However, the surge in energy prices started already in 2021 due to the rapid growth in energy demand following the COVID-19 pandemic. In 2022, this was combined with poor weather conditions, lower wind speeds in Northern Europe, reduced power production from nuclear power plants, and lower levels in the Norwegian water reservoirs affecting the energy supply. This impacts both private consumers and companies.
The current situation on the European energy markets is unprecedented, and at Ørsted, we agree with the European governments and the EU Commission that several initiatives are needed to mitigate the negative consequences of the high energy prices.
We need to save energy
Ørsted expects that the current volumes of gas and power are sufficient for the coming winter. However, to bring down energy prices, we all need to save energy. Therefore, Ørsted supports the Danish government’s initiatives to save energy through energy efficiency measures and reductions in energy consumption. We will save as much energy as possible in our own buildings by, for example, lowering temperatures to 19 °C and by keeping the use of indoor and outdoor lighting to a minimum.
Companies with windfall profits should contribute financially
We also believe that the companies which have made windfall profits from the high energy prices should contribute financially by returning some of that profit to the consumers. Considering the extraordinary circumstances, this seems fair and should be implemented as part of the short-term response to the energy crisis.
Over a multi-year period, around 90 % of Ørsted’s earnings come from regulated activities or contracts with partners, including long-term fixed-price agreements with governments and companies with a large consumption of renewable electricity. In general, the remaining 10 % is exposed to the market prices. For many years, we have sought to reduce this exposure to market prices by entering into fixed-price financial agreements on exchanges several years ahead.
Looking specifically at Ørsted’s income from power production, this means that more than 90 % of the volumes produced are covered by these fixed-price agreements on selling power at a fixed price below the current market price level. This is especially true in our offshore wind business. Due to a high demand for power from other sources than gas-fired power stations in Europe, we produce more power at our CHP plants in Ørsted than usual. We are earning more money on this than usual because of the high power prices. Our CHP plants also produce district heating, and we are in dialogue with our district heating customers about how we can help keep the increase in district heating prices to a minimum in spite of the extreme increases in fuel prices.
These different sources of market price exposure underline the importance of tax only being imposed on actual windfall profits.
Supporting the build-out of renewable energy
In the long term, the build-out of renewable energy is what will enable us to become independent of Russian gas and other fossil fuels and ensure reliability of supply in Europe in general. It would thus be wrong to implement short-term measures that make it less attractive to invest in renewable energy, while old coal-fired CHP plants make huge sums of money on high energy prices.
We must find solutions which address the situation here and now, but which also support the build-out of renewable energy. Therefore, it is important that future measures do not undermine the pillars of the internal energy market, including marginal pricing.
The high prices also put a large strain on the liquidity of the energy companies, as Ørsted and other energy companies have to meet collateral demands when trading in energy on exchanges. As regards Ørsted specifically, our liquidity reserve is good, and we are in a robust position for weathering any market fluctuations. However, the energy markets are very volatile, and if prices rise further, it may become necessary for some energy companies to use the already announced option that authorities provide security to ensure that the markets do not collapse. The Danish government and several European governments are prepared for this, which Ørsted welcomes.
The energy crisis has shown us that we must speed up the build-out of renewable energy. In the long term, this will make us more independent of imported fossil fuels and ensure that prices are kept down.
This article is shared by courtesy of Ørsted – orsted.com – Ørsted are a renewable enegy company that takes tangible action to create a world that runs entirely on green energy.