Scatec : Green Finance Report 2023

Green Finance report

2023

2 Scatec ASA - Green Finance Report 2023

Contents

1.	Introduction	3
1.1.	About Scatec ASA	3
1.2. Scatec and Green Financing	6
1.3.	ESG in Scatec	7
2.	Reporting	10
2.1	Allocation Report	10
2.1.1 Green Eligible Assets	10
2.1.2 Green Finance Instruments	12
2.1.2 Allocated Proceeds	12
3.	Selected projects - local value creation	16
4.	External review	20
5.	Appendix	21

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1. Introduction

1.1. About Scatec ASA

Scatec is a leading renewable energy provider, accelerating access to reliable and affordable clean energy in emerging markets. We develop, build, own and operate renewable energy and have 4.2 GW in operation and under construction across four continents at year end 2023. Additionally, Scatec started construction for 0.3 GW in the first quarter 2024.

We are committed to grow our renewable energy capacity, delivered by our passionate employees and partners who are driven by a common vision of 'Improving our Future'.

Scatec's strategy is to develop, build, own, and operate renewable energy, focusing on two strategic pillars "growing renewables" and "optimising the portfolio".

Growing renewables

Towards 2027 we will continue to grow our renewables capacity, targeting NOK 500-750 million in annual gross equity investments. Solar PV, wind and BESS will make up the largest share of our investments due to its complementary profiles and attractive fundamentals. We will utilise our competitive integrated business model and stay committed to delivering attractive returns of 1.2 times the cost of equity, D&C gross margins of 8-10% and O&M margins of 25-30%.

We aim to build stronger and longer-term positions in selected emerging markets, where we see a clear green agenda and potential to build scale and apply our proven model. We are ramping up growth in South Africa, Egypt, Brazil and the Philippines where we have a strong track record and operational portfolios, while we are building positions in India and Poland. Beyond these focus markets, we will maintain our opportunistic approach, applying strict guidelines on potential projects in terms of size and value creation.

Scatec will further grow selectively in green hydrogen and hydropower. Our green hydrogen efforts are focused on Egypt where we have secured projects with excellent renewable energy resources and export hubs to Europe. Within hydropower, Scatec's JVs with Aboitiz in the Philippines and Norfund and BII in Hydro Africa are exploring attractive growth opportunities.

Optimising the portfolio

We further seek to optimise our portfolio through capital recycling. Our capital recycling rationale is to re-invest capital into new value creating projects and also seek to reduce debt on corporate level over time. We will exit selected non-core markets to consolidate the portfolio as illustrated by Scatec's recent divestments of Mozambique, Rwanda, and Argentina. We might also realise selective divestments or farm-downs in our focus markets if it is value creative and does not harm our strategic position, exemplified by the sale of Upington in South Africa.

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Our role on the pathway to net zero

Renewable energy companies have an important role to play in supporting the world to achieve its climate targets. Reducing greenhouse gas emissions will require investment, innovation, technology, and a cultural shift. We have set ourselves a net zero climate target that is validated and approved by the Science Based Target Initiative (SBTi).

We believe that emerging markets are essential in this journey. At Scatec, we create opportunities for emerging markets through renewable energy - not only as they work towards the clean energy transition, but also to boost their economies, create jobs and meet growing energy needs.

We are passionate about what we do and the role we play in delivering clean and affordable energy, and across our globally dispersed teams we call ourselves 'changemakers'.

We know that with the right people and the right focus, we can improve the future. This work has already begun with our strategic actions towards 2027, and it's what will take us far beyond, into the net zero future.

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Our integrated business model

Our business model ensures transactional and operational control throughout the project lifecycle which ensure de-risking of the projects from a financial and operational perspective, while managing health and safety matters including the potential impact on people, communities, and the environment.

This business model includes the development, construction, ownership, and operation of renewable energy plants in emerging markets and the sale of power primarily under long-term power purchase agreements (PPAs). Our approach is to offer the most cost-efficient solution for each project, ranging from a single technology to a combination of integrated renewables technologies.

Development

During the initial phase of a project, we secure attractive locations, grid connections, licences and permits and enter discussions with potential long-term partners. Based on this, environmental and social impact assessments and studies are performed to ensure that each project meets our strict HSSE standards. We negotiate commercially viable PPAs with potential off-takers and start plant design. All project details are summarised in a business case which is benchmarked against our investment criteria. It is our strong conviction that early-stage development is crucial for sustainable value creation.

Structuring & financing

We use our experience to structure and integrate all project documents in collaboration with our financing partners to raise equity and predominately non-recourse debt for the project. Further development work, as well as engineering and construction planning, is performed in parallel with readying the project for construction.

Another key task is optimising project cash flows to maximise returns. Once these have been agreed with our financing partners, a final investment decision is made, and the project reaches financial close.

