adminScatec ASA (OTCPK:STECF) Q3 2023 Earnings Conference Call November 2, 2023 4:00 AM ET
Company Participants
Terje Pilskog – Chief Executive Officer
Hans Jakob – Chief Financial Officer
Conference Call Participants
Jorgen Bruaset – Nordea Markets
Andreas Nygard – Kepler Cheuvreux
Terje Pilskog
Good morning, and welcome to the presentation of the third quarter results. It’s good to see you all. And it’s again a privilege for me to present another strong quarter for Scatec. As usual, Hans Jakob will present the financials after I’ve been through the main highlights of the quarter.
And at the end, this time, we will also give an update on our strategic progress since CMU that we had about a year ago and also provide some update and outlook on the way forward. And also at the end, we will open up for Q&A. So then let’s turn first to the highlights of the quarter.
Total proportionate revenues increased to NOK2.5 billion. This is a solid increase from the same quarter last year, mainly driven by our construction activities. We delivered a proportionate EBITDA of NOK893 million, which is compared to NOK850 million in the same quarter last year. And I’m pleased to see the strong D&C segment results and continued strong gross margin from the construction activities.
In the quarter, we delivered NOK1.3 billion in revenues and a gross margin of 13%, which is up from 12% last quarter and where we have seen a continuous increase in the gross margin of the quarters this year. This confirms the robust economics of our projects, and it comes on top of equity returns that are meeting our hurdle rates for these projects.
In light of macroeconomic conditions and also in light of the increased cost of capital, we adjust our growth ambition to NOK500 million to NOK750 million of gross equity investments annually. This is in line with our historical growth rates. And at this growth rate, we will not need to raise new equity.
Finally, we are changing also our dividend policy to no dividend, and this is to support this self-funded growth strategy and make sure that we have a robust basis for this. So I will come back to our updated strategy and implications for growth at the end of our presentation.
So the fundamentals of renewables remain strong. The world needs renewable energy to serve a growing population, create new economic development and also to drive the energy transition and global electricity generation is forecasted to more than double over the next years with renewable energy being the main contributor.
And solar and wind is expected to grow by a factor of 7 from 2020 to 2030. And renewable energy remains the most attractive source of energy in emerging markets. It is affordable, it is sustainable, it is available, and it also provides energy security in a world where we see increasing geopolitical uncertainty.
And despite increasing interest rates, the levelized cost of renewable energy is flat or has even come down in our markets. This is especially true for solar, where we’ve seen that solar panel prices have come down by 35% since the beginning of the year. And we’ve also seen that steel prices as well as logistical freight rates have come down significantly.
And further, what I think is really exciting is that we are also seeing that battery costs are coming down significantly. And we’ve seen a 20% of reduction in battery costs over the last year since we bought our batteries for the RMIPPP projects in South Africa until we now got quotes for participating in the battery storage tender in South Africa.
So, this is something that we see and we experience it real time. And it’s obviously driven by rapid technology development in the battery space as well as battery manufacturing capacity being scaled up significantly around in the world. And we are able to take the benefits of that. Hybrid projects based on integration of technologies can now deliver base — baseload renewable energy at competitive prices.
We compete with fossil fuels when it comes to energy generation in emerging markets. And I’m very happy to say that Scatec is at the forefront of this development with the solutions that we are now developing and implementing in South Africa in the RMIPPP program with the Kenhardt project with the solution that we provide and release and also with the best system that we are now implementing and finalizing related to the Magat dam in the Philippines.
So in terms of our portfolio, we have a strong and diverse portfolio of operating assets, which generate strong and predictable cash flows. The last 12 months, we have delivered 3,800 gigawatt hours of green energy from large solar, hydro and wind power plants, contributing to an EBITDA of NOK3.2 billion. This is included in the sale also of Upington of NOK315 million.
In the Philippines, our large hydro plants in partnership with AboitizPower generated solid EBITDA during the last year. And we are now also adding batteries with the Magat dam that will further increase the revenue potential in the Philippines.
In Uganda, we are receiving predictable capacity payments from our stake in the Bujagali hydropower plant. And then in South Africa, we have 190 megawatts of solar power in operation, providing NOK680 million of EBITDA, again, including sale of Upington with capacity additions from Kenhardt and now also Grootfontein coming in during the next year.
