Nordic energy giant shows how a carbon shift is happening

The first and biggest step in slowing climate change is to replace power generation from coal and gas with wind and sun. It needs to happen quickly, with the coal phased out by 2030 at the latest and gas not far behind. Once this biggest source of carbon emissions is green, the second, transport, can harness renewable energy through electric vehicles.

The shift to renewables may seem like a sisyphus, as coal consumption continues to rise in major carbon emitting countries including China and India. One of the main reasons for this trend is that electric utilities do not require failover. In fact, many are still adding coal alongside renewables.

But this transition can be completed, even within a decade, as the Danish company Ørsted A / S has demonstrated. In 10 years, Ørsted has gone from a conventional energy company relying on fossil fuels for 85% of its revenues to a renewable power plant, with 85% of its revenues coming from non-fossil sources. The Danish energy utility is the world leader in the development and operation of offshore wind farms, contracting a third of the world’s offshore wind power. The company registered profits $ 2.74 billion in 2020, with many new projects in the works over the next decade, including major developments in solar power, onshore wind and green hydrogen.

“I don’t think anybody thought we were going to turn our generational mix upside down in just 10 years,” said Martin Neubert, Ørsted commercial director and group deputy managing director. McKinsey sustainability in a recent interview.

And the company continues to go further. According to a recent analysis by Fitch, Ørsted devotes 75 to 85% of its CaPex to renewable energy projects and the rest to “markets and bioenergy”.

As the United States begins to authorize its first offshore wind farms, most contracts are awarded to the Danish renewable energy pioneer.

The path to renewable energies

How did a small Nordic oil and gas utility get to this point? And can its transformation offer any lessons for today’s fossil-dependent laggards?

Critical elements were a government policy of supporting the house, a laser focus not only on renewable energy, but on the only renewable niche where its advantage lay, a little luck at the beginning and a financing innovation that energized its transition. once in progress.

As the oil crises of the 1970s shattered perceptions of energy security, countries invested frantically in national research and development initiatives. France has built nuclear power. Iceland has exploited geothermal energy. The United States finally found hydraulic fracturing. Denmark has turned to offshore wind power.

Critical elements were a government policy of supporting the house, a laser focus not only on renewable energy, but on the only renewable niche where its advantage lay, a little luck at the beginning and a financing innovation that energized its transition. once in progress.

Yet despite years of R&D and government subsidies, Danish wind power only became commercially viable in 1991, when the country introduced a feed-in tariff, a subsidy that guarantees a long-term fixed price for wind turbines. renewable power plants. A carbon tax followed the following year, helping wind power become competitive with fossil fuels.

Even in the 2000s, Denmark remained dependent on its successful offshore oil and gas reserves. Ørsted, then named DONG (short for Danish Oil Natural Gas), was an energy utility like any other, dependent on fossil fuels. Even today, the company’s state-of-the-art offshore wind farm for green hydrogen facilities receive a $ 5 million grant from the Danish Energy Agency.

Ørsted is a lawyer a strong government policy promoting private investment in decarbonization.

In 2006, after DONG made six acquisitions, three of which were offshore wind facilities, the utility began to portray itself as a game changer in green energy. Initially, the firm drew fire for “greenwashing”, because it was also developing and operating coal-fired power stations across Europe, according to Monthly wind energy.

In the first decade of the 2000s, a change in energy policy was clearly in the air. Ørsted was at the forefront of this change when Denmark hosted the 2009 COP15 climate summit in Copenhagen, which focused on a global renewable energy agenda. Although the conference was heated and a mixed success at best, the EU pledged to cut emissions by 20% over the decade, suggesting a huge opportunity for companies in the renewable energy sector. The UK in particular has stepped up support for offshore wind projects, making them financially viable for the first time. Ørsted was in a good position – and set off for the races.

As CEO Neubert says, the transition has not been easy. Although the utility had a few important projects, the expansion of its wind facility required new alliances. Ørsted partnered with Siemens AG to produce the wind turbines. It acquired A2SEA for boats used to transport and deploy wind turbines on a large scale.

Installed capacity (Climate and Capital Media)

To raise funds for the expansion, rather than borrowing, Ørsted sold large chunks of existing projects and used the proceeds to finance the construction of new wind farms. In the beginning, the buyers were risk-conscious global investment banks. But as the model turned out, more conservative investors with even deeper pockets jumped on the water.

Bloomberg New Energy Finance describes this “farm down” approach – as “utilities selling stakes in green energy assets to institutional investors looking for a stable long-term return”.

Bold moves, backed by a vision, have shown that decarbonization can be good business. As the oil and gas markets have been stretched and squeezed by volatility, Ørsted has proven that wind, especially offshore, is an increasingly cheap and stable alternative.

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