DNNGY Q1 2025 Earnings Call
Operator: Ladies and gentlemen, welcome to the Ørsted Q1 2025 Earnings Call. For the first part of this call, all participants will be listen-only mode and afterwards, there will be a question-and-answer session. Today's speakers are Group President and CEO, Rasmus Errboe; and CFO, Trond Westlie. Speakers, please begin.
Rasmus Errboe: Hello everyone and thank you for joining today's presentation. During the first quarter of the year, we have focused on execution of the business plan that we presented in February. As part of the updated plan, we established four key business priorities for Ørsted, which will be the core focus as we execute on our strategy. First, it is the strengthening of our capital structure. Secondly, it is the delivery of more than 8 gigawatts offshore construction portfolio. And thirdly, it is a focused and disciplined approach towards capital allocation with value over volume. And finally, we will ensure that Ørsted is even more competitive in the future. We will continue to focus on progressing all four priorities to deliver on our plan. With that said, the offshore wind industry continues to be challenged in the short-term with headwinds relating to supply chain, regulatory uncertainty, and macroeconomic developments. We follow the developments around further potential tariffs and other regulatory changes closely. Despite the significant challenges across certain geographies, the long-term fundamental for offshore wind are strong, given the increase in global electricity demand, a strengthened focus on energy security and affordability through renewables, and improvements in framework conditions in several major markets. With that, let me walk you through our progress on each of the four strategic priorities. During the first quarter, we have seen solid operational results with a reported group EBITDA increasing 18% compared to last year. In addition, we continue to deliver on our farm-down program as we closed two divestments since the start of the year. In the U.S. we completed the 50% farm down of two of our solar farms. And just last week, we completed a divestment of a part of our West of Duddon Sands offshore wind farm in the U.K. These transactions delivered total proceeds of around DKK7 billion and are supportive of our capital structure. We continue our relentless focus on the delivery of our offshore construction portfolio and during the first quarter, we continued to deliver on this with successful commissioning of Gode Wind 3. This also marks that we now have installed more than 10 gigawatts of offshore wind capacity. On the back of the short-term challenged offshore wind industry and the adverse development experienced in recent years, we will employ an even more focused approach to our capital allocation, and we do see that we have ample opportunities in our core offshore wind markets to leverage our distinct capabilities. With the opportunity set that we have, we will only select and progress the most attractive investment opportunities. A key part of this is a very clear prioritization of value over volume for our shareholders. This disciplined approach to capital allocation has led us to the decision to discontinue the development of our 2.4 gigawatt Hornsea 4 project in the U.K. in its current form. Since the award, the business case has seen numerous adverse developments, especially cost increases across the supply chain and higher interest rates. In combination, these developments have deteriorated the potential value creation and increase the execution risk. Throughout the development phase, we have been very diligent in our approach to capital commitments and followed our updated stage gates model. We are well below our internal commitment thresholds, and we are taking this decision well ahead of the planned FID. I would like to emphasize that Ørsted continues to view the long-term fundamentals as strong and see attractive perspectives for offshore wind in the UK. We will evaluate options for future development of the Hornsea 4 project, as we continue to hold the seabed rights, the development content order as well as a grid connection agreement. The decision to discontinue the development of Hornsea 4 in its current form will not impact our mid- and long-term strategic ambitions financial targets. I am excited to have welcomed two new members to our group executive team. Part of our journey to become increasingly competitive in the future will require our business to be more efficient and focused going forward. With the recent appointments of Amanda Dasch and Godson Njoku. The full offshore wind value chain from development to construction to generation is now represented in our group executive team. The changes to the group executive team reflect our sharpened focus on our core business, project execution and on improving our competitiveness. And I'm very pleased that we have been able to attract two such strong candidates to our team. Let's turn to Slide 5, where I will walk through some of the operational highlights for the quarter. First, I am pleased with the operational earnings for the first quarter of the year. Where our EBITDA, excluding new partnerships and cancellation fees amount to DKK8.6 billion. The 14% increase compared to last year puts us on track towards delivering our full year guidance of DKK25 billion to DKK28 billion of EBITDA. One of the supporting elements of our solid operational performance was the availability within our offshore business. Compared to same quarter last year, the availability increased with 9 percentage points and is, as such, a significant contributing element to the increase in our earnings despite the lower wind speeds offshore in Europe that we have seen. Operating our 10 gigawatt offshore wind fleet with a sharp focus on financial performance will remain a key priority for us. During the quarter, we also made progress on the renewable share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025 and during the first quarter of the year, this was, in fact, case. The increased share of renewables was driven by the closing of our large coal-fueled CHP plant in the second half of 2024, which marked another important milestone in our decarbonization journey. Lastly, our continued and relentless focus on safety have continued and the total recordable injury rate for the first quarter of 2025 has been reduced from 2.9% last year compared to 1.9% this year. However, this positive development was overshadowed by the two tragic fatalities among our contractor employees at the Plum Creek onshore wind farm earlier this year. Our deepest condolences go to their families and friends. We are focusing on the current investigation that the relevant authorities are conducting, and we are in close coordination with GE, Wincom and the authorities. Let's turn to Slide 6 and an overview of our construction of our construction projects. As mentioned, as part of our release in February, we will, going forward, provide more insights into the execution portfolio. To keep this the most relevant for you, we will do so for projects that are most advanced and active in their construction activities. Before I go into the detailed update, let me put a few remarks to the remainder of our construction portfolio. During the first quarter, we successfully commissioned the Gode Wind 3 project. This achievement increases our operational capacity and also marks that we now have installed more than 10 gigawatts of offshore wind capacity. For Borkum Riffgrund 3 we have installed all foundations and turbines are awaiting the grid connection