Welcome to the Allstate Interim Report for the Q1 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 Olsen and CFO, Marianne Wilenhall.
Please begin your meeting.
Thank you very much, and good morning, everyone, and welcome to this earnings call. Orsted has had a very good start to the year with continued strategic progress being made across the business as well as very solid results in line with our expectations. Our EBITDA for the Q1 of the year amounted to DKK5.1 billion, which was a decrease of DKK400 1,000,000 compared to Q1 last year. The decrease in EBITDA, however, was expected and due to a positive outcome of the renegotiation in Q1 2018 as well as cyclically lower earnings from our gas portfolio activities in Customer Solutions. Earnings from our offshore wind farms and operation amounted to DKK3.6 billion for the Q1, a year on year increase of 13%, driven by ramp up in generation from Boukom Livcon II and Warni Extension.
With the continued ramp up in our offshore and onshore wind capacity, our green share of heat and power generation increased to 80% in Q1, up from 68% in Q1 last year. The increase once again underpins our commitment to a world that runs entirely on green energy, and it brings us one step closer to our 2025 target, where we aim to reach close to 100% green energy generation. Yesterday, we took final investment decision on our 900 Megawatt Greater Changwa 1 and 2A project in Taiwan.
At the
end of January, we obtained our establishment permit and over the last few weeks, we have secured the approval of our supply chain plan and signed the power purchase agreement with Thai Power. The final investment decision marks a very important milestone for Orsted as it is our 1st offshore wind investment position outside of Europe. We are pleased to have a high level of local content on the project, which will offer significant support in the establishment of a new industry and great jobs in industrial development in Taiwan. At the same time, the project will deliver a solid risk return equation for Odfjell shareholders, which enable our Board of Directors to FID the project. The construction of the project will commence shortly, and we expect the offshore wind farm to be fully completed in 2022.
In February, we entered into a
joint venture with Total and Initial and in March, the joint venture submitted in the 600 megawatt Concurge tender in France. In addition, we also participated in the vast fuel subsidy tender for the 760 Megawatt Holland Pro South 34 offshore wind farm. If we are awarded the project in the Netherlands, we have already taken final investment decision and together with a partner, we will seek to establish a clean hydrogen project based on power on our offshore wind farms in the Netherlands. In addition to the 2 tenders in Europe, we are also awaiting the outcome of the U. S.
Auctions. In October 2018, we put into the zero carbon RFP in Rhode Island, which could allocate up to 400 megawatt to offshore wind. Furthermore, we also participated in the 1100 Megawatt New Jersey auction in December and the 800 Megawatt auction in New York in February. We expect an outcome from all 5 tenders and auctions over the coming 3 months. Yesterday, we also took final investment decision on the 338 Megawatt Onshore Wind Farm Safe Strong, and we expect to complete the tax equity funding and start construction of the project during this quarter with expected commissioning for Q1 2020.
Furthermore, we have entered into an agreement to acquire a subsidiary of US based, Corona Energy. The subsidiary is a nationwide solar and storage developer with a significant pipeline of development projects, of which 90 megawatts have secured offtake agreements with utilities in Mid Atlantic and Northeast markets. The U. S. Solar market has a significant long term growth potential and the acquisition further expands our credibility platform and exposure to new attractive regional markets in the U.
S. In customer solutions, we entered into a 10 year fixed price corporate GPA in February. Our counterpart, North Siberian Water, will source 30% of its renewable energy demand from our UK offshore wind farm raised bank. The corporate PPA will reduce our merchant power price risk and it's the 1st corporate PPA from 1 of our offshore wind farms. The agreement marks an important milestone in our route to market strategy.
Turning to Slide 4, where I will give an update on the key offshore construction projects currently in progress. The construction of the Hornsea 1 project is progressing according to plan. And in February, we achieved 1st power. We have installed all soft stations and all of the 174 foundations as well as 163 array cables and 51 turbines. We are on track to fully commission the project during second half of the year.
Once completed, Hornsea 1 will become the world's largest offshore wind farm with a capacity of 12 18 Megawatts, almost double the capacity of Walden Extension, which is currently our world's largest offshore wind farm. At the 752 Megawatt Borsella 1 and 2 project, the manufacturing of key components for the wind farm is progressing according to plan. And we have started the construction of the O and M building in Fisingen. The Dutch wind farm is expected to be completed in late 2020 or early 2021. The Virginia EPC demo project remains well on track with all the key supply contracts signed.
The offshore construction work is expected to begin during Q2 2020, and we expect to complete the project in the first half of twenty twenty one. At the Hornsea 2 project, we continue the good progress and we've started the onshore construction work on the substation and export cable. The project is scheduled for completion in the first half of twenty twenty two. And as I mentioned earlier, we've taken final investment decision on the Greater Changwa 1 and 2A project and we will soon start construction. Moving on to Slide 5 and an update on construction projects outside offshore.
