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Hello, and welcome to this Ørsted Q1 2020 Earnings Call. [Operator Instructions]. So today's speakers are the CEO, Henrik Poulsen; and the CFO, Marianne Wiinholt. Please begin.
Thank you so much, and good afternoon, everyone, and welcome to this earnings call. I hope you're all safe and in good spirits despite these unusual and challenging times.Despite the COVID-19 crisis and its profound impact on societies around the world, we have had a very good start to the year with strong financial results and solid operational performance across the entire business. I'll give you an update on the effects of COVID-19 shortly, but let me start by summarizing the first quarter highlights.EBITDA for the quarter amounted to DKK 6.8 billion, which is an increase of 33% compared to last year. The increase in EBITDA was mainly driven by our offshore and onshore wind farms in operation, where we see a year-on-year increase of 25% driven by ramp-up in generation from mostly Hornsea 1, but also Lockett and Sage Draw and that was further impacted by high wind speeds in Europe throughout the quarter. The strong financial performance in first quarter keeps us well on track to reach our full year EBITDA guidance of DKK 16 billion to DKK 17 billion. And at this point in time, we have no indication that the COVID-19 situation will significantly impact our full year earnings, and thus, we reiterate our 2020 EBITDA guidance.These first quarter results demonstrate the robustness of our business model and the strength and execution capacity of our organization. Not least the frontline employees who have kept all our operational activities moving forward under challenging circumstances. The continued build-out within our offshore and onshore businesses brings our green share of heat and power generation to a record high 90% for the first quarter compared to 80% in the first quarter last year. The increase once again underpins our commitment to a world that runs entirely on green energy, and it brings us 1 step closer to our 2025 target of a completely carbon-neutral generation.On the back of our memorandum of understanding with TEPCO, we have now entered into an agreement to establish a joint venture company for offshore wind in Japan with the intention of working towards a joint bid in the first Japanese auction expected towards the end of this year. The JV is a significant milestone for our market entry in Japan, and we're looking forward to supporting Japan's ambitions for renewable power generation.In the Netherlands, we have started the installation of turbines and achieved first power at the 752-megawatt Borssele 1 & 2 offshore wind farm yesterday. The COVID-19 crisis has made the construction of the wind farm more challenging than anticipated, but the project team is working hard to progress the turbine installation on time without compromising health and safety standards, and the project is well underway.Earlier this week, we signed a 15-year inflation index, fixed price agreement with Nestlé U.K. Starting in May 2020, Nestlé will buy the output of 31 megawatt from our Race Bank offshore wind farm, corresponding to 125 gigawatt hours of green power per year. This will cover 50% of Nestlé's U.K. power consumption. The PPA is our largest long-term fixed price PPA in the U.K.In March, we commissioned our 338-megawatt Texan onshore wind farm, Sage Draw, on time and on budget. The 120 wind turbine project will have the capacity to meet the annual electricity needs of 120,000 households.We continue to explore industrial scale production of green hydrogen. In the U.K., we have secured GBP 7.5 million in funding for Phase 2 of the renewable hydrogen project, Gigastack. The project enables us and our partners to conduct a front-end engineering design study on a 100-megawatt electrolyzer using renewable energy from the Hornsea 2 offshore wind farm.In Denmark, we are working on the H2RES project together with our partners, and we have received funding for the construction of a 2-megawatt electrolysis plant, including hydrogen storage. The electrolysis plant will generate renewable hydrogen for buses, lorries and possibly taxies.In addition to the funded projects in Denmark and the U.K., we are involved in other early-stage renewable hydrogen projects in Germany and the Netherlands. We remain excited about the significant potential we see in renewable hydrogen to decarbonize industrial processes and replace fossil fuels within hydrogen based -- with hydrogen-based e-fuels for heavy transportation and aviation. At the end of March, the Copenhagen Maritime and Commercial Court decided to close the action for damages in our favor in the Elsam case. The action for damages related to acclaimed abuse of a dominant position on the market for wholesale power between 2003 and 2006. We're very pleased with the court's decision and see it as a natural outcome in continuation of the preceding acquittal from the competition authority's claim on this matter. However, we were informed earlier this week that the claimants have decided to appeal the case to the Supreme Court. Turning to Slide 4 and an update on COVID-19. On March 25, we provided the market with an update on our operational and financial situation and gave an overview of the risks related to COVID-19, which could potentially impact our business. Obviously, the situation is constantly developing, and we remain vigilant about the unfolding crisis, but let me just take you through the development since our last market update.I'll start by highlighting that our asset base, despite COVID-19, is still fully operational at normal availability rates with the 25% increase in EBITDA from offshore and onshore wind farms also underlines. While the necessary extensive measures to protect the health of our employees will continue to challenge our operations, we remain optimistic about being able to maintain normal availability rates across our operating assets. As our power generation is almost fully hedged the first couple of years, the price volatility seen in the market has had a very limited impact on our financial results for Q1 and is not expected to have any significant impact for the remainder of the year.With cash, cash equivalents and committed credit facilities of approximately DKK 30 billion at the end of Q1, we have sufficient financial resources to continue our day-to-day operations and investment program through 2020 and 2021 without