from the German transmission system operator. First power is expected towards the end of this year, and the project is expected to be commissioned in the beginning of 2026. The delay of the connection will be compensated according to market regulation. Until the grid connection is ready and the project can be commissioned, we are ensuring that we maintain the integrity of the assets as part of our service and inspection campaigns. For the Hornsea 3 project in the U.K., the construction continues to progress as planned. The onshore works are on track and the offshore scope started in Q1 2025 focusing on preconstruction activities such as removal of unexploded ordinances. We are working closely with suppliers to manage the ramp-up and delivery of components to be installed offshore during with fabrication and monopiles being a key focus. The construction work for the co-located battery storage solution is planned to start during the second quarter of this year. Following the final investment decision on our Baltica 2 project in January, we are progressing the first phases of the construction work. At the current stage, this involves the preparation of the onshore substation as well as the manufacturing activities related to the offshore substation. We are closely monitoring the fabrication progress of the key components for the project as well as the progress on the installation harbor in Poland, which will be used for the load out of the turbines. We will continue progressing the fabrication, cable route preparation and also commenced the offshore boulder removal campaign in the coming period. Lastly, the construction of our onshore projects across Europe and the U.S. continues to progress according to plan. Turning to Slide 7 and a more detailed update on our Greater Changhua 2b and 4 project in Taiwan. The degree of completion for the project is around 35%. The degree of completion is one of our metrics, measuring the progress of our construction projects, installation schedule and reflects a combination scheduled progress and financial spend. At this point, all the foundations and export cables have been fabricated. The vast majority of the array cables have been fabricated as well and the manufacturing of the remaining turbines are progressing according to plan. Remaining array cables and majority of turbine components are being fabricated in Europe, and once complete, they will be transported to Taiwan for preassembly and installation. It is the first project in our portfolio where we are installing the 14-megawatt wind turbines from Siemens and the installation is going really well. During the first quarter, we have progressed the fabrication of key components and also achieved important milestones as we have started offshore construction activities with the installation of both foundations and turbines. Currently, we have installed around 30% of the foundations and the first few turbines. The vessels needed for the installations of the -- for the installation of array cables have also arrived in Taiwan and are ready to begin the installation in the coming period. From a risk perspective, the project is focused on managing any potential schedule implications caused by the weather conditions. We have taken into consideration and expeditely longer installation period during the winter season due to challenging weather conditions throughout this season. Likewise, the project continues the monitoring of the sea routes needed for transportation of the remaining equipment. In the coming period, the project will continue to progress the installation of foundations, turbines, export and array cables. First power is expected over the summer, and we expect to commission the project towards the very end of this year. Now turning to Slide 8 and an update on our Northeast program, starting with Revolution Wind. The degree of completion for the project is around 75% and we have continued making good progress on both the construction of the onshore substation in Davisville, Rhode Island as well as the insulation of monopiles and turbines offshore. We currently have installed nearly half of the 65 turbines and around 80% of the monopiles as well as completed all installation of the export cable. The project's focus remains on a number of items that are critical to delivering the project on the updated schedule. For the onshore substation, we are implementing the updated solution, and this work is reflected in the project schedule. We took over site management at the beginning of this year, and we have subsequently accelerated works, which means that all buildings have now been erected and made water tight. This was a key deliverable for the derisking of the installation schedule for the onshore substation, which is on the critical path for the project. Next stage is the installation of the equipment and commissioning, where management of risk primarily are related to safety and quality. Regarding the monopile installation for one of the projects, two offshore substation work is also progressing well on the challenge that arose last year. We will conduct a new monopile installation for the offshore substation, and we expect this installation to take place later this year, utilizing the already contracted installation vessels that are undertaking work at Sunrise and Revolution. Lastly, turbine installation remains well underway and is progressing according to the updated plan. As you are aware, the turbine installation requires a different local setup in the US, until US installation vessels are built and available. This means that the components are assembled on -- and states out of the new London port and transported to site on barges where they are then installed using installation vessels. This group has had the highest priority focus of the team and is on track on track to be completed later this year. The project remains on track for commissioning in the second half of 2026. Now turning to Slide 9 and our Sunrise Wind project. Sunrise Wind is being constructed together with Revolution Wind as one program, including vessel arrangements and the broader offshore installation campaign. The degree of completion for Sunrise is around 35%, with almost half of the turbines fabricated, the onshore converter station being near complete and the monopile fab application progressing according to the updated plan. We commenced offshore construction during the quarter, beginning with boulder relocation and two horizontal drilling for the export cable, and we are implementing the learnings accumulated for Revolution Wind. These learnings are reflected in the installation schedule as Sunrise wind undertakes monopile installations followed by a turbine installation later this year as part of our US Northeast program. The project's focus remain on a number of items that are critical to delivering the project on updated schedule. The fabrication of monopiles is progressing according to plan and will continue throughout 2025. Installations of monopile’s will continue over two seasons due to the time of year restrictions on when they can be installed. On the export cable, we have seen good progress as one section of the cable has been manufactured now and the remaining two are expected to be completed later this year, again, according to plan. All sections of the cables have passed all critical tests, including the factory acceptance testing on the jacket structures for the HVDC, it is in final phase of quality control before it is planned to be transported to the site over the summer. We remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond.
