Nimble Norwegian renewables developers show that there is gold in green energy

As Scatec celebrated a power purchase agreement for a second gigascale solar and battery storage project in Egypt last week, the Oslo-listed company was also marking its position as an outrider among a nimble new crop of Norwegian renewables developers adept at applying clean energy technology in selected global markets.

Egypt is one of four core counties that Scatec has put at the heart of its portfolio where projects under construction will generate and average return of 15% from operations and 30% when combined with EPC.

Scatec currently has 4GW of renewable energy capacity in operation and another 800MW under construction, mainly in Egypt, South Africa, Brazil and the Philippines.

What is striking are the growing number of ways such companies are using battery energy storage (BESS) technology to lock in predictable cash flows, whether mitigating the intermittency of renewables or providing a growing array of services for stabilising and regulating grids.

The company's two biggest Egyptian projects are relatively traditional, selling on an "as-produced" basis, but with added flexibility.

Construction of a 1.1GW Solar PV park and 100MW/200MWh battery energy storage (BESS) project called Obelisk is due to start within the next year and a 25-year PPA allows offers Egypt's EETC access to “more predictable and manageable power and the possibility of delaying energy sales into the peak evening hours", according to Scatec CEO Terje Pilskog.

On the newer project, with very similar capacity dimensions, the 25-year sovereign-backed PPA that Scatec signed with Egypt Aluminium last week will also help the country’s largest industrial electricity consumer to comply with Carbon Border Adjustment Mechanism (CBAM) requirements that will soon be introduced in the European Union.

'Eating into market share'

The diversity of applications of BESS technology is in evidence in two projects on Scatec’s portfolio in South Africa.

On the Kernhardt hybrid project, which entered into operation a year ago, 540MW of solar PV is combined with 225MW/1.1GWh of BESS to provide 16.5 hours a day of dispatchable baseload power all year round.

“With battery prices coming down so dramatically, renewables can become competitive not only on a fully intermittent basis but — when matched with storage -—providing baseload power,” says Pilskog.

Making power sufficiently predictable does not always require the fully dispatchable status that was associated with fossil fuels. “Baseload doesn’t have to be 24/7…it can be 16-7 or 20-7," he adds.

In contrast, Scatec’s 103MW/412MWh BESS project called Mogobe is geared as much toward enhancing grid stability as well as mitigating the intermittency of renewables. Here Scatec has a capacity contract with the South African utility where Eskom is making use of BESS services to regulate reserves, either taking in energy or putting it back on the grid.

These combinations can offer a flexible resource and a reliable and cost efficient solution when the grid is facing power shortages, says Pilskog, who argues that deploying battery storage in such ways ultimately allows increases the "usability" of competitive renewables.

Ancillary services

Similarly, the company recently decided to expand its storage capacity in the Philippines by adding batteries to the Magat & Binga hydro power plants to increase its market share of the attractive grid-regulating ancillary services market.

“We initially had the idea that we would trade on daily price variations but as the market developed, we saw that we were actually able to capture significantly more value from providing ancillary services,” Pilskog said.

"A battery can be many different things, and is incredibly interesting from the renewables point of view. With price levels coming down you can eat into a bigger part of the market and start adding more services for the market," he added.

"Batteries are becoming an increasingly important element in terms of the projects that we are currently doing".

Plummeting costs

Falling costs are fundamental to a symbiotic relationship between an expanding renewables base and the scaling up of BESS.

“Over the last two years alone, we've seen solar PV panel prices coming down in the range of 66% and battery costs coming down in the range of 58%,” says Pilskog, who notes that Kernhardt, which entered into commercial operation last year with a capex of about $1bn, would cost significantly less now.

While most revenues are still based on long term contracts with fixed prices on a pay-as-produced basis, shifts toward merchant markets and deregulation also brings changes, notes Pilskog, pointing to markets such as Brazil and even Romania, where the company has recently expanded.

Magnora rising

Another Oslo-listed renewables developer obtaining higher than-average returns on a carefully selected portfolio is Magnora, which was built out of Sevan Marine after the latter’s assets for floating oil and gas production were sold off in 2018.

Magnora today lays claim to 6GW of renewables capacity, with close to 5GW concentrated on large-scale onshore wind, solar and BESS projects in South Africa.

The current focus on South Africa is a response to that country’s demands and highly attractive conditions for producing renewable energy says CEO Erik Sneve, who describes a country that has annual power consumption of 228TWh – equal to about 7% of the European total market – and is setting out on the road to shift 185TWh of this away from coal

“All this will be changed to renewables because this is the cheapest way,” he calculates, predicting renewables growth of 50% by 2030, with 9GW solar PV and 18GW wind.

Sneve describes 8m/s day and night wind speeds and optimum solar conditions that give battery storage “a higher capacity factor than hydro in Norway.”

Its South African assets include an onshore wind portfolio held by the company’s AGV Renewable Energy unit that has rapidly put in place a 1.2GW portfolio.

In the short term, the company expects to sign another 240MW bringing the onshore wind portfolio to close to 1.5GW, according to Sneve.

These South African assets have helped Magnora notch up a return on equity performance averaging 25% per year since 2018.

He described the acceleration of renewables as "unstoppable because the cost of solar PV and onshore wind, especially with Chinese turbines, has become so low that it has become impossible for other technologies to compete."

The company has 200 projects in eight different countries but, among these, Sneve highlights Norway as the company's most challenging market, due to delays with permitting.

Magnora recently divested its Helios unit assets in Finland and Sweden through a sale to Vinci, a French investment fund, but has been increasing its renewables capacity by expanding into the German and Italian markets.

Sneve says Magnora was drawn to Germany because of the battery storage opportunity created by a government decision to extend its exemption of grid fees for storage projects to 2029, says Sneve.

High penetration of renewables, major grid investments and an improving grid connection process, as well as improving regulatory clarity and a possible introduction of capacity markets were among the attractions in Germany," he said.

The move for Italian solar PV and BESS assets is motivated by that countries plans to start annual grid storage auctions this year.

The Magnora strategy often involves capital-light development often involving early deals with infrastructure funds. prior to building the assets.

In the UK, the company partners Technip-FMC on a 500MW floating offshore wind project in Scotland, called Talisk.

According to Sneve, the company expects to get a grid connection for this project in the next quarter, after which it will look for opportunities for a farm-down or sale.

"We have a diversified portfolio in various countries and we intend to enter more," Sneve told a recent energy conference in Oslo, describing a multi-decade opportunity driven by falling costs and helped by artificial intelligence.

Portfolio optimisation

For Scatec. portfolio optimisation is described as a second pillar of strategy and focusing on core markets is seen as key to efficiency, deleveraging and, ultimately, reinvestment. The company recently sold assets in Uganda and Vietnam, trimming 200MW from the pipeline in the process.

"Our current focus is selling down or selling out from markets where we have non-core assets, and basically rotating that into new growth while taking down the debt.

Although 22% of the company's pipeline is onshore wind, Pilskog says the main basis of growth going forward will be in the company's core markets and about 90% of these projects are related to solar and BESS.

"To create value, we need to focus on markets where we have scale and a long-term perspective which allows us to apply lessons learned and prepare for future opportunities," he says.

This is not to say Scatec will go about building a new core market, Pilskog stresses, pointing to new projects in Tunisia which, like Egypt, has abundant renewable energy resources and is keen to avoid dependence on fossil fuels from Algeria.

"When the characteristics are right, then we will consider new markets," he says.