Ørsted A/S (ORSTED) Earnings Call Transcript & Summary

Hello, everyone, and welcome to the Ørsted Investor Presentation for Q4 and Full Year 2021 Results. [Operator Instructions] Today, I am pleased to present Mads Nipper, CEO; and Marianne Wiinholt, CFO. Speakers, please begin.

Thank you very much, and good afternoon and good morning, everyone, and welcome to the Q4 2021 earnings call. Never before has the world's climate challenge has been greater and the message from science clearer that we need to act now to preserve our planet. And with more than 70% of the world's carbon emissions coming from the production and use of energy, the transition to a sustainable energy system is at the core of combating climate change. With more than 30 years of experience in renewables as one of the 5 largest renewable energy companies in the world and as the undisputed leader in offshore wind, we at Ørsted want to play our part in realizing this massive renewables buildout. And we plan to do so by reaching our strategic ambition of being the world's leading green energy major, installing approximately 50 gigawatts of renewable capacity by 2030 and combining technologies to offer customers fully integrated multiproduct solutions. In many ways, the past year has been extraordinary, with various external factors impacting the markets where we operate. Throughout 2021, we experienced significantly lower wind speeds than normal, especially in Northwestern Europe where we have most of our operating offshore portfolio. In February, Texas was subject to an unprecedented winter storm, where the cold weather was accompanied by surging power prices as conventional and renewable capacity across the state failed under tough conditions. The European energy crunch in the last part of the year with extremely high and volatile gas and power prices was also partly caused by weather conditions as the cold winter in the beginning of 2021 led to low levels of gas at storage which, together with no wind and precipitation and increasing demand for power and gas caused by supply changes. Finally, the COVID-19 pandemic continued to affect societies and businesses globally and led to economic uncertainty. And I'm pleased to say that we have successfully navigated the challenges during the year and we have delivered significant results in 2021, strategically, operationally and financially. And let me take a moment to reflect on some of those accomplishments before getting into results. We are strongly committed to maintaining our #1 position in global offshore wind and in 2021, we have done so by securing 25% of the 18 gigawatts of offshore capacity auction globally and also by replenishing our pipelines with new future opportunities across all technologies. We have demonstrated that we are an industry leader in innovation by reaching FID on our first renewable hydrogen project, having 10 hydrogen projects in development alongside several new MOUs with industry-leading partners, and by securing our first deepwater lease right through the recent ScotWind auction that will be used to develop our first floating offshore wind farm. We are committed to be the leading partner and we have delivered by signing numerous corporate PPAs across geographies and with multiple technologies. This is further exemplified by the PPA signed for Borkum Riffgrund 3, which allowed us to substantially derisk the originally fully merchant project and bring it to FID at attractive returns. Taking a customer-centric approach, we have tailored the farm-down solution for our partners and ourselves to obtain revenue certainty including a 25-year PPA with BASF. And we've launched even more key strategic partnerships across technologies and the world, which I'll explain in more detail later. Finally, we continue to be the global energy leader in sustainability, publishing EU taxonomy eligible numbers already in 2021, being recognized as the first energy company for our net 0 targets by the science-based targets initiative and by promising all projects commissioned in 2030 and after to be net biodiversity positive. And most recently, Ørsted was ranked for the fourth year in a row as the World's Most Sustainable Energy Company on Corporate Knights 2022 Global 100 Index. We have transformed our company completely to get where we are today, and I truly believe that sustainability will be a fundamental premise for all businesses in only a few years' time. Let's now turn to our annual financial results and I'm pleased that we have delivered full year results in line with our guidance, as our 2021 group EBITDA, excluding new partnerships, came in at DKK 15.8 billion. The results are better than our Q3 and -- Q2 and Q3 expectations, the lower end of the range even in light of the extraordinary market conditions. Altogether, we see 2021 as having demonstrated the resilience of our business model, benefit of our diversification effect and our ability to maintain high availability rates even under difficult circumstances. Furthermore, we once again demonstrated the power of our proven partnership model in 2021 as we close to 50% farm-down of Borssele 1& 2 to [ Norges ] Bank Investment Manager and the 50% farm-down of Greater Changhua 1 to global investment group CDPQ and Cathay PE. The DKK 8.5 billion of EBITDA we recognized for these 2 farm-downs are considered new partnerships and thus were excluded from guidance. Our return on capital employed, ROCE, for 2021 was 15% above our target of an average group ROCE of around 11% to 12% for the period 2020 to 2027. On the back of our financials, we will propose a dividend of DKK 12.5 per share to the Annual General Meeting, corresponding to an increase in dividends of 8.7%, in line with our dividend policy. Now turning to Slide 4. I'm very pleased with how we have grown our firm capacity. During 2021, we grew our Offshore wind firm capacity by 31%. We confirmed our strength as a partner when we were selected in Poland by PGE for the 2.5 gigawatt Baltica 2 & 3 projects. And between the 2 gigawatt of competitively awarded capacity in New Jersey for Ocean Wind 2 and most recently, Maryland for Skipjack 2, we proved our ability to deliver a winning offering with competitive pricing, attractive terms and an all-encompassing local content package. Turning to Onshore. We demonstrated that we not only buy well but that we create the right organic development opportunities too. We acquired Brookfield Renewable Ireland in April of 2021. That included 327 megawatts of operating assets and, at that time, a 62-megawatt project under construction. Since then, we have brought 2 additional projects to FID, adding another 45 megawatts to our firm capacity as well. We also acquired Lincoln Land in MISO of the U.S. in November of 2021 which is now operating and generating cash flows. And we are constructing the 518-megawatt wind and solar PV Helena Energy Center, a greenfield development project. And altogether, we added 1.3 gigawatts of firm capacity within the Onshore business. And by end 2022, we expect to have 4.7 gigawatts of operating onshore renewable capacity online. Finally, for renewable hydrogen, we reached FID and started construction of the 2-megawatt H2RES project in Denmark, moving hydrogen from [indiscernible] to a tangible opportunity. And all in all, we have grown our firming capacity by 28% in just 1 year, reaching over 26 gigawatts today and putting us even closer to our 2030 ambition, which I'll continue discussing on the next slide. Our 2030 ambition is 50 gigawatts by 2030, and of which 30 gigawatts is offshore wind and 17.5 gigawatts is onshore renewables. And I'm pleased to say that we are well on track to achieving this, because not only did we add around 6 gigawatts to our firm capacity in '21, as just explained, but we also replenished our substantiated and opportunity pipelines. Compared to the approximately 24 gigawatts of capacity needed to realize our 50 gigawatt ambition, we today have a 24 gigawatt substantiated pipeline between offshore and onshore renewables and an additional 43 gigawatt opportunity pipeline for offshore wind. And let me take a few moments to reflect on our key accomplishments in market development this past year that has allowed us to have such strong pipelines. Most recently, we and our partners Falck Renewables and BlueFloat Energy were selected by the Crown Estate Scotland to enter into an option agreement for a new 1 gigawatt floating offshore wind lease site. We commend the ScotWind seabed auction for being large scale and for having focused on development phase commitments, which is exactly what is needed to allow for financial sustainable development and to make floating and deeper water wind cost competitive. By securing this seabed lease area, we are confirming our ambitions in floating offshore wind while expanding our substantiated pipeline for offshore wind, which now sits at approximately 12.5 gigawatts. We made progress on other offshore wind market entries as well with a number of key strategic partnerships and MOUs established during 2021. This includes our most recent MOUs with 2 leading Korean utilities, KOSCO and KOMIPO, which explores renewable energy certificate offtake, joint operation and partnerships and technology exchange for O&M and is overall an important step in the development of the 1.6 gigawatt Incheon offshore project. In addition, I would mention our MOU with T&T in Vietnam, our MOU with Enefit in the Baltics and our partnership with Fred. Olsen Renewables and Hafslund Eco for the upcoming Norway seabed lease auction as well as long-term development in Norway. Together, these have substantiated our opportunity pipeline, which now sits at approximately 43 gigawatts today. We also further built out our onshore wind