Ladies and gentlemen, welcome to the Ørsted Q1 2025 earnings call. For the first part of this call, all participants will be listened on remote, and afterwards, there will be a question-and-answer session. Today's speakers are Group President and CEO Rasmus Errboe and CFO Trond Westlie. Speakers, please begin.
Hello everyone, and thank you for joining today's presentation. During the first quarter of the year, we have focused on execution of the business plan that we presented in February. As part of the updated plan, we established four key business priorities for Ørsted, which will be the core focus as we execute on our strategy. First, it is the strengthening of our capital structure. Secondly, it is the delivery of more than 8 GW offshore construction portfolio. Thirdly, it is a focused and disciplined approach towards capital allocation with value over volume. Finally, we will ensure that Ørsted is even more competitive in the future. We will continue to focus on progressing all four priorities to deliver on our plan. With that said, the offshore wind industry continues to be challenged in the short term, with headwinds relating to supply chain, regulatory uncertainty, and macroeconomic developments.
We follow the developments around further potential tariffs and other regulatory changes closely. Despite the significant challenges across certain geographies, the long-term fundamentals for offshore wind are strong, given the increasing global electricity demand, a strengthened focus on energy security and affordability through renewables, and improvements in framework conditions in several major markets. With that, let me walk you through our progress on each of the four strategic priorities. During the first quarter, we have seen solid operational results, with a reported group EBITDA increasing 18% compared to last year. In addition, we continue to deliver on our farm- down program as we closed two divestments since the start of the year. In the US, we completed the 50% farm- down of two of our solar farms, and just last week, we completed a divestment of a part of our West of Duddon Sands offshore wind farm in the U.K.
These transactions deliver total proceeds of around DKK 7 billion and are supportive of our capital structure. We continue our relentless focus on the delivery of our offshore construction portfolio, and during the first quarter, we continued to deliver on this with successful commissioning of Gode Wind 3 . This also marks that we now have installed more than 10 GW of offshore wind capacity. On the back of the short-term challenged offshore wind industry and the adverse developments experienced in recent years, we will employ an even more focused approach to our capital allocation, and we do see that we have ample opportunities in our core offshore wind markets to leverage our distinct capabilities. With the opportunity set that we have, we will only select and progress the most attractive investment opportunities. A key part of this is a very clear prioritization of value over volume for our shareholders.
This disciplined approach to capital allocation has led us to the decision to discontinue the development of our 2.4 GW Hornsea 4 project in the U.K. in its current form. Since the award, the business case has seen numerous adverse developments, especially cost increases across the supply chain and higher interest rates. In combination, these developments have deteriorated the potential value creation and increased the execution risk. Throughout the development phase, we have been very diligent in our approach to capital commitments and followed our updated stage gate model. We are well below our internal commitment thresholds, and we are taking this decision well ahead of the planned FID. I would like to emphasize that Ørsted continues to view the long-term fundamentals as strong and see attractive perspectives for offshore wind in the U.K.
We will evaluate options for future development of the Hornsea 4 project as we continue to hold the seabed rights, the development consent order, as well as a grid connection agreement. The decision to discontinue the development of Hornsea 4 in its current form will not impact our mid and long-term strategic ambitions and financial targets. I am excited to have welcomed two new members to our Group Executive Team. Part of our journey to become increasingly competitive in the future will require our business to be more efficient and focused going forward. With the recent appointments of Amanda Dasch and Godson Njoku , the full offshore wind value chain from development to construction to generation is now represented in our Group Executive Team.
The changes to the Group Executive Team reflect our sharp focus on our core business, project execution, and on improving our competitiveness, and I'm very pleased that we have been able to attract two such strong candidates to our team. Let's turn to slide 5, where I will walk through some of the operational highlights for the quarter. First, I am pleased with the operational earnings for the first quarter of the year, where our EBITDA, excluding new partnerships and cancellation fees, amounts to DKK 8.6 billion. The 14% increase compared to last year puts us on track towards delivering our full year guidance of DKK 25 billion-DKK 28 billion of EBITDA. One of the supporting elements of our solid operational performance was the availability within our offshore business.
Compared to the same quarter last year, the availability increased with 9 percentage points and is, as such, a significant contributing element to the increase in our earnings despite the lower wind speeds offshore in Europe that we have seen. Operating our 10 GW offshore wind fleet with a sharp focus on financial performance will remain a key priority for us. During the quarter, we also made progress on the renewables share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025, and during the first quarter of the year, this was in fact the case. The increased share of renewables was driven by the closing of our last coal-fueled CHP plant in the second half of 2024, which marked another important milestone in our decarbonization journey.
Lastly, our continued and relentless focus on safety has continued, and the total recordable injury rate for the first quarter of 2025 has been reduced from 2.9 last year compared to 1.9 this year. However, this positive development was overshadowed by the two tragic fatalities among our contractor employees at the Plum Creek onshore wind farm earlier this year. Our deepest condolences go to their families and friends. We are focusing on the current investigation that the relevant authorities are conducting, and we are in close coordination with GE, WindCom, and the authorities. Let's turn to slide 6 and an overview of our construction projects. As mentioned, as part of our release in February, we will going forward provide more insights into the execution of our construction portfolio.
To keep this the most relevant for you, we will do so for the projects that are most advanced and active in their construction activities. Before I go into the detailed updates, let me put a few remarks to the remainder of our construction portfolio. During the first quarter, we successfully commissioned the Gode Wind 3 project. This achievement increases our operational capacity and also marks that we now have installed more than 10 GW of offshore wind capacity. For Borkum Riffgrund 3 , we have installed all foundations and turbines and are awaiting the grid connection from the German transmission system operator. First power is expected towards the end of this year, and the project is expected to be commissioned in the beginning of 2026. The delay of the connection will be compensated according to market regulation.
Until the grid connection is ready and the project can be commissioned, we are ensuring that we maintain the integrity of the assets as part of our service and inspection campaigns. For the Hornsea 3 project in the U.K., the construction continues to progress as planned. The onshore works are on track, and the offshore scope started in Q1 2025, focusing on pre-construction activities such as removal of unexploded ordnances. We are working closely with suppliers to manage the ramp-up and delivery of components to be installed offshore during 2026, with fabrication and monopiles being a key focus. The construction work for the co-located battery storage solution is planned to start during the second quarter of this year. Following the final investment decision on our Baltica 2 project in January, we are progressing the first phases of the construction work.