And finally, in Egypt, we are the largest power producer in the country. So our operating capacity will be expanded by our projects under construction, adding NOK750 million of long-term EBITDA and this is a 25% increase in the underlying EBITDA, which is being generated from these plants.
So in the third quarter, our power production generated about 1,447 gigawatt hours compared to 1,135 gigawatt hours in the same quarter last year. This is within our guided range. Our plans have delivered plant availability of close to 100% and with no lost time incidents in the period.
We delivered an EBITDA of NOK778 million in the quarter compared to compared to NOK907 million year-on-year. And this reduction was mainly driven by the Philippines. Here, we have lower production and lower prices in addition to limited ancillary services. And I will come back on the next page to explain a bit more about the developments in the Philippines.
This was partly offset by Ukraine, where EBITDA increased to NOK84 million compared to NOK27 million in the same quarter last year. This is due to solid performance and continued merchant sales from the Progressovka plant. And further, the Q3 was also affected by NOK35 million decrease due to the sale of Upington.
Then in terms of the Philippines, net revenues are down to NOK299 million from NOK424 million same quarter last year. And EBITDA is down from NOK375 million to NOK240 million. This is driven, first all by hydrology, which is at a lower level than last year, partly due to the El Nino effect. This leads to lower generation from 339 to 301 gigawatt hour year-on-year.
Then spot prices, they have also come down significantly compared to the same quarter last year, but still it should be remembered that on a longer historical basis, these are still good and attractive prices. Then volume on sold contracts, this is slightly down from last year at 186 gigawatt hours. While the contract price on our contracts is slightly up at 4.7 pesos per kilowatt hour. Contract volume will come down starting next year, and this will be good for our net generation position during the dry season. So we will not be as short as they have been in previous years.
Then finally, ancillary services. This has historically provided stable earnings. And as communicated in previous quarters, new regulations have been introduced and sold a limited amount of ancillary services in Q2 and Q3. Net revenues of NOK6 million in this quarter. We have started to sell again from second half of September as new contracts are coming into force and new regulations are being put in place, and this will then continue through the fourth quarter.
Then over to the D&C segment. The construction of our large three solar and battery projects is entering the final phases, and we are preparing now for moving these into commercial operation. In the quarter, we recognized D&C revenues of NOK1.3 billion and increased EPC gross margin to 13%, up from 12% in the previous quarter. This is the result of both robust planning and preparations for the construction as well as continued strong performance of our construction teams locally.
At the Kenhardt side, construction has focused on grid connection works during the quarter, and we are now in the commissioning phase and testing this integrated facility where we are playing both on solar panels and batteries. Construction continued to progress at Mendubim. Electromechanical activities are advancing construction of the interconnection works is nearly completed, and the first plants are sued to be energized and commissioned and start generating energy likely by the end of this year.
And lastly, the solar project in Pakistan is close to mechanical completion with final testing for grid connection and facility testing towards the COD ongoing as we speak. And the remaining contract value of these three projects is NOK500 million that we will recognize now in the next quarter and maybe a bit into the quarter after.
But on top of this, we obviously related to the Grootfontein project has secured another NOK2 billion of EPC contract value. And we now have NOK2.5 billion in contract value remaining based on the projects that have already achieved financial close.
So then in terms of the pipeline, we have a solid and attractive backlog and pipeline of 11.2 gigawatts. This is reduced from 12.2 gigawatts in the previous quarter. And now we have a significantly increased share of solar projects in our pipeline.
During the quarter, we have added attractive solar projects in core markets, and we now increased the share of solar to 54%. We have taken out offshore wind from the pipeline, and we have no impairments related to that. And we have increased the share of projects in our focus markets from 80% to 89%. This demonstrates our commitment to high grading our portfolio with focus on product location, time line, maturity and value creation.
And then based on this, we are continuing to offer profitable growth with more visibility now also for 2024. I said we have reached financial flows for the growth on time portfolio in South Africa. This is the first project in the REIPPP Round 5 that has reached financial close. It is 273 megawatts with attractive returns, which are meeting our hurdle rates, and we are expecting to start construction during the first quarter next year. The power plants will be our first assets located in the Western Cape province, and it will be delivering much needed renewable energy in the region under a 20-year PPA contracts.
