ORSTED – Capital Markets Day: Ørsted confirms its ambition of ~50 GW renewable capacity by 2030 and strong financial outlook
Ørsted will host a Capital Markets Day (CMD) on 8 June 2023 to present recent progress and strategic updates on its ambition to become the world’s leading green energy major.
Ørsted is committed to the following ambitions, financial targets, and financial policies for 2023-2030:
- Ørsted confirms its fully self-funded ambition of ~50 GW installed renewable capacity by 2030 and expects to invest DKK ~475 billion in the period 2023-2030.
- Ørsted confirms its target of an unlevered, fully loaded lifecycle IRR at 150-300 bps spread to WACC.
- Ørsted expands its EBITDA CAGR target from covering offshore and onshore assets in operation to cover the group-wide EBITDA (excluding new partnerships) in the period 2023-2030. Ørsted targets a group-wide EBITDA (excluding new partnerships) of DKK 50-55 billion in 2030, corresponding to a targeted annual average increase of 13-14 %.
- Ørsted extends its return on capital employed (ROCE) target to the period 2023-2030, targeting an average ROCE of ~14 % in the period.
- Ørsted remains committed to a BBB+/Baa1 rating.
- Ørsted confirms its dividend policy of an annual high single-digit percentage increase in dividends until 2025 and extends its dividend policy to 2030 with an annual mid-level single-digit percentage increase in dividends paid from 2026 to 2030.
- Ørsted is on track to deliver a ~98 % reduction in scope 1 and 2 emissions in 2025 (relative to 2006) and net-zero for the full value chain in 2040.
Ørsted expects to outperform EBITDA and ROCE targets set in 2021
Ørsted has achieved strong progress towards its ambitions and targets set at the last CMD in 2021, leveraging its industry-leading capabilities through a challenging period for the industry and, as earlier communicated, being on track to outperform its previous EBITDA and ROCE targets. Compared to the previous targets set by Ørsted at the last CMD in 2021, Ørsted reaffirms its target of ~50 GW renewable capacity in 2030 and is on track to outperform the previous financial targets of an average ROCE of 11-12 % (2020-2027), now expecting ~15 % in 2020-2027, and EBITDA from offshore and onshore assets in operation of ~12 % CAGR (2020-2027), now expecting 15 % in 2020-2027. The previously expected gross investment of DKK ~350 billion (2020-2027) is trending higher at DKK 380 billion.
Unprecedented political tailwind and growth potential
In the two years since Ørsted’s last CMD in 2021, unprecedented political tailwinds have emerged, such as the transformative incentives in the US Inflation Reduction Act and the Net Zero Industry Act in the EU. The resulting growth potential for the renewables industry has never been higher.
Ørsted has delivered strong progress and is strongly positioned to capture expected market growth. With the largest portfolio of assets in operation as well as the largest project pipeline across Europe, the US, and the Asia-Pacific (APAC) region, Ørsted remains the global leader in offshore wind. In addition, Ørsted has significantly grown its onshore renewables business and has become a leading player in bringing commercial scale to Power-to-X (P2X).
Mads Nipper, Group President and CEO of Ørsted, says:
“Ørsted has delivered strong progress since the CMD in 2021. We’ve completed several large projects, including the world’s largest offshore wind farm, we’ve been awarded new capacity, and we’ve been able to take FID on a large offshore wind project despite macroeconomic challenges. We’re on track to outperform our previous EBITDA and ROCE targets for 2020-2027, confirming the significant value in our portfolio of renewable projects. Today, we confirm our target of ~50 GW in 2030 – one of the largest investment programmes in the green transition.”
Industry-leading experience to support growth
At present, Ørsted operates 15.5 GW of renewable energy assets, while 4.9 GW are under construction across technologies. Ørsted has been awarded an additional 10.6 GW and has a renewable project pipeline of ~114 GW.
For the awarded projects where Ørsted has not yet taken final investment decision (FID), Ørsted is working intensely to ensure sufficient value creation to take FID, despite increases in interest rates, inflation, and supply chain bottlenecks. Ørsted is working with its suppliers to secure capacity and competitive prices, pursuing revenue optimisation, including corporate power purchase agreements (CPPAs), and continuing dialogues with regulators on measures to ensure sustainable industry growth. Ultimately, Ørsted may reconfigure or exit awarded projects where Ørsted has as of this date not yet taken FID if it finds the value creation in the projects not to be sufficient.
