Orsted A/S (OTCPK:DNNGY) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET
Company Participants
Mads Nipper – CEO
Daniel Lerup – Group CFO
Conference Call Participants
Alberto Gandolfi – Goldman Sachs
Casper Blom – Danske Bank
Vincent Ayral – JPMorgan Chase & Co.
Kristian Godiksen – SEB
Robert Pulleyn – Morgan Stanley
Mark Freshney – Crédit Suisse
Louis Boujard – ODDO BHF
Deepa Venkateswaran – Sanford C. Bernstein & Co.
Lars Heindorff – Nordea Markets
David Paz – Wolfe Research
Jenny Ping – Citi
Peter Bisztyga – Bank of America Merrill Lynch
Operator
Welcome to the Orsted Q3 2022 Earnings Call. For the first half of the call, all participants will be in listen-only mode, and afterwards, there will be a question-and-answer session. Just to remind you, this conference is being recorded. Today’s speakers are CEO, Mads Nipper; and CFO, Daniel Lerup. Speakers, please begin.
Mads Nipper
Thank you very much, and good afternoon, good morning, everyone. We continue to find the world, and not least Europe, in a highly unusual and volatile period with an ongoing war, political sanctions and instability, extremely high inflation, a threatening recession, and steeply increasing interest rates. The European energy crisis continues to significantly impact households, companies, and countries. And despite gas and power prices coming down from the peaks at the end of August, they do remain high and volatile compared to any period before 2022. On the regulatory side, uncertainty remains both in the EU and U.K. as regulators work on how to structure and implement energy price caps to protect businesses and consumers against soaring energy bills. We continue to support the initiatives needed to mitigate the societal effects of the high power prices. At the same time, these initiatives impose a regulatory risk for our industry if implemented without consideration for the forward sold volumes of the individual power generators.
We had also continued the close and constructive dialogue with the relevant governments and authorities around these important initiatives and remain confident that good solutions will be found. It is key that governments around the world address and help reduce the industry risks facing the renewable sector that contracted power prices reflect the realities of our current inflationary environment and that we see an increased focus on simplified and streamlined permitting procedures.
Otherwise, the necessary investments in renewable energy are at risk of slowing down and caused a devastating loss of momentum for the green transformation. On our financials, I’m pleased to see that our asset portfolio continues to demonstrate the benefits of diversification. Driven by higher earnings in Bioenergy and other, we increased our full-year EBITDA guidance with DKK 1 billion to an expected DKK 21 billion to DKK 23 billion, which is SEK 2 billion increase compared to our original guidance for the year. Across the markets where we operate, we continue to see that the very high power prices have a substantial impact on our financial performance and implications for our earnings mix as we have different merchant exposure across our business units.
As you are aware, we have almost hedged our entire near-term merchant exposure within our offshore business, while we in onshore and Bioenergy have more merchant exposure. And when looking at a group level, our hedge percentage for the remainder of 2022 sits at 75%. This balance of our merchant exposure has resulted in a different earnings composition than we had expected at the start of the year, but we are obviously very satisfied with the fact that we have been able to outperform our expectations despite the challenging market conditions.
In addition to delivering on our short-term earnings guidance, the long-term earnings growth from our renewable investments remains a key focus for us. We continue to be highly confident that our current investments into offshore and onshore renewables will support significant earnings growth in the coming years. And as guided, we expect an average annual increase in EBITDA of around 12% from our offshore and onshore operating assets in the period from 2020 to 2027. So while our diversified portfolio and strong operational performance has proven very successful in safeguarding and even providing an upside to our earnings in the short term, our ambitious investment program, together with our long-term inflation index contracts, will support significant long-term earnings growth. Like many other companies, we are facing and dealing with many of the unpredictable and often urgent implications of the financial geopolitical and energy-related volatility. And we will continue to do so to successfully operate our business and deliver results. But we will also remain strongly committed to demonstrate the necessary leadership to shave a healthy long-term financial, environmental and social development of Erste and our entire industry.
We continue to see an attractive and growing pipeline of opportunities within the renewable space, and with an industry-leading pipeline, we can continue to be highly selective. Despite the current challenges in our industry, we remain convinced that we can continue to invest in value-creating projects and deliver on our vision of a world that runs entirely on green energy. With that said, I’ll now take you through the strategic highlights for the third quarter on Slide 4. On the very last day of August, we commissioned the 1.3 gigawatts Hornsea 2 offshore wind farm. I’m very proud of our entire project team, who has installed the world’s largest offshore wind farm under very challenging conditions, with COVID-19 impacting a large part of the installation phase. Having that in mind, a 2-month commissioning delay is very well contained. And following the commissioning, we completed the farm down to AXA and Credit Agricole Assurance.
The transaction is one of the largest ever within renewable energy at a valuation that underpins the attractiveness of our offshore wind assets. Together with Copenhagen Infrastructure Partners, we have joined forces in a new partnership to develop up to 5.2 gigawatts of offshore wind in Denmark across 4 projects under the open-door scheme. The partnership encompasses the development, construction, and operation of the offshore wind farms Speaking Bangna Basin East and usage nor as well as the related transmission assets.
The large offshore wind resources in the projects have the potential to greatly accelerate the green transformation, create value in the offshore wind industry and create a Danish business and export stronghold within Power 2x before 2030. I’m very excited that Astra now has a partnership in which 2 major companies have the opportunity to gather skills and knowledge to develop offshore wind resources, which can become a key enabler for the development of large-scale power 2x projects in Denmark and Europe. At the end of October, we announced a 5-year global partnership together with World Widelife Foundation, WWF, the world leader in nature conservation, to drive a fundamental change in the approach to integrating action on climate and biodiversity by advancing offshore wind that strives to achieve a net positive biodiversity impact. The planned expansion of offshore wind risks having a negative impact on biodiversity if done in the wrong way. However, if done right, it can support an enhanced ocean biodiversity and create a net positive biodiversity impact. And therefore, this type of partnership is so important as it can secure a sustainable build-out of the industry.
Together, we will identify, develop and advocate for offshore wind deployment initiatives and approaches that are not only imbalanced with nature, but also enhanced biodiversity. During October, we closed a farm-down transaction with Energy Capital Partners who will acquire a 50% ownership stake in a portfolio consisting of 3 onshore wind farms and 1 solar farm in the U.S. And in a few minutes, I’ll take you through the transaction. Underlining our European onshore expansion, we completed the acquisition of the onshore renewable energy company, Ostrand.
The acquisition expands our European onshore portfolio into Germany and France with more than 1.5 gigawatts of development pipeline projects. At the beginning of September, we successfully issued Green Senior bonds for almost DKK 15 billion to finance our 2030 ambition. Our previous green bond issuance took place in June earlier this year, and market conditions have changed significantly since then. But nonetheless, the book was 3x oversubscribed, which underlines the continued support to Erste and the build-out of renewables.
