Good morning, and welcome. I'll today be giving you an insight into the world of floating offshore wind, and an update of Hexicon's operations in the recent period. My name is Marcus Thor, and I'm the CEO of Hexicon. On the agenda for today, I'll start with giving you an insight into floating offshore wind.
I'll provide an update of what Hexicon does in this space, our business model, and of course, an update of our operations and the business in the recent period, and I'll be ending with a look ahead. So let's get to it. I'll start with some market developments, and the case for floating offshore wind. I just wanted to start, and I've shown this number before, and this is really, I think it says so much.
So roughly 80% of offshore wind resource potential lies in deep waters. Now, if we look at offshore wind from a northern European perspective, where it's really where the industry has taken off, that's been developed in shallow waters. But from a global perspective, large areas of shallow waters, it's not a luxury that it exists, and certainly not near the big load centers.
So if we wanna have even a shot at reaching our climate targets for regions, legislative targets for specific countries, et cetera, we will need to deploy a significant amount of floating offshore wind around the globe. And what do I mean by deep?
Well, I think that float, sorry, bottom-fixed offshore wind has certainly gone into deeper and deeper waters as well, but somewhere around the 60-70-meter mark is what we define as deep, and that's based on that floating offshore wind can be developed and deployed, and operated more cost effectively when compared to bottom-fixed. So what's going on in the industry?
Well, there's certainly a lot. I'll mix a little bit here, both fixed bottom and floating, just to give you a feel for offshore wind in general. There's a lot. So I wanted to give you a few examples. Over in Southeast Asia, both Taiwan and Japan are currently preparing auctions for floating offshore wind. Taiwan, probably with smaller projects already end of this year, bigger projects next year, and Japan preparing for slightly larger commercial scale projects from next year.
If we look at countries here in Europe, both Italy, Greece, and Portugal are all preparing legislation for floating offshore wind. In fact, Italy, where we're active ourselves, we're expecting this legislation to be out already next month, in September. On the other side of the world, I wanted to mention as well, we've seen for the first time, Australia also taking some central moves towards floating offshore wind, where areas in deep water have been declared as so-called energy production zones.
And there's more happening, not the least in Sweden, and I'll come back to Sweden in a bit, but there's a lot of activity here in our home market as well. Jumping over to Hexicon. I wanted to show you a video here, what it's all about. This is a rendering of our own technology, the TwinWind.
It shows how it works, and this is our patented TwinWind technology. It's what you can see here in yellow, the foundation, is what we develop and have patented. It's essentially a big triangular-shaped steel structure. It floats on its own, it's stable on its own, it uses a mooring system to keep it in place, and it hosts two turbines.
The mooring system is attached from beneath to that front corner, the corner that does not host a turbine, and it's attached through what's called a turret. This is a common appliance from oil and gas, and it's essentially just a big bearing. This allows the complete unit to rotate with the wind direction. Now, why is this key and why do we do this? Well, this is what enables two turbines to be placed on the same structure.
Let me just see here. Can we show the video? No. And what that entails is that we are able to, with two turbines in the same structure that are not disturbing one another because of the rotation, we are able to install more turbines for a given area. Why is that good? Well, our two main design drivers in developing our own technology is, one, the perhaps obvious, lowest possible cost of energy.
We're sharing certain cost components with two turbines. But also the second really key design driver is as low impact on surrounding activities as possible. So if you are able to pack in more turbines in a given area, you've got an easier chance of avoiding conflicts with other stakeholders. And I'll tell you, there's a lot of stakeholders out at the sea.
Waters might look endless, but when you start layering different interests on top of each other, such as the military, commercial shipping, fishing, et cetera, they aren't endless anymore. The isolated areas that are suitable for wind developments are not that many. So to be able to get out as much as possible from those areas, that's important from today, from a commercial perspective, but also from a permitting perspective.
