Oersted A/S

SWB:D2G

Earnings Call Transcript 2019-Q1

[Operator]

Welcome to the Ørsted Interim Report for the first quarter 2019. [Operator Instructions] Today's speakers are CEO Henrik Poulsen; and CFO Marianne Wiinholt. Please begin your meeting.

[Henrik Poulsen, President & CEO]

Thank you very much, and good morning, everyone, and welcome to this earnings call. Ørsted has had a very good start to the year with continued strategic progress being made across the business as well as very solid results in line with our expectations. Our EBITDA for the first quarter of the year amounted to DKK 5.1 billion, which was a decrease of DKK 400 million compared to first quarter last year. The decrease in EBITDA, however, was expected and due to a positive outcome of a renegotiation in first quarter 2018 as well as cyclically lower earnings from our gas portfolio activities in customer solutions.Earnings from our offshore wind farms in operation amounted to DKK 3.6 billion for the first quarter, a year-on-year increase of 13%, driven by ramp-up in generation from Borkum Riffgrund 2 and Walney Extension. With the continued ramp-up in our offshore and onshore wind capacity, our green share of heat and power generation increased to 80% in Q1, up from 68% in Q1 last year. The increase, once again, underpins our commitment to a world that runs entirely on green energy, and it brings us one step closer to our 2025 target where we aim to reach close to 100% green energy generation.Yesterday, we took final investment decision on our 900-megawatt greater Changhua 1 and 2a project in Taiwan. At the end of January, we obtained our establishment permit, and over the last few weeks, we have secured the approval of our supply chain plan and signed the power purchase agreement with Taipower. The final investment decision marks a very important milestone for Ørsted, as it is our first offshore wind investment decision outside of Europe. We are pleased to have secured a high level of local content on the project, which will offer significant support in the establishment of a new industry and create jobs and industrial development in Taiwan. At the same time, the project will deliver a solid risk/return equation for Ørsted's shareholders, which enabled our Board of Directors to FID the project. The construction of the project will commence shortly, and we expect the offshore wind farm to be fully completed in 2022.In February, we entered into a joint venture with Total and Elicio, and in March, the joint venture submitted a bid in the 600-megawatt Dunkirk tender in France. In addition, we also participated in the Dutch zero-subsidy tender for the 760-megawatt Holland Coast South 3 and 4 offshore wind farm. If we are awarded the project in The Netherlands, we have already taken final investment decision, and together with a partner, we will seek to establish a green hydrogen project based on power from our offshore wind farms in The Netherlands.In addition to the 2 tenders in Europe, we are also awaiting the outcome of U.S. auctions. In October 2018, we bid into the 0 carbon RFP in Rhode Island, which could allocate up to 400 megawatt to offshore wind. Furthermore, we also participated in the 1100-megawatt New York auction in December and the 800-megawatt auction in New York in February. We expect an outcome from all 5 tenders in auctions over the coming 3 months. Yesterday, we also took final investment decision on the 338-megawatt onshore wind farm, Sage Draw, and we expect to complete the tax equity funding and start construction of the project during this quarter with expected commissioning in Q1 2020. Furthermore, we have entered into an agreement to acquire subsidiary of U.S.-based Coronal Energy, this subsidiary is a nationwide solar and storage developer with a significant pipeline of development projects, of which, 90-megawatt have secured offtake agreements with utilities in Mid-Atlantic and Northeast markets. The U.S. solar market has a significant long-term growth potential, and the acquisition further expands our capability platform and exposure to new attractive regional markets in the U.S.In customer solutions, we entered into a 10-year fixed price corporate PPA in February. Our counterpart, Northumbrian Water, will source 30% of its renewable energy demand from our U.K. offshore wind farm Race Bank. The corporate PPA will reduce our merchant power price risk, and it's the first corporate PPA from one of our offshore wind farms. The agreement marks an important milestone in our route-to-market strategy.Turning to Slide 4, where I will give an update on the key offshore construction projects currently in progress. The construction of the Hornsea 1 project is progressing according to plan. And in February, we achieved first power. We have installed all substations and all of the 174 foundations as well as 163 array cables and 51 turbines. We're on track to fully commission the project during second half of the year. Once completed, Hornsea 1 will become the world's largest offshore wind farm with a capacity of 1,218 megawatt, almost double the capacity of Walney Extension, which is currently the world's largest offshore wind farm.At the 752-megawatt Borssele 1 and 2 project, the manufacturing of key components for the wind farm is progressing according to plan. And we have started the construction of the O&M building in Vlissingen. The Dutch wind farm is expected to be completed in late 2020 or early 2021. The Virginia EPC demo project remains well on track with all the key supply contracts signed. The offshore construction work is expected to begin during second quarter 2020, and we expect to complete the project in the first half of 2021.At the Hornsea 2 project, we continue the good progress and we've started the onshore construction work on the substation and export cable. The project is scheduled for completion in the first half of 2022. And as I mentioned earlier, we've taken final investment decision on the greater Changhua 1 and 2a project and we will soon start construction.Moving on to Slide 5 and an update on construction projects outside offshore. Our onshore business has seen good progress on the construction projects. In February, we installed the first turbines at the Lockett onshore wind farm in Texas. And at the turn of the quarter, we had installed 34 out of 75 turbines. The construction is progressing according to plan, and we expect to commission the wind farm in third quarter this year. As mentioned earlier, we took final investment decision on the 338-megawatt onshore wind farm, Sage Draw, yesterday, and we expect to start construction later this quarter. In bioenergy, we're still well underway with the bioconversion of the Asnæs Power Station. The conversion is progressing according to plan with expected commissioning towards the end of this year. For several years, we have successfully converted our heat and power plants