Trond Westlie: Thank you, Rasmus, and good afternoon, everyone. First, let me start with slide 11 and the EBITDA for the quarter. As always, unless I state otherwise, the numbers I referred to will be in Danish kroners. In first quarter, we realized an EBITDA, including new partnerships of DKK8.9 billion, which is an increase as Rasmus mentioned of 18% compared to last year. Excluding new partnerships, EBITDA was DKK8.6 billion. Let me walk you through the main earnings development for the quarter. For our offshore businesses with the overall earnings came in DKK200 million higher than last year. The earnings from sites increased driven by ramp-up generation higher availability, as well as higher prices on the green certificate and inflation indexed assets. There was also a positive effect from our power trading activities. This was partly offset by wind speeds being significantly lower than the same period last year. Other costs, which includes unallocated overhead and fixed costs, as well as expense project development cost increased compared to last year, but in line with our expectations. The increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA expectations for offshore. For onshore, the EBITDA, excluding divestment gains increased by approximately DKK400 million, primarily driven by ramp-up generation from new assets that have been commissioned during 2024. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices and spreads. Earning in gas business increased, driven by higher offtake volumes and a negative impact from revaluation of gas at storages last year, which was not repeated to the same extent in the first quarter this year. Finally, we recognized an EBITDA gain of DKK300 million relating to the 50% divestment of our two U.S. onshore projects, Eleven Mile and Sparta. Let's turn to Slide 12. Our net profit totaled DKK4.9 billion, which was a significant increase compared to last year. Net profit benefited from higher EBITDA and the lower tax expenses as a result of the reversal of previously expensed deferred tax liability. In the first quarter, we had a net impairment reversal of DKK300 million. The main contributor to this reversal was a decrease in long-dated U.S. interest rates, which was partly offset by the impact of the imposed tariff in the U.S. In March this year, the United States imposed a 25% tariff on imports of steel, aluminum, and certain products containing steel and aluminum. These new tariffs have resulted in increased costs and contingencies on our Sunrise Wind and Revolution Wind projects leading to an additional impairment of DKK1.2 billion. In addition, an executive order was signed in April 2025 imposing a 20% tariff on imports to the United States from the European Union, of which 10% is effective, and the last 10% is postponed. We have not included the potential adverse impact from such additional 10% plus 10% tariffs due to the ongoing uncertainties. In a scenario, of an additional 20% import tariff, we assess this would have less than half of the impact from the steel and aluminum tariff. On the effective tax rate, that was as low as 5%. However, adjusting for the reversal of the unrecognized deferred tax assets, the underlying tax rate was 23%. Adjusted for impairment and cancellation fee on return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported return on capital employed came in at 4.6% and was impacted by the impairment recognized over the last 12 months. Our Scope 1, 2, and 3 greenhouse gas intensity, excluding gas sales, decreased by 7% in the first quarter this year compared to last year. The decrease was mainly due to lower Scope 1 and 2 emissions, resulting from reduced fossil-based generation, partly offset by higher scope 3 emissions from capital goods. Moving then to slide 13 and our net interest-bearing debt and credit metrics. At the end of the first quarter this year, our net debt amounted to DKK68.4 billion, an increase of approximately DKK10 billion during the quarter. Our cash flow from operating activities contributed with around DKK600 million. Our operational earnings were partly offset by costs related to construction of transmission assets in the UK as well as seasonality in other working capital items. Compared to last year, we did not receive any material milestone payments related to our construction projects nor any tax equity contributions. For the quarter, our gross investments totaled DKK13.8 billion, driven by our investments into the construction of our renewable project portfolio. The cash flow from divestments of DKK3 billion, primarily related to the farm down of the 50% stake in our 11-mile and Sparta onshore projects. The divestment of a stake in West of Duddon Sands, which was announced last week is not included here as it closed after the end of the first quarter, and will accordingly be reflected in our accounts for the second quarter. Our key credit metrics, FFO to adjusted net debt stood approximately at 14% at the end of the first quarter, which is a slight increase compared to the end of last year, primarily driven by higher funds from operation in the 12-month rolling period. Throughout 2025, the cancellation fee payments incurred over the last 12 months will be rolling off the metric and thus benefit the FFO number. Finally, let's turn to slide 14 and our outlook for 2025. With a solid operational performance for the first quarter, we reiterate our full year EBITDA guidance, excluding new partnerships and cancellation fees of DKK25 billion to DKK 28 billion. As the offshore wind speeds have been below the norm, we are expecting our offshore sites EBITDA to come in lower than anticipated in the beginning of the year. However, we still expect our offshore segment EBITDA to be higher than last year. Adjusting the future for our Hornsea 4 project will have financial implications, which will be reflected in our accounts for the second quarter of this year. For Hornsea 4, it was our plan to use the export cables from Ocean Wind 1. So we will now evaluate the value of these cables going forward. The book value of the export cables is approximately DKK1.5 billion. In addition, we have so far spent approximately DKK 0.5 billion on the offshore transmission assets, and have an estimated additional spend of around DKK 1 billion to DKK 1.5 billion related to a combination of expected contract cancellation costs and committed project spend. In total, this can potentially lead to a negative impact on our EBITDA of approximately DKK 3 billion to DKK 3.5 billion in next quarter or this quarter, Q2 in 2025. The capitalized construction cost for Hornsea 4 is around DKK 700 million and will be written off below EBITDA in our accounts for the second quarter. As an additional information, as a result of closing out the outstanding Ocean Wind cancellation contracts, we will also review the remaining provision level during the second quarter. On CapEx, we also maintain our gross investment guidance for 2025 of DKK 50 billion to DKK 54 billion. And with that, we will now open for questions. Operator, please.
Operator: Thank you very much. [Operator Instructions] Our first question comes from Peter Bisztyga with Bank of America. Please go ahead.
Peter Bisztyga: Yes. Good afternoon. Thanks for taking my question. Peter Bisztyga here. I've got a question on the stop work order for Equinor's, Empire Wind projects. And I'm just wondering what reasons might exist? Or are you aware of why your Sunrise Wind or Revolution Wind projects might be able to avoid similar stop work orders in the coming months. Thank you.
Rasmus Errboe: Thank you very much, Peter. So I think first of all, I'm not going to speculate about potential regulatory changes in the US that is outside of our control. Our two projects have completed multiyear reviews and have also followed all state and federal procedures. And we are constructing them under one program in the Northeast, which is in a very active construction phase right now with a degree of completion of around 25% -- sorry, 75% for Revolution Wind and around 35% for Sunrise Wind, as I mentioned before. And you can say specifically for Revolution Wind, we have installed almost half of the turbines, 80% of the monopiles, installed one of the monopiles for the projects offshore substation, fabricated all components and so on. And for Sunrise Wind, we have sort of nearly completed the onshore converter station and also the array cables. And then we have also fabricated more than half of the sales for the project and also started offshore construction activities during this quarter. And also, if I might add, both projects ensure that hundreds of millions of US dollars are invested into the domestic supply chain, supporting shipbuilding and port investments and are also creating jobs across more than 40 states. So that's our perspective on our own projects in the US.
Peter Bisztyga: Okay. And so do you have any interactions with the department of material on the potential risk?
Rasmus Errboe: As is always the case in the markets where we operate with our projects and also with projects under construction like this, we, of course, have an ongoing dialogue with the regulator. And that is also the case as of now in the US, where we have an ongoing constructive dialogue with Bond [ph] on the progress of the projects.
Peter Bisztyga: Okay. All right. Thank you.
Operator: Our next question comes from Alberto Gandolfi with Goldman Sachs. Please go ahead.