further funding. We will not rule out that we will take up further funding over the next couple of years, but we are not under any pressure to do so, and we can await the right timing.Since the market update in March, we have seen some new developments on the risks we highlighted. These risks are primarily related to our construction and development projects. Our construction projects all remain on track. But on a couple of the projects, we do see an increased risk of component and service delivery delays from suppliers impacted by COVID-19. In Singapore, 2 shipyards manufacturing the substations for Hornsea 2 and Greater Changhua 1 & 2a have been temporarily closed due to the COVID-19 outbreak. At this point in time, we don't expect these shutdowns to have a critical impact on the 900-megawatt Greater Changhua 1 & 2a time line, whereas the Hornsea 2 construction time line is somewhat more at risk, although it is still too early to conclude.Our onshore solar and storage project, Permian Energy Center, is partially supplied with solar panels and inverters from Malaysia and India, respectively. The delivery of these components could potentially be delayed due to factory shutdowns caused by the COVID-19 virus. Currently, the scope of the delay is not considered to be critical, and we still expect to complete the Permian Energy Center in 2021. We collaborate closely with all our partners to mitigate these situations as best possible and without compromising health and safety standards. Based on our current outlook, it is our assessment that the COVID-19-related impact on the construction projects will be limited both in terms of timing and economics. Turning to our development pipeline, where we currently have the most notable impact from COVID-19. As we have previously communicated, our offshore development projects in the U.S. are moving forward, although at a slower pace than originally expected, due to a combination of the Bureau of Ocean Energy Management's prolonged analysis of the cumulative impacts from the build-out of U.S. offshore wind and now also COVID-19 effects. The 2 earliest projects in our pipeline, the 120-megawatt Skipjack project in Maryland and the 130-megawatt South Fork project in New York are mostly exposed to the risk of delays. For Skipjack, it is no longer realistic to receive the notice of intent from BOEM in due time to meet the commissioning date in late 2022. The notice of intent is the first important milestone towards receiving the final permit, the so-called construction and operations plan approval. Therefore, we now expect to commission the wind farm approximately 1 year later.Likewise, although we have received the notice of intent for the South Fork project, which is also planned for a 2022 commissioning date, we have not received a confirmed permit schedule from the federal government, outlining when the construction and operations plan approval will be received. This, combined with impacts from the COVID-19-related shutdowns in New York, will also very likely delay South Fork to beyond 2022. Although delays are never helpful for value creation, we expect the overall impact on the economics for both of these projects to be contained.For our largest awarded U.S. development projects, Revolution Wind, Ocean Wind and Sunrise Wind, with expected commissioning in 2023 and 2024, we also see increased risk of delays. We have submitted our COP applications for Ocean Wind and Revolution Wind and are awaiting BOEM to issue their notices of intent for these 2 projects outlining the time line to get to a COP approval. For Sunrise Wind in New York, we are currently unable to progress our offshore site surveys due to COVID-19 restrictions, which adversely impacts our COP application process. So for these 3 projects, we need more visibility on the path to COP approval before concluding on whether the current commissioning timing in 2023, '24 remains realistic. We expect to have more clarity on this matter after summer. Finally, we have, as a precautionary measure, taken a DKK 100 million provision for bad debt to cover the COVID-19-related default risk among our customers in our B2B business. Turning to Slide 5, where I will give an update on the offshore construction projects currently in progress. At our Dutch Borssele 1 & 2 wind farm, as I mentioned, we installed the first turbine earlier this month, and we have now installed 7 out of the 94 turbines. As mentioned, we generated first power yesterday and expect the wind farm to be completed on time by the end of Q4 this year. At the Virginia EPC demo project, the foundations and turbines are on the way to Halifax, Canada from where they will be loaded out to the construction site. And at both Hornsea 2 and Greater Changhua 1 & 2a, we continue the onshore construction work on schedule. In April, we signed a 15-year contract with Ta San Shang Marine chartering the shipping company to build the world's first-ever Taiwan-flagged service operation vessel for the operation and maintenance of our Greater Changhua offshore wind farms. Turning to Slide 6 and an update on construction projects outside offshore. In onshore, we continue to see good progress on our 3 construction projects. And the on-site construction teams are working well with effective social distancing measures in place. Despite the challenges I alluded to before, we still expect to complete Plum Creek and Willow Creek during 2020 and Permian Energy Center in 2021. At Plum Creek, we have installed 46 of the 82 turbines. At our Renescience facility in the U.K., the plant is now ready to be put back into operation following a number of upgrades to the facility. We expect the plant to be commissioned later this year. The plant is currently de-manned due to the COVID-19 situation, but we will resume the ramp-up of production as soon as the situation allows for it. Moving to Slide 7 and an update on market development and upcoming auctions. Usually, I go through 3 regional market development slides, but as there have been limited new developments in recent months, I will cover the most significant highlights together with the update to the time line for auctions and tenders in 2020 and 2021. The market development slides can be found in the appendix to this presentation. We are still looking into a very significant number of auctions and tenders in 2020 and 2021 as most countries and states stick to the original time line despite the COVID-19 situation.In Europe, the bid