Welcome to this Allstate AS Interim Report for the 1st 9 months of 2019. For the first part of this call, all participants will be in a listen only mode and afterwards there will be a question and answer session. Today's speakers are CEO, Henrik Poulsen and CFO, Marianne Dinhould. Speakers, please begin.
Thank you and good morning everyone. I will start out summarizing Q3 results and then I'll cover the update on our long term targets before ending up with an update on our projects and markets. Our company continued its strong financial and strategic performance in the Q3, where EBITDA amounted to DKK4.1 billion. This was an increase of DKK1.9 billion or 85% compared to same quarter last year. The increase in EBITDA was mainly driven by our offshore wind farms in operation where we saw a year on year increase of 35% driven by ramp up in generation from Hornsea 1 and Borkum Gryphon 2 as well as higher wind speeds.
We increased our full year EBITDA guidance with €500,000,000 during the quarter as a consequence of the reversal of a provision related to the LSM competition case and strong win conditions, especially in the month of August. Our financial performance is in line with our expectations and keeps us well on track to reach our full year guidance of DKK 16,000,000,000 to DKK 17,000,000,000. The continued build out within our offshore and onshore businesses brings our green share of heat and power generation to 87% for the Q3 compared to 71% in Q3 last year. In September, as you know, we signed an agreement to divest our Danish power distribution residential customer and city light businesses to ZEAS NVE at a price of DKK21.3 billion on a cash and debt free basis. We expect the transaction to close during the first half of next year, subject to a regulatory approval by the competition authorities and the Danish Energy Agency.
At closing of the transaction, approximately 750 employees will be transferred to CSNBE and continue to serve the divested businesses. The outages and curtailments we experienced across our portfolio during the first half persisted into the 3rd quarter, where we saw a profit impact of approximately DKK150 1,000,000. The operational issues at London Array, Borkum Riften II and Raesebank have largely been resolved during Q3. And going forward, we don't expect further production losses related to these issues. In early October, we installed the last turbine at Hornsea 1.
The wind farm is now undergoing a period of extensive testing and commissioning and is expected to be commercially operational later this year. When commissioned, Hornsea 1 will, as you know, become the world's 12 18 Megawatt, and it will be able to supply more than 1,000,000 U. K. Households with green power. As you likely noticed, we experienced a rapid reduction of power at Hornsea 1 in August during an unusual set of circumstances affecting the transmission grid.
This was caused by an unexpected control system response only revealed during these unusual circumstances. And it has now been resolved. Hornsea 1 is progressing through the necessary compliance test with National Grid. And by mid November, we would expect to lift the maximum export capacity from the current 800 Megawatt to the full 12 18 Megawatt. During the turbine commissioning ramp up period, we have seen high turbine availability at Hornsea 1.
In September, we selected GE as preferred turbine supplier for our U. S. Mid Atlantic cluster covering Ocean Wind and Skipjack. These projects will pioneer the deployment of GE's Haliatt X 12 Megawatt Turbine, continuing our track record as a first mover on new technology. We have signed contracts with Siemens Gamesa to supply turbines for our Greater Changwa 1 and 2A project and the Northeast cluster in the U.
S. Consisting of the Sunrise Wind, Revolution Wind and South Fork Offshore Wind Farms. In August September, respectively, we submitted bids in the Massachusetts and Connecticut Offshore Wind Solicitations. Earlier this year, our 8 80 Megawatt Sunrise Wind Project off the coast of New York was selected as the preferred bidder. Since the award, we have been negotiating an offshore wind renewable energy certificate for the project.
And in October, Sunrise Wind signed a 25 year power purchase agreement with the New York Energy Research and Development Authority. The project will receive a fixed all in price of $110.37 per megawatt hour from 2024 corresponding to a levelized 2017 price of 79.6 dollars per megawatt hour. Following a structured competitive process, we were recently selected by PGE to commence discussions regarding the sale of a 50% stake in 2 Polish offshore wind projects in the Baltic Sea with a total capacity of up to 2.5 gigawatt. The subject of discussions will be a sale of 50% of the Baltica III development project with a planned capacity of approximately 1 gigawatt for construction by 2026 and 50% of the Baltica II development project with a planned capacity of approximately 1.5 gigawatt for construction by 2,030. We are quite excited about developing a potential partnership with PGE.
Poland has strong offshore wind conditions and could develop into a sizable new market. In onshore, we've taken final investment decision on our 230 Megawatt Onshore Wind Farm Plum Creek in Nebraska. Plum Creek is expected to be commissioned during Q4 next year. Last year, the Danish Western High Court acquitted ELSAM, now of the competition authorities claim that ELSAM abused the dominant position on the Danish wholesale power market back in 2,000 and 5 2,006. In light of this ruling, the parties have agreed on dismissing the competition authorities' similar claim for second half of 2,003 and all of 2,004.
Consequently, the cases between Eltham and the competition authorities have now reached their conclusion in favor of Orsted. Despite the fact that the competition authorities' claims against Ilsam and have now been dismissed, the claimants have chosen to maintain their claims for damages and to continue with their legal action. Finally, in October, we established a commodity trading unit in Chicago based on our experiences from our successful European trading setup. The role of the U. S.
Trading activities will be to manage and mitigate merchant risks derived from onshore wind farms in the U. S. Turning to slide 4 and the update of the long term targets shared at the Capital Markets Day a year ago. I'm sure we'll come back to the topic in the Q and A, but let me just walk you through the primary drivers of the adjustment of our targets. And before I dive into it, I should reiterate that these targets obviously are impacted by many factors, including CapEx and OpEx estimates, production forecasts, expected long term power prices, currency, etcetera.
Therefore, our estimates will remain very dynamic, and today's update is, as such, just a snapshot that will continue to evolve. We have, as announced, three things that have added pressure to our long term targets. Starting out with the adjustment of our production forecast. We have been running a comprehensive project to upgrade the tools and processes we use to forecast the annual energy production from our offshore wind farms. Exploiting our unique access to production wind and turbine data from our large asset portfolio.
Forecasting offshore wind is inherently a complex task. You need to forecast the wind speed, its direction, how it flows, how strong it is at each turbine position, how it interacts with the turbine, how the turbines impact each other, how the wind at each position translates into electricity production, how often and when the turbines will be available and not, etcetera, etcetera. Given the high number of variables and the use of advanced analytical models crunching millions of data points, such an exercise comes with a fair amount of uncertainty. Now with that said, the project has made us conclude that our current production forecast underestimate the blockage and wake effects across our asset portfolio. Blockage arises from the wind slowing down as it approaches an object, in this case, our wind turbines.
There is an individual blockage effect for every wind turbine position as well as a global effect for the whole wind farm, which is larger than the sum of all of the individual effects. When the wind hits the front row of the wind farm, it will slow down as it approaches the front wall, so to speak. Our new wind simulation models suggest that we historically have underestimated these blockage effects. This finding is also supported by a recent report on blockage from industry consultants DNV GL, which indicates that this effect is more broadly underestimated. The second effect is the wake within wind farms and between neighboring wind farms.