Alberto Gandolfi: Hi. Good afternoon. It’s Alberto Gandolfi, Goldman Sachs and thank you for taking my question. I wanted to ask if you can pause a bit on a reflection on slide 6 and slide 12. On the left-hand side of slide 6, you're talking about the 8.2 gigawatts of offshore projects. And thank you for going through project by project and completion rate. But can I ask you on that page, how many of these projects, all in all, have an IRR over WACC since inception because Changhua was divested partly at book. We know the situation in the United States, PG stocking up cost in Baltica. So my question is, are we going to see further dilution in the return on capital employed that went down from 12.5% to 10% in one year. And if the IRRs on these projects are not to your original benchmark, where are we going to see a return on capital employed on a three-year basis in your opinion? Thank you so much.
Rasmus Errboe: Thank you, Alberto. I can kick that off. As I'm sure you might appreciate, I'm not going to be very detailed about current spread over our cost of capital for each of our construction projects in our portfolio. But what I can say is that we remain confident with the value creation that we see in our committed offshore construction portfolio. So the projects where we have taken FID and where we are moving forward, we will have locked in, obviously, the contracts ahead of FID and so on. So we remain confident in the value creation on our construction portfolio for offshore wind. And then as for the ROCE, also the same there, we stand by the guidance that we gave as part of our updated plan on the 6 of February, where we guided a ROCE of around 13% for the period 2024 to 2030.
Trond Westlie: And just to add on to that, Alberto. We had an increase of capital employed for DKK32 billion the last year. Much of that is, of course, not generating assets due to the fact that we're in a growth period, and we will be in a growth period for that element. So coming into the next couple of years, you will, of course, see slightly more pressure on the ROCE. But on the 2024 to 2030 on the average that we gave on the overall plan on the average ROCE for those years that we will stick with that as a result of them having then a growth period now, for the next two to three years.
Operator: Our next question comes from Casper Blom with Danske Bank. Please go ahead. Mr. Blom. Your line is open.
Casper Blom: A question from my side regarding the decision to discontinue the development of Hornsea 4. I at least was surprised to see this given that the allocation was given no later than in September last year. And I understand your explanation about higher cost, higher interest rates and risk up delays. But is there also an element of you guys wanting to take a more cautious approach to construction in general, i.e., is this also an expression of your new value focus where you maybe pull the clock on something a bit earlier to make sure that you don't get into the same kind of problems that you've previously seen in the US? If you can sort of reflect a little bit on that. Thank you.
Rasmus Errboe: Absolutely. Thank you for the question, Casper. So as you also alluded to, we -- I was clear before about the more specific drivers in terms of the project case on Hornsea 4. And I can sort of build a little bit on that as well. But just to go directly to the call of your question. First of all, this is obviously not a decision we have taken lightly, that goes without saying but we came out with a plan on February 6, with four key strategic priorities. One of them was to have a laser sharp focus on value over volume. And as for the project here, we simply did not see a sufficient value to meet our hurdle rate for a project of this kind. On top of that, as you also partly allude to, you should also see this decision as part of us being even more sharp on our stage gate model and our approach risk management. We have taken this decision early while obviously, on the other side of the bid, we have taken it early relative to a planned FID that was expected to be by the end of this year, and therefore, also significantly limiting the financial implications of discontinuing the project in its current form. Also worth noting that we still have the lease rights. We still have the development consent order. We still have the grid connection agreement, and we will now work towards bringing the project forward again in a new configuration. We basically take it back to development, if you will. And then we plan and expect that we would move the project forward in a different configuration and on a different time line.
Operator: Our next question comes from Harry Wyburd with BNB Paribas. Please go ahead.
Harry Wyburd: Hi, thanks. So another one on the US. I know we're being back and forth the Hornsea 4 in the US., but on Sunrise and Revolution, it's a really specific one. And given I think with Hornsea 4, you're sort of showing that you're trying to think a bit further forward and make decisions a bit earlier. I'm sure you would have considered the risk of Sunrise being canceled. And if it is canceled, what would that mean for Revolution? And I guess, it seems like Revolution is sufficiently well progressed, but it's less likely that one gets canceled. But if Sunrise is canceled, could you continue with Revolution, and would it meet your return hurdles, if you did? Or would it be a case of if Sunrise is canceled, it starts to put the whole U.S. projects into a difficult position and maybe it's the end of your sort of major operations in the U.S.? I just wondered if you could help us think about what might happen in that case. Thank you.
Rasmus Errboe: Hi. Harry. Thank you very much. Harry, I'm not going to speculate in -- on the implications of a cancellation, as you allude to here, for neither Sunrise nor Revolution Wind. We remain 100% committed to bringing both projects forward as part of our Northeast construction program. And as I said before, we are talking about projects with a degree of completions of sort of 75% per Revolution Wind and 35% for Sunrise Wind. So I'm not going to entertain you can say, sort of hypothetical scenarios about cancellation of projects in this case. We are fully committed to moving forward.
Operator: Our next question comes from Ahmed Farman at Jefferies. Please go ahead.
Ahmed Farman: Thank you for taking my question. I just wanted to come back to Hornsea 4. Can I just ask you to give us a little bit more granularity on the cost inflation that you have seen on this project since you secured the CFD contracts and talk a little bit about where exactly within the supply chain, has that cost inflation come through? Then sort of related to it, is this cost inflation sort of specific to Hornsea 4? Or is there sort of a read-across the Hornsea 3 and Baltica 2 that we should also be thinking about? Thank you.