deadline for the tender of Holland Coast North 1 is due tomorrow, and we intend to join the tender. The COVID-19 crisis has caused a decrease in power demand and commodity prices, and it will have a deep impact on the global economy. However, we do believe the world will recover from the crisis over the next couple of years. And on this basis, we will continue to take a long-term view on the investment opportunities we see in the market across regions and across technologies. We believe financially robust companies that maintain a long-term view on the market are likely to find additional opportunities in the wake of the current crisis.When assessing these opportunities, we are looking to build a global portfolio of high-quality assets, which is diversified along several risk dimensions. Risks considered include, among others, sovereign risk, currency, consenting and permitting, construction, supply chain maturity, interconnection and transmission access, merchant price exposure and stakeholder complexities. The Dutch project up for tender is low-risk on essentially all other dimensions than merchant price exposure. As we seek to build a global project portfolio with a balanced profile across all risk dimensions, we currently see a role for a project with the characteristics offered by the Dutch project. It goes without saying that I cannot go into details about our bid, but I believe we made a strong proposition to the benefit of the Dutch society and environment. Should we win the tender, we will leverage our market-based set of hedging strategies as well as the corporate PPA market to balance out the merchant exposure.Looking towards the U.S., where Maryland has announced a target of approximately 1.6 gigawatt offshore wind capacity by 2030, of which 1.2 gigawatt remains available. Auctions are planned for first half 2020, 2021 and 2022, respectively, with at least 400 megawatt in each auction. In Virginia, Governor Ralph Northam has signed the Clean Economy Act for development of at least 5.2 gigawatt of offshore wind by 2034. Roughly half of the capacity will be developed and owned by Dominion Energy, whereas no plan has been published for the remainder of the capacity.In New York, NYSERDA has been authorized to start procurement of up to 2.5 gigawatt offshore wind capacity. In the beginning of this week, the agency decided not to accelerate the opening of the auction amid COVID-19 concerns. However, we still anticipate the auction to proceed over the course of second half this year.As mentioned in the beginning of the call, we have established a JV for offshore wind in Japan with TEPCO. Due to a prolonged site designation process and a pending announcement of the final auction design, we now expect the qualification of prospective areas to take place during second quarter this year, ahead of an expected auction towards the end of the year.Finally, turning to Belgium, where the government recently set a target to allocate 2.2 gigawatt of offshore wind by 2022 and 4 gigawatt by 2030. Auctions are expected to take place in 2021 and 2022, but the auction framework is still to be announced. With this, I will now hand over the word to Marianne.
Thank you, Henrik, and good afternoon from me too. Let's start on Slide 8, where I will go through the EBITDA for Q1 2020. In Q1, we realized an EBITDA of DKK 6.8 billion, an increase of DKK 1.7 billion on Q1 '19, corresponding to a 33% increase. In offshore, the EBITDA for the quarter totaled DKK 5.6 billion, an increase of DKK 1.3 billion. The earnings from operating wind farms increased 25% compared to last year, driven by the ramp-up of generation from Hornsea 1 as well as very high wind speeds in the quarter. Wind speeds amounted to a portfolio average of 12.1 meter per second, which is above a normal wind year of 10.4 meter per second. Availability ended at 93%, which was below Q1 '19. The lower availability in Q1 2020 was driven by Hornsea 1 due to cable replacement campaigns and Borkum Riffgrund 2 due to largely compensated transmission outage.Earnings from partnerships total DKK 1.1 billion compared to DKK 0.9 billion in Q1 2019. The construction agreements in Q1 2020 primarily related to the updated assumption regarding the divestment of the transmission assets for Hornsea 1. These changed assumptions also form the basis for the DKK 1 billion increase in our full year EBITDA guidance in early March. Other, including project development costs, amounted to a negative DKK 0.4 billion. The lower level relative to Q1 '19 was mainly due to higher expense project development activities in the U.S. and Taiwan in Q1 '19.In onshore, EBITDA totaled DKK 187 million, an increase of DKK 36 million on Q1 '19. The earnings increase of 24% was primarily due to ramp-up of generation from Sage Draw and Lockett. The wind speed for the portfolio was 7.5 meter per second, below the normal wind speeds in Texas and below the wind speeds in Q1 '19. Availability across the portfolio came in at 95%.EBITDA in Markets & Bioenergy was DKK 933 million, an increase of NOK 249 million. The earnings from our gas activities increased DKK 528 million, and this was mainly due to a less negative effect from revaluation of our gas storage as gas prices had a steeper decline during Q1 last year than it had this year as well as a positive effect from storage hedges. This was partly offset by lower earnings due to the shutdown from late '19 until 2022 of the 2 gas fields as well as the provision for bad debt, which Henrik mentioned, of DKK 100 million in our B2B business to cover the extraordinary default risk among our customers due to COVID-19.EBITDA from Distribution, B2C and city light increased by DKK 0.1 billion mainly due to lower costs. As in Q4 '19, earnings from trading-related to hedging of our power exposures and power portfolio optimization activities in relation to offshore and onshore are presented in these business units. In Q1 2020, EBITDA of DKK 195 million and a negative DKK 10 million were transferred to -- from Markets & Bioenergy to offshore and onshore, respectively, while DKK 390 million was transferred to offshore in Q1 '19. If we then turn to Slide 9 and our financial performance and net interest-bearing debt. Net profit totaled SEK 3.3 billion, a DKK 0.7 billion increase compared to Q1 '19. The higher EBITDA was partly offset by higher depreciation, driven by more wind farms in operations and higher financial expenses. Free cash flow from continuing operations was