Ørsted A/S
Q4 2020 Earnings Call Transcript

Published: 3 Feb 2021

[Operator:]

Hello, and welcome to the Ørsted Q4 2020 Earnings Call. 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, I'm pleased to present Mads Nipper, CEO, and Marianne Wiinholt, CFO. Please begin your meeting.

[Mads Nipper:]

Thank you, very much and good afternoon, everyone and welcome to the earnings call. As you know, I'm now five weeks into my new job, and while I'm of course still very steep learning curve, I must say that I'm really excited to be part of the Ørsted family, which so far has fully lived up to my high expectations. I've already had the opportunity to visit many parts of the organization. And everywhere I come across the people have impressed me with their professionalism, expertise, and not least their deep passion for our vision of a world that runs entirely on green energy. I also look forward to working with all of you, our investors and analysts among our most important stakeholders. And I do look forward to hopefully soon being able to meet you in person. If you haven't done so already, I'll encourage you to watch my introductory video on our company webpage, where I talk a little bit about who I am as a person and leader and answer some of the questions we've received from our analyst community. Now let's turn to our Annual Report. This is my first set of results for Ørsted and I'm very satisfied with our strategic progress and operational and financial results in 2020. Due to COVID-19, 2020 was an extremely challenging year on many fronts, but we were nevertheless able to maintain our leading position in a global high-growth market. And we have continued to build a strong and financially sustainable pipeline of renewable capacity. I'm grateful for the support and professionalism of our customers and partners as I'm keenly aware that only together we can create great things and live up to our high expectations. In 2020, we delivered financial results exceeding our expectations, which proves the resiliency of our business model and is a real testimony to the hard work and ingenuity of our frontline employees. They have been able to keep our assets operationally and to make progress on our complex construction products with limited impact from the pandemic. None of these achievements would have been possible without our talented people who remain the most important assets of Ørsted and who have adapted very impressively to the challenges in the wake of the COVID-19 crisis. Our Group EBITDA in 2020 came in at DKK18.1 billion, an increase of 4% compared to 2019. Earnings from offshore and onshore wind farms in operation increased by 14% to DKK16.9 billion driven by ramp-up of our new offshore and onshore wind farms, and higher wind speeds. These positive developments were partly offset by adverse COVID-19 related impacts and/or earnings from trading related to hedging of our power exposures. Our return on capital employed for 2020 was 10% in line with our target of an average Group ROCE of around 10% in the period 2019 to 2025. On the back of our strong financials, we will propose a dividend of DKK11.5 per share to the Annual General Meeting, corresponding to an increase in dividends of 9.5% and in line with our dividend policy of increasing the annual dividend by a high-single-digit percentage compared to the previous year dividend up until 2025. In 2020, the Ørsted share yielded a total shareholder return of 82%. Let me take you through some of the key accomplishments in 2020. In our offshore business, we signed the world's largest renewable energy corporate power purchase agreement with Taiwan-based TSMC for the 920 megawatt Greater Changhua 2b and 4 offshore wind farm, where TSMC will offtake the full output from the project. We commissioned our first Dutch and the world's second largest offshore wind farm, the 752-megawatt Borssele 1 & 2 on time and budget. We've initiated a structured farm-down process of Borssele 1 & 2 and expect to sign an agreement in the first half of 2021. We signed the agreement to farm-down 50% of the Greater Changhua 1 offshore wind farm to CDPQ and Cathay PE. In Japan and Poland, we have made good progress with our market entry strategies, and have entered partnerships with leading local energy companies. Within our renewable hydrogen activities, we have also made significant progress and are currently involved in eight different projects across Europe. In onshore, we commissioned the Sage Draw, Plum Creek and Willow Creek onshore wind farms in 2020. And we further strengthened our construction pipeline by taking final investment decision on two onshore wind farms and two solar farms. We're well on our way of achieving five gigawatt of onshore renewables by 2025, of which 3.4 gigawatt are already commissioned, or currently under construction. In markets & bioenergy, we divested our Danish power distribution, residential, customer and city light businesses, as well as our LNG activities, which supports our strategic focus on renewable energy. And lastly, we commissioned our Renaissance plant in the UK. We're still in a phase where we monitor the stability of operations and are working on the commercialization of the technology. Now moving on to Slide 4. In Q4 2020, we saw significant strategic progress across our business. We commissioned our Dutch wind farm Borssele 1 & 2 which brings our total installed capacity in offshore to 7.6 gigawatt and shows we're well on track to meet our ambition of 15 gigawatt offshore capacity by 2025. We signed Europe's largest offshore wind corporate PPA with Amazon. For 10-year periods, Amazon will offtake 250 megawatt from our 900 megawatt Borkum Riffgrund 3 offshore wind farm, which brings the total contract share to 350 megawatt for the first 10 years of operation. Borkum Riffgrund 3 is expected to reach final investment decision towards the end of 2021 and to be fully commissioned in 2025. With the CPPA agreement with Amazon, we have signed CPPAs on accumulated capacity of 1.3 gigawatt over the past 12 months across our offshore wind portfolio. In early December, we entered into an agreement to divest 25% of our 1.1 gigawatt Ocean Wind project in New Jersey to Public Service Enterprise Group PSEG and we expected to complete the divestment in the first half of 2021. And as already mentioned, just before the turn of the year, we signed an agreement to farm-down 50% of our 605 megawatt Greater Changhua offshore wind farm in Taiwan to partner CDPQ and Cathay PE. It is encouraging to see once again, see institutional investors playing an important role in the transition to renewable energy and low emission economies. And the transaction marks a milestone in successfully applying our partnership farm-down model in Asia-Pacific for the first time. We continue to make headway into the renewable hydrogen market, now with eight projects and partnerships. We announced our Lingen Green Hydrogen project with BP for 50 megawatt electrolyzer system in Northwest Germany to go operational in 2024 and the project will be powered by one of our North Sea offshore wind farms. We also have made progress with our Greenfields for Denmark partnership to develop 100% hydrogen powered ferry. Finally, we announced our fuel cells and hydrogen to joint undertaking with ITM Power, Siemens Gamesa Renewable Energy, and Element Energy to test a megawatt scale