Rasmus Errboe: Thank you, Ahmed. So starting with Hornsea 4, so, as I have said, and as you have also picked up, I can hear that there are three drivers, if you will, behind the deterioration of the business case to a level where we have decided not to move forward in the current form. One of them is increases in the supply chain. Another one is the increase in long-dated interest rates in the U.K. of around 50 basis points since we participated in the auction. Specifically, on the supply chain, I'm not going to single out, individual scopes or individual contracts or suppliers; that would not be right. But what I can say is that when we prepare for a bit like this we of course, base our bid on price quotes and so on across the scope of the contraction. And what we have simply seen once we after bid go into detailed contract negotiations with suppliers leading up to a potential FID is that both, you can say, the risk balance between the developer and the supplier has been moved relative to what we had assumed in certain cases. But more importantly, the initial price quotes have simply been increased. So I'm not going to give specific numbers about the magnitude of the increase, which is simply too commercially sensitive for us. As for the other part of your question, how can we see this outside of the of the UK, does it have implications within the UK on Hornsea 3, as I heard you, does it have implications on Baltica 2 and so on. A few points. First of all, it's important to differentiate between assets under construction and assets under development, obviously, a fundamentally different situation. And for Hornsea 3 and for Baltica 2, we have obviously locked in the entire supply ahead of taking FID. So, therefore, the cost increases and risk increases that we have seen on Hornsea 4 under development, you will not see on those projects. Of course, we have changed, we see changes in the underlying interest rate environment. That is the way it is, of course, it's outside of our control. But the part that we can control, you should not expect to see that. And then, of course, the second element to your question, is this something that is outside of the UK? Just few facts, while the LCOE for offshore wind has been going down from 2015 to 2020 with around 70%, we have seen an increase in Europe from 2020 to 2025 of around 50%. So in the other direction of LCOE, partly driven by increased CapEx, partly driven by increased interest rates. And, of course, it is that that increase we have continued to see in Hornsea 4 as part of logging in the contracts. And it is also an increase that one can expect to see on other projects in Europe that are not yet locked in. So no doubt, we have a short-term challenging environment for offshore wind, but we remain 100% confident and committed to offshore wind in the long-term also for Europe, where we believe in the fundamentals.
Operator: The next question comes from Kristian Tornøe with SEB. Please go ahead. Kristian Tornøe: Yes. Thank you. So my question goes to your guidance on divestment proceeds of the DKK72 million to DKK80 billion, and just if you can elaborate whether Hornsea 4 was fit to be part of this program? And if so, what it does to the expected net proceed.
Trond Westlie: The plan on the number of the proceeds is, of course, the period between 2024 and until end of 2026, and the timing of Hornsea 4 is further out. So it has never been a part of that element.
Operator: Our next question comes from Dominic Nash in Barclays. Please go ahead.
Dominic Nash: Hi, there. Thank you very much for taking my question. I've got sort of a follow-up on that one there, which is I think you're reiterating your medium-term guidance of DKK 210 million to DKK 230 billion of gross investment Hornsea is going to be -- Hornsea 4 is going to be a large chunk of that so the first question is, does that mean that your medium-term guidance either will probably need to come down? Or does it follow on from that Hornsea 4 is likely to be able to rebid into upcoming CFD rounds. And if so, can you just give us some color as to, I believe, has to jump on? Or when do you think you'll be back in the position to go back into a CFD round? Thank you.
Rasmus Errboe: Thank you very much, Dominic. So first of all, on the 40 on the investment program that you are alluding to. So you are right in saying that that we have as part of the plan that we presented on February 6, we have communicated a gross investment program towards 2030 of DKK210 million to DKK230 billion. And as part of that, as we have also said, roughly DKK40 billion to DKK60 billion is what we call uncommitted capital. So for projects where we have not yet taken FID, such as Hornsea 4. So of course, now when we do not move forward Hornsea 4 in its current form and on the current time line, then of course, we will have some more flexibility in terms of how we intend to deploy those DKK40 million to DKK60 billion towards the most value-accretive opportunities that we can find in our portfolio, likely with a strategic emphasis on offshore wind in Europe. Specifically to your point on the timing of a potential rebid. It's a bit too early for me to be very explicit about that. What I can say is that it's not going to be AR7 or AR8. And then, of course, we would have to see what is going to be the best way forward for the project also for us in terms of delivering the needed value creation for our shareholders. And we will continue to have a good dialogue with the British government in this regard. It is important for me to just stress that we fully believe that the framework we have seen are seeing in UK as well as the sort of the general support from everywhere we go from a regulatory perspective for offshore wind is really truly there. So therefore, we will continue to have a good dialogue on the back of this decision, I'm sure.
Operator: The next question comes from Lars Heindorff with Nordea. Please go ahead. Q – Lars Heindorff: Good afternoon. Thank you for taking my question. More to tranche perhaps you mentioned in the presentation that you will conduct a more thorough review of provisions here during the second quarter. Can you give us a bit more insight? Is there anything that you see you using danger? Or what is the reason for this?
Trond Westlie: Thank you, Lars. No, there is nothing in danger. It's just that we are closing out. We're just closing out the sort of the last contracts or closing down the ocean wind provisions. And as a result of that, there's more elements of what is the provision all needed really? It's more the other way than sort of a concern.
Operator: Your next question comes from Jenny Ping with Citi. Please go ahead.
Jenny Ping: Thank you very much. If I can just check on what is actually cash and what non cash that's expected to go out in both regards of tariffs as well as Hornsea 4 please. I guess on tariff, the DKK1.2 billion that when does when does the cash -- this is obviously an accounting item for now. But the cash actually go out, it was just part of CapEx and then similarly, for Hornsea 4, the DKK3 billion to DKK4 billion EBITDA impact, I believe all of that is not cash, and some of it is. So, clarification on that? And then just a quick one on Hornsea 4. Have you thought about or explore option of selling the asset as ramp-up [ph] have done before with the CFC. Is that something explored and getting progress forward? Thank you.
Trond Westlie: To start on the first question on the cash impact of Hornsea 4, as I said, of the amount, it's approximately DKK1 billion to DKK1.5 billion that will be the cash effects from now on. The remaining part is already paid for and the Ocean Wind is, of course, just the internal pricing and literally paid for in the Ocean Wind project as such. When it comes to the tariffs, the book value of DKK1.2 billion that you see taken in this -- in this quarter, that is, of course, the net present value effect of tariffs in the projects on Sunrise and Revolution. The tariffs to sales, the gross number of tariffs is, of course, going to be paid when the goods enter the United States. So, that comes as a result of the pure logistics in the project, and that payment is just a payment. And as such, just negative cash flow element in the NPV calculation.
Rasmus Errboe: And for the second part -- third part of your question, Jenny, on Hornsea 4. No, we have no plans to divest our lease -- we see it as a strategic asset, and we see the Hornsea 4 very much at our core in the U.K. as well. So, we have no plans to sell the lease.
Operator: Our next question comes from Olly Jeffery with Deutsche Bank. Please go ahead.
Olly Jeffery: Thanks very much. A few questions for me. So, the first is on potential further impairments in Europe. So, I'm mindful of the fact that I believe that's the most obvious candidate where if you don't go ahead with that project, you could incur further write-downs. Can you give an update on what's happening with that? And could you also say if you were to cancel it today, what signs of impairment might we need to -- what size of impairment might we see? And then second question is much simpler, could you just please give an update on the sales process for Hornsea 3 is that progressing as planned for this year? Thanks very much.
