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Renewable energy is more critical than ever

In September 2022, Scatec launched its updated strategy towards 2027 to ensure the company is rigged for the future and positioned to capture attractive growth opportunities.

Financial results in power production were impacted by weak hydrology and impairment of asset values in Ukraine in the first half of the year, while improved hydrology and high energy spot prices improved financial performance in the second half. After project delays, Scatec took investment decisions and started construction of 1.2 GW of new power plants in the latter half of the year. Based on this, we started recognising gross margins in the D&C segment and we reached 10% progress on the contruction of these projects by the end of the year. We continue to be disciplined and our new investments are meeting our return and margin requirements. On group level, we reported proportionate revenues of NOK 5,957 million and EBITDA of NOK 2,550 million, as well as solid ESG results.

As we reflect on 2022, we see a year of global turbulence. Few were left untouched by the war waged in Ukraine, an energy crisis of historic proportions, inflation and rising interest rates, and a supply chain squeeze that slowed down just about everything. Despite all this, the world managed to maintain its focus on the future of our planet.

Converting our energy supply has a major role to play in the net zero future, and even amidst a year of crisis, there were signs of progress. The International Energy Agency (IEA), in late 2022, reported that renewable energy is poised to overtake coal as the largest source of electricity by early 2025. And investments in renewable energy grew year-on-year, which we see as a strong indicator that the world is moving in a more climate positive direction.

But it’s still not enough.

There is a code red for our planet, and it’s time to act and invest more in the green transition. To slow and eventually stop the catastrophic effects of climate change, 85 percent of the
world’s energy must be derived from renewable sources. This will not happen on its own. Investment levels into clean energy must accelerate even faster to be aligned with the 1.5° C target set in the Paris Agreement.

Our focus on selected emerging markets

Today approximately 63 per cent of carbon emissions stem from emerging markets. Renewable energy is an opportunity for these nations to boost their economic growth, meet growing energy needs, improve living standards, create new jobs, and reduce the dependency on fossil fuels.

This is the mission that we are on at Scatec.

We develop, build, own and operate renewable energy in emerging markets, while simultaneously working to secure long-term, profitable, and sustainable growth. We are a growth company, and we have a strong track record in emerging markets. Our focus is on driving the green energy transition in our focus markets, as renewables are the most cost-effective, rapidly deployable, and secure energy supply to support these growing economies.

Renewables must be deployed with respect for nature, social inclusion and in close cooperation with broader society. The impact of renewable power plants on biodiversity and local communities needs to be understood and minimised, and local economic development and job creation is essential for renewable deployment to gain support.

Raising standards

We are committed to responsible business, and in 2022, we made significant progress on ESG. We also improved our HSSE performance and increased the focus on compliance in our markets. Sustainability continues to be a high priority for Scatec and remains an integrated part of our strategy and business model.

Our climate ambition to reach net zero by 2040 is officially approved by SBTi and we have published our Net Zero strategy. During 2022, we began reporting on our EU Taxonomy eligi­bility and alignment, and we ensured our compliance with the Transparency Act requirements. We also received an ‘A’ rating by CDP due to our leadership in corporate transparency and performance on climate change, and EcoVadis awarded us with a ‘Platinum’ rating placing us among the top one per cent of companies.

Major milestones in 2022

During the year, we made progress on renewables projects and the development of green hydrogen. We commenced construc­tion of our 531 MW solar project ‘Mendubim’ in Brazil along with partners, as well as our 540 MW solar power and 225 MW battery storage ‘Kenhardt’ projects in South Africa – our largest investment to date. We further ramped up construction of our 150 MW solar power project in Pakistan in 2022.

Release, our flexible leasing agreement of pre-assembled solar and battery equipment, also progressed well in Africa during the year. In addition, we made a final investment decision and started construction of the 20 MW battery system connected to the ‘Magat’ hydropower plant in the Philippines. Overall capex for the projects under construction is NOK 15 billion of which Scatec delivers EPC services representing approximately NOK 9 billion, the highest construction activity in Scatec’s history.

During the year, we continued our project development activities with focus on selected emerging markets, growing and maturing our backlog and pipeline to 16.7 GW, of which 85% now is in our focus markets. Several projects were also moved from pipeline to backlog and forms the basis for further growth also in 2023. Finally, Scatec and our partners further began the commissioning of phase one of “Egypt Green” in November 2022. This was announced at COP 27 in Sharm El Sheik and marks the start of what will be Africa’s first-ever green hydrogen plant.

On the organisational side, I assumed the role as CEO of Scatec on 1 May 2022, succeeding our long-time leader, Raymond Carlsen. The company also appointed Hans Jakob Hegge as Scatec’s new CFO, effective 1 March 2023. He succeeded Mikkel Tørud, who took on a new position as EVP Green Hydrogen and Middle East and North Africa region. During the year, our executive team expanded to 11 members, and we made several adjustments to strengthen our regional set-up – which is key to meeting our strategic ambitions. With a stronger regional approach, Scatec’s management will be closer to our main markets and better equipped to deliver growth opportunities and ensure long-term success. Each region, namely Sub-Saharan Africa, Middle East & North Africa (MENA), Asia, and Latin America/Europe, will be responsible for the company’s operating power plants and business development within their areas.

Looking ahead

At Scatec, everything we do is guided by our vision to improve the future. Our strategy serves as our roadmap on this journey, and our key actions over the next decade are based on value creation and making an impact in markets where we see the greatest opportunity.

As we move into 2023, we are focused on ramping up construc­tion and developing opportunities in our focus markets. We plan to expand and mature our pipeline and convert new projects into backlog and construction. The supply chain situation has been easing as we enter 2023 and we see evidence of reducing component pricing and also increasing PPA prices, enabling the development of attractive, value creating projects for 2023. At the same time, we are aware that the macroeconomic situation will continue to be challenging, as we navigate the after-effects of the pandemic, an ongoing war in Ukraine, global inflation, and higher interest rates in the year ahead.

Our changemakers

At the centre of our strategy are the people of Scatec, the changemakers who work together to capture value and achieve results. We remain focused on further building a culture that nurtures diversity in all aspects, as this is key to reaching our goals. As a company, we deliver reliable and clean energy, and we aim to be a pioneer in successfully commercialising green hydrogen. We will do this by operating predictably and responsibly in our markets, partnering with the right players, building our own competence, and setting up our projects to be as competitive as possible.

At present, some of our changemakers are in Ukraine, living and working in an extremely uncertain and volatile environ­ment. We fully support our brave colleagues, all of whom are dedicated to ensuring that Scatec does all it can to provide much-needed electricity during this time of hardship. Their courage and strength are an inspiration to all of us.

I want to close with a safety reminder. HSSE is close to our hearts here at Scatec. We are building and operating major infrastructure, and we must do so responsibly and with a peo­ple-first approach. It’s about taking the time to do things right, and as leaders, we must build a culture and a mindset in which health and safety always come first, in all that we do.

It’s been an exciting journey so far as Scatec’s CEO, and I look forward to another year of major milestones, growth, and strong results.

Terje Pilskog