This effect where the turbine shield and impact each other has been subject to extensive modeling by the industry for many years, and it is still a highly complex dynamic to model. We have now introduced a more advanced model for estimation of wake effects within a wind farm. It leverages data from our entire operational portfolio and benchmarks the predictions against production data from our scatter systems. The results point to a higher negative effect on production than earlier models predicted. With respect to wake effects between neighboring wind farms, we are also here in the process of developing a new model capable of more accurately predicting wake effects over longer distances.
We have, among other things, leveraged a first of its kind advanced radar system, collecting three-dimensional data on the wind flow. This system has been used at the westernmost rough wind farm in the U. K, where it has given us a lot of new insight into the wind flows. We will also deploy it in Taiwan. The new model, albeit still being refined, suggests a slower wind speed recovery and therefore higher wind effects, wake effects.
At the same time, we have now factored in a more extensive offshore wind build out in the different regions, which will increase the wake effect from neighboring wind farms. As the global offshore wind buildout accelerates, the whole industry will see higher wick effects from neighboring wind farms. We have over the years benchmarked our internal production estimates against third party views from industry experts and other developers. In comparison, most production estimates from 3rd parties have been trending towards a more positive view than ours. Therefore, we do believe that underestimation of blockage and wake effects likely is an industry wide issue.
These higher than forecasted blockage and wake effects have also been embedded in our historical actual production numbers, but they have been captured in more broadly defined deviation buckets like wind contents, availability, curtailments and ramp up effects. We have until now not had the data and the advanced analytics models to do a more granular breakdown of the production deviation. These new tools leveraging all our production data, including the large new assets built over the past couple of years, have given us a more detailed insight into the factors impacting our production. While the production deviation we have discovered is negative, I'm firmly convinced that Orsted's unparalleled access to production data and our advanced analytics capabilities will help drive our competitive advantage. Getting smarter and gaining a more granular insight into our production dynamics is in itself a good thing.
And it goes without saying that we will seek to leverage the recent findings to enhance the design of future wind farms. And while not immaterial, the forecast adjustment is not something that changes the competitiveness of offshore wind nor does it change AURSDET's ability to drive profitable growth. We remain very confident about both. Moving on to Slide 5 and the other negative and positive developments we have seen since we announced the CMD targets a year ago. As a second negative impact, and as you know, we ultimately had to accept a 6 percent reduction in our feed in tariff and a cap on full load production hours on our Changwa 1 and 2A project in Taiwan back in Q1 this year.
This is old news, but still part of the mix of factors that impact the targets communicated at the Capital Markets Day a year ago. And thirdly, in the U. S, we have raised the CapEx estimate for the Deepwater development portfolio, primarily related to the transmission assets. We have since the acquisition of Deepwater Wind been working to mature the EPC case for the Deepwater portfolio And this work, while still very much being work in progress, has so far led to higher CapEx estimates. In terms of positive development since the Capital Markets Day, CapEx estimates for some of our construction projects have improved a bit.
Lower interest rates have led to lower return requirements on our off to assets, which translates into lower ongoing transmission charges in the U. K. And we have seen higher than budgeted availability on one of our newer turbine platforms, which positively impacts some of our assets. Furthermore, we will reduce our overhead cost base by DKK500 1,000,000 to DKK600 1,000,000 between 20202022, recognizing that tight cost control remains an imperative in a competitive market environment. Roughly half of the cost reductions will be fallaway costs relating to the simplification of our structure following the divestment of our Danish downstream assets.
And the other half will come from reductions across our staff functions, both internal and external spend. When we combine these key impacts since the Capital Markets Day, we come to the status on the long term financial targets released yesterday. Let me just reiterate. Average growth in site EBITDA around 20% for the period 2017 through 2023 is unchanged, and we remain comfortable with the projected tripling of site EBITDA from 2017 to 2023. Our growth outlook, in other words, remains very strong, and we continue to have strong visibility on our EBITDA growth for the coming many years.
Average return on capital employed around 10% for the period 2019 through 2025 is unchanged. Our growth, in other words, remains healthy and profitable. The unlevered life cycle IRR capacity weighted for 7 offshore wind projects across Europe, U. S. And Asia.
Where we set the target at 7.5% to 8.5%, This target has been reduced to 7% to 8% due to the production forecast adjustment, the reduced feed in tariff in Taiwan and the higher CapEx estimate for the Revolution Wind project in the U. S. I should remind you that this IRR metric is fully loaded with all development costs and corporate overhead included, and it does not include any uplift from potential farm downs in the 7 projects. Despite the adjustment of the target, we maintain a healthy value creation in this portfolio of 7 construction and development projects, also in light of declining interest rates that lead to lower cost of capital. Some of you may wonder why we see an adjustment to the IRR target and not the return on capital employed and EBITDA growth targets.
The main reason is that the effects from the Taiwanese tariff reduction and the higher transmission CapEx estimate for Revolution Wind have a more concentrated impact on the IRR target as it only comprises 7 projects, including the Changwa and Revolution Wind projects. Contrary to this, the return on capital employed and EBITDA growth targets both built on the entire offshore onshore asset portfolio. When spreading the positive and negative developments, including the overhead cost reductions across the entire asset portfolio, our targets remain unchanged. The average share of EBITDA from regulated and contracted activities targeted to be around 90% for the period 2019 through 2025 is also unchanged. In other words, our portfolio merchant exposure remains very low.
The estimated lifetime load factor of 48% to 50% for a defined European portfolio of 10 wind farms is reduced to around 48% due to the adjustment of the production forecast. The CapEx and OpEx multiples communicated at the Capital Markets Day remain unchanged. Let me reiterate that our fundamental economics and value creation remain solid and remains uniquely positioned to tap into the vast growth opportunity offered by global renewables markets that only continues to expand at a still higher rate. This concludes the update on our long term financial targets from last year's Capital Markets Day. Let's turn to Slide 6, where I'll give an update on the key offshore construction projects currently in progress.
In progress. At Hornsea 1, we installed the last of 1 the beginning of October. With the final turbine installed, the project will undergo a period of testing and commissioning and will be commercially operational later this year. More than 8,000 people have worked offshore at the Hornsea 1 site, and we are truly proud to complete the work at this record breaking project becoming the world's largest offshore wind farm. At our Borstle I and II wind farm, the construction of the O and M building in Fisingen is progressing and is expected to be completed in Q4 this year.
Offshore installation works will start ahead of schedule with monopile installation starting in late December this year and turbine installation expectedly in April 2020. We still expect the wind farm to be completed by the end of 2020 or in early 2021. The Virginia EPC demo project remains well on track. In October, the U. S.
Bureau of Ocean Management Ocean Energy Management issued a no objection determination on the facility design report and fabrication and installation report for the project. This is a significant milestone as we move forward on building the 1st ever fully permitted offshore wind project in federal waters. The Coastal Virginia Offshore Wind Project will be the 1st offshore wind farm in the U. S. Mid Atlantic, and we expect to complete the 2 turbine 12 Megawatt project by the end of next year.