negative DKK 5.7 billion in Q1 2020. Cash flow from operating activities came in at negative DKK 0.4 billion, mainly driven by the EBITDA being more than offset by funds tied up in work in progress on construction agreements and changes in the value of derivatives. Furthermore, DKK 1.3 billion was paid on account of tax in Denmark in Q1 2020.Our gross investments for the quarter totaled DKK 5.3 billion primarily related to our offshore projects, Borssele 1 & 2, Hornsea 2 and Greater Changhua 1 & 2a, as well as our onshore projects, Sage Draw, Plum Creek and Permian Energy Center. Our net debt at the end of the quarter amounted to NOK 27.1 billion. The DKK 9.9 billion increase in the quarter primarily reflected the negative free cash flow, as just described, as well as the distribution of NOK 4.4 billion in dividends to our shareholders. We had a positive impact from exchange rate adjustments of DKK 0.4 billion.Let's move to Slide 10, which shows our financial and non-financial ratios. Our key credit metric FFO to adjusted net debt stood at 21% for the 12-month period ending in March. The low level is primarily because it includes the majority of our current tax regarding 2019. For the full year, we still expect the credit metric to be in line with our target of around 30%. Our return on capital employed came in at 11%. The decrease compared to the same period last year was because of the lower EBITDA over the 12-month period, which in Q1 2019 was significantly impacted by the farm-down from Hornsea 1 in Q4 2018. This return level is around our target of an average return on capital employed of approximately 10% for the group in the period '19 to 2025.Our greenhouse gas emissions continued to decline due to our continued build-out of offshore and onshore wind. And we remain well on track to meet our scope 1 and 2 targets in 2025. Our target is to be carbon neutral in 2025 by neutralizing these last emissions with carbon offsets.As always, safety is high on our agenda, and we do our utmost to prevent accidents and injuries. Over the last 12 months, the total recordable injury rate, also called TRIR, amounted to 4.7, which was an increase compared to the same period last year. However, we are off to a better start this year as the recordable injury in Q4 2020 fell by 18% compared to last year. Our target is to reduce this rate to 4.2 or lower by 2020 and to 2.9 in 2025. Slide 11 recaps our 2020 EBITDA and gross investment guidance as well as our long-term financial estimates and policies. As I already mentioned, we increased our EBITDA guidance from DKK 15 billion to DKK 16 billion to DKK 16 billion to DKK 17 billion on March 4 due to the updated assumptions regarding the divestment of the transmission assets for Hornsea 1. Our directional EBITDA guidance for offshore is still lower compared to 2019, but we now expect earnings from existing partnerships in 2020 to amount to approximately DKK 1.2 billion. In the annual report for 2019, earnings from existing partnerships in 2020 were expected to be limited. The directional EBITDA guidance for onshore and Markets & Bioenergy is unchanged relative to the guidance in the annual report for '19. Our gross investments guidance is unchanged relative to our guidance in the annual report, and gross investments are expected to amount to DKK 30 billion to DKK 32 billion.I will now hand back the word to Henrik.
Thank you, Marianne. On a final note, let me just again emphasize that Ørsted is a strong company with a resilient business model, and we are in a much less vulnerable position than many other sectors that regrettably are deeply impacted by this crisis. However, the impact of COVID-19 will have material ripple effects throughout all economies and sectors. And you can rest assured that we will not be complacent about its potential impact on Ørsted. We are obviously far from through the crisis, and there is still a huge task ahead as societies around the world seek to contain the spread of the virus, while also taking action to minimize the economic setback and start gradually easing the restrictions on our mobility, work-life and our social life. The severe economic and social impact of COVID-19 will be felt for quite a while, but I remain absolutely convinced that the world will soon be on a path towards recovery, maybe with some lessons learned and reflections that will stay with us for the long term.It remains to be seen how COVID-19 will impact the speed of the global transition to green energy. Based on the segments we have received to date, it seems likely that many governments will seek to tackle the COVID-19 crisis and the climate crisis at the same time through comprehensive, future-oriented investments in sustainability. We will see a temporary decrease in global power consumption during the crisis and a subsequent recession, and we will likely also see some delays to auctions and permits, but it will not materially change the long-term growth of renewable energy. Climate change remains a profound and pressing challenge for the planet and based on the dramatic price improvements in recent years, the build-out of wind and solar power have become a cost-effective way of decarbonizing societies while driving local economic activity and job creation. As such, we are convinced that the public and political focus on sustainability and green investments will remain strong.On that note, we will open up for questions. Operator, please.
[Operator Instructions] Our first person is the line of Casper Blom at ABG Sundal Collier.
[Technical Difficulty]
Sorry, Casper, could you repeat that question? Your line just went. Okay. We seem to have lost the line of Casper. So we go over to the line of Mark Freshney of Crédit Suisse.
If I could ask 2 questions, please. Firstly, if the U.S. pipeline gets pushed back by a year, presumably, there is also scope to potentially lose the subsidies, but going the other way, use later variants of some of the turbines that you would have earmarked. So can you talk about how the economics may change or improve? And secondly, just with regards to the U.S. onshore market, I think it's becoming clear that OEMs are declaring force majeure. Not everybody who wants North American turbines will get them this year. Can you talk about how that may impact PTC accreditation and project returns? And whether, from an industry perspective, you could get an extension or if there are any loopholes that would enable you to accredit under the safe harbor?