fully marinized electrolyzer to start in 2021 and run through 2024. We're well-positioned within green hydrogen to capture a part of the ambitious government targets such as the EU 40 gigawatt by 2030. We see how our efforts and pilot projects forming the foundation for a new growth platform, tapping into the need of transforming heart to abate sectors like heavy transportation, steel production, and fertilizer production backed by ambitious policy targets. Within onshore, we took final investment decision on Old 300, a 430 megawatt solar PV project located near Houston. Old 300 is expected to be commissioned in Q2 2022 and the project would contribute to technological diversity in our business mix. In November, we successfully secured nominal 15 billion new Taiwan dollar of debt financing through the issuance of unsecured green senior bonds in Taiwan. Our second green bond transaction in the Taiwanese market demonstrates us this deepened collaboration with local financial institutions in creating an add to green bond market and commitment to the long-term development of offshore wind in Taiwan. In Q4, we received an administrative decision from the Danish tax agency requiring Danish taxation of our British onshore wind farm wanting extension in Borssele 1 in 2015 and 2016. We strongly disagree with the decision, which in our view is based on a misconception of the risks and value creation in our business model and we have appealed the decision to the Danish National Tax Tribunal. Furthermore, we have taken steps to ensure that the Danish and UK tax authorities initiate negotiations to avoid Ørsted being subject to double taxation, and, if necessary, by referring the case to an independent arbitration panel. We expect the process to take around two to four years, depending on the negotiations between the Danish and UK tax authorities. As for where we stand today, we were recently granted the deferral of the DKK5.1 billion claim and we continue to believe that we have a very strong case. For the second year in a row, Ørsted received the Prestigious A score for tackling climate change and is therefore once again recognized on CDP's A list. We of course very proud to be recognized for our significant reduction of our carbon emissions, and our transparent disclosure of our climate impacts. We're also delighted that the Corporate Knights' have named Ørsted the most sustainable energy company and second most sustainable company across all sectors in 21 index of the Global 100 Most Sustainable Corporations in the world. Their continued high ranking reflects both our determination in driving a sustainable and profitable business and our commitment to be a catalyst for the global green energy transformation. It's very important for us to attract, develop and retain the best talent, and we strongly believe in the value of a diverse workforce, and we aspire to create an environment where everyone can thrive, perform and grow. Therefore, I'm pleased to see that our 2020 Employee Satisfaction Survey showed a record high satisfaction and motivation score of 78 out of 100, placing Ørsted in the top 10% of external benchmarks in our main markets. Lastly, let me briefly add a few comments to our newly announced organizational structure. The change will entail moving from a business unit structure to a more functional structure, where the commercially focused functions from the current business units offshore and markets & bioenergy will be brought together under the leadership of Martin Neubert, who will become Chief Commercial Officer, Deputy to CEO and member of the Executive Board. The operationally focused function will be brought together under a new Chief Operating Officer, as Anders Lindberg, has decided to take on the role of CEO for Swedish company in the rail industry. The new COO will be reporting to me and as we're well advanced in the recruitment process, we hope to be able to make an announcement soon. As consequence of the new corporate structure, Morten Buchgreitz has decided to leave the company. Both Anders and Morten have done a tremendous job during their tenure in Ørsted and we owe them great gratitude. Onshore will remain a separate business unit. The onshore business differs from the rest of Ørsted when it comes to technological maturity and business model and we believe that onshore would be best positioned to realize its full potential as a separate business unit. We're making these changes in our organization to establish an even stronger customer and market focus to further strengthen the focus on EPC and operations and to support the scaling of our organization as we continue our strong growth trajectory in the years to come. Externally, we'll continue to report offshore and onshore financials as we do today. This means that offshore would continue to include our hydrogen activities, while bioenergy, our legacy gas activities and Renaissance would be reported in a separate segment called Bioenergy & Other. Turning so Slide 5, where I'll give a short update on some of our construction projects. At both our offshore wind construction project Hornsea 2 and Greater Changhua 1 and 2a, the construction work continues according to schedule. At Hornsea 2 onshore and offshore construction work is ongoing, and 38 out of 165 foundations are installed at sea. Once commissioned, Hornsea 2 will be the world's largest offshore wind farm. Similarly, the onshore and offshore construction work is ongoing at our Greater Changhua 1 and 2a projects. We continue to see good progress on our construction projects in our onshore business. In the Permian Energy Center, we have produced first power while at Muscle Shoals, the substation and piles are being installed. Finally, the turbine delivery at Western Trails has commenced. Let's move on to Slide 6 and an update on upcoming auctions and market developments. Last quarter, we shared our expectation that we could see global awards of offshore wind capacity up to 30 gigawatts over the coming 15 months, with 2021 auction awards reaching a new all-time high. Starting out in the U.S. New York added second RFP in Q4 2020 and awarded the winner in January. While we're disappointed that we were not selected, we're nevertheless pleased that New York has taken yet another critical step in meeting its ambitious cleaner energy goals and towards the promise of realizing a more sustainable future for all New Yorkers. We'll continue to evaluate future opportunities and build on our existing commitments to the state and region and we look forward to delivering on our promise of jobs, economic investment, and cleaner air through our South Fork Wind and Sunrise Wind projects. In New Jersey, the bid window has closed for the 2.4 gigawatt auction and we are now awaiting the award which is expected to be announced in Q2 2021. New Jersey has become a key state in not just the U.S. market but the global market as well. When raising the state's offshore wind target to 7.5 gigawatt by 2035, New Jersey Governor Phil Murphy reiterated the ambition of making New Jersey, a global leader in offshore wind development and deployment. New Jersey is one of our strategic state partners and we've continued to demonstrate significant progress there, keeping our commitments with recent announcements of the investment to enable a possible monopole manufacturing facility, the turbine supply agreement