Construction

During construction, Scatec typically assumes the role of turn-key engineering, procurement, and construction (EPC) provider for the power plant, dependent on project structure and technology. This ensures full control over risk mitigating actions, costs, quality, and progression as well as maintaining a strong emphasis on health, safety, security, and environmental issues.

Operations

Once commissioned, the power plant commences commercial operation and Scatec is often responsible for operations and maintenance, and asset management services, with the aim of maximising performance. These services are delivered under long- term service contracts with pre-agreed commercial terms.

Ownership

As owner of the power plants we ensure that they is operating according to requirements. We also manage stakeholders and report to our lenders, partners and the authorities. We receive annual dividends based on cash flows generated under the long-term PPAs or through the sale of power in the power market.

Portfolio optimisation

During the operating lifetime of a project, we aim to extract additional value through refinancing of the project debt at improved terms, and through asset rotation with recycling of capital into new investments in renewable energy.

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1.2. Scatec and Green Financing

Scatec issued its first Green bond in November 2015 to finance investments in solar power. With the acquisition of SN Power and the broadening scope of renewable energy investments, Scatec chose to establish a new Green Financing Framework (the "Framework") in February 2021, enabling the Company to finance its contribution towards a low-carbon and climate resilient future.

The Framework has been developed in alignment with the Green Bond Principles 20181 ("GBP") and Green Loan Principles 20182 ("GLP"). The Framework is applicable for issuance of Green Finance Instruments (GFI) including Green bonds, Green loans, and other types of debt instruments where net proceeds will be applied to finance or re-finance, in part or in full, new and/or existing projects and assets with clear environmental benefits, as defined in this Framework.

The Framework is aligned with the four recommended components of the GBP and GLP; Use of Proceeds, Process for Project/Asset Evaluation and Selection, Management of Proceeds and Reporting.

The selection of Green Eligible Assets is managed by the Green Finance Committee ("GFC"), which is led by EVP People, Sustainability & Digitalisation, and the management team. All decisions

are made in consensus. Only such assets and projects that comply with the criteria defined in the Use of Proceeds section of the Framework are eligible to be financed with Green Finance Instruments. The CFO and Treasury Department are responsible for keeping an updated register of Green Eligible Assets.

The GFC monitors the developments of the green finance market and may update the Green Financing Framework to reflect future market practices, such as the EU Taxonomy and potential updates to the GBP and GLP. Scatec aims to follow the development in a close way by:

• Conducting annual evaluation of the Framework's alignment with EU Taxonomy within the Green Finance Committee. The Green Finance Committee is responsible for decisions on any potential adjustments of the Framework in light of the EU Taxonomy.
• Including information on the alignment of underlying use of proceeds in the annual Green Finance Report.

The Green Financing Framework has been reviewed by an impartial firm, which has provided a second party opinion to confirm its alignment with the GBP and GLP.

The Framework and second party opinion from CICERO Shades of Green are available on Scatec's website.

To enable investors, lenders, and other stakeholders to follow the development of Scatec's assets and projects funded by Green Finance Instruments, this Green Finance Report will give an overview of allocation of proceeds and environmental impact. The Green Finance Report will be published annually as long as there are Green Finance Instruments outstanding.

1Green Bond Principles published in June 2018 are voluntary process guidelines for issuing Green bonds established by International CapitalMarkets Association ("ICMA"). 2Green Loan Principles published in March 2018 are voluntary process guidelines for issuing Green loans established by Loan Markets Association ("LMA").

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1.3. ESG in Scatec

Sustainability is a fundamental part of Scatec's organisation, rooted in all business units and integrated across the value chain. The Company has dedicated sustainability resources, both at the project and corporate level, involved in all renewable power project phases for long term approach and impact.

Governance and compliance

Scatec is committed to operate in line with the Equator Principles and IFC's Environmental and Social Performance Standards to ensure consistent practices across all projects. The Company's work is also guided by the OECD Guidelines for Multinational Enterprises and the UN Global Compact. The Company works with trusted partners such as IFC, Norfund, KLP and several larger Development Banks who all have high standards for the projects and their associated impacts. Refer to Scatec's corporate website under ESG resources for a comprehensive overview of corporate policies and other relevant documentation.

In addition, several of the Company's projects in developing countries are assessed against the UN Framework Convention on Climate Change (UNFCCC) to certify that the renewable electricity generated by Scatec's facilities substitute the use of fossil fuels, and that the greenhouse gas emissions avoided by the Company's power production are real, verifiable, and permanent.

ESG reporting and ratings

Scatec reports in accordance with the Global Reporting Initiative (GRI) Standards and regard its ESG Performance Report to be the Company's Communication on Progress (COP) to the United Nations Global Compact (UNGC). Furthermore, Scatec reports to the Carbon Disclosure Project (CDP) and in line with the Task Force on Climate-related Financial Disclosures (TCFD). The Company reports on its results and performance across material ESG topics on a quarterly basis.

