Henrik Poulsen, chief executive of Orsted: ‘There will be profits that you forgo on the black energy side, but also profits to be made on the green energy side’
Henrik Poulsen, chief executive of Orsted: ‘There will be profits that you forgo on the black energy side, but also profits to be made on the green energy side’ © FT montage; Getty Images; company

The world’s largest offshore wind farm is under construction in the North Sea — a project that will generate as much power as a nuclear plant when the wind is blowing.

Hornsea 1 has become a symbol of the rapid global growth in offshore wind, as annual installations have risen 16-fold over the past decade. But increasing competition in the industry has meant that the company developing the project — Orsted, formerly known as Danish Oil and Natural Gas — has started to shift its focus to new markets. 

Henrik Poulsen, Orsted’s chief executive, said offshore wind “is an industry where demand is accelerating, competitive intensity is going up, costs continue to come down”.

“We have already seen a compression of our returns,” he added, pointing out how far the price of wind has fallen. “We have seen competition trending up over the past three to four years.” 

Even while renewable energy globally has seen a lot of growth in the past five years, the reality for many project developers is that there have been challenges aplenty. 

State subsidies for renewable energy projects have largely come to an end, and replaced by auction-based awards that have compressed margins for developers.

There have also been a series of new entrants to the market, particularly in offshore wind, as energy companies whose primary business is fossil fuels try to boost their green credentials.

A graphic with no description

For Orsted, the world’s largest offshore wind developer, these conditions have prompted it to push into new markets including North America and Asia, and new areas such as solar and onshore wind. Two big contracts it won last month in offshore wind auctions in New York and New Jersey underscore the shift is under way. 

“In our view, scale is the driver of competitiveness,” said Mr Poulsen. “That’s really the game for us.”

To do this, the company expects capital expenditure of at least DKr200bn ($30bn) for 2019 to 2025, of which at least three-quarters will go into offshore wind. 

“We are not going to stay a north-western European offshore wind business, even if that was a very attractive platform in many ways, and a very competitive one,” said Mr Poulsen. “We’re going to go global with offshore wind, and we’re going to expand technologically into onshore wind, solar and storage.” 

State subsidies for renewable energy projects have largely come to an end, and replaced by auction-based awards that have compressed margins for developers
State subsidies for renewable energy projects have largely come to an end, and been replaced by auction-based awards that have compressed margins for developers © Bloomberg

But this push carries risks as well, and the company has said it expects its debt levels to rise along with the expansion. It is targeting a 30 per cent ratio of funds from operation to net debt compared with 58 per cent at present. 

In its half year earnings report in early August, Orsted noted that power generation had been negatively affected by curtailments and outages during the second quarter, partly due to some cable issues. However, this did not have much impact on overall performance: during the most recent 12 months reporting period, revenues were up 29 per cent and net income 33 per cent, compared with a year earlier.

“It is possible that in the newer countries that they are branching out to, there could be some teething problems and initial challenges,” said Deepa Venkateswaran, analyst at Bernstein. 

Risks can come from established markets too. On August 9, an outage at Orsted’s Hornsea 1 wind farm was one of several factors involved in a major power cut in the UK, the causes of which are still under investigation. 

For Orsted, the push into new markets is just the latest step in what has been a series of dramatic business transitions over the past decade. 

A graphic with no description

When Mr Poulsen started as chief executive in 2012, the company then known as Dong Energy, was flirting with bankruptcy. 

At the time, the company included 12 businesses spanning from coal-fired power plants to electrical grid operators, which had been lumped together in a state-owned conglomerate. Heavy losses from its natural gas business and coal-fired power generation had triggered credit downgrades.

After conducting a strategic review, the board decided to focus on the nascent offshore wind business. “It was the one area where we actually had a first-mover advantage,” Mr Poulsen recalled.

At the time the global offshore wind market was small — just 3 per cent the size of the global onshore wind — but looked like it had the potential to grow (annual new installations have risen five times between 2012 and today).


Most of Dong’s other businesses were disposed of, and the company went public in 2016, one of the biggest European initial public offerings that year. Its share price has more than doubled since the listing.

After it sold its oil and gas business to Ineos in 2017, Dong Energy renamed itself Orsted, after a Danish scientist, and has gradually been reducing its fossil fuel assets such as coal power plants. 

The steps taken by Orsted to move away from fossil fuels and into wind are being eyed by other energy companies looking to boost their renewables portfolios. Royal Dutch Shell and Equinor (formerly known as Statoil) are both trying to grow their offshore wind businesses, although these are still much smaller than Orsted’s. Major utilities are also pushing into wind, including a tie-up earlier this year between Engie and EDP

A graphic with no description

However, analysts say that, even as other companies may envy Orsted’s transition into renewables, few will be able to mimic it. 

“It is not a path that is easy to follow,” said Kingsmill Bond, new energy strategist at consultancy Carbon Tracker, pointing out that Orsted’s case was “somewhat unusual”.

“The path of reinvention requires very supportive shareholders,” he added. 

Even though Orsted is publicly listed, it is still 51 per cent owned by the Danish state, and its biggest shareholder supports the company’s drive to cut emissions. 

Sometimes there was a temporary trade-off between maximising profit and making the transition away from fossil fuels, Mr Poulsen admitted. 

The company recently set a new climate target: to cut emissions — including from operations, from its supply chain, and from the sale of its products — by 50 per cent by 2032. This will involve finding low-carbon construction methods for wind farms, and will mean a reduction in its profitable natural gas trading business.

“There will be a price tag on it,” said Mr Poulsen. “Over time it will mean selling less gas.”

However, he believes these costs will pay off in the long term. “As you transition away from black energy toward green energy there will be profits that you forgo on the black energy side, but also profits to be made on the green energy side,” he said. “There will be margins that we leave behind, but it is more than fully compensated by the growth that we see in green energy.”

Get alerts on Orsted AS when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article