In Botswana, we have been awarded tariffs for another 25-year PPA with Botswana Power Corporation. This is doubling our solar project in Botswana to 120 megawatts. These projects are co-located and will be built in 2 phases with start of construction next year. We will extract synergies through using the experienced team that we have in South Africa. And basically, the implementation of this product will be a prolongation of the organization that we have in South Africa.
And now based on the increased size of the project, the fact that we have renegotiated the tariffs, the fact that there are lower component prices and the CapEx of solar is going down, the Botswana project is now economically attractive. And that forms the basis for us moving forward with this project. This is demonstrating the effectiveness of our strategy, robust business model and drive to contribute to green energy transition in Africa. As I said, both projects are now meeting our investment guardrails and provide visible and attractive growth and long-term cash flows for Scatec.
Finally, the Release team continues to deliver on strategy to scale the platform, reaching important milestones with capacity increases and also now being self-funded. We have now closed US$102 million in funding from private fund managers to further accelerate the growth of release.
And in the quarter, the team completed the solar hybrid and battery storage plants in Cameron with a combined capacity of 36 megawatts and 19 megawatt hours of battery storage. The plants have started to generate electricity in phases since 2022 already and contributed to significant improvements of electricity supply in northern parts of Cameron. Release is now in the process also installing 8.7 megawatts. This is a system for Torex Gold in Mexico, and this installation is also expected to finalize in 2024.
So let me round off them from my part before handing over to Hans Jakob by showing a short video of the release solution. And here, you see how it comes to site, preassembled in containers so that it’s easy to take out and install quickly. It is based on trackers with bifacial modules. So you get high efficiency. And it’s also integrated with batteries so that you can provide robust and predictable energy from the solutions.
So with that, Hans Jakob, why don’t you take away on the financials.
Hans Jakob
Thank you, Terje. Good to be here. And now let me take you through the financials. We have a continued strong construction progress in the quarter, which is the main driver for the increase in revenues and EBITDA. To the left, on the purple bar, you see the D&C revenues increasing to NOK1.3 billion from NOK412 million in the same quarter last year.
Revenues from power production was NOK1 billion compared to NOK1.1 billion in the same quarter last year, mainly due to lower revenues in the Philippines, partly offset by Ukraine. The total proportionate EBITDA reached NOK893 million, a 5% increase from last year. And the D&C segment delivered an EBITDA of NOK107 million, up from minus NOK45 million last year. And the gross margin increased on the third quarter on the row to 13% [ph].
Now over to the consolidated financials. Total revenues was NOK947 million compared to NOK1.1 billion year-on-year, impacted by hydrology, lower prices and limited ancillary services in the Philippines. We delivered a consolidated EBITDA of NOK686 million compared to NOK886 million in the same quarter last year. And our consolidated earnings before interest and tax, EBIT was NOK484 million and net profit NOK95 million, of which NOK45 million was credited to Scatec.
Our business model is based on projects with secured cash flow from long-term PPAs. We financed the project while providing nonrecourse debt within the SPV for each individual project with no direct support from or recourse to corporate. The debt is serviced solely by the cash flow from the individual power plant. When the plant is in operation and delivering steady cash flows, we get dividend payments to service our corporate debt.
Total proportionate net interest-bearing debt was at the same level as previous quarter of NOK20.4 billion. In total, we do new project debt of NOK1.1 billion for projects under construction, adding more than 1.2 gigawatts, a 40% capacity increase on a 100% basis. We are becoming bigger. These projects will generate around NOK750 million in EBITDA once they are up and running from 2024.
We reduced our net debt for projects in operation by NOK600 million due to ordinary amortizations and foreign currency effects, and we reduced our corporate debt by NOK400 million due to ordinary amortization, increased cash and FX movements.
And finally, we had NOK149 million in net interest-bearing expenses, net interest expenses on our corporate debt, which was an increase of NOK65 million year-on-year. We have remained a solid cash position in the quarter. We have NOK3.9 billion in available liquidity, including our unused RCF.