And this, I think, will be a really important factor, especially over the years, as more turbines are deployed in the offshore space. Looking at Hexicon, just to frame it in numbers, we've got a project portfolio that have now just recently gross capacity surpassed 20 gigawatts, a net holding of just over half of that. That is Hexicon AB's holding of that portfolio.
We're present in 4 continents with a TwinWind patent in over 20 countries, and that portfolio spread over, over 16 different projects. I'll come back to a few of these in just a few slides. A reminder of our business model, and I think this is key mentioning, when it comes to Hexicon, that we do two things. Our business model basically stands on two legs. It's both project developments and it's technology provision.
They're unique and have separate revenue streams, but they are very synergetic and reinforce each other commercially. Project developments is about developing projects. It's focusing on the early stage of the project developments. We originate, we start new projects, develop them to a certain stage. On the technology part, it's about developing, protecting, and ultimately selling our foundation technology to be used in large commercial scale projects.
How they are intertwined, but also separate, if you take project developments as an example, most of the commercial scale projects we develop, we do that technology agnostic. That's a prerequisite to scale the portfolio, to get investors to come in fairly early. Before all the definition is put in place, you will not make technology decisions before you have to. Nonetheless, every project developed, it's an opportunity to down the line, use our technology.
And vice versa, the technology, just the fact of having our own IP, have opened a lot of doors to markets and partnerships around the globe, where we're using, for example, through a JV to a local market on the other side of the world, we'll be using the fact of having IP, licensing that to that local joint venture, and creating an added potential revenue, but also getting into favorable terms in that JV partnerships by having our own IP.
If we look ahead here, we've spent a lot of years now investing into the growth and especially the project portfolio. We won't stop doing that, but we are now, since early this year, we're also now in the next phase of our development or our journey, if you will, where we will start realizing some of these assets as well.
It's grown to the point, the project portfolio that is, where divestments are starting to really make sense. Not too early, but not too late either, where we go into the real capital intense periods of projects. So this we'll see more of in the near future. And here's just to visualize the project development, the complete life cycle of a project here, we are so far active in focusing on the development stage.
That's from inception until FID, final investment decision, making the decisions to start to build the project, to go into construction. We're not active in the construction phase. We are, however, ultimately, as also a technology provider, active in the operational phase, where our technology is utilized. And if you so, zoom in on the project development part of it, we are really active in the earlier part of this whole thing.
Why are we there? Well, some of the features are, to start off with, that's the phase where you have the highest relative value increase. So to get high returns on your seed investments, that doesn't mean that they're out of risk. Of course not. But it suits well. We've really created a core skill set of being able to manage those risks. So to be able to choose markets on the right criteria, to find the right place within that market, and to optimize that space, and create that into a business case.
Invite investors fairly early to share that risk, to spread the portfolio across geographies, and to be able to divest before you hit the real costly phases of a project, which is, you know, it increases typically as you get closer to construction, but then it jumps high up to the really costly period when you go into construction.
That's where the real big money is, where we're not—as Hexicon is equipped today, that's not a phase of the project life cycle where we take any responsibility or are active. So we're looking at divesting in steps before you hit that construction start. Worthwhile mentioning here as well is that these project expenditures in the development phase are in Hexicon, for accounting reasons, taken as a cost.
This is fairly standard, and it matches a lot of our associated companies as well. What does that mean? Well, that means that the value creation and the value build of the portfolio is not fully visible in Hexicon's balance sheet. That doesn't mean that there's not any market value of it, but we're not capitalizing it and showing it in our books as of today.
That will then be, of course, shown when we realize these projects through divestments. Just a brief look at the global map and where Hexicon is. We did separated this into three different color series. It's projects, which are, you know, the difference between a prospect and a project is the maturity of it, certain criteria, typically, seabed rights.
That's not applicable for all markets, but in general, obviously, a project is a more mature development compared to a prospect. And then we've got prospects and countries where we so far just have a presence, because it's a market we think we should be active in, either as a project developer or a technology provider down the line.
