Good morning, everybody, and welcome to Capital Markets Update. To you all here at the Oslo Konserthus, and also to the web participants. It's about two years since the last time we had a Capital Markets Day then. We're extremely happy about the attendance and also to share our message with you all. For the past few years, of course, we have been in the market that has been accelerating continuously, even faster than what anybody of us could have guessed. As you will see from our presentations today, we know that the market is going to continue to accelerate, and we will participate in that growth. We have split the presentations in two. Three of us before lunch. We're going to have a short break, and then we'll spend some additional time until noon, whereafter we will receive questions from you.
In fact, we will also allow for some questions or comments after the first break if you feel like that. This is the team that is going to do the presentation today. We have the rest of our management team here, should anybody like to interface with them later on. This is the title, Accelerating Growth. We have a bit more than 322 MW in operation, under construction, three times as much. We have a pipeline of 4,000 MW. This pipeline is a combination of what we used to call pipeline and the opportunities, and we have decided for the future to combine them in one number.
The reason is that a lot of our projects have moved from opportunities directly to backlog, and the definition previously was more motivated by us developing the projects from scratch and not also acquiring projects, which we have been doing more and more over the past. When we then approach the end of 2021, we will have at least 3,500 MW in operation or under construction. The difference between 1,500 and 3,500 is 2,000, which is what we're going to win and build over the next three-plus years. If you spend a little bit of time on the past, I think it's fair to say that we are delivering on our promises.
We will in terms of sales of electricity, where you know that we have long-term 20-25-year contracts, we have an internal rate of return of 15%, which we also have been meeting. I think that it's fair to say that our performance is actually confirming that we have a reasonable, and I would rather say a good track record that provides us with a fantastic foundation for further expansion. If you look to the right, good returns since the listing, around 35 almost four years ago, we have had an increase in our share price of close to 280%. The market will continue to grow, last year, the growth was tremendous, especially driven by the activities in India and China. Also, as you look into the future, we will see that the emerging markets are catching up.
A bigger portion of the growth will come from the emerging markets. The emerging markets are the markets that are our main turf, where we'll actually focus most our development and project deliveries from. Why is this growth coming? Installation of solar plants have been reduced between 70%-80%, 85%. That means that that is one to one in what you have to pay for electricity. If you have to pay 1 NOK per kWh a few years back, you're only paying NOK 0.2 for the same. That is why if you look at this presentation to the right there, that solar power is now especially in areas where we are in emerging markets where, you could call it the sun belt, where the sun is stronger, you will compete also with wind.
Now, when you are experiencing these prices, you're doing something to the overall power market. You are challenging the existing regimes. New opportunities, new business propositions are going to emerge. You will see more combinations of other renewables, but also with existing electricity generators. We're seeing this in Germany, in Europe, and elsewhere today. Somebody has also ranked some of the most visible worldwide equipment manufacturers. Our peers, so to speak, are the ones in the middle, EDF Energy and Albioma, Equinor, and ACWA Power, and so forth. I think that is a confirmation that we have had penetration in the market, also that we are compared to some of the others, mainly focusing on emerging markets. Now, why have we enjoyed success? There are many factors, our business model, as you will see later on, is a flexible business model.
It gives us opportunity to generate value from a value chain that is a bit wider than normal. I will save that one to the next slide. It's also about people. We do only have 200+ people in our organization. That means that we have to be organized the right way. We have to have the right people, the right competence profile, the right cultural background, the right attitude. We have that. It's quite encouraging as a manager when you're having an ad out and you have more than 100 applicants. For example, our last EVP HR position that was out there a couple of months back. Now, I think our ability to build culture is important, both on the people that are there, but also our ability to enjoy success. Predictability is something that we implemented a long time ago.
When you talk to us, measure us, you should recognize what was said the last time. It may not be exactly what we said, but you should understand what has emerged and why it is like that. That has also been shown in our numbers, I think. Collaboration is an important extreme pillar. With 200 people, you can't do it all. We're building projects at three continents at the moment. Of course, partnerships, long-term partnerships, is essential for our success. Of course, you should never lose the focus on where you add value. Driving the results, whether it's organizational efficiency or the bottom line, or how we behave as a responsible player in the markets around the grid. Your ability to innovate, to change, to lead change, to take advantage of change, is essential.
I think also you will see today when you sit and think about what has been presented that some of the things that we are actually presenting today is new. Nobody has done it before. Financial innovation in Singapore, in the Middle East. That's that bit. I think there's something in this organization that has actually given us the foundation to have these ambitious goals towards Some of you may have seen a part of this before. Each one of these boxes, don't think about the size, but each one of the boxes, they represent where we can add value, create value, monetary value to the company. Development. You could have had a separate developed company, and they could make the margins and sold the project. You can construct, do EPC. I've done that in it.
You operate the plants, of course, as a utility, you also sell the power. This is our business model. We do all of it. Why is this a good idea? Since these are different businesses, we combine them into one. We have the same type of management, i.e., you reduce friction losses that will manifest themselves at the bottom line. Stewardship, we are really focusing on how to make our plants operate better. We have established a 24/7 control room in Cape Town. All the data from all our plants and our thousands of data from each plant are going to be collected there and operating, but also learning and then redeploy the learnings into the project and the plants that are in operation. I have great hopes for how this control room is going to give us additional benefits. Cost of capital.
We have enjoyed very nice interest rate. In some of the markets that we have, there are room for capital optimization. You can portfolio finance, you can use different instruments once the plants have been there operating, proving them that a lot of people don't think about. Once the power purchase agreement is ended, it is not the end of the plant. It doesn't fall over and die. It has a potential to, whether we rent it or lease it or some other ways, with additional time periods beyond the 20-year lease period. Sometimes five, sometimes 10, sometimes 15 years. When we move towards maybe it is going to emerge as something that is worth paying attention to.
In fact, when we sold the plant in Utah, the buyers, they actually attributed a value to the. You may think that how do you actually control this business in all different parts of the world? I think that we have taken the best from many industries and put them into our operating model and made a very structured approach. From the time we analyze it, we say, is the legislative regime there something that can give us the protection, our stakeholders protection? Yeah. Can this give us returns? 15? Yeah. We move into development and we start spending money and to make sure that if you do not meet those parameters, we don't move ahead, then we let it go. You can see here there are four different decision gates that are stringent.
If you move further to the right, of course, then we start interfacing with our board as well because then we are approaching an investment decision. I think that gives comfort to the stakeholders, but it also gives a structured input. Execution phase. You will learn a bit more about that in the post-presentation later on. Our company and more companies to come are going to grow into more slides over time. Sustainability is extremely important. It's risk management, but it's also about how you interface with the society that you are in. We are in rural areas all the world showing how we are performing. Soft words come easy, and our first is sustainability. A lot of good stuff in it, but it wasn't actually measured according to what we call global reporting standards.
It's kind of interesting, over the past couple of years, a lot of investors, and we know they're not only looking at the bottom line, they're actually looking at how we are performing within this global reporting standard. They're looking into our sustainability report to see, hmm, is this something that they're really taking seriously? We will further refine and improve this as we go into the future. Accelerating growth. To be able to achieve the 3,500 MW, you need to do certain things, of course. You have to have an available market there. I've shown that on the previous slide. The pipeline of 4,000 MW, that is right now, is not going to remain that. Of course, we have to deliver on the 1,100 MW as well.
Pål Helsing, who will give a presentation afterwards, will actually show you where we are operating. three continents, several thousand people that are engaged, working in accordance with our operating system, in accordance with our HSE standards, and making the projects available and commercially operational within the time that we have planned. Execution is extremely important of the existing portfolio. You also know that from a previous slide, that the markets. That's good for us. Of course, we are not a percentage player. We are a niche player, and we are looking at particular projects that satisfy our investment criteria, our standard quality criteria, and our HSE approach, and that kind of thing. There are sufficient opportunities there. We have also noticed that when you have presence in certain markets, you get a deeper understanding for how these markets operate.
