality relationship with contractors that have the equipment. For example, now on Mocuba, the rainy season is just around the corner, for those that have lived there. We have 100 machines on site. It wouldn't make sense for us to actually invest into machines. We are relying on subcontractors to carry out that work. They are local, they have access to people, and they know the environment. It's very much a local business, which has both its advantages and its challenges.
Thank you.
In the back.
There's one in the back. Good time on that.
Hi, Lars Kjellberg, Pareto. We see the development in the lifetime of a wind park going from 20 to 25, maybe 30 years. What's your view on the current situation when it comes to solar parks?
Somebody told me, I think it was Alf Bjørseth. He says, "If you look at the chemistry in a solar panel, it's actually sand." Sand doesn't disappear unless it's friction is making it disappear. In terms of the material in the solar panels, they can last a very long time. When we're buying panels, we have a guarantee of 25-30 years for performance. That, of course, conservatively, there will be some degradation, and that's put into the financial model. Normally it's 0.3% per year, you can work it out for yourself. That's maybe 12% for 20 years. It will continue. As a consequence of that, we know the panels are going to hang around for a while. It's not going to rot or disappear.
All our lease arrangements, or most are, not only for 20 years, it's also for the period after 20 years, up to 30 years. Then, of course, they will be operating in a more emergent market. In fact, when we sold the Utah plant, a part of the price was attributed to the market that the buyer anticipated and how that will actually deliver after 20 years. We will see that when our portfolio matures now, like Czech Republic has been operating for seven or eight years. You'll see when it moves closer to the 20 years or maybe not, far from that, you will start seeing a value enhancement. It's like for those of you that work in the oil and gas business, you have a tail end production. You're lifting the tail and you produce more. Then we have written everything off, of course.
You can be very competitive if you are actually there in the merchant market and still make good returns.
There's a question from the web, from Petter Nystrøm in ABG. You are now guiding for NOK 8 billion in contract value for D&C, this is down from NOK 8.5 billion in second quarter. What is the key reason for this?
The reason for that adjustment is that we have completed the Los Prados plants that we talked about today. That's the reason for that change. I think also just to mention it, I think implied in our guidance, we have also taken down the revenues expectation for the year somewhat from what we communicated earlier in the year. That's back to the phasing of construction and back to what I mentioned earlier today. Just to keep in mind that, of course, phasing is one thing. It's not really impacting the total value of the contracts, obviously.
I think that's extremely important to underline. If we have a lower revenue one quarter or a higher revenue one quarter, to focus on the lower one, if it's lower, it doesn't mean that revenue has disappeared. It shows up a bit later. Of course, we can always say that, "Well, you should always deliver on time," and I agree with that. Sometimes you reduce the risk and, in fact, increase the profit margins if you make an adjustment to the schedule. We do our best to have schedules that is actually manifesting itself into the revenues and the profits. Sometimes, and that's the nature of the business, Mikkel has said many times, sometimes we have to make adjustments. You know that these are orders. It's not like you're selling hot dogs or anything like that. You have a certain volume that day.
This is being spread out over the quarters, and you will see that continue, and we'll probably have the same questions in the future as well. Also, I always take the opportunity to mention that once the plans are finished, they start on a 20-year journey. Earning revenues from electricity production for the next 20 years.
Okay. I suggest that we end it there if there are no further questions. Thank you all.
Thank you all. Thank you.