Good morning, good afternoon, good evening, and welcome to Allstate's Capital Markets Day 2021. My name is Alan Buskow Andersen, and I'm Head of Investor Relations. And we really look forward to today, where we will present the next step in Allstate's journey towards a world that runs entirely on green energy. I'm here with our Group CEO, Mads Nipper. And Mads, what can the audience expect from us today?
Well, you can expect,
1st and foremost, a full Erstej executive team that really looks forward. We look forward to telling you about our opportunities, our ambitions and our plans to realize it all. And of course, what that means for our targets going forward.
And just a few housekeeping points from my side before we start. The slides are available for download. Just click the bottom at the bottom of your screen. And we will host a Q and A towards the end of the day, And instructions on how to pose a question will be visible on the screen during the breaks we have planned for today. But without further ado, let's kick it off.
1st presenter will be Mads, and Mads will be talking about how AURsted will realize its full potential as a global green energy major.
Let me provide you with an overview of the plan towards realizing our full potential as a global green energy major. But before we turn to Let's take a look at the external world. We are seeing that carbon emissions and temperatures are rising at an alarming speed. We're also seeing that the consequences of climate change is not just for the future, it's happening as we speak today. The risks of some of the catastrophic consequences for the planet and for humanity increasing if we do not Achieve the long term targets and ambitions of the world for the 1.5 degree scenario are simply catastrophic.
And that has led us at to put up a vision of a world that runs entirely on green energy. You will notice This is not a vision about us, this is not about a vision of a company and where we want to be. This is about a vision of a world That simply needs to run on green energy because production and use of energy It's over 70% of total carbon emissions. And if we don't together create such a world, We are not on a good path. We, of course, plan to use that vision to play our part to do everything humanly possible That we as a company can inspire an entire world to support that journey, and it is something that means a lot to everything that we do.
Let's take a look at what is needed for the future in terms of the energy system. The energy system will be at the core of the decarbonization journey of the world and at the core of the future energy system as we envision it We'll be a massive build out of renewable energy. As a matter of fact, to hit the net zero ambition for 2,050 for the world, We need a build out of 27,000 gigawatts of renewable capacity. And as an example, On offshore wind, in Europe alone, we would need 4 50 gigawatts of offshore capacity. That's a massive build out of capacity, but also of transmission that is needed to support it.
We also need new innovative solutions such as energy islands or other transnational projects that will create interconnections between different markets, allowing for more efficient use of the energy that is produced. But not all sectors can decarbonize through electrification. There will be hard to abate sectors such as steel, heavy transport and others that will need renewable hydrogen and green fuels to the carbon. And this is something that happens through the use Of lots of the energy that is produced, but this is something which will be a backbone and as much as 12% of the total energy used by 2,050 can come from Green Hydrogen and Fuels. We do need a new and more to cope with as much as 90% renewable energy coming into the energy systems.
That needs storage. It needs new digital solutions in order for this to be possible. And finally, we will have a new energy offtaker landscape. This is not just about regions or states, It's also about large corporate offtakers. Everybody needs to do what is necessary to decarbonize.
And for corporate offtakers, as an example, there will be a need for new solutions that don't necessarily exist today to support that journey. This means fantastic opportunities for companies like Oste in terms of the market growth. Just offshore alone will grow to an estimated 7 times the current size within the next decade. We will still have Europe as the largest market, but we will see massive growth also in the U. S.
And Asia markets. And even for more mature technologies such as onshore wind and solar and also now newest on storage solutions, even that will grow to 2.5 to 3 times the current size. So across existing technologies, a massive build out which will support decarbonization, but also a new and emerging market like renewable hydrogen and green fuels. This is a market that largely doesn't exist today, But projections are that this could be at a size of 80 to 100 gigawatt already by 2,030. So across everything, there are Huge opportunities.
And the good thing is that this is being backed very tangibly by both ambitions and policy actions to make it happen. With the example of EU and U. S, We are seeing a new or confirmed target for decarbonization also broken down To, for example, offshore capacity needed, but most importantly, this is backed by investment plans and policy frameworks that will enable that everybody, So policymakers, companies and everybody can lean in and make this happen because we cannot do it without each other, without walking in tandem. Let's take a look at what that means for our aspirations at And we have the not very modest ambition to become the world's leading green energy major. What do we mean with that?
Well, it is clearly a cornerstone that we must become one of the largest green electricity producers. And to back that, We will remain a global number 1 in offshore. That is our clear, clear ambition. But we also want to build a top 10 position in onshore. And finally, we want to be a global leader in the emerging renewable markets and green fuel market.
We should not be doing build out of capacity just for the sake of it. We need to and have a clear ambition to remain one of the largest and most value creating deployers of capital into the green transformation Because that build out and value creation needs to happen in tandem both for us to be able to finance the build out, But also because for the trust of our investors and other stakeholders, we need to ensure that we run a commercial company. With ambitions like that, we simply need the best talent. So we have an ambition to become the world's leading talent platform So we get the very best people, the very best team to support our journey. And then we have a clear ambition, not just to solidify and stay where we are in terms of sustainability leadership because we have had the privilege already last year to be named the world's most sustainable company across any industry and 3 years in a row to be the world's most sustainable energy company.
But we don't rest on our laurels. We plan to continue to up our ambition to continue to be a role model for other companies to follow. And on that note, it is also our aspiration To not only be a core contributor, but a catalyst for change towards a world that runs entirely in green energy. And what does that mean? Well, it means we will constantly strive to do things that others either cannot or do not dare to do in order to ensure that we inspire others to go towards the change that the world so desperately needs.
If we then take a look at what does that mean for our build out ambitions. We do have an ambition to increase our installed capacity from the current 12 gigawatts to approximately 50 gigawatts by 2,030. This is about 4 times the current installed capacity, and it is a massive increase compared to the 30 gigawatt ambition that was launched at our last Capital Markets Day back in 2018. And with this ambition, we are also looking at a changed Playing field or where we choose to play and grow. Looking at the right side of this slide, You will see that it is completely unchanged that we have a clear stated ambition to stay a global leader in offshore, All regions.
But we also have an ambition in onshore, now no longer as a new but a strong growth platform in the U. S. Because we have proven over the past 3 years that we can have a massive and value creating build out and we plan to continue to do that. And at the same time, with the recent establishment of a growth platform in Europe, we do plan to have that global expansion. And last but not least, in Renewable Hydrogen and Green Fuels, we will Have Europe as the core of our growth platform.
That's where we're starting, but that's not where we're ending. We will start and lean into Europe, but with an ambition to scan us to span globally with what we do in that important field. Let's take a look at what are some of the strategic choices we have made to support this. In offshore, We are increasing our ambition from a 15 gigawatt target by 2025 to an ambition of 30 gigawatts by 2,030. So that means that we're accelerating our build out in the back half of this decade to 3 gigawatts a year.
We will do that through expanding our footprint. We mentioned examples here with the Baltics, Nordics, East Asia, But also other growth markets because we have proven that we can open new markets effectively, and we have an intent to continue to do so. But we will also take part and take a leading role in new innovative projects like the Danish Energy Islands. This is something that could be an absolute cornerstone of the energy systems of the future, and we want to play our leading role. And then we are also making a choice that we want a strong position in floating offshore wind.
If we
look at the long term, so especially beyond 2030, floating will become a massive potential, and this is something that if we even beyond that period Have a clear intent to be an undisputed leader in offshore. We also want to lean in and drive floating offshore wind. Turning towards onshore, we are also increasing our ambition there. As a matter of fact, we're increasing a lot from an ambition of 5 gigawatts by 2025 to 17.5 gigawatts by 2,030. So a massive increase in ambition level.
And we will do that through continuing to accelerate our U. S. Build out that has proven that it is very scalable, but also to globalize our platform starting in Europe. And then on technologies, We are also making the choice to become a multi technology player. So we will and we are seeing examples of that already in the U.
S. Market. We will combine different technologies. So onshore wind, solar PV, storage, maybe all three of them, But this is something we believe will become a huge advantage and by the way needed for our customers and offtakers. And then to renewable hydrogen and green fuels.
As already mentioned, our ambition is to build a global leadership position. The backbone of how we plan to materialize that and realize that is to execute on our already existing pipeline of projects in Europe, which sums up to well over 3 gigawatts of capacity. That will give us not only the initial scale, but also Invaluable learnings to be able to scale beyond the execution of those projects. And then we will also lean into Selected renewable hydrogen and green fuels value chains together with some of our offtake partners. So that means, in other words, That playing beyond renewable electricity generation and electrolysis is something we will selectively do.
You might ask, Why doesn't a company like Allstate just stay with our current majority core business, namely offshore? Why should we I sort of go into these new areas. Well, we believe that the choices we are making have very meaningful synergies and distinct competitive advantages. And starting with maybe the most obvious one, the procurement synergies from simply being a bigger procurer of renewable technologies. That's a very tangible financial ambition and something that we can materialize.
But also, we are already today seeing That our customers demand multi technology solutions. So this is a way to be able to offer To any offtaker, a much more integrated decarbonization solution to be by having those technologies at hand. But also through a global presence that will through the areas where we already have our different technologies in play, We will enable that we can create stronger transnational solutions to our customers. And by the way, if we already present with 1 technology in one part of the world, Market entry can be made a lot easier if we want to go in with other technologies as well. And then very importantly, With our vision, we must see a decarbonization of the hard to abate sectors.
And their synergies there into Large scale renewable generation simply is something that is so obvious for us to leverage through renewable hydrogen and green fuels. If we take a look at our financial targets, then our target on Operational earnings is still a double digit growth in EBITDA from operating assets in onshore and offshore towards 2027. More specifically, around 12% is the average growth that we're looking at. And if we turn towards the new projects, Then it's also clearly still our ambition to stay a value creating developer. And we plan to do that by having a target range between 150 to 300 basis points.
And bear in mind that this is based on the toughest financial value criteria possible, namely with a fully loaded unlevered lifecycle IRR. And if I then finish With sustainability, because on top of financial targets that are, of course, vital for us to get the credibility and the ability to continue to invest, Then sustainability is also very much at the core we do, and we are reconfirming our targets of by 2025 to have a fully carbon neutral energy production and by 2,040 to be fully carbon neutral, including our Scope 3. And both of those will be based on signed phase targets, so fully trustworthy and credible, which we believe, by the way, everybody should do. But on top of confirming those targets, we're also taking the opportunity now to take a stand on biodiversity. As you saw in the very beginning of my presentation, the single biggest threat to biodiversity is climate change.
But on top of that contribution by helping to decarbonize the world, we believe that with a massive build out of renewable energy that is needed, We simply also want to ensure that that happens intact with nature. And that is why no later than 2,030, All our new projects must have a positive biodiversity impact. We will start taking actions way before that, But that is a deadline where we set ourselves for saying this is when that must happen. And on top of that, we are also announcing as of now a ban on landfill for wind turbine blades. So with these new ambitions, we plan to uphold A clear leadership on sustainability, of course, centered around decarbonization, but also much beyond that, which already today has led us to be a global leading sustainability player.
With that, let me finish by taking you on a trip into the real world, More specifically to Taiwan and even more specifically hosted by my great colleagues Friede and Ullrich, who will show you Some of the progress in a video of our Greater Changwa 1 and 2A construction that is happening despite very challenging circumstances driven by COVID-nineteen that is still progressing well and headed towards another on time, on budget delivery.
We want to take you now straight to the front line of the execution of the Shanghai 1 and 2A project. And this is a project where we have taken us through all the spectrum. We have started in the development phase. We are at the ETC phase. We're engineering, procurement and construction.
And at the end, we will have the operation, which is Also being done by Orsted in this project. Let's start to show you the scale and the magnitude of our project and both the onshore and the offshore works that is ongoing. And all this has translated to a lot of experience that's been shared, a lot of new jobs has been created, and the local supply chain has been built up. And all this is contributed to the local economy.
To execute the 1st utility scale offshore wind farm in APAC, We blend world class expertise with the experience and capabilities of our local suppliers and partners. On the supply chain side, we have pursued an overall strategy to have a global setup. We also have a local supplier in Taiwan to build and construct the substation.
After the project some years ago, there was no Keysight. But now the Keysight have been constructed by the Taichung porta Fortis, And we have successfully started to use it directly after completion.
We are in the middle of manufacturing turbine Towers and transporting them, but we have also reached a very significant milestone of installing the first Offshore Jacket. And the offshore construction will be supported by a wide range of marine engineering, Vessel supply and the people from home and abroad. We estimate on the peak times, we will have 25 vessels at sea, including 500 to 800 people working at sea.
We are working with international suppliers. And on the Shanghua 1 and 2A project, we are having 111 locally made towers For the turbine structures. In addition, the nacelles will be locally clicked here in Taichung Po at the nacell clicking facility, which is the first of the kind outside of Europe. Despite the many challenges there is With executing in a new market and now with the COVID-nineteen situation, the project team has managed to keep the project on track, on time and on budget. And we are confident that we will deliver 1st power in the first half of twenty twenty two, and we will complete all offshore installation works By the end of 2022, as agreed at the FID date.
This is proof Of Oersted's model and the 30 years of experience and the extreme talent team that we have executing this project. Some of our team members has been exaggerated to Tavane or to other countries where we have fabrication ongoing. And many are new colleagues that has joined the team, and they have truly have steep learning curves, and we are working together as a strong team.
We are working in a market with very limited offshore wind experience, but by hard work, dedicated team and the right approach, all the major permits Announ, please.
From the beginning of the project, we have had high focus on safety. And we are here, and we are sharing our Experience from the offshore wind industry with our new suppliers in the new markets. And we do this in many ways. We have our team here On the ground at the facilities of our suppliers, working together and sharing our experience in order for them to meet
In addition to creating jobs and building up manufacturing facilities, We also train people on the ground. That's because we built to operate because we want to ensure that we have a solid and a skillful operational setup to operate our Staung Wa I and 2A wind farms. Moreover, we sent local technicians to operating assets in Europe to be unqualified. In The first batch of local technicians have just been sent to the U. K.
For 8 months long training course And get the direct learning from an operating asset that they can bring back to operate our Greater Changzhou 1 and 2A Wind Farms.