Our onshore business has seen good progress on the construction projects. In February, we installed the 1st turbines at the Locket Onshore Wind Farm in Texas. And at the turn of the quarter, we had installed 34 out of 75 turbines. The construction is progressing according to plan, and we expect to commission the wind farm in Q3 this year. As mentioned earlier, we took final investment decision on the 338 Megawatt Onshore Wind Farm Safe Draw yesterday, and we expect to start construction later this quarter.
In bioenergy, we are still well underway. We provide conversion of the Aspenis power station. The conversion is progressing according to plan with expected commissioning towards the end of this year. For several years, we have successfully converted our heating power plants to use sustainable wood pellets and wood chips instead of fossil fuels and we are committed to stop the use of coal entirely from 2023. For the last unconverted CHP, the Sberg power station, we have not been able to find a solution with the heat customers for a bioconversion project.
Consequently, we informed the heat customers in 2018 that we will close operations of the Ashford power station by the end of 2022. We have also notified the relevant authorities and are awaiting their final approval. The development of our first Renaissance plant in the U. K. Is in its final phase.
The adjustments to the plant layout to resolve the mechanical challenges of the sorting process will soon be completed and we expect final commissioning during the summer. In Customer Solutions, we continue the installation of smart meters within our power distribution network. At the end of March, 854,000 smart meters had been replaced and taken into use and the project remains well on track. Let's turn to Slide 6, 7 and 8 and take a look at the latest market development and offshore wind opportunities across the various regions. Starting in Massachusetts, where the path for the next 800 Megawatt RFP has been submitted for regulatory approval.
The state's 2nd offshore wind auction will have a big target deadline in August this year and the solicitation will be another significant step to reach the emission of 3.2 gigawatt by 2,035. We expect the outcome of the Massachusetts registration to be announced towards the end of 2019 or in the beginning of 2020. As I mentioned in the beginning of the call, we submitted a bid in the New York solicitation and we expect an outcome to be announced shortly. The procurement of at least 800 megawatt will be the first step towards New York's target of 9 gigawatts of offshore wind capacity by 2,035. Furthermore, we expect the federal agency Boeing to release 2 offshore lease areas of at least 800 megawatts in 2019 with a lease auction taking place in early 2020.
Moving to Connecticut, where legislation for procurement of 1 to 2 gigawatt of offshore wind has been introduced. We expect the next procurement to take place in the second half of twenty nineteen, but the framework and exact timing of this solicitation is yet to be announced. Finally, Maryland General Assembly has passed the Clean Energy Jobs Act, which will incentivize the development of 1.2 gigawatt of additional offshore wind capacity by 2,030. The bill which aims to quadruple the state's commitment to offshore wind is awaiting final approval from Governor Hogan. In summary, we continue to see a strong development within offshore wind on the U.
S. East Coast with the expected outcome on New York, Rhode Island and New Jersey solicitations during the next few months as well as a solicitation in Massachusetts later this year, further lease areas released in New York and increased ambitions towards offshore wind in Connecticut and Maryland. Turning to Page 7 and the recent market developments in Europe, where news have centered around the U. K, Denmark, France and Poland. In the U.
K, the Crown Estate has refined its plan for the round 4 offshore wind leasing scheme with respect to take place after the summer 2019. The tender will cover up to 7 gigawatt of new lease areas and the lease terms have been increased to 60 years from 50 years. Furthermore, a new tender requirement will be introduced to ensure that prices are awarded across a minimum of 3 seabed regions in order to help facilitate greater geographic diversity. In Denmark, we expect the upcoming tender of 800 to 1000 megawatt to be issued towards the end of this year with an expected outcome in 2021. The scope of the tender will include the construction of the offshore transmission assets, thus increasing the scope compared to previous tenders.
We welcome this inclusion of the offshore transmission assets as part of the scope as the competition will ensure market driven cost efficiency and innovation. In France, the country's final energy plan was announced in February, highlighting that a 4th offshore wind tender will be taking place in 2020 with an expected capacity of 1 gigawatt. Finally, Poland have further increased their offshore wind ambitions, extending their offshore wind target of 8 gigawatt of capacity by 2,035 to 10.3 gigawatt by 2,040. Moving on to Page 8 and the market development in the Asia Pacific region. As mentioned previously, we have taken final investment decision on our Greater Changwa 1 and 2A project, which will be our 1st large scale offshore wind project in APAC.