I'm not only talking about PV or solar. I'm talking about possibly combining it with other technologies, with existing energy producers. I can say also here that we are actually negotiating several interesting corporate power purchase agreements as we speak. We'll touch a bit on that later on. Terje Pilskog will move into that. As I said previously, when you are approaching a very low cost of energy, then additional business opportunities present themselves. We are broadening our hybrids. In fact, we will present to you today the first contract of hybrids that we have signed. Extremely interesting potential. It's actually a 24/7 opportunity with solar, batteries, and a tiny bit of diesel should everything work against you. That's going to disappear. We'll see a lot of that.
Also, one third of the people that work in our company have maybe a combination of engineering and financial background, but at least they have most definitely their financial background. Financial engineering is also an extremely important contributor. In fact, we couldn't do any of the things we're doing right now if we didn't have the financial capacity when we are financing our plants. In this area, we can do financial optimization. We are in several markets looking at how we can reduce cost by combining plants into more efficient financial structure. We are also looking at different contracts structures to some of these opportunities. Very interesting. This is our emerging market globe, 4,000 MW across from Latin America, a lot in Africa, Europe, a little bit southern or east, I would say, not central. South Asia and Southeast Asia. You'll learn.
My final slide this time around, 3,500 MW by end of 2021. It says above, so it must mean something more than that. That comes from the 1,500 MW that we have shared with you that we have actually met what we have promised or targeted, adding 2,000 MW to 3,500 MW. We are also saying and giving you a bit more meat on the bone than NOK 2 billion-NOK 2.5 billion. Once these plants are in operation with long-term contracts, 20-25 year contracts, we will enjoy a long-term cash flow of NOK 750 million-NOK 850 million. Sometimes I guess it's a bit difficult for those who follow us to estimate what is the value creation per MW. Mikkel, in his presentation, will actually bring you to that. You will look at our total portfolio of projects and attribute the value.
In fact, if you average that value out, it's NOK 1.5 million per additional MW that we will add in the future. The number was a bit higher in the past, which is natural. Prices were higher. This is a good guide, I believe. We're never going to lose focus on health, safety, and environment, as well as sustainability when we're executing.
Gentlemen. Good morning, ladies and gentlemen. This session is about delivering the projects, what we have in our pipeline on the construction. What that means is to take the projects, engineering, procurement, procuring all the component parts. It means constructing in country. As Raymond showed on his slides, we are today constructing to 4 times the amount of power that we have in operation today. It's a significant amount of projects being constructed. Two key messages I want you to remember after this presentation. First of all, we're on track with this pipeline of projects. Second is that we do have a very flexible and scalable model. Let me take you through this section in two parts.
First, the part which is some general statements about the model to give you some more context to how we do this. The flexibility of the model with regard to the amount of projects that we do and also the length, it's extremely important that we are flexible with where we do the projects. Core competence, which is in our permanent hubs in Cape Town and Oslo, and hired in people at location. The core competence in the hubs in Oslo and Cape Town, they comprise our detailed knowledge with regard to technologies that we're using, the engineering of the plants, optimization of the plants, our procurement, our knowledge of the supplier and the supplier base that we're using, how to do logistics class within these areas.
They will not be many people, but they are deployed into all the projects that we do, supporting the projects wherever they are. That has to be combined with people that is how to do a project in Malaysia, in Mozambique, in South Africa, in wherever the project is, and it's giving us an ability to scale up the organization and reduce it, scale up in another location, and reduce. Obviously, what it means by having this combination is we need to give them an extremely strong and specific guide on how we want as Scatec Solar to do projects. We need to give them a platform of executing the work, which give us a ability to transfer experience. Our last Capital Markets Day was that we have invested in what we call an operating system. Raymond touched on it.
It's a very detailed, process-driven system on how we execute our projects. That doesn't vary from country to country. It is specific and general for everything that we do. It's our experience platform. It's our bank of system and tools and methods and the guide for all the people that we bring into our organization. This combination. Now, without our suppliers, it's difficult. About 70% of the cost base in the projects is the component parts that we integrate and put into the projects. We only work with tier 1 suppliers. We have a very long-term relationship with a few selected suppliers that we know will give us the delivery security. We know their technology, we know their products, and they are called platinum partners. We have two platinum partners, which in each of the categories that we are the main categories of equipment into the project.
We have gold partners who are runners up to become platinum partners. These companies are very important to ensure that we have a predictability in the delivery with regard to time, volume, capacity, but also that they have a focus on cost reduction, because cost reduction is a key in our industry. They have to make sure that they are bringing the cost down on the component parts, still delivering in a robust way. We work closely with them. We work closely taking their technology into universities that we cooperate with. We have first-hand knowledge about their technology. If you look back over the last years, we have seen a 35% cost reduction in the projects that we do since 2015. Based on this cooperation and collaboration with our suppliers, we see a further 25% cost.
An important part to make sure that we are doing good planning for projects ahead. I'll give you an example on how this work in practice. One of the new technologies, which is not really very new, but it's a technology that has got a significant impact on power production that is coming to the market. We have had cooperation with suppliers over many years, bringing this technology into universities, familiarizing ourselves with this technology, and it has a potential to increase power production by 15% from each module. The yield increases by up to 15%. We can choose either to integrate this technology in order to reduce cost, or we can choose to integrate this technology into our projects to increase yield. What is the best depends on the specific application of the specifics of the project. That's not unique to Scatec Solar. Anyone would do that.
What is unique to Scatec Solar is how fast and the way that we introduce this into the projects. We are able, because we do have this knowledge from a detailed level with the technology up to the integration into the projects, the financing, the security, the discussions with the partners and our sponsors of the project to do this in a robust way. What you will see is that we can take this into the project faster than anyone else. We can make sure that we de-risk the way that we take it into the project, and that our sponsors and partners have comfort in the way that we introduce it into the project. I think also what we see is that when we talk about the project now moving forward, you will see this technology in several of our projects.
From here, I will move on to talk about the projects. This is an overview of the timeline. You can see that there are projects in a number of regions: Malaysia, Brazil, Honduras, Mozambique, Egypt and South Africa. All of them have started. South Africa, we're just about to start. I will share some comments to each of these projects. Before I do that, I will just show you a film on what is. When you see this, they are megawatt plants. For example, in Egypt, we do 6 of them. Each of these plants are 135 football soccer fields large. The footprint is huge. Number of modules, solar modules to go into these ones, for a 50-60 MW plant, 180. We're transporting for each project some 500 containers into a country. We are in Egypt.
It will be more like 3,000 offload and managed locally. For each project, 500, 600, 700 people. It will be several thousand people for each plant. We think that we, within this segment, we will peak at 4,500, 5,000 people that we have ours and the subcontractors' piece. From a logistics and a work efficiency point of view, they are significant projects. This is Malaysia, the first one you see. This is Gurun. Gurun is very close to completing the first project. We are moving now into a testing phase. It's then going into commissioning and grid connection and commercial operation. We have 2 following projects in Malaysia that we're also in good progress on. We are now ramming piles. We are installing modules. It's several thousand modules installed every day. You have Brazil. Brazil is a bit later.
It is now, as you can see, we're ramming piles. We're installing modules. The high voltage connection part is moving forward. All the equipment is on its way. Most of the equipment there is actually manufactured in country, and that is also going very well for us. In Honduras, very close to completing the high voltage connection point. We are ramming piles at the site. We are finishing all the earth movement and everything. On track. We're moving forward as we should to then to have commercial operation. Mocuba, a bit earlier. In Mocuba, we have placed all the engineering. We're in detail engineering phase. We have placed all the main procurement items. Equipment is on its way being shipped, and we are now planning for the import and the logistics of the sites in the place, town of Mocuba.
