Scatec ASA (OSL:SCATC)
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CMD 2021
Mar 23, 2021
Renewable energy is the solution to climate change. But renewable energy is not only that. Renewable energy creates jobs. It secures livelihoods and fosters economic development. We were founded in 2007 based on the idea that we are far from harnessed the full potential of solar power.
Since then, we've installed almost Today, we're building a global leader in renewable energy. And with wind, hydro, and energy storage, We are unlocking the potential that lies in the integration of technologies such as containerized solar combined with energy storage or floating solar on hydro reservoirs. The potential in bringing people with diverse background skills and experiences together through sustainably developing and delivering renewable power, we will unlock the potential to improve our future.
Good morning, and welcome to Skatek's Capital Markets Update. It's a year since we last met, And we're extremely happy now to invite you to another update. And we're going to spend The next couple of hours together, I believe we have an interesting agenda. Before the break that starts at 10, I'll provide you with an introduction. Terry Pilskog will do solar and wind and Jarl Cosberg, whom I'm extremely happy to have here, Previously, SM Power will present Hydro Power.
After the break, we will dive into some extremely interesting topics, hybrid solutions. We will cover sustainability and ESG and, of course, financials that Mikael will cover. Towards the end, we will open up for questions, and We will be available to answer those if you may have them and you should, of course, use the opportunity to send them in during the presentation so that we can Attend to them a bit later and towards the end. We have established a new target, 15 gigawatts by 2025. We have previously guided on 4.5 at the end of this year.
That remains 4.5 gigawatts. And on top of that, We will have another 1.4 gigawatt that was a part of the portfolio that came with the acquisition of SM Power. Our business model have been proven over the past 10 years. We have and that, of course, includes the development phase Of a project, the construction phase, the operations phase, and at all times, we would like to be a majority shareholder The people that we have are continuously looking for new opportunities. Of course, they are doing construction and they're optimizing their plant in the operational phase.
The people that we have are very much focused on And that's the development part, the M and A activities. And of course, we have had now a big acquisition as well last year. Funding the growth Will be our cash flow. And most of that cash flow will come from power producing assets. We will continue to reap the benefits So being a developer, construct, operating and doing asset management and that will also be an important part of the cash that we will be generated We've been extracting some information from Bloomberg.
The electricity demand will continue to increase. It's quite Good to see that all these car manufacturers, not all of them, but a lot of them are now saying no more R and D money into fossil fuel Fuel engines, it'll all go EV. And of course, that's just an example how the industry is aligning towards Reducing the CO2 footprint. 75% of the electricity will be from renewables. And Out of the 75%, 90% of that will be in the markets that we are focusing on.
Naturally, fossil fuel consumption will be reduced, which is I think is good, but it's a natural development. At the center of the technologies That will be applied over the next 30, 40 years will be solar, wind, hydro and storage. And of course, that is the DNA of Skatek going forward as well. The yearly market investment or the investment into the markets will be More than $500,000,000,000 If you look at Skatec, since we listed in 2014, You can see that our installed capacity in terms of gigawatts have gone from just below 500 megawatt up to 3,300 megawatt Today, the backlog and pipeline has shown a healthy development. It is now almost 12 gigawatts.
And of course, within that Lies the growth element. The pipeline is, of course, looking at it, consists of assets in many parts of the world, And it's a high quality pipeline. If you then look at the EBITDA, again, very nice development from SEK 430,000,000 To 2,478,000,000 if you include the numbers from Essen Power last year. And in terms of cash generation, More than SEK 1,000,000,000 again, including the cash generated from Essen Power. We had our last Capital Markets update a year and a half ago.
And since then, we have Built a company, we are now a global leader in renewables. We are a multi technology company, And we have built the company brick by brick, meaning that the evaluation we do when we do changes, when we move into new markets, It goes through a thorough due diligence at all times. The global footprint It's now covering almost 35 countries, and that is set to also increase in the years to come. I've said previously that we are an M and A company, but of course, we are not a company that makes acquisitions of the size we did last year of SM Power. And I'm very proud of that because, number 1, we have included in Skatek People that have been working in the hydropower arena for many, many years, they have a very good pipeline, and they have And as a portfolio that is producing long term cash flows.
Carrying out this acquisition with all its attributes In the matter of just a few months, it's amazing. And we're now extremely happy that Essen Power is a part of Skatek. We have grid connected, 446 Megawatts. And we have also been performing extremely well on the ESG arena. We are number 1 out of 450 utility scale companies.
We will have, of course, a separate presentation on this subject that will bring you further into that area. If you then look at the shareholder creation since the listing of the company in the fall of 2014, It has been a very nice ride, off to a sort of a stable start, and then it is taking off as we are connecting More projects as our pipeline is growing, as our revenue stream and cash flow is growing. And right now, We are at 21 times the market cap that we were at when we listed in 2014. The producing assets right now, including the 300 megawatt that we have under construction, Amounts to 3,300 Megawatt. And there are in 3 technologies, basically, solar, Hydro power and wind.
And we also, I have to mention that, we have a few battery installations in Africa. That is Good signal, I think, about the future market. 500 people are working for us. But of course, with our partnership profile, We have access to through them expertise, capacity, Both in terms of competence, but also in terms of geographies around the world. We are we continue to lead, And we will be broadening our growth strategy moving into the future.
We are a global leader. We continue to stay that way. We will focus on high growth markets And also focus on a broader offering, not only technology, but also in terms of business proposition. And it's natural in a very quickly changing environment that you have to adopt your business model. And I have to say that this is not a reactive attitude that we have.
We have a proactive attitude looking for opportunities, looking on how to adjust our business model to satisfy our customers, again, to broaden and to increase the revenues that we should gain from installed plants Simon, you will hear offshore wind. We are pursuing offshore wind opportunities several places, some very large projects. Onshore wind, the same thing. With Essen Power, of course, hydropower is at the center. But of course, on top of hydropower reservoirs, it's a natural place to put floating solar.
And we will learn later on today how well they fit together. Power prices are coming down. Renewables today is the cheapest source of electricity. And when you are approaching a cent or a cent and a half or even half a cent sometimes, that Open up opens up other opportunities because you can use this very competitive energy source to produce, For example, fresh water from seawater through desalination. And the result is that this liter of water will be the cheapest produced liter water from seawater Ever.
So this is interesting. I may also mention hydrogen and there are other opportunities. In short, that is called Power to X. So this is the ecosystem that Skatek will maneuver in. And we will apply our business model here the same way we have done previously.
Now how do we get to 15 gigawatts? Of course, Terje and Jarl We'll later present you the details of this pipeline and how we'll achieve it. But looking at the overall numbers, right now, We are in operation and have under construction 3.3 gigawatt. We are growing by 2.6 towards the end of the year To 4.5, the target we set some time back, it remains. And on top of that, we will, of course, add the 1.5 4 gigawatts of hydro power plants bringing it to 5.9 at the end of the year.
From the end of the year until 2025, we will add another 9.1 gigawatts to bring it to 15 gigawatts. This is on a 100% basis. And of course, we have 50%, 60% shareholding on those assets. Now going back to the 2.6 gigawatt, the gap in between where we are today and the 4.5, these projects We'll come from Brazil, 500 Megawatts together with Equinor and Hydro in Brazil, plus another 100 Megawatt on another project. Tunisia, That we entered into, I believe, a year and a half ago, 360 Megawatts.
South Africa, 600 Megawatt. Pakistan, We signed up with that project in Sukur, yeah, approximate a month ago, 150 Megawatts. And we have a large project that we are moving very quickly forward in India amounting to 900 megawatts. Thierry will, during the next presentation, add a bit more color on these different opportunities or rather projects that is going to bring us to 4.5 gigawatts. Now, I believe that well, I know that we have a proven business model.
And In solar, we have been focusing on development. A lot of the value creation is captured during the development phase. This is where you see the opportunity. This is where you see the type of contracts that you can enter into. This is where you see how quickly you can move these projects forward.
Development for us We'll continue to be important for all these technologies. The building part, construction part of the business, we have been good at that. We have an operating model That have been tested at the same time, execution at the same time on 4 different continents. And I'm telling you that is not easy, And but we have done that. We will continue to guide on our ownership, and that will be in between 50% 60%.
For us, it's operation control is important Also on the development side, having some kind of control, transaction control is going to be important to us. And then on the operational side, You may think that when you operate the plan, it's about pulling some handles, watching some screens. Yeah, you do that too. What's even more important is that we have access to first hand data from these plants. And for example, in South Africa, in our control room there in Cape Town, We get millions of signals in every day.