to use sustainable wood pellets and wood chips instead of fossil fuels, and we are committed to start of the use of coal entirely from 2023.For the last unconverted CHP, the Skaerbaek Power Station, we have not been able to find a solution with the heat customers for a bioconversion project. Consequently, we informed the heat customers in 2018 that we will close operations of the Skaerbaek Power Station by the end of 2022. We have also notified the relevant authorities and are awaiting their final approval. The development of our first Renescience plant in the U.K. is in its final phase. The adjustments to the plant layout to resolve the mechanical challenges of the sorting process will soon be completed, and we expect final commissioning during the summer.In customer solutions, we continued the installation of smart meters within our power distribution network. At the end of March, 854,000 smart meters have been replaced and taken into use and the project remains well on track.Let's turn to Slide 6, 7 and 8 and take a look at the latest market development and offshore wind opportunities across the various regions.Starting in Massachusetts, where the draft for the next 800-megawatt RFP has been submitted for regulatory approval. The state's second offshore wind auction will have a bid deadline in August this year, and the solicitation will be another significant step to reach the ambition of 3.2 gigawatt by 2035. We expect the outcome of the Massachusetts solicitation to be announced towards the end of 2019 or in the beginning of 2020.As I mentioned in the beginning of the call, we submitted a bid in the New York solicitation and we expect an outcome to be announced shortly. The procurement of at least 800 megawatt will be the first step towards New York's target of 9 gigawatt of offshore wind capacity by 2035. Furthermore, we expect the federal agency BOEM to release 2 offshore lease areas of at least 800 megawatt in 2019, with a lease auction taking place in early 2020.Moving to Connecticut, where legislation for procurement of 1 to 2 gigawatt of offshore wind has been introduced. We expect the next procurement to take place in the second half of 2019, but the framework and exact timing of this solicitation is yet to be announced.Finally, Maryland, general assembly has passed the Clean Energy Jobs Act, which will incentivize the development of 1.2-gigawatt of additional offshore wind capacity by 2030. The bill, which aims to quadruple the states commitment to offshore wind, is awaiting final approval from Governor Hogan. In summary, we continue to see a strong development within offshore wind on the U.S. East Coast, with the expected outcome on New York, Rhode Island and New Jersey solicitations during the next few months as well as a solicitation in Massachusetts later this year further lease areas released in New York and increased ambitions towards offshore wind in Connecticut and Maryland.Turning to Page 7 and the recent market developments in Europe when use have centered around the U.K., Denmark, France and Poland. In the U.K., the Crown Estate has refined its plan for the round 4 offshore wind leasing scheme, which is set to take place after the summer 2019. The tender will cover up to 7 gigawatt of new lease areas, and the lease terms have been increased to 60 years from 50 years. Furthermore, a new tender requirement will be introduced to ensure that projects are awarded across a minimum of 3 seabed regions in order to help facilitate greater geographic diversity.In Denmark, we expect the upcoming tender of 800 to 1,000 megawatt to be issued towards the end of this year with an expected outcome in 2021. The scope of the tender will include the construction of the offshore transmission assets, thus increasing the scope compared to previous tenders. We welcome this inclusion of the offshore transmission assets as part of the scope, as the competition will ensure market-driven cost efficiency and innovation.In France, the country's final energy plan was announced in February, highlighting that a fourth offshore wind tender will be taking place in 2020, with an expected capacity of 1 gigawatt. Finally, Poland further increased their offshore wind ambitions, extending their offshore wind target from 8 gigawatt of capacity by 2035 to 10.3 gigawatt by 2040.Moving on to Page 8 and the market development in the Asia Pacific region. As mentioned previously, we have taken final investment decision on our Greater Changhua 1 and 2a project, which will be our first large-scale offshore wind project in APAC. In the meantime, our Formosa 1 joint venture continues to make good progress on the 120-megawatt Phase 2 of the project. The onshore construction work is progressing according to plan, while the offshore construction is scheduled to begin later this month. We're still awaiting news on potential future auctions in Taiwan.In Japan, the development supporting offshore keeps progressing with the passing of the offshore wind General Sea law in November last year, which allow the government to allocate the rights to develop and build offshore wind in designated zones off the coast of Japan. In addition to the offshore wind General Sea law and auction evaluation guideline has been announced recently. Based on this draft framework, both price and experience will be part of the auction criteria and we could potentially see auctions as early as 2020 with an auction award potentially in 2021.We continue to follow the development in South Korea closely, but currently, we don't have firm details regarding timing and framework of the first offshore wind auction. This concludes the offshore market development review. Let's turn to Page 9 and the progress of our U.S. onshore business.We remain very pleased with the development of our onshore business and the value-creating growth opportunities it offers. We continue to expand our development portfolio and capabilities to create a strong North American platform within onshore wind, solar energy and energy storage. With yesterday's final investment decision on the Sage Draw project, the current operational and decided capacity total 1.3 gigawatt. In addition to these projects, we target a final investment decision on the Plum Creek wind project and our Permian Solar project during 2019, both of which have secured offtake contracts with blue-chip counterparts. Furthermore, we have recently increased the expected size of the Permian Solar project from 350 megawatt to 400 megawatt.The expected addition of the 2 projects will expectedly bring the total operational and decided capacity close to 2 gigawatt by the end of this year. With a strong progress on the construction of projects as well as the continued development of our pipeline, we have good visibility on the 2.5-gigawatt ambition set for 2022, and we may be looking at an upside to that build-out.With this, I will now pass on the word to Marianne.