For future projects, Ørsted’s pipeline will allow the company to prioritise the most value-creating projects and stay financially disciplined when bidding in tenders and auctions. In addition, Ørsted’s long-standing supplier relationships will ensure capacity at competitive prices, while its customer relationships make it a preferred partner in decarbonisation.
Mads Nipper continues: “Ørsted has a clear strategic direction and very strong capabilities to capture the massive growth in renewables in the years to come. Based on where we believe we can create most value, we’ve made clear choices on where to play – and where not to play – in terms of regions, markets, and technologies. We’re leveraging all our capabilities to improve the returns of the portfolio of awarded offshore projects, and we’ll only take FID on projects that we find will create sufficient value. Going forward, we see strong opportunities to build our renewable portfolio, including by investing a majority of our CAPEX in offshore, targeting an unlevered, fully loaded lifecycle IRR at 150-300 basis points spread to WACC at the time of bid or FID, whichever comes first.”
Sustainability remains an integrated part of Ørsted’s strategy, and the company remains committed to driving a systemic change in the industry. Ørsted has taken significant action with its suppliers to decarbonise its entire supply chain and is on track to reach its science-based targets of 98 % carbon emissions reductions (scopes 1 and 2) in 2025 and net-zero for the full value chain in 2040. Ørsted has entered partnerships with suppliers in relation to low-carbon foundations and towers as well as wind turbine blades made from recycled materials. In addition, Ørsted has committed to reusing or recycling all wind turbine blades and solar panels from its global portfolio with immediate effect and to only commissioning projects with a net-positive biodiversity impact from 2030. At the CMD, Ørsted will announce it has issued blue bonds of EUR 100 million to fund investments in projects related to maritime biodiversity and green fuels for shipping. Ørsted is the world’s first energy company to have issued blue bonds.
Ørsted’s Capital Markets Day 2023
The Capital Markets Day is hosted on 8 June 2023 at 10-14 UTC+1 at the Science Museum in London.
The Capital Markets Day will be livestreamed – register and follow it here: https://orsted.com/en/capital-markets-day/
The presented material will be available for download on 8 June 2023 before the start of the CMD, and a replay of all CMD sessions will be made available at orsted.com.
More information on Ørsted: See the full profile on EMR Executive Services
More information on Mads Nipper (Group President and Chief Executive Officer, Ørsted): See the full profile on EMR Executive Services
More information on Daniel Lerup (Chief Financial Officer, Ørsted): See the full profile on EMR Executive Service
More information on Net Zero: https://www.iea.org/reports/net-zero-by-2050 + The number of countries announcing pledges to achieve net zero emissions over the coming decades continues to grow. But the pledges by governments to date – even if fully achieved – fall well short of what is required to bring global energy-related carbon dioxide emissions to net zero by 2050 and give the world an even chance of limiting the global temperature rise to 1.5 °C. This special report is the world’s first comprehensive study of how to transition to a net zero energy system by 2050 while ensuring stable and affordable energy supplies, providing universal energy access, and enabling robust economic growth. It sets out a cost-effective and economically productive pathway, resulting in a clean, dynamic and resilient energy economy dominated by renewables like solar and wind instead of fossil fuels. The report also examines key uncertainties, such as the roles of bioenergy, carbon capture and behavioral changes in reaching net zero.
More information on Dr. Fatih Birol (Executive Director, International Energy Agency): https://www.iea.org/contributors/dr-fatih-birol
More information on The European Union: https://european-union.europa.eu/index_en + The European Union’s institutional set-up is unique and its decision-making system is constantly evolving. The 7 European institutions, 7 EU bodies and over 30 decentralised agencies are spread across the EU. They work together to address the common interests of the EU and European people.
In terms of administration, there are a further 20 EU agencies and organisations which carry out specific legal functions and 4 interinstitutional services which support the institutions.
All of these establishments have specific roles – from developing EU laws and policy-making to implementing policies and working on specialist areas, such as health, medicine, transport and the environment.