These are being analyzed. They're being optimized, and they're being fed back into the plants to get more kilowatt Hours out of our operating plants. Now our model, our business model that we have developed on the solar will be replicated On the wind side, it will be replicated on hydro. And of course, we will also use it on hybrid systems. So we think this is a good way to handle the market going forward.
But I also have to say that it's very, very Quickly developing. Now, when something develops quickly, you have to be able to match Your organization with these opportunities. Otherwise, you will quickly be left behind. And we have I'm so proud to say this that our team is so experienced and they have shown adaptability to this quickly changing market. It's also culturally challenging, but in culture also lies opportunities.
And right now, we have about 45 nationalities working in Skatek. M and A capabilities, I mentioned before, the Acquisition of Measurement Power. We're going to build up the M and A Activity and capabilities going forward to support the expansion of the company. Our culture is value driven and it's also result driven. So we are looking at How to add value when we're looking at opportunities.
But the foundation is, of course, our values, Our culture. The organizational structure of the company, And this is a whole presentation by itself, but it's based on a matrix profile, meaning that we are utilizing Competencies across the world in one chain, in one command, in one way of creating value. And by doing that, you are able to optimize the organization. You're also able to put in the best resources where they're mostly needed. Keep in mind that in the beginning, development is an activity that is focused on.
Then we move over into construction, heavy construction, Different type of people, then we move into the operational phase. Attention from organization, from different elements and different sections of it We'll vary all depend upon where we are in this development phase. We have a leading position On the ESG side, it has been a part of our DNA. In fact, it's a part of our organizational structure in Skatek. It may I'm not sure if it will it's a bit surprising to you, but I'll share with you.
10% of the people that work in Skatek Working within ESG Park, they're integrated. 50 people are working on a day to day basis on projects, On the development side, on the operational side, to make sure that we're getting the best out of the partnerships To support projects that we have around the world. And I mean, it's a nice recognition. And then when we get feedback, For example, from Sustainalytics that we are number 1 out of 450 utilities. That's a nice confirmation to the people that we are on the right track.
It's a very good recognition to all the people that work in Skatek Solar. Now some numbers. That will again be reinvested into expanding the company. We will continue to be very selective. We are not a market share company.
We look for the opportunities. We scrutinize these opportunities very early on. We do financial simulations. We do due diligence. We And we know that there is a high likelihood of success at the end when you've completed the project.
So we, on the production side, power production side, are guiding on A return on equity between 12% 16%. Developing Construction margin, 12% 10% to 12%, Important cash generating part of our business. And 15 gigawatt will represent a 100,000,000,000 Originally of investments. Now a lot of that will be in non recourse financing. Of course, there will be And equity part as well.
So we have estimated our equity investment when you're in this 50 to 60 percentage Part to SEK 15,000,000,000 to SEK 20,000,000,000 Out of that, we will be generating liquidity From operating cash flows and available liquidity, as we speak, of SEK 40,000,000,000 to SEK 16,000,000,000. So I think that's a I think for us, it's a very good message, and it provides us with a lot of flexibility going forward. So towards 2025, we're going to focus on spending the NOK 100,000,000,000, Creating an installed base of 15 gigawatts. I have to mention something that is very important for us. We will not do that without Strong partnerships.
Our whole structure our previous success and our future success, sorry, We'll be based on strong partnerships on the development side, on the construction side, On the financing side and also when we're owning the assets. I will probably leave the word now, well, not probably, I will leave the word to Terje Pilsgaard, who is the EVP On project development for solar and wind. And together with Mikael, Jarl and Terje, I'll be back at the end of the presentations For a final statement and of course to receive your questions. So please tell me and thank you very much.
Good morning. I will then talk about The development of solar and wind. I've been with the company since 2013. I've been in the industry since 2,005. And that gives us a lot of experience with regards to the development activities that we're working on here in Skatek.
I'll talk about the status of our pipeline. I'll talk about how we are working towards our targets of reaching 4.5 gigawatts In 2021, and I will also talk about our ambitions and our strategy working beyond that. So in terms of our pipeline, we see a consistent and positive development of our pipeline. The pipeline has now reached close to 12 gigawatts In total, 2.9 gigawatts of that is coming from the addition of the hydro power pipeline from SM Power. On top of that, we see that we have added more than 5 gigawatts of additional pipeline over the last 2 years.
This is coming partly from the fact that we are focusing on larger projects, but it's also coming from the fact that we have a larger Breath of technologies that we are currently working on. You will also notice from this slide that we have not moved that much From backlog into construction in this period, and that's a reflection of the fact that we have and that we are working in emerging markets There is some predictability. However, we expect to see a significant improvement, obviously, in this over the next A couple of months during 2021. Then in terms of the development of the pipeline, we see that, that is a result of a consistent and robust development strategy over the last couple of years, and I would like to highlight 5 principles In terms of that development strategy, first of all, we are focusing on growth markets, sizable, scalable Predictable growth markets where we can invest over time to generate the pipeline. It's important for us to have A long term perspective on the markets that we are working on because it takes a bit of time to develop the market understanding that is required to succeed.
In order to capture the good projects, we are continuing to focus on early development in our markets. Early Development gives us the access to the good projects and it also enables us to make sure that we can also capture Significant amount of the value from the projects that we are developing. 1 of the key values Of Skaltech is working together. And this is obviously important internally, but it's also important externally And it's all about the partnerships that we are able to develop. We focus on working closely together with local partners To help us identify and develop the projects with global partners that also help us identify projects, but also work together with us On the sponsor side, and not to forget financing institutions, they are a crucial part of our business environment, and they are also important for us, both to scrutinize projects, but also to make sure that we Bringing the project forward to financial close and we get financing for the projects.
As a 4th Key principle, we have the integrated business model. We talk a lot about the integrated business model, and there are many nuances related to that. But I would like to highlight the fact that we work in small, agile, cross functional team to structure and optimize the projects That we are developing and through working and to using our end to end capabilities in terms of developing our projects, We see that we are able to both decipher and understand and manage the risks related to the project As well as optimize the projects to make them as competitive as possible in our bidding situations. And it's also these end to end Capabilities that make us an attractive partner from other potential developers. Finally, and the 5th element here is our multi technology approach.
And this multi technology approach Now broadens our access to opportunities as well as increases our toolbox in terms of being successful in the markets That we're working on. And in this chart, the check marks represent concrete opportunities that we work on In these key markets, South Africa, Brazil, India, Vietnam and the Philippines. And as you will see, we are pursuing a lot of opportunities across different technologies in these markets. On top of that, we have also added the perspective of take structures in this chart, state PPA, corporate PPA And merchant market, and as you will see, we are also working across those types of contracts, which Shows that we are able to work and succeed in different kinds of markets independent of how The regulated those markets are. As a first example of our multi technology approach, We have already closed, and we have an operational wind project in Vietnam in the Nintuan province.
It generates about 120 gigawatt hours on an annual basis, and it will provide revenues in the range of a bit more than $10,000,000 annually on an expected basis. This project, albeit it might seem modest in terms of size, Has an important economic impact for us due to the fact that we own it 100%. It has a very attractive tariff. And also the capacity factor on wind is higher than what it is on solar. But on top of that, it is also important for us That this is our first project that we've invested in, in Vietnam.
So it gives us a lot of credibility in the local market. On top of that, it's also our 1st wind project, which will give us credibility as a wind player on a global basis. So let me then turn to our path to reach 4.5 gigawatts by the end of this year, by the end of 2021. We do have 6 projects or 6 portfolio of projects that we're working on. In total, they represent 2.6 Gigawatts.
We've already talked about Pakistan and Tunisia before Pakistan. I'll get back to that in a minute. In terms of Tunisia, We are progressing well on that project. As late as last week, we got the project agreements that we have been working on together with sponsors, Lending institutions and the authorities to negotiate those in final agreement, and we got those approved by the Ministry of Energy. Then in terms of India, here, we are working on the 900 Megawatt project.
We are in the final stages of negotiating a partnership agreement around this project. The project has received award of the tariff And financing is in place, so we expect to reach financial close of this project during the year. Then we have South Africa. Here we have bid in 3 projects in total 600 megawatts capacity, so DC capacity In the risk mitigation, IPP program, and here we are in discussions with the Department of Mineral Resources And energy, in terms of including this in the program. Then finally, in Brazil, we have 2 projects, SPP of 101 megawatts, I will come back and talk a bit more about that in a minute.
