For our Earth Day coverage this week, our latest stock video looks further afield to Scandinavia. The region hosts a large number of sustainable companies, with many of these clustered in Sweden and Denmark. We could mention Sweden’s Vattenfall, Danish wind turbine manufacturer Vestas, or even Copenhagen-based electric car sharing firm GreenMobility. But today we’re going to talk about Orsted, Denmark’s largest energy company and the world’s dominant supplier of offshore wind power. It also builds and operates onshore wind farms, solar farms and hydrogen facilities.
Orsted shares had an amazing run in 2020 as ESG companies were revalued by investors but they have struggled to maintain momentum since. Our energy analyst Tancrede Fulop says this leaves the shares materially undervalued, especially given the prospects for offshore wind this decade. Morningstar expects the offshore wind market to be eight times larger in 2030 than in 2020.
Orsted has strong know-how in this sector and has used its first-mover advantage to build a dominant market share. But offshore wind is starting reach saturation point in Europe particularly as subsidies are waning, so Orsted is focusing on onshore wind and solar energy, as well as new markets. The United States is a key market for the company, as well as the UK, Germany and of course Denmark.
What are the risks going forward? The resurgence of fossil fuels and nuclear energy since the start of the Ukraine war could mean renewable energy growth rates are harder to sustain. Higher inflation and interest rates are likely to increase costs and reduce the return from projects.
For Morningstar, I’m James Gard.