We are also now starting the preparation and starting to build the access roads, and also the specific earthwork at site. Egypt, that's our largest project. As I said, we will have close to 1 million solar modules to import and install at sites. There are 6 projects. Most of the procurements are actually placed. We are far into prepared for import and transport to sites. We have placed the construction contract for the 2 first, what we call, plots for the 4 first projects, and the 2 last, we will wait a bit with that. That's going forward. Fantastic site. Flat, as you can see, and we're not the first ones to connect to the grid there. Most of this early work is being done by others. There's many developers working parallel in the project that we have not started the construction and these activities.
We are going to start the access roads this summer, we will start the real construction activities and the procurement activities in the second half of 2018. All in all, these ones are, as I said initially, we're moving forward according to our plan. The model that you saw earlier and I commented on is such that we are able to add additional teams to this in different locations and to scale up. What we say is that we're on track with these projects, and we are ready to deliver more. Thank you for your attention. Over to Terje Pilskog to talk about the new projects coming up.
Thank you, Pål. It's good to hear that you're ready for more. Now we're going to talk about the developments, the market perspectives, go a bit deeper into the trends that we are currently seeing in the markets relative to what Raymond did earlier. I will go in and talk about how we see this impacting our strategy and how we are doing adjustments in terms of our product development approach. We are now moving forward given what we're seeing in the market. I think it's understood by everybody that the costs of solar is coming down. The CapEx is continuing to be reduced. There are many drivers of this. Over time, we have seen cost reductions in general. We're seeing new innovations coming in, and we're seeing, in general, efficiencies being brought into the game.
As Pål said, what we are doing are being early adopters of the new technologies that are coming. We have done it on the inverter side, 1,500 volts. We've done it with glass modules, and we are now also looking to do it with bifacial modules. Actually, these figures, we are considering them to be a bit conservative, and we would believe that the CapEx levels are going to be even lower where we're moving into 2020 and forward. What this is doing is that PV is now truly competitive against all other relevant energy sources. For me, having been in the industry for more than 10 years, 10 years ago, we talked about extensive feed-in tariffs. We had a dream about grid parity. Now we are there.
We are actually beyond that point, and we are now where PV is competitive on a cost basis relative to other relevant alternative energy sources. It's not only the cost that is driving the growth of PV. Governments are also seeing a number of other benefits of all solar energy and renewable energy, and there are a number of other reasons why they are driving the implementation and introduction of PV into these countries. Some examples are time to market. As you know, PV can be implemented significantly quicker than many of the alternatives. We have countries committing to climate goals. We are seeing increased economic development from PV. PV in many emerging markets will also attract significant new direct foreign investments, which is important for many of these markets. Lastly, PV is also offering energy security.
As soon as you have PV installed in country, you're not reliable on anybody else in terms of making sure that you can provide energy. You are not dependent on fuel supply or larger energy markets in terms of your cost and your supply of energy. What we see with all of these drivers is that the market for PV is going to go beyond 100 GW over the next couple of years. What is interesting on this slide is the fact that if you look at the four emerging markets that are the colorful elements of the slide, those are actually taking an increasingly large piece of the growth in the coming years. That is where we are playing.
It's not only the governments that are driving the introduction and implementation of PV, it's also to an increasing degree, corporates and private players. This chart shows the introduction of corporate PPAs, the signing of corporate PPAs over the last couple of years, and we see that there is a significant growth here. Initially, it has been mainly driven by developed markets and big players like Google, Facebook. Hydro has signed some PPAs in the renewable market, and so has Alcoa. We do see that this is also to an increasing degree, coming to emerging markets. The reasons are, first of all, that many corporate players in emerging markets now see that renewable energy has a lower cost than the price of electricity coming to them from the grid. That's one of the reasons, and that we see to an increasing degree.
Another important reason is the fact that we see emerging deregulation in many of these markets that we are operating in. Obviously, in most developed markets, the energy sector has already been deregulated. In many of the emerging markets, you're still early in that phase. With that deregulation coming, you're also seeing that there's an opportunity for many private players to move into corporate PPAs and actually buy renewable energy directly. Reduced cost is one important point. Commitment to climate change is another important reason why corporations are moving in here. Here you see the RE100 initiative, where more than 100 influential large corporations have committed to move into and achieve 100% renewable energy supply for their energy needs. This is a very important indication of what's happening here.
Finally, obviously, in many of the emerging markets, you will also see that corporations are or irregularities in terms of the energy supply, and bringing in renewable energy can also be something that is helping out on that. That's on the corporate side, and we see this moving in and becoming a significant segment in the coming years, also in emerging markets. Another important trend for us is the dramatic drop in storage costs. We are expecting that storage costs will drop by approximately 50% over the next couple of years. This is obviously going to drive a significant growth in the installation of storage capacity. These figures are related to the energy systems. On top of this, obviously, we know that there's a lot of growth also on storage and batteries related to electrical vehicles and other applications.
For PV and for us within solar, this is obviously something that is allowing us to move into a new space, into new segments, and we can compete in an even broader part of the industry and the energy system by offering broader energy systems. With these reduced costs of PV and reduced costs of storage, we are seeing that hybrid installations will start becoming mainstream in emerging markets. Here we are showing you an illustrative example of what a hybrid system could look like, achieving in the range of 60% to 70% solarization. Assuming that you have a customer with a 10-MW base load consumption 24/7 throughout day and night, what you can do is you can implement 25 MW PV.
You will have a 10-MW battery with 80 MW hours storage capacity, you can cover the rest with some diesel or fuel oil generation. Through that, you can achieve a 60% to 70% solarization of the energy needs of that customer. Obviously, in many cases, nighttime need of energy will be lower, you can increase solarization levels. Also, as costs are coming down further on PV and on storage, you will be able to do even more in this space. Just to show you some different elements and how it is likely that we will move into this space, we have created here three different cases of what this looks like.
Based on the current cost situation and the current situation in this industry, it is most likely that you start mostly with pure fuel saving, where basically the only thing you do is you add in PV capacity to use less fuel during the days when the sun is shining. The cost of this will be more or less like any other PV installation. You will not have any storage, but the cost might be slightly higher on a per megawatt hour, per kilowatt hour basis due to the fact that these are typically remote locations, smaller installations, and you will typically have slightly shorter contracts than the 20-25-year contracts that you have on the public PPA side. You can move into what we call mixed power generation, achieving solarization in the range of 40%-50%.
This is when you go in and add also a small component of storage to manage short-term fluctuations on the power supply of the consumer. Here you will see that the costs are increasing by maybe 50%-100% relative to a pure fuel-saving model. Finally, you have a model where you can also consider to provide 24/7 power. That will then be a pure hybrid solution, and where we see that this is relevant for customers that have a very high fuel cost and are in remote locations where fuel supply is difficult. You will then typically have three to four times the PV capacity to achieve this, and obviously also then on the storage side, you will have the same level of capacity.
In terms of the market potential for these type of solutions, globally, there are 500 GW of fuel oil generators and diesel generators that are currently operating today above a level of 10 MW each. If you look at Africa alone, there are also 500 GW. If you ignore the low-end limitation of 10 MW, if you include all, we are looking at also there 500 GW of installed capacity. The market potential here is huge. As I said, we are already seeing that we are starting to be competitive in this segment, and we're seeing increasingly opportunities coming to us also in this segment. Let's pause here a bit. We have been through some of the key market trends that we are seeing.
