The CEO of the world’s biggest offshore wind developer, Ørsted, singles out the availability of land and sea, and consent to use them, as the single biggest obstacle to the company’s ambition to build out 50GW of renewable energy by 2030. Nipper sat down to talk to Energy Monitor in the context of the Making Sense of Net Zero event series, co-hosted by Energy Monitor.
Mads Nipper, CEO of Ørsted, in May 2021. (Photo courtesy of Ørsted)
Ørsted aims to deliver net-zero power generation by 2025 and a net-zero supply chain by 2040. How will you reach these targets?
We have actually come very far already. Back in 2008, the then senior leadership said that in 30 years we will go from 85% fossil to 85% renewable energy generation by the end of the 2030s. That target was hit in less than a decade and 20 years ahead of time.
We are now already at around 90% renewables of our total energy generation. By 2025 we will be scope 1 and 2 emissions-free, or carbon neutral, but of course, our impact is a lot larger. We use a lot of steel, we buy turbines, we use cables. So, we have set this target, by 2040, to be carbon neutral also in our supply chain.
What are we doing? First, we are setting an intermediate target by aiming for a 50% reduction by 2032. Then, we have our supply chain decarbonisation programme, where we work primarily with our top 25 suppliers [to reduce emissions].
We have told them you need 100% renewable power by 2025 and we are working with them to map the emissions in every major part of the supply chain. We will work with them too, to take the necessary steps to eliminate those emissions.
How difficult is this likely to be? Emission reductions get exponentially harder as you approach 100%. Do you have special plans for the last mile?
You are absolutely right, the last few per cent are the hardest. We will phase out our last coal-fired plant by 2023. [However] we are legally obliged to have an ability to fire up our Denmark-based power plants in less than 15 minutes [and] that cannot be done with sustainable certified biomass, which is what we otherwise use. [So] we need to have an availability to use some gas and we will be doing our own offset projects that we can document down to the last detail [to offset the emissions from that].
Are you already looking beyond net zero to net negative as the next goal?
I can certainly imagine it. Right now, our top priority is carbon neutrality. More than 90% of our generation is from wind and solar, but for the power plants, in two years we would only use certified sustainable biomass. If we capture and use the CO2, this could turn out to be carbon negative. We are working on this with partners like Aker and Microsoft. So, it is not inconceivable we could be carbon negative, but for now our main priority is to get to neutrality.
If you want to hit your targets, you need to quadruple your rate of renewables roll-out. In Europe, there are more and more bids for zero-subsidy offshore wind farms. Are these actually going to get built?
I think generally they will be built. We were one of the first in the industry to go for a completely zero-subsidy bid in Germany, our Borkum Riffgrund project, which is a very sizeable offshore wind project. That is now very close to being sold out for corporate PPAs [power purchase agreements]. With the increasing appetite for PPAs, this will ensure these become investable projects.
That said, there are differences across the world. In Germany and northern Europe, there are many industrial clusters and there is quite a mature corporate PPA market already. Elsewhere, if you want to scale up offshore wind, it is clearly wise to have a mechanism such as a contract for difference (CfD). This is what typically brings investable projects the fastest and most effectively. It is also very important to underline that a CfD does not have to be a subsidy – it just has to give certainty of income. All markets would benefit from some kind of CfD scheme.
Are PPAs the future financing model for renewables?
They will certainly be an important part of it. Energy prices are very volatile right now. PPAs do not only yield investable projects, they create certainty over the power price for offtakers. I have no doubt the corporate PPA market will grow and become an increasingly important part of making projects happen. Not least because most corporates have a principle of additionality, so they actually want to procure the PPA ahead of the [project’s] final investment decision.
Which are the most interesting markets for you going forward?
I would say the markets where we are, and even though we are the most global – as well as the largest – offshore developer, it is still not a huge number of countries. That is a very deliberate choice. Our home market would be markets like the UK and Denmark, but also other markets in the North Sea area such as Holland and Germany. Recently we have increased our strategic focus on the Baltic states, not least Poland but also Sweden and others.
In Asia, it would be markets in Japan, Korea and Taiwan, which is the most mature there. The latest there would be Vietnam, and finally the US, both East and hopefully eventually also the West Coast.
Are there any markets you are thinking of withdrawing from, or reducing your activities in?
The short answer is no. There are no markets we are actively considering retracting from. Having only a dozen countries means we are not spreading ourselves so wide, and actually, despite Covid-19 and all the challenges in terms of supply chain, workforce mobility [etc.] we have been able to keep our two large-scale offshore projects – in Taiwan and the UK – on schedule.
Producing lots of wind offshore is one challenge, getting it to demand centres is another. Can the grid cope with your plans?
Grids need to be upgraded. With the ever-increasing intermittency that will come from higher degrees of renewables, it is vital for regulators and policymakers to invest in grid upgrades.
I recognise it is a lot less photogenic or sexy to talk about cables than really large-scale, beautiful offshore wind farms, but it is an absolutely necessary part of future energy systems. We need a system where grids can handle both the capacity and intermittency [of power flows]. This need will only increase. Eventually we will also see green molecules – maybe made from green hydrogen and maybe made into green fuels – and that power also needs to be transported. So grids is a key topic pretty much everywhere in the world.
How do you see the role of hydrogen?
Whether it is the decarbonisation of existing grids or dramatically accelerating green hydrogen and fuels, the further build-out of renewable energy is the most important thing. It is a prerequisite for everything.
The most important role green hydrogen or fuels made from it can play initially is to decarbonise hard-to-abate sectors that are difficult to electrify, such as shipping, aviation and steel [production].
