Hello, everyone, and welcome to Ørsted's presentation of our full year 2023 results and our capital markets update. My name is Rasmus Hærvig, and I'm heading the Ørsted IR team, and we've been very much looking forward to giving you this update. Today, our CEO, Mads Nipper, will give a update on our business plan, followed by our interim CFO, Rasmus Errboe, who will go through our financial plan. That will take roughly an hour, and afterwards, we have an hour allocated for Q&A, where both the people who've joined us here at Gentofte today, but also those following online, can pose questions. So with that, over to you, Mads, and for the presentation. Thank you.
Thank you very much, Rasmus, and a warm welcome to those of you here, and also for all of those who are following us online. We appreciate you dialing in on this. As Rasmus said, it's a very busy earnings day, and therefore, great to have you here in the room. As Rasmus said, on top of naturally presenting our 2023 results, we will also, in light of a very challenging 2023, we will also present our updated plan. And we are very aware that 2023 was a significantly challenged year, not just for us, but for all stakeholders, including investors, due to the developments in our U.S. offshore business, and not least, the very difficult but economically rational decision to cease development of Ocean Wind 1 and 2 for that matter.
That led to significant cancellation fees on top of impairments that we've had to realize, mostly also for that project. But with that, let me start on the business update, including the outline of both what we have learned and also what is going to happen from here. So if we take a look at the summary of what Rasmus and myself will be presenting, there are essentially 4 components. One is on the 2023 results, where the underlying business results were actually approximately DKK 1 billion above the top end of our guided range, something we were obviously satisfied with. We did see some significant strategic milestones, and also we were within what we had already announced at Q3 in terms of both impairments and the expected cancellation fees for Ocean Wind 1.
We are very aware that none of that takes top priority, with our investors, but nonetheless, an important backdrop to also share with you in a much briefer than normal format. What we have done also, and we have worked intensely on that in the last, weeks and months, is to ensure that we review very carefully what were the events that led up to the situation we had in our U.S. business, and also especially that led to the very dramatic developments on Ocean Wind 1, leading to terminating and ceasing development of that project. We have analyzed that, and we have taken learnings that are already implemented or under implementation.
We have also done a significant risk review of all of our offshore wind projects, not taking any assumptions that something is under control, but doing a systematic and structured review of what has happened in our, in our portfolio and implementing key learnings from that to further de-risk those projects. We will do that in some detail today. And then we have conducted a portfolio review leading to a slimmer, but most importantly, a more focused portfolio with a higher value creation and risk balance. We will also share with you the backbone of the updated plan that we have, which is a robust business plan that delivers on what we had set out to do.
The core elements of that robustness, and also to ensure that we protect a solid investment-grade rating with a strong balance sheet, is that we are reducing and further phasing our CapEx. We have an accelerated and expanded partnerships and farm-down program, and we've decided to have a 3-year dividend holiday. Then also, we are reducing our both development but also our fixed costs. Let me dwell on that for a second. This has also led to us today announcing that we are removing, during this year, 600-800 positions in the company, and today also announcing that 250 colleagues will leave Ørsted.
We are obviously committed to do that in a respectful and fair manner, but it is an important part of our program to ensure that we further strengthen our competitiveness. All of this will lead to an estimated DKK 1 billion saving in 2026, compared to 2023 on a like-for-like basis. All of this leads to, and you will hear us say that again, that the updated guidance is an unchanged 150-300 basis point spread to WACC. This is industry-leading, as I'm sure you're aware, and fully loaded, so that is fully cost-loaded with our fixed cost as well. An unchanged average 14% return on capital employed. A 35-38 GW of estimated installed capacity by 2030.
And that is a reduction, but it is also one that leads to an investment program, which, on a like-for-like basis, is approximately a third. So comparing the DKK 475 billion to the announced at the Capital Markets Day to our approximately DKK 270 billion now, is, on a like-for-like basis, reducing for what we spent last year, a third reduction. And that leads to a DKK 39 billion-DKK 43 billion EBITDA by 2030, excluding new partnerships. That is around 8% average growth. And I will mention that this would, this number would have been around 10% had we ended in the middle of our guided range for 2023.
So the CAGR towards 2030 is naturally mathematically lowered because of the higher than expected performance of the underlying business in 2023. So this is the backbone and the core messages of what we have for you today, but we will obviously elaborate on all of these dimensions. Let me very briefly again round up 2023 with the underlying business results. DKK 24 billion of earnings before partnerships and cancellation fees. We did see a 12.9% return on capital employed net of cancellation fees, impairments. We did end the year at DKK 26.8 billion impairments, which was a tad lower than estimated, driven by interest rates being lower.
We did end with an almost 50% reduction in our Scope 1-3 emissions, and also a very significant reduction in our Scope 1 and 2, driven by burning much less fuel in our combined heat and power plants. The strategic milestones included 4.5 GW of final investment decision, including the world's largest offshore wind farm, Hornsea 3. We'll come back to that because it is such a big project for the company. But we also saw that there was strong—there was good progress in some of our selected high-priority markets, in this case, exemplified with getting the electricity business license for the Greater Incheon project of 1.6 GW close to a heavy load center in around Seoul. We did continue our successful farm-down track with 2 completed transactions.
We had good construction progress, and we are nearing COD of both South Fork Wind and Greater Changhua 1 and 2a. And then we broke ground on Europe's largest e-methanol facility, Flagship One, and also on our Danish carbon capture and storage opportunity here. That's all I'll say about 2023. Rasmus will come back to a little bit more of the details, including the 2024 guidance, but otherwise, let us turn to some of the events that we have learned, that we have implemented, and that will shape the backbone of our plan going forward. So what are some of the negative events that have hit us since the Capital Markets Day, and particularly hit our investment capacity? Most notably, unsurprisingly, is the cancellation costs of the ceasing development of Ocean Wind 1.
Since this is FFO, this is something that has a material impact on our investment capacity. But we've also seen that the forward prices, and hence also the expected revenues, have come down, and in select markets, just over the last months, we have seen the markets come down, the forward prices come down as much as 40%. In terms of the supply chain impacts, there are 2 impacts mentioned at the bottom.
One is a general inflation, which has continued, albeit not at the same steep rates, but the more notable impact is that as part of our risk review, we have increased both our contingencies, but also the pre-commitments we have put in to ensuring that we have backup capacity for the critical path or some of the project parts of the project execution that would be at risk of leading to more material impacts. That comes at a cost, but it is to be considered an insurance policy against much greater potential impacts. So we consider it a positive to be better prepared for that. And that means, which will also form the structure for what I'm gonna say for the next 15 minutes, that we have concluded the review of the events in Ocean Wind 1, implemented learnings.
We have done a risk review on all of our projects. We have done a portfolio review leading to a smaller, but again, more importantly, focused portfolio. And then we are implementing measures to ensure that we have a strong and robust plan. And if we, without further ado or further delay, turn to the events of Ocean Wind 1, because this is the most significant impact that hit us in 2023. Starting on the left side, what actually happened? So for the context, these projects, so all of our early-stage U.S. projects, have been materially hit over a longer period of time by the generally adverse industry conditions.
That is something that has impacted the entire industry, but because these projects were without any kind of inflation indexing, increasing interest rates, and significantly increasing capital inflation, which was 3-4 times as high as consumer price inflation, and even higher in an immature market like the U.S., it was already a project whose returns were under pressure and who had also lost most of the float in the schedule. We had chosen, which seemed as a right decision at the time, to continue to mature the project, to develop the project, and at the same time, to commit capital into the project with the intent to keep the plant and the committed COD date.
With the knowledge we have today, that was not the right decision, because that meant that in a pre-FID project, we were committing very significant capital, and given the events that hit, this was the wrong decision with the knowledge that we have today. On top of that, we made- we had made also with the intent to qualify for the tax credits, we had made ourselves dependent on a immature supply chain in the U.S. market. We had high confidence that this was being built, so we were deeply engaged in building new facilities. We were, we were part of actually ensuring that there could be final investment decisions on new build vessels. We felt comfortable that this was well on track, but it progressed slower due to a whole number of reasons, such as lack of qualified labor, difficulties ramping up, and other challenges that actually hit.
That meant that overall, and especially over the summer and early fall, we got a number of delays and suppliers that failed to live up to the commitments. That meant that in totality, it was very, very hard hit. At the time, we found ourselves out of ability to book backup capacity for installing in 2025. Had we known before, that might have been possible, but at the time we got this knowledge, it was too late, which, as I'm sure many of you have heard us say before, that meant that the project would face such a big delay that we would end up having to recontract most of the CapEx at even higher rates. That was what ultimately led to the very difficult, but as I mentioned, economically rational decision to cease development.
On top of that, we found ourselves, and that is another learning that we're implementing, that even though at the time they didn't seem critical, there were a couple of local construction permits that turned out to be more challenging and a bigger risk for the project than assumed. And we also had a further delay on the air permit for the project, which again posed additional uncertainty. And at the time of the decision, it was also not clear what additional tax credit we would qualify for. More importantly, what have we learned and what are we implementing based on this series of event with Ocean Wind 1?