Mid-October, we announced a new organizational structure that is intended to position us well to capture future profitable growth — but before describing the reorganization on the next slide, I would like to highlight 2 extraordinary events over the past months that we are facing as a consequence of the current energy crisis. Firstly, the Danish authorities have ordered 3 of our oil and coal-fired power stations to be in operation to ensure the security of electricity supply in Denmark. The plants in scope are Unit 3 at SP Power Station, Unit 4 as StorstoPower station, and Unit 21 at Kunia plant.
The latter 2 units have been decommissioned and preserved, and SBI Power Station was scheduled to be decommissioned on 31st of March next year. We will comply with the Danish authorities order, and we will now begin preparing and maintaining the units as well as securing the staffing necessary to operate. We still believe that we, as a society, must phase out the use of gas oil, and coal as soon as possible, but we are in the middle of a European energy crisis, and we will, of course, contribute to ensuring the electricity to supply to the best of our ability. As the order requires us to operate the units until June 30, 2024, we remain committed to our goal of becoming carbon neutral by 2025.
Secondly, we have entered into a short-term agreement with Equinor to offtake up to 8 terawatt hours of Norwegian gas to meet the demand from our Danish and Swedish business-to-business customers. The volumes will substitute the gas we currently source at European markets in the period when the color field is not supplying gas to Denmark. The agreement covers the period from January 1, 2023, to April 1, 2024. Let’s now turn to Slide 5 and our recent reorganization.
As we see a more complex market environment with increasingly diversified local requirements, new needs and demands from customers and a shift towards integrated energy systems, and, not least, continued competition, we want to reflect this in how we are organized to make sure we are well positioned to drive growth under these circumstances. Therefore, we decided to further regionalize our commercial activities into 3 areas: Americas, Europe, and Asia Pacific. With this new structure, we are moving even closer to our markets and our customers by integrating our offshore and onshore renewables organizations while, at the same time, leveraging the synergies of a global organization and ensuring simple and faster decision-making processes.
As part of that reorganization, our Chief Commercial Officer and Deputy CEO, Martin Neubert decided to step down and leave us after almost 15 years with the company. And I want to take this opportunity to thank Martin for his strong contribution and commitment to us during his time with the company. He has played an important role in building the offshore business within Orsted, leading it to where it is today as a global #1, and incubating power takes as a new growth business for Orsted. At the same time, I’m immensely delighted that this change also means that we can promote several of Martin’s direct reports into the new group executive team and, therefore, thereby leveraging on their deep company and industry-specific knowledge.
In addition to the existing members, the 3 regional CEOs will be represented in the group executive team, along with the heads of Power2X, legal, and global stakeholder relations. Despite numerous new faces in our group executive team, it will be an experienced and tenured management group with an average industry experience of 7.5 years whom on average, have been with Erste for 6 years. I’m looking very much forward to working with this new setup, both when it comes to the group executive team and just as much across the entire organization. Moving to Slide 6 and our first-ever onshore farm down.
In the funding plan presented at our Capital Markets Day back in June 2021, we assumed 50% ownership of our offshore wind farms. At the same time, we said that we would opportunistically pursue farm downs in onshore as a way of recycling capital to support our growth ambition towards 2030. The transaction is not only used as the first farm-down in onshore assets but also the first time we farmed down multiple assets in a single transaction. With the closing of the transaction with Energy Capital Partners, we have now divested a 50% ownership stake in a portfolio with a total capacity of 862 megawatts, securing total proceeds of USD 410 million, net of the tax equity portion. With the attractive valuation, we will retain around 100% of the net present value through the divestment, even in a high-interest rate environment.
The project portfolio consists of the onshore wind farms, Lincoln Land wind, Plum Creek Wind, and the Willow Creek wind as well as the solar farm muscle shoals, which are geographically spread across 4 U.S. states. All the projects are operational and have power purchase agreements in place for all or parts of the production capacity. The interest we have seen in this portfolio underlines the quality of our assets and our ability to raise capital. And I consider this transaction another key milestone in our onshore journey as well as a testament to the value our projects create.
Turning to Slide 7, where I will give an update on our construction projects and pipeline, starting with the projects under construction. With Hornsea 2 commissioned at the end of August, we are now fully focused on completing the Taiwanese Greater Shanghai 1 and 2 way, where we continue to progress all areas of the construction. As of today, we have installed 111 turbines and expect to commission the project in 2023. It is worth mentioning that the subsidy for our Taiwanese project is structured as a feed-in tariff and that we received the tariff per turbine commissioned and therefore, we do not risk being over hedged. Our 130-megawatt South Fork offshore wind farm in the U.S. is well on track to meet the commissioning in 2023 as planned. Our partner, Eversource, is progressing the onshore construction work, including the substation where the project will connect while we commenced the offshore construction work last month. And finally, the early construction work on our 2 German wind farms, Bocom Rigon 3 and Godwin 3, are both progressing according to plan. Turning to our onshore renewable projects under construction, where we are currently constructing around 1 gigawatt.
In Europe, we are currently constructing 3 onshore wind projects in Ireland, Northern Ireland, and in France with a total capacity of 52 megawatts, and all 3 projects are progressing as planned. In cancers U.S., our 201-megawatt sunflower wind project has entered the construction phase. The project is progressing according to plan, and we expect commissioning during the second half of 2023. We are currently constructing all 300 in the solar phase of the Lena Energy Center. Both projects have been subject to delays due to various issues around the solar module supply chain and related legislation.
However, we have installed more than 80% of the project capacity of all 300, and this part is fully operational and delivering the full committed power to its power purchase agreement. The remaining modules are expected to be delivered during 2023, and we expect full commercial operation before the end of 2023. Likewise, for the Helena Energy Center, we are planning for full commercial operation also before the end of 2023. I — for our awarded portfolio, we are progressing our U.S. development projects.
Since our update in Q2, the U.S. District Court in Massachusetts has ruled that Ocean Wind 1, due to its progressed status, is exempt from the dispute between Siemens Gamesa and General Electric. We are pleased with the ruling as it allows us to take an important step forward in advancing Ocean Wind 1 on schedule. At our Sunrise Wind and Revolution Wind projects, we continue to develop the 2 projects together with our JV partner, Eversource. With almost 30 gigawatts of firm capacity, half of it already installed and the other half either under construction or awarded, we are well on track to meet our ambition of 50 gigawatts of installed capacity by 2030. Let’s move on to Slide 8 and a brief update on offshore wind outlook. As you may be aware, we chose not to participate in the third auction round in Taiwan.
The trilemma of low prices, inflationary cost pressure, and challenging framework conditions made it unfeasible for us to develop a value-creating project despite fantastic work by many of our colleagues. If every developer continues to build projects that are not financially viable, investments in the green transformation will eventually stop. And that is a much bigger challenge than us not getting a project we would have liked to build. I trust that our constructive dialogue with the Taiwanese government will continue and that we will see good investment opportunities in Taiwan in the future and hence, being able to support the country in reaching its net zero ambition.