And it's a lot in Europe, but we also have presence over in North America and over in Far East Asia, in both Taiwan and South Korea so far.... Now, looking at Hexicon, what's happened over the last period of time, just to frame the quarter, I think it's been an intensive quarter, to say the least.
It's been a quarter of having achieved several important milestones, not the least, two big applications to the government here in Sweden, which I'll come back to, increasing the project portfolio overall, but also securing financing in two different agreements, and that I'll come back to as well. And if we look at some key events during the period, Sweden financing, I mentioned that. I wanted to highlight one more thing here, before diving into the detail of some of the others.
And that is that in May, the Swedish Patent and Registration Office dismissed the competitor's objection regarding our TwinWind design. And this has been ongoing for over two years, and it was an expected, but nonetheless welcome decision by the Swedish Patent and Registration Office, dismissing their objection.
I want to emphasize as well that this was not a case of infringement, us infringing someone else's patent. It was a case of them objecting to our patents, even having been approved or granted from the beginning. And it was pointed to a lot of background data that I think the Swedish Patent and Registration Office, in their verdict, claimed that was already no knowledge in their original verdict of having approved our patent over two years ago.
Now, if you look at the project portfolio as a whole, this is something that's steadily grown in the recent period. And going back to these different phases of our journey, it's been a period, looking back the past two and a bit years, of really investing in the growth of the portfolio.
These numbers show you that we've steadily grown, but not only grown the overall capacity, but we've also matured it. So there's more and more prospects coming into the portfolio and more and more prospects being translated into projects because they're at a mature enough stage.
As I did allude to at the outset, we have just recently passed the 20 GW mark in the gross portfolio, not the Hexicon net holding, but the overall portfolio of projects that we are in, and typically, or most of them, having started ourselves.
That's a net holding in the portfolio of Hexicon of just shy of 11 GW. So that's a Hexicon AB ownership within this portfolio. This is something we'll continue to grow as well, to add new projects and to mature existing projects.
Zooming in on Sweden, just for a moment, being our home country, I wanted to make a few points. First of all, we can see here on the map, this is our four projects, and this we're developing in Freja Offshore, which is a 50/50 joint venture for the Swedish market between ourselves, Hexicon, and Mainstream Renewable Power.
With the two projects, Mareld on the East Coast and Cirrus, South, sorry, Mareld on the West Coast and Cirrus on the southeast corner of Sweden, they've just now, in this recent period, been handed in the permit application for the complete site to the government, whilst we're working forward with the two additional sites, Dyning and Kultje. What this picture shows says a lot, but also nothing, and that's really the point.
This is a realistic rendering that have been part of the permit application for the Mareld project to show you if we're using the biggest turbines that we think is available at the time of deploying this project towards the end of the decade, and that being on a bright day, this is what it would look like from the coast. I think this is really a core part of the debate.
The objecting part of the debate towards wind in general, and even offshore wind, is the visual impact. How much do we see these turbines, and how much do they disturb? Well, with floating offshore wind, one of the key merits is not to be constrained by the shallow water areas, which are typically close to the shore.
So we can locate these a lot more flexible in places where it's not needed to be shown from the coast. And this is a big, big thing, not least in a marine active nation like Sweden, where we've got a lot of summer houses along the coastlines and out in archipelago. It's also, of course, with flexibility in siting projects; it's not only the visual impacts, but it's also being able to easier avoid conflicts with other stakeholders.
The more flexible you are in siting, the more you can avoid conflicts, and the more you can focus on finding the right locations, unconstrained by water depth, to find the best wind resource as well. And just a brief look at the two finance agreements that we've put in place over the recent period as well.
First one in May, end of May, we put together a development loan agreement. It's up to EUR 45 million with Glennmont Partners. This is a big amount that is focused on developing projects. So the money is, to the greatest extent, at least, earmarked to selected of our, selected parts of our project portfolio, that we can mature them and keep projects longer.