Executing a global project with a global diverse team in a new market requires a very strong project culture. And we have created that in the Changwa project, and we have truly embraced the local cultures in the new markets, visiting the temples and participating in ceremonies Before we start construction works or before we start any offshore works. Finally, we are happily opening many new Facilities and factories together with our suppliers, and we are sharing in celebrations after the successes. In Taiwan, we have proven that we can scale up EPC model, and we can Truly execute successfully in a new market. With this, we are on our journey, creating new energy Together for
a greater tomorrow,
Thank you to Friede and Ulrik and the rest of the team in Taiwan for making that Fantastic video for us here today. Taiwan is a destination very close to my heart. I've been there numerous times to prepare for our first green bond transactions into the local Taiwanese capital market, also allowing local Taiwanese investors to take part in the green transformation in Taiwan. Now we will stay within the theme of offshore wind. So I will welcome here on our stage, Martin Neubert.
Martin Neubert, you are Chief Commercial Officer and Deputy CEO here at AUSTED. And I would like to Have you elaborated a little bit about how has your business evolved since 2018, where we had our last Capital Markets Day? And how we're going to realize our ambition of 30 gigawatt of capacity by 2,030.
Thank you very much for the introduction, Alan. Let me start with 3 key messages that are really underpinning our new growth ambition for 2,030. First, since our last Capital Markets Day in 2018, and I was also standing here in this room, we have built an even stronger platform for growth By regionalizing our business and by growing our asset portfolio by taking in multi gigawatt of secured and awarded contracts. Secondly, we have secured a substantiated industry leading pipeline of very tangible development opportunities, Which together with broader opportunities that we are working on also in new markets will give us great confidence That we can achieve our 30 gigawatt ambition by 2,030 without compromising on value creation. And then, seriously, gigawatt ambition means also an accelerated build out from 2 gigawatt to 3 gigawatt post 2025.
And we have a unique in house EPC and operations engine to actually scale and deliver on that task. But, Alan, allow me to double click on each of these key messages, and let's start with looking into what has happened since the last CMD and take a look at the market perspective. The global offshore wind market is at an accelerating growth and speed, Going from 7 gigawatt per year annual build out from 2020 to 2025 to more than 20 gigawatt And you build out between 2025 and 2030. It strongly illustrates how exponentially the green transitioning is happening Because when you looked at the market forecast for 2,030, 3 years ago, we were expecting around 100 gigawatt, and now we see an increase of more than 75% underlying the tremendous growth prospects for offshore wind, but also the importance that offshore wind plays in the Global Green Transition. Let's zoom in on Orsted.
We have been in an excellent position over the last 3 years To really capitalize on that global growth by growing our asset portfolio from 12.8 gigawatt to 17.3 gigawatt of firm capacity. With firm capacity, I mean capacity we have installed, capacity we have under construction And capacity that we have secured and where we have an awarded contract. 17.3 gigawatt It's absolutely industry leading because it is larger by 10 gigawatt or a factor of 2.5 compared to our closest competitor, which just underlines our undisputable market leadership that we have in offshore wind. To the right hand side here, you can see the details of how we have grown our asset portfolio and matured over the last 3 years, Starting with 4.5 gigawatt of newly awarded contracts, we have taken in Through the large scale wins we have seen in the U. S.
With sunrise wind and ocean wind, but also through our market entry in Poland, where we have secured through the partnership with PGE the Baltica II and III project. At the same time, we have been consolidating Our leadership position in Taiwan by completing the construction of the island's first offshore wind farm for Moza 1 together with our partners And by taking the Greater Changwa 1 and 2A not only into construction but now also into offshore construction as you have seen. In addition, we have taken into operation in time and in budget a number of European offshore wind projects. Among those, the world's largest offshore wind project Hornsea 1 and our 1st offshore wind farm in the Netherlands, Oslo 1 and 2. You can see here how the 17.3 gigawatt Our firm capacity is distributing across our four regions, and you see it's an equal distribution among our Mature offshore wind regions being U.
K. And Continental Europe, but we also see an increasing sort of importance and scale of North America and Asia Pacific that are the new offshore wind regions on the global offshore wind map. In addition to the 17 gigawatt of firm capacity, we have been able to secure an industry leading substantiated pipeline of development projects, which is 14 gigawatt in total. And those projects are, for instance, in the U. K, our Hornsea 3 and Hornsea 4 project.
Hornsea 3, we achieved An irrevocable consent a few months ago, allowing us to play with a large ticket into the next U. K. CFD auction. In Continental Europe, you see we don't have a substantiated pipeline because we have already converted The Baltica's 2 and 3 projects into our firm capacity. In North America, our substantiated projects is The 5 gigawatts of lease rights that we own in the Northeast and in the Mid Atlantic region.
And then in Asia Pacific, we have our development projects like Changwa 3 or our greenfield activities in Korea And our Akita and Joshi projects, we have just been bidding into Japan's 1st offshore windrow. Important to understand that the substantiated pipeline are projects where we have already secured a right Either through a lease, through a consent, through an EIA or we, like in Japan, are very close to submitting a bid together with a local partner. 14 gigawatt of subgenated project rights, again, is industry leading because it's more than double Then what our closest competitors have under their development pipeline. In addition to the 14 gigawatt, We actively work on a larger opportunity space of 38 gigawatts of Early stage project development, which includes, for instance, in the U. K, the upcoming Scott Wind tender.
It includes our Raised Bank Extension project, our Isle of Man project. In Continental Europe, it's, of course, a large part Related to centralized tenders, there we cannot achieve exclusivity until after an award has actually happened. So that relates to markets like Denmark, Netherlands or Germany. In the U. S, this is related to new lease auctions in the Northeast in California.
And in Asia Pacific, this relates to further out development rights In, for instance, Vietnam, in Taiwan, Japan or Korea. So This opportunity pipeline is something where we have less secured rights compared to the substantiated pipeline, But it is something we are actively working and pursuing on and important to say these are all opportunities which we realistically believe We can take into construction and into completion within a decade from now. So these are not projects sort of Widely sort of going into the 2030s, otherwise this pipeline would be even bigger. So we look at a totality of more than 50 gigawatt of opportunities for offshore wind. At the backdrop of the more than 50 gigawatt pipeline I just explained, we have set a new ambition of 30 gigawatt by 2,030.
And it's an accelerated ambition because it means we not only going to double Our installation of offshore wind from 7.6 to 15 gigawatt over the next 4 years, but we will double it again From 2025 to 2,030, going from 15 gigawatt to 30 gigawatt, meaning our annual buildout will increase from 2 gigawatt a year to 3 gigawatt a year. With the firm capacity that we have of 17 gigawatt, It means we need to secure a total of 12.7 gigawatt in order to achieve our ambition of 30 gigawatt. I am very confident that we are able to achieve this 12.7 gigawatt, Leveraging our vast experience and track record of converting pipeline opportunities Into value creating assets. And there we have the 52 gigawatt of opportunity rights. And as that I'm very confident that we are able to Mature and convert the vast majority of the 14 gigawatt and at the same time get our fair share of the 38 gigawatt opportunity pipeline.
Now you might ask, is 30 gigawatt ambition actually ambitious enough? We think it is, And it strikes the right balance between accelerating our growth, retaining our market leadership on the one hand side, And at the same time, continuously to be very focused on value creation. In terms of value creation, it's important to understand That we are, by over sizing our development pipeline, are able to create flexibility for us when it comes to, in an optimal way, Develop and size and time our capacity in each of the regions. As you can also see from the slide, Our share of the total market is going to go down, which allows us to be selective with the opportunity that we take into our pipeline and take forward to build out. And we apply very stringent criteria when it comes to select projects.
They obviously need to be financially value creating within the framework that Mads and Marianne are explaining you today, But they also need to play to us that strength. We are an organization with more than 3,000 employees dedicated to offshore wind development. For us, complexity is a strength. Complexity, whether on the regulatory side, on the technical side, on the commercial side. These projects need to fit in the scheme, and of course, we want to build at scale.
And then we are really looking at, as you saw where I showed you the regions, a balanced portfolio across markets, across projects, across competences. And with all of that, we're going to be able to have not only a leading position by 2,030, but also way beyond. And that's actually one of our key competitive strengths that we take a long term perspective. For us, pipeline Planning does not sort of stop in 2,030. We plan way forward into 2,040.
And we like to enter markets early at an early stage, being really at the table in shaping market conditions, Securing partnerships locally, working with regulators and local stakeholders, securing proprietary project rights, And we all do this with a mentality of a total life cycle perspective because we firmly believe in we Develop to bid, we bid to build, and we build to operate an own. A number of strategic examples I want to give you where we have established an early position in markets and on specific projects with a view to create bigger award opportunities in the long run. And here to mention, I would like to say, the 2 Danish Energy Islands is a good example of that. The regulator currently for these, these are sort of islands to be established post-two thousand and thirty, But we are very active today, as I'm going to show you a bit later. Or take the Baltic Sea region, where we have established a strong footprint already, both in Denmark and in Poland, But we're expanding that into opportunities, for instance, in Poland, in Sweden or in the Baltic States where we recently entered a partnership with Enerifit.
Take South Korea. We have a 1.6 gigawatt development ongoing in the Incheon region, But that is only a stepping stone as we see Korea as a core strategic market with many gigawatts of growth opportunities for us, And we just entered last week an MOU with a large industrial player in Korea, namely POSCO. In Vietnam, We set ourselves up with a local organization and have since last year developed a greenfield project off the coast of Bintiwan, which once developed will hold more than 4 gigawatt potential. And then last but not least, floating offshore wind is an important scheme. We see clearly the prospects for floating offshore wind to become Commercial at commercial scale towards the end of the decade, which means that we are preparing now for our first floating appearances, Well, in the U.
K, in the U. S. Or in Asia Pacific.
Martin, just a few questions on the pipeline. Clearly, a lot of opportunities across our four regions. But I don't see anything in Latin America, and I don't see anything in Australia. So what's your thinking around those two continents?
And you are fully right, Alan. And it goes back to the stringent prioritization Of markets and projects that we have, we see these markets, not that they cannot develop and have offshore wind potential, But these markets have a massive amount of land based renewable that can produce cheap electrons, Green electrons. And therefore, we don't see the current potential in these markets to develop for us at scale new opportunities, Why we prioritize the markets that I showed to you.
Martin, another question we get really a lot in the Investor Relations team is around seabed leases and the auctions we have seen. Some of the other players in the industry have been willing to pay very high amounts to secure seabed rights. What's your thinking about our role in future seabed auctions?
Yes. Of course, New seabed auctions are also important for us. We're not going to shy away from new seabed auctions. But the good thing is for us that we have Already developed this stringent pipeline of opportunities that I mentioned. And in order to deliver on our 30 gigawatt ambition, we are not dependent upon Now winning new seabed leases in a market currently where a lot of players trying sort of to get a foot in the door.
So, of course, we will participate in new seabed auctions. It needs to make economically and financially sense for us, And we are not being pushed in a corner because we have what it takes in order to deliver on our ambition.
Thank you for that color, Martin. I'll let you continue with our competitive advantages.
And of course, we want to Bill, as many of our development projects, so not all, but in order to do that, we need to secure offtake rights. And whether we deliver our green electrons to corporate customers to states or to national governments Or to our own in house renewable hydrogen projects. For us, it's important that we are cost competitive in what we are doing. And we are able to do that surely because of our scale, our size And the unit platform that we have developed in offshore wind, which comprises an impressive portfolio of assets of more than 40 projects Across the different life cycle stages, more than 1500 spinning turbines, so a large operating fleet, More than 3,000 dedicated highly skilled employees that are spread across 4 regions, already today more than 15 markets And based around the world in 20 more than 20 different office locations. The way we think about developing and constructing assets is to always sort of create cross portfolio synergies.
And whether it is to design an O and M hub like in Grimsby in the UK East, which is going to be able to operate In the most effective way, a cluster of 8 gigawatt of offshore wind projects once we have built out the entire Hornsea zone Or whether we take our 3,000 megawatt of portfolio that we're going to build out in the U. S. Towards the mid of the decade. And we look at this as one construction train and one construction cluster. All well is we take technicians and construction Workers and package managers that have worked on the Formosa 1 project and now are sort of bringing their experiences and best practice to fruit by working on the Changwa 1 and 2A project.
More obviously, we are procuring Equipment, but also services at scale. We are the number one customers for many of our suppliers, and we are leveraging that in order to achieve the lowest possible cost of electricity. And then with having constructed and operated offshore wind farms for more than 20 years, We have a huge leg of data that we are actively utilizing in the development and construction of our assets.
Martin, I think this will be a good time just to double click on the data and analytics. Load factor is a very crucial assumption that goes into our business cases. So having a very good estimate of load factor It's very important to be sure we create long term value from our investments. So operates the world's largest fleet of wind farms combined with unique radar technologies, we have access to unique data to model our load factor. So I'd like to welcome Nikolay.
Nikolay is one of our wind specialists and he's part of a larger team here at that models load factor among other things. So I hope you will enjoy the next few minutes with Nikolay educating us on low factor modeling.
The load factor is defined as the ratio between the load and the maximum load, which is given by the installed capacity. Normally, we're interested in the average load factor. But for the purposes of this deep dive, I will consider the instantaneous load factor to illustrate How it varies depending on conditions and how we model it. The load factor translates wind to value, and it's a crucial input to a business case. In Orsted, we have leveraged our 30 years of operational experience with offshore wind farms to create proprietary models for load factor estimation.
We have a high focus on this because accurate load factor estimation will derisk our projects and create more certainty of value creation for our shareholders. The load factor depends on a number of elements. It increases both when the seismic mean wind speed increases and with larger turbines. But increasing the number of turbines in the same area decreases the load factor. This is because an increased number of turbines leads to larger losses When developing a new site, we first measure the wind.
To fully characterize the wind resources, We measure for 2 full years. But for the purpose of illustration, I'm focusing in on a 2 week period. From the measured wind speed and using the manufacturer's power curve, we can predict the power of a single isolated turbine at the site. A turbine produces more power with increasing wind speed up to the point where it reaches its rated power. At higher wind speeds, The turbine gradually ramps down its power to protect its mechanical parts.
With the power curve, we can convert a time series of measured wind speed into a time series of predicted load factor. The load factor dynamically ranges from 0 in situations With little wind to 1 when the turbine is producing at its maximum power. The load factor for a wind farm We'll be lower than that of a single isolated turbine. This is due to the turbine interaction losses arising from the wake and blockage effects. Wakes are regions of lower wind speed extending behind each turbine.
