Offshore projects push DONG's wind profit up by 40%

€47m cost of delayed commissioning for London Array

Wind energy revenue jumped by 88.1% and EBITDA by 39.7% for DONG Energy during the first nine months (Q1-Q3) of 2012. These strongly-positive results represent a bright spot in an otherwise largely-downbeat set of financials for Denmark’s largest energy company.

In fact, DONG’s offshore-dominated wind energy division achieved a higher EBITDA than its thermal power division – DKK1.8bn (€241.3m), which was 42.9% higher than the EBITDA recorded by the thermal power business.

Wind now represents about 30% of DONG’s power production

On a group-wide basis, EBITDA fell by 43%, despite a significant increase in revenue, with writedowns announced to account for losses in the company’s gas-related activities.

Broadly speaking, "overcapacity" in the continental European gas market has been DONG’s biggest headache this year, and a significant factor in its DKK2.4bn loss for the Q1-Q3 period. DONG is far from the only European energy company struggling with lower-than-expected demand for gas. Earlier this week, Vattenfall chief executive, Øystein Løseth, described lower demand for gas and the rise of renewable energy as "the new normal".

2012 offshore wind successes

Since August, DONG’s world-leading offshore wind development programme has been boosted by ‘first power’ being achieved at three projects. Electricity generation began at the 270MW Lincs offshore wind farm in August, in which DONG owns a 25% stake.

This was followed by first power at 400MW Anholt in September. DONG owns 50% of Anholt and has received fees from its co-investors for management of the wind farm’s construction.

DONG’s wind business has also been bolstered this year by fees from co-investors in the German 320MW Borkum Riffgrund 1 project. Indeed, just over a third of total revenue reported by DONG’s wind business during Q1-Q3 (DKK1.8bn out of 5.1bn) represented offshore wind construction fees from co-investors in Anholt and Borkum Riffgrund 1.

DONG also announced that first power had been achieved at the 630MW London Array 1 project. As the project’s largest shareholder (50%), the company had hoped for commissioning to begin a few months earlier, and chief executive Henrik Poulsen confirmed to Windpower Offshore that the delay is estimated to have cost DONG about DKK350m.

"We had expected first power to occur in the late summer period, but it was a couple of months later," Poulsen told Windpower Offshore. "We are currently making very good progress at London Array and we expect full commissioning in the second half of H1 2013."

Other offshore wind successes during 2012 have included full commissioning in April of 183.6MW Walney 2 offshore wind farm and important progress toward the first offshore tests of Siemens 6MW turbine, which DONG intends to deploy at its future UK projects. The installation of two monopiles and transition pieces has been completed at the Gunfleet Sands 3 demonstration site, which will be used to test the Siemens machines.

Outlook for 2013

If 2012 is proving to be a disappointing year for DONG’s headline financials, next year is expected to be far better, "especially within wind power, where we expect to see a further increase in earnings," said Poulsen.

With three projects due to be fully commissioned by the end of H1 2013 – Lincs, Anholt and London Array 1 – DONG’s installed offshore wind capacity is forecast to jump by 60-70% between mid-2012 and mid-2013.

DONG has also indicated that it will make divestments in a bid to cut its debtload. These may include reductions in the stakes it holds in planned offshore wind projects. Staff cuts across the group of 500-600 are also planned. Whether this will affect its 1,916-strong wind business is unclear, however, the division is unlikely to be a priority for cost cutting.