At the current stage, this involves the preparation of the onshore substation as well as the manufacturing activities related to the offshore substation. We are closely monitoring the fabrication progress of the key components for the project, as well as the progress on the installation harbor in Poland, which will be used for the loadout of the turbines. We will continue progressing the fabrication cable route preparation and also commence the offshore boulder removal campaign in the coming period. Lastly, the construction of our onshore projects across Europe and the U.S. continues to progress according to plan. Turning to slide 7 and a more detailed update on our Greater Changhua 2b and 4 project in Taiwan. The degree of completion for the project is around 35%.
The degree of completion is one of our metrics measuring the progress of a construction project's installation schedule and reflects a combination of scheduled progress and financial spend. At this point, all the foundations and export cables have been fabricated. The vast majority of the array cables have been fabricated as well, and the manufacturing of the remaining turbines is progressing according to plan. Remaining array cables and the majority of turbine components are being fabricated in Europe, and once complete, they will be transported to Taiwan for pre-assembly and installation. It is the first project in our portfolio where we are installing the 14 MW wind turbines from Siemens, and the installation is going really well. During the first quarter, we have progressed the fabrication of key components and also achieved important milestones as we have started offshore construction activities with the installation of both foundations and turbines.
Currently, we have installed around 30% of the foundations and the first few turbines. The vessels needed for the installation of array cables have also arrived in Taiwan and are ready to begin the installation in the coming period. From a risk perspective, the project is focused on managing any potential schedule implications caused by the weather conditions. We have taken into consideration an expectedly longer installation period during the winter season due to challenging weather conditions throughout this season. Likewise, the project continues the monitoring of the sea routes needed for transportation of the remaining equipment. In the coming period, the project will continue to progress the installation of foundations, turbines, export, and array cables. First power is expected over the summer, and we expect to commission the project towards the very end of this year.
Now, turning to slide 8 and an update on our Northeast program starting with Revolution Wind. The degree of completion for the project is around 75%, and we have continued making good progress on both the construction of the onshore substation in Davisville, Rhode Island, as well as the installation of monopiles and turbines offshore. We currently have installed nearly half of the 65 turbines and around 80% of the monopiles, as well as completed all installation of the export cable. The project's focus remains on a number of items that are critical to delivering the project on the updated schedule. For the onshore substation, we are implementing the updated solution, and this work is reflected in the project schedule. We took over site management at the beginning of this year, and we have subsequently accelerated works, which means that all buildings have now been erected and made watertight.
This was a key deliverable for the de-risking of the installation schedule for the onshore substation, which is on the critical path for the project. Next stage is the installation of the equipment and commissioning, where management of risk primarily is related to safety and quality. Regarding the monopile installation for one of the project's two offshore substations, work is also progressing well on the challenge that arose last year. We will conduct a new monopile installation for the offshore substation, and we expect this installation to take place later this year, utilizing the already contracted installation vessels that are undertaking work at Sunrise and Revolution. Lastly, turbine installation remains well underway and is progressing according to the updated plan. As you are aware, the turbine installation requires a different local setup in the U.S. until U.S. installation vessels are built and available.
This means that the components are assembled and staged out of the New London Port and transported to site on barges, where they are then installed using installation vessels. This scope has had the highest priority focus of the team and is on track to be completed later this year. The project remains on track for commissioning in the second half of 2026. Now, turning to slide 9 and our Sunrise Wind project. Sunrise Wind is being constructed together with Revolution Wind as one program, including vessel arrangements and the broader offshore installation campaign. The degree of completion for Sunrise is around 35%, with almost half of the turbines fabricated, the onshore converter station being near complete, and the monopile fabrication progressing according to the updated plan.
We commenced offshore construction during the quarter, beginning with boulder relocation and two horizontal drillings for the export cable, and we are implementing the learnings accumulated for Revolution Wind. These learnings are reflected in the installation schedule as Sunrise Wind undertakes monopile installations, followed by turbine installation later this year as part of our U.S. Northeast program. The project's focus remains on a number of items that are critical to delivering the project on the updated schedule. The fabrication of monopiles is progressing according to plan and will continue throughout 2025. The installation of monopiles will continue over two seasons due to the time-of-year restrictions on when they can be installed. On the export cable, we have seen good progress as one section of the cable has been manufactured now, and the remaining two are expected to be completed later this year, again according to plan.
All sections of the cables have passed all critical tests, including the factory acceptance testing. On the jacket structures for the HVDC, it is in the final phase of quality control before it is planned to be transported to the site over the summer. We remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond.
Thank you, Rasmus, and good afternoon, everyone. First, let me start with slide 11 and the EBITDA for the quarter. As always, unless I state otherwise, the numbers I referred to will be in Danish kroner. In the first quarter, we realized an EBITDA, including new partnerships, of DKK 8.9 billion, which is an increase, as Rasmus mentioned, of 18% compared to last year. Excluding new partnerships, EBITDA was DKK 8.6 billion. Let me walk you through the main earnings developments for the quarter.
For our offshore businesses, the overall earnings came in DKK 200 million higher than last year. The earnings from sites increased, driven by ramp-up generation, higher availability, as well as higher prices on the green certificate and inflation-indexed assets. There was also a positive effect from our power trading activities. This was partly offset by wind speeds being significantly lower than the same period last year. Other costs, which include unallocated overhead and fixed costs, as well as expensed project development costs, increased compared to last year, but in line with our expectations. The increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA expectations for offshore. For onshore, the EBITDA, excluding divestment gains, increased by approximately DKK 400 million, primarily driven by ramp-up generation from new assets that have been commissioned during 2024.
Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices and spreads. Earnings in gas business increased, driven by higher offtake volumes and a negative impact from revaluation of gas at storages last year, which was not repeated to the same extent in the first quarter this year. Finally, we recognized an EBITDA gain of DKK 300 million relating to the 50% divestment of our two U.S. onshore projects, Eleven Mile and Sparta . Let's turn to slide 12. Our net profit totaled DKK 4.9 billion, which was a significant increase compared to last year. Net profit benefited from higher EBITDA and the lower tax expenses as a result of the reversal of previously expensed deferred tax liability. In the first quarter, we had a net impairment reversal of DKK 300 million.
The main contributor to this reversal was a decrease in long-dated U.S. interest rates, which was partly offset by the impact of the imposed tariff in the U.S. In March this year, the United States imposed a 25% tariff on imports of steel, aluminum, and certain products containing steel and aluminum. These new tariffs have resulted in increased costs and contingencies on our Sunrise Wind and Revolution Wind projects, leading to an additional impairment of DKK 1.2 billion. In addition, an executive order was signed in April 2025, imposing a 20% tariff on imports to the United States from the European Union, of which 10% is effective and the last 10% is postponed. We have not included the potential adverse impact from such additional 10% plus 10% tariffs due to the ongoing uncertainties.
In a scenario of an additional 20% import tariff, we assess this would have less than half of the impact from the steel and aluminum tariff. On the effective tax rate, that was as low as 5%. However, adjusting for the reversal of the unrecognized deferred tax assets, the underlying tax rate was 23%. Adjusted for impairments and cancellation fear on return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported return on capital employed came in at 4.6% and was impacted by the impairment recognized over the last 12 months. Our scope 1, 2, and 3 greenhouse gas intensity, excluding gas sales, decreased by 7% in the first quarter this year compared to last year.
The decrease was mainly due to lower scope 1 and 2 emissions resulting from reduced fossil-based generation, partly offset by higher scope 3 emissions from capital goods. Moving then to slide 13 and our net interest-bearing debt and credit metrics. At the end of the first quarter this year, our net debt amounted to DKK 68.4 billion, an increase of approximately DKK 10 billion during the quarter. Our cash flow from operating activities contributed with around DKK 600 million. Our operational earnings were partly offset by costs related to construction of transmission assets in the U.K., as well as seasonality in other working capital items. Compared to last year, we did not receive any material milestone payments related to our construction projects, nor any tax equity contributions. For the quarter, our gross investments totaled DKK 13.8 billion, driven by our investments into the construction of our renewable project portfolio.
The cash flow from divestments of DKK 3 billion primarily related to the farm down of the 50% stake in our Eleven Mile and Sparta onshore projects. The divestment of a stake in West of Duddon Sands, which was announced last week, is not included here, as it closed after the end of the first quarter and will accordingly be reflected in our accounts for the second quarter. Our key credit metrics, FFO to adjusted net debt, stood approximately at 14% at the end of the first quarter, which is a slight increase compared to the end of last year, primarily driven by higher funds from operation in the 12-month rolling period. Throughout 2025, the cancellation fee payments incurred over the last 12 months will be rolling off the metric and thus benefit the FFO number. Finally, let's turn to slide 14 and our outlook for 2025.
With a solid operational performance for the first quarter, we reiterate our full-year EBITDA guidance, excluding new partnerships and cancellation fees of DKK 25 billion-DKK 28 billion. As the offshore wind speeds have been below the norm, we are expecting our offshore sites' EBITDA to come in lower than anticipated in the beginning of the year. However, we still expect our offshore segment EBITDA to be higher than last year. Adjusting the future for our Hornsea 4 project will have financial implications, which will be reflected in our accounts in the second quarter of this year. For Hornsea 4, it was our plan to use the export cables from Ocean Wind 1, so we will now evaluate the value of these cables going forward. The book value of the export cables is approximately DKK 1.5 billion.
In addition, we have so far spent approximately DKK 500 million on the offshore transmission assets and have an estimated additional spend of around DKK 1 billion-DKK 1.5 billion related to a combination of expected contract cancellation costs and committed project spend. In total, this can potentially lead to a negative impact on our EBITDA of approximately DKK 3 billion-DKK 3.5 billion in next quarter or this quarter, Q2, in 2025. The capitalized construction cost for Hornsea 4 is around DKK 700 million and will be written off below EBITDA in our accounts for the second quarter.
As an additional information, as a result of closing out the outstanding Ocean Wind cancellation contracts, we will also review the remaining provision level during the second quarter. On CapEx, we also maintain our gross investment guidance for 2025 of DKK 50 billion-DKK 54 billion. With that, we will now open for questions. Operator, please.
Thank you very much. Anyone who wishes to ask a question may press star and one on the telephone. If you wish to remove yourself from the question, you may press star and two. Our first question comes from Peter Bisztyga with Bank of America. Please go ahead.
Yeah, good afternoon. Thanks for taking my questions, Peter Bisztyga. I've got a question on the stop work order for Equinor's Empire Wind project. And I'm just wondering what reasons might exist, or are you aware of, as to why your Sunrise Wind or Revolution Wind projects might be able to avoid similar stop work orders in the coming months? Thank you.
Thank you very much, Peter. I think, first of all, I'm not going to speculate about potential regulatory changes in the U.S. that is outside of our control. Our two projects have completed multi-year reviews and have also followed all state and federal procedures. We are constructing them under one program in the Northeast, which is in a very active construction phase right now, with a degree of completion of around 75% for Revolution Wind and around 35% for Sunrise Wind, as I mentioned before. You can say specifically for Revolution Wind, we have installed almost half of the turbines, 80% of the monopiles, installed one of the monopiles for the project's offshore substation, fabricated all components, and so on. For Sunrise Wind, we have sort of nearly completed the onshore converter station and also the array cables.
We have also fabricated more than half of the nacelles for the project and also started offshore construction activities during this quarter. Also, if I might add, both projects ensure that hundreds of millions of U.S. dollars are invested into the domestic supply chain, supporting shipbuilding and port investments, and are also creating jobs across more than 40 states. That is our perspective on our own projects in the U.S.
Okay. Have you had any interaction at all with the Department of Interior or BOEM , about the potential risk?