with GE, the completion of the 25% divestment of Ocean Wind to PSEG, and our recent establishment of the pro-New Jersey Trust. We continue to invest in New Jersey, and are hopeful for a positive outcome of the current solicitation. Maryland opened its second procurement window last year, and the results are expected to be announced in the second half of 2021. The remainder of the busy U.S. auction calendar continues into 2021 and we expect additional auctions in Rhode Island, Massachusetts, Connecticut, Maryland, and potentially also New York. Before moving on, I want to address some of the broader regulatory updates we have seen in the U.S. We have seen the ball starting to roll again in the Bureau of Ocean Energy Management with BOEM's publication of the draft Environmental Impact Statement, EIS for our South Fork Wind Farm and Export Cable projects. The draft EIS was published in January, a few days earlier than BOEM's deadline, and as required by law, it analyzes the impact of our proposed project as well as a range of alternatives. BOEM's published schedule for final approval of South Fork's Construction And Operations Plan, COP, is January 2022, which will allow us to maintain our expected commissioning date of late 2023. In another hopeful sign of movement, BOEM has recently given notice that they have started the internal Federal Interagency decision process for issuance of the Notice of Intent for our Ocean Wind project. The so-called Initial Action Notice, IAN. The interval between the Initial Action Notice and the Notice of Intent is typically two to three months. The Notice of Intent is a critical milestone and helps provide a sense of timing as it starts the two-year regulatory clock for BOEM's ultimate construction and operations approval. More generally, we're optimistic that the incoming Biden administration will support a timely, predictable and transparent permitting regime and as discussed later, will prioritize the development of offshore wind as a cornerstone of the administration's climate strategy. However, until the new leadership at BOEM and the Department of Interior are firmly in place, we await further clarity on issuance of the NOIs for our remaining advanced states development projects. While we have brought the progress made at South Fork and Ocean Wind, we continue to await resolution on whether BOEM will pursue the consensus development turbine layout in the North East of one-by-one nautical mile. While the draft EIS for our South Fork project evaluates a range of alternative layout schemes, the identification of a preferred alternative, representing a consensus of the involved federal agencies will likely await issuance of the South Fork final EIS in October of 2021. Moving on, the U.S. also saw a bipartisan push to extend and expand renewable tax benefits. At year-end, the Congress extended qualification deadlines for all technologies, extending the production tax credit for one year for wind, the investment tax credit for two years for large scale PV, and increasing the ITC for offshore wind back up to 30% for all projects starting construction 2017 to 2025. Furthermore, the IRS expanded the Continuity Safe Harbor known as the built window for offshore wind from four years to 10 years. These change tax benefits will further support the value creation for some of our already awarded offshore wind projects and reiterate the push for offshore wind as a political cornerstone in the continued renewable build-out in the U.S. For Ocean Wind projects, the benefit from the increased ITC will go to the ratepayers given the clawback mechanism in the offtake contracts. We continue to view Offshore Wind as a bipartisan given its numerous development at Seaton [ph] revitalization benefits. We also note that over the last four years, we saw tremendous steps forward as the U.S. offshore wind industry to perform. As the Biden administration takes over, we only expect progress to accelerate given the outspoken support to offshore wind by 2030; forthcoming COVID stimulus plan might benefit the renewable industry as well as likely increases in resources at BOEM. Now, more than ever, we continue to see a solid long-term growth and value creation potential in the U.S. offshore wind market. Looking towards Asia-Pacific, Japan opened its first auction in November 2020 for the Choshi, Noshiro, Yurihonjo North and Yurihonjo South promotion areas. The deadline for bid submissions is at the end of May, and awards are expected in Q4 2021. The auction comprises a capacity of 1.5 gigawatt and is an important first step for Japan to achieve its target of 10 gigawatt of offshore wind by 2030. In South Korea, we started developing four floating lighters off the Coast of Incheon and have progressed well in collecting all relevant data for securing the potential 1.6 gigawatt offshore wind sites. We believe that our projects in Incheon will support a thriving offshore wind industry in South Korea and contribute to the realization of the government's targets of 12 gigawatt offshore wind capacity by 2030. Finally, in Taiwan, we await further details for the next auction round, as well as the announcement of the next auction framework and now expect the next auction in either second half of 2021, or first half of 2022. Our Greater Changhua 3 project is just 600 megawatt has already secured its environmental impact assessment, which is necessary to compete in future offshore wind grounds. Furthermore, new sites are being investigated. Now moving on to the recent developments in Europe. At the end of 2020, our Hornsea 3 project was granted consent, demonstrating our ability to work closely with stakeholders when issues arise. In this case, we developed a robust evidence based Kittiwake compensation plan that focuses on the implementation of onshore artificial nesting structures. With a potential capacity of at least 2.4 gigawatt, Hornsea 3 is now eligible to participate in new case 4G of D round, which is expected to open towards the end of 2021. In January, Poland Senate unanimously passed the Onshore -- Offshore Wind Act, and subsequently the Act was signed into law by President Duda. The Act aims to award 10.9 gigawatt offshore wind by 2027 in the first phase Poland's Energy Regulatory office, we directly award CfD to 5.9 gigawatt of the most advanced projects by the end of June 2021. These advanced projects include the two projects totaling up to 2.5 gigawatt covered by our non-binding term sheet with PGE. We expect to finalize our binding agreement with PGE regarding the Baltica 2 and Baltica 3 offshore wind farms very soon. Poland subsequent second phase will award 2.5 gigawatt of capacity in 2025 and 2027 through a competitive auction. Most recently, Denmark announced the terms for the tender of four wind farm with just one of three large Danish offshore wind farms expected to be commissioned by 2030. The 800 to 1,000 megawatt opportunity will be located in the North DC 20 kilometers from shore and together with five other developers announced that have pre-qualified for the tender. The deadline for the initial and final tender run by the Danish Energy Agency will be March and November of 2021, with a final decision in December 2021. And in addition to these, we do expect tenders in the Netherlands, Germany, and France during 2021. And with this, I'll now hand over the word to Marianne.

