Welcome to the Ørsted Q2 2020 earnings call. For the first part of the call, all participants will be in listen-only mode, and afterwards there'll be a question and answer session. Today's speakers are CEO Henrik Poulsen and CFO Marianne Wiinholt. Speakers, please begin.
Thank you. Good afternoon, everyone, and welcome to the earnings call. I'm pleased to say that we have had a solid second quarter, well in line with expectations, despite the continued COVID-19-related challenges. During the quarter, our asset base remained fully operational at normal availability rates, and our billion DKK, an 18% decrease compared to second quarter last year. The decrease was expected and was driven by lower partnership earnings. Adjusting for the partnership effects, EBITDA increased by 29%. Net profit for the quarter was negative, with DKK 800 million due to two one-off effects totaling DKK 1.2 billion. At the same time, we saw a strong positive cash flow in the quarter, leading to a reduction in net debt, partly supported by one of the two beforementioned one-off effects.
Marianne will elaborate- flow in the quarter, leading to a reduction in net debt, partly supported by one of the two beforementioned one-off effects. Marianne will elaborate on these items in her section. EBITDA from offshore and onshore wind farms in operation increased by seven percent to DKK 2.9 billion due to the ramp-up of Hornsea One, Lockett, and Sage Draw. During second quarter, we have seen some adverse COVID-19-related profit impacts to the tune of DKK 150 million, and we had lower earnings from our power trading activities, where we saw very high earnings in second quarter last year. On an underlying basis, the earnings from offshore and onshore wind farms in operation increased by 26%, while the relatively low headline number for the quarter is not a concern.
We remain well on track to deliver on the targeted 20% EBITDA growth CAGR for 2017 through 2023 for our renewable assets. The financial performance in the first half of 2020 fully supports our full-year EBITDA guidance of DKK 16 billion-17 billion. Overall, we're very satisfied with the performance of the company during the COVID-19 crisis, and it speaks to the robustness of our business model and our organization. In the beginning of July, we signed the world's largest renewables energy corporate power purchase agreement with Taiwan-based TSMC for the 920-megawatt Greater Changhua two-B and four in Taiwan. I'll come back to this groundbreaking corporate PPA shortly. In Taiwan, we are currently in the process of farming down the Greater Changhua one project. The transaction is progressing according to plan, and we still expect to sign this year and close the deal during first half of 2021.
In addition, we are exploring the potential opportunities to farm down the Dutch Borssele One and Two project. We continue to see very strong demand for our offshore wind projects among investors looking for de-risked stable returns, and if a farm down can create additional value for Ørsted, we will pursue it. In June, we commissioned our 230-megawatt onshore wind farm Plum Creek in Nebraska ahead of schedule and on budget, and we received the tax equity funding from our partners. The completion of the project brings our operational onshore capacity to one point six GW, and one step closer to our ambition of five GW installed onshore wind and solar PV capacity by 2025. In July, we acquired the 227-megawatt solar PV project Muscle Shoals, located in Alabama.
The project is currently under construction and is expected to be completed in third quarter 2021, where it will be the largest solar energy asset in the U.S. Southeast. The project is eligible for 30% ITC and has a fully contracted 20-year utility PPA. The acquisition of Muscle Shoals will establish an anchor position for Ørsted onshore in the U.S. Southeast, a market which in the coming years is expected to realize the largest growth in solar installations in the U.S. We continue to see very solid value creation opportunities in our U.S. onshore business, and the C&I demand for renewable PPAs remains strong even during the current macro crisis. Moving on to green hydrogen.
Together with Copenhagen Airports, Maersk, DSV Panalpina, and SAS, we have founded the partnership Green Fuels for Denmark to develop a new groundbreaking hydrogen and e-fuel production facility to produce sustainable fuels for road, maritime, and air transport in the Copenhagen area as soon as 2023. The partnership brings together the demand and supply side of sustainable fuels with a vision to realize what could become one of the world's largest electrolyzer and sustainable fuel production facilities. We continue to see an increased support for the development of renewable hydrogen, and in early July, the European Commission launched the European Clean Hydrogen Alliance with a target of having established 40 gigawatt renewable hydrogen by 2030. The alliance will promote a decarbonization strategy where renewable hydrogen is set to play a key role, as falling renewable energy prices and continuous innovation make it a viable alternative to gas-based hydrogen.
The Commission has an ambition to make Europe a global frontrunner within renewable hydrogen. We expect this to create additional growth opportunities for Ørsted. Last week, we announced that the German Federal Ministry for Economic Affairs and Energy has confirmed funding for the first large-scale hydrogen project in Germany, the Westküste 100 project. With the funding in place, we can now enter the first phase of the project, where we, together with nine partners, intend to build a 30-megawatt electrolyzer, which can support heavy industries and heavy transport with green fuel. The consortium will also initiate the work to develop the vision of a large-scale sector coupling, including a 700-megawatt electrolyzer system. Westküste 100 is our third hydrogen project to receive public funding. It is another significant step in our exploration of industrial-scale production of renewable hydrogen.
Let's turn to slide four and our record-breaking corporate PPA with TSMC. In June 2018, we were awarded the 920 MW Greater Changhua two-B and four project in Taiwan with a 20-year feed-in tariff PPA with Taipower. Despite already having secured a 20-year feed-in tariff via the government-awarded auction, Ørsted has signed a corporate PPA with TSMC, where TSMC offtakes the full output from the Changhua two-B and four project at a fixed price, which is higher than the feed-in tariff. In the event the corporate PPA is terminated, Ørsted retains the right to receive the awarded tariff price with Taipower. The Taiwanese government encourages corporates to procure renewable energy to support decarbonization and long-term investments in the green energy transition. To incentivize them, the Taiwanese government will introduce a penalty to corporates if they do not procure at least 10% of their power consumption from renewable sources.
