CLOSE

We permit the publication of our auditors’ report, provided the report is published in full only and is accompanied by the full financial statements to which our auditors’ report relates, and is only published on an access-controlled page on your website https://www.hermes-investment.com, to enable users to verify that an auditors’ report by independent accountants has been commissioned by the directors and issued. Such permission to publish is given by us without accepting or assuming any responsibility or liability to any third party users save where we have agreed terms with them in writing.

Our consent is given on condition that before any third party accesses our auditors’ report via the webpage they first document their agreement to the following terms of access to our report via a click-through webpage with an 'I accept' button. The terms to be included on your website are as follows:

I accept and agree for and on behalf of myself and the Trust I represent (each a "recipient") that:

  1. PricewaterhouseCoopers LLP (“PwC”) accepts no liability (including liability for negligence) to each recipient in relation to PwC’s report. The report is provided to each recipient for information purposes only. If a recipient relies on PwC’s report, it does so entirely at its own risk;
  2. No recipient will bring a claim against PwC which relates to the access to the report by a recipient;
  3. Neither PwC’s report, nor information obtained from it, may be made available to anyone else without PwC’s prior written consent, except where required by law or regulation; and
  4. PwC’s report was prepared with Hermes Property Unit Trust's interests in mind. It was not prepared with any recipient's interests in mind or for its use. PwC’s report is not a substitute for any enquiries that a recipient should make. The financial statements are as at 25 March 2017, and thus PwC’s auditors’ report is based on historical information. Any projection of such information or PwC’s opinion thereon to future periods is subject to the risk that changes may occur after the reports are issued and the description of controls may no longer accurately portray the system of internal control. For these reasons, such projection of information to future periods would be inappropriate.
  5. PwC will be entitled to the benefit of and to enforce these terms.
I accept
CLOSE

1. Select your country

  • United Kingdom
  • Austria
  • Australia
  • Belgium
  • Denmark
  • Finland
  • France
  • Germany
  • Iceland
  • Ireland
  • Italy
  • Luxembourg
  • Netherlands
  • Norway
  • Singapore
  • Spain
  • Sweden
  • Switzerland
  • USA
  • Other

2. Select your investor type

  • Financial Advisor
  • Discretionary Investment Manager
  • Wealth Manager
  • Family Office
  • Institutional Investor
  • Investment Consultant
  • Charity, Foundation & Endowment Investor
  • Retail Investor
  • Press
  • None of the above

3. Accept our terms and conditions

By clicking Proceed I confirm I have read the important information and agree to the terms of use.

Proceed

The Hermes Investment Management website uses cookies to remember your preferences and help us improve the site.
By proceeding, you agree to cookies being placed on your computer.
Read our privacy and cookie policy.

Powering change: How Ørsted transitioned to renewable energy

Home / Perspectives / Powering change: How Ørsted transitioned to renewable energy

Tim Crockford, Lead Manager
08 May 2018
European Equities

The energy landscape has changed dramatically in the last decade. Since the 2015 Paris Climate Agreement, big energy companies have pledged to reduce their risk of catastrophic climate change by cutting emissions. But as some struggle in the push into green energy, here we explain how Ørsted has undergone one of the biggest transformations in the sector.  

The push to reduce carbon emissions has had a profound impact on the energy sector. Renewable energy accounted for half of global growth in energy generation in 2017, according to the International Energy Agency. Indeed, energy companies are taking action to transition to a low-carbon world: Royal Dutch Shell has promised to halve the carbon footprint of the energy it sells by 2050 and invest about $500m a year in cleaner technologies. BP has also set emissions targets and intends to spend $1bn-$2bn on its new energies division. But few have undertaken a transformation as radical as current holding Ørsted.

Turning black into green

Ørsted, formerly DONG Energy, started life as a state-owned energy company when Denmark looked to harness North Sea oil and natural gas resources in the early 1970s.

By the 1990s, Ørsted became one of the first movers in then-nascent offshore wind generation, building the world’s first offshore wind farm in 1991. Over the past decade, the company has repositioned its business from oil, gas and coal to renewable energy, including offshore wind.

After gaining a strong leadership position in offshore wind, the company made its stock market debut in June 2016. A year later Ørsted offloaded its upstream gas and oil interests to chemicals company Ineos. The company now expects to be almost entirely carbon free by 2023, completing its transformation from ‘black’ to ‘green’ energy.

Because Ørsted was an early mover in offshore wind, it today enjoys a commanding position in the sector: it is the world’s largest offshore wind farm operator. Last year, Ørsted accounted for almost one fifth of all new wind capacity by megawatts in Europe (see Figure 1)1.

Figure 1: Developers’ share of 2017 annual installations

europe-ex-uk-chart-1

Source: WindEurope as at February 2018

Gearing up to meet long-term demand

Offshore wind has become a more attractive source of renewable energy compared to onshore wind in recent years thanks to the higher wind speeds it generates and environmental objections to onshore wind sites.

Last year, Europe saw a record 3,148 megawatts of net additional installed capacity in 20172. That corresponds to 560 new offshore wind turbines across 17 wind farms. What’s more, the market has plenty of room to grow in Europe: PricewaterhouseCoopers estimates that the market will grow from 14,803 megawatts to 73,972 megawatts of power generated by 2030, a fivefold increase (see Figure 2)3.

