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Green growth ambitions see Ørsted turn to bond market

Tue 14 May 2019 by David Foxwell

Green growth ambitions see Ørsted turn to bond market
Henrik Poulsen: “in Q1 2019 we delivered strong results in line with expectations and have continued to strengthen our portfolio”

Ørsted’s transformation from ‘black to green’ continues apace, with the company seeking funds for huge projects in the North Sea while pressing ahead with worldwide expansion

For what is still a relatively small company compared to global market leaders in other industries, Ørsted in Denmark has a achieved a remarkable, pre-eminent position in the offshore wind industry, with a 30% market share. Having grown to this position in northwest Europe, it is expanding rapidly in emerging markets, as recent decisions confirm.

In fact, April and May 2019 were eventful months for Ørsted for a number of reasons. The company took a final investment decision on an important project in Taiwan, turned to the UK market to finance future growth, and won a court battle that will enable it to continue to use the name it chose when it changed its name in 2017.

The court case about the use of the company’s name was unfortunate and potentially extremely embarrassing had it lost it. Fortunately, the Copenhagen Maritime and Commercial Court ruled in favour of Ørsted.

In October 2017, under its former name Dong Energy (from Danish Oil and Natural Gas), the company announced it would change its name to Ørsted in tribute to the Danish scientist Hans Christian Ørsted who discovered electromagnetism in 1820. Seven individuals whose surname is Ørsted contested the name change, which the Danish company wanted to make as part of its transition ‘from black to green’ – that is from oil to green energy.

Ørsted argued that it had been using the name for nearly 100 years through its ownership of the HC Ørsted Power Station. When the power station was named in the centenary year of the discovery of electromagnetism, the choice of name was supported by Hans Christian Ørsted’s descendants.

Ørsted chief executive Henrik Poulsen responded to the court ruling in the company’s favour saying, “We are very pleased that the judgment upholds our claim that we have the right to use the Ørsted name. Our use of the name is a tribute to Hans Christian Ørsted, one of the greatest Danish scientists of all time.”

At the end of April 2019, the company confirmed it is to press ahead with the Changhua 1 and 2a offshore windfarms in Taiwan, projects it put on hold in January 2019 amid concern about the level of financial support from the government there.

The company took the final investment decision for the Taiwanese projects after the Asian country’s Ministry of Economic Affairs approved Ørsted’s local supply chain plan and Ørsted signed a power purchase agreement with Taipower at the feed-in-tariff level announced on 30 January 2019, a level agreed after intense negotiations between the Taiwanese Government and developers.

In early January 2019, Ørsted said it needed to revisit commitments it made to build the offshore windfarms in Taiwan amid concern about delays and retrospective changes to feed-in tariffs.

Changhua 1 and 2a are 35-50 km off the coast of Changhua County and will have a capacity of approximately 900 MW. The offshore windfarms will be constructed in 2021 and 2022.

Shortly after the Taiwan FID, Ørsted announced its intention to issue green senior bonds in the UK market to finance its growth ambition in the period to 2025, including investing in the massive 1.4 GW Hornsea 2 offshore windfarm in the UK.

The company said it was targeting a multi-tranche senior unsecured Sterling green bond, subject to market conditions. The proceeds will be applied to finance Ørsted’s investments in offshore wind projects in accordance with its Green Finance Framework.

Ørsted’s offshore windfarms in Europe such as Walney Extension will soon be joined by others in Taiwan

The company had what it described as a good start to 2019, with operating profit in line with expectations. Reporting results for Q1, the company said it had an operating profit (EBITDA) of Dkr5.1Bn (US$5.7Bn), down 7% compared to Q1 2018.

The decrease was expected and was mainly due to a positive one-off compensation awarded following the completion of an arbitration case in Q1 2018 as well as cyclically lower earnings from its gas portfolio. This was partly offset by a 13% increase in earnings from offshore windfarms in operation and earnings from new onshore windfarms.

Return on capital employed increased marginally to 28% compared to 27% in Q1 2018. The green share of generation increased from 68% to 80%.

Mr Poulsen said, “We delivered strong results in line with expectations. Our full-year guidance remains unchanged. During the first quarter we have continued to strengthen our portfolio offshore and onshore.”

He explained that, in addition to its investment decision in Taiwan, the company had recently submitted bids for offshore wind projects in France, the Netherlands and the US. “We expect an outcome from all five tenders and auctions over the coming three months,” he said, speaking in early May.

Mr Poulsen said the company had also agreed to acquire a subsidiary of US-based Coronal Energy. The subsidiary is a nationwide solar and storage developer with a significant pipeline of solar and storage projects.

“We remain very pleased with the operational and financial performance of the company as we continue to expand our position as a global leader in green energy,” Mr Poulsen concluded.

Reviewing current projects at an investor presentation, Mr Poulsen said construction of the Hornsea 1 offshore windfarm in the UK is progressing according to plan, with first power being achieved in February. When fully operational it will become the world’s largest offshore windfarm with a capacity of 1.2 GW, almost double the capacity of Walney Extension, which is currently the world’s largest offshore windfarm.

In February the company further strengthened its strategic partnership with Eversource when the latter became a 50% partner in Ørsted’s recently acquired activities in Deepwater Wind in the New England area, where Eversource is the leading utility provider. The assets included in the transaction cover Revolution Wind (704 MW), South Fork (130 MW) and two undeveloped lease areas off the coast of New England, which have the potential to be developed to a capacity of more than 1 GW.

Also, in February, Ørsted entered into a joint venture with Total and Elicio to submit a bid in the 600 MW Dunkirk tender. On 15 March it submitted a bid in the Dutch zero-subsidy tender for the Holland Kust Zuid 3 & 4 offshore windfarm (up to 760 MW). As previously highlighted by OWJ, the company said that, if it is awarded the project in the Netherlands – for which it has already taken an FID – it will, together with an as yet unspecified partner, seek to establish a green hydrogen project based on power from its Dutch offshore windfarms.

Ørsted is also awaiting the outcome of three US auctions for offshore wind, the results of which were expected by the end of Q2 2019. In Q4 2018, the company bid into auctions in Rhode Island (up to 400 MW) and New Jersey (1.1 GW) and in February it bid into the 800 MW auction in New York.

In March, the UK Government confirmed its ambition to increase offshore wind capacity from 13 GW by 2020 to 30 GW by 2030. Responding to the decision, Mr Poulsen said, “We welcome the UK Government’s commitment to a green future and look forward to continuing our work and investments in the UK.”

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