On the supply chain, we have done a significant additional focus on contingency planning, essentially scenario planning of what is it that can go wrong, especially if some of the material risks that we are identifying happen at the same time. You'll be unsurprised to hear that we have already had for a long, long time, sort of a very diligent work with individual risk. As a matter of fact, our project has and has always had a risk register of over 100 risks identified, quantified, and what we need to do to mitigate them. But it is more in the event of saying, what if these happen concurrently, if some of the ones that have critical dependencies happen?
We have upped our ability to work with that, and that also means we have upped our ability to more proactively secure, especially installation capacity, well ahead of time so that we can mitigate the most notable impacts of this. That is an absolute key learning. We've also learned that especially in newer markets, but also when we have new capacity being built, such as new build vessels, being even closer on the yards, on the manufacturing facilities to see, do the projects, do they follow the construction timelines? If not, can we help or can we also now, in those cases, do more proactive contingency planning?
Then, especially after a period with very, very volatile environments, we have also clearly prioritized that we will get only inflation-indexed contracts, especially in markets like the U.S., where there's a long time from award to actually FID. In a market like the U.K., where, by the way, there is inflation protection, there's a much, much shorter timeline between award and FID, so lower risks there. In terms of the CapEx and break-even profiles, learnings in that part of our business is a significantly higher scrutiny of pre-FID commitments. We will not again get to a level of pre-FID commitments with what we saw in our early-stage U.S. projects, and especially not in Ocean Wind 1.
Capital commitments, pre-FID, will be at a totally different level than we saw at these projects, and we have already implemented that for, as exemplified with, for example, Ocean Wind 2, which was a newer project. We had much, much, much, much less committed in that. So this was a learning that was already underway, but we will further scrutinize and further limit the risks of those pre-FID commitments. Same thing, we want to have all critical local permits in place before we take FID or and or do capital commitments. And finally, we will clearly prioritize projects with a flexibility on the timeline for the COD. Because if we do have that flexibility to push a project one, 2 years, then this is something that gives us significant additional flexibility in those also in terms of how we commit our CapEx.
That is even better for the offtaker of this power, because it's a lot better than a project gets built a year later than it doesn't get built at all. Then on the governance and review of the risks, also a few already implemented learnings here. So we are doing; we've always done stage gate reviews, but we are doing now in an up way, internal reviews, so that teams, expert teams that are outside of the project team, are now scrutinizing ahead of the stage gates to ensure that before we commit any additional resources, we've gone through a challenge session.
On select projects, like we have done for several of our existing projects, we've also had external reviews who will really challenge and come in and saying, "Is there something here that we might not be seeing?" We will not do that for every project because we do have strongly believe we have the deepest capability in the company, but we have chosen, and we will continue to choose that on select projects, we will do those risk deep dives. Finally, we have also upped the frequency and the scrutiny with which we in top management, and also the board of directors, take a view of these top risks. And we've already institutionalized since a couple of months, that we do a systematic project-by-project top risk review, including pushing for mitigating actions if needed.
So with all of these things, we feel a lot more comfortable, not only that we won't run into an Ocean Wind 1-like situation again, but also that our general organizational capability to better and more proactively manage risks is better. And with that, let me turn to our under-construction portfolio. This is something which is a little bit unusual for a CEO to do. But given the circumstances and situation we find ourselves in, we find it prudent that I actually take you through a project-by-project review and status on where we are, including what are we more specifically doing and preparing on each of these projects. So if we start with Greater Changhua 1 and 2 a, and South Fork, those are 2 projects that are completing as we speak.
So we're installing, as we speak, the last 4 turbines of Greater Changhua 1 and 2a, Taiwan's first really big, significant-scaled offshore wind farm. And it will commission before end of Q1. And likewise for South Fork, which is the first utility-scale offshore wind farm in the U.S., and especially also in the state of New York. We have installed 10 turbines. We have the 11th loaded, and as soon as the weather permits, it'll go out and finish that construction as well. Both of them expected with a COD with no or limited risks before end of Q1. Turning to the German program, which, as you may know, consists of 2 projects, so Gode Wind 3 and Borkum Riffgrund 3. Gode Wind 3 is on plan.
We have completed installation of all monopiles, and Borkum Riffgrund 3 is also progressing well, but with a tighter schedule. And that is driven primarily by the supplier of monopiles, a supplier that continues to have some ramp-up challenges, even though the current plan does not indicate a delay of the project. We are anyway in advanced discussions to secure an extension of the installation vessel to ensure that any further potential delays, that that actually won't hit us. So this is a project where we are, which exemplifies that with this risk, even though the current plan and current messaging from the supplier does not indicate so, we are saying we need to have the prudence, given also our presence on the fabrication site, that the finishing of those monopiles, there is a risk that it gets delayed, and we are prepared to pay that premium.
On Greater Changhua 2b and 4, a very important milestone was reached also within the last few days. We have finished the manufacturing with the offshore substation ahead of time on a yard in Singapore. And also here, we have-- we do have a compressed but on-plan schedule. We are also here, in active discussions to book proactively, installation capacity into the beginning of 2026, in the event that the 2025 schedule becomes too compressed. And for those, for those of you who have-- who knows how dramatic it can be to go into a new installation window, the economic impacts of that are much lower if we already, in due time, actually book and plan that additional capacity. So another example where a tighter schedule leaves us to be in advanced discussions to book that.
On Revolution Wind, which was our first very big project to FID at a difficult date for the company, namely on November first, we have signed all major contracts. We have, as I believe, I also mentioned at our Q3 call, secured a full and 100% backup capacity for the delayed Jones Act-compliant vessel. We have the Scylla, which is a barge solution to installed. By the way, the same solution that we have on South Fork, and we have ramped up the installation speed to the necessary level, so we are seeing that installation scope perform.
We have a very strong focus also here on the monopile delivery, because 20% of the monopiles for Revolution Wind are delivered by the same European supplier, who has the ramp-up challenges that I mentioned for the German program. We have 13 monopiles being delivered for that project by the supplier, 2 of them being for the offshore substations, and those are the ones we are prioritizing. Instead of just pushing for it, we say, "Pull forward those 2 that are essential for the offshore substations," because then any delay will have an immaterial impact on the project economics. Whereas if we couldn't install the offshore substations, we simply couldn't export the power.
So this is something how we are also working in details with ensuring that we proactively mitigate and manage some of the bottlenecks that we face. Hornsea 3, I'll make a special mini deep dive on in a minute, because it is so big that it warrants special attention. Sunrise Wind, which is the first of our 3 awarded projects, so not yet FID'd. We have signed most contracts. As I'm sure most of you will be aware, we have bid that into the New York 4, so a rapid rebid round, where there were 3 bidders for a quite significant capacity. So we are optimistic about a good outcome of that without knowing anything, of course.
We are expecting in Q1 the Record of Decision, which is the key federal permit, with all permits being in place no later than over the summer. So some of you should have the thought about, is there any regulatory risk of a potential White House regime change? That should be concluded well ahead of that. And then also here, there's a very strong focus on the monopile delivery, which again, was planned to be majority from a supplier that has ramp-up challenges. But we have descope proactively already now from 84 to 28 monopiles, and that means that 2 additional suppliers have filled in the remaining capacity, and they are both on track.
So we feel that this project from an execution point of view is in a good place, and also here we have partly secured backup capacity, but are in discussion whether we also, like we have for Revolution Wind, should go for 100% backup capacity. On Baltica 2, where we expect FID later this year, that is also a project where we have secured most of the contracts. We have relatively low breakaway costs, assuming that we get an FID not too deep into the year. We have, for prudence, increased the project contingencies without being particularly earmarked for any known bottlenecks in the project. And finally, for Baltica 3, which as we've always shared, is under reconfiguration.
That is still the case, because that is the one project that we are still not comfortable we'll get into our guided range, but we are working hard on it. Otherwise, we need to take stock on that during later in the year as to what we want to do with that project, but very limited cancellation fees with that project. Leaving this slide, 2 key messages. Most importantly, given the mitigating actions we have taken, the deep dives we have made, we do feel we have a manageable risk profile and that we have a very good insight and taking the proactive or are taking the proactive mitigating actions.
Secondly, that with the exception of the 2 U.S. projects, that are both very attractive from a forward-looking returns point of view, the portfolio of Asia-Pacific and Europe projects are within the guided range of 150-300 basis points spread to WACC. A key piece of information, despite the turbulence that we have seen and despite the additional cost for the mitigating actions that we have taken. Let me turn specifically to Hornsea 3 I won't dwell very long on it, but as we've said, this is a DKK 70-75 billion CapEx investment, so close to 50% of the market cap of the entire company, and therefore, we thought it would be of relevance for our investors to have that insight. Why do we feel comfortable with that risk profile?
Starting with the regulatory framework conditions, this is a very attractive and well-known regulatory framework, exemplified with the fact that we have the opportunity to bid in the non-CFD capacity for Hornsea 3. This is an attractive opportunity for us to increase the value and a key component of being able to bring it forward to FID. There's a very short timeline from award to FID, which means that some of the risks we've seen materialize in the U.S. market are very, very small compared to anything we've seen in other parts of the world. All permits are in place, so before we even bid in, we had all permits in place for Hornsea 3. We have CPI inflation-indexed CFD agreements, and we have a well-known and well-developed regional supply chain in Europe.
