Politiken is deliberately misleading readers about DONG Energy
By Martin Barlebo, Head of Communication, DONG Energy
On 25 March 2015, Politiken made false claims about the capital increase in DONG Energy in 2013. The articles are based on the premise that three British offshore wind projects increased the value of DONG Energy by DKK 21 billion shortly after the capital increase. It is a misunderstanding that DONG Energy informed Politiken about when we received a draft of the articles, but the newspaper has chosen to disregard our feedback. In order to make this clear to the readers of Politiken, we would like to explain the proper context.
In February 2013, prior to the capital increase, DONG Energy had presented a strategy plan and the valuation of DONG Energy was based on that plan. It included the development of offshore wind turbines targeting a total capacity of 6.5GW before 2020, but DONG Energy did not know which specific projects would be realised to reach the target.
On 23 April 2014, the British authorities awarded subsidies to DONG Energy for the three projects with a total capacity of 2.1GW. The award was subject to the EU Commission's approval which was given on 23 July 2014. Therefore, DONG Energy and its investors had no certainty whatsoever as to the award of the three contracts at the time when the equity injection was negotiated in autumn 2013.
Politiken presents a calculation made by Thomas Borup Kristensen, Assistant Professor at Aalborg University, which shows that the value of the three British projects increased the value of DONG Energy by DKK 21 billion. This calculation is not something which DONG Energy can recognise. The value of the future offshore wind farm projects were already part of the valuation of DONG Energy which served as basis for the capital increase. The subsequent award of the three projects created greater certainty that we could realise the target of 6.5GW, and this can be attributed a certain value which we estimate at DKK 2-3 billion. In other words, reality is far from the claim that the value of DONG Energy 'exploded' with DKK 21 billion as a result of the awarded contracts.
With their investment, the new investors came to assume the overall risks of building and operating billion-scale offshore wind projects, but also the risks related to the rest of DONG Energy's business. Therefore, the claim stated in Politiken that the risks assumed by the investors were limited due to a high degree of certainty regarding the future earnings related to the British offshore wind power projects, is simply not correct. To mention an example, from mid-2014, oil and gas prices have declined significantly. And as a result, in connection with the annual report for 2014, DONG Energy had to recognise an impairment loss amounting to DKK 6.6 billion after tax on its oil and gas activities. This impairment loss illustrates the risks assumed by the shareholders of DONG Energy. Focusing entirely on a limited selection of the Group's assets is therefore not a sufficient basis of assessment to determine the total equity value and overall risk profile of the Group.
To spice up the story, Politiken describes the three British projects as being confidential, claiming that the general public knew absolutely nothing about the three projects, and that the projects had not been mentioned previously. This is not correct. The projects have been mentioned several times in both Danish and international media, and the British Department of Energy and Climate Change and DONG Energy have issued press releases about the projects.
Politiken also writes that the capital increase in DONG Energy could have been deferred. But in 2013, DONG Energy had an acute capital requirement due to declining earnings and increasing debt. If we had not given credit rating agencies reason to believe that we would be able to acquire fresh equity, it would have led to further downgradings of the Group's credit rating in the course of 2013. The three British projects will not generate income until 2017 and onwards, ie when the projects have been constructed and are generating power. But towards 2017, DONG Energy will invest billions in the construction of these offshore wind farms. Without a capital injection, DONG Energy would not have been able to finalise the investments in the three offshore wind farm projects in the UK.
Last but not least, Politiken compares the British and Danish subsidy schemes for renewable energy without drawing any attention to the major differences between them. In the UK, the project developer carries a number of costs related to the maturation of the individual project without any certainty as to whether the project will obtain financial support. Also, the project developer is under an obligation to develop and build the cable which will bring the power from the wind farm to shore as well as to develop and construct substations both onshore and offshore. Afterwards, the project developer must pay to use the transmission infrastructure after divestment of this infrastructure to a third party. Therefore, offshore wind farms in the UK are far more cost-intensive, they entail far more risks, and they require significantly more and larger investments than offshore wind farms in Denmark and therefore, the subsidies in the UK are higher than in Denmark.