In the graph, you see the movement in the Group’s free cash. In the quarter, we received NOK114 million in distributions from our operating power plants, generated NOK91 million of cash flow from D&C, driven by the strong construction progress. We generated NOK27 million of cash flow from the Service segment and had NOK173 million in corporate costs, including interest expenses on corporate financing and working capital of NOK858 million, mainly related to construction activities. And finally, we invested NOK702 million in growth activities, of which NOK479 million was invested into projects under construction.
Then to the outlook. First, power production. The full year 2023 EBITDA estimate from power production is NOK3.05 billion to NOK 325 billion, driven by the revised production estimates for the Philippines, around 2 months of less revenue from Argentina after the announced sale, a strengthening of NOK against our core currencies.
Consequently, we have also reduced proportionate power production by 50 gigawatt hours to 2,500 to 3,600 gigawatt hours. And in the fourth quarter, the EBITDA from the Philippines is guided to be in the range of NOK200 million to NOK260 million, reflecting lower volume and power prices, partly offset by higher ancillary service revenue compared to last year.
Development and Construction. The remaining contract value is NOK2.5 billion and we reiterate an expected gross margin between 10% to 12% for projects under construction. And for new projects, such as the Grootfontein, we estimate a gross margin of 8% to 10% as previously communicated. Services and corporate are unchanged.
And now over to the strategy update, and I welcome Terje back.
Terje Pilskog
Thank you, Hans Jakob. So then in terms of a quick update on the strategy, which for now for us is all about focus and discipline. So we continue to deliver on the strategic priorities that we set out in the Capital Markets update about a year ago. We are finalizing the largest construction program in the history of Scatec with Kenhardt, Mendubim and Sukkur. The projects have attractive economics with a combination of good equity returns, attractive EPC margins and the basis for long-term service margins. This is all according to our business model.
And then we have reached financial close of Grootfontein in South Africa, and we have a secured 120-megawatt solar project in Botswana. This is creating visibility for further growth also into 2024. Both projects now meet our investment criteria, and we will start construction of these projects, representing more than 400 megawatts and about NOK500 million in gross equity investments for Scatec beginning of next year.
And it’s important to remember that these projects are implemented based on our integrated business model, where on the one hand side, we invest equity. And on the other side, we have EPC contracts where we capture margins, and we are able to use those margins to partly finance the equity that we are investing. So these projects are partly self-funded.
On optimizing the portfolio, we have closed the sale of Upington in South Africa. We have closed the value creating funding for the release platform, and we are progressing with the sale of Mozambique. In this period, we have also reduced operational costs.
And as we have presented today, we have also high graded the project development pipeline. We will increase focus on recycling capital through asset rotation and refinancing of projects. Still, it must be recognized that selling projects in emerging markets is taking time and that the current macroeconomic conditions might also impact the pace of selling projects.
So let there be no doubt. It is a great privilege to be the CEO of Scatec. We have a strong and experienced organization, a business model with clear strength. And I — all the time when I’m traveling, I see that we are recognized by local as well as international stakeholders in the industry for both our track record in terms of what we’ve done and for our competence.
Our success and approach to value creation is based on a proven integrated business model with several streams of income and attractive margins. And we also have a multi-technology approach, which is increasingly focused on technology integration, and we see that this is becoming more and more important and creating additional values for our customers. And we have already shown this through our projects in Kenhardt through our release solution and also to what we’re doing at the Magat dam.
We are now able to deliver affordable baseload renewable energy, and this will be crucial to drive the green energy transition in emerging markets. Partnerships are also crucial for us, and this is to access and develop good projects, manage risk and exposure as well as increasing our impact and get leverage on our capital and also get leverage on our experienced organization.
And one strong example of this from last quarter is the partnership that we have with Climate Fund Managers, and we have raised NOK1 billion in funding. CFM is not only enabling the accelerated growth of the release platform, it is also contributing with experience in terms of investing into Africa. So this is also a synergistic deal on the capability side.
And last but not least, I’m very proud to say that we are a leading company within ESG. And also here, we will continue to learn and develop and improve. So based on these strengths, we continue to develop, build, own and operate renewable energy projects in emerging markets.
And we now summarize our priorities in two strategic pillars rather than three3 that we’ve done — that we did in CMU last year. The first is to continue to grow renewables in core markets. We are focusing more on solar wind and batteries and less on other technologies as seen from our pipeline development. We also put more emphasis on our core markets, even though we will still consider attractive and more opportunistic projects outside those core markets when it makes sense.
