Denmark holds the keys to Britain's renewable future

Not everyone is a fan of wind powered energy. Or Denmark, for that matter.

Donald Trump, at a recent campaign rally in New Jersey, vowed to immediately halt offshore wind projects “on day one” of his second term as US president. Apparently, they "kill the whales" although a study by the US Fisheries department attributed the uptick in whale mortality seen over the last few years to collisions with ships rather than to offshore wind farms.

Closer to home, Britain has been a pioneer in building offshore wind developments. Thanks to the shallow sea beds around many of our coastlines and reliably blustery wind, the UK has maintained its ambition to build 50 GW of offshore energy capacity by 2030. Leading the charge, however, are two Danish companies that few people in the UK will have heard of yet are playing a major role in helping the UK to achieve its lofty ambitions.

Don't tell Donald Trump that. He famously fell out with Denmark after his offer to buy Greenland from them was dismissed out of hand.

Orsted is the world's leading offshore wind developer. Its latest project is the massive Hornsea 3 wind farm. Situated about 120km off the coast of East Yorkshire, the 2.9GW development will generate enough electricity to power 3.3 million homes in the UK as well as thousands of well-paid jobs in the country. Orsted has already built the sister developments Hornsea 1 and 2 which together produce a combined 2.5GW of electricity each year.

Having taken the final decision late last year, everything looks set to go ahead. Orsted has signed a contract with another of our portfolio holdings, Siemens Energy, to supply the 14MW wind turbines needed for the project. However, the job of physically transporting and installing these state-of-the-art pieces of equipment actually falls to another Danish company, Cadeler.

Don't be fooled by the small cap stature of this company. Cadeler owns and operates the world's largest fleet of wind turbine installation vessels (WTIV's). A WTIV looks like a standard ship but its jack up legs allow it stand securely on the ocean floor and carefully lift the wind turbine into position on top of the monopile tower. (If you are interested to learn more then watch this fascinating short video of one of Cadeler's vessels in action)

The problem is that these sophisticated vessels are expensive. Thanks to the rising cost of steel and higher interest rates, a new ship ordered today would cost close to $400m which explains why most industry analysts forecast that there will be a capacity shortage from the middle of the decade onwards putting some wind development projects at risk of delays and additional costs. The wind developers are responding by signing long term framework agreements with the turbine installers increasing the visibility for companies like Cadeler. Prices to rent the ships and the opportunity to add on other services are rising. Simply put, without Cadeler many wind farms would simply not get built.

The UK is determined to realise its renewable ambitions but to do so will require the help of the Danish. Just don't tell Donald Trump!

‍This article was written by Mike Clements, Manager of the VT Downing European Unconstrained Income Fund.

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