At the Hornsea 2 project, the onshore construction work is progressing according to plan, and we continue to expect completion of the wind farm in the first half of twenty twenty two. At our Greater Chang'e 1 and 2A project, we are now finalizing the signing of supply and installation contracts. The onshore construction work is progressing according to plan, and we expect the wind farm to be fully commissioned by 2022. In September, we achieved 1st power at the Formosa 1 Phase 2 project and the wind farm is scheduled to be officially inaugurated over the coming weeks. Taiwan's first ever offshore wind farm is now fully up and running and supplying green power to the grid.
Turning to Slide 7 and an update on construction projects outside offshore. In our onshore business, we continue to see good progress on our construction projects. In August, we secured tax equity funding commitment for Sage Draw. Construction commenced back in June with road and foundation installation well underway. The 338 Megawatt Onshore Wind Farm is expected to be completed by Q1 of next year.
The construction of Willow Creek is also progressing according to plan with expected completion in Q4 next year. In September, the construction of Plum Creek in Nebraska began with foundation construction, and the project is on track to be completed in 4th quarter 2020 as well. In Bioenergy, the bio conversion of the Astnys power plant is progressing according to plan, and we still expect final commissioning by the end of the year. The ramp up of the waste throughput and production on our first full scale Renaissance plant in the U. K.
Is progressing, and we see small but steady improvements. Further work and mechanical optimization is needed before we have visibility on a stable and coherent technical and commercial formula for the Renaissance technology. We still target final commissioning of the plant by the end of this year. In August, Radius reached an important milestone with the installation of smart meter 1,000,000. We have seen the main phase of the installation work now being successfully completed on time and budget.
The project will be finalized as planned by the end of this year. To conclude on the ongoing construction projects, let me just say that I remain very happy and satisfied with the execution capacity and capability of the organization. Let's turn to Slides 8, 910 and take a look at the latest market development and offshore wind opportunities across the different regions. Starting in Massachusetts, where we have submitted bids in the 800 Megawatt Offshore Wind Solicitation with our Baystate Wind Project in a joint venture with Eversource. The selection of projects for negotiation will expectedly soon be announced.
In Connecticut, we've submitted bids in the up to 2 gigawatt offshore wind solicitation with the Constitution Wind Project in a joint venture with Eversource. We expect from the auction in November following the award in Massachusetts. Yesterday, we announced that we will enter into exclusive negotiations with PSEG for them to potentially become an equity investor in our 1100 Megawatt Ocean Wind project in New Jersey. Subject to further negotiations towards the joint venture agreement, due diligence and any required regulatory approvals, PCG would acquire 25 percent of Ocean Wind. In New York and New Jersey, we continue to see strong commitment to offshore wind with auction scheduled for second half of twenty twenty in both states.
In Maryland, we expect the first auction to open in the first half of twenty twenty, followed by sequential auctions in 2021 2022. Finally, Virginia Governor Ralph Northam signed an executive order establishing a non binding 2.5 gigawatt offshore wind capacity target to be fully commissioned on an accelerated timeline by 2026. In addition to the updated target, the governor also announced that the 2.5 gigawatt of offshore wind will be deployed in federal waters east of Virginia Beach leased by Dominion Energy in 2013. Back in July 2017, entered into a strategic partnership with Dominion Energy, where we are to build the 2 turbine pilot project off the coast of Virginia Beach with a capacity of 12 megawatt. In addition to this, we signed a memo of understanding, which gives a strategic partnership with Dominion Energy about developing their commercial site based on the successful deployment of the pilot wind farm.
Turning to Slide 9 and the recent market developments in Europe. The determination date for Hornsea 3 development consent has been postponed from October 2019 to end of March 2020. The Secretary of State is seeking additional information to consider potential impacts on protected sites, including the associated effects of other wind farm projects. We are working with the relevant bodies to respond to the Secretary of State on these matters and still anticipate a positive decision in due course. Moving to Germany, where the offshore wind capacity target has been increased from 15 gigawatt to 20 gigawatt towards 2,030.
The first centralized 900 megawatt German tender is expected to take place in 2021. In the Netherlands, the draft tender conditions for Holland Coast North were released in October. The tender will have a capacity of up to 7 60 Megawatt with bid deadline April 16, 2020. In Denmark, the next tender of 800 to 1000 Megawatt has been launched with expected bid deadline in Q4 2021. In France, we also expect the next tender to be issued during 2021.
The capacity of the 4th round will expectedly amount to 1 gigawatt. As I mentioned earlier, we've been selected by PG in Poland to commence discussions regarding the sale of a 50% stake in the 2 offshore wind projects in the Baltic Sea with a total capacity of up to 2.5 gigawatt. The Polish government had agreed to have a 10.3 gigawatt target for offshore wind commissioned by 2,040. The government is working to support this ambition through a regulatory framework to be codified into law through the Offshore Wind Act. The sector expects to have the Offshore Wind Act in place by Q1 next year, which should cover all relevant regulatory areas for development of offshore wind.
As I mentioned earlier, we are quite excited about the possibility to develop offshore wind in Poland through the agreement with PGE. Finally, turning to slide 10 and the market development in Asia Pacific, where I will focus on Japan. In Japan, we continue to develop our partnership with TEPCO with a focus on the Choshu zone off the coast of Tokyo. The Japanese government has quantified that the announced designated 11 zones potentially suitable for development of offshore wind have a capacity of approximately 7 gigawatt. 4 of these areas, including the Choshi zone, have been selected as prospective areas and will work towards qualification during Q1 next year.
The Ministry of Economy, Trade and Industry is pursuing a targeted time line for a first auction round to take place in second half next year. Turning to Slide 11. I will not go through this slide in any detail. It is just for your reference. It seeks to provide an overview of the many upcoming offshore wind auctions and tenders in 2020 2021, highlighting the strong global demand for offshore wind.
We have never been more optimistic about the competitiveness of offshore wind as a technology. As also alluded to by the International Energy Agency in their report from last week. We are looking into a global offshore wind market that will further accelerate over the coming years. The technology has some very strong competitive characteristics and what just a few years ago was seen as a niche technology is now on track to become a cornerstone power source in many countries as we move towards 2,030 and beyond. This concludes the offshore market development.
Let's turn to Slide 12 and the progress of our U. S. Onshore business. The U. S.
Onshore business continue continues to expand its portfolio of operating and development projects. With the final investment decision on the Plum Creek Onshore Wind Farm in August, our total installed and decided onshore capacity now stands at 1.7 gigawatt. We expect to take the final investment decision on our first large scale solar farm, the 400 Megawatt Permian Solar Project in Texas later this year. With this, I will now pass on the word to Marianne.
Thank you, Henrik, and good morning from me, too. Let's start on Slide 13, where I will go through the group financials for Q3 'nineteen. In Q3 'nineteen, we realized an EBITDA of DKK 4,100,000,000, a year on year increase of DKK 1,900,000,000 in line with our expectations. In offshore, earnings from our operating wind farms increased by 35% due to the ramp up of generation from Hornsea 1 and Bokumrifgen 2 as well as higher wind speeds. Offshore also realized higher earnings from construction of offshore wind farms for partners, mainly driven by the construction of Hornsea 1.