Corporates are looking to procure significant amounts of renewable energy, and thereby receive Taiwan Renewable Energy Certificates, the so-called T-RECs, through corporate PPAs to meet this 10% requirement. Renewable projects in Taiwan that do sell power via feed-in tariff PPAs with Taipower do not qualify for T-REC issuance. The industrial tariff in 2025 is expected to be above the feed-in tariff that Ørsted secured at the government-awarded auction. This leaves room for structuring corporate PPAs that benefit both renewable power producers and industrial power consumers in Taiwan. Changhua two B and four is part of the portfolio of projects where we have guided a total unlevered lifecycle IRR between seven and eight percent for the portfolio. The announced PPA does not cause us to change the IRR range, but it obviously is accretive, and we are in a comfortable part of the range.
With this announcement, we have signed four fixed-price CPPA in less than 18 months. We see that corporates are increasingly looking to stabilize their electricity costs while decarbonizing their businesses and contributing to a greener and more sustainable planet. Turning to slide five, where I'll give an update on the offshore construction projects. At our Dutch Borssele one and two wind farm, we delivered first power to the Dutch grid end of April and have, as of today, installed 78 out of 94 turbines. I'm very proud of the Borssele team, who keep progressing the project under challenging circumstances without compromising health and safety. When Borssele one and two is fully completed during fourth quarter this year, the wind farm will supply renewable energy to 1 million Dutch households.
During the quarter, we managed to complete turbine installation on the first project in U.S. federal waters, the 12-megawatt Coastal Virginia Offshore Wind (CVOW) pilot project, which is located off the coast of Virginia Beach. The two turbines will now undergo testing before the project is fully commissioned, expectedly in fourth quarter. At both Hornsea Two and Greater Changhua one and two a, we continue the onshore construction work on schedule. For the two projects, the topsides for the offshore substations are manufactured at two shipyards in Singapore. These two shipyards have been temporarily shut down due to COVID-19, but they have now begun to slowly ramp up again. Although we still expect to complete both projects within our current budget and time schedule, we see an increased risk of delays, especially at Hornsea two. We still expect any such delays to have limited impact on project economics.
Turning to slide six and an update on the construction projects in onshore and markets and bioenergy. We continue to see good progress on all three construction projects in onshore. To date, we have installed 11 out of 38 turbines at Willow Creek, and we have commenced installation of piles, modules, and inverters at the Permian Energy Center in Texas. At the Muscle Shoals solar PV project in Alabama, the installation of piles is underway, and inverter deliveries have commenced. Following upgrades to our Renescience facility in the U.K. in late 2019 and early this year, and a shutdown throughout the spring due to COVID-19, the plant has processed waste again since June. We expect the plant to be commissioned later this year. Turning to slide seven and an update on upcoming auctions and market developments.
Back in December 2018, the Bureau of Ocean Energy Management in the U.S. published a draft environmental impact statement for Avangrid and CIP's Vineyard Wind project. BOEM received comments from a wide variety of stakeholders, including state and local governments, federal agencies, the fishing industry, and the public. Those comments prompted BOEM to develop a supplement to the draft environmental impact statement with a broadened scope looking at 22-gigawatt potential offshore wind projects along the U.S. Eastern Seaboard. In June, BOEM published a draft of their supplement environmental impact statement, establishing a framework for the future development of the industry on the U.S. East Coast. Based on our assessment, we do not believe that BOEM identifies any significant impact that cannot be mitigated by the offshore wind developers.
The framework confirms the consensus developer layout in the northeast cluster, a uniform one nautical mile by one nautical mile turbine layout, as the most viable configuration. An approach which has been supported by a recent U.S. Coast Guard study. We expect that BOEM could decide on the preferred layout as early as this month. Given commentary in the supplement EIS, we remain optimistic that the one by one nautical mile layout will be the preferred alternative. A different alternative layout considered in the supplement EIS includes wide transit lanes going through the offshore development areas. Implementing such transit lanes would be detrimental to the offshore wind industry in the U.S., and as noted in the supplement EIS, it would reduce the technical capacity of northeast development areas to less than the demands from the states. We consider it unlikely that this alternative layout will be chosen.
We also note that the one by one nautical mile turbine spacing is materially wider than any other offshore wind project worldwide to accommodate for the navigation of other ocean users. Based on the draft assessment, we do not see a need for changes to our already submitted construction and operation plans. We will continue to monitor the process as we are still awaiting the so-called notices of intent outlining the timeline for COP approval for most of our U.S. projects. We will have to await BOEM's final environmental impact statement in December before we have full visibility on any potential impact on our projects. That said, the draft supplement EIS gives us confidence that the permitting process can move on.
We believe that the environmental review will establish a foundation for a more efficient and predictable regulatory process to enable wind power deployment at large scale in the U.S. and allow the permitting of projects to run more smoothly in the future. Turning to the upcoming auctions in the U.S., where Maryland, New York, and New Jersey are set to host auctions in the second half of 2020. Maryland's second auction comprises a capacity of around 400 megawatts, with bid deadline end of the year, and winners expectedly announced during summer next year. In July, New York State issued their second RFP with bids due October 20th, and awards expected during the fourth quarter this year. The offshore wind solicitation is for up to two point five gigawatts, which is an important step to deliver on the state's nine-gigawatt offshore wind target by 2035.