We have been and still will be a growth company as we see several opportunities in our focus markets as component prices are coming down, and we are able to continue to capitalize on our integrated business model and several streams of income. We also have strong expertise in hydro from the SN Power organization, and we are also still a front-runner in advancing green hydrogen. But here, we will continue to grow very selectively and with discipline, prioritize projects with shorter capital cycles.
The second pillar is to continue to optimize our portfolio. We will increase focus on recycling capital through asset rotation and refinancing. This is adding funding capacity in addition to our growing cash flows from the increasing base of operating assets. And in this context, capital discipline will continue to be key and we will also consider to use some of these cash flows for additional debt repayments.
So during the past year, we have seen a significant change in the macroeconomic environment. The dramatic increase in interest rate has led to increased cost of capital, and this is impacting both availability of attractive funding, product returns for selective growth prospects and also obviously increasing the interest debt costs on the corporate level related to our corporate debt of Scatec.
We are, therefore, aligning our growth rate to our internal funding capacity. We are now targeting NOK500 million to NOK750 million of annually equity investments in renewable energy, and this is in line with our historical growth rates. We will continue to reduce debt on corporate level based on current amortization schedules of approximately NOK280 million annually. And we will, as I said, further consider additional debt repayments on our corporate debt.
The revised business plan will be funded by internal capacity coming from a strong and growing cash flows from operating assets, enhanced capital recycling activities, alternative ownership structures with reduced equity stake and also low dividend payments. And at this growth rate, we will not need to raise equity. This growth plan is self-funded.
So, these strategic actions will enable us to navigate the current macroeconomic landscape, preserving our shareholders’ value and reinforcing our commitment to disciplined growth, financial flexibility and stability. And despite higher interest rates, renewable energy is still competitive in emerging markets and the value creation potential of our pipeline continues to be significant.
So, to summarize, we continue to see strong fundamentals for renewable energy in emerging markets. And renewable energies in our markets is the most affordable, available, sustainable and secure source of new energy generation. We are committed to deliver profitable and attractive growth funded by internal capacity and continuing our growth at our historical rate. And finally, we will enhance focus on capital recycling, and we will also consider additional debt repayments. Thank you. And then we are open for questions.
Question-and-Answer Session
Operator
Thank you, Terje. We will start with questions from the audience here in the room and then move over to our online listeners. Can start with Jorgen from Nordea.
Jorgen Bruaset
Thank you very much. Jorgen from Nordea. Just looking at the revised growth plan versus your previous wordings, how much of the delta is driven by you being even more selective on which projects you take on and how much is driven off planning for lower equity stakes in future projects?
Terje Pilskog
I think that in terms of the growth plan, the main change in the growth plan is linked to doing fewer projects than what was in the initial growth plan. We are not as a starting point, looking to take lower equity stakes in the projects. But that will be an alternative, if required.
Jorgen Bruaset
Okay. Very clear. And also, you mentioned it seems like module prices are coming off quite significantly year-to-date. Are there any change to the sort of working assumptions for CapEx per megawatt in your revised investment plan going forward whereas — versus where we are coming from in the previous wording?
Terje Pilskog
Yes. Clearly, the module prices have come down much more quickly now than we had foreseen a year ago, and that will clearly reduce also the CapEx requirements for solar products going forward. That, obviously, combined with the fact that we are now, as you also have seen from our pipeline, adjusting the level of solar that we have in the pipeline. And it’s also likely that in the plan going forward, there will be more solar projects than other higher CapEx projects.
Jorgen Bruaset
Okay and thank you. And also finally from my side. So you’re coming off from a year with very high construction activity. And obviously, you’re guiding for a quite massive step up in EBITDA from power production going into next year. And you’re looking at sort of that combined NOK4 billion run rate EBITDA contribution from, let’s call it, existing plants when the last couple are on stream. Are you able to provide any color on when during ’24, you expect to see that NOK4 billion run rate EBITDA?
Terje Pilskog
Here, I will just refer to what we have said previously. These projects will come in end of this year, beginning of next year, and most of it will be in operation by the end of Q1 next year.
Jorgen Bruaset
Perfect. Thank you very much.
Operator
Anyone else would like to ask a question from the room? Andreas.
