OX2 CEO Paul Stormoen's address to the AGM 2024
Dear shareholders, Board members and colleagues,
It is even more special than usual to stand here before you today to present a summary of the past year, given that this year marks the 20th anniversary of the foundation of OX2. Personally, I joined the company a little under five years after it launched, which means that I have been with OX2 for fifteen years now, serving as CEO for the past twelve years or so. A great deal has happened since our earliest days.
We developed onshore wind power in Sweden and were pioneers in bringing Swedish banks and financial institutions into the sector, but despite our trail-blazing work, there was still no actual market for major project sales or international investors.
Wind power accounted for just a few percent of Sweden’s electricity supply and was generally considered only a peripheral source of energy. Back then, maximum wind turbine capacity was approximately 2 MW and electrification had not really caught on, even though there were some car manufacturers that had produced concept vehicles that could drive a few miles on a single charge.
Fifteen years down the road, we are in a completely different place. OX2 is a multinational enterprise, active in a variety of technologies. We are developing what is said to be the largest offshore wind farm in the world, we have built Sweden’s biggest battery farm and are running several pioneering projects.
Wind power now accounts for more than 20 percent of Swedish electricity generation and is now viewed as a viable solution for a strongly expanded electricity grid in the immediate future. Work is being done to develop offshore wind turbines with capacities up to 20 MW. And in principle, pretty much everything in my everyday life – with the exception of aircraft – has been electrified.
All this in just 15 years. Who knows what the coming 20 years will bring; it is a humbling thought.
Yesterday the investment organisation EQT made a bid for the for the shares in OX2. They have stated that they see opportunities in transitioning OX2 from a pure play developer to and independent power producer that owns assets, which could generate recurring earnings and create a greater stability and flexibility. A process has now been initiated where all shareholders will get the opportunity to consider the offer.
That said, no great changes are on the cards for 2024. We continue to focus on finalising ongoing sales and achieving the goals set out in our business plan.
2023
The past year was distinguished to a large extent by challenges for the industry. Inflation and high interest rates put a damper on the appetite to invest among major financial operators. A number of the large turbine suppliers battled with quality issues and, as a result of the higher cost situation, several major players in offshore wind power were confronted by profitability problems in some projects.
Nevertheless, 2023 was a year of solid profitability and several exciting developments for OX2. Operating income totalled approximately SEK 1 billion, primarily on account of our wind operations in Northern Europe. This is a level we have maintained for two years and which we expect to surpass this year, even though both our cost base and our portfolio have expanded strongly during this period.
The market
As I mentioned previously, the market for wind power projects could charitably be described as “limited” when OX2 was founded 20 years ago. However, our founders – Johan and Thomas – spotted the opportunity to offer private citizens, local authorities and banks the chance to participate in the development of this area. This was a unique initiative in the energy sector, which up until then had been powered exclusively by oligopolistic power companies. The situation is completely different today.
The fact that the market has grown so strongly in such a short time is primarily attributable to three factors.
The first is that electrification has had a huge impact. Pretty much all parts of our society and our everyday lives – everything from lawn mowers to steel industries – either have been or are being electrified. This is sure to result in a sharp rise in demand. The electricity consumption of Sweden alone is forecast to double by 2035.
The second factor is that renewable energy is now fully competitive on the electricity market – i.e. it is no longer dependent on public subsidies. Pension funds, venture capital and industrial investors looking for long-term investments with healthy yields are showing appreciable interest in projects of this kind.
The third factor powering the growing market is the ambitious goals that politicians and decision-makers are setting, not only as regards self-sufficient regions and a robust electricity system, but also in the context climate targets. At the COP28 climate summit last year, more than 110 countries committed to trebling renewable electricity production by 2030. Heavyweight companies have set correspondingly high targets for themselves, as world-leading enterprises view renewables as a competitive edge in the context of profitable growth. IKEA, our partner in numerous countries and projects, is a role model here, encouraging many others to follow suit.
OX2’s sales
Even though the market was adversely affected by spiralling inflation and high interest rates, OX2 still managed to complete several sales last year.