And On top of that, we have our 530 Menubim project that we secured, and we signed an MoU together with Hydro and last year, and we are currently progressing well in terms of completing the commercial structure and the financing structure of that project, And we expect it to move forward shortly. Then in terms of Pakistan, It's a project that we've talked about already. You probably know the details about this project, but it's an important project in terms of exemplifying our close Partnership with our financing institutions. So FMO and Faizel Bank was instrumental in bringing these projects to a Record financial close in record time. Worked very hard over Christmas through January February.
And based on and with the experience of FMO and Fire Cellbank and their flexibility, we were actually we were able to meet The financial close deadlines of these projects. So that was a great achievement. Then another first for us Is this 101 Megawatt SPP project in Brazil? Here, we're working together with our partners that we also work together with In the Apodi project, so Equinor and Chroma. And the project is Structured with a blended contract structure, which is a first.
So there is a 20 year contract that has been awarded by Enel for 25% of the energy. We have signed a PPA with ENGIE For 50% of the energy, and we are currently in negotiations with Chroma for the remaining energy for the 1st 5 years. And then beyond that, we will enter into new contracts to sell the remaining energy later in the years Then let me talk a bit about the remaining pipeline and how we see Our comfort in terms of also continuing to meet our goals further into the future, as Raimo has talked about, we have a target Of 15 gigawatts by 2025. So we have a 12 gigawatt pipeline, Which is fairly diversified and robust. On the regional side, you will see that this have more or less the same split as we've had previously With most of the volume in Africa and in the Middle East, but also quite a lot of volumes in other parts of the globe.
Then on the technology side, we are still majority within PV. You will see that we have more than 40% of our pipeline in PV, But we also now have big chunk in hydro with 20%. And in wind, we have About 15% and also in hybrids, we have a bit more than 50%. So you will see that on the technology side, we are getting a more and more diversified portfolio. And then on the offtake structure, you will see that most of the volume is related to FITs and long term PPAs.
So we will continue to have a lot of volume related to fixed price long term contracts And then the portfolio related to corporate PPAs and merchant type of markets is going to increase. But for the next couple of years, we will have a lot on the long term contract basis. There are Four markets that constitute about 50% of the total pipeline, so about 6 gigawatts. South Africa is the first. It's still our largest market.
I will come back and talk a bit more about that. Then we have Vietnam, This is still a significant growth market. We know that they will have to build out a lot of new energy generation capacity to sustain the economic growth. And currently, they are struggling with a large chunk of thermal power in their energy mix that also needs to be translated into renewable energy. So the growth prospects in Vietnam still remain the same, and we are working on developing a broad portfolio of projects across PV, Floating PV, onshore wind and offshore wind in that market.
Then in terms of Brazil, we've talked a bit about Brazil already. We talked about the SPP project. We've talked about the Mendibim project. On top of that, we are also working on developing a number of additional projects. And we have our organization development organization on the ground that we are continuing to strengthen and build up.
Then in terms of India, India is one of the largest renewable energy markets. With a population of 1,300,000,000, a total generation capacity in the range of 275 Gigawatts with more than 50% of that generation capacity coming from coal, we say that there's going to be a significant Growth in renewable energy in the market. As a matter of fact, India is targeting to add 200 gigawatts of renewable energy between now And 2,030. Our position on the ground is that we have started to build an organization. As you know, we are in final negotiations Around the 900 megawatt portfolio.
And on top of that, we are working on another additional several additional opportunities That we believe that we will can that we can bring to market relatively soon. And then not to forget, and at the end, South Africa. South Africa is expected to purchase another 10 gigawatts of renewable energy over the next 5 years. This has been confirmed in the Integrated Resource Plan that was announced last year and has again been confirmed By President Ramaphosa's state of the nation address this February. And here in the table, you will see How the different procurement programs and bid windows is expected to come over the next couple of years.
And we are continuing to build up a pipeline to be ready to participate here. We have 14 PV projects in pipeline, And we have 4 wind projects that are ready to be bid. 6 of these PV projects were bid into the RM IPP program, but we still have a good portfolio to participate in the South African market. With that, I would like to thank you for your attention, And I will hand over to Jarl Kossberg, our EVP for hydro development that will present the hydro business to you. Thank you.
Thank you, Tarje. I will talk about the hydro assets in Skaltech after the acquisition of Essen Power. I will go through the operating assets And the approach to project development. I will talk a little bit about Hydro power in context of the market, but first start with the acquisition of Essen Power And the history of SM Power. So SM Power was formed in 2002 as a joint venture between Fund and Statkraft.
Over the years, the company had quite an amazing development, Developing 3.5 gigawatt of power projects across Asia, Latin America and Africa And achieve good attractive financial returns on their investments. In In 2016, Nordfeld and Stadt Kraft decided to go their separate ways, And StatCraft took over the assets in South America and South Asia, Nepal and India. And SM Power was left with the remaining part. And after an acquisition in Uganda, 1.4 gigawatt is transferred to Skatek. I think in summary, it's We can say that Essen Power is perceived as a competent and very responsible company in terms of its Development.
Hydro power can provide energy. And normally, when when you're just terming it like that, We call the power plants a run of river power plant. But if you have storage capability, as you can see on the picture, Then you can also provide market based dispatchable energy. For instance, peaking power As shown on the chart on the right side. Thirdly, The hydropower can provide system stabilization and support services.
This has many names, frequency, support and ciliary services, standby reserve, spinning reserve, etcetera, etcetera. And normally, all these features are paid either As part of the PPA in a regulated market or as individual services in a non regulated market. Some other features are that hydropower is long term, effectively perpetual, Low operating costs, so results in a solid cash flow. They are strategic to the country and Maybe, very importantly in connection with the changes in the energy market that are happening, an enabler to bring in other renewable energies. Here we look at the asset portfolio of Skaltech after the acquisition And the key numbers and key features of those assets in terms of capacity, Ownership and the PPA structure.
It's important to note that the energy for the Philippines Does not include standby reserve services provided. Going to the Philippines, Essen Power entered into a cooperation with Aboitiz Power and jointly, in the company called Snupp, they created a strong history of value creation. They acquired the first privatized power plants in 2006 And then subsequently, 2 more plants in 2,008. Initially, These facilities were in very poor condition, initially with 465 Megawatt, which A big part of those megawatts did not produce energy. Through a plant rehabilitation During several years, the plants were modernized and are now a very high standard With a capacity of 642 megawatts.
Perhaps even more importantly in terms of revenues and earnings, The transformation of market and market approach that was applied, in the Philippines. There is a potential for further value creation in that a battery system is currently under development. Also, floating solar, based on a pilot plant that has been in operation for about 2 years. And if and the feasibility study is taking place on the Margate plant To apply a floating solar plant on that plant. There's also option on the other operating plants in the Philippines to do the same.
And then greenfield and brownfield Acquisition opportunities also exist, and I'll come back to the greenfield opportunity later. The Philippine market has gone from a regulated to a deregulated Power market fairly shortly after, Essen Power got involved in the market. And Snapp is benefiting from this market through using all the Market features available actually. So they are playing, they are working in the spot market And power trading market by using the peak prices in the market, which are Generally highest in the afternoon in midday and bidding into that market on a daily basis. They are also using the opportunity of the bilateral market To contract, contract on 1 or 1 to 3 year contracts, Basically looking at hedging against fluctuations in the spot market.
And then lastly and the biggest, generally the biggest revenue source is the power system support Where the plants in the Philippines are mainly providing Frequency regulation, but also standby support and thereby earning money while conserving water. The approach to doing this is an optimization model that was introduced By Essen Power and Statcraft initially. And I think now it's fair to say that the competence in SNAP It's on par with, you know, basically anything around in in this respect. It's interesting that These, deregulated markets is is coming in many places, and and is It's being applied. We expect that this is going to be a development across several markets.
On the right side, we see the revenue distribution. We see that 2020 was not a very good year, mainly driven by COVID, but also poor hydrology. We see that 2021 is recovering. A lot of rain came at the end of 2020 filling up the reservoirs. We see prices are recovering as well in 2021.
The Terninbaum plant in in laws was developed by Statkraft In several stages and was transferred or acquired by Essen Power in 2016. The Power is sold mainly through Thailand through a PPA. The plant is a seasonal storage plant with a large reservoir Accumulating water in the last part of the year from August through December and then producing the water in the spring from January to June, July. We see that there are some hydraulic variations throughout the year and 2019, 2020 was We're not very good years, whereas this year again, towards the end of the year, the reservoir was completely filled up and 2021 seems to be a relatively good year. Yeah.