Andreas Nygard
Thank you. Andreas Nygard of Kepler Cheuvreux. Could you comment on the cash yields you are actually obtaining in the projects you currently have in operations and those two will enter operations in 2024? Some color if you buy the share today, just assuming no further growth, what is the actual cash to your equity investment?
Terje Pilskog
Yes. As I indicated, on the cash back to Norway, we are getting in the range from the current operating portfolio, NOK1 billion in dividends back up to Norway. And obviously, on top of that, with the new products in, where we said the EBITDA is in the range of NOK750 million, also a share of that will come in. And typically, we are in the heating around 40% coming up as dividends to the corporate level.
Andreas Nygard
Okay. Thank you.
Jorgen Bruaset
Just a quick follow-up from me. Jorgen Bruaset from Nordea. You mentioned that you might be looking to repay some more debt on corporate level. Do you have any more color in terms of what you see as the appropriate debt level if you have the situations, you’re looking at plan out according to schedule, are you willing to quantify some sort of meaningful size of what you would be looking to reduce the debt level by?
Terje Pilskog
I will start and then maybe the CFO will have some comments as well. First of all, I think it’s important to say that we are comfortable with our ability to service the current debt level that we have on a corporate basis. So that’s sort of number one. Then our idea in terms of reducing that further, it is obviously linked to the fact that when we also do recycling of capital, refinancing projects, selling down in terms of projects. Part of that capital, not all of it, but part of that capital also naturally should go to service the corporate debt and potentially also pay down the corporate debt to make sure that we keep our covenants under control. So I think that’s sort of the starting point for this. I don’t know if you want to add any color?
Hans Jakob
No. My starting point is the amortization of around NOK280 that we do already. So this is on top of that.
Jorgen Bruaset
Okay. Thank you. And in terms of asset rotation, what should we think about the risk for any significant impairments in those sales processes similar to what we saw in Argentina? I know Argentina was a special situation, but obviously also looking at the extended peer group in the renewable space, impairment seems to be a pressing topic these days. So do you see risk of any significant impairments in ’24 as the sales process of noncore assets progress?
Terje Pilskog
Well, first of all, it depends what you consider being in the peer group. Clearly, we’ve seen a lot of things happening in offshore wind lately, but I don’t necessarily think about that as the peer group in terms of impairments. Currently, we are comfortable with the variation of the assets that we have on our balance sheet. And for the time being, we don’t see any need for impairments of those.
Jorgen Bruaset
Thank you.
Operator
Okay. I don’t think we have any more questions from the room, then I will read out the questions from our online listeners. We have one question from Jorgen Lande, Danske Bank. Good morning. Related to the new ancillary services contract terms in the Philippines, how does this compare to the old terms possible to quantify a range new versus old? Thanks.
Terje Pilskog
Yes. First of all, the expected ancillary services revenues from the Philippines, they are integrated and included in the forecast and the outlook that we are giving for Q4. So they are already in there. We have already said that in terms of the contracts that we have already secured. They are at prices at least at the level of the prices that we’ve seen for ancillary services historically, but the volume is slightly lower. Then in addition to that, it is important also to note that as of end of December this year, it is going to be open the reserves market for ancillary services also in the Philippines, where we can participate more on a short-term basis and play in that market.
Operator
Question from Anders Rosenlund, SEB. Could you please comment on Tunisia? When could construction of these assets in the backlog, realistically commence? Maybe just start with that.
Terje Pilskog
Yes. In terms of Tunisia, we are continuing to work on these projects, and we see that the economics of the projects are improving based on obviously the component prices coming down. And we will come back to the market as soon as we see that they are in a position where we think it’s meaningful to push them forward, and they are meeting our hurdle rates. So this is moving in the right direction, but we don’t have a specific date yet.
Operator
And second question from Anders. In Botswana, when do you expect to commence construction? What is the planned COD?
Terje Pilskog
Yes, these projects will largely start construction first half next year if things are moving forward according to plan, and then it will be a 12 to 18 months construction time line.
Operator
Okay. Then we have a couple of questions from Naisheng Cui from Barclays. Congratulations for the good results. When do we expect the Grootfontein project in South Africa to start construction to be online? How should we think about 2024 capacity?