In the meantime, our Formosa I joint venture continues to make good progress on the 120 Megawatt Phase II of the project. The onshore construction work is progressing according to plan, while the offshore construction is scheduled to begin later this month. We're still awaiting news on potential future auctions in Taiwan. In Japan, the development supporting offshore keeps progressing with the passing of the offshore wind General C Law in November last year, which allowed the government to allocate the rights to develop an offshore wind in desolate zones off the coast of Japan. In addition to the Offshore Wind General Sea Law, an auction evaluation pipeline has been announced recently.
Based on this draft framework, both price and experience will be part of the auction criteria and we could potentially see auctions as early as 20 20 with an auction award potentially in 2021. We continue to follow the development in South Korea closely, but currently, we don't have firm details regarding timing and framework of the 1st offshore wind auction. This concludes the Offshore Market Development review. Let's turn to Page 9 and the progress of our U. S.
Onshore business. We remain very pleased with the development of our onshore business and the value creating growth opportunities it offers. We continue to expand our development portfolio and capabilities to create a strong North American platform within onshore wind, solar energy and energy storage. With yesterday's final investment decision on the Sagecorp project, the current operational and decided capacity totaled 1.3 gigawatt. In addition to these projects, we target an investment decision on the concrete wind project and our Permian solar project during 2019, both of which have secured off grid contracts with blue chip counterparts.
Furthermore, we have recently increased the expected size of the Permian solar project from 3 50 megawatt to 400 megawatt. The addition of the 2 projects will we'll expect to bring the total operational and decided capacity close to 2 gigawatts by the end of this year. With the strong progress on the construction of projects as well as the continued development of our pipeline, we have good visibility on the 2.5 gigawatt ambition set for 2022 and we may be looking at an upside to get filled out. With this, I will now pass on the word to Marjanen.
Thank you, Henrik, and good morning also from me. Let's start on Slide 10, where I will go through the group's financials for Q1 2019. In Q1 2019, we realized an EBITDA of €5,100,000,000 an increase year on year of EUR 400,000,000 in line with our expectations. In Offshore, earnings from our operating wind farms increased 13% and was offset by lower partnership earnings and higher project development costs. Decent Clean Energy, which we acquired in October 2018, contributed with EUR 152,000,000 in the quarter, while Bioenergy was on par with last year's results.
In Customer Solutions, earnings were down EUR 600,000,000 €6,000,000,000 in Q1 2018 due to the positive outcome of our negotiation in Q1 'eighteen as well as slightly lower earnings from our gas portfolio activities. EBITDA in Q1 'nineteen. Was positively affected by EUR 149,000,000 from the implementation of the new IFRS 16 accounting standard regarding leases. The net profit totaled €2,600,000,000 down from 3,000,000,000 in Q1 'eighteen, driven by the lower EBITDA and higher depreciation from more wind farms in operation. The increased depreciation was partly offset by our Danish Power Distribution and Residential Customer Businesses being classified as assets held for sale by the end of 'eighteen and thus not depreciated in Q1 'nineteen.
Furthermore, we realized the net financial income due to positive exchange rate adjustments. We implemented the new IFRS 16 standards regarding leasing for 1st January 'nineteen. In accordance with the new standard, our operating leases have been recognized in the balance sheet and are now depreciated. The implementation of IFRS 16 had a slightly negative effect on net profits, with the higher depreciation and financial expenses being almost fully offset by the increased EBITDA from less expense leasing charges. High cash flow from operating operations came in at a negative SEK 1,300,000,000, a SEK 300,000,000 improvement year on year.
Like last year, we decided to pay our expected Danish taxes for the year in March instead of November. In Q1 'nineteen, fee taxes amounted to EUR 4,800,000,000. Our gross investments for the quarter totaled SEK 3,900,000,000, of which SEK 3,300,000,000 was related to the build out of our offshore and onshore wind farms. The cash flow from divestments in Q1 'nineteen related to the receipt of deferred proceeds from the farm down of 50% on Q1 in 'eighteen as well as proceeds from the expansion of our strategic partnership with Eversource. Turning to Slide 11 and our net interest income and financial ratios.
Our net debt end of Q1 'nineteen amounted to SEK 9,100,000,000 The SEK 11,300,000,000 increase reflects the negative cash flow, as I just described, and as well as distribution of SEK 4,100,000,000 of dividends to our shareholders and the inclusion of operational lease obligations of SEK 5,200,000,000 in accordance with IFRS 16. Our key metrics here, FFO to adjusted net debt stood at 46 percent, in line with Q1 2018 and well above our target level of around 30%. The churn on capital employed came in at 28%, a marginal increase compared to the same period last year. Q1 'nineteen was significantly impacted by the farm down of Hornsea 1, whereas Q1 'eighteen was impacted by the farm downs own Horn extension and Auckland Lithgow 2. Let me Shore on Slide 12.