Thanks, Mark. On the U.S. pipeline, again, it's clearly -- it's way too early to conclude anything on the schedule for the large projects, the 3 large projects. We're still working towards delivering them on the current COD schedule. But that does require that we start to soon receive some of these permits that I alluded to earlier. If we don't, obviously, at some point, it will cause a delay. That may not be a full year delay. Those could be also shorter delays than that. So the impact of any potential delays remains to be seen. We'll obviously be hard at work to mitigate any negative effects from any potential delays. We don't see any of the PPAs being at risk. We have good flexibility in these PPAs to work with the different states to still deliver on an extended time line. So that is not a concern for now. When we look at mitigating the impact of any potential delays, we will, of course, also be looking at any potential upsides that we may have in terms of bringing even newer technology into the offshore wind farms. So we'll, of course, make good use of any extended time lines in that regard. When it comes to the onshore market, we have good visibility on turbine deliveries for Plum Creek. In fact, we have the vast majority of turbines available at site already. So we are not concerned about our ability to deliver Plum Creek this year. We also continue to receive positive signals with regard to turbine deliveries for Willow Creek and those turbine deliveries are only a few weeks away now. So we're also optimistic about our ability to deliver Willow Creek on schedule later this year. So again, we see very little risk here. If there was a 1-year extension, which is being discussed in the U.S. at the moment, it would obviously add further cushion to our 100% PTC projects at the moment. And such an extension could potentially also have other positive effects in other parts of our development portfolio.
We now go to the line of John Musk at RBC.
Yes, apologies for some background noise. Two quick questions. Firstly, can you update on the potential farm-down in Taiwan? Is that being impacted by anything related to COVID in the near term? And then secondly, is there any further guidance you can give on the development of net debt to year-end, in particular, with some of the funds that are tied up in work in progress. Obviously, the balance of CapEx that needs to go out. Should we be expecting that net debt figure to rise into the year-end?
I'll start out on the Changhua 1 farm-down. It continues to progress. We have seen some reduction of pace due to COVID-19, preventing us from meeting and traveling. But despite this, we still continue to progress the transaction at decent speed. So we don't expect any material delays to the transaction, which also means that we would still expect to sign it before the end of this year. Closing would still most likely be first half of next year.
Yes. And then on the net debt development, we will have the proceeds from the divestment of Radius and then customers coming in, in the second half. And then we have the very high level of investments. So of course, it's very difficult to predict, but more or less a flat level, it's probably not an unreasonable expectation.
Okay. We now go to the line of Rob Pulleyn at Morgan Stanley.
Two quick questions. The first one, just following up on the Taiwan question, highlighting that you are progressing. Is there any room for an evolution in the valuation discussion there? Or is that fairly locked in, obviously, given the change in the shape of the world? And the second question, if I may, is, are the slippages in the U.S., particularly on the admin side around permits? Do you consider, at this stage, this is a one-time slippage? Or could we see ongoing delays as government bureaucracy and bottlenecks take time to sort of resolve and debottleneck?
Thank you. On the valuation, we don't see any room really for renegotiating the value of the Changhua 1 farm-down. So that is not part of the process. On the U.S., what we see at the moment is, obviously, first and foremost, the impact from the cumulative impact assessment that was initiated in August last year and which has been extended, and we now expect it to be published in June this year. And following that, we would expect permitting to progress across the different development projects in the U.S. So once we are on the other side of that, we would expect permitting to start picking up. So we consider this a one-off situation and, as I alluded to earlier, too early to tell whether it will impact the 3 large projects and, if so, to what extent. But we don't see it as an ongoing series of delays. That's not what we expect.
Okay. Next is from the line of Thomas [indiscernible] from Union.
A brief question regarding the 3 U.S. projects, Revolution Wind, Ocean Wind and Sunrise Wind. Could you please remind me of the capacity of the various projects, please?
Yes, I just have to think from the top of my head now. So Revolution Wind is a 704-megawatt project, and Ocean Wind is 1,100, and Sunrise Wind is 880. I got it right?
Yes.
Okay. The next question is from the line of Klaus Kehl at Nykredit.
Two questions from my side. First of all, we're seeing pretty low power prices, yes, these days due to the corona outbreak. And you will bid in the Dutch auction, yes, in the coming days, which is without subsidies. But let's just assume that prices, they stay low for the next 5 years, then what? Are you allowed to walk away if the economy doesn't make any sense? Or how does such an auction actually work? That would be my first question.
Yes, should I answer that first, Klaus? Then I'd say we have a very prudent view on what we would expect from future power prices. If you look towards 2023 and beyond, the forward curve pre-corona to the current forward curve is down by 2%, 3%, 4%. So the market is pricing in close to a full recovery of power prices to pre-outbreak levels. On the current forward curve, we still believe that this is a project that will allow us to generate meaningful value. And as I alluded to, we also do expect that we'll be able to offset part of the merchant exposure, both through our hedging strategies and also in the corporate PPA market, potentially a PPA market also supported by future build-out of green hydrogen. So we see different strategies that make us quite comfortable about the value-creation potential. As I said, we are balancing out a number of different risks when we compose our global asset portfolio. And of course, merchant price exposure is a very significant risk to be considered, and it's a very visible risk, but we face a number of other risks whenever we engage around the world. And we are seeking to basically create a portfolio which is well diversified across all of these risk dimensions. And at the moment, we have very little merchant risk in our portfolio. And also going forward, we will still have limited merchant share in our portfolio. You have to bear in mind that we are still building the vast majority of our volumes based on long-term fixed-price contracts at the moment. If we were to see a power price environment, which is below our expectation, it is not a reason for us walking away from the project. The framework wouldn't allow for that. So once we take on the risk, we take it on.