There are 4 main decision-making institutions which lead the EU’s administration. These institutions collectively provide the EU with policy direction and play different roles in the law-making process:
- the European Parliament (Brussels/Strasbourg/Luxembourg)
- the European Council (Brussels)
- the Council of the European Union (Brussels/Luxembourg)
- the European Commission (Brussels/Luxembourg/Representations across the EU)
Their work is complemented by other institutions and bodies, which include:
- the Court of Justice of the European Union (Luxembourg)
- the European Central Bank (Frankfurt)
- the European Court of Auditors (Luxembourg)
The EU institutions and bodies cooperate extensively with the network of EU agencies and organisations across the European Union. The primary function of these bodies and agencies is to translate policies into realities on the ground.
Around 60,000 EU civil servants and other staff serve the 450 million Europeans (and countless others around the world).
Currently, 27 countries are part of the EU: https://european-union.europa.eu/principles-countries-history/country-profiles_en
More information on The European Commission: https://ec.europa.eu/info/index_en + The Commission helps to shape the EU’s overall strategy, proposes new EU laws and policies, monitors their implementation and manages the EU budget. It also plays a significant role in supporting international development and delivering aid.
The Commission is steered by a group of 27 Commissioners, known as ‘the college’. Together they take decisions on the Commission’s political and strategic direction.
A new college of Commissioners is appointed every 5 years.
The Commission is organised into policy departments, known as Directorates-General (DGs), which are responsible for different policy areas. DGs develop, implement and manage EU policy, law, and funding programmes. In addition, service departments deal with particular administrative issues. Executive agencies manage programmes set up by the Commission.
Principal roles in law: The Commission proposes and implements laws which are in keeping with the objectives of the EU treaties. It encourages input from business and citizens in the law-making process and ensures laws are correctly implemented, evaluated and updated when needed.
More information on Ursula von der Leyen (President, The European Commission): https://ec.europa.eu/commission/commissioners/2019-2024/president_en + https://www.linkedin.com/in/ursula-von-der-leyen/
More information on The EU Customs Reform: https://taxation-customs.ec.europa.eu/customs-4/eu-customs-reform_en + On 17 May 2023, the Commission put forward proposals for the most ambitious and comprehensive reform of the EU Customs Union since its establishment in 1968.
The reform responds to the current pressures under which EU Customs operates, including a huge increase in trade volumes, especially in e-commerce, a fast-growing number of EU standards that must be checked at the border, and shifting geopolitical realities and crises.
The measures proposed present a world-leading, data-driven vision for EU Customs, which will massively simplify customs processes for business, especially for the most trustworthy traders. Embracing the digital transformation, the reform will cut down on cumbersome customs procedures, replacing traditional declarations with a smarter, data-led approach to import supervision. At the same time, customs authorities will have the tools and resources they need to properly assess and stop imports which pose real risks to the EU, its citizens and its economy.
A new EU Customs Authority will oversee an EU Customs Data Hub which will act as the engine of the new system. Over time, the Data Hub will replace the existing customs IT infrastructure in EU Member States, saving them up to €2 billion a year in operating costs. The new Authority will also help deliver on an improved EU approach to risk management and customs checks.
Overall, the new framework will make EU Customs fit for a greener, more digital era and contribute to a safer and more competitive Single Market. It simplifies and rationalises customs reporting requirements for traders, for example by reducing the time needed to complete import processes and by providing one single EU interface and facilitating data re-use. In this way, it helps deliver on President von der Leyen’s aim to reduce such burdens by 25%, without undermining the related policy objectives.
EMR Additional Notes:
- Power-to-X (or P2X or PtX):
- Power-to-X is an energy transformation technology that converts electricity into carbon-neutral synthetic fuels (gas or liquid) which can be stored and later used by the mobility, heating and electricity sectors.
- Power-to-X is essential in achieving a carbon neutral society that meets an increasing demand for energy. Through electrolysis and CO2 reutilisation, Power-to-X can unlock carbon neutral solutions that mitigate unavoidable emissions from industry, for instance by capturing concentrated CO2 streams from biomass-fired power plants or anaerobic digestion. It also offers a competitive option for energy storage.
- The term Power-to-X covers processes for converting renewably sourced electricity (power) to a substance or energy carrier (“X”). This can be in gaseous form such as hydrogen or methane (synthetic natural gas, Power-to-Gas), or it can be liquid synthetic fuels such as methanol, ammonia, synthetic diesel, or kerosene (Power-to-Liquid). Liquid fuels from Power-to-X are also often referred to as electrofuels or merely e-fuels.