Power generation increased 0.1 terawatt hour compared to Q1 'eighteen due to the ramp up generation from warming extension and Borkum Whisper II of 0.3 terawatt hours. A positive effect from the ramp up was partly offset by curtailments and outages of 0.2 terawatt hours, for which we were partly compensated. The availability across the portfolio was very good, coming in at 96% for the quarter. Wind speeds for the quarter increased 0.1 meter per second year on year and amounted to an average of 10.4 meters per second. This was slightly above the normal wind speed for the quarter of 10.3 meters per second.
We could, however, have significant differences between locations, with high wind speeds in Denmark and Germany being offset by lower wind speeds in the UK. EBITDA for the quarter amounted to €4,000,000,000 for the same as Q1 'eighteen. Earnings from wind farms in operations increased €400,000,000 due to the ramp up of generation and €100,000,000 impact from the implementation of IFRS 16. The increase was partly offset by lower partnership earnings and higher project development costs. The increased project development costs were mainly related to activities in the U.
S. And Taiwan. The delayed investor position on Greater Changwa 1 and 2A means that we have expensed more product growth and costs in Q1 'nineteen, costs which would have been part of CapEx if we are taking FOB at the time we originally expected. Free cash flow amounted to €500,000,000 in Q1 'nineteen, an increase of €700,000,000 mainly due to receipt of deferred proceeds from the 50% down of Hornsea 1 to TRT and the proceeds from the expansion of our New England partnership with Eversource. Let's then turn to the results for Onshore on Slide 13.
Onshore power generation reached 8 26 gigabit hours in Q1 'nineteen, which was the Q1 with full generation from the Tahoeqa wind farm. The wind speed averaged 7.8 meters per second, which was below the normal wind speed of 8.3 meters
per second in the Q4, while
we had high availability of 97% across the portfolio. EBITDA came in at €152,000,000 for the quarter, with earnings from operational wind farms and production and other costs. Free cash flow amounted to a negative SEK 0.6 €1,000,000,000 primarily related to the investments in the construction of Sage Draw and LOCKT as well as the contingent payment to our turbine supply of Telkra. Turning to Page 14, covering the results in Bioenergy. EBITDA came in at €435,000,000 in line with Q1 'eighteen.
In Q1 2019, earnings from heat generation were slightly lower than last year due to warmer weather. Earnings from power generations were above Q1 'eighteen due to the lower flow of provision, but was partly offset by lower spreads and lower power generation. Free cash flows in Q1 'nineteen amounted to €0,100,000,000 a decrease of €500,000,000 This was driven by higher inventories and lower outstanding VAT due to the lower generation in Q1 'nineteen. Turning to Slide 15, covering the results in Customer Solutions. The EBITDA for Q1 'nineteen was significantly down year on year with a decrease of 600,000,000.
The lower results were mainly related to the gas portfolio activities within our markets division, where we saw a decline in earnings from €794,000,000 in Q1 'eighteen to €261,000,000 this quarter. The significant decline was due to several factors. In Q1 'eighteen, we were awarded a one off compensation following the completion of a renegotiation of a gas purchase contract. The substantial drop in gas prices during Q1 'nineteen resulted in fewer gas volumes sold, which we instead kept at storage. The lower gas price led to a decrease in the accounting value of our gas inventories and thus a temporary negative EBITDA impact in the quarter.
The negative impact will be partly offset if the gas price increase again or when we sell the gas later in 2019 2020 as we have hedged most portfolio optimization activities, where Q1 2018 was positively impacted by the COGS. These negative effects were partly offset by higher earnings related to our trading of our financial energy exposures in Q1 'nineteen. Despite the decline versus Q1 twenty eighteen, the Q1 'nineteen results for markets was above expectations. Free cash flow for the quarter decreased by NOK 700,000,000 due to the lower EBITDA and higher gas volumes at Astrologists. As you know, we announced our plans to divest our Danish power distribution residential customers and civilized Life businesses in 2018.
And we do not consider Oster as we do not consider Oster the best long term owner of these businesses. We still expect to sign divestments towards the end of the year, and we continue the separation of the businesses from the rest of the group. Slide 15 show our 2019 guidance and our long term financial estimates and policies. 2019 EBITDA guidance is unchanged relative to our guidance in the annual report for 'eighteen, and we expect EBITDA, excluding new partnership agreements, to be between €15,500,000,000 €15,500,000,000 Our gross investment guidance is also unchanged, and our gross investments are expected to amount to between 21 €23 €1,000,000 Our targets for our financial estimates and financial policies are in line with what we presented at the Capital Markets Day in November 2018 and in our annual report for 'eighteen. With that, we will now open up for Q and A.