[Marianne Wiinholt, Chief Financial Officer]

Thank you, Henrik, and good morning, also, from me. Let's start on Slide 10, where I will go through the group's financials for Q1 2019.In Q1 2019, we realized an EBITDA of DKK 5.1 billion, a decrease year-on-year of DKK 0.4 billion in line with our expectations. In offshore, earnings from our operating wind farms increased 13% and was offset by lower partnership earnings and higher product development costs. Lincoln Clean Energy, which we acquired in October '18, contributed with DKK 152 million in the quarter, while Bioenergy was on par with last year's results. In customer solutions, earnings were down DKK 0.6 billion in Q1 -- on Q1 2018, due to the positive outcome of renegotiation in Q1 '18 as well as cyclically lower earnings from our gas portfolio activities.EBITDA in Q1 '19 was positively affected by DKK 149 million from the implementation of the new IFRS 16 accounting standard regarding leasing. The net profit totaled DKK 2.6 billion, down from DKK 3 billion in Q1 '18, driven by the lower EBITDA and higher depreciation from more wind farms in operation. The increased depreciation was partly offset by our Danish power distribution and residential customer businesses being classified as assets held-for-sale by the end of '18 and does not depreciate it in Q1 '19. Furthermore, we realized a net financial income due to positive exchange rate adjustments.We implemented a new IFRS 16 standards regarding leasing 1st of January '19. In accordance with the new standard, our operating leases have been recognized in the balance sheet and are now depreciated. The implementation of IFRS 16 had a slightly negative effect on net profits with a higher depreciation and financial expenses being almost fully offset by the increased EBITDA from less-expensed leasing charges.Free cash flow from operating operations came in at a negative DKK 1.3 billion, a DKK 0.3 billion improvement year-on-year. Like last year, we decided to pay our expected Danish taxes for the year in March instead of November. In Q1 '19, paid taxes amounted to DKK 4.8 billion. Our gross investments for the quarter totaled DKK 3.9 billion, of which DKK 3.3 billion was related to the build-out of our offshore and onshore wind farms.The cash flow from divestments in Q1 '19 related to the receipt of deferred proceeds from the farm-down of 50% of Hornsea 1 in '18 as well as proceeds from the expansion of our strategic partnership with Eversource.Turning to Slide 11 and our net interest-bearing debt and financial ratios. Our net debt end of Q1 '19 amounted to DKK 9.1 billion. The DKK 11.3 billion increase reflected the negative cash flow, as I just described, as well as distribution of DKK 4.1 billion of dividends to our shareholders and inclusion of operational lease obligations of DKK 5.2 billion in accordance with IFRS 16.Our key metric FFO to adjusted net debt stood at 46% in line with Q1 '18 and well above our target level of around 30%. Return on capital employed came in at 28%, a marginal increase compared to the same period last year. Q1 '19 was significantly impacted by the farm-down of Hornsea 1, whereas Q1 '18 was impacted by the farm-down Walney Extension and Borkum Riffgrund 2.Let's move to the results of the business units starting with offshore on Slide 12. Power generation increased 0.1-terawatt hour compared to Q1 '18, due to the ramp-up of generation from Walney Extension and Borkum Riffgrund 2 to of 0.3-terawatt hours. The positive effect from the ramp-up was partly offset by curtailments and outages of 0.2-terawatt hours, for which we were partly compensated. The availability across the portfolio was very good, coming in at 96% for the quarter. Wind speeds for the quarter increased 0.1 meter per second year-on-year and amounted to an average of 10.4 meter per second. This was slightly above the normal wind speed for the quarter of 10.3 meter per second. We did however have significant differences between locations with high wind speeds in Denmark and Germany being offset by lower wind speeds in the U.K.EBITDA for the quarter amounted to DKK 4 billion, which was the same as Q1 '18. Earnings from wind farms in operation increased to DKK 0.4 billion due to the ramp-up of generation and DKK 0.1 billion impact from the implementation of IFRS 16. The increase was partly offset by lower partnership earnings and higher project development costs. The increased project development costs were mainly related to activities in the U.S. and Taiwan. The delayed investment decision on Greater Changhua 1 and 2a means that we have expensed more project development costs in Q1 '19, costs which would have been part of CapEx, if we have taken FID at the time we originally expected.Free cash flow amounted to DKK 0.5 billion in Q1 '19, an increase of DKK 0.7 billion, mainly due to receipt of deferred proceeds from the 50% farm-down of Hornsea 1 to GIP and proceeds from the expansion of our New England partnership