New Jersey will also be hosting their second offshore wind auction during the fourth quarter this year. The bid deadline for the up to two point four-gigawatt procurement has been scheduled for December 2020, with expected awards in the first half of 2021. In addition, we expect further auctions in Maryland, Massachusetts, and Connecticut to take place during 2021. Looking towards Asia-Pacific, the Chōshi zone, along with Yurihonjo and Noshiro in the Akita prefecture, was officially designated as a special promotion area on July 21st. The designation triggers the preparation of draft auction guidelines for public comment, following which it will be known when the auction will open. We expect the framework for the upcoming auction to be in place during the second half of this year, ahead of an expected auction during the first half of 2021.
Taiwan has released a draft auction guideline for the next 10 GW in Taiwan to be constructed between 2026 and 2035. The draft guidelines provide more transparency for our upcoming activities and more pipeline visibility for our local suppliers. As part of the ongoing consultation process, we will continue to work with the Taiwanese government to further fine-tune the guidelines in the upcoming public hearings. We expect the guidelines to be finalized by the end of this year. It is our current expectation that Taiwan will host one or two offshore wind actions during 2021 and 2022. Moving on to recent developments in Europe. A couple of weeks ago, the Holland Coast North offshore wind project was awarded to a local Dutch consortium. When we join a tender, we obviously want to win, and as such, the outcome was disappointing.
We submitted a strong and innovative bid. It is our understanding that we lost by a very narrow margin. We will now thoroughly assess the details of the bid outcome and the feedback from the Dutch regulator. We'll make sure to extract any learning available and leverage the insight for future tenders in continental Europe. With that said, I also want to reiterate what I've said before, which is that we cannot and should not win all the auctions and tenders we join. The important thing is that we stay disciplined in our bidding to make sure we build a healthy, sustainable business, and over time, secure enough wins to fulfill our long-term growth ambition. We remain confident that Ørsted will reach its target of 15 gigawatts of installed offshore wind capacity by 2025 and more than 30 gigawatts of renewables capacity by 2030.
In July, it was announced that the consent of Hornsea Three has been postponed to December 31st this year to study further information on bird impacts. We have noted that the Secretary of State is minded to grant us consent and recognizes the contribution of the project towards the national need for renewable energy, and also towards reaching the target of 40 GW of offshore wind capacity by 2030. We are now reviewing the details of the comments, and we're confident that we can provide the evidence requested to secure the consent. We will continue to develop the project and work closely with stakeholders and local communities with the aim of participating in the next CfD auction in 2021. We have seen several European countries increasing their renewable and offshore wind targets during the past quarter, including Denmark, Germany, and Poland.
We now estimate European offshore wind capacity to grow from currently 24 gigawatts to around 110 gigawatts by 2030. In Denmark, two offshore wind tenders are expected to take place in 2021 and 2022 respectively. The first tender will be for the Thor offshore wind farm, with a capacity of up to one gigawatt, and is scheduled for the fourth quarter of 2021, with the wind farm to be operational between 2025 and 2027. During 2022, the second tender is set to take place, aiming to award up to one point two gigawatts for the Hesselø offshore wind farm. In addition to the two offshore wind farms, Denmark has launched an ambitious energy agreement towards 2030, with initiatives to establish the world's first energy islands. The two energy islands, with a total capacity of five gigawatts of offshore wind, is targeted to be operational no later than 2030.
Both islands are expected to be constructed with interconnections to neighboring countries. The long-term ambition is that the islands can also connect to other technologies that either store or convert the green power to renewable hydrogen and e-fuels. The Danish energy agreement is a visionary strategy, and we are delighted to see countries like the U.K., Denmark, Poland, and the Netherlands shape ambitious and bold strategies to create greener and more independent energy systems. Poland has updated their draft legislation aiming to award 10.9 gigawatts offshore wind by 2027. Up to five point nine gigawatts will be selected by Poland's energy regulator by the end of June 2021, and subsequently, five gigawatts of additional capacity will be allocated through competitive auctions in 2025 and 2027 respectively. According to the draft legislation, developers would be eligible for government support for 25 years.
The first 5.9 gigawatts of projects would likely be selected from the most advanced projects in the country's pipeline, which includes the two projects totaling two point five gigawatts covered by our non-binding term sheet with PGE. The final act is expected in the second half of this year. We are in the process of negotiating the binding agreements with PGE regarding the Baltica Two and Baltica Three offshore wind farms, and we expect to conclude the transaction later this year. Germany has announced a draft framework for the upcoming centralized tenders, introducing a concession payment as a second bid component in the case of several zero-subsidy bids. As part of the framework, Germany also set a target for offshore wind capacity of 40 gigawatts by 2040.
The framework will be confirmed after summer at the earliest, with the first centralized tender to take place in 2021. Based on the development in Europe, the U.S., and Asia-Pacific, we continue to see a very positive growth outlook for renewable energy, supported by the role of green investments in the rejuvenation of economies in the wake of the ongoing health crisis. The European Green Deal and the offshore wind build-out required to facilitate the previously mentioned renewable hydrogen ambition will further add to Ørsted's growth opportunities. Ørsted's board of directors are running a thorough search for the company's next CEO, assessing internal and external candidates. The process is well underway, and the board will, of course, provide an update when they have something to report.
In the meantime, you can rest assured that we will continue to tightly manage operations and go full speed in the strategic development of the company. We will not miss a beat during this search and transition period. We still very much look forward to hosting a Capital Markets Day, which we had planned to host towards the end of this year. As we would like the new CEO to be fully onboarded and fully up and running ahead of the CMD, we now expect our next Capital Markets Day to take place during the first half of 2021. On that note, I will now pass on the word to Marianne.