They arise As the turbines convert kinetic energy in the wind into electrical power. Using sophisticated radar technology, We can measure the complex dynamics of the wakes. These radars were originally designed by Texas Tech University For tracking hurricanes and tornadoes, they give us detailed insights into the complex dynamics of the wakes To make accurate predictions of the wind farm energy production, we need to translate these insights into sophisticated models. When we compare our wake modeling with the radar measurements under similar inflow conditions, it is clear that while the model does not capture the minute Scale complex dynamics of the real flow, it does a very good job at capturing the average and essential features of the flow. Since the wind speed is lower in the wake than in the free stream flow, a turbine that is caught in the wake of an upstream neighbor will produce Less power.
Therefore, the load factor will depend on the wind direction. It is lowest when the wind direction is aligned with the turbine rows in the layout. Therefore, the wind farm's load factor depends not only On the wind speed and wind direction, but also on the turbine layout. In addition, the load factor depends on the surroundings of the wind farm. If there are other wind farms nearby, they will lead to additional weight losses.
For illustration, we have looked at our West the most rough wind farm, which has a neighbor 15 kilometers to the south. Even at this distance, the neighboring wind farm Can cause wake losses of up to 30% in power on the leading road turbines. These wind farm wakes Extend over very large distances. As the build out of offshore wind continues and intensifies, Understanding the wakes from neighboring wind farms become increasingly important. In our load factor estimates, we include both all Existing and planned future wind farms within a 50 kilometer radius in our calculations.
The next topic I want to address This blockage. Returning to the radar measurements from before and zooming in on a single turbine, we can visualize the flow as seen from above. Despite the random fluctuations caused by the turbulence in the atmosphere, the wake is clearly visible as a tail of reduced wind speed Extending behind the turbine. But if we average the flow over half an hour, the turbulent fluctuations disappear. And we can identify also A region of lower wind speed extending in front of the turbine.
This is called the blockage effect. It is caused by the slower moving air in the wake blocking the oncoming flow, slowing it down. The blockage effect is equivalent To the flow of highway traffic in case of an accident. As cars slow down to safely pass the congestion, It has a cascading effect on the approaching traffic, which can lead to a queue forming several kilometers ahead of the accident location. Combining the blockage effect from the individual turbines, our model generates a global Blockage effect, extending out in front of the entire wind farm.
When this is combined with the wake model, we get a full picture The global blockage effect has only been recognized as an important loss within the last 3 years. There's now a growing recognition in the wind industry that neglecting this loss represents a material bias in While the law still needs to be researched further, it is starting to be implemented across the industry. Installed the 1st offshore wind farm in the world, Windeby, more than 30 years ago. Today, we are operating the world's Largest offshore wind farm, Hornsea 1, which produces enough electricity to power a 1000000 homes. With the world's Largest Offshore Operating Portfolio, which spans 3 continents, we have a unique data set that we can use In validation and calibration of our load factor estimation models, we apply sophisticated data mining techniques together with automation To compare the realized production with the model predictions, we do this continuously and systematically.
The one of a kind radar system and our ability as developer and operator to continuously monitor and improve The performance of our in house load factor models enable us to deliver load factor estimates that are best in class.
Thank you to Nikolay for those insights into load factor modeling. So Martin, let's now continue with our competitive advantages. So could you elaborate on how our EPC model sets us apart from the industry and also how we are adapting to a changing market? Absolutely.
Nikolai is one of 2,000 dedicated employees in our EPC organization. And we have, as you can see here, an absolute outstanding track record in executing and constructing offshore wind projects. You see many here. We have a total of 7.6 gigawatt of installed capacity, and they have been delivered consistently and over many years In time and on budget. COVID-nineteen has been a huge challenge for global society, But it also meant quite a bit of disruption in the global supply chain and in terms of logistics for us to bring technicians and construction workers across border.
But despite of COVID-nineteen, we have been able to deliver the Basel I and II wind farm in the Netherlands in a record speed with offshore installation done in only 9 months, And this despite the fact that Europe in spring last year was an entire lockdown. Another good example is the Coastal Virginia Offshore Wind Project, which we delivered as an EPC provider to our partner Dominion Energy. For this project, all the components had to be imported from Europe And being installed despite a full lockdown in Virginia. This just demonstrates how our EPC engine is able to effectively deal with any unforeseen and risks and effectively mitigated all the things that can happen on a large scale construction project. With our 30 gigawatt ambition, as I mentioned before, it means we need to scale up and ramp up our annual buildup from 2 gigawatt to 3 gigawatt per year from 2025 onwards.
This is no simple task, But we have an outstanding EPC in house organization with a lot of deep technical competences that is able to scale and deliver on this task. And there are many sort of good examples I could mention here, but let me just select a few. We have a unique in house model to innovate and optimize wind farm design. An example for that is our foundations department In engineering that is able to design very cost efficient, very complex foundation structure that are able to withstand typhoons and earthquake As we find them as conditions in Asia Pacific, and here we're able to leverage from our great experience we have collected in Taiwan. Another example is our work that we do together with a Scottish engineering startup called PICT, where we have actively invested in the company and now are developing and deploying a first of its kind access system Two turbines which allow technicians not to climb up the ladders, as you saw in one of the videos before, but actually being hoisted up With a motion compensated hoisting system that allows for a faster access for technicians from the boat to the turbine, but also a safer access, And it saves and prevents a lot of additional steel structures like the boat lending structures on the foundation.
When it comes to our supplier engagement, we have over many, many years, been the first to deploy new turbine technology. A recent example is our engagement with GE deploying and entering into a first commercial contract for the deployment of the 12 megawatt turbine on our Ocean Wind 1 project. But we also procure equipment and services on the large framework agreements, Really leveraging our strong buying power, which secures us not only components and services, but also sort of delivers us services at the lowest The possible price giving us a competitive advantage in terms of levelized cost of electricity. And then last but not least, we've emerged that have been Incremental in terms of developing the supply chain in Europe, and we are leveraging our vast experience from that now in new markets. And a good example here is what we just very recently announced that we, together with our partner, Eversource Energy, Are the first to enter into a charter agreement for the very first U.
S. Jones Act vessel that is being currently built in a yard in Texas And which we will deploy for our Northeast program delivering on the 1.8 gigawatt that we have earmarked to be delivered by 2025. Another example is the foundation factory that we are developing and building together with our Tier 1 foundation supplier in Paulsboro in New Jersey. In the last part of my presentation, I would like to talk about How will continuously be a leader in the green global transition. We have pioneered offshore wind 30 years ago, But over the last 3 decades, we have been a catalyst when it comes to innovation And really pushing the boundaries of our industry.
This slide includes a number of firsts Where we have really sort of been shaping the industry with what we have been doing. As an example, our Bid into Baseler 1 and 2 in 2016 enabled the offshore wind industry to really get on par In terms of ACE with Fossil Generation, we were the 1st submitting a 0 subsidy bid In 2017 and again in 2018 in Germany. We have also, over 2 decades, built many of the world's 1st larger many of the world's 1st largest offshore wind farms. At that time, as we were scaling the projects from a few 100 megawatt Into what is now with Hornsea 1, way above 1 gigawatt. Or entering new markets in the U.
S. And in APAC Or taking the 1st final investment decision on our first electrolyzer project. But the energy landscape is changing rapidly, and we see a strong shift in need to more integrated energy solutions. And therefore, we at are very excited to continuously be part innovating the industry towards more integrated energy solutions, Whether we talk about energy islands, whether we talk about integrated hydrogen, Power2X and offshore wind projects or commercial floating offshore wind projects. And just to mention 2 examples, I already talked about our strong Focus in developing and being part of the development of 2 of the world's first energy islands being set up in Denmark.
One is the North Sea Energy Island, which is going to be an artificial island 80 kilometre off the West Coast of Denmark. The Danish energy regulator will run a tender for that in 2022. And we are very well positioned for that tender, Having partnered up with Denmark's largest pension fund, ATP. The other one is on the other side of Denmark in the Baltic Sea, where We're going to utilize the existing island of Bornholm to establish an offshore wind hub where we co locate large scale offshore wind With adjacent technology like renewable hydrogen or Power2X and at the same time use that energy hub to connect multiple offshore wind markets that are surrounding, which saves a great amount of transmission and interconnection costs. Another example is our C2Land initiative at the Dutch Belgium border.
This is an initiative where we have a plan to develop 1 of the world's largest electrolyzer with 1 gigawatt being powered by 2 gigawatt of offshore wind being developed in the Dutch, Belgium, North Sea. And here, we work with leading industry partners Such as the refinery of Zealand or Yara or Dow and ArcelorMittal That are all having large scale operations in the area and are keen to decarbonize their operations by off taking renewable hydrogen That is replacing existing fossil fuel hydrogen. This is one of the largest industrial cluster, and we are very excited with such an initiative to be part of But these vast undertakings is obviously something we cannot do alone. And one of our key competitive strengths is that we have been working for decades with partners and customers of all kinds. We deploy a very flexible partnership model, whether that is with financial partners that we bring into our offshore wind assets when we farm down Typically, 50% of these assets.
And here, we have seen a large amount of investors repeatedly investing into our assets, Well, it's Global Infrastructure Partners, CDPQ, PKA, AIP, but we also have also been able to attract first of its kind investors into our assets, such Just Norgesbank, who did their very first renewable investment together with us in Oslo 1 and 2. We also work with partners in the co development of projects. Here to mention our partners in the U. S, Eversource Energy and PSEG, Or in Japan, we work with TEPCO and with JWD in euros or take Poland, where we work with PGE. And then back to the new energy systems, working with offtake partners from different sectors, Helping them to decarbonize their operations is an important partnership topic for us in the future.
Corporate PPAs has been a topic in the renewable energy space for many, many years, but we have been instrumental in really sort of bringing corporate PPAs into the offshore wind space. And I'm very glad to show you that we have 1.4 gigawatt of offshore wind assets That's going to supply green electrons to large corporate offtakers. We have TSMC. This was our world largest The corporate PPA offtake or we take Amazon and Covestro for our upcoming Bokom 3 project. But we also leverage our corporate PPA capabilities for existing assets, such as we have done with Neste, Danfoss, Owners, Umphem waters across our European offshore wind asset fleet.
And you can see how much we differentiate to our peers already in that space. But we are not just a partner to corporates. We're also a very strong partner to national And local government when it comes to their decarbonization and sustainability agenda. As I mentioned, we are always eager To shape a new market, getting into a market early, we support local economic and skill development and contribute to job creation. We established ourselves strong local presence, but again, here it's something where we also leverage the very strong presence and history of our partners.
And then we secure project rights with an ability to scale them fast, as I showed you before. Poland is a good example of what we have done. We already established a small team dedicated to offshore wind development back in 2018. This team then worked with local policymakers, regulators and stakeholders to shape the offshore wind framework that finally fall in place by end of last year. With our partnership with PGE, we are participating Very actively in the build out of the first 6 gigawatt of offshore wind in Poland, namely with the Baltikatun III project, which is 40% of Poland's offshore wind target by 2,030.
So very focused being a Decarbonization and Sustainability Partner for National and Local Governments. So let me sum up my presentation I'm telling you that we have a unique platform for growth, and we have set an ambition of 30 gigawatt installed by 2,030, which will make us remain the indisputable leader in offshore wind. We have the offshore wind's largest concrete development pipeline With a high quality and diverse growth opportunities. Cost leadership is absolutely crucial in offshore wind, And we can secure that by providing scale and a very experienced offshore EPC and operations organization. And as the energy landscape is developing, we will continuously be a catalyst for driving offshore wind innovation and new energy solutions, Leveraging our strong partnership model.
So to say it in one sentence, we have the ambition and the ability
Thank you so much, Martin. With 17.3 firm capacity and another 52 gigawatt of pipeline opportunities to work with, It's going to be a very busy decade for us. And with all that capacity coming online and with all the operation we already have, It's a good time to introduce our new Chief Operating Officer, Richard Hunter. Richard had his first day At just yesterday, so joining and joining Richard for a short conversation It is our Chief HRO, Henriette Finger, Elekro. So Henriette and Richard, Please go ahead.
Hello. I'm Hilaire Edelfinger Illico. I'm CHRO here at One of my key focus area It is to ensure that we have the very best diverse talent. And we recently hired such a talent, our new COO, Richard Hunter. Richard will head our newly established EPC and Operations organization, which is responsible for engineering, procurement, Construction and Operations of our Global Offshore Wind Farms and our Danish Combined Heat and Power Plants.
And I'm joined here today by Richard in the U. K. Welcome, Richard.
Hello, Henrietta. It's great to be with you today.
Richard, you're just 2 days into the job, so I won't ask you to give your perspectives on but I would be curious to understand Why you think that you are such a perfect fit to the role?
Okay. Thank you for that. Well, firstly, I would like to How happy I am to be joining and I'm really looking forward to the onboarding and getting to understand the company and the industry more. I, of course, will be inheriting a very strong EPC and operations organization, and I'll be relying upon them. At the same time, hopefully, I can bring some of my experience to bear as we move forward.
In terms of that, my background, I have a strong technical foundation in engineering. I've been a project manager and a project director on large integrated engineering projects, Projects have involved complex civil engineering in challenging environments and bringing together mechanical and electrical systems with Control systems and software to integrate, deliver and commission into operation large engineering projects. I've also got a background in operations and maintenance, in some cases in decades long contracts And what's needed in terms to ensure performance, to optimize, to ensure that we continue to drive costs without Affecting safety and performance of the system. I've got a I've run a global business, which was supplying projects and products To more than 50 countries utilizing the full value chain and a fairly international background, I spent roughly half my career in Europe and half in Asia Pacific. And I've led organizations with a very diverse global spread of people.
In addition to that, I think I have a commercial mindset As an executive leader and a focus on financials to ensure that we deliver the business performance that's required, but at the same time to Develop the relationships with customers, suppliers, stakeholders and of course, most importantly, with the employees and the teams within our company. So I'm very much looking forward to bringing some of that experience to bear in this new role and getting on with the job.
When you and I interviewed, we obviously discussed what were the strengths of and the future focus areas of and the EPC and operations organization. It would be interesting to know what made you make the decision to join Orestel?