with Eversource.Let's then turn to the results for onshore on Slide 13. Onshore power generation reached 826-gigawatt hours in Q1 '19, which was the first quarter with full generation from the Tahoka wind farm. The wind speed averaged 7.8 meter per second, which was below the normal wind speed of 8.3 meter per second for the quarter, while we had high availability of 97% across the portfolio.EBITDA came in at DKK 152 million for the quarter, with earnings from operational wind farms and production tax credit contributing with DKK 216 million. This was partly offset by project development costs and other costs.Free cash flow amounted to a negative DKK 0.6 billion, primarily related to the investments in the construction of Sage Draw and Lockett as well as contingent payment to our turbine supplier of Tahoka.Turning to Page 14, covering the results in bioenergy. EBITDA came in at DKK 435 million, in line with Q1 '18. In Q1 2019, earnings from heat generation were slightly lower than last year, due to warmer weather. Earnings from power generations were above Q1 '18 due to the reversal of a provision, but was partly offset by lower spreads and lower power generation.Free cash flows in Q1 '19 amounted to negative DKK 0.1 billion, a decrease of DKK 0.5 billion. This was driven by higher inventories and lower outstanding VAT due to the lower generation in Q1 '19.Turning to Slide 15, covering the results in customer solutions. The EBITDA for Q1 '19 was significantly down year-on-year, with a decrease of DKK 0.6 billion. The lower results were mainly related to the gas portfolio activities, within our markets division where we saw a decline in earnings from DKK 794 million in Q1 '18 to DKK 261 million this quarter. The significant decline was due to several factors. In Q1 '18, we were awarded a one-off compensation following the completion of -- renegotiation of a gas purchase contract. The substantial drop in gas prices during Q1 '19 resulted in fuel gas volumes sold, which we instead kept at storage. The lower gas price led to a decrease in the accounting value of our gas inventories and thus a temporary negative EBITDA impact in the quarter. The negative impact will be partly offset if the gas price increase again or when we sell the gas later in 2019 and 2020, as we have hedged most of our gas margin.Additionally, we saw lower earnings from our portfolio optimization activities, where Q1 2018 was positively impacted by the cold spell. These negative effects were partly offset by high earnings related to our trading of our financial energy exposures in Q1 '19. Despite the decline versus Q1 2018, the Q1 '19 result for markets was above expectations.Free cash flow for the quarter decreased by DKK 0.7 billion, due to the lower EBITDA and higher gas volumes at our storages. As you know, we announced our plans to divest our Danish power distribution to residential customers and city light businesses in 2018, and we do not consider -- as we do not consider as to the best long-term owner of these businesses. We still expect to sign divestments towards the end of the year, and we continue the separation of the businesses from the rest of the group.Slide 16 show our 2019 guidance and our long-term financial estimates and policies. Our 2019 EBITDA guidance is unchanged relative to our guidance in the annual report for '18, and we expect EBITDA, excluding new partnership agreements, to be between DKK 15.5 billion and DKK 16.5 billion. Our gross investments guidance is also unchanged, and our gross investments are expected to amount between DKK 21 billion and DKK 23 billion. Our targets for our financial estimates and financial policies are in line with what we presented at the Capital Markets Day in November 2018 and in our annual report for '18.With that, we will now open up for Q&A. Operator, please.

[Operator]

[Operator Instructions] Our first question comes from Kristian Johansen of Danske Bank.

[Kristian Tornøe Johansen, Senior Analyst]

So my first question is on the Greater Changhua 1 and 2a project. Now that you have taken the FID, I assume you have a much clearer picture on what the exact return impact from the lower PPA level and then also there is delay we've seen, so can you elaborate a bit on this?

[Henrik Poulsen, President & CEO]

Yes. Thank you, Kristian. Of course, we now have an updated view on the business case that we FIDed yesterday in the Board meeting. We obviously know exactly the impact from the revised terms for the 2019 PPA, and at the same time, as you know we've been spending the past couple of months working with our suppliers in the region and elsewhere to recalibrate the terms and conditions after different major supply contracts. And all in all, these impacts have had -- to a wide extent, have had an offsetting impact on the business case. So we are still quite comfortable with the risk/return equation of the business case. We feel it's a balanced and solid business case for us.