Terje Pilskog
Well, thank you, Naish. The Grootfontein projects, we intend to start construction on those in Q1 2024. And we foresee a construction time line also there 12 to 18 months. And what we referred to in terms of 2024, I think it’s important for us to focus on what we’ve already secured, and that’s then the Grootfontein projects and the projects in Botswana and they represent in the range of 400 megawatts and NOK500 million in equity investments.
Operator
Another question from Naish. May I ask, this is about the strategy update. May I ask what is the latest funding gap based on the new plan, please? Could you please also guide us on the longer term capacity target?
Terje Pilskog
Yes. As we said, based on the current plan, we are self-funded. We are not going to go out and raise equity. And our growth plan is to invest NOK500 million to NOK750 million in new projects on equity over the coming years. So based on that, it is possible to calculate about what — where it will be in 2027.
Operator
Yes. And given the positive CapEx trend that Terje mentioned at the beginning of the presentation, do you see margin expansion because of this? If yes, why not build more projects?
Terje Pilskog
Well, I think it’s correct. And if you see sort of what has happened also partly on the RMIPPP projects and the projects that we currently have in construction. You will see that the margins have been expanding over time quarter-by-quarter in principle. But then when it comes to securing new PPAs for new projects that will be based on new competition and based on the current perspectives on the margins. So there is no automatic increase in margins than module prices are coming down. Obviously, what is happening with module prices and CapEx is coming down, is that renewable energy continues to become more affordable, more attractive, and this enables faster and more attractive growth in the segment.
Operator
And the final question from Naish. You have actioned on a number of disposals. Are you happy with the progress and plan to do more in the next years?
Terje Pilskog
Yes, we are happy with what we’ve done so far, and our plan is also to try to do more in the coming years.
Operator
Okay. And then we have a couple of questions from Daniel Haugland from ABG. Hi. Good to see you. Your new capital allocation policy, I think this is very sensible. I have two questions. First one to the CFO, how much remaining equity injections is needed into the SPVs for projects currently under construction or recently completed?
Hans Jakob
So the remaining contract value is NOK500 million, and then we are adding to it. So very limited equity injections needed. We are just about to finalize the current construction program. So I think Terje pointed to the program for ’24. So we are in good shape.
Operator
Thank you. And then one question for the CEO. Given the new capital allocation policy, I see you say that there will be enhanced capital recycling. Will this primarily be non-focused markets? Or are you also taking more forward-leaning approach on farm downs on a continual basis, i.e., will you farm down more than previously in new projects also?
Terje Pilskog
Yes, the increased focus on capital recycling will also include focus markets, and we will also look at opportunities for farming down, selling down, also putting existing projects into platforms in order for us to recycle capital more quickly and use that as a basis also for the growth.
Operator
And a final question from Daniel. We also have one similar question from Helene Brøndbo with DNB, so we can take it at the same time. What is the long-term target for corporate debt level? Will you now work to gradually reduce it to 0 over time, going back to the old business model, we only had debt in the projects and thus was not forced to fund interest cost in a group company. And then Helene had a similar one, what do you consider a fair corporate debt level longer term?
Hans Jakob
Is that for the CFO?
Terje Pilskog
Yes, I think it’s for both of us. But in 4 years, we would pay down NOK1 billion at the current rate, and we say that we are considering paying more. And then you will end up at something lower and a higher rate of debt repayments than today. And I think that’s where we communicate today and we will come back, of course, on the progress of our growth plan in the coming quarters.
Operator
Yes. And then we have one final question, another one from Anders Rosenlund. What is the cost base in the D&C segment. In Q3, personnel and other operating expenses to total NOK64 million, annualized NOK250 million. In order to go breakeven at 9% gross margin, you’ll need almost NOK3 billion of annual revenues. Is this the right way to think about this?
Hans Jakob
Well, I think that we haven’t been super specific. But as said on the OpEx rate, the run rate was NOK75million to NOK80 million per quarter. That’s one point there. That is down from a level of 90% due to the project focus, the cost efficiency program. So costs have come down. We will also come back in coming quarters with more clarity around D&C activity and cost levels going forward.
Operator
Okay. That was the final questions — question. With that, we will end the presentation. Thank you, everyone.
Terje Pilskog
Thank you.
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