Well, I think firstly, the opportunity to join the leading global green energy major was a big thing, a company that's undergone a significant Transformation already and has a clear ambition and mission within the sector to continue to grow and develop, not just within offshore wind where we're leading already, But into other areas, so that's a key one. Secondarily, together with the EPC and operations team, I can see that the role in the organization has a key part Play in the business in the future in delivering the projects that we need to do on time and to cost and ensuring the operations continue to innovate Within the space, so that we can continue to deliver value. And I think thirdly, it would be the culture of the company. So I researched that a little bit Before I enter the process and through the process for the recruitment, with interactions with our CEO, Mads, with yourself and with a number of the other executive team, I think I've got a clear understanding of the culture that you have and what you're seeking to promote, and it's something I want to be part of. So I'm very much looking forward to join you as part of the team.
We're happy to have you on the team. And to put your hire into a greater perspective, allow me to elaborate a little on that Because we are quite clear that if we are to realize this ambitious growth strategy, we need to have world Class experienced teams, and we need to be able to attract, retain and develop the very best talent across in our industry. To do that, we'll leverage 3 things. 1 is our Danish heritage. So we will work, even though we are truly global, with our Scandinavian leadership, meaning that we'll have low power distance, we'll bust bureaucracy because that is key to speed and progress.
The second thing is what is also quite important and attractive to our talent is our clear sense of purpose and our vision, Which guides everything that we do. And thirdly and finally, the knowledge or the history that we've done this before. We've gone through large Transformations through our passion, our perseverance and our discipline. So it's quite important to know that we've done this before. So we are happy that you are joining the journey also now, Richard.
I'm very happy to be part of it. Thank you.
And now it's time for a break. When you come back, we'll welcome Declan to the stage to tell us more about our onshore growth strategy.
Welcome back after the break. We will continue with our onshore business. Our onshore business has grown significantly faster than we anticipated back in 2018 when we entered the U. S. Onshore market.
We are a top 5 developer in the U. S, and we also recently acquired a European platform. So I'd like to welcome our CEO of our Onshore business, Deglan Flanagan from Chicago. Welcome, Deglan.
Good morning, Alan.
Declan, I'd like to ask you how did the business come to where it is today? And how do you see us fulfill the ambition of reaching 17.5 gigawatt of capacity by 2,030?
Yes. It's been a period of huge growth since our last Capital Markets Day, which came just a month after the formation of the business unit. And since then, we've been executing on our announced plan of a 5 gigawatt portfolio by 2025. I'm delighted to report we're on track to hit that target 3 years ahead of schedule with a 4.7 gigawatt portfolio of operating or in construction projects by the end of this year. So 3 years into the business plan, we'll have met gross investments of some DKK35 billion, creating a diverse portfolio of assets as measured by markets and technology.
So now is a good time to revisit our ambition. And as introduced earlier by Mads, Our new target is for a 17.5 gigawatt onshore business by the end of the decade. It's an ambitious, But also a realistic target. It will involve a run rate of approximately 1.5 gigawatts per annum, a pace of growth we have already achieved. It's a target backed by a development pipeline of over 10 gigawatts.
So plenty of inventory, if you will, for the required pace of growth. So that's a quick snapshot of the business, Alan.
Thank you, Declan. A question we get a lot is around value creation, value creation between onshore and sorry, between wind and solar, but also between U. S. And Europe. So could you explain a little more our approach to capital allocation between technologies and markets?
Yes. Our expansion into solar is obviously one of the more significant portfolio choices we have made in the business And also our expansion into non U. S. Markets, as you mentioned. So I'll cover the thinking behind Those choices.
Also, I'm going to cover our thinking around the role of M and A versus our own greenfield driven growth. But first, let's start with what our customers want. And our customers want solar. At our last Capital Markets Day, We announced our first large solar and storage project, the Permian Energy Center, in response to the opportunity to serve an existing wind customer. And that pattern of customer behavior, buy wind first for price, then seek to fill out the portfolio with solar, It's something we see more and more often.
As a result, solar has made up 70% of recent corporate PPA demand in the U. S. And that's a trend we expect to continue. Most importantly, we've shown we can create value in solar. With 1.4 gigawatts of operating or in construction Solar projects, we've achieved a spread to our cost of capital of 150 basis points to 250 basis points, so very much in the strike zone.
And I would note, and as Marianne will cover in more detail later, when we talk project returns, we mean fully loaded returns Accounting for G and A costs, project soft costs, etcetera. So simply put, our customers want solar. We create value supplying it to them. It's going to be a bigger part of the portfolio going forward. And we forecast our current mix of 70% wind, 30% solar evolves to an approximately equal share of wind and solar in the 2,030 portfolio of 17.5 gigawatts.
Now I'm going to go a layer deeper in the business now and explain via a project case study How being multi technology wind and solar makes us a better and more efficient developer. The Helena Energy Center It's a 5 18 Megawatt wind solar hybrid currently under construction in South Texas near the city of San Antonio. When Helena goes online next year, it will serve customers including Henkel and Target Corporation. Now in this business, access to transmission is often the scarce resource. And a 500 megawatt plus interconnection point close to load is especially so.
But at this location, land use considerations and project footprint made a 500 megawatt wind farm unfeasible. Well, our development team was able to structure an optimized wind solar hybrid that used the available transmission capacity, But also produced a more balanced production profile and generated strong economies of scale. So this Hybrid approach is something you will see us do more often, both in terms of new build, but also in terms of infilling capacity at existing projects, for example, adding solar or storage to existing wind. And on the storage front, We have learned a lot from our recently commissioned 40 Megawatt Hour Battery Storage Project at the Permian Energy Center. So this solar storage capacity infill is an interesting value lever going forward.
Now let's shift the thinking to markets and geography. When we announced our ambition for the onshore business in the last Capital Markets Day, we're very clear on the global ambitions for the business. And with Europe and APAC scheduled to add up to 3x the capacity the U. S. Will add by the end of the decade, The rationale is obvious.
We've shown with our recent expansion into Europe, we can create value in global markets, again achieving spreads for our cost of capital very much in the strike zone. That being said, it's fair to say our recent entry into Ireland and the U. K. Was at the lower end of our range, as one would expect with the entry price element of a platform deal like that. Well, we're confident we can expand margins over time as we accelerate growth of the platform as we did with Lincoln Clean Energy.
We also feel that the highly contracted cash flows and simpler Capital structures are a nice complement in the European portfolio, a nice complement to our overall portfolio. All that being said, the U. S. Will remain our core market, and its combination of scale and overall risk return MENA will attract the lion's share of investment during the planned period, and we forecast that the U. S.
Will make up 80% of the 2030 portfolio of 17.5 gigawatts. So Europe is another example of us being a good buyer and M and A being part of our growth plans. But what makes us a good buyer? I'll focus on 2 things, our proprietary deal flow and our ability to move quite quickly where we find a deal that fits. On deal flow, we have a deep network in the U.
S. And globally, and it means we see a lot of opportunities. And the majority of what we've done in M and A Has come from our proprietary network. As regards moving fast, Our funding model, lack of reliance on project finance and our ability to take and to manage merchant risk allow us to move Fast where a deal is the right one for us and also create extra value. For example, by buying a project At late stage development, but without a PPA and securing a PPA later and enhancing the business case.
In fact, just last week, we announced a perfect example of that with a PPA with a group of municipal utilities in the Midwest U. S. Served by 1 of our wind farms in that region. So M and A has been and can be in the future an important part of the growth plan. But our core competence It's very much greenfield development, and that is where the majority of our projects to date have come from.
But what makes a good greenfield developer? As we like to say in the business, it takes a village to develop a power project. The core skill when it comes to development is what we call development ground game. And that means managing and understanding all stakeholders and especially our landowners. So now I've got a short video to show you, which is a great Illustration of working with landowners on our project.
I can't tell you how many times we just got wiped out. We would lose a crop Because of wind blowing. And now we're getting paid for the wind blow.
As far as the landowners just have an income, it may be the difference of somebody staying in farming or Staying in farming, if they stay in farming, that's something they can pass down to their kids. Just extra income is just positive.
They may not be for everyone, but the company is easy to work with. The impact to the environment There's very little. And I think farmers and ranchers are some of the best stewards of the land we have to be because we're not making any more.
You can still farm around the windmills. You can still run cattle around
the windmills. If it's in
a government program, it doesn't affect that. Basically, it gives you some roads, which in our pastures we Because we can go check our cattle with new roads that go to the windmills that we didn't have before.
Even the people that don't have turbines, They say they're getting a new school building. There's a lot of new school buildings that have happened after the turbines. I've tried to take care of what land we have. This seems like a pretty good way to generate electricity It doesn't pollute. We're not damming any rivers.
We're not burning coal. This sounds like a really good idea. Use the wind.
That is a good video That, I think, also demonstrates how we strive to be good neighbors in the communities we operate in. But let's continue with the presentation, Declan, with the increased competition, how does that impact our ability to secure good offtake contracts?
Yes, it's very much a business about contracted revenue. And in our existing portfolio, we have 90 And with over 10 years of remaining contract life. It's very much a portfolio approach to offtake With a range of customers from utility, financial, government backed and of course, corporate off tech. So let me focus on corporate offtake for a moment. And as you mentioned, Al, it is a competitive market.
And next to transmission that I mentioned earlier, good quality offtake is the scarce resource in this business. So I'm particularly pleased with our track record in the corporate offtake market in recent years, where we've been able to both increase our average price And also increase the duration of our contracts. But more importantly, we very much focus on continuous improvement in the contract terms and adding new improvements such as upside sharing mechanisms or downside mitigation. So we now have what I feel is a more balanced share of risk between buyer and seller than perhaps was common In the corporate part of the market just a few years ago. That, of course, is a natural evolution of this new market, But also reflects the fact you have so many more corporate buyers at scale in the market than just a few years ago.
So great progress on contracted cash flow, but managing the merchant component Of the portfolio is also really important. And earlier in this year, we made an organizational change to bring the U. S. Trading team within the onshore business unit. And that's working really well.
So we have close coordination between teams working on long term contracts And those trading in the real time markets. And that makes us better at both. So that change has worked out really well.
Declan, we often hear the onshore market being described as a more commoditized market compared to, for example, our offshore business. So how do we stay competitive and create value in a more commoditized onshore market?
Well, I always like to start the competitive advantage question, Alan, with a nod to our track record to date. And the momentum we have built has shown We've got something going for it. But as we look to execute the plan we're announcing today, I think of 4 pillars of our competitive advantage. Number 1, Greenfield Development Culture. This is a group and a business unit where the greenfield heritage is really strong, And that ability to take and to manage well thought out development risk is really important.
Number 2, our global scale Makes us a preferred partner, whether it's equipment manufacturers, global corporate customers or in the case of the U. S. Market, With the largest tax equity investors, that global scale and being a preferred partner is a big advantage. Number 3, our funding model and our ability to take and to manage some level of merchant Exposure allows us to take a portfolio approach to growing the business and to move with a pace That is better than a lot of our competitors. And finally, number 4, our global employer brand.
We've shown we can attract the best talent in the U. S. Market as we've scaled the onshore business there, and we're starting to see that in Europe also. And of course, these four things become self reinforcing: focus and purpose Attracts the best talent, which manages the risks, which creates growth momentum. As I begin my wrap up here, Alan, I'm just going to focus on that word, momentum.
We're entering a decade where the energy transition is just going to accelerate, And we now have the momentum in the business unit to play a significant role in the onshore segment of that energy transition. The U. S. Is going to remain our core focus, but we will remain globally ambitious while always being patient. We have the greenfield development culture to ensure we can create value across the portfolio.
We have the talent and the organization in place, both within the business unit And the integration with the capabilities of the broader organization. And whether it's U. S. Tax equity, global corporate engagement Our business development opportunities in APAC, our onshore and offshore teams are working together every day. So it's an ambitious plan, But we have the momentum to achieve it.
And so over to you, Alan.
Thank you so much, Declan. It's certainly going to be a busy decade within our onshore business as well. So we will now proceed with our program. The next topic will be renewable hydrogen and green fuels. We believe that renewable hydrogen and green fuels will be one of the cornerstones of the Future Energy System.
So I'd like to welcome Martin back to our stage and let him explain More about approach to this exciting new market.
Renewable hydrogen is a topic I feel personally very passionate about it, and that's for two reasons: because it's directly and strongly connected to our vision of creating a world that runs entirely on green energy, which does not mean that renewable hydrogen is the silver bullet when it comes to the global decarbonization, But it will no doubt play a significant role when it comes to decarbonize the hard to abate sectors, which will otherwise not achieve their net 0. Secondly, renewable hydrogen reminds me a lot where offshore wind was 12, 15 years ago. At that time, there was a clear proof of technical concept. However, only a few projects had been built, and those were heavily relying on strong subsidy and government support. It was also unclear how fast and quickly the technology can scale, how quickly costs could come down, And also the entire regulatory framework was rather uncertain.
But remember, that was the time when we at Made very bold moves in order to kick start offshore wind as a new industry. What is very different To offshore wind in the old days is the global appetite for green hydrogen, which is already sort of significant and has exponentially increased Over the last 18 months, with current forecasts expecting somewhere between 80 to 100 gigawatt of renewable electrolyzer capacity being installed by 2,030. Our ambition at is threefold. We want to continue our efforts, And with continue, I mean, we have been engaging within the hydrogen space already for the last 3 years to become a global leader in renewable hydrogen and green fuels. We want to execute and expand Our current pipeline, which is well above 3 gigawatt already, in close collaboration with our key offtake partners.
And we want to pursue global opportunities across all our growth platforms in the EU, in the U. K, in the U. S. And in Asia Pacific. Is very well positioned, and we have a very strong starting point.
We also see renewable hydrogen as a natural extension of our business model because we have a proven track record of scaling new Renewable Technologies, we have vast experience working together with policymakers in shaping the regulatory frameworks. We see significant synergies between renewable hydrogen and our large scale fleet of renewable assets, especially in the interface between the wind farms, for instance, or the dispatch of the electrolyzer. And our assets are strategically located very close to industrial offtake centers. And then I talked as part of my Offshore wind presentation already about our proven and flexible partnership approach, which is especially important here because In order to kick start renewable hydrogen, we need to bring the supply and the demand side working hand in hand together. Our Approach to renewable hydrogen is to focus on specific offtake sectors.
Those are refineries and ammonia Because there we see a very in the very short term, a high demand to substitute fossil hydrogen with renewable hydrogen, Then we will focus on steel because we are obviously a large steel offtaker ourselves going into our foundation structures also into the turbine towers. And we will focus on heavy transport, which includes heavy road transport, shipping and aviation. Our engagement approach is a very structured approach. We establish and mature concrete projects, and we like to Go for projects which are not just small scale one offs, but actually projects which are strategic, which can be scaled and which become gigawatt sizes in scale. We have an approach where we work in phases.