Operator, please.
Our first question comes from Christian Johansen of Danske Bank.
So my first question is on the Greater Changwa 1 and the 2A project. Now that you've taken FID, I assume you have a much clearer picture on what the exact return impact from the lower PPA level and also this delay we've seen. So can you elaborate a bit on this?
Yes. Thank you, Christian. Of course, we now have an updated view on the business case that we FID ed yesterday in the board meeting. We obviously know exactly the impact from the revised terms for the 2019 PPA. And at the same time, as you know, we've been spending the past couple of months working with our suppliers in the region and elsewhere to recalibrate the terms and conditions of the different major supply contracts.
And all in all, these impacts have had to rise and have had an offsetting impact on the business case. So we are still quite comfortable with the risk return equation of the business case. We feel it's a balanced and solid business case for us.
All right. So only a minor return impact, is that what you're saying?
I would rather not start getting very specific on the exact return impact. It's quite clear that we have had a negative impact from the 'nineteen PPA being at a lower price than 'eighteen. On the other hand, we've had some positive impacts from renegotiating a number of supply contracts. We don't see an impact from any delay. We don't expect a delay to the project per se, so that's not an impact on the business case.
And all in all, this is left with a business case, which we find to be reasonable and balanced and also space.
All right. That's quite clear. Then my second question is on the same project, just in terms of your oil considerations around the farm down in terms of timing and the process how it will be compared to what you've done previously?
We would expect the found down in Taiwan to be well on track during next year. So we still expect a transaction to take place June 2020.
And you're still aiming for a 50% divestment as you have said before?
That's still our expectation, yes.
Okay. Great. And then my last question is just on this availability in offshore end of 96%, which is extremely high. Can you just elaborate a bit on what's driven this?
Well, I mean, we have simply just had a very strong availability across the entire portfolio. We are obviously investing a lot into a number of initiatives that will help drive up availability on the assets. We're investing a lot into a number of new digital tools to improve our preemptive maintenance on the turbines. And over time, we should expect these investments into these digital tools to also support a strong availability. But furthermore, we have seen very strong availability on the most recent assets added to the operating portfolio.
So, Raesebank, Waerli Extension, Therabobank Extension, we've generally seen very strong availability even during the early ramp up of these assets, which obviously has been encouraging.
Thank you. Our next question comes from the line of Janine King at Citi. Please go ahead. Your line is open.
Hi, good morning. Just two questions, please. Firstly, on Hornsea 1, can you remind us in your 15.5% to 16.5% EBITDA guidance, Have you given a precise time frame in which Hornsea 1 comes into operations for the will be such a fall within that guidance range? And also, have you seen a increased rollout of the turbines as a result of the low wind speeds in 1Q and year to date? And then secondly, just to clarify the Corneal Energy transaction presumably is very small.
Have you given out a price and also the potential size of the asset pipeline? Thanks.
Thanks, Jenny. When it comes to Hornsea 1, we haven't been more precise than saying that we expect completion and COB during second half of this year, and we still rather prefer to keep it like that. So sometimes June second half, which is also what will support the guidance. So we are still quite comfortable with the completion time line and its ability to support the EBITDA guidance. The turbine installation is progressing very well, and overall, I would just say it's on track.
I'd rather not start sort of saying that we're ahead of track because of the weather being benign. I'll just say that the project is well on track and we're quite comfortable with its ability to support our guidance. When it comes to the Corona Development acquisition, it's a relatively small acquisition. We are looking at a $1,000,000 amount in the low double digits, just to give you an indication of where we are. And in that number, you have a couple of contracted projects to the tune of 90 megawatts contracted with very solid counterparts, basically, mid Atlantic Northeast utility of JKs.
And furthermore, there is, of course, an extensive development pipeline of different degrees of maturity, and that's what we are now, over the coming months and quarters, going to further progress, mature and take a view on exactly which one of those projects we will start moving forward towards commercialization.
And perhaps while we talked about 2021, just one add on. While we expect to get full production during the second half, the DSD contract, there will be 3 times CSD start of CSD contracts for the first 400. That will be probably in May. As that will come into effect. And then for the next 400, it will be in Q1 2020.
And for the 3rd 400, it will be in Q1 2021.
Okay. So the power produced without a CFP would just be at whatever market prices.
At prices, yes. And actually, we have hedged we have already hedged it. So
Okay. Sorry, just two follow-up questions. The 51 turbine that you mentioned in your presentation for Q1, that's at end of Q1 or at that now?
Now.
As at now. Okay, perfect. Thank you very much.
