Ørsted steers course towards 99% renewables by 2025

26 April 2019

Ørsted has emerged as a world leader in offshore wind development, and is also proving highly profitable.

As of 15 February 2019, the first turbine at what is projected to be the world’s biggest offshore wind farm, Hornsea 1 – a joint venture between Ørsted and Global Infrastructure Partners – was installed and producing electricity. Some 172 out of 174 monopile foundations had been installed and turbine installation was expected to continue until late summer 2019. The three offshore HVAC substations (34 kV/220 kV) have been installed, as well as a novel offshore reactive compensation substation, designed by Ramboll, with shunt reactors and HV GIS supplied by Siemens. Cables have been manufactured by NKT.

Hornsea 1 is a UK “Round 3” project, 120 km off the coast of Yorkshire, in water depths of 24-37 m (LAT), but despite the lengthy export cable route (145 km, the longest to date for an offshore wind facility), it was decided to stay with AC rather than opt for HVDC, as is typical for, say, German offshore wind farms. HVDC was evaluated but HVAC selected based on “its relatively favourable cost and risk profile over the full development and operation life cycle”, says Ørsted.

The requirement for an offshore reactive compensation substation is a direct consequence of being so far offshore, in fact further than any wind farm constructed to date, and employing AC. To reduce power loss in the AC export cables, the reactive compensation substation is connected midway between the wind farm and landfall. Reactive compensation substations have been previously used onshore, but this is the first offshore installation.

66 kV array cables were also considered for Hornsea 1 but it was decided to stay with the proven 33 kV solution (66 kV has subsequently been adopted on other Ørsted projects, including for Hornsea 2).

When fully commissioned (expected to be by early 2020), Hornsea 1, with an installed capacity of 1218 MW (174 x Siemens Gamesa 7 MW turbines), will be nearly double the size of what is currently the world’s largest offshore wind farm, Walney Extension (659 MWe), also developed by Ørsted. Hornsea 2, another Ørsted project (expected completion date H1 2022, with negotiation and signing of key projects currently underway), will be even bigger, at 1386 MW.

“Hornsea 1 is the first of a new generation of offshore power plants that now rival the capacity of traditional fossil fuel power stations”, says Matthew Wright, UK Managing Director, Ørsted.

These offshore wind mega projects are further key milestones in the remarkable transformation of Ørsted (formerly DONG Energy) from a predominantly coal and gas based utility a decade ago, to a leading player in renewables  today, with a generation portfolio expected to be 99% renewable – including around 15 GW of offshore wind – by 2025, zero coal by 2023, and a corporate vision of “a world that runs entirely on green energy.”

“Climate change is one of the defining challenges of our time”, says Henrik Poulsen, CEO of Ørsted, but meeting the challenge (and benefitting from the subsidies currently available for large offshore wind projects) is also proving profitable for Ørsted. The company enjoyed a highly successful IPO in 2016, followed by a steep share price increase, but remains 50% owned by the Danish government, and in 2018 recorded its highest ever EBITDA (30 billion DKK, about $4.5 billion) – although 15.1 billion DKK of this came from sale (“farm-down”) of 50% of Hornsea 1 to Global Infrastructure Partners.

Other contributors to better than expected financial performance included strong progress and faster ramp-up on offshore construction projects, lower costs than anticipated and higher UK ROC recycle values (together with some positive outcomes in its gas and LNG activities).

Earnings from offshore wind farms in operation increased by 29% to 11.0 billion DKK in 2018, primarily due to ramp-up at Walney Extension, Race Bank and Borkum Riffgrund 2, which were all commissioned ahead of schedule.

The share of renewables in Ørsted’s generation mix rose from 64% to 75% in 2018. This was driven by the ramp-up and commissioning of the new offshore wind farms in the UK and Germany, as well as the acquisition (for 5.6 billion DKK) of Lincoln Clean Energy (US onshore wind developer, owner and operator, with an installed capacity of 813 MW) – seen
as the foundation of a new onshore business, bringing diversification to the Ørsted portfolio – together with increased biomass generation at the Avedøre and Skærbæk power stations.