[Kristian Tornøe Johansen, Senior Analyst]

All right. So only a minor return impact that you're saying?

[Henrik Poulsen, President & CEO]

I would rather not start getting very specific on the exact return impact. It's quite clear that we have had -- we've had a negative impact from the '19 PPA being at a lower price than '18. On the other hand, we've had some positive impacts from renegotiating number of supply contracts. We don't see an impact from any delay. We don't expect a delay to the project per se, so that's not an impact on the business case. And all in all, we're still left with the business case, which we find to be reasonable and balanced and also reflecting the risk profile of the project and the task we have at hand in terms of being the first to go in and start building and maturing a new local supply chain that needs to be compensated, and we feel that is reasonably compensated in the business case.

[Kristian Tornøe Johansen, Senior Analyst]

All right. That's quite clear. Then my second question is on the same project just in terms of your consideration around the farm-down in terms of timing and the process how it will be compared to what you've done previously?

[Henrik Poulsen, President & CEO]

We would expect the farm-down in Taiwan to be well on track during next year. So we'll still expect a transaction to take place June 2020.

[Kristian Tornøe Johansen, Senior Analyst]

And you're still aiming for a 50% divestment as you have done before?

[Henrik Poulsen, President & CEO]

That's still the -- that's still our expectation, yes.

[Kristian Tornøe Johansen, Senior Analyst]

Okay. Great. Then my last question is on the availability on the offshore wind of 96%, which is extremely high. Can you just elaborate a bit on what you mean by this?

[Henrik Poulsen, President & CEO]

Well, I mean we have simply just had a very strong availability across the entire portfolio. We are obviously investing a lot into a number of initiatives that will help drive up availability on the assets. We're investing a lot into a number of new digital tools to improve our preemptive maintenance on the turbines. And over time, we should expect these investments into these digital tools to also support strong availability. Furthermore, we have seen very strong availability on the most recent assets added to the operating portfolio, so Race Bank, Walney Extension, Burbo Bank Extension, we've generally seen very strong availability even during the early a ramp-up of these assets, which obviously has been encouraging.

[Operator]

Our next question comes from the line of Jenny Ping at Citi.

[Jenny Ping, Director and Analyst]

Just 2 questions, please. Firstly, on Hornsea 1, can you remind us in your DKK 15.5 billion to DKK 16.5 billion EBITDA guidance, have you given a precise time frame in which Hornsea 1 comes into operation for the group EBITDA to fall within that guidance range? And also have you seen of an increased rollout of the turbines as a result of the low wind speeds in 1Q and year-to-date? And then, secondly, just to clarify, the Coronal Energy transaction you've done presumably is very small. Have you given out a price and also the potential size of the asset pipeline?

[Henrik Poulsen, President & CEO]

Thanks, Jenny. When it comes to Hornsea 1, we haven't been more precise than saying that we expect completion and COD during second half of this year and we would still rather prefer to keep it like that, so sometime during second half, which is also what will support the guidance. So we are still quite comfortable with the completion time line and its ability to support the EBITDA guidance. The turbine installation is progressing very well and overall, I'll just say, it's on track. I'd rather not start sort of saying that we are ahead of track because of the weather being benign. I'll just say that the project is well on track and we're quite comfortable with its ability to support our guidance.When it comes to the Coronal development acquisition, it's a relatively small acquisition. We are looking at a U.S. dollar million amount in the low double digits just to give you an indication of where we are. And in that number, you have a couple of contracted projects to the tune of 90 megawatts contracted with very solid counterparts basically being Mid-Atlantic, Northeast utility off-takers. And furthermore, there is, of course, an extensive development pipeline of different degrees of maturity and that's what we are now over the coming months and quarters going to further progress, mature and take a view on exactly which one of those projects we will start moving forward towards commercialization.

[Marianne Wiinholt, Chief Financial Officer]

And perhaps why we talked about Hornsea 1, just one add-on. While we expect to get full production during second half, the CfD contract, there will be 3 times CfD. Start of CfD contract for the first 400 that will be here probably in May that will come into effect. And then, for the next 400, it will be in Q1 2020. And for the third 400, it will be in Q1 2021.

[Jenny Ping, Director and Analyst]

Okay. So the power produced without a CfD would just be at, whatever, market prices...

[Marianne Wiinholt, Chief Financial Officer]

At spot prices, yes. And actually, we have hedged -- we have already hedged it so...

[Jenny Ping, Director and Analyst]

Okay. And sorry, just 2 follow-up questions. The 51 turbines that you mentioned in your presentation for Hornsea 1, that's as at end of Q1? Or as at now?

[Henrik Poulsen, President & CEO]

Now.

[Jenny Ping, Director and Analyst]

As at now. Okay. Perfect.

[Operator]

And our next question comes from Deepa Venkateswaran of Bernstein.

