Matthew Wright, managing director, Dong Energy UK
"This idea of baseload is overplayed, because what we are seeing is more flexibility in the demand side."
Six months into that transition, and Wright isn’t looking back. He wishes old colleagues in the water sector well as they head into the challenging 2019 price review, but admits he has no time to keep a weather eye on its outcomes for his former firm.
Instead, Wright’s attention is firmly on his new brief, and despite the dampening effects of a bad cold, he manages to convey genuine animation when considering the opportunities that a “paradigm shift” – an overused phrase, he admits – in the energy industry represents for a firm that is nimble enough to grasp them.
And Dong is undoubtedly such a company. Of all Europe’s big energy players, it has been among the fleetest of foot in acknowledging the new world order implicit in the decarbonisation agenda, and adjusting its business to fit.
In 2006, Dong owned thermal power stations with a combined generating capacity of 5.7GW. It considered itself a leader in the construction of “clean coal” plants and also supported extensive oil and gas exploration and production activities in the North Sea, which brought in around 40 per cent of the group’s pre-tax profit. Meanwhile, offshore wind was a footnote in its annual report.
“The old name – which originally stood for Danish Oil and Natural Gas – had to go. It was no longer a good description of who we are and who we want to be.”
By contrast, in 2016, Dong reported that its offshore wind business accounted for 63 per cent of the group’s earnings before interest, tax, depreciation and amortisation (Ebitda), which totalled DKK25.6 billion (£3.1 billion) for the year. Meanwhile, oil and gas exploration accounted for just 4 per cent of business activities (they are now discontinued altogether) and the company aims to phase out coal by 2023, either by closing its coal plants or converting them to biomass.
Given this radical transformation, it is small wonder that Dong has decided it is time to dissociate itself from its fossil-fuel reliant past and create a new name to carry forward the group’s green ambitions.
Although he is relatively new to the company, Wright is nonetheless keen to sell the story behind its new brand – Orsted. “The old name – which originally stood for Danish Oil and Natural Gas – had to go. It was no longer a good description of who we are and who we want to be,” he says.
“The new name – I love the new name – is after Hans Christian Orsted, who has been described as the Danish Tesla, or Edison, or Faraday to keep it more local.”
In 1820, Orsted discovered electromagnetism, which remains the fundamental physics behind the workings of today’s wind turbines. “But he was also the first to extract aluminium, he also wrote poetry and philosophy and effectively founded the top technical university in Copenhagen.
“It was that spirit of inventiveness, creativity, curiosity, that really got people excited about the name,” Wright continues. “It represents the whole culture that we want in our company, of reinvention, curiosity, pushing boundaries forward.”
The rebranding process will take hold in earnest in November, but already Wright is proud to proclaim that he has his Orsted cycling gear in action, and he jogs across his pristine corner office to point out his Orsted-branded model wind turbine, spinning the blades with satisfaction.
Orsted’s vision for a low-carbon future gravitates around its meaty portfolio of UK offshore wind assets, which currently have a combined capacity of 2.5GW.
This will soon be extended with the construction of Hornsea 1, the world’s biggest offshore windfarm, with a standalone capacity of 1.2GW. And earlier this year Dong was also given consent by the UK government to build Hornsea 2, an even bigger project, with a projected capacity of 1.8GW.
With such a fleet at his fingertips, it’s no wonder that Wright is keen to talk up the potential of a future energy system “based on a backbone of offshore wind”. He welcomes the government’s recent Clean Growth Strategy for the recognition it gives to the maturity offshore wind has achieved – halving technology costs in just a couple of years – and its promise to make £557 million available for “pot 2” technologies, including offshore wind, in the upcoming contracts for difference (CfD) auction in early 2018.
“It’s a welcome continuation of a policy over successive governments to complete the journey for renewable energy, and offshore wind in particular, to bring it to a point where it has subsidy parity with other forms of generation,” says Wright, who characterises the sector’s achievements in the last CfD auction as a “breakthrough moment”.
“People started to really understand what has been achieved in this space in terms of cost reduction, and what that truly means for its potential.
“When I first joined Dong – Orsted – I read a report which said the whole of Europe could be powered 1.8 times over by wind from the North Sea alone. That is a staggering statistic. Now, people can see that the cost part of that challenge has been addressed. The potential for offshore wind to be the backbone of the new energy system is being appreciated and people are getting very excited about it.”
Can the price of offshore wind keep dropping? Absolutely, says Wright, who believes that “the world will inevitably have moved on” from the £57.50/MWh contract secured by Dong this September, by the time the next auction takes place in February 2018.
