Ørsted, which has one of the most successful transition stories, has extended its 100% renewable target to all suppliers by 2025. This will help decarbonise its supply chain and achieve the company’s 2040 net zero target.
Ørsted is calling on its 22,000 suppliers to switch to powering their operations with 100% renewable energy by 2025.
The move will support the company’s goal of making its supply chain carbon neutral by 2040, which will have impacts on the wider sustainability of the wind industry.
Reducing emissions in the steel industry will be one of the biggest challenges to achieve these decarbonisation goals.
Denmark’s Ørsted (ORSTED.CO) has become the first company in the world to set a clear expectation for all of its suppliers to transition to 100% renewable energy as part of the energy developer’s supply chain decarbonisation programme.
The former fossil fuel energy giant, previously known as DONG Energy, has made significant changes to its business model over the past decade going beyond a simple name change. The company has transitioned from being one of the most coal-intensive energy companies in Europe to a renewable energy leader today.
From black to green
To realise the transition, the company invested DKK 193 billion ($26 billion) between 2010 and 2019 in renewable energy, and expects to invest another DKK 200 billion ($27 billion) by 2025.
The majority of Ørsted’s renewable energy investments have gone towards developing offshore wind, which now makes up 37% of the company’s energy portfolio, followed by sustainable biomass at 33% and onshore wind at 20%. Overall, the company claims it is on track to meet its target of having renewable energy make up 99% of its energy portfolio by 2025.
Ørsted has set a target of becoming net zero by 2040, and is the world’s first energy company to have this target validated by the Science Based Targets initiative (SBTi), a global body enabling businesses to set emissions reduction targets in line with science via their Net Zero Corporate Standard.
Its rapid transition has made Ørsted a corporate sustainability leader globally. The energy developer has been named the world’s most sustainable energy company by the Corporate Knights Global 100 index since 2019, and the seventh most sustainable company in the world in 2022.
This year, it also became the first company in the world to receive full accreditation through the Climate Transition Pathway (CTP) accreditation framework by demonstrating how the company’s low carbon transition aligns with the goals set out in the Paris agreement.
Next stop: Decarbonising the supply chain
While Ørsted has transitioned its own energy portfolio to be more sustainable, the company is now on a mission to green its supply chain. With over 22,000 suppliers, decarbonising the supply chain is a complicated task that requires significant amounts of collaboration between companies and alignment on climate targets.
Ørsted’s CEO Mads Nipper said that renewable energy companies, “must lead the pack by decarbonising its own supply chain”. To tackle this immense challenge, the company launched a programme in 2020 that aims to make its supply chain carbon neutral by 2040.
Through the programme, the company aims to target its most carbon-intensive suppliers, namely the manufacturing of wind turbines, foundations, substations and cables. These materials primarily use steel, aluminum, and copper, which are energy intensive to extract and manufacture.
The second largest source of supply chain emissions for the company is the use of fossil fuels by the maritime vessels that are needed to transport and install offshore wind components.
“We recognise the efforts undertaken by all existing and new suppliers who share our ambitions and will commit to using 100% renewable energy. We look forward to working together to achieve this goal as soon as possible and to set a new gold standard for the renewable energy industry”, added Nipper.
Offshore wind turbine manufacturers are already addressing the supply chain
Companies in the offshore wind supply chain are already making moves to decarbonise their operations to improve the sustainability of the industry’s supply chain.
This year, one of the largest wind turbine manufacturers Vestas (VWS.CO) was named the most sustainable company in the world by Corporate Knights. The turbine manufacturer aims to become carbon neutral by 2030 without using any carbon offsets.
“We focus beyond the carbon footprint of our products, to the carbon footprint of all our activities, across the entire value chain”, said Vestas’ head of environment Lilian Harbak in the company’s 2021 sustainability report.
Another major wind turbine manufacturer, Siemens Gamesa (SGRE.MC), has already achieved 100% renewable energy and has been carbon neutral in its own operations since 2019, according to their sustainability report.
Siemens Gamesa deployed a program last year to decarbonise the tower supply chain, with three of their main tower suppliers already agreeing to make the change to renewable energy. This shift would reduce the average carbon intensity of tower manufacturing by around one-quarter, and the company’s own emissions from direct operations by nearly three-quarters.
The turbine manufacturer also recently installed the world’s first recyclable wind turbine blade at a German offshore wind project, taking a step towards improving the circular economy of the industry.
The green steel challenge
Vestas’ sustainability report states that the biggest challenge in decarbonising its operations is steel. Around 80 to 90% of a wind turbine is made up of steel and iron, which in turn accounts for half of the company’s Scope 3 emissions.
Access to low carbon steel will be one of the biggest challenges in developing a sustainable or carbon neutral supply chain. Currently, the steel industry is one of the top three biggest emitters of carbon.
Global management consultant McKinsey estimates that 1.85 tonnes of carbon was emitted for every tonne of steel produced in 2018, equating to around 8% of total global carbon emissions.
However, as an energy-intensive industry, their operations can not easily be electrified to use renewable energy sources. Instead, the steel industry will need to rely on clean technologies that have not necessarily matured or are have yet to reach commercialisation such as green hydrogen or carbon capture and usage to reduce the lion’s share of operational emissions.
McKinsey expects that pure hydrogen-based steel production will only become cost competitive between 2030 and 2050, which would be well behind the supply chain decarbonisation set out by the wind industry.
Therefore to decarbonise the steel sector in line with achieving net zero by the middle of this century, other actions must be taken now to accelerate innovation in the industry instead of waiting for ‘silver bullet’ solutions to mature.
This could be increasing efficiencies in production, financially incentivising the industry to accelerate their transition through carbon pricing and enabling access to sustainable finance, and ensuring an even playing field for the currently more expensive green steel against conventionally produced steel.
This will be key to not only decarbonising companies’ supply chains in the wind industry such as Ørsted, but also other sectors such as construction and automobiles that heavily rely on steel in their own supply chains.