There is a take or pay contract or PPA for the for 90% of the water, But it depends, the income depends on the hydrology. There is some further value potential In the Philippines, now in the region, in Laos and the surrounding area, Mainly because of the good standing that the plant has in the region. Uganda, Bujigali, downstream of Lake Victoria, a big upper reservoir That provides secure inflow to the plant. This is a new plant Finalized in 2012 and then acquired by Essen Power in 2018. The income is secured as long as the plant can operate above the plant availability Of 96 percent since the power is sold based on the long term Capacity PPA.
There is also further value creation In Uganda, based on further privatizations that are expected to happen In Uganda and, yes, in Uganda. On to hydropower development, I think what we want to do is to build on the key strengths of Essen Power and the Essen Power competence as well as The Skatek way of doing project development. The focus will be brownfield projects With upgrade potential and and the potential to create value in those projects And then greenfield new projects or, yes, with regulation capability to be able to Be a market player. Hybridization is obviously a key target for us. And we want to build on key strength.
I mentioned the competence in several areas. Obviously, a Strong ESG and HSSE focus in everything we're doing and apply Skatek's Integrated business model to basically create value along the value chain. On the right side, you can see we're currently working on a portfolio or project in a country in Africa, Where the portfolio is currently 260 megawatt, and we see a potential to add Another 220 Megawatts into that plant, partly based on brownfield upgrades And some greenfield projects and also then adding floating solar on the reservoir. And I also understand that from the team visiting recently that adding the release concept of Skatek Might be a significant opportunity. Partnership, the partnership with Skateken Wufen It's the governing body of the development in Sub Sahara.
The main purpose Here is to capitalize on the very good relations and the track record that Norfund As in this region and to combine the efforts of Skatek and Wolfend In relationship to the project opportunities in Sub Sahara. SM Power brought in a number of mature projects into Skatek, 2.9 gigawatt of a quality pipeline. Distribution among the countries or the regions are shown About equal in Asia and Africa and a little less in in Latin America. And, and then the majority being greenfield Projects and less brownfield and hybrids, which we expect to change moving forward To even out this circle. I'll come back to the Rusesi project.
Volubbe in in in Madagascar is a development of 120 Megawatt. Alimit is In the Philippines, upstream of one of our operating plants, and I briefly talked about the battery and floating storage in the Philippines As examples, we see that the concessions and the PPAs are generally obtained on these projects and the focus is on procurement, contracting and financing on the projects. Rusese is a project on the border between Burundi, Congo and Rwanda With an annual production of 951 gigawatt hours and an estimated CapEx of 6.50. So So when we look at the CapEx over production, it's quite a good ratio Actually, in a quite a competitive plant, and also, given that, the ancillary services or The full scale of the services of hydropower is being recognized for this plant. Yes, the 25 year concession and a 75% debt leverage Is expected on the plant and the financing is already committed for the project.
Timeline, financial close expected, 2022, 2023. Commercial operation date, 2026. And, Essen Power, when it entered the project, was able to adjust the design and And make it to a regulating plant and generate 35% more Power production for the same cost level. So quite an impressive value creation on that project. Okay.
In summary, Skatec has taken over a High quality operating asset base, and intends to intensify the hydro power project development, both Targeting greenfield and brownfield developments, hybrid solutions at the forefront Apply, we will adopt Skatex integrated business model in how we would develop hydro projects As well, and we will build on and use The hydropower competence across the various technologies. I understand there is no gonna be a 5 minute break. So let's take the break. Thank you.
At the same time, we announced the acquisition of major hydropower player, SN Power. The scope of our operations has grown. With this comes responsibility and rightful demand for transparent and open reporting on our progress and results. Both companies are ambitious front runners in green energy in emerging markets. ESG is an integrated part of our operating model, including our hydropower operations.
Essen Power has, like Skatek, been operating in line with the IFC performance standards and is a signatory to the UN Global Compact. Both companies have a long track record of collaborating with partners with Strong ethical standards. Our environmental and social management systems will be strictly followed across all projects and technologies.
Hello again. I will now introduce you to our next session, which is on hybrid solutions. As we all know, the global greenhouse gas emissions currently stands at around 50 gigatons Of CO2 equivalent. A lot of this is coming from the power sector, but it's also coming from a number of other sectors As you will see from this chart, reaching our net zero target by 2,050 Will imply a dramatic and very strong growth in terms of renewable energies. And from this chart from the IEA, you will see that intermittent renewable energies will represent as much as 40% to 50% All power generation capacity already in 2,040.
All of this intermittent variable renewable energy needs to be managed, And this represents a significant business opportunity. And with our multi technology strategy, We are working on a number of concepts to address this opportunity. We are working on firm renewable power By combining PV and storage to make sure that we can overcome the intermittency, Intermittency, of the energy. We are working on hybridizing PV and hydro to make sure that we can Make the most out of hydropower plants by putting floating PV on top of their reservoirs. We are Also working on replacing diesel and HFO generation in emerging markets by introducing our concept release.
And finally, we are also working on Power to X opportunities where we are using competitive renewable energy to enable industrial projects Like hydrogen and like water desalination as a few examples. We will now talk about these 3 first concepts. And to help me do that, I would like to introduce Jan Fori, our General Manager of South Africa, who will talk about PVN batteries. Ernie Koffe Poke, our VP Project Development of Hydropower in Africa, who will talk about hybridizing hydro, And this is Scott Holt, who will talk about who is Senior Project Developer in our release team and will talk about the status Thank you.
Good morning, everyone. My name is Jan Fri, and I'm the General Manager for Sub Saharan Africa. And I'll be sharing some thoughts of our insights around providing firm renewable power. Now, there are several reasons Why Renewable Energy Plus Batteries Are So Important? Firstly, intermittency is still the single biggest argument Used by the anti renewables lobby, the wire renewables are not equal to traditional or dispatchable baseload power.
The reality is that renewables used in conjunction with battery energy storage systems can now deliver dispatchable or firm power. Secondly, as the penetration of renewables increasing grids around the world, power systems require other services in addition to kilowatt hours To keep networks stable and operable, in order to do so, batteries are required to work in conjunction with renewable energy facilities. And thirdly, with a traditional wind and solar facility, kilowatt hours need to be used in real time. Hybridization allows us to reduce energy wastage and allow many different applications depending on the needs. How does solar power and batteries work?
Now batteries cannot generate energy, but rather should be thought of As the electrical equivalent of pumped storage. Hence, battery storage systems either need to charge from the grid and release it later, On charge from excess solar production, that is solar generation above the required export capacity. This means for solar plus batteries, the excess solar energy is stored during periods of excess generation during the day And released in periods of low or no PV generation as the load or the power system demands. Now there's important factors influencing sizing, and we're just naming a few. Solar irradiation and the day length.
In other words, The solar intensity and how long will the sun shine, seasonal swing. As the system need to be available all year round, We need our design to factor in shorter winter days and then also inter annual variation. As you know, seasons are not the same Every year, for example, some winters are longer and colder than others. And then whether it's on grid or off grid application, and whether there's any grid constraints, And then what is the specific application or use case and the testing requirements that utilities will test the system against? So solar batteries have a variety of applications or use cases, and we're just going to touch on a few.
The first one is constant dispatch. In this case, the project is required to deliver a set output for a duration of time, either on a base load On mid merit basis, that's load following. And this would be similar to either conventional coal fired power stations or load following gas fired power stations. Some of the other services or use cases include ancillary services. In this case, the project is required to deliver Active or reactive power on a short term basis in order to stabilize the grid.
Another example is renewable energy firming. And here, we need to ride through variations in the daily profile to have less of an impact on the grid. Another example is peak shaving, where absorbing power in off peak periods and discharging during peak periods To reduce peak load and defer it to a later period. And then lastly, load smoothing by absorbing energy when the actual load is less than the average daily load and discharging when the load is above the daily average. The point I want to make is that the application drives the underlying system size.
Now we get to a case study, the South African example. Now South Africa continues to with a constrained power supply and brownout is an ongoing occurrence due to ailing legacy coal fired power stations. A technology agnostic tender was launched in 2020 aiming to add 2 gigawatts of dispatchable power to the grid. In other words, all power generating technologies were allowed to compete head on. If we have a look At the blue dash line on the graph on the right, your facility is required to provide power on demand Between 5 o'clock in the morning and 9:30 at night, all year round.