As is always the case in the markets where we operate with our projects and also with projects under construction like these, we, of course, have an ongoing dialogue with the regulator. That is also the case as of now in the U.S., where we have an ongoing constructive dialogue with BOEM on the progress of the projects.
Okay. All right. Thank you.
Our next question comes from Alberto Gandolfi with Goldman Sachs. Please go ahead.
Hi, good afternoon. It's Alberto Gandolfi, Goldman Sachs, and thank you for taking my question. I wanted to ask if you can pause a bit on a reflection on slide 6 and slide 12. On the left-hand side of slide 6, you're talking about the 8.2 GW of offshore projects. And thank you for going through project by project and completion rate. Can I ask you, on that page, how many of these projects, all in all, have an IRR over WACC since inception? Because Changhua was divested partly at book. We know the situation in the United States, PGE's stocking up cost in Baltica. My question is, are we going to see further dilution in the return on capital employed that went down from 12.5% to 10% in one year?
If the IRRs on these projects are not to your original benchmark, where are we going to see Return on Capital Employed on a three-year basis, in your opinion? Thank you so much.
Thank you, Alberto. I can kick that off. As I'm sure you might appreciate, I'm not going to be very detailed about current spread over our cost of capital for each of our construction projects in our portfolio. What I can say is that we remain confident with the value creation that we see in our committed offshore construction portfolio. The projects where we have taken FID and where we are moving forward, we will have locked in, obviously, the contracts ahead of FID and so on. We remain confident in the value creation on our construction portfolio for offshore wind. As for the ROCE, also the same there. We stand by the guidance that we gave as part of our updated plan on the 6th of February, where we guided a ROCE of around 13% for the period 2024 to 2030.
Just to add on to that, Alberto, we had an increase of capital employed for DKK 32 billion the last year. Much of that is, of course, not generating assets due to the fact that we're in a growth period, and we will be in a growth period for that element. Coming into the next couple of years, you will, of course, see slightly more pressure on the ROCE. On the 2024 to 2030, on the average that we gave on the overall plan, on the average ROCE for those years, we will stick with that as a result of then having then a growth period now for the next two to three years.
Our next question comes from Casper Blom with Danske Bank. Please go ahead. Mr. Blom, your line is open.
Hello, this is a question from my side regarding the decision to discontinue the development of Hornsea 4. I, at least, was surprised to see this, given that the allocation was given no later than in September last year. I understand your explanation about higher cost, higher interest rate, and risk of delays, but is there also an element of you guys wanting to take a more cautious approach to construction in general? I.e., is this also an expression of your new value focus where you maybe pull the plug on something a bit earlier to make sure that you don't get into the same kind of problems that you've previously seen in the U.S.? If you can sort of reflect a little bit on that. Thank you.
Absolutely. Thank you for the question, Casper. As you also alluded to, I was clear before about the more specific drivers in terms of the project case on Hornsea 4, and I can sort of build a little bit on that as well. Just to go directly to the core of your question, first of all, this is obviously not a decision we have taken lightly. That goes without saying. We came out with a plan on February 6th with four key strategic priorities. One of them was to have a razor-sharp focus on value over volume. As for the project here, we simply did not see sufficient value to meet our hurdle rate for a project of this kind.
On top of that, as you also partly alluded to, you should also see this decision as part of us being even more sharp on our stage gate model and our approach to risk management. We have taken this decision early, while obviously on the other side of the bit, we have taken it early relative to a planned FID that was expected to be by the end of this year, and therefore also significantly limiting the financial implications of discontinuing the project in its current form. Also worth noting that we still have the lease rights. We still have the development consent order. We still have the grid connection agreement.
We will now work towards bringing the project forward again in a new configuration. We basically take it back to development, if you will. We plan and expect that we would move the project forward in a different configuration and on a different timeline.
Our next question comes from Harry Wyburd with BNP Paribas. Please go ahead.
Hi, thanks. Another one on the U.S. I know we're flopping back and forth with Hornsea 4 in the US, but on Sunrise and Revolution, it's a really specific one. Given, I think with Hornsea 4, you've sort of shown that you're trying to think a bit further forward and make decisions a bit earlier, I'm sure you would have considered the risk of Sunrise being cancelled. If it is cancelled, what would that mean for Revolution? I guess it seems like Revolution is sufficiently well progressed that it's less likely that one gets cancelled. If Sunrise is cancelled, could you continue with Revolution?
Would it meet your return hurdles if you did? Or would it be a case of if Sunrise is cancelled, it starts to put the whole U.S. project into a difficult position, and maybe it's the end of your sort of major operations in the U.S.? I just wondered if you could help us think about what might happen in that case. Thank you.
Hi, Harry. Thank you very much. Harry, I'm not going to speculate on the implications of a cancellation, as you alluded to here, for neither Sunrise nor Revolution Wind. We remain 100% committed to bringing both projects forward as part of our Northeast construction program. As I said before, we are talking about projects with degree of completions of sort of 75% for Revolution Wind and 35% for Sunrise Wind. I'm not going to entertain, you can say, sort of hypothetical scenarios about cancellation of projects in this case. We are fully committed to moving forward.
Our next question comes from Ahmed Farman at Jefferies. Please go ahead.
Yes, thank you for taking my question. I just wanted to come back to Hornsea 4. Can I just ask you to give us a little bit more granularity on the cost inflation that you have seen on this project since you selected over the last year or you secured the CFD contract? And talk a little bit about where exactly within the supply chain has that cost inflation come through? And then sort of related to it, is this cost inflation sort of specific to Hornsea 4, or is there sort of a read across for Hornsea 3 and Baltica 2 that we should also be thinking about? Thank you.
Thank you, Ahmed. Starting with Hornsea 4, as I have said, and as you have also picked up, I can hear that there are three drivers, if you will, behind the deterioration of the business case to a level where we have decided not to move it forward in its current form. One of them is increases in the supply chain. Another one is the increase in the long-dated interest rates in the U.K. of around 50 basis points since we participated in the auction. Specifically, on the supply chain, I'm not going to single out individual scopes or individual contracts or suppliers. That would not be right. What I can say is that when we prepare for a bid like this, we, of course, base our bid on price quotes and so on across the scope of the construction.