Rasmus Errboe: I start with Baltica 3, and then I leave the Hornsea 3 sales process to Trond. Hi, Olly. We have decided a while back to -- which you are probably also alluding to with your question, we have decided a while back to keep Baltica 3 under reconfiguration as we call it, together with our partner PG and the reason we have done so is simply because we have not and are not seeing the value being good enough, as of now to meet our investment requirements. So therefore, that is still the case on Baltica 3 and we are working on finding a way forward together with our partner, PT and just stating as well here that we are continuously very pleased with that partnership, and we are moving forward really well together on Baltica 2. I'm not going to give you a specific number in terms of potential financial implications should we decide not to move that project forward. But there would -- there will be cancellation cost, but they will be lower, obviously, than the ones that we have now talked about today for Hornsea 4, it's a significantly smaller project. We are in it with partner and so on. But should we decide finally one day to not move it forward? Yes, there will be financial implications. But they are clearly going to be manageable.
Trond Westlie: On the farm down sales processes that were going on, we're, of course, not commenting on each one of them. But what I can say is that all of them is progressing. All of them is moving along. And as we said the timing of the different elements since we have mentioned, I think it now is 18, two years ago that we mentioned the Hornsea 3. That is also moving along according to the previous plans. So not really more to say than what we said before then basically, we're moving along according to the plan, and we will come back when we literally have more sort of qualified and basically have blue ink on the paper on those elements.
Operator: [Operator Instructions] Our next question comes from Rob Pulleyn in Morgan Stanley. Please go ahead.
Rob Pulleyn: Hi. Thank you. There's always more questions. So may I just explore something on Hornsea 4 and is this decision and you've talked about value of volume and obviously the balance sheet resilience. Is this a function of being unable to find a farm-down CapEx partner for the project when, of course, you're looking one on Hornsea 3 as well? And a Part B, if you will, is -- or also should we be thinking that within the UK, there has been indications that the AR 7 and 8 auctions and appreciating it's probably more ARA that you're looking at terms could be substantially better than AR 6. And from a value perspective, it's better to cancel and rebid into a better auction. I'd love to hear some thoughts around those two angles. Thank you.
Rasmus Errboe: Thank you. Rob. I will take both Part A and Part B of your question. If we take your comment on the farm down of Hornsea 4 first, the way we think about it is that we have seen, as I said before, the business case deteriorated due to supply chain interest rates and also this sort of increased pressure on the float in the project as we saw it. And as I said, a part of that was also the increase in the interest rate. The way we think about it is, of course, that we believe that the prudent thing for us to do when deciding on whether or not to move forward with an FID of a project of the size and scale of Hornsea 4 is also to take the value implications of a farm down the line into consideration already now. We think that is the prudent thing to do. So in that sense, it has been a part of our decision-making. But there is absolutely no read across whatsoever to ongoing farm downs as for instance, on Hornsea 3 that you are alluding to. Then Part B of your question on sort of our thoughts on moving forward with the project in a different form and repeating at a later point in time. We would not be able to bid for AR 6 -- sorry, AR 7 and AR 8. So that is not part of our thing, it will likely be at a later point in time. So -- but of course, the thinking is now that we would move the project forward, we would take it back into development. And then, of course, we will do whatever we can to be competitive again in a future auction round in the UK as said, we remain fully committed to the UK and the Hornsea zone.
Operator: The next question comes from Deepa Venkateswaran with Bernstein. Please go ahead.
Deepa Venkateswaran: Thank you for taking my question. Apologies I want to stick to Hornsea 4. We've heard from one of your other peers with an active contract in the same that they are still going ahead. They see value creation and they talk about a CapEx of 3.5 billion gigawatt ex Opto. Are you able to comment what kind of CapEx you were assuming when you decided to discontinue. And secondly, just note that spokesperson for the UK government has said that they intend working with you to get Hornsea 4 back on track. So I wonder how that -- that with the previous comment that you think you can't really participate in AR 7 or 8. So could maybe elaborate on what the UK government might want to do? Thank you.
Rasmus Errboe: Hi, Deepa. Thank you very much. I'm not going to give away CapEx multiples for Hornsea 4 as it stands right now, it is a project we have decided not to move forward with. And also, it's not for me to -- to compare or speculate in how our good colleagues in the industry approach their projects in terms of communication and so on. So I prefer to focus on our own, and I cannot give that multiple away, Deepa. But I sure you have a view on what you might think CapEx is for a project of this size. And of course, the starting point is Hornsea 3 and then adjusting for the fact that the CapEx has gone up since then. And specifically to the second part of your question on the comments that has come out today from Desnets and so on, we, of course, very much appreciate that, and we see it the same way. We will continue to do our absolute best to be the best possible partner for the British government. And as part of that is also that it's not right for me to speculate in terms of sort of when and how we would be able to come back with Hornsea 4 in terms of which rounds and so on. But what I can say is that we will obviously follow the frameworks, which, as I said before, I believe is the right one. And then we will continue to do our absolute best to move the project forward in a way that is sufficiently value creating for our shareholders.
Operator: The next question comes from Asne Holsen with ABG. Please go ahead.
Asne Holsen: Hi. Thanks for taking my question. I have a question about the impairments on U.S. tariffs. Do they only sort of cover the sort of steel aluminum components? Or do they extend to other components?
Trond Westlie: On the tariff side, the impairments of the 1.2 billion only relates to the steel and aluminum. We also -- in the introduction, we also said that we have not included the other tariffs of the 20%, which is now 10% plus 10%. The 10% is effective and the last 10% is not. Having said that, so the 1.2 billion is not including the other tariffs. In the scenario that we will get a tariff of 20% from the EU to the US. That will -- in our sort of preliminary estimates because we don't know what it will contain. But if it's a point blank, basically all goods going into U.S. of 20%, that will result in a bit less than half of the NOK 1.2 billion of impairments. So it's sort of short of the NOK 600 million of impairment that needs to be added to Sunrise and Revolution.