We do have all major contracts in place, and we have very little doubt that the LCOE per megawatt is the lowest of any under construction project in offshore in the world, because they were secured at attractive levels. We do have a flexibility, and float in our schedules, and then we have also ensured that even though there are 2 relatively new-built vessels for the project, we are not the first offtake of those. So some of the teething issues that we may see from new-built vessels will likely be over with when we get them, and we have a contractually committed start date and a flexible end date. So the installation scope is one where we feel comfortable. And then on the execution, this is the third project in a row.
So, Hornsea 1, Hornsea 2, and this now this, this project, it is one where we have an extremely very experienced team, are probably our most experienced team, and it is a project from a cost perspective point of view, enjoys significant O&M synergies with Hornsea 1 and 2, and who knows, in a not-too-distant future, also on Hornsea 4. Turning towards our portfolio review, the 3 key principles we have used when we have done our portfolio review, at the end of last year, were most importantly, value over growth. It is critical for us that we can give a firm commitment that when we prioritize a project for investment, it delivers within our guided range, even if it means lowering our growth ambitions.
The other thing is to have a solid capital structure, where whatever we do with the totality of portfolio supports a solid investment-grade credit rating. Finally, with the opportunity set that we see, to ensure that we zoom in very clearly on the highest priority markets, so core markets and a select number of high-potential future markets. The outcome of that portfolio review, in the briefest possible form, was if we start in the U.S. offshore, which naturally has quite a bit of attention, we still believe that the U.S. holds attractive offshore potential, and we are, for now, zooming in even more specifically, primarily on the Northeast.
Exemplified not only by hopefully building 3 projects, including a Sunrise, pending a positive award in New York 4, but also to continue to develop our Lease Area 500, which is our 4-gigawatt very attractive piece of real estate outside of New England and New York. We have chosen to exit some offshore markets. Very important to say offshore, because we still have onshore activity in Spain, but Norway, Spain, and Portugal are markets that we are exiting, and also we are deprioritizing further offshore development in a number of markets, including Japan. Then we've also taken a quite significant leaner approach to both Power-to-X and floating offshore wind.
That is not because we don't believe in those technologies or that they are strategically unimportant, but we are facing our commitments both on development and expected CapEx to a slower than anticipated market development. So in essence, that means that our commitments, both in terms of capacity but also in terms of the CapEx commitments we are planning towards 2030, is now at a lower level, as outcome of that portfolio review, driven by this, this, development of the market that is, that is slower. And finally, as we'll come back to, and not least, Rasmus, we are accelerating our, partnership and divestment program. If we turn specifically to the U.S., let me only speak to the, to the left-hand side of this slide. What are some of the more specific outcomes?
Most of them I commented already, is we have withdrawn our Skipjack OREC agreement in close dialogue with the state of Maryland and with support, and we are now investigating the most value creating track forward on that asset. We have submitted the OREC rebid for New York, and we have made the agreement with Eversource about a conditional takeover of the project. That is in case of a positive award of the project. In case of a negative award, that we will still have an intact joint venture, meaning a risk-sharing with our partner, Eversource. We will continue to develop our seabed leases towards the permits, so that this is something that, in any event, increases the value of those assets. We will selectively and opportunistically pursue attractive offtake opportunities.
So we will evaluate what are some of the upcoming opportunities that come in terms of auctions, but under the very clear condition that these are exactly some auctions that allow the very limited pre-FID cap, capital commitments. Otherwise, they're not attractive to us. But we are happy to see that not only has New York and New Jersey shown auction outcomes with realistic offshore prices for offshore power, but we're also seeing that the last 3 auctions that either have been conducted or have been launched do have inflation protection between award and FID, which is critically important for our sustained commitment to the U.S. offshore market. And then we will, maybe obviously, continue to watch very closely for what are the conditions under which we operate.
Is there political support, is there the support regimes of the federal incentives, the permitting regime, is that still intact? And also to watch that we see continued realistic offtake prices. But overall, a focused portfolio in the U.S. offshore, but still a belief that this is a market that offers attractive opportunities that we will obviously very selectively look into. Turning towards our CapEx program, as I briefly mentioned, on a like-for-like basis, these 2, approximately 270, is approximately a third reduction to compared to what we presented at the Capital Markets Day.
The split between technologies is roughly unchanged, so around 70% for offshore, which remains by far the most important strategic priority for the company, even though we strategically are still very comfortable with being a company that is on several technologies, including solar, battery technology, offshore and onshore wind. And if we turn that into what is the consequences for our capacity? Well, the key message on this overview that sums up to the approximately 35-38 gigawatts of installed capacity is what we believe is a really healthy balance between a high visibility of investments and earnings, due to more than 25 gigawatts being either in operation or under construction. As I mentioned, in our offshore portfolio, under construction with projects that are delivering the returns that we target.
But at the same time, we also enjoy what we believe is a good flexibility of these 11-14 GW of additional capacity. So therefore, having the flexibility to deploy capital to the most value accretive opportunities that are there. Right now, we estimate it to be split roughly 50-50 between onshore and offshore, but this is something where we obviously still have a flexibility. And if I then dive a little bit deeper into offshore, then we have 15.5 GW of operational and awarded capacity. And by the way, the 6.7 GW of under-construction capacity is the most that this company has ever had, and also more than any other developer in the world.
So we are comfortable that even though we have a plan with a different level than we presented eight months ago, that our offshore leadership is still strong. We do have 3.7 gigawatts of awarded capacity, but we still consider that flexible because we have not yet taken FID on these projects. And that also means that, for example, for Baltica 3, if we decide this is not a value accretive opportunity that delivers the returns we need, we see a significant opportunity to get that in other options. We've highlighted a couple of named options, such as Hornsea 4, which in light of the much more realistic administrative strike prices in AR6 in the UK, and likely also AR7, is something where there's an opportunity for, we believe, healthy value creation.
And likewise, given the better frame conditions in the upcoming Taiwanese auction, where we didn't bid in the last one, also Changhua 3 is an opportunity that we think could be strong. But we've not decided that yet, because out of those 2, but also out of the well over 20 gigawatts of relatively near-term upcoming solicitations coming, we will simply pick the ones that delivers the most value and has the best risk-return perspective. So overall, an estimated 20-22 gigawatts of installed offshore capacity. And on onshore, this is where we have a 6.4 gigawatts of operational under construction. Here, you will due to the much shorter CapEx cycles, you will see that what is still ahead of us is a higher share, naturally.
But this is also an area where, where we have not only very attractive pipelines of close to 30 gigawatts and some strong and experienced regional teams, we also have, which was particularly important in very volatile markets, a market where the link between CapEx cost levels and offtake price levels is much shorter, so something that essentially de-risks the commercial realities of these projects. But an estimated 5-7 being secured with sort of a proportional split between Europe and the US. And summing up, before I hand over to Rasmus, this all leads to these updated guidance targets, which I already mentioned in the beginning, but let me reiterate them. An unchanged industry-leading, value-creating target of 150-300 basis point spread to WACC. Average 14%, return on capital employed.
Please look at the shape of these curves, still with a significant growth, with well over twice as much installed capacity as we have today, being installed by 2030, so 35-38 GW, and then an EBITDA growth of these, with the strong starting point of 23.8% average to 39%-43% or billion DKK. With that, let me hand over to you, Rasmus.
Thank you very much. Also, a warm welcome and good afternoon from me to everybody. For the next 30 minutes or so, I will take you through 4 things. First of all, I will talk about our earnings results for 2023. Then I will go through briefly the outlook for 2024. Then I will spend the bulk of my time talking about our short-term business plan, so basically 2024-2026. And then finally, I will talk a little bit about our long-term financials. Despite the significant challenges we have had in the U.S. and that Mads has also talked about, 2023 was actually a relatively strong year when it comes to the underlying performance of our business around the world.
Our EBITDA came in at DKK 24 billion, which was DKK 1 billion above the guidance that we had put out of DKK 20-23 billion, and also DKK 3 billion above what we did in 2022. If you take the main drivers behind the result, first of all, our assets' EBITDA, so from our offshore business that we look at a lot, came in at DKK 20.2 billion. This was a significant increase, as you can see, relative to 2022, with the main driver obviously being that we didn't have, you can say, the extraordinary hedging effects in 2023 that we saw in 2022.
But also driven by that, we saw the ramp-up that we would like to see, from our underlying, offshore wind business, so with Hornsea 2 ramping up and also Changhua 1 and 2A. We also had a year with slightly higher wind speeds than we had in 2022, although still below what we call a normal wind year. On our existing partnerships, the year came in at DKK 900 million, so, down DKK 400 million from 2022. Main driver behind the DKK 900 million was that we saw some one-off effects in Q4, where we reversed, provisions related to wake and warranties on our- on a couple of our farm-down agreements.
On onshore, we ended the year at DKK 3 billion, also or slightly lower than what we saw in 2022. Main drivers being the lower prices that we saw, especially in the UK, but also the US, and then slightly lower availability in the US. On the part of our earnings mix that we call bioenergy and other, we saw a significantly lower EBITDA contribution in 2023 relative to 2022 from our CHPs.
Of course, here also driven by the fact that 2023 was a more normal year, so we say it was the lower power prices, but also that we had this relatively high fuel cost going into the spread that we talked a lot about in the last quarters. Moving on to the outlook for 2024. So, the guidance that we come out with today is that we expect EBITDA in 2024 to be between DKK 23 billion and DKK 26 billion. So the midpoint of 24.5, which is slightly above our earnings in 2023, again, which was a relatively good year on the underlying performance.