Obviously, continued growth on general emergence of corporate PPAs and the fact that storage costs are coming down, and we do see hybrids increasingly being a relevant option in the market. We are then looking at is expanding, as Raymond said, the commercial and the technological scope of what we are doing. Obviously, in the timeframe that we're talking about here, over the next three to four years, our mainstream is going to continue to be our traditional utility scale business model, working towards public PPAs in the emerging markets where we are operating. The market characteristics are as we know them, and this will continue to be our main focus. We will start, or we have already started moving into corporate PPAs. We are negotiating PPAs with industrial, commercial, and institutional customers.
This can either be PPAs, or in this segment, it might also be lease contracts. Tenor is typically a bit shorter. In most cases, you will still be able to get fixed price contracts, but there might be some variations. The financing will in most cases depend on the offtaker, but we typically see that the companies that are wanting to sign up corporate PPAs, they are as creditworthy as also some of the other offtakers that we are having in emerging markets. Here we see that opportunities are emerging fast. We will go after them in the geographies that we are currently working in, and we will try to apply our current business model as far as possible, but we will build competencies related to how to structure these new types of contracts. We have broader energy solutions. We could also call it hybrids for short.
Here you also see emerging opportunities. Here there are both public and private customers. We are moving into being able to offer 24/7 solutions. The tenor of these contracts can be even slightly shorter. They will follow the business cycles of the companies that we're working with or the institutions that we're working with, and they might be off-grid or on-grid solutions. This is a segment that probably will emerge a bit slower. I think the value proposition is there already, but they are smaller systems, and it will be taking a bit more time before systems with high solarization also will be mainstream and competitive in many of the segments that we are working. In terms of what this is doing to our development activities and how we are structuring our product development approach.
In general, you can say that we have five principles that we're working after. We are focusing on high-growth markets with a significant potential. We will broaden our technology and commercial scope. We will organize our activities around some key priority markets. We are working closely together with partners in terms of the origination of our business, and we are continuing to be very focused on managing development risk and development exposure. Now I will go through each of these ones one by one, and go a bit more into depth in terms of what this means in practice. There are a large number of emerging markets where there is significant expectation in terms of the future growth of PV, and as you will see, we are active in many of these ones.
We will continue to focus on the markets with the best growth potential, and we'll look over time to scale and concentrate our portfolios around the markets where we see a long-term growth potential, and we can build significant scalable positions. That doesn't mean that we are not going to also continue to be opportunistic in our development activities. On offering the broader energy solutions and target corporate players, we will still continue to try to stay relatively close to our core, which means we are going to work for larger contracts, creditworthy end customers. As we are illustrating here, we will look for general corporate clients, corporate customers, large power consumers, and project-specific installations, whether that's related to irrigation, water treatment plants, or other types of heavy energy using installations. As I said, our approach will be the same. We will use our current business model.
We will use our geographical presence to move after this. We will obviously have to develop some new competence on the technical side in terms of using storage, integrating into a bigger energy system where we can deliver energy according to the needs of the customer, and also on the commercial side because the commercial contracts and the financing structures will be different when it comes to hybrid installations. Focus on larger corporate PPAs and storage, but also looking at some smaller opportunities where we see that it can fit into a larger scalable portfolio. Scalability is a key word here for us moving forward. In terms of the regional approach, we have development teams out in the regions, but we're careful in not deploying resources too early.
We deploy resources related to areas where we already have operations, where we see significant further potential, both within our traditional business as well as within the new segments that we have talked about. Beyond our own organization, we are continuing to have a very partnership-based approach on project origination. I would say for this purpose, this is around 3 levels. First of all, we work closely together with local development partners for the initial development activities, securing the land, doing the permitting, making sure that we have the required local competence involved in our development. We have some larger regional or global development partnerships that are here on the left-hand side of the slide. These are helping us with access to opportunities. They bring, to some extent, size and credibility into what we're doing.
They're supporting us on financing, and they are also, in some cases, giving us access to authorities and making sure that we are well connected where that is important. Finally, we have the financing partnerships. Those are also very important. They are obviously also helping us with origination. A lot of opportunities come via financing institutions, but it's also so that they are helping us out with making sure that we can come in with cheap financing, concessional financing, and making sure that we are either competitive in competitive situations or also that we're able to offer the off-takers, typically governments in emerging markets, cheaper power than what we would otherwise be. That is a potential significant contribution to securing new projects. Finally, in terms of the management of development risk, Raymond has talked about our operating system. That's one part of how we manage development risk.
We have cross-functional reviews of all the opportunities through the development stage, but we also integrate our partners early to have them help us review development risks. We make sure that we are in close dialogue with authorities, we also try to share development exposure with our development partners, as well as getting support through grants in terms of also alleviating part of the development exposure that we are taking on in developing this quite broad pipeline that we are currently developing. That's the end of this session. I think with that, we are heading for a small break, 20 minutes or something like that. We will be back here. Before we take a break, we are opening up for questions. If there are any questions, please go ahead.
There's one up in the left-hand corner.
Okay.
You have mics there, right? Maybe you have to speak up.
If you don't have the mic.
Well, I
With very often with agricultural land, agricultural production. How is that competition going on? Would you like to have it one more time?
Yeah, maybe a clarification on the question you asked about how we compete with agricultural land. Is the question related to our perspective on land availability, and whether we can use agricultural land, or is it something else?
No. In many cases, you have to use land that has been used for agricultural purposes earlier, and then you have to compete into the market by pricing or investment, as far as I can see.
Yeah. In most of the emerging markets we are operating, I would say that agricultural land is sacred. First of all, there are regulations that will limit you from using agricultural land. Second of all, we would not target agricultural land for the purpose of PV plants. In all cases, the land that we're using will not have an alternative use or an alternative value as agricultural land.
There is no competition with agriculture production?
There is no competition with agricultural production.
My customer in Ukraine has one and a half million decares of agricultural land where they would like to see products, not power. The problem is that all this land is agricultural, and it's 90% of the land there that is developed by agriculture.
Okay. Was that a question?
Business opportunity.
There's a business opportunity. Yeah.
We are working to certain principles, sustainability principles, Equator Principles under IFC, and we do a lot of environmental impact assessments and that kind of thing. We are not at all targeting farmland at all. In most cases, we are prohibited from using farmland. I'm not sure if we've used that on any of our project.
No, I don't think so.
Just a question on market trends. We've seen some headlines with some very low contract rates being announced, a couple of cents. Are you guys noticing increasing pressure, when you guys are negotiating PPAs on the basis of this? Or are these headlines sort of more fringe deals that are announced and not necessarily indicative of any larger trend for the industry?
The general trend is that the prices are going down. Some of these highly publicized prices in the Middle East are so low that they have put together financing and different type of contract lengths and residual value of the plants that you will reach that level. We have plugged our numbers into those, and we can meet those levels. Not at returns that we're talking about. I think, based on personal experience from other industries, that reverse auctions that you have seen here or auctions of prices You can't go below zero, right? If you go further down, the price become not interesting. Then you move more into what Terje has been talking about now, where the customer is going to look at energy security, other types of services and business case, which we're actually doing and presenting here today.
I think it's also a good signal. The lower prices is good for the industry. We're seeing now that, if you talk about the Middle East, for example, we're seeing that a lot of the countries there are trying to replace oil being used for their electricity production for export, then generating their own electricity through installation into renewables.
Fredrik Stensen from Pareto Securities. Can you comment on the developments you're seeing on the competitive arena with regards to winning new projects? I would assume that you would meet players with considerably lower required rates of returns than you do.
I think there are different competitive arenas, and I will get back to that in my next section, that we're playing in. We are obviously, as you allude to, we sort of in the global scheme of things, in the energy sector, we are a smaller player. Based on that, we are moving more into niche opportunities, segments where we believe that our strengths have value, rather than going into head-to-head competition with the large players that obviously have a lower cost of capital than us in those types of situations where cost of capital is the most important thing to make a competitive bid.
We will then rather identify other opportunities, find other segments where we believe that our strengths play to our advantage.
Thank you.