Furthermore, the system is also required to be grid connected Within a very short space of time, which is 12 to 18 months from financial close, and financial close is required to be reached within 4 months. In other words, very aggressive timelines. So Skatek submitted 3 bids, tackling 150 Megawatts of contracted capacity, Purely based on solar plus batteries. The underlying capacity of solar plus batteries are multiples of the contracted capacity In the range of 3 to 4 times for PV and 6 to 8 times for storage. And that is to allow for the various factors as touched upon So preferred bidders were announced last week, and Skatec is in ongoing negotiations with the Department Minerals and Energy Resources.
Now as the continued decrease in technology and cost Both solar and batteries will drive increased market penetration and displacement of traditional power generation technologies. The renewables can now compete on a like for like basis with traditional power generation sources. So the whole intermittency argument I've been nullifying. It's something of the past. If we look towards the future, projections show that solar plus batteries We'll grow exponentially over the coming decades.
Now the question is, how do we leverage Scartic's Track record and market presence to build a position for hybrids. So we have immediate opportunities we are working on in existing markets Like South Africa, Brazil, India and the Philippines. Given our experience with large scale solar and release, We will leverage this experience to build a leading position in the solar and storage market, both on utility scale And for industrial and commercial customers, our integrated business model allows us to optimize the system from all angles, Including development, technical, financial and operational. Then in closing, I want to leave you with this. We are now in a position to deliver firm power from renewable energy sources, which will become even more competitive As storage costs are driven down further, and we, as Skatec, are well positioned to be a partner of choice
My name is Ernest Kofi Poku. I'm the vice president of project development for hydropower for Africa for Scetic. I'm here today to discuss with you the opportunities for Scatic from developing hydropower and PV in combination globally. I'd like to start by explaining that hydro and solar hybrid systems combine low cost PV with the regulating abilities of hydropower. That brings a number of benefits.
Firstly, the market potential within Scatix's existing assets are 3 gigawatts, and that's clearly an attractive opportunity for us to focus on. In combination, hydro solar plants produce increased amounts of firm power, which creates additional revenue opportunities for the company. Using the combination with existing infrastructure leads to better utilization and better economics as a result. In addition, we have a better lower Lower LCOE, log levelized cost of energy based on the fact that PV is generally cheaper to implement than hydro. In addition, we can move faster because PV enables faster supply growth into existing markets where we already have a hydropower operation.
Bringing PV In the relatively short period of time required for that, it enables us to grow that market very quickly. Just to go into hybrid PV and hydro in more detail. As mentioned, our concept is that hydro solar hybrid systems use hydropower And PV, either on the water, as shown in the picture on the right, or on the land co located, and they have a shared substation and transmission infrastructure. There are a number of benefits that come from that. Adding PV lowers the overall system LCOE.
PV and hydropower are complementary on a seasonal basis. In the dry season, the PV supplies the energy that the water would not be able to provide. And hydropower also supports PV on a daily basis. In the interim, when there's a cloudy day or in the morning or evening when PV cannot supply as much, hydropower can take over. And that enables us to have a much higher level of firm power than either system could have alone.
In addition, floating PV enables a reduced water evaporation, And the PV cooling effects enable a higher level of energy yield in compared with, land land based solar The what I'd like to now discuss is the floating PV market opportunity. Scatx operating hydro power assets with 2 gigawatts of floating potential on its existing assets on the reservoir side based on revenues. Reservoir size are very attractive. Skatex projects under development have 1 gigawatts of floating potential, floating PV potential as well. If our panels covered 1% of Africa's reservoir, It will increase the 138 terawatt hours generated in 2020 by 50%.
Overall, the global potential on reservoirs Exceeds 400 gigawatts. You can see on the chart on the right the potential. Between 2017 2018, The installed installed capacity grew from 528 megawatts globally to 1.3 gigawatts. And the annual installation in 2018 was 786 Megawatts. A number of, market commentators believe it will double from there annually, and I think our expectations are similar.
I'd like now to tell you something about one of the projects we've been working on for a while. So Scatec has a floating solar pilot on the Magat reservoir in the Philippines. This was started in March 2019 as a 220 kilowatt peak floating test facility. Following a number of learnings, 2020 was a year of successful operations. The plan is now to install a full scale 150 megawatt peak floating PV plant in 2 phases on Magap, and that is now in the feasibility stage and under development.
Adding the floating PV plant to our portfolio in the Philippines will increase the value of the power, and that's very attractive in that Particularly sophisticated market in the Philippines. Floating PV operations in Asia are a focus area, particularly with the existing assets that we have already in country. I'd now like to say something about a development plan that we have. So right now, I'm working on a project in West Africa, which is originally envisaged as a 102 megawatts. There's a chance, however, in that the a large reservoir would be required to ensure that there's a minimum level of, power year round.
As you can see On the graph on the right, 33 gigawatt hours per month is what's required by the the government and the utility. We were not happy with the impact that might have, so we Starting to propose an alternative solution, which is a slightly smaller hydro plant, 64 Megawatts, combined with 125 Megawatts of floating PV. That allows us to reduce the size of the reservoir and the hydropower infrastructure impact is reduced. But on the other hand, it enables us to provide that firm level of power. You can see on the Graph on the right that the solar is providing the additional power in the dry season between January May of this year.
And then the hydro power is providing the majority of the of the power in the wet season. This enables us to offer a solution with a lower tariff as well as lowering the environmental impact, which is clearly attractive for all parties. I believe based on this and the things I've said previously in this presentation that Scatec is well placed to take advantage of the 3 gigawatts of hybrid Hydro serve opportunities that exist across our assets, and in future opportunities as well. And I look forward to working with the team to develop those projects going forward.
My name is Ediska Dault, and I'm part of the core team that has developed the release solution. We presented release a while back, and I will start with a recap of the concept. So ReLees is rental of containerized, modular and movable solar and storage. We offer a short timeline to deployment and flexible contract durations. And our primary goal is to Replace diesel in the power mix.
In short, the interest we have received from customers, Competitors, technology providers and finance leaders makes us confidence that we have found a sweet spot in a growing market. We currently have 300 megawatts in our pipeline. So even if uptake has taken longer than expected, We are confident on the prospects going forward. I will first describe our offering in detail So the graph shows the contract structure of our proposal. And the key difference from the standard PPA It's the flexibility.
So first, we ask for a mobilization fee to cover the initial costs. The customer commits to an initial contract, say 5 years, and then decides whether to prolong, terminate or buy the asset. With a short initial contract, the financial commitment is reduced, both on the guarantee side and on the balance sheet. And if the customer prolongs beyond the 20 years, the average tariff is similar to that of a long term PPA. So the customer keeps its financial and operational flexibility while getting solar power at competitive prices.
The projects are smaller and financed on a portfolio basis. So any potential external financing We'll be added on the whole coal level rather than on the project level. The mobilization fee Covers the initial expenses and immediately reduces our overall exposure. Counterparty risk Is mitigated by a front loaded rental curve, reducing the asset payback time, the movable asset And a guarantee for a limited amount of payments. And last but not least, we're selling Simplicity, A simplified structure with one contract only making Release a plug and play solution.
So our core focus is Africa and the target markets are the same as the one we have presented earlier. Off grid mining, a big and growing market where we have a specific edge where the remaining life of mine is short. NGOs, we've done 3 projects already, and there's a lot of activity in this segment. Small utilities, A core market for us going forward and where the added flexibility is of value. We're quite excited about the solution we can propose here, And then we have Angrid Industrials showing a lot of interest So since we launched release, we have 3 projects installed.
The Malagaal project for IOM in South Sudan. The solution delivers 90% of the power at the site and is our 1st baseload hybrid. We're currently also constructing 600 kilowatts at a waste facility outside of Oslo. And the projects will allow us to observe the benefits of bifacial modules in high latitudes. And thirdly, we have a demonstration plant at Stellenbosch in South Africa, where potential customers and partners 2 contracts Have been signed and are currently in the execution phase.
A 8.7 Megawatt plant for a mining company in Mexico. This is a 10 year initial contract with a buyout option after year 5. And the project will be completed by the end of this year. We will also deliver 7.7 megawatts to a off grid utility in Chad. The customer is backed by the Dutch Development Bank FMO and the first containers are currently being shipped.
So as I mentioned, we have a specific initiative for Utilities in Africa. We've entered into an exclusive partnership with IFC to deliver release for Utilities with underdeveloped power infrastructure. IFC will use its local network In the development phase, while providing financing and guarantees to support the rental contract. We're actively pursuing several projects together. The most advanced is the 36 Megawatt Solar, 24 Megawatt hours of storage in a West African country, which will be delivered by the end of this year.