and solar PV substantiated pipeline, which includes land control and interconnection positions in the U.S., U.K. and Ireland. Lastly, we continue to aim to be a global leader in renewable hydrogen and green fuels. And as such, we have continued to mature our existing strategic partnerships while building out our pipeline further. And we now have 10 pipeline projects in established partnerships and 5 additional MOUs. We are progressing well on the funding and construction of the existing projects. The first phase of our Westküste project partnership for example is supported by the German Reallabor program and we and our partners are currently maturing the 30-megawatt electrolyzer project towards final close. Four of our projects are progressing with IPCEI as well. IPCEI approval is key and it allows the respective EU member states to fund the projects. Our Lingen green hydrogen project with BP was shortlisted as a German IPCEI project as was the scale-up of the Westküste 100 project called HySCALE. The Yara Sluiskil project was shortlisted for the Dutch IPCEI project and our green fuels for Denmark flagship project with Maersk, SAS, Copenhagen Airport, DFDS, DSV and others was selected as a Danish IPCEI project. Before moving on, I want to mention our 2 most recent accomplishments. First, we have reached an agreement with Liquid Wind AB to acquire a 45% ownership share of Liquid Wind's FlagshipONE e-methanol project expected to produce 50,000 tonnes of e-methanol per year based on renewable hydrogen and biogenic CO2. FlagshipONE is a late-stage development project that could become the world's first large-scale sustainable e-methanol project of many, especially as Liquid Wind AB plans to establish a series of facilities across Sweden to decarbonize the maritime sector. Second, we have signed an MOU with international steel and technology major Salzgitter to collaborate on a number of circular economy-related areas. These include green hydrogen production potentially using power from our North Sea offshore wind assets. Low CO2 steel production that can be used in our future offshore wind farms, close lube recycling of scrap from decommissioned wind farms and infrastructure. We view this as an excellent opportunity to help decarbonize the hard-to-abate sector of steel production as well as an example of our sustainability commitments pursuing global opportunities. And all in all, we believe we stand with one of the broadest and deepest portfolios of renewable hydrogen products in the industry. Now moving on to Slide 6, where I look into recent development in the U.S. offshore portfolio. Starting in Maryland, where we were awarded a contract for the full amount of our 846-megawatt Skipjack 2 project in the recent competitive offshore wind solicitation. The awarded 20-year Offshore Renewable Energy Certificate, or OREC starts at USD 83.9 per megawatt hour in 2026 and escalates 3% per annum, which equals a levelized 2017 price of USD 75.8 per megawatt hour. Subject to final investment decision, Skipjack 2 and the previously awarded 100-megawatt (sic) [ 120 ] megawatt Skipjack 1 project will be built as one project with expected commissioning in 2026. We see this project demonstrating our capabilities in creating value in a competitive environment by leveraging our expertise to help our customers achieve their ambitious renewable targets, deliver on strong local content and ultimately execute on a very attractive project. With Skipjack 2, Ørsted has been awarded a total of around 5 gigawatt offshore wind projects in the U.S., and we maintain our market leadership with the largest U.S. offshore wind development pipeline. This leaves us and our partners with proprietary seabed rights of around 3 gigawatts of the U.S. East Coast, which can be utilized for upcoming solicitations. In the U.S., we continue to see strong development and progress being made in maturing our industry-leading 5 gigawatt development pipeline of projects with the first FIDs expected in 2022 and 2023. Our first projects that have been exposed to the federal permitting delays carry costs related to developing a local supply chain which, together with current cost inflation are impacting the value creation. Project development is most mature for our Northeast cluster, and we can see that in particular the cost of installation vessel has increased significantly, not least in light of the limited supply of Jones Act-compliant vessels. We continue pursuing all technical, commercial and regulatory levers at our disposal to improve returns of these projects in the same way as we always do. The continuous fast progress of the federal permitting progress processes as well as the proposed Clean Energy Tax policies being considered in Congress are important supportive factors, not only for our projects, but for the accelerated build-out of offshore wind in the U.S. in general. We remain fully committed to be a leader in the development of U.S. offshore wind. Now turning to Slide 7, where I'll give an update on our construction projects and pipeline, first, starting with projects under construction. We are currently constructing 2 of the world's largest offshore wind farms, Hornsea 2 in the U.K. and Greater Changhua 1 & 2a in Taiwan. At Hornsea 2, we have now successfully installed all array cables and all 165 turbines and reached first power at the end of last year when the offshore transmission asset was connected to the grid. Today, 17 turbines are energized, but significant parts of the electrical engineering work as well as other key final commissioning steps are still undergoing. We saw progress according to plan until mid-December. However, the accelerating Omicron variant infection rates meant that it was not possible to man the vessels used for commissioning work according to plan. And as a consequence, the ramp-up profile will be slower than our original internal expectations, but we still expect to commission Hornsea 2 in the first half of 2022, as previously communicated. As we previously discussed, we continue to expect to farm down Hornsea 2 in 2022 upon or after commissioning. We continue to see high interest for direct investments into our assets and our most recent deals demonstrate high confidence in offshore wind and provide a testament to our proven transaction model of providing contracts for full-scope EPC 20 years of O&M and route to market. At our Greater Changhua 1 & 2a project, we continue to progress our offshore construction work and have installed 15 (sic) [ 17 ] out of the 111 jacket foundations. We plan to reach first power in the first half of 2022 and still expect to commission the projects towards the end of 2022. As we mentioned in Q3, we continue to see Taiwan being affected by COVID-19 restrictions, which could potentially impact the construction time line, but hasn't yet. Since the Q3 call, we reached FID on our Borkum Riffgrund 3 and Gode Wind 3 projects after signing 786 megawatts of corporate PPAs and farming down Borkum Riffgrund 3, hereby meeting our partners' additionality mandates and limited merchant exposure. Turning now to our onshore renewable projects under construction and starting with the U.S. onshore wind, we are near completion in terms of constructing for the 298-megawatt Haystack wind project and will formally commission in the first half of this year. As previously discussed, we still expect some delays in commissioning of our U.S. solar projects Old 300 and the solar phase of Helena Energy Center due to the forced labor allegations in China and U.S. tariffs on Chinese goods. We take the issue of forced labor very seriously. And for future projects, we have decided to only use polysilicon free panels until the traceability issues have been fully resolved. In Europe, we have reached FID on our first Northern Ireland project. The 16-megawatt Ballykeel project has an offtake solution with Amazon and is on track to commission in 2023. The construction of the 2 other projects, the 62-megawatt Kennoxhead 1 project in Scotland and the 29-megawatt Lisheen 3 project in Ireland are still progressing according to schedule and are expected to reach COD in 2022. We also continue to advance our first renewable hydrogen product under construction, H2RES. The 2-megawatt electrolyzer project will use our Avedøre Holme offshore wind facility as a source and is still expected to commission in the first half of 2022. All these projects together equate to the nearly 18 gigawatts of installed and under construction renewable capacity. The development of our awarded projects continues to progress as planned. In the U.S., we've added Skipjack 2 to our awarded capacity and the U.S. Interior Department recently kicked off the process for the New York Bight Seabed lease offering. New York Bight is the first of 7 potential offerings in 2022 through 2024 across different U.S. seabed regions. We are eligible to bid for the New York Bite and we'll provide updates in due time. Finally, the development of projects in Taiwan and Poland are also progressing as planned. Let's move on to Slide 8 and an update on upcoming offshore wind auctions and tenders. And I'm extremely pleased with our strong year of successes in 2021, where we and our partners secured 25% of the awarded capacity globally through Poland, New Jersey and Maryland. The 4.5 gigawatts of gross offshore wind capacity is 50% above our strategic ambition of adding approximately 3 gigawatts of offshore wind per year. From this, it is clear to me that our competitive advantages continue to shine through across different geographies and auction types and we look to apply this in several of the plentiful number of auctions expected during 2022 and 2023. And with this, I will now hand over the words to Marianne.