Okay. Great. And then my second question would be, you have had a pretty solid start to the year. And yet you only reiterate your guidance for the full year. So would it be fair to say that either perhaps guidance is a bit conservative or at least you're pretty certain that you will reach the target? Or is there some risk factors in the coming quarters that I'm missing?
Well, I think there are a couple of angles to the answer, Klaus. One is that it's still early days, right? I mean, we're only 1 quarter into the year. So we don't want to get ahead of ourselves. Secondly, even if you have very strong wind quarters or wind month, it tends to even out a little bit over the course of the year. So on a full year basis, we don't see huge fluctuations in the total wind content. So whatever we are ahead after Q1, we could still lose some of that during the balance of year. And then third and finally, it's quite clear that we are going through a very unpredictable situation with COVID-19. And even if we feel we are very robust and well on top of it. Again, we don't want to get complacent about operating in this type of environment. So when you add those factors up, we feel it's prudent to "just" maintain our guidance.
We now go to the line of Peter Bisztyga at Bank of America Securities.
Just 2 questions from me. Can you just remind us when you expect to make your final investment decision on your German zero-subsidy projects? And is your view of these projects sort of based on exactly the same conversation that we've had on this call about your -- the Dutch zero-subsidy auctions? So do you see the economics of those German projects as unchanged long term? And then a question on your bad debt provision that you've taken for your B2B customers. It sort of seems quite low in absolute terms. So I was just wondering what sort of bad debts do you normally see. What are you experiencing at the moment? And what sort of assumptions have you used to make this provision?
Thanks, Peter. With regard to the FID on the German development projects, we would expect to make those decisions during 2021. Our appetite for the German projects has not diminished. We continue to progress them, and we continue to develop both the technical concepts and the commercial equation and the business case. As you know, we have also been signing corporate PPA contracts against part of Borkum Riffgrund 3. So also, again, when we look at the total portfolio composition across offshore, onshore wind and solar across regions, we see room for this exposure in our total asset portfolio. So no change in our attitude and approach to the German projects.
Yes. And then you had a question on the bad debt provision. We have accounts payable balance of approximately DKK 1 billion. And now we have made DKK 100 million on top of our normal provisions. So -- and we have made a quite conservative view because we have quite a prudent credit policy when it comes to our B2B business. So I would say I very much still consider this to be a conservative provision.
Okay. Our next question is from the line of Marcus Bellander at Nordea.
Two questions, if I may. First, regarding the Dutch auction, I just read that Vattenfall has decided not to participate. And Vattenfall has been a pretty eager participant in the Dutch auctions so far. Is there anything materially different about this auction compared to the past ones? And then my second question, just a detail, you write in the report that pretty weak earnings from heat and power generations in Bioenergy was offset by increased sales of ancillary services. And I'm just wondering if you could add some color to that. Why there was more ancillary services sold in this quarter and whether that's sustainable?
Thanks, Marcus. With regard to the Dutch tender, there are no material changes to the format of this tender compared to previous tenders. Obviously, I cannot comment on Vattenfall's decision not to join the tender. I'm sure they have their strategic and financial considerations behind that. And obviously, they have also taken 2 of the previous tenders in the Netherlands. When it comes to heat and power generation, Marianne, you?
Yes. We have -- after we have seen an opening of the transmission lines to Germany, which we have done over the last, I think now it's 1.5 years or something, we have seen an increased demand for ancillary services. And for us, it looks quite sustainable. Of course, you can never rule out how things will develop going forward. But over the last period, we have seen very strong demand for ancillary services. And we have also been successful in winning these tenders that Energinet DK are running for these services.
The increased capacity on the Danish German interconnector means that we are able to deliver more ancillary services to help balance out the northern part of the German grid. So we are also now essentially providing services to help balance out Germany.
Okay. Our next question is from the line of Sam Arie at UBS.
Congratulations again on a great set of results. I've got one sort of niggly detailed question and one bigger picture. The niggly detailed one, and forgive me if I've missed something, but as I remember, the Radius disposal, you talked about the proceeds in the second half, but I think that deal is not actually closed yet. So can I just check, is that closed or not closed? And is there any risk that it wouldn't close? Or are we -- can we sort of be 100% confident that, that goes through as expected? That's my niggly question, and I'm sure the answer is yes it's fine, but please confirm.
Yes. You're right, it's not closed. It's signed, but not closed, but the regulatory process is progressing well. So we expect it to close in the second half, and we are very certain that we get the proceeds.
Okay. Very good. That's what I was hoping to hear. And then if I may, on a sort of slightly bigger picture question. When we last met, I think you said that one of the main questions you've been getting from the market at that time was about the risk of oil majors coming into the sector with ambitions to grow renewable business. I think it's interesting recently, we've seen several of the oil companies repeating their renewable objectives despite the obvious pressures, I guess, that they face at the moment. So my question is just -- is this really -- do you see this as a threat? Or do you think there's a different way that you might look at this over time? For example, would you be open to some kind of longer-term partnership or a joint venture with one of the oil companies? And if that's on the radar, what could they offer you that you don't already have or that might be interesting to you?