- Carbon Dioxide (CO2):
- Primary greenhouse gas emitted through human activities. Carbon dioxide enters the atmosphere through burning fossil fuels (coal, natural gas, and oil), solid waste, trees and other biological materials, and also as a result of certain chemical reactions (e.g., manufacture of cement). Carbon dioxide is removed from the atmosphere (or “sequestered”) when it is absorbed by plants as part of the biological carbon cycle.
- Reduction of carbon dioxide emissions through the use of low carbon power sources, achieving a lower output of greenhouse gasses into the atmosphere.
- Final Investment Decision (FID):
- FID is the point in the capital project planning process when the decision to make major financial commitments is taken.
- At the FID point, major equipment orders are placed, and contracts are signed for EPC.
- CapEx vs. OpEx:
- Capital expenditures are a company’s major, long-term expenses while operating expenses are a company’s day-to-day expenses. Examples of CapEx include physical assets, such as buildings, equipment, machinery, and vehicles. Examples of OpEx include employee salaries, rent, utilities, and property taxes.
- EBITDA is short for earnings before interest, taxes, depreciation and amortization. It is one of the most widely used measures of a company’s financial health and ability to generate cash.
- EBITDA measures the company’s overall financial performance. It is often used as an alternative to other metrics, including earnings, revenue, and income.
- EBITDA helps you analyze and compare profitability between companies and industries, as it eliminates the effects of financing, government or accounting decisions. This provides a rawer, clearer indication of your earnings.
- EBITDA removes real expenses that a company must actually spend capital on – e.g. interest expense, taxes, depreciation, and amortization. As a result, using EBITDA as a standalone profitability metric can be misleading, especially for capital-intensive companies.
- The term return on capital employed (ROCE) refers to a financial ratio that can be used to assess a company’s profitability and capital efficiency. In other words, this ratio can help to understand how well a company is generating profits from its capital as it is put to use.
- Financial ratio that is used to measure the profitability of a company and the efficiency with which it uses its capital. Put simply, it measures how good a business is at generating profits from capital.
- ROCE = EBIT / Capital Employed (Total Equity + Total Debt).
- A company’s weighted average cost of capital (WACC) is the amount of money it must pay to finance its operations. WACC is similar to the required rate of return (RRR) because a company’s WACC is how much shareholders and lenders require from the company in exchange for their investment.
- WACC tells us the return that lenders and shareholders expect to receive in return for providing capital to a company. For example, if lenders require a 10% return and shareholders require 20%, then a company’s WACC is 15%.
EMR Additional Financial Notes:
- Ørsted Q1 2023 investor presentation can be found here: https://via.ritzau.dk/ir-files/13560592/6722/10051/%C3%98rsted%20-%20Investor%20presentation%20Q1%202023.pdf
- Ørsted Q1 2023 Interim Financial Report can be found here: https://via.ritzau.dk/ir-files/13560592/6722/10052/Interim%20financial%20report%20Q1%202023.pdf
- Ørsted Q4 2022 investor presentation can be found here: https://via.ritzau.dk/ir-files/13560592/6237/9076/%C3%98rsted%20-%20Q4%202022%20-%20Investor%20presentation.pdf
- Ørsted interim report for the first nine months of 2022 – Full-year EBITDA guidance increase and strategic milestones achieved with new partnerships and acquisitions can be found here: https://via.ritzau.dk/ir-files/13560592/5809/8459/Interim%20report%20for%20the%20first%20nine%20months%20of%202022%20%E2%80%93%20full-year%20EBITDA%20guidance%20increased%20and%20strategic%20milestones%20achieved%20with%20new%20partnerships%20and%20acquisitions.pdf
- Ørsted 2022 Annual Report can be found here: https://via.ritzau.dk/ir-files/13560592/6237/9071/%C3%98rsted%20annual%20report%202022.pdf
- Ørsted 2021 Annual Report can be found here: https://orstedcdn.azureedge.net/-/media/annual2021/annual-report-2021.ashx?la=en&rev=9d4904ddf4c44594adab627f7e4c62be&hash=BD463F56D8BEF7EB591136136FEFDF44