I'm of the opinion that one of the key challenge you will have in deploying solar farms in Africa is the skill level. How do you seek to overcome this challenge in training tradesmen, people who can actually build the farm? I know maybe probably on the software side, you can control that from wherever, but the physical deployment of these solar panels and all the rest of it, how do you overcome this challenge?
When we built our first project in South Africa, I was a bit concerned about the skill level, because we were going to build these plants in rural areas. I was so concerned that I decided to move there. I was sitting next to the project team, and the key here is that, number 1, you have to recognize that the type of people you need, and I think we had six or 700 people engaged on the first project. It's extremely important for us to utilize the local resources, meaning that you have to take on board unskilled workers. In fact, we had 80%-90% unskilled workers on our projects. Before we started, we implemented comprehensive training plans, and some of these people went from unskilled to skilled. We had, I think it was actually 92% unskilled workers, 30% women on the project.
We did the whole project, the first project, three months ahead of schedule, below budget, and without any injuries. It was a tremendous success, and we have later done two more projects in South Africa, same results. We did a project in Rwanda, mostly using local workers. The good thing about this is that a lot of these people that worked on our projects are now working on other projects and in other industries. They gained a lasting skill working for our projects, and that's a really nice upside that most people don't think about when we are deploying our projects into more rural areas of Africa.
Yeah.
Jørgen Braseth from Nordea Markets. You touched upon the CapEx outlook going forward. Just to clarify a bit, how much visibility do you really have on the forward-looking CapEx? You also mentioned it's a bit conservative. Are you able to break down on the CapEx reductions ahead, how much of that is derived from, let's call it external factors, and how much is derived from internal improvement?
Maybe I can comment on that. Obviously, we're also working on internal improvements in our execution models. I won't give you a specific number, but you can say that it used to be a very large portion of the cost base, which was related to modules. That is now because of the cost reduction in modules, that has reduced that kind of contribution. We are looking at ways of executing the projects which are more effective and reduce our internal costs, and also put together the entire system in a more cost-effective way. It's not on the components, it's on the system level.
I think we'll take one more question. Yeah, here. Then we'll break, because you need a break. Then we have much more room later on for questions and discussions.
Hi there, Joachim Korsvold, SEB. Just wondering on the 2 GW that you're developing near-term, is it possible to say anything about the mix there between corporate PPAs and public PPAs?
We're not giving a split, if that's what you're asking. You will see a representation where you're combining all the 4 GW into one slide.
Okay. Just to elaborate, is it so that the average time of the PPAs will decrease then if there's some corporate PPAs in those 2 GW ?
Not necessarily. In fact, I participated in a discussion yesterday where the corporate only 25 years. Yeah, logic would anticipate that, as you're indicating, but I'm not too sure. They know that the longer they can commit, and as long as they're bankable, they will benefit from a much better tariff if we have 20, 25 years instead of 10 years. Right?
Okay, perfect. Thanks.
Okay. Thank you very much for your patience, there is something to eat out there, and coffee and drinks and everything else.
Okay. Welcome back. The next session is going to be on our project pipeline. In this session, I will take you through the status of our 4-GW pipeline. We'll keep it a bit high level. We will look at regions, and we will do a deep dive into certain countries, but we will not do a full run-through of what the 4 GW are. This is the regional split of our- current pipeline of projects that we have under development. In total, 4 GW . We believe that this is giving us a good basis for achieving our targets of reaching financial close and installing another 2 GW over the next three to three and a half years. It's important as a basis for that statement to also look a bit behind in terms of the characteristics of this pipeline.
In different markets, you will have different procurement approaches when it comes to renewable energy. Here is a split that we have done based on the pipeline that we are currently working on. As you will see, more than 50% of the projects that we have in the pipeline are related to either feed-in tariff regimes or bilateral negotiations. Those are situations where you are more comfortable and more in control in terms of where the pricing is ending up on the contracts. Either you know it, because it's a feed-in tariff system, or you are sitting in bilateral negotiations, and you manage that process in a different way. Another 30% is related to what we call project tenders. That's a term that refers to situations where the developers are enhancing and making a best offer based on the project they have developed themselves.
Obviously, it is a tender. It can also be an auction. You're still playing in your abilities to develop and structure and finance a project in a competitive manner based on the skills that you're having. The last category that we have here is price tenders. Those are the typical situations that are common, for instance, in the Middle East, in the Gulf region, where the authorities are structuring the projects themselves or together with consultants. The only thing you can adjust and work on in terms of coming up with a competitive bid is the CapEx and the financing costs. In some cases, even the financing offers are being given to you.
It's in principle only related to the CapEx you're willing to give and how aggressive you are willing to be in terms of the return that you want to see on those projects. This is the distribution of our projects in our current pipeline, and we believe that this is a good structure that gives us a good possibility of achieving good prices and good returns and margins of the projects that we are working on. I will go through the regions, starting out with Latin America. We first entered into Latin America some years ago, focusing then to a large extent on Central America, and later we have now moved with the increased focus on South America, obviously with the success we've also had in Brazil. Latin America is a very interesting market. It has a number of large gigawatt markets.
We have Mexico, Chile, Brazil, Argentina. All of these markets are running project types of tenders. We have selected to participate some places, but not other places due to sort of how we gauge the competitive situation. In addition, the other thing that is very interesting to see in Latin America is that these large markets are also in the process of deregulating the energy market. Here we will also see, we are already seeing it, opportunities in terms of corporate PPAs and other types of agreements. We also have good partnerships now in this region. In Brazil, to mention our local partner, Kroma, and also Equinor, that has participated with us in the Apodi project. That is certainly also adding to our competitiveness. Here we have close to 500 MW in pipeline.
It's not as big as some of the other regions yet, but we continue to see good opportunities here. Moving into some of the markets. Brazil, we now have 147 MW under development as part of these 4 GW in Brazil. In terms of the economic environment, we see that there is a positive outlook in Brazil. Things are moving in the right direction, and we also see GDP growth in the country. On the solar side, we have seen a significant commitment and stable commitment towards solar from Brazil over the last couple of years, with them having run five auctions over this period. We are expecting to see at least in the range of 2 GW being installed by the end of this year. As I mentioned, we also see opportunities here on the corporate PPA side.
The markets are partly deregulated already, and there's continued deregulation going on. We see opportunities both for merchant-based PPAs as well as for corporate PPAs. Even on the merchant side, even though they might be shorter in tenure, it's still possible to get fixed pricing on those contracts. The final thing I would say about Brazil is the financing situation. You have local financing institutions in Brazil providing very competitive financing, which means from a country point of view, solar becomes a very attractive alternative. In terms of our opportunities, we are in active negotiations related to two projects in Brazil. One is a project from the last tender round, 85-MW project, and another one is a 62-MW corporate PPA with an industrial group. Those are the two that we currently have in the pipeline.
In addition, we are also in the process of developing other sites, other projects that can be used for future opportunities and for future tender processes. In terms of Argentina, which is a more new market for us where we haven't done anything yet. Argentina is also a market which is emerging, I think to say the least, from financial distress. We see that with the new government headed up by Milei, that they are moving definitely in the right direction. Economic growth is returning. Even if we have seen recently some turbulences and we will continue to see events of turbulence also in the future, we see that the reaction from the local government is the right one. They are reaching out to IMF and to other agencies to help them in terms of managing through the economic turbulences they are seeing.
On the solar side, they have significant provisions on the solar side with 20% contribution from renewables by 2025. They have implemented a tender program, run two rounds with that and awarded 1.5 GW of contracts. The tender program in Argentina has actually been internationally recognized as a very solid one, and it is so good that we are seeing international financing institutions being very eager to finance projects in Argentina, and many of them are running with open mandates. Our current situation in Argentina is that we have 200 MW in our pipeline. One of the projects is from the last tender round, and another one is, again, a private PPA, a corporate PPA that we are currently having under negotiation with an industrial group. That's Latin America.
