The head of the world’s largest developer of offshore wind farms has warned that governments must speed up the leasing of seabeds if climate targets are to be met.
Mads Nipper, who became chief executive of Denmark’s state-backed green energy champion Orsted at the start of this year, said there was clear appetite from a growing number of companies to develop projects but delays to licensing decisions risked pushing up costs as competition for acreage increased.
“There needs to be an exponential increase in the availability of seabed,” Nipper told the Financial Times, warning that the pipeline of seabed auctions and licensing rounds was particularly narrow this year.
Nipper said Orsted, whose share price doubled last year as investor interest in renewable energy soared, was upping its commitments to expand offshore wind, targeting 50GW of installed renewable projects by 2030 from a previous target of 30GW.
It has ambitions to be a “green supermajor” to challenge Big Oil during the energy transition, and is expanding beyond offshore wind into solar, energy storage and onshore wind.
After reaching an all-time high in January, its share price has shed 38 per cent to about Dkr840 as investors grow sceptical of the speed of the sector’s rally. The stock also suffered after Orsted’s April revelation of a DKr3bn bill linked to damaged cables at 10 wind farms but is still up more than a fifth since the start of 2020.
The company also faces increased competition from oil majors such as BP and Royal Dutch Shell that are diversifying into renewable energy. Orsted itself was previously known as Danish Oil and Natural Gas before pivoting to renewables and offshore wind earlier than many of its rivals. It remains 51 per cent owned by the Danish state.
Nipper pointed to the rising cost of seabed auctions in the UK, saying some companies were “desperate” to grab offshore licences as they play catch-up in offshore wind. At the start of the year, a BP-led consortium promised to pay the UK’s Crown Estate combined fees of more than £460m a year for rights to build two schemes in English and Welsh waters, which analysts and rivals described at the time as “staggering”.
“Those people who have shown the highest willingness to buy a foot in the door in the industry, they obviously have the potential to create imbalances that are not good for the industry,” Nipper said.
“If imbalances are created, that means that the entire industry will either be less competitive, or end up having less value-creating products, and that’s not good.”
He criticised “blind” auctions in particular, such as those in the UK, saying they led to far higher bids — a boon for government revenues but potentially detrimental to the development of offshore wind if prices go too high.
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here
Nipper said Orsted would not be “forced” to “dive into projects where we really wouldn’t create any value . . . That’s not good for the industry, long term”.
Increased competition is not the only source of rising costs, with a broad-based rally in metal prices also raising the spectre of inflation for the industry.
Nipper said steel was Orsted’s main raw material cost, but it was not yet feeling the pressure as it had hedged most of its supplies for big US projects.
He expects the price gains to be tempered by the natural cycle of commodity markets. “It is unlikely that will just continue to skyrocket because this would just so fundamentally impact inflation across so many industries,” Nipper said.
Nipper said the company was establishing hubs in the US and Asia that would take on greater power relative to its Danish base.
“We will still have a headquarters with some very deep technical capabilities in Denmark,” Nipper said. “But we will globalise in the sense that we will also push out and build not only size but capability and decision-making authority.”