Last Updated on January 28, 2019 by Sultan Beardsley
- Ørsted is the leading the market in the UK.
- Ørsted set out to be an entirely green company 10 years ago.
- After dominating the UK market, Ørsted is turning to the opportunities in the U.S.
- Ørsted intends to invest $30 billion in renewables by 2025
The energy sector has attracted investors for a multitude of reasons. Recent environmental and social pressures have begun to shift the conversation in this segment to a future centered around renewables. It is clear that this is the direction the sector is headed, but who has a solid shot at adapting and capturing market shares is what investors need to know.
Ørsted (OTCMKTS: DNNGY), previously known as DONG Energy, is gunning for a competitive position in global and U.S energy with its recent announcement of sizable capital investments. Investors were given a glimpse of Ørsted’s future plans with their recent $510 million deal with D.E. Shaw Group’s offshore wind farm portfolio. This purchase brings Ørsted current offshore wind farm holdings to 5.5 GW as explained by Olivia Minnock. To put this in perspective, 1GW is said to power roughly 725,000 homes.
A deeper dive in Ørsted figures reveals cutting down on coal usage by 73% and drastically curtailing Co2 emissions. The rationale driving their decision is illuminated when examining the global opportunity. Taiwan for example supports Ørsted’s renewable opportunity thesis as reflected in its announcement its 5.5GW plan. This would include $23 billion in investment from Taiwan by 2025, yet the move recently faced headwinds as skeptics see greater value in Nuclear investment.
Regardless, Taiwan is and will continue to play a key role for companies such as Ørsted striving to capitalize on Asian opportunities in renewables. Conversely, Looking to the U.S. opportunity and reports such as the 2017 State of Wind Development in the United States bv Region shows growth and facilitated by partnerships with companies like GE. Such players are paying close attention and establishing fruitful relationships to gain market share.
The US is a leading region for many measures, but has yet to fully scale the renewable opportunity. This is largely due to the current political environment which has vocally been adversarial to renewables and favors coal and other carbon based energy sources. This is Clearly a headwind for players in the renewable space.
Ørsted’s however believes overcoming this obstacle requires redirecting the conversation from reducing carbon emissions, to increasing jobs and other positive externalities of renewable investments. Although this opportunity has yet to be fully scaled, it remains a leading the market for onshore wind. This coupled with the potential for growth in energy efficient turbine rises and creation of 248,000 jobs by 2020 incentivizes a change.
Ørsted is positioning for long term success, which includes penetrating U.S. markets. They are constantly pursing a M&A strategy to quickly attain market share and become a dominant force with projects like the Hornsea Wind Farm. Recently Ørsted agreed to sell 50% of their position in the project for 4.46 billion British pounds return from GIP. This strategy has placed Ørsted with 25% of the global market share in offshore wind energy. In contrast with the sale of its stake in the European opportunity, investors have seen Ørsted begin to vigorously shift focus to the U.S market. In addition to the above listed deal for $510million, Ørsted increased their US positioning with a multitude of purchases including Lincoln Clean Energy for $580m.
Ørsted is motivated and capable of applying their growth mindset to the US opportunity and has already began to do so, but what lays ahead with such investments on their end? The company recently outlined in an article authored by reuters, intent to invest $30billion in renewable energy by 2025. This investment is intended to position Ørsted for success in transitioning the world from fossil fuels to renewables. With such an investment, Ørsted claims to be able to grow output significantly to the tune of 15GW of offshore wind energy output by 2025. The company further claims that this investment will sustain growth and eventually enable them to double capacity by 2030.
Ørsted by the numbers:
Ørsted has maintained an aggressive investment strategy as discussed with regards to the purchases of Lincoln Clean Energy and De Shaw Group. In essence Ørsted has remained competitive in the European markets largely thanks to the $30billion dollar bond they are floating.
As seen in the above financials, Ørsted continues to pursue revenue through the end goal of fulfilling the need in transitioning the world from fossil fuels to renewables. This mission comes with headwinds, but is beginning to come to fruition as market share is won and revenues continue to grow.
Renewables will play a crucial role in investors portfolios in the near and long-term . With ESG funds and dollars beginning to flow to these sectors, investors will soon not be able to afford neglecting these innovative approaches. The opportunity continues to grow and with it, the firms competing for share. Giants such as GE have teamed up with prominent leads in the offshore wind energy opportunity to provide innovative and effective solutions that are causing traditional methods to become widely exposed as unstainable. As the shift continues, players in the renewable sector such as Ørsted are quietly gaining competitive advantages, widening their portfolio and awaiting governments to pursue compliance and standards which will gift market share to their renewable energy focused companies. Ørsted has dominated the UK market and much of Europe, proving their strategy and leadership. This is reflected in many measures through their 10k reports found here. Although Ørsted is positioned for success, there is always risk. The risk visible to Ørsted is primarily in the form of potential inability to properly handle Northeast American politicians. If this is properly navigated, Ørsted will undoubtedly be in contention to play a key role in transitioning a massive portion of the world from fossil fuels to renewables, growing revenues, jobs and countless other positive externalities.
We have no position in Ørsted but am monitoring for potential entry.
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