We obviously want to build something and realize something quickly in order to replicate the learnings to apply once we go and scale up the technology. We are in close dialogue with regulators shaping the framework, and each for each of our projects, we have a Dedicated and specific funding plan because there is a significant cost gap today between fossil hydrogen and renewable hydrogen. We also work closely with the OEMs across the different electrolyzer technologies. And then let me just spend a minute In zooming in of where exactly is it we play in the value chain. Our idea is we are replicating our approach from Which means we want to develop, build, operate and own electrolyzers.
We have no plans or intention to invest Into specific electrolyzer technology. However, as an offshore, we will work very closely in a partnership approach with the electrolyzer OEMs in order to improve the technology, scale the technology and make the right choices For each of the specific projects we have. We will lean forward in selective parts of the renewable hydrogen Offtake side, especially within green fuels, so e ammonia or e methanol are two examples to mention here. We have no plans to go into the distribution of renewable hydrogen or green fuels because this is where we rely on our partners and on our strong offtake partners to take care of them. This is a snapshot of our impressive development pipeline that we're already having, far more than 3,000 megawatt of projects.
And you can see, these projects are across our different core markets in Europe. They are across the different offtake sectors I just explained. And most importantly, they are in partnership with absolute industry leaders in their respective sectors. It is gigawatt scale projects we have in the development, but I'm also very proud and happy to tell you That we are not just developing, we are actually already constructing. And that is the H2Res project that you can see here on the slide, where we broke ground just 3 weeks ago here in Copenhagen.
It's a 2 megawatt electrolyzer that will be constructed by the end of the year, fully commissioned in the start of 2022, delivering renewable hydrogen to fuel 0 emission taxis and buses driving in the Copenhagen area. It's also our very first stepping stone for the Greenfield for Denmark project. That is a project where we work together with Danish blue chips like Maersk, SAS, Copenhagen Airport, DFDS and DSV to realize a 1300 Megawatt electrolyzer vision by 2,030. The project is dependent upon the realization of the Bornholm Energy Island, which is expected around 2,030. And obviously, we need a lot of green electrons to fuel that project.
But back to the point of that we like to face things, we have Tangible, much earlier short to midterm phases for this project. Phase 1 is a 10 megawatt electrolyzer to be established in 2023. Phase 2 is a 2 50 megawatt electrolyzer to be established in 2027. As I mentioned, renewable hydrogen relies on significant funding and government support Because we have today a significant cost gap between fossil and renewable hydrogen, there are different funding pathways that are available for us. There are national funding pools, which we have already utilized, for instance, for the H2Res project in Denmark, but also for the West Krista 100 project in Germany.
Then there are EU funding pools. We are active, for instance, in the first EU innovation round With the Lingen project where we, together with BP, are in the process of applying for funds, realizing the first phase of this project. And then, there is a pan European EU funding scheme called IPPSI, Important projects of common European interest. I'm very happy to tell you that 4 of our projects here on the slide Actually, in that round, it is the Greenfield for Denmark project, which has been selected by the Danish government, Now going into what is called an EU matchmaking process. Then we got great news end of last week That both the West Crystal 100 project, but also the Leningen refinery project have been selected by the German government in a very rigid selection process to go into the EU matchmaking.
And then we're also applying together with our partner, Yara, for the Soiski project into the Ibsai process. The important thing to understand is that once being successful in the Ipsai process, it not only opens up for more European funding, But it allows for additional and significant step up in national funding, which, while the upside process, is something we are very focused on. Last, let me say, this is just a snapshot. We're obviously working on many more opportunities, and we're also expanding our opportunity pool into other areas outside Europe. One example I want to give is the MoU we established last week in Korea with an industrial Korean blue chip POSCO, where we foresee to collaborate across offshore wind but also renewable hydrogen.
And Korea is a super exciting market when it comes to renewable hydrogen Because the country has a strategy to put 6,000,000 fuel cell cars on the road, but also to establish 15 gigawatt of fuel cells for power generation. Allow me to double click on one of the projects I just showed you, namely the West It's the 100 project. This is a project where we work with 10 partners. It's at the refinery of Heide in the very northern part of Germany, the project has, as I mentioned, received national funding for Phase 1, which is a 30 megawatt electrolyzer, where we work together with our partners now to enable a final investment decision by the end of 2021. The 30 megawatt will allow the refinery to basically substitute all the fossil hydrogen it's using in its processes today with Renewable Hydrogen.
But that is not the end. There is a clear vision here and ambition of all the partners to bring this project to A gigawatt scale, and we talk about something between 700 megawatt to 2,100 megawatt as a next phase Allowing the production of green fuels. It's important to know that Refinery Heide is the exclusive supplier of jet fuel for Hamburg Airport, one of the largest regional airports in Europe. We are very happy that we are Part of this project because it also brings together partners that can work very holistically and In a very holistic way, related to all the processes, inputs and outputs, of the project. To just give you an example, So the 700 Megawatt Plus project will be fueled by offshore wind from offshore wind farms in the German North Sea.
Then the oxygen that is being produced as part of the electrolysis process will be used by close by Cement factory that is operated and owned by Holcen, significantly reducing their nitrogen oxide emissions. The CO2 produced at the cement factory is then being rechanneled into the refinery for the production of green fuels. Excess heat that is part of the process will be used by close by Business Park. So just shows sort of how holistically sort of this project It's being taken. That's why it's one of the projects, one of the flagship projects the German government has selected for the upside process.
To sum up my presentation, has the ambition to become a global leader in renewable hydrogen and green fuels. We have significant synergies with our large scale renewable assets. Our approach is To establish, mature and scale up the tangible projects, build upon our extensive experience in scaling up and costing out new technologies And working together with our partners. And then most important, what I want to leave you with is, we are not only very excited when it comes to renewable hydrogen And green fuels. We are not only well positioned, but we are already heavily engaged in really kick starting this important new industry.
Thank you very much, Martin. Really exciting to hear about our Renewable hydrogen and green fuels plans, personally, I think this holds a huge potential to become the next leg in our transformation journey. Now After Martin and Declan have taken you through our plans for offshore, onshore and renewable hydrogen, allow me just to quickly take stock before we move on. So We are looking at an energy system that is accelerating its green transformation. Really important that we see that happen And fantastic to see that, that materializes into massive growth opportunities for us still.
We have set the Aspiration to become the world's leading green energy major, and we are going to do that by balancing a very strong Protection and acceleration of build out within our core business of offshore, while also ambitiously following the growth opportunities in onshore And renewable hydrogen and other areas, innovative areas such as the energy islands. And we believe we are really strongly positioned To materialize that potential because we do have in offshore a clearly industry leading pipeline that is both concrete and much larger than anybody else's, We have a cost and innovation leadership built over decades. And within onshore, we have a proven ability to scale Profitably in our key markets, within renewable hydrogen, we have a very tangible 3 plus A pipeline of concrete projects lined up and we have a globally leading sustainability position. So all in all, we believe very Strongly positioned. And talking about sustainability, I'm joined here on stage by Jacob Bus, who is our Head of Corporate Strategy and Stakeholder Relations.
And Janard, We have, as I believe everybody knows by now, we have transformed over the past decade from being one of Europe's most fossil fuel intensive Utilities to now being sort of come very far in the green transformation. So could you share where we are right now?
Well, Mats, we've come a very long way in our transformation. Since 2006, we have reduced our CO2 emissions Per kilowatt hour by 87%, and we are fully on track to become fully carbon neutral in our energy production And in our company by 2025. And that will make the 1st large energy company in the world to reach that target, All of which is approved by the science based target as really supporting the 1.5 degree ambition. So we have come a very long way.
Yes, and obviously hugely important to proving to others that this is possible to do as well. So but what's the next frontier for us?
Well, if you compare the shift from fossil fuel power generation To renewable power generation, we are taking out 99% of the lifecycle emissions By shifting from coal fired power production, which was our core business just a decade ago and into producing 1 kilowatt hour based on offshore wind. So that is, of course, the major step that we are taking in shifting the whole technology platform. The remaining part It's predominantly in the supply chain, and that is really where we have our next focus.
And I guess, For the entire industry and for many, many companies around the world, the key question is, how are we going
to do that? Well, first of all, we've set a very ambitious Target to say that by 2,040, we want to be carbon neutral also in our Scope 3, so including in our supply chain. And by 2,032, we are going to take our emissions down by 50%. So we have set very ambitious targets. The next thing we are doing is really to engage our suppliers and really bring them along on the journey.
And the first thing we've said to them is that by 20 25, we want you to be running 100% on renewable energy. That is already today commercially available. So that is really doable for everybody to do within that time frame. The next thing is, of course, the harder And that is to drive out the emissions from all the different components and parts of our supply chain. And that is why We are working closely with our strategic suppliers to map their emissions baselines and then Based on that, to develop roadmaps for each of the components in our supply chain so that we make sure That we work jointly together in driving this huge innovative effort that it will require to bring ourselves and our supply chain Fully to net 0 by 2,040.
Now and with
a strategy that is based on sort of exclusively on renewable energy And also having industry leading ambitions for decarbonizing not only our own company but also our supply chain, Have we then solved all sustainability challenges? Well, not quite, because
what has happened over the past decade is really That we have been working hard to get renewable power down in price to a now cost competitive level with fossil fuels. And that means that over the coming decades, we're going to see a massive scaling of renewable energy in our quest To transform the global energy system to renewable energy and fight climate change. And in that global scaling of renewable energy, It's going to be tremendously important that we also protect biodiversity. We are going to go out and harvest energy In nature, basically. And that requires that whenever we build renewable energy production, we do that in a way So that we really protect nature.
And that is why we are now, as you've said earlier today, announcing the target that by 2030 at the latest, all our new energy assets that we'll be commissioning will be net Positive in their biodiversity impact, that is going to be the next big frontier for us in our sustainability journey.
Yes. And I just want to repeat How excited I am about that we are announcing that because I think it's going to be a vital journey for us to prove This is not something that's possible, but also absolutely necessary for the industry and something that will be a prerequisite for scaling The build out of renewable energies we all know we need to do. And now, Jager, you have for over 15 years Been part of this journey as opposed to me. And so what do you think looking forward? What role do you think sustainability will play for us in our future journey.
Well, to me, there's no question that our strategic focus for more than a decade on really being at the forefront of the sustainability journey Has driven our commercial success. It has driven our fundamental transformation from a business Firmly anchored in fossil fuels to now being a global leader in renewable energy. And I'm 100% convinced that, that is going to Continue to be a competitive edge for as we continue to Reach for our strategic ambitions, and it is going to be the right thing to do for the world as well because we need To limit global warming and create a world where we can all thrive.
Thanks a lot, Jacob. And allow me to also just repeat that I think it is so vitally important to continue to drive Sustainability leadership for us both to prove that this is the right thing to do. It's fundamentally right for businesses to play a role where we deliver growth Sustainably and also having been recognized for it as world's most sustainable company last year and the most sustainable energy company 3 years in a row. I have no doubt that this is a major competitive differentiator and something that will give us also tangible advantages going forward as a company. Now coming up next is Majene talking about the financial parts of our plan.
With my own long background in AARSD Finance, We now come to the topic that I have been in particular looking forward to, namely all the financial numbers. So I'd like to welcome On our stage here, Marjena Wijnholdt, you are our Group CFO. Welcome, Marjena.
Thank you, Alan.
Marjena, could you start by taking us through what has happened since 2018 into the funding of our growth ambitions towards 2,030.
I'll be happy to. First, I will start going back to the targets we set at the CMD in 2018. We are on track to deliver on all the targets, And what we will do going forward is that we will incorporate these targets into the new ones that we are sharing with you today.
If you
then look at the growth, Maes earlier today announced the new ambition of 50 gigawatt of capacity in 2030. And with this ambition, we will step up the investment level significantly. We will go to an average annual investment level of €30,000,000 in the old plan to now €45,000,000,000 in the period up until 2027. This 50% increase in investments gives a total of €350,000,000,000 in investment for the period From now until 2027. And of that, we estimate that 80% will go to offshore and hydrogen, Remaining 20% to onshore.
We will also facilitate further investments of around €100,000,000,000 Through our JVs and our EPC partnerships, bringing the total enabled investments into green growth to €450,000,000,000 If you look at how we will fund this €450,000,000,000 We will do that through 4 sources. First, a significant part will come from the operating cash flow that we generate. Secondly, we will issue more hybrid capital as the capital employed Continue to increase, and we will also issue more senior debt. Then we will also have the €100,000,000,000 from JVs And from EPC Partnerships, that's the 35 percent 25%. And then lastly, We have incorporated here that we will farm down 50% of each of our offshore wind farms, Not the ones where we already have JVs, but for all the rest.
When we look at our key Capital allocation priorities, they remain unchanged compared to what we said all the way back to the IPO In 'sixteen. And those are that we are strongly committed to our BBB plus Baa1 rating. We honor our dividend commitment, and then we invest large amounts into the green growth. If you look at the rating threshold, we have lately seen that both S and P and Moody's have reduced their threshold, and they have done that because of our strong EPC track record, because of our higher degree of diversification and also our very stable earnings. This reduction has allowed us to reduce the FFO to net debt target we have from 30% to 25%, And this enables us to invest further into green growth.
Then as I said, we are now relying on the partnership model to fund the growth. We have included a 50% farm down, as I said, on all the wind farms where we don't have JVs are ready. And this is incorporated into the CAGR, the growth CAGR on EBITDA and also return on capital employed. We see a strong interest in The farm downs that is lately been seen from the Borsello I and II and the Changwa I farm down. And we expect this to continue also going forward.
We will also opportunistically Pursue farm downs within onshore. However, we still see farm downs as something that gives us flexibility, So we will decide on each farm down project by project. If we then look at our funding model, the funding model remains unchanged. It is a funding model where we rely on balance sheet Financing, and we do that to lower the financing costs, and it also is a scalable and flexible model. To the left of the slide, we have shown the difference between our funding model and project finance.
And the big difference for us is that we, through our model, avoid issues with structural subordination, which could become an issue when we should defend our current rating. We also, as I said, see lower funding costs. In the developed market, we see a difference of around 100 basis points between Project Finance and our funding costs. And in less developed markets, We see that this difference is even bigger. The model is very flexible, and we can also act fast, which in many cases is of very high importance to us.