Onshore contributed with DKK 0.3 1,000,000,000 in the quarter, while Bioenergy was above last year due to the reversal of a provision of €300,000,000 following the acquittal in the LSEM competition case. In Customer Solutions, we saw lower earnings from LNG, mainly driven by extraordinary high earnings LNG in Q3 'eighteen. And furthermore, lower gas prices impacted the accounting value of our gas at Sorges and thus, led to a temporary negative impact in markets. Net profit totaled €1,400,000,000 an increase of €1,000,000,000 year on year. The increase was driven by the higher EBITDA, partly offset by higher depreciation from more wind farms in operation as well as the implementation of the new IFRS 16 accounting standard regarding leases.
The free cash flow from continuing operations was negative CHF 6,100,000,000. In Q3 'nineteen, cash flows from operating activities came in at €900,000,000 mainly driven by the EBITDA, a tax equity contribution from a partner at the Locket Onshore Wind Farm and lower gas inventories. This was partly offset by more funds tied up in work in progress. Our gross investments for the quarter totaled SEK 7,200,000,000 which mainly related to the construction of Hornsea 1, Greater Shanghua 1 and 2A and Vosseller 1 and 2 and last, our onshore projects. If we then turn to Slide 14 and our net interest bearing debt and financial ratios.
Our net debt at the end of Q3 'nineteen amounted to €12,100,000,000 The €7,100,000,000 increase compared to 30th June 'nineteen primarily reflected the contribution from the free cash flow, as I just described, as well as a CHF0.8 billion impact from exchange rate adjustments. Our key credit metric, FFO to adjusted net debt, stood at 47%, well above the target of around 30%. Our return on capital employed came in at 29%, a 6 percentage point increase compared to the same 12 months last year. The increase was significantly impacted by the farm down gain from Hornsea 1, whereas the same period last year was impacted by the farm down gains from 1 extension and Volkom Rivkom 2. If we then move to the results of the business units, starting with offshore on Slide 15.
Power generation amounted to 2.8 terawatt hours, an increase of 0.9 terawatt hours compared to Q3 'eighteen. This was primarily driven by the ramp up of generation from Hone CE 1 and Borkon Rivcon 2, which together accounted for 0.5 terawatt hours. Wind speeds for the quarter amounted to an average of 8.5 meter per second, up 0.8 meter per second compared to last year. This was also above the normal wind speed for the quarter of 7.9 meter per second across our portfolio. For the 1st 9 months of 'nineteen, the wind speeds were 9.0 meters per second, which was also higher than the normal wind speed of 8.8 meters per second for the portfolio.
EBITDA for the quarter amounted to €3,300,000,000 up €1,300,000,000 on Q3 'eighteen. Earnings from wind farms in operation increased 35%, again driven by ramp up of Hornsea and Bokum Rivcon II as well as higher wind speeds. As Henrik mentioned in the beginning of the call, the operational issues at London Array, Wokom Rifcon II and Raisedbank have been resolved during Q3. And going forward, we don't expect further production losses related to these issues. Earnings from partnerships amounted to SEK 1,200,000,000 an increase of SEK 500,000,000 compared to last year.
The construction agreements in this quarter primarily concerned Hornsea 1. Finally, the project development amounted to SEK0.6 billion mainly related to development activities in U. S. And Taiwan. Free cash flow came in negative at €6,200,000,000 for the quarter and a decrease of €3,000,000,000 compared to last year and mainly driven by more funds tied up in work in progress due to the construction of Hornsea 1, whereas we had a positive cash inflow in Q3 'eighteen as we received milestone payments related to Borkum Ripcon 2.
If we then turn to the results for onshore on Slide 16. In onshore, power generation amounted to 0.9 terawatt hours for the quarter, and the wind speed averaged 6.6 meter per second, which was slightly below the normal wind speeds of 6.7 meters per second in Texas for the quarter. We had a very high availability of 98% across portfolio. The EBITDA came in at €300,000,000 for the quarter, with sites contributing €200,000,000 positively affected by high peak power prices in Texas in August. As the Locket Wind Farm was completed a couple of months ahead of schedule and therefore was fully exposed to merchant prices, it significantly benefited from these peak prices.
Production tax credit added an additional SEK0.1 billion, and this was partly offset by project development costs. The free cash flow amounted to a negative of SEK 300,000,000 and related to gross and related to gross investments in Sage Draw, Plum Creek, Willow Creek and Permian Solar, partly offset by the tax equity contribution Twin Farm and less funds tied up in other net working capital. Turning to Slide 17, covering the results in Bioenergy. EBITDA came in at SEK200 1,000,000,000 up SEK400 1,000,000,000 on Q3 'eighteen. The increase was mainly due to the reversal of the provision of NOK300 1,000,000 related to the LSM case.
The free cash flow in Q3 'nineteen amounted to a negative of 600,000, a decrease of 400,000 compared to last year. The decrease was mainly due to lower payables due to higher fuel inventories at the beginning of the period. If we then turn to Slide 18, covering the results in customer solutions. The EBITDA for Q3 totaled SEK 200,000,000, a decrease of SEK 300,000,000 on last year. The lower EBITDA was mainly driven by LNG and our gas portfolio within markets.
LNG contributed with extraordinary high earnings in Q3 'eighteen due to the utilization of spreads and optimization of physical assets. The lower gas prices we saw during Q3 'nineteen resulted in a temporary negative effect from revaluation of the LNG at storage. In addition, we have seen temporary negative effects from oil indexed LNG purchase agreements that are hedged with a time lag. Consequently, we see a timing difference between the date when the market value of the hedging contract is recognized and the physical delivery date. The lower EBITDA in markets was driven by continued lower gas prices in Q3 'nineteen, which has led to a decrease in the accounting value of the gas at storage and thus, a temporary negative impact for the quarter.
This negative impact will be offset if the gas prices increase or when we sell the gas in 'nineteen or 'twenty as we have hedged most of our gas margin. In distribution, EBITDA increased by €1,000,000,000 which was mainly due to timing of activities between years. The free cash flow from operating activities for the quarter amounted to CHF 1,100,000,000 primarily from lower receivables and lower gas inventories due to the low gas prices and gas sales. Slide 19 show our 2019 guidance and our long term financial estimates and policies. On the 25th September, our 2019 EBITDA guidance for the group was increased by €500,000,000 We still expect EBITDA to be between €16,000,000,000 €17,000,000,000 for the year.
Our directional EBITDA guidance for each business unit is unchanged relative to the guidance in the interim report for the first half year. Our gross investment guidance is unchanged relative to our guidance in the annual report for And with that, we will now open for Q and A. Operator, please.
Thank And our first question comes from the line of Kasper Gloom from ABG Sundal Collier. Please go ahead. Your line is now open.
Thank you very much. Two questions from my side, please. First of all, now that you lower the predicted output from the wind farms, Does that in any way change the economics in the farms, parks that have already been found down? Or said in another way, do your partners at these farms now have the, how can you say, possibility to come back to you and say, we would like a refund because this is not producing as we were promised? That's my first question.
