That's basically it. I'm getting python error, asking to set UTF-8 locale. And wherever I try to set it with export LC_ALL=C.UTF-8 it says that there is no such file or directory.
Managed to add locales by editing "project-spec/meta-plnx-generated/recipes-core/images/petalinux-user-image.bb" but I'm still not sure if this is correct way to do this.