58 Business The EconomistAugust 31st 2019
T
hirty kilometresoff the coast of Den-
mark, in the dark, churning North Sea,
91 white turbines slice through the air. The
Scandinavian country is the birthplace of
the offshore-wind industry. In 1991 the
world’s first such electricity generators
were erected there and, 11 years later, the
first large-scale offshore wind farm, built
with the help of a freighter previously em-
ployed to ferry bananas. On a recent gusty
day, dangling above the waves, mechanics
abseiled down the 40-metre-long blades
for routine maintenance.
Such sights are rare in most of the
world; offshore wind generates just 2% of
global renewable power. In Denmark they
are humdrum. Behind it all is a company
that few know and fewer can pronounce.
Seven years ago Orsted (“ur-sted”) was
dong Energy, Denmark’s state-owned
hotch-potch of coal and natural-gas plants,
a few wind farms, oil production and more.
Today the utility is the world’s biggest off-
shore-wind developer, with a third of the
market outside China. In 2018 offshore
wind accounted for about 90% of Orsted’s
gross operating profit and 80% of capital
employed. As fossil-fuel-dependent rivals
grapple with concerns about climate
change, Orsted has transformed itself into
a darling of environmentalists and inves-
tors alike. Its share price has doubled in the
past two years. Around the world the Dan-
ish success story is being studied closely.
Orsted’s strategic shift was spurred bycrisis. When Henrik Poulsen became
dong’s boss in 2012, gas and coal power
plants were ailing. The division which
drilled for oil and gas operated in dwin-
dling North Sea fields. “The one business
where we had some true differentiation”,
Mr Poulsen recalls thinking, “was wind.”
He set about shedding fossil-fuel assets
and in 2013 sold an 18% stake to Goldman
Sachs, a bank, for $1.2bn to help finance in-
vestment in wind. dong’s initial public of-
fering in 2016 was that year’s second-big-
gest anywhere. Denmark’s government
retained control through a 50.1% stake. But
in other ways, the company had changed.
To emphasise the metamorphosis, it re-
named itself after Hans Christian Orsted,
the Danish discoverer of electromagne-
tism. (Plus, as its advert at the time
quipped, “when you hear ‘dong’ your first
thought isn’t green energy.”)
The bet on offshore wind is paying off.
Although it remains a pricier way to gener-
ate electricity than onshore wind or solar
power, its costs, at €62 ($69) per megawatt-
hour in Europe, are less than half what they
were in 2012. Unlike solar panels, it works
at night. Unlike wind turbines on land, it
raises few nimbyist hackles. Bernstein, a
research firm, forecasts that the offshore-
wind market will grow at 17% a year to 2030,
about twice as fast as onshore wind.
The Danish firm got a head start by win-
ning early contracts in Britain, which was
offering rich subsidies. Britain’s introduc-
tion of auctions in 2014 made companies
more cost-conscious. Like rival wind de-
velopers, Orsted now uses bigger turbines,which are cheaper to build and maintain
than a larger number of small ones (and
uses purpose-built vessels, not banana
freighters). But its focus on wind lets it seek
out potential projects years before its gen-
eralist rivals, says Deepa Venkateswaran of
Bernstein. The decision to manage projects
closely and rely less on contractors helps
contain costs. Data from 1,150 turbines
across Europe help further optimise opera-
tions and allow the firm to design new pro-
jects more efficiently, adds Peter Bisztyga
of Bank of America Merrill Lynch. Orsted
expects a return on capital employed to av-
erage 10% in the next few years, about what
big oil companies manage.
It may be a creature of northern Europe,
with dilled cucumber snacks at its Scandi-
navian-chic offices, but the company has
global ambitions, surveying the world’s
open water as hungrily as a property mag-
nate would Manhattan lots. Mr Poulsen
thinks Orsted’s worldwide capacity will
nearly triple by 2025. It has already secured
the right to build 3.8 gigawatts along Amer-
ican and Taiwanese coasts, with local part-
ners. It is starting to invest in onshore wind
and solar, which will remain larger mar-
kets than offshore wind.
Not everything has gone smoothly. The
sale to Goldman was so controversial it
helped fell Denmark’s prime minister (in
October 2017 Goldman said it would sell all
its remaining shares). Amid uncertainty
about the effects of America’s shale boom,
it took until 2017 for Orsted to offload its
oil-and-gas business. Although the firm
plans to phase out coal by 2023, it still runs
some fossil-fuel power stations. Hans
Christian’s descendants sued (unsuccess-
fully) over the name. Denmark’s govern-
ment has objected to Mr Poulsen’s effort to
sell a power-distribution business, which
would boost payouts for shareholders.
Global expansion brings new risks.
Wind farms are now of a scale that, when a
problem occurs, as it did when an outage at
an Orsted wind farm off the coast of York-
shire contributed to a blackout in Britain
on August 9th, the world notices. Govern-
ments may unexpectedly change their
terms, as Taiwan’s did this year.
Most important, Orsted faces stiffer
competition. Equinor and Royal Dutch
Shell, two European energy giants with six
and 32 times its revenues, respectively,
want to set offshore turbines atwirl. rwe, a
German power company that is now the
Danes’ closest rival, is buying the renew-
ables assets of two other utilities. Macquar-
ie, a bank, is among the heavyweights tak-
ing stakes in wind farms, providing capital
that fuels more competition.
Analysts reckon that Orsted can hold its
own even against the likes of Shell, which it
recently beat in American tenders. If not
for Denmark’s controlling stake, the oil
giant might well be trying to buy it. 7ESBJERG
The once-dirty energy company behind the global boom in offshore windpowerOrstedTailwinds
Orstedy as she goesSource: Goldman SachsOffshore wind capacity, GW
Selected energy companies*Forecast0246810
OrstedRWEVattenfallSSEIberdrolaEquinor
Royal Dutch
Shell2019 2025*Not at all quixotic