In the Netherlands, we are still awaiting the outcome of the 1.5 gigawatt Holland Coast West tender, where we submitted a bit before the summer. Since the beginning of the year, we have seen increased political support for the build-out of renewables globally, exemplified by the target of 30 gigawatts of offshore capacity in the U.S. by 2030, 65 gigawatts of offshore capacity in the North Sea by 2030 as well as 20-gigawatt target for offshore wind in the Baltic Sea by 2030. Ambitions to truly make a dent towards a world that runs entirely on green power are being implemented in all parts of the world. And to achieve all the renewables ambitions, we need to accelerate the buildout with a focus on faster and streamlined perverting processes, which today continue to represent a major bottleneck within our industry.
Not only do we need more visibility when it comes to the timing of auctions and tenders, but also an increased focus on size of value provided by renewables to secure a sustainable build-out of the industry. Future auction framework should not be based on price alone, but continuously include factors like efficient energy system integration, biodiversity, and the restoration of nature to the benefit of local communities. This is not an easy feat, and it will require a whole new approach to offshore wind and power to X development and delivery. And as the world’s largest and most experienced offshore wind developer, we are ready and willing to advise, engage, and to invest. And with this, let me hand over the financials to you, Daniel.
Daniel Lerup
Thank you, Mads, and good afternoon, everyone. Let me start with Slide 9 and the EBITDA for the third quarter of 2022. For the group, we realized a total EBITDA of DKK 12.3 billion, including new partnerships. New partnerships related to the 50% farm down of ’22 provided a gain of DKK 9.3 billion. Excluding new partnerships, our EBITDA was in line with Q3 last year, amounting to DKK 3 billion. However, this number includes a DKK 1.2 billion negative effect from IFRS 9-related ineffective hedges, which will improve EBITDA in future periods.
When excluding these temporary IFRS 9 adjustments, we had a group EBITDA of NOK 4.2 billion, which was 40% ahead of last year. In offshore, wind speeds were slightly higher than Q3 2021 but significantly below the normal level for the third quarter. This led to a positive impact of around DKK 0.2 billion compared to last year, while lower-than-expected wind speeds led to a negative impact of DKK 0.8 billion from volume-related overhedging.
The negative impact was related to the hedging of our expected offshore production, which did not materialize mainly due to lower-than-expected wind speeds. As a result of lower-than-expected production, we had to buy back the overhead volumes at significantly higher market prices, leading to a negative impact on our accounts. In addition, we have, as I just described, seen a negative impact of SEK 1.2 billion from IFRS 9 related to ineffective hedges. It is important to emphasize that these IFRS 9-related adjustments have no cash flow effects and relate to hedges that are not effective from an accounting perspective under IFRS 9. On a portfolio level, the overall value from trading related to execution of our hedges remains positive.
To adapt to the unprecedented energy market conditions with extremely volatile and significant increase in power prices and to better reflect our current business compositions, we are in the process of revisiting our hedging framework. Going forward, we will reduce the hedging levels and shorten the horizon to minimize the risk of unintended adverse hedging impacts in the future. Our hedging framework have historically served us well as it has provided us stability and visibility of earnings. However, we have seen material impacts to our financials when we have not generated power at the levels we had forecasted when the hedge when we hedge production. Implementing this framework will take time. And despite not having entered into new power hedges since late 2021, we remain close to fully hedged in offshore for 2023.
If prices continue at a high level, we expect to continue to see offsetting effects in the portfolio and thus, a low risk to our overall financial performance. We will communicate the final details of our updated hedging framework once it is finalized. For the remaining part of our offshore sites, earnings increased DKK 0.5 billion, driven by ramp-up generation at Holse 2, higher achieved power prices on the one side of German CFDs as well value-creating market trading activities. Within our existing partnerships, we increased earnings of DKK 0.4 billion compared to last year.
The increase mainly came from the construction work for our partners at the Greater Changhua 1 project. Turning to the onshore part, where earnings more than doubled and amounted to SEK 867 million. This significant increase was driven by the generation from new assets in operation as well as higher power prices in U.S. and Europe. In the U.S., we have benefited from the higher power prices during the ramp-up phase of our assets under construction, where PPAs did not start until commissioning. Furthermore, some of our more recent PPAs have upside-sharing structures that allow for additional revenue capture in periods of high prices. In Bioenergy & Other, earnings increased by 53%, driven by significantly higher earnings from our combined heat and power plants. Earnings from our combined heat and power plants more than tripled due to the higher power prices and condensing power generation. The increase was partly offset by lower earnings from our gas and market infrastructure activities, primarily due to last year’s positive effect from the renegotiation of gas purchase contracts.
Let’s continue to Slide 10, covering our net profit, ROCE, and equity. Net profit for the quarter totaled DKK 9.4 billion, including the gain from the 50% farm down of ALCI. Excluding the farm-down gain, the net profit was roughly 0, which was below last year’s net profit due to higher depreciation from more assets in operation. Our return on capital employed came in at 24%, which was an increase compared to last year, driven by a higher EBITDA over the 12-month period. Our equity at the end of September was DKK 54 compared to SEK 79 billion 1 year ago.
The reduction was driven by unrealized losses on the hedge reserve for power hedges due to the significantly increasing prices. At the end of September 2022, the post-tax hedging and currency translation reserve amounted to DKK 66 billion. The reserve will be matched by higher future revenue from the underlying assets when the contracts fall into delivery. Around 58% of this hedge reserve will have materialized before the end of December 2023, and thereby, our equity will gradually increase again. Let’s turn to Slide 11 and our cash flow, net debt, and credit metric.
Our net debt amounted to DKK 45.7 billion, an increase of DKK 4.3 billion since the end of Q2. Our cash flow from operating activities is significantly impacted by a net cash outflow from temporary collateral postings amounting to DKK 18.4 billion. By the end of September, we had a total of DKK 30.6 billion posted in collateral payments, which are affecting our net debt, but similarly to the hedge reserve I just described, these are temporary effects that will unwind over time. During the quarter, our gross investments totaled DKK 14.4 billion, primarily driven by our investments into construction of offshore and onshore projects as well as the acquisition of Ostwind and Ford Ridge. We received DKK 26.5 billion related to the farm down of Hornsea 2 and saw a negative effect of around DKK 1 billion from exchange rate adjustments to — due to decreased pounds.
Our key credit metric, FFO to adjusted net debt, stood at 35.3% for the 12-month period ending in September 2022. The level was below last year, driven by higher net interest-bearing debt, partly offset by higher funds from operations. To align with the methodology used by the credit rating agencies, we have updated our definition of the FFO to adjusted net debt. We now exclude variation margin payments in our FFO definition and have excluded other interest-bearing debt and other interest-bearing receivables in the adjusted net interest-bearing debt.
To ensure comparability across periods, we have restated the credit metrics for 2022 and 2021 accordingly. If we were to calculate our credit metric in accordance with our previous method, the metric would stand at 6% for 2022 and 42% for 2021. Let’s turn to Slide 12, where I will go through our current liquidity position. During the quarter, we continued to see an increase in the collateral we must post on the exchanges, mainly due to the increase in power prices. By the end of September, we had posted a total of $30.6 billion in collateral.