Not only did we sell wind farms in Poland and Sweden, but we also sold our first project in Italy. In addition, we sold 49 percent of three projects off the coast of Finland in the Gulf of Bothnia to Ingka Investments, which is part of the IKEA group. Towards the end of the year, we closed a corresponding deal for a portfolio of offshore projects in Swedish waters. Here, too, the purchaser was Inka Investments.
We also concluded our first deals in Spain in France, where we succeeded in selling the project rights for solar power projects.
Looking ahead to 2024, we have more sales processes ongoing than ever before, clear evidence that our work to build up and develop our project portfolio has paid off.
OX2’s project portfolio
OX2’s continued growth is dependent on our ability to continue adding new projects to our portfolio. Last year, our project development portfolio expanded by almost 20 percent, from 28 to 33.5 GW. Much of this growth was achieved in the field of energy storage and solar power following the acquisition of ESCO Pacific in Australia.
It has been fascinating to track the development of renewables in Australia, which has accelerated strongly in recent years. While this country is heavily dependent on fossil fuels at present, it is also perfectly placed to change direction, given that it has a huge surface area, hours and hours of sunshine and a long coastline. OX2 is also looking into opportunities for developing onshore wind power there.
OX2 has doubled its project portfolio in just two years, which provides us with a solid base for continuing to grow profitably.
OX2 on a changeable market
As I have already mentioned, the market is changing rapidly. This being the case, OX2 must remain constantly open to new opportunities and new ways of doing business.
One example of this is last year’s sales of our offshore projects. We succeeded in selling the projects at an earlier phase than usual, which enables us not only to generate value earlier in the process, but also to reduce our financial exposure. Moreover, when the licences are subsequently approved, we receive a contingent consideration.
With the rises in inflation and interest rates, financial investors became less competitive in our sales processes. Instead, we have principally sold to industrial purchasers, which has meant longer processes, but attractive price levels. We can now see that the financial investors are gradually returning.
However, it is not simply a question of how and when we do business. We are also looking into new ways of working together with customers, such as teaming up with Stor Enso to develop onshore wind power, experimenting with new technology such as floating solar power, or trialling the combination of solar power and agriculture.
Powering the great shift
Here at OX2 we are committed to “powering the great shift”. By this we mean that we are to be a driving force in the transition to a fossil-free society. It was also with this in mind that OX2 was originally founded. That said, it will take more than just renewable energy to create a sustainable society.
For example, our goal is for all projects to be nature-positive. In order to enhance biological diversity around our projects, we are looking into everything from establishing wetlands and restoring meadows, to seaweed farming and artificial reefs. During the year, we also received funding to work with SMHI on investigating the possibilities of using the oxygen from hydrogen production to oxygenate the water at the bottom of the Baltic Sea. This is an extremely exciting project with the potential to make a huge difference.
Last year also saw us adopt a new sustainability policy and set a science-based target for reducing our emissions in line with the Paris Agreement. We have also improved our reporting and transparency, and we are to start reporting KPIs relevant to sustainability in our interim reports.
OX2 going forward
It cannot be denied that a great deal has happened since OX2 representatives stood outside the cinemas after the screening of Al Gore’s film An Inconvenient Truth, attempting to sell shares in a wind farm. So what do the coming 20 years have in store? Well, it’s not exactly a straight highway we can see stretching away in front of us.
Significant investments in electricity grids, energy storage and infrastructure are essential to accommodate a higher proportion of weather-based electricity production. And to cope with greater flexibility in consumption when industries, urban buses and ferry traffic are all to be electrified.
It is impossible today to predict precisely what form the energy system of the future will take. But some of the solutions will almost certainly be powered by market forces when the price of electricity starts to rise. So this isn’t always a bad thing, in that it promotes innovation and creativity.
Things are unlikely to become much clearer over the course of a quarter or two. The road ahead is sure to twist and turn, so our journey will probably be both faster and slower than we imagined.
But there can be no doubt that we are on the right path.
A big “Thank you” to everyone at OX2!
I am looking forward to seeing OX2 continue on this journey. And in conclusion, I would like to extend my warm and heartfelt thanks to everyone at OX2.
No matter whether it has to do with oxygenating the Baltic Sea, staff services, IT, municipal consultations or transactions, I am incredibly proud that you are constantly seeking out new ways to get things done. It is in this way that we can continue to develop our business and to ensure that we are taking the lead in “powering the great shift”.
Thank you!