Thank you, Mads, and good afternoon, everyone. And let's start with Slide 9 and the EBITDA for the quarter. Looking at the group level, we realized an EBITDA of DKK 8.3 billion, a significant increase on last year, driven by the gain from the 50% Greater Changhua 1 divestment. Our EBITDA, excluding the effect from new partnerships was in line with Q4 2020. As stated when we gave our 2021 full year guidance, we expected numerous drivers to impact the earnings, and this totaled DKK 0.2 billion in Q4. The underlying earnings composition did turn out differently than what we had anticipated, driven by the very strong performance from our CHP plants and gas business, whereas the energy crunch led to a larger-than-expected negative impact on our offshore wind assets. During the quarter, we saw wind speeds roughly in line with the norm for the quarter, while the derived effect from the energy crunch had a negative impact of DKK 1 billion on our offshore sites' earnings. The impact is related to higher balancing and intermittency costs as well as having to buy back hedges caused by the delayed Hornsea 2 ramp-up, as Mads described earlier. The negative EBITDA impact from our existing offshore partnerships in Q4 2021 related to a DKK 0.5 billion increase in wake provisions to our partners, while the project development costs increased by DKK 0.5 billion, driven by the continued expansion of our footprint. Earnings in our onshore business increased by 64% driven by the ramp-up in generation capacity, which was partly offset by the costs relating to the continued expansion of our onshore business. In Bioenergy and others, earnings significantly increased driven by exceptional performance by our CHP plants due to the higher power prices, higher heat and power generation as well as higher sales of ancillary services. As we only hedge the power we co-generate with heat, we fully benefited from the high power prices on our condensing power generation in the quarter. Earnings from our gas markets and infrastructure increased significantly due to a strong underlying performance. In Q3 2021, we conducted renegotiations of gas purchase contracts and because of the ongoing negotiations of these contracts and the uncertainty around price levels we would settle upon, we had not locked in our margins as we would normally do. Hence, with the increase in gas prices throughout Q4 2021, we were able to secure a very solid contribution from the sale of these volumes. Let's continue to Slide 10, covering our net profit, net debt and credit metric. Net profit for the period totaled DKK 3.3 billion which was significantly above last year, driven by the higher EBITDA in the quarter. Our net debt at the end of fourth quarter amounted to DKK 24.3 billion. an increase of DKK 3.1 billion during the quarter. Our cash flow from operating activities reflected the EBITDA as well as tax equity contribution from our partner at Haystack in the U.S., offset by combined initial margin payments to clearing houses and margin payments on realized hedges of DKK 8.8 billion. These margin payments only impact liquidity temporarily. Our gross investments totaled DKK 11.8 billion driven by our continued investments into offshore and onshore wind and solar PV farms while the divestment proceeds related to the 50% farm-down of the Greater Changhua 1 project. Finally, we had exchange rate adjustments of 1 billion relating to appreciation of the British pound. Our key metric, FFO to adjusted net debt, stood at 31% for the 12-month period ending December 2021, which is still well ahead of our credit metric target despite the significant margin payments that we had to post. Let's turn to Slide 11 and our financial and non-financial ratios. Our return on capital employed came in at 15%, with the increase compared to last year being driven by the farm-down gain. In 2021, our taxonomy-eligible share of revenues was about 66%, while our share of EBITDA was 90% and the share of gross investments was 99%. As we have stated previously, we expect the share of taxonomy-eligible revenue to increase in the coming years as we plan to phase out coal completely during 2023 and gradually reduce our gas activities. Our greenhouse gas emissions intensity from our heat and power generation namely our Scope 1 and 2 emissions, was on par with 2021. The emissions from our supply chain and sales activity decreased by 28% compared to last year, driven by lower gas volumes. Turning to safety. We have seen a 4% reduction in the number of injuries and a 15% increase in hours -- working hours, which led to a 17% reduction in the total recordable injury rate during 2021. And this concludes the group's financials for Q4 2021. And then let's turn to Slide 12 and the outlook for 2022. Our guidance for 2022 EBITDA, excluding new partnerships, expected to be DKK 19 billion to DKK 21 billion representing a significant step-up on 2021 EBITDA. As of 2022, we have increased the range of our guidance to DKK 2 billion instead of the previous DKK 1 billion due to the increasing size of our renewable portfolio. As in previous years, our EBITDA guidance does not include earnings from new partnership agreements. In terms of new partnerships in 2022, we expect to close both the 50% farm-down of Borkum Riffgrund 3 expectedly during Q1 as well as the farm-down of 50% share of the Hornsea 2 project expectedly during the summer. We have not included any gains from these farm-downs in our guidance, but we have assumed a derived reduction inside earnings from Hornsea 2 in the second half of the year. Including the expected farm-down gains from those 2 transactions, the 2022 EBITDA will be significantly higher than 2021 EBITDA including new partnerships of DKK 24.3 billion. Looking at the directional earnings development for each of the business units, we expect the earnings in Offshore and Onshore to be significantly higher than 2021, while earnings in Bioenergy & Other is expected to be significantly lower. I would like to go through the earnings drivers in more detail, starting with offshore, where the significant positive impact is driven by a number of factors. Earnings from sites in 2021 were negatively affected by very low wind speeds which for 2022 is not expected to repeat but, on the contrary revert to a normal wind year. Both Hornsea 2 and Greater Changhua 1 & 2a will contribute with a ramp-up of generation and we expect to commission the projects late in the first half of 2022 and in the second half of 2022 respectively. The ramp-up will be partly offset by the 50% farm-down of Borssele 1 & 2 in May 2021. We will have a full year effect of the CFD contribution for the whole of Hornsea 1 and we expect a less negative impact from the energy crunch in 2022. However, we expect to see a continued negative impact from high balancing and intermittency costs driven by expected continued high volatility. Furthermore earnings from existing partnership will benefit from the contributions from Greater Changhua 1, which we farmed down in 2021. We also realized a negative impact in 2021 from the provision for the cable protection system issue. During 2021, we took the necessary proactive measures to repair the cable protection systems where we had found them to be damaged and we have stabilized the CPS on several of our offshore wind farms. This stabilization has been executed to prevent further movement of the cables across the scour protection by placing additional engineered [indiscernible] around the CPS. We are continuing with this exercise and have plans for further rock stabilization during 2022. We are now analyzing the long-term integrity of the cables impacted by the movement and the requirement to replace [indiscernible] cables, including the impact in relation to suppliers, partners and insurance. At present our evaluation of the total financial impact of this issue remains unchanged, but it is more back-end loaded than what we had initially assumed. In 2021, we made further provision regarding wake effects. This effect is not expected to be repeated for 2022. And finally, we expect DKK 0.5 billion increase in costs relating to expense project development, costs related to hydrogen development and general costs due to the increasing size of our business. Earnings from our onshore business is expected to be significantly higher driven by the ramp-up generation at Permian Energy Center, Western Trail, Muscle Shoals, and Lincoln Land, which we commissioned during 2021, and the expected commissioning of Old 300 Solar Center, Helena Energy Center in the second half of 2022 and Haystack in the first half. And furthermore, 2022 will account for a full year earnings from Brookfield Energy Ireland, which we acquired in Q2 2021. And finally, we expect a DKK 0.3 billion increase in expense project development and general costs. The earnings from our Bioenergy & Other business for 2022 is expected to be significantly lower than 2021 largely owing to the fact of the very strong performance in 2021. In 2021, our CHP plants benefited from the large demand for ancillary services as well as the very high power prices and spreads in the last 4 months of the year which also led to unusually high power generation. We do not expect this to be repeated to the same extent in [ 2020 ]. . Furthermore, earnings in Gas Markets & Infrastructure were positively impacted by a one-off effect in connection with the renegotiation of gas purchase contracts in 2021 and a strong underlying performance in a very volatile and bullish gas markets, where we were able to optimize purchase from our long-term gas contracts. In 2022, we expect earnings to be fairly limited, reflecting normal margins on these activities. Despite 2021 being a soft year for our site earnings, I want to reiterate that we are fully on track to deliver on our long-term EBITDA CAGR of around 12% from 2020 to 2027, targeting DKK 35 million to DKK 40 billion EBITDA and from offshore and onshore assets in operation by 2027. Our gross investments for 2022 are expected to amount to DKK 38 billion to DKK 42 billion. The outlook reflects a high activity level in offshore and onshore. Our gross investment guidance is fully in line with our expectations and long-term plans. And finally, let's turn to Slide 13, which recaps our 2022 EBITDA and gross investment guidance as well as our long-term financial estimates and policies. We are well on track on our capital investment program in our green growth and maintain very comfortable with our long-term financial targets.

