Since 2019 the economics of the industry have changed. New competitors, including traditional energy companies, have entered the sector by diversifying into clean renewable energy production. Additionally, decreasing input prices due to supply line industrialisation and lower capital costs have led governments to reduce or eliminate subsidies, replacing them with auction-based contracts that have reduced returns for developers.

This increasingly competitive environment led to tighter project returns and increasing financial pressure on project developers and sponsors. In 2022 the covid pandemic struck adding significant increases in material costs, inflation and interest rates to the challenges already faced by the sector.

Having the commitment to continuing its large investments into the development and construction of new renewable energy projects and with such large-scale offshore projects tying up capital for extended periods, Ørsted looked towards solutions to increase its financial flexibility and ease the burden on its cash flows and balance sheet. To address this, Ørsted turned to supply chain finance as a tool to extend payment terms while giving suppliers early access to funds. The goal was simple: free up cash and strengthen the balance sheet without disrupting operations. Ørsted works with large industry leading suppliers, procuring major components for wind farms and solar projects, such as turbines, cables, foundations and solar panels.

Extending payment terms with several months would free up cash, but if pushed too far would risk straining the challenged suppliers and potentially causing delays to projects, which would be costly. Ørsted needed a potential solution that freed up cash while largely keeping suppliers unaffected.