I will move on to Europe and Central Asia, which is sort of a relatively large and defined, so to speak, region. We haven't done that much in that region so far. We have been active, as you know, for quite some time in Pakistan, and we're continuing to pursue our 150 MW portfolio in Pakistan. In addition, we are now prioritizing development in Ukraine and also in Kazakhstan. Both countries currently have a feed-in tariff regime that we are working on. We are expecting that the regimes will be changed over time, but for the time being, there are opportunities under the feed-in tariff regime. In the region in total, we have a pipeline of about 1.1 GW. Moving then to Ukraine as the deep dive in this region. Raymond talked about Ukraine during the Q1 presentation. We talked about 150 MW.
Now we have increased the figure that we're currently working on to 400 MW. We are seeing many more opportunities in the country. Also Ukraine is a country where we see good macroeconomic developments. We see that they are wanting to integrate with Europe and with the European energy system, and we also see that they have significant targets when it comes to renewable energy. On the financing side, we also have good support from some of our partners on the financing. EBRD is already taking the lead on two of our projects, and we also have good support from FMO. Black Sea Trade and Development Bank is working together with us in terms of pushing forward on the financing. Moving on to Africa. Africa is almost like a home market to us. We have been active throughout Africa for the last seven, eight years, since 2010.
We have 200 MW in operation. We have, over the last months, closed another 700 MW that are now moving into construction. We have good development partners, and we have also a strong development team that is working on the African continent. I think we are, with that, probably one of the, if not the leading solar developer and solar IPP on the African continent. In terms of the region, there are very strong fundamentals for PV and for renewables on the regions. You have growing populations. You have low electrification. You have obviously strong insulation and a significant energy gap. The market is fragmented. You have some large markets where a lot is driven by the governments, and you have good procurement program for renewable energy. You also have smaller markets where there are more opportunistic projects that you can move after.
Finally, when it comes to Africa, it's obviously important to mention that this will be a core market for corporate PPAs and hybrids as we move forward, and the cost of hybrids is continuing to come down. South Africa, as I said, and has been mentioned earlier, is a core market for us. We have 600 MW under development. We see continued or even increased commitment towards renewable energy in the market after the new president has come into office. We do also see or hope that the Integrated Resource Plan is going to come out by the end of this year. Obviously, that has been expected for some time, but it is expected that the Integrated Resource Plan will contain a significant portion for renewable energy.
The commitment from the authorities obviously also shown through the fact that they have closed Round Four. We do expect that also for Round 4C, there is going to be an award during 2018. Here, the energy markets are being deregulated. There's possibility for captive PPAs, and there are also wheeling regulation in place. We also see opportunities for signing up larger corporate PPAs in South Africa. Specifically on our pipeline, we have 430 MW that was bid into Round 4C, and we have another 170 MW in our pipeline. Beyond that, we are also developing other opportunities in the country. As I said, Africa is a very attractive market when it comes to hybrids. We have now signed our first hybrid contract with a humanitarian hub in South Sudan, which is being run by a UN organization. It's a small contract.
It's a first step. Thinking about UN as a customer, it's a very strong first step into this segment. The customer has very high fuel costs based on fuel actually being flown into the site. It's obviously a very credible customer, and it is a customer that offers us significant potential for repeat business. We believe it's going to be possible to do this with more installations in more places with different parts of the UN. In terms of the project offering that we've done here, it's actually all the way to the right of the slide that I showed earlier in terms of the different archetypes of hybrid installations. It is a 24/7 solar installation. It's based on a lease contract of three years where there is an option to extend. Our payback time of the system is in the range of 2.5 years.
The project was initially developed by Kube Energy, which is a Norwegian company focusing on developing projects in this space in Africa. The last region I will talk about is Southeast Asia. Southeast Asia is a region with huge population. There are many different types of frameworks there. By characteristics of Southeast Asia, obviously this is also a huge potential. Southeast Asia has globally the highest installation of fuel oil and diesel generators. Many would maybe think it's Africa, but it's actually Southeast Asia because of [all about Malaysia]. Malaysia. We are still very positive in terms of the developments we are seeing in Malaysia. We believe that with the new government, Bangladesh is a country with a huge. It has a stable economic growth of 6%-8%, which is forecasted to continue.
They have 20% of the population without electricity. If the growth is going to continue over the next years at the same rate, which is forecasted, they will need to double the amount of energy capacity from 16 GW to 32 GW over the coming decade. We believe there is a good opportunity here. In terms of solar, the government have set high targets. So far they haven't been able to implement too much of those targets. They still have a lot to do within this region. Mostly, the procurement approach here is based on bilateral [negotiation] Minister. We are expecting to get positive feedback on that.
Good opportunities in the country and most importantly maybe, the MOU we had with the Bangladesh Economic Zone Authority, where we can work together with them, developing a larger solar plant on vacant land, which there's not that much of at the end in Bangladesh. With that, I think that brings this session to the conclusion. We have a solid pipeline of 4 GW backing our targets of reaching 2 GW of new installations over the next three Of the pipeline. I think you will see that there is a good mix of different types of procurement approaches. There is a good mix of different types of countries that we're working on.
Obviously, as we continue to work over the next couple of years, we will continue to add new projects into this pipeline, both Within our traditional business model, as well as also bringing in new opportunities from corporate PPA segment, as well as hybrids. With that, I think that will end my session, I will hand the word over to Mikkel, who will take us through some financials.
Thanks, Terje. This is the last section of the agenda today, and I will talk about the project economics, I will talk about financials, and I will talk a bit about funding. First, let me recap what we said a couple of years back on the Capital Markets Day we hosted in May 2016. The principles for investing in financing is really unchanged from that time. The first three points here relates to how we structure our projects. We believe strongly in this integrated business model and there are several reasons why this is important for us. Firstly, it's really enabling us to structure the projects so that we can get funding of equity into these projects. Secondly, we also structure these investments so that we can optimize working capital.
Under construction, this is of course, especially important with Pål executing a large portfolio of projects. We aimed for a cash flow neutral working capital position or even slightly positive. This we have been quite successful on over the last few quarters, as we've seen in our numbers. We've actually had a very positive working capital situation with our projects. This is possible because we are in transactional control and can structure the projects the way we do. The last two points are related to more the group level and financing at the group level. We would continue to have a moderate debt level at the group level, and it would only reflect really the long-term debt capacity that we see through the long-term cash flows that we generate. Furthermore, our dividend policy is unchanged.
We pay 50% of the free cash that we are receiving from the operating power plants and pay them out as a dividend to our corporate shareholders. Offering a direct return, a growing direct return, I would say, as the portfolio now expands. Let me then continue by taking you through a project example where we explain how we create value in this integrated business model. We are here presenting a 100-MW power plant, and the CapEx for such a project, as you've seen, is around $100 million. It will be normally funded by 75% debt and 25% equity. We in Scatec Solar, we would typically take around 60% of this equity, but this can of course, vary across our projects. That would imply then an investment of about $15 million for a 100-MW project, as you can see here on the left on this slide.
We're responsible for construction of the plant and development and construction typically represents 85% of CapEx. It's really what CapEx is, it's the construction of this plant. Of course, development margins and cost that is covered through the CapEx of the project. In other words, it's $85 million of revenues to our development and construction segment. A business segment that we normally own 100%. We expect to generate a gross margin of some $11 million or $8 million after tax in this D&C segment. Again, in this example, more than half of the equity that we invest is covered by this net margin. This is the self-funding aspect of the model that we have talked about in the past and that we continue to explain. Once the power plant is grid connected, we sell power on the long-term power purchase agreements.