[Marianne Wiinholt:]

Thank you, Mads, and good afternoon from Egypt. Let's start on Slide 7, where I will go through the EBITDA for Q4 2020. We realized an EBITDA of DKK5 billion, an increase of DKK0.4 billion compared to Q4 last year, which was mainly driven by ramp-up from new offshore and onshore wind farms in operation and higher wind speeds. In addition, the divested LNG activities contributed positively year-over-year, as the provision in Q4 2019 was not repeated. In offshore, the EBITDA for the quarter totaled DKK4.1 billion, an increase of DKK0.1 billion. The earnings from operating wind farms was 7% above last year, driven by the ramp-up of Hornsea 1 and Borssele 1 & 2. This was partly offset by the adverse COVID-19 related impacts and the earnings from trading related to hedging of our UK coal power exposure, which had higher earnings in Q4 2019. Offshore power generation in Q4 increased 26% due to the ramp-up of generation from Hornsea 1 and Borssele 1 & 2. Availability was 94%, one percentage point above the availability in Q4 2019. Wind speeds amounted to a portfolio average of 10.4 meters per second, which were higher than Q4 2019 but slightly lower than normal wind speeds of 10.5 meters per second. We saw adverse COVID-19 related impacts of approximately DKK120 million on our operational earnings, especially related to the UK power market, due to lower demand for electricity. Earnings from partnerships amounted to negative DKK0.1 billion and was mainly related to minor updates regarding finalized construction projects. In onshore, EBITDA almost doubled to DKK0.3 billion, primarily due to the ramp-up from Sage Draw, Plum Creek and Willow Creek. Wind speeds across the portfolio amounted to 8 meters per second, which was higher than the same period last year, and almost fourth quarter of 7.7 meters per second. EBITDA in markets and bioenergy totaled DKK0.6 billion, DKK0.2 billion higher than Q4 2019. The underlying earnings decreased DKK0.3 billion driven by lower earnings in gas markets and infrastructure relating to our gas portfolio where the negative -- the net negative, sorry, the net positive effect from revaluation of our gas storage and storage hedges was higher in Q4 2019 and Q4 2020. In Q4 2019, we had a provision of approximately DKK0.8 billion following the agreement to divest our LNG activities. Correspondingly, Q4 2020 EBITDA from LNG was zero. And finally, we had no earnings from distribution B2C and city light in Q4 2020, as a result of the divestment in August 2020. If we then turn to Slide 8 and our financial performance and net interest bearing debt. Net profit share totaled DKK2.2 billion; the increase was mainly due to higher EBITDA and impairment losses of DKK0.6 billion in Q4 2019 primarily related to a write-down of our renaissance plant in the UK. Free cash flow totaled negative DKK3.4 billion in the quarter. Cash flow from operating activities came in at DKK6.8 billion and was driven by EBITDA and loan receivables. Our gross investments for the quarter totaled EBITDA DKK8.6 billion primarily driven by lessons related to Hornsea 2, Greater Changhua 1 and 2a, Permian Energy Center, Muscle Shoals, Western Trail and Haystack. And cash flow from divestment was a cash outflow of DKK1.5 billion and related mainly to the divestment of the LNG activities. Our net debt at the end of 2020 amounted to DKK12.3 billion. The increase in net debt during the quarter primarily reflected the negative free cash flow as just described above, in addition to our lease obligations, and hybrid coupons paid. If we then turn to Slide 9, which shows our financial and non-financial ratios. Our key credit metric, FFO to adjusted net debt stood at 48% for the 12-month period ending December 2020. The metric was positively impacted by the higher funds from operations, as well as the proceeds from the divestment of our Danish Power Distribution, residential customers, and city light businesses. Return on capital employed came in at 10% and the slight decline was due to higher average capital employed only partly offset by higher EBIT. Our greenhouse gas emissions intensity continued to decline as a result of our continued build-out of offshore and onshore wind and we remain well on track to meet our scopes one and two targets of less than 10 grams of CO2 equivalents per kilowatt hours in 2025. Our target is to be carbon neutral in 2025 by neutralizing any remaining minor emissions with carbon. Turning to safety from 2019 to 2020, we saw a reduction of 27% in the number of injuries. And as a result, the total recordable injury rates over the last year decreased from 4.9 in 2019, to 3.6 in 2020, and thereby well below our 2020 target of 4.2. In 2025, our target is a rate of 2.9 or low. So this concludes the Group's financials for Q4 2020. And let's turn to Slide 10 and the outlook for 2021. Our guidance for 2021 EBITDA excluding new partnerships is DKK15 billion to DKK16 billion. 2021 will be atypical year as we will not commission any new wind farms. We're currently building the world's largest offshore wind farm Hornsea 2 in the UK, and the Changhua 1 and 2a in Taiwan. But these wind farms will not be completed until 2022. This means that 2021 will not include any production from these two wind farms, while will have the cost on making them ready for operations. 2020 was also a very strong win year, which increased our 2020 production and we do not assume this to be repeated in 2021. As in previous years, our EBITDA guidance does not include earnings from new partnership agreements, as it is difficult to predict the exact timing of potential farm-down as well as the distributional income between years if the partnership includes a construction agreement. In terms of new partnerships in 2021, we expect to close the 50% farm-down of Greater Changhua 1 following the agreement announced in December 2020. Furthermore, we plan to farm-down 50% share of Borssele 1 & 2 around summer. And finally, we'll explore the possibility of a farm-down of our Solar PV portfolio following the commissioning of Muscle Shoals in Q3. While we have not included any gains from the farm-downs in our guidance, we have assumed a derived reduction in tax credit. We had no earnings from new partnerships in 2020, while EBITDA from existing partnerships amounted to DKK1.6 billion. In 2021, EBITDA from existing partnerships is expected to be close to zero. In 2020, we divested our Danish Power Distribution, B2C and city light businesses and these contributed with DKK0.9 billion in our EBITDA for 2020. These effects brings the comparable 2020 EBITDA for the Group to approximately DKK15.5 billion, meaning our 2021 operational EBITDA guidance is in line with 2020. We expect that earnings will be lower in 2021 compared to 2020 for both offshore and markets & bioenergy, while we expect earnings to be higher for onshore. And finally, we point out that 2021 guidance includes a 1.1 IFRS 9 one-time positive impact as we seek to report on business performance principles from 2021 and onwards. It is important for me to reiterate that we're well on track to achieve our overall EBITDA CAGR of around 20% between 2017 to 2023 targeting an EBITDA of DKK25 billion to DKK26 billion of operational earnings in offshore and onshore by 2023. We do expect to see an EBITDA pickup in 2022, with a full-year effect in 2023, from these two projects coming online. The two projects are of course Hornsea 2, Greater Changhua 1 and 2a and then we will also see a contribution from the continuous results within onshore. Finally, gross investments for 2021 are expected to amount to DKK32 billion to DKK34 billion. This outlook reflects a high-level of activity in offshore related to Hornsea 2, Greater Changhua 1 and 2a and our U.S. activities in offshore and our onshore activities covering Western Trail, Haystack, Permian Energy Center and Old 300. In addition to gross investments, significant funds are temporarily tied-up in the construction of the transmission assets for offshore wind farms in the UK, and offshore wind farms for our partners. These funds are part of our operating cash flow. At the end of 2020, these funds tied up were amounting to DKK9.8 billion. During first half of the 2021, we expect to divest the Hornsea 1 offshore transmission assets. But we still expect to see higher level of funds tied-up in work-in-progress in 2021, as a result of the continued construction of the transmission assets at Hornsea 2. We expect to divest the Hornsea 2 transmission assets in 2023. If you then turn to Page 11, covering a more detailed outlook for our business units. Earnings in offshore excluding new partnership agreements are expected to be lower than in 2020. Earnings are also expected to be lower than 2020 adjusted for the net effect of the non-reputation of earnings from existing partnerships in 2020, of DKK1.6 billion and the positive effect of DKK1.1 billion related to ceasing the report according to the business performance principle in 2021. We do not expect any further adverse COVID-19 related impacts on earnings relative to 2020. The positive impact on operational earnings, driven by the last 400 megawatts of Hornsea 1 receiving CfDs from April, and full-year effects from Borssele 1 & 2 net of reduction in site earnings from the assumed farm-down will be more than offset by a number of adverse effects. In 2020 earnings from sites were positively affected by the high wind speeds, as I mentioned, where the year ended at 9.7 meters per second above a normal level of 9.3 meter per second and above our expectations for 2021 of also 9.3 meters per second. The two newest tariffs are expected to increase following the divestment of the offshore transmission assets at Walney Extension in mid-2020 and Hornsea 1 expectedly in H1 2021. Earnings from Hornsea 2 will decrease as the subsidy period ended in October 2020 and we're in the construction phase of the two large wind farms Hornsea 2 and Greater Changhua both of which are expected to be commissioned in 2022 as I mentioned, but we will in 2021 incur OpEx while we are preparing for the operations, and we do not expect any ramp-up generation for these wind farms. Expense project development costs amounted to a DKK1.7 billion in 2020. For 2021, we expect expense project development costs to amount to approximately DKK2 billion as a natural consequence of our continued expansion of our footprint. Earnings from onshore wind and solar farms in operations are expected to increase from the ramp-up of the generation at the Sage Draw, Plum Creek and Willow Creek, which was commissioned during 2020 and due to expect commissioning of the new wind farms, Western Trail and Haystack and solar wind farms Permian Energy Centers and Muscle Shoals in 2021. The latter being net of the assumed reduction inside earnings from the possible farm-down of our solar PV portfolio. The increased operational earnings will be partly offset by higher costs related to the strategic expansion of the business and an adverse year-on-year impact from recognition of derivatives. Finally, our directional guidance for markets & bioenergy for 2021 is without the divested Danish Power Distribution, B2C and City Light businesses, which contributed DKK0.9 billion to our EBITDA in 2020. Earnings in gas markets and infrastructure are expected to be lower than 2020 mainly because the positive effects from revaluation of gas and storage caused by increasing gas prices, especially during Q4 2020 is expected to partially reverse in 2021. The earnings from our CHP plants are expected to be in line with 2020. Then to Slide 12, where we recap our 2021 EBITDA and gross investments guidance as well as the long-term financial estimates and policies. We're well on track on our capital investment program and we remain very comfortable with our long-term financial targets. And on a final note, we'll be hosting our Capital Markets Day, the 2nd of June, 2021 and depending on the circumstances, we’re looking forward to seeing you at our office in Gentofte or virtually. We will share detailed information for the day at a later point in time until then, please save the date. And with that, we will open up for questions. Operator, please.