Thank you, Henrik, and good afternoon from me, too. Let's start on slide eight, where I will go through the EBITDA for Q2 2020. In Q2 2020, we realized an EBITDA of DKK 3 billion, a decrease of DKK 0.7 billion on Q2 2019. The decrease was expected and was mainly due to high construction activity at Hornsea one during Q2 2019. EBITDA, excluding the construction agreements, increased by DKK 0.6 billion. In offshore, the EBITDA for the quarter totaled DKK 2.4 billion, a decrease of DKK 1.2 billion. The earnings from operating wind farms was in line with last year. When adjusting for the adverse COVID-19-related impacts and the lower earnings from trading related to hedging of our power exposures and power portfolio optimization activities, we had very high earnings in Q2 2019. The earnings from operating wind farms increased DKK 0.5 billion.
Offshore power generation in Q2 2020 increased 20% due to the ramp-up of generation from Hornsea One, and as Q2 2019 had a high number of outages and curtailments across the portfolio. The availability in Q2 2020 was 95%, significantly above the 87% in Q2 2019. Wind speeds were in line with Q2 2019 and amounted to a portfolio average of eight meters per second, slightly below a normal wind year of eight point two meters per second. In Q2 2020, we have seen adverse COVID-19-related impacts of approximately DKK 150 million on our operating earnings, especially related to U.K. power market due to lower demand for electricity. This led to higher balancing tariffs from National Grid, some periods with negative power prices, and lower expected ROC recycle prices.
In periods where U.K. day-ahead prices are negative for more than six consecutive hours, our Hornsea One and Walney Extension wind farms under the CFD regime will not receive a subsidy for the duration of the negative pricing period. Consequently, we shut down these wind farms in such periods. In Germany, we also experienced slightly more hours with negative prices than in the same period last year. Earnings from partnerships amounted to DKK 0.4 billion, compared with DKK 1.6 billion in Q2 2019. The construction agreements this year related to the construction of Coastal Virginia offshore Wind and lower CapEx spend at Hornsea One, while Q2 last year primarily concerned Hornsea One. In onshore, EBITDA almost doubled to DKK 312 million compared to last year. The increase was primarily due to ramp-up of generation from Sage Draw, Lockett, and Plum Creek.
The wind speeds for the portfolio in Q2 2020 was eight meters per second, slightly below normal wind speeds, but above the wind speeds last year. Availability across the portfolio came in at 96%, almost at level with last year. EBITDA in markets and bioenergy was DKK 185 million in Q2 2020, an increase of DKK 300 million. The increase was primarily driven by higher earnings from the CHP plants due to higher sale of ancillary services, lower fixed costs due to timing, and a one-off gain of DKK 37 million from the divestment of the Inbicon production facility in April.
If we then turn to slide nine and our financial performance and net interest-bearing debt. Net profit totaled a negative DKK 0.8 billion, a DKK 1.9 billion decrease on Q2 2019. The decrease was driven by the lower EBITDA, higher depreciation from more wind farms in operations, and two one-off items.
The first item relates to higher financial expenses from the early termination of project finance on our U.S. Block Island project, resulting in a loss on the interest rate swap of DKK 0.5 billion. The termination of the project financing is in line with our company strategy of funding projects on our group balance sheet, and will lead to future savings on interest payments, as well as savings on administrative costs. The second item was a very high one-off tax expense for the period due to the initial recognition of deferred taxes of DKK 0.9 billion related to tax equity at Sage Draw and Plum Creek, which also explains the unusually high tax rate of 780% for Q2 2020.
For assets where we receive tax equity contribution, we have to make an upfront one-off recognition of the expected deferred tax liability at the time the tax equity investor is expected to flip out of the project, which is typically 10 to 12 years into the future. This is opposite to what we do for our other assets, where we build up the deferred tax liability over time. If we adjust for these two one-off items, the net profit was DKK 0.4 billion.
Free cash flow from continuing operations was DKK 4.5 billion in Q2 2020. Cash flows from operating activities came in at DKK 8.2 billion, mainly driven by EBITDA. The tax equity contributions from our partners at Sage Draw and Plum Creek of DKK 3.2 billion in total, a reduction of trade receivables due to lower revenues, as well as the divestment of the offshore transmission asset at Walney Extension in the quarter.
Our gross investments for the quarter totaled DKK 3.8 billion, primarily related to our offshore projects, Borssele one and two, Hornsea two, and Greater Changhua one and two-a, as well as our onshore project, Sage Draw, Plum Creek, and Permian Energy Center. Our net debt at the end of Q2 2020 amounted to DKK 22.3 billion. The DKK 4.8 billion decrease in the quarter primarily reflected the positive free cash flow, as just described, and a positive impact from exchange rate adjustments of DKK 0.8 billion. If we turn to slide 10, which shows our financial and non-financial ratios. Our key credit metric, FFO to adjusted net debt, stood at 23% for the 12-month period ending in June. The low level is primarily because it includes the majority of the current taxes regarding 2019. For the full year, we still expect the credit metric to be in line with our target of around 30%.
We expect to close the Radius B2C and City Light transaction by the end of this month, and we will then receive the proceeds of more than DKK 20 billion, and reduce our net debt accordingly. Our return on capital employed came in at 11% and the decrease compared to the same period last year was due to lower EBIT over the 12-month period, which in Q2 2019 was significantly impacted by the farm-down gain from Hornsea one in Q4 2018. The return level is around our target of an average return on capital employed of approximately 10% for the group for the period 2019 to 2025. Our greenhouse gas emission intensity continued to decline in the first half of 2020 due to our continued build-out of offshore and onshore wind.