And before we open up for the Q&A session, thank you very much, Marianne. I would like to thank you, Marianne for an outstanding career at Ørsted. As you all know, Marianne announced that she will pursue a career outside of Ørsted. And whilst I can support and understand why Marianne, after more than 17 successful years in Ørsted, has the appetite to try other challenges, I am certainly sad to see her leave as a great, experienced and capable colleague to me and the rest of the Ørsted Executive Committee. Luckily, we are in the best of hands with our new group CFO, Daniel Lerup, who I very much look forward to welcome in the Executive Committee. Daniel is currently Senior Vice President, Head of Commercial and EPC and Operations Finance at Ørsted and has worked for the company since 2009. He has a strong strategic mindset and in-depth knowledge of the company and extensive experience for several corporate finance and business functions including previously serving as the Head of Investor Relations, Tax and Financial Planning and Analysis. And I'm confident that Daniel will use his strong leadership skills to support our global growth while keeping financial discipline and I am pleased that our recruitment process has confirmed our strong internal talent pipeline. For now, Marianne will stay on until April 8 to support the transition. Marianne, apart from thanking you, I will leave it to you for your closing remarks.

Thank you, Mads. I am very happy to have been part of this amazing journey over the past 17 years, of which the past 8 years as CFO and I have concluded that now was the right time for me to step down as CFO. Together with the entire Ørsted team, we have transformed the company to a global leader in renewable energy and creating significant value for all our stakeholders and driving a world-leading sustainability agenda. I would very much like to thank the Board of Directors, Mads and my colleagues in the Executive Committee and the entire Ørsted team for an exceptional collaboration in realizing the profound results that we have achieved together. I will stay on as CFO for a few months to ensure a smooth transition and I remain very committed to Ørsted until my final day. Thereafter, I will continue to follow this exciting journey going forward. And with that, we will now open up for questions. Operator, please.

This concludes the presentation part of our call, and we are now happy to answer your questions. [Operator Instructions] Our first question comes from Sam Arie with UBS.

Thank you and congratulations on very good results today. So may I just add my thanks to you, Marianne, for everything. And congratulations to Daniel for his appointment. So on to my question, which I think is kind of the question, which is about inflation rates and cost of capital. I know that's always a difficult topic for us to discuss. But I thought I'd try and ask a question in the following way. If you look back as a management team on the last year and sort of taking into account everything that's changed in the macro landscape, how do you see your group cost of capital as having changed? And I'm asking in that way because I know you don't like to talk about the level of the cost of capital, but I'm hoping you can comment on whether you see any change versus this time last year. And related to that, I looked in the annual report this morning to see what you did on your impairment test, and I don't see any. So I'm tempted to conclude from that, that you basically don't see any impact on the value of your portfolio from kind of the things that the market is worried about at the moment, rising inflation and the cost of your projects and a rising discount where you might apply a valuation. So that's my question, and I welcome any comments you could share with us on those points.

Yes. Thank you, Sam, I will try to answer that one. The way we look at inflation and increased interest rates is that we split our portfolio into what we have already built, what we are in the process of building and then the future pipeline. And if I start talking about what we have already built, the operating fleet, we are very blessed by having a large degree of our assets being inflation-indexed. So all the UK projects are inflation-indexed. And we think that this gives us a good protection against increasing interest rates. I know that's not a one-to-one relationship, but I think we are in a good spot. Then we have the projects with fixed nominal contracts where we, to the extent possible have secured those via the fixed nominal debt, meaning that we -- for those where we do that, we keep the value creation intact. Then when you look at what we have not built, we have not built, for example, our Polish projects where we also have inflation adjustment. Our U.S. projects in a way we have not built and we have a fixed contract, some of which we have secured already through fixed nominal debt. But there of course, we have an exposure. Not an exposure that makes these projects not being value-creating and that's why you cannot see any impairment losses in our annual report. Then when you look at the projects that we have not won yet, we will not be in a different position than any of our competitors. So we believe that higher interest rates, meaning higher WACC will be built into the bids. And we will, as I said, be in exactly the same position as the peers. And that will -- if this increased interest rates in a way continue and this is the new normal, then you will see subsidies increasing, oil prices increasing as a consequence of that. So we feel that we are actually quite well protected. I know we are exposed of course to some extent, but compared to many of our competitors and in a way compared to what I think many investors think, I think we are in a good place.

That's an excellent answer. Thank you very much for walking us through the different pieces.

Our next question comes from Casper Blom with Danske Bank.

Let me start by also saying, thanks for the ride Marianne, and best of luck in the future to you and to Daniel of course, also. Then my question goes to your guidance of gross investments of DKK 38 billion to DKK 42 billion here in 2022. And as mentioned that you are seeing some cost inflation, for example, on U.S. vessels. Let's say hypothetically that you had given that same CapEx guidance a year ago, wanted to do the same things as you do now, what would have been the number then? Can you give any guidance to that?

Thanks, Casper. It would have been roughly the same. I mean, this is driven by the fact that we are constructing very significant sized assets. So we are still building Hornsea 2. We're building Changhua. We took FID on our German program. So we are really constructing a lot of large-scale assets on top of the strong onshore investment plans as well. So the inflation is nothing that significantly impacts our overall CapEx budget I think is the short answer.

Okay. If I just may follow up. I think, Mads, you said last year that you were not that worried about the rising input cost on steel, plastics, et cetera, because for example, on your U.S. portfolio, we're not looking into anything being completed before 2025. I mean we are getting closer and closer to that and costs are still high. And are you starting to be a little bit more worried?

Yes. Yes, we are starting to be a little bit more worried. I would say that we are working very hard on it. Because like we also mentioned just briefly now is that we are seeing that whilst we had secured through prebuy for example, a very large share of the steel we're going to use in the U.S. projects. There are other parts of our supply chain such as installation vessels, where there is a scarcity of the Jones Act-compliant vessels. That means that those prices are going up. We have, for those projects that are next in line, we have locked in a very large share of the CapEx. But there is still an exposure and that is what we are working on. And also mentioning that to ensure that if this inflation continues as we near the sort of the project commencement and the construction phase, that is also why we underline the need for the green part of the build back better and the approval process is a [indiscernible] to continue to be very effective and support the sustainable build-out. No matter what we remain committed to our portfolio. We want to be a driver of the U.S. onshore or offshore portfolio and lead that 30x30 ambition. But it is something that is putting pressure in general on the industry. And we, I think, have been -- are working with all [indiscernible] through securing both commodities and also the other parts of our CapEx, but it is impacting. And it is something that underlines the need for the support to ensure we keep traction.

Our next question comes from Deepa Venkateswaran with Bernstein.

I also want to start off by thanking Marianne for her service to all of us and all the best in your next endeavor. So my question and this is to Mads, Marianne, whoever wants to pick up, so we've been talking a lot about inflation of raw material component supply chain, but the other massive inflation that also happened of course has been wholesale power prices. We've also seen of course driving commitments from corporates towards reducing emissions and so on. So in this backdrop, just wanted to see how your approach has shifted or not moving away from just auctions to actually broadening it out more and including corporate PPAs. And I know you were pioneers in Germany a few years back, but at that time the power price environment and ESG commitments were completely different. So I wanted to just poke on the other aspect of inflation, which I think a lot of investors are ignoring it you know rising merchant power prices and increasing corporate appetite and how that changes the value of your future opportunities.

Yes. So basically Deepa, what you are really asking about in a way, has this changed our appetite for merchant projects and taking on board more merchant risk? Is that what you're really asking about?

In one way, yes, but perhaps it's also opened up another avenue of demand from corporates. So not completely keeping it merchant for yourself, but another avenue of offtake.