To ensure sufficient liquidity to cope with potential further collateral payments over the winter and to continue our investments into the green transformation, we have taken several initiatives to improve our liquidity reserve. In September, we issued green bonds denominated in sterling and euro with proceeds equivalent to almost SEK 15 billion, established a new 2-year syndicated RCF of around DKK 15 billion, and increased existing 2-year committed bilateral credit facilities with an aggregated amount of DKK 9 billion. In addition, we received total proceeds of NOK 26.5 billion from the transaction related to the 50% farm down of Hornsea.
As of September 30, 2022, our liquidity reserve stood 88 billion. We will consider reducing our bilateral facilities towards more normal levels over the coming quarters in light of stabilizing energy prices and as maturing energy hedges will gradually reduce our collateral exposure. We constantly monitor development in energy markets, and we will continue to maintain a healthy liquidity reserve, including having the ability to access additional liquidity on short notice should we once again see a significant upward pressure in energy prices. Despite the very volatile markets, I find confidence in our strong balance sheet and liquidity position. Our financial policies are unchanged, and we are committed to our ambition to increase the dividend paid by a high single-digit rate compared to the previous year’s dividends covering the period through 2025.
Turning to Slide 13 and an overview of our debt portfolio. As mentioned, we have secured additional financing to strengthen our short-term liquidity needs and funding for our continued build-out of renewables. We currently hold a debt portfolio where our bonds roughly make up 70% of our debt financing, and the remaining part is a mixture between bank loans and hybrid securities. On the debt side, I would like to underline that we continue to hold a stable debt position as more than 95% of our bank and bond portfolio are secured with fixed interest rates.
Given the large overweight of fixed interest rates, we continue to have relatively low funding costs in the high-interest rate environment. As such, our current debt portfolio has limited exposure to the increasing interest rates and the maturity of our portfolio — sorry, does not require us to refinance current bonds before 2026, although we expect to have financing needs relating to our continued growth additions. Turning to Slide 14 and our nonfinancial ratios.
In Q3 2022, our taxonomy-eligible share of revenue was 73%. Our share of OpEx was 80%. Our EBITDA was 92%, and the share of gross investments was 99%. The non-eligible part of our revenue primarily relates to our long-term gas legacy activities and non-eligible power sales. Green share of energy came in at 92% compared to our 89% for the same period last year. The development was primarily due to more wind and solar farms in operation as well as higher wind speeds.
As we have been ordered by the Danish authorities to continue operations of SBI Power Station and resume operation of Stuart Power Station and Kunpeakloa plant, this will have a negative impact on our green share of energy and our taxonomy-eligible KPIs, specifically in ’23 and ’24. As the order requires us to operate the units until June 2024, we maintain our goal of becoming carbon neutral in 2025. Turning to safety. We have had a discouraging development as the total recordable injury rate sits at 3.3% for the first 9 months of 2022 compared to 3.0 for the first 9 months in ’21, an increase of 15% compared to the same period last year.
The increase was due to more recordable injuries for contractors, employees, partly offset by a minor reduction in recordable injuries for our own employees. We are certainly not satisfied with this adverse development, and to improve safety, we have implemented several initiatives. These include increased leadership involvement and interventions, safety stand-downs, and targeted safety campaigns on specific issues. To ensure that these initiatives are effective, they are sponsored by management and updated on a weekly basis. We will continue our efforts toward reducing the number of work-related injuries and ensure the safety of all our employees and partners. Finally, let’s turn to Slide 15 and our outlook for 2022. As Mads highlighted in the beginning, we increased our full-year 2022 EBITDA guidance by DKK 1 billion to the range of DKK 21 billion to DKK 23 billion.
This guidance assumes normal wind speeds in the remainder of the year. We’ve not included impacts from potential political interventions, such as price caps or windfall taxes, in our guidance. For our gross investments, we lowered the guided range with DKK 5 billion to DKK 38 billion to DKK 42 billion due to timing effects on projects with lower spend in 2022 than originally planned. We remain comfortable with our long-term financial targets. And with that, we will now open for questions. Operator, please?
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from the line of Alberto Gandolfi of Goldman Sachs.
Alberto Gandolfi
My first question is on interest rates and returns. Maybe looking at your Slide 7, would it be possible for you to tell us what percentage of these projects already have secured funding costs? And can you tell us for those where you have not secured funding costs, given that you already know the top line, do you still envisage an IRR over WACC, which is positive. And maybe if you can give us an update of the versus the 100 to 300 basis points original guidance? And is there a threshold below which you may not go ahead with some of these projects? We have seen one of your competitors in the United States in Massachusetts, essentially asking for a renegotiation, otherwise, the economics don’t quite work out. So I’m just trying to gauge the profitability of your backlog. And any color you could give would be very helpful.
Mads Nipper
Thanks a lot, Alberto. I can — maybe if I start a little bit backward on the question, which is, I guess, multidimensional, and then Danel can cover the funding. But I think it is a quite broad question, Alberto, because as you know, I mean, we don’t comment on asset-specific or project-specific returns, but they are very different in the sense that some of them will have inflation-indexed revenue lines.
Some of them are further advanced, and some of them we are still relatively early. So it is still a quite broad question. But specifically, as we talked about a few times, they are — I mean, the recent developments have obviously not contributed to the nearer-term projects. And that is also where we are — we continue to turn every stone that we can, including securing more robust top lines for those projects to ensure that they are — that they become better. But I mean, it’s hard to say, yes, of course, we will only take FIDs on projects that are defensible to do. But currently, our portfolio looks with the project portfolio locator projects with the current outlook remain committed to. Danny, maybe on — if you can add on if there’s anything to add on the funding.
Daniel Lerup
Yes, definitely. So as you know, Alberto, we are not doing project financing. So we — our approach to debt funding is on a portfolio level, and you have the numbers on our total debt size — so basically, it comes down to how far progressed are we on the individual projects that you are referring to on Page 7. And here, as you know, we are pretty far progressed on Greater Changhua as we will COD that next year. And we have started up also constructing the German portfolio, and beta progressed, and also the rest of the assets under construction.
So it comes very much down to funding of the awarded portfolio. And here, we are still in our development phase. So we have, of course, spent some money already on these projects. But of course, the lion’s share of the CapEx lies post and FID. So that would be the point in time where we would have to go out and start funding those projects. We have, however, locked in interest rate exposure for part of the CapEx of — on our near-term development pipeline of roughly DKK 60 million to DKK 70 billion.
Operator
Our next question comes from the line of Casper Blom at Danske Bank.
Casper Blom
A question that also sort of evolves a little bit about interest rates and around interest rates and WACC and so on. But I was a bit surprised to see your farm down within onshore in the U.S., I found a very positive that you talk about 100% NPV retention there. Does this mean that we should start seeing more onshore farm-downs? I mean if you can do 100% NPV retention, isn’t that a favorable and attractive way to go? And talking about farm down, last quarter, you gave an update on the potential next farm-down in Taiwan, saying that there was still good interest and that price levels were more or less intact. Is that still the case?
