Wednesday, 17 April 2019

Orsted - New Addition


This energy company based in Denmark is a global leader in offshore wind with around 30% of global capacity and operations in Denmark, UK, Germany and Holland. It also operates several wind farms outside of Europe in the US and also Taiwan.

Renewable energy is very much in the ascendancy due to concerns about climate change. It is estimated the global wind energy sector will attract investment of $1 trillion over the next 10 years as the world makes the transition to low-carbon energy.

The company has made a remarkable transformation of its business model over the past decade. It was formerly known as DONG - Danish Oil & Natural Gas - and, as its former name suggests, was involved in energy production from North Sea oil and gas and also coal-fired power.

In 2008, the company decided to change its business model from black (fossil fuels) to green (renewable wind energy). At that time the company was 90% oil/coal and 10 years later, it has moved to 75% green and aims for 100% by 2025.

In 2016, the company floated on the market in the second-largest IPO in the world that year. The following year it sold off its North sea oil and gas business to focus on renewable offshore wind and also changed its name. The float price was 235 DKK and just under three years later it has risen to 500 DKK.

UK Operations

Their offshore UK operations have the capacity to supply over 3 million homes with green electricity. This will increase to 5.5 million homes when current additions at Hornsea 1 & 2 come online in 2020. This development will be the largest offshore wind farm in the world. There are two further phases at Hornsea in the planning stage and a further wind farm proposed off the Isle of Man.

Hornsea 1 - The worlds largest offshore wind farm

Matthew Wright, UK Managing Director at ├śrsted, said:
“Hornsea 1 is the first of a new generation of offshore power plants that now rival the capacity of traditional fossil fuel power stations. The ability to generate clean electricity offshore at this scale is a globally significant milestone, at a time when urgent action needs to be taken to tackle climate change.
“Ten years ago, the thought of a project of this size was just a dream, but thanks to continued innovation, a determined effort from both the industry and supply chain to drive down costs, and the natural geographical benefits that surround us, the UK has positioned itself as a world-leader in offshore wind". 

Last December, the company installed a 20MW battery storage facility at Liverpool. Variable wind generation (and solar) leads to grid supply volatility. While natural gas is still providing 50% of our energy requirements this is not a problem but as the proportion of renewable capacity grows (currently 30%), there will be an increasing need for storage of wind/solar to smooth out energy distribution via the network.

20 MW Carnegie Rd Storage System, Liverpool

Results

Full year results (pdf via company website) for 2018 were announced earlier this year. Net profits increased by 46% to DKK 19.5bn (2017 13.3bn). The share price increased by 28% over the year to DKK 436 having risen as high as 474 in November. The company currently has net cash of DKK 2.2bn. Return on capital is running at 32% (2017 25%).

The shares yield around 2.0% based on the current price of DKK 495.

Future Plans

The company has ambitions to increase its current wind portfolio from 5GW capacity to 15GW by 2025 and then double to 30GW by 2030. The firm expects a 20% annual increase in profits and will be investing DKK 200bn ($30bn) in renewable projects over the next 5 years. It has identified next stage development potential in Poland, India, South Korea and Japan as well as looking into the feasibility of floating wind technology.


The company's vision is to see a world run entirely on renewable energy. In the latest annual report, the CEO says he expects the market in renewables to triple over the next decade and expects Orsted to take part in this global build-out.

To help combat climate change, the world needs to transition quickly from fossil fuels to renewables. Orsted aims to be part of this change and wants to be part of the solution. It targets enough clean energy to power 50 million homes by 2030.

I would prefer to hold this as part of a collective investment trust or ETF but, so far, have not seen it listed so I have decided to add it as a stand alone share holding...another addition to my 'green' portfolio. The purchase price was DKK 490 or UK £57.00 per share.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!


8 comments:

  1. I happen to have worked a bit with orested and previously DONG.
    I deal with a lot of companies and feel that this one is very well run and organised with talented passionate people.

    For UK investors, are Danish dividend withholding taxes an issue?

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    1. That's reassuring from someone who has worked in the sector.

      As for dividend tax, I am not sure but have a feeling the law may have changed recently so that withholding tax is no longer permitted on investments held outside of Denmark as it would contravene the rules on free movement of capital. Of course, if Brexit occurs and we leave the EU this may change! Either way, it will not be such a big issue for me as I am more interested in capital growth rather than income.

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    2. Funny you say that, I hold renewable investments like wind/solar because of the dividends that they pay rather than capital growth.
      What I've seen from Greencoat Wind (UKW) is that they keep raising more and more money to fund their expansion (normally acquiring existing windfarms).
      I'm invested in UKW but wouldn't consider it a growth company - maybe Orested is different but it's more of an imcome play.

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    3. Yes, I think UK renewables infrastructure trusts are better as a pure income investment - a steady 5% or 6% with a little capital growth on top. I regard Orsted more as a growth investment with a little income on top.

      It will be interesting to compare total returns down the line.

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  2. Very pleased to see you review Orsted, and it's place in your portfolio. My wife works in the renewable energy sector and has said very good things about them. Considers them to be fore-runners and a model for what other oil and gas companies could become. Echoing GFF that they seem well run by passionate people. They'll definitely be in my watch list!

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    1. Again, this is good to hear, thanks. Maybe given time, the likes of Shell and BP will follow their lead...

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  3. @diy investor (UK) - where do you buy Orsted? Doesn't seem to be available to me on Interactive Investor or iWeb, I think because they don't have access to NASDAQ Copenhagen.

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    1. I hold the shares in my ISA with AJ Bell. I realise they may not be offered on all retail platforms but I think they are also offered via Hargreaves.

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