Yes. Yes to both questions. The thing is that for now in a way we don't have any merchant exposure on any of our projects where we can go out and market the corporate PPAs. So we don't have anything to sell basically for our offshore portfolio. For onshore, we are continuing. And yes, you are right, we see demand being very, very strong, stronger than ever. First of all in a way driven by green requirements from the corporates and -- but also, I think it has been a wake-up call, this energy crunch, that energy prices in a way are much more volatile. And in this transition we are in the middle of, in a way you would probably see more volatility. And that also then leads to question, do we have more appetite on merchant risk if we should win a merchant project? And there will be auctions in 2022, where we will have merchant projects like, for example, in the Netherlands. And one thing is an eye opener you can say from this energy crunch that being merchant probably, in a way, could also give a very significant upside while the downside from being fully hedged or not being hedged in a way is not at the same level. So yes, we are looking at our appetite and the way we hedge, whether we should leave some more room for having a higher merchant exposure. But that's something we will be working on and we will come back to you as we progress with this work.

And Deepa, if I can just support, also supplement Marianne's answer. We are starting to see that the PPA terms and prices are going slightly up for our onshore business. And that can sort of -- those are shorter term. So that also means that, that could well be a lead indicator generally for this -- for the market allowing this to happen. So that will also mean that part of that inflation, that is a real risk as the input factors as we go along. We are relatively confident at least part of that can settle into the power prices as well, at least on the PPAs.

Our next question comes from Alberto Gandolfi with Goldman Sachs.

Marianne, all the best in your future endeavor and thank you so much for all the help over the years. . A quick one -- well, not quick one at all, sorry, actually. There's a question here about putting together what we talked about so far. We talked about cost inflation and we started to talk about top line inflation protection. And I really appreciate your Slide 42 for sharing with us that about 2/3 of your basically top line is inflation-hedged one way or another over the years. So what I was trying to understand here is there's lots of moving pieces. Steel prices started to come down. Freight rates probably have peaked. So things are beginning to look a little bit better. But as you just discussed, you're playing against the clock. So we know that you need to take FID and order equipment at some stage. So if you put together that Slide 42, power prices, inflation updates and the timing of when you have to take an FID, what is the actual IRR impact versus your 150, 300 basis points spread vis-a-vis what you thought about a year ago? Because the world really looks different versus the beginning of last year. And if you don't have, I don't know, 25, 50 bps IRR, can you tell us, of the DKK 35 billion, DKK 40 billion EBITDA, if steel prices, freight stayed here and inflation still here, would the impact be negligible? Would the impact be quite meaningful? It would be great if you could help us out. And just in case as you're talking about the 2027 EBITDA, am I right in thinking that you just need to win a few gigawatts this year to be 100% done on the operating side of the target? And apologies because this is 1.5 question.

Yes. If I -- it is a quite complex question there, for sure, Alberto. Thank you. I can kick it off and Marianne to supplement. You are right that in order to hit -- if I start backwards, in order to hit the '27 EBITDA -- guided EBITDA, it is relatively few things we need to win apart from what we have already secured. That is the nature of that business. So this -- that we would be quite close to. And we cannot quantify in terms of basis points impact of what has happened since then. We -- this will be too sensitive information. But I can say that we are, as we mentioned, from the German program, that was one where despite that we saw CapEx increase, there, we could actually get -- we could get the PPAs correspondingly attractive. So the value creation from that was fully intact. We are not done with the work in Poland. We have not locked final CFD levels. So there are still things that can be worked on. As we also mentioned in the -- in what we talked about in the beginning of this call, we still have levers to work on -- to work against those inflationary elements that we are seeing. I actually think as we mentioned, it is not -- you're right that steel and commodities are starting to come down and we have not locked everything. So we are -- we would -- we have -- for example, for our near-term U.S. projects where I think the exposure we face is the biggest because that's also where we are building an entirely new supply chain, a new setup, there we still have quite a lot of levers. But it is also, sorry for repeating that, that is also why in order to protect the sort of strong value creation, it is very important that those build back better elements actually come through and we keep momentum from the regulators. So I can't exactly build that bridge, maybe Marianne can supplement. But it is impacting, primarily in the U.S., we are still -- even with what we currently have had, it's still value-creating projects. We are working on our levers. And it is something where, with the regulatory levers and tax levers that could come in place, that we would be in a comfortable place. But we are choosing here with the examples of vessels as being the most impactful one due to the fact that we have locked a lot already. Vessels is an example of a cost category that has gone up significantly.

And just a small supplement, we will not need to win more offshore capacity to deliver the 2027. Because what we will win going forward will, in a way, be in operation after 2027. But the onshore will contribute with quite a lot of new capacity, which in a way is needed to deliver our [indiscernible] EBITDA. But which we, on the other hand, are very confident that we will deliver.

Our next question comes from Kristian Johansen with SEB.

Yes. So my question is around this impact of the energy crunch we're seeing in Q4, which is obviously pretty material. So I understand that this is sort of an unprecedented territory. But can you maybe reflect on the learnings from this and whether this will make you reconsider how to structure contracts hedges anyway so you would potentially avoid a significant impact in the future.

Yes. There is 2 different parts of this impact of the energy crunch which I'd like to touch on, one of them cannot be avoided. That is the balancing cost part. And that is one hitting everybody in the industry because with this very, very high volatility we have seen, you will see more costs for balancing. And this relates to the whole portfolio we have, even if we have the CFD, the subsidies, we get the CFDs on the day ahead and then we sell the day ahead into the market. And there is where we have seen this significant increase. The other part where we have a lot of learning is that we also have had to buy back some hedges due to this delay of the ramp-up of Hornsea 2. And this has made us rethink the way we hedge. So we will going forward, hedge a significantly lower share than what we do today. Previously and not that I'm saying we have been overhedged before, but with normal power prices, if we were overhedged, we would just buy back the volumes at the same price as hedged and then there will not be a material impact. With this unprecedented high power prices we have seen in this energy crunch, it has been costly to be overhedged, and that is what we have been hit by. But a big part of it is this balancing costs, which we believe will normalize as we come on the other side of this energy crunch.

And maybe just briefly supplementing, Kristian, that we are -- like Marianne says, we are confident it will normalize. But for our 2022 expectations, we have still built in a quite sizable share of that, because betting that the volatility is going to go away very near term, we think might be too optimistic. So for the comfort of also you knowing that we have been probably relatively conservative in assuming a reasonably high volatility this year as well to cover those balancing and intermittency costs.

You probably need to be on the other side of this geopolitical uncertainty around Ukraine before you see things normalizing and who knows when that will happen. So volatility will probably continue for a while.

Our next question comes from Jenny Ping with Citi.

Just a follow-up around the CapEx. I guess given we don't really have a lot of transparency around the phasing of the CapEx program and I think one of the debates in the market today is the higher CapEx guidance, whether that's inflationary or phasing, are you able to give us some feel of where you're going to be broadly sitting in terms of '23 and '24 CapEx? Just to give us a sense of holistically for the projects that you're building, are we seeing the phasing issue coming through? Or is there more inflationary? And linked to that, I guess Mads, you talked about the IRR been impacted in the U.S. Are you able to quantify that a bit more?

I can start backwards and then leave the first question to Marianne. No, we can't quantify that, Jenny. It is -- it is something that is impacting, but it is not something that means we don't have value-creating projects. That is as close as we can get it.

And on the CapEx, the CapEx is exactly as expected when we made our plan, we presented at the CMD. We already then said that there will be big a deviation between CapEx from year-to-year. This year is a heavy year because we have both Hornsea 2, we have Changhua and we are starting to -- and Germany, and we are starting to spend significant CapEx also in the U.S. But also, if you look at the average of these DKK 350 billion that we guided at the CMD, that corresponds to 45-ish, 44, 45-ish average per year. So this -- there's nothing in a way unexpected. And this number is not impacted by cost inflation. So I would really emphasize that, that's not what you're seeing.

Our next question comes from Peter Bisztyga with Bank of America Securities.

My one is on development costs, please. You're guiding to around an DKK 800 million increase in development costs across offshore and onshore in 2022, it seems. Is that a new normal we can expect going forward? Or could we expect development costs to continue to rise as you sort of continue to ramp up your ambitions? And linked to that, do we need to start worrying about wage inflation based on your development team across your whole business?