Billing itself as the “world leader in offshore wind”, Ørsted developed the world’s first offshore wind farm, Vindeby (5 MW, 11 turbines, 1.8 km from shore), and the first large-scale offshore wind farm, Horns Rev 1 (160 MW, 80 turbines, 18 km from shore). It currently operates more than 1100 offshore wind turbines, with an installed capacity of about 5.6 GW and has a further 3.4 GW under construction. In addition, Ørsted says it has secured the rights to build about 1 GW offshore wind in the US by 2023, some 1.1 GW in Germany by 2025, and around 1.8 GW (Changhua 1 and 2a) in Taiwan (although recent changes in the Taiwanese subsidy mechanisms for offshore wind have created uncertainties and further work is needed to renegotiate contracts and arrive at investable projects, see panel, p12).

In November 2018 Ørsted acquired US east coast offshore wind developer Deepwater Wind from D. E. Shaw Group (for 510 million USD). Deepwater Wind’s portfolio, with a total potential installed capacity of about 3.3 GW, comprised:

  • Block Island (30MW), the only operational offshore wind farm in the USA.
  • Three offshore wind development projects in Rhode Island, Connecticut, Maryland and New York totaling 810 MW of capacity with long-term revenue contracts in place or pending finalisation.
  • Approximately 2.5GW of offshore wind development potential across three well-sited BOEM lease areas in Massachusetts and Delaware. Of these 2.5 GW, 1.2 GW is developed through an equal joint venture with NJ utility PSEG.

This is in addition to Ørsted’s existing US offshore wind portfolio, which includes:

  • Development rights for up to 2 GW at the Bay State Wind site off the coast of Massachusetts owned in a joint venture with Eversource.
  • Development rights for up to 3.5 GW at the Ocean Wind site off the coast of New Jersey.
  • Two 6 MW wind turbine positions for phase one of Dominion Energy’s Coastal Virginia Offshore Wind Project. Ørsted has exclusive rights with Dominion Energy to discuss the potential development of up to 2 GW of offshore wind capacity.

Ørsted has been particularly active in submitting bids to recent US offshore wind auctions, with the outcomes to be announced in the coming months (for example Rhode Island, New Jersey, New York, Massachusetts).

In addition, in consortium with Total and Elicio, it is planning a joint bid for France’s 600 MW Dunkirk offshore wind project and has also signed a memorandum of understanding with Tokyo Electric Power Company Holdings (TEPCO) to work jointly on offshore wind projects.

Specifically, TEPCO and Ørsted will work jointly on the Choshi offshore wind project near Tokyo, for which TEPCO has been carrying out a seabed survey to examine its feasibility.

TEPCO has aspirations to develop some 6-7 GW of renewable energy projects in Japan and overseas and to contribute to Japan becoming a leader in offshore wind in the Asia Pacific region.

Japan’s offshore wind market is gaining momentum following the government’s commitment to increase the deployment of renewables and the establishment of the legislative framework for designation of large- scale offshore wind development areas. In its Fifth Basic Energy Supply Plan of July 2018, the Japanese government targets 10 GW of wind generating capacity (offshore and onshore) by 2030 as part of its ambition to reach 22-24% renewable electricity generation by 2030.

More than 70% of Japan is mountainous, and around three quarters of its 127 million population live in urban coastal areas, which makes offshore wind an ideal source of large-scale, homegrown renewable electricity generation for the country, Ørsted notes.

Meanwhile, Ørsted has recently completed its first utility scale stand-alone battery storage project, Carnegie Road, in Liverpool, UK. The 20 MW battery installation consists of three battery containers, as well as the associated power conversion system, all supplied by NEC. It will provide frequency regulation and balancing service. Ørsted also has a 2 MW battery located “behind the meter” at its Burbo Bank offshore wind farm, to support production scheduling as well as providing some grid services.