I also have no doubt the storage we can do through hydrogen or hydrogen-based fuels – to balance longer periods of lower wind or less sun – is something that will eventually be a vital part of the energy system.
Are joint tenders for offshore wind and electrolysers a good idea?
Absolutely. We actually have a proposal in the Zeeland industrial cluster in Holland and Belgium for a 2GW offshore wind farm and a 1GW electrolyser, which could remove 20% of the current hydrogen consumption in that industrial cluster. There is significant potential to decarbonise one of the most carbon-intensive industrial clusters in Europe.
There is both an emerging hydrogen economy and a hype. We need the hype to settle down. It was good to get it started. It caught a lot of investor attention. Most of us now know green hydrogen quite intimately, but let’s not think this is a miracle cure that will solve everything in two years. It will be towards the end of this decade before we see hydrogen having a real, substantial impact.
Could a power producer like Ørsted become a hydrogen producer?
Absolutely. In a few months, we will be producing hydrogen. Admittedly in a very small demonstration project, where we are using a couple of nearshore wind turbines to handle intermittency.
It will be towards the end of this decade before we see hydrogen having a real, substantial impact.
They will produce about 1,000kg of hydrogen a day, which will be used by taxies and buses in the Copenhagen [Denmark] area. This will teach us how to effectively operate electrolysers. We have 3GW-plus scale projects advancing as we speak across Denmark, the UK, Holland and Germany. It adds up to 9–10 projects.
Let’s talk about end-of-life and the circular economy. Wind turbine blades are notoriously hard to recycle. What is your plan for delivering zero-impact renewables?
Yes, the turbine blade is by far the hardest part to recycle. Steel can be recycled and so can almost all other materials, but blades are really hard due to the material combination. One of our most important partners has actually come out with a recyclable blade. But – offshore alone – we have more than 1,500 spinning turbines already. So we are leading a project with some of our OEM partners, a technical university and a technology company to drive research into how we can better reuse existing blades.
We have taken the lead on this because at our capital markets day earlier in the spring, we announced we are banning the landfill of turbine blades.
Mads Nipper, CEO of Ørsted. (Photo courtesy of Ørsted)
You also say that from 2030 onwards all projects should have a net-positive impact on biodiversity. How do you intend to deliver on that?
We already do a lot for biodiversity, such as [creating] artificial reefs and mapping some of the bird flights around our wind farms, but we do not have the full panel of solutions yet. Climate change is the single biggest threat to biodiversity, so it is good to decarbonise, but we need the accelerated renewables roll-out to happen in a pact with nature. That is why we have set the 2030 biodiversity target.
Science-based targets have helped us get a nomenclature for decarbonisation. We are working with science-based targets now on getting a documentable way of measuring impact on biodiversity. This will only become more important to our stakeholders.
Floating offshore wind is touted as the next big innovation in the industry. Are you planning to roll this out in markets like Japan and California?
As we announced earlier this year, we have gone from observing to engaging with floating offshore wind. Bottom fixed will still, for many, many years, be by far the most efficient offshore technology and have the lowest levelised cost of electricity. However, to go to net zero by 2050, we also need floating – and there are many countries that simply do not have the seabed available to do bottom fixed.
We have just bid in specifically to a floating project in Scotland. We also intend to do it in Norway. On top of that, Japan and California are certainly options for us to come potentially next in line.
You have big plans to decarbonise Ørsted and, via renewables, other parts of the economy. What are you looking for from policymakers and regulators to make this happen?
I will start by recognising what has recently happened, both in the EU with ‘Fit for 55’ and renewables ambitions going from 32% to 40% [for 2030], and in the US for offshore, now having a '30 by 30’ ambition and the Biden administration really picking up speed in the consenting process from the Bureau of Ocean Energy Management.
We do not mind spending a few million euros in a multibillion offshore project to mitigate some concerns, but we do mind if it gets delayed two or three years because we did not know there was something that needed to be addressed.
What we need going forward is making land and seabed available faster for the deployment of renewables, and faster, more predictable consenting processes. I am often asked what I think is the biggest potential bottleneck to our 50GW by 2030 ambition. Supply chain issues? No, it is seabed, land and consenting that we consider the single biggest problem.
Onshore, we all know the term “not in my backyard”, but the same thing is happening to a large extent in offshore, too. Regulators need to step up. We can speed up consenting by creating transparency. We do not mind spending a few million euros in a multibillion offshore project to mitigate some concerns, but we do mind if it gets delayed two or three years because we did not know there was something that needed to be addressed.
If we turn to hydrogen, which I am convinced will become a cornerstone of decarbonisation in the US and Europe, like for offshore, we need a cost gap bridging measure. Even where electricity is cheapest, there is still a cost gap of at least a factor of two to grey hydrogen. Unless we put in place support mechanisms, we will never get to the gigawatt-scale projects that will bring down costs substantially.
The current energy crisis should be an opportunity for the energy transition but low wind speeds are also taking some of the blame for it. What is your take on this?
We cannot fix wind speeds, but it is vital to underline this is not a renewable energy crisis. On the contrary, it demonstrates we should roll out even faster. We need ample capacity so even if it is less windy, we can still deliver a baseload. Also, the more renewables we have, the less dependent we are on other parts of the world for the supply of fossil fuels.
Will COP26 make a difference to the energy transition?
It must make a difference because we are not on track to net zero. What I am hoping for is increased NDCs [Nationally Determined Contributions – national climate plans] and a starting point for the kinds of tangible policies I have mentioned.
This interview was carried out in the context of the New Statesman Media Group's Making Sense of Net Zero event series, which consisted of four half-day virtual events run in September and October 2021. You can rewatch the content, including the full recorded interview with Mads Nipper, here.