Danish energy group Ørsted announced its earnings report for the first 9 months of 2018 last week, revealing increased operating profit due mainly to an increase in profits from operational wind farms, boosting the company’s full-year guidance as a result.
It has been a busy year for Ørsted, and the company’s financial reports have reflected continuing growth throughout the year at the same time that it builds and modifies its business. In addition to signing deals to develop offshore wind energy capacity in the United States and Taiwan, on top of its usual stomping grounds, Ørsted acquired US onshore wind energy developer Lincoln Clean Energy, moved to sell off its Danish distribution business, and acquired US-based offshore wind energy developer Deepwater Wind.
Despite all this activity and spending, Ørsted was able last week to announce operating profit (EBITDA) of DKK 10.8 billion ($1.65 billion) for the first 9 months of 2018, up 14% on the same 9 months a year earlier, due primarily to a 32% increase in operating profits from the company’s operational wind farms. Further, the company’s green share of generation increased from 59% to 71%.
For the third quarter, Ørsted continued its strong performance with EBITDA of DKK 2.2 billion ($336 million), a 27% increase over the third quarter of 2017. Earnings from operational offshore wind farms in the third quarter increased by 31% to DKK 2 billion, thanks primarily to the ramp-up at the 659 megawatt (MW) Walney Extension and the 573 MW Race Bank Offshore Wind Farm — though it was also partly offset “slightly” by lower winds than in the third quarter of 2017.
“During the third quarter we have secured a very strong and long-term growth platform in the American market,” said CEO and president Henrik Poulsen, before listing the company’s accomplishments for the quarter. “Looking at our financial performance, we delivered strong results and managed to increase earnings by 14% in the first nine months. Especially our offshore wind business contributed with earnings from offshore wind farms in operation increasing by 32%.”
Looking forward, according to Poulsen, Ørsted increased its “EBITDA (business performance) guidance, excluding new partnership agreements, by DKK 0.5 billion to DKK 13-14 billion. The increase is primarily due to good progress on our offshore construction projects, faster ramp-up of generation from Borkum Riffgrund 2, and higher than expected earnings in our gas portfolio and LNG business.
“Orsted’s upgrade to its earnings guidance has been expected by us since April and it finally materialized despite slightly lower wind speeds,” explained Elchin Mammadov, a Utilities Analyst with Bloomberg Intelligence, who spoke to me via email. “The target upgrade was mostly due to the higher earnings related to construction agreements and a faster-than-expected ramp-up of generation from newly commissioned wind farms, which should also boost 2019 earnings. After a strong 3Q, profit in the LNG business is likely to normalize in 4Q and beyond as the arbitrage between EU-Asia gas price differentials has closed.
“Improved power prices and margin in Europe should provide earnings tailwinds in 2H power generation. Management’s focus will be on winning upcoming wind auctions (U.S., Europe, Taiwan) and completing and divesting stakes in Hornsea and Borssele offshore wind farms.”
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