Thank you. And our next question comes from
the line of Deepa Venkateshwaran of Bernstein. Please go ahead. Your line is
is open. I have three questions. Firstly, on Taiwan. Henrik, you mentioned that you're quite happy with these offsets because of your renegotiation. Are you able to comment therefore on what's your expectation on CapEx?
Because at the CMB, of course, you haven't done these negotiations. So that would be helpful. Secondly, wanted to ask you a bit more about your Netherlands subsidy free proposal. Could you throw in a bit more light on especially the green hydrogen part? You mentioned something about having a partner.
Maybe would you maybe just talk about that? And secondly, are you also expecting a better PPA for just the hydrogen part or the overall? And lastly, on Hornsea 1, Mayane, sorry, I didn't catch the last thing that you just said in response to Katie's question. So you're expecting the first 400 megawatts to get the CFPs from May 2020 and then we should assume every year? Or I was under the impression that you did it immediately for the first 410, subsequently for the other 400,000,000 in 2020, April 2019, 2021?
Maybe if you could just clarify that again. Thank you.
Thank you, Diva. Let's start with the
Q1. Yes. I said the 1st 400,000,000 will be May this year, May 19, And the next 400,000,000 will be Q1 2020 and the last part, Q1 2021. Okay, clear. Okay.
So whatever is commissioned, how we get the CFP before one third of the capacity should get the CFP? Thank you.
Dheepa, regarding Taiwan, we at the Capital Markets Day gave a relatively clear indication on where we are with the CapEx in terms of CapEx per megawatt, and that is still where we are. That's still our view on the expected CapEx for Strangwa 1 and 2A, and that, of course, was a number excluding the off fill. And then there will be an Ofco transmission asset investment on top of that number, which will not be dissimilar from what you would expect in the U. K. In terms of the off to CapEx ratio of the total CapEx investment.
So that gives you sort of an indication as to where we are in Taiwan.
So if I may just ask you, how would that be consistent with the first answer that you gave that you're probably happy with the offsets between the lower fit and the CapEx. That would suggest that obviously the fit has fallen versus the expectation in November last year. So would that not mean that the CapEx has to come down, all else being equal?
I mean, we've been itching out improvements in the number of supply contracts, and that has obviously given us some savings compared to the original case. But in order for that to materially change our guidance on CapEx per megawatt, I would be reluctant because then I start to get extremely specific in order to account for those improvements in the supply contracts. So rather than changing what we said at the C and D, I'd just say that we have seen some improvements. It doesn't give me reason to change our guidance at the CMD. I'll just say we've seen improvements that are offsetting a good chunk of the PPA change, and that still leaves us with what we consider a pretty robust business case on a risk adjusted basis.
Okay. Thank you.
To the Netherlands and the green hydrogen It's a project where we would, of course, invest in green hydrogen production, in this case, for industrial industrial use. So that means it would be green hydrogen replacing black hydrogen in the production of different types of industrial products, chemicals. I think that's probably as far as I can go right now. Obviously, should we get the award, we would be able at that point to provide further details on this clean hydrogen project. On top of that, we would, of course, go out and negotiate additional CO2-2s on other parts of the volume from the green hydrogen project to take up a certain part of the production.
But of course, we will still pursue corporate PPAs for the past and the total volume.
Thank you. Our next question comes from the line of Peter Bisztyga of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Three questions from me as well, if I may. First one, just a clarification on the guidance you gave at your Capital Markets Day, vis a vis construction agreement revenues of €2,600,000,000 to €2,700,000,000 and also project development cost of €1,800,000,000 Are you still comfortable with that following the Q1 results? My second question, just a quick follow-up on Taiwan and the farm dam process. Have you are you looking for a financial partner here? Or are you looking for an industrial counterparty?
And then finally, on the Ricebank PPA, can you give us sort of any indication of price level for that? And are you looking at corporate PPAs for any other parts of your currently sort of merchant offshore fleets in the UK?
Thanks, Peter. Let me start just on the guidance provided on the construction gains and the Devex that we would expect for 2019, those are numbers that we can stand by. When it comes to Taiwan, obviously, we do not have visibility on exactly who that buyer will be in the thumb down process. If I were to guess right now, I would expect a financial buyer to be more likely than an industrial buyer. When it comes to the raised bank PPA, I cannot give you the exact price of the Northumbrian water PPA, But we will, of course, continue to look for copper PPAs that will help offset any merchant risk we have across our portfolio in Europe, not only the U.
K, but obviously also in the Netherlands and also for potential future German FIDs.
Great. Thanks very much.
Thank you. Our next question comes from the line of Mark Freshney of Credit Suisse. Please go ahead. Your line is open.