[Operator:]

Thank you. This concludes our presentation. And we're now happy to have your questions. [Operator Instructions]. Our first question comes from the line of Peter Bisztyga from Bank of America Securities. Please go ahead.

[Peter Bisztyga:]

Yes, good afternoon, and thanks for taking my questions. So this one is directed at Mads, your very hopeful introductory video you mentioned that you see competition as one of the biggest challenges as to crisis. So I'd be interested to hear what the reaction of your team was to the auction results in New York where Equinor walks away with all of the capacity. I was wondering, were they surprised and do you have any insight at this stage into why Equinor is so successful? And is there any reason to believe that the dynamics in New Jersey could be different to the New York auction?

[Mads Nipper:]

Thanks a lot, Peter. Highly relevant question. I mean, obviously, the initial reaction from an ambitious team is always to be disappointed, which I guess, we all share. But I think overall, I think it's too early to say anything about the details of why we were not successful and why Equinor managed to walk away with everything. We will, of course, be analyzing that as we always do, both the wins, and the losses we have in our auctions. But at this stage, we -- it will be another few months before we will have the insights to the prices and any other things that was sort of determining why they won and we didn't. We are of course, very eager to lean into, as we've already done to the New Jersey auction. And I think we're confident because we believe that that our local content offer in that auction is very attractive. But again, I cannot say specifics about the dynamics, what would be different because every auction actually has sort of their own dynamic. But it is something that we will be following up on as we get more insight into offer that meant that Equinor won this.

[Operator:]

Next question comes from the line of Sam Arie from UBS. Please go ahead.

[Sam Arie:]

Hi, good afternoon, everybody and welcome, Mads, let me just wish you every success in the new role. Obviously, you've got an amazing team around you. And we're delighted to have this Q&A with you today. I think the question I was going to ask is actually very similar to Peter's, perhaps if you don't mind, I could just build on it a little further, I think I'm right in saying that this company has not been able to win a new offshore project now since end of 2019 and the oil majors has been a big part of that reason. And when I listen to what they're saying about return, I hear some of them talking about equity IRR is in the range, sort of 6% to 12%. And at the low end of that range, that's implying project returns in the low-single-digits. And my sort of general question is, what's your set view of an equity return of 6%? And does that compensate the risk in an offshore project in your view, or not? And I think sort of a kind of related topic here, which perhaps you could comment on as well is, you've got an amazing infrastructure that to develop offshore wind farms. If you have a slowdown in the pipeline at some point, I suppose there's a risk that you're going to have capacity and teams with, you can't keep busy. Is that -- does there come a point when it's worth your while to sort of bid projects at breakeven, just to keep everybody busy, keep the supply chain moving forward, and sort of still be in the game, maybe in a later phase in the market when returns might be more attractive. I'd love to hear your comments on that thing. Thank you.

[Mads Nipper:]

Yes, thanks a lot, Sam, and also for your congratulations. I can certainly confirm that that, that the team is super strong. I’ll refrain from talking specifically about the returns. But I think it is -- it is -- I'll just reiterate that for us, it really is important to continue to be financially disciplined while still being very ambitious in terms of pursuing the auctions. So, we're not going to go into a situation where we will go into win auctions at no returns, because we believe it is a slippery road and it is also one that is not right for the global leader to go into. We're not concerned with a market that over the next decade will grow to six to an estimated six to seven times the current size; we're not concerned that we are going to sit with an idle organization on EPC operations on the contrary. We do despite like you say despite that there will be auctions we will lose and we have not seen the last lost auction in the next many years still. But we remain confident that we can be competitive while staying financial disciplined and if I take the optimistic glasses on I still believe that looking into the future we're going to have -- we're going to have a potentially more challenges ramping up rather than ramping down or keeping our organization busy. So let that be my comments to the question at this stage.

[Sam Arie:]

Yes, really helpful. Thank you so much. And best wishes and good luck again.

[Mads Nipper:]

Thanks again.

[Operator:]

Our next question comes from the line of Kristian Johansen from Danske Bank. Please go ahead.

[Kristian Johansen:]

Yes, thank you and welcome to you, Mads as well. So my question is on farm-downs and whether you can elaborate a bit on your considerations on a few of your practices. First of all, why are you considering to farm-down your PV portfolio. Secondly, on the Ocean Wind project, you've now raised 25%, are you considering to divest more. And in terms of the Changhua project, are you in negotiations to farm-down the 2a project as well. And lastly, just on Hornsea 2, whether you would consider a farm-down here as well?

[Marianne Wiinholt:]

Yes, I will answer that one. Kristian thanks for the question. Yes, we are in a way considering to continue to farm-down and the ones you're mentioning, are exactly the ones we're considering. You can say that we look at farm-downs as a flexibility we have in our capital structure. So if in a way we win more, we would probably see the way to do farm-downs, if we see that we will have a period where we don't need to do it, we have the chance to hold back. But with the growth we are looking into and what -- what Mads alluded to before, in a way we foresee that we will probably also farm-down Hornsea 2 and then probably also the 25 loss percentages of Ocean Wind. But it is too early to say we have not launched the processes on the Changhua, we will not farm-down 2a as a separate project. The regulatory setup in Taiwan means that we will probably need to do a farm-down, when we also have 2b, so that's how we look at that. And then you also asked a question around solar portfolio. We think actually it is a good thing that we go out and get an external market test of the valuation of our assets. And this we take the opportunity, we see there is a great demand for this solar assets. And we think it's a good and healthy thing for us to go out there and get it marketed.

[Kristian Johansen:]

So just to follow-up so the potential divestment of the solar PV portfolio is more reflection of you seeing an opportunity value creation than it is just sort of risk mitigation?

[Marianne Wiinholt:]

Yes, that's how we look at it. And then of course also with all the opportunities we see within onshore in a way to have a recycling model also for onshore is something that we could also see us using more into the future.

[Operator:]

Our next question comes from the line of Deepa Venkateswaran from Bernstein. Please go ahead.

[Deepa Venkateswaran:]

Thank you. Mads, welcome from my side as well. Although I think my question today is going to be for Marianne. So Marianne on the accounting change. Could you just help understand whether this creates any volatility in the income statement? So looking back the last few years, there's been a swing of DKK1.5 billion for the last two years either direction and so do you foresee something like that in the future and how do you take that into account for your guidance because you clearly will not actually know where the commodities will land at the end of the year. So how do you factor that and in line for 2021, what are your assumptions on the mark-to-market volatility? Thank you.

[Marianne Wiinholt:]

Good question, Deepa. We do not foresee more volatility than we today have in our business performance results. You can say that, it's -- perhaps we have been a bit lazy in documentation of our hedging, because it requires lots of work on the old IFRS 39 to see these transactions as hedging, and therefore, we innovate to simplify our internal processes, we established these business performance principles. Now with IFRS 9, it is not as cumbersome as it was before. So therefore, we will do proper hedge accounting. And therefore we'll not have volatility in the IFRS numbers. So it will be exactly as today with the business performance numbers.