[Deepa Venkateswaran, Senior Analyst]

I have 3 questions. Firstly on Taiwan. Henrik, you mentioned that you're quite happy with these offsets because of your renegotiation. Are you able to comment, therefore, on what's our expectation on CapEx because at the CMD, of course, you hadn't done these renegotiations. So that would be helpful. Secondly, wanted to ask you a bit more about your Netherlands subsidy-free proposal. Could you throw in a bit more light on, especially the green hydrogen part, you mentioned something about having a partner. Maybe would you be able to talk about that? And secondly, are you also expecting a corporate PPA for just the hydrogen part or the overall?And lastly, on Hornsea 1, Marianne, sorry, I didn't catch the last thing that you said in response to Jenny's question. So you're expecting the first 400 megawatts to get the CfD from May 2020 and then we should assume every year? Or I was under the impression that you get it immediately for the first 400 and then subsequently for the other 400 in 2020 April and then '21. But maybe if you could just clarify that again?

[Henrik Poulsen, President & CEO]

Thank you, Deepa. Lets start with the Hornsea 1.

[Marianne Wiinholt, Chief Financial Officer]

I'll start with the Hornsea. I said the first 400 will be May this year, May '19. Then the next 400 will be first quarter 2020 and the last part first quarter 2021.

[Deepa Venkateswaran, Senior Analyst]

Okay. Very clear. Okay. So one of it is commissioned now will get the CfD. The 1/3 of the capacity should get the CfD.

[Henrik Poulsen, President & CEO]

Deepa, regarding Taiwan, at the Capital Markets Day, I gave a relatively clear indication on where we are with the CapEx in terms of CapEx per megawatt. And that is still where we are. That's still our view on the expected CapEx for Changhua 1 & 2a. And that, of course, was a number excluding the OFTO. And then there will be an OFTO transmission asset investment on top of that number, which will not be dissimilar from what you would expect in the U.K. in terms of the OFTO CapEx ratio of the total CapEx investment. So that gives you sort of an indication as to where we are in Taiwan.

[Deepa Venkateswaran, Senior Analyst]

So Henrik, if I may just ask you how would that be consistent with the first answer that you gave that you're broadly happy with the offsets between a lower FID and the CapEx. That would suggest that obviously the FID has fallen versus your expectation in November last year. So would that not mean that the CapEx has to come down or more all else being equal?

[Henrik Poulsen, President & CEO]

I mean, we've been inching out improvements in the number of supply contracts and that has obviously given us some savings compared to the original case. But in order for that to maturely change our guidance on CapEx per megawatt, I'll be reluctant because then I start to get extremely specific in order to account for those improvements in the supply contracts. So rather than changing what we said at the CMD, I'd just say that we have seen some improvements. It doesn't give me a reason to change our guidance at the CMD. I'll just say we've seen improvements that are offsetting a good chunk of the PPA change and that still leaves us with what we consider a pretty robust business case on a risk-adjusted basis. Move to The Netherlands and green hydrogen project, we have signed a letter of intent on this project in case we were awarded the project. It's a project where we would, of course, invest in green hydrogen production, in this case, for industrial use. So that means it would be green hydrogen replacing black hydrogen in the production of different types of industrial products, chemicals. I think that's probably as far as I can go right now. Obviously, should we get the award, we would be able at that point to provide further details on this green hydrogen project.On top of that, we would, of course, go out and negotiate additional corporate PPAs on other parts of the volume from the project. The green hydrogen project would take up a certain part of the production, but of course, we would still pursue corporate PPAs for other parts of the total volume.

[Operator]

Our next question comes from the line of Peter Bisztyga of Bank of America Merrill Lynch.

[Peter Andrew Bisztyga, Head of Pan]

I have 3 questions from as well, if I may. First one, just a clarification on the guidance you gave at your Capital Markets Day vis-à-vis construction agreement revenues of DKK 2.6 billion to DKK 2.7 billion and also project development costs of DKK 1.8 billion. Are you still comfortable with that following the first quarter results?Second question, just a quick follow-up on Taiwan and the farm-down process. Are you looking for a financial partner here? Or are you looking for an industrial counterparty? And then, finally, on the Race Bank PPA, can you give us sort of any indication of price level for that? And are you looking at corporate PPAs for any other parts of your currently sort of merchant offshore fleets in the U.K.?

[Henrik Poulsen, President & CEO]

Thanks, Peter. Let me start just on the guidance provided on the construction gains and the DEVEX that we would expect for 2019. Those are numbers that we still stand by. When it comes to Taiwan, obviously, we do not have visibility on exactly who that buyer will be in the farm-down process. If I were to guess right now, I would expect a financial buyer to be more likely than an industrial buyer.When it comes to the Race Bank PPA, I cannot give you the exact price of the Northumbrian Water PPA. But we will, of course, continue to look for corporate PPAs that will help offset any merchant risk we have across our portfolio in Europe, not only the U.K., but obviously also in The Netherlands and also for potential future German FIDs.

[Operator]

Our next question comes from the line of Mark Freshney of Crédit Suisse.

