An energy transition pioneer
As the world’s largest developer of offshore wind projects, Danish energy company Ørsted has cemented itself as an energy transition pioneer and leader.
In 2009, 85% of its energy was produced from coal, oil and gas with only 15% from renewables, but Ørsted set out to reverse this ratio by 2040. Impressively, the company achieved this target in 2019 – 21 years ahead of plan.
While this stark transformation has naturally led it to become a favourite with sustainable investors, a confluence of macroeconomic and operational challenges more recently has seen its valuation suffer. However, we have recently reviewed its credit fundamentals and think Ørsted remains attractive for bond investors – while it faces short-term challenges, the tailwinds of renewable energy transition remain potent.
Headwinds in the US have been mitigated
US cost pressures led to asset impairments in 2023 and 2024 as high interest rates, supply chain delays and falling offshore wind seabed values all had a negative impact. The new US administration has shown little signs of helping the sector face these challenges, freezing funding for the Inflation Reduction Act and temporarily halting Equinor’s fully permissioned and under construction wind project.
While there is no pretending rising costs and supply chain disruptions won’t continue to be a concern for its US operations, Ørsted has been able to take action to mitigate the impact.
A new, bond-friendly approach to capital discipline
Under a new CEO since the start of the year, Ørsted is stressing financial resilience by prioritising capex discipline and cost efficiencies over growth – a mantra that appeals to debt investors.
Its new capital discipline was highlighted by its decision to halt development on the Hornsea 4 offshore wind farm in the UK due to mounting costs – a move which crystallises sunk costs and protects its balance sheet from further cost overruns. This demonstrates its new approach to focus on project quality over quantity.
It has also undertaken a successful asset disposal plan. These asset sales and improvement in internally generated cash flows should boost key FFO (funds from operations)/net debt metrics.
All-in-all, we think any short-term bond price volatility should be viewed as an attractive entry point as the company successfully executes a strategic shift and restores its balance sheet.
Falling wind energy costs support the long-term investment case
Ørsted still maintains a deep project pipeline, positioning it well to benefit from structural tailwinds behind the shift to lower carbon energy generation. Legislation helps facilitate demand for renewables and, crucially, the European policy backdrop remains supportive. While the USA IRA is being scaled back, the Green Deal in Europe continues to progress.
Investors are often wary to rely on policy-driven change, especially in light of the recent western trend of political incumbents who were positive on the environment losing power. However, the costs speak for themselves:
Global levelised cost of electricity
Source: Bloomberg, as at 30.06.25. All LCOE calculations are unsubsidized. Global benchmarks are country-weighted averages using annual capacity additions, except for Wind offshore where the cumulative capacity is used.
The declining global levelised cost of electricity (LCOE) from wind proves that it can compete with traditional forms of energy. Costs will only continue to come down as the technology improves and economies of scale kick in.
Orsted’s share of renewable generation has reached 99% this year, and it is on track to reduce the emissions intensity of its generation and operations by 98% this year from 2006. Its targets are well ahead those of its peers. Not only was it the first energy company to set a validated science-based net zero target, but it has since set additional interim targets to better give visibility into its progress.
Orsted champions a number of other areas as well. New renewable energy projects commissioned from 2030 will all have a net-positive biodiversity impact. It also exclusively uses green and sustainable long-term financing, with all projects being taxonomy-aligned. As regulation tightens – biodiversity through the Taskforce on Nature-related Financial Disclosures and financing through the EU taxonomy classification for example – Orsted will continue to be ahead of the curve as others struggle to catch up to eventually inevitable changes.
Conclusion
The decision to completely revamp its business model away from fossil fuels is perhaps the most pivotal in Ørsted’s history (second only to renaming from the awkwardly designated ‘DONG energy’).
While the image of a wind turbine across a green field is often the default for any sustainable investment slide pack, which risks overshadowing other diverse sustainable investment themes, Ørsted’s future prospects are emblematic of a broader energy transition: complex, capital-intensive, and beholden to the global backdrop of rates and an ever-volatile supply chain.
Ørsted’s strategic shift, more conservative credit profile, and continued commitment to being a renewable leader place it as a key beneficiary of a change in our energy mix. Political hurdles such as those we’ve seen this year can only delay the economics of renewables for so long. From a bond investor’s perspective, we believe Ørsted’s current valuation offers an attractive entry point.
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