From fossil fuels to green energy: the Ørsted story
Transforming a Danish state-owned power company into a renewable energy business with wind in its sails
Ambition has never been in short supply at renewable energy company Ørsted. When rebranding from DONG Energy in 2017, the offshore wind developer unveiled a bold new vision: to create a world that runs entirely on green energy.
The foundations for achieving that goal are already in place following a strategic shift that has seen Ørsted named the Judges’ Choice winner for the Masters of Reinvention Award at the 2017 Real Innovation Awards. Ørsted began life in the 1970s as a Danish state-owned energy business that spent the next two decades building coal-fired plants and sea-bound oil and gas rigs around Europe.
By 2006, the company was developing offshore wind farms – the first stage of its transformation to a renewable energy operator. At this point, Ørsted’s management decided to focus more on green energy. Coal-fired plants were closed and oil and gas sites sold off, with billions of pounds reinvested in offshore wind farm technology and construction.
Today, Ørsted has 24 offshore wind farms in operation and another four under construction, including one in Taiwan. One of its biggest developments is Hornsea Project Two, a UK-based 1,400 MW offshore wind farm that could provide low-carbon electricity to 1.6 million British homes.
This article first appeared in the London Business School Review
As part of the rebrand in 2017, Ørsted committed to becoming a coal-free renewable energy company by 2023. Its remaining oil and gas business was bought by petrochemicals producer INEOS last year.
“I can’t take any credit as I’ve only been here for 12 months,” jokes Matthew Wright, Managing Director of Ørsted in the UK. “This is the only example I know of a company transforming from a state-owned, coal-dominated, vertically-integrated, northern European utility company into a global leader in offshore wind and one of the world’s pre-eminent renewable energy businesses.
“The management has sold interests that no longer represent Ørsted, such as a profitable oil and gas business. It’s a strategic direction backed up by very sound business results, giving us the confidence and mandate to push on with our aim of becoming completely green.”
Delivering returns to shareholders following the company’s listing on Nasdaq Copenhagen in 2016 is also high on the agenda, Wright says. “The leadership’s strategy is to run a profitable and socially responsible business. They had to convince people that the future business could be as successful as the old one. Ørsted is now the fastest-growing utility company – and the most profitable, proving you can make decent returns from renewable energy.”
Ørsted’s 2017 Q4 operating profit was 13 billion crowns (£1.58 billion), fuelled by winning contracts to develop offshore wind farms in Germany and the UK, existing energy sites and construction becoming more cost effective. When announcing the results, CEO Henrik Poulsen said that Ørsted had established a business to identify new investments in energy storage, solar projects and onshore wind.
Making money from green energy
The company’s robust share price shows that investors have bought into the rebrand and its focus on green energy, according to Wright. But convincing critics to embrace wind technology was more challenging. “People were sceptical about offshore wind, the costs and whether it was right for governments to subsidise green technology. The big question was, could it ever really amount to anything?
“New technology is costly to develop – and we found that we were competing with established ways of generating and providing energy. To force change, you have to deploy new tech and keep developing new iterations so it gets better. Wind farms are now as cost effective as using fossil fuels to generate energy, and far more efficient.”
Energy companies in other countries are following suit and investing in offshore wind farms, according to Wright. Competition to buy existing farms or secure contracts to build new ones is ramping up, with Ørsted bidding for sites in Germany and Holland. Meanwhile, governments across Europe are exploring new offshore spots around the world with the perfect conditions (high wind speeds and shallow waters) for wind farms.
The Eastern seaboard of the US and Canada and East Asia are also attracting interest. In April 2018, Ørsted secured a contract to install a 900 MW wind farm off the coast of Taiwan. At the time of the announcement, Matthias Bausenwein, General Manager for Ørsted in Asia-Pacific, said that Taiwan was a stepping stone into the region.
“There is healthy competition in our sector for contracts around the world,” Wright says. “The advantage for us is that the UK is the global leader in deploying this technology. We’re seeing big growth in the UK and East Asia but also looking at other locations such as South America, India and Australia.
“In the longer term, some people in our industry will start looking at floating offshore wind technology that could be deployed in deeper waters such as off the coast of Scotland. The costs of developing that technology will come down, giving governments and energy companies more opportunities to decarbonise through offshore wind.”
Exploring new locations in the UK, US and East Asia is Ørsted’s main priority for the next two years. The company will also continue investing in offshore wind technology – and championing green energy to clean up the planet.
This article by Rob Morris, Senior Editor, London Business School, was supplied by the Institute of Innovation and Entrepreneurship
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