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Ørsted buys US onshore wind developer Lincoln Clean Energy, no plans for solar

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Ørsted buys US onshore wind developer Lincoln Clean Energy, no plans for solar

Denmark-based power producer Ørsted A/S is expanding into the onshore wind market in the U.S. by buying developer Lincoln Clean Energy LLC for $580 million but has no plans to expand into solar PV anytime soon.

The deal to acquire Lincoln Clean Energy, or LCE, will bring the company 513 MW of recently commissioned onshore projects, as well as an additional 300 MW currently under construction and a development pipeline of more than 1,500 MW across the Electric Reliability Council of Texas, Midcontinent ISO and Southwest Power Pool markets to be completed by 2022, Ørsted announced in a statement.

"Lincoln Clean Energy will essentially become our scalable development platform for long-term growth in the U.S. onshore wind market," Ørsted CEO and President Henrik Poulsen told analysts during the company’s Aug. 9 second-quarter earnings call. The company had first floated the possibility of getting into the storage, solar and onshore wind sectors during its fourth-quarter 2017 earnings call on Feb. 1.

The LCE transaction needs approval from U.S. competition authorities, but Ørsted expects the deal to close before the end of the year.

Asked whether the acquisition would provide a stepping stone for expanding into onshore wind outside of the U.S. as well, Poulsen declined. "We have our hands full right now, and we don't have any specific opportunities that we're looking at in onshore wind beyond the U.S.," he said. "Our focus will be on the U.S., which we consider the biggest opportunity in the global onshore wind market."

And although LCE's assets include 10 MW of solar PV, Ørsted has "no immediate plans to enter solar PV" and is only monitoring that market, Poulsen said.

Instead, it will continue to expand its global offshore wind business, potentially including new markets in Asia, where the company has recently won two auctions for a 900-MW project in April and a 920-MW plant in June in Taiwan and also sees opportunities elsewhere.

"When it comes to Asia, we're obviously spending the vast majority of our resources in Taiwan right now, with the 1.8 GW allocated," Poulsen said. "But we are also closely monitoring the development in other markets ... and we consider the biggest opportunities to probably materialize over the coming years in Japan and in Korea, potentially in India."

More opportunities in US offshore

After losing out on a request for proposal for an 800-MW offshore wind project in Massachusetts in May, Ørsted is looking ahead to the next auctions in the northeastern U.S. in the second half of the year and in 2019 — including another 800 MW in Massachusetts, as well as expectations for solicitations of 800 MW in New York and 1,100 MW in New Jersey.

"I can only conclude that we were beaten on price in that auction, and that's the way it is," Poulsen said of the previous Massachusetts tender, which went to Vineyard Wind LLC. "When it comes to New York and Massachusetts' upcoming auctions, it's really difficult to predict exactly what the competitive dynamics will be. But it goes without saying ... that, as competitors fill their pipelines, they also reduce the capacity they have left [for] future auctions."

The company is also trying to develop a 12-MW, two-turbine offshore wind demonstration project off the coast of Virginia with Dominion Energy Inc., which filed for approval of that project with the Virginia State Corporation Commission earlier in August. Ørsted has signed a memorandum of understanding with Dominion for exclusive rights to develop a 2,000-MW project if the pilot is successful.

Ørsted's head of U.S. operations previously told S&P Global Market Intelligence that the American offshore wind market is "on the right track" to becoming more mature, but would need additional federal leases and a bigger supply chain to sustain its momentum.

Low wind speeds dent earnings

Ørsted's EBITDA declined by 31% to 3.1 billion Danish kroner in the second quarter, which the company attributed to the positive effect from a deferred farm-down on its Race Bank wind farm in the U.K. in the previous year.

The ramp-up of both U.K. offshore wind farms Walney Extension and Race Bank boosted Ørsted's adjusted earnings from wind power generation by 8% in the second quarter, compared with the previous year, despite low wind speeds in the first six months of 2018 causing a dent in the earnings calculation.

"We estimate [an impact of] 200 million to 300 million Danish kroner from lower wind speed for the first half of the year," Poulsen said.

Although he acknowledged that wind speeds at the beginning of the third quarter continued to be soft, Poulsen said the company was comfortable with skewing toward the upper end of its full-year EBITDA guidance range of 12.5 billion to 13.5 billion Danish kroner.

German multi-utility E.ON SE said earlier in the week that it expects a negative effect in the range of low- to mid-two-digit million euros on its earnings in the third quarter due to low wind generation.

As of Aug. 8, US$1 was equivalent to 6.42 Danish kroner.