Figure 2: Current and planned offshore wind capacity in Europe until 2030

europe-ex-uk-chart-2

Source: PricewaterhouseCoopers as at April 2018

Furthermore, the increasing momentum behind the adoption of electric vehicles in Europe will result in an upswing in electricity demand. For example, there are approximately 90,000 plug-in electric vehicles currently in use in the UK – and that number is expected to reach 9m by 20304. In fact, it is estimated that these vehicles could create as much as 18 gigawatts of extra electricity demand by 2050, equivalent to nearly six new Hinkley Point nuclear power stations. We therefore expect that this demand for electric vehicles – and thereby the impact of charging their batteries – will reverse the recent trend of falling electricity demand in recent years. We also believe that this pattern will be repeated outside the UK, in the broader European market – especially in light of decisions such as the French ban of sales of new petrol and diesel cars by 2040.

Winds of change: reducing costs 

Today, the wind power sector is at a turning point. Subsidies that have underpinned the industry since the early 1990s are beginning to disappear as governments change their policies to make it more commercially viable. For this reason, it is becoming increasingly important for developers to reduce costs.

In total, Ørsted has installed more than 1,000 wind turbines offshore, having built more than a quarter of the capacity in operation globally. Indeed, this extensive turbine capacity has helped the company drive down its capital costs in recent years, as the company has moved along the learning curve. Moreover, the knowledge acquired during the installation process and ongoing advancement in turbine technology will make turbine installation and maintenance easier, thereby contributing to further cost reductions in the future.

Leading the way in energy transformation

At Hermes, we seek companies that are undergoing transformational change that will lead to higher future returns. We believe our investment philosophy is illustrated well by the reinvention of current holding Ørsted.

It has overhauled its business, shifting its focus from oil, gas and coal to renewable energy. The company also ranks above its peers group in our proprietary QESG scoring system – which captures a firm’s environmental, social and governance metrics compared to its peers.

Although it has been a trail blazer in the push towards green energy, its transformation is under-appreciated by investors. Consensus figures suggest that EBITDA will peak at $3.4bn this year before steadily declining thereafter. However, we do not believe this reflects the company’s ongoing transformation. Instead, we believe Ørsted will benefit from factors that will generate positive enduring change: rising demand for offshore wind and electricity, its positioning know-how and experience in wind farm construction, and lower capital and operational expenditure.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.

The above information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.

It should be noted that any investments overseas may be affected by currency exchange rates.

Past performance is not a reliable indicator of future results and targets are not guaranteed.

  1. 1 “Offshore wind in Europe – Key trends and statistics in 2017,” published by Wind Europe in February 2018
  2. 2 “Offshore wind in Europe – Key trends and statistics in 2017,” published by Wind Europe in February 2018
  3. 3 “Unlocking Europe’s offshore wind potential: Moving towards a subsidy free industry” published by PricewaterhouseCoopers in April 2018
  4. 4 “Electric cars will fuel huge demand for power, says National Grid,” published by The Guardian in July 2017
Share this post:
Tim Crockford Lead Manager Tim Crockford joined Hermes in 2009 as a research analyst for the European Equities team covering the resources, oil & gas, agricultural chemicals, capital goods and the technology sector. He became lead portfolio manager of the Hermes Europe ex-UK Equity Fund in 2015 and joined Andrew Parry in forming the Impact team in August 2016, which launched the Hermes Impact Opportunities Fund at the start of 2018, which Tim also manages. Prior to joining Hermes, Tim worked at Execution Limited from July 2006 as a primary research analyst working on major projects in the consumer, retail and financial services sectors, and then joined Sourcecap as an analyst in May 2008. Tim was raised and educated in Malta and graduated from the University of Malta in 2006 with a Bachelor of Accountancy (Hons) degree, as well as a Bachelor of Commerce degree. In 2016, Tim featured in Financial News’s ‘40 Under 40 Rising Stars of Asset Management’, an editorial selection of the brightest up-and-coming men and women in the industry.
Read all articles by Tim Crockford

Find posts by author

  • Alex Knox, ACA
  • Andrew Jackson
  • Andrew Parry
  • Andrey Kuznetsov, CFA
  • Audra Stundziaite
  • Claire Gavini
  • Dr Michael Viehs
  • Elena Tedesco
  • Emeric Chenebaux
  • Eoin Murray
  • Gary Greenberg
  • Geir Lode
  • Geoffrey Wan, CFA
  • Hamish Galpin
  • Harriet Steel
  • Ilana Elbim
  • Jonathan Pines, CFA
  • Joseph Buckley
  • Louise Dudley
  • Mark Sherlock, CFA
  • Martin Todd
  • Michael Russell, CFA
  • Michael Vaughan
  • Mitch Reznick, CFA
  • Neil Williams
  • Nick Spooner
  • Nina Röhrbein
  • Patrick Marshall
  • Peter Hofbauer
  • Philip Nell
  • Saker Nusseibeh
  • Silvia Dall’Angelo
  • Tatiana Bosteels
  • Tim Crockford
  • Tim Goodman
  • Tommaso Mancuso
  • Yasmin Chowdhury

Find posts by category

  • european equities