Mads Nipper
Yes. Thanks, Casper. You’re absolutely right. I mean, we are very happy about the onshore farm down that we did of the 4 assets. And by the way, also the first portfolio farm down we’ve ever done that, but not at an asset level. So the simple answer to that question is, yes, this is something we’ll definitely consider. And if we can have that kind of NPV retention, which we have no reason to believe we couldn’t, then this is definitely another key tool in the toolbox of financing growth. I don’t think there is any news on the interest in our farm down in an upcoming potential farm down in Taiwan.
Daniel Lerup
We are slowly starting that farm-down process. And we have actually had our team visiting Taiwan to get sort of the first indications of where investors are and its positive feedback we are getting there. So as it looks like right now, everything is going according to plan.
Mads Nipper
So no news compared to what we told at the last call, Casper.
Operator
Our next question comes from the line of Vincent Ayral of JPMorgan.
Vincent Ayral
Yes. One regarding, again, on return as the interest rates are rising, clearly, costs for renewable is going up. And we also see that with the like of Vestas as well as on the manufacturers, and we understand that the prices are going up 15%, 20%. So cost of financing is going up. The question I would have is your spread to work your investment criteria. Could you give us some color on how you’re adapting to this change so we can have a better understanding on the evolution of value creation on your pipe?
Mads Nipper
Yes. I mean, thank you very much, Vincent. Our criteria for when we bid in on new projects. So at bids, we retain that. It’s still a spread to wage 150 to 300 basis points. That is clearly our ambition. So that is unchanged. And that is also why we are arguing very strongly that in the current environment, there needs to be an understanding that regulators will need to understand that it cannot only be a pressure on lower, lower price because there are inflationary pressures, the cost of capital does go up. So as Daniel described earlier and which it did to the very first question that I pared to ask, then obviously, I mean, where we are fighting hard now is where — is on our already awarded but not yet FID projects. That is something where this remains a challenge. But for the ingoing projects, which is part of the reason why we chose not to bid in Taiwan is because we are actively taking that into consideration and bidding, we are still targeting 150 to 300 basis points.
Vincent Ayral
But my question was slightly different. I understand the question clearly from Alberto before, which is when you’ve locked your top line and not in your financing, so you’re having a squeeze potentially. What I’m saying is if you keep a spread of 150 to 300 of the WACC and the WACC is going up, the value creation is the ratio within the 2. So it’s going down. So will you update your investment criteria on stage? Do you expect the whole industry to increase the spread of WACC in absolute terms? So in relative terms, it remains the same level of value creation.
Mads Nipper
Do you mean when we bid for new projects, or do you mean for all media already awarded projects?
Vincent Ayral
For future projects. If you got a spread of the WACC of 200 bps of the, let’s say, 4 and your work is going to 6, you should, or for a spread of a work of more than 200 bps in order to create the same amount of value.
Daniel Lerup
Yes. So I think when we enter into new auctions, we update our WACC, and then we make sure that when we bid into a new auction, we get the spread over WACC on the updated WACC. For the portfolio of awarded projects, as you say, on some of them, we have kind of locked in top line, some of them has an inflation indexation. But you will, of course, see that when wax go up, you are eating into the spread to WACC. And that is why we are, of course, working hard with the awarded portfolio to ensure that we optimize the value in those projects in order to make sure that we do what we can to maintain the spread to WACC.
But it is, of course, a challenge when you have both CapEx going up and also the cost of funding. On the other hand, we’re also seeing good developments on the regulatory side, for example, with the IRA, which is, of course, a big positive for our U.S.-awarded portfolio. So we have things going in different directions, but of course, with interest rates going up, that is, of course, something that is hurting our spread to work.
Mads Nipper
But to be very clear, on anything we are bidding into in the future, we want — if the RAC goes up, we need to see our IRRs going up corresponding to hit the same spread to WACC. That’s our clear — that’s a commitment we’re giving.
Operator
Our next question comes from the line of Deepa Venkateswaran of Bernstein.
Deepa Venkateswaran
So I think I have a simple question, which is on your collateral and net debt. So Daniel, you mentioned that you have 30 billion locked in collateral right now. If I’m not mistaken, in the way you’re presenting your ratios, the net debt is still — it’s not offset by the receivables from collateral. And therefore, when you deliver power, you should basically get back quite a lot of it already next year, I think around 60% from previous discussions. So can you confirm that? And then secondly, if you mark to market today, I mean, some of the commodity prices have come down, probably the level of collateral has gone down. Could you just say by how much?
Daniel Lerup
Yes. So that is correct. The roughly SEK 30 billion in collateral is, you can say, a drag on our net debt. And if prices stay at where they were when we made the Q3 numbers, you would see that roughly 15% of that would run off towards the end of the year and going up to 60% by the end of 2023. We have, however, seen prices go a little bit down since the end of Q3. So we’ve probably gotten a little bit more than a handful billions back in collateral. So we are probably more at around SEK 24 million, DKK 25 billion in collateral right now, and that’s, of course, a number that is changing every day. But it’s going down.
Deepa Venkateswaran
So that should alleviate some of your funding needs, right? Because as you get the collateral bank, you don’t need to go back and raise new debt. So this will also help and help with the funding that we were discussing previously.
Daniel Lerup
Yes. It will. And I also view our liquidity reserve right now at roughly DKK 90 billion as being quite conservative, but we are, of course, also going into a winter where it’s difficult to predict exactly what’s going to happen, so rather be on the conservative side. But as we get through the winter, and of course, also more and more hedges settle, we would expect to bring down that liquidity reserve.
Operator
Our next question comes from the line of Robert Pulleyn at Morgan Stanley.
Robert Pulleyn
So I’d just like to ask, it’s a bit integrity. I apologize for that. But as we look at your revised guidance for 2022, could you help us understand what level of overhedging losses and IFRS 9 accounting incremental in 4Q, you include in the guidance that you’ve given today? Clearly, these are the 2 dynamics, which were not well understood or expected at the start of the year and have weighed on the last couple of quarters. The macro backdrop suggests that those are improving. So it would be great to have some clarity as to what’s actually baked into guidance.
Daniel Lerup
Yes. Our expectation is that roughly SEK 0.5 billion will be running off towards the end of the year.
Mads Nipper
And I can — just as a service information, Rob, I can also say that the wind speeds in October have been slightly above normal, and that’s sort of a good start to the quarter.
Robert Pulleyn
Sorry, Daniel, just didn’t follow up EUR 0.5 billion extra of cost or EUR 0.5 billion less than sorry, I didn’t quite understand…
Daniel Lerup
That’s a runoff of the, you can say, the 1.5% negative IFRS 9 temporary effect that we have in our accounts currently. So that will — when that kind of runs off, that will improve our EBITDA. And that $0.5 billion is based on forward curves at the end of September.
Operator
Our next question comes from the line of Peter Bisztyga of Bank of America.