If we take the biggest drivers that we expect during the year, first of all, on our side, EBITDA, also here we are pleased to see and that we expect that to go up during the year with DKK 1.5 billion, again, driven by the ramp-up of our offshore business, again, with Changhua 1 and 2A, but also South Fork in the US and Gode Wind 3 in Germany. On our existing partnerships, we don't expect to see these one-off effects that I mentioned before on reversal of provisions, which is why we expect lower earnings in 2024 relative to 2023. On what we call CapEx and other, there are 2 effects to be mindful of.
First of all, we have a one-off effect in this number from our internal hours, our internal time spent on in relation to the cancellation and the wind down of Ocean Wind 1. This is something you, for accounting reasons, cannot take in your provision, so that will impact our 2024 earnings. Then we also have an effect where we have decided to be a bit more even more prudent on the way we decide to expense our CapEx from our overhead. So therefore, also doing a little bit more expensing and but not something that is driven by underlying change in our cost base. We expect a significant ramp-up from our onshore business in 2024, driven by 4 solar farms coming on stream in the U.S.
Then finally, on our bioenergy and other, we do expect DKK 500 million more in 2024, basically taking that part of our business down to back to what we can call a more normalized level, also from a pricing perspective. Shifting gears, going into the short-term business plan. Based on the events that Mads has talked about, we have spent quite a bit of time looking at our capital allocation principles. We have 3 key capital allocation principles for Ørsted behind me. We have basically decided to revise 2 out of the 3. If we take our FFO to net debt first, with this plan, we target an FFO to net debt of above 30%, which is commensurate with a solid investment grade rating.
This is up from the threshold of 25% that we showed at the Capital Markets Day. And we do this because we appreciate the perceived increase in risk from the agencies for offshore wind as an industry, but also for Ørsted more specifically. We have a very good dialogue with the rating agencies, a good and constructive dialogue, and it is not for me today to comment on whether or not we will be downgraded one notch. But what I can say is that should that happen, then we would, of course, still have a solid investment grade rating as we target here today. And just to be absolutely clear, that the plan we are putting forward today does not rely on a specific rating of BBB+ or Baa-.
We would be able to stomach that with the plan that we are putting forward today. Also, on the capital structure and the metrics, we believe that we have, with this, found the right balance between a robust balance sheet and valuable growth. So we believe that this metric that we are putting out today with a target above 30%, is the right level for Ørsted. On dividends, we have decided, as Mads also mentioned, to pause dividends for 2023, 2024 and 2025, so with payouts in the year after. And we have a target to reinstate dividends for the year 2026, so with payout in 2027. We fully appreciate and acknowledge the importance of paying out dividends to our shareholders.
But we do believe that in the situation we are in, as a company, that in order to get the highest degree of short-term visibility on our earnings in this critical period of time between 2024 and 2026, we believe that a dividend pause is, the right thing for us to do. But I said we target to reinstate dividend again from 2026 and onwards. Finally, on value creation. So this is the part that you can say have not changed. We do believe, though, that with this plan, we are even more confident in our ability to continue to deliver our industry-leading, value-creating, target that Mads also talked about.
And again, this example that Mads mentioned, that actually 5.8 of the 6.7 GW in our offshore constructed portfolio, European and APAC, sits within our guided range as of today. With these capital allocation principles in mind, we have taken a very comprehensive look at our short-term business plan, and we are putting in motion the following changes. First of all, we have decided to reduce our CapEx with DKK 35 billion, relative to the number that we put out at the Capital Markets Day for this period of time, from 2024 to 2026. There are 3 drivers in this. There are obviously the project cancellations, so offshore wind, as an example, but also the reprioritizations that Mads mentioned, examples of markets, and then finally, phasing of CapEx. One word on phasing.
The way we think about our offshore wind projects are that at the end of the day, while we of course target and think about a certain, a certain year for a COD, at the end of the day, what really matters for us is the value. So whether a project is coming in 2028 or 2029 is not critical for us. What really matters is that we deliver the project in the best possible way from a value perspective. That also means that we have quite a bit of flexibility in our portfolio in terms of phasing CapEx.
On our farm-down program, we are accelerating that a bit, relative to what we assumed at the Capital Markets Day, which means that we expect around DKK 15 billion of proceeds more in this period of time than what we assumed at the Capital Markets Day. I will come back to that in much more detail. On CapEx, we have also here made a significant reduction, so we have reduced our CapEx from 2024 to 2026 in total of DKK 3 billion. And then finally, on fixed cost, we commit to reducing our fixed cost base by DKK 1 billion, with full year effect in 2026, relative to 2023 on a like-for-like basis.
So obviously, the points that Mads mentioned earlier today on redundancies is of course part of this part of our the updated business plan. Moving on to the right-hand side and a few words more specifically about our rating metric. The charts here are, of course, illustrative, and the starting point is, as you can see, the 29% FFO to adjusted net debt that you can see in our annual report today. The movement that you then see is that during 2024, we will see a significant drop, obviously, in our FFO, due to the cancellation fees. And then from there on, we expect FFO to increase steadily over this period of time.
At the same time, we expect our adjusted net debt, you can say, from a high point in 2024, to stay roughly stable, slightly decreasing in this period of time. These developments bring us to expect that our FFO to net debt will be significantly below 30% in 2024. We expect it to be around 30, 30% in 2025, and then we expect for it to be comfortably above 30% in 2026. The underlying drivers behind this development is, of course, also on the net debt side, the size of the CapEx program, the size of the divestment program, but also very much the robust underlying cash flows from our business. Moving then on, still within the short-term business plan, a few words on our expected gigawatt growth in this period of time.
So there are 2 takeaways, I think, on this slide. First of all, that despite the changes we are making today, we are still growing with more than 50% in this period of time in terms of our installed gigawatts. And secondly, 2-thirds of that is coming from assets that are already under construction across offshore and onshore. So it is all the projects that Mads mentioned before, except for Hornsea 3, which is COD-ing in 2027. So not part of this build-up, but all the others are from an offshore perspective. And then we have an awarded bucket here of 2 gigawatt, where half of that is Sunrise.
So should we decide to move forward with that project on the back of a successful outcome of New York 4, then we would have only 1 gigawatt of onshore left, that we, in the awarded part of our build-up towards 2026. In terms of investments, again, providing you with a bit more detail than we would normally do, for this period of time. We have an investment program, a set of DKK 130 billion in this period of time, gross investments. If we take them bucket by bucket, so we expect to spend DKK 57 billion on our offshore wind farms under construction. So as Mads mentioned, this is a bucket, to me, with a very high degree of certainty, with sufficient contingencies, where we have been through the very detailed review over the coming months.
So it's a bucket that I expect to basically be very close to what I'm showing you here with a high degree of certainty. The next bucket is the DKK 35 billion on our offshore awarded portfolio. So this is Baltica 2, Baltica 3, and Sunrise. This is a different way of thinking, you can say. As Mads also said, for instance, Baltica 3 is in here. This is a project that we said at the Capital Markets Day, we are reconfiguring, that still stands. And there is a scenario where we don't move forward because we don't see the value creation. But that is what we have assumed in the number, that we are moving these projects forward with DKK 35 billion in this period of time. Then we have set aside DKK 5 billion for other opportunities within offshore.
That could be Hornsea 4, it could be Changhua 3, it could be a centralized European tender. Obviously, projects with a COD way later than what I showed before in 2026, but still projects where we have a bit of headroom to invest also in this timeline. On onshore, you see DKK 25 billion here. This is, to me, different. So here you only have DKK 5 billion under construction. So DKK 5 billion that is locked in, related to, for instance, the 4 U.S. solar farms that I mentioned before. And then you have DKK 20 billion in your pipeline. So these are projects that we have not yet, you can say, locked in, where we have not yet FID'd.
So also where we have a relatively high degree of flexibility, also from a CapEx deployment perspective, but where we are very confident in our ability to deliver this on the back of the onshore pipeline across Europe and U.S. that Mads showed before. And then finally, we plan to spend around DKK 8 billion on P2X and bioenergy in this period of time. The result of this is the EBITDA, expected EBITDA development that you can see here. So 2024, 2023 and 2024, I talked about. On 2026, the way to think about it here is that we have a high degree of visibility on this number, even though out in time. First of all, roughly 30 billion of the EBITDA in 2026, we expect will come from assets that are today either in operation or under construction.
Secondly, if you just take—link this to the wind farms we have talked about, of all of the 6.7 GW of offshore, except for Hornsea 3, which will come in 2027, and except for Sunrise under the awarded, that will likely come during 2026, all the other wind farms that Mads talked about that are under construction will have full year effects in 2026 in this number. Appreciating that Changhua 2, 3, and 4, as Mads mentioned, is in the sort of squeezed a bit in the back end of 2025. So a high degree of visibility. Farm downs. This is a topic that I feel strongly for. We have worked with farm downs in Ørsted for more than a decade.
We developed this model a long time ago, and it is an integral part of the way we do business. It is not something that we have invented for the day. This is something we have been doing every day for a decade. When we look at our farm downs, we basically always look at 3 different elements when we assess whether or not to move forward with a farm down. We look at value creation, we look at risk diversification, and we look at capital recycling. Specifically, on value creation, we have taken prudent assumptions in the plan that we are putting forward. Robustness is key, which means that there will likely be farm downs in this program where we will have an NPV retention below 100, if you go back to previous numbers.