We typically would generate about $12 million of EBITDA in this 100-MW project example. That would be on a 100% basis, our share would be then $7 million. In addition, we will have about $0.4 million of O&M EBITDA from operating and maintaining the plant. So I think this is fairly representative of the projects in our portfolio. CapEx levels are varying a bit. Obviously, the tariff levels are varying a bit. We have here used a tariff of $0.06 per kilowatt hour . We've used 2,300 hours of sun per year. That will of course, also vary across the different regions. So let me then talk a bit more in detail also about how we structure our projects and how we mitigate various risks, and it's important for you to understand this.
The project cash flows are in fact very stable and we structure them so that they remain stable. The fundament for this is really the power purchase agreements. It enables us to raise non-recourse project finance, and it also takes down equity risk in the projects. The PPAs are based on fixed tariffs for 20 to 25 years, and it's a take or pay obligation on the produced volume. So the customer takes whatever volume we produce. Keep in mind that solar irradiation is quite a stable resource. It's typically a 5% standard deviation year-on-year on solar irradiation in the markets we're active in. This is really allowing us to leverage the plants up to 75%. As I said, we're not taking on power market volume or price risk in these contracts. Moving on to the counterparty risk.
The PPAs are entered into with state-owned utilities, but also with, to a growing degree, of course, the industrial customers, investment-grade customers, preferably. These state-owned utilities are normally backed by government guarantees that back the obligations that the utilities take on in the contracts. In some markets, we also enter into project risk insurance from the World Bank or other institutions. I think also when assessing political risk, it's important to understand the role of the banks and the lenders that we work with. Development banks like IFC, EBRD, African Development Bank, they've been active in these markets for many years. What they've done is to finance infrastructure on a broad front. The governments that we invest in, they rely on these institutions for further funding of infrastructure.
The governments are quite reluctant to default under these contracts because it has consequences for further funding of infrastructure in most of these markets. Experience has shown that governments are really not defaulting. There's been studies made across Africa in the power sector on PPAs, and the default rates are very low. I think this is an additional element to consider when you look at the risks around the cash flows in the projects. When it comes to interest rates, we hedge them for at least 10 years. It's part of the non-recourse project finance deal. Those are locked in. Currencies. We structure the debt in the same currency as the cash flows, so you get the natural hedge from doing that. The tariffs are normally inflation-adjusted.
You get another component of compensation and hedge when it comes to currency fluctuations when you have tariffs in local currencies. In the smaller emerging markets, I should also mention that the tariffs are normally dollar-denominated. There is solid equity value in our two portfolios that we talked about today, the 1.1 GW under construction and the 4 GW in our pipeline. We've here basically helped to do some calculations on this value, and we estimate the equity value of the 1.1 GW under construction to be about NOK 2.1 million per megawatt, while for the 4 GW , this number is NOK 1.5 million per megawatt. I will go through the basis and the background for these calculations. When it comes to CapEx levels, we've seen that trend. It's coming down.
The 1.1 GW is about $1.3 per watt of CapEx, while we'll be below $1 for a new 4GW or 2 GW that we're going to build and the 4-GW pipeline. The tariff levels have followed the same pattern from about $0.09 to now $0.06 in the pipeline portfolio, while equity IRRs stays. One of the reasons why we can keep those equity IRRs is because we also then are basically taking down slightly the gross margins on the development and construction side of our business. When we do the discounted cash flows of the 20-year power production and O&M cash flows, for the 1.1 GW under construction, we get to NOK 1.1 million per megawatt, while it's coming down to NOK 0.7 million per megawatt for the 4 GW . Development and construction from NOK 1 million to NOK 0.8 million per megawatt.
That gives you those 2.1 and 1.5 million NOK per megawatt. I think this is a way to get a handle on the value of these projects without doing the whole cash flow analysis yourself. If you then look at the composition of this portfolio, we see it's being quite robust. It's a high-quality pipeline. We believe it's very well benchmarked with other players in the industry. It's also quite robust as you can see. On the X-axis here, you see the capacities and the projects. One block is not representing one project. It's representing a region or a country. There's more projects than this. It adds up then to 4 GW. On the Y-axis, you can see the equity value in terms of million NOK per megawatts. You can see the split between the D&C value and the power production and O&M value.
If you look at 80% of the portfolio, this value spread is about plus/minus 15%. We're not relying on one single large project to achieve the average 1.5 million NOK. Again, fairly robust measure, we believe, the 1.5. Let's move on to talk about aggregate investments to reach 1.5 GW first and then 3.5 GW. Some of these numbers we've shared before. Total CapEx is estimated to NOK 13 billion for what we now construct. About NOK 15.5 billion for the new 2 GW. If you look at our equity investments, it's about NOK 1.85 billion for the 1.5 GW. It's NOK 2.2 or so for the additional 2 GW that we're investing in. Development and construction contribution of NOK 1 billion from what is currently being built, another NOK 1 billion-NOK 1.5 billion for the new capacity. NOK 2 billion-NOK 2.5 billion altogether, as mentioned by Raymond in the introduction.
Annual cash flow from 1.5 GW, including what's already operating, we've guided on that before, about NOK 450 million. We will add another NOK 300 million-NOK 400 million with this new capacity being added, NOK 750 million-NOK 850 million of 20-year cash flows when this capacity is up and running. Very stable long-term cash flows, all supported by the PPAs. Let me also give you an indication of how this will affect our P&L. If you look at the 3.5 GW in operation, our proportionate share of power production revenues would reach around NOK 2.5 billion per year with an EBITDA of some NOK 2.1 billion. For the D&C segment, adding 1.2 GW is generating about NOK 10 billion of revenues, NOK 1,500 million of gross margin, then the 2 GW, another NOK 13 billion or so of revenues. Gross margins of some NOK 1.75 billion.
These are numbers that you can look at, and it's based on, of course, the basic assumptions that we have given you already. Now, let me turn to funding. We are fully funded to reach 1.5 GW in operation. At the end of Q2, we presented this slide. The remaining equity to be invested to realize 1.5 GW is about NOK 850 million. We will continue to have corporate overhead and some dividends being paid for another NOK 2 million-NOK 250 million. If you look at the right-hand side, we have a cash flow from operating plans of NOK 350 million and net margins of NOK 1 billion. The cash position we had at the end of Q1 was also to a large degree, working capital that will be reversed towards the end of these projects. You can see that movement to the right.
We have about NOK 400 million of additional headroom for new project CapEx at the moment. Looking at capturing further value from our project portfolio. Raymond mentioned this in his introduction. We see opportunities within debt refinancing and asset rotation. Talking about debt refinancing first. As this asset class matures and as the markets mature, we see that the margins that the lenders are asking for is coming down. That gives us an opportunity to refinance. We also see that as the plans are getting into operation and the approved performance, some of the cash reserves that the banks are asking for can be released. Specifically, we have now reinitiated a refinancing process in South Africa for projects there. It has been on hold for a year or so because of the political turmoil around the renewables program. We have started again now.
We see that the margins that we are getting on the new projects that we're building in Upington is about 100 basis points below what we have on the current debt portfolio. The underlying interests have increased somewhat. If you compare the two, it looks more or less at the same level. The margins is coming down. Obviously, we'll seek further refinancing of other parts of our portfolio. These development banks, they have a mandate to attract investments and get these industries going. They're happy to be refinanced and taken out if there are other banks that are interested to enter into these structures.
We see opportunities there. When it comes to asset rotation, there's obviously also a secondary market evolving for renewable assets. We continue to see investors seeking yield. This asset class is certainly something that people are looking for, pension funds and long-term capital. We will start preparing for selective sell downs of a certain portion of our portfolio as we grow this beyond 1.5 GW. Of course, we have sold assets in the past, and with that attractive pricing, we might do it again. We will prepare for this now. Finally, to give you a bit of a sense of what this means in terms of value creation. You can see here 100 basis points reduced cost of equity or cost of debt is equivalent of about NOK 200,000 per megawatt.