Scatec's material sustainability aspects in reporting on GRI indicators, conducted in accordance with the International Standard on Assurance Engagements (ISAE 3000), was reviewed by PricewaterhouseCoopers (PwC), who is also the auditor for the Company's annual financial statements and related reports. PwC annually completes a full verification of all GRI disclosures covering each material GRI topic within the scope of a limited assurance. The assurance statement is available on Scatec's corporate website: ESG resources.

Scatec holds top ESG ratings from leading global ESG rating agencies actively covering Scatec, namely Sustainalytics (rated as 12.8 - Low risk of experiencing material financial impacts from ESG factors), EcoVadis (rated Gold - among the top 5% of companies rated), CDP (included in the A List), and MSCI (rated AA - high ranking relative to industry peers of resilience to long-term ESG risks). During the year, Scatec was awarded with an A+ rating in sustainability reporting by Position Green in its annual ESG 100 report, rating the 100 largest companies listed on the Oslo Stock Exchange.

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EU Taxonomy alignment

Scatec's contribution to the objectives of the Taxonomy and the economic activities carried out by the Group is defined based on the integrated business model and strategic activities. Scatec is a project organisation that performs economic activities related to different renewable energy technologies and solutions across a range of markets along the value chain.

Substantial contribution

Our activities contribute to the environmental objective climate change mitigation, the global transition to a low carbon society through its renewable energy generation. As we have a global project portfolio, most of Scatec's economic activities are outside of the EU and not directly covered by the EU requirements.

Do no significant harm (DNSH)

Since 2020, Scatec, along with third parties, carried out multiple assessments to confirm alignment of its economic activities with the Taxonomy criteria and to identify potential gaps. The assessments are specific to the six environmental objectives and the DNSH technical criteria. In 2022, an internal climate risk and risk mitigation assessment was performed for each solar and wind plant. During the last year, Scatec screened each project following a standardised template covering the criteria for substantial contribution and all applicable DNSH, as well as the minimum social safeguards criteria (on a corporate level).

The minimum social safeguards in the Taxonomy entails ensuring that certain minimum governance standards are adhered to, such as anti-corruption and fair competition; and that social norms are not violated, including human and labour rights. During the last year, on a corporate level, Scatec's alignment was screened following a standardised template covering the detailed minimum social safeguards criteria.

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Reporting on the financial KPIs

Revenue, opex and capex are reported based on our International Financial Reporting Standards (IFRS) consolidated figures. This implies that revenue, capex and opex shall be disclosed for economic activities in companies that are included in the consolidated financial statement. These KPI's do not include figures from joint ventures (JVs) and associated companies, such as the hydropower producing companies.

	Revenue	Capex	Opex
	NOK mill	Percentage	NOK mill	Percentage	NOK mill	Percentage
Eligible	3,352	99%	8,812	100%	345	100%
Aligned	3,193	94%	8,529	97%	334	97 %
Not aligned	159	5%	283	3%	11	3 %
Non eligible	44	1%	9	0%	-	-

• 94% of Scatec's revenue is derived from eligible activities that are aligned with the Taxonomy. 5% of the revenue is related to sale of electricity from the Czech portfolio that is assessed as non-aligned. The remaining 1% is related to miscellaneous goods and services sold from different entities in the Group classified as non-eligible.
• 97% of the capex recognised during the year relate to Taxonomy-aligned economic activities, namely the generation of electricity through solar PV technology. This is related to the construction of solar plants, mainly the Kenhardt projects in South Africa. All projects under construction (Kenhardt and Sukkur) in 2023 are considered to be aligned to the Taxonomy, except for Release Mexico and Cameroon.
• Scatec's revenue is mainly derived from eligible economic activities aligned to the Taxonomy and the operating expenses incurred in relation to the same activities are also aligned. Opex related to revenue generated on the Czech projects is non-aligned.

Refer to our EU Taxonomy Report 2023 on our corporate website.

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2. Reporting

In accordance with Scatec's Green Finance Framework, the following sections describes the allocation of proceeds, in addition to the environmental impact of the Green Eligible Assets financed under this framework.

2.1 Allocation Report

2.1.1 Green Eligible Assets

Green Eligible Assets are defined as investments that promote the green energy transition, such as direct investments in renewable energy sources. This also includes acquisitions of such projects as well as investments in share capital of companies with such assets, where Scatec has significant operational influence and where the use of proceeds is directly linked to the book value of the Green Eligible Assets owned by the acquired company, adjusted for the share of equity acquired.

Scatec currently has solar, wind and hydro power plants with 4.2 GW of capacity in operation and under construction in 14 countries on a 100% basis and seeks to continue a high rate of responsible growth in core markets. The company's long-term perspective on all investments is based on profitability and potential impact on the environment, people, local communities, and other stakeholders.