It's a loan in the sense that when we divest, obviously, the principal plus interest will go back to Glennmont Partners, but it allows us to keep it to a later stage and higher valuations.... This was really a type of financing that we aim for, and we worked quite hard with to achieve for quite some period of time, which we think is the right type, given where the market is today and given where Hexicon is today.
And just more recently, after the period, we did also put in place, which I wanted to mention, a credit facility of up to SEK 75 million. The type that we can draw down at our need and timing, which covers the working capital part. So the development loan agreement covers a lot of the big projects where the bulk of the outgoing or the cost is, while the credit facility ensures that Hexicon AB has liquidity roughly until next summer.
And with that said, just wanted to end by a short look ahead. What are our focus areas going forward? Well, we are, as I said, in a stage where we are looking at divestments as well, and we are engaging with the market with selected projects. So we'll continue to actively engage with potential investors for selected projects.
We'll continue TwinHub to preparing that project for FID, engaging both investors, but also the supply chain, to get that ready to jump into construction. We've got additional projects in Sweden, so we'll continue to focus on the Swedish market, both maturing, of course, the projects where we've already handed in the application, but also looking towards additional applications in Sweden.
Italy, as I mentioned, is a market where we're expecting the new legislation as of next month. And following that, and at least following the expectations that we see them today of what that legislation is, we will very likely accelerate some of those projects in light of that new legislation. And that's also part of this development loan agreement, is earmarked to accelerate some of the projects in Italy.
We'll continue to enhance the prospect pipeline to add new markets to it. We think there is a window of opportunity, looking ahead a few years, where we, as Hexicon, can develop more prospects that will turn into projects in lucrative markets. And those for Hexicon are the ones that are not fully regulated yet with an auction scheme or something similar, where developers place really large amounts upfront just for seabed rights.
But the markets that are not there yet have all the right prerequisites, but where you can, through your legwork and bilateral applications, get a position, get to seabed rights, those are really sweet spot markets for Hexicon.
And, finally, to be able to do this, under the development loan agreement and more projects than we've had ever before, we will continue to scale up the team to continue to deliver these projects, going forward into more mature projects, but also into the divestment phase, near term. So with that said, thank you very much for listening, and we'll now jump over to some questions.
Thank you, Mark. It's very interesting, as usual. I'm going to moderate the Q&A session now, and just a reminder to the viewers of this webcast, is that please post your question into the webcast application, and I will read it aloud. So, very interesting. It seems like it's a lot going on, especially in Sweden. Could you comment a little bit more on that? Has there been any, you know, governmental initiatives or something driving this pace?
Well, absolutely. It's... We're quite active in a few markets, but definitely Sweden, one of them. And not a specific initiative in recent period, but I think what we are seeing is more and more evidence of the current government really embracing offshore wind and working towards some of the, or at least with some of the bottlenecks. One main one is the lead times, permit applications, for example, how long they sit on the government's desk.
And we are seeing those, some process lead times having been shortened. We've seen several permit applications actually have been granted over the recent period. And fundamentally, I think a louder and louder voice from the industry that at least big part of the electricity-consuming industry that is looking to electrify, in need of power before 2030.
In my head, there's no way to reach that need without deploying big numbers of offshore wind. So that all in all has, you know, encouraged us to really push forward and push forward some of these projects, especially ones that we really think are spot on in terms of location and, you know, the strategic rationale for them in relation to industry as well.
Maybe a natural follow-up on that one, then. Do you have two, you turned in two applications this quarter, and when do you expect possible approval, or what's the next milestones for those applications?
Well, that's the tricky part here, of course. That's out of our control, but if we look at what happened recently, I think we're optimistic in them being approved somewhere second half of next year. So post-summer next year is, I think, something that we believe is achievable.
Okay. Okay, let's turn to your overall portfolio then. You seem to have doubled your portfolio for the past 12 months or so. Is there any possibility to grow that further within the same pace or what could we expect?
... Well, that's a good question. I, I wouldn't want to comment on an exact number looking forward a year. I think it's two things to keep in mind. I think our target is not as easy as just having the highest, you know, gigawatt number as possible in the portfolio.
