Thomas Brostrøm, President, Ørsted North America and CEO, US Offshore
By way of background, Ørsted was basically founded by a merger of six Danish energy companies back in 2006. We all focused on oil and gas exploration and also producing heat and electricity from coal fired power plants. But when we were standing in 2012, we were basically faced with gas and oil prices under pressure. We didn’t have the cashflow for our business, but the same time, we could see a massive growth opportunity in renewables energy. And we have some expertise from offshore wind that we have built up over 20 years.
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Positioning for the new era of energy
We could see that the customer being the rate payers, being the society, wanted to respond more to climate change, certainly in Northwest Europe. So we needed to find a way where we could sort of fuel a new growth strategy, but we simply didn’t have the cash flow coming in. So what we decided to do was essentially a couple of things. We took some major decisions to streamline and divest what we determined non-core businesses. And we also went out and got some equity injection from the capital markets. And by that way, we certainly had a way to basically push the speed for our renewable growth.
Leveraging expertise for new growth in offshore
We basically determined that offshore wind would be our new growth opportunity for our business, because we had some expertise in offshore wind, but we could also see that the expertise we have basically gained from our oil and gas experience were kind of similar and could be transferred into offshore wind. And we could see increasing demand from a number of countries that they wanted to deploy the oceans and harvest the energy they could get from that.
So we took a decision saying, “Okay, we’ve done this before, we know there’s still some way to go.” But we could use some of the workforce we already had and we transferred them from our oil and gas best business into our offshore wind business and starting to ramp up the investments into offshore wind.
How volume and scale are driving down costs
No question that the biggest obstacle has been cost. Offshore wind has been fairly expensive when you compare to other more conventional energy types. But over the last four or five years, we’ve really seen a massive reduction in the cost of this technology. And it’s been basically driven by a number of things. Number one is volume and scale. When you go from smaller projects to bigger projects, you take out a lot of costs due to scale benefits. But also as you see more countries demanding offshore wind, you see the volumes getting up in the supply chain. And I would say above all, the technology has improved. So we had smaller turbines early on, now we have big, more efficient turbines that can capture more of the wind and they’re also taking out what we call CAPEX. So a lot of the investment goes out.
So that has been the main obstacle. We’ve taken out more than 60% of the cost over the last four, five years, and right now we are competitive with most other energy forms.
“We believe in a world that runs entirely on green energy”
When I started 10 years ago, we were like 80 people in offshore wind. We were the cute little team that are working with wind turbines, and today we are 2000, 3000 people working with offshore wind. You obviously have changed a lot in the way the company is looking at this industry.
I think the biggest takeaway is you have to be a little bold when you make these kinds of decisions and you need to set a clear vision, which we did. We basically said we believe in a world that runs entirely on green energy. And we basically believe that this is the way the world is going. So we better get started early on. And I think you have to go all in when you make these kind of decisions, otherwise you cannot follow through. And I really think we did that and we’ve done it very rapidly because we had a clear vision.
The importance of staying the course
I think it’s very important that you have a patient shareholder and management when you go through a transformation like this. And I can happily say that 10 years in it’s been very successful for Ørsted and we’re one of the leading green energy companies in the world, and 10 years ago we were one of the most polluting companies or utilities in Europe. So it’s been a bold move but a very successful one.