Yes. Can I please ask 2 questions? Firstly, I mean, you're still tendering for projects, but how far away do you think you are from sanctioning an offshore wind
project without
a PPA? And I guess Grace Bank would potentially be the 1st candidate. Do you think it's possible that the extension to that you could next year potentially build it on the basis of a corporate PPA? And secondly, if I may, just a question on the U. K.
Operating assets. You still have a very large exposure to the U. K, threefour of your current business. I'm sure that you get lots of proactive approaches to buy completely buy out existing wind farms or people looking to take things like Hornsea 2 and even Barcela. Would you revise your plans not to farm down those projects if the right offers came along?
Thanks, Mark. When it comes to sanctioning the first potential full merchant project, you could say the lead candidate would be the Holland Coastal 3 and 4 project, where we submitted a bid into the tender in mid March. And at the same time, the Board of Directors made the final investment decision. So you can say if we get that awarded, we have already made the FID. So that would essentially become our first FID on a free merchant project.
As we discussed earlier, we already have progressed a number of initiatives to offset that merchant risk through contracts, the traditional corporate PTAs or as we discussed, a PPA going into green hydrogen production. So that would be the first such example. When it comes to potential additional farm downs, we have no such plans above and beyond the Taiwan farm down next year. One should never say never. It's not like I'm going to issue a guarantee that we would never again farm down in the European portfolio.
All I can say is that we have no such plans at the moment. Of course, we're open for very attractive offers at any given point in time, but we don't have a need for farming down. And therefore, it would indeed have to be a farm down opportunity that would add incremental substantial incremental value in its own right.
Thank you. Our next question comes from the line of Sam Arie of UBS. Please go ahead. Your line is open.
Hi, good morning. Thank you for the presentation. And I think I want to say congratulations on another great set of results. I'm making happy to say that. So I'm not at the top now, but very good to see.
My questions are just firstly, you made a comment about the grid disposal still going ahead this year, but your kind of commentary on that was quite high level. I just wonder if you could give us a bit more color on where we are in that, the prospects for getting difficult support for Avaya. And basically, if you've got a solution now on the table or if there's still a bit of a debate there on exactly what would be agreed and any risk on getting that approved by the end of the year? And then secondly, I wanted to just take a minute on your Slide 19. It's very helpful.
And just to say your capacity and so on. What the slide is showing is you've got 8 gigawatts already installed, but there's 17, including all the awards and construction sites. So I just wanted to tie that back to your broad guidance for 2,030 of 30 plus gigawatts, which I think was the guidance for constructed renewables. So I think I'm understanding your 8 gigawatts, if you hit that 30 plus target, becomes 30 in 2030. But unless the global renewables market kind of suddenly falls off a cliff, and I'm guessing that's probably not your central scenario, And it seems that if your installed and construction and awarded projects is more likely to be in the 40 to 50 gigawatt range, 20 to 30, assuming just a run rate of 2 or 3 gigawatts of projects that you add to that per annum, which is about half of what you added in the last year, I'm talking to Slide 19.
So can I check that logic is correct and particularly the 40 to 50 broad number for the next decade? Thank you.
Thank you, Sam, so much. On the grid disposal, we obviously discontinued the project we had going earlier, and we have spent about a couple of months just sort of putting that to bed and then taking a look at what our options and obviously also taking a fresh look at the political signals that we also have to take into account here. It's quite clear that there's no opposition to the legalities whilst disposing these assets. In fact, I think there's a political support that we should divest the assets. We are basically expecting to relaunch the process and run it during the second half of this year.
Obviously, we're well prepared given that we have everything up and running and all of the materials and the data rooms, etcetera, have been prepared. So we are well prepared for running a relatively focused process once we get probably beyond the summer holidays. So our expectation would be that we should be able to sign transactions towards the end of 2019. So that's really where we are. So we are relatively comfortable that we can execute these transactions as expected.
When it comes to the bid out target for 2,030, I share your view that the global growth opportunity is very, very significant across regions, across technologies. We have set 30 plus gigawatts by 2,030 of installed capacity. I'm not going to change that number today. You'd probably be surprised if I did. I'll just say that at the Capital Markets Day in November, we said 30 plus, and we stick to that number.
We still believe that 30 plus is a very comfortable number for the company. And we have, we believe, a certain amount of visibility as we also try to outline on Page 19 on how we are going to get well on our way towards that number. So I'm not going to change the number. I share your optimism as to the global growth opportunity, but we'll take it once again at a time. And for now, we feel the 30 plus is a good number.
Okay. So just to be clear, the 30 plus is comparable to the 8 today and the 17 today at the bottom of Page 19 is up to us to take a view of where that could go, but sort of almost by definition, that's quite far ahead of the strategy.
That's correct, Sam. Yes.
Good. Thank you for your answers.
Thank you.