[Deepa Venkateswaran:]

To follow-up on that, also the DKK1.1 billion benefit in 2021, I see that there should be an impact in 2022 and 2023. Can you quantify what those numbers are?

[Marianne Wiinholt:]

You can actually see it in our Annual Report. Just a second, I'll find the page. So we can perhaps just proceed with the question and then I will give you the answer. I have it already. It is on Page 91 in our Annual Report there you can see exactly 2021, 2022, 2023.

[Operator:]

Our next question comes from the line of Alberto Gandolfi from Goldman Sachs. Please go ahead.

[Alberto Gandolfi:]

Good afternoon. Thanks for taking my question and welcome, Mads. And the question is for you actually, I'm sure you have been reviewing internal processes and protocols. And it was pretty clear that you're very structure in the way you think from the video you send out. And I was wondering, have you noticed in your quest I'd so far, what tweaks, what adjustments could you do to your approach to beating into the auctions in offshore to maximize your market share was keeping a good return? And I guess that if you can answer as part of that, specifically, maybe looking at the 25 gigawatt that are yet to be auctioned in 2021. What would you think is maybe an average outcome for Ørsted or a good outcome or maybe a bad outcome? Yes, should we think of you as being 10%, 15% of the global offshore market from here to 2030? Or should we think of you as being maybe more like 5%, 6%? Can you help us a little bit; navigate the way you're thinking about the global industry and how you fit in it? Thank you.

[Mads Nipper:]

Yes, thank you very much, Alberto. I would I mean, I think it's too early for me to say exactly what would be the -- what would be the tweaks that we would need to do again, here because the dynamics of every auction are typically different with a different criteria being weighed in. So I think it simply has to be from auction to auction that we need to just be as competitive as we possibly can. I would say that we're not very specific. They're saying what does success or failure look like with a record high auction and being coming to market in 2021 here. While surely I mean, we will be bidding in most, and we will lose some of them. No doubts, but it is obvious that we do want to win. But we are -- I can't be very specific and say this is the number of gigawatts that we will only be content with as we go-forward. And if I look forward towards 2030 perhaps then I think for us, we -- with the incredible growth and also the realistically very intensified competition we don't have a very specific market share that needs to -- that absolutely need to -- absolutely need to hold on to. But it is important for us in this timeframe to stay the global leader not just in size, but also in capability throughout the decades, because we do have a clear global leadership position now. And that is important for us to stay in that position, even though realistically probably the share of market will go down. But I have no doubt that, I'm sure you've all picked that up as well, that local content, local job creation will continue to be more and more important. And we do believe that this is an area where we have a deep capability, we have a strong partnership structure that can make us leverage that even stronger in the upcoming auctions. So that would be a few perspectives on it and sorry for not being super tangible or specific on your specific requests.

[Operator:]

Next question comes from the line of [indiscernible] from Morgan Stanley. Please go ahead.

[Unidentified Analyst:]

Hi, there. Thank you for taking my question. I was wondering if you could please elaborate a little bit more on the recent restructuring. Why did you think -- why did you deem it to be necessary? And in what way are the new business units better positioned for tapping into future growth versus the previous setup, which so far has worked very well? And additionally, can you confirm that what changes if any goes into financial reporting? Thank you.

[Mads Nipper:]

Absolutely. Yes, thank you very much. Highly, highly relevant question, because it's very, very important not to change organizations, because you're bored I think that that knowledge change is necessary. I fully agree that the current stock has served us incredibly well. And the focus on the individual businesses has really has driven a high degree of focus. What we do see is that the customer landscape, not least in terms of CPPAs, is changing quite rapidly. And we expect that that will probably continue to accelerate. And we do believe that with -- by leveraging, and pooling the resources that are market customer, and commercially focused from the bio -- markets & bioenergy, and the offshore businesses that we will create even stronger focus on delivering sort of more holistic offerings to our customers. And we do believe that we'll also have the opportunity to leverage the cross-functional resources that were previously split in three different business units much stronger now, so that we essentially have greater instabilities internally in how we collaborate. And then I will mention that, that the gathering of the operationally focused areas, both in terms of operations and maintenance, EPC but also the Danish CHPs combined heat and power plants, by pooling those sources, we will also get synergies that we believe firmly will accelerate our ability and our reliability of how we operate and construct our assets. So it's -- it is essentially to us where we believe that the pooling of resources and the combined customer focus will simply mean that we can scale our organization globally faster and there, we believe it's better than to stay in three distinct business units. And on the accounting --

[Marianne Wiinholt:]

Yes, on the segment reporting, we will actually not see any changes because since 2019, we have reported the trading, power trading results and power optimization results in onshore and offshore respectively. So those will continue unchanged. And then we will no longer call it market & bioenergy, we will call it bioenergy & others and they will include our Biomass CHP portfolio, and also our gas activities. So no changes to external reporting.

[Operator:]

The next question comes from the line of John Musk from RBC. Please go ahead. Your line is open.

[John Musk:]

Yes, good afternoon, everyone and welcome Mads from me as well. Bit of a big picture question from me, I guess, the focus obviously, Ørsted certainly from an investor perspective always seems to be around future growth and the opportunities that you have between now and 2030 or 2050, or whatever timeframe you want to put on it. But in your role, how do you balance looking at the opportunities that you have in the future whilst also not taking your eye off the ball in terms of day-to-day operations? Is that a challenge that you've found difficult since you started and maybe the new corporate structure we've just been talking about has been introduced in some way to help with that?

[Mads Nipper:]

Yes, thanks a lot, John. It's a highly, highly relevant question, because I think it is for a company that is looking into at such an exponentially growing market with new opportunities, new markets, new technologies coming along. It is really important to stay long-term focused in our strategic outlook and how we proactively prepare for what is it that needs to be true, what are the core capabilities that are going to be vital for us in the future. But at the same time and I mean 2020 was probably the best possible year to exemplify that. We just need to be incredibly focused on the day-to-day execution. So we're really staying sharp in the auctions, staying incredibly disciplined in how we stay on schedule, on costs, in our major projects is something we simply cannot take our eye off the ball. So it is a classic sort of leadership both and situation where we need to have to uphold a very long-term strategic outlook and systematically build capabilities ahead of the curve because this has, and I can say that because I've not -- I can't take any credit for it. The way that Ørsted has had the courage and capabilities to shape not these offshore market is something where we need to simply uphold the same courage and foresight in what it takes to shape the future markets on renewable energy as well. But really, it has to be balanced with very strong day-to-day management and to your point, the focus of Martin's new team on commercial to stay razor sharp on winning our customers and our auctions and at the same time have an organization who is incredibly disciplined in also executing is something that we believe will enable that to an even greater extent. That's a few perspectives on it, John.

[Operator:]

Our next question comes from the line of Casper Blom from ABB Sundal Collier. Please go ahead.

[Casper Blom:]

Best of luck and nice to meet you, Mads, if you can say that on the phone. I just want to follow-up a little bit on some of the previous questions regarding increased competition and oil majors et cetera. You touched a little bit upon it on your question, sorry, your answer to one question where you mentioned local content, but if you look five years into the future, and some of these oil majors have won more projects, and then they gained some experience. What is sort of the key to maintaining the leadership of Ørsted and how do you plan to remain the best in the world to build these offshore wind parks because I guess the other ones will catch on as well. So can you talk more about sort of the plan on how to maintain the leadership?