[Mark Freshney, Research Analyst]

Can I please ask 2 questions. Firstly, I mean you're still tendering for projects, but how far away do you think you are from sanctioning an offshore wind project without a PPA? And I guess, Race Bank would potentially be the first candidate, do you think the extension for that you could next year potentially build it on the basis of a corporate PPA?And secondly, if I may, just a question on the U.K. operating assets. You still have a very large exposure to the U.K. 3/4 of your current business. I'm sure that you get lots of proactive approaches to buy -- completely buy out existing wind farms or people looking to take stakes in things like Hornsea 2 and even Borssele. Would you revise your plans not to farm down those projects if the right offers came along?

[Henrik Poulsen, President & CEO]

Mark, when it comes to sanctioning the first potential full merchant project, you could say the leading candidate would be the Holland Coast South 3 and 4 project where we submitted a bid into the tender in mid-March and at the same time the board of Directors made the final investment decision. So you could say if we get that project awarded, we have already made the FID. So that would essentially become our first FID on a full merchant project. As we discussed earlier, we already have progressed a number of initiatives to offset that merchant risk through contracts, be it traditional corporate PPAs, or as we discussed, a PPA going into green hydrogen production. So that would be the first such example.When it comes to potential additional farm-downs, we have no such plans above and beyond the Taiwan farm-down next year. One should never say never. It's not like I'm going to issue a guarantee that we would never again farm down in the European portfolio. All I can say is that we have no such plans at the moment. Of course, we are open for very attractive offers at any given point of time, but we don't have a need for farming down and therefore it would, indeed, have to be a farm-down opportunity that would add incremental -- substantial incremental value in its own right.

[Operator]

Our next question comes from the line of Sam Arie of UBS.

[Samuel James Hugo Arie, Managing Director and Research Analyst]

I think I want to say congratulations on another great set of results. I'm making a habit of saying that, so I'm not going to stop now. That's very good to see. My questions are just, firstly, you made a good comment about that grid disposal still going ahead this year, but your kind commentary on that was quite high level. I just wondered if you could give us a bit more color on where we are in the prospects for getting political support for a buyer and basically if you've got a solution now on the table, or if there's still a bit of debate there on exactly what would be agreed and any risk on getting that approved by the end of the year.And then, secondly, I wanted to just take a minute on your Slide 19, which I think is very helpful and just it says there your capacity and so on. What the slide is showing is you've got 8 gigawatts already installed for a total of 17, including all the awarded and in construction sites. So I just wanted to tie that back to your sort of broad guidance for 2030 of 30-plus gigawatts, which I think, was your guidance for constructed renewables. So I think, I'm understanding your 8 gigawatts, if you hit that it 30-plus target, becomes 30 in 2030. But unless the global renewables markets kind of suddenly falls off a cliff and I'm guessing that's probably not your central scenario, then it seems fair to assume your installed and in-construction and awarded project is more likely to be in the 40- to 50-gigawatt range by 2030 assuming just a run rate of 2 or 3 gigawatts of projects that you add to that per annum, which is about half of what you added in the last year, according to Slide 19. So can I check that logic is correct and particularly the 40- to 50-gigawatt number for end of the next decade?

[Henrik Poulsen, President & CEO]

Thank you, Sam, so much. On the grid disposal, we obviously discontinued the project that we had going earlier and we have spent the past couple of months just sort of putting that to bed and then taking a look at what are our options and obviously also just taking a fresh look at the political signals that we also have to take into account here. It's quite clear that there's no opposition politically to us disposing these assets. In fact, I think, there is stark political support that we should divest the assets. We are basically expecting to relaunch the process and run it during the second half of this year. Obviously, we're well prepared, given that we had everything up and running and all of the materials and data rooms, et cetera, have been prepared. So we are well prepared for running a relatively focused process once we get probably beyond the summer holidays. So our expectation will still be that we should be able to sign transactions towards the end of 2019. So that's still where we are. So we are relatively comfortable that we can execute these transactions as expected.When it comes to the build-out docket for 2030, I share your view that the global growth opportunity is very, very significant across regions, across technologies. We have set 30-plus gigawatt by 2030 of installed capacity. I'm not going to change that number today, you'd probably be surprised if I did. I'll say that at the Capital Markets in November, we said 30-plus and we stick to that number. We still believe that 30-plus is a very comfortable number for the company. And we have, we believe, a certain amount of visibility as we also tried to outline on Page 19 of how we are going to get well on our way towards that number. So I'm not going to change the number. I share your optimism as to the global growth opportunity. But we'll take it one step at a time and for now we feel the 30-plus is a good number.

[Samuel James Hugo Arie, Managing Director and Research Analyst]

Okay. So just to be clear, the 30-plus is comparable to the 8 today. And 17 today at the bottom of Page 19 is up to us to take a view of where that number could go, but sort of almost by definition, that should be quite far ahead of the 30?

[Henrik Poulsen, President & CEO]

That's correct, Sam. Yes.

[Operator]

Our next question comes from the line of Marcus Bellander of Nordea.