We remain well on track to meet our Scope one and two target of less than 10 grams of CO2 equivalence per kilowatt hour in 2025. Our target is to become carbon neutral in 2025 by neutralizing any remaining minor emissions with carbon offsets. As always, safety is high on our agenda, and we do our utmost to prevent accidents and injuries. During the first half of 2020, the total recordable injury rate amounted to three point seven, which was a positive development compared to 2019. Our target is to reduce this rate to four point two or lower this year, and to two point nine in 2025. To the last slide 11, which recaps our 2020 EBITDA and gross investment guidance, as well as our long-term financial estimates and policies. We reiterate our full year 2020 EBITDA guidance of DKK 16 billion-DKK 17 billion.
The directional EBITDA guidance for offshore and onshore is unchanged relative to the guidance in our Q1 2020 report. However, for offshore, we now expect earnings from existing partnerships to be higher than our previous expectations, whereas we expect lower growth from operating wind farms due to the adverse COVID-19 impacts I described before. The directional guidance for markets and bioenergy has changed from lower to now being in line.
The increase in expected earnings is mainly due to inclusion of earnings from power distribution, residential customers, and satellite business for eight months of 2020 instead of the previously expected six months, and also due to higher sales of ancillary services at our CHP plants. Our gross investments guidance has been lowered by DKK 2 billion relative to the previous guidance due to changed timing of payments. Gross investments are now expected to amount to DKK 28 billion-DKK 30 billion in 2020.
In the first half of 2020, our gross investments amounted to DKK 9.1 billion. The relatively low amount is due to outstanding CapEx trade payables of DKK 9.1 billion, primarily related to our offshore projects. With this, we now open up for questions. Operator, please.
Thank you. Our first question comes from the line of Alberto Gandolfi of Goldman Sachs. Please go ahead. Your line is open.
Thank you very much for taking my questions. I have three, hopefully quite quick. The first one relates to your farm downs, Changhua and potentially Borssele. Can I ask you if you intend to carry this out, A, opportunistically to crystallize value, B, because you think you need to lower leverage, or C, to free up room to upgrade investment elsewhere? Maybe you can elaborate on that. In terms of the future auctions, given all the targets we're beginning to see on the Green Deal, given a potential U.S. version of a net zero policy or U.S. version of a Green Deal, we know there haven't been U.S. elections yet, and the Green Deal hasn't been approved yet. When do you believe we can move to a world of 2025 or higher gigawatts auctions per year?
In that world, how many players do you think could be a healthy numbers, I mean, properly capitalized players, before you think this space becomes too crowded? I'm thinking about the recent BP announcement. I'm thinking about Shell winning another auction. Last question. It's a bit more conceptual. Long-term, if we start to move into a world of renewables and batteries and hydrogen, is there going to be a power market? Should we care about long-term negative power prices? How will your existing projects or future projects be remunerated when the power market no longer exists? How do you envisage that transition? What are you doing in your own models to think IRR? Thank you.
Thank you, Alberto. With regards to the farm downs, as we've talked about before, there is an argument to pursue a farm down if it adds incremental value above and beyond the existing NPV on the project. There is such strong demand in the market that we feel it's warranted to go out and see if indeed there is incremental value to be captured on Borssele through a farm down. We can certainly fund our existing growth plans within the current balance sheet framework. On the other hand, we're also seeing an accelerating demand for green energy technology around the world. It certainly wouldn't hurt to add additional capacity in order to give us the flexibility if we see growth above and beyond current targets. Yes, you could call it opportunistically that we pursue incremental value where we can find it. That is the primary driver.
We could certainly do without the capital for now. On the other hand, to one of the questions you also asked, we are looking into a market that may potentially further accelerate. On that note, the combination of European Green Deal, and we'll have to wait and see what comes post the U.S. general election in terms of energy policy. Clearly, we are seeing demand for offshore wind now gradually moving into the teens in terms of gigawatt build-out per year. As we move deeper into the 2020s, we will probably also go towards 20 gigawatt per year when you look towards the back half of the decade.
It will of course attract a lot of attention. We have seen some remarkable strategic announcements from BP and partly also recently from Equinor. There is no doubt that they are looking to expand their renewable presence at an accelerating pace. We are looking into a market which is getting bigger and bigger. On the other hand, we'll also see more companies looking for a presence in that market. In many ways, you could say it is really an extension of the dynamics we've seen over the past two to three years, in particular, and we'll see those dynamics continue to play out probably over the next five to six years.
If we imagine a market at 20 GW or more per year, you could reasonably start modeling out how many players can that market support while retaining a healthy competitive balance and still maintaining decent value creation in the market. We are obviously, on an ongoing basis, looking for what are the long-term targets that our competitors put out there, and how do we see the total demand in the market developing, and if that's supporting a healthy balance. I think it's fair to say for now, we feel that the long-term outlook for green energy and for a developer like Ørsted remains quite positive. In terms of modeling out any future periods with negative power prices, again, it is something we do.
It is admittedly a very complicated exercise with a very complex dynamic between the supply side and the demand side of the electricity markets. On one hand, more and more renewable capacity will put pressure on pricing. On the other hand, we'll also see a lot of capacity being retired on the fossil and nuclear side of the equation. Not least, we do expect to see quite meaningful growth in demand for electricity over the next 10 to 20 years as societies go through a pretty comprehensive electrification journey, bringing electrification not only to transportation but also to heating and industrial processes. That, combined with more flexibility on the demand side, actually gives us some confidence that we'll continue to see healthy price developments in our markets when we take sort of a 15, 20-year view on the business.
