Too hot to handle | Equinor wants more offshore wind but steers clear of 'big dollars' Germany

Norwegian oil and gas company Equinor has not retreated from its plans to go big in offshore wind, but intends to steer clear on any bidding wars when the competition gets as hot as was seen in Germany recently.

“There are some mixed signals on offshore wind,” Equinor’s chief financial officer Torgrim Reitan mused.

“We clearly believe it will be large and we want to play a significant part in that. But we entered early and have a pipeline that already gives us a good current activity level.

"We are in a position where are not willing to accept levels as seen in recent lease rounds… we would rather wait and see if there are other ways to get access to offshore wind,” he told analysts during a conference call held shortly after the oil major had reported second quarter earnings.

In contrast to Equinor's established position in offshore wind in the UK and elsewhere, energy consultancy firm Wood Mackenzie pointed out that the German grab by BP boosted its own offshore wind project pipeline by over 75% to 9.2GW.

Equinor did participate in the German seabed tender and Reitan would not be drawn on just how much money BP and TotalEnergies might have left on the table in relation to the Norwegian company's bids, but said it was “not a small amount.”

'Big dollars on the table'

“On renewables, there are some mixed signals in the market for the time being,” Reitan commented.

"In Germany, you see a very, very competitive situation, big dollars put on the table for seabed leases, while at same time you see companies handing back leases or contracts on leases already acquired reflecting the reality of higher inflation, limited capacity and increased interest rates.”

While Equinor posted group-wide net income of $1.83bn for the second quarter —some 73% less than in the second quarter of last year and more than $3bn less than the first quarter of 2023— the company’s renewables division continued to report a net loss of $91m, widening the $42m deficit reported at the same stage in 2022.

Limited renewables

"We still have fairly limited production from our renewables business," Reitan said, explaining that losses were driven by early phase development costs.

He added: "We can expect, going forward, that we will probably deliver negative results running a little bit higher than this last over the next few quarters, but gradually new production will come into the renewables business."

Reitan said the company is anticipating first power from the UK's iconic Dogger Bank A wind project later this summer, as an event that will signal the turning of the tide.

"We are about to start production from the first turbines on Dogger Bank and output will gradually increase over the year. Things will look very different as we move forward there," he said.

Onshore pivot

"Part of our strategy is also growth through markets and onshore activities," Reitan said.

He cited a recent agreement to acquire Brazilian onshore renewables developer Rio Energy from Denham Capital as a deal that will immediately add 1TWhr of electricity production.

The 2019 acquisition of Danish energy trading platform Dansk Commodities a 2021 move for Polish onshore renewable developer Wenco and last year's acquisition of Danish solar renewables player BeGreen, were also mentioned.

"This part of our strategy is probably accelerating a little more than the offshore part at present because of the competitive aspect in the latter," he stated.

The Equinor CFO admitted that US offshore wind was probably the "weaker part of the renewables portfolio" in current circumstances due to the fact that contracts for revenues with New York state were signed without any adjustment mechanism for inflation.

"We have seen significant inflationary pressure on our investments and this is coming to a point where returns are challenging for those projects," he stated.

Even in the US Equinor sees itself as shielded from the worst financial vagaries by the fact it was an early entrant and paid less to get its assets than subsequent arrivals, such as farm-in partner BP.

Nevertheless, in June, the Empire Wind joint venture of Equinor and BP felt compelled to file a request with the regulator NYSERDA| for a renegotiation of the eastern seaboard contracts.

"We are definitively not alone there. Most companies if not all are doing same, it is an industry wide issue," Reitan said

"We expect a positive outcome but discussions are ongoing."

He noted the difference on projects such as Dogger Bank and new projects in Poland where revenue are index-linked to consumer prices. "So inflation actually boosts revenues nicely, with costs staying relatively flat. These projects look quite robust," Reitan added.