What we have simply seen once we, after bid, go into detailed contract negotiations with suppliers leading up to a potential FID is that both, you can say, the risk balance between the developer and the supplier has been moved relative to what we had assumed in certain cases. More importantly, the initial price quotes have simply been increased. I am not going to give specific numbers about the magnitude of the increase, which is simply too commercially sensitive for us. As per the other part of your question, how can we see this outside of the U.K.? Does it have implications within the U.K. on Hornsea 3, as I heard you? Does it have implications on Baltica 2 and so on? A few points. First of all, it is important to differentiate between assets under construction and assets under development. Obviously, a fundamentally different situation.
For Hornsea 3 and for Baltica 2, we have obviously locked in the entire supply ahead of taking FID. Therefore, the cost increases and risk increases that we have seen on Hornsea 4 under development, you will not see on those projects. Of course, we have changed. We see changes in the underlying interest rate environment. That is the way it is, of course. It's outside of our control. The part that we can control, you should not expect to see that. The second element to your question, is this something that is outside of the U.K.? Just a few facts. While the LCOE for offshore wind has been going down from 2015 to 2020 with around 70%, we have seen an increase in Europe from 2020 to 2025 of around 50%.
In the other direction of LCOE, partly driven by increased CapEx, partly driven by increased interest rates. Of course, it is that increase that we have continued to see in Hornsea 4 as part of locking in the contracts. It is also an increase that one can expect to see on other projects in Europe that are not yet locked in. No doubt, we have a short-term challenging environment for offshore wind, but we remain 100% confident and committed to offshore wind in the long term also for Europe, where we believe in the fundamentals.
The next question comes from Kristian Tornøe with SEB. Please go ahead.
Yes, thank you. My question goes to your guidance on divestment proceeds of the DKK 70 billion-DKK 80 billion. If you can elaborate whether Hornsea 4 was expected to be part of this program, and if so, what it does to the expected proceeds.
The plan on the number of the proceeds is, of course, the period between 2024 and until the end of 2026. The timing of Hornsea 4 is further out. It has never been a part of that element.
Our next question comes from Dominic Nash and Barclays. Please go ahead.
Hi there. Thank you very much for taking my questions. I've got sort of a follow-up from that one there, which is, I think you're reiterating your medium-term guidance of DKK 210 billion-DKK 230 billion of gross investment. Hornsea 4 is going to be a large chunk of that. The first question is, does that mean that your medium-term guidance either will probably need to come down, or does it follow on from that that Hornsea 4 is likely to be able to re-bid into upcoming CFD rounds? If so, can you just give us some color as to, I believe it has to jump one, or when do you think it will be back in a position to go back into a CFD round? Thank you.
Thank you very much, Dominic. First of all, on the investment program that you are alluding to, you are right in saying that we have, as part of the plan that we presented on February 6, we have communicated a gross investment program towards 2030 of DKK 210 billion-DKK 230 billion. As part of that, as we have also said, roughly DKK 40 billion-DKK 60 billion is what we call uncommitted capital. For projects where we have not yet taken FID, such as Hornsea 4, now when we do not move forward Hornsea 4 in its current form and on the current timeline, we will have some more flexibility in terms of how we intend to deploy those DKK 40 billion-DKK 60 billion towards the most value-accretive opportunities that we can find in our portfolio, likely with a strategic emphasis on offshore wind in Europe.
Specifically to your point on the timing of a potential re-bid, it's a bit too early for me to be very explicit about that. What I can say is that it's not going to be AR7 or AR8. Of course, we would have to see what is going to be the best way forward for the project, also for us in terms of delivering the needed value creation for our shareholders. We will continue to have a good dialogue with the British government in this regard. It is important for me to just stress that we fully believe that the framework that we have seen, are seeing in the U.K., as well as sort of the general support from everywhere we go from a regulatory perspective for offshore wind, is really, truly there. Therefore, we will continue to have a good dialogue on the back of this decision, I'm sure.
The next question comes from Lars Heindorff in Nordea. Please go ahead.
Good afternoon. Thank you for taking my question. It's more to Trond's, perhaps. You mentioned in the presentation that you will conduct a more thorough review of provisions here during the second quarter. Can you give us a bit more insight? Is there anything that you feel is in danger, or what is the reason for this?
Thank you, Lars. No, there's nothing in danger. It's just that we are closing out the sort of the last contract. Closing down the Ocean Wind provisions. As a result of that, there's more elements of what is the provision all needed, really. It's more the other way than sort of a concern.
The next question comes from Jenny Ping with Citi. Please go ahead.
Thank you very much. If I can just check on what is actually cash and what's non-cash that's expected to go out in both regards of tariffs as well as Hornsea 4, please. I guess on tariffs, the DKK 1.2 billion, when does the cash, this is obviously an accounting item for now, but when does the cash actually go out? Is it just part of the CapEx? Similarly for Hornsea 4, the DKK 3 billion-DKK 4 billion EBITDA impact, I presume all of that is not cash, and some of it is. Clarification on that. Just a quick one on Hornsea 4. Have you thought about or explored the option of selling the asset as Vattenfall have done before with a CFD? Is that something you've explored and didn't progress forward? Thank you.
To start on the first question on the cash impact of Hornsea 4, as I said, of the amount, it's approximately DKK 1 billion-DKK 1.5 billion that will be the cash effect from now on. The remaining part is already paid for. Ocean Wind is, of course, just the internal pricing and literally paid for in the Ocean Wind project as such. When it comes to the tariffs, the book value of the DKK 1.2 billion that you see taken in this quarter, that is, of course, the net present value effect of tariffs in the projects on Sunrise and Revolution. The tariffs itself, the gross number of tariffs, is, of course, going to be paid when the goods enter the United States.
That comes as a result of the pure logistics in the project. That payment is just a payment and, as such, just a negative cash flow element in the NPV calculation.
For the second part, third part of your question, Jenny, on Hornsea 4, no, we have no plans to divest our lease. We see it as a strategic asset, and we see the Hornsea 4 very much at our core in the U.K. as well. We have no plans to sell the lease.
Our next question comes from Olly Jeffery with Deutsche Bank. Please go ahead.