Secondly, as you said Henrik, this is a snapshot and clearly there is an uncertainty in the long term economics of wind parks. Now that we see a negative revision of the outlook, does that in any way change your return requirements for such parks? Those are my two questions please.
Thank you, Casper. To the first question, our farm down agreements are done on a shared risk basis. So this type of risk is fully shared between us and our partners. So there is no basis for any claims against us. And in terms of the snapshot and our return requirements, this does not in and of itself change our return requirements.
Our return requirements would typically change in response to changes in the cost of debt and cost of capital cost of equity obviously. So I don't see this in and of itself changing our return requirements.
That is very clear. Thank you, Henrik.
Thank you. Our next question comes from the line of Deepa Venkateshwaran from Bernstein. Please go ahead. Your line is now open.
Thank you. I have a few questions. So I think on the news from yesterday, I just wanted to understand how does having larger turbines change the impact of the block and make it back to the worst in it, just in the UK or make it better? And the second question is
The line is not very good, Deepa. We can barely hear what you're saying.
Hi. Is this better?
Hello?
Yes, it's better. Thank you.
Hello?
Yes. Can you hear us, Deepa?
Okay. And we seem to have just lost the deepest line. So our next question comes from the line of Jon Musk from RBC. Please go ahead. Your line is open.
Yes, good morning, everyone. I'll just have two questions for now. Firstly, on the OpEx savings that are partly offsetting some of the negative impacts. Within the 50 basis points move down in the IRR, how much of those OpEx savings have you put in there versus how much of those will be going against the existing asset base? And then secondly, longer term, if we as you indicated, the blockage and wake effects happen as we get more and more build out, if that sort of accelerates, are we likely to see another leg down in load factors in a few years' time as we get more assets built around your existing asset base?
Thanks, John. In terms of the OpEx reductions, those OpEx reductions would translate into improvements across the entire portfolio of offshore and onshore assets. And therefore, they will also benefit the 7 projects that are in the bucket that we use for the IRR guidance, but only with their sort of pro rata share of the total overhead reduction. We have added more neighboring wind farms into our simulations of the neighboring wave effects as part of this exercise. And on that basis, we do not expect a further reduction of our load factor due to continued build out of offshore wind.
Okay. So just to come back on the OpEx. Is there any split of that number into the construction portfolio and the existing portfolio?
The allocation key is the number of hours that is spent on the individual projects. So it's allocated with an hourly rate.
Okay. Thank you.
Thank you. And our next question comes from the line of Difei Venkateshwaran from Please go ahead, Deepa. Your line is open again.
Thank you again. I'm just checking. Can you hear my question?
Yes, we can, Deepa. Thank you.
Okay. All right. Apologies for that. So my question was, firstly, what's the impact of moving to larger turbines on the blockage and wake effect? Is it neutral or does it worsen it or just does it improve the output?
2nd question is the better availability on one of your turbine platforms. Is it safe to assume that you're really talking about your Hornsea 1 and Booster 1 and 2, the platforms there? Or is this wider and impacting more wind farms? And my third question is on the farm down of Ocean Wind to PSEG. Keeping in mind the sort of risk sharing you have, what kind of pricing should we expect?
Should it be like at cost as you did to Eversource? Or should it be like the typical model you've been using in Europe for financial investors or somewhere in between?
Thanks, Deepa. When we move to larger turbines again, we would obviously need real data to fully understand the dynamic of moving to a larger turbine. The expectation right now would be that larger turbine may lead to marginally higher blockage effects. On the other hand, we would expect wake effects to go down on a relative basis to the capacity of the turbine.
Okay. So at best, it's indeterminate now? Or should we just assume that it will marginally worsen?
I would, for now, expect this to be a net 0 as we move to larger turbines.
Okay.
And in terms of the better availability of 1 of our turbine platforms, I'm not going to be specific. Obviously, you know our assets, you know our turbine portfolio extremely well. So there are only that many options, of course, but I'm not going to specify it by name. I'm looking to the third question was
To PSEG.
To the PSEG, yes. Well, it's an ongoing negotiation. So we're still negotiating with PSG on the price for this equity stake. So I could not give you any details today.
Okay. Thank you. Thank you. Our next question comes from the line of Christian Johansen from Danske Bank. Please go ahead.
Your line is open.
Yes, thank you. So two questions for me. First question, if we look at some of your most recent wins like Ocean Wind and Sunrise Wind, which are not included in the portfolio of wind farms where you lower the return assumption by 0.5 percentage point. Should we expect a similar adverse effect on expected returns on these projects? Or are you still at a stage where you should be able to mitigate this lower production forecast?
Well,
the impact of the changes from this exercise, it varies by project obviously. So and when you look at ocean wind and sunrise wind, there's also an impact on these two projects. But I cannot obviously start specifying these impacts at an individual project level, but there is an impact. We have also reduced our production forecast for these two projects. We obviously are doing everything we can to mitigate this small adjustment to the production forecast by mitigating through CapEx and OpEx levers.
And if we can find ways of optimizing the production to bring some of it back, we obviously will. But that's all work in progress. So it would be too early for me to share anything specific. But the fundamental economics of the project are still healthy.
Okay. So there is no risk on the FID from this?
Risk FID on ocean wind and sunrise wind, no, I do not see a risk on FID.
Okay. That's quite clear. Then my second question, how should we think about your competitive strengths as a result of this? I mean in future auctions, I assume you would have to take in a lower production forecast, which if you keep your return assumption would yield a higher bid price? And if competition doesn't do the same immediately, will that make you less competitive?
Well, all other things equal, the answer would be yes. It's quite clear that anyone can win an offshore wind project if they want to sort of just dialogue their expectations on specific assumptions, including production forecasts. So this all comes back to being a disciplined and prudent allocator of capital. And our challenge obviously is to make sure that even if we have in our view more prudent and better production forecast that we should still be able to win projects in future and have a more robust value creation in our wins. That is our challenge.
But it goes without saying that if competition has much more optimistic production forecast than us that will obviously in isolation impact our competitiveness. But when you look at it from a shareholders perspective, Christian, you also have to think that our primary task is to make sure that we only take on projects where we do indeed create value. It is not in the interest of any shareholder for us to operate with inflated production forecasts and winning projects on that basis. That's not going to bring anything good to anyone.
Very clear. Thank you very much.
Thank you. Our next question comes from the line of Peter Bischiger from Bank of America. Please go ahead. Your line is open.
Thank you. Good morning. So my first question regards these higher costs relating to transmission assets for your U. S. Portfolio.
I'm just wondering if you can specify exactly where those cost pressures have come from. Is it the cables? Is it labor? Is it installation costs? And also, were those high costs included in your recent bids for Ocean Wind and Sunrise?
Or is that another factor that is going to affect the economics of those projects? And second question, I think you've already answered this, but just to double check, is the plan to sell the Ocean Win stake to PSEG at sort of cost on a similar basis that you did with Eversource? Or is this a sort of a farm down where you could secure a premium? And then finally, I'm just wondering, do you think there's any kind of political angle to the U. S.