Thank you so much.
I'll leave it at that, Alberto.
Thank you. Just to remind participants, this call has to end no later than 3:30 P.M. Please respect only one question per participant. You can join the queue again to ask a second question. Our next question comes from the line of Casper Blom of ABG Sundal Collier. Please go ahead.
Thank you very much. I will stick with one question. I just wanted to follow up on this very interesting Taiwanese PPA that you made with TSMC. I completely understand that you cannot comment on the level of the PPA other than that it's higher than what you initially got out of it. Maybe you could talk a little bit about this as a concept. Is this something you're seeing in other places as well, that corporates are approaching you, asking if they can sort of a little bit bought into the original contract and take over part of the agreement or maybe the whole thing at an even higher PPA? Do you think this is something we're going to see more of?
I think there's a fair chance that we'll see more deals in the corporate market. I wouldn't go as far as saying that there's a trend. There's no doubt that TSMC is responding to incentives from both the Taiwanese government, but frankly also from their large customers, putting requirements on them to decarbonize their production. These large customers will add similar requirements to other sourcing agreements around the world. We see a lot of these dynamics playing out where companies will meet higher and higher expectations in terms of what they do to support the fight against climate change. Obviously, in this case, tech giants like Apple, Facebook, Amazon, et cetera, they are playing a pivotal role in getting the ball rolling and really influencing, also spilling over into other industries.
We see that effect right now, which is also why we are optimistic about how the corporate PPA market is going to develop both onshore and offshore and globally.
Something you are seeing in Europe, where you're sort of seeing more and more zero-subsidy projects also.
Indeed. There's no doubt that whenever you decide to take on some merchant exposure, you need to carefully think about what you can do to cover it off with as much fixed price offtake as you can get.
Thank you. I better stop there. Thanks, Henrik.
Thank you. Our next question comes from the line of Sam Arie at UBS. Please go ahead. Your line is open.
Oh, hi. Thank you very much for the presentation. Congratulations again on the results. I'm just looking at my list of questions and quickly deciding which is the one I'm going to ask. I think the one I want to ask is actually a follow-up to Alberto's question just now and your answer, in which I think you were sort of saying that the current competitive dynamic could continue to be very intense for a period of five or six years. In our world, we've been thinking about that as basically a price war in offshore wind. You can see the players gathering for that price war. I think in the past you've said you wouldn't participate in a price war, you wouldn't exchange value for growth, and that the market would be so big, there should be enough growth for lots of players.
I'm just starting to doubt. I mean, thinking about how the ambition of the oil sector has increased since even the beginning of this year. I'm just starting to doubt if that logic holds. I'm wondering, what would it mean for you if there's a really aggressive price war in offshore wind over the next, say, five years, and it starts to look like, for example, what we saw in the early days of broadband rollout, and which was very difficult for the telcos a couple of decades ago. How would you handle that, and what would it mean for the business? Could it mean, for example, that in 2030 you've had a material shift away from offshore as the central business, or do you have other strategies, or would you be materially moving away from auctions as a way to get assets funded and built?
I'm just wondering what your thoughts are about how you could survive or even defeat a price war dynamic in the offshore market?
Thank you, Sam. I stick to the answers that I provided before. The reason why I do that is that we're really looking at a global growth matrix where you have the geographic regions on one dimension, and you have offshore wind, onshore wind, solar PV, storage, green hydrogen on the other dimension. We are rapidly establishing very strong market positions in a number of those different sub-markets in that growth matrix. There's still a lot of additional growth space to be filled out for Ørsted over the coming 10 years in that matrix. Now when you look at it's going to offer us a lot of different growth opportunities across the world, across technologies. I still don't see us not being able to find value-creating growth opportunities.
We continue to find these opportunities also over the past three to four years, where we've seen a pretty intense competitive environment. Yes, no doubt there will be more players with big ambitions, but it's also going to be a very big market, and it's even an expanding market opportunity. When you look at the auction dynamics, yes, that's clearly an allocation mechanism where you have to stay disciplined. We do remain disciplined, which means that we won't obviously, we won't always win. I remain confident that every so often we are so cost competitive in terms of our capability and our cost structure, that we will be able to secure capacity and create value. Will that also, in future, be driven by other types of build-out than government-sponsored auctions? That may well be. We'll have to see.
If you take back to the TSMC agreement, you could say, in principle, that is an offshore wind farm of 920 megawatts that we potentially could have built without government intervention above and beyond the open door permits they would have to give us. Can you imagine a future where large corporates around the world actually buy and sponsor their own offshore wind farms under more of an open door regime? I wouldn't rule it out. We'll have to wait and see. Yes, there will be a lot of competition. There will be a lot of demand. We are going to have to just keep working every day to sharpen the sword and make sure we are super competitive. I would claim we are still a very competitive player in this field.
It's a very helpful answer. Thank you. Apologies if the question is challenging. You've obviously done an amazing job until now. We can't help being a bit nervous about the future. Thank you for your answer.
Thanks, Sam. Appreciated.
Thank you. Our next question comes from the line of Peter Bisztyga of Bank of America Securities. Please go ahead. Your line's open.
Yeah. Hi, good afternoon. One question from me. The European Commission is expected to publish its offshore wind strategy in the fourth quarter this year, I believe, as part of its Green Deal process. Is there anything in particular that you're hoping to see in this document?