But what we commit to is that for each and all and every farm down, we expect them to be aggressive from a returns perspective. On the right-hand side of the slide, we have listed 2, you can say, buckets of how we do farm downs. First, there is the traditional way, where we go from 100% to 50%. Typically, we pro rata consolidate, and we can do it either as an EPC wrap around FID, or we can do it as a shared risk, where we take the partner in slightly earlier. Examples of this in the plan would be Hornsea 3, it would be Changhua 4, and also U.S. onshore. U.S. onshore will likely not be pro rata consolidated, though.
The other bucket of the program is where we are doing things slightly different from what we have done before. So this is a bucket where we are exploring going below 50%, so very likely to 25%. I have listed 3 examples that we have assumed in the plan where we will do this. It is Revolution Wind, it is South Fork, and also West of Duddon Sands on the West Coast of the U.K. Again, when we look at this, we look at all the criteria on the left, and assess where to go to 50, where to go to 25.
These are examples, for instance, in the US, where we believe that from also from a you know footprint and also risk perspective, that this is a good assumption for us. There will also be elements of the plan where we could go all the way to zero, for instance, a lease or the like, but that is not a very big part of our program. In terms of proceeds and the magnitude of this. So the total expected proceeds from 2024-2026 is, as you can see, between DKK 70 billion-DKK 80 billion, which is up from what we have been doing in the last 3 years. We have put the number here just to give you a sense of the magnitudes.
Again, at risk of belaboring the point, we, we are very well advanced on many of these farm downs, which is also why we are, we are confident putting out a relatively firm number here. So as we speak, we have 12 ongoing dialogues, from early to very advanced dialogues we have started also well before the CMD, and where we have a very good feeling for the way forward. Finally, a few words on the long-term financials. So the DKK 130 billion, all the way to the left here, I have talked about. So this is the bucket with a relatively high degree of certainty, contingencies, but also some flexibility in parts of that bucket. The DKK 140 billion is, to me, a different story. That is from 2027 to 2030.
This is where we have a very high degree of flexibility, where we can be razor sharp in going for the right and most value creating gigawatts in this period of time in the back end of the decade. And then the third point on this slide, and the last one would be, Mads also showed this, but just reiterating that we will continue to deploy the vast majority of our CapEx into offshore wind. The plan we are making, we are presenting today is not a strategic shift. We have revised the plan, but the fundamental strategic view we have is unchanged, and also the split between technologies, as you can see. Finally, on the sources and uses, and again, comparing a bit to the Capital Markets Day.
So if we take the sources column first. At the Capital Markets Day, we assumed that 40% of our sources would come from cash flows from operations. In this adjusted plan, the number is 50%. In other words, we rely more on our relatively safe underlying cash flow on the sources part. On partnerships and divestment to 35%, that is the program that I talked about before. So in the whole period towards 2030, that is DKK 115 billion, split with DKK 70 billion-DKK 80 billion in the first period of time. If you compare it to the Capital Markets Day, it is on average DKK 16 billion of proceeds in this period of time. At the CMD, the number was 20 billion DKK, so it is a smaller program.
On tax equity, we assume 10% of our sources to come here. At the Capital Markets Day, we assume 15% of a significantly higher number. Here we are actually going below 50% of the proceeds that we assumed at the Capital Markets Day from tax equity. Not because we don't believe in the tax equity market in any way. We do. We are well advanced in the projects we have, Revolution Wind, as an example, but simply because also as a result of the portfolio decisions we have taken in the U.S. Then the last point on the sources side, we are not relying on external debt to even close to the same extent in this plan relative to the one that we presented at the Capital Markets Day.
In fact, we don't expect to issue senior debt until 2028 in this period of under this plan, which is again a very different assumption relative to the Capital Markets Day. And then on the gross investments, the DKK 270 billion that Mads talked about, and then again on hybrid coupon and dividends, roughly DKK 50 billion here assumed, split roughly equal between dividends on the one-hand side to our shareholders, and then hybrid coupon payments and minority dividends on the other side. And again, the underlying assumption is that we will reinstate dividend in 2027 for the accounting year 2026. With that, I will hand it back to Mads to wrap it off.
Thanks a lot, Rasmus. Yes, and I will do that in an expedient way. We want to get to your questions, but let me just sum up what is the situation. We have announced, which coming from a very challenged year, where we clearly take accountability for the significant adverse developments that we know have been painful. We are in an industry that we are convinced will be attractive, and we are seeing some really strong signs that offshore could well be on its way back to become an even more scalable industry. We are, and will remain, despite the lower ambition, a clear industry leader.... We have put forward a plan that we believe is very realistic.
It is a value-creating plan, and it is a plan where we have learned from the events to also better and more proactively manage the risks that will still be an inherent part of operating in our industry. We are convinced that our capability set, despite a challenging year, both on EPC, on farm downs, and other absolutely critical parts of being successful in the industry, are still clearly industry-leading, and we are adjusting and adapting our operating models and slimming our company to be even more focused on leveraging those capabilities. And then last but not least, the quality of the pipeline and the opportunity set. So both the proprietary assets that we have in core and high-potential markets, but also the opportunity set to be most selective on where are the most value-creating opportunities, is something we believe remains very attractive, both towards 2030, but also beyond.
With that, let us rearrange up here, and get your questions. Thank you.
It's now time for the Q&A. We just have a few practical reminders before we start. When you ask question, please respect only one question per person. For those here with us in the room in Gentofte, raise your hand, wait for the microphone to arrive from my colleague, Valdemar, and then please state your name when before you start the question. For those online, please use the dial-ins that we have provided. So, without further ado, we can jump into questions, and maybe we can start here in the front with a question from maybe Tornøe.
Thank you, Kristian Tornøe, SEB. Mads, in your presentation, when reflecting on the problems with Ocean Wind 1, you said that you need to secure installation capacity earlier, but then you also say that you are not going to tie up capital before FID to the same extent. To me, it sounds slightly contradictory, so can you just elaborate on how you can balance those 2 elements?
Yes, so and thank you, Kristian. It's—And sorry if I'm, if I, that was the way I expressed it. So ensuring installation capacity earlier is not the case. That is something we are doing in case we see an under construction on already awarded project runs into challenges. That is when we pro—That is where we'll proactively ensure that we either extend or book new installation capacity in case there is a, a risk of a slip. But we are prepared, because we will prioritize projects that has a more flexible COD deadline. We are actually prepared to take less firm capacity secured in order to get a lower capital commitment at FID than we did before. So pardon me if I left that impression, because you are absolutely right, those would be very difficult to marry.
Great. We'll just take the next question from the dial-in. So, operator?
Ladies and gentlemen, anyone who wishes to ask a question may press star one on your telephone. We do have a question from Harry Wyburd from BNP Paribas Exane. Please go ahead.
Hi, everyone. Thanks very much for the presentation, I'll obviously keep it to one. Can I ask, why did you ultimately decide to go down the dividend and cost cuts and CapEx cuts package, rather than the capital raise package? And I guess to go slightly against the grain of, the backward-looking situation, but I suppose industry fundamentals are showing some signs of improving. How much headroom do you have, if some of the additional opportunities that you mentioned in the presentation on NY4 and many of the other auctions, how much headroom do you have if those proves to be more abundant and attractive opportunities than you expected?
Do you have some room in the balance sheet, maybe after 2024/2025, to pursue more aggressively some of those opportunities, or would you effectively, immediately have to go back to raising capital if you wanted to expand the growth envelope? Thank you.
Yes, thanks a lot, Harry. So why we chose this route, and we have evaluated a lot of different scenarios for what is both the best plan in terms of size of the plan, but also in terms of what are the levers that we can pull. And we did, of course, assess all opportunities and came to the relatively clear conclusion that with this route of CapEx, OpEx, DevEx facing and savings, with a dividend holiday and with also an accelerated farm down program, that this was the more attractive route than raising fresh equity. There will not be a limitation that we would have to raise new equity to bid into new opportunities.
We still consider that with this 5-7 GW flexibility that we have in offshore, that we will be able to go for the most value accretive opportunities. And even though you're absolutely right, we are seeing good signs in the industry that there are coming more realistic prices. We do believe this is exactly the right plan that will make us able to select-
... the most attractive opportunities rather than jumping on to accelerating growth. So, we're sticking and will stick firm to the plan we have, and to simply picking the most value accretive projects that we have.
Perfect. I think we can take a question from the room in the front.
Yes, thank you. Heindorff from Nordea. It's much appreciated you've been more clear now about both, the CapEx program, and particularly, I think, the impact on the farm down, so we can do some gross and net calculations. But on the EBITDA targets, for 2030 to 39 to 43, what would that be if you don't do any farm downs?
As I'm sure you would appreciate, that is not a number that I'm gonna give you because the guidance that we gave, Lars, is including existing partnerships, as you know. So we have not taken in the new partnerships. So if you were to do a big farm-down in 2030, that would not be part of it. But we don't guide separately with or without existing partnerships. I think a good data point that I gave you on 2026 I think would be helpful, where I basically said that roughly DKK 30 billion is excluding existing partnerships.
So we gave you a little bit of a one-off on that one, to be very transparent about the 2024 to 2026 period of time.