Thanks very much. A few questions for me. The first is on potential further impairments in Europe. I am mindful of the fact that Baltica 3, I believe that is the most obvious candidate where if you do not go ahead with that project, you could incur further write-downs. Could you give an update on what is happening with that? Could you also say, if you were to cancel it today, what size of impairment might we need to, what size of impairment might we see? Then second question, and this is much simpler, could you please give an update on the sales process for Hornsea 3 ? Is that still progressing as planned for this year? Thank you very much.
I start with Baltica 3 , and then I leave the Hornsea 3 sales process to Trond. Hi, Olly. We have decided a while back to, which you are probably also alluding to with your question, we have decided a while back to keep Baltica 3 under reconfiguration, as we call it, together with our partner, PGE. The reason we have done so is simply because we have not and are not seeing the value being good enough as of now to meet our investment requirements.
Therefore, that is still the case on Baltica 3, and we are working on finding a way forward together with our partner, PGE, and just stating as well here that we are continuously very pleased with that partnership, and we are moving forward really well together on Baltica 2. I'm not going to give you a specific number in terms of potential financial implications should we decide not to move that project forward, but there will be cancellation cost. They will be lower, obviously, than the ones that we have now talked about today. For Hornsea 4, it's a significantly smaller project. We are in it with a partner and so on. Should we decide finally one day to not move it forward, yes, there will be financial implications, but they are clearly going to be manageable.
On the fund-down sales processes that we're going on, we're, of course, not commenting on each one of them. What I can say is that all of them is progressing. All of them is moving along. As we said, the timing of the different elements, since we have mentioned, I think it now is 18, two years ago that we mentioned the Hornsea 3, that is also moving along according to the previous plans. Not really more to say than what we said before, that basically we're moving along according to the plan, and we will come back when we literally have more sort of qualified and basically have blue ink on the paper on those elements.
Dear analysts, in the interest of time, please limit yourself to one question only, and then you can go back to the queue for a second question. Our next question comes from Rob Pulleyn and Morgan Stanley. Please go ahead.
Hey, thank you. There's always more questions. May I just explore something on Hornsea 4? Is this decision, and you've talked about value over volume and obviously the balance sheet resilience, a function of being unable to find a farm-down CapEx partner for the project when, of course, you're looking for one on Hornsea 3 as well? A part B, if you will, is also should we be thinking that within the U.K., there have been indications that the AR7 and AR8 auctions, and appreciating it's probably more AR8 that you're looking at, terms could be substantially better than AR6? From a value perspective, is it better to cancel and re-bid into a better auction? I'd love to hear some thoughts around those two angles. Thank you.
Thank you, Rob. I will take both part A and part B of your question. If we take your comment on the farm-down of Hornsea IV first, the way we think about it is that we have seen, as I've said before, the business case deteriorate due to supply chain interest rates and also this sort of increased pressure on the float in the project as we saw it. I said a part of that was also the increase in the interest rate. The way we think about it is, of course, that we believe that the prudent thing for us to do when deciding on whether or not to move forward with an FID of a project of the size and scale of Hornsea 4 is also to take the value implications of a farm-down down the line into consideration already now. We think that is the prudent thing to do.
In that sense, it has been part of our decision-making, but there is absolutely no read across whatsoever to ongoing farm-downs, as for instance on Hornsea 3 that you are alluding to. Part B of your question on sort of our thoughts on moving forward with the project in a different form and re-bidding at a later point in time, we would not be able to bid for AR6, sorry, AR7 and AR8. That is not part of our thinking. It will likely be at a later point in time. Of course, the thinking is now that we would move the project forward, we would take it back into development, and then, of course, we will do whatever we can to be competitive again in a future auction round in the U.K. As said, we remain fully committed to the U.K. and the Hornsea zone.
The next question comes from Deepa Venkateswaran with Bernstein. Please go ahead.
Thank you for taking my question. Apologies, I'm going to stick to Hornsea 4. We've heard from one of your other peers with an active contract in the same that they are still going ahead. They see value creation, and they talk about a CapEx of DKK 3.5 billion per gigawatt ex-off to. Are you able to comment what kind of CapEx you were assuming when you decided to discontinue? Secondly, just note that a spokesperson for the U.K. government has said that they intend working with you to get Hornsea 4 back on track. I wonder how that dovetails with the previous comment that you think you can't really participate in AR7 or AR8. Could you maybe elaborate on what the U.K. government might want to do? Thank you.
Hi, Deepa. Thank you very much. I'm not going to give away CapEx multiples for Hornsea 4 as it stands right now. It is a project we have decided not to move forward with. Also, it's not for me to compare or speculate in how our good colleagues in the industry approach their projects in terms of communication and so on. I prefer to focus on our own, and I cannot give that multiple away, Deepa. I'm sure you have a view on what you might think CapEx is for a project of this size. Of course, a starting point is Hornsea 3 and then adjusting for the fact that CapEx has gone up since then.
Specifically to the second part of your question on the comments that have come out today from DESNZ and so on, we, of course, very much appreciate that, and we see it the same way. We will continue to do our absolute best to be the best possible partner for the British government. As part of that is also that it's not right for me to speculate in terms of sort of when and how we would be able to come back with Hornsea 4 in terms of which rounds and so on. What I can say is that we would obviously follow the frameworks, which, as I said before, I believe is the right one. We will continue to do our absolute best to move the project forward in a way that is sufficiently value-creating for our shareholders.
The next question comes from Åsne Holsen with ABG. Please go ahead.
Hi. Thanks for taking my question. I have a question about the impairments on U.S. tariffs. Do they only sort of cover the sort of steel, aluminum components, or do they extend to other components?
On the tariff side, the impairments of DKK 1.2 billion only relates to the steel and aluminum. In the introduction, we also said that we have not included the other tariffs of 20%, which is now 10% plus 10%. The 10% is effective, and the last 10% is not. Having said that, the DKK 1.2 billion is not including the other tariffs. In the scenario that we will get a tariff of 20% from the EU to the U.S., that will, in our sort of preliminary estimates, because we do not know what it will contain, but if it is a point blank, basically all goods going into the US of 20%, that will result in a bit less than half of the DKK 1.2 billion of impairments. It is sort of short of the DKK 600 million of impairment that needs to be added to Sunrise and Revolution.