Interior Department requiring the BOEM to redo their environmental impact assessment? And do you worry the federal government could curtail some of the very ambitious state level targets for offshore wind development?
Thank you. When it comes to the higher estimated transmission CapEx in the U. S, It comes from a number of sources across the deepwater wind portfolio. Some of it relates to export cable, some of it relates to substations, some of it relates to onshore grid upgrades as well as the cable landing. So it's a relatively broad set of factors that impact these numbers.
It is not necessarily a surprise that as we mature these projects, we sometimes tend to see CapEx estimates either moving up or down compared to our original estimates. When it comes to Sunrise Wind and Ocean Wind, we have had visibility on these transmission CapEx estimates for deepwater when we submitted our bids. So we have accounted for these higher transmission assets or transmission CapEx in our bids for Sunrise and Ocean Wind. When it comes to the negotiation with PSEG for an equity stake in Ocean Wind, it is a commercial negotiation where we obviously taking a number of factors into account, including what is still developing into market. But with that said, it is a full commercial negotiation.
As it relates to the Interior Department's request for Boeing to do this so called cumulative impact assessment, it will obviously be something that we are eagerly awaiting to see the outcome expectedly early next year. We are not concerned that this is going to stop the large scale deployment of offshore wind along the U. S. East Coast. The potential is huge.
And the states along the East Coast, they need renewable energy. They can see that offshore wind is a very competitive solution, and they are quite determined to deploy offshore wind. I see this more as a natural step for BOEM to gain a broader understanding of how this offshore wind build out will impact different key stakeholders along the coast, including fishing communities, local communities, where we land the cables, etcetera. So there are many stakeholders that you need to consider. You need to have a robust and productive dialogue and you need to make sure that all concerns are listened to and develop a comprehensive framework for how to build out offshore wind as effectively as possible.
This is the exercise they're going through. Frankly speaking, that makes sense. And it may cause some delays here and there, but I don't think it's going to stop the build out or slow it down as such.
That's very helpful. Thank you.
Thank you. Our next question comes from the line of Sam Arie from UBS. Please go ahead. Your line is open.
Hello. Good morning, everybody, and thanks for the presentation as always. I think a lot of good questions asked already, so just one from me. And it's a bit of a difficult one to formulate. But what I want to do is drill into this point about the return guidance that you've given now being lower, but the return on capital and EBITDA targets being unchanged.
And I think we follow that logic. There are some positives at the group level, which offset the lower project returns. But the project returns are over 25, 30 year duration, I suppose, while the return on capital and EBITDA is just the next 4 or 5 years. So what you seem to be saying is that the net effect of everything you've talked about today and yesterday is no downside on numbers at group level for the next 4 or 5 years. And what I want to ask is, if you think there's any downside actually at all when you go further out.
So I suppose to be clear, I'm not asking you to share your own company valuation, but I think that you do run valuation estimates internally. And what I'm asking is just directionally, whether your overall internal enterprise valuation has come down as a net result of everything you've announced in the last 24 hours or actually if it might have stayed about the same or maybe I suppose it's possible it could have gone up. So is that something you could comment on? That would be very helpful. Thank you.
Thanks, Sam. It's quite clear that in what we released yesterday, there are obviously a number of moving parts, some being negative, some being positive. I'm not going to give you our own estimate of what is the net present value impact of these those different moving parts. It goes without saying that the adjustment to production forecast is a negative number and we've done our utmost to mitigate it as best possible. But I would rather not start sort of extending our view on what the impacts will be because I essentially just end up sort of start building new targets.
So I think we've already given fairly detailed targets here and we will stand by those targets. That's also why we came out yesterday to make sure that we give you absolutely full transparency and timely transparency. But I would rather not start digging further into the details. I think we've given you a number of data points that should give you a pretty good idea as to what the impact is here.
Yes. Okay. I somehow thought that that might be your answer, but it was worth a try anyway. Thank you very much and thanks for the presentation today.
Thank you, Sam.
Thank you. Our next question comes from the line of Timothy Ho from Morgan Stanley. Please go ahead. Your line is open.
Hi, good morning. Just a couple of questions for me, building on I think some that have already been asked. So the first one, so this is clearly a very comprehensive review that you've done. Could you provide some more color please on whether you intend to how often you intend to do these reviews from here on in? And you refer to this as a snapshot, point in time.
How do you think about the kind of updates on this snapshot as you go along as well? And the second thing is just on mitigation. I think you briefly alluded to some parts of mitigation. But is there anything that you can say on formation of wind farms in the future? Or can the turbine designers help you at all to kind of help reduce these effects?
So yes, anything you can provide on the mitigation that would be very helpful. Thank you.
Yes. Thanks, Timothy. I mean, when we came out with the update on the targets yesterday, yes, it is, of course, a snapshot. I mean, we're operating a very big portfolio of assets and development projects and we see movements in all of those assets and projects on a daily basis. So we have an almost endless number of variables that will make this a very dynamic picture.
We obviously cannot come out updating you every time we see a change somewhere in that portfolio. So we're striking trying to strike a balance here. We felt the news yesterday, especially because we found these adjustments to our production forecast. We felt it was an important piece of news for our shareholders, but also for the offshore wind industry more broadly. And we felt that it would be prudent for us to go out and be open and transparent about it.
When it comes to the long term financial targets, it would be and I say that without making any firm commitments, but I would certainly expect that when we come to the Capital Markets Day in June next year that is currently being planned that we would give you an update on a like for like basis on the targets that we updated yesterday. We may at some point want to move away from those targets. Over time, they will obviously become less relevant as the portfolio progresses. So we'll take a look at giving you an update in June next year, I would expect. And then we may look for some new targets that give you more information.
If we remain totally static in our targets, they will obviously become less relevant over time. In terms of mitigation, Timothy, what was the question again, the second question on the layout?
Yes. Just on whether it's layouts or can turbine supplies help you in this regard if we look more into the medium term, just a bit more on potential mitigation to try and up these low tax potentially in the future or keep them static anyway?
Yes. I mean, you also asked about how are we going to sort of use this exercise that we've been going through here going forward. We have now built these new advanced analytics models that will help us more accurately predict a number of the underlying dynamics in the production. And we'll obviously continue to use these models and refine them. And then we are also looking at if there is any learning from this more granular insight into our production numbers that would allow us to mitigate part of the impact by adopting different layouts of the wind farms.
We are looking into all kinds of correlations to see if we can identify ways of mitigating some of the impact that we have seen. But that is still work in progress and too early for me to say whether we can actually mitigate some of the impact by adopting a different design of our wind farms.
And could the turbine supplies help you in this regard at all?
The turbine supplies?
Just in regards to does actual design impact things at all here? Or is that kind of a side issue really?
The actual physical layer design of the nacelle for instance, again, I couldn't tell you Timothy. For now, we actually did discuss it the other day. We don't think it's a real factor. If you think about sort of the size and the actual design of Mendelsoe, we think that's a relatively minor thing in these blockage and wake effects. But we'll obviously discuss this with our turbine suppliers.