Peter Bisztyga
So I just wanted to follow up on Deepa’s question actually on net debt. So I guess that you’ve got GBP 30 billion of collateral potentially flowing back over the next 2 or 3 years. And your cash flow statement in the 9 months showed something like just from the EUR 11 billion negative change in derivatives and another sort of EUR 10 billion roughly negative working capital movement. I was just wondering, that $20 billion in aggregate, is that something we can also expect to reverse in coming quarters. So grateful for any clarification there, please?
Daniel Lerup
I’m not completely sure whether you’re referring to the development that we are seeing from Q2 to Q3, but because that is a little less than SEK 20 billion in increased collateral. And this is something that will come back with roughly 60% towards 2023.
Peter Bisztyga
Okay. I mean, just looking at your sort of cash flow statement in your quarterly report, you have change in derivatives in your cash flow from operating activity of sort of GBP 10.8 billion actually in 9 months. Does that include the collateral? Is that on top of the glass is not completely clear? Maybe take that offline.
Daniel Lerup
The change in derivatives is the variation margin, and then we have the initial margin down in the change in other payables.
Peter Bisztyga
And sorry, maybe just on the working capital. I mean, obviously, there’s some big working capital movements in the year so far as well. Is that something that you’d expect to reverse to that’s something that we’ll carry on building? So usually, we see a large part of the working capital coming from our Opto assets. So that is, of course, something that will change when we divest the off-core asset, and you will also see in the future that when we, hopefully, FID hold C3 at some point, that will also be building off.
Operator
Our next question comes from the line of Mark Freshney at Credit Suisse.
Mark Freshney
It’s with regard to the U.K., which my numbers is about half of your enterprise value. The U.K. government, if you read the press speculation and speak to the Energy Ministry, are proposing things which effectively amount to expropriation of particularly some of the older VOC assets you invested in, in good faith. Clearly, the CFDs are hugely protected by the agreements you have with the government, and you’ve got independent arbitration rights. They’re well protected.
But the ROC assets is a huge disappointment. And on that basis, I think some investors are surprised that you haven’t been firmer on potentially pulling back spend from the U.K. in relation to Hornsea 3 because not proceeding with FID because existing assets have been, in my view, expropriated would seem to be a perfectly rational response. So why is it that we’re not getting firmer language on Hornsea 3?
Mads Nipper
Thanks, Mark. And no doubt that U.K. continues to be a hugely important market for us. And I would — I think we are stretching it too far, saying that it’s potentially preparation because one, the ROG assets, I mean, we’ve heard no talk that the ROG share would go away. And then there is speculation whether it would be sort of this price cap or whether it will essentially be a windfall tax. As we already mentioned, we are in quite intense stalks, both with base and also with the treasury to ensure that this is done in an intelligent way.
And if this ends out, as being something where we would actually convert the rock assets into CFD, that could actually be something that could be a mutual benefit. That is probably not the most likely outcome in the short term. But we also hear, I mean — and we probably — I mean, we don’t have anything firm because the market dialogue has not officially happened yet. But it really depends on where such a price would end out because the variation in which we’ve heard that those levels could be at is very, very big. So we think it would risk being counterproductive if we [indiscernible] threat not to take FID on Hornsea3 before we have anything firmer on what the attractiveness of a measure would be, whether that is a price cap, whether that is conversion to froth CFD or whether that’s a windfall tax. But we are in quite intense dialogue as mentioned, with both ministers.
Operator
Our next question comes from the line of Jenny Ping at Citi.
Jenny Ping
I just wanted to go back to something you said earlier around the U.S. So if I understand correctly, you’re essentially telling us that you will only invest in value-creating projects, which effectively says that there is a risk that you won’t FID some of the projects, given some of your peers in the U.S. have said projects are not viable. And just along the same lines, PSEG have talked about making their final decisions on Ocean Wind 1. Can I just check what is your plan B if they don’t proceed with that? And then, just going back to the $60 billion to $70 billion that was talked about for the initial question, the first question that was asked. Can you just — I didn’t get what that — those numbers related to which projects you just said near-term projects, which projects effectively, you’ve locked interest rate exposure for.
Mads Nipper
Thanks, Jenny. I think we can — maybe it’s really more — almost the same answer to say that the returns of the U.S. projects, including Ocean Wind 1, is not where we want it to be. But we continue to explore these options. And that is also, as we’ve also — I think we’ve already shared previously, also having a dialogue around potentially sort of having the maximum share of the IRA benefits being passed back to us. So it is simply too early to say anything. And therefore, we continue to remain committed to these projects.
We are not in a situation where we are saying this is something that we would not — that we no longer believe in, we still believe there is a path for this to be value-creating. I can’t go into any detail of the discussions. They are confidential of nature, and they are case-by-case on those projects. But it is something where we also obviously follow closely and have a dialogue with PSC. And we are in close coordination with them as they advance their thinking, both on Ocean in Wind 1, but also, as I mentioned on the call on Monday, on Oceanwide Skipjack 2 of a potential investment there.
Daniel Lerup
And on the second question, it was EUR 16 million, so EUR 16 it DKK 717 million that I mentioned, we had locked in through interest rate swaps on the U.S. near-term development projects, so being the Northeast portfolio and Ocean Wind 1.
Operator
Our next question comes from the line of Kristian Godiksen at SEB.
Kristian Godiksen
So my question is regarding the for Danish open-door projects. And if you can just elaborate on the milestones you need and approvals and so on to reach FID? And also, clarify, you said that you intend to build transmission as well. So will your own transmission long term? Or will you have to divest it at a later point to what’s the model on transmission?
Mads Nipper
Yes. Thanks for your question. The — it is still — this is still obviously very early stage, but we are actually hoping for and have good belief that there is a real path to accelerated consent and approval here. And as we said, this could be something that actually could be — the first commissioning could be as early as 2027, 2028, which would essentially be at the same time or faster as the first centralized or the upcoming centralized tenders in Denmark that have already been awarded.
So what is next would essentially be that the Climate Ministry would need to approve the projects. So they have gone through the hurdle of the DEA and the legal hurdles for that. So, therefore, the project so far, they are viable, but it does take a ministerial approval, which we think has very good chances with the nations. And in this case, the world’s biggest and one of the world’s biggest offshore developers going together. But that is what it would take to go through, and we could see that coming as early as within the next 2 to 3 months. In terms of the transmission assets, the honest answer is I simply don’t know.
Daniel Lerup
And of course, it’s also too early to say, but we expect it to be part of the scope that we would have to build and invest into the transmission asset. But concerning ownership in the future, I think it’s too early to say how we’re going to think about that. But of course, it’s a big portfolio of projects. So our thought could, of course, be that it would make sense not to tie up too much capital in that.
Operator
Our next question comes from the line of Luis Boujard of OVH.