Again, also thanks a lot, Peter. I can kick it off. There's no doubt that, I mean, the continued geographic expansion, building our pipeline, new markets. But also don't forget that we are now starting to also spend real money on maturing our hydrogen projects and greenfield projects. This also adds to this. So I mean I don't think we will see increases like this every year. But onshore, it is -- it was a very small team with sort of where we really working on low budgets. We are gearing that for the very substantial growth we announced at the Capital Markets Day. So that is something where we are still ramping up. And with the new markets and hydrogen ramping up, I think the DKK 500 million is something that we are -- that again, not every year, but certainly it is something that we are continuing to see increases in DEVEX.

And to the last part of the question on the salary wage inflation. It's not something we are really seeing yet. But of course, there is a pressure out there, but it's not something that is significant. And just this DKK 800 million that we show, it is 4 things. It's hydrogen cost. It's onshore and it's more offshore and it's also a general cost increase due to the increase in size of the business.

Our next question comes from Rob Pulleyn with Morgan Stanley.

I hate to stay on the same theme, but may I ask on inflation again. And could you give an approximate idea of where leading hedge inflation is on your CapEx projects, say, versus a year ago? . And there's a second part to that. I'd be very interested, given the answer to the first part, is what cost base are you bidding at the moment or bid in the second half of last year? Was it the leading hedge that you saw at the time? Was it assuming some normalization? Or is it assuming continued inflation in your input costs as we try and think about where the risks or potential opportunities are on the IRR side as the auction calendar in 2022 rolls through.

I will start with your last question because I cannot really answer the first one. We are not able to give a percentage range for the inflation because we're constantly working on maturing our projects and it will be a different number from project to project and I cannot really give you that detail. But it's a very good question. The last one in a way, what are we assuming when we are bidding into the auctions? And now we have some very big upcoming auctions in front of us, for example, the U.K. auction. And what we are doing is, of course, we have people who follow each part of the supply chain, follow the installation vessels, the turbines, the cables, the foundations and make their best estimates based on all the knowledge that we have on where pricing will be when we need to commit. So there's no other thing I can say than that. But I think with the huge experience we have, I think we are -- and the close relationship we have with the suppliers, I think we, in a way, at least have a good chance of being -- taking into account all the knowledge out there and doing this as best as possible to do.

Our next question comes from Mark Freshney with Credit Suisse.

If I could ask on the U.S. onshore business and you've got the bridge of projects there. But just beyond that bridge, my understanding is that returns are actually quite good as they are U.S. onshore, even with 20% higher turbine prices at least because the PPAs have gone up by more. But as I understand it, the entire industry is laying off FID because they're waiting for even better returns and build back better. So my question is, is that something that you have? Have you got a lot of very advanced projects ready to go that are just waiting for build back better? And given I was some way down the queue, I have a question on costs. With several parts of costs, people are very focused on near-term cost -- -- price inflation for existing equipment, but there is also the underlying efficiency as you modernize and industrialize and you continually take cost out of projects, right? And that, my understanding, hasn't gone away. It's still there. So can you also confirm that?

Yes. I think the -- I mean if we start with the latter, if I understand your question correctly, Mark, then yes, we are continuously working on all those levers. And many of them, we've already materialized in our projects in offshore projects. But we are still -- we still have lots of things that we can actually continue to do apart from locking in and working with our suppliers like Marianne talked about. But we are leveraging, we are looking every time at what is it that we can do to take out additional costs to use our scale, to use our experience and for every single project we have, even the near term and the longer term ones, we have a list of continued upside levers that we continue to work on. I hope I'm answering your question on that. And for onshore to my best knowledge we don't have a parking lot of things that we are working on right now that we are holding back on. I think that -- honestly, I think the only place where we could say we are holding back is not something we want to do, that's on the solar projects, where we are still waiting to get those panels ready. But we are not sort of having something which is just waiting for better terms.

But on the other hand, our pipeline will increase in value with these components of build back better on the renewable side. If those go through, we don't believe necessarily that the build back better goes through, but we believe or hope that part of -- the parts related to renewables could go through. And that will significantly increase both the offshore and the offshore portfolio.

Yes. And the reason why, if they go through, we are well positioned because we are living up to most of the proposed criteria for when to be eligible for those tax benefits.

Our next question comes from Vincent Ayral with JPMorgan.

I'd like to -- you talked about [ low value inflation ]. And I'd like to come back on the commodity spike, the balancing, the hedge buyback and the [indiscernible] CHP and gas contracts. Could you give a bit more color basically on the hedge buyback, the level of hedging we had on the [indiscernible] hedging going forward and for '22. Is it that you can get some upside there? Could you explain a little bit the working there. And structurally, CHP and the gas portfolio maybe was not seen really core may be indeed a slightly different view today when see the [indiscernible] sort of the [indiscernible] activity. Could you comment on that? Can you just see a bit of an idea of how you're looking at that? [indiscernible]

Marianne can. Thanks, Vincent. Marianne can speak to the first part. What I can say there is nothing in what has happened this past that it changes our overall direction of travel. I mean our investments, the core of our strategy is an offshore wind, onshore renewables and hydrogen and green fuels. So there is nothing. We are thankful that especially our CHP, but also the gas market has helped us in a year that primarily due to wind was challenging, but our strategic journey remains intact and absolutely no rebalancing of that.

And just to add to the last question before I answer number one. This year has really proven the value of the CHPs. Because what we have benefited from is that the increasing gas prices, but also coal prices, has not been repeated when it comes to biomass. So we have been buying quite cheap biomass and therefore in a way had a very, very, very good margin on our CHPs, which of course has been an offset to the low wind. And the low wind of course again, gives higher power prices. So this diversification effect has proven to be extremely useful. When you then talk about the hedging, yes, we were, when we went into the year approximately 90% hedged, and that has proven to be too high and especially now because of the delayed ramp-up on Hornsea 2. And therefore, we have had to buy back some hedges not to have that risk. We will as I said, going forward reevaluate the way we do this. But one thing is for certain that this volatility that we have seen here and these extremely high prices will mean that we will lower the hedging level not to sit on that volume risk. But we will come back as I said with something new when that becomes implemented.

Our next question is from Ahmed Farman with Jefferies.

Sorry to go back to the topic of the U.S. pipeline and potential inflation there. I think, Mads, in your comments you mentioned that there are still levers that you have on the table that you can pull to mitigate some of the effects. Could you elaborate on that? I would like to get a bit more context. And then sort of related to that, are you able to give us any sense of how much of the CapEx for your mature U.S. pipeline still needs to be contracted? It sounds like logistics is still -- where there's an element of logistics, that still needs to be contracted to [indiscernible] would be very helpful.

Yes, I can put a little bit more color to that end. The -- I think, I mean, it's impossible to give an answer to what share of the CapEx still needs to be contracted because it's very different on how mature the projects are. I mean for example, our South Fork is quite close to FID. So that obviously is very -- that is very highly contracted. Whereas some of the next-in-line projects are also -- but we are looking at sort of a -- we are looking at a relatively small share of the most sort of mature projects that still need to be contracted. But obviously, the ones that come a little bit further out still have a bigger share, but I think the -- still a bigger share to be contracted. And I think -- I mean, there are technical levers. Obviously, the biggest lever is regulatory. That is the tax elements. But also on the technical levers, there is still a range available for these such as optimizing the HVDC and still some contracting to be done. But we are very far, for example with the vessels so -- on the most mature projects. So we are locking in as we speak, but it's impossible to give you a full range of the potential upsides because some of them are material. Some of them are less hard to do, but also with a small upside. But we are still working on it. The team is, even for some of the more mature projects, still plowing ahead to materialize those on the technical side.

Our next question comes from John Musk with RBC.

Yes. Maybe just returning to a question that was asked briefly earlier around wage inflation. And we have seen a few departures announced in the team, I guess below Marianne and yourself, Mads. Have you done any sort of exercise on peer group comparisons to understand how you [indiscernible] in terms of competitiveness, salaries, et cetera. And is there a risk of more people leaving if others are trying to ramp up their teams?