Great. The next question we will take is from the dial-in operator.
Next question comes from Deepa Venkateswaran from Bernstein. Please go ahead.
I guess my one question is your accelerated divestments. Previously, for farm-down, you had the principle of maintaining NPV neutrality. Now you've lowered that to say it needs to be return accretive, which clearly would... Any farm-down would be. So I'm just wondering whether the shift is because your program is bigger now? Is it because of the interest rate environment? And you know, is there a slightly higher risk in this plan? I mean, just the scale of divestment is higher relative to the old one. So how would you, you know, maybe give us a bit more reassurance? Because I think this is the only part of the plan which maybe is slightly different from the old one. I think all the other measures seem very clearly reducing risk.
Thank you very much, Deepa. And you are right, that we have previously talked about, you can say around 100. But remember that this is only one of the metrics that we look at when we do the farm downs. That has always been the case. So we are also - we are looking at capital recycling, and we also are looking at risk, risk sharing. And in terms of the overall, you can say, risk to the program, I would argue that the risk has not gone up on the program relative to what we assumed at the Capital Markets Day. In fact, I would argue that there is more certainty on our ability to deliver on this program.
It is objectively smaller. You are, I saw your note, you are, of course, right that sort of the ratio between gross and net investment is changing a little bit here because we do accelerate in the front-end years. But it is not a bigger program, and we have with the flexibility we have given ourselves also on, you know, in some cases, going to 25%. We have a very high degree of flexibility in the program so that we can go for the most value accretive opportunities, and also course correct within the parameters we have set along the way.
Thank you. Another question coming from dial-ins.
The next question comes from Rob Pulleyn from Morgan Stanley. Please go ahead.
Well, thank you very much, and, yeah, thanks for the presentation. I was hoping you could just revisit slide eight in terms of what went wrong. The key question here is, you know, could you elaborate, what happened in the risk management, such that you seem to have 2 very late notice disappointments from suppliers on foundations and vessels during 2023, which, of course, was very surprising, for a developer with such a strong track record, such as yourselves. Secondly, and again, building on the comments you made with the slide, perhaps if you would, you know, what further confidence can you give everyone in the market that whatever went wrong last time, the risk management with the supply chain, will not be repeated?
This seems, you know, effectively critical to, of course, the future delivery of all of these projects, especially those in new markets, you know, like the U.S. Thank you very much.
Yes, thank you very much, Rob. You're right, that... I mean, at the time, and over the summer, we knew that Ocean Wind 1 was a project that had already suffered many of the headwinds, and was exposed to a schedule which was already under pressure. But at the time, when we got the information, that first 20 monopiles and then a significant additional delay on a vessel, this was something which was a new information to us. And, and that is where we're saying these were the, the, the monopile-
... facility was new, but during the conversations we've had with the supplier, we were not led to believe that this was an impact that was likely to happen to this scale. And then I think what we—where we are learning is that when these things happen at the same time, and they are not blaming any suppliers, because that is where we need to update our risk management framework, is exactly to simulate what happens if we have a vessel delay and a foundation delay pretty much concurrently.
And this is what we are now significantly upgrading and doing it also well before it is likely that we would have the visibility of saying, "If this happens, then we have the ability to mitigate those." And I think the example that we are doing now in Sunrise, pending a positive outcome of New York 4, where we are proactively de-scoping from 84 to 28 monopiles, even though the supplier says that we still believe in the plan. That's an example of how we are learning from that, even though it comes at an additional cost, which is also why we've increased the contingencies.
So this is an example, and if I understand your second question correctly, that is exactly how we'll avoid those. So a combination of simulating what will happen if some of these big risks happen, both worse but also more concurrently than what we had assumed in our previous risk register. And on top of that, then to more proactively say in better time, when the capacity for booking, backup, or mitigation capacity is still there, what is it we can do, and at what cost does that come? That is why we believe you should be more comfortable. In an industry where we won't pretend that it's fully stable or without risks, it is not.
Everybody who says something different is not telling the truth, but it is about how do we up our risk management to much more proactively handle situations that are still, in many cases, volatile.
We'll take another question from the dial-in operator.
Yes, the next question comes from Alberto Gandolfi, from Goldman Sachs. Please go ahead.
Thank you, and thanks for the presentation and for your patience. I have a question in 2 parts, a bit convoluted, but I was trying to understand a bit more in detail the relationship between FFO, CapEx, and EBITDA. If I'm not mistaken, your FFO in 2024-2026 is going to be fairly similar to your CapEx, and you pay no dividends. So am I right in understanding the free cash flow - I mean, the company's still free cash flow negative a bit, but we should not expect a meaningful increase in the net debt by 2026. If you could provide a net debt guidance, it would probably end the debate here, because I think the consensus number you sent around have 100, more than 100 billion DKK for net debt for 2026 in consensus.
I suspect that will be much less. So, that's the first part of the question. The second part of the question: It seems to me that the EBITDA guidance reduction is less than proportional to the CapEx reduction. So, could you maybe elaborate on what power price assumption you used and, or are you simply giving in on the least profitable projects, and therefore, what you are developing has better returns, and that explains why the EBITDA doesn't go down as much as the CapEx? Thank you so much.
Thank you very much, Alberto. So if we take, take them one by one, you, you are certainly right, that, I assume you are referring to the adjusted net debt, used for, for the FFO to net debt metric. You are certainly right that 100 billion DKK in 2026 is off. We will be, we, the underlying, if you, look at the charts, the underlying, result, of what we are putting forward here in terms of cash flows will be that we expect to be roughly a net cash flow neutral in this period of time.
So if you look at the gross investments, and if you look at the divestment program, and if you look at our underlying FFO from our EBITDA, that would be roughly neutral, expectedly in this period of time, from 2024 to 2026, which will then obviously have the effect that you will not see an increase in adjusted net debt in 2026. We expect it to be slightly lower than what we will have in 2024. On your point on EBITDA guidance, you are right. And you are also right in your assumption that this is not us who have fundamentally changed our view on power prices, as an example.
This is us, basically, having looked at our entire portfolio and then, you can say, being left with the very most robust projects also from a value perspective.
Great. We have a question from the room.
Yes, thank you. Lars Heindorff from ODDO BHF. Question regarding, I think, Matthew, you said in your presentation that you have been going through the entire supply chain, and one of the things you mentioned was that in terms of installation vessels, you have a fixed starting date and you have an open ending date. These vessels doesn't come cheap these days. What does that do to the costs of these projects? Does that have any impact on the CapEx per megawatt spent or anything like that?
No. No, it does not, Lars. What has an additional cost, and in many cases also a meaningful additional cost, is in the situation where we, for example, with Revolution, we actually have 2 parallel contracts. So we have a contract with a Jones Act compliant vessel, which we don't have certainty as to when we will get. Unfortunately, we know it's delayed, but we still don't have a fixed certainty, so we've actually had to now, we have chosen to now contract the full scope with an additional vessel. That, of course, costs a lot of money.
But negotiating these contracts is typically also being still by far the biggest contractor; here is something we can do at relatively limited cost, and also ensuring for risk management purposes that we are not the first ones to get it, which has been painful in the U.S.
Great. Operator, another online question?
The next question comes from Peter Bishtyga from Bank of America. Please go ahead.
Yeah. Hi, good afternoon. So I just wanted to ask about, U.S. policy risk. You know, the market's clearly concerned about the potential impact of another Trump administration. The Republicans have been quite vocal about wanting to repeal, parts of the IRA, about the unnecessary support for sort of mature technologies like onshore and solar. We also know from the previous Trump administration that there are a lot of bureaucratic obstacles thrown in the way of offshore wind, which he clearly doesn't like as a technology. So just want to hear a little bit about how you have thought about that in your sort of risk management, process and assessment, given that actually you still have quite a lot of your forward-looking CapEx, both onshore and offshore in that region. Thank you.
Yes, thanks a lot, Peter. So most importantly, because the Trump has been quite vocal about his dislike for offshore wind. A couple of comments to that, and where we have put most focus is in ensuring that of the awarded portfolio, including a potential sunrise positive outcome, that there is no risk to a situation that was like what we found ourselves in under the previous administration, that Bureau of Ocean Energy Management was almost stripped of resources and therefore close to a standstill on permitting. We will have the necessary federal permits in place, which we consider the biggest risk in case of a Trump administration.
And by the way, the support in the states that we are prioritizing are all blue states with significant momentum and ever increased ambitions behind offshore, and also a willingness to pay the price. So most importantly for us is that it doesn't introduce a significant sort of retrospective risk to any of the projects we have, neither in onshore and offshore, and we believe that is not the case. In terms of future projects, starting again here also with offshore, is that if we end up bidding in, could be, for example, into a New England, there's a combined New England solicitation from Rhode Island, Massachusetts, and Connecticut, which, by the way, also all offer inflation protection.
If we do that, then we would obviously ensure that we mitigate any commitments to be proactively prepared for the risks that might come both on the federal support, but especially also on permitting. And in case we do that, we would also take a look at how dependent do we want to make ourselves on some of the local tax credits for local manufacturing versus taking a more stable global supply chain. And on onshore, like we talked about, we are not under any pressure to fast forward any of those decisions.