Louis Boujard
Indeed, I have one question regarding the hedging and regarding, more particularly, the comment that you made during the presentation. I think that you said on the offshore business that you’re going to remain almost fully hedged in 2023. And at the same time, you said as well that you expect to continue to see offsetting the effect on the portfolio for next year. I hardly see where this could come from. Because if it comes from the wind, of course, for next year, it’s a bit too soon to be sure what is going to happen in terms of wind conditions. So shall we consider that it would come from IFRS 9 and the proxy hedge? And if yes, could you quantify maybe what could be the magnitude of this potential offsetting effect that we should expect for next year earnings in the Offshore division?
Daniel Lerup
Yes. So my point was that when we look at our offshore wind business, we are close to fully hedged of the P50 production towards the end of 2023. But if you look at a portfolio level where you also consider onshore and the combined heat and power plants, we are, of course, lower than that 100%, roughly 70% to 80%. But that doesn’t change the fact that we have a high hedge in offshore, which when you look at that segment specifically, if you have low wind speeds, we would have to go out and buy hedges. If we have high wind speeds, we would then be selling it into the market at the merchant prices at that point in time.
Mads Nipper
So to make it — to try and make it potentially even clearly, Luis, what Dani and we are saying is that throughout next year or until towards the end of 2023, there is still a risk of an earnings mix like we’ve seen this year, where we have higher earnings on onshore and on Bioenergy and relatively lower on offshore, if it happens, that production is lower, and prices are elevated. So that is why the overall risk profile on our earnings next year, we see as very low. But the risk next year of a mix where we will still have 1 more year where our earnings are below what we could call the natural level, especially for offshore, is still there.
Depending on especially the wind because the wind is really the risk to that. But beyond 2023, that is also why we mentioned in the presentation that, that is where when those hedge levels due to our — to the fact that we are not rolling our head is now and we will implement a new hedging framework, then we will return to not only high but also stable — a high and stable earnings level for the group, but also much more predictable and high for offshore specifically. So that is what we — that’s what we are saying. Overall, at group level, low risk, but earnings mix still a risk that could change next year, but come 24 and beyond, that risk will be substantially lower, if that makes sense.
Operator
And our next question comes from the line of Lars Heindorff of Nordea.
Lars Heindorff
Also, a question regarding the hedging. Dan, I think you said in the beginning that you’re going to change the hedging framework, which means less and shorter periods of hedging going forward. And just conceptually, I wanted to ask how that will fit into your ability to — you can’t say guarantee, but your aim of reaching the 150 to 300 basis point spread between IRR and WACC going forward. Will that increase the risk of future projects as you can’t lock to them?
Daniel Lerup
No. So again, these are very long-term assets with many, many years and decades of earnings. So hedging their case is not the big definer of the spreads. So I wouldn’t expect that, and we would also, in cases where we have merchant exposure, look into still corporate PPAs as produced PPAs where you don’t sit with the volume risk as you do on financial hedges.
Mads Nipper
Yes. So our overall approach to still having a very high share of contracted or regulated revenue remains intact. So we are — in any normal year, we are still at around the 90%. And we will still go like we did with Hans for CFD-type contracts — and where we have merchant volume, if we can strike attractive PPAs, we will continue to do so. So this is something we, at a group level and for our investments, we really see this not — this approach and the hedging staircase, not in any way material materially impacting the predictability of our earnings.
Operator
And our next question comes from line of Deepa at Bernstein.
Deepa Venkateswaran
So just wanted to step back from here in and now I just wanted to discuss the partnership that you announced with CIP for the 5 gigawatts of projects. Could you maybe explain how the same work might work? And what is it that you would need in order to kind of take FID on these projects? Is it green hydrogen, or what is needed? And in general, do you also see such thing available in countries beyond Denmark where you’re not competing for the kebaleases as well?
Mads Nipper
It’s — the line was a little bit unclear, Deepa. But I think what we need, obviously, to the question that came before, what we ensure we need is to have the ministerial approval that these projects can be built — and then what we’d be looking at with the mix of what can be fed into the grid and also because there are sizable power to X projects today in Denmark that are being planned. Some of them we involved in some of them are by ship, and some of them are by third parties. And therefore, we would, of course, work with potential offtake from those major projects, including what would that mean to the predictability of earnings and so on.
So that would all go into the calculations of the business case that would need to be quite solid before an FID. So it is to talk to our TSO as to what — how much can and should go into the grid. — what — are there any PPAs that can be meaningfully strong and then potentially most — our highest potential here, what are the agreements that can be made to feed the power to X projects that are already being planned or could be planned knowing that this green power would get to sure.
Deepa Venkateswaran
And do you see something similar in others is because it might be an easier or cheaper way to get seed leases?
Mads Nipper
Yes. This is something — one of the purposes, apart from quite honestly, ensuring that the Danish government feels very comfortable with our 2 companies going together to actually go ahead with these open-door projects. Also, for example, the German government have already said that they will have a significant chunk of open-door projects — and if we can see if the other governments, especially in Europe, can see that the Danish government backed by our 2 companies moves ahead with speed, then this is something we hope will open significantly more doors, so to speak, for these open door projects, not only in Denmark, but especially in Germany, but potentially in other countries as well. So we see it as more than just a Danish undertaking, but as something that could be sort of a foot in the door for accelerating open-door products in Europe that, unfortunately, is still too slow consenting and planning the centralized tenders.
Operator
Our next question comes from the line of David Paz at Wolf Research.
David Paz
Just a question on — I see a two part question here, both on the U.S. Just where are your returns ballpark for the Northeast and Ocean Wind projects? Would you categorize them as the low end of the 150 to 300 basis point spread? Because I know you’ve talked about them being pressured, but just give us a sense of where you are. And then the second part is, given now we have IRAInflation Reduction Act, what is that potential uplift you see both in the offshore U.S. and then the onshore U.S.
Mads Nipper
Thanks, David. We can’t comment on sort of the return levels for specific projects. But they are — as we’ve said before, they are — none of the 2 projects you mentioned are at this stage where we want them to be, which is why we continue to work on those returns, including top-line measures. But that is as close as we can get to it. As we — like we said last time, after Q2, we said that the sort of for our offshore projects, we were looking at, depending on what project is sort of a meaningful double-digit number of bps in business case improvement.
But there are so many moving parts, still including also, obviously, the interest rates, and therefore, the WACCs that this is something that we are working on very, very tightly to ensure that we do what we can to improve the cases. But I, unfortunately, can’t get any closer. But — and what we do say is just to maybe add a quick comment on onshore that through the PTC improvement and extension. This is something where we also see significant improvements of onshore.
And just commenting on onshore, which is one of the reasons why that is — remains attractive is that we both have a clear site of improvements due to the IRIA. But we also see both in Europe and U.S. that due to the shorter-term nature of onshore, we see the PPAs moving up continue to move up in a sort of at exactly the same sort of curve as the inflation, we continue to see from — in the different — for example, from the turbines. So the returns are intact, if not improved in onshore in the latest time, which is why those investments stay very attractive.
Operator
Our next question comes from the line of Vincent Ayral at JPMorgan.