It's having a balanced and mature portfolio that ultimately has high value. That's the key here. And on top of that, as we've got bigger projects now and a diversified portfolio already now, we will also start looking at divesting projects. And I think if anything, probably in parallel to that divestment, make sure that we also mature the correct ones. So it's a balance of all.
I don't think we'll perhaps see it grow at the exact same pace, but we'll see the value of it continuing to grow at the same pace, but not the megawatt numbers necessarily.
Okay. And then, follow up on divestments then. When do you still see possible divestments of your portfolio this year, or what should the market expect?
Certainly in the near term, and I wouldn't want to give an exact date. Also I think if you look at the global markets today and offshore wind, and definitely one of them as well, we are seeing it, you know, somewhat hit by macroeconomics as well, you know, inflation and the supply chain, lead times, et cetera, et cetera. For us, that means that we've seen a lot of projects out on the market currently.
That doesn't take away the value as we look at it today, but it does increase certain transaction lead times. So with that said, it's been, you know, really a good timing and good type of financing that we did manage to get to this development loan agreement in the spring.
That allows us to be more flexible, not be stressed to sell it here now, but it doesn't take away the fact that we are... You know, some of these projects really are at the stage where it makes sense for Hexicon's business model to divest. So we'll continue actively to do that. It will be in the near term, could very well be during the year, but I wouldn't want to right now comment on an exact timing of it.
And then, turning to your financial position then. You have done quite severe, big, financing activities during this quarter. How long will the money last, would you say, for, for you, for you? For your portfolio, project portfolio development and also, you know, running cash?
Yeah. So we're looking at the financing agreements we put in place today takes us approximately till next summer. That is obviously caveated with what we do within divestments and selections within the portfolio as well. We can, you know... And that's somewhat the beauty of it as well. We can very much steer how much we- do we accelerate one project?
Do we slow down another? Should prioritize one over another? So there's a lot of choices that can be made, not the least, how soon we get to divestments and what timing we choose for certain of these divestments. But as we look at the base plan today, it's around next summer, by the time we will have divested a few projects.
Okay. And just to clarify then, if you look into your balance sheet, for example, and look into your liquidity, cash position, it seems quite low when you look at the report. Can you just comment on that so the readers or viewers understand why is that?
Absolutely. And you're absolutely correct, and the reason for it, that this development loan agreement that I keep coming back to, up to EUR 45 million, was put in place in May, you know, following, of course, several months of work behind that, to timing where it was needed. However, we didn't start drawing down within that facility, the agreed facility, until after the period.
So the financing was secured, but we hadn't start drawing down, fulfilling a few conditions, and then also selecting the timing of sales. We didn't start drawing down until after the period, so that's why the cash balance in the report looks quite low, but the financing was secured before the end of the period.
Okay. It seems to be not that much, many questions left, but just an overall reflection then. There's been a lot going on in Sweden. What are the other, you know, really interesting markets within Europe or the rest of the world, would you say right now?
Well, I think Italy is definitely the one in Europe that we're paying a lot of attention to, and we've focused on a lot over the last period. We are one of the early movers there, with quite a substantial portfolio, and legislation is expected already now next month, in September.
So following that, which at least based on the rumors we hear, we think is favorable from where we are, that we are one of the early movers, we're looking to accelerate that market. If you look across then over to Asian example, I think there's quite a lot of markets there as well that are interesting. The type of markets that aren't fully regulated yet, where our business model works well.
Lastly, perhaps mention as well, that there are some markets that you'd definitely not consider or associate with offshore wind in South America as well, that are starting to move. So it's growing and growing. You know, 6, 7 years ago, it was mainly only North Europe. Now, this is very much a global industry.
Sounds interesting. Really interesting.
Yes.
Okay, there seems to be no other question. Do you have any final remarks, to the viewers?
No, I think, I look forward to meeting you all next time, and thank you very much for listening.