The NOK 1.5 million would be lifted to NOK 1.9 million per megawatt if we were successful on both of these fronts for this portfolio. I'll give the word back to Raymond to give some concluding remarks.
Thank you very much, Mikkel. It's a sunny day out there. I think that's a good message to us that it's in the solar business. We have hopefully provided you with an insight into the foundation for giving the main title of today's presentation, Accelerating Growth. We have been going also into our ability to execute the project at multiple continents and also provided you with some confidence linked to additional execution capacity. Of course, we rely on local partners, and there are very good local partners in many of these markets.
Terje has, in a good way I think, been holding your hand through the markets that we're in, hopefully you share our view that at least there are numerous opportunities in the emerging markets, and we are also providing you with more details about the very segments of these markets and how they are paid in tariff, corporate PPAs, and that kind of thing. That we see, and I'm extremely motivated when I'm looking at additional opportunities, things that we didn't see a couple of years back. I've said this a few times. When I looked into the future five years ago, I would not have imagined all the opportunities that we're seeing right now. I think the same thing is going to happen when I look back in 2021, 2022. There will be opportunities that we will take advantage of.
That has been an extremely important element in actually creating our organization. The composition of the people, the multiple cultural backgrounds, the diversity that we need to actually be successful and also spot opportunities. At the same time, develop the company with a minimum risk. You know the markets we're in. It's 4,000 MW. As Terje said, it doesn't stop there, but that's the picture we see at the moment. We see a lot of other additional opportunities. Finally, we have translated these opportunities into numbers linking it to the past, but also showing that there is a direct link in between the returns that we see in the 4,000 MW translated into value creation per megawatt that Mikkel shared to you, and also where we're going to source the funds to finance. These were the four main pillars. It's nothing special about it.
The content have slightly been adjusted to the opportunities. Execution of the 1,100 MW plus the 2,000 MW over the next few years. Secure growth, pick the right projects with the right returns, with a lower risk in our markets. You may know that not all these markets are straightforward, and we are aware of that. Also, I have to say in this respect that HSSE with health safety, but security is essential. Security of our people goes beyond anything else. Of course, there are markets that we're not in for that reason. Broaden commercial and technological scope, both in terms of business propositions to the buyers, to our partners, but also the portfolio of technologies that we can offer. Finally, what Mikkel ended up with, how we're optimizing existing portfolios and also applying those learnings into new models, in the future.
Release is extremely interesting, as we have in the Malakal project in South Sudan. UN is probably the securest or the best client in Africa for the time being. It's a good customer to get to know. The final slide is one that you've seen in the past. You're going to measure us against these goals. 2 GW in addition to up to 3,500 MW or 3.5 GW by end of 2021. Value creation of NOK 1.5 million with an upside if we succeed in optimizing the financing of these projects on top of that. That's an extremely important element, do not sacrifice anything with regards to HSSE, with regards to sustainability. This is our new company song. I was expecting you to all to participate. This is the end of what I was going to say.
We are open for questions. I would like to invite the whole management team up here because I'd like you to see them, but I think there are questions that could be better answered by some of the people that have not been giving presentations today than those of us that have. Please come up and join us, and we are ready for your questions.
Yeah.
Yeah.
Okay. Fredrik Stensen from Pareto Securities. You previously talked about your self-funding capacity in the range of 300-400 MW per year from your D&C segment. Is that still a range that's applicable?
I think that capacity will increase as we grow, as we alluded to. When we have 1.5 GW connected, it will be a larger base of cash from operating plants. That will increase that capacity. Yeah.
In terms of your collaboration with Equinor in Brazil, can you share some thoughts on your first impressions with that collaboration and that model altogether? Are you happy with the results and developments you've seen so far?
When you are inviting a big company like Statoil, sorry, Equinor out on the dance floor, you are very concerned about them. With Equinor has been going extremely well on the execution side, on the board level, and also looking at new opportunities. I had a review with Equinor last week, they actually shared the same experience. I think that we were both aware of the different sizes and the different systems, we found out that the system could actually easily marry. The project, as Pål has been going through today, is moving ahead swiftly and meeting all standards.
Is this a model you would think to expand to other markets or maybe even with other partners?
In South America, it's too early to say anything else than that.
Thank you.
I think I'm good now.
Andreas Bertheussen, Kepler Cheuvreux. First of all, congratulations on very impressive results so far. Two questions from me. One is on the asset rotation. Are you seeing any signs of this market maturing? Are you getting any offers at this stage in any of your emerging markets?
We see certainly interest in certain of the markets we're in from long-term investors that would like to be invested in this type of infrastructure. I don't think that we should go into the details of which markets, it's certainly an interest in a number of these markets we're in.
any examples of secondary markets emerging?
No, I think
any transactions?
I think it's not good for us to start to comment specifically on that now. I think it's also fair to say that we are saying this in the context of us growing beyond 1.5 GW , it's still plans to be built and to be put in operation before this becomes a bigger part of our discussion.
Second question on the funding of corporate PPAs. Are you expecting the development banks to be the source of debt in these projects as well? Or will commercial banks be interested in participating in the corporate PPAs?
That depends on the off-takers. I think in many of these markets, if you have strong off-takers, investment-grade off-takers, you will see both development banks as well as commercial banks being interested in financing these types of projects.
Thanks.
Europe.
Yeah. Rebekkah? Yeah.
Okay. A couple questions here. Petter Nystrøm, ABG. First of all, can you say something about your partnership with Norfund, and how important that has been for you, and also going forward? Thanks.
Terje, would you like to?
Yeah. Our collaboration with Norfund is very important for us. They have been a great partner with us in many of the projects that we've done in Africa, also in Honduras. I think they are very constructive partners. Sometimes we bring along projects, but they also have an origination capacity, and they bring projects to us as well. It's a very good partner for us.
Thanks.
That was from the development side, and then from the asset management side maybe.
I want to just add to confirm what you're saying, Terje, and also maybe another aspect of that partnership is, of course, also that Norfund is also adding comfort to other partners who are joining. Sometimes we are not only in projects with Norfund as a partner, but also additional financial partners who also take comfort from Norfund being an independent party to us, but someone who knows us from before. I think that is also an important catalyst for further partnerships.
Thanks. Follow-up question on the asset rotation side. Is change of control an issue? If so, which regions are most problematic? Thanks.
Change of control from what perspective?
Ownership.
Yeah, I know. You mean that for us?
Yeah. If you start, let's say, looking at selling assets, obviously there will be a new owner involved. Could that be an issue in terms of the contracts with the PPA and those kind of things?
There are certain regulations in some of the markets we're in where you need to own, and hold equity for a certain time period, as in South Africa, for instance. You cannot sell immediately. In other markets, you have more flexibility. From a regulation perspective, it varies. From our perspective, I think, in the operating phase, the operational control aspect is less important than in the structuring phase.
Asset rotation doesn't mean that we have to rotate or sell the total shareholding. We can sell a part of it, or we can sell all of it and retain the O&M contract. There are different solutions here.
Perfect. Thanks.
Question on the corporate PPAs. Obviously, PPAs for corporate clients tend to be of a smaller scale. Can you give a sense of what the average size of a corporate PPA might look like? Would you be looking at doing individual deals, or would you look to try to build portfolios with particular corporates as a way of getting scale?
In terms of the corporate PPAs, we showed a couple of examples here that we are currently working on. All of those we have showed here in general, they are above 50 MW, so that's still a very good size for us. When we're looking at big power consumers or big multinationals, corporations, it's possible to enter into corporate PPAs at that level. As you allude to, if we start going down in size, it's going to be very important for us to look at the scalability of what we're doing and making sure that we can do then more PPAs that we can put into a platform and do multiple deals, for instance, with the same customer.