Very clear. Thanks very much.
Thank you. Our next question comes from the line of Marc Freshney from Credit Suisse. Please go ahead. Your line is open.
Hello. Three questions, please. Firstly, on the cost out or the I think it's DKK 500,000,000 cost out in central costs. I guess most of that will relate to offshore wind. My understanding is a lot of the items within there are things like leases, development costs where you haven't taken FID.
Surely reducing those costs by 20% to 25% would have a material impact on your ability to win projects on good returns at the end of next decade. So could you go through that firstly? Secondly, on the curtailment issues, I think particularly things like London Array in Q2, could you talk about the impact that they've had in Q3? And thirdly, on wake and blockage effects, there's what's within your control, which is where you guys have 2 wind farms together. But what if you get other wind farms close to yours, that's something outside of your control.
So as the seabed gets more congested, is there a risk that somebody else's return partly comes at your expense? Those are my three questions. Thank you.
Thanks, Marc. When it comes to the cost reductions, the cost reductions come from costs that fall away as we divest Radius and the residential customer business. There are no cost reductions that relate to offshore lease rights or anything like that. These are mostly costs coming out of our staff functions across the company. And as we allocate our corporate overhead into our projects, the projects will, of course, benefit from these corporate overhead reductions.
And the majority of our overhead is allocated to the offshore division given it's done on an hourly allocation key. So of course, the majority of these overhead cost reductions will ultimately benefit offshore wind. When it comes to the London Array cable repair campaign, it also had an impact in 3rd quarter. It is included in the €150,000,000 impact from outages and curtailments that we referred to earlier today. I cannot give you the specific number for London Array in isolation.
That would become a bit too granular. But we do not expect further losses from this cable campaign at London Array moving forward. When it comes to neighboring wake effects from wind farms being built by other developers, we have accounted for that in these models that we have been building. We have added in extensive build out based on our knowledge of all projects currently in progress, not only our own projects, but also projects from other developers. So we have tried to account for a broader set of wind farms being built around our own sites.
So we feel that we have diligently accounted for this.
Okay. Thank you very much, Henrik.
Thank you.
Thank you. Our next question comes from the line of Marcos Belanda from Nordea. Please go ahead. Your line is open.
Thank you. Just one follow-up question on the wake and blockage effects. I believe you mentioned, Henrik, that other observers or players have more optimistic estimates on those effects? And I guess I'm just curious and I realize it's hard to quantify, but how certain are you that your model is right and everyone else's models are wrong? And also on the load factor, your new load factor target, is that your best guess?
Or is there a certain element of conservatism included in that? Thank you.
When it comes to these effects and the reason why we think there is a broader issue across the industry is basically not that we've seen any specific estimates for blockage and wake effects, but we've seen other production forecasts for some of our assets. And we've seen also indications of production forecasts on projects where we have been competing in a tender or an auction with some of our competitors. So and whenever we've done farm downs, we have also seen a third party experts contributing production forecast as part of those farm down processes. So we do have a number of data points suggesting that traditionally external experts, other developers have had a tendency to be slightly more optimistic on the total production outlook than us, which is why we believe that we may be looking at an industry wide slight overestimation on the production forecast. And I obviously say that to the point you make assuming that we have better visibility on this topic than the rest of the industry.
And it's obviously for anyone to judge whether they consider that credible or not. I would say we have more operational data to leverage than any other player in the industry. And we have spent very significant resources into this project to develop what we would expect to be probably the most advanced models for predicting different underlying variables in our production forecast. So on that basis, I would actually expect that we have better visibility and better prediction power than most other players or all other players in the industry. When it comes to the load factor where we now expect it to be around 48%, that is our best estimate at the moment for the 10 projects included in that target.
Great. Thank you.
Thank you. Our next question comes from the line of Elchin Momodar from Bloomberg Intelligence. Please go ahead. Your line is
open. Hi there. Hi there. I have three questions, please. The first one is on your guidance.
You confirmed your recently increased €16,000,000,000 to €17,000,000,000 EBITDA guidance. However, at the current run rate, you're set to achieve about €19,500,000,000 5,000,000,000. So my question is what kind of headwinds are you expecting in 4Q? Or what fewer net positive one offs are you expecting in 4Q that you haven't had in the 1st 9 months? The second question is on the farm downs.
I mean, besides the ocean wind, what other assets are you looking to include in your farm down policy? If you can update on that, that would be great. And the final one is on Poland. I mean, it's early days, but assuming you do sign your partnership with PG in Poland, Given it's a fifty-fifty joint venture, what will be your role and what will be PG? So for instance, will you be the one to build it and PG to operate it or the other way around?
So that would be really useful. Thanks a lot.
Yes. Thank you for your questions. On the first question on the guidance, the reason why we have a front end loaded result development, you can say, is that all our farm down gains, more or less, are coming in the 1st three quarters. We are now very close to being complete with Hornsea 1, and therefore, you will not have this farm down gain in Q4. So that's the reason for that.
On your second questions on farm downs, yes, you're right. We are working on ocean wind. And then it's also Taiwan, where we are also out. We are in a process right now, and we have said that we expect to farm down probably next year in Taiwan. But except from that, we don't have any active processes on the farm down side.
And when it comes to Poland, the exact road split between PG and is still part of the ongoing discussions. I cannot give you a specific answer. We obviously bring in together quite complementary capabilities and experiences that we would tap into, but the exact and detailed road split is still to be finally settled.
Thank you. Thanks a lot.
Thank you. Our next question comes from the line of Claus Kjell from New Credit. Please go ahead. Your line is open.
Yes, hello. Two questions from my side. First of all, if I look at your onshore business, you have had a very strong performance here in both Q3 and for the 1st 9 months. And especially if I look at on the EBITDA line,
then I
guess you have had a EBITDA margin of above 100%. I guess a big part of that is due to the PTC subsidies that you have received. But could you give us any kind of indication of what would be a reasonable long term EBITDA margin for this business? That would be my first question. Secondly, you have had these curtailment problems throughout 2019.
And I guess the full year figure is now at around €350,000,000 Could you just confirm what the number is for the full year? And secondly, would it then be reasonable to expect that your EBITDA would go up by a similar number next year? Thank you very much.
On your first question on onshore results, yes, you are right. We have had a very strong Q3 driven by these benefits we have had from the high peak prices in Texas in August. The 2 other quarters has been very much as expected. If you look at EBITDA margin in this business, it's not really a meaningful number because you are right. The reason why we have such a high margin is this PTC, the way we account for them.
So just to say that it's not really the right way of right metric for that business. Then on curtailments, Yes.
On curtailment, Claus, I mean, at half year, I believe we indicated a SEK400 1,000,000 impact from outages and curtailments. And we have said DKK 150,000,000 for 3rd quarter. So amounting to $550,000,000 impact for the 1st 9 months of the year. We've also said that we expect 4th quarter to be better given that we have resolved many of these issues at London Array, Raised Bank and Bougain Referen II. So there will probably still be some impact.