[Marcus Bellander, Senior Analyst]

One question from me. The acquisition of Coronal Energy, I was wondering if you could talk a little bit about the strategy that lies behind that business. You're planting a new seed for -- or a seed for this business area, kind of like you did with the onshore division or is it more of a way of complementing -- or completing the onshore business in the U.S. I mean there are quite a few hybrid projects surfacing at the moment. So I'm just wondering how you're sort of framing that acquisition?

[Henrik Poulsen, President & CEO]

Yes. Thanks, Marcus. Again, it's the development unit of Coronal Energy. It's a very experienced, arguably one of the most experienced and successful solar and storage development teams in the U.S. that we essentially have acquired together with the pipeline. And we very much see it as a complementary to the acquisition of Lincoln Clean Energy last year. Lincoln Clean Energy is progressing very well, and in fact, ahead of our expectations at the moment. And we believe the combination of onshore wind, solar PV and storage gives us a very strong platform for long-term growth in the U.S. And it adds to the capability that we have already acquired through Lincoln. The Coronal solar storage development team will be merged into the Lincoln platform also organizationally. And to the point you made, we do see a future where demand from major corporate PPA off-takers increasingly will focus on having more of a 24/7 green load profile where we should be able to combine the complementary load profiles of solar PV and onshore wind and overlaying storage to further build a more smooth around-the-clock green low profile for our major corporate customers. We believe that is going to be a part of the future in the U.S. and elsewhere. And you should see this acquisition in light of that strategic market development.

[Operator]

Our next question comes from the line of Iain Turner at Exane.

[Iain Stewart Turner, Analyst of Utilities]

Can I just ask you again about Hornsea 1. If I look in ELEXON, I can see that there's a 400-megawatt offshore substation taken up into the system. So does that mean all those turbines that you said are now complete or actually generating? And if they are, when do you think you get to the 400 megawatts under the first tranche of the CfD?

[Henrik Poulsen, President & CEO]

Yes. The turbines installed are generating power and the first tranche of the CfD will kick in during this month, during May 2019.

[Operator]

[Operator Instructions] We have one further question coming for you at this time that's from Klaus Kehl at Nykredit Markets.

[Klaus Kehl, Chief Analyst]

Two questions from my side. Could you talk a little bit about the competition in the ongoing auctions around the world? And perhaps talk a little bit about whether you are seeing a more aggressive approach from, for instance, the oil companies, which recently have become a little bit greener than they used to be? And secondly, could you give us your thoughts about the U.S. onshore market and going forward. And what I'm thinking about is that if you were to add little projects there, you would have to do that with a much lower PTC level. So how would that affect the profitability levels? And would it should be interesting for you to add new projects. That would be my 2 questions.

[Henrik Poulsen, President & CEO]

Thanks, Klaus. On the competition, I mean, it's quite clear that we see different competitive structures in the different regions and markets around the world. If you go to Taiwan, you'll find one set of competitors. If you go to certain European markets, you'd see differences even just between the U.K. and Mainland Europe. And then moving on to the U.S., you will have a whole third picture. In the U.S., it's quite evident that the oil majors have decided to enter the market, most notably, Shell and Equinor so far. So clearly, they are showing their determination to move into offshore wind, and quite clearly, the auction outcomes in the U.S. over the next few months will be a first indicator as to how that's going to play out. So obviously, too early to tell. We'll be holding our breath like everybody else to see the outcome from New York and New Jersey at least. So we have some exciting months ahead of us here. But no doubt competition is going up, but at the end of the day we should not forget that so is global demand. We continue to see a significant expansion of the global offshore wind market. So you should see, let's say, the supply from more players entering the market also being matched by a significant ongoing increase in global demand for offshore wind.When it comes to U.S. onshore, we're still building 100% PTC projects at the moment, that also includes the safer Sage Draw FID yesterday. We have a pipeline of 60%, 80% PTC projects still to be built towards 2022. So for the next few years, we'll be building projects with between 60% and 100% PTC support. Beyond the PTC expiry, there is no doubt that the market will need to go for realignment. Right now, corporate PPAs are being struck at prices that are very low and I will claim are very attractive to the corporations buying green power at very low prices due to the PTC support. Over time, we should see the PTC support being -- as it disappears, should be offset by a realignment of the price on corporate PPAs as well as the continued reduction in cost of electricity and onshore wind. So I'm still firmly convinced that onshore wind fundamentally is hugely competitive technology from a cost-of-electricity point of view long term. And I also have no doubt that, that will continue to be a strong market in the U.S. also beyond PTC.

[Operator]

And we have one further question coming through, that's from Virginia Sanz de Madrid of Santander.

[Virginia Sanz de Madrid Gross, Equity Analyst]

No. Sorry. My question has been answered already.

[Operator]

And as there are no further questions at this time, I will hand back to our speakers for the closing comments.

[Henrik Poulsen, President & CEO]

All right. So this concludes the earnings call. Thank you all very much for joining, and have a continued great day.