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Lessons Learned From an Energy Company’s Green Transformation

offshore wind farm
Ørsted’s Burbo Bank offshore wind farm, off the northeastern coast of the U.K. Photo: Ørsted

Ørsted, formerly Danish Oil and Natural Gas Energy, is one of few energy companies to transition primarily to renewable energy from fossil fuels. The largest power producer in Denmark, Ørsted sold its upstream oil and gas business in 2017, reduced coal use by 81 percent between 2006 and 2018, and is the planet’s leading offshore windfarm developer. The company also has an ambitious science-based climate target that is aligned with the Paris Climate Agreement and foresees that 99 percent of its power and heat generation will come from renewables by 2025.

Nicolas Maennling from the Columbia Center on Sustainable Investment had the pleasure to talk with Jakob Askou Bøss, head of strategy and communication at Ørsted, about lessons learned from Ørsted’s transition, and their implications for other energy companies hoping to succeed in a decarbonized economy. 

When did Ørsted decide to become a renewable energy company? What convinced the board to approve the change?

The company decided to transform in 2008. Climate change was on the agenda, and the EU had adopted targets to build renewables. We believed that, to succeed in the long-term, the company would need to change its energy generation mix from fossil fuels to renewables. Initially, it was a vision of where the company wanted to be in the long-term and, when the vision was formulated, it did not entail shutting down specific coal-fired power plants or building new wind farms. It was a vision with a 30-year horizon, which is roughly the lifetime of our assets. This vision meant that we would start investing more in “green” and stop investing in “black” power and heat production. At the time, we thought that this transformation would take 30 years, thereby allowing our “black” assets to retire on schedule while installing renewables to meet new demand.

What role did the government of Denmark play in the strategy shift? Do you believe that a similar shift would be possible for energy companies where the government is not a significant shareholder?

The driving force behind formulating the new vision of the company was the former CEO’s strategic analysis of what would be required of an energy company of the future. This got everything started. We saw a commercial opportunity in renewable energy and challenges ahead for fossil fuels. This trend persists today and should be a major consideration for any energy company regardless of its ownership structure.

graphs showing orsted's growth in green energy and decrease in carbon intensity
Graphs showing Ørsted’s energy transformation and associated emissions. Image: Ørsted

At the time of the decision, we were owned 80 percent by the Danish government and we were not a listed company. The fact that the ownership was concentrated with the Danish state, which took a long term view on the development of the company, was an important supportive factor for the strategic transformation

Can you tell us about the implementation of this vision?

In the last 10 years we have been working to implement this vision, and you can really see the change and impact. We’ve allocated almost all our new investments to renewable energies. At the same time, we have gradually divested our “black” assets and converted our coal-fired power plants to run on certified-sustainable biomass.

Did you have to sell your “black” assets at a discount given that the buyers know about your strategy?

The divestment strategy has been reviewed and implemented asset-by-asset. We have not had problems selling them. For example, we sold our gas-fired power plants, for which there is clearly a market in Europe. We also sold our offshore oil- and- gas business at a fair price. At the moment, we are in the process of divesting our oil and gas transmission infrastructure assets. It has been important for us to implement the divestment strategy on an asset-by-asset basis.

Was profitability affected negatively when you started moving out of fossil fuels into renewables? 

No. We ran an oil and gas operation in the North Sea with some of the lowest oil lifting costs in the region, but we could see that our renewable energy investments were more profitable when taking risk into consideration. We benefitted from achieving economies of scale in our renewable investments earlier than many other companies.

We can prove numerically that the profitability of the oil and gas business was lower than the renewable investments that we made, when compared to the risk of each investment area. For instance, our oil and gas exploration success was declining in the North Sea’s mature basins. There was also an industry-wide trend of oil and gas projects to run over budget and over schedule. When one considers the risks associated with oil and gas investments, renewables investments clearly compared favorably.

When the oil prices declined by 50 percent in 2014, we restructured our oil and gas business and in 2017, we fully divested the business.

How are investors responding to your strategy?

Since our Initial Public Offering in 2016 our market cap has doubled. Shareholders see that our investments generate a solid return on capital invested, with a spread on top of our cost of capital. We have also received a lot of interest from environmental, social, and governance (ESG) conscious investors.

How can investors distinguish Ørsted from other energy companies that claim to be transitioning their business models from “black” to “green,” but are lagging behind in their implementation?

There are several energy companies that are moving into renewables. They are eager to invest in new projects, but the scale and timeline of their investments are not likely to transform and redefine their business in the next 10 years.

We have adopted and are compliant with the Science Based Targets, which require the implementation of greenhouse gas emission reduction targets aligned with the Paris Agreement. This initiative has been useful for us, as it provides a third-party benchmark that distinguishes us from other energy companies that may say that they are transforming their business model, but are not implementing this transformation accordingly.

The Science Based Target framework has also helped us align and implement our climate strategy. For example, it has encouraged us to look at scope 3 [upstream and downstream] emissions. We are currently reviewing our largest suppliers in terms of amount spent and scope 3 emissions, and are engaging with them individually with the intention to co-develop strategies to reduce emissions.

What are the levers that stakeholders can turn to in order to push energy companies to adopt more ambitious decarbonization strategies and targets?

Investors could ask companies to adopt Science Based Targets or similar third-party benchmark methodologies. That could help differentiate energy companies truly transforming their business models from those that claim to be taking climate action but largely continue with business as usual. Many companies today claim to be supporting the Sustainable Development Goals and in line with ESG guidelines, but measures to support these claims are unclear and selective. Pushing companies to adopt a clear framework such as Science Based Targets is therefore key.

From a government perspective there has been talk about carbon pricing for many years now, but it is not happening at the scale required.

The setting of renewable deployment targets has and will continue to incentivize deployment. The US East Coast is a very good example of a region where change is happening due to targets for renewable energy. There are several states where renewable penetration rates are increasing rapidly. Renewable energy targets coupled with tendering processes and a regulatory framework that supports deployment will go a long way in supporting renewable power uptake. The same is needed in the transportation sector.

 Any last thoughts?

The biggest driver for change towards renewable energy will be the economic argument. Renewables today are cheaper than fossil-fuel based energy sources. Electric cars are expected to be cheaper than internal combustion engine cars by 2025 or maybe even sooner. This shift on the demand side will drive a fundamental transformation of business models unless companies want to meet the same fate as Kodak did by clinging on to an outdated technology. This would be my primary concern if I were an investor or working for an oil and gas company. If Ørsted had maintained its focus on oil and gas in the North Sea, relied on coal for energy generation, and sought to maintain our role as a gas wholesaler, we would virtually be out of business today. We may be on the front end of this trend, but the fundamentals are all pointing in that direction.

The Columbia Center on Sustainable Investment has been developing a stream of work at the nexus of natural resource investments, climate change, and international investment law. This includes a briefing note on How Oil and Gas Companies Can Help Meet the Global Goals on Energy and Climate Change. Follow CCSI on TwitterFacebook, and LinkedIn for updates, or contact the author by email at (

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