Dong developer deals show spirit in new markets


October 6, 2017

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Ding Dong! The name is dead. This week started with news that Danish utility Dong Energy is changing its name – and not just because of those below-the-waist jokes.

Dong is short for ‘Danish Oil and Natural Gas’, and this no longer makes sense after the sale of its oil and gas operations to Ineos for £1bn. It couldn’t call itself D Energy and so, after mulling hundreds of names, it has chosen Ørsted as a nod to Danish physicist Hans Christian Ørsted. I like it. I’m sure I can live without Dong.

Even without the re-branding, it has been another busy period for the company. Our Finance Quarterly report, due out on Tuesday, shows that the-artist-formerly-known-as-Dong was involved in the largest project M&A deal of the last three months, as it sold 50% stake of its 450MW Borkum Riffgrund 2 to Global Infrastructure Partners for €1.2bn. It is selling the stake to recycle capital.

The utility also attracted headlines last month as it won UK Government backing for its 1.4GW Hornsea 2 project under the Contracts for Difference regime. In doing so, it is helping re-shape the debate about the cost of backing offshore and onshore wind.

These are both significant stories. But, in our view, there are two smaller Dong deals from the last three months that are the most interesting of all. Dong signed a letter of intent with developer NaiKun Wind Energy Group to partner on the 2GW Haida wind farm in Canadian waters; and agreed to partner with Dominion on its stalled 12MW scheme off the coast of US state Virginia.

To us, this is important because it indicates there is an exciting new dynamic in offshore wind, and a return to something of the pioneering spirit that we saw in the sector’s early days in Europe. Back then, smaller developers had a chance to work on schemes and make it big – or lose a lot of money and go bust. Emerging markets are bringing this spirit back.

This has been lost in Europe as the market has grown. The emergence of utility-scale players including Dong, Iberdrola, Shell, Statoil and Vattenfall has squeezed out the smaller developers, which cannot compete as hard as on price in subsidy auctions of the type we see in Germany and the UK. Mainstream Renewable Power has worked on successful projects, including its long-awaited 450MW Neart na Gaoithe, but has now put its offshore plans on hold because it does not feel in a position to compete.

This is also why Statkraft is cutting its exposure to offshore wind. These developments are now only for the utilities with the biggest balance sheets. There is nothing wrong with that. Offshore wind farms had to get bigger and more efficient if the industry was to be taken seriously as the mainstream source of power it now is.

Even so, we have missed the diversity of those smaller names.
And this is one reason why we find the offshore market in North America and Taiwan so exciting.

In North America, we are seeing new developers emerge, most notably Deepwater Wind in the US with its 30MW Block Island project, but others too. NaiKun did its deal with Dong, and we see other players like Beothuk Energy and Trident Winds.

There is a similar trend in Taiwan. Established Canadian firm Northland Power is working with Enterprize Energy subsidiary Yushan on two projects, of 700MW and 500MW each; and Macquarie and Dong are working with Swancor on the 130MW Formosa 1. These new markets are giving new players the chance to bring forward schemes and partner with big firms, from who they can gain knowledge and returns.

That is not to say Europe is a totally closed shop. This week, we saw Parkwind partner with Oriel Windfarm Ltd – which is led by Brian Britton – on the development of the planned 330MW Oriel wind farm in waters off the coast of the Republic of Ireland.

And, for the most part, we would not go back. Offshore wind is now a reliable and serious industry thanks to work done by firms such as Dong – sorry, Ørsted. We wouldn’t change that. But it is fun to see emerging markets bringing back a bit of that Wild West spirit.

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