And this cooperation is an important milestone for us. We think the collaboration has great potential And we'll make a significant contribution to the electrification in Africa. And that we're quite excited about. So going forward, we will be focusing On further maturing the projects in our pipeline, which is 300 megawatts And growing, the largest segments are utilities and mining, where we have about 200 megawatts of advanced project. One we hope to announce shortly is a project for a mine in South Africa Where we will deliver solar for production of green hydrogen.
To conclude, solar rental is a new product in the market and the customers are still getting used to the concept. To release in the coming 12 to 24 months. I will now leave the word to Julia Hambre And Urover Hauge to cover how we work with ESG. Thank you.
Scartec's horizon when entering a project is normally 20 to 25 years and beyond, Which is why we have an integrated and long term approach to our sustainability efforts. Our operations in Ukraine is an example of this. The local development programs are designed to create long term sustainable contributions. Our cooperation with community members is built on transparent processes public hearings, open discussions about local issues. In the Cherkassy region in Ukraine, we support the robotics club Kamiyanka Lyceum number 1, which is a ticket for many talented students to go into a technical degree.
We also support free English courses For the kids, this is a chance for higher education and a wider range of job opportunities. For parents, it gives new job opportunities and expands their access To information, we're proud to be a long term player and help improve quality of life in our local communities.
Sustainable Business and HSSE in Skatek. I'm here today, this morning together with Julia Hamre, Senior Manager in ESG Reporting and Strategy. So let me just dive in. We know the importance of doing business in a sustainable way. And ESG is a true integrated part of our business model.
From the fundamental environmental social Management system, the ESMS, to describe how we prepare, plan and operate our projects. All through the team of some 50 dedicated workers in the area of sustainability within the company. Derisking projects can be done with careful attention to ESG. We know that. It makes projects meet timeline And be predictable and represents the best way of obtaining good relations with the neighboring communities.
And this always makes us good starting point for local coexistence and accept. We build all our projects adhering to the IFC performance standards. This is the comprehensive set of standards you have to comply with Knowing you want to meet the highest ESG standards. In addition, we very often work with project finance institutions, Which again adds their joint requirements to responsible business conduct. Together, these standards and guidelines Makes out a set of very solid and strong frameworks over which we perform and manage our ESG risks.
This is a schematic chart illustrating how integrated our ESG work is. The top bar Shows the phases a project passes through on its way to operation. At each of the bar stops, if you like, A management decision gate will be demand, a factual status and compliance to all ESG matters at hand. We established the environmental and social impact assessment, a map leading to mitigating actions to be met, making the project compliant. Our actions are monitored and reporting, making sure to be on track.
We put emphasis on stakeholder engagement, We're uncompromised informative dialogue, where our local CLOs are at the centerpiece. Grievance mechanisms are established in all projects, both physically and on the web. A special focus has been put on supply chain management, keeping dialogue with suppliers on their ESG standings, Both on compliance and human rights. Further, we take great pride in our strong HSSE numbers for the company, Both the lost time in injuries frequency, LTIF, and the total recordable injury frequency, the TRIF, TRIF, With 0.81.1 respectively per 1,000,000 hours worked are very strong numbers. Considering some 80% of the local workforce are often unskilled laborers, this makes it even stronger.
And we know that this is a result of a well drilled procedures and firm training over time. All our projects undergo greenhouse gas emission reporting and a strategy for end of life management is being worked on. Now to a couple of examples on sharing how This work is being conducted on the ground. So what type of risks do we meet? In Egypt, for instance, shown here on the picture, We built a 380 megawatt solar plant as the largest developer in the Benban area.
It was to date our largest project Undertaking some 4,000 workers plus engaged at peak construction. We got our hands full, particularly on workers' condition. HSBC, accommodation, transportation, environmental spills, etcetera. It became clear that we needed to strengthen standards And called in additional resources. Tight dialogue with local government, suppliers and our own project team Made us able to turn it around, lift the standards as the stakeholders demanded.
And now some 2 years into operation, Small maybe, but a good example is knowing that some 400 Toyota minivans are now running in the Greater Aswan area with seatbelts And in the project, Mokuba, in Mozambique, we had to restore livelihood to some 223 households that were affected by our project. The IFC performance standards describes how we went about this. Clear guidelines to mapping and compensations. In this case, a land for land principle. This was worked out in close dialogue with the affected households and the government support.
As per the performance standards, we will still monitor the progress of this project on a yearly basis. And in Skatec, we have worked systematically with ESG reporting for many years. In fact, we published our first report back in 2014. And to talk us through where we stand now on ESG reporting, I'll give the word to Julia.
Thank you, Roar. So our ESG reporting today focuses on material ESG risks and opportunities and also our performance and results linked to that. And to make sure that our reporting is relevant, we do a materiality assessment where we engage with our key stakeholders to understand their perspectives, and we also review ESG impacts in our value chain along with our own strategic priorities. And we follow 3 reporting frameworks. So the first one, GRI, this is still considered the leading framework for ESG reporting.
And we also add other relevant elements from standards, such as SASP, which focuses on financially material topics. For climate reporting, we report to the carbon disclosure project. And this requires a high level of Transparency when it comes to how we manage our environmental impact. And towards the end of 2020, we were quite happy with getting a top score in CDP and also a place on their list of companies tackling climate change. And finally, the task force on climate related financial disclosure.
So these are voluntary principles for companies, and they primarily relate to climate related risks and opportunities. And it's about how companies are governing this And also how they integrate this into their strategy and risk management processes. And we have seen A very strong demand for this type of information from our stakeholders. So we have decided to develop a full report So we have reported on greenhouse gas emissions from our business since 2017. And our scope 1 and 2 emissions for 2020 reached a bit more than 6,000 tons.
And This is quite a reduction from last year, and the reason for this is less transportation activities on the project sites. Scope 3 here is usually the most challenging category, and this is because we don't have direct control over these emissions. This was a major focus for us in 2020. And during the year, we established dialogue with all key suppliers of And also their ambitions in this area. And our Scope 3 emissions in 2020 were quite low.
So this is due to timing. So several of the major procurement purchases, they happened in the year before 2020. We also had less travel due to the pandemic, As most companies, and we're still gathering some emissions from our subcontractors. So for this, it's Much more valuable for us to take on a life cycle approach. And we did that for a 50 megawatt solar project.
And the payback time, so when we reach breakeven for emissions, that's estimated to approximately 1.5 years.
Right. Julia, thank you. But clearly, we cannot leave the topic of ESG reporting Without mentioning the EU taxonomy. This is a key development in sustainable finance that gives us a clear system for defining green and sustainable activities. Julia, can you tell us a bit about how we are approaching this?
Yes. So we have followed the taxonomy quite closely for some time now. And although it's not fully finalized yet, there are still a few uncertainties. We have started to assess our company and projects Against the current criteria. And the first step here has been to undertake an external assessment of Skaltech's compliance When it comes to our solar portfolio.
Okay. So are we 100% taxonomy compliant then?
Yes. So for Skatec, at year end 2020, We are fully compliant with all criteria. So the company's revenues, OpEx and CapEx are all defined as 100% green.
Right. This is good to see. But I guess the big question remains, which is how we approach our hydropower portfolio. This has been debated for long whether hydropower projects are taxonomy eligible or not. And I think the deadline by the Delegations Act to provide the final call on this is set to end of April, for what we have heard.
Yes. So this has definitely been a hot topic in our industry lately. Our understanding is that Hydro power classifies as green, but must meet stricter requirements compared to other renewables. And the main debate here is really on Thresholds for CO2 emissions per kilowatt hours and the measures to protect local biodiversity and ecosystems.
Okay. So we have 6 hydropower projects in Laos, the Philippines and Uganda. How are we making sure we are on the right track here?
Yes. So first, we have a solid foundation here. I mean, all these projects We're developed in line with international standards prevailing at the time of construction, such as the IFC performance standards. And we are now mostly looking at life cycle assessments of emissions and also the do no significant harm principle. And for the emissions, the taxonomy has set the threshold at 100 grams of CO2 per kilowatt hours.
And from what we can see so far, we are expected to be within that threshold.
Right. And the D and SH do no Significant harm principle is really at the core of the ongoing discussions on the taxonomy, right?
Absolutely. I mean, there are stricter requirements to hydro compared to solar in this context, but many hydro projects are expected to be compliant to the taxonomy. And I think the challenge we see with the current criteria is that it can be interpreted in different ways. So at this point, we believe that the environmental and social impact assessments must be based on widely recognized international standards. And all our projects have worked according to these and will continue to do so.