But should we be in a situation where, against our expectation, I will say that there will be a meaningful, in terms of a regime change, a meaningful negative impact to the Inflation Reduction Act support for onshore, we have ample opportunity to redeploy that into also European opportunities, where we also have a very strong time, or where we have a very strong pipeline. So we are not concerned about the overall technology mix, and we will take a cautious approach to ensure that we are not exposed sort of unnecessarily in case of a regime change.
Question comes from Mark Freshney from UBS. Please go ahead.
Hello, thank you for taking my question. Rasmus, if I could ask on the credit rating agencies, I mean, clearly you would have been in a strong dialogue with them in recent days. And is it fair that we can expect them to come out, notwithstanding what you said about being able to, to manage triple B, or operate at triple B, but is it fair to say that, you know, we can expect them to come out and affirm you at triple B plus? And just further to that, I mean, clearly, cutting the dividend or passing the dividend for 3 years is a massive positive message to the credit community. You know, can you rule out restoring the dividend earlier, should your plan be exceeded or executed well? Thank you.
Thank you very much, Mark. As said, it is not the right thing for me today to speculate on potential outcomes from the rating agencies. As you also mentioned, we have had a very good and a very robust dialogue. And of course, both S&P and also Moody's have, of course, been out ahead of today also with a negative outlook and a credit watch on our ratings.
... So of course, a scenario where we will be downgraded with one notch is of course a real risk. And as said, we can stomach that very much in our plan and also with the target that we are putting out going forward, where we are not committing to a specific rating, but where we are committing to a solid investment-based rating, is obviously also, you can say, should be seen in that context. In terms of your question on whether we can decide any way to pay out dividends early on, that is not our expectation.
We believe, for the reasons that I mentioned, that we benefit as a company from the visibility that we gain from not paying out dividends in the period 2024-2026. It is tied to the plan that I have sort of been through today. It all basically comes together in a robust plan. So that is not our expectation in any way. Thank you very much.
The next question comes from Jenny Ping from Citi. Please go ahead.
Hi, thanks very much. Just one on Ocean Wind 1, please. You've talked previously about the $8 billion-$11 billion cancellation costs and the potential to reuse some of the equipment there in some of the other sites that you're developing. Can you just give us an update on where you've got to on that, and to just gauge as to the likelihood, the possibility of that number coming down? Thank you.
Yes, happy to comment on that, Jenny. So, the overall conclusion is we are still within the total, the total range that we set forward. So, the DKK 9-11 billion, or including what we had, what we had done in the impairments, DKK 15-18 billion in total, cancellation costs. We are still within that range. This is a very complex matter to cease development and these, to get out of these contracts. There's a total of approximately 270 contracts, so it's a massive undertaking for a company. We are still in the midst of technically evaluating.
We have terminated most contracts, but we are still evaluating some, and we have one positive example of cables being reused in an expected future project. But it is not right to indicate anything different than we will stay within the range of DKK 15 billion-DKK 18 billion. And maybe one comment, Jenny, on the DKK 8 billion-DKK 11 billion also. So bearing in mind now that when we have ended the year and looked at it, we end at an EBITDA provision of DKK 9.6 billion. So that is the part that you can say that you can compare to the DKK 8 billion-DKK 11 billion.
In terms of cash out, then of course, you will see the cash out effect of the DKK 15 billion, so the cancellation fees that currently stand at that level. You will see that cash out effect during 2024, which is then again what you see in our FFO net debt.
Thank you.
The next question comes from James Brand, from Deutsche Bank. Please go ahead.
Good afternoon, and thank you for the presentation. It was very helpful. I have a question on farm downs. It might be a 2-parter. Firstly, you gave some examples of the farm downs that you could do, which involve the onshore in the U.S., but then all kind of new offshore projects or under construction projects. Just wondering whether you could consider selling down a bigger stake in offshore projects that are already operational. So a lot of them, you've already gone down to 50%, but could you go down to, you know, 25% stake in existing onshore projects? That's the first part.
Then you mentioned that there are 2 models for the farm-downs, the one in which you keep all the construction risk and provide guarantees, and one in which you share risk. In the past, you've been a lot more keen on keeping the construction risk and maximizing the farm-down. Are you suggesting that you might be more open in the future to having a higher proportion of farm-downs where you share the risk? Thank you.
Yeah. Thanks, James. First of all, your first part on whether we could see ourselves selling down a bigger stake in an operating offshore wind farm. You are right, we could, and that is, for instance, what we have assumed in the plan with West of Duddon Sands, where we go from 50 to 25%. And that is a project that is in the U.K. West Coast, and we have looked at our entire portfolio. And as an example, we believe that that is well suited for a further farm down from an accounting perspective, but also from an operational and strategic perspective, looking at how that ties to other assets in terms of how we do our business.
So we have been through our entire portfolio, but you will not—you should not expect a lot of that in our plan. On the second part of your question on, you can say, the balance between shared risk and an EPC rep. We have not assumed a
... fundamental shift in one way or the other relative to where we have been before. We still believe that it is right for us to have both opportunities in the pocket, if you will. When we do our farm-down program, we look at the investor pools, we look at the liquidity, we look at the appetite, and in some cases, in a certain market, it can be better for us to target a slightly higher return requirement. And that then typically brings you to a shared risk, which obviously then also means that the partners share more of the CapEx early on, and so on. So no, there is not a fundamental shift away from our rep, which we still believe in many cases makes sense.
Great. Thank you very much.
The next question comes from Marc lp from Berenberg. Please go ahead.
Hi, guys. Thanks for my question. It's on Hornsea 3. So you said that when taking FID, that was at the low end of the value creation range. And also understand that that's dependent on securing offtake in Allocation Round 6. Can you just talk more around the assumptions on that decision, on what percent chance have you put that you will win offtake there? And also, what happens if you don't get offtake in AR6? Does it just fall outside of the value creation range? Thank you.
Yeah, I'd be happy to comment on that. You will understand that we cannot comment specifically on the assumptions that we have taken here. But it is the full share that is not covered by the CFD. And that also means that we are assuming... We have prudent assumptions behind it, so we are not leaning in too aggressively. But given the new administrative strike price, our confidence level that Hornsea 3 will be competitive, and given the failed Allocation Round 5, which was already at 44-45 GBP, then our level of comfort that it will be with a price that is within our assumed value creation is solid.
We'll take the next question from the room.
Kristian Tornøe, SEB. I assume Hornsea 3 is a pretty, pretty big chunk of this DKK 70 billion-DKK 80 billion you expect in near-term farm-down proceeds. Can you help us sort of with the base case assumption of the timing? Should we assume this to be in 2025, or?
Yeah. I fully understand the question, Kristian, and I, of course, also understand that when you do your model, it is a relatively big deal, whether you put it in one year or the other. The guidance I will give you on that one, because it is a very, very big chunk, is that you should expect that we do it during 2025.
The next question comes from Ahmed Farman from Jefferies. Please go ahead.
Yes, hi, and thank you for the presentation. My question is on slide nine, where you provided a very helpful overview of the various projects. But in your comments, you referenced, you know, sort of timely focus on monopiles delivery a few times for a couple of projects. I was just wondering if you could sort of give us a little bit more granularity on the scale of the issue. What is the sort of the contingency planning and the economic cost associated with it? Thank you.
Yes, thank you very much, Ahmed. Very happy to. So this particular supplier is a Danish-based supplier who are having ramp-up challenges. The welding issues that were there are being solved now, it's more the finishing and the coding and so on, that's happening. And that additional capacity is being brought on. So we have a confidence that this is not a structural issue, but rather an issue where there is a ramp-up challenge, where there is a plan that is just right now a relatively stretched plan for that particular supplier.
We are seeing that alternative suppliers, including sort of both our existing suppliers, such as Steelwind and Haizea, but also new suppliers that we are developing to be able to ramp up in capacity, is have a very high degree of solidity. So if your underlying question is, is there a structural and more fundamental issue about the industry's ability to ramp up on monopiles? The answer is no. But we find ourselves in a situation where on that awarded portfolio, until the de-scoping, we had a relatively high concentration risk, which is what we are de-scoping now. And as I mentioned, under Revolution Wind, also ensuring that we prioritize the ones that are most critical for the timely completion of the projects.
In terms of economic impact, this is not a massive impact. It is not as... Because if we descope, we will also change the contract with the existing supplier, whereas if we double book to the question, to Lars' question from before, if we double book vessel capacity, that is expensive. But if we descope from one supplier to another because that supplier has ramp-up challenges, there's typically a relatively marginal impact, in terms of the project economics on those decisions.
Thank you.
The next question comes from Klaus Kehl, from Nyk redit. Please go ahead.
Yeah, hello, gentlemen. First, a very, very simple question. You talk about gross investments of 270 million, sorry, DKK 270 billion towards 2030. But just to be clear, then you want to make divestments of around DKK 100 million, so the net number is around DKK 170 million. Is, is that correct?
Yes, 155.
Okay, great. And then, perhaps a bit more tough question. Obviously, you are lowering your EBITDA guidance for 2030 due to cancellations, but also due to this lower power price. And so what's the risk if the power price drops another 20%? And in this context, and maybe it's a bit unfair to ask this question, but does it make sense to have 2030 targets, given that you don't know what the power price will be in 2030?