Then I would also say that This is important for us through the fact that we can use debt as a risk management tool, Which we do to a large extent, and I will come back to that later. If we then look at how our funding model impacts the risk to equity, I've here in the left part of the slide shown the difference between a single asset project financed project And the way we do it, where we have a large portfolio of assets supporting the debt. And here, it clearly shows that the portfolio effects give a significantly lower cost of equity. If you then compare a project financed levered project To our funding model and look at the equity IRR, we typically see that, of course, with Higher leverage, you get a higher IRR. But if you look at the range, the risk, You see that you have a much, much bigger space of outcomes if you have a project finance model, And that we have lately seen in Texas, where the Arctic blast meant that several projects failed.
So the risk related to our equity is significantly lower than For project financed single projects.
Marianne, this question about our funding model is also one we discuss a lot with our investors. So with the balance sheet financing model we have, Does that mean that we will never apply project finance on any circumstance?
No. We Not that we are doing it yet, but we might see circumstances where it is beneficial for us to use project finance. That could be in markets where the JV partner, for example, insists on us doing it or whether that is, in a way, the market standard. We will not do it to a large extent, but you could see limited use of product finance.
Marianne, this we're now moving to a spread to wack framework for our value creation. And we do see in the industry quite some differences in how that is being defined. So could I ask Peter, elaborate on how we defined our spread to wack framework when it comes to value creation.
I'd be happy to do that. Yes. As I see it, of course, this is one of the really key metric we share with you today. So what we say today is that we have a targeted range spread to WACC at the time of bid or FID, whatever comes first. And that spread is 150 to 300 basis points.
If I then compare to a levered Equity IRR also including farm down gains, which many peers is guiding on And bridge that to our guidance. I will first start by deducting the leverage effect, And then we do not include any farm down gains, but it's also very important to emphasize that we include At the full overhead costs, we also include the full life cycle development costs, and we also include purchase prices If we have acquired the project. This range of 150 to 300 basis points Applies both to onshore and to offshore. Both actually are within exactly the same range. But when you heard Declan earlier today, you heard him talk about quite some details on the spreads For different geographies, Europe versus U.
S. And also Technologies. While you did not Here, Martin, share a lot of granularity on that. And the reason for that difference is that In onshore, we typically don't participate in these competitive auctions, while we do that in offshore. And therefore, It is competitively sensitive to share that level of granularity.
We might See projects where we go below this 150 to 300 basis points, And we might also see projects where we go above. But the vast majority of the projects we expect will Be within this range. If we then compare the guidance we share with you today with The latest guidance on value creation, which is this 7% to 8% IRR for this portfolio of 7 projects, We actually see that it is exactly the same value creation. So the spread on top of WACC is the same. What has changed is the WACC, which has been reduced due to the lower interest rates.
But I also think it's worthwhile To dig a little bit deeper into how we calculate our WACC because I think this is a very robust way of doing it. We use a market conform Cap M model, but we differentiate between technologies So that we don't have the same WACC, for example, for solar PV as we have for onshore wind. In certain less developed markets, we also add country risk. We have previously shared with you that we, for example, have done that For Taiwan. And then also, we add a premium for merchant risk.
If it is a fully merchant project, we add 2 50 basis points. And if it is has less Merchant risk, we then scale down that number of basis points. If I then move on to return on capital employed, we have today updated our guidance here to 11% to 12% for the period 2020 to 2027 versus the old guidance of 10% for the period up to 25. There is two differences I would like to emphasize. First, we now include partnership gains.
We also did that in the 10%, but we had very limited partnership gains in that because it was basically only Shanhua, where we assumed a farm down. But you should also take into account that this significant Step up in the investment level gives a lot of capital employed. That does not yield any return in a period of time. So that, of course, has a negative impact on return on capital employed. We look into a very solid growth.
We have today shared a 12% estimated increase in EBITDA from Onshore and Offshore operating assets in the period from 2020 to 2027. This average of around 12% gives an EBITDA estimate €35,000,000,000 to €40,000,000,000 in 2027. We see that we have quite a lot of Certainty around this EBITDA amount as 85% of the earnings will come from assets that either Are already in operation, under construction or from the awarded pipeline. It's also worth emphasizing that we have included This farmed down in both the ROCE and the CAGR. Then to a slide we shared for the first time at the Capital Markets Day in 'eighteen.
This slide illustrates the high visibility we have on the future earnings. Here, we have listed all our projects in offshore, both the ones in operations, the one under construction and also the awarded projects. And when we take all these projects and we capacity weight it, then we get to a number of 15 years of remaining subsidies. And this is exactly the same amount that we had at the last CMD. We also have the same amount When it comes to regulated share of earnings, regulated and contracted, that is now extended to 2027, And it remains around 90%.
Mariana, I think this would be a good time to dig a little deeper into our financial risk management. We have seen interest rate increases. We've seen inflation increases, and we've also seen commodity prices, in particular, steel price increases quite significantly. So we do get a lot of questions on how is exposed to these risk factors. So could I ask you to elaborate a little on that?
I'd love to do that, Alan. This is a subject that is very close to My heart. I think we have world leading competences within risk management, and I will try to share some of the details on How we are exposed to inflation risk, the interest rate risk, the currency risk and also, as Alan alluded to the steel price. This is the more mid- to long term part of the risk management. We have the other part of the risk management, which is the hedging of our commodity price exposures and also our currency where we use the staircase model.
But starting with the inflation risk, I would just Show a small illustrative example here, where we, in 2021, invest 100, And we get the return in 2022, and the return is 5%. In the first example to the left, we don't have an inflation index, while in the second, on the right, we have an inflation index. If inflation turns out to be 5%, we will, in real terms, get a return of 0 In the example, we know inflation index, and we will get the 5% if we have the inflation index. If I then dig into how we are exposed to inflation risk, what we have done here is that we have taken A 10 year period from 2021 to 2,030. We have included all our operating assets, All our assets under construction and all are awarded projects.
And those represent the 100% in this example Not example because this is real numbers. Out of this 100%, 55% is inflation index, And that comes from the U. K. ROCs, from the CSD contracts, both in U. K.
And also in Poland. The way we think about this inflation index revenue is that we see this as something we allocate To our shareholders so that the shareholders, in a way, buy into an equity, which is inflation adjusted. We then have a small portion of merchant, and then we are left with 35% of fixed A nominal exposure. This exposure comes from the subsidies that we have in Continental Europe, United States and also in Taiwan. And what we try to do here is to mitigate this inflation Exposure, which I'll show on the next slide here, where we mitigated through Debt and hybrids and also derivatives.
So in our way of thinking, we pass this inflation risk on to the debt holders. And the remaining net inflation risk we have is very limited. If we then look at how are we exposed to increasing interest rates. As we have such a high share of inflation index contracts and we have also hedged a big portion of the fixed nominal, We see that we are very well protected. Here, we have shown the correlation between the inflation and the interest rates, And you can see that there is a very strong correlation up until the financial crisis where you saw that correlation broke.
We have actually benefited a lot from this situation since the financial crisis. But assuming that this Correlation is reestablished long term, which we believe it will, then we will be very well protected also going forward. If we then look at how we use debt to hedge our currency exposure, Then we try to match the debt that we have and expect to issue up until 2025 with the exposure we have through the FFO. And here, you can see that we have a very strong alignment, And this gives us a significant more stable earnings from these hedges. And then last, I will go through our exposure to steel.
We get, as Alan said, a lot of questions around that. First, in a way, how big is this steel exposure really? For us, out of total CapEx of 100%, The steel share is in the magnitude of 4% to 7%. We manage this risk. And for example, for The U.
S. Portfolio, we locked in 70% of this exposure, and we did that a year ago before The steel prices started to increase. We also made a change in the price formula in our contracts So that we now have a steel price exposure, which is possible to hedge in a liquid market. And then as always, we continuously work to reduce the level of steel into our construction projects. So if I should sum up on this deep dive into our risk Management, I would say that we are very well positioned when it comes to inflation risk, both due to the High share of inflation index contract and also the way we have hedged it.
We are Not very exposed to increasing interest rates, again, driven by exactly the same facts. And we see a very high degree of alignment between our FFO and our debt When it comes to currency mix, giving more stable earnings. And then lastly, the steel exposure It's something we handle actively, and we have a quite limited exposure to that.
Thank you very much, Marjen. I actually think it's quite remarkable that at the end of the day, only 15% of our revenues the next 10 years are exposed to inflation.
Yes, I agree on that. I think many will be surprised by that.
I agree. Majer, are there any final messages you would like to leave us with today?
Yes, I would like to summarize the new guidance that we have shared with the audience today. So if I go back to where Maersk started today, we have a very ambitious plan, 50 gigawatt of capacity in 2030, that's the ambition. We will then Step up the investment level significantly to €350,000,000,000 for the period up until 2027. We will invest this money into highly value creating projects. We today guide on the spread To WACC of 150 to 300 basis points, we will see a very strong growth in the period up until 20 '27, where we estimate an approximately 12% average annual growth, giving an EBITDA In 2027 of €35,000,000,000 to €40,000,000,000 And we will do this with a very solid return on capital employed, An average of 11% to 12% for the period up until 2027.
So an ambitious plan. It's a plan we really feel good about. It's solid, and it is A plan that will deliver a lot of value.
Thank you very much, Marjen. We will now have a small break. And when we come back, there are 2 items left. We will have Matt's wrapping up what you have heard today, And then we will go into our Q and A section. So in 5 minutes, we will start with that.
So grab a cup of coffee, Prepare your questions and I'll see you in 5 minutes.
Welcome back from the break, And allow me now to make the final wrap up of the day. Find ourselves in a very strong an attractive market. Just consider, we are an undefuted market leader in an offshore market that is destined to grow to about 7 times The current size in a decade. We have a very strong position in an onshore market which will continue to grow probably with a pace of 2.5 to times. And then we also have a very strong position in a renewable hydrogen and green market that is destined for very strong growth and a core part of the energy system of the future.
And we have now told you about our opportunities, about our ambitions and about our plans for those areas. But let me spend this last section talking to you about why we feel very confident that our plans and ambitions are realistic. And if we start with offshore, We have a clearly industry leading pipeline of opportunities. We have proprietary seabed rights, we have a global development organization, We have very strong growth opportunities that is substantiated and concrete. We are a clear cost leader in offshore as well.
We have decades of experience. We have a truly global EPC and operations organization. We have more than 25 wind farms in operation and we have an unparalleled track record of actually executing on time and on budget. But we are also an innovation leader, and we have proven that over many years, but we also have a commitment to continue to innovate through integrated energy solutions, energy islands and also now in floating offshore. And within onshore, We've proven with our track record of creating value creating growth in the U.
S. Market and with a very strong growth pipeline both in the U. S. But also now in the European market that this is something which is scalable, which gives us confidence that that's a journey we can continue. If we take a look at the hydrogen market, renewable hydrogen and green fuels, we already have a very strong, Well over 3 gigawatt pipeline of concrete and tangible projects that will materialize over the next decade.
That will not only give us scale, but it will also give us invaluable learnings that we can take on into a continued scale in growth, first in Europe, but also with very attractive opportunities in the rest of the world. And if you look at our financial value creation, we have clearly industry leading risk management. We've also confirmed a target of continuing double digit growth in operating profit. We have a strong balance sheet financing model. We have low cost of capital and we've also reconfirmed our 90 around 90% regulated and contracted share of income.
We can't do this alone. So our leading and also continuing to strive for strong partnerships with every stakeholder From governments to corporates to finance partners and in principle every stakeholder in the ecosystem of continuing transform the energy system It's something where we are very confident that we can take our rich experience into the future. And then last but not least, our clearly leading sustainability position globally. As mentioned a few times, we have been named the most sustainable energy company 3 years in a row. And with an unparalleled track record in both decarbonization and other sustainability dimensions, We are confident that this is something that we can not only continue to leverage, but accelerate as a competitive differentiation going into the future as well.
And with the totality of these things, we are very confident that our immodest ambition to be the world's leading Green energy major is not just wishful thinking. It is something we can actually make happen. And with that, We really look forward to the Q and A and we will see you in a minute for just that.
Welcome to the Q and A. We will start right away. First question comes from Deepa from Bernstein. Deepa, please go ahead.
Thank you so much for taking my questions. So I have 3 questions. I hope I can ask all 3. Firstly, on CapEx, The €450,000,000,000 versus the €350,000,000,000 can you just help explain? And should I look at the €350,000,000 as roughly equivalent to the old €200,000,000 Which was gross.
So maybe if you can just talk about the gross versus net on the CapEx. Secondly, on the return spread guidance of 100 and 50 to 300. You've highlighted that you are making a number of adjustments, which some other peers don't. So just for us to adjust, Could you maybe explain how many basis points is from the last adjustment, which is the overhead allocation and so on? What's that How many basis points is that?
And the last question is, again, on the return. So in the 150 to 300 basis points, Is this weighted by your CapEx? Or how should we think about offshore within that? Because obviously, some of the numbers from the U. S.
Onshore wind We're higher than this range even. So how should we think about offshore within this range? And I don't know whether you make a difference between developed and emerging So something. So just some sense of where offshore should be in that range. Thank you.
Thank you, Deepa. Majana, I believe You should start this one off.
Yes. Thank you, Deepa, for the question. Yes, on the first one, the €350,000,000,000 is comparable to the 100,000,000,000 we announced at the last Capital Markets Day. The €100,000,000 that we highlight is the CapEx that is funded by The JV partners or the EPC partners we take in through the partnerships. So that's enabled CapEx, you can say.
Then you asked about the spread for offshore.
Yes. And that was the last question. But you asked also about the components that are different in our way of looking at our spread. I think, 1st and foremost, this is unlevered. Secondly, we are not including our farm down gains.
And then it is fully loaded, meaning that it's with corporate overhead development expenses. And just to give you sort of an indication of the basis points that you're asking for, Deepa. Then this is if you take our corporate overheads and our development expenses sort of at a rough average with variations, That would be at the range of around 100 basis points, that part alone, just to give you an indication. And for the my end if you're free to supplement me, but for the offshore, we don't Comment specifically on offshore within that range. It is that as Majene explained, it's a targeted range and that is where we target by far the majority of our new projects within that range.
But we for competitive reasons, we don't comment more specifically on where we would find the offshore within that spread.
But I think it is quite important to emphasize that the range for offshore and onshore is actually not different. It is exactly the same range.
Thank you, Deepa. Our next question comes from Rob from Morgan Stanley. Rob, please go ahead.