[Mads Nipper:]

Yes. I can, unfortunately cannot be super specific five weeks into my job, obviously. But I think you're pointing to an absolute key point because if we stand still, and just keep up the good work that we've done, up until now we're going to be like a sitting duck that everybody would just catch in on. So for us, it is vital to ensure, to continue to innovate, to continue to move the bar on how we both win the auctions but also effectuate the auction. So build the projects, and continue to also lower the OCOE and create other benefits that are vital to win. We're going to have a structure process towards our Capital Markets Day where we will also sort of firm that off and can share more perspectives on that not the full thing, because some of that will be classified, obviously. But we will be working on that because you're pointing to something absolutely vital, and we need to stay innovative and courageous in order to be the one to shape the market. Otherwise, we will be caught up with and then the worst case the market will essentially be commoditized.

[Casper Blom:]

Well, that sounds interesting. I'll look forward to that explanation in June, then. Thanks a lot.

[Operator:]

Our next question comes from the line of Ahmed Farman from Jefferies. Please go ahead. Your line is open.

[Ahmed Farman:]

Good afternoon, and welcome from my side to Mads. I just wanted to follow-up on the comments you made about the Danish Payments Tax issue. I just wanted to ask if there are any other jurisdictions within your portfolio where you are concerned about if similar taxes or any other sort of specific negative regulatory development just have your thoughts on that would be helpful. Thank you.

[Marianne Wiinholt:]

Yes, I'll give my perspectives on that. Thanks for the question. What we have been seeing is that the Danish Tax authorities have a view that like in a way for pharmaceutical companies, all the intelligence you can say around the product development has been located in Denmark, and that all the value of a project is created in this project development phase. We really believe that that's a complete misunderstanding of the value creation throughout the value chain within offshore wind. And we also disagree that the brainpower you can say, have only been sitting in Denmark, quite the contrary we have actually for the projects that have been questioned, we have had approximately 50

[Operator:]

Our next question comes from the line of Lawson Steele from Berenberg. Please go ahead.

[Lawson Steele:]

Yes, hi everybody, and welcome Mads. Mads, so I think what I'd really like to understand a bit is, what I think is important is to understand how Ørsted can cope with growth because if you look at any of the estimates, as we all know, the market is going to go ballistic, whether it's offshore, onshore, wind or solar. So I'm interested to know aside from finances, because obviously you can farm-down what -- how you think Ørsted is, what challenge is Ørsted going to face on the personnel front and maybe on the supply chain, and if you could split it a little bit in offshore and onshore that'd be interesting as well? Thank you.

[Mads Nipper:]

I can certainly share some perspectives and invite Marianne to do that as well. I think the key to any scalability around the organization and the talent of the organization to work really systematically with the core capabilities that we just need to ensure that we at any given time are world-class on. And that we ensure that we do not only attract, but that we really that we retain and train and motivate our people worldwide. This also has to do with a globalization where even though we have very, very deep competencies and capabilities sitting in Denmark, it's really important for us to also over the years to distribute those capabilities into our key geographies through sort of a deliberate globalization process, which we will also be laying out in the coming time. In terms of supply chain, I mean the strategic partnerships we have with many of our key OEMs and partners, this is really important to continue to build because it's not only Ørsted needs scalability, it is the entire partner network. And that also includes our ability to build relations with the local partners, because again, many, many governments will surely be looking for local content. And that means that both the partnering up and the capability building with local partners will be a critical thing for us to be able to scale in any key market where we both are but also where we may enter in the coming years. But Marianne, any additional perspectives from your side?

[Marianne Wiinholt:]

No, just a perspective on the first thing you said, if you go back a couple of years back, we were probably more concerned about the scalability, when it came to our own organization, the EPC organization in particular. I think our model has proven to be very scalable and we have seen now establishing big teams in the U.S., in Taiwan. And we have also established in more jurisdictions going forward, that we're able in a way to split the teams if we have a big project, we typically split the teams and then they go to other projects. So we have less concern now actually than we just had a couple of years ago in that respect. And we also see that we have a very, very low churn in offshore and we're able to attract really competent people.

[Operator:]

Our next question comes from the line of Mark Freshney from Credit Suisse. Please go ahead.

[Mark Freshney:]

Hi, good afternoon. Thank you for taking my question. It seems like a lot of the focus is on the extreme competition for new tenders, and I think in your video of last month, Mads, you alluded to that. You can see now the value in you guys having bought the U.S. Onshore platform, Lincoln Clean Energy, two-and-a-half years ago, one of the things outlined by your predecessor was a similar kind of platform, an onshore platform in Europe. Is that still a possibility and a way you could diversify away from downward spiral or unconstructive returns on new offshore tenders?

[Mads Nipper:]

Yes, thanks a lot, Mark. It is certainly still very much in the agenda. And we believe that the onshore business holds substantial value creation potential, and by the way, is also something that is absolutely needed to uphold the speed of the green transformation and our contributions to that. We don't see it in a way. I mean, of course, there is a diversification element in that. But obviously, this should not make us take the foot off the pedal in terms of keeping our offshore business incredibly competitive, because even with a very high and over proportionate growth in onshore, it is still vitally important for Ørsted that the onshore business as today by far the biggest business we have, stays hugely competitive. But you're right, I mean, further geographic expansion, first go into Europe, continued acceleration of our investments in the U.S., but also exploring platform in Asia-Pacific on onshore is still very much in the agenda. But it needs to be a parallel track to ensuring that we really stay super sharp in the intensifying competition on offshore, but it is of value. And we're happy that the onshore is something where we see huge growth potential as well.

[Operator:]

Our next question comes from the line of Elchin Mammadov from Bloomberg Intelligence. Please go ahead.

[Elchin Mammadov:]

Hi, everyone. Everyone has talked about a lot to do with the competition and whatnot. I wanted to focus a bit more on permitting. Do you think it's a major issue or because we've seen some problems, like Vineyard Wind is still like having some issues? You've had some delays with them. I think Hornsea 3 permitting, like do you see permitting as a big problem, or it's just with a few selected geographies could be an issue. So I would appreciate your answer. Thank you.

[Mads Nipper:]

Absolutely. Permitting is going to be increasingly important for us. And the stakeholder management, the focus on different stakeholder groups, biodiversity and so on is will probably only be more important. And we're actually quite happy with a way as briefly mentioned in the initial sort of want to run through and our ability to really engage with the stakeholders in Hornsea 3 to target a deal, in this case, with a kittiwake issue, and constructively in the dialogue find a solution that makes us mitigate that and ending up with the consent. That to us is a really good example of something that it takes time and effort but it works really well. And similarly, in the -- I mean, in the U.S., the permitting processes had been challenging in the last period. But we're seeing early signs that make us more optimistic now in the U.S. permitting process from Poland, due to I mean, we do see our soft walk permitting moving ahead. We have gotten sort of the initial auction notice from the -- from our Ocean Wing 1, which could be sort of a good sign that the Notice of Intent is slowly starting to move ahead. So even though it is for us, too early to say what would that mean, for our more specific updated planning. We will say that we think that the signs from the U.S. are positive. But in general we do have great respect for and also building capability to engage even more in the permitting processes to ensure that they stay effective. And then, as mentioned specifically on the U.S., which has been a pain point. We believe that there is reason to be more optimistic due to the resources and leadership change in BOEM.