“I’m no fortune teller, but I do continue to be staggered that even in mature technologies you can keep finding more efficiency. Think of the internal combustion engine and how we are still getting more and more fuel-efficient vehicles. You are never done… are we out of the steepest part of curve now? Probably. But does the cost now just plateau? No.”
Wright is clearly delighted that “the job’s not done yet” on offshore wind cost reduction. But this news might not be music to the ears of all in the energy sector.
"Does £92.50 for Hinkley look as good a deal a year on, now that we know the new price for offshore wind? It’s easy to look with the benefit of hindsight and say ‘I’m not sure I got the best deal’.”
The record low contracts secured by the offshore wind sector this September inevitably triggered renewed criticism of the controversial strike price afforded to the Hinkley Point C new nuclear project in Somerset and reanimated an ongoing debate about the relative value of clean baseload power to the future energy system, versus continued expansion of cheaper intermittent renewable energy sources.
Wright’s not shy of seizing this thorny issue, and though he keeps his language relatively diplomatic, it’s clear he doesn’t put much stock in the idea that a raft of new nuclear plants is essential to support low-carbon energy security in the future.
“It’s good to have the debate,” he says. “This is the whole point – the world moves on. Does £92.50 for Hinkley look as good a deal a year on, now that we know the new price for offshore wind? It’s easy to look with the benefit of hindsight and say ‘I’m not sure I got the best deal’.”
Now, says Wright, the UK should absorb the evidence at hand and accept that “there are alternatives [to nuclear power]. There may be more alternatives in the fullness of time”. And while the Hinkley deal may be impossible to unpick, future new nuclear schemes “must do better, now that we know what an alternative cost is”.
But cost isn’t the only issue. What about the problems that intermittency poses for the grid, and the need for baseload power to give it a cushion of stability?
Wright isn’t convinced by these arguments in favour of nuclear investment. “This idea of baseload is overplayed, because what we are seeing is more flexibility in the demand side. So yes, it’s true we are getting more intermittent sources on the supply side, but equally, there is going to be storage flexibility on the demand side. People are getting excited– I think with good reason – about electric vehicles, and the ability to store energy in a very distributed way.”
Such developments, alongside the use of energy conversion technologies to complement renewable generation assets, mean that “intermittency of supply becomes less of an issue”, insists Wright.
Getting on a roll, he continues: “People write off renewables as intermittent and therefore not baseload. But the best offshore wind projects today have got a 50 per cent load factor. So on average, they are generating nameplate capacity 50 per cent of the time.
“If you look at the diversity benefits of the some of the projects in the North Sea you can probably get that to more like 70 or even 80 per cent… True, that still means there are times when the wind isn’t blowing and you need something else in the mix. But something else that was generating 80 per cent of the time would be called baseload.”
With Orsted having so many eggs in the offshore wind basket, it’s unsurprising that even its newer executives are so ready to defend its virtues. But not everything in the business revolves around a nacelle.
In the UK, Orsted’s other interests include the commercialisation of a first of a kind energy-from-waste technology, being demonstrated at its Renescience plant near Northwich, and its energy retail business for the industrial and commercial market. It also has feelers out in the energy storage market, not just for the purpose of making wind a “firmer” product, but also to exploit its potential as “a market in its own right”, providing flexibility services to the grid.
Wright hopes the Renescience experiment will provide Orsted with another opportunity to prove its expertise in advancing nascent technologies to scale deployment. The plant, which is currently being commissioned, will produce a range of recycled materials and refuse-derived fuels from unsorted household waste, for application in myriad industries. Among these products, biogas is key, and Wright sees the potential to forge relationships with local gas grid operators, to provide them with low-carbon fuel for their networks.
In the retail business, meanwhile, Wright says the focus is all on building its energy services strategy – enabling customers to achieve organisational targets for cost or carbon emissions reductions, rather than vending energy.
Of course a key factor in the energy consumption of many industrial businesses is their water usage, but despite his experience in this sector, Wright says Orsted has no plans to bundle water retail into its energy-management-as-a-service proposition.
“It isn’t something we’ve discussed,” he says with a smile. “But who knows – I’ve heard there’s a market there!”
Another direction Orsted will not be taking anytime soon in its energy retail business is an expansion into domestic supply. While other established names such as Engie and Shell have recently made this leap, Wright says it’s not something he currently considers viable – “that said, we are a supplier in Denmark, where we have a million domestic customers. So it is something within the group’s capabilities”.
For now though, Wright is focused on the fundamentals for Orsted UK. And while these include rising interests in the circular economy and service innovation, overwhelmingly they centre on the conviction that offshore wind will be the keystone in the world’s low-carbon future.