Thanks, Sam. Again, it's difficult to start speculating about how the oil majors will be impacted by the current crisis in terms of their commitment to a strategic pivot towards green energy. On one hand, you could say they will be under even more pressure to accelerate the pivot. On the other hand, they will be basically struggling to generate the same type of cash, if any, from their core business. So they will also be busy sort of just keeping the core business intact and in decent shape. And for the time being, they're also seeing, obviously, a pickup in their cost of capital. So there are a number of things that obviously will weigh into how they're going to approach this. And clearly, I'm not going to pretend that I'm an expert on how they will behave in the years to come. They are undoubtedly still going to move forward with green investments. So they will be part of our industry. We welcome that. We're going to need a lot of capital to transform the global energy system. And in some cases, they will be competitors as we have already seen last year and the year before. In other cases, we may collaborate. You know that we have had a joint bid in the Dunkirk tender in France with Total. So we basically see them as we see most other competitors.
Okay. Our next question is over the line of Casper Blom at ABG Sundal Collier.
I'll try again, after I got disconnected previously. Sorry about that. Basically, it's just 2 follow-up questions on previous questions asked. Following up a little bit on Sam's question here on the oil majors. Have you seen any changes at all to sort of the competitive behavior over the last 1, 2 months? Or is it simply too early to talk about that both when it comes to oil majors and more traditional competitors? And then secondly, in the U.S., as you wait for the regulator to finish up on Skipjack and South, have -- do you see any risk or scenario where they end up with a decision that would be, in any way, costly for us -- for you? I mean, basically changing the layout or requirements on how to build offshore wind in the U.S.
Thanks, Casper. On the oil majors, again, we haven't really been able to detect any change to behaviors. Again, you have to bear in mind that our ability to decode competitive behavior is very much linked to the tenders and the auctions. And there, we have seen little activity since the outbreak of the COVID crisis. If anything, you could look at the Dutch tender with deadline tomorrow, a couple of the traditional players have publicly stated that they are not going to join, but I'm not sure I would read too much into it. I'm sure there will still be pretty intense competition in that Dutch tender. When it comes to the regulatory process in the U.S., we have already been going through some modifications to the layout of the U.S. offshore wind farms, most notably the spacing between the turbines, where we have already accepted to use a wider spacing to accommodate other key stakeholders, including fisherman and the coastguard. So for now, I would not expect us to see any additional changes of that nature.
Okay. Just to follow-up on that, Henrik, when you change the layout like that, is that -- does that make the project more expensive for you to build? Or is it basically just a matter of taking up more space and, thereby, leaving less space for future projects?
It is mostly a matter of using more acreage. Taking away space from future projects, you may have additional costs for site surveys and the cabling infrastructure. So on those 2 particular items, you will see increased costs. On the other hand, you will have reduced wage effects due to the additional spacing. So different factors will go in slightly different directions here.
Okay. We now go to the line of Deepa Venkateswaran of Bernstein.
I have a few questions. So firstly, starting on the availability. I noticed that it's 93% this quarter versus 96% last year. I was wondering -- and last year, in Q2, you had lots of these outages. And I also saw that there's already some cable replacement for Hornsea 1, which is fairly new. So would you be able to comment about what happened in Q1 of this year? And then are you seeing any impact either because of COVID? Or would you like to comment about the whole cable replacement campaign? Second question on offshore wind. I just wanted to understand whether there was any economic impact for the larger projects, if there's a 1-year delay, either because of the tax credits or anything we need to account for. And would you be able to clarify whether any of your tax assumptions are linked to when the commissioning actually ends? And maybe the third question following up from sort of when you gave the COVID briefing a month back, you mentioned that you were in touch with some of the officials from the European Union. I was wondering if you can give an update of how you think the whole green recovery discussions are going and any sort of insight or commentary on that would be very helpful.
Thanks, Deepa. On availability, you're absolutely right. The biggest impact we saw in Q1 is from the replacement of joints in the Eastern section of the -- of Hornsea 1. We detected 1 joint where we had an issue and rather than waiting for potential additional failures, we decided to replace all of the joints in that section. We don't have any of those joints in the mid section, which is the one that has been on CfD since last year. We have now -- we have finished that cable campaign, but it did have an impact on availability in Q1. Furthermore, we had very strong wind speeds, in particular, in February, which also impacted our availability. We simply couldn't get out to do maintenance on the turbines. And there, you would have to just see as a hedge. We get the benefit from the strong wind speeds, but on the other hand it impacts availability on the negative. And then we've had further outages at the converter station at Borkum Riffgrund 2. Those are the main buckets in Q1. Nothing that we're overly concerned about. These situations will come and go. And when you look at the total economic impact of outages in Q1, we would consider that sort of the normal level for a first quarter.On the economic impact in the U.S. from potential delays, it shouldn't impact our ITC. We are qualifying those tax credits upfront through investments into components for the wind farms. And as such, we have qualified the projects.On the topic of green recovery, there is a lot of activity at the moment. Obviously, governments have been busy spending whatever headroom they have to support heavily impacted business sectors to basically stay afloat during the crisis. But now most governments are beginning to spend more and more time on thinking about how to help rejuvenate the economies as we navigate through the crisis and hopefully get to the other side of it. And there, in many countries and also at EU level, we see a lot of focus on using green investments as part of stimulating economic growth and job creation. And it goes without saying that, in particular, in Europe, where we have a stronghold in renewable energy, it will be a focus area for the European Union. We saw that also through comments yesterday from Ms. von der Leyen, and we saw also remarks from the German government, which is about to take up the EU presidency that they intend to put focus on, among other things, they emphasized projects combining green hydrogen and offshore wind. And I can also say we have, and when I say we, it's Martin Neubert and myself, we have been in meetings with the European Commission at senior level in recent weeks to just share our perspectives and our views on what can be done to tackle the climate crisis and COVID-19 at the same time.