We certainly hope to see, obviously, a significant ambition, an ambition that lends credibility to the decarbonization targets. We expect to see Offshore wind playing a much, much bigger role in that strategy than it probably would have just three or four years ago. I think that's a realistic expectation. We would also like to see increased alignment across European markets in terms of regulatory frameworks, permitting processes. The more we can align standards and processes across markets, the more transaction costs you can take out of the end-to-end process. We also hope that we'll see ambitious strategies to tap into the huge potential we have for offshore wind build-out in the North Sea between U.K., Netherlands, Germany, and Scandinavia, in the Baltic Sea, for that matter.
All of that coupled to decarbonization strategies for heavy transportation and heavy industry coming back to the huge potential for green fuels. If you really want 40 GW of green hydrogen by 2030, you are going to need a tremendous amount of renewable electricity to fuel that green hydrogen production. All of those sector coupling opportunities coming together in a more integrated European framework, and under a significant ambition would be my hope. I still believe that that is quite a fair and realistic expectation.
I think there is a clear recognition in Europe among political leaders that if you look at it from a global competitive point of view, green energy is one of not that many industries where Europe still has a lead in some areas, where Europe has a historical stronghold, and where Europe also, going forward, should have an ambition to be a global leader.
Excellent. Thank you very much.
Thank you. Our next question comes from the line of Robert Pulleyn at Morgan Stanley. Please go ahead. Your line is open.
Thank you. Just one question, if I may. Regarding the U.K. impact in the second quarter, and specifically the six-hour rule, may we ask, is this something that was anticipated in your targeted economics for these CFD projects over the life of the project, given increasing renewables penetration as we go out over the next five, 10, 15 years? Was this unanticipated that it would ever be invoked? Is this particularly a COVID-related one-off given power demand in the second quarter, or something we could see again in the future? That's a multifaceted question, but thank you very much.
Thank you. First of all, we do see it as a direct COVID-19 impact. Therefore, we also would expect this to normalize once we hopefully, in the not too distant future, returns to more normalized economic activity levels. We did, in the CFD contracts, not expect negative price events in 2020. We have anticipated more negative price events when you look further into the future under the CFD business cases.
Okay. That's very clear. Thank you.
Thank you. Our next question comes from the line of Kristian Johansen of Danske Bank.
Thank you. A question regarding the earnings booked in Q2 due to lower CapEx for Hornsea One. Have you now booked all CapEx for Hornsea One, or could we potentially see lower CapEx for Hornsea One in Q3 and hence a positive earnings impact here as well?
We are fully completed with the Hornsea One, so we will not have construction earnings from that project. We still expect some earnings on the line, construction gains in the second half in the magnitude of DKK couple of hundred million. That's more related to our previously constructed projects where we have these provisions for different kind of warranties. We expect some more earnings, but not related to Hornsea One.
Okay. Very clear. Thank you.
Thank you. Our next question comes from the line of Deepa Venkateswaran of Bernstein. Please go ahead. Your line is open.
Thank you. That's Deepa Venkateswaran from Bernstein. My question, and if you can't answer it, I'm also going to put a second question just in case. On the Taiwan case, could you help us understand whether this PPA was needed absolutely for the FID? Maybe if you can talk about how the IRR moved by how many basis points before and after. If you can't answer that question, I wanted to understand more about your green hydrogen project in Denmark, the one where you're in consortium with a number of other Danish players. How might the revenue model of this work? Would this be corporate off-takers who will subsidize the offshore wind and the electrolyzer? Would there be government subsidies? Maybe just some color on how you see these green hydrogen projects actually be implemented. Thank you.
Thanks, Deepa. Certainly, my clear expectations would have been that we would have FID Changhua 2B and 4 also without the corporate PPA. It has provided a meaningful reinforcement of the economics of the project. As you also anticipated in your question, I will not be able to provide the IRR or NPV uplift. That is as per agreement with our partner on this contract. On the green hydrogen project in Copenhagen, we are really partnering up with four potential off-takers of green fuels. Actually, two of them for aviation, for jet fuel, and one for heavy road transport, and one for shipping, which is what makes it so interesting that we actually cover more or less the entire transportation sector in this consortium. Obviously, we do it coming from an offshore wind and green hydrogen production point of view.
They very much come at it because they recognize that they need to decarbonize their fuel consumption, and they are looking for projects that can help accelerate and drive innovation in this area. That's why they have been keen to join the consortium. We are going to apply for public support on the initial CapEx investments. Long term, we will also be looking for other kinds of support. We don't know exactly what form that those subsidies are going to come in, whether it will be further CapEx support or whether it will be more of a production-based subsidy to allow us to offer the off-takers a price that is not too far away from fossil-based products.
All right. Thank you so much.
Thank you. Our next question comes from the line of Ingo Becker at Kepler Cheuvreux. Please go ahead. Your line's open.
Yes, sir. Thank you. Good afternoon. I have a question on your earlier statement, that you would expect directionally the EU stimulus package and economic recovery efforts to also support your business. I think I understand hydrogen project-based support. Do you also see support for your offshore business? What form would that be? Would it rather be the availability of more projects or also direct support? If I may, just in conjunction to an earlier question that you've already answered, I was wondering if you're seeing the potential of PPAs, like the very successful one you just concluded, to maybe mitigate the rising competitive pressures that you actually are facing in the initial auction. Thank you.
On the EU support for offshore wind, there could be a scenario where EU actually will procure green energy directly. I'm not sure that that's the most likely scenario, but I do believe that it has been part of the discussions. I think you should still expect this to be more of a national government type of support framework, like we see at the moment, but obviously stimulated by a build-out of green hydrogen, and stimulated by the bigger European commitment on decarbonization. I would expect that still to be nationally driven more so than EU driven. Whether corporate PPAs will allow us to mitigate some of the competitive pressures. As I mentioned earlier, I could certainly see corporate PPAs becoming a bigger factor in the demand for offshore wind over the next five years.