Fully agree. In terms of the underlying sort of drivers, just in very simple terms, the key drivers behind the tariffs on steel and aluminum is the monopiles and the turbines, obviously mostly steel. The key driver behind a potential additional tariff on more broadly outside of steel and aluminum would, the vast majority of that would be related to cables and blades. Again, the financial implications are exactly as laid out by Trond.
Our next question comes from Mark Freshney with UBS. Please go ahead.
Hello. Thank you for taking my question. I mean, this is cancelling Hornsea 4 given everything that's going on in the U.K. with Clean Power 2030. Some might say it makes a very ambitious target for the U.K. even more difficult to achieve. My question is, presumably you would have had to have spoken to the Energy Minister or the Secretary of State last night or early this morning. My question is, what do they say about this? Further to Deepa's question, how confident are you the government can find a solution to this and get Clean Power 2030 done?
Thank you for the question, Mark. I'm afraid my answer is probably going to be a little bit disappointing to you, but I'm not going to entertain, I'm not really going to go into this from that perspective in terms of the political targets in the U.K. and so on. That is not for me to do. I would like to focus on our projects and how we can continue to assist the British government in the best possible way. As I said before, when asked on another matter, of course, in all of the markets we are in, in our core markets, we continue to have dialogues with all the relevant stakeholders, but I will not go into details about specific conversations with anybody.
Our next question comes from Helene Brøndbo with DNB. Please go ahead.
Yes. Hi. Thank you for taking my question. I was just wondering if you could shed some more light on how you assess the possibility of doing new offshore wind projects that are profitable in the current market in Europe. What do you think it will take for this industry to become competitive, I guess, on current subsidy regimes as well as on a subsidy-free basis?
Thank you very much, Helene. First of all, just to be clear, while we do see challenges in the short term for offshore wind, also in Europe, we fundamentally believe in the long-term perspective for the market, driven by the fact that the demand for electricity is obviously going up quite significantly in Europe. Also right now, and for a while now, we see a significantly strengthened focus on energy security and also affordability. Finally, we are seeing significant improvements in framework conditions in several of the major markets that we see. For the long term, what is needed in our view for the industry is predictability for the developers and the supply chain, and also frameworks that are centered around CFDs, actually exactly like we see it in the U.K.
The uncertainties that we would have to address as an industry here is obviously on the size of the electricity demand. It is on the price sides. It is also on the supply chain that we've talked about before. Then obviously also turning targets into FID and finally on the bankability of the projects. We firmly believe that there is a way forward. As we have also recently put out as part of an industry piece called European Offshore Wind at a Crossroads, we are very focused on the need for predictability.
We believe the right way is for the European government more broadly in the coming period of time to tend out offshore wind in a, you can say, coordinated manner, country for country, preferably with a, you can say, guaranteed build-out of offshore wind of around 10 gigawatts from 2031 towards 2040 of CFDs and then a top-on for merging projects with PPAs. If that happens, we are convinced that the industry will answer. We will. We also then expect LCOE to again start going down significantly for offshore wind. Europe need offshore wind. We do not see a relevant scenario where we will not see a significant increase in volumes for offshore wind for the next decades. We need to break the curve together.
We will continue with a set of follow-up questions, starting with Harry Wyburd with BNP Paribas. Please go ahead. Mr. Wyburd , your line is open.
Hi. Sorry. My question was already answered, so I'll just hand it on to the next person. Thank you.
Thank you. The next follow-up comes from Alberto Gandolfi with Goldman Sachs. Please go ahead.
Thank you. I'll keep it very brief. Thank you for taking my follow-up. My question is the following. Do you have a view on the potential implementation of zonal pricing in the U.K., on the probability of it being implemented, what timeline, and how would it affect your existing profitability, the profitability of the existing portfolio? Thank you so much.
Thank you, Alberto. Obviously, the conversation around zonal pricing in the U.K. is obviously something that we are following very closely, and our engagement with both DESNZ and REMA remains a priority for us. For us, what is really the key point here is that we see a need, obviously, for significant commitment to grandfathering of existing projects, which is also very much what we discussed with the senior officials as well as also the public comments that we have seen coming out. We fully appreciate that the zonal pricing is still under consideration. As such, we will not sort of, I will not put out a firm view on one model or the other.
Of course, it is an uncertainty should you go there on the cost of capital for existing projects because of the increased uncertainty on the revenue line and the risk of the projects, which is also why we believe that the grandfathering of existing projects is absolutely essential.
Our next question comes from David Paz with Wolfe Research. Please go ahead.
Hello. Thank you. Just on Revolution Wind, can you help me understand that you say you're on track to complete the highest priority by the end of this year to include the installation vessels? What then has to be completed to get you COD? I think you still have second half 2026. Just can you remind me what's the lag there?
Absolutely, David. The critical path, if you will, for Revolution Wind is the onshore substation. What we are doing now, as we've talked about, is, of course, we are continuing the offshore construction that I mentioned before, where we are, as said, around or we have installed around 50% of the 65 turbines and around 80% of the monopiles. You can say all the components for Revolution Wind have also been constructed and prepared. The critical path, what we will be doing for the remainder of 2025 and 2026, is the offshore construction, but also the finalization of the onshore substation.
Our next follow-up comes from Peter Bisztyga with Bank of America. Please go ahead.
Yeah. Hi. Actually, just another one on zonal pricing in the U.K. Just wondering whether the uncertainty associated with that led at all into your decisions to cancel Hornsea 4, and has it caused any issues or disruptions with the Hornsea 3 farm down process?
Thank you, Peter. The answer is no and no. The zonal pricing debate in the U.K. has not in any way been part of our decision to discontinue Hornsea 4 in its current form. It is driven by the three things I mentioned before and then also the comments I made relating to a potential farm down. As per our ongoing process with the farm down of Hornsea 3, as Trond said before, we're not going to go into details about an ongoing process, but I can say that the debate about zonal pricing is not part of the conversations we have.