Okay. Our next question is over to the line of Alberto Gandolfi at Goldman Sachs.
All my questions have been answered. I didn't manage to cancel it. I take the opportunity to wish you all the best and stay safe.
Same to you, Alberto. Thank you.
Okay. In that case, our next question is from the line of Kristian Johansen at Danske Bank.
So firstly, in offshore, do you still expect project development costs to be lower this year compared to last year?
Yes. There's no change to that.
Great. Then just getting back to guidance and especially your indication of lower earnings for offshore this year compared to last year. So you're guiding quite specifically for a decline of DKK 2.6 billion from construction contracts, but you've had a DKK 1 billion gain in Q1 in your sites. So I'm just struggling to understand why you shouldn't increase earnings by at least DKK 1.5 billion in the remaining quarters in the sites, considering you have full impact of Hornsea 1, you have another 400-megawatt kicking enough of the CfD contract and now also have Borssele contributing with the earnings.
Kristian, I think we are going to have to do a little bit of math, so while I start answering, I think Marianne will just try to see if we can piece this together.
Yes. But remember that we have had a very, very positive impact from the very strong wind in Q1. So -- and as we say, it's early in the year, and we cannot necessarily expect to have even a normal wind for the rest of the year, of course, that might be. But the impact from the strong wind is in the magnitude of DKK 800 million. So just to say that, that's a huge amount. So that's probably what you need to take into account.
Sure. I guess I can ask in a more simple way. So this guidance of lower earnings, does that reflect a below normal wind conditions in the remainder of the year?
It does, to a certain extent.
Yes, to a certain extent, yes, yes.
It does Kristian, yes. So it does reflect our overall approach of saying that what we gain or lose in Q1, to a certain extent, we expect that to be balanced out during the remainder of the year. We have always taken that approach to Q1 regardless of the direction of our performance.
Yes.
Okay. Well, that was quite simple then. And my second question is just on your power distribution business. You mentioned earlier that you expect the deal to close in the second half of the year. Can you just remind us what you have included in your guidance in terms of how many months of contribution from power distribution?
We have included 6 months so up until end of June.
Okay. But losses -- I mean, I guess it will be in the numbers until the deal is closed, right?
Yes, absolutely.
It will.
It will. But what we expect it to close, we still say summer. So...
Late summer.
Late summer.
Fair enough. And there's no delay in that process due to COVID-19?
Not really. Not really. It's very minimum. I'm not sure we can tell the difference really. It is progressing as we had expected.
Yes.
Okay. Our next question is from the line of James Brand at Deutsche Bank.
Most of my questions have been answered. So I'll just ask 1 question, if that's okay? Just obviously delays coming through for some of the projects potentially incurs extra cost for you, but then equally, a lot of people are speculating that we might see deflation this year. And a lot of raw material prices have come down, steel prices have dropped normally in a tougher economic backdrop, construction tends to come under pressure, and you can kind of e-count savings. So I was just wondering whether maybe it's too early to say, but I was just wondering whether there was scope for you. You thought that there was scope to maybe capture some more savings for your projects. And I was also just wondering in terms of timing, whether you could just remind us when you lock in prices for steel and the overall cost of construction during the process. I presume that a lot of those costs are locked in pretty soon after the final investment decision. So maybe there isn't as much scope for your projects under constructions benefits and maybe we're thinking more about projects that are further back in the development pipeline?
Yes. On the delay and whether that may offer us to sort of an opportunity to benefit from deflationary pressures, James, it's -- clearly, it's not -- I couldn't rule it out. I mean, if we get delayed, we'll obviously always have to go back and take a fresh look at our supply chain plan. But again, it is, of course, too early. First of all, we haven't concluded on any delays on the 3 large projects in the U.S., and we still don't have any visibility on any deflationary pressure in the supply chain. So I think we're going to need at least another half year to develop a view on that.
And of course, we have locked in, for the construction project, a lot of the CapEx. But for the steel, in particular, it's typically something we keep floating. So there could be a potential in a way upside from the steel.
Okay. The final question in today's queue is over the line of Mark Freshney at Crédit Suisse.
If I could ask a question on getting into projects at a later stage. We saw a very hot market for tenders last year, and I'm sure that there will be 1 or 2 bidders out there regretting bidding low prices and being left with development projects that they struggle with. We've seen you enter into late-stage projects before, for example, with Race Bank. Is that something that you would consider doing again, i.e., taking over a half developed project, if you like?
As I said earlier, Mark, I mean, in times like these, you might see companies or projects that come under pressure, and there may be opportunities for companies with a strong balance sheet to which I would consider Ørsted. Would we pick up projects? It's not something we have to do. We have a strong pipeline. We have a great deal of visibility on our own build-out targets. So we are not under any pressure to do so. On the other hand, we have the capacity if there is a value-creation opportunity. So if it's a project under pressure, it's all going to come down to us seeing a clear value-creation opportunity. If we do, I certainly wouldn't rule it out.
As that was the first final question, may I please pass it back to you for any closing comments.
Yes. I just wanted to say thank you all very much for joining today. Any additional questions, don't hesitate, just reach out to IR. And most importantly, all of you stay safe and talk to you soon.
This now concludes this call. Thank you all very much for attending. And you can now disconnect.