[Operator:]

Our next question comes from the line of Vincent Ayral from JPMorgan. Please go ahead.

[Vincent Ayral:]

Yes, good afternoon. So, obviously, most of the questions were regarding competition at the moment in the states. The question I would have is, on the next step, if at the moment, we're looking at the U.S. opportunity, you're starting and some other players like other drillers to do partnerships, more and more in Asia, in Japan, we could see that. So I'd be interested to get your views on the potential we can find in Asia starting with Japan and basically, when will this become potentially material enough to become the key focus for Ørsted?

[Mads Nipper:]

I think I mean, Asia-Pacific is surely a really important market for us. And I think the partnerships that we have, that we made the joint venture with TEPCO is a good example of where we partner up with somebody who has a deep local routing and capability and then we can come along and bring our deep and profound experience and knowledge into the -- in this case, the offshore market. So, these we believe that partnerships will be really, really important. As mentioned with TEPCO, that is the first of potentially more partnerships to come in the Asia-Pacific region, but no doubt that Asia-Pacific holds huge growth potential. Now, Taiwan is obviously the furthest ahead, Japan next and then also our focus on Korea is also something that can turn out to be very promising. And in these cases, in such new markets, partnerships are certainly more than viable. They are in many cases necessary and attractive for us to do. But I don’t know Marianne, if you have any further comments to that?

[Marianne Wiinholt:]

No, I fully agree.

[Operator:]

Next question comes from the line of Vinci Ho from UBS. Please go ahead.

[Vinci Ho:]

Hi, Mads and hi, Marianne, good morning, and thank you for the presentation. My question is for Marianne today. You mentioned -- you reconfirmed earlier that the wind site EBITDA guidance for 2023 at around DKK25 billion to DKK26 billion, which is very helpful. But that would also imply about DKK10 billion growth from the wind side. Can you just break that down for us by the wind farms that are coming online? So we have Hornsea 2, Changhua and a few onshore projects? Are there any others that are contributing to the targets? And whether you're assuming Hornsea 2 and the second Changhua wind farm 100% or 50% in 2023? Thank you.

[Marianne Wiinholt:]

Yes, you’re right, it is in a way, Hornsea 2 and Greater Changhua. And then it is also Borssele of course, contributing with full-year EBITDA. And then of course, you have the onshore which is growing significantly more than -- than what we anticipated when we set the target. So you can say, you have a negative impact from the fact that we now have chosen to farm-down Borssele. But we compensate that through higher side EBITDA from the onshore business.

[Vinci Ho:]

And what about, sorry, can I just follow-up on the second part of my question, which is on the Hornsea 2 and the second Changhua wind farm? Any comments on the farm-down?

[Marianne Wiinholt:]

Wait, wait, wait, wait. Yes, yes, Yes, if we talk about a farm-down for Hornsea 2, it will be also a post-construction farm-down like we do for Borssele. So that will probably in a way, since it's only commissioned in 2022. It will probably be later on if it were farm-down. So we have not issued the farm-down on Hornsea 2 in this period to make it clear.

[Operator:]

Our next question is a follow-up question from Deepa Venkateswaran from Bernstein. Please go ahead.

[Deepa Venkateswaran:]

Thank you. Mads, my question is to you, I've definitely sense that there's increasing enthusiasm for green hydrogen in your Annual Report and also your statement. So I had a question for the two projects that you have a partner BP and Yara, could you maybe help understand what is the commercial framework for these projects. Are these companies ready to pay you a certain fixed price of green hydrogen? What's the kind of return and should we expect more of these and would you also give more details of your hydrogen pipeline like you do for offshore wind? Thank you.

[Mads Nipper:]

Thanks a lot, Deepa. I mean, we unfortunately, we can't share any specifics on the commercial frameworks for those agreements, but it is clearly the ambition, that this is -- these are the first steps in potential expansion with both BP and the refineries and also with Yara. And this is -- these are discussions that we will have with management, both in light of these projects, but also to say if and when successful, this is something that we're certainly looking into scaling. And we will also be having dialogues with other companies from harbor to abate sectors, whether more targeted partnerships can be done to make green hydrogen with Ørsted a part of that solution. We will, as so far the projects are all sort of at relatively low scale, because we do all need to learn in this. But certainly some of our partnerships right now are with the ambition to scale them at a later stage.

[Marianne Wiinholt:]

And we're not so progressed that we have a commercial agreement neither with Yara nor with BP on the agreements we have made with them, that's too early.

[Operator:]

Our final question comes from the line of Lawson Steele from Berenberg. Please go ahead.

[Lawson Steele:]

Yes, hi. Final question and a half, if I may. So on Muscle and Borssele – Muscle Shoals and Borssele, wanted to am I right, I heard that you said that, you don't budget a capital gain or farm-down but you do farm, you do take into account a 50% farm-down in the EBIT. That's my first question. Is that right?

[Marianne Wiinholt:]

That's right. That's absolutely right.

[Lawson Steele:]

Okay, great. And then can you we talk a little bit about I know, it's early days, but just follow us more trying to get a grip on it. But do you think that you're going to get the same similar sort of premium on your solar disposals as you have received on your offshore roughly?

[Marianne Wiinholt:]

It's too early to say, I will not speculate. We're in the process of launching solar farm-downs. So I think it's too early. We think there's definitely a market out there and we believe we can get attractive returns on the farm-down. But I cannot give more details.

[Lawson Steele:]

Okay. But you do -- but you obviously and so, I think Marianne you're saying you will get capital gains of some description, which will be significant, but you don't know where they're going to be 50% or 100%. Is that fair?

[Marianne Wiinholt:]

That's your interpretation about that.

[Lawson Steele:]

Well, you're dodging the question. Okay. Fair enough. Bye-bye, thanks very much. Thanks for the presentation.

[Operator:]

There are no further questions at this time. So I hand back to Mads for any closing remarks.

[Mads Nipper:]

Absolutely, yes, thank you very much for all your questions and also all your welcome greetings, much appreciate it, it means a lot to me. So thank you very much for joining the session. And then we also just end by saying that I'm very proud and humbled that that the Board of Directors of Ørsted has shown me trust to succeed Henrik as the CEO of Ørsted. I know from listening into his last earnings call, all the credit that you all gave to him, very well deserved. Creating a world that runs entirely on green energy is a vision incredibly close to my heart. And also I want to thank the executive committee and all of the Ørsted employees that I've met so for a very warm welcome. And I do look very much forward to join the IR team on the road and meet all of you in person once that's possible, hopefully in the not too distant future. But until now we have to settle with sort of the virtual or the phone setup that I guess we all have gotten used to in the last year. So thanks again for your great questions. Stay safe and have a great day or evening wherever you're.