EnergyWatch

Ørsted's CEO declines to play on Big Oil's terms

Oil supermajors entering the offshore wind market has been a challenge for Ørsted, but CEO Mads Nipper insists the Danish utility will triumph by virtue of its skill and not succumb to rivals in a price war.

Photo: Gregers Tycho/ERH

Ørsted's new group chief executive, Mads Nipper, sees oil giants with their deep pockets and growing appetite for offshore wind as one of the main challenges facing the Danish power company, the CEO says in an interview with domestic business daily Børsen.

Several supermajors are showing eagerness to enter the offshore wind market, which Ørsted currently dominates. Such ambitions became even more clear in February, when BP and Total demonstrated their willingness to pay more than the wind major for UK site leases.

"This shows that some are willing to go very far to enter this market, and in the most extreme scenario this could end up meaning the market becoming an arena where we only compete on price," Nipper tells Børsen and continues:

"The last thing we should do is to jump in witlessly and start to compete on others' terms. Fighting as such with players that have deep pockets and are perhaps somewhat desperate to get into the market will only lead to loss. That's why we must continue to insist that we can do things others cannot."

Nor does Ørsted intend to allow its rivals too much encroachment, and the utility maintains its ambition to remain market leader and reap the benefits of having extensive experience as well as the undisputed best project pipeline in the industry.

"We're certain that we will remain a completely central and very large player," underscores Nipper, who will present the group's strategy update this June.

The CEO also rejects the notion that Ørsted will bypass capacity tenders wherein price is the sole factor, because something of large strategic significance could be involved, he says.

That the global offshore wind market has attracted attention from a long row of companies should hardly be surprising bearing in mind the industry's growth prognoses. On a global scale, the market faces massive growth and has started to broaden from Europe into Asia and the US.

BP and Total

The outcomes of various site lease auctions has meant, among other things, Total gaining a market foothold alongside its partner, Macquarie subsidiary Green Investment Group, by securing development rights for 1.5 GW.

Meanwhile, a consortium consisting of BP and German utility EnBW has won 3 GW in allocations.

BP was particularly present with its major economic muscle when it paid GBP 462m – equating to GBP 154,000 per MWh annually – up front to lease an 800-kilometer2 project site North of Wales in the Celtic Sea.

"The fourth leasing round confirms the UK as an attractive market, and it clearly demonstrates that the appetite in the licensing round far exceeds supply, which has resulted in untenably high initial payments," said Ørsted Offshore Wind CEO Martin Neubert at the time.

The road to US victory 

This is not the first time oil majors accept paying expensive entry tickets to join the offshore wind club. In the most recent US site lease auction, Shell and Equinor ran with two of the three solicited licenses, which sold for a combined sum of USD 405m. Ørsted was an early participant in that tender but withdrew as soon as the price surpassed USD 10m.

Concerns about such rising license prices have long gripped the wind-at-sea sector. According to trade associations, such development could lead to higher prices for rate payers due to the cost of the expensive entry fee being indirectly billed via power prices to make projects yield returns.

"The result of the leasing round shows that, whereas demand for new offshore wind projects has never been greater, too few areas have been made accessible for this need. Each auction that concludes based on this will invariably result in higher prices such as these, and our concern is that this could ultimately mean higher prices for developers and customers," said Melanie Onn, deputy CEO of trade association Renewable UK, on prior occasion.

English Edit. Daniel Frank Christensen

(Note: Citations translated from Danish)

Ørsted wins contracts for GW-scale Polish offshore wind farms

Ørsted sells Dutch offshore wind farm stake for EUR 1.375bn 

 

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