Rasmus Haervig: Fully agree. And just in terms of the underlying sort of drivers, just in very simple terms, the key drivers behind the tariffs on steel and aluminum is the monopiles and the turbines, obviously, mostly steel. And then the key driver behind a potential additional tariff on sort of more broadly outside of steel and aluminum would -- the vast majority of that would be related to cables and blades. But again, the financial implications are exactly as laid out by Tor.
Operator: Our next question comes from Mark Freshney with UBS. Please go ahead.
Mark Freshney: Hello. Thank you for taking my question. I mean this is you're canceling Hornsea 4 given everything that's going on in the U.K. with Clean Power 2030. Some might say it makes a very ambitious target for the U.K. even more difficult to achieve. So my question is, presumably, you would have had to have spoken to the Energy Minister with Secretary of State last night or early this morning. And my question is what do they say about this? And I guess further, to deeper question. How confident are you the government can find a solution to this and get LeanPower2030 done?
Rasmus Errboe: Thank you for the question, Mark. I'm afraid my answer is probably going to be a little bit disappointing to you, but I'm not going to entertain -- I'm not really going to go into this from that perspective in terms of the political targets in the U.K. and so on. That is not for me to do. I would like to focus on our projects and how we can continue to assist the British government in the best possible way. And as I said before, when asked on another matter, of course, in all of the markets we are in our core markets, of course, we continue to have dialogues with all the relevant stakeholders. But I will not go into details about specific conversations with anybody.
Operator: Our next question comes from Helene Brøndbo with DNB. Please go ahead. Helene Brøndbo: Yes. Hi. Thank you for taking my question. I was just wondering if you could shed some more light on how you assess the possibility of doing new offshore wind projects that are profitable in the in the current market Europe? And what do you think it will take for this industry to become more competitive, I guess, on current subsidy regimes as well on a subsidy-free basis.
Rasmus Errboe: Thank you very much, Helene. No. So first of all, just to be clear, while we do see challenges in the short term for offshore wind also in Europe, we fundamentally believe in the long-term perspective for the market, driven by the fact that sort of the demand for electricity is obviously going up quite significantly in Europe. And also right now and for a while now, we see a significantly strengthened focus on energy security and also affordability. And then finally, we are seeing significant improvements in framework conditions in several of the major markets that we see for the long term, what is needed in our view for the industry is predictability for the developers and the supply chain and also frameworks that are centered around CFDs, exactly like we see it in the U.K. The uncertainties that we would have to address as an industry here is obviously on the size of the electricity demand. It is on the price side. It is also on the supply chain that we've talked about before. And then obviously also turning the targets into FID and then finally on the bankability of the projects. But we firmly believe that there is a way forward and as we have also recently put out as part of an industry piece, called European offshore wind at a crossroads. We are very focused on the need for predictability, and we believe the right way is for the European governments more broadly in the coming period of time, tend out offshore wind in a, you can say, a coordinated manner country for country. Preferably with a, you can say, guaranteed build-out of offshore wind of around 10 gigawatts from 2031 towards 2040 of CFDs and then a top on for emerging projects with PPAs. If that happens, then we are convinced that the industry will answer, we will and we also then expect LCOE to again start going down significantly for offshore wind. Europe need offshore wind. We don't see a relevant scenario where we will not see a significant increase in volumes for offshore wind for the next decades, but we need to break the curve together.
Operator: To continue with a set of follow-up questions, starting with Harry Wyburd with BNB Paribas. Please go ahead. Mr. Wyburd, your line is open.
Harry Wyburd: Hi. Sorry, my question was already answered. So I'll just hand it on to the next person. Thank you.
Operator: The next follow-up comes from Alberto Gandolfi with Goldman Sachs. Please go ahead.
Alberto Gandolfi: Thank you. I keep it very brief. Thank you for taking my follow-up. My question is the following. Do you have a view on the potential implementation of zonal pricing in the UK on its -- on the probability of it being implemented, what time line? And how would it affect your existing profitability -- the profitability of the existing portfolio. Thank you, so much.
Rasmus Haervig: Thank you, Alberto. So obviously, the conversation around zonal pricing in the UK is obviously something that we are following very, very closely and our engagement with both businesses and Rima remains a priority for us. For us, what is really the key point here is that we see a need, obviously, for significant commitment to grandfathering of existing projects, which is also very much what we discussed with the senior officials, as well as also the public comments that we have seen coming out. So we fully appreciate that the on pricing is still under consideration and as such, we will not sort of -- I will not put out a firm view on one model or the other. But of course, it is -- and it is an uncertainty should you go there on the cost of capital for existing projects because of the increased uncertainty on the revenue line and the risk of the project, which is also why we believe that the grandfathering of existing projects is absolutely essential.
Alberto Gandolfi: Thank you.
Operator: Our next question comes from David Paz with Wolfe Research. Please go ahead.
David Paz: Hello. Thank you. Just on the Revolution Wind, can you help me understand you say you're on track to be complete to complete to the highest for even this year to believe it's installation vessels. What then has been completed to get you COD, I think you still have second half 2026. Just can you remind me what's the lag there?
Rasmus Errboe: Absolutely, David. So the critical path, if you will, for Revolution Wind is the onshore substation. So what we are doing now, as we've talked about is, of course, we are continuing the offshore construction that I mentioned before where we are, as said, around or we have installed around 50% of the 65 turbines and around 80% of the monopiles. So you can say all the components for Revolution Wind have also been constructed and prepared and the critical path, what we will be doing for remainder of 2025 and 2026 is the offshore construction but also the finalization of onshore substation.
Operator: Our next follow-up comes from Peter Bisztyga with Bank of America. Please go ahead.
Peter Bisztyga: Yeah, hi. So actually, just another one on zonal pricing in the UK. Just wondering whether the uncertainty associated with that better tool in your decision to council on V4? And have they caused any issues or disruptions with the Hornsea 3 on down process?
Rasmus Errboe: Thank you, Peter. The answer is no and no. So the zonal pricing debate in the UK has not, in any way, been part of our decision to discontinue Hornsea 4 in its current form. It is driven by the three things I mentioned before and then also the comments I made relating to a potential farm down. And as per our ongoing process with the farm down of Hornsea 3 as Trond said before, we're not going to go into details about an ongoing process, but I can say that the debate about zonal pricing is not part of the conversations we have.
Operator: Our next follow-up comes from Rob Pulleyn. Please go ahead.
