‘We Expect to See Some Delays... For Sure, but Also New Opportunities’
Raymond Carlsen is the CEO of Norway’s Scatec Solar. His company recently tapped MIGA to insure six new power plants at the Benban Solar Park. The new arrays stretch across the Egyptian desert, 180 kilometers south of Luxor and provide 930 GWh per hour of clean power annually to a nation accustomed to frequent blackouts. MIGA’s guarantees protect the transfer of Scatec Solar’s revenue out of Egyptian pounds and into foreign exchange.
Carlsen talked with MIGA about the project, and why Scatec Solar remains optimistic about new ones, even as COVID-19 wreaks havoc on the global economy.
Are you working from home, or from the office?
I’ve been at home for the last few weeks, but the office in Oslo is open to employees that need to work from there for various reasons. In good times and bad, people need electricity. All our plants are running at full speed, and we continue to monitor developments and follow the respective national authorities’ advice and recommendations regarding COVID-19. Our task force meets two to three times a week and supports and follows up on actions and information needs in the company. I host bi-weekly townhall videos and emails to all employees, sharing the latest information. It is important for us to make sure that our people, especially the teams out at the solar plants feel safe both at work and when they go back home.
Are physical-distance restrictions affecting things beyond operations?
Yes, we see that the development of new projects is a bit slower. We are working on planning, financial modeling and several other preparations, which you can do from anywhere, but development is also a very local activity. Our local teams are doing a solid job on the ground, however, some of the development activities require physical presence, like negotiations, and this, of course, is impacted. We expect to see delays on developing new projects, that's for sure.
What are your reflections on keeping operations going at this time?
Cash is king. We recently established a credit facility of $165 million—at very attractive terms—to increase financial flexibility and enable us to pursue attractive opportunities that this very difficult situation may produce. We are seeing some interesting opportunities just down the road that we hope to talk more about in the not too distant future.
What kind of opportunities?
South Africa is looking at accelerating its power program to more than 8 GW of solar capacity by 2030, at least it was before the crisis hit. The government has also eased regulations around power generation to prevent blackouts. Smaller projects of up to 10 MW will have an easier application process and is a great fit for our new containerized solar and battery offering named Release. There are many opportunities to build more solar and we’re seeing more enquiries in the market, both for quick deliveries and longer-term projects. There also could be distressed opportunities, where others don’t have the cash to finish development themselves. We are also ready to take a look at those.
Has COVID-19 changed the outlook for renewable power?
The outlook through 2050 remains very optimistic. The Bloomberg New Energy Outlook and data from McKinsey show extreme promise for renewables. But I don’t think either are optimistic enough—I think it's going to happen much quicker. And, if the stimulus packages that a lot of governments are going to implement to create jobs can be geared towards renewables, that will accelerate deployment.
What made the Benban project attractive?
Egypt was an interesting country six years ago, and we started engaging in Benban in 2014. It was an excellent opportunity for our company to enter the Egyptian market, and leverage our expertise gained through our work in Africa to create another hub for Scatec Solar in Northern Africa. Egypt had a very attractive electricity tariff in the first round of the Feed-in-Tariff Program (“FiT Program”), at $14.34 cents per kilowatt/hour (compared to the levelized tariff of $7.35 cents per kilowatt/hour in the second round of the FiT Program, applicable to Scatec Solar’s projects covered by MIGA).
The format of the projects was also particularly interesting, as the aim of the Egyptian government was to create the largest PV park in the world, while sharing common infrastructure, to open the market for solar energy in Egypt. We were keen on participating with other large developers in this opportunity to help the Egyptian government achieve its energy mix diversification plans, including 45% renewable energy capacity by 2035.
So, it was an easy call from the beginning?
No, it took a long time to implement the plan, and then the cost of solar panels started to decline. Suddenly, 14.34 cents were a very, very high tariff and that made many people rethink things. We also deployed bi-facial technology for the first time and obtaining the approvals to use this new technology was challenging, but it is always our aim to use cutting-edge technology and help test and develop solar and other renewables application for a brighter and greener future. Our company takes pride in not abandoning projects when they are struggling and ultimately, we were really rewarded for our long-term commitment.
What skills do you need for investing in developing countries?
I think we have learned over time how to decode difficult markets. We utilize the local knowledge and expertise of our very diverse workforce from more than 40 different nationalities and we never give up. We understand what agreements you need to put in place to safeguard all the stakeholders over the 20-year lifetime of a project. Sometimes you have 50 different legal agreements, but we know how to do these things, and that's why we successfully have completed projects in a dozen emerging-market countries. All the solar power plant companies are paying dividends, and we are able to repatriate the dividends and repay the loans.
Scatec Solar has had a long relationship with MIGA. How has it been?
MIGA’s flexibility and interest in finding solutions has been excellent. That has been much appreciated because there are always peculiarities that you have to cover. We are very pleased with our long-term relationship.
Beyond reliable power, how has the Benban solar project helped Egypt?
The size of the project has enhanced investor confidence in Egypt. More immediately, thousands and thousands of people have been employed. Some of these people learned a skill set for the first time. Most likely, these skills will transfer to other projects and people will hopefully get lasting jobs out of this. We apply our highest standards for health, safety, security, and the environment, and worked about seven million hours without one lost-time incident, meaning a worker being away from work for a day. Egyptian workers have been exposed to the mindset of zero tolerance for health and safety violations, which we care deeply about. In addition, as for all our projects, we have a long-term commitment to the CSR programs over the lifetime of the solar plants, as part of the development of the local community in Benban.