Thanks, John. I mean the risk is always there. But I think even though we've had quite a few quite visible departures from the company. I would say that very few of those and this is a genuine and an honest answer, I think very few of those are due to the fact that somebody is paying significantly higher. And if you look at the voluntary sort of churn rate of our employees, it is still sort of well below 10%, 7-ish percent. And that means that we are actually at -- this is at all level, even at director-plus level, we are not seeing an unusually high churn, even though obviously the capabilities we're building are high in demand. Surely, there are people that pay higher. And surely, it's become visible with sort of a handful of quite visible departures over the last year or so. But it is not something that we are greatly concerned about, John, also because we can see that not only is it great to see our ability to recruit internally and I don't only -- it's not only Daniel who we appointed today to be Marianne's successor, but also just with the fact that Neil O'Donovan could very successfully step up into the shoes of Declan heading up our onshore business. So we can still attract very strong people, including people from competitors, where Troy, our COO in our North American business came from a direct competitor. So yes, there will be people leaving us. Yes, for some, there will be a pay element. But we don't think that is at a root cause and that we are at a competitive disadvantage that will mean that we have a significantly higher flight risk.

Our next question comes from Dominic Nash with Barclays.

[indiscernible], I'm not going to ask about revenue or cost inflation, our sales been completely different, which is the upcoming offshore seabed competitions, please. So I mean, you were first movers into this since the industry big market shares and seabed leases to start off with. But if we look at the U.K. seabed leases over the last 12 months, I think is, what, 33 gigawatts or so out there, I think you won a share of 1 gigawatt of that and I think it's 30%, if you can just clarify that one. And then when I go to your Slide 23 and look at the upcoming seabed leases out there and there are some pretty punchy numbers posted in the U.S., is it possible to give us some sort of scale of what you think your opportunities are for the total market and your eligibility and ambitions. But also, is there a risk that something similar to what happened in the U.S. and in Poland and Norway and wherever that happened in the U.K., essentially you're being crowded out by other offshore wind farm developers. And what can you do to defend your sort of market share in offshore seabed leases, please?

I think I'll start. Thanks a lot, Dominic. I'll start by saying that our inventory of seabed is still strong. I mean with just on the 5 gigawatts in the U.K. and still with options in around the Isle of Man and the 1 additional gigawatt in floating in Scotland. So that's still very healthy. We still have 3 gigawatts in North America secured. And then in some of the markets, where it's not auctioned away, we have some very attractive opportunities there like for example the 1.6 gigawatts of Incheon, which is not proprietary, but in Korea, but something we are quite confident can materialize. I think that if we need to split the U.K. example into 2, because lease round 4, we had absolutely no regrets that we didn't win there because we don't think that those prices are sustainable. And as a matter of fact, the fact that ScotWind chose to allocate 25 gigawatts. We think it's actually a really good thing because that will mean that other people are also filling up their inventories. Obviously, for the very long term, this is very important. And for Scotland, most of this would also be post 2030. But with our current inventory combined with where we plan to bid in, I mean, we are working with a new partner in Poland for the Polish auction. We have qualified to participate in New York Bight. We have partners in Norwegian. So I definitely think that our ticket to play and don't forget that we would probably still be the one both on CFD auctions, but also on seabed that we will be one of those sort of leaning into most of these auctions. And that will also mean that in totality, we are not concerned that this is something that will fundamentally threaten our long-term offshore leadership. But we are not going to, especially when there are no ceiling bids, we are not going to get so carried away that we are going to pay amounts of money that will not allow us to do investable or meaningful value-creating projects. That's not a route we're going to go down.

Our next question comes from Dan Togo with Carnegie.

Not so many questions left here, but still trying to get my head around the farm-downs. You have [indiscernible] always significant farm-downs here for '22. But I'm trying to get my head around '23, what we should think there. You still have some projects where you're on 100%, but they are still not facing commission anytime soon here. Should we [indiscernible] of the timing of these remaining projects like [indiscernible] Greater Changhua, the last 2 licenses there or projects there. Is it when they are commissioned we should think that they would be farmed down? Or could they potentially come earlier, impacting '23?

It's not something we have decided yet. We actually would like to keep the flexibility on the timing. And I cannot rule out that it will be a farm-down during commission -- during construction. So we will give news as soon as we have it. But for now, we haven't decided yet. So therefore, I can't share it.

Our next question comes from Louis Boujard with ODDO.

It may be time to go a bit in some details now in terms of questions have been asked on the inflation or the topics on the core market prices. Maybe come back to the array cable issue since you provided a bit more light on it during your presentation. In particular, you mentioned that the EBITDA impact was confirmed, but there is still some investigation on it and that it could be a bit more back-end loaded than previously expected. Could you please let us know when investigations are going to be finished and what could be the maximum value-add risk according to you after this investigation? What could be the magnitude of the potential revision if it had to [indiscernible].

Yes. I can comment on that, Louis. I mean, it is -- you're right, it is more back-end loaded. We have -- we are relatively far, but we cannot say exactly when those technical investors will be concluded and therefore that we will have a final number. But I would say that all the work that has happened so far has gone exactly as planned and hoped. That means that any further exposure to the total of DKK 3 billion impact and the DKK 800 million provision we already made, we see as highly unlikely. So things are going to plan, but not with the possibility to say exactly when we will have concluded and therefore be able to sort of finally, finally confirm exactly. But unlikely that it will be worth.

And just one addition. We have very limited costs in the 2022 guidance for this because as we said, it is back-end loaded. So we will more do investigation work in 2022 and that's something that will impact the P&L to a significant extent. .

Only investigation and rock dumping.

Yes.

Our next question comes from Klaus Kehl with Nykredit.

Yes. A question related to your CapEx plan. Marianne you said a couple of times that you are on track to reach this target of DKK 35 billion to DKK 40 billion in '27. And you've also stated that you stick to this gross investment target of DKK 3 50 towards '27. But these DKK 35 billion to DKK 40 billion EBITDA in '27, they assume 50% divestment of the upcoming offshore plans. So to get the numbers right, could you remind me what you have said about your net investments towards '27?

It's the DKK 200 million. So that's unchanged. So DKK 350 million is the gross and DKK 200 million is the net.

So DKK 200 million is the net. Okay. Excellent. And have you stated anything about what kind of -- what the cash flow from operations, what they [indiscernible] finance to also '27?

No, that's not part of our guidance.

Our next question comes from Tancrède Fulop with Morningstar.

I have a couple of questions regarding the Slide 34. I don't think you showed this slide before on hedging. And so for offshore, if you could confirm that this is the hedging level for merchant side of your production. And also give us maybe a terawatt hour exposure, for instance, 100% in year 1, what is the amount in terawatt hour. Also maybe the geographic breakdown, if it is the same as your -- the breakdown of your offshore wind farms. And maybe the average achieved hedged price for year 1. And second question still on this slide for Bioenergy. I see that for year 1, which I assume is 2022, [indiscernible] 31% hedged. So given the current level of market power prices, that gives -- that means that you should benefit from very high power prices which in your guidance you assume a significant decrease in the profitability [indiscernible] Bioenergy. So is -- does this guidance assume -- is based on current power prices? These are my 2 questions.

Yes. The first question. Yes, you are right. It is the merchant part that is -- we are indicating here. So we are 100% hedged in year 1. And that is too much compared to where we would like to be. So we will work on that. On Bioenergy, I don't have the volumes, sorry, on the top of my head. So that's -- sorry for that. And -- and I don't even think we would like to give that level of transparency, so sorry for that. And then on Bioenergy, yes, you are right. The policy we have on Bioenergy hedging is that we only hedge the part that is the heat bound part of the production. And that's also why we're in very strong years with high power prices and then that follows with a high production, we typically will see a very high upside. And that's also what these numbers reflect.

And maybe just -- you had the very last question, why is it significantly lower, is that it was a very extraordinary year last year both in terms of the heat production where we -- and in terms of the power production because we had very high prices and very good earnings from that. And then also was an extraordinarily attractive year from ancillary services. We still expect a strong year from Bioenergy this year. But compared to last year, it will be -- we will expect it to be significantly low.

