Our analysis of Q1 earnings calls within the Amenity ESG Safeguard platform highlights a flurry of development in renewables, especially in offshore wind, with “industrials” and “utilities” driving the topic count in management commentary.
Analyzing the most recent round of Q1 earnings calls, we highlight a few topics that stand out in the Amenity ESG Safeguard platform: offshore wind, industrials, and utilities.
There is greater discussion on wind power than in the previous quarter due to a few different factors. The first is the demand for offshore wind, which has led to greater involvement by the Materials and Industrials sectors. Another factor has to do with increased permitting for renewable energy projects, especially in the U.S., which has opened up the Atlantic seaboard for wind development.
Fugro NV (FUR:NL)
We can see that mentions of “wind power” have been typically high in the industrials sector, even in comparison to the energy sector. One company, Fugro NV (FUR:NL), is an offshore services provider specializing in hydrographic surveys of the seabed and foundational borehole drilling for infrastructure projects at sea. In its recent earnings call, Fugro discusses how offshore wind is changing its business model. Management discusses how 90% of new business is offshore wind, particularly in Europe. The company has seen around 9% growth in fossil fuel use cases (mainly in natural gas) in the Middle East and Asia.
It is worth mentioning from a technical standpoint the sheer amount of development that goes into offshore wind compared to oil and gas. Fugro mentions that approximately 10 foundational boreholes are drilled for an oil or gas project. Each wind farm, on the other hand, requires potentially 200 or more windmills that each require a foundational borehole to be drilled. Because of the increased demand in wind development, Fugro has a 12-month backlog. This indicates the impact wind is having on revenue and growth for the company. From a risk perspective, Fugro also discusses how it surveys the impact on marine biodiversity and even how it has to be careful of WWII-era munitions on the seafloor while developing their offshore infrastructure solutions.
Another company that we covered previously, Ørsted A/S (ORSTED:DK), has been a huge developer in the offshore wind space with projects mostly centered in Northern Europe. Ørsted mentions that its return on capital expenditure is 16.8%, up 2% from the previous year. Highlighting the demand and growth opportunities for offshore wind development, management commentary provides insight into not only its plans, but also the market potential it sees as a whole. Management discusses in a recent earnings call the ongoing action surrounding Ørsted’s future development plans—the Hornsea 3 contract awarded by the UK Department for Business, Energy and Industrial Strategy (BEIS). With an estimated capacity of almost 3 gigawatts, this project located off the coast of Britain will be the “world's single biggest offshore wind farm”.
Ørsted also elaborates on other projects in their pipeline for Denmark, Sweden, and Scotland. It discusses how increased permitting for offshore wind development, specifically in the U.S., will make it easier to bid and develop projects going forward. Ørsted estimates that 25 gigawatts of offshore wind development rights will be auctioned off in 2023 worldwide. To put that into perspective as of 2020, worldwide offshore wind capacity was estimated by McKinsey to be around 40 GW. Therefore, by Ørsted’s estimates, around 62.5% of the world's current offshore wind capacity will be up for development bids in 2023 alone This highlights the growing demand for clean energy solutions as the world seeks to rid itself of dependence on fossil fuels.
Switching gears stateside, we check in with U.S. energy provider Eversource Energy (ES:US). In the most recent earnings call, management commentary includes discussions on the burgeoning wind scene developing mostly on the Atlantic seaboard. The first project of note in the Eversource earnings call is located 35 miles east of Montauk, New York. The South Fork Wind project is already underway, and it is New York’s first ever offshore wind project. It is expected to be fully operational by the end of 2023. With just 12 turbines installed when complete, South Fork Wind is fairly modest in scope for offshore wind. But it will provide enough clean energy for 70,000 homes, and it is significant as a symbol of what is to come for the Eastern Seaboard.
The other two projects discussed are absolute behemoths in comparison to the South Fork Wind farm. The aptly named Revolution Wind project will provide 704 MW of clean energy to Connecticut and Rhode Island in 2025. In addition, Eversource is also working on battery grid storage for Connecticut.
The largest project discussed in the call is the New York Sunrise Wind project, which will also be online by 2025, adding 924 MW of clean power to the grid.
These three projects will add nearly 2 GW of clean energy by 2025 in the northeastern U.S., which roughly represents a 5% increase in global wind capacity in a single area. All of Eversource’s projects are done in partnership with Ørsted, and the Sunrise project also has involvement from Con Edison.
These activities don’t even touch on the development going on in places such as Virginia or California, where increased permitting is opening up new development off the Pacific coastline. Easier permitting and development requirements are going to lead to an absolute boom in offshore wind in the U.S., and we are beginning to see that already take shape.
Wind is a great renewable resource. But there is still the problem of what to do with excess capacity and how to store it. One solution that Eversource briefly mentions is the use of utility scale battery capabilities to store excess capacity. This has led to a push in development of more efficient and scalable battery solutions, which is providing opportunities for new entrants into the battery market.
One such company we have observed on our platform is Dragonfly Energy Holdings (DFLI:US), which is a producer and pioneer in the lithium-ion battery space. Management discusses how the company not only supplies batteries for vehicles, but also full-scale battery storage solutions for the grid. While its primary goal is to replace the lead-acid battery, Dragonfly Energy also recognizes the problem of grid storage and sees that as a major opportunity. It will be interesting following this company in the coming months to see if its fledgling enterprise can start to book some larger deals and get its battery storage capabilities plugged into some of the big wind projects we outlined above.
It is clear that solar and wind need battery storage at the grid level to be viable, long-term solutions. There are many schools of thought on how to store energy from renewables at scale. One way we have not discussed in this piece is green hydrogen. Other solutions include the lithium battery methodology. Still, other ideas are more nuanced, such as using wind power to move water uphill into a reservoir, followed by running that water through a dam during off-peak hours to generate electricity from turbines—essentially, turning a body of water into a large battery.
There are so many ideas out there, and it will most likely be a combination of many solutions that are adopted. These activities would allow for a diverse economic landscape of companies working on renewable energy storage solutions around the world, each specializing and occupying various niches as use cases and technology evolve.
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