Hi, and thank you very much and congratulations on the vision. May I use My question, just to try and resolve some of the confusion out there around the underlying EBITDA guide for 2027. And to that end, may we request either the quantum of asset rotation gain in the 2027 guidance, Some framework about how we should think about those asset rotation gains? Or alternatively, could you provide 2027 EBITDA assuming 100 percent ownership on these new projects, which I think is really what consensus is probably baking in. Thank you very much.
Thank you, Rob. Marianne?
Yes. I would try to give some color on that. On the CAGR that we're announcing today, I think it's also important to emphasize that the 20% that we shared at the last Capital Markets Day, That started in 2017 2017, sorry. And if you have the same 2017 as the starting year And go all the way to 2027, the CAGR would be 16% and not the 12% we announced today. And then if we do not include the farm downs, then the CAGR With the starting point we announced today would have been 16%.
So then I guess you can calculate it yourself. So it is a very important difference between the CAGR with the farm downs and without the farm downs. On the partnership gains, that is not something that we are sharing. As we also said, we would be Quite flexible around when we farm down, and that will, of course, also impact the farm down gains. So no specific guidance On that today.
But of course, the CAGR is completely excluding the partnership gains as we always do.
Thank you, Rob. Our next questions come from the mail, And it's from Tariq from Morningstar. How do you see the offshore wind competitive landscape evolving? Do you think consolidation will happen and would you play a part in it? So, Mads?
Yes, I can give A brief perspective on that. Of course, it's super difficult to predict exactly how it will evolve, but it is a very attractive market that attracts a lot Of new players as well. And it is also it is definitely an opportunity that could be consolidation happening and we can't rule out that we would take part of that either. So yes, it's we foresee it to be a dynamic market, but maybe Martin, if you have any supplementary comments.
Yes. And maybe just to say, we have been active in the past, right, when it comes to market consolidation in a market like the U. S, for instance, where we, in 2018, acquired Deepwater Wind, Acquired them as a platform, integrated fully integrated them, the team, but also the asset portfolio. Also, when you look at Europe, many of the projects We are developing building today. We have acquired and therefore sort of bolted on to our existing platform.
So M and A activities sort of in the space is very familiar And offshore wind and we certainly don't expect that going forward.
All right. Our next question comes from Christian from Danske Bank. Christian, Please go ahead.
Thank you, Alan. So two questions for me, please. First one is on the value creation Brett, so you say this is consistent with what you communicated 3 years ago, although that if we do reflect on the past 3 years, I would claim that competition has intensified. So can you elaborate on how you're able to keep an unchanged value creation Spread despite the increasing competition. And my second question is on floating wind.
So your commitment to floating wind seems to have Changed clearly from what you communicate today. So what has made you become more positive on this? And Given that you are not a first mover here, how do you plan to catch up with the players who have been looking into floating win with a higher commitment for a longer period?
Thank you, Christian. Mads, will you kick us off?
Yes, I certainly will. And I think the second question is probably for Martin. But under the spread for offshore, as Martin said in his presentation today, Then we do have a very strong pipeline. So if you add up in total, I mean, the 12.7 gigawatt that we still need to fill to get to the 30 gigawatt ambition by 2,030. That is to be taken from Extentiated pipeline of 14 gigawatt and 38 of further opportunity pipeline realistic for 2,030.
And that totality, the size and substance Off that pipeline is exactly what allows us to be selective
on where
we actually lean into projects that are still value creating. So if we were forced to take everything that we had to, it would be difficult because it is a fact that competitive intensity is increasing. But it is a radically growing market. And as mentioned, the key reason is because we are choosing deliberately to continue to be selected to uphold our financial discipline despite the market competition tightening. And Martin, maybe comment on floating.
Absolutely.
So on the floating offshore wind side, we have been following the space very Closely and as we have consistently communicated, we have been part of what's happening through external industry bodies like the Carbon Trust Floating Offshore Wind Working Group or the WindEurope Floating Offshore Wind Working Group. And now we can see sort of that in certain Our core markets with deepwater conditions, such as, for instance, in Scotland or in the U. S. Or in Japan or Korea, all markets where we are very active in developing Bottom Fixed Offshore Wind Project. We see that floating offshore wind has a prospect in terms of being complementary technology Reaching deeper waters and therefore sort of expanding the footprint of offshore wind.
Obviously, it's still very early days when it comes to the technologies. And we have So I said, we are not investing into an R and D or early stage demonstration project, but with the prospect over the next 10 years that we see Floating offshore wind can be commercialized and our strong track record of having innovated cost set out and industrialized bottom fix, bring a lot of capabilities that we can bring to core here. And then I mentioned it in my presentation, we obviously have a very flexible partnership approach. So where there are certain capabilities that we don't possess, we will obviously sort of find the right partners for those. So we want to be part of the commercialization of Floating offshore wind, it's not about sort of early stage R and D or early stage proof of concepts, but we want to sort of be part of the commercialization because
So thank you to Christen. The next question comes from Casper from ABG. Casper, please go ahead.
Thanks a lot, Alain. And first of all, congrats on a super well executed day, very, very cool setup. I'm sure that there will be even more questions about the WACC Spread, so I'll go in another direction. I don't think you have mentioned Bioenergy and Other In any at any point of today, should we read anything into that? And if we shouldn't, how do you see that Fitting into going
forward? Mads? Yes, I can certainly add a perspective to that. It is not Sort of a business that we are aggressively expanding. This is a Danish business.
Obviously, it's a very healthy run business. It's With the conversion plan fully to a sustainable biomass by 2023 as well, also a very sort of Sustainable business fully supporting our ambition. But it is a value creating business. We have seen that also this year, And it is one that we will continue to operate. It's one that will remain part of our Oster family, but it's not at sort of the very core of our strategic That's why the reason why we are not spending a lot of focus on it during the Capital Markets Day today.
Thank you to Casper. Then next question is on the mail from Alberto from Goldman Sachs. And he asks, how much of the projects under construction or already secured substantiated projects Have procurement on a fixed cost basis and what is the percent of procurements that is exposed to rising steel raw materials? Can you quantify what you accounted in your CapEx from this and what will what that will do to your returns?
Specific part around the steel. I showed today that out of a typical CapEx project within offshore, it is quite a limited exposure To the steel price, 47%, I show. And also, we have secured through fixed Pricing, a significant part of that, and we are also actively hedging that exposure. So it is not something we see As a big exposure to us now.
And then on the portfolio, obviously, the projects in construction, we typically procure and fix All the contracts, 90% of the CapEx is fixed once we reach an FID. So for our construction project, the contracts are all procured. For our pipeline projects, we are working towards an FID for our German portfolio. For instance, where We are in procurement activities right now. We expect an FID towards the end of the year.
So we are already sort of there to get towards the 80%, 90% Fixing off the contracts that we have in the U. S, there's obviously some time to go towards an FID. But on the other hand, we have been very early here Securing procurement, for instance, on the turbines, as you know, from our Northeast portfolio with Siemens Gamesa and for the Ocean Wind portfolio In with GE on the turbine side, for instance, so for those contracts, It's a varying part of where we stand of those projects, where we stand with the procurement. The ones least mature and to that extent The ones that we just lately added to our awarded capacity and that is the Polish projects, Baltica II and III.
Okay? Next question comes from Ginny from Citi. So Ginny, please go ahead.
Hi, thanks. I have one question, and I'll sneak the second one in. Firstly, just on the CapEx, If I look at the incremental CapEx on a per megawatt basis, It doesn't seem to be that different to your 2018 CMD guidance of 13.5 dKK per megawatt. Is that all just because of the additional inflation costs that's coming through? Or have you actually built bigger turbines and Efficiency gains in that number because clearly this is until time 30.
And if I may speak for a second quick one, what is the net gigawatt Number that you're targeting.
Thank you, Jenny. Marianne?
Yes. On these CapEx, yes, you are right. We are probably not very far from what we guided last time. That is very much driven by the fact That we now build in more expensive areas. For example, in Asia, Taiwan is a good example, Where we need to have more solid foundations due to the typhoon risk, but also in the new markets That we enter in a way we will have higher CapEx for a while until the supply chain matures.
So it is a mix effect, you can say. In the old 13.5%, in a way, it was mature markets with Germany and the Netherlands. And then on the net capacity, it's not a number we are sharing with you today. But as we have either partners or we are farming down in most of the assets in a way, it is in a way a bit more than 50%.
Thank you to Jeanie. Our next question comes from Mark from Credit Suisse. So Mark, please go ahead.
Thank you very much for taking my questions or my question sorry, one question. The 15 gigawatt target In 2025 that you set at the last Capital Markets Day, can you talk a bit about that In light of the 3 gigawatts of capacity on the U. S. East Coast and when can we expect FID on that 3 gigawatts of capacity and also for commissioning. Thank you.
Thank you, Marc. Martin?
Happy to answer that question. So we're obviously very much on track delivering on that 15 gigawatt by 2025, which includes the 3 gigawatt portfolio. We have seen, especially over the last couple of months, a huge amount of momentum it comes to the federal permitting part, which has been where we have seen some roadblocks over the last 2 years, but we received for our Northeast portfolio for South Fork Wind received a draft EIA. We received our NOIs for Revolution Wind and for Ocean Wind. So we plan to commission South Fork Wind Farm By 2023, Revolution Wind and Sunrise Wind by 2025, the same for Ocean Wind.
So very much commissioning towards the mid of the decade 2025. South for wind is a bit earlier in 2023. And FID, obviously, depending exact The permitting time line, but for the Northeast portfolio, it's going to be around end of 2022, early 2023. For South Fork, it's obviously with commissioning 23 year 2 years 1.5 years earlier.
Thank you to Mark. Next question is from the mail. I was curious about how we should think about the cost of equity given your exposure across multiple geographies and Technologies. When you talk about the 150 to 300 basis point spread, is that at the corporate level or at the country level? Mariano?
Yes. When we look at spread to WACC, we use a local currency WACC. So it is at the country level. But in a way, it's not that it necessarily makes a big difference, but we use the approach that we use a country specific WACC in local currency.
Okay. And then our next question is from Peter from Bank of America. Peter, please go ahead. Yes. Good afternoon, and
thanks for taking my question. Can you talk about what you need to see on the policy support side for green hydrogen to make your large scale projects Commercially viable. So I guess the question is, is the grant funding that you talked about sufficiently by itself? Do you need something on top of that in terms of contracts for difference or feed in tariffs or PPAs?
Thank you.
Thank you, Peter. Martin?
Yes. Obviously, the funding is a very central part, as I just explained in my presentation, because we need The funding and the government support in order to close that gap, which we cannot yet do as long as the technology is not really, really scaled into the gigawatts And matured. And of course, the funding support can come in different ways. It can be through CapEx grants, OpEx grants. We also encourage that the demand is obviously incentivized, because we need to work both on supply and the demand side here in parallel.
But then there's also when you look at renewable hydrogen, there's also especially in some of the markets, we see very heavy grid charges, tax levies, etcetera, where we need to establish a level playing field. And that's a huge regulatory task to make sure that renewable hydrogen is not disadvantaged Compared to fossil fuel hydrogen, which is not subject to the same levies and grid charges, etcetera.
Yes. And if I can just add, Martin, I think, In general, I mean, we don't see sort of a one size fit all way to support it. It is exactly the same. There needs to be the grants combined with some kind of support either on the offtake side or general to make it competitive because we all know that what's going to drive competitiveness as a technology towards the end of the decade It's the scale. But in order to get the scale, we need to get that going.
But we think and we are really happy to see the progress, not least in Europe now with the side process as Martin referenced. And that is starting to gain traction. We hear about the tax credits in the U. S. So I think we don't point to one way of doing it, But it is something where it really is critical and somewhat urgent, not for only for a company like us, but overall for the technology to get scale.
And we see That momentum picking up as we speak, and there are many ways of doing it.
So thank you to Peter. Our next question is also from the mail, comes from Alex Craig from Leading Alpha Consultation. You have provided guidance in the past on expected CapEx per megawatt for your offshore investments in Europe and the U. S. How is CapEx per megawatt expected to develop as you accelerate project development offshore in the second half of the twenty twenty's?
What are the most important drivers of further progress in this area, which is surely necessary given the necessary evolution of offtake prices? So I guess it's Majana or Martin. Yes.
We will see that cost of electricity will continue to decline, and that's also something that we have built into the forecast. It is very much driven by the fact that we still get expect to get larger turbines, but it's, of course, not the same Steep curve that we have seen historically. But we have seen that BNF, they have An estimate and they expect, I think, it's 23% decline over the next period. So that's well in line in a way with also our expectations.
Thank you. Then next question comes from Dan from Carnegie. Dan, please go ahead.
Yes. Thank you for taking my question here. Maybe some elaboration on hydrogen. You're looking into a pipeline of these plus 3 gigawatts Yes, it is right now. Let's say if we have a Capital Markets Day again in 2024, 2025, how big a pipeline would you be looking into there Just to get a feeling of where you see the market and your ambitions.
And maybe also a little on your risk perception, What kind of a churn requirement do you have on these hydrogen projects? Thanks.
Martin, will you kick us off?
Happy to. So obviously, as I showed on the slide, there is an expectation in terms of the market growing to an 80 to 100 gigawatt installed electrolyzer And we see with the EU having a target of 40 gigawatt in many of the leading sort of EU countries within the space, Backing that up by commitments. So no doubt, we clearly expect our 3.5 gigawatt pipeline will grow. It is growing Actually, almost sort of every week in months now. No doubt.
In terms of the return target, that's too early to say Because we are in very, very early stage. We are building basically just the first business cases. We also need to see sort of what is the funding regime We can tap into so I'm not able sort of to give a target out there. What is very clear is sort of we obviously reflect Our relevant cost of capital, given also the majority of the technology in our capital costs, that I can say. But I would clearly make a statement that we expect that pipeline to be significantly bigger when we meet again, whether in a year or in 2 years' time.
Thank you for that. Our next question is also from the mail. In U. S. Onshore, what is your expectations in terms of tax credits or even direct incentives going forward?
And is there a risk to your 17.5 gigawatt ambition if the current scheme isn't prolonged? Declan, will you answer that one?