Rob Pulleyn: Hi. Thank you. Maybe this is a little bit obscure, but relates to the US projects. There was a technical ruling, I believe we'll call it on the May 2nd by the interior department regarding permitting for offshore wind, and this removed a Biden opinion and inserted a Trump one. And the language says that the development action taken on the basis of this previous opinion would have to be reevaluated. Sorry, this is all rather clunky. But the question is, I don't know whether you've seen that May 2nd ruling. I'm sure you have. And does that open the door to retrospective removal of the permits on Sunrise and Revolution, which obviously post dates, what happened to Equinor's Empire project. I hope that was a clear question.
Rasmus Errboe: Well, thanks, Rob, for the question. I'm not going to go into speculation about -- you can say the regulatory framework around Revolution Wind and Sunrise as I said before. We have all the permits we need, we have completed multiyear reviews, and we have also followed all state and federal procedures. So therefore, I'm not going to go into specifics about technical rulings.
Operator: The next follow-up comes from Ahmed Farman. Please go ahead. Mr. Farman, your line is open, we cannot hear you.
Ahmed Farman: Right, two questions, sorry about that. Could I get your perspective on the UK government proposed performs to the CFE? Just if you think that mix a material difference to the options or the overall attractiveness of the market. And then you talked about earlier that the both Sunrise and Revolution in are part of the single program. And as I understand it, probably some learning some of the evolution will go sort of will go to Sunrise. But could you elaborate on that? What are the, sort of, critical thoughts there in terms of the learning some revolution that would sort of then expect to benefit the Sunrise Wind project. Thank you.
Rasmus Errboe: Absolutely. Thanks, Ahmad. So in terms of AR 7 and the debate that is currently ongoing. Since we are not going to participate, I don't think it is right for me to go far into that discussion. But we, of course, note very much the dialogue that is ongoing right now as part of the framework for AR 7. And we also, of course, not as an example, the proposal that is being discussed on potentially having a CFD that is 20 years instead of 15 years and so on. And of course, as I also said before, in a more general comment about what is needed for the long-term for offer wind in Europe, any increased predictability for the developers, including on the revenue line, in our view, will be attractive. As an example -- with respect to your question on Revolution Wind and Sunrise being conducted executed as one program. And you asked about the learnings. As an example of that is the installation rate for the turbines. One of the challenges that I also partly alluded to before that we have had also when we rebased the schedule for the project was the installation rate for the turbine where we where we had to use a US setup with a jackup and a barge where you basically sell out one turbine on a barge, the blades and the monopile and so on and then you install the full turbine with a jackup vessel. That is a process that is not one that we would normally go with. So therefore, that's an example where that will be the same approach that we're also going to use for Sunrise. So therefore, the learnings in terms of installation rates for the turbine will travel from one project to the other. Specifically for Sunrise, we will have two installation seasons over winter or therefore, also obviously complying with all pile banning requirements and so on. So, that will also mean that the learnings, as an example, on installation rates for the turbine will be important for Sunrise Wind as well. That's an example of how learnings travel from 1 project to the other as part of being constructed as 1 program.
Operator: The next follow-up comes from Helene Brøndbo with DNB. Please go ahead. Helene Brøndbo: Yes, hi. I had follow-up here on the recent U.K. ruling related to wake effect. And I was wondering how you see that impacting your Hornsea 1, 2, 3 projects.
Rasmus Errboe: Thank you, Helene. So, yes, we are, of course, following closely I'm not going to give specific numbers away in terms of implications on projects and so on. I think it is still very, very early days in this regard. And as I also understand sort of everything that is out there now the now the wage mentions have are calculated by independent experts and the estimates are based on assumptions known at the time and so on. So, it's not for me, as of to comment on implications of that ongoing process on our existing projects in the West and East of the U.K.
Operator: The next follow-up comes from Dominic Nash from Barclays. Please go ahead.
Dominic Nash: Hi there. Yes, thank you. I think -- another while ago, we might have talked about the ability and willingness of Ørsted to raise debt via SPVs within projects rather than raising it all at balance sheet at group level. I just wanted to know whether or not you're evolved in your sort of debt raising sort of ideas going forward as to whether ASPR route is something that you might consider more of and/or implement? Thank you.
Trond Westlie: In that relations, we are in specific instances or in countries that we see as beneficial. We are doing that and looking into that. So, in the likes of Taiwan, we have been looking at it due to the fact of both the projects themselves, but also the country risk element of it. So yes, we are looking into that, but more in specific instances.
Operator: And our last follow-up comes from Deepa Venkateswaran with Bernstein. Please go ahead.
Deepa Venkateswaran: Thank you. I think my question is going to be on the Greater Changhua project. It's 35% complete as of now, but you do still expect COD to happen this year. So, just wondering, is that a stretch goal? Or is there any risk of this spilling into 2026, as you had previously flagged? And maybe you can just explain to us why, the Taiwanese project can be constructed so quickly, even compared to other European projects? Thank you.
Rasmus Errboe: Thank you very much, Deepa. So, two questions, I think, first-of-all, on the timeline, you are right. As we have also said, we expect the COD from this project towards the very end of 2026 -- 2025 sorry. And there is a risk, I would say, that a turbine or two could slip into 2026. But again, it doesn't really have any implications from a business case perspective, because we would obviously get the power as we ramp up the wind farm. So, it's a very different situation than, for instance, a project like Revolution Wind, where there is the onshore substation that is the critical part. And then, in terms of your comment which is very right on the construction progress for Changhua 2b and 4. It is going quite well, as of now. We are managing to install both the Suction Bucket Jacket, which are here. And also the turbines at a pretty good pace, better than we had expected, I might add. But of course, also right now, as an example, we are seeing close to perfect weather conditions in Taiwan. And part of -- that's obviously also one of the uncertainties that we have is of course, that weather. We don’t expect that to just continue. But right now, everything lines up very nicely. And we are, as you rightfully point out, constructing at a very good -- installing at a very good pace on these projects.
Operator: Ladies and gentlemen, this was our last question. Back over to the management, for any closing remarks.
Rasmus Errboe: All right. Thank you all very much for joining. As always, we very much appreciate the interaction, and we appreciate the interest. And also, as always, if you have any further questions, please never hesitate to reach out to our IT team -- IR team sorry, who will be here to answer them. Thank you all very much. Stay safe. And have a great day.