Our next question is a follow-up question from Sam Arie with UBS.

I apologize because I know this is a long session already. But a couple of things. First, just a quick one, Marianne, I realized in your excellent answer to my first question. I don't think you've actually commented on whether you think group cost of capital has moved since a year ago in a material way. And I don't want to put words in your mouth, but I think if it was your view for example that your group cost of capital hasn't really changed in the last year, that would be an interesting thing for us to know. And then if I may, and if you can bear it, this is probably a question for Mads. But I mean, lots of people touching here in the discussion on the current situation in energy markets, the high prices, the gas shortages, the obvious impact of bills and the politicization of all that. I think it would be really interesting if you can just share a few thoughts, Mads, on what you think is the answer in the long term to these problems. Like what are the implications for long-term energy market policy? And how is the world going to change to prevent us getting into this kind of situation again or for the long term? That's it for me.

Yes, I'll answer the first one on the cost of capital. Yes, you are right. Of course, with increasing interest rates, we will see the WACC increasing. And that's in a way, in our methodology, where we use the forward [indiscernible] the market-based interest rates, that is a consequence. But as you can see from our annual report, this is not anything that is so significant that it has an impact on for example impairments. And neither does it have any impact on our guidance on value creation.

Yes. And if I am to comment, it's obviously a very big question, Sam, on what do we do to avoid a situation like this. I think even though as Marianne said, there's no doubt that lower winds, for example, they do impact the power prices. But we are convinced that the root cause of what has happened is a combination of so many things that -- especially driven by gas prices, that really is the shortage, the cold winter, the shortage of gas supplies from East to Europe, the low winds, the low production, the maintenance of the nuclear power plants in France, the burned interconnect in between France and U.K., so, so many factors happening at the same time. We fundamentally don't think that a change to the energy market dynamics in Europe is something that would be good nor avoid this. And we don't think the solution is to keep sort of a much higher share of nuclear or fossil fuel in the energy mix. So essentially, we think the headline is to accelerate the build-out of renewable energy therefore also reducing the dependency on energy imports. And then obviously, the -- to retain the baseload, sort of sources like biomass-fired power plants, like our own, like existing nuclear capacity and so on. We think that is the best way. And then we will hopefully also not see a complete spike in global demand leading to an excessive demand like the post-COVID sort of stimulus packages has meant that gas and energy in general has been in extreme demand at the same time as supplies have actually gone down. So we don't think there's a silver bullet, but -- and that's what we also hear when we interact with regulators, both in EU and U.S., there is a strong recognition that accelerated build-out of renewable energy is actually at the center of what we need to do to avoid a similar situation.

Fascinating. I'm glad we pleased that question. Thank you very much for coming back to me.

Next, we have a follow-up question from Jenny Ping with Citi.

A quick one. Just on Page 24 of the appendix where you have the 3-plus gigawatts of hydrogen and green fuel project pipeline. Can you just tell us at what stage of development you're going to give us a bit more around these projects in terms of economics, remuneration returns? Because I think that's one area where I'm very keen to get my head around. And then just also a follow-up around the numbers. When we look at the 2022 EBITDA guidance range, can I just ask a straight question in terms of the offshore wind business. Your consensus is around DKK 16 billion. Are you comfortable with that as it stands?

Yes, I can comment on the hydrogen pipeline, Jenny. It is still too early to give specific financial guidance, but I can say that we are actually very keen on moving along with this project pipeline. And I can say that 2022 is clearly a year where we do expect to take more tangible also investment decisions on our portfolio. And I'll just mention an example of the recently acquired share in the FlagshipONE e-methanol project. So this 50,000 tonnes, annual tonnes of e-methanol, we are expecting to take FID this year. And likewise, for the first phase of the German Westküste 100, we are also expecting at the back end of this year to take FID. And then on a couple of other projects, it is likely that we would -- that we could take pre-FID, depending on where we end these IPCEIs. So the International Project of Common European Interest. Those are some of the dependencies we're looking at. I would promise you we'll share a lot of details around that because that would be competitively sensitive. But I can promise you that you will hear more sort of tangible news about this portfolio during this year.

Yes. And then on your question on offshore guidance. I will not answer that, Jenny, because if we had wanted to give you that guidance, we would have put it into the report and we have not. So -- but we believe you have everything you need to make the calculations.

And for our final question, we have a follow-up from Alberto Gandolfi with Goldman Sachs.

I'd be quite brief, just because there's a little bit of a debate going on as we speak. Mads, would you mind clarifying what you meant about measures to support IRRs? I think that some people they are interpreting that you are seeing there's no returns over WACC in the U.S. offshore investments as things stand. So perhaps we can broaden the question a bit and say, in previous calls you talked about procuring and securing steel for the U.S. class. Can you maybe remind us what was perhaps percentage of that CapEx on the projects that are yet to be developed? What percentage of that CapEx is still to be locked in? Essentially, I'm talking about Slide 7. On the right-hand side, what percentage of debt CapEx has not been priced in? And perhaps on the left-hand side, what could be the risks here? Because you're still reiterating broadly the same CapEx for 2022 as you saw a year ago. You're reiterating the DKK 200 billion broadly. So I was wondering, just because you're waiting to see where really raw material settle at. Or is there any incremental visibility and maybe some tangible granular data points you can give us to convince us that actually X percent of what you have to spend is somehow in the bag.

Yes. There's not -- there is not one simple answer to it, Alberto, on saying this is exactly what is because these projects are at very different maturity level. I can say that some of the more advanced projects, we have locked in just -- I'll just give rough numbers around 80% of the CapEx, which of course gives us a high degree of certainty for those that are coming up next. And please don't interpret that when we say that this is something where we're still working on lever that means that there is no spread. That is an over interpretation. So what we are saying is that compared to where we -- compared to where we came from, given this inflation, there has come an additional pressure, which means that the tax incentives and the permitting processes are even more important because this is not -- again, not just for us, but for the entire industry in order to keep high pace, which we will, we will take our FIDs, clearly expected to do that, we will, then this is something where these projects would significantly benefit from that. Which is also why we have signed a pledge that these green elements are built back better need to come back. But the fact that we continue to work on the levers is not an expression that we -- that there is no value creation over WACC at all. But for the projects, it is not a secret that some of the more advanced projects, we are getting visibility that the IRRs are coming under pressure compared to where we came from Q2 and sorry to mention that example, again, due to the fact that vessel costs have gone up since then. But on raw materials, on steel, which is the biggest cost component, as we talked about, we had pre-bought a large share of that and that still remains to be the fact. So our exposure compared to those billing something where nothing was locked in is smaller. That I guess is as far as we can get it.

But this is super helpful. So if you allow me, I mean, if 20% of advanced, I guess is the next 2, 3 years. So if 20% of CapEx is not locked in and we probably saw all in, probably a bit less than 20% increase, I know some of the freight rates have gone up like up to 10x. But you pre-hedged some of [indiscernible] some cases, so are we safe in assuming that all-in on the advanced projects, worst-case scenario, we're going to see 20% increase on 20% unhedged, call it a 4% increase in CapEx and we call it quits? Is that I mean probably that's a little bit of a simplification, but would that be reasonable?

I think it is an oversimplification, Alberto. And I think it's all -- I mean, we would actually rather not say yes, you could definitely do that. No, absolutely not because this would give -- this might -- we might not have that full certainty. But clearly, with a relatively high share lock-in the most mature projects, then obviously the exposure is -- we believe is manageable. But it's not something that takes away the fact that in our sustained pressure to ensure that we get these policy levers in place is important for us and for the industry.

There are no further questions. I will now hand over to CEO, Mads Nipper for a final remark.

Yes. And thank you very much for very good and challenging questions and thanks for your time. We really look forward to hosting you again in a month's time, where we will actually have our very first annual ESG investor call and we will provide you with more details. But let me just once again thank Marianne for all her contributions to us. And as I'm sure you can tell that her role in our journey has been fantastic. And next time, we look forward to welcoming Daniel in her chair. So have a great day.