I'll be happy to comment on that. Bear in mind, Klaus, that we still, despite the impact on our investment capacity due to the forward prices, the way we operate with our revenue line is still primarily to have a high degree of fixed and contracted revenue. So these around 80%. And even though we did change our hedging framework to go from a sort of a traditional 5-year staircase, now we went to one where, depending on the power price and the outlook, to hedge somewhere between 0% and 70% of the remaining shorter-term expected production. We are in a situation where our total net exposure to power prices near term, so the EBITDA impact, is much more limited.
And if you take, for planning purposes, that we on average take, say, hedge 50%-60%, then the nearer term exposure of that is actually quite limited, maybe just in the high single-digit exposure of our total revenue lines. Whereas in case of the remaining, it is fixed, and then for the majority of it, even inflation indexed. So we are mainly thinking about this in terms of our investment capacity, if the forward prices come down, which is why we have also built in cushion with the above 30% and from 2026, even quite a bit above 30% in our FFO to net debt metric. Whereas we actually do feel relatively comfortable by giving that range for 2030 of DKK 39-43 billion. Fully agree.
Remember, as we also talked about, that the power prices has gone down with 40% in 2024, since our Capital Markets Day, in the Capital Markets Day we are in, and 30% for 2025. So it is a relatively dramatic decrease that we have seen in the last 6 months in Denmark.
... For instance, you have DKK 70-80 billion in 2024-2026. So what, what premiums on average are you assuming? And have you? I think you specified some specific incremental farm downs beyond 50%, including South Fork and Revolution. Would those be in conjunction with Eversource's pending sale, or is that separate and expected sometime later, but before 2026? Thank you.
Yeah. Thank you, David. 2 questions. The first one, in terms of what we assume on premiums, that is not something that we give away. As I'm sure you will appreciate, within this area, when you are sort of doing M&A and are making deals, that is, of course, very sensitive information. So as much as I would like, that is not something I'm comfortable giving away. On your comment on Eversource, whether our divestment of the assets that you mentioned will be in conjunction with theirs, it is not for me to comment on Eversource's sales process. I think they...
I know that they have an earnings call coming up on the thirteenth of February, where I would expect for them to give an update also on their ongoing processes. But we have a very good collaboration with them in everything we do. And therefore, you can, of course, assume that we have a good feeling, both of us, for what is going on in our farm downs. All right. Let's take the next question from the online operator.
Next question comes from Martin Tessier from Stifel. Please go ahead.
Yes, good afternoon, and thank you for the presentation. The first one relates to slide 8, where you indicate that you want to avoid high capital commitments and that you just want to repeat the mistakes. And could you just provide us with some maybe specific numbers in terms of the amount of CapEx that you want to spend before FID? Is it 10%, 20%, 30% of the total investments cost in the project? And second question relates to point 2.3, unless I'm mistaken, you are trying to secure 25% of the capacity in the corporate PPA. I have not heard anything on this during the presentation, so can you just provide us with an update on this topic? Thank you.
Thank you, Martin. Probably due to a bad connection and a sort of a relatively poor hearing, it was a little bit difficult to hear your question. So please shout if I'm answering a different question than you asked. So you're talking about the what percentage of CapEx would we commit ahead of FID?
Exactly.
I won't sort of... I can't give you a very specific number, but it would be significantly reduced and much more to the tune of a maximum of... This is not a threshold or any specific, but much, much more to the tune of 10-ish% than we would, than we would do... For example, on Hornsea, on Ocean Wind 1, where we were at a totally different level, much closer to 30%-50%. So a dramatic reduction. And on Hornsea 3, that's where I have, I believe, a greater risk of not hearing the question. So if you heard it, Rasmus, please answer it.
Yes, absolutely. What I think I heard, Martin, was that you asked whether we are expecting to do corporate PPAs potentially on 25% of Hornsea 3. Is that correct?
Yes, exactly.
Our expectation is that we will not do that. Our expectation is that we will go in to AR6, as Mads mentioned before. We do believe we will be a price taker on that auction. But of course, the beauty in the U.K. here is that you do have a high degree of flexibility in the way that it is set up, so we would have an opportunity to do a corporate PPA, should we decide to instead of if we are against the expectation not successful in AR6, but our base assumption is clearly AR6.
Thank you very much.
The next question comes from Ida Carney from Pictet. Please go ahead.
Hello. Hi. Hi, thanks for taking my question. Could I just ask about your cash flow? Because it was a bit weak in the 4th quarter, and I wanted to know what drove that. Specifically, I think your, your net debt increased by just over DKK 4 billion in the quarter. And similarly, I know you have said by 2026, your net debt should be flat, but can we get a bit more granularity on what to expect from next year? I mean, the reason I'm asking this is that, you know, it looks to me like this year you reduced your hedge book, which probably added quite significantly to your cash balance because of the collateral release. And obviously, working capital is also lower as well.
You know, can you give us an idea of what sort of underlying cash flow in 2024 will look like? And also because I believe you're going to have significant cash costs in relation to Ocean Wind. Thanks.
Yeah. Thank you, Ida. We would have to come back to you on some of the details of your question, but... And as you know, we don't guide on our cash flow. We guide on the metrics that we have talked about today. So that goes for the part of your question that relates to 2024. And you are right, that in terms of the impact on our cash flow, for 2023, we have had a very positive effect on our cash flows relative to 2022, where we had these reverse margins booked for our hedging program, where obviously with the power prices dropping, that is no longer the case. So there is a significant, a positive effect in our cash flow from that.
But the details, the further details, we would have to come back to you on.
Was it around DKK 4 billion from that?
A, a bit more.
Okay. And then, and obviously, your working capital, I noticed that there was a sort of a reduction in the, in receivables. So you were, you had some success with getting paid, but of course, yeah, this is something that they could start to look for next year. And that's why I wondered. And as I said, at Q4, we could see actually an increase in the cash burn.
Yes, at risk of repeating myself, we have to come back to you on that. And one point only, saying is that a part of the program that we are looking into for 2024-2026 is also supply chain financing, and you will see that in the ratio on our... Or you will see that in our working capital, but it is not a very massive effect on our cash flows.
Okay, thank you.
The next question comes from Mark Freshney from UBS. Please go ahead.
Hello, thank you for taking my questions. Rasmus, can you, if you're not successful in the Sunrise rebid, what would be your total expected cash costs? Because clearly, that project would probably miss many windows. So if we could get a number for that. And secondly, you have spoken in your investor letter, Mads, a year ago about hedging the, you know, power exposure for renewables, which is mainly UK RO assets. I mean, clearly, power market conditions have changed in the last few weeks, and some companies have reported it's a lot more difficult to make money in that market. I'm just wondering what you're seeing for current trading in the UK market and whether it works for or against your UK exposure through UK RO assets. Thank you.
Should I take the Sunrise one?
Yes.
So, Mark, if we first take the, you can say, the impairment part of your question and then the cash afterwards. So in the impairment note, 3.2, we have basically listed what are our assumptions on Sunrise going into New York 4. And should we win in that scenario, we will, as is stated there, we expect to reverse our impairment with DKK 1.8 billion with today's assumptions by the end of the year.
We have also stated that should we lose, which is something that we ascribe a 25, we have 75-25% probability when we did the annual report, then you will see, you will see an impairment on Sunrise of, we note—we write DKK 5.5 billion. And that, of course, comes through that the way we have our forward-looking value for the impairment testing now is a probability weight of a win and a lose scenario. In terms of your, the way I understand your cash comment is that you are probably referring to the cancellation fees.
And on Sunrise, we have based on the learnings that we have done on Ocean Wind, as mentioned before, having been through the 270 contracts, et cetera, we have also scrutinized the cancellation fees on Sunrise. And we do expect that due to that, but even more due to the fact that time has passed since we came out with Q3, we now expect in the unlikely scenario that we lose, we do expect today cancellation fees of expectedly DKK 6 billion-DKK 7 billion. So that would be obviously on the P&L in that scenario, should we decide to cancel the project.
There is also other scenarios should we not be successful, and this is something we would have to assess together with our partner, Eversource, because the deal we have made with Eversource basically only enters into effect if we are successful in Sunrise, New York 4.
And to your second question, Mark, and here, the... So when we are hedging our power price exposure, we are fundamentally not with our current strategy, hedging that to primarily sort of to make money on that, but to secure sort of the floor in our production. So therefore, what we are seeing now is that this is certainly still something that is possible. It's a liquid market. So in terms of, in terms of, call it speculative trading, this is not a core part of our strategy, and we are seeing that it is still indeed possible to do the hedging that we deem right with our new framework of 0%-70%.
Perfect. We have time for one final question, which comes also from a dial-in operator.
The final question comes from Jenny Ping from Citi. Please go ahead.
Thanks very much. Just on your dividend, obviously holiday until 2026, can you elaborate on how you're thinking about the dividend beyond 2026? I think there's a footnote in your presentation about payout. Some color around that would be great. Thanks.
Yes, we can do that. So what we are saying, also referencing to the previous question, we are having a planned 3-year dividend. We are targeting to reinstate that at a meaningful level. And that is what we target, and that is what we will do. We cannot get too close to what we are assuming, but it would be at a meaningful level.
Great. That concludes the presentation and Q&A. Mads, over to you for final remarks.
Yes, and I'll just again thank you very much for, as always, great questions. But also thank you very much to everyone in the room who have come here, and we will now focus in management and board on executing a plan that we very strongly believe in. Have a safe day. Thank you.