Okay. So what are the findings to date? Have we so far identified any significant negative impact on any of the hydro projects?
So based on our ongoing assessment against the taxonomy, We have not identified any projects with significant negative impact or any serious red flags, but this is subject to a final review When the EU taxonomy criteria is 100% set?
Very well. So as soon as we have the criteria clear, We will finalize this assessment. A key takeaway from the taxonomy is to ensure that the criteria thresholds for hydropower Right. Coming to the sum up, as Raimund said earlier today, we do have considerable experience to document That we can navigate ESG in complex environments. Early involvement as per our operating model is Key to project risk mitigation and success on the ground.
And with over 50 dedicated resources within sustainability in the company, Addition additional to the skilled partners, we ensure this. We have set a climate target and will work to reduce emissions. It's a key responsibility to our stakeholders to report transparently and stay on top of relevant regulations, Starting here, of course, with the EU taxonomy. And in all humbleness, if you see to the right on the slide, we are enjoying top Ratings on our work with ESG, and these are our measures by leading international agencies. So with that, We are excited to announce this year's report, Jule.
Yes. So we are launching our annual sustainability report on Friday this week. And here you can read more about the key highlights and our performance from 2020. And with that, we give the word to our CFO, Mikael,
Thank you, Iruwair and Julia. And I'm really happy To have you all listening in to our Capital Markets update today, we've been really looking forward to this. So I will now Talk in the last session here about our financial platform and the great financial platform that we built over the last And it's really four points I want you to remember after my presentation. And the first one is that we have established really Secondly, we have excellent access to capital both at the project level but also at the group level. We've seen it in the past, and we expect to see it also going forward.
3rd, we continue to structure our projects very carefully to manage risk, manage financial risk and political risk. And lastly, we will continue to apply capital discipline when we invest. We focus on equity returns and on our margins across The various business segments. So let's start by just having a look back at the financial results over the last 5 years, we've seen a significant growth in power production as we've built and connected new power plants. And in our integrated business model, we have revenues From sale of electricity, but also from development and construction of new power plants.
From 2017 to 2019, We had significant contributions from these development and construction activities, and we see that growing as we move forward. In this graph, we have also included the contributions from the hydro power side with the SM Power results for 2020. As you can see, the combined company produced 3.1 terawatt hours and revenues past 4,500,000,000 And EBITDA ended close to SEK 2,500,000,000 Now I wanted to continue by going a bit deeper into the 2020 We have mapped the Essen Power's business activities here named Hydro into our Business segments in Skatek's business segments. As you would expect, the main revenue and EBITDA contribution is from power production, And EBITDA is almost doubled with hydro included, as you can see in the table here. The hydro production revenues in 2020 We're impacted by low hydrology, but also by low prices in the Philippines with COVID-nineteen.
So we expect that to improve In 2021. When it comes to project development, the combined company reported D and C OpEx of euros 220,000,000. So we spend significant amounts on development of our pipeline. About 85% of this euros 220,000,000 is related to development of our pipeline, and the balance is related to the construction business. Now also looking at the corporate segment, we had a negative EBITDA of some SEK 200,000,000 in 2020.
This includes about SEK 100,000,000 of nonrecurring SM Power transaction costs. So going forward, our quarterly reports will include will not include this split into solar and hydro. We will report on the same segments as we've done before. But for the Power Production segment, we will continue to split And prior to country by country P and L split, so you can be able to study the developments in more detail, Again, in the same way as you we have done before. We have today also published a spreadsheet with the segment financials and the asset P and L breakdown for 2020, so you can do your modeling before we publish our Q1 report for 2021.
Now let me take one step further into the power production business. As you can see, we have a well diversified asset portfolio. In 2020, we reported $3,400,000,000 of revenues from 13 countries, generating an EBITDA of $2,700,000,000 After service of debt at the project level, these assets generated €1,100,000,000 of cash flow to equity. This is cash available for distributions to Skatek here in Oslo as an owner of the assets, And this is happening typically 6 to 12 months after the cash is generated. Also important to note that we're selling power under long term contracts, The average remaining contract tenure is more than 18 years.
The exception here is the Philippines, as Jarl have explained today, Where power is sold on shorter contracts, but where we also are providing grid support services. I will also highlight that the concession for hydro plants on the Philippines is perpetual. So that's also a bit of an exception in our portfolio. Now let me also touch upon our dividend policy, which is closely linked to the cash generated from the operating power plants. And we're now lifting the cash flow from the operating power plants significantly compared to last year.
And the policy implies that we have an objective of paying our shareholders a consisting and growing cash dividends. And from 2021, the board have decided to adjust this policy to pay out a minimum of 25% of the cash distributions received From the power plants, and this was 50% in the past, but now it's a much bigger cash flow That we are paying this out of. So in absolute terms, the dividends are expected to grow and increase year on year. But it also implies that we will basically utilize more of the cash that we generate to fund growth of the company. Now our assets and also our integrated business model are really the basis for our financial position.
Here you can see an overview of our capital structure as per end of 2020, and we've adjusted for the closing of the SM Power transaction that happened in January. We're holding SEK 2,900,000,000 of cash at the group level. And including the undrawn green revolving credit facility, We have SEK 4,400,000,000 of available liquidity, a very strong basis for funding of new projects In the coming months years. If you look at the debt side, most of the debt is sitting at the project level, about SEK 10,000,000,000 Net debt, and this is based on non recourse project finance, and I'll get back to that in a minute. We added debt at the group level with the SM Power transaction, but the debt level is moderate seen in relation to the long term cash flow generation.
Looking at the 2020 numbers, the cash flow generation represented 20% of net debt. This is also reflected in the pricing of the group debt, which is about 2.5% all in across all the group debt instruments. Green Financing continues to be important for us, And it was really great to see the good response we had when we issued a €250,000,000 bond Last month at below 2% interest rates. So very good access to funding also at the group level. And if we move then to project funding, we really have strong partnerships With a number of institutions for both equity and debt funding of our projects.
We raised close to SEK 20,000,000,000 of project level funding over Few years. And on the equity side, we're partnering with the DFIs like Norfund, Africa 50, FMO, but also with Equinor and local investors. On the DEPS side, we raised non recourse project finance from both commercial banks, about half of the volume, And development institutions, multilateral development institutions for the other half of the debt volume. We experienced that quality projects with a good ESG profile is in really high demand. And we have excellent access to funding of these projects.
Now I also want to highlight that we, from time to time, Do refinancing of our projects. Recently, one of the hydro projects in the Philippines was refinanced, And more than SEK 400,000,000 was released to Skatek Now in the Q1 of this year. Now a major part of financial risk management is happening through careful structuring of Each individual asset and project. 1st, long term PPA tenors allows for long debt tenors, And that again allows for fairly high leverage at the project level. And the interest rate is locked in.
We have close to 90% of the debt volume now hedged at the project level, And the average interest across our portfolio is 6.5%. This is also reflecting a basket of debt Debt in different currencies, as you can see in the pie chart here. And then we matched The project level debt currency with the currencies of the cash flows to create a natural hedge of our dividends, Another important feature in terms of financial risk management. Now the pie chart here gives you split Per currency of the EBITDA generated in 2020, and you can see a onethree of the EBITDA is linked to U. S.
Dollars. And this is From markets like Egypt and Uganda, but also Jordan and Honduras and other markets have dollar denominated tariffs. So it's not all local currencies, but hard currencies as well in the mix here. Now, Raymond also pointed to this. We continue to stay selective when we invest.
The renewable market is massive. There is lots of opportunities, but we need to continue to be disciplined. We normally model 30 year cash flows. And based on our current pipeline, we expect 12% to 16% return on equity. Turn and some with higher depending on the regions and the currencies and the nature of the projects.
Hydro powered investments are generally expected to yield higher returns than, for instance, And on the development and construction side, we expect gross margins in the range of 10% to 12%. And this is also important. This is reflecting both a development margin, but also a construction margin. A lot of the value creation here is related to development of projects, but of course, construction is also important. Now we guide on the D and C revenues of some 50% to 70% of the project CapEx dependent on our role in the projects.
This is a number that's been 75% to 80% in the past on the solar side, but we see that On the different technologies that the scope of work and the role that we take in the project will vary more than in the past. Plan and the funding of it. We expect NOK100 1,000,000,000 of NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK investments for 12 gigawatts. And this is based on a mix of technologies where solar is expected to represent the largest share of the growth. We have good access to funding, as I mentioned, and we plan for 60% to 70% of the CapEx to be funded by Non recourse project finance.