Thank you. Our next question comes from the line of Markus Blender of Nordea. Please go ahead. Your line is
One question for me. The acquisition of Coronal Energy, I was wondering if you could talk a little bit about the strategy that lies behind that.
If this
you're planting a new seed for or a seed for a new business area kind of like you did with the onshore division? Or is it more of a way of complementing or completing the onshore business in the U. S? I mean, there are quite a few hybrid projects surfacing at the moment. So I'm just wondering how you're sort of framing that acquisition.
Yes. Thanks, Markus. Again, it's the development unit of It's a very experienced, arguably one of the most experienced and successful solar and storage development teams in the U. S. That we essentially have acquired together with the pipeline.
And we very much see it as complementary to the acquisition of Lincoln Clean Energy last year. Lincoln Clean Energy is progressing very well and, in fact, ahead of our expectations at the moment. And we believe the combination of onshore wind, solar PV and storage gives us a very strong platform for long term growth in the U. S. And it adds to the capability that we already acquired through Lincoln.
The coronal solar and storage development team will be merged into the Lincoln platform also organizationally. And to the point you made, we do see a future where demand from major corporate PPA offtakers increasingly, we'll focus on having more of a 20 fourseven green load profile where we should be able to combine complementary low profiles of solar PV and onshore wind and overlaying storage to further build a more smooth around the clock green low profile for our major corporate customers. We believe that is going to be part of the future in the U. S. And elsewhere.
And you should see this acquisition in light of that strategic market development.
All right. That's very clear. Thank you.
Thank you. Our next question comes from the line of Ian Turner at Exane. Please go ahead. Your line is open.
Good morning, everyone. Can I just ask you again about Hornsea 1? If I look in Alexion, I can see that there's a 400 Megawatt offshore substation connected up into the system. So does that mean that all of those turbines that you said are now complete are actually generating?
If they are, when do you
think you get to the 400 megawatts under the first tranche of the CFD?
Yes. The turbines installed are generating power, and the first tranche of the CFD will kick in during this month, May 2019.
Thank you.
Thank you. Okay. We have one final question coming through at this time. That's from Klas Kohl at Senior Credit Markets.
Two questions from my side. Could you talk a little bit about the competition in the ongoing auctions around the world? And perhaps talk a little bit about whether you are seeing a more aggressive approach from, for instance, the oil companies, which recently have become a little bit greener than they used to be? And secondly, could you give us your thoughts about the U. S.
Control market and going forward? And what I'm thinking about is that if you were to add new projects, a, you would have to do that with a much lower PTC level. So how would that, yes, affect the profitability levels? And would it still be interesting for you to add new projects? That would be my two questions.
Thanks, Claus. On the competition, I mean, it's quite clear that you see different competitive structures in the different regions and markets around the world. If you go to Taiwan, you'll find one set of competitors. If you go to certain European markets, you'll see differences even just between the UK and Mainland Europe. And then moving on to the U.
S, you will have a whole picture. In the U. S, it's quite evident that the oil majors have decided to enter the market, most notably Shell and Equinor so far. So clearly, they are showing their determination to move into offshore wind and quite clearly, the auction outcomes in the U. S.
Over the next few months will be a first indicator right after how that's going to play out. So obviously, too early to tell. We will be holding our breath like everybody else to see the outcome from New York and New Jersey, not least. So we have some exciting months ahead of us here. But no doubt, competition is going up at the end of the day.
We should not forget that always global demand. We continue to see a significant expansion of the global offshore wind market. So we should see, let's say, the supply from more players entering the market also being matched by a significant ongoing increase in total demand for offshore wind. When it comes to U. S.
Onshore, we're still building 100% ATC project at the moment, but also includes the sector RFID yesterday. We have a pipeline of 60%, 80% PTC projects still to be towards 2022. So for the next few years, we'll be building projects with between 60% 100% PPC support. Beyond the PPC expiry, there is no doubt that the market will need to go through a realignment. Right now, corporate PPAs are being struck at prices that are very low and I would say are very attractive to the corporations buying green power at very low prices to the PTC support.
Over time, we should see the PTC support being as it disappears, should be offset by a realignment of the price on copper PPAs as well as the continued reduction in cost of electricity on onshore wind. So I'm still firmly convinced that onshore wind fundamentally is a hugely competitive technology from a carbon electricity point of view long term, and I also have no doubt that there will continue to be a strong market in the U. S. Also beyond Okay. Thank you.
And we have one further question coming through. That's from Virginia Santenade of
Santander. No, sorry. My questions have been answered already. Thank you.
No problem. And as there are no further questions at this time, I'll hand back to our speakers for the closing comments.
All right. So this concludes the earnings call. Thank you all very much for joining, and have a continued great day.