The news is less good from Ørsted’s innovative Renescience plant in Northwich, UK, which plans to employ an enzyme based process to generate power from unsorted household waste. It has run into “mechanical challenges with the sorting process”, but the hope is to complete commissioning within the first half of 2019. 

Ørsted in Taiwan 

In April 2018, Taiwan awarded Ørsted the right (via a grid allocation process) to connect 900 MW of offshore wind to Taiwan’s power grid from Greater Changhua 1 (605 MW) and 2a (295 MW). Subject to Ørsted obtaining permits and taking a final investment decision, Ørsted plans build this 900 MW of capacity in 2021.

In June 2018, Ørsted was awarded the right (via price auction, with a winning bid of TWD 2548 (EUR 72.3) per MWh) to build another 920 MW of offshore wind in Taiwan at its Greater Changhua 2b and 4 sites. The Greater Changhua 2b and 4 wind farms are to be built in 2025, subject to Ørsted taking final investment decision on the projects in 2023.

One immediate issue that the Greater Changhua 1 and 2a projects have to address arose in January 2019 when Taiwan’s Ministry of Economic Affairs announced the feed-in-tariff for offshore wind projects that sign a power purchase agreement with Taipower in 2019.

Developers have the option to choose between a 20-year flat tariff of TWD 5516 (EUR 157) per MWh or a tiered tariff of TWD 6279.5 (EUR 178) per MWh for the first ten years and TWD 4142.2 (EUR 118) per MWh for the subsequent ten years. There will be also be a tiered production cap:

  • 100% of feed-in-tariff for production up to 4200 annual full-load hours (48% load factor);
  • 75% of feed-in-tariff for production from 4200 to 4500 annual full-load hours (from 48% to 51% load factor); and
  • 50% of feed-in-tariff for production above 4500 annual full-load hours (above 51% load factor).

Martin Neubert, executive vice president and CEO, Ørsted Offshore, reacted thus:

“We take note of the 6% tariff reduction compared to the 2018 tariff as well as the introduction of a cap on annual full-load hours. The production cap has material adverse impact by preventing an optimal and efficient use of the wind farm. In addition, it puts far-shore projects at a disadvantage versus the near-shore projects which remain unaffected by the cap.”

“We will now collaborate closely with the supply chain to mitigate the adverse impacts from the production cap and the reduced feed-in-tariff with the objective of making the projects investable.”

Ørsted notes that Greater Changhua 1 and 2a are facing extraordinarily high costs related to creating a local supply chain at scale, reinforcing the onshore grid infrastructure and building, operating and maintaining offshore wind farms in challenging site and weather conditions.

Nevertheless, Ørsted said it would work with the Taiwanese authorities and local stakeholders to reach key outstanding project milestones, such as obtaining the establishment permit (which has now been awarded), completing the supply chain plan and signing the power purchase agreement. “Ørsted’s board of directors will review and decide on the final investment case once we have clarity on the outcome of supply contract renegotiations and relevant project milestones being achieved in time to keep Greater Changhua 1 and 2a on track for potential commissioning in 2021.”

In addition to Greater Changhua 1, 2a, 2b and 4, there is another 0.6 GW of potential capacity at the site, which Ørsted may bid in to future auction rounds.

Ørsted is also the co-owner of Taiwan’s first commercial-scale offshore wind project, Formosa 1, which will be extended from its current 8 MW capacity to 128 MW in 2019. 

Offshore reactive compensation substation installed at Hornsea 1 – a world first. The jacket foundation weighs 1500 t and the topside 2500 t
Location of Choshi offshore wind farm
Ørsted offshore wind build-out plan (only showing projects with FIDs anticipated by 2023)
Location of Hornsea 1
7 MW turbine installed at Hornsea 1, the first of 174
Ørsted onshore wind build-out plan. It only entered the onshore business in 2018 with acquisition of Lincoln Clean Energy
Location of Dunkirk offshore wind farm

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