Our next follow-up comes from Rob Pulleyn. Please go ahead.
Hi. Hi. Thank you. Maybe this is a little bit obscure, but it relates to the U.S. projects. There was a technical ruling, I believe we'll call it, on May 2 by the Interior Department regarding permitting for offshore wind. This removed a Biden opinion and inserted a Trump one. The language says that the department action taken on the basis of this previous opinion would have to be reevaluated. Sorry, this is all rather clunky. The question is, I don't know whether you've seen that May 2 ruling. I'm sure you have. Does that open the door to retrospective removal of the permits on Sunrise and Revolution, which obviously post-dates what happened to Equinor's Empire project? I hope that was a clear question.
Thanks, Rob, for the question. I'm not going to go into speculation about, you can say, the regulatory framework around Revolution Wind and Sunrise, as I said before. We have all the permits we need. We have completed multi-year reviews, and we have also followed all state and federal procedures. Therefore, I'm not going to go into specifics about technical rulings.
The next follow-up comes from Ahmed Farman. Please go ahead. Mr. Farman, your line is open. We cannot hear you.
Sorry. Two quick questions. Sorry about that. Could I get your perspective on the U.K. government's proposed reforms to the CFD? Just if you think that makes a material difference to the options or the overall attractiveness of the market. You talked about earlier that both Sunrise and Revolution Wind are part of the single program. As I understand it, probably sort of learning from the Revolution will go to Sunrise Wind. Could you elaborate on that? What are the critical parts there in terms of the learnings from Revolution that would then expect to benefit the Sunrise Wind project? Thank you.
Absolutely. Thanks, Ahmed. In terms of AR7 and the debate that is currently ongoing, since we are not going to participate, I do not think it is right for me to go far into that discussion. We, of course, note very much the dialogue that is ongoing right now as part of the framework for AR7. We also, of course, note as an example the proposal that is being discussed on potentially having a CFD that is 20 years instead of 15 years and so on. Of course, as I also said before in a more general comment about what is needed for the long term for offshore wind in Europe, any increased predictability for the developers, including on the revenue line, in our view, will be attractive, As an example.
W ith respect to your question on Revolution Wind and Sunrise being conducted, executed as one program, and you asked about the learnings, as an example of that is the installation rate for the turbines. One of the challenges that I also partly alluded to before that we have had also when we rebased the schedule for the projects was the installation rate for the turbine, where we had to use a U.S. setup with a jack-up and a barge where you basically sail out one turbine on a barge, the blades and the monopile and so on. Then you install the full turbine with a jack-up vessel. That is a process that is not one that we would normally go with. Therefore, that is an example where that will be the same approach that we are also going to use for Sunrise.
Therefore, the learnings in terms of installation rates for the turbines will travel from one project to the other. Specifically for Sunrise, we will have two installation seasons over winter. Therefore, also obviously complying with all pile banding requirements and so on. That will also mean that the learnings, as an example on installation rates for the turbine, will be important for Sunrise Wind as well. That's an example of how learnings travel from one project to the other as part of being constructed as one program.
The next follow-up comes from Helene Brøndbo with DNB. Please go ahead.
Yes. Hi. I had a follow-up here on the recent U.K. ruling related to wake effects. I was wondering how you see that impacting your Hornsea 1 to 3 projects.
Thank you. Thank you, Helene. Yes, we are, of course, following closely the ruling and also the debate in the U.K. with respect to wakes. I'm not going to give specific numbers away in terms of implications on projects and so on. I think it is still very early days in this regard. As I also understand sort of everything that is out there now, the wake effects mentions are calculated by independent experts, and the estimates are based on assumptions known at the time and so on. It is not for me as of now to comment on the implications of that ongoing process on our existing projects in the west and in the east of the U.K.
The next follow-up comes from Dominic Nash and Barclays. Please go ahead.
Hi there. Yeah. Thank you. I think a little while ago, we might have talked about the ability and willingness of Ørsted to raise debt via SPVs within projects rather than raising it all at balance sheet group level. I just wanted to know whether or not you're involved in your sort of debt-raising sort of ideas going forward as to whether the SPV route is something that you might consider more of and/or implement. Thank you.
In that relation, we are in specific instances or in countries that we see as beneficial. We are doing that and looking into that. In the likes of Taiwan, we have been looking at it due to the fact of both the projects themselves, but also the country risk element of it. Yes, we are looking into that, but more in specific instances.
Our last follow-up comes from Deepa Venkateswaran with Bernstein. Please go ahead.
Thank you. I think my question was going to be on your Greater Changhua project. It's 35% complete as of now, but you do still expect COD to happen this year. I was just wondering, is that a stretch goal, or is there any risk of this spilling into 2026 as you had previously flagged? Maybe you can just explain to us why the Taiwanese project can be constructed so quickly, even say, compared to other European projects. Thank you.
Thank you very much, Deepa. Two questions. I think first of all, on the timeline, you are right, as we have also said, that we expect COD from this project towards the very end of 2025, sorry. There is a risk, I would say, that a turbine or two could slip into 2026. Again, it does not really have any implications from a business case perspective because we would obviously get the power as we ramp up the wind farm. It is a very different situation than, for instance, a project like Revolution Wind, where it is the onshore substation that is on the critical part.
In terms of your comment, which is very right on the construction progress for Changhua 2b , and 4, it is going quite well as of now. We are managing to install both the suction bucket jackets, which it is here, and also the turbines at a pretty good pace, better than we had expected, I might add. Of course, also right now, as an example, we are seeing close to perfect weather conditions in Taiwan as of now. As part of that, obviously also one of the uncertainties that we have is, of course, that we do not expect that to just continue. Right now, everything lines up very nicely. We are, as you rightfully point out, constructing at a very good installing at a very good pace on these projects.
Ladies and gentlemen, this was our last question. Back over to the management for any closing remarks.
All right. Thank you all very much for joining. As always, we very much appreciate the interaction, and we appreciate the interest. Also, as always, if you have any further questions, please never hesitate to reach out to our IR team, sorry, who will be here to answer them. Thank you all very much. Stay safe and have a great day.