There's no fundamental change here really from the past, but we also expect to bring in project equity partners Before construction start, for 40% to 50% of the equity, meaning that we retain 50% to 60% Of the equity in the projects. And on that basis, we expect equity investments to be in the NOK 15,000,000,000 to NOK 20,000,000,000 NOK range. And to the right of the slide, you can see the funding of this equity. €10,000,000,000 to €12,000,000,000 is expected to be funded from cash flow from operations. The largest part of this, again, is cash flow from existing power plants, But also cash from development and construction of new plants in this time frame.
In this same number, we have also deducted The shareholder dividends that we expect to pay in the same time frame. As I mentioned, we hold $4,400,000,000 of cash and credit lines, Meaning that we need to fund around DKK 1,000,000,000 to DKK 4,000,000,000 from other sources. This is really a very limited amount seen in relation to the DKK 100,000,000,000 NOC Business Plan. This $1,000,000,000 to $4,000,000,000 can be sourced in several ways and will also depend a lot on the timing of new projects coming in. We have further debt capacity at the group level, and we can sell or reduce holdings in existing assets, Or you can tweak our project model and quite easily cover this amount by, for instance, also looking at the equity stake in some new projects.
And then I want to give you some more guidance for 2021. Our main principle for guidance for power production would be focusing on volumes going forward. But since we're now closing in on the first We found it prudent to also guide you a bit on the power production EBITDA at this time. So in Q1, we expect to produce Between 80825 gigawatt hours, and we expect to report a power production EBITDA of some 660,000,000 to 680,000,000 This is up from SEK 573,000,000 in the same quarter last year. For the full year, We expect production to reach 3.5 to 3,700 gigawatt hours, and this is up about 20% from last year.
We provided guidance for the services segment earlier, and this is broadly unchanged. And for the new corporate segment, we expect an EBITDA Of negative SEK 110,000,000 going forward. So Just let me summarize this by reiterating that we have built a very robust platform for growth and to support our growth plans in the years to come. We have excellent access to project level funding and group funding, and we have the financial resources available now to realize
Thank you very much, Mikael. I guess we are Coming towards the end of our Capital Markets update, you heard Mikael now talk about our financial strength. I believe that you share my view that we are very well prepared for what we see down the road. We have a strong pipeline, more than 10 gigawatts. And of course, you know that this pipeline is It's a dynamic pipeline.
We have increased the pipeline by many gigawatts over the past couple of years only. So this activity We'll of course continue as we speak. And I mean and I believe that for the development teams, We have a very professional, dedicated team. They are going to look at the markets. They're going to pick the best opportunities.
As I've said before, we are not A market percentage or market share type of company, we really assess our opportunities in detail very early in the process. And with regards to the organization, I mean, the market is dynamic. It's moving fast, which is Extremely good news for the reduction of the CO2. But our challenge, which we have been doing on the past few years as well, Is to be able to match the competence profile of the people that work in our organization To the strategic direction of the company and also to be able to entertain business opportunities that we are just Seeing the beginning of now where we can maybe see combination of many technologies into 1 different contract forms that we have been presented for today as well. So I'm very optimistic about the future.
We're going to work towards realizing the 15 gigawatts By end of 2025, and for that, we will invest NOK 100,000,000,000 and as Mikkel just described, We are also generating a very, very strong cash flow that will support us achieving those goals. So that Concludes the presentation mode of today. And we're very happy then to include Thadija and Jarl as well For the questions that hopefully we have been receiving, Ingrid?
Yes, we have some questions. So, we'll start with, what is the status of the risk mitigation power tender in South Africa?
In terms of the risk mitigation, IPP program in South Africa, we have to limit our Information and communication to what is publicly available. So what is publicly available is that Last week, 1.85 gigawatts of contracted capacity was awarded. That means that 150 megawatts of contracted capacity is still not awarded relative to the target Of the Department of 2 Gigawatts. And we bid in 150 megawatts of contracted capacity, Up to 600 megawatts of DC capacity. And we are currently in discussions with the department with regards to that And we will try to come back to the market in a matter of weeks in terms of the status there.
And then if we move to India, what kind of structure and tariff level will there be for the 900 megawatts?
Yes. In terms of the 900 megawatt partnership opportunity, we are negotiating in India. We can at this point not comment on the tariff level, But it is a fifty-fifty partnership on the equity side. And then due to the timing of the project and how mature it is In terms of financing and the experience of our local partner in terms of EPC work In this specific project, it will be our partner that will do the EPC part of the project.
And then another one on Tunisia. We have seen some delays in Tunisia. Can you please elaborate on the status of this project?
Yeah. The status of our projects in Tunisia is that over the last months, we have been negotiating the project agreements with sponsors, With lenders and with the authorities and that negotiation has now been concluded and the project agreements have been Approved by the relevant committee of the Ministry of Energy there. So we expect to sign the PPAs shortly. And then it is likely to be a 6 to 9 months period until financial close.
Then we have a question on floating solar. What technologies are you working on for floating solar?
Yes. We have evaluated, I think, more than 10 different technologies on floating solar. On the pilot in the Philippines, we used the ocean sun concept, but there is a lot of Development in this area. And we are continuously evaluating The technology that we will apply on this and really no selection has been made with respect to the concept.
And then on hydropower, can you also elaborate a bit on the brownfield opportunities that you see?
Yes. In our markets, the utility companies are generally in a quite Poor state financially and to some extent operationally. That leaves a lot of the power plants, the operating power In quite a poor state, and that we believe represents an opportunity for us to come in And improve and modernize those plans. So that we believe that that is a significant market for us moving forward. And I think today, I mentioned one example in one country in Africa Where we are concretely looking at brownfield opportunities.
And then on ESG, Can you say something about how you conduct your compliance assessments with regards to ESG?
I can maybe answer that. So we are doing very thorough due diligence when it comes To compliance when we enter into new projects. We are obviously doing background checks on potential partners. We and the companies involved, if any. And then what is also important for us is to make sure that we understand The procurement program, and here, we work also very closely with the development finance institutions That have often been involved in designing procurement programs for a number of the markets that we're involved in, So that we make sure that there is integrity in those processes.
So that's just a couple of examples of what we do When it comes to compliance with diligence.
And then, will the new growth target Be based on organic growth or also M and
Clearly, the organic growth, and by saying organic growth, it also includes Acquisition of some pipelines like we've been doing in the past. It does not include any sort of major acquisitions or companies. So this is nothing new to us. For the next 5 years, We have ample opportunities out there in the market.
And can you also indicate the split, the technologies, for this growth?
Maybe you can or Jarn, I mean, Tarya?
Tarya.
In terms of the future growth, our current pipeline is a good indication of the technology split for our future growth. So in the current pipeline, we have more than 40% pure PV. And then they have a good split Between wind, hydro and hybrids for the remaining part of the pipeline.
And then there have been a few questions about, if we expect to issue new equity to fund this growth plan?
No, I mean, as I said in my presentation, the funding here is really well covered By the cash flows that we generate already from existing power plants. So we are fairly In our in how we structure these projects. And as I alluded to in my presentation, we are basically More or less covered when it comes to funding.
And then, what do you see as the major challenges in delivering of the new growth targets?
I mean, going from where we are today to 15 gigawatts in 2025 is by itself a challenge. And if you look in the past to sort of get some guidance on what the challenges are going to be over the next few years, it is Keeping a forward movement of the pipeline in a manner that will Create execution progress more even. I mean, in 2017, 2018, we had a lot of projects being executed and then we went into a development period. So for our organization, I think increasing the pipeline to be able to sort of those in new projects that are matching the capacity at all times of our organization It's going to be important. It's not easy.
And of course, some of these projects are big and they come very fast. So at the same time, we are developing our development teams. We are developing the execution team To include, of course, we are getting hydro power with some power, more wind competence, solar power we have, battery storage execution, Muscles needs to be developed. So we are trying to be ahead of the pipeline here and of the activity level. In terms of financing capacity, I don't believe, I'm listening also to Mikkel now, I don't think that's going to Be a challenge.
I mean, the depth capacity out there is readily available for good quality projects. So it's I mean, it's going to be a rapidly developing company over the next few years, But I think our past has shown that we are able to manage growth. And I'm certain that we'll be able to manage the growth that we have ahead of us as well. I guess that was the last question, Ingrid.
I think we'll leave it at that.
Okay. Thank you very much, and thank you all of you for listening in and watching. Thank you.