Sure. Well, the first thing I'd say is that the plan And we're announcing here today is based on current legislation, not anticipating any extension to or change to the mechanism around the tax credits. So it assumes the current glide path For wind and solar, which sees the credits fall off at 2025. That being said, There are a couple of vehicles right now, legislative vehicles looking to both extend wind and solar tax credits And also a lot of talk on a direct pay, a move to a direct pay for the tax credit as distinct from it being a redeemable tax credit. Any combination of that could further accelerate the market and so would be a positive.
We're also very focused on tax credits expanding to cover things like battery storage, which would be and transmission, both of which would be accelerate the growth of the market. But the plan we're announcing assumes existing law and the existing schedule of expiry of the tax credits.
Thank you. Then another written question. Can you please clarify If your 2027, 2027 EBITDA includes capital gains from divestments. I don't think this was fully clear. Mariana?
Yes. I think I answered it in the beginning, but no, it does not include any capital gains. So it is the EBITDA from the operating wind farms and solar PV, yes, both offshore and onshore.
All good. Next question comes from Elgin from Bloomberg. Elgin, please go ahead.
Hi there. Can you hear me okay, yes?
Yes, we can.
Fantastic. I have a question on your 30 gigawatt offshore wind target by 2,030.
I think we lost Elgin there. Elgin, can you hear us?
Yes, yes, I can. Can you hear me?
Yes, we can hear you again. Could you please repeat your question?
Yes. So my question is on your 2,030 offshore wind target, 30 gigawatts. If you add your firm capacity And your most of your substantiated pipeline, you already get to more than 30 gig by 2,030. So the question is, Is there opportunity to increase that further? Or is it too conservative target?
Or you think we should be sticking with that for now?
Thank you, Elgin. Mads? Yes.
Thanks a lot, Eddy. It is a target that we have obviously spent a lot of time Zooming in on what's the exact right level, you're right, there could be even more opportunity. But as I briefly alluded to before, when we evaluate the totality of the pipeline And given also the market conditions, we believe that we are striking the right balance while being very continuing to Solidifying our position as an undisputed leader in offshore, while still creating meaningful value from our projects. So really striking the balance between expansion and between continuing to create value. And I would just Remind Martin said it, but it is an important reminder to say that in the back half of this decade, We are actually upping our build out ambitions by 50%, so from 2 to 3 gigawatts.
That's not a small thing. So we will be accelerating already, And we do believe it is still an ambitious target, but it's also one that allows us to continue to create value.
Good. Our next question comes from John Mosk, RBC. It's a written question. You highlighted some sensitivities to interest rates. What are your farm down assumptions and how are these impacted by increasing interest rates and more supply of projects that can be farmed down?
Marianne?
Yes. A couple of reflections on that. The first one, we will where we are already planning The farm down is Hornsea 2, which is, of course, a big one. There we have an inflation index contract, which, as I talked about previously, Protects us to some extent against increasing interest rates. So that we don't see as an issue.
We also do that, that we try to match our fixed nominal contracts with fixed nominal debt. And then if we see increasing interest rate, we have that fixed nominal debt, and we will be able to unwind that and then, in a way, gain the part that we would not Get from the partner. So also with a large interest and our risk management policy, in a way, we feel That we are on the safe side. And then just one additional comment also. If we see increasing interest rates, we will also bid in based on a higher WACC Going forward, so in a way, this risk only applies for the ones where we have not yet found them and we have already bid at the low interest rate level.
Thank you. Then another written question from Ahmed from Jefferies. Could you expand on your strategy or plans around floating wind opportunity? It hasn't been extensively covered in the presentation. So is this So is it not an area of huge focus currently?
If so, why? Martin?
I mean, I just highlighted here that Floating offshore wind for us is something we have been closely following without actively investing because the technology is still at an early R and D proof of concept phase, you can say. But we absolutely see the prospects for floating offshore wind becoming complementary very much towards bottom fix. In core markets, we are already active, whether it's the U. K, especially with Scotland, whether it is the U. S, with California, Whether it is Korea or Japan, where we are very active.
And therefore, we are engaging now. And as we see, the Technology has absolutely the prospect for commercialization, where we bring a huge amount of experience and track record in innovating, Costing out and industrializing bottom fixed, which we think we can bring to bear here.
And if I can add, Martin, I think it's important to underline that even though we have exactly like Martin says, gone from observing to now engaging, It doesn't mean that our experience from primarily bottom fixed is not highly relevant because these large scale EPC projects, like Martin says, the cost out, Engaging with partners because right now there are multiple technologies and of course we would want to engage with relevant partners in this as well, but we can bring a lot to those partnerships. So by combining what we have through decades of experience in large gauge, EPC, bottom fixed and Both the operations and the constructions and engineering of that combined with a more specialized partner, this is something that we believe does not put us behind in any way Compared to the majority of the technology, so we are very confident that the ambition of a leading position or have a strong position in this market It's something which is very doable despite the fact that we have primarily observed through both ourselves and through our organization so far.
All right. Next question is also from the mail. You previously mentioned a U. S. Solar PV fleet farndown.
How is that progressing? And how does that impact your guidance metrics you provided? Declan?
Yes. We launched A farm down of some of our solar projects this year. And it's been very well received with a lot of investor interest. Now a couple of the projects in that portfolio are in Texas. And obviously, in February, we had the extreme weather event In Texas, which caused a lot of electricity market impacts, obviously.
And then subsequent to that, Potential for legislative intervention in the market, I would note that's largely now passed, in our view, satisfactorily. But that created a little bit of uncertainty in the market, which caused a little bit of hesitancy In the investor universe, and so we're always very patient when it comes to any transaction, a farm down no different. So we're not in a hurry to consummate a transaction when there was a little uncertainty in the market. So it's possible That we let that slip into 2022, which wouldn't have a meaningful impact on any of our guidance.
All right. Next question is also from the mail. It's Sam from UBS. You mentioned the Danish Energy Island projects a few times, which could be very significant. I'm just wondering how have you thought about Those in your new targets today, I think one of them is a DKK 200,000,000,000 investment end to end, So quite big and lumpy and just wondering if maybe we should think about the Energy Islands as a separate opportunity on top of the core gigawatt and KBIS guidance Or on the other hand, if you need to secure at least some role in the Energy Islands to hit the new guidance you've given today.
I can kick that off, Alan. And I think a couple of really important perspectives that When this is referenced as at up to DKK 200,000,000,000 in CapEx, this is for the total thing. This is for the island, what's on the island and for the up to 10 gigawatts of wind around it. And what we are talking about leaning Into now is the island itself. And you might ask, so why be part of building an island?
Well, it's because we actually believe that the full process Of actually sort of being deeply experienced and get learning through being engaged in that project will give us invaluable strategic learning for potential later scaling. But that project that we are now planning to bid in with together with our partner ATP It's only a fraction of the SEK 200,000,000,000. So this is really important to think this is it's not about that scale. And bear in mind also the sort of the commissioning of both the Bonnholm and the North Sea Energy Islands is Primarily or probably post 2,030, so it actually does not impact significantly impact our guidance in any way in this guidance period.
Thank you, Tassam, for that question. Our next question comes from Aymeric from JPMorgan, also a written question. On hydrogen, when do you expect these projects to contribute to the P and L, if you can quantify this at this stage. Martin?
That is too early again, too early to say. It's early stage development project. Obviously, we have the one construction project being HRS. However, that's a very small and tiny project. We expect sort of The first ones, as I mentioned, the first phases, like for the West Coast 100 project, to become operational towards 2025, but as it is very early stage also for us forming a view on the business case, the whole regulatory regime, how we sort of going to fund these projects is too early.
We have not included anything in the guidance, and it's too early sort of to talk about that.
Okay. Next question also from the mail. Will wind turbine installation vessel availability or other parts of supply chain be a bottleneck for offshore wind deployment as the industry scales up. Maersk, will you
Yes, I can give that a first shot and Martin can supplement. We generally, this is again, as we referenced, this is a market that grows substantially and every part of the Supply chain will need to gear up with it. We have actually seen an impressive agility in the supply chain to be able to follow. And we don't sit With visibility that there's going to be definite supply chain bottlenecks in either installation vessels or in other parts of it. Can that happen as we significantly scale up to hit the almost 170 gigawatts by 2,030?
Certainly, it can. And there The way that we address that is to really ensure that we have framework agreements to have early commitments to ensure that we also help Our supply chain partners to build out further capacity, and I think the example of us helping some of our Tier 1 suppliers To do open new capacity in new markets like the U. S. Where our sort of our partner, EEW, to open in Paulsboro and New Jersey is an example of that Where we actually enable supply chain to help to gear up. So there are multiple ways to mitigate that, but it is an industry challenge and it's one that we need to take Seriously, but we feel very comfortable that we as a developer together with our supply chain partners of all kinds can be able to navigate that.
Thank you. Then next question is from Brad from South Point. Corporate PPAs. With carbon prices on the rise and spot power prices in Europe above some previously subsidized auctions, Do you see that market shifting from a sealed bit, hypercompetitive environment towards a market where your scale and expertise Make sure the preferred counterparty for major corporate PPAs. And in such an environment, would you expect IRRs to expand beyond the competitive IRRs you have laid out through 2027 today.
Martin?
Yes. I can certainly talk to the corporate PPA market in Europe where we have been very active in terms of our new assets like Falcon Whispering 3, which is our 1st 0 subsidy Project, as I mentioned, we plan for an FID later in 2021. And here, we have been very active in the corporate PPA market, entering into fixed Corporate PPAs among others with Amazon or Covestro for that specific project. And We certainly see a large and increasing demand from corporates when it comes to for them, on the long term, procure And our sustainable power sustainable electricity demand through corporate PPAs always with a view, of course, they want to be part of Additionality, basically funding and securing a project that adds in the renewable energy space. So we clearly see a rising demand, and that, of course, sort of shifts also the way and the need for In our subsidy regimes or support regimes, as we have seen, like with CFDs, we have seen Large chemical players like BASF or COVESTRO being out really was formulating their strong demand for corporate PPA offtake.
So there is a clear sort of change in the landscape here that we are seeing. It's not only in Europe. We have done the world's largest corporate PPA in Taiwan With our Changwa 2B and 4 project, the full output of that project will go to TCMC, One of the largest semiconductor foundries in the world securing sort of their decarbonization journey and targets they have set themselves.
Our next question comes from John from Waverton. You say that government support development of regulatory frameworks and demand side incentives, taxes, etcetera, are urgent. Please expand on this. What is meant by urgent? Is there a time line by which funding has to be forthcoming?
What would be the consequence of appropriate regimes being delayed or not becoming available? And I guess this is also in the context of hydrogen.
It is and when I believe I used the expression of urgent. So I was not it was not in relation to our pipeline of projects That they would be obsolete or not relevant or not doable if it doesn't happen very short term. Just to make let me make that very clear. It was that, for example, through industry initiatives like the green hydrogen catapult where we are an active partner in that, there is a clear target Of getting to a competitive level with gray hydrogen towards the end of the decade, by 2,030 to get to this approximately $2 price tag. So when I was referencing the urgency of the policy framework, it was in relation to that.
So it was more in the context of a decarbonization journey That needs to happen in the context of our net zero plan for the world, but nothing that is critical For any of our 9 pilot projects, just to make that very clear.
All good. Next question comes from Dominic Nash from Barclays. Developing new offshore projects going forward, will Allstate increasingly use JV structures, in particular local partners? What do you see hitting the 30 gigawatt target by developing 100 percent owned projects with subsequent sell down or through net contributions? Martin, I guess it's you?
Yes, happy to answer that question. It's obviously a combination. So we have quite a successful track record In going into new markets where we haven't done business before and teaming up with strong local partners, whether it's in the U. S, Well, it is in now in Japan. Whether it is in Poland with PGE, for instance, the largest energy company in Poland with, of course, A huge track record in the energy landscape in Poland.
So whenever we enter sort of new markets, Partnership is a way for us to secure that we, from day 1, ensure a Strong local presence and the local know how, which our partners have built up over many decades. At the same time, we are growing our Portfolio in mature markets, where we are very well established, like, for instance, in the U. K, like, for instance, in Germany, in, of course, our home market or In the Netherlands, and these are markets where we can very well develop a project 100% on our own and then seek a partner to bring in post FID or post construction. So it's going to be a mix. And in Taiwan, you have seen that We teamed up for the island's 1st offshore wind farm, namely the Formosa I project, leveraged those learnings through the development and now also through the And here we developed the Changwa projects on our own and farmed down then post construction start.
So it's going to be a mix of different models we can apply.
Thank you to Dominik for that question. And we are now coming to the last question for today. It's from Sophie from Exane BNP. A lot of other utilities already have exposure on all renewable technologies, offshore, onshore, solar, And they actually also have hydro and gas fired generation, so they can offer integrated offerings to countries and corporates and can structure PPAs and take merchant risk. With what you have announced today, it seems to me like you are sacrificing a big Part of your leadership gap in offshore wind as your market share drops from 30% to an incremental market share of 15% In order to catch up to other utilities on other technologies, so could you help us understand a bit better what is Orsted's competitive advantage From this point on, compared to other players that have been doing onshore and solar and batteries for years and also what makes 17.5 gigawatt of onshore capacity by 2,030 the right number?
Yes, I can certainly kick that off. I think it's very important to highlight 1st and foremost that there is not a sacrifice or compromise In relation to the very core of our strategy of being a leader in offshore wind. So we are not building this up to say 1st and foremost, we want to be an integrated energy solutions player and how much is left for offshore. It's the other way around. Offshore is at the center stage and core of our strategic journey.
And this 30 gigawatt ambition has been the very first thing that we said. This is what we believe is right creating value. And then we have seen that the value creating opportunities in onshore led by Declan and the team in the U. S. It's very value creation.
It's scalable and it's something we actually believe not only strategically but also financially is very meaningful for us on the journey. We're not trying to catch up with somebody who has a lead, but actually we are seeing that the shaping corporate market Means that especially across technologies such as offshore, onshore wind, solar storage and then also to come, Hydrogen and Green Fuels, that will be something where we can offer very competitive solutions to those corporate partners. And so we believe that we're actually hitting the sweet spot here with really staying a clear leader in offshore And not with a sacrifice in anything we otherwise want to do, while significantly strengthening ourselves in cross technology, including being a leader In an emerging market, which we believe will be a cornerstone in the energy system of the future.
This was our last question. So this brings us to the end of the CMB. Should you have any further questions, Please do not hesitate to reach out to the IR team.
Thank you so much for being with us today. We really appreciate your time And also a big thank you for great questions that keeps us on our toes.
So thank you for now and have a great day.