COPENHAGEN – An organization whose identify stands for Danish Oil and Pure Gas is getting out of each companies.
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Dong Energy AS, Denmark's majority state-owned vitality firm, is promoting off its final oil and pure-fuel fields in a deal anticipated to shut this month or subsequent. The billion-greenback-plus sale is a part of a broader plan to considerably cut back its publicity to fossil fuels and produce vitality primarily from renewable sources.
With the assist of a large infusion of money from Goldman Sachs Group Inc., Dong Energy over the previous few years has remodeled itself from one in every of Europe's most coal-intensive utilities and a small regional oil participant into the world's largest producer of offshore wind energy.
Dong's wind generators off the coasts of Europe have virtually triple the windpower-producing capability of Sweden's Vattenfal, the firm's nearest competitor. Now Dong has set its sights on serving to to ascertain the U.S. offshore wind business, taking a look at three new initiatives off the East Coast.
On the outskirts of Denmark's capital, the firm's largest energy plant is now burning wooden pellets -- a renewable vitality supply regardless of some issues over their environmental credentials. By 2023 the firm intends to go fully coal free, although a few of its energy crops will proceed to burn pure fuel.
Dong's transformation comes as world oil-and-gas giants wrestle with the prospect of oil demand plateauing amid a push to sort out local weather change. Firms like Royal Dutch Shell PLC, Norway's Statoil ASA and France's Complete SA are additionally constructing their renewable companies and betting billions on an vitality future the place oil performs a diminished position.
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"The world wants to vary the means it produces vitality," Dong Chief Govt Henrik Poulsen mentioned.
Shell and different greater oil firms say they haven't any plans to desert their core oil and fuel enterprise, regardless of stress from some shareholders.
"Tying the firm's palms right down to a renewables-solely mandate, I feel, could be strategically and commercially unwise," Shell Chief Govt Ben van Beurden instructed buyers at the firm's annual assembly final 12 months.
Dong started forming a method shift its focus from fossil fuels round 2008, as the standard-energy business in Europe flailed and the European Union set new targets for renewable vitality in the bloc's energy combine.
At the time, 85% of the firm's energy manufacturing was based mostly on fossil fuels. Offshore wind was one in every of the costliest vitality sources in the world and solely a handful of ocean-certain wind farms had been constructed.
Goldman noticed a chance when the firm was searching for cash to assist it by way of a monetary rocky patch. In 2014, the financial institution paid eight billion kroner ($.29 billion) for an 18% stake in the firm, which stays 50% owned by the Danish authorities.
It's the largest funding Goldman has made thus far in renewable vitality, and one in every of its largest investments in a single firm exterior the U.S.
"We did numerous evaluation and concluded offshore wind could be one in every of the prevailing applied sciences in the long run," mentioned Michael Bruun, a Goldman accomplice who helped run the deal.
There are dangers. Most offshore wind initiatives rely on authorities help to compete with coal and fuel, however for the know-how to turn into extensively used it should must be commercially viable with out subsidies. Offshore wind nonetheless represents a fraction of the vitality market, and biomass -- which incorporates wooden pellets -- is simply capable of compete with coal because of combos of subsidies and taxes.
Dong has guess billions that its enterprise mannequin can succeed. Since 2011, it has spent 61.5 billion kroner on wind farms and has thus far spent round four billion kroner on changing its energy crops for biomass use.
However thus far, the funding has paid off. Dong's IPO final 12 months was one in every of the largest in Europe. The corporate's shares have risen one other 31% because it went public. The corporate mentioned its annual earnings earlier than curiosity, tax, depreciation and amortization greater than doubled from 2011 to 2016 to $19. billion kroner.
The price of offshore wind initiatives has come down a lot sooner than the business anticipated. Earlier this 12 months, Dong mentioned it might construct two wind initiatives in the German North Sea with no authorities subsidies -- a milestone few anticipated to return so quickly.
Dong's plan to desert funding in fossil fuels has accelerated. Over the subsequent six years it intends to complete changing its remaining coal-fired energy crops to biomass, fully phasing coal out of its operations by 2023.
At the Avedøre energy plant simply exterior Copenhagen, the expansive open-air coal yard sits largely empty. The boilers inside the futuristic constructing are actually primarily fed from silos housing piles of wood pellets.
Biomass energy -- generated primarily by burning wooden and different plant particles -- is not with out its critics. Environmentalists say it's nonetheless polluting and the demand for wooden gasoline poses a risk to forests, however Dong believes it may be burned sustainably. The corporate decreased its annual emissions by round 70% between 2006 and 2016.
The ultracompetitive U.S. market presents an necessary take a look at for Dong's future. The corporate needs to construct wind farms off the coasts of New Jersey, Virginia and Massachusetts.
"They dwell in a rustic the place folks will actually pay extra for electrical energy if it is sourced inexperienced, "mentioned Joseph Bower, a Harvard Business Faculty professor who has written a case examine on Dong. "They usually're coming to a rustic the place the solely factor that counts is value."
--Erin Ailworth in Houston contributed to this text.
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(END) Dow Jones Newswires
August 31, 2017 05:44 ET (09:44 GMT)