EnergyWatch

Long queues are Ørsted's main Brexit fear

If the UK leaves the EU without a trade agreement, it would lead to months of chaos in British ports, according to leaked internal documents. The risk of delays causes more concern than import duties, says Ørsted CEO Henrik Poulsen.

Photo: Daniel Leal-Olivas / AFP / Ritzau Scanpix

A month-long "meltdown" of the UK's ports.

If Britain exits the EU in late October without securing a trade agreement with the union, clogged-up logistics could be one of many problems, according to an evaluation of leaked internal documents about a no-deal Brexit outcome. These papers, titled Operation Yellowhammer, were leaked this weekend to UK media The Times.

This is far from the only problem facing companies active in the UK.

Ørsted is one these, and its most important market is Britain. A no-deal Brexit would trigger the implementation of the World Trade Organization's standard levy of 2.7 percent for imports of products like wind turbines, cables and electrical components. However, the Danish utility's greatest concern is that of congested queues at UK ports.

"We are mainly focused on avoiding delays and ripple effects that could occur in consequence. That is in no way meant to play down a 2.7 percent tariff, which, of course, is also money. We would be able to deal with that, though," says Ørsted Chief Executive Henrik Poulsen.

Limited UK production

Ørsted is presently working to complete its project Hornsea 1, for which all wind turbines are expected to be installed before the UK leaves the union. That, though, does not apply for the coming project, Hornsea 2, which only recently got started on installing onshore equipment. At sea, work is set to begin next year on building what will become the world's largest offshore wind farm.

And so begins the import of components. Even though Siemens Gamesa has established turbine blade production in the UK, nacelles for the 165 machines will be made in Germany before being installed upon Danish-fabricated transition pieces by a Belgian installation vessel. Meanwhile, a Dutch cable ship will lay the Norwegian-manufactured export cable ordered by French Nexans.

Even though the UK is the world's largest market for offshore wind, it is by no means an epicenter of production. According to a Wood Mackenzie document from April, only 32 percent of the major contracts with grid connection in 2018-'20 are entered with UK-domiciled firms.

Confidence in the large wind farms

According to WoodMac, the UK offshore wind market will remain Europe's largest until 2028. In recent years, suppliers have also relocated completely or partially to England and Scotland. However, uncertainty surrounding Brexit have taken the steam out of British investments, WoodMac tells, adding that trade restrictions could have a damaging effect on the UK's supply chain. Ørsted does not share the same degree of pessimism.

"The UK will gradually develop a larger and larger supply chain for the sole reason it is currently the world's biggest offshore wind market. This is already taking place and will accelerate in the coming years. Otherwise, it could become necessary to deal with tariffs on certain components, if these are imported," says Poulsen, who is not definitively worried about the installation of the Hornsea projects.

"We have spent a lot of energy in recent years assessing the possible outcomes of Brexit and preparing ourselves to the best of our ability. We have spoken with all our suppliers in order to secure the unencumbered installation of both Hornsea 1 and 2. We have also received some assurance that the task will be solvable – even in the event of a no-deal Brexit."

Rhetoric steers toward no deal

The probability of a no-deal scenario depends much on whom is asked.

Earlier this summer, the UK's new Prime Minister Boris Johnson claimed that the likelihood was a "a million-to-one". Although bookmakers are currently offering odds with a 2.3-fold payoff if no trade agreement is ratified.

The odds have narrowed dramatically ever since the tousled, tawny Brexiteer moved into Downing Street which, incidentally, has also welcomed several other prominent anti-EU profiles to its ranks. This cabinet reshuffle has not made Ørsted change its preparations, however.

"Clearly, rhetoric is directed toward no deal. But we have already thoroughly explored every scenario, so we haven't made any extraordinary effort merely on account of the new government. There are likely still many possible outcomes," the CEO says.

English Edit: Daniel Frank Christensen

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