There always tend to be some impact from outages and curtailments in the portfolio, but we'd expect them to trend down in Q4. Looking into next year, there will again always be some impact from outages and curtailments, but we would hopefully be back to what we consider a more normal level, which hopefully also should be below what we have seen here in 2019.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Ian Turner from Exane. Please go ahead. Your line is open.
Good morning, everybody. Can I
just ask you a couple of questions? On the GE turbines that you've chosen for the U. S. Mid Atlantic projects, Is that purely on the basis of cost? Or are you acting strategically and trying to bring on a 3rd scale supplier as I think you've done in the past as strategic purchaser?
And then secondly, on the Polish projects, could you just outline the attractiveness of the Baltic compared with the North Sea? I mean is it windier? Is it shallower? How does it stack up?
Thanks, Ian. I mean, we have certainly picked the GE turbine on the basis of its cost competitiveness, which obviously both includes the cost of the turbine and the productivity of the turbine. And with that said, it has never been a secret that we do believe it would be beneficial for the whole industry if we could introduce and ramp up a third significant supplier of offshore wind turbines. And with GE being the preferred supplier for our Mid Atlantic cluster And as I understand also for the Dougurbank cluster coming out of U. K.
Round 3, it seems like they have built a meaningful ramp up volume for the 12 Megawatt turbine. When it comes to the Polish projects, they have very good site conditions. We are actually quite positive on these sites in the Baltic Sea in terms of distance to shore seabed conditions, water depth and wind speed. So overall, we consider them high quality sites.
Thank you. Thank you. Our next question comes from the line of Peter Wieschtega from Bank of America. Please go ahead. Your line is open once again.
Thanks. Just a couple of follow-up questions. You've mentioned that having more prudent load factor assumptions could be a disadvantage in auctions. I'm just wondering whether there actually could be any rationale for sharing your analytics capability with other developers, perhaps even as a service going forward to make sure that everybody has equally disadvantageous information? And Ben, just another quick one.
Do you know happen to know how close together separate wind farms need to be before wake effects from one project start to impact another one?
Thanks, Peter. On the sharing of the insights that we have generated, it is certainly something that we will discuss and consider how we can best share them with the broader industry. I do believe that it would make sense for us to find ways of sharing this information. That is also why we came out yesterday to make sure that we are transparent and also that we make sure that whoever can benefit from these insights should be allowed to. In terms of neighboring wake effects, I can't give you a very specific sort of threshold for when you start seeing these wake effects from a neighboring wind farm.
But you'd probably be surprised how far out it actually has an effect. Let me put it this way, when you get sort of within 25 kilometers, it actually starts to have an impact. We can detect an impact further out even beyond 25 kilometers, but then it begins to be a very marginal and small almost negligible impact. But as you move within that 25 kilometer boundary and down to sort of 10, 15, 20 kilometers, it begins to have a real impact.
Perfect. Thank you.
Thank you. And our next question comes from the line of Alberto Gandolfi from Goldman Sachs. Sachs.
Sorry, I joined a bit later. So if questions have been just please feel free just to tell me I'm going to read the transcript. But I have 2 follow ups. One is just trying to understand in light of what you said yesterday, what should be broadly the actually earnings, let's say, EBITDA impact. So you talk about you gave 48%, 50%.
So let's assume the Street should have been in the middle at 49%. Now you say 48%. Am I right in saying that by 2024, that in theory is less than 1 terawad hour impact, which is about DKK 700,000,000. And on top of that, you're talking about DKK500,000,000, 600,000,000 cost savings. So on the back of that, I would say your EBITDA will barely move.
And so I'm a bit surprised that there was such a big deal in the communication about it, number 1. And number 2 is, you really I felt yesterday most investors really focused on not just on this, but what you said about the returns. The 5% originally, the
interest rate
environment was very different. So, 5% originally, the interest rate environment was very different. So I mean my point would be when we think about WACC plus spread, has the spread changed at all besides these few 1,000,000 Danish kroners, I would say, on volumes or not? Because eventually, I suspect otherwise we're blowing out of proportion this issue. The second point is, now that you think you have superior analytics, does it mean that you need to put more spacing between each single turbine?
Does it mean that each seabed you've already leased will be able to host fewer turbines to maximize the volume? Does it just mean how can you basically circumvent this problem, not what's under construction because I guess the design is what it is, but maybe on the future ones? Thank you.
Thank you, Alberto. When it comes to the EBITDA impact, we didn't change the guidance obviously. We kept the target at an average EBITDA growth from our operating sites of around 20% over that period from 2017 through 2023, which obviously indicates that big picture, the negative and the positives offset each other to an extent where there was no reason for changing the EBITDA outlook. So our EBITDA expectation as such is unchanged. I haven't done the math on exactly what a 1 percentage point load factor drop would translate into in terms of EBITDA at a future point.
But obviously, it all comes back to what I said earlier, which is that when you take the bigger picture of positives and negatives, we are not changing our EBITDA outlook. And we continue to have strong visibility on that EBITDA growth. When it comes to the returns and we take it down by 50 basis points, as I said earlier, it is not least driven by the fact that within that bucket of 7 projects, you have a couple of very targeted negative impacts on the Chunghwa project and the Revolution Wind, which is why that particular target is adjusted, which is also one of the reasons why we come out yesterday. And you could rightfully say it's a lot of fuss for relatively marginal adjustment. I would leave that assessment to the market.
But when we put a target into the market as we did at the Capital Markets Day and we see it changing for one reason or the other, we feel it's incumbent upon us to come out and be forthright and transparent about it. And then we leave it for the market to assess it. If you look at the declining interest rates, you're absolutely right. They have come down probably by a magnitude of 100 basis points since the Capital Markets Day. So if we had been guiding on our spread between returns and cost of capital, we probably wouldn't have changed anything.
So in that respect, you're right, but that was not how we set the target back at the Capital Markets Day. In hindsight, maybe we should have, but we didn't. So that's why we now yes, please.
Forgive me. This is very clear. If you allow me to follow-up, are you saying that the main reason for cutting the return is down to interest rates?
No, no, no. We are cutting the returns because the net impact of the positive and negative developments, including the production forecast adjustment, leads us to actually lower our return expectation for that portfolio of 7 projects.
Okay. So it's Taiwan and Revolution Wind. But going forward, going forward besides those two projects, you would say the impact on any other development, are we right in saying in terms of spreads really negligible?
When you look at the spreads and you take into account that interest rates have come down between the Capital Markets Day and today, the impact on the spread would be negligible. Yes, that would be a fair conclusion. Thank you. When it comes to superior analytics, Alberto, I mean, again, it's too early for us to say exactly how this may impact the way we design future wind farms. That is going to be a key part of the effort as we move forward.
So whether we will actually move to a different layout, whether we will use different spacing between the position, it all remains to be seen.
Thank you so much.
Thank you. And as we have no more questions registered, I now hand back to our speakers for any closing comments.
Thank you so much everyone for joining. Thank you for a lot of very good questions and thank you for the interest in the company. Should you have any further questions as always, please reach out to our Investor Relations. Have a continued good day.