Exactly how it's going to play out, it's of course, very difficult to predict. Based on what we've seen over the past 18 months, I think it's fair to assume that we'll continue to see more corporate demand for green energy in general.
Thank you.
Thank you. We have two further questions in the queue so far. Just as a reminder to participants, if you do wish to ask a question, please dial zero one on your telephone keypads now. The next question comes from the line of Mark Freshney at Credit Suisse. Please go ahead. Your line is open.
Hello. I have a question on the 2025 targets. You have a 15 to 16 GW gross installed wind capacity target. Clearly, the potential farm down of Borssele one and two will take your capacity to slightly above perhaps 16.5 or 17. 2025 is just around the corner. The U.S. projects have not yet reached FID. There's still work to do on the German North Sea or the German projects. My question is it possible that you could end up missing the bottom end of the 15 to 16 target? If so, what is there immediately on the horizon that you could do to actually offset that? Thank you.
Thanks, Mark. We have a target of 15 GW of installed capacity by 2025.
You are referring to the CAGR, is that right? Are you referring to capacity? It's a bit.
No, it was the offshore wind capacity.
It was.
Offshore wind capacity in 2025
Exactly.
There we have a 15 gigawatt capacity target. I'm still confident we can reach that mark. Again, I can never issue a guarantee, but we have a pipeline which will pretty much take us there. If you combine our projects in Taiwan, Germany, and U.S., we'll pretty much reach the 15 gigawatts. Assuming that we're going to FID all of those projects and have them built reasonably on the expected timeline, that will already take us to 15 gigawatt.
Also to remind you that the farm down doesn't impact the capacity because it's installed capacity.
Yes.
Even if we farm down Borssele, that doesn't impact that metric.
Correct.
Extra capacity over and above the 15-16 because there's extra cash in that you didn't envisage at the time you did your last business plan 18 months ago.
There are still a couple of opportunities out there that could lead to projects being both secured, FID'd, and constructed before the end of 2025. We still have a couple of open opportunities that could either replace some of the current projects or come on top. Just like I cannot guarantee we'll reach 15, I'm quite confident we will. I would also say that it's an open question whether we'll exceed it. There could be a couple of opportunities that could lead to us over-performing.
Just if I could have a follow-up to that. Some of the auctions look very irrational, and I wouldn't be surprised if players who have won projects can't complete them. There have been, for example, with Race Bank, which was a project, one of your previous partners couldn't get to work, you were able to get to work. Is it possible that you could move in and take a partly developed project on, perhaps pre-FID, from a competitor where they're just not able to do what they've promised or thought they would do when they won the auction?
The Race Bank project certainly turned out to be a very good project for us. We would always be open to having a conversation with anyone who potentially would want to sell a project which is already quite progressed, if they, for one reason or the other, decide that they don't want to move forward. Again, obviously, it would all come down to a commercial negotiation on the terms and conditions and the price of it. I would say we're always open to picking up projects. I would, again, in all humbleness, say that we are able to deal with a fair amount of complexity. We have a capability that again and again has proven its ability to actually profit on complexity. Therefore, I would certainly keep a door open for such opportunities.
Okay, thank you.
Thank you. The last question in the queue is Elchin Mammadov from Bloomberg. Please go ahead. Your line is open.
Hi there. I have a question on hydrogen, please. I just wanted to see if there's going to be any meaningful impact on EBITDA in the next five or 10 years, or ever. Related to that, if you are going to grow in hydrogen, is it going to be on hydrogen production, or are you going to expand to transport, supply, and trading as well? Thank you.
Thank you. We wouldn't expect hydrogen to have any material impact on our financials on this side of 2025. Hopefully, as we start expanding some of the projects I referred to earlier into several hundred megawatts or even gigawatts towards 2030, it should hopefully start having a positive impact on our financials. Five years, I would say very limited. 10 years, hopefully we should start noticing an additional value-creating growth opportunity for the company. In terms of where we're going to engage in the value chain, our focus will, of course, be starting with offshore wind as the electricity supply for the green fuels. We would also engage in the green hydrogen production. I do not expect us to move forward from there into refinery and production of e-fuels, like e-kerosene, e-methanol, and ammonia. There, I do believe we'll rely on partners to team up with us.
Thank you.
Thank you. We've had one further question join us from Kristian Johansen of Danske Bank . Please go ahead. Your line is open.
Yeah, thank you. Just on this DKK 317 million in negative impact on power trading activities in offshore, I obviously presume it's due to the low power prices we saw during the wide lockdown. Would it be fair to think of a rebound into Q3 in power trading as power prices recover?
First of all, it is a delta versus the same quarter last year. You are right, we had a small loss of around DKK 40 million for the quarter for the trading activities. That has actually nothing to do with the current very low power prices because the trading is not dependent on the level of power prices. We had a very strong last year in trading. If you look year-to-date at our trading results, they are actually exactly on target. Of course, they will vary over time, but we are very satisfied with this year's trading results. It was just that last year was so extraordinary. We expect Q3 and Q4 to be normal quarters. That's the expectation.
Okay. Very clear. Thank you.
Thank you. As there are no further questions at this time, I'll hand back to our speakers for the closing comments.
Thank you. Thank you all very much for joining the call. Appreciate all of the great questions. As always, should you have more questions, please don't hesitate to reach out to the investor relations team who will be there to answer them. Thank you, everyone. Have a continued great day, and stay safe.