Vincent Ayral
Yes. I have a very quick follow-up regarding the hedging. Usually, utilities, they tend to start the year in the 80% hedged year. You’re telling us that for offshore wind, you are already fully hedged for our P50 for 2023. And you’ve known since the beginning of the year that pulp poses were extraordinary, and you were buying back at a great expense delay on Hornsea 2. So what is the reason where we land in this point where basically we’re still over hedged on offshore wind specifically for next year? And I’m just struggling to understand what led us here. Any color on that would be welcome.
Daniel Lerup
Yes. And I understand that question, of course. And the thinking behind this has been that we have worked with a 5-year hedging staircase for more than a decade, where in the front 2 years, we’ve had a hedge percent, which is very close to 100%. And when we started seeing the volatility at — in the power prices at the end of 2021, we stopped rolling that hedging staircase because we knew that we should bring down our hedge level in a volatile market so that we would do what we could in order to avoid having to buy back very expensive hedges.
So our question to ourselves at that point in time when power prices started to increase, we, of course, didn’t know that power prices would go up that significantly. So we, of course, had a discussion internally whether we should bring down the hedge level in the front 2 years. But here, had power price has not gone up that significantly. We would probably have brought it further down. That’s one, but we’ve kind of built caught in this very steep increase in power prices. And two, this is for the offshore part of our business. So we also have onshore and we also have the combined heat and power plants, where we have a longer power exposure also in the short years.
And when you take the totality of the entire portfolio, we are more sitting around — of the remaining 10% of merchant exposure we have on the company, we only have a hedge percent of roughly 70% to 80%.
Vincent Ayral
But what is the hedge level going forward you want to have? I mean, it’s 100% or 90% of the P50 is probably too high. We saw wind volumes being materially below normal last year. So what is your target hedging going forward? Even if it takes a few years to get there?
Daniel Lerup
Yes. So we will be — as I said earlier, we will be coming back with more specifics on that one. But one thing that is very clear in this very volatile power price market, it will both be a lower hedge percentage and also a shorter period that we will be hedging at least for the offshore part of our business. But remember, this is — all of this we are talking about here is only on the remaining 10% of our earnings. The first 90% of our earnings is at a regulated long-term regulated or contracted as-produced basis. So it’s only the last 10% that we are talking about here.
Operator
The next question comes from Mark Frese at Credit Suisse.
Mark Freshney
Just regarding the coal burn, the remaining coal burn within the CHP portfolio, clearly, it’s undesirable from an ESG perspective. I think you had aimed to stop burning coal, I think, this year or the end of Q1. Can you remind us where we are on that coal burn and when you might expect to be able to say that you’ve burned your last ton of coal, and it’s now only biomass and wind and power 2x?
Mads Nipper
Yes. Happy to, Mark. We are — you’re absolutely right. I mean, the 2 boilers that we talked about in KubiandStusto, they have already been retired. So they were out. Now they are being ordered back into service. And you’re absolutely right, ESP, which was the last coal-fired power plant, was planned to be decommissioned by the end of Q1 next year. At which time, we would be completely out of burning coal. We will still retain a very — and we will retain a very, very small share of gas, which essentially is for starting up the biomass-fired power plants and for the emergency sort of systems balancing plant that we have in Kuni.
With the new order we’ve gotten from the Danish state, that is until summer of ’24. And we will — expectedly, everybody we talked to in Europe expects that next winter will be the last potential emergency winter. At which time, we will have both in terms of both LNG biomass and other sources, we should be out of that emergency — energy emergency. So we do not expect and we will — quite honestly, we will fight hard to make any extension of that — so as we — I think we briefly mentioned it in the presentation, we stay firmly committed to our carbon neutral and 99% carbon-neutral Scope 1 and 2, including not burning any coal by 2025.
Operator
Our next question comes from the line of Jenny Payments City.
Jenny Ping
Just following on from Mark’s question just on the coal exposure. Have you had any discussions with the clean energy in the people who run for clean energy indices as to how they’re going to be treating the coal exposure now that you’re having or keeping it open? Is there a risk of exclusion? Or have you already been exempt? Any clarity around that would be great.
Mads Nipper
No, I don’t think we have had any sort of exemption to that. But I’m relatively sure, given the temporary nature of that, where we can demonstrate this is an order from the Danish state that this is not something that should have a material impact. But let us ensure we follow specifically up on that and make that available through our IR team so that we can say that with greater firmness.
Operator
Our next question comes from the line of Peter Bisto of Bank of America.
Peter Bisztyga
A quick put on your recent U.S. onshore farm down, the sort of dollars per kilowatt proceeds is less than 1,000, which sounds pretty much in line with the CapEx you might have spent on those projects. So a very little sort of cash gain in there. Is that correct? And if so, why so low? And then just can you please repeat the billion amount that you have fixed interest rates for your U.S. pipeline? I didn’t quite hear it.
Daniel Lerup
Yes. So the interest rate swaps on the U.S. pipeline is a little bit more than USD 2 billion. So around DKK 16 billion to DKK 17 billion, so USD 2 billion. And on the onshore part, I think what’s important to be mindful of is that we are keeping — this is excluding the tax equity investment made into the projects. So that is being kept, so to say.
Operator
We have one further question. That’s from the line of Lars Heindorff at Nordea.
Lars Heindorff
Question regarding your expansion. You mentioned earlier that you’re weighing the outcome of the tender in the Netherlands, and there’s also a few other on its way, and there’s still a lot of temps coming up. I think you already won around about 3 gigawatts this year. You’ve been very specific about the plans that you have, and you have sort of — whether you calculate it that you can grow by the 3 gigawatts on a yearly basis without the need for further equity. So if you win more than that, or maybe phrase it another way, how much more wins will you be able to cope with without raising equity?
Mads Nipper
Yes. Thanks, Lars. We actually can calculate it with the wins because in principle, they could have very different CapEx spend profiles and so on. So some of the wins we could get in the coming years could actually be quite late, or some of them even post 2030. But what we said that on average, we — in order to get to our — and now we’re talking offshore specifically, in order to get to approximately 30 gigawatts by 2030, we would compare to the launch of our CMD last year, we would need to secure an approximate average of 3 gigawatts a year in order to be in time to have that constructed by 2030. So that is — and yes, you can sort of translate that into saying that, that means that the fully funded plan of approximately 50 gigawatts by 2050 is what we said was fully funded and still is.
So if we see a burn rate significantly beyond that, then you’re right then it would either mean that we would need to prioritize even more to offshore or would need to raise capital. But it is not so that you can say, if we, for example, are lucky and capable of winning Holland Coast West, which we expect the outcome of in the next few weeks, then that is an automatic sign that we are going to need additional capital. That is not something you can say.
Operator
And there are no further questions at this time. I’ll hand the floor back to Mads Nipper for the closing comments.
Mads Nipper
Yes. And I would just like to thank Daniel for fighting a sore throat and all of you for great questions. Always great questions, and should you have more